15 Nov 2007
Chief Financial Officer
FROM: Inspector General
SUBJECT: Audit of the National Aeronautics and Space Administration's Fiscal Year 2007 Financial Statements (Report No. IG-08-001)
Under the Chief Financial Officers Act of 1990, NASA's financial statements are to be audited in accordance with generally accepted government auditing standards. The Office of Inspector General contracted with the independent certified public accounting firm Ernst & Young LLP (E&Y) to audit NASA's financial statements in accordance with Government Auditing Standards and Office of Management and Budget's Bulletin No. 07-04, Audit Requirements for Federal Financial Statements.
In the Report of Independent Auditors (Enclosure 1), E&Y disclaimed an opinion on NASA's financial statements for the fiscal years ended September 30, 2007 and 2006. The disclaimer resulted from NASA's inability to provide E&Y auditable financial statements and sufficient evidence to support the financial statements throughout the fiscal year and at year-end.
The E&Y Report on Internal Control (Enclosure 2) includes two significant deficiencies, which are considered to be material weaknesses. Material weaknesses were found in NASA's controls for (1) financial systems, analyses, and oversight used to prepare the financial statements, and (2) assuring that property, plant, and equipment and materials are presented fairly in the financial statements. These material weaknesses have been reported for several years.
The E&Y Report on Compliance with Laws and Regulations (Enclosure 3) identifies several instances in which NASA's financial management systems did not substantially comply with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA). For example, the report notes that certain subsidiary systems, including property, are not integrated with the Core Financial module and are not complemented by sufficient manual preventative and detect type controls.
NASA made progress in improving its internal controls, including resolving its fund balance with Treasury imbalances; redesigning its approach and supporting processes for implementing the requirements of the Improper Payments Information Act of 2002; developing interim tools and reports for analyzing financial statement accounts, to include aging reports; and implementing requirements for analysis of monthly comparative financial statements by NASA Centers. However, NASA management and E&Y continued to identify weaknesses in Agency-wide internal controls, which impaired NASA's ability to report accurate financial information on a timely basis. In FY 2007, NASA prepared a corrective action plan to address the material weaknesses and recommendations noted in the FY 2006 financial statement audit report. NASA should update that corrective action plan to address the findings detailed in the enclosed reports and to address material weaknesses identified in the Administrator's Statement of Assurance. That plan must be detailed enough to ensure successful implementation with desired results. In addition, NASA must continue to
E&Y is responsible for each of the enclosed reports and the conclusions expressed therein. Accordingly, we do not express an opinion on NASA's financial statements, internal controls over financial reporting, or compliance with certain laws and regulations, including, but not limited to, FFMIA.
In fulfilling our responsibilities under the Chief Financial Officers Act of 1990, we provided oversight and technical support. We monitored the progress of E&Y's audit, reviewed reports submitted by E&Y, and ensured that E&Y met contractual requirements.
Robert W. Cobb