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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:
U.S.-China Economic and Security Review Commission:
GAO-07-1128:
GAO Highlights:
Highlights of GAO-07-1128, a report to congressional requesters.
Why GAO Did This Study:
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.
What GAO Found:
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.
Figure: Commissioners Appointment Data and Work Cycle Are not Aligned
with Reporting Cycle:
[See PDF for image]
Source: GAO analysis of USCESRC.
[End of figure]
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.
To view the full product, including the scope and methodology, click on
GAO-07-1128. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
The Commission Has Not Fully Complied with Its Charter:
Weaknesses in Current Organizational Structure and Management Policies
and Procedures:
Ineffective Internal Control over Financial Management and Reporting:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Timeline of Events Related to USCESRC:
Appendix III: USCESRC Appropriations and Expenses:
Appendix IV: Economic and Security Issues Covered by 2002 USCESRC
Annual Report:
Appendix V: Economic and Security Issues Covered by 2004 and 2005
USCESRC Annual Reports:
Appendix VI: USCESRC Procurement, Fiscal Year 2005:
Appendix VII: USCESRC Procurement, Fiscal Year 2006:
Appendix VIII: Comments from USCESRC:
GAO Comments:
Appendix IX: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Modifications to the Economic and Security Issue Areas in the
Commission's Charter:
Table 2: Economic and Security Issue Areas Covered by the 2006 Annual
Report:
Table 3: USCESRC Annual Report Issuance Dates:
Table 4: Provisions of FACA That Apply to USCESRC:
Table 5: Questionable Purchase Card Transactions, July 1, 2005-June 30,
2006:
Table 6: USCESRC Appropriations, Fiscal Years 2001-2007:
Table 7: USCESRC Major Operating Expenses, Fiscal Years 2001-2006:
Table 8: Economic and Security Issue Areas Covered by the 2002 Annual
Report:
Table 9: Economic and Security Issue Areas Covered by the 2004 and 2005
Annual Reports:
Figures:
Figure 1: Misalignment of Commissioners' Appointment Date and
Commission's Work Cycle with Reporting Cycle:
Figure 2: Actual Ranges of Commissioner Appointment Dates:
Figure 3: USCESRC Organizational Chart:
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:
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.
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
commission must implement FACA, which provides a legal and
institutional framework for the operation of advisory
committees.[Footnote 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.[Footnote 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.
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.
* 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.
* 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[Footnote
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.
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)[Footnote 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.
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:
Original charter, October 30, 2000: 10 issue areas: (1) The portion of
trade in goods and services with the United 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;
Charter amended February 20, 2003: 9 issue areas: Proliferation
practices;
Charter amended November 22, 2005: 8 issue areas: Proliferation
practices.
Original charter, October 30, 2000: 10 issue areas: (2) The acquisition
by the People's Republic of China of 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;
Charter amended February 20, 2003: 9 issue areas: Proliferation
practices;
Charter amended November 22, 2005: 8 issue areas: Proliferation
practices.
Original charter, October 30, 2000: 10 issue areas: (3) An overall
assessment of the state of the security challenges presented by the
People's Republic of China to the United States and whether the
security challenges are increasing or decreasing from previous years;
Charter amended February 20, 2003: 9 issue areas: Proliferation
practices;
Charter amended November 22, 2005: 8 issue areas: Proliferation
practices.
Original charter, October 30, 2000: 10 issue areas: (4) Any transfers,
other than those identified under subparagraph (B), to the military
systems of the People's Republic of China made by United States firms
and United States-based multinational corporations;
Charter amended February 20, 2003: 9 issue areas: Corporate reporting;
Charter amended November 22, 2005: 8 issue areas: (No longer required).
Original charter, October 30, 2000: 10 issue areas: (5) An analysis of
the statements and writing of the People's 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;
Charter amended February 20, 2003: 9 issue areas: (No longer required);
Charter amended November 22, 2005: 8 issue areas: (No longer required).
Original charter, October 30, 2000: 10 issue areas: (6) The military
actions taken by the government of the People's Republic of China
during the preceding year that bear on the national security of the
United States and the regional stability of the Asian allies of the
United States;
Charter amended February 20, 2003: 9 issue areas: Regional economic and
security impacts;
Charter amended November 22, 2005: 8 issue areas: Regional economic and
security impacts.
Original charter, October 30, 2000: 10 issue areas: (7) Patterns of
trade and investment between the People's Republic of China and its
major 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;
Charter amended February 20, 2003: 9 issue areas: Regional economic and
security impacts;
Charter amended November 22, 2005: 8 issue areas: Regional economic and
security impacts.
Original charter, October 30, 2000: 10 issue areas: (8) The effects, if
any, on the national security interests of the United States of the use
by the People's Republic of China of financial transactions and capital
flow and currency manipulations;
Charter amended February 20, 2003: 9 issue areas: United States capital
markets;
Charter amended November 22, 2005: 8 issue areas: United States capital
markets.
Original charter, October 30, 2000: 10 issue areas: (9) Any action
taken by the government of the People's Republic of China in the
context of the World Trade Organization that is adverse or favorable to
the United States national security interests;
Charter amended February 20, 2003: 9 issue areas: World Trade
Organization compliance;
Charter amended November 22, 2005: 8 issue areas: World Trade
Organization compliance.
Original charter, October 30, 2000: 10 issue areas: (10) The extent to
which the trade surplus of the People's Republic of China with the
United States enhances the military budget of the People's Republic of
China;
Charter amended February 20, 2003: 9 issue areas: United States-China
bilateral programs;
Charter amended November 22, 2005: 8 issue areas: United States-China
bilateral programs.
Original charter, October 30, 2000: 10 issue areas: (10) The extent to
which the trade surplus of the People's Republic of China with the
United States enhances the military budget of the People's Republic of
China;
Charter amended February 20, 2003: 9 issue areas: Economic reforms and
United States economic transfers;
Charter amended November 22, 2005: 8 issue areas: Economic transfers.
Original charter, October 30, 2000: 10 issue areas: (No requirement);
Charter amended February 20, 2003: 9 issue areas: Energy;
Charter amended November 22, 2005: 8 issue areas: Energy.
Original charter, October 30, 2000: 10 issue areas: (No requirement);
Charter amended February 20, 2003: 9 issue areas: Media control;
Charter amended November 22, 2005: 8 issue areas: Freedom of
expression.
Source: GAO analysis of USCESRC charter and amendments.
[End of table]
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 required by statute: (1)
Proliferation practices;
Issue areas covered by chapter in 2006 annual report: Chapter 2:
China's Global and Regional Activities and Other Geostrategic
Developments.
Eight economic and security issue areas required by statute: (2)
Economic transfers;
Issue areas covered by chapter in 2006 annual report: 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.
Eight economic and security issue areas required by statute: (3)
Energy;
Issue areas covered by chapter in 2006 annual report: Chapter 2:
China's Global and Regional Activities and Other Geostrategic
Developments.
Eight economic and security issue areas required by statute: (4) United
States capital markets;
Issue areas covered by chapter in 2006 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship.
Eight economic and security issue areas required by statute: (5)
Regional economic and security impacts;
Issue areas covered by chapter in 2006 annual report: Chapter 1: U.S.-
China Trade and Economic 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.
Eight economic and security issue areas required by statute: (6) United
States-China bilateral programs;
Issue areas covered by chapter in 2006 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship;
Chapter 4: A Case Study of the Automotive Industry That Illustrates
Challenges to U.S. Manufacturing and the U.S. Defense Industrial Base.
Eight economic and security issue areas required by statute: (7) World
Trade Organization compliance;
Issue areas covered by chapter in 2006 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship;
Chapter 4: A Case Study of the Automotive Industry That Illustrates
Challenges to U.S. Manufacturing and the U.S. Defense Industrial Base.
Eight economic and security issue areas required by statute: (8)
Freedom of expression;
Issue areas covered by chapter in 2006 annual report: Chapter 6:
China's Media and Information Controls.
Source: GAO analysis of USCESRC charter.
[End of table]
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:
Mandated issuance date of annual report;
2002: June 1;
2003: June 1;
2004: June 1;
2005: June 1;
2006: June 1;
2007: June 1.
Actual issuance date of annual report;
2002: July 15;
2003: No report issued;
2004: June 10;
2005: November 9;
2006: October 30[A];
2007: Planned for November[B].
Number of days late;
2002: 44;
2003: Not applicable;
2004: 9;
2005: 161;
2006: 151;
2007: Not applicable.
Source: GAO analysis of USCESRC data.
[A] USCESRC submitted an interim report to Congress on June 21, 2006
(20 days late).
[B] USCESRC submitted an interim report to Congress on June 1, 2007.
[End of table]
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.[Footnote 5]
Figure 1: Misalignment of Commissioners' Appointment Date and
Commission's Work Cycle with Reporting Cycle:
[See PDF for image]
Source: GAO analysis of USCESRC information.
[End of figure]
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.
Figure 2: Actual Ranges of Commissioner Appointment Dates:
[See PDF for image]
Source: GAO analysis of USCESRC information.
Note: No commissioners were appointed in 2002.
[End of figure]
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.[Footnote 6]
Initially, the legislation establishing the commission exempted it from
FACA.[Footnote 7] In November 2005, Congress amended the commission's
charter so as to apply FACA to its activities.[Footnote 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.
Table 4: Provisions of FACA That Apply to USCESRC:
Section: 5;
Requirement: Imposes responsibilities on congressional committees and
on the executive branch with respect to the establishment and oversight
of advisory committees;
Implemented by USCESRC: No.
Section: 6;
Requirement: Requires the President or his delegate to 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;
Implemented by USCESRC: No.
Section: 7;
Requirement: Requires the GSA Administrator to engage in 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;
Implemented by USCESRC: No.
Section: 8;
Requirement: Imposes administrative responsibilities on agency heads;
Implemented by USCESRC: No.
Section: 9(a);
Requirement: Places limitations on the establishment of advisory
committees;
Implemented by USCESRC: No.
Section: 9(b);
Requirement: Forbids advisory committees from engaging in policy-making
or policy-implementing actions unless directed to do so by statute or
presidential order;
Implemented by USCESRC: Yes.
Section: 9(c);
Requirement: Charter requirement;
Implemented by USCESRC: Yes.
Section: 10;
Requirement: Requires advisory committee meetings to be open 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;
Implemented by USCESRC: Yes.
Section: 11;
Requirement: Requires advisory committees to make available transcripts
of advisory committee meetings;
Implemented by USCESRC: Yes.
Section: 12;
Requirement: Requires agencies to maintain records that will 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;
Implemented by USCESRC: Yes.
Section: 13;
Requirement: Requires the GSA Administrator to file advisory committee
reports and background papers with the Library of Congress;
Implemented by USCESRC: Yes.
Section: 14(a), (c);
Requirement: Establishes procedures for the termination of advisory
committees;
Implemented by USCESRC: No.
Section: 14(b);
Requirement: Requires advisory committees that are renewed to file a
new charter;
Implemented by USCESRC: Yes.
Section: 15;
Requirement: Imposes restrictions on agencies' use of advice or
recommendations provided by the National Academy of Sciences or the
National Academy of Public Administration;
Implemented by USCESRC: No.
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.
[End of table]
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.[Footnote
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.
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.[Footnote 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.[Footnote 11]
Figure 3: USCESRC Organizational Chart:
[See PDF for image]
Source: GAO analysis of USCESRC.
[End of figure]
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:
* government ethics;
* personnel management;
* security clearances;
* procurement;
* budget and financial management;
* facilities and administrative services;
* public and media affairs;
* hearings, briefings, and meetings; and:
* 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:
* developing budget plans, goals, and objectives for overall projects
and spending levels;
* working with the GSA budget office;
* developing and reviewing other budget data for automated input into
the Office of Management and Budget (OMB) MAX system;
* responding to OMB requests for supplemental information;
* developing budget material in support of the commission's budget
requests and congressional budget justifications;
* supporting the chairman and other commissioners at hearings and
meetings;
* generating documents that provide spending authority, OMB
apportionment of carryover, and appropriated funds;
* assuring the accuracy of the monthly and year-end Report of Budget
Execution of OMB and the Treasury Department; and:
* 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.[Footnote 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.
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.[Footnote 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.
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.[Footnote 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.
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.[Footnote 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.[Footnote 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.
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[Footnote 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.
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.[Footnote 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.
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.[Footnote
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.[Footnote 20] The
following are examples of the type of internal control weaknesses
identified in our sample transactions:
* 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.[Footnote 21]
* 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.[Footnote 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,[Footnote 23] no one individual should control
all key aspects of a transaction.
* 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.
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[Footnote 24] and 2006[Footnote 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.[Footnote 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,[Footnote 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.
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[Footnote 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.[Footnote 29]
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.[Footnote 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.[Footnote 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[Footnote 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[Footnote 33] or authorizing first[Footnote
34] or business[Footnote 35] class travel as required by the FTR. Of
the 22 travel voucher claims[Footnote 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.
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.[Footnote 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.[Footnote 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.
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.[Footnote 39] This is the principal means
of assuring that only valid transactions to commit resources are
initiated or entered into.[Footnote 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.[Footnote 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.[Footnote 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.
Table 5: Questionable Purchase Card Transactions, July 1, 2005-June 30,
2006:
Type: Food purchases;
Number of transactions: 31;
Amount: $9,385.74.
Type: Senate gift shop;
Number of transactions: 7;
Amount: 2,405.50.
Type: Other items;
Number of transactions: 12;
Amount: 1,362.20.
Total;
Number of transactions: 50;
Amount: $13,153.44.
Source: GAO analysis of Citibank data.
[End of table]
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.[Footnote 43]
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,[Footnote 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.[Footnote 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.
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.
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:
* 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.
* 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.
* Establish comprehensive written research and non-research-related
procurement policies and procedures that ensure transparency and
competition as much as possible.
* 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.
* 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:
* Strengthen key controls over non-payroll-related transactions by:
- ensuring that all transactions are supported by adequate
documentation and are properly authorized, approved, and classified;
and:
- developing and documenting criteria for classifying transactions for
the purpose of official representation, and developing and documenting
a means to track such transactions within its accounting and reporting
structure.
* Implement key controls over the commission's government travel and
purchase card programs by:
- providing training for staff who administer and use the government
travel and purchase card programs, and:
- developing and documenting commission policies and procedures with
regard to food provided at commission hearings, quarterly business
meetings, or any related events, in compliance with federal
appropriations law prohibiting free food to government employees.
* 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 [hyperlink, 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.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
[End of section]
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;[Footnote 46] 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.[Footnote 47] 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.
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.[Footnote 48] 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.
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.
[End of section]
Appendix II: Timeline of Events Related to USCESRC:
Figure: Timeline of Events Related to USCESRC:
[See PDF for image]
Source: GAO analysis of USCESRC.
[End of figure]
[End of section]
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: 2001;
Appropriations net of rescissions: $ 4.69[A];
Availability: no-year[B].
Fiscal year: 2002;
Appropriations net of rescissions: -[C];
Availability: _.
Fiscal year: 2003;
Appropriations net of rescissions: 1.79;
Availability: no-year.
Fiscal year: 2004;
Appropriations net of rescissions: 1.99;
Availability: 1-year.
Fiscal year: 2005;
Appropriations net of rescissions: 2.98;
Availability: no-year.
Fiscal year: 2006;
Appropriations net of rescissions: 2.96;
Availability: 2-year.
Fiscal year: 2007;
Appropriations net of rescissions: 2.97;
Availability: 2-year.
Fiscal year: Total;
Appropriations net of rescissions: $17.38;
Availability: [Empty].
Source: GAO analysis of USCESRC data.
[A] 2001 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.
[B] No-year authority indicates that appropriations are not limited to
a specific fiscal year or expiration date.
[C] The 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.
[End of table]
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:
Expense type: Salaries and benefits;
Fiscal Year: 2001: $530,008;
Fiscal Year: 2002: $1,748,600;
Fiscal Year: 2003: $984,075;
Fiscal Year: 2004: $1,427,406;
Fiscal Year: 2005: $1,313,359;
Fiscal Year: 2006: $1,114,165.
Expense type: Travel;
Fiscal Year: 2001: 20,602;
Fiscal Year: 2002: 220,304;
Fiscal Year: 2003: 43,149;
Fiscal Year: 2004: 213,806;
Fiscal Year: 2005: 278,242;
Fiscal Year: 2006: 165,313.
Expense type: Leases;
Fiscal Year: 2001: 20,172;
Fiscal Year: 2002: 277,607;
Fiscal Year: 2003: 242,007;
Fiscal Year: 2004: 281,945;
Fiscal Year: 2005: 300,388;
Fiscal Year: 2006: 289,427.
Expense type: Printing;
Fiscal Year: 2001: 8,265;
Fiscal Year: 2002: 49,223;
Fiscal Year: 2003: 13,231;
Fiscal Year: 2004: 22,231;
Fiscal Year: 2005: 21,915;
Fiscal Year: 2006: 18,525.
Expense type: Contractual labor;
Fiscal Year: 2001: 181,997;
Fiscal Year: 2002: 624,225;
Fiscal Year: 2003: 184,270;
Fiscal Year: 2004: 339,076;
Fiscal Year: 2005: 582,700;
Fiscal Year: 2006: 396,114.
Expense type: Other;
Fiscal Year: 2001: 193,841;
Fiscal Year: 2002: 77,965;
Fiscal Year: 2003: 115,154;
Fiscal Year: 2004: 192,783;
Fiscal Year: 2005: 233,644;
Fiscal Year: 2006: 228,255.
Total expenses;
Fiscal Year: 2001: $954,855;
Fiscal Year: 2002: $2,997,924;
Fiscal Year: 2003: $1,581,886;
Fiscal Year: 2004: $2,477,246;
Fiscal Year: 2005: $2,730,248;
Fiscal Year: 2006: $2,211,798.
Source: GAO summary of USCESRC data.
Note: Balances are unaudited.
[End of table]
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.[Footnote 49] 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.[Footnote 50] 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.
[End of section]
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 required by statute: (1) The
portion of trade in goods and services with the United 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;
Issue areas covered by chapter in 2002 annual report: Chapter 10:
Technology Transfers and Military Acquisition Policy.
Ten economic and security issue areas required by statute: (2) The
acquisition by the People's Republic of China of 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;
Issue areas covered by chapter in 2002 annual report: Chapter 9: The
Defense Budget and the Military Economy;
Chapter 10: Technology Transfers and Military Acquisition Policy.
Ten economic and security issue areas required by statute: (3) Any
transfers, other than those identified under subparagraph (B), to the
military systems of the People's Republic of China made by United
States firms and United States-based multinational corporations;
Issue areas covered by chapter in 2002 annual report: Chapter 6:
China's Presence in U.S. Capital Markets;
Chapter 9: The Defense Budget and the Military Economy.
Ten economic and security issue areas required by statute: (4) An
analysis of the statements and writing of the People's 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;
Issue areas covered by chapter in 2002 annual report: Chapter 1:
China's Perceptions of the United States and Strategic Thinking.
Ten economic and security issue areas required by statute: (5) The
military actions taken by the Government of the People's Republic of
China during the preceding year that bear on the national security of
the United States and the regional stability of the Asian allies of the
United States; Issue areas covered by chapter in 2002 annual report:
Chapter 7: Proliferation and Chinese Relations with Terrorist-
Sponsoring States;
Chapter 8: Cross-Strait Security Issues.
Ten economic and security issue areas required by statute: (6) The
effects, if any, on the national security interests of the United
States of the use by the People's Republic of China of financial
transactions and capital flow and currency manipulations;
Issue areas covered by chapter in 2002 annual report: Chapter 6:
China's Presence in U.S. Capital Markets.
Ten economic and security issue areas required by statute: (7) Any
action taken by the Government of the People's Republic of China in the
context of the World Trade Organizational structure that is adverse or
favorable to the United States national security interests;
Issue areas covered by chapter in 2002 annual report: Chapter 3: China
and the World Trade Organizational structure.
Ten economic and security issue areas required by statute: (8) Patterns
of trade and investment between the People's Republic of China and its
major 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;
Issue areas covered by chapter in 2002 annual report: Chapter 2: Trade
and Investment.
Ten economic and security issue areas required by statute: (9) The
extent to which the trade surplus of the People's Republic of China
with the United States enhances the military budget of the People's
Republic of China;
Issue areas covered by chapter in 2002 annual report: Chapter 2: Trade
and Investment.
Ten economic and security issue areas required by statute: (10) An
overall assessment of the state of the security challenges presented by
the People's Republic of China to the United States and whether the
security challenges are increasing or decreasing from previous years;
Issue areas covered by chapter in 2002 annual report: Chapter 5:
China's Growth as a Regional Economic Power.
Ten economic and security issue areas required by statute: (No
requirement);
Issue areas covered by chapter in 2002 annual report: Chapter 4:
Political and Civil Freedoms.
Source: GAO analysis of USCESRC data.
[End of table]
[End of section]
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 security issue areas required by statute: (1)
Proliferation practices; Issue areas covered by chapter in 2004 annual
report: Chapter 5: China's Proliferation Practices and the Challenges
of North Korea;
Issue areas covered by chapter in 2005 annual report: Chapter 4:
China's Global and Regional Activities and Geostrategic Developments.
Nine economic and security issue areas required by statute: (2)
Economic reforms and United States economic transfers;
Issue areas covered by chapter in 2004 annual report: Chapter 1:
China's Industrial Investment, and Exchange Rate Policies;
Chapter 7: China's High- Technology Development and U.S.-China Science
and Technology Cooperation;
Issue areas covered by chapter in 2005 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship.
Nine economic and security issue areas required by statute: (3) Energy;
Issue areas covered by chapter in 2004 annual report: Chapter 6:
China's Energy Needs and Strategies;
Issue areas covered by chapter in 2005 annual report: Chapter 4:
China's Global and Regional Activities and Geostrategic Developments.
Nine economic and security issue areas required by statute: (4) United
States capital markets;
Issue areas covered by chapter in 2004 annual report: Chapter 3:
China's Presence in the Global Capital Markets;
Issue areas covered by chapter in 2005 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship;
Chapter 4: China's Global and Regional Activities and Geostrategic
Developments.
Nine economic and security issue areas required by statute: (5)
Corporate reporting;
Issue areas covered by chapter in 2004 annual report: Chapter 1:
China's Industrial Investment, and Exchange Rate Policies;
Chapter 3: China's Presence in the Global Capital Markets;
Issue areas covered by chapter in 2005 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship.
Nine economic and security issue areas required by statute: (6)
Regional economic and security impacts;
Issue areas covered by chapter in 2004 annual report: Chapter 4:
China's Regional Economic and Security Impacts and the Challenges of
Hong Kong and Taiwan;
Chapter 8: China's Military Modernization and the Cross-Strait Balance;
Issue areas covered by chapter in 2005 annual report: Chapter 3:
China's Military Power and America's Interests;
Chapter 4: China's Global and Regional Activities and Geostrategic
Developments.
Nine economic and security issue areas required by statute: (7) United
States-China bilateral programs;
Issue areas covered by chapter in 2004 annual report: Chapter 7:
China's High-Technology Development and U.S.- China Science and
Technology Cooperation;
Issue areas covered by chapter in 2005 annual report: Chapter 2:
China's High-Technology Development and Implications for the U.S.
Defense Industrial Base.
Nine economic and security issue areas required by statute: (8) World
Trade Organizational structure compliance;
Issue areas covered by chapter in 2004 annual report: Chapter 2: China
in the World Trade Organizational structure: Compliance, Monitoring,
and Enforcement;
Issue areas covered by chapter in 2005 annual report: Chapter 1: U.S.-
China Trade and Economic Relationship.
Nine economic and security issue areas required by statute: (9) Media
control;
Issue areas covered by chapter in 2004 annual report: Chapter 9: Media
and Information Control in China;
Issue areas covered by chapter in 2005 annual report: Chapter 5:
China's Media and Information Controls.
Source: GAO analysis of USCESRC data.
[End of table]
[End of section]
Appendix VI: USCESRC Procurement, Fiscal Year 2005:
Table 10: USCESRC Procurement, Fiscal Year 2005:
Description: Research procurement: Manufacturing Policy Project;
Amount: $40,000;
Notes: Report on advanced technology products for Palo Alto hearing.
Description: Research procurement: Manufacturing Policy Project;
Amount: $6,000;
Notes: U.S. patent laws working paper.
Description: Research procurement: MBG Information Services;
Amount: $3,000;
Notes: Briefing paper Palo Alto hearing.
Description: Research procurement: MBG Information Services;
Amount: $14,000;
Notes: Monitor and analyze U.S.-China economic development.
Description: Research procurement: McBee Strategic Consulting;
Amount: $10,000;
Notes: Advice, strategies, and facilitation for Seattle hearing.
Description: Research procurement: Michael Pillsbury;
Amount: $22,475;
Notes: Report on Chinese plan to acquire and utilize U.S. technology.
Description: Research procurement: Stewart & Stewart;
Amount: $10,000;
Notes: World Trade Organization compliance study for Feb. Hearing (Feb.
2005).
Total, research procurement;
Amount: $105,475;
Notes: [Empty].
Description: Nonresearch procurement: Hearings: Bell Harbor
International Conference Center, Hoover Institute, Stanford University,
Prague Security Studies;
Amount: $10,533;
Notes: Field hearing rental program equipment.
Description: Nonresearch procurement: Hearings: Bell Harbor
International Conference Center, Lotos Club, Stanford University,
Prague Security Studies;
Amount: $18,357;
Notes: Field hearing expenses.
Description: Nonresearch procurement: Hearings: U.S. Senate Catering,
Corner Bakery, and others;
Amount: $12,327;
Notes: D.C. hearings, meetings, and briefings (catering expenses).
Total, hearings;
Amount: $41,217;
Notes: [Empty].
Description: IT support: Karterian Systems Group Richard Harris;
Amount: $46,116;
Notes: IT Support Contract.
Description: Consultant services: Jefferson Communications;
Amount: $5,800;
Notes: Media relations for WTO hearing Feb. 3-4, 2005.
Description: Consultant services: Robert F. Ellsworth;
Amount: $18,900;
Notes: Hearing consulting--multiple hearings.
Description: Consultant services: Sequoia Public Relations;
Amount: $2,000;
Notes: Media relations for Palo Alto hearing April 22-23, 2005.
Description: Consultant services: James Swanson;
Amount: $1,344;
Notes: Consulting Proliferation Hearing March 10, 2005.
Description: Consultant services: Maochun Yu (US Naval Academy);
Amount: $4,790;
Notes: Translation of news articles Chinese to English.
Description: Consultant services: Blanka Owensova;
Amount: $1,002;
Notes: Translations from Czech to English (Prague symposia).
Total, consultant services;
Amount: $33,836;
Notes: [Empty].
Description: Hearing photographers: Kittner & Kittner Inc., Robert
March, Elsa Ruiz, Ralph Alswang;
Amount: $3,040;
Notes: [Empty].
Description: Hearing transcription: Miller Reporting & Alderson
Reporting;
Amount: $17,419;
Notes: D.C. hearings and classified briefings.
Description: Hearing transcription: Miller Reporting, Quail & Cook
Realtime and others; Amount: $12,224;
Notes: Field hearings.
Total, hearing transcription;
Amount: $29,643;
Notes: [Empty].
Description: Other nonresearch procurement: Staples, Bond Business
Products and others;
Amount: $21,187;
Notes: General operating supplies.
Description: Other nonresearch procurement: CDWG, Circuit City, Corex
Technology, Dell, Dr. Symantec, Foxit, Iolo Technology, HP, and others;
Amount: $10,787;
Notes: Computer hardware and software.
Description: Other nonresearch procurement: Business Week, China Trade
Extra, Financial Times, Inside U.S.-China Trade, IWP newsletters, The
Hill, 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;
Amount: $8,510;
Notes: Subscriptions; Publications.
Description: Other nonresearch procurement: State Services
Organization;
Amount: $6,019;
Notes: Office upgrade and property management.
Total, other nonresearch procurement;
Amount: $46,503;
Notes: [Empty].
Total, all nonresearch procurement;
Amount: $200,355;
Notes: [Empty].
Total, all procurement;
Amount: $305,830;
Notes: [Empty].
Source: GAO analysis of USCESRC data.
Note: Balances are unaudited.
[End of table]
[End of section]
Appendix VII: USCESRC Procurement, Fiscal Year 2006:
Description: Research procurement: MBG Information Services;
Amount: $10,500;
Notes: Economic and trade data analysis.
Description: Research procurement: John K. Douglas and Matthew Nelson;
Amount: $5,600;
Notes: China's energy strategy and diplomacy with the Middle East.
Description: Research procurement: The University Group;
Amount: $15,000;
Notes: Defense industrial base issues and recommendations.
Description: Research procurement: Eurasia Group;
Amount: $22,826;
Notes: Oil and gas investments outside China.
Description: Research procurement: Michael Pillsbury;
Amount: $24,000;
Notes: China's antisatellite and space warfare policy.
Total, research procurement;
Amount: $77,926;
Notes: [Empty].
Description: Nonresearch Procurement: Hearing costs: University of
Michigan;
Amount: $750;
Notes: Detroit field hearing.
Description: Nonresearch Procurement: Hearing costs: U.S. Senate
Catering, U.S. House Catering (Haute on the Hill), Au Bon Pain, Corner
Bakery, Park Place Catering, High Noon Catering, and others;
Amount: $10,168;
Notes: D.C. hearings, meetings, and briefings (catering expenses).
Description: Nonresearch Procurement: Hearing costs: State Services
Organization;
Amount: $2,400;
Notes: D.C. meetings and briefings.
Total, hearing costs;
Amount: $13,318;
Notes: [Empty].
Description: Nonresearch Procurement: IT support: Karterian Systems
Group;
Amount: $45,000;
Notes: IT support contract.
Description: Nonresearch Procurement: Consultant services: Robert F.
Ellsworth;
Amount: $6,300;
Notes: Advisory consulting for multiple hearings.
Description: Nonresearch Procurement: Consultant services: Andrew
Gudgel;
Amount: $5,495;
Notes: Technical editing of annual report.
Description: Nonresearch Procurement: Consultant services: State
Department;
Amount: $4,024;
Notes: In- Country interpreters Asia trip.
Description: Nonresearch Procurement: Consultant services: Maochun Yu;
Amount: $2,579;
Notes: Executive Summary translation English to Chinese.
Description: Nonresearch Procurement: Consultant services: Jefferson
Communications;
Amount: $2,228;
Notes: Media relations for annual report.
Total, consultant services;
Amount: $20,626;
Notes: [Empty].
Description: Hearing photographers;
Amount: $0;
Notes: [Empty].
Description: Hearing transcription: Miller Reporting;
Amount: $10,497;
Notes: D.C. hearings.
Description: Hearing transcription: McLaughlin Reporting;
Amount: $8,713;
Notes: D.C. hearings.
Description: Hearing transcription: McLaughlin Reporting;
Amount: $1,870;
Notes: Detroit field hearings.
Total, hearing transcription;
Amount: $21,080;
Notes: [Empty].
Description: Other nonresearch procurement: Staples, Bond Business
Products, and others;
Amount: $24,000;
Notes: General operating supplies.
Description: Other nonresearch procurement: C2 Solutions Group, CDWG,
CompUSA, Dell, HP, Netgear, Newegg, Softmart, and others;
Amount: $30,300;
Notes: Computer hardware, software, and equipment.
Description: Other nonresearch procurement: Business Week, China Trade
Extra, Inside U.S.-China Trade, Financial Times Online, The Hill,
leadership 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;
Amount: $8,700;
Notes: Subscriptions; Publications.
Description: Other nonresearch procurement: Regional Construction
Company;
Amount: $91,690;
Notes: Office upgrade (construction and materials).
Total, other nonresearch procurement;
Amount: $154,690;
Notes: [Empty].
Total, all nonresearch procurement;
Amount: $254,714;
Notes: [Empty].
Total, all procurement;
Amount: $332,640;
Notes: [Empty].
Source: GAO analysis of USCESRC data.
Note: Balances are unaudited.
[End of table]
[End of section]
Appendix VIII: Comments from USCESRC:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Hall Of The States, Suite 602:
444 North Capitol Street, N.W.:
Washington, D.C. 20001:
Phone: 202.624.1407:
Fax: 202.624.1 406:
E-Mail: Contact@uscc.Gov:
[Hyperlink, Http://www.Uscc.Gov]:
U.S.— China Economic & Security Review Commission:
Carolyn Bartholomew, Chairman:
Daniel Blumenthal, Vice Chairman:
September 11, 2007:
Mr. Loren Yager, Director:
International Affairs and Trade:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: Draft Report GAO-07-1128, "U.S.-China Economic and Security Review
Commission: Actions Needed to Improve Controls over Key Management
Functions. "
Dear Mr. Yager:
The U.S.-China Economic and Security Review Commission ("the
Commission") appreciates the opportunity to comment on the draft report
referenced above.
The Commission appreciates the thorough evaluation of its activities
and administrative processes GAO conducted, and the thoughtful
recommendations GAO is offering to improve and enhance those activities
and processes. The Commission also wishes to express its appreciation
for the very professional and courteous way in which the GAO audit
staff undertook its work on this audit.
The Commission is particularly pleased that GAO has concluded that the
Commission "has complied with its statutory charter with regard to the
subjects on which it reports and the scope of its activities," even as
Congress has amendea its charter twice since the Commission was
established in 2000 regarding the number of issue areas it is to
address concerning key economic and security features of the U.S.-China
relationship and the language defining their scope.
With respect to the Recommendations for Executive Action that begin on
page 47 of the draft report, the Commission agrees that the five
recommendations for applying internal control standards in order to
"strengthen its organizational structure," and the three
recommendations for "improv[ing] internal control over financial
management and reporting" offer potential benefit to the Commission and
its operation, and can help ensure that its operations are seen to be
both legal and appropriate. During the next 60 days, the Commission
with the assistance of its staff will develop a proposed plan and
timetable for addressing these eight recommendations and will discuss
these with GAO's staff. The Commission commends GAO's observation that
it is difficult or impossible for the Commission satisfactorily to
comply with the current statutory annual report issuance date because
of its misalignment with the schedule for appointment of Commissioners
by Congressional leaders, and agrees with the recommendation that
"Congress should consider aligning the commissioners' appointment dates
with the annual report issuance date" by either moving the
commissioners' appointment date from January to July, or by moving the
report issuance date to December 1. (Indeed, for this very reason, the
Commission in both of the past two years has requested Congress to move
the report issuance date, and the House of Representatives has passed
legislation containing such a provision in both years.)
The measures GAO applied to the Commission's organizational and
financial management activities during its audit are contained in the
GAO document "GAO Report on Standards for Internal Control in the
Federal Government, GA O/AIMD-00-21.3.1, "published in November 1999.
This document enumerates what GAO sees as standards that "define the
minimum level of quality acceptable for internal control in the
government and provide the basis against which internal control is to
be evaluated." The Commission requests that GAO note as early as
possible in its report, and preferably in the first or second paragraph
of its "Highlights" page, that this is the set of standards it has
applied to the Commission, and that it note at the same point in the
report – as it does at several later points – that many of these
standards are not binding on Legislative Branch agencies such as the
Commission, and therefore the fact the Commission has not adhered to
all of them does not constitute a failure to comply with standards
specifically applicable to the Commission.
The Commission believes it is important to highlight the fact that the
statute that created it is very brief and, with respect to what
internal control mechanisms the Commission should employ and how those
should be structured and applied, offers no guidance on most such
matters and very little on those it addresses. The Commission has
sought guidance on a number of these matters from various Legislative
Branch and Executive Branch authorities, but every potential source of
guidance the Commission has sought to consult has responded that it has
no authority to provide formal guidance or otherwise is precluded from
doing so. The Commission has attempted to fill this vacuum in ways it
believes are both legal and responsible, but until GAO's audit and
report, no agency or official, including GAO, has suggested the
Commission should adopt and apply GAO's standards and the Commission
has not to this point applied those standards to its activities. The
Commission agrees with GAO that adhering to these standards will help
to ensure that the Commission's operations are strong and responsible
in all respects.
The Commission also believes it is important to note, and asks GAO to
reflect in its report, that the audit did not reveal any Commission
action or failure GAO has concluded warrants referral to authorities
for further investigation or legal action. With respect to the
Commission's control system to ensure its expenditures are not illegal
or otherwise impermissible, GAO indicates that it estimates, based on
its application of statistical sampling rules to the Commission's
records it reviewed, that "the total dollar value of non- payroll
related debit transactions with ineffective controls is not more than
$1.2 million" during the applicable two-year period. The Commission
requests GAO to confirm in the report that this sampling-derived
estimate does not mean that all or any specific transactions were in
any way improper or illegal, but, instead, means that GAO has concluded
that the internal controls applied to the Commission's transactions are
insufficiently rigorous to ensure that they are not improper or
illegal.
The Commission requests that, on page 44 of the draft report, GAO
insert language that reads along the lines of the following:
In late 2005, after being advised that use of funds appropriated to the
commission to purchase food and beverages, except as official
representation expenses, was impermissible, the commissioners
established a procedure where the commission deducts from the per diem
payments earned by and payable to commissioners an amount sufficient to
reimburse the commission's appropriated funds fully for the cost of
purchase card payments for non-representation food and beverages.
Consequently, there has been no net expenditure of appropriated funds
for food and beverages for commissioners or staff after that point. The
amount shown on line one of Table 5 is a total of commission
expenditures before that point plus expenditures for hearing-related
food and beverages that have been reimbursed to the commission's
appropriated funds account since that point.
At several points in the report, GAO notes that the Commission has not
vetted various policies or procedures with legal and management experts
to ensure, as specifically noted on page 33, "they are technically
sound, in accordance with best practices." The fifth recommendation for
executive action on page 48 of the draft is that the Commission should
"obtain advice from legal and [government] management experts to make
sure that [its] policies and procedures are technically sound." As GAO
is aware, the Commission on numerous occasions during its existence has
sought to identify experts within the government who will agree to
offer formal opinions on the legality, soundness, sufficiency, and
appropriateness of various policies and procedures, and repeatedly has
been told – by Senate and House officials and officials within the
Executive Branch – that they are proscribed from performing, or for
other reasons will not perform, this function for the Commission. The
Commission asks that GAO agree to serve in this capacity – as the
Commission's official "legal and [government] management expert"
resource for checking the legality, soundness, sufficiency, and
appropriateness of all Commission administrative policies and
procedures and of the compliance with those policies and procedures of
all significant administrative decisions and actions being contemplated
by the Commission and its staff. If GAO believes it needs statutory
authority to serve in this capacity, the Commission requests that it
formally recommend that Congress enact such authority.
We look forward to working with you and your staff to implement the
recommendations in the draft report, and hope that GAO will assist the
Commission directly and closely in this process.
Sincerely yours,
Signed by:
Carolyn Bartholomew:
Chairman:
and:
Daniel Blumenthal:
Vice Chairman:
cc: Commission Members:
Commission Executive Director:
The following are GAO's comments on the commission's letter dated
September 11, 2007.
GAO Comments:
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.
We characterize the commission's views on pages 5 and 46.
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.
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.
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.
[End of section]
Appendix IX: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4347 or yagerl@gao.gov:
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.
[End of section]
Footnotes:
[1] Advisory 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.
§3(2).
[2] See GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999); for additional
guidance see GAO, Internal Control Management and Evaluation Tool, 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).
[3] GAO, Standards for Internal Control in the Federal Government, GAO/
AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[4] The 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.
[5] According 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."
[6] See 5 U.S.C. app. §3(3), 5 U.S.C. §551(1).
[7] Pub. L. 106-398, sec. 1238.
[8] Pub. L. 109-108, sec. 635(b).
[9] See GAO/AIMD-00-21.3.1. The five standards for internal control
include: control environment, risk assessment, control activities,
information and communications, and monitoring.
[10] Workforce 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, GAO-04-39 (Washington, D.C.:
Dec. 11, 2003).
[11] The 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.
[12] We discuss the commission's financial management and reporting
policies and procedures in the next section of this report.
[13] The 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.
[14] The Federal Acquisition Regulation generally does not apply to the
commission because it is a legislative branch entity. However, see 41
U.S.C. § 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. § 5a.
[15] Commission 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."
[16] 18 U.S.C. § 1030.
[17] Pub. L. 95-521, as amended (codified as an appendix to title 5 of
the United States Code).
[18] 44 U.S.C. § 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. § 2901 (14).
[19] The 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.
[20] We 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.
[21] GAO, Streamlining the Payment Process While Maintaining Effective
Internal Control,GAO/AIMD-21.3.2 (Washington, D.C.: May 2000).
[22] The commission's associate director was the contract payee in both
transactions.
[23] GAO/AIMD-21.3.1
[24] Pub. L. No. 108-447, 118 Stat.2912 (2004)
[25] Pub. L. No. 109-108, 119 Stat.2334 (2005).
[26] GAO, Principles of Federal Appropriation Law, 3rd ed., vol. I, GAO-
04-261SP (Washington, D.C.: January 2004)
[27] GAO/AIMD-00-21.3.1.
[28] 41 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. § 7002(e)(2). The rates are
established by the Federal Travel Regulation.
[29] 41 C.F.R. Part 301-70.706
[30] GAO/AIMD-00-21.3.1.
[31] 41 C.F.R. Part 301-71.203
[32] 41 C.F.R. Part 300-3.1 Glossary of Terms, under Per diem
allowance, (b) Meals.
[33] 41 C.F.R. Part 301-52.7
[34] 41 C.F.R. Part 301-10.123
[35] 41 C.F.R. Part 301-10.124
[36] Although 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.
[37] The $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.
[38] 48 C.F.R. Part 13.202 (a) (2).
[39] GAO/AIMD-00-21-3.1.
[40] GAO/AIMD-00-21-3.1.
[41] 31 U.S.C. § 1301. Also, see GAO-04-261SP
[42] B-303920, March 21, 2006, Clarence Maddox --Relief of liability
for improper payments of bottled water.
[43] B-272985, Meal Expenses for CIA Security Detail, December 30,
1996, B-169235, April 6, 1970.
[44] GAO, Maintaining Effective Control over Employee Time and
Attendance Reporting, GAO-03-352G (Washington, D.C.: January 2003).
[45] Manual adjustments were also made to reimburse commissioners for
hours retroactively if commissioners' time and attendance records were
not submitted timely.
[46] Officers 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.
[47] The commission was created on October 30, 2000, by the Floyd D.
Spence National Defense Authorization Act for 2001 § 1238, Pub. L. No.
106-398, 114 STAT. 1654A-334 (2000).
[48] GAO, Standards for Internal Control in the Federal Government,
GAO/ AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[49] The sample population consisted of nonpayroll expenses totaling
approximately $4.5 million. This excluded transactions with $0 and
credit balances and with nonfederal summary codes.
[50] The 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.
[51] The 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.
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