united states General Accounting OiBce Washington, D.C. 20548 Accounting and Information Management Division B-282353 April 8,1999 General Frederick F. Woemer Chairman, American Battle Monuments Commission . Subject: ManagementLetter: American Battle MonumentsCommission’sFinancial Statement Audit for Fiscal Year 1998 Dear General Woerner: This letter provides suggestionsfor improving internal controls and operations at the American Battle Monuments Commission (ABMC). The suggestionsare provided by KPMG LLP, an independent public accounting firm we contracted with to conduct the audit of ABMC’s consolidated financial statementsfor the fiscal year ended September30,1998.’ We concur with KPMG’ssuggestions. A draft of the enclosed KPMGletter was provided to ABMC officials who agreedwith its contents and said that they will consider all the suggestions.We would appreciatereceiving a description and the status of your planned corrective actions within 30 days of the date of this letter. This letter is intended for use by ABMC management,donors to ABMC’sWorld War II Memorial Trust Fund, and the Congress. We are sending copies of this letter to SenatorArlen Spector, Chairman, and SenatorJohn D. Rockefeller IV, Ranking Minority Member, Senate Committee on Veterans’Affairs, and RepresentativeBob Stump, Chairman,and RepresentativeLane Evans,Ranking Minority Member, House Committee on Veterans’ Affairs. We are also sending copies of this letter to The Honorable Robert E. Rubin, Secretary of the Treasury, and The Honorable Jacob J. Lew, Director, Office of Managementand Budget. This letter is a matter of public record and its distribution is not limited. Consequently, copies are available to others on request. ‘Financial Audit: Am ri an Battle Monum nts Comnu‘ss’Io n ts F mancial Statements for Fiical Years 1998 and 1997 (GAO2&I9-74, March l,el999). GAO/AIMD-99-126R AJ3MC 1998 Management Letter B-282353 Should you have any questionsor need assistancein addressingthese items, please contact me or Roger R. Stoltz, AssistantDirector, on (202) 512-9489. David L. Clark Director, Audit Oversight and Liaison Enclosure , GAOh4IM.D99-125R ABMC 1998 Management Letter ENCLOSURE ENCLOSURE KI’MG LLF’MANAGEMENT LElTEJR 2001M Street.N.W WashingWlDC20036 January29, 1999 MANAGEMENT LETTER The Commissioners AmericanBattle MonumentsCommission We have audited the consolidating balance sheets of the American Battle Monuments Commission(the ABMC) as of September30,199s and 1997,and the related consolidating statementsof net cost and changesin net position, budgetary resources, and financing (hereinafterreferredto collectively as the consolidating financial statements)for the year endedSeptember30, 1998, and have issuedour unqualified IndependentAuditors’ Report thereondatedJanuary29,1999. In planning and performing our audit of the consolidating financial statementsof the ABMC we consideredits internal controls in order to determine our auditing proceduresfor the purposeof expressingour opinions on the consolidating financial Statementsand management’sassertions on internal controls over financial reporting. We havenot consideredthe internalcontrols since the date of our report. Two reportableconditions, both of which we consider material weaknesses,have been addressedin our separatereport entitled IndependentAuditors’ Report dated January 29, 1999and are presented,along with our suggestionsfor improvement,as Appendix A to this letter. Appendix B includesother internal control mattersthat have come to our attention and our suggestionsfor improvement. These are less significant matters presented to assist the ABMC in improving its operations,but are not consideredreportableconditions. The statusof audit findings from the 1997audit of the ABMC is presentedin Appendix C. This report is intendedsolely for the information and use of managementof the ABMC, others within the organization,the GeneralAccounting Office, and Congress, and is not intendedto be andshouldnot be usedby anyoneother than the specified parties. We take this opportunityto acknowledgethe courtesyand assistanceextended to us by the personnelof the ABMC during the courseof our examination. 3 GAO/AlMD-99-125R AJ3MC 1998 Management Letter ENCLOSURE ENCLOSURE APPENDIX A Reportableconditionsarematterscoming to our attentionrelatingto significant deficiencies in the designor operationof the internal controls that, in our judgment, could adversely affect the ABMC’s ability to record,process,summarize,and reportfinancial dataconsistent with the assertionsby managementin the consolidatingfinancial statements. Material weaknesses are reportableconditions in which the designor operationof one or moreof the internal control componentsdoes not reduce to a relatively low level the risk that misstatements,in amountsthat would be material in relationto the consolidatingfmancial statementsbeing audited, may occur and not be detectedwithin a timely period by employeesin the normal courseof performingtheir assignedfunctions. We notedcertain mattersdiscussedin the following paragraphsinvolving the internal control over financial reporting and its operation that we consider to be reportableconditions and material weaknesses. Thesetwo conditions were consideredin determiningthe nature,timing, and extent of the proceduresperformed in our audit of the ABMC’s consolidatingfinancial statementsas of andfor the year endedSeptember30,1998. 1. Inadeauate Controls Over Information Technolow Svstems The ABMC’s current information technology systems utilized by the Washington Headquarters andthe foreignregional offices containthe following weaknesses: Thereis no userdocumentationto supportthe internallygeneratedaccountingdatabases: FoxPro,dBaseIV,andClipper. The userslearnhow to usethe systemthrougbon-the-job training, althoughthey do not have any support to e&plain how functions should be performedand questionsanswered. Accounting personnel in the European Regional Oflice have access to the file maintenance functionsthat include the genera1ledgeraccounts,object codes,andvendor listings. These individuals are also responsiblefor entering the financial data and trackingfinancial obligations. The Pacific Regional Offrce does not require system passwordsto be changedon a periodicbasis. Usersare not requiredto changetheir passwordsafter the initial sign-on to the network. The Headquarters andthe Pacific RegionalOffrce do not have businesscontinuityplans to addresscontinuedoperationsof the agency in the event of a disaster. Sucha plan shouldincludeall aspectsof the businessoperations,not only the computersystems. 4 GAO/AIMD-99-125R ABMC 1998 Management Letter ENCLOSURE ENCLOSURE APPENDIX A (Continued) l The Pacific Regional Office does not have a secureoff-site storagefacility to rotate backup tapes on a regular basis. Ahhough the ABMC -personnelresponsiblefor performing the backup procedurestake the tapeshomewith them, thesesites are not consideredsecuresitesthat ensurepropercontrol andsafeguarding of financialdata. * The MediterraneanRegionalO&e hasnot beenprovidedsufftcienttrainingin systems administration,supporthas not beenprovidedto all personnelin chargeof the systems, and thereis no backupsystemsadministrator. We suggestthat the ABMC: l Take stepsto correct file access,changepasswords,developa businesscontinuityplan, and identify a secureoff-site storagefacility as discussedabove. l Complete the procurementand implementationof a modem, integratedfinancial information system, now in progress,that contains features to correct database documentationand providetraining asdiscussedabove; l Assign a qualified, full time informationsystemsofficer to help correctproblemsnoted aboveandmonitor systems;and l Considercommon informationcontrol procedurespromulgatedin JPMIP’sFramework for Federal Financial System Requirements. 2. Inaccurate Recordiw of Accounts Pavable and Other Accruals The ABMC haswritten policies and procedures to ensureproperaccrualof accountspayable and other accruals at the Headquartersand regional of&es, but has not effectively implementedthem. We notedthe following conditions: l The Headquartersunderstatedliabilities and expensesby $895,827and misclassified liabilities of $895,671. . The EuropeanRegional Office understatedliabilities and expensesby $876,169and overstatedaccruedannualleaveby $31,650. We were able to obtain assuranceover the properbalanceof accountspayableand accruals at September30, 1998throughperformingdetailedcutoff test work at Headquartersandall regionalofftces. All materialadjustmentsproposedby us wererecordedby theABMC. We suggestthat the ABMC follow its written policy on cut-off proceduresat fiscal yearend to ensureproperrecordingof accountspayableandotheraccruals. 5 GAO/-D-99-125R ABMC 1998 Management Letter ENCLOSURE ENCLOSURE APPENDIX B 1) Record Imprest Fund During our testworkover cash,we notedthat the ABMC’s EuropeanRegionalOffice did not recorda MediterraneanRegionimpresttid in its September 30,199s tial balance. We suggestthat the ABMC’s EuropeanRegionalOffice recordall imprestcashfunds in the trial balance. 2) Translate Foreign Currency Account Balance at the United States Treasury Exchange Rate During our testwork over cash,we noted the ABMC’s Pacific RegionalOffice usedan old purchaserate insteadof Treasury’sSeptember30, 1998exchangerate to translateits local currencyto U.S. dollars. We suggestthe ABMC’s Pacific RegionalOffice translateforeigncurrencyaccountbaIances into U.S. dollarsusingthe Treasuryexchangerate. 3) Improve Contribution Accounting Controls During fiscal year 1997,the ABMC establisheda policy on accountingfor contribu&ons. However,duringour contributiontestwork,we notedthat ABMC: l Recordedunconfirmedpledgesof $250,000as contributions; l Did not calculatethe presentvalue of its contributions; l Did not correcdydisclosecontributionswith restrictions;and l Did not recordrevenueof $25,000for the in-kind servicesreceived. We suggestthe ABMC: l Modify its accountingpolicy for contributionsandthen follow the policy to: -Recordonly confirmedpledgesas contributions; -Calculatepresentvalue of contributions,usingthe treasurydistount rate; -Disclosethe amountof contributionswith restrictions;and -Recognizerevenuefor in-kind serviceswhenreceived. 6 GAO/AIMD-99-125R ABMC 1998 Management Letter ENCLOSURE ENCLOSURE APPENDIXB (Continued) l Reviewthe recordinganddisclosureof contributionaccountsas part of year end closing procedures to assureproperaccountinganddisclosure. 4) Improve Property, Plant, and Equipment Controls Duringour testworkoverproperty,plant,andequipment@‘P&E),we noted: l The ABMC MediterraneanRegional Office recordeddepreciationincorrectly for a capitalizedasset; l The ARMC EuropeanRegionalOffice did not capitalizea van that was acquiredduring FY 98; and l The ABMC EuropeanRegionalOffice recordedPP&E at the amountobligatedrather thantheactualexpenseamount. We suggestthat: l The ABMC Mediterranean RegionalOffice reviewdepreciationamountsas part of year endclosingprocedures to ensureaccuraterecording; l The ABMC EuropeanRegionalOfftce review object class 3200 transactionsin the accountingsystemas part of year end closingproceduresto ensurethat all equipment greaterthan$25,000is recordedasa capitalizedasset;and l All PP&Ebe capitalizedat actualcost. Liabilities 5) Improve Liabilities and Expenditures Accounting Controls During our testworkover accountspayableand accruedsalariespayable,we noted that the ABMC incorrectlyaccounted for liabilities andexpenses in its financial statements: l European RegionalOffice liabilities of $29,004weremisclassified;and l Headquarters WWII expensewas overstatedby $12,611. We suggestthat the ABMC reviewits recordingandclassificationof liabilities and expenses aspartof yearendclosingproceduresto assureproperaccountingand disclosure. Exnenses 6) Improve Receipt and Expenditure Controls During our testworkover receiptsand expendituresin Manila, we noted that the ABMC’s PacificRegionalOffice canimproveits internalcontrolsoverreceiptsandexpenditures.We found: GAO/AIMD-99-125R ABMC 1998 Management Letter ENCLOSURE ENCLOSURE APPENDIX B (Continued) l No supportingdocumentationfor five acknowledgmentreceipts; l Missingrequisitionsfor nine expenditures; l Missingapprovalauthorityfor two expenditures; l Missing minimumnumberof proper vendor quotationsfor six expendituresexceeding $2,500;and l Twelve salesinvoiceswere’not stampedreceivedand verified to indicate inspectionof goods. Further,our testingof the ABMC expensecontrolsdisclosedthe following: l The EuropeanRegionalOffrce had sixteenpaymentvoucherswith no receivingstamps; l The WashingtonD.C. Office had five paymentvoucherswith no receivingstamps;and l The MediterraneanRegional Offtce had two time sheets,which were not properly authorized. We suggestthe ABMC improveexpensecontrolsby: l Documentingreceiptfor all goodsor servicesbeforethe appropriateinvoice is paid; l Obtainingapprovedrequisitionsfor all expenditures; l Obtainingminimumvendorquotationsfor purchasesover $2,500;and l Approvingall time sheets. BudPetarv Accounts 7) Improve Budgetary Accounting Controls Our testing of budgetaryaccountingcontrols at the ABMC Headquartersdisclosedthe following: l Sixteenobligationswere recordedat the time of disbursementrather than at time the goodswereordered; l Seven obligation amounts from the obligating document did not agree with the obligationamountsrecordedin the accountingsystem; l Threeobligatingdocumentsfor travel did not containa dollar amount; l Oneobligationwasrecordedfor the wrong vendor;and l Obligatingdocumentswerenot usedfor vouchersthat were paid to onevendor. We suggestthat: l The ABMC strictly enforce its policy of preparing an obligation documentfor all expendituresin the accountingsystemwhen ordered; l All travelauthorizationscontainan estimateof fares,per diem, and othercosts; l The ABMC agreevendornameon obligationsand disbursements;and 8 GAO/AlMD-99-125R ABMC 1998 Management Let& ENCLOSURE ENCLOSURE APPENDIX B (Continued) l The ABMC reconcileall obligatingdocumentsfor the monthto the amountreportedin the accountingsystem. Financial Reporting 8) Implement the Applicable NClB Standards The A3MC’s financialstatementsdo not presentinformationaboutthe WorldWar II Memorial Trust Fund in a form that is consistentwith the requirementsof The National Charities InformationBureau(NCIB) Standards.This well respected,nationalcharityratingagencyhas publishednine standards on governance,policy andprogramfundamentals, andreportingand fiscal fundamentals.A poor compliancereport from them could negativelyimpact WWII fund raising. We suggestthat the ABMC staff review the standardsand presentthose applicableto the Commissionfor adoptionand implementation. Electronic Data Processiw 9) Obtain Year 2000 Compliant Software During our review of generalEDP controls,we notedthat the accountingdatabasesusedby the ABMC in the Washington,EuropeanRegionalandMediterranean RegionalOffices are not year 2000 compliant. Managementhas identifiedthis condition,and a new, compliant systemis being implemented. We suggest that ABMC complete its implementationof the new integratedfinancial managementsystemin FY 1999. GAO/AIMD-99-125R ABMC 1998 Management Letter ENCLOSURE ENCLOSURE APPENDIX C t Appendix A 2.8 improper Recording of Accounts Payable and Other .4ccmals Repeated - Appendix A 3.* Inadequate Preparation and Approval of Bank Reconciliation of Foreign Bank Correcd and .-Wcounts Closed 4. Lack of Documented Foticies and Proceduresfor Fund Balance w&h Treasury Corrected and Closed European regional office did not perform surprise cash counts of cemetery Closed imprest funds. Not properly disclosing and mplaining budget clearing account (BCA) Closed differences in the Financial Statements Foreign bank account balances were not translated at the United States Closed Treasury rates on September 50,1997. AB,MC should use the effective interest method to amortize their investment 0Pe-n premiums and discounts. 7. ABMC does not perform analytical review procedures. Closed 8. ABMC does not have a consistent personal property accountability system. Closed The WDC ofice does not perform periodic physical inventories. 9. ABMC does not fully comply with the Prompt Payment Act. open IO. .4BMC has not updated individual personnel files for genera) salary increases Closed in the European and Mediterranean Regions. 11. .4BMC does not have curreM. written administrative fund control procedures. Open I?. ABMC’s Federal Managers Financial Inrqrity .4ct (FMFIA) report may be Closed incomplete. 1%. There is no segregation of duties between general ledger responsibilities and OIxn reconciliation of the general ledger to the bank statements. 14. There is no segregation of duties between purchase order approval and Closed certification ofgoods as received and acccpred. 15. ABMC disbursed SS.lX7 to an individual for services performed after the Closed contract expired. 16. In the European Region, cemetery superintendents approve and sign their own Closed timesheers. 17. There is no independent check of the payroll calculated by the automated Closed system or by manual calculation in the European Regional Dflice. IS. The Xleditermnean Regional Of&e does not post transactions IO the genera) Ok=” ledger timely. *These items are also considered material weaknesses. Open comments from the FY i 997 audit have not been repeated in Appendix B of this report. (911938) 10 GAO/AIMD-99-125R ABMC 1998 Management Letter Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Management Letter: American Battle Monuments Commission's Financial Statement Audit for Fiscal Year 1998
Published by the Government Accountability Office on 1999-04-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)