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

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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

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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

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