    Financial Audit: American Battle Monuments Commission's Financial
    Statements for Fiscal Years 2000 and 1999 (Letter Report, 03/01/2001,
    GAO/GAO-01-375).

    GAO reviewed the financial statement audit reports for the American
    Battle Monuments Commission (ABMC) for fiscal years 2000 and 1999. GAO
    found that (1) the consolidating financial statements as of and for the
    fiscal year ended September 30, 2000, and comparative consolidated
    totals as of and for the fiscal year ended September 30, 1999, are
    presented fairly in conformity with U.S. generally accepted accounting
    principles, (2) although internal controls should be improved, ABMC had
    effective internal control over financial reporting and compliance with
    laws and regulations as of September 30, 2000, and (3) there are no
    reportable instances of noncompliance with selected provisions of laws
    and regulations GAO tested. However, during the audit, GAO noticed three
    deficiencies in internal controls over information technology systems.

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

     REPORTNUM:  GAO-01-375
         TITLE:  Financial Audit: American Battle Monuments Commission's
    	     Financial Statements for Fiscal Years 2000 and 1999
          DATE:  03/01/2001
       SUBJECT:  Accounting standards
    	     Internal controls
    	     Auditing standards
    	     Financial management
    	     Financial records
    	     Financial statement audits
    	     Reporting requirements
    IDENTIFIER:  World War II Veterans Memorial Fund

    ******************************************************************
    ** This file contains an ASCII representation of the text of a  **
    ** GAO Testimony.                                               **
    **                                                              **
    ** No attempt has been made to display graphic images, although **
    ** figure captions are reproduced.  Tables are included, but    **
    ** may not resemble those in the printed version.               **
    **                                                              **
    ** Please see the PDF (Portable Document Format) file, when     **
    ** available, for a complete electronic file of the printed     **
    ** document's contents.                                         **
    **                                                              **
    ******************************************************************
    GAO-01-375

    Report to Congressional Committees

    March 2001 FINANCIAL AUDIT American Battle Monuments Commission's Financial
    Statements

    for Fiscal Years 2000 and 1999

    GAO- 01- 375

    Lett er

    March 1, 2001 The Honorable Arlen Specter Chairman The Honorable John D.
    Rockefeller, IV Ranking 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

    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, 2000, and 1999. We prepared this report in accordance
    with 36 U. S. C. 2103.

    We are sending copies of this report to Senator Ted Stevens, Chairman, and
    Senator Robert C. Byrd, Ranking Member, Senate Committee on Appropriations
    and Representative C. W. Bill Young, Chairman, and Representative David R.
    Obey, Ranking Minority Member, House Committee on Appropriations. We are
    also sending copies to the Honorable Paul H. O'Neill, Secretary of the

    Treasury, the Honorable Mitchell E. Daniels, Jr., Director of the Office of
    Management and Budget, General Frederick F. Woerner, Chairman of ABMC, and
    other interested parties.

    Should you or your staffs have any questions concerning this report, please
    contact me on (202) 512- 2600; Jeanette M. Franzel, Acting Director, at
    (202) 512- 9406, or Roger R. Stoltz, Assistant Director, at (202) 512- 9408.

    Jeffrey C. Steinhoff Managing Director Financial Management and Assurance

    Opi ni on Let ter

    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). In
    our audits of ABMC for fiscal years 2000 and 1999, we found

    ? the consolidating financial statements as of and for the fiscal year ended
    September 30, 2000, and comparative consolidated totals as of and for the
    fiscal year ended September 30, 1999, are presented fairly in conformity
    with U. S. generally accepted accounting principles,

    ? although internal controls should be improved, ABMC had effective internal
    control over financial reporting (including safeguarding assets) and
    compliance with laws and regulations as of September 30, 2000, and ? no
    reportable instances of noncompliance with selected provisions of 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 The ABMC consolidating balance sheet as of September
    30, 2000, and its

    Statements related consolidating statements of net cost and changes in net
    position;

    budgetary resources; and financing, including accompanying notes for the
    fiscal year then ended, and comparative consolidated totals as of and for
    the fiscal year ended September 30, 1999, are presented fairly, in all
    material respects, in conformity with U. S. generally accepted accounting

    principles. Opinion on Internal

    ABMC maintained, in all material respects, effective internal control over
    Control financial reporting (including safeguarding assets) and compliance
    as of September 30, 2000, 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. In its letter in appendix I, ABMC
    management asserted that its internal control is effective based upon
    criteria established under 31 U. S. C. 3512 [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 a reportable condition. Such a

    condition is a deficiency in the design or operation of internal controls
    that, in our judgment, could adversely affect ABMC ability to meet internal
    control objectives. We did not consider these deficiencies to be a material
    weakness. Such a weakness 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. However, misstatements may

    nevertheless occur in other ABMC financial information not included in this
    report as a result of this reportable condition. Reportable Condition During
    our audit we noted three deficiencies in internal controls over

    information technology systems as of September 30, 2000, which are discussed
    below. ABMC plans to correct these deficiencies through the acquisition and
    implementation of a new accounting system and through efforts to be taken in
    tandem with the new system. In April 2000, ABMC engaged a contractor to
    assist in the selection of an automated, integrated accounting system that
    conforms or can be adopted to regulatory and user requirements. In August
    2000, ABMC issued a request for proposal to obtain software and hosting
    services to replace its legacy accounting systems worldwide. A vendor was
    selected in December 2000, and

    implementation of the new system is expected by October 2001. Inadequate
    Controls Over Information Technology Systems consisted of the three
    following areas. ? User Documentation: There was no user documentation to
    support the Clipper accounting system used by the European Regional Office

    and the dBase IV accounting system used by the Mediterranean Regional
    Office. Also, there was no user documentation on the payroll function of the
    Foxpro accounting system used by the headquarters

    office that involved 11 civilian employees. Users learned how to use the

    systems mainly through on- the- job training and had limited support to
    explain how functions should be performed and questions answered. However,
    the age of these systems and their pending replacement do not justify the
    cost of developing user documentation. ? Security Program: The headquarters
    office of ABMC has not documented an overall security planning and
    management program for

    security and privacy of information as of September 30, 2000. OMB Circular
    A- 130, Management of Federal Information Resources provides guidance on
    documenting such a program including control objectives, areas of
    responsibility, system rules, training, personnel controls, system
    interconnections, review of controls, and process authorization. This
    program would encompass the existing automated proprietary security program.
    ? Business Continuity Plans: The European regional office business

    continuity plans did not contain sufficient detail to ensure successful
    manual operations and timely recovery of automated processing in the event
    of a business interruption. As of September 30, 2000, the Pacific regional
    office was in the process of finalizing its business continuity plans.
    Sufficient details for all plans would include identification of business
    operations and applications, personnel contacts, hardware and

    software needs, space requirements, and alternative sites. Compliance With
    Laws

    Our tests for compliance with selected provisions of laws and regulations
    and Regulations

    for fiscal year 2000 disclosed no instances of noncompliance reportable
    under U. S. generally accepted government auditing standards or OMB Bulletin
    01- 02, Audit Requirements for Federal Financial Statements. 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 Management's Discussion and Analysis and a stewardship
    statement of Information

    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 ABMC officials.
    Based upon this limited work, we found no material inconsistencies with the
    consolidating financial statements or nonconformance with OMB guidance.

    Objectives, Scope, and ABMC management is responsible for (1) preparing the
    consolidating

    Methodology 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) ABMC
    consolidating financial statements are presented fairly, in all material
    respects, in conformity with U. S. generally accepted accounting principles,
    and (2) ABMC 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 financial statements and stewardship
    information in accordance 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 testing compliance with selected provisions of
    laws and regulations that have a direct and material effect on the
    consolidating financial statements and with laws for which OMB Bulletin 01-
    02, Audit Requirements for Federal Financial Statements, requires testing.
    We are also responsible for performing limited procedures with

    respect to certain other information appearing in the ABMC 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 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
    (including safeguarding assets) 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: ? ABMC 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 2000,

    ? Anti- Deficiency 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 ABMC. We limited our tests of compliance to those required by
    OMB Bulletin 01- 02, Audit Requirements for Federal Financial Statements and
    which we deemed applicable to ABMC consolidating financial statements for
    the fiscal year ended September 30, 2000. 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 Bulletin 01- 02, Audit Requirements for Federal
    Financial Statements.

    Agency Comments and We discussed the results of our audit with ABMC
    management which

    Our Evaluation provided comments on a draft of this report and agreed with
    its contents.

    Jeffrey C. Steinhoff Managing Director Financial Management and Assurance

    January 26, 2001

    Appendi xes Report on Audit of the American Battle

    Appendi x I

    Monuments Commission ABMC Assertion Letter on Internal Controls

    ABMC 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 Financial Statements

    Required Supplementary Stewardship Information

    Statement of Heritage Assets

    Note to Statement of Heritage Assets

    Ordering Information The first copy of each GAO report is free. Additional
    copies of reports are $2 each. A check or money order should be made out to
    the Superintendent of Documents. VISA and MasterCard credit cards are
    accepted, also.

    Orders for 100 or more copies to be mailed to a single address are
    discounted 25 percent.

    Orders by mail: U. S. General Accounting Office P. O. Box 37050 Washington,
    DC 20013

    Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW)
    U. S. General Accounting Office Washington, DC

    Orders by phone: (202) 512- 6000 fax: (202) 512- 6061 TDD (202) 512- 2537

    Each day, GAO issues a list of newly available reports and testimony. To
    receive facsimile copies of the daily list or any list from the past 30
    days, please call (202) 512- 6000 using a touchtone phone. A recorded menu
    will provide information on how to obtain these lists.

    Orders by Internet: For information on how to access GAO reports on the
    Internet, send an e- mail message with “info” in the body to:

    info@ www. gao. gov or visit GAO's World Wide Web home page at: http:// www.
    gao. gov

    To Report Fraud,

    Contact one:

    Waste, or Abuse in

    ? Web site: http:// www. gao. gov/ fraudnet/ fraudnet. htm

    Federal Programs

    ? e- mail: fraudnet@ gao. gov ? 1- 800- 424- 5454 (automated answering
    system)

    GAO United States General Accounting Office

    Page 1 GA- 01- 375 ABMC 2000 and 1999 Financial Audit

    Contents Letter 3 Opinion Letter 5 Appendixes Appendix I: Report on Audit of
    the American Battle Monuments

    Commission 12 ABMC Assertion Letter on Internal Controls 12 ABMC Annual
    Financial Report 14 Management's Discussion and Analysis 15 Consolidating
    Balance Sheet 23 Consolidating Statement of Net Cost and Changes in Net
    Position 24 Consolidating Statement of Budgetary Resources 25 Consolidating
    Statement of Financing 26 Notes to the Consolidating Financial Statements 27
    Required Supplementary Stewardship Information 37 Statement of Heritage
    Assets 38 Note to Statement of Heritage Assets 40

    Abbreviations

    ABMC American Battle Monuments Commission CFA Commission of Fine Arts CSRS
    Civil Service Retirement System DOD Department of Defense EFT electronic
    funds transfer FERS Federal Employees' Retirement System FMFIA Federal
    Managers' Financial Integrity Act of 1982 FY fiscal year IT information
    technology MRS Military Retirement System NCPC National Capital Planning
    Commission OMB Office of Management and Budget OPM Office of Personnel
    Management ORB other retirement benefits PwC PricewaterhouseCoopers RFP
    request for proposal TSP Thrift Savings Plan

    Page 2 GA- 01- 375 ABMC 2000 and 1999 Financial Audit

    United States General Accounting Office Washington, D. C. 20548

    Page 3 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 4 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 5 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit United States General
    Accounting Office

    Washington, D. C. 20548 Page 5 GAO- 01- 375 ABMC 2000 and 1999 Financial
    Audit

    Page 6 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 7 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 8 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 9 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 10 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 11 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Page 12 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 13 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 14 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 15 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 16 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 17 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 18 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 19 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 20 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 21 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 22 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 23 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 24 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 25 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 26 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 27 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 28 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 29 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 30 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 31 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 32 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 33 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 34 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 35 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 36 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 37 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 38 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 39 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    Appendix I Report on Audit of the American Battle Monuments Commission

    Page 40 GAO- 01- 375 ABMC 2000 and 1999 Financial Audit

    United States General Accounting Office Washington, D. C. 20548- 0001

    Official Business Penalty for Private Use $300

    Address Correction Requested Presorted Standard

    Postage & Fees Paid GAO Permit No. GI00
    *** End of document. ***