R.J. Ricciardi, CPA, Audit of the Search for Extraterrestrial Intelligence Institute, FY Ended September
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IG-02-005 QUALITY RJ RICCIARDI, CPA, AUDIT OF THE SEARCH CONTROL FOR EXTRATERRESTRIAL INTELLIGENCE REVIEW INSTITUTE, FISCAL YEAR ENDED SEPTEMBER 30, 1999 REPORT December 6, 2001 OFFICE OF INSPECTOR GENERAL National Aeronautics and Space Administration Additional Copies To obtain additional copies of this report, contact the Assistant Inspector General for Audits at (202) 358-1232, or visit www.hq.nasa.gov/office/oig/hq/issuedaudits.html. Suggestions for Future Audits To suggest ideas for or to request future audits, contact the Assistant Inspector General for Audits. Ideas and requests can also be mailed to: Assistant Inspector General for Audits Code W NASA Headquarters Washington, DC 20546-0001 NASA Hotline To report fraud, waste, abuse, or mismanagement, contact the NASA OIG Hotline at (800) 424-9183, (800) 535-8134 (TDD), or at www.hq.nasa.gov/office/oig/hq/hotline.html#form or write to the NASA Inspector General, P.O. Box 23089, L’Enfant Plaza Station, Washington, DC 20026. The identity of each writer and caller can be kept confidential, upon request, to the extent permitted by law. Reader Survey Please complete the reader survey at the end of this report or at http://www.hq.nasa.gov/office/oig/hq/audits.html. Acronyms AICPA American Institute of Certified Public Accountants GAAP Generally Accepted Accounting Principles GAGAS Generally ...
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IG-02-005
QUALITY RJ RICCIARDI, CPA, AUDIT OF THE SEARCH CONTROLFOR EXTRATERRESTRIAL INTELLIGENCE REVIEWINSTITUTE, FISCAL YEAR ENDED REPORTSEPTEMBER 30, 1999 December 6, 2001
National Aeronautics and Space Administration
OFFICE OF INSPECTOR GENERAL
Additional Copies To obtain additional copies of this report, contact the Assistant Inspector General for Audits at (202) 358-1232, or visit/higisq/edsudiauh.st.lmtwww.hq.nsa.aog/vfoifeco/ Suggestions for Future Audits To suggest ideas for or to request future audits, contact the Assistant Inspector General for Audits. Ideas and requests can also be mailed to: Assistant Inspector General for Audits Code W NASA Headquarters Washington, DC 20546-0001 NASA Hotline To report fraud, waste, abuse, or mismanagement, contact the NASA OIG Hotline at (800) 424-9183, (800) 535-8134 (TDD), or atwww.hq.nasa.gov/office/oig/hq/hotline.html#form or write to the NASA Inspector General, P.O. Box 23089, L’Enfant Plaza Station, Washington, DC 20026. The identity of each writer and caller can be kept confidential, upon request, to the extent permitted by law. Reader Survey Please complete the reader survey at the end of this report or at http://www.hq.nasa.gov/office/oig/hq/audits.html. Acronyms AICPA American Institute of Certified Public Accountants GAAP Generally Accepted Accounting Principles GAGAS Generally Accepted Government Auditing Standards NASA National Aeronautics and Space Administration OIG Office of Inspector General OMB Office of Management and Budget PPC Practioners Publishing Company SETI Search for Extraterrestrial Intelligence SOP Statement of Position
W December 6, 2001 Mr. Ralph J. Ricciardi 1000 Fourth Street, Suite 725 San Rafael, CA 94901 Re: Final Quality Control Review Report of RJ Ricciardi, CPA, Audit of the Search for Extraterrestrial Intelligence Institute for the Fiscal Year Ended September 30, 1999, Assignment No. A-01-025-00 Report Number IG-02-005 Dear Mr. Ricciardi: The subject final report is provided for your use and comment. Please refer to the Executive Summary for the overall review results. Our evaluation of your response is incorporated into the body of the report. Your comments on a draft of this report were responsive to recommendations 1, and 4 through 6, and your completed actions are sufficient to close them for reporting purposes. Your corrective actions for recommendations 2 and 3 to document internal control were not fully responsive because you did not specifically address corrective actions for the reporting compliance requirement for the current and future years. Your comments on recommendations 7 and 8 also were not fully responsive because you did not address whether future years’ audits would comply with the recommended corrective action. Therefore, we ask that you provide additional comments on the final report not later than February 4, 2002. Recommendations 2, 3, 7, and 8 will remain unresolved for reporting purposes. If you have questions concerning the report, please contact Mr. Chester A. Sipsock, Program Director, Financial Management Audits, Quality, and Oversight, at (216) 433-8960, or Ms. Vera J. Garrant, Auditor-in-Charge, at (202) 358-2596. We appreciate the courtesies extended to the audit staff. The final report distribution is in Appendix H. Sincerely, [original signed by] Alan J. Lamoreaux Assistant Inspector General for Audits
Enclosure cc: AB/Associate Deputy Administrator for Institutions B/Acting Chief Financial Officer B/Comptroller BF/Director, Financial Management Division G/General Counsel H/Associate Administrator for Procurement JM/Director, Management Assessment Division
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W December 6, 2001 Ms. Shannon Atkinson, Chief Financial Officer SETI Institute 2035 Landings Drive Mountain View, CA 94043-0818 Re: Final Quality Control Review Report of RJ Ricciardi, CPA, Audit of the Search for Extraterrestrial Intelligence Institute for the Fiscal Year Ended September 30, 1999, Assignment No. A-01-025-00 Report Number IG-02-005 Dear Ms. Atkinson: The subject final report is provided for your use and comment. Please refer to the Executive Summary for the overall review results. Our evaluation of your response is incorporated into the report. Your comments on a draft of this report were responsive to the information in Appendix E. If you have questions concerning the report, please contact Mr. Chester A. Sipsock, Program Director, Financial Management Audits, Quality, and Oversight, at (216) 433-8960, or Ms. Vera J. Garrant, Auditor-in-Charge, at (202) 358-2596. We appreciate the courtesies extended to the audit staff. The final report distribution is in Appendix H. Sincerely, [original signed by] Alan J. Lamoreaux Assistant Inspector General for Audits Enclosure
cc: AB/Associate Deputy Administrator for Institutions B/Acting Chief Financial Officer B/Comptroller BF/Director, Financial Management Division G/General Counsel H/Associate Administrator for Procurement JM/Director, Management Assessment Division
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Contents Executive Summary,i Introduction,1 Findings and Recommendations,2 A. Planning the Audit, 2 B. Audit of the Period of Availability of Federal Funds and Reporting Compliance Requirements, 6 C. Working Paper Documentation, 10 Appendix A Single Audit Requirements, 16 Appendix B Objectives and Scope,19 Appendix C Quality Control Review Methodology,21 Appendix D Quality Control ReviewReferral,23 Appendix E Other Matters of Interest,24 Appendix F RJ Ricciardi, CPA, Response, 26 Appendix G Search for Extraterestrial Intelligence Institute Response,28 Appendix H Report Distribution,29
NASA Office of Inspector General IG-02-005 December 6, 2001 A-01-025-00 RJ Ricciardi, CPA,1Audit of the Search for Extraterrestrial Intelligence Institute for the Fiscal Year Ended September 30, 1999 Introduction The Search for Extraterrestrial Intelligence (SETI) Institute, Mountain View, California, conducts scientific research and educational projects relevant to the nature, prevalence, and distribution of life in the universe. The Institute also conducts formal and informal science education related to these fields of interest. The National Aeronautics and Space Administration (NASA) is the oversight agency for audit for the SETI Institute. The NASA Office of Inspector General (OIG) performed a quality control review of the RJ Ricciardi, CPA, audit of the SETI Institute for the fiscal year ended September 30, 1999.2Single Audit Act and the Single Audit Act The Amendments3require the audit. SETI Institute reported total NASA expenditures of The $4.6 million and total Federal expenditures of $5.2 million for fiscal year 1999. Appendix A provides details on the single audit requirements. Objectives Audit Report. The objective of our report quality control review was to determine whether the report that SETI Institute submitted to the Federal Audit Clearinghouse4for fiscal year 1999 met applicable reporting standards and Office of Management and Budget (OMB) Circular A-1335reporting requirements. Audit Working Papers.our audit working paper quality control The objectives of review were to determine whether RJ Ricciardi, CPA, conducted the audit in accordance 1CPA means certified public accountant. 2the single audit for the SETI Institute fiscalThe San Rafael, California, office of RJ Ricciardi performed year ended September 30, 1999. We performed a quality control review of the 1999 working papers because Mr. Ricciardi explained that the working papers supporting the fiscal year 2000 audit were not ready to be subject to an external review. 3Office of Management and Budget Circular A-133, “Audits of States, Local Governments, and Non-Profit Organizations, implements the requirements of the Single Audit Act and the Single Audit Act Amendments. Appendix A contains details on the requirements of the Circular. 4The Single Audit Act Amendments of 1996, §7504(c), require the Office of Management and Budget to establish the Federal Audit Clearinghouse to receive the Circular A-133 audit reports. 5See footnote number 2.
with applicable standards and whether the audit met the auditing and reporting requirements of OMB Circular A-133. Appendixes B and C contain details on the objectives, scope, and methodology. Results of Review On December 29, 1999, RJ Ricciardi, CPA, issued its audit report on the SETI Institute for the fiscal year ended September 30, 1999. •Reported A-133 Results.(1) identified no findings; (2) questioned noThe auditors costs; and (3) issued an unqualified opinion6on the financial statements, Schedule of Expenditures of Federal Awards,7and major program compliance. The auditors also found no instances of noncompliance in the financial statement audit that are required to be reported under generally accepted government auditing standards (GAGAS).8 Finally, the auditors noted no matters involving internal controls relating to the financial statements or the major program that are considered to be material weaknesses.9 •Report Quality Review Results. The SETI Institute’s audit report met the applicable reporting guidance and regulatory requirements in OMB Circular A-133. •Audit Quality Review Results.The RJ Ricciardi, CPA, audit work does not meet the applicable auditing guidance and requirements in (1) OMB Circular A-133 and its related Compliance Supplement,10(2) GAGAS, and (3) generally accepted auditing standards. The auditors did not properly plan the audit to meet OMB Circular A-133 audit requirements (Finding A). The auditors also did not audit the period of availability of Federal funds and reporting compliance requirements (Finding B). Finally, the auditors did not adequately document their working papers for their understanding of internal controls related to the activities allowed or unallowed requirement; internal control testing for the equipment, procurement and suspension and debarment, and reporting compliance requirements; and compliance testing for 6An unqualified opinion means that the financial statements are presented fairly in all material respects, expenditures of Federal funds are presented fairly in relation to the financial statements taken as a whole, and the auditee has complied with all applicable laws, regulations, and contract provisions that could have a direct and material effect on each major program. 7The Schedule of Expenditures of Federal Awards shows the amount of annual Federal award expenditures by Federal agency for each program, grant, or contract. 8These standards are broad statements of the auditors’ responsibilities, promulgated by the Comptroller General of the United States. 9The American Institute of Certified Public Accountants (AICPA) Statement of Position 98-3, Appendix D, defines a material weakness as:
t he condition in which the design or operation of one or more of the internal control components [control environment, risk assessment, control activities, information and communication, and monitoring] does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. 10additional details on the Compliance Supplement.Appendix A contains
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the cash management compliance requirement. In addition, the auditors did not document their determination of major programs and the low-risk auditee status for the Institute (Finding C). Quality Control Review Referral.the results of our quality control review, Based on we determined that RJ Ricciardi, CPA, audit work meets the President’s Council on Integrity and Efficiency’s definition of a referable action under the Council’s Position Statement 4, “IG [Inspector General] Quality Control Referral Procedures. Therefore, we will refer the staff assigned to this audit to the American Institute of Certified Public Accountants (AICPA). Appendix D contains a definition of a referable action and the rationale for a referral of RJ Ricciardi, CPA. Recommendations. We recommended that for the SETI Institute fiscal year ended September 30, 1999, and for future audits, RJ Ricciardi, CPA: •Plan the audit of Federal awards to meet OMB Circular A-133 auditing requirements. •that have a direct and material effect on the majorAudit the compliance requirements program, including the period of availability of Federal funds and reporting compliance requirements •document the working papers (1) for their understanding of theRequire auditors to internal controls, internal controls testing, and compliance testing for the compliance requirements (including equipment and cash management) within its audit scope and (2) to support their determination of major programs and the classification of SETI as low risk. Management’s Response.firm partially concurred with the recommendation The audit to audit the period of availability of Federal funds requirement. The firm stated that the auditors extensively audited this requirement. The audit firm concurred with the remaining recommendations and emphasized that the audit was planned and executed as an organization-wide audit, which included the financial statements and Federal awards. However, the firm agreed that in some cases, the working paper documentation could be improved. The auditors had prepared a Federal awards planning document, documented the working papers to indicate which of the 14 compliance requirements had a direct and material effect on the major program, documented their understanding and testing of internal control, and prepared additional documentation that identified the compliance testing performed. The audit firm agreed to implement the corrective action on future years' audits. The complete text of the response is in Appendix F. Evaluation of Management’s Response.The OMB Circular A-133 reporting package consists of the financial statement audit and the Federal awards audit. Although, these audits have different objectives, their audit procedures may be combined, in some cases, to conduct an efficient audit. Therefore, the working papers must contain sufficient documentation to enable an independent reviewer to understand the procedures performed to meet the objectives of each audit.
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We maintain that the auditors neither adequately documented their understanding of internal control for the reporting compliance requirement for the current year’s audit nor addressed how they plan to meet the requirement in future years’ audits. Also, the audit firm did not address the planned corrective action to document the equipment and cash management compliance requirements in future years’ audits. Therefore, we request that the audit firm further review its position on these matters and provide additional comments. Except as described in the two preceding paragraphs, the completed corrective action for the recommendations in the current year and the planned corrective actions for future years’ audits are responsive and are sufficient to close the related recommendations for reporting purposes. Other Matters of Interest.During our report review, we identified issues related to reporting that should be brought to the attention of SETI Institute management. These issues do not affect the results of our review and are discussed in Appendix E. The SETI Institute management agreed to correct these issues in future audit reports. Appendix G contains the complete text of the SETI Institute response.
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