    Financial Audit: American Battle Monuments Commission's Financial
    Statements for Fiscal Years 1998 and 1997 (Letter Report, 03/01/99,
    GAO/AIMD-99-74).

    Pursuant to a legislative requirement, GAO audited the financial
    statements of the American Battle Monuments Commission (ABMC) for fiscal
    years (FY) ended September 30, 1998, and 1997.  To help fulfill these
    responsibilities, GAO contracted with KPMG LLP, and independent
    certified public accounting firm.

    GAO noted that: (1) ABMC's consolidating financial statements as of and
    for fiscal year ended September 30, 1998, and its consolidated balance
    sheet as of September 30, 1997, were reliable in all material respects;
    (2) because FY 1997 was a first year audit, it was not feasible to
    extend the necessary auditing procedures to determine if ABMC's
    remaining consolidated financial statements for the fiscal year ended
    September 30, 1997, were reliable in all material respects; (3) ABMC
    management fairly stated that internal controls as of September 30,
    1998, were effective in: (a) safeguarding assets against loss; (b)
    assuring material compliance with relevant laws and regulations; and (c)
    preparing performance information; (4) however, ABMC management also
    fairly stated that internal controls as of September 30, 1998, were not
    effective in ensuring that transactions were properly recorded,
    processed, and summarized to permit the preparation of reliable
    financial statements and required supplementary stewardship information;
    (5) in this regard, KPMG noted two areas of reportable conditions, which
    it also considered to be material weaknesses; and (6) no reportable
    instances of noncompliance with laws and regulations tested which could
    have a direct and material effect on ABMC's consolidating financial
    statements were found.

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

     REPORTNUM:  AIMD-99-74
         TITLE:  Financial Audit: American Battle Monuments Commission's
                 Financial Statements for Fiscal Years 1998 and 1997
          DATE:  03/01/99
       SUBJECT:  Internal controls
                 Accounting procedures
                 Financial statement audits
                 Financial management systems
                 Auditing procedures

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    Cover
    ================================================================ COVER

    Report to Congressional Committees

    March 1999

    FINANCIAL AUDIT - AMERICAN BATTLE
    MONUMENTS COMMISSION'S FINANCIAL
    STATEMENTS FOR FISCAL YEARS 1998
    AND 1997

    GAO/AIMD-99-74

    ABMC 1998 and 1997 Financial Audit

    (911902)

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

      ABMC - American Battle Monuments Commission
      CPA - certified public accounting
      FMFIA - Federal Managers' Financial Integrity Act of 1982
      OMB - Office of Management and Budget
      RSSI - Required Supplementary Stewardship Information

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

    B-282049

    March 1, 1999

    The Honorable Arlen Specter
    Chairman
    The Honorable John D.  Rockefeller, IV
    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 fiscal
    years ended September 30, 1998, and 1997.  We prepared this report in
    response to 36 U.S.C.  2103.

    One of the ABMC's responsibilities is to design and construct a World
    War II memorial to honor members of the U.S.  Armed Forces who served
    in that war and to commemorate U.S.  participation in that conflict.
    The ABMC's financial statements include a trust fund established to
    pay for the memorial.  The trust fund includes donations from the
    federal government as well as veterans groups and others.  This
    report is intended for use by those donors as well as other
    interested parties.

    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-282049

    General Frederick F.  Woerner, Chairman
    American Battle Monuments Commission

    In accordance with 36 U.S.C.  2103, as codified by Public Law
    105-225, August 12, 1998, we are responsible for conducting audits of
    the agencywide financial statements of the American Battle Monuments
    Commission (ABMC).  To help fulfill these responsibilities, we
    contracted with the independent certified public accounting (CPA)
    firm of KPMG LLP.  KPMG's report dated January 29, 1999, is presented
    in appendix I.

    We concur with KPMG's report on the following:

      -- The ABMC's consolidating financial statements as of and for the
         fiscal year ended September 30, 1998, and its consolidated
         balance sheet as of September 30, 1997, were reliable in all
         material respects.

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

      -- ABMC management fairly stated that internal controls as of
         September 30, 1998, were effective in (1) safeguarding assets
         against loss, (2) assuring material compliance with relevant
         laws and regulations, and (3) preparing performance information.
         However, ABMC management also fairly stated that internal
         controls as of September 30, 1998, were not effective in
         ensuring that transactions were properly recorded, processed,
         and summarized to permit the preparation of reliable financial
         statements and required supplementary stewardship information
         (RSSI).  In this regard, KPMG noted two areas of reportable
         conditions, which it also considered to be material weaknesses.

      -- No reportable instances of noncompliance with laws and
         regulations tested which could have a direct and material effect
         on the ABMC's consolidating financial statements were found.

       OPINION ON FINANCIAL STATEMENTS
    ------------------------------------------------------------ Letter :1

    We concur with KPMG's opinion that the ABMC's fiscal year 1998
    consolidating financial statements and its fiscal year 1997
    consolidated balance sheet are presented fairly, in all material
    respects, in conformity with a comprehensive basis of accounting
    other than generally accepted accounting principles as specified in
    Office of Management and Budget (OMB) Bulletin No.  97-01, Form and
    Content of Agency Financial Statements, as amended.

    Because fiscal year 1997 was the first year that the ABMC was
    required to prepare agencywide financial statements and have them
    audited, the scope of KPMG's work was not sufficient to express an
    opinion on the consolidated statements of net cost and changes in net
    position; budgetary resources; and financing because it was not
    feasible to extend audit procedures to audit opening balances as of
    October 1, 1996.

    The fiscal year 1998 overview and the required supplementary
    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 :2

    We concur with KPMG's opinion that the ABMC management fairly stated
    that internal controls in place as of September 30, 1998, provided
    reasonable assurance that controls were effective in (1) safeguarding
    assets against loss from unauthorized acquisition, use, or
    disposition, (2) assuring material compliance with laws governing the
    use of budget authority and other relevant laws and regulations, and
    (3) ensuring that transactions and other data supporting performance
    information were properly recorded, processed, and summarized.

    In addition, we concur with KPMG's opinion that ABMC management also
    fairly stated that internal controls in place as of September 30,
    1998, did not provide reasonable assurance that transactions were
    properly recorded, processed, and summarized to permit the
    preparation of reliable financial statements and RSSI, in accordance
    with OMB Bulletin No.  97-01, Form and Content of Agency Financial
    Statements, as amended.  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.

    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 internal control, fraud may occur and not be
    detected.  KPMG also cautions that projecting its evaluation of
    internal controls over financial reporting to future periods is
    subject to the risk that internal control procedures may become
    inadequate because of changes in conditions, or that the
    effectiveness of the design and operations of the policies and
    procedures may deteriorate.

       REPORTABLE CONDITIONS
    ------------------------------------------------------------ Letter :3

    The fiscal year 1997 audit identified four reportable conditions, two
    of which were corrected and two of which remain uncorrected as of the
    end of fiscal year 1998.  The four conditions are summarized below
    and the two uncorrected conditions are discussed in more detail in
    the enclosed KPMG report.  The fiscal year 1998 audit noted no new
    reportable conditions.  A number of less significant items, along
    with suggestions for improvements, will be presented in a separate
    management letter to the ABMC.

      -- Inadequate Preparation and Approval of Bank Reconciliations of
         Foreign Bank Accounts was corrected during fiscal year 1998 by
         the timely preparation and approval of monthly bank
         reconciliations to general ledger balances.

      -- Lack of Documented Policies and Procedures for Fund Balances
         with Treasury was corrected during fiscal year 1998 by obtaining
         and implementing the most recent guidance from Treasury and the
         timely reconciliation of differences between Treasury and ABMC
         balances.

      -- Inadequate Controls Over Information Technology Systems was a
         material weakness at the end of both fiscal years 1997 and 1998.
         The fiscal year 1997 audit identified 11 problems in this area.
         During fiscal year 1998, the ABMC corrected five of the
         problems, such as strengthening controls over invalid attempts
         to sign on to systems, but did not completely correct the
         remaining six problems, such as the need to periodically change
         systems passwords in one office.

    The ABMC is in the process of upgrading its systems in an effort to
    correct inadequate controls over information technology systems.
    During fiscal year 1998, with assistance from Treasury's Financial
    Management Services Center, the ABMC developed a design and
    implementation plan for an integrated, off-the-shelf accounting
    system.  The new system is intended to conform with all current
    guidance and be Year 2000 compliant.\1 The ABMC's fiscal year 1998
    and 1999 budgets included total funding of $700,000 that is to be
    used to install the new accounting system during 1999.

      -- Inaccurate Recording of Accounts Payable and Other Accruals was
         a material weakness at the end of both fiscal years 1997 and
         1998.  The fiscal year 1997 audit identified five problems in
         this area.  During fiscal year 1998, the ABMC corrected four of
         the problems, such as developing written policies for accruals,
         but did not correct the remaining problem regarding ineffective
         recognition of accounts payable and accruals.  This remaining
         problem required material audit adjustments to correct ABMC's
         fiscal year 1998 financial statements.

    --------------------
    \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 tests of the ABMC's
    compliance with certain provisions of laws and regulations disclosed
    no instances of noncompliance that could have a direct and material
    effect on the financial statement amounts.

    KPMG further stated that the objective of its audits was not to
    provide an opinion on compliance with certain provisions of laws and
    regulations, and, 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;

      -- maintaining adequate internal controls designed to fulfill
         control objectives; and

      -- complying with applicable laws and regulations.

    We are responsible for obtaining reasonable assurance about whether
    (1) the ABMC's financial statements are 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 financial statements.

    To help fulfill these responsibilities, we contracted with the
    independent CPA firm of KPMG LLP to perform audits of the ABMC's
    financial statements in accordance with generally accepted government
    auditing standards and GAO's Financial Audit Manual.  We evaluated
    the nature, timing, and extent of the work, monitored progress
    throughout the audits, reviewed the workpapers of the firm, met with
    partners and staff members, evaluated 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 audits were conducted in accordance with
    generally accepted government auditing standards.

       AGENCY COMMENTS AND OUR
       EVALUATION
    ------------------------------------------------------------ Letter :6

    KPMG discussed the results of its work with ABMC management who
    provided comments on a report draft and who agreed with the
    presentation in KPMG's report contained in appendix I.

    David L.  Clark
    Director, Audit Oversight
     and Liaison

    January 29, 1999

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

       Independent Auditors' Report

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       ABMC Assertion Letter on
       Internal Controls

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       ABMC Annual Financial Report

       (See figure in printed
       edition.)

       Overview

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       Consolidating Balance Sheet

       (See figure in printed
       edition.)

       Consolidating Statement of Net
       Cost and Changes in Net
       Position

       (See figure in printed
       edition.)

       Consolidating Statement of
       Budgetary Resources

       (See figure in printed
       edition.)

       Consolidating Statement of
       Financing

       (See figure in printed
       edition.)

       Notes to the Consolidating
       Financial Statements

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       Required Supplementary
       Stewardship Information

       (See figure in printed
       edition.)

       Statement of Heritage Assets

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

    *** End of document. ***