Financial Audits: American Battle Monuments Commission (Testimony,
06/06/2000, GAO/T-AIMD-00-211).

Pursuant to a congressional request, GAO discussed American Battle
Monuments Commission's (ABMC) financial statements audits, focusing on:
(1) the legislative initiatives that were designed to improve financial
management across the federal government; (2) the history of ABMC's
financial accountability, focusing specifically on the World War II
memorial fund; and (3) the results of GAO's most recent financial
audits.

GAO noted that: (1) several legislative initiatives were designed to
subject the federal government to the same fiscal discipline imposed for
years on the commercial sector and state and local governments and to
provide Congress, agency officials, and others with reliable information
through audited financial statements; (2) the Veterans' Benefits
Improvements Act of 1996, requires ABMC, beginning with fiscal year (FY)
1997, to prepare agencywide financial statements consistent with the
requirements for major departments and agencies and requires GAO to
audit them; (3) the statutory requirements put ABMC's financial
reporting on a par with major federal departments and agencies and help
to institutionalize accountability over ABMC's financial operations; (4)
ABMC did not undergo an agencywide comprehensive financial audit until
FY 1997; (5) ABMC was one of the first federal agencies to comply early
with the new federal accounting standards developed to implement the
Chief Financial Officers Act; (6) one key area was ABMC's compliance
with a new accounting standard requiring the reporting of deferred
maintenance cost estimates; (7) ABMC combined the World War II memorial
fund with other trust funds in the balance sheet for FY 1997; (8) ABMC
began providing a separate breakout for the World War II memorial fund
in the balance sheet beginning in FY 1998; (9) the separate breakout,
which is provided for all of ABMC's financial statements, allows readers
to focus on the World War II memorial fund, which now comprises the
majority of ABMC's financing sources and assets; (10) GAO gave another
positive report on ABMC's financial statements for FY 1999; (11) GAO did
report one condition regarding internal control weaknesses over
information technology systems; (12) GAO did not consider these
weaknesses to be material to the financial statements, primarily because
all of the automated accounting and disbursing systems are not
accessible from external sources and are not electronically
interconnected between ABMC offices; and (13) the major progress that
ABMC's management has made to ensure financial accountability should go
a long way in assuring Congress, the public, veterans, donors, and
others that contributions to the World War II memorial fund are being
properly accounted for and safeguarded.

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

 REPORTNUM:  T-AIMD-00-211
     TITLE:  Financial Audits: American Battle Monuments Commission
      DATE:  06/06/2000
   SUBJECT:  Financial statement audits
	     Auditing procedures
	     Internal controls
	     Reporting requirements
	     Financial management
	     Accountability
	     Accounting standards
	     Federal agency accounting systems
IDENTIFIER:  World War II Veterans Memorial Fund

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GAO/T-AIMD-00-211
   * For Release on Delivery
     Expected at
     10 a.m.

Tuesday,

June 6, 2000

GAO/T-AIMD-00-211

financial audits

American Battle Monuments Commission

        Statement of David L. Clark

Director, Audit Oversight and Liaison

Accounting and Information Management Division

Testimony

Before the Subcommittee on National Security, Veterans Affairs, and
International Relations, Committee on Government Reform, House of
Representatives

United States General Accounting Office

GAO

Mr. Chairman and Members of the Subcommittee:

I am pleased to discuss our financial audits of the American Battle
Monuments Commission (ABMC), including ABMC's management of the World War II
memorial fund. First, though, I will briefly describe legislative
initiatives over the past several years to improve financial management
across the federal government, and how our financial audits of ABMC fit into
that larger context. Second, I will discuss the history of ABMC's financial
accountability, focusing specifically on the World War II memorial fund.
Third, I will discuss the results of our most recent financial audits.

Legislative Initiatives to Improve Federal Financial Management

These legislative initiatives were designed to subject the federal
government to the same fiscal discipline imposed for years on the commercial
sector and state and local governments and to provide the Congress, agency
officials, and others with reliable information through audited financial
statements. Financial audits determine the reliability of the financial
information reported, provide information on the adequacy of systems and
controls used to ensure accurate financial reports, safeguard assets, and
report on agencies' compliance with laws and regulations.

The Veterans' Benefits Improvements Act of 1996 requires ABMC, beginning
with fiscal year 1997, to prepare agencywide financial statements consistent
with the requirements for major departments and agencies and requires GAO to
audit them. The statutory requirements put ABMC's financial reporting on a
par with major federal departments and agencies and help to institutionalize
accountability over ABMC's financial operations.

Accountability Over the World War II Memorial Fund

In fiscal year 1993, Congress enacted the World War II 50th Anniversary
Commemorative Coins Act, directing that a portion of the surcharge proceeds
be deposited in a fund for expenses incurred in establishing a World War II
memorial. In recognition of the importance of ensuring accountability over a
World War II fund, the Coin Act required us to annually audit the revenues
and expenditures of the fund to be established in the Treasury.

At that time, ABMC was required to have accounting systems and internal
controls that provided effective control over, and accountability for,
assets for which it was responsible, but it was not required to prepare
agencywide financial statements and have them audited. As a result, ABMC did
not undergo an agencywide comprehensive financial audit until fiscal year
1997.

ABMC made significant strides in fiscal year 1997 to strengthen its
financial management and comply with the new financial requirements. In
fact, ABMC was one of the first federal agencies to comply early with new
federal accounting standards developed to implement the CFO Act. One key
area was ABMC's compliance with a new accounting standard requiring the
reporting of deferred maintenance cost estimates. As a result of complying
with the standard, ABMC identified and publicly reported the need for
engineering maintenance projects totaling approximately $10.6 million to
maintain real property in acceptable condition. The Congress subsequently
provided ABMC with additional funds to help reduce deferred maintenance,
which decreased to approximately $7.5 million by the end of fiscal year
1999.

ABMC combined the World War II memorial fund with other trust funds in the
balance sheet for fiscal year 1997. Partly in response to our suggestion,
ABMC began providing a separate breakout for the World War II memorial fund
in the balance sheet beginning in fiscal year 1998. The separate breakout,
which is provided for all of ABMC's financial statements, allows readers to
focus on the World War II memorial fund, which now comprises the majority of
ABMC's financing sources and assets.

As a result of ABMC's initial efforts, we were able to report that ABMC's
fiscal year 1997 and 1998 financial statements we audited were reliable in
all material respects and that we found no reportable instances of
noncompliance with laws and regulations that we tested. We did identify
several financial management concerns, almost all of which ABMC has now
addressed and successfully resolved. For example, ABMC has

   * strengthened its controls over cash by performing and approving monthly
     reconciliations with foreign bank accounts and by developing and
     implementing written policies and procedures for reconciling its fund
     balance with the Treasury,
   * strengthened its recording of accounts payable and other accruals by
     developing and implementing specific written policies on those issues,
     and
   * strengthened its controls over goods purchased by better segregating
     duties among ABMC staff.

Audit Results for Fiscal Year 1999

We did report one condition regarding internal control weaknesses over
information technology systems. The weaknesses included, for example, (1)
incomplete user documentation for accounting systems used by ABMC's European
and Mediterranean Regional Offices, resulting in users having to learn how
to use the systems mainly through on-the-job training, (2) certain systems
passwords and other access vulnerabilities, and
(3) inadequate continuity plans for ensuring successful manual operations
and timely recovery of automated processing in the event of a business
interruption. We reported that ABMC plans to resolve these weaknesses
through the acquisition and implementation of a new accounting system by
fiscal year 2001 and through efforts to be taken in tandem with the new
system.

We did not consider these weaknesses to be material to the financial
statements, primarily because all of the automated accounting and disbursing
systems are not accessible from external sources and are not electronically
interconnected between ABMC offices. Also, ABMC has a series of manual
reviews and reconciliations that must be performed before any financial
transactions can be processed and paid. A material weakness exists 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 tasks.

ABMC's success in preparing agencywide financial statements, and attaining
an unqualified opinion on them, are significant milestones in
institutionalizing sound financial management and organizational
accountability. In contrast, many major federal departments and agencies
still cannot produce financial statements that are reliable in all material
respects. Agencies continue to be plagued by significant financial systems
weaknesses, problems with fundamental recordkeeping and financial reporting,
incomplete documentation, and weak internal control, including computer
controls.

The major progress that ABMC's management has made to ensure financial
accountability should go a long way in assuring the Congress, the public,
veterans, donors, and others that contributions to the World War II memorial
fund are being properly accounted for and safeguarded. In that regard, we
suggest that ABMC consider including its audited financial statements in its
annual report. Doing so would allow ABMC to link management, performance,
and financial information in one place and better facilitate oversight by
the Congress and others.

(911989)

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