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X(# a2Right ParRight-Aligned Paragraph Numbers C @` A. ` ` (#` 2  o  a3DocumentgDocument Style Style B b  ?  1.  a3Right ParRight-Aligned Paragraph Numbers L! ` ` @P 1. ` `  (# a4Right ParRight-Aligned Paragraph Numbers Uj` `  @ a. ` (# a5Right ParRight-Aligned Paragraph Numbers _o` `  @h(1)  hh#(#h 2   Y 2 a6Right ParRight-Aligned Paragraph Numbersh` `  hh#@$(a) hh#((# a7Right ParRight-Aligned Paragraph NumberspfJ` `  hh#(@*i) (h-(# a8Right ParRight-Aligned Paragraph NumbersyW"3!` `  hh#(-@p/a) -pp2(#p a1DocumentgDocument Style StyleXqq   l ^) I. ׃  2i+0 [[Doc InitInitialize Document Style  0*0*  I. A. 1. a.(1)(a) i) a) I. 1. A. a.(1)(a) i) a)DocumentgTech InitInitialize Technical Style. k I. A. 1. a.(1)(a) i) a) 1 .1 .1 .1 .1 .1 .1 .1 Technicala5TechnicalTechnical Document Style)WD (1) . a6TechnicalTechnical Document Style)D (a) . 2XIa2TechnicalTechnical Document Style<6  ?  A.   a3TechnicalTechnical Document Style9Wg  2  1.   a4TechnicalTechnical Document Style8bv{ 2  a.   a1TechnicalTechnical Document StyleF!<  ?  I.   2ea7TechnicalTechnical Document Style(@D i) . a8TechnicalTechnical Document Style(D a) . PleadingHeader for numbered pleading paperP@n   $] X X` hp x (#%'0*,.8135@8:of the time of this report, the FCC has three sitting Commissioners; James H. Quello,  xRachelle B. Chong, and Susan P. Ness. Former Commissioner Andrew C. Barrett left the  \-Commission effective March 30, 1996.  x.On February 8, 1996, President Clinton signed into law the Telecommunications Act of  x1996, (Pub.L.No.104104). This Act represents the first major overhaul of  xtelecommunication law in almost 62 years. The Act is targeted at ensuring universal  x=service to all Americans and revises rules related to media ownership and phone service.  xThe Act also includes a provision calling for the installation of a Vchip in every new  xtelevision. The Commission will be active in the coming months in developing the rules necessary to implement this new law. "$0*%%U#"Ԍ xAs identified in our previous semiannual report, the Chairman proposed a field office  x=restructuring plan that would result in the closure of nine attended frequency monitoring  x"stations and three additional monitoring sites located at FCC field offices. This  xstreamlining initiative calls for the replacement of these stations with a national automated  xmonitoring network whose network central station will be located at the existing  xColumbia, Maryland facility. The plan also calls for the closure of nine of the 25 existing  xfield offices as well as three of the six regional offices. Two technical staff members will  xLcontinue to be assigned as resident agents in the nine locations in which field offices will  xbe closed. On October 13, 1995, the Commission voted 41 to support the planned  xorganizational restructuring. Overall, authorized staffing within the effected Bureau, the  xCompliance & Information Bureau (CIB), will decrease by about onethird, from 384 to  x=254 positions as a result of the restructuring of field operations. The plan was reviewed and approved by the House and Senate Appropriations Committees.  xAs a component of the reorganization, which is projected to result in annual savings of  xeight million dollars, the Commission will open a nationwide call center to be housed in  xthe existing FCC facility located in Gettysburg, Pennsylvania. This call center opening  xin June 1996, will serve as the Commission's contact point for those parties seeking  x=information about the FCC and all facets of Commission operations. The overall goal of  xythis clearinghouse operation is for the Commission to better serve the needs of the public in an economical and efficient mode.  xThe Commission continues to auction spectrum as authorized by the U.S. Congress in  x1993. The House Budget Committee estimated at that time that auction receipts over a  xfiveyear period would reach $10.2 billion. Subsequent estimates by the Congressional  xjBudget Office and Office of Management and Budget in 1994, estimated auction receipts  x|of $8.1 billion and $12.6 billion respectively. On April 5, 1996, the Commission  xjannounced that "the FCC has reached the $20 billion mark in total auction revenues to be  x.deposited with the U.S. Treasury." In reacting to this milestone, Chairman Hundt stated  xthat "We have exceeded all expectations....Auctions have proven once again to be a  xsuccess not only by awarding licenses to those that value them most, but also by decreasing the national debt."  xThe Office of Inspector General (OIG) has dedicated itself to assisting the Commission  xas it continues to improve its efficiency and effectiveness. The Inspector General reports  xdirectly to the Chairman. The OIG is located in Room 752 in the FCC headquarters  x[building at 1919 M Street, N.W., Washington, D.C. 20554. The office is staffed by the  xInspector General and four staff members: three auditors and a staff assistant who also""$0*%%""  xserves as the hotline technician. On April 14, 1996, the Chairman officially appointed Mr.  \- xH. Walker Feaster III to be the permanent Inspector General. Mr. Feaster had been  xActing Inspector General since November 14, 1994. Mr. Feaster has held a variety of  xmanagement positions since starting with the FCC in 1974. His previous position was that  xof Associate Managing Director for Program Analysis in the Office of the Managing  xDirector. He holds a B.S. in Business Administration from Drexel University, a M.S. in  x[Government from Southern Illinois University, and an M.B.A. in Finance from American University.  x=As reported in our previous semiannual report, on May 6, 1995, Robert G. Andary, who  x>served as the Counsel to the Inspector General and Director of Investigations for this  xoffice, accepted the position of Inspector General of the Federal Labor Relations Authority  \ - xM(FLRA). A vacancy announcement was issued on March 21, 1996, to fill this vacant  xposition. Pending the selection of a candidate, Paul Brachfeld continues to serve as the  xActing Director of Investigations while continuing in his ongoing capacity as the Director  \- x\of Audits. On April 3, 1996, a vacancy announcement for an additional audit position closed. An applicant selection was made on April 23, 1996.  x=This report includes the major accomplishments and general activities of the OIG during  xthe period October 1, 1995, through March 31, 1996, in accordance with Section 5 of the Inspector General Act of 1978, as amended 5 U.S.C. App. 3,  5.  yv,K "v0*%%w" AUDITS  y,K   \2-  h,K OVERVIEW   xTwo audit reports were issued by the Inspector General during this reporting period. On  \E- xMarch 18, 1996, the OIG issued the Final Audit of Fiscal 1994 Spectrum Auction  \? - x=Implementation Cost (OIG Report No. 956). The report reflects the ongoing efforts of  xthe OIG to support the conduct of successful spectrum auctions and encourage the  xdevelopment and implementation of strong financial management controls within the  \- - xCommission. Likewise, with the issuance on March 28, 1996, of the Report on the  \' - xFollowup Audit of Physical Security of the Local Area Network, the OIG continues in  xits commitment to provide management with an independent and knowledgeable insight into the operational integrity of FCC information systems.  xDuring this reporting period, OIG auditors also continued to provide significant input  x.towards the successful discharge of investigative case activity which resided within this  x0office. This office strongly endorses the concept of multidisciplinary teams. The  \- xExecutive Council on Integrity and Efficiency (ECIE), in their Annual Progress Report  \- xto the President for FY 1995, focused upon this concept. In expressing rational for  xutilizing multidisciplinary teams, the ECIE incorporated the narrative drafted by this office  \-in the Annual Progress Report to the President for FY 1995, as follows: xThe nature of criminal activity is such that most illegalities are inspired xby the potential for actual realization of financial gains. Often criminal xactivity is facilitated by weaknesses in internal controls in a program or xoperational area. As auditors are skilled in examining systemic weaknesses xand recommending corrective action, it is the policy of this office that xaudit resources be extended to assist the investigative side of the office.  \- x  The   auditors continued to serve as a reference tool for agency personnel in a myriad of  xLareas to include: financial operations; security and integrity over automated systems; and matters pertaining to ethics and potential ethical violations. "$0*%%#"Ԍ xThe OIG audit staff is currently involved in formatting an internet web site. The primary  xfocus of this initiative will be to provide information about the office and make all work products available electronically. SIGNIFICANT AUDIT ACTIVITY  \-1.XxFINAL AUDIT OF FISCAL YEAR 1994 SPECTRUM AUCTION(# xIMPLEMENTATION COST (No. 956) x xThe report was issued March 18, 1996  xThe Omnibus Budget Reconciliation Act of 1993, as amended on August 10, 1993, added  x?a new section 309(j) to the Communications Act of 1934. This amendment to the  xCommunications Act gave the FCC express authority to employ competitive bidding  xLprocedures to choose from among mutually exclusive applications for initial licenses. In  xFiscal Year (FY) 1994, the Commission promulgated general rules governing the spectrum  xauction process and specific rules governing the auction of licenses for the narrowband  xjPersonal Communications Service (PCS) and Interactive Video and Data Service (IVDS)  xlicenses. On July, 29, 1994, the Commission completed its auction of ten narrowband  xPCS licenses with a total highbid value of $617,006,674. Concurrently with the  xnarrowband PCS auction, the Commission conducted an auction of 594 IVDS licenses.  xThe total value of bidding for these licenses, following adjustment for bidding credits, was $213,892,375.  xMIn addition to providing the Commission authority to auction licenses, the amendment  xgave the Commission the authority to receive reimbursement for the cost of implementing  xthis means of allocating spectrum. Section (8)(B) of the new section 309(j), entitled Retention of Revenues, states the following:   Xx"Notwithstanding subparagraph (A), the salaries and expenses account of the   {Commission shall retain as an offsetting collection such sums as may be necessary   "from such proceeds for the costs of developing and implementing the program   _required by this subsection. Such offsetting collections shall be available for   Pobligation subject to the terms and conditions of the receiving appropriations   account, and shall be deposited in such accounts on a quarterly basis. Any funds   appropriated to the Commission for fiscal years 1994 through 1998 for the purpose   of assigning licenses using random selection under subsection (i) shall be used by the Commission to implement this subsection."(#""$0*%%""Ԍ xԙThe objective of this audit was to examine the system implemented by the Commission  xin FY 1994 to record and report auction cost information and to determine whether the  xsystem was providing timely, accurate and meaningful financial information to FCC  xymanagement. Auditors identified two areas personnel compensation and automation  xin which improvements could be made to ensure that future auction activity corresponded  x.with timely and accurate financial information. Both areas involved the lack of adequate  x-documentation to support reported costs. Specifically, the lack of adequate documentation resulted in the auditors developing questioned costs in the amount of $297,041.  xLThe auditors noted that there was no evidence to suggest that the conditions identified in  xKthis report resulted from any deliberate attempt to circumvent accounting controls. Rather,  x=the auditors were of the opinion that the Commission, in focusing it's energy and efforts  xtowards instituting a successful auction program in a short time frame, did not adequately address administrative issues.  xThe final audit report contained three recommendations for corrective action to which full  xconcurrence by management was received. Furthermore, in his response to the draft  x0report dated January 31, 1996, the Managing Director represented to the OIG that  x1corrective measures had already been implemented to address each of the audit recommendations.  x]While not within the scope of this audit report, it should be noted that the FCC has  xjcompleted four additional spectrum auctions, while two auctions remain in process as of  x[the close of this reporting period. On April 5, 1996, the Commission announced that the  xFCC had reached the $20 billion mark in total auction revenues to be deposited with the U.S. Treasury.  \^-2. xREPORT ON THE FOLLOWUP AUDIT OF PHYSICAL SECURITY OF THE xLOCAL AREA NETWORK (No. 961) xThe report was issued March 28, 1996  \F-  \@- xOn March 30, 1994, the OIG issued the Report on the Audit of Physical Security of the  \: - xLocal Area Network. In that report, the OIG concluded that the FCC had not established  xinternal controls which adequately protect components of the FCC network from physical  xand environmental threats. The objective of this audit was to determine whether the  xnCommission had implemented a corrective action program in response to the  xaforementioned report. An additional objective was to evaluate the controls in place to""$0*%%""  xensure the protection of network microcomputer work stations and laptops from physical and environmental threats.  xDuring the review, the auditors identified significant improvements in the Commission's  xcomputer security program. For example, subsequent to the issuance of our 1994 report,  xthe FCC completed a network risk assessment and developed a comprehensive security 2 xyear plan. In addition, the Commission issued a final version of the "FCC Computer  xSecurity Directive." This Directive provides a comprehensive framework for managing computer security on the variety of hardware and software platforms used by the FCC.  xAlthough the OIG recognized significant progress in the Commission's computer security  xprogram, the auditors found that further improvements are necessary to protect the  x1network from physical and environmental threats. Towards that goal, the OIG  xrecommended implementation of a series of controls to improve the security over network  xhardware. The Managing Director concurred with the two audit recommendations for corrective actions.  xjThe OIG also examined the management of laptop computer resources. Prior to 1994, a  x.limited number of laptop computers resided within the FCC. In the past two years, as a  xpart of the FCC's automation initiative, the FCC purchased over two hundred (200)  xadditional laptop computers with an acquisition cost ranging from $2,455 to $6,149 per  xunit. In order to evaluate accountability over laptop computers, the auditors sought to  xphysically verify a statistically derived sample of the overall population of threehundred  x.and seven (307) units. Using a statistical model based upon a ninetyfive percent (95%)  x=implied confidence factor and an acceptable error rate of five percent (5%), the auditors  xselected fiftyfour (54) laptop computers for physical verification. Of the sample  xpopulation, six (6) were not located, one (1) was reported as stolen and eleven (11) were not physically produced for physical verification.  \R- x  Based upon review of internal procedures, results of interviews and sample results, the  xkauditors determined that the Commission had not established an adequate program for  xzmanaging laptop computer resources commensurate with the financial investment and  xpotential for loss of data. In order to address this condition, the OIG developed and  xzaddressed two recommendations for corrective action to the Managing Director. The Managing Director concurred with both recommendations.  y.",K  "#0*%%G"w"Ԍ  yf,KINVESTIGATIONS   \-   \-  hK OVERVIEW   xInvestigative matters pursued by this office are generally initiated as a result of complaints  xNalleging fraud, waste, abuse, corruption or mismanagement by FCC employees, or  xaffecting the programs or operations of the Commission. Upon receipt of a complaint  xwhich alleges an administrative or criminal violation, the OIG usually conducts a  xpreliminary inquiry to determine if an investigation is warranted. Investigations may  xinvolve possible violations of regulations regarding employee responsibilities and conduct,  xFederal criminal law, and other regulations and statutes pertaining to the activities of  x\Commission employees. Investigative findings may lead to criminal prosecution, civil prosecution, or administrative action.  xThe OIG maintains a formal hotline for referral of potential waste, fraud, abuse and  xmismanagement of FCC programs or operations. All FCC staff were notified of the  x/establishment of the hotline and a Public Notice was issued by the Commission. The  xhotline number, 2024180473, is administered by the Special Assistant to the Inspector General.  \y< INVESTIGATIVE ACTIVITY   xDuring this reporting period, OIG investigative activity focused on two major  xLinvestigations. One investigation involved the alteration of time and attendance card data  x>by an FCC employee. This case is outlined in detail below. The second investigation  x|remains in an ongoing status and, as such, no further details are provided in this  x.semiannual report. In addition, the OIG continued to monitor a case previously referred to the Department of Justice and closed three additional investigative cases.  \I-  \C -Time and Attendance Fraud on the Part of an FCC Employee Status: Closed March 14, 1996  xOn October 24, 1995, an investigative referral was made to the OIG involving potential  xfraudulent activity on the part of personnel within the Common Carrier Bureau (CCB). "+$ 0*%%(#"  x@Details of the allegation involved the falsification of payroll data by one or more  x{timekeepers. The OIG performed investigative work in this area culminating in the  xissuance of an Investigative Report to the Chairman and other senior staff members dated March 14, 1996.  xThe Investigative Report identified that the FCC had not established internal controls  xnecessary to address deficiencies in the time and attendance system designed and  xmaintained by the National Finance Center, a component of the Department of  xAgriculture. Evidentiary matter suggests that an FCC employee exploited these internal  xcontrol weaknesses and was thus able to receive payments in the amount of $1002.76 for  x86 hours worked when in actuality she should have been in a Leave Without Pay (LWOP) or Absent Without Leave (AWOL) status.  xyIn addition to directing the FCC to initiate action to recover funds fraudulently disbursed,  xthe OIG recommended that administrative action be taken against two FCC employees  xincluding the financial beneficiary of the fraud. The Investigative Report also provided  \- xmanagement with two recommendations to mitigate the potential for future instances of  xpayroll fraud on the part of time keepers. Management concurred with all  xmrecommendations and is currently acting to terminate the primary subject of the investigation.  \-Allegation of Discrimination by Mass Media Bureau in Licensing an FM Radio Station Status: Closed March 19, 1996 In this reporting period, the OIG closed an investigation brought by an applicant for an  xFM radio station in Anchorage, Alaska. The applicant claimed that "(t)he Chiefs of the  xAudio Services, Mass Media Bureau, have applied the rules of competing for a new FM  xradio station in Anchorage, Alaska in favor of fraudulent applicants." The investigation  xfound that program officials appropriately invoked Section 73.211 of the Commission's  xRules, 47 C.F.R.  73.211, when it dismissed the complainants application. The  xCommission found that four of the seven other applicants for the Anchorage station  xproposed compliance with minimum Class C FCC requirements while the complainant  xsought a waiver from these requirements. No evidence was identified during the investigation of irregularities on the part of any FCC employees. ""$ 0*%%""Ԍ \-Allegation of Improper Conduct Within the International Bureau Status: Closed January 29, 1996  xAt the request of the Chief, International Bureau, the OIG performed investigative work  xin order to determine the basis for an allegation that FCC employees had engaged in  ximproper conduct. An FCC employee within the International Bureau had informed the  xChief, International Bureau that she had been solicited to use her official position to: (1)  x.illegally issue visas; (2) choose companies owned by friends and relatives for fellowship  x.programs or choose unqualified candidates for training with personal travel in mind; and (3) engage in actions which would be illegal.  xBased upon interviews of the claimant and other effected personnel a determination was  xmade that no basis existed to support these allegations. Furthermore, no evidentiary  xymatter was derived which would show that any illegality had occurred on the part of any FCC employee.  \-  \-Potential Violation of 18 U.S.C.  207 (a) (2) Status: Open  xAs reported in our previous semiannual report, on November 4, 1994, the OIG was made  xaware of a possible violation of the twoyear postemployment restriction of 18 U.S.C.  x 207 (a) (2) by a former high level FCC employee. This matter was initially developed  xand forwarded on December 5, 1994, to the Public Integrity Section, Criminal Division,  xDepartment of Justice. During this reporting period the OIG concluded investigative  xactivity and prepared a summary report to the Public Integrity Section, Criminal Division,  xDepartment of Justice. The OIG awaits resolution in this matter, and thus, is maintaining this investigation in an open status.  \^-  \X- "L 0*%% "  y,K MANAGEMENT AND ADMINISTRATION   \Z-   \T-  fH< xH. Walker Feaster III was appointed Inspector General on April 14, 1996. Mr. Feaster,  xas Acting Inspector General during the sixmonth reporting period covered by this report,  xinitiated substantive work to further focus the work of this office towards addressing the  xneeds of the Agency. That is, to ensure the integrity and efficiency of FCC operations  xkduring a period in which our mission is rapidly expanding and our fiscal resources are significantly constrained.  xyThe FCC is an organization that is in the process of reinventing itself in order to meet the  x[ever changing needs of the customers of the Commission, and the new legislation which  x<is being enacted by Congress. In the FY 19941995 time frame, the focus of the FCC was  xjdirected at meeting the needs of our ongoing customers while successfully implementing  xthe auction program. This functional universe has been further expanded in the current year with the passage of the 1996 Telecommunications Act.  xThe Commission is in the process of implementing  n additional n  automated systems to speed  xcustomer service through electronic filings, callcenter operations, internet access to core  xFCC data bases and numerous other facets of agency operations. The OIG is acting to  xbring our audit universe up to speed with the new look of the FCC. Audits are being  x0planned in new program areas which traditionally house the greatest levels of risk,  xconstitute significant financial investment and maintain high visibility. The OIG is  xrevising the Strategic Plan to better address the new look FCC and will be issuing new directives both internal to the OIG and external to the other Bureaus and Offices.  x/The OIG will attempt to operate in a proactive mode in areas in which this office can  xmake a positive impact. One example is the procurement function. An additional audit  xposition has been allocated to this office in order to obtain an auditor with significant  xexperience in the U.S. Government procurement arena. The focus of this position will be  x-directed towards preaward contract audits, financial capability of prospective contractors,  xvalidity and support of invoices versus status of deliverables and contract closeout  xactivities. The goal is to assist management in getting the best deliverables possible at the most economical cost to the taxpayer. "$ 0*%%s#"Ԍ xyThe Inspector General has also requested a peer review in the coming reporting period in  x.order to ensure that this office is operating in full compliance with applicable regulations and laws. " 0*%%"  xSPECIFIC REPORTING REQUIREMENTS OF SECTION 5(a) OF THE INSPECTOR GENERAL ACT  \- Zx^   \-   !xThe following summarizes the Office of Inspector General response to the twelve  xspecific reporting requirements set forth in Section 5(a) of the Inspector General Act of 1978, as amended.  Z- x1. A description of significant problems, abuses, and deficiencies relating to the  x{administration of programs and operations of such establishment disclosed by such  Z -activities during the reporting period.   xNo such problems, abuses, or deficiencies were disclosed during the reporting period. x  Z- x2. A description of the recommendations for corrective action made by the Office during  xthe reporting period with respect to significant problems, abuses, or deficiencies identified  Z-pursuant to paragraph (1). xNo recommendations were made. See the response to paragraph (1).  Z|- x3. An identification of each significant recommendation described in previous semiannual reports on which corrective action has not been completed.  \p-  \j- xNo significant recommendations remain outstanding.  Zd-  x\4. A summary of matters referred to prosecutive authorities and the prosecutions and  ZX-convictions which have resulted.   AxAn investigation which was opened during the previous reporting period and  xreferred to the U.S. Department of Justice pursuant to section 4(d) of the Inspector  x\General Act remains in an open status. The investigation involves a potential violation of postemployment restriction of 18 U.S.C.  207 (a) (2).  \."-  5.xA summary of each report made to the head of the establishment under section  Z*#-(6)(b)(2) during the reporting period. "$$0*%%""Ԍ  xNo report was made to the Chairman of the FCC under section (6)(b)(2) during the reporting period.  Z- x6. A listing, subdivided according to subject matter, of each audit report issued by the  xOffice during the reporting period, and for each audit report, where applicable, the total  xdollar value of questioned costs (including a separate category for the dollar value of  xunsupported costs) and the dollar value of recommendations that funds be put to better use.  \-   xEach audit report issued during the reporting period is listed according to subject matter and described in part III, above.  Z -7. A summary of each particularly significant report.   xEach audit report issued during the reporting period is summarized in part III, above.  Z-  x=8. Statistical tables showing the total number of audit reports with questioned costs and  Z-the total dollar value of questioned costs.  \-  \- x The required statistical table can be found at Attachment A to this report.  Z|- x9. Statistical tables showing the total number of audit reports with recommendations that  Zv-funds be put to better use and the dollar value of such recommendations.  \j- x The required statistical table can be found at Attachment B to this report.  Z^- x10. A summary of each audit report issued before the commencement of the reporting  xperiod for which no management decision has been made by the end of the reporting  xperiod (including the date and title of each such report), an explanation of the reasons  xsuch management decision has not been made, and a statement concerning the desired  ZF-timetable for achieving a management decision on each such report. xNo management decisions fall within this category.  Z4!-  x11. A description and explanation of the reasons for any significant revised management  Z(#-decision made during the reporting period. ""$0*%%""Ԍ \- x No management decisions fall within this category.  Z- x-12. Information concerning any significant management decision with which the Inspector  Z-General is in disagreement. xNo management decisions fall within this category.