Financial Audit: American Battle Monuments Commission's Financial
Statements for Fiscal Years 2003 and 2002 (01-MAR-04,		 
GAO-04-404).							 
                                                                 
In accordance with 36 U.S.C. 2103, we are responsible for	 
conducting audits of the agencywide financial statements of the  
American Battle Monuments Commission. We audited the financial	 
statements of the Commission for the fiscal years ended September
30, 2003, and 2002. The audits were done to determine whether, in
all material respects, (1) the Commission's financial statements 
were reliable, (2) Commission management maintained effective	 
internal control over financial reporting and compliance with	 
laws and regulations, and (3) Commission management complied with
applicable laws and regulations. The American Battle Monuments	 
Commission was created in 1923 to commemorate the sacrifices and 
achievements of U.S. Armed Forces where they have served overseas
since April 6, 1917, and locations within the United States as	 
directed by Congress. The Commission designs, administers,	 
operates, and maintains 24 American military cemeteries on	 
foreign soil and 25 federal memorials, monuments, and markers, 22
of which are on foreign soil. The Commission is also responsible 
for designing and constructing the national World War II Memorial
on the Capitol Mall in Washington, D.C., and for maintaining 4	 
nonfederal memorials with funds provided by those memorials'	 
sponsors.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-404 					        
    ACCNO:   A09376						        
  TITLE:     Financial Audit: American Battle Monuments Commission's  
Financial Statements for Fiscal Years 2003 and 2002		 
     DATE:   03/01/2004 
  SUBJECT:   Financial management				 
	     Internal controls					 
	     Accounting standards				 
	     Auditing standards 				 
	     Reports management 				 
	     Financial records					 
	     Financial statement audits 			 

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GAO-04-404

United States General Accounting Office

GAO

                       Report to Congressional Committees

March 2004

FINANCIAL AUDIT

  American Battle Monuments Commission's Financial Statements for Fiscal Years
                                 2003 and 2002

                                       a

GAO-04-404

Highlights of GAO-04-404, a report to the Senate and House Committees on
Veterans' Affairs

In accordance with 36 U.S.C. 2103, we are responsible for conducting
audits of the agencywide financial statements of the American Battle
Monuments Commission. We audited the financial statements of the
Commission for the fiscal years ended September 30, 2003, and 2002. The
audits were done to determine whether, in all material respects, (1) the
Commission's financial statements were reliable, (2) Commission management
maintained effective internal control over financial reporting and
compliance with laws and regulations, and (3) Commission management
complied with applicable laws and regulations.

The American Battle Monuments Commission was created in 1923 to
commemorate the sacrifices and achievements of U.S. Armed Forces where
they have served overseas since April 6, 1917, and locations within the
United States as directed by Congress. The Commission designs,
administers, operates, and maintains 24 American military cemeteries on
foreign soil and 25 federal memorials, monuments, and markers, 22 of which
are on foreign soil. The Commission is also responsible for designing and
constructing the national World War II Memorial on the Capitol Mall in
Washington, D.C., and for maintaining 4 nonfederal memorials with funds
provided by those memorials' sponsors.

www.gao.gov/cgi-bin/getrpt?GAO-04-404.

The full report is available by clicking the link above, which includes
information on objectives, scope, and methodology. For additional
information, contact McCoy Williams at (202) 512-6906.

March 2004

FINANCIAL AUDIT

American Battle Monuments Commission's Financial Statements for Fiscal Years
2003 and 2002

In our opinion, the financial statements of the American Battle Monuments
Commission as of September 30, 2003, and 2002, and for the fiscal years
then ended, are presented fairly, in all material respects, in conformity
with U.S. generally accepted accounting principles. Also in our opinion,
the Commission maintained effective internal control over financial
reporting (including safeguarding of assets) and compliance with laws and
regulations as of September 30, 2003. In addition, we found no instances
of Commission noncompliance in fiscal year 2003 with selected provisions
of laws and regulations we tested.

However, our work identified inadequate controls over information
technology in two areas and nonrecognition of accrued liabilities as of
September 30, 2003, that we considered to be reportable conditions. The
Commission has booked audit adjustments to correct its accrued liabilities
at yearend and is working to improve internal controls in all these areas
during fiscal year 2004.

For fiscal year 2003, the Commission spent $37.7 million of appropriated
funds to maintain its 24 cemeteries and 25 federal memorials. It also
spent $41.9 million of private contributions and investment earnings,
primarily for construction-in-progress of the World War II Memorial that
is expected to be dedicated on Memorial Day weekend 2004. The Commission
also spent $.2 million of private contributions and investment earnings
for gravesite floral decorations and to maintain 4 nonfederal memorials.

October 2003 Construction of the WWII Memorial in Washington, D.C.

Source: Commission photo by Richard Latoff.

Contents

Letter 1

                               Auditor's Report 3

Opinion on Financial Statements 3

Opinion on Internal Control 3

Reportable Conditions 4

Compliance With Laws and Regulations 6

Consistency of Other Information 6

Objectives, Scope, and Methodology 6

Commission Comments and Our Evaluation 9

Appendix

Appendix I:

Annual Financial Report on the American Battle Monuments
Commission 10
Annual Financial Report 10
Management's Discussion and Analysis 11
Consolidating Balance Sheet 17
Consolidating Statement of Net Cost and Changes in

Net Position 18
Consolidating Statement of Budgetary Resources 19
Consolidating Statement of Financing 20
Notes to the Consolidating and Consolidated Financial

Statements 21
Required Supplementary Stewardship Information 29
Statements of Heritage Assets 30
Note to Statements of Heritage Assets 33

Abbreviations

FMFIA Federal Managers' Financial Integrity Act of 1982
OMB Office of Management and Budget

This is a work of the U.S. government and is not subject to copyright
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              Page i GAO-04-404 ABMC 2003 and 2002 Financial Audit

A

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

March 1, 2004

The Honorable Arlen Specter
Chairman
The Honorable Bob Graham
Ranking Minority 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

As required by 36 U.S.C. 2103, this report presents the results of our
audits
of the American Battle Monuments Commission's (the Commission)
financial statements for the fiscal years ended September 30, 2003, and
2002.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Appropriations and the House
Committee on Appropriations. We are also sending copies to the Secretary
of the Treasury, the Director of the Office of Management and Budget, the
Chairman of the Commission, and other interested parties. In addition,
this
report will be available at no charge on the GAO web site at
http://www.gao.gov.

Should you or your staffs have any questions concerning this report,
please
contact me on (202) 512-6906 or Roger R. Stoltz, Assistant Director, at
(202)
512-9408. Key contributors to this assignment were Patricia A. Summers,
Eugene E. Stevens IV, Deborah A. Silk, Felicia C. Brooks, and Lindsay L.
Saylor.

McCoy Williams
Director
Financial Management and Assurance

Page 1 GAO-04-404 ABMC 2003 and 2002 Financial Audit Page 2 GAO-04-404 ABMC 2003
                            and 2002 Financial Audit

A

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

To the Chairman of the American Battle Monuments Commission

In accordance with 36 U.S.C. 2103, we are responsible for conducting
audits of the agencywide financial statements of the American Battle
Monuments Commission (the Commission). In our audits of the Commission for
fiscal years 2003 and 2002, we found

o 	the consolidating financial statements as of and for the fiscal year
ended September 30, 2003, and comparative consolidated totals as of and
for the fiscal year ended September 30, 2002, are presented fairly in
conformity with U.S. generally accepted accounting principles;

o 	although internal controls should be improved, the Commission had
effective internal control over financial reporting (including
safeguarding assets) and compliance with laws and regulations as of
September 30, 2003; and

o  no reportable noncompliance with 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 American Battle Monuments Commission's
consolidating balance Statements sheet as of September 30, 2003, and its
related consolidating statements of

Opinion on InternalControl

net cost and changes in net position; budgetary resources; and financing,
with accompanying notes for the fiscal year then ended, and comparative
consolidated totals as of and for the fiscal year ended September 30,
2002, are presented fairly, in all material respects, in conformity with
U.S. generally accepted accounting principles.

The Commission maintained, in all material respects, effective internal
control over financial reporting (including safeguarding assets) and
compliance as of September 30, 2003, 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. Our opinion is based upon
criteria established under 31 U.S.C. 3512 (c), (d) [Federal Managers'
Financial

              Page 3 GAO-04-404 ABMC 2003 and 2002 Financial Audit

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 reportable conditions. Such
conditions are a deficiency in the design or operation of internal control
that, in our judgment, could adversely affect the Commission's ability to
meet internal control objectives or meet OMB criteria for reporting
matters under FMFIA. We did not consider these deficiencies to be a
material weakness, which 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. In addition, misstatements may occur in other Commission
financial information not included in this report as a result of these
reportable conditions.

Reportable Conditions	During our audit we noted inadequate controls over
information technology systems and nonrecognition of accrued liabilities
as of September 30, 2003. Commission management reported the information
technology deficiencies in its fiscal year 2003 FMFIA report and is
working to implement corrections for all internal control deficiencies.

Inadequate Controls OverInformation TechnologySystems

Inadequate controls over information technology systems were identified in
the two following areas.

o 	User Documentation: While the Commission's new accounting system has
adequate user documentation, there continued to be a lack of user
documentation to support its old legacy systems that were still used
during fiscal year 2003, primarily for payroll. This included the Clipper
system used by the European Regional Office, the dBase IV system used by
the Mediterranean Regional Office, and the Foxpro accounting system used
by the Headquarters Office. Commission personnel have learned how to use
these legacy systems over the years primarily through on-the-job training
and have limited support to explain how systems functions should be
performed and to answer questions. However, the age of these systems and
their pending replacement did not justify the cost of developing user
documentation during fiscal year

              Page 4 GAO-04-404 ABMC 2003 and 2002 Financial Audit

2003. Effective January 1, 2004, payroll processing for all of the
Commission's General Schedule (GS) employees was being done by Treasury
Financial Management Services and payroll processing for all of the
Commission's Foreign Service National (FSN) employees was in negotiation
for conversion later in fiscal year 2004.

o 	Security Program and Access Controls: While Commission Headquarters
completed documentation of an agencywide security planning and management
program for security and privacy of information during fiscal year 2003,
some security controls over its computer system, such as administrative
controls over network configuration, passwords, and access to files, were
not effective at all Commission locations as of September 30, 2003. In a
separate Limited Official Use report issued after our fiscal year 2002
audit, we communicated detailed information and made 49 specific
recommendations to strengthen Commission internal controls, including
information technology, accounting procedures, financial reporting, and
cash management. While the Commission has corrected many of these
deficiencies and has implemented a number of our recommendations during
fiscal year 2003, it continues working towards correcting the remaining
weaknesses during fiscal year 2004.

In a previous report,1 we indicated that business continuity plans of
Commission Headquarters and its European and Mediterranean Regional
Offices did not contain sufficient detail to ensure successful manual
operations and timely recovery of automated processing in the event of a
business interruption. During fiscal year 2003, the Commission revised its
business continuity plans to ensure the operational stability of its
computerized functions.

Nonrecognition of Accrued As of September 30, 2003, the Commission's
European region had not

Liabilities	recognized $1.1 million of accrued liabilities for accounts
payable and accrued salaries and benefits that also understated General
Fund fiscal year 2003 expenses by the same amount. We believe that this
condition was caused by early year-end closing of the accounting records
and a misunderstanding by accounting and engineering staff regarding
proper

1 U.S. General Accounting Office, Financial Audit: American Battle
Monuments Commission's Financial Statements for Fiscal Years 2002 and
2001, GAO-03-444 (Washington, D.C.: Feb. 28, 2003).

Page 5 GAO-04-404 ABMC 2003 and 2002 Financial Audit

Compliance With Laws and Regulations

Consistency of OtherInformation

Objectives, Scope, andMethodology

year-end cutoff required by accrual accounting. Proper cutoff is necessary
to identify goods and services that had been received in fiscal year 2003,
particularly for costly engineering projects, but invoiced and paid in
fiscal year 2004. The Commission has recognized this $1.1 million of
accrued liabilities through subsequent audit adjustments in order to
fairly present its financial statements for fiscal year 2003 in accordance
with generally accepted accounting principles.

Our tests for Commission compliance with selected provisions of laws and
regulations for fiscal year 2003 disclosed no instances of noncompliance
reportable under U.S. generally accepted government auditing standards or
OMB audit guidance. 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.

The Commission's Management Discussion and Analysis and stewardship
statements of 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 officials of the Commission. Based upon
this limited work, we found no material inconsistencies with the
consolidating financial statements or nonconformance with OMB guidance.

Commission management is responsible for (1) preparing the consolidating
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)
the Commission's consolidating financial statements are presented fairly,
in all material respects, in conformity with U.S. generally accepted
accounting principles and (2) Commission management maintained effective
internal control that provides reasonable, but not absolute, assurance
that the following objectives were met.

              Page 6 GAO-04-404 ABMC 2003 and 2002 Financial Audit

o 	Financial reporting: Transactions are properly recorded, processed, and
summarized to permit the preparation of consolidating financial statements
and stewardship information in conformity with U.S. generally accepted
accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use, or disposition.

o 	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 (1) testing compliance with selected
provisions of laws and regulations that have a direct and material effect
on the consolidating financial statements and for which OMB guidance
requires testing and (2) performing limited procedures with respect to
certain other information appearing in the Commission's annual financial
report. In order to fulfill these responsibilities, we

o 	examined, on a test basis, evidence supporting the amounts and
disclosures in the consolidating financial statements;

o 	assessed the accounting principles used and significant estimates made
by Commission management;

o 	evaluated the overall presentation of the consolidating financial
statements;

o 	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);

o 	obtained an understanding of the recording, processing, and summarizing
of performance measures as reported in Management's Discussion and
Analysis;

o 	tested relevant internal controls over financial reporting and
compliance, and evaluated the design and operating effectiveness of
internal control;

              Page 7 GAO-04-404 ABMC 2003 and 2002 Financial Audit

o 	considered the process for evaluating and reporting on internal control
and financial management systems under FMFIA; and

o 	tested compliance with selected provisions of the following laws and
regulations:

o 	The Commission's enabling legislation codified in 36 U.S.C. Chapter 21,

o  Public laws applicable to the World War II Memorial Fund,

o 	Departments of VA and HUD, and Independent Agencies Appropriations Act
2003,

o  Antideficiency Act,

o  Pay and Allowance System for Civilian Employees, and

o  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 the
Commission. We limited our tests of compliance to those required by OMB
audit guidance that we deemed applicable to the Commission's consolidating
financial statements for the fiscal year ended September 30, 2003. 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 audit guidance.

              Page 8 GAO-04-404 ABMC 2003 and 2002 Financial Audit

Commission

Commission management was provided with a draft of this report and
Comments and Our concurred with its facts and conclusions.

Evaluation

McCoy Williams
Director
Financial Management and Assurance

January 30, 2004

              Page 9 GAO-04-404 ABMC 2003 and 2002 Financial Audit

Appendix I

Annual Financial Report on the AmericanBattle Monuments Commission

                            Annual Financial Report

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                      Management's Discussion and Analysis

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                          Consolidating Balance Sheet

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

        Consolidating Statement of Net Cost and Changes in Net Position

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                 Consolidating Statement of Budgetary Resources

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                      Consolidating Statement of Financing

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

        Notes to the Consolidating and Consolidated Financial Statements

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                 Required Supplementary Stewardship Information

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                         Statements of Heritage Assets

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

Appendix I
Annual Financial Report on the American
Battle Monuments Commission

                     Note to Statements of Heritage Assets

         (195018) Page 33 GAO-04-404 ABMC 2003 and 2002 Financial Audit

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