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Management Assurances and Compliance with Laws and Regulations

This section provides information on the USPTO’s compliance with the following legislative mandates:

  • Federal Managers’ Financial Integrity Act
  • Federal Financial Management Improvement Act
  • Federal Information Security Management Act
  • Agency’s Financial Management Systems Strategy
  • Inspector General (IG) Act Amendments
  • OMB Financial Management Indicators
  • Prompt Payment Act
  • Civil Monetary Penalty Act
  • Debt Collection Improvement Act
  • Biennial Review of Fees

Management Assurances

On the basis of the USPTO’s comprehensive internal control program during FY 2011, the USPTO can provide reasonable assurance that its internal control over the effectiveness and efficiency of operations and compliance with applicable laws and regulations as of September 30, 2011, was operating effectively. Accordingly, I am pleased to certify with reasonable assurance that our Agency’s systems of internal control, taken as a whole, comply with Section 2 of the Federal Managers’ Financial Integrity Act of 1982. Our Agency also is in substantial compliance with applicable federal accounting standards and the U.S. Standard General Ledger at the transaction level and with Federal financial system requirements. Accordingly, our Agency fully complies with Section 4 of the Federal Managers’ Financial Integrity Act of 1982, with no material non-conformances.

In addition, the USPTO conducted its assessment of the effectiveness of our Agency’s internal control over financial reporting, which includes safeguarding of assets and compliance with applicable laws and regulations, in accordance with OMB Circular A-123, Management’s Responsibility for Internal Control. Based on the results of this evaluation, the USPTO provides reasonable assurance that its internal control over financial reporting as of June 30, 2011 was operating effectively and no material weaknesses were found in the design or operation of the internal control over financial reporting. In addition, no material weaknesses related to internal control over financial reporting were identified between July 1, 2011 and September 30, 2011.

Signature of David J. Kappos

David J. Kappos
Under Secretary of Commerce for Intellectual Property and
Director of the United States Patent and Trademark Office
November 4, 2011

Federal Managers’ Financial Integrity Act (FMFIA)

The FMFIA requires Federal agencies to provide an annual statement of assurance regarding management controls and financial systems. The USPTO management is responsible for establishing and maintaining effective internal control and financial management systems that meet the objectives of the FMFIA. The objectives of internal control, as defined by the Government Accountability Office (GAO), are to ensure:

  • Effectiveness and efficiency of operations;
  • Reliability of financial reporting; and
  • Compliance with laws and regulations.

The statement of assurance that follows is based on the wide variety of evaluations, control assessments, internal analyses, reconciliations, reports, and other information, including the DOC OIG audits, and the independent public accountants’ opinion on the USPTO’s financial statements and their reports on internal control and compliance with laws and regulations. In addition, USPTO is not identified on the GAO’s High Risk List related to controls governing various areas.

Federal Financial Management Improvement Act (FFMIA)

The FFMIA requires Federal agencies to report on agency substantial compliance with Federal financial management system requirements, Federal accounting standards, and the U.S. Standard General Ledger at the transaction level. In accordance with OMB Circular A-127 (revised), substantial compliance is achieved when an agency’s financial management systems routinely provide reliable and timely financial information for managing day-to-day operations, as well as to produce reliable financial statements, maintain effective internal control, and comply with legal and regulatory requirements. The USPTO complied substantially with the FFMIA for FY 2011.

Other Compliance with Laws and Regulations

Federal Information Security Management Act

The USPTO continues to stay vigilant in reviewing administrative controls over information systems and is always seeking methods of improving our security program. During FY 2011, the USPTO continued its dedicated efforts in support of compliance with FISMA standards and improvement of our security program. The USPTO IT Security Program includes a strategy for continuous monitoring, which conducts credentialed compliance and vulnerability scans on servers, network devices, database, and Web-application on a quarterly basis. The analysis is being performed to ensure that operating systems have been configured in accordance with their security baseline and appropriate software patch levels. Additionally, the IT Security program has integrated artifacts to support Security Impact Analysis within the systems development lifecycle that allow assessment of testing requirements for systems undergoing new developments, enhancements, or maintenance. This proactive approach to security within the development process has successfully assessed changes and enabled security compliance for systems as they are being developed or updated.

As a result, the Chief Information Security Officer and the OCIO staff working together made a concerted effort to meet the new compliance requirements of FISMA, while also meeting the reporting requirements to OMB. These endeavors were a complete success. All USPTO systems (35 government and contractor systems) achieved a 100 percent FISMA compliance reporting level prior to the end of FY 2011. There were no deficiencies identified that are considered to be the result of any material weaknesses in internal control. As a result of the work accomplished, the USPTO was able to continue with continuous monitoring and provide an accurate summary of information consistent with OMB reporting requirements for year-end reporting.

The Inspector General’s Statement of Management Challenges for the DOC (in the Other Accompanying Information section of this report) identifies IT security as a cause for concern Department-wide, to include at the USPTO. While the OIG continues to report IT security as a Commerce-wide concern, USPTO management has concluded that IT security issues within the Agency have been sufficiently resolved beginning in FY 2009 to remove the material weakness.

The USPTO continues to coordinate closely with the OIG throughout the year, as well as review annual assessments with the OIG, to gain additional insight and ensure compliance with requirements.

Agency’s Financial Management Systems Strategy

The USPTO’s Consolidated Financial System (CFS) provides support for financial management, fee collections, procurement, and travel management functions to the USPTO. CFS leverages several Commercial-off-the-shelf (COTS)/Government-off-the-shelf (GOTS) products, including a core financial and acquisition system (Momentum Financials), an eTravel system (FedTraveler), a budget execution and compensation projection system (Corporate Planning Tool using the Cognos Planning tool), a cost accounting system (Activity Based Information System built using the Profitability and Cost Management tool), and a data warehouse (Enterprise Data Warehouse accessed using the Business Objects tool). Additionally, CFS includes an internally developed fee collection system (Revenue Accounting and Management (RAM)), an imaging system (Office of Finance Imaging System built using the Documentum tool), and an internally developed application to automate the transit subsidy program (Transit Subsidy System).

FPNG replaces the previous initiative to modernize RAM, the USPTO’s legacy fee collection system. FPNG will focus on retiring legacy RAM and look into using COTS, GOTS, and open source code, using custom code as a last resort. Developing and implementing FPNG supports USPTO’s Strategic Priority, “Improve IT Infrastructure and Tools”, and will replace legacy RAM with modern 21st Century technology that has more automated internal controls, electronic commerce capabilities, and will be able to meet the Patent and Trademark fee collection needs of the future. As the USPTO progresses with its Patent and Trademark IT strategies (PE2E and Trademarks Next Generation), the fee processing system also needs to progress to the next generation. The lack of modern technology in legacy RAM hinders the USPTO from taking full advantage of the potential benefits from PE2E and Trademarks Next Generation initiatives.

Inspector General Act Amendments

The Inspector General Act, as amended, requires semi-annual reporting on IG audits and related activities, as well as any requisite agency follow-up. The report is required to provide information on the overall progress on audit follow-up and internal management controls, statistics on audit reports with disallowed costs, and statistics on audit reports with funds put to better use. The USPTO did not have audit reports with disallowed costs or funds put to better use in FY 2011.

The USPTO’s follow-up actions on audit findings and recommendations are essential to improving the effectiveness and efficiency of our programs and operations. As of September 30, 2011, management had resolved the one recommendation outstanding from a report issued in FY 2009 (ATL-9999-9-3418: “International Intellectual Property Institute (IIPI), DC, Audit of MOU No. 2006-069-039”).

Two new audit reports were issued during FY 2011 (OIG-11-014-A: “Stronger Management Controls Are Needed Over USPTO’s Projection of Patent Fee Collections” and OIG-11-033-A: “Patent End-to-End Planning and Oversight Need to Be Strengthened to Reduce Development Risk”). For details on these audits, refer to page 50. Three recommendations were outstanding as of September 30, 2011.

Status of IG Act Amendment Audit Recommendations
as of September 30, 2011
Report for Fiscal Year Status Recommendation Action Plan Completion Date
FY 2009 Closed IIPI should ensure that independent personnel are documenting the review of bank and other reconciliations. The USPTO will ensure expenditures received from IIPI have proper documentation, are certified by the Office of Intellectual Property, Policy, and Enforcement that services or goods were received, and are submitted to the Office of Finance for payment. March 2011
FY 2011 Closed The Chief Financial Officer (CFO) should establish and implement written policies and procedures for developing fee collection forecasts. The USPTO has developed a manual for fee collection forecasts, and has documented roles, responsibilities, and underlying components used with fee collection forecasts. March 2011
FY 2011 Closed The CFO should report annually on the variances between projected and actual specific patent fee collections, including the potential causes for significant variances and possible trends to consider. The USPTO has reported variances, trends, and causes included as appendixes one and two in the FY 2012 President’s Budget. March 2011
FY 2011 Closed The Commissioner for Patents should establish and implement written policies and procedures for the patent production model. The USPTO has developed standard procedures and definitions for the patent production model development portions of the fee forecasting process documentation manual. August 2011
FY 2011 Open

Before development starts on the next (second) release of PE2E, the USPTO Director should direct the appropriate USPTO officials to improve PE2E planning by developing:

  1. A description and schedule of releases based on prioritized high-level requirements for the entire project, and
  2. High-level designs for the service architecture for the entire project.
The report was issued on September 29, 2011. The action plan will be developed in the first quarter of FY 2012. To be determined
FY 2011 Open

The USPTO Director should direct the appropriate USPTO officials to update the current acquisition plan before seeking contractor support for future PE2E releases. The plan should describe:

  1. The strategy for acquiring contracting resources that includes the overall acquisition approach, the process for acquiring, and how it will motivate contractor performance, and
  2. How USPTO will manage risks to avoid development delays, overcome limited resources for soliciting and administering multiple contractors, and successfully manage multiple contractors.
The report was issued on September 29, 2011. The action plan will be developed in the first quarter of FY 2012. To be determined
FY 2011 Open

The USPTO Director should direct the appropriate USPTO officials to improve oversight of PE2E by:

  1. Updating USPTO oversight procedures for PE2E by establishing

    • the key milestone oversight review schedule,
    • criteria for evaluating project progress at oversight reviews, and
    • thresholds for convening special oversight reviews
  2. Seeking independent expert advice on technical and project management for input into milestone reviews and defining the rules of engagement for independent reviewers, including when advice will be sought and access given to project artifacts and personnel.
Report was issued on September 29, 2011. The action plan will be developed in the first quarter of FY 2012. To be determined

OMB Financial Management Indicators

The OMB prescribes the use of quantitative indicators to monitor improvements in financial management. The USPTO tracks other financial performance measures as well. The table below shows the USPTO’s performance during FY 2011 against performance targets established internally and by OMB and the government-wide Metric Tracking System (MTS).

USPTO FY 2011 Financial Performance Measures
Financial Performance Measure FY 2011 Target FY 2010 Performance
Percentage of Timely Vendor Payments (MTS) 98% 100%
Percentage of Payroll by Electronic Transfer (OMB) 90% 100%
Percentage of Treasury Agency Locations Fully Reconciled (OMB) 95% 100%
Timely Reports to Central Agencies (OMB) 95% 100%
Audit Opinion on FY 2011 Financial Statements (OMB) Unqualified Unqualified
Material Weaknesses Reported by OIG (OMB) None None
Timely Posting of Inter-Agency Charges (USPTO) 30 days 25 days
Average Processing Time for Travel Payments (USPTO) 8 days 6 days

Prompt Payment Act

The Prompt Payment Act requires Federal agencies to report on their efforts to make timely payments to vendors, including interest penalties for late payments. In FY 2011, the USPTO did not pay interest penalties on 99.9 percent of the 6,472 vendor invoices processed, representing payments of approximately $522.1 million. Of the 12 invoices that were not processed in a timely manner, the USPTO was required to pay interest penalties on 6 invoices, and was not required to pay interest penalties on 6 invoices, where the interest was calculated at less than $1. The USPTO paid only $1 in interest penalties for every million dollars disbursed in FY 2011. Virtually all recurring payments were processed by EFT in accordance with the EFT provisions of the Debt Collection Improvement Act of 1996.

Civil Monetary Penalty Act

There were no Civil Monetary Penalties assessed by the USPTO during FY 2011.

Debt Collection Improvement Act

The Debt Collection Improvement Act prescribes standards for the administrative collection, compromise, suspension, and termination of Federal agency collection actions, and referral to the proper agency for litigation. Although the Act has no material effect on the USPTO since it operates with minimal delinquent debt, all debt more than 180 days old has been transferred to the U.S. Department of the Treasury for cross-servicing.

Biennial Review of Fees

The Chief Financial Officers Act of 1990 requires a biennial review of agency fees, rents, and other charges imposed for services and things of value it provides to specific beneficiaries as opposed to the American public in general. The objective of the review is to identify such activities and to begin charging fees, where permitted by law, and to periodically adjust existing fees to reflect current costs or market value so as to minimize general taxpayer subsidy of specialized services or things of value (such as rights or privileges) provided directly to identifiable non-Federal beneficiaries. The USPTO is a fully fee-funded agency without subsidy of general taxpayer revenue. The USPTO uses Activity Based Costing (ABC) to calculate the cost of activities performed for each fee, and uses this information to evaluate and inform when setting fees. When appropriate, fees are adjusted to be consistent with the legislative requirement to recover full cost of the goods or services provided to the public.

In anticipation of the new authority recently passed on September 16, 2011 (AIA, Pub. L. No. 112-29) to set fees by regulation previously set by statute, the USPTO has taken steps to begin developing a new fee structure based on ABC models, historical cost analyses of activities supporting fees, conducting fee analyses such as cost-obligation-revenue comparisons, economic and elasticity analyses, and developing business case studies. Plans are under-way to implement the new fee structure in FY 2013.

United States Patent and Trademark Office
Last Modified: 01/03/2012 14:04:41