IG’s Message for the Secretary

October 31, 1999

The Honorable William M. Daley

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

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

the second half of fiscal year 1999. Section 5 of the Inspector General Act requires that you transmit this

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

30 days of its receipt.

This is the first semiannual report that I will be submitting to you and the Congress since I was sworn in

as Inspector General in July. I appreciate the support you provided during my tenure as Acting IG, and I

look forward to continuing to work with you to improve departmental operations. I believe that the efforts

described in this report demonstrate the value of the cooperative, productive relationships that we have

tried to foster between OIG officials and your Executive Management Team.

The first section of the enclosed report discusses what we have identified as the major challenges facing

the Department. For each challenge, we highlight the progress made in the past six months, as well as

further actions that we believe need to be taken. As you might expect, we have focused considerable time

and effort on monitoring the Department’s efforts to address three of the most visible and immediate

challenges—improving the accuracy and controlling the cost of the 2000 Decennial Census, addressing the

Y2K problem, and improving financial management. Much progress has been made in these areas, but

continued oversight is essential.

This report also describes the progress made to address other major challenges, most notably the challenges of expanding private sector participation in NOAA’s marine and aeronautical data gathering,

implementing the Advanced Weather Interactive Processing System, and resolving issues relating to

NTIS’s mission and financial viability.

Sincerely,

Johnnie E. Frazier

Enclosure

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230

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Commerce OIG Semiannual Report

September 1999
Table of Contents

IG’S MESSAGE FOR THE CONGRESS ................................................................... 1

Foreword .............................................................................................................. 1

Major Challenges for the Department..................................................................... 2

Increase the accuracy and control the cost of the 2000 Decennial Census ......... 2

Obtain an unqualified opinion on all of the Department’s consolidated

financial statements ................................................................................... 3

Address Commerce’s year 2000 computer problem .......................................... 4

Successfully implement NWS’s Advanced Weather Interactive

Processing System .................................................................................... 5

Successfully implement a Department-wide financial management system......... 6

Evaluate NTIS’s mission and financial viability................................................. 7

Expand private sector participation in NOAA’s marine and aeronautical

data gathering ........................................................................................... 8

Manage PTO’s space requirements and lease costs .......................................... 9

Maximize competition in the Department’s financial assistance programs ........ 10

Continue to improve the Department’s strategic planning and performance

measurement in accordance with GPRA .................................................. 11

Other Issues of Concern ...................................................................................... 13

Resolution and Follow-Up ................................................................................... 15

DEPARTMENT OF COMMERCE ORGANIZATION CHART ................................. 16

AGENCY OVERVIEWS............................................................................................ 17

Bureau of Export Administration .......................................................................... 17

Economic Development Administration ................................................................ 21

Economics and Statistics Administration ............................................................... 24

International Trade Administration ....................................................................... 33

National Oceanic and Atmospheric Administration ................................................ 45

National Telecommunications and Information Administration .............................. 57

Patent and Trademark Office ............................................................................... 58

Technology Administration .................................................................................. 63

Departmental Management .................................................................................. 66

REPORTING REQUIREMENTS............................................................................... 71

STATISTICAL HIGHLIGHTS.................................................................................... 75

TABLES AND APPENDIXES ................................................................................... 76

DEFINITIONS OF TYPES OF OIG REVIEWS AND

FINANCIAL STATEMENTS AUDIT TERMS ........................................................... 85

GLOSSARY OF ABBREVIATIONS......................................................................... 86

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

Commerce OIG Semiannual Report

September 1999 ii
FOREWORD

We continue to devote a large portion of our resources to exploring what we have identified as the

major challenges facing the Department. A primary focus during the past six months has been on three of

these challenges—the 2000 Decennial Census, the Y2K problem, and financial management. In addition, we

examined a broad array of important Commerce programs, including the Department’s efforts to control the

export of sensitive technologies and munitions.

We conducted four reviews of key aspects of the decennial during this semiannual period. One

examined the operation during the Census Dress Rehearsal of the quality check survey, which will be used

to independently measure the quality of the direct count of the population. Another looked at multiple

response resolution, a process designed to help ensure that no one is counted more than once. A third

considered whether the Census Bureau had done all it could to ensure the effectiveness of its public

awareness campaign. And a fourth assessed the bureau’s plans for archiving decennial data and disposing of

questionnaires to ensure that sensitive information will be protected. The bureau has taken prompt action to

address the concerns and recommendations discussed in our reports.

In addition, as part of an ongoing review of efforts by the Department and its bureaus to ensure that

their critical computer systems are Y2K compliant, we completed our examination of the Y2K compliance

activities of two Commerce operating units—the Patent and Trademark Office and NOAA’s National

Environmental Satellite, Data, and Information Service. Overall, both agencies’ systems were ready to

handle the change to the year 2000, but we made recommendations concerning retesting and contingency

planning designed to further decrease the risk of service disruptions. We will also be reporting in the near

future on the Y2K status of several other important Commerce agencies, including the Census Bureau and

the National Weather Service.

Although our audits of the Department’s FY 1999 financial statements will not be completed until next

March, we have worked with departmental and bureau managers on an ongoing basis to improve financial

management and reporting. For example, we have participated in several forums on financial management

issues and have met regularly with departmental financial managers to discuss issues of mutual concern.

Several major OIG reviews completed during this period looked at export-related programs managed by

BXA and ITA. For example, at the request of the Chairman of the Senate Committee on Governmental

Affairs, we and five other OIGs conducted an interagency review of the export licensing process for dualuse commodities and munitions, and testified on the review results. In keeping with the intent of the requirements of the Omnibus Trade Act of 1988, we also continued to examine U.S. and Foreign Commercial

Service overseas operations, reporting on our reviews of the posts in Brazil, China, and South Africa. In

addition, the Inspector General testified on the progress being made in implementing the U.S. Export

Assistance Centers as “one-stop shops” providing a wide range of federal assistance to U.S. exporters.

We plan to continue our work on these critical Commerce issues in order to provide departmental and

congressional decision-makers with the sound, objective information and recommendations they need to

take decisive action to meet the major challenges facing the Department.

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IG’s Message for the Congress
MAJOR CHALLENGES

FOR THE DEPARTMENT

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Major Challenges for the Department

Commerce OIG Semiannual Report

September 1999

The Department of Commerce, with its many

important and diverse programs and missions, is

faced with its share of problems, concerns, and

difficult issues that we view as key management

challenges. This section highlights what we consider

to be the major challenges facing the Department.

We have identified these issues as major

challenges because of their importance to the

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

their complexity, their sizable expenditures, or their

need for management improvements. By addressing

these challenges, the Department and the Congress

can improve program management, eliminate serious

operational problems, decrease vulnerability to fraud

and waste, and achieve significant cost savings.

Increase the Accuracy and

Control the Cost of the

2000 Decennial Census

The decennial census is an enormous and

complex task—certainly one of the most difficult

that the federal government has to undertake. The

accuracy of the data produced by the decennial is

critical because it is the basis for apportioning seats

in the House of Representatives and is used by state

legislatures for redistricting purposes. The data is

also used to distribute billions of dollars of federal

funds to state and local governments. The Department recognizes the challenges presented by the

2000 Decennial Census and is clearly providing

increased oversight and management support to this

important undertaking.

Given the complexity and importance of the

2000 decennial, we continue to make oversight of

decennial planning one of our top priorities. We have

already issued nearly 20 audit and inspection reports

on various aspects of the Census Bureau’s decennial

preparation efforts, and additional reviews are

underway. We have made numerous recommendations aimed at helping to improve the accuracy of

the 2000 census and control its cost. Likewise, we

have conducted audits and inspections of other

Census Bureau activities and operations (such as

financial management systems, interagency

agreements, and Y2K compliance efforts) that may

indirectly affect the bureau’s ability to conduct the

decennial efficiently and effectively. In all instances,

we are actively monitoring the bureau’s efforts to

address the recommendations made in our reports.

In the last issue of our semiannual report, we

reported on a number of problems with bureau

processes and operations, some of which, if not

corrected, could have serious implications for the

decennial. For example, our review of the 1998

dress rehearsal operation of a pre-production version

of DCS 2000, the data capture system being developed for the decennial census, disclosed that the

system experienced serious problems in processing

dress rehearsal forms as a result of inadequate

control of system requirements and insufficient

testing (see March 1999 issue, page 30).

Also, our review of the bureau’s use of interagency and other special agreements identified the

need for significant improvements in the agreements

themselves, as well as in the policies and procedures

for preparing, reviewing, and tracking them (see

March 1999 issue, page 32). In addition, our review

of a Census Bureau regional office’s use of

bankcards called for strengthening internal controls

over bankcard purchases (see March 1999 issue,

page 34). We are pleased to report that in all three

instances, the bureau has been working hard to

address our concerns, and that many corrective

actions have already been taken.

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Commerce OIG Semiannual Report

September 1999

In several reviews completed during this semiannual period, we expressed a number of additional

concerns that need to be addressed in preparing for

the 2000 decennial. Specifically:

l Our review of the 1998 dress rehearsal test

of the quality check survey identified the

need for improvements prior to the

decennial (see page 24).

l Our review of the bureau’s planned

approach for ensuring that multiple

responses to the decennial received from the

same housing units are resolved correctly

and on schedule identified the need for

modifications to ensure accurate, timely

processing (see page 26).

l Our review of the bureau’s plans for

archiving decennial data and disposing of

questionnaires identified the need for the

bureau to select the method it proposes to

use to archive the decennial data and to

finalize its procedures for disposing of the

questionnaires (see page 30).

Of equal note, our work revealed that a number

of activities critical to the decennial are working

well. Foremost, in our recent audit of the bureau’s

public awareness campaign, we found that the paid

advertising campaign has been planned and, in its

early stages, implemented in a manner that is

meeting its program objectives. In addition, the

partnership program—the other component of the

public awareness campaign—has been effective in

establishing relationships with state and local

governments and other organizations essential to

conducting an accurate census. Together, these two

approaches are being aggressively pursued to

increase the mail response rate and reduce the

undercount (see page 28).

The Department continues to face challenges as

it grapples with the logistical, technical, and other

issues involved in conducting the 2000 decennial.

For example, the bureau originally planned to

integrate statistical methods into the decennial

census design to produce a single-number count,

rather than two sets of totals, as was done in 1990.

However, in November 1998, the administration

agreed that the bureau would plan for both a

sampling and a non-sampling census while awaiting

a Supreme Court ruling on the legality of using

sampling techniques as part of the decennial census

methodology. On January 25, 1999, the Court ruled

that, according to the Census Act of 1986, statistical

sampling techniques cannot be used for apportionment. But the bureau still intends to provide a

statistically adjusted number for non-apportionment

purposes, believing that the adjusted count is more

accurate.

Obtain an Unqualified Opinion

on All of the Department’s

Consolidated Financial Statements

The Chief Financial Officers Act of 1990, the

Government Performance and Results Act of 1993,

the Government Management Reform Act of 1994,

and the Federal Financial Management Improvement

Act of 1996 were designed to improve the financial

management practices of federal agencies. The

statutes require annual financial statements audits

that present an entity’s financial position and results

of operations and provide other information needed

for the Congress, agency executives, and the public

to assess management’s performance.

The Department received an unqualified opinion

on its Consolidated Balance Sheet as of September

30, 1998. However, because the Department had

received a disclaimer of opinion on its FY 1997

financial statements, we were unable to express an

opinion on its Consolidating Statements of Net Cost

and Changes in Net Position and Combined

Statements of Budgetary Resources and Financing

for the year ended September 30, 1998 (see March

1999 issue, page 76). In addition, individual

disclaimers on these FY 1998 financial statements of

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Commerce OIG Semiannual Report

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NOAA, the Bureau of the Census, and the Franchise

Fund, along with the fact that ITA’s FY 1998

statements could not be audited, resulted in the

disclaimer on the Department’s other FY 1998

consolidated financial statements.

Although the Department and several bureaus

received improved audit opinions on their FY 1998

financial statements, it will not be easy for the

Department to obtain an unqualified opinion on all

of its FY 1999 financial statements. Further

improvements are necessary.

NOAA and the Census Bureau, for example,

face some special challenges and must be proactive

in identifying and resolving the potential impediments to the preparation and audit of their FY 1999

financial statements. In addition, the FY 1999 audit

of ITA’s financial statements will constitute, in

essence, a first-year audit. It is typically difficult for

federal organizations to receive an opinion on all

financial statements in the first year. Until these

bureaus receive other than disclaimers on their

remaining statements, it is unlikely that the Department will receive an unqualified opinion on all of its

consolidated financial statements.

It is important to highlight, however, the

progress that has been made in addressing many of

the problems, weaknesses, and conditions that have

undermined the reliability of some bureaus’ financial

management systems and precluded unqualified

opinions on their financial statements. This is

probably most apparent in the decrease in the

number of “material weaknesses” over the past two

years—from 37 in FY 1996 to only 12 in FY 1998.

Material weaknesses represent serious

conditions where the design or operation of an

internal control component does not minimize the

risk that errors, fraud, or noncompliance in material

amounts may occur and not be readily detected. The

substantial progress made in reducing the number of

material weaknesses reflects the Department’s

commitment to establishing sound financial management systems, improving financial management, and

achieving an unqualified opinion on all of its

financial statements.

Obtaining an unqualified audit opinion on all of

the Department’s FY 1999 consolidated financial

statements is still a major challenge. But, as progress

is being made, it is also becoming increasingly clear

that the extensive cooperation among the Department, the bureaus, the OIG, and the OIG’s contractors is going a long way toward further reducing the

number of material weaknesses and bringing the

Department closer to achieving an unqualified

opinion.

Our audits of the Department’s FY 1999

financial statements will be completed during the

next semiannual period. Nevertheless, we have

worked with departmental and bureau managers

during this period to improve financial management

and reporting. For example, we have participated in

such ongoing forums as the GPRA Task Force and

the Accountability Report Committee. We have also

met regularly with the Department’s CFO Office to

discuss issues that affect the consolidated financial

statements and to provide coordinated comments to

OMB on audit and financial reporting regulations.

Address Commerce’s Year 2000

Computer Problem

As the century draws to a close, we continue to

play an important role in monitoring and highlighting

key issues related to addressing the Y2K problem in

Commerce computer systems and in recommending

actions to mitigate the risk of Y2K failures. In our

last issue (see March 1999 issue, page 78), we

discussed the results of our inspection of the

Department’s efforts to improve the accuracy of its

reporting of its systems’ Y2K compliance status. In

this issue, we discuss the findings of some of our

specific evaluations of the efforts made by individual

bureaus to ensure that their critical automated

systems are, in fact, Y2K compliant.

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Commerce OIG Semiannual Report

September 1999

Our review of the National Environmental

Satellite, Data, and Information Service’s process

for renovating selected critical systems concluded

that the likelihood of Y2K failure is low because

these systems are not susceptible to many Y2K

problems and because NESDIS exercised stringent

quality control over system renovations and

conducted thorough “end-to-end” tests (see page

48). Our review of selected critical systems at the

Patent and Trademark Office found that they have

been made Y2K compliant and were adequately

tested (see page 60).

For both agencies, we identified the need to

ensure that system inventories are complete and that

any new systems identified by the inventories are

made Y2K compliant. Both agencies also need

policies to require that software changes to critical

systems be limited or frozen after they are made

Y2K compliant and that systems be retested if they

are changed.

NESDIS agreed with all of our recommendations. PTO agreed with all but one of our recommendations—that it conduct an end-to-end test of

several of its critical systems.

We also reviewed NESDIS’s business continuity

and contingency plan (BCCP). NESDIS agreed with

our recommendation that it augment its standard

procedures for handling problems with its satellite

operations and data processing with contingencies

for Y2K-specific failures. We are completing our

review of PTO’s BCCP and will report on our

findings in the near future.

We are encouraged by our observations and

other evidence showing that the Secretary, Deputy

Secretary, Chief Financial Officer, and Chief

Information Officer remain committed to carrying

out activities needed to ensure that systems are Y2K

compliant. The Department reported that all of its

473 mission-critical systems were compliant as of

September 30, 1999.

The remaining challenge is for Commerce

managers to ensure that the needed attention is

directed to (1) testing and improving BCCPs,

(2) ensuring that all systems have been identified

and that any that were missed are confirmed to be

compliant, and (3) maintaining compliance by

freezing or minimizing further changes and retesting

systems that are changed.

We are continuing to monitor the Department’s

Y2K program and are currently completing our

evaluations of the readiness of the National Weather

Service and the Census Bureau. We will apprise the

Department and the bureaus of any concerns and

recommendations we may have as quickly as

possible. In our next issue, we plan to report on the

bureaus’ transition of their systems to the year 2000.

Successfully Implement NWS’s

Advanced Weather Interactive

Processing System

The Advanced Weather Interactive Processing

System (AWIPS), the key integrating element of the

National Weather Service’s modernization program

and an essential ingredient to achieving intended

operational improvements and staff reductions, is

also the last major system of the modernization to

be implemented. AWIPS is intended to provide the

capability to acquire data from advanced observing

systems and to give forecasters tools to rapidly

analyze the data, integrate it with the information

provided by weather service guidance centers, and

prepare timely and accurate warnings and forecasts

for dissemination to the public and the media.

The AWIPS development program is operating

under a congressionally mandated cost cap of

$550 million as a result of its history of escalating

costs and schedule delays. Under the cap, AWIPS

must be developed to provide sufficient capabilities

to replace the aging field office systems, most

notably the Automation of Field Operations and

Services (AFOS). In our last issue, we reported that

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September 1999

NOAA planned to complete AWIPS by June 1999.

We also noted that the operational test and evaluation, which NOAA planned to conduct in May and

June 1999, needed to clearly demonstrate that

AWIPS has the capabilities to replace AFOS.

The operational test and evaluation of AWIPS,

which was conducted as planned, showed that while

much of the software is capable of replacing AFOS,

some additional improvements are needed before the

system can officially be used as the primary system

for preparation and distribution of NWS data

products (i.e., before AWIPS can be commissioned)

and before AFOS is no longer the official system for

this purpose (i.e., before AFOS can be decommissioned). NOAA has implemented corrections to

commissioning-related problems identified during the

operational test and evaluation and is in the process

of correcting other problems found after testing that

would prevent commissioning.

Deployment of AWIPS hardware was completed on schedule in June 1999. NOAA projects

that the total base program cost at completion,

including corrections for software and hardware

problems, will fall within the cap. We are

encouraged by NOAA’s recent efforts, and we are

continuing to monitor AWIPS’s progress toward

fully replacing AFOS and becoming commissioned.

Successfully Implement a

Department-Wide Financial

Management System

The Department’s FY 1999 report to the

President on management and internal accounting

controls is again expected to state that Commerce is

not in compliance with the requirement that each

federal agency have a single, integrated financial

management system capable of providing timely,

complete, and reliable financial information. To

address this material internal control weakness,

Commerce began developing a Department-wide

financial system in 1992.

Notwithstanding large investments of time,

money, and effort, implementation of the system,

known as the Commerce Administrative Management System (CAMS), proved more difficult than

anticipated. The difficulties occurred, in part,

because the original CAMS contractor did not meet

established milestones and experienced problems in

satisfying departmental requirements. These factors

caused the Department to revise its implementation

strategy and schedule several times.

During FY 1998, the Department redefined the

composition and functionality of CAMS and

drastically revised its implementation strategy for the

system. The Department also reorganized its

management structure for the CAMS systems

development program. The revised strategy called

for pilot implementation and testing of the redefined

CAMS (core CAMS) at the Census Bureau before

deploying the system at other bureaus.

The pilot implementation of core CAMS at

Census was completed in June 1998. An

independent verification and validation study of the

system, as implemented at Census, concluded that it

met departmental requirements and was as good as

or better than other core financial management

systems that have been fully implemented at other

large federal government agencies.

In September 1998, the Office of the Chief

Financial Officer and Assistant Secretary for

Administration, using the results of the independent

study, completed a business case analysis of CAMS.

The analysis compared alternative strategies for

implementing core CAMS and recommended a

modified approach, which involved implementing

core CAMS at the larger bureaus and having the

smaller bureaus obtain financial services through

cross-servicing agreements. The Department agreed

with the recommendation and decided that core

CAMS would be implemented next at NOAA and

then at NIST.

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Commerce OIG Semiannual Report

September 1999

NOAA initially developed a two-year plan to

implement core CAMS. However, in January 1999,

NOAA established a limit on the funds available for

implementation of core CAMS, effectively extending

the implementation schedule to three years.

In discussing Commerce’s FY 2000 budget

request, Office of Management and Budget officials

suggested that the Department consider acquiring

accounting services for NOAA from the Department

of the Interior. Accordingly, in February 1999, the

Department’s Chief Financial Officer asked Interior

if it could provide the same financial management

services, using American Management System’s

Federal Financial System, at a more competitive cost

and with lower management risk than could be

provided by CAMS.

In April 1999, NOAA completed an analysis that

compared the cost, schedule, risks, and requirements of implementing CAMS to obtaining the

accounting services from Interior. The analysis

concluded that implementing CAMS would be less

costly and risky and would better meet NOAA’s

requirements. In May 1999, the Acting Chief

Financial Officer and Assistant Secretary for

Administration agreed with NOAA and informed the

Secretary of her decision to proceed with implementation of core CAMS at NOAA.

FY 1999 marked a significant milestone for the

Department in its implementation of CAMS. The

Census Bureau continued full production of core

CAMS, deployed access to regional and decennial

census sites, and implemented additional modules

for travel, budget, and inventory functions. Also, the

Economic Development Administration began

implementing core CAMS in support of its financial

assistance programs. NOAA continued its

implementation of CAMS, with the conversion of

accounts payable transactions as well as a very

limited amount of small purchase acquisitions. In

addition, the Department undertook an initiative to

develop a corporate database to integrate financial

data from all reporting entities.

NIST intends to complete its implementation

plan for core CAMS in FY 2000. After an

independent verification and validation study of the

plan, NIST will begin implementing the system in

FY 2001.

Until the Department is in compliance with the

federal requirement for a single, integrated financial

system, we will view the Department’s efforts to

develop such a system as a major challenge

warranting the attention of senior officials and

oversight by our office. We are continuing to

monitor and review selected aspects of the

Department’s progress in implementing core CAMS

in all of its operating units. For example, we are

completing an audit of computer security at the

CAMS Support Center to determine whether the

center is complying with the requirements of the

Computer Security Act of 1987.

Evaluate NTIS’s Mission

and Financial Viability

In our last issue (See March 1999 issue, page

14), we discussed the need for the Department and

the Technology Administration to develop a solution

to the National Technical Information Service’s

longstanding financial problems. NTIS supports

itself through fees charged for its products and

services. In our September 1998 audit of NTIS’s

business operations, we reported that between

FYs 1995 and 1998, the agency incurred a

cumulative loss of $4.8 million. We concluded that if

this trend continued as expected, NTIS would

exhaust its retained earnings by the end of FY 1999

(see September 1998 issue, page 68).

NTIS reported total revenues of $33.3 million

for FY 1999, a reduction of $3.4 million from

FY 1998. However, the agency was able to avert a

loss, and actually report a surplus of $652,000 at the

end of the year, by implementing several cost

reduction measures. These measures included

transferring some of its staff to other Commerce

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Commerce OIG Semiannual Report

September 1999

agencies, consolidating office space, eliminating

performance awards, and restricting travel.

Nonetheless, a November 1998 consulting study

commissioned by TA, at our recommendation,

concluded that even with significant efforts to

reduce costs and improve profitability, NTIS can no

longer generate sufficient revenue to remain selfsupporting. We are also concerned that in order to

compensate for lost revenue, NTIS must seek

business opportunities on the perimeter of its

statutory mission, where it risks competing against

private businesses.

NTIS’s disappointing operating results raised

questions not only about its ability to be selfsustaining, but also about the continuing need for a

single federal clearinghouse for technical publications

with the current structure and mission. NTIS’s

financial problems are just a symptom of a much

larger problem—a steady decline in sales of its

products and services caused by fundamental

changes in the marketplace. Moreover, federal

agencies are increasingly bypassing NTIS as a

distribution channel, instead offering their

publications directly to the public over the Internet.

To address the primary issues and concerns

related to the short- and long-term operations of

NTIS, a working group made up of senior managers

from the Department and TA was formed to

consider options for taking corrective actions. Based

on the group’s efforts, the Department has drafted

legislation that, if passed by the Congress and signed

by the President, would close NTIS by the end of

FY 2000; transfer its collection of scientific,

technical, and engineering publications to the Library

of Congress; and ensure permanent public access to

such publications. We will continue to monitor the

Department’s and TA’s efforts to address this

important Commerce challenge.

Expand Private Sector

Participation in NOAA’s Marine

and Aeronautical Data Gathering

Since 1992, we have monitored and reported on

NOAA’s approach to acquiring marine and aeronautical data to support its programs. In a number of

reports, we pointed out that NOAA could achieve

greater economy, efficiency, and effectiveness by

increasing private sector participation in its marine

and aeronautical data gathering efforts.

Marine Data

While NOAA has made progress in expanding

private sector participation in acquiring hydrographic

data, we remain concerned about its emphasis on

designing, owning, and operating four new fishery

research vessels to meet some of its fisheries data

collection needs, from FY 2000 through FY 2003,

without thoroughly assessing and aggressively

pursuing other alternatives. As we have said many

times before, we believe NOAA should not focus its

efforts on designing, owning, maintaining, or

operating ships (see, for example, our March 1996

issue, page 43). Instead, NOAA should clearly

articulate its program needs for ship services to the

private sector, academia, and other government ship

operators, with the goal of identifying modern, more

cost-effective platforms for its data collection needs.

NOAA has prepared a detailed data acquisition

plan for its fisheries mission, which outlines its

approach for acquiring the four fishery research

vessels. Funding for one vessel has been approved

by the Congress; however, NOAA’s plan does not

address the very real possibility that the bureau will

not receive follow-on funding for the remaining

vessels in FYs 2001-2003. Nor does it indicate how

the data needed by the various fisheries programs

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Commerce OIG Semiannual Report

September 1999

would be collected if the additional vessels are not

acquired. The absence of such a contingency plan

puts NOAA’s fisheries programs at serious risk.

NOAA’s challenge is to thoroughly assess viable

alternative approaches instead of relying so heavily

on its in-house fleet.

Aeronautical Data

Since its establishment in 1983, NOAA’s

Aircraft Operations Center, now located at MacDill

Air Force Base near Tampa, has been responsible

for gathering atmospheric, oceanographic, and other

data for such programs as hurricane and major

storm research, nautical and aeronautical charting,

climate and global change, and snow and aerial

surveys. As NOAA’s major flight operations group,

the center operates a fleet of 14 aircraft, composed

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

aircraft, and 3 helicopters.

In December 1996, the President’s Council on

Integrity and Efficiency reviewed the management

of the federal civilian aircraft fleet, including

NOAA’s, and found that it cost the government in

excess of $1 billion annually to operate its aircraft

programs. Additional studies of operational

efficiencies, commissioned by the General Services

Administration, reported opportunities to reduce

costs by $92 million annually if most agencies

consolidated their operations and entered into

sharing arrangements.

We conducted an audit of NOAA’s light aircraft

fleet to determine whether outsourcing is more costeffective than in-house operation in meeting the

bureau’s aircraft requirements (see September 1998

issue, page 44). Our audit concluded that the full inhouse cost of operating NOAA’s light fixed-wing

aircraft and helicopters averaged 42 percent more

than the cost to operate similar aircraft in the private

sector. In FY 1996, NOAA and interagency programs spent an additional $1.9 million to operate the

bureau’s in-house aircraft as compared to private

sector costs. We recommended that NOAA privatize

its light aircraft operations.

NOAA disagrees with our position and believes

that cost data it has collected indicates that its light

aircraft are cost competitive and that no funds would

be saved by using other sources to meet its data

collection needs. NOAA has since engaged a

consultant to conduct an analysis regarding the light

aircraft. Reportedly, the consultant’s analysis will include a review of NOAA light aircraft costs and the

costs to contract for similar private-sector aircraft.

NOAA’s challenge is to identify and thoroughly

assess the best ways to collect its aeronautical data.

Manage PTO’s Space

Requirements and Lease Costs

The Patent and Trademark Office’s space consolidation project continues to be a major challenge

for the agency as it contends with the need to

reinvent its business processes to make them more

efficient and effective. PTO’s project is expected to

be one of the largest real estate ventures that the

federal government will undertake in the next

decade. This fact, coupled with the intense interest

by the many diverse parties concerned with various

aspects of the project’s planning and development,

makes getting it completed a special challenge.

On behalf of PTO, GSA will award a contract

to a private developer to construct a new facility or

renovate an existing one and lease it back to PTO

for at least 20 years with the option to buy. The

solicitation calls for the construction of the building

shell, to include basic electrical and mechanical

systems, with the interior to be “built out” later. The

project has been delayed almost a full year because

it has been challenged in two separate federal court

actions. GSA and PTO are contesting these

challenges and hope to award the lease development

contract by December 1999, with occupancy of the

new building to begin in the summer of 2003.

IG’s Message for the Congress

Major Challenges for the Department
10

Major Challenges for the Department

Commerce OIG Semiannual Report

September 1999

Given the size and importance of the planned

PTO consolidation project, we conducted a review

of the project in 1998 to determine whether (1) the

project was justified and (2) PTO was effectively

managing the project’s critical acquisition phase (see

March 1998 issue, page 54). The review concluded

that the project was justified and should continue.

We also found that PTO was managing many

aspects of the lease/development procurement well.

However, we expressed several concerns about

PTO’s management and planning for this major

procurement. For example, PTO had failed to

finalize its space requirements or reach agreement

with one of its major unions concerning working

conditions related to space requirements in a timely

manner. In addition, we expressed concern about the

lack of a contractual cost ceiling on the build-out.

Also, in determining its space requirements, PTO

had failed to factor in potential savings and

efficiencies gained from systems reengineering and

automation.

PTO has responded favorably to all but two of

our recommendations and has incorporated plans for

addressing them into its planning and management

of this project. Initially, PTO did not agree with

establishing a contractual ceiling for the build-out.

However, this is no longer an issue, as the October 9, 1998, solicitation for offer placed a cap of

$29 million on the above standard build-out cost.

PTO also disagreed with our recommendation that

related to potential savings and efficiencies gained

from systems engineering and automation.

Last year the then Acting Inspector General

testified before the Subcommittee on Transportation

and Infrastructure of the Senate Committee on

Environment and Public Works on our review of the

project. He noted that although some of our

recommendations had not yet been fully addressed

by PTO, we were satisfied that this project should

continue. We still hold this view and believe that

continuing management attention and OIG oversight

will be needed to ensure that the project is

completed in a timely, cost-effective manner within

the cost limits prescribed by the Congress.

Maximize Competition in the

Department’s Financial

Assistance Programs

In our last issue (see March 1999 issue, page 6),

we discussed our ongoing review of the criteria,

procedures, and practices used to make funding

decisions under the Department’s discretionary

financial assistance programs. Our review is being

conducted at the request of the Chairman of the

Senate Commerce, Science, and Transportation

Committee, who made similar requests of the OIGs

of the Department of Transportation and the

National Science Foundation. The Chairman asked

that we examine the criteria developed, statutorily or

administratively, to guide Commerce officials in

making discretionary awards, as well as the extent to

which such criteria were appropriately applied.

Discretionary financial assistance programs

involve a significant portion of the Department’s

budget and operations. Six Commerce agencies and

the Office of the Secretary administer 72 programs

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

and local governments, educational institutions,

other organizations, and individuals.

Our review is focusing on the FY 1997 award

criteria, procedures, and practices of 33 programs

we have classified as “full discretion” programs. For

the purpose of our review, full discretion programs

are those programs whose authorizing legislation

places no significant limitations on the Department’s

ability to independently determine the recipients or

funding levels of the awards made under the

programs. These programs accounted for more than

1,700 awards and $802 million in FY 1997 funding.

We have completed audits and issued reports on

22 of the 33 Commerce programs to date. These

programs represented 703 awards and $382 million

IG’s Message for the Congress
11 Commerce OIG Semiannual Report

September 1999

IG’s Message for the Congress

in 1997 funding. Of these programs, 10 are administered by NOAA, 4 by NIST, 2 by MBDA, 2 by

NTIA, 2 by ITA, 1 by EDA, and 1 by the Office of

the Secretary. We found that 13 of the 22 programs

were administered in accordance with the Department’s guidelines for soliciting, reviewing, and selecting financial assistance applications for funding.

We did, however, identify opportunities for

improvement in specific aspects of the various

awards processes. Several of the programs could

enhance the integrity of their procedures or bring

more discipline to the award process by adopting the

following practices:

l Expanding proposal solicitation efforts.

l Including outside participants as proposal

reviewers to increase the objectivity of the

selection process.

l Adequately documenting justifications for

deviations from review panel

recommendations.

The other nine programs we reviewed, eight

NOAA programs and one Office of the Secretary

program, made awards on a sole source basis

without using competitive selection procedures.

We have recommended that NOAA and the

Office of the Secretary ensure that financial

assistance awards are made through a competitive

process, unless otherwise mandated by law or

adequately justified. We are pleased to report that

NOAA agrees that more awards should be granted

competitively for all discretionary funding programs

and that a rigorous solicitation process should be

used. The bureau is continuing to look at its current

processes and has provided an audit resolution

proposal, which we are assessing. We are also

pleased to report that the Office of the Secretary

converted its program to one that is competitive in

FY 1998. Summaries of the seven reports issued

during this period are in the agency overviews.

We expect to issue final reports on the remaining

11 financial assistance programs during the next

semiannual reporting period. Upon completing the

audits, we plan to issue a capping report summarizing the results of the individual audits, identifying

cross-cutting issues, and providing recommendations

to the Department for improvement. Based on the

work to date, we are encouraged by the Department’s and bureaus’ positive responses and

immediate actions on our recommendations.

Continue to Improve the

Department’s Strategic Planning

and Performance Measurement

in Accordance with GPRA

Despite the many inherent challenges in

determining how to best plan and measure its

performance in accordance with the Government

Performance and Results Act of 1993, the Department has made progress in meeting this challenge

during FY 1999. The Department submitted its

second annual performance plan, for FY 2000, to

OMB and the Congress in February 1999.

The Congress, the General Accounting Office,

and we agreed that, while the FY 2000 plan was

significantly better than the FY 1999 plan, there was

room for additional improvement. Of particular

concern was the need for the Department to ensure

that the data to be used in measuring performance is

accurate, complete, and reliable. While the 2000

plan discussed the methods the Department will use

in the verification of performance data, the extent to

which the performance information can be relied on

remains unclear.

We have regularly provided advice and assistance to the Department on implementing GPRA. We

have made several presentations on the need to

improve the credibility of reported performance

data, and have also focused attention on the linkage

between the reporting of financial and performance

information.

Major Challenges for the Department
12 Commerce OIG Semiannual Report

September 1999

Major Challenges for the Department

IG’s Message for the Congress

During the audit of the Department’s FY 1998

financial statements, we found that the process used

by the Department to develop its statement of net

cost and overview could be strengthened by

improving communication and coordination between

the offices for strategic planning and financial

reporting. The overview, which identifies the

Department’s most significant performance

measures, and the statement of net cost, which

identifies the costs to achieve the results, link

financial and performance reporting.

We worked with the strategic planning office

and financial reporting office in their efforts to

identify the Department’s most important measures

and to implement a format for the statement of net

cost that effectively reflects the Department’s

activities. Based upon comments received from the

bureaus, modifications were made to the proposed

statement and measures planned to be reported.

This effort was essential because the Department

plans to submit its first accountability report for

FY 1999.

FY 2000 will be a challenging year as the

Department revises its strategic plan, prepares its

initial program performance report, and submits its

third annual performance plan. We will continue to

look at the Department’s efforts to implement

GPRA, provide advisory comments regarding

GPRA documents, and, where resources permit,

perform targeted reviews. Moreover, we will ensure

that there is consistency between the Department’s

financial and performance reporting.
OTHER ISSUES OF CONCERN

13 Commerce OIG Semiannual Report

September 1999

IG’s Message for the Congress

Interagency and Other Special Agreements

The Department of Commerce relies heavily on interagency and other special agreements in carrying

out its mission. For example, in FY 1997, Commerce had more than 4,700 agreements, involving approximately $1.1 billion in funds received for reimbursable activities or obligated to acquire goods or services

from other parties. These agreements can be between Commerce entities or between one Commerce unit

and another federal agency, a state or local government agency, an educational institution, a not-for-profit

organization, or a private party. Although agreements involve a significant amount of federal resources, they

are not subject to the same controls and oversight as contracts, grants, or cooperative agreements.

During this semiannual period, we issued the last 2 reports, in a series of 10, covering our reviews of

Commerce units’ agreements. These last two reports cover the Patent and Trademark Office and the

National Technical Information Service (see pages 61 and 64).

We are pleased to note that during this semiannual period, several of the most important recommendations made in one of the first reports in this series, the one covering the Office of the Secretary (see

September 1998 issue, page 72), are being acted upon by the Department. Specifically, we recommended

that the Department prepare formal policies and procedures covering agreements and develop a database to

track agreements. The Department is now developing Commerce-wide agreements guidance, in the form of

a handbook, which is being reviewed by the various bureaus, and is seeking to identify in-house resources

for the development of the database. It is hoped that once the Department’s handbook and database are

fully implemented, many of the problems we identified with agreements will be fixed.

Following are some of our observations from the 10 reports issued to date:

l Most agreements reviewed appeared to serve important and appropriate functions. Also, we are

pleased to note that the Department and some individual bureaus are improving their processes for

preparing and monitoring agreements.

l Some bureaus have improperly entered into informal arrangements without the benefit of a written

agreement.

l Agreements have sometimes been used when a traditional procurement contract would have been

more appropriate.

l Agreements have sometimes been used when financial assistance awards would have been

preferable.

l Bureaus generally do not adequately track and control agreements.

l Some bureaus need to improve their systems and procedures to better ensure full cost recovery

under reimbursable agreements.
14 Commerce OIG Semiannual Report

September 1999

IG’s Message for the Congress

In the near future, we will issue a capping report that will identify several cross-cutting issues found

during our Department-wide review of agreements. In this report, we will also draw upon work related to

agreements that was done as part of earlier OIG reviews. In addition to identifying common problems that

the various Commerce bureaus have experienced in preparing and administering agreements, we will

highlight several “best practices” for bureaus and line offices to consider adopting.

Export Controls for Dual-Use Commodities

The United States controls the export of certain goods and technologies for national security and

foreign policy (including nonproliferation) purposes. Given the importance of export licensing and

enforcement of export controls to national security, we have devoted considerable attention to the

challenges facing the Bureau of Export Administration in issuing licenses authorizing the export of certain

dual-use commodities. Dual-use commodities are goods and technologies that have both civilian and

military uses. Controls over the export of dual-use commodities are a subject of continuing controversy,

generating a wide range of opinions on how well the government’s export control policies and practices

balance the need to protect U.S. national security and foreign policy interests with the desire not to unduly

hamper U.S. trade opportunities and competitiveness. Striking this balance poses a significant challenge

for the parties involved, including BXA.

In addition, BXA must administer these export controls in a world with increasingly porous borders.

In prior years, we identified some weaknesses in BXA’s controls over exports of biological agents (see

September 1995 issue, page 23) and its effectiveness in conducting end-use checks and maintaining a

watchlist to screen license applicants (see September 1997 issue, page 18). During this past year, we

conducted a broad review of BXA’s leadership role in the interagency export licensing process.

In August 1999, the Senate Committee on Governmental Affairs asked us, along with the OIGs of the

Departments of Defense, Energy, State, the Treasury, and the Central Intelligence Agency, to conduct an

interagency review of the export licensing process for dual-use commodities and munitions. As part of this

review, the OIGs followed up on findings and recommendations from a similar interagency review completed five years ago (see September 1993 issue, page 15). The review also examined the effectiveness of

the Department of Commerce’s current policies, procedures, and practices in its licensing of dual-use

goods and technologies.

In June 1999, each OIG issued a report on its agency’s role in the licensing process (see page 17).

The OIGs also issued a cross-cutting report that consolidated the findings and recommendations of all six

reports. On June 23, 1999, the Commerce Acting Inspector General, along with the Inspectors General of

the other five agencies, testified before the Senate Committee on Governmental Affairs on the findings

and recommendations from the review.

We will continue to monitor BXA’s efforts to improve export controls. As part of this effort, we will

comply with the National Defense Authorization Act for Fiscal Year 2000, which mandates that we, along

with the OIGs of the other five agencies, conduct annual assessments for the next eight years on the

adequacy of current export controls and counterintelligence measures to protect against the acquisition of

U.S. technology and technical information by countries and entities of concern.
RESOLUTION AND FOLLOW-UP

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

before the beginning of the reporting period (April 1, 1999) for which no management decision had been

made by the end of the period (September 30, 1999). The following table presents the overall status.

Report Category Appeals

Actions pending (April 1, 1999)

Submissions

Decisions

Actions pending (September 30, 1999)

 8

12

 4

16

0

0

0

0

Modifications

15 Commerce OIG Semiannual Report

September 1999

IG’s Message for the Congress

Seven of the nine unresolved performance audits are audits of the awards processes of discretionary

grant programs administered by NOAA. We are currently reviewing NOAA’s action plan for these audits.

The other two audits, both unresolved for more than a year, deal with the NMFS laboratory structure and

NOAA’s light aircraft operations. We are continuing to work with NOAA to explore alternative approaches

to resolving these audits. (See page 54.)

The unresolved financial assistance audit involves an EDA grant award. We did not agree with EDA’s

response to the final report and are awaiting a revised audit resolution proposal. (See page 23.)

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.

The 16 appeals pending final decision by the Department include 1 NOAA, 1 NTIA, 2 EDA, and

12 NIST financial assistance audits. The EDA appeals are more than a year old.

Type of Audit Report Unresolved

Performance

Financial Assistance

9

1
Department of Commerce

Organization Chart

Office of the

Secretary

National

Telecommunications

and Information

Administration

International

Trade

Administration

Minority Business

Development

Agency

Bureau of

Economic

Analysis

Bureau of

the Census

National Institute

of Standards

and Technology

National

Technical

Information Service

Technology

Administration

Economics and

Statistics

Administration

Bureau of

Export

Administration

Economic

Development

Administration

National Oceanic

and Atmospheric

Administration

Patent and

Trademark

Office

NOAA

Corps

Operations

NESDIS

Oceanic

and Atmospheric

Research

National

Marine Fisheries

Service

National

Ocean

Service

National

Weather

Service

16 Commerce OIG Semiannual Report

September 1999
Bureau of

Export Administration

The Bureau of Export

Administration is primarily

responsible for the administration

and enforcement of the nation’s

system for controlling exports of

sensitive dual-use goods and

technologies. Under the Export

Administration Act and regulations,

BXA’s major functions include

formulating and implementing

export control policy; processing

export license applications;

conducting various policy,

technical, and economic analyses;

promulgating regulations;

conducting industry outreach; and

enforcing the act and regulations.

Export Administration

implements U.S. export control and

nonproliferation laws and policies

through export licensing,

commodity classifications, and

advisory opinions; technical,

economic, foreign availability, and

policy analyses; promulgation of

regulations; and industry outreach.

It also conducts various defense

industry base activities.

Export Enforcement participates

in reviews of export license

applications and conducts criminal

and administrative investigations of

the export control portions of the

Export Administration Act and

regulations. It also administers and

enforces the antiboycott provisions

of the act and regulations.

Export Licensing Process Needs Refinement

On June 23, 1999, the Commerce Acting Inspector General—along

with the Inspectors General of the Departments of Defense, Energy, State,

the Treasury, and the Central Intelligence Agency—testified before the

Senate Committee on Governmental Affairs on an interagency review of

the export licensing process for dual-use commodities and munitions. Dualuse commodities are goods and technologies determined to have both

civilian and military uses. The review was done in response to the

Committee Chairman’s request that the six IGs look at the licensing

process and update a similar interagency OIG review conducted in 1993

(see September 1993 issue, page 15).

BXA administers the U.S. government’s export licensing and

enforcement system for dual-use commodities for national security, foreign

policy, and nonproliferation reasons under the authority of several laws,

including the Export Administration Act of 1979, as amended. Although

that statute expired in September 1990, export regulations promulgated

under the act remain in effect by executive order.

Our review found the licensing of U.S. dual-use exports to be an

improved multi-agency review process that attempts to bring divergent

policy views and information to bear on license decision-making. We also

concluded that the interagency referral and escalation processes for export

license applications are working reasonably well. There are four levels of

escalation for dual-use cases: the Operating Committee at the senior civil

service level, the Advisory Committee on Export Policy at the assistant

secretary level, the Export Administration Review Board at the Cabinet

level, and the President.

We noted significant improvement in several aspects of BXA’s review

of license applications and issuance of licenses since 1993. However, we

also found a number of problems that warrant the attention of BXA, the

Department, the Administration, and the Congress. Our observations were

as follows:

l Current export control legislative authority and regulations

need attention. New legislative authority is needed to replace the

expired Export Administration Act and accurately reflect current

export control policies. In addition, export control policies and

regulations covering the release of technology to foreign

nationals—referred to as “deemed exports”—are ambiguous and

need to be revised.

17 Commerce OIG Semiannual Report

September 1999
Bureau of Export Administration

Export

Administration

Bureau of

Export

Administration

Export

Enforcement

18 Commerce OIG Semiannual Report

September 1999

l More transparency is needed in the commodity classification

process. Although BXA has instituted a front-end review

mechanism to pre-screen exporters’ requests for commodity

classifications, BXA’s processing of these requests is often not

timely, resulting in delays for exporters. In addition, BXA needs to

work with both Defense and State to develop specific criteria and

procedures for referring munitions-related commodity classifications to those agencies.

l The documentation on initial analyses of export applications

should be enhanced. It was difficult to determine whether some

license applications were being thoroughly analyzed by BXA

licensing officers in the initial review period because there was

little documentation as to how the officers reached their

conclusions. Better policies and procedures, as well as additional

training, could enhance officers’ documentation of their analyses

of applications.

l The export license application review process has improved.

The 1993 multi-OIG review pointed out that there was not

complete accord between Commerce and most of the other

federal agencies regarding license application referrals. Since that

time, BXA has made improvements in the process for referring

export license applications to other agencies. In FY 1998, BXA

referred 85 percent of export license applications to other agencies

for review, up from 53 percent in fiscal year 1993.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993 1994 1995 1996 1997 1998

Fiscal Years

White text

53% 54% 51%

77%

91% 85%

Percentage of Export License Applications

Referred to Other Agencies
19 Commerce OIG Semiannual Report

September 1999

Bureau of Export Administration

l Weaknesses in the review process need to be addressed. While

the overall referral process is effective, action is needed to ensure

that (1) licenses are not amended without interagency review,

(2) adequate review time is provided to the Central Intelligence

Agency for its end user checks, (3) a mechanism is established to

better track and assess the cumulative effect of dual-use exports to

a specific country or region, and (4) all parties to pending license

applications are screened against a major law enforcement

database maintained by the Treasury Department.

l Dispute resolution process gives referral agencies a

meaningful opportunity to escalate license applications. From

fiscal years 1991 to 1998, the number of cases escalated to the

Operating Committee increased by 353 percent, while the number

escalated to the Advisory Committee on Export Policy decreased

by 62 percent. In addition, only one case has been escalated to the

Export Administration Review Board since 1991. The fact that

there have been significantly more cases escalated to the Operating

Committee, and many fewer escalated to higher levels, indicates

that this process is working well.

l BXA has sought interagency guidance during review of

exporter appeals, but a more formal process is needed. Once

an export license application has been denied, the exporter has the

right to appeal to BXA, whose decision is considered final.

Although BXA informally confers with the referral agencies on

appeals, we believe that a formal process should be developed to

include these agencies in the appeals process.

l BXA needs to improve its monitoring of license conditions

with reporting requirements. The ability to place conditions on a

license is an important part of the license resolution process, as

well as an additional means to monitor certain shipments. The

1993 interagency OIG review reported that BXA was not

adequately monitoring license conditions. We found that this

problem still exists.

l End use checks are a valuable tool, but some improvements

are needed. End use checks, an important part of the license

evaluation process, are used to verify the legitimacy of export

transactions controlled by BXA and help prevent and detect illegal

technology transfer. Many of these checks are conducted by

Commerce’s U.S. and Foreign Commercial Service (US&FCS)

officers stationed at overseas diplomatic posts; other checks are

conducted by BXA special agents during overseas “safeguard”
Bureau of Export Administration

visits to foreign companies. We identified concerns with

US&FCS’s and BXA’s end use checks, including checks not done

within established time frames, the use of non-American personnel

to conduct some checks, the failure to perform on-site visits, and

insufficient coordination with other embassy offices and host

governments.

l BXA needs a new automated export licensing system. BXA’s

Export Control Automated Support System, developed in 1984,

provides license processing and historical license information to

BXA and the referral agencies. While BXA’s export licensing

process has become more effective in recent years, its automated

system is lagging far behind. We strongly agree with BXA that it

needs a new system to process export license applications

efficiently and effectively.

BXA generally agreed with most of our observations and recommendations. However, the bureau stated that some of the recommended

changes to its current practices do not have obvious benefits or may be

difficult to implement. In addition, BXA stated that virtually none of our

recommendations include any assessment of the budgetary impact. With

the exception of our recommendation that BXA develop a new automated

licensing system, we are not convinced that implementing our recommendations would require substantial budget increases. We also contend

that all of our recommendations have the clear benefit of improving the

efficiency and effectiveness of the export licensing process. (Office of

Inspections and Program Evaluations: IPE-11488)

20 Commerce OIG Semiannual Report

September 1999
Economic Development

Administration

The Economic Development

Administration was established

under the Public Works and

Economic Development Act of

1965, as amended, including the

comprehensive amendments by

the Economic Development

Administration Reform Act of 1998,

to generate new jobs, help protect

existing jobs, and stimulate

commercial and industrial growth

in economically distressed areas

of the United States. EDA does

this by providing grants to public

and private nonprofit organizations

in communities with problems that

are stifling economic growth;

planning grants to states, cities,

districts, and Indian reservations;

special economic adjustment

assistance to states and local

governments with recent, severe

problems or long-term economic

deterioration; technical assistance

to communities to build

organizational capacity and solve

specific economic development

problems; and research and

evaluation grants to increase

knowledge about effective

economic development tools.

21

Research and Evaluation Program Funding

Decisions Should Be Documented

As part of its Department-wide review of Commerce’s discretionary

financial assistance programs, the OIG conducted an audit of the FY 1997

criteria, procedures, and practices for soliciting, reviewing, and selecting

preliminary and full proposals for financial assistance under EDA’s

Research and Evaluation Program. Discretionary financial assistance

programs are those programs for which federal agencies have the authority

to independently determine the recipients and funding levels of awards.

Through the Research and Evaluation Program, EDA provides

financial assistance to individuals and organizations for the conduct of

economic development research to help (1) determine the causes of

unemployment, underemployment, underdevelopment, and chronic

depression in the nation, and (2) formulate and implement national, state,

and local programs to raise income levels and otherwise produce solutions

to the problems resulting from those conditions. During FY 1997, the

program awarded five grants, totaling $603,000.

Based on our review, we found that there was insufficient

documentation of EDA’s award procedures and practices to determine

whether they supported merit-based decisions and complied with federal

and departmental guidance. Specifically, we found that:

l EDA developed criteria consistent with program objectives to

evaluate proposals and applications for awards, but failed to

document its application of these criteria.

l EDA published a solicitation notice in the Federal Register

announcing the availability of funding and soliciting program

proposals and applications for awards and also publicized the

program on its web site; however, the notice did not provide

potential applicants with a clear description of the procedures to be

used in reviewing and selecting applications for funding.

l EDA did not adequately document its procedures and practices for

reviewing and selecting proposals and applications for awards.

We recommended that EDA ensure that procedures and practices for

the solicitation, review, and selection of proposals and applications for

Research and Evaluation Program awards support merit-based decisions

by making sure that solicitation notices include all basic program information and that EDA’s procedures and practices for the review and selection

Commerce OIG Semiannual Report

September 1999
Economic Development Administration

Program

Operations

Economic

Development

Administration

Cong. Liaison,

Program

Research and

Evaluation

Finance and

Administration

22

of proposals and applications are properly documented. EDA agreed with

our findings and recommendations. (Business and Trade Audits Division:

BTD-11548-9-0001)

Midwestern Flood Grantee Had

Inadequate Financial Management System

In August 1997, EDA awarded two grants to a nonprofit organization

in a Midwestern city to alleviate the effects of an April 1997 flood that

crippled the city. The flood forced nearly 90 percent of the city’s residents

to evacuate the area for several days and damaged numerous homes and

businesses. Total disaster losses to the city were estimated at $1.8 billion.

The organization, a regional resource for economic development initiatives

that operates under the city’s job development authority, uses federal grant

funds to award loans and grants, and make equity investments in regional

business ventures.

One EDA grant of about $2.2 million was awarded to establish a

revolving loan fund (RLF) to provide loans to the city’s small businesses.

The second grant of nearly $6.9 million was awarded to construct a

building to house businesses damaged by the flood.

An OIG interim financial audit of costs claimed under the two awards

found that the organization’s accounting and financial management system

did not comply with federal regulations, EDA requirements, or award

terms and conditions. The deficiencies included the incorrect calculation of

RLF income, an inadequate financial management system, failure to

submit a program income reutilization plan, inadequate project inspection

procedures, and unapproved project change orders.

We recommended that EDA direct the organization to correct the RLF

income calculation, improve its financial management record-keeping,

prepare a program income reutilization plan for EDA’s approval, reinspect

the building, and obtain EDA approval for all unapproved change orders.

The organization and EDA took actions that complied with our recommendations. (Denver Regional Office of Audits: DEN-11625-9-0001)

Lease Agreement Reached Under

Flood Grant Project Appears Deficient

As part of an earlier review of EDA’s Midwest Flood Program (see

September 1998 issue, page 19), we conducted examinations of individual

grant recipients, including a Missouri city and its co-recipient, a for-profit

firm. EDA awarded a grant to construct a city-owned facility to replace a

Commerce OIG Semiannual Report

September 1999
Economic Development Administration

23

manufacturing plant that had been destroyed during the Midwest floods of

1993. Total funding for the project included approximately $2 million from

EDA and about $1 million from the grantees. Upon completion, the facility

was leased to a for-profit company.

During our review, we found several deficiencies in the lease

agreement between the city and the for-profit company, including (1) lease

rates that appeared to be much lower than fair market rental rates for the

facility, (2) lease terms that allowed the transfer of the facility to the forprofit company after the term of the 20-year EDA mortgage for less than

adequate consideration, and (3) lack of support for the 20-year life of the

facility, which was used to set the length of the mortgage.

Because of the generous terms of the lease, we were concerned that

the transaction appeared to be a “pass-through” of EDA Title IX funds to

a for-profit company, in violation of the Public Works and Economic

Development Act. While the overall purpose of the project was met, we

believed that EDA needed to ensure that the lease transaction meets

agency requirements. We expressed our concerns to EDA in a May 7,

1999, memorandum. We are currently discussing with EDA officials the

actions needed to correct the noted deficiencies. (Denver Regional Office

of Audits)

Investigation in Brief

Sentencing. In the March 1999 issue (page 29), we reported on the

bribery conviction of a former economic development representative. The

conviction resulted from a joint OIG/FBI/IRS investigation, which found

that the official had accepted $3,000 from two individuals representing an

applicant for EDA grant funds. In May 1999, he was sentenced in U.S.

District Court for the Western District of Texas to 36 months’ probation,

fined $20,000, and ordered to perform 150 hours of community service.

(Denver Field Office of Investigations)

Audit Reports Unresolved for Over Six Months

As of September 30, 1999, one financial assistance audit report, DEN10586-9-0001 (see March 1999 issue, page 28), had recommendations

unresolved for more than six months. The report found that a nonprofit

grantee in Texas had disregarded procurement standards in awarding a

$244,250 contract to a consulting firm. The report also questioned

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

supporting documentation. EDA did not agree with our findings, and we

are awaiting the submission of a responsive audit resolution proposal.

Commerce OIG Semiannual Report

September 1999
Economics and

Statistics Administration

The Economics and Statistics

Administration analyzes

economic developments, develops

policy options, and produces a

major share of U.S. government

economic and demographic

statistics. The Chief Economist

monitors and analyzes economic

developments and directs studies

that have a bearing on the

formulation of economic policy.

ESA has two principal agencies:

Bureau of the Census. Census is

the country’s preeminent statistical

collection and dissemination

agency. It publishes a wide variety

of statistical data about people and

the economy of the nation,

conducting approximately

200 annual surveys, in addition to

the decennial census of the U.S.

population and the decennial

census of industry.

Bureau of Economic Analysis.

BEA’s goal is to provide a clear

picture of the U.S. economy by

preparing, developing, and

interpreting the national income

and product accounts

(summarized by the gross

domestic product), as well as

aggregate measures of

international, regional, and state

economic activity.

24 Commerce OIG Semiannual Report

September 1999

Dress Rehearsal Quality Check Survey

Indicates Improvements Needed for Decennial

On April 1, 2000, the Census Bureau will begin conducting the decennial census of the nation’s population for the purpose of congressional

apportionment. Census data is also used for state and federal redistricting

and allocating federal funds.

Although the bureau attempts to count every resident during the

census, some undercount of the population has occurred in all decennials.

For 2000, the bureau plans to use a quality check survey in an attempt to

more accurately estimate the population. Under this methodology, the

direct enumeration and the subsequent quality check sample survey will be

conducted independently. Although the Supreme Court determined that the

Census Act bars the use of statistical sampling for apportionment purposes,

the Court also wrote that the act requires the use of sampling, “if feasible,”

for all other purposes. The bureau intends to provide statistically corrected

numbers for non-apportionment purposes, based on its judgment that the

corrected count will be more accurate.

During the census, the bureau will begin the five major operational

phases of the quality check survey (see facing page): (1) developing an

independent listing for each housing unit in the sample, (2) conducting

person interviews using laptop computers to gather and transmit census

data for each unit, (3) conducting person matching to compare the results

obtained during person interviews with the results obtained in the census,

(4) attempting to resolve discrepancies from the person matching phase

during person follow-up, and (5) performing the population estimation

once sample data has been compared to census data.

In 1998 the OIG conducted an audit to test quality check survey

operations during the decennial dress rehearsal, whose purpose was to

assess various operations and procedures to be used in the decennial. The

dress rehearsal was conducted at three sites: (1) an 11-county area including the city of Columbia, South Carolina; (2) the city of Sacramento,

California; and (3) the Menominee American Indian Reservation in

Wisconsin. Our audit focused on person interview and person follow-up

procedures in Columbia and Sacramento. We found several areas in which

the bureau needs to make improvements in preparing for the decennial:

l The person follow-up phase encountered significant delays

because the bureau was unable to provide the data necessary for

field operations to begin. As a result, in trying to keep the quality

check survey on schedule, bureau interviewers took shortcuts that

we believe could degrade the accuracy of decennial results.
Economics and Statistics Administration

Economics and

Statistics

Administration

Bureau

of the

Census

Bureau of

Economic

Analysis

25 Commerce OIG Semiannual Report

September 1999

l The bureau did not have procedures for person follow-up to deter

enumerators from falsifying interviews or to detect those that may

have occurred because it believed that such a process would be

too complex to develop. However, this phase of the survey is

particularly susceptible to falsified interviews because both direct

enumeration data and quality check survey data are preprinted on

the questionnaire. Therefore, we believe that the benefits of

having such a process outweigh the challenges of developing it.

l Although the use of laptop computers during the person interview

phase generally worked as intended, interviewers identified several

problems related to the electronic transmission of person interview

cases from their laptops to the headquarters computer server.

Mail Back and Other

Enumeration

Population

Estimation

Independent

Listing

Person

Interviewing

Census/Quality Check

Person Follow-Up

Census

Operations

Address Listing and

Block Canvassing

Data

Integration

Quality Check

Operations

Census/Quality Check

Person Matching

Dress Rehearsal Operational Flow

for Quality Check Survey
Economics and Statistics Administration

26 Commerce OIG Semiannual Report

September 1999

These problems were caused in part by software errors in the case

check-in program on the server and by miscommunications

between headquarters officials, regional officials, and field staff.

l Although the bureau intended to test the effectiveness of using

laptops to provide interviewer performance information to field

supervisors, technical problems hindered the bureau’s ability to

fully test the performance reporting system during the person

interview and person follow-up phases. For example, software

problems delayed the deployment of one report onto the laptops,

while the design of another report did not meet user needs.

Among our recommendations were that the bureau (1) identify and

resolve for the 2000 decennial the underlying causes of delayed person

follow-up operations, and ensure that data collection procedures are

followed by interviewers in the field, (2) develop a quality assurance plan

for person follow-up that is designed to deter and detect enumeratorfalsified data in the 2000 decennial, (3) correct and operationally test the

case check-in program and clearly communicate procedures for

retransmitting cases, and (4) operationally test the performance reporting

system before the 2000 decennial to ensure that correct and timely

information is available to field managers.

The bureau concurred with our recommendations. According to

bureau officials, plans for the quality check survey now include prioritizing

the workload so that the regional offices will receive large or difficult cases

early in the person follow-up operation to allow more time to work on

them. Bureau officials also state that a person follow-up quality assurance

program has been developed to detect falsification and ensure that

questionnaires have been completed properly and that information is

legible and usable. (Economics and Statistics Audits Division: ESD11449-9-0001)

Multiple Response Resolution Improvements

Needed for Accurate, Timely Census Processing

To make it easier for people to be counted in the 2000 Decennial

Census, the Census Bureau will allow households the option to respond in

several ways. In addition to collecting data through its traditional methods

of mailed questionnaires and in-person interviews, the bureau will allow

the public to respond by using forms available in public places, by

telephone, or over the Internet.

While multiple response methods increase the chances that people will

be counted, they also increase the likelihood of receiving more than one
Economics and Statistics Administration

27 Commerce OIG Semiannual Report

September 1999

response from a given housing unit, with some responses including the

same people. The bureau has devised procedures to count individuals at

each address and has automated this process, called multiple response

resolution (MRR). When multiple responses are received, MRR is

supposed to include people at an address who resided there on Census

Day, April 1, 2000, and omit people who did not or who were already

counted from another response for that housing unit.

The OIG conducted an evaluation to determine whether MRR is likely

to resolve multiple responses correctly—and in the allotted time—during

the decennial. We observed the bureau’s preparations for using MRR

during the 1998 Dress Rehearsal and reviewed results from its processing

of dress rehearsal response data.

The bureau’s “report card” on the dress rehearsal asserted nearly

perfect accuracy rates for MRR. However, the report card calculated

MRR errors in terms of the total enumeration, rather than the households

that submitted multiple responses. For example, although the report card

for MRR in Sacramento showed an error rate of only 0.3 percent based on

total enumeration, the error rate based on a calculation of MRR’s success

in resolving multiple responses was 9 percent—30 times as high. In

reporting on future performance, the bureau should identify MRR’s

accuracy in resolving multiple responses, as well as the impact of MRR

errors on the total enumeration.

We identified several conditions that diminished the accuracy of MRR

results in the dress rehearsal. Problems with the questionnaire design, the

way the public completed the questionnaire, and automated data capture in

some cases caused inaccurate data to be sent for MRR processing. Moreover, the MRR software sometimes produced questionable results. MRR

analysts are reviewing the dress rehearsal and evaluation data to determine

what modifications are needed to the procedures and associated software

for resolving multiple responses.

In addition, we concluded that the bureau cannot ensure that the

process is implemented correctly because it did not use a sufficiently

structured approach in developing the MRR software. A more structured

approach, using software engineering standards, would help ensure correct

implementation of MRR. Software testing also needs to be expanded to

address more diverse response data and ensure that MRR can reliably

handle a wide array of potential input conditions. Finally, the bureau needs

to make a coordinated effort to perform beginning-to-end testing of

questionnaire data processing to ensure that the output from each step is

accurate and can be input into the next step without error.
We also found that, based on dress rehearsal results, MRR processing

for the decennial census would require more than the 30-day period that

the bureau has estimated to ensure the timely availability of data for

follow-on processing operations. The bureau needs to obtain additional

computing resources and modify the MRR software to reduce excessive

processing time.

To address these issues, important decisions concerning MRR

requirements and design must be made and significant development and

testing work accomplished. The bureau has acknowledged many of the

issues addressed by our report and is analyzing the dress rehearsal data

and working on improvements to MRR. In addition, it has made substantial improvements to the data capture system since the dress rehearsal.

However, the bureau has not fully defined the activities needed to refine

MRR and complete its development. We made several recommendations

to assist the bureau in defining these activities and developing and

implementing a plan for their completion.

The bureau stated that it concurred with, or had already acted upon,

most of our recommendations. After the report was issued, the bureau

reported having taken several actions to simplify the process to reduce

processing time. (Office of Systems Evaluation: OSE-10711)

Decennial Public Awareness Campaign

Is Meeting Program Objectives

Despite the importance of having accurate decennial census data, and

the public’s obligation to answer and return census forms, the Census

Bureau has been confronted with a steady decline in the mail response

rate. The portion of households that complete and mail back the census

form was 75 percent in 1980 and 65 percent in 1990. It is expected to

decline to 61 percent in 2000.

When households do not respond to the decennial, costs increase

dramatically because the bureau must hire enumerators to contact each

non-responding household to obtain the data. In 1990 the average cost of

enumerating a household that mailed back a questionnaire was $2. But the

cost quickly escalated to $12 when an enumerator had to contact the

household, and approached $36 for households that required additional

follow-up contacts.

Despite the bureau’s follow-up efforts, many households remain

uncounted. In 1990 the estimated net undercount (the number of people

undercounted minus the number overcounted) was about 4 million people.

Economics and Statistics Administration

28 Commerce OIG Semiannual Report

September 1999
Furthermore, the undercount was not equally distributed across all demographic groups, a factor called the differential undercount. For example,

in 1990 the net undercount for the nation as a whole was 1.6 percent.

However, the net undercount was 4.4 percent among African Americans,

5.0 percent among Hispanics, 2.3 percent among Pacific Islanders, and

12.2 percent among American Indians.

To boost mail response rates for Census 2000, especially among

historically undercounted groups, the bureau will undertake special public

awareness efforts to reach every person. These efforts principally

comprise two major activities:

l Conducting an advertising campaign aimed at increasing the mail

response rate, including that of historically undercounted populations. For the first time, the campaign will incorporate paid

television, radio, and print ads.

l Leveraging local knowledge and contacts by building partnerships

with state, local, and tribal governments, community-based

organizations, the media, and private-sector organizations.

The OIG conducted an audit of both activities involved in the bureau’s

public awareness campaign and, because the two activities have similar

goals—increasing the mail response rate and reducing the undercount—

also evaluated the coordination between them.

In October 1997, the bureau awarded a contract to an advertising firm

to create and produce an extensive advertising campaign to inform and

motivate the public to complete and return the census form. We believe

that the development of the Census 2000 advertising message is supported

by a sound methodology and that the contractor’s actions effectively

addressed the required objectives. The contractor hired subcontractors

familiar with the groups that had been historically undercounted;

performed research and extensive testing; and created a message aimed at

getting people to respond by explaining how they benefit from the

decennial. Moreover, the advertising firm presented the creative concepts

to and actively sought feedback from many groups, including the bureau,

the Department, the Census Advisory Committee, and the Congress.

We also found that the partnership program was implementing a

comprehensive, effective nationwide program directed at increasing the

mail response rate and thereby reducing the undercount. To accomplish its

goals, the program has coordinated extensively with its government,

business, and community-based partners. As of mid-July, the bureau had

secured nearly 22,000 partnerships. These partners are closely affiliated

Economics and Statistics Administration

29 Commerce OIG Semiannual Report

September 1999
with the hard-to-count populations and should be instrumental in getting

these groups to respond.

The bureau has also implemented several initiatives to address a lack

of coordination between the advertising campaign and the partnership

program identified during the 1998 Dress Rehearsal. Based on our review,

it appears that these initiatives will provide for sufficient coordination

among the regions, the partnership program, and the Publicity Office.

Whether the advertising campaign and partnership program will

motivate households to participate by filling out and returning the

questionnaire will only be known after the decennial is completed. To

answer this question, the bureau is implementing plans to conduct postcensus evaluations of both activities. Given the unprecedented effort to

increase mail response and reduce the differential undercount, we agree

that it is imperative that the bureau evaluate these activities to decide

whether they should be continued for 2010.

Because our review revealed no significant problems, our report

contained no recommendations. (Economics and Statistics Audits

Division: ESD-11755-9-0001)

Methods of Archiving Decennial Data and

Disposing of Questionnaires Need Finalizing

During the 2000 Decennial Census, completed questionnaires received

from households will be sent to data capture centers across the country for

processing. To capture the data in a timely and efficient manner, the

Census Bureau has awarded two contracts—the first for the development

of a state-of-the-art system, Data Capture System 2000 (DCS 2000) (see

March 1999 issue, page 30), and the second, a services contract to provide

for the facilities, personnel, management, and equipment and supplies to

perform data capture operations using DCS 2000. The bureau is responsible for ensuring that the data is secured and not improperly disclosed.

At the request of the House Government Reform and Oversight

Committee, the OIG conducted an inspection to address concerns relating

to the ownership of the completed questionnaires and the adequacy of the

questionnaire disposal and inspection provisions.

In examining the services contract and related Census documents, we

found that ownership of the completed questionnaires appropriately

remains with the bureau, and that the provisions for government inspections to ensure proper disposal of the questionnaires are adequate. We also

Economics and Statistics Administration

30 Commerce OIG Semiannual Report

September 1999
found, however, that the bureau has not yet finalized its plans and

procedures for questionnaire retention and disposal and cannot do so until

a method has been identified for archiving the data that is acceptable to the

National Archives and Records Administration. An agreement on archiving

is needed before Archives will authorize destruction of the questionnaires

and approve a destruction schedule.

We recommended that the bureau:

l Develop an archiving proposal for 2000 decennial data and begin

discussing the proposal with Archives within 30 days.

l After reaching agreement with Archives on a questionnaire

destruction schedule, incorporate relevant portions of the plan and

procedures concerning the retention and disposal of completed

questionnaires into the services contract.

l Immediately formalize its plan and procedures for the retention,

use, and disposal of dress rehearsal questionnaires and incorporate

the contractor’s responsibilities into the DCS 2000 contract.

The bureau agreed to implement our recommendations. (Office of

Systems Evaluation: OSE-10758)

Allegations Made by Census Employee

Against Supervisor Were Not Substantiated

In response to a congressional inquiry regarding allegations made by a

temporary Census Bureau field office employee against a supervisor, the

OIG conducted a review to determine the validity of the claims. The

employee alleged that during the block canvassing operation, conducted to

verify mailing addresses in preparation for the 2000 Decennial Census,

(1) data submitted was false and inaccurate because data pages were

removed, unsupported changes were made, and data was submitted under

the accuser’s name without the required quality assurance procedures

being completed; (2) employees were denied reimbursement for overtime

worked and mileage driven; and (3) employees were treated with

disrespect by being publicly humiliated by the supervisor.

We reached the following conclusions about the three allegations:

l Regarding the allegation of inaccurate data, we examined the

bureau’s data quality assurance procedures, which allow data to be

corrected and revised at several stages during the block canvassing

operation, and concluded that the procedures had been followed.

Economics and Statistics Administration

31 Commerce OIG Semiannual Report

September 1999
Because the bureau has the experience, knowledge, and program

responsibilities to provide accurate data, we referred the specific

allegation about inaccurate data to the bureau, asking it to advise

us of the results of its inquiry.

l The allegation that employees were denied reimbursement for

overtime and mileage was not substantiated. Overtime was neither

requested by the employees nor authorized by local census office

officials for the block canvassing operation, and employees were

reimbursed for all mileage claimed.

l Due to the lack of objective documentary evidence and the

inconsistent accounts of persons involved, we could neither

confirm nor disprove the allegation that employees were treated in

a disrespectful manner. (Seattle Regional Office of Audits)

Preliminary Work Identifies Concerns

with Decennial Leasing Operations

During our ongoing review of the bureau’s efforts to lease office space

for the 2000 Decennial, several issues came to our attention that warranted

immediate management attention. Rather than wait until the issuance of a

formal report, we informed the bureau of our preliminary observations in

an interim memorandum so that it could achieve cost savings and other

benefits during later phases of the decennial leasing operation.

Among the issues we identified were (1) concerns about the proposed

Census Bureau-General Services Administration memorandum of

understanding for the second phase of leasing, (2) potentially significant

cost savings on leased space build-out, (3) the oversupply of materials and

office supplies for block canvassing at certain locations, and (4) persistent

problems with some local census office telephone systems.

A fifth issue of concern was that many leases from the initial phase of

local office openings were awarded without adequate competition. This

lack of competition resulted from the fact that the delineated geographic

areas within which offices could be located were too narrowly drawn,

which limited the number of lessors who could bid on the leases. As a

result, the leases for many sites were more expensive than anticipated, and

the bureau lost time in re-competing some leases. However, we have noted

a concerted effort by the bureau to broaden its delineated areas in the latter

phases of the lease acquisitions, a strategy that has resulted in greater

competition. The bureau also said it would address the other issues we

brought to its attention. Our final report will discuss the bureau’s actions

on these matters. (Office of Inspections and Program Evaluations)

Economics and Statistics Administration

32 Commerce OIG Semiannual Report

September 1999
International

Trade Administration

33

The International Trade

Administration is responsible for

most nonagricultural U.S. trade

issues and works with the Office of

the U.S. Trade Representative in

coordinating U.S. trade policy. ITA

has four principal units:

Market Access and Compliance.

MAC develops and implements

international economic policies of

a bilateral, multilateral, or regional

nature. Its main objectives are to

obtain market access for American

firms and workers and to achieve

full compliance by foreign nations

with trade agreements signed with

the United States.

Trade Development. TD advises

on international trade and

investment policies pertaining to

U.S. industrial sectors, carries out

programs to strengthen domestic

export competitiveness, and

promotes U.S. industry’s

increased participation in

international markets.

Import Administration. IA

defends American industry against

injurious and unfair trade practices

by administering the antidumping

and countervailing duty laws of the

United States, and enforcing other

trade laws and agreements

negotiated to address such trade

practices.

U.S. & Foreign Commercial

Service. US&FCS promotes the

exports of U.S. companies and

helps small and medium-sized

businesses market their goods

and services abroad. It has 105

domestic offices and 138 overseas

posts in 75 countries.

Inspector General Testifies on Progress

of U.S. Export Assistance Center Network

On September 9, 1999, the Inspector General testified before the

House Small Business Subcommittee on Tax, Finance, and Exports on the

OIG’s work related to U.S. Export Assistance Centers (USEACs).

US&FCS operates a “hub and spoke” network consisting of 19 USEACs

connecting 86 smaller Export Assistance Centers. The USEACs, the hubs

of the network, are “one-stop shops” where US&FCS, along with the

Small Business Administration (SBA) and the Export-Import Bank (Ex-Im

Bank), bring together federal, state, and local government and private

sector expertise to better assist U.S. exporters.

The IG’s conclusions were essentially the same as those reported three

years earlier in an OIG assessment of the development and rollout of the

USEACs (see March 1996 issue, page 33)—namely, that although problems remain, the USEACs are demonstrating their ability to meet the needs

of U.S. exporters. His conclusions were based on the progress the centers

have made in demonstrating that federal agencies can work together to

provide export assistance much better than under the previous fragmented

approach. The IG’s observations, discussed in the following sections, were

derived from a series of OIG audits, evaluations, inspections, and followup work that included visits to the centers depicted below:

Seattle USEAC

San Francisco EAC

Los Angeles EAC

Long Beach USEAC

Newport Beach EAC

San Diego EAC

Denver USEAC

St. Louis USEAC

Dallas USEAC

Austin EAC

Atlanta USEAC

Miami USEAC

Baltimore USEAC

Northern Virginia EAC

Chicago USEAC

New York City USEAC

Harlem EAC

Newark EAC

USEAC/EAC Sites Visited by the OIG

Since Inception of Program in 1994

Commerce OIG Semiannual Report

September 1999
International Trade Administration

Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration

l Federal partners are increasingly working in a cooperative

fashion. More often than not, the collocation of export promotion

and trade finance partners in the USEACs fosters closer working

ties and strengthens information exchanges, resulting in improved

export marketing and export finance assistance to small and

medium-sized U.S. businesses.

l Staffing at some USEACs remains a concern. While SBA has

at least one representative in every USEAC, Ex-Im Bank has staff

physically located in only four USEACs. Ex-Im Bank officials

emphasize that they have city/state partners in the vicinity of

many EACs serving as authorized agents for Ex-Im Bank products and services; however, the ability and commitment of such

partners have been questioned by USEAC staff and other

stakeholders.

l USEACs need a better system for identifying, measuring, and

reporting programmatic accomplishments. Currently, each of

the three partner agencies assesses its performance only as an

individual part of the USEACs; for example, US&FCS tracks

export actions. We encouraged the development of additional

performance criteria, such as joint counseling sessions and

mutually beneficial outreach activities, that view the USEAC as a

single entity.

l The USEAC network is fostering stronger partner

relationships with state and local trade organizations. Some

USEACs have already gone beyond being simply a federal

partnership by also sharing resources with state and local export

promotion organizations. These state and local partnerships have

allowed some duplicative programs to be eliminated, while

enhancing the quality and delivery of export assistance services to

U.S. businesses.

l Coordination between the USEACs and US&FCS’s overseas

posts could be better. Cooperation has been spotty and too often

dependent on the commitment of the individual staff at Export

Assistance Centers and overseas posts. Specifically, our reviews

have confirmed cases where US&FCS posts either were not

timely in providing important products and services that USEAC

clients were waiting for or provided products and services of

inferior quality. US&FCS is working to remedy this situation

through initiatives designed to increase teamwork among its trade

specialists and help its domestic and overseas staff better

understand each other’s functions.

Commerce OIG Semiannual Report

September 1999 34
l Marketing of centers’ products and services should be

improved. According to representatives of some of the federal,

local, state, and private trade organizations we spoke with,

inadequate marketing is one of the biggest hindrances to delivering

valuable USEAC services to U.S. exporters. Some believe that the

USEACs are not effectively getting out the message of who they

are, where they are, what they do, and what products and services

they have to offer.

The IG concluded by expressing his optimism about the future of the

USEACs and their potential to continue to improve their effectiveness in

helping to meet the export promotion and trade finance needs of U.S.

exporters.

OIG Continues Its Overseas Work

with Reviews of Three US&FCS Posts

During this semiannual period, the OIG continued its reviews of

Commerce overseas posts (see September 1998 issue, page 35, and March

1999 issue, page 40), which are under the direction of ITA’s U.S. and

Foreign Commercial Service. The reviews are designed to evaluate the

posts’ operational effectiveness and determine whether they are efficiently

accomplishing their mission of providing U.S. companies, especially small

and medium-sized ones, with export assistance. In the following sections,

we summarize the reports of the three inspections of the posts we issued

during this semiannual period—China, Brazil, and South Africa.

China

The People’s Republic of China is the United States’ fourth largest

trading partner. From 1992 to 1998, U.S. exports to China increased by

more than 90 percent, growing from $7.5 billion to $14.3 billion. However,

because China’s exports to the United States have grown even faster, the

U.S. trade deficit with China reached $57 billion in 1998. Although trade

barriers still exist in the areas of tariffs, market access, standards, and

intellectual property rights, China, with a population of 1.3 billion, is a

market with enormous potential for U.S. companies.

Recognizing the importance of China to overall U.S. trade relations,

ITA has focused a great deal of attention on this emerging market. From

1996 to 1998, US&FCS increased its operations and administrative budget

for China by over 50 percent—from $2.3 million to $3.6 million. In

addition to carrying out its core trade promotion duties, US&FCS China

has assisted many other U.S. government agencies, Members of Congress,

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35 Commerce OIG Semiannual Report

September 1999
and state delegations that have traveled to China to deal with a variety of

trade policy and promotion issues. In addition to hosting a steady stream of

visitors, US&FCS China has counseled many U.S. businesses and

provided a wide range of services, including handling trade disputes and

organizing trade events to meet U.S. companies’ needs.

The OIG’s inspection of US&FCS’s operations in China involved

visits to all five constituent posts: Beijing, Shanghai, Guangzhou, Chengdu,

and Shenyang. We found that clients gave US&FCS China’s staff high

marks for their ability to handle multiple trade issues, their knowledge of

the market, and their willingness to assist U.S. businesses. However, we

also found problems that warrant management’s attention:

l The quality of some products needs to be improved. U.S.

business clients were generally satisfied with the services provided

by US&FCS, especially the export counseling sessions and trade

advocacy efforts. The production and timeliness of market

research products have increased, but the quality and consistency

of reporting among the five posts should be improved.

US&FCS’s services designed to help U.S. exporters identify

business leads and contacts received mixed reviews. Clients who

purchased the Gold Key Service, a tailored mix of orientation

briefings, market research, and appointments with potential

partners, were generally pleased, although some pointed out the

need for better targeting and prescreening of companies. Clients

who purchased the Agent/Distributor Service, a customized overseas search for qualified agents, distributors, and representatives

for U.S. firms, rated this service the lowest due to cancellations by

the post, poor targeting of potential companies, and long delivery

times. The post was taking steps to improve this service.

l Export control checks warrant continued monitoring. In

addition to trade promotion activities, US&FCS China also fulfills

its export control responsibilities to the extent that the Chinese

authorities permit pre-license checks and post-shipment verifications. We noted that some scheduled pre-license checks had been

canceled by the authorities. The United States was granted permission to conduct post-shipment verifications after our inspection, but this is an area we continue to monitor as part of our

interagency review of the export licensing process (see page 17).

l Management should address US&FCS China’s needs. Despite

the importance of China to U.S. trade relations, ITA had left the

deputy senior commercial officer position vacant for over

International Trade Administration

Commerce OIG Semiannual Report

September 1999 36
15 months. As a result, the senior commercial officer—who was

on his first posting in that capacity—had to juggle many responsibilities and delegate others to inexperienced officers. Without a

deputy, he also had insufficient time to devote to managing

internal operations and building a strong, integrated country

program. Consequently, the five constituent posts were not working effectively together, and many financial and administrative

responsibilities had been neglected. Moreover, US&FCS management in Washington had neither provided sufficient guidance on

building a strong export promotion program nor developed a

regional plan for dealing with the Asian financial crisis.

l Longstanding problems in financial operations need to be

resolved. US&FCS’s financial operations were troublesome due

to inexperienced staff, a lack of management emphasis on

monitoring and managing funds, and problems in the Beijing

Embassy’s budget and fiscal office and the consulates’ cashier

operations. US&FCS China could not rely on the financial reports

produced by the budget and fiscal office because they did not

accurately depict the post’s financial status; delays in that office’s

processing of the post’s vouchers and overstated obligation reports

provided a false picture of the post’s financial position. Improvements were also needed at all five posts in monitoring appropriated

funds, overseeing deposit funds, reducing unliquidated obligation

balances, and correcting weak internal control systems.

l Administrative and personnel matters require more attention.

Managers in Washington and Beijing have to pay more attention to

the administrative and personnel matters of US&FCS China.

Because the post is staffed primarily with less experienced officers, more mentoring and training are needed, and efforts must be

made to bring more experienced officers to China. Management

must also work on retaining the foreign national staff by providing

them with better training, classifying them at appropriate grades,

and helping them advance in their careers. Greater focus must also

be placed on more effectively tracking property and coordinating

information technology needs. Finally, we urged the post and

US&FCS Washington to explore options to relocate the Beijing

post, which has outstripped its available space and resulted in an

inefficient, less-than-professional-looking office environment.

We also devoted sections of our report to each of US&FCS China’s

five constituent posts, discussing their successes and making recommendations in areas needing improvement. We highlighted the accomplishments

of the Shanghai Commercial Center, which had an active schedule of trade

International Trade Administration

37 Commerce OIG Semiannual Report

September 1999
events. However, we urged the post to work more closely with its four

collocated state government and trade association partners.

US&FCS agreed with most of our recommendations and identified the

steps it has taken to implement some of them. We were especially pleased

to see that the posts and US&FCS headquarters have indicated their

commitment to address many of the program gaps and management and

administrative problems highlighted in our report. (Office of Inspections

and Program Evaluations: IPE-10915)

Brazil

With an estimated population of 162 million and a gross domestic

product of $800 billion, Brazil represents the United States’ third largest

market in the Western Hemisphere, after Canada and Mexico. Economic

reform and privatization of state-owned enterprises are opening new

markets and resulting in unprecedented opportunities for U.S. business.

The United States is the largest foreign investor in Brazil, accounting for

almost 34 percent of total foreign direct investment. The US&FCS

commercial post in Brazil is the fifth largest in the world, in terms of

dollars and staff, with total FY 1998 expenditures of $3.1 million.

We observed the post’s operations and activities, located in the cities

of São Paulo, Brasilia, Belo Horizonte, and Rio de Janeiro. We found that

US&FCS Brazil is an energetic post that is meeting its mission of serving

U.S. exporters. In addition, the São Paulo Commercial Center, the most

significant feature of post operations, is being used creatively and actively

to support the post’s programs and the needs of U.S. exporters and

Brazilian importers. Other positive aspects of US&FCS Brazil’s operations

include an improved program under the commercial officer present during

the time of our review; frequent, extensive communications between

management and staff, and between São Paolo and its constituent posts;

extensive marketing and outreach; and new, innovative programs to

promote U.S. products.

However, we also identified concerns in a number of financial,

program, and management areas that need to be addressed. Our most

significant observations were as follows:

l Scope and use of performance tracking system need to be

reconsidered. While US&FCS Brazil has designed and

implemented an effective work and performance tracking system

for its operations, the system appears to be inappropriately determining individual priorities and may be undermining teamwork and

cooperation among staff. Post management needs to rethink this

International Trade Administration

Commerce OIG Semiannual Report

September 1999 38
concept and revise the system to counter these side effects. In

addition, US&FCS headquarters should evaluate the system’s

appropriateness for other posts.

l São Paulo Commercial Center needs to be refocused and

more effectively managed. Recognizing that each commercial

center must adapt to the unique needs of its market, we nevertheless have concerns about whether the appropriate priorities

have been set for the São Paulo Commercial Center and whether

the center may be missing opportunities to fully implement the

commercial center program. We believe that the problems are

caused by the post’s priorities for its center differing from those

set by US&FCS headquarters for the overall center program, and

the lack of adequate oversight and support from US&FCS

headquarters to help ensure that the program is successful and

complies with the requirements outlined in the program’s

authorizing legislation.

l Minority business position needs further refinement and

proven results. The post’s minority business development

commercial assistant position is not well integrated with the

Department’s minority business activities. In addition, the position

has inadequately defined responsibilities that appear to overlap

with those of other trade specialists at the post. We also question

whether São Paulo is the appropriate location for the position and

whether there is sufficient market potential and results to justify

continuing it.

l Improved coordination between the post and other stakeholders is needed. Opportunities for good working relationships

between US&FCS Brazil and other federal and ITA components,

as well as with some host country organizations, are not being

fully exploited and appear to be highly dependent upon personal

relationships. The post’s relationships with other embassy officials

were generally positive. However, it needs to improve its relationships with the US&FCS domestic offices.

l Market research and product timeliness need to be made

higher priorities. We identified two important core US&FCS

products that need to be emphasized and improved. First, the post

is not producing timely responses to Agent/Distributor Service

requests, and there is some question about the overall quality of

the responses. Second, the post is not consistently producing highquality market research reports and is significantly behind schedule

in producing some of these reports.

International Trade Administration

39 Commerce OIG Semiannual Report

September 1999
l Financial management, procurement, and internal controls

need significant attention. We observed a pervasive lack of

adequate financial management practices and internal controls in

the post’s operations. We noted significant management control

weaknesses in the handling of cash, use of purchase orders,

inventory and management of government personal property,

credit card transactions, the management of a large information

technology contract, and documentation of the use of government

vehicles.

We made a number of recommendations to address our concerns.

Although US&FCS agreed with the vast majority of our observations and

recommendations and noted areas where changes and improvements had

been made since our visit, it also identified a number of areas where it

disagreed with our report’s analysis. We requested that US&FCS provide

an action plan addressing any outstanding issues noted in the report.

(Office of Inspections and Program Evaluations: IPE-10916)

South Africa

South Africa is reportedly the most advanced, broadly based, and

productive economy in Africa. Its gross domestic product (GDP) is nearly

four times that of Egypt, its nearest competitor on the continent. Some

experts suggest, however, that the South African economy must strive for

an annual GDP growth rate of 5 to 10 percent to offset its high unemployment rate and an annual population growth rate of 2 percent. Efforts to

achieve this economic growth will provide opportunities for American

companies with appropriate products or services.

American companies already have a strong presence in South Africa.

U.S. exports to the country totaled $3 billion in 1997, and South Africa

was the recipient of approximately 47 percent of all American exports to

Sub-Saharan Africa. Because of South Africa’s importance as a trading

partner, ITA has three offices in the country (Johannesburg, Cape Town,

and Durban) to provide American exporters with products and services

that will help them establish or expand their presence not only in South

Africa, but in other southern African nations as well. The post was

allocated $1.4 million in FY 1998, an increase of more than 40 percent

from FY 1997.

The OIG’s inspection of US&FCS South Africa found that clients

were generally satisfied with the trade promotion efforts of the post’s staff.

In addition, the commercial center was highlighted by many of the post’s

clients as an effective forum for U.S. companies and government officials

to launch their new initiatives, agendas, or products. Although the post was

International Trade Administration

Commerce OIG Semiannual Report

September 1999 40
generally effective at promoting U.S. exports to South Africa, we found

several aspects of the post’s promotional and administrative operations that

require management attention:

l The post’s effectiveness has been limited by programmatic

and organizational problems. Specifically, staff productivity was

hampered by inefficient work assignments given to foreign service

nationals and personal services contractors, relations between the

post and ITA’s Advocacy Center were not as strong as possible,

and client and partner data were not being routinely entered into

the Client Management System.

l Despite showing promise, the commercial center is not

actively recruiting partners. Although the center was pursuing its

objectives of providing a variety of products and services to

facilitate commercial ties and trade, it had not fully embraced

ITA’s goal to include partners in the center. In addition, although

the center had two collocated partners, a reimbursable agreement

or memorandum of understanding was not in place for the shortterm partner, and the agreement with the year-long partner was

not adequately monitored. Finally, the officer hired as center

director was frequently pulled away from his responsibilities at the

center to handle work related to the many high-level visitors to the

post or other post business.

l Staff turnover resulted in potential leadership void. With the

scheduled turnover of all Johannesburg officers within a sevenmonth period, the post faced a serious leadership void at the time

of our inspection. Only at the last minute were officer positions

filled or incumbents selected. By not better planning to fill

upcoming vacancies, US&FCS headquarters could jeopardize

mission goals and undermine staff morale.

l Financial operations need improvement. Although the post had

taken steps to get its financial operations in order, we found the

imprest fund to be in dire need of management attention. In

addition, our review of the post’s financial records revealed

substantial unliquidated obligations in its operations and administration account. We also found little correlation between the post’s

FY 1998 collections records and official ITA accounting data.

l Several administrative matters require management attention.

The post handled procurement, time and attendance, and vehicle

control logs in accordance with policies and procedures. However,

we observed that personnel records were not complete or updated,

International Trade Administration

41 Commerce OIG Semiannual Report

September 1999
credit cards were underutilized, and the division of administrative

service responsibilities between the State Department and

US&FCS South Africa was unclear. We concluded that many of

the post’s financial and administrative problems stemmed from a

lack of sufficient training for both foreign service nationals and

American staff.

l Export control checks were handled well, but guidelines were

not always followed. We were generally impressed with the

thoroughness of the end-use checks conducted by the post to

assist BXA in fulfilling its export control responsibilities. However,

some improvements were needed to comply with BXA guidelines,

and more coordination with other embassy offices would enhance

information gathering.

We made several recommendations to ITA and US&FCS to resolve

our concerns. Agency officials generally agreed with our findings and

outlined steps US&FCS was taking or planned to take to address our

recommendations. (Office of Inspections and Program Evaluations:

IPE-11433)

US&FCS Is Addressing Foreign Service

Personnel Management Issues

The Omnibus Trade and Competitiveness Act of 1988 directs the OIG

to conduct periodic audits of US&FCS operations that include an

evaluation of the agency’s management of its foreign service personnel

system and the placement of domestic- and foreign-based personnel. To

fulfill the act’s requirements, the OIG conducted an audit of US&FCS’s

management of its personnel system and resource allocation methodology.

Our review evaluated a broad range of personnel issues, including the

management and oversight of the personnel system, recruitment, assignments, limited appointments, tours of duty, curtailments, and performance

appraisals. We also looked at the status of US&FCS’s overseas and

domestic resource allocation models.

We found that US&FCS is generally striving to address its personnel

issues. Specifically, US&FCS has established internal task forces involving

diverse groups of employees to address issues of concern to foreign

service officers, and has taken action to comply with most prior OIG

recommendations. For example, it revised its overseas resource allocation

model in response to a 1997 OIG inspection report (see September 1997

issue, page 27). Based on the revised model, US&FCS completed a review

of its overseas officer staffing pattern and shifted resources accordingly.

International Trade Administration

Commerce OIG Semiannual Report

September 1999 42
Although US&FCS has addressed a variety of personnel issues,

several areas still need improvement. Specifically, US&FCS had difficulty

filling vacancies in hardship posts and adhering to the guideline requiring

officers to have a domestic assignment at least every 15 years, continued

to waive or lower language proficiency requirements when no candidates

met the existing requirements, had not implemented a comprehensive

automated system for personnel data, had yet to consolidate certain

personnel functions with ITA as we recommended earlier, and had not

defined adequate performance measures for its foreign service personnel

system to comply with the Government Performance and Results Act.

Among our recommendations were that US&FCS (1) develop and

implement a formal career candidate recruitment policy, (2) implement

new measures to meet the 15-year guideline for domestic assignments,

(3) explore, with ITA management, consolidating personnel functions that

are common to the foreign and civil service personnel systems, (4) establish performance goals and related performance measures that specifically

define foreign service personnel system outcomes, and (5) update the

domestic resource allocation model for use as the objective analytical basis

for allocating domestic resources. ITA generally agreed with our findings

and recommendations. (Business and Trade Audits Division: BTD-10829-

9-0001)

Financial Assistance Program

Promotes Merit-Based Decisions

As part of its Department-wide review of Commerce discretionary

financial assistance programs, the OIG conducted a performance audit of

ITA’s Special American Business Internship Training Program (SABIT).

The objective of our review was to assess the criteria, procedures, and

practices used for the solicitation, review, and selection of applications for

financial assistance under SABIT.

SABIT provides financial assistance to for-profit and nonprofit public

and private entities for training business executives and scientists from the

Newly Independent States of the former Soviet Union in the American

way of doing business. In FY 1997, the program received 64 applications

for assistance, and issued 28 new awards and 5 renewals totaling more

than $500,000.

We found that the program used merit-based technical and public

policy criteria to evaluate applications, and that its solicitation efforts in

FY 1997 generated a widespread response from eligible applicants. ITA

also followed established requirements for selecting applications for

International Trade Administration

43 Commerce OIG Semiannual Report

September 1999
funding under SABIT. However, one of the four review panels used during

the evaluation process was not independent of program administration.

ITA corrected the problem in 1997 and provided information demonstrating that all subsequent review panels were independent. (Atlanta

Regional Office of Audits: ATL-10998-9-0001)

International Trade Administration

Commerce OIG Semiannual Report

September 1999 44
National Oceanic and

Atmospheric Administration

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal

oceans and the management of

marine resources; provides

weather services; and manages

worldwide environmental data. It

does this through the following

organizations:

National Weather Service. NWS

reports the weather of the United

States and provides weather

forecasts and warnings to the

general public.

National Ocean Service. NOS

issues nautical and aeronautical

charts; performs geodetic surveys;

conducts research; and develops

policies on ocean mining and

energy.

National Marine Fisheries

Service. NMFS conducts a

program of management,

research, and services related to

the protection and rational use of

living marine resources.

National Environmental Satellite,

Data, and Information Service.

NESDIS observes the environment

by operating a national satellite

system.

Office of Oceanic and

Atmospheric Research. OAR

conducts research related to the

oceans and inland waters, the

lower and upper atmosphere,

space environment, and the Earth.

Office of NOAA Corps

Operations. The Corps is the

nation’s seventh uniformed

service. Its ships, aircraft, and

personnel support NOAA’s

activities throughout the world.

45

Planned Consolidation at Norman,

Oklahoma, Needs Refinement

NOAA leases approximately 106,000 square feet of space on the

North and South campuses of the University of Oklahoma, in the city of

Norman, at a cost of about $1 million per year. NOAA’s space on the

North Campus consists of about 72,000 square feet in Building 600, the

Adair Building, and several temporary buildings, which house the National

Severe Storms Laboratory, the Storm Prediction Center, the weather

forecast office, and part of the NEXRAD Operational Support Facility

(OSF). On the South Campus, NOAA leases about 34,000 square feet in

the OSF South Building, which houses the remaining OSF staff.

In December 1998, program officials briefed NOAA’s senior

management on a proposal for consolidating NOAA’s operations in two

new buildings, totaling 145,500 square feet, with annual lease and utility

costs of about $5 million per year. Because the submitted proposal did not

include the required functional requirements analysis, it has not yet

received final NOAA or departmental approval. NOAA has since

contracted with an architectural and engineering firm to provide this

detailed information for its revised decision package.

NOAA believes that collocating its Norman components with the

university’s meteorological research groups and its school of meteorology

would provide substantial benefits for both organizations. Collocation

would create a joint NOAA-university weather center and give NOAA

staff access to the university’s facilities and personnel, whose expertise

could contribute significantly to the development of new forecast

technologies.

The OIG conducted an assessment of NOAA’s justification for the

proposed Norman consolidation. Because the bureau had not completed a

functional requirements analysis, we did not perform a detailed audit of its

space needs. Instead, we opted to review NOAA’s preliminary proposal in

order to give the bureau feedback on its process for consolidation and to

identify potential areas for future detailed audit work. After reviewing

NOAA’s proposal, we made some observations about how the bureau

could reduce the cost of the proposed consolidation.

l Savings would be realized by continuing to lease the North

Campus buildings. We asked NOAA about the possibility of

using Building 600 and the Adair Building to consolidate all OSF

staff on the North Campus. NOAA officials agreed that this could

be done, but noted that Building 600 would need renovations,

Commerce OIG Semiannual Report

September 1999
National Oceanic and Atmospheric Administration

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

NOAA

Oceanic and

Atmospheric

Research

NOAA

Corps

Operations

46

which university officials estimate would cost between $100,000

and $200,000. We believe that adopting this approach will save

NOAA about $600,000 a year, or $12 million over 20 years.

Because of the potential savings from using both North Campus

facilities, NOAA should consider constructing only one new

facility to consolidate the National Severe Storms Laboratory, the

Storm Prediction Center, and the weather forecast office with the

university, while continuing to lease Building 600, the Adair

Building, and the NEXRAD facility.

l Building 600 is severely overcrowded. As a result, some NOAA

staff are being housed in temporary structures, there is insufficient

space for research and engineering functions, and workstations

are very small. Nevertheless, the facility was in generally good

condition, and university officials stated that if NOAA decided to

stay, they would work to improve the facility.

l Adair Building has sufficient space. The building is in overall

good condition and there is no overcrowding. However, some

areas should be reconfigured for better use if NOAA personnel

continue to occupy the building.

l South Building is not crowded, but consolidation of OSF on

the North Campus is desirable. The OSF South Building is not

large enough to consolidate all OSF staff, and consolidating the

staff from the North Campus there would hinder OSF in its

mission of supporting the NEXRAD radar module, which is

located on the North Campus. Relocating the radar would cost

more than $2 million. In addition, the OSF director strongly

supports consolidating all his staff on the North Campus, because

the current separation hampers operational efficiency.

l Collocation on the South Campus would be costly. NOAA’s

proposal to collocate with the university would result in lease costs

of about $38 per square foot. This relatively high cost results

largely from the university’s policy of building high-quality structures to last 100 years. As the current OSF South Building costs

about $11 per square foot to lease, the proposed rate would result

in NOAA paying about 31⁄2 times as much per square foot. This

substantial cost increase may outweigh the benefits of collocation.

We recommended that NOAA (1) complete a functional requirements

analysis to accurately determine the space requirements for the Norman

consolidation, (2) evaluate the alternative of building and leasing only one

building and continuing to lease Building 600 and the Adair Building on the

Commerce OIG Semiannual Report

September 1999
National Oceanic and Atmospheric Administration

North Campus, and (3) explore ways of reducing the $38 per square foot

rate to lease a new building to be constructed on the South Campus.

NOAA agreed with all three of our recommendations and said that it

had already taken action to implement the first two. In response to the

third recommendation, NOAA stated that it now plans to capitalize the

construction of new and renovated space instead of leasing the facilities.

As a result, we believe that NOAA’s planned action should focus on

lowering the cost of the proposed construction. We plan to continue

monitoring NOAA’s construction cost estimates and supporting documentation. (Science and Technology Audits Division: STD-10900-9-0001)

Fishermen’s Contingency Fund

Needs to Be Reassessed

Title IV of the Outer Continental Shelf Lands Act Amendments of

1978 established the Fishermen’s Contingency Fund to compensate U.S.

fishermen whose vessels or fishing gear have been lost, damaged, or

destroyed by oil and gas obstructions on the U.S. Outer Continental Shelf.

The compensation covers both economic and property loss. The fund is

administered by NOAA’s National Marine Fisheries Service (NMFS) and is

funded by fees assessed against oil and gas companies operating mainly in

the Gulf of Mexico. For the fiscal year ended September 30, 1998, the

fund paid 54 claims totaling $322,000, and had a balance of $1.5 million.

NMFS develops filing and reporting requirements for fishermen,

adjusts claims, and compensates eligible applicants. To address concerns

about the fund’s internal controls, NMFS conducted a review in May 1992

and made recommendations designed to improve the fund’s controls and

efficiency. Before that review, the fund had a history of fraudulent claims

paid due to internal control deficiencies.

The OIG conducted an audit to evaluate the effectiveness of NMFS’s

internal controls over the fund and to assess the trend of paid claims. We

found that past problems had been corrected, internal controls were

properly in place, and recommendations made by NMFS in its 1992

review were being adhered to.

We also noted that there has been a significant decline in the average

total dollar amount of claims paid over the past 11 years. The average

annual total of paid claims was $713,000 in FYs 1988-91, dropped to

$513,000 in FYs 1992-94, and declined further to $264,000 in FYs

1995-98 (see following chart). The fund’s manager attributed the decline

to several factors, including NMFS’s vigorous referral of questionable

47 Commerce OIG Semiannual Report

September 1999
cases to the OIG for investigation, which has served as a deterrent to

fraudulent claims; claimants seeking compensation from a state program;

and the declining number of shrimp vessels because of overfishing and

smaller profits. In response to this decline, NMFS has reduced the number

of staff required to administer the fund. But the sharp decline in the dollar

amount of paid claims raises the issue of the long-term need for the fund.

We recommended that NMFS reexamine whether there is sufficient

need for maintaining the fund within the agency. NOAA agreed with our

findings and recommendation and will conduct a study regarding the

continued need for the program. (Science and Technology Audits

Division: STD-11484-9-0001)

Risks Are Low, but Additional Steps Are Needed

to Ensure Y2K Compliance at NESDIS

As part of its review of the efforts by the Department and its bureaus

to ensure year 2000 (Y2K) compliance for critical Commerce computer

systems, the OIG conducted an inspection of the National Environmental

Satellite, Data, and Information Service’s (NESDIS) efforts to make its

automated information systems Y2K compliant and to develop contingencies in the event that these systems fail as a result of the year 2000 date

change.

48 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

1988-91 1992-94 1995-98

Fiscal Years

White text

Fishermen’s Contingency Fund

Average Annual Dollar Amount of Claims Paid

Fiscal Years 1988-98

$713,000

$513,000

$264,000
We concluded that the likelihood of NESDIS satellite operations and

satellite data processing being interrupted due to Y2K failure is low

because the agency exercised stringent quality control over system

renovations and conducted thorough end-to-end tests. Also, because

NESDIS’s systems use year data infrequently, they have a low

susceptibility to Y2K failures.

However, we expressed concern that NESDIS had not completed its

system inventory, which raised doubt that all systems had been evaluated

for Y2K compliance. As a result, at least one system that should have

been tested for compliance—the Telemetry Acquisition and Command

Transmission System—was not. NESDIS agreed to complete its inventory

and evaluate any new systems found for Y2K compliance.

We also found that NESDIS needs to significantly improve and ensure

the accuracy of its business continuity and contingency plans. Although

NESDIS has standard procedures for handling problems with its satellite

operations and satellite data processing, the agency did not augment them

with contingencies for Y2K-specific failures. The agency did not plan to

test Y2K-specific contingencies and was instituting only limited procedures

for reducing risk with computer operations for the days surrounding the

century change (referred to as a “Day One Plan”). NESDIS has agreed to

update its continuity and contingency plans and to prepare a Day One

Plan.

NESDIS has informal procedures for managing the risk of introducing

changes to operational systems, but it has not established an official policy

for managing changes to systems that have been confirmed to be Y2K

compliant. OMB has directed agencies to establish a policy limiting

changes to Y2K-compliant systems so that compliance can be maintained.

NESDIS has agreed to establish such a policy. Finally, we found several

minor deficiencies in the system renovation process.

We made several recommendations to address our concerns. NESDIS

agreed with all of our recommendations and has taken or plans to take

actions to address them. (Office of Systems Evaluation: OSE-12199)

Reviews of NOAA Discretionary Funding

Programs Show Mixed Results

During this semiannual period, the OIG issued reports on its audits of

the criteria, procedures, and practices for soliciting, reviewing, and selecting applications in FY 1997 for awards under three NOAA discretionary

financial assistance programs:

49 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
l Meteorologic and Hydrologic Modernization Development

Program (National Weather Service).

l Marine Fisheries Initiative Program (National Marine Fisheries

Service).

l Fisheries Development and Utilization Research and Development

Grants and Cooperative Agreements Program (National Marine

Fisheries Service).

The audits were conducted as part of a Department-wide review of

Commerce’s discretionary financial assistance programs. As discussed

below, the three programs had varying degrees of success in utilizing

processes designed to result in merit-based selections of applications for

funding.

Meteorologic and Hydrologic Modernization

Development Program

The Meteorologic and Hydrologic Modernization Development

Program provides financial assistance to entities for the use and development of meteorological or hydrological forecasts or forecast methodology.

During FY 1997 (our review period), the program awarded two new

cooperative agreements, two new grants, two continuation amendments to

existing cooperative agreements, and one grant renewal, for a total of more

than $4.9 million.

We found that NWS did not administer the program as a competitionbased financial assistance program as prescribed by Commerce guidelines.

Instead, recipients were selected on a non-competitive, sole-source basis.

In addition, the written justifications for program awards did not cite any

factual basis for the routine assertions that the applicants were the only

entities that could perform the work.

We recommended that NWS ensure that program awards are made

through a competitive process, unless otherwise mandated by law or

adequately justified, and that the award process comply with Department

policies and procedures and include the following four elements:

(1) widespread solicitation of eligible applications and disclosure of

essential application and program information in written solicitations,

(2) independent application reviews that consistently apply written program

evaluation criteria, (3) written justifications for award decisions that

deviate from recommendations made by application reviewers, and

(4) adequate written justifications for noncompetitive awards that

document appropriate market search efforts to validate determinations that

50 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
there is only one source for anticipated sole-source awards. We also

recommended that NOAA’s Grants Management Division perform reviews

of proposed noncompetitive awards to determine whether they meet

Department and NOAA requirements.

In response to our report, NOAA agreed that more awards should be

made competitively in its discretionary funding programs and that a more

rigorous solicitation process should be used. NOAA said that it is continuing to look at its processes and will provide more detail as part of its audit

action plan for this report. (Atlanta Regional Office of Audits: ATL-11405-

9-0001)

Marine Fisheries Initiative Program

The Marine Fisheries Initiative Program provides financial assistance

for research and development projects that provide information for the full

and wise use and enhancement of fishery resources in the southeastern

United States. In FY 1997, the program received 73 applications for over

$7.6 million in financial assistance and awarded 11 grants totaling more

than $915,000.

We found that program officials had developed and published

appropriate merit-based criteria for use in evaluating financial assistance

applications for funding, and that the application solicitation, review, and

selection process followed by the program is designed to promote meritbased funding decisions.

However, we found that some of the program’s review and selection

practices needed improvement. Specifically, we recommended that

program officials keep a record of the scientific panel’s vote count, and

maintain adequate documentation of the bases for award decisions that

deviate from the independent panel’s recommendations. NOAA concurred

in our findings and recommendations, and it has agreed to begin implementing them with the program’s next selection process. (Atlanta Regional

Office of Audits: ATL-11655-9-0001)

Fisheries Development and Utilization Research and

Development Grants and Cooperative Agreements Program

Commonly known as the S-K Program, this program provides financial assistance for research and development projects that address various

aspects of U.S. fisheries, including harvesting, processing, marketing, and

associated infrastructure. In FY 1997, NMFS made 75 financial assistance

awards totaling more than $8 million under this program.

51 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
We found that the S-K Program had criteria that were merit-based and

appropriate for selecting applications for funding, and that the application

solicitation process was adequate to obtain a nationwide response. However, selection decisions that deviated from application rankings were not

adequately justified and documented, and we believe that NMFS could

have relied more extensively on competitive program applicants to meet its

research needs.

We recommended that NMFS ensure that reasons for selecting

applications ranked lower than other applications are thoroughly documented. Additionally, NMFS officials need to place more emphasis on

addressing research needs and priorities competitively, and ensure that

program funding priorities are developed and published in detail to provide

the public an opportunity to address the agency’s specific research needs.

NOAA agreed with our recommendations and believes that implementation

of the recommendations will enhance the program’s overall effectiveness.

(Seattle Regional Office of Audits: STL-10950-9-0001)

Improved Internal Controls Needed over

Mountain Support Center Bankcard Program

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

the OIG conducted an audit of FY 1998 bankcard activities at NOAA’s

Mountain Administrative Support Center in Boulder, Colorado. The

purpose of our audit was to determine whether the center was properly

using bankcards in accordance with applicable federal and departmental

requirements. The audit involved reviewing a stratified sample of 67 of the

center’s 1,240 transactions for FY 1998.

The objectives of the bankcard program, established government-wide

in 1989, are to reduce administrative procurement costs, improve cash

management by expediting and simplifying small purchases, and strengthen

internal controls to eliminate the vulnerabilities to fraud and abuse of other

small purchase methods. For the most part, these goals have been

achieved at the center.

Although we did not identify any specific misuse of funds, our audit of

the center’s bankcard program disclosed a number of weaknesses in

internal controls and instances of noncompliance with federal regulations

and departmental guidance. These weaknesses need to be corrected to

improve internal controls over the bankcard program. Specific problems

included the failure to provide cardholders with required training,

document alternate approving officials, complete property transaction

forms, promote competition for purchases over $2,500, pre-approve

52 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
significant purchases, maintain a purchase order log, keep bankcards in a

secure location, follow the priority order of mandatory sources of supply,

and reconcile questioned items.

We made recommendations to center officials to address these internal

control deficiencies. NOAA agreed with our findings and recommendations. (Denver Regional Office of Audits: DEN-11927-9-0001)

Grantee Failed to Comply with Fishing Industry

Award and Produced Limited Project Results

In February 1995, NOAA awarded a grant of nearly $655,000 to a

Massachusetts firm as part of the agency’s Fishing Industry Grant

program. This program assists the depressed northeastern fishing industry

by providing financial assistance to fishermen, processors, and fishermen’s

associations, and to recipients who assist or train fishermen in research and

management activities for marine and estuarine resources. The grant,

intended to fund a demonstration project on raising flounder on land,

required the recipient to build and equip a hatchery on the New England

coast to produce 120,000 young flounder over the 18-month project

duration. The recipient was to contribute about $447,000 to the project,

bringing the total budget to $1,102,000.

In a financial and compliance audit, the OIG found that the grantee

had achieved only limited results from the award because it materially

failed to comply with the terms and conditions of the grant agreement.

Specifically, the grantee built and equipped a hatchery at its own inland

location rather than at either of the NOAA-approved coastal locations,

provided only half of the required young flounder (which it purchased,

rather than raised), and failed to provide the requisite training and transfer

of technological expertise. In addition, the grantee did not maintain a

financial management system that complied with federal cost accounting

standards.

As a result of these deficiencies, we questioned about $190,000 in

costs related to the hatchery being operated at the unapproved location and

another $490,000 related to financial management deficiencies, for a total

of about $680,000 in questioned costs. We recommended that NOAA

disallow all project costs claimed, terminate the grant, and recover the full

$655,000 in grant funds disbursed to the recipient. (Atlanta Regional

Office of Audits: ATL-10729-9-0001)

53 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
Investigations in Brief

Sentencing. In the March 1999 issue (page 59), we reported the conviction of a Florida fisherman and his wife for conspiracy to defraud the

government through the filing of false claims under the Gulf of Mexico

Fisheries Disaster Program. In June 1999, they were each sentenced in

U.S. District Court for the Northern District of Florida to three years’

probation, and ordered to make restitution of $4,978. (Denver Field

Office of Investigations)

Conviction. On September 24, 1999, a former NOAA employee was

convicted of one count of theft of government property after an OIG

investigation disclosed that she had obtained more than $7,000 from an

agency imprest fund by submitting 57 false vouchers for payment.

Sentencing is scheduled for December 1999 in U.S. District Court for the

District of Maryland. (Financial Fraud Division)

Resignation. An NMFS enforcement agent resigned from federal service

to resolve a Merit Systems Protection Board appeal of his proposed termination, which was based upon his acceptance of $500 from a commercial

fisherman. After initially denying the charge to OIG investigators, the agent

was confronted with a copy of a canceled check bearing his signature and

acknowledged that he had accepted a “loan” from the fisherman, whose

business was subject to regulation under fisheries laws administered by

NMFS. (Silver Spring Field Office of Investigations)

Audit Reports Unresolved for Over Six Months

As of September 30, 1999, nine performance audit reports had

recommendations unresolved in excess of six months.

Light Aircraft Operations

The first unresolved performance audit report, Light Aircraft Fleet

Should Be Privatized, STD-9952-8-0001 (see September 1998 issue,

page 44), recommended that NOAA cease operating its eight light fixedwing aircraft and three helicopters and release them, along with related

spare parts. We also recommended that NOAA discontinue all interagency

reimbursable work related to NOAA-owned fixed-wing light aircraft and

helicopters. We added that, pending discontinuance of the reimbursable

work, NOAA should complete current interagency agreements in accordance with its policy of full cost recovery; revise its billing practices to be

consistent with, and achieve, full cost recovery; and seek reimbursement

of the unrecovered full cost balances on all current reimbursable projects.

54 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
NOAA did not concur with most of our findings and recommendations. The bureau believes that discontinuing use of the aircraft would

compromise its ability to continue uninterrupted data collection efforts

required to protect lives and property, and would increase the risk of

accidents and the cost of aircraft support. In addition, NOAA did not agree

with our recommendation to recover full costs, noting that cost sharing and

waiving of overhead costs is appropriate for interagency cooperative

agreements that are beneficial to NOAA, and that interagency agreements

have proved to be cost-effective in meeting some of its data collection

needs. NOAA officials have entered into a consulting contract to obtain an

analysis of its aircraft fleet. The analysis is to include a review of light

aircraft costs and the costs to contract for similar private-sector aircraft

services and support. NOAA also believes that our audit report overstated

the bureau’s aircraft costs by $1.3 million and that its light aircraft are cost

competitive.

After reviewing NOAA’s audit action plan, we concurred with action

taken or planned for 4 of our 10 recommendations. However, we did not

believe that NOAA’s actions, or other information provided in the plan,

were sufficient to warrant a concurrence on the other six recommendations. In particular, we reaffirmed our conclusion that the full in-house cost

to operate NOAA’s fleet of 10 light aircraft averaged 42 percent more than

the cost to contract for similar private-sector aircraft that can provide

equivalent services. We also reaffirmed our conclusion that the Aircraft

Operations Center is not recovering the full cost of work that it performs

under reimbursable agreements with non-Commerce federal agencies. We

have proposed that after NOAA’s contracted review of its aircraft is

completed and the report issued, the bureau submit a revised audit action

plan addressing the unresolved recommendations.

NMFS Laboratory Structure

The second unresolved performance audit report, NMFS Laboratory

Structure Should Be Streamlined, STL-8982-8-0001 (see March 1998

issue, page 39), recommended closing several laboratory facilities and

transferring their programs and personnel to other NMFS laboratories. We

also recommended that one laboratory and most of its programs be

transferred to the state of Maryland, and that the proposed Santa Cruz,

California, facility be expanded to accommodate programs and personnel

from another California laboratory. Our analysis indicated that our

recommended changes would result in increased efficiencies and cost

savings of more than $25 million over a five-year period.

In addition, we differed with NMFS’s plans to transfer some programs

from a Seattle laboratory to the proposed Auke Cape facility in Alaska,

55 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration
56 Commerce OIG Semiannual Report

September 1999

National Oceanic and Atmospheric Administration

because there is insufficient space at the proposed facility to accommodate

the programs and the costs associated with such a move would be in

excess of $20 million.

NOAA disagreed with our findings and recommendations. In April

1998, we requested NOAA to submit a revised audit action plan, and

subsequent meetings were held between OIG and NOAA officials. NOAA

submitted a revised plan in November 1998, but did not change its initial

position. Negotiations with NOAA concerning alternative approaches to

resolution are continuing.

NOAA’s Discretionary Funding Programs

The remaining seven unresolved performance audits relate to discretionary funding programs in NESDIS, NMFS, NWS, and the National

Ocean Service. In each of these audits, we recommended that NOAA

ensure that financial assistance awards are made on the basis of a competitive review and selection process, unless otherwise mandated by law or

adequately justified, and that the process complies with Department

policies and procedures.

NOAA generally agreed with our recommendations, and has submitted

an audit action plan that we are currently reviewing.
National Telecommunications

and Information Administration

The mission of the National

Telecommunications and

Information Administration is to

(a) serve through the Secretary of

Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (b) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(c) develop with other federal

agencies policies for international

communications and standardssetting organizations, (d) serve as

the federal telecommunications

research and engineering center,

and (e) administer grants under

the Telecommunications and

Information Infrastructure

Assistance Program and the

Public Telecommunications

Facilities Program.

57

Internal Controls over

Bankcard Use Are Sound

In conjunction with an OIG plan to periodically review Commerce

units’ use of bankcards, we conducted an audit of NTIA’s FY 1998

bankcard activities to determine whether the bureau was properly using

bankcards in accordance with applicable federal and departmental

requirements. Our audit covered over 1,100 transactions, totaling more

than $680,000, made by NTIA headquarters during the year.

We found that continued oversight by NTIA management, and by

NIST staff who provide contracting support to the bureau, has resulted in

sound internal controls over NTIA bankcard transactions. We also found

that NIST personnel properly conducted the required annual review of

bankcard use for 1998.

However, we did note several minor internal control deficiencies

requiring management action: (1) the large number of cardholders, coupled

with the small percentage of purchasing power used, suggested that the

number of cardholders should be reduced for greater efficiency, (2) several

cardholders were not storing their cards in a secure location as required,

and (3) training for cardholders needed to be provided and documented.

We made several recommendations to NTIA regarding these minor

deficiencies. NTIA agreed with all of our findings and recommendations

except the recommendation that it reduce the number of cardholders. The

agency believes that the current distribution of cardholders is appropriate

based on the needs of the program offices and has advantages for

management control. We continue to recommend that NTIA examine the

need to have so many cardholders to permit more efficient utilization of its

bankcards. (Business and Trade Audits Division: BTD-11549-9-0001)

Commerce OIG Semiannual Report

September 1999

Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA
Patent and

Trademark Office

The Patent and Trademark Office

administers the nation’s patent and

trademark laws. Patents are

granted, and trademarks

registered, under a system

intended to provide incentives to

invent, to invest in research, to

commercialize new technology,

and to draw attention to inventions

that would otherwise go unnoticed.

PTO also collects, assembles,

publishes, and disseminates

technological information disclosed

in patents.

58

Patent Inventory, Printing, and

Dissemination Issues Need Attention

PTO’s Office of Patent Publications (OPP) ensures the production of

individual patent documents and several related products for the benefit of

the bureau and its customers in its post-examination process. After patent

applications have been allowed by examiners, they are sent to OPP, which

oversees the complex process of image-capturing, printing, publishing, and

disseminating them around the world. OPP products include the weekly

Official Gazette, the official journal of issued patents and PTO notices;

the patent image file used to support the Automated Patent System; and

conversion files used to make microfilm copies of patents.

The OIG conducted an audit of OPP operations to identify the causes

of the large inventory of patents in the post-examination process, review

initiatives to reduce publishing time, review selected aspects of the printing

process, and determine whether OPP is complying with significant laws

and regulations applicable to the post-examination process. We concluded

that management attention is needed in two areas.

Actions Needed to Reduce the Large

Inventory of Pending Applications

Although OPP increased the number of patents processed annually by

47 percent from FY 1993 to FY 1998, the inventory of patents awaiting

final processing increased by 51 percent during that period. We found that:

l Despite increased productivity, a large inventory of allowed

patents awaiting final processing still exists because the total

number of patents allowed by examiners has increased each year,

patents have not been processed by OPP until applicants pay issue

fees, and OPP’s production capacity has been limited.

l OPP’s efforts to reduce the inventory have overburdened data

compilation activities. Because of sustained increases in the size of

the Official Gazette, OPP has not been able to deliver products to

the database contractor in time for compilation.

l Late deliveries of processed patents to the printing contractor have

delayed printing operations, although recent data indicates

improvements in this area.

l Initiatives to improve the process may decease publishing time,

but still may not meet PTO’s goals.

Commerce OIG Semiannual Report

September 1999
Patent and Trademark Office

Assistant

Commissioner

for Patents

Assistant

Commissioner

for Trademarks

Associate

Commissioner

and CFO

Chief

Information

Officer

Patent and

Trademark

Office

59

We recommended that PTO establish a plan to resolve these issues,

reduce the inventory, and publish patents within four weeks to meet the

goal set forth in its FY 1999 Corporate Plan. It should do this by assessing

the effect on cycle time of processing files for publication before receiving

fees, processing patents more rapidly for timely delivery to the database

contractor, assisting the database and printing contractors in meeting their

obligations on time, and considering further consolidation of the database

compilation and printing processes.

Patent Dissemination Needs Streamlining, and the

Printing Contract Needs Increased PTO Oversight

Having been designated by the Vice President as a “High Impact

Agency” directed to focus on using information technology and providing

customer service, PTO has established as one of its goals moving to a

paperless patent publishing process by FY 2003. However, we found that:

l PTO spends an average of $1.5 million a year to print hard copies

of the Official Gazette and produces microfilm products, although

information from the Gazette is available at various locations on its

Internet web site.

l By law, the Government Printing Office (GPO) serves as OPP’s

contracting agent for the procurement of printing services, but

PTO is capable of providing such services more efficiently inhouse. Since FY 1992, OPP has paid an average of $230,000

annually in handling fees to GPO.

l GPO and OPP may have approved the printing contractor’s

claims of over $218,000 for overtime and other expenses incurred

because of PTO’s late delivery of processed patents without

adequately substantiating the claims or involving the onsite quality

control specialist in key discussions with GPO and the contractor.

We recommended that PTO (1) disseminate all patent-related

products, including the Official Gazette, on the Internet by the end of

FY 2003 and conduct customer surveys to determine which printed

products can be eliminated to reduce costs; (2) consider pursuing a waiver

from the Congress, or the necessary legislation, to independently handle its

own printing contract; (3) ask GPO to review the basis of the printing

contractor’s future claims of expenses incurred as a result of late patent

deliveries; and (4) involve the onsite quality assurance specialist more in

overseeing the database and printing contractors.

Commerce OIG Semiannual Report

September 1999

v v v v v
PTO agreed with our recommendations and described a number of

measures it is taking to implement them. For example, PTO expects that a

new method of publishing patents will ultimately reduce the patent

publishing cycle time by 10 weeks. Other measures that PTO is taking or

will take to address our recommendations include eliminating delays in the

delivery of magnetic tapes to the database contractor, meeting weekly with

the contractor to resolve problems, initiating a customer survey to determine which products may be eliminated under a move to paperless patent

dissemination, and strengthening the role of the onsite quality assurance

specialist. (Business and Trade Audits Division: BTD-10996-9-0001)

Additional Steps Needed to

Better Ensure Y2K Compliance

As part of its review of efforts by the Department and its bureaus to

ensure year 2000 compliance for critical Commerce computer systems, the

OIG conducted an inspection of PTO’s work to make its automated

information systems Y2K compliant. We found that PTO’s renovation and

replacement activities for selected critical systems resulted in Y2K compliance, and that the systems were adequately tested.

However, PTO plans to significantly modify two of its most critical

and vulnerable systems—the Patent Application Location and Monitoring

system and the Trademark Reporting and Monitoring system—and

upgrade the operating system of the mainframe computer on which these

systems reside. The modifications and upgrade were to be completed in

September and October 1999, but PTO has no plans for comprehensive

retesting to ensure that the systems and computer remain Y2K compliant.

PTO believes that testing the units of software involved in these

systems will be sufficient to identify any Y2K problems that may be

introduced during the modifications and upgrade. But we believe that endto-end testing is necessary to verify that the combined units will work

together as an application, and that each application will function as

intended as a system or with other systems with which it interfaces. We

recommended that PTO freeze software changes to critical systems as of

November 30, 1999; then conduct an end-to-end test of the systems, the

mainframe computer, and critical interfaces; and keep all critical hardware

and software configurations frozen until at least the second week of

January 2000 to ensure that there are no Y2K operating difficulties.

We also found that PTO’s Y2K systems inventory may not be

complete. Based on the minimal response to an earlier survey of systems

users and the recent identification of an important system that was not

Patent and Trademark Office

60 Commerce OIG Semiannual Report

September 1999
previously inventoried, there is some doubt that all smaller PTO systems

developed by users have been inventoried and evaluated for Y2K

compliance. We recommended that PTO resurvey operational areas to

identify user-developed applications that are used in performing core

business processes.

In response to our report, PTO agreed with all our recommendations

but one—it continues to believe that end-to-end testing of the modified

systems is unnecessary. (Office of Systems Evaluation: OSE-11693)

Problems with Interagency Agreements

Being Addressed by PTO Management

PTO, like many other agencies, uses interagency agreements to obtain

goods and services through other federal agencies. From 1995 through

1997, PTO’s use of these agreements increased significantly to support its

information technology (IT) requirements. PTO has made extensive use of

interagency agreements, such as multiagency contracts and multiple award

schedule transactions, that are designed to streamline the acquisition of

goods and services by using contracts established by other agencies. PTO

employs these interagency agreements to have other agencies use their

contractors to purchase both IT and non-IT goods and services for PTO.

As part of a Department-wide review of the use of interagency

agreements by Commerce bureaus, the OIG evaluated PTO’s policies,

procedures, and practices for its use of interagency agreements, multiagency contracts, multiple agency schedule contract transactions, and other

special agreements issued from August 1994 to March 1997. These

agreements totaled $49.4 million in PTO obligations and only $27,000

from other agencies.

We found that PTO did not adequately plan and manage many of its

earlier IT interagency transactions. We later observed that PTO had taken

steps to implement stricter procedures and better management for its

agreements. PTO also significantly reduced its use of agreements, and

currently has listed only $4.7 million in IT interagency agreements.

Specifically we found that:

l PTO did not comply with some procurement laws, regulations,

and best practices governing multiagency contracts and multiple

award schedule transactions when using such transactions to

support its IT development efforts.

Patent and Trademark Office

61 Commerce OIG Semiannual Report

September 1999
l All of the IT-related interagency agreements issued before

February 1997 that we reviewed were missing fundamental documentation needed to ensure adequate control over the agreements.

Moreover, lacking a formalized interagency agreement management process, PTO did not adequately control the activities of its

largest multiagency contracts providing agency, GSA’s Federal

Systems Integration and Management Center. But since 1997,

PTO has improved its management of IT interagency agreements.

These improvements include better documentation and more

proactive management, as well as a reduction in the use of

interagency agreements in favor of a single competitively awarded

multiple award task order contract.

l None of the non-IT agreements we examined were reviewed by

the Department’s Office of General Counsel for legal sufficiency.

In addition, PTO had not conducted adequate analyses under the

Economy Act to determine whether it was in the government’s

best interest to enter into agreements. PTO has since implemented

guidelines that require General Counsel review of agreements

before issuance. PTO is also preparing Economy Act determinations on those agreements subject to the act.

l The PTO database used to track both IT and non-IT interagency

agreements was inadequate at the time of our review. Since then,

PTO has established a comprehensive database.

l The Department lacked policies and procedures for multiagency

and multiple award schedule interagency transactions. The needed

guidance should specify qualitative standards of documentation

and minimum review thresholds.

We made recommendations to PTO and the Department to resolve

our concerns, recognizing that since 1997, PTO had taken a number of

measures that greatly improved its use and oversight of interagency and

other special agreements.

In response to our report, PTO officials generally agreed with our

findings and reiterated the changes that it has made in its policies and

procedures since 1997. The Department’s Office of General Counsel

agreed that better management of agreements and legal review will

improve the agreements process. And the Department’s Office of

Executive Assistance Management agreed to lead an effort with the Office

of Acquisition Management to prepare and issue a handbook detailing

departmental policies and procedures for interagency agreements. (Office

of Inspections and Program Evaluations: IPE-10728)

Patent and Trademark Office

62 Commerce OIG Semiannual Report

September 1999
Technology

Administration

The Technology Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing new technologies by

industry. It includes three major

organizations:

Office of Technology Policy. OTP

works to raise national awareness

of the competitive challenge,

promotes industry/government/

university partnerships, fosters

quick commercialization of federal

research results, promotes

dedication to quality, increases

industry’s access to and participation in foreign research and

development, and encourages the

adoption of global standards.

National Institute of Standards

and Technology. NIST promotes

U.S. economic growth by working

with industry to develop and apply

technology, measurements, and

standards. NIST manages four

programs: the Advanced Technology Program, the Manufacturing

Extension Partnership Program, a

laboratory-based measurement

and standards program, and the

National Quality Program.

National Technical Information

Service. NTIS is a self-supporting

agency that promotes the nation’s

economic growth and job creation

by providing access to voluminous

information that stimulates

innovation and discovery. NTIS

accomplishes this mission through

two major programs: information

collection and dissemination to the

public, and information and

production services to federal

agencies.

Grant Process Designed to Promote Merit-Based

Funding Decisions, but Needs More Discipline

The OIG conducted an audit of the FY 1995 through 1997 criteria,

procedures, and practices for soliciting, reviewing, and selecting

applications for financial assistance under NIST’s State Technology

Extension Program. The program provides financial assistance, through

cooperative agreements, to state governments and non-profit organizations

to help states develop manufacturing assistance programs aimed at small

and medium-sized manufacturers, and to help bring those state programs

to a performance level where they can provide the full range of manufacturing extension services required by manufacturers. NIST administers the

program through its Manufacturing Extension Partnership office.

The OIG began an audit of NIST’s criteria, procedures, and practices

for the program in FY 1997, during which the agency made two awards of

$100,000 each. NIST has not made any program awards since FY 1997

and does not anticipate any future solicitations, as it considers the nationwide network of manufacturing extension program centers to be complete.

NIST had issued an open-ended solicitation for applications under the

program in May 1995. After finding minor deficiencies in the solicitation,

review, and selection processes for the FY 1997 awards, we expanded the

scope of our review to include all program funding awarded under the

original solicitation. NIST did not award program funding in FY 1995, but

did make six awards totaling $552,000 in FY 1996.

Our audit disclosed that although NIST developed and published

appropriate evaluation criteria for its FY 1995-97 program competitions, it:

l Did not comply with the Department’s requirement that a notice

be placed in the Federal Register, at least annually, announcing

the availability of funds and specifying the criteria and process to

be used in selecting award recipients.

l Did not properly screen proposals for compliance with published

funding and award period requirements.

l Could enhance the independence and objectivity of any future

program competitions by using proposal reviewers from outside

the program area.

We made several recommendations to address our concerns. NIST

agreed with our findings and recommendations. (Business and Trade

Audits Division: BTD-10961-9-0001)

63 Commerce OIG Semiannual Report

September 1999
Technology Administration

NIST

Technology

Administration

Technology

Policy

NTIS

64 Commerce OIG Semiannual Report

September 1999

Management of NTIS Agreements

Requires Additional Improvements

NTIS uses interagency and other special agreements to pursue its

mission of being the federal government’s central clearinghouse for

unclassified scientific, technical, engineering, and other business-related

information. Through such agreements, NTIS acquires information from

federal agencies, government contractors, and foreign governmental

sources. NTIS’s collection of information exceeds 2.5 million works and

includes business and management studies, research and development

tools, and foreign and domestic trade statistics.

As part of our Department-wide review of the use of such agreements,

we evaluated the policies, practices, and procedures being followed by

NTIS in preparing, reviewing, and managing its agreements. Overall, we

found that NTIS properly uses agreements to support its mission.

However, we identified several areas in need of improvement in the

administration of agreements:

l Processes and procedures covering agreements need

improvement. The agency lacks written policies and procedures

for drafting agreements and does not ensure that they undergo

sufficient legal review.

l Interagency agreement files need to be consolidated and

organized. NTIS maintains two separate sets of files for its

interagency agreements, resulting in record-keeping problems in

both sets and poor management of its projects.

l Agreements database needs to be improved. Its current

agreements database is difficult to use and requires special effort

to produce reports and other information on its agreements.

l Joint venture agreements need improvement. We identified

two issues related to NTIS’s joint venture agreements with private

parties: First, the required business plans for joint ventures are

inadequate and, in some cases, not prepared at all. Second, joint

ventures are not being awarded through a process that adequately

promotes competition.

We recommended that NTIS (1) develop comprehensive guidelines for

preparing all types of agreements and work with the Department’s Office

of General Counsel to improve the legal review of agreements, (2) maintain one complete set of records for each agreement in one location,
65 Commerce OIG Semiannual Report

September 1999

Technology Administration

(3) redesign its database to be more user-friendly, and (4) for joint

ventures, create a comprehensive business plan for each project and

develop a more formal awards process that ensures full competition and

includes shorter agreement terms to further promote competition.

NTIS generally agreed with the recommendations and has begun

coordinating with the Office of General Counsel on the legal review of

agreements. (Office of Inspections and Program Evaluations: IPE-11021)

NIST’s Policy of Allowing Employees to Bring

Firearms onto Its Campus Was Ill-Advised

During our ongoing review of NIST’s plans for a proposed ballistics

testing facility and firearms qualification range on its Gaithersburg campus,

we became aware of a related issue—a NIST policy that allowed

employees to bring their recreational weapons onto the campus.

Since at least 1975, NIST has granted some of its employees and

contractors permits to bring weapons and ammunition onto its

Gaithersburg campus for their personal, off-duty, and off-campus use.

Weapons approved include various models of hunting rifles, shotguns,

handguns, bows and arrows, martial arts weaponry, and assorted types of

ammunition. Under the policy, the weapons were to be kept unloaded,

encased (if handguns), secured in the employees’ vehicles, and not

removed while on the campus. In June 1999, when we conducted our

review, about 20 employees and contractors had NIST permits to carry

personal weapons and ammunition onto the campus.

In a June 2, 1999, memorandum, we recommended that NIST cease

allowing its employees to carry weapons or ammunition onto its

Gaithersburg campus, unless the carrying of weapons is directly related to

their official duties, and cancel all permits. As our memo pointed out, in

addition to concerns about the appropriateness of this policy in terms of

safety, liability, and potential adverse publicity, this practice was in

apparent violation of federal criminal law, 18 U.S.C. § 930, which

generally prohibits the possession of firearms or other dangerous weapons

in a federal facility. Although NIST officials disagreed that the carrying of

weapons on the campus was prohibited by law, they agreed, on the basis

of policy considerations, to stop issuing new permits and cancel all existing

permits. (Office of Inspections and Program Evaluations)
Departmental Management

Chief

Information

Officer

Security

Financial

Management

CFO and

Assistant Secretary

for Administration

Management

and

Organization

Human

Resources

Management

Acquisition

Management

Civil

Rights

Budget

Administrative

Operations

Small and

Disadvantaged

Business Util.

Exec. Budgeting

and Assistance

Management

66 Commerce OIG Semiannual Report

September 1999

Postsecondary Internship Program Award

Process Promotes Merit-Based Decisions

As part of its Department-wide review of discretionary financial

assistance programs, the OIG conducted an audit of FY 1997 and 1998

award criteria, procedures, and practices for soliciting, reviewing, and

selecting applications for financial assistance under the Department’s

Postsecondary Internship Program. The program, administered by the

Office of Executive Budgeting and Assistance Management (OEBAM),

offers college students the opportunity to obtain paid internships at the

Department. During FYs 1997 and 1998, the program funded six new and

two amended awards, totaling more than $2.4 million.

Our audit disclosed that OEBAM developed merit-based evaluation

criteria for evaluating applications for FY 1998 awards. It also properly

published a notice in the Federal Register soliciting applications for

funding and further publicized the program through an announcement on

its web site and other means. However, OEBAM:

l Made awards in FY 1997 using policies and procedures that did

not comply with departmental and federal requirements for the

competitive selection of financial assistance recipients.

l Had not properly documented its procedures for reviewing and

selecting applications for FY 1998 awards in a formal policy

statement or manual.

l Had not ensured that the program was included in the Catalog of

Federal Domestic Assistance for FY 1998.

We recommended that the Department document and disseminate

program procedures for the review and selection of applications in a

written policy statement, and consider including individuals from outside

the Department on its review panels in order to enhance the independence

of application reviews.

The Department agreed with our recommendations and plans to

develop a written policy statement detailing the program’s review and

selection procedures. In addition, the policy statement will include

procedures to invite individuals from outside the Department to participate

on program review panels. The Department also ensured that the program

is now included in the Catalog of Federal Domestic Assistance. (Business

and Trade Audits Division: BTD-11822-9-0001)
Departmental Management

Commerce OIG Semiannual Report

September 1999

Natural Disaster Reduction Initiative Is

on Target, but Needs Better Reporting

In December 1996, the Cabinet-level National Science and

Technology Council’s Subcommittee on Natural Disaster Reduction

established its national initiative for an interagency approach for the

strategic coordination and advancement of programs, strategies, and

research to reduce the social, environmental, and economic costs of

natural disasters. Along with the Department of Commerce, the initiative

included the Federal Emergency Management Agency, U.S. Geological

Survey, U.S. Army Corps of Engineers, National Science Foundation,

Environmental Protection Agency, and National Aeronautics and Space

Administration.

In February 1998, the Department established its own initiative and a

strategic framework for Commerce partnerships in natural disaster

reduction. The Commerce strategy primarily involves the coordinated

efforts of NOAA, NIST, EDA, and BXA, with support from other

bureaus. A NOAA senior scientist serves as the Department’s principal

contact for the initiative and is the chairman of the Council subcommittee.

The OIG completed an audit survey to determine what the bureaus

have done in responding to the Department’s initiative, assess the progress

made, and identify and recommend changes for improvement. We found

that the Commerce initiative was in consonance with the overall natural

disaster reduction plan. However, we noted that the initiative did not

provide for individual bureaus to report to the Department on the

accomplishment of established milestones and objectives. As a result, the

Department would not have adequate feedback to determine if the

initiative was being properly implemented and achieving the desired results.

We recommended that the Department establish standard, periodic

progress reports for the bureaus. The Department agreed with our recommendation, but expressed its belief that the reporting function should be

housed in NOAA, which plays the lead role in the initiative. We concurred

with that proposed course of action. (Science and Technology Audits

Division: STD-11600-9-0001)

Verification of Centralized Trial-Balance System

Data Supports Department’s Assertion

In connection with the audit of the Department’s FY 1998

consolidated financial statements (see March 1999 issue, page 76), the

OIG performed certain procedures to verify financial data for the General

67
Departmental Management

Accounting Office and Department of the Treasury’s Financial

Management Service. Our verification was conducted to evaluate the

Department of Commerce’s assertion that the summarized federal

agencies’ centralized trial-balance system data provided by Treasury was

not consistent in all material respects with the Department’s FY 1998

consolidated statements. Our findings were in agreement with the

Department’s assertion, identifying differences between the data and the

consolidated statements. These differences existed because the data was

due to Treasury before the Department finalized the consolidated

statements. This is a direct result of the Department’s decision to extend

the timeline for submitting financial statements in order to receive an

unqualified opinion on its consolidated balance sheet. (Financial

Statements Audits Division: FSD-10899-9-0002)

Preaward Financial Assistance Screening

We continue to work with the Office of the Executive Budgeting and

Assistance Management, NOAA and NIST grant offices, and EDA

program offices to screen all of the Department’s grants, cooperative

agreements, and loans before award. Our screening serves two purposes:

It provides information on whether the applicant has unresolved audit

findings and recommendations on earlier awards, and it determines

whether a name check or investigation has revealed any negative history

on individuals or organizations connected with a proposed award.

During this period, we screened 1,563 proposed awards. On 33 of the

awards, we found major deficiencies that could affect the ability of the

proposed recipients to maintain proper control over federal funds. On the

basis of the information we provided, the Department delayed the awards

until concerns were satisfactorily resolved, established special award

conditions to adequately safeguard federal funds, or designated certain

recipients as “high risk” and required that disbursement of federal funds be

on a cost reimbursement basis, rather than allowing the awardees to draw

upon the funds at will.

68 Commerce OIG Semiannual Report

September 1999

Preaward Screening Results

Results

Awards delayed to resolve concerns

Special award conditions established

Amount

$21,495,060

8,883,249

18

 8

Number

Cost reimbursement basis required 7 3,914,200
Departmental Management

Indirect Cost Rates

Under OMB policy, a single federal agency—the “cognizant

agency”—is responsible for the review, negotiation, and approval of indirect cost rates for public and private entities receiving funds under

various federal programs. Normally, the federal agency providing the most

direct funding to an entity is designated as its cognizant agency. OMB has

designated Commerce as the cognizant agency for 280 economic development districts, as well as a number of state and local government units.

From time to time, the Department also has oversight responsibilities for

other recipient organizations. The Department has authorized the OIG to

negotiate indirect cost rates and review cost allocation plans on its behalf.

The OIG reviews and approves the methodology and principles used in

pooling indirect costs and establishing an appropriate base for distributing

those costs to ensure that each federal, state, and local program bears its

fair share.

During this period, we negotiated six indirect cost rate agreements with

non-profit organizations and governmental agencies, and reviewed and

approved eight cost allocation plans. We also provided technical assistance

to recipients of Commerce awards regarding the use of rates established by

other federal agencies and their applicability to our awards. Further, we

have worked closely with first-time for-profit recipients of Commerce

awards to establish indirect cost proposals that are acceptable for OIG

review. (Atlanta Regional Office of Audits)

Nonfederal Audit Activities

In addition to OIG-performed audits, certain of the Department’s

financial assistance programs are sometimes audited by state and local

government auditors and by independent public accountants. OMB

Circular No. A-133, Audits of States, Local Governments, and Non-Profit

Organizations, sets forth the requirements for most of these audits. Forprofit organizations that receive ATP funds from NIST are audited in

accordance with Government Auditing Standards and NIST ProgramSpecific Audit Guidelines for ATP Cooperative Agreements, issued by the

Department. (Before June 30, 1996, such audits were subject to the

requirements of Circular A-128, Audits of State and Local Governments,

and the former Circular A-133, Audits of Institutions of Higher Education

and Other Non-Profit Institutions. Some of the audits discussed below

were conducted in accordance with these earlier circulars.)

We examined 380 audit reports during this semiannual period to determine

whether they contained audit findings on any Department programs. For

252 of these reports, the Department acts as cognizant agency and moniCommerce OIG Semiannual Report

September 1999 69
Departmental Management

70 Commerce OIG Semiannual Report

September 1999

tors the auditee’s compliance with the applicable OMB circulars or the

NIST program-specific reporting requirements. The other 128 reports are

from entities for which other federal agencies have oversight responsibility.

Bureau Funds

EDA

ITA

MBDA

NIST

$151,458,269

3,478,582

2,204,453

192,911,760

NOAA

NTIA 4,134,320

Agency not identified

Total

25,364

$465,944,049

a

97,225,281

Includes $155,665,077 in ATP program-specific audits. a

NTIS

14,506,020

Report Category

OMB

A-133

Audits

Pending (April 1, 1999)

Received

Examined

Pending (September 30, 1999)

78

213

282

9

ATP

ProgramSpecific

Audits Total

80

79

98

61

158

292

380

70

We identified a total of $1,851,588 in questioned costs. In most

reports, the Department’s programs were considered non-major, resulting

in limited transaction and compliance testing against laws, regulations, and

grant terms and conditions. The 25 reports with Commerce findings are

listed in Appendix B-1. (Atlanta Regional Office of Audits)

The following table shows a breakdown by bureau of the $466 million in

Commerce funds audited.
INDEX

 The Inspector General Act of 1978, as amended (1988), specifies reporting requirements for

 semiannual reports. The requirements are listed below and indexed to the applicable pages

 of this report.

Section Topic Page

4(a)(2) Review of Legislation and Regulations 72

5(a)(1) Significant Problems, Abuses, and Deficiencies 17-70

5(a)(2) Significant Recommendations for Corrective Action 17-70

5(a)(3) Prior Significant Recommendations Unimplemented 72

5(a)(4) Matters Referred to Prosecutive Authorities 17-70

5(a)(5) and 6(b)(2) Information or Assistance Refused 73

5(a)(6) Listing of Audit Reports 79-84

5(a)(7) Summary of Significant Reports 17-70

5(a)(8) Audit Reports—Questioned Costs 77

5(a)(9) Audit Reports—Funds to Be Put to Better Use 78

5(a)(10) Prior Audit Reports Unresolved 15, 73

5(a)(11) Significant Revised Management Decisions 15, 73

5(a)(12) Significant Management Decisions with Which the OIG Disagreed 74

The OIG is also required by section 804(b) of the Federal Financial Management Improvement Act of 1996

to report on instances and reasons when an agency has not met the dates of its remediation plan. We will

discuss this matter in the March 2000 issue as part of our financial statement audit reporting.

Reporting Requirements

Commerce OIG Semiannual Report

September 1999

71
Reporting Requirements

72 Commerce OIG Semiannual Report

September 1999

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

and Regulations

This section requires the Inspector General of each agency to review

existing and proposed legislation and regulations relating to that agency’s

programs and operations. Based on that review, the Inspector General is

required to make recommendations in the semiannual report concerning

the impact of such legislation or regulations on the economy and efficiency

in the administration of programs and operations administered or financed

by the agency or on the prevention and detection of fraud and abuse in

those programs and operations. Our comments concerning legislative and

regulatory initiatives affecting Commerce programs are discussed in

appropriate sections of the report.

Section 5(a)(3): Prior Significant

Recommendations Unimplemented

This section requires an identification of each significant

recommendation described in previous semiannual reports on which

corrective action has not been completed. Section 5(b) requires that the

Secretary transmit to the Congress statistical tables for audit reports for

which no final action has been taken, plus a statement that includes an

explanation of the reasons final action has not been taken on each such

audit report, except when the management decision was made within the

preceding year.

To include a list of all significant unimplemented recommendations in

this report would be duplicative, unwieldy, and of limited value to the

Congress. Any list would have meaning only if explanations detailed

whether adequate progress is being made to implement each agreed-upon

corrective action. Also, as this semiannual report is being prepared,

management is in the process of updating the Department’s Audit Tracking

System as of September 30, 1999, based on semiannual status reports due

from the bureaus in mid-October. An accurate database is therefore not

available to the OIG for reference here. However, additional information

on the status of any audit recommendations may be obtained through the

OIG’s Office of Audits.
Reporting Requirements

73 Commerce OIG Semiannual Report

September 1999

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 the reasons such management

decision has not been made, and a statement concerning the desired

timetable for achieving a management decision on each such report.

As of September 30, 1999, nine performance audits and one financial

assistance audit were in this category, as discussed below.

Performance Audits

The nine NOAA unresolved reports address the bureau’s discretionary

funding programs, its light aircraft operations, and NMFS’s laboratory

structure. These reports are discussed on page 54.

Financial Assistance Audit

The unresolved audit relates to a financial assistance award made by

EDA. A response to the final audit report has been submitted; however,

the OIG is awaiting the submission of an audit resolution proposal.

Additional details are presented on page 23.

Section 5(a)(11): Significant Revised

Management Decisions

This section requires a description and explanation of the reasons for

any significant revised management decision made during the reporting

period. Department Administrative Order 213-5, Audit Resolution and

Follow-up, provides procedures for revision of a management decision.

For performance audits, the OIG must be consulted and must approve, in

advance, any modification to an audit action plan. For financial assistance

audits, the OIG must concur with any decision that would change the audit

resolution proposal in response to an appeal by the recipient.
Reporting Requirements

Commerce OIG Semiannual Report

September 1999

The decisions issued on the four appeals of audit-related debts were

finalized with the full participation and concurrence of the OIG.

Section 5(a)(12): Significant Management

Decisions with Which the OIG Disagreed

This section requires information concerning any significant

management decision with which the Inspector General is in disagreement.

Department Administrative Order 213-5 provides procedures for the

elevation of unresolved audit recommendations to higher levels of

Department and OIG management, including an Audit Resolution Council.

During this period, no audit issues were referred to the Council.

74
Statistical Highlights

Investigative

Statistical Highlights

Arrests ............................................................................................. 1

Indictments and informations............................................................. 1

Convictions ....................................................................................... 3

Personnel actions*............................................................................ 1

Fines, restitutions, judgments, and other civil

and administrative recoveries ................................................ $25,178

 * Includes removals, suspensions, reprimands, demotions, reassignments, and resignations

 or retirements in lieu of adverse action.

Audit

Statistical Highlights

Questioned costs this period ........................................... $1,851,588

Value of audit recommendations made

this period that funds be put to better use ........................ $654,904

Value of audit recommendations agreed

to this period by management ......................................... $5,345,445

75 Commerce OIG Semiannual Report

September 1999

Allegations Processed

by OIG Investigators

Accepted for investigation........................................ 28

Referred to operating units ...................................... 30

Evaluated but not accepted for

investigation or referral ............................................ 62

Total ........................................................................120

Note: Numerous other allegations and complaints were forwarded

to the appropriate federal and nonfederal investigative agencies.

OIG HOTLINE

Telephone: (202) 482-2495 or (800) 424-5197

Internet E-Mail: oighotline@doc.gov
TABLES PAGE

1. Audits with Questioned Costs 77

2. Audits with Recommendations That Funds Be Put to Better Use 78

APPENDIXES

A. Office of Inspector General Reports 79

 A-1. Performance Audits 79

 A-2. Inspections 81

 A-3. Financial Statements Audits 82

 A-4. Financial Assistance Audits 82

B. Processed Reports 83

 B-1. Processed Financial-Related Audits 83

DEFINITIONS

The term questioned cost refers to a cost that is questioned by the OIG because of (1) an alleged violation of a

provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the

expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation;

or (3) a finding that an expenditure of funds for the intended purpose is unnecessary or unreasonable.

The term unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate documentation.

Questioned costs include unsupported costs.

The term recommendation that funds be put to better use refers to a recommendation by the OIG that funds could

be used more efficiently if Commerce management took action to implement and complete the recommendation,

including (1) reductions in outlays; (2) deobligation of funds from programs or operations; (3) withdrawal of interest

subsidy costs on loans or loan guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended

improvements related to Commerce, a contractor, or a grantee; (5) avoidance of unnecessary expenditures identified in

preaward reviews of contracts or grant agreements; or (6) any other savings that are specifically identified.

The term management decision refers to management’s evaluation of the findings and recommendations included in

the audit report and the issuance of a final decision by management concerning its response.

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 76
Table 1: Audits with Questioned Costs

Report Category Number

Questioned

Costs

Unsupported

Costs

A. Reports for which no management decision had been

 made by the commencement of the reporting period 21 $4,369,565 $2,369,712

B. Reports issued during the reporting period 17 1,851,588 981,865

C. Total reports (A+B) requiring a management decision

C. during the reporting period 38 6,221,153 3,351,577

C. Reports for which a management decision was made

C. during the reporting period 21 4,182,693 2,182,840

 ii. Value of disallowed costs 1,698,881 798,898

 ii. Value of costs not disallowed 2,483,812 1,383,942

D. Reports for which no management decision had been

D. made by the end of the reporting period 17 $2,038,460 $1,168,737

Notes and Explanations:

In Category C, lines i and ii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

One audit report included in this table is also included in the reports with recommendations that funds be

put to better use (see Table 2). However, the dollar amounts do not overlap.

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 77
Table 2: Audits with Recommendations

Table 2: That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

A. commencement of the reporting period 5 $22,031,004

B. Reports issued during the reporting period 1 654,904

C. Total reports (A+B) requiring a management decision during the

B. reporting period 6 22,685,908

C. Reports for which a management decision was made during the

C. reporting period 3 4,054,004

 ii. Value of recommendations agreed to by management 3,646,564

 ii. Value of recommendations not agreed to by management 409,270

D. Reports for which no management decision had been made by the

D. end of the reporting period 3 $18,631,904

Notes and Explanations:

In Category C, lines i and ii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

One audit report included in this table is also included in the reports with questioned costs (see Table 1). However,

the dollar amounts do not overlap.

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 78
Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 16 A-1

Inspections 10 A-2

Financial Statements Audits 1 A-3

Financial Assistance Audits 2 A-4

Total 29

Appendix A-1. Performance Audits

Agency Subject Number Date

Funds to

Be Put to

Better Use

EDA Research and Evaluation Program Funding

Decisions Should Be Documented, CFDA No.

11.312

BTD-11548-9-0001 09/99 —

ESA Dress Rehearsal Quality Check Survey Experience

Indicates Improvements Needed for 2000 Decennial

ESD-11449-9-0001 09/99 —

Public Awareness Campaign Is Meeting Program

Objectives

ESD-11755-9-0001 09/99 —

ITA U.S. and Foreign Commercial Service Is Addressing

Foreign Service Personnel Management Issues

BTD-10829-9-0001 09/99 —

Special American Business Internship Training

Program Award Process Corrected to Ensure

Independent Review Panels, CFDA No. 11.114

ATL-10998-9-0001 09/99 —

NOAA Planned Consolidation at Norman, Oklahoma,

Needs Refinement

STD-10900-9-0001 09/99 —

NMFS’s Fisheries Development and Utilization

Research and Development Grants and Cooperative

Agreements Program Awards Were Merit-Based,

CFDA No. 11.427

STL-10950-9-0001 09/99 —

NWS’s Meteorologic and Hydrologic Modernization

Development Program Awards Were Not

Competitively Selected, CFDA No. 11.467

ATL-11405-9-0001 09/99 —

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 79
Appendix A-1. Performance Audits — Continued

Agency Subject Number Date

Funds to

Be Put to

Better Use

NOAA

(continued)

NMFS’s Fishermen’s Contingency Fund Should Be

Reexamined

STD-11484-9-0001 08/99 —

NMFS’s Marine Fisheries Initiative Program

Promotes Merit-Based Decisions, but Process

Needs More Discipline, CFDA No. 11.433

ATL-11655-9-0001 09/99 —

Internal Controls Over MASC’s Bankcard Program

Need Improvement

DEN-11927-9-0001 09/99 —

NTIA Internal Controls over Bankcard Use Are Sound BTD-11549-9-0001 09/99 —

O/S Audit Survey of the Department of Commerce

Natural Disaster Reduction Initiative

STD-11600-9-0001 07/99 —

Current DOC Postsecondary Internship Program

Award Process Promotes Merit-Based Decisions,

CFDA No. 11.702

BTD-11822-9-0001 09/99 —

PTO Office of Patent Publications: High Inventory, Late

Patent Deliveries, and Patent Printing Issues Must

Be Addressed

BTD-10996-9-0001 09/99 —

TA-NIST State Technology Extension Program Award

Process Designed to Promote Merit-Based

Decisions, but Process Needs More Discipline,

CFDA No. 11.613

DEN-10961-9-0001 09/99 —

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 80
Appendix A-2. Inspections

Agency Subject Number Date

Funds to

Be Put to

Better Use

BXA Improvements Are Needed to Meet the Export

Licensing Requirements of the 21st Century

IPE-11488 06/99 —

ESA Improvements Needed in Multiple Response

Resolution to Ensure Accurate, Timely Processing

for the 2000 Decennial Census

OSE-10711 09/99 —

Method for Archiving 2000 Decennial Data and

Procedures for Disposing of Questionnaires Should

Be Finalized

OSE-10758 09/99 —

ITA US&FCS China Is Meeting the Demands of Its

Clients, but Internal Operations Need Attention

IPE-10915 09/99 —

US&FCS Brazil: Improvements Needed in Program

Management and Internal Controls

IPE-10916 09/99 —

US&FCS South Africa Is Building An Effective

Program, but Administrative Operations Need

Improvement

IPE-11433 09/99 —

NOAA NESDIS Y2K Risks Are Low, but Improvements Are

Needed

OSE-12199 09/99 —

PTO Year 2000 Renovations and Test Program Are

Effective, but Agency Should Freeze Changes and

Verify Inventory

OSE-11693 09/99 —

PTO Has Improved Its Management of Interagency

Agreements

IPE-10728 09/99 —

TA-NTIS Management over Interagency and Other Special

Agreements Requires Further Improvement

IPE-11021 06/99 —

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 81
Appendix A-4. Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

EDA Grand Forks Growth

Fund, ND

DEN-11625-9-0001 09/99 — — —

NOAA AquaFuture, Inc., MA ATL-10729-9-0001 07/99 — — $654,904

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

Appendix A-3. Financial Statements Audits

Agency Subject Number Date

Funds to

Be Put to

Better Use

O/S Fiscal Year 1998 Consolidated Financial

Statements, Federal Agencies Centralized TrialBalance System Data Verification Agreed-Upon

Procedures

FSD-10899-9-0002 06/99 —

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 82
Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 380 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 166

International Trade Administration 2

Minority Business Development Agency 5

National Institute of Standards and Technology 112

National Oceanic and Atmospheric Administration 12

National Telecommunications and Information Administration 6

Multi-Agency 43

Agency Not Identified 34

Total 380

* Includes 98 ATP program-specific audits.

*

Appendix B-1. Processed Financial-Related Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

EDA American Samoa Government ATL-9999-9-0031 04/99 $42,000 — —

Idaho Innovation Center, Inc. ATL-9999-9-1261 07/99 30,709 — —

Replication and Program

Stategies, Inc., PA

ATL-9999-9-1298 07/99 — — —

City of Gary, IN ATL-9999-9-1386 07/99 38,818 — —

City of Rockford, IL ATL-9999-9-1212 08/99 — — —

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 83
Appendix B-1. Processed Financial-Related Audits — Continued

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

EDA

(continued)

Lake City Development

Corporation, SC

ATL-9999-9-1421 08/99 $195,093 — —

Idaho Innovation Center, Inc. ATL-9999-9-1480 08/99 — — —

Lehigh University, PA ATL-9999-9-1498 08/99 — — —

City of Renville, MN ATL-9999-9-1266 09/99 — — —

City of Ely, NV ATL-9999-9-1506 09/99 264,585 $264,585 —

City of Pahokee, FL ATL-9999-9-1517 09/99 — — —

City of Moss Point, MS ATL-9999-9-1531 09/99 116,460 — —

MBDA All Indian Pueblo Council, Inc.,

NM

ATL-9999-9-1344 04/99 7,257 7,257 —

City of Williamsport, PA ATL-9999-9-1321 08/99 — — —

NOAA American Samoa Government ATL-9999-9-1031 04/99 15,000 — —

American Samoa Government ATL-9999-9-1032 04/99 177,374 — —

American Samoa Government ATL-9999-9-1278 04/99 52,675 — —

Commonwealth of

Massachusetts

ATL-9999-9-1389 07/99 37,584 37,584 —

State of Alaska ATL-9999-9-1200 09/99 4,160 4,160 —

TA-NIST Minnesota Technology, Inc. ATL-9999-9-1222 07/99 103,045 2,446 —

Lucent Technologies, NJ ATL-9999-9-0110 08/99 659,812 645,882 —

Chevron Research and

Technology Center, CA

ATL-9999-9-0127 08/99 19,951 19,951 —

Wisconsin Center for

Manufacturing and Productivity,

Inc.

ATL-9999-9-1116 08/99 — — —

Colorlink, Inc., CO ATL-9999-9-0038 09/99 67,941 — —

Missouri Incutech Foundation ATL-9999-9-1520 09/99 19,124 — —

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

Tables and Appendixes

Commerce OIG Semiannual Report

September 1999 84
Definitions of Types of OIG Reviews

and Financial Statements Audit Terms

Audits

Performance Audits — These audits look at the

efficiency, effectiveness, and economy of the

Department’s programs, activities, and information

technology systems. They may check a unit’s

compliance with laws and regulations, and evaluate

its success in achieving program objectives.

Financial-Related Audits — These audits review

the Department’s contracts, grants, cooperative

agreements, loans, and loan guaranties. They assess

compliance with laws, regulations, and award terms;

adequacy of accounting systems and internal controls; allowance of costs; and the degree to which a

project achieved the intended results.

Financial Statements Audits — The CFO Act, as

amended by Government Management Reform Act,

requires federal agencies to prepare annual financial

statements and to subject them to audit. The OIG is

responsible for conducting these audits and reporting

the results to the Secretary.

Inspections

Operational Inspections — These are reviews of

an activity, unit, or office, or a contractor or

organization that receives funds from the

Department. They focus on an organization, not a

whole program, and are designed to give agency

managers timely information about operations,

including current and foreseeable problems.

Program Evaluations — These are in-depth

reviews of specific management issues, policies, or

programs.

Systems Evaluations — These are reviews of

system development, acquisitions, operations, and

policy in order to improve efficiency and

effectiveness. They focus on Department-wide

computer systems and other technologies and

address all project phases, including business

process reengineering, system definition, system

development, deployment, operations, and

maintenance.

OIG Reviews

Financial Statements Audit Terms

Overview — This required component of financial

statements is to provide a clear, concise description

of the entity’s programs, activities, and results. It

contains the entity’s performance measures and

serves as a link between the statements and the

requirements of GPRA.

Trend Analysis — This analysis of performance

data from multiple years allows conclusions to be

drawn about an entity’s progress over time in

improving its results. To facilitate this analysis, the

entity should present data from several prior years,

projected data for the following year, and a

comparison of actual versus targeted performance.

Unqualified Opinion — The financial statements

present fairly, in all material aspects, the entity’s

financial position and results of operations.

Qualified Opinion — Except for the effects of the

matter(s) to which the qualification relates, the

financial statements present fairly, in all material

respects, the entity’s financial position and results of

operations.

Adverse Opinion — The financial statements do

not present fairly the entity’s financial position or

results of operations.

Disclaimer of Opinion — The auditor does not

express an opinion on the financial statements.

85 Commerce OIG Semiannual Report

September 1999
Glossary of Abbreviations

AFOS ................................................................................................. Automation of Field Operations and Services

ATP .......................................................................................................................Advanced Technology Program

AWIPS........................................................................................Advanced Weather Interactive Processing System

BCCP ...................................................................................................... business continuity and contingency plan

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

CAMS ............................................................................................Commerce Administrative Management System

CFO .................................................................................................................................... Chief Financial Officer

DCS 2000 .....................................................................................................................Data Capture System 2000

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

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

Ex-Im Bank ............................................................................................................................. Export-Import Bank

GAO ............................................................................................................................. General Accounting Office

GDP ...................................................................................................................................gross domestic product

GPO ........................................................................................................................... Government Printing Office

GPRA ................................................................................................... Government Performance and Results Act

GSA...................................................................................................................... General Services Administration

IG ...............................................................................................................................................Inspector General

IT .......................................................................................................................................information technology

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

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

MRR ............................................................................................................................multiple response resolution

NESDIS .................................................................National Environmental Satellite, Data, and Information Service

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

OEBAM ....................................................................... Office of Executive Budgeting and Assistance Management

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

OMB................................................................................................................. Office of Management and Budget

OPP ........................................................................................................................... Office of Patent Publications

OSF ............................................................................................................................ Operational Support Facility

PTO.......................................................................................................................... Patent and Trademark Office

RLF ......................................................................................................................................... revolving loan fund

SABIT .............................................................................................Special American Business Internship Training

SBA ......................................................................................................................... Small Business Administration

TA ................................................................................................................................ Technology Administration

US&FCS ...................................................................................................... U.S. and Foreign Commercial Service

USEAC ....................................................................................................................U.S. Export Assistance Center

Y2K ....................................................................................................................................................... year 2000

86 Commerce OIG Semiannual Report

September 1999
Office of Inspector General

Organization Chart

OIG Points of Contact

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

Congressional/PCIE Liaison.....................(202) 482-3052

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

Office of Compliance and Admin..............(202) 482-0231

TDD Number .................................... (202) 482-4948

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

REQUESTS FOR REPORTS:

Telephone .......................................... (202) 482-0231

Internet E-Mail ................................... oigreports@doc.gov

OIG HOTLINE:

Telephone .......................................... (202) 482-2495 or (800) 424-5197

Internet E-Mail ................................... oighotline@doc.gov

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

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

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

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

OIG Internet Home Page

http://www.oig.doc.gov

Inspector

General

Financial

Statements Audits

Preparation

Atlanta

Regional

Office

Denver

Field

Operations

Washington

Field

Operations

Silver Spring

Field

Operations

Deputy

Inspector General

Regional

Audits

Headquarters

Audits

Financial Statements

Audits

Office of

Investigations

Office of

Audits

Office of

Systems Evaluation

Office of

Counsel

Office of

Compliance and

Administration

Office of

Inspections and

Program Evaluations

Special Activities

Section

Financial Fraud

Unit

Investigative

Operations

Seattle

Regional

Office

Denver

Regional

Office

Financial

and Performance

Analysis

Science

and Technology

Audits

Economics

and Statistics

Audits

Business

and Trade

Audits

EDP

Audits