NASA Advisory Council Meeting

Report of Audit and Finance Committee

October 16, 2008

Members: NASA:Mr. Robert Hanisee, Chairman Mr. Ron Spoehel Hon. Ted McPherson Mr. Terry BowieHon. Michael MontelongoMr. Howard Stanislawski

2

Audit & Finance CommitteeKennedy Space Center Meeting

Bldg: OSB II, Room: 4130 October 14 & 15, 2008

FINAL Agenda

October 14, 2008Presentation # 1 Opening Remarks Terry BowiePresentation # 2 Presentation from KSC CFO Susan

KroskeyPresentation # 3 FY08 Financial Statement Audit Update Frank

PetersenBreak

Presentation # 4 Unfunded Environmental Liability - Audit Status Olga Dominquez

Presentation # 5 GAO High Risk List – Status of Corrective Action Plan Rita Svarcas

Presentation # 6 NSSC Transition Recap/Benchmarking Joyce Short Administrative Session A&F Members

October 15, 2008Presentation # 1 Update on Phasing Plan/Dashboard John Scholtz Presentation # 2 CMP Results & Trends for FY08 Leslie Hyland

Break Presentation # 3 Shuttle Transition – Property Disposition

And Financial Accounting Leslie HylandPick-Up Lunch

Presentation # 4 Earned Value Management Dorothy Tiffany

Administrative Session A&F Members

3

Kennedy Space Center (KSC)

Briefing to NASA Advisory Council

(Audit & Finance Committee)

Susan Kroskey

Chief Financial Officer

October 14, 2008

4

Kennedy Space Center (Cont.)

Challenge: Shuttle Wind-down

Constellation Ramp-up

Employment

KSC CFO Office

Civil Servants 2,117 119

Contractor/Tenants 13,000 28

~15,000

5

Kennedy Space Center (Cont.)

2009 Budget - $1.5B

CFO Office – Strategic Plan and Initiative

Center CFO Vision – “Making $ Make Sense”

Center CFO Goal Categories Initiatives

Financial 6

Systems & Processes 6

Customer 3

Team & Culture 3

Audit Status – E&Y reported no findings in PP&E audit of internal control in FY2007 or 2008

6

KSC FY 2009 President’s Budget by Major Program*

*Includes Space Program Operation Contract (SPOC)

$ Millions

$0.0$200.0$400.0$600.0$800.0

$1,000.0$1,200.0$1,400.0$1,600.0$1,800.0$2,000.0

2009 2010 2011 2012 2013

Fiscal Year

Other CMO Science/SFS Constellation ISS Shuttle L&L w/SPOC*

Agency FY 2009 President’s Budget per N2 (Feb 08)

7

Unfunded Environmental Liabilities

Future cost of completing environmental closure of known contaminated sites and facilities

FY08 Year-End Unfunded Environmental Liability - $943M- 134 projects at 15 NASA Sites- Estimates range from $12K to $168M- White Sands Test Facility cleanup (39% of

total) will take over 50 years to complete (two other cleanup estimates to take more than 100 years)

8

Unfunded Environmental Liabilities (cont.)

E&Y Finding – Management review of estimate not functioning adequately to identify inconsistencies and mistakes – No audit trail

Integrated Data Evaluation and Analysis Library (IDEAL) - Lacks Software Assurance- Lacks IV&V- Lacks formal controls and audit trail

OCFO Action- Completed Software Assurance self assessment – 7/08- Configuration management plan being prepared - (Complete 12/08)- Conducting Parametric model calibration- IDEAL mod to include controls White Sands Test Facility

cleanup (39% of total) will take over 50 years to complete (two other cleanup estimates to take more than 100 years)

9

Unfunded Environmental Liabilities (cont.)

Future Issue – Asbestos After 9/00/09 NASA must survey and record liability

associated with asbestos in NASA property

Center surveys are incomplete – not required by environmental safety laws and regs

Agency has proposed using statistical estimating techniques

E&Y wants surveys which would cost $5M to $10M

NASA spends $45M per year on clean-up

10

NASA AND GOVERNMENT ACCOUNTABILITY OFFICE (GAO) HIGH RISK LIST

Issue: NASA has been designated as a High Risk agency since 1990 due to concerns relating to:

• Post award contract administration• Financial management• Program/project management• Cost estimating and analysis

Solution: Corrective action plan now prepared with input from Office of Management and Budget (OMB) with clear definition of results required.

Results: For major development projects with a life-cycle cost of $250 million or more:

• Cost within 110% of baseline• Scheduled slippage within 110% of baseline• Mission Success by meeting requirements by 90% of its portfolio of major deployment

missions

11

NASA UNOBLIGATED FUNDS CARRYOVER

Issue: Each year during Fiscal Years 2003 through 2007, NASA has had $1.5 billion to $2.1 billion in unobligated funds carryover at the end of the year. (“uninvested money”)

Solution: In April 2008 NASA’s Chief Financial Officer, Ron Spoehel implemented a “Phasing Planning and Reporting Process” to enable NASA’s resource managers to invest NASA’s appropriated funds more effectively, with a specific goal of cutting year-end unobligated funds in half to $1 billion.

Result: For Fiscal Year 2008 just completed, NASA’s Unobligated Funds Carryover was reduced from $2.1 billion in 2007 to $535 million in 2008.

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Agency Unobligated EOY Carryover History FY 2003 through FY 2008

1,511

1,833

2,101 2,100 2,082

535

0

500

1,000

1,500

2,000

2,500

$ M

illio

ns

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

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NASA UNOBLIGATED FUNDS CARRYOVER (CONTINUED)

Business Benefits Enhanced the pace of investment by providing insight as to the

timing of the deployment of financial resources, thereby better aligning and balancing budget formulation and execution.

Improved effectiveness and financial flexibility of investments, for example: Facilitated the reprogramming of $31 million cost of facility,

two-year funds into another current purpose in NASA’s Third Operations Plan, approved by Congressional Appropriations Committee during FY 2008.

Instilled routine management reporting (“dashboards”) by cost element, centers, projects, programs, themes, and missions for NASA’s “investment portfolio.”

14

CMP Results and Trends for FY08

Refresher - Continuous Monitoring Program (CMP) is NASA’s Internal Control platform - Implemented February 2008 - Designed to assess, coordinate and address - Internal Controls for accounting, financial management, and stewardship - Compliance with Generally Accepted Accounting Principles (GAAP)

Status - Monthly tracking of center by center transaction performance for accounting and control activities (e.g. fund balance, A/R, A/P, inventory, status of funds, etc.)

- Exceptions or deficiencies are improving - 17% total exception rate in May 2008 - 9% total exception rate in Sept 2008

15

CMP Results and Trends for FY08

Status (Cont)

- Specific areas of progress - A/R - Other Liabilities - Resources - Purchase Order/Obligations - Review of Blank funds

- Areas still needing attention - Prepaid Expenses - Financial Analysis

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CMP Results and Trends for FY08 Status (Cont)

- Key Areas of Concern - Status of Funds (budgetary and proprietary

synchronization) - Intra-center transactions resulting in high suspense account balances

Next Steps- Continue “clean-up”- Reduce Exception Rate- Streamline Process

17

Shuttle Transition

Property Disposition and Financial Accounting

- One third of Shuttle Property identified will be applied to Constellation

Two Types of Sales

Property Sales (Not Land) - Proceeds go to Treasury

Exchange Sale - NASA keeps proceeds and applies to Constellation after 10% fee to GSA

- Hundreds of thousands of items – No reliable estimate of salvage value

Accounting Treatment

- NO gain on sale

- Treated as a refund (reduction of cost) on Center identified contract;

- Money received will have no effect on Constellation budget

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Earned Value Management

A corporate management imperative - Facilitates management control of projects - Requires managing performance against plan

An OMB (and NASA) imperative - OMB Circular A-11 requires EVM consistent with ANSI/EIA-748 for in-house and

contractor work - NPR 7120.5D, NASA Space Flight Program and Project Management

Requirements Strategy/Status - “Bottoms Up” approach to “sell” an enterprise solution and affect culture change - Build EVM competency through EVM training courses (665 in FY08; 1080 in FY09) - Develop an agency-wide EVM system/solution

- Build for Constellation - Secure DCMA validation- Offer it to Mission/Centers for single solution adoption

19

FY2008 Financial Statement Audit Update

Audit Milestones/ScheduleFY07 Lessons Learned w/OIG & E&Y Jan. 29, 2008FY08 Agency-wide Kick-Off Meeting Mar. 13, 2008FY08 Walkthrough (Center)

LaRC Mar. 31 – Apr. 4, 2008

GSFC Apr. 14 – 25, 2008

HQ Walkthrough Meetings Mar. 10 – Apr. 11, 2008FY08 Internal Control Testing at Centers Jun. 2, 2008 – Jul. 18, 2008

• General Audit• Information Technology• Environmental• Property, Plant and Equipment

FY08 Substantive Testing – New Milestone Aug – Sept 2008FY08 Field Work Completed Oct. 2008FY08 Opinion Rendered - Agency Financial Report Completed Nov. 14, 2008

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FY2008 Financial Statement Audit Update

1. FY 2008 Financial Statements due October 17th.2. Testing

• Internal Control Testing (June – August)• Interim Testing of June 30th balances

(July – October)• Substantive Testing of September 30 Balances (October – Early

November)3. Results to Date:

• 32 Findings and Recommendations (NFR’s) for example:• Insufficient completion, review, and resolution of control

activities and exceptions• Untimely resolution of transactions in budget clearing

accounts (inter-agency eliminations)• Property• Environmental Liabilities• Delayed close-out of grants, contracts, purchase orders,

etc.• Material weaknesses and reportable conditions

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Summary of Material Weaknesses and Reportable Conditions Issued during the past Five Years

Material Weakness/

Reportable Condition

FY2003

Disclaimer

(PWC)

FY2004

Disclaimer

(EY)

FY2005

Disclaimer

(EY)

FY2006

Disclaimer

(EY)

FY2007

Disclaimer

(EY)

Anticipated

FY2008

(EY)

Financial, Systems, Analysis, and Oversight (MW) X X X X X

Property, Plant, and Equipment (MW)

X X X X X X

Fund Balance with Treasury (MW)

Rolled into FSAO FY06X X X

Unfunded Environmental Liabilities (RC)

Dropped as a RC and

rolled into FSAO FY06

X X X

IFMP (SAP) control environment

(RC 03) ((MW 04)

Dropped FY05X X

Financial Stmt. Preparation (MW)

Identified as part of FSAO FY04 X

Lack sufficient audit trail (MW)

Dropped FY04 X

22

Old Business – Update

PP&E – No change in E&Y position

Terry Bowie will meet with OIG, FASAB and E&Y to seek resolution by treating ISS as R&D (Approx $13.2B)

IAM tool was implemented in May

23

Old Business – Update

Financial Staff PersonnelAuthorized FTE – 103 - No Change

Current FTE 93New hires 3FTE’s with New Hires 96

Shortfall 7 (spread over several functions)

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Old Business – Update NSSCAugust 08 – All centers on line

On time payments 96% (98% required for passing grade)

Interest Payments per $1M - $41 (under $200 for passing grade)

Transactions processed – 45K per month following Wave 4

Customer call center – 92 - 93% handled within center to increase transaction volume requires additional capital investment