The disclaimed audit would not be as significant if it were just a one-off even, but in fact, NASA has a long-standing history of financial mismanagement. The agency's contract-management function has earned a spot on the GAO's "high risk" watch list every year since 1990 (see "Mission [out of] Control," at the end of this article). This year, NASA was 1 of only 3 federal agencies (out of 23) that received a disclaimed audit opinion.
Other lowlights of NASA's financial history include the ISS audit, which the GAO has performed annually since 2000 to determine whether NASA is adhering to congressional spending caps placed on the ISS and related space-shuttle flights. In each audit, the GAO auditors have been "unable to determine whether the obligations that NASA was reporting to Congress were accurate," says Gregory D. Kutz, director in the financial management assurance team at the GAO. Adds Kutz, "This is a problem that has been around NASA for a long time." The latest GAO audit report, released in April, revealed that NASA didn't include any information on the ISS and shuttle obligations in its FY 2005 budget request, as required by law, "so we had nothing to audit this year," the report said. A NASA spokesperson called the omission an "editorial oversight."
In 2000, a $644 million oversight was discovered on NASA's 1999 financial audit. The mistake was detected not by its auditors (then Arthur Andersen) nor by its CFO (then Arnold Holz), but by a congressional staffer reviewing the statements. As a result of the mistake and subsequent investigation, the GAO called into question the quality of the five previous Andersen audits — all clean, and a source of agencywide pride. "[The GAO] said the Arthur Andersen audits were audit failures," says Kutz. "They had given NASA clean audit opinions for five years. Andersen said the reporting systems were compliant and that there were no material weaknesses."
In 2001, with Andersen dissolving in the wake of Enron, NASA chose PwC as its new auditors. The firm gave the space agency its first disclaimed audit opinion, blaming widespread reporting and audit-trail deficiencies. "How could PwC all of a sudden say that everything is a problem, when all that changed was the auditor?" asks Kutz.
Dueling Fiefdoms
In NASA's defense, many of its problems with financial management are endemic to the agency as a whole. NASA has long been faulted for its "stovepipe" structure, in which each center behaves as an independent entity with a unique history and culture that is loath to brook "outside" interference from other parts of NASA. Finance executives are co-located in NASA's 10 centers, and each center has a different financial-reporting system. Each finance chief reports to the center's director, with only a dotted line to CFO Brown.
"It's like a dozen dueling fiefdoms," says Keith Cowing, editor of NASA Watch, a Website devoted to tracking all things NASA. (The site claims a devoted readership, including some highly placed members of the agency and Congress.) Administrator O'Keefe has recognized the problem and is trying to unite the organization through his so-called One NASA management approach (of which the SAP system is a cornerstone). But Cowing isn't sure he'll succeed. "This whole notion of 'one NASA' sounds good on paper, and they've done some things that cracked through the walls," he says. "But I don't know how much they'll ever integrate."
The structural barriers have combined over time to make any NASA-wide initiatives an exercise in frustration, a problem that Brown is also working hard to overcome. The CFO has instituted policy changes that she hopes will make finance-team members more accountable to her. Prior to her arrival, policies were written on an agencywide level, but each center was free to create processes and procedures to apply the policies as it wished. Brown has sought to change that.
"I've told them that from now on, the agency will set policy, process, and procedure, and you, the centers, will do implementation," says Brown. "If we're going to be accountable and credible, that's what we have to do here." The centers are "not as autonomous as they used to be," a change that, she reports, has been met with some "inertia" from finance staffers. The problem isn't just administratively challenging: one of the main reasons that Brown offers for the mammoth $2 billion difference between its year-end fund account balance and its Treasury account balance is that the center-based finance staffers "failed to follow policies and procedures" — policies that include monthly reconciliations with the actual Treasury balance — once the SAP module was installed. (NASA headquarters is also required to do those monthly reconciliations.)
Optimistic to a Fault
Another of NASA's defining characteristics, which was identified as a contributing factor to the Columbia disaster in 2003 by the Columbia Accident Investigation Board, is its propensity for being overly optimistic about challenges, coupled with an unwillingness to hear bad news. This, the board said in its report on the accident, leads to bad communication and system breakdowns — because, eventually, even NASA employees aren't sure what's happy talk and what's the truth. This characteristic is evident in the finance organization, too.
For years, the GAO and NASA's own inspector general had warned of material weaknesses in both the new IFMP system and the finance department. In its most recent evaluation of the system, published in early November 2003, the GAO said the system didn't give project-cost estimators the full-cost accounting information they needed; didn't properly account for contractor-held property or accounts payable; and improperly processed accrued costs and obligations. The GAO pointed out that the new core financial module hadn't been fully tested, and in some cases processed transactions incorrectly. In a rebuttal letter accompanying the report, NASA deputy administrator Frederick Gregory "respectfully disagreed" with every point the GAO made. (Gregory's rebuttal implies that by October, NASA had already addressed all of the problems that, in fact, ended up causing the $565 billion in year-end adjustments.)
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