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Report to the Chairman and Ranking Member, Committee on Foreign 
Relations, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

April 2010: 

Vietnam Education Foundation: 

Recent Improvements Made in Internal Controls, but Weaknesses Persist: 

GAO-10-442: 

GAO Highlights: 

Highlights of GAO-10-442, a report to the Chairman and Ranking Member, 
Committee on Foreign Relations, U.S. Senate. 

Why GAO Did This Study: 

The Vietnam Education Foundation (VEF) Act of 2000 established VEF as 
an independent agency of the executive branch. A 13-member board of 
directors provides primary oversight. VEF also receives guidance from 
other entities in carrying out its mission to further bilateral 
relations between the United States and Vietnam through educational 
exchanges in science, technology, and other fields. In light of 
challenges identified in managing VEF’s operations, GAO was asked to 
examine the extent to which VEF has implemented a framework for 
internal control. To address this objective, GAO analyzed VEF’s 
financial statements, audits, board meeting minutes, and policies and 
procedures, and conducted interviews with past and current board 
members, as well as VEF management and staff. GAO’s Standards for 
Internal Control were used to assess this information. 

What GAO Found: 

Since 2003, VEF has implemented some elements of internal control, but 
still lacks a comprehensive risk-based internal control framework. At 
its inception, VEF’s board and management were responsible for 
creating programs as well as internal control; they focused on the 
former to start up a fellowship program and build ties with Vietnamese 
institutions. VEF then implemented some elements of internal control 
in response to external auditor findings, and since May 2009 has 
enhanced or adopted additional control activities, such as approving a 
Hanoi office manual. However, key gaps still exist in the five 
internal control standards: 

* A supportive attitude toward internal control and conscientious 
management is the foundation for all other standards, but the control 
environment at VEF has been inadequate and reactive. GAO found that 
VEF is not fully aware of its internal control responsibilities and 
has not clearly articulated a performance-based compensation framework. 

* Management needs to comprehensively identify risks, but VEF 
officials have conducted individual assessments of particular risks, 
such as creating budget forecasts, and not a comprehensive assessment. 

* Control activities are the policies and procedures that enforce 
management’s directives, but GAO identified several areas in which VEF 
lacks clear control activities, such as lack of an office manual 
documenting policies for its Washington staff. 

* An agency should have relevant, reliable, and timely communications 
relating to internal as well as external events, but GAO determined 
that VEF management has not always communicated critical information 
effectively with either VEF’s board or staff. 

* Ongoing monitoring of internal control should occur in the course of 
normal operations, but GAO found instances where VEF did not engage in 
ongoing monitoring, such as whether it continued to meet the 
requirements for exceptions to the Fly America Act. 

Figure: Existence of Selected Control Activities at VEF: 

[Refer to PDF for image: illustrated table] 

Hanoi office manual: 
Start date: 2004; 
In development, through 2009. 

Washington office manual: 
None exist. 

Performance-based compensation criteria – Washington: 
None exist. 

Performance-based compensation criteria – Hanoi: 
Start date: 2007; 
In development, through 2009. 

VEF-wide contracting procedures: 
None exist. 

VEF-wide monthly expenditure track: 
Start date: 2006; 
In development, through 2009. 

Source: GAO analysis of VEF documents. 

What GAO Recommends: 

GAO recommends that the VEF Board direct the Executive Director to 
take steps to implement actions across all five standards of internal 
control, including identifying and addressing gaps in the control 
environment, and assessing and managing risks. GAO also recommends 
that the VEF Board monitor and oversee VEF management’s actions. VEF 
agreed with our recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-10-442] or key 
components. For more information, contact Jess T. Ford at (202) 512-
4268 or fordj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

VEF Has Developed Some Aspects of Internal Control, but Still Lacks a 
Comprehensive Internal Control Framework: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Structural Elements of Similar Graduate Fellowship 
Programs: 

Appendix III: Comments from the Vietnam Education Foundation: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Select Aspects of Structure for VEF and Similarly-Scaled 
Fellowship Programs: 

Figures: 

Figure 1: VEF Organizational Chart, 2009: 

Figure 2: Entities That Provide Guidance or Assistance to VEF: 

Figure 3: VEF Obligations and Unobligated Balances, Fiscal Years 2002 
to 2009: 

Figure 4: VEF Planned Program and Indirect Costs, FY 2010: 

Figure 5: Existence of Selected Control Activities at VEF: 

Abbreviations: 

AED: Academy for Educational Development: 

COSO: Committee of Sponsoring Organizations of the Treadway Commission: 

FAR: Federal Acquisition Regulation: 

GSA: General Services Administration: 

IAF: Inter-American Foundation: 

IAWG: Interagency Working Group on U.S. Government-Sponsored 
International Education and Training: 

IIE: Institute of International Education: 

IREX: International Research and Exchanges Board: 

MDC: Manpower Development Company: 

NAS: National Academy of Sciences: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

TFL: Training Future Leaders: 

USAID: U.S. Agency for International Development: 

VEF: Vietnam Education Foundation: 

WLTIE: Women's Leadership Training in Economics: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 7, 2010: 

The Honorable John Kerry:
Chairman:
The Honorable Richard Lugar:
Ranking Member:
Committee on Foreign Relations:
United States Senate: 

The United States formally reestablished diplomatic relations with the 
Socialist Republic of Vietnam in 1995. To help improve the U.S.- 
Vietnamese relationship, Congress passed the Vietnam Education 
Foundation (VEF) Act of 2000.[Footnote 1] The act created an 
independent agency in the executive branch, the VEF, intended to 
further the process of reconciliation between the two countries, and, 
more specifically, establish an international science, technology, 
medicine, and mathematics fellowship program that would allow selected 
Vietnamese nationals to engage in graduate studies in the United 
States, and U.S. citizens to teach at Vietnamese universities. 

VEF, which is governed by a board of directors composed of public-and 
private-sector representatives, began operations in 2003.[Footnote 2] 
As of fall 2009, it has provided fellowships to over 300 Vietnamese 
students, as well as provided grants for more than 20 post-doctoral 
scholars at Vietnamese universities to participate in professional 
development activities in the United States, and 7 U.S. professors to 
teach at Vietnamese universities. VEF receives $5 million annually in 
debt repayments from Vietnam to the United States to conduct its 
operations; as of fiscal year 2010, VEF had received $45 million under 
this arrangement and is scheduled to receive another $40 million by 
the time its legislated mandate expires in fiscal year 2018. 

Due to the management challenges VEF faces as a small independent 
agency operating an international fellowship program, we examined the 
extent to which VEF has implemented an internal control framework for 
operations and financial management. In addition, we are providing 
information on how other selected small-scale, federal international 
educational exchanges are structured, because of Congress's interest 
in VEF as a potential model for promoting similar educational 
exchanges and development programs with other countries. 

To address our objective on internal control, we applied GAO's 
internal control standards[Footnote 3] to VEF operations, and reviewed 
VEF's financial statements, policies and procedures, and board meeting 
minutes. We also conducted semi-structured interviews on internal 
control with VEF officials in the United States and Vietnam, including 
past and current board chairs, and with officials at the Departments 
of Education, State (State), and the Treasury. We also reviewed VEF's 
authorizing legislation, annual reports, and budgets, and interviewed 
officials from the General Services Administration (GSA) and the 
Office of Management and Budget (OMB). During site visits to Hanoi and 
Ho Chi Minh City, Vietnam, we interviewed officials at the U.S. 
embassy, in the Government of Vietnam, and at Vietnamese universities 
that participate in VEF's exchange programs. To provide information on 
how other small-scale educational exchange programs are structured, we 
identified five federally-funded exchange programs that are similar to 
VEF on the basis of receiving less than $9 million in annual funding 
and supporting international graduate fellowships. We reviewed 
agreements and interviewed officials from the agencies that manage 
these programs, as well as officials from organizations that 
administer these programs. Detailed information about our methodology 
can be found in appendix I. 

We conducted this performance audit from May 2009 to March 2010, in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

VEF was established by the Vietnam Education Foundation Act of 2000 as 
an independent agency of the executive branch, and receives oversight 
from a 13-member board of directors and guidance or assistance from 
OMB, GSA and an external auditor, in carrying out its mission of 
furthering bilateral relations between the United States and Vietnam 
through educational exchanges. 

Authorizing Legislation: 

The VEF Act of 2000 established VEF as an independent agency within 
the executive branch. Under the act, VEF is subject to most general 
federal government management law. For instance, it is subject to 
requirements on budget execution and funds control,[Footnote 4] 
internal control and accounting systems,[Footnote 5] and standards of 
conduct.[Footnote 6] 

In addition, the VEF Act allows certain exceptions from general 
government management law and has certain additional requirements for 
VEF. Exceptions include exempting VEF from many personnel compensation 
provisions in title 5 of the U.S. Code, so long as compensation does 
not exceed a certain ceiling, set at $155,500 as of January 2010. 
[Footnote 7] The VEF Act also allows other exceptions such as the 
ability to bypass GSA and directly rent office space around the 
District of Columbia. Additional requirements include a requirement 
that VEF's board of directors submit an annual report on its 
operations and financial condition to the President and Congress. 
Further, the act requires VEF board members to follow the same travel 
regulations as State employees. As of February 2010, the House of 
Representatives has passed and the Senate is considering legislation 
that would transfer all functions and assets of VEF to the Bureau of 
Educational and Cultural Affairs in State.[Footnote 8] 

Organizational Structure: 

VEF is governed by a 13-member board of directors and has a staff of 
12 employees, including contract employees. The board of directors 
consists of nine voting members: six private-sector members appointed 
by the President, and the Secretaries of Education, State, and the 
Treasury. The board also has four non-voting congressional members, 
two from the House of Representatives and two from the Senate. 
[Footnote 9] In practice, the cabinet secretaries send designated 
representatives to the board meetings, which are required to occur 
twice per year and typically have occurred three to four times per 
year. The board also has a finance committee that provides oversight 
of VEF's budget development. VEF has had four board chairs and one 
acting chair; the most recent board chair began his tenure in January 
2009. 

Early on, VEF's board of directors made broad decisions about how to 
structure the VEF fellowship and discussed generally how to run VEF. 
VEF's operations began after the board hired the first executive 
director in March 2003. The executive director is responsible for 
carrying out all functions for VEF and reports to the board for 
supervision and direction. In 2002 and early 2003, the board met to 
establish by-laws to govern board procedures, interview candidates for 
the executive director position, and determine options for developing 
a fellowship program. In 2003, VEF opened offices in the Washington, 
D.C., area, and Hanoi, Vietnam, and began hiring staff, such as a 
finance director for Washington. VEF has had three executive directors 
in its history, as well as four finance directors. VEF's staff consist 
of four federal employees based in Washington, and eight contract 
employees in Hanoi. VEF has a contract with a Vietnamese company, 
Manpower Development Company (MDC), to hire and pay its Vietnam-based 
employees, who are technically employees of MDC. The staff in the 
Hanoi office complete the majority of duties related to VEF's programs 
under the management of the Washington staff, who also manage the 
finances and internal operations of VEF, and oversee all immigration 
activities. Figure 1 shows the organizational structure of VEF in 
Washington and Hanoi. 

Figure 1: VEF Organizational Chart, 2009: 

[Refer to PDF for image: organizational Chart] 

Top level: 
VEF Board of Directors (Chairman of the Board): 
* 6 voting presidential appointees; 
* 3 voting cabinet secretaries; 
* 4 non-voting congressional members. 

Second level, reporting to VEF Board of Directors: 
VEF Executive Director: 

Third level, reporting to VEF Executive Director: 
* Director of Finance, Accounting and Administration; 
- Administrative Assistant; 
* Program Officer; 
- Administrative Assistant; 
* Country Director[A]. 

Fourth level, reporting to Director of Finance, Accounting and 
Administration: 
* Deputy Director of Finance[A]; 
- Administrative Assistant[A]; 

Fourth level, reporting to Country Director[A]: 
* Program Manager[A]; 
- 2 Program Assistants[A]. 

Fourth level, shared reporting to Director of Finance, Accounting and 
Administration and Country Director[A]: 
* IT and Data Manager[A]; 
- IT and Data Technician. 

Source: GAO based on VEF data. 

[A] Contract staff in Hanoi office. 

[End of figure] 

Other Entities That Provide Guidance or Assistance: 

While the VEF board is the main oversight body, other entities also 
provide guidance or assistance to VEF. Figure 2 shows these entities. 
OMB oversees the management and budgets of all executive branch 
agencies, including VEF. VEF also has an agreement with GSA to provide 
guidance on financial, payroll, legal, and other human capital 
services, and has agreed to adopt GSA guidelines for most aspects of 
its internal operations. VEF uses GSA for a variety of activities, 
including making payments on invoices and keeping track of 
obligations; consulting legal counsel from GSA for guidance on 
operating as a federal agency as well as reviewing agreements with 
universities; and processing employee benefits such as cash awards. 
Finally, VEF's financial statements are subject to independent audit 
by its external auditor.[Footnote 10] 

Figure 2: Entities That Provide Guidance or Assistance to VEF: 

[Refer to PDF for image: illustration] 

VEF Board of Directors (Direct oversight): 
External auditor: 
Office of Management and Budget: 
GSA Agency Liaison Division: 
GSA Office of the Chief Financial Officer[A]: 
GSA Office of General Counsel. 

Source: GAO analysis of VEF data. 

[A] Under the Office of the Chief Financial Officer, VEF works with 
the External Services Branch and the National Payroll Branch. 

[End of figure] 

Agency Mission and Activities: 

As part of its mission to deepen the bilateral relationship between 
the United States and Vietnam, VEF staff administer three exchange 
programs with Vietnam, targeting Vietnamese graduate students, 
Vietnamese post-doctoral scholars, and U.S. professors, and conduct 
various capacity building activities. The agency's flagship program, 
the Fellowship Program, brings approximately 40 new graduate students 
from Vietnam each year to the United States for graduate-level study 
in science and technology, among other fields, typically for a 
doctorate degree.[Footnote 11] From 2003 to 2009, under this program, 
VEF has brought 306 graduate students to the United States, 83 of whom 
have graduated, and the remainder of whom are continuing in their 
graduate studies. While VEF requires Vietnamese nationals to return to 
Vietnam after completing their degree programs, they have the option 
under their visas to remain in the United States temporarily for 
further training. Of the students who have graduated, some have 
returned to Vietnam, while others remained in study or post-graduate 
training in the United States. 

In addition to the graduate student program, VEF has two programs for 
professors. The Visiting Scholar Program, begun in 2007, brings post- 
doctoral scholars from Vietnamese universities to the United States 
for a maximum of 1 year for self-designed professional development 
activities, which typically include field research or formal 
coursework. As of fall 2009, 26 scholars participated in this program. 
The U.S. Faculty Scholar Grants Program provides grants to U.S. 
professors to teach at Vietnamese universities, either in person or 
remotely, for a minimum of 1 semester and up to a year. This is VEF's 
most recent program addition, begun in 2008 with a participation of 
seven professors as of fall 2009.[Footnote 12] VEF has also run a 
number of other activities, such as providing servers and content for 
free online courses called the Vietnam Open Courseware program. 

VEF has contracted with the National Academy of Sciences (NAS) since 
2003 to assist in the selection of students and professors for its 
three exchange programs.[Footnote 13] NAS has invited U.S. professors 
with expertise in science, technology, and other fields to travel to 
Vietnam to interview students for the VEF fellowship program, write 
letters of recommendation for those students nominated for the 
fellowship, and, once students are selected, NAS assists VEF in 
identifying appropriate universities to which students should apply. 
The professors' recommendations are then provided to the VEF board, 
which makes the final selection. VEF has pointed to its rigorous 
application and selection process as a means of grooming students who 
will contribute to scientific and technological progress in Vietnam as 
well as to VEF's mission. Appendix II provides in greater detail 
certain features of VEF's flagship fellowship program, as well as 
other federal fellowship programs that are similar in size to VEF's 
fellowship program. 

Funding and Obligation Levels: 

VEF's funds come from a portion of the debt repayments that Vietnam 
makes to the United States.[Footnote 14] The VEF Act established the 
Vietnam Debt Repayment Fund as a separate account in the Treasury and 
directed that all debt repayments made by Vietnam under the agreement 
should be deposited into the fund, with VEF receiving a portion of 
those funds. VEF began receiving $5 million annually from the fund in 
fiscal year 2002, and, under the VEF Act, will continue to receive 
these funds through fiscal year 2018, for a total of $85 million in 
direct spending. The transfers from the Vietnam Debt Repayment Fund 
are no-year funds. Because the funds are not subject to a time 
limitation on their availability, and because VEF did not officially 
begin its operations until the middle of fiscal year 2003, it 
accumulated funds and, as a result, was able to obligate more than $5 
million annually from fiscal year 2004 to fiscal year 2009, as shown 
in figure 3. 

Figure 3: VEF Obligations and Unobligated Balances, Fiscal Years 2002 
to 2009: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2002; 
Obligations: $0; 
Unobligated balance: $5 million. 

Fiscal year: 2003; 
Obligations: $1.9 million; 
Unobligated balance: $8.1 million. 

Fiscal year: 2004; 
Obligations: $5.9 million; 
Unobligated balance: $7.2 million. 

Fiscal year: 2005; 
Obligations: $5.3 million; 
Unobligated balance: $6.9 million. 

Fiscal year: 2006; 
Obligations: $6.4 million; 
Unobligated balance: $5.5 million. 

Fiscal year: 2007; 
Obligations: $5.3 million; 
Unobligated balance: $5.2 million. 

Fiscal year: 2008; 
Obligations: $6.2 million; 
Unobligated balance: $4 million. 

Fiscal year: 2009; 
Obligations: $5.2 million; 
Unobligated balance: $3.8 million. 

Source: GAO analysis of VEF data. 

[End of figure] 

For fiscal year 2010, VEF planned expenditures of $5.6 million for 
running its programs and managing internal operations. Of that, VEF 
anticipated spending approximately 73 percent on programs and 27 
percent on overhead, including items such as salaries, rent, and 
supplies. (See figure 4 for the breakdown of planned program and 
overhead costs for fiscal year 2010.) VEF's program costs include 
payments to universities; professional development grants; travel 
costs for students, professors, and staff; costs to select students, 
post-doctoral scholars, and U.S. professors; and related training and 
orientation. 

Figure 4: VEF Planned Program and Indirect Costs, FY 2010: 

[Refer to PDF for image: pie-chart] 

Program: 73%: $4.1 million; 
Overhead: 27%: $1.5 million. 

Source: GAO analysis of VEF data. 

[End of figure] 

Framework for Internal Control: 

Internal control is an integral component of an organization's 
management that provides reasonable assurance that the following 
objectives are being achieved: effectiveness and efficiency of 
operations, reliability of financial reporting, and compliance with 
applicable laws and regulations. Internal control standards of the 
federal government provide the overall framework for establishing and 
maintaining internal control and establish the minimum level of 
quality acceptable for internal control in government.[Footnote 15] 
The five standards of internal control--control environment, risk 
assessment, control activities, information and communications, and 
monitoring--generally apply to all aspects of an agency's operations: 

* Control Environment: Management and employees should establish and 
maintain an environment throughout the organization that sets a 
positive and supportive attitude toward internal control and 
conscientious management. A positive control environment is a 
foundation for all other standards. It provides the discipline and 
structure as well as the climate which influences the quality of an 
organization's internal control. Management's philosophy and operating 
style also affect the environment, including management's philosophy 
toward performance-based management. 

* Risk Assessment: After establishing clear, consistent agency 
objectives, management should conduct an assessment of the risks the 
agency faces from both external and internal sources. Risk assessment 
is the identification of risks associated with achieving the agency's 
control objectives and analysis of the potential effects of the risk. 
Because governmental, economic, regulatory, and operating conditions 
continually change, mechanisms should be provided to identify and 
appropriately deal with additional risks resulting from such changes. 

* Control Activities: Control activities--policies and procedures that 
help management carry out its directives--help to ensure that actions 
are taken to address risks. Control activities are an integral part of 
an entity's planning, implementing, reviewing, and accountability for 
stewardship of government resources and achieving effective results. 
The control activities should be effective and efficient in 
accomplishing the agency's control objectives. 

* Information and Communications: Key information should be recorded 
and communicated to management and others within the entity who need 
it and in a form and within a time frame that enables them to carry 
out their internal control and other responsibilities. 

* Monitoring: Management should assess the quality of internal control 
performance over time and ensure that the findings of audits and other 
reviews are promptly resolved. 

VEF Has Developed Some Aspects of Internal Control, but Still Lacks a 
Comprehensive Internal Control Framework: 

Almost 7 years into its operations, VEF has implemented a number of 
aspects of internal control, but still lacks a comprehensive risk-
based internal control framework. Although VEF was focused more at its 
inception on programmatic issues than implementing internal control 
over operations, VEF management did implement some key aspects of 
internal control in its initial years of operation, including some 
risk identification and control activities. These control-related 
policies were generally adopted in response to concerns raised by 
external audits, the VEF board, and other sources. Since May 2009, 
when we began our review, VEF management has adopted additional 
control activities and enhanced some other aspects of its internal 
control framework. However, while VEF management has taken action to 
implement some internal control, VEF lacks a sound risk-based internal 
control framework, based on GAO's internal control standards.[Footnote 
16] For example, in the absence of clear guidance for performance-
based compensation and documentation for contracting and allowable 
expenditures, among other issues, VEF management cannot reasonably 
assure that it is achieving the objectives of internal control, namely 
effectiveness and efficiency of operations, reliability of financial 
reporting, and compliance with applicable laws and regulations. 

Almost Seven Years into Operation, VEF Management Has Implemented Some 
Key Aspects of Internal Control: 

Internal control is a major part of managing an organization. Upon 
establishing VEF and beginning operations, VEF's management initially 
focused their efforts more on programmatic issues and establishing 
basic operations, such as renting office space and hiring employees, 
than on operational and administrative internal controls. 
Nevertheless, in response to concerns raised by external auditors and 
other entities, such as OMB, VEF's management had implemented 
significant internal control activities by the beginning of 2009, and 
further enhanced its internal control during the course of our review 
in 2009 and 2010. 

VEF Had Implemented Some Control Activities and Risk Assessment by the 
Beginning of 2009: 

At its inception, VEF's board and management became responsible for 
creating programs as well as related control objectives and 
activities, and they focused more on the former. For example, when 
operations began in 2003, management and the board discussed the need 
to start up the flagship fellowship program and build ties with 
Vietnamese institutions, according to board meeting minutes. VEF board 
and management also devoted attention to establishing operations. For 
instance, the first executive director took steps to establish offices 
in the United States and Vietnam and regularly informed the board of 
broad operational developments at board meetings, such as the rental 
of different office spaces in Vietnam as well as the need to hire 
staff. However, while issues of internal control relating to the 
operations being developed were sometimes discussed, few policies were 
formally adopted prior to 2006. A former board chair told us that the 
board only addressed internal control issues when such issues were 
raised by others. Figure 5 shows, over time, the existence of selected 
control activities at VEF; very few activities existed prior to 2006. 

Figure 5: Existence of Selected Control Activities at VEF: 

[Refer to PDF for image: illustrated table] 

Financial management: Board approval of budget: 
Start date: 2004; 
Continuing activity: through 2009. 

Financial management: Annual expenditure tracking against budget 
categories: 
Start date: 2009; 
Continuing activity: through 2009. 

Financial management: Monthly expenditure tracking: 
Start date: 2006; 
Continuing activity: through 2009. 

Financial management: Tracking receipt of money from Vietnam Debt 
Repayment Fund: 
Start date: 2006; 
Continuing activity: through 2009. 

Financial management: VEF-wide contracting procedures: 
Start date: None exist. 

Financial management: Credit card payment processing–-Washington[A]: 
Start date: 2006; 
Continuing activity: through 2009. 

Financial management: Card Holder Agreement--Hanoi[B]: 
Start date: 2008; 
Continuing activity: through 2009. 

Financial management: Card Holder Agreement–-Washington: 
Start date: None exist. 

Financial management: Cash advance–Hanoi[C]: 
Start date: 2009; 
Continuing activity: through 2009. 

Financial management: Expenditure approval process–-Hanoi: 
Start date: 2007; 
Continuing activity: through 2009. 

Financial management: Expenditure approval process–-Washington: 
Start date: 2005; 
Continuing activity: through 2009. 

Personnel: Hanoi office manual: 
Start date: 2004; 
In development: through 2009. 

Personnel: Washington office manual: 
Start date: None exist. 

Personnel: Performance evaluations[D]: 
Start date: 2005; 
Continuing activity: through 2009. 

Personnel: Performance-based compensation criteria-–Hanoi: 
Start date: 2007; 
Continuing activity: through 2009. 

Personnel: Performance-based compensation criteria–-Washington: 
Start date: None exist. 

Personnel: Earning and using compensatory time: 
Start date: 2006; 
Continuing activity: through 2009. 

Personnel: Ethics: 
Start date: 2009; 
Continuing activity: through 2009. 

Other: Restrictions on who can receive fellowship: 
Start date: 2008; 
Continuing activity: through 2009. 

Other: Board by-laws: 
Start date: 2002; 
Continuing activity: through 2009. 

Other: Chief of Mission Authority: 
Start date: 2009; 
Continuing activity: through 2009. 

Source: GAO analysis of VEF documents. 

Note: This table represents select control activities GAO found during 
the course of our review and is not a comprehensive list of control 
activities. According to GAO's Standards for Internal Control, 
management is responsible for conducting a risk assessment and then 
implementing any necessary control activities to address risks. 

[A] VEF's finance director, who is based in the Washington office, 
manages all credit card payments. 

[B] VEF staff receive credit cards for travel and making office-
related purchases. The card holder agreement lists allowable expenses 
to be charged to the card and provides other guidance on usage. 

[C] VEF's Washington staff do not receive cash advances. Hanoi staff 
receive them in order to make payments to some Vietnamese vendors who 
require cash payments. 

[D] VEF uses a 360 degree performance evaluation system where staff 
evaluate themselves and also receive evaluations from peers and their 
supervisor. VEF management told us they primarily use these 
evaluations for professional development purposes. 

[End of figure] 

Although VEF's board and management were primarily focused on creating 
programs, VEF management developed some important internal control 
activities in response to concerns raised by external auditors and 
others. VEF's first independent audit, which reviewed fiscal years 
2004 and 2005, found material weaknesses in the agency's internal 
control over financial reporting, which continued in the fiscal year 
2006 audit.[Footnote 17] These weaknesses included lack of an 
effective financial management structure and monitoring process and 
lack of adequate accounting records, among others. Since the 2006 
audit, VEF management has implemented internal control activities for 
managing its financial transactions. For example, as shown in figure 
5, VEF developed written guidance on procedures for making credit card 
payments and a system for documenting, tracking, and reconciling its 
monthly expenditures. These policies, adopted in 2006, continue to be 
used by VEF management. In 2006, VEF's board also formally adopted 
GSA's policies and procedures for all activities, including financial 
management, with the exception of overseas travel.[Footnote 18] As a 
result, from fiscal years 2007 to 2009, VEF's external audits found 
that prior weaknesses were corrected and that there were no new 
weaknesses related to financial management. The responsiveness of 
VEF's board and management to the audit findings demonstrates that 
some elements of monitoring--one of the five internal control 
standards--are in place. 

Over time, VEF's board has also improved the implementation of certain 
risk assessment measures through increased oversight of budgeting and 
expenditure tracking. In the area of budgeting, according to board 
meeting minutes from April 2007, VEF management presented a 5-year 
budget projection to the board that showed that if VEF continued to 
create budgets in excess of its $5 million annual funding, it would 
begin operating in a deficit in 2009, and thus could not be assured of 
continuing all its existing programs. This practice arose because VEF 
began accumulating money from the Vietnam Debt Repayment Fund in 
fiscal year 2002, but did not initiate operations until the middle of 
fiscal year 2003 and, therefore, was able to carryover its unspent 
funds from fiscal year 2002, as shown earlier in figure 3. This led to 
VEF beginning its operations in fiscal year 2003 with a surplus that 
it has been spending down by creating budgets exceeding the annual 
funding it receives from the debt repayment fund. One VEF board member 
told us that, beginning in 2007, the board engaged in efforts during 
the budget planning process to reduce VEF's planned expenditures 
closer to the $5 million level to account for its future obligations 
and its shrinking surplus. As a result, in fiscal year 2010, VEF 
adopted a budget of $5.6 million, considerably less than the budgets 
ranging from $6.4 to $8.1 million during the 6 preceding years. 

In 2009, the board also identified potential risks in how VEF tracks 
expenditures, and oversaw the implementation of budget-related control 
activities to help manage these risks. According to board meeting 
minutes, the board discussed efforts to improve VEF's expenditure 
tracking, and VEF officials and board members told us that VEF's board 
requested in January 2009 that VEF change how it tracks expenditures 
to match them to budget categories, in order to enable better 
management of program and operational costs. According to VEF finance 
committee minutes and a VEF official, VEF boards had not previously 
asked for this information. Our analysis of VEF budget and expenditure 
data shows that VEF had been tracking actual expenditures in 
categories that did not match the budgeted categories and, therefore, 
could not provide information on how actual expenditures compared to 
those budgeted. A VEF official stated that she worked with GSA to 
develop a new system to enable them to compare actual to budgeted 
expenditures and that this system began to be implemented at the 
beginning of fiscal year 2010. According to this official, this new 
system should enable VEF to reliably manage and plan for program and 
operational expenditures for the first time. 

VEF management has also designed and implemented various other control 
activities and related policies to minimize risks associated with 
having contract staff in its Hanoi office. For example, Hanoi staff we 
spoke with told us that Washington staff generally review important 
communications before Hanoi staff send them to external sources. 
Further, VEF management has placed restrictions on credit cards and 
travel cards used by Hanoi staff to ensure Hanoi staff are using the 
cards for appropriate expenditures. Hanoi staff told us they also took 
the initiative to implement additional control activities for their 
office. For example, staff developed internal standard operating 
procedures for managing Hanoi office finances and programs, and also 
created travel reports, attached to travel vouchers, to provide 
additional justification for domestic and overseas travel. 

Other entities that provide oversight or guidance have also prompted 
VEF management to implement risk assessment and control activities for 
financial management. For example, OMB worked with VEF to reduce the 
risk of abuse of its credit cards by limiting the types of stores in 
which the cards can be used, according to OMB officials. Also, a VEF 
official told us that, when they informed a Treasury official that VEF 
was keeping about $8,000 in cash in a safe at its Hanoi office to pay 
for expenses there, the Treasury official told them that they should 
not keep cash on the premises, and VEF moved quickly to halt this 
practice. 

VEF management had also adopted some other control activities, as 
shown in figure 5. For example, VEF developed written guidance on 
conducting annual employee performance evaluations in 2005, and 
adopted State guidance on international travel in 2006. VEF also has 
some operating practices, such as on hiring staff for the Washington 
office, that, while not documented and formally approved as policies, 
were generally clear to VEF staff, according to our interviews. 

VEF Management Further Enhanced Its Internal Control Framework during 
2009: 

During the course of our review in 2009, and under new board 
membership, VEF management took steps to further enhance its internal 
control framework, implementing some additional risk assessment and 
control activities, primarily in response to external questions. 

* In August 2009, VEF recognized a potential risk regarding its 
relationship with other federal agencies, and, in response to our 
questions, responded to the risk. The VEF board acknowledged, for the 
first time, that its operations in Vietnam are subject to the 
authority of the U.S. ambassador to Vietnam. The ambassador has 
authority over most executive branch activities and operations in 
Vietnam, and executive branch entities, including VEF, must inform the 
ambassador about all their activities in Hanoi, and obtain country 
clearance prior to traveling to Vietnam on business.[Footnote 19] 
State officials told us that they tried earlier to convey the 
requirements for VEF to work with the embassy, and board meeting 
minutes from 2005 show that the board discussed VEF's status with 
regard to the embassy, but VEF officials told us that although they 
met regularly with embassy officials, they were not informed of the 
ambassador's authority over VEF prior to 2008. In 2008, the incoming 
U.S. ambassador sent VEF a letter informing them that they were under 
chief of mission authority. However, on the informal advice of their 
legal counsel from GSA, the VEF board considered that its status as an 
independent entity in the executive branch meant that it was exempt 
from the ambassador's authority, and they did not formally acknowledge 
either the ambassador's responsibility for coordinating VEF staff or 
VEF's responsibility for informing the ambassador of their activities. 
In 2009, when we asked about the ambassador's authority over VEF, the 
newly-elected board chair of VEF re-examined the issue and concluded 
that VEF was subject to the ambassador's authority. As a result, VEF 
began to communicate with the embassy to obtain country clearance, and 
VEF and embassy officials told us that they will work together to 
further implement the ambassador's authority over VEF. 

* In October 2009, VEF management improved control activities for its 
Hanoi office. VEF officials finalized a staff manual for its Hanoi 
office that had been in development since 2004. The manual provides 
information on the staff recruitment and selection process, and 
conditions of employment including leave, travel, training, and other 
issues. Prior to finalizing the manual, staff with questions about 
these issues only received oral information about the policies, 
according to a VEF official. 

* In November 2009, VEF management implemented control activities to 
ensure compliance with the Fly America Act, in response to our 
questions. VEF management initiated efforts to update its travel 
arrangements to ensure they were in compliance with the act, which in 
most circumstances requires that anyone whose travel is financed by 
the U.S. government must use a U.S. airline.[Footnote 20] Prior to 
this, a VEF official told us that, based on VEF's interpretation of a 
2005 opinion by their legal counsel from GSA, their air travel to 
Vietnam was consistent with rules governing an exception to the act, 
although they had not reviewed the opinion after it was issued in 
2005, nor did they review whether changes in flight schedules since 
2005 had precluded VEF from utilizing the exceptions to the Fly 
America Act's general rule that travel occur on U.S. airlines. 

* In November 2009, VEF management took steps to enhance its control 
environment. VEF officials told us that, in response to a question 
from the White House about who the ethics officer was, they realized 
that they needed to appoint an ethics officer and conduct ethics 
training for all staff. VEF formally appointed the Director of 
Finance, Administration, and Accounting as its ethics officer in 
November 2009, and, at VEF's request, the Office of Government Ethics 
conducted ethics training for board and staff members in January 2010, 
according to VEF officials. Prior to this, VEF did not have an ethics 
officer or conduct ethics training. 

Despite Improvements, Key Gaps in VEF's Internal Control Framework 
Remain: 

Despite taking certain actions for internal control, we determined 
that VEF still lacks a comprehensive risk-based internal control 
framework. Based on GAO's standards for internal control,[Footnote 21] 
we found that VEF lacks a strong control environment, has not 
conducted an agencywide risk assessment, is lacking certain important 
control activities, engages in unclear communications between board 
and staff, and has incomplete monitoring. 

Lacks a Strong Control Environment: 

A positive control environment--a supportive attitude toward internal 
control and conscientious management--is the foundation for all other 
standards, but the control environment at VEF has been inadequate and 
reactive. While VEF's board and management respond to issues when 
others raise them, as noted above, they are not fully aware of their 
responsibilities for internal control. 

The board has historically not followed through on its responsibility 
to oversee management's internal control-related activities. For 
instance, according to VEF board meeting minutes, the VEF board 
requested in 2004 that the legal counsel from GSA provide a list of 
applicable laws and regulations, but neither VEF officials nor the 
legal counsel could recall whether such a list was ever provided 
either to VEF board or management, and the board did not follow up on 
this request. In addition, two former board chairs told us that they 
relied on their trust of VEF's management in order to determine 
whether VEF's operations were running smoothly. These board chairs 
told us that the board assumed that VEF staff knew how to follow the 
rules and processes of the federal government. However, the board did 
not have a way of verifying this. According to one former board chair, 
the board wanted to focus on VEF's programs, and was frustrated by 
efforts to focus on policies and procedures. Although current board 
members told us that policies and procedures were important to VEF, 
several board members told us that they assumed that VEF already had 
policies and procedures in place and that VEF had already addressed 
these issues. 

VEF management also is not fully aware of its responsibilities for 
internal control. For instance, a VEF management official told us that 
VEF did not have a list of which controls to put in place to ensure 
compliance with laws, such as determining which laws and regulations 
VEF was subject to, but rather relied on their external auditor to 
identify compliance issues. However, with respect to internal control, 
the scope of VEF's external financial audits is limited to reporting 
on internal control related to the reliability of financial reporting 
and compliance with related laws and regulations, and does not include 
an examination and reporting on internal control related to 
effectiveness and efficiency of operations[Footnote 22]. In another 
example, VEF management took 5 years to approve the Hanoi office staff 
manual. The manual was first drafted in November 2004, but not 
finalized until October 2009 during the course of our review--despite 
a Hanoi staff member's specific request in 2008 that senior management 
review and approve it. A VEF staff member in the Hanoi office told us 
that the delay was due to lack of attention and responsiveness from 
VEF management, while VEF management stated that they needed this time 
to include relevant Vietnamese law, incorporate reviews by all staff, 
compare the manual with the U.S. Embassy staff manual, and incorporate 
a review by legal counsel. They also told us that review was delayed 
at various points due to staff turnover. 

In addition, VEF management has not clearly articulated its approach 
to a performance-based compensation framework, causing confusion among 
VEF staff. Although VEF's system for performance evaluations was 
developed by the first Executive Director in 2005, it still does not 
have specific, written criteria that clearly lay out how raises and 
cash awards occur for its Washington staff, nor does it have criteria 
that link evaluations to cash awards for the Washington staff. For 
instance, in two cases, VEF Washington staff received a raise of 
approximately 9 to 11 percent of base pay, and then in the same year 
also received a cash award of 14 to 15 percent of base pay.[Footnote 
23] Also, cash awards for some VEF employees have ranged between 10 
and 15 percent of base pay annually. VEF officials told us that in 
2008 and 2009, awards for Washington staff were based on a qualitative 
assessment of employee achievements rather than a quantitative 
ranking, and that the performance evaluations VEF conducts are used 
for professional development and training purposes, not for raises and 
cash awards. While we found that VEF does have written criteria 
linking evaluations to cash awards for its Hanoi staff, Hanoi staff 
told us that they were not informed about how evaluations were tied to 
cash awards. 

Moreover, we found some irregularities with how VEF made cash awards. 
VEF did not properly notify the Office of Personnel Management (OPM) 
of at least two cash awards exceeding $10,000, and GSA did not provide 
VEF with proper guidance. In two instances, VEF requested that GSA 
process a $20,000 award for VEF's executive or acting executive 
director, and although the board chair of VEF wrote a memo justifying 
the awards, neither VEF nor GSA officials provided the prior 
justification to OPM, as required by law.[Footnote 24] According to 
its agreement with VEF, GSA is supposed to provide guidance on the 
regulatory sufficiency of all personnel actions and specifically 
provide coordination with OPM. Moreover, GSA officials were aware that 
awards over $10,000 must be notified to OPM, according to an internal 
document. Instead, in one instance GSA officials split the award into 
two $10,000 awards, and in the other instance, they did not advise VEF 
to notify OPM. In addition, we found four instances from 2007 to 2009 
where VEF employees received, on the same day or consecutive days, two 
awards that together totaled more than $10,000, notwithstanding a 
statutory requirement that awards for superior accomplishments must be 
paid in a lump sum.[Footnote 25] 

No Comprehensive Risk Assessment: 

Management needs to comprehensively identify risks and should consider 
all external risks entailing significant interactions between the 
agency and other parties, as well as internal risks, but VEF officials 
have conducted individual assessments of particular risk.[Footnote 26] 
VEF management and the board have taken steps to manage risks as they 
arise, but have not completed a comprehensive risk assessment. As a 
result, they cannot be assured that risks to the organization have 
been identified. For example, VEF has responded to recommendations for 
improvements from its external auditors, created forecasts for its 
budget, and considered the effects of former and pending legislation 
that would change its status as an independent agency. However, VEF 
management and the board have not conducted these risk identification 
and assessment activities within the context of a comprehensive risk 
assessment, despite existing risks. 

One area where VEF is exposed to risks to its programs and internal 
operations is related to its difficulty with retaining key personnel 
in the U.S. and Vietnam. High staff turnover is an additional reason 
for having current, accurate and complete operating policies and 
procedures. VEF officials told us that issues relating to staff 
turnover were generally the responsibility of the Executive Director, 
but were the responsibility of the board if turnover became frequent. 
However, board meeting minutes we reviewed indicate that management's 
communication to the board about staffing issues was limited. For 
example, while management notified the board of the departure of key 
employees, their reasons for departure or the implications of their 
departure were not generally communicated. In addition, in interviews 
in the United States and Vietnam, employees who had left VEF told us 
they did not always feel empowered by VEF management to perform their 
job duties and therefore left for reasons relating to VEF leadership. 
In some instances, staff told us that they communicated their concerns 
about management to the board, but stated that the board did not take 
action. 

Moreover, VEF has not clearly identified which individuals are 
responsible for controlling risks at the agency. For example, in 
response to a question about who was responsible for identifying and 
controlling risks related to compliance with laws, VEF's executive 
director and finance director told us that they were responsible, but 
five VEF board members told us that the board and the executive 
director were responsible, with two board members stating that, 
additionally, the legal counsel from GSA was responsible. 

While VEF management and board told us that they rely on their legal 
counsel from GSA, OMB, and their external auditor to alert them to 
risks as they arise, officials at these entities viewed their role in 
a more limited manner. For instance, the GSA legal counsel told us 
that her role was to respond to VEF when VEF had a question, and not 
to identify which internal control issues they should address. 
According to OMB guidance,[Footnote 27] an agency's management has the 
responsibility to develop and maintain effective internal control, and 
OMB officials told us that OMB provides comments regarding the 
agency's reporting on compliance with internal control with respect to 
financial management,[Footnote 28] but VEF officials told us that OMB 
has not provided specific comments or direction for internal control 
outside of financial management. As reported by VEF's external 
auditor, its annual audit of VEF's financial statements considers 
internal control over financial reporting and compliance in order to 
plan and perform the audit, and not to express an opinion on internal 
control over financial reporting and compliance or on VEF management's 
assertion about the effectiveness of internal control. 

In addition, VEF did not fully take advantage of a tool from its 
auditor--the fraud risk checklist--that would have helped it consider 
the risk of fraud. The fraud risk checklist covers issues such as 
assessing and managing fraud risks, and implementing processes to 
promote ethical behavior such as a code of conduct. VEF's finance 
director told us that she used the checklist as part of an informal 
measure to ensure that VEF is in compliance with basic federal rules 
and financial requirements, but we found that there was no written 
documentation providing evidence that the checklist was used or 
providing guidance. 

Certain Control Activities Lacking: 

Control activities are the policies and procedures that enforce 
management's directives. They help ensure that actions are taken to 
address risks. We identified several areas in which VEF lacks clear 
control activities, as shown previously in figure 5: 

* VEF's policies are not clearly documented. For instance, VEF does 
not have an office manual for its Washington office that summarizes 
policies and procedures, such as conditions of employment, leave, and 
travel policies. As a consequence, U.S. employees are not aware of all 
of VEF's policies. 

* VEF does not have written policies on setting pay, providing raises, 
and providing cash awards, and does not have criteria to relate 
performance evaluations to pay increases, for staff in its Washington 
office. VEF officials told us that they use OPM's system of grades and 
steps as guidance in setting initial salary ranges and finalizing an 
individual's salary. 

* While VEF has a written policy for contracting for its Hanoi office, 
it lacks an agency-wide written policy for contracting. VEF officials 
told us that their current policy is to solicit three bids on 
contracts. However, according to these officials, their largest 
contract in Vietnam, with MDC, was not bid competitively and does not 
have an end date. VEF expended $1.5 million under this contract from 
fiscal year 2005 through fiscal year 2009. VEF officials told us that 
they have determined that the Federal Acquisition Regulation (FAR) 
applies to their contracting but that when the MDC contract was bid in 
fiscal year 2005, they did not follow the FAR. These officials stated 
that they are taking steps to implement the FAR for MDC and other 
contracts. 

* VEF lacks a process for checking to see whether policies and 
procedures need to be updated on a regular basis. As a result, we 
found instances where significant guidance had not been appropriately 
updated. For instance, VEF officials had assumed that an opinion from 
their legal counsel from GSA in 2005, stating that flights to Vietnam 
met the requirements for exceptions to the Fly America Act, was still 
in effect. Until we raised a question about VEF's compliance with the 
act in November 2009, officials did not review whether changes in 
flight schedules since 2005 had precluded VEF from utilizing the 
exceptions to the act's general rules that travel occur on U.S. 
airlines. In addition, in 2006, VEF formally adopted State guidelines 
for international travel. Based on these guidelines, VEF staff 
generally traveled business class for international flights greater 
than 14 hours, including flights to Vietnam. However, in 2008, State 
revised business class travel guidance to be more restrictive. VEF did 
not update its policies to reflect the new guidelines, and officials 
told us they assumed that the State representative to the VEF board 
was supposed to keep them informed of changes to the guidelines. 

* VEF does not have documentation about whether certain expenditures 
are allowable or not, and we found some unusual expenditures. For 
instance, in December 2007, VEF paid $570 for three staff to fly from 
Hanoi to Ho Chi Minh City to attend the funeral of a VEF staff 
member's parent. VEF officials told us that this was a custom in 
Vietnam, but they agreed that this was not an appropriate expenditure. 
VEF management also told staff on at least one occasion in 2007 that 
VEF funds could not be used for paying for flowers for a funeral. VEF 
also paid $1,296 for city tours of Ho Chi Minh City and Hanoi in 
August 2008 for U.S. scientists involved in selecting students for the 
VEF fellowship; according to a VEF official, the tours were provided 
to help scientists understand Vietnamese culture and as an 
acknowledgement of the scientists' assistance in student selection, 
because the scientists do not receive compensation from VEF for their 
time. VEF officials told us they no longer provide city tours for the 
scientists. We also found that during the annual VEF staff retreats in 
2005, 2007, 2008, and 2009, VEF planned 1 work day during which VEF 
staff take tours, but still receive per diem and lodging costs. VEF 
officials told us that the tours helped to promote team-building, and 
one official stated that the tours also provided relaxation time for 
VEF staff in recognition of their hard work during the student 
selection process. However, this official also acknowledged that staff 
receive compensatory time off for any extra hours they work during the 
student selection process. There was no documentation or written 
justification for why these expenditures were allowable. 

Unclear Communications: 

For an entity to run and control its operations, it must have 
relevant, reliable, and timely communications relating to internal as 
well as external events. We determined that VEF management has not 
always communicated critical information effectively with either VEF's 
board or staff. 

We found some instances of information that should have been 
communicated to the board but was not. For instance, a VEF official 
stated that the board was likely not aware of the lack of a Washington 
office manual, and of the 5-year time frame to develop the Hanoi 
office manual. Board members we spoke with agreed that they were not 
aware of the issues with the office manuals and believed management 
should have communicated these issues to them. Further, VEF management 
did not communicate to the board that cash was being used for 
expenditures in the Hanoi office, a practice that was ended in 2008. 
One board member we spoke with stated that VEF management should have 
alerted the board to this practice. A VEF official told us that she 
considered internal policies and procedures as part of day-to-day 
operations, which are not brought to the attention of the board 
members unless they ask a question. 

VEF staff and management disagree on how some policies and procedures 
are communicated. For instance, staff in VEF's Washington office told 
us that they were unaware of the full details of VEF's policies on use 
of travel cards and purchase cards , and that information on 
compensation and raises was unclear. In Hanoi, VEF staff told us that 
they did not understand how their performance evaluations were tied to 
raises or incentive awards. In both cases, management told us that 
they had orally communicated this information, such as specific uses 
of VEF travel and purchase cards, to staff. 

According to VEF's board meeting minutes, while management raised 
issues about internal control over operations at board meetings from 
2003 to 2006, we were not able to determine whether they did so from 
2007 to 2009. From 2003 to 2004, the board meeting minutes show that 
management's discussion of internal control over operations focused on 
establishing operations in Washington and Hanoi, such as hiring staff 
and renting office space. During 2005 and 2006, VEF management 
communicated that it was developing policies and procedures for its 
internal operations, including a written manual, although current VEF 
officials told us this manual was never developed for the Washington 
office. However, beginning in 2007, the board meeting minutes do not 
reflect any such discussions, although VEF officials told us that 
there was some discussion of internal control during this period. 

Incomplete Monitoring: 

Internal control should generally be designed to ensure that ongoing 
monitoring occurs in the course of normal operations. To accomplish 
this, monitoring of the operating effectiveness of internal controls 
should generally be performed regularly and ingrained in an agency's 
operation; in addition, separate control evaluations can be useful by 
focusing directly on the effectiveness of internal control at a 
specific point in time. Monitoring of internal control should also 
include policies and procedures for ensuring that the findings of 
audits and other reviews are promptly resolved. While, as discussed 
previously, we found that VEF's board and management took actions to 
address control weaknesses identified by its external auditor, we also 
found that VEF's monitoring of internal control is incomplete, and 
specifically we found instances where VEF did not engage in ongoing 
monitoring. For example, VEF management did not monitor State 
guidelines on international travel for updates, nor did they monitor 
whether they continued to meet the requirements for exceptions to the 
Fly America Act. 

Conclusions: 

Since VEF began operations as an independent executive branch agency 
seven years ago, it has established three exchange programs that 
support over 300 students and professors, and several other smaller 
initiatives, as well as some policies and procedures to govern 
internal operations, particularly in the areas of financial management 
and Hanoi office operations. However, despite recent improvements, 
management has not developed a comprehensive internal control 
framework to help it cope with changing environments and evolving 
demands, priorities, and risks. Over its history, VEF's board and 
management have focused more on implementing VEF programs and less on 
internal control over operational and administrative activities. In 
particular, VEF's management has not taken adequate steps to undertake 
risk assessment, and the board has done little to encourage management 
to pay attention to internal control. While VEF's status as a small, 
independent federal agency presents unique management challenges, 
VEF's management nonetheless has the responsibility to establish a 
positive internal control environment and sound risk assessment 
process, institute appropriate risk-related internal controls, develop 
and communicate relevant information to those who need it, and monitor 
internal control performance. Without such an internal control 
framework in place, VEF management cannot reasonably assure that it 
achieves some of the fundamental objectives of internal control, such 
as compliance with laws and efficient and effective operations, 
including the proper use of VEF resources. 

Recommendations for Executive Action: 

To strengthen and enhance the internal control framework at VEF and 
help provide management, the board, and the public with reasonable 
assurance that the agency control objectives of effectiveness and 
efficiency of operations, reliability of financial reporting, and 
compliance with applicable laws and regulations are being achieved, 
the VEF board should direct VEF's Executive Director to take steps to 
implement the following five actions: 

* Conduct periodic reviews of VEF's control environment to identify 
and address significant gaps and shortcomings, including the need to 
clarify responsibilities for management and oversight of VEF's 
internal control framework, compliance with applicable laws and 
regulations, and performance based-compensation practices. In doing 
so, VEF may wish to review and utilize applicable portions of various 
publicly available tools for evaluating the control environment 
component of an integrated framework (such as GAO's Internal Control 
Management and Evaluation Tool[Footnote 29] or the applicable 
Evaluation Tool section of COSO's Internal Control--Integrated 
Framework[Footnote 30]). 

* Establish and document a systematic process for assessing risks to 
internal control, putting policies in place to manage those risks, 
monitoring and responding to changes in risk, and seeking the board's 
review of management's assessment. 

* Develop and implement all appropriate written internal control 
activities, policies and procedures, consistent with the size and 
mission of VEF, to address the risk of not achieving operational and 
control objectives, including control activities applicable to: 

- the operation of the U.S.-based VEF office; 

- cash awards and raises for federal and contract employees; 

- prior notification to OPM of lump sum cash awards exceeding $10,000; 

- contracting, including procedures that are consistent with all 
applicable requirements; and: 

- expenses for meals and travel, especially during VEF staff retreats 
and in the Hanoi office. 

* Implement mechanisms to define and communicate appropriate 
information on program, financial, and administrative activities and 
related internal controls to those who need it to effectively manage 
and oversee VEF's operations. 

* Strengthen monitoring by developing and implementing reasonable 
processes and procedures to regularly monitor the performance of key 
internal controls. 

In addition, the VEF Board should monitor and oversee VEF management's 
actions to implement these recommendations, as well as VEF's ongoing 
management of its internal control framework. 

Agency Comments: 

We provided a draft of this report to VEF; GSA; and the Departments of 
Education, State, and the Treasury. VEF provided written comments, 
which are reprinted in appendix III. The other agencies did not 
provide formal comments. We further provided relevant sections to 
VEF's external auditors and to OMB, the U.S. Agency for International 
Development, and the Inter-American Foundation for technical comment, 
which we incorporated as appropriate, along with technical comments 
from State. 

VEF agreed with the overall recommendations made in this report and 
stated that it will take all necessary and appropriate action to make 
improvements upon its internal control framework. For example, VEF 
stated that its Executive Director is developing a VEF Policies, 
Procedures, and Internal Controls manual. VEF also provided us with 
technical comments to the draft report, which we have incorporated as 
appropriate. Further, VEF made some observations, based on its 
experience starting up its operations, for use by new federal agencies. 

As arranged with your offices, unless you publicly announce its 
contents earlier, we plan no further distribution of this report until 
30 days from its issue date. At that time we will send copies of this 
report to interested congressional committees, the Chairman of the 
Board of Directors and the Executive Director of VEF; the 
Administrator of General Services; and the Secretaries of Education, 
State, and the Treasury. In addition, this report will be available at 
no charge on GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-4268 or fordj@gao.gov. 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 key contributions to 
this report are listed in appendix IV. 

Signed by: 

Jess T. Ford: 
Director, International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To describe how the Vietnam Education Foundation (VEF) was 
established, how it is structured, and its mission, and to understand 
VEF's organization within the federal government and the oversight and 
guidance provided to it by other federal agencies, we reviewed VEF's 
founding legislation,[Footnote 31] and interviewed officials from VEF, 
the General Services Administration (GSA), and the Office of 
Management and Budget (OMB). We also reviewed VEF's contracts with 
GSA's Agency Liaison Division and its Office of the Chief Financial 
Officer to obtain information on the breadth of legal, financial, 
human resources, and accounting services GSA provides to VEF. To 
further examine the structure of VEF, we reviewed VEF's organizational 
chart, job descriptions, and other documents. We also observed a VEF 
Board meeting to understand the oversight role of the board in 
managing VEF, and conducted interviews with VEF board members to 
understand their role. Further, we interviewed current and former VEF 
management and staff and conducted file reviews at VEF headquarters 
and the Hanoi office to understand the division of responsibilities 
and resources between the two offices. We obtained information on 
VEF's mission through a review of its annual reports and interviews 
with VEF management and the board. We also met with students who had 
received a VEF fellowship and university administrators from the 
University of California, Berkeley, and the University of California, 
Davis, to gain knowledge about how VEF's mission is implemented 
through its flagship fellowship program. During site visits to Hanoi 
and Ho Chi Minh City, Vietnam, we interviewed officials at the U.S. 
embassy, in the Government of Vietnam, and at Vietnamese universities 
that participate in VEF's exchange programs. 

To determine the extent to which VEF has implemented internal control 
over its program and financial management, we assessed VEF's existing 
policies and procedures against GAO's five standards for internal 
control in the federal government:[Footnote 32] (1) the control 
environment, (2) risk assessment, (3) control activities, (4) 
information and communications, and (5) monitoring. In the area of 
program management, we reviewed documentation on internal operations 
at VEF, including VEF's human capital and travel practices, as well as 
board meeting minutes, to gauge how operational issues were discussed 
by the board. In the area of financial management, we reviewed VEF 
budgets, obligations reports, and external audits from fiscal years 
2004 to 2009. To obtain further information on VEF's financial 
management system and controls in place, we met with VEF's external 
auditors and reviewed additional documentation they provided to 
support the audit findings. We also conducted a file review at VEF 
headquarters in which we examined VEF's monthly accounting reports, 
prepared by GSA, for all of 2008 and for January through September of 
2009. For selected transactions from these reports, we verified VEF's 
bookkeeping by reconciling the amount paid by VEF, as listed on the 
accounting reports, against the amount billed to VEF by vendors. In 
addition, we examined VEF's purchase card transactions to understand 
how VEF kept track of billing receipts. We conducted a similar file 
review in VEF's Hanoi office, focusing on cash expenditures. In 
addition to document reviews, we conducted semi-structured interviews 
on internal control with current and former officials at VEF's offices 
in Washington and Hanoi, including chairs of the VEF board of 
directors from 2007 onward, and with officials at the Departments of 
Education, State, and the Treasury. 

In addition to the audit objective in our report, we provided 
information about how other federal fellowship programs are structured 
to contextualize VEF among other similarly-scaled programs. To 
identify similarly-scaled programs, we developed criteria based on the 
VEF fellowship program's structure and a prior GAO report.[Footnote 
33] The programs identified met three criteria: (1) they receive 
annual funding of less than $9 million a year; (2) they sponsor 
students for graduate education; and (3) they have an international 
focus. In order to identify programs that met these criteria, we 
corresponded with officials at State and the U.S. Agency for 
International Development (USAID). We also reviewed a fiscal year 2008 
annual report by the Interagency Working Group on U.S. Government-
Sponsored International Education and Training (IAWG), and conducted 
Internet research on independent agencies in the IAWG report with an 
international focus to determine whether they sponsored programs that 
met our criteria.[Footnote 34] Using these criteria, we identified 
five federal fellowship programs similar in scale to VEF. We then 
conducted semi-structured interviews with those officials responsible 
for administering the programs to obtain information about their 
structure. Based on the information obtained during interviews with 
program officials, we focused on four structural themes: (1) how the 
program is administered, (2) how students are selected, (3) what 
benefits students receive, and (4) whether there is an overseas 
presence to help facilitate any aspect of the fellowship program. We 
also reviewed contracts for each of the programs to obtain further 
information. 

We conducted this performance audit from May 2009 to March 2010, in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Structural Elements of Similar Graduate Fellowship 
Programs: 

VEF has pointed to its rigorous selection process for its flagship 
fellowship program, and the overall structure of the program, as 
uniquely contributing to the agency's mission. In order to shed light 
on VEF's fellowship program, we examined the structures of other 
similarly scaled and scoped graduate fellowship programs run by the 
federal government and explored some structural similarities and 
differences between them and VEF's program. 

Similar Graduate Fellowship Programs: 

We identified five federal fellowship programs similar to VEF in terms 
of the amount of funding they receive and their sponsorship of 
international, graduate-level education.[Footnote 35] Our criteria for 
identifying fellowship programs similar in size and scope to VEF were: 
(1) annual funding for the fellowship program totaling less than $9 
million; (2) fellowship programs that sponsor graduate education; and 
(3) fellowship programs that are international. Using these criteria, 
we identified five similarly scaled and scoped graduate fellowship 
programs run by the Inter-American Foundation (IAF),[Footnote 36] 
State, and USAID. We limited our discussion of structure to four 
elements: (1) how program administration is managed; (2) how students 
are selected; (3) what benefits are awarded; and (4) whether the 
program has an overseas presence. Table 1 describes these structural 
features across the five programs. The programs are: 

* VEF Fellowship Program: funds Vietnamese nationals for graduate 
study in U.S. universities in various fields of science and 
technology.[Footnote 37] 

* IAF Program of Grassroots Development Fellowships Supporting 
Doctoral Dissertation Research: funds U.S., Latin American, and 
Caribbean students who have advanced to candidacy for a Ph.D. in U.S. 
universities for fellowships that cover up to 12 months of in-country 
field research. Fellows must have an affiliation with an institution 
in the country of their research. 

* USAID Forecast Egypt: supports 2-year scholarships for employees of 
the Egyptian Ministry of Health to attend Master of Business 
Administration programs in the United States. 

* USAID Training Future Leaders (TFL): supports participants from Asia 
and the Near East to pursue master degrees in areas such as economic 
growth, democracy and governance, and environment, among other 
subjects, with an emphasis on producing technical competence and 
leadership for addressing development issues. 

* USAID Women's Leadership Training in Economics (WLTIE): supports 
women from Angola, Ecuador, Nepal, Pakistan, Sierra Leone, Tanzania, 
and Vietnam to pursue master degrees in economics in the United States. 

* State Edmund S. Muskie Graduate Fellowship Program: supports 
graduate students and professionals from Eurasia enrolled in U.S. 
graduate degree, certificate and non-degree programs lasting 1 to 2 
academic years in the fields of business administration, economics, 
education, environmental management, international affairs, journalism 
and mass communication, law, library and information science, public 
administration, public health, and public policy. 

Table 1: Select Aspects of Structure for VEF and Similarly-Scaled 
Fellowship Programs: 

FY2008 Agency Appropriation: 
VEF: $5 million[A]; 
IAF/Grassroots Development: $28 million; 
USAID/Forecast Egypt: $10,388 million; 
USAID/TFL: $10,388 million; 
USAID/WLTIE: $10,388 million; 
State/Muskie: $30,758 million. 

Fellowship Program Budget FY2008: 
VEF: $4.5 million[B]; 
IAF/Grassroots Development: $0.4 million[C]; 
USAID/Forecast Egypt: $2 million; 
USAID/TFL: $2.4 million[D]; 
USAID/WLTIE: $2.8 million[E]; 
State/Muskie: $8.5 million. 

Number of students supported for academic year 2008-2009: 
VEF: 78; 
IAF/Grassroots Development: 12; 
USAID/Forecast Egypt: 14; 
USAID/TFL: 13; 
USAID/WLTIE: 11[F]; 
State/Muskie: 243. 

Average financial support per year per student: 
VEF: $34,922[G]; 
IAF/Grassroots Development: Not Applicable[H]; 
USAID/Forecast Egypt: $43,000; 
USAID/TFL: $40,000 to $45,000; 
USAID/WLTIE: $40,000 to $45,000; 
State/Muskie: $48,000. 

Use of third-party contractor for program administration: 
VEF: No; 
IAF/Grassroots Development: Institute of International Education; 
USAID/Forecast Egypt: World Learning; 
USAID/TFL: Academy for Educational Development; 
USAID/WLTIE: Academy for Educational Development; 
State/Muskie: International Research and Exchanges Board. 

Source: GAO analysis based on agency interviews. 

[A] The VEF Act of 2000 allows VEF to carry over unspent funds from 
year to year. As a result, VEF has historically been able to create 
budgets that exceed its $5 million annual funding. For example, VEF's 
budget for fiscal year 2008 was $7.7 million. 

[B] This figure represents direct costs of fellows and VEF's contract 
with the National Academy of Sciences. It does not include labor costs 
or VEF staff travel costs. 

[C] This figure was allocated to cover the 11 fellows expected to 
begin conducting their research on individually determined dates 
between June 1, 2007, and May 31, 2008. Several were still conducting 
their research for months after May 31, 2008, and one began in May, 
and therefore received payment into calendar year 2009. 

[D] This amount reflects the program's total budget for about 4 years, 
from October 2007 to May 2011. The Academy for Educational Development 
creates budgets for the life of a task order, not per year. 

[E] This amount reflects the program's total budget for about 2 years, 
from March 2009 to May 2011. The Academy for Educational Development 
creates budgets for the life of a task order, not per year. 

[F] This figure represents students supported in fall 2009. 

[G] This figure represents annual costs for the first 2 years of a 5- 
year VEF fellowship. The figure cited is for support received during 
year 1 or year 2 of a fellowship, not years 3 through 5. 

[H] The maximum level of support an IAF fellow can receive is roughly 
$23,000, based on a fellowship lasting up to 12 months. 

[End of table] 

Structural Elements: 

We found that VEF's graduate fellowship program has one key structural 
difference from all the other programs we reviewed and has other 
structural similarities and differences with the other programs. VEF 
staff internally administer the fellowship program, while the other 
programs we reviewed contract with international educational exchange 
specialists to run their small-scale graduate fellowships. In other 
respects, such as student selection, the financial and non-financial 
support given to students, and an overseas presence, VEF is similar to 
some of the programs we reviewed and different from others. 

Program Administration: 

A key structural difference between the VEF graduate fellowship 
program and the other programs we reviewed is VEF's approach to 
program administration. Specifically, VEF does not use a third party 
contractor to administer its fellowship program, while the other 
agencies do. VEF staff help fellowship candidates prepare their 
university applications and obtain and monitor U.S. visas; plan a pre-
departure orientation for new fellows; track payments to universities 
and fellows; manage fellows' travel; and maintain communication with 
fellows once they are in school, among other responsibilities. VEF's 
management oversees the staff's administration of the fellowship 
program, but is also jointly involved in administration. For example, 
VEF staff in Hanoi prepare payment rosters for fellows and the 
universities they will attend and then communicate this information to 
the universities, following up as necessary. VEF's Director of 
Finance, Accounting and Administration also routinely communicates 
with universities and works to ensure that payments are being 
processed correctly through its financial management and reporting 
contractor. By contrast, the other agencies we reviewed that sponsor 
similarly-scaled graduate programs contract out program administration 
responsibilities to outside organizations. For example, officials at 
State told us that they use the International Research and Exchanges 
Board (IREX) for program administration, with all aspects of the 
program conducted in close consultations with the State program 
office. Additionally, State's involvement includes determining program 
design, program policy, and contract oversight, including reviewing 
the contractor's financial and programmatic performance. Officials at 
IAF told us that while IAF employees structure all aspects of the 
fellowship program and make all policy decisions, IAF's contractor, 
the Institute of International Education (IIE), administers the 
fellowship program. For example, IIE disburses funds to the fellows in 
accordance with the fellowship agreement drafted by IAF officials. 

Student Selection: 

The student selection process at VEF, like the IAF and State's Muskie 
program, includes subject matter experts and other specialists. The 
other programs in our review rely on contractors, other countries' 
governments, and their representatives from their overseas offices for 
student selection: 

* VEF Fellowship Program:[Footnote 38] After an initial screening of 
applications by VEF staff in Hanoi, the applications are sent to the 
National Academy of Sciences (NAS), which narrows down the applicant 
pool and convenes panels of subject matter experts to conduct oral 
exams of fellowship candidates in Hanoi and Ho Chi Minh City. 
Recommendations are then provided to the VEF board, which makes the 
final selection. VEF staff work with fellowship recipients to prepare 
university applications and to gain admittance to a U.S. university. 

* IAF Program of Grassroots Development Fellowships Supporting 
Doctoral Dissertation Research: IIE works with IAF to convene an 
academic review committee of six scholars, including one IAF 
representative and at least one former fellow. The committee reviews 
the applications for the relevant year and recommends finalists to 
IAF's president, who makes final decisions on awarding fellowships. 

* USAID Forecast Egypt: The Egyptian Ministry of Health selects 
candidates to participate in the program. USAID's contractor, World 
Learning, helps fellowship recipients prepare applications and gain 
admission to a university. 

* USAID TFL: USAID's contractor, the Academy for Educational 
Development (AED), in conjunction with the USAID missions and USAID 
Washington, reviews student applications and conducts in-country 
interviews with applicants to make final selections. AED then helps 
selected fellowship recipients prepare applications and gain admission 
to a university. 

* USAID WLTIE: USAID missions recruit students, review applications, 
and conduct interviews. AED helps selected fellowship recipients 
prepare applications and gain admission to a university. 

* State Muskie Fellowship: All eligible applications are first 
reviewed by teams of readers consisting of a U.S. national and a local 
Muskie alumnus. These readers' scores are returned to State's 
contractor for Muskie, who compiles a semi-finalist list. Chosen semi-
finalists are then interviewed in their home country by a binational 
selection committee of U.S. academic specialists or education 
administrators, program alumni, and U.S. embassy representatives. This 
committee rank orders the semi-finalists to be recommended for 
standardized testing. Depending on the test results, the final rank 
order is adjusted by State's contractor for Muskie in consultation 
with State and U.S. embassies. 

Support for Students: 

VEF and the other programs in our review provide varying levels of 
financial and non-financial support. For example, while VEF's annual 
financial support is less than the financial support provided by 
State, VEF provides non-financial benefits similar to State. 
Specifically, during VEF's annual conference, fellows participate in 
community building and networking exercises. State's Muskie program 
provides similar benefits, including an in-country pre-departure 
orientation, internship and community service opportunities, and a 4-
day-long orientation for students in Washington. 

Overseas Presence: 

Like some of the agencies in our review, VEF maintains an overseas 
presence that helps it facilitate various aspects of its fellowship 
program. For example, World Learning, which is USAID's contractor for 
Forecast Egypt and is responsible for all activities in the United 
States, including monitoring participants and processing monthly 
stipend and other expense payments, uses a subcontractor to maintain 
an overseas presence for work related to Forecast Egypt. This 
subcontractor provides assistance to fellowship recipients to obtain 
medical examinations, acquire visas, and prepare university 
applications, among other duties. By contrast, IAF does not have an 
overseas presence for the purposes of its fellowship program and does 
not rely on IIE's overseas offices for facilitating the fellowship 
program. 

[End of section] 

Appendix III: Comments from the Vietnam Education Foundation: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

Vietnam Education Foundation: 
Lynne A. McNamara, Ph.D. 
Executive Director: 

Board of Directors: 
Stephen F. Meaner, Ph.D. 
Chairman: 
Director, Vietnam Center: 
Texas Tech University: 

Earl Blumenauer: 
U.S. Congressman: 

Hillary Rodham Clinton: 
U.S. Secretary of State: 

Viet D. Dinh: 
Professor of Law: 
Georgetown University Law Center: 

Elizabeth Dugan: 
Chair - VEF Finance Committee: 

Arne Duncan: 
U.S. Secretary of Education: 

Christopher J. Fussner: 
Owner, Founder: 
Trans Technology Pte Ltd. 

Timothy F. Geithner: 
U.S. Secretary of Treasury: 

Joseph R. Pitts: 
U.S. Congressman: 

David Vitter: 
U.S. Senator: 

Jim Webb: 
U.S. Senator: 

Vietnam Education Foundation: 
2111 Wilson Boulevard, Suite 700: 
Arlington, VA 22201: 
[hyperlink, www.vef.gov] 
Phone 703-351-5053: 
Fax 703-351-1423: 

VEF Response to April 2010 GAO Report on VEF: 

March 19, 2010: 

Mr. Jess T. Ford: 
Director, International Affairs and Trade: 
United States Government Accountability Office: 

Dear Mr. Ford: 

As requested in your email, VEF (the Board of Directors and management 
at VEF) has reviewed the Draft GAO Report (Vietnam Education 
Foundation: Recent Improvements Made in Internal Controls, But 
Weaknesses Persist) as has Lesly Wilson, General Services 
Administration (GSA) Legal Counsel to VEF. Below are VEF's written 
comments as requested. 

First, we would like to convey that the VEF Board appreciates the bard 
work and dedication of the GAO audit team as well as their 
recommendations and guidance to improve the management and efficiency 
of VEF. We are grateful for the recognition given to VEF's successes, 
as especially indicated on pages 16-21 of the GAO report. The VEF 
Board agrees with the overall recommendations made in the GAO audit 
report and will take all necessary and appropriate action to make 
improvements upon VEF's Internal Controls. The VEF Executive Director 
is already developing a VEF Policies, Procedures, and Internal 
Controls Manual that will include documented processes to "implement 
actions across all five standards of internal control, including 
identifying and addressing gaps in the control environment, and 
assessing and managing risks." 

The Board also recognizes that improvements in overall management have 
already occurred as a result of the recommendations and guidance of 
present Board Members and VEF staff. All of the current Presidential 
appointees on the Board of Directors started their official duties as 
of January 2009 and, together with Departmental and Congressional 
Board members, the Board has worked together diligently to address and 
correct numerous issues. The new Executive Director has also played an 
important role in this. Also, significant improvements in financial 
controls as well as incorporating compliance with certain U.S. Federal 
laws, regulations, policies and procedures have occurred since the 
appointment of the present Director of Finance, Accounting, and 
Administration (DFAA) in 2007. 

We also offer the following information for clarification. Where 
indicated, the comments below refer to specific information on pages 
within the GAO Report. 

Control Activities for Contracting Procedures (GAO Report p. 27). [Now 
on p. 26] VEF has a policy that all staff (both in the United States 
and in Hanoi) must receive applications/estimates from at least three 
vendors before the contract is awarded. This policy was sent to the 
Hanoi staff by the Director of Finance, Accounting, and 
Administration, who oversees all contractual arrangements. Since the 
DFAA is the only person in the VEF organization who engages in the 
final preparation and execution of contracts, there is no written 
policy beyond that — that all contracts must have at least three 
competitive bids and that all VEF contracts must be prepared and 
managed by the DFAA for final execution. In addition, before any 
contract is signed, it is reviewed by VEF's GSA attorney so that VEF 
is assured that the contract meets the Federal rules/regulations. 
These VEF policies will be codified in the VEF Policies, Procedures, 
and Internal Controls Manual currently under development. [See comment 
1] 

Fields of VEF Fellows (GAO Report p. 7). [Now on p. 8] The VEF 
Fellowship program encompasses the following fields: sciences 
(natural, physical, and environmental), engineering, mathematics, 
medicine (including public health), and technology (including 
information technology). VEF accepts applications for these broader 
fields and not just the fields of "science and technology" or the 
"STEM fields" (science, technology, engineering, and mathematics). 
[See comment 2] 

Activities and titles of VEF Visiting Scholars (GAO Report pp. 1, 8). 
VEF Visiting Scholars are not awarded VEF grants to teach at U.S. 
Universities, but rather to undertake a self-designed program of up to 
one year in length, which may include formal courses, workshops, 
seminars, laboratory or field research, or other types of professional 
development activities. While they are considered post-does, they are 
not all professors at Vietnamese universities; some may have the title 
of Lecturer. Indeed, some Visiting Scholars may be administrators. 
[See comment 3] 

VEF US Faculty Scholar Program (GAO Report p. 1, 8). VEF provides 
grants to U.S. professors to teach in English at Vietnamese 
universities for one or two full academic terms. Teaching may take 
place either in Vietnam via face-to-face teaching or by interactive, 
real-time video-conferencing from the United States. In the latter 
case, the Faculty Scholar must go to Vietnam at the beginning and at 
the end of the course(s) for at least one week. Thus, the U.S. Faculty 
Scholar program encompasses teaching from the United States as well as 
teaching in Vietnam. [See comment 4] 

Professional Development Grants (GAO Report p. 10). VEF Fellows 
receive an annual professional development grant of $1000. The VEF 
Visiting Scholars also receive a professional development grant of up 
to $3600, based on the number of months of their professional 
development program, pro-rated at $300 per month. The Visiting 
Scholars receive a larger amount because they typically do not have 
access to a U.S. university's grants as do VEF's Fellows, who are 
graduate students. [See comment 5] 

Purpose of the VEF Finance Committee (GAO Report p. 4). The Finance 
Committee of the VEF Board of Directors works closely with the VEF 
Director of Finance, Accounting, and Administration and VEF Executive 
Director to provide specific guidance and recommendations to the Board 
of Directors regarding all aspects of VEF fiscal management. This 
includes advice on funding priorities for VEF programs, creative 
solutions for fund raising and budget management, suggestions for 
necessary budget cuts, and recommendations that promote overall 
fiduciary responsibility through the efficient use of VEF financial 
resources, compliance with federal guidelines and regulations, and 
sound fiscal policies. Some specific examples of this activity 
includes but is not limited to analysis and review of yearly budgets 
before requesting Board approval; review and development of new 
accounting procedures and systems that allow for better fiscal 
analysis and management; review and discussion of the yearly audit and 
recommendations for addressing any issues raised in the annual audit 
reports; and review and discussion of VEF expenditures before being 
presented to the Board for final approval. 

VEF Organizational Chart, 2009 (GAO Report p. 5). The chart should 
depict that the Administrative Assistant in the U.S. office reports to 
the Executive Director and that the Administrative Assistant/Assistant 
to the Country Director in the Hanoi Field office reports to her 
immediate supervisor, the Deputy Director of Finance, Accounting, and 
Administration, while being ultimately responsible to the Country 
Director. As part of their responsibilities, these Administrative 
Assistants provide support to all other staff members. [See comment 6] 

VEF Hanoi office responsibilities (GAO Report p. 18). The VEF Hanoi 
Field office provides logistical support for all activities in 
Vietnam. In addition, the Hanoi staff provides significant support to 
the management in the U.S. office, which oversees and manages all VEF 
activities. The Hanoi staff act under directives of the U.S. staff, 
and do not act independently. The VEF management team in the U.S., not 
the Hanoi staff, initiated the directive to develop standard operating 
procedures for the Hanoi office. Nonetheless, the U.S. management team 
highly encourages new ideas, creative solutions, and implementation of 
efficient systems, and welcomes all such input for final decision 
before enacting. [See comment 7] 

VEF Legal Counsel from GSA (GAO Report p. 6). The GSA Legal Counsel 
has assisted VEF by reviewing and revising contracts with vendors and 
providing guidance on operating as a federal agency. However, she has 
provided much more assistance beyond these tasks, including review of 
the following: Memorandums of Understanding (MOU) and agreements with 
U.S. universities; job descriptions; job contracts for the Hanoi 
staff; questionable expenditures; sensitive issues, situations, and 
communications; grant letters/agreements for Fellows, Visiting 
Scholars, and U.S. Faculty Scholars; VEF official documents; and 
processing of employee personnel actions. 

National Academy of Sciences (NAS) (GAO Report p. 8). The National 
Academies (NA) refers to four organizations that work together: the 
National Academy of Sciences (NAS), the National Academy of 
Engineering (NAE), the Institute of Medicine (IOM), and the National 
Research Council (NRC). For legal, tax, and contracting purposes, the 
NA is collectively represented as the NAS. The scope of work for VEF 
is executed by the Fellowships Office of the NRC. In their work, the 
Fellowships Office engages the resources of the other three 
organizations within the NA. Thus, VEF refers to its relationship with 
the National Academies, and not the National Academy of Sciences, 
since all entities within the NA are engaged. [See comment 8] 

While the U.S. professors critically review the choice of U.S. 
universities of the Fellowship interviewees, the applicants have 
already specified in their initial application the top five U.S. 
universities to which they will apply. Once the nominees (those 
nominated by the U.S. professors as potential Fellowship recipients) 
have received university admissions, the NA together with VEF finalize 
which university the Fellow will attend, based on the Fellow's 
priority choice and the appropriate fit for the Fellow. 

The U.S. professors, invited as interview panelists by the NA, provide 
recommendations on finalists for Fellowships. Upon completion of 
reviews of the recommendations together with the NA, the VEF staff, 
and not the U.S. professors, present the final recommendations to the 
VEF Board of Directors and the VEF Board of Directors discusses these 
prospective fellows with the VEF staff at the April Board meeting 
before voting and making the final decisions. [See comment 9] 

U.S. Office (GAO Report pp. 23 24, 27). [Now on pp.22, 23] Regarding 
VEF U.S. staff salary increases, VEF management follows guidance and 
rules from GSA and Office of Personnel Management (OPM) for issuing 
the salary increases each January, which are issued by the President 
of the United States to Federal Government employees. GSA contacts the 
Director of Finance, Accounting, and Administration to have the 
spreadsheet completed with the Presidential increases to be processed 
by the effective date set by the President. The second part of the pay 
raise comes from the regulations listed in the OPM website regarding 
issuing step increases to all non-SES Federal Government Employees on 
their yearly anniversary of their current position. [See comment 10] 

With regard to the cash award issue raised in the GAO Report (pages 23-
24), VEF took the action indicated based solely on the guidance of 
GSA's Agency Liaison Division (ALD). VEF submitted letters 
recommending the awards in question and providing justification for 
them and GSA completed the necessary paperwork executing the awards. 
At no time was VEF made aware of any other requirements to report or 
request such awards to OPM. VEF has made note of the discrepancies 
between GSA's guidance and actions and the information recently 
provided from GAO and VEF will submit all appropriate documentation 
and ensure complete federal regulatory compliance for any and all 
future cash awards provided to VEF staff. 

Regarding personnel issues and regulations more broadly, VEF 
management has always sought and followed the guidance provided by GSA 
ALD, GSA Legal Counsel, and OPM, along with what it understood of U.S. 
Federal Government laws and regulations as they apply to VEF's 
employees. VEF will seek further clarifications on the issues raised 
in the GAO Report and will incorporate all relevant information and 
correct procedures in the VEF Policies, Procedures, and Internal 
Controls Manual currently under development. 

Regarding communications with U.S. universities, mostly the Program 
Officer and/or Executive Director communicate with U.S. universities. 
The Director of Finance, Accounting, and Administration only 
communicates occasionally with individuals at the university, who are 
inquiring about financial payments. 

Fraud Checklist (GAO Report p. 26). [Now on p. 25] In response to the 
management letter and exit briefing resulting from the fiscal year 
2007 audit, VEF management completed a Fraud Risk Checkup that is a 
self-assessment tool developed by the Association of Certified Fraud 
Examiners that was provided as a template by VEF's independent 
auditors. VEF provided the auditors with a written update on VEF's 
progress addressing management letter items on October 1, 2008, as 
they were conducting planning activities for the FY 2008 audit. A copy 
of the completed Fraud Risk Checkup was provided to VEF's auditors at 
that time. While a checklist was not completed in writing for FY 2009, 
the auditing firm reviewed fraud risk factors verbally with VEF 
management. [See comment 11] 

Reporting of Internal Operations to the Board of Directors (GAO Report 
p. 25). [Now on pp. 27-28] The new Executive Director instituted a 
specific section in the Board meeting agenda, as of July 2009, to 
report on Internal Affairs, which includes personnel issues and 
updates on specific activities as well as areas of concern. 

Additional Comments and Recommendations from VEF: 

VEF accepts full responsibility for our current deficiencies and for 
addressing all such issues raised in the GAO Report. We also note, 
however, that the present VEF Board of Directors, Executive Director, 
and Director of Finance, Accounting, and Administration were not 
aware, nor were they ever made aware by previous Board members, 
Executive Director, or by anyone in any other government agency, of 
any specific Standards for Internal Control requirements outside of 
those which VEF developed internally. As such, we think it is 
important to state that we believe the current VEF Board of Directors 
and staff have always acted in good faith to ensure the most efficient 
use of VEF resources, full compliance with federal laws and 
regulations, as well as appropriate risk assessments regarding VEF 
activities. Examples of this attitude and commitment include our 
development of a more accurate and detailed accounting system that is 
better informing VEF financial management; consistent preemptive 
consultation with GSA Legal Counsel to ascertain legal issues 
regarding VEF programs, policies, and activities; arranging VEF travel 
to minimize expense while maximizing impact on VEF programs; the 
refusal of VEF Board members to receive Executive Schedule 
Compensation for their time spent on VEF business per the VEF founding 
legislation; and numerous other activities. 

While VEF will be taking all appropriate and necessary steps to ensure 
more thorough compliance with the guidelines and recommendations 
provided in this report as well as a more detailed and comprehensive 
transition for future Board members and staff, it would be helpful if 
such information and guidance also is provided to new federal 
organizations at their inception and to new Board Members at the time 
of their appointment. VEF also recommends that new chairs of federal 
agency boards and new executive directors of such organizations be 
provided an orientation by the U.S. Federal Government at the 
beginning of their tenure that outlines all requirements for federal 
agencies, including access to individuals who can provide continued 
guidance on fulfilling any and all federal requirements. VEF further 
recommends that all legislation for new federal government agencies 
incorporate references to the specific federal laws, regulations, 
guidelines, and requirements that the agency must follow regarding 
internal controls, financial accounting and reporting, operations, 
standard operating policies and procedures, and overall management. 

Sincerely, 

Signed by: 
Stephen F. Maxner, Ph.D. 
Chairman, Board of Directors: 

The following are GAO's comments to the Vietnam Education Foundation's 
letter dated March 19, 2010. 

GAO Comments: 

1. While VEF has a policy to solicit three bids before a contract is 
awarded, this policy is not documented for the whole agency. As we 
note in our report recommendations, having documentation for policies 
and procedures helps minimize risks to achieving agency objectives. 
Further, VEF management stated that it takes steps to assure contracts 
meet federal rules and regulations. However, VEF management previously 
told us that VEF's largest contract in Hanoi was not bid 
competitively, does not have an end date, and does not follow the 
Federal Acquisition Regulation. We support any steps VEF management 
will take to develop written guidance on policies and procedures and 
to clarify its processes for assuring it is meeting federal rules and 
regulations. 

2. We expanded the list of fields in which VEF offers fellowships. 

3. We modified our report to indicate that, under the VEF Visiting 
Scholar program, post-doctoral scholars are awarded grants to 
undertake professional self-development activities. 

4. We modified our report to clarify that U.S. professors 
participating in the U.S. Faculty Scholar program can teach at 
Vietnamese universities, which includes in person or remotely. 

5. We have amended our report to indicate that professional 
development grants are not limited to students. 

6. We modified the organizational chart to show that the 
Administrative Assistant in the Washington office reports directly to 
the Executive Director. 

7. VEF staff in Hanoi told us that they initiated steps to implement 
additional control activities for their office. We have clarified our 
statement to include this attribution. During the course of our 
engagement, we did not find evidence to support VEF management's 
statement that the management team in the Washington office initiated 
the directive to develop standard operating procedures for the Hanoi 
office. 

8. Although VEF stated that it refers to its relationship with the 
National Academies and not the National Academy of Sciences (NAS), the 
contract VEF management provided to GAO, for the period between June 
1, 2008, and May 31, 2011, is between VEF and the NAS. As such, we 
have referred to VEF's contractual relationship with the NAS and not 
other organizations within the National Academies. 

9. We have amended our report to state that recommendations for VEF 
Fellowship recipients are provided to the Board, which makes the final 
decision on who is awarded a fellowship. 

10. Although VEF is exempt from many personnel compensation provisions 
in Title 5 of the U.S. Code, including adherence to the General 
Schedule and its step increases, VEF management states that they 
follow guidance from the Office of Personnel Management (OPM) by 
issuing step increases on an annual basis. However, VEF's practice is 
inconsistent with OPM's guidance, which does not guarantee step 
increases on an annual basis, but rather requires that employees 
complete a required waiting period ranging from 1 to 3 years before 
advancing to the next step. The lack of clarity at VEF about raises 
based on step increases supports our finding that VEF management has 
not clearly articulated its approach to a performance-based 
compensation framework. 

11. Throughout the course of our audit, VEF did not provide any 
documents to corroborate management's statement that it completed 
Fraud Risk Checkups in fiscal years 2007 and 2008 and submitted them 
to its external auditor, despite our request for a copy of the 
completed fraud risk checklist. In response to our request for 
examples of policies and procedures established at VEF, VEF's external 
auditor provided us with a blank copy of the Fraud Risk Checkup. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Jess T. Ford (202) 512-4268 or fordj@gao.gov: 

Staff Acknowledgments: 

Other key contributors to this report were Anthony Moran, Assistant 
Director, Diahanna Post, Chhandasi Pandya, David Dornisch, Mark 
Dowling, John Reilly, Jr., George Scott, and Bill Woods. Technical 
assistance was provided by Diana Blumenfeld, Joe Carney, Candace 
Carpenter, Jacob Davis, Etana Finkler, Thais Hernandez, Gilbert Kim, 
Melissa Kornblau, and Armetha Liles. 

[End of section] 

Footnotes: 

[1] P.L. 106-554, sec. 1(a)(4) (reprinted as a note to 22 U.S.C. 2452). 

[2] Four of the board members are Members of Congress. 

[3] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1990). 

[4] See, e.g., the Purpose Statute (codified at 31 U.S.C. 1301(a)) and 
the Antideficiency Act (31 U.S.C. 1341 and 31 U.S.C. 1517(a)). 

[5] The Federal Managers' Financial Integrity Act of 1982 (Pub. L. 97- 
255, as amended). 

[6] The Ethics in Government Act of 1978. For more information on 
governance, accountability, and transparency-related requirements and 
statutes to which federally created entities are subject, see GAO, 
Federally Created Entities: An Overview of Key Attributes, [hyperlink, 
http://www.gao.gov/products/GAO-10-97] (Washington, D.C.: October 
2009). 

[7] The ceiling is level IV of the Executive Schedule. 

[8] H.R. 2410. Sec. 226. 

[9] As of February 2010, the congressional members are Representatives 
Earl Blumenauer and Joseph Pitts, and Senators David Vitter and Jim 
Webb. 

[10] The Accountability of Tax Dollars Act of 2002 requires the annual 
preparation and audit of organizationwide financial statements for VEF 
and other agencies that were previously not required to conduct these 
audits. VEF's financial statements are audited under U.S. generally 
accepted government auditing standards issued by the Comptroller 
General of the United States and OMB. 

[11] VEF's fellowship program supports study in the natural, physical 
and environmental sciences; engineering; mathematics; medicine and 
public health; and technology, including information technology. 

[12] VEF previously sent U.S. professors to Vietnam to teach short-
term courses. 

[13] NAS was created by the federal government to be an adviser on 
scientific and technological matters, and is a private organization. 
NAS's services may be obtained by an agency of the executive branch on 
a noncompetitive basis if the agency determines it is the only source 
that can provide the expertise, independence, objectivity, and 
audience acceptance needed to meet the agency's program requirements. 

[14] On April 7, 1997, the United States and Vietnam signed an 
agreement in which Vietnam agreed to pay the roughly $145 million in 
debt, plus interest, the former Republic of Vietnam incurred from 1960 
to1975 to support the development of economic infrastructure and to 
finance the importation of agricultural and other commodities. 

[15] Federal internal control standards recognize that an entity's 
management is responsible for designing and implementing appropriate 
internal controls to achieve objectives related to (1) the 
effectiveness and efficiency of operations, including the use of 
resources; (2) the reliability of internal and external financial 
reporting; and (3) compliance with applicable laws and regulations. An 
entity's management is also responsible for monitoring and evaluating 
the effectiveness of the internal control. See [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[16] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[17] The first independent audit of VEF conducted in accordance with 
United States generally accepted government auditing standards and OMB 
audit guidance was completed for the fiscal year ending on September 
30, 2005, and that audit report included a comparison year of fiscal 
year 2004, which was audited as part of the initial audit engagement. 

[18] In 2006, VEF's board formally adopted all written guidelines, 
policies, procedures and practices of GSA except for overseas travel, 
overseas assignments, and overseas relocation, where it adopted the 
policies of State. 

[19] See 22 U.S.C. 3927 (stating that under the direction of the 
President, the Chief of Mission to a foreign country shall have full 
responsibility for the direction, coordination, and supervision of all 
executive branch employees in that country). 

[20] See 49 U.S.C. 40118. State has established regulations necessary 
to implement the act that include provisions defining when it is 
permissible to use a foreign airline. See 14 F.A.M. 583. Among the 
exceptions to the Fly America Act are those where use of a U.S. 
airline would (1) increase the number of aircraft changes made outside 
the United States by two, (2) extend travel time by at least 6 hours, 
or (3) require a connecting time of 4 hours or more at an exchange 
point abroad. 

[21] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[22] United States generally accepted government auditing standards 
limit the scope of reporting on internal control during a financial 
statement audit to reporting on the reliability of financial reporting 
and compliance with applicable laws and regulations. A financial audit 
of a federal agency does not include examination and reporting on the 
broader control objectives in the Federal Managers Financial Integrity 
Act of 1982, which includes effectiveness and efficiency of operations. 

[23] VEF processes raises twice per year. According to VEF's finance 
director, one raise is called the "President's raise" and is given in 
January of each year to employees of the executive branch in order to 
make their salaries comparable to private-sector workers. VEF also 
provides a raise to employees, based on performance, on the 
anniversary of their hiring date. This raise is based on the General 
Schedule step increase. According to the finance director, VEF 
typically awards its employees the maximum step increase in any given 
year. 

[24] VEF is subject to 5 U.S.C. 4502(b) which requires that, for any 
award greater than $10,000, the agency provide a certification to OPM 
regarding the justification for the award. 

[25] 5 U.S.C. 4505a. 

[26] Examples of risks include risks posed by new legislation, 
changing expectations of Congress, interactions with other federal 
entities and parties outside the government, heavy reliance on 
contractors, and an inability to provide succession planning and 
retain key personnel who can affect the ability of the agency to 
function effectively, among other risks. See GAO Internal Control 
Management and Evaluation Tool, [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G] (Washington, D.C.: August 
2001). 

[27] OMB Circular No. A-123, Management's Responsibility for Internal 
Control. 

[28] OMB officials told us that guidance is provided through OMB 
Circulars A-123 and A-11 and that circular A-11, section 150 and 
appendix H, specifically address administrative control of funds. 

[29] [hyperlink, http://www.gao.gov/products/GAO-01-1008G]. 

[30] Internal Control--Integrated Framework, issued by the Committee 
of Sponsoring Organizations of the Treadway Commission (COSO) in 1992. 

[31] P.L. 106-554, sec. 1(a)(4) (reprinted as a note to 22 U.S.C. 
2452). 

[32] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[33] GAO, Higher Education: Approaches to Attract and Fund 
International Students in the United States and Abroad, [hyperlink, 
http://www.gao.gov/products/GAO-09-379] (Washington, D.C.: Apr. 30, 
2009). 

[34] IAWG, FY2008 Annual Report, hyperlink, 
http://www.iawg.gov/reports/annual/].  

[35] See appendix I for more information on GAO's methodology for 
identifying programs. 

[36] IAF is an independent foreign assistance agency established in 
1969. It provides grants for grassroots development in Latin America 
and the Caribbean. 

[37] VEF's fellowship program supports study in the natural, physical 
and environmental sciences; engineering; mathematics; medicine and 
public health; and technology, including information technology. 

[38] This process reflects VEF's Process A candidates. VEF has a 
secondary process for acceptance to the fellowship program where the 
applicant gains admission to a leading U.S. graduate program on his or 
her personal initiative and applies online at the VEF Web site. 

[End of section] 

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