Vietnam Education Foundation: Recent Improvements Made in Internal Controls, but Weaknesses Persist
Highlights
The Vietnam Education Foundation (VEF) Act of 2000 established VEF as an independent agency of the executive branch. A 13-member board of directors provides primary oversight. VEF also receives guidance from other entities in carrying out its mission to further bilateral relations between the United States and Vietnam through educational exchanges in science, technology, and other fields. In light of challenges identified in managing VEF's operations, GAO was asked to examine the extent to which VEF has implemented a framework for internal control. To address this objective, GAO analyzed VEF's financial statements, audits, board meeting minutes, and policies and procedures, and conducted interviews with past and current board members, as well as VEF management and staff. GAO's Standards for Internal Control were used to assess this information
Since 2003, VEF has implemented some elements of internal control, but still lacks a comprehensive risk-based internal control framework. At its inception, VEF's board and management were responsible for creating programs as well as internal control; they focused on the former to start up a fellowship program and build ties with Vietnamese institutions. VEF then implemented some elements of internal control in response to external auditor findings, and since May 2009 has enhanced or adopted additional control activities, such as approving a Hanoi office manual. However, key gaps still exist in the five internal control standards: (1) A supportive attitude toward internal control and conscientious management is the foundation for all other standards, but the control environment at VEF has been inadequate and reactive. GAO found that VEF is not fully aware of its internal control responsibilities and has not clearly articulated a performance-based compensation framework. (2) Management needs to comprehensively identify risks, but VEF officials have conducted individual assessments of particular risks, such as creating budget forecasts, and not a comprehensive assessment. (3) Control activities are the policies and procedures that enforce management's directives, but GAO identified several areas in which VEF lacks clear control activities, such as lack of an office manual documenting policies for its Washington staff. (4) An agency should have relevant, reliable, and timely communications relating to internal as well as external events, but GAO determined that VEF management has not always communicated critical information effectively with either VEF's board or staff. (5) Ongoing monitoring of internal control should occur in the course of normal operations, but GAO found instances where VEF did not engage in ongoing monitoring, such as whether it continued to meet the requirements for exceptions to the Fly America Act.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Other | To strengthen and enhance the internal control framework at VEF and help provide management, the board, and the public with reasonable assurance that the agency control objectives of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations are being achieved, the VEF board should direct VEF's Executive Director to conduct periodic reviews of VEF's control environment to identify and address significant gaps and shortcomings, including the need to clarify responsibilities for management and oversight of VEF's internal control framework, compliance with applicable laws and regulations, and performance based-compensation practices. In doing so, VEF may wish to review and utilize applicable portions of various publicly available tools for evaluating the control environment component of an integrated framework (such as GAO's Internal Control Management and Evaluation Tool or the applicable Evaluation Tool section of COSO's Internal Control--Integrated Framework). |
We found that while the Vietnam Education Foundation's (VEF) board and management respond to issues when others raise them, they were not fully aware of their responsibilities for internal control. We recommended that VEF's management conduct periodic reviews of VEF's control environment to identify and address significant gaps and shortcomings. One example of internal control issues cited by our report was irregularities in cash awards provided to staff. The VEF concurred with our recommendations. In response, VEF's management took training in internal controls procedures, and VEF rapidly issued a statement to U.S. staff clarifying the cash awards. VEF management has also committed to using various tools on an annual basis to evaluate and assure that VEF has sufficient internal controls in place. In addition, board also approved a policy on awards for all staff in the U.S. and Vietnam.
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| Other | To strengthen and enhance the internal control framework at VEF and help provide management, the board, and the public with reasonable assurance that the agency control objectives of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations are being achieved, the VEF board should direct VEF's Executive Director to establish and document a systematic process for assessing risks to internal control, putting policies in place to manage those risks, monitoring and responding to changes in risk, and seeking the board's review of management's assessment. |
In response to our recommendation, VEF engaged a contractor who developed a corrective action plan for the agency, which it summarized in a June 2010 report. VEF has implemented a number of procedures contained in the plan, discussing fraud risk factors and identifying agency officials responsible for fraud prevention, detection and deterrence. VEF reports that the board reviewed this information, and management plans to revisit this process annually. VEF management has also instituted an annual process to identify risks to reliability of financial reporting and compliance with laws and regulations. This process consists of an identification of possible risks, such as improper recording of expenses, and action taken by management to mitigate those risks, such as monthly review by the responsible VEF official.
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| Other | To strengthen and enhance the internal control framework at VEF and help provide management, the board, and the public with reasonable assurance that the agency control objectives of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations are being achieved, the VEF board should direct VEF's Executive Director to develop and implement all appropriate written internal control activities, policies and procedures, consistent with the size and mission of VEF, to address the risk of not achieving operational and control objectives, including control activities applicable to: (1) the operation of the U.S.-based VEF office; (2) cash awards and raises for federal and contract employees; (3) prior notification to OPM of lump sum cash awards exceeding $10,000; (4) contracting, including procedures that are consistent with all applicable requirements; and (5) expenses for meals and travel, especially during VEF staff retreats and in the Hanoi office. |
The Vietnam Education Foundation (VEF) concurred with our recommendations. In response to our recommendation, VEF implemented a variety of internal control activities, including a staff handbook for its Washington office, policies on pay and awards for both federal and contract employees, and policies on expenses for meals and travel.
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| Other | To strengthen and enhance the internal control framework at VEF and help provide management, the board, and the public with reasonable assurance that the agency control objectives of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations are being achieved, the VEF board should direct VEF's Executive Director to implement mechanisms to define and communicate appropriate information on program, financial, and administrative activities and related internal controls to those who need it to effectively manage and oversee VEF's operations. |
In response to our recommendation, VEF management began formally writing and distributing policies for both its U.S. and Hanoi staff. VEF also instituted monthly all-staff meetings for the U.S. and Hanoi staff, and weekly U.S. staff meetings. In addition, VEF management took steps to actively involve the board in the changes and implementations of new procedures, by including reports and updates in upcoming board meeting agendas. Through newly-established Executive Committees, the Board engages in more frequent interaction and communication with VEF management on matters of finance and administration, as well as other issues.
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| Other | To strengthen and enhance the internal control framework at VEF and help provide management, the board, and the public with reasonable assurance that the agency control objectives of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations are being achieved, the VEF board should direct VEF's Executive Director to strengthen monitoring by developing and implementing reasonable processes and procedures to regularly monitor the performance of key internal controls. |
The Vietnam Education Foundation (VEF) concurred with our recommendations. In response, VEF engaged a contractor who developed a list of activities for the board and management to review in the area of finance and administration. VEF has implemented a number of procedures contained in the plan, such as reviewing the effectiveness of key internal controls on a regular basis, typically quarterly or annually. In addition, VEF plans to attend relevant meetings at the Small Agency Council for the Federal Government, and attends GSA informational sessions for small agencies.
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| Other | In addition, the VEF Board should monitor and oversee VEF management's actions to implement these recommendations, as well as VEF's ongoing management of its internal control framework. |
In response to our recommendation, VEF established two executive committees: one for finance and administration, and the other for programs and operations. Board members, VEF staff, and the Executive Director serve on these two committees. The committees meet once per month between board meetings. In addition, the Chair of the Board and the Executive Director communicate by phone at least twice per month.
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