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United States Patent and Trademark Office
Performance and Accountability Report Fiscal Year 2003
Management Discussion and Analysis

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

Management Controls 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)
  • Inspector General (IG) Act Amendments
  • Federal Financial Management Improvement Act (FFMIA)
  • OMB Financial Management Indicators
  • Prompt Payment Act
  • Civil Monetary Penalty Act
  • Debt Collection Improvement Act
  • Biennial Review of Fees
  • Improper Payments Information Act

Federal Managers’ Financial Integrity Act

The FMFIA requires Federal agencies to provide annually a statement of assurance regarding management controls and financial systems. The statement of assurance is provided in the Director’s opening letter in the front of this report. This statement was based on the review and consideration of a wide variety of evaluations, internal analyses, reconciliations, reports, and other information, including Commerce OIG audits, and the independent public accountants’ opinion on USPTO financial statements and reports on internal controls and compliance with laws and regulations. In addition, USPTO is not identified on the General Accounting Office’s (GAO) High Risk List related to controls governing various areas.

During the third quarter of FY 2003, the OIG reviewed the USPTO IT Security Program and reported substantial improvement over the previous year. In FY 2002, none of our critical information systems were certified and accredited. At that time, OIG recommended declaration of a FISMA material weakness until the C&A had been completed for all mission critical and classified systems.

By contrast, in FY 2003 we accomplished rigorous C&A in accordance with Government standards for all mission critical and classified systems. Beginning with the Network Perimeter, eleven aggregate systems, comprising approximately 65 percent of processing equipment, were inspected and deficiencies were noted. Each inspected system had deficiencies that required remediation prior to the USPTO Designated Approving Authority granting full Authority To Operate. The Network Perimeter completed interim authority to operate in February 2003 and subsequent remediation of risks by June 2003, allowing full Authority to Operate. Remaining mission critical and classified systems were granted interim authority to operate in September 2003 with remediation plans scheduled for completion by January 2004.

We have demonstrated the ability to execute C&A remediation in compliance with Government standards with the Network Perimeter System. The rigor of inspection and demonstrated ability to resolve deficiencies provides substantial results in addressing the FY 2002 material weakness. While the OIG reflected this progress in its annual FISMA review for the Department (Independent Evaluation of the Department of Commerce’s Information Security Program Under the Federal Information Security Management Act, Final Inspection Report No. OSE-16146, Sep 2003), the report recommends that USPTO repeat its FISMA material weakness declaration in FY 2003 until all mission critical and classified systems receive full authority to operate.

All remaining business essential systems are scheduled for completed C&A by September 2004.

Inspector General Act Amendments

Section 106 of the IG Act Amendments (P.L. 100-504) of The IG Act (as amended) requires semi-annual reporting on IG audits and related activities as well as agency follow-up. The report is required to provide information on the overall progress on audit follow-up and internal management controls, statistics for 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, 2003, while actions were being taken to address the findings, management still had four recommendations outstanding on reports issued in FY 2002 and prior. No new reports had been issued during FY 2003. For a summary of audit findings and recommendations, see below.

Status of IG Act Amendments Audit Recommendations
as of September 30, 2003
Report for Fiscal Year Status Recommendation Action Plan Completion Date
FY 2001 Open To improve overall personnel operations regarding the clearing of backlogged personnel actions forms and to strengthen internal controls over the Official Personnel Files (OPF). A quarterly review began 10/1/02. All missing SF-50s have been printed for all on-site OPFs. OPFs that are currently signed out by others in the USPTO organization will be audited as they are returned over the next fiscal year. Estimated September 2004
FY 2001 Open Coordinate training in international intellectual property law enforcement and provide clarification of the Council's role to the other agencies involved. One additional full-time equivalent was hired in August 2003. When the action plan was developed several years ago, it was envisioned that the enforcement staff levels would increase significantly. Estimated January 2004
FY 2002 Open Reexamine the recruiting process to determine whether recruiting techniques can be developed to better identify those applicants most suited, and those not suited, for the patent examination process. The partnership with the OPM to conduct a study to determine if we can develop patent examiner candidate characteristics along with a series of questions for use as a recruiting tool has been delayed due to budget constraints. USPTO has developed and completed an in-house survey to determine the need for pre-employment testing of applicants for oral and written communication skills. The results are being evaluated to determine the need for pre-employment testing. Estimated September 2004
FY 2002 Open Reexamine the recruiting process to better inform patent examiner applicants about the nature of USPTO's production-oriented work environment. A number of revisions and updates to the Recruitment CD were placed on hold because of the new USPTO logo that was official as of October 1, 2003. A sound/video byte with current examiners will be included in the next update. Estimated September 2004

Federal Financial Management Improvement Act

The FFMIA requires Federal agencies to report on agency compliance with Federal financial management system requirements, Federal accounting standards, and the U.S. Government Standard General Ledger. The USPTO substantially complied with all three aspects of the FFMIA for FY 2003.

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 2003 against performance targets established internally and by the OMB:

USPTO FY 2003 Financial Performance Measures
Financial Performance Measure FY 2003 Target FY 2003 Performance
Percentage of Timely Vendor Payments 95% 97%
Percentage of Payroll by Electronic Transfer 90% 99%
Percentage of Treasury Agency Locations Fully Reconciled 95% 100%
Timely Posting of Inter-Agency Charges 30 days 21 days
Timely Reports to Central Agencies 95% 100%
Average Processing Time for Travel Payments 8 days 6 days
Audit Opinion on FY 2003 Financial Statements Unqualified Unqualified
Material Weaknesses Reported for FY 2003 None None

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 2003, the USPTO did not pay interest penalties on 97.1 percent of the 9,168 vendor invoices processed, representing payments of approximately $418.5 million. Of the 565 invoices that were not processed in a timely manner, the USPTO was required to pay interest penalties on 270 invoices, and was not required to pay interest penalties on 295 invoices, where the interest was calculated at less than $1. The USPTO paid only $86 in interest penalties for every million dollars disbursed in FY 2003. 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 2003.

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, the organization transferred all debt more than 180 days old to the U.S. Department of 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 to evaluate the costs of activities and to 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.

Improper Payments Information Act

During FY 2003, USPTO had controls in place to identify erroneous payments. In FY 2004, we have initiated procedures to formally monitor all erroneous payments, such as inadvertent errors. However, we do not anticipate having any erroneous payments during FY 2004 that exceed the ten million dollar threshold.

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