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 (FMFIA)
• Federal Financial Management Improvement Act (FFMIA)
• Federal Information Security Management Act
• 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 2009, 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, 2009, 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, 2009 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, 2009 and September 30, 2009. David J. Kappos Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office November 5, 2009

Federal Managers’ Financial Integrity Act

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 is provided at right. This statement was based on the review and consideration of a 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

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. The USPTO complied substantially with the FFMIA for FY 2009.

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 2009, the USPTO removed the IT security material weakness that was reported in previous years. The material weakness was related to the USPTO IT security program and reflected the need to improve the internal controls and program processes and procedures for C&A of the USPTO and contractor systems. During FY 2009, the OIG indicated that the USPTO’s process for certifying contractor and government systems produced sufficient information to enable the authorizing officials to make credible risk-based accreditation decisions.

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.

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, 2009, management had resolved the two recommendations outstanding from a report issued in FY 2008 (USPTO-CAR-18701: “USPTO Has Reasonable Controls Over Personal Property, but Additional Improvements Are Needed”). A summary of audit findings and recommendations follows.

Two new audit reports were issued during FY 2009 (ATL-9999-9-3418: “International Intellectual Property Institute (IIPI), DC, Audit of MOU No. 2006-069-039” and ATL-9999-8-3178/ATL-9999-8-3179: “IIPI, DC, Audit of MOU 2004-141-007”). For details on each audit, refer to page 35. No recommendations were outstanding as of September 30, 2009.

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 above shows the USPTO’s performance during FY 2009 against performance targets established internally and by OMB and the government-wide Metric Tracking System (MTS).

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 2009, the USPTO did not pay interest penalties on 99.5 percent of the 7,532 vendor invoices processed, representing payments of approximately $534.0 million. Of the 42 invoices that were not processed in a timely manner, the USPTO was required to pay interest penalties on 39 invoices, and was not required to pay interest penalties on three invoices, where the interest was calculated at less than $1. The USPTO paid only $8 in interest penalties for every million dollars disbursed in FY 2009. 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 2009.

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. For non-legislative fees, it uses Activity Based Cost (ABC) accounting to evaluate the costs of activities and determine if fees are set appropriately. When necessary, fees are adjusted to be consistent with the program and with the legislative requirement to recover full cost of the goods or services provided to the public.

In October 2008, the USPTO implemented an increase to patent processing fees, commensurate with the last 12 months’ increase in the Consumer Price Index. A study and analysis of all USPTO fees is underway, comparing the average unit costs for all products and services to the fees currently charged. This study is ongoing and is expected to continue through FY 2010.

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