Andersen Reportedly Missed $644
Million Error In NASA Audit

By Patty Reinert
Washington Bureau
Houston Chronicle

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 federal government.
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 incorrect."
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

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