JULY 28, 2008 

QUALITY CONTROL REVIEW REPORT

REPORT NO. IG-08-023 (ASSIGNMENT NO. A-08-012-00) 

OFFICE OF AUDITS

QUALITY CONTROL REVIEW OF THE

L.F. HARRIS & ASSOCIATES, CPA, P.A. AUDIT OF 

THE KENNEDY SPACE CENTER EXCHANGE FINANCIAL 

STATEMENTS FOR FISCAL YEAR ENDED 

SEPTEMBER 30, 2007 

OFFICE OF INSPECTOR GENERAL

National Aeronautics and 

Space Administration 

 
Acronyms 

AICPA American Institute of Certified Public Accountants 

CPA Certified Public Accountant 

FY Fiscal Year 

GAGAS Generally Accepted Government Auditing Standards 

KSC Kennedy Space Center 

TFM Treasury Financial Manual

REPORT NO. IG-08-023 
RESULTS

REPORT NO. IG-08-023 1 

National Aeronautics and 

Space Administration 

Office of Inspector General 

Washington, DC 20546-0001 

 July 28, 2008 

TO: Luis F. Harris, CPA 

Chief Financial Officer, Kennedy Space Center 

Chair, Kennedy Space Center Exchange Council 

FROM: Assistant Inspector General for Auditing 

SUBJECT: Quality Control Review of the L.F. Harris & Associates, CPA, P.A. Audit 

of the Kennedy Space Center Exchange Financial Statements for Fiscal 

Year Ended September 30, 2007 (Assignment No. A-08-012-00) 

The audit firm of L.F. Harris & Associates, CPA, P.A. performed an audit of the 

Kennedy Space Center (KSC) Exchange financial statements for the fiscal year ended 

September 30, 2007 (FY 2007). 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 L.F. Harris & Associates performed 

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

Auditing Standards, 2007 Revision” (often referred to as generally accepted government 

auditing standards, or GAGAS), issued by the Comptroller General of the United States. 

The standards are for use by auditors of Government entities and entities that receive 

Government awards and by audit organizations performing GAGAS audit and attestation 

engagements. GAGAS prescribes general standards (including independence, 

professional judgment, competence, and quality control and assurance requirements), 

fieldwork standards, and reporting standards. Additionally, GAGAS 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 exchange and morale 

support activities, and our summary of the latest peer review of L.F. Harris & Associates. 

 

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-08-023 

See Enclosure 2 for the results of the L.F. Harris & Associates audit of the KSC 

Exchange for FY 2007. 

Background. The KSC Exchange contributes to the efficiency, welfare, and morale of 

NASA KSC personnel. It operates five retail stores, two barbershops, a service station, a 

child development center, and two recreational parks. As of September 30, 2007, KSC 

Exchange revenues and other support totaled approximately $3.4 million and assets 

totaled approximately $1.3 million. L.F. Harris & Associates maintains an office in 

Orlando, Florida. 

Review Results. L.F. Harris & Associates’ audit work on the FY 2007 audit of the KSC 

Exchange financial statements substantially met GAGAS. We found no exception with 

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

fieldwork. However, we noted one exception related to audit reporting; specifically, the 

firm did not report the Exchange’s failure to comply with a Federal regulation. In a draft 

of this report, issued June 18, 2008, we made recommendations to both L.F. Harris & 

Associates and NASA to address our finding. 

Management Comments. L.F. Harris & Associates concurred with our finding and 

recommendation and described actions to be taken in response to the draft report. NASA 

also concurred and described appropriate corrective actions. (See Enclosure 3 for the full 

text of L.F. Harris & Associates and NASA comments.) We consider the comments 

responsive and have closed the recommendations. 

Finding 

Noncompliance with a Federal Regulation Was Not Reported. The KSC Exchange’s 

FY 2007 financial statements included a disclosure, “Note 2 – Concentration of Credit 

Risk.” According to the note, the KSC Exchange maintained bank and credit union cash 

balances that exceeded federally insured limits by $341,051 as of September 30, 2007. 

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

requirement to ensure that funds in excess of the federally insured limits 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 

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

 

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-08-023 3 

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

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

The KSC Exchange should have requested that its depositaries pledge eligible collateral 

to secure the uninsured amount of the Exchange’s cash deposits in those institutions, in 

accordance with TFM Part 6, Section 9040. This condition was not reported by L.F. 

Harris & Associates 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, KSC Exchange 

management had taken no action to comply with the TFM requirement. 

Recommendation 1. L.F. Harris & Associates 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. Luis Harris concurred with our finding 

and recommendation and stated that the firm will take the actions we 

recommended. 

Evaluation of Management’s Response. Management’s action is 

responsive to the intent of our recommendation. We consider the 

recommendation closed. 

Recommendation 2. The KSC Exchange Council Chair should request that 

the Exchange’s depositaries pledge eligible collateral to secure the uninsured 

amount of KSC Exchange cash deposits in accordance with TFM Volume 1, 

Part 6, Section 9040. 

Management’s Response. The KSC Exchange Council Chair concurred. 

The KSC Exchange fully insured its cash deposits by allocating its cash to 

multiple institutions insured by either the Federal Deposit Insurance 

Corporation or the National Credit Union Share Insurance Fund. 

Evaluation of Management’s Response. Management’s action is 

responsive to the intent of our recommendation. We reviewed the 

supporting documentation and verified that the cash deposits held by the 

KSC Exchange’s financial institutions were within federally insured 

limits. We consider the recommendation closed. 

Recommendation 3. We recommend that the Kennedy Chief Financial 

Officer monitor the Exchange Council’s activities to ensure the appropriate 

corrective action is taken in response to Recommendation 2. 
RESULTS

4 REPORT NO. IG-08-023 

Management’s Response. The Kennedy Chief Financial Officer 

concurred. She reviewed the Exchange Council’s activities and 

determined that appropriate corrective action was taken. 

Evaluation of Management’s Response. Management’s action is 

responsive to the intent of our recommendation. We consider the 

recommendation closed. 

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

information on this report, please contact Mr. David L. Gandrud, the 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) A. Dahnelle Payson for 

Evelyn R. Klemstine 

4 Enclosures 
ENCLOSURE 1 

REPORT NO. IG-08-023 5 

QUALITY CONTROL 

REVIEW PROCESS

Scope and Methodology 

We performed a quality control review of the L.F. Harris & Associates audit of the KSC 

Exchange financial statements for FY 2007 at the office of L.F. Harris & Associates in 

Orlando, Florida, from April 28 through May 5, 2008. Our review covered areas related 

to L.F. Harris & Associates’ compliance with GAGAS. We focused the review on 

auditor qualifications, audit planning, audit supervision, conduct of the audit fieldwork, 

and audit reporting. We obtained and examined TFM, Volume 1, Part 6, Chapter 9000. 

In conducting our review, we assessed the documentation gathered and prepared by L.F. 

Harris & Associates, including documentation used to support the audit report, and 

discussed our review with L.F. Harris & Associates personnel. We confirmed the license 

status of the company and its personnel who worked on the KSC Exchange audit by 

querying the Web site of the Florida Department of Business and Professional 

Regulation. We determined that L.F. Harris & Associates held a current “firm” license 

and its applicable personnel held active CPA licenses. We consider the Web site a 

reliable source of information, based on prior usage; we did not use any other computerprocessed 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 

6 REPORT NO. IG-08-023 

External Peer Review 

We reviewed the most recent peer review report on L.F. Harris & Associates, which was 

prepared by David Ramos, CPA, for the year ended June 30, 2004. The report, issued on 

February 1, 2005, stated that the system of quality control for the accounting and auditing 

practice of L.F. Harris & Associates was designed to meet the requirements of the quality 

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

report further stated that L.F. Harris & Associates complied with the system during the 

year then ended, providing the firm with reasonable assurance of conforming with 

professional standards. The peer review report identified no significant deficiencies that 

would affect the opinion expressed in the report. 
ENCLOSURE 2 

REPORT NO. IG-08-023 7 

RESULTS OF THE L.F. HARRIS &

ASSOCIATES AUDIT OF THE 

KSC EXCHANGE FOR

FY 2007 

L.F. Harris & Associates Audit Report 

L.F. Harris & Associates issued its January 14, 2008, report on the audit of the KSC 

Exchange’s statement of financial position as of September 30, 2007, and the related 

statements of activities and cash flows for the year then ended, to the KSC Exchange 

Council. L.F. Harris & Associates 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 the KSC 

Exchange as of September 30, 2007, and the changes in the KSC Exchange’s net assets 

and cash flows for the year then ended. 

L.F. Harris & Associates Report on Internal Control and 

Compliance and Other Matters 

L.F. Harris & Associates’ “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,” January 14, 2008, stated that L.F. 

Harris & Associates “identified certain deficiencies in internal control over financial 

reporting that we consider to be significant deficiencies and other deficiencies that we 

consider to be material weaknesses.” The audit firm noted material weaknesses relating 

to cash management, inventory, fixed assets and equipment, the existing accounting 

system, payroll, and cash register sales. It noted other deficiencies relating to 

documentation of an accounting manual and fiscal monitoring. The Exchange Council’s 

responses to the deficiencies, which are included in the L.F. Harris & Associates report, 

appear to be responsive. 
ENCLOSURE 3 

8 REPORT NO. IG-08-023 

L.F. HARRIS & ASSOCIATES 

COMMENTS
ENCLOSURE 3 

REPORT NO. IG-08-023 9 

NASA COMMENTS
ENCLOSURE 3 

10 REPORT NO. IG-08-023 
ENCLOSURE 4 

REPORT NO. IG-08-023 11 

REPORT DISTRIBUTION

Independent Audit Firm 

Luis F. Harris, CPA 

L.F. Harris & Associates, CPA, P.A. 

3012 E. Robinson Street 

Orlando, Florida 32803 

National Aeronautics and Space Administration 

Deputy Administrator 

Chief of Staff 

Chief Financial Officer 

Assistant Administrator for Infrastructure and Administration 

Director, Kennedy Space Center 

Chief Financial Officer, Kennedy Space Center 

NASA Exchange – KSC Council Chair 

NASA Exchange – KSC Council Vice Chair 

NASA Exchange – KSC Council Operations Manager 

NASA Exchange – KSC Council Treasurer 

NASA Exchange – KSC Council Secretary 

NASA Exchange – KSC Council Legal Advisor 

Major Contributors to the Report: 

Mark Jenson, Director, Financial Statement Audits Directorate 

David Gandrud, Project Manager 

Aleisha Fisher, Auditor 

REPORT NO. IG-08-023 13 
JULY 28, 2008 

REPORT No. IG-08-023 

OFFICE OF AUDITS

OFFICE OF INSPECTOR GENERAL

ADDITIONAL COPIES

Visit http://oig.nasa.gov/audits/reports/FY08 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://oig.nasa.gov/hotline.html#form. The identity of 

each writer and caller can be kept confidential, upon request, to the extent permitted by law.