Review of the 

Bureau of Enforcement’s 

Compliance Audit Program 

 

OR12-01 

 

Office of Inspector Inspector General General

FEDERAL MARITIME COMMISSION 

 March 2012 
FEDERAL MARITIME COMMISSION

Office of Inspector General 

Washington DC 20573 

March 2, 2012 

Office of Inspector General 

Mr. Chairman and Commissioners, 

The Office of Inspector General (OIG) completed its review of the Bureau of 

Enforcement’s (BOE) compliance audit program. The review objective was to assess the 

overall effectiveness of the program. Specifically, we evaluated controls in place to 

ensure the accuracy of responses from industry on questionnaires used by BOE in the 

audit process, reviewed program performance measures and workflow tracking 

mechanisms and documented program accomplishments. Finally, we assessed BOE’s 

follow-up processes to validate corrective action. Our review followed Inspection 

Standards issued by the Council of the Inspectors General on Integrity and Efficiency, 

January 2011. 

The compliance audit program enables agency staff to assess Ocean Transportation 

Intermediary compliance with Commission regulations. The program generally works 

well, meets program objectives, and produces results: 96 percent of the audits in the 

OIGs sample found at least one noncompliance issue. Many had multiple findings. 

The BOE director exercises adequate supervision over the audit process, approving both 

audit notifications and closures. Staff indicated that the director is consulted routinely 

when unusual or difficult issues arise. Both the director and staff were very 

knowledgeable about the audit process and outcomes. 

While the process works well, we observed areas where some improvement is possible. 

The office has not fully transitioned to an automated tracking system. Rather, it relies on 

a manual log to produce quarterly and annual quantitative-based reports. BOE does not 

capture qualitative information, such as a summation of the compliance issues found in 

the audits it performs. For example, 63 percent of the audits reviewed by the OIG found 

tariff compliance issues. Sharing this information with Federal Maritime Commission 

decision makers and with other licensees via our website would enable the Commission 

to broaden its outreach, address recurring issues and educate licensees. We believe such 

reports can be prepared without costly automated processes involved. 

BOE, working with the Bureau of Certification and Licensing (BCL), should ensure all 

licensees are aware of the compliance audit program. While the regulations state that the 

licensee must turn over information at the FMC’s request, no specific reference is made 

to the compliance audit. OTIs essentially learn of the program when they are selected for 

audit. We suggest that the BCL add language in its transmittal letter sent to new 
2 

licensees to specifically put them on notice that they are subject to audit. Knowing that 

they may be audited would likely enhance OTI compliance throughout their operations. 

The OIG also suggested improvement in the area of notifications to auditees regarding 

audit closure and standard operating procedures. Details on these findings, and 

recommendations to address them, are provided in the attached report. Management has 

agreed with our recommendations and presented an action plan. Management’s response, 

in its entirety, is appended to this report. We thank BOE managers and staff for their 

assistance to us throughout the audit. 

 Respectfully submitted, 

 /Adam R. Trzeciak/ 

Inspector General 
Office of Inspector General 

Review of the Bureau of Enforcement’s 

Compliance Audit Program 

Introduction 

Bureau of Enforcement (BOE) acts as the prosecutorial arm of the Commission to 

investigate potential violations of the Shipping Act and other statutes and regulations enforced 

by the Commission. In addition, BOE administers the compliance audit program. This 

program, conducted from headquarters primarily by mail, reviews the operations of licensed 

ocean transportation intermediaries (OTI) to assist them in complying with statutory 

requirements and the Commission’s regulations. 

In prior years, the agency relied on area representatives in its field offices to perform 

compliance audits. Due to the closing and downsizing of field offices, the responsibility to 

perform compliance audits was placed in BOE. 

BOE performs approximately 100 compliance audits annually. The selection of OTIs to 

audit is based on random selection by geographical location or risk. The Registered Person 

Index (RPI), a Commission database containing OTI license and bond information and status, is 

the primary source document used by BOE to identify its audit universe. In addition, BOE 

receives requests from other offices within the Commission, such as the Bureau of Certification 

and Licensing (BCL), the Office of Consumer Affairs and Dispute Resolution Services 

(CADRS) and the Bureau of Trade Analysis (BTA), to select OTIs for audit based on concerns 

raised by these offices. 

Once an OTI is selected for an audit, BOE staff performs preliminary fieldwork by 

accessing information on the OTI from internal databases, including SERVCON, Form FMC-1 

and Form FMC-18, and outside database services, including PIERS, Datamyne and individual 

OTI tariff publishers. 

Commission’s Databases

Identification of the internal and external sources used in the compliance audit and how 

BOE staff uses the information is provided below: 

SERVCON (Service Contract) is the Commission’s electronic service contract filing 

system. SERVCON enables Commission staff to review and process service contracts, 

non-vessel operating common-carrier (NVOCC) Service Arrangements (NSA) and 

amendments filed by ocean carriers and NVOCCs. 

SERVCON is used in the compliance audit process to obtain information on the effective 

date of the service contract, the OTI’s address and officers, and the number of current 

contracts into which the entity has entered. 
Form FMC-1, Automated Tariff Registration System, facilitates the registration of tariff 

publication locations by NVOCCs and vessel-operating common carriers (VOCC), as 

required by Section 8 of the Shipping Act of 1984. Tariff publication provides the 

shipping public with information on price and service options to move particular 

commodities from point to point. 

Form FMC-1 is used during compliance audits to obtain information on the legal name of 

the OTI, its address and tariff location. Information collected on tariff rates and rules is a 

focal point of the compliance audit. 

Form FMC-18 Application for a License as an Ocean Transportation Intermediary, is 

filed by entities applying for an FMC license. Each licensed entity is required to have an 

individual identified as the Qualifying Individual (QI), who is an active officer of the 

entity and meets character and minimum experience requirements. Licenses issued 

include ocean freight forwarder (FF), NVOCC or NVOCC/FF. Summary information 

from Form FMC-18 is maintained in the RPI. 

Compliance staff relies on the RPI to identify the universe of OTIs and, for each OTI, the 

address, president and QI, financial responsibility (bond) coverage, and OTI status and 

type, e.g., FF, NVOCC, NVOCC/FF including foreign-registered Non-Vessel Operators 

(NVO). 

Other Information Sources Used

PIERS, the Port Import Export Reporting Service, collects import and export waterborne 

data from the U.S. Customs and Border Protection Automated Manifest System and other 

trading partners. PIERS provides up-to-date OTI addresses to the compliance staff and 

detailed information on departure date, commodity, destination country and U.S. origin 

port. Such information helps the compliance staff to assess tariff compliance and identify 

shipments involving the subject OTI. 

Datamyne is a subscriber database that provides international trade data from the bill of 

lading and other shipping records. Information downloaded is used for purposes similar 

to PIERS, although the information focuses on import shipments. 

Tariff Publisher is an entity that publishes the NVOCC / OTI rules and rates to move 

various commodities. The tariff must be published on or before transportation service 

can commence. (46 CFR Part 520) 

The tariff provides the compliance staff with information on whether the OTI is shipping 

commodities under published rules and rates. 

After the compliance staff reviews the information sources and databases, an opening 

memo is prepared for the BOE director’s approval. The opening memo contains staff’s 

recommendation to open an audit and includes potential audit concerns and issues staff may have 

from its preliminary review. Potential areas of concern could involve bond information, tariff 

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rate filings, PIERS shipment manifests, service contracts and/or the qualifying individual. The 

director reviews and approves the opening memo and signs the letter to the OTI requesting a 

response to the appropriate questionnaire (NVOCC, FF or NVOCC/FF) within 30 days of the 

date of the letter. 

When questionnaires are returned, BOE staff reviews the responses for actual or potential 

areas of non-compliance and for consistency with information already gathered during staff’s 

preliminary review. When necessary, compliance audit staff requests additional information or 

clarification to enable staff to determine compliance with Commission regulations. 

After the compliance staff determines that the OTI is complying with shipping 

regulations, the staff prepares a closing memo for the BOE director’s signature. Information 

related to the compliance audit is entered into BOE’s HEAR database and manual tracking log. 

The HEAR database provides information on enforcement cases and compliance audits and is 

used by BOE and other select FMC staff. 

Objectives, Scope and Methodology 

The objective of this program inspection was to assess the overall effectiveness of the 

compliance audit program. Specifically, we (i) reviewed the controls in place to ensure the 

accuracy of responses from industry on questionnaires used by BOE in the audit process, (ii) 

assessed program performance measures and reporting processes, (iii) documented program 

accomplishments, and (iv) reviewed BOE’s follow-up processes to validate corrective actions. 

The Office of Inspector General (OIG) began the review by identifying the universe of 

compliance audits opened in fiscal year (FY) 2011 from BOE’s manual tracking log.1

 Based on 

this review, we documented 100 audits opened in FY 2011; ninety one (91) audits were closed in 

FY 2011. We selected 46 closed audits for detailed review, stratified by OTI category (i.e., 

NVOCC, FF or NVOCC/FF). For our sample, we tested the dates on which BOE opened the 

audit and notified the OTI of the audit, the timing of the OTI response to BOE and the date on 

which BOE closed the audit. We also documented and identified the audit selection process, the 

data sources used by BOE to perform the audit, the compliance issues identified in the audit 

process and the audits referred to field operations for further investigation. 

We interviewed BOE management and staff to supplement our understanding of the audit 

selection process, audit methodology, response verification, management oversight and audit 

closing. We also participated in a “walk-through” of the bureau’s HEAR database to better 

understand how it is used to manage the compliance audit program and reviewed companion 

manual logs maintained by compliance audit program staff. 

The review followed Inspection Standards issued by the Council of the Inspectors 

General on Integrity and Efficiency, January 2011. 

 

1

 We relied on BOE’s database and did not perform an independent verification of the number of audits opened in 

FY 2011. 

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Introduction to Findings 

The compliance audit program is used to assess whether OTIs are complying with agency 

regulations and maritime statutes. We found this program generally works well and meets the 

program objective of assisting OTIs to comply with statutory requirements and Commission 

regulations. The process used to select OTIs for audit ensures geographical representation and 

relies on FMC bureaus and offices to identify at-risk entities. The proportion of OTIs selected 

for audit mirrored the OTI population. There are controls in place to ensure adequate supervision 

by the BOE director and the validity of the OTI’s responses to the compliance audit 

questionnaire. The audits have produced results: 96 percent of the audits we reviewed identified 

one or more findings of non-compliance with Commission regulations, which were resolved 

before the audit was closed. Audits remain open until all findings are addressed. This follow up 

process works well. 

The OIG also identified areas where some improvements are possible. For example, the 

office lacks written procedures that would help to ensure a smooth transition should current staff 

leave the agency or become incapacitated. While the director’s involvement would undoubtedly 

mitigate potential “learning curve” challenges for new staff, Government Accountability Office 

standards on internal controls strongly favor written Standard Operating Procedures (SOP). 

Within BOE, we envision a step-by-step process identifying, at a minimum, how OTIs are 

selected, which databases are used to collect information and how the information is used. 

BOE is currently using two databases to house compliance audit information and 

outcomes. The HEAR database is an automated database that is used to store information (start 

and end date, company audited, audit summaries, etc) about each audit. But the database was 

designed for enforcement case tracking; thus compliance audit results do not fit easily or 

logically into the data fields. Further, information retrieval for the purpose of report summaries 

is cumbersome. For reporting purposes, BOE relies on a manual log maintained by staff to 

prepare its quarterly reports to the Office of the Managing Director (OMD). These reports focus 

on the number of audits opened and closed each quarter. Importantly, there is no summary 

report prepared identifying compliance issues or findings, a report the OIG believes would be 

especially useful to OMD and the Commission. Without the need to design a system around the 

audit program, BOE could develop a simple checklist of compliance issues that staff could use to 

identify and later summarize for reporting to OMD and the Commission. 

Details on these and other audit findings are provided below. 

Finding 1. Management Exercises Oversight of the Compliance Audit Program 

BOE has controls in place to identify, conduct and close compliance audits. The primary 

control observed was supervisory review. The director is actively involved in all stages of the 

audit, and staff indicated to us that it routinely seeks guidance without hesitation when 

challenging audit issues arise. The BOE director approves all audits to be performed and decides 

when the audit can be closed. 

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Auditees (i.e., OTIs) are provided adequate notice of the audit and given sufficient time 

to respond. Each auditee receives a letter from the BOE director stating the audit objectives, a 

due date for completing the enclosed questionnaire and regulations identifying BOE’s authority 

to request information. If the OTI has not responded to the questionnaire within 30 days as 

requested, BOE staff follows up with another letter, either by facsimile or through e-mail, 

requesting immediate attention with a response due within two weeks. This letter reminds the 

OTI that the 30-day deadline has passed, and, if needed, the Commission’s area representative 

may contact and/or visit the OTI to assist the OTI to complete the questionnaire. 

The response rate of our sample of 46 FY 2011 audits indicates that compliance with 

audit requirements among the industry is good. We found that 27 OTIs (59 percent) responded 

to BOE within the 30-day requirement identified in the letter, and another 13 OTIs (28 percent) 

responded with 45 days. Six OTIs (13 percent) responded within 46 - 128 days. BOE explained 

that of the six late responses, two resulted from the OTI’s need to meet with a tariff publisher for 

clarification or assistance, and one auditee had a medical condition which delayed his response. 

Three auditees did not provide a reason for their late responses.2

 The BOE director told the OIG 

that these six OTIs never left the bureau’s “radar screen.” According to the BOE director, 

additional steps, to include the threat of possible license revocation, would be used if the time 

period became excessive. 

Once BOE has received responses from the OTI, the information is reviewed and verified 

with preliminary information from the Commission’s databases and third-party sources. BOE 

has adequate verification procedures in place to ensure that OTI responses are independently 

supportable. These procedures include reconciliation with FMC and third party maritime 

databases. Any information provided on the questionnaire that does not agree with information 

obtained from an independent source document requires further inquiry by BOE to assess 

compliance with the Commission’s regulations and statues. 

BOE has not set targets for audit completion. The audit process is influenced by responsiveness 

of OTIs and deadlines would not be in the control of BOE. Importantly, no audits are closed 

until all matters have been verified resolved. Table 1 provides information on the lapsed times 

between audit commencement (receipt of questionnaire from the OTI) and completion (closing 

memo): 

 

2

 BOE does not ask the OTI to provide reasons for late responses, although many will provide this information 

voluntarily when responding. 

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Table 1. FY 2011 Compliance Audit Fieldwork – Lapsed Days 

(n = 46) 

Day Range Occurrences

0 - 25 33 

26 - 50 8 

51 - 75 3 

76+ 2 

The table indicates that 33, or 72 percent of the compliance audits in our sample, were 

completed in 25 days or less. Lapsed days include the time BOE waits for a response from the 

auditee to clarify an answer or to provide documentation to support a response. Exchanges 

between BOE and the auditee are natural parts of the audit and necessary steps to ensure that 

BOE can make an informed decision on compliance, based on what BOE needs to see, and not 

necessarily what was initially provided to BOE with the questionnaire. We did not view the time 

lapsed to be excessive given the nature of the audit process. 

The OIG believes that the BOE director’s practice to approve audit selection, 

commencement and closure is a good management control and is in keeping with the Standards 

for Internal Control in the Federal Government, issued by the Government Accountability 

Office, which states, in part, that control activities should occur at all levels and functions, and 

include activities such as approvals, authorizations, and verification. The BOE director told the 

OIG that, currently, BOE does not send out a closing memo to the OTI unless it is requested by 

the OTI. The director suspects that most OTIs would conclude that once requested information 

is provided, the audit process is over. Notwithstanding, the OIG believes that a form letter or 

some acknowledgment that all information has been accepted and, as a result, the findings 

closed, would provide closure for the OTI without ambiguity. 

Recommendation 1. The Bureau of Enforcement should develop a pro forma notice to 

send to OTIs announcing the completion of the compliance audit. 

Finding 2. Standard Operating Procedures are Needed for the Compliance Audit Program 

The objective of FMC’s system of management accountability and internal control is to 

provide reasonable assurance that: 

• Programs achieve their intended results; 

• Resources are used consistent with the agency’s mission; 

• Programs and resources are protected from waste, fraud, and mismanagement; and 

• Laws and regulations are followed, and reliable and timely information is obtained, 

maintained, reported and used for decision-making. 

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FMC office directors are required to complete an internal control self assessment 

annually. The assessment asks managers to identify internal control weaknesses within their 

programs and to become familiar with Office of Management and Budget Circular A-123, 

Management’s Responsibility for Internal Control. The intent is to help managers improve the 

accountability and effectiveness of Commission programs and operations by establishing, 

assessing, correcting and reporting on management controls. Commission Order 103, 

Management (Internal) Controls, provides policy direction to be followed to improve the 

accountability and effectiveness of Commission programs and operations. 

We found that BOE lacks SOPs for its compliance audit program. The director 

acknowledged that the program is operating without documented procedures but believes that 

adequate guidance is provided on the questionnaire and notification letter (i.e., how the audit will 

be conducted based on what will be reviewed). However, the OIG noted that these documents 

do not provide information on how an OTI is selected for audit, how referrals are addressed and 

processed, preliminary fieldwork (which independent databases to use and what to look for), etc. 

The benefit of documented procedures is especially important when a function is performed by 

one person. Should that person leave or become incapacitated, there would be delays in 

transitioning this function to new staff. We have no doubt that the director or other senior 

bureau staff would provide adequate training and supervision to new staff, but this would pull 

senior staff away from its duties. 

An effective internal control over transactions and other significant events in the 

compliance audit program begins with a clear, documented process. To enhance efficiency and 

effectiveness of the compliance audit program, BOE should document its procedures and update 

them when needed. 

Recommendation 2. The Bureau of Enforcement develops and maintains standard 

operating procedures for the compliance audit program. 

Finding 3. Selection of OTIs for Review 

The selection of OTIs for a compliance audit is best categorized as a “modified random 

selection.” OTIs are grouped by geographic location and selections are made from this universe. 

The intent is to ensure geographic representation. In addition to this process, BOE receives audit 

requests from bureaus and offices within the agency, e.g., BCL, CADRS and BTA, to perform 

audits on OTIs that have raised programmatic concerns. For example, BTA may refer licensees 

who did not post a tariff; CADRS may refer an OTI who has been the subject of frequent 

consumer complaints about its practices. BCL may refer new licensees when information on the 

application, although compliant, raises concerns with BCL’s experienced staff regarding 

operations, such as Qualifying Individual concerns. Eleven (11) percent of our sample audits 

originated from referrals to BOE. 

The Commission issues approximately 400 – 500 licenses each year. In the late 1990’s, 

Commission investigative staff performed post-license compliance checks of FFs two years after 

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the license was issued and compliance checks on all other licensees every 5 – 10 years. As of 

December 2011, there were 4,482 active FF, NVOCC and NVOCC/FF licenses. In addition, 

there were 1196 registered unlicensed foreign-based NVOs and 135 Vessel Operators (VO), 

giving BOE an audit universe of about 5,800 NVOs/VOs. Due to staffing constraints, BOE can 

audit only about 100 OTIs a year; about 1.7 percent of the population. BOE staff believes that 

more resources devoted to the function would have a corresponding positive impact on the 

office’s ability to monitor and correct non-compliance and has requested additional staff in the 

budget process to meet this need. We agree with BOE management that the program produces 

positive outcomes and additional resources would have an immediate impact. 

In addition to the number of audits performed, we also looked at how representative 

existing audits are compared to the general population. The OIG analysis revealed that BOE 

generally selects NVOCCs and VOCCs for audit in the same proportion as each appears in the 

population. For example, 29 percent of the OTIs had a joint NVOCC/FF license; 37 percent of 

audits performed by BOE were of NVOCC/FF licensees. With the exception of freight 

forwarders, OTIs are proportionally represented in the audits. Table 2 provides a snapshot of the 

ratio of licenses issued to compliance audits opened by BOE. 

Table 2. OTI Audit Ratio 

 (as of December 2011) 

OTIs

Licensed or 

Foreign 

Registrant

Percentage 

of OTI 

Population

FY 2011 

Audits 

Opened 

by BOE

Percentage 

of BOE 

Audits 

Opened

Freight Forwarders (FF) 1048 18% 5 5% 

NVOCC Note A 2926 51% 56 56% 

NVOCC/FF 1698 29% 37 37% 

Vessel-operating CC 135 2% 2 2% 

TOTAL 5807 100% 100 100% 

Note A. The OIG includes both domestically licensed and foreign registered NVOs here. 

Finding 4. Functionality of the HEAR Database 

BOE’s HEAR database hosts information on both its enforcement cases and the 

compliance audit program. As it relates to the compliance audit program, data in the system 

provides information on various stages of the audit, such as when an audit was opened and 

closed. HEAR also houses auditee name, audit status and a synopsis of the audit findings; all 

very useful information. 

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Although the HEAR database is a repository of information, it is not optimally used to 

manage the audit function or to produce reports. This is due to HEAR’s functionality, not 

management’s inattention. The BOE director explained that HEAR was developed with 

enforcement cases in mind. As a result, information produced in the compliance audit is not 

compatible with HEAR’s functionality. For example, HEAR cannot generate summary reports 

by time period or audit results, such as number of audits opened and closed for a given period of 

time. HEAR is capable of retrieving information individually by case and type of entity but only 

if the user knows the compliance number or the entity’s business name. Even printing case 

information is cumbersome. The fields cannot be adjusted; consequently, case summaries appear 

in narrow fields, requiring several pages of mostly wasted paper (blank columns) to capture all 

text. 

The changes needed to address the HEAR shortcomings lie outside the BOE and within 

the Office of Information Technology. The BOE director told us that with larger concerns facing 

the agency’s information technology (IT) capabilities, he has not sought to enhance the 

functionality of the HEAR database. 

To extract what data elements it needs for external reporting purposes, BOE has relied on 

a manual log to prepare quarterly reports identifying the number of audits opened and closed 

during the reporting period. The manual log contains a tracking number for each audit and 

identifies the date the compliance audit was opened, entity name and the audit closing date. 

The information is reported to senior management in quarterly reports and in the agency’s 

annual report. 

We found the maintenance of the audit tracking function to be cumbersome, involving 

three different databases or logs. For example, compliance staff record select information about 

each audit in the manual log which is then used to prepare quarterly and annual reports. Identical 

information is recorded in the HEAR database, along with an audit finding synopsis. Finally, a 

manual index system is used to identify whether the subjects of the compliance audit had been 

looked at in prior audits or enforcement actions. The index system contains only the names of 

the parties to the audit (or investigation) and its primary purpose is to identify repeat audit (or 

investigative) subjects, e.g., prior instances in which the same subject was the target. 

The OIG believes that one automated database that collects all compliance audit 

information and produces management reports would be more efficient than the systems 

currently used in BOE. We also agree, however, with the BOE director that IT needs are greater 

in other areas of the Commission. To enhance the utility of the audit, BOE does not require 

expensive IT enhancements. BOE simply needs a process to summarize its audit findings for 

senior management and the Commission. 

Information obtained during the audit process can be used to provide insight into 

potential and actual problems and trends. This information can then be fed back into the 

programs as a management tool to proactively address compliance issues. 

BOE reports on its compliance activity quarterly in memorandums to the Managing 

Director and annually in the Commission’s Annual Report. In these reports, BOE identifies the 

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number of compliance audits opened, completed and pending. The quarterly (internal) report 

also identifies auditees. However, the report does not provide a summary of the audit findings 

resulting from the audits. We envision a semiannual report identifying the top three or five 

compliance findings to Commissioners, senior managers and bureau directors. In our detailed 

review of 46 files, we identified the following compliance issues3: 

Table 3. Findings of Noncompliance 

(n=46) 

Compliance Issues TOTAL

Tariff 37 

Address Change 8 

Branch Office 3 

Voluntary Surrender of License 1 

Improper Fee Scheming 2 

No Issues 2 

Qualifying Individual 1

Trade Name 1

Bond Cancelled 1

Doing Business As 1

License 1

Negotiable Rate Agreement 1

A sample report could include tariff, address correction and branch office omissions as 

areas to monitor, and for which regulatory changes could be considered if compliance issues 

persist. To assist BOE, we recommend that a simple checklist be developed and included in the 

audit file. Audit staff could recognize the issue(s) identified in the audit, make a notation on the 

checklist, and, on a semiannual basis, provide a summary list of the most frequently occurring 

compliance issues to the chairman, commissioners and senior management, and posted to the 

web for review by agency customers. 

Recommendation 3. BOE should develop a checklist of possible compliance-related 

findings for inclusion in each compliance folder with the intent of preparing 

semiannual summary reports for the Commission, senior management, and the 

agency’s website, identifying the top compliance-related findings during the prior six 

month period. 

 

 

3

 Audits often produce multiple findings. Consequently, the total findings exceed the 46 compliance audit files we 

reviewed. 

10 
Finding 5. License Award Letter should Serve Notice of Potential for Audit 

The OIG noted that the license letter sent to new OTIs with the license document does 

not put new licensees on notice that the FMC may be auditing their operations at some future 

date. Licensees may conclude that, once they have the license, their dealings with the FMC are 

finished. The OIG believes that, much like the Internal Revenue Service, the threat of an audit 

helps to encourage compliance with tax laws. Similarly, the threat of an audit, albeit with 

significantly less potential consequences for most licensees, could encourage compliance with 

regulations. Currently, letters sent to auditees include the following regulation: 

Upon the request of any authorized representative of the Commission, a licensee shall 

make available promptly for inspection or reproduction all records and books of account 

in connection with its ocean transportation intermediary business, and shall respond 

promptly to any lawful inquiries by such representatives. (46 CFR 515.31(g)) 

While the regulation is meant to provide guidance on the FMC’s authority, it is provided 

after the OTI is selected for audit. We believe providing information on the compliance audit 

program before the auditee is selected, for all new licensees, would improve compliance. 

A simple paragraph stating that the FMC performs routine audits on its licensees and 

providing a brief explanation of the audit would serve notice that the FMC will ensure that OTIs 

follow its regulations. 

Recommendation 4. BOE should work with the Bureau of Certification and Licensing 

to add language to the license notification letter advising of the compliance audit 

program. 

Summary 

The OIG found that the compliance audit program works well and accomplishes the 

program objective of ensuring compliance with Commission regulations. Controls exist in the 

program to ensure that resources are used efficiently and effectively. Performance measures, to 

include lapsed time and OTI responsiveness, indicate that the program is efficiently managed. 

One measure of results - that 96 percent of the auditees are out of compliance with at least one 

rule or regulation - indicates that devoting more resources to this program would increase 

performance; more audits would be performed and compliance rates would improve. But adding 

resources here would, by necessity, reduce resources elsewhere. 

One step that BOE should consider is to post the compliance results on the FMC website. 

Currently, compliance is enhanced one OTI at a time through the audits. Results are poorly 

publicized outside of a few offices within the Commission. By letting other OTIs know what the 

FMC is finding by posting the top non-compliance findings on the web, we suspect that some 

non-compliant OTIs may make changes to get into compliance. Clearly, OTIs who are 

indifferent to the regulations will not benefit from this change, but we believe that many others 

11 
12 

may not know they have fallen out of compliance. They could benefit from the audits of other 

OTIs, thus increasing coverage of the program without expending more resources. 

Before results can be posted, BOE must develop a procedure to capture audit compliance 

findings. More than just numbers of audits, the outcome of audits is critical to an understanding 

of where the agency may need to increase its compliance and enforcement efforts. Currently the 

databases used by BOE cannot capture this information and report it easily. Because so few 

audits are performed (about eight per month) a manual checklist can be used to identify 

noncompliance issues arising from each audit, with a master checklist to summarize results from 

individual checklists on a semiannual basis. An automated system would be nice to have, but we 

believe that a manual checklist would work fine in this environment. 

Audits help OTIs to identify and change noncompliant practices. The OIG feels that, for 

some, just the “threat” of an audit may keep some OTIs in compliance with Commission 

regulations. Currently, new licensees are not told about the compliance audit program directly; 

they are told only that they must comply with agency information requests. We believe that 

alerting new licensees to the compliance audit program at the time the license is received will 

serve, for many, as an inducement to monitor their own compliance. 
UNITED STATES GOVERNMENT FEDERAL MARITIME COMMISSION 

Memorandum 

TO : Inspector General DATE: February 29, 2012 

FROM : Director, BOE 

THROUGH: /Managing Director/ 

SUBJECT : Review of the Bureau of Enforcement Compliance Audit Program 

I have reviewed the recommendations contained in the instant review. Immediately below are 

responses to your recommendations. 

Recommendation 1. The OIG recommends that the BOE develop a pro forma notice to send to 

OTIs announcing the completion of the compliance audit. 

Management Response: BOE will develop and implement a process of sending a pro forma 

notice to all OTIs who complete the compliance audit process, beginning no later than April 2, 

2012.

Recommendation 2. The OIG recommends that the BOE develop and maintain standard 

operating procedures for the compliance audit program. 

Management Response: BOE will develop and maintain standard operating procedures 

governing the compliance audit program, beginning no later than April 2, 2012.

Recommendation 3. The OIG recommends that BOE develop a checklist of possible 

compliance-related findings for inclusion in each compliance folder with the intent of preparing 

semiannual summary reports for the Commission, senior management and the agency’s website, 

identifying the top compliance-related findings during the prior six month period. 

 
Management Response: BOE will create a checklist of audit findings for use and inclusion in 

each compliance audit file by April 2, 2012. Information on the most frequent audit findings will 

be transmitted semi-annually to the Managing Director for the consideration of the Commission, 

beginning with the BOE’s quarterly reports to OMD due in July 2012. A description of the 

compliance audit program, together with a summary list of the most frequent audit findings, also 

will be included on the Commission’s website on BOE’s page, with updates made as necessary, 

beginning no later than July 2, 2012. 

Recommendation 4. The OIG recommends that BOE work with the BCL to add language to 

the license notification letter advising of the compliance audit program. 

Management Response: BOE will coordinate with BCL upon the inclusion of language in the 

appropriate license notification letter advising that OTIs are subject to the compliance audit 

program. Such text will be incorporated into BCL’s letters beginning no later than April 2, 2012.

 /Peter J. King/