NASA Advisory Council Meeting Report of Audit and

NASA Advisory Council Meeting Report of Audit and Finance Committee July 10, 2008 Members: Mr. Robert Hanisee, Chairman Hon. Ted Mc. Pherson Hon. Michael Montelongo Mr. Howard Stanislawski NASA: Mr. Terry Bowie

Audit & Finance Committee Glenn Research Center Fact-Finding Meeting Ohio Aerospace Institute, 1 st Floor, Room 1 E July 9, 2008 8: 15 – 9: 45 Presentation # 1 Presentation from GRC CFO Presentation # 2 Update from Deputy CFO Property Update Debra Watson Terry Bowie 9: 45 – 10: 00 Break 10: 00 – 11: 15 Presentation # 3 Continuous Monitoring Program May 2008 Results Leslie Hyland Presentation # 4 Financial Statement Audit Status Thomas Green 11: 15 – 12: 00 - 12: 45 Lunch Break 12: 45 – 1: 30 Presentation # 5 NSSC Transition Update Joyce Short 2: 30 – 5: 30 Administrative Session A&F Members 5: 30 Adjourn and Meet Bus

Glenn Research Center Briefing to NASA Advisory Council (Audit & Finance Committee) Debra Watson Chief Financial Officer July 9, 2008

Glenn Research Center (Cont. ) Other Members of Glenn Chief Financial Office in Attendance Lawrence Sivic – Deputy CFO Karen Mc. Laughlin – Accounting & Financial Analysis Robert Sefcik – Cost & Economic Analysis

GRC CFO Organization Responsible for the Center leadership and management of: ¢ Accounting—financial analysis/accounting transactions—Standard General Ledger, funds distribution, payroll, obligations, cost accounting, payment oversight, property accounting, reporting, travel, labor analysis, Continuous Monitoring Program/Error Tracking, financial policy, bank card monitoring ¢ Budget—resources management (dollars and workforce)—formulation, execution, analysis, verification, expenditure status/variances/metrics, phasing plans, reimbursables, workforce planning/pricing/analysis (civil service & contractors) ¢ All Business Systems —system operations & integration, processes, reporting, IEMP/SAP, PMT, N 2 Budget, procurement support, Center Business Process Lead – Core Finance/Travel/Web. TADS

GRC CFO Organization Responsible for the Center leadership and management of: ¢ Financial Audits & Internal Controls —audits, policy compliance, efficient operating procedures ¢ Cost Estimating & Economic Analysis —independent analysis, cost estimating and program support to entire center, cost modeling, Earned Value Management (EVM) procedure development/implementation

GRC (Continued) ¢ ¢ ¢ Many significant changes at GRC since 2006 Center focus has been moved from principally Aeronautics to roughly equal split between Aero and Exploration Center CFO office staffing: 89 FTE’s: 71 civil servants, 18 contractors GRC support for NSSC implementation – transferred accounts payable to NSSC in May - reduced staff by 8 FTE’s Positive Budget Outlook – Stable Financial Statement Audit - May/June Week long E&Y review conducted – Minimum concerns expressed

NASA Comprehensive Compliance Strategy Includes: Internal Control procedures, external audit, corrective action plan, etc. and importantly NASA’s…. Continuous Monitoring Program which is the overall framework , implemented in February 2008 to assess and evaluate…. l l Internal controls for accounting, financial management and stewardship Compliance with Generally Accepted Accounting Principles

NASA Comprehensive Compliance Strategy ¢ Evidence that account balances support the auditable Financial Statement ¢ Consistency in Federal Management Practices across NASA projects, programs, missions and centers. (Based on presentation delivered to the NAC Audit and Finance Committee by Leslie Hyland, Director, Financial Management Division, Office of the Chief Financial Officer)

Continuous Monitoring Program ¢ Assesses accounting and control activities for transactions such as: l Fund Balance wit Treasury, Cash Outlays/Investments Accounts Receivable Inventory of Materials and Supplies, Property Accounts Payable Purchase Orders Status of Funds Etc. l And Reports Exceptions in these activities for each Center l l l

Continuous Monitoring Program ¢ And reports Exceptions in these Activities for each Center ¢ Total Percent of Exceptions for all of NASA February 24% 2008 March 24% April 15% May 17%

Continuous Monitoring Program ¢ Accounting activities in need of attention: l Prepaid Expenses/Advances/Intra-NASA Transactions Monthly Variance Analysis l Other: l • Annual calculation of Unfunded Environmental Liability • Intra-Governmental transactions l Business Benefits of Continuous Monitoring Program are REAL • Provides a System of Internal Control • Transactions are properly recorded to assure data integrity • Foundation for auditable financial statements and management reporting such as “phasing” reports provided by NASA CFO Next Steps • Encourage transactions “clean-up” during each month • Increased investment in Training so as to imbed, refine and sustain Continuous Monitoring Program • Continue to implement front-end edits and reduce rework

FY 2008 Financial Statement Audit Update Audit Milestones/Schedule FY 07 Lessons Learned w/OIG & E&Y FY 08 Agency-wide Kick-Off Meeting FY 08 Walkthrough (Center) La. RC GSFC HQ Walkthrough Meetings FY 08 Internal Control Testing at Centers • • Jan. 29, 2008 Mar. 13, 2008 Mar. 31 – Apr. 4, 2008 Apr. 14 – 25, 2008 Mar. 10 – Apr. 11, 2008 Jun. 2, 2008 – Jul. 18, 2008 General Audit Information Technology Environmental Property, Plant and Equipment FY 08 Substantive Testing – New Milestone FY 08 Field Work Completed FY 08 Opinion Rendered - Agency Financial Report Completed Aug – Sept 2008 Oct. 2008 Nov. 14, 2008

FY 2008 Financial Statement Audit Update Audit Status Summary • FY 08 audit approx 50% complete • All Data Requested by E&Y, to date, has been delivered ON TIME • Quality of Internal Control Testing has significantly improved due to process improvements thereby enhancing auditors ability to rely on financial data • NO significant show stoppers identified to date

NSSC Update Transition Schedule To Date: Accts Payable/Accts Receivable/Fund Balance With Treasury - Wave 1 (DFRC, MSFC, SSC) Feb. 2008 - Wave II (GRC, KSC, La. RC) Apr. 2008 - Wave III (ARC, JSC) Jul. 2008 To Come: - Wave IV (GSFC, NMO, HQ) Aug. 2008 Finance Only Invoices - ALL Centers Aug. 2008 Grant Payments - All Centers (dependent on SAP release) Jan. 2009

NSSC Accounts Payable Key Indicators February – June 2008

NSSC Failure Analysis Note: 30% of late payments are w/in 2 days

NSSC Update (Cont. ) ¢ Wave I transition went well, but not without problems ¢ Wave II transition was much smoother; key indicators have improved l Much improved performance • Evidence of learning from Wave I transition • Proactive communication with Centers • Significant effort/support from Centers

NSSC Update (Cont. ) ¢ Successful Wave 3 Operational Readiness Review on June 26 ¢ Go Live July 1

Property, Plant and Equipment Update In GFY 07 wrote-off $13. 3 B of legacy assets – reclassification as R&D Remaining Problem Assets: Space Station $13. 2 B Space Shuttle 1. 0 B E&Y Position – No chance for a Clean Opinion until issue resolved OIG opined that cost to re-create auditable trail is to high to justify OCFO approach – Appeal to FASAB to permit reclassification as R&D - Met with OIG & E&Y in April to push

Property, Plant and Equipment Update (cont. ) New Strategy: Terry Bowie writing white paper addressed to FASAB, OMB and GAO outlining options: 1. Re-create data from manifests – OIG says No 2. Identify Comps 3. Reclassify as R&D Will recommend Option 3. Meanwhile the new Integrated Asset Management (IAM) tool was implemented in May.

Other Old Business Financial Staff Personnel Authorized FTE – 103 (Same as April) Current FTE New hires but not on-board FTE’s with New Hires 92 6 98 (an improvement of 5 FTE’s since April)

Other Old Business Grant Accounting: October Rollout – On Schedule: Will permit Grant by Grant Accounting GFY 07 Audit – Noted Deficiencies - Environmental Liabilities – E&Y wanted estimates of environmental liability at Program Start OCFO response – Put together an environmental Group which expects to have estimates completed by Year End - Open Contracts – E&Y noted a number of travel, grants and contracts still open OCFO response: Travel – Dollars not material but effort underway Contracts – Progress Noted Grants – Will be resolved by new Grant Accounting Software