U.S. DEPARTMENT OF COMMERCE

Office of Inspector General

Semiannual Report

to the Congress

September 30, 1997
Under the provisions of the Inspector General Act of 1978, Public Law 95-452, as amended, we report

twice yearly to the Congress on the activities of the Office of Inspector General. We describe the major problems,

abuses, and deficiencies identified during audits, inspections, and investigations, along with our recommendations

for corrective action.

Requests for this document, in this form or in an alternative format to meet the needs of persons with

disabilities, should be addressed to Office of Inspector General, U.S. Department of Commerce, Room 7099C

HCHB, 14th & Constitution Ave., NW, Washington, DC 20230. Telephone requesters can call (202) 482-0231 

or TDD (202) 482-5897. An electronic version can be obtained via the OIG’s Internet Home Page at

http://www.oig.doc.gov.
September 1997 Commerce IG Semiannual Report i

Message for the Secretary

October 31, 1997

The Honorable William M. Daley

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

This report provides a comprehensive overview of Office of Inspector General activities for the second half of

fiscal year 1997. 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.

I appreciate the opportunity you have provided me, through participation in the Department’s executive

management team, to work more closely with senior bureau officials in identifying and addressing the Department’s

management issues. I also want to express my appreciation of your leadership in specifically addressing the 10 areas

of management and program weaknesses identified by our office in cooperation with the General Accounting Office.

However, the Department still faces significant management and programmatic challenges that require

intensive oversight and attention. Initiatives such as the 2000 decennial census, the National Weather Service

modernization, the disestablishment of the NOAA Corps, the proposal to convert PTO to a performance-based

organization, and the modernization of the Commerce Administrative Management System, to name a few, are

approaching critical decision points.

Just as your personal leadership has been crucial in addressing the Department’s management issues, so too

will your continued oversight be essential in ultimately resolving them. I urge you to stay apprised of the problems,

for much remains to be done.

Sincerely,

Francis D. DeGeorge

Inspector General

Enclosure
ii Commerce IG Semiannual Report September 1997

Table of Contents

MESSAGE FOR THE CONGRESS ................................... 1

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

Major Areas of Concern ...................................... 2

PTO Management and Program Issues ..................... 2

NOAA Fleet and NOAA Corps ........................... 3

2000 Decennial Census ................................ 5

Advanced Technology Program ........................... 8

NWS Modernization ................................... 9

Facilities Planning and Laboratory Consolidation ............ 10

Financial Management ................................ 12

NTIS Efforts to Become a Performance-Based Organization .... 14

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

DEPARTMENT OF COMMERCE ORGANIZATION CHART ............. 17

AGENCY OVERVIEWS .......................................... 18

Bureau of Export Administration ............................... 18

Economic Development Administration .......................... 20

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

Bureau of Economic Analysis

Bureau of the Census

International Trade Administration ............................. 27

Minority Business Development Agency ......................... 30

National Oceanic and Atmospheric Administration .................. 33

National Telecommunications and Information Administration ......... 44

Patent and Trademark Office .................................. 46

Technology Administration ................................... 48

National Institute of Standards and Technology

National Technical Information Service

Departmental Management ................................... 55

REPORTING REQUIREMENTS .................................... 62

STATISTICAL HIGHLIGHTS ...................................... 66

TABLES AND APPENDIXES ...................................... 67

DEFINITIONS OF OIG REVIEWS .................................. 80

GLOSSARY OF ABBREVIATIONS ................................. 81

OIG ORGANIZATION CHART AND POINTS OF CONTACT (Inside Back Cover)
September 1997 Commerce IG Semiannual Report 1

Message for the Congress

FOREWORD

In approaching the 20th anniversary of the Inspector General Act of 1978, we remain committed to our

objectives of detecting and preventing waste, fraud, and abuse, and promoting economy, efficiency, and effectiveness

in the Department of Commerce’s programs and operations. In recent years, our efforts have been aided by the

passage of key management reform legislation, including 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. This body of legislation has established a sound framework for strengthening

managerial accountability, ensuring the effective use of resources, and enhancing program performance.

Major ongoing initiatives remain the focus of our efforts to improve the Department’s management and

administration. We still have concerns about the difficulties in designing and deploying the Advanced Weather

Interactive Processing System, the key integrating element of the National Weather Service’s modernization program;

the completion of planning and implementation of the 2000 decennial census; NOAA’s response to congressional

guidance concerning the NOAA Corps and fleet; and the increasing costs and slow pace of implementation of the

Commerce Administrative Management System. 

We are expanding our program reviews of U.S. and Foreign Commercial Service posts to better respond to

long-standing congressional direction to examine the Department’s international trade programs and comply with the

Omnibus Trade and Competitiveness Act of 1988. In this report, we discuss the results of our reviews of US&FCS

posts in Germany, Poland, Thailand, Indonesia, and Malaysia. An ambitious schedule of additional reviews is

planned for the upcoming reporting period.

We are also increasing our attention to PTO management and program issues. This report discusses the

results of our review of PTO’s patent quality review process. In addition, we are reviewing PTO’s transition to a new

systems development and maintenance contract for the Automated Patent System, its cost accounting and fee

restructuring effort, its implementation of the Patent Application Management System, and its plans to consolidate

operations at a new facility to be constructed in northern Virginia. 

We will continue to keep the Department and the Congress fully informed of our activities. 

Francis D. DeGeorge

Inspector General
Message for the Congress

2 Commerce IG Semiannual Report September 1997

MAJOR AREAS OF CONCERN

This section highlights what we consider to be the major areas of

concern for the Department. By addressing these areas, the Department and

the Congress can improve program management, eliminate serious operational

problems, decrease vulnerability to fraud and waste, and achieve significant

cost savings.

PTO Management and Program Issues

As the Congress considers legislation to establish the Patent and

Trademark Office as a performance-based organization, we have serious

concerns about many aspects of the agency’s operations. There is stagnant

productivity and a growing patent application backlog. During the past year,

patent pendency exceeded 20 months for the first time in nine years. Although

PTO has invested heavily in automation and business process reengineering to

improve program operations, the benefits of these costly investments have thus

far been disappointing. The agency is currently making major decisions about

its future space requirements, which could involve moving the entire organization in the near future. Finally, proposed legislation would convert the

agency to a government corporation.

During this reporting period, we completed a review of PTO’s Office

of Patent Quality Review (OPQR) and its efforts to reengineer its review

process (see page 46). OPQR’s purpose is to monitor and evaluate the quality

of the patent examination process by reviewing selected allowed patents. The

results of these quality reviews are essential in identifying operational

deficiencies and suggesting actions to correct them. In recent years, in

anticipation of implementing the reengineered patent quality process, OPQR

staffing has been cut almost in half, which has reduced its ability to report

statistically accurate information about quality to PTO management.

However, implementation has been delayed by problems encountered

during the pilot test, uncertainties surrounding FY 1998 funding, and

negotiations with employee unions. PTO prematurely reduced OPQR’s staff

before the reengineered process was complete or demonstrated to be an

effective quality control mechanism, preventing OPQR from reviewing patents

at the same rate as before. Because of the importance of maintaining public

confidence in the quality of issued patents, we recommended that OPQR

staffing be restored to its former level so that sampling can be resumed at the

previous rate. PTO management has concurred. 
Message for the Congress

September 1997 Commerce IG Semiannual Report 3

Automation Efforts 

We are currently conducting an inspection of PTO’s transition to a

new systems development and maintenance contract for the Automated

Patent System. PTO has replaced its long-standing prime contract for the

system with two new system development and maintenance contracts, valued

at $511 million over the next eight years. The purpose of our inspection is to

determine PTO’s preparedness to transfer system activities to the new

contractors.

In addition, we are assessing PTO’s progress in developing and

implementing the Patent Application Management system (PAM). Part of the

Automated Patent System plan, PAM is one of the few components of the

system that is expected to improve the productivity of the patent application

process. Yet implementation of PAM has been repeatedly postponed. As the

backlog of patent applications continues to build, the need for PAM becomes

greater. PTO should find a way to implement PAM, or it will suffer from

additional backlog growth and cost increases. 

Consolidation of Headquarters Offices 

We are reviewing PTO’s efforts to consolidate its operations at a

new design-to-lease, 2-million-square-foot facility to be constructed and

ready for occupancy by 2001. Lease payments will total approximately 

$57 million for 20 years. We believe that there has been inadequate planning

for completing the interior design of the facility, which subjects the lease

development effort to increased cost and schedule risks. Further, PTO does

not have a written agreement with the General Services Administration

describing their respective roles and responsibilities under this project. Since

this will be one of the largest federal space procurements in the next decade,

a written description of the agencies’ relative responsibilities and how the

project will be managed would seem to be essential.

NOAA Fleet and NOAA Corps

Decommissioning the Fleet

We remain concerned about NOAA’s plans to continue investing

millions of dollars in an in-house fleet without demonstrating that this best

meets its programmatic needs, fully exploring alternatives, or accounting for

how the fleet would be operated. We are also concerned that the Department

is supporting NOAA’s planned investments without requiring NOAA to take

these actions. NOAA officials have consistently stated that the agency’s ships
Message for the Congress

4 Commerce IG Semiannual Report September 1997

provide unique services and are cost-competitive with non-NOAA vessels. We

have consistently disagreed. The issue needs to be addressed. 

We, the Congress, OMB, GAO, and others have repeatedly urged

NOAA to explore alternatives to an agency designed, owned, and operated

fleet for acquiring marine data. In our 1996 program evaluation report on

NOAA’s 1995 fleet operations and modernization plan (see March 1996

issue, page 43), we recommended that NOAA terminate its modernization

plan; cease investing in its ships; begin immediately to decommission, sell, or

transfer them; and contract for the required ship services. Unfortunately,

despite some claims of progress, NOAA has yet to seriously articulate its

needs for ship services to the private sector, academia, and other government

ship operators that can provide more cost-effective and modern platforms, as

has been requested by the Congress. 

Eliminating the Corps 

In May 1997, the Department submitted to OMB a legislative

proposal and transition plan for eliminating the NOAA Corps. The version of

the proposed legislation that has been sent to the Congress is a significant

improvement over earlier drafts, and many of our initial concerns have been

addressed. However, one important issue remains unresolved: the maximum

number of officers that should be converted to civil service positions. 

In our recent report on our evaluation of the transition plan (see 

page 33), we recommended that NOAA:

! Convert only 100 line-office billets to civilian positions. This

represents the approximate number of positions that can be paid for

from the line organizations’ budgets without using funds from shipsupport appropriations.

! Eliminate aircraft activities not directly related to NOAA’s mission

and limit the number of officer conversions for ship- and aircraftrelated activities to 70 positions. Outsourcing options appear to be

readily available and cost effective. Creating no more than 70 civil

service positions for ship and aircraft services will ensure sufficient

staffing to maintain essential in-house services while providing an

incentive to use more cost-effective outsourcing options. 
Message for the Congress

September 1997 Commerce IG Semiannual Report 5

! Provide military retirement benefits to NOAA Corps officers with at

least 15 years of service and convert only non-retiring officers. We

believe that NOAA should implement the transition plan in the

following manner: (1) retire all 120 officers with at least 15 years of

service, (2) identify the 170 most critical positions in the line organizations and program support activities and fill as many of these as

possible with non-retiring officers, (3) determine which of the 

170 positions cannot be filled immediately by non-retiring officers,

and (4) hire qualified temporary personnel for any position identified

in the previous step until one of the non-retiring officers can be

trained. 

2000 Decennial Census

Since the last semiannual report, the OIG has continued to work

closely with senior departmental and Census Bureau officials to strengthen

decennial planning and management. Despite progress in addressing a number

of issues related to the 2000 decennial census, many remain unresolved, most

notably congressional concerns about sampling.

Over the past several months, the Census Bureau has implemented a

number of planning and management improvements, including (1) creating an

integration team to ensure that the progress and design of individual components are compatible with the overall decennial plan, and (2) developing a

decision path that shows schedules, milestones, and interdependencies among

the design components. However, while the decision path is operational, it is

not complete, as modifications are still being made. In addition, the bureau has

recently taken steps to improve its decennial census cost model. It has

reviewed the accuracy of the information in the tracking system and is making

needed improvements. Although these are major improvements, the greatest

benefit will come from linking these management tools so that the bureau can

assess the cost impact of schedule and milestone changes. With this

information, the bureau can determine how resources should be allocated to

help ensure that design elements are completed on schedule.

The Census Bureau has also moved to fill key vacancies, in particular

the positions of Deputy Director, Principal Associate Director, Chief

Financial Officer, and Associate Director for Information Technology. Each

of these senior officials plays an important role in supporting leadership in

financial and management systems, two areas that have presented significant

challenges. 
Message for the Congress

6 Commerce IG Semiannual Report September 1997

Although the bureau has recently made progress in determining the

statistical design for the 2000 decennial census, a number of interrelated, timesensitive tasks remain to be completed. Bureau officials and outside 

observers have agreed that it is essential for the Dress Rehearsal, scheduled

for the spring of 1998, to be a true “dry run” of the census, so that they can

fully evaluate census plans. To allow sufficient time for subsequent

implementation and operations activities, the statistical design must be

completed by December 1997. In short, the bureau has an extremely limited

time to resolve the remaining statistical questions related to the design,

including developing procedures for identifying duplicate census forms,

measuring error in the population estimates, and improving the quality of

small area data.

The bureau also needs to increase its credibility with the Congress. A

series of miscommunications involving sampling plans has exacerbated

concerns that some Members of Congress and other stakeholders have had

about the use of sampling. To address this major communications problem,

the bureau must provide detailed, consistent, coherent documentation in its

plans to the Congress. While a recent report to the Congress contained errors,

its level of detail and accompanying research papers represent a step in the

right direction. The bureau’s recent decision to convene a panel of independent

experts to review its sampling plans is another positive step. However, the

bureau must move quickly to provide the information that the panel needs to

complete its review. The best way for the bureau to confirm the validity of its

sampling approach is to ensure that only methodologies identical or very

similar to those chosen for the 2000 census are part of the Dress Rehearsal. 

The 2000 decennial census targeted questionnaire program may not be

necessary and may compromise the bureau’s ability to achieve its goals of

increasing accuracy and containing costs (see page 24). The 1995 Census Test

results indicated that the program’s components (targeted mailings of

questionnaires in English and Spanish and targeting areas with blank census

forms in multiple languages) did not increase response rates for the intended

populations. Giving people multiple opportunities to respond generally

increases and complicates field operations and data processing and can affect

accuracy. The bureau has agreed to design a targeted questionnaire program

that considers cost, schedule, performance, and public perception constraints

and trade-offs, and to communicate the program’s scope and limitations to

local partners. Increased targeting may not be necessary because the bureau

has already made sampling an integral part of its 2000 design to compensate

for ineffective coverage improvement programs in past censuses. 
Message for the Congress

September 1997 Commerce IG Semiannual Report 7

We have been conducting an inspection of the headquarters

information processing systems for the 2000 decennial census. Headquarters

processing systems are important because they support key operations

throughout the decennial census. We found that software is not being

developed under a well-defined process and that, as a result, the bureau is

lacking assurance that the work is proceeding efficiently and that the software

will perform its intended functions correctly. Census has confirmed our

findings and has moved to strengthen its software processes. 

We also found that estimates of software development schedules and

resources for the Dress Rehearsal and the 2000 census are not realistic.

Rather than reflecting the time required for development, the bureau’s

estimates represent the time available. Without estimates of how long tasks

will take, management cannot determine the staffing levels necessary to

support software development or whether software development schedules are

achievable. 

Finally, we found that requirements for headquarters processing are

incomplete and likely to be late. The Dress Rehearsal and the census will rely

on statistical processes that have not been used in previous censuses.

Therefore, decisions concerning the details of these processes must be

documented in requirements specifications for software that must still be

developed. 

However, statistical research is still being conducted, and important

decisions concerning the details of some of these processes have not yet been

made; until these decisions are made, important requirements specifications

cannot be prepared. As a result, some software developers plan to begin

development without associated requirements specifications or with

specifications that are likely to change. This increases the risk that costly,

time-consuming modifications will be needed at a later date to accommodate

changes in requirements. We believe that the bureau should focus now on

defining and refining requirements, rather than risk having to modify

prematurely designed and developed software. 

We have discussed our concerns and preliminary observations with

bureau managers, who have begun to address them. Our formal report will be

issued during the next semiannual period. 

We continue to recommend that decennial management be identified

as a material weakness in the Department’s FY 1997 report to the Congress

under the Federal Managers’ Financial Integrity Act. 
Message for the Congress

8 Commerce IG Semiannual Report September 1997

Advanced Technology Program

NIST’s Advanced Technology Program (ATP) is a cost-sharing

program designed to accelerate the development and commercialization of 

promising high-risk technologies by American businesses by providing funds

to individual companies and joint ventures for research and development. We

have identified two major ATP-related issues that need management attention:

(1) joint venture participants’ use of commercial prices in calculating the cost

of projects, and (2) NIST’s handling of incremental funding. The Secretary

has directed that our recommendations be implemented, and NIST has taken

actions, described below, to strengthen the management of ATP. 

Use of Commercial Prices

More than 100 joint venture ATP awards involving over 500 companies have been issued, with total estimated costs exceeding $2 billion. Our

audit of two ATP joint venture awards with a total of 19 participants and

$64.3 million in federal and nonfederal funds has identified questioned costs of

$10.7 million, generally involving software companies that provided licenses,

maintenance and support, or other items from a commercial product line for

use on a project. Some joint venture participants have not complied with

federal rules that prohibit financial assistance award recipients from being

reimbursed for previously invested development costs, corporate interest

expenses, or profit—which are significant ingredients of software commercial

prices (see page 50). A number of participants that we have audited strongly

disagree with our views on this matter.

The Department and NIST have moved to correct this problem for

future ATP awards. We worked with NIST grants and program officials on a

proposed rule, published in the Federal Register on September 17, 1997, to

address the valuation of transfers of goods, including computer software, and

services between separately owned joint venture members.

Incremental Funding

Although ATP projects generally require several years to complete,

funding has been provided on an incremental basis—one year at a time.

Funding for each subsequent year is intended to be contingent on the

availability of funds and the grantee’s satisfactory performance. To be eligible

for multi-year funding, the project must be severable into annual increments of

work that represent tangible accomplishments.
Message for the Congress

September 1997 Commerce IG Semiannual Report 9

As a result of our audit work, NIST has agreed to review open

projects with the objective of either (1) funding the remaining balance in the

current year if the work is not severable, or (2) reconfirming that each

prospective year’s work can be discretely identified and thus funded on an

annual basis. NIST has also agreed to ensure that all multi-year funded

projects contain clearly defined quantitative technical milestones that are

severable into annual increments of meaningful work so that, in the event that

prospective funding is not provided, work already funded has significance (see

page 48).

NWS Modernization

We continue to review the National Weather Service’s $4.5 billion

program to modernize its observing and information systems and to reduce

more than 250 field offices to 119. During this period, we focused on followup monitoring of past inspection recommendations related to the Advanced

Weather Interactive Processing System (AWIPS). We have also provided

analyses and recommendations in response to specific questions about AWIPS

from the Department and the Congress. 

In October 1996, Secretary Kantor directed NOAA to delay Key

Decision Point-IV, the milestone that would allow nationwide AWIPS

deployment to begin, until January 1, 1997, or until full testing of NOAA’s

new design (that is, the use of WFO-Advanced integrated with selected

AWIPS components—see March 1997 issue, page 9) was complete and the

results were fully evaluated, whichever was later. In February 1997, Secretary

Daley decided to allow NOAA to procure and deploy only 21 AWIPS

systems, with an option to procure 18 additional systems beginning in July

1997 if appropriate development and deployment progress had been

demonstrated.

In July 1997, in response to departmental concerns, we advised the

Department of our view that NOAA had not met the condition of demonstrating appropriate progress and that the option for 18 additional systems

should not yet be exercised. Although NOAA had decided to convert to WFOAdvanced in August 1996, it still had not developed a detailed description of

the technical work needed to complete AWIPS under the new WFO-Advanced

design or developed a definitive schedule and cost estimate. In addition, it had

failed to identify the organizational responsibilities and staffing required to

complete the work, including the responsibilities and staffing of the National

Weather Service, the Forecast Systems Laboratory, the AWIPS Acquisition

Office, the prime contractor, and NOAA support contractors.
Message for the Congress

10 Commerce IG Semiannual Report September 1997

Without detailed plans for completing AWIPS or the results of the

operational test and evaluation of the new AWIPS design, we concluded that

neither NOAA nor the Department will be in a position to certify that the

system can be completed within the legislatively mandated $550 million cap.

The Secretary has directed that the decision on exercising the option to deploy

the additional systems should not be made until the results of operational

testing and evaluation of AWIPS are known—estimated to be in November

1997.

Facilities Planning and Laboratory Consolidation

NIST’s Capital Improvements Facilities Program

In our March 1997 issue (see page 61), we reported on the results of

our review of NIST’s Capital Improvements Facilities Program (CIFP). Since

that time, the Department has, at our recommendation, improved its oversight

of CIFP. The Department has taken a more active role in determining if CIFP

budget requests are reasonable and justified, and the Department’s Office of

Budget, Management, and Information has coordinated a successful effort to

obtain updated and reliable information on NIST’s facilities needs and plans.

Moreover, NIST has modified its previous plan. NIST submitted to

the Department a draft, five-year facilities plan (FY 1999-FY 2003), with an

estimated cost of $630 million. While an improvement over the previous plan,

in our opinion the current NIST plan still has problems, several of which we

discuss below.

! Plan fails to adequately justify all construction and renovation

costs. First, NIST’s plan fails to adequately justify its $80 million

renovation cost estimates for each of two general purpose laboratory

buildings in Gaithersburg, Maryland. Second, by leasing and building

two large facilities in Gaithersburg that were not in its original plans,

NIST has greatly increased its square footage, without developing

corresponding plans to terminate the use of older, less useful space.

NIST should take into account the likelihood of restricted budgets

when making and changing facilities plans. We believe that the

Department must scrutinize these and future plans to ensure that all

construction and renovation costs are fully justified.
Message for the Congress

September 1997 Commerce IG Semiannual Report 11

! Proposed advanced laboratory is not needed in Boulder. NIST’s

current draft plan includes a $21 million “clean room” in Boulder,

Colorado, which, in our view, is not needed. We believe that all

requirements for advanced laboratory and clean room space being

considered for Boulder should be incorporated into the advanced

laboratory facilities in Gaithersburg. We also recommend that NIST

thoroughly reevaluate renovation proposals and the size of the

proposed Central Utility Plant in Boulder in light of projected future

operations there. In addition, we have previously recommended that

the Department conduct a study to determine the costs and benefits of

full, as well as partial, consolidation of Boulder programs and

operations in Gaithersburg over the long-term, not only the five-year

study period. A recent study by an independent contractor concluded

that consolidation may be cost effective. Our observations—based on

over two years of review—support the need for a study of long-term

consolidation options and their benefits and costs. 

Proposed NOAA Operations and Research Center

We are reviewing NOAA’s proposal for the design and construction

of a $97 million research center to be located at the National Aeronautics and

Space Administration’s Goddard Space Flight Center in Greenbelt, Maryland.

The proposed new 350,000-square-foot facility would house 1,200 NOAA

employees involved in satellite and weather service operations. Based on our

work to date, we do not believe the facility should be funded until NOAA has

determined that (1) it is absolutely necessary to consolidate employees at a

single location, and (2) a new facility needs to be constructed. 

NMFS Laboratory Structure

We recently issued a draft report discussing the results of our

performance audit of streamlining and reconfiguration opportunities within the

National Marine Fisheries Service (NMFS) laboratory network (see 

page 39). We identified several opportunities for NMFS to streamline its field

structure, including closing some laboratories and transferring their functions

to other, underutilized facilities. We are currently assessing information

provided by NMFS in its response to our draft report.
Message for the Congress

12 Commerce IG Semiannual Report September 1997

Financial Management

Financial Statements Audits

The OIG is responsible for financial statements audits of the

Department of Commerce in accordance with the provisions of the Chief

Financial Officers Act of 1990, as amended by the Government Management

Reform Act of 1994.

During the prior reporting period, financial statements audits were

completed of the Department’s Consolidated Financial Statements, as well as

of each bureau’s statements (see March 1997 issue, page 69). Unqualified

opinions were received by BEA/ESA, MBDA, NIST, NTIA, PTO, TA, and

the Department’s Working Capital Fund. Census, NTIS, and the Department’s Salaries and Expense Fund received qualified opinions on their

Statement of Financial Position with disclaimers on their Statement of

Operations and Changes in Net Position. Disclaimers of opinion were received

by BXA, EDA, ITA, and NOAA, and on the Department’s Consolidated

Statements. Much work is still needed to achieve unqualified opinions on all of

the Department’s financial statements.

Providing financial leadership from the top is essential, and Chief

Financial Officer (CFO) positions are critical to the future success of the

Department and its bureaus. We commend the Department for filling its CFO

position, and we encourage it to continue assisting EDA, ITA, NIST, and

PTO in permanently filling theirs. No further delays should be tolerated.

Commerce Administrative Management System

CAMS is intended to provide the Department with an effective

internal control environment that meets the CFO Act requirement for a single,

integrated financial management system. However, the Department continues

to face significant challenges and experience considerable delays in deploying

CAMS components. The Department’s latest CAMS cost estimate has

increased to $86 million: $62 million (versus the original FY 1992 estimate of

$41 million), plus an additional $24 million projected for in-house CAMS

staff resources. 

Due to schedule delays and rising costs, the Department has revised

its strategic plan and approach to CAMS implementation. Resources will now

be focused on completing a pilot site at the Census Bureau to assess the

system’s viability before implementing it at three other bureaus, as previously

planned. The pilot site is expected to provide Census, in time for the 2000
Message for the Congress

September 1997 Commerce IG Semiannual Report 13

decennial census, with an updated accounting system, which it is hoped the

Department will be able to transfer to its other bureaus.

We reiterate that delays will most likely extend CAMS deployment

dates for bureaus other than Census into 2000 and beyond. CAMS needs

close, top-level departmental oversight. Increased costs, extended deadlines,

and short time frames to accomplish CAMS implementation Department-wide

continue to be serious concerns of this office.

Year 2000 Problem

Most of the Department’s accounting and feeder systems use twodigit year dates that will become inaccurate beyond December 31, 1999. 

Unless this problem is corrected, there is serious risk that the Department’s

mission-critical computer applications will cease functioning properly. 

The Department estimates it will cost more than $75 million to correct

the year 2000 problem in all Commerce systems. Yet few of the bureaus seem

to have adequate resources dedicated to working on year 2000 conversion

projects. Staff are generally being asked to fit year 2000 work into their

existing schedules. Only in rare cases are individuals spending more than 

20 percent of their time on year 2000 projects. Given other responsibilities of

information technology departments and user organizations, it would appear

unlikely that there will be sufficient time to perform all required tasks. It also

appears that the Department’s total cost estimate does not fully consider the

magnitude of the testing phase, which is predicted to be the most expensive,

time-consuming part of the year 2000 effort. 

Originally, several of the Department’s year 2000 concerns were to be

resolved by replacing noncompliant systems with CAMS. However, it now

appears likely that CAMS will not be a significant factor in the bureau’s

compliance efforts.

Bureaus have not analyzed the impact that business functions will

encounter as the deadline draws near and employees must work on year 2000

projects on a full-time basis. In addition, contingency plans have not been

prepared to address what will be done if changes are incomplete and systems

ultimately falter after 1999.

Given the short time remaining, the Department must focus on the

year 2000 problem and dramatically increase the resources dedicated to it. 

Failure to do so will result in widespread system failures and risk Commerce’s

ability to conduct business in the new millennium.
Message for the Congress

14 Commerce IG Semiannual Report September 1997

NTIS Efforts to Become a 

Performance-Based Organization

The National Performance Review identified the National Technical

Information Service as a candidate for conversion to a performance-based

organization (PBO). The Department is drafting legislation to effect this

conversion. 

Two key prerequisites for becoming a PBO are (1) a clearly defined

mission, and (2) the ability to generate sufficient revenues to support business

operations. We have serious doubts that NTIS currently meets either of these

prerequisites. 

In a recently completed financial analysis of NTIS, we concluded that

the agency will not meet its mandate to be self-supporting unless revenues

increase and/or operating costs decrease (see page 52). NTIS has suffered a

net loss in two of the last three years, including an estimated loss of $3 million

in FY 1997. 

In our last semiannual report, we discussed the results of our program

evaluation of NTIS’s management and operations, which concluded that the

agency had either undertaken or contemplated undertaking activities that were

potentially outside of its statutory mission and capabilities (see March 1997

issue, page 58). As currently drafted, the bill that would convert NTIS to a

PBO places virtually no restrictions on the kinds of information-related

activities that the agency would be authorized to undertake, activities that

could put it in direct competition with the private sector.

We believe that the Department should not proceed with legislation to

convert NTIS to a PBO until its mission has been clearly defined and the

agency can demonstrate its financial self-sufficiency. 

 
Message for the Congress

September 1997 Commerce IG Semiannual Report 15

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, 1997) for which no management decision has been made by the end

of the period (September 30, 1997). The following table presents the overall

status.

Type of Audit Report Unresolved

Performance 3

Financial Assistance 3

Financial Statements 1

Preaward Contract 1

Postaward Contract 0

The three performance audits involve NOAA programs. The first

audit report recommended that tsunami warning programs be consolidated.

NOAA did not agree with the recommendation; the OIG recently suggested an

alternate approach to NWS as a basis for resolution. The second report

offered the recommendation that NMFS’s vessel buyout program be canceled

and resulting funds be transferred to other federal programs that will better

meet the needs of the fishing community. NMFS did not accept the recommendation; the OIG has suggested an alternate approach and is awaiting NMFS’s

response. The third report recommended eliminating a salmon fishing permit

buyback program and reallocating funds to habitat restoration and data

collection programs. NOAA did not agree with the recommendation. Details

of all three audits are presented on pages 41 and 42.

There has been an increase in the number of unresolved financial

assistance audit reports from one to three. One financial assistance audit

report involves a NOAA award and remains unresolved for more than one

year, pending action by the cognizant audit agency. The other two audits

involve EDA and MBDA awards. Audit resolution proposals have been

submitted; however, OIG-agency discussions were not able to resolve the

reports on a timely basis. Additional details are presented on pages 23, 32,

and 43.
Message for the Congress

16 Commerce IG Semiannual Report September 1997

There is one unresolved financial statements audit involving Census’

Financial Statements for FY 1996. The OIG has received the audit action plan

and is awaiting a legal opinion from the Department’s General Counsel before

responding to the Census proposal. Details are presented on page 26.

Discussion of the unresolved preaward contract audit can be found on

page 65.

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 letter. The following table summarizes the

activity during the reporting period.

Report Category Modifications Appeals

Actions pending (April 1, 1997) 0 9

Submissions 0 2

Decisions 0 5

Actions pending (September 30, 1997) 0 6

The six appeals pending final decisions by the Department include one

NIST, three EDA, and two MBDA financial assistance audits. Four of these

appeals (two EDA and two MBDA) have been in process for over a year, and

two for as long as two years.
 Department of Commerce

Organization Chart

September 1997 Commerce IG Semiannual Report 17

Office of the

Secretary

 National Technical

 Information Service

Bureau of

the Census

Bureau of

Economic Analysis

National Institute of

Standards and

Technology

Bureau of

Export

Administration

National 

Telecommunications

and Information

Administration

Economic

Development

Administration

Minority

Business

Development

Agency

Technology

Administration

Economics and

Statistics

Administration

International

Trade

Administration

National Oceanic

and Atmospheric

Administration

Patent and

Trademark

Office
18 Commerce IG Semiannual Report September 1997

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.

Bureau of 

Export Administration

Export Licensing Process Needs

Further Information Sharing and Screening

The National Defense Authorization Act of FY 1996 required the

Inspectors General of the Departments of Commerce and State to each report,

in 1996 and 1997, on the effectiveness of their respective agencies’ export

licensing screening process during the preceding year. BXA is responsible for

controlling the export of dual-use goods and technologies (those with civilian

and military applications) by screening and approving export licenses and

ensuring compliance.

BXA’s watchlist is a compilation of three screening databases used to

identify license applications that have the strongest potential for the misuse or

diversion of items or technologies. The watchlist includes more than 38,000

parties, types of items and technologies, projects of concern, and other

categories that BXA has identified as potential problems. Another important

resource used in the export licensing process is end-use checks, which consist

of both pre-license checks and post-shipment verifications. Pre-license checks

are conducted before application approval to obtain information about a

foreign end user; post-shipment verifications determine whether the correct

party received the licensed item or technology.

The OIG’s report on BXA’s export license screening process for 

FY 1995 contained several recommendations for strengthening BXA’s

screening process, including the need to improve the accuracy of its export

license watchlist data by arranging for the electronic receipt of pertinent

computer databases and lists from the Departments of State and the Treasury

(see September 1996 issue, page 16). BXA has recently installed a new

computer system that, once tested to ensure accuracy, will enable it to store

electronic lists from these agencies.

During our review of FY 1996 activities, we also reviewed the status

of BXA’s implementation of recommendations from our first report. We

made the following observations:

The export licensing watchlist generally contains all relevant

information. BXA has been effectively managing and updating its screening

database. However, it did not include some names provided by Treasury

during FY 1996 because of data entry errors. Once BXA has tested the new

computer system, it can incorporate the Treasury and State information

electronically. We are also concerned about the State Department’s lack of

cooperation in sharing its watchlist information with BXA. We
Bureau of Export Administration

September 1997 Commerce IG Semiannual Report 19

recommended that BXA develop a plan with State for transferring

electronically formatted information more regularly.

Screening all parties against the TECS database could enhance

the license application screening process. Maintained by the U.S. Customs

Service, the Treasury Enforcement Communications System (TECS) was

created to provide multi-agency access to a common database of enforcement

data supplied by the participating federal agencies. Currently, Customs

receives data only on applications on which final action has been taken, not

pending applications. Screening every applicant and consignee against TECS

during the initial phases of the licensing process would give licensing and

enforcement authorities ample warning of any potential Customs concerns.

We recommended that BXA and Customs amend their current memorandum

of understanding to provide for the transfer of pending license application

information to Customs for screening against TECS for at least a one-year

trial period.

The quality and utility of end-use checks should be improved.

Although the overseas posts were generally in compliance with BXA’s

guidelines for conducting the checks, the posts need to improve their processes

in several ways. For example, the posts do not always conduct end-use checks

in a timely manner and, contrary to BXA’s guidance, they often allow

US&FCS foreign service nationals to conduct the checks. We recommended

that BXA communicate more with the posts about end-use checks, and work

with US&FCS to develop policy guidance on whether and how foreign service

nationals can be used in conducting such checks.

Sharing of end-use and enforcement information should be

improved. Access to additional enforcement information, such as end-use

check histories and limited descriptions of enforcement personnel’s interest in

specific applications, can improve cooperation within BXA and between BXA

and referral agencies, and make the license process more efficient. We made

several recommendations in this area, including some basic changes to the

computer database to improve sharing of end-use check information.

In responding to our draft report, BXA agreed with most of our

findings and has either taken, or plans to take, steps that satisfy several

recommendations. However, BXA disagreed with our recommendation to

screen all parties to new export license applications against Customs’ TECS

database. We reaffirmed our recommendation in the final report and will work

with BXA to resolve our disagreement. (Office of Inspections and Program

Evaluations: IPE-9524)
20 Commerce IG Semiannual Report September 1997

The Economic Development

Administration was established

under the Public Works and

Economic Development Act of

1965 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 longterm 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.

Economic Development

Administration

West Virginia Agency Made State Loans from

EDA Funds to Conceal Excess Cash Reserves

A West Virginia state agency created to provide assistance to

businesses has among its lending programs one state and two EDA revolving

loan funds (RLFs). The agency’s $75.5 million equity as of June 30, 1995,

included about $5.4 million from the two EDA RLFs, both of which are

administered under the guidelines for the state RLF.

One EDA RLF was established through a $4.7 million Sudden and

Severe Economic Dislocation grant awarded to the state agency in 1978. EDA

required the agency to use the grant funds to make an initial, directed loan,

with loan repayments to be used to capitalize an RLF for economic

development loans to other businesses. The fund’s balance was about 

$8.5 million as of March 31, 1996. The second RLF originated in EDA’s

1984 award to the agency of a $750,000 Long-Term Economic Deterioration

grant, which had a $250,000 matching requirement. The agency used the grant

funds to capitalize an RLF that provided businesses with smaller loans than

were available under the other fund. This RLF’s balance was about $1.4 million as of March 1996.

An OIG audit of the two EDA RLFs covering the period from April

1991 through March 1996 disclosed that the agency had made $4.6 million in

state loans from the RLFs to conceal the existence of over $4 million in excess

cash reserves. To offset this substitution of federal for state monies, the

agency must transfer state monies to the EDA RLFs. These funds will then be

either greatly overcapitalized or underutilized unless the agency takes strong

remedial actions. We also found that the agency did not adequately document

that loans were made to eligible borrowers, and made some loans at

inappropriately low interest rates. 

Among our recommendations were that EDA require the state agency

to (1) use state monies to purchase the outstanding balances of the state loans

made with EDA monies, (2) make EDA loans only after reaching the state

revolving loan capacity, and (3) deposit future excess EDA cash reserves in an

interest-bearing escrow account and pay a portion of the interest earned to the

U.S. Treasury. In response to our draft report, the agency disagreed that it had

concealed excess cash reserves and denied any responsibility for repurchasing

the EDA loans; however, it did agree to implement some of our recommendations. Nothing in the agency’s response convinced us to change our findings or

recommendations. (Atlanta Regional Office of Audits: ATL-8969-7-0001)
Economic Development Administration

September 1997 Commerce IG Semiannual Report 21 

Program

Research & 

Evaluation

Program

Operations

Finance & 

Administration

Economic 

Development 

Administration

Uncompleted Public Works Project in Florida 

Lacked Documentation of Actual Costs

In 1993 EDA awarded a $2.5 million public works grant to a Florida

city to help it recover from the effects of Hurricane Andrew. EDA disbursed

only $115,000 under the award. The grant funds were to be used to renovate

part of a downtown building for use as an international trade exposition mart.

However, because of construction delays and operator financial problems, the

mart never opened, and the building owners terminated the lease agreement

with the city. The city requested that EDA terminate the award agreement for

convenience and reimburse the city for more than $1.5 million in costs. EDA

asked the OIG to audit the claimed costs.

Our audit disclosed that the city had paid the contractor based on

percent-of-completion estimates, instead of actual cost documentation as

required by the grant. Under this unacceptable method, the city claimed about

$1 million in construction costs, which we questioned. Nevertheless, we

recognized that the city incurred construction costs that are reimbursable

under a termination for convenience, and we assisted and monitored the

parties’ efforts to negotiate a settlement.

We questioned a total of about $1.4 million in construction costs,

consisting of the $1 million in unsupported costs and another $400,000 in

costs for asbestos removal that the building owner, not the city, is paying. We

recommended that in the absence of a settlement agreeable to us, EDA disallow more than $1.4 million in claimed costs, disburse about $20,000 to the

city, and deobligate the remaining grant funds, totaling over $2.3 million. 

The city responded to our report with a proposal to settle for an

additional $500,000 disbursement of EDA funds. Recognizing that the city

had incurred construction costs, EDA recommended accepting this as a fair

and reasonable offer, and we concurred. (Atlanta Regional Office of Audits:

ATL-9297-7-0001)

North Carolina Farmers’ Market Project:

Equipment Missing and Purpose Changed

Between 1975 and 1979, EDA awarded three grants to a North

Carolina county to plan, design, and build a farmers’ market to serve seven

counties in North Carolina, Georgia, and Tennessee. The EDA award funds

totaled $800,000, which was matched by about $480,000 in county, state, and

other federal funds. All EDA grant funds have been disbursed. After the
Economic Development Administration

22 Commerce IG Semiannual Report September 1997

market was built, the county delegated project management responsibility to a

separate market board of directors.

EDA requested an OIG audit to examine allegations that the county

was not using the project according to the grant terms and conditions. Specifically, the agency wanted to know how project facilities were being used, what

leases were in effect, and what income the county was receiving. The audit,

which covered the entire project period from 1975 through 1996, was impaired by the county’s poor control over the project and the failure of the

county and the market’s board to maintain adequate records on the project.

Our audit revealed that because of the lack of county control over

project management, more than $179,000 in equipment had been improperly

removed from the project site. Moreover, we found that the county had

changed the project’s purpose to a general use industrial park and leased the

property in a manner that frustrated the goal of expanding local employment.

We recommended that EDA require the county to repay to the U.S.

Treasury $111,000, the federal share of the missing project equipment;

establish certain controls over project management; and submit a comprehensive use plan for the project facilities. County officials generally agreed

with our findings and recommendations, but disagreed that the county was

liable for the value of the missing equipment. (Atlanta Regional Office of

Audits: ATL-9614-7-0001)

Update

Judgment. In the September 1994 issue (page 26), we reported the initiation

of a civil action in U.S. District Court for the Central District of California to

recover the assets of a revolving loan fund that had been capitalized with the

proceeds of an EDA grant. After the grant recipient filed for bankruptcy in

1986, a former bookkeeper improperly used RLF records to solicit and obtain

loan payments from several borrowers over a period of about five years. In

June 1997, a default judgment in the amount of $65,070 was entered against

the former employee; all funds recovered under the judgment will be returned

to EDA. (Denver Field Office of Investigations)
Economic Development Administration

September 1997 Commerce IG Semiannual Report 23 

Audit Reports Unresolved for Over Six Months

An OIG financial assistance audit report, DEN-7037-7-0001 (see

March 1997 issue, page 25), found that a Texas Title IX grant recipient could

not support its project cost claims because it commingled federal and state

funds with local funds and used some of these funds for ineligible or nonproject-related purposes. As a result, we questioned more than $760,000 in

costs claimed against the EDA grant, and nearly $600,000 in costs claimed

against state funds. We also found that the grantee (1) misled the state in

applications for project funds, (2) made inappropriate and duplicative claims

of project costs, (3) entered into inappropriate and duplicative engineering

agreements, and (4) maintained inadequate accounting records.

EDA did not agree with all of our recommendations, and we are

working with the bureau to resolve our disagreements. 
24 Commerce IG Semiannual Report September 1997

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.

Economics and

Statistics Administration

Expanded Census Targeted Questionnaire Effort 

May Be Unnecessary and Counterproductive

In the year 2000, the Bureau of the Census will be faced with its

greatest decennial challenge—to successfully enumerate increasing numbers

of hard-to-count people at an acceptable cost. The 1990 census was long,

expensive, and labor-intensive, yet census accuracy decreased, especially

among minorities. Bureau officials agreed with expert advisory panels that the

highly labor-intensive enumeration techniques for non-response follow-up and

coverage improvement added in recent decades to increase census participation did not increase accuracy. 

Therefore, the bureau has incorporated statistical techniques, such as

sampling and estimation, as an integral part of the 2000 decennial census

design. In addition to using statistical methods, the bureau, in consultation

with local officials, is planning to target areas for mailing joint English and

Spanish questionnaire packages and distributing blank “Be Counted” questionnaires in English and over 30 other languages to help ensure a successful

census.

Based on an initial survey of the preparation of 2000 Census questionnaires, we decided to conduct an audit of the effects of two recent decisions on the census design’s cost, schedule, performance, and public perception: (1) expansion of the targeted program for mailing joint English and

Spanish questionnaire packages to include additional languages, and (2) extension of the “Be Counted” program through the end of the non-response followup process. Both programs, which we refer to jointly as the “targeted questionnaire program,” were still in the conceptual stage at the time of our

review. 

Our major observations and conclusions were as follows:

! Targeted questionnaire program may be unnecessary. Because the

bureau has made sampling an integral part of its 2000 design, the

targeted questionnaire program may not be necessary. Further, the

1995 Census Test results indicated that the two program components

did not increase response rates for the intended populations. 

! Fully implementing the targeted questionnaire program could

become counterproductive. Although many details of the targeted

questionnaire program are not yet defined, an expansive scenario,

involving many targeted language mailings and millions of Be

Counted forms in up to 32 languages at thousands of sites, could
Economics and Statistics Administration

September 1997 Commerce IG Semiannual Report 25

compromise the bureau’s ability to achieve its goals of increasing

accuracy and containing costs. Bureau managers do not anticipate

extensive program implementation, but acknowledge that such an

outcome is possible. According to decennial managers, the biggest

risk in the census is the ability to complete follow-up of those households that did not return a questionnaire in the limited time available

before the large independent survey designed to locate and correct for

those not counted. A delay in the start of this survey could compromise completion of the census by the legal deadline.

 

! Emphasis and lack of details on targeted questionnaire partnership cast uncertainty on program cost. While program details for

2000 are still pending, bureau managers have put significant effort

into promoting the targeted questionnaire concept, which could result

in local officials’ strongly advocating an expanded program to increase their population counts. Asked about the program’s costeffectiveness, a senior bureau official stated that promoting partnerships, not containing cost, was the deciding factor in expanding the

program. He added that according to the current estimate, the cost of

expanding languages should only modestly increase the total program

cost. However, the current overall cost estimate is based on an incomplete set of program cost components. 

! Whether planned or unplanned, cost growth seems likely. If the

bureau continues to promote the targeted questionnaire program

without stringent selection criteria, the program appears likely to grow

in size and cost. A key question is whether the growth will occur

early, and therefore be planned, or late, and be minimally controlled.

For example, local officials may find narrow bureau criteria for

targeting unacceptable during the local review of targeted areas

scheduled for next year and push for an expanded program. Or the

bureau may proceed with narrow criteria but, during the census,

receive enormous pressure to expand the program from local officials

concerned about response rates. Because bureau managers decided

not to include cost-effectiveness as a fundamental criterion, program

cost growth is likely. 

Our principal recommendations were that the bureau comprehensively define the targeted questionnaire program, keeping in mind trade-offs

among cost, schedule, performance, and public perception, and discuss the

program details and justification with local partners as soon as possible. The

bureau agreed with our observations and recommendations. (Economics &

Statistics Audits Division: ESD-9610-7-0001) 
Economics and Statistics Administration

26 Commerce IG Semiannual Report September 1997

Audit Report Unresolved for Over Six Months

As of September 30, 1997, there was one OIG financial statements audit

report unresolved for more than six months: Bureau of the Census Financial

Statements for Fiscal Year 1996, FSC-8836-7-0001 (see March 1997 issue,

page 31). During the audit, the contractor certified public accounting firm

identified an internal control weakness related to inadequacies in the bureau’s

cost allocation system that will significantly change its costing and pricing

policy for reimbursable work. Census has proposed using the new allocation

system only for new reimbursement agreements. For agreements entered into

before FY 1997, price increases will be phased in over a two-year period. The

bureau plans to reduce the number of projects with a cost/price difference by

80 percent in FY 1998, and eliminate the balance in FY 1999. 

Before agreeing to Census’ audit action plan, we have asked the Department’s Office of General Counsel to review the plan in light of laws requiring

full cost recovery. We have also requested that the bureau provide a list of

agreements and dollar amounts that make up the projects that will have a

cost/price difference at the end of FY 1997. Based on the results of these

inquiries, we will respond to the audit action plan. 
September 1997 Commerce IG Semiannual Report 27

The International Trade

Administration is responsible for

most non-agricultural 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. It promotes

trade, investment, and commercial

relations, and maintains

comprehensive commercial and

economic data on countries and

regions of the world.

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. U.S.&FCS promotes the

exports of U.S. companies and

helps small and medium-size

businesses market their goods and

services abroad. It has 98 domestic

offices and 138 overseas posts in 

75 countries.

International

Trade Administration

Effective Service Delivery, but Inefficient 

Operations at Five US&FCS Overseas Posts

ITA’s U.S. and Foreign Commercial Service (US&FCS) is charged

with providing business firms with a base of export assistance support, from

individual U.S. cities to specific foreign markets. A total of 138 foreign

commercial offices perform various overseas activities directed at improving

the trade position of the United States, including identifying trade or investment opportunities, finding potential representatives or agents, providing

business consultation to U.S. visitors at foreign posts, and preparing market

research on a country’s “best prospects” industries.

The OIG performed inspections of five US&FCS overseas

posts—Malaysia, Indonesia, Thailand, Germany, and Poland—and found

them generally effective in delivering services to their customers. However, we

also found both postwide and post-specific inefficiencies in management and

operations. We provided US&FCS officials with inspection reports for the

five individual posts, as well as a broader analysis based on all the

inspections. The primary cross-cutting issues of concern were:

! Lack of effective resource management by post officials. Several

posts were pursuing activities without adequate regard for their

relative priority or payoff. Also, none of the posts had a time or

resource management system in place to reliably estimate the unit

costs of various post products or services, or to determine how best to

allocate resources to maximize their effectiveness.

! Failure by regional directors to provide adequate oversight of

posts. Some regional directors were failing to provide the necessary

oversight and guidance to posts, and to hold the respective senior

commercial officer accountable for post management weaknesses.

! Need for direct US&FCS involvement in the development and cost

analysis of ICASS. The International Cooperative Administrative

Support Services (ICASS), the new administrative cost system to

become effective in FY 1998, should give U.S. agencies more control

over the services they receive overseas by requiring them to pay costs

commensurate with those services. ITA is not planning further review

of ICASS until it has been in place for a full year. We believe that the

potentially large savings to US&FCS, and the time it would take to

implement alternative arrangements, justify US&FCS’s supporting

local or regional cost comparisons by field representatives without
International Trade Administration

28 Commerce IG Semiannual Report September 1997

waiting a year. US&FCS should consider all viable options, such as 

private sector services and continued participation in some or all of

ICASS services.

! Failure to comply with BXA’s export licensing regulations. BXA

relies on US&FCS posts to perform pre-license checks and postshipment verifications of certain export transactions. BXA requires

that an American officer conduct the checks, but of the five posts,

foreign service nationals were conducting the checks at three, and an

American contractor was conducting the checks at a fourth.

! Improper use of personal service contractors for post activities.

Contractors at some posts were performing various prohibited

activities, including supervising government employees; controlling

money, property, and other valuable resources; and representing the

U.S. government before foreign governments. 

The report also noted inefficiencies in the areas of resource allocation,

performance evaluation systems, interagency coordination overseas, and

information technology. Recommendations were made to US&FCS officials to

remedy these organizational problems. US&FCS accepted many of our

recommendations, but has not clearly communicated to us how or whether the

balance of our recommendations will be addressed. (Office of Inspections and

Program Evaluations: IPE-9178, IPE-9284, IPE-9285, IPE-9286, IPE-9287,

and IPE-9288)

USTTA Funds Properly Spent and 

Accounted for During Closeout

Established in 1961, the Department’s United States Travel and

Tourism Administration served as the U.S. government’s official national

tourism office, responsible for maximizing tourism’s contribution to the

nation’s economic goals of growth, stability, and job creation. In June 1996,

the Congress abolished USTTA, but authorized funding to transfer limited

tourism promotion functions to ITA. The OIG advised the Department on

USTTA closeout procedures and cost estimates.

We later contracted with a certified public accounting firm to perform

a financial audit to estimate funds not needed to cover USTTA’s existing

obligations, detail the observed results of the audit, and outline remaining

tasks that need to be completed by the Department in closing out USTTA. 

The firm recommended that the remaining tasks be assigned to the appropriate 

Commerce offices and that a timetable be established for their completion.
International Trade Administration

September 1997 Commerce IG Semiannual Report 29

Tasks remaining involved such matters as funding sources and cash

reconciliation, overseas and domestic office balances, and personnel costs. 

The firm also found that (1) USTTA’s outstanding obligations and

future costs, as of September 30, 1996, contained accurate estimates and were

adequately supported; (2) expenditures incurred domestically by USTTA from

October 1, 1995, to March 31, 1997, were accurate; and (3) the rates of

expenditures incurred by overseas posts were comparable to rates in the

previous year. (Financial Statements Contract Audits Division: FSD-8711-7-

0001)

“Blueprint” Provided to Assist Agency 

in Improving Its Financial Management

The OIG’s audit of ITA’s FY 1996 financial statements found serious

problems requiring immediate corrective action (see March 1997 issue, page

34). The ITA Acting Under Secretary requested our assistance in developing a

blueprint for improving the agency’s financial management. After consulting

with the accounting firm that performed the audit, we provided ITA with steps

needed to improve its financial management. 

Among the more significant steps were: (1) recruit a Chief Financial

Officer, along with additional professional accounting staff; (2) develop a

staff of financial management personnel to improve operations at ITA

headquarters and overseas posts; and (3) establish a Financial Statements and

Reports Section, reporting to the CFO, to collect, analyze, record, and report

on ITA’s financial activity. The actions recommended in the blueprint, while

not all of the steps needed to improve ITA’s financial management, should

have an immediate impact in addressing major problems. (Financial

Statements Audits Division)

In Brief

Reprimand. A senior ITA official received a letter of reprimand as the result

of an OIG investigation, which found that she had violated federal ethical

standards of conduct by permitting her secretary to perform personal tasks for

her during work hours. While there was no finding that the official had

coerced her secretary to perform such tasks, the standards of conduct prohibit

a supervisor from directing or even requesting a subordinate employee to

perform activities of a personal nature on official time. (Washington Field

Office of Investigations)
30 Commerce IG Semiannual Report September 1997

The Minority Business

Development Agency was created

to help minority-owned and

operated businesses achieve

effective and equal participation in

the American free enterprise

system, and overcome the social

and economic disadvantages that

have limited their participation in

the past. MBDA provides

management and technical

assistance to minority firms upon

request, primarily through a

network of business development

centers. It also promotes and

coordinates the efforts of other

federal agencies in assisting or

providing market opportunities for

minority businesses.

Minority Business

Development Agency

East Coast Awardees Neither Met Goals

Nor Complied with OMB Guidelines

MBDA awarded a $250,000 cooperative agreement to a nonprofit

organization, and its subrecipient, for the establishment of a comprehensive

minority business development program in an East Coast metropolitan area.

The award period was from October 1, 1995, to September 30, 1996, but an

amendment extended the program through November 30, 1996, at no

additional cost to the government. The awardee’s state, county, and city

provided additional funding, making the total award $575,000.

The OIG performed a financial, compliance, and performance audit of

the cooperative agreement and found several deficiencies, including: 

! Questioned costs of more than $76,000 out of about $550,000

claimed by the subrecipient;

! Noncompliance by the awardee with OMB Circular No. A-110

requirements to monitor a subrecipient’s performance; and 

! Unaccomplished goals by the subrecipient.

We recommended that the Department disallow the questioned costs

and recover approximately $33,000 in disbursed funds. We also recommended that MBDA not award future grants to the awardee or the subrecipient. Both the awardee and the subrecipient disagreed with our findings,

but presented no evidence to cause us to change our position. We plan to issue

a second audit report to the Department regarding MBDA’s management and

monitoring of the pilot project. (Economic Development Audits Division:

EDD-9406-7-0001)

Audits Report Significant Financial 

Deficiencies of Oregon Firm

MBDA awarded five cooperative agreements to a Portland, Oregon,

consulting firm in 1995 to operate five minority business development centers

in Portland, Salt Lake City, Seattle, Phoenix, and Tucson. The awards funded

the first year of potential three-year awards. The total project cost budgeted

for the five first-year budget periods was approximately $1.04 million, 

including a 15 percent local match requirement of $156,196.
Minority Business Development Agency

September 1997 Commerce IG Semiannual Report 31

Finance &

Administration

Strategic

Planning

External

Affairs

Program

Development

Minority

Business

Development

Agency

At MBDA’s request, the OIG performed financial audits of the five

individual MBDA awards to the firm to determine whether the costs claimed

under the awards were reasonable, allowable, and allocable, and whether the

firm’s administrative, financial, and program controls complied with the terms

and conditions of the award and were adequate to provide required assurances.

(Seattle Regional Office of Audits: STL-8823-7-0002; STL-8823-7-0003;

STL-8823-7-0004; STL-8823-7-0005; and STL-8823-7-0006)

Our audits disclosed that the firm failed to comply with numerous

federal and EDA requirements. Many of the deficiencies were long-standing

and had been repeatedly identified in independent audits, but remained

uncorrected. Specifically, the firm:

! Lacked an adequate financial management system, and produced

financial reports that were inaccurate and unsupported.

! Did not have a cost estimating system and, despite certifications to the

contrary, lacked complete, current, accurate, and consistent project

proposals.

! Failed to comply with numerous uniform administrative requirements,

federal cost principles, and award terms and conditions.

We recommended that the Department require the firm to establish an

adequate financial management system, an estimating system based on

historical experience and company policies, and the controls and systems

necessary to comply with federal financial assistance requirements. In

addition, we recommended that the Department consider the firm a “high risk”

recipient based on financial and cash management deficiencies and

noncompliance with federal financial assistance requirements. The firm’s

noncompliance with award terms and conditions, federal cost principles, and

uniform administrative requirements also caused us to question nearly

$225,000 of almost $1.06 million in total project costs claimed under the first

year of its five current cooperative agreements. (Seattle Regional Office of

Audits: STL-8823-7-0001)
Minority Business Development Agency

32 Commerce IG Semiannual Report September 1997

Center Operator Pays $50,000 

to Settle False Claims Act Suit

An OIG investigation uncovered evidence that the operator of a

minority business development center in Puerto Rico was running a private

business from the center’s offices and overcharging the government for center

operating expenses, including office lease costs. We also determined that the

operator had submitted a fraudulent lease agreement to MBDA to disguise the

fact that she was the owner of the office space, which had been leased by the

center on a less-than-arm’s-length basis. The matter was referred to the U.S.

Attorney’s Office for the District of Puerto Rico, which filed suit against the

operator in August 1997 under the False Claims Act. The operator denied any

wrongdoing, but agreed to a settlement under which the government will be

paid $50,000 plus interest over the next three years. (Denver Field Office of

Investigations)

Audit Reports Unresolved for Over Six Months

A financial assistance audit report, ATL-8882-7-0001 (see March

1997 issue, page 38), found that a for-profit consulting firm operating a

minority enterprise growth assistance center had failed to maintain financial

management and internal control systems that comply with federal standards.

We questioned $675,000 in costs and recommended that the firm return nearly

$223,000 in unearned federal funds.

We are working with MBDA to arrive at an agreement on the

appropriate amount of costs to be disallowed.
September 1997 Commerce IG Semiannual Report 33

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures protection of coastal oceans

and 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.

National Oceanic and 

Atmospheric Administration

NOAA Corps Transition Plan Should

Convert No More Than 170 Officers

 

NOAA’s Commissioned Corps has three primary functions: 

(1) operate and maintain NOAA’s ships, (2) operate and maintain its aircraft,

and (3) provide scientific and engineering support for the line offices. These

functions are currently carried out by fewer than 300 officers, with support

from civil service personnel and wage mariners.

In January 1996, NOAA announced its intention to implement the

National Performance Review’s recommendation to eliminate the Corps. Since

then, the Department, in consultation with NOAA, has been drafting legislation and a transition plan to implement the recommendation. The OIG

conducted an evaluation of the May 1997 legislative proposal and transition

plan to determine whether they provide the most cost-effective means of

eliminating the Corps.

We concluded that the latest versions of the proposal and the plan are

significant improvements over earlier drafts, and many of our concerns about

such issues as retirement incentives and separation payments have been

addressed. However, one important issue remains: How many officers should

be converted to civil service positions? This issue can be resolved by

incorporating the following recommendation into the transition plan:

No More than 170 Officers Should Be Converted 

to Permanent Civil Service Positions

The May 1997 transition plan proposes a three-step process: (1) the

120 officers with at least 15 years of service will be involuntarily retired, 

(2) the 170 officers not eligible for retirement will be placed within 299

designated positions, and (3) any of the 299 positions that are unfilled and are

considered essential will be filled by retired officers or other Commerce civil

service personnel. We are concerned that the last step will result in almost all

of the 299 positions being filled and the current organizational infrastructure

being locked into place, an approach inconsistent with congressional direction

relating to outsourcing for ship services. 

We recommended that NOAA implement the transition plan by 

(1) retiring all 120 officers with at least 15 years of service, (2) identifying the

170 most critical positions in the line offices and support activities and filling

as many as possible with non-retiring officers, (3) determining which of the

170 positions cannot be filled immediately by non-retiring officers,
National Oceanic and Atmospheric Administration

34 Commerce IG Semiannual Report September 1997

and (4) hiring qualified temporary personnel for such positions until nonretiring officers can be trained. This process will provide fair treatment for all

officers, prevent disruptions in essential services, and allow NOAA to increase

its use of outsourcing options for ship- and aircraft-related activities. By

implementing our recommendations, NOAA will have $16.6 million available

over the next two fiscal years to acquire additional ship and aircraft support.

The 170 permanent civil service positions should be allocated as

follows:

! In NOAA line offices, the number of conversions should be limited

to 100. Over the years, in order to accommodate the Corps rotation

policy, officer positions have been created in NOAA’s five line offices

(see organization chart on this page). NOAA has identified 187 such

positions for possible conversion to civil service positions, even

though the Corps has fewer than 300 officers. Historically, about 

40 percent of the funding for the officers assigned to the line offices

has been diverted from ship-related appropriations, even though the

officers are not directly involved in ship support. If funds continue to

be diverted from these appropriations after the transition, NOAA will

have to reduce its use of ships for its vital research activities. For this

reason, we recommended that NOAA limit the converted positions in

the line offices to 100, the approximate number that can be supported

by the offices’ budgets.

! For ship- and aircraft-related activities, the number of

conversions should be limited to 70. Our office, along with the

administration, the Congress, and other groups, has repeatedly

recommended that NOAA pursue outsourcing alternatives for its ship

support activities. Our 1996 report on the NOAA fleet confirmed that

private-sector and academic vessels are available and can perform at

least as well as NOAA’s in-house fleet, at a lower cost (see March

1996 issue, page 43). A similar OIG review of NOAA’s aircraft

services is nearing completion. Creating no more than 70 civil service

positions for ship and aircraft services will furnish enough staffing to

maintain essential in-house services while providing an incentive to

explore outsourcing options. We believe that the number of permanent

positions needed for in-house ships and aircraft can be further reduced

if NOAA aggressively pursues these options.
National Oceanic and Atmospheric Administration

September 1997 Commerce IG Semiannual Report 35

NOAA disagreed with all of our conclusions and recommendations,

continuing to support the efficacy of its transition plan. We found nothing in

the agency’s arguments to justify changing our conclusions or recommendations. (NOAA Audits Division: NAD-9087-7-0001)

Excess Satellite Funding Indicates 

Need for Better Financial Controls

NOAA manages two weather satellite programs: polar orbiting and

geostationary operational environmental satellites. Over the next five years,

NOAA plans to request about $2.6 billion for acquiring satellites; operating

command, control, and data acquisition stations; and developing new ways of

using satellite data. The National Aeronautics and Space Administration

(NASA) manages the acquisition and launch of the weather satellites, and

NOAA operates them once they are in orbit. 

For NOAA, an agency operating under tight budget ceilings, efficient

use of the funds it receives for satellite programs should be a high priority

because satellite funding represents close to 25 percent of its budget. NOAA’s

FY 1999 satellite budget request of $568.5 million exceeds the planned

operating budgets of every other NOAA component, including the National

Weather Service.

In this, our second inspection of satellite funding, we identified 

$79.3 million in funds to be put to better use as a result of the accumulation of

NOAA funds at NASA in excess of the amounts NASA required for its

weather satellite work. We also identified steps to prevent such excess funds

from accumulating in the future. Excess funds represent funding that is not

needed to meet NASA current year or forward funding requirements and that

can be better used to support other NOAA critical program needs or to reduce

NOAA’s FY 1998 and 1999 satellite budget requests. The $79.3 million in

funds identified in this report, coupled with $101.3 million in excess funds for

NASA’s acquisition of polar spacecraft identified in an earlier OIG inspection

report (see March 1997 issue, page 41), amount to $180.6 million in funds to

be put to better use. 

NOAA’s practice of sending excess funds to NASA went

unquestioned for years because NOAA lacks adequate financial controls to

ensure the efficient use of its budget authority. The controls described in

NOAA’s budget handbook stress tracking obligations to ensure that they do

not exceed budget authority, but place little emphasis on deciding when 

funds should be obligated or on tracking if and when funds are used after

obligation. As of the end of FY 1996, NOAA managers had obligated but
National Oceanic and Atmospheric Administration

36 Commerce IG Semiannual Report September 1997

not spent close to $885 million to acquire goods and services, including

satellites. We believe that the lack of NOAA guidance on the use of budget

authority results in large amounts of obligated, but unspent, funds being

accumulated and creates a false impression that budget estimates are accurate

and programs are proceeding as planned.

NOAA needs to ensure that its satellite program managers have tools

to assist them in making funding decisions. In response to our first report, a

NOAA program analyst is working with NASA to create monthly reports that

identify the status of NOAA funds transferred to NASA and the need for

additional funding. In addition, NOAA should ensure that costs are properly

captured and presented in its capital asset budgets.

We recommended that the Department work with NOAA, OMB, and

the Congress to reduce excess funding and establish financial controls to

prevent the accumulation of excess funds. The ultimate measure of NOAA’s

financial management performance will be its ability to control and track its

acquisition projects and to produce budget estimates that more accurately

reflect its needs.

The Department and NOAA agreed with our recommendations and,

as a result, will report the $79.3 million in excess funds as FY 1997 carryover. The Department also stated that it had adjusted its FY 1999 budget

request to reflect the excess. We concur with the Department’s actions in

identifying and reporting excess funds and recommend that it closely monitor

the use of funds in FY 1998 to ensure that it has adequately adjusted its 

FY 1999 budget. (Office of Systems Evaluation: OSE-8797(2))

Coastal Zone Management Recipient

Claimed Unsupported and Excessive Costs

In September 1995, NOAA awarded an $819,000 cooperative

agreement to a Southern state agency responsible for administering the state’s

coastal zone management program. The agreement required a $716,000 inkind matching contribution from the state, bringing the total project budget to

$1,535,000. The award continued the annual funding that NOAA has

provided the state since 1980 and, like previous awards, was to assist in the

development and implementation of an effective coastal zone management

program.
National Oceanic and Atmospheric Administration

September 1997 Commerce IG Semiannual Report 37

The OIG conducted a financial and compliance audit covering the

agreement’s one-year performance period of October 1, 1995, to 

September 30, 1996. The audit was prompted by allegations that the state

agency may have been improperly using NOAA Coastal Zone Management

grant funds.

Our audit revealed that the agency had improperly claimed $285,151

in project costs during the one-year period, representing about 21 percent of

the total project costs. Specifically, the agency could not support more than

$164,000 in claimed in-kind matching costs and, as a result, did not meet its

project cost-sharing requirement, and had charged almost $54,000 in

excessive administrative costs to the project because it did not have an

adequate system for allocating such costs. In addition, a recent NOAA

performance review found that the agency was not conducting its coastal zone

management program in a satisfactory manner.

We recommended that NOAA (1) require the agency to submit

detailed documentation supporting all future in-kind matching costs claimed in

its quarterly financial reports, (2) direct the agency to reasonably and

consistently allocate its administrative costs to its NOAA-funded projects, and

(3) disallow $285,151 in questioned costs, disburse $15,470 to the agency as

its final grant payment, and deobligate the remaining $243,439 in grant funds.

Our audit, which included steps specifically designed to address the

allegations of misuse, did not disclose any evidence that the agency had

improperly used its NOAA grant funds.

The agency agreed with the report’s findings, and has already taken

action to correct its grant management weaknesses, but we continue to

recommend that NOAA disallow the $285,151 in questioned costs. (Atlanta

Regional Office of Audits: ATL-9632-7-0001)

Preaward Survey Shows Grantee Needs

Financial Management Improvements 

In July 1996, NOAA awarded nearly $200,000 in grant funds to a

Houston engineering company as part of its initiative to implement the

Department’s program for Small Business Innovation Research projects. The

company’s objective is to use the funds to develop an aquaculture environment control system. At NOAA’s request, we performed a preaward

accounting system survey of the company.
National Oceanic and Atmospheric Administration

38 Commerce IG Semiannual Report September 1997

We reviewed key aspects of the company’s financial management

system, including the company’s organization and management structure;

procurement and property management procedures and controls; and

personnel management, timekeeping, payroll administration, and labor-cost

allocation procedures and controls. We found several weaknesses that could

materially affect the company’s operations, and made recommendations to

resolve these issues. (Atlanta Regional Office of Audits: ATL-9905-7-0001)

Actions Taken by Pacific Fishery

Management Council Were Appropriate

In response to concerns raised by a California citizen and a

constituent of Senator Slade Gorton of Washington state, the OIG examined

the conduct of an October 1996 meeting of the Pacific Fishery Management

Council, where action was taken to consider sablefish management options for

certain types of fishing vessels. Following a review of the audio tapes of the

meeting and interviews with Council staff, we concluded that the Council’s

actions were proper and did not violate the Magnuson-Stevens Act or any

implementing procedures. These actions were later rejected by the National

Marine Fisheries Service for reasons other than those stated by the

complainants. We also found no evidence of wrongdoing in connection with

two other issues raised by the parties. (Seattle Regional Office of Audits)

Department Obtains $25,000 in Settlement 

of Administrative Fraud Claim

A NOAA scientist agreed to pay $25,000 to settle a claim under the

Program Fraud Civil Remedies Act, which resulted from OIG investigative

findings that he had submitted fraudulent documentation to the agency in an

effort to obtain more than $16,000 in relocation expenses in connection with a

permanent change of duty station. The administrative complaint alleged that

he altered a settlement statement on the sale of a house co-owned with his

former wife in order to make it appear that it was his primary residence and

claim the expenses of the sale. He also raised the sales price to increase the

amount of his reimbursement. The attempted fraud was discovered before the

employee was paid by NOAA, and he received a five-day suspension for his

misconduct. (Washington Field Office of Investigations) 
National Oceanic and Atmospheric Administration

September 1997 Commerce IG Semiannual Report 39

In Brief

Conviction and Sentencing. An NMFS employee was convicted of theft after

an OIG investigation disclosed that she had forged the name of a coworker to

obtain a $1,000 travel advance from a NOAA imprest fund. In September

1997, she was sentenced to 18 months’ unsupervised probation and 75 hours

of community service, and ordered to make full restitution of the embezzled

funds. (Silver Spring Field Office of Investigations)

Restitution. As part of a pretrial diversion agreement executed in July 1997, a

Louisiana fisherman agreed to make restitution to NMFS in the amount of

$9,314 after a joint OIG/Louisiana Department of Justice investigation 

revealed that he had submitted fraudulent documentation to the Fisherman’s 

Contingency Fund to support inflated claims for lost fishing gear and

economic losses arising out of two accidents in federal waters. The defendant

also agreed to repay the state department of natural resources more than

$9,000 for false casualty claims filed with that agency. (Denver Field Office

of Investigations)

Suspensions. A senior NOAA manager was suspended when an OIG investigation confirmed that she had kept a loaded gun in an unlocked desk drawer in

her office for more than a year. The weapon was provided to her by a NOAA

security officer after she advised him that she had been threatened by another

employee. The manager received a 14-day suspension for unauthorized

possession of a firearm on a federal work site, and the officer was suspended

for seven days for providing a government weapon to a person without

authority to carry or possess it. (Office of Investigations)

Suspension. An NWS employee was suspended for two weeks and compelled

to repay more than $3,200 to the Department for falsely claiming relocation

expenses for a woman who was not his wife. The employee was living with

the woman at the time of his transfer and improperly included her travel and

moving expenses, and those of her minor child, in his claim for reimbursement. (Denver Field Office of Investigations)

 

Work in Progress

NMFS Laboratory Structure

In response to a congressional request, we conducted a performance

audit to assess streamlining and reconfiguration opportunities within the

National Marine Fisheries Service laboratory network. We identified opportu-
National Oceanic and Atmospheric Administration

40 Commerce IG Semiannual Report September 1997

nities for NMFS to streamline its field structure, including closing some

laboratories and transferring their functions to other, underutilized laboratories.

In its comments on our draft report, NMFS did not agree with the

streamlining plan we recommended for the lab structure. NMFS also did not

agree with our calculations of the cost savings and avoidances that could 

be realized by implementing our recommendations. We are incorporating

NMFS's comments and our analysis of them in our final report. (Seattle

Regional Office of Audits) 

NMFS Inspection Services Division

The National Marine Fisheries Service’s voluntary, fee-for-service

seafood inspection program, operated by the NMFS’s Inspection Services

Division (ISD), provides quality assurance services to about 2,200 fishery

product companies through both in-plant quality assurance and product lot

inspections and certifications. In 1995 ISD estimated that it inspected over 

1 billion pounds of seafood products, representing approximately 23 percent

of the total consumed in the United States. In response to a request received

from the Assistant Administrator for Fisheries, we evaluated the operational

and financial management of ISD. Our recently issued draft report is being

reviewed by NOAA; our final report will be issued during the next semiannual

period. (Seattle Regional Office of Audits)

Coastal Zone Management and National

Estuarine Research Reserve System Programs

NOAA’s Coastal Zone Management and National Estuarine Research

Reserve System programs are federal/state partnerships, in which the federal

government assists the states in effectively protecting and promoting the wise

use of land and water resources in the coastal zone. Currently, 31 of the 35

coastal states and territories have NOAA-approved Coastal Zone Management programs, and there are 21 designated Reserve sites. In a recent review

of the effectiveness and efficiency of the two programs, we found that, despite

marked improvement in the programs’ management and operations in recent

years, several issues warrant NOAA management attention. Our draft report

on the two programs is being reviewed by NOAA. After considering NOAA’s

comments, we will issue our final report during the next semiannual period.

(Office of Inspections and Program Evaluations)
National Oceanic and Atmospheric Administration

September 1997 Commerce IG Semiannual Report 41

Severe Weather Forecasting

As a key aspect of its mission, the National Weather Service helps

protect the nation’s people and property from the dangerous effects of severe

and hazardous weather by issuing severe weather and flood warnings, public

forecasts, and advisories. NWS determines how well it handles its severe

weather responsibilities through verification—a quality control process that

essentially matches warnings to actual weather observations and compiles 

statistical results of forecasting performance. In an inspection of this process,

we focused on assessing whether (1) NWS’s severe storm verification activities and statistics are valid and reliable measures of NWS severe storm

forecasting performance, and (2) its modernization efforts have improved the

accuracy of such forecasting. 

Based on our inspection, we concluded that NWS’s modernization

efforts have resulted in more accurate forecasting and that its verification

statistics are vital, and generally valid, measures of performance. However,

our recently issued draft report also highlighted a number of ways in which the

reliability of NWS’s verification statistics and process can be improved. Our

draft report is being reviewed by NOAA; our final report will be issued during

the next semiannual period. (Office of Inspections and Program Evaluations)

Audit Reports Unresolved for Over Six Months

As of September 30, 1997, there were three performance audit

reports, one financial assistance audit report, and one preaward contract audit

report with recommendations unresolved for more than six months.

Consolidation of NWS Tsunami Warning Program

The first performance audit report, NWS Tsunami Warning Program

Should Be Consolidated, STL-7066-6-0001 (see September 1996 issue, 

page 41), concluded that the tsunami warning centers in Hawaii and Alaska

could be eliminated by transferring some duties to the Interior Department’s

U.S. Geological Survey, having some duties assumed by other NOAA offices,

and leaving other duties to the states. NOAA disagreed with our findings and

recommendations. NOAA believes that the recommended actions would

reduce program effectiveness and increase program costs. We have suggested

an alternative approach as a basis for resolution and are awaiting NOAA’s

response. 
National Oceanic and Atmospheric Administration

42 Commerce IG Semiannual Report September 1997

Expanded Vessel Buyout Program

In another report, Expanded Vessel Buyout Program Is Not Needed,

ENT-8657-7-0001 (see March 1997 issue, page 48), we recommended that

NOAA cancel the buyout program, transfer appropriate funding to existing

federal programs that can better meet the needs of the Northeast fishing

community, and transfer any remaining unused funds to the Treasury. 

NOAA disagreed with our findings and recommendations. NOAA

believes that the Fishing Capacity Reduction Initiative is an integral part of a

comprehensive disaster relief plan, offering significant conservation benefits.

However, NOAA further indicated that it has no plans for another round of

buyouts in the Northeast and there is no funding for buyouts in the FY 1998

and FY 1999 budgets. Because all program funds will soon be expended, the

report’s recommendations can no longer be implemented and resolution of

those specific recommendations is a moot issue. 

We remain unconvinced of the merits of the Fishing Capacity Reduction Initiative and strongly suggest that NOAA monitor it and measure its

impact. We suggested that NOAA conduct an evaluation of the $23 million

initiative before expending any funds above that level for additional vessel

buyouts. We are awaiting NOAA’s response. 

Northwest Emergency Assistance Plan

In a third report, Northwest Emergency Assistance Plan Funds Can

Be Used More Effectively, STL-8518-7-0001 (see March 1997 issue, page

46), we recommended that the plan be made more effective by reallocating

funding of future permit buyback programs to salmon habitat restoration and

data collection programs. In addition, we recommended that the project

funding criteria be revised to ensure that habitat restoration and data collection

projects comply with the requirements of the Interjurisdictional Fisheries Act

and the Secretary’s disaster declaration.

NOAA disagreed with our findings and recommendations. NOAA

believes that the permit buyback program was a wise use of funds and it will

consider buyback proposals if future funds are made available under the

Northwest Emergency Assistance Plan. NOAA is satisfied that the habitat

restoration and data collection projects comply with the act and the disaster

declaration. Thus, there is no plan to revise the criteria.

We reaffirmed our recommendations and urged NOAA to reconsider

its position. We are awaiting NOAA’s revised audit action plan.
National Oceanic and Atmospheric Administration

September 1997 Commerce IG Semiannual Report 43

University of Hawaii

This financial assistance audit report, ATL-9999-5-0753 (see September 1995 issue, page 99), questioned $1.1 million of claimed costs. NOAA

requested that resolution be deferred until (1) a final determination of the

allowability of costs has been made by the Defense Contract Audit Agency

(DCAA), and (2) negotiations regarding ship day rates and other costs for

specialized service research are completed by the Office of Naval Research,

the cognizant agency for the university in resolving issues identified in the

audit. NOAA has received the DCAA report and is communicating with

DCAA, the Office of Naval Research, and the university in an attempt to

conclude this matter. We are awaiting NOAA’s revised audit resolution

proposal.

Preaward Contract Audit Report

The NOAA preaward contract audit report is referenced on page 65.
44 Commerce IG Semiannual Report September 1997

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 electro-magnetic 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

Information Infrastructure Grants

Program and the Public

Telecommunications Facilities

Program.

National Telecommunications

and Information Administration

San Francisco-Based Awardee

Did Not Achieve Grant Goals

Under its Telecommunications and Information Infrastructure

Assistance Program, NTIA awarded a $450,000 grant to a San Franciscobased organization that works to meet the social and economic needs of the

Hispanic community. The award required nearly $675,000 in matching funds,

bringing the total project budget to about $1.125 million. The grant funded a

demonstration project intended to show how minority communities could

participate in the nation’s advanced information infrastructure. Specifically,

the organization’s goals included operating as a national information provider

on the Internet, developing an informational database generated and managed

by Latino organizations, obtaining specified levels of subscribers, and

establishing five regional offices in major U.S. cities.

The OIG performed an interim audit of the grant period of 

October 15, 1994, through March 31, 1996. We found that the grantee 

(1) did not achieve all of its grant goals, as it failed to attract the expected

number of subscribers or to establish all proposed regional offices, (2) did not

meet matching funds requirements, and (3) incurred questioned costs of nearly

$300,000.

We recommended that the Department evaluate the feasibility of

requiring the organization to complete all of its grant goals, require adequate

support for all matching share contributions made to the project after the

period covered by the audit, disallow the nearly $300,000 in questioned costs,

and recover more than $94,000 in excess grant disbursements. The

organization agreed that two grant goals had not been achieved and with the

issues related to the availability of matching funds, but disagreed with the

questioned costs. (Seattle Regional Office of Audits: STL-8890-7-0001)

Grantee Costs Questioned

Because of Procurement Deficiencies

In October 1994, a state government organization was awarded an

NTIA grant for about $400,000 to start a single statewide multipurpose voice,

data, and video network. The grantee, which provided equal matching funds,

was to develop a network of 20 communitywide points of presence in school

districts throughout the state. In July 1996, the award was transferred to

another state instrumentality and amended to expand the network to eight

additional sites.
National Telecommunications and Information Administration

September 1997 Commerce IG Semiannual Report 45

The OIG conducted a financial and compliance audit of the grant

covering the period of October 15, 1994, to December 31, 1996. We found

more than $227,000 in improperly claimed project costs due to the failure to

follow federal procurement rules, which require full and open competition.

We recommended that the Department disallow the questioned costs and

recover the federal share of more than $113,000. In addition, we recommended that the Department require the grantee to implement and follow all

applicable procurement procedures.

In response to our draft report, the grantee disagreed with our finding

of procurement deficiencies, stating that it is exempt from state purchasing

requirements and is only required to follow generally accepted good business

practices. We reaffirmed our finding and recommendation since the grantee,

in accepting the transfer of the grant, agreed to abide by federal procurement

standards. (Atlanta Regional Office of Audits: ATL-9631-7-0001)

Telecommunications Network Grantee

Improperly Claimed In-Kind Contributions

In October 1995, NTIA awarded a $225,000 grant to a nonprofit

organization for a telecommunications network project to reduce disparities in

access to the national information infrastructure for low income families in

eight neighborhoods in a Connecticut city. The grant required a matching

contribution of about $470,000, making the total project budget approximately $695,000.

The OIG completed a financial and compliance audit of the grant for

the period of October 15, 1995, to June 30, 1996, and found approximately

$33,000 in project costs that had been improperly claimed. The questioned

costs included nearly $28,000 of in-kind contributions and about $5,000 of

inadequately supported costs. We also followed up on a complaint alleging

misuse of federal funds by a project subcontractor, but found no evidence to

substantiate the allegation.

We recommended that the Department disallow the improperly

claimed project costs and recover more than $24,000 in excess grant

disbursements from the grantee, and include a requirement that support

documentation for all claimed in-kind contributions for future grants be

provided to the Grants Officer with each “Request for Reimbursement.” The

grantee’s response to our final report has been received and is being evaluated

by the Department. (Atlanta Regional Office of Audits: ATL-8844-7-0001)
46 Commerce IG Semiannual Report September 1997

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.

Patent and

Trademark Office

Patent Quality Controls Are Inadequate 

PTO’s Office of Patent Quality Review is responsible for monitoring

and evaluating the quality of the patent examination process by reviewing a

sample of allowed patents and reporting the results to PTO management. In a

1990 report, the OIG cited inefficiencies by PTO in its quality review process

and in its use of OPQR data to make improvements in the patent examination

process (see March 1990 issue, page 7). PTO implemented most of our

recommendations and, between 1990 and 1996, experienced a steady decline

in the percentage of possible patent errors and patent cases reopened. 

However, in 1994, PTO decided to eliminate OPQR in favor of a

proposal called the Examination Quality Program (EQP), which was intended

to reinvent the patent quality review process. We raised serious concerns

about the proposal and recommended that PTO refrain from eliminating

OPQR until it had confirmed the effectiveness of the replacement process.

PTO agreed to maintain OPQR’s staffing level and continue sampling

examiner actions at a 4 percent sampling rate of allowed patents until EQP

was proven to be equally effective.

We recently performed an audit to evaluate the effectiveness of OPQR

and the status of PTO’s efforts to implement a substitute quality review

process. The audit disclosed that PTO had not carried out its previous

assurances to us that it would retain enough patent reviewers within OPQR to

continue sampling examiner actions. We found that PTO had both reduced

OPQR’s staff and sampling levels and delayed the implementation of EQP,

seriously reducing the effectiveness of the quality control program. For

instance, between FY 1992 and FY 1996, the number of patent reviewers was

reduced from 16 to 9, while the sampling rate declined from 3.8 to 2.1 percent. In April 1996, PTO officially reduced the sampling rate to 2 percent

without supporting statistical analysis; since then, error rates reported by

OPQR have gradually increased.

We also learned that a recent pilot project to assess the viability of

two major EQP components had identified serious weaknesses, and that EQP

implementation may be further delayed by uncertain funding and negotiations

with employee unions. Moreover, our 1990 recommendation that OPQR

expand its sampling to include examiners’ initial decisions (known as “first

actions”) had not been implemented.
Patent and Trademark Office

September 1997 Commerce IG Semiannual Report 47

We recommended that PTO reinstate the necessary OPQR staff to

sample allowed applications at the previously validated rate of 4 percent,

conduct a statistical analysis of the current sampling methodology to

determine a level necessary to produce valid results, and expand the patent

quality review process to include the review of initial decisions.

PTO agreed with our evaluation of the current quality review process,

accepted our recommendations, and outlined actions to implement them.

Specifically, PTO stated that it anticipated that the results of the analysis

called for by the second recommendation would provide OPQR with the

resources to carry out the first and third recommendations. (PTO Audits

Division: PTD-9977-7-0001)
48 Commerce IG Semiannual Report September 1997

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 supports 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.

Technology

Administration

NIST’s Advanced Technology Program Needs

Financial and Management Improvements

The Advanced Technology Program, one of four major programs

managed by NIST, was established in 1988 to promote the economic growth

and competitiveness of U.S. business by accelerating the development and

commercialization of promising high-risk technologies. ATP is a cost-sharing

program that provides funds to single companies and joint ventures for

research and development on pre-competitive generic technologies.

In August 1994, NIST received departmental approval to designate

ATP as a multi-year financial assistance program. Multi-year program

designation enables departmental financial assistance programs to make

awards for periods of more than one year even though the program does not

have enough money to fund the entire award project. To be eligible for multiyear funding, a project must be severable into annual segments that have

defined work products that represent tangible accomplishments. With this

designation, funding agencies are permitted to obligate funds for a one-year

budget period and anticipate options to renew for up to two additional years.

ATP received an exception to the general rule and was given approval to

renew award agreements for up to four additional years.

The OIG conducted an audit to assess NIST’s use of multi-year

funding for ATP projects, and the adequacy of management controls over

NIST’s FY 1995 ATP final award process. Our audit disclosed that NIST

inappropriately used incremental funding for research awards that were not

severable. NIST also failed to comply with departmental requirements for

multi-year funding because the grants officer did not certify that project

activities for FY 1995 awards were severable.

We found that by the end of FY 1996, NIST had accumulated

approximately $155 million of unfunded balances for ATP projects that

should be disclosed in the overview and notes to its annual financial

statements in order to provide management with more complete information

for use in making financial management decisions. NIST also did not

adequately control the FY 1995 final award process in several respects. We

made the following recommendations to NIST:

! To correct the deficiencies related to incremental funding and ensure

compliance with appropriate laws and regulations, NIST should

require that all prior year ATP awards not funded for the entire

project period be reviewed and (1) ensure that required certifications

of severability are prepared for awards that are severable, and 
Technology Administration

September 1997 Commerce IG Semiannual Report 49

(2) fully fund the remaining awards that are not severable before

obligating funds for new ATP awards.

! For all new ATP awards, NIST should ensure that required

certifications of severability are prepared for all awards that are

severable, and fully fund in advance awards that are not severable.

! To provide for proper disclosure of the ATP unfunded balance, 

NIST should ensure that auditable records are maintained to track the

$155 million ATP unfunded balance, and fully disclose the unfunded

balance in the overview and notes to NIST’s annual financial

statements.

! To strengthen management control over future ATP awards, NIST

should ensure that (1) awards are announced and notifications sent to

successful applicants only after grants specialists have completed

their financial reviews and final award process work, (2) grants

specialists are appointed to ATP source evaluation boards to

emphasize the importance of their work and involve them more in the

proposal review and selection process, and (3) a system is established

to identify and track award agreements with contingency clauses to

prevent funds from being disbursed to recipients before all

contingencies are resolved.

NIST generally agreed with our recommendations and submitted an

audit action plan for implementing them. (Technology Audits Division: ENT8984-7-0001) 

Accounting System Surveys and Audits 

of NIST Financial Assistance Recipients

As noted in earlier issues of this report, the OIG has been performing

a series of accounting system surveys of first-time recipients of financial

assistance awards under NIST’s Advanced Technology and Manufacturing

Extension Partnership programs (see, for example, March 1997 issue, page

64). During this semiannual period, key aspects of our work on NIST

financial assistance programs involved auditing ATP joint venture recipients

and responding to a congressional request seeking information on potential

“double billing.”
Technology Administration

50 Commerce IG Semiannual Report September 1997

Advanced Technology Program

During the period, we reported on 20 audits covering two ATP joint

ventures and one single recipient with award periods of up to five years, and

having total estimated costs of more than $68.8 million, with a federal share

potentially as high as $33.0 million.

More than 100 joint venture ATP awards involving over 500 companies have been issued with total estimated costs exceeding $2.0 billion (federal

and nonfederal). Our examination of two ATP joint venture awards with 

19 participants and a total of $64.3 million in federal and nonfederal funds

identified questionable transactions of $10.7 million, generally involving

software development companies that provided licenses, software maintenance

and support, or other items from a commercial product line for use on the

project. Problems arose because federal cost reimbursement rules do not

permit financial assistance award recipients to be reimbursed for previously

invested development costs, corporate interest expenses, or profit—all of

which are significant ingredients of software commercial prices. 

We have worked closely with NIST grant and program officials on a

proposed rule (published in the Federal Register on September 17, 1997) that

will address the valuation of transfers of goods and services, including

computer software, between separately owned joint venture members. The rule

would permit 75 percent of the participant’s best commercial price or its

actual cost, whichever is greater, to be claimed as an allowable cost to future

ATP awards. (Denver Regional Office of Audits: DEN-8932-7-0001, DEN9752-7-0001, DEN-9758-7-0001, DEN-9759-7-0001, DEN-9760-7-0001,

DEN-9761-7-0001, DEN-9762-7-0001, DEN-9763-7-0001, DEN-9764-7-

0001, DEN-9765-7-0001, DEN-9766-7-0001, DEN-9767-7-0001, DEN9768-7-0001, DEN-9774-7-0001, DEN-9775-7-0001, DEN-9776-7-0001,

DEN-9777-7-0001, DEN-9779-7-0001, DEN-9827-7-0001)

The single recipient had two awards for $4.5 million, with an

estimated federal share of $4.0 million. The audit identified weaknesses in the

recipient’s financial management and accounting systems, in particular the

failure to adequately account for federal funds, to properly claim and

document only allowable costs, and to implement adequate policies and

procedures. Questioned costs on this audit exceeded $100,000. (Denver

Regional Office of Audits: DEN-9002-7-0001)
Technology Administration

September 1997 Commerce IG Semiannual Report 51

Manufacturing Extension Partnership Program

The three surveys completed during this period covered MEP projects

having total estimated costs for the two- to three-year award periods exceeding

$8.9 million, with a federal share that could ultimately be as much as 

$4.1 million. We found that the accounting and financial management systems

of all three recipients complied with federal regulations. (Denver Regional

Office of Audits: DEN-9490-7-0001, DEN-9828-7-0001, and DEN-9857-7-

0001)

Congressional Request Related to Double Billing

At the request of the Chairman of the House Science Committee, we

provided information on the operations of three Department programs: 

ATP, MEP, and the Small Business Innovation Research (SBIR) program.

The ATP and MEP programs are unique to the Department of Commerce,

while the SBIR program operates governmentwide. 

The Committee’s concern was that companies may apply for and

receive financial assistance from more than one federal source for the same or

similar proposals, thereby increasing the risk that the companies will engage in

illegal double billing. Within the Department, we identified 568 companies and

nonprofit organizations that had received 871 awards from the ATP, MEP, or

SBIR program between 1991 and 1996. 

We did not identify any small business or nonprofit organization that

had received awards from all three programs. Only nine recipients, or less

than 2 percent, were funded under two programs: eight small businesses

received awards from both the ATP and SBIR programs; one entity received

awards from the MEP and SBIR programs, but did not make any cost claims

under the SBIR award, which was canceled. The funding patterns for the eight

small businesses were as follows:

! Three companies had ATP awards totaling $4,911,000 that were

completed before SBIR awards totaling $149,794 were received.

! One company had an SBIR award of $48,285 that was completed

before an ATP joint venture award totaling $8,148,000 was received. 

! Four companies received ATP and SBIR awards in the same fiscal

years.
Technology Administration

52 Commerce IG Semiannual Report September 1997

Our audits of the four small businesses receiving ATP and SBIR

awards in the same year found no double billing. Complete results of these

audits will be reported during the next semiannual period. (Denver Regional

Office of Audits)

NIST Properly Handled Superfund 

Interagency Agreements with EPA 

Under interagency agreements with the Environmental Protection

Agency, NIST conducts technical research to counteract the effects of toxic

waste spills. Funds appropriated for these agreements are made available

through the Hazardous Response Trust Fund, known as the Superfund.

The Superfund Amendments and Reauthorization Act of 1986

requires the OIG to audit all payments, obligations, reimbursements, or other

uses of the Superfund annually to ensure that it is being properly administered. During this semiannual period, we conducted two audits to determine

whether NIST had properly managed the financial aspects of the Superfund

agreements entered into with EPA during FYs 1995 and 1996.

We determined that NIST had accurately accumulated, documented,

and charged the Superfund reimbursable costs for the funds received, and that

the funds had been received in advance for all work performed. Our evaluation

of NIST’s compliance with laws and regulations indicated that the agency was

in compliance with the relevant financial provisions of the legislation that

created the Superfund. 

NIST was also in compliance with the terms and conditions of the

interagency agreements, and controls over Superfund activities were adequate.

During both years, NIST properly traced EPA Superfund monies by providing

segregated cost centers for the expenditures. As a result, we made no

recommendations. (Economic Development Audits Division: EDD-9836-7-

0001 and EDD-10062-7-0001)

OIG Work at NTIS Indicates That 

PBO Legislation Should Be Put on Hold

During this semiannual period, we responded to a request for

comments from the Department’s Office of General Counsel on legislation to

convert NTIS to a performance-based organization. NTIS was selected to be

converted to a PBO due, in large part, to its successes during the 1990s in

adopting a more businesslike atmosphere, establishing an improved 
Technology Administration

September 1997 Commerce IG Semiannual Report 53

integrated accounting and order processing system, and receiving fewer

customer complaints. The PBO concept is designed to provide certain federal

agencies with greater flexibility in procurement and more control over finances

and personnel, in exchange for stricter accountability for performance. 

A clearly defined mission and the ability to generate sufficient

revenues to support business operations are the two key prerequisites for

becoming a PBO. We are concerned about whether NTIS currently meets

either of these prerequisites.

We recently completed an analysis of NTIS financial data for the

period FY 1991 through FY 1997. Our analysis concluded that NTIS will not

meet its mandate to be self-supporting unless revenues increase and/or

operating costs decrease. NTIS has suffered a net loss in two of the last three

years, including an estimated loss of $3.0 million in FY 1997 due to decreased

sales and increased costs, and current trends indicate that NTIS will run out of

funds in FY 1998.

In early 1997, we conducted a program evaluation that examined

NTIS’s operations and expansionary activities (see March 1997 issue, 

page 58). In our report, we noted that NTIS’s traditional mission appeared to

fit the PBO concept, but we expressed concerns that the agency was

undertaking activities based on a very broad interpretation of its mission and

authority under the American Technology Preeminence Act of 1991. 

Our inspection of one such activity, the joint NTIS-Internal Revenue

Service CyberFile project, found that NTIS lacked the requisite in-house

technical and management expertise to handle such a project (see March 1997

issue, page 59). NTIS’s role in the project was also criticized by the General

Accounting Office, the IRS internal audit office, and the Congress. Based on

these concerns, we recommended that NTIS establish written criteria and a

process for thoroughly reviewing all “expansionary” projects to avoid taking

on projects that are potentially outside of the agency’s mission or capabilities

and to ensure that ample time is afforded to effectively plan, manage, and

complete any undertaking that meets the established criteria. NTIS agreed to

implement this recommendation.

However, the draft PBO bill includes a provision that would further

expand NTIS’s mission to allow the agency to provide “information-related

services to other federal agencies.” This provision would place virtually no 

limits on the types of information-related activities NTIS would be authorized

to undertake, some of which may not be appropriate government 
Technology Administration

54 Commerce IG Semiannual Report September 1997

activities and could put the agency in direct competition with the private

sector. We recommended that the Department not proceed with legislation to 

convert NTIS to a PBO until an appropriate mission for the agency has been

clearly defined and the agency is able to demonstrate, through short- and 

long-term business plans, that it will be able to generate sufficient revenues to

remain financially self-supporting and position itself for the future. (Office of

Audits and Office of Inspections and Program Evaluations)

OIG Helps NTIS and IRS Reach $1.75 Million 

Settlement of CyberFile-Related Debt

In our previous Semiannual Report (see March 1997 issue, page 59),

we discussed the management and procurement problems related to CyberFile,

a $20 million on-line tax-filing system that NTIS was developing for IRS.

Because of the many problems associated with CyberFile, IRS refused to pay

NTIS the $1.9 million balance for costs incurred on the project. Having so

poorly managed the project, NTIS officials were in a difficult position to

convince IRS that it should pay the funds owed. The potential consequences to

NTIS were serious, including the possibility of becoming “anti-deficient” (that

is, incurring obligations in excess of amounts available in appropriations) if

IRS did not pay the balance due.

In May 1997, OIG staff prepared an analysis for IRS internal

auditors describing NTIS procurement lapses, but also noting the great extent

to which IRS shared in these problems. We also analyzed how much NTIS

had spent on the project and what work products had been delivered to IRS.

Despite the procurement deficiencies that we reported, we believed IRS owed

the disputed amount. The Inspector General and the Department’s Under

Secretary for Technology later met with the IRS Deputy Commissioner to try

to resolve the payment issue. In July, IRS agreed to repay NTIS about 

$1.75 million of the disputed amount related to CyberFile. (Office of

Inspections and Program Evaluations)

In Brief

A procurement official received a letter of reprimand and was

required to donate 56 hours of annual leave to the agency’s leave transfer

program after an OIG investigation disclosed that he was obtaining equipment

for his own use from a NIST vendor at no cost or discounted prices. The

employee was also relieved of all procurement responsibilities and directed to

attend supplemental ethics training. (Denver Field Office of Investigations)
September 1997 Commerce IG Semiannual Report 55

Chief Financial 

Officer & 

Assistant Secretary

for Administration

Budget,

Management

& Information

Executive

Budgeting

& Asst.

Management

Systems

& Telecom.

Management

Acquisition

Management

Civil

Rights

Human

Resources

Management

Financial

Management

Security

& Admin.

Services

Departmental Management

ASCs Need Functional Realignment 

and Focus on Essential Services 

Commerce’s Administrative Support Centers (ASCs) were created in

1983 to provide more cost-effective administrative services for the Department’s many field units, thereby relieving the bureaus of that burden, reducing

the duplication of administrative units, and providing more effective services.

The Department established ASCs in four cities: Norfolk, Virginia; Kansas

City, Missouri; Boulder, Colorado; and Seattle, Washington. Because NOAA

is the Department’s largest bureau and has the most field offices, it was

selected to provide this “Commerce” service, with substantial departmental

oversight.

An OIG inspection of the ASCs was conducted to examine their

efficiency and effectiveness in supporting the Department’s field units, with a

special focus on (1) the oversight and leadership provided by NOAA and the

Department, and (2) the ASCs’ current operations, as well as their future

viability.

We found that the ASCs, their clients’ expectations, and the delivery

of administrative services are changing dramatically because of technological

advances, organizational realignments, budget cuts, and shifting management

initiatives. Because of these changes and the ASCs’ uncertain status, senior

Commerce and NOAA officials must ensure that administrative services are

provided to the field units as efficiently, economically, and effectively as

possible. 

We also found that although ASC personnel seemed committed to

providing high-quality service and clients gave them high marks for their

work, there has been significant client concern about billing and funding

issues. Moreover, departmental and NOAA management voids have

complicated ASC operations by fostering inefficiencies and weakening the

ASCs. This has resulted in one major bureau, Census, abandoning the

centers, and another, ITA, considering doing the same. 

Concerning specific ASC units, we concluded that (1) some human

resources division functions should be consolidated, automated, or moved, 

(2) procurement division operations could be improved by certain changes and

a consolidation, (3) much of the finance division work should be outsourced,

(4) some streamlining would benefit the systems divisions, and (5) the

functions of the facilities and logistics divisions need management attention.

Moreover, we recommended that the ASC deputy director positions be

eliminated, a change later implemented by NOAA.
Departmental Management

56 Commerce IG Semiannual Report September 1997

An important part of our inspection dealt with Commerce’s

implementation of one of the six franchise pilot projects authorized by the

Government Management Reform Act of 1994 to provide financial support to

agencies that provide common administrative services in an entrepreneurial

manner. The purpose of this initiative is to promote governmentwide

competition among administrative services providers, leading in theory to

better, more cost-effective services. One of the proposed Commerce franchises

involves the ASCs.

At the time of our review, two ASCs were offering their procurement

services on a franchise basis to other agencies, and discussions were underway

to expand franchising activities at all four centers. However, we identified a

shortage of staff, the need for major operational improvements, a potential for

overextending resources to support non-Commerce agencies, and uncertain

systems support. As a result, we believe that further franchising initiatives at

the ASCs should be curtailed until NOAA and the Department address the

concerns discussed in our report, and clearly demonstrate, through benefit-cost

analyses, the advantages of allowing the ASCs to pursue franchising

initiatives at this time. 

Although we believe that all four ASCs should remain open for now,

Department and NOAA management should begin reviewing all Commerce

administrative functions, with a view toward maximizing consolidation and

outsourcing, and reducing staffing. We also made recommendations to

improve the delivery of administrative support services to Commerce field

operations.

NOAA disagreed with certain of our recommendations. For example,

in response to one major recommendation, to outsource the administrative

payments function, NOAA has assured us that the implementation of CAMS

will resolve our concerns. We are giving NOAA the benefit of the doubt, but

will closely monitor developments. 

In response to a second major recommendation, to curtail further

expansion of the franchise initiatives, NOAA and the Department both

disagreed. In fact, NOAA wants to expand its ASC franchise to include all

administrative services. We continue to believe that NOAA and the

Department should not expand the use of their outdated computer systems or

hire additional personnel to support non-Commerce agencies until they can

conclusively demonstrate cost-effectiveness. We also have concerns about the

ASCs’ ability to provide proper procurement oversight to many new

customers and the lack of an analysis of the market for administrative

services. (Office of Inspections and Program Evaluations: IPE-8569)
Departmental Management

September 1997 Commerce IG Semiannual Report 57

OIG Leads Project to Identify Best Practices 

for Prescreening Financial Assistance Recipients

The Commerce OIG recently undertook a project for the President’s

Council on Integrity and Efficiency’s Committee on Inspection and Evaluation

intended to benefit both the Offices of Inspector General and their agencies’

respective financial assistance award processes. The project involves

conducting a survey to identify successful techniques used by OIGs and

agency grant and loan offices to identify and screen out potentially problematic recipients of federal grants, loans, loan guarantees, or cooperative

agreements before they receive federal funding. 

The project goal is to highlight the best practices used by individual

organizations, so that other OIGs and agencies will have an opportunity to

adopt such practices in their review procedures for federal assistance awards.

By sharing this information, the OIG community should be able to establish a

more effective, efficient, and focused effort to prevent, as well as detect,

waste, fraud, and abuse by financial assistance recipients. We are preparing a

draft report on our findings. (Office of Inspections and Program Evaluations)

OPM Issues New AUO Guidelines

Based on OIGs’ Findings

In June 1997, the Office of Personnel Management issued new

guidelines on administratively uncontrollable overtime (AUO) pay, following

governmentwide OIG audits of each agency’s AUO program. Agencies are

authorized to disburse premium pay for AUO, ranging from 10 to 25 percent

of basic pay, when three criteria are met: (1) an employee’s hours cannot be

controlled administratively, (2) the employee’s position requires substantial

amounts of irregular, unscheduled overtime duty, and (3) the employee is

responsible for recognizing, without supervision, circumstances that require

him or her to remain on duty.

The OIG audits found several problems and deficiencies, including

insufficient documentation of payments, inadequate guidance on implementing the policy, errors in the computation of AUO percentage rates, and

misinterpretations of the benefit’s relationship to premium pay. The OPM

guidelines address the OIG concerns, as well as work scheduling requirements,

pay limitations, and payment for seasonal and temporary assignments.
Departmental Management

58 Commerce IG Semiannual Report September 1997

Our audit found that all Department of Commerce AUO payments for

the year ending October 12, 1996, were made to 55 NOAA employees, who

received a total of about $228,000 (see March 1997 issue, page 74). We

recommended that the Department and NOAA ensure that units authorizing

AUO payments for employees maintain and review records of overtime

worked, determine the average weekly hours of irregular or occasional

overtime, assess work requirements, and set the proper rate of premium pay

based on the Department’s Pay Handbook, and determine if payment for AUO

is cost-effective compared to payment for regular overtime. (Economic

Development Audits Division)

In Brief

An employee in the Office of Administration received a letter of

reprimand and was ordered to attend supplemental ethics training after an OIG

investigation disclosed that he had cashed numerous personal checks with a

contractor while serving as contracting officer’s technical representative on

the contract, and had used government time and equipment to conduct

business for a private company he owned. (Washington Field Office of

Investigations)

Processed Preaward/Postaward Contract Audits

The Department’s bureaus require many types of supplies and

services to meet their mission needs. Procurement offices must help the

bureaus obtain the best products or services at the best prices. To that end,

preaward audits are routinely requested, through the OIG, to assist the

contracting officer in evaluating an offeror’s proposed costs, accounting

system, financial capability, management ability, and technical competence.

These audits are usually performed by the Defense Contract Audit Agency.

To streamline the procurement process and meet the intent of the

National Performance Review, the OIG is transferring certain audit-related

activities to the Department’s contracting officers, allowing them to request

audits directly from cognizant audit offices. Eliminating this step in the

contract audit process will save time and increase efficiency. As a result of

this change, future contract audit savings will be reported by the cognizant

audit agency rather than this office. The change, which took effect on 

October 1, 1997, does not modify the OIG audit authority and responsibility. 
Departmental Management

September 1997 Commerce IG Semiannual Report 59

During the second half of FY 1997, 57 audit requests were received

and processed by the OIG. The requests comprised the following:

! 8 preaward audit requests with an audited value of $49,238,400.

! 23 postaward audit requests with an audited value of $10,455,373.

! 26 miscellaneous audit requests, including rate reviews and

accounting system reviews.

The number of processed audit reports issued total 48:

! 16 preaward audit reports cited $1,078,785 in potential funds to be

put to better use.

! 19 postaward audit reports.

! 13 special audit reports.

Recommendations made in three preaward contract audits were resolved in contract negotiations, resulting in $367,238 in funds to be put to

better use. As of September 30, 1997, one preaward contract audit issued before April 1997 had recommendations awaiting a final management decision

by the contracting officer. (Office of Compliance and Administration)

Preaward Financial Assistance Screening

We continue to work with the Office of Executive Assistance

Management, NOAA and NIST grant offices, and EDA program offices to

screen all of the Department’s grants, cooperative agreements, and loan

guarantees before award. Our screening (1) provides information on whether

the applicant has unresolved audit findings and recommendations on earlier

awards, and (2) 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 1,953 proposed awards. On 37 of

these awards, we found major deficiencies affecting the ability of the proposed

recipients to maintain proper control over federal funds. On the basis of

information we provided, the Department delayed the awards, inserted special

conditions in award agreements, or designated certain recipients as “high risk”

and required that the disbursement of federal funds be on a cost

reimbursement basis. (Office of Audits)
Departmental Management

60 Commerce IG Semiannual Report September 1997

Preaward Screening Results

Results Number Amount

Awards delayed 7 $4,208,535

Special award conditions 2 1,094,434

Cost reimbursement basis 28 16,630,545

Indirect Cost Reviews

OMB has established a policy whereby a single federal agency is

responsible for the review, negotiation, and approval of indirect cost rates for

federal programs. Normally, the federal agency providing the most direct

funding is the cognizant agency. OMB has designated Commerce as the

cognizant agency for 280 economic development districts. In turn, the Department authorized the OIG to negotiate indirect cost rates and review cost

allocation plans for each of its agencies. The OIG approves the methodology

and principles used in pooling indirect costs and establishing a common base

for distributing those costs to ensure that each federal, state, and local program bears its fair share. 

During this period, the OIG negotiated 39 indirect cost rate

agreements with nonprofit organizations and governmental agencies, and

reviewed and approved 24 cost allocation plans. We also provided technical

assistance to recipients of Commerce awards regarding the use of rates

established by other federal agencies and their applicability to our awards.

Further, we have worked closely with first time for-profit recipients of

Commerce awards to establish indirect cost proposals that are acceptable for

OIG review. (Atlanta Regional Office of Audits)

Nonfederal Audit Activities

In addition to OIG-performed audits, the Department's financial

assistance programs are audited by state and local government auditors and by

independent public accountants. OMB Circulars A-128, Audits of State and

Local Governments, and A-133, Audits of Institutions of Higher Education

and Other Non-Profit Institutions, set forth the audit requirements for most of

these entities. Entities that are for-profit organizations and receive ATP funds

from NIST are audited in accordance with Government Auditing Standards,

and NIST Program-Specific Audit Guidelines for ATP Cooperative

Agreements, issued by the Department.
Departmental Management

September 1997 Commerce IG Semiannual Report 61

During this semiannual period, we received 519 audit reports prepared by nonfederal auditors. We also had 96 unprocessed reports from the

last semiannual period. For 295 of these reports, the Department is responsible for monitoring compliance with the two OMB circulars and NIST requirements. The other reports are from entities for which other federal agencies

have oversight responsibility. We examined 531 reports during this period to

determine whether they contained audit findings on any Department programs.

Report Category Number

Pending (March 31, 1997) 96

Received 519

Examined 531

Pending (September 30, 1997) 84

The following table shows a breakdown by bureau of the 

$445 million in Commerce funds audited. 

Bureau Funds 

EDA $91,254,163

ITA 4,637,172

MBDA 6,003,952

NOAA 171,295,066

NTIA 15,774,389

PTO 53,026

TA 51,035,730

 NIST 104,922,899

Total $444,976,397

We identified a total Commerce share of $1,345,800 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 19 reports with Commerce findings

are listed in Appendix B-1. (Atlanta Regional Office of Audits)
62 Commerce IG Semiannual Report September 1997

Reporting Requirements

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.

Section Topic Page

4(a)(2) Review of Legislation and Regulations 63

5(a)(1) Significant Problems, Abuses, and Deficiencies 18-61

5(a)(2) Significant Recommendations for Corrective Action 18-61

5(a)(3) Prior Significant Recommendations Unimplemented 63

5(a)(4) Matters Referred to Prosecutive Authorities 18-61

5(a)(5) and 6(b)(2) Information or Assistance Refused 64

5(a)(6) Listing of Audit Reports 72-79

5(a)(7) Summary of Significant Reports 18-61

5(a)(8) Audit Reports—Questioned Costs 68, 71

5(a)(9) Audit Reports—Funds to Be Put to Better Use 69, 70

5(a)(10) Prior Audit Reports Unresolved 15, 64

5(a)(11) Significant Revised Management Decisions 16, 65

5(a)(12) Significant Management Decisions with Which the OIG Disagreed 65
Reporting Requirements

September 1997 Commerce IG Semiannual Report 63

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 and recommendations regarding the proposed

legislation that would establish NTIS as a government corporation are

discussed on pages 14 and 52. Other draft legislation and regulations

discussed relate to the NOAA Corps (see pages 4 and 33) and the ATP

program (see page 8).

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. 

Prior Inspector General semiannual reports have explained that to

include a list of all significant unimplemented recommendations in this report

would be duplicative, costly, unwieldy, and of limited value to the Congress.

Any list would have meaning only if explanations detailed whether adequate

progress is being made to implement each agreed-upon corrective action. Also,

as this Inspector General's semiannual report is being prepared, management

is in the process of updating the Department's Audit Tracking System as of

September 30, 1997, based on semiannual status reports due from the bureaus

in mid-October. An accurate database is therefore not available to the OIG for

reference. However, additional information on the status of any audit

recommendations may be obtained through the OIG's Office of Audits. 
Reporting Requirements

64 Commerce IG Semiannual Report September 1997

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

commencement 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, 1997, three performance audits, three financial

assistance audits, one financial statements audit, and one preaward contract

audit were in this category, as discussed below. 

Performance Audits

One unresolved report addresses the NWS Tsunami Warning

Program. This report is discussed on page 41. The other two reports address

NMFS’s vessel buyout and Northwest Emergency Assistance Plan permit

buyback programs. Details can be found on page 42.

Financial Assistance Audits

The unresolved audits relate to financial assistance awards made by

EDA, MBDA, and NOAA. Audit resolution proposals have been submitted;

however, the OIG and the three bureaus were not able to resolve the reports on

a timely basis. Additional details are presented on pages 23, 32, and 43.

Financial Statements Audit

The unresolved audit involves the Bureau of the Census Financial

Statements for Fiscal Year 1996. Details can be found on page 26.
Reporting Requirements

September 1997 Commerce IG Semiannual Report 65

Preaward Contract Audit

The Department’s Audit Tracking System recorded one preaward

contract audit unresolved in excess of six months. The audit, based on a

DCAA review of a contract proposal, will be resolved when the contracting

officer takes final action on the pending procurement, such as awarding a

contract or issuing a contract modification. The unresolved preaward contract

audit is listed below. 

! ADD-8350-6-0082, August 6, 1996

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.

During the reporting period, no modifications were submitted to the

OIG for review. The decisions issued on the five 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.

DAO 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.
66 Commerce IG Semiannual Report September 1997

Audit and Inspection

Statistical Highlights

Questioned costs this period ...................... $8,867,591

Value of audit recommendations this

period that funds be put to better use ................ $6,167,791

Value of audit recommendations agreed 

to this period by management ................... $113,824,657

Value of inspection recommendations this

period that funds be put to better use ............... $95,900,000

Allegations

Processed by

OIG Investigators

 37 Accepted for

Investigation

 40 Referred to 

Operating Units

 33 Evaluated But 

Not Accepted for 

Investigation or 

Referral

110 Total

In addition, numerous other allegations and

complaints were forwarded to the appropriate

federal and nonfederal investigative agencies.

OIG HOTLINE

Telephone: (202) 482-2495 or 1-800-424-5197

Commerce E-mail: OIG Hotline@OI@OIG

Internet: oighotline@doc.gov

Investigative

Statistical Highlights

Arrests ................................................ 1

Indictments and informations ............................... 1

Convictions ............................................ 1

Personnel actions1....................................... 5

Administrative actions2................................... 8

Fines, restitutions, judgments, and civil and 

administrative recoveries ........................... $153,652

1

Includes suspensions, reprimands, demotions, removals, reassignments, and resignations

or retirements in lieu of adverse action.

2

Includes actions to recover funds, new procedures, and policy changes that result from

investigations.

Statistical Highlights
September 1997 Commerce IG Semiannual Report 67

Tables and Appendixes

Tables Page

1. Audits with Questioned Costs 68

2. Audits with Recommendations That Funds Be Put to Better Use 69

3. Preaward Contract Audits with Recommendations That Funds Be Put to Better Use 70

4. Postaward Contract Audits with Questioned Costs 71

Appendixes

A. Office of Inspector General Reports 72

A-1. Performance Audits 72

A-2. Inspections 73

A-3. Financial Statements Audits 74

A-4. Financial Assistance Audits 74

B. Processed Reports 77

B-1. Processed Financial Assistance Audits 78

B-2. Processed Contract Audits with Questioned Costs or Funds to Be Put to Better Use 79

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

68 Commerce IG Semiannual Report September 1997

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 10 $4,620,497 $832,368

B. Reports issued during the reporting period 42 8,867,591 824,853

Total reports (A + B) requiring a management

decision during the reporting period 52 13,488,088 1,657,221

C. Reports for which a management decision was made

during the reporting period 10 3,485,505 50,855

i. Value of disallowed costs 1,194,866 32,200

ii. Value of costs not disallowed 2,290,639 18,655

D. Reports for which no management decision had been

made by the end of the reporting period 42 $10,002,583 $1,606,366

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.

Three audit reports included in this table are also included in the reports with recommendations that funds be put

to better use (see Table 2). However, the dollar amounts do not overlap.

No postaward contract audits are included in this table; instead, any such audits are listed in Table 4.
Tables and Appendixes

September 1997 Commerce IG Semiannual Report 69

Table 2: Audits with Recommendations

That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

commencement of the reporting period 13 $196,049,964

B. Reports issued during the reporting period 4 5,140,470

Total reports (A + B) requiring a management decision during the

reporting period 17 201,190,434

C. Reports for which a management decision was made during the

reporting period 11 154,492,615

i. Value of recommendations agreed to by management 112,262,553

ii. Value of recommendations not agreed to by management 42,230,062

D. Reports for which no management decision had been made by the

end of the reporting period 6 $46,697,819

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.

Three audit reports included in this table are also included in the reports with questioned costs (see Table 1).

However, the dollar amounts do not overlap.

No preaward contract audits are included in this table; instead, those audits are listed in Table 3.
Tables and Appendixes

70 Commerce IG Semiannual Report September 1997

Table 3: Preaward Contract Audits with

Recommendations That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

commencement of the reporting period 2 $478,090

B. Reports issued during the reporting period 7 1,027,321

Total reports (A + B) requiring a management decision during the

reporting period 9 1,505,411

C. Reports for which a management decision was made during the

reporting period 5 442,952

i. Value of recommendations agreed to by management 367,238

ii. Value of recommendations not agreed to by management 119,991

iii. Value of reports on proposals that were not awarded contracts --

D. Reports for which no management decision had been made by the

end of the reporting period 4 $1,062,459

Notes and Explanations:

Preaward audits of contracts include results of audits performed for the OIG by other agencies.

In Category B, six reports were prepared for the OIG by the Defense Contract Audit Agency; one report was

prepared by the Department of Health and Human Services.

When there are multiple proposals for the same contract, we report only the proposal with the lowest dollar value

for funds to be put to better use; however, in Category C, lines i-ii, we report the value of the awarded contract.

In Category C, lines i-iii do not always equal the total on line C since resolution may result in values greater than

the original recommendations.
Tables and Appendixes

September 1997 Commerce IG Semiannual Report 71

Table 4: Postaward Contract 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 -- -- --

B. Reports issued during the reporting period -- -- --

Total reports (A + B) requiring a management decision

during the reporting period -- -- --

C. Reports for which a management decision was made

during the reporting period -- -- --

i. Value of disallowed costs -- --

ii. Value of costs not disallowed -- --

D. Reports for which no management decision had been

made by the end of the reporting period -- -- --

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.
Tables and Appendixes

72 Commerce IG Semiannual Report September 1997

Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 5 A-1

Inspections 10 A-2

Financial Statements Audits 1 A-3

Financial Assistance Audits 39 A-4

Total 55 

Appendix A-1. Performance Audits

Agency Subject Number Date

Funds to Be

Put to Better

Use

Economics and

Statistics

Administration

2000 Decennial Census: Expanded

Targeted Questionnaire Program May Be

Unnecessary and Counterproductive

ESD-9610-7-0001 09/97 --

Patent and

Trademark Office

Patent Quality Controls Are Inadequate PTD-9977-7-0001 09/97 --

Technology

Administration - NIST

Advanced Technology Program Needs

Financial and Management Improvements

ENT-8984-7-0001 07/97 --

FY 1995 Superfund Charges to the

Environmental Protection Agency

EDD-9836-7-0001 07/97 --

FY 1996 Superfund Charges to the

Environmental Protection Agency

EDD-10062-7-0001 08/97 --
Tables and Appendixes

September 1997 Commerce IG Semiannual Report 73

Appendix A-2. Inspections

Agency Subject Number Date

Funds to Be

Put to Better

Use

Bureau of Export

Administration

Export Application Screening Process Could Benefit

from Further Changes

IPE-9524 09/97 --

International

Trade

Administration

US&FCS Post in Malaysia IPE-9284 04/97 --

US&FCS Post in Thailand IPE-9286 04/97 --

US&FCS Poland: Effective Post Needs Attention to

Certain Management Issues

IPE-9288 04/97 --

US&FCS Post in Indonesia IPE-9285 05/97 --

US&FCS Germany: While Generally Productive, Its

Priorities, Resources, and Activities Require

Reassessment

IPE-9287 07/97 --

Recent Overseas Inspections Found US&FCS

Delivering Services Effectively but Facing Internal

Constraints

IPE-9178 09/97 --

National Oceanic

and Atmospheric

Administration

The NOAA Corps Transition Plan Should Convert

No More Than 170 Officers

NAD-9087 09/97 $16,600,000

Excess Satellite Funding Indicates Need for Better

Financial Controls

OSE-8797(2) 09/97 79,300,000

Office of the

Secretary

Administrative Support Centers Need Functional

Realignment and Focus on Essential Services

IPE-8569 08/97 --
Tables and Appendixes

74 Commerce IG Semiannual Report September 1997

Appendix A-3. Financial Statements Audits

Agency Subject Number Date

International Trade

Administration

USTTA Close-Out Procedures as of April 25, 1997 FSD-8711-7-0001 06/97

Appendix A-4. Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs 

Unsupported

Costs 

Funds to 

Be Put to

Better

Use

Economic

Development

Administration

Miami Downtown Development

Authority, FL

ATL-9297-

7-0001

06/97 $1,422,846 -- $942,651

West Virginia Economic

Development Authority

ATL-8969-

7-0001 

09/97 -- -- 3,843,380

Cherokee County, NC ATL-9614-

7-0001

09/97 -- -- 111,000

Minority Business

Development Agency

Dodd & Associates, Ltd., TX DEN-9575-

7-0001

04/97 -- -- --

IMPACT Business Consultants,

Inc., OR

STL-8823-

7-0001

07/97 -- -- --

Operation of the Portland MBDC –

Year One, IMPACT Business

Consultants, Inc., OR

STL-8823-

7-0002

07/97 89,047 $88,086 --

Operation of the Salt Lake City

MBDC – Year One, IMPACT

Business Consultants, Inc., OR

STL-8823-

7-0003

07/97 25,508 22,290 --

Operation of the Seattle MBDC –

Year One, IMPACT Business

Consultants, Inc., OR

STL-8823-

7-0004

07/97 18,940 15,498 --

Operation of the Phoenix MBDC –

Year One, IMPACT Business

Consultants, Inc., OR

STL-8823-

7-0005

07/97 30,523 20,446 --

Operation of the Tucson MBDC –

Year One, IMPACT Business

Consultants, Inc., OR

STL-8823-

7-0006

07/97 28,554 25,370 --

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

September 1997 Commerce IG Semiannual Report 75

Appendix A-4. Financial Assistance Audits — Continued

Agency Auditee Number Date

Questioned

Costs 

Unsupported

Costs 

Funds to 

Be Put to

Better

Use

Minority Business

Development Agency

Empower Baltimore Management

Corporation, with Council for

Economic and Business

Opportunity, Inc., MD

EDD-9406-

7-0001

09/97 33,103 16,755 --

National Oceanic and

Atmospheric

Administration

Mississippi Department of Marine

Resources

ATL-9632-

7-0001

08/97 151,985 87,644 243,439

Ortech Engineering, Inc., TX ATL-9905-

7-0001

08/97 -- -- --

National

Telecommunications

and Information

Administration

Bridgeport Futures, CT ATL-8844-

7-0001

08/97 10,542 2,680 --

LatinoNet, CA STL-8890-

7-0001

08/97 118,991 65,315 --

Massachusetts Corporation for

Educational Telecommunications

ATL-9631-

7-0001

09/97 113,781 -- --

Technology

Administration -

NIST

Alabama Technology Network DEN-9490-

7-0001

04/97 -- -- --

University of Southern Mississippi DEN-9857-

7-0001

06/97 -- -- --

Genosys Biotechnologies, Inc., TX DEN-9760-

7-0001

06/97 1,152,465 -- --

Genometrix Incorporated, TX DEN-9758-

7-0001

07/97 67,702 -- --

National Center for Manufacturing

Sciences, MI

DEN-9766-

7-0001

07/97 109,671 -- --

Texas Instruments, Inc., TX DEN-9768-

7-0001

07/97 92,160 40,909 --

Aphios Corporation, MA DEN-9002-

7-0001

08/97 108,454 416 --

Concentra Corporation, MA DEN-9752-

7-0001

08/97 789,817 -- --

Spatial Technology, Inc., CO DEN-9776-

7-0001

08/97 934,553 -- --

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

76 Commerce IG Semiannual Report September 1997

Appendix A-4. Financial Assistance Audits — Continued

Agency Auditee Number Date

Questioned

Costs 

Unsupported

Costs 

Funds to 

Be Put to

Better

Use

Technology

Administration -

NIST

Cimplex Corporation, CA DEN-9779-

7-0001

08/97 535,488 711 --

Teknowledge Corporation, CA DEN-9827-

7-0001

08/97 526,023 -- --

Cleveland Advanced

Manufacturing Program, Inc., OH

DEN-9828-

7-0001

08/97 -- -- --

Houston Advanced Research

Center, TX

DEN-8932-

7-0001

09/97 -- -- --

Aronex Pharmaceuticals, Inc., TX DEN-9759-

7-0001

09/97 -- -- --

Beckman Instruments, Inc., CA DEN-9761-

7-0001

09/97 -- -- --

Massachusetts Institute of

Technology/Lincoln Laboratory

DEN-9762-

7-0001

09/97 -- -- --

Laboratories for Genetic Services,

Inc., TX

DEN-9763-

7-0001

09/97 -- -- --

Baylor College of Medicine, TX DEN-9764-

7-0001

09/97 -- -- --

General Motors Corporation, MI DEN-9765-

7-0001

09/97 138,634 85,774 --

Ford Motor Company, MI DEN-9767-

7-0001

09/97 114,177 -- --

MacNeal-Schwendler Corporation,

CA

DEN-9774-

7-0001

09/97 857,352 -- --

United Technologies Corporation,

CT

DEN-9775-

7-0001

09/97 -- -- --

MicroFab Technologies, Inc., TX DEN-9777-

7-0001

09/97 -- -- --

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

September 1997 Commerce IG Semiannual Report 77

Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 566 financial related audit reports prepared by independent

public accountants and local, state, and other federal auditors. The reports processed with questioned costs or with

recommendations that funds be put to better use are listed in Appendixes B-1 and B-2.

Agency

OMB A-128

and A-133

Audits

Contract Audits

Total

Preaward Postaward

Economic Development Administration 178 -- -- 178

International Trade Administration 8 -- -- 8

Minority Business Development Agency 13 -- -- 13

National Oceanic and Atmospheric Administration 45 14 12 71

Patent and Trademark Office -- 2 -- 2

Technology Administration 25 -- 7 32

 National Institute of Standards and Technology 78 -- -- 78

Multi-Agency 78 -- -- 78

Agency Not Identified 106 -- -- 106

Total 531 16 19 566
Tables and Appendixes

78 Commerce IG Semiannual Report September 1997

Appendix B-1. Processed Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs 

Funds to

Be Put to

Better Use

Economic

Development

Administration

Indian Development District

of Arizona, Inc.

ATL-9999-7-0007 06/97 $9,657 -- --

City of Chillicothe, MO ATL-9999-7-0757 06/97 -- -- --

International

Trade

Administration

American Electronics

Association and

Subsidiaries, CA

ATL-9999-7-0319 09/97 269,880 $10,650 --

National

Oceanic and

Atmospheric

Administration

Bering Sea Fisherman’s

Association, AK

ATL-9999-7-0274 06/97 3,209 -- --

Martha’s Vineyard Shellfish

Group, Inc., MA

ATL-9999-7-1062 09/97 24,225 -- --

Technology

Administration -

NIST

Semantic Designs, Inc., TX ATL-9999-7-0592 09/97 3,958 -- --

Lennox Industries Inc., TX ATL-9999-7-0598 09/97 79,894 -- --

The Budd Company, MI ATL-9999-7-0749 09/97 111,025 -- --

The Budd Company, MI ATL-9999-7-0750 09/97 112,995 -- --

Extempo Systems, Inc., CA ATL-9999-7-0863 09/97 4,337 1,241 --

Concept Five Technologies,

Inc., VA

ATL-9999-7-0868 09/97 109,354 -- --

Honeywell Technology

Center, MN

ATL-9999-7-0884 09/97 4,897 -- --

Honeywell Technology

Center, MN

ATL-9999-7-0885 09/97 5,336 -- --

W.R. Grace & Co., MD ATL-9999-7-0909 09/97 201,947 -- --

The Lincoln Electric

Company, OH

ATL-9999-7-0923 09/97 15,000 -- --

SI Diamond Technology,

Inc., TX

ATL-9999-7-0924 09/97 46,999 14,040 --

General Motors Corp., MI ATL-9999-7-0967 09/97 16,059 -- --

Cullen Engineering Research

Foundation, TX

ATL-9999-7-1032 09/97 280,863 280,863 --

Amoco Corporation, IL ATL-9999-7-1135 09/97 46,165 46,165 --

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

September 1997 Commerce IG Semiannual Report 79

Appendix B-2. Processed Contract Audits with Questioned Costs

or Funds to Be Put to Better Use

Agency Number Type Date

Questioned 

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use 

National

Oceanic and

Atmospheric

Administration

OCA-8350-7-0019 Preaward 05/97 -- -- $53,755

OCA-8350-7-0020 Preaward 05/97 -- -- 178,634

OCA-8350-7-0021 Preaward 05/97 -- -- 9,243

OCA-8350-7-0025 Preaward 06/97 -- -- 53,440

OCA-8350-7-0026 Preaward 06/97 -- -- 51,464

OCA-8350-7-0029 Preaward 07/97 -- -- 191,055

OCA-8350-7-0030 Preaward 08/97 -- -- 16,075

OCA-8350-7-0031 Preaward 09/97 -- -- 525,119

Notes: These audits were performed for the OIG by DCAA. This list contains all processed preaward contract audits with funds to be put to better use.

However, when there are multiple proposals for the same contract, only the proposal with the lowest dollar value is reported in Table 3, page 70.
80 Commerce IG Semiannual Report September 1997

AUDITS

The OIG conducts three types of 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 Chief Financial Officers Act of 1990

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 of Commerce.

INSPECTIONS

The OIG conducts three types of 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,

acquisition, 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 engineering,

system definition, system development,

deployment, operations, and maintenance.

Definitions of OIG Reviews
Glossary of Abbreviations

September 1997 Commerce IG Semiannual Report 81

ASC ........................................................... Administrative Support Center

ATP .......................................................... Advanced Technology Program

AUO .................................................... administratively uncontrollable overtime

AWIPS ........................................... Advanced Weather Interactive Processing System

BEA ........................................................... Bureau of Economic Analysis

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

CAMS ............................................. Commerce Administrative Management System

CFO ................................................................ Chief Financial Officer

CIFP ................................................... Capital Improvements Facilities Program

DCAA ......................................................... Defense Contract Audit Agency

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

EPA ......................................................... Environmental Protection Agency

EQP ........................................................... Examination Quality Program

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

GAO ............................................................. General Accounting Office

ICASS .................................... International Cooperative Administrative Support Services

IRS ................................................................ Internal Revenue Service

ISD ............................................................. Inspection Services Division

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

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

MEP ...................................................... Manufacturing Extension Partnership

NASA ............................................. National Aeronautics and Space Administration

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

OIG .............................................................. Office of Inspector General

OMB ........................................................ Office of Management and Budget

OPM ......................................................... Office of Personnel Management

OPQR ......................................................... Office of Patent Quality Review

PAM ......................................................... Patent Application Management

PBO .......................................................... performance-based organization

PTO ............................................................ Patent and Trademark Office

RLF ................................................................... revolving loan fund

SBIR ...................................................... Small Business Innovation Research

TA .............................................................. Technology Administration

TECS ............................................. Treasury Enforcement Communications System

US&FCS .................................................. U.S. and Foreign Commercial Service

USTTA ................................................ U.S. Travel and Tourism Administration
Office of Inspector General

Organization Chart

Office of Audits

Headquarters

Audits

Economic

Develop. Audits

Economics and

Statistics Audits

International 

Audits

NOAA Audits

PTO Audits

Technology Audits

Financial Statements

Audits

Financial Statements

Contract Audits

Financial

Statement Audits

Financial and

Performance Analysis

Regional

Audits

Atlanta

Regional Office

Denver

Regional Office

Seattle

Regional Office

Inspector General

Deputy Inspector General

Office of Investigations

Investigative

Operations

Financial

Fraud Unit

Case Resolution

and Closure

Office of 

Systems Evaluation

 Office of Inspections & 

 Program Evaluations

Office of Counsel Office of Compliance

and Administration

Washington

Field Operations

Silver Spring

Field Operations

Denver

Field Operations

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

Congressional Liaison ........... . (202) 482-3052

Office of Compliance and Admin. ... . (202) 482-0231

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

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

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

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

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

TDD Number ......................................... . (202) 482-5897

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

Requests for Reports .................................... . (202) 482-0231

OIG HOTLINE:

Telephone .............................. . (202) 482-2495 or (800) 424-5197

Commerce E-mail ................................. . OIG Hotline@OI@OIG

Internet E-Mail ....................................... oighotline@doc.gov

OIG Internet Home Page

http://www.oig.doc.gov

OIG Points of Contact