Internal Control Council (ICC) Quarterly Status Review

**May 21, 2003**

# Opening Statement

The ICC Chairman, Frederick D. Gregory, Deputy Administrator, opened the
second quarterly review meeting of 2003. He announced that the third
progress meeting will take place in late July or early August. The final
decision meeting will be in October to meet the accelerated deadline for
the ICC's input into the *NASA Performance and Accountability Report*
(PAR).

# Management Control Process

Jeffrey E. Sutton, Assistant Administrator for Management Systems,
briefly cited the laws pertaining to management controls, examples, and
key definitions in the NASA framework

# Progress Reports

**Contractor Held Property/Material Weakness** **(MW)**

John M. Blair, Director, Financial Management Division, Office of the
Chief Financial Officer (CFO), reemphasized Mr. Gregory's statement that
the last ICC meeting of the year must be held in October to meet
streamlined reporting requirements for the Office of Management and
Budget (OMB). He then discussed causes of the material weakness
including improper valuation of work in process, obsolescence,
inadequate documentation, and lack of internal controls. He cited assets
in space with inconsistent capitalization and property expense
practices. Patrick A. Ciganer, Program Executive Officer for Integrated
Financial Management (IFM), clarified that the property management issue
is an accounts booking problem. Corrective actions include further Tiger
Team visits to contractor sites, use of a joint NASA and major
contractor working group, and tasking of a consultant for studies. The
Office of the CFO has already developed a Corrective Action Plan and
quarterly reports required from contractors to NASA.

Mr. Gregory asked if NASA will get a clean financial statement.
Gwendolyn Brown, Deputy CFO, explained that corrective actions include
contract and policy changes. CFO staff, the Office of Procurement, and
the Office of Management Systems are all working contract modifications.
Robert W. Cobb, NASA Inspector General, indicated that he and
PriceWaterhouseCoopers (PwC) will have issues for NASA to confront. Ms.
Brown announced that a letter from the Administrator is being prepared
to notify contractors about contract modifications concerning the issue
of accounting for property. Mr. Gregory raised questions about details
of the letter.

**Financial Management/Other Weakness** **(OW)**

Mr. Blair began with the issue of reporting to OMB in the PAR. Last
year's financial statement was not completed until after the ICC
decision meeting. PwC reported IFM as a material weakness because of
insufficient staff, inadequate training on new Federal reporting
requirements. Lack of quality control over the PAR reporting process was
also cited. The Office of the CFO plans to develop a highly condensed
PAR without duplicative information and in accordance with a tight
schedule. Full implementation of the core finance module of the IFM
system is planned for June 2003. Mr. Ciganer added that this year may be
harder for PwC in

Enclosure

examining both the legacy and the new IFM system data. The primary issue
is reconciliation.

Corrective actions include realignment of NASA staff, hiring of
contractors, increased training on financial statement preparation and
use of the IFM core finance component, and establishment of a quality
control and review function.

**Full Cost/Management Challenge (MC)**

Owen F. Barwell, Director, Full Cost, explained that full cost
accounting is a requirement of *The President's Management Agenda*. The
activity has been in use since 1995, and policy is documented in the
1999 edition of *The Yellow Book*, which is being revised. Budgeting for
Fiscal Years (FY) 2003 through 2005 are under full cost. This accounting
measure is critical and financial systems must be in place to execute in
2005. Ms. Brown stated that full cost is a concept and tool to increase
visibility of costs. Mr. Ciganer insisted that full cost will allow
greater insight into project costs. **Mr. Gregory assigned Ms. Brown the
action to define full cost.** An organization of 80-100 staff and 4
teams are working the integration of full cost into core finance. Mr.
Ciganer emphasized the crosswalk between financial management and
program/project management. He is working with Congress to educate the
leadership on full cost theme-based budgeting. Kristen Erickson,
Director, Resources and Business Management Division, Office of
Biological and Physical Research, stated that the Enterprise Council
will determine the NASA budget, but a large immediate problem is
approximately 1,000 unfunded full-time-equivalents. This staffing issue
is exacerbated by full cost implementation.

**Mr. Gregory assigned James L. Jennings, Associate Deputy Administrator
for Institutions and Asset Management, with the action to examine
multiple complexities of full cost.**

Mr. Cobb noted that the reliance on the IFM system makes full cost
accounting not a simple task. The IFM contractors, Accenture and
Systems, Applications and Products in Data Processing/SAP, operate at
full cost. Indirect items like service pools and General and
Administrative (G&A) categories are challenging issues for full cost.
Mr. Barwell invited the Council members to visit his web site for more
information on the initiative.

## Cost Estimating and Risk Analysis (OW)

Joe Hamaker, Director, Cost Analysis Division, Office of the CFO,
presented the status of corrective actions on the issue of cost
estimating and risk analysis. He plans to recruit two more cost analysts
for his organization. He is working closely with the Chief Engineer's
Independent Program Assessment Office (IPAO) at Langley Research Center
as a center of excellence. A NASA Cost Analysis Steering Group is
guiding improvements. Projects must now undergo an Independent Cost
Estimate (ICE) at Pre Non-Advocate Reviews (NAR) and final NAR's
including a Cost Analysis Requirements Document (CARD) for both Pre
NAR's and NAR's. Probabilistic cost risk assessment is being performed
in all ICE's. Revision 2 of the *NASA Cost Estimating Handbook* is in
development. Mr. Gregory asked when to expect completion of the
handbook. Mr. Hamaker projected an end of summer timeframe. The revision
of 7120.5 included significant cost analysis guidance. Training is
planned for use of cost models and CARD's. Mr. Sutton asked if this
deficiency may be closed in October, and Mr. Hamaker replied that
corrective actions should be completed.

**Space Shuttle (MC)**

William F. Readdy, Associate Administrator for Space Flight, briefed the
Return-to-Flight (RTF) activities including an evaluation process by the
RTF Planning Team, oversight by the Space Flight Leadership Council, and
an independent review of NASA's RTF action plan by an RTF Task Group.
Mr. Readdy presented the flow of multiple interfaces and processes
leading to flight resumption. He announced that as of May 20, 2003, the
earliest projection for RTF is December 2003. Key decisions depend on
(1) short term actions which are a constraint to flight and must be
implemented prior to RTF; (2) short term actions which do not constrain
RTF but further enhance shuttle safety and can be implemented prior to
RTF; and (3) long-term recommendations for more safety measures which
warrant further study but do not constrain RTF. Mr. Blair asked how NASA
will handle costing. Mr. Ciganer stated that RTF costs are being tracked
and analyzed by the CFO for the Office of Space Flight, Mr. Bates. Mr.
Gregory asked if the level of the Shuttle deficiency should be raised.
Mr. Readdy advised that the category should remain the same unless a
systemic cause is determined.

**International Space Station (ISS) Cost Management (OW)**

Mr. Readdy summarized that all corrective actions for the ISS deficiency
have been completed and reviewed by OMB. Once OMB accepts the success
criteria, the ICC should consider closure of the weakness. Processing
for the ISS continues including shipment of parts and science
operations. Mr. Cobb asked how the Columbia accident affects ISS. Mr.
Sutton advised that the cost management thrust of this deficiency may
not necessarily be affected by the Shuttle incident, but a spike in
costs may occur.

**Software Management (MC)**

Theron M. Bradley, Chief Engineer, stated that the topic of software
management is a leadership issue. Approximately 15 percent of the NASA
budget supports software development and all phases of life cycle
management. Although the emphasis is mission software, the need exists
to define a coherent and coordinated approach to effective software
management across Enterprises and Functional Offices. The action plan is
comprised of 4 parts: (1) form an Agency Software Steering Board; (2)
establish appropriate funding for the NASA Software Engineering
Initiative; (3) conduct an assessment of NASA's Independent Verification
and Validation capabilities; and (4) coordinate the architecture,
development, and update of Agency software management policy. The Chief
Information Officer (CIO) is closely involved in work on the action
plan. The current policy seems adequate, but its execution reveals many
flaws. Mr. Jennings is working on the need for increased funding as the
\$2 million for FY 2003 falls well below the requested budget. Mr.
Sutton suggested that the Chief Engineer's board work with the CFO's
Tiger Team to address fragmentation and the need for more internal
control.

**Access to NASA Facilities and Technology (OW)**

John Piasecky, Director, Security Management Division, Office of
Security Management and Safeguards, told the Council that the status of
access control is the same as it was at the last meeting. The goal is to
implement one badging system for NASA. His office has worked
cooperatively with the CIO Office and the General Services
Administration (GSA). Consensus is that NASA must move forward with new
badges that lack technology for computer access control. Scott Santiago,
Senior Advisor for Information Technology (IT), Office of the CIO,
confirmed that technology is not available for government smartcards. A
standard has not been solidified at the national level, which involves
GSA, the National Security Agency (NSA), and others. Mr. Piasecky stated
the target date for rebadging all personnel is October 2003.

## Information Technology Security (OW) 

Mr. Santiago briefed the ICC on the status of IT Security Program
corrective actions. Headquarters is asking the Centers for more
implementation of requirements and reporting. Implementations underway
include a vulnerability reduction program, enhanced incident tracking
and reporting, and tracking of IT systems through their full life cycle.
He announced that the Agency has established the new role of Critical
Assurance Officer to ensure adherence to existing policies. Other
initiatives include a system administration certification program, a
single monitor for all NASA networks, and a request to fund new IT
Security investments for more efficient and secure operations. Mr.
Santiago expressed his view that the IT Security deficiency should
remain on the ICC watch list in FY 2004. Mr. Cobb said that his office
is generally satisfied with progress made to correct actions and reduce
risk in IT Security.

## Decommissioning of Plum Brook Reactor (OW)

Mr. Sutton stated that Plum Brook should come off the deficiency list in
October. All issues have been resolved. Ms. Dominguez, Director,
Environmental Management Division, is an active member of the Program
Management Council at Glenn Research Center (GRC). Her participation
affords better communications between Headquarters and GRC. Mr. Cobb
asked if funding is approved, and Mr. Sutton replied that approvals have
been made and documented.

**National Environmental Protection Act/NEPA (OW)**

Mr. Sutton stated that NEPA may not come off the watch list in October
if his office continues to have concerns about environmental training
and proof of executing regulations at the program/project level. The
streamlining changes to guidance in the upcoming 7120.5C present a
concern about the completeness of NASA policy as it pertains to NEPA.
Ms. Dominguez plans to meet with Mr. Bradley about the essential
inclusion of environmental regulations in 7120.

Mr. Bradley explained that the policy revision team intends to remove
only the routine, day-to-day procedures.

**Open Office of Inspector General/OIG Recommendations (OW)**

Mr. Sutton presented the trend chart for open OIG recommendations that
have been formally tracked for over a year. He characterized the
downward trend line as still good but two unresolved recommendations
need management attention. **Mr. Gregory assigned a joint action to the
Inspector General and the Office of Security Management and Safeguards
to set up a meeting with NSA to reach closure on the two unresolved
security recommendations.**

**Mr. Gregory gave Mr. Sutton the action to provide the Office of the
Deputy Administrator with weekly reports again on expired OIG
recommendations.** Mr. Cobb expressed concern about undispositioned
recommendations. Mr. Gregory insisted that waivers and extensions are
not acceptable. NASA staff must comply with OIG deadlines and keep this
management control area from becoming a problem as it did in the past.

## New Issues for ICC Consideration

John D. Werner, Director, Management Assessment Division, brought up a
concern about Earned Value Management (EVM), which surfaced at the
annual NASA audit conference. Mr. Bradley stated that the Office of the
Chief Engineer is looking at EVM. Mr. Ciganer commented that EVM is
similar to the budget/cost issue of how to manage planned versus actual
cost.

Mr. Gregory concluded that EVM will not be added as a new issue at this
time. James D. Lloyd, Director, Safety and Risk Management Division,
Office of Safety and Mission Assurance, noted that findings from the
Columbia Accident Investigation Board are expected before the next
Council meeting. Mr. Gregory concluded with recognition of the Council's
integrity and willingness to engage in candid discussion of major
management control issues.