VideoThe National Aeronautics and Space Administration has long been criticized for its inability to manage costs. During the 1990s, faced with flat budgets and ambitious program goals, NASA adopted a management approach of "faster, better, cheaper." But by the decade's end, the approach was blamed for a number of mission failures. Meanwhile, the cost of the International Space Station (ISS) spiraled billions of dollars over budget. Embattled administrator Daniel Goldin resigned in 2001 after nearly 10 years on the job, and NASA named Sean O'Keefe, a self-described "bean counter," as Goldin's replacement. Fourteen months later, the loss of the Columbia space shuttle and its seven astronauts shook the agency to its core.
Then, last January, President George W. Bush unveiled a grand "vision" of landing astronauts on the moon by 2020, and on Mars sometime thereafter. The vision gave NASA a new sense of mission, lifted its morale, and raised expectations of steadily increasing budgets. But the vision also came under fire from critics who wondered fire from critics who wondered why the country needed to go to Mars, and how it could afford it.
Two weeks later, troubling new doubts were raised about NASA's financial management. PricewaterhouseCoopers, the agency's auditor, issued a disclaimed opinion on NASA's 2003 financial statements. PwC complained that NASA couldn't adequately document more than $565 billion — billion — in year-end adjustments to the financial-statement accounts, which NASA delivered to the auditors two months late. Because of "the lack of a sufficient audit trail to support that its financial statements are presented fairly," concluded the auditors, "it was not possible to complete further audit procedures on NASA's September 30, 2003, financial statements within the reporting deadline established by [the Office of Management and Budget]."
Ironically, the PwC audit report was posted on the NASA inspector general's Website on March 11 — the same day that O'Keefe testified before a Senate appropriations subcommittee regarding the agency's FY 2005 budget request. But no one seemed to notice, or care.
NASA says blame for the financial mayhem falls squarely on the so-called Integrated Financial Management Program (IFMP), an ambitious enterprise-software implementation. In June 2003, the agency finished rolling out the core financial module of the program's SAP R/3 system. NASA's CFO, Gwendolyn Brown, says the conversion to the new system caused the problems with the audit. In particular, she blames the difficulty the agency had converting the historical financial data from 10 legacy systems — some written in COBOL — into the new system, and reconciling the two versions for its year-end reports. Brown says that despite the difficulties with both the June 30 quarterly financial-statement preparation and the year-end close, the system is up and running, and she has confidence in the accuracy of the agency's financial reporting going forward.
"It is working," says Brown, who was confirmed as CFO in November 2003, "and we are moving forward to ensure that we're ready to go to the moon, to Mars, and beyond, financially."
But when will they be ready? NASA's target date of 2007 for completing the SAP rollout seems optimistic, given the agency's track record so far. What's more, the problems with financial management go well beyond implementing new software. Brown's explanation for the disclaimed audit may account for some of the problems identified in both the June 30, 2003, financials and the year-end audit — but only some.
Financial Lowlights
PwC's audit found numerous basic reporting errors in the year-end and third-quarter financial statements that had nothing to do with the conversion, and which auditors said finance executives should have caught before filing the statements.
For example, in the June 2003 quarterly statement, auditors found a $204 million line item called "Other" that "could not be explained or supported, indicating that NASA had not correctly reconciled its budgetary resources to its net cost of operations." PwC also found a $200 million discrepancy between identical line items on two different financial statements. In the year-end audit, PwC discovered that NASA's stated fund balance was actually $2 billion more than the balance in its Treasury account. (PwC noted that NASA changed the balance to match the Treasury balance without disclosing that it had done so in the financial statements.) The agency also changed the method used to depreciate assets without disclosing that it had done so and explaining why, as is required by government financial-reporting regulations. And it continued to use an incorrect method to account for costs incurred, despite repeated warnings from the General Accounting Office (GAO) and PwC that the method did not even comply with NASA's own financial-management manual.
In addition, finance personnel responsible for converting the year-end data (and who racked up the $565 billion in adjustments) didn't have the skills they needed to do the job. Says Patrick Ciganer, NASA's program executive officer for integrated financial management, "We had people in each of the NASA centers [10 in all, including the Kennedy, Glenn, and Marshall space centers] who knew that they had to make the year-end adjustments. The problem was, they had never done them before. They had been trained, but in some cases that was six or eight months before, and they did it wrong." The SAP system recorded each errant keystroke, creating a series of unsupported journal entries and adjustments that PwC could not have fully audited even if it had had a whole year to do it.
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