oversight

Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 1998 and 1997

Published by the Government Accountability Office on 1999-03-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Committees




March 1999
                 FINANCIAL AUDIT
                 American Battle
                 Monuments
                 Commission’s
                 Financial Statements
                 for Fiscal Years 1998
                 and 1997




GAO/AIMD-99-74
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division

      B-282049

      March 1, 1999

      The Honorable Arlen Specter
      Chairman
      The Honorable John D. Rockefeller, IV
      Ranking Minority Member
      Committee on Veterans’ Affairs
      United States Senate

      The Honorable Bob Stump
      Chairman
      The Honorable Lane Evans
      Ranking Minority Member
      Committee on Veterans’ Affairs
      House of Representatives

      This report presents the results of the audit of the American Battle
      Monuments Commission’s (ABMC) financial statements for the fiscal years
      ended September 30, 1998, and 1997. We prepared this report in response
      to 36 U.S.C. 2103.

      One of the ABMC’s responsibilities is to design and construct a World War II
      memorial to honor members of the U.S. Armed Forces who served in that
      war and to commemorate U.S. participation in that conflict. The ABMC’s
      financial statements include a trust fund established to pay for the
      memorial. The trust fund includes donations from the federal government
      as well as veterans groups and others. This report is intended for use by
      those donors as well as other interested parties.

      We are sending copies of this report to the Senate and House Committees
      on Appropriations; the Secretary of the Treasury; the Director of the Office
      of Management and Budget; the Chairman of the ABMC; and other
      interested parties. Copies will be made available to others upon request.




      Page 1                         GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
B-282049




Should you or your staffs have any questions concerning the audit, please
contact me on (202) 512-9489 or Roger Stoltz, Assistant Director, on
(202) 512-9408.




David L. Clark
Director, Audit Oversight
  and Liaison




Page 2                        GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Page 3   GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Contents



Letter                                                                                               1


Opinion Letter                                                                                       6


Appendix I                                                                                          12
                         Independent Auditors’ Report                                               12
Report on Audit of the   ABMC Assertion Letter on Internal Controls                                 20
American Battle          ABMC Annual Financial Report                                               22
                         Overview                                                                   23
Monuments                Consolidating Balance Sheet                                                30
Commission               Consolidating Statement of Net Cost and Changes in Net Position            31
                         Consolidating Statement of Budgetary Resources                             32
                         Consolidating Statement of Financing                                       33
                         Notes to the Consolidating Financial Statements                            34
                         Required Supplementary Stewardship Information                             45
                         Statement of Heritage Assets                                               46




                         Abbreviations

                         ABMC      American Battle Monuments Commission
                         CPA       certified public accounting
                         FMFIA     Federal Managers’ Financial Integrity Act of 1982
                         OMB       Office of Management and Budget
                         RSSI      Required Supplementary Stewardship Information


                         Page 4                       GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Page 5   GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                           United States
GAO                        General Accounting Office
                           Washington, D.C. 20548

                           Accounting and Information
                           Management Division

                           B-282049



                           General Frederick F. Woerner, Chairman
                           American Battle Monuments Commission

                           In accordance with 36 U.S.C. 2103, as codified by Public Law 105-225,
                           August 12, 1998, we are responsible for conducting audits of the
                           agencywide financial statements of the American Battle Monuments
                           Commission (ABMC). To help fulfill these responsibilities, we contracted
                           with the independent certified public accounting (CPA) firm of KPMG LLP.
                           KPMG’s report dated January 29, 1999, is presented in appendix I.

                           We concur with KPMG’s report on the following:

                       •   The ABMC’s consolidating financial statements as of and for the fiscal year
                           ended September 30, 1998, and its consolidated balance sheet as of
                           September 30, 1997, were reliable in all material respects.
                       •   Because fiscal year 1997 was a first year audit, it was not feasible to
                           extend the necessary auditing procedures to determine if the ABMC’s
                           remaining consolidated financial statements for the fiscal year ended
                           September 30, 1997, were reliable in all material respects.
                       •   ABMC management fairly stated that internal controls as of September 30,
                           1998, were effective in (1) safeguarding assets against loss, (2) assuring
                           material compliance with relevant laws and regulations, and (3) preparing
                           performance information. However, ABMC management also fairly stated
                           that internal controls as of September 30, 1998, were not effective in
                           ensuring that transactions were properly recorded, processed, and
                           summarized to permit the preparation of reliable financial statements and
                           required supplementary stewardship information (RSSI). In this regard,
                           KPMG noted two areas of reportable conditions, which it also considered
                           to be material weaknesses.
                       •   No reportable instances of noncompliance with laws and regulations
                           tested which could have a direct and material effect on the ABMC’s
                           consolidating financial statements were found.


                           We concur with KPMG’s opinion that the ABMC’s fiscal year 1998
Opinion on Financial       consolidating financial statements and its fiscal year 1997 consolidated
Statements                 balance sheet are presented fairly, in all material respects, in conformity
                           with a comprehensive basis of accounting other than generally accepted
                           accounting principles as specified in Office of Management and Budget




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                      (OMB) Bulletin No. 97-01, Form and Content of Agency Financial
                      Statements, as amended.

                      Because fiscal year 1997 was the first year that the ABMC was required to
                      prepare agencywide financial statements and have them audited, the scope
                      of KPMG’s work was not sufficient to express an opinion on the
                      consolidated statements of net cost and changes in net position; budgetary
                      resources; and financing because it was not feasible to extend audit
                      procedures to audit opening balances as of October 1, 1996.

                      The fiscal year 1998 overview and the required supplementary stewardship
                      information, consisting of a statement of heritage assets, was included for
                      the purpose of additional information and was read for consistency, but
                      was not audited.


                      We concur with KPMG’s opinion that the ABMC management fairly stated
Opinion on            that internal controls in place as of September 30, 1998, provided
Management’s          reasonable assurance that controls were effective in (1) safeguarding
Assertion About the   assets against loss from unauthorized acquisition, use, or disposition,
                      (2) assuring material compliance with laws governing the use of budget
Effectiveness of      authority and other relevant laws and regulations, and (3) ensuring that
Internal Controls     transactions and other data supporting performance information were
                      properly recorded, processed, and summarized.

                      In addition, we concur with KPMG’s opinion that ABMC management also
                      fairly stated that internal controls in place as of September 30, 1998, did
                      not provide reasonable assurance that transactions were properly
                      recorded, processed, and summarized to permit the preparation of reliable
                      financial statements and RSSI, in accordance with OMB Bulletin No. 97-01,
                      Form and Content of Agency Financial Statements, as amended. The ABMC
                      made its assertion based upon criteria established under the Federal
                      Managers’ Financial Integrity Act of 1982 (FMFIA) and OMB Circular No.
                      A-123, Management Accountability and Control.

                      KPMG limited its internal control testing to those controls necessary to
                      achieve the objectives outlined in its opinion on management’s assertion
                      about the effectiveness of internal controls. Because of inherent
                      limitations in internal control, fraud may occur and not be detected. KPMG
                      also cautions that projecting its evaluation of internal controls over
                      financial reporting to future periods is subject to the risk that internal
                      control procedures may become inadequate because of changes in



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                            B-282049




                            conditions, or that the effectiveness of the design and operations of the
                            policies and procedures may deteriorate.


                            The fiscal year 1997 audit identified four reportable conditions, two of
Reportable Conditions       which were corrected and two of which remain uncorrected as of the end
                            of fiscal year 1998. The four conditions are summarized below and the two
                            uncorrected conditions are discussed in more detail in the enclosed KPMG
                            report. The fiscal year 1998 audit noted no new reportable conditions. A
                            number of less significant items, along with suggestions for improvements,
                            will be presented in a separate management letter to the ABMC.

                        •   Inadequate Preparation and Approval of Bank Reconciliations of Foreign
                            Bank Accounts was corrected during fiscal year 1998 by the timely
                            preparation and approval of monthly bank reconciliations to general
                            ledger balances.
                        •   Lack of Documented Policies and Procedures for Fund Balances with
                            Treasury was corrected during fiscal year 1998 by obtaining and
                            implementing the most recent guidance from Treasury and the timely
                            reconciliation of differences between Treasury and ABMC balances.
                        •   Inadequate Controls Over Information Technology Systems was a material
                            weakness at the end of both fiscal years 1997 and 1998. The fiscal year
                            1997 audit identified 11 problems in this area. During fiscal year 1998, the
                            ABMC corrected five of the problems, such as strengthening controls over
                            invalid attempts to sign on to systems, but did not completely correct the
                            remaining six problems, such as the need to periodically change systems
                            passwords in one office.

                            The ABMC is in the process of upgrading its systems in an effort to correct
                            inadequate controls over information technology systems. During fiscal
                            year 1998, with assistance from Treasury’s Financial Management Services
                            Center, the ABMC developed a design and implementation plan for an
                            integrated, off-the-shelf accounting system. The new system is intended to
                            conform with all current guidance and be Year 2000 compliant.1 The
                            ABMC’s fiscal year 1998 and 1999 budgets included total funding of $700,000
                            that is to be used to install the new accounting system during 1999.



                            1
                             The Year 2000 problem is rooted in the way dates are recorded and calculated in many computer
                            systems. For the past several decades, systems have typically used two digits to represent the year in
                            order to conserve on electronic data storage and reduce operating costs. With this two-digit format,
                            however, the year 2000 is indistinguishable from the year 1900. As a result, system or application
                            programs that use dates to perform calculations, comparisons, or sorting may generate incorrect
                            results when working with years after 1999.



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                           B-282049




                       •   Inaccurate Recording of Accounts Payable and Other Accruals was a
                           material weakness at the end of both fiscal years 1997 and 1998. The fiscal
                           year 1997 audit identified five problems in this area. During fiscal year
                           1998, the ABMC corrected four of the problems, such as developing written
                           policies for accruals, but did not correct the remaining problem regarding
                           ineffective recognition of accounts payable and accruals. This remaining
                           problem required material audit adjustments to correct ABMC’s fiscal year
                           1998 financial statements.


                           KPMG also reported that the results of its tests of the ABMC’s compliance
Compliance With            with certain provisions of laws and regulations disclosed no instances of
Laws and Regulations       noncompliance that could have a direct and material effect on the
                           financial statement amounts.

                           KPMG further stated that the objective of its audits was not to provide an
                           opinion on compliance with certain provisions of laws and regulations,
                           and, accordingly, KPMG did not express such an opinion. We concur with
                           KPMG’s conclusions regarding the ABMC’s compliance with laws and
                           regulations.


                           ABMC     management is responsible for
Objectives, Scope,
and Methodology        •   preparing agencywide financial statements, beginning for fiscal year 1997,
                           in conformity with the basis of accounting described in note 1;
                       •   maintaining adequate internal controls designed to fulfill control
                           objectives; and
                       •   complying with applicable laws and regulations.

                           We are responsible for obtaining reasonable assurance about whether
                           (1) the ABMC’s financial statements are reliable (free of material
                           misstatement and presented fairly, in all material respects, in conformity
                           with the basis of accounting described in note 1) and (2) management’s
                           assertion about the effectiveness of internal controls is fairly stated, in all
                           material respects, based upon criteria established under FMFIA and OMB
                           Circular No. A-123 Management Accountability and Control. We are also
                           responsible for testing compliance with selected provisions of laws and
                           regulations and for performing limited procedures with respect to certain
                           other information appearing with the ABMC’s financial statements.




                           Page 9                          GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                     B-282049




                     To help fulfill these responsibilities, we contracted with the independent
                     CPA firm of KPMG LLP to perform audits of the ABMC’s financial statements
                     in accordance with generally accepted government auditing standards and
                     GAO’s Financial Audit Manual. We evaluated the nature, timing, and extent
                     of the work, monitored progress throughout the audits, reviewed the
                     workpapers of the firm, met with partners and staff members, evaluated
                     key judgments, met with officials of the ABMC, performed independent
                     tests of the accounting records, and performed other procedures we
                     deemed appropriate in the circumstances. The audits were conducted in
                     accordance with generally accepted government auditing standards.


                     KPMG discussed the results of its work with ABMC management who
Agency Comments      provided comments on a report draft and who agreed with the
and Our Evaluation   presentation in KPMG’s report contained in appendix I.




                     David L. Clark
                     Director, Audit Oversight
                       and Liaison

                     January 29, 1999




                     Page 10                       GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Page 11   GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Appendix I

Report on Audit of the American Battle
Monuments Commission

Independent Auditors’ Report




                               Page 12   GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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                                         Appendix I
                                         Report on Audit of the American Battle
                                         Monuments Commission




ABMC Assertion Letter on Internal Controls




                                         Page 20                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Appendix I
Report on Audit of the American Battle
Monuments Commission




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                               Appendix I
                               Report on Audit of the American Battle
                               Monuments Commission




ABMC Annual Financial Report




                               Page 22                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
           Appendix I
           Report on Audit of the American Battle
           Monuments Commission




Overview




           Page 23                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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                              Appendix I
                              Report on Audit of the American Battle
                              Monuments Commission




Consolidating Balance Sheet




                              Page 30                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                                         Appendix I
                                         Report on Audit of the American Battle
                                         Monuments Commission




Consolidating Statement of Net Cost and Changes in Net Position




                                         Page 31                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                                        Appendix I
                                        Report on Audit of the American Battle
                                        Monuments Commission




Consolidating Statement of Budgetary Resources




                                        Page 32                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                                       Appendix I
                                       Report on Audit of the American Battle
                                       Monuments Commission




Consolidating Statement of Financing




                                       Page 33                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                                          Appendix I
                                          Report on Audit of the American Battle
                                          Monuments Commission




Notes to the Consolidating Financial Statements




                                          Page 34                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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Appendix I
Report on Audit of the American Battle
Monuments Commission




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                                       Appendix I
                                       Report on Audit of the American Battle
                                       Monuments Commission




Required Supplementary Stewardship Information




                                       Page 45                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
                               Appendix I
                               Report on Audit of the American Battle
                               Monuments Commission




Statement of Heritage Assets




                               Page 46                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
           Appendix I
           Report on Audit of the American Battle
           Monuments Commission




(911902)   Page 47                             GAO/AIMD-99-74 ABMC 1998 and 1997 Financial Audit
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