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Collage showing images with one-word descriptors from the U S P T O Fiscal Year 2008 Performance and Accountability Report cover that reinforces the reportís tagline of Transforming for the Future Today.
Performance and Accountability Report Fiscal Year 2008
Management's Discussion and Analysis

Table of Contents | Management | Financial | Auditor | IG | Other

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 2008, 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, 2008, was operating effectively, except for the one material weakness identified. Accordingly, I am pleased to certify with reasonable assurance, except for the one Federal Information Security Management Act material weakness regarding information technology security, 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, 2008 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, 2008 and September 30, 2008.

Signature of Jon W. Dudas

Jon W. Dudas
Under Secretary of Commerce for Intellectual Property and
Director of the United States Patent and Trademark Office
November 7, 2008

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, which includes one Section 2 material weakness for IT security discussed in further detail in the Federal Information Security Management Act section below. 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, the 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 2008.

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. As of the end of FY 2008, 91 percent of our major IT systems are fully certified and accredited, with full authority to operate.

During FY 2008, the USPTO made significant progress, including improved processes and documentation. However, since some weaknesses remain, we are continuing to report the material weakness in IT Security, in recognition of the need for compliance with Government guidance on IT Security and to reconfirm its commitment to the protection of our Nation’s intellectual property information systems and data.

While the USPTO IT Security Program has made significant strides over the past year, there remain several security areas that require improvement. Specific areas that have been improved upon during FY 2008 include the C&A process of contractor systems, continuous monitoring of IT systems, and improvement of C&A packages for federal systems.

During FY 2009, the USPTO will continue to improve upon the remaining weaknesses.

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, 2008, management had resolved the two recommendations outstanding from a report issued in FY 2004 (USPTO-BTD-16432-4-0001: “USPTO Needs Strong Office of Human Resources Management Capable of Addressing Current and Future Challenges”). One new audit report was issued during FY 2008 (USPTO-CAR-18701: “USPTO Has Reasonable Controls Over Personal Property, but Additional Controls Are Needed”). Actions were taken to close five recommendations contained in the one new audit report. This audit report still has two recommendations remaining open. A summary of audit findings and recommendations follows.

Status of IG Act Amendments Audit Recommendations
as of September 30, 2008
Report for Fiscal Year Status Recommendation Action Plan Completion Date
FY 2004 Closed Ensure that the USPTO works with Commerce and OPM to officially obtain delegated examining authority (DEA). Currently, DEA is no longer the primary means of bringing new employees on board at USPTO. Hiring employees using Federal Career Intern Program (FCIP) is faster and more efficient. With Patent Examiner positions filled now under FCIP and few positions filled under DEA, there is no need to obtain DEA from OPM. February
FY 2004 Closed Ensure that the USPTO develops Office of Human Resources (OHR) organizational descriptions, policies, and procedures, in accordance with the intent of DOO 10-14. As OPM and DOC regulations change, the USPTO OHR created and/or updated our policies and SOPs. To date, OHR has implemented over 30 AAOs, policies, and SOPs to address OHR functions and services. January
FY 2008 Open Conduct inventories consistent with the requirements contained in the Department Personal Property Management Manual dated October 2007. The USPTO will implement and communicate USPTO’s Standard Operating Procedures (SOP) for the annual physical verification of USPTO’s home use assets, including laptops. Estimated October
FY 2008 Closed Provide training to employees conducting inventories. The Office of Corporate Services (OCS) worked with USPTO’s OHR to provide property accountability training to property officials and all other individuals involved in supporting a Property Custodian (PC) in fulfilling his/her required duties. March
FY 2008 Closed Make property management information readily available to USPTO employees. The OCS worked with the OCIO to establish an asset management website, which will be displayed on USPTO’s internal network home page. February
FY 2008 Closed Require the Inventory Support Team to perform its quality assurance review in accordance with the contract, which requires that the team select and verify ten percent of the property on-hand with Enterprise Asset Management System (EAMS). The OCS required the Inventory Support Team to not only physically observe and validate ten percent of the assets found in the custodian’s general location, but to also select and verify at least ten percent of the assets found in the PCs general location and compare them to the PCs inventory report. October
FY 2008 Open Require Property Accountability Officers (PAOs) to inventory the holdings of the PCs who report them. PAOs will receive a notice indicating that, as part of their quarterly certification efforts, they must also verify the accuracy of the property assigned to PCs under their oversight. Estimated October
FY 2008 Closed Follow Departmental policy in establishing property boards of review. The USPTO’s Chief Administrative Officer (CAO) officially impaneled the Property Board of Review and issued a justification permitting USPTO’s Property Management Official to remain as a member of the Property Board of Review. April
FY 2008 Closed Use Report of Review of Property forms (CD-52s) to promptly and thoroughly document actions taken on cases of lost/missing/stolen property. The USPTO’s Property Board of Review converted to the use of CD-52s to document actions taken on lost, missing, or stolen assets. June

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 2008 against performance targets established internally and by OMB and the government-wide Metric Tracking System (MTS).

USPTO FY 2008 Financial Performance Measures
Financial Performance Measure FY 2008 Target FY 2008 Performance
Percentage of Timely Vendor Payments (MTS) 98% 97%
Percentage of Payroll by Electronic Transfer (OMB) 90% 99%
Percentage of Treasury Agency Locations Fully Reconciled (OMB) 95% 100%
Timely Reports to Central Agencies (OMB) 95% 100%
Audit Opinion on FY 2008 Financial Statements (OMB) Unqualified Unqualified
Material Weaknesses Reported by OIG (OMB) None None
Timely Posting of Inter-Agency Charges (USPTO) 30 days 18 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 2008, the USPTO did not pay interest penalties on 99.3 percent of the 8,644 vendor invoices processed, representing payments of approximately $557.0 million. Of the 82 invoices that were not processed in a timely manner, the USPTO was required to pay interest penalties on 65 invoices, and was not required to pay interest penalties on 17 invoices, where the interest was calculated at less than $1. The USPTO paid only $20 in interest penalties for every million dollars disbursed in FY 2008. 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 2008.

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 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 under way, 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 2009.

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