NASA’s Continuing Lack of Accounting Controls

Jed Margolin

The inadequacy of NASA’s financial management system has further impact. Without a more effective financial management system, NASA will likely continue to have difficulty providing relevant, reliable, timely financial data -including cost information- that can be used on a real-time basis by program managers to monitor costs, schedule, and performance. In March 2002, we testified⁹ that NASA was unable to provide us with detailed support for amounts obligated against cost limits established by the fiscal year 2000 NASA Authorization Act. This was due, in large part, to NASA’s lack of a modern, integrated financial management system.
 
To its credit, NASA is working toward implementing an integrated financial management system that it expects to be fully operational in fiscal year 2008 at an estimated cost of $691 million. This is NASA’s third attempt toward implementing a new integrated financial management system. The first two efforts were abandoned after 12 years and after spending a reported $180 million. NASA’s current approach focuses on learning from other organizations’ successes in implementing similar projects, as opposed to revisiting its own failures. NASA has also abandoned the single product approach that the two prior attempts had as their basic architecture. Instead, the project will be broken down into implementable modules on the basis of the availability of proven software products.

Before the Government Reform Subcommittee on Government Efficiency and Financial Management U.S. House of Representatives, May 19, 2004, NASA Financial Management Statement of The Honorable Robert W. Cobb, Inspector General National Aeronautics and Space Administration.

OVERALL SUMMARY
 
In January 2004, the independent auditor—PricewaterhouseCoopers—conducting NASA’s audit pursuant to the Chief Financial Officers Act and under the direction of the Office of Inspector General, determined that it could not render an opinion on NASA’s financial statements for FY 2003. The disclaimer resulted from NASA’s inability to provide the auditor with sufficient evidence to support the financial statements and complete the audit within time frames the Office of Management and Budget established.

The disclaimer on the FY 2003 financial statements followed an unqualified¹ FY 2002 audit opinion and a disclaimed audit opinion in FY 2001. The FY 2002 unqualified opinion was the consequence of a so-called “heroic” effort of the independent auditor PricewaterhouseCoopers. A heroic audit effort occurs where assurance on the financial statements is established through substantially expanded transaction testing rather than the auditor placing reliance on systems of internal control. Such a heroic effort was not possible in FY 2003 because of dependency on a new automated financial management system.
 
The reports that the independent auditor submitted identified instances of non-compliance with generally accepted accounting practices, material weaknesses in internal controls, and non-compliance with the Federal Financial Management Improvement Act. Many of the weaknesses the audit disclosed resulted from a lack of effective internal control procedures and problems with NASA’s conversion during FY 2003 from 10 separate systems to a new single integrated financial management program (IFMP).

According to the probe, the number of audit reports issued by Cobb's office plummeted from 62 in 2000 to seven during the first half of the 2006 fiscal year. An audit safety team was abolished. Investigations were derailed, witnesses said, including some related to safety and national security.

Investigators found that Cobb lunched, drank, played golf and traveled with former NASA Administrator Sean O'Keefe, another White House appointee. E-mails from Cobb showed he frequently consulted with top NASA officials on investigations, raising questions about his independence.
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Nicknamed "Moose," Cobb came to NASA in April 2002 after 15 months as an ethics lawyer in the Bush White House responsible for vetting financial-disclosure and conflict-of-interest issues for administration nominees who required Senate confirmation. He replaced Roberta Gross, a Clinton appointee, who had been in the job since 1995 and had earned a reputation on Capitol Hill as a competent, independent investigator.

The HUD report discusses Gross' departure from NASA.

Gross had contracted with the accounting firm Price Waterhouse Coopers to do NASA's chief financial audit, investigators wrote. After the White House tapped O'Keefe to succeed longtime NASA Administrator Dan Goldin in December 2001, O'Keefe told Gross he was unhappy with the audit. "Gross subsequently [was] asked to resign," the report said.

Cobb replaced Gross four months after O'Keefe's arrival and canceled the contract with Price Waterhouse Coopers.

HUD investigators heard testimony from other witnesses that suggested O'Keefe's and Cobb's association went beyond the traditional arm's-length relationship between agency heads and inspectors general. E-mail traffic between Cobb, O'Keefe and former NASA General Counsel Paul Pastorek indicated Cobb consulted with them on audits and investigations.
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In one case, Cobb was accused of squelching part of an audit related to the international space station program after conferring with Pastorek. The report notes that investigators found an e-mail where Pastorek wanted to discuss the audit and questioned its analysis and conclusions. Investigators wrote that auditors were told to remove all of the findings from one section, reducing four pages of findings in the draft report to one paragraph in the final version.
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According to witnesses in the HUD report, Cobb told his staff, as well as an outside group, that he had to do some "diving saves" to keep his auditors from embarrassing NASA.

COMMERCE CHAIRMAN ROCKEFELLER’S STATEMENT ON RESIGNATION OF NASA INSPECTOR GENERAL ROBERT COBB
 
Jena Longo - Democratic Deputy Communications Director 202.224.7824
Apr 02 2009
 
COMMERCE CHAIRMAN ROCKEFELLER’S STATEMENT ON RESIGNATION OF NASA INSPECTOR GENERAL ROBERT COBB
 
WASHINGTON, D.C. – Senator John D (Jay) Rockefeller IV (D-WV), Chairman of the U.S. Committee on Commerce, Science and Transportation, issued the following statement regarding the resignation of NASA Inspector General Robert Cobb:
 
“Only a few short weeks ago, Senator McCaskill and I expressed deep concerns to President Obama that the NASA Inspector General, Robert Cobb, had been repeatedly accused of stifling investigations, retaliating against whistleblowers and prioritizing social relationships with top NASA officials over proper federal oversight.  I respectfully asked that the President take immediate action to put an end to IG Cobb’s conflict of interest and cronyism and remove him from the system.
 
“News of Robert Cobb’s resignation is certainly welcome and this is an important step forward.  I applaud the White House for taking a zero tolerance approach to lax enforcement and oversight.  President Obama is setting the tone from the top and holding all employees who serve the American people accountable for improper conduct and just plain not doing their jobs.  The time has come to close the door on this troubling chapter for NASA and a fresh start awaits.”
 
***(SEE ATTACHED LETTER)***
 
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September 25, 2008
 
TO: Chief Financial Officer
Chief Information Officer
Deputy to Chief Information Officer
Director, Marshall Space Flight Center
 
FROM: Assistant Inspector General for Auditing
 
SUBJECT: Final Memorandum on NASA’s Development of the Integrated Asset Management – Property, Plant, and Equipment Module to Provide Identified Benefits (Report No. IG-08-032; Assignment No. A-08-001-00)

The Office of Inspector General conducted an audit of NASA’s Integrated Asset Management – Property, Plant, and Equipment (IAM/PP&E) module. A component of NASA’s Integrated Enterprise Management Program (IEMP), the IAM/PP&E module is an automated asset-management system that performs two main functions: equipment management (logistics) and asset accounting (finance) and was designed to integrate logistics and financial processes to account for and facilitate management of NASA personal property.

Executive Summary
 
We found that NASA adequately defined the IAM/PP&E module project requirements to ensure the six benefits are achieved and that the achievement would be measurable. To determine that the project requirements were adequately defined, we verified that the requirements were crosswalked to each anticipated benefit; we verified that project personnel had reviewed the Federal financial system requirements and could trace the project requirements to the Federal requirements; and we reviewed the project’s Performance Measurement Plan to verify that a performance measure could be tied to each of the six identified benefits. We determined that the IAM/PP&E module, as designed, and the corresponding changes in NASA’s business processes and controls should help mitigate deficiencies reported as material weaknesses by Ernst and Young (E&Y), the independent public accounting firm that conducted the audit of NASA’s financial statements for the past 4 years.

We note, however, that the system’s contribution to improved financial reporting may be limited by inaccurate data. NASA did not validate approximately 6,300 records of capital assets that have an acquisition value of $32 billion (and a net value of approximately $18.6 billion) prior to transferring the data into IAM/PP&E. In addition, NASA has not resolved an operating policy issue involving identifying purchases of controlled equipment, which could bear on the successful operations of the system. However, we did not conduct audit work to address the impact of these issues because E&Y plans to perform tests of the IAM/PP&E module and NASA’s corresponding manual controls as part of the fiscal year (FY) 2008 financial statement audit. Accordingly, we made no recommendations for management action. We issued a draft of this memorandum on September 17, 2008, and provided NASA management an opportunity to comment on the draft, but comments were not required and no formal comments were received.

Background
 
As part of its FY 2007 report on NASA’s financial statement, E&Y, in its “Report on Internal Control,” dated November 13, 2007, identified significant deficiencies that it considered to be material weaknesses under standards established by the American Institute of Certified Public Accountants. E&Y identified material weaknesses in NASA’s controls for financial systems, financial analyses, oversight used to prepare the financial statements, and processes for assuring that PP&E and materials are presented fairly in the financial statements. In addition, E&Y stated that NASA’s financial management systems are not substantially compliant with the Federal Financial Management Improvement Act (FFMIA) of 1996,² noting that certain subsidiary systems, including all property systems, are not integrated with NASA’s Systems Applications and Products (SAP) Core Financial module. Core Financial—customized off-the-shelf software that serves as the backbone to the IEMP—is used to record accounting transactions including commitments, obligations, and expenditures and to produce NASA’s annual financial statements.

“Although much progress has been made in developing policies, procedures, and controls to improve NASA’s financial processes and systems, challenges remain. Specifically, during FY 2009, NASA management and Ernst & Young LLP (E&Y) continued to identify deficiencies in the Agency’s system of internal control, which impair NASA’s ability to timely report accurate financial information. The most severe deficiency involves NASA’s internal control over legacy property, plant, and equipment (PP&E). As shown in the following table, this deficiency has been reported as a material weakness for several years.”

Cover Letter:
 
November 13, 2009
 
TO: Administrator
 
FROM: Acting Inspector General
 
SUBJECT: NASA’s Most Serious Management and Performance Challenges
 
As required by the Reports Consolidation Act of 2000, this memorandum provides our views of the most serious management and performance challenges facing NASA and is to be included in the Agency’s Performance and Accountability Report for fiscal year 2009.
 
In determining whether to report an issue as a challenge, we consider the significance of the issue in relation to the Agency’s mission; its susceptibility to fraud, waste, and abuse; whether the underlying problems are systemic; and the Agency’s progress in addressing the issue. We provided a draft copy of our views to Agency officials and considered all comments received.
 
Through various Agency initiatives and by implementing recommendations made by the Office of Inspector General (OIG) and other evaluative bodies, such as the Government Accountability Office, NASA is working to improve Agency programs and operations. However, challenges remain in the following areas:
 
• Transitioning from the Space Shuttle to the Next Generation of Space Vehicles
• Managing Risk to People, Equipment, and Mission
• Financial Management
• Acquisition and Contracting Processes
• Information Technology Security
 
During FY 2010, the OIG will continue to conduct work that focuses on NASA’s efforts to meet these challenges as part of our overall mission to promote the economy and efficiency of the Agency and to root out fraud, waste, abuse, and mismanagement.
 
We hope that you find our views helpful. Please contact me if you have questions.
 
signed
 
Thomas J. Howard

Financial Management
 
Over the past year, NASA continued to make progress in improving its internal control over financial reporting by executing its Continuous Monitoring Program (CMP). The CMP assesses and evaluates internal controls, compliance with generally accepted accounting principles, and evidence used to support that balances and activity reported in NASA’s financial statements are accurate and complete by requiring Centers to perform a set of control activities. Throughout FY 2009, the CMP has operated as designed. NASA has identified exceptions through the execution of the control activities and has generally tracked and resolved those exceptions in a timely manner.
 
Although much progress has been made in developing policies, procedures, and controls to improve NASA’s financial processes and systems, challenges remain. Specifically, during FY 2009, NASA management and Ernst & Young LLP (E&Y) continued to identify deficiencies in the Agency’s system of internal control, which impair NASA’s ability to timely report accurate financial information. The most severe deficiency involves NASA’s internal control over legacy property, plant, and equipment (PP&E). As shown in the following table, this deficiency has been reported as a material weakness for several years.

 

Standards of Ethical Conduct Compliance. There is a great deal of interaction between NASA and the private sector, including both industry and academia. Again, given that approximately 90 percent of NASA’s budget is dedicated to contracts and grants, there is great incentive for private sector interests to influence NASA employees. There is also substantial interaction between NASA’s scientists and researchers and those working for non-governmental entities, and incentives abound for such acts as sharing information that is sensitive but unclassified. Many NASA employees often seek to pursue financial opportunities in the private sector beyond their Government employment. With the interchange of talented personnel between the public and private sectors, the advent of term appointments, the use of Intergovernmental Personnel Act appointments, and the use of contractors to meet personnel needs, management is challenged to ensure that ethics laws and regulations applicable to each category are identified and followed. It is imperative that NASA employees, as stewards of NASA’s mission and budget, are aware of and comply with the applicable ethics laws and regulations.

11. Please send me documents relating to a standard of ethics or conduct for NASA contractors.

Question #11: Procurement Information Circular 08-12 The Federal Acquisition Regulations has internal standards of conduct, which is responsive to your request.
 
http://www.hq.nasa.gov/office/procurement/regs/pic08-12.html

December 22, 2008
CONTRACTOR ETHICS
 
PURPOSE:   This Procurement Information Circular (PIC) is issued to call attention to the new contractor ethics requirements and to advise acquisition personnel of their roles and responsibilities in implementing the programs and processing reports of violations under the program. 
 
BACKGROUND:  Over the past year, two significant FAR rules related to contractor ethics have been issued.  In November of 2007, the FAR was revised to require contractors to establish a written code of business ethics and conduct.  Furthermore, on December 12, 2008, the Contractor Business Ethics Compliance Program and Disclosure Requirements went into effect, requiring contractors to report criminal violations and overpayments. 
 
Under the fist{sic} rule, contractors are required to:
         
-   Establish a written code of business ethics (FAR 52.203-13)
 
-   Establish an internal control system that facilitates timely discovery of improper conduct in connection with Government contracts and ensures that corrective action is taken.
 
-   Train their employees in business ethics; promote business ethics awareness
 
The second rule builds upon the first by additionally requiring contractors to:
 
-   Timely disclose any violations of  Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or a violation of the civil False Claims Act (31 U.S.C. 3729-3733) to the Agency Office of the Inspector General, with a copy to the contracting officer.
 
-  Timely disclose and remit any significant overpayments made by the Government.

NASA has continually struggled to put its financial house in order. GAO and others have reported for years on these efforts.⁷  In fact, GAO has made a number of recommendations to address NASA’s financial management challenges. Moreover, the NASA Inspector General has identified financial management as one of NASA’s most serious challenges. In a November 2008 report, the Inspector General found continuing weaknesses in NASA’s financial management process and systems, including internal controls over property accounting. It noted that these deficiencies have resulted in disclaimed audits of NASA’s financial statements since fiscal year 2003. The disclaimers were largely attributed to data integrity issues and poor internal controls. NASA has made progress in addressing some of these issues, but the recent disclaimer on the fiscal year 2009 audit shows that more work needs to be done.

⁷  GAO, Property Management: NASA’s Goal of Increasing Equipment Reutilization May Fall Short without Further Efforts, GAO-09-187 (Washington, D.C.: Jan. 30, 2009); GAO; Business Modernization: NASA Must Consider Agencywide Needs to Reap the Full Benefits of Its Enterprise Management System Modernization Effort, GAO-07-691 (Washington, D.C.: July 20, 2007); and GAO, Financial Management Systems: Additional Efforts Needed to Address Key Causes of Modernization Failures, GAO-06-184 (Washington, D.C.: Mar. 15, 2006).

Message from Administrator Charles F. Bolden, Jr. - January 14, 2010 Transparency, Communication and Cooperation
 
STATUS REPORT
 
Date Released: Thursday, January 14, 2010
 
Source: NASA HQ 
 
Subject:  Message from Administrator Charles F. Bolden, Jr. - January 14, 2010 Transparency, Communication and Cooperation
 
From:  Centerwide Announcement
 
Date:  Thursday, January 14, 2010
 
Message from Administrator Charles F. Bolden, Jr. - January 14, 2010 Transparency, Communication and Cooperation
 
President Obama has made it clear that he is committed to a more transparent and responsive Federal Government. I believe that NASA should be a leader in implementing that goal. Accordingly, whether we are referring to the Agency’s treatment of requests under the Freedom of Information Act, answering questions from Congress or cooperating with our Inspector General in Agency audits or investigations, I expect that we will respond both promptly and thoroughly.
 
As I know you realize and I hope you appreciate, the NASA Office of Inspector General (OIG) performs a valuable function at the Agency with both its audits and its investigations. I fully support the OIG’s efforts to eradicate fraud, waste and abuse, as well as its role in making the Agency more efficient and more effective. While cooperation with OIG audits and investigations is mandated by Federal laws and regulations, NASA employees should readily and fully cooperate whenever an OIG representative seeks access to personnel, facilities, records, reports, databases, or documents because it is the right thing to do. Leadership should also ensure that no unduly burdensome requirements are imposed on OIG auditors or investigators carrying out their important duties. We also need to understand that while OIG personnel generally will state the reason for their requests, they are under no obligation to do so and sometimes cannot do so.
 
The OIG also serves as the point of contact for NASA employees to report possible criminal activity, fraud, waste, abuse and mismanagement involving Agency funds or employees.
 
As we begin this new decade, let’s renew our commitment to strengthening NASA’s traditional values of openness, honesty and transparency.
 
With best regards for the New Year,
 
Charles F. Bolden, Jr.