in the annual report posted on the Corporation's public website.<br><br> The Committee met regularly with the Corporation's President & CEO, chief financial officer, and auditors to review internal controls, audit results, accounting principles and practices, and the overall quality of the Corporation's financial reporting. Meetings and executive sessions without management present were also held and designed to facilitate any desired private communications between the Committee and the auditors. DEPARTMENT OF THE ARMY U.S.<br><br> ARMY AUDIT AGENCY Office of the Auditor General 3101 Park Center Drive Alexandria, VA 22302-1596 A-2006-0007-FFM 21 October 2005 Independent Auditor 9s Report This report presents the results of our review of the independent certified public accountant 9s audit of the American Red Cross consolidated financial statements for the fiscal year ended 30 June 2005. In the auditor 9s opinion, the American Red Cross statements are fairly presented, in all material respects, in accordance with accounting principles generally accepted in the United States of America. The Act of Congress that incorporated the American Red Cross, as implemented by Department of Defense Directive 1330.5 and Army Regulation 930-5, requires that the U.S.<br><br> Army Audit Agency perform an annual audit of the consolidated financial statements of the American Red Cross. The American Red Cross contracted with the certified public accounting firm of KPMG LLP as the principal auditor to perform a financial audit of its 2005 consolidated financial statements. To fulfill our audit responsibilities, avoid duplication and unnecessary expense, and make the most efficient use of our available resources, we reviewed the principal auditor 9s work and reports.<br><br> The American Red Cross is the instrument chosen by an Act of Congress, approved January 5, 1905, to help carry out obligations assumed by the United States under certain international treaties known as the Geneva or Red Cross Conventions. Its Congressional Charter imposes on the American Red Cross the duties to act as the medium of voluntary relief and communications between the American people and the Armed Forces, and to carry on a system of national and international relief to prevent and mitigate suffering caused by disasters. We conducted our review of the principal auditor 9s work in accordance with generally accepted government auditing standards issued by the Comptroller General of the United States.<br><br> To determine the reasonableness of the principal auditor 9s work and the extent, to which we could rely on it, we: " Reviewed the principal auditor 9s approach and planning of the audit. " Evaluated the qualifications and independence of the audit staff. 2 " Reviewed the consolidated financial statements and principal auditor 9s report to evaluate compliance with generally accepted accounting principles.<br><br> " Reviewed and tested the principal auditor 9s working papers to determine (1) the nature, timing, and extent of audit work performed, (2) the extent of audit quality control methods the auditor used, (3) whether a study and evaluation was conducted of the entity 9s internal accounting controls, and (4) whether the evidence in the working papers supported the principal auditor 9s opinion on the consolidated financial statements. In the opinion of KPMG LLP, the American Red Cross consolidated financial statements present fairly, in all material respects, its financial position as of 30 June 2005 and the related statement of activities, functional expenses, the changes in its net assets and its cash flows for the year ended, in conformity with accounting principles generally accepted in the United States of America. During our review, we found nothing to indicate that KPMG LLP 9s opinion on the American Red Cross 2005 consolidated financial statements is inappropriate or cannot be relied on.<br><br> We believe that the consolidated financial statements, together with the KPMG LLP opinion and our review of that work, provide the Congress with a dependable basis for evaluating the American Red Cross financial position. This report presents the American Red Cross consolidated financial statements and the auditor 9s opinion thereon. We are sending copies of this report to the American Red Cross Board of Governors.<br><br> JOYCE E. MORROW, CPA The Auditor General KPMG LLP 2001 M Street, NW Washington, DC 20036 KPMG LLP. KPMG LLP, a U.S.<br><br> limited liability partnership, is a member of KPMG International, a Swiss association. Independent Auditors 9 Report The Board of Governors The American Red Cross: We have audited the accompanying consolidated statement of financial position of the American Red Cross as of June 30, 2005, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended. These consolidated financial statements are the responsibility of management of the American Red Cross.<br><br> Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of certain chapters, which statements reflect total assets constituting 24 percent and total revenues and gains constituting 16 percent, respectively, of the consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for such chapters, is based solely on the reports of the other auditors.<br><br> The prior year summarized comparative information has been derived from the American Red Cross 9 2004 consolidated financial statements and, in our report dated October 1, 2004, we expressed an unqualified opinion on those consolidated financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.<br><br> An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the American Red Cross 9 internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.<br><br> 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, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the American Red Cross as of June 30, 2005, 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.<br><br> September 30, 2005

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