U.S.-China Economic And Security Review Commission:

Actions Needed to Improve Controls over Key Management Functions

GAO-07-1128: Published: Sep 28, 2007. Publicly Released: Sep 28, 2007.

Additional Materials:

Contact:

Loren Yager
(202) 512-4347
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

In October 2000, Congress established the U.S.-China Economic and Security Review Commission to assess the national security implications of the trade and economic relationship between the United States and the People's Republic of China and issue an annual report by June 1. The 12-member commission has a budget of about $3 million. As requested, GAO assessed the extent to which the commission has (1) complied with its charter, (2) had an organizational structure and policies and procedures for managing its operations effectively, and (3) had internal control over the financial management and reporting that provides reasonable assurance that resources are not at risk. To address these objectives, GAO analyzed the commission's charter, annual reports, records, and management policies and procedures and interviewed commissioners, executive directors, and staff. GAO focused on fiscal years 2005 and 2006 financial transactions.

Although the contents of the commission's annual reports have complied with statutory reporting requirements, the commission has not met the annual reporting deadline. It issued its 2005 and 2006 reports over 5 months late because the commissioners' appointment dates and the commission work cycle activities are not aligned with the annual reporting deadline. For example, over half the commissioners' terms will expire in December, 5 months before they are to approve and issue the 2008 report. However, the commission has taken steps to comply with applicable provisions of the Federal Advisory Committee Act. The commission's organizational structure and management policies and procedures have weaknesses and are not in accordance with GAO's internal control standards for the federal government. The commission has not formally defined and assigned key management duties and responsibilities that are typically divided or segregated among different people. Also, policies and procedures were insufficient, incomplete, or not adequately documented. For example, GAO found that the commission had no written policies or procedures to ensure that the procurement of certain goods and services was transparent, competitive, and at the best value. Internal control over financial management and reporting was not adequate to provide reasonable assurance that activities were properly processed and recorded and complied with federal laws and regulations. GAO noted weak or missing internal controls in three broad areas. In examining non-payroll-related financial transactions, GAO found inadequate documentation, lack of proper authorization and approval, and improper classification, including $13,000 in questionable purchases. The purchase and travel card programs lacked written guidance, proper segregation of duties, and adequate training. Also, time and attendance records were not always approved according to the commission's policies and procedures. As a result of inadequate control in these areas, the commission's financial resources are at an increased risk of fraud, waste, abuse, and mismanagement.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: To improve the timeliness of the commission's annual reports, Congress may wish to consider aligning the U.S.-China Economic and Security Review Commissioners' appointment dates with the annual report issuance date. Depending on its needs, Congress could, for example, either move the commissioners' appointment date from January to July, so that the commission has enough time to plan and issue its report by June 1 the following year, or keep the commissioners' appointment date in January and move the report issuance date to December 1.

    Status: Closed - Implemented

    Comments: In September 2007, GAO recommended in a report entitled "U.S.-China Economic and Security Review Commission: Actions Needed to Improve Controls Over Key Management Functions" (GAO-07-1128) that, to improve the timeliness of the commission's annual reports, Congress should consider aligning the commissioners' appointment dates with the annual report issuance date. The recommendation further stated that, depending on its needs, Congress could, for example, either move the commissioners' appointment date from January to July, so that the commission has enough time to plan and issue its report by June 1 the following year, or keep the commissioners' appointment date in January and move the report issuance date to December 1. Congress relied on GAO's report while considering legislation affecting the commission. On December 26, 2007, the President signed Public Law 110-161, which moves the commission's report issuance date from June to December. Specifically, the law amends section 1238(c)(1) of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 by striking "June" and inserting "December."

    Recommendations for Executive Action

    Recommendation: To improve management of its operations and reduce risks, the commission should apply internal control standards aimed at (1) strengthening its organizational structure so that key management duties and responsibilities are segregated and (2) improving its management policies and procedures so that they are well-documented, communicated, and consistently applied and reflect expert legal and managerial advice where appropriate. Specifically, the U.S.-China Economic and Security Review Commission should review the organization's staffing needs for management functions, including human capital, procurement, budgeting, and financial management; properly segregate key duties and responsibilities among specific officials; and ensure that these officials have appropriate knowledge, experience, and training to perform these management functions.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: GAO recommended in that the commission review staffing needs for human capital, procurement, budgeting, and financial management functions and properly segregate key duties and responsibilities among specific officials; and ensure that these officials have appropriate knowledge, experience, and training to perform these management functions. As a result of our recommendation, commission officials reviewed its staffing needs for the various management functions in February 2008, and subsequently formally assigned management duties to individuals. The commission considered the segregation of key responsibilities and in consultation with expert advice put procedures in place to help ensure staff have the appropriate knowledge and experience and receive training to perform these functions. The resulting actions, if consistently and effectively implemented over time, will improve the management of the commission's operations and reduce risks identified in our report.

    Recommendation: To improve management of its operations and reduce risks, the commission should apply internal control standards aimed at (1) strengthening its organizational structure so that key management duties and responsibilities are segregated and (2) improving its management policies and procedures so that they are well-documented, communicated, and consistently applied and reflect expert legal and managerial advice where appropriate. Specifically, the U.S.-China Economic and Security Review Commission should fully implement recently developed human capital polices and procedures for evaluating the commission's professional and administrative staff, and put in place comprehensive written hiring, training, and EEO-related procedures.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: GAO recommended that the U.S.-China Economic and Security Review Commission (USCESRC) improve its human capital policies and procedures by fully implementing recently developed human capital policies and procedures for evaluating the commission's professional and administrative staff, and put in place comprehensive written hiring, training, and Equal Employment Opportunity-related procedures. As a result of our recommendation, commission officials continued to implement its performance management policy adopted in May 2006, and according to commission officials have completed two full cycles. In addition, as of March 2008, the commission adopted more fully developed written human capital policies with the help of a consulting and technical services firm; these policies now include hiring, training and Equal Employment Opportunity-related procedures. This improved guidance, if consistently and effectively implemented, will improve human capital management at the commission.

    Recommendation: To improve management of its operations and reduce risks, the commission should apply internal control standards aimed at (1) strengthening its organizational structure so that key management duties and responsibilities are segregated and (2) improving its management policies and procedures so that they are well-documented, communicated, and consistently applied and reflect expert legal and managerial advice where appropriate. Specifically, the U.S.-China Economic and Security Review Commission should establish comprehensive written research and non-research-related procurement policies and procedures that ensure transparency and competition as much as possible.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: In September 2007, GAO recommended in a report entitled "U.S.-China Economic and Security Review Commission: Actions Needed to Improve Controls over Key Management Functions" (GAO-07-1128) that the commission improve its written procurement policies and procedures. Specifically, we recommended the USCESRC establish comprehensive written research and non-research related procurement policies and procedures that ensure transparency and competition as much as possible. As a result of our recommendation, on September 11, 2008, commission officials formally adopted its Procurement/Contracting policy including written procurement policies and procedures that cover both research and non-research related procurement. This improved guidance, if consistently and effectively implemented, will improve management of procurement and contracting activities and financial management at the commission.

    Recommendation: To improve management of its operations and reduce risks, the commission should apply internal control standards aimed at (1) strengthening its organizational structure so that key management duties and responsibilities are segregated and (2) improving its management policies and procedures so that they are well-documented, communicated, and consistently applied and reflect expert legal and managerial advice where appropriate. Specifically, the U.S.-China Economic and Security Review Commission should expand the ethics guidance for commissioners to include guidelines for speaking engagements and payment of related travel expenses, and require that commissioners and staff review and formally acknowledge the ethics guidance periodically.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: GAO recommended that the U.S.-China Economic and Security Review Commission (USCESRC) improve its ethics guidance by expanding the ethics guidance for commissioners to include guidelines for speaking engagements and payment of related travel expenses, and by requiring that commissioners and staff review and formally acknowledge the ethics guidance periodically. As a result of our recommendation, commission officials updated and expanded its existing policies and rules related to ethics in September 2008. As part of implementing these, commission officials reported in March 2009, that training sessions have been conducted. In addition, the commission now has procedures in place for the commissioners and staff to regularly review and acknowledge ethics guidance. This improved ethics guidance, if consistently and effectively implemented, will improve the operations of the commission and reduce risks identified in our report.

    Recommendation: To improve management of its operations and reduce risks, the commission should apply internal control standards aimed at (1) strengthening its organizational structure so that key management duties and responsibilities are segregated and (2) improving its management policies and procedures so that they are well-documented, communicated, and consistently applied and reflect expert legal and managerial advice where appropriate. Specifically, the U.S.-China Economic and Security Review Commission should put in place policy and procedures manuals and obtain advice from legal and management experts to make sure that policies and procedures are technically sound.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: GAO recommended that the U.S.-China Economic and Security Review Commission (USCESRC) better document its policies and procedures. Specifically, we recommended the USCESRC put in place policy and procedure manuals and obtain advice from legal and management experts to make sure that policies and procedures are technically sound. As a result of our recommendation, as of March 2009 commission officials have implemented a manual containing its rules, policies, and procedures, which were reviewed by legal and management experts. In addition, the commission adopted a rule to annually review its rules, policies, and procedures in January 2009. These improvements, if consistently and effectively implemented, will facilitate better commission management and reduce risks identified in our report.

    Recommendation: Furthermore, to improve internal control over financial management and reporting, the commission should document applicable policies and procedures and communicate them to applicable commission staff, and segregate key duties and responsibilities, to the extent possible, so that no one individual controls all key aspects of a transaction. Specifically, the U.S.-China Econmic and Security Review Commissioners should strengthen key controls over non-payroll-related transactions by ensuring that all transactions are supported by adequate documentation and are properly authorized, approved, and classified; and developing and documenting criteria for classifying transactions for the purpose of official representation, and developing and documenting a means to track such transactions within its accounting and reporting structure.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: As a result of our recommendation, the Commission, in FY 2008 and FY 2009, (1) amended its Financial, Travel, and Property Management policies and procedures which strengthened controls related to the authorization, support, and approval of all expenses authorized and paid by the commission, (2) expanded its Budget and Financial Management Policies by adding detailed descriptions of duties (including approvals and authorizations of documents) for key financial management personnel and a requirement that all expenses paid by the commission must be accompanied by relevant supporting documentation, and (3) issued a Commission Directive with policies and procedures for official representation expenses including criteria for classifying transactions for the purpose of official representation and a means to track such transactions within its accounting and reporting structure. The Commission's new and improved policies and procedures, if implemented fully and effectively, should help improve the efficiency and consistency of its financial management and internal controls.

    Recommendation: Furthermore, to improve internal control over financial management and reporting, the commission should document applicable policies and procedures and communicate them to applicable commission staff, and segregate key duties and responsibilities, to the extent possible, so that no one individual controls all key aspects of a transaction. Specifically, the U.S.-China Econmic and Security Review Commissioners should implement key controls over the commission's government travel and purchase card programs by providing training for staff who administer and use the government travel and purchase card programs, and developing and documenting commission policies and procedures with regard to food provided at commission hearings, quarterly business meetings, or any related events, in compliance with federal appropriations law prohibiting free food to government employees.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: As a result of our recommendation, since December 5, 2007 the Commission (1) centralized the use of the travel cards by issuing travel cards to only two staff members ; (2) in the Financial, Travel, and Property Management Policy, Office Management Manual, and Commission Travel Handbook enhanced its policies and procedures related to the travel and purchase card programs including authorizing purchases and processing travel authorizations and related reimbursements; (3) documented segregation of administrative duties related to authorizing purchases and authorizing travel and approving/certifying travel expenses for reimbursement in the Budget, and Financial Management Policies; (4) documented policies and procedures with regard to official representation expenses; and (5) hired a Procurement and Travel Specialist and trained the new staff member in the use of travel and purchase cards. These improved policies and procedures and the hiring and training of the Procurement and Travel Specialist, if implemented fully and effectively, should help improve internal controls over the Commission's travel and purchase transactions.

    Recommendation: Furthermore, to improve internal control over financial management and reporting, the commission should document applicable policies and procedures and communicate them to applicable commission staff, and segregate key duties and responsibilities, to the extent possible, so that no one individual controls all key aspects of a transaction. Specifically, the U.S.-China Econmic and Security Review Commissioners should conduct all Time and Attendance (T&A) reporting in accordance with commission policies and procedures by checking for proper authorization and approval before processing T&A records as part of the biweekly payroll procedures, and verifying that approval and certification is documented.

    Agency Affected: U.S.-China Economic and Security Review Commission

    Status: Closed - Implemented

    Comments: The commission enhanced its time and attendance policies and procedures to clarify its approval process and the segregation of payroll related duties. For example, the commission developed a new method to document the various levels of approval and certifications for its staff's time and attendance biweekly report.

    Jul 24, 2014

    Jul 21, 2014

    Jul 9, 2014

    Jul 8, 2014

    Jun 26, 2014

    Jun 25, 2014

    Looking for more? Browse all our products here