Fiscal Year 1999 (Second Half)

November 15, 1999

The Honorable Robert Pitofsky
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580

Dear Chairman Pitofsky:

The attached report covers the Office of Inspector General's (OIG) activities for the second half of fiscal year 1999, and is submitted according to Section 5 of the Inspector General Act of 1978, as amended. The Act requires that you submit this report, with your Report of Final Action, to the appropriate Congressional committees within 30 days after receipt of the report.

During this reporting period, the OIG completed two audit surveys, one on the systems and processes used by Bureau of Competition (BC) staff to ensure compliance with non-monetary provisions of FTC administrative orders in competition cases, and the other on the systems and processes used by Bureau of Consumer Protection (BCP) staff to ensure compliance with non-monetary provisions of FTC administrative orders. Our surveys indicated that both divisions are effectively monitoring order provisions and have taken proactive and innovative steps to ensure compliance. In addition, the OIG has closed three investigations and initiated four audits in which fieldwork is currently underway.

As in the past, management has been responsive in attempting to address all OIG recommendations. I appreciate management's support, and I look forward to working with you in our ongoing efforts to promote economy and efficiency in agency programs.

Sincerely,


Frederick J. Zirkel
Inspector General

TABLE OF CONTENTS

TRANSMITTAL

INTRODUCTION

AUDIT ACTIVITIES

Completed Audits

Summary of Findings for Audit Reports Issued During the Current Period

Audits in Which Field Work is Complete

Audits in Which Field Work is in Process

INVESTIGATIVE ACTIVITIES

Investigative Summary

Investigations Closed During the Current Period

Matters Referred for Prosecution

OTHER ACTIVITIES

Significant Management Decisions

Access to Information

Internet Access

Audit Resolution

Review of Legislation

Contacting the Office of Inspector General

TABLES

Table I: Summary of Inspector General Reporting Requirements

Table II: Inspector General Issued Reports With Questioned Costs

Table III: Inspector General Issued Reports With Recommendations That Funds Be Put To Better Use

INTRODUCTION

The Federal Trade Commission (FTC) seeks to assure that the nation's markets are competitive, efficient, and free from undue restrictions. The FTC also seeks to improve the operation of the marketplace by ending unfair and deceptive practices, with emphasis on those practices that might unreasonably restrict or inhibit the free exercise of informed choice by consumers. The FTC relies on economic analysis to support its law enforcement efforts and to contribute to the economic policy deliberations of Congress, the Executive Branch and the public.

To aid the FTC in accomplishing its consumer protection and antitrust missions, the Office of Inspector General (OIG) was provided five workyears and a budget of $548,100 for fiscal year 1999.

AUDIT ACTIVITIES

For this semiannual period, the OIG issued two audit reports on the FTC's administrative order enforcement program, and completed fieldwork on another report concerning agency systems and processes used to collect and report performance information pursuant to the Government Performance and Results Act. The OIG also began fieldwork on three audits: the FY 1999 financial statement audit; an audit of redress distribution vulnerabilities; and an audit of the FTC's telecommunications billing procedures, practices, controls and expenditures. Detailed information about these ongoing reviews is provided below.

Completed Audits

 

Audit Report Number
Subject of Audit
AR 99-042
Survey of the Systems and Processes Used by the FTC's Bureau of Competition Staff to Ensure Compliance with Non-Monetary Provisions of FTC Administrative Orders in Competition Cases
AR 99-043
Survey of the Systems and Processes Used by the FTC's Bureau of Consumer Protection Staff to Ensure Compliance with Non-Monetary Provisions of FTC Administrative Orders

 

Summary of Findings for Audit Reports Issued During the Current Period

In AR 99-042 and AR 99-043, the OIG performed audit surveys of the agency's enforcement of its non-monetary administrative orders. Order enforcement for the competition mission is performed in the Bureau of Competition's (BC) Compliance Division, while enforcement of consumer protection-related orders is performed in the Bureau of Consumer Protection's (BCP) Enforcement Division.

Our surveys indicated that both divisions are effectively monitoring order provisions and have taken proactive and innovative steps to ensure compliance. In BC, we found that the Compliance Division works with other bureau divisions on front-end approvals of divestitures, and has designed orders that take advantage of others in the industry (competitors and potential acquirers) to identify noncompliance. While the Compliance Division uses the services of paralegal staff on routine matters, enabling attorneys to address more substantive and complex compliance issues, we found that additional paralegal support is needed as attorney staff is spending significant amounts of time on routine legal and clerical functions. We also believe that the compliance report review process can be enhanced by improving internal tracking of compliance reports; especially needed is a system to identify compliance reports that are past due.

In BCP, the Enforcement Division has acquired investigative responsibilities which complement its compliance monitoring function. The division also has an effective system to track the status of compliance reports. Internal deadlines serve as an incentive to staff to move compliance reports efficiently through the process; e.g., deadlines for communicating with respondents are generally met.

On the other hand, we noted that the number of "facially deficient" compliance reports received by the Enforcement Division from individuals and companies under order was high. A "facially deficient" report refers to a respondent's submission in which required information or documentation needed to ensure compliance is missing, or on its face, inadequate. The OIG was concerned that, in addition to staff's time spent on reviewing repeated submissions, the number of mailings required by good-faith respondents was also potentially high because many respondents may not have understood all of the complexities of the reporting requirement. The OIG recommended that division managers routinely survey front line enforcement staff regarding recurrent noncompliance issues, and instruct staff to incorporate "lessons learned" into its front-end communications with respondents to lessen the likelihood of future noncompliant reports.

The OIG also identified some deficiencies in each division's semiannual reporting to the Commission of order enforcement activities. Most notably, the OIG found that these reports were often under-used by the Commissioners' staff, who often opted to obtain needed compliance information from one of the agency's subsidiary tracking systems. The OIG recommended that senior managers from each division meet with the Commissioners' attorney advisors to: (i) document their information needs as they pertain to compliance, and (ii) focus the division's semiannual report on these needs. As an alternative, we recommended that compliance managers discuss with the attorney advisors whether such a reporting requirement is even necessary, given the availability of the desired information from subsidiary databases. Depending on the outcome of these discussions, the requirement itself could be repealed.

Audits in Which Field Work is Complete

 

Audit Report Number
Subject of Audit

AR00-044

Review of Systems Used to Collect Data for Annual Performance Measures Under the Government Performance and Results ActPerformance measurement is the ongoing monitoring and reporting of program accomplishments, particularly progress toward preestablished goals. The OIG has reviewed the agency's performance measures to determine whether systems are in place to accurately collect information for external reporting. Specifically, the OIG: (i) verified the existence of measurement systems; (ii) determined whether the measures themselves are quantifiable; and (iii) assessed whether the systems are maintaining accurate and timely data. The OIG has chosen to review GPRA performance measurement systems before performance reports are due to OMB to provide agency managers an opportunity to utilize our observations and analysis.

 

Audits in Which Field Work is in Process

 

Audit Report Number
Subject of Audit
AR00-XXX
Audit of Processes Used to Develop and Control Redress Claimant Lists The objectives of this financial-related audit are threefold: (i) to document the data collection and/or construction methods used by agency staff to develop claimant data from (primarily) fraudulent companies and their contractors; (ii) based on this information, to identify vulnerabilities that could lead to the payment of fraudulent claims; and (iii) to select for audit between three and five distributions deemed to be high risk to determine whether claims checks were issued to individuals other than rightful claimants.
AR00-XXX
Audit of FTC Telecommunications Billing Procedures, Practices, Controls and Expenditures The overall objective of this review is to identify vulnerabilities pertaining to the oversight and payment of the agency's telecommunication services. To address this objective, the OIG will: (i) ensure that the agency is paying only for the services it uses and/or the hardware/equipment it employs; (ii) review system controls that are in place to monitor employee use of telephones, cell phones, and pagers, and determine whether these controls work effectively; (iii) analyze whether the agency is using, given its service history, optimal service plans (for local and long distance service, and for pagers and cell phones) to efficiently and effectively meet its needs; and (iv) document the role GSA and other third parties perform in assisting the FTC in implementing its telecommunications program and in reviewing the cost and the effectiveness of this assistance.
AR00-XXX
Audit of FTC Financial Statements for Fiscal Year 1999 The objective of this financial audit is to determine whether the agency's financial statements present fairly the financial position of the agency. The statements to be audited are the Balance Sheet as of September 30, 1999, and the related Statement of Net Cost, Statement of Changes in Net Position, Statement of Budgetary Resources, Statement of Financing, and Statement of Custodial Activity for the fiscal year just ended. This will be the third annual financial statement audit performed by the OIG; the first two audits resulted in unqualified opinions.

INVESTIGATIVE ACTIVITIES

The Inspector General is authorized by the IG Act to receive and investigate allegations of fraud, waste and abuse occurring within FTC programs and operations. Matters of possible wrongdoing usually come to the OIG in the form of allegations or complaints from a variety of sources, including FTC employees, other government agencies and the general public.

Reported incidents of possible fraud, waste and abuse might give rise to administrative, civil or criminal investigations. OIG investigations might also be initiated based on the possibility of wrongdoing by firms or individuals outside the agency when there is some information that indicates they are or were involved in activities intended to affect the outcome of a particular agency enforcement action. Because this kind of wrongdoing strikes at the integrity of the FTC's consumer protection and antitrust law enforcement missions, the OIG places a high priority on investigating it.

In conducting investigations during the past several years, the OIG has sought assistance from, and worked jointly with, other law enforcement agencies, including other OIG's, the Federal Bureau of Investigation (FBI), the Postal Inspection Service, the U.S. Secret Service, the Internal Revenue Service, and state agencies and local police departments.

Investigative Summary

During this reporting period, the OIG received 37 complaints of possible wrongdoing. Of the 37 complaints, a total of 23 related to matters that the OIG determined were the responsibility of FTC program components, FTC management or the agency's ethics official. Consequently, the OIG referred the 23 matters to appropriate FTC component(s) for disposition.

Of the14 remaining complaints, the OIG referred three (3) of them to other federal law enforcement agencies as they contained allegations within their authorities. Of the 11 remaining complaints, the OIG opened three (3) new investigations. One involved a case of possible misuse of government resources and duty time by an agency employee, the second involved providing investigative assistance to agency security staff relating to a threat made against an agency employee, and the third related to individuals who used agency letterhead in an attempt to influence a creditor. After conducting some preliminary work on the remaining (8) complaints, all were closed without action.

Finally, during this reporting period, the OIG coordinated an agency response in connection with the settlement of a False Claims Act case by a company that had done business with the FTC some years ago, as well as 14 other government agencies. The investigation was conducted by another OIG and resulted in the company paying $l.9 million to settle the case with the Department of Justice. The company identified the FTC as one agency with which it had a contract for consulting services.

Following is a summary of the OIG's investigative activities for the six-month period ending September 30, 1999. While the OIG opened three (3) new investigations during this reporting period, it also closed three (3) cases:

 

Cases pending as of March 31, 1999
2
Plus: New cases
+3
Less: Cases closed
-3
Cases pending as of September 30, 1999
2

Investigations Closed During the Current Period

Crimes Against the Government (2)

The OIG investigated an allegation that an individual, who identified himself as an FTC employee, phoned an executive of a company to obtain details about the company's nonpublic filing with the FTC under the Hart-Scott-Rodino Act (HSR) in connection with a proposed merger. The attorney representing the company reported to the FTC that his client believed that the phone call came from an individual who was impersonating an FTC employee in an illegal attempt to obtain sensitive company information from his client.

The OIG, learned that the FTC imposter only phoned the company executive once. Because of the executive's reservations about the phone call, no information was provided to the caller which might have leaked sensitive company information. The attorney for the company agreed to work with the OIG to trap the imposter if another call was received. Because no identifiable harm occurred in this case and as no follow-up call was made to the company, the OIG decided to close the case.

In a second imposter case, the OIG received an allegation from agency staff that suggested that a couple had used FTC letterhead to write a letter to a creditor which contained the signature of a fictitious FTC employee. The OIG learned that the couple had obtained a copy of agency letterhead when the agency responded in writing to a complaint the couple had made against another creditor some years earlier. The letter was written in an endeavor to mislead the creditor into believing that the FTC not only supported the couple in their dispute with the creditor but also that the FTC was challenging the creditor's debt collection and credit reporting practices. The scam was exposed when the creditor wrote to the FTC to explain its debt collection practices.

The OIG also learned that some years earlier the same couple had used a similar ruse with another creditor which led to a warning by FTC enforcement staff to cease the illegal practice.

After conferring with a federal prosecutor, the OIG informed the couple of the criminal sanctions associated with posing as a federal official, in particular using indicia of an official nature such as FTC letterhead. The OIG also admonished the couple, informing them that if we learned of such conduct in the future, a criminal referral would be made to a prosecutor. Thereafter, we closed the case.

Other (1)

Because of our ongoing liaison work with other federal law enforcement organizations, the FTC security staff asked that the OIG provide it with investigative assistance in helping to coordinate a response to a threatening telephone call received by a Commissioner. The caller alleged a conspiracy of silence in exposing a government cover-up. The caller also referred to a third party that was pondering some future violent act against both the Commissioner and another prominent political figure. The OIG reported the threat to the FBI, Secret Service, and Capitol Hill Police asking that checks be run on all named parties. The caller was subsequently contacted by law enforcement officials and admonished for the phone message.

Matters Referred for Prosecution

During the current reporting period the OIG coordinated with a federal prosecutor in one case which led to a declination to prosecute.

OTHER ACTIVITIES

During a prior reporting period, the OIG made a request to the ECIE peer review committee to begin a "peer review" of the OIG's internal quality control program. According to Government Auditing Standards, each audit organization conducting audits in accordance with these standards should have an external quality control review at least once every three years by an organization not affiliated with the organization being reviewed. The objective of this review is to determine whether the OIG's internal quality control system is in place and operating effectively to provide reasonable assurance that established policies and procedures and applicable auditing standards are being followed. The Federal Communications Commission's (FCC) Office of Inspector General was selected to perform the "peer review." Field work is nearing completion with a report expected to be issued in the next reporting period.

The OIG seeks to continuously assist management and, whenever appropriate, to work in partnership with management to improve agency program operations. Along these lines, OIG staff participated in an advisory capacity in a number of agency task forces. Specifically in this reporting period, OIG staff served on two agency-wide task forces: (i) the Government Performance and Results Act (GPRA) Committee, and (ii) the Check In, Check Out, and Moves (CICOM) Committee. The GPRA committee seeks to provide a central forum through which GPRA information, obtained from various sources in and outside the agency, can be disseminated, shared and discussed. The committee also continually updates and improves the FTC strategic and performance plans consistent with statutory mandates and program needs of the FTC.

OIG staff also served as an advisory member to the CICOM committee. This assignment seeks to tap OIG expertise developed as a result of numerous audits of agency systems and security vulnerabilities relating to employee hirings and separations.

Significant Management Decisions

Section 5(a)(12) of the Inspector General Act requires that if the IG disagrees with any significant management decision, such disagreement must be reported in the semiannual report. Further, Section 5(a)(11) of the Act requires that any decision by management to change a significant resolved audit finding must also be disclosed in the semiannual report. For this reporting period there were no significant final management decisions made on which the IG disagreed, and management did not revise any earlier decision on an OIG audit recommendation.

Access to Information

The IG is to be provided with ready access to all agency records, information or assistance when conducting an investigation or audit. Section 6(b)(2) of the IG Act requires the IG to report to the agency head, without delay, if the IG believes that access to required information, records or assistance has been unreasonably refused, or otherwise has not been provided. A summary of each report submitted to the agency head in compliance with Section 6(b)(2) must be provided in the semiannual report in accordance with Section 5(a)(5) of the Act.

During this reporting period, the OIG did not encounter any problems in obtaining assistance or access to agency records. Consequently, no report was issued by the IG to the agency head in accordance with Section 6(b)(2) of the IG Act.

Internet Access

The OIG can be accessed via the world wide web at www.ftc.gov/oig/oighome.htm. A visitor to the OIG home page can download recent (1995 -- 1999) OIG semiannual reports to Congress, the FY 1997 and FY 1998 CFO Act audits, and can browse through a list of audit reports and order them via an e-mail link to the OIG. In addition to this information resource about the OIG, visitors are also provided a link to other federal organizations and offices of inspector general. During this semiannual period, the OIG received approximately 9,000 visits to its home page.

Audit Resolution

As of the end of this reporting period, all OIG audit recommendations for reports issued in prior periods have been resolved. That is, management and the OIG have reached agreement on what actions need to be taken.

Review of Legislation

Section 4 (a) (2) of the IG Act authorizes the IG to review and comment on any proposed legislation or regulations relating to the agency or affecting the operations of the OIG. During this reporting period, the OIG reviewed and provided supporting comments to the PCIE/ECIE legislative liaison on several bills designed to amend the IG Act (S. 1707, H.R. 305, and H.R. 20l3). Also, the OIG commented on the Government Waste Corrections Act of 1999 pertaining to fraud audit recovery.

Contacting the Office of Inspector General

Employees and the public are encouraged to contact the OIG regarding any incidents of possible fraud, waste or abuse occurring within FTC programs and operations. The OIG telephone number is (202) 326-2800. To report suspected wrongdoing, employees and the public should call the OIG's chief investigator directly on (202) 326-2581. A confidential or anonymous message can be left 24 hours a day.

The OIG is located in room 494 of the FTC Headquarters Building at 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Office hours are from 8:30 a.m. to 6:00 p.m., Monday through Friday, except federal holidays.

TABLE I

SUMMARY OF INSPECTOR GENERAL
REPORTING REQUIREMENTS

 

IG Act Reference
Reporting Requirement
Page(s)
Section 4(a)(2) Review of legislation and regulations
9
Section 5(a)(l) Significant problems, abuses and deficiencies
2
Section 5(a)(2) Recommendations with respect to significant problems, abuses and deficiencies
2
Section 5(a)(3) Prior significant recommendations on which corrective actions have not been made
8
Section 5(a)(4) Matters referred to prosecutive authorities
7
Section 5(a)(5) Summary of instances where information was refused
8
Section 5(a)(6) List of audit reports by subject matter, showing dollar value of questioned costs and funds put to better use
1
Section 5(a)(7) Summary of each particularly significant report
2
Section 5(a)(8) Statistical tables showing number of reports and dollar value of questioned costs
11
Section 5(a)(9) Statistical tables showing number of reports and dollar value of recommendations that funds be put to better use
12
Section 5(a)(10) Summary of each audit issued before this reporting period for which no management decision was made by the end of the reporting period
8
Section 5(a)(11) Significant revised management decisions
8
Section 5(a)(12) Significant management decisions with which the Inspector General disagrees
8

TABLE II

INSPECTOR GENERAL ISSUED REPORTS
WITH QUESTIONED COSTS

 

 

Number

Number Dollar Value
(in thousands)

Questioned Costs
Unsupported Costs
A. For which no management decision has been made by the commencement of the reporting period
0
0
0
B. Which were issued during the reporting period
0
0
0
Subtotals (A + B)
0
0
0
C. For which a management decision was made during the reporting period
0
0
0
(i) dollar value of disallowed costs
0
0
0
(ii) dollar value of cost not disallowed
0
0
0
D. For which no management decision was made by the end of the reporting period
0
0
0
Reports for which no management decision was made within six months of issuance
0
0
0

TABLE III

INSPECTOR GENERAL ISSUED REPORTS
WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

 
Number
Dollar Value
(in thousands)
A. For which no management decision has been made by the commencement of the reporting period
0
0
B. Which were issued during this reporting period
0
0
C. For which a management decision was made during the reporting period
0
0
(i) dollar value of recommendations that were agreed to by management
0
0
- based on proposed management action
0
0
- based on proposed legislative action
0
0
(ii) dollar value of recommendations that were not agreed to by management
0
0
D. For which no management decision has been made by the end of the reporting period
0
0
Reports for which no management decision was made within six months of issuance
0
0