In June 2000, the House Committee on Science identified a
significant discrepancy between an amount reported in the
National Aeronautic and Space Administration’s (NASA) audited
financial statements for fiscal year 1999 and its submission in
the President’s Budget for fiscal year 2001. NASA’s 1999
financial statement was misstated by a reported $644 million.

The
misstatement was in the “Recoveries of Prior Year Obligations”
line of the statement. NASA had to rely on an ad hoc process that
included a data call from the reporting units’ (nine centers and
headquarters) separate systems and a compilation of reported
amounts using a spreadsheet. In addition, when compiling these
data, NASA headquarters mistakenly added amounts that were not
relevant to the Recoveries line. Headquarters officials stated
that the error resulted from their misinterpretation of the
Office of Management and Budget (OMB) guidance on what to include
in the Recoveries line. NASA is currently acquiring and
implementing a single, commercial-off-the-shelf core accounting
system that it believes will ameliorate the system problems
identified. In conducting an independent audit of NASA’s
financial statements for fiscal year 1999, Arthur Andersen did
not detect the error in NASA’s Statement of Budgetary Resources
(SBR).

Evidence in Arthur Andersen’s working papers was not
adequate to suppoaluenqualified opinions on NASA’s SBR and
Statement of Financing in accordance with generally accepted
government auditing standards (GAGAS). Arthur Andersen’s working
papers did not adequately document the evaluation of the internal
controls related to the two budgetary statements or the
independent validation of key amounts in the statements for
fiscal year 1999.

The NASA Inspector General (IG) performed a
quality control review of the audit by Arthur Andersen using a
detailed checklist based on GAGAS. According to the checklist,
the objectives of the NASA IG quality control review were to (1)
ensure that the independent public accountant conducted the audit
in accordance with applicable auditing standards and OMB bulletin
requirements, (2) identify any follow-up work that needs to be
done by the independent public accountant, and (3) identify
issues that may require management attention.