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GAO-10-596R: 

United States Government Accountability Office: 
Washington, DC 20548: 

July 23, 2010: 

The Honorable Max Cleland, Secretary:
American Battle Monuments Commission:
Courthouse Plaza II, Suite 500:
2300 Clarendon Boulevard:
Arlington, VA 22201: 

Subject: Management Report: Improvements Needed in American Battle 
Monuments Commission's Internal Controls and Accounting Procedures: 

Dear Mr. Secretary: 

On March 1, 2010, we issued our report expressing our opinion on the 
American Battle Monuments Commission's (the Commission) fiscal years 
2009 and 2008 financial statements and our opinion on the Commission's 
internal control as of September 30, 2009.[Footnote 1] We also 
reported on the results of our tests of the Commission's compliance 
with selected provisions of laws and regulations during fiscal year 
2009. We reported that although certain internal controls should be 
improved, the Commission maintained, in all material respects, 
effective internal control over financial reporting as of September 
30, 2009. However, we also reported on a significant deficiency 
[Footnote 2] in the Commission's governance structure related to 
vacant Commissioner positions and one instance of noncompliance with 
the Antideficiency Act related to a Commission contract with a 
commercial employment services firm to provide temporary employees. 

During our fiscal year 2009 audit, we also identified other internal 
control deficiencies[Footnote 3] that, while not material, 
individually or in the aggregate, to the Commission's financial 
statements, nevertheless warrant management's attention. The purpose 
of this report is to present these deficiencies, provide additional 
detailed information on the significant deficiency and compliance 
issue identified in our fiscal year 2009 audit report, provide 
recommendations to address these matters, and provide an update on the 
status of our prior year recommendations. Because of the sensitive 
nature of the issues, we are providing detailed information regarding 
our findings and recommendations on the Commission's information 
systems security in a separate Limited Official Use Only report. 

Results In Brief: 

During our fiscal year 2009 financial statement audit, we identified a 
total of 18 control deficiencies in the Commission's internal controls 
and accounting procedures at Commission headquarters, its European 
Regional (ER) and Mediterranean Regional (MR) Offices, and at the 
Manila American Cemetery. 

At the Commission's headquarters, we identified the following internal 
control and accounting procedure deficiencies: 

1. No written delegation of governance authority from Commissioners. 

2. Inadequate controls to prevent Antideficiency Act violations. 

3. Internal control reviews were completed, but were not fully 
validated. 

4. Procurements did not follow required procedures. 

5. Not all trust fund receipts were reported in the trial balance. 

6. No support for calculating and reporting of full-time equivalent 
employees. 

7. Documentation of personnel actions was not current. 

8. Guidelines for donated services were not followed. 

9. Engineering project lists had inaccuracies. 

At the Commission's ER Office, we identified the following internal 
control and accounting procedure deficiencies: 

1. Imprest cash counts were not timely and reports had inaccuracies. 

2. Miscellaneous receipt activity was not included in budgetary 
accounts. 

3. Not all expenditure transactions were adequately documented. 

4. Not all payroll transactions were properly processed. 

5. Funds were commingled in the Commission's Aged Vendor Liability 
Report. 

6. Not all year-end liabilities were identified for accrual. 

7. Undelivered orders report was not reconciled with the general 
ledger. 

At the Commission's MR Office, we identified a control deficiency 
concerning the calculation of holiday pay and the processing of 
current pay authorizations. At the Commission's Manila American 
Cemetery, we identified a control deficiency regarding the lack of 
support for certain expenditure transactions. 

To assist Commission management in addressing these findings, this 
report contains 45 detailed recommendations. In its July 15, 2010, 
letter, the Commission agreed with the issues raised in our draft 
report. (See enclosure II). 

As a result of our fiscal years 2005 through 2008 financial statement 
audits, we have provided the Commission's worldwide locations with 60 
recommendations to improve its internal control and accounting 
procedures. As summarized in table 1, through January 31, 2010, the 
Commission had implemented 43, or about 72 percent, of our 
recommendations related to our prior years' findings on internal 
control and accounting procedures issues. 

Table 1: Status of Fiscal Years 2005 through 2008 Internal Control and 
Accounting Procedure Recommendations: 

Fiscal year ended September 30: 2005; 
Total number of recommendations: 14; 
Number of closed recommendations: 12; 
Number of open recommendations: 2. 

Fiscal year ended September 30: 2006; 
Total number of recommendations: 15; 
Number of closed recommendations: 13; 
Number of open recommendations: 2. 

Fiscal year ended September 30: 2007; 
Total number of recommendations: 5; 
Number of closed recommendations: 4; 
Number of open recommendations: 1. 

Fiscal year ended September 30: 2008; 
Total number of recommendations: 26; 
Number of closed recommendations: 14; 
Number of open recommendations: 12. 

Total: 
Total number of recommendations: 60; 
Number of closed recommendations: 43; 
Number of open recommendations: 17. 

Source: GAO analysis as of January 31, 2010. 

[End of table] 

The Commission had actions under way to address the remaining 17 
recommendations. The Commission was provided a draft of this report 
for comment, and its response is reprinted in its entirety in 
enclosure II. 

Scope And Methodology: 

As part of our fiscal year 2009 financial statement audit of the 
Commission, we determined whether the Commission maintained, in all 
material respects, effective internal control over financial reporting 
as of September 30, 2009. We also tested compliance with selected 
provisions of laws and regulations that had a direct and material 
effect on the financial statements. In conducting the audit, we 
reviewed applicable Commission policies and procedures, assessed 
controls over the recording and processing of transactions, examined 
relevant documents and records, and interviewed management and staff. 
We also tested internal control over financial reporting. We did not 
evaluate all internal controls relevant to operating objectives, such 
as controls relevant to ensuring efficient operations. We limited our 
internal control testing to those controls over financial reporting. 
We performed our audit of the Commission's fiscal year 2009 financial 
statements in accordance with U.S. generally accepted government 
auditing standards. We believe that our audit provided a reasonable 
basis for our conclusions in this report. Further details on our 
fiscal year 2009 Commission financial statement audit methodology are 
presented in enclosure I. 

Findings At Commission Headquarters: 

During our fiscal year 2009 audit, we identified nine control 
deficiencies related to accounting procedures at the Commission's 
headquarters in Arlington, Virginia. After the discussion of each of 
our findings, we present related recommendations for corrective action. 

1. No written delegation of governance authority from Commissioners. 

In our fiscal year 2009 audit report, we disclosed a significant 
deficiency in the Commission's governance structure. While all 
Commissioner positions were vacant through the last 8 months of fiscal 
year 2009, there was no evidence that the Commissioners delegated 
their governance authority and responsibilities to other Commission 
officials before their resignations. The Commissioners are charged 
with the execution of the Commission's mission, but may delegate any 
of its authorities to the Commission Chairman, the Secretary, or other 
Commission officials. Consistent with U.S. generally accepted 
government auditing standards, the Commissioners, the Secretary, and 
other designated officials collectively function as the Commission's 
governance structure. 

On or about January 20, 2009, all 11 Commissioners and the Secretary 
resigned. Although the President of the United States appointed a new 
Commission Secretary on June 3, 2009, no Commissioner appointments 
were made through February 17, 2010, our audit completion date. 
Therefore, Commissioners were not available to provide high-level 
strategic oversight of Commission internal control over operations and 
financial reporting for over a year. While Commissioner appointments 
are dependent upon Presidential actions, written delegation of 
authority and assignment of responsibilities to the Secretary or other 
designated officials should have been made. However, the Commission 
did not formally delegate authority and responsibility before the 
Commissioners resigned. 

Recommendation: 

We recommend that the Secretary of the Commission take action to: 

1. Obtain written delegation of authority and assignment of 
responsibilities to the Secretary or other designated officials when 
Commissioners are appointed. 

2. Inadequate controls to prevent Antideficiency Act violations. 

During our fiscal year 2009 audit, we identified an Antideficiency Act 
violation during our tests of the Commission's compliance with 
selected provisions of laws and regulations. Specifically, we 
determined that a Commission contract with a commercial employment 
services firm to provide temporary employees to the Commission 
violated the Antideficiency Act because it contained an open-ended 
hold-harmless clause that subjected the Commission to potentially 
unlimited liability.[Footnote 4] While the contractor terminated the 
contract before September 30, 2009, Commission officials agreed with 
our conclusion that the hold-harmless clause was an Antideficiency Act 
violation. However, because the Commission was not aware that a hold- 
harmless clause was a violation of the act, it had no written policies 
or procedures to prevent contracts from containing such clauses. 
Additionally, because our testing of contracts during the audit was 
limited, the Commission may have other contracts that contain hold- 
harmless clauses. 

In accordance with the act, once a violation is identified, the 
Commission is to take various steps to resolve the violation, 
depending on its nature, including contract modification, 
deobligation, or adjustment of budget authority. An executive agency 
that violates the act must provide a report of the violation with 
relevant facts, circumstances, and actions taken by the entity, to the 
Congress and the President of the United States, with a copy to the 
Comptroller General, following the guidance issued by the Office of 
Management and Budget (OMB). Commission officials stated that they 
were unfamiliar with the investigation and reporting process, but 
would research and report the violation in accordance with prescribed 
guidance. In mid-September 2009, we advised the Commission of this 
potential violation, however, through February 17, 2010, our date of 
audit completion, the Commission had not reported the Antideficiency 
Act violation. 

Recommendations: 

We recommend that the Director of Personnel and Administration 
responsible for procurement at Commission headquarters take action to: 

2. Follow the guidance issued by the Office of Management and Budget 
to timely resolve and report the Antideficiency Act violation 
regarding the contract containing a hold-harmless clause to the 
Congress and the President of the United States, with a copy to the 
Comptroller General. 

3. Modify written contracting policy and procedures to identify and 
evaluate hold-harmless clauses in all future contracts for compliance 
with the Antideficiency Act. 

4. Conduct a review of existing contracts to identify any hold-
harmless clauses and take necessary actions to resolve any that may 
violate the Antideficiency Act. 

3. Internal control reviews were completed, but not fully validated. 

During our fiscal year 2009 audit, we found that results of reviews 
monitoring the Commission's effectiveness of internal controls over 
financial reporting were completed, but were not fully validated by 
Commission management. In June 2009, the Commission contracted with a 
firm to provide a baseline internal control and risk assessment to 
determine if the Commission's internal mechanisms and business 
processes were designed and functioning in accordance with federal 
guidelines and best practices. This included compliance with internal 
control review and report requirements of 31 U.S.C. 3512 (c), (d), 
commonly known as the Federal Managers' Financial Integrity Act 
(FMFIA), and OMB Circular No. A-123, Management's Responsibility for 
Internal Control (revised December 21, 2004). Additionally, beginning 
in fiscal year 2009, the Commission was to provide a report on the 
effectiveness of its internal control over financial reporting that is 
included in the annual audit report of its financial statements. 
[Footnote 5] Specifically, through February 17, 2010, the date of our 
audit completion, we found the following: 

* The contractor prepared a draft of an Internal Control Handbook for 
the Commission dated August 18, 2009, which had not been finalized and 
issued. This handbook documented walkthroughs as part of the 
assessment of internal control that provided support for management 
assertions in the Commission's report on internal control over 
financial reporting. However, 6 months later we were not provided with 
evidence that the handbook had been finalized and issued. The 
Commission's Chief Accountant stated that the handbook was still under 
management review as part of a Commissionwide review of policies and 
procedures. 

* he Commission provided summarized evidence of a contractor-prepared 
report on an internal control risk assessment of the Commission for 
fiscal year 2009 dated October 27, 2009. The contractor concluded that 
the Commission's management control program was effective in meeting 
management's expectations for compliance with federal requirements. 
However, 5 months later Commission management had not yet validated 
the evidence supporting the contractor's conclusion and 
recommendations. 

* The Commission had not finalized the documentation of its monitoring 
of internal controls for fiscal year 2009, which continued for over 4 
months after fiscal year-end. While the Commission relied upon a 
contractor to perform risk assessments and internal control reviews, 
Commission management remains responsible for monitoring and 
documenting the contractor's efforts and its overall FMFIA compliance. 
OMB Circular No. A-123 states that management should have a clear, 
organized monitoring strategy with well-defined documentation 
processes that contain an audit trail and verifiable results. 

* No definitive plan was established to continue internal control 
assessments after fiscal year 2009. The contractor's work for fiscal 
year 2009 outlined the internal control areas to be reviewed, 
developed a detail task plan to evaluate and test processes, conducted 
walk-throughs, and developed cycle memos and flowcharts. However, it 
did not provide for the roles and responsibilities of Commission 
personnel and contractors for future annual assessments., nor did the 
Commission have such a plan. 

Recommendations: 

We recommend that the Director of Finance at Commission headquarters 
take action to: 

5. Finalize management review and issue the Internal Control Handbook 
or equivalent for use by Commission personnel. 

6. Complete validation of the evidence, conclusions, and 
recommendations of the contractor's internal control risk assessment 
of the Commission for fiscal year 2009. 

7. Finalize the strategy for monitoring internal controls for 
compliance with FMFIA to include documentation of results and an audit 
trail in accordance with OMB Circular No. A-123, Management's 
Responsibility for Internal Control. 

8. Determine who will conduct future annual internal control risk 
assessments and evaluations and document the planned roles and 
responsibilities of Commission personnel and any contractors to 
execute the strategy for monitoring internal controls. 

4. Procurements did not follow required procedures. 

During our fiscal year 2009 audit, we identified several areas in the 
Commission's procurement process that did not follow required 
procedures. While we did not perform a detailed review of the 
Commission's contracting policies and procedures, we reviewed selected 
contracts and purchase orders associated with samples selected for 
expenditure testing. We reviewed larger contracts and also considered 
the results of an internal contract review performed by an outside 
contractor hired by the Commission to assist it with contract support. 
Specifically, we found the following: 

* Some contract files were missing or incomplete, thus providing 
inadequate documentation to support expenditures. 

* Three out of nine active contracts had dates that indicated funds 
were obligated before the contract was signed. While a budget check 
was made to be sure funds were available, 31 U.S.C. § 1501 requires 
that contracts be completed and signed before funds are obligated. 

* Some contract-related transactions, such as contract modifications, 
were dated after the original contract had expired, which could lead 
to the obligation of funds from an incorrect fiscal year. 

* One contractual obligation was recorded at an insufficient amount to 
cover projected expenditures. 

* Some contract modifications contained mathematical errors that could 
cause expenditures to exceed recorded obligations, which presents the 
risk of an Antideficiency Act violation. 

* One multiyear contract was funded on an annual basis, but no 
documentation existed to support the legal authority for this 
arrangement, which could reflect an Antideficiency Act violation. 

* Some contractors were not registered with the Central Contractor 
Registration (CCR), as required by Federal Acquisition Regulation 
(FAR).[Footnote 6] 

* Some contract files did not contain evidence of competition, which 
may violate the Competition in Contracting Act of 1984 [Pub. L. No. 98-
369, 98 Stat. 494, 1175 (July 18, 1984)], and the FAR if certain 
conditions are not met. 

We identified several factors which contributed to these control 
deficiencies as follows: 

* Procurement at Commission headquarters was assigned as an additional 
duty of the Personnel and Administration Department, which resulted in 
a lack of focus on procurement activities. 

* While the Commission has established procurement policies and 
procedures, they were not always followed. 

* Procurement activities initiated by the regional offices may be 
handled exclusively by the regional office or forwarded to Commission 
headquarters for review and approval by the Engineering and 
Maintenance Director or the Executive Secretary. As a result, 
procurement procedures, training, and reviews were inconsistent and 
inadequate to prevent and/or detect errors, or to ensure full 
compliance with applicable procurement laws and regulations. The 
Commission is authorized to procure certain goods and services 
notwithstanding government-wide procurement laws and regulations, but 
it is required to comply with such laws and regulations for all 
contracts executed within the United States. For contracts outside the 
United States, Commission officials stated that they try to comply 
with the principles underlying these legal restrictions where 
possible, obtaining several bids for contracts whenever practical. 

* The Commission lacked coordination between procurement personnel who 
create the obligation and finance personnel who record the obligation. 

These deficiencies may further weaken the control environment after 
September 30, 2009, because of subsequent turnover of headquarters 
procurement and finance staff and a lack of procurement training for 
new procurement personnel. 

Recommendations: 

We recommend that the Director of Personnel and Administration at 
Commission headquarters follow established policies and procedures in 
taking action to: 

9. Conduct a review of contracts and purchase orders outstanding for 
completeness, accuracy, and proper dates. 

10. Verify that contracts are completed and signed before funds are 
obligated. 

11. Coordinate procurement activity with finance personnel to ensure 
accurate and compliant obligation of funding of procurements, 
including proper application of multiyear contract terms. 

12. Document compliance with requirements for Central Contractor 
Registration and competition or authorized exceptions. 

13. Provide training to personnel assigned to perform procurement 
activities. 

5. Not all trust fund receipts were reported in the trial balance. 

During our fiscal year 2009 audit, we found that some of the trust 
fund receipts from third parties for private memorial repair and 
maintenance entered by the Commission in its accounting system were 
not reported in the trial balance generated by the system. Standards 
for Internal Control in the Federal Government[Footnote 7] states that 
transactions should be completely and accurately recorded. When 
journal entries are made into an accounting system, the effect of the 
entries should be reflected in related accounts throughout the 
financial management system, including accounts that provide detailed 
transaction information, and particularly in the trial balance that 
summarizes activity for the fiscal year. Further, the Treasury 
Financial Manual and Commission accounting procedures require that 
cash balances be reconciled with supporting transactions monthly. 

We found that the Commission's detailed listings of trust fund 
receipts by program code included about $7,400 in collections that 
were not reported on its trial balance in its trust fund receipts 
account. As a result, trust fund receipts and cash balances were 
underreported by about $7,400. While this amount was not material to 
the financial statements, it raises concerns about the completeness 
and accuracy of reporting from the accounting system. Additionally, 
because trust funds come from the public and originate outside the 
budgetary control process, they are more susceptible to theft or loss 
if not properly controlled. As a result, our audit procedures included 
reconciliations of detail transactions to balance sheet accounts, a 
proof of cash, and other substantive testing to provide assurance that 
trust fund accounts were complete and materially accurate. 

The Commission's Chief Accountant told us that the $7,400 difference 
was caused by a long-standing problem in the accounting system. 
Transactions entered into detail accounts do not always post into the 
general ledger because the system occasionally does not recognize the 
posting code to process the transaction. This causes an imbalance in 
the accounts. Such an imbalance can be fixed by a data repair to the 
general ledger for specific transaction postings. While the Commission 
has ongoing efforts to develop a new financial management system, it 
is still responsible for ensuring the accuracy of the data in the 
existing system while this effort is under way. 

Recommendations: 

We recommend that the Director of Finance at Commission headquarters 
take action to: 

14. Implement a specific data repair to the accounting system to 
correct the underreporting of fiscal year 2009 trust fund receipts. 

15. Enforce existing reconciliation procedures to ensure the complete 
and accurate recording and reporting of trust fund receipts in the 
accounting system. 

6. No support for calculating and reporting of full-time equivalent 
employees. 

The number of authorized full-time equivalent employees (FTE) a 
federal agency may pay for is part of the federal budgetary process 
under OMB Circular No. A-11, Preparation, Submission, and Execution of 
the Budget (August 2009). Federal agencies must prepare budget 
estimates relating to personnel requirements in terms of FTE 
employment and agency heads must ensure close management of budgeted 
FTE levels for their respective agencies. Further, monthly reporting 
is monitored by the Office of Personnel Management (OPM) using a 
Standard Form (SF) 113-A, Report of Federal Civilian Employment. For 
fiscal year 2009, the Commission was authorized 409 FTEs. 

During our fiscal year 2009 audit, we identified the following 
deficiencies with the Commission's methodology for accounting and 
reporting of FTEs. 

* The Commission last reported FTEs to OPM using a position method of 
accounting in its June 30, 2009, SF 113-A. This method uses the number 
of full-and part-time positions to calculate FTEs. Beginning July 1, 
2009, the Commission changed its method of calculating FTEs to an 
hourly method whereby the actual number of hours worked was 
accumulated and divided by 2,087 to calculate an FTE. The Commission 
adopted this new method because the standard workweek for the 
Commission's Foreign Service National (FSN) employees varies depending 
upon host country agreements. For example, French FSN employees work a 
standard 35-hour week, Belgian FSN employees work a standard 38-hour 
week, and Tunisian FSN employees work a standard 44-hour week. 
However, the Commission had not established a written policy for its 
new accounting method of calculating FTEs. Standards for Internal 
Control in the Federal Government provides that administrative 
policies should clearly documented, properly managed, and maintained. 
Lacking documentation policies for FTE calculations, such calculations 
may be performed inconsistently, figures reported to OPM may be 
inaccurate, and the Commission may exceed its FTE authorization. 

* OPM relies on information collected monthly in the SF 113-A to 
provide a timely count of governmentwide employment, payroll, and 
turnover data that are used by the Congress, the White House, OMB, and 
other federal agencies. To gather this information, OPM requires 
federal agencies to submit to it monthly SF 113-A reports by the 15TH 
of the following month. However, the Commission provided no evidence 
that it submitted the monthly SF-113A reports to OPM after June 30, 
2009, nor could the Commission provide evidence of supporting FTE 
calculations to document that it had not exceeded its FTE 
authorization. Using a Commission roster of personnel and positions of 
as of September 30, 2009, we verified that the Commission did not 
exceed its authorized ceiling of 409 FTEs based upon a position method 
of accounting. However, OPM cannot provide accurate data if it does 
not receive accurate, timely reports from all applicable agencies, 
including the Commission. 

Recommendations: 

We recommend that the Director of Human Resources at Commission 
headquarters take action to: 

16. Issue written Commission policy and procedures regarding its 
accounting method for calculating full time equivalent employment. 

17. Prepare and document calculations of full time equivalent 
employment to support the monthly SF 113-A, Report of Federal Civilian 
Employment. 

18. Document the monthly submittal of SF 113-A reports to the Office 
of Personnel Management. 

7. Documentation of personnel actions was not current. 

During our fiscal year 2009 audit, we found that the Commission did 
not always ensure that employee personnel files were kept up to date. 
In testing a statistical sample of payroll transactions, we found that 
for 20 percent of employees' personnel files reviewed, the Commission 
did not have a current SF-50, Notification of Personnel Action. The 
pay rate on the SF-50 provided to us did not agree with the pay rate 
for the sample item we selected because it did not reflect an 
authorized pay increase. However, the Commission later provided 
additional documentation to show that the employee's pay correctly 
reflected the authorized pay increase. Commission personnel 
acknowledged that SF-50s were not always prepared on a timely basis. 

According to OPM, the SF-50 is used to document official personnel 
actions, such as pay increases and promotions, and a copy is to be 
placed in each employee's official personnel file. Because the SF-50 
is also used to make future employment, pay, and qualification 
decisions, incomplete personnel files could affect such decisions. 

Recommendation: 

We recommend that the Director of Human Resources at Commission 
headquarters take action to: 

19. Follow Office of Personnel Management guidance to ensure that 
employee payroll data, including SF-50, Notification of Personnel 
Action, are kept current in official personnel files. 

8. Guidelines for donated services were not followed. 

During our fiscal year 2009 audit, we found that the Commission was 
not following its own guidelines for accepting, documenting, and 
accounting for donated services from an individual during fiscal year 
2009. Specifically, we found that the Commission did not: 

* Document its "acceptance" of the donated services, including the 
scope of services to be provided. 

* Assess and document that the voluntary services were not from a 
prohibited source.[Footnote 8] 

* Perform complete and proper accounting of donated funds and other in-
kind gifts. Based upon information provided by the Commission, a 
volunteer provided 240 hours of service valued at $240 per hour for a 
total donation of $57,600. 

While 31 U.S.C. § 1342 generally prohibits federal agencies from 
accepting voluntary services, the Commission has special legislative 
authority to accept such services under 36 U.S.C. § 2103(e). In 
accordance with this authority, the Commission established written 
guidance, Guidelines for Acceptance of Funds and In-kind Donations and 
Gifts, dated April 21, 2003. However, personnel were generally unaware 
of this guidance and had not had any experience regarding voluntary 
services until fiscal year 2009. Standards for Internal Control in the 
Federal Government states that all transactions should be documented 
and completely and accurately recorded. Because the Commission did not 
follow its own guidelines, it did not recognize $57,600 in donated 
revenue and related service expenditures in its fiscal year 2009 
financial statements. However, this amount did not materially affect 
the fair presentation of the statements. 

Recommendations: 

We recommend that the Directors of Human Resources and Finance at 
Commission headquarters coordinate action to: 

20. Document acceptance and scope of voluntary services, including 
that services are from a non-prohibited source, in accordance with 
established Commission guidelines. 

21. Document quantities and valuation of voluntary services to support 
journal entries into the general ledger. 

22. Remind personnel of the existing Commission guidance for accepting 
funds and in-kind donations and gifts and, as necessary, conduct 
training. 

9. Engineering project lists had inaccuracies. 

During our review of engineering project lists conducted as part of 
our fiscal year 2009 audit, we noted several errors with respect to 
information contained on the lists. The Director of Engineering and 
Maintenance at Commission headquarters is responsible for engineering 
projects and agencywide funding. The Commission's 24 cemeteries follow 
a calendar year work plan that is updated on a monthly basis. 
Engineering projects are tracked using the Lookback List, which tracks 
projects completed during the fiscal year, and the Lookforward List, 
which tracks cost estimates of projects for the next year. Amounts 
from these lists are used by the Commission to report "Maintenance, 
Repairs, and Improvements" as unaudited Required Supplementary 
Information (RSI) in its annual financial statements. 

During our audit, we selected projects at the ER Office and four 
cemeteries to verify the accuracy of these lists as a tracking and 
reporting tool and identified the following errors: 

* The Commission's largest project on the Lookback List, to construct 
two new residences and renovate the service area to support the 
Normandy Visitor Center, used an incorrect exchange rate as indicated 
by contract files. This resulted in a change to the project cost from 
$2.2 million to $3.0 million. 

* At the Ardennes Cemetery, the cemetery superintendent stated that a 
chimney renovation project with an estimated cost of $15,000 and a 
rewelding zinc roofing project with an estimated cost of $884 had both 
been completed during fiscal year 2009. Therefore, these projects 
should have been on the Lookback List instead of the Lookforward List, 
with the actual cost disclosed. 

* At the Netherlands Cemetery, the cemetery superintendent stated that 
a battle maps project with an estimated cost of $5,000 had been 
completed during fiscal year 2009 at a cost of $3,800. Therefore, this 
project should have been on the Lookback List, instead of the 
Lookforward List, with the actual cost disclosed. Additionally, a 
$1,000 project to create ventilation under a roof was canceled and 
should have been deleted from the Lookforward List. 

Standards for Internal Control in the Federal Government provides that 
transactions should be accurately and timely recorded to maintain 
their relevance and value to management in controlling operations and 
making decisions. 

Based upon our testing and subsequent discussions with Commission 
personnel, we determined that the Commission had procedures for 
periodic review of projects. However, the errors we identified were 
the result of an ineffective project review process between Commission 
headquarters and field operations. Although these errors did not have 
a significant impact on the financial statements, there may be more 
errors on the lists for the other 20 Commission cemeteries that we did 
not review. As a result, management decisions regarding budgeting for 
projects may be adversely impacted, and amounts in the unaudited RSI 
in the Commission's financial statements may be incorrectly reported. 

Recommendation: 

We recommend that the Director of Engineering at Commission 
headquarters take action to: 

23. Follow established procedures for periodic review of projects to 
include coordination with regional offices and cemeteries in reviewing 
the completeness and accuracy of the Lookforward and Lookback Lists. 

Findings At The Commission's European Regional Office: 

During our fiscal year 2009 audit, we identified seven control 
deficiencies related to accounting procedures at the Commission's ER 
Office in Garches, France. After the discussion of each of our 
findings, we present related recommendations for corrective action. 

1. Imprest cash counts were not timely and reports had inaccuracies. 

During our fiscal year 2009 audit, we identified issues with the 
Commission's ER Office imprest (petty) cash counts and the reporting 
of imprest cash to the Department of the Treasury, Financial 
Management Service (FMS). Specifically: 

* Although the Commission's ER Office conducted some imprest cash 
counts during periodic regional visits to its 17 ER cemeteries, we 
found that imprest cash was not being counted at least annually as 
required by the Commission's statement of policy on imprest funds. Of 
the 18 imprest cash accounts in the region, the ER Office had only 
counted cash for 3 of these accounts within 12 months of the previous 
count, with the most delinquent count taken about 9 months past its 
scheduled date. This condition existed because the ER Office had not 
yet fully implemented all procedures in the policy, which was revised 
in January 2008. Because cash is vulnerable to theft or loss, adequate 
internal controls are needed to ensure that cash is properly 
safeguarded. 

* During our review of the Commission-prepared FMS 1219, Statement of 
Accountability, for September 2009, we found that the "Advances to 
Agents" line in this monthly report to Treasury was understated by 
about $6,700. The FMS 1219 is used to report the accountability of 
funds held outside the U.S. Treasury each month. It is to include the 
beginning balance for the month, monthly receipts, monthly 
disbursements, and ending balance for the month. For the Commission, 
this consists of foreign currency in foreign bank accounts and on hand 
to pay local foreign vendors converted to U.S. dollars at a standard 
exchange rate. The "Advances to Agents" line of this report represents 
the amount of imprest cash advanced to fund custodians at the ER 
Office and its 17 ER cemeteries. 

The Treasury Financial Manual provides instructions for accurately 
reporting amounts on the FMS 1219 from the general ledger with support 
by underlying documentation. However, these instructions were not 
followed. Our analysis indicated that the underreported amount 
occurred because ER Office accounting personnel did not adjust the 
reported amount to Treasury for (1) changes in authorized amounts at 
several cemeteries because of the Commission's revised imprest fund 
procedure, and (2) foreign currency fluctuations at the year-end 
Treasury rate. 

* During our review of the FMS 1219 for September, 2009, we also found 
that the imprest cash "Receivables and Deferred Voucher Charges" 
amount per the report had not changed in several years. According to 
ER accounting personnel, this receivable of about $2,100 had been on 
the books since 1996. Because of its age and the lack of a record of 
who it is due from, it is doubtful that this small amount is 
collectible. 

If cash counts are not performed timely or Treasury reports are not 
prepared correctly, there is an increased risk that potential fraud 
could go undetected. In addition, the validity of data presented in 
U.S. government financial reports published by Treasury depends on the 
accuracy of the monthly reports from each agency, including the 
Commission. 

Recommendations: 

We recommend that the Finance Officer at the Commission's European 
Regional Office take action to: 

24. Ensure that all imprest cash is counted at least annually in 
accordance with the Commission's Imprest Fund Handbook. 

25. Ensure that cash balances reported on the monthly FMS 1219, 
Statement of Accountability, reconcile to actual cash amounts on hand 
in accordance with the Treasury Financial Manual. 

26. Write off the pre-1996 receivable amount reported on the monthly 
FMS 1219, Statement of Accountability as uncollectible. 

2. Miscellaneous receipt activity was not included in budgetary 
accounts. 

The Commission uses Fund 3220 to record miscellaneous receipts that 
the agency collects on behalf of Treasury. The miscellaneous receipts 
statute [31 U.S.C. § 3302(b), (c)] and Treasury regulations (31 C.F.R. 
§ 206.5) require agencies to remit miscellaneous receipts from third 
parties to Treasury. During our fiscal year 2009 audit, we reviewed 
the Commission's ER trial balance and found that while receipt 
activity was correctly reported in proprietary accounts, there were no 
corresponding entries to the budgetary accounts for this fund. As a 
result, the Fund 3220 budgetary accounts did not balance with the 
proprietary accounts at the end of the fiscal year. 

Treasury budgetary accounting requires that the 4000 series of 
accounts in the U.S. Standard General Ledger be used to record changes 
to, and current balances of, budgetary resources of the entity. 
Commission officials confirmed that no journal entries were made to 
record this activity in the budgetary accounts. While the Commission 
has adopted Treasury budgetary accounting policies, review procedures 
at the ER Office did not identify these entries as a budgetary 
resource because of the occasional small amount of miscellaneous 
receipts remitted by third parties. We proposed an audit adjustment of 
about $51,000 to correctly record Fund 3220 budgetary activity for 
fiscal year 2009, which the Commission subsequently booked and 
included in its fiscal year 2009 financial statements. 

Recommendations: 

We recommend that the Finance Officer at the Commission's European 
Regional Office comply with Treasury requirements in taking action to: 

27. Strengthen review procedures to ensure that personnel record both 
budgetary and proprietary accounting entries when recognizing 
miscellaneous receipt activity in Fund 3220. 

28. Review budgetary and proprietary accounting for Fund 3220 monthly 
to ensure that miscellaneous receipt activity is properly recorded. 

3. Not all expenditure transactions were adequately documented. 

During our fiscal year 2009 audit, we found that the Commission did 
not always maintain or retain appropriate documentation for some 
nonpayroll expenditures. We conducted a Commission-wide statistical 
test of nonpayroll expenditures for fiscal year 2009, and examined 75 
payment transactions and 9 credit transactions for the Commission's ER 
Office. We found the following deficiencies: 

* Eight expenditures, consisting of five utility payments, two pension 
payments, and a reissued vendor payment, did not include an Invoice 
Approval Sheet. This document, developed during fiscal year 2008 by 
the Finance Directorate of the ER Office, was to be included in every 
voucher package. It documents procurement approval, receipt of goods 
or services, certification that the item is complete or partially 
received, review of the voucher package, acceptance of the invoice to 
be paid, and approval to pay. According to ER Office accounting 
procedures, only after this sheet has been completed is the invoice to 
be paid. However, this procedure was still relatively new for fiscal 
year 2009 and was not always followed by the ER Office, particularly 
for "recurring" expenses like pensions and payroll taxes, and for 
utilities where the bills move quickly to payment to prevent 
disruption of services. Nevertheless, any missing items should have 
been identified during the voucher package review process by the 
Finance Directorate. 

* Six expenditures did not contain evidence of a Director's approval 
to pay the invoice. In four of these expenditures, a Finance 
Directorate pay assistant initialed approval to pay a retirement plan 
disbursement, a quarterly Belgium Social Security payment, and two 
school tuition payments. However, while we determined that these 
transactions were valid, this was not an authorized signature for 
approval to pay. We also tested nine ER credit transactions and noted 
that for two transactions, a pension plan refund and an overpayment of 
travel expenses, the documentation did not contain evidence of a 
director's review approval or date. ER Office accounting procedures 
provide that transactions are to be approved and dated by a director 
before processing. However, ER directors travel frequently and rather 
than hold up payment, vouchers for "recurring" operating expenditures 
are generally approved and processed by the Finance Directorate. 

* One invoice for over $225,000 for storm drainage improvements and 
the re-asphalting of roads at the Meuse-Argonne Cemetery was not 
stamped "certified" as received and approved for payment as evidenced 
by initials or signature and date by the Engineering Director of the 
ER Office. While the voucher package documented the cemetery 
superintendent's signature and certification (but was not dated), this 
was not sufficient. Although we determined that this transaction was 
valid, ER Office accounting procedures require approval of invoices by 
the Engineering Director to indicate that large project expenditures 
were reviewed and approved before payment. 

Standards for Internal Control in the Federal Government provides that 
transactions should be authorized and executed only by persons acting 
within the scope of their authority, and all transactions should be 
clearly documented. Failure to implement these control activities 
could result in the processing of improper payments. 

Recommendations: 

We recommend that the Finance Officer at the Commission's European 
Regional Office take action to follow established accounting 
procedures to: 

30. Include an Invoice Approval Sheet in every voucher package. 

31. Obtain evidence of director approval for all invoices. 

32. Review voucher packages for completeness before they are processed 
for payment. 

4. Not all payroll transactions were properly processed. 

In a statistical sample of Commission payroll transactions tested as 
part of our fiscal year 2009 audit, we selected 10 U.S. General 
Schedule (USGS) employees and 44 FSN employees at the Commission's ER 
Office. In testing these transactions, we found the following 
deficiencies: 

* The ER Human Resources Officer, a USGS employee, approved his own 
time and attendance record electronically. This action violates 
standards regarding adequate separation of duties and weakens internal 
controls. ER Office policy requires the ER Deputy Director to approve 
time and attendance records for USGS employees. However, ER Office 
policy did not clearly state that employees should not approve their 
own time and attendance records. 

* Three of the 10 USGS employees in our sample received erroneous 
amounts for their monthly foreign post allowance because of incorrect 
factors used to calculate the allowance as provided by the U.S. State 
Department. This is a variable allowance that encompasses several 
factors for accurate calculation including gross pay amount, number of 
dependents, physical location, and a fluctuating foreign exchange 
rate. As a result, the percentage rate used to calculate this 
allowance has the potential to vary every biweekly pay period and 
should be closely reviewed. However, this did not occur. While payroll 
personnel eventually identified these errors and corrected them in a 
subsequent pay period, in some cases this took several months. 

* One French FSN employee accrued a negative 231.5 hours as a result 
of maternity leave. ER Office sick leave procedures provide that once 
an employee has exhausted sick leave hours, any additional time off is 
to be leave without pay. Both the ER Finance Officer and the Human 
Resources Officer agreed that the accrual of this large amount of 
negative leave would not have happened if proper monitoring had 
occurred. 

* Two employees experienced delays in receiving an authorized pay 
increase. We found that while one employee's pay was adjusted in the 
following biweekly pay period, the other employee did not receive the 
pay increase for 8 pay periods. This long delay occurred because the 
former Human Resources Director had not promptly signed off on the pay 
authorization increase. 

Payroll and benefits constitute 49 percent of Commission total 
expenditures and is therefore significant to Commission operations. 
Standards for Internal Control in the Federal Government provides that 
transactions be complete, accurate, and timely recorded. These 
standards also stress the need for appropriate segregation of duties. 
A failure to follow established accounting and personnel procedures 
can result in erroneous or improper payments and could have a 
detrimental effect on employee morale. 

Recommendations: 

We recommend that the Finance Officer at the Commission's European 
Regional Office take action to: 

32. Clarify existing policy for approval of time and attendance 
records to ensure employees do not approve their own time card. 

33. Routinely review the calculation of monthly foreign post 
allowances for accuracy and timely correct any errors. 

34. Routinely monitor annual and sick leave balances, particularly for 
negative balances. 

35. Process authorized pay increases timely. 

5. Funds were commingled in the Commission's Aged Vendor Liability 
Report. 

During our fiscal year 2009 audit, we found that the general fund and 
trust fund accounts payable were commingled on the Commission's Aged 
Vendor Liability Report as of September 30, 2009. As a result, general 
fund accounts payable were overstated by about $5,000 and trust fund 
accounts payable were understated by the same amount. This occurred 
because two trust fund vouchers were miscoded by the Finance 
Directorate, which created incorrect postings to the general ledger 
accounts. The miscoding of the small amount from this one transaction 
was initially overlooked during supervisory review. 

Federal accounting and the U.S. Standard General Ledger provide that 
budgetary and proprietary accounts must balance. The Finance 
Directorate identified the imbalance during year-end closing; however, 
the amount was too small to adjust the year-end closing totals. While 
in consolidation the total accounts payable reported were correct, 
both general fund and trust fund accounts payable were incorrect by an 
immaterial amount. 

Recommendation: 

We recommend that the Finance Officer at the Commission's European 
Regional Office take action to: 

36. Timely review the Aged Vendor Liability Reports for proper fund 
classification and reconcile balances with the general ledger monthly. 

6. Not all year-end liabilities were identified for accrual. 

During our fiscal year 2009 audit, we identified seven vouchers 
totaling over $427,000 for which goods and services had been received 
before September 30, 2009, but were not recorded by the Finance 
Directorate as liabilities until the next fiscal year. This was 
contrary to year-end closing instructions issued by Commission 
headquarters, which emphasized proper cutoff at fiscal year-end. 
Specifically, we found the following: 

* Two invoices for horticultural supplies were not recorded because 
the Horticulture Specialist was on leave and consequently did not 
submit them to the Finance Directorate for year-end accrual until his 
return. 

* A fourth quarter pension plan and a Belgian Social Security payment 
were not recorded because payroll-related transactions throughout the 
year were frequently recorded when paid rather than accrued in the 
period they were incurred. 

* Two vouchers were not recorded for August and September 2009 
construction work on two residences related to the Normandy Visitor 
Center, the ER Office's largest engineering project, because invoices 
had not been received before year-end closing. 

* A September 2009 voucher was not recorded for an engineering project 
to renovate the chapel roof at the Henri-Chapelle American Cemetery 
because the invoice had not been received before year-end closing. 

Engineering projects pose a significant challenge as they generally 
involve large sums, are done by outside contractors, require an 
estimate of the amount of work completed but not billed, and are 
frequently billed late. As a result, project engineers in the 
Engineering Directorate are tasked with reviewing projects to estimate 
the amount of work performed but not yet billed and providing the 
results to the Finance Directorate to accrue engineering project 
liabilities at year-end. However, we found that this task was not 
always well-coordinated, resulting in some liabilities not being 
appropriately accrued at fiscal year-end. 

Standards for Internal Control in the Federal Government states that 
effective internal control activities include accurate and timely 
recording of transactions. We proposed, and the Commission recorded, 
audit adjustments to include these amounts in its fiscal year 2009 
financial statements. While these errors were not material to the 
fiscal year 2009 financial statements, internal controls are weakened 
and misstatements could occur if transactions are not accurately 
recorded in the proper accounting period, particularly for year-end 
reporting. 

Recommendations: 

We recommend that the Finance Officer at the Commission's European 
Regional Office take action to: 

37. Ensure that invoices, undelivered orders, and payroll accounts are 
reviewed to identify any goods and services received and liabilities 
incurred before September 30 so amounts are properly accrued in 
accordance with closing instructions at year-end. 

38. Coordinate with the Engineering Directorate a review of 
engineering contracts with unpaid balances to identify projects for 
which work has been performed and liabilities incurred before 
September 30 so that amounts are properly accrued in accordance with 
closing instructions at year-end. 

7. Undelivered orders report was not reconciled with the general 
ledger. 

During our fiscal year 2009 audit, we found that the amounts shown on 
a detail report of the Commission's undelivered orders, consisting of 
obligated but unpaid contracts and purchase orders, continued to be 
out-of-balance with the ER Office's general ledger by about $40,000. 
Because the composition of this amount was unknown and immaterial to 
the fiscal year 2009 financial statements, no adjustment was proposed 
to the general ledger or the statements. This condition has existed 
since the initial configuration of the accounting system was placed 
into service on October 1, 2001. 

Because of this recurring difference, a systems accountant initiated a 
review of the ER Office purchase order subsystem to identify entries, 
amounts, and categories causing the out-of-balance condition. While 
the analysis had not been completed, the findings included adjustments 
being recorded in the general ledger that were not supported by 
purchase orders, closed orders that were not closed in the ledger but 
should have been, and old adjustments prior to 2006 that are large 
nonreversing entries relating to entries for "erroneous" or "unknown" 
balances. Standards for Internal Control in the Federal Government 
states that all transactions need to be clearly documented and 
completely and accurately recorded. 

Recommendation: 

We recommend that the Finance Officer at the Commission's European 
Regional Office take action to: 

39. Complete the analysis of undelivered orders and make appropriate 
adjustments so the detail report of undelivered orders reconciles to 
and supports the general ledger balance. 

Finding At The Commission's Mediterranean Regional Office: 

In a statistical sample of Commission payroll transactions tested as 
part of our fiscal year 2009 audit, we selected two USGS employees and 
seven FSN employees at the Commission's MR Office in Rome, Italy. In 
testing these transactions, we identified a control deficiency in how 
holiday pay was calculated and how pay authorizations were processed. 
Specifically, we found the following: 

* One FSN employee who worked a 9-hour flexible work schedule charged 
and was paid for 9 hours of holiday pay. According to OPM, full-time 
employees who have flexible work schedules are allowed only 8 hours of 
holiday pay even if they would otherwise work more hours on that day. 
This error was not identified and corrected through supervisor 
approval and subsequent reviews because of a lack of awareness of the 
OPM requirement. The Commission's existing policy on public holiday 
leave states that the employee will be paid at the rate for the hours 
in the employee's basic workweek. However, this policy was not clear 
that employees on flexible work schedules are allowed only 8 hours of 
holiday pay. 

* One FSN employee's official personnel file did not contain a current 
SF-50, Notification of Personnel Action. This form is used to document 
official personnel actions, such as pay increases and promotions, and 
a copy is to be placed in each employee's official personnel file. The 
pay rate on the SF-50 provided to us, dated February 5, 2006, did not 
agree with the pay rate for the sample pay period for which the 
employee was paid. The MR Office later provided us with additional 
documentation to show that the employee's pay was correct based upon 
an authorized pay increase on March 4, 2007. Because the SF-50 is also 
used to make future employment, pay, and qualification decisions, 
incomplete files could affect these decisions. 

Recommendations: 

We recommend that the Director of the Commission's Mediterranean 
Regional Office take action to: 

40. Revise the existing holiday leave policy to clearly provide that 
employees can charge no more than 8 hours for a holiday, regardless of 
their work schedules. 

41. Notify employees of the policy clarification prohibiting charging 
more than 8 hours for a holiday, regardless of their work schedules. 

42. Notify supervisors and other payroll reviewers to check that 
holiday hours charged by employees are correct before processing 
payroll. 

43. Ensure that employee payroll data, including SF-50s, are kept 
current in official personnel files. 

Finding At The Commission's Manila American Cemetery: 

During a Commission-wide statistical test of nonpayroll expenditures 
conducted as part of our fiscal year 2009 financial audit, we examined 
12 payment transactions for the Commission's Manila American Cemetery 
in the Philippines. In testing these transactions, we identified a 
control deficiency regarding the lack of support for certain 
expenditures. Specifically, we found that: 

* two expenditure transactions lacked evidence of receipt of goods or 
services, 

* four transactions had signatures to indicate receipt of goods or 
services but no receipt dates, and: 

* four transactions did not have an indication of the vendor 
identification number on the supporting documentation. 

These issues occurred because the Manila Cemetery Superintendent, as 
the approving official, did not follow established Commission 
accounting procedures. Further, Standards for Internal Control in the 
Federal Government states that all transactions need to be clearly 
documented. Without appropriate evidence of receipt and acceptance of 
goods and services increases, the risk of improper payments increases. 
A vendor identification number provides evidence to support that a 
valid vendor provides goods and services. 

Recommendations: 

We recommend that the superintendent of the Commission's Manila 
American Cemetery follow established accounting procedures to: 

44. Provide a signature and date in voucher packages when goods and 
services were received. 

45. Ensure that voucher packages include vendor identification numbers. 

Conclusions And Recommendations: 

The Commission has strengthened internal controls over its accounting 
procedures to include reconciliation of accounts, accruing expenses, 
tracking engineering projects, and reporting. However, opportunities 
exist for further improvements. Appropriate actions by Commission 
management to implement our 45 recommendations in this report and to 
address the open recommendations from our previous audits will further 
improve internal control at Commission locations worldwide. 

Commission Comments And Our Evaluation: 

In its written comments, reprinted in enclosure II, the Commission 
stated that it agreed with the issues raised in the report and that it 
was considering our recommendations and would provide a full response 
to each recommendation as part of its 31 U.S.C. 720 letter to the 
Congress. As part of our fiscal year 2010 financial statement audit, 
we will follow up on all of these matters to determine the status of 
related corrective actions. 

This report contains recommendations to you. The head of a federal 
agency is required by 31 U.S.C. 720 to submit a written statement on 
actions taken on our recommendations to the Senate Committee on 
Homeland Security and Governmental Affairs and the House Committee on 
Oversight and Government Reform within 60 days of the date of this 
report. You must also send a written statement to the House and Senate 
Committees on Appropriations with the Commission's first request for 
appropriations made over 60 days after the date of this report. 

We are sending copies of this report to interested congressional 
committees and the Director of the Office of Management and Budget. 
This report is available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

We acknowledge and appreciate the cooperation and assistance provided 
by Commission management and staff during our audit of the 
Commission's fiscal year 2009 financial statements. If you have any 
questions regarding this report, please contact me at (202) 512-3406 
or sebastians@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Contributors to this report were Roger R. Stoltz, Assistant 
Director; Patricia A. Summers; Cara H. Larson; and Melanie B. Swift. 

Sincerely yours, 

Signed by: 

Steven J. Sebastian:
Director:
Financial Management and Assurance: 

Enclosures - 2: 

[End of section] 

Enclosure I: Details on Audit Methodology: 

In order to fulfill our responsibilities as the auditor of the 
American Battle Monuments Commission's (Commission) fiscal year 2009 
financial statements, we did the following: 

Examined, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements. This included selecting 
statistical samples of payroll and nonpayroll expenditures primarily 
to determine the validity of activities reported in the Commission's 
financial statements. We projected any errors in dollar amounts to the 
population of transactions from which they were selected. In testing 
some of these samples, certain attributes were identified that 
indicated deficiencies in the design or operation of internal control. 
These attributes, where applicable, were statistically projected to 
the appropriate populations. 

Assessed the accounting principles used and significant estimates made 
by Commission management. 

* Evaluated the overall presentation of the financial statements. 

* Obtained an understanding of the Commission and its operations, 
including its internal control over financial reporting. 

* Considered the Commission's process for evaluating and reporting on 
internal control over financial reporting based on criteria 
established under FMFIA. 

* Assessed the risk of (1) material misstatements in the financial 
statements, and (2) material weaknesses in internal control over 
financial reporting. 

* Tested relevant internal control over financial reporting. 

* Evaluated the design and operating effectiveness of internal control 
over financial reporting based on the assessed risk. 

* 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; 

- the Buffalo Soldiers Commemoration Act of 2005; 

- the Consolidated Security, Disaster Assistance, and Continuing 
Appropriations Act, 2009; 

- the Antideficiency Act; 

- the Pay and Allowance System for Civilian Employees; and: 

- the Prompt Payment Act. 

We performed site work at the Commission's headquarters in Arlington, 
Virginia, its European Regional Office in Garches, France; and its 
American cemeteries at Ardennes in Neupre, Belgium: Flanders Field in 
Waregem, Belgium; Henri-Chapelle in Henri-Chapelle, Belgium; and 
Netherlands in Margraten, Holland. We also conducted analytical 
reviews and other audit procedures on the Commission's Mediterranean 
Regional Office in Rome, Italy, and its Manila American Cemetery in 
the Philippines. 

Our work was conducted from May 11, 2009, through February 17, 2010, 
pursuant to our authority to conduct an annual audit of the 
Commission's financial statements under 36 U.S.C. § 2103. 

[End of Enclosure I] 

Enclosure II: Comments from the American Battle Monuments Commission: 

American Battle Monuments Commission: 
Courthouse Plaza II, Suite 500: 
2300 Clarendon Boulevard: 
Arlington, VA 22201-3367: 

Established by Congress: 1923: 
	
July 15, 2010: 

Mr. Steven J. Sebastian: 
Director, Financial Management and Assurance: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Sebastian: 

This responds to your June 23, 2010, memorandum regarding your 
proposed report: Management Report: Improvements Needed in American 
Battle Monuments Commission's Internal Controls and Accounting 
Procedures (GAO-10-596R). 

We agree with the issues raised in your report and are considering its 
recommendations, but we have no specific response at this time. 
However, we do not anticipate that we will disagree with any of the 
recommendations. The Commission will provide a full response to each 
recommendation as part of our 31 U.S.C. 720 letter to the Congress, 
which is due 60 days after the issuance of the report. 

Most respectfully, 

Signed by: 

Max Cleland: 
Secretary: 

[End of Enclosure II] 

Footnotes: 

[1] GAO, Financial Audit: American Battle Monuments Commission's 
Financial Statements for Fiscal Years 2009 and 2008, [hyperlink, 
http://www.gao.gov/products/GAO-10-399] (Washington, D.C.: Mar. 1, 
2010). 

[2] A significant deficiency in internal control is less severe than a 
material weakness, yet is important enough to merit attention by those 
charged with governance. A material weakness is a deficiency, or 
combination of deficiencies, in internal control over financial 
reporting, such that there is a reasonable possibility that a material 
misstatement of the entity's financial statements will not be 
prevented, or detected and corrected on a timely basis. 

[3] A control deficiency in internal control exists when the design or 
operation of a control does not allow management or employees, in the 
normal course of performing their assigned functions, to prevent, or 
detect and correct, misstatements on a timely basis. 

[4] The Antideficency Act prohibits officers and employees of the U.S. 
government from obligating or spending in advance or in excess of 
appropriations. 31 U.S.C. §1341(a). The U.S. Supreme Court and the 
Comptroller General have held that open-ended indemnification 
agreements violate this prohibition in the absence of specific 
statutory authority. See Hercules, Inc. v. United States, 516 U.S. 
417, 427-28 (1996); B-242146, August 16, 1991. 

[5] American Institute of Certified Public Accountants, Codification 
of Statements on Auditing Standards, AT Section 501, An Examination of 
an Entity's Internal Control Over Financial Reporting That Is 
Integrated With an Audit of Its Financial Statements, (January 2009). 

[6] The CCR database is the primary repository for contractor 
information required for the conduct of business with the federal 
government. CCR collects, validates, stores and disseminates data in 
support of agency acquisition missions. Both current and potential 
federal government registrants are required to register in CCR in 
order to be awarded contracts by the federal government. According to 
the FAR 4.11, prospective vendors must be registered in CCR prior to 
the award of a contract; basic agreement, basic ordering agreement, or 
blanket purchase agreement. The FAR is the principal set of rules in 
place to govern the acquisition process of federal government agencies. 

[7] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[8] Commission guidelines on prohibited sources indicate that 
personnel shall not knowingly solicit or accept donations from persons 
and entities that seek benefits or conduct activities subject to 
Commission oversight. 

[End of section] 

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