U.S. DEPARTMENT OF COMMERCE

Office of Inspector General

Semiannual Report

to the Congress

March 31, 1997
Under the provisions of the Inspector General Act of 1978, Public Law 95-451, 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.
Message for the Secretary

April 30, 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 first 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.

It is clear that the Congress is becoming extremely active in its authorization, appropriation, and oversight

roles relative to the Department and its programs. In addition, the Congress has expressed its intent to take its

consultation role under the Government Performance and Results Act very seriously.

We plan to continue our work with the Department to strengthen its financial management under the Chief

Financial Officers Act and to assist managers in using the information provided in the financial statements to

improve the Department’s business practices. At the same time, the Department must continue its efforts to improve

internal controls and the accuracy of financial information, correct the remaining internal control weaknesses, and

acquire experienced financial management leadership. It also needs to ensure the successful implementation of the

Commerce Administrative Management System, which is needed for producing improved financial management and

business information and for resolving “Year 2000" problems.

The Department must also address its programmatic, as well as financial, material weaknesses, as

identified recently in reports by our office and by the General Accounting Office. Planning for the 2000 decennial

census, completing the National Weather Service modernization, determining the future of the NOAA Corps and

the NOAA fleet, and resolving Advanced Technology Program concerns are just some of the management issues

that we must all address. I welcome your commitment to do so.

Through the continued cooperative approach between your staff and this office, we can more effectively

monitor the implementation of key Department programs and activities, and meet the informational and oversight

needs of the Congress.

Sincerely,

Francis D. DeGeorge

Inspector General

Enclosure
Table of Contents

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

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

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

NOAA Fleet and NOAA Corps ................................. 2

2000 Decennial Census ....................................... 4

Advanced Technology Program ................................. 5

NOAA Satellite Programs ..................................... 7

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

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

NTIS Expansionary Activities ................................. 12

Seafood Inspection Performance Based Organization ................ 13

Federal Managers’ Financial Integrity Act .......................... 14

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

Statistical Highlights .......................................... 17

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

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

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

Economics and Statistics Administration ........................... 30

Bureau of Economic Analysis

Bureau of the Census

International Trade Administration ................................ 34

Minority Business Development Agency ........................... 38

National Oceanic and Atmospheric Administration .................... 41

National Telecommunications and Information Administration ........... 53

Patent and Trademark Office .................................... 56

Technology Administration ..................................... 58

National Institute of Standards and Technology

National Technical Information Service

DEPARTMENTAL MANAGEMENT .............................. 69

OIG ORGANIZATIONAL CHART AND TELEPHONE NUMBERS ...... 81

REPORTING REQUIREMENTS .................................. 82

TABLES AND APPENDIXES .................................... 86

GLOSSARY OF ABBREVIATIONS ............................... 98
Message for the Congress

 FOREWORD

Both the Secretary of Commerce and the Congress are vitally interested in improving program performance and

accountability. The Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994

established the foundation for improving management and financial accountability among federal agencies. The

Government Performance and Results Act of 1993 is aimed directly at improving agencies’ program performance

by generating the information congressional and executive branch decision-makers need in considering measures to

improve government performance and reduce costs. The Congress has sent a strong message that agencies are to

clearly define their missions; establish long-term strategic as well as annual goals; measure performance against

these goals; and report publicly on how well they are doing.

To assist the Department of Commerce in meeting the challenges presented by these performance management

acts, we plan in-depth reviews of the Department’s and its bureaus’ processes for identifying performance

indicators and the appropriateness of those indicators. These reviews will build on our general assessment of the

information contained in the overview sections of financial statements. This data should enable managers to more

efficiently manage these programs.

We still have serious concerns about a number of major program initiatives, among them the NOAA fleet and

Corps, the National Weather Service modernization program, the overhaul of the Department’s financial

management systems, and preparations for the 2000 decennial census. In addition, we are increasingly concerned

about a number of performance based organization (PBO) proposals affecting the Department of Commerce. Our

concerns encompass a variety of areas, ranging from missing requirements in the legislative proposals to the

readiness of some entities to become PBOs.

We look forward to providing independent, objective analyses to both administration and congressional decisionmakers. We are dedicated to improving performance management and the information necessary to ensure

accountability.

Francis D. DeGeorge

Inspector General

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Message for the Congress

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.

NOAA Fleet and NOAA Corps

Decommissioning the Fleet

Since 1992, when NOAA received congressional authorization to

implement a 15-year fleet replacement and modernization plan at an

estimated cost of $1.9 billion, this office, the Congress, OMB, and others

have repeatedly urged NOAA to explore alternatives to an agency-owned

and operated fleet for acquiring marine data. As stated in our 1996 report

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

1996 issue, page 43), we do not believe that NOAA should be in the

business of designing, owning, maintaining, or operating ships. We

recommended that NOAA terminate its fleet modernization plan efforts;

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

transfer them; and contract for the required services.

In March 1997, the Inspector General testified before the House

Science Subcommittee on Energy and Environment on our current work

related to the NOAA fleet and Corps. In our testimony, we noted that

despite specific guidance from the Congress, and similar recommendations

from our office and prestigious scientific panels, NOAA continues to plan

investments of millions of dollars in its aging in-house fleet rather than

using these funds for more cost-effective alternatives. We continue to

challenge many of NOAA’s current actions and plans related to the fleet.

Specifically, in our view, NOAA has not adequately explained:

! Why it has decided to spend millions of dollars during the next two years

investing in deteriorating ships without first fully exploring private

build/lease or charter options like those recommended in our March 1996

report and by the Congress.

! Why it needs to buy new cutting-edge hydrographic survey technology

and data processing equipment for its ships when the private sector is

quite capable of doing the work for NOAA at a lower cost.

 

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Message for the Congress

! Why it has proposed using 1998 and future years’ appropriations to

prepare designs for six new fishery research vessels without first having

(1) informed the Congress of its plans to do so, (2) completed an

independent analysis of the performance requirements and ship support

or data required by each program mission, or (3) discussed its

performance requirements with the private sector.

NOAA’s continued reliance on its aging in-house fleet carries an

unnecessarily high price tag, including wasteful and unwise investments that

are contrary to congressional intent and our earlier recommendations. These

funds should be used for more cost-effective alternatives that would provide

better ship support services to NOAA’s programs. Instead of performing

narrowly defined studies on the cost of operating specific vessels, NOAA

should be evaluating and comparing the overall costs of alternative means of

obtaining equivalent services.

Eliminating the Corps

Traditionally, the NOAA Corps has had three primary functions:

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

aircraft, and (3) provide scientific and engineering support to the line

offices. These functions are currently carried out by approximately 300

officers, with support from 165 general service civilians and 300 wage

grade mariners.

NOAA has drafted legislation and developed transition plans to

“eliminate” its Commissioned Corps. The legislation would not eliminate

NOAA’s role in operating ships. It would simply convert NOAA’s corps of

commissioned officers to civilian status. We have reviewed a number of the

draft plans for the disestablishment of the NOAA Corps and do not believe

that any of them are completely acceptable. The plans promote neither the

restructuring of operations that the Congress encouraged, nor the increased

efficiencies that the National Performance Review identified.

We believe that greater efficiencies and economies can be achieved

by (1) outsourcing for ship operations and maintenance; (2) eliminating

aircraft activities that are not directly related to NOAA’s mission; and (3)

converting to civil service positions only line-office billets that are fully

funded by the line offices. In our view, these changes can be accomplished

without disrupting essential programs, and programs would receive better

services without the need for major capital investments in ships and aircraft,

thereby avoiding future expenditures totaling hundreds of millions of

dollars. The proposed legislation and transition plan should not be

constructed to prevent or delay implementation of these recommendations. 

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Message for the Congress

2000 Decennial Census

Given the size, cost, complexity, and national importance of the

decennial census, as well as our longstanding concerns about Census Bureau

management, oversight of bureau planning for the 2000 census has remained

one of our top priorities during this semiannual period. Over the past six

months, we testified before the Congress and briefed bureau, departmental,

and congressional principals and their staff members on our concerns about

the lack of adequate progress on major design components and inadequate

decennial management (see page 30).

In addition, we recommended to the Secretary that decennial management be identified as a material weakness in the Department’s FY 1996

year-end report to the Congress under the Federal Managers’ Financial

Integrity Act (see page 14). This designation emphasizes the Department’s

recognition of the seriousness of decennial management concerns.

Demonstrating the same level of concern, the General Accounting Office

recently added the decennial census to the Comptroller General’s

governmentwide list of programs at especially high risk for waste, fraud,

abuse, or mismanagement.

We strongly support the use of statistical sampling to complete a

timely, accurate, and cost-effective count. We remain concerned, however,

about the bureau’s ability to successfully manage, control, and integrate the

many new processes to be used in the 2000 census, and about the lack of a

completed census design. In a November 1995 report, we recommended that

the bureau move swiftly and decisively to develop and complete a sound

design (see March 1996 issue, page 29).

Some of our concerns about the lack of major design decisions have

been addressed. For example, the bureau recently announced a decision

about which method it will use to correct the census for missed or doublecounted people. It also announced a refinement to its plan to complete field

enumeration using sampling. However, the research necessary to address

important questions about accuracy and other implications of the specific

sampling design remains incomplete. Members of Congress, among others,

have raised questions about the bureau’s plans, but the bureau has not yet

provided satisfactory responses. 

In our 1995 report, we recommended that the bureau organize the

decennial area to create a central integrating function reporting to a manager

with adequate authority to coordinate the entire complex, interdependent

enterprise. We hoped such a change would, among other things, clarify how,

by whom, and on what basis decisions are made. Almost two years later, the

bureau is moving in the right direction. A management team for integrating 

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Message for the Congress

decennial activities is now in place, and a management information system

for tracking the decennial census is being developed. 

The bureau has also taken some steps to better control the risks

associated with developing, acquiring, and integrating the automated

systems to be used in the 2000 census. In particular, in response to

recommendations from our 1996 inspection of the decennial data capture

system project (see September 1996 issue, page 27), the bureau adopted a

lower-risk acquisition strategy for the system, and recently selected a

contractor.

However, bureau responsibilities for systems development,

acquisition, and integration are highly fragmented. We believe this

fragmentation is contributing to the bureau’s slow pace in planning,

specifying, developing, and acquiring its 2000 decennial systems. A planned

bureau reorganization, which would consolidate more of the systems

development and acquisition activities under a single office, will go a long

way toward improving systems integration. However, even with this

reorganization, many systems responsibilities will still be dispersed. A

related concern is the bureau’s slow pace in staffing its systems and

contracting organization.

To ensure success in 2000, we believe two things must happen.

First, the bureau must immediately complete a sound census design. Second,

the bureau must be given the resources it needs to implement this design,

along with the freedom to use its scientific judgment in researching, testing,

and selecting promising methods, such as statistical sampling, for use in the

decennial census. Cutting funds at this critical juncture in the planning

process or restricting the bureau’s freedom to select the most promising

methods would result in an expensive and flawed count. 

Advanced Technology Program

NIST’s Advanced Technology Program (ATP) was established by

the Omnibus Trade and Competitiveness Act of 1988, as amended by the

American Technology Preeminence Act of 1991 (15 U.S.C. 278n, as

amended). 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 on pre-competitive generic

technologies.

 

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Message for the Congress

Use of Commercial Prices

In our examination during the last two years of accounting

practices used in conjunction with ATP joint venture awards, and our recent

survey of 49 ATP joint venture participants, we identified the potential for

inappropriate cost claims based on commercial prices. Based on this work,

we recently conducted interim financial audits of costs claimed under two

ATP joint venture cooperative agreements involving 19 participants. We

found that a significant number of joint venture participants claimed costs

based on commercial billing rates rather than actual costs, as required by

the terms of the ATP award.

We found that the questionable transactions generally involved

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 (“sunk”) development costs, corporate interest

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

commercial prices. We expect to issue reports to the individual recipients in

the very near future that will address these questioned costs, including those

involving the use of commercial prices in cost claims. 

ATP program officials are now taking steps to educate future

applicants on the cost and accounting requirements for federal financial

assistance awards, specifically pointing out that commercial market prices

are not appropriate bases for cost claims. However, accounting problems

with existing recipients still need to be resolved. Although not every joint

venture project will have questioned costs of the same magnitude as those

found in the initial audits, there is a strong possibility that excessive federal

payments have already been made as a result of commercial-price-based

cost claims. We plan to conduct audits of all joint venture participants with

the potential for similar claims.

Incremental Funding

We are currently reviewing NIST’s use of incremental funding for

ATP projects. In August 1994, NIST received departmental approval to

designate ATP as a multi-year financial assistance program. Departmental

financial assistance programs with multi-year program designation are

allowed to make awards for periods of more than one year, even if the

program does not then have enough money to fund the entire award period.

NIST also received approval to renew award agreements for up to four

additional years rather than the normal two.

 

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Message for the Congress

Our examination of FY 1995 ATP grant files found that NIST had

not complied with the departmental requirement that a determination be made

for each award that the project activities for the awards could be divided into

annual increments, each of which represented discrete accomplishments. We

are recommending that NIST fully fund all awards for the prospective award

year for which this determination cannot be made. We will also recommend

that for all remaining awards, which are severable and have defined work

products each year, the required grants officer’s certifications of severability

be prepared each year.

In addition, we have concluded that the unfunded balances of ATP

projects are similar to contingent liabilities and, as such, should be disclosed

in the overview and notes to NIST’s annual financial statements. The ATP

unfunded balance was determined to be about $155 million as of September

30, 1996.

NOAA Satellite Programs

NOAA manages two weather satellite programs: Polar-orbiting

Operational Environmental Satellites (POES) and Geostationary Operational

Environmental Satellites (GOES). NOAA determines the general requirements

for new satellites and operates them once they are in orbit. The National

Aeronautics and Space Administration (NASA) is responsible for the

acquisition and launch of the satellites.

POES Program

In our last semiannual report, we previewed the findings of our review

of the POES program (see September 1996 issue, page 5). In our final report

(see page 41), we identified $101.3 million in funds to be put to better use as a

result of excess funding. For FY 1994-96, NOAA received more funding than

it needed for new polar satellites because it failed to adequately reduce its

budget requests to reflect slowed spending in the program. By forwarding the

excess funds it received to NASA, which then obligated them to its various

polar satellite contracts, NOAA was able to avoid having to report the unspent

funds as unobligated carryovers. These actions enabled it to escape the

scrutiny such funds normally receive from the Department, OMB, and the

Congress. Included in excess funding was $28.1 million totally unrelated to

the NASA satellite acquisition that NOAA transferred to NASA because it

was unable to immediately use the funds.

In response to our findings and recommendations, the Department

took immediate steps to eliminate the excess funding and strengthen

management controls by (1) assigning a full-time analyst to work directly with

NASA staff to obtain better funding information, (2) reporting

 

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Message for the Congress

unobligated carryover funds and making plans to provide decision-makers

with better program performance and spending information, and (3)

agreeing to eliminate transfers to NASA that are not needed for forward

funding and monitoring fund transfers to ensure that funding is being used

for its intended purpose.

We have also found indications of excess funding in some of

NOAA’s other satellite budget accounts. A separate report will be issued on

our findings on completion of our review. We are continuing to work with

the Department and NOAA to strengthen management controls for the

satellite accounts.

The current series of NOAA polar satellites will be the last. We will

also be involved in reviewing the replacement program, which is in the early

stages of development by an integrated Department of Defense, NOAA, and

NASA team. This program is expected to save $1.3 billion by consolidating

the number of U.S.-owned operational satellites from four to two while

increasing the operational life span of each satellite. Our work in this area is

not new. In the early 1990s, we recommended that OMB initiate a

governmentwide study to help identify opportunities for consolidating

environmental satellite programs and avoiding unnecessary duplication. We

were pleased to see the convergence concept endorsed in the National

Performance Review and adopted as a Presidential Initiative in 1994.

GOES Satellite Acquisition

In our recent inspection of the GOES program (see page 42), we

strongly disagreed with NOAA’s plans for acquiring satellites to follow the

GOES-Next series. Because of NOAA’s delay in agreeing to a competitive

fixed price procurement and the reliability problems with GOES-8 and 9,

additional measures are needed to ensure against a coverage gap projected

for early next decade. Accordingly, NOAA is also purchasing an additional

satellite from the current GOES-Next contractor. The satellite will be built

and bought in stages, contingent upon the health of GOES-8 and 9 and the

remaining GOES-Next satellites. While the need to purchase this satellite is

inescapable at this point, we believe that it might have been avoided had

NOAA management been willing to pursue a suitable procurement approach

sooner.

NOAA planned to launch GOES-K in April 1997, two years earlier

than previously scheduled, and to store it in space as a backup to ensure

continuity of coverage now that GOES-8 and 9 are experiencing reliability

problems. While early launch is a reasonable contingency for ensuring

 

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Message for the Congress

continuity of coverage in this instance, NOAA has not demonstrated that

launching a backup satellite for storage in space is a cost-effective policy

for ensuring continuity in the future. Although NOAA cites numerous cost

advantages to storing in orbit, we believe that the agency should develop a

plan for replacing failing GOES satellites in advance of an emergency based

on a more complete analysis of costs, benefits, risks, and backup

alternatives. However, NOAA disagrees with this recommendation and

instead plans to handle emergencies on a case-by-case basis, as it did with

the GOES-K launch.

NWS Modernization

We continue to monitor 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. Our work during this period has focused

on the Automated Surface Observing System (ASOS) and the Advanced

Weather Interactive Processing System (AWIPS).

ASOS

Although NOAA expected the contract for ASOS to be completed

this year, work will continue into next fiscal year, requiring a contract

extension. The extension is needed, in part, to complete ASOS deployment

and to modify and evaluate sensors, which have had continuing problems

with accuracy and reliability. Initially, ASOS was intended to monitor a

specific domain of meteorological conditions without the intervention of

human observers. However, observers continue to be needed at some

locations to augment ASOS due to numerous sensor malfunctions, and to

monitor meteorological conditions that ASOS was not designed to observe

(see page 50).

AWIPS

We have conducted three inspections of AWIPS since 1991. Each

identified serious management, contract, and technical problems and

provided recommendations to correct them (see March 1996 issue, page 46;

September 1994 issue, page 40; September 1992 issue, page 2). However,

NOAA has not effectively addressed the problems, and costs have continued

to increase and schedules to lengthen. Our fourth inspection will assess the

feasibility of NOAA’s plans for completing AWIPS.

As we reported in our last issue, NOAA has decided to abandon

substantial portions of the AWIPS software and use software developed by

NOAA’s Forecast Systems Laboratory (FSL), called WFO-Advanced,

 

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Message for the Congress

as the basis for continued AWIPS development. The decision to use WFOAdvanced was a dramatic change in direction, raising many questions

regarding how further development would proceed, which AWIPS

components would be retained, how they would be integrated with WFOAdvanced, and how the resultant system would perform. Due to these

unanswered questions, the Secretary has delayed Key Decision Point IV, the

milestone that would allow nationwide AWIPS deployment, to December

1997. Meanwhile, the Secretary has authorized NOAA to procure and

deploy 21 systems, with an option for 18 more contingent upon adequate

development and deployment progress. 

Because of its superior capabilities and performance, WFOAdvanced is crucial for making progress on AWIPS. However, a number of

serious issues and decisions remain. In particular, use of WFO-Advanced

requires transferring most design responsibilities from the contractor to the

government; determining the respective technical responsibilities of NWS,

FSL, and the AWIPS contractor; carefully planning the work needed to

complete AWIPS development; and revising the contract. Although more

than six months have passed since the decision to use WFO-Advanced, this

planning is far from complete and, according to NOAA, may not be finished

until the summer. NOAA lacks a detailed definition of the work and has not

identified organizational roles and responsibilities. Nevertheless, it has

recently established a $550 million estimate for AWIPS development and

deployment, an increase of $25 million since last year. This cost estimate, in

our opinion, has significant uncertainties due to the lack of detailed planning

to define remaining development activities and responsibilities.

Because AWIPS is essential to achieving NWS operational

improvements and cost savings, it is imperative that NOAA develop and

implement the necessary technical and management plans to efficiently

complete this program.

Facilities Planning and Laboratory Consolidation

NIST Construction at Gaithersburg

In January 1997, we issued a final inspection report on NIST’s

management of its Capital Improvements Facilities Program (CIFP). The

report (1) recognizes CIFP’s complexities and the difficulties NIST officials

have dealt with in handling certain aspects of the program, (2) highlights

concerns and issues that require NIST management’s attention, and (3)

recommends actions to be taken to ensure efficient and effective program

implementation (see page 61). 

 

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Message for the Congress

We recommended that NIST revise the CIFP to accurately reflect

the current thinking on its facilities improvement needs. However, the most

recent plan still contains at least $212.7 million in unjustified or

inadequately explained program elements. NIST needs to remove all

unjustified elements from its revised plan and expend no funds on those

elements. The unjustified elements included, at a minimum, the Boulder

Advanced Measurement Laboratory (AML), renovation of the existing

Chemistry Building, and the unspecified and undocumented increases in

estimated renovation costs in Gaithersburg.

We also found that the acquisition plan for a large omnibus task

order construction contract was ill-conceived. The acquisition plan allowed

for the sole-source award of an indefinite delivery, indefinite quantity costtype task order contract for the construction of facilities worth up to $480

million, to be constructed over a 10-year period. NIST recently canceled this

proposed contract due to a lack of funding, but plans to use a similar

omnibus task order contract for future construction tasks. We maintain that

any such proposed contract should be awarded to multiple suppliers to

ensure that more than one supplier is certified and available to meet NIST’s

construction requirements. In this manner, competition also will be assured

for successive task orders under the omnibus contract.

In addition, we found that NIST was planning to build the

Gaithersburg AML in separate phases—instead of in a more efficient, costeffective “unified” manner—because agency officials believe that the

necessary up-front funding for unified construction simply will not be

available. NIST may well be right. Unfortunately, phased construction

seriously reduces efficiencies and creates other cost disadvantages. We

endorse NIST’s continuing efforts to work with the Department, OMB, and

the Congress to find a funding strategy that will allow the AML to be built

under a unified contract.

NIST Leased Space

We previously reported on NIST’s procurement of leased office

space in Gaithersburg that was intended primarily to provide “swing space”

while other space is being renovated (see September 1996 issue, page 56).

We concluded that the agency had unnecessarily committed itself to a 10- to

15-year lease that may cost from $31 million to $47 million and that it

should vacate and sublet the majority of the building immediately. In

response to our report, NIST and the Department stated that the space was

needed to relieve office overcrowding on its main campus. While we agreed

that NIST has a minor office overcrowding problem, we believe it can

justify only about a third of the currently leased space and that other

 

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Message for the Congress

NIST buildings will be available for swing space when renovations take

place. The Department disagreed with our finding and hired a contractor to

study the overcrowding issue. The Department concluded, based on the

results of the contractor’s study, that there was little available space on the

NIST campus for personnel to backfill if the leased building was vacated

and sublet, and that it would not be cost-effective to move employees back

to the main campus until more space is available there.

We disagree with the Department’s conclusions and with the

structure and findings of the contractor’s study. We do not believe that the

study answered the questions needed to properly resolve this issue, including

the issue of office space needs of researchers versus those of more

traditional office workers elsewhere in the Department. We have agreed that

final resolution of the lease issue will be deferred until NIST has completed

its reassessment of its overall facility needs. We will closely monitor NIST’s

future facility plans to ensure that the agency selects the most cost-effective

alternatives and includes a definitive and justifiable plan for liquidating the

excess leased space (see page 63).

Proposed NOAA Operations and Research Center

NOAA has requested FY 1998 funding to begin planning for the

design and construction of a $97 million research center to be located at the

NASA 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 services. 

NOAA originally planned to lease the facility, while a third party

was to provide financing for the project. However, we recently learned that

NOAA was seeking authority and funding to begin the project as early as

FY 1998. We have begun an audit to determine whether NOAA has

adequately justified its revised decision. Our preliminary work has identified

concerns with NOAA’s economic analysis. The NOAA analysis does not

appear to have evaluated all possible alternatives, including renovating

existing facilities or leasing other federal government or privately owned

properties.

NTIS Expansionary Activities

We recently completed a program evaluation of the National

Technical Information Service’s operations, including its CyberFile project

for the Internal Revenue Service (IRS). We found that in pursuing its

mandated responsibilities, NTIS has generally worked effectively with other

federal agencies to increase its inventory of the nation’s scientific,

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Message for the Congress

technical, and engineering information, in compliance with the American

Technology Preeminence Act (ATPA). 

 However, we are very concerned about the expansionary efforts and

activities taken on by NTIS, based on (1) its interpretation of the agency’s

authority under ATPA, (2) a push to generate new revenues, and (3) a

general desire to expand its operations. We are concerned that some of these

tasks are on the border of—if not outside—NTIS’s authority and statutory

mission. Also, poorly chosen expansionary projects potentially detract from

NTIS’s ability to fulfill its primary and traditional mission.

A prime example is NTIS’s attempt to develop for IRS a system

capability that would enable U.S. taxpayers with home computers to submit

their tax returns electronically. Unfortunately, CyberFile—a $22 million

project, NTIS’s largest ever—was poorly managed on many fronts, and

NTIS’s role in the project became the subject of GAO, OIG, IRS internal

audit, and congressional concerns and criticism.

The CyberFile problems appear, in large part, to be the result of 

(1) NTIS agreeing to an overly ambitious schedule to have the filing system

up and running on a pilot basis for the 1996 tax season, (2) numerous

documented and undocumented performance requirement changes by IRS,

(3) poor planning by both IRS and NTIS, (4) a lack of timely decisionmaking by IRS, (5) poor management and inadequate oversight by both IRS

and NTIS, and (6) improper procurement practices, oversight, and direction

by NTIS and Commerce Department personnel. We recently issued three

inspection reports dealing with general NTIS management issues and with

procurement and management issues specific to the CyberFile project (see

pages 58 and 59 and September 1996 issue, page 64). 

Seafood Inspection 

Performance Based Organization

At the request of the Assistant Administrator for Fisheries, we are

evaluating the plans and strategies for converting the National Marine

Fisheries Service’s Inspection Services Division to a PBO. Our evaluation

indicates that NMFS has not fully considered alternatives to establishing a

PBO, particularly the possibility of incorporating the proposed PBO functions into the Food and Drug Administration, which has similar inspection

duties and has recently been tasked with broadening its inspection services. 

 

 - 13 -
Message for the Congress

At the time of our review, a business plan for the proposed PBO had

not been developed. Moreover, NOAA’s draft prospectus was inadequate

because it did not (1) assess the market for inspection services, (2) evaluate

the competition, including market share and price structures, or (3) adequately

describe the organization and management structure and required staffing of

the proposed PBO. NOAA needs to develop a comprehensive business plan to

demonstrate that the PBO can compete in an open market and that revenues

will cover costs. Until these actions have been completed, NOAA should not

proceed with plans to convert the Inspection Services Division to a PBO (see

page 50).

 *****************

FEDERAL MANAGERS’ FINANCIAL

INTEGRITY ACT

The Federal Managers’ Financial Integrity Act of 1982 (P.L. 97-255)

requires the heads of executive agencies to report annually to the President and

the Congress on the adequacy of their accounting and management control

systems. The annual report identifies material weaknesses and actions being

taken to correct them.

The National Performance Review recommendations called for more

proactive management of federal programs and encouraged federal managers

to consider the findings and recommendations cited in OMB, General

Accounting Office, and other management reports in determining the

conditions of administrative and accounting control systems, in accordance

with revised OMB Circular A-123. This results in a more streamlined process

that is less burdensome to managers. 

The staffs of the OIG and the Department’s CFO work together to

assist bureaus in identifying their material weaknesses. The Secretary reported

four material weaknesses this year, as listed below. The first three were

reported in prior years, and the fourth is new this year. 

! Modernization of the Weather Service (NOAA).

! Fleet Modernization (NOAA).

! Financial Systems (Departmentwide).

! Better Management of the Design and Implementation of the 2000

Decennial Census (Census).

One previously reported condition—Management of Census Major

Systems (Census)—was closed during this reporting period, as adequate

progress had been made in implementing corrective actions.

 - 14 -
Message for the Congress

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

(October 1, 1996) for which no management decision has been made by the

end of the period (March 31, 1997). The following table presents the overall

status.

Type of Audit Report Unresolved

Performance 3

Financial Assistance 1

Financial Statements 1

Preaward Contract 2

Postaward Contract 0

The three unresolved performance audits involve NOAA programs.

The first audit offered recommendations for streamlining NWS’s headquarters and support operations. In mid-April, the OIG concurred with

NWS’s updated audit action plan and the report was recorded as resolved.

The second audit recommended that tsunami warning programs be

consolidated and the warning centers be eliminated. NOAA does not agree

with the recommendations in this report. The third audit recommended that

NOAA improve the Office of Oceanic and Atmospheric Research’s

recovery of costs for sponsored research. NOAA is preparing a revised

audit action plan. Details are presented on page 51.

The one unresolved financial assistance audit involves a NOAA

award. The audit remains unresolved for over a year. Resolution is pending

action by Defense Contract Audit Agency and the Office of Naval Research,

the cognizant audit agency. Additional details are presented on page 52.

The unresolved financial statements audit involves the General

Administration’s Salaries and Expenses Fund Statement of Financial

Position as of September 30, 1995. We are currently reviewing the

Department’s audit action plan. Details are on page 80.

Discussion of the two unresolved preaward contract audits can be

found on page 85.

 - 15 -
Message for the Congress

Department Administrative Order 213-5, “Audit Resolution and

Follow-up,” provides procedures for agency 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 (October 1, 1996) 0 10

Submissions 0 1

Decisions 0 3

Actions pending (March 31, 1997) 0 8

The eight appeals pending final decisions by the Department include

one NTIA, four EDA, and three MBDA financial assistance audits. Five of

these appeals (two EDA and three MBDA) have been in process for over a

year, and three for as long as two years.

 - 16 -
Message for the Congress

Audit and Inspection

Statistical Highlights

Questioned costs this period ...................... $4,787,979

Value of audit recommendations this

period that funds be put to better use .............. $139,974,428

Value of audit recommendations agreed 

to this period by management .................... $70,696,249

Value of inspection recommendations this

period that funds be put to better use .............. $101,300,000

Allegations

Processed by

OIG Investigators

25 Accepted for 

Investigation

 44 Referred to 

Operating Units

 32 Evaluated But 

Not Accepted for 

Investigation or 

Referral

101 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

Indictments ........................................... 0

Convictions ........................................... 0

Personnel actions1..................................... 17

Administrative actions2.................................. 9

Fines, restitutions, judgments, and civil and 

administrative recoveries ........................... $242,090

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.

 - 17 -
Bureau of

Export Administration

The Bureau of Export

Administration is primarily

responsible for the administration

and enforcement of the nation’s

system for controlling exports of

sensitive dual-use goods and

technologies. Under the Export

Administration Act and

regulations, BXA’s major

functions include formulating and

implementing export control

policy; processing export license

applications; conducting various

policy, technical, and economic

analyses; promulgating

regulations; conducting industry

outreach; and enforcing the act

and regulations.

 Export Administration

implements U.S. export control

and nonproliferation laws and

policies through export licensing,

commodity classifications, and

advisory opinions; technical,

economic, foreign availability, and

policy analyses; promulgation of

regulations; and industry

outreach. It also conducts various

defense industrial 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.

Audit of BXA’s FY 1996 Financial Statements 

The OIG contracted with a certified public accounting (CPA) firm

to audit BXA’s FY 1996 and 1995 statement of financial position and the

related statement of operations and changes in net position for the year

ended September 30, 1996. However, due to excessive delays in obtaining

documentation and the problems identified, we determined that it was not

prudent to complete the FY 1995 audit test work. The firm disclaimed an

opinion on the FY 1995 statements because (1) BXA was unable to provide

support for the FY 1995 payroll sample, (2) BXA did not provide a timely

property and equipment detail listing for FY 1996, and (3) most of the

findings in our FY 1994 Audit Survey of BXA’s financial statements had

not been corrected as of September 30, 1995.

The firm also disclaimed an opinion on the FY 1996 financial

statements because (1) it could not obtain a complete list of pending or

threatened litigation, claims, and assessments from the Office of General

Counsel; (2) there was inadequate supporting documentation; (3) policies

and procedures were not properly followed; (4) the FY 1995 account

balances were unaudited; and (5) the financial information disclosures were

not fully identified and analyzed.

The firm’s review of BXA’s internal control structure identified 10

reportable conditions, of which the first eight are material weaknesses:

! Management lacks oversight for financial accounting and reporting.

! Automated data processing weaknesses in subsystems could result in

misstatement.

! Certain balances recorded on the financial statements are not supported.

! Routine property and equipment transactions were not processed

accurately, reconciled, or supported, causing misstatements in net

property and equipment.

! Capital and operating leases are not consistently recorded, captured, or

properly disclosed.

! Civil monetary penalties are not valued properly and not collected timely.

! Accounts payable and undelivered orders are not properly

recorded/liquidated and supported.

! Accounts receivable are not supported. 

 

 - 18 -
Bureau of Export Administration

Export 

Enforcement

Export

Administration

Bureau of Export 

Administration

! Payroll records are not adequately maintained or reconciled.

! The overview section of the financial statements is incomplete and not

supported.

BXA concurred with virtually all of the audit findings and

recommendations. The nature and extent of the reported deficiencies indicate

serious problems in the internal control structure. We encouraged BXA

management to make concerted efforts to improve the structure soon enough

to allow for the preparation of more reliable financial statements for FY

1997. 

BXA needs to continue to heighten the awareness and importance of

financial management and fiscal responsibility among its staff. By allocating

certain additional resources, implementing certain changes in policy, and

improving management oversight for financial accounting and reporting,

many of these issues can be resolved. However, certain items can be

resolved only by significantly modifying or replacing the system. BXA must

continue to support the successful implementation of the Commerce

Administrative Management System and modifications to existing

subsystems. (Financial Statements Contract Audit Division: FSC-8834-7-

0001)

Commerce Role in Defense Priorities and

Allocation System Needs Strengthening

The Commerce Department, through BXA, is responsible for

administering the Defense Priorities and Allocation System (DPAS), as

provided for in the Defense Production Act of 1950. Under the act, the

President can require the priority performance of government contracts and

purchase orders as necessary to meet approved national defense and

emergency preparedness program requirements and to allocate materials,

services, and facilities needed to promote these programs. Commerce’s

involvement in DPAS was designed to ensure timely delivery of materials

and equipment and to minimize interference with commercial activity.

The OIG conducted a review to evaluate BXA’s role in

administering DPAS and to determine the system’s effectiveness and

relevance in the post-Cold War era. As required by executive order,

Commerce has re-delegated to the Secretary of Defense and heads of other

involved departments and agencies much of the day-to-day administrative

responsibility for DPAS, authorizing them to apply priority ratings to

contracts and orders that support approved national defense and emergency

preparedness activities.

 - 19 -
Bureau of Export Administration

Our review found that DPAS continues to be an important

component of our national security in the post-Cold War era, and that

Commerce, when necessary, works to expedite orders and respond to

requests for special priorities assistance. The review also disclosed several

instances in which Commerce’s intervention precluded unjustified use of

DPAS authority, suggesting that the Department’s role is still valid. We did,

however, identify a number of areas that warrant BXA’s management

attention: 

! Instead of supporting only the most essential programs for our nation’s

defense, DPAS priority ratings have become a routine component of

military procurement.

! Because neither Commerce nor Defense knows how many rated contracts

or DPAS actions there are annually, it is difficult to gauge the impact of

the ratings on U.S. companies.

! Commerce has not maintained adequate coordination with Defense to

ensure that DPAS authority is used properly.

! Standard procurement practices are occasionally circumvented to

expedite DPAS requests.

! DPAS regulations are outdated and in need of revision.

! Commerce has not provided sufficient resources and oversight to

maintain management controls for ensuring that DPAS works efficiently

and effectively.

We made a number of recommendations to address these problems.

BXA generally agreed with our observations and recommendations. The

actions it has taken or planned, when implemented, will satisfy the intent of

our recommendations. (Office of Inspections and Program Evaluations:

IPE-8716)

 - 20 -
Economic Development

Administration

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 long-term economic

deterioration; technical assistance

to communities to build

organizational capacity and solve

specific economic development

problems; and research and

evaluation grants to increase

knowledge about effective

economic development tools.

Audit of EDA’s FY 1996 Financial Statements 

After auditing EDA’s FY 1996 statement of financial position, the

contractor CPA firm was unable to express an opinion because of

inadequacies in the bureau’s internal control structure. The firm identified

the following four material weaknesses as principal reasons for disclaiming

an opinion:

! The management control structure requires further improvement.

! EDA needs to establish additional procedures to record accrued grant

expenses accurately.

! Incompatible duties relating to computer program changes are not

adequately segregated.

! Controls over logical security in the current fund accounting system are

not properly designed.

The firm also identified the following five reportable conditions in

its review of EDA’s internal control structure: (1) all intra-entity activity

needs to be properly identified and accounted for; (2) annual leave should be

reconciled on a timely basis; (3) duties should be segregated at the

Administrative Support Center Finance Department in Kansas City

(operated by NOAA); (4) expenses related to advances to grantees should be

recorded when incurred and in accordance with Department policies; and 

(5) expenses related to advances to other government agencies should be

recorded when incurred and on a timely basis.

EDA agreed with the audit findings and stated that it would correct

its financial management deficiencies. 

Despite the current findings, it is clear that EDA has made

substantial progress in improving its financial management. Our earlier

audit of EDA’s FY 1995 statement of financial position identified 10

material weaknesses and 11 reportable conditions. The dramatic reduction

of identified deficiencies to four weaknesses and five conditions is a clear

indication of EDA’s commitment to improving financial management. EDA

accomplished this reduction by developing a responsive action plan and

placing additional senior management attention on improving accounting

records and internal controls. We commend EDA for the substantial

progress it has made in improving its financial management. 

Of particular importance in correcting the remaining deficiencies is

the bureau’s commitment to hiring a Chief Financial Officer, for which

EDA has recently posted a vacancy announcement, and strengthening its

 

 - 21 -
Economic Development Administration

Program

Research & 

Evaluation

Program

Operations

Finance & 

Administration

Economic 

Development 

Administration

financial management systems. Although the Commerce Administrative

Management System is expected to eventually address EDA’s financial

management systems deficiencies, the agency must take prompt action to

mitigate the identified systems deficiencies, assessing the costs and benefits

of any interim solutions. (Financial Statements Contract Audit Division:

FSC-8837-7-0001)

California Subgrantee Poorly Managed 

EDA-Funded Project

The OIG performed an interim audit, covering the period of October

1992 through February 1995, of an EDA grant awarded to a California

county agency to address the effects of defense-related downsizing. The

grant was divided into four components: a product development partnership,

a high technology council, a seed capital loan fund, and a business loan

program. The business loan program was retained by the county agency,

while the other three components were assigned to a subgrantee, a private

nonprofit corporation established by the county. The total project budget

was about $7.4 million, consisting of the EDA award of over $5.5 million

and a local matching share of nearly $1.9 million.

We noted only minor problems with the grantee agency’s performance, but found serious deficiencies in the three components managed

by the subgrantee corporation. Specifically, our audit disclosed that the

corporation (1) failed to perform under the EDA grant, as it did not

establish the high technology council and made only one loan from the seed

capital loan fund; (2) spent grant funds for activities that did not contribute

to grant targets and objectives, and could not account for the funds; (3) was

unprepared to administer the subgrants, lacking the requisite organization,

staffing, and management systems and controls; and (4) failed to comply

with other administrative requirements, federal cost principles, and award

terms and conditions.

Among our recommendations was that EDA make a technical

assessment of the corporation’s performance and, if it determines that the

corporation earned part of the claimed performance, establish the value of

the work accepted and adjust disbursements to the corporation accordingly.

If, however, EDA sustains our findings of nonperformance, it should

disallow over $1.3 million in costs claimed through February 1995 and

recover over $800,000, plus the appropriate portion of federal

disbursements made thereafter. And if the grant components are extended,

strict controls should be placed on the corporation’s future performance

reporting and cost claims. (Seattle Regional Office of Audits: STL-7625-7-

0001)

 - 22 -
Economic Development Administration

Public Works Grant Should Be 

Terminated for Cause

In 1991 EDA awarded an $867,520 public works grant to a

nonprofit development corporation in rural Pennsylvania. The corporation

was required to match the grant with $216,880 in cash, bringing the total

project funding to nearly $1.1 million. The purpose of the grant was to

develop an industrial park, which included constructing a water tank, water

and sewer lines, and an access road on undeveloped property. The project

was completed in 1993, and EDA disbursed $865,934 in grant funds.

In 1995 over three-fourths of the property was sold to a mobile

home manufacturer as a site for a new plant. EDA learned of the sale

through a newspaper article, which indicated that the property had been sold

for a price well below fair market value and suggested the possibility of a

conflict of interest involving a corporation official. As a result, EDA

referred the project to the OIG for audit.

Our audit disclosed that, in selling the property, the corporation had

materially violated the grant terms and conditions. Specifically, we found

that the corporation sold the property for about one-quarter of its fair

market value and, in violation of the grant agreement:

! Failed to notify EDA in advance of the sale and provide the required

buyer’s covenant.

! Allowed the appearance of an improper conflict of interest to be created

by the corporation's president/attorney, who helped negotiate the bargain

sale, and then made a substantial personal investment in the company that

bought the property.

In addition, the corporation’s response to our draft report disclosed

that its grant application omitted material information regarding the usefulness of the property being developed, which also violates the grant award.

Because of the seriousness of the violations, we recommended that

EDA terminate the grant for cause and recover the $865,934 in disbursed

federal funds. (Atlanta Regional Office of Audits: ATL-8435-7-0001)

 

 - 23 -
Economic Development Administration

Over $1 Million in Costs Disallowed 

on Public Works Grant

In September 1990, EDA awarded a $1.9 million public works

grant to a South Carolina city to assist in its economic recovery from the

devastation of Hurricane Hugo. The Federal Emergency Management

Agency provided another grant worth nearly $200,000, and the city matched

the EDA grant with land valued at $1.6 million, bringing the total project

funding to about $3.7 million. The EDA grant was to be used to help

redevelop the city’s fishing industry by constructing a commercial dock and

retail market facility for local fishermen. The grant agreement required the

project to be completed by October 1994; however, the city has not yet

finished it, although all grant funds have been disbursed.

An OIG audit disclosed that the city significantly expanded the scale

of the project to include recreational and tourism facilities, and

inappropriately claimed $1,847,000 for the non-EDA project costs, which

we questioned. Additional questioned costs of $309,000 resulted in total

questioned costs of $2,156,000, for which EDA reimbursed the city

$895,000 as the federal share. We also found that the city had failed to

obtain EDA approval before entering into a lease of grant-funded facilities.

We recommended that EDA require the city to:

! Complete the EDA portion of the project. Until the project is

complete, EDA should establish an accounts receivable from the

city for $895,000, but allow the city to substitute eligible costs

incurred to complete the project.

! Obtain EDA’s approval before leasing any grant-funded facilities.

Although the city did not concur with our findings, it agreed with

our recommendations. EDA agreed to implement our recommendations by

requiring the city to complete the project, establish an accounts receivable

against which to apply eligible project costs, and obtain EDA approval of

the lease agreement. EDA also proposed some reductions to the questioned

costs, primarily involving acceptance of (1) a parcel of land as in-kind

matching funds and (2) various architectural and engineering fees billed in

accordance with the contract or with EDA approval. After working with

EDA to resolve the questioned costs, we accepted its proposal to disallow

costs of over $1 million, of which the federal share is more than $570,000.

(Atlanta Regional Office of Audits: ATL-8588-7-0001)

 

 - 24 -
Economic Development Administration

Grant Should Be Terminated and $1.1 Million

Recovered for Matching Funds Violations

In September 1994, a nonprofit corporation in Alabama was

awarded a $750,000 EDA grant to capitalize a revolving loan fund (RLF) to

provide financing to small and medium-size businesses throughout the state.

The corporation was required to contribute matching funds of $1,000,000,

which were to consist of Community Development Block Grant funds

committed by the state government. In November 1995, the state withdrew

its commitment to match the grant. Once EDA learned of this, it suspended

all new lending and asked the OIG to audit the RLF.

Our audit disclosed that the corporation had been out of compliance

with the EDA grant agreement’s matching requirements since at least March

1986, six months after it began using EDA funds to make loans. Specifically, the corporation violated the agreement by: (1) failing to assert control

over the $1,000,000 in state matching funds; (2) remitting to the state more

than $683,000 in interest earned on loans, which would have earned an

estimated $248,000 in additional interest had it been loaned or invested; and

(3) inaccurately reporting financial information to EDA, thereby concealing

the violations of matching requirements.

In total, the RLF lost an estimated $1.9 million in principal and

interest because the corporation failed to control the matching funds.

We recommended that EDA terminate the grant award for cause

and recover from the corporation more than $1.1 million, the agency’s fair

share of the RLF’s assets. Other than to acknowledge the state’s withdrawal

of its funding commitment, the corporation generally disagreed with our

findings. (Atlanta Regional Office of Audits: ATL-9265-7-0001)

Costs Claimed by Texas City 

Questioned or Unsupported

In 1992 a Texas city received a Title IX EDA grant to implement an

economic adjustment strategy to halt long-term economic deterioration. The

city was to use the funds for critically needed water system improvements to

enable it to comply with state requirements and attract new industries. The

total estimated project cost was $1,406,500, consisting of the $845,000

EDA grant and $561,500 from the city, to be funded by bonds and state

pass-through funds. An OIG audit was requested by EDA after receiving

complaints from vendors, even though sufficient disbursements had been

made to the city.

 

 - 25 -
Economic Development Administration

The audit found that the city cannot support its project cost claims

because it commingled federal and state funds with local funds and used

some of the funds for ineligible or non-project-related purposes. As a result,

we questioned, or considered unsupported, over $760,000 in costs claimed

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

funds.

We also found that the city (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. In addition, we

questioned the performance of professional consultants hired by the city to

manage the project.

We made a number of recommendations to remedy the identified

deficiencies. EDA agreed that the audit disclosed serious accounting

inadequacies. The city denied that it used EDA and state funds for

unallowable purposes, and claimed that it was correcting reported

deficiencies in its accounting and internal control systems. As some of our

findings were developed after the issuance of our draft report, we are

allowing the city additional time to comment on them. (Denver Regional

Office of Audits: DEN-7037-7-0001)

RLF Income Improperly Used 

to Pay Administrative Costs

In 1994 EDA awarded a $500,000 grant to a Georgia county to

capitalize an RLF, requiring $180,000 in local matching funds. The RLF’s

purpose is to provide financing for business expansions and startups that

create jobs for low- to moderate-income people. In making seven RLF loans

totaling nearly $600,000 as of June 1996, the county collected $5,200 in

loan application and credit inquiry fees. Instead of depositing the income

into the RLF capital account, however, the county used the income to pay

administrative costs, thereby violating the terms and conditions of its RLF

award.

We recommended that the county be required to deposit the $5,200

in its RLF account and directed not to use RLF income to pay

administrative costs without EDA approval. County officials agreed with

our findings, but requested and obtained EDA approval of a grant

amendment to allow the county to use RLF fee income to offset

administrative costs. (Atlanta Regional Office of Audits: ATL-8881-7-

0001)

 

 - 26 -
Economic Development Administration

EDA Followed Proper Procedures in Determining

That $1.5 Million Loan Met Requirements of Law 

Several Members of Congress requested that the OIG look into

allegations that a $1.5 million EDA loan to a private company violated

section 702 of the Public Works and Economic Development Act of 1965,

as amended. Section 702 provides that no financial assistance shall be

extended to any project when the result would be to increase the production

of goods, materials, or commodities, or the availability of services or

facilities, when there is not sufficient demand to employ the efficient

capacity of competitive commercial or industrial enterprises. EDA’s criteria

for determining whether proposed projects comply with section 702 are set

forth in agency regulations. 

After reviewing relevant EDA files on the loan project, including the

EDA economist’s competitive impact study that formed the basis of the

agency’s section 702 compliance determination, we concluded that the

determination was made in accordance with the policies and procedures set

forth in the act and regulations. In conducting the study, the economist

reviewed the company’s business plan, contacted former customers, and

analyzed industry information from a variety of sources. Moreover, when

the company revised its plan before EDA had reached its final decision, the

economist incorporated the revised plan into his analysis. In our judgment,

EDA applied the appropriate criteria in determining the proposed loan’s

compliance with section 702. (Economic Development Division)

EDA Making Reasonable Efforts to Collect

Balances Due on Delinquent Loans 

The OIG conducted a limited review to assess EDA’s collection

efforts related to its business and public works loans. At the end of 

FY 1996, EDA reported a total of 313 loans with outstanding balances of

about $115 million. We identified 29 delinquent loans, with balances

totaling over $17.2 million, of which we selected 9 for review. The reviewed

loans, which had outstanding balances of nearly $14.2 million, included one

public works loan and eight business loans.

In a memorandum to EDA’s Acting CFO, we reported that the

agency was making reasonable efforts to collect the outstanding balances on

the selected loans. During our review, EDA settled one loan, brought

another to current status, and was negotiating the collectibility of the others.

We did not recommend any additional action. (Economic Development

Division)

 - 27 -
Economic Development Administration

$61 Million Revolving Fund Surplus 

to Be Made Available for Better Use

In our September 1996 Semiannual Report (page 18), we reported

on an audit of EDA’s accruals for environmental cleanup costs and the

Revolving Fund’s capitalization level. As a result of the audit, EDA (1)

increased its environmental cleanup cost accruals by $22.15 million to

correct a previous understatement of its contingent liabilities, and (2)

agreed to inform the Congress, after finalizing a settlement agreement that

would resolve its potential environmental liability for a contaminated

steelworks property, that $61 million of funds reserved for the cleanup are

available for rescission or other authorized use.

On March 10, 1997, EDA announced an agreement to transfer the

interest in the steelworks property to a private company, which pledged to

fully investigate and clean up the hazardous chemical contamination on the

property. EDA will soon publish the settlement agreement in the Federal

Register for a 30-day public comment period, after which the transaction

will close. EDA will then notify the Congress of the availability of the funds.

(Economic Development Division)

New York State Provides Over $14 Million 

to Replenish Revolving Loan Fund

In 1993 the OIG reported that the New York Job Development

Authority, a state agency serving as trustee of an EDA revolving loan fund,

had wasted or abused substantial amounts of the RLF’s capital (see

September 1993 issue, page 18). As a result, the RLF had been depleted by

at least $12 million and would lose about another $10 million over the

ensuing years if corrective actions were not taken. EDA generally concurred

with our findings and recommendations for the Authority to cease improper

activities and replenish the RLF.

The state was unable to develop an acceptable audit implementation

plan for several years. Finally, in 1996 the state legislature authorized the

Empire State Development Corporation, the Authority’s successor state

agency, to replenish the RLF with $13 million as a proposed settlement to

the audit findings. We reviewed the state’s proposal, conducted an on-site

review of the RLF’s current operations, and recommended certain

modifications to the proposal (see September 1996 issue, page 26).

 - 28 -
Economic Development Administration

Based on these actions, in January 1997, Empire State agreed to

reimburse $13 million to the RLF in two annual installments of $6.5 million

each, and to contribute another $1.2 million in in-kind administrative costs

over the next 12 years. It also agreed to develop a new RLF plan, propose a

timetable for disbursing an additional $13 million in loans, submit timely

reports to EDA, and follow EDA administrative requirements. (Atlanta

Regional Office of Audits)

New Jersey City Finally Completes 

$5 Million Public Works Project

In 1991 the OIG reported that a New Jersey city had inappropriately changed the scope of an EDA public works water supply system

project. The project was funded in 1983 by a $2.5 million EDA Title I grant

that required the same amount in city matching funds. Our audit found that

the city had so reduced the project’s scope that the original purpose of the

grant could not be met (see September 1991 issue, page 13). The city

contended that the project was simply incomplete. We recommended that

EDA terminate the grant for cause, recover $1.75 million already disbursed,

and deobligate the remaining $750,000.

In 1992 EDA deobligated the $750,000 and, as an alternative to our

other recommended actions, suspended the grant until December 31, 1996,

to allow the city to finish the project’s construction at its own expense. In

January 1997, the city provided documentation to EDA showing that it had

completed the required construction. (Atlanta Regional Office of Audits)

 - 29 -
Economics and

Statistics Administration

The Economics and Statistics

Administration analyzes

economic developments, develops

policy options, and produces a

major share of U.S. government

economic and demographic

statistics. The Chief Economist

monitors and analyzes economic

developments and directs studies

that have a bearing on the

formulation of economic policy.

ESA has two principal operating

agencies:

Bureau of the Census. Census

is a general-purpose statistical

agency that collects, tabulates, and

publishes a wide variety of

statistical data about the people

and the economy of the nation.

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—and other accounts and

measures of economic activity.

Senator Seeks IG’s Views on Census’ Plans 

for Using Sampling in 2000 Decennial

Senator John Glenn, Ranking Minority Member of the Senate

Governmental Affairs Committee, requested that the Inspector General

provide his views on the Census Bureau’s plans for incorporating the use of

statistical sampling techniques into the 2000 decennial census and,

particularly, whether the use of sampling would yield a more accurate result.

He also asked the IG to comment on the accuracy, cost, and operational

implications of conducting the 2000 decennial census without sampling.

In his response to Senator Glenn’s questions, the IG stated his belief

that, if carefully planned and implemented, sampling can be used in the

2000 census to produce an overall more accurate result than was produced

in 1990, and certainly a more accurate result than if methods used in the

1990 census were repeated in 2000. The 2000 decennial census design

incorporates applications of statistical sampling to (1) complete the count of

nonrespondents and (2) determine, through a 750,000-household

independent survey, who was missed or counted more than once. The first

application is intended to streamline census operations to save time and

resources for conducting the second. The results of these two samples will

be combined with census information received by mail or telephone interviews to produce a “one number census.” 

The IG noted that the most serious decennial census problem is the

disproportionate undercount of racial and ethnic minorities, and that the

bureau’s planned survey of 750,000 households is the only proven method

of measuring and correcting this problem. He added, however, that because

of changing, missing, or incomplete sampling design details, he could not

render an opinion on the efficacy of the bureau’s specific design. He noted

that the bureau’s lack of satisfactory progress on the sampling design was

indicative of a broader need to improve overall decennial census

management.

The IG stated that, if the 2000 census does not use sampling, its

cost and operational complexity would increase, primarily because of a

larger nonrespondent workload requiring additional time and funding, and its

accuracy would decrease, because, as noted earlier, the planned independent

survey is the only proven method for correcting the disproportionate undercount of racial and ethnic minorities.

 

 - 30 -
Economics and Statistics Administration

Bureau of

Economic

Analysis

Bureau

of the

Census

Economics &

Statistics

Administration

Audit of Census’ FY 1996 

Combined Financial Statements

The contractor CPA firm that conducted an audit of the Bureau of

the Census’ combined financial statements as of September 30, 1996,

expressed a qualified opinion on the combined statement of financial

position and disclaimed an opinion on the combined statement of operations

and changes in net position for the year ended September 30, 1996. The firm

questioned the amounts recorded for accounts receivable, deferred revenue,

and net position because: (1) Census has insufficient procedures to ensure

that labor-related costs are properly charged to appropriate projects or

appropriations, and (2) inadequacies in Census’ process to allocate costs of

the Interfund, Census’ indirect cost rate system, including its policy of not

allocating losses to reimbursable projects, may lead to charges that are not

consistent with Department of Commerce accounting guidance.

The firm’s review of internal controls identified a material weakness

related to the inadequacies in allocations of Interfund costs, discussed under

(2) above. In addition, it identified the following reportable conditions:

! Reconciliations between Census’ financial information system and

its subsidiary records were not performed properly.

! Census does not have policies and procedures to determine the

actual cost of items held in inventory for sale to other government

agencies and to the public.

! Liabilities for accounts payable remained on Census’ financial

records after the related invoices were paid or after the accrual

amount should have been removed or reduced.

The firm made recommendations to address these conditions.

Census concurred with the firm’s findings and recommendations and

expressed a clear commitment to develop and implement corrective actions.

Financial statement audits are a key gauge for measuring the progress of a

bureau in meeting the goals and objectives of the CFO Act. While progress

has been made over the years, the report on internal controls shows that

additional improvements are needed. 

We have reported inadequacies in the Interfund for several years.

Census is taking immediate actions to significantly revise and improve the

internal allocation of indirect costs processed in the accounting system. It

has initiated a new allocation system that will significantly change the 

 

 - 31 -
Economics and Statistics Administration

Bureau’s costing and pricing policy. We recognize Census’ determination to

improve the internal control structure and encourage its continued efforts.

(Financial Statements Contract Audit Division: FSC-8836-7-0001)

Audit of BEA’s and ESA’s Combined Financial

Statements as of September 30, 1996

The OIG performed an audit of the Bureau of Economic Analysis’

and Economic and Statistics Administration’s combined financial statements

for the year ending September 30, 1996, under the requirements of the CFO

Act, as expanded by GMRA. This was the third audit of BEA’s and ESA’s

financial statements, but the first time the statements of the two bureaus

have been combined for reporting purposes. Our audit included work at

NIST’s Financial Services Group, which is responsible for BEA and ESA

accounting functions. 

Although unqualified opinions were rendered, our review of BEA’s

and ESA’s internal control structure disclosed one material weakness and

three reportable conditions. The material weakness related to the need for

NIST to develop written procedures for its year-end closing process and

provide adequate training to staff on the process. The reportable conditions,

listed below, related to BEA’s and ESA’s operations.

! Systems should be integrated and reconciliations between subsidiary

ledgers and the general ledger should be improved.

! Procedures for proper cut-off and classification of all transactions

should be strengthened.

! Procedures for a cost accounting system to account for ESA’s

salable inventory should be improved.

The results of this audit reflect the progress that BEA and ESA are

making in meeting the financial management objectives of the CFO Act. We

commend the agencies’ accomplishments and encourage ongoing efforts

with NIST to strengthen internal controls and continually improve the

quality, usefulness, and timeliness of annual financial and performance

reporting. (Financial Statements Audit Division: FSD-8874-7-0001)

 

 - 32 -
Economics and Statistics Administration

Government Receives $212,000 in Pre-Litigation

Settlement of False Claims Act Suit

When an OIG audit of a contract for an advertising campaign in

support of the 1990 decennial census revealed possible overcharging by a

subcontractor, we opened an investigation and uncovered evidence that the

subcontractor had submitted more than $160,000 in fraudulent billings for

payment by the government. Although the terms of its subcontract provided

for payment of out-of-pocket costs only, we found that the subcontractor

had routinely charged commission fees or percentage mark-ups on goods

and services obtained from suppliers, and had provided altered vendor

invoices to support its claims. 

The matter was referred to the U.S. Attorney’s Office for the

District of Puerto Rico, which notified the contractor and subcontractor of

the government’s findings and the parties’ potential liability for damages

under the False Claims Act. Both the contractor and subcontractor denied

any wrongdoing, but agreed to a pre-litigation settlement under which the

government was paid more than $212,000. Working in conjunction with the

contracting officer and the contractor, we were also able to negotiate a final

resolution of costs questioned in the audit. (Atlanta Regional Office of

Audits and Office of Investigations)

Census Employee Suspended 

for Conflict of Interest

A supervisory computer specialist was suspended for 90 days after

an OIG investigation disclosed that he had continued to represent a private

organization before federal agencies for at least two years after being

instructed by the Office of General Counsel to cease such activity. In

addition, we found that he had used government time and equipment to

perform volunteer services for the organization, and had loaded

unauthorized software onto a government computer in order to facilitate his

improper activities. (Washington Field Office of Investigations)

 - 33 -
International

Trade Administration

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. and Foreign Commercial

Service. US&FCS promotes the

exports of U.S. companies and

helps small and medium-sized

businesses market their goods and

services abroad. It has 98 domestic

offices and 140 overseas posts in

75 countries.

Audit of ITA’s FY 1996 

Combined Financial Statements

ITA has serious financial management problems requiring prompt

corrective action. For the third consecutive year, the contractor CPA firm

was unable to express an opinion on the combined statement of financial

position because of deficiencies in internal controls and automated systems.

The nature and extent of the deficiencies indicate serious problems in ITA’s

financial management. The firm identified the following material weaknesses

as reasons for disclaiming an opinion on the financial statements:

! ITA maintained insufficient documentation to adequately support

recorded balances and did not properly record transactions in the

areas of accounts receivable, property and equipment, accounts

payable, capital lease liabilities, unearned revenue, Foreign Service

National voluntary separation pay liability, and unliquidated

obligations. In addition, inventory balances were not compiled or

recorded, and equity balances were not accurately recorded.

! ITA’s financial systems were not fully integrated, and source data

entered into off-line systems was not ultimately reconciled to the

official accounting system.

! There was inadequate segregation of recording, reconciling, and

adjusting financial data from functions relating to automated system

programming and security.

! ITA’s financial systems were inadequate to identify and record

overseas activity affecting any of its asset and liability balances.

! ITA’s financial systems did not adequately track collections,

expenditures, and excess receipts arising from the sale of goods and

services to the public.

! ITA lacked an effective personnel structure to ensure adequate

financial management control over its operations, a situation

exacerbated by its lack of a Chief Financial Officer.

The four reportable conditions identified in the bureau’s internal

controls dealt with the need for ITA to (1) strengthen controls over cash

collected at its overseas posts, (2) strengthen its funds control procedures

over both its domestic and overseas operations, (3) develop core performance measures and establish systems to accurately capture performance

information, and (4) establish a formal business continuity/disaster recovery

plan at either ITA or at the National Transportation Safety Board.

 

- 34 -
International Trade Administration

Market Access 

& Compliance

Import

Administration

Trade

Development

U.S. & Foreign

Commercial

Service

International Trade 

Administration

 The firm’s tests of compliance with laws and regulations disclosed that

ITA’s management has not complied with the FMFIA requirements to

establish internal administrative and accounting controls in accordance with

standards established by the Comptroller General of the United States. In

addition, ITA did not comply with the provisions of OMB Circular A-127,

Financial Management Systems.

ITA’s management has not actively pursued its identified corrective

actions, and without a change in focus on the part of management, these

weaknesses will not be adequately addressed in the near future. All of the

material weaknesses and reportable conditions reported in last year’s audit

of ITA’s financial statements were reported again in the FY 1996 audit.

Dramatic corrective actions are needed because ITA’s current financial

management structure has not proven to be effective in establishing adequate

financial management systems and controls. Without a comprehensive,

coordinated effort, ITA’s financial operations are likely to continue to be

disjointed, leaving its operating divisions to run their own independent

financial management systems. 

It is imperative that ITA (1) establish a financial organization

headed by a CFO that contains sufficient human resources at all levels of

financial management and (2) promptly take the actions necessary to address

the deficiencies in its financial systems, policies, and procedures.

ITA has agreed, in principle, to establish a consolidated financial

organization headed by a CFO and a Deputy CFO. The CFO position must

be placed within the ITA organization at a level that provides total control

over all financial management functions of the agency. (Financial

Statements Contract Audit Division: FSC-8838-7-0001)

Advocacy Center Achievements 

Need Better Documentation

Established in 1993 as part of the Clinton administration’s National

Export Strategy, the Advocacy Center, within ITA’s Office of Trade

Development, is intended to assist U.S. businesses in obtaining contracts

controlled by foreign governments or quasi-governmental foreign entities,

such as utilities and airlines. The Center also works with the 19 federal

agencies of the Trade Promotion Coordinating Committee to develop

advocacy strategies. 

Before the National Export Strategy was developed, high-level

advocacy efforts tended to be ad hoc. One objective of the Advocacy Center was

to institutionalize the advocacy process and conduct it as an ongoing function.

Another objective was to have the Center serve as the hub of the process,

 - 35 -
International Trade Administration

with the capacity to mobilize resources to organize and oversee a

coordinated advocacy effort. The Center had a staff of 21 at the end of

1996, and its FY 1996 budget was about $1.4 million. As part of an overall

review of the Office of Trade Development, the OIG reviewed the Center to

determine whether its resources were being used in the most effective,

efficient, and economical manner.

While any measure of the amount of U.S. exports supported by the

Center is somewhat speculative and often based on early estimates made by

the companies involved, an OIG review found that the Department’s

advocacy efforts over the past two years have contributed to the potential

export of about $36 billion of goods and services. Documentation for

exports supported was lacking when our review began, but substantial

improvements have been made since then. As a result, the Center was able

to provide at least minimal documentation for over 95 percent of the claims

made for exports supported during the two years.

Although the Advocacy Center has received praise from U.S.

businesses for its responsiveness and resourcefulness, we identified several

areas, mainly involving measuring and documenting exports claimed, that

warrant management’s attention:

! Three issues need to be addressed to clarify the impact of advocacy

activities: (1) What constitutes an advocacy success? (2) At what

point should a success be claimed? (3) What role did the U.S.

government play?

! Improved procedures and controls are needed to ensure that the

Center’s project data is current and that all data entries or changes,

significant actions and developments, and requests for assistance

declined are fully documented.

! Procedures are needed to update the estimated claims for exports

supported, which are often based on figures provided in initial

applications for advocacy assistance. Procedures are also needed for

following up on projects and gathering data on actual sales.

! Coordination with other ITA components needs improvement. The

Center should continue its efforts to include all areas of industry

and country expertise in the advocacy process. Clearer guidelines

are needed indicating how responsibilities should be shared over a

range of advocacy activities.

ITA generally agreed with our findings and recommendations.

(Trade and Information Division: TID-8375-7-0001)

 - 36 -
International Trade Administration

About $27,000 in Costs Disallowed 

as Unapproved or Unsupported

The OIG audited an ITA grant awarded to a Virginia organization

to establish a consortium office in Warsaw, Poland, to provide facilities and

services to facilitate contact between U.S. food processing companies and

Eastern European companies, and set up food laboratory facilities in Poland

and other countries in the region. The total project budget was $1 million, of

which the federal share was $500,000. 

For the period covered by our audit, October 1991 through May

1995, the recipient claimed total costs of about $560,000, of which we

questioned over $96,000. The questioned costs consisted primarily of 

(1) costs that were neither included in the approved budget nor approved by

the grants officer, (2) administrative costs that could not be supported by

source documentation or exceeded the limit for transfers of funds between

direct cost categories, and (3) unallowable rent costs. In addition, the

recipient failed to complete nearly a third of the task elements in its work

plan. Most importantly, it did not set up a food laboratory, the centerpiece

of the plan.

We recommended that the Department disallow the $96,000 in

questioned costs and recover the $48,000 in funds disbursed in excess of

allowable costs. We also recommended that the recipient not receive any

more funding from the Department until it has completed the work plan. In

its response to our final report, the Department provided its rationale for

reducing the questioned costs to about $27,000, and generally agreed with

our non-financial recommendation, proposing that if the recipient submits a

full report to ITA adequately explaining why all task elements were not

completed, the agency be allowed the discretion to decide whether to

consider future awards to the recipient. We accepted the Department’s

proposal for both the financial and non-financial recommendations.

(Economic Development Division: ADD-7756-7-0001)

Update

Sentencing. In our September 1996 issue (page 37), we reported the theft

conviction of an ITA employee who had conspired with a coworker to obtain

nearly $2,500 in fraudulent travel reimbursements from an agency imprest

fund. The employee subsequently resigned from the Department and, in

October 1996, was sentenced to three years’ probation and 100 hours of

community service, and was ordered to make full restitution to the

government. (Washington Field Office of Investigations)

 - 37 -
Minority Business

Development Agency

The Minority Business

Development Agency was created

to help minority owned and

operated businesses achieve

effective and equal participation in

the American free enterprise

system and overcome the social

and economic disadvantages that

have limited their participation in

the past. MBDA provides

management and technical

assistance to minority firms upon

request, primarily through a

network of business development

centers. It also promotes and

coordinates the efforts of other

federal agencies in assisting or

providing market opportunities for

minority businesses. 

MEGA Center Awardee Exhibited Poor Financial

Management and Performance

In March 1994, MBDA awarded a cooperative agreement worth

nearly $3.1 million to a California for-profit consulting firm to operate the

Los Angeles Minority Enterprise Growth Assistance (MEGA) Center for a

15-month period. MEGA centers are intended to provide more specialized,

comprehensive management and technical assistance to minority businesses

than is provided by MBDA-funded business development centers. The firm

agreed to match the award with about $550,000 from its own funds and

from fees for services provided. The agreement was not renewed when it

expired; however, additional funds were authorized for two months of

closeout activities, bringing the total approved budget to about $3.7 million.

The OIG’s final audit of the project, which superseded its earlier,

interim audit (see March 1996 issue, page 41), found that the firm had failed

to maintain financial management and internal control systems that comply

with federal standards. Moreover, we determined that the firm:

! Improperly claimed about $675,000 in costs, for which it received

nearly $223,000 in unearned federal funds.

! Failed to pay more than $263,000 in project obligations on time,

and was delinquent in remitting more than $483,000 in employee

tax withholdings to IRS.

! Failed to satisfactorily provide services to minority businesses.

We recommended that the Department disallow the questioned costs

and recover the unearned disbursements. Because MBDA did not renew the

award, we made no recommendations on our non-financial findings;

however, we reported these findings to other federal agencies for them to

consider before electing to do business with the firm. The audit is currently

in the resolution process, and the firm recently submitted its response to the

final audit report. (Atlanta Regional Office of Audits: ATL-8882-7-0001)

Costs Incurred After End of 

Award Period Should Be Disallowed 

A for-profit corporation located in Virginia operated the

Washington, D.C., Minority Business Development Center from August

1988 through July 1996 under a series of MBDA cooperative agreements,

each of which was awarded for a three-year cycle, with federal funding 

 

 - 38 -
Minority Business Development Agency

Finance &

Administration

Strategic

Planning

External

Affairs

Program

Development

Minority

Business

Development

Agency

renewable on an annual basis. After completing two three-year awards for

the center’s operation, the corporation was selected for a third such award.

For programmatic reasons, however, MBDA decided not to renew the award

after 18 months, but amended it to provide funding for an additional six

months to enable the corporation to close the center.

An OIG audit found the costs claimed by the corporation to be

allowable under the award, with the exception of about $16,000 in costs

incurred after the award closeout period ended on July 31, 1996. We

recommended that the Department disallow these costs. Corporation

officials argued that the costs should be allowed as award termination costs

under OMB Circular A-122. However, the award was not terminated in this

instance, but simply not renewed, and all eligible closeout costs were

included in the amended award. Under the circumstances, costs incurred

after the amendment should be disallowed. (Atlanta Regional Office of

Audits: ATL-9283-7-0001)

Audit of MBDA’s FY 1996 Financial Statements

The OIG contracted with a CPA firm to audit MBDA’s FY 1996

statement of financial position and its related statement of operations and

changes in net position. The firm was able to issue an unqualified opinion on

the statements, indicating that MBDA has been successful in establishing

internal controls that facilitate the preparation of reliable accounting and

financial information.

The firm’s review of MBDA’s internal controls identified no

material weaknesses and only one reportable condition in its internal control

structure. The condition was that MBDA lacked controls to ensure timely

compilation of key performance measures required for the overview of the

reporting entity. The firm recommended that MBDA assign overall

responsibility for the agency’s financial statements, including the overview,

to an MBDA official who is familiar with OMB and departmental reporting

requirements to ensure that all future key reporting deadlines are met.

MBDA concurred with the recommendation and expressed a commitment to

implement an audit action plan to address the finding. (Financial Statements

Contract Audit Division: FSC-8839-7-0001)

 

 - 39 -
Minority Business Development Agency

Federal Court Upholds Department’s 

Disallowance of Award Costs

In February 1997, the U.S. District Court for the Eastern District of

Arkansas entered a partial judgment in favor of the Department for $29,000,

plus interest and $6,700 in penalties, after a bench trial in which the

government established that the operator of an Arkansas minority business

development center was delinquent on a debt resulting from an OIG cost and

compliance audit of a three-year cooperative agreement award (see

September 1992 issue, page 42). The court also found that the operator was

in violation of its reporting requirements on two other MBDA cooperative

agreements, and deferred final decision on the government’s obligation to

reimburse the operator for costs incurred under those awards pending

submission of properly documented claims. The litigation was handled by

the U.S. Attorney’s Office and the Department’s Office of General Counsel,

with support from the Department’s Office of Executive Budgeting and

Assistance Management and our Atlanta Regional Office of Audits and

Office of Counsel. 

 - 40 -
National Oceanic and

Atmospheric Administration

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. 

POES Excess Funding Results in 

$100 Million to Be Put to Better Use

To help fulfill its mission of environmental forecasting and stewardship, NOAA manages the Polar-orbiting Operational Environmental

Satellite system. NOAA polar orbiting satellites are acquired by the

National Aeronautics and Space Administration pursuant to a 1973

Commerce-NASA memorandum of agreement. Under the agreement,

NOAA determines the general requirements for new satellites and operates

them once they are in orbit, while NASA handles their acquisition and

launch.

NOAA and NASA work together to plan and budget for POES.

NOAA includes funding for POES in its annual budget request based on

NASA’s projected need for new funding. NASA uses the funds received

from NOAA for modifications to ongoing contracts for new work, projected

costs for completed work, and three months of forward funding for program

requirements for the beginning of the next fiscal year. Because NOAA

receives no-year budget authority for POES, there are no time restrictions

on NASA’s use of these funds. However, funds not transferred by the end of

the fiscal year must be reported by NOAA as unobligated carryover.

The OIG conducted an inspection to determine how large balances

of unspent NOAA funds had accumulated at NASA and how NOAA

managers identify and report unspent funding. We found that in FYs 1994-

96, NOAA received more funding than it needed for POES because it failed

to adjust its budget requests to reflect slowed spending in the program, and

it inappropriately transferred ground systems funds to the polar satellite

account at NASA.

By sending these funds to NASA, which then obligated them to its

various contracts, NOAA was able to obscure the fact that program

spending had slowed. It also avoided having to identify the unspent funds as

unobligated carryover, which enabled it to escape the scrutiny such funds

receive from the Department, OMB, and the Congress. As a result of this

strategy, by the end of FY 1997, NOAA would have accumulated 

$89.8 million in excess funding, an amount that exceeds its entire FY 1997

budget allocation for satellite acquisitions.

We made several recommendations to correct NOAA’s poor

financial management and budgeting practices in acquiring new polar

satellites. In response to our findings and recommendations, the 

 - 41 -
National Oceanic and Atmospheric Administration

NOAA

National

Weather

Service

National

Ocean

Service

NESDIS

National

Marine

Fisheries

Service

Oceanic &

Atmospheric

Research

NOAA

Corps

Operations

Department and OMB made more than $100 million in reductions to the

POES budget. The Department also took immediate steps to strengthen

management controls by (1) assigning an analyst to work full time with

NASA staff to obtain better funding information, (2) reporting unobligated

carryover funds and making plans to provide decision-makers with better

program performance and spending information, and (3) agreeing to

eliminate transfers of funds to NASA that are not needed for forward

funding, and to monitor transfers to ensure that funding is being used for its

intended purpose.

We commend the Department for its prompt actions in response to

our recommendations. We are reviewing possible excess funding in

NOAA’s other satellite budget accounts, and we will report on that review

during the next semiannual period. We also are continuing to work with the

Department and NOAA to strengthen management controls. (Office of

Systems Evaluation: OSE-8797)

GOES Acquisition Strategy Improved, But 

Store-in-Orbit Approach Needs Re-evaluation

Under a program run jointly with the National Aeronautics and

Space Administration, NOAA operates a two-satellite configuration of

Geostationary Operational Environmental Satellites to monitor weather

conditions in the United States and adjacent regions. NWS uses GOES data

to issue advance warnings of severe storms and to forecast regional weather.

Two of the current series of five satellites, GOES-I and J, were deployed in

1994 and 1995, and are now referred to as GOES-8 and 9. The remaining

satellites, GOES-K, L, and M, are to be launched beginning in 1997.

Because GOES-8 and 9 are experiencing reliability problems that have

increased the risk of a gap in coverage early next decade, NOAA has

accelerated the launch schedule and plans also to accelerate the acquisition

of a follow-on series of satellites.

When the OIG began its inspection, NOAA planned to purchase the

follow-on series non-competitively from the current GOES contractor.

However, responding to criticism of its plan, NOAA developed a new

strategy, the “evolutionary program,” for competitively procuring the

follow-on satellites on a cost-reimbursement basis. To mitigate the risk of a

coverage gap, NOAA also proposed to buy one or two stop-gap satellites on

a sole source basis from the current contractor. Our inspection resulted in

two primary observations:

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National Oceanic and Atmospheric Administration

C NOAA has agreed to an improved GOES acquisition strategy.

The evolutionary program, with its cost-reimbursement contract and

changing requirements, was not focused on controlling the growth in

cost or requirements. Moreover, the schedule for awarding the

follow-on contract in 1999 exposed NOAA to a potentially wide

coverage gap early next decade that could require the purchase of

up to two stop-gap satellites. However, NOAA’s plan to purchase

the stop-gap satellites noncompetitively was difficult to justify

under federal procurement regulations and possibly unnecessary if

procurement were accelerated.

In response to pressure from the Congress, NASA, the satellite

industry, and our office, NOAA agreed to pursue two procurement

plans proposed by NASA that control costs and risks. It will request

NASA to immediately start a competitive procurement of two to

four follow-on satellites through a fixed-price contract to be

awarded in 1997. Simultaneously, it will request NASA to enter

into an agreement with the current contractor for a phased

procurement of one stop-gap satellite if needed as insurance against

a coverage gap; later phases of the procurement will not be started

if a coverage gap seems unlikely.

! Early launch of GOES-K is reasonable, but storing a backup in

space may not be cost-effective in the future. Launching GOES-K

two years earlier than planned is a reasonable contingency for

insuring against a coverage gap. However, we do not believe that

NOAA and NASA have shown that launching a satellite early for

storage in space as a backup is a cost-effective policy for ensuring

future continuity. Although the agencies cite many cost and risk

advantages of in-orbit storage, we believe that before storing

another satellite in space, NOAA should conduct more complete

analyses of costs, benefits, risks, and backup alternatives. NOAA

also should make every effort to preserve GOES-K’s mission life

while it is in a backup mode.

We made several recommendations to NOAA to address our

concerns. In response to our draft report, NOAA agreed with our findings

and with all but one of our recommendations, which is to develop a plan for

replacing failing GOES satellites that considers options other than storing a

backup in orbit. NOAA stated that we overemphasized the likelihood and

cost of losing mission life for a stored-in-orbit satellite. NOAA’s argument

did not change our views on this issue, and we reaffirmed the

recommendation in our final report. (Office of Systems Evaluation: OSE8784)

 - 43 -
National Oceanic and Atmospheric Administration

Audit of NOAA’s FY 1996 

Consolidating Financial Statements

A contractor CPA firm that audited NOAA’s FY 1996 consolidating financial statements was unable to express an opinion on the

statements because of deficiencies in the bureau’s accounting records and

internal controls. The nature and extent of the internal control deficiencies

identified indicate that while significant progress has been made, substantial

corrective action is still needed before NOAA can have reasonable

assurance that amounts reported in the financial statements are fairly stated.

Although a number of material weaknesses and reportable conditions

remain, NOAA has made significant progress toward resolving them.

The firm identified 11 material weaknesses in its report on internal

controls. The material weaknesses involved NOAA’s financial reporting

structure; automated data processing systems; “on-top” adjustments;

budgetary execution transactions; property, plant, and equipment; capital

and operating leases; loan portfolios; environmental liabilities; accounts

payable and unliquidated obligations; “in-transit” items related to fund

balances with Treasury; and grants. Two material weaknesses identified in

the FY 1995 report on internal control—contractor retainages and deposit

fund holdings—were eliminated, while the deficiency relating to budgetary

execution transactions was added. The firm also identified 10 reportable

conditions. Many of the material weaknesses result from NOAA’s use of

antiquated management information systems. The Department and NOAA

are taking corrective action by implementing a new accounting and

management information system, the Commerce Administrative

Management System.

We are encouraged by the corrective actions NOAA has taken in

recent years to improve its financial management. NOAA’s commitment to

such improvement is demonstrated by its designation of a Chief Financial

Officer/Chief Administrative Officer, who is responsible for all budgetary,

finance, systems, human resources, and other administrative functions; its

development of a comprehensive action plan to address the deficiencies

identified in the prior year’s report on internal controls; and its commitment

of additional resources to accounting. However, it is imperative that NOAA

continue its efforts to correct the identified material weaknesses and

reportable conditions and to provide the necessary resources to implement

its corrective actions. After the issuance of the audit report, NOAA held its

second annual CFO Act Conference to formulate action plans to address the

findings and recommendations in the internal control report.

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National Oceanic and Atmospheric Administration

NOAA generally concurred with the findings and recommendations

contained in the report on internal controls; however, it took exception to the

inclusion of the bureau’s financial reporting structure as a material

weakness. We continue to support the CPA firm’s position on this issue

because we feel that the presentation of financial information under a true

program office and activity structure facilitates improved control over

business operations and supports more effective management decisions, and

provides essential information to oversight groups responsible for providing

financial guidance to the bureau. (Financial Statements Contract Audit

Division: FSC-8841-7-0001)

NMFS Should Pursue New Initiatives 

for Its Fishery Programs

Under the Magnuson-Stevens Act, fisheries in the exclusive

economic zone off the California, Oregon, and Washington coasts are

managed by the Pacific Fishery Management Council, and the groundfish

fisheries in the zone are managed under the Pacific Coast Fishery

Management Plan. In 1991, in response to industry concerns about the West

Coast groundfish fishery, the council adopted a plan to restrict the fishery’s

vessel harvest capacity through a license limitation system. 

The OIG conducted an audit to determine whether the groundfish

limited entry plan accomplished its purpose, and whether fees should be

collected on groundfish and other fisheries to fund fishery management

programs.

Our audit concluded that the National Marine Fisheries Service

(NMFS) could improve its management of fisheries in the Pacific Northwest

and Alaska by generating fees from all commercial fisheries. The

Magnuson-Stevens Act generally does not allow NMFS to raise fees through

the sale of limited entry permits. Recent changes to the act will allow the

agency, starting in January 2000, to collect fees on the commercial value of

fish landings under Individual Fishing and Community Development Quota

programs. We believe that the act should be expanded to allow NMFS to

generate fees in other areas:

! From the issuance of limited entry fishing permits. Although

these permits generated $65 million in private wealth in the

groundfish industry, NMFS has not received any financial benefit.

! From fees based on the commercial value of fish landings for all

commercial fisheries. Over the last two years, NMFS has spent

over $180 million to manage and enforce the fishery 

 - 45 -
National Oceanic and Atmospheric Administration

 management programs in the Pacific Northwest and Alaska, but the 

 fishing industry has contributed no funds to help cover these costs.

Collecting funds from the fishing industry in exchange for the taking

of public assets is in line with the National Performance Review’s emphasis

on having federal agencies operate in a more businesslike manner.

We also found that although the limited entry plan had met its goal of

capping the groundfish fishery’s vessel harvest capacity, the fishery still has

excess harvest capacity, which jeopardizes its long-term economic stability.

As a result, the whiting trawl industry is lobbying for a permit buyback

program to alleviate the overcapacity problem. However, we believe that any

buyback program should be funded by the industry.

We recommended that NOAA propose an amendment to the

Magnuson-Stevens Act allowing NMFS to (1) auction, sell, or otherwise

collect fees from the issuance of fishery permits, and (2) assess fees on all

commercial fisheries in the exclusive economic zone. We also recommended

that NOAA assist the Pacific Fishery Management Council in determining the

excess vessel capacity in the Pacific Coast groundfish fishery and encourage

the Council to implement an industry-funded buyback program. By

implementing these recommendations, NOAA could raise $95 million over

two years for fishery management and enforcement in the Pacific Northwest

and Alaska.

NOAA agreed with some of our findings and recommendations, but

disagreed with others. Specifically, NOAA endorsed the concept of collecting

fees from commercial fisheries and said that our estimate of potential fees was

reasonable. However, it disagreed that it should propose that the Council

implement an industry-funded buyback program. In addition, while agreeing

that the groundfish excess vessel capacity should be assessed, NOAA said that

the Council was already taking steps to do so. (Seattle Regional Office of

Audits: STL-8703-7-0001)

Northwest Emergency Assistance Plan Funds 

Can Be Used More Effectively

In 1994 the Secretary of Commerce declared a salmon fishery

resource disaster along the California, Oregon, and Washington coasts

because of depleted salmon stocks. To alleviate the economic impacts of the

fishery disaster, the Secretary established the $12 million Northwest

Emergency Assistance Plan (NEAP). In 1995, the Secretary declared that the

disaster continued to exist for those states, and provided another $13 million

for the NEAP program.

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National Oceanic and Atmospheric Administration

The NEAP program, authorized by the Interjurisdictional Fisheries

Act, is designed to provide economic assistance to eligible salmon fishermen

and to fund projects that conserve or help restore the fishery resource. The

program consists of three segments: (1) buying back Washington state

commercial salmon permits to provide economic assistance to salmon

fishermen and reduce harvest capacity, (2) funding projects that employ

fishermen to restore salmon habitats, and (3) funding projects that employ

fishermen to assist in data collection for fishery resource studies.

The OIG conducted an audit of the program to determine its

effectiveness in providing economic assistance to salmon fishermen and in

conserving or restoring the fishery resource, and to identify potential program

improvements. We found that, while the program was achieving the goal of

providing assistance to fishermen, funds could be used more effectively to

conserve or restore the fishery resource. Specifically:

! The permit buyback program, implemented just for Washington,

addressed only one of the program goals—providing economic

assistance to salmon fishermen. The $9.25 million allocated for this

program could be used more effectively in habitat restoration and data

collection projects, which promote both goals—providing assistance

and conserving or restoring the fishery resource.

! The habitat restoration and data collection programs were generally

effective in achieving NEAP goals, but the benefits derived from

several projects were questionable.

We recommended that NOAA (1) eliminate future funding of permit

buyback programs and reallocate the funds to salmon habitat restoration and

data collection programs, and (2) revise project funding criteria to ensure that

habitat restoration and data collection projects comply with the requirements of

the Fisheries Act and the Secretary’s disaster declaration. Current funding for

the program will expire in January 1998. However, should NOAA seek

additional funding, implementing our recommendations would provide the

Department with $10.5 million in funds that could be put to better use by

redirecting permit buyback funds to the habitat restoration and data collection

segments of the program, which can be used to assist more needy fishermen

and fund more projects to benefit the fishery resource.

NOAA disagreed that funds for permit buybacks should be redirected

to habitat restoration and data collection and that some of the habitat

restoration and data collection projects were not meeting program goals. It also

disagreed with our calculation of funds to be put to better use. NOAA did agree

to more carefully monitor future NEAP funding to ensure that projects comply

with program goals. (Seattle Regional Office of Audits: STL-8518-7-0001)

 

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National Oceanic and Atmospheric Administration

Expanded Vessel Buyout Program Not Needed 

Because of increased fishing activity and improved fishing

technology, the principal groundfish stocks in the Northeast fishery are at

record low levels, threatening their long-term future. In response to this

crisis, NOAA established a two-phase program to help facilitate the

recovery of the stocks by purchasing selected fishing vessels in order to

reduce fishing capacity. Under the first, pilot phase of the program, NOAA

awarded 11 grants totaling nearly $2 million to New England vessel owners

in return for their agreeing to scrap their vessels and surrender their fishing

permits. The second phase is a $23 million expanded vessel buyout

program, funded from $65 million in “no year” Defense appropriations

transferred to the Commerce Department to address fishing resource

disasters in the Northeast, Pacific Northwest, and Gulf of Mexico. 

After declaring the fishery a disaster, the Department provided 

$30 million in emergency assistance to the Northeast. EDA used $18 million to help fishermen refinance debt and obtain technical assistance to

pursue other occupations, and NOAA used $12 million to restructure debt,

make grants for alternative markets and on-shore infrastructure, and

establish one-stop shops to publicize available federal assistance. Also in

response to the crisis, the New England Fishery Management Council

obtained Department approval to take emergency actions to modify its

fishery management plan. On July 1, 1996, the council adopted Amendment 7, which was intended to rebuild groundfish stocks by reducing fishing

mortality rates to near zero. 

An OIG audit determined that the expanded buyout program is not

needed as a fishery conservation measure because of the passage of

Amendment 7 to the fishery management plan, which should solve the

groundfish crisis in the Northeast. The amendment contains severe

restrictions that will drastically reduce fishing effort and surpass any

potential reductions in effort achieved through the buyout program.

Moreover, the program is not needed as an economic assistance tool

because (1) it is a narrowly focused measure applicable to vessel owners

only, and (2) the many other federal, state, and local economic assistance

programs available to Northeast fishing communities appear to more

effectively promote long-term economic stability.

We recommended that NOAA cancel the buyout program, transfer

an appropriate amount of 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. 

 - 48 -
National Oceanic and Atmospheric Administration

In its response to our draft report, NOAA downplayed the impact of

the amended fishery management plan, but did not refute our conclusion that

the existence of broader economic programs obviates the need for the buyout

program. We are continuing to negotiate with NOAA officials to achieve a

satisfactory resolution of our recommendations. (Environment and

Technology: ENT-8657-7-0001)

Weather Service Modernization Support Service

Contract to Be Reduced

To assist in its modernization and restructuring program, the National

Weather Service has been acquiring system engineering and technical support

services through level-of-effort contracts, under which costs are incurred as

services are acquired. For these contracts, the contracting officer initially

negotiates the estimated total cost, including option years, based on minimum

and maximum levels of effort and predetermined labor rates for the various

skills required. As program needs arise, task orders are issued, and specific

resource estimates are negotiated for each task. The contract remains in effect

until the maximum level of effort is reached or the contract expires, whichever

comes first.

NOAA has spent over $34 million on support service contracts for

the NWS modernization and restructuring program since 1983, and another

contract, with a potential value of $28 million, was recently awarded. An OIG

review of an earlier contract disclosed that NWS had allowed the contractor

to use higher skilled employees than agreed to, increasing the cost of the

services. When NOAA reached the dollar limit for its 1992 contract earlier

than planned, we became concerned that a similar situation existed and

initiated a limited review of the contract and its planned replacement.

We found that the contract, originally scheduled to expire in May

1997, appeared to be well managed, even though it ran out of funds early in

FY 1997. According to NWS officials, unforeseen complications with

deploying new systems and congressionally mandated certification procedures resulted in the need for increased contractor support.

We also found that the level of effort projected for the new contract,

which was awarded in September 1996 and is scheduled to run through 2001,

appeared too high for the phasing-down period of the modernization effort.

We recommended that NOAA officials evaluate the projected level of effort.

They agreed and reduced the staffing requirements from 305 staff years to

215 over the five-year life of the contract. This action will reduce NOAA’s

cost projections by about $6.3 million, which can be put to better use.

(Environment and Technology: ENT-8749-7-0001)

 

 - 49 -
National Oceanic and Atmospheric Administration

Concerns About Aviation Safety at Montana

Airports Being Addressed

Senator Max Baucus requested that the OIG conduct an independent

analysis of claims made by some of his constituents who work as weather

observers that the Livingston, Montana, airport’s Automated Surface

Observing System is unreliable, that it blocks radio transmissions from the

airport, and that weather observers need to be retained at several Montana

airports to ensure aviation safety. The airports involved are among those that

have been designated by a team of government and industry representatives as

ones where the ASOS units will be operating alone, without human

augmentation or backup. 

After reviewing the status of the ASOS program and talking to

representatives from the National Weather Service and the Federal Aviation

Administration (FAA), we concluded that NWS, FAA, and the aviation

industry have established appropriate standards for surface observations at the

nation’s airports, including the Montana airports in question. We believe that

the processes established for the transition of ASOS sites to stand-alone

operation, and the provisions that FAA is putting in place to allow local

personnel to assist with ASOS augmentation and backup (at local expense),

will be adequate to ensure aviation safety. (Office of Systems Evaluation)

Proposal to Convert Seafood Inspection Program 

to a PBO Is Premature

Legislation has been drafted to convert NMFS’s Inspection Services

Division to a performance based organization. At the request of the Assistant

Administrator for Fisheries, the OIG evaluated the conversion plan and

strategies to move the division from a government operation to a PBO. We

determined that NOAA had not fully considered alternatives to establishing a

PBO, particularly the alternative of incorporating the proposed PBO functions

into the Food and Drug Administration, which has similar inspection duties

and has been directed to broaden its inspection services. 

Moreover, a business plan for the proposed PBO has not been

developed. NOAA’s draft prospectus for the PBO is inadequate because it

does not assess the market for inspection services; evaluate the competition,

especially in terms of market share and price structures; or adequately describe

the organization and management structure and required staffing of the

proposed PBO. NOAA needs to demonstrate that the PBO can compete in an

open market and that its revenues will cover its costs. (Seattle Regional Office

of Audits)

 

 - 50 -
National Oceanic and Atmospheric Administration

Audit Reports Unresolved for Over Six Months 

As of March 31, 1997, there were three performance audit reports,

one financial assistance audit report, and two preaward contract audit

reports with recommendations unresolved for more than six months.

NWS Headquarters and Support Operations Staffing

The performance audit report, National Weather Service Should

Streamline Its Headquarters and Support Operations, NOA 6979-6-0001

(see March 1996 issue, page 48), identified 258 NWS positions that

appeared to be good candidates for elimination, and 187 positions in other

areas that could be outsourced, restructured, or eliminated.

NOAA agreed with our recommendation that NWS develop and

implement plans for streamlining headquarters functions. However, NOAA

disagreed with our findings and recommendations on both the elimination of

positions and the resulting savings. Recently, NOAA provided us with a

description of NWS’s current plan for streamlining and re-engineering its

centralized support and administration activities. The actions outlined in the

plan address many of the areas that we suggested be streamlined. An

analysis of the plan indicates that the efforts will eliminate 192 headquarters

and support positions, with funds to be put to better use of $12.7 million.

We concluded that, by taking these steps, NWS officials met the intent of

our recommendation. In mid-April, after this reporting period, the report

was recorded as resolved.

OAR Cost Recovery for Sponsored Research

In our audit report, OAR’s Cost Recovery for Sponsored Research

Needs Improvement, STL-7658-6-0001 (see September 1996 issue, 

page 40), we noted that OAR was not recovering full costs for sponsored

projects; was using unsupported overhead rates in 6 of the 12 labs, was

expending sponsors’ funds beyond the expiration of the sponsors’ appropriations, and was not preparing sponsored research agreements in

accordance with statutory requirements and departmental policies.

 NOAA agreed with most of our recommendations to correct these

deficiencies; however, it did not concur with the findings, recommendations,

or funds to be put to better use related to unsupported overhead rates.

NOAA also disagreed with our findings regarding misuse of one-year funds

but agreed with our recommendation. In addition, NOAA did not agree with

our computation of funds to be put to better use for direct labor not

recovered. We reaffirmed our recommendations and are currently reviewing

NOAA’s revised audit action plan.

 - 51 -
National Oceanic and Atmospheric Administration

Consolidation of NWS Tsunami Warning Program

We concluded in our audit report, NWS Tsunami Warning Program

Should Be Consolidated, STL-7066-6-0001 (see September 1996 issue,

page 41), 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. Over the next 60

days, we will review the issues raised by NOAA to determine whether there

are other resolution options available. 

University of Hawaii

This financial assistance audit report, ATL-9999-5-0753 (see

September 1995 issue, page 99), was an OMB Circular A-133 audit that

questioned $1.1 million of claimed costs. NOAA requested that resolution be

deferred until a final determination of the allowablity of costs has been made

by the Defense Contract Audit Agency and 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 expects to receive the DCAA

report and the Office of Naval Research final determination in May 1997.

Preaward Contract Audit Reports

The two NOAA preaward contract audit reports are discussed on

page 85.

 

 - 52 -
National Telecommunications

and Information Administration

The mission of the National

Telecommunications and

Information Administration is 

(a) to serve through the Secretary

of Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (b) to ensure

effective and efficient federal use

of the electro-magnetic spectrum,

(c) to develop with other federal

agencies policies for international

communications and standardssetting organizations, (d) to serve

as the federal telecommunications

research and engineering center,

and (e) to administer grants under

the Information Infrastructure

Grants Program and the Public

Telecommuncations Facilities

Program. 

“Information Superhighway” Program 

Oversight Strengthened

NTIA’s Telecommunications and Information Infrastructure

Assistance Program, commonly known as the “Information Superhighway”

Program, was created in 1994 to advance the goals of the National

Information Infrastructure initiative. Under the program, NTIA provides

matching grants for the planning and construction of telecommunications

networks to state and local governments, nonprofit health care providers,

school districts, libraries, universities, public safety services, and other

nonprofit entities.

Since its inception, NTIA has awarded 277 grants totaling about

$78.6 million in all 50 states, the District of Columbia, and the Virgin

Islands. NTIA’s Office of Telecommunications and Information

Applications (OTIA) is responsible for managing the program, which has a

FY 1997 budget of $21.5 million.

An OIG review of several program grants disclosed significant

programmatic and financial problems, attributable in large part to

inadequate program management staffing. For example, OTIA program

officers did not normally visit grantees and rarely contacted them by

telephone, conducted only perfunctory reviews of grantee status reports and

took no action when significant problems were indicated, and did not ensure

that grantees were aware of federal grant requirements, particularly those

pertaining to matching funds. Moreover, OTIA did not require independent

evaluations of grant results, did not have a mechanism for grantees to

exchange useful information with each other, and required program officers

to perform routine administrative work to the detriment of their monitoring

responsibilities.

OTIA officials agreed with our findings, but said that because of

spending and staffing restrictions, they lacked the resources to both process

applications and monitor grants. These restrictions were lifted in the summer

of 1996, and NTIA officials have since taken a number of significant

actions to implement our recommendations. For example, OTIA:

! Has established an on-site monitoring program and conducted visits

of 25 grantees during August-October 1996.

! Is having its program officers make detailed analyses of grantee

status reports, contact grantees if the reports indicate any problem

areas or concerns, and forward the analyses to the Department for

appropriate action.

 - 53 -
National Telecommunications and Information Administration

NTIA

Spectrum

Management

Policy

Analysis &

Development

Telecom. &

Information

Applications

Institute for

Telecom.

Sciences

! Is using oral and written guidance to ensure that grantees

understand federal requirements for in-kind matching funds.

! Is hiring a full-time evaluation specialist and contracting for an

evaluation survey of all existing grants and the development of a

system for ongoing data collection and evaluation.

! Is using group meetings, publications, and an on-line discussion

group to stimulate information exchange among grantees.

! Is adding three grants assistant positions to handle routine administrative and clerical work.

NTIA took immediate action on our recommendations and appears

committed to implementing effective monitoring for the program. We believe

the program has been significantly improved by NTIA’s actions. (Trade and

Information Division: TID-8427-7-0001).

Public Library Ultimately Supported 

$1.5 Million in Questioned Costs

In 1994 NTIA awarded a $450,000 “Information Superhighway”

program grant to a public library in North Carolina to fund a regional

telecommunications project. The grant agreement required $790,000 in

matching funds, for a total project budget of $1,240,000. The grant was

amended in 1995, adding another $500,000 in grant funds, with matching

funds of $780,000, for a total revised budget of about $2,500,000.

The purpose of the project was to provide free access to a regional

telecommunications network for information, education, and

communication. The matching funds were to be provided by the grantee,

along with various third-party contributors, including the local school

system, which was to provide about half of the match.

An OIG audit disclosed that the library improperly valued and

inadequately supported about $1.5 million in third-party in-kind contributions toward matching costs. We recommended that NTIA (1) disallow the

$1.5 million in improperly claimed in-kind contributions, (2) recover nearly

$200,000 in excess grant disbursements, and (3) require the library to

develop a verifiable basis to value the school system’s in-kind contributions.

In response to our final report, library officials submitted new

information supporting the in-kind contributions and satisfying all in-kind

costs questioned. (Atlanta Regional Office of Audits: ATL-8689-7-0001)

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National Telecommunications and Information Administration

Audit of NTIA’s FY 1996 Financial Statements

The OIG contracted with a CPA firm to conduct an audit of NTIA’s

FY 1996 financial statements. In the firm’s opinion, NTIA’s statements

present fairly its financial position as of September 30, 1996 and 1995, and

the results of its operations and changes in net position, in conformity with

federal accounting principles and standards. The firm did not identify any

material weaknesses or reportable conditions in NTIA’s internal control

structure.

We commend NTIA on the results of this audit, which clearly

indicate that it has made significant improvements in its financial and

accounting practices. (Financial Statements Contract Audit Division: 

FSC-8842-7-0001)

 - 55 -
Patent and

Trademark Office

The Patent and Trademark

Office administers the nation’s

patent and trademark laws.

Patents are granted, and

trademarks registered, under a

system intended to provide

incentives to invent, to invest in

research, to commercialize new

technology, and to draw attention

to inventions that would otherwise

go unnoticed. PTO also collects,

assembles, publishes, and

disseminates technological information disclosed in patents.

Audit of PTO’s Financial Statements 

as of September 30, 1996 and 1995

The OIG performed an audit of PTO’s financial statements as of

September 30, 1996 and 1995. This was the fourth audit of PTO, the third

covering all of the agency’s financial statements under the requirements of

the CFO Act, as expanded by GMRA. All four audits resulted in unqualified

opinions.

Although unqualified opinions have been issued on the financial

statements, significant internal control matters remain to be addressed. Our

review of PTO’s internal control structure disclosed three reportable

conditions, of which the first two were considered material weaknesses and

all of which were repeat conditions. Actions recommended to correct these

conditions are: 

! Improving procedures for accounting for capital assets. 

! Improving the preparation, analysis, and monitoring of financial

information. 

! Depositing cash receipts in a timely manner.

We also noted one other matter—that PTO should present combining statements.

These matters relate to the lack of sufficient staff in PTO’s Office

of Finance. Although we have previously recommended that PTO hire

additional staff with backgrounds in the preparation or auditing of financial

statements, this has not been accomplished to date. Instead, PTO hired

several contractors to support its operations; however, our audit procedures

identified numerous deficiencies in their work. We strongly believe that the

Office of Finance does not currently have adequate staffing to properly train

and supervise contractors or to perform the functions necessary to correct

these deficiencies.

As PTO continues its efforts to become a performance based

organization, the importance of resolving the findings identified during our

audits is heightened. Successful implementation of our recommendations

would provide PTO with a strong financial base, thereby making the

transition to a PBO, if it happens, smoother. (Financial Statements Audit

Division: FSD-8833-7-0001)

 - 56 -
Patent and Trademark Office

Assistant

Commissioner

for

Patents

Patent &

Trademark Office

Assistant

Commissioner

for

Trademarks

Associate

Commissioner

& Chief

Financial Officer

Chief

Information

 Officer

OIG Continues to Monitor Legislation to Establish

PTO as a PBO or Government Corporation

During this reporting period, we continued to review various

legislative proposals that would establish PTO as a performance based

organization or a government corporation, and to comment, as appropriate,

on the adequacy of their provisions for Inspector General oversight. As

reported earlier (see September 1996 issue, page 55), we concur with the

administration’s position that all new government corporations should

remain under the supervision of an existing federal department or agency.

Consistent with this position, if PTO becomes a PBO or a government

corporation, it should remain under Department of Commerce supervision,

and the Commerce IG should serve as its IG.

In early February, we reviewed and concurred with the Department’s draft legislative proposal that would establish PTO as a PBO. Under

this proposal, PTO would remain an agency of the Department of

Commerce, reporting to the Secretary of Commerce, and subject to the

direction of the Under Secretary of Commerce for Intellectual Property on

patent and trademark policy matters. The Department of Commerce’s IG

would remain as its IG.

Several bills recently introduced in the House and Senate would

establish PTO as a wholly owned government corporation. We are working

with the Department and the appropriate congressional committees to ensure

that adequate provisions for IG oversight are incorporated into these bills.

 - 57 -
Technology

Administration

The Technology Administration serves the needs of

technology-based industry,

advocates federal actions and

policies to speed the transfer of

technology from the laboratory to

the marketplace, and removes

barriers for commercializing new

technologies 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 aids U.S. industry through

research and services, contributes

to public health and safety, and

supports the U.S. scientific and

engineering research

communities. It creates and

maintains national standards of

measurement and is developing

computer security standards for

the federal government.

National Technical Information Service. NTIS is a selfsupporting agency that actively

collects and organizes technical,

engineering, and business-related

information generated by U.S. and

foreign governments and makes it

available for commercial use by

the private sector.

NTIS Traditional Mission Is Well Run, 

But Expansionary Activities Need Attention 

The OIG conducted a program evaluation of NTIS’s operations,

which included assessing how efficiently and effectively it pursues its

primary mission of collecting and disseminating scientific, technical, and

engineering information. We also examined the agency’s recent

“expansionary” activities. Our evaluation disclosed the following: 

! NTIS has successfully managed most of its mandated activities.

NTIS has worked effectively with other federal agencies to increase

its inventory of the nation’s scientific, technical, and engineering

information, in compliance with the American Technology

Preeminence Act, and is aggressively striving to broaden its market.

! NTIS has been responsive to the needs of its customers. NTIS

staff appear to place a strong emphasis on customer service, and

customers overwhelmingly expressed satisfaction with the agency’s

services, the quality and usefulness of its documents, and the

reasonableness of their cost.

! NTIS and the Department had serious procurement-related

deficiencies. While conducting our evaluation, we discovered major

deficiencies in procurement practices related to NTIS acquisitions;

as a result, we initiated a separate review to address those issues

(see page 59 and September 1996 issue, page 64).

! NTIS has benefitted from improvements in its internal

operations. During the past five years, the agency has adopted a

more businesslike atmosphere, established an improved integrated

accounting and order processing system, and received fewer

customer complaints. Largely because of these factors, NTIS was

selected as a candidate for conversion to a performance based

organization. The PBO concept is designed to provide certain

agencies with greater flexibility in procurement and more control

over their finances and personnel in exchange for stricter accountability for performance. Although the agency’s mission appears to

fit the concept, organizational deficiencies we identified suggest that

more improvements are necessary before it can handle the

challenges of becoming a PBO.

! Problems with CyberFile offer lessons for NTIS. Through its

expansionary $22 million CyberFile project, NTIS attempted to

develop for the Internal Revenue Service a system that would 

 

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Technology Administration

NIST

Technology

Administration

NTIS

Technology

Policy

enable taxpayers with home computers to submit their tax returns

electronically. This project, NTIS’s largest ever, was poorly

managed and widely criticized. NTIS has undertaken a number of

other expansionary activities, based on its interpretation of its

legislative authority, a push to generate new revenues, and a general

desire to expand. We are concerned that some of these activities

may be outside NTIS’s authority and distract the agency from its

primary duties. The agency needs to develop sound selection criteria

for evaluating proposed projects and ensure that adequate time is

afforded to effectively plan, manage, and complete any undertaking.

! Interagency agreements were not cleared through the

Department’s General Counsel. None of NTIS’s contract-type

vehicles we examined had been reviewed for legal sufficiency by the

Office of General Counsel, as required by departmental procedures.

Our observations on these agreements were discussed in detail in

another report (see below).

! Efforts to consolidate and relocate NTIS operations have been

slow and costly. Four years of attempts by NTIS to consolidate its

operations have been hampered by (1) the slow pace of the General

Services Administration review process, (2) NTIS’s failure to

adequately justify its requirement to be near a Metrorail station, and

(3) the Department’s “hands-off” attitude toward NTIS’s lease

acquisition efforts. We believe that, given the time and effort

invested in this endeavor, agency managers should immediately take

actions to better justify the proposed move and, if this fails, pursue

a less costly alternative.

The Technology Administration agreed with our observations and

recommendations, and the actions it has taken and proposed meet the intent

of our recommendations. (Office of Inspections and Program Evaluations:

IPE-8497)

NTIS CyberFile Project Plagued by 

Management and Procurement Problems

During a program evaluation of the operational effectiveness of

NTIS (see page 58), the OIG became concerned about certain deficient

programmatic and procurement practices related to the development of

CyberFile, an on-line tax-filing system that the agency was developing for

IRS through an interagency agreement. As a result of these concerns, we

began a separate inspection of NTIS’s CyberFile-related program

management and procurement activities.

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Technology Administration

NTIS’s procurement authority is limited to contract awards under

$50,000 and delivery orders issued under existing contracts. NTIS relied on

the Department’s procurement organization for much of its procurement and

contracting support until November 1995, when this responsibility was

transferred to NIST. Similarly, NTIS has only a limited technical staff in the

group that is responsible for CyberFile development, and these staff are

generally hired for marketing activities, not for computer systems

development work. As a result, CyberFile development was contracted to

outside suppliers.

Our inspection disclosed that NTIS’s programmatic and procurement planning for CyberFile was grossly inadequate and that its use of

delivery order contracts and interagency agreements was highly questionable

in concept, and circumvented federal statutes and regulations in practice.

Specifically, because of its inadequate planning, NTIS:

! Underestimated the cost and resources required to develop

CyberFile, then used sole-source Small Business Administration

8(a) contracts, which were inadequate to handle the required volume

of effort, and which in turn exceeded the $3 million threshold for

such contracts.

! Overrelied on support contractors for CyberFile development

without maintaining adequate control over their activities.

! Failed to pass along critical IRS contract specifications to its

contractor and subcontractors, resulting in a system that did not

meet IRS security and delivery requirements.

! Issued work authorizations in advance of contract agreements

defining requirements, which resulted in the initial estimated 

$1.4 million software development cost rising to over $7.8 million.

! Used the prime development and systems integration 8(a) contract

to funnel much of the CyberFile development work to subcontractors that were ineligible under the 8(a) program.

! Used a complex web of interagency agreements to avoid federal

competition requirements and departmental oversight, thereby

increasing government costs by about $875,000.

! Violated federal regulations on delivery order contracts and

interagency agreements by failing to conduct market surveys or

price analyses, and improperly entered into and poorly managed

interagency agreements.

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Technology Administration

! Inappropriately charged a cost-plus-a-percentage-of-cost fee to

other federal agencies, a practice that maximized its fees but

fostered inefficient procurement practices.

! Systematically avoided Office of General Counsel review of all

delivery orders and interagency agreements.

In responding to our report, NTIS acknowledged that many

procurement mistakes were made, and generally agreed with our

recommendations. However, the agency questioned whether some of the

mistakes that we highlighted were as serious as characterized. NTIS

asserted that (1) the cost overrun in software development was the result of

a conscious decision to prioritize the project’s development schedule, (2)

CyberFile had the ability to eventually meet IRS’s security requirements,

and (3) IRS was kept fully informed of the cost risks. (Office of Inspections

and Program Evaluations: IPE-9364)

NIST’s Capital Improvements Facilities Program

Needs Management Attention

NIST’s Capital Improvements Facilities Program, designed to

upgrade and expand its research facilities, was originally projected to cost

$540 million and require 10 years (1993-2002) to complete. The CIFP

includes renovations of existing laboratory and office facilities, as well as

the construction of new facilities at NIST’s Gaithersburg, Maryland, and

Boulder, Colorado, sites.

Since FY 1993, NIST has received $291 million in construction

appropriations, although $121 million of that has since been rescinded by

the Congress. The OIG conducted a comprehensive four-part review of the

CIFP. We previously reported on NIST’s proposed construction of an

Advanced Measurement Laboratory in Boulder (see March 1996 issue, page

59), its decision to lease an office building in Gaithersburg (see September

1996 issue, page 56), and its inappropriate obligation of nearly $32 million

(see September 1996 issue, page 57). 

In our fourth report, issued during this semiannual period, we made

a number of observations about the overall management of the CIFP:

! NIST has effectively managed many CIFP challenges. Many

aspects of this complex program have been handled well. NIST has

demonstrated a pressing need for certain facilities renovation and

construction, and has translated its needs into specific plans that

should remedy facility weaknesses and produce energy-related

savings and improvements in productivity and performance.

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Technology Administration

! NIST is revising the CIFP without making some key

adjustments. NIST is revising its CIFP to reflect changes in

program direction and other circumstances, but we are concerned

that its revised plan may contain over $200 million in unjustified or

inadequately explained program elements. Moreover, NIST and the

Department recognize that because of inflation and added elements,

the CIFP will cost at least $940 million and take at least four years

longer than originally projected. We cannot overemphasize the need

for NIST and the Department to have the most accurate, defensible,

and fiscally responsible CIFP possible.

! NIST should abandon plans to award a single omnibus construction contract. NIST initially established a construction

strategy for the CIFP that allowed for the award of a single omnibus

task order construction contract that could extend for as long as 10

years and cost as much as $480 million. The initial award to a

single contractor would be competitive, but all successive task

orders could be on a sole-source basis without competition. We

believe that any proposed NIST omnibus construction contract

should be awarded to multiple suppliers, thereby ensuring

competition for task orders. NIST canceled the proposed contract

because of a lack of funding, but we urge that any future

solicitations of this type be modified to address our concerns.

! NIST should try to avoid “phased” construction of the

Gaithersburg AML. NIST has justified construction of the

Gaithersburg AML, consisting of five connected buildings for

conducting “cutting edge” research. Based on NIST’s figures, we

estimate that if contracted in a “unified” manner and begun in FY

1998, the AML can be built in 42 months for an estimated cost of

$191 million. NIST, however, was planning to build the AML in

phases because it believes that the funding for unified construction

will not be available up front. Unfortunately, phased construction

greatly reduces efficiency and has other costly disadvantages. We

endorse NIST’s ongoing efforts to work with the Department,

OMB, and the Congress to find a funding strategy that will allow

unified construction of the AML. 

 NIST generally agreed with our conclusions, recognizing that the

projected cost of the CIFP has escalated dramatically and that it needs to

reevaluate its facility needs and revise the program. It also agreed that

phased construction of the AML presents significant disadvantages and that

our concerns about the omnibus construction contract should be addressed 

 

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Technology Administration

in any future solicitation. NIST did not, however, agree to remove elements

from the CIFP plan that we identified as unjustified. We reiterate the need

for a reevaluation to produce a realistic CIFP. (Office of Inspections and

Program Evaluations: IPE-8377(3))

NIST and the Department Need to Resolve 

Issue of Excess Leased Space

In August 1996, we issued an inspection report on NIST’s leasing

of an office building in Gaithersburg, Maryland (see September 1996 issue,

page 56). In that report, we observed that: (1) the leased building was not

being used to support NIST’s construction program as originally intended;

(2) NIST could, at best, justify only about one-third of the building based on

a minor office overcrowding problem on its main campus; and (3) the

continued long-term leasing of this building represented a luxury that NIST

could not afford given its other facility priorities and today’s tight budget

environment. We recommended that the Department take the lead in

expeditiously liquidating/subleasing the excess space. 

The Department disagreed with our recommendation, stating that

there was little available space on the campus for personnel to backfill and

that it would not be cost-effective to move employees back to the main

campus until more space was available there. The Department did not

anticipate having sufficient available space until 1998. 

Because much of NIST’s work is done in laboratory and other

scientific facilities, the agency needs less office space per person than it

would under the standard used by the Department. This is reflected in

NIST’s self-imposed standard for allocating office space per person, which

is slightly less than the Department’s standard. Based on NIST’s standard,

we maintain that the agency now has sufficient space on its main campus to

house two-thirds of the occupants of the leased building. 

At a cost of $3 million per year and a total potential cost of from

$31 to $47 million, the leased building is not a wise use of scarce resources.

The savings, which we estimated to be at least $16.3 million, represent

funds that could go to higher priority projects, especially those related to

health and safety upgrades. We have agreed with NIST that final resolution

of this issue will be deferred until NIST, in collaboration with the

Department and our office, finalizes its reassessment of its facility needs.

We will closely monitor NIST’s facility plans to ensure that the agency

focuses on the most cost-effective alternatives and includes a definitive,

justifiable plan for liquidating the excess leased space. (Office of

Inspections and Program Evaluations)

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Technology Administration

Accounting System Surveys of NIST Awardees

Help Ensure Proper Handling of Federal Funds 

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 Manufacturing Extension

Partnership and Advanced Technology programs (see, for example,

September 1996 issue, page 60). Rather than wait to undertake

comprehensive audits covering several years, we conduct brief surveys to

make preliminary assessments of whether selected recipients are (1)

claiming costs that are reasonable, allowable, and allocable, and (2)

complying with the financial terms and conditions of their awards.

Manufacturing Extension Partnership Program

The three surveys completed during this semiannual period covered

projects having total estimated costs for the two- to three-year award

periods exceeding $7.3 million, with a federal share that could ultimately be

as much as $3.7 million. As in prior surveys, we identified weaknesses in

the recipients' financial management and accounting systems, most

commonly the failure to supply or document matching share funds, to

properly claim and document only allowable costs, and to implement

adequate administrative policies and procedures. 

Almost without exception, the recipients concurred with our

findings and agreed to take prompt corrective actions. Identifying these

weaknesses early in the award periods helps prevent future problems and

avoid questioned costs in later audits. (Denver Regional Office of Audits:

DEN-9336-7-0001, DEN-9337-7-0001, and DEN-9492-7-0001)

Advanced Technology Program

During this period, we reported on nine audits covering ATP

projects having total estimated costs for the two- to three-year award

periods of more than $25.1 million, with a federal share potentially as high

as $13.6 million. Seven of these audits identified weaknesses in the

recipients' financial management and accounting systems, most commonly

the failure to adequately account for the federal funds, to properly claim and

document only allowable costs, and to implement adequate policies and

procedures. Questioned costs and recommended funds to be put to better use

on these seven audits exceeded $950,000.

 - 64 -
Technology Administration

The other two audits demonstrated the value of using accounting

system surveys for early identification and resolution of audit issues. As a

result of undergoing early surveys, both recipients had adequately accounted

for the federal funds, had equaled or exceeded their matching share

requirements, and had no costs questioned. (Denver Regional Office of

Audits: DEN-8731-7-0001, DEN-8825-7-0001, DEN-8845-7-0001, DEN9003-7-0001, DEN-9048-7-0001, DEN-9133-7-0001, DEN-9134-7-0001,

DEN-9207-7-0001, and DEN-9260-7-0001)

OIG Develops Audit Guidelines 

for Advanced Technology Program

The statutory authority for the Advanced Technology Program

requires NIST to establish procedures regarding financial reporting and

auditing to ensure that cooperative agreements are used for their specified

purposes. In order to assist the agency, during this reporting period, the OIG

developed program-specific guidelines for independent public accountants

conducting audits of ATP cooperative agreements with joint ventures and

single companies. 

Federal legislation requires that all audits of financial assistance

recipients be performed in accordance with Government Auditing Standards

issued by the Comptroller General of the United States. The ATP audit

requirements are met by conducting an audit of the ATP financial statement,

“Schedule of Fund Sources and Project Costs,” and an attestation of

management’s assertions regarding compliance with laws and regulations.

Because of different requirements for joint venture participants and single

companies, slightly different guidelines are used for each type of recipient.

The report package prepared in accordance with these guidelines is

submitted to both the NIST Grants Office and the OIG. The opinions on the

program financial statement and management’s assertions regarding

compliance will be used as a tool by program managers and grant officials

in meeting their responsibilities for ensuring that federal funds are spent for

their intended purposes and in accordance with laws and regulations. The

OIG will review the reports for technical accuracy and audit findings.

(Atlanta Regional Office of Audits)

 

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Technology Administration

Audit of TA’s FY 1995 and FY 1996 

Combined Financial Statements

The OIG contracted with a CPA firm to conduct an audit of TA’s

FY 1995 Statement of Financial Position and FY 1996 Financial

Statements. In the firm’s opinion, the financial statements present fairly

TA’s financial position as of September 30, 1996 and 1995, and the results

of its operations for the year ended September 30, 1996, in conformity with

federal accounting principles and standards. The firm did not identify any

material weaknesses or reportable conditions during its review of TA’s

internal control structure. (Financial Statements Contract Audit Division:

FSC-8835-7-0001)

Audit of NTIS’s FY 1996 Financial Statements

We contracted with a CPA firm to conduct an audit of NTIS’s

financial statements for the year ended September 30, 1996. The firm

expressed a qualified opinion on the statement of financial position, and

disclaimed an opinion on the statements of operations and changes in net

position and cash flows for the year then ended. The auditors expressed

these opinions because (1) the response to their request for confirmation of a

$1.93 million account receivable indicated that the customer could not

validate $7.0 million in obligations for services performed by NTIS subcontractors under an interagency agreement and was unable to determine

whether amounts were due to NTIS or a refund was owed, and (2) at the

instruction of management, the auditors did not review evidence supporting

amounts reflected in the inventory records.

In its review of NTIS’s internal control structure, the firm identified

five reportable conditions, the first of which is a material weakness. To

correct these conditions, NTIS needs to: 

! Improve controls over inventory. 

! Properly prepare and review reconciliations. 

! Document standard operating procedures for certain functions and

unusual transactions.

! Improve controls to ensure that obligations are recorded on a timely

basis. 

! Consistently apply policies regarding the recording of fees,

revenues, and advances. 

 - 66 -
Technology Administration

With one exception, the firm’s tests of compliance with laws and

regulations disclosed no instances of noncompliance that are required to be

reported under Government Auditing Standards. The exception was that the

General Accounting Office report Tax Systems Modernization: Cyberfile

Was Poorly Planned and Managed, issued in August 1996, stated that:

“NTIS . . . violated applicable procurement laws and regulations in

implementing Cyberfile” (see page 59). 

These audit results are in marked contrast with the FY 1995 audit,

in which NTIS received an unqualified opinion and no reportable conditions

were identified. The results clearly indicate deficiencies in NTIS’s internal

control structure. We encourage NTIS management to make concerted

efforts to improve the internal control structure as soon as possible to allow

for the preparation of more reliable financial statements for FY 1997.

(Financial Statements Contract Audit Division: FSC-8843-7-0001)

Audit of NIST’s FY 1996 

Combined Financial Statements

After reviewing NIST’s combined financial statements for FY 1996,

a contractor CPA firm issued an unqualified opinion. The firm also

reviewed NIST’s internal control structure and noted no material weaknesses. However, it did identify two reportable conditions that were

observed in previous audits but were not fully addressed, and recommended

the following actions to correct them:

! Appoint a Chief Financial Officer.

! Involve financial management in asset acquisition decisions.

NIST concurred with the auditors’ findings and recommendations.

We commend NIST management on its efforts in improving its internal

control structure. Successful implementation of the Commerce

Administrative Management System will require continued management

attention. The system will be instrumental in the continued improvement of

NIST’s internal control structure. We believe that the consolidation of the

Comptroller’s Office, Budget, and Financial Systems Division under an

Acting CFO is a positive step in NIST’s efforts to improve its financial

management. (Financial Statements Contract Audit Division: FSC-8840-7-

0001) 

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Technology Administration

Joint Investigation Discloses 

Improper Billings on NIST Contract

A joint investigation by the OIG, the Federal Bureau of

Investigation, the Defense Criminal Investigative Service, and the Naval

Investigative Service revealed that a NIST contractor had improperly billed

the government for costs associated with lobbying the Congress to retain a

Department of Defense program under which the NIST contract was

awarded. The investigation established that the contractor, once it learned of

the Navy’s decision to cancel one of the primary programs funding the

contract, paid several thousand dollars in consulting fees to a former highranking Navy official to lobby Members of Congress in an attempt to get the

decision reversed. These fees were then billed to NIST without disclosing

the precise nature of the activities for which the contract was being charged. 

The matter was referred to the U.S. Attorney’s Office for the

Eastern District of Virginia, and in October 1996, the contractor entered

into a civil settlement under which it agreed to pay the government $21,000

to resolve any potential claims for False Claims Act damages based on the

NIST contract.

The investigation also disclosed that a senior NIST official who had

served as the head of the source selection board and the contracting officer’s

technical representative for the contract had misspent hundreds of thousands

of dollars in appropriated funds received from the Navy under the program

for office renovations, computer system upgrades, and the purchase of office

furniture and computers. The official resigned from government service

during the investigation. (Silver Spring Field Office of Investigations)

 

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Departmental Management

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

Financial Statement Audits

The OIG is responsible for the financial statement audit of the

Department of Commerce in accordance with provisions of the CFO Act, as

expanded by GMRA. During this semiannual period, the Department prepared its first Consolidated Financial Statement, on which we disclaimed an

opinion. This was mainly due to the disclaimer of opinion on the financial

statements of NOAA, which is by far the largest accounting entity in

Commerce. Moreover, the report on internal control structure included 11

material weaknesses that were deemed significant to the Department as a

whole (see page 71). 

In addition to reporting on the Department’s Consolidated Financial

Statement, we issued an individual audit report for each bureau. 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 Expenses Fund received qualified opinions on

their balance sheets with disclaimers on their income statements.

Disclaimers of opinion were received by BXA, EDA, ITA, and NOAA. 

While EDA received a disclaimer of opinion on its financial

statements, progress was made in addressing internal control weaknesses, as

only 4 material weaknesses and 5 reportable conditions were reported, down

from 10 weaknesses and 11 conditions in FY 1995. Moreover, EDA has

agreed to hire a CFO. ITA received a disclaimer on its statements, with 6

material weaknesses and 4 reportable conditions, but also has agreed to hire

a CFO. NOAA also received a disclaimer of opinion on its statements, with

11 material weaknesses and 10 reportable conditions. NOAA has agreed to

hire additional staff at its headquarters and its Administrative Support

Centers. In addition, it plans to include financial management criteria in the

performance plans of its upper level managers.

Although substantial progress has been made, it is unlikely that the

Department will meet its commitment to receive an unqualified opinion on

its Consolidated Financial Statement for FY 1997. Although EDA, ITA, and

NOAA have begun to take steps to remedy their internal control

deficiencies, due to the bureaus’ respective sizes and the nature of the

deficiencies, added attention is warranted.

We will work closely with the Department and the bureaus to ensure

that their corrective action plans properly address the reported internal

control weaknesses. In addition, we will assess the Department’s and the

bureaus’ progress in addressing the requirements of the Government

Performance and Results Act (GPRA).

 

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Departmental Management

Entity FY 1992 FY 1993 FY 1994 FY 1995 FY 1996

Department Disclaimer

BEA Survey Balance Sheet

Disclaimer

Balance Sheet

Unqualified

Unqualified Unqualified

BXA Survey Disclaimer Disclaimer

Census Survey Limited Scope Disclaimer Balance

Sheet

Qualified

Balance Sheet

Qualified; Income

Statement Disclaimer

EDA Limited

Scope

Balance Sheet

Disclaimer

Disclaimer Disclaimer Disclaimer

ESA Survey Balance Sheet

Disclaimer

Balance Sheet

Unqualified

Unqualified Unqualified

G&B Disclaimer *

ITA Survey Limited Scope Disclaimer Disclaimer Disclaimer

MBDA Survey Balance

Sheet

Unqualified

Unqualified

NIST Limited

Scope

Balance Sheet

Qualified

Unqualified Unqualified Unqualified

NOAA Survey ** Disclaimer Disclaimer Disclaimer

NTIA Survey Balance Sheet

Unqualified

Unqualified Unqualified Unqualified

NTIS Unqualified Unqualified Unqualified Unqualified Balance Sheet

Qualified; Income

Statement Disclaimer

PTO Survey Balance Sheet

Unqualified

Unqualified Unqualified Unqualified

S&E Disclaimer Balance Sheet

Qualified; Income

Statement Disclaimer

TA Balance

Sheet

Unqualified

Unqualified

WCF Survey Balance Sheet

Disclaimer

Balance Sheet

Unqualified

Unqualified Unqualified

*An audit was attempted, but could not be performed (see page 76). 

**In FY 1993, we performed balance sheet audits of two NOAA entitiesCthe Coastal Zone

Management Revolving Fund and the Fishing Vessel Obligation Guarantee Program.

 

 - 70 -
Departmental Management

Definitions:

A financial statement audit

provides one of the following

opinions:

Unqualified—the financial

statements present fairly, in all

material respects, the entity’s

financial position and results of

operations.

Qualified—except for the effects

of the matter(s) to which the

qualification relates, the financial

statements present fairly, in all

material respects, the entity’s

financial position and results of

operations.

Adverse—the financial statements

do not present fairly the entity’s

financial position or results of

operations.

Disclaimer—the auditor does not

express an opinion on the

financial statements.

To meet our CFO Act responsibilities, we implemented an incremental audit approach that emphasized early detection and correction of

major internal control problems. The chart on the previous page shows the

progress made—from survey to limited scope to full scope audits, with

disclaimer versus qualified versus unqualified opinions—in the Department’s financial statement audits.

Audit of the Department’s FY 1996 

Consolidated Financial Statements

The OIG performed an audit of the Department’s Consolidated

Financial Statements as of and for the year ended September 30, 1996. This

was the first time the Department has prepared consolidated financial

statements under the requirements of the CFO Act, as expanded by GMRA.

We were unable to express an opinion on the financial statements

because of material deficiencies in accounting policies, practices, internal

controls, data, and automated systems. Further, the Department’s Office of

General Counsel did not provide the required legal representation letter,

resulting in a scope limitation for the consolidated audit.

We identified 11 material weaknesses in the Department’s internal

control structures. Until the material weaknesses noted in this report and in

the individual bureau reports on internal control structure are corrected, and

issues regarding the legal representation letter are resolved, the Department

will continue to receive a disclaimer of opinion. Specific recommendations

are included in the bureau reports to address their material weaknesses. In

addition, the following recommendations need to be addressed at the

Department level:

! The Department must tightly manage the development and

implementation of the Commerce Administrative Management

System. Several concerns have been raised about the development

of the integrated Department-wide system, including

implementation delays, tracking of costs, and the year 2000 issue.

! The Department should assist the three bureaus that have yet to fill

their Chief Financial Officer positions. The Department should also

focus on finalizing the process to fill its CFO position.

! The Department’s CFO should work closely with the bureaus to

prioritize the actions to be taken on internal control weaknesses.

! Instructions for completing FY 1997 financial statements should be

prepared and distributed as soon as possible. Periodic meetings

should be held to assess the bureaus’ progress on the statements.

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Departmental Management

! The Department’s CFO should work with bureau management to

ensure adherence to OMB guidance and GPRA requirements for

preparing meaningful overviews. The CFO should also improve the

overview presented with the consolidated statements.

! The Department’s CFO must work with the General Counsel to

ensure that adequate legal representation letters are obtained at the

Department and bureau levels. 

Although the Department has made substantial progress in its

bureau financial statement audits, additional efforts are needed to meet

GMRA’s requirements for audited agency-wide financial statements. Some

of the Department’s bureaus have received unqualified opinions on their

financial statements or have progressively improved their internal control

structure. However, deficiencies in three of the more significant bureaus—

EDA, ITA, and NOAA—merit added departmental attention.

The importance of the Department’s progress in preparing an

accurate, reliable, and timely financial statement package is heightened by

recent legislation relating to the improvement of financial management and

by continuing congressional interest in its programs. The Department’s

overview will give management, the Congress, and others an indication of

whether its programs are meeting its goals, and what resources are required

to provide services. GPRA expands the use of performance information and

directly involves managers by requiring them to develop a strategic plan,

identify performance indicators and plans, and issue annual performance

reports. The Department needs to take corrective actions to ensure that its

overview and financial statements properly reflect its operations. (Financial

Statements Audit Division: FSD-9355-7-0001)

Employee Operated Private Business 

in Violation of Conflict Laws

A mid-level employee in the Office of the Secretary retired from

federal service in the face of his proposed removal after an OIG investigation revealed that he had for many years been operating a business

representing federal employees in personnel matters before other federal

agencies. We found that the employee frequently conducted his private

business while on duty at the Department, and that he had received at least

$40,000 in client fees over a five- or six-year period. The matter was

referred to the U.S. Attorney’s Office for the District of Maryland, which

declined criminal prosecution in favor of administrative action.

(Washington Field Office of Investigations)

 - 72 -
Departmental Management

Office of Acquisition Policy and Programs 

Needs to Reevaluate Its Mission and Organization

The OIG recently completed a review of the Office of Acquisition

Policy and Programs’ (OAPP) management and staffing. OAPP is part of

the Department’s Office of Acquisition Management, which is responsible

for the implementation of procurement laws, regulations, policies, and

procedures within Commerce. 

Our review disclosed that in response to the National Performance

Review, deficit reduction initiatives, and acquisition reform legislation,

OAPP significantly streamlined the Department’s acquisition process.

However, in doing so, OAPP also eliminated or reduced its participation in

certain key acquisition management functions and, as a result, abdicated its

responsibility for review and oversight of departmental acquisitions.

Without adequate departmental oversight, there is an increased risk that

departmental acquisitions will be conducted improperly and inefficiently.

We recommended that the Department:

! Take immediate action to resume and strengthen OAPP’s role in,

and responsibility for, overseeing the acquisition programs within

the Department.

! Take action to ensure that OAPP’s mission statement, organizational structure, and staff responsibilities and resources are

consistent with the oversight and policy function.

! Immediately implement an independent assessment of bureau

procurement offices to determine whether acquisitions were made in

accordance with applicable regulations, policies, and procedures,

and to assess the offices’ efficiency and effectiveness, the soundness

of business judgments made by contracting offices, and the

adequacy of management controls.

! Examine the staffing structure of OAPP to determine the optimum

utilization of resources.

In response to our draft report, the Department agreed with the

purpose and mission of OAPP as outlined in our report and with our

contention that actions taken to implement the National Performance Review

and recent legislation should be made wisely and incrementally. However,

our specific recommendations were not addressed. Since we issued our final

report, the Department has submitted a proposed audit action plan, which

we are reviewing. (Economic Development Division: EDD-8279-7-0001)

 

 - 73 -
Departmental Management

Commerce Employees Met Overtime Criteria, but

Approving Officials Need to Document Decisions 

Under the Omnibus Consolidated Appropriations Act for FY 1997,

the OIG of each federal department is required to conduct an audit of the use

of administratively uncontrollable overtime (AUO) and report its findings to

the Congress and the Office of Personnel Management. Agency heads are

authorized to pay premium pay for AUO 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.

Premium pay is to be determined by the agency head as an

appropriate percentage—between 10 and 25—of the employee’s basic pay,

depending on the average number of weekly hours of overtime. Under the

Department’s Pay Handbook, officials who are authorized to approve AUO

are responsible for annually assessing work requirements and reviewing

records of overtime worked, determining the rate of premium pay to be paid,

and designating who will receive it.

The OIG audit found that all Commerce Department AUO

payments for the year ending October 12, 1996, were made to 55 NOAA

employees, who received a total of about $228,000. We selected for detailed

review the 39 employees who received AUO payments during the pay period

ending on October 12. We found that all 39 met the criteria for receiving

such payments. However, we also found that officials responsible for

authorizing AUO did not maintain and review records of overtime worked to

determine the rate payable, as required by the Pay Handbook. In addition,

since records of overtime worked were not maintained, NOAA could not

conduct the required cost-effectiveness determinations. Therefore, we were

unable to determine whether employees were paid at the appropriate rate.

We recommended that the Department and NOAA ensure that units

authorizing AUO for employees (1) maintain and review records of overtime

worked, determine the average weekly hours of irregular or occasional

overtime, assess work requirements, and determine the proper rate of

premium pay from the Pay Handbook, and (2) determine if payment for

AUO is cost-effective compared to payment for regular overtime. NOAA

agreed with our findings and said it would implement our recommendations.

(Economic Development Division: EDD-9290-7-0001)

 

 - 74 -
Departmental Management

Audits of Working Capital Fund’s and Salaries and

Expenses Fund’s FY 1996 Financial Statements 

The OIG performed audits of the General Administration’s

Working Capital Fund (WCF) and Salaries and Expenses Fund (S&E)

financial statements as of and for the year ended September 30, 1996. This

was the fourth audit of the WCF under the CFO Act, and the second audit

of the S&E under GMRA. 

We issued an unqualified opinion on the WCF’s financial

statements for FY 1996. However, we issued a qualified opinion on the

S&E’s Statement of Financial Position as of September 30, 1996, and

disclaimed an opinion on its Statement of Operations and Changes in Net

Position for the year then ended. This is an improvement over the FY 1995

audit, in which the S&E received a disclaimer of opinion on its Statement of

Financial Position.

The two funds are operated by one management team under the

same internal control structure and procedures for compliance. Thus, our

reports on internal control structure and on compliance with laws and

regulations apply to both funds. Our internal control review of the funds for

FY 1996 disclosed seven reportable conditions, of which three were

considered to be material weaknesses. It should be noted that the majority of

the findings were repeat conditions and that one matter was raised from a

reportable condition to a material weakness from the prior year’s report.

The material weaknesses related to the need for management to

improve controls over inventory for the WCF, procedures to reconcile

Advances and Reimbursable obligation billings to actual costs for the S&E,

and controls over capital assets for both the WCF and S&E. Two of the

four reportable conditions identified the need to improve both funds’

procedures over accounts payable and procedures for the liquidation of

undelivered orders. The other two conditions addressed the need to

strengthen the basis for cost allocation rates and supporting documentation

for the WCF and to update or establish standard operating procedures for

both the WCF and S&E to ensure proper performance of assigned duties. 

Although progress has been made to improve the quality,

usefulness, and timeliness of annual financial and performance reporting,

significant internal control matters remain to be addressed by both funds. It

should be noted that the S&E only submitted a draft corrective action plan

during March 1997 for the findings and recommendations in its FY 1995

audit. (Financial Statements Audit Division: FSD-8873-7-0001)

 

 

 - 75 -
Departmental Management

Audit of the Gifts and Bequests Trust Fund’s 

FY 1995 Principal Statements

The OIG undertook an audit of the General Administration’s Gifts

and Bequests (G&B) Trust Fund’s Principal Statements as of September 30,

1995. This was our second CFO Act audit of the fund’s principal

statements. The fund was established to account for gifts and bequests that

the Secretary is authorized to accept under federal law.

In FY 1994 we were unable to complete the audit of the fund’s

principal statements for the year ended September 30, 1993, and accordingly, disclaimed an opinion on the principal statements due to scope

limitations (see September 1994 issue, page 62). We did not perform an

audit of the fund’s principal statements for the year ended September 30,

1994, because the Department’s bureaus had not had sufficient time to

implement our recommendations. However, we did contact each of the 13

bureaus to assess whether corrective actions had been taken to allow for an

audit of the fund, and confirmed that they had not. 

We again contacted the bureaus as part of a preliminary review for

our FY 1995 audit, and determined that little or no improvement had been

made in the accounting for gifts and bequests. Therefore, we deemed it

inefficient to perform an audit of the fund’s principal statements for the year

ended September 30, 1995.

During our preliminary review, we identified several reportable

conditions, including the need to improve coordination and oversight of the 

fund, controls over the accounting for G&B transactions, and preparation of

the financial statement package. We also noted that deposits should be made

under the G&B appropriation, and subsidiary ledgers should be maintained.

Shortly after the end of the semiannual period, the Department submitted,

and we concurred in, an audit action plan for correcting the deficiencies.

(Financial Statements Audit Division: FSD-8707-7-0001)

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

(DCAA).

 - 76 -
Departmental Management

In support of preaward contract audits, we:

! Provide assistance in identifying the need for preaward audits,

determine whether the data submitted in the audit package is

adequate and complete, and ensure that technical evaluations are

provided to the auditors, as needed.

! Monitor the progress of the audits and discuss the audit scope,

methodology, and results with the DCAA auditor.

! Review the audit reports for completeness and compliance with the

Department's requests.

! Attend negotiations of procurements for major systems whenever the

contracting officer requests our assistance.

Postaward contract audits are required by the Federal Acquisition

Regulation. We coordinate and monitor the processing of the reports on these

audits, also generally conducted by DCAA. During the first half of FY

1997, 33 audit requests were received and processed by the OIG: 

! 14 preaward audit requests with an audited value of $42,367,246.

! 3 postaward audit requests with an audited value of $2,006,357.

! 16 miscellaneous audit requests, including rate reviews and

accounting system reviews.

The number of processed audit reports issued totaled 14:

! 9 preaward audit reports cited $219,264 in potential funds to be put

to better use.

! 3 postaward audit reports.

! 2 special audit reports.

Recommendations made in 14 preaward contract audits were

resolved in contract negotiations, resulting in $364,763 in funds to be put to

better use. As of March 31, 1997, two preaward contract audits that were

issued before October 1996 had recommendations on which a final

management decision by the contracting officer had not been reported.

(Acquisitions Division)

Preaward Financial Assistance Screening

We continue to work with the Office of Executive Budgeting and

Assistance Management, NOAA and NIST grant offices, and EDA

program offices to screen all of the Department’s grants, cooperative

agreements, and loan guarantees before award. Our screening 

 - 77 -
Departmental Management

(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 552 proposed awards. On 19 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 the award agreement, or designated certain

recipients as “high risk” and required that the disbursement of federal funds

be on a cost reimbursement basis. (Office of Audits)

Preaward Screening Results

Results Number Amount

Awards delayed 4 $648,141

Special award conditions 1 $500,000

Cost reimbursement basis 14 $9,475,342

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 use on federal programs. Normally, the federal agency providing the

predominant direct funding is the cognizant agency. The Department has

authorized the OIG to negotiate indirect cost rates and review cost allocation

plans for each of its agencies. The OIG reviews and 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 37 indirect cost rate

agreements with nonprofit organizations and governmental agencies, and

reviewed and approved 22 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)

 - 78 -
Departmental Management

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 requirements for

audits of those entities.

During this semiannual period, we received 615 reports prepared by

nonfederal auditors. We also had 75 unprocessed reports from the last

semiannual period. For 348 of these reports, the Department is responsible

for monitoring compliance with the OMB circulars. The other reports are

from entities for which other federal agencies have oversight responsibility.

We examined 594 reports during this period to determine whether they

contained audit findings on any Department programs.

Report Category Number

Pending (September 30, 1996) 75

Received 615

Examined 594

Pending (March 31, 1997) 96

The following table shows a breakdown by bureau of the $285 million in

Commerce funds audited. 

Bureau Funds 

EDA $83,076,425

ITA 5,995,358

MBDA 2,730,137

NOAA 86,676,726

NTIA 11,516,748

PTO 492,790

TA 94,808,360

Total $285,296,544

 

 - 79 -
Departmental Management

We identified a total of $25,745 in questioned costs and $189,461

in funds to be put to better use. 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 by the

auditors. The eight reports with Commerce findings are listed in Appendix

B-1. (Atlanta Regional Office of Audits)

Audit Reports Unresolved for over Six Months

As of March 31, 1997, there was one financial statement audit

report with recommendations unresolved for more than six months. In that

report, General Administration’s Salaries and Expenses Fund Statement of

Financial Position as of September 30, 1995, FSD-8671-6-0001 (see

September 1996 issue, page 66), we were unable to issue an opinion on the

statement because the fund did not reconcile Advances from Others

transactions to the general ledger balance. The report also identified one

major internal control weakness and several reportable conditions. Shortly

after this semiannual period, the Department submitted an action plan,

which we are currently reviewing.

 - 80 -
Office of

Inspector General

TDD Number .................................. (202) 482-5897

OIG HOTLINE:

 Telephone .................... (202) 482-2495 or 1-800-424-5197

 Commerce E-mail ....................... OIG Hotline@OI@OIG

 Internet .................................. oighotline@doc.gov

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

Telephone Numbers

 

 - 81 -
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 83

5(a)(1) Significant Problems, Abuses, and Deficiencies 18-80

5(a)(2) Significant Recommendations for Corrective Action 18-80

5(a)(3) Prior Significant Recommendations Unimplemented 83

5(a)(4) Matters Referred to Prosecutive Authorities 18-80

5(a)(5) and Information or Assistance Refused 84

5(a)(6) Listing of Audit Reports 91-97

5(a)(7) Summary of Significant Reports 18-80

5(a)(8) Audit Reports—Questioned Costs 87, 90

5(a)(9) Audit Reports—Funds to Be Put to Better Use 88, 89

5(a)(10) Prior Audit Reports Unresolved 15, 84

5(a)(11) Significant Revised Management Decisions 16, 85

5(a)(12) Significant Management Decisions with Which the OIG Disagreed 85

 

 - 82 -
Reporting Requirements

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.

We commented on various legislative proposals during the semiannual period, including bills to establish both PTO and NOAA’s Seafood

Inspection program as performance-based organizations (see pages 57 and

50). In addition, we have made numerous recommendations relating to the

dismantling of the NOAA fleet (see page 2) and NOAA Corps (see page 3),

as well as a specific recommendation to amend the Magnuson-Stevens Act

to allow NMFS to collect fishery permit fees (see page 45).

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 March 31, 1997, based on semiannual status

reports due from the bureaus in mid-April. An accurate database is therefore

not available to the OIG for reference here. However, additional information

on the status of any audit recommendations may be obtained through the

OIG's Office of Audits.

 - 83 -
Reporting Requirements

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 March 31, 1997, three performance audits, one financial

assistance audit, one financial statements audit, and two preaward contract

audits were in this category, as discussed below. The unresolved financial

assistance audit was a processed A-133 audit.

Performance Audit

One unresolved report addresses NWS’s plans for streamlining its

headquarters and support operations staff. This report was resolved shortly

after the end of the semiannual period, as discussed on page 51. Another

report covered the NWS Tsunami Warning Program, and is discussed on

page 52. The third report addresses the recovery of costs for sponsored

research in the Office of Oceanic and Atmospheric Research; details can be

found on page 51.

Financial Assistance Audit

The unresolved audit relates to a NOAA financial assistance award.

An audit resolution proposal has been submitted; however, OIG-NOAA

discussions were not able to resolve the report on a timely basis. Additional

details are presented on page 52.

Financial Statements Audit

The unresolved audit involves General Administration’s Salaries

and Expenses Fund Statement of Financial Position as of September 31,

1995. Details can be found on page 80.

 - 84 -
Reporting Requirements

Preaward Contract Audits

The Department’s Audit Tracking System recorded two preaward

contract audits unresolved in excess of six months, including one presented

in the prior semiannual report. These audits, based on DCAA reviews of

contract proposals, are resolved when a contracting officer takes final action

on the pending procurement, such as awarding a contract or issuing a contract modification. Often, the procurement action will resolve multiple

audits involving competing proposals submitted in response to solicitations.

The two unresolved preaward contract audits are listed below.

! ADD-7348-5-0060, June 6, 1995

! 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 three 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.

 

 - 85 -
Tables and Appendixes

Tables Page

1. Audits with Questioned Costs 87

2. Audits with Recommendations That Funds Be Put to Better Use 88

3. Preaward Contract Audits with Recommendations That Funds Be Put to Better Use 89

4. Postaward Contract Audits with Questioned Costs 90

Appendixes

A. Office of Inspector General Reports 91

A-1. Performance Audits 91

A-2. Inspections 92

A-3. Financial Statements Audits 93

A-4. Financial Assistance Audits 94

B. Processed Reports 96

B-1. Processed Financial Assistance Audits 97

B-2. Processed Contract Audits with Questioned Costs or Funds to Be Put to Better Use 97

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.

- 86 -
Tables and Appendixes

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 13 $2,842,525 $1,167,475

B. Reports issued during the reporting period 15 4,787,979 874,042

Total reports (A + B) requiring a management

decision during the reporting period 28 7,630,504 2,041,517

C. Reports for which a management decision was made

during the reporting period 18 3,010,007 1,209,149

i. Value of disallowed costs 1,575,721 724,666

ii. Value of costs not disallowed 1,434,286 484,483

D. Reports for which no management decision had been

made by the end of the reporting period 10 $4,620,497 $832,368

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.

Two 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, those audits are listed in Table 4.

- 87 -
Tables and Appendixes

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 6 $125,029,715

B. Reports issued during the reporting period 12 139,755,164

Total reports (A + B) requiring a management decision during the

reporting period 18 264,784,879

C. Reports for which a management decision was made during the

reporting period 5 68,734,915

i. Value of recommendations agreed to by management 68,469,715

ii. Value of recommendations not agreed to by management 265,200

D. Reports for which no management decision had been made by the

end of the reporting period 13 $196,049,964

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.

Two 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.

- 88 -
Tables and Appendixes

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 12 $2,202,264

B. Reports issued during the reporting period 4 219,264

Total reports (A + B) requiring a management decision during the

reporting period 16 2,421,528

C. Reports for which a management decision was made during the

reporting period 14 1,943,438

i. Value of recommendations agreed to by management 364,763

ii. Value of recommendations not agreed to by management 679,048

iii. Value of reports on proposals that were not awarded contracts 907,227

D. Reports for which no management decision had been made by the

end of the reporting period 2 $478,090

Notes and Explanations:

Preaward audits of contracts include results of audits performed for the OIG by other agencies.

In Category B, all reports were prepared for the OIG by the Defense Contract Audit Agency.

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.

- 89 -
Tables and Appendixes

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 1 $2,508,364 $2,452,340

B. Reports issued during the reporting period -- -- --

Total reports (A + B) requiring a management decision

during the reporting period 1 2,508,364 2,452,340

C. Reports for which a management decision was made

during the reporting period 1 2,508,364 2,452,340

i. Value of disallowed costs 286,050 286,050

ii. Value of costs not disallowed 2,222,314 2,166,290

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.

- 90 -
Tables and Appendixes

Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 8 A-1

Inspections 6 A-2

Financial Statements Audits 15 A-3

Financial Assistance Audits 22 A-4

Total 51 

Appendix A-1. Performance Audits

Agency Subject Number Date

Funds to Be

Put to Better

Use

International Trade

Administration

Advocacy Center: Achievements Need Better

Documentation

TID-8375-7-0001 03/97 --

National Oceanic 

and Atmospheric

Administration

Expanded Vessel Buyout Program Is Not

Needed

ENT-8657-7-0001 01/97 $23,000,000

Weather Service Modernization Contract to

Be Reduced

ENT-8749-7-0001 03/97 6,300,000

Northwest Emergency Assistance Plan

Needs Focus 

STL-8518-7-0001 03/97 10,500,000

NMFS Should Pursue New Initiatives for Its

Fishery Programs

STL-8703-7-0001 03/97 95,000,000

National

Telecommunications

and Information

Administration

“Information Superhighway” Program

Oversight Strengthened

TID-8427-7-0001 01/97 --

Office of the

Secretary

Office of Acquisition Policy and Programs

Needs to Reevaluate Its Mission and

Organization

EDD-8279-7-0001 12/96 --

Commerce Employees Met AUO Criteria;

Approving Officials Should Document

Decisions

EDD-9290-7-0001 02/97 --

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Tables and Appendixes

Appendix A-2. Inspections

Agency Subject Number Date

Funds to Be

Put to Better

Use

Bureau of Export

Administration

Commerce’s Role in Administering the Defense

Priorities and Allocation System Needs

Strengthening

IPE-8716 03/97 --

National Oceanic

and Atmospheric

Administration

Geostationary Satellite Acquisition Strategy

Improved, but Store-in-Orbit Approach Needs 

Reevaluation

OSE-8784 03/97 --

Excess Funding in the Polar Orbiting Satellite

Program

OSE-8797 03/97 $101,300,000

Technology

Administration

Continued Progress of NIST’s Capital Improvements

Facilities Program Endangered by Certain

Inadequately Justified Plans and Decisions

IPE-8377(3) 02/97 --

NTIS’s Traditional Missions Are Well Run, but

Management Attention Is Needed for Its

Expansionary Activities

IPE-8497 03/97 --

Management and Procurement Deficiencies Related

to the CyberFile Project

IPE-9364 03/97 --

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Tables and Appendixes

Appendix A-3. Financial Statements Audits

Agency Subject Number Date

Bureau of Export

Administration

Financial Statements for FY 1996 FSC-8834-7-0001 02/97

Economic 

Development

Administration

Financial Statements for FY 1996 FSC-8837-7-0001 02/97

Economics and 

Statistics 

Administration

BEA’s and ESA’s Combined Financial Statements for

FY 1996

FSD-8874-7-0001 02/97

Census Financial Statements for FY 1996 FSC-8836-7-0001 02/97

International Trade

Administration

Financial Statements for FY 1996 FSC-8838-7-0001 02/97

Minority Business 

Development Agency

Financial Statements for FY 1996 FSC-8839-7-0001 02/97

National Oceanic 

and Atmospheric

Administration

Financial Statements for FY 1996 FSC-8841-7-0001 02/97

National

Telecommunications

and Information

Administration

Financial Statements for FY 1996 FSC-8842-7-0001 02/97

Office of the 

Secretary

Department of Commerce’s Consolidating Financial

Statements for FY 1996

FSD-9355-7-0001 03/97

General Administration’s Working Capital Fund and

Salaries and Expenses Fund Financial Statements for

FY 1996

FSD-8873-7-0001 02/97

Gifts and Bequests Trust Fund’s Principal Statements

as of September 30, 1995

FSD-8707-7-0001 10/96 

Patent and Trademark

Office

Financial Statements for FY 1996 FSD-8833-7-0001 02/97

Technology

Administration

TA Statement of Financial Position for FY 1995 and

Financial Statements for FY 1996

FSC-8835-7-0001 02/97

NIST Financial Statements for FY 1996 FSC-8840-7-0001 02/97

NTIS Financial Statements for FY 1996 FSC-8843-7-0001 02/97

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Tables and Appendixes

Appendix A-4. Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs 

Unsupported

Costs 

Funds to 

Be Put to

Better Use

Economic

Development

Administration

Fulton County, GA AT-8881-

7-0001 

10/96 -- -- $5,200

Charleston, SC, Hurricane Hugo

Project

AT-8588-

7-0001

12/96 $1,142,932 $33,956 --

Los Angeles County Community

Development Commission and the

Economic Development Corp., CA

STL-7625-

7-0001

01/97 1,350,589 -- 1,982,268

City of Mathis, TX DEN-7037-

7-0001

02/97 845,000 688,141 --

Clarion County Economic

Development Corp., PA

AT-8435-

7-0001

03/97 -- -- 865,934

Southern Development Council,

Inc., AL

AT-9265-

7-0001

03/97 -- -- 1,144,668

International Trade

Administration

Food Processing Machinery &

Supplies Association, VA

ADD-7756-

7-0001

11/96 48,191 6,423 --

Minority Business

Development Agency

Cordoba Corp. / LA MEGA Center,

CA

AT-8882-7-

0001

02/97 605,231 93,372 --

David J. Burgos & Associates,

Inc., MBDC, DC

AT-9283-7-

0001

03/97 16,132 -- --

National

Telecommunications

and Information

Administration

Public Library of Charlotte and

Mecklenburg County, NC

AT-8689-

7-0001

02/97 577,077 18,655 --

Technology

Administration -

NIST

Applied Parallel Technologies, Inc.

MA

DEN-8731-

7-0001

10/96 131,719 -- --

AlliedSignal, Inc., Ceramic

Components, CA

DEN-8825-

7-0001

10/96 -- -- --

GenCorp, OH DEN-8845-

7-0001

12/96 -- -- 767,633

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

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Tables and Appendixes

Appendix A-4. Financial Assistance Audits—Continued

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better

Use 

Technology

AdministrationNIST

Saginaw Machine Systems, Inc., MI DEN-9134-

7-0001

12/96 -- -- --

Nonvolatile Electronics, Inc., MN DEN-9207-

7-0001

12/96 -- -- --

North Carolina Alliance for

Competitive Technologies

DEN-9336-

7-0001

12/96 -- -- --

Macro International, MD DEN-9260-

7-0001

01/97 -- -- --

North Dakota Manufacturing

Technology Partnership

DEN-9337-

7-0001

01/97 -- -- --

Spire Corporation, MA DEN-9003-

7-0001

02/97 7,162 -- --

HelpMate Robotics Inc., CT DEN-9048-

7-0001

02/97 32,200 32,200 --

Communication Intelligence

Corporation, CA

DEN-9133-

7-0001

02/97 6,001 --

--

The Corporation for Manufacturing

Excellence, CA

DEN-9492-

7-0001

03/97 -- -- --

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

- 95 -
Tables and Appendixes

Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 610 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 A128 and A133 Audits

Contract Audits

Total

Preaward Postaward

Economic Development Administration 250 -- -- 250

International Trade Administration 9 -- -- 9

Minority Business Development Agency 9 -- -- 9

National Oceanic and Atmospheric Administration 41 9 4 54

National Telecommunications and Information

Administration

48 -- -- 48

Technology Administration 56 -- 3 59

Multi-Agency 59 -- -- 59

Agency Not Identified 122 -- -- 122

Total 594 9 7 610

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Tables and Appendixes

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

City of South Bend, IN ATL-9999-7-0074 12/96 -- -- --

BCKP Regional Intergovernmental Council, WVATL-9999-7-0072 03/97 -- -- $65,773

Old Colony Planning

Council, MA

ATL-9999-7-0295 03/97 -- -- 5,810

Upper Cumberland

Development District, TN

ATL-9999-7-0018 03/97 $16,220 -- --

Upper Savannah Council of

Governments, SC

ATL-9999-7-0514 03/97 -- -- 117,878

National

Oceanic and

Atmospheric

Administration

University of Hawaii ATL-9999-7-0042 12/96 2,493 -- --

Woods Hole Oceanographic

Institution, MA

ATL-9999-7-0491 03/97 5,737 -- --

Technology

Administration

Lamb Technicon, MI ATL-9999-7-0614 03/97 1,295 $1,295 --

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

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

ARA-8350-7-0004 Preaward 11/96 -- -- $52,528

ARA-8350-7-0007 Preaward 12/96 -- -- 63,202

ADM-8350-7-0011 Preaward 01/97 -- -- 52,684

ADM-8350-7-0012 Preaward 01/97 -- -- 50,850

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 89.

- 97 -
Glossary of Abbreviations

AML .............................................................. Advanced Measurement Laboratory

ASOS ............................................................ Automated Surface Observing System

ATP ................................................................. Advanced Technology Program

ATPA .......................................................... American Technology Preeminence Act

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 

CPA ..................................................................... certified public accounting

DCAA ................................................................ Defense Contract Audit Agency

DPAS ......................................................... Defense Priorities and Allocation System

EDA ........................................................... Economic Development Administration

ESA .......................................................... Economics and Statistics Administration

FAA ................................................................. Federal Aviation Administration

FSL ..................................................................... Forecast Systems Laboratory

G&B ........................................................................... Gifts and Bequests

GMRA .......................................................... Government Management Reform Act

GOES .................................................. Geostationary Operational Environmental Satellite

GPRA ........................................................ Government Performance and Results Act

IG .............................................................................. Inspector General

IRS ....................................................................... Internal Revenue Service

ITA ................................................................ International Trade Administration

MBDA ......................................................... Minority Business Development Agency

MEGA ......................................................... Minority Enterprise Growth Assistance 

NASA .................................................... National Aeronautics and Space Administration

NEAP ........................................................... Northwest Emergency Assistance Plan

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

OAPP ........................................................ Office of Acquisition Policy and Programs

OIG ...................................................................... Office of Inspector General

OMB ............................................................... Office of Management and Budget

OTIA .......................................... Office of Telecommunications and Information Applications

PBO ................................................................. performance based organization

POES .................................................. Polar-orbiting Operational Environmental Satellite

PTO ................................................................... Patent and Trademark Office

RLF ............................................................................ revolving loan fund

S&E ......................................................................... Salaries and Expenses

TA ..................................................................... Technology Administration

US&FCS ......................................................... U.S. and Foreign Commercial Service

WCF ........................................................................ Working Capital Fund

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