[Ed: This HTML version of the Inspector General's Report has been created using OCR scanning and although effort has been taken to insure accuracy, minor errors may exist.]
U.S. Department of Commerce
Office of Inspector General Audit Report FSD-10898-9-0001
In accordance with the requirements of Section 304 of the Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government Management Reform Act of 1994 (GMRA), we performed an audit of the Patent and Trademark Office's financial statements as of September 30, 1998, and for the year then ended. Our audit was conducted at PTO's headquarters in Arlington, Virginia. The fiscal year 1998 audit was performed from July 6, 1998 to January 8, 1999. The U.S. Patent and Trademark Office Annual Review, FY 1998 is included as Exhibit I to this document.
We conducted our audit in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget Bulletin No. 98-08, Audit Requirements for Federal Financial Statement. We performed our work under the authority of the Inspector General Act of 1978, as amended; the CFO Act; and Department Organization Order 10-13, dated May 22, 1980, as amended.
This was the sixth audit of PTO, the fifth covering all of the agency's Principal Statements under the requirements of the CFO Act, as amended by GMRA. As a result of our current year audit, we have issued an unqualified opinion on PTO's Fiscal Year 1998 Principal Statements. This is the sixth year in which an unqualified opinion has been issued on PTO's financial statements.
Our consideration of PTO's internal control over financial reporting disclosed one matter we deem to be a reportable condition. This matter relates to controls surrounding the Revenue Accounting and Management (RAM) system and is only summarized in the attached Report on Internal Control on page 4. The details of our findings and recommendations concerning the RAM system are provided to PTO in a separate OIG audit report, Revenue Accounting and Management System - General Controls Review, FSD 10898-9-0002, March 1999.
Additional internal control matters that were not considered to be significant enough for inclusion in the Report on Internal Control, along with other recommendations for improving operating efficiencies, are communicated separately in our management letter to PTO's Acting Associate Commissioner and Chief Financial Officer.
We also performed tests of compliance with certain provisions of applicable laws and regulations that may have a material effect on PTO's financial statements as of and for the year ended September 30, 1998. As stated in our Report on Compliance with Laws and Regulations on page 6, we noted no instances of noncompliance with the laws and regulations applicable to PTO.
We commend PTO for its accomplishments during FY 1998 and encourage ongoing efforts to strengthen internal controls and continually improve the quality, usefulness, and timeliness of annual financial and performance reporting.
INSPECTOR GENERAL'S REPORT ON FINANCIAL STATEMENTS
Mr. Q. Todd Dickinson
Acting Assistant Secretary of Commerce and
Acting Commissioner of Patents and Trademarks
Patent and Trademark Office
Washington, D.C.
We have audited the accompanying consolidated balance sheet of the Patent and Trademark Office (PTO) as of September 30, 1998, and the consolidating statement of net cost, consolidating statement of changes in net position, consolidated statement of budgetary resources, and consolidated statement of financing for the year then ended. These financial statements are the responsibility of PTO's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirements for Federal Financial Statements. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity with the hierarchy of accounting principles and standards recommended by the Federal Accounting Standards Advisory Board. This hierarchy is a comprehensive basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PTO as of September 30, 1998, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations for the year then ended, in conformity with the basis of accounting described in Note 1.
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The information in the other sections of The U.S. Patent and Trademark Office Annual Review, FY 1998, is not a required part of these financial statements, but is supplementary information required by OMB Bulletin No. 97-01, Form and Content of Agency Financial Statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
In accordance with Government Auditing Standards, we have issued separate reports dated January 8, 1999, on our consideration of PTO's internal controls and on its compliance with certain provisions of applicable laws and regulations.
[ Johnnie E. Frazier
Acting Inspector General
January 8, 1998 ]
INSPECTOR GENERAL'S REPORT ON INTERNAL CONTROL
Mr. Q. Todd Dickinson
Acting Assistant Secretary of Commerce and
Acting Commissioner of Patents and Trademarks
Patent and Trademark Office
Washington, D.C.
We have audited the accompanying financial statements of the Patent and Trademark Office (PTO) as of and for the year ended September 30, 1998, and have issued our report thereon dated January 8, 1999. We conducted our audit in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirements for Federal Financial Statements.
In planning and performing our audit, we considered PTO's internal control over financial reporting by obtaining an understanding of the design of the agency's internal controls, determined whether these internal controls have been placed in operation, assessed control risk, and performed tests of controls in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Consequently, we do not provide an opinion on internal controls.
Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be reportable conditions. Under standards established by the American Institute of Certified Public Accountants and OMB Bulletin No. 98-08, reportable conditions are matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions by management in the financial statements. Material weaknesses are reportable conditions in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted one matter summarized below involving the internal control and its operation that we consider to be a reportable condition. However, this reportable condition is not considered to be a material weakness.
Controls Surrounding the Revenue Accounting and Management System Should Be Improved
OMB Circular A-127, Financial Management Systems, states that "Financial management in the Federal government requires accountability of financial and program managers for financial results of actions taken, control over the Federal government's financial resources and protection of Federal assets. To enable these requirements to be met, financial management systems must be in place to process and record financial events effectively and efficiently, and to provide complete, timely, reliable, and consistent information for decision makers and the public."
PTO's Revenue Accounting and Management (RAM) system provides automated support for the processing of PTO's receipts and deposit account transactions. We performed a general controls review of the data processing operations surrounding RAM. The purpose of our review was to determine whether the information system environment promotes data integrity and security, which would facilitate the generation of complete, timely, reliable, and consistent financial reports. The review focused on evaluating the adequacy of management and independent controls over several primary risk areas.
Our review disclosed several control weaknesses that could affect PTO's ability to safeguard its electronic data. Specifically, we noted deficiencies within the following areas: (1) the entity wide security plan, which provides a framework for managing risks; (2) the policies regarding segregation of duties, which limit the potential for unauthorized changes being made to the system; and (3) procedures surrounding service continuity, which ensure that critical functions can be restored in the event of a severe interruption. Any of these deficiencies could adversely affect the entity's ability to record, maintain, and report reliable financial data. However, we did not note any instances of unauthorized access during our review, and PTO's Office of Finance maintains that sufficient mitigating controls exist to detect any occurrences.
We provided PTO management with a separate OIG audit report, Revenue Accounting and Management System - General Controls Review, FSD 10898-9-0002, March 1999, which includes more detail regarding the scope of our review and specific findings and related recommendations.
We recognize that after we identified these findings and discussed them with management, PTO initiated corrective actions to address many of the deficiencies noted above. PTO needs to continue its improvement efforts to ensure that its key controls and computerized processing functions adequately support the RAM system. PTO's audit action plan related to the separate OIG audit report will address this reportable condition.
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In addition, with respect to internal controls related to performance measures reported in The U.S. Patent and Trademark Office Annual Review, FY 1998, we obtained an understanding of the design of significant internal controls relating to the existence and completeness assertions and determined whether it has been placed in operation, as required by OMB Bulletin 98-08. Our procedures were not designed to provide assurance on internal control over reported performance measures, and, accordingly, we do not provide an opinion on such controls.
We also noted other matters involving internal controls and their operation that we have reported to PTO's Acting Associate Commissioner and Chief Financial Officer in a separate management letter dated January 8, 1999.
This report is intended solely for the information and use of the management of PTO, the management of the Department of Commerce, OMB, and Congress and is not intended to be, and should not be, used by anyone other than these specified parties.
[ Johnnie E. Frazier
Acting Inspector General
January 8, 1998 ]
INSPECTOR GENERAL'S REPORT ON COMPLTANCE WITH LAWS AND REGULATIONS
Mr. Q. Todd Dickinson
Acting Assistant Secretary of Commerce and
Acting Commissioner of Patents and Trademarks
Patent and Trademark Office
Washington, D.C.
We have audited the accompanying financial statements of the Patent and Trademark Office (PTO) as of and for the year ended September 30, 1998, and have issued our report thereon dated January 8, 1999. We conducted our audit in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirements for Federal Financial Statements.
The management of PTO is responsible for complying with laws and regulations applicable to the agency. As part of obtaining reasonable assurance about whether the agency's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws and regulations, noncompliance of which could have a direct and material effect on the determination of financial statement amounts, and certain other laws and regulations specified in OMB Bulletin 98-08, including the requirements referred to in the Federal Financial Management Improvement Act (FFMIA) of 1996.
The results of our tests of compliance disclosed no instances of noncompliance with the laws and regulations discussed in the preceding paragraph, exclusive of FFMIA, that are required to be reported under Government Auditing Standards or OMB Bulletin 98-08.
Under FFMIA, we are required to report whether the agency's financial management systems substantially comply with the Federal financial management system requirements, Federal accounting standards, and the United States Government Standard General Ledger at the transaction level. To meet this requirement, we performed tests of compliance using the implementation guidance for FFMIA included in Appendix D of OMB Bulletin 98-08.
The results of our tests disclosed no instances in which the agency's financial management systems did not substantially comply with the three requirements discussed in the preceding paragraph.
Providing an opinion on compliance with certain provisions of laws and regulations was not an objective of our audit and, accordingly, we do not express such an opinion.
This report is intended solely for the information and use of the management of PTO, the management of the Department of Commerce, OMB, and Congress and is not intended to be, and should not be, used by anyone other than these specified parties.
[ Johnnie E. Frazier]
Acting Inspector General
January 8, 1998 ]