The National D-Day Museum Foundation, Inc.

Transcription

1 OE>DEC-3 AH 11=30 Financial Report The National D-Day Museum Foundation, Inc. June 30, 2004 Under provisions of state law, this report is a public document. Acopy of the report has been submitted to the entity and other appropriate public officials. The report is available for public inspection at the Baton Rouge office of the Legislative Auditor and, where appropriate, at the office of the parish clerk of court. Release natp * / M-OS*

2 TABLE OF CONTENTS The National D-Day Museum Foundation, Inc. Financial Section June 30, 2004 Exhibits Page Numbers Independent Auditor's Report 1-2 Statement of Financial Position A 3 Statement of Activities and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements Special Report of Certified Public Accountants Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of the Financial Statements Performed in Accordance With Government Auditing Standards Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and on the Schedule of Federal Awards Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Reports By Management Schedule of Prior Year Findings and Questioned Costs Management's Corrective Action Plan on Current Year Finding B C D

3 FINANCIAL SECTION

4 Bourgeois Bennett INDEPENDENT AUDITOR'S REPORT To the Board of Directors, The National D-Day Museum Foundation, Inc., New Orleans, Louisiana. We have audited the accompanying statement of financial position of The National D- Day Museum Foundation, Inc. (a nonprofit organization) (the "Museum") as of June 30,2004, and the related statements of activities and changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of the Museum's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Governmental Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The National D-Day Museum Foundation, Inc. as of June 30,2004, and the changes in its net assets and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America West Tunnel Blvd., Suite 430 P.O. Box 2168 Houma,LA7036l-2l68 Phone (985) Fax (985) Certified Public Accountants I Consultants A Limited Liability Company P. O. Box New Orleans, LA Heritage Plaza, 17th Floor Phone (504) Fax (504) D St. Philip Street P. O. Box 1205 Thibodaux, LA Phone (985)

5 As discussed in Note 13 to the financial statements, certain errors resulting in an overstatement of previously reported property and equipment (other assets) and unconditional promises to give as of June 30, 2003, were discovered by management of the Museum during the current year. Accordingly, an adjustment has been made to net assets as of July 1,2003 to correct the errors. In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2004 on our consideration of The National D-Day Museum Foundation, Inc.'s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. New Orleans, Louisiana, November 15, Certified Public Accountants.

6 Exhibit A STATEMENT OF FINANCIAL POSITION The National D-Day Museum Foundation, Inc. June 30, 2004 ASSETS Cash and cash equivalents Investments Unconditional promises to give: Capital Campaign, net of allowances Other, net of allowances Grants receivable Gift shop inventory Other assets Property and equipment, net of accumulated depreciation Collections $ 2,837,517 31, ,608 1,495,582 1,628, , ,123 26,871,929 2,813,379 Totals $ 37,109,651 LIABILITIES Accounts payable and accrued expenses Notes payable Total liabilities $ 1,841, ,550 2,340,098 NET ASSETS Unrestricted Temporarily restricted Permanently restricted Total net assets Totals 27,282,711 7,461,842 25,000 34,769,553 $ 37,109,651 See notes to financial statements.

7 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Exhibit B The National D-Day Museum Foundation, Inc. For the year ended June 30, 2004 Support and Revenues Grants Contributions: Capital campaign Other Admissions Gift shop Memberships and other Sponsored events Facilities and property rental 60th Anniversary D-Day Cruise Investment income Net assets released from restrictions Unrestricted $ 870,759 1,821,636 1,158, , , ,500 2,777,434 14,557 7,727,727 Temporarily Permanently Restricted Restricted $ 4,405,360 $ 5,970, ,569 (7,727,727) Totals $ 4,405,360 5,970, ,759 1,821,636 1,158, , , ,500 2,777,434 14,557 Total revenues and support 15,366,506 2,757,141 18,123,647 Expenses General and administrative 6,038,437 Marketing, public relations and events 494,797 Gift shop merchandise sold 653,263 Capital Campaign fundraising and other 3,435,697 Professional fundraising and other 663,869 60th Anniversary D-Day Cruise 1,669,978 Legal, audit and consulting fees 114,774 Travel, meeting and conventions 52,545 6,038, , ,263 3,435, ,869 1,669, ,774 52,545 Total expenses 13,123,360 13,123,360 Changes in Net Assets 2,243,146 2,757,141 5,000,287 Net Assets Beginning of year, as restated 25,039,565 4,704,701 25,000 29,769,266 End of year $ 27,282,711 $ 7,461,842 $ 25,000 $ 34,769,553 See notes to financial statements.

8 Exhibit C STATEMENT OF CASH FLOWS The National D-Day Museum Foundation, Inc. For the year ended June 30,2004 Cash Flows From Operating Activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation (Increase) decrease in operating assets: Gift shop inventory Other assets Increase (decrease) in operating liabilities: Accounts payable and accrued expenses Revenues restricted for the acquisition of property and equipment: Federal grant, net of expenses Capital Campaign contributions, net of expenses Other contributions Increase (decrease) in discount on unconditional promises to give: Capital Campaign Other Provision for uncollectible promises to give: Capital Campaign Other Cash Flows From Investing Activities Purchase of property and equipment Purchase of collections Increase in investments - net Net cash provided by operating activities Net cash used in investing activities Cash Flows From Financing Activities Collections of federal grant funds restricted for the acquisition of property and equipment Collections of Capital Campaign contributions restricted for the acquisition of property and equipment Collections of other contributions restricted for the acquisition of property and equipment Payments on notes payable Net cash provided by operating activities Net Increase In Cash and Cash Equivalents Cash and Cash Equivalents Beginning of year $ 5,000,287 1,392,201 (58,522) 211, ,080 (3,682,184) (2,696,634) (61,000) 161,392 (120,216) 137, , ,280 (3,888,650) (60,549) (24,204) (3,973,403) 2,370,102 1,605, ,380 (87,600) 4, ,282,393 1,555,124 End of year Supplemental Disclosures of Cash Flow Information Interest paid See notes to financial statements.

9 Exhibit D NOTES TO FINANCIAL STATEMENTS The National D-Day Museum Foundation, Inc. June 30, 2004 Notel- NATURE OF ACTIVITIES The National D-Day Museum Foundation, Inc. (the "Museum") was established on December 2,1991, to design, construct, and maintain a public museum located in New Orleans, Louisiana that represents a museum of the American experience during the World War II years, celebrates the American spirit, the teamwork, optimism, courage, and sacrifice of the men and women who won World War II and promotes the exploration and expression of these values by future generations. The Museum completed its initial phase of construction and opened in June, An expansion of the Museum devoted to the war in the Pacific Theatre opened in December, During 2003, the Museum was officially designated by Congress as America's National World War II Museum. Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Museum have been prepared on the accrual basis of accounting. Significant accounting policies are summarized below. a. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. b. Basis of Accounting The financial statements of the Museum are prepared on the accrual basis of accounting and accordingly, reflect all significant receivables, payables, and other liabilities.

10 Exhibit D (Continued) Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) c. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Statement of Financial Accounting Standards (SFAS) No. 117, "Financial Statements for Not-For-Profit Organizations." Under SFAS No. 117, net assets, revenues and expenses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Museum and changes therein are classified and reported as follows: Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations. Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Museum and/or the passage of time. Permanently Restricted Net Assets - Net assets subject to donor - imposed stipulations that they be maintained permanently by the Museum. The donors of these assets permit the Museum to use all of the income earned on related investments for general or specific purposes. d. Cash and Cash Equivalents For purposes of the statement of cash flows, the Museum considers all short-term, highly liquid investments (including certificates of deposit) with an original maturity of three months or less when purchased to be cash equivalents. The Museum considers investments in money market funds to be cash equivalents, except for money market funds maintained at investment brokerage companies which are reported as investments. e. Investments Investments in equity securities with readily determinable fair values are measured at fair value in the balance sheet. Investment income or loss (including realized and unrealized gains and losses on investments, interest, and dividends) is included in the increase in unrestricted net assets unless the earnings or gains are restricted by donor or law.

11 Exhibit D (Continued) Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) f. Promises To Give Contributions are recognized when the donor makes a promise to give to the Museum that is, in substance, unconditional. Conditional promises to give are recognized when the conditions on which they depend are substantially met. All promises to give are recognized as assets, less an allowance for uncollectible amounts, and revenues. g. Contributions and Revenue Recognition Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restrictions. When a restriction expires (that is, when a stipulated time restriction ends or a purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. h. Allowances For Uncollectible Promises To Give The Museum provides for estimated uncollectible promises to give based on prior years' experience and management's analysis of specific promises made. At June 30, 2004, the balance of the allowance related to the Capital Campaign was $ 106,000 and the allowance for other promises was $188,637. i. Gift Shop Inventory Inventories are valued at cost (first-in, first-out) or market, whichever is lower.

12 Exhibit D (Continued) Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) j. Fixed Assets and Depreciation Assets acquired are stated at cost, net of accumulated depreciation. Assets donated are carried at fair market value on date of donation, net of accumulated depreciation. Depreciation of buildings, exhibits, furnishings, and equipment is provided over the estimated useful lives of the respective assets on the straight-line basis ranging from three years for equipment, ten years for exhibits and forty years for buildings. k. Collections At June 30,2004, collections consist of two films commissioned by the Museum, the St Louis Collection of German artifacts acquired in 1995, aircraft, tanks, certain military vehicles, and miscellaneous artifacts. The Museum does not record depreciation on its collections because depreciation is not presently required to be recognized on individual works of art or historical treasures whose economic benefit or service potential is used so slowly that their estimated useful lives are extraordinarily long. It is the Museum's policy to capitalize only those contributions purchased, not those donated. Donated collection items are not recorded due to the lack of an objective basis of valuation. 1. Donated Services of Volunteers A substantial number of volunteers have given extensive amounts of time and services to the Museum, However, no amounts are reflected in the financial statements for such services since no objective basis is available to measure the value of such services. m. Income Taxes The Museum is exempt from income taxes under Section 501(c)(3) of the U.S. Internal Revenue Code and, accordingly, no provision for income taxes has been reflected in the accompanying financial statements. n. Fundraising Expenses All expenses associated with fundraising activities are expensed as incurred, including those expenses related to fundraising appeals in a subsequent year.

13 Exhibit D (Continued) Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) o. Allocated Expenses The costs of providing the various programs and other activities are summarized in Note 12. Certain expenses have been allocated among the programs and supporting services based on management's estimate of the costs involved. Note 3- RESTRICTIONS ON ASSETS Temporarily restricted net assets are restricted by the donor for specific purposes or are available for subsequent periods. Cash, investments, and promises to give raised through the Capital Campaign are restricted for the acquisition of property and equipment and campaign expenses. Those restrictions are considered to expire when payments are made. Promises to give received from other donors are time-restricted for subsequent periods. The Museum was awarded a grant from the U.S. Department of Army - Defense Supply Service to fund capital expansion of the Museum, including land and buildings. Under provisions of the grant, the United States Government is a co-owner of the land acquired with the grant fund until the end of the grant term, June 16,2005, at which time full ownership will revert t the Museum. Temporarily restricted net assets are available for the following purposes or periods: Acquisition of property and equipment - Capital Campaign $2,365,281 Other restricted purpose - land 3,600,979 For subsequent periods Total S Permanently restricted net assets of $25,000 consist of cash which is restricted for endowment purposes, the interest from which is available for operations. Note 4- INVESTMENTS The Museum's investments at June 30, 2004 consisted of a money market fund and one investment in an equity security totaling $31,810. Investments are carried at cost, which approximates fair value at June 30,

14 Exhibit D (Continued) Note 5 - CONCENTRATION OF CREDIT RISK The Museum maintains cash balances at several local financial institutions where they are insured by the Federal Deposit Insurance Corporation up to $100,000 per Bank. At June 30, 2004, cash deposits in excess of the insured limits were approximately $2,972,000. Note 6 - UNCONDITIONAL PROMISES TO GIVE Promises of donors to make contributions to the Museum are included in the financial statements as unconditional promises to give and revenue of the temporarily restricted net assets class after discounting projected future cash flows to the present value using a discount rate of 5%. Unconditional promises to give at June 30, 2004 consist of the following: Unconditional Promises to Give: Capital Campaign $1,060,000 Other Gross unconditional promises to give 2,946,370 Less: Unamortized discount: Capital Campaign (161,392) Other (202,151) Allowance for uncollectible amounts: Capital Campaign (106,000) Other ( ) Net unconditional promises to give $ Capital Campaign $ 792,608 Other Total $ Amounts due in: Less than one year $ 899,370 One to five years Total $

15 Exhibit D (Continued) Note?- FIXED ASSETS At June 30, 2004, fixed assets consist of the following: Land $ 3,934,475 Buildings 19,354,689 Exhibits 2,799,506 Equipment 2,662,632 Construction in progress ,607,167 Less accumulated depreciation ( ) Total $ NoteS- GRANTS The U.S. Department of the Army - Defense Supply Service awarded a grant totaling $10,750,000 to fund capital expansion of the Museum, of which $3,500,000 was awarded in August The Museum must use the federal award for the assembly of buildings and land needed for the expansion program. During the year ended June 30, 2004, the Museum recognized revenue under this grant of $4,087,330. As of June 30, 2004, the Museum has recognized as revenues in current and prior years $7,781,595 under this grant. Total funds remaining available under this grant at June 30,2004 amounted to $2,968,405. The grant was extended to June 16,2005 by which date the remaining funds must be fully expended. Note 9- NOTES PAYABLE The Museum is obligated on a note payable to Bank One with a balance of $498,550 at June 30, 2004, on buildings related to its capital expansion project. The mortgage bears interest at prime plus.75% (5.00% at June 30, 2004) and principal installments of $7,300 plus interest, payable monthly with a balloon payment of $454,750 due January 15, The mortgage is collateralized by the first mortgage of the buildings. Interest expense on the above borrowings totaled $26,442 for the year ended June 30,

16 Exhibit D (Continued) Note 10 - CAPITAL CAMPAIGN In 2004, the Museum began the Capital Campaign to raise funds for the expansion of the Museum facilities and campaign expenses. The goal of the Capital Campaign is to raise $150,000,000. As of June 30, 2004, the Museum has raised $6,101,331, net of promises written off, including cash received through that date and promises to give in subsequent periods. Promises receivable are as follows: New promises made during the year $ 6,132,331 Less: Cash received (5,041,331) Amounts written off during the year (31,000) Unamortized discount (161,392) Allowance for doubtful promises ( ) Receivable at June 30,2004 S The activities of the Capital Campaign through June 30, 2004 are as follows: Total Capital Campaign promises $6,132,331 Less amounts written off during the year (31.000) 6,101,331 Discount to net present value at June 30, 2004 (161,392) Allowance for doubtful promises at June 30, 2004 ( ) Promises, net 5,833,939 Net assets released from restriction through acquisition of property or payment of Capital Campaign expenses: Temporarily restricted net assets - Capital Campaign 13

17 Exhibit D (Continued) Note 11 - RETIREMENT SAVINGS PLAN The Museum adopted a defined contribution plan covering all of its employees who are age eighteen and over, who have completed three months of service. The Plan allows participants to contribute by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. The Plan allows the Museum to contribute a discretionary amount on a uniform basis to all participants. The Museum's contribution to the plan totaled $32,326 for the year ended June 30,2004. The Museum sponsors a Section 403(b) salary reduction plan covering substantially all of its employees. The Museum sponsors a Section 457(f) deferred compensation plan for the benefit of the executive director. The Museum's contribution to the plan totaled $45,000 for the year ended June 30, Note 12 - FUNCTIONAL ALLOCATION OF EXPENSES Expenses have been reported on the statement of activities and changes in net assets by natural classification. To present expenses by functional classifications, expenses are charged to program services and supporting services (general and administrative expense, Capital Campaign expense and fundraising expenses) based on management's estimate of periodic time and expense evaluations. General and administrative expenses include those expenses that are not directly identifiable with any other specific function, but provide for the overall support and direction of the Museum. Total expenses for 2004 are allocated as follows: Program services $ 3,056,953 Supporting services: General and administrative 5,976,864 Fund raising Total expenses $ Note 13 - CORRECTION OF ERRORS Errors were made in accounting for property and equipment (other assets) and unconditional promises to give at June 30,2003, which resulted in the overstatement of net assets in the amount of $976,408. Total assets was overstated by $832,891 due to the duplication of capitalizing certain acquisition costs of fixed assets, which were reported in 14

18 Exhibit D (Continued) Note 13 - CORRECTION OF ERRORS (Continued) the other assets category. Unconditional promises to give were overstated by $143,517 due to collections of receivables being recorded as revenues instead of a reduction to unconditional promises to give. Statement of Financial Accounting Standards (SFAS) No. 117 requires that net assets be classified into three distinct classes: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. At June 30,2003, temporarily net assets of $2,729,951, in which title to property acquired through the U.S. Department of Army grant is jointly owned until the grant awarded is fulfilled, were misclassifled as unrestricted net assets. The correction of this misclassification has no effect on the changes in net assets for the year ended June 30, Net Assets Temporarily Permanently Unrestricted Restricted Restricted Total Net assets at July 1,2003 as previously reported $28,602,407 $2,118,267 $25,000 $30,745,674 Correction of errors in accounting for: Other assets (832,891) - - (832,891) Unconditional promises to give - (143,517) - (143,517) Reclassification of net assets (2, ) : - Beginning of year, as restated $ $ Note 14 -COMMITMENTS The Museum entered into an employment contract with its president through July 31,2006, which provides for a minimum annual salary, and incentives based on the Museum's attainment of specified levels of financial performance. At June 30, 2004, the total commitment, excluding incentives, was $200,000. The Museum has entered into contracts for the design of the Center for the Study of the American Spirit and Discovery Hall addition totaling approximately $ 1,330,000. As of June 30, 2004, the Museum has incurred construction in progress related to this project totaling approximately $1,200,

19 Exhibit D (Continued) Note 14 -COMMITMENTS (Continued) On July 15, 2004, the Museum entered into a contract for the design of the Capital Expansion Project. Under the terms of the contract fees are determined by a lump sum total of $250,000 and 11.54% of the first $50,000,000, of the Stated Cost Limitation, 11% of the Stated Cost Limitation in excess of $50,000,000 but less than $60,000,000, and 6% of the Stated Cost Limitation in excess of $60,000,000. As of November 15,2004 the Stated Cost Limitation has not been finalized, however, the estimate is $64,000,000. On October 6, 2004, the Museum entered into a contract for the construction of the Discovery Hall addition totaling approximately $4,488,000. As of June 30, 2004 the Museum did not incur any cost related to this contract. 16

20 SPECIAL REPORT OF CERTIFIED PUBLIC ACCOUNTANTS

21 Bourgeois Bennett REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors, The National D-Day Museum Foundation, Inc., New Orleans, Louisiana. We have audited the financial statements of The National D-Day Museum Foundation, Inc. (the "Museum"), as of and for the year ended June 30,2004, and have issued our report thereon, dated November 15, We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the Museum's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, noncompliance, with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Museum's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted a matter involving the internal control over financial reporting and its West Tunnel Blvd., Suite -130 P.O. Box 2168 Houma.LA7036l-2l68 Phone {985} Fax (985) Certified Public Accountants I Consultants A Limited Liability Company P. O. Box New Orleans, LA Heritage Plaza, 17th Floor Phone (504) 83 I-4949 Fax (504) D St. Philip Street P. O. Box 1205 Thibodaux, LA Phone (985)

22 operation that we considered to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation to the internal control over financial reporting that, in our judgment, could adversely affect the Museum's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. The reportable condition is described in the accompany schedule of findings and questioned costs as item A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe that the reportable condition described above is not a material weakness. We also noted other matters involving the internal control over financial reporting, which we have reported to management of the Museum in a separate letter dated November 15, This report is intended solely for the information and use of the Board of Directors, management, the U.S. Department of the Army, the State of Louisiana, and the Legislative Auditor for the State of Louisiana and is not intended to be and should not be used by anyone other than those specified parties. Under Louisiana Revised Statue 24:513, this report is distributed by the Legislative Audit as a public document. New Orleans, Louisiana, November 15, Certified Public Accountants. 18

23 Bourgeois Bennett REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND ON THE SCHEDULE OF FEDERAL AWARDS To the Board of Directors, The National D-Day Museum Foundation, Inc., New Orleans, Louisiana. Compliance We have audited the compliance ofthe National D-Day Museum Foundation, Inc. (the "Museum"), with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended June 30,2004. The Museum's major federal program is identified in the summary of auditor's results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal program is the responsibility of the Museum's management. Our responsibility is to express an opinion on the Museum's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133. Audits of States. Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Museum's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Museum's compliance with those requirements. 19!340WestTunnel Blvd., Suite 430 RO. Box 2168 Houma, LA Phone (98S) Fax (985) Certified Public Accountants Consultants A Limited Liability Company P. O. Box New Orleans, LA Heritage Plaza, 17th Floor PUo^ (504) Fax (504) D St-Philip Street P O. Box 1205 Thibodaux, LA Phone (985)

24 In our opinion, the Museum complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended June 30, However, the results of our auditing procedure disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items through Internal Control Over Compliance The management of the Museum is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Museum's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. We noted a certain matter involving the internal control over compliance and its operation that we consider to be reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over compliance that, in our judgment, could adversely affect the Museum's ability to administer a major federal program in accordance with the applicable requirements of laws, regulations, contracts, and grants. The reportable condition is described in the accompanying schedule of findings and questioned costs as item A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with the applicable requirements of laws, regulations, contracts, and grants that would be material in relation to a maj or federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclosed all matters in the internal control that might be reportable conditions, and accordingly, would not necessarily disclosed all reportable conditions that are also considered to be material weaknesses. However, we believe that the reportable condition described about is not a material weakness. Schedule of Expenditures of Federal Awards We have audited the basic financial statements of The National D-Day Museum Foundation, Inc. as of June 30,2004, and have issued our report thereon dated November 15, Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes 20

25 of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. This schedule is the responsibility of the management of The National D-Day Museum Foundation, Inc. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, when considered in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of the Board of Directors, management, the U.S. Department of the Army, the State of Louisiana, and the Legislative Auditor for the State of Louisiana and is not intended to be and should not be used by anyone other than those specified parties. Under Louisiana Revised Statue 24:513, this report is distributed by the Legislative Auditor as a public document. New Orleans, Louisiana, November 15, Certified Public Accountants. 21

26 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS The National D-Day Museum Foundation, Inc. For the year ended June 30, 2004 Federal Grantor Federal Federal CFDA Number Expenditures The U. S. Department of Army - Defense Supply Service - Washington (DASWO ) N/A S See notes to schedule of expenditures of federal awards. 22

27 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS The National D-Day Museum Foundation, Inc. For the year ended June 30, 2004 Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of The National D-Day Museum Foundation, Inc. and is presented on the accrual basis of accounting. Grant revenues are recorded for financial reporting purposes when The National D-Day Museum Foundation, Inc., has met the cost reimbursement of funding qualifications for the respective grants. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133. Audits of States, Local Governments, and Non-Profit Organizations. The dollar threshold used to distinguish between Type A and Type B programs was $500,000. b. Accrued Reimbursement Various reimbursement procedures are used for federal awards received by the Museum. Consequently, timing differences between expenditures and program reimbursements exist at the beginning and end of the year. c. Payments to Sub Recipients There were no payments to sub recipients for the year ended June 30, Note 2 - DESCRIPTION OF GRANTS United States Department of the Army - Defense Supply Service - Washington The U.S. Department of the Army - Defense Supply Service awarded a grant totaling $10,750,000 to fund capital expansion of the Museum, of which $3,500,000 was awarded in August The Museum must use the federal award for the assembly of buildings and land needed for the expansion program. During the year ended June 30, 2004, the Museum recognized revenue under this grant of $4,087,330. AS of June 30, 2004, the Museum has recognized as revenues in current and prior years $7,781,595 under this grant. Total funds remaining available under this grant at June 30,2004 amounted to $2,968,405. The grant was extended to June 16, 2005 by which date the remaining funds must be fully expended. 23

28 Note 3- FINDINGS ON NONCOMPLIANCE No questioned costs were noted during the audit of the financial statements for the year ended June 30, Findings related to internal control over compliance and noncompliance issues are included in the Federal Awards section of the Schedule of Findings and Questioned Costs for the year ended June 30,

29 SCHEDULE OF FINDINGS AND QUESTIONED COSTS The National D-Day Museum Foundation, Inc. For the year ended June 30, 2004 Section I - Summary of Auditor's Report a) Financial Statements Type of auditor's report issued: unqualified Internal control over financial reporting: Material weakness(es) identified? yes X no Reportable condition(s) identified that are not considered to be material weakness? X yes no Noncompliance material to financial statements noted? yes X no b) Federal Awards Internal control over major program: Material weakness(es) identified? yes X no Reportable condition(s) identified that are not considered to be material weakness? X yes no Type of auditor's report issued on compliance for major programs: unqualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133 X yes no 25

30 Section I - Summary of Auditor's Report (Continued) c) Identification of Major Program: CFDA Number Name of Federal Program DAS WO U.S. Department of the Army - Defense Supply Service Grant - Washington Dollar threshold used to distinguish between Type A and Type B programs: $ Auditee qualified as a low-risk auditee? X yes no Section II - Financial Statement Findings Internal Control Over Financial Reporting Unable to Provide Reconciliation of Expenditures Related to a Request for Federal Funding Criteria - All requests for federal funding should be reconciled with schedules of supporting documentation to specifically identify all related expenditures requested for reimbursement or advancement. Condition - During our audit, we noted one instance where a request for advancement of federal funds was not reconciled to supporting expenditures. Questioned Costs - None noted. Effect - Not maintaining reconciliations of supporting documentation for all federal funding requests could result in a loss of federal funding or a disqualification from future funding. This could also result in an incorrect designation of restrictions on net assets if the expenditure or capital outlay is not correctly correlated to the restricted federal funding source. Cause - A schedule identifying specific expenditures for this one draw made on the federal grant on an advanced basis was not prepared. 26

31 Section II - Financial Statement Findings (Continued) Internal Control Over Financial Reporting (Continued) Unable to Provide Reconciiiation of Expenditures Related to a Request for Federal Funding (Continued) Recommendations - The Museum should prepare, maintain, and reconcile detailed schedules of all supporting documentation related to all requests for federal funding. Schedules should denote the vendor, invoice date, invoice number, period of fiscal activity, check number, check date, check amount, general ledger account debited and credited in the related transaction, and budget category. Views of Responsible Officials of the Auditee when there is a Disagreement with Findings, to the Extent Practical - None Section III - Federal Award Findings and Questioned Costs Internal Control Over Compliance Item Unable to Provide Reconciliation of Expenditures Related to Requests for Federal Funding listed in the financial section under Internal Control Over Financial Reporting also applies to federal awards. Compliance Required Reports Were Not Filed Criteria - All required reports associated with a federal grant should be filed on a timely basis to comply with the reporting requirement under the Office of Management and Budget A-133 Compliance Supplement. Condition - The required performance and financial status reports due on July 15, 2003 was not filed on a timely basis with the Defense Contract Management Agency in correlation with the scheduled filing requirements stated in the grant. The required performance and financial reports due on January 15, 2004 and July 15, 2004 also were not filed. Questioned Costs - None noted. 27

32 Section III - Federal Award Findings and Questioned Costs (Continued) Compliance (Continued) Required Reports Were Not Filed (Continued) Effect - Not filing timely reports could result in a loss of federal funding or disqualification from future funding. Cause - Reports were not prepared and filing deadlines were not honored. Recommendations - The Museum should update all financial status and performance reports to the most recent required filing date of July 15, 2004 and continue to file timely financial status and performance reports for the remainder of the grant. Views of Responsible Officials of the Auditee when there is a Disagreement with Findings, to the Extent Practical - None No Written Procedures Over Cash Management Criteria - Controls should be in place to minimize the period of time between receipt and expenditure of advanced federal grant funding to comply with the cash management requirement under the Office of Management and Budget A-133 Compliance Supplement. Condition - In one instance, expenditures of advanced federal grant funding were not made within a timely basis. There are no written procedures to minimize the time elapsing between the transfer and disbursement of funds. Questioned Costs - None noted. Effect - Not creating approved written procedures to ensure timely expenditure of advanced federal funding could result in a loss of federal funding or disqualification from future funding. Cause - Prior accounting personnel did not establish written procedures on the cash management of advanced federal funding. Recommendations - The Museum should request federal grant funding as needed under all future advanced basis federal grants and obtaining a written time frame noting the maximum time allowed to expend the funding received. 28

33 Section HI - Federal Award Findings and Questioned Costs (Continued) Compliance (Continued) No Written Procedures Over Cash Management (Continued) Views of Responsible Officials of the Auditee when there is a Disagreement with Findings, to the Extent Practical - None No Controls to Track Interest on Advanced Federal Funding Criteria - Interest earned on advances of federal grant funding is required to be submitted promptly, but at least quarterly, back to the federal agency. Interest earned by non-state non-profit entities on federal fund balances in excess of $250 is required to be remitted to the Department of Health and Human Services, Payment Management System to comply with the cash management requirement under the Office of Management and Budget A-133 Compliance Supplement. Condition - Controls are not in place to identify and account for the potential interest earned on advanced federal grant funding Questioned Costs - None noted. Effect - Not identifying and remitting interest revenue earned could result in a loss of federal funding or disqualification from future funding. Cause - Cash from advanced federal grant draws were not segregated from other cash accounts to specifically identify any potential interest earned. Recommendations - The Museum should implement a separate cash account for federal funding received in order to track any interest earned on advanced federal grant funding. Views of Responsible Officials of the Auditee when there is a Disagreement with Findings, to the Extent Practical - None 29

34 REPORTS BY MANAGEMENT

35 SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS The National D-Day Museum Foundation, Inc. For the year ended June 30, 2004 Section I - Internal Control and Compliance Material to the Financial Statements Compliance No compliance findings material to the financial statements were noted during the audit of the financial statements for the year ended June 30, Internal Control No material weaknesses were noted during the audit of the financial statements for the year ended June 30, No reportable conditions were reported during the audit of the financial statements for the year ended June 30, Section II - Internal Control and Compliance Material to Federal Awards No findings or questioned costs were noted during the audit of the financial statements for the year ended June 30, Section III - Management Letter Other Maters - Internal Control over Financial Reporting Account Reconciliations Recommendations - Account reconciliations need to be performed in order to accurately reflect the balances on the general ledger. In order to prevent misstatements of fixed assets and accounts payable in the financial statements, and to maintain a better control and safeguard of the Museum's assets, it is important to reconcile these accounts monthly. 30

36 Section III - Management Letter (Continued) Account Reconciliation (Continued) Management's Response - The use of temporary help and outside consultants to supplement a staffing deficiency in the accounting department last year led to erosions of some monthly accounting procedures. These are now being more closely monitored and will be performed on a regular basis, including the monthly reconciliation of fixed assets and accounts payable. Unresolved, see findings and 04-13, in the accompanying Management's Corrective Action Plan on Current Year Findings Reconciliation of Revenues Recommendations - Controls would be improved if the Director of Accounting (the Director) was not responsible for handling cash receipts prior to their initial recording and preparing the deposit slip. Given the limited number of accounting personnel, it may not be practicable to exclude the Director from this function. In order to mitigate this control weakness we suggest the following: 1. The Director's part-time assistant should be responsible for testing the preparation of the daily revenue repots of admissions and gift shop sales as part of the process of recording revenues in the general ledger. Director's testing of these reports could be limited to determining that the totals balance to the daily deposit. 2. The part-time assistant should also be primarily responsible for reconciling the bank account monthly. At present, this responsibly is shared with the Director. Management's Response - Resolved, staffing requirements of the accounting department are currently under review, with recruitment for the currently vacant Director of Accounting position to begin within the next few weeks. The role of the accounting assistant and continuation of a possible part-time position in the department will be reviewed to achieve the necessary segregation of duties to achieve proper control procedures. 31

37 Section III - Management Letter (Continued) Purchase Authorizations - Gift Shop Recommendations - Gift shop personnel have control over the purchasing of inventory, processing of payment requests and custody of merchandise. We recommend that additional checks and balances be instituted to strengthen internal controls in this area. Pre-authorization by the Director of purchases over a certain threshold should be considered. Also, given the degree of access of both inventories and the underlying records, controls over inventory should be strengthened and gross margins should be reviewed and monitored monthly. The investment in gift shop inventory represents the equivalent of approximately seven months of sales activity. Management's Response - Resolved, management has instituted a system, which provides for a pre-authorization of inventory purchases in excess of $2,000. Such pre-authorization provides an additional layer of oversight to ensure that excessive inventories are not being accumulated. The Museum will shift day-to-day oversight of the gift shop operations to the Chief Financial Officer, who will authorize purchases above the $2,000 threshold, monitor compliance with the existing policies, regularly analyze gross profit margins, increase analysis of inventory levels and aging, and review ordering and cash handling procedures. The current level of segregation of the shipping and receiving process from the purchasing process will also be reviewed and improved where possible Cross Training of Employees Recommendations - Personnel within the accounting department should be crosstrained, at a minimum, in other accounting areas in which they typically have no involvement. Management's Response - Resolved, the completion of staff recruitment in the accounting department will be followed by cross training to ensure that, among the CFO, Director of Accounting and Assistant Director of Accounting, all procedures can be performed by at least two individuals. This will be facilitated by the formal training sessions we will receive as part of the upgrade to our accounting software which will initially include two personnel. The presence of increased tenure among the department staff will also greatly contribute to ability to initiate and maintain procedural ability redundancies. 32