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Report to the Committee on Commerce, Science, and Transportation, 
United States Senate, and the Committee on Science, House of 
Representatives:

November 2003:

BUSINESS MODERNIZATION:

NASA's Integrated Financial Management Program Does Not Fully Address 
Agency's External Reporting Issues:

GAO-04-151:

GAO Highlights:

Highlights of GAO-04-151, a report to the Committee on Commerce, 
Science, and Transportation, U.S. Senate, and the Committee on 
Science, House of Representatives 

Why GAO Did This Study:

In April 2000, the National Aeronautics and Space Administration 
(NASA) began its Integrated Financial Management program (IFMP), its 
third attempt at modernizing its financial management processes and 
systems. In April 2003, GAO reported that NASA’s acquisition strategy 
has increased the risk that the agency will implement a system that 
will cost more and do less than planned. This report is one of a 
series of reviews of NASA’s acquisition and implementation of IFMP, 
and focuses on the core financial module’s ability to provide the 
information necessary for external financial reporting. 

What GAO Found:

The core financial module of IFMP provides NASA its first agencywide 
accounting system—a significant improvement over the 10 disparate 
systems previously used. However, to meet IFMP’s aggressive 
implementation schedule, NASA deferred testing and implementation of 
many key requirements of the core financial module. Consequently, 
when NASA announced, in June 2003, that this module was fully 
operational at each of its 10 centers, about two-thirds of the 
financial events or transaction types needed to carry out day-to-day 
operations and produce external financial reports had not been 
implemented in the module. NASA officials acknowledged that, as part 
of their implementation strategy, they had not yet converted the 
module to support full-cost accounting. In addition, we found that 
NASA also deferred implementation of other key core financial module 
capabilities. Because NASA did not use disciplined processes for 
defining, managing, and testing key system requirements, or 
substantially reengineer its business processes prior to 
implementation, the core financial module, as implemented in June 
2003, does not address several long-standing external reporting 
issues and has created some new problems. 

* Long-standing external financial reporting issues have not been 
addressed.  NASA has not used its implementation of the core financial 
module as an opportunity to drive needed changes in its management 
practices and business processes. Therefore, the system does little 
to address NASA’s ability to properly account for $37 billion of 
reported property or certain aspects of the agency’s $15 billion 
annual budget. 

* New financial reporting problems have emerged. NASA went forward 
with its aggressive implementation plans even though agency managers 
knew of problems with the module’s ability to properly process and 
record certain transactions. As a result, the module does not 
appropriately capture critical information on the cost of NASA’s 
operations, such as certain accrued costs, accounts payable, and 
obligation transactions.

In April 2003, GAO reported that the core financial module did not 
address key internal management information requirements. Now, GAO has 
found that the module cannot reliably provide key financial data 
needed for external financial reporting. Although NASA intends to 
address many of these issues, its implementation approach raises 
concerns over its ability to do so. These deferred external reporting 
capabilities, combined with the findings from our April 2003 report, 
indicate that NASA’s June 2003 core financial module and related 
systems do not substantially comply with the requirements of FFMIA. 
FFMIA addresses the need for agencies’ financial systems to provide 
value to those who use financial data. NASA must address these issues 
if the core financial module and IFMP are to achieve the objective of 
providing reliable, timely financial information for both internal 
management decision-making and external reporting purposes. 

What GAO Recommends:

GAO is recommending that NASA (1) identify all areas that are not 
compliant with the Federal Financial Management Improvement Act 
(FFMIA) of 1996 and (2) develop an implementation plan for addressing 
those areas and incorporating them into IFMP, including the need for 
reengineering some processes, such as the cost and other information 
that it requires from contractors. This plan should include time 
frames and details on how any changes will be monitored, tested, and 
documented. NASA disagreed with GAO’s recommendations, saying that 
the report did not reflect IFMP’s most recent progress. GAO 
considered recent IFMP progress and reaffirmed its position.

www.gao.gov GAO-04-151

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Gregory D. Kutz at 
(202) 512-9095 or kutzg@gao.gov.

[End of section]

Contents:

Letter: 

Results in Brief: 

Background: 

Schedule-driven Approach Limits Transaction Processing Capabilities: 

Long-standing External Reporting Issues Not Addressed: 

NASA'S Implementation of IFMP Has Created New Reporting Problems: 

Core Financial Module Does Not Substantially Comply With FFMIA: 

Conclusion: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendixes:

Appendix I: Objective, Scope, and Methodology:  

Appendix II: Comments From the National Aeronautics and Space 
Administration:  

Appendix III: GAO Contact and Staff Acknowledgments:  

GAO Contact: 

Acknowledgments: 

FASAB: Federal Accounting Standards Advisory Board:

FFMIA: Federal Financial Management Improvement Act: 

FFMSR: Federal Financial Management System Requirements:

IFMP: Integrated Financial Management Program: 

JFMIP: Joint Financial Management Improvement Program:

NASA: National Aeronautics and Space Administration:

OMB: Office of Management and Budget:

PP&E: Property, Plant, and Equipment: 

SFFAC: Statement of Federal Financial Accounting Concepts:

SFFAS: Statement of Federal Financial Accounting Standards: 

SGL: U.S. Government Standard General Ledger:

Letter November 21, 2003:

The Honorable John McCain: 
Chairman: 
The Honorable Ernest F. Hollings: 
Ranking Minority Member: 
Committee on Commerce, Science, and Transportation: 
United States Senate:

The Honorable Sherwood L. Boehlert: 
Chairman: 
The Honorable Ralph M. Hall: 
Ranking Minority Member: 
Committee on Science: 
House of Representatives:

For years, the National Aeronautics and Space Administration (NASA) has 
cited deficiencies with its financial management systems as a primary 
reason for not having the necessary data required to oversee its 
contractors, accurately account for the full cost of its operations, 
and efficiently produce accurate and reliable information needed for 
both management decision-making and external reporting purposes. 
Recognizing the importance of successfully implementing an integrated 
financial management system, in April 2000, NASA began an effort known 
as the Integrated Financial Management Program (IFMP). When completed, 
IFMP is planned to consist of nine modules[Footnote 1] that will 
support a range of financial, administrative, and functional areas. On 
June 23, 2003, NASA announced that the core financial module--
considered the backbone of IFMP--was fully operational at each of 
NASA's 10 centers. The core financial module is intended to provide 
NASA's financial and program managers with timely, consistent, and 
reliable cost and performance information for management decisions and 
external financial reporting.

NASA has made two efforts in the recent past to improve its financial 
management processes and systems but both of these efforts were 
eventually abandoned after spending a total of 12 years and a reported 
$180 million. Given the importance of NASA's current effort, you asked 
us to assess the program. In April 2003, we issued our first report on 
IFMP to alert you to concerns we had, based on our work to date. In 
that report, we provided you with, among other things, our assessment 
of the core financial module's ability to satisfy NASA's internal 
management decision-making needs.

As agreed, we continued our review of IFMP in three areas to assess: 
(1) whether NASA has been acquiring and implementing IFMP in the 
context of an enterprise architecture, (2) the extent to which the core 
financial module will address NASA's external reporting requirements, 
and (3) NASA's life-cycle cost estimate and schedule for IFMP. We are 
responding to the first and third issues in separate reports,[Footnote 
2] and we have summarized our findings on all three issues in a summary 
report.[Footnote 3] This report addresses the second issue--the extent 
to which the core financial module, as completed in June 2003, will 
satisfy NASA's key external reporting requirements. Specifically, we 
assessed whether the core financial module, as of June 2003, provides 
the functionality needed to (1) accurately account for property, plant, 
and equipment (PP&E) and material, (2) properly account for the full 
cost of NASA's projects and programs, (3) capture and report certain 
key budgetary information, (4) accurately record accounts payable, and 
(5) comply substantially with the requirements of the Federal Financial 
Management Improvement Act (FFMIA) of 1996.[Footnote 4] FFMIA 
emphasizes the need for agencies to be able to provide financial 
management information, including cost information, for measuring the 
results of program performance on an ongoing basis. FFMIA also requires 
that an agency's independent auditor report on the ability of agency 
financial management systems to comply substantially with these 
requirements.

We performed our work from April 2003 through September 2003 in 
accordance with generally accepted government auditing standards. 
Details on our objective, scope, and methodology are in appendix I.

Results in Brief:

Although NASA has met its core financial module's implementation 
schedule, the system, as implemented in June 2003, does not provide 
many key external financial reporting capabilities. In fact, when NASA 
announced, in June 2003, that the core financial module was fully 
operational at each of its 10 centers, about two-thirds of the 
financial events or transaction types needed to carry out day-to-day 
financial operations and produce external financial reports had not 
been implemented. At that time, NASA officials acknowledged that, as 
part of their implementation strategy, they had not yet converted the 
system to support full-cost accounting. However, because NASA did not 
use disciplined processes for defining, managing, and testing system 
requirements or substantially reengineer its business processes prior 
to implementation, we found that NASA also deferred implementation of 
other key core financial module capabilities. Key core financial module 
capabilities deferred for these reasons include (1) capturing, 
recording, and accounting for PP&E and material and (2) making 
adjustments to prior year obligations. In addition, NASA's 
implementation approach has created new problems in recording certain 
accrued costs, accounts payable, and obligation transactions. These 
deferred external reporting capabilities and new problems, combined 
with the findings from our April 2003 report, indicate that NASA's June 
2003 core financial module and related systems do not substantially 
comply with the requirements of FFMIA.

According to NASA officials, NASA plans to address most of these 
problems between now and 2006 when it expects IFMP to be fully 
implemented. For example, after the core financial module's 
implementation in June 2003, NASA began designing the agency's new cost 
allocation structure and expected that by October 1, 2003, the core 
financial module would have the ability to capture the full cost of 
NASA's programs and projects needed for external financial reporting 
purposes. In addition, although past software upgrades, or "patch" 
releases, have proven to be unsuccessful, NASA expected a new patch 
release to resolve the system problems associated with budgetary 
accounting by October 1, 2003.

However, even if the agency's cost allocation structure is in place and 
the patch release is successful, NASA has not addressed its most 
challenging external reporting issues--accurately capturing, 
recording, and accounting for PP&E and materials and ensuring that its 
system meets the broader objectives of federal managerial cost 
accounting standards. Specifically, NASA has not reengineered the 
agency's processes for capturing contract costs associated with PP&E 
and material and therefore continues to update the core financial 
module using periodic summary-level manual entries. Although NASA plans 
to implement an integrated asset management module in 2005, this alone 
will not ensure that NASA uses transaction-level detail to update the 
core financial module and thereby provide independent control over its 
property.

Further, as we reported in April 2003, the core financial module does 
not provide agency managers or the Congress with useful cost and 
related information with which to make informed decisions, manage daily 
operations, and ensure accountability on an ongoing basis. 
Consequently, the system does not meet the broader objectives of 
federal managerial cost accounting standards, which address the need to 
provide relevant and reliable information to both managers and the 
Congress.

We are making recommendations that NASA develop and implement a 
corrective action plan to ensure that the agency's financial management 
systems comply substantially with the requirements of FFMIA. The plan 
should provide a means for ensuring that all user requirements are met, 
including the need to reengineer key business processes where 
necessary.

In written comments, which are reprinted in appendix II, NASA disagreed 
with all of our conclusions and recommendations in part because we 
reviewed the status of the core financial module as of June 23, 2003 
instead of September 30, 2003--the date used for FFMIA reporting. We 
conducted our audit as of June 2003 because NASA represented that the 
core financial module was fully operational at all of its centers at 
that time, acknowledging only that they had not yet converted the 
system to support full-cost accounting, but not disclosing many other 
deferred capabilities.

Moreover, NASA's comments assert that for PP&E and budgetary reporting, 
the manual processes or workarounds it has developed to produce year-
end balances for the agency's annual financial statements also satisfy 
the requirements of FFMIA. We disagree with this assertion. The 
development of significant manual workarounds in these areas masks the 
fact that NASA's core financial module is not designed to and cannot 
produce timely and reliable PP&E and budgetary data with traceability 
to transaction-based support. The ability to produce reliable numbers 
once a year for financial reporting purposes does not by itself 
constitute FFMIA compliance. In its written comments, NASA indicated 
that it has made changes to the module since June and that the core 
financial module as implemented in October 2003 has many of the 
capabilities that were lacking in the June 2003 module. However, with 
the possible exception of full-cost accounting, which was planned for 
October 1, 2003, NASA acknowledges that the cited changes involve 
manual workarounds for producing year-end numbers. FFMIA goes well 
beyond producing auditable financial statements once a year; it 
requires financial systems that ensure accountability and accurate data 
for managerial and reporting purposes on an ongoing basis throughout 
the year.

Background:

From 1996 through 2000, NASA was one of the few agencies to be judged 
by its independent auditor at that time, Arthur Andersen, as meeting 
all of the federal financial reporting requirements. That is, NASA was 
one of the few agencies to receive an unqualified, or "clean," opinion 
on its financial statements, with no material internal control 
weaknesses noted, and no indications that its financial management 
systems were not in substantial compliance with the requirements of 
FFMIA.[Footnote 5] FFMIA reflects the need for agencies to have systems 
that produce reliable, timely, and accurate financial information 
needed for day-to-day decision making by requiring agencies to 
implement and maintain financial management systems that substantially 
comply with (1) federal financial management systems 
requirements,[Footnote 6] (2) the U.S. Government Standard General 
Ledger (SGL) at the transaction level,[Footnote 7] and (3) applicable 
federal accounting 
standards.[Footnote 8] Thus, the auditor's report implied that NASA 
could not only generate reliable information once a year for external 
financial reporting purposes but also could provide the kind of 
information needed for day-to-day management decision making.

However, as we and others have reported, the independent auditor's 
reports did not provide an accurate picture of NASA's financial 
management systems and, instead, failed to disclose pervasive financial 
management problems that existed at NASA. For example, we have 
identified NASA's contract management function as an area of high risk 
since 1990 because of NASA's inability to (1) oversee its contractors 
and their financial and program performance, and (2) implement a 
modern, integrated financial management system, which is integral to 
producing accurate and reliable financial information needed to support 
contract management.[Footnote 9] Also, in February 2002, NASA's new 
independent auditor, PricewaterhouseCoopers, further confirmed NASA's 
financial management difficulties and disclaimed an opinion on the 
agency's fiscal year 2001 financial statements. The audit report also 
identified a number of material internal control weaknesses--primarily 
regarding PP&E and materials--and stated that, contrary to previous 
financial audit reports, NASA's financial management systems did not 
substantially comply with FFMIA.

While NASA received an unqualified opinion for its fiscal year 2002 
financial statements, these results were achieved only through heroic 
efforts on the part of NASA and its auditor and again, the audit report 
identified a number of material internal control weaknesses and stated 
that NASA's financial management systems did not substantially comply 
with FFMIA. To its credit, in April 2000, NASA began an effort known as 
IFMP. The schedule for implementing IFMP was originally planned for 
fiscal year 2008, but after NASA's new Administrator came on board in 
fiscal year 2002, the timeline was accelerated to fiscal year 2006, 
with the core financial module to be completed in fiscal year 2003. 
NASA's IFMP includes nine module projects supporting a range of 
financial, administrative, and functional areas. According to NASA 
officials, of the nine module projects, five are in operation, one is 
currently in implementation, and three are future modules. The five 
modules in operation are resume management, position description 
management, travel management, executive financial management 
information (called Erasmus), and core financial; the one project in 
implementation is budget formulation; and the three future module 
projects are human resources, asset management, and contract 
administration.

The core financial module, which utilizes the SAP R/3 system,[Footnote 
10] is considered the backbone of IFMP and has become NASA's standard, 
integrated accounting system used agencywide. The other IFMP module 
projects will be integrated/interfaced with the core financial module, 
where applicable. The Joint Financial Management Improvement Program 
(JFMIP)[Footnote 11] defines a core financial system (or module) as the 
backbone of an agency's integrated financial management system: It 
should provide common processing routines, support common data for 
critical financial management functions affecting the entire agency, 
and maintain the required financial data integrity control over 
financial transactions, resource balances, and other financial systems. 
A core financial system should support an agency's general ledger, 
funds management, payment, receivable, and cost management functions. 
Also, the system should receive data from other financial-related 
systems, such as inventory and property systems, and from direct user 
input, and it should provide data for financial statement preparation 
and for financial performance measurement and analysis.

The scope of NASA's core financial module includes the general ledger, 
budget execution, purchasing, accounts receivable, accounts payable, 
and cost management. NASA completed implementation of the core 
financial module at all 10 NASA centers in June 2003. The pilot for the 
core financial module--conducted at Marshall Space Flight Center--was 
implemented in October 2002. NASA then deployed the core financial 
module at the other 9 NASA centers in three "waves," the last of which 
was completed in June 2003.

In April 2003, we issued our first report on IFMP in response to your 
request.[Footnote 12] At that time, we reported that NASA was not 
following key best practices for acquiring and implementing the system, 
which may affect the agency's ability to fully benefit from the new 
system's capabilities. Specifically, we reported that NASA (1) did not 
analyze the relationships among selected and proposed IFMP components, 
(2) had deferred addressing the needs of key system 
stakeholders,[Footnote 13] including program managers and cost 
estimators, and (3) did not properly manage and test its system 
requirements prior to implementation of the core financial module. As a 
result, we reported that:

* NASA has increased its risks of implementing a system that will not 
optimize mission performance, and will cost more and take longer to 
implement than necessary;

* the core financial module is not being designed to integrate the cost 
and schedule data that program managers need to oversee the work of 
NASA's contractors; and:

* costly rework will likely be required to fix requirement defects not 
identified prior to implementation.

Schedule-driven Approach Limits Transaction Processing Capabilities:

Although NASA has met the core financial management module's 
implementation schedule, the system as implemented in June 2003 has 
limited external financial reporting capabilities. When NASA announced 
in June 2003 that the core financial management module was complete, 
NASA officials acknowledged that additional work remained, including 
the need to develop and configure a cost-allocation structure within 
the system so that it would accumulate the full cost of NASA's programs 
and projects for external financial reporting purposes. However, to 
meet its implementation schedule, we also found that NASA (1) deferred 
requirements that require significant business process reengineering or 
extensive software configuration and (2) continues to rely on manual 
procedures for many transactions that should be automated in the new 
system. Consequently, only about one-third of the transaction types 
that NASA uses in its business processes are currently implemented and 
fully automated in the core financial module.

The Full Cost of NASA's Programs Not Yet Available:

As part of its implementation strategy, NASA delayed conversion to 
full-cost accounting until the core financial module was implemented at 
all centers. After completing implementation of the module in June 
2003, NASA began designing the agency's new cost-allocation structure 
and expected that full-cost accounting capabilities needed to provide 
the full cost of its programs and projects for external financial 
reporting purposes would be available through the core financial module 
by October 1, 2003. Properly designing, configuring, and testing the 
cost-allocation structure is key to capturing the full costs of all 
direct and indirect resources and allocating them to NASA's programs 
and activities. However, on May 30, 2003, NASA's Inspector General 
reported that NASA had not yet determined how to allocate space shuttle 
program costs to programs that benefit from space shuttle services or 
how to allocate civil service personnel costs to benefiting programs 
and projects.[Footnote 14] Once these issues were resolved, NASA would 
then have to configure the core financial module software to 
accommodate the new allocation structure and properly test the new 
configuration. Consequently, NASA's Inspector General expressed 
concerns about NASA's ability to meet its October 1, 2003, target date. 
In early October, we inquired about the status of full-cost accounting 
within the core financial module and IFMP officials told us that this 
capability would be fully implemented on October 26, 2003. However, 
because of the timing of this report, we did not verify whether this 
implementation date was met.

If NASA is successful in implementing full-cost accounting, the new 
system should link all of NASA's direct and indirect costs to specific 
programs and projects, and for the first time shed light on the full 
cost of these programs for external financial reporting purposes. As 
explained later, managerial cost accounting goes beyond providing the 
full cost of programs and projects and producing external financial 
reports, and is also critical for producing the type of cost 
information needed to effectively manage and oversee NASA's programs.

Deferred Requirements Include Transactions Critical to NASA's Business 
Operations:

NASA did not adequately test key requirements or configure the core 
financial module software to satisfy these requirements prior to 
implementing the module. Adequately testing and configuring a system 
prior to implementation helps assure the integrity and effectiveness of 
transactions that will be processed through the system, thereby 
reducing the likelihood of rejected transactions, labor-intensive 
manual workarounds, and inaccurate data. However, prior to 
implementation, NASA tested only 120, or 53 percent, of the 225 unique 
financial events or transaction types identified by NASA as critical 
for carrying out day-to-day operations and producing external financial 
reports. NASA deferred implementation of the remaining 105 transaction 
types until after June 23, 2003, when the system would be implemented 
at all centers.

Ideally, all transactions should be thoroughly tested prior to 
implementing a system. However, to meet the agency's implementation 
schedule, NASA identified and deferred implementation of transactions 
that it determined would not have a significant or immediate impact on 
operations. For example, 29 of the deferred transactions were related 
to year-end closing procedures that would not be needed until September 
30, 2003. However, other deferred transactions do have a significant 
and immediate impact on NASA's operations throughout the year. For 
example, 40 transaction types were related to upward and downward 
adjustments to prior year data, many of which affected NASA's ability 
to properly capture adjustments to obligations. Because NASA deferred 
implementing this capability, the agency has continued to rely on ad 
hoc, manual processes and "workarounds." As discussed later, these are 
the same cumbersome manual processes that resulted in a $644 million 
error in NASA's fiscal year 1999 financial statements.

NASA hoped to implement most of these deferred transactions by October 
2003. In mid-October, NASA officials told us that 75 of the 105 
deferred transaction types had been implemented, and the remaining 30 
transaction types would be implemented later in fiscal year 2004. Until 
the remaining transaction types are implemented, however, NASA must 
continue to process them outside of the module using manual procedures.

Core Financial Module Relies Heavily on Manual Procedures:

In addition to the 105 transaction types that NASA has deferred, NASA 
also uses manual accounting entries to record 43, or 36 percent, of the 
120 unique transaction types NASA considers implemented. NASA considers 
these 43 transaction types implemented because NASA has no current 
plans to automate them in the core financial module. Although manual 
accounting entries are sometimes necessary to record unusual or 
infrequent events, many of NASA's manual entries are made to record 
routine events that should be processed electronically. For example, 
NASA uses summary-level manual processes to record all transactions 
occurring throughout the year related to its reported $37 billion of 
property. Such a large proportion of manual procedures runs contrary to 
the purpose of an automated system and makes the agency more vulnerable 
to processing errors and delays. In fact, prior to implementation, 
NASA's consultant responsible for performing an independent compliance 
review of the core financial module raised concerns about the excessive 
number of transactions processed with manual journal voucher entries. 
Despite these concerns, NASA did not alter its implementation plan for 
the module.

Long-standing External Reporting Issues Not Addressed:

The core financial module may provide some improvements to NASA's 
current accounting system environment by reducing the extensive amount 
of time and resources currently required to consolidate NASA's 10 
different reporting entities and close the books each accounting 
period. However, NASA did not thoroughly test or implement key 
requirements prior to implementation and has not used the new system as 
an opportunity to drive needed changes in its management practices and 
business processes. Therefore, the core financial module, as 
implemented in June 2003, does not (1) properly capture, record, and 
account for PP&E and materials balances or (2) provide key system 
requirements needed to prepare the agency's Statement of Budgetary 
Resources.

NASA Has Not Reengineered Processes to Properly Account for PP&E and 
Materials:

The core financial module, as implemented in June 2003, does not 
appropriately capture and record PP&E and material in the module's 
general ledger at the transaction level. According to SGL requirements 
and NASA's own accounting policy, recording PP&E and material in the 
general ledger at the transaction or item level provides independent 
control over these assets. However, NASA currently updates the core 
financial module's general ledger using periodic summary-level manual 
entries. Although NASA plans to implement an integrated asset 
management module in 2005, this alone will not ensure that transaction-
level detail is used to update the core financial module.

NASA's PP&E and materials are physically located at many locations 
throughout the world, including NASA centers, contractor facilities, 
other private or government run facilities, and in space. NASA's most 
significant challenge, with respect to property accounting, stems from 
property located at contractor facilities, which accounts for almost 
$11 billion, or about one-third, of NASA's reported $37 billion of PP&E 
and materials and consists primarily of equipment being constructed for 
NASA or items built or purchased for use in the construction process. 
NASA has not reengineered the agency's processes for capturing contract 
costs associated with PP&E and material, though, and therefore, does 
not record these property costs in the general ledger at the 
transaction level. Instead, according to NASA officials, the agency 
plans to continue to (1) record the cost of PP&E and materials as 
expenses when initially incurred, (2) periodically determine which of 
those costs should have been capitalized, and (3) manually correct 
these records at a summary level.

To illustrate, NASA's contractors provide NASA with monthly contractor 
cost reports, which contain accrued cost information for any work 
performed during the month. However, these reports do not contain 
enough information for NASA to determine what portion of the reported 
cost pertains to the construction or acquisition of property and 
therefore, NASA initially records all costs reported by its contractors 
as an expense. Then, on a quarterly or annual basis,[Footnote 15] NASA 
receives a property report from its contractors that provides summary-
level information on the amount of property constructed or purchased 
and currently in the contractor's possession. Based on these reports, 
NASA records the cost of contractor-held assets in its general ledger 
and reverses the expense previously recorded from the contractor cost 
reports. The problem with NASA's current process for capturing, 
recording, and accounting for property in the possession of contractors 
is that it provides no way for NASA to ensure that the money it spends 
on the construction of its property is actually recorded as discrete 
property items.

Although NASA plans to implement an integrated asset management module 
in 2005, the new system will not change the way NASA captures, records, 
and accounts for property in the possession of contractors. As noted 
above, because this problem stems from NASA's inability to link accrued 
costs reported by its contractors with specific equipment items being 
constructed, the problem will not be alleviated when physical custody 
of the equipment is ultimately transferred to NASA and recorded in 
NASA's property records.

Key Requirements Deferred for Statement of Budgetary Resources:

The core financial module does not capture and report certain key 
budgetary information needed to prepare the agency's Statement of 
Budgetary Resources. Although the software that NASA purchased for the 
core financial module was certified by JFMIP as meeting all mandatory 
system requirements, NASA may have relied too heavily on the JFMIP 
certification. JFMIP has made it clear that its certification, by 
itself, does not automatically ensure compliance with the goals of 
FFMIA. Other important factors that affect compliance with Federal 
Financial Management System Requirements (FFMSR) include how well the 
software has been configured to work in the agency's environment and 
the quality of transaction data in the agency's feeder systems. When 
NASA later tested specific requirements related to adjustments to prior 
year obligations, the core financial module failed the test. 
Consequently, NASA deferred implementation of those requirements and 
opted to rely on manual compilations, system queries, or other 
workarounds to compensate for the system's inadequacies. These 
workarounds are known to have caused reporting problems in the past.

According to FFMSR, an agency's core financial module should 
automatically classify and record upward and downward adjustments of 
prior year obligations to the appropriate general ledger accounts. 
However, NASA's core financial module, as implemented in June 2003, 
does not provide this capability. For example, if an upward adjustment 
is required because an invoice includes costs not previously included 
on the purchase order, such as shipping costs, the system erroneously 
posts the upward adjustment to a prior year obligation instead of a 
current year obligation. Because the system does not properly capture 
and report these adjustments, NASA must rely on manual compilations and 
system queries to extract the data needed to prepare the agency's 
Statement of Budgetary Resources--just as it did using its legacy 
general ledger systems. As we reported in March 2001, this cumbersome, 
labor-intensive effort to gather the information needed at the end of 
each fiscal year was the underlying cause of a $644 million 
misstatement in NASA's fiscal year 1999 Statement of Budgetary 
Resources.[Footnote 16]

During its initial test of system requirements but prior to 
implementation at Marshall Space Flight Center and Glenn Research 
Center in October 2002, NASA became aware of the software's limitations 
regarding upward and downward adjustments to prior year obligations. In 
order to meet its schedule, NASA IFMP officials deferred further system 
modifications to meet these requirements and opted to rely on a manual 
workaround to satisfy the federal requirement for upward and downward 
adjustments. NASA's consultant responsible for performing an 
independent compliance review of the core financial module raised 
concerns about this approach. Despite these concerns, NASA went forward 
with its plans. At the time, NASA had hoped that a "patch" release or 
future software upgrade would remedy the problem and then NASA could 
incorporate the fix into the phased agency rollout of the core 
financial module. However, the upgrades incorporated after the initial 
implementation at Marshall and Glenn did not resolve all of the issues 
related to upward and downward adjustments. As a result, NASA continued 
to face significant problems in this area. According to NASA officials, 
the agency continued to work with the software vendor to reconfigure 
the software as necessary to accommodate adjustments to prior year 
obligations. NASA expected a new software patch to resolve any 
remaining problems by October 1, 2003. However, in mid-October, NASA 
officials acknowledged that it might be some time before this issue 
would be resolved completely. Until then, NASA will continue to rely on 
manual workarounds.

NASA'S Implementation of IFMP Has Created New Reporting Problems:

NASA's implementation of the core financial module has also created new 
reporting issues. Specifically, the core financial module does not 
appropriately capture accrued costs and record the corresponding 
liabilities as accounts payable. In addition, the core financial module 
records obligations to the general ledger before the obligations are 
legally binding. Although NASA knew about these problems prior to 
implementation, the agency went forward with its implementation plans.

Accrued Costs and Accounts Payable Not Appropriately Captured and 
Reported:

The core financial module, as implemented in June 2003, does not 
appropriately capture and record accrued contract costs and accounts 
payable information in accordance with federal accounting standards and 
NASA's own financial management manual. Specifically, the core 
financial module does not capture accrued costs or record accounts 
payable if cumulative costs are in excess of obligations for a given 
contract. As of June 30, 2003, NASA had not processed approximately 
$245 million in costs that exceeded obligations, nor recorded the 
corresponding accounts payable, even though this amount represented a 
legitimate liability for NASA. Instead, these transactions are held 
outside of the general ledger in suspense until additional funds can be 
obligated. Thus, any report containing information on NASA's costs or 
liabilities would likely be understated by the amount of costs held in 
suspense at the time of the report.

Federal accounting standards and NASA's own financial management manual 
require costs to be accrued in the period in which they are incurred 
and any corresponding liability recorded as an account payable, 
regardless of amounts obligated. Further, federal standards require 
that agencies must disclose unfunded accrued costs--or costs in excess 
of obligations. However, NASA has designed the core financial module 
such that it will not post costs to the general ledger if they exceed 
the amount obligated. According to NASA officials, this is intended to 
be a "red flag" or internal control that alerts agency managers to 
potential cost overruns.

While we agree that NASA could benefit from information that provides 
an early warning sign of possible cost or schedule problems, we 
disagree with NASA's approach. Appropriately posting costs and accounts 
payable to the general ledger does not preclude NASA from monitoring 
unfunded accrued costs. Further, as we reported in April 2003, to 
adequately oversee NASA's contracts, program managers need reliable 
contract cost data--both budgeted and actual--and the ability to 
integrate this data with contract schedule information to monitor 
progress on the contract. However, because program managers were not 
involved in defining system requirements or reengineering business 
processes, the core financial module is not being designed to integrate 
cost and schedule data needed by program managers.

Core Financial Software Posts Obligations to the General Ledger Before 
They Are Binding:

The core financial module was intended to streamline many of NASA's 
processes and eliminate the need for many paper documents. However, in 
some areas, the new system has actually increased NASA's workload. 
Specifically, because the core financial software allows obligations to 
be posted to the general ledger before a binding agreement exists, NASA 
must process purchase orders and contract documents outside the system 
until they are signed, or otherwise legally binding. At that point, 
NASA initiates the procurement action in the system and repeats the 
steps that were manually performed outside the system previously.

Federal law requires that no amount be recorded as an obligation unless 
it is supported by documentary evidence of, among other things, a 
binding agreement.[Footnote 17] However, the processes that are 
embedded in the core financial module for processing purchase orders 
and contract documents do not accommodate this requirement. To 
illustrate, authorized users create electronic purchase requests in the 
system and release or forward the request to the appropriate approving 
official for electronic signature. Once signed, the purchase request is 
forwarded electronically to the purchasing department where purchasing 
staff create an electronic purchase order, secure a vendor, and place 
the order. According to federal appropriations law, a purchase order 
constitutes an obligation when the order is placed and when all 
relevant parties sign the purchase order. However, if a purchase order 
is entered into the system before it is finalized, the module 
automatically records the obligation. Similarly, if a contract or 
contract modification is entered into the module before it is signed 
and legally binding, the module automatically records the obligation. 
According to NASA officials, they are working with the software vendor 
to develop a solution and expect that the new software upgrade to be 
released on October 1, 2004, will alleviate this problem. In the 
meantime, they will manually process documents outside of the system 
and monitor any documents that have been recorded without signatures to 
ensure that obligations are not overstated at month-end.

Core Financial Module Does Not Substantially Comply With FFMIA:

The system limitations discussed previously related to full-cost 
accounting, property accounting, budgetary accounting, accrued costs, 
and accounts payable--combined with the findings from our April 2003 
report--indicate that NASA's new core financial module and related 
systems, as implemented in June 2003, do not substantially comply with 
the requirements of FFMIA. This act provides agencies a blueprint for 
building fully integrated financial management systems that routinely 
provide decision makers with timely, reliable, and useful financial 
information. FFMIA requires agencies to implement and maintain 
financial management systems that substantially comply with (1) FFMSR, 
(2) the SGL at the transaction level, and (3) applicable federal 
accounting standards. Although NASA has made progress in addressing 
some of its financial management system weaknesses, the agency's core 
financial module does not yet provide all the building blocks needed to 
achieve the ultimate goal of FFMIA.

Noncompliance with FFMSR:

The core financial module, as implemented in June 2003, does not comply 
substantially with FFMSR. To ensure that automated federal financial 
management systems comply with this standard and provide the critical 
information needed for decision making, JFMIP issued specific 
functional requirements that core financial systems must meet in order 
to substantially comply with FFMIA. Compliance with this standard, at a 
minimum, means the core financial module must be configured to (1) 
ensure consistent and accurate processing, reporting, and tracking of 
program expenditures and budgetary resources, and (2) ensure that 
transactions are processed and recorded in accordance with laws and 
regulations, and federal accounting standards. However, the core 
financial module--although it uses software certified by JFMIP--does 
not perform all mandatory functions. Specifically, the module:

* does not capture and record upward and downward adjustments of 
obligations incurred in prior fiscal years, and:

* posts obligations to the general ledger prior to approval.

Among other things, FFMSR requires federal financial management systems 
to produce accurate and reliable information for budgetary reports, 
including the Statement of Budgetary Resources[Footnote 18]and the 
Report on Budget Execution and Budgetary Resources (Standard Form 
133).[Footnote 19] As previously discussed, the core financial module 
does not capture and record upward and downward adjustments of 
obligations incurred in prior fiscal years, which is essential for 
producing both the Statement of Budgetary Resources and Standard Form 
133 reports. In addition, FFMSR requires federal financial management 
systems to process transactions in accordance with federal 
appropriations law, which states that no amount may be recorded as an 
obligation unless it has been approved and is supported by documentary 
evidence. As a result of system limitations we have discussed, the core 
financial module erroneously posts obligations to the general ledger 
prior to approval.

Noncompliance with SGL:

The core financial module, as implemented in June 2003, does not 
substantially comply with the SGL at the transaction level. The SGL 
requirements ensure consistency in financial transaction processing and 
external reporting. Compliance with this standard, at a minimum, means 
that the core financial module must be configured such that (1) reports 
produced by the systems containing financial information can be traced 
directly to general ledger accounts, (2) transaction details supporting 
general ledger account balances are available and can be directly 
traced to specific general ledger accounts, and (3) the criteria (e.g., 
timing, processing rules/conditions) for recording financial events are 
consistent with accounting transaction definitions and processing rules 
defined in the SGL.

As discussed previously, the core financial module does not accumulate 
transaction-based support for adjustments to prior year obligations, 
which is essential for producing the Statement of Budgetary Resources 
and Standard Form 133 reports. Instead, NASA must rely on estimates, 
manual compilations, and system queries to extract the data needed to 
prepare these required budgetary reports. As a result, key budgetary 
information reported on the Statement of Budgetary Resources and 
Standard Form 133 cannot be traced directly to NASA's general ledger 
accounts. NASA also does not properly record PP&E and materials as 
assets when they are first acquired. Instead, NASA initially records 
these items as expenses and then later corrects these records using 
manual procedures. Although this manual process provides NASA a vehicle 
for reporting PP&E and material costs for financial statement 
reporting, it is not sufficient for compliance with the SGL. Finally, 
NASA does not maintain transaction-level detail for its contractor-held 
property. Instead, it relies solely on its contractors to maintain such 
records and to periodically report summary-level information on these 
assets to NASA. This situation has resulted in material weaknesses over 
this property, as previously reported by NASA's current independent 
auditor.

Noncompliance with Federal Accounting Standards:

The core financial module and related systems, as implemented in June 
2003, do not substantially comply with federal accounting standards. 
Compliance with these standards is essential to providing useful and 
reliable financial information to external and internal users. Federal 
accounting standards[Footnote 20] are the authoritative requirements 
that guide agencies in developing financial management systems, as well 
as preparing financial statements. However, as discussed previously, 
the core financial module did not, as of June 2003, process and report 
financial information in accordance with federal accounting standards.

The major reasons for the module's noncompliance with federal 
accounting standards are as follows.

* The core financial module does not comply with SFFAS No. 1, 
Accounting for Selected Assets and Liabilities. This standard states 
that a liability should be recognized and recorded as an account 
payable when contractors construct facilities or equipment for the 
government. The liability should be based on an estimate of work 
completed. However, the core financial module does not capture accrued 
costs or record accounts payable when the cumulative costs for a given 
contract exceed obligations. Instead, these transactions are held 
outside the general ledger, in suspense, until additional funds are 
obligated, thus understating NASA's reported program costs and 
liabilities.

* The core financial module does not yet provide full-cost accounting 
capabilities in accordance with SFFAS No. 4, Managerial Cost Accounting 
Standards. This standard requires agencies to report the full cost of 
their programs in their general-purpose financial reports. However, as 
previously discussed, NASA, as of June 2003, had not defined, 
configured, or tested the appropriate cost pools and cost allocation 
structure, which are critical to implementing full-cost accounting.

* The core financial module does not comply with the broader objective 
of SFFAS No. 4, Managerial Cost Accounting Standards. The concepts and 
standards included in SFFAS No. 4 are aimed at achieving three general 
objectives: (1) providing program managers with relevant and reliable 
information relating costs to program outputs, (2) providing relevant 
and reliable cost information to assist the Congress and executives in 
making decisions about allocating federal resources and evaluating 
program performance, and (3) ensuring consistency between costs 
reported in general purpose financial reports and costs reported to 
program managers. However, as we reported in April 2003, the core 
financial module does not provide program managers, cost estimators, or 
the Congress with managerially relevant cost information that they need 
to effectively manage and oversee NASA's contracts and programs. As a 
result, NASA's continuing inability to provide its managers with 
timely, relevant data on the cost, schedule, and performance of its 
programs is a key reason that GAO continues to report NASA's contract 
management as an area of high risk. Because this information is not 
available through the core financial module, program managers will 
continue to rely on hard copy reports, electronic spreadsheets, or 
other means to monitor contractor performance. Consequently, NASA risks 
operating with two sets of books--one that is used to report 
information in the agency's general-purpose financial reports and 
another that is used by program managers to run NASA's projects and 
programs.

Compliance with federal accounting standards goes far beyond receiving 
a "clean" opinion on financial statements. A key indicator that an 
agency's financial management systems do not substantially comply with 
federal accounting standards is the existence of material weaknesses in 
the agency's internal controls. As noted earlier, NASA has not 
addressed material weaknesses in its internal controls and processes 
over PP&E and materials, which make up nearly 85 percent, or $37 
billion, of NASA's assets. Instead, NASA plans to rely on existing 
legacy systems and processes--including the extensive use of manual 
accounting entries--that the agency's independent auditor has found to 
be inadequate for property accounting. As a result, NASA faces serious 
challenges in complying with these standards.

Although NASA plans to implement an integrated asset management module 
in 2005, most of NASA's issues related to property accounting have 
little to do with the lack of an integrated system. Instead, NASA faces 
two key challenges with respect to property accounting: (1) 
reengineering its processes for capturing and recording transaction-
level detail in the core financial module's general ledger and (2) 
addressing material weaknesses in its internal controls over property 
previously identified by NASA's independent auditors. To date, NASA has 
yet to define specific requirements for its asset management module or 
determine how it plans to overcome the previously identified material 
weaknesses in NASA's internal controls over PP&E and material.

Conclusion:

If NASA continues on its current track, the core financial module and 
IFMP will fail to achieve the agency's stated objective of providing 
reliable, timely financial information for both internal management 
decision-making and external reporting purposes. Thus far, NASA has 
focused on deploying the system on its established schedule, rather 
than ensuring that it satisfies the agency's internal management and 
external reporting requirements. To meet its schedule, NASA has put off 
addressing user requirements that would necessitate significant 
business process reengineering or extensive software configuration. 
While NASA is meeting its implementation milestones, it is only able to 
do so because the agency has deferred critical system capabilities, 
such as the ability to properly capture, record, and account for its 
PP&E and material; process budgetary accounting entries; and provide 
managerially relevant cost information. Until, and unless, the agency 
deals with these issues, NASA risks making a substantial investment in 
a system that will fall far short of its stated goal of providing 
meaningful information for both internal management and external 
reporting purposes.

Recommendations:

Based on the findings from this review, in conjunction with our April 
2003 report, we reiterate our April 2003 recommendation that NASA:

* engage stakeholders--including program managers, cost estimators, and 
the Congress--in developing a complete and correct set of user 
requirements; and:

* reengineer its acquisition management processes, particularly with 
respect to the consistency and detail of budget and actual cost and 
schedule data provided by contractors.

We also recommend that the NASA Administrator direct the Program 
Executive Officer for IFMP to implement a corrective action plan in 
coordination with NASA's Chief Financial Officer that will produce 
financial management systems that comply substantially with the 
requirements of FFMIA, including capabilities to produce timely, 
reliable, and useful financial information related to:

* property, plant, equipment, and materials;

* budgetary information including adjustments to prior year 
obligations;

* accounts payable and accrued costs; and:

* the full cost of programs for financial reporting purposes.

This plan should include time frames and details on how any changes 
will be monitored, tested, and documented.

Agency Comments and Our Evaluation:

In written comments, reprinted in appendix II, NASA disagreed with all 
of our conclusions and recommendations in part because we reviewed the 
status of the core financial module as of June 23, 2003, instead of 
September 30, 2003--the date used for FFMIA reporting. Although NASA 
takes issue with the date of our review, it is important to note that 
we selected June 2003 because NASA represented that the core financial 
module was fully operational at all of its centers at that time. In 
making that representation, NASA officials acknowledged that, as part 
of their implementation strategy, they had not yet converted the system 
to support full-cost accounting. However, they did not disclose any 
other deferred capabilities.

Moreover, NASA's comments assert that for PP&E and budgetary reporting, 
the manual processes or workarounds it has developed to produce year-
end balances for the agency's annual financial statements also satisfy 
the requirements of FFMIA. We disagree with this assertion. The 
development of significant manual workarounds in these areas masks the 
fact that NASA's core financial module is not designed to, and cannot, 
produce timely and reliable PP&E and budgetary data with traceability 
to transaction-based support. The ability to produce reliable numbers 
once a year for financial reporting purposes does not by itself 
constitute FFMIA compliance. In its written comments, NASA indicated 
that it has made changes to the module since June and that the core 
financial module as implemented in October 2003 has many of the 
capabilities that were lacking in the June 2003 module. Although we 
requested status updates between June and October to track NASA's 
progress, we did not reassess the module's capabilities as of October 
2003. However, with the possible exception of full-cost accounting, 
which was planned for October 1, 2003, the changes NASA has cited still 
involve manual workarounds for producing year-end numbers. FFMIA goes 
beyond producing auditable financial statements once a year and 
requires financial systems that ensure accountability on an ongoing 
basis throughout the year.

Engaging Stakeholders:

In its response to our April 2003 recommendation, which we have 
restated in this report, to engage stakeholders in developing a 
complete and correct set of user requirements, NASA stated that it did 
engage stakeholders in the design of requirements for the core 
financial module. We disagree with NASA's assertion. As we reported in 
April 2003, the program management staff we spoke with from NASA's 
three largest space flight programs viewed the core financial module as 
an "accounting system" that would be used by the accountants but was 
not necessarily going to change the way they managed. With this 
understanding, it is not surprising that the core financial module does 
not meet the needs of program managers. Although the IFMP 
implementation team made an effort to include resource management staff 
from program management offices in various process teams, they did not 
effectively utilize program staff to help drive the improvement effort. 
Consequently, the information requirements of program managers and cost 
estimators were not fully addressed. Implementing an integrated 
financial management system that is intended to change the way an 
organization does business is extremely complex and involves cultural, 
organizational, and process improvements. It also means making 
financial management an agencywide priority. Our work at leading public 
and private sector organizations has shown that implementing a 
financial management system that meets the organization's business 
needs takes more than merely placing business or line management 
representation on the implementation team.[Footnote 21] Instead, at 
best practice organizations, business managers had a vested interest in 
the success of the project and were actively involved in leading the 
improvement effort.

Although NASA disagreed with our assessment of key stakeholder 
involvement, the agency has indicated that it is in the process of 
addressing, or plans to address, a number of our concerns by more 
actively engaging key stakeholders. For example, NASA stated that to 
develop standard, agencywide internal management reports, it is using 
an enterprise-or program-led team to define the critical "decision-
support" financial information that is needed by managers. The success 
of this effort is critical to ensure that NASA program managers use 
IFMP rather than other stovepiped systems or manually developed data 
that may or may not reconcile to the IFMP and core financial module.

Reengineering Acquisition Management:

In response to our April 2003 recommendation, which we have restated in 
this report, to reengineer its acquisition management processes, 
particularly with respect to the consistency and detail of budgeted and 
actual cost and schedule data provided by contractors, NASA indicated 
that it is in the process of addressing a number of our concerns. 
Specifically, NASA stated that it (1) has extended the data structure 
embedded in the core financial module to capture more detailed cost 
data, (2) is currently assessing its contractor reporting requirements, 
and (3) is evaluating the possibility of accommodating contract cost 
and schedule data in an integrated environment. While it is too early 
to assess the significance or impact of NASA's current effort, we are 
encouraged that NASA is considering the possibility of reengineering 
its acquisition management processes. This would be an important first 
step toward ensuring that NASA's contractors provide the appropriate 
level and type of cost data needed for both internal management and 
external reporting purposes and that the core financial module is 
properly configured to support the agency's information needs. However, 
we continue to believe it would have been more effective and efficient 
if NASA had conducted its assessment of contractor reporting 
requirements as part of a larger reengineering effort prior to 
configuration of the core financial module. Further, any effort that 
falls short of end-to-end business process reengineering will likely 
not result in a system that substantially improves the data available 
for contract oversight or ensures consistency between costs reported in 
general purpose financial reports and costs reported to program 
mangers.

In its written comments, NASA also emphasized that the core financial 
module alone cannot meet all of the functional requirements needed to 
manage a program or to prepare cost estimates and asserts that 
applications such as Erasmus, an executive-level program performance 
reporting tool, will enable NASA to meet the full depth and breadth of 
user requirements. We agree that the core financial module alone cannot 
meet all of NASA's information needs and that an executive-level 
reporting tool such as Erasmus may provide NASA executives with greater 
visibility over program performance. However, Erasmus does little to 
help program managers oversee contractor performance, and like the core 
financial module, may contain cost data that are not consistent or 
reconcilable with cost data used by program managers to manage 
contracts. The underlying problem, as we reported in April 2003, is 
that NASA uses one set of contractor-reported cost data to update the 
core financial module while program managers use a separate set of 
contractor-reported cost data that resides outside the system to 
monitor contractor performance. Consequently, the cost data maintained 
in the core financial module and reported in NASA's external financial 
reports are not consistent or reconcilable with cost data used by 
program managers to manage contracts.

Finally, NASA stated that the asset management module, scheduled for 
implementation in 2005, will make a significant contribution to its 
program management and cost estimating activities. This module is 
primarily intended to maintain detailed property records for NASA-held 
property. Thus, we do not believe an asset management module would have 
any impact on the cost, schedule, and performance data needed for 
program management and cost estimating.

PP&E and Materials:

NASA disagreed with our recommendation related to IFMP's ability to 
produce timely, reliable, and useful information for PP&E and materials 
in accordance with FFMIA requirements. NASA represented that its 
current processes for capturing and recording property for financial 
statement reporting purposes also meet the requirements of FFMIA 
because it has begun requiring more frequent and detailed property 
reporting by its 55 largest contractors. We disagree with NASA's 
assertion. Because NASA's current contractor cost-reporting processes 
do not provide the information needed to distinguish between capital 
and non-capital expenditures, NASA currently records as expenses all 
contractor costs as they are incurred and then manually adjusts 
previous entries to record assets based on periodic summary-level 
contractor property reports. While this process may satisfy NASA 
financial statement reporting needs, the development of significant 
manual workarounds in this area masks the fact that NASA's core module 
is not designed to and cannot produce timely and reliable PP&E data 
with traceability to transaction-based support. The ability to produce 
reliable numbers once a year for financial reporting purposes does not 
equate to FFMIA compliance.

In accordance with FFMSR, federal accounting standards, and the SGL, 
when an agency incurs costs for the purchase or construction of PP&E 
and material, those costs should be recorded in both the agency's asset 
management system and its core financial management systems' general 
ledger. The only difference for contractor-held property is that the 
asset management system belongs to the contractor. The asset management 
system, whether NASA's or its contractors', would maintain the agency's 
detailed logistical property records for PP&E and materials--including 
information related to asset location, date of purchase, useful life, 
quantity, cost, and condition--and the core financial module's general 
ledger would maintain a cumulative balance of all purchased or 
constructed property based on the cost incurred for individual items. 
The ability to reconcile detailed transactions in the asset management 
system with amounts recorded in the general ledger provides an 
efficient way to maintain independent general ledger control over these 
assets. As mentioned above, NASA first expenses all PP&E in the core 
financial module, and then later, makes adjustments to record the costs 
of PP&E as assets at a summary level. There is currently no 
traceability from the core financial module general ledger to the 
detailed logistical property records of PP&E and materials.

NASA also stated that one of the objectives of the asset management 
module, now in formulation, is to significantly improve reporting for 
contractor-held property. While it is our understanding that NASA's new 
asset management module, as planned, will maintain detailed property 
records for NASA-held property and be integrated with other IFMP 
modules, including the core financial module, we know of no plans to 
add contractor-held property to this system. In fact, the Federal 
Acquisition Regulation requires contractors to maintain the logistical 
property records for government property in their possession and 
prohibits government agencies from maintaining duplicate property 
records. Under these circumstances, as part of an overall effort to 
reengineer its acquisition management process, we believe that NASA 
must capture the cost and other information it needs from its 
contractors and develop traceability to contractor logistical records 
to ensure accountability over its contractor-held property on an 
ongoing basis.

Budgetary Information:

NASA disagreed with our recommendation regarding its ability to produce 
reliable, timely, and useful budgetary information, including 
adjustments to prior year obligations. NASA stated that although it 
identified certain transactional reporting limitations in its initial 
deployment of the core financial module, it developed alternative or 
"workaround" procedures to ensure the accurate and timely reporting of 
the identified transactions. However, as stated previously, we do not 
believe that the manual processes or workarounds NASA uses to produce 
year-end balances for the agency's annual financial statements satisfy 
the requirements of FFMIA. While NASA's written comments indicate that 
many of these deferred capabilities were largely enabled by September 
30, 2003, they also indicate that more time will be required before the 
module can process adjustments to prior year obligations. As a result, 
NASA must use manual workarounds to process these transactions related 
to fiscal year 2003 activity. We note that these are the same manual 
procedures used to compensate for deficiencies in NASA's legacy systems 
that resulted in the $644 million error in NASA's fiscal year 1999 
Statement of Budgetary Resources.[Footnote 22]

Accrued Costs and Accounts Payable:

NASA disagreed with our conclusion that its overall financial 
management system does not properly capture and report all accrued 
costs and accounts payable. However, we did not report that the 
information was not contained within the system; rather, we reported 
that it was not posted to the general ledger. We recognize that NASA 
records costs that exceed current obligations in the IFMP business 
warehouse until additional funds are obligated and in order to 
highlight or detect potential program cost overruns. While we encourage 
NASA's effort to monitor costs in excess of obligations, we do not 
believe its method for doing so is appropriate. We continue to believe 
that these costs should be properly recorded in the general ledger in 
the period in which they are incurred. The risk in NASA's method is 
that when costs and liabilities are not properly recorded in the 
general ledger, these balances are likely to be understated in any 
financial reports produced during the year, as well as at year-end.

It is also important to note that comparing costs with obligations will 
not necessarily detect a cost overrun. For example, this strategy would 
not have alerted NASA to its largest cost overrun in recent years--the 
$5 billion cost growth in the International Space Station program 
reported in 2001. This overrun was not the result of incurring more 
costs than the funds obligated. Instead, it was due to the cost growth 
projected to occur in the future--i.e., growth in the estimated costs 
to complete the program. This cost overrun went undetected for a long 
period of time because of NASA's deeply-rooted culture of managing 
programs based on current year budgets rather than total costs. As we 
reported in 2002,[Footnote 23] for NASA to manage its program costs 
properly, it needs to focus on the total costs of a program rather than 
just annual budgets. Thus, NASA's plan to hold costs in suspense when 
they exceed obligations will not make such cost overruns any easier to 
detect or manage. Instead, as we reported in April 2003, to adequately 
oversee NASA's contracts, program managers need reliable contract cost 
data--both budgeted and actual--and the ability to integrate these data 
with contract schedule information to monitor progress on the contract. 
However, because program managers were not involved in defining system 
requirements or reengineering business processes, the core financial 
module was not designed to integrate cost and schedule data needed by 
program managers.

Full-Cost Accounting:

NASA also disagreed with our recommendation concerning its system's 
ability to account for the full cost of its programs and asserted that 
it completed implementation of its full-cost accounting capability 
within IFMP as of October 1, 2003. However, IFMP management told us in 
early October that this capability would not become operational until 
October 26, 2003, after NASA completed its year-end closing procedures. 
Because of our reporting time frame, we did not conduct the detailed 
procedures that would have been necessary to determine whether or not 
this function had begun operating.

As agreed with your offices, unless you announce its contents earlier, 
we will not distribute this report further until 30 days from its date. 
At that time, we will send copies to interested congressional 
committees, the NASA Administrator, and the Director of the Office of 
Management and Budget. We will make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at [Hyperlink, http://www.gao.gov] http://www.gao.gov.

If you or your staffs have any questions concerning this report, 
please contact me at (202) 512-9505 or [Hyperlink, kutzg@gao.gov], 
Keith Rhodes at (202) 512-6412 or [Hyperlink, rhodesk@gao.gov], or 
Diane Handley at (404) 679-1986 or [Hyperlink, handleyd@gao.gov]. Key 
contributors to this report are acknowledged in appendix III.

Signed by:

Gregory D. Kutz: 
Director Financial Management and Assurance:

Keith A. Rhodes: 
Chief Technologist: 
Applied Research and Methods:

[End of section]

Appendix II: Comments From the National Aeronautics and Space 
Administration:

National Aeronautics and Space Administration:

Office of the Administrator Washington, DC 20546-0001:

October 31, 2003:

Mr. Gregory D. Kutz 
Director:

Financial Management and Assurance 
United States General Accounting Office 
Washington, DC 20548:

Dear Mr. Kutz:

Thank you for the opportunity to review and comment on the General 
Accounting Office (GAO) draft report, BUSINESS MODERNIZATION NASA's 
Integrated Financial Management Program Does Not Fully Address Agency's 
External Reporting Issues (GAO-04-151). We appreciate the GAO's 
continued interest in NASA's programs and our efforts to successfully 
implement the full complement of all the project modules comprising the 
Integrated Financial Management Program (IFMP).

Overall, it is important to note that your report reviews the status of 
our IFM Program's Core Financials module as of June 2003. This is a key 
point for several reasons, as noted in our enclosed comments, but most 
importantly because it does not assess the status of the same Core 
Financials functionality and FFMIA compliance at fiscal year-end - 
September 30, 2003 - which is the statutory date used for FFMIA 
certification.

NASA is committed to implementing the full functionality of the IFM 
system over the next few years and, in doing so, is and will continue 
to take advantage of the benefits brought to us by your reviews of the 
IFM Program. GAO's observations and recommendations always receive 
careful consideration and have been used, in many instances, to help us 
enhance the functionality of our Program and used to mitigate 
development and operational risks. However, in this instance, we do 
respectfully disagree with your conclusions and subsequent 
recommendations as they apply to a past status of IFM's Core Financials 
Module implementation, which is by now significantly different from the 
current application.

Cordially,

Signed by: 

Frederick D. Gregory: 
Deputy Administrator:

Enclosure:

Appendix I: Objective, Scope, and Methodology:

The objective of this report was to assess whether the National 
Aeronautics and Space Administration (NASA) Integrated Financial 
Management Program's (IFMP) core financial module, as implemented on 
June 2003, would satisfy NASA's external reporting requirements, such 
as reliable and auditable financial statements, congressional 
information needs, and other reporting requirements. Specifically, we 
assessed whether the core financial module (1) accurately accounts for 
Property, Plant, and Equipment (PP&E) and materials and supplies, (2) 
properly accounts for the full cost of NASA's projects and programs, 
(3) captures and reports certain key budgetary information, (4) 
accurately records accounts payable, and (5) complies substantially 
with the requirements of the Federal Financial Management Improvement 
Act (FFMIA) of 1996. We did not assess other aspects of the core 
financial module's capabilities.

We interviewed officials from NASA's financial management division and 
the NASA Office of Inspector General to identify various reporting 
requirements and weaknesses in meeting these requirements, and to 
determine how the core financial module will provide the data needed to 
meet these requirements. We evaluated fiscal year 2002 internal control 
weaknesses reported by PricewaterhouseCoopers, NASA's independent 
auditors, related to PP&E, material and supplies, and financial 
reporting. However, for the purposes of this report we did not review 
the auditors' underlying work paper support. We also reviewed NASA's 
process for preparing the Statement of Budgetary Resources and 
reporting accounts payable, and any related issues identified by 
auditors.

We reviewed applicable Treasury, Office of Management and Budget, and 
NASA guidance, and related federal accounting standards as well as 
federal financial management system requirements promulgated by the 
Joint Financial Management Improvement Program.

At two NASA centers, we observed how transactions are recorded in the 
general ledger within the core financial module and discussed these 
processes with users of the system. We reviewed nonrepresentative 
selections of transactions for PP&E, materials, accounts payable, and 
budgetary transactions. We traced selected transactions to their source 
documents, and also traced selected source documents to the general 
ledger. We assessed whether transactions were recorded consistently 
with the Treasury Financial Manual. We also observed and discussed how 
information on contractor cost reports is recorded in the core 
financial module.

We interviewed various officials from IFMP and its core financial 
project design and implementation teams, including the IFMP Deputy 
Program Director, the Core Financial Project Manager, and the Core 
Financial Deputy Project Manager to clarify our understanding of the 
core financial module's functions and obtain the most recent 
information on the status of various implementation issues as of June 
2003. We also reviewed relevant audit reports from the NASA IG and the 
results of an independent compliance review on the core financial 
module performed by NASA's consultant.

We performed our work primarily at NASA headquarters in Washington, 
D.C. and the two NASA centers--Marshall Space Center in Huntsville, 
Alabama and Glenn Research Center in Cleveland, Ohio--where the core 
financial module was implemented first. Our work was performed from 
April 2003 through September 2003 in accordance with generally accepted 
government auditing standards.

We requested comments on a draft of this report from the NASA 
Administrator or his designee. Written comments from the NASA Deputy 
Administrator are presented and evaluated in the "Agency Comments and 
Our Evaluation" section of this report and are reprinted in appendix 
II.

Appendix II: Comments From the National Aeronautics and Space 
Administration: 

National Aeronautics and Space Administration:

Office of the Administrator Washington, DC 20546-0001:

October 31, 2003:

Mr. Gregory D. Kutz 
Director:

Financial Management and Assurance 
United States General Accounting Office 
Washington, DC 20548:

Dear Mr. Kutz:

Thank you for the opportunity to review and comment on the General 
Accounting Office (GAO) draft report, BUSINESS MODERNIZATION NASA's 
Integrated Financial Management Program Does Not Fully Address Agency's 
External Reporting Issues (GAO-04-151). We appreciate the GAO's 
continued interest in NASA's programs and our efforts to successfully 
implement the full complement of all the project modules comprising the 
Integrated Financial Management Program (IFMP).

Overall, it is important to note that your report reviews the status of 
our IFM Program's Core Financials module as of June 2003. This is a key 
point for several reasons, as noted in our enclosed comments, but most 
importantly because it does not assess the status of the same Core 
Financials functionality and FFMIA compliance at fiscal year-end - 
September 30, 2003 - which is the statutory date used for FFMIA 
certification.

NASA is committed to implementing the full functionality of the IFM 
system over the next few years and, in doing so, is and will continue 
to take advantage of the benefits brought to us by your reviews of the 
IFM Program. GAO's observations and recommendations always receive 
careful consideration and have been used, in many instances, to help us 
enhance the functionality of our Program and used to mitigate 
development and operational risks. However, in this instance, we do 
respectfully disagree with your conclusions and subsequent 
recommendations as they apply to a past status of IFM's Core Financials 
Module implementation, which is by now significantly different from the 
current application.

Cordially,

Signed by: 

Frederick D. Gregory: 
Deputy Administrator:

Enclosure:

Enclosure:

NASA Response to Draft General Accounting Office (GAO) Report: BUSINESS 
MODERNIZATION: NASA's Integrated Financial Management Program Does Not 
Fully Address Agency's External Reporting Issues (GAO-04-151) Dated 
October 10, 2003:

1. GAO Recommendation: Based on the findings from this review, in 
conjunction with our April report, we reiterate our April 
recommendation that NASA:

a. Engage stakeholders - including program managers, cost estimators, 
and the Congress - in developing a complete and correct set of user 
requirements;

NASA Response to GAO Recommendation la.

NASA did actively engage stakeholders, particularly program managers 
and cost estimators, in the design requirements for the Core Financials 
system; this focus has been consistent with the historical scope of the 
project. The system does have the capability to meet their needs for 
financial information although the complexity of the environment and 
the realities of transition timing mean that "full benefit" realization 
will take several years. The system, as designed, provides 
significantly more capability and flexibility to capture financial 
information across projects than has ever been previously available. 
Because the system has so much data and integrates it from multiple 
perspectives, there is a significant learning curve to convert the data 
into useful information supporting better management decisions.

There are two current initiatives in this area. First, there is an 
internal " Enterprise" led team used to define Agencywide financial 
reports, which will be used to assess ongoing program and project 
financial performance. Over one hundred standard reports already exist 
in the Core system and the "Business Warehouse" analytical reporting 
tool enhances our capability to create new reports. Our key issue lies 
in defining the critical "decision-support" financial information that 
managers need on an ongoing basis and to ensure that this information 
also reflects the new full-cost data structure implemented in October 
2003. This effort will complete its first phase in November 2003. In 
parallel, the system has now been opened using the full 
FY 2004 configuration which allows managers to define the level of 
detail they need to support their requirements. When the system 
initially went operational throughout FY 2003 this level of detail was 
often constrained by legacy systems.

Even with our current focus on benefit realization, the Core Financials 
module alone cannot meet all the functional needs to manage a program 
or to prepare a cost estimate. This is why, within the IFM Program 
scope, a number of parallel and complementary efforts are underway to 
meet the full breadth of user requirements. For example, in parallel to 
the Core Financials roll out, the IFM Program deployed 
recently the first version of "Erasmus," an executive-level program 
performance reporting capability. This is the first time that cost, 
schedule, and technical performance data for all of our major programs 
and projects is consistently and regularly reported in an Agencywide, 
Web-based environment. Additionally, our Budget Formulation module, 
scheduled for rollout in June 2004, and Asset Management module, 
scheduled for a 2005 deployment, will make significant contributions to 
our program management and cost estimating activities. In both cases, 
there is extensive engagement from these communities in the design and 
deployment phases of those forthcoming IFM modules.

b. Reengineer its acquisition management processes, particularly with 
respect to the consistency and detail of budget and actual cost and 
schedule data provided by contractors.

NASA Response to GAO Recommendation lb.

The Core Financials module, for the first time, provides the capability 
to extract, in near real-time, financial and procurement information 
from the same consistent, transparent and reliable data source NASA-
wide. In 2004, this capability will be expanded to encompass more data 
elements with the objective of further eliminating potentially outdated 
information available solely in paper reports. Additionally, the 
configuration of the SAP system provides extensive reporting and 
analytical capabilities beyond those made possible today using the 
current Agencywide coding structure. The SAP system has been configured 
to capture approximately 30 additional detail elements beyond those 
identified in the existing Agency coding structure.

Based on the enhancement brought by the IFM system, NASA is currently 
assessing its contractor-reporting requirements as its Program 
Management policy and guidelines are subsequently being updated. These 
decisions will drive the IFMP requirements for existing and future 
analytical and reporting capabilities. In addition, the Asset 
Management module, which is now in formulation, has a stated objective 
to significantly improve reporting for contractor-held property. This 
will build on the expanded contractor reporting requirements already 
implemented by the Agency during 2003. The option of implementing SAP's 
Project Systems, a "Best of Suite" tool which could be used to manage 
diverse project and program costs and schedules under an integrated 
environment, is also being evaluated. Those decisions should be 
completed by June 2004.

2. GAO Recommendation: We also recommend that the Administrator direct 
the Program Executive Officer for IFMP to implement a corrective action 
plan in coordination with NASA's CFO that will produce financial 
management systems 
that comply substantially with the requirements of FFMIA, including 
capabilities to produce timely, reliable, and useful financial 
information related to:

a. Property, plant, equipment and materials:

NASA Response to GAO Recommendation 2a.

NASA respectfully disagrees that its current processes do not produce 
timely, reliable and useful financial information nor meet Federal 
Financial Management Improvement Act (FFMIA) requirements for Property 
Plan and Equipment (PP&E.) As a result of our FY 2002 financial 
statement audit, NASA has already took significant corrective action to 
obtain more frequent detailed property reporting from its largest 55 
contracts, accounting for $10.8 billion of the $11 billion of 
contractor held property reported on the FY 2002 financial statements. 
These collective actions and their effectiveness were confirmed by the 
recommendation of the Office of the Inspector General to remove PP&E 
and Materials as a material weakness for FFMIA reporting for FY 2003.

This is not to suggest that NASA is fully satisfied with the status of 
PP&E reporting. As you know, NASA is about to begin the Integrated 
Asset Management Module of IFMP. GAO's observations and insights are 
considered valued input and will be used to help guide the process as 
we move forward with that design and implementation.

b. Budgetary information including adjustments to prior year 
obligations;

NASA Response to GAO Recommendation 2b.

NASA respectfully disagrees with the assertion that it cannot 
accurately capture and report budgetary infonnation including 
adjustments to prior year obligations. Based on early operational 
performance, NASA identified certain transactional reporting 
limitations in the initial deployment of its Core Financials module. We 
subsequently developed alternative procedures to ensure the accurate 
and timely reporting of the identified transactions. Furthermore, many 
of the deferred capabilities cited by GAO as of June 2003 were largely 
enabled by 2003 fiscal year-end.

However, it should be noted that the realities of selecting and 
implementing Commercial Off-the-Shelf (COTS) software requires a "best-
fit" methodology including re-engincering and some performance 
tradeoffs. NASA is clearly facing the "startup" issues associated with 
a system as complex and comprehensive as the Core Financial Module. The 
current limitations of the software regarding prior year obligations 
may take some time to be fully updated to our satisfaction. We 
recognize that we are using more manual "workaround" processes than we 
would have liked, but they will be reduced over 
time as SAP provides new capabilities and becomes more familiar with 
NASA's specific needs. The selection of a COTS product always entails a 
near-term evolutionary adaptation which includes both customer process 
re-engineering and product enhancements. It should also be noted that 
manual processes, as long as they produce reliable and timely 
information, while not preferred, are acceptable practices under 
current JFMIP system requirements.

c. Accounts payable and accrued costs; and 

NASA Response to GAO Recommendation 2c.

NASA respectfully disagrees with the assertion that its overall 
financial management system cannot properly capture and report all 
accounts payable and accrued costs. Again, due to timing differences, 
GAO may not have had the opportunity to review an integral part of the 
IFMP system, the Business Warehouse (BW) application that provides NASA 
managers the ability to track all costs associated with projects by 
work breakdown structure (WBS), unique project number (UPN) and 
individual contract. The BW application is an integral part of NASA's 
overall financial management system and a very powerful analytical and 
reporting tool.

Specifically, all costs, including cost over obligations, are reported 
within BW. Due to previously stated concerns on hard-to-detect program 
cost overruns, NASA's current budget execution and reporting 
environment is structured to ensure that all cost over obligations 
receive immediate managerial review. Consequently, additional 
obligations are knowingly applied to critically identified activities/
tasks. Additionally, when financial statements are generated for both 
internal and external reporting, a standard procedure has been set in 
place to record within our general ledger the associated expenses and 
corresponding other liabilities incurred resulting from cost over 
obligations exceptions.

d. The full cost of programs for financial reporting purposes.

NASA Response to GAO Recommendation 2d.

NASA respectfully disagrees that the IFM system cannot properly account 
for the full cost of programs for financial reporting purposes. As 
discussed above, BW is an integral part of our overall financial 
management system. Furthermore, as mandated, NASA has completed the 
implementation of its full-cost accounting capability within IFMP as of 
October 1, 2003, enabling it for all FY 2004 activity.

Finally, our full-cost implementation was staged to comply with both FY 
2003 and FY 2004 reporting requirements. NASA implemented the Core 
Financial Module in 
FY 2003 and had to accommodate the accounting and appropriation 
structure applicable to that year. As of October 1, 2003, our full-cost 
structure has been defined and is configured in IFMP to support the FY 
2004 accounting and appropriation structure.

[End of section]

Appendix III: GAO Contact and Staff Acknowledgments:

GAO Contact:

Diane Handley (404) 679-1986:

Acknowledgments:

Staff members who made key contributions to this report were Shawkat 
Ahmed, Fannie Bivins, Kristi Karls, Chris Martin, and Maria Storts.


(192087):

:

FOOTNOTES

[1] The nine modules will consist of core financial, resume management, 
travel management, position description management, human resources, 
Erasmus, budget formulation, contract administration, and asset 
management.

[2] See U.S. General Accounting Office, Business Modernization: 
Disciplined Processes Needed to Better Manage NASA's Integrated 
Financial Management Program, GAO-04-118 (Washington, D.C.: Nov. 21, 
2003). Also, see U.S. General Accounting Office, Information 
Technology: Architecture Needed to Guide NASA's Financial Management 
Modernization, GAO-04-43 (Washington, D.C.: Nov. 21, 2003).

[3] See U.S. General Accounting Office, Business Modernization: NASA 
Challenges in Managing Its Integrated Financial Management Program, 
GAO-04-255 (Washington, D.C.: Nov. 21, 2003).

[4] 31 U.S.C. 3512 note (2000) (Federal Financial Management 
Improvement).

[5] FFMIA requires auditors to report whether agencies' financial 
management systems comply with federal financial management systems 
requirements, applicable federal accounting standards (U.S. generally 
accepted accounting principles), and the U.S. Standard General Ledger 
at the transaction level.

[6] Policies and standards prescribed for executive agencies to follow 
in developing, operating, evaluating, and reporting on financial 
management systems are defined in the Office of Management and Budget 
(OMB) Circular A-127, Financial Management Systems. These system 
requirements provide the framework for establishing integrated 
financial management systems to support the partnership between program 
and financial managers, and ensure the integrity of information for 
decision making and measuring performance. 

[7] The SGL was established by an interagency task force under the 
direction of OMB and mandated for use by agencies in OMB and Treasury 
regulations in 1986. The SGL promotes consistency in financial 
transaction processing and reporting by providing a uniform chart of 
accounts and pro forma transactions used to standardize federal 
agencies' financial information accumulation and processing throughout 
the year. 

[8] In October 1990, the Secretary of the Treasury, the Director of 
OMB, and the Comptroller General established the Federal Accounting 
Standards Advisory Board (FASAB) to develop a set of generally accepted 
accounting standards for the federal government. FASAB promulgates 
federal accounting standards that agency Chief Financial Officers use 
in developing financial management systems and preparing financial 
statements. 

[9] At that time, we began a special effort to review and report on the 
federal program areas that our work had identified as high risk because 
of vulnerabilities to waste, fraud, abuse, and mismanagement. We first 
issued our High-Risk Series in December 1992 and have continued to 
include NASA's contract management as an area of high risk since. See 
U.S. General Accounting Office, High-Risk Series: NASA Contract 
Management, GAO/HR-93-11 (Washington, D.C.: December 1992) and Major 
Management Challenges and Program Risks: National Aeronautics and Space 
Administration, GAO-03-114 (Washington, D.C.: January 2003). 

[10] SAP R/3 is an integrated software solution produced by software 
vendor SAP, Inc.

[11] JFMIP is a joint undertaking of the U.S. Department of the 
Treasury, General Accounting Office, Office of Management and Budget, 
and Office of Personnel Management, working in cooperation with one 
another, with other agencies, and with the private sector, to improve 
financial management in the federal government. The program was given 
statutory authorization in the Budget and Accounting Procedures Act of 
1950 (31 U.S.C. 3511(d)). One of JFMIP's roles has been to establish 
detailed requirements for agencies' financial management systems. 

[12] U.S. General Accounting Office, Business Modernization: 
Improvements Needed in Management of NASA's Integrated Financial 
Management Program, GAO-03-507 (Washington, D.C.: Apr. 30, 2003).

[13] NASA defined those in the financial accounting arena as the 
system's users who, under NASA's plan, would determine the system's 
requirements, guide its implementation, and define and measure its 
success. Those who would benefit from the system's new capabilities 
were identified as stakeholders. Under NASA's plan, they would be the 
ultimate beneficiaries of the system improvements, but would not have a 
role in setting requirements or measuring and determining the success 
of the system's implementation.

[14] NASA Office of Inspector General, Integrated Financial Management 
Program Core Financial Module Conversion to Full Cost Accounting, IG-
03-015 (Washington, D.C.: May 30, 2003).

[15] NASA has typically required its contractors to report information 
about property in their possession on an annual basis. However, NASA 
began requiring quarterly reports for its 55 largest contracts as of 
June 30, 2003, and plans to incrementally establish quarterly reporting 
for all relevant contracts in the next couple of years.

[16] U.S. General Accounting Office, Financial Management: Misstatement 
of NASA's Statement of Budgetary Resources, GAO-01-438 (Washington, 
D.C.: Mar. 30, 2001).

[17] 31 U.S.C. 1501 (a) (1) (2000).

[18] The Statement of Budgetary Resources provides information on the 
availability and use of budgetary resources, as well as the status of 
budgetary resources at the end of the period. 

[19] The Standard Form 133 is prepared quarterly and is the principal 
source of information for Statement of Budgetary Resources. It also 
fulfills the requirement that the President review federal expenditures 
at least four times a year. 

[20] FASAB promulgates Federal Accounting Standards. Currently, there 
are 25 Statements of Federal Financial Accounting Standards (SFFAS) and 
4 statements of federal financial accounting concepts (SFFAC). The 
accounting standards are authoritative statements of how particular 
types of transactions and other events should be reflected in financial 
statements. SFFACs explain the objectives and ideas upon which FASAB 
develops the standards. The concepts and standards provide the 
authoritative references for developing systems, financial statement 
reporting, and maintaining day-to-day financial records.

[21] U.S. General Accounting Office, Executive Guide: Creating Value 
Through World-class Financial Management, GAO/AIMD-00-134 (Washington, 
D.C.: Apr. 1, 2000).

[22] GAO-01-438.

[23] U.S. General Accounting Office, Space Station: Actions Under-way 
to Manage Cost, But Significant Challenges Remain, GAO-02-735 
(Washington, D.C.: July 17, 2002).

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