This is the accessible text file for GAO report number GAO-07-321 entitled 'Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 2006 and 2005' which was released on March 1, 2007. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Report to Congressional Committees: March 2007: Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 2006 and 2005: GAO-07-321: GAO Highlights: Highlights of GAO-07-321, a report to the Senate and House Committees on Veterans' Affairs Why GAO Did This Study: In accordance with 36 U.S.C. 2103, GAO is responsible for conducting audits of the agencywide financial statements of the American Battle Monuments Commission (the Commission). GAO audited the financial statements of the Commission for the fiscal years ended September 30, 2006, and 2005. The audits were done to determine whether, in all material respects, (1) the Commission’s financial statements were presented fairly, and (2) Commission management maintained effective internal control over financial reporting and compliance with laws and regulations. Also, GAO tested Commission management’s compliance with selected laws and regulations. The Commission was created in 1923 to commemorate the sacrifices and achievements of U.S. Armed Forces where they have served overseas since April 6, 1917, and locations within the United States as directed 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 was also responsible for designing and constructing the national World War II Memorial on the Capitol Mall in Washington, D.C., and for maintaining six nonfederal memorials with funds provided by those memorials’ sponsors. What GAO Found: In GAO’s opinion, the financial statements of the American Battle Monuments Commission as of September 30, 2006, and 2005, and for the fiscal years then ended, are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. Also, in GAO’s opinion, although certain internal controls should be improved, the Commission maintained effective internal control over financial reporting (including safeguarding of assets) and compliance with laws and regulations as of September 30, 2006. In addition, GAO found no instances of Commission noncompliance in fiscal year 2006 with selected provisions of laws and regulations GAO tested. The internal controls that should be improved as of September 30, 2006, which GAO considered to be a reportable condition, relate to two areas of information technology. Specifically, user documentation is lacking for the Commission’s Foreign Service National employee payroll, and security program and access controls over the computer system were not effective at all Commission locations. The Commission is working to improve its internal controls over information technology. During fiscal year 2006, the Commission strengthened its accounting for property and accounts payable such that GAO no longer considers it to be a reportable condition as of September 30, 2006. For fiscal year 2006, the Commission incurred program costs of $53.8 million to maintain its 24 cemeteries and 25 federal memorials that were financed from appropriated funds. Another $2.9 million of program costs were financed by other trust funds for final construction costs and administration related to the World War II Memorial, grave site flowers, and the repair and maintenance of nonfederal memorials that are funded by private contributions. Figure: The Commission's Brittany American Cemetery, St. James, France: [See PDF for Image] Source: American Battle Monuments Commission official photo. [End of figure] [Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-321]. To view the full product, including the scope and methodology, click on the link above. For more information, contact Steven J. Sebastian at (202) 512-3406 or sebastians@gao.gov. [End of Section] Contents: Letter: Auditor's Report: Opinion on Financial Statements: Opinion on Internal Control: Reportable Condition: Compliance With Laws and Regulations: Consistency of Other Information: Objectives, Scope, and Methodology: Commission Comments: Management's Discussion and Analysis: Financial Statements: Consolidating Balance Sheet: Consolidating Statement of Net Cost and Changes in Net Position: Consolidating Statement of Budgetary Resources: Consolidating Statement of Financing: Notes to the Consolidating and Consolidated Financial Statements: Other Information: 30: Required Supplementary Information: Schedules of Heritage Assets: Abbreviations Abbreviations: FMFIA: Federal Managers' Financial Integrity Act of 1982: OMB: Office of Management and Budget: March 1, 2007: The Honorable Daniel K. Akaka: Chairman: The Honorable Larry Craig: Ranking Minority Member: Committee on Veterans' Affairs: United States Senate: The Honorable Bob Filner: Chairman: The Honorable Steve Buyer: Ranking Minority Member: Committee on Veterans' Affairs: House of Representatives: In accordance with 36 U.S.C. 2103, this report presents the results of our audits of the financial statements of the American Battle Monuments Commission's (the Commission) for the fiscal years ended September 30, 2006, and 2005. 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 [Hyperlink, http://www.gao.gov]. Should you or your staffs have any questions concerning this report, please contact me at (202) 512-3406. Key contributors to this engagement were Roger R. Stoltz, Patricia A. Summers, Mark Canter, Cara Bauer, Bret Kressin, Chelsea Lounsbury, and Heather Bergstrom. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Signed by: Steven J. Sebastian: Director: Financial Management and Assurance: Auditor's Report To the Chairman of the American Battle Monuments Commission: 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's financial statements for fiscal years 2006 and 2005, we found: * the consolidating financial statements as of and for the fiscal year ended September 30, 2006, and comparative consolidated totals as of and for the fiscal year ended September 30, 2005, are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles; * although internal controls should be improved, the Commission maintained effective internal control over financial reporting (including safeguarding assets) and compliance with laws and regulations as of September 30, 2006; 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 objectives, scope, and methodology of our audit. Opinion on Financial Statements: The Commission's consolidating balance sheet as of September 30, 2006, and its related consolidating statements of 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, 2005, are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. Opinion on Internal Control: Although certain internal controls should be improved, the Commission maintained, in all material respects, effective internal control over financial reporting (including safeguarding assets) and compliance as of September 30, 2006. Internal control provided reasonable assurance that misstatements, losses, or noncompliance material in relation to the consolidating financial statements 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 Integrity Act (FMFIA)], and Office of Management and Budget (OMB) Circular No. A-123, Management's Responsibility for Internal Control (Dec. 21, 2004). Our work identified the need to improve certain internal controls, as described below, that we consider a reportable condition. Reportable conditions are significant deficiencies 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. 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 deficiencies in controls over information technology systems as of September 30, 2006. A prior year condition regarding the recognition of property and accounts payable was corrected by the Commission during fiscal year 2006. Commission management disclosed the information technology condition in its fiscal year 2006 FMFIA report and is working to implement corrections for all internal control deficiencies. Deficient Controls over Information Technology Systems: Inadequate controls over information technology systems were identified in the two following areas: * User documentation: While the Commission's existing accounting system, implemented on October 1, 2001, has adequate user documentation, it did not provide user documentation to support its older legacy subsystems that were still used primarily for payroll during fiscal year 2006. This condition has existed since our first audit of the Commission's financial statements in fiscal year 1997 and includes the Clipper system used by the European Regional Office and the dBase IV system used by the Mediterranean Regional Office. Commission personnel have learned how to use these legacy subsystems over the years, primarily through on-the-job training, but have limited support to explain how subsystems functions should be performed and to answer questions. In January 2004, this condition was partially corrected when payroll processing for the Commission's General Schedule employees was converted to the General Services Administration system, which provided sufficient user documentation. During fiscal year 2005, a contractor began designing and documenting a new payroll system for the Commission's Foreign Service National employees, which is projected to be operational sometime in fiscal year 2007. Further efforts to improve user documentation are ongoing. * Security program and access controls: During our fiscal year 2006 audit, we continued to identify some security controls over the Commission's computer system, such as administrative controls over network configuration, passwords, encryption, and access to files, that were not effective at all Commission locations as of September 30, 2006. This condition may allow unauthorized parties access to the Commission's computer system and network resources that could result in damage, deletion, or theft of computerized data. Since the installation of the Commission's automated accounting system in fiscal year 2002, we have conducted annual security and general controls reviews. In separate Limited Official Use reports issued after our fiscal years 2002 through 2005 audits, we communicated detailed information and made specific recommendations to strengthen Commission internal controls in information technology, accounting procedures, and financial reporting. While the Commission has implemented many of these recommendations, further efforts are needed. Corrected Condition on Property and Payables Recognition: In our previous audit of the Commission's financial statements,[Footnote 1] we disclosed a reportable condition related to the Commission's improper recognition of property and accounts payable. This resulted in audit adjustments to correct property balances by $0.4 million and accounts payable by $0.6 million as of September 30, 2005. We noted that proper expensing of heritage asset additions, while capitalizing and depreciating general property additions over accounting policy limits, was necessary for accountability and proper presentation. In addition, proper cutoff of accrued liabilities for goods, services, and benefits received during the current fiscal year but invoiced and paid in the next fiscal year was also necessary for accountability and proper presentation. During our current audit, we found that training, new personnel, and increased review by Commission accounting staff during fiscal year 2006 and at year end resulted in improved accounting for property and payables. Therefore, we no longer considered this a reportable condition as of September 30, 2006. Compliance With Laws and Regulations: Our tests of the Commission's compliance with selected provisions of laws and regulations for fiscal year 2006 disclosed no instances of noncompliance 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 Information: The Commission's Management Discussion and Analysis and other information related to heritage assets contain a wide range of data, some of which are not directly related to the financial statements. We do not express an opinion on this information. However, we compared this information for consistency with the financial statements and discussed the methods of measurement and presentation with officials of the Commission. On the basis of this limited work, we found no material inconsistencies with the financial statements or nonconformance with OMB guidance. Objectives, Scope, and Methodology: Commission management is responsible for (1) preparing the financial statements in conformity with U.S. generally accepted accounting 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 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 assurance that the following objectives were met: * Financial reporting: Transactions are properly recorded, processed, and summarized to permit the preparation of financial statements and other 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 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 financial statements; * assessed the accounting principles used and significant estimates made by Commission management; * evaluated the overall presentation of the 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 the Commission's 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, * Military Quality of Life and Veterans Affairs Appropriations Act, 2006, * Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico and Pandemic Influenza, 2006 (Section 3801, one percent across-the-board rescission), * 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 control testing to 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 selected provisions of laws and regulations that have a direct and material effect on the financial statements and those required by OMB audit guidance that we deemed applicable to the Commission's financial statements for the fiscal year ended September 30, 2006. 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 Comments: Commission management was provided with a draft of this report and concurred with its facts and conclusions. Signed by: Steven J. Sebastian: Director: Financial Management and Assurance: January 31, 2007: [End of section] Management's Discussion and Analysis: American Battle Monuments Commission Annual Financial Report Management's Discussion And Analysis (MDA) For The Fiscal Year Ended September 30, 2006: Commission Profile: The American Battle Monuments Commission (the Commission)-guardian of America's overseas commemorative cemeteries and memorials-honors the service, achievements and sacrifice of United States Armed Forces. Since 1923, the Commission has executed this mission by (1) commemorating the achievements and sacrifices of United States Armed Forces where they have served overseas since April 6, 1917, through the erection and maintenance of suitable memorial shrines; (2) designing, constructing, operating and maintaining permanent American military burial grounds in foreign countries; and (3) controlling the design and construction on foreign soil of U.S. military memorials, monuments, and markers by other U.S. citizens and organizations, both public and private, and encouraging their maintenance. Our fiscal year 2006 appropriation supported our continued commitment to the worldwide responsibilities that flow from this mission. In performance of its mission, the Commission administers, operates and maintains 24 permanent American military cemeteries; 25 Federal memorials, monuments, and markers; and six nonfederal memorials. While three memorials are located in the United States, the remaining memorials and all of our cemeteries are located in 14 foreign countries, the U.S. Commonwealth of the Northern Mariana Islands, and the British dependency of Gibraltar. These cemeteries and memorials are among the most beautiful and meticulously maintained shrines in the world. As of September 30, 2006, interred in the cemeteries are almost 125,000 U.S. war dead: about 31,000 from World War I, over 93,000 from World War II, and 750 from the Mexican American War. Additionally, over 6,000 American veterans and others are interred in our Mexico City and Corozal cemeteries. The Commission's World War I, World War II, and Mexico City cemeteries are closed to future burials except for the remains of U.S. war dead discovered in World War I and II battle areas. In addition to grave sites, the World War I and II cemeteries, together with three memorials on U.S. soil, commemorate by name on Tablets of the Missing over 94,000 U.S. servicemen and women who were Missing in Action or lost or buried at sea in their general region during the World Wars and the Korean and Vietnam Wars. The Commission also administers trust funds to (1) build memorials authorized by Congress, but financed primarily from private contributions, commemorative coin proceeds, and investment earnings; (2) decorate grave sites with flowers from private contributions; and (3) maintain and repair nonfederal war memorials with private contributions. Organizational Structure: The Commission's organizational structure for fiscal year 2006 is presented in Figure 1 below. Figure 1. The Commission's Organizational Structure: [See PDF for image] [End of figure] The Commission's policymaking body consists of an 11-member Board of Commissioners appointed by the President of the United States for an indefinite term and whose members serve without pay. The commissioners establish policy and ensure proper staff functioning in carrying out the mission of the Commission. During inspections, they observe, inquire, comment upon, and make recommendations on any and all aspects of Commission operations. The Commission's daily operations are directed by an Executive Level Secretary, who is appointed by the President and assisted by an Executive Director, a member of the Senior Executive Service. The Commission's headquarters office is in Arlington, Virginia and regional offices are located in Garches, France, just outside Paris, and in Rome, Italy. For fiscal year 2006, the Commission added the Normandy Visitor Center Director, for a total of 391 full-time equivalent (FTE) positions. U.S. citizens constituted 69 members of the staff, while the remaining 322 were Foreign Service Nationals employed at our regional offices and at the cemeteries in the countries where the Commission operates. Operations Management: The Commission's fiscal year 2006 funding focused on personnel costs, service fees, scheduled maintenance and repairs, supplies, materials, spare parts, replacement of uneconomically repairable equipment, and capital improvements, as well as funding toward completion of the design and construction of the Normandy Interpretive Center. The Commission's fiscal year 2006 appropriation of $36.25 million was available for salaries and expenses. Of this total, $3.1 million was allocated for the design and construction of the Normandy Interpretive Center. A government-wide rescission of 1% reduced the Commission's Salaries and Expenses appropriation by $362,500, causing it to reduce spending in much-needed engineering projects to accommodate this loss. For fiscal year 2006, Congress also appropriated $15.25 million into the Commission's Foreign Currency Fluctuation Account, less $152,500 for the 1% rescission. This appropriation is used to offset foreign exchange losses to the U.S. Dollar primarily by the European Euro. This funding also reduces the Commission's risk that the funding appropriated for its operations (in the Salaries and Expenses appropriation) would be jeopardized due to vagaries in currency fluctuations. Most of our facilities range in age from 46 to 92 years old, with our Mexico City Cemetery being over 150 years old. The permanent structures and plantings, which make our facilities among the most beautiful memorials in the world, are aging and require increased funding to maintain them at the current standards. Accordingly, we prioritize the use of our maintenance and engineering funds very carefully to ensure the most effective utilization of our available resources. Within its fiscal year 2006 appropriation, the Commission targeted $1.0 million to continue the Infrastructure Modernization Program. This 50% decrease from fiscal year 2005 hindered our efforts to upgrade or replace outdated and deteriorating systems. The shrines to America's war dead entrusted to the Commission's care require a significant annual program of maintenance and repair of facilities, equipment, and grounds. This care includes upkeep of more than 131,000 graves and headstones and 73 memorial structures (within and external to the cemeteries) on over 1,600 acres of land. Additionally, the Commission maintains 41 residential quarters for assigned personnel; 24 maintenance facilities; 67 miles of roads and walkways; 911 acres of flowering plants, fine lawns, and meadows; nearly 3 million square feet of shrubs and hedges; and over 11,000 ornamental trees. All of the plantings, including the lawns and to some extent the meadows, must be cut and shaped, fed and treated with insecticides and fungicides at regular intervals during the growing season. The plantings also must be replaced when their useful lives are exhausted or they receive major storm damage. Care and maintenance of these resources is exceptionally labor intensive; thus personnel costs accounted for more than half of the Commission's fiscal year 2006 obligations. Figure 2 shows the obligation of funds by object class under the Commission's fiscal year 2006 obligations. Figure 2. The Commission's Fiscal Year Obligations by Object Class: [See PDF for image] [End of figure] Mission and Coals: During fiscal year 2006, the Commission continued to develop its mission and goals to help ensure that our commemorative cemeteries and memorials remain fitting shrines to this great nation's core value that the United States is a beacon for liberty and freedom throughout the world. The Commission's mission statement: The American Battle Monuments Commission guardian of America's overseas commemorative cemeteries and memorials-honors the service, achievements, and sacrifice of United States Armed Forces. The Commission's goals: * To develop, operate, maintain, and improve the Commission's facilities as the world's best commemorative sites. * To value and invest in each employee. * To have the Commission's commemorative sites recognized worldwide as inspirational and educational visitor destinations. * To make the Commission's business and resource management the best in government. President's Management Agenda Initiatives: The Commission made significant progress in the implementation of each item within the five initiatives of the President's Management Agenda as follows. Strategic Management of Human Capital: In fiscal year 2002, we began a worldwide manpower study that outlined our manpower requirements, position descriptions, workloads, and manpower distribution. This effort was to ensure that we deploy our workforce so that we have the right person with the right skills in every position. We expect to implement the study recommendations through fiscal year 2007 if funding allows. Competitive Sourcing: We have used competitive sourcing initiatives in a number of ways to improve performance and save costs. Our fiscal year 2006 budget contained funding for upgrades, hosting, and 24-hour support of our financial management system. These funds allowed us to outsource support to contractors experienced in providing such services and enabled us to support our worldwide operations without increasing the size of our financial management staff. Most of our construction and engineering projects were contracted out, since these projects are usually unique and beyond the capability of our limited staff. Improved Financial Performance: Since fiscal year 1997, the Commission has been required to produce financial statements and the Comptroller General of the United States has been required to independently audit these statements. Each year, the Commission has earned an unqualified opinion on its financial statements from the Government Accountability Office. However, we recognize that improved financial performance is more than achieving an unqualified audit opinion. It is about putting useful and timely information in the hands of Commission management so that they can make informed decisions. The fiscal year 2006 budget not only supported our daily accounting operations and proper internal controls, but allowed us to identify additional management needs and reports to provide the best financial information available. Expanded E-Government: Over the last several years, the Commission expanded access to valuable information through the use of online tools. We maintain a Web site that allows visitors to gather information on our organization and our cemeteries and memorials. During fiscal year 2006, we transitioned our public Web site from an internal operation to an outside Web hosting service. This move improved Web site availability and expanded our ability to provide multimedia information over the internet. Specifically, the Web site now has greater capacity to support videos and increased public use. Other improvements include the ability for the public to access our job postings and to email regions and cemeteries directly. Budget and Performance Integration: A key element in linking budget and performance is having timely and reliable financial data. We achieved that with our integrated financial system. Another key element is the process by which the Commission ties performance within the organization to the budget formulation process. In fiscal year 2006, we initiated top-to-bottom cemetery reviews. These reviews are used to match requirements to resources across engineering, logistics, and horticulture, and form the basis for future budget requirements. Selected Performance Goals and Results: During fiscal year 2006, the Commission demonstrated an ability to achieve performance results through a number of specific projects that tie directly to its strategic goals as follows: 1. In support of Next of Kin and other customers who use our services, the Commission provides burial and memorialization site information; letters authorizing non-fee passports for members of the immediate family traveling overseas primarily to visit the cemetery; in-country travel and accommodation information; and, upon arrival at the cemetery, escort to the appropriate grave or memorialization site. Requesters are provided a photograph that is taken of the appropriate headstone or section on the Tablet of the Missing, which is mounted on a color lithograph of the cemetery or memorial where a serviceman or woman is buried or commemorated by name. We also purchases floral decorations with donor funds and the donor is provided with a photograph of the headstone or Tablet of the Missing with the decoration in place. 2. In addition to responding to inquiries by friends and relatives of the war dead interred or memorialized at its sites, the Commission also provides information to the Executive Branch, Members of Congress, other government agencies, historians, and other interested individuals. We provide cemetery lithographs, photos, and other information throughout the year. 3. The Commission's Web site at www.abmc.gov provides visitors a convenient, user-friendly method to access information on the Commission, as well as its cemeteries, memorials, monuments, markers, and headquarters operations. In addition, information on U.S. war dead from the Korean War and those interred or commemorated at its World War I and World War II cemeteries are accessible on the Web site. During fiscal year 2006, the Commission developed a database of burials at our Corozal American Cemetery in Panama that will be made available to the public through the Web site in fiscal year 2007. 4. Most Americans and foreign citizens who visit Commission cemeteries pay homage collectively to the interred war dead. Many have more personal reasons for visiting a friend or relative who never returned home from war. Regardless of the visitors' motivations, Commission employees dedicate themselves to making each visit gratifying and memorable. The Commission's overseas commemorative sites are recognized for their beauty and inspirational qualities, yet few Americans are aware of their existence; the Commission estimates that 85 percent of its visitors are foreign citizens. As a result, the Commission continued its efforts to increase public awareness of these sites so that more Americans add them to their itineraries when traveling overseas. The Commission developed traveling displays and worked closely with the travel and tour industry, as well as general and travel media, to bring greater visibility to our cemeteries and memorials. 5. Throughout the year, at its commemorative sites around the world, the Commission hosted a variety of special events and commemorations including ceremonies on Memorial Day and Veterans Day. In addition, military units held ceremonies to honor their fallen comrades, and local organizations paid tribute to those who died while liberating their regions. The President of the United States and the First Lady, joined by an honor guard of American veterans, placed a wreath at Corozal American Cemetery on November 7, 2005, during their state visit to Panama. 6. The American Veterans of WWII, Korea, and Vietnam (AMVETS) and the Robert R. McCormick Tribune Foundation have generously donated chromatically tuned bells in carillons to enhance our overseas cemeteries. AMVETS installed the first carillon in our Manila cemetery in 1985. They subsequently formed a partnership with the foundation, and in May 2006 dedicated a carillon at the Ardennes American Cemetery in Belgium, the 17th donated over the years. 7. The Commission initiated a replacement and renovation program for old headstones at the Oise-Aisne American Cemetery in Fere-en- Tardenois, France, in fiscal year 2004. This program uses a computer- controlled engraving machine to renovate and refinish severely degraded headstones. It took several years of planning to acquire the custom machine and special tooling, as well as to establish the required training and procedures for the program to work effectively and efficiently. Based on the success of the first engraving machine, we ordered a second headstone engraving machine in fiscal year 2006 for the Meuse-Argonne American Cemetery. 8. For fiscal years 2002 through 2006, the Commission allocated a total of $30 million of appropriations, net of rescissions, to build an expanded visitor interpretive center at the Normandy American Cemetery. This will be the Commission's first such center and will help us tell the story of those that participated in the D-Day invasion and ensuing operations of the Normandy campaign. The construction of this facility started at the end of fiscal year 2005 and dedication is planned for the anniversary of D-Day, June 6, 2007. The Commission will continue to review and revise its mission, goals, and performance criteria during the upcoming budget year. Management Integrity: Controls, Systems, Compliance, and Challenges: The Commission is cognizant of the importance of, and need for, management accountability and responsibility as the basis for quality and timeliness of program performance, mission accomplishment, increased productivity, cost effectiveness, and compliance with applicable laws. It has taken measures to ensure that the annual evaluation of these controls is performed in a conscientious and thorough manner according to OMB regulations and guidelines and in compliance with 31 U.S.C. 3512 (c), (d), commonly known as the Federal Managers' Financial Integrity Act (FMFIA). The Commission's evaluation of its system of internal management practices and controls during fiscal year 2006 revealed no material weaknesses. The objectives of the Commission's internal management control policies and procedures are to provide reasonable assurance that: 1. Obligations and costs are in compliance with applicable law; 2. Funds, property, and other assets are safeguarded against waste, loss, unauthorized use, and misappropriation; 3. Revenue and expenditures applicable to agency operations are promptly recorded and accounted for; and: 4. Programs are efficiently and effectively carried out in accordance with applicable laws and management policy. Based on its evaluation, the Commission concluded that there is reasonable assurance that it complies with the provisions of FMFIA. The reasonable assurance concept recognizes that the cost of internal controls should not exceed the benefits expected to be derived and that the benefits reduce the risk of failing to achieve stated objectives. Future Risks: Changes in the rate of exchange for foreign currencies have a significant impact on our day-to-day operations. In order to insulate the Commission's annual appropriation against major changes in its purchasing power, Congress enacted legislation in 1988 (codified in 36 U.S.C. 2109) to establish a foreign currency fluctuation account in the U.S. Treasury. By maintaining close scrutiny on the Commission's obligation status, as well as monitoring and distributing the Foreign Currency Fluctuation Account balance, our overall future financial risk to operations is reduced. [End of section] Financial Statements: Consolidating Balance Sheet: American Battle Monuments Commission Consolidating Balance Sheet: As of September 30, 2006 (With Comparative Consolidated Total as of September 30, 2005): Assets: Intragovernmental: Fund Balance with Treasury (note 2); General Fund: Cemeteries and Memorials: $40,012,391; Trust Funds: WWII and Other Trust Funds: $15,057,733; Total Funds: Total 2006: $55,070,124; Total Funds: Total 2005: $48,356,286. Assets: Intragovernmental: Treasury investments, net (note)3; General Fund: Cemeteries and Memorials: [empty]; Trust Funds: WWII and Other Trust Funds: $58,137; Total Funds: Total 2006: $58,137; Total Funds: Total 2005: $7,960,248. Assets: Total intragovernmental; General Fund: Cemeteries and Memorials: $40,012,391; Trust Funds: WWII and Other Trust Funds: $15,115,870; Total Funds: Total 2006: $55,128,261; Total Funds: Total 2005: $56,316,534. Assets: Cash and foreign account (note 4); General Fund: Cemeteries and Memorials: $89,383; Trust Funds: WWII and Other Trust Funds: $185; Total Funds: Total 2006: $89,568; Total Funds: Total 2005: $87,490. Assets: Accounts receivable; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: [Empty]; Total Funds: Total 2005: $31,425. Assets: Contributions receivable, net (note 5); General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: $110,000; Total Funds: Total 2006: $110,000; Total Funds: Total 2005: $207,040. Assets: General property and equipment, net (note 6); General Fund: Cemeteries and Memorials: $1,921,881; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $1,921,881; Total Funds: Total 2005: $1,995,704. Assets: Heritage property (note 6); General Fund: Cemeteries and Memorials: $0; Trust Funds: WWII and Other Trust Funds: $0; Total Funds: Total 2006: $0; Total Funds: Total 2005: $0. Total Assets; General Fund: Cemeteries and Memorials: $42,023,655; Trust Funds: WWII and Other Trust Funds: $15,226,055; Total Funds: Total 2006: $57,249,710; Total Funds: Total 2005: $58,638,193. Liabilities: Intragovernmental: Accounts payable; General Fund: Cemeteries and Memorials: $138,580; Trust Funds: WWII and Other Trust Funds: $1,700,236; Total Funds: Total 2006: $1,838,816; Total Funds: Total 2005: $3,935,262. Liabilities: Intragovernmental: Accrued salaries and benefits; General Fund: Cemeteries and Memorials: $85,511; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $85,511; Total Funds: Total 2005: $79,845. Liabilities: Total Intragovernmental; General Fund: Cemeteries and Memorials: $224,091; Trust Funds: WWII and Other Trust Funds: $1,700,236; Total Funds: Total 2006: $1,924,327; Total Funds: Total 2005: $4,015,107. Liabilities: Accounts payable; General Fund: Cemeteries and Memorials: $4,550,967; Trust Funds: WWII and Other Trust Funds: $57,094; Total Funds: Total 2006: $4,608,061; Total Funds: Total 2005: $1,636,030. Liabilities: Other liabilities (note 7); General Fund: Cemeteries and Memorials: $4,020,367; Trust Funds: WWII and Other Trust Funds: $518; Total Funds: Total 2006: $4,020,885; Total Funds: Total 2005: $3,104,865. Total Liabilities; General Fund: Cemeteries and Memorials: $8,795,425; Trust Funds: WWII and Other Trust Funds: $1,757,848; Total Funds: Total 2006: $10,553,273; Total Funds: Total 2005: $8,756,002. Net position (note 9): Unexpended appropriations; General Fund: Cemeteries and Memorials: $33,809,576; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $33,809,576; Total Funds: Total 2005: $34,749,909. Net position (note 9): Cumulative results of operations (deficit); General Fund: Cemeteries and Memorials: ($581,346); Trust Funds: WWII and Other Trust Funds: $13,468,207; Total Funds: Total 2006: $12,886,861; Total Funds: Total 2005: $15,132,282. Total Net position; General Fund: Cemeteries and Memorials: $33,228,230; Trust Funds: WWII and Other Trust Funds: $13,468,207; Total Funds: Total 2006: $46,696,437; Total Funds: Total 2005: $49,882,191. total Liabilities and Net position; General Fund: Cemeteries and Memorials: $42,023,655; Trust Funds: WWII and Other Trust Funds: $15,226,055; Total Funds: Total 2006: $57,249,710; Total Funds: Total 2005: $58,638,193. The accompanying notes are an integral part of these statements. Consolidating Statement of Net Cost and Changes in Net Position: American Battle Monuments Commission Consolidating Statement Of Net Cost And Changes In Net Position: For the Year Ended September 30, 2006 (With Comparative Consolidated Total for the Year Ended September 30, 2005): Program Costs: Intragovernmental Program costs: Operations and maintenance; General Fund: Cemeteries and Memorials: $2,932,680; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $2,932,680; Total Funds: Total 2005: $2,927,952. Program Costs: Intragovernmental Program costs: Design and construction; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: $1,858,309; Total Funds: Total 2006: $1,858,309; Total Funds: Total 2005: $2,702,633. Program Costs: Intragovernmental Program costs with the public: Operations and maintenance; General Fund: Cemeteries and Memorials: $31,877,044; Trust Funds: WWII and Other Trust Funds: $240,279; Total Funds: Total 2006: $32,117,323; Total Funds: Total 2005: $29,440,526. Program Costs: Intragovernmental Program costs with the public: Fund raising; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: [Empty]; Total Funds: Total 2005: $46,644. Program Costs: Intragovernmental Program costs with the public: Administrative; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: $324,278; Total Funds: Total 2006: $324,278; Total Funds: Total 2005: $685,496. Program Costs: Intragovernmental Program costs with the public: Design and construction; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: [Empty]; Total Funds: Total 2005: $653,218. Program Costs: Intragovernmental Program costs with the public: Memorial costs; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: $439,841; Total Funds: Total 2006: $439,841; Total Funds: Total 2005: $52,738. Program Costs: Intragovernmental Program costs with the public: Property and equipment (note 6); General Fund: Cemeteries and Memorials: $9,626,263; Trust Funds: WWII and Other Trust Funds: $58; Total Funds: Total 2006: $9,626,321; Total Funds: Total 2005: $2,234,441. Program Costs: Intragovernmental Program costs with the public: Foreign currency losses, net; General Fund: Cemeteries and Memorials: $9,334,477; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $9,334,477; Total Funds: Total 2005: $8,377,092. Program Costs: Net Cost of Operations; General Fund: Cemeteries and Memorials: $53,770,464; Trust Funds: WWII and Other Trust Funds: $2,862,765; Total Funds: Total 2006: $56,633,229; Total Funds: Total 2005: $47,120,740. Changes in Net Position: Cumulative results (Deficit) - Start of Year; General Fund: Cemeteries and Memorials: $(122,568); Trust Funds: WWII and Other Trust Funds: $15,254,850; Total Funds: Total 2006: $15,132,282; Total Funds: Total 2005: $18,611,215. Changes in Net Position: Budgetary Financing Sources: Appropriations used; General Fund: Cemeteries and Memorials: $52,642,968; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $52,642,968; Total Funds: Total 2005: $41,906,879. Changes in Net Position: Budgetary Financing Sources: Total Budgetary Financing Sources; General Fund: Cemeteries and Memorials: $52,642,968; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $52,642,968 Total Funds: Total 2005: $41,906,879. Changes in Net Position: Other Financing Sources: Contributions; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: $843,913; Total Funds: Total 2006: $843,913; Total Funds: Total 2005: $1,071,129. Changes in Net Position: Other Financing Sources: Treasury investment earnings; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: $232,209; Total Funds: Total 2006: $232,29; Total Funds: Total 2005: $96,508. Changes in Net Position: Other Financing Sources: Other Revenue; General Fund: Cemeteries and Memorials: $7,645; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $7,645; Total Funds: Total 2005: [Empty]. Changes in Net Position: Other Financing Sources: Imputed Financing; General Fund: Cemeteries and Memorials: $661,073; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $661,073; Total Funds: Total 2005: $567,291. Changes in Net Position: Total other financing sources; General Fund: Cemeteries and Memorials: $668,718; Trust Funds: WWII and Other Trust Funds: $1,076,122; Total Funds: Total 2006: $1,744,840; Total Funds: Total 2005: $1,734,928. Changes in Net Position: Total Financing Sources; General Fund: Cemeteries and Memorials: $53,311,686; Trust Funds: WWII and Other Trust Funds: $1,076,122; Total Funds: Total 2006: $54,387,808; Total Funds: Total 2005: $43,641,807. Changes in Net Position: Less: Net Cost of Operations; General Fund: Cemeteries and Memorials: $53,770,464; Trust Funds: WWII and Other Trust Funds: $2,862,765; Total Funds: Total 2006: $56,633,229; Total Funds: Total 2005: $47,120,740. Changes in Net Position: Net Increase (Decrease) for the Year; General Fund: Cemeteries and Memorials: $(458,778); Trust Funds: WWII and Other Trust Funds: $(1,786,643); Total Funds: Total 2006: $(2,245,421); Total Funds: Total 2005: $(3,478,933). Changes in Net Position: Cumulative Results (Deficit) - End of Year; General Fund: Cemeteries and Memorials: $(581,346); Trust Funds: WWII and Other Trust Funds: $13,468,207; Total Funds: Total 2006: $12,886,861; Total Funds: Total 2005: $15,132,282. Changes in Net Position: Unexpended Appropriations - Start of Year; General Fund: Cemeteries and Memorials: $34,749,909; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $34,749,909; Total Funds: Total 2005: $23,981,588. Changes in Net Position: Budgetary Financing Sources: Appropriations received; General Fund: Cemeteries and Memorials: $50,985,000; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $50,985,000; Total Funds: Total 2005: $52,675,200. Changes in Net Position: Budgetary Financing Sources: Other offsetting receipts and adjustments; General Fund: Cemeteries and Memorials: $717,635; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $717,635; Total Funds: Total 2005: [Empty]. Changes in Net Position: Budgetary Financing Sources: Appropriations used; General Fund: Cemeteries and Memorials: $(52,642,968); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(52,642,968); Total Funds: Total 2005: $(41,906,879). Changes in Net Position: Budgetary Financing Sources: Increase in unexpended appropriations; General Fund: Cemeteries and Memorials: $(940,333); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(940,333); Total Funds: Total 2005: $10,768,321. Changes in Net Position: Unexpended appropriations - End of year; General Fund: Cemeteries and Memorials: $33,809,576; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $33,809,576; Total Funds: Total 2005: $34,749,909. Total net Position - End of Year; General Fund: Cemeteries and Memorials: $33,228,230; Trust Funds: WWII and Other Trust Funds: $13,468,208; Total Funds: Total 2006: $46,696,437; Total Funds: Total 2005: $49,882,191. The accompanying notes are an integral part of these statements. [End of table] Consolidating Statement of Budgetary Resources: American Battle Monuments Commission Consolidating Statement Of Budgetary Resources: For the Year Ended September 30, 2006 (With Comparative Consolidated Total for the Year Ended September 30, 2005): Budgetary Resources: Budgetary authority: Appropriations; General Fund: Cemeteries and Memorials: $51,500,000; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $51,500,000; Total Funds: Total 2005: $53,100,000. Budgetary Resources: Budgetary authority: net transfer in for net foreign exchange loss; General Fund: Cemeteries and Memorials: $7,929,796; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $7,929,796; Total Funds: Total 2005: $8,949,331. Budgetary Resources: Budgetary authority: Other (receipts collected); General Fund: Cemeteries and Memorials: $591,141; Trust Funds: WWII and Other Trust Funds: $1,475,990; Total Funds: Total 2006: $2,067,131; Total Funds: Total 2005: $1,679,131. Budgetary Resources: Less: Rescinded; General Fund: Cemeteries and Memorials: $(515,000); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(515,500); Total Funds: Total 2005: $(424,800). Budgetary Resources: Unobligated balance: Start of year; General Fund: Cemeteries and Memorials: $15,661,856; Trust Funds: WWII and Other Trust Funds: $14,177,900; Total Funds: Total 2006: $29,839,756; Total Funds: Total 2005: $33,148,353. Budgetary Resources: Unobligated balance: Net transfer (out) for net foreign exchange (loss); General Fund: Cemeteries and Memorials: $(7,929,796); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(7,929,796); Total Funds: Total 2005: $(8,949,331). Budgetary Resources: Unobligated balances: Other adjustments; General Fund: Cemeteries and Memorials: $(37,743); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(37,743); Total Funds: Total 2005: [Empty]. Budgetary Resources: Recoveries of prior year obligations; General Fund: Cemeteries and Memorials: $10,041; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $10,041; Total Funds: Total 2005: $(411,746). Total Budgetary Resources; General Fund: Cemeteries and Memorials: $67,210,295; Trust Funds: WWII and Other Trust Funds: $15,653,890; Total Funds: Total 2006: $82,864,185; Total Funds: Total 2005: $87,090,938. Status of Budgetary Resources: Obligations incurred - direct; General Fund: Cemeteries and Memorials: $47,304,280; Trust Funds: WWII and Other Trust Funds: $5,625,762; Total Funds: Total 2006: $52,930,042; Total Funds: Total 2005: $57,007,992. Status of Budgetary Resources: Unobligated balances available; General Fund: Cemeteries and Memorials: $19,906,015; Trust Funds: WWII and Other Trust Funds: $10,028,128; Total Funds: Total 2006: $29,934,143; Total Funds: Total 2005: $30,082,946. Total Status of Budgetary Resources; General Fund: Cemeteries and Memorials: $67,210,295; Trust Funds: WWII and Other Trust Funds: $15,653,890; Total Funds: Total 2006: $82,864,185; Total Funds: Total 2005: $87,090,938. Net Outlays: Obligations incurred; General Fund: Cemeteries and Memorials: $47,304,280; Trust Funds: WWII and Other Trust Funds: $5,625,762; Total Funds: Total 2006: $52,930,042; Total Funds: Total 2005: $57,007,992. Net Outlays: Plus obligated balances, start of year: Undelivered orders; General Fund: Cemeteries and Memorials: $19,088,053; Trust Funds: WWII and Other Trust Funds: $566,285; Total Funds: Total 2006: $19,654,338; Total Funds: Total 2005: $8,615,513. Net Outlays: Plus obligated balances, start of year: Delivered orders - unpaid; General Fund: Cemeteries and Memorials: $3,086,109; Trust Funds: WWII and Other Trust Funds: $3,432,965; Total Funds: Total 2006: $6,519,074; Total Funds: Total 2005: $4,668,389. Net Outlays: Less: Obligated balances, end of year: Undelivered orders; General Fund: Cemeteries and Memorials: $13,903,561; Trust Funds: WWII and Other Trust Funds: $3,329,750; Total Funds: Total 2006: $17,233,311; Total Funds: Total 2005: $(19,654,338). Net Outlays: Less: Obligated balances, end of year: Delivered orders - unpaid; General Fund: Cemeteries and Memorials: $6,090,489; Trust Funds: WWII and Other Trust Funds: $1,757,330; Total Funds: Total 2006: $7,847,819; Total Funds: Total 2005: $(6,519,074). Total Net Outlays; General Fund: Cemeteries and Memorials: $49,484,392; Trust Funds: WWII and Other Trust Funds: $4,537,932; Total Funds: Total 2006: $54,022,324; Total Funds: Total 2005: $44,118,482. The accompanying notes are an integral part of these statements. [End of Table] Consolidating Statement of Financing: American Battle Monuments Commission: Consolidating Statement Of Financing: For the Year Ended September 30, 2006 (With Comparative Consolidated Total for the Year Ended September 30, 2005): Resources Used to Finance Activities: Obligations incurred - direct; General Fund: Cemeteries and Memorials: $47,304,280; Trust Funds: WWII and Other Trust Funds: $5,625,762; Total Funds: Total 2006: $52,930,042; Total Funds: Total 2005: $57,007,992. Resources Used to Finance Activities: Offsetting collections and recoveries; General Fund: Cemeteries and Memorials: $(601,182); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(601,182); Total Funds: Total 2005: [Empty]. Resources Used to Finance Activities: Imputed retirement and audit services; General Fund: Cemeteries and Memorials: $661,073; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $661,073; Total Funds: Total 2005: $567,291. Resources Used to Finance Activities: Other adjustments; General Fund: Cemeteries and Memorials: $(624,171); Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $(624,171); Total Funds: Total 2005: $(247,057). Total Resources Used to Finance Activities; General Fund: Cemeteries and Memorials: $46,740,000; Trust Funds: WWII and Other Trust Funds: $5,625,762; Total Funds: Total 2006: $52,365,762; Total Funds: Total 2005: $57,328,226. Resources that do not fund net cost of operations: General property capitalized on the balance sheet; General Fund: Cemeteries and Memorials: $636,720; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $636,720; Total Funds: Total 2005: $86,428. Resources that do not fund net cost of operations: Decrease in unfunded annual leave; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: [Empty]; Total Funds: Total 2005: $(12,704). Resources that do not fund net cost of operations: Undelivered orders - start of year; General Fund: Cemeteries and Memorials: $19,088,053; Trust Funds: WWII and Other Trust Funds: $566,285; Total Funds: Total 2006: $19,654,338; Total Funds: Total 2005: $8,615,513. Resources that do not fund net cost of operations: Less: Undelivered orders - end of year; General Fund: Cemeteries and Memorials: $(13,903,561); Trust Funds: WWII and Other Trust Funds: $(3,329,750); Total Funds: Total 2006: $(17,233,311); Total Funds: Total 2005: $(19,654,338). Total Resources that do not fund net cost of operations; General Fund: Cemeteries and Memorials: $5,821,212; Trust Funds: WWII and Other Trust Funds: $(2,763,465); Total Funds: Total 2006: $3,057,747; Total Funds: Total 2005: $(10,965,101). Components of Net Cost of Operations Not Requiring Resources in the Current Period: Components requiring resources in future periods: Increase in unfunded annual leave; General Fund: Cemeteries and Memorials: $290,706; Trust Funds: WWII and Other Trust Funds: $468; Total Funds: Total 2006: $291,174; Total Funds: Total 2005: $980. Components of Net Cost of Operations Not Requiring Resources in the Current Period: Components requiring resources in future periods: Increase in unfunded separation pay liability; General Fund: Cemeteries and Memorials: $177,353; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $177,353; Total Funds: Total 2005: $67,068. Components of Net Cost of Operations Not Requiring Resources in the Current Period: Components requiring resources in future periods: Increase in accounts receivable; General Fund: Cemeteries and Memorials: [Empty]; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: [Empty]; Total Funds: Total 2005: $31,425. Components of Net Cost of Operations Not Requiring Resources in the Current Period: Components Not requiring resources: Depreciation; General Fund: Cemeteries and Memorials: $710,543; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $710,543; Total Funds: Total 2005: $627,282. Components of Net Cost of Operations Not Requiring Resources in the Current Period: Components not requiring resources: In-kind expenses; General Fund: Cemeteries and Memorials: $30,650; Trust Funds: WWII and Other Trust Funds: [Empty]; Total Funds: Total 2006: $30,650; Total Funds: Total 2005: $30,860. Total Components of Net Cost of Operations Not Requiring Resources in the Current Period; General Fund: Cemeteries and Memorials: $1,209,252; Trust Funds: WWII and Other Trust Funds: $468; Total Funds: Total 2006: $1,209,720; Total Funds: Total 2005: $757,615. Net Cost of Operations; General Fund: Cemeteries and Memorials: $53,770,464; Trust Funds: WWII and Other Trust Funds: $2,862,765; Total Funds: Total 2006: $56,633,229; Total Funds: Total 2005: $47,120,740. The accompanying notes are an integral part of these statements. [End of table] Notes to the Consolidating and Consolidated Financial Statements: American Battle Monuments Commission: Notes To The Consolidating And Consolidated Financial Statements: For the Fiscal Years Ended September 30, 2006 and 2005: Note 1. Significant Accounting Policies: A. Basis of Presentation: The accompanying consolidating and consolidated financial statements present the financial position, net cost of operations, changes in net position, budgetary resources, and financing of the American Battle Monuments Commission (the Commission) in conformity with U.S. generally accepted accounting principles as used by the federal government. There are no intra-entity transactions to be eliminated. B. Reporting Entity and Funding Sources: The Commission is an independent agency within the executive branch of the federal government and was created by an Act of March 4, 1923, the current provisions of which are now codified in 36 U.S.C. Chapter 21. The Commission's mission is to commemorate the sacrifices and achievements of U.S. Armed Forces where they have served overseas since April 6, 1917, the date of the United States entry into World War I, and at locations within the United States when directed by the Congress. The Commission designs, administers, constructs, operates, and maintains 24 American military cemeteries and 25 federal memorials, monuments, and markers (herein collectively referred to as memorials). Three of the memorials are located in the United States while all of the cemeteries and the remaining memorials are located on foreign soil in 14 foreign countries, the Marianas, and Gibraltar. The Commission is also responsible for maintaining 6 nonfederal memorials with funds received from the memorials' sponsors. The Commission is headquartered in Arlington, Virginia. Field operations are conducted through regional offices located near Paris, France; and in Rome, Italy; and cemeteries in Manila, the Philippines; Mexico City, Mexico; and Panama City, Panama. The Commission also had responsibility for designing and constructing the National World War II Memorial located on the Mall in Washington, D.C. In accordance with 40 U.S.C. 8906 (b), the Commission provided $6.6 million for deposit in a separate Treasury account to offset the memorial's costs of perpetual maintenance. On November 1, 2004, the Commission signed an agreement with the National Park Service to formally transfer the National World War II Memorial to the Service for its future care and maintenance. Remaining funds reside in a trust fund in the U.S. Treasury to be used solely to benefit the World War II Memorial for other than routine maintenance expense. Commission programs are funded primarily through appropriations available without fiscal year limitation (no-year). The Commission also administers several trust funds established to: (1) build memorials authorized by the Congress, but which are funded primarily by private contributions, commemorative coin sales proceeds, and investment earnings; (2) decorate grave sites; and (3) maintain and repair certain nonfederal war memorials. C. Basis of Accounting: The Commission's proprietary accounts (assets, liabilities, equity, revenue, and expenses) are maintained on the accrual basis, where appropriated funds are accounted for by appropriation year; operating expenses are recorded as incurred; and depreciation is taken on property, plant, and equipment not otherwise classified as heritage assets. Commission budgetary accounts are maintained on a budgetary basis, which facilitates compliance with legal constraints and statutory funds control requirements. The functional budget classification is Veterans' Benefits and Services. D. Fund Balances with Treasury: The Commission's cash receipts and disbursements are processed by the U.S. Treasury. Fund balances with Treasury are comprised of appropriated general funds and trust funds. E. Investments: in accordance with 36 U.S.C. 2113(b), the Commission is authorized to invest World War II Memorial Trust Fund receipts in U.S. Treasury securities. The Commission is also authorized under a modification to its original legislation to invest receipts from certain nonfederal war memorial organizations in U.S. Treasury securities. Treasury investments are recorded at par value plus unamortized premium or less unamortized discount. Premiums and discounts are amortized using the interest method. F. Foreign Currency: The Commission's overseas offices maintain accounts of foreign currencies to be used in making payments in foreign countries. Amounts are recorded at a standard budget rate in U.S. dollars and a gain or loss recognized when paid in foreign currency. Appropriated monies are transferred from the Commission's Foreign Currency Fluctuation Account to fund net currency losses. Cash accounts in foreign currencies are reported at the U.S. dollar equivalent using the Treasury exchange rate in effect on the last day of the fiscal year. G. Contributions and Revenue Recognition: The Commission recognizes unrestricted contributions or unconditional promises to give as revenue in the period of the initial pledge when sufficient verifiable evidence of the pledge exists. Conditional promises to give are recorded as revenue when the condition has been met. Unconditional promises to give may be temporarily restricted or permanently restricted. Temporarily restricted promises to give are released from restriction when the conditions have been met. Permanently restricted promises to give are recorded as revenue in the period donated; however, donors generally allow only the earned income to be used for general or specific purposes. In-kind contributions of goods and services are recognized at fair value by the Commission at the time the goods are received or the services are performed. Multiyear contributions due over a period of time are discounted to their present value based upon the short term Treasury interest rate. H. Operating Materials and Supplies Inventories: The Commission has determined that operating materials and supplies located at its cemeteries are not significant amounts and that it is more cost beneficial to record them on the purchase method of accounting whereby items are expensed as purchased rather than when consumed. Consequently, the Commission reports no operating materials or supplies inventories. I. Property and Equipment: Purchases of general property and equipment of $25,000 or less are expensed in the year of acquisition. Purchases of personal property exceeding $25,000 are capitalized and depreciated on a straight-line basis over 5 years. Expenditures relating to real property exceeding $25,000 are capitalized and depreciated on a straight-line basis over 30 years. Heritage assets are assets possessing significant cultural, architectural, or aesthetic characteristics. The Commission considers its cemeteries, and federal memorials, monuments, and markers acquired through purchase or donation to be noncollection heritage assets. Heritage assets acquired through purchase or donation, are accounted for in the Commission's property records, and are not presented in the balance sheet. Withdrawals of heritage assets are recorded upon formal agreement with recipients. Additional disclosure on individual heritage asset cemeteries and memorials are found in the Schedules of Heritage Assets presented as unaudited other information. Cemetery land is owned by the foreign countries in which cemeteries are located and is provided to the United States in perpetuity. J. Employee Benefits: The Commission's civilian U.S. nationals hired after December 31, 1983 are covered by the Federal Employees' Retirement System (FERS), which was implemented on January 1, 1984. The Commission's civilian U.S. nationals hired on or before December 31, 1983, could elect to transfer to FERS or remain with the Civil Service Retirement System (CSRS). For FERS employees, the Commission withholds .80 percent of base pay and as employer contributes 10.7 percent of base pay to this retirement system. For Federal Insurance Contribution Act (FICA) tax and Medicare, the Commission withholds 7.65 percent from FERS employees' earnings, matches this amount on a dollar-for-dollar basis, and remits the total amount to the Social Security Administration. The Commission withholds 7.00 percent of base pay plus 1.45 percent for Medicare from CSRS employees' earnings and as employer contributes 7.00 percent of base pay plus 1.45 percent for Medicare. These deductions are then remitted to the Office of Personnel Management (OPM) and the Social Security Administration. OPM is responsible for governmentwide reporting of FERS and CSRS assets, accumulated plan benefits, and unfunded liabilities. On April 1, 1987, the federal government instituted the Thrift Saving Plan (TSP), a retirement savings and investment plan for employees covered by FERS and CSRS. The Commission contributes a minimum of 1 percent of FERS employees' base pay to TSP. For 2006, FERS employees could contribute up to $15,000 ($20,000 if at least age 50) on a tax- deferred basis to TSP, which the Commission matches up to 4 percent of base pay. For 2006, CSRS employees may also contribute up to $15,000 ($20,000 if at least age 50) on a tax-deferred basis; however, they receive no matching contribution from the Commission. Retirement and other benefits for the Commission's foreign national employees are paid by the Commission in accordance with the provisions of 10 host nation agreements negotiated by the U.S. Department of State. Annual leave is accrued as earned, and the resulting unfunded liability is reduced as leave is taken. Separation pay is provided in certain countries according to host nation agreements. Separation pay is accrued as earned, and the resulting unfunded liability is reduced when paid to the foreign national leaving the employ of the Commission. Each year balances in the accrued separation pay and annual leave accounts are adjusted to reflect current pay rates. To the extent that current or prior year appropriations are not available to fund annual leave and separation pay, funding will be obtained from future financing resources. Sick leave and other types of unvested leave are expensed when incurred. K Imputed Financing: The Commission imputes financing for retirement and other benefits paid by OPM, financial audit costs incurred by the Government Accountability Office (GAO), and a heritage asset musical carillon donated each fiscal year. The Commission recognized these expenses and related imputed financing in its financial statements. L. Use of Estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements, and the amount of revenues and expenses reported during the reporting period. Actual results could differ from those estimates. M. Adoption of New Accounting Standard: The Commission early-adopted FASAB Statement No. 29, Heritage Assets and Stewardship Land, for fiscal year 2005. The adoption resulted in additional disclosure with no effect on financial statement amounts or restatement of prior year's presentation. N. Reformatting of Prior Year's Presentation: Certain prior year accounts on the Statement of Net Cost and Changes in Net Position were reformatted to conform to the current year presentation in accordance with Office of Management and Budget's Circular No. A-136, Financial Reporting Requirements. Note 2. Fund Balances with Treasury: All undisbursed account balances with the U.S. Treasury, as reflected in the Commission's records, as of September 30 are available and were as follows: Appropriated funds; 2006: General Fund: $28,422,604; 2006: Trust Funds: [Empty]; 2006: Total: $28,422,604; 2005: Total: $34,095,973. Currency fluctuation; 2006: General Fund: $11,589,787; 2006: Trust Funds: [Empty]; 2006: Total: $11,589,787; 2005: Total: $3,740,045. Other Trust Funds; 2006: General Fund: [Empty]; 2006: Trust Funds: $15,057,733; 2006: Total: $15,057,733; 2005: Total: $10,520,268. Total; 2006: General Fund: $40,012,391; 2006: Trust Funds: $15,057,733; 2006: Total: $55,070,124; 2005: Total: $48,356,286. [End of table] Note 3. Treasury Investments, Net: As of September 30, the Commission's Trust Fund investments in U.S. Treasury notes, which are marketable securities due within 2 years were as follows: FY: 06; Cost: $58,000; Interest Rates: 4.00%; Net Premium/(Discount): $(48); Interest Receivable: $185; Net Investment: $58,137. FY: 05; Cost: $7,658,000; Interest Rates: 4.00% to 7.00%; Net Premium/(Discount): $190,755; Interest Receivable: $111,493; Net Investment: $7,960,248. Amortization is on the interest method, and amortized cost approximated market as of September 30. Note 4. Cash and Foreign Accounts: Outside the United States the Commission makes payments in U.S. and foreign currencies through imprest cash funds and Treasury designated depository commercial bank accounts, which as of September 30 were as follows: Imprest Cash Funds; 2006: $42,664; 2005: $41,158. Foreign Bank accounts; 2006: $46,719; 2005: $46,023. Undeposited Cash - Trust; 2006: $185; 2005: $309. Total; 2006: $89,568; 2005: $87,490. [End of table] Note 5. Contributions Receivable: The Commission has pledges from the private sector to be used for the World War II Memorial, with substantial pledges by major corporations and foundations. These pledges are recorded as contributions receivable and revenue in the fiscal year pledged, and $110,000 is temporarily restricted until collected. Amounts due in future years are as follows: Fiscal Year Due: 2007; $110,000. Fiscal Year due: Net Contributions receivable; $110,000. [End of table] The Commission believes that all contributions receivable are fully collectible, and therefore no allowance for uncollectible accounts has been established. Additionally, the Commission has a pledge from a living trust valued at $178,838 as of September 30, 2006. However, due to the uncertainty of time and amount when the pledge is collected, the contribution will be recognized at the amount when received. Note 6. General and Heritage Property and Equipment: General property and equipment with an aggregate cost basis of $25,000 or less and all heritage assets were expensed by the Commission and totaled $9,626,263 in fiscal year 2006, which included $6,879,901 of costs related to the construction of the Normandy Interpretive Center as a heritage asset and $2,232,441 in fiscal year 2005. WWII Memorial equipment totaling $58 in fiscal year 2006 and $2,000 in fiscal year 2005 was also expensed. Since the 1960s, the Commission's European Regional Office near Paris, France, has occupied a residential structure owned by the United States government. The Commission is responsible for all utilities, maintenance, and repairs. While the structure has the characteristics of a heritage asset, it has been used as general property. However, it is now fully depreciated, and no value is contained in the Commission's financial statements. General property and equipment as of September 30 was as follows: Category: Buildings; 2006: Accumulated: Cost: $923,461; 2006: Accumulated: Depreciation: $73,063; 2006: Accumulated: Net: $850,398; 2005: Accumulated: Cost: $923,461; 2005: Accumulated: Depreciation: $42,311; 2005: Accumulated: Net: $881,150. Category: Accounting system; 2006: Accumulated: Cost: $1,760,065; 2006: Accumulated: Depreciation: $1,760,065; 2006: Accumulated: Net: $0; 2005: Accumulated: Cost: $1,760,065; 2005: Accumulated: Depreciation: $1,408,052; 2005: Accumulated: Net: $352,013. Category: Equipment; 2006: Accumulated: Cost: $2,746,362; 2006: Accumulated: Depreciation: $1,674,879; 2006: Accumulated: Net: $1,071,483; 2005: Accumulated: Cost: $2,167,228; 2005: Accumulated: Depreciation: $1,404,687; 2005: Accumulated: Net: $762,541. Total; 2006: Accumulated: Cost: $5,429,888; 2006: Accumulated: Depreciation: $3,508,007; 2006: Accumulated: Net: $1,921,881; 2005: Accumulated: Cost: $4,850,754; 2005: Accumulated: Depreciation: $2,855,050; 2005: Accumulated: Net: $1,995,704. [End of table] Heritage assets are significant to the mission of the Commission to design, construct, and maintain historical cemeteries and memorials. The Commission presents its heritage assets in three categories; cemeteries, federal memorials, and nonfederal memorials. Changes in heritage assets for fiscal year 2006 were as follows: Beginning of Year 10-1-05; Cemeteries: 24; Federal Memorials: 25; Nonfederal Memorials: 6. Number Acquired, Fiscal Year 2006; Cemeteries: 0; Federal Memorials: 0; Nonfederal Memorials: 0. Number Withdrawn, Fiscal Year 2006; Cemeteries: 0; Federal Memorials: 0; Nonfederal Memorials: 0. End of Year 9-30-06; Cemeteries: 24; Federal Memorials: 25; Nonfederal Memorials: 6. [End of table] During fiscal year 2006, the Commission did not assume responsibility for any additional private memorials. Through September 30, 2006, Commission cemeteries contain over 131,000 interments. Over 94,000 Honored War Dead, whose remains were not recovered, are memorialized in the cemeteries and federal memorials that encompass over 1,600 acres. This land is provided to the Commission through host agreements with foreign countries for permanent use as cemeteries and memorials. Note 7. Other Liabilities: Other liabilities as of September 30 were as follows: Accrued Salaries and Benefits; 2006: $1,315,431; 2005: $867,937. Unfunded Separation Pay Liability; 2006: $1,492,136; 2005: $1,314,784. Unfunded Annual Leave; 2006: $1,213,318; 2005: $922,144. Total; 2006: $4,020,885; 2005: $3,104,865. [End of table] Under a host nation agreement, the Commission's Italian employees earn separation pay for each year of service with the Commission. The Commission recognized an unfunded liability for separation pay for these employees of $1,492,136 as of September 30, 2006, and $1,314,784 as of September 30, 2005. A portion of pension and other retirement benefits (ORB) expense is funded by an imputed financing source to recognize the amount of pension and ORB unfunded liabilities assumed by OPM. These costs are computed in accordance with cost factors provided by OPM. For fiscal year 2006, the Commission incurred $1,071,577 of pension and ORB costs, $314,073 of which was imputed. For fiscal year 2005, the Commission incurred $1,047,468 of pension and ORB costs, $287,291 of which was imputed. Total imputed costs of $661,073 for fiscal year 2006 and $567,291 for fiscal year 2005 included audit services provided by GAO. Note 8. Lease Agreements: The Commission has no capital leases. The Commission's Arlington, Virginia, headquarters, including office space for the WWII Memorial Project, are rented under a 10-year operating lease expiring in July 2007. The Commission's Mediterranean Regional Office occupies commercial office space under a 6-year operating lease expiring in May 2007. The Mediterranean Regional Office Director's living quarters are rented under a 6-year operating lease expiring in December 2007. Two operating leases for cemetery superintendent's temporary living quarters expired in March and June 2006, respectively. Rent expense for fiscal year 2006 operating leases was $541,501. Future minimum payments due on operating leases as of September 30, 2006, are as follows: Fiscal Year: 2007; $435,987. Fiscal Year: 2008; $25,729. Fiscal Year: 2009; $11,396. Total; $473,112. [End of table] Note 9. Net Position: Net position balances as of September 30, 2006, were as follows: [See PDF for Note 9] [1] Includes $7,113,322 for design and construction of the Normandy Interpretive Center, consisting of $98,145 unobligated from a $5,000,000 no-year appropriation earmark for FY 2002; $479,574 unobligated (after a $26,000 rescission) from a $4,000,000 no-year appropriation for FY 2003; $26,735 unobligated (after a $53,100 rescission) from a $9,000,000 no-year appropriation for FY 2004; $3,439,868 unobligated (after a $72,800 rescission) from a $9,100,000 no-year appropriation for FY 2005; and $3,069,000 unobligated (after a $31,000 rescission) from a $3,100,000 no-year appropriation for FY 2006. [2] Includes $10,003,138 for design and construction of the Normandy Interpretive Center, consisting of $194,029 unobligated from a $5,000,000 no-year appropriation earmark for FY 2002; $503,577 unobligated (after a $26,000 rescission) from a $4,000,000 no-year appropriation for FY 2003; $285,832 unobligated (after a $53,100 rescission) from a $9,000,000 no-year appropriation for FY 2004; and $9,019,700 unobligated (after a $72,800 rescission) from a $9,100,000 no-year appropriation for FY 2005. [End of table] [End of section] Other Information: Required Supplementary Information: American Battle Monuments Commission: Other Information: September 30, 2006 (Unaudited): Maintenance, Repairs, and Improvements: The following unaudited information is required supplementary information on deferred maintenance and the condition of real property at Commission cemeteries and memorials: Deferred maintenance is maintenance that was not performed when it should have or was scheduled to be and which, therefore, is put off or delayed for a future period. Maintenance and repairs performed on real property consisting of land improvements, buildings, and memorials totaled $2.9 million in fiscal year 2006 and $4.9 million in fiscal year 2005. For fiscal years 1998 through 2002, the Commission received $11.3 million of additional appropriations from the Congress that enabled it to entirely eliminate its deferred maintenance backlog as of September 30, 2002. No deferred maintenance backlogs existed as of September 30, 2005, and 2006. Condition assessment surveys, using a five-point scale of one (excellent) to five (very poor), identify needed future maintenance and repair projects at cemeteries and memorials in order to maintain real property in an acceptable condition of three (fair) or better. These surveys are reviewed and updated at least annually by the Commission's engineering staff. In addition, engineering projects identified improvements in cemetery irrigation, drainage, roads, parking areas, and buildings. As of September 30, 2006, the Commission has identified over 200 maintenance, repair, and improvement projects, with an estimated cost of $12.6 million, to be performed in future years, subject to available funding. Schedules of Heritage Assets: The following three pages present unaudited other information not required by U.S. generally accepted accounting principles on the Commission's 24 cemeteries; 25 federal memorials, monuments, and markers; and six nonfederal memorials as of September 30, 2006. Schedules of Heritage Assets: American Battle Monuments Commission: Schedule of Heritage Assets: September 30, 2006 (Unaudited): [See PDF for Schedule of Heritage Assets] [End of table] American Battle Monuments Commission Schedule of Heritage Assets September 30, 2006 (Unaudited): 6 Nonfederal Memorials: Name: 29th Infantry Division Memorial; Location: Vierville-sur-Mer, France; War: WWII. Name: 30th Infantry Division Memorial; Location: Mortain, France; War: WWII. Name: 6th Engineering Special Brigade Memorial; Location: Vierville-sur-Mer, France; War: WWII. Name: 351st Bomb Group Memorial; Location: Oundle, England; War: WWII. Name: 147th Engineer Battalion Monument; Location: Englesqueville-la-Percee, France; War: WWII. Name: 507th Parachute Infantry Regiment Memorial; Location: Amfreville, France; War: WWII. [End of table] (196121): FOOTNOTES [1] GAO, Financial Audit: American Battle Monuments Commission's Financial Statements for Fiscal Years 2005 and 2004, GAO-06-348 (Washington, D.C.: Mar. 1, 2006). GAO's Mission: The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. 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