DECEMBER 23, 2008 

QUALITY CONTROL REVIEW REPORT

REPORT NO. IG-09-008 (ASSIGNMENT NO. A-08-020-00) 

OFFICE OF AUDITS

QUALITY CONTROL REVIEW OF THE 

PRICEWATERHOUSECOOPERS LLP AND THE DEFENSE 

CONTRACT AUDIT AGENCY OFFICE OF MANAGEMENT 

AND BUDGET CIRCULAR A-133 AUDITS OF THE 

JET PROPULSION LABORATORY FOR THE FISCAL YEAR 

ENDED SEPTEMBER 30, 2007 

OFFICE OF INSPECTOR GENERAL

National Aeronautics and 

Space Administration 

 
Acronyms 

AICPA American Institute of Certified Public Accountants 

DCAA Defense Contract Audit Agency 

FY Fiscal Year 

GAGAS Generally Accepted Government Auditing Standards 

JPL Jet Propulsion Laboratory 

OIG Office of Inspector General 

OMB Office of Management and Budget 

PwC PricewaterhouseCoopers LLP 

SEC Securities and Exchange Commission 

REPORT NO. IG-09-008 
RESULTS

REPORT NO. IG-09-008 1 

National Aeronautics and 

Space Administration 

Office of Inspector General 

Washington, DC 20546-0001 

 December 23, 2008 

Mr. Michael Schini, Partner 

PricewaterhouseCoopers LLP 

Mr. William E. French, Branch Manager 

Defense Contract Audit Agency, San Gabriel Valley Branch Office 

Ms. Sharon E. Patterson, Associate Vice President for Finance and Treasurer 

California Institute of Technology 

Mr. Albert Battistelli, Manager, Jet Propulsion Laboratory, Audit Liaison & 

Subcontractor Audit and Compliance Offices 

SUBJECT: Quality Control Review of the PricewaterhouseCoopers LLP and the 

Defense Contract Audit Agency Office of Management and Budget Circular 

A-133 Audits of the Jet Propulsion Laboratory for the Fiscal Year Ended 

September 30, 2007 (Report No. IG-09-008; Assignment No. A-08-020-00) 

The audit firm PricewaterhouseCoopers LLP (PwC) and the Defense Contract Audit 

Agency (DCAA) jointly performed the single audit of the Jet Propulsion Laboratory 

(JPL) for the fiscal year (FY) ended September 30, 2007.1

 Office of Management and 

Budget (OMB) Circular No. A-133, “Audits of States, Local Governments, and 

Non-Profit Organizations,” requires these audits. 

Background. JPL is a federally funded research and development center operated under 

contract by the California Institute of Technology (Caltech). Caltech has operated JPL 

for NASA since December 1958 to meet specific Government research and development 

needs. JPL operates under a single cost-reimbursable contract with NASA (Catalog of 

Federal Domestic Assistance Number 43.001). JPL performs research and development 

for NASA in the area of science and technology of unmanned space exploration. JPL 

reported total Federal expenditures in FY 2007 of $1.76 billion. The Schedule of 

Expenditures of Federal Awards2

 identifies NASA as the funding agency for all 

expenditures. 

 

1

 The specific audit responsibilities were determined through discussions between PwC and DCAA. Those 

responsibilities are listed in Enclosures 2 and 3. 

2

 The Schedule of Expenditures of Federal Awards shows the amount of annual Federal expenditures by 

Federal agency for each program. 
RESULTS

2 REPORT NO. IG-09-008 

Quality Control Review Objectives. As the cognizant audit agency for JPL, the NASA 

Office of Inspector General (OIG) performed a quality control review of the PwC and the 

DCAA audits of JPL for FY 2007.3

 The objectives of our quality control review were to 

determine whether PwC and DCAA had conducted their audits in accordance with the 

Government Accountability Office’s “Government Auditing Standards, 2003 Revision” 

(often referred to as generally accepted government auditing standards, or GAGAS) and 

the auditing and reporting requirements of OMB Circular A-133 and its related 

Compliance Supplement. OMB issued the Supplement to assist auditors in meeting the 

requirements of OMB Circular A-133. See Enclosure 1 for details of the scope and 

methodology of our review, requirements for single audits, and the latest peer reviews of 

PwC and DCAA. See Enclosure 2 for the results of the PwC audit of JPL for FY 2007 

and Enclosure 3 for the results of the DCAA audit. 

Review Results. PwC’s and DCAA’s audit work substantially met GAGAS and the 

auditing and reporting requirements of OMB Circular A-133 except that PwC did not 

document its low-risk auditee determination (Finding A) and DCAA did not place an 

audit finding in proper perspective (Finding B). We also noted that JPL did not timely 

submit a complete audit reporting package to the Federal Audit Clearinghouse 

(Finding C). 

Management Comments. PwC, DCAA, and JPL provided comments in response to a 

draft of this report, issued November 20, 2008. Management concurred with our findings 

and recommendations and described actions to be taken (see Enclosure 4 for the full text 

of management comments). We consider the comments responsive and have closed the 

recommendations. 

Finding A 

Low-Risk Auditee Determination Not Documented. PwC auditors did not document 

their determination that JPL qualified as a low-risk auditee. GAGAS, paragraph 4.22, 

states: 

Audit documentation related to planning, conducting, and reporting on the audit 

should contain sufficient information to enable an experienced auditor who has had 

no previous connection with the audit to ascertain from the audit documentation the 

evidence that supports the auditors’ significant judgments and conclusions. Audit 

documentation should contain support for findings, conclusions, and recommendations before auditors issue their report. 

Without sufficient evidence of PwC’s determination, the audit documentation did not 

support PwC’s conclusion that JPL was a low-risk auditee. 

 

3

 The PwC office in San Francisco, California, and DCAA’s San Gabriel Valley Branch Office performed 

the single audits of JPL for FY 2007. 
RESULTS

REPORT NO. IG-09-008 3 

Recommendation 1. PwC should ensure that its audit documentation contains 

sufficient information to support all significant audit judgments and conclusions. 

Management’s Response. PwC concurred, stating that it will clearly 

document its determination of the risk status of JPL in all future audits. 

Evaluation of Management’s Response. PwC’s planned corrective 

action is responsive, and we have closed the recommendation. 

Finding B 

Audit Finding Not Placed in Proper Perspective. DCAA reported that JPL recorded 

“over 1,200” travel transactions in the wrong accounting period. However, DCAA’s 

workpapers indicated that JPL had actually recorded 1,755 travel transactions in the 

wrong accounting period. GAGAS, paragraph 5.14, states that “[a]uditors should place 

their findings in proper perspective by providing a description of the work performed that 

resulted in the finding. To give the reader a basis for judging the prevalence and 

consequences of these findings, the instances identified should be related to the 

population or the number of cases examined and be quantified in terms of dollar value, if 

appropriate.” DCAA did not report either the total number of transactions reviewed or 

the higher number of actual out-of-period travel transactions; accordingly, a reader of the 

DCAA audit report may not fully appreciate the magnitude of the audit finding. 

Recommendation 2. DCAA should place all audit findings in proper perspective by 

reporting the full extent of the audit observations that support the audit findings. 

Management’s Response. DCAA concurred, stating that the finding was 

discussed with both the JPL audit team and the DCAA management team 

to ensure that all future audit findings are reported in the proper 

perspective. 

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

responsive, and we have closed the recommendation. 

Finding C 

Complete Audit Reporting Package Not Submitted by the Due Date. Although JPL 

submitted its reporting package to the Federal Audit Clearinghouse by the June 30, 2008, 

due date, the package was missing a corrective action plan. OMB Circular A-133, 

§___.320(a) states: “[T]he audit shall be completed and the data collection form . . . and 

reporting package . . . shall be submitted within the earlier of 30 days after receipt of the 

auditor’s report(s), or nine months after the end of the audit period, unless a longer period 

is agreed to in advance by the cognizant or oversight agency for audit.” OMB Circular 
RESULTS

4 REPORT NO. IG-09-008 

A-133, §___.320(c)(4) defines a complete reporting package as including a corrective 

action plan. JPL should have requested a filing extension from NASA prior to the 

June 30, 2008, deadline. The JPL corrective action plan, dated August 8, 2008, was filed 

with the Federal Audit Clearinghouse on November 5, 2008. 

Recommendation 3. We recommended that JPL develop procedures to ensure that 

the complete single audit reporting package is filed, or an extension is requested from 

NASA, by the due date specified in OMB Circular A-133, §___.320(a). 

Management’s Response. JPL concurred, stating that it will file for an 

extension with the cognizant agency for audit when presented with 

insufficient time to fully respond to all issues presented in the draft audit 

report. 

Evaluation of Management’s Response. JPL’s planned corrective action 

is responsive to the intent of our recommendation, and we have closed the 

recommendation. 

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

information on this report, please contact Mr. Mark Jenson, Financial Statement Audits 

Director, at 202-358-0629. See Enclosure 5 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 

5 Enclosures 
ENCLOSURE 1 

REPORT NO. IG-09-008 5 

QUALITY CONTROL

REVIEW PROCESS

Scope and Methodology 

We conducted this quality control review of the PwC and the DCAA audits of JPL for 

FY 2007 and of the resulting reporting package submitted to the Federal Audit 

Clearinghouse from September 8 through 19, 2008, at JPL in Pasadena, California. 

As the audit agency responsible for performing the review, we focused the review on six 

areas: 

• reporting, 

• auditor qualifications, 

• planning, 

• conduct of the audit work, 

• audit work relating to the Schedule of Expenditures of Federal Awards, and 

• supervision. 

In conducting our review, we assessed the audit documentation prepared by PwC and 

DCAA. We also discussed the audit with PwC and DCAA audit personnel. We 

emphasized the areas that are of major concern to the Federal Government, such as 

determining and auditing major program compliance and internal control. 

Single Audit Requirements 

The Single Audit Act (the Act), Public Law 98-502, as amended, and OMB 

Circular A-133 are designed to improve the financial management of state and local 

governments and nonprofit organizations. The Act and OMB Circular A-133 establish 

uniform auditing and reporting requirements for all Federal award recipients who are 

required to obtain a single audit. OMB Circular A-133 establishes policies that guide 

implementation of the Act and provide an administrative foundation for uniform 

requirements of non-Federal entities administering Federal awards. OMB Circular A-133 

applies to all Federal departments and agencies that make awards to non-Federal entities. 

Entities that expend $500,000 or more of Federal awards in a fiscal year are subject to the 

Act and the audit requirements in OMB Circular A-133 and, therefore, must have an 

annual single or program-specific audit performed in accordance with GAGAS. 
ENCLOSURE 1 

6 REPORT NO. IG-09-008 

To meet the requirements of the Act and OMB Circular A-133, the auditee submits to the 

Federal Audit Clearinghouse a complete reporting package on each single audit. The 

submission includes the following: 

• a data collection form certified by the auditee that the audit was completed in 

accordance with the Circular; 

• financial statements and related opinion; 

• a Schedule of Expenditures of Federal Awards and related opinion; 

• a report on compliance and internal control over financial reporting; 

• a report on internal control over compliance for major programs; 

• a report on compliance with requirements for major programs and related opinion; 

• a schedule of findings and questioned costs; 

• a summary schedule of prior audit findings, when appropriate; and 

• a corrective action plan, when appropriate. 

The Supplement assists auditors in identifying the compliance requirements that the 

Federal Government expects to be considered as part of the single audit. For each 

compliance requirement, the Supplement describes the related audit objectives for the 

auditor to consider in each audit conducted in compliance with OMB Circular A-133 as 

well as suggested audit procedures. The Supplement also describes the objectives of 

internal control and characteristics that, when present and operating effectively, help 

ensure compliance with requirements. The following 14 compliance requirements 

identified in the Supplement may be material to a major program that is audited: 

1. Activities Allowed or Unallowed 

2. Allowable Costs/Cost Principles 

3. Cash Management 

4. Davis-Bacon Act 

5. Eligibility 

6. Equipment and Real Property Management 

7. Matching, Level of Effort, Earmarking 

8. Period of Availability of Federal Funds 

9. Procurement and Suspension and Debarment 

10. Program Income 

11. Real Property Acquisition and Relocation Assistance 

12. Reporting 

13. Subrecipient Monitoring 

14. Special Tests and Provisions 
ENCLOSURE 1 

REPORT NO. IG-09-008 7 

Prior Quality Control Reviews 

In our “Quality Control Review of PricewaterhouseCoopers LLP and Defense Contract 

Audit Agency Office of Management and Budget Circular A-133 Audits of the Jet 

Propulsion Laboratory for Fiscal Year Ended September 30, 2001” (IG-06-005, 

February 23, 2006), we found that PwC’s and DCAA’s audit work and reports met 

applicable auditing and reporting guidance and regulatory requirements contained in 

OMB Circular A-133 and its related Supplement, GAGAS, and generally accepted 

auditing standards. However, we found that the 2001 audits by PwC and DCAA did not 

meet GAGAS in three areas: (1) PwC and DCAA auditors incorrectly calculated and 

reported the dollar threshold to determine what Federal programs should have been 

audited, (2) DCAA auditors did not adequately document the computation of questioned 

costs for sales and use taxes, and (3) PwC auditors did not test internal controls over the 

special tests and provisions compliance requirement. Other matters of interest that were 

mentioned in the audit report, but not included as audit findings, were that PwC did not 

adequately document its low-risk auditee determination, did not obtain independence 

forms from two PwC auditors assigned to the audit of JPL, and did not document its 

testing universes. 

PwC and DCAA concurred with the NASA OIG finding concerning the dollar threshold 

being incorrectly calculated in the FY 2001 single audit. DCAA did not concur with the 

finding related to insufficient documentation of the computation of questioned costs, 

stating that “a computation of questioned costs was not needed as both JPL and NASA 

personnel knew that we were questioning 100 percent of the claimed sales and use tax.” 

PwC partially concerned with the finding related to incomplete internal control testing, 

stating that although adequate audit coverage was obtained through the combination of 

PwC’s and DCAA’s work, the workpapers could have more clearly documented the 

conclusion. 

Deloitte & Touche LLP Peer Review of PwC 

We reviewed the most recent peer review report of PwC, prepared by Deloitte & Touche 

LLP, for the year ended June 30, 2006. The report, issued December 8, 2006, stated that 

the system of quality control for the accounting and auditing practice applied by PwC 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 American Institute of Certified Public Accountants (AICPA). The 

peer review found that PwC had complied with the quality control standards during the 

year ended June 30, 2006, providing the firm with reasonable assurance of complying 

with applicable professional standards. The peer review report stated that a separate 

letter was issued with comments relating to certain policies and procedures, or 

compliance with them, which were not considered to be of sufficient significance to 

affect the opinion expressed in the report. PwC responded to those comments on 

December 8, 2006, agreeing to take appropriate corrective action. 
ENCLOSURE 1 

8 REPORT NO. IG-09-008 

Inspector General of the Department of Defense Peer Review of 

DCAA 

We reviewed the most recent peer review report of DCAA, prepared by the Department 

of Defense Inspector General, for the year ended September 30, 2006. The report, issued 

May 1, 2007, stated that the DCAA system of quality control for audits and attestation 

engagements performed during the fiscal year ended September 30, 2006, was designed 

in accordance with quality standards established by Government Auditing Standards. 

Further, the internal quality control system was operating effectively to provide 

reasonable assurance that DCAA personnel were following established policies, 

procedures, and applicable auditing standards. The report concluded that the “DCAA 

system of quality control used on audits and attestation engagements for the review 

period ended September 30, 2006, is adequate.” 
ENCLOSURE 2 

REPORT NO. IG-09-008 9 

RESULTS OF THE PWC AUDIT OF 

JPL FOR FY 2007 

PwC Audit Report 

PwC issued its report, dated January 29, 2008, on JPL’s FY 2007 financial statements. In 

PwC’s opinion, “the accompanying statement of financial position and related statements 

of activities and cash flows present fairly, in all material respects, the financial position of 

Jet Propulsion Laboratory at September 30, 2007, and the changes in its net assets and its 

cash flows for the year then ended, in conformity with accounting principles generally 

accepted in the United States of America.” 

PwC also expressed its opinion, within the report, on the Schedule of Expenditures of 

Federal Awards for JPL. PwC stated that the information contained in the Schedule of 

Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the 

basic financial statements taken as a whole. 

PwC Audit Report on Internal Control and Compliance and 

Other Matters 

PwC’s “Report of Independent Auditors 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 29, 2008, 

stated that “the results of our tests disclosed no instances of noncompliance or other 

matters that are required to be reported under Government Audit Standards.” 

PwC Audit Report on Major Program Compliance and 

Internal Control 

PwC’s “Report of Independent Auditors on Compliance with Requirements Applicable to 

Jet Propulsion Laboratory (A Federally Funded Research and Development Center 

Managed by the California Institute of Technology) and on Internal Control Over 

Compliance in Accordance with OMB Circular A-133,” June 27, 2008, stated that PwC 

audited the compliance of JPL with the types of compliance requirements described in 

the Supplement that are applicable to its major federal program for the year ended 

September 30, 2007, except in the following three areas: Activities Allowed or 

Unallowed; Allowable Costs/Cost Principles; and Cash Management. These areas were 
ENCLOSURE 2 

10 REPORT NO. IG-09-008 

the responsibility of DCAA. PwC expressed a qualified opinion4 on JPL’s compliance 

with the requirements that are applicable to its major federal program for the year ended 

September 30, 2007. DCAA’s report, dated June 26, 2008, noted that JPL did not 

comply with requirements applicable to research and development programs. PwC noted 

that its opinion, to the extent it related to DCAA’s work in the three areas, was based 

solely on information presented in the DCAA report. 

Regarding internal control over compliance, PwC reported that, “[o]f the significant 

deficiencies in internal control over compliance described in the accompanying schedule 

of findings and questioned costs, the DCAA considers item number DJ07-36 to be a 

material weakness.” Item number DJ07-36 related to noncompliance with the Code of 

Federal Regulations, Title 48, Section 9904.402, “Consistency in Allocating Costs 

Incurred for the Same Purpose” (48 C.F.R 9904.402-40), and the contract provision 

Clause G-2, “Cost Segregation and Reporting.” 

 

4

 A qualified opinion means that except for the effects of the matters to which a qualification relates the 

financial statements fairly present financial position, results of operations, and cash flows in conformity 

with generally accepted accounting principles. 
ENCLOSURE 3 

REPORT NO. IG-09-008 11 

RESULTS OF THE DCAA AUDIT OF 

JPL FOR FY 2007 

DCAA Audit Report 

On June 26, 2008, DCAA issued its report on internal controls and compliance for JPL 

for FY 2007. The DCAA auditors were responsible for auditing the following 

compliance requirements for JPL: Activities Allowed or Unallowed, Allowable 

Costs/Cost Principles, and Cash Management. 

The DCAA report included internal control and compliance findings, questioned costs, 

and a qualified opinion on major program compliance. DCAA issued a qualified opinion 

based on the significant control deficiencies it found in JPL’s new labor system. DCAA 

considered these deficiencies to be a material weakness stating that, “since the new labor 

system does not record any partial day leave, we are unable to quantify the magnitude of 

the 48 C.F.R 9904.402-40 and contract noncompliances.” Other significant issues noted 

in the DCAA report included the following: 

• Questioned costs related to travel, contract labor overtime, JPL labor overtime, 

tuition reimbursement, and childcare assistance benefits. 

• Control deficiencies related to JPL’s noncompliance with travel expense reporting 

requirements and JPL’s timekeeping policies and procedures. 

• JPL’s noncompliance with contract labor overtime policies and associated 

contract provisions, and internal control over labor overtime documentation. 

• Material instances of noncompliance with 48 C.F.R. 9904.402-40 and contract 

provision Clause G-2. 
ENCLOSURE 4 

12 REPORT NO. IG-09-008 

PWC COMMENTS
ENCLOSURE 4 

REPORT NO. IG-09-008 13 

DCAA COMMENTS
ENCLOSURE 4 

14 REPORT NO. IG-09-008 
ENCLOSURE 4 

REPORT NO. IG-09-008 15 

JPL COMMENTS
ENCLOSURE 4 

16 REPORT NO. IG-09-008 
ENCLOSURE 5 

REPORT NO. IG-09-008 17 

REPORT DISTRIBUTION

Independent Audit Firm 

PricewaterhouseCoopers, LLP 

Mr. Michael Schini, Partner 

Defense Contract Audit Agency 

Mr. William E. French, Branch Manager, San Gabriel Valley Branch Office 

Audited Organization 

Ms. Sharon E. Patterson, Associate Vice President for Finance and Treasurer, California 

Institute of Technology 

Mr. Albert Battistelli, Manager, Jet Propulsion Laboratory, Audit Liaison & 

Subcontractor Audit and Compliance Offices 

NASA Headquarters 

Deputy Administrator 

Chief of Staff 

Chief Financial Officer 

Assistant Administrator for Procurement 

Assistant Administrator for Internal Controls and Management Systems 

Non-NASA Federal Organizations 

Office of Management and Budget 

Deputy Associate Director, Energy and Science Division 

 Branch Chief, Science and Space Programs Branch 

Technical Manager, Office of Federal Financial Management 

Government Accountability Office 

Director, NASA Issues, Office of Acquisition and Sourcing Management 

Federal Audit Clearinghouse 
ENCLOSURE 5 

18 REPORT NO. IG-09-008 

Congressional Committees and Subcommittees, Chairman and 

Ranking Member 

Senate Committee on Appropriations 

Subcommittee on Commerce, Justice, Science, and Related Agencies 

Senate Committee on Commerce, Science, and Transportation 

Subcommittee on Space, Aeronautics, and Related Sciences 

Senate Committee on Homeland Security and Government Affairs 

House Committee on Appropriations 

Subcommittee on Commerce, Justice, Science, and Related Agencies 

House Committee on Oversight and Government Reform 

Subcommittee on Government Management, Organization, and Procurement 

House Committee on Science and Technology 

Subcommittee on Investigations and Oversight 

Subcommittee on Space and Aeronautics 
Major Contributors to the Report: 

Mark Jenson, Director, Financial Statement Audits 

David Gandrud, Project Manager 

John Pacious, A-133 National Single Audit Coordinator 

Joel Rodriguez, Auditor 

REPORT NO. IG-09-008 19 
DECEMBER 23, 2008 

REPORT NO. IG-09-008 

OFFICE OF AUDITS

OFFICE OF INSPECTOR GENERAL

ADDITIONAL COPIES

Visit http://oig.nasa.gov/audits/reports/FY09 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 Special 

Projects and 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.