The Honorable Robert Pitofsky
Federal Trade Commission
Sixth Street & 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 l997, and is submitted according to Section 5 of the Inspector General Act of l978, as amended. The Act requires that you submit this report, with your Report of Final Action, to the appropriate Congressional committees on, or before, November 30, l997.
During this reporting period the OIG performed work on four audits, completing one. The OIG also closed one investigation and opened another two cases, while also assisting prosecutors on two theft of government property cases referred for criminal prosecution in earlier reporting periods.
As in the past, 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.
Frederick J. Zirkel
TABLE OF CONTENTS
- 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 Progress
- Investigative Summary
- Investigations Closed During the Current Period
- Matters Referred for Prosecution
- Significant Management Decisions Access to Information
- Internet Access
- Audit Resolution
- Review of Legislation
- Contacting the Office of Inspector General
- 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
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 $477,200 for fiscal year 1997.
For this semiannual period, the OIG issued a compliance audit of contractor performance in the agency's records processing unit; prepared a draft report presenting our findings from a review of the agency's implementation of OMB Circular A-50, Audit Follow up; and completed field work on an audit of computer security. The OIG also continued to work with management on the preparation and audit of the agency's financial statements, and initiated a survey of the best practices used by FTC regional offices when responding to consumer queries. More detailed information about each of these topics is provided below.
|Subject of Audit|
|AR97-036||Compliance Review of Interior Systems, Inc.'s Performance in the FTC's Records Processing Unit During the Period March 1, 1996 - September 30, 1996|
Summary of Findings for Audit Reports Issued During the Current Period
The OIG reviewed Interior Systems, Inc.'s (ISI) compliance with the contract for the provision of records management services at the FTC. The contract is a firm fixed price (indefinite delivery, indefinite quantity) contract for one year with four option years. The total award of the contract is estimated to be $2 million. The objective of this review was to document and describe the processes in place to collect, organize, control, store and release public and nonpublic records, and to determine ISI's compliance with selected contract provisions related to these processes. Audit field work was conducted from 3/10/97 to 6/26/97.
The OIG found that ISI had not complied with a number of contract provisions. Specifically, ISI's failure to segregate and transfer case files to the Washington National Records Center for storage contributed to a growing backlog of thousands of boxes that are still awaiting processing and disposition. The OIG also found that a majority of ISI employees did not remain on the job for a sufficient amount of time to obtain a minimum level of proficiency required to perform their job. The contractor employee turnover problem was significant not only in how quickly these individuals left the agency but also because of agency staff assertions that most ISI employees possessed little, if any, prior experience in records management. Not only did the contractor employees contribute little to the functioning of the records processing unit (RP) during their short tenure with the agency, but agency staff was required to spend most of its time training new recruits and correcting trainee mistakes, rather than performing records processing tasks. Finally, the OIG found that controls over the unauthorized release of nonpublic information through the public reference room could be enhanced.
Management shares responsibility for the outcomes identified in this report for two reasons. First, the contracting officer's technical representative (COTR) did not, in the opinion of the OIG, adequately document the ongoing problems that the RP experienced with the contractor, even after holding a number of unproductive meetings with the contractor's management representative. Second, the COTR did not inform the agency's contracting officer about the problems in a timely manner so a more formal approach to addressing the contractor's shortcomings could be taken. In short, the problems were allowed to continue for too long.
In lieu of contracting out the records management function, the OIG recommended that the agency hire college students (preferably law students) to work with RP staff to process and segregate the Commission's records. The advantages of this approach are many, including the increased control over staff selection, staff motivation (students, especially those considering careers in law would undoubtedly view an association with the FTC as career enhancing and financially competitive with other professional appointments), and dollar savings to the agency. The OIG estimates that the agency could save approximately $732,000 over the remaining three years of the contract by relying upon college/law students to perform this work, rather than contracting out this function. We also recommended that controls over nonpublic information be strengthened to include stamping "CONFIDENTIAL" on the cover sheet of all nonpublic documents, and reviewing public binders for nonpublic documents before the binders are provided to the public.
Audits in Which Field Work is Complete
|Subject of Audit|
|AR98-037||Review of the Federal Trade Commission's Implementation of OMB Circular No. A-50, Audit Follow Up
Audit Follow up is an integral part of good management and is a shared responsibility among agency management officials and the OIG. Corrective action taken by management on resolved findings and recommendations is essential to improving the effectiveness and efficiency of government operations. As outlined in OMB Circular A-50, each agency is to establish systems to ensure the prompt and proper resolution and implementation of audit recommendations. These systems are to provide for a complete record of action taken on both monetary and nonmonetary findings and recommendations.
The objective of the audit was to evaluate whether the FTC's audit follow-up system results in efficient, prompt, and proper resolution and corrective action on audit recommendations. To meet this objective, the OIG reviewed the implementation status of 30 recommendations issued between July 1, 1993 and June 30, 1996. Field work has been completed, a draft audit report prepared, and results of the review shared with the agency audit resolution official.
|AR98-038||Follow up Review of the FTC's Computer Systems Security.
In December 1996, the OIG issued AR 97-034, Review of the Federal Trade Commission's Computer Systems Security. The OIG found vulnerabilities in the agency's network access controls. As a result of our findings, the OIG made 10 recommendations to enhance security.
The objectives of this follow up review are to (i) determine whether the agency's computer network is more secure as a result of changes made in response to our findings and recommendations from the prior review; and (ii) identify vulnerabilities in the network that have developed since our last review. Field work has been completed, a draft report prepared, and results of the review shared with agency management and technical staff.
Audits in Which Field Work is in Progress
|Subject of Audit|
|AR98-XXX||Audit of the Federal Trade Commission's Financial Statements for the Fiscal Year Ending September 30, 1997
The objective of this audit is to determine whether the agency's financial statements present fairly the financial position of the agency, results of operations, and cash flows or changes in financial position in conformity with generally accepted accounting principles. The principal financial statements to be audited include: (i) Statement of financial position, (ii) Statement of Operations and Changes in Net Position (iii) Statement of Cash Flows, (iv) Statement of Budgetary Resources and Actual Expense, and (v) Notes to the Financial Statements. The OIG, working closely with management, has prepared pro forma financial statements and supporting footnotes. We are in the process of completing a review of internal controls and of assessing the agency compliance with laws and regulations during the year under audit.
|AR98-XXX||Survey of Telephone Practices Used by FTC Regional Offices in Response to Consumer Queries
The objectives of this review are to determine how the FTC's ten regional offices are responding to public telephone inquiries and to identify those practices that best facilitate consumer and/or business communications with agency personnel. Specifically, the audit is designed to provide management with information that would help it meet a consumer protection objective contained in the agency's strategic plan (SP). The SP objective focused on by the OIG in the review is to "prevent consumer injury through education." One of the four strategies that the agency plans to employ to accomplish this particular objective is to"improve the timeliness of response to consumer and business inquiries." This OIG phone survey will provide information on ease of access to, and response times by, regional offices, thus assisting the agency to move ahead with the employment of its strategy.
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 the Federal Bureau of Investigation, the Postal Inspection Service, the U.S. Secret Service, the Internal Revenue Service, other OIGs, and state and local police departments.
During this reporting period the OIG received 20 complaints of possible wrongdoing. Of these 20 complaints, 11 related to matters that the OIG determined were the responsibility of agency program components and, as such, referred them to FTC bureaus for disposition. The OIG opened two (2) investigations based on the remaining nine (9) complaints, while seven (7) complaints were closed without OIG action.
Following is a summary of the OIG's investigative activities for the six-month period ending September 30, 1997. The OIG opened two (2) new investigations during this reporting period and closed one (1) other case:
|Cases pending as of March 31, 1997||3|
|Cases pending as of September 30, 1997||4|
The OIG has performed field work on the four (4) investigations remaining open at the end of this reporting period.
Investigations Closed During the Current Period
During this reporting period the OIG closed a case opened in a prior period. The case was opened based on an allegation made by counsel for a company under investigation by the FTC. The counsel alleged that an FTC employee(s) had intentionally "leaked" nonpublic information to a major newspaper just prior to a pending Commission vote on the enforcement action in which the counsel's client was involved. The complainant believed the leak was a strategically-timed attempt to influence individual Commissioners to side with staff on the matter under consideration. The complainant also asserted that the information contained in the news article could only have come from the FTC as only agency employees had access to the information.
The OIG closed the investigation after determining that the complainant's asserted motive for the leak lacked merit. First, the motive assumed that the leak was based on the probability that the Commission vote was about to go against the party (agency staff) who decided to leak information. Yet, in interviews conducted by the OIG, all parties involved (to include representatives of the complainant's legal team) indicated that their handicapping of the likely outcome of the vote was on target; that is, that the vote would go against the company. Thus, agency staff would be leaking information to get what they, and others involved in the matter, already assumed they had -- a vote in favor of their position.
Finally, the complainant's stated motive to influence a vote also assumes that wrongdoing by staff would be rewarded by a change in vote favoring staff's position. This is counter-intuitive. In fact, in this particular situation, it would appear that a leak was far more likely to benefit the company than agency staff.
This brings us to the second part of the complainant's allegation, that only FTC staff knew of the nonpublic information contained in the news article and, therefore, they must be responsible for any leak. Evidence developed by the OIG suggests that this assumption is false. The evidence indicates that the news reporters could have discerned all news article information from a combination of: facts already on the public record, acquired knowledge of FTC operations and processes, and discussions with sources outside the agency, to include experts, competitors of the complainant as well as from the complainant's own legal/public relations representatives.
In addition to examining the complainant's stated motive, the OIG also reviewed other possible motives (a disgruntled employee, conflict of interest, etc.), but could find no evidence to suggest that any of these factors was at work in this matter. Consequently, the OIG closed the investigation after being unable to find any staff wrongdoing.
Matters Referred for Prosecution
In a prior semiannual reporting period the OIG stated that a former FTC employee who was involved in wrongdoing had pled guilty in Federal District Court for the District of Columbia to one felony count for her role in a theft/money laundering scheme involving negotiable instruments purchased by the agency.
During the current reporting period the OIG, at the request of the federal prosecutor, was asked to prepare selected analyses relating to this earlier referral in preparation for the sentencing phase of the trial. The former employee was sentenced to serve six months in a federal facility, to a period of probation thereafter, and to make restitution to the government in the amount of approximately $7,000.
Also, in the last reporting period the OIG closed another case involving the theft of approximately $3,000 in government funds following a referral to the United States Attorney's Office for the District of Columbia for its consideration of criminal prosecution.
In the current period, the prosecutor, in consultation with the OIG, declined criminal prosecution as the individual had already resigned from the agency, and the FTC was able to obtain reimbursement for the amount of funds wrongfully taken through an offset of the person's final salary and lump sum leave payments.
During this reporting period the OIG also allocated resources to activities other than conducting audits and investigations. These activities involved participating on Executive Council on Integrity and Efficiency (ECIE) committees and responding to Congressional and OMB requests for information.
Significant Management Decisions
Section 5(a)(12) of the IG 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 has disagreed, and management has not revised any earlier decisions on any 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.
The OIG has established a home page at the FTC Web Site. The OIG internet address is www.ftc.gov/oig/oighome.shtm. A visitor to the OIG home page can download the OIG's last five semiannual reports to Congress, and can also browse through a list of audit reports, identifying those of interest and ordering them via an E-mail link to the OIG. In addition to this resource of information about the OIG, visitors are also provided a link to other federal organizations and offices of inspector general.
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. Furthermore, the OIG completed field work on an audit during this reporting period to determine if all resolved recommendations were implemented in accordance with management representations made to the agency's audit resolution official.
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 responded to requests from the agency's Office of General Counsel, and from OMB, PCIE and ECIE on matters related to possible changes to the IG Act.
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 Sixth Street and 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.
|Section 4(a)(2)||Review of legislation and regulations||
|Section 5(a)(l)||Significant problems, abuses and deficiencies||1|
|Section 5(a)(2)||Recommendations with respect to significant problems, abuses and deficiencies||1|
|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||1|
|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||7|
|Section 5(a)(11)||Significant revised management decisions||7|
|Section 5(a)(12)||Significant management decisions with which the Inspector General disagrees||7|
|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|
INSPECTOR GENERAL ISSUED REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE
|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||1||732,000|
|C. For which a management decision was made during the reporting period||1||732,000|
|(i) dollar value of recommendations that were agreed to by management||1||732,000|
|(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|