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.)



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   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.)



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   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. ***