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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Baldur Fjvlnisson who wrote (1785)	1/30/2002 2:48:16 PM
From: Karen Lawrence	Read Replies (3) \| Respond to of 5185

How does an agency whose sole purpose (acting as auditor) is to affirm accuracy in accounting miss a half billion dollar error? The firm in question is Andersen. Andersen reportedly missed $644 million error in NASA audit By PATTY REINERT Copyright 2002 Houston Chronicle Washington Bureau 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 NASA management" 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 about independently 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 when it 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 trader was 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 Department and the Justice Department. The White House, which has sought to distance itself from Enron's massive campaign contributions to President Bush, last week ordered the General Services Administration to determine whether Andersen and Enron should be allowed to work 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 staff member on the House Subcommittee on Space and Aeronautics caught it by flipping through the National Aeronautics and Space Administration'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 year before. "They called NASA up and said, `How could this be right?' and NASA said, `Oops, you're right. Our audited financial statements are incorrect,' " 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, and they 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 are not 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 said the reporting error was not the product of shoddy auditing but rather "NASA's good-faith misinterpretation" of guidance it received from 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 years 1996 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 House committee flagged the discrepancy. Return to top