Financial Management:

Misstatements of NASA's Statement of Budgetary Resources

GAO-01-438: Published: Mar 30, 2001. Publicly Released: Mar 30, 2001.

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Gregory D. Kutz
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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 relied 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 said 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 now acquiring and implementing a single, commercial off-the-shelf core accounting system that it believes will solve the problem. In its 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 support unqualified 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) did 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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Bases on GAO's recommendation, NASA subsequently instituted additional independent verification and validation of data used beginning with the fiscal year 2000 financial statement process. As of June 2001, NASA also updated its General Ledger Account System to electronically capture recoveries of prior-year obligation data rather thatn collecting data manually which GAO identified as a principal factor in the 1999 reporting error.

    Recommendation: To ensure that NASA's strengthened procedures over financial statement preparation are in place and operating as intended, the NASA Chief Financial Officer should review the effectiveness of the enhanced procedures for the fiscal year 2000 reporting process and modify the procedures as necessary.

    Agency Affected: National Aeronautics and Space Administration: Office of the Chief Financial Officer

  2. Status: Closed - Implemented

    Comments: On May 18, 2001, the NASA OIG awarded a contract to PriceWaterhouseCoopers (PWC), LLP for annual audits of NASA's fiscal year 2001 and 2002 financial statements. The contract statement of work states that PWC is required to follow the GAO Financial Audit Manual (FAM) guidance, as revised when performing NASA's audits. In addition, the NASA IG plans to incorporate the requirements of the forthcoming revision of the FAM into its quality control process for future audits.

    Recommendation: The NASA IG should review its overall quality control procedures for monitoring the work of independent public accountants and strengthen its procedures where appropriate, including updating the quality control checklist to incorporate the requirements of the GAO/PCIE Financial Audit Manual to monitor whether the independent public accountant's work was performed in accordance with relevant professional standards and guidance.

    Agency Affected: National Aeronautics and Space Administration: Office of the Inspector General


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