Skip to Highlights
Highlights

The Secretary of Treasury, in coordination with the Director of the Office of Management and Budget (OMB), is required to annually prepare and submit audited financial statements of the U.S. government to the President and Congress. We are required to audit these consolidated financial statements (CFS) and report on the results of our work. An issue meriting concern and close scrutiny that emerged during our fiscal year 2004 CFS audit was the growing number of Chief Financial Officers (CFO) Act agencies that restated certain of their financial statements for fiscal year 2003 to correct errors. Errors in financial statements can result from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared. Frequent restatements to correct errors can undermine public trust and confidence in both the entity and all responsible parties. Further, when restatements do occur, it is important that financial statements clearly communicate, and readers of the restated financial statements understand, that the financial statements originally issued by management in the previous year and the opinion thereon should no longer be relied on and instead the restated financial statements and related auditor's opinion should be used. Because of the varying nature and circumstances surrounding the restatements, we are issuing a number of separate reports on the matter. This report communicates our observations regarding the National Science Foundation's (NSF) fiscal year 2003 restatements. Going forward, we hope that the lessons learned from the fiscal year 2003 restatements, together with our recommendations, will help (1) NSF avoid the need for restatements to its future financial statements and (2) ensure that NSF's auditor applies appropriate audit procedures in future audits to test for unrecorded and unbilled licensee fees and related internal controls. We reviewed four key areas with respect to the restatements of NSF's fiscal year 2003 financial statements: (1) the nature and cause of the errors that necessitated the restatements, including planned corrective actions by the agency and its auditors; (2) the timing of communicating the material misstatement to users of the financial statements; (3) the extent of transparency exhibited in disclosing the nature and impact of the material misstatement in the financial statements and the reissued auditor's report; and (4) audit issues that contributed to the failure to detect the errors that necessitated the restatements during the audit of the agency's fiscal year 2003 financial statements.

Skip to Recommendations

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
National Science Foundation NSF's Chief Financial Officer should ensure that NSF fully and effectively implements policies and procedures to properly record H-1B account funds.
Closed - Implemented
In January 2006, NSF's CFO informed us that NSF implemented the proper accounting treatment for Special Fund Receipts as verified by NSF's IPA. By implementing sufficient controls over accounting for NSF's Special Fund receipts, NSF has improved its controls over financial reporting.
National Science Foundation NSF's Inspector General should work with NSF's IPA so that audit procedures to detect any future material H-1B account funds recording errors are fully and effectively implemented.
Closed - Implemented
In January 2006, NSF's IG informed us that subsequent to our review, her office instituted procedures to ensure that NSF's IPA designed and performed audit steps to detect any Special Fund receipts recording errors for fiscal year 2005. Further, NSF's IG stated that NSF has hired a new audit firm for the fiscal year 2006 financial statements audit and that the NSF IG will ensure that corrective actions taken in fiscal year 2005 will carry forward to fiscal year 2006 and future audits. By taking these actions, NSF's IG has improved its ability to detect Special Fund receipt errors and our ability to use the audit work in this area on future audits of the CFS.

Full Report