FEBRUARY 15, 2008 

REVIEW REPORT

REPORT NO. IG-08-007 (ASSIGNMENT NO. A-08-002-00) 

OFFICE OF AUDITS

QUALITY CONTROL REVIEW OF 

FAW, CASSON & COMPANY, LLP’S AUDIT OF 

WALLOPS EXCHANGE AND MORALE ASSOCIATION 

FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED 

SEPTEMBER 30, 2006 

OFFICE OF INSPECTOR GENERAL

National Aeronautics and 

Space Administration 

 
Acronyms 

AICPA American Institute of Certified Public Accountants 

CPA Certified Public Accountant 

FDIC Federal Deposit Insurance Corporation 

FY Fiscal Year 

GAS Government Accountability Office’s “Government Auditing Standards, 

2003 Revision” 

SEC Securities and Exchange Commission 

TFM Treasury’s Financial Manual 

WEMA Wallops Exchange and Morale Association 

REPORT NO. IG-08-007 
RESULTS

REPORT NO. IG-08-007 1 

National Aeronautics and 

Space Administration 

Office of Inspector General 

Washington, DC 20546-0001 

 February 15, 2008 

Ronald W. Hickman, CPA 

Faw, Casson & Company, LLP 

SUBJECT: Quality Control Review of Faw, Casson & Company, LLP’s Audit of 

Wallops Exchange and Morale Association Financial Statements for Fiscal 

Year Ended September 30, 2006 (Report No. IG-08-007; Assignment 

No. A-08-002-00) 

The audit firm of Faw, Casson & Company, LLP performed an audit of the Wallops 

Exchange and Morale Association (WEMA) financial statements for the fiscal year ended 

September 30, 2006 (FY 2006). The Inspector General Act of 1978, as amended, 

section 4, paragraph (b)(1)(C), directs each Inspector General, with respect to the 

organization within which the office is established, to take appropriate steps to ensure 

that any work performed by non-Federal auditors complies with the standards established 

by the Comptroller General. 

Our quality control review was to determine whether Faw, Casson & Company 

performed its audit in accordance with the Government Accountability Office’s 

“Government Auditing Standards, 2003 Revision” (GAS), issued by the Comptroller 

General of the United States. GAS applies to audits of Government organizations, 

programs, activities, and functions and prescribes general standards (including 

independence, professional judgment, competence, quality control, and assurance 

requirements), fieldwork standards, and reporting standards. Additionally, GAS 

incorporates the generally accepted auditing standards of the American Institute of 

Certified Public Accountants (AICPA) for fieldwork and reporting.1

 See Enclosure 1 for 

details on the scope and methodology of our review, requirements for reviews of 

exchanges and morale support activities, and our summary of the latest peer review of 

Faw, Casson & Company. See Enclosure 2 for the results of the Faw, Casson & 

Company audit of WEMA for FY 2006. 

 

1

 The AICPA is the national professional organization for all certified public accountants (CPAs). 

According to the AICPA, its mission is to provide members with the resources, information, and 

leadership that enable the members to provide valuable services in the highest professional manner to 

benefit the public as well as employers and clients. In fulfilling its mission, the AICPA works with State 

CPA organizations and gives priority to those areas where public reliance on CPA skills is most 

significant. 
RESULTS

2 REPORT NO. IG-08-007 

Background. WEMA is located at the NASA Goddard Space Flight Center’s Wallops 

Flight Facility, Wallops Island, Virginia. WEMA promotes the social, athletic, 

educational, cultural, and other interests of Wallops employees. Activities supported by 

WEMA include a cafeteria, a gift shop, dormitories, and various clubs and events. In 

FY 2006, WEMA revenues totaled approximately $872,000. 

Faw, Casson & Company maintains offices in Dover, Delaware; Ocean City, Maryland; 

and Salisbury, Maryland. According to its Web site, the firm has expertise in 

agribusiness, governmental units, manufacturing, real estate development, healthcare, 

employee benefit plan audits, wholesale and distribution, construction, hospitality, and 

professional services. 

Review Results. Faw, Casson & Company’s audit work on the FY 2006 audit of 

WEMA’s financial statements substantially met GAS. We found no exception with the 

auditors’ qualifications, audit planning, audit supervision, and the conduct of the audit 

fieldwork. However, we noted two exceptions related to audit reporting. The firm did 

not report WEMA’s failure to comply with a Federal regulation (Finding A). We also 

found that Faw, Casson & Company did not report that WEMA did not include 

comparative notes in the FY 2006 financial statements (Finding B). 

Management Comments. In response to a draft of this report, Mr. Hickman agreed to 

implement the recommendations in subsequent audits, and we have closed the 

recommendations. The full text of management’s comments is in Enclosure 3. 

Finding A 

Noncompliance with a Federal Regulation Was Not Reported. WEMA’s FY 2006 

financial statements included a disclosure, “Note B – Credit Risk,” stating that WEMA 

had cash deposits in financial institutions in excess of the amounts insured by the Federal 

Deposit Insurance Corporation (FDIC) as of September 30, 2006. Specifically, WEMA’s 

cash balance exceeded FDIC coverage by $85,846, or 39 percent of the WEMA’s total 

cash balance. 

The Department of the Treasury’s Financial Manual (TFM) contains a requirement to 

ensure that funds in excess of the FDIC limit are collateralized. TFM Volume 1, Part 6, 

Section 9040, “Securing Agency Accounts,” states: 

All public money2 deposited in a depositary must be fully secured at all times. The 

current Federal deposit insurance limit per insured account is $100,000. . . . When an 

agency deposits public money exceeding the recognized deposit insurance limit 

 

2

 TFM, Section 9010, states that public money includes “revenue and funds of the United States and any 

funds the deposit of which is subject to the control or regulation of the United States or any of its officers, 

agents or employees.” Section 9020 states: “A financial institution is defined as any bank, savings bank, 

savings and loan association, credit union, or similar institution. Financial institutions may be designated 

as depositaries.” 
RESULTS

REPORT NO. IG-08-007 3 

(generally $100,000), the agency must request that the depositary pledge eligible 

collateral to secure the uninsured amount. . . . This collateral requirement applies to 

total agency deposits at a depositary that exceed the applicable insurance limit. 

WEMA should have requested that its depositary pledge eligible collateral to secure the 

uninsured amount of its cash deposits in accordance with TFM Part 6, Section 9040. 

This condition was not reported by Faw, Casson & Company in its “Report on Internal 

Control Over Financial Reporting and on Compliance and Other Matters Based on an 

Audit of Financial Statements Performed in Accordance with Government Auditing 

Standards.” As a result, WEMA management has taken no action to comply with the 

TFM requirement. 

Recommendation 1. Faw, Casson & Company should ensure it tests 

compliance with the requirements found in TFM Volume 1, Part 6, 

Section 9040, and communicate any noncompliance discovered in future 

financial statement audits in accordance with the applicable generally 

accepted government auditing standards. 

Management’s Response. Mr. Hickman stated that GAS-required 

reporting of noncompliance is based on whether the condition is 

considered a significant violation of provisions of contracts or grant 

agreements and abuse. Faw, Casson & Company, when it issued its 

report, was not aware of any financial deterioration and, therefore, 

concluded that this condition deserved a note due to the ongoing 

contingency associated with it, but that there was no significant violation. 

However, Mr. Hickman agreed that the situation deserves reporting; Faw, 

Casson & Company will communicate this in writing in subsequent audits. 

Evaluation of Management’s Response. Management’s planned 

corrective action is responsive to the intent of our recommendation. 

Subsequent to Faw, Casson & Company’s written response, we received a 

copy of its FY 2007 management letter addressed to WEMA. The 

management letter reports that WEMA did not have adequate FDIC 

insurance to cover its cash deposits. We consider the recommendation 

closed. 

Finding B 

Lack of Comparative Notes in Financial Statements Was Not Reported. WEMA did 

not consistently provide comparative notes to the financial statements as of and for the 

years ended September 30, 2006, and 2005. For example, WEMA did not include 

FY 2005 data in its notes regarding its credit risk for uninsured cash balances (discussed 

in Finding A), and a note receivable balance representing a delinquent amount due under 

a court order for restitution. According to the audited FY 2005 financial statements, 
RESULTS

4 REPORT NO. IG-08-007 

WEMA had uninsured cash balances of $41,843. Accounting Research Bulletin 43, 

“Restatement and Revision of Accounting Research Bulletins,” issued by the American 

Institute of Accountants in June 1953, Chapter 2A, states: “Footnotes, explanations, and 

accountants’ qualifications which appeared on the statements for the preceding years 

should be repeated, or at least referred to, in the comparative statements to the extent that 

they continue to be of significance.” 

We reviewed Faw, Casson & Company’s FY 2006 audit documentation and audit report 

concerning the comparative statements and determined that Faw, Casson & Company did 

not communicate to WEMA the noncompliance with the Accounting Research Bulletin 

and did not recommend that WEMA correct this deficiency prior to or subsequent to 

issuance of the financial statements. According to communication we received from 

Faw, Casson & Company, the auditors did not believe FY 2005 data were necessary for 

certain notes because, in the auditors’ view, the balances as of September 30, 2006, were 

important; the risks (e.g., credit risk for uninsured cash balances) that existed as of 

September 30, 2005, were not. 

The omission of comparative notes in the FY 2006 financial statements prevents a reader 

of those statements from discerning potentially significant information, affecting the 

usefulness of the financial statements. 

Recommendation 2. We recommend that Faw, Casson & Company advise 

WEMA to prepare comparative notes for its FY 2007 and subsequent 

financial statements. 

Management’s Response. Mr. Hickman stated that uninsured cash 

balances for the prior year do not represent a contingency to be disclosed 

as of the date of the current year report because there was no loss for those 

prior year amounts and that only the uninsured deposits for the current 

year have significance. Similarly, only the current year note receivable 

balance is subject to any loss contingency, as the prior year amount was 

already reduced to the current year amount. However, Mr. Hickman 

agreed to report comparative amounts in the footnotes in future years. 

Evaluation of Management’s Response. Management’s planned 

corrective action is responsive to the intent of our recommendation. In 

the copy of WEMA’s FY 2007 financial statements that we received on 

February 11, 2008, the notes to the statements include comparative 

amounts for uninsured cash balances and the note receivable. We 

consider the recommendation closed. 
RESULTS

REPORT NO. IG-08-007 5 

We appreciate the courtesies extended to the staff during our review. For additional 

information on this report, please contact Mr. David L. Gandrud, Project Manager, at 

650-604-2672. See Enclosure 4 for the report distribution. The review team members 

are listed inside the back cover of this report. 

 signed 

Evelyn R. Klemstine 

Assistant Inspector General for Auditing 

4 Enclosures 

ENCLOSURE 1 

REPORT NO. IG-08-007 7 

QUALITY CONTROL 

REVIEW PROCESS

Scope and Methodology 

We conducted a quality control review of the Faw, Casson & Company’s audit of the 

FY 2006 WEMA financial statements. We performed our review October 15 through 25, 

2007, at the office of Faw, Casson & Company in Salisbury, Maryland. Our review 

covered areas related to Faw, Casson & Company’s compliance with GAS. We focused 

the review on auditor qualifications, audit planning, audit supervision, conduct of the 

audit fieldwork, and audit reporting. We obtained and examined the following 

accounting and regulatory guidance: Accounting Research Bulletin 43 and TFM 

Volume 1, Part 6, Chapter 9000. 

In conducting our review, we assessed the documentation gathered and prepared by Faw, 

Casson & Company, including documentation used to support the audit report, and 

discussed our review with Faw, Casson & Company personnel. We confirmed the 

license status of the company and its personnel who worked on the WEMA audit by 

obtaining copies of their certified public accountant (CPA) licenses and querying the 

Web site of the Maryland State Board of Public Accountancy. We determined that Faw, 

Casson & Company and the applicable Faw, Casson & Company personnel held active 

CPA licenses during the WEMA audit. We did not use computer-processed data in 

performing our review. 

Exchange and Morale Support Activities 

Inspector General Act. The Inspector General Act of 1978, as amended, requires an 

agency’s Inspector General to take appropriate steps to ensure that any work performed 

by non-Federal auditors complies with the standards established by the Comptroller 

General. 

NASA Requirement. NASA Policy Directive 9050.6I, “NASA Exchange and Morale 

Support Activities,” November 10, 2004, authorizes Center Directors to operate activities 

to contribute to the efficiency, welfare, and morale of NASA personnel. The Directive 

requires that financial records be maintained and that an annual audit be conducted. The 

Directive also requires the Center Chief Financial Officer to monitor compliance with the 

Directive and to review financial statements and audit reports to ensure that the Center’s 

exchange and morale support activities are operated in a financially sound and 

responsible manner. 
ENCLOSURE 1 

8 REPORT NO. IG-08-007 

External Peer Review 

We reviewed the most recent peer review report on Faw, Casson & Company, prepared 

by Accountants Global Network, for the year ended May 31, 2004. The report, issued on 

October 19, 2004, stated that the system of quality control for the accounting and 

auditing practice applied by Faw, Casson & Company to the audits of non-SEC issuers of 

financial statements was designed to meet the requirements of the quality control 

standards for an accounting and auditing practice established by the AICPA. The peer 

review found that Faw, Casson & Company had complied with quality control standards 

during the year ended May 31, 2004, providing the firm with reasonable assurance of 

complying with applicable professional standards. The peer review report identified no 

deficiencies in Faw, Casson & Company’s system of quality control. 
ENCLOSURE 2 

REPORT NO. IG-08-007 9 

RESULTS OF THE FAW, CASSON &

COMPANY AUDIT OF THE 

WALLOPS EXCHANGE AND 

MORALE ASSOCIATION FOR 

FY 2006 

Faw, Casson & Company Audit Report 

On November 3, 2006, Faw, Casson & Company issued a report to WEMA on the firm’s 

audit of WEMA’s statement of financial position as of and for the years ended 

September 30, 2006 and 2005, and the related statements of changes in net assets, 

activities, and cash flows for the years then ended. Faw, Casson & Company reported 

that it had performed the audit in accordance with auditing standards generally accepted 

in the United States and the standards applicable to financial audits contained in 

“Government Auditing Standards,” issued by the Comptroller General of the United 

States. It further stated that the financial statements presented fairly, in all material 

respects, the financial position of WEMA as of September 30, 2006 and 2005, and the 

changes in WEMA’s net assets and cash flows for the years then ended. 

Faw, Casson & Company Report on Internal Control and 

Compliance and Other Matters 

Faw, Casson & Company issued its “Report on Internal Control Over Financial 

Reporting and on Compliance and Other Matters Based on an Audit of Financial 

Statements Performed in Accordance with Government Auditing Standards” on 

November 3, 2006. The report stated: “We found no matters involving the internal 

control over financial reporting and [WEMA’s] operation that we consider to be material 

weaknesses [and] no instances of noncompliance or other matters that are required to be 

reported under Government Auditing Standards.” 
ENCLOSURE 3 

10 REPORT NO. IG-08-007 

MANAGEMENT COMMENTS
ENCLOSURE 3 

REPORT NO. IG-08-007 11 
ENCLOSURE 3 

12 REPORT NO. IG-08-007 
ENCLOSURE 4 

REPORT NO. IG-08-007 13 

REPORT DISTRIBUTION

Independent Audit Firm 

Ronald W. Hickman, CPA 

Faw, Casson & Company, LLP 

606 S. Schumaker Drive 

Salisbury, Maryland 21804-2098 

National Aeronautics and Space Administration 

Deputy Administrator 

Chief of Staff 

Chief Financial Officer 

Assistant Administrator for Infrastructure and Administration 

Director, Goddard Space Flight Center 

Chief Financial Officer, Goddard Space Flight Center 

WEMA Executive Council Chairperson 

WEMA Executive Council Vice Chairperson 

WEMA Executive Council Executive Secretary 

WEMA Executive Council Exchange Operations Manager 

WEMA Executive Council Morale Activities Manager 

WEMA Executive Council Treasurer 

WEMA General Manager 

Major Contributors to the Report: 

Mark Jenson, Director, Financial Statement Audits Directorate 

David Gandrud, Project Manager 

REPORT NO. IG-08-007 15 
FEBRUARY 15, 2008 

REPORT No. IG-08-007 

OFFICE OF AUDITS

OFFICE OF INSPECTOR GENERAL

ADDITIONAL COPIES

Visit www.hq.nasa.gov/office/oig/hq/audits/reports/FY08/index.html to obtain additional copies of this 

report, or contact the Assistant Inspector General for Auditing at 202-358-1232. 

COMMENTS ON THIS REPORT

In order to help us improve the quality of our products, if you wish to comment on the quality or 

usefulness of this report, please send your comments to Ms. Jacqueline White, Director of Quality 

Assurance, at Jacqueline.White@nasa.gov or call 202-358-0203. 

SUGGESTIONS FOR FUTURE AUDITS

To suggest ideas for or to request future audits, contact the Assistant Inspector General for Auditing. 

Ideas and requests can also be mailed to: 

Assistant Inspector General for Auditing 

NASA Headquarters 

Washington, DC 20546-0001 

NASA HOTLINE

To report fraud, waste, abuse, or mismanagement, contact the NASA OIG Hotline at 800-424-9183 or 

800-535-8134 (TDD). You may also write to the NASA Inspector General, P.O. Box 23089, L’Enfant 

Plaza Station, Washington, DC 20026, or use http://www.hq.nasa.gov/office/oig/hq/hotline.html#form. 

The identity of each writer and caller can be kept confidential, upon request, to the extent permitted 

by law.