NASA Advisory Council Meeting Report of Audit and

NASA Advisory Council Meeting Report of Audit and Finance Committee October 16, 2008 Members: Mr. Robert Hanisee, Chairman Hon. Ted Mc. Pherson Hon. Michael Montelongo Mr. Howard Stanislawski NASA: Mr. Ron Spoehel Mr. Terry Bowie

Audit & Finance Committee Kennedy Space Center Meeting Bldg: OSB II, Room: 4130 October 14 & 15, 2008 FINAL Agenda October 14, 2008 Presentation # 1 Presentation # 2 Presentation # 3 Presentation # 4 Presentation # 5 Presentation # 6 October 15, 2008 Presentation # 1 Presentation # 2 Presentation # 3 Presentation # 4 2 Opening Remarks Presentation from KSC CFO FY 08 Financial Statement Audit Update Break Unfunded Environmental Liability - Audit Status GAO High Risk List – Status of Corrective Action Plan NSSC Transition Recap/Benchmarking Administrative Session Update on Phasing Plan/Dashboard CMP Results & Trends for FY 08 Break Shuttle Transition – Property Disposition And Financial Accounting Pick-Up Lunch Earned Value Management Administrative Session Terry Bowie Susan Kroskey Frank Petersen Olga Dominquez Rita Svarcas Joyce Short A&F Members John Scholtz Leslie Hyland Dorothy Tiffany A&F Members

Kennedy Space Center (KSC) Briefing to NASA Advisory Council (Audit & Finance Committee) Susan Kroskey Chief Financial Officer October 14, 2008 3

Kennedy Space Center (Cont. ) Challenge: Shuttle Wind-down Constellation Ramp-up Employment Civil Servants Contractor/Tenants KSC CFO Office 2, 117 119 13, 000 28 ~15, 000 4

Kennedy Space Center (Cont. ) 2009 Budget - $1. 5 B 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 FY 2007 or 2008 5

KSC FY 2009 President’s Budget by Major Program* $ Millions *Includes Space Program Operation Contract (SPOC) 6 Agency FY 2009 President’s Budget per N 2 (Feb 08)

Unfunded Environmental Liabilities ¢ Future cost of completing environmental closure of known contaminated sites and facilities ¢ FY 08 Year-End Unfunded Environmental Liability - $943 M - 7 134 projects at 15 NASA Sites Estimates range from $12 K to $168 M 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)

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) - ¢ OCFO Action - 8 Lacks Software Assurance Lacks IV&V Lacks formal controls and audit trail 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)

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 $5 M to $10 M ¢ NASA spends $45 M per year on clean-up 9

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 10

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. 11

Agency Unobligated EOY Carryover History FY 2003 through FY 2008 12

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: l ¢ 13 Facilitated the reprogramming of $31 million cost of facility, twoyear 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. ”

CMP Results and Trends for FY 08 ¢ 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 14 - 17% total exception rate in May 2008 - 9% total exception rate in Sept 2008

CMP Results and Trends for FY 08 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 15

CMP Results and Trends for FY 08 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 16

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 17

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. 5 D, 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 FY 08; 1080 in FY 09) - Develop an agency-wide EVM system/solution - Build for Constellation - Secure DCMA validation - Offer it to Mission/Centers for single solution adoption 18

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 19 Aug – Sept 2008 Oct. 2008 Nov. 14, 2008

FY 2008 Financial Statement Audit Update 1. 2. FY 2008 Financial Statements due October 17 th. Testing • • • 3. Results to Date: • 20 Internal Control Testing (June – August) Interim Testing of June 30 th balances (July – October) Substantive Testing of September 30 Balances (October – Early November) 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

Summary of Material Weaknesses and Reportable Conditions Issued during the past Five Years Material Weakness/ Reportable Condition FY 2003 Disclaimer (PWC) Financial, Systems, Analysis, and Oversight (MW) FY 2004 Disclaimer (EY) FY 2005 Disclaimer (EY) FY 2006 Disclaimer (EY) FY 2007 Disclaimer (EY) Anticipated FY 2008 (EY) X X X X Property, Plant, and Equipment (MW) X X X Fund Balance with Treasury (MW) Rolled into FSAO FY 06 X X X Unfunded Environmental Liabilities (RC) Dropped as a RC and rolled into FSAO FY 06 X X X IFMP (SAP) control environment (RC 03) ((MW 04) Dropped FY 05 Financial Stmt. Preparation (MW) Identified as part of FSAO FY 04 X Lack sufficient audit trail (MW) Dropped FY 04 X 21

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. 2 B) IAM tool was implemented in May 22

Old Business – Update Financial Staff Personnel Authorized FTE – 103 - No Change Current FTE 93 New hires 3 FTE’s with New Hires 96 Shortfall 7 (spread over several functions) 23

Old Business – Update NSSC August 08 – All centers on line On time payments 96% (98% required for passing grade) Interest Payments per $1 M - $41 (under $200 for passing grade) Transactions processed – 45 K per month following Wave 4 Customer call center – 92 - 93% handled within center to increase transaction volume requires additional capital investment 24