Management Report:

Improvements Are Needed to Strengthen the American Battle Monuments Commission's Internal Controls and Accounting Procedures

GAO-14-105R: Published: Nov 12, 2013. Publicly Released: Nov 12, 2013.

Additional Materials:

Contact:

Cheryl E. Clark
(202) 512-9377
clarkce@gao.gov

 

Nabajyoti Barkakati
(202) 512-4499
barkakatin@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

During its audit of the American Battle Monuments Commission’s (the Commission) fiscal year 2012 financial statements, GAO identified two material weaknesses that resulted in ineffective internal control over financial reporting as of September 30, 2012. Specifically, the material weaknesses concern the Commission’s financial reporting process and its monitoring process. Because of these control weaknesses, GAO found significant errors in the Commission’s financial reporting that were not detected by the Commission. The Commission made the necessary adjustments and was able to prepare financial statements that were fairly stated in all material respects by fiscal year-end. However, these material weaknesses increase the risk that a material misstatement of the Commission’s financial statements will not be prevented, or detected and corrected, on a timely basis. GAO also found that a previously reported significant deficiency concerning foreign payroll processing continued to exist during fiscal year 2012. These material weaknesses and the significant deficiency in internal control warrant the attention of those charged with governance of the Commission.

GAO also found one area of noncompliance with laws and regulations it tested. The area of noncompliance concerns the Commission not properly using its Foreign Currency Fluctuation Account for fluctuations in foreign currency exchange rates related to payments made in foreign currencies.

Further, GAO's work allowed it to close 12 of the 30 recommendations to improve the Commission’s internal controls and accounting procedures from GAO's prior financial audits that remained open at the beginning of the fiscal year 2012 financial audit. In addition, the Commission had completed corrective action on 2 of the 24 recommendations to improve information systems from GAO's prior financial audits that remained open at the beginning of the fiscal year 2012 financial audit. As a result, the Commission currently has 24 recommendations related to internal control and accounting procedures, which consist of the previous 18 open recommendations as well as 6 new recommendations GAO is making in this report, and 22 recommendations related to information systems that need to be addressed.

Why GAO Did This Study

The purpose of this report is to present internal control deficiencies identified during GAO's audit of the Commission's fiscal years 2012 and 2011 financial statements, along with 6 new recommendations to address the deficiencies for which GAO did not already have outstanding recommendations. This report also presents the status of the Commission’s corrective actions taken to address GAO's 54 previous recommendations from its prior Commission financial audits that remained open at the beginning of the fiscal year 2012 financial audit.

What GAO Recommends

GAO is making six new recommendations pertaining to the Commission’s material weaknesses in internal control over financial reporting and noncompliance with laws and regulations. These recommendations are intended to improve the Commission’s internal controls over its financial management and accountability of resources as well as to bring the Commission into conformance with its own policies, Standards for Internal Control in the Federal Government, or both. The Commission agreed with the issues raised and stated that corrective actions were under way to address the control deficiencies described in this report.

For more information, contact Cheryl E. Clark at (202) 512-9377 or clarkce@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: In the Commission's fiscal year 2013 Independent Auditor's Report, the auditor states that this issue has been resolved. In January 2014 we followed up with the Commission to obtain support for the corrective actions taken. Although we found that on February 10, 2014 the Commission established a standard operating procedure (SOP) to review the financial statements using a Checklist for Financial Disclosures, we cannot verify the implementation of the SOP until the review of the yearend financial statements has occurred. We will follow-up at a later date.

    Recommendation: The Commission should direct the appropriate officials to establish, document, and implement policies and procedures governing the financial statement preparation process that include detailed instructions and timelines for performing key steps in preparing the financial statements and related note disclosures, as well as supervisory review and documentation requirements.

    Agency Affected: American Battle Monuments Commission

  2. Status: Open

    Comments: In the Commission's fiscal year 2013 Independent Auditor's Report, the auditor stated that this issue has been resolved. In April 2014, the auditor informed us that although the Commission had a methodology for adjusting foreign currency transactions for the effect of exchange rates, they did not have related policies and procedures. We will follow-up at a later date.

    Recommendation: The Commission should direct the appropriate officials to establish, document, and implement a policy and related procedures for valuing its foreign currency transactions in its financial statements in accordance with applicable accounting standards and guidance for federal agencies.

    Agency Affected: American Battle Monuments Commission

  3. Status: Open

    Comments: In the Commission's fiscal year 2013 Independent Auditor's Report, the auditor continued to report that the Commission did not effectively review financial transactions to ensure that they were accurate, valid, complete, and recorded in the appropriate accounting period. The Commission responded that it is in the process of developing formalized procedures to correct the deficiencies that led to this continued material weakness and plans to implement the new procedures during fiscal year 2014. We will evaluate the Commission's corrective actions during future follow-up on this recommendation.

    Recommendation: The Commission should direct the appropriate officials to establish and implement written policies and procedures requiring timely and continuous supervisory review of all financial transactions.

    Agency Affected: American Battle Monuments Commission

  4. Status: Open

    Comments: In the Commission's fiscal year 2013 Independent Auditor's Report, the auditor continued to report that the Commission did not have an adequate process for monitoring the design and operating effectiveness of its internal control to identify, evaluate, and correct internal control deficiencies. For example, the Commission did not consider its internal control environment, which entails such elements as the tone at the top, ethical standards, and personnel management, and which can have a significant effect on how the organization functions and the integrity of its financial accounting and reporting; adequately assess the risk of material misstatement to its financial statements; document its OMB A-123 approach for assessing its internal control, or provide sufficient, appropriate evidence to support its conclusions on the effectiveness of its internal control activities; or establish a corrective action plan or process for addressing deficiencies that have been identified. The Commission responded that it has hired a contractor to perform an internal control review and develop standard operating procedures. Specifically, the Commission stated that the results of the internal control review and implementation of standard operating procedures will occur within fiscal year 2014. We will evaluate the Commission's corrective actions during future follow-up on this recommendation.

    Recommendation: To improve its monitoring of internal control, the Commission should direct the appropriate officials to establish and implement written policies and procedures for planning and conducting the Commission's annual assessment of internal control over financial reporting as required by OMB A-123. The policies and procedures should include; (1) documenting an understanding of its internal control environment, which entails such elements as the tone at the top, ethical standards, and personnel management, which can have a significant effect on how the organization functions and the integrity of its financial accounting and reporting; (2) documenting its assessment of the risk of material misstatement to its financial statements; (3) establishing and documenting its internal control objectives and related internal control activities in place to meet those objectives; (4) documenting the tests to be performed and the results of each test, clearly identifying exceptions and resulting deficiencies; and (5) establishing a corrective action plan for all identified deficiencies that specifies how and when each deficiency will be corrected, and assigning responsibility for its effective and timely resolution.

    Agency Affected: American Battle Monuments Commission

  5. Status: Open

    Comments: In the Commission's fiscal year 2013 Independent Auditor's Report, the auditor continued to report that the Commission did not adequately document and monitor the effectiveness of internal controls at the service organizations that performed significant aspects of its financial transaction processing and reporting, including processing its federal employee payroll transactions, reconciling its fund balance with Treasury, and preparing its annual financial statements. Specifically, ABMC did not evaluate the service organizations' service auditor reports that contained information on the service organizations' controls and the effectiveness of those controls, and did not consider the impact of the findings and conclusions contained in the service auditor reports on the effectiveness of its internal control. Further, ABMC did not design and implement appropriate complementary user entity controls that were identified by the service auditors. The Commission responded that it has hired a contractor to perform an internal control review and develop standard operating procedures. The results of the internal control review and implementation of standard operating procedures is expected to occur during fiscal year 2014. We will evaluate the Commission's corrective actions during future follow-up on this recommendation.

    Recommendation: To improve its monitoring of internal control, the Commission should direct the appropriate officials to establish and implement written policies and procedures for monitoring the activities of the external service organizations that perform significant aspects of the Commission's financial transaction processing and reporting, including implementing relevant complementary user entity controls identified by the service auditors.

    Agency Affected: American Battle Monuments Commission

  6. Status: Open

    Comments: In the Commission's fiscal year 2013 Independent Auditor's Report, the auditor continued to report that the Commission is not properly charging its Foreign Currency Fluctuation Account (FCFA) for fluctuations in foreign currency exchange rates related to payments made in foreign currencies and thus the Commission was in noncompliance with the laws governing the FCFA. In February 2014, the Commission informed us that implementation will occur during fiscal year 2015 with the passage of the Fiscal Year 2015 budget. We will perform additional follow up at a later date.

    Recommendation: The Commission should direct the appropriate officials to revise its policy and implement procedures to comply with the Foreign Currency Fluctuation Account's (FCFA) governing statutes in section 2109 of title 36, United States Code, and the Consolidated Appropriations Act, 2012, by only using the FCFA to cover costs derived from fluctuations in Treasury foreign currency exchange rates that occurred after the submission of the budget request to Congress.

    Agency Affected: American Battle Monuments Commission

 

Explore the full database of GAO's Open Recommendations »

Nov 20, 2014

Nov 17, 2014

Nov 12, 2014

Nov 10, 2014

Nov 7, 2014

Nov 6, 2014

Sep 22, 2014

Looking for more? Browse all our products here