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The tone of "NASA, We Have a Problem" (May) may have misled your readers about the state of financial management at the National Aeronautics and Space Administration.
We have encountered serious challenges with our conversion to an integrated full-cost accounting system, and, yes, they resulted in a disclaimed audit opinion. However, NASA's administrator, Sean O'Keefe, has stressed management reform as a necessary condition for accomplishing the vision for space exploration. Accordingly, NASA is implementing leading-edge management-information technology to support the agency's strategic vision and to ensure the taxpayer receives the best value from America's space agency.
NASA's financial community is at the forefront of these changes. Six months ago, I became CFO as the agency labored to convert 10 major and more than 100 related accounting systems and processes into a centralized, rigorous system. Now in use, that system is providing NASA with the under-pinning to clearly identify, analyze, and report the full cost of our exploration activities.
Your attention to and interest in NASA's financial health is both warranted and appreciated. We want to be able to provide Congress and the American public with a fair, timely, transparent, and complete accounting of the resources that support the significant results the entire NASA team is achieving. I know any CFO who has attempted to manage the magnitude of changes we are making to NASA's financial infrastructure and processes will be aware our path forward is long and arduous, but ultimately well worth the effort.
Gwen Brown
CFO
NASA
Washington, D.C.
Manipulating the Numbers
I really enjoyed your article on compensation in the June issue ("New Carrots, Old Yardsticks?").
At one point, you referred to a potential encouragement to cut costs at the expense of revenue and cash flow. To expand on that a bit, costs can be manipulated as well as cut. It is possible to park costs in inventory, for example, or to allocate them out of current expenses, as WorldCom did. Manipulation of revenue recognition is the most publicized way to manipulate earnings, but manipulation of costs works just as well.
Kirke Bent
Via E-mail
A Three-legged Stool
Your article regarding 401(k) provider fees was outstanding ("Raiding the Returns," May). While this is a big problem for plan fiduciaries, they most often do not have the tools or knowledge to deal with it.
I see a lack of qualified advisers in this area, in part because broker/advisers who market the plans disappear when the residual revenue is so low that it doesn't pay them to stay involved and to guide the employer. The turnover compounds the problem, and obvious expenses get lost, not to mention the hidden expense of revenue sharing. Taking over are the vendor reps, whose paychecks depend on maintaining their companies' profits. Thus, the customer is in the hands of the "fox," and doesn't really know it.
Good business operates as a three-legged stool: it has to be good for the customer, the vendor, and the broker/adviser. Very seldom do I find harmony in this equation for a customer's 401(k).
Steve Miller
Independent pension consultant
Matstock and Associates
Phoenix
From the Horse's Mouth
Your article "Forget Black-Scholes?" (May) highlights the shortcomings of the Black-Scholes option-pricing model with respect to valuing employee stock options, citing the model's failure to consider factors such as lack of transferability and risk of forfeiture.
Should anyone in the finance community feel that moving away from the Black-Scholes model somehow violates the sanctity of what may be viewed by some as an established standard for valuing options, consider this: the model was never intended to be used for valuing employee stock options. I know this because, prior to his untimely death in 1995, I had occasion to discuss this matter directly with Fisher Black.
In 1992, I was representing a U.S.-based multinational in a dispute with Dutch tax authorities over the value of employee stock options, and I contacted Black for assistance. He told me, directly and emphatically, that he would never use the Black-Scholes model for valuing employee stock options — for the very reasons cited in your article!
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