- WASHINGTON -- Arthur Andersen, the auditor that has come under fire for
failing to catch bankrupt Enron Corp.'s questionable accounting practices,
overlooked a $644 million accounting error on a 1999 NASA audit, according
to a federal report.
- The report, released by the General Accounting
Office last March, blamed Andersen for "excessive reliance on representations
by NASAmanagement" and said the firm did not do adequate auditing
work to justify signing off on the space agency's books.
- "Their work did not meet professional
standards," Gregory Kutz, who wrote the report, said Tuesday. "Auditing
is really aboutindependently validating the numbers, not just saying, `Management
told us, and therefore it is so.' "
- Andersen spokesman Patrick Dorton criticized
the report, saying, "We strongly disagreed with the conclusions of
the GAO report whenit was issued and still disagree today."
- The report resurfaced this week as Andersen
is being scrutinized for auditing Enron's books at a time when the Houston
energy traderwas overstating its profits by hundreds of millions of dollars.
- Several congressional committees are
investigating the scandal, as are the Securities and Exchange Commission,
the Labor Departmentand the Justice Department. The White House, which
has sought to distance itself from Enron's massive campaign contributions
toPresident Bush, last week ordered the General Services Administration
to determine whether Andersen and Enron should be allowed towork for the
- Kutz, director of the GAO's financial
management and assurance division, said the NASA accounting error was so
obvious that a staffmember on the House Subcommittee on Space and Aeronautics
caught it by flipping through the National Aeronautics and SpaceAdministration's
1999 annual report and comparing it with the president's 2000 budget.
- The space agency had reported that it
had $686 million left over from contracts in the previous fiscal year,
up from zero the yearbefore.
- "They called NASA up and said, `How
could this be right?' and NASA said, `Oops, you're right. Our audited financial
statements areincorrect,' " Kutz said.
- NASA said the actual amount was $42 million.
- Kutz said the error appeared to be a
genuine accounting mistake rather than some attempt to disguise or misrepresent
the numbers.The real problem, he said, was that Andersen auditors did not
understand the process NASA used to compile the accounting data, andthey
didn't catch the error. Andersen also could not produce the paperwork to
show that it had conducted a proper audit, he said.
- In an e-mail to the Houston Chronicle
and other media, Andersen's Dorton wrote that the report's conclusions
"have no basis and arenot supported by the facts." The GAO's
conclusion that Andersen's work was inadequate, Dorton said, was "fundamentally
- Dorton attached a statement from Andersen
that essentially repeats the firm's explanation to the GAO last year. The
statement saidthe reporting error was not the product of shoddy auditing
but rather "NASA's good-faith misinterpretation" of guidance
it receivedfrom the Office of Management and Budget on how to fill out
a new budgeting statement that Andersen said has been the subject of"enormous
confusion" since its inception in 1998.
- NASA's Inspector General's Office, which
had a $3.3 million contract with Andersen to conduct its annual audits
from fiscal years1996 through 2000, sided with Andersen against the GAO.
- But Kutz dismissed the explanation for
the error. He also noted that Andersen is no longer serving as NASA's auditor.
- NASA spokesman Bob Jacobs said NASA officials
had been aware of the accounting error and were working to correct it when
the Housecommittee flagged the discrepancy.
- Copyright 2002, Houston Chronicle