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. 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. To comply with the June 1 deadline, the commission  submitted interim reports in 2006 and 2007. The commission has not issued its annual reports on time because  appointment dates for commissioners and the commission work cycle  activities are not aligned with the annual report issuance deadline. 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. 3). 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. Also, procurement procedures need to ensure as much  transparency, competition, and accountability as possible. 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. 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. As a result, the commission’s financial  resources are at an increased risk of fraud, waste, abuse, or  mismanagement. 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. Appendix I: Objectives, Scope, and Methodology

In this report, we assess the extent to which (1) the U.S.-China Economic  Security Review Commission (USCESRC) has complied with its charter,  (2) the commission has had an organizational structure and policies and  procedures for managing its operations effectively, and (3) internal control  over the commission’s financial management and reporting has provided  reasonable assurance that resources are not at risk. 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. 5.
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.