Financial Audit: American Battle Monuments Commission's Financial
Statements for Fiscal Years 2006 and 2005 (01-MAR-07,		 
GAO-07-321).							 
                                                                 
In accordance with 36 U.S.C. 2103, GAO is responsible for	 
conducting audits of the agencywide financial statements of the  
American Battle Monuments Commission (the Commission). GAO	 
audited the financial statements of the Commission for the fiscal
years ended September 30, 2006, and 2005. The audits were done to
determine whether, in all material respects, (1) the Commission's
financial statements were presented fairly, and (2) Commission	 
management maintained effective internal control over financial  
reporting and compliance with laws and regulations. Also, GAO	 
tested Commission management's compliance with selected laws and 
regulations. The 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 was also responsible for designing and constructing	 
the national World War II Memorial on the Capitol Mall in	 
Washington, D.C., and for maintaining six nonfederal memorials	 
with funds provided by those memorials' sponsors.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-321 					        
    ACCNO:   A66366						        
  TITLE:     Financial Audit: American Battle Monuments Commission's  
Financial Statements for Fiscal Years 2006 and 2005		 
     DATE:   03/01/2007 
  SUBJECT:   Accounting standards				 
	     Auditing standards 				 
	     Financial management				 
	     Financial records					 
	     Financial statement audits 			 
	     Internal controls					 
	     Reporting requirements				 

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GAO-07-321

   

     * [1]Report to Congressional Committees

          * [2]March 2007

     * [3]FINANCIAL AUDIT

          * [4]American Battle Monuments Commission's Financial Statements
            for Fiscal Years 2006 and 2005

     * [5]Contents

          * [6]Opinion on Financial Statements
          * [7]Opinion on Internal Control
          * [8]Reportable Condition

               * [9]Deficient Controls over Information Technology Systems
               * [10]Corrected Condition on Property and Payables Recognition

          * [11]Compliance With Laws and Regulations
          * [12]Consistency of Other Information
          * [13]Objectives, Scope, and Methodology
          * [14]Commission Comments

     * [15]Management's Discussion and Analysis
     * [16]Financial Statements
     * [17]Other Information

                 United States Government Accountability Office

GAO

                                   March 2007

FINANCIAL AUDIT

  American Battle Monuments Commission's Financial Statements for Fiscal Years
                                 2006 and 2005

                                       a

[18]GAO-07-321

FINANCIAL AUDIT

American Battle Monuments Commission's Financial Statements for Fiscal
Years 2006 and 2005

  What GAO Found

In GAO's opinion, the financial statements of the American Battle
Monuments Commission as of September 30, 2006, and 2005, 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
GAO's opinion, although certain internal controls should be improved, the
Commission maintained effective internal control over financial reporting
(including safeguarding of assets) and compliance with laws and
regulations as of September 30, 2006. In addition, GAO found no instances
of Commission noncompliance in fiscal year 2006 with selected provisions
of laws and regulations GAO tested.

The internal controls that should be improved as of September 30, 2006,
which GAO considered to be a reportable condition, relate to two areas of
information technology. Specifically, user documentation is lacking for
the Commission's Foreign Service National employee payroll, and security
program and access controls over the computer system were not effective at
all Commission locations. The Commission is working to improve its
internal controls over information technology. During fiscal year 2006,
the Commission strengthened its accounting for property and accounts
payable such that GAO no longer considers it to be a reportable condition
as of September 30, 2006.

For fiscal year 2006, the Commission incurred program costs of $53.8
million to maintain its 24 cemeteries and 25 federal memorials that were
financed from appropriated funds. Another $2.9 million of program costs
were financed by other trust funds for final construction costs and
administration related to the World War II Memorial, grave site flowers,
and the repair and maintenance of nonfederal memorials that are funded by
private contributions.

         The Commission's Brittany American Cemetery, St. James, France

Contents

[19]Letter

[20]Auditor's Report 3
[21]Opinion on Financial Statements 3
[22]Opinion on Internal Control 3
[23]Reportable Condition 4
[24]Compliance With Laws and Regulations 6
[25]Consistency of Other Information 6
[26]Objectives, Scope, and Methodology 6
[27]Commission Comments 9

[37]Management's Discussion and Analysis

Financial Statements

[28]Consolidating Balance Sheet 18
[29]Consolidating Statement of Net Cost and Changes in Net
[30]Position 19
[31]Consolidating Statement of Budgetary Resources 20
[32]Consolidating Statement of Financing 21
[33]Notes to the Consolidating and Consolidated Financial
[34]Statements 22

Other Information

[35]Required Supplementary Information 30
[36]Schedules of Heritage Assets 31

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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separately.

United States Government Accountability Office Washington, D.C. 20548

March 1, 2007

The Honorable Daniel K. Akaka
Chairman
The Honorable Larry Craig
Ranking Minority Member
Committee on Veterans' Affairs
United States Senate

The Honorable Bob Filner
Chairman
The Honorable Steve Buyer
Ranking Minority Member
Committee on Veterans' Affairs
House of Representatives

In accordance with 36 U.S.C. 2103, this report presents the results of our
audits of the financial statements of the American Battle Monuments
Commission's (the Commission) for the fiscal years ended September 30,
2006, and 2005.

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 at (202) 512-3406. Key contributors to this engagement
were Roger R. Stoltz, Patricia A. Summers, Mark Canter, Cara Bauer, Bret
Kressin, Chelsea Lounsbury, and Heather Bergstrom. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on

Steven J. Sebastian
Director
Financial Management and Assurance

United States Government Accountability 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's
financial statements for fiscal years 2006 and 2005, we found

     o the consolidating financial statements as of and for the fiscal year
       ended September 30, 2006, and comparative consolidated totals as of
       and for the fiscal year ended September 30, 2005, are presented
       fairly, in all material respects, in conformity with U.S. generally
       accepted accounting principles;
     o although internal controls should be improved, the Commission
       maintained effective internal control over financial reporting
       (including safeguarding assets) and compliance with laws and
       regulations as of September 30, 2006; 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 objectives, scope, and methodology
of our audit.

  Opinion on Financial Statements

The Commission's consolidating balance sheet as of September 30, 2006, and
its related consolidating statements of 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, 2005, are presented fairly, in all
material respects, in conformity with U.S. generally accepted accounting
principles.

  Opinion on Internal Control

Although certain internal controls should be improved, the Commission
maintained, in all material respects, effective internal control over
financial reporting (including safeguarding assets) and compliance as of
September 30, 2006. Internal control provided reasonable assurance that
misstatements, losses, or noncompliance material in relation to the
consolidating financial statements 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 Integrity Act (FMFIA)],
and Office of Management and Budget (OMB) Circular No. A-123, Management's
Responsibility for Internal Control (Dec. 21, 2004).

Our work identified the need to improve certain internal controls, as
described below, that we consider a reportable condition. Reportable
conditions are significant deficiencies 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. In addition, misstatements may
occur in other Commission financial information not included in this
report as a result of this reportable condition.

                              Reportable Condition

During our audit, we noted deficiencies in controls over information
technology systems as of September 30, 2006. A prior year condition
regarding the recognition of property and accounts payable was corrected
by the Commission during fiscal year 2006. Commission management disclosed
the information technology condition in its fiscal year 2006 FMFIA report
and is working to implement corrections for all internal control
deficiencies.

Deficient Controls over Information Technology Systems

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

  o User documentation: While the Commission's existing accounting
system, implemented on October 1, 2001, has adequate user documentation,
it did not provide user documentation to support its older legacy
subsystems that were still used primarily for payroll during fiscal year
2006. This condition has existed since our first audit of the Commission's
financial statements in fiscal year 1997 and includes the Clipper system
used by the European Regional Office and the dBase IV system used by the
Mediterranean Regional Office. Commission personnel have learned how to
use these legacy subsystems over the years, primarily through on-the-job
training, but have limited support to explain how subsystems functions
should be performed and to answer questions.

In January 2004, this condition was partially corrected when payroll
processing for the Commission's General Schedule employees was converted
to the General Services Administration system, which provided sufficient
user documentation. During fiscal year 2005, a contractor began designing
and documenting a new payroll system for the Commission's Foreign Service
National employees, which is projected to be operational sometime in
fiscal year 2007. Further efforts to improve user documentation are
ongoing.

o Security program and access controls: During our fiscal year 2006 audit,
we continued to identify some security controls over the Commission's
computer system, such as administrative controls over network
configuration, passwords, encryption, and access to files, that were not
effective at all Commission locations as of September 30, 2006. This
condition may allow unauthorized parties access to the Commission's
computer system and network resources that could result in damage,
deletion, or theft of computerized data. Since the installation of the
Commission's automated accounting system in fiscal year 2002, we have
conducted annual security and general controls reviews. In separate
Limited Official Use reports issued after our fiscal years 2002 through
2005 audits, we communicated detailed information and made specific
recommendations to strengthen Commission internal controls in information
technology, accounting procedures, and financial reporting. While the
Commission has implemented many of these recommendations, further efforts
are needed.

Corrected Condition on Property and Payables Recognition

In our previous audit of the Commission's financial statements,^1 we
disclosed a reportable condition related to the Commission's improper
recognition of property and accounts payable. This resulted in audit
adjustments to correct property balances by $0.4 million and accounts
payable by $0.6 million as of September 30, 2005. We noted that proper
expensing of heritage asset additions, while capitalizing and depreciating
general property additions over accounting policy limits, was necessary
for accountability and proper presentation. In addition, proper cutoff of
accrued liabilities for goods, services, and benefits received during the
current fiscal year but invoiced and paid in the next fiscal year was also
necessary for accountability and proper presentation. During our current
audit, we found that training, new personnel, and increased review by
Commission accounting staff during fiscal year 2006 and at year end
resulted in improved accounting for property and payables. Therefore, we
no longer considered this a reportable condition as of September 30, 2006.

^1GAO, Financial Audit: American  Battle Monuments Commission's  Financial
Statements for Fiscal Years 2005  and 2004, GAO-06-348 (Washington,  D.C.:
Mar. 1, 2006).

   Compliance With Laws and Regulations

Our tests of the Commission's compliance with selected provisions of laws
and regulations for fiscal year 2006 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.

  Consistency of Other Information

The Commission's Management Discussion and Analysis and other information
related to heritage assets contain a wide range of data, some of which are
not directly related to the financial statements. We do not express an
opinion on this information. However, we compared this information for
consistency with the financial statements and discussed the methods of
measurement and presentation with officials of the Commission. On the
basis of this limited work, we found no material inconsistencies with the
financial statements or nonconformance with OMB guidance.

  Objectives, Scope, and Methodology

Commission management is responsible for (1) preparing the 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 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 assurance that the following objectives
were met:

        o Financial reporting: Transactions are properly recorded, processed,
          and summarized to permit the preparation of financial statements
          and other information in conformity with U.S. generally accepted
          accounting
        o 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 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 financial statements;
     o assessed the accounting principles used and significant estimates made
       by Commission management;
     o evaluated the overall presentation of the 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 the Commission's 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;
     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 Military Quality of Life and Veterans Affairs Appropriations Act,
       2006,
     o Emergency Supplemental Appropriations to Address Hurricanes in the
       Gulf of Mexico and Pandemic Influenza, 2006 (Section 3801, one percent
       across-the-board rescission),
     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 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 selected provisions of
laws and regulations that have a direct and material effect on the
financial statements and those required by OMB audit guidance that we
deemed applicable to the Commission's financial statements for the fiscal
year ended September 30, 2006. 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.

  Commission Comments

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

Steven J. Sebastian
Director
Financial Management and Assurance

January 31, 2007

                      Management's Discussion and Analysis

AMERICAN BATTLE MONUMENTS COMMISSION ANNUAL FINANCIAL REPORT MANAGEMENT'S
DISCUSSION AND ANALYSIS (MDA) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006

Commission Profile

The American Battle Monuments Commission (the Commission)--guardian of
America's overseas commemorative cemeteries and memorials--honors the
service, achievements and sacrifice of United States Armed Forces. Since
1923, the Commission has executed this mission by (1) commemorating the
achievements and sacrifices of United States Armed Forces where they have
served overseas since April 6, 1917, through the erection and maintenance
of suitable memorial shrines; (2) designing, constructing, operating and
maintaining permanent American military burial grounds in foreign
countries; and (3) controlling the design and construction on foreign soil
of U.S. military memorials, monuments, and markers by other U.S. citizens
and organizations, both public and private, and encouraging their
maintenance. Our fiscal year 2006 appropriation supported our continued
commitment to the worldwide responsibilities that flow from this mission.

In performance of its mission, the Commission administers, operates and
maintains 24 permanent American military cemeteries; 25 Federal memorials,
monuments, and markers; and six nonfederal memorials. While three
memorials are located in the United States, the remaining memorials and
all of our cemeteries are located in 14 foreign countries, the U.S.
Commonwealth of the Northern Mariana Islands, and the British dependency
of Gibraltar. These cemeteries and memorials are among the most beautiful
and meticulously maintained shrines in the world. As of September 30,
2006, interred in the cemeteries are almost 125,000 U.S. war dead: about
31,000 from World War I, over 93,000 from World War II, and 750 from the
Mexican American War. Additionally, over 6,000 American veterans and
others are interred in our Mexico City and Corozal cemeteries. The
Commission's World War I, World War II, and Mexico City cemeteries are
closed to future burials except for the remains of U.S. war dead
discovered in World War I and II battle areas.

In addition to grave sites, the World War I and II cemeteries, together
with three memorials on
U.S. soil, commemorate by name on Tablets of the Missing over 94,000 U.S.
servicemen and women who were Missing in Action or lost or buried at sea
in their general region during the World Wars and the Korean and Vietnam
Wars.

The Commission also administers trust funds to (1) build memorials
authorized by Congress, but financed primarily from private contributions,
commemorative coin proceeds, and investment earnings; (2) decorate grave
sites with flowers from private contributions; and (3) maintain and repair
nonfederal war memorials with private contributions.

Operations Management

The Commission's fiscal year 2006 funding focused on personnel costs,
service fees, scheduled maintenance and repairs, supplies, materials,
spare parts, replacement of uneconomically repairable equipment, and
capital improvements, as well as funding toward completion of the design
and construction of the Normandy Interpretive Center.

The Commission's fiscal year 2006 appropriation of $36.25 million was
available for salaries and expenses. Of this total, $3.1 million was
allocated for the design and construction of the Normandy Interpretive
Center. A government-wide rescission of 1% reduced the Commission's
Salaries and Expenses appropriation by $362,500, causing it to reduce
spending in much-needed engineering projects to accommodate this loss.

For fiscal year 2006, Congress also appropriated $15.25 million into the
Commission's Foreign Currency Fluctuation Account, less $152,500 for the
1% rescission. This appropriation is used to offset foreign exchange
losses to the U.S. Dollar primarily by the European Euro. This funding
also reduces the Commission's risk that the funding appropriated for its
operations (in the Salaries and Expenses appropriation) would be
jeopardized due to vagaries in currency fluctuations.

Most of our facilities range in age from 46 to 92 years old, with our
Mexico City Cemetery being over 150 years old. The permanent structures
and plantings, which make our facilities among the most beautiful
memorials in the world, are aging and require increased funding to
maintain them at the current standards. Accordingly, we prioritize the use
of our maintenance and engineering funds very carefully to ensure the most
effective utilization of our available resources. Within its fiscal year
2006 appropriation, the Commission targeted $1.0 million to continue the
Infrastructure Modernization Program. This 50% decrease from fiscal year
2005 hindered our efforts to upgrade or replace outdated and deteriorating
systems.

The shrines to America's war dead entrusted to the Commission's care
require a significant annual program of maintenance and repair of
facilities, equipment, and grounds. This care includes upkeep of more than
131,000 graves and headstones and 73 memorial structures (within and
external to the cemeteries) on over 1,600 acres of land. Additionally, the
Commission maintains 41 residential quarters for assigned personnel; 24
maintenance facilities; 67 miles of roads and walkways; 911 acres of
flowering plants, fine lawns, and meadows; nearly 3 million square feet of
shrubs and hedges; and over 11,000 ornamental trees. All of the plantings,
including the lawns and to some extent the meadows, must be cut and
shaped, fed and treated with insecticides and fungicides at regular
intervals during the growing season. The plantings also must be replaced
when their useful lives are exhausted or they receive major storm damage.

Care and maintenance of these resources is exceptionally labor intensive;
thus personnel costs accounted for more than half of the Commission's
fiscal year 2006 obligations. Figure 2 shows the obligation of funds by
object class under the Commission's fiscal year 2006 obligations.

President's Management Agenda Initiatives

The Commission made significant progress in the implementation of each
item within the five initiatives of the President's Management Agenda as
follows.

  Strategic Management of Human Capital

In fiscal year 2002, we began a worldwide manpower study that outlined our
manpower requirements, position descriptions, workloads, and manpower
distribution. This effort was to ensure that we deploy our workforce so
that we have the right person with the right skills in every position. We
expect to implement the study recommendations through fiscal year 2007 if
funding allows.

  Competitive Sourcing

We have used competitive sourcing initiatives in a number of ways to
improve performance and save costs. Our fiscal year 2006 budget contained
funding for upgrades, hosting, and 24-hour support of our financial
management system. These funds allowed us to outsource support to
contractors experienced in providing such services and enabled us to
support our worldwide operations without increasing the size of our
financial management staff. Most of our construction and engineering
projects were contracted out, since these projects are usually unique and
beyond the capability of our limited staff.

  Improved Financial Performance

Since fiscal year 1997, the Commission has been required to produce
financial statements and the Comptroller General of the United States has
been required to independently audit these statements. Each year, the
Commission has earned an unqualified opinion on its financial statements
from the Government Accountability Office. However, we recognize that
improved financial performance is more than achieving an unqualified audit
opinion. It is about putting useful and timely information in the hands of
Commission management so that they can make informed decisions. The fiscal
year 2006 budget not only supported our daily accounting operations and
proper internal controls, but allowed us to identify additional management
needs and reports to provide the best financial information available.

  Expanded E-Government

Over the last several years, the Commission expanded access to valuable
information through the use of online tools. We maintain a Web site that
allows visitors to gather information on our organization and our
cemeteries and memorials. During fiscal year 2006, we transitioned our
public Web site from an internal operation to an outside Web hosting
service. This move improved Web site availability and expanded our ability
to provide multimedia information over the internet. Specifically, the Web
site now has greater capacity to support videos and increased public use.
Other improvements include the ability for the public to access our job
postings and to email regions and cemeteries directly.

  Budget and Performance Integration

A key element in linking budget and performance is having timely and
reliable financial data. We achieved that with our integrated financial
system. Another key element is the process by which the Commission ties
performance within the organization to the budget formulation process. In
fiscal year 2006, we initiated top-to-bottom cemetery reviews. These
reviews are used to match requirements to resources across engineering,
logistics, and horticulture, and form the basis for future budget
requirements.

Selected Performance Goals and Results

During fiscal year 2006, the Commission demonstrated an ability to achieve
performance results through a number of specific projects that tie
directly to its strategic goals as follows:

    1. In support of Next of Kin and other customers who use our services,
       the Commission provides burial and memorialization site information;
       letters authorizing non-fee passports for members of the immediate
       family traveling overseas primarily to visit the cemetery; incountry
       travel and accommodation information; and, upon arrival at the
       cemetery, escort to the appropriate grave or memorialization site.
       Requesters are provided a photograph that is taken of the appropriate
       headstone or section on the Tablet of the Missing, which is mounted on
       a color lithograph of the cemetery or memorial where a serviceman or
       woman is buried or commemorated by name. We also purchases floral
       decorations with donor funds and the donor is provided with a
       photograph of the headstone or Tablet of the Missing with the
       decoration in place.
    2. In addition to responding to inquiries by friends and relatives of the
       war dead interred or memorialized at its sites, the Commission also
       provides information to the Executive Branch, Members of Congress,
       other government agencies, historians, and other interested
       individuals. We provide cemetery lithographs, photos, and other
       information throughout the year.
    3. The Commission's Web site at www.abmc.gov provides visitors a
       convenient, user-friendly method to access information on the
       Commission, as well as its cemeteries, memorials, monuments, markers,
       and headquarters operations. In addition, information on U.S. war dead
       from the Korean War and those interred or commemorated at its World
       War I and World War II cemeteries are accessible on the Web site.
       During fiscal year 2006, the Commission developed a database of
       burials at our Corozal American Cemetery in Panama that will be made
       available to the public through the Web site in fiscal year 2007.
    4. Most Americans and foreign citizens who visit Commission cemeteries
       pay homage collectively to the interred war dead. Many have more
       personal reasons for visiting a friend or relative who never returned
       home from war. Regardless of the visitors' motivations, Commission
       employees dedicate themselves to making each visit gratifying and
       memorable. The Commission's overseas commemorative sites are
       recognized for their beauty and inspirational qualities, yet few
       Americans are aware of their existence; the Commission estimates that
       85 percent of its visitors are foreign citizens. As a result, the
       Commission continued its efforts to increase public awareness of these
		 sites so that more  Americans add
them to their itineraries when traveling overseas. The Commission
developed traveling
displays and worked closely with the travel and tour industry, as well as
general and travel
media, to bring greater visibility to our cemeteries and memorials.

    5. Throughout the year, at its commemorative sites around the world, the
       Commission hosted a variety of special events and commemorations
       including ceremonies on Memorial Day and Veterans Day. In addition,
       military units held ceremonies to honor their fallen comrades, and
       local organizations paid tribute to those who died while liberating
       their regions. The President of the United States and the First Lady,
       joined by an honor guard of American veterans, placed a wreath at
       Corozal American Cemetery on November 7, 2005, during their state
       visit to Panama.
    6. The American Veterans of WWII, Korea, and Vietnam (AMVETS) and the
       Robert R. McCormick Tribune Foundation have generously donated
       chromatically tuned bells in carillons to enhance our overseas
       cemeteries. AMVETS installed the first carillon in our Manila cemetery
       in 1985. They subsequently formed a partnership with the foundation,
       and in May 2006 dedicated a carillon at the Ardennes American Cemetery
       in Belgium, the 17th donated over the years.
    7. The Commission initiated a replacement and renovation program for old
       headstones at the Oise-Aisne American Cemetery in Fere-en-Tardenois,
       France, in fiscal year 2004. This program uses a computer-controlled
       engraving machine to renovate and refinish severely degraded
       headstones. It took several years of planning to acquire the custom
       machine and special tooling, as well as to establish the required
       training and procedures for the program to work effectively and
       efficiently. Based on the success of the first engraving machine, we
       ordered a second headstone engraving machine in fiscal year 2006 for
       the Meuse-Argonne American Cemetery.
    8. For fiscal years 2002 through 2006, the Commission allocated a total
       of $30 million of appropriations, net of rescissions, to build an
       expanded visitor interpretive center at the Normandy American
       Cemetery. This will be the Commission's first such center and will
       help us tell the story of those that participated in the D-Day
       invasion and ensuing operations of the Normandy campaign. The
       construction of this facility started at the end of fiscal year 2005
       and dedication is planned for the anniversary of D-Day, June 6, 2007.

The Commission will continue to review and revise its mission, goals, and
performance criteria during the upcoming budget year.

Management Integrity: Controls, Systems, Compliance, and Challenges

The Commission is cognizant of the importance of, and need for, management
accountability and responsibility as the basis for quality and timeliness
of program performance, mission accomplishment, increased productivity,
cost effectiveness, and compliance with applicable laws. It has taken
measures to ensure that the annual evaluation of these controls is
performed in a conscientious and thorough manner according to OMB
regulations and guidelines and in compliance with 31 U.S.C. 3512 (c), (d),
commonly known as the Federal Managers' Financial Integrity Act (FMFIA).
The Commission's evaluation of its system of internal management practices
and controls during fiscal year 2006 revealed no material weaknesses. The
objectives of the Commission's internal management control policies and
procedures are to provide reasonable assurance that:

    1. Obligations and costs are in compliance with applicable law;
    2. Funds, property, and other assets are safeguarded against waste, loss,
       unauthorized use, and misappropriation;
    3. Revenue and expenditures applicable to agency operations are promptly
       recorded and accounted for; and
    4. Programs are efficiently and effectively carried out in accordance
       with applicable laws and management policy.

Based on its evaluation, the Commission concluded that there is reasonable
assurance that it complies with the provisions of FMFIA. The reasonable
assurance concept recognizes that the cost of internal controls should not
exceed the benefits expected to be derived and that the benefits reduce
the risk of failing to achieve stated objectives.

Future Risks

Changes in the rate of exchange for foreign currencies have a significant
impact on our day-to-day operations. In order to insulate the Commission's
annual appropriation against major changes in its purchasing power,
Congress enacted legislation in 1988 (codified in 36 U.S.C. 2109) to
establish a foreign currency fluctuation account in the U.S. Treasury. By
maintaining close scrutiny on the Commission's obligation status, as well
as monitoring and distributing the Foreign Currency Fluctuation Account
balance, our overall future financial risk to operations is reduced.

                              Financial Statements

Consolidating Balance Sheet
                      AMERICAN BATTLE MONUMENTS COMMISSION
                          CONSOLIDATING BALANCE SHEET
                            As of September 30, 2006
               (With Comparative Consolidated Total as of September 30, 2005)
                    General Fund  Trust Funds     Total Funds     Total Funds 
                                   WWII and                                   
                  Cemeteries and     Other                                    
                       Memorials  Trust Funds      Total 2006      Total 2005 
Assets                                                                     
Intragovernmental:                                                         
         Fund balance with $40,012,391 $15,057,733  $55,070,124   $48,356,286 
         Treasury (note 2)                                                    
     Treasury investments,               58,137            58,137   7,960,248 
              net (note 3)                                                    
Total Intragovernmental 40,012,391  15,115,870    55,128,261    56,316,534 
          Cash and foreign   89,383            185         89,568      87,490 
         accounts (note 4)                                                    
     Accounts receivable                                               31,425 
             Contributions                                                    
     receivable, net (note               110,000      110,000         207,040 
                        5)                                                    
      General property and  1,921,881                1,921,881      1,995,704 
equipment, net (note 6)                                                    
Heritage property (note           0           0              0           0 
             6)                                                               
        Total Assets       $42,023,655 $15,226,055  $57,249,710   $58,638,193 
Liabilities                                                                
Intragovernmental:                                                         
     Accounts payable           $138,580  $1,700,236   1,838,816   $3,935,262 
    Accrued salaries and          85,511                 85,511        79,845 
                benefits                                                      
           Total                 224,091   1,700,236   1,924,327    4,015,107 
     Intragovernmental                                                        
     Accounts payable          4,550,967    57,094     4,608,061    1,636,030 
     Other liabilities         4,020,367           518 4,020,885    3,104,865 
         (note 7)                                                             
     Total Liabilities         8,795,425   1,757,848   10,553,273   8,756,002 
Commitments and contingencies (note 8)                                     
Net Position (note 9)                                                      
         Unexpended         33,809,576                33,809,576   34,749,909 
       appropriations                                                         
    Cumulative Results of    (581,346)    13,468,207  12,886,861   15,132,282 
     Operations (deficit)                                                     
     Total Net Position     33,228,230    13,468,207  46,696,437   49,882,191 
    Total Liabilities and                                                     
             Net Position   $42,023,655   $15,226,055 $57,249,710 $58,638,193 

        The accompanying notes are an integral part of these statements.

                              Financial Statements

Consolidating Statement of Net Cost and Changes in Net Position
                      AMERICAN BATTLE MONUMENTS COMMISSION
              CONSOLIDATING STATEMENT OF NET COST AND CHANGES IN NET POSITION
                     For the Year Ended September 30, 2006
        (With Comparative Consolidated Total for the Year Ended September 30,
                                                                        2005)
                 General Fund    Trust Funds       Total Funds   Total Funds  
               Cemeteries and   WWII and Other                                
                    Memorials    Trust Funds       Total 2006     Total 2005  
PROGRAM COSTS                                                              
Intragovernmental program costs:                                           
      Operations                                                              
             and       $2,932,680                    $2,932,680    $2,927,952 
     maintenance                                                              
    Design and                           $1,858,309   1,858,309     2,702,633 
construction                                                               
Program costs with the public:                                             
Operations and   31,877,044        240,279       32,117,323     29,440,526 
      maintenance                                                             
    Fund raising                                                       46,644 
Administrative                     324,278            324,278      685,496 
     Design and                                                       653,218 
    construction                                                              
Memorial costs                     439,841            439,841       52,738 
     Property and                                                             
        equipment   9,626,263                   58   9,626,321      2,234,441 
         (note 6)                                                             
          Foreign   9,334,477                        9,334,477      8,377,092 
         currency                                                             
      losses, net                                                             
    Net Cost of    $53,770,464      $2,862,765      $56,633,229   $47,120,740 
     Operations                                                               
CHANGES IN NET POSITION                                                    
         Cumulative                                                           
            Results (122,568)$ 15,254,850$ $15,132,282            $18,611,215 
        (Deficit) -                                                           
      Start of Year                                                           
Budgetary Financing Sources                                                
Appropriations          52,642,968                 52,642,968   41,906,879 
        used                                                                  
Total Budgetary                                                            
         Financing         52,642,968                 52,642,968   41,906,879 
           Sources                                                            
Other Financing Sources                                                    
       Contributions                       843,913     843,913      1,071,129 
    Treasury investment                    232,209     232,209         96,508 
         earnings                                                             
       Other revenue          7,645                        7,645              
     Imputed financing       661,073                   661,073        567,291 
Total Other Financing     668,718      1,076,122   1,744,840     1,734,928 
          Sources                                                             
      Total Financing      53,311,686     1,076,122  54,387,808    43,641,807 
          Sources                                                             
     Less: Net Cost of     53,770,464     2,862,765  56,633,229    47,120,740 
        Operations                                                            
            Net Increase                                                      
      (Decrease) for the    (458,778)    (1,786,643) (2,245,421)  (3,478,933) 
                    Year                                                      
      Cumulative Results                                                      
      (Deficit) - End of    (581,346)    13,468,207  12,886,861    15,132,282 
                    Year                                                      
              Unexpended                                                      
Appropriations -Start   34,749,909                34,749,909    23,981,588 
                 of Year                                                      
Budgetary Financing Sources                                                
    Appropriations     50,985,000                    50,985,000    52,675,200 
       received                                                               
    Other offsetting                                                          
        receipts and     717,635                      717,635                 
         adjustments                                                          
    Appropriations    (52,642,968)                  (52,642,968) (41,906,879) 
         used                                                                 
         Increase in    (940,333)                      (940,333)   10,768,321 
          unexpended                                                          
      appropriations                                                          
          Unexpended                                                          
      Appropriations   33,809,576                    33,809,576    34,749,909 
        -End of Year                                                          
           TOTAL NET                                                          
    POSITION- END OF                                                          
                YEAR   $33,228,230    $13,468,207   $46,696,437   $49,882,191 

        The accompanying notes are an integral part of these statements.

             Page 19 GAO-07-321 ABMC 2006 and 2005 Financial Audit

Consolidating Statement of Budgetary Resources
                      AMERICAN BATTLE MONUMENTS COMMISSION
                 CONSOLIDATING STATEMENT OF BUDGETARY RESOURCES
                     For the Year Ended September 30, 2006
     (With Comparative Consolidated Total for the Year Ended September 30,
                                     2005)
                      General Fund  Trust Funds    Total Funds    Total Funds 
                                     WWII and                                 
                    Cemeteries and     Other                                  
                         Memorials  Trust Funds     Total 2006    Total 2005  
Budgetary Resources                                                        
Budgetary Authority:                                                       
        Appropriations       $51,500,000              $51,500,000 $53,100,000 
    Net transfer in for net   7,929,796                7,929,796    8,949,331 
      foreign exchange loss                                                   
       Other (receipts         591,141     $1,475,990  2,067,131    1,679,131 
          collected)                                                          
       Less: Rescinded        (515,000)                (515,000)    (424,800) 
Unobligated Balances:                                                      
         Start of year       15,661,856   14,177,900  29,839,756   33,148,353 
      Net transfer (out) for (7,929,796)              (7,929,796) (8,949,331) 
        net foreign exchange                                                  
                      (loss)                                                  
       Other adjustments      (37,743)                   (37,743)             
Recoveries of prior year    10,041                   10,041      (411,746) 
          obligations                                                         
Total Budgetary Resources $67,210,295 $15,653,890  $82,864,185 $87,090,938 
Status of Budgetary Resources                                              
Obligations incurred -   $47,304,280   $5,625,762  $52,930,042 $57,007,992 
           direct                                                             
    Unobligated balances       19,906,015 10,028,128  29,934,143   30,082,946 
          available                                                           

Total Status of Budgetary $67,210,295 $15,653,890 $82,864,185  $87,090,938 
Resources                                                                  
Net Outlays                                                                
Obligations incurred      $47,304,280 $5,625,762  $52,930,042  $57,007,992 
Plus: Obligated balances,                                                  
start of year:                                                             
Undelivered orders        19,088,053    566,285   19,654,338     8,615,513 
Delivered orders - unpaid  3,086,109   3,432,965   6,519,074     4,668,389 
Less: Obligated balances,                                                  
end of year:                                                               
Undelivered orders        13,903,561   3,329,750  17,233,311  (19,654,338) 
Delivered orders - unpaid  6,090,489   1,757,330   7,847,819   (6,519,074) 
Total Net Outlays         $49,484,392 $4,537,932  $54,022,324  $44,118,482 

        The accompanying notes are an integral part of these statements.

Consolidating Statement of Financing
                      AMERICAN BATTLE MONUMENTS COMMISSION
                      CONSOLIDATING STATEMENT OF FINANCING
                     For the Year Ended September 30, 2006
     (With Comparative Consolidated Total for the Year Ended September 30,
                                     2005)
                 General Fund   Trust Funds       Total Funds     Total Funds 
               Cemeteries and  WWII and Other                                 
                    Memorials   Trust Funds       Total 2006      Total 2005  
Resources Used To Finance Activities                                       
    Obligations                                                               
     incurred -                                                               
       direct       $47,304,280      $5,625,762    $52,930,042    $57,007,992 
     Offsetting                                                               
    collections         ($601,182)                  ($601,182)                
and recoveries                                                             
      Imputed                                                                 
retirement and          661,073                   661,073          567,291 
audit services                                                             
       Other             (624,171)                  (624,171)       (247,057) 
    adjustments                                                               
            Total    46,740,000      5,625,762      52,365,762     57,328,226 
Resources Used                                                             
       to Finance                                                             
       Activities                                                             
Resources That Do Not Fund Net Cost of Operations                          
       General property                                                       
     capitalized on the     636,720                   636,720          86,428 
          balance sheet                                                       
Decrease in unfunded                                              (12,704) 
       annual leave                                                           
Undelivered orders -   19,088,053      566,285    19,654,338     8,615,513 
      start of year                                                           
    Less: Undelivered    (13,903,561)   (3,329,750) (17,233,311) (19,654,338) 
orders - end of year                                                       

Total Resources That Do Not Fund Net Cost of Operations

Components of  Net  Cost of  Operations  Not Requiring  Resources  in  the
Current Period

Components Requiring Resources in Future Periods: Increase in unfunded
annual leave Increase in unfunded separation pay liability Increase in
accounts receivable

Components Not Requiring Resources: Depreciation In-kind expenses

                        5,821,212 (2,763,465) 3,057,747

                      290,706 468 291,174 177,353 177,353

                         710,543 710,543 30,650 30,650

(10,965,101)

98067,06831,425

627,28230,860

    Total Costs Not Requiring Resources in the Current Period 1,209,252 468
                               1,209,720 757,615

     Net Cost of Operations $53,770,464 $2,862,765 $56,633,229 $47,120,740

        The accompanying notes are an integral part of these statements.

  Notes to the Consolidating and Consolidated Financial Statements

AMERICAN BATTLE MONUMENTS COMMISSION

NOTES TO THE CONSOLIDATING AND CONSOLIDATED FINANCIAL STATEMENTS

             For the Fiscal Years Ended September 30, 2006 and 2005

Note 1. Significant Accounting Policies

A. Basis of Presentation

The  accompanying  consolidating  and  consolidated  financial  statements
present the financial  position, net  cost of operations,  changes in  net
position, budgetary  resources,  and  financing  of  the  American  Battle
Monuments Commission (the  Commission) in conformity  with U.S.  generally
accepted accounting principles  as used by  the federal government.  There
are no intra-entity transactions to be eliminated.

B. Reporting Entity and Funding Sources

The Commission is an independent agency within the executive branch of the
federal government and was created by an Act of March 4, 1923, the current
provisions of which are now codified in 36

U.S.C.  Chapter  21.  The  Commission's  mission  is  to  commemorate  the
sacrifices and achievements of

U.S. Armed Forces where they have served overseas since April 6, 1917, the
date of the United States entry into World War I, and at locations  within
the United States when directed  by the Congress. The Commission  designs,
administers, constructs,  operates,  and maintains  24  American  military
cemeteries and  25  federal  memorials,  monuments,  and  markers  (herein
collectively referred to as memorials). Three of the memorials are located
in the  United  States while  all  of  the cemeteries  and  the  remaining
memorials are  located  on  foreign  soil in  14  foreign  countries,  the
Marianas,  and  Gibraltar.   The  Commission  is   also  responsible   for
maintaining 6 nonfederal memorials with funds received from the memorials'
sponsors. The Commission  is headquartered in  Arlington, Virginia.  Field
operations are  conducted through  regional  offices located  near  Paris,
France; and in  Rome, Italy;  and cemeteries in  Manila, the  Philippines;
Mexico City, Mexico; and Panama City, Panama.

The Commission also had responsibility for designing and constructing  the
National World War II Memorial located on the Mall in Washington, D.C.  In
accordance with 40 U.S.C. 8906  (b), the Commission provided $6.6  million
for deposit in a separate Treasury account to offset the memorial's  costs
of perpetual maintenance. On  November 1, 2004,  the Commission signed  an
agreement with the National Park Service to formally transfer the National
World War II Memorial to the Service for its future care and  maintenance.
Remaining funds reside in  a trust fund  in the U.S.  Treasury to be  used
solely to  benefit  the World  War  II  Memorial for  other  than  routine
maintenance expense.

Commission programs are funded primarily through appropriations  available
without fiscal year limitation (no-year). The Commission also  administers
several trust funds established to: (1) build memorials authorized by  the
Congress,  but  which  are  funded  primarily  by  private  contributions,
commemorative coin sales proceeds,  and investment earnings; (2)  decorate
grave sites; and (3) maintain and repair certain nonfederal war memorials.

C. Basis of Accounting

The  Commission's  proprietary  accounts  (assets,  liabilities,   equity,
revenue,  and  expenses)  are  maintained  on  the  accrual  basis,  where
appropriated funds  are accounted  for  by appropriation  year;  operating
expenses are recorded as incurred; and depreciation is taken on  property,
plant,  and  equipment  not  otherwise  classified  as  heritage   assets.
Commission budgetary accounts are maintained  on a budgetary basis,  which
facilitates compliance with legal constraints and statutory funds  control
requirements. The functional budget  classification is Veterans'  Benefits
and Services.

D. Fund Balances with Treasury

The Commission's cash receipts and disbursements are processed by the U.S.
Treasury. Fund  balances  with  Treasury  are  comprised  of  appropriated
general funds and trust funds.

E. Investments

In accordance  with 36  U.S.C. 2113(b),  the Commission  is authorized  to
invest World  War  II  Memorial  Trust  Fund  receipts  in  U.S.  Treasury
securities. The Commission is also authorized under a modification to  its
original legislation  to  invest  receipts  from  certain  nonfederal  war
memorial organizations in U.S.  Treasury securities. Treasury  investments
are recorded at  par value  plus unamortized premium  or less  unamortized
discount. Premiums and discounts are amortized using the interest method.

F. Foreign Currency

The Commission's overseas offices maintain accounts of foreign  currencies
to be used in making payments  in foreign countries. Amounts are  recorded
at a standard budget rate  in U.S. dollars and  a gain or loss  recognized
when paid in  foreign currency. Appropriated  monies are transferred  from
the Commission's Foreign Currency Fluctuation Account to fund net currency
losses. Cash  accounts in  foreign  currencies are  reported at  the  U.S.
dollar equivalent using the Treasury exchange  rate in effect on the  last
day of the fiscal year.

G. Contributions and Revenue Recognition

The Commission  recognizes  unrestricted  contributions  or  unconditional
promises to  give as  revenue in  the period  of the  initial pledge  when
sufficient verifiable evidence of the pledge exists. Conditional  promises
to give  are  recorded  as  revenue  when  the  condition  has  been  met.
Unconditional  promises  to   give  may  be   temporarily  restricted   or
permanently  restricted.  Temporarily  restricted  promises  to  give  are
released from restriction when the  conditions have been met.  Permanently
restricted promises to give are recorded as revenue in the period donated;
however, donors generally  allow only  the earned  income to  be used  for
general or specific purposes. In-kind contributions of goods and  services
are recognized at fair value by the  Commission at the time the goods  are
received or the services are performed. Multiyear contributions due over a
period of time are discounted to their present value based upon the  short
term Treasury interest rate.

H. OperatingMaterials and Supplies Inventories

The Commission  has  determined  that  operating  materials  and  supplies
located at its cemeteries are not significant amounts and that it is  more
cost beneficial  to  record them  on  the purchase  method  of  accounting
whereby items  are  expensed  as  purchased  rather  than  when  consumed.
Consequently, the Commission  reports no operating  materials or  supplies
inventories.

I. Property and Equipment

Purchases of  general  property  and  equipment of  $25,000  or  less  are
expensed in  the  year  of acquisition.  Purchases  of  personal  property
exceeding $25,000 are capitalized and depreciated on a straight-line basis
over 5 years. Expenditures relating to real property exceeding $25,000 are
capitalized and  depreciated  on  a straight-line  basis  over  30  years.
Heritage assets are assets possessing significant cultural, architectural,
or aesthetic characteristics. The Commission considers its cemeteries, and
federal memorials,  monuments, and  markers acquired  through purchase  or
donation to  be noncollection  heritage assets.  Heritage assets  acquired
through purchase  or  donation,  are accounted  for  in  the  Commission's
property records, and are not presented in the balance sheet.  Withdrawals
of heritage assets  are recorded  upon formal  agreement with  recipients.
Additional  disclosure  on  individual   heritage  asset  cemeteries   and
memorials are  found in  the  Schedules of  Heritage Assets  presented  as
unaudited other  information.  Cemetery  land  is  owned  by  the  foreign
countries in which cemeteries  are located and is  provided to the  United
States in perpetuity.

J. Employee Benefits

The Commission's civilian U.S. nationals hired after December 31, 1983 are
covered by  the Federal  Employees' Retirement  System (FERS),  which  was
implemented on January 1, 1984.  The Commission's civilian U.S.  nationals
hired on or before December 31, 1983,  could elect to transfer to FERS  or
remain  with  the  Civil  Service  Retirement  System  (CSRS).  For   FERS
employees, the  Commission  withholds  .80  percent of  base  pay  and  as
employer contributes 10.7 percent of  base pay to this retirement  system.
For Federal  Insurance  Contribution  Act (FICA)  tax  and  Medicare,  the
Commission withholds 7.65 percent  from FERS employees' earnings,  matches
this amount on a dollar-for-dollar basis,  and remits the total amount  to
the Social Security Administration. The Commission withholds 7.00  percent
of base pay plus 1.45 percent  for Medicare from CSRS employees'  earnings
and as employer contributes 7.00 percent of base pay plus 1.45 percent for
Medicare. These deductions are  then remitted to  the Office of  Personnel
Management  (OPM)  and   the  Social  Security   Administration.  OPM   is
responsible  for  governmentwide  reporting  of  FERS  and  CSRS   assets,
accumulated plan benefits, and unfunded liabilities.

On April 1, 1987, the federal government instituted the Thrift Saving Plan
(TSP), a retirement savings and  investment plan for employees covered  by
FERS and CSRS. The Commission contributes  a minimum of 1 percent of  FERS
employees' base pay to TSP. For  2006, FERS employees could contribute  up
to $15,000 ($20,000 if at  least age 50) on  a tax-deferred basis to  TSP,
which the Commission matches up to 4  percent of base pay. For 2006,  CSRS
employees may also contribute up to  $15,000 ($20,000 if at least age  50)
on a tax-deferred  basis; however, they  receive no matching  contribution
from the Commission.

Retirement and  other  benefits  for  the  Commission's  foreign  national
employees are paid by the Commission in accordance with the provisions  of
10 host nation agreements negotiated by the U.S. Department of State.

Annual leave is accrued as earned, and the resulting unfunded liability is
reduced as leave is taken. Separation pay is provided in certain countries
according to host nation agreements. Separation pay is accrued as  earned,
and the resulting unfunded liability is  reduced when paid to the  foreign
national leaving the employ of the  Commission. Each year balances in  the
accrued separation pay and annual  leave accounts are adjusted to  reflect
current pay rates. To the extent that current or prior year appropriations
are not available to fund annual leave and separation pay, funding will be
obtained from future financing  resources. Sick leave  and other types  of
unvested leave are expensed when incurred.

K. Imputed Financing

The Commission imputes financing for retirement and other benefits paid by
OPM, financial  audit  costs  incurred by  the  Government  Accountability
Office (GAO), and a  heritage asset musical  carillon donated each  fiscal
year.  The  Commission  recognized  these  expenses  and  related  imputed
financing in its financial statements.

L. Use of Estimates

The preparation  of  financial  statements  requires  management  to  make
estimates and assumptions that  affect the reported  amount of assets  and
liabilities,  as  well  as  the   disclosure  of  contingent  assets   and
liabilities at the  date of the  financial statements, and  the amount  of
revenues and expenses reported during the reporting period. Actual results
could differ from those estimates.

M. Adoption of New Accounting Standard

The Commission early-adopted FASAB Statement  No. 29, Heritage Assets  and
Stewardship  Land,  for  fiscal  year  2005.  The  adoption  resulted   in
additional disclosure with  no effect  on financial  statement amounts  or
restatement of prior year's presentation.

N. Reformatting of Prior Year's Presentation

Certain prior year accounts  on the Statement of  Net Cost and Changes  in
Net Position were reformatted to conform to the current year  presentation
in accordance with Office of  Management and Budget's Circular No.  A-136,
Financial Reporting Requirements.

Note 2. Fund Balances with Treasury

All undisbursed account balances with  the U.S. Treasury, as reflected  in
the Commission's records,  as of September  30 are available  and were  as
follows:

2006 2005

                           General Fund Trust Funds     Total        Total    
Appropriated Funds     $28,422,604                $28,422,604  $34,095,973 
Currency Fluctuation    11,589,787                 11,589,787    3,740,045 
Other Trust Funds       __________   $15,057,733   15,057,733   10,520,268 
                          $40,012,391   $15,057,733  $55,070,124  $48,356,286 

Note 3. Treasury Investments, Net

As of  September  30, the  Commission's  Trust Fund  investments  in  U.S.
Treasury notes, which are marketable securities due within 2 years were as
follows:

                                     Net Premium Interest
FY       Cost    Interest Rates /(Discount)     Receivable Net Investment  
06     $ 58,000      4.00%        $    (48)       $  185   $ 58,137        
05    $7,658,000 4.00% to 7.00%   $190,755      $111,493   $7,960,248      

Amortization is on the interest method, and amortized cost approximated
market as of September 30.

Note 4. Cash and Foreign Accounts

Outside the United States the Commission makes payments in U.S. and
foreign currencies through imprest cash funds and Treasury designated
depository commercial bank accounts, which as of September 30 were as
follows:

2006 2005 Imprest Cash Funds $42,664 $41,158 Foreign Bank Accounts 46,719
46,023 Undeposited Cash--Trust 185 309

$89,568 $ 87,490

Note 5. Contributions Receivable

The Commission has pledges from the private sector to be used for the
World War II Memorial, with substantial pledges by major corporations and
foundations. These pledges are recorded as contributions receivable and
revenue in the fiscal year pledged, and $110,000 is temporarily restricted
until collected. Amounts due in future years are as follows:

Fiscal Year Due

2007 $110,000Net Contributions Receivable $110,000

The Commission believes that all contributions receivable are fully
collectible, and therefore no allowance for uncollectible accounts has
been established.

Additionally, the Commission has a pledge from a living trust valued at
$178,838 as of September 30, 2006. However, due to the uncertainty of time
and amount when the pledge is collected, the contribution will be
recognized at the amount when received.

Note 6. General and Heritage Property and Equipment

General property and equipment with an aggregate cost basis of $25,000  or
less and all heritage assets were  expensed by the Commission and  totaled
$9,626,263 in fiscal year 2006, which included $6,879,901 of costs related
to the  construction of  the Normandy  Interpretive Center  as a  heritage
asset and $2,232,441 in fiscal year 2005. WWII Memorial equipment totaling
$58 in fiscal year 2006 and $2,000 in fiscal year 2005 was also expensed.

Since the 1960s,  the Commission's  European Regional  Office near  Paris,
France, has occupied a  residential structure owned  by the United  States
government. The Commission is responsible for all utilities,  maintenance,
and repairs. While  the structure  has the characteristics  of a  heritage
asset, it has  been used  as general property.  However, it  is now  fully
depreciated, and  no  value is  contained  in the  Commission's  financial
statements.

General property and equipment as of September 30 was as follows:

                                2006                     2005________ 
                         Accumulated                     Accumulated          
Category        Cost Depreciation    Net      Cost    Depreciation   Net   
Buildings  $ 923,461   $ 73,063   $ 850,398 $ 923,461 $ 42,311     $       
                                                                      881,150 
Accounting System     1,760,065           0 1,760,065  1,408,052   352,013 
1,760,065                                                                  
Equipment  2,746,362  1,674,879   1,071,483 2,167,228  1,404,687   762,541 
             $5,429,888 $3,508,007   $1,921,881          $2,855,050   
                                     $4,850,754          $1,995,704   

Heritage assets are significant to the mission of the Commission to
design, construct, and maintain historical cemeteries and memorials. The
Commission presents its heritage assets in three categories; cemeteries,
federal memorials, and nonfederal memorials. Changes in heritage assets
for fiscal year 2006 were as follows:

Federal Nonfederal

Cemeteries Memorials Memorials Beginning of Year 10-1-05 24 25 6 Number
Acquired, Fiscal Year 2006 0 0 0 Number Withdrawn, Fiscal Year 2006 0 0 0
End of Year 9-30-06 24 25 6

During fiscal year 2006, the Commission did not assume responsibility for
any additional private memorials. Through September 30, 2006, Commission
cemeteries contain over 131,000 interments. Over 94,000 Honored War Dead,
whose remains were not recovered, are memorialized in the cemeteries and
federal memorials that encompass over 1,600 acres. This land is provided
to the Commission through host agreements with foreign countries for
permanent use as cemeteries and memorials.

Note 7. Other Liabilities

Other liabilities as of September 30 were as follows:

                                           2006 2005                          
Accrued Salaries and Benefits     $1,315,431 $867,937                      
Unfunded Separation Pay Liability 1,492,136  1,314,784                     
Unfunded Annual Leave             1,213,318  922,144                       
                                     $4,020,885 $3,104,865                    

Under a host  nation agreement,  the Commission's  Italian employees  earn
separation  pay  for  each  year  of  service  with  the  Commission.  The
Commission recognized an unfunded liability  for separation pay for  these
employees of $1,492,136  as of September  30, 2006, and  $1,314,784 as  of
September 30, 2005.

A portion of pension and other retirement benefits (ORB) expense is funded
by an imputed financing source to recognize the amount of pension and  ORB
unfunded  liabilities  assumed  by  OPM.  These  costs  are  computed   in
accordance with cost factors  provided by OPM. For  fiscal year 2006,  the
Commission incurred $1,071,577 of pension and ORB costs, $314,073 of which
was imputed. For fiscal year  2005, the Commission incurred $1,047,468  of
pension and ORB costs, $287,291 of which was imputed. Total imputed  costs
of $661,073  for  fiscal year  2006  and  $567,291 for  fiscal  year  2005
included audit services provided by GAO.

Note 8. Lease Agreements

The  Commission  has  no  capital  leases.  The  Commission's   Arlington,
Virginia, headquarters,  including  office  space for  the  WWII  Memorial
Project, are rented under a 10-year operating lease expiring in July 2007.
The Commission's Mediterranean Regional Office occupies commercial  office
space  under  a  6-year  operating   lease  expiring  in  May  2007.   The
Mediterranean Regional Office Director's living quarters are rented  under
a 6-year operating lease expiring  in December 2007. Two operating  leases
for cemetery superintendent's temporary  living quarters expired in  March
and June 2006, respectively. Rent  expense for fiscal year 2006  operating
leases was $541,501. Future minimum payments due on operating leases as of
September 30, 2006, are as follows:

Fiscal Year 2007 $435,987 2008 25,729 2009 11,396

$473,112

    Note 9. Net Position

Net position balances as of September 30, 2006, were as follows:

General Fund Trust Funds Total

Unexpended Appropriations: Unobligated $19,906,015^1 $19,906,015
Undelivered Orders 13,903,561 13,903,561

$33,809,576 $33,809,576 Cumulative Results of

Operations (deficit): Unrestricted $ (581,346) $ 10,028,457 $ 9,447,111
Undelivered Orders 3,329,750 3,329,750 Temporarily Restricted 110,000
110,000 Permanently Restricted -__ -_

$ (581,346) $ 13,468,207 $ 12,886,861

Total Net Position $33,228,230 $ 13,468,207 $46,696,437

Net position balances as of September 30, 2005, were as follows:

                             General Fund     Trust Funds               Total 
Unexpended Appropriations:                                                 
Unobligated            $15,661,8562                          $15,661,856   
Undelivered Orders     19,088,053      _                      19,088,053   
                          $34,749,909         $         -       $34,749,909   
Cumulative Results of                                                      
Operations (deficit):                                                      
Unrestricted           $(122,568)          $14,481,525       $14,358,957   
Undelivered Orders                                  566,285        566,285 
Temporarily Restricted                              207,040        207,040 
Permanently Restricted                                 -                   
                          $(122,568)          $15,254,850       $15,132,282   
Total Net Position     $34,627,341         $15,254,850       $49,882,191   
1                                                                          

  Includes $7,113,322 for design and construction of the Normandy Interpretive
                         Center, consisting of $98,145

unobligated from a $5,000,000 no-year appropriation earmark for FY 2002;
$479,574 unobligated (after a $26,000 rescission) from a $4,000,000
no-year appropriation for FY 2003; $26,735 unobligated (after a $53,100
rescission) from a $9,000,000 no-year appropriation for FY 2004;
$3,439,868 unobligated (after a $72,800 rescission) from a $9,100,000
no-year appropriation for FY 2005; and $3,069,000 unobligated (after a
$31,000 rescission) from a $3,100,000 no-year appropriation for FY 2006.

Includes $10,003,138 for design and construction of the Normandy
Interpretive Center, consisting of $194,029 unobligated from a $5,000,000
no-year appropriation earmark for FY 2002; $503,577 unobligated (after a
$26,000 rescission) from a $4,000,000 no-year appropriation for FY 2003;
$285,832 unobligated (after a $53,100 rescission) from a $9,000,000
no-year appropriation for FY 2004; and $9,019,700 unobligated (after a
$72,800 rescission) from a $9,100,000 no-year appropriation for FY 2005.

Other Information

                       Required Supplementary Information

American Battle Monuments Commission Other Information September 30, 2006
                                  (Unaudited)

Maintenance, Repairs, and Improvements

The following unaudited information is required supplementary  information
on deferred maintenance and the  condition of real property at  Commission
cemeteries and memorials:

Deferred maintenance is maintenance that was not performed when it  should
have or was scheduled to  be and which, therefore,  is put off or  delayed
for a future period.  Maintenance and repairs  performed on real  property
consisting of  land improvements,  buildings, and  memorials totaled  $2.9
million in fiscal  year 2006  and $4.9 million  in fiscal  year 2005.  For
fiscal years 1998 through 2002,  the Commission received $11.3 million  of
additional appropriations from  the Congress that  enabled it to  entirely
eliminate its deferred maintenance  backlog as of  September 30, 2002.  No
deferred maintenance backlogs existed as of September 30, 2005, and 2006.

Condition assessment surveys, using a five-point scale of one  (excellent)
to five  (very  poor),  identify  needed  future  maintenance  and  repair
projects at cemeteries and memorials in order to maintain real property in
an acceptable  condition of  three  (fair) or  better. These  surveys  are
reviewed and updated  at least  annually by  the Commission's  engineering
staff.  In  addition,  engineering  projects  identified  improvements  in
cemetery irrigation, drainage, roads, parking areas, and buildings. As  of
September 30, 2006,  the Commission has  identified over 200  maintenance,
repair, and improvement projects, with an estimated cost of $12.6 million,
to be performed in future years, subject to available funding.

Schedules of Heritage Assets

The following three pages present unaudited other information not required
by U.S. generally accepted accounting principles on the Commission's 24
cemeteries; 25 federal memorials, monuments, and markers; and six
nonfederal memorials as of September 30, 2006.

                          Schedules of Heritage Assets

                      American Battle Monuments Commission
                          Schedule of Heritage Assets
                               September 30, 2006
                                  (Unaudited)
                                 24 CEMETERIES
Name              Location            Interred Memorialized   Acres    War 
European Region                                                            
Aisne Marne American       Belleau                                         
Cemetery                   (Aisne),      2,289        1,060    42.5   WW I 
                              France                                          
Ardennes American Cemetery Neupre,       5,329          462    90.5  WW II 
                              Belgium                                         
Brittany American Cemetery St. James     4,410          498    27.9  WW II 
                              (Manche),                                       
                              France                                          
Brookwood American         Brookwood,      468          563     4.5   WW I 
Cemetery                   England                                         
Cambridge American         Cambridge,    3,812        5,126    30.5  WW II 
Cemetery                   England                                         
Epinal American Cemetery   Epinal        5,255          424    48.6  WW II 
                              (Vosges),                                       
                              France                                          
Flanders Field American    Waregem,        368           43     6.2   WW I 
Cemetery                   Belgium                                         
Henri-Chapelle American Cemetery         7,992          450    57.0  WW II 
Henri-Chapelle, Belgium                                                    
Lorraine American     St. Avold         10,489          444   113.5  WW II 
Cemetery              (Moselle), France                                    
Luxembourg American   Luxembourg City,   5,076          371    50.5  WW II 
Cemetery              Luxembourg                                           
Meuse-Argonne American Cemetery         14,246          954   130.5   WW I 
Romagne (Meuse), France                                                    
Netherlands      Margraten, Holland      8,301        1,723    65.5  WW II 
American                                                                   
Cemetery                                                                   
Normandy         Colleville-sur-Mer,     9,387        1,557   172.5  WW II 
American         France                                                    
Cemetery                                                                   
Oise-Aisne       Fere-en-Tardenois,                                        
American         France                  6,012          241    36.5   WW I 
Cemetery                                                                   
Somme American   Bony (Aisne), France    1,844          333    14.3   WW I 
Cemetery                                                                   
St. Mihiel       Thiaucourt, Meurthe,    4,153          284    40.5   WW I 
American         France                                                    
Cemetery                                                                   
Suresnes         Seine, France           1,565          974     7.5     WW 
American                                                              I/II 
Cemetery                                                                   
Mediterranean Region                                                       
Florence American     Florence,          4,402        1,409    70.0  WW II 
Cemetery              Italy                                                
North Africa American Carthage,          2,841        3,724    27.0  WW II 
Cemetery              Tunisia                                              
Rhone American        Draguignan,          861          294    12.5  WW II 
Cemetery              Var, France                                          
Sicily-Rome American  Nettuno,           7,861        3,095    77.0  WW II 
Cemetery              Italy                                                
Other                                                                      
Corozal American  Panama City,                                             
Cemetery          Panama                 5,336                 16.0      * 
Mexico City       Mexico City,           1,563                  1.0 Mex Am 
American Cemetery Mexico                                                   
Manila American   Luzon,                17,202       36,285   152.0  WW II 
Cemetery          Phillipines                                              
Subtotal for                           131,062       60,314 1,294.5        
Cemeteries                                                                 
*Acquired by Executive Order from the former                               
Panama Canal Zone.                                                         

 American Battle Monuments Commission Schedule of Heritage Assets September 30,
                                2006 (Unaudited)

                  25 FEDERAL MEMORIALS, MONUMENTS, AND MARKERS

Name                         Location                Interred Memorialized 
East Coast Memorial          New York City, NY                       4,609 
Honolulu Memorial            Honolulu, HI                           28,800 
West Coast Memorial          San Francisco, CA                         412 
Audenarde Monument           Audenarde, Belgium                            
Bellicourt Monument          St. Quentin, France                           
Brest Naval Monument         Brest, France                                 
Cabanatuan Memorial          Luzon, Phillipines                            
Cantigny Monument            Cantigny, France                              
Chateau-Thierry Monument     Chateau-Thierry, France                       
Chaumont Marker              Chaumont, France                              
Gibraltar Naval Monument     Gibraltar                                     
Guadalcanal Memorial         Guadalcanal                                   
Kemmel Monument              Ypres, Belgium                                
Marine Monument Belleau Wood Aisne, France                                 
Montfaucon Monument          Montfaucon, France                            
Montsec Monument             Thiaucourt, France                            
Papua Marker                 Port Moresby, New                             
                                Guinea                                        
Pointe du Hoc Ranger            St. Laurent-sur-Mer,                       
Monument                                      France                       
Saipan Monument              Saipan, Northern Mariana Islands              
Santiago Surrender Tree      Santiago, Cuba                                
Sommepy Monument             Sommepy, France                               
Souilly Marker               Souilly, France                               
Tours Monument               Tours, France                                 
Utah Beach Monument          Sainte Marie-du-Mont, France                  
Western Naval Task                                                         
Force Memorial               Casablanca, Morocco                           

                     Subtotal for Memorials 0 33,821 368.9

                       Grand Total 131,062 94,135 1,663.4

                                     Acres

0.8

1.0

1.3

0.4

1.8

1.0

0.4

                                      58.9

0.1

0.5

0.2

                                     199.6

9.6

                                      47.5

                                      29.8

                                      15.0

0.5

0.5

                                      War

 WW II WW II/Korea/Vietnam WW II WW I WW I WW I WW II WW I WW I WW I WW I WW II
WW I WW I WW I WW I WW II WW II WW II Sp American War WW I WW I WW I WW II

                                     WW II

                      American Battle Monuments Commission
                          Schedule of Heritage Assets
                               September 30, 2006
                                  (Unaudited)
                             6 NONFEDERAL MEMORIALS
Name                                Location                           War 
29th Infantry Division Memorial     Vierville-sur-Mer, France        WW II 
30th Infantry Division Memorial     Mortain, France                  WW II 
6th Engineering Special Brigade     Vierville-sur-Mer, France        WW II 
Memorial                                                                   
351st Bomb Group Memorial           Oundle, England                  WW II 
147th Engineer Battalion Monument   Englesqueville-la-Percee, France WW II 
507th Parachute Infantry Regiment   Amfreville, France               WW II 
Memorial                                                                   

         (196121) Page 33 GAO-07-321 ABMC 2006 and 2005 Financial Audit

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