Office                of Inspector Inspector General General
 

Fiscal Year 2009 


Management Letter to the 


Financial Statements 


A10-01A 


March 2010 

FEDERAL MARITIME COMMISSION 

FEDERAL MARITIME COMMISSION 

800 North Capitol Street, N.W. 

Washington, DC 20573 

March 2, 2010 

Office of Inspector General 

TO: Richard A. Lidinsky Jr. 

Chairman 

FROM: /Adam R. Trzeciak/ 

Inspector General 

SUBJECT: Transmittal of the FY 2009 Management Letter 

When performing an audit of an agency’s major financial systems and accounting 

processes, auditors often detect deficiencies in internal controls that do not rise to a level 

of seriousness to be reported in the auditor’s opinion. These findings are communicated 

to the auditee in a management letter. Attached is a copy of the FY 2009 Financial 

Statement Management Letter that reports on such findings. 

During the annual review, findings within the same general area as earlier 

findings are likely to occur. Consequently, the management letter begins with reporting 

on the status of prior year findings. This is not necessarily an indication that management 

is not addressing these issues. Rather, it reflects that certain areas are vulnerable to 

accounting errors or system breakdowns and need constant oversight. 

This year’s management letter contains the status of two prior-year findings and 

five new findings. 

The OIG will continue to review areas vulnerable to accounting error and report 

any findings in next year’s management letter. 

I am available to discuss the letter at your convenience. 

Attachment 
March 1, 2010 

Federal Maritime Commission 

Washington, D.C. 

In planning and performing our audit of the financial statements of the Federal Maritime 

Commission (FMC) as of September 30, 2009, in accordance with auditing standards generally 

accepted in the United States of America and Government Auditing Standards, issued by the 

Comptroller General of the United States, we considered the FMC’s internal control over financial 

reporting as a basis for designing our auditing procedures for the purposes of expressing our opinion 

on the financial statements, and not for the purpose of expressing an opinion on the effectiveness of 

the agency’s internal control. However, based on our audit, we are providing the following findings 

and recommendations. 

Prior Year Findings - Updated 

Finding 1. Agency floor on erroneous payments is set too low 

Commission Order 78, Collection of Erroneous Payments Made to or On Behalf of Commission 

Employees, (erroneous payments policy) sets forth the procedures for the recovery of erroneous 

payments. An erroneous payment is defined as a payment made that should not have been made 

or an overpayment, and may be due to procedural or administrative errors. 

The agency’s Deputy Director of Administration (DDA) is responsible for the determination of 

indebtedness. When an erroneous payment is made, the Director, Office of Financial 

Management (OFM), prepares a detailed statement of the facts and circumstances causing the 

erroneous payment. The DDA validates the debt based on information furnished by the OFM 

Director. The Chairman is the only agency employee authorized to consider a waiver of 

collection of the payment upon request from the employee. 

It is the Commission’s policy to take action to recoup all erroneous payments in excess of $1.00. 

During our fieldwork on the FY 2008 financial statement audit, the OIG reviewed documentation 

relating to controls over erroneous payments. The OIG learned of an erroneous claim made by 

an employee on a travel voucher. Due to a procedural error by the agency, the traveler had been 

paid the claimed amount before OFM had completed its inquiry. The amount erroneously paid 

was $15. 
 

 

 

 

This transaction generated several e-mails and discussions that ultimately focused on per diem 

claims (deductions for a vendor-provided meal) and the timing of OFM’s inquiry – much of it 

coming after the claim had been paid. OFM told the OIG that agency policy to seek to recoup all 

claims over $1.00 left it little flexibility, notwithstanding the de minimus amount in question. 

We are not questioning the actions of either party concerning this transaction. However, we 

believe the episode highlights the need to revisit the agency’s erroneous payments policy. It is 

difficult to imagine any scenario where the agency comes out ahead by aggressively seeking to 

collect a few dollars owed to it because of mistake or error. Rather, management needs the 

discretion to forgive small claims made in error (without involving the FMC Chairman) while 

continuing to pursue intentional false claims, regardless of the amounts involved. 

Neither OFM nor the OIG believe that this individual attempted to defraud the federal 

government. The employee was a first-time traveler who was not familiar with all federal travel 

regulations. The traveler was intimidated by sanctions for submitting false claims (fines and/or 

imprisonment) and laboriously researched this case. For its part, OFM followed the agency’s 

policies on vendor-provided meals and erroneous payments. 

To resolve this $15 claim, the OIG estimates that the agency (OFM, the traveler, and the 

traveler’s coworkers and supervisor) spent 25 hours in research and discussions.1 If all involved 

were paid at a fully loaded average rate of $75 an hour (both conservative estimates), we 

calculate that the agency spent over $1,500 to recover $15, or $100 for each $1 recovered. While 

we do not underestimate the deterrent effect of OFM actions on future, would-be violators, we 

believe that the costs to the agency to enforce a policy that seeks to recoup $1.00 far exceed its 

benefits.2 

FY 2008 Recommendation: The OIG recommends that the Office of Administration seek 

Commission approval to revise Commission Order 78, Collection of Erroneous Payments Made 

to or On Behalf of Commission Employees, to give the Director of Administration the authority 

to forgive erroneous payments of $25 or less. 

FY 2009 Follow-up: The OIG noted that Commission Order 78 was revised to include the $25 

limit. This comment is considered closed. 

Finding 2. The Office of Management Services is not optimally using the agency’s 

procurement services provider 

The FMC contracted with the Bureau of Public Debt, Administrative Resource Center 

(BPD/ARC) to provide accounting, travel and procurement services to the agency. BPD/ARC 

charges for services based on actual direct and indirect costs of providing services in accordance 

with an agreed-upon cost schedule. The cost schedule is updated at the beginning of each annual 

service period. Costs are set for the service period, regardless of the number of transactions 

BPD/ARC processes on behalf of the FMC. 

1

 OIG estimates are based in large part on a log maintained by the traveler documenting hours spent researching and
 

discussing the case with coworkers. 2 We believe that our calculated estimate of agency costs to resolve this $15 transaction is not representative of all 

erroneous payment resolution costs. 

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During our review, the OIG focused on the procurement-related services provided to the agency 

by BPD/ARC, specifically simple acquisitions support. According to the Federal Acquisition 

Regulation (FAR) 2.101, simplified acquisitions consist of any acquisitions under $100,000, with 

some exceptions. Specific services provided by BPD include maintaining purchase order files, 

issuing guidance to agency staff on purchasing methodologies to obtain needed goods or 

services; and preparing acquisition purchase descriptions, work statements and final awards. 

In FY 2008, the BPD’s cost to provide acquisition support to the FMC was $134,571. This 

amount includes both transaction-based and overhead costs. Transaction costs are extrapolated 

from prior year procurement activity, and include full-time equivalent (FTE) labor as well as 

procurement system usage. Overhead costs include system labor support, PRISM application 

and underlying support software fees, as well as other components, such as network, firewalls, 

telecommunications, etc. FMC procurement costs are broken down as follows: 

BPD FY2008 Procurement Costs Breakdown 

Procurement Services....................................................................................................$ 72,600 

Procurement System Services ....................................................................................... 35,160 

OIT Costs ...................................................................................................................... 26,811
 

Total ..................................................................................................................$ 134,571
 

The OIG notes that the $72,600 Procurement Services costs represent the direct labor paid (i.e., 

FTE) to BPD for processing procurement transactions. The remaining amount ($61,971) 

represents FMC’s costs for using BPD systems. The latter cost remains essentially constant, 

regardless of who (BPD or FMC) uses the system to process a procurement transaction. 

The OIG researched procurement information from the agency’s on-line procurement system, 

PRISM, to identify and compare the number and dollar amount of FY 2008 transactions 

processed by BPD with the number processed in-house, i.e., by FMC’s Office of Management 

Services. The following tables summarize our findings: 

BPD/ARC OMS/FMC 

Number of Transactions 

Original Orders: 29 144 

Amendments: 27 110 

Total: 56 254 

Transaction Dollar Amounts 

Original Orders: $ 916,340 $ 1,488,744 

Amendments: 674,525 3,949,257 

Total: $ 1,590,865 $ 5,438,001 

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The agency paid $72,600 to BPD for direct labor to process 56 transactions, or $1,300 per 

transaction processed. 3 Further, the FMC processed over four times as many transactions as did 

BPD and the average dollar value for transactions processed at BPD was greater than those 

processed at FMC ($33,389 vrs. $21,409). Finally, 29 percent of all BPD-processed transactions 

were processed in the last two months of the fiscal year, compared with 44 percent of OMSprocessed transactions. 

In a May 2007 audit report, the OIG recommended that management “consider transferring 

Office of Administration’s (OA) contracting function to the Bureau of Public Debt.” 4 The 

recommendation was made in response to weaknesses identified in the agency’s procurement 

process. In its comments on the audit, management informed the OIG that “procurement 

requests above the $5,000 threshold are now sent to the Bureau of Public Debt for procurement 

action.” 5 Notwithstanding, the OIG identified 76 actions that exceeded the $5,000 threshold 

that were processed by OMS in FY 2008, with 33 processed in the first 10 months of the fiscal 

year. 

The OIG believes that OMS is not using BPD acquisition services optimally and is not 

complying with its earlier response to rely on BPD to process transactions exceeding $5,000. In 

prior discussions, OMS told the OIG that BPD would not process transactions that it receives 

with less than 60 days remaining in the fiscal year (to allow sufficient time for competitive 

bidding). BPD staff confirmed this standard, but also indicated that it is to be applied on a caseby-case basis. For example, as noted above, 29 percent of all FY 2008 transactions sent to BPD 

were processed in the final two months of the fiscal year. 

FY 2008 Recommendation: The OIG recommends that the Office of Management Services 

establish quotas for simple acquisitions to be processed by BPD/ARC, increasing by at least 10 

percent each year. 

FY 2009 Follow-up: On December 15, 2009, management told the OIG that the 

recommendation had been implemented. Upon review of management’s supporting 

documentation, we determined that the agency submitted to BPD the same number of simplified 

procurement actions in FY 2009 as it did in FY 2008. We questioned management’s conclusion. 

In management’s February 19, 2010, response to this finding, it concluded that, notwithstanding 

earlier certification to the OIG that the recommendation had been implemented, “this 

recommendation would not be beneficial to the Commission.” The response points out that the 

price for BPD’s services each succeeding year is based on the amount of services used the 

previous year. Accordingly, increasing transactions would result in higher costs. Further 

assigning a quota to insure increases in transactions sent to BPD each year for processing “is 

arbitrary and assumes that the Commission will process an ever growing number of transactions 

each year.” For these reasons, the Managing Director concluded that his office could not justify 

implementing the recommendation. 

3

 Of the 56 transactions, the OIG identified six contract actions (which generally require more labor effort to 

process), 22 small purchases averaging $33,389 per transaction, and 28 interagency transactions which, according to 

BPD, require little time or effort to process. 

4

 Audit of Contracts FMC-05-00021 and FMC-06-00007, Procurement of Consulting Services, A07-02 5

 Management comments to A07-02, April 23, 2007, p. 2. 

- 4 -
 

 

   

As our finding points out, a little less than half of the total costs paid to BPD are essentially 

fixed, i.e., they are based on system usage time that will accrue whether BPD or FMC staff 

process a procurement transaction. Another consideration not mentioned by management but 

discussed in our original finding is the burden on FMC staff (one staff dedicated to procurement 

and one staff performing procurement responsibilities among other duties). In two previous 

reports, the OIG identified weaknesses in the agency’s acquisitions process.6 Sending 

procurement requests to BPD would address many of our concerns identified therein. 

Admittedly, the OIG has noted improvements in acquisitions since the issuance of prior audit 

reports and we are willing to give management the benefit of the doubt regarding its ability to 

process procurement requests following Federal Acquisition Regulation requirements in house. 

However, we will closely monitor these transactions and revisit this recommendation if we 

identify a return to past practices. This comment is considered closed. 

Current Year Findings 

Finding 3. Accounts Payable are understated 

Accounts payable (or payables) represent amounts owed for purchases of goods or services. 

During the year, payables are recorded when an invoice, packing slip or receiving report is 

received by the agency. The Office of Management Services (OMS) reviews all obligations at 

year-end and establishes an accrual for all services and goods received by year-end (e.g., to 

recognize that money is owed in the period that the goods were received). For example, an 

invoice for computer monitors that were delivered on September 15 (FY 2009) may not be sent 

by the manufacturer until October 10 (FY 2010). The expense should be recorded on the FY 

2009 books because the monitors were received in FY 2009. 

We reviewed accounts payable at year-end to ensure that all expenses for goods and services 

were properly recorded in the appropriate period. During our review, we identified 

approximately $94,000 in additional FY 2009 payables that were not recorded by the agency. 

Without making the necessary adjustments, the payables were erroneously recorded as FY 2010 

expenses, even though the goods or services were received in FY 2009. This understated the 

FMC’s liabilities on its financial statements. 

Identifying expenses when they occur near the end of the fiscal year is a two-step process 

requiring agency staff (generally finance or procurement staff) (i) to identify large contract and 

purchase items and to follow-up with the Contracting Officer’s Technical Representatives 

(COTR) or other contact points to inquire whether the goods were received, and (ii) to estimate 

the dollar amount of services or goods that were received since the prior invoice up through the 

end of the fiscal year (September 30). The amounts are then accrued as payables. 

6 See Audit of Contracts FMC-05-00021 and FMC-06-00007, Procurement of Consulting Services, (A07-02) and 

Presidential Appointee Furniture Purchases (A08-04). 

- 5 -
Under this standard operating procedure, OMS identifies all procurements over $10,000 at year 

end then contacts the COTR to determine any amounts that should be accrued. The OIG noted 

that OMS staff sent a letter to all COTRs requesting this accrual information but only half 

responded. The remaining COTRs either did not respond or did not provide the needed 

information. 

The OIG also noted that when COTR responses indicated that accruals were required, the 

accruals were not always made. According to OMS staff, she informed BPD finance staff but 

did not follow up to verify the amounts were recorded. Generally, agency finance staff is 

responsible for all accounting functions; however, the FMC’s Office of Budget and Finance 

(OBF) is not involved in the year end accrual process. 

FY 2009 Recommendation: Consistent with best practices at other federal agencies, the OIG 

recommends that OBF assume responsibility for contacting COTRs to ensure that all accruals are 

identified and recorded on agency books and records. OBF should also establish procedures to 

follow-up with COTRs to ensure that all COTRs respond to the request letter and that the 

appropriate accruals are made. 

Finding 4. Close out procedures on contracts need improvement 

Obligations represent the amount of orders placed, contracts awarded, services received, and 

similar transactions during a given period that will require payment during the same or future 

periods. Undelivered orders are obligations that are awaiting the receipt of the goods or services 

ordered before funds are paid. During the normal course of business, officials may cancel an 

obligation (i.e. undelivered order) that is no longer needed. An example of a service that is 

frequently canceled after an obligation has been established is travel. Once canceled, the funds 

may be used for other purposes, subject to appropriation limitations. 

Periodically, and at the end of each fiscal year, federal agencies are required to reconcile their 

obligation controlling accounts to the total amount posted to supporting records. In addition, 

program and support offices are to review obligations to determine whether the amount obligated 

on the books is a valid commitment of funds. In the absence of adequate system controls to 

perform deobligation of invalid or unneeded orders, obligations will both accumulate and remain 

open until they expire (i.e. 5 years). In certain situations these funds, if deobligated timely, may 

be used for other contracts. 

The OIG reviewed 10 undelivered orders to ensure payables were properly recorded (see Finding 

3). During this review, we identified one FY 2008 undelivered order for $155,850 where 

services were completed and the amount remained in undelivered orders at September 30, 2009. 

The amount was deobligated in FY 2010 and returned to Treasury after identification by the 

OIG. While it did not appear that these funds could have been used for other unmet agency 

needs because the order was issued in FY 2008 and services were provided in FY 2009, the 

discipline to deobligate funds timely, i.e., within the fiscal year the funds are obligated, will 

provide the agency the flexibility to use funds where they are needed. 

- 6 -
FY 2009 Recommendation: The OIG recommends that the Office of the Managing Director 

establish contract closing procedures where COTRs notify OMS and OBF staff when contracts 

are completed so deobligation can be made timely and funds used to meet other agency needs 

when appropriate. The OIG also recommends that OMS provide training for COTRs on this 

procedure. 

Finding 5. Formal procedures needed to account for internal use software 

The mission of the Federal Accounting Standards Advisory Board (FASAB) is to promulgate 

federal accounting standards after considering the financial and budgetary information needs of 

citizens, congressional oversight groups, executive agencies, and the need of other users of 

federal financial information. In June 1998 FASAB issued standard number 10, “Accounting for 

Internal Use Software.” This standard identifies when to capitalize costs of software developed 

or obtained for internal use. This includes the software used to operate an entity’s programs 

(e.g., financial and administrative software, including that used for program management). In 

this standard there are three phases (i.e. preliminary design phase, software development phase, 

and Post-Implementation/Operational phase) of development of software. These phases 

establish the standards of when and how software should be capitalized. 

During the financial statement audit the OIG identified that the agency will begin developing in 

FY 2010, two new software programs, including a new optical electronic method for filing Form 

FMC-18, “Application for a License as an Ocean Transportation Intermediary” and 

teleconferencing software. Although the agency plans to develop these software programs there 

is not a formal procedure on how the agency will capture costs associated with these programs. 

FY 2009 Recommendation: OBF, in consultation with OMS, should establish procedures on 

how costs will be accumulated for these programs and work with the COTRs in accumulating the 

costs. The costs then should be capitalized or expensed and reported on the agency’s financial 

statements as appropriate. 

Finding 6. Improvements needed in quality assurance review of Management’s Discussion 

and Analysis 

The agency prepares and submits its Performance and Accountability Report (PAR) on an annual 

basis to the Office of Management and Budget (OMB). In this report the agency must complete 

a Management Discussion and Analysis (MD&A). This section includes items such as the 

President’s Management Agenda, Financial Performance overview, and Financial Highlights. 

The Financial Highlights section includes a review of the agency’s financial statements and 

explanations of changes occurring to the financial statements. 

OBF and its staff members are integrally involved in the preparation of the PAR. The short time 

frame for compilation of the PAR limits the availability for the quality assurance (QA) review 

process. Further, the “over familiarity” with the details by staff compiling the PAR can be 

counterproductive when the QA review process commences. 

- 7 -
During our financial statement audit the OIG noted that QA procedures were not adequate to 

ensure that errors would be discovered in the MD&A before issuance of the PAR. When the 

OIG reviewed a draft of the MD&A several errors were discovered that included formatting 

errors, addition errors and financial information that was inconsistent with the agency’s financial 

statements. 

FY 2009 Recommendation: The OIG recommends that the Office of the Managing Director 

establish a quality control review of the MD&A that reviews for mathematical errors, formatting 

and consistency with the financial statements and footnotes. 

In management’s response (attached to this report), the Managing Director stated that, moving 

forward, he would “provide information to the OIG only when the MD&A is complete. Although 

this will limit the time available for the OIG to review the document for substance, and for 

changes to be made to reflect OIG concerns, OIG will have an accurate document to review. 

This will be accomplished by October 31, 2010...” 

As the OIG pointed out to management, providing the MD&A by October 31 of each year would 

be an improvement in timing – not a limitation as management’s response suggests. For 

example, during the FY 2009 review of the PAR, the OIG received a copy for audit on 

November 5, 2009. Due to statutory deadlines, we had only a few days to complete our tests and 

review of the information in the MD&A. This past year, our review found numerous errors of an 

accounting nature that, in the usual course, would be identified in management letter. The OIG 

looks forward to receiving the MD&A by October 31 of each year. 

Finding 7. Agency program officials risk unauthorized commitments and anti-deficiency 

violations when purchase orders are signed after services begin 

Federal Acquisition Regulation (FAR) 1.602-3, defines an unauthorized commitment as an 

agreement that is not binding - solely because the government representative who made it lacked 

the authority to enter into that agreement on behalf of the government. 

Section 13(g) of Commission Order 112, Procurement, states that no employee shall enter into a 

formal or informal agreement to acquire services unless that employee has been delegated 

specific written authority to do so. The requesting office must not direct a contractor to perform 

services prior to being notified that a requisition has been approved. 

The Anti-deficiency Act prohibits federal agencies from obligating or expending federal funds in 

advance or in excess of an appropriation or apportionment. An Anti-deficiency Act violation 

occurs when government officials make payments or commit the United States to make 

payments at some future time for goods or services when there are insufficient funds in the 

appropriation to cover the cost in full. 

During our fieldwork, the OIG identified a number of unauthorized commitments by FMC 

managers and staff involving transactions processed in house and by the agency’s procurement 

service provider, the Bureau of Public Debt. These transactions involved purchase orders for 

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services that were “signed off” by the contracting officer (CO) after the period of service had 

already begun.7 For example, 

•	 The agency entered into a contract with a vendor to provide court reporting and 

transcription for Commission meetings. The order was signed by the contracting 

officer on November 7, 2009. Before funds were obligated, the vendor provided 

services for two Commission hearings on October 15th and 29th, 2009. 

•	 The agency signed a contract (order) for cell phone services on December 3, 

2008, for services received in October 2008 and November 2008. 

•	 An order for document scanning services was signed by the contracting officer on 

June 13, 2009. However, the vendor provided daily services to the Commission 

in March 2009 through June 2009. 

•	 A vendor provided keycard monitoring and maintenance services to the agency 

beginning on October 1, 2008. The contracting officer signed the order for these 

services on November 18, 2008. 

In all of the above unauthorized commitments, the agency received services without a valid 

obligating document in place. This puts the vendor, the COTR and the agency at risk. The 

vendor is at risk of not being paid for services provided; the COTR is at risk of being personally 

liable for payment of these services and for an Anti-Deficiency Act violation if funds are not 

provided by Congress to fund the activity; and the agency at risk of a costly lawsuit if the vendor 

was told to provide the service by agency personnel. 

One cause for late authorization of purchase orders is the timing of the procurement request (PR) 

by program staff. Section 8(a) of Commission Order 112, Procurement, requires staff to prepare 

a PR form to initiate the acquisition of a product or service and to route it through the FMC’s 

automated procurement and contracting system for concurrence/approval at the required FMC 

management levels prior to being submitted to the CO for any appropriate action. Further, all 

PR’s shall include sufficient information and lead time to allow for preparation of the 

procurement material (e.g., purchase order) in compliance with FAR time and content 

requirements. 

For the four orders identified above, the OIG noted that PRs for three of the four orders were 

dated after the beginning of the performance period. The remaining PR was submitted one day 

before the performance period, as the following table illustrates: 

PROCUREMENT PURCHASE PERFORMANCE 

SERVICE REQUEST ORDER PERIOD 

Court Reporting 09/30/08 11/07/08 10/01/08 

Cell Phone 10/15/08 12/03/08 10/01/08 

Document Scanning 06/04/08 06/13/08 03/06/08 

Keycard Monitoring 11/12/08 11/18/08 10/01/08 

7

 According to FAR 2.101, a purchase order is an offer by the Government to buy supplies or services upon 

specified terms and conditions, using simplified acquisition procedures. 

- 9 -
It is unclear why managers are submitting purchase requisitions after the performance period has 

already begun. Based on discussions with staff, it appears that, in some of the cases, the timing 

of vendor invoices may contribute to some of the delay. Agency managers often know in 

advance when the agency will be billed for a service. For services that bill at the end of each 

quarter, we were told that that PRs and orders are often prepared just prior to invoicing. 

However, waiting to obligate funds means that services are being provided to the agency without 

funding authority, which creates risks to the vendor and the agency, as discussed above. 

We also noted that, in all cases, the agency was operating under a continuing resolution (CR) at 

prior year funding levels. During these periods, it cannot obligate funds for a full year to a 

vendor due to funding uncertainty. Rather, the agency will “incrementally” fund an activity for 

some period of time not exceeding the CR. When interim funding runs out, or when a new CR 

or appropriation bill is enacted, program staff must revise the order for services to, again, 

obligate funds. Unless COTRs actively monitor the funding timeframes in the purchase order, 

they are unlikely to prepare PR’s (and by extension, purchase orders) timely. 

Regardless of managers’ intent to spend funds cautiously during CR funding, it is important to 

have purchase orders in place at the beginning of the period of performance because the purchase 

order obligates funds for the activity. This ensures that funds will be available to pay for 

services received, regardless of when the agency is billed. 

The OIG commends management for recognizing the seriousness of this issue. On February 4, 

2010, the FMC’s Managing Director spoke to FMC participants at the annual COTR refresher 

training about the need to monitor funding to avoid unauthorized commitments. 

FY 2009 Recommendation: The OIG recommends that the Managing Director establish a 

procedure to notify COTRs when funding on purchase orders are about to expire to assist them to 

submit timely purchase requests to continue funding. 

We believe that the implementation of these recommendations will provide the Federal 

Maritime Commission with a stronger system of internal controls while also making its 

operations more efficient. We will be happy to discuss the details of these recommendations 

with you and assist in any way possible with their implementation. 

Management comments to this letter are attached in their entirety. 

While this report is intended solely for the information and use of the management of the 

Federal Maritime Commission, it is also a matter of public record, and its distribution is, 

therefore, not restricted. 

Rockville, Maryland 

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UNITED STATES GOVERNMENT FEDERAL MARITIME COMMISSION
 

Memorandum
 

TO : Inspector General DATE: February 19, 2010

FROM : Managing Director

SUBJECT : FY 2009 Financial Statement Management Letter

I have reviewed the recommendations contained in the instant Management Letter. Please note 

that while this Management Letter was presented to the Office of Administration, that office was 

abolished during the recent reorganization of the Commission. The Office of the Managing 

Director is therefore submitting these corrective actions which will be effected to address the 

recommendations. 

Management Letter Recommendation #1 (Finding 2).

FY 2008 Recommendation: The OIG recommended that the Office of Management Services

establish quotas for simple acquisitions to be processed by BPD/ARC, increasing by at least 10

percent each year.

FY 2009 Follow‐Up: On December 15, 2009, management responded that the

recommendation had been implemented. Upon review of management’s supporting

documentation, we determined that the agency submitted to BPD the same number of

simplified procurement actions in FY 2009 as it did in FY 2008. The recommendation remains

open and will be reported as such in the OIG’s Semiannual Report to Congress in April 2010.

Response: After further reviewing the recommendation, and evaluating the benefits and

detriments of implementing quotas for increasing acquisitions processed by BPD/ARC, it has

become clear that this recommendation would not be beneficial to the Commission.

Accordingly, I am retracting the original 2008 concurrence of the Office of Administration with

the recommendation.

A quota increasing the number of transactions processed by BPD each year could result in

increased future year costs to the Commission. The recommendation is predicated on the

finding that, in any given fiscal year, the Commission has a fixed price contract for BPD services,

no matter how many transactions are processed. Under your rationale, the more transactions

processed by BPD, the lower the cost per transaction, thereby benefitting the Commission. As

your finding also recognizes, however, the price for BPD’s services each succeeding year is

based on the amount of services used the previous year. Accordingly, increasing the number

of transactions in any given year will result in a higher price to the Commission in the following

year. To implement a quota increasing the use each year would, then, result in ever increasing

total costs year after year, rather than a cost saving. Moreover, a quota increasing the number
                         

                                  

                             

                             

                             

                               

                           

                           

                     

   

              

                         

               

                   

                         

                             

                               

                         

                       

                         

                           

                            

                          

                            

                               

                             

                         

                                     

                          

   

                           

                              

                           

                           

                           

                           

of transactions by 10 percent annually is arbitrary and assumes that the Commission will

process an ever growing number of total transactions each year. In the long run, there is no

benefit to the Commission establishing such a quota. In this regard, the value to the

Commission of using BPD is the need for expertise regarding fiscal and contractual matters, in

view of the Commission’s limited resources in that area. On any individual transaction, a

variety of factors may be considered in determining whether to process it in‐house or to use

the services of BPD. Such factors include timeliness and urgency, complexity, exigencies of

Continuing Resolutions and their impact on incremental funding, and the degree of control that

the Commission must exercise in ensuring that the contractor fully understands the

Commission’s needs.

Consequently, we cannot justify implementing your recommendation. Individual transactions

will continue to be evaluated as to the means most advantageous to the Commission,

considering available resources. We consider this matter closed.

Management Letter Recommendations #2 and #3 (Findings 3 and 4).

FY 2009 Recommendation: The OIG recommended that the OFM assume responsibility for

contacting COTRs to ensure that all accruals are identified and recorded on agency books and

records. OFM should also establish procedures to follow up with COTRs to ensure that all

COTRs respond to the request letter and that the appropriate accruals are made.

FY 2009 Recommendation: The OIG recommended that OA establish contract closing

procedures where COTRs notify OMS and OFM staff when contracts are completed so

deobligations can be made timely and funds used to meet other agency needs when

appropriate. The OIG also recommends that OMS provide training for COTRs on this procedure.

Response: Each COTR, when appointed, receives a COTR appointment letter, which details the

major responsibilities of the COTR in monitoring each contract. It is the responsibility of every

COTR to notify OMS and OFM (now Office of Budget and Finance (OBF)) with respect to

accruals and payment information. The OIG found that COTRs, as a group, have been

somewhat dilatory in performing their responsibilities, even when follow‐up has been made by

OBF or OMS. Since OBF has followed up with COTRs to little avail, it seems that the OIG

recommendation would be insufficient to correct this problem. Accordingly, we have taken the

following steps.

First, refresher training emphasizing this and other problems was provided to all COTRs on

February 4, 2010. All of the COTR‐related issues described in this FY 2009 Management Letter

were addressed during the on‐site training. In addition, with the reorganization of the

Commission that was effective on January 31, 2010, responsibility was assigned to an individual

within OMS to coordinate with agency contracting personnel, with OBF and with COTRs to

follow‐up and ensure that timely and appropriate accruals are made and that contracts are

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properly and timely closed. That individual, a former OIG staff official, will be designing

procedures to ensure timely compliance.

We will also be imposing a requirement that COTRs be rated as to their performance in their

annual performance evaluations, even when their COTR responsibilities are a minimal part of

their performance plans.

New procedures will be in place by September 30, 2010.

Management Letter Recommendation #4 (Finding 5).

FY 2009 Recommendation: The OIG recommended that OFM, in consultation with OMS,

should establish procedures on how costs will be accumulated for these programs (internal use

software) and work with the COTRs in accumulating the costs. The costs then should be

capitalized or expensed and reported on the agency’s financial statements as appropriate.

Response: OBF and OMS are working closely together to determine how costs will be

accumulated and to determine whether costs should be capitalized or expensed. Once it is

determined which costs will be capitalized, the SOP will be revised accordingly. It is anticipated

that this determination will be made by September 30, 2010.

Management Letter Recommendation #5 (Finding 6).

FY 2009 Recommendation: The OIG recommended that the Office of Administration establish

a quality control review of the MD&A that reviews for mathematical errors, formatting and

consistency with the financial statements and footnotes.

Response: In order to effect early coordination with the OIG, an early draft of the MD&A was

provided to the OIG in order to obtain expedited consultation. This draft, as an early stage

document, admittedly contained several errors. Since this is a problem for the OIG, in the

future the Managing Director will provide information to the OIG only when the MD&A is

complete. Although this will limit the time available for the OIG to review the document for

substance, and for changes to be made to reflect OIG concerns, OIG will have an accurate

document to review. This will be accomplished by October 31, 2010, with the upcoming

submission of the MD&A for FY 2010.

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Management Letter Recommendation #6 (Finding 7).

FY 2009 Recommendation: The OIG recommended that the Managing Director establish a

procedure to notify COTRs when funding on purchase orders is about to expire to assist them to

submit timely purchase requests to continue funding.

Response: Purchase Orders, prepared by BPD and/or OMS, are dependent upon the

submission of Purchase Requests submitted through PRISM by Bureaus and Offices. COTRs are

responsible for timely initiating properly documented PRs and ensuring that they are routed

and approved prior to the periods of performance.

Staff of the Office of the Managing Director has been reviewing current procedures in

conjunction with the recent agency reorganization. In the response to Recommendations 2 and

3 above, I advised that certain responsibilities were being assigned to an individual within OMS

to coordinate with agency contracting personnel, with OBF and with COTRs. Procedures

developed to satisfy Recommendations 2 and 3 will include a requirement for

COTRs/requisitioners to ensure that purchase documents are issued prior to commencement of

performance, and compliance with appropriation requirements. The procedures will also

include a mechanism to assist COTRs to submit timely purchase requests to continue funding.

This will be completed by September 30, 2010.

/s/

Ronald D. Murphy

Managing Director

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