ES, IG-99-031, Ernst & Young LLP Audit of Universities Space Research Association

ERNST & YOUNG LLP AUDIT OF
UNIVERSITIES SPACE RESEARCH ASSOCIATION FOR
FISCAL YEAR ENDED JUNE 30, 1998
IG-99-029

Executive Summary

Introduction
The Universities Space Research Association (USRA) of Columbia, Maryland, is a not-for-profit membership corporation that provides universities and other organizations the means to cooperate in the development of knowledge associated with space science and technology. USRA's principal program is to operate laboratories and other facilities under contracts, grants, and cooperative agreements mainly with the Federal Government for research, development, and education associated with space science and technology.
As the cognizant audit agency for USRA, the National Aeronautics and Space Administration (NASA) performed a quality control review of USRA's audit for the fiscal year ended June 30, 1998. The audit is required by Office of Management and Budget (OMB) Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations." The office of Ernst & Young LLP, Washington, D.C., performed the single audit for USRA. The USRA reported total Federal expenditures of $75,816,364 for the fiscal year ended June 30, 1998, from awards provided by NASA.
Appendix A provides details on the single audit requirements, and Appendix B is a glossary of the terms used in this report.

Objectives
The objectives of our quality control review were to determine whether the audit was conducted in accordance with applicable standards and whether the audit meets the auditing and reporting requirements of OMB Circular A-133. See Appendixes C and D for details on the objectives, scope, and methodology.

Results of Review
Ernst & Young LLP issued its audit report on USRA on September 11, 1998. The auditors identified no findings and questioned no costs. Ernst & Young LLP issued an unqualified opinion on the financial statements, Schedule of Federal Awards⁽¹⁾ and 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. Finally, the auditors noted no matters involving internal controls relating to the financial statement or major programs that are considered to be material weaknesses. The Ernst & Young LLP audit work and report generally meets the applicable auditing and reporting guidance and regulatory requirements contained in: (1) OMB Circular A-133 and its related Compliance Supplement, (2) generally accepted government auditing standards; and (3) generally accepted auditing standards. The auditors need to improve working paper documentation (Finding A), correct major program reporting (Finding B), and obtain training specifically related to the single audit requirements (Finding C). Additionally, the audit report must be revised to identify the Federal agencies whose expenditures are presented in the Schedule of Federal Awards and include notes to the Schedule that describe the significant accounting policies used.

Recommendations
We recommend that USRA management prepare a Schedule of Expenditures of Federal Awards and its related notes in accordance with OMB Circular A-133.
We also recommend that Ernst & Young LLP:

Document its working papers in accordance with generally accepted government auditing standards for the internal controls related to the OMB Circular A-133 compliance requirements.
Revise the Schedule of Findings and Questioned Costs and the Data Collection Form to correctly identify major programs.
Provide training in OMB Circular A-133 requirements for the assigned staff.

USRA Response
The Schedule of Federal Awards is being revised to reflect the USRA programs as major programs within the research and development cluster, identify the Federal agencies, and include appropriate footnotes to the Schedule.

Ernst & Young LLP's Response
Documentation of the auditors' thought processes and other matters discussed during the audit can be improved. Ernst & Young will participate in the revision to the Schedule of Findings and Questioned Costs for fiscal year 1998. Ernst & Young LLP will prepare a letter to the Department of Commerce, Bureau of the Census (the collecting agent for OMB on the Data Collection Form), advising the Bureau to identify all contracts listed on the June 30, 1998, Data Collection Form as "major program." Ernst & Young and USRA will jointly sign the letter. Finally, personnel for the USRA audit will obtain training in the revised Circular A-133 requirements.

Evaluation of the USRA and Ernst & Young LLP Response
Both responses meet the intent of the recommendations.

FOOTNOTE

1. Rather than Schedule of Expenditures of Federal Awards, the audit report references "Schedule of Federal Awards," which is the title prescribed in the original OMB Circular A-133. Hereafter, except in citations from the revised OMB Circular A-133, we will refer to this schedule as "Schedule of Federal Awards."

Introduction	The Universities Space Research Association (USRA) of Columbia, Maryland, is a not-for-profit membership corporation that provides universities and other organizations the means to cooperate in the development of knowledge associated with space science and technology. USRA's principal program is to operate laboratories and other facilities under contracts, grants, and cooperative agreements mainly with the Federal Government for research, development, and education associated with space science and technology. As the cognizant audit agency for USRA, the National Aeronautics and Space Administration (NASA) performed a quality control review of USRA's audit for the fiscal year ended June 30, 1998. The audit is required by Office of Management and Budget (OMB) Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations." The office of Ernst & Young LLP, Washington, D.C., performed the single audit for USRA. The USRA reported total Federal expenditures of $75,816,364 for the fiscal year ended June 30, 1998, from awards provided by NASA. Appendix A provides details on the single audit requirements, and Appendix B is a glossary of the terms used in this report.
Objectives	The objectives of our quality control review were to determine whether the audit was conducted in accordance with applicable standards and whether the audit meets the auditing and reporting requirements of OMB Circular A-133. See Appendixes C and D for details on the objectives, scope, and methodology.
Results of Review	Ernst & Young LLP issued its audit report on USRA on September 11, 1998. The auditors identified no findings and questioned no costs. Ernst & Young LLP issued an unqualified opinion on the financial statements, Schedule of Federal Awards⁽¹⁾ and 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. Finally, the auditors noted no matters involving internal controls relating to the financial statement or major programs that are considered to be material weaknesses. The Ernst & Young LLP audit work and report generally meets the applicable auditing and reporting guidance and regulatory requirements contained in: (1) OMB Circular A-133 and its related Compliance Supplement, (2) generally accepted government auditing standards; and (3) generally accepted auditing standards. The auditors need to improve working paper documentation (Finding A), correct major program reporting (Finding B), and obtain training specifically related to the single audit requirements (Finding C). Additionally, the audit report must be revised to identify the Federal agencies whose expenditures are presented in the Schedule of Federal Awards and include notes to the Schedule that describe the significant accounting policies used.
Recommendations	We recommend that USRA management prepare a Schedule of Expenditures of Federal Awards and its related notes in accordance with OMB Circular A-133. We also recommend that Ernst & Young LLP: Document its working papers in accordance with generally accepted government auditing standards for the internal controls related to the OMB Circular A-133 compliance requirements. Revise the Schedule of Findings and Questioned Costs and the Data Collection Form to correctly identify major programs. Provide training in OMB Circular A-133 requirements for the assigned staff.
USRA Response	The Schedule of Federal Awards is being revised to reflect the USRA programs as major programs within the research and development cluster, identify the Federal agencies, and include appropriate footnotes to the Schedule.
Ernst & Young LLP's Response	Documentation of the auditors' thought processes and other matters discussed during the audit can be improved. Ernst & Young will participate in the revision to the Schedule of Findings and Questioned Costs for fiscal year 1998. Ernst & Young LLP will prepare a letter to the Department of Commerce, Bureau of the Census (the collecting agent for OMB on the Data Collection Form), advising the Bureau to identify all contracts listed on the June 30, 1998, Data Collection Form as "major program." Ernst & Young and USRA will jointly sign the letter. Finally, personnel for the USRA audit will obtain training in the revised Circular A-133 requirements.
Evaluation of the USRA and Ernst & Young LLP Response	Both responses meet the intent of the recommendations.