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entitled 'Financial Audit: American Battle Monuments Commission's 
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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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