Auditor’s Opinion – What Did It Say about Solyndra

Solyndra was a manufacturer of cylindrical panels of CIGS thin-film solar cells based in Fremont, California. The company suspended all of its operations as of August 2011 leaving behind the United States government as its largest creditor.

In May 2010, the company was personally promoted by President Obama in his visit as a model for government investment in green technology.  A $535 million loan guarantee was applied for under the Bush administration but the loan was denied. The $535 million loan guarantee was later granted by the Obama administration. Private investors also invested more than $1 billion into the company.

Today, Solyndra Inc. is wrestling with on-going criminal and congressional investigations over the $535 million Federal loan it received.

But at least its auditor, PricewaterhouseCoopers, seemed to do the right thing and raised questions about Solyndra’s ability to continue in business. But these opinions are hard for the public to understand.

PricewaterhouseCoopers issued an unqualified modified opinion. Now what does that mean??

On the one hand, they believe the financial statements are presented fairly; on the other hand there is substantial doubt about Solyndra’s ability to continue as an on-going business. They attribute this conclusion to recurring losses from operations, negative cash flows since Solyndra began business and a net stockholders’ deficit.

But should PricewaterhouseCoopers have told the public more in their pro-forma audit report? Should they be responsible for more information?

For example, in the Prospectus Summary, Solyndra management said, “We have pioneered a photovoltaic system, featuring proprietary cylindrical modules, that achieves the lowest system installation costs on a per watt basis for the commercial rooftop market. We are able to significantly reduce the cost of installation by eliminating expensive mounting hardware and significantly reducing the amount of labor required when mounting conventional flat plate photovoltaic systems.”

I’m not sure what “lowest system installation costs on a per watt basis” means. Does it mean our systems are the cheapest to install on your roof or does it mean on a per watt basis we have the lowest cost?

The Wall Street Journal  reported on September 16, 2011, “As subsidies in Europe fueled demand and oil prices soared during 2008, the solar industry seemed poised to take off. But by 2009, the industry was undergoing severe growing pains, and Solyndra was hit hard. Polysilicon prices were in the midst of an 80% dive. That made Solyndra's product less competitive with rivals that used polysilicon.

Solyndra's costs stayed relatively high because of the tricky manufacturing process. In late 2009, Solyndra's tubes cost $4 for every watt of power output to produce, according to company securities filings. The problem was the company could sell them for only $3.24 per watt. One reason for the losses: the company often had to throw out defective or test panels, according to one former production executive.

As it was losing money, competition was getting worse. China's solar panels were dropping in price. U.S. rival First Solar Inc., was making panels at less than a quarter of Solyndra's cost then and today produces panels at about 75 cents per watt.”

AICPA New Reporting Standards

The AICPA has issued three new standards on audit opinions that will be effective December 15, 2012. These are:

·         Forming an Opinion and Reporting on Financial Statements

·         Modifications to the Opinion in the Independent Auditor’s Report

·         Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report

The last one may be the most significant if, in fact, auditors begin to use it to provide the reader with a better understanding of the financial condition of the company.
This Statement on Auditing Standards (SAS) addresses additional communications in the auditor’s report when the auditor considers it necessary to:

a. draw users’ attention to a matter or matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements (emphasis-of-matter paragraph) or

b. draw users’ attention to any matter or matters other than those presented or disclosed in the financial statements that are relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report (other-matter paragraph).

It’s too bad the taxpayers lost $535 million. Maybe if we can get auditors to provide more than just pro forma information, we might have an audit report that provides significant, relevant information to help shareholders and creditors make informed decisions. 

The Bureaucratic Shuffle – potential fraud in East Greenbush, New York government

This week, I was visited by a concerned citizen of East Greenbush, New York – a suburb of Albany, New York. He brought me a package of information alleging wrong-doing by East Greenbush government officials – about $500,000, based on the work he and several other people produced.

This individual was a former auditor and some of the people working with him were former town officials – so they have some credibility.

I reviewed the material and it was believable. More work needs to be done to determine if in fact fraud has occurred, tax dollars were wasted or if in fact, these are legitimate transactions – but didn’t (or did) comply with the town laws.

For example, one town employee was paid over $170,000 to be a “town consultant.” The person submitted vouchers for the supposed work done, but was not paid as an independent contractor. Instead, he was paid as an employee. On the surface, something is fundamentally wrong with this.

If you’re a consultant, unless you have some special expertise that justifies a sole source contract, this work should have been competitively bid.

More importantly, favored individuals shouldn’t be getting government business. State and municipal law require all vendors get a fair opportunity to get government’s business.

But why pay him as an employee and incur additional payroll costs? The less expensive way is to pay him as the independent contractor he seemed to be from the vouchers he submitted (employees don't submit vouchers, contractors do).

The town incurred additional payroll taxes and pension contributions that were unnecessary by paying him as an employee.

On January 17, 2011, these citizens wrote to the Governor’s office requesting his assistance in this matter. He must have referred it to the Attorney General’s Office because on February 24, 2011, these citizens received a call from that office requesting they compile a summary of the issues, along with related documentation, and send it to the attention of the Office of the State Comptroller.

A letter and supporting documentation was sent on March 2, 2011.

This is called the bureaucratic shuffle – no one wants to take responsibility to hold anyone accountable for the wrong-doing that might have occurred.

The March 2 letter to the State Comptroller’s Office has gone unanswered more than six-months later. It was a detailed letter with supporting documents that would have caused me to act affirmatively in pursuing the matter.

Prior to the letter going to the State Comptroller’s Office, the press reported on the matter and actually called for a further investigation by the State Comptroller’s Office – this simply hasn’t happened.

Democracy depends on citizens having reliable, accurate facts put in a meaningful context. That has not occurred in this case.

Something is fundamentally wrong when concerned and involved citizens cannot get oversight agencies and the media to properly investigate allegations of wrongdoing. A proper investigation includes accurate verification of the facts, an understanding of the underlying causes of the problem and an ultimate resolution to assure internal controls are in place to minimize the possibility of similar wrong-doing in the future.

But, from a common decency perspective, these citizens deserved a response from the State Comptroller’s Office. There may be valid reasons this issue isn’t being pursued, but those reasons should be explained to them so they can decide on their own future course of action.

These citizens believe the real reason no action is being taken is the political connections that exist between the players in the various State government and town offices.

If that is correct - someone has sold their soul. And that’s too bad for all the citizens of New York State.

New Government Auditing Standards

I'd like to take a moment to honor all of the auditors who suffered through the tragic events in New York City ten years ago today. My former New York City office was several blocks from the World Trade Center. Staff in the office watched in horror as the events unfolded.


I also know of auditors in the Banking Department and the Tax Department who never made it out of those buildings.


God Bless America.


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The Comptroller General of the United States has issued updated Government Auditing Standards, while not yet final, they are available on the Internet.

The 2011 Internet Version of Government Auditing Standards (GAGAS) contains the intended content for the final 2011 Revision of Government Auditing Standards. GAO plans to formally issue the 2011 Revision Government Auditing Standards later this year after the AICPA has completed the clarity revisions. 

The effective date for financial audits and attestation engagements is for periods ending on or after December 15, 2012. 

The effective date for performance audits is for audits beginning on or after December 15, 2011. Early implementation is not permissable. This document is only available in an electronic PDF format at:

http://www.gao.gov/govaud/iv2011gagas.pdf

Overall Changes

Chapters 1 and 2 have been realigned. Along with the introduction, chapter 1 now includes the foundation and ethical principles of government auditing. The discussion of the use and application of GAGAS is now in chapter 2.

All financial audit standards are now in chapter 4. The chapters on financial audit performance and reporting, formerly chapters 4 and 5, have been combined into one chapter.

Terminology has been updated for consistency with other standards. For financial audits only, the term “field work” has been replaced by “performance.” (For attestation engagements and performance audits, GAGAS continues to use the term “field work.” This terminology is consistent with AICPA standards.)

Consistency of the use of footnotes has been improved. Footnotes now are used strictly to refer to other sections of GAGAS and to other audit standards. Other information that was in footnotes in previous GAGAS editions has been either moved into the GAGAS text itself or eliminated.

This past week I gave a 5 hour presentation on the updated Standards. It was well-received. An e-mail said:

Hi Dave,

            Thank you again for yesterday. I am getting a lot of positive feedback today from your presentation, including “the best Yellow Book training I’ve ever gone to!” 

If your organization needs to be up-to-date on the Standards, please contact me for possible on-site training.

Accountability Lacking – Not Enough Auditors says the Wartime Contracting Commission

On August 31, 2011, the Wartime Contracting Commission issued its final report. Reading it, you understand the importance of the need for auditors to help bring accountability to government programs.

Congress created the independent, bipartisan Commission on Wartime Contracting in Iraq and Afghanistan in 2008 (Public Law 110-181) to assess contingency contracting for reconstruction, logistics, and security functions; examine the extent of waste, fraud, and abuse; and provide recommendations to Congress to improve the structures, policies, and resources for managing the contracting process and contractors.

The Commission said at least $31 billion, and possibly as much as $60 billion, has been lost to contract waste and fraud in America’s contingency operations in Iraq and Afghanistan.

A variety of weaknesses frustrate the U.S. government’s ability to protect its interest in economical and effective performance of contingency contracting. 

Among the weaknesses were insufficient staff and resources—notably at the Defense Contract Management Agency and the Defense Contract Audit Agency—for financial management, acquisition planning, business-system reviews, source selection, incurred-cost audits, performance management, property management, contract payment, and contract close-outs.

These weaknesses included:

• Limited authority to withhold contract payments even when contractor business systems for functions such as estimates, labor billing, and purchases impede the work of government management and oversight officials;
• Limited power to access contractor records that can be useful or essential for examining matters such as supervision of subcontractors; and
• Shortfalls in strategic planning and dedicated budgets to support related human resources and information-systems requirements.

This is clearly an example of where auditors are needed as the contracting projects are underway.  It’s much better to identify the fraud, waste and abuse as it is occurring - so immediate action can be taken, instead of waiting years later and pointing it out.

Too many short-sighted managers are not putting in place the necessary oversight systems to assure taxpayers money are being spent properly.

That's too bad - because it is hard earned taxpayer money that is being wasted or stolen!