This is the accessible text file for GAO report number GAO-04-404 entitled 'Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 2003 and 2002' which was released on March 01, 2004. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Report to Congressional Committees: March 2004: FINANCIAL AUDIT: American Battle Monuments Commission's Financial Statements for Fiscal Years 2003 and 2002: GAO-04-404: GAO Highlights: Highlights of GAO-04-404, a report to the Senate and House Committees on Veterans’ Affairs Why GAO Did This Study: In accordance with 36 U.S.C. 2103, we are responsible for conducting audits of the agencywide financial statements of the American Battle Monuments Commission. We audited the financial statements of the Commission for the fiscal years ended September 30, 2003, and 2002. The audits were done to determine whether, in all material respects, (1) the Commission’s financial statements were reliable, (2) Commission management maintained effective internal control over financial reporting and compliance with laws and regulations, and (3) Commission management complied with applicable laws and regulations. The American Battle Monuments Commission was created in 1923 to commemorate the sacrifices and achievements of U.S. Armed Forces where they have served overseas since April 6, 1917, and locations within the United States as directed by Congress. The Commission designs, administers, operates, and maintains 24 American military cemeteries on foreign soil and 25 federal memorials, monuments, and markers, 22 of which are on foreign soil. The Commission is also responsible for designing and constructing the national World War II Memorial on the Capitol Mall in Washington, D.C., and for maintaining 4 nonfederal memorials with funds provided by those memorials’ sponsors. What GAO Found: In our opinion, the financial statements of the American Battle Monuments Commission as of September 30, 2003, and 2002, and for the fiscal years then ended, are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Commission maintained effective internal control over financial reporting (including safeguarding of assets) and compliance with laws and regulations as of September 30, 2003. In addition, we found no instances of Commission noncompliance in fiscal year 2003 with selected provisions of laws and regulations we tested. However, our work identified inadequate controls over information technology in two areas and nonrecognition of accrued liabilities as of September 30, 2003, that we considered to be reportable conditions. The Commission has booked audit adjustments to correct its accrued liabilities at yearend and is working to improve internal controls in all these areas during fiscal year 2004. For fiscal year 2003, the Commission spent $37.7 million of appropriated funds to maintain its 24 cemeteries and 25 federal memorials. It also spent $41.9 million of private contributions and investment earnings, primarily for construction-in-progress of the World War II Memorial that is expected to be dedicated on Memorial Day weekend 2004. The Commission also spent $.2 million of private contributions and investment earnings for gravesite floral decorations and to maintain 4 nonfederal memorials. www.gao.gov/cgi-bin/getrpt?GAO-04-404. The full report is available by clicking the link above, which includes information on objectives, scope, and methodology. For additional information, contact McCoy Williams at (202) 512-6906. [End of section] Contents: Letter: Auditor's Report: Opinion on Financial Statements: Opinion on Internal Control: Reportable Conditions: Compliance With Laws and Regulations: Consistency of Other Information: Objectives, Scope, and Methodology: Commission Comments and Our Evaluation: Appendix: Appendix I: Annual Financial Report on the American Battle Monuments Commission: Annual Financial Report: Management's Discussion and Analysis: Consolidating Balance Sheet: Consolidating Statement of Net Cost and Changes in Net Position: Consolidating Statement of Budgetary Resources: Consolidating Statement of Financing: Notes to the Consolidating and Consolidated Financial Statements: Required Supplementary Stewardship Information: Statements of Heritage Assets: Note to Statements of Heritage Assets: Letter March 1, 2004: The Honorable Arlen Specter: Chairman: The Honorable Bob Graham: Ranking Minority Member: Committee on Veterans' Affairs: United States Senate: The Honorable Christopher H. Smith: Chairman: The Honorable Lane Evans: Ranking Minority Member: Committee on Veterans' Affairs: House of Representatives: As required by 36 U.S.C. 2103, this report presents the results of our audits of the American Battle Monuments Commission's (the Commission) financial statements for the fiscal years ended September 30, 2003, and 2002. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Appropriations and the House Committee on Appropriations. We are also sending copies to the Secretary of the Treasury, the Director of the Office of Management and Budget, the Chairman of the Commission, and other interested parties. In addition, this report will be available at no charge on the GAO web site at [Hyperlink, http://www.gao.gov]. Should you or your staffs have any questions concerning this report, please contact me on (202) 512-6906 or Roger R. Stoltz, Assistant Director, at (202) 512-9408. Key contributors to this assignment were Patricia A. Summers, Eugene E. Stevens IV, Deborah A. Silk, Felicia C. Brooks, and Lindsay L. Saylor. Signed by: McCoy Williams: Director: Financial Management and Assurance: Auditor's Report To the Chairman of the American Battle Monuments Commission: In accordance with 36 U.S.C. 2103, we are responsible for conducting audits of the agencywide financial statements of the American Battle Monuments Commission (the Commission). In our audits of the Commission for fiscal years 2003 and 2002, we found: * the consolidating financial statements as of and for the fiscal year ended September 30, 2003, and comparative consolidated totals as of and for the fiscal year ended September 30, 2002, are presented fairly in conformity with U.S. generally accepted accounting principles; * although internal controls should be improved, the Commission had effective internal control over financial reporting (including safeguarding assets) and compliance with laws and regulations as of September 30, 2003; and: * no reportable noncompliance with laws and regulations we tested. The following sections discuss in more detail (1) these conclusions and our conclusions on Management's Discussion and Analysis and other supplementary information and (2) the objective, scope, and methodology of our audit. Opinion on Financial Statements: The American Battle Monuments Commission's consolidating balance sheet as of September 30, 2003, and its related consolidating statements of net cost and changes in net position; budgetary resources; and financing, with accompanying notes for the fiscal year then ended, and comparative consolidated totals as of and for the fiscal year ended September 30, 2002, are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. Opinion on Internal Control: The Commission maintained, in all material respects, effective internal control over financial reporting (including safeguarding assets) and compliance as of September 30, 2003, that provided reasonable assurance that misstatements, losses, or noncompliance material in relation to the consolidating financial statements or to stewardship information would be prevented or detected on a timely basis. Our opinion is based upon criteria established under 31 U.S.C. 3512 (c), (d) [Federal Managers' Financial Integrity Act (FMFIA)], and Office of Management and Budget (OMB) Circular No. A-123, Management Accountability and Control. However, our work identified the need to improve certain internal controls, as described below, that we consider reportable conditions. Such conditions are a deficiency in the design or operation of internal control that, in our judgment, could adversely affect the Commission's ability to meet internal control objectives or meet OMB criteria for reporting matters under FMFIA. We did not consider these deficiencies to be a material weakness, which occurs when the design or operation of internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material to the consolidating financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned duties. In addition, misstatements may occur in other Commission financial information not included in this report as a result of these reportable conditions. Reportable Conditions: During our audit we noted inadequate controls over information technology systems and nonrecognition of accrued liabilities as of September 30, 2003. Commission management reported the information technology deficiencies in its fiscal year 2003 FMFIA report and is working to implement corrections for all internal control deficiencies. Inadequate Controls Over Information Technology Systems: Inadequate controls over information technology systems were identified in the two following areas. * User Documentation: While the Commission's new accounting system has adequate user documentation, there continued to be a lack of user documentation to support its old legacy systems that were still used during fiscal year 2003, primarily for payroll. This included the Clipper system used by the European Regional Office, the dBase IV system used by the Mediterranean Regional Office, and the Foxpro accounting system used by the Headquarters Office. Commission personnel have learned how to use these legacy systems over the years primarily through on-the-job training and have limited support to explain how systems functions should be performed and to answer questions. However, the age of these systems and their pending replacement did not justify the cost of developing user documentation during fiscal year 2003. Effective January 1, 2004, payroll processing for all of the Commission's General Schedule (GS) employees was being done by Treasury Financial Management Services and payroll processing for all of the Commission's Foreign Service National (FSN) employees was in negotiation for conversion later in fiscal year 2004. * Security Program and Access Controls: While Commission Headquarters completed documentation of an agencywide security planning and management program for security and privacy of information during fiscal year 2003, some security controls over its computer system, such as administrative controls over network configuration, passwords, and access to files, were not effective at all Commission locations as of September 30, 2003. In a separate Limited Official Use report issued after our fiscal year 2002 audit, we communicated detailed information and made 49 specific recommendations to strengthen Commission internal controls, including information technology, accounting procedures, financial reporting, and cash management. While the Commission has corrected many of these deficiencies and has implemented a number of our recommendations during fiscal year 2003, it continues working towards correcting the remaining weaknesses during fiscal year 2004. In a previous report,[Footnote 1] we indicated that business continuity plans of Commission Headquarters and its European and Mediterranean Regional Offices did not contain sufficient detail to ensure successful manual operations and timely recovery of automated processing in the event of a business interruption. During fiscal year 2003, the Commission revised its business continuity plans to ensure the operational stability of its computerized functions. Nonrecognition of Accrued Liabilities: As of September 30, 2003, the Commission's European region had not recognized $1.1 million of accrued liabilities for accounts payable and accrued salaries and benefits that also understated General Fund fiscal year 2003 expenses by the same amount. We believe that this condition was caused by early year-end closing of the accounting records and a misunderstanding by accounting and engineering staff regarding proper year-end cutoff required by accrual accounting. Proper cutoff is necessary to identify goods and services that had been received in fiscal year 2003, particularly for costly engineering projects, but invoiced and paid in fiscal year 2004. The Commission has recognized this $1.1 million of accrued liabilities through subsequent audit adjustments in order to fairly present its financial statements for fiscal year 2003 in accordance with generally accepted accounting principles. Compliance With Laws and Regulations: Our tests for Commission compliance with selected provisions of laws and regulations for fiscal year 2003 disclosed no instances of noncompliance reportable under U.S. generally accepted government auditing standards or OMB audit guidance. However, the objective of our audit was not to provide an opinion on overall compliance with laws and regulations. Accordingly, we do not express such an opinion. Consistency of Other Information: The Commission's Management Discussion and Analysis and stewardship statements of heritage assets with an accompanying note contain a wide range of data, some of which are not directly related to the consolidating financial statements. We do not express an opinion on this information. However, we compared this information for consistency with the consolidating financial statements and discussed the methods of measurement and presentation with officials of the Commission. Based upon this limited work, we found no material inconsistencies with the consolidating financial statements or nonconformance with OMB guidance. Objectives, Scope, and Methodology: Commission management is responsible for (1) preparing the consolidating financial statements in conformity with U.S. generally accepted accounting principles, (2) establishing, maintaining, and assessing internal control to provide reasonable assurance that the broad internal control objectives of FMFIA are met, and (3) complying with applicable laws and regulations. We are responsible for obtaining reasonable assurance about whether (1) the Commission's consolidating financial statements are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles and (2) Commission management maintained effective internal control that provides reasonable, but not absolute, assurance that the following objectives were met. * Financial reporting: Transactions are properly recorded, processed, and summarized to permit the preparation of consolidating financial statements and stewardship information in conformity with U.S. generally accepted accounting principles, and assets are safeguarded against loss from unauthorized acquisition, use, or disposition. * Compliance with applicable laws and regulations: Transactions are executed in accordance with (1) laws governing the use of budgetary authority, (2) other laws and regulations that could have a direct and material effect on the financial statements, and (3) any other laws, regulations, or governmentwide policies identified by OMB guidance. We are also responsible for (1) testing compliance with selected provisions of laws and regulations that have a direct and material effect on the consolidating financial statements and for which OMB guidance requires testing and (2) performing limited procedures with respect to certain other information appearing in the Commission's annual financial report. In order to fulfill these responsibilities, we: * examined, on a test basis, evidence supporting the amounts and disclosures in the consolidating financial statements; * assessed the accounting principles used and significant estimates made by Commission management; * evaluated the overall presentation of the consolidating financial statements; * obtained an understanding of internal control related to financial reporting (including safeguarding assets) and compliance with laws and regulations (including execution of transactions in accordance with budget authority); * obtained an understanding of the recording, processing, and summarizing of performance measures as reported in Management's Discussion and Analysis; * tested relevant internal controls over financial reporting and compliance, and evaluated the design and operating effectiveness of internal control; * considered the process for evaluating and reporting on internal control and financial management systems under FMFIA; and: * tested compliance with selected provisions of the following laws and regulations: * The Commission's enabling legislation codified in 36 U.S.C. Chapter 21, * Public laws applicable to the World War II Memorial Fund, * Departments of VA and HUD, and Independent Agencies Appropriations Act 2003, * Antideficiency Act, * Pay and Allowance System for Civilian Employees, and: * Prompt Payment Act. We did not evaluate all internal controls relevant to operating objectives as broadly defined by FMFIA, such as those controls relevant to preparing statistical reports and ensuring efficient operations. We limited our internal control testing to those controls over financial reporting and compliance. Because of inherent limitations in internal control, misstatements due to error or fraud, losses, or noncompliance may nevertheless occur and not be detected. We also caution that projecting our evaluation to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with controls may deteriorate. We did not test compliance with all laws and regulations applicable to the Commission. We limited our tests of compliance to those required by OMB audit guidance that we deemed applicable to the Commission's consolidating financial statements for the fiscal year ended September 30, 2003. We caution that noncompliance may occur and not be detected by these tests and that such testing may not be sufficient for other purposes. We performed our work in accordance with U.S. generally accepted government auditing standards and OMB audit guidance. Commission Comments and Our Evaluation: Commission management was provided with a draft of this report and concurred with its facts and conclusions. Signed by: McCoy Williams: Director: Financial Management and Assurance: January 30, 2004: [End of section] Appendixes: Appendix I: Annual Financial Report on the American Battle Monuments Commission: Annual Financial Report: [See PDF for image] [End of figure] Management's Discussion and Analysis: [See PDF for image] [End of figure] Consolidating Balance Sheet: [See PDF for image] [End of figure] Consolidating Statement of Net Cost and Changes in Net Position: [See PDF for image] [End of figure] Consolidating Statement of Budgetary Resources: [See PDF for image] [End of figure] Consolidating Statement of Financing: [See PDF for image] [End of figure] Notes to the Consolidating and Consolidated Financial Statements: [See PDF for image] [End of figure] Required Supplementary Stewardship Information: [See PDF for image] [End of figure] Statements of Heritage Assets: [See PDF for image] [End of figure] [See PDF for image] [End of figure] Note to Statements of Heritage Assets: [See PDF for image] [End of figure] [End of section] (195018): FOOTNOTES [1] U.S. General Accounting Office, Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 2002 and 2001, GAO-03-444 (Washington, D.C.: Feb. 28, 2003). 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