oversight

Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 2002 and 2001

Published by the Government Accountability Office on 2003-02-28.

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

                United States General Accounting Office

GAO             Report to Congressional Committees




February 2003
                FINANCIAL AUDIT
                American Battle
                Monuments
                Commission’s
                Financial Statements
                for Fiscal Years 2002
                and 2001




GAO-03-444
                a
                                                    February 2003


                                                    FINANCIAL AUDIT

                                                    American Battle Monuments
 Highlights of GAO-03-444, a report to the
 Senate and House Committees on
                                                    Commission’s Financial Statements
 Veterans’ Affairs                                  for Fiscal Years 2002 and 2001



In accordance with 36 U.S.C. 2103,                  In our opinion, the financial statements of the American Battle Monuments
we are responsible for conducting                   Commission as of September 30, 2002, and 2001, and for the fiscal years then
audits of the agencywide financial                  ended, are presented fairly, in all material respects, in conformity with U.S.
statements of the American Battle                   generally accepted accounting principles. Also in our opinion, the
Monuments Commission. We                            Commission maintained effective internal control over financial reporting
audited the financial statements of
the Commission for the fiscal years
                                                    (including safeguarding of assets) and compliance with laws and regulations
ended September 30, 2002, and                       as of September 30, 2002. In addition, we found no instances of Commission
2001. The audits were done to                       noncompliance in fiscal year 2002 with selected provisions of laws and
determine whether, in all material                  regulations we tested.
respects, (1) the Commission’s
financial statements were reliable,                 However, our work identified three deficiencies in internal controls over
(2) Commission management                           information technology as of September 30, 2002, that we considered to be a
maintained effective internal                       reportable condition. Commission management reported these deficiencies
control over financial reporting and                in its fiscal year 2002 report required by the Federal Managers’ Financial
compliance with laws and                            Integrity Act and plans to substantially implement corrections in fiscal year
regulations, and (3) Commission                     2003.
management complied with
applicable laws and regulations.
                                                    For fiscal year 2002, the Commission spent $28.6 million of appropriated
                                                    funds to maintain its 24 cemeteries and 25 federal memorials. It also spent
The American Battle Monuments                       $29.8 million of private contributions and investment earnings, primarily for
Commission was created in 1923 to                   construction-in-progress of the World War II Memorial that is expected to be
commemorate the sacrifices and                      dedicated on Memorial Day 2004. With $11.3 million of appropriations from
achievements of U.S. Armed Forces                   Congress since fiscal year 1998, the Commission was able to eliminate its
where they have served overseas                     backlog of over 500 deferred maintenance projects as of September 30, 2002.
since April 6, 1917, and locations
within the United States as directed
                                                    The Commission’s North Africa American Cemetery in Carthage, Tunisia
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 is
also responsible for designing and
constructing the national World
War II Memorial on the Capitol
Mall in Washington, D.C., and for
maintaining 3 nonfederal
memorials with funds provided by
those memorials’ sponsors.



www.gao.gov/cgi-bin/getrpt?GAO-03-444.

The full report is available by clicking the link
above, which includes information on
objectives, scope, and methodology. For
                                                    Source: GAO photo.
additional information, contact McCoy
Williams at (202) 512-6906.
Contents



Letter                                                                                                                  1


Auditor’s Report                                                                                                       2
                            Opinion on Financial Statements                                                            2
                            Opinion on Internal Control                                                                2
                            Reportable Condition                                                                       3
                            Compliance With Laws and Regulations                                                       4
                            Consistency of Other Information                                                           4
                            Objectives, Scope, and Methodology                                                         5
                            Commission Comments and Our Evaluation                                                     7


Appendix
              Appendix I:   Annual Financial Report on the American Battle Monuments
                            Commission                                                                                  8
                            Annual Financial Report                                                                     8
                            Management’s Discussion and Analysis                                                        9
                            Consolidating Balance Sheet                                                                16
                            Consolidating Statement of Net Cost and Changes in
                            Net Position                                                                               17
                            Consolidating Statement of Budgetary Resources                                             18
                            Consolidating Statement of Financing                                                       19
                            Notes to the Consolidating Financial Statements                                            20
                            Required Supplementary Stewardship Information                                             28
                            Statement of Heritage Assets                                                               29
                            Note to Statement of Heritage Assets                                                       32




                            Abbreviations

                            FMFIA        Federal Managers' Financial Integrity Act of 1982
                            OMB          Office of Management and Budget

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                            Page i                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
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United States General Accounting Office
Washington, D.C. 20548



                                    February 28, 2003                                                               Leter




                                    The Honorable Arlen Specter
                                    Chairman
                                    The Honorable Bob Graham
                                    Ranking Minority Member
                                    Committee on Veterans' Affairs
                                    United States Senate

                                    The Honorable Christopher H. Smith
                                    Chairman
                                    The Honorable Lane Evans
                                    Ranking Minority Member
                                    Committee on Veterans' Affairs
                                    House of Representatives

                                    As required by 36 U.S.C. 2103, this report presents the results of our audits
                                    of the American Battle Monuments Commission's (the Commission)
                                    financial statements for the fiscal years ended September 30, 2002 and
                                    2001.

                                    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 on (202) 512-6906 or Roger R. Stoltz, Assistant Director, at (202)
                                    512-9408. Key contributors to this assignment were Patricia A. Summers,
                                    Edward R. Alexander, Jr., Bronwyn E. Hughes, Polly Y. Cheung, and
                                    Donell L. Ries.




                                    McCoy Williams
                                    Director
                                    Financial Management and Assurance



                                    Page 1                             GAO-03-444 ABMC 2002 and 2001 Financial Audit
A
United States General Accounting Office
Washington, D.C. 20548



                                    To the Chairman of the American Battle Monuments Commission                    Aud
                                                                                                                     tR
                                                                                                                      o
                                                                                                                      sir’eport




                                    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 for fiscal years 2002 and 2001, we found

                                    • the consolidating financial statements as of and for the fiscal year ended
                                      September 30, 2002, and comparative consolidated totals as of and for
                                      the fiscal year ended September 30, 2001, are presented fairly in
                                      conformity with U.S. generally accepted accounting principles;

                                    • although internal controls should be improved, the Commission had
                                      effective internal control over financial reporting (including
                                      safeguarding assets) and compliance with laws and regulations as of
                                      September 30, 2002; and

                                    • 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 objective, scope, and methodology
                                    of our audit.



Opinion on Financial                The American Battle Monuments Commission’s consolidating balance
                                    sheet as of September 30, 2002, and its related consolidating statements of
Statements                          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, 2001,
                                    are presented fairly, in all material respects, in conformity with U.S.
                                    generally accepted accounting principles.



Opinion on Internal                 The Commission maintained, in all material respects, effective internal
                                    control over financial reporting (including safeguarding assets) and
Control                             compliance as of September 30, 2002, that provided reasonable assurance
                                    that misstatements, losses, or noncompliance material in relation to the
                                    consolidating financial statements or to stewardship information 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



                                    Page 2                             GAO-03-444 ABMC 2002 and 2001 Financial Audit
                       Integrity Act (FMFIA)], and Office of Management and Budget (OMB)
                       Circular No. A-123, Management Accountability and Control.

                       However, our work identified the need to improve certain internal controls,
                       as described below, that we consider a reportable condition. Such a
                       condition is a deficiency 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. We did not consider these deficiencies to be a material
                       weakness, which occurs 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 duties. 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 three deficiencies in internal controls over
                       information technology systems as of September 30, 2002. Commission
                       management reported these deficiencies in its fiscal year 2002 FMFIA
                       report and plans to substantially implement corrections in fiscal year 2003.
                       Inadequate controls over information technology systems were in the three
                       following areas.

                       • User Documentation: While the Commission’s new accounting system
                         has adequate user documentation, there continued to be a lack of user
                         documentation to support its old legacy systems that were still used
                         during fiscal year 2002, primarily for payroll. This included the Clipper
                         system used by the European Regional Office, the dBase IV system used
                         by the Mediterranean Regional Office, and the Foxpro accounting
                         system used by the Headquarters Office. Commission personnel have
                         learned how to use these legacy systems over the years primarily
                         through on-the-job training and have limited support to explain how
                         systems functions should be performed and to answer questions.
                         However, the age of these systems and their expected replacement did
                         not justify the cost of developing user documentation during fiscal year
                         2002.

                       •   Security Program and Access Controls: Commission Headquarters
                           had not completed documentation of an agencywide security planning



                       Page 3                              GAO-03-444 ABMC 2002 and 2001 Financial Audit
                          and management program for security and privacy of information as of
                          September 30, 2002. Also, some security controls over the computer
                          system, such as passwords and access to files, were not effective at all
                          Commission locations as of September 30, 2002. OMB Circular A-130,
                          Management of Federal Information Resources, provides guidance on
                          documenting a security program including control objectives, areas of
                          responsibility, system rules, training, personnel controls, system
                          interconnections, review of controls, and process authorization. This
                          program would encompass the existing automated proprietary security
                          program of the computer systems, plus physical and manual controls.
                          The Commission expects to complete this documentation during the
                          next fiscal year. In addition, we have separately provided the
                          Commission detailed information on ineffective security controls. It
                          corrected some of the deficiencies after September 30, 2002, and is
                          working towards correcting the remaining deficiencies during fiscal
                          year 2003.

                       • Business Continuity Plan: The business continuity plans of
                         Commission Headquarters and its European and Mediterranean
                         Regional Offices did not contain sufficient detail to ensure successful
                         manual operations and timely recovery of automated processing in the
                         event of a business interruption. Sufficient details would include
                         identification of business operations and applications, personnel
                         contacts, hardware and software needs, space requirements, and
                         alternative sites. The Commission plans to revise the business
                         continuity plans during fiscal year 2003.



Compliance With Laws   Our tests for Commission compliance with selected provisions of laws and
                       regulations for fiscal year 2002 disclosed no instances of noncompliance
and Regulations        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   The Commission’s Management Discussion and Analysis and stewardship
                       statements of heritage assets with an accompanying note contain a wide
Information            range of data, some of which are not directly related to the consolidating
                       financial statements. We do not express an opinion on this information.
                       However, we compared this information for consistency with the



                       Page 4                             GAO-03-444 ABMC 2002 and 2001 Financial Audit
                         consolidating financial statements and discussed the methods of
                         measurement and presentation with officials of the Commission. Based
                         upon this limited work, we found no material inconsistencies with the
                         consolidating financial statements or nonconformance with OMB
                         guidance.



Objectives, Scope, and   Commission management is responsible for (1) preparing the consolidating
                         financial statements in conformity with U.S. generally accepted accounting
Methodology              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 consolidating 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, but not absolute,
                         assurance that the following objectives were met.

                         • Financial reporting: Transactions are properly recorded, processed, and
                           summarized to permit the preparation of consolidating financial
                           statements and stewardship information in conformity with U.S.
                           generally accepted accounting principles, and assets are safeguarded
                           against loss from unauthorized acquisition, use, or disposition.

                         • 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
                         consolidating 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

                         • examined, on a test basis, evidence supporting the amounts and
                           disclosures in the consolidating financial statements;




                         Page 5                              GAO-03-444 ABMC 2002 and 2001 Financial Audit
• assessed the accounting principles used and significant estimates made
  by Commission management;

• evaluated the overall presentation of the consolidating financial
  statements;

• 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);

• obtained an understanding of the recording, processing, and
  summarizing of performance measures as reported in Management’s
  Discussion and Analysis;

• tested relevant internal controls over financial reporting and
  compliance, and evaluated the design and operating effectiveness of
  internal control;

• considered the process for evaluating and reporting on internal control
  and financial management systems under FMFIA; and

• tested compliance with selected provisions of the following laws and
  regulations:

   • The Commission’s enabling legislation codified in 36 U.S.C. Chapter
     21,

   • public laws applicable to the World War II Memorial Fund,

   • Departments of VA and HUD and Independent Agencies
     Appropriations Act 2002,

   • Antideficiency Act,

   • Pay and Allowance System for Civilian Employees, and

   • 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



Page 6                              GAO-03-444 ABMC 2002 and 2001 Financial Audit
                   control testing to those 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 those required by OMB
                   audit guidance that we deemed applicable to the Commission’s
                   consolidating financial statements for the fiscal year ended September 30,
                   2002. 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         Commission management was provided with a draft of this report and
                   concurred with its facts and conclusions.
Comments and Our
Evaluation


                   McCoy Williams
                   Director
                   Financial Management and Assurance

                   January 31, 2003




                   Page 7                             GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I

Annual Financial Report on the American                                        Appendx
                                                                                     ies




Battle Monuments Commission                                                     Append
                                                                                     x
                                                                                     Ii




Annual Financial Report




                          Page 8   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                                       Appendix I
                                       Annual Financial Report on the American
                                       Battle Monuments Commission




Management’s Discussion and Analysis




                                       Page 9                                    GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




Page 10                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




Page 11                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




Page 12                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




Page 13                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




Page 14                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




Page 15                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                              Appendix I
                              Annual Financial Report on the American
                              Battle Monuments Commission




Consolidating Balance Sheet




                              Page 16                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                                         Appendix I
                                         Annual Financial Report on the American
                                         Battle Monuments Commission




Consolidating Statement of Net Cost and Changes in Net Position




                                         Page 17                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                                        Appendix I
                                        Annual Financial Report on the American
                                        Battle Monuments Commission




Consolidating Statement of Budgetary Resources




                                        Page 18                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                                       Appendix I
                                       Annual Financial Report on the American
                                       Battle Monuments Commission




Consolidating Statement of Financing




                                       Page 19                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                                          Appendix I
                                          Annual Financial Report on the American
                                          Battle Monuments Commission




Notes to the Consolidating Financial Statements




                                          Page 20                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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                                        Appendix I
                                        Annual Financial Report on the American
                                        Battle Monuments Commission




Required Supplementary Stewardship Information




                                        Page 28                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
                               Appendix I
                               Annual Financial Report on the American
                               Battle Monuments Commission




Statement of Heritage Assets




                               Page 29                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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Appendix I
Annual Financial Report on the American
Battle Monuments Commission




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                                       Appendix I
                                       Annual Financial Report on the American
                                       Battle Monuments Commission




Note to Statement of Heritage Assets




(194145)                               Page 32                                   GAO-03-444 ABMC 2002 and 2001 Financial Audit
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