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June 6, 2000

GAO/T-AIMD-00-211

FINANCIAL AUDITS

American Battle

Monuments Commission

Statement of David L. Clark

Director, Audit Oversight and Liaison

Accounting and Information Management Division

Testimony

Before the Subcommittee on National Security, Veterans

Affairs, and International Relations, Committee on

Government Reform, House of Representatives

United States General Accounting Office

GAO
Page 1 GAO/T-AIMD-00-211

Mr. Chairman and Members of the Subcommittee:

I am pleased to discuss our financial audits of the American Battle

Monuments Commission (ABMC), 1 including ABMC’s management of the

World War II memorial fund. First, though, I will briefly describe

legislative initiatives over the past several years to improve financial

management across the federal government, and how our financial audits

of ABMC fit into that larger context. Second, I will discuss the history of

ABMC’s financial accountability, focusing specifically on the World War II

memorial fund. Third, I will discuss the results of our most recent financial

audits.

The Chief Financial Officers (CFO) Act of 1990, as expanded by the

Government Management Reform Act of 1994, requires major federal

departments and agencies to annually produce agencywide financial

statements.

These legislative initiatives were designed to subject the federal

government to the same fiscal discipline imposed for years on the

commercial sector and state and local governments and to provide the

Congress, agency officials, and others with reliable information through

audited financial statements. Financial audits determine the reliability of

the financial information reported, provide information on the adequacy of

systems and controls used to ensure accurate financial reports, safeguard

assets, and report on agencies’ compliance with laws and regulations.

The Veterans’ Benefits Improvements Act of 1996 requires ABMC,

beginning with fiscal year 1997, to prepare agencywide financial

statements consistent with the requirements for major departments and

agencies and requires GAO to audit them. The statutory requirements put

ABMC’s financial reporting on a par with major federal departments and

agencies and help to institutionalize accountability over ABMC’s financial

operations.

1Financial audits and related management letters regarding ABMC’s financial statements for fiscal

years 1997 to 1999: GAO/AIMD-98-81, February 27, 1998; GAO/AIMD-98-130R, April 28, 1998;

GAO/AIMD-99-74, March 1, 1999; GAO/AIMD-99-125R, April 8, 1999; and GAO/AIMD-00-85, March 1,

2000.

Legislative Initiatives

to Improve Federal

Financial

Management
Page 2 GAO/T-AIMD-00-211

In fiscal year 1993, Congress enacted the World War II 50th Anniversary

Commemorative Coins Act, directing that a portion of the surcharge

proceeds be deposited in a fund for expenses incurred in establishing a

World War II memorial. In recognition of the importance of ensuring

accountability over a World War II fund, the Coin Act required us to

annually audit the revenues and expenditures of the fund to be established

in the Treasury.

At that time, ABMC was required to have accounting systems and internal

controls that provided effective control over, and accountability for, assets

for which it was responsible, but it was not required to prepare

agencywide financial statements and have them audited. As a result,

ABMC did not undergo an agencywide comprehensive financial audit until

fiscal year 1997.

ABMC made significant strides in fiscal year 1997 to strengthen its

financial management and comply with the new financial requirements. In

fact, ABMC was one of the first federal agencies to comply early with new

federal accounting standards developed to implement the CFO Act. One

key area was ABMC’s compliance with a new accounting standard

requiring the reporting of deferred maintenance cost estimates. As a result

of complying with the standard, ABMC identified and publicly reported the

need for engineering maintenance projects totaling approximately $10.6

million to maintain real property in acceptable condition. The Congress

subsequently provided ABMC with additional funds to help reduce

deferred maintenance, which decreased to approximately $7.5 million by

the end of fiscal year 1999.

ABMC combined the World War II memorial fund with other trust funds in

the balance sheet for fiscal year 1997. Partly in response to our suggestion,

ABMC began providing a separate breakout for the World War II memorial

fund in the balance sheet beginning in fiscal year 1998. The separate

breakout, which is provided for all of ABMC’s financial statements, allows

readers to focus on the World War II memorial fund, which now comprises

the majority of ABMC’s financing sources and assets.

As a result of ABMC’s initial efforts, we were able to report that ABMC’s

fiscal year 1997 and 1998 financial statements we audited were reliable in

all material respects and that we found no reportable instances of

noncompliance with laws and regulations that we tested. We did identify

several financial management concerns, almost all of which ABMC has

now addressed and successfully resolved. For example, ABMC has

• strengthened its controls over cash by performing and approving monthly

reconciliations with foreign bank accounts and by developing and

Accountability Over

the World War II

Memorial Fund
Page 3 GAO/T-AIMD-00-211

implementing written policies and procedures for reconciling its fund

balance with the Treasury,

• strengthened its recording of accounts payable and other accruals by

developing and implementing specific written policies on those issues, and

• strengthened its controls over goods purchased by better segregating

duties among ABMC staff.

We gave another positive report on ABMC’s financial statements for fiscal

year 1999. Specifically, we reported that ABMC’s consolidating financial

statements as of and for the fiscal year ended September 30, 1999, and

comparative consolidated totals as and for the year ended September 30,

1998, were presented fairly in conformity with generally accepted

accounting principles. That type of report is referred to as an unqualified

or “clean” opinion. We further reported that ABMC had effective control

over financial reporting and compliance with laws and regulations as of

September 30, 1999, and that we found no reportable instances of

noncompliance with selected provisions of laws and regulations we tested.

We did report one condition regarding internal control weaknesses over

information technology systems. The weaknesses included, for example,

(1) incomplete user documentation for accounting systems used by

ABMC’s European and Mediterranean Regional Offices, resulting in users

having to learn how to use the systems mainly through on-the-job training,

(2) certain systems passwords and other access vulnerabilities, and

(3) inadequate continuity plans for ensuring successful manual operations

and timely recovery of automated processing in the event of a business

interruption. We reported that ABMC plans to resolve these weaknesses

through the acquisition and implementation of a new accounting system

by fiscal year 2001 and through efforts to be taken in tandem with the new

system.

We did not consider these weaknesses to be material to the financial

statements, primarily because all of the automated accounting and

disbursing systems are not accessible from external sources and are not

electronically interconnected between ABMC offices. Also, ABMC has a

series of manual reviews and reconciliations that must be performed

before any financial transactions can be processed and paid. A material

weakness exists when the design or operation of internal control

components does not reduce to a relatively low level the risk that

misstatements in amounts that would be material to the consolidating

financial statements being audited may occur and not be detected within a

Audit Results for

Fiscal Year 1999
Page 4 GAO/T-AIMD-00-211

timely period by employees in the normal course of performing their

assigned tasks.

ABMC’s success in preparing agencywide financial statements, and

attaining an unqualified opinion on them, are significant milestones in

institutionalizing sound financial management and organizational

accountability. In contrast, many major federal departments and agencies

still cannot produce financial statements that are reliable in all material

respects. Agencies continue to be plagued by significant financial systems

weaknesses, problems with fundamental recordkeeping and financial

reporting, incomplete documentation, and weak internal control, including

computer controls.

The major progress that ABMC’s management has made to ensure

financial accountability should go a long way in assuring the Congress, the

public, veterans, donors, and others that contributions to the World War II

memorial fund are being properly accounted for and safeguarded. In that

regard, we suggest that ABMC consider including its audited financial

statements in its annual report. Doing so would allow ABMC to link

management, performance, and financial information in one place and

better facilitate oversight by the Congress and others.

Mr. Chairman, this concludes my statement. I would be happy to respond

to any questions that you or other members of the Subcommittee may

have at this time.

(911989)
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