Financial Audit: American Battle Monuments Commission's Financial
Statements for Fiscal Year 1997 (Letter Report, 02/27/98,
GAO/AIMD-98-81).

Pursuant to a legislative requirement, GAO audited the financial
statements of the American Battle Monuments Commission (ABMC) for fiscal
year ended September 30, 1997. To help fulfill these responsibilities,
GAO contracted with KPMG Peat Marwick LLP, an independent certified
public accounting firm.

GAO noted that: (1) the ABMC's balance sheet as of September 30, 1997,
was reliable in all material aspects; (2) for a first year audit, it was
not feasible for KPMG to extend the necessary auditing procedures to
determine if the ABMC's remaining principal financial statements for the
fiscal year ended September 30, 1997, were reliable in all material
aspects; (3) ABMC fairly stated that internal controls in place as of
September 30, 1997, were effective in: (a) assuring material compliance
with laws governing the use of budget authority and with other relevant
laws and regulations; and (b) safeguarding assets against loss from
unauthorized acquisition, use, or disposition; (4) however, ABMC
management also fairly stated that internal controls in place as of
September 30, 1997, were not effective in ensuring that transactions
were properly recorded, processed, and summarized to permit the
preparation of reliable financial statements and to maintain
accountability of assets; (5) in this regard, KPMG noted four areas of
reportable conditions, three of which it considered to be material
weaknesses; and (6) no reportable instances of noncompliance with laws
and regulations tested were found.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-81
     TITLE:  Financial Audit: American Battle Monuments Commission's 
             Financial Statements for Fiscal Year 1997
      DATE:  02/27/98
   SUBJECT:  Financial statement audits
             Accounting procedures
             Internal controls
             Auditing procedures
             Financial management systems
IDENTIFIER:  GSA Financial Management Software Systems Multiple Award 
             Schedule
             
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Cover
================================================================ COVER


Report to the Senate and House Committees on Veterans' Affairs

February 1998

FINANCIAL AUDIT - AMERICAN BATTLE
MONUMENTS COMMISSION'S FINANCIAL
STATEMENTS FOR FISCAL YEAR 1997

GAO/AIMD-98-81

ABMC 1997 Audit

(911739)


Abbreviations
=============================================================== ABBREV

  ABMC - American Battle Monuments Commission
  CPA - certified public accountant
  FMFIA - Federal Managers' Financial Integrity Act of 1982
  KPMG - KPMG Peat Marwick LLP
  OMB - Office of Management and Budget

Letter
=============================================================== LETTER


B-276278

February 27, 1998

The Honorable Arlen Specter
Chairman
The Honorable John D.  Rockefeller
Ranking Minority Member
Committee on Veterans' Affairs
United States Senate

The Honorable Bob Stump
Chairman
The Honorable Lane Evans
Ranking Minority Member
Committee on Veterans' Affairs
House of Representatives

This report presents the results of the audit of the American Battle
Monuments Commission's (ABMC) financial statements for the year ended
September 30, 1997. 

We are sending copies of this report to the Senate and House
Committees on Appropriations; the Secretary of the Treasury; the
Director of the Office of Management and Budget; the Chairman of the
ABMC; and other interested parties.  Copies will be made available to
others upon request. 

Should you or your staffs have any questions concerning the audit,
please contact me on (202) 512-9489 or Roger Stoltz, Assistant
Director, on (202) 512-9408. 

David L.  Clark
Director, Audit Oversight
  and Liaison


Letter
=============================================================== LETTER


B-276278

General Frederick F.  Woerner, Chairman
American Battle Monuments Commission

In accordance with section 602 of the Veterans' Benefits Improvements
Act of 1996 (Public Law 104-275), we are responsible, beginning with
the fiscal year ended September 30, 1997, for conducting the first
agencywide audit of the financial statements of the American Battle
Monuments Commission (ABMC) since its establishment in 1923.  To help
fulfill these responsibilities, we contracted with KPMG Peat Marwick
LLP (KPMG), an independent certified public accounting (CPA) firm. 
KPMG's report dated January 13, 1998, is in appendix I. 

We concur with KPMG's report which indicated the following: 

  -- The ABMC's balance sheet as of September 30, 1997, was reliable
     in all material respects. 

  -- For a first year audit, it was not feasible for KPMG to extend
     the necessary auditing procedures to determine if the ABMC's
     remaining principal financial statements for the fiscal year
     ended September 30, 1997, were reliable in all material
     respects. 

  -- ABMC management fairly stated that internal controls in place as
     of September 30, 1997, were effective in (1) assuring material
     compliance with laws governing the use of budget authority and
     with other relevant laws and regulations and (2) safeguarding
     assets against loss from unauthorized acquisition, use, or
     disposition.  However, ABMC management also fairly stated that
     internal controls in place as of September 30, 1997, were not
     effective in ensuring that transactions were properly recorded,
     processed, and summarized to permit the preparation of reliable
     financial statements and to maintain accountability of assets. 
     In this regard, KPMG noted four areas of reportable conditions,
     three of which it considered to be material weaknesses. 

  -- No reportable instances of noncompliance with laws and
     regulations tested were found. 


   OPINION ON BALANCE SHEET
------------------------------------------------------------ Letter :1

We concur with KPMG's opinion that the ABMC's balance sheet presents
fairly, in all material respects, the financial position of the
Commission as of September 30, 1997, in conformity with the
comprehensive basis of accounting specified in Office of Management
and Budget (OMB) Bulletin No.  97-01, Form and Content of Agency
Financial Statements, as described in note 1.  As described in notes
1 and 12, the ABMC changed its accounting policies by early
implementation of this bulletin. 


   DISCLAIMER OF OPINION ON OTHER
   FINANCIAL INFORMATION
------------------------------------------------------------ Letter :2

The scope of KPMG's work was not sufficient to express an opinion on
the remaining principal statements as follows: 

  -- statement of net cost and changes in net position,

  -- statement of budgetary resources, and

  -- statement of financing. 

KPMG could not express an opinion on these statements because (1)
1997 was the first year that the ABMC was required to prepare
agencywide financial statements and have them audited and (2) it was
not feasible to extend audit procedures to audit October 1, 1996,
opening balances necessary to express an opinion for the fiscal year
ended September 30, 1997.  Also, the overview and the required
supplemental stewardship information, consisting of a statement of
heritage assets, was included for the purpose of additional
information and was read for consistency, but was not audited. 


   OPINION ON MANAGEMENT'S
   ASSERTION ABOUT THE
   EFFECTIVENESS OF INTERNAL
   CONTROLS
------------------------------------------------------------ Letter :3

We concur with KPMG's opinion that the ABMC management fairly stated
that internal controls in place as of September 30, 1997, provided
reasonable assurance that controls were effective in (1) assuring
material compliance with laws governing the use of budget authority
and with other relevant laws and regulations and (2) safeguarding
assets against loss from unauthorized acquisition, use, or
disposition.  In addition, we concur with KPMG's opinion that ABMC
management also fairly stated that internal controls in place as of
September 30, 1997, were not effective in ensuring that transactions
are properly recorded, processed, and summarized to permit the
preparation of reliable financial statements and to maintain
accountability of assets.  The ABMC made its assertion based upon
criteria established under the Federal Managers' Financial Integrity
Act of 1982 (FMFIA) and OMB Circular No.  A-123, Management
Accountability and Control. 

Based on the results of its audit work, KPMG identified four areas of
reportable conditions, the first three of which it considered to be
material weaknesses: 

  -- inadequate controls over information technology systems,

  -- improper recording of accounts payable and other accruals,

  -- inadequate preparation and approval of bank reconciliations of
     foreign bank accounts, and

  -- lack of documented policies and procedures for Fund Balance with
     Treasury. 

These areas are discussed in more detail in the enclosed KPMG report. 
Many of these weaknesses are systems related.  The ABMC stated in its
fiscal year 1997 FMFIA report that during fiscal year 1998 it plans
to select a commercial off-the-shelf system from approved vendors on
the GSA Financial Management Systems Software schedule.  The single,
integrated financial management system selected is to conform to all
current guidance and be Year 2000 compliant.\1 Therefore, KPMG's
suggested interim improvements or items for consideration in ABMC's
new system will be presented in a separate management letter to the
ABMC.  This letter will also present a number of less significant
items, along with suggestions for improvements.  KPMG discussed the
results of its work with ABMC management which provided comments on a
report draft and which agreed with the presentation in KPMG's report
contained in appendix I.  We concur with KPMG's conclusions and
suggestions in these areas. 

Also, KPMG 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.  KPMG limited its internal control testing to
those controls necessary to achieve the objectives outlined in its
opinion on management's assertion about the effectiveness of internal
controls.  Because of inherent limitations in any internal control
structure, losses, noncompliance, or misstatements may nevertheless
occur and not be detected.  KPMG also cautions that projecting its
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. 


--------------------
\1 The Year 2000 problem is rooted in the way dates are recorded and
calculated in many computer systems.  For the past several decades,
systems have typically used two digits to represent the year in order
to conserve on electronic data storage and reduce operating costs. 
With this two-digit format, however, the year 2000 is
indistinguishable from the year 1900.  As a result, system or
application programs that use dates to perform calculations,
comparisons, or sorting may generate incorrect results when working
with years after 1999. 


   COMPLIANCE WITH LAWS AND
   REGULATIONS
------------------------------------------------------------ Letter :4

KPMG also reported that the results of its test of the ABMC's
compliance with selected provisions of certain laws and regulations
disclosed no reportable instances of noncompliance which could have a
direct and material effect on the financial statement amounts. 
However, KPMG noted that the three material internal control
weaknesses identified above based upon its fiscal year 1997 financial
statement audit were not identified by ABMC management in the
Commission's fiscal year 1997 FMFIA report.  This conflict is
reportable under OMB Bulletin No.  93-06, as amended, Audit
Requirements for Federal Financial Statements. 

KPMG further stated that the objective of its audit of the ABMC's
balance sheet was not to provide an opinion on overall compliance
with selected provisions of certain laws and regulations. 
Accordingly, KPMG did not express such an opinion.  We concur with
KPMG's conclusions regarding the ABMC's compliance with laws and
regulations. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :5

ABMC management is responsible for

  -- preparing agencywide financial statements beginning for fiscal
     year 1997 in conformity with the basis of accounting described
     in note 1;

  -- establishing, maintaining, and assessing internal control to
     provide reasonable assurance that the broad control objectives
     of FMFIA are met; and

  -- complying with applicable laws and regulations. 

We are responsible for obtaining reasonable assurance about whether
(1) the ABMC's balance sheet as of September 30, 1997, is reliable
(free of material misstatement and presented fairly, in all material
respects, in conformity with the basis of accounting described in
note 1) and (2) management's assertion about the effectiveness of
internal controls is fairly stated, in all material respects, based
upon criteria established under FMFIA and OMB Circular No.  A-123,
Management Accountability and Control.  We are also responsible for
testing compliance with selected provisions of laws and regulations
and for performing limited procedures with respect to certain other
information appearing with the ABMC's agencywide financial
statements. 

To help fulfill these responsibilities, we contracted with the
independent CPA firm of KPMG Peat Marwick LLP to perform a financial
statement audit in accordance with generally accepted government
auditing standards, OMB's Bulletin No.  93-06, and GAO's Financial
Audit Manual.  We evaluated the nature, timing, and extent of the
work, monitored progress throughout the audit, reviewed the
workpapers of the CPA firm, met with partners and staff members,
evaluated the key judgments, met with officials of the ABMC,
performed independent tests of the accounting records, and performed
other procedures we deemed appropriate in the circumstances.  The
audit was conducted in accordance with generally accepted government
auditing standards. 

David L.  Clark
Director, Audit Oversight
  and Liaison

January 13, 1998


REPORT ON AUDIT OF THE AMERICAN
BATTLE MONUMENTS COMMISSION
=========================================================== Appendix I

   Independent Auditors' Report

   (See figure in printed
   edition.)



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   edition.)



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   edition.)



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   edition.)



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   edition.)



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   edition.)



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   edition.)



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   edition.)



   (See figure in printed
   edition.)

   American Battle Monuments
   Commission

   (See figure in printed
   edition.)

   Overview

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   edition.)



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   edition.)



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   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

   Balance Sheet

   (See figure in printed
   edition.)

   Statement of Net Cost and
   Changes in Net Position

   (See figure in printed
   edition.)

   Statement of Budgetary
   Resources

   (See figure in printed
   edition.)

   Statement of Financing

   (See figure in printed
   edition.)

   Notes to the Financial
   Statements

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



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   edition.)



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   edition.)



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   edition.)



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   edition.)



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   edition.)



   (See figure in printed
   edition.)

   Required Supplemental
   Stewardship Information

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


*** End of document. ***