PwC’s audit found numerous basic reporting errors in the year-end and third-quarter financial statements that had nothing to do with the conversion, and which auditors said finance executives should have caught before filing the statements.
For example, in the June 2003 quarterly statement, auditors found a $204 million line item called “Other” that “could not be explained or supported, indicating that NASA had not correctly reconciled its budgetary resources to its net cost of operations.” PwC also found a $200 million discrepancy between identical line items on two different financial statements. In the year-end audit, PwC discovered that NASA’s stated fund balance was actually $2 billion more than the balance in its Treasury account. (PwC noted that NASA changed the balance to match the Treasury balance without disclosing that it had done so in the financial statements.) The agency also changed the method used to depreciate assets without disclosing that it had done so and explaining why, as is required by government financial-reporting regulations. And it continued to use an incorrect method to account for costs incurred, despite repeated warnings from the General Accounting Office (GAO) and PwC that the method did not even comply with NASA’s own financial-management manual.
In addition, finance personnel responsible for converting the year-end data (and who racked up the $565 billion in adjustments) didn’t have the skills they needed to do the job. Says Patrick Ciganer, NASA’s program executive officer for integrated financial management, “We had people in each of the NASA centers [10 in all, including the Kennedy, Glenn, and Marshall space centers] who knew that they had to make the year-end adjustments. The problem was, they had never done them before. They had been trained, but in some cases that was six or eight months before, and they did it wrong.” The SAP system recorded each errant keystroke, creating a series of unsupported journal entries and adjustments that PwC could not have fully audited even if it had had a whole year to do it.
The disclaimed audit would not be as significant if it were just a one-off even, but in fact, NASA has a long-standing history of financial mismanagement. The agency’s contract-management function has earned a spot on the GAO’s “high risk” watch list every year since 1990 (see “Mission [out of] Control,” at the end of this article). This year, NASA was 1 of only 3 federal agencies (out of 23) that received a disclaimed audit opinion.
Other lowlights of NASA’s financial history include the ISS audit, which the GAO has performed annually since 2000 to determine whether NASA is adhering to congressional spending caps placed on the ISS and related space-shuttle flights. In each audit, the GAO auditors have been “unable to determine whether the obligations that NASA was reporting to Congress were accurate,” says Gregory D. Kutz, director in the financial management assurance team at the GAO. Adds Kutz, “This is a problem that has been around NASA for a long time.” The latest GAO audit report, released in April, revealed that NASA didn’t include any information on the ISS and shuttle obligations in its FY 2005 budget request, as required by law, “so we had nothing to audit this year,” the report said. A NASA spokesperson called the omission an “editorial oversight.”