oversight

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)

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
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