U.S.-China Economic And Security Review Commission: Actions
Needed to Improve Controls over Key Management Functions
(28-SEP-07, GAO-07-1128).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-1128
ACCNO: A76810
TITLE: U.S.-China Economic And Security Review Commission:
Actions Needed to Improve Controls over Key Management Functions
DATE: 09/28/2007
SUBJECT: Advisory committees
Economic research
Evaluation methods
Federal regulations
Financial management
Foreign governments
Internal controls
International relations
Performance appraisal
Performance measures
Policy evaluation
Program management
Reporting requirements
Risk management
Schedule slippages
Policies and procedures
Waste, fraud, and abuse
China
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GAO-07-1128
* [1]Results in Brief
* [2]Background
* [3]The Commission Has Not Fully Complied with Its Charter
* [4]The Commission Has Reported on Required Economic and Securit
* [5]The Commission Issued Annual Reports Late or Not at All
* [6]The Commission Has Implemented Applicable FACA Provisions
* [7]Weaknesses in Current Organizational Structure and Managemen
* [8]Organizational Structure for Managing Operations Has Weaknes
* [9]Commission Has Not Formally Assigned Most Management
Duties
* [10]Commission Has Relied on Its Associate Director for
Carrying
* [11]Management Policies and Procedures Have Weaknesses or Are No
* [12]Human Capital Policies and Procedures Are Incomplete or
Are
* [13]Procurement Policies and Procedures Show Weaknesses
* [14]Ethics Guidelines Have Some Shortcomings
* [15]Commission Has Not Appropriately Documented Its
Administrati
* [16]Ineffective Internal Control over Financial Management and R
* [17]Key Controls over Non-Payroll-Related Transactions Are Ineff
* [18]Travel and Purchase Card Programs Lack Key Controls
* [19]Travel Card
* [20]Purchase Card
* [21]Time and Attendance Reporting Lacks Proper Approvals
* [22]Conclusions
* [23]Matter for Congressional Consideration
* [24]Recommendations for Executive Action
* [25]Agency Comments and Our Evaluation
* [26]Appendix I: Objectives, Scope, and Methodology
* [27]Appendix II: Timeline of Events Related to USCESRC
* [28]Appendix III: USCESRC Appropriations and Expenses
* [29]Appendix IV: Economic and Security Issues Covered by 2002 US
* [30]Appendix V: Economic and Security Issues Covered by 2004 and
* [31]Appendix VI: USCESRC Procurement, Fiscal Year 2005
* [32]Appendix VII: USCESRC Procurement, Fiscal Year 2006
* [33]Appendix VIII: Comments from USCESRC
* [34]GAO Comments
* [35]Appendix IX: GAO Contact and Staff Acknowledgments
* [36]Order by Mail or Phone
* [37]PDF6-Ordering Information.pdf
* [38]Order by Mail or Phone
Report to Congressional Requesters
United States Government Accountability Office
GAO
September 2007
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
Actions Needed to Improve Controls over Key Management Functions
GAO-07-1128
Contents
Letter 1
Results in Brief 3
Background 6
The Commission Has Not Fully Complied with Its Charter 7
Weaknesses in Current Organizational Structure and Management Policies and
Procedures 18
Ineffective Internal Control over Financial Management and Reporting 33
Conclusions 43
Matter for Congressional Consideration 44
Recommendations for Executive Action 44
Agency Comments and Our Evaluation 46
Appendix I Objectives, Scope, and Methodology 48
Appendix II Timeline of Events Related to USCESRC 52
Appendix III USCESRC Appropriations and Expenses 53
Appendix IV Economic and Security Issues Covered by 2002 USCESRC Annual
Report 56
Appendix V Economic and Security Issues Covered by 2004 and 2005 USCESRC
Annual Reports 58
Appendix VI USCESRC Procurement, Fiscal Year 2005 59
Appendix VII USCESRC Procurement, Fiscal Year 2006 61
Appendix VIII Comments from USCESRC 63
GAO Comments 67
Appendix IX GAO Contact and Staff Acknowledgments 69
Tables
Table 1: Modifications to the Economic and Security Issue Areas in the
Commission's Charter 8
Table 2: Economic and Security Issue Areas Covered by the 2006 Annual
Report 10
Table 3: USCESRC Annual Report Issuance Dates 12
Table 4: Provisions of FACA That Apply to USCESRC 17
Table 5: Questionable Purchase Card Transactions, July 1, 2005-June 30,
2006 41
Table 6: USCESRC Appropriations, Fiscal Years 2001-2007 53
Table 7: USCESRC Major Operating Expenses, Fiscal Years 2001-2006 54
Table 8: Economic and Security Issue Areas Covered by the 2002 Annual
Report 56
Table 9: Economic and Security Issue Areas Covered by the 2004 and 2005
Annual Reports 58
Figures
Figure 1: Misalignment of Commissioners' Appointment Date and Commission's
Work Cycle with Reporting Cycle 13
Figure 2: Actual Ranges of Commissioner Appointment Dates 15
Figure 3: USCESRC Organizational Chart 21
Abbreviations
CRS Congressional Research Service
EEO equal employment opportunity
ES Executive Schedule
FACA Federal Advisory Committee Act
FAR Federal Acquisition Regulation
FTR Federal Travel Regulation
GPO Government Printing Office
GSA General Services Administration
OMB Office of Management and Budget
RFP request for proposal
T&A time and attendance
USCESRC U.S.-China Economic and Security Review Commission
WTO World Trade Organization
This is a work of the U.S. government and is not subject to copyright
protection in the United States. The published product may be reproduced
and distributed in its entirety without further permission from GAO.
However, because this work may contain copyrighted images or other
material, permission from the copyright holder may be necessary if you
wish to reproduce this material separately.
United States Government Accountability Office
Washington, DC 20548
September 28, 2007
The Honorable Robert C. Byrd
Chairman
Committee on Appropriations
United States Senate
The Honorable J. Dennis Hastert
House of Representatives
In October 2000, Congress established the U.S.-China Economic and Security
Review Commission (USCESRC). The commission is a small advisory body, one
of few such commissions that report to Congress rather than the President
or an executive branch agency. The charter of the commission, which does
not contain a time limit on its authorization, requires it to assess the
national security implications of the evolving bilateral trade and
economic relationship between the United States and the People's Republic
of China. The charter also requires that the commission report the results
of its work by issuing an annual report by June 1 addressing specific
economic and security issue areas. The charter makes the commission
responsible for managing its own operations, with broad discretion and
minimal oversight or support from other entities. The commission currently
has a budget of about $3 million and has requested an additional $1
million for fiscal year 2008. The commission has not been reviewed or
audited since it was created. In October 2000, Congress established the
U.S.-China Economic and Security Review Commission (USCESRC). The
commission is a small advisory body, one of few such commissions that
report to Congress rather than the President or an executive branch
agency. The charter of the commission, which does not contain a time limit
on its authorization, requires it to assess the national security
implications of the evolving bilateral trade and economic relationship
between the United States and the People's Republic of China. The charter
also requires that the commission report the results of its work by
issuing an annual report by June 1 addressing specific economic and
security issue areas. The charter makes the commission responsible for
managing its own operations, with broad discretion and minimal oversight
or support from other entities. The commission currently has a budget of
about $3 million and has requested an additional $1 million for fiscal
year 2008. The commission has not been reviewed or audited since it was
created.
To help Congress oversee the commission's activities, you requested that
we examine the commission's compliance with its charter and the
commission's management of its operations. In this report, we assess the
extent to which (1) the commission has complied with its charter, (2) the
commission has an organizational structure and policies and procedures for
managing its operations effectively, and (3) internal control over the
commission's financial management and reporting has provided reasonable
assurance that resources are not at risk. To help Congress oversee the
commission's activities, you requested that we examine the commission's
compliance with its charter and the commission's management of its
operations. In this report, we assess the extent to which (1) the
commission has complied with its charter, (2) the commission has an
organizational structure and policies and procedures for managing its
operations effectively, and (3) internal control over the commission's
financial management and reporting has provided reasonable assurance that
resources are not at risk.
To address these objectives, we analyzed the commission's statutory
charter and related laws and regulations, such as the Federal Advisory
Committee Act (FACA). According to the charter, as amended, the To address
these objectives, we analyzed the commission's statutory charter and
related laws and regulations, such as the Federal Advisory Committee Act
(FACA). According to the charter, as amended, the commission must
implement FACA, which provides a legal and institutional framework for the
operation of advisory committees.^1 We reviewed the commission's annual
reports and records, such as documents describing the organizational
structure of the commission and its management functions, including those
related to human capital, procurement, ethics and conflict of interest,
and budgeting and financial management and reporting. We assessed the
extent to which the commission has an organizational structure and
policies and procedures for managing its operations effectively based on
internal control standards for the federal government.^2 While these
standards are not binding for legislative branch agencies, they are a
statement of best practices and adherence to these standards provides
reasonable assurance regarding the prevention or prompt detection of
fraud, waste, abuse, and mismanagement. These standards give management of
federal agencies, regardless of size, the responsibility and discretion to
develop and implement the mechanisms for internal control necessary for
providing reasonable assurance that the objectives of the agency are being
achieved with regard to effective and efficient operations, reliable
financial reporting, and compliance with applicable laws and regulations.
In reviewing the commission's financial management and reporting, we
focused on transactions that occurred during fiscal years 2005 and 2006.
We did not audit any financial reports generated by or on behalf of the
commission, and we do not express an opinion on them. We interviewed
current and former commissioners, current and former executive directors,
and the current professional and administrative staff. In addition, we
reviewed information and met with officials from the Congressional
Research Service (CRS), Government Printing Office (GPO), General Services
Administration (GSA), Senate Select Committee on Ethics, and Senate Office
of Public Records. We performed our work from October 2006 to September
2007 in accordance with generally accepted government auditing standards.
Further details on our scope and methodology are included in appendix I.
^1Advisory committees are any committee, board, council, conference,
panel, task force, or other similar group established by statute, or by
the President or an agency, to obtain advice or recommendations for one or
more agencies and officers of the federal government. 5 U.S.C. App. S3(2).
^2See GAO, Standards for Internal Control in the Federal Government,
[39]GAO/AIMD-00-21 .3.1 (Washington, D.C.: November 1999); for additional
guidance see GAO, Internal Control Management and Evaluation Tool,
[40]GAO-01-1008G (Washington, D.C.: August 2001); and OMB, Management's
Responsibilities for Internal Control, OMB Circular A-123 Revised
(Washington, D.C., December 2004).
Results in Brief
Although the contents of the commission's annual reports have complied
with reporting requirements, the commission has not met its statutory
annual reporting deadline. The commission has broad discretion in deciding
what to report about the issue areas listed in its charter and in
determining what activities it should undertake to obtain the necessary
information. However, the commission had issued all of its annual reports
after the June 1 deadline and the commission did not issue its 2003 annual
report. In 2005 and 2006, for example, the commission issued its annual
reports about 5 months late. The commission has not issued its annual
reports on time because the appointment dates for commissioners and the
commission work cycle activities are not aligned with the annual report
issuance deadline. For example, the composition of the commission can
change significantly in the middle of a reporting cycle. In 2007, the
2-year terms of seven commissioners will expire on December 31, 5 months
before the 2008 report is due. The commission will not have a quorum to
conduct its work until at least two commissioners are appointed or
reappointed. Finally, the commission has to the extent possible taken
steps to comply with FACA, as required by a 2005 amendment to the
commission's charter. As an independent legislative branch entity, the
commission cannot apply certain FACA provisions, such as those
presupposing commissions operate within a larger agency, and has
implemented only those provisions which apply to its activities. However,
FACA implementation has been problematic, according to the commission,
because the law's open meeting requirements inhibit the discussion of
economic and security issues among commissioners during the open annual
report drafting sessions.
Weaknesses in the commission's current organizational structure and
management policies and procedures put the commission at risk of fraud,
waste, abuse, and mismanagement.
o In terms of its organizational structure, the commission has not
formally defined and assigned key management duties and
responsibilities, which generally should be divided or segregated
among different people. Instead, it has relied heavily on one
individual, its associate director, for handling management
functions, such as those regarding human capital, procurement,
ethics, and budgeting and financial management and reporting. Most
commissioners have played a limited and passive role in the
management of the commission. These organizational arrangements
hinder the efficient and effective use of commission resources.
o The commission's management policies and procedures were
insufficient, incomplete, or not adequately documented, and legal
and management experts had not reviewed them to ensure they are
technically sound in accordance with best practices. For example,
the commission's human capital policies and procedures are
incomplete or were not fully implemented, while others were not in
place. Specifically, the commission did not have policies and
procedures that fully reflect its hiring practices. It had no
policies and procedures for evaluating staff until it adopted some
in mid-2006 for use in 2007, and it did not have any guidelines
for training staff or addressing equal employment opportunity
(EEO) matters. Its policies and procedures for research
procurement were not comprehensive, and none existed for
nonresearch procurement, such as hearing support services and
office supplies, which accounted for over $450,000 in nonresearch
expenditures or over two-thirds of the commission's total
procurement expenditures in 2005 and 2006. Its ethics guidelines
for commissioners do not include guidance on speaking engagements
and related payments for travel expenses, and the commission does
not require commissioners and staff to review and formally
acknowledge ethics guidelines periodically, in accordance with
best practices.
GAO's Standards for Internal Control in the Federal Government^3
give management the responsibility and discretion for developing
and implementing internal control necessary for achieving
organizational objectives, managing operations and staff
effectively, and curtailing risks. The commission is currently
developing policy and procedures manuals. However, the absence of
adequately documented, consolidated, and vetted management
policies and procedures puts the commission at risk, especially if
staff responsible for key operations leave the commission.
The commission's internal control over financial management and
reporting was not adequate to provide reasonable assurance that
financial activities were properly processed and recorded and
complied with federal laws and regulations. Effective internal
control is the first line of defense in safeguarding assets and
preventing and detecting errors and fraud. We noted weak or
missing internal controls in our examination of the commission's
(1) non-payroll-related transactions, (2) travel and purchase card
activity, and (3) time and attendance (T&A) reporting. Our tests
of the commission's non-payroll-related transactions for fiscal
years 2005 and 2006 found deficiencies, such as missing or
inadequate supporting documentation, lack of proper authorization
and approval, and improper classification. The commission's
application of the government travel and purchase card programs
lacks written guidance, proper segregation of duties, and adequate
training. In addition, we identified questionable purchases of
over $13,000 made with the commission purchase card. Our review of
the commission's payroll process for fiscal years 2005 and 2006
showed that the commission's T&A records were not always approved
in accordance with the policies and procedures described by the
commission's management. 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.
^3GAO, Standards for Internal Control in the Federal Government,
[41]GAO/AIMD-00-21 .3.1 (Washington, D.C.: November 1999).
This report contains a matter for congressional consideration and
recommendations to the commission. Specifically, in discussing
ways to improve the timeliness of the commission's annual reports,
Congress should consider aligning the commissioners' appointment
dates with the annual report issuance date so that the entire
commission has enough time to plan and complete its work cycle
activities and deliver a report when Members of Congress can best
make use of the information. We also recommend that the commission
take steps to improve its organizational structure and management
policies and procedures. The commission has broad discretion to
take steps to address our recommendations.
The commission provided written comments on a draft of this
report, which are reprinted with our responses in appendix VIII.
In its letter, the commission concurred with our recommendations
and noted their potential to ensure that its operations are seen
to be both legal and appropriate. The commission emphasized that
its statute is very brief and, with respect to what internal
control mechanisms it should employ, offers no guidance on most
such matters and very little on those it addresses. The commission
indicated that it will follow GAO's internal control standards,
although these standards are not binding on legislative branch
entities, such as the commission, and specified that it will
develop a plan to address the weaknesses identified. The
commission's letter and technical comments on the draft, which we
received from the executive director, asked that we clarify
various parts of our report, which we have done, as appropriate.
Background
Congress established the U.S.-China Economic and Security Review
Commission (USCESRC)^4 on October 30, 2000, through Public Law No.
106-398, which transferred to USCESRC the facilities, material,
and staff of the U.S. Trade Deficit Review Commission. According
to the commission's charter, USCESRC must monitor and assess the
national security implications of the bilateral trade and economic
relationship between the United States and the People's Republic
of China. It must report results of its work in annual reports to
Congress, addressing specific economic and security issue areas.
The commission has had an annual budget of about $3 million since
fiscal year 2005 and has requested an additional $1 million to
fund its operations in fiscal year 2008. Appendix III provides
additional details on the commission's appropriations and
expenditures.
The commission consists of 12 commissioners, all but 3 of whom
hold other positions. The leadership of the Senate and the House
of Representatives appoint the commissioners to serve 2-year
terms, which are staggered. In turn, the commissioners select a
chairman and vice chairman from among themselves. The chairman and
vice chairman rotate between Democratic and Republican appointees
every year. Currently, a Democratic appointee is serving as
chairman and a Republican appointee as vice chairman. The
commission meets at the call of the chairman. A majority of
commissioners must be present for the commission to conduct
business. Appendix II depicts a timeline of commission-related
events, including the election dates of all of the chairmen and
vice chairmen since the inception of the commission.
Each commissioner is compensated at an hourly rate computed from
the annual rate of basic pay prescribed for level IV of the
Executive Schedule (ES-IV). Generally, the commissioners submit a
signed statement of hours worked on commission activities for a
given pay period, and they are reimbursed for that time. However,
a commissioner may not be reimbursed more than the annual rate of
pay for an ES-IV in a given fiscal year, which was $143,000 for
fiscal year 2006.
The commissioners are supported by an executive director, and
program and administrative support staff. The current executive
director is a senior executive detailed from the Department of
Commerce to the commission under a reimbursable agreement. Nine of
the 11 staff are excepted service federal employees, who have
1-year appointments and serve at the discretion of the commission.
Two administrative staff, including the associate director, work
for the commission under 1-year personal service contracts.
^4The commission originally was called the U.S.-China Security Review
Commission. A 2003 amendment to the commission's charter changed this name
to U.S.-China Economic and Security Review Commission.
To produce its report, the commission undertakes activities such
as holding hearings, conducting research, and traveling on
fact-finding missions to China and other countries. At the
direction of the commission, a commissioner or commissioners may
hold hearings. Currently, at least one Democratic appointee and
one Republican appointee co-chair each hearing. For example, the
commission held 14 hearings in 2005 and 8 hearings in 2006 and
plans to hold 8 hearings in 2007. Also, the commission relied on
internal research from its professional staff and
commission-sponsored external research by subject matter experts.
The Commission Has Not Fully Complied with Its Charter
The commission has not fully complied with the statutory
requirements set forth in its charter. The commission has covered
the required economic and security issue areas in its reports.
However, since it was established in 2000, the commission has
issued all of its annual reports after the required deadline and
failed to issue an annual report in 2003. According to the
commission's charter, the commission is required to submit an
annual report to Congress no later than June 1. The commission
submitted interim reports to Congress in 2006 and 2007 in an
effort to comply with this deadline. Further, the commission has
implemented those FACA provisions it is capable of applying.
The Commission Has Reported on Required Economic and Security Issue
Areas
The commission has complied with its statutory charter with regard
to the subjects on which it reports and the scope of its
activities. The commission has broad discretion to examine matters
related to U.S.-China economic and security issue areas. Since the
commission was established in 2000, Congress amended the statutory
charter twice to modify the language related to the scope of its
activities. We compared the mandated issue areas and annual report
contents and found the commission's annual reports covered the
statutory economic and security issue areas.
Despite statutory changes to the charter over time to narrow the
number and extent of reporting topics, the commission has broad
discretion on what specific matters to examine. The commission has
the authority to interpret its own regulations and statute. The
commission's statutory charter was amended three times, and the
second and third amendments modified the number of issue areas and
revised the language related to the scope of the economic and
security issue areas. The statutory charter originally mandated
that the commission's annual report "include, at a minimum, a full
discussion of" the 10 issue areas. In 2003, the second amendment
to the commission's charter reduced the number of issue areas from
10 to 9 and revised the language related to the scope of reporting
to instruct the commission to "focus, in lieu of any other areas
of work or study" on the 9 issue areas. In 2005, the third
amendment to the commission's charter reduced the number of issue
areas from 9 to 8 and revised the language related to the scope of
reporting to instruct the commission to "investigate and report
exclusively on each of the following" 8 issue areas. Table 1
compares the issue areas the commission is mandated to report on
in the annual report.
Table 1: Modifications to the Economic and Security Issue Areas in the
Commission's Charter
Charter amended Charter amended
Original charter, October 30, February 20, 2003: November 22, 2005:
2000: 10 issue areas 9 issue areas 8 issue areas
(1) The portion of trade in goods Proliferation Proliferation
and services with the United practices practices
States that the People's Republic
of China dedicates to military
systems or systems of a dual
nature that could be used for
military purposes.
(2) The acquisition by the Proliferation Proliferation
People's Republic of China of practices practices
advanced military or dual-use
technologies from the United
States by trade (including
procurement) and other technology
transfers, especially those
transfers, if any, that contribute
to the proliferation of weapons of
mass destruction or their delivery
systems, or that undermine
international agreements or United
States laws with respect to
nonproliferation.
(3) An overall assessment of the Proliferation Proliferation
state of the security challenges practices practices
presented by the People's Republic
of China to the United States and
whether the security challenges
are increasing or decreasing from
previous years.
(4) Any transfers, other than Corporate reporting (No longer
those identified under required)
subparagraph (B), to the military
systems of the People's Republic
of China made by United States
firms and United States-based
multinational corporations.
(5) An analysis of the statements (No longer (No longer
and writing of the People's required) required)
Republic of China officials and
officially sanctioned writings
that bear on the intentions, if
any, of the government of the
People's Republic of China
regarding the pursuit of military
competition with, and leverage
over, or cooperation with, the
United States and the Asian allies
of the United States.
(6) The military actions taken by Regional economic Regional economic
the government of the People's and security and security
Republic of China during the impacts impacts
preceding year that bear on the
national security of the United
States and the regional stability
of the Asian allies of the United
States.
(7) Patterns of trade and Regional economic Regional economic
investment between the People's and security and security
Republic of China and its major impacts impacts
trading partners, other than the
United States, that appear to be
substantively different from trade
and investment patterns with the
United States and whether the
differences have any national
security implications for the
United States.
(8) The effects, if any, on the United States United States
national security interests of the capital markets capital markets
United States of the use by the
People's Republic of China of
financial transactions and capital
flow and currency manipulations.
(9) Any action taken by the World Trade World Trade
government of the People's Organization Organization
Republic of China in the context compliance compliance
of the World Trade Organization
that is adverse or favorable to
the United States national
security interests.
(10) The extent to which the trade United States-China United States-China
surplus of the People's Republic bilateral programs bilateral programs
of China with the United States
enhances the military budget of
the People's Republic of China.
Economic reforms Economic transfers
and United States
economic transfers
(No requirement) Energy Energy
(No requirement) Media control Freedom of
expression
Source: GAO analysis of USCESRC charter and amendments.
Our analysis of the content covered in the commission's four public annual
reports found that the economic and security issue areas were covered as
required. We found the commission's 2002 annual report covered the 10
economic and security issue areas mandated at the time. Some chapters
address more than one reporting requirement and are listed multiple times.
Furthermore, chapter 4 of the 2002 annual report covers political and
civil freedoms, which was not a specified issue area but was within the
scope of reporting because the charter originally mandated the
commission's annual report "include, at a minimum," the 10 issue areas.
Appendix IV provides details on the issue areas covered by the
commission's 2002 annual report. We found the commission's 2004 and 2005
annual reports covered the 9 economic and security issue areas mandated at
the time. Appendix V provides details on the 9 issue areas covered by the
commission's 2004 and 2005 annual reports. We found the commission's 2006
annual report covered the 8 economic and security issue areas currently
mandated. See table 2 for the 8 issue areas covered by the commission's
2006 annual report.
Table 2: Economic and Security Issue Areas Covered by the 2006 Annual
Report
Eight economic and security Issue areas covered by chapter in 2006
issue areas required by statute annual report
(1) Proliferation practices Chapter 2: China's Global and Regional
Activities and Other Geostrategic
Developments
(2) Economic transfers Chapter 3: China's Military Power and Its
Effects on North American Interests and
Regional Security
Chapter 4: A Case Study of the Automotive
Industry That Illustrates Challenges to
U.S. Manufacturing and the U.S. Defense
Industrial Base
(3) Energy Chapter 2: China's Global and Regional
Activities and Other Geostrategic
Developments
(4) United States capital Chapter 1: U.S.-China Trade and Economic
markets Relationship
(5) Regional economic and Chapter 1: U.S.-China Trade and Economic
security impacts Relationship
Chapter 2: China's Global and Regional
Activities and Other Geostrategic
Developments
Chapter 3: China's Military Power and Its
Effects on North American Interests and
Regional Security
Chapter 5: China's Internal Problems,
Beijing's Response, and Implications for
the United States
(6) United States-China Chapter 1: U.S.-China Trade and Economic
bilateral programs Relationship
Chapter 4: A Case Study of the Automotive
Industry That Illustrates Challenges to
U.S. Manufacturing and the U.S. Defense
Industrial Base
(7) World Trade Organization Chapter 1: U.S.-China Trade and Economic
compliance Relationship
Chapter 4: A Case Study of the Automotive
Industry That Illustrates Challenges to
U.S. Manufacturing and the U.S. Defense
Industrial Base
(8) Freedom of expression Chapter 6: China's Media and Information
Controls
Source: GAO analysis of USCESRC charter.
According to the chairman, the commissioners discuss the mandate in
relation to the scope of activities and reporting. Furthermore, the
commissioners discuss the scope of the issue areas identified in the
commission's statutory charter before reaching consensus on the annual
work plan. While acknowledging that the mandate restricts the scope of
reporting to the eight issue areas, several commissioners noted that they
sometimes debate what the commission should cover under these areas
because they leave room for interpretation. The chairman stated that the
commissioners use the issue areas to plan commission activities, including
research, hearings, and overseas trips.
The commission has broad discretion to conduct activities to fulfill its
reporting requirement and can base its reports on a variety of activities.
During the commission's quarterly business meetings at the conclusion of
one calendar year and the beginning of the next, commissioners discuss the
scope of activities identified by the commission's statutory charter and
reach consensus on the annual work plan. According to its statutory
charter, the commission can hold hearings, conduct internal and external
research, secure relevant information from U.S. departments and agencies
through classified and unclassified briefings, and carry out fact-finding
missions abroad. For example, the commission used all of these methods to
collect information for the 2006 annual report. Specifically, the
commission held eight public hearings on the required economic and
security related issue areas and delivered a letter to Congress
summarizing significant findings and providing interim recommendations
after each. The commission authorized external research contracts on
issues, such as China's antisatellite and space warfare activities and
China's oil and gas investments abroad. The commission received briefings
from several U.S. agencies, such as the Department of Defense and the
intelligence community. An official commission delegation conducted a
fact-finding mission to China, Hong Kong, and Taiwan in June 2006.
During the 2007 reporting cycle, the commission has held five public
hearings as of July 2007 and plans to hold three others through September
2007. All examine topics related to the eight mandated economic and
security issue areas. The commission also plans to award external research
contracts. For example, the commission recently selected a proposal
submitted in response to an advertised request for proposals (RFP) and
awarded a contract providing for a report tracing the parts and components
supply chains for three key U.S. weapon systems. Throughout 2007, the
commission plans to receive classified and unclassified briefings from
U.S. departments, agencies, and the intelligence community. A commission
delegation traveled to China and Hong Kong in April 2007, and another
delegation of commissioners and staff traveled to Taiwan and India in
August 2007.
The Commission Issued Annual Reports Late or Not at All
Since its inception, the commission has failed to submit its annual report
to Congress in time to comply with the statutory reporting deadline. The
commission's charter requires the commission to submit its annual report
to Congress no later than June 1 each year. The commission has issued its
annual reports late or, in one instance for reasons discussed below, not
at all. The commission was established in October 2000 and was not
required to submit its first report until March 1, 2002. The charter was
amended on November 12, 2001, to change the report issuance date to June
1, 2002. Congress modified the reporting date from March to June because,
according to a former executive director, the commission "was getting
organized and it would have been difficult to produce a report by March."
Even with the congressional amendment extending the reporting date 3
additional months, the commission issued its 2002 annual report on July
15, 2002.
Our analysis of the commission's annual report issuance dates reveals
inconsistent submission dates, with longer delays in 2005 and 2006. For
example, the delays in the issuance dates ranged from 9 days in 2004 to
161 days in 2005. The final 2006 report was issued to Congress 151 days
after the deadline. To comply with the June 1 deadline, the commission
submitted interim reports in 2006 and 2007. However, the former was 20
days late; the latter was on schedule. In its budget request for fiscal
year 2008, the commission has requested the issuance date for the annual
report be extended to December 1. Table 3 shows the June 1 annual report
issuance dates since the inception of the commission and number of days
each annual report was late.
Table 3: USCESRC Annual Report Issuance Dates
2002 2003 2004 2005 2006 2007
Mandated issuance June 1 June 1 June 1 June 1 June 1 June 1
date of annual
report
Actual issuance date July No report June November October Planned for
of annual report 15 issued 10 9 30^a November^b
Number of days late 44 Not 9 161 151 Not
applicable applicable
Source: GAO analysis of USCESRC data.
aUSCESRC submitted an interim report to Congress on June 21, 2006 (20 days
late).
bUSCESRC submitted an interim report to Congress on June 1, 2007.
The commission has not issued its annual reports on time because
appointment dates for commissioners and the commission work cycle
activities are not aligned with the annual report issuance deadline.
Figure 1 shows this misalignment. The commission has scheduled its work
cycle activities according to when commissioners are appointed, not by the
statutory June 1 annual reporting date. Currently, the commission's work
cycle activities for developing, producing, and submitting its annual
report to Congress is from January through November. The commission
approves its annual work cycle schedule after the new chairman and vice
chairman and the new commissioners are in place early in the calendar
year.^5
Figure 1: Misalignment of Commissioners' Appointment Date and Commission's
Work Cycle with Reporting Cycle
According to the commission's charter, the President pro tempore of the
Senate, acting on the recommendation of both majority and minority
leaders, appoints six commissioners, and the Speaker and the Minority
Leader of the House each select three commissioners for 2-year terms that
begin in January and end in December of the following year, and they can
reappoint commissioners; the terms are staggered. They should appoint
commissioners no later than 30 days after the date on which each new
Congress convenes. Congress regularly convenes on January 3, unless
Congress by law designates a different day to convene. Thus, they normally
should appoint commissioners no later than February 2. In practice, they
have appointed 26 of 45 commissioners after this date. For example, in
2003, the commission did not produce an annual report because the required
number of commissioners to form a quorum was not appointed or reappointed
until May 6, 2003, giving the commission only 26 days to issue its annual
report by the June 1 deadline. Figure 2 shows the actual ranges of
commissioner appointment dates.
^5According to internal commission rules, "The chairmanship and vice
chairmanship of the commission ... shall be for the period beginning six
weeks after the public release of the Commission's statutorily mandated
annual public report to the Congress until six weeks after the release of
the following year's public annual report."
Figure 2: Actual Ranges of Commissioner Appointment Dates
Note: No commissioners were appointed in 2002.
The current misalignment makes it difficult for the commission to develop
and produce the annual reports on schedule. The chairman, vice chairman,
and executive director estimate that the commission needs about 11 months
to conduct the work and research necessary to produce a robust annual
report that addresses the required economic and security issue areas and
that reflects bipartisan consensus. Thus, moving the annual report
submission date or the timing of commissioner appointments would provide a
work cycle with enough time to develop and produce a report on schedule,
according to the commission. If the annual work schedule were aligned with
the June 1 deadline, without changing the commissioners' terms, newly
appointed commissioners would be required to participate in determining
key findings and recommendations to Congress based on activities that
occurred before they were appointed, according to the three most recent
chairmen. Furthermore, the composition of the commission could change
significantly in the middle of the reporting cycle. For example, in 2007,
the 2-year terms of seven commissioners, including the current chairman
and vice chairman, will expire on December 31, 5 months before the 2008
report is due. The commission will not have a quorum to conduct its work
until at least two commissioners are (re)appointed. In its budget request
for fiscal year 2008, the commission has requested Congress to move the
annual report issuance date to December 1.
The Commission Has Implemented Applicable FACA Provisions
The commission has, to the extent possible, taken steps to comply with
FACA and adhere to those provisions it can implement. FACA was designed to
provide for the accountability, management, and transparency of advisory
committees located within the executive branch. FACA can apply to federal
advisory committees created by the President, other executive branch
entities, or an act of Congress.^6 Initially, the legislation establishing
the commission exempted it from FACA.^7 In November 2005, Congress amended
the commission's charter so as to apply FACA to its activities.^8 While
the commission is in compliance with those provisions of FACA it can
implement, according to commissioners and commission officials,
implementing some provisions has been problematic.
The commission is an independent legislative branch entity, and neither
the legislation mandating applicability of FACA nor its underlying history
provides the commission with guidance for how it should implement FACA.
The commission therefore consulted with GSA--which is responsible for
executive branch compliance with FACA--on how it might implement FACA.
Based on these consultations and its own interpretation of FACA, the
commission determined that it could implement certain FACA provisions but
not others. Table 4 shows the FACA provisions and which of these the
commission determined it could implement.
^6See 5 U.S.C. app. S3(3), 5 U.S.C. S551(1).
^7Pub. L. 106-398, sec. 1238.
^8Pub. L. 109-108, sec. 635(b).
Table 4: Provisions of FACA That Apply to USCESRC
Implemented by
Section Requirement USCESRC
5 Imposes responsibilities on congressional No
committees and on the executive branch with
respect to the establishment and oversight of
advisory committees.
6 Requires the President or his delegate to No
report to Congress regarding proposals for
action (or reasons for inaction) with respect
to recommendations made by Presidential
advisory committees. Requires the President to
report annually on the activities, status, and
changes in composition of advisory committees
in existence during the preceding fiscal year.
7 Requires the GSA Administrator to engage in No
various oversight activities with respect to
advisory committees. Requires the GSA
Administrator to establish pay guidelines and
mandates a pay ceiling for all members and
staff of any advisory committee.
8 Imposes administrative responsibilities on No
agency heads.
9(a) Places limitations on the establishment of No
advisory committees.
9(b) Forbids advisory committees from engaging in Yes
policy-making or policy-implementing actions
unless directed to do so by statute or
presidential order.
9(c) Charter requirement. Yes
10 Requires advisory committee meetings to be open Yes
to the public. Requires timely notice of
advisory committee meetings to be published in
the Federal Register. Requires advisory
committees to permit interested persons to
attend and file statements. Requires advisory
committees to maintain detailed minutes of
their meetings.
11 Requires advisory committees to make available Yes
transcripts of advisory committee meetings.
12 Requires agencies to maintain records that will Yes
fully disclose the disposition of funds that
may be at the disposal of its advisory
committees and the nature and extent of the
advisory committees' activities.
13 Requires the GSA Administrator to file advisory Yes
committee reports and background papers with
the Library of Congress.
14(a), (c) Establishes procedures for the termination of No
advisory committees.
14(b) Requires advisory committees that are renewed Yes
to file a new charter.
15 Imposes restrictions on agencies' use of advice No
or recommendations provided by the National
Academy of Sciences or the National Academy of
Public Administration.
Source: GAO analysis of FACA.
Note: Sections 1 (Short title), 2 (Statement of congressional findings and
purposes), 3 (Definitions), and 4 (Applicability of FACA), do not impose
requirements.
According to GSA officials, the commission has taken reasonable steps to
comply with the spirit of FACA. For example, after consulting with GSA,
the commission sent an official to a 2-day GSA training session on how to
comply with FACA. Also, the commission has adhered to the provisions of
FACA that require advisory committees to allow the public to attend
meetings and file statements. Specifically, the commission currently
advertises its meetings and holds public hearings and open annual report
drafting sessions. However, the commission cannot implement the FACA
sections imposing certain administrative requirements on agency heads
because those sections apply to commissions operating within larger
agencies.
Opening annual report drafting sessions to the public is problematic,
according to the commission, because the presence of public observers,
including Chinese and other international press and foreign officials,
inhibits the discussion of economic and security-related issues among
commissioners. For example, the 2006 annual report drafting sessions were
open to the public, and the commission's discussions and personal opinions
related to findings and recommendations were reported in the national and
international press prior to the commission reaching consensus.
Additionally, drafts of the commission's annual report were made available
to the media prior to commissioners reaching final concurrence on official
findings and congressional recommendations. As a result, the commission
included in its fiscal year 2007 budget a request that FACA no longer be
applied to it. However, in its fiscal year 2008 budget request, the
commission dropped the removal request.
Weaknesses in Current Organizational Structure and Management Policies and
Procedures
Weaknesses in the current organizational structure and management policies
and procedures hinder the effectiveness of the commission's operations and
put the commission at risk of fraud, waste, abuse, and mismanagement.
According to internal control standards for the federal government the
organization structure provides the general framework for management to
plan, direct, and control operations to achieve its objectives and
internal control activities are designed and implemented to help ensure
that management's directives are carried out.^9 Specifically, in terms of
its organizational structure, the commission has not formally defined and
assigned key duties and responsibilities that are typically divided or
segregated among different people in order to reduce the risk of error or
fraud. The commission has heavily relied on its associate director for
managing most administrative operations and staff, and commissioners have
generally played a passive role in the management of the commission. In
terms of management policies and procedures, the commission has not
appropriately documented and communicated human capital, procurement,
ethics, and financial management policies and procedures to commissioners
and staff.
^9See [42]GAO/AIMD-00-21 .3.1. The five standards for internal control
include: control environment, risk assessment, control activities,
information and communications, and monitoring.
Organizational Structure for Managing Operations Has Weaknesses
Weaknesses in the commission's current organizational structure for
managing administrative operations and staff hinder its effectiveness and
put the commission at risk of fraud, waste, abuse, and mismanagement.
According to the control environment standard, management should ensure
that the organizational structure, among other things, is appropriate for
the organization's size and functions, clearly defines areas of
responsibility, appropriately delegates authority, and establishes a
suitable hierarchy for reporting. Specifically, the commission has not
defined and assigned key management duties and responsibilities, which are
typically divided or segregated among different people. Also, most if not
all of these duties and responsibilities have fallen on a single
individual, the associate director.
Commission Has Not Formally Assigned Most Management Duties and
Responsibilities
The commission has not formally assigned key management duties and
responsibilities in accordance with the control environment standard.
Specifically, we found that the commission has not formally assigned human
capital, procurement, or budgeting and financial management and reporting
responsibilities to any administrative staff. The only exception is that
the commission designated the associate director as the ethics officer,
making her responsible for, among other things, helping commissioners and
staff address ethics and conflict-of-interest matters.
Regardless of its size, under both the control environment standard and
human capital principles, an organization should have individuals with
specialized knowledge, skills, and abilities necessary to perform one or
more of these complex and technical administrative responsibilities
effectively.^10 Commission officials told us during our review that they
recognize the commission has to clarify administrative roles and
responsibilities, identify individuals who will be responsible for them,
and segregate duties among staff. Figure 3 shows the organizational
structure of the commission and, illustrates, among other things, that the
commission formally has an ethics officer but no human capital,
procurement, financial, or other administrative officers and no legal
counsel.^11
^10Workforce planning to assure the availability of these competencies may
include consideration of permanent, part-time, or contract employees. See
GAO, Human Capital: Key Principles for Effective Strategic Workforce
Planning, [43]GAO-04-39 (Washington, D.C.: Dec. 11, 2003).
^11The research and legal fellows and interns do not perform any
administrative functions. They report through the administrative
structure, but they get their assignments from and deliver their products
to program staff.
Figure 3: USCESRC Organizational Chart
This failure to formally assign administrative responsibilities across the
organization hinders checks and balances and monitoring, undermines
segregation of responsibilities, compromises the accountability for and
effectiveness of administrative procedures, and puts the commission at
risk. For example, the commission has not formally assigned responsibility
for procurement to a qualified official. The chairman, executive director,
and associate director have played de facto roles as procurement officers
by signing contracts, and currently the executive director is acting as
procurement officer for most research contracts. In the absence of a
formally designated procurement officer, it is not clear who has the
authority to negotiate and sign contracts, who should receive goods and
services and maintain records, and who should monitor procurement
decisions and activities, compromising the integrity of procurement
activities. Also, it is not clear whether individuals carrying out these
activities have the necessary background, expertise, experience, and
training to do so.
Commission Has Relied on Its Associate Director for Carrying Out Most
Management Duties and Responsibilities
Since its inception, the commission has delegated to its associate
director the responsibility for running most management functions and
supervising all administrative staff, thereby creating risks. This
concentration of duties and responsibilities is not in accordance with a
good internal control environment. Most commissioners have played a
limited and passive role in the management of the organization. Most
commissioners work part time, and they told us that they focus on
producing the annual report rather than on management matters. Under the
direction of the chairman and vice chairman, the executive director is
responsible for the overall management of the commission, including
program as well as administrative operations and staff. However, the
executive director has mainly focused on managing the commission's program
operations and staff, which also concentrate on producing the annual
report. As a result, the commission has greatly relied on its associate
director, who reports to the executive director, chairman, and vice
chairman, for leading administrative operations and staff (see fig. 3).
Almost all administrative duties and responsibilities have fallen to the
associate director. According to the position description, the associate
director must have expert knowledge of federal rules and regulations on
human capital, procurement, and budgeting and financial management and
reporting, which involve highly legal and technical problems and sensitive
issues. Also, the associate director must have knowledge of the
commission's program objectives and policies to carry out a full range of
work activities related to operations and administration. In addition, the
incumbent must have the ability to work on a bipartisan basis with
commission members and to handle administratively confidential and
personal information. The associate director told us that her position
description accurately reflects her responsibilities.
Moreover, she is responsible for managing nine administrative issue areas.
These are broad and varied and include managing
o government ethics;
o personnel management;
o security clearances;
o procurement;
o budget and financial management;
o facilities and administrative services;
o public and media affairs;
o hearings, briefings, and meetings; and
o other duties, such as representing the commission in interagency
meetings, planning and carrying out administrative projects and
studies, and training and supervising subordinate staff.
For example, as the ethics officer, she is responsible for
providing ethics training, collecting and reviewing financial
disclosure forms, and providing advice on conflict-of-interest
matters. Also, she serves as the principal adviser to the
executive director and the commission on personnel-related
matters; interprets and applies personnel and pay authorities
provided to the commission; interprets and applies legislative
branch guidance, authorities, and legal requirements and federal
personnel regulations and directives affecting the commission; and
seeks opinions and guidance from the U.S. Senate Legal Counsel,
GSA, and the Office of Personnel Management on personnel matters
for which no clear guidance exists.
In addition, in terms of budgeting and financial management and in
coordination with the chairman and executive director, she is
responsible for
o developing budget plans, goals, and objectives for overall
projects and spending levels;
o working with the GSA budget office;
o developing and reviewing other budget data for automated input
into the Office of Management and Budget (OMB) MAX system;
o responding to OMB requests for supplemental information;
o developing budget material in support of the commission's budget
requests and congressional budget justifications;
o supporting the chairman and other commissioners at hearings and
meetings;
o generating documents that provide spending authority, OMB
apportionment of carryover, and appropriated funds;
o assuring the accuracy of the monthly and year-end Report of
Budget Execution of OMB and the Treasury Department; and
o monitoring OMB directives for commission application and
appropriate action.
To fulfill her duties and responsibilities, the associate director
has limited administrative support. Commission officials told us
that because the commission is small and has a small budget, it
cannot afford to secure the services of management specialists
with the expertise that it needs in different areas, including
legal expertise on administrative matters. During our review, the
commission hired an assistant director/office manager to improve
its administrative capabilities. However, this individual has
limited responsibilities and does not supervise any administrative
staff. We observed that the four other administrative staff worked
under the close supervision of the associate director because they
were also new hires or because sometimes they could not resolve
problems without assistance. It was not clear that some of the
administrative staff had the background, experience, and training
to carry out responsibilities if the associate director delegates
them. For example, a staff member who performs budget and
financial management duties has recently required extensive
assistance to solve problems related to a financial spreadsheet
used in day-to-day operations. Furthermore, she said that she
would benefit from training on accounting and related software. We
found that commission staff had received little internal or
external training.
Concentration of duties and responsibilities creates risks. By
concentrating so many responsibilities in one individual, this
organizational arrangement, among other things, curtails checks
and balances and monitoring, hampers segregation of
responsibilities, and requires that this individual have a high
level of legal and technical expertise in administrative
functions, such as human capital, procurement, and budgeting and
financial management and reporting. For example, as the sole
purchase cardholder, the associate director has broad authority in
procuring supplies and services for the commission. However, as
the designated funds' manager of the commission, the associate
director may also approve the payments of these purchases omitting
any supervisory review of the purchase card transactions made with
commission appropriations.
Concentration of duties and responsibilities also creates risks
because key staff may leave the organization. The associate
director has been with the commission since its inception. Thus,
she has worked with all of the chairmen, vice chairmen, and
executive directors of the commission. The associate director is a
retired federal official working under a personal services
contract for the commission. According to the chairman and
executive director, the commission does not have qualified back-up
staff or a plan for transitioning staff to take on the associate
director's multiple responsibilities should the associate director
leave the commission.
Management Policies and Procedures Have Weaknesses or Are Not Present
The commission's policies and procedures for managing
administrative operations and staff are insufficient, incomplete,
or not adequately documented, thereby impairing their
effectiveness and putting the commission at risk of fraud, waste,
abuse, and mismanagement. Effective internal control activities
help ensure that management's directives are carried out and are
an integral part of an entity's stewardship of government
resources. Control activities are the policies, procedures,
techniques, and mechanisms that enforce management's directives,
such as the process for approving new hires and authorizing rates
of pay. Specifically, despite the commission's adopting 17 rules
and other efforts to put management policies and procedures in
place since October 2002, human capital, procurement, ethics, and
financial management and reporting policies and procedures are
insufficient or incomplete, and many basic operational practices
are not documented.^12 We found no evidence that legal and
management experts have vetted policies and procedures to ensure
they are technically sound, which is a best practice. Furthermore,
existing policies and procedures are not fully documented and
consolidated in policy and procedures manuals.
^12We discuss the commission's financial management and reporting policies
and procedures in the next section of this report.
Human Capital Policies and Procedures Are Incomplete or Are Missing
The commission's human capital policies and procedures are
insufficient or incomplete. Because of these internal control
weaknesses, human capital procedures do not provide reasonable
assurance that these activities, such as hiring, evaluating,
training, and EEO practices, are performed effectively. Under
effective internal control, management should have appropriate,
comprehensive, documented, and fair procedures for hiring,
training, evaluating, compensating, and terminating staff.
Specifically, the commission has only partially implemented formal
performance evaluation procedures. Also, it has incomplete formal
procedures for hiring and does not have formal procedures
regarding training and EEO. Legal and management experts have not
vetted human capital policies and procedures to ensure they are
technically sound.
The commission did not evaluate any of its staff prior to 2005.^13
Nevertheless, it provided bonuses to staff without having formal
ratings in 2004 and 2006. The commission is in the process of
implementing staff performance evaluation policy and procedures
adopted in May 2006. The commission did not develop and implement
these staff evaluation procedures before because, according to
commission officials, it did not have the resources to do so.
According to the executive director, the commission informally
evaluated staff in 2005 and 2006 and will formally evaluate its
staff in 2007. The commission's new employee performance
management policy and procedures aim to motivate staff to perform
at their highest levels and give supervisors instruments to
evaluate employees' performance. These policies and procedures
rely on four tools: a position description for each employee's
position, an employee performance plan, an annual performance
evaluation for each employee and, if needed, a performance
improvement plan to enhance the performance of an employee whose
work is unsatisfactory. The employee performance management
calendar starts with the preparation of the employee performance
plans in December of the previous year, continues with the staff
evaluation period from January to December, and ends with the
finalization of individual performance evaluations in February of
the following year. Based on these performance evaluations,
supervisors recommend salary increases and cash awards in late
February. Following these recommendations, the commission may give
salary increases and cash awards in March. The commission started
implementation of these procedures for calendar year 2007 in
December 2006 with the development of individual performance plans
and intends to finish implementing the procedures in early 2008.
According to the executive director, the implementation is on
schedule, and staff have their individual performance plans on
file. Because the commission is still implementing the procedures
for 2007, we did not evaluate the new policy and procedures.
^13The commission currently has an executive director and 11 program and
administrative staff. The executive director is a senior executive
detailed to the commission from the Department of Commerce. Most of the
staff are excepted service employees, have 1-year appointments, and serve
at the discretion of the commission. Two administrative staff, including
the associate director, are working for the commission under personal
service contracts.
The commission has incomplete written procedures for hiring staff.
Under the charter of the commission, the chairman may appoint, fix
the compensation, and terminate the employment of the executive
director and any other staff. Under rules 4 and 5 of the
commission, as amended in November 2005, the commission must
approve the hiring and firing of the executive director, and the
chairman and vice chairman must approve the hiring and firing of
other staff after consultation with other commissioners. However,
beyond these rules, the commission has not formalized its hiring
practices through further written procedures that would help
ensure that hiring new program and administrative staff is fair,
transparent, and competitive. For instance, no procedure in place
captures that, since 2006, the commission has developed vacancy
announcements, based on its position descriptions, and publicly
advertised them through its Web site and various media, such as
USAJOBS and the OPM Web site. Furthermore, the roles played by the
executive director and the associate director in managing human
capital are not formally defined, and the records that the
commission and these officials have to keep during hiring are not
formalized in written procedures.
The commission does not have written training guidelines for its
program and administrative staff. Training allows an organization
to invest in its human capital and focus this investment on
organizational goals and objectives. It helps ensure that staff
have the knowledge, skills, and abilities to fulfill their
responsibilities. Internal and external training of administrative
staff help them comply with policies and procedures, safeguard
resources, and prevent errors. Some of the commission's program
and administrative staff told us that training would help them
improve their professional and technical skills. For example,
staff mentioned that systematic support for training would help
them improve language or technical skills. Staff stated that the
commission should have training guidelines in place so that they
have a fair opportunity to develop their skills. Staff told us
that they had individually requested training support. Without
training guidelines, the commission cannot ensure that training
supports organizational objectives and that staff has fair access
to it.
The commission does not have written equal employment opportunity
(EEO) procedures. Although the commission is not subject to EEO
legislation, commission officials told us that the commission has
followed EEO principles, but it has no written procedures.
According to these officials, the commission is aware of the
importance of these procedures when, for example, hiring or
terminating staff. A lawsuit that the commission settled with a
former staff member was partially based on an EEO complaint. In
the absence of these EEO procedures, the commission cannot ensure
that human capital procedures (such as recruitment, hiring,
evaluation, promotion, compensation, awards, and training
procedures) are fairly implemented. Also, it cannot monitor
EEO-related results.
Procurement Policies and Procedures Show Weaknesses
The commission has some written procedures for research-related
procurement, but it does not have written procedures for
non-research-related procurement. Because of this internal control
weakness, procurement procedures do not provide reasonable
assurance that procurement activity is performed effectively and
is not subject to fraud, waste, and abuse. Also, procurement
procedures need to ensure as much transparency, competition, and
accountability as possible.^14 However, legal and procurement
experts have not vetted the commission's procurement rule to
ensure that it is technically sound or in accordance with best
practices.
Specifically, regarding research-related procurement, rule 12 of
the commission states that the chairman and vice chairman must
support research contracts after receiving recommendations from
the co-chairs of the commission's research working group. The
research working group is responsible for defining research needs
and preparing research proposals. It has four members--two
co-chairs and two other commissioners. The chairman and the vice
chairman select the co-chairs of the group from among the
commissioners from different political parties. Rule 12 also says
that the full commission must approve research contracts in excess
of $25,000.
^14The Federal Acquisition Regulation generally does not apply to the
commission because it is a legislative branch entity. However, see 41
U.S.C. S 5, which requires advertising of purchases and contracts for
supplies or services except (1) when the amount involved in any one case
does not exceed $25,000, (2) when public exigency requires immediate
delivery, (3) when only one source of supply is available and the
government purchasing or contracting officer so certifies, or (4) when the
services are of a technical and professional nature or under government
supervision and paid for on a time basis. The law applies to legislative
branch agencies other than the House, Senate, and Architect of the Capitol
and the officers and employees thereof. 41 U.S.C. S 5a.
This research-related procurement procedure does not include
practices the commission has used since 2005 to ensure the
transparency and competitiveness of its research-related
procurement. Under these undocumented practices, for example, if
the research working group determines that funding outside
research would contribute to the commission's mission, it prepares
a request for proposal (RFP) with support from the commission's
staff. After approving the RFP, the commission puts the RFP on its
Web site and disseminates it to selected academic institutions and
policy institutes. However, the commission does not use other
means to widely circulate the RFP. After examining all of the
responses to the RFP, the research working group selects one and
recommends it to the chair and vice chair, or to the commission.
In fiscal year 2005, the commission competitively awarded seven
research contracts for a total of $105,475 (see app. VI). Only one
of these was above $25,000. In fiscal year 2006, the commission
competitively awarded five research contracts for a total of
$77,926. None of these was above $25,000. During 2007, the
commission plans to continue awarding research contracts using
these practices.
In contrast, the commission does not have any written procedures
in place for nonresearch procurement. This procurement involves a
variety of items, such as the costs of hearings, consulting
services, and office supplies and equipment. In fiscal years 2005
and 2006, the commission spent about 65 percent and 77 percent,
respectively, of its total procurement budget in nonresearch
procurement (see apps. VI and VII). In the absence of
nonresearch-related procurement procedures, the commission has
limited assurance that the procurement is as transparent,
competitive, or best value for price as possible, or that
responsibilities for it are segregated among qualified staff. For
example, as discussed in the following section on financial
management and reporting, the commission made significant
purchases of office equipment, however, the staff did not document
these pricing and purchasing decisions and it is difficult to
verify that the best value was obtained. Earlier, we noted the
absence of a formally designated procurement officer can
compromise the integrity of procurement activities and together
with the lack of procedures put the commission at risk of fraud,
waste, abuse, and mismanagement.
During our review, we identified a transaction that fell outside
the scope of our individual transaction testing. The transaction
involved computer consulting work conducted by a relative of the
associate director that initially did not appear to be approved by
the commission. We learned that the associate director's son, who
is not an employee of the commission and not under formal contract
with the commission, had access to the commission's computer
system and the sensitive information it contains. The associate
director confirmed that her son had had access to and worked on
the system. She explained that her son had set up the computer
system for the Trade Deficit Review Commission and was paid for
those services by that entity. Subsequently, at its inception,
USCESRC inherited this computer system. The associate director
told us that 4 years later, in 2004, when the system experienced a
major failure due to an external power surge, she obtained expert
and consulting services from her son to assist with the recovery
of the data and redesign and upgrade of the system, for which the
commission paid him $6,600. The associate director acting as
contracting/ordering officer approved the invoice authorizing the
payment to her son. In addition to the invoice, she also gave us a
copy of the statement of work relating to the invoice. We have
seen no other documentation relating to this work other than the
statement of work and the invoice.
The chairman, vice chairman, and executive director of the
commission at that time informed us that they knew the associate
director planned to obtain the services of her son, but, because
of lack of formal procedures for approving nonresearch
procurement, they were unaware of the details. After 2004, when
problems arose with the system, he continued to provide assistance
and other services without receiving additional reimbursement from
the commission. As a part of providing assistance and other
services, he had access to the system both at the commission and
off site via the Internet. We brought this matter to the attention
of the current chairman and executive director, and they told us
they were aware that the associate director's son had worked on
the system after 2004 to troubleshoot the system he had developed.
In the absence of formal approvals or documentation of his work
for the commission after 2004, they were unaware of his providing
other services to the commission and about the terms and
conditions he was operating under. The current chairman and
executive director were confident that he had received no
compensation for these services.^15 They also indicated that as a
result of our inquiry, they intended to take steps to stop this
person from having further access to the computer system and
providing further support and services to the commission without
the approval of the chairman and vice chairman.
When the commission accepts services without remuneration, as
authorized by law, it has to document such action in order to
protect the government's financial interest should the provider of
the services submit a payment claim for such services. Further,
since this situation involved access to the commission's computer
system, the commission has to document the scope of the access
authority granted, which if intentionally exceeded would, among
other things, constitute a possible violation of legislation
dealing with fraud and related activities in connection with
computers.^16
Ethics Guidelines Have Some Shortcomings
The commission's ethics procedures for both commissioners and
staff have shortcomings. According to guidance for a good internal
control environment, management should have appropriate,
comprehensive, and documented written ethics policies and
procedures and require that all members of an organization
periodically acknowledge ethics policy and procedures by
signature. Specifically, two rules of the commission provide
ethics guidelines for commissioners and staff. According to
commission rule 16, commissioners must exercise impartial judgment
in performing their duties; may never solicit or accept a gift as
part of their official duties, other than a gift of incidental
value; may not use their position in the commission or the
information they receive as part of their duties for personal
gain; and may not receive a present of any kind, other than of
incidental value, from China and Taiwan. This existing rule does
not include ethics guidelines regarding speaking engagements and
payment of related travel expenses. The commission has discussed
establishing guidelines on speaking engagements but has not done
so, according to commission officials. The commission has not
vetted its ethics procedures for commissioners with legal and
management experts to ensure these procedures are technically
sound, in accordance with best practices.
^15Commission rule 10 provides that "no outside consultants or other
personnel, either by contract, detail, volunteer or through remunerative
agreement, may be hired without the approval of the Chairperson and Vice
Chairperson."
^1618 U.S.C. S 1030.
Commission rule 17 requires staff to comply with Senate ethics
rules. In March 2007, the executive director conducted the
commission's first training on the Senate ethics rules for all
program and administrative staff. He also gave each staff member a
copy of the ethics rules. Previously, he and the associate
director, who is the formally designated ethics officer, had
discussed these ethics rules with staff individually.
We found no evidence that the commission requires commissioners
and staff to periodically acknowledge ethics policy and procedures
by signature. In addition, the commission has no rule about
entering into contracts with relatives of commissioners and staff,
in accordance with best practices.
In terms of financial disclosure, we found that commission
officials who should have filed financial disclosure reports had
done so, and the reports did not show conflict of interest.
Commissioners and staff who are required by the Ethics in
Government Act of 1978^17 to file financial disclosure reports
must file the reports with the Secretary of the Senate in its
Office of Public Records. Commission officials who earned a rate
of pay equal to or in excess of $109,808 for a period equal to or
in excess of 60 days must file financial disclosure reports.
Senate ethics rules note that public disclosure of an official's
personal financial interests is a key component of an effective
code of conduct. After collecting and processing the forms, the
Office of Public Records sends the forms to the Senate Select
Committee on Ethics and, within 30 days, makes them available to
the public electronically. If the committee needs additional
information or finds errors in the forms, commissioners and staff
may need to file amendments.
According to our review of commission and Senate records,
commission officials who should have filed financial disclosure
forms had done so since the inception of the commission. The
reports covering 2006 were due on May 15, 2007. According to the
commission's ethics officer, six commissioners, including one
former commissioner, should have filed these reports. Three of
them did so, and the other three requested and received a filing
extension until August 15, 2007. The three commissioners who
requested extensions filed their reports by the August deadline,
according to the associate director.
^17Pub. L. 95-521, as amended (codified as an appendix to title 5 of the
United States Code).
Commission Has Not Appropriately Documented Its Administrative
Procedures
The commission has not sufficiently documented its ethics, human
capital, procurement, and budgeting and financial management and
reporting policies and procedures to ensure their effectiveness
and to inform and guide commissioners and staff.^18 Effective
internal control activities would include a comprehensive
collection of management policies and procedures, which are
properly managed and maintained, so that management and staff can
apply these activities properly.
Without a complete collection of comprehensive management policies
and procedures, commissioners and staff do not have access to
documents in paper or electronic form containing all of the
information needed for effectively implementing these policies and
procedures, and the commission is at risk, especially if staff
responsible for key operations leave the commission. More
important, without a systematic effort to consolidate management
policies and procedures, some remain incomplete, unwritten, or not
vetted by legal and administrative experts. The commission is
currently working to consolidate its management policies and
procedures by developing office manuals. For example, the
commission has in draft a policy manual and a procedures manual.
Commission officials acknowledged the need for policy and
procedures manuals but told us the manuals have not been completed
because of a lack of resources.
Ineffective Internal Control over Financial Management and Reporting
The commission's internal control over financial management and
reporting was not adequate to provide reasonable assurance that
financial activities were properly processed and recorded and
complied with federal laws and regulations. Effective internal
control is the first line of defense in safeguarding assets and
preventing and detecting errors and fraud. We noted weak or
missing internal control in our examination of the commission's
(1) non-payroll-related transactions, (2) travel and purchase card
activity, and (3) time and attendance (T&A) reporting. Our tests
of the commission's non-payroll-related transactions for fiscal
years 2005 and 2006 found deficiencies, such as missing or
inadequate supporting documentation, lack of proper authorization
and approval, and improper classification. The commission's
application of the government travel and purchase card programs
lacks written guidance, proper segregation of duties, and adequate
training. In addition, we identified questionable purchases of
over $13,000 made with the commission purchase card. Our review of
the commission's payroll process for fiscal years 2005 and 2006
showed that the commission's T&A records were not always validated
by the employee or approved in accordance with the policy
described by the commission's management. As a result, the
commission's financial resources are at an increased risk of
fraud, waste, abuse, or mismanagement.
^1844 U.S.C. S 3101 provides that the head of each federal agency shall
make and preserve records containing adequate and proper documentation of
the organization, functions, policies, decisions, procedures, and
essential transactions of the agency and designed to furnish the
information necessary to protect the legal and financial rights of the
government and of persons directly affected by the agency's activities.
The law applies to legislative branch establishments other than the House,
Senate, and the Architect of the Capitol. 44 U.S.C. S 2901 (14).
Key Controls over Non-Payroll-Related Transactions Are Ineffective
Our tests of the commission's non-payroll-related transactions for
fiscal years 2005 and 2006 found deficiencies such as missing or
inadequate supporting documentation, lack of proper authorization
or approval, and improper classification. We statistically sampled
59 commission non-payroll-related debit transactions totaling
approximately $1.1 million from fiscal years 2005 and 2006.^19 Ten
of the 59 transactions had one or more internal control failures,
leading us to conclude that the controls commission staff said
were in place were not operating effectively. Based on the results
of our work, we estimate that the total dollar value of
non-payroll-related debit transactions with ineffective controls
during the 2-year period we examined is not more than $1.2
million.^20 The following are examples of the type of internal
control weaknesses identified in our sample transactions:
o Four transactions lacked proper documentation to support
travel-related expenditures centrally billed to the commission
travel credit card. The invoices submitted to GSA for payment
processing included only the credit card statement without
supporting documentation, such as copies of approved travel
authorizations or vouchers and lodging invoices. Although we found
annotations on certain credit card statements indicating that
amounts were internally cross-referenced by the commission to
individuals' travel vouchers, copies of approved vouchers or
support for the lodging expenses incurred were not attached for
GSA verification. In other sample items tested, reimbursements for
business expenses were processed for commission staff or
commissioners with only an e-mail or a handwritten note as
supporting documentation. Typically, the invoice or bill from the
supplier or vendor represents the claim against the government for
the items sent or delivered, and is also used to verify that
quantities, prices, and calculations are accurate.^21
^19The sample population consisted of 1,991 non-payroll-related debit
transactions totaling approximately $4.5 million for fiscal years 2005 and
2006. See appendix I for additional details related to the population.
^20We are 95 percent confident that the total dollar value of
non-payroll-related debit transactions with ineffective controls is not
more than $1.2 million. This $1.2 million estimate exceeds the tolerable
amount in error of $224,715, which is 5 percent of the debit population
total of $4.5 million.
o Two transactions were not properly authorized and approved: both
were payments under what the commission called a personal services
contract for hours worked and miscellaneous business expenses
claimed for reimbursement by the associate director.^22 The first
transaction, in the amount of $3,823.60, was approved by the
office manager, who was subordinate to the contract payee. In the
second transaction, for $5,315.69, the contract payee signed the
commission chairman's name approving the payment that the contract
payee claimed, and therefore independent verification that the
services had been received and conformed to the specifications of
the contract was not documented. Although the commission is
relatively small, the separation of key duties and
responsibilities is a key control to reduce the risk of error or
fraud. According to GAO's Standards for Internal Control in the
Federal Government,^23 no one individual should control all key
aspects of a transaction.
o Our sample included two large transactions totaling $90,075 that
were improperly reported as expenses for fiscal year 2006 by the
commission at the end of fiscal year 2006. The items, for $70,000
and $20,075, were obligations for renovations to the commission's
office space that were finalized in fiscal year 2007. Because the
goods and services had not been received by the end of fiscal year
2006, these two items should not have been reported as expenses in
fiscal year 2006. These errors were not detected by commission
staff until we questioned the transactions as part of our testing.
According to the commission staff, the errors occurred when the
commission notified GSA that the funds should be obligated based
on the purchase order but mistakenly placed the obligated balances
on the pending accruals worksheet submitted to GSA at year end. In
following up, we found that the related goods and services were
received and paid for in fiscal year 2007.
^21GAO, Streamlining the Payment Process While Maintaining Effective
Internal Control,GAO/AIMD-21.3.2 (Washington, D.C.: May 2000).
^22The commission's associate director was the contract payee in both
transactions.
^23GAO/AIMD-21.3.1
During our review, we also noted that the commission did not
develop or document criteria for official representation expenses
or a means to properly track appropriated funds for this purpose.
Appropriations for the commission for fiscal years 2005^24 and
2006^25 included a provision that no more than $5,000 of the
amount appropriated each year was available for official
representation expenses, which include entertainment.
Representation appropriations permit officials of agencies whose
activities involve substantial contact with foreign officials to
reciprocate for courtesies extended to them.^26 According to the
associate director, this is how the commission has defined its use
of representation expense, based upon the commissioners'
discussions. However, neither the decision to limit representation
expense to the entertainment of foreign nationals on trips to Asia
nor the criteria for classifying transactions as representation
expenses has been documented. Also, the commission did not have a
formal means to track such transactions for fiscal years 2005 and
2006, as indicated by the manual schedules of representation
expenses that were prepared at our request and were adjusted based
on our inquiries. The final schedules provided to us for
representation expenses for fiscal years 2005 and 2006 totaled
$2,687 and $4,996, respectively. However, without definitional
guidance and a formal means of accumulating these transactions, it
is difficult to determine the completeness and accuracy of the
amounts provided. As a result, it is difficult for commission
management to know whether the commission kept within its $5,000
statutory limit on representation, and we could not ascertain if
it had done so.
Travel and Purchase Card Programs Lack Key Controls
The commission's travel card and purchase card programs lack
written guidance, proper segregation of duties, and adequate
training. In addition, we identified questionable purchases of
over $13,000 made with the commission purchase card. According to
internal control standards,^27 management is responsible for
developing policies and procedures that fit the agency's operation
and are an integral part of operations. As discussed earlier,
internal control standards also state that key duties need to be
divided or segregated among different people to reduce the risk of
error and fraud. This should include separating the
responsibilities for authorizing, processing, recording, and
reviewing transactions, and handling any related assets. Internal
control standards also require that all personnel possess and
maintain a level of competence that allows them to accomplish
their assigned duties, as well as understand the importance of
developing and implementing good internal control. This includes
identifying appropriate knowledge and skills as well as providing
needed training.
^24Pub. L. No. 108-447, 118 Stat.2912 (2004)
^25Pub. L. No. 109-108, 119 Stat.2334 (2005).
^26GAO, Principles of Federal Appropriation Law, 3rd ed., vol. I,
[45]GAO-04-261SP (Washington, D.C.: January 2004)
^27GAO/AIMD-00-21.3.1.
Travel Card
We noted a lack of written policies and procedures for authorizing
and approving temporary duty travel for commissioners, staff, and
invited guests in the 23 travel card transactions we examined for
fiscal years 2005 and 2006. The Federal Travel Regulation^28 (FTR)
states that internal policies and procedures must be established
for processing travel authorizations and travel reimbursements as
well as establishing policies and procedures relating to payment
of per diem expenses and miscellaneous expenses. The associate
director confirmed that the commission applies the guidance in the
FTR. The lack of written guidance puts the commission at risk of
not processing all travel-related expenses consistently and in
accordance with the FTR. In reviewing the travel card
transactions, we noted that one cardholder's purchases totaling
approximately $4,000 were for personal use. Although we did not
find any indication that the individual sought reimbursement from
the commission for these transactions, the FTR states that
government-issued travel cards may be used only for official
travel-related expenses.^29
^2841 C.F.R. Parts 300-304. Travel expenses, including per diem in lieu of
subsistence, of the commission are authorized and allowed at rates
authorized for employees of agencies under subchapter I of chapter 57 of
title 5, United States Code, while away from their homes or regular places
of business. 22 U.S.C. S 7002(e)(2). The rates are established by the
Federal Travel Regulation.
^2941 C.F.R. Part 301-70.706
We also found instances where an individual both authorized travel
and approved/certified travel expenses for reimbursement.
According to our discussion with commission officials and staff,
all travel is to be authorized by the commission chairman. In
instances where the chairman is the traveler, he or she authorizes
his or her own travel. However, the associate director sometimes
signs for the chairman authorizing travel. The associate director
also prepares travel vouchers claiming reimbursement for travel
expenses for the commissioners and staff or designates an
administrative assistant to do so. Then, as the designated
approving official, the associate director approves the travel
voucher claim for reimbursement. We also observed some instances
where the associate director signed the traveler's name and also
approved the claim for reimbursement. In order to have proper
segregation of duties, no one individual should control all
aspects of a transaction.^30 Also, the FTR states that the
traveler must ensure all travel expenses are prudent and necessary
and submit the expenses in the form of a proper claim.^31 This is
documented with the traveler signing the travel voucher in block
13 of Standard Form 1012, whereby the traveler asserts that, "I
certify that this voucher is true and correct to the best of my
knowledge and belief, and that the payment of credit has not been
received by me." This certification was lacking on several
commission travel claims we reviewed because the traveler did not
sign the voucher. By not following proper procedures for claiming
and reimbursing travel expenses, the commission is subject to an
increased risk of fraud or error.
The commission's associate director, who has responsibility for
travel card use and is the approving official, has received no
formal training in administering the travel card program.
According to GAO's internal control standards, all personnel need
to possess and maintain a level of competence that allows them to
accomplish their assigned duties, as well as understand the
importance of developing and implementing good internal control.
This includes identifying appropriate knowledge and skills as well
as providing needed training. Based on the travel vouchers we
reviewed, the associate director appeared to be knowledgeable
about some travel regulations, such as the disallowance of certain
unauthorized expenses on travel claims -- including alcoholic
beverages or individual entertainment charges^32 on hotel
invoices. However, formal training on the FTR could have increased
compliance with the FTR, such as submitting claims for payment
within 5 days after completing a trip^33 or authorizing first^34
or business^35 class travel as required by the FTR. Of the 22
travel voucher claims^36 we reviewed, only 1 was submitted within
the 5-day time period. Also, documentation of FTR-required
authorization for first or business class travel was not provided
in seven instances.
^30GAO/AIMD-00-21.3.1.
^3141 C.F.R. Part 301-71.203
^3241 C.F.R. Part 300-3.1 Glossary of Terms, under Per diem allowance, (b)
Meals.
^3341 C.F.R. Part 301-52.7
Purchase Card
The commission did not have written policies and procedures
concerning use of the purchase card. The purchase card is used to
buy products or obtain services for everyday operations. Although
the commission is generally not covered by the Federal Acquisition
Regulation (FAR), the commission, as a participant in GSA's
SmartPay Program, is subject to the FAR for purchases of supplies
and services made with the government purchase card. The associate
director told us she was not aware of the laws, regulations, and
procurement policies and procedures under the FAR as it related to
the use of the purchase card. Further, she was not aware of any
restrictions on the use of the card other than using it for
meeting commission objectives. For example, the associate director
was not aware of the micro-purchase threshold, currently at
$3,000.^37 While we noted over $13,000 of computer hardware and
software purchases that appeared on the commission's June 2006
purchase card statement, each individual item did not exceed the
micro-purchase threshold. The commission purchased this computer
equipment via the Internet because, according to the associate
director, they were the best value. Commission staff did not
document these pricing and purchasing decisions and the FAR does
not require documentation of competitive quotations solicited
under the micro-purchase threshold amount if the contracting
officer or other individual appointed for purchases under the
purchase card program considers the price to be reasonable.^38
While we noted over $13,000 of computer hardware and software
purchases that appeared on the commission's June 2006 purchase
card statement, each individual item did not exceed the
micro-purchase threshold. Nevertheless, it is difficult to verify
that the best value was obtained without documentation of the
pricing decisions.
^3441 C.F.R. Part 301-10.123
^3541 C.F.R. Part 301-10.124
^36Although we examined 23 travel card transactions, one transaction did
not involve a travel voucher. According to the associate director, the
transaction authorized the travel expenses for an invited guest to appear
at a hearing, paid for by the commission.
^37The $3,000 micro-purchase threshold generally applies; however,
exceptions exist. For example, the micro-purchase threshold is $2,000 for
acquisitions of construction subject to the Davis-Bacon Act.
^3848 C.F.R. Part 13.202 (a) (2).
Although the associate director is officially the sole authorized
purchase cardholder for the commission, we identified cases in
which the associate director asked other staff to use the purchase
card to buy products or obtain services. For those transactions,
the staff signed the purchase card receipts even though they were
not the authorized cardholder. Sometimes it was not clear who was
involved in particular transactions. For example, we reviewed one
receipt signed by someone other than the associate director in the
amount of $408 for toner cartridges, and the associate director
could not tell us whose signature was on the receipt. Effective
internal control requires that transactions are authorized and
executed only by persons acting within the scope of their
authority.^39 This is the principal means of assuring that only
valid transactions to commit resources are initiated or entered
into.^40
The commission's associate director has not received formal
training in administering the purchase card program. The associate
director purchased bottled water monthly with the purchase card,
which is an example of an improper transaction. Improper
transactions occur when appropriated funds are used for which
appropriations are generally not available.^41 Bottled water is
typically considered a personal expense, and appropriated funds
may be used for it only with documentation that available drinking
water poses a health risk.^42 Training of the purchase cardholder
and all staff in the laws and regulations applying to purchase
card transactions is an important step in ensuring that the
purchase card is not misused.
As shown in table 5, we identified questionable purchases totaling
over $13,000 made with the commission purchase card. We considered
questionable transactions as those where items were purchased at
an excessive cost or for a questionable government need, or the
support was insufficient for a determination. They included
transactions at Macy's, Sam Goody, and Corner Bakery.
^39GAO/AIMD-00-21-3.1.
^40GAO/AIMD-00-21-3.1.
^4131 U.S.C. S 1301. Also, see [46]GAO-04-261SP
^42B-303920, March 21, 2006, Clarence Maddox -- Relief of liability for
improper payments of bottled water.
Table 5: Questionable Purchase Card Transactions, July 1,
2005-June 30, 2006
Type Number of transactions Amount
Food purchases 31 $9,385.74
Senate gift shop 7 2,405.50
Other items 12 1,362.20
Total 50 $13,153.44
Source: GAO analysis of Citibank data.
The associate director told us that all of the questionable
purchases we identified were for official commission business.
According to the commission, all of the purchases from the Senate
gift shop were small items such as pens or business card cases
that were presented as gifts during commission fact-finding trips
to China and Taiwan. Over three-fourths of the purchases in table
5 were for food, which included catering for commission hearings
or quarterly business meetings. According to the associate
director, the food was primarily for commissioners, commission
staff, and witnesses working exclusively on a particular hearing
where it may have been inconvenient or counterproductive to break
for lunch. We did observe instances where nongovernmental
personnel participated in various panel sessions at certain
hearings, and it may have been beneficial for scheduling purposes
to provide lunch or other refreshments. However, as a general
rule, the government may not furnish free food to employees at
their official duty station even when they are working under
unusual circumstances.^43
^43B-272985, Meal Expenses for CIA Security Detail, December 30, 1996,
B-169235, April 6, 1970.
Time and Attendance Reporting Lacks Proper Approvals
Our review of the commission's payroll process for fiscal years
2005 and 2006 showed that the commission's T&A records were not
always completed and approved in accordance with the policies and
procedures described by the commission. We reviewed all applicable
T&A records for four commissioners in fiscal years 2005 and 2006
and found that 37 percent were not reviewed and approved by the
executive director in accordance with the described policies and
procedures. We also reviewed selected T&A records for three
commission staff for fiscal years 2005 and 2006 and found that
over one-half were not approved by the executive director, and 10
of the 25 staff T&A records we reviewed were not approved by a
certifying officer in accordance with commission policy. According
to the commission staff responsible for payroll, the certifying
officer is responsible for (1) reviewing T&A records to ensure
that each one is properly approved by the executive director and
(2) affirming that the hours are accurately entered into the
online payroll data entry system that the commission uses to
communicate with GSA. Failure to adhere to this policy increases
the risk that inaccurate or inappropriate time charges will be
entered into the system, resulting in potential errors in wages
paid and recorded by the commission. Supervisory authorization and
approval is a key part of ensuring the propriety of T&A
information. According to GAO's time and attendance guidance,^44
the supervisor or other authorized official should review and
authorize employees' planned work schedules and applications for
leave, and review and approve employee submissions of actual time
worked and leave taken, as well as information in T&A reports, and
any adjustments or corrections to T&A records.
This lack of T&A oversight is further compounded by the fact that
the commission's 12 members generally had differing approaches to
charging time incurred on commission activities. We identified a
great range in the number of hours charged by the commissioners in
fiscal years 2005 and 2006, from some commissioners who did not
charge any time to commission activities, to one commissioner who
charged almost 1,900 hours in one fiscal year. We also noted
several instances where the number of hours charged to commission
activities and paid to a commissioner exceeded the standard 80
hours for the pay period. While exceeding 80 hours in a given pay
period is permissible, this practice and other changes to the time
and attendance information resulted in numerous manual adjustments
to the Commission's recorded payroll to reflect the excess hours
or retroactive time.^45 Manual adjustments can lead to
inaccuracies and inconsistencies and provide opportunities for
error. Further, manual adjustments increase the importance of
reconciliations to ensure that all data are captured and recorded
in a timely fashion. The accuracy of time and attendance
information is particularly important because the amount of time
devoted to commission activities is a factor46 in commission
ethics filing requirements.
^44GAO, Maintaining Effective Control over Employee Time and Attendance
Reporting, [47]GAO-03-352G (Washington, D.C.: January 2003).
^45Manual adjustments were also made to reimburse commissioners for hours
retroactively if commissioners' time and attendance records were not
submitted timely.
Conclusions
Congress created the commission almost seven years ago to advise
it about the impact of China's growing economic and military
capabilities on the United States. The commission's primary
vehicle for communicating its findings to Congress and the
American people is the annual report. However, the commission has
issued none by the mandated deadline because the appointment dates
for commissioners and the commission's work cycle schedule are not
aligned with the annual report issuance deadline. Seven of the
current 12 commissioners' terms will expire in December 2007, and
a reconstituted commission will again face the challenge of
meeting a June 1 reporting deadline. Unless the commissioners'
appointment dates and the commission's work cycle schedule are
aligned with the report issuance date, it is unlikely the
commission will issue future reports on time.
Despite the permanent status of the commission indicated by the
lack of a sunset provision in its charter, the commissioners have
not focused their attention on the management operations of the
organization. Instead, the commission has relied on its associate
director, who has a small administrative staff with limited
expertise and capacity, to manage the diverse and complex
activities necessary to support a federal agency. The commission's
ethics, human capital, procurement, and financial management
policies and procedures can be improved to enhance their
effectiveness and to provide reasonable assurance that the
commission is not at risk of potential fraud, waste, abuse, and
mismanagement. In this regard, the commission has started to take
steps to address some of the issues we have identified and has
requested a substantial increase in its appropriations to, in
part, to address these weaknesses. Nevertheless, we found
practices that the commission needs to address in the areas of
human capital, procurement, ethics, and financial management. Even
though the organization is small in size, the commission has a
responsibility and duty to effectively and efficiently manage the
resources provided by Congress. The commission has wide discretion
to determine how to do so in a way appropriate for its size. The
need for internal controls is heightened by the fact that it is
not subject to the degree of oversight and legal requirements of
most federal agencies.
^46Officers and employees of the legislative branch who are compensated
for a period in excess of 60 days during a calendar year at the annual
rate of pay equal to or in excess of 120 percent of the basic rate of pay
in effect for the Grade GS-15 of the general schedule must file a public
disclosure report with the Senate.
Matter for Congressional Consideration
To improve the timeliness of the commission's annual reports,
Congress should consider aligning the 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.
Recommendations for Executive Action
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, we recommend that the commission take the following
five actions:
o 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.
o 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.
o Establish comprehensive written research and
non-research-related procurement policies and procedures that
ensure transparency and competition as much as possible.
o 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.
o 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.
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, we recommend that the commissioners take the
following three actions:
o Strengthen key controls over non-payroll-related transactions by
o ensuring that all transactions are supported by
adequate documentation and are properly authorized,
approved, and classified; and
o 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.
o Implement key controls over the commission's government travel
and purchase card programs by
o providing training for staff who administer and use
the government travel and purchase card programs, and
o 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.
o Conduct all 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 Comments and Our Evaluation
We provided a draft of this report to the commission and GSA. We
obtained written comments from the commission, which are reprinted
with our responses in appendix VIII. GSA had no comments on our
draft. The commission concurred with our recommendations and noted
that these recommendations have the potential to help ensure that
its operations are both legal and appropriate. The commission
indicated that it will follow GAO's internal control standards to
develop a plan for addressing our recommendations even though
these standards are not binding on legislative branch entities,
such as the commission. The commission emphasized that its charter
is brief and offered the commission little guidance on what
internal control mechanisms it should employ and how they should
be structured and applied. Regarding the commission's request for
GAO to serve as the commission's official legal and management
expert, in order to be able to conduct work in accordance with
GAGAS, GAO prefers not to accept any nonaudit work that could
potentially create an independence impairment in fact or in
appearance with respect to the entities it reviews. While GAO is
willing to share (nonbinding) advice, the commission is
responsible for making such decisions and implementing the
policies and procedures to manage its operations. The commission
can secure the services of needed legal and management experts by
hiring them and developing them through training, for example, or
by contracting with outside parties for these services. The
commission's comments on the draft of the report, including the
technical comments we received from the executive director, asked
that we clarify various parts of our report. We revised our
report, as appropriate.
We are sending copies of this report to interested congressional
committees, USCESRC, and GSA. We will also make copies available
to others upon request. In addition, the report will be available
at no charge on the GAO Web site at [44]http://www.gao.gov .
If you and your staffs have any questions about this report,
please contact me at (202) 512-4347. Contact points for our
Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix IX.
Loren Yager
Director, International Affairs and Trade
Appendix I: Objectives, Scope, and Methodology
In this report, we assess the extent to which (1) the U.S.-China
Economic Security Review Commission (USCESRC) has complied with
its charter, (2) the commission has had an organizational
structure and policies and procedures for managing its operations
effectively, and (3) internal control over the commission's
financial management and reporting has provided reasonable
assurance that resources are not at risk.
To assess the compliance of the commission with its reporting
requirements and other provisions specified in its charter, we
obtained and analyzed the commission's statutory charter;^1
pertinent legislation and regulations, such as the Federal
Advisory Committee Act (FACA); and related commission
documentation. According to its charter, as amended, the
commission must implement FACA, which provides a legal and
institutional framework for the operation of advisory committees.
We observed two quarterly business meetings of the commission on
February 2 and May 25, 2007. We interviewed the 12 current
commissioners and two former commissioners, including a former
chairman of the commission and a commissioner who left the
commission when his appointment expired at the end of 2006. Also,
we interviewed the current executive director and the two previous
executive directors of the commission. We reviewed information and
met with officials from the General Services Administration (GSA)
and the Congressional Research Service (CRS).
To assess the organizational structure and procedures the
commission has in place to manage its administrative operations
and staff and achieve its mission effectively, we obtained and
analyzed commission records, such as documents describing the
organizational structure of the commission and ethics and conflict
of interest, human capital, procurement, and financial management
procedures that the commission had in place during our review.
In reviewing these organizational structure and policy and
procedures, we focused on whether they, as internal control
mechanisms, are in accordance with internal control standards for
the federal government, such as the internal control environment
and internal control activities standards.^2 While these standards
are not binding for legislative branch agencies, they are a
statement of best practices and adherence to these standards
provides reasonable assurance against fraud, waste, abuse, and
mismanagement. These standards give management of federal
agencies, regardless of size, the responsibility and discretion to
develop and implement mechanisms for internal control necessary
for achieving organizational objectives, managing operations and
staff effectively, and ensuring the agency is not at risk.
Effective internal control provides reasonable, not absolute,
assurance of meeting agency objectives.
^1The commission was created on October 30, 2000, by the Floyd D. Spence
National Defense Authorization Act for 2001 S 1238, Pub. L. No. 106-398,
114 STAT. 1654A-334 (2000).
^2GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
In analyzing the organizational structure and administrative
procedures, we assessed whether they were properly documented,
communicated, and implemented. In analyzing human capital and
equal employment opportunity procedures, we secured commission
information and reviewed GAO guidance. A GAO expert reviewed the
human capital information. In reviewing procurement procedures, we
obtained commission documentation and GAO information. A GAO
expert reviewed the procurement information. In reviewing ethics
and conflict of interest procedures, we obtained commission
documentation and Senate Select Committee on Ethics, and the
Secretary of the Senate Office of Public Records information. A
GAO expert reviewed the ethics and conflict of interest
information.
In assessing the organizational structure and administrative
procedures, we observed two quarterly business meetings of the
commission on February 2 and May 25, 2007, respectively. We
interviewed the 12 current commissioners and 2 former
commissioners, including a former chairman of the commission, and
a commissioner who left the commission when his appointment
expired at the end of 2006. Also, we interviewed the current
executive director and the two previous executive directors of the
commission. In addition, we interviewed all of the commission
staff, including six program staff and six administrative staff.
The latter included the associate director and office
manager/assistant director who are responsible for administrative
matters. We reviewed information and met with officials from the
Senate Select Committee on Ethics, and the Secretary of the Senate
Office of Public Records.
In order to determine the extent to which the commission
effectively executes its financial management and reporting
responsibilities in accordance with internal control standards, we
gained an understanding of the commission's overall financial
management and reporting process by interviewing the commission
officials and staff with those responsibilities. We also spoke
with representatives of GSA's External Services Division to gain
an understanding of GSA's role in the commission's financial
management and reporting process. We used applicable law and
commission policy, as well as our standards for internal control
in the federal government as our criteria. We developed our
understanding of the key processes and controls over
non-payroll-related transactions, travel and purchase card
transactions, and payroll, from inception at the commission's
office up until the point that the commission submits vouchers to
GSA for processing. We then assessed the extent to which certain
key controls and procedures were effectively applied to the
various types of transactions at the commission.
We selected a statistical sample of 59 debit transactions totaling
approximately $1.1 million from a population of 1,991 debit
transactions totaling approximately $4.5 million for fiscal years
2005 and 2006 to test specific internal control activities over
non-payroll-related transactions, such as adequacy of supporting
documentation, evidence of proper authorization or approval, and
proper classification. The non-payroll-related population included
transactions related to purchasing, travel, leases, payment to
contracted employees and other miscellaneous transactions. Results
from the statistical sample were projected to the population of
non-payroll-related transactions for years 2005 and 2006.^3 To
test the reliability of the non-payroll-related transaction data
provided, we (1) performed electronic testing of required data
elements, (2) reviewed existing information about the data and the
system that produced it, and (3) worked closely with commission
and GSA officials to identify any data problems. When we found
discrepancies such as zero-dollar transactions or those with
descriptions we could not understand such as nonfederal summary
codes, we brought them to GSA's attention and worked with them to
correct the discrepancies before conducting our analyses. We
determined that the data were sufficiently reliable for the
purposes of our report.
To examine commission travel card transactions, we obtained a
database of commission travel card transactions from Citibank for
fiscal years 2005 and 2006 and used data mining techniques to
select potentially questionable travel card transactions. Our
selections were made based on the dollar amount of an individual
transaction, transaction volume on individually billed travel card
accounts, group travel events, and any transactions associated
with what are generally considered to be popular vacation areas.
We traced selected transactions to supporting documentation,
examined supporting evidence, and made appropriate inquiries to
the associate director for transactions meeting these criteria.
^3The sample population consisted of nonpayroll expenses totaling
approximately $4.5 million. This excluded transactions with $0 and credit
balances and with nonfederal summary codes.
To examine commission purchase card transactions, we obtained a
database of commission purchase card transactions from Citibank
for July 2005 through June 2006 and used data mining techniques to
select potentially questionable purchase card transactions based
on merchant category codes. This database covered 3 months of
fiscal year 2005 (July 1, 2005, through September 30, 2005) and 9
months of fiscal year 2006 (October 1, 2005, through June 30,
2006) which we considered sufficient for our review.
To test the controls over the commission's payroll transactions,
we used a nonstatistical sample because we could not readily
obtain detailed or aggregated salary information in electronic
format for either staff or commissioners by fiscal year. We
performed analytical procedures to assess if salary expenses were
reasonable for fiscal year 2005 and 2006. We nonstatistically
selected four commissioners and verified that they were paid at
the authorized rates of pay for fiscal years 2005 and 2006. We
also nonstatistically selected eight staff and recalculated their
respective salaries for fiscal years 2005 and 2006 based on their
authorized rate of pay. In order to assess the time and attendance
part of the payroll process, we reviewed all T&A records for the
same four commissioners for fiscal years 2005 and 2006 to
determine whether they were completed and approved in accordance
with the policy as described by the commission. We also selected
three of the eight staff persons previously sampled
nonstatistically, and reviewed all respective T&A records for
fiscal years 2005 and 2006 to determine whether they were
completed and approved in accordance with commission policy.
We did not audit the commission's Statement of Budget Execution
(Standard Form 133) or the Year-End Closing Statement (Standard
Form 2108), nor do we express an opinion on them.
We performed our work from October 2006 to September 2007 in
accordance with generally accepted government auditing standards.
Appendix II: Timeline of Events Related to USCESRC
Appendix III: USCESRC Appropriations and Expenses
From its inception in fiscal year 2001 through fiscal year 2007,
the commission has received approximately $17.4 million in
appropriations to fund its operations, as indicated in table 6.
The commission has requested $4 million for fiscal year 2008.
According to the commission, the $1 million in additional funding
will support, among other things, internal and external research
efforts and implementation of GAO recommendations.
Table 6: USCESRC Appropriations, Fiscal Years 2001-2007
Dollars in millions
Fiscal year Appropriations net of rescissions Availability
2001 $ 4.69^a no-year^b
2002 -^c _
2003 1.79 no-year
2004 1.99 1-year
2005 2.98 no-year
2006 2.96 2-year
2007 2.97 2-year
Total $17.38
Source: GAO analysis of USCESRC data.
a2001 DOD Appropriations Act, P.L. 106-259, August 9, 2000,
appropriated $3 million to the commission, and 2001 Supplemental
Appropriations Act, P.L. 107-20 July 24, 2001, appropriated $1.7
million to the commission out of the Department of the Treasury's
appropriation.
bNo-year authority indicates that appropriations are not limited
to a specific fiscal year or expiration date.
cThe commission did not receive any appropriations for fiscal year
2002, as it was just beginning operations and had not used most of
the no-year funds appropriated in fiscal year 2001.
The commission's largest annual expense is for the commissioner
and staff salaries, as shown in table 7. Other annual commission
expenses include contracting research and professional services,
leasing office space in Washington, D.C., and incurring other
costs to carry out its mission.
Table 7: USCESRC Major Operating Expenses, Fiscal Years 2001-2006
Fiscal Year
Expense
type 2001 2002 2003 2004 2005 2006
Salaries $530,008 $1,748,600 $984,075 $1,427,406 $1,313,359 $1,114,165
and
benefits
Travel 20,602 220,304 43,149 213,806 278,242 165,313
Leases 20,172 277,607 242,007 281,945 300,388 289,427
Printing 8,265 49,223 13,231 22,231 21,915 18,525
Contractual 181,997 624,225 184,270 339,076 582,700 396,114
labor
Other 193,841 77,965 115,154 192,783 233,644 228,255
Total $954,855 $2,997,924 $1,581,886 $2,477,246 $2,730,248 $2,211,798
expenses
Source: GAO summary of USCESRC data.
Note: Balances are unaudited.
The commission is not subject to any financial reporting or audit
requirements. The commission developed a set of rules that require the
commission to prepare a report detailing budget and expenditure
information to be submitted to the commissioners for their review. The
Commission Rules also require quarterly reporting of the status of funds,
personnel actions, status of procurement of contracts, and other financial
information.^1 According to the executive director, the status of funds
report is an internal document used to keep track of commission
expenditures against its approved annual spending plan.
The commission entered into an agreement with the GSA Heartland Finance
Center in Kansas City, Missouri, to perform financial reporting
and accounting each fiscal year.2 This includes processing (1) obligations
and payments that have been authorized by the commission, (2) receipts and
disbursements of funds available to the commission from the U.S. Treasury,
and (3) all applicable payroll functions. GSA also provides quarterly
reports and year-end financial information to OMB and the Department of
the Treasury. GSA does not have an oversight role described in its
memorandum of understanding with the commission.
^1The commission maintains and heavily relies on an internal custom-built
database which stores information on various areas such as payroll and
personnel, travel, purchases, and other spending data. This database is
the source for internal reports on open obligations, vendors, travel,
budget estimates and the Status of Funds. This system does not interface
with the official execution of budgeted funds as maintained and reported
by GSA on behalf of the commission.
^2The General Services Administration in Kansas City, Missouri, services
the commission's payroll and accounting reporting needs. GSA's National
Payroll Center (NPC) furnishes all necessary payroll support functions as
provided by GSA's Payroll Accounting and Reporting System. NPC tracks and
monitors all activities, from initial hire through final payment at
separation or retirement. Payroll services include processing time and
attendance (T&A) records as submitted online through GSA's Electronic Time
and Attendance System. The GSA External Services Division provides
financial reporting and necessary accounting functions related to the
commission's Treasury account. This includes processing all accounting
transactions and reporting certain information to OMB and the Department
of the Treasury regarding the commission's status of fund balances on a
quarterly basis as well as the year-end reporting.
Appendix IV: Economic and Security Issues Covered by 2002 USCESRC Annual
Report
We found the commission's 2002 annual report covered the 10 economic and
security issue areas mandated at the time. Table 8 provides details on the
issue areas covered by the commission's 2002 annual report.
Table 8: Economic and Security Issue Areas Covered by the 2002 Annual
Report
Ten economic and security issue areas Issue areas covered by
required by statute chapter in 2002 annual report
(1) The portion of trade in goods and Chapter 10: Technology
services with the United States that the Transfers and Military
People's Republic of China dedicates to Acquisition Policy
military systems or systems of a dual nature
that could be used for military purposes.
(2) The acquisition by the People's Republic Chapter 9: The Defense Budget
of China of advanced military or dual-use and the Military Economy
technologies from the United States by trade
(including procurement) and other technology Chapter 10: Technology
transfers, especially those transfers, if Transfers and Military
any, that contribute to the proliferation of Acquisition Policy
weapons of mass destruction or their
delivery systems, or that undermine
international agreements or United States
laws with respect to nonproliferation.
(3) Any transfers, other than those Chapter 6: China's Presence
identified under subparagraph (B), to the in U.S. Capital Markets
military systems of the People's Republic of
China made by United States firms and United Chapter 9: The Defense Budget
States-based multinational corporations. and the Military Economy
(4) An analysis of the statements and Chapter 1: China's
writing of the People's Republic of China Perceptions of the United
officials and officially-sanctioned writings States and Strategic Thinking
that bear on the intentions, if any, of the
Government of the People's Republic of China
regarding the pursuit of military
competition with, and leverage over, or
cooperation with, the United States and the
Asian allies of the United States.
(5) The military actions taken by the Chapter 7: Proliferation and
Government of the People's Republic of China Chinese Relations with
during the preceding year that bear on the Terrorist-Sponsoring States
national security of the United States and
the regional stability of the Asian allies Chapter 8: Cross-Strait
of the United States. Security Issues
(6) The effects, if any, on the national Chapter 6: China's Presence
security interests of the United States of in U.S. Capital Markets
the use by the People's Republic of China of
financial transactions and capital flow and
currency manipulations.
(7) Any action taken by the Government of Chapter 3: China and the
the People's Republic of China in the World Trade Organizational
context of the World Trade Organizational structure
structure that is adverse or favorable to
the United States national security
interests.
(8) Patterns of trade and investment between Chapter 2: Trade and
the People's Republic of China and its major Investment
trading partners, other than the United
States, that appear to be substantively
different from trade and investment patterns
with the United States and whether the
differences have any national security
implications for the United States.
(9) The extent to which the trade surplus of Chapter 2: Trade and
the People's Republic of China with the Investment
United States enhances the military budget
of the People's Republic of China.
(10) An overall assessment of the state of Chapter 5: China's Growth as
the security challenges presented by the a Regional Economic Power
People's Republic of China to the United
States and whether the security challenges
are increasing or decreasing from previous
years.
(No requirement) Chapter 4: Political and
Civil Freedoms
Source: GAO analysis of USCESRC data.
Appendix V: Economic and Security Issues Covered by 2004 and 2005 USCESRC
Annual Reports
We found the commission's 2004 and 2005 annual reports covered the nine
economic and security issue areas mandated at the time. Table 9 provides
details on the issue areas covered by the commission's 2004 and 2005
annual reports.
Table 9: Economic and Security Issue Areas Covered by the 2004 and 2005
Annual Reports
Nine economic and Issue areas covered by Issue areas covered by
security issue areas chapter in 2004 annual chapter in 2005 annual
required by statute report report
(1) Proliferation Chapter 5: China's Chapter 4: China's Global
practices Proliferation Practices and Regional Activities
and the Challenges of and Geostrategic
North Korea Developments
(2) Economic reforms Chapter 1: China's Chapter 1: U.S.-China
and United States Industrial Investment, Trade and Economic
economic transfers and Exchange Rate Relationship
Policies
Chapter 7: China's
High-Technology
Development and
U.S.-China Science and
Technology Cooperation
(3) Energy Chapter 6: China's Energy Chapter 4: China's Global
Needs and Strategies and Regional Activities
and Geostrategic
Developments
(4) United States Chapter 3: China's Chapter 1: U.S.-China
capital markets Presence in the Global Trade and Economic
Capital Markets Relationship
Chapter 4: China's Global
and Regional Activities
and Geostrategic
Developments
(5) Corporate Chapter 1: China's Chapter 1: U.S.-China
reporting Industrial Investment, Trade and Economic
and Exchange Rate Relationship
Policies
Chapter 3: China's
Presence in the Global
Capital Markets
(6) Regional economic Chapter 4: China's Chapter 3: China's
and security impacts Regional Economic and Military Power and
Security Impacts and the America's Interests
Challenges of Hong Kong
and Taiwan Chapter 4: China's Global
and Regional Activities
Chapter 8: China's and Geostrategic
Military Modernization Developments
and the Cross-Strait
Balance
(7) United Chapter 7: China's Chapter 2: China's
States-China bilateral High-Technology High-Technology
programs Development and Development and
U.S.-China Science and Implications for the U.S.
Technology Cooperation Defense Industrial Base
(8) World Trade Chapter 2: China in the Chapter 1: U.S.-China
Organizational World Trade Trade and Economic
structure compliance Organizational structure: Relationship
Compliance, Monitoring,
and Enforcement
(9) Media control Chapter 9: Media and Chapter 5: China's Media
Information Control in and Information Controls
China
Source: GAO analysis of USCESRC data.
Appendix VI: USCESRC Procurement, Fiscal Year 2005
Description Amount Notes
Research procurement
Manufacturing Policy Project $40,000 Report on advanced technology
products for Palo Alto
hearing
Manufacturing Policy Project $6,000 U.S. patent laws working
paper
MBG Information Services $3,000 Briefing paper Palo Alto
hearing
MBG Information Services $14,000 Monitor and analyze
U.S.-China economic
development
McBee Strategic Consulting $10,000 Advice, strategies, and
facilitation for Seattle
hearing
Michael Pillsbury $22,475 Report on Chinese plan to
acquire and utilize U.S.
technology
Stewart & Stewart $10,000 World Trade Organization
compliance study for Feb.
Hearing (Feb. 2005)
Total, research procurement $105,475
Nonresearch procurement
Hearings
Bell Harbor International $10,533 Field hearing rental program
Conference Center, Hoover equipment
Institute, Stanford University,
Prague Security Studies
Bell Harbor International $18,357 Field hearing expenses
Conference Center, Lotos Club,
Stanford University, Prague
Security Studies
U.S. Senate Catering, Corner $12,327 D.C. hearings, meetings, and
Bakery, and others briefings (catering expenses)
Total, hearings $41,217
IT support
Karterian Systems Group Richard $46,116 IT Support Contract
Harris
Consultant services
Jefferson Communications $5,800 Media relations for WTO
hearing Feb. 3-4, 2005
Robert F. Ellsworth $18,900 Hearing consulting--multiple
hearings
Sequoia Public Relations $2,000 Media relations for Palo Alto
hearing April 22-23, 2005
James Swanson $1,344 Consulting Proliferation
Hearing March 10, 2005
Maochun Yu (US Naval Academy) $4,790 Translation of news articles
Chinese to English
Blanka Owensova $1,002 Translations from Czech to
English (Prague symposia)
Total, consultant services $33,836
Hearing photographers
Kittner & Kittner Inc., Robert $3,040
March, Elsa Ruiz, Ralph Alswang
Hearing transcription
Miller Reporting & Alderson $17,419 D.C. hearings and classified
Reporting briefings
Miller Reporting, Quail & Cook $12,224 Field hearings
Realtime and others
Total, hearing transcription $29,643
Other nonresearch procurement
Staples, Bond Business Products $21,187 General operating supplies
and others
CDWG, Circuit City, Corex $10,787 Computer hardware and
Technology, Dell, Dr. Symantec, software
Foxit, Iolo Technology, HP, and
others
Business Week, China Trade Extra, $8,510 Subscriptions
Financial Times, Inside U.S.-China
Trade, IWP newsletters, The Hill, Publications
Kanwa, leadership directories,
National Journal, New York Times,
OAG Online, Rollcall, South China
Morning Post, trade reports,
Washington Post, Wall Street
Journal and others
Amazon, Brookings Institute, Duke
Press, USGPO and others
State Services Organization $6,019 Office upgrade and property
management
Total, other nonresearch $46,503
procurement
Total, all nonresearch procurement $200,355
Total, all procurement $305,830
Source: GAO analysis of USCESRC data.
Note: Balances are unaudited.
Appendix VII: USCESRC Procurement, Fiscal Year 2006 Appendix VII: USCESRC
Procurement, Fiscal Year 2006
Description Amount Notes
Research procurement
MBG Information Services $10,500 Economic and trade data
analysis
John K. Douglas and Matthew Nelson $5,600 China's energy strategy
and diplomacy with the
Middle East
The University Group $15,000 Defense industrial base
issues and
recommendations
Eurasia Group $22,826 Oil and gas investments
outside China
Michael Pillsbury $24,000 China's antisatellite
and space warfare policy
Total, research procurement $77,926
Nonresearch Procurement
Hearing costs
University of Michigan $750 Detroit field hearing
U.S. Senate Catering, U.S. House $10,168 D.C. hearings, meetings,
Catering (Haute on the Hill), Au Bon and briefings (catering
Pain, Corner Bakery, Park Place expenses)
Catering, High Noon Catering, and
others
State Services Organization $2,400 D.C. meetings and
briefings
Total, hearing costs $13,318
IT support
Karterian Systems Group $45,000 IT support contract
Consultant services
Robert F. Ellsworth $6,300 Advisory consulting for
multiple hearings
Andrew Gudgel $5,495 Technical editing of
annual report
State Department $4,024 In-Country interpreters
Asia trip
Maochun Yu $2,579 Executive Summary
translation English to
Chinese
Jefferson Communications $2,228 Media relations for
annual report
Total, consultant services $20,626
Hearing photographers $0
Hearing transcription
Miller Reporting $10,497 D.C. hearings
McLaughlin Reporting $8,713 D.C. hearings
McLaughlin Reporting $1,870 Detroit field hearings
Total, hearing transcription $21,080
Other nonresearch procurement
Staples, Bond Business Products, and $24,000 General operating
others supplies
C2 Solutions Group, CDWG, CompUSA, $30,300 Computer hardware,
Dell, HP, Netgear, Newegg, Softmart, software, and equipment
and others
Business Week, China Trade Extra, $8,700 Subscriptions
Inside U.S.-China Trade, Financial
Times Online, The Hill, leadership Publications
directories, Manufacturing News,
National Journal, New York Times,
Nexis, OAG Online, Rollcall, South
China Morning Post, trade reports,
Washington Post, Wall Street Journal,
World Trade Online, Washington Trade
Daily, and others
Amazon, Powells, and others
Regional Construction Company $91,690 Office upgrade
(construction and
materials)
Total, other nonresearch procurement $154,690
Total, all nonresearch procurement $254,714
Total, all procurement $332,640
Source: GAO analysis of USCESRC data.
Note: Balances are unaudited.
Appendix VIII: Comments from USCESRC
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 2.
See comment 1.
See comment 5.
See comment 4.
See comment 3.
Note: Page numbers in draft report may differ from those in this report.
The following are GAO's comments on the commission's letter dated
September 11, 2007.
GAO Comments
1. In the Highlights and on page 2, it is clear that GAO's
assessment of organizational structure and management policies and
procedures is based on internal control standards for the federal
government. While these standards are not binding for legislative
branch agencies, we advocate all federal entities follow them
because they are a statement of best practices and adherence
provides reasonable assurance regarding the prevention or prompt
detection of fraud, waste, abuse, and mismanagement. We encourage
the commission to adopt these standards, which give management of
federal agencies, regardless of size, the responsibility and
discretion to develop and implement the mechanisms for internal
control necessary for providing reasonable assurance that the
objectives of the agency are being achieved with regard to
effective and efficient operations, reliable financial reporting,
and compliance with applicable laws and regulations.
2. We characterize the commission's views on pages 5 and 46.
3. With regard to the section on internal control over financial
reporting, and the projection of the results of the statistical
sample over nonpayroll transactions, the commission requested
specific wording changes related to the potential impropriety or
illegality of all or any specific transactions. We did not make
those changes because the objective of the sampling performed was
to determine whether the controls over non-payroll-related
transactions were in place and operating effectively. As stated in
the objectives, scope, and methodology in appendix I, we selected
a statistical sample of 59 debit transactions totaling
approximately $1.1 million from a population of 1,991 debit
transactions totaling approximately $4.5 million for fiscal years
2005 and 2006 to test specific internal control activities over
non-payroll-related transactions, such as adequacy of supporting
documentation, evidence of proper authorization or approval, and
proper classification. The non-payroll-related population included
transactions related to purchasing, travel, leases, payment to
contracted employees and other miscellaneous transactions. Results
from the statistical sample were projected to the population of
non-payroll-related transactions for fiscal years 2005 and 2006,
where we estimated that the dollar value on non-payroll-related
debit transactions with ineffective controls during the 2-year
period we examined is not more than $1.2 million. Because this
$1.2 million estimate exceeds the tolerable error of $224,715, we
concluded that the controls were ineffective as stated in the
report.
4. The commission partially disagreed with our observation that
free food was being provided to the commissioners because,
beginning in fiscal year 2006, it began a practice of deducting
the cost of the food from commissioner salaries. We did not review
the specific transaction details related to this practice, and we
are unable to say to what portion of the $9,386 this practice
applies. Further, this practice does not ensure that the
commission prevents the use of appropriated funds to furnish free
food to government employees and is subject to errors and
inconsistencies.
5. On page 46 of the report, we note that GAO prefers not to
accept any nonaudit work that could potentially create an
independence impairment in fact or in appearance with respect to
the entities it reviews.
Appendix IX: GAO Contact and Staff Acknowledgments
GAO Contact
Loren Yager, (202) 512-4347 or [48][email protected]
Staff Acknowledgments
In addition to the contact named above, Adam Cowles (Assistant Director),
Sharon Byrd, Richard Cambosos, Stephen Donahue, Mark Dowling, Elizabeth
Martinez, Mary Arnold Mohiyuddin, Jeremy Rothgerber, Juan Tapia-Videla,
McCoy Williams, and Matthew Wood made key contributions to this report.
The team benefited from the expert advice and assistance of Martin de
Alteriis, Karen Deans, Francine DelVecchio, William Doherty, Etana
Finkler, Carol Henn, India Jenkins, Ramon Rodriguez, Debra Rucker, Jena
Sinkfield, and William Woods.
(320436)
To view the full product, including the scope
and methodology, click on [49]GAO-07-1128 .
For more information, contact Loren Yager at (202) 512-4347 or
[email protected].
Highlights of [50]GAO-07-1128 , a report to congressional requesters
September 2007
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
Actions Needed to Improve Controls over Key Management Functions
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.
[51]What GAO Recommends
To improve the timeliness of the commission's annual reports, Congress
should consider aligning the commissioners' appointment dates with the
annual report issuance date. GAO makes eight recommendations to improve
the commission's organizational structure and management policies and
procedures. The commission concurred with all of these recommendations.
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.
Commissioners' Appointment Date and Work Cycle Are Not Aligned with
Reporting Cycle
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References
Visible links
39. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1
40. http://www.gao.gov/cgi-bin/getrpt?GAO-01-1008G
41. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1
42. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1
43. http://www.gao.gov/cgi-bin/getrpt?GAO-04-39
44. http://www.gao.gov
45. http://www.gao.gov/cgi-bin/getrpt?GAO-04-261SP
46. http://www.gao.gov/cgi-bin/getrpt?GAO-04-261SP
47. http://www.gao.gov/cgi-bin/getrpt?GAO-03-352G
48. mailto:[email protected]
49. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1128
50. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1128
52. http://www.gao.gov/
53. http://www.gao.gov/
54. http://www.gao.gov/fraudnet/fraudnet.htm
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