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.
View More |
| 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...
|
| 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.
|
| 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.
|
| 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...
|
| 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...
|