Management Report: Improvements Are Needed to Strengthen the American Battle Monuments Commission's Internal Controls and Accounting Procedures
Highlights
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.
Recommendations
GAO is making six new recommendations pertaining to the Commissions material weaknesses in internal control over financial reporting and noncompliance with laws and regulations. These recommendations are intended to improve the Commissions 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.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| American Battle Monuments Commission | 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. |
During our audit of the American Battle Monuments Commission's (Commission) fiscal year 2012 financial statements, the Commission provided us draft financial statements to audit that contained numerous errors, including significant amounts that were misclassified or reported on the wrong financial statement, adjustments that were incorrectly reflected in the financial statements, and budgetary and proprietary accounts that did not appropriately reconcile. In addition, the draft notes to the financial statements omitted certain required disclosures and contained information that was incomplete or did not properly correspond to related amounts in the financial statements. To enhance controls over the preparation of the financial statements, we recommended that the Commission 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. In response to our recommendation, on February 10, 2014, the Commission established and documented Standard Operating Procedures for completing the Financial Reporting Checklist, which provides guidance for quarterly and year end reporting and disclosure that must be completed when preparing financial statements. The Commission implemented the established procedures for the fiscal year 2014 third quarter financial statements. The Commission's actions to ensure that they have detailed documented policies and procedures governing the preparation and review of its financial statements, should help reduce the risk of errors in the financial statements, that control activities may not be consistently implemented as designed, and that the financial statements will not be prepared and presented in conformity with U.S. GAAP.
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| American Battle Monuments Commission | 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. |
During our audit of the American Battle Monuments Commission's (Commission) fiscal year 2012 financial statements, we found that the Commission did not use the appropriate exchange rate to recognize in its financial statements the value of accrued expenses recorded in foreign currencies. To enhance controls over accounting for foreign currency transactions, we recommended that the Commission 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. In response to our recommendation, in June 2015, the Commission established, documented, and implemented policies and procedures on using the appropriate foreign currency exchange rate to recognize the value of transactions conducted in foreign currencies. In November 2015, the Commission's auditor reported in the Commission's fiscal year 2015 financial statement audit report that the noncompliance finding related to the foreign-currency-fluctuation account had been resolved. The Commission's actions to ensure it is properly accounting for its foreign currency transactions at year-end using the appropriate Treasury rate should help reduce the risk that the value of the Commission's foreign currency transactions will be materially misstated in its financial statements.
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| American Battle Monuments Commission | 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. |
In the Commission's fiscal year 2017 Independent Auditor's Report, the auditor reported that the Commission resolved the material weakness related to the monitoring process over financial reporting internal controls, which this recommendation was related to. Therefore, we are closing this recommendation as implemented.
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| American Battle Monuments Commission | 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. |
In the Commission's fiscal year 2017 Independent Auditor's Report, the auditor reported that the Commission resolved the material weakness related to the monitoring process over financial reporting internal controls, which this recommendation was related to. Therefore, we are closing this recommendation as implemented.
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| American Battle Monuments Commission | 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. |
During our audit of the American Battle Monuments Commission's (Commission) fiscal year 2012 financial statements, we found that the Commission did not adequately monitor the effectiveness of internal control 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. To improve its monitoring of internal control, we recommended that the Commission 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. In response to our recommendation, in August 2019, the Commission finalized policy stating that the Commission has final responsibility for the accuracy and completeness of all financial reports and that the Commission reviews report results prepared by their service provider (Policy 10.2.1). In addition, we reviewed the service provider's service auditor report that contains information on the service provider's controls and the effectiveness of those controls for June 2018-2019 and noted that it identified the complementary user entity controls that the Commission must implement. We were not provided evidence that the Commission had designed and implemented the complementary user entity controls. However, in the Commission's fiscal year 2017 Independent Auditor's Report, the auditor reported that the Commission resolved the material weakness related to not having an adequate process for documenting and monitoring the effectiveness of its internal control at the service organizations that performed significant aspects of its financial transaction processing and reporting. Due to the passage of time and because this issue is no longer an auditor reported material weakness needing corrective action, we are closing this recommendation as not-implemented.
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| American Battle Monuments Commission | 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. |
During our audit of the American Battle Monuments Commission's (Commission) fiscal year 2012 financial statements, we found that the Commission was noncompliant with laws and regulations concerning the Foreign Currency Fluctuation Account (FCFA), because the rate for euro transactions (the predominant currency for the Commission's foreign transactions) undervalued the euro on the date of budget submissions, resulting in significantly higher costs charged to the Commission's FCFA than were allowable by law. To be in compliance with applicable laws, we recommended that the Commission direct the appropriate officials to revise its policy and implement procedures to comply with the FCFA's 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. In response to our recommendation, in its fiscal year 2015 appropriation request, the Commission proposed using a budget rate closer in value to actual exchange rates, therefore, increasing the Salaries and Expenses account and decreasing the amount necessary for the FCFA account. In addition, in June 2015, the Commission documented and implemented policies on valuing its foreign currency transactions in accordance with applicable accounting standards and Treasury guidance. Further, in November 2015, the Commission's auditor tested non-payroll foreign currency transactions as of September 30, 2015, and determined that the Commission had properly valued all accounts for its foreign currency fluctuation at year-end. The Commission's auditor also reported in the Commission's fiscal year 2015 financial statement audit report that the noncompliance finding related to the FCFA had been resolved. The Commission's actions to change its policy to conform to FCFA's governing statutes should help reduce the risk of charging significantly more costs to this account than are allowable by law.
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