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INDEPENDENT AUDIT OF THE NATIONAL

AERONAUTICS AND SPACE ADMINISTRATION

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS AND 

OVERSIGHT

AND THE

SUBCOMMITTEE ON SPACE AND AERONAUTICS 

COMMITTEE ON SCIENCE AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

DECEMBER 3, 2009

Serial No. 111–68

Printed for the use of the Committee on Science and Technology

(

Available via the World Wide Web: http://www.science.house.gov 
(II)

COMMITTEE ON SCIENCE AND TECHNOLOGY 

HON. BART GORDON, Tennessee, Chair 

JERRY F. COSTELLO, Illinois 

EDDIE BERNICE JOHNSON, Texas 

LYNN C. WOOLSEY, California 

DAVID WU, Oregon 

BRIAN BAIRD, Washington 

BRAD MILLER, North Carolina 

DANIEL LIPINSKI, Illinois 

GABRIELLE GIFFORDS, Arizona 

DONNA F. EDWARDS, Maryland 

MARCIA L. FUDGE, Ohio 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

PARKER GRIFFITH, Alabama 

JOHN GARAMENDI, California 

STEVEN R. ROTHMAN, New Jersey 

JIM MATHESON, Utah 

LINCOLN DAVIS, Tennessee 

BEN CHANDLER, Kentucky 

RUSS CARNAHAN, Missouri 

BARON P. HILL, Indiana 

HARRY E. MITCHELL, Arizona 

CHARLES A. WILSON, Ohio 

KATHLEEN DAHLKEMPER, Pennsylvania 

ALAN GRAYSON, Florida 

SUZANNE M. KOSMAS, Florida 

GARY C. PETERS, Michigan 

VACANCY 

RALPH M. HALL, Texas 

F. JAMES SENSENBRENNER JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

VERNON J. EHLERS, Michigan 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

BOB INGLIS, South Carolina 

MICHAEL T. MCCAUL, Texas 

MARIO DIAZ-BALART, Florida 

BRIAN P. BILBRAY, California 

ADRIAN SMITH, Nebraska 

PAUL C. BROUN, Georgia 

PETE OLSON, Texas 

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

HON. BRAD MILLER, North Carolina, Chair 

STEVEN R. ROTHMAN, New Jersey 

LINCOLN DAVIS, Tennessee 

CHARLES A. WILSON, Ohio 

KATHY DAHLKEMPER, Pennsylvania 

ALAN GRAYSON, Florida 

BART GORDON, Tennessee 

PAUL C. BROUN, Georgia 

BRIAN P. BILBRAY, California 

VACANCY 

RALPH M. HALL, Texas 

DAN PEARSON Subcommittee Staff Director 

JAMES PAUL Democratic Professional Staff Member 

TOM HAMMOND Republican Professional Staff Member 

MOLLY O’ROURKE Research Assistant 
(III)

SUBCOMMITTEE ON SPACE AND AERONAUTICS

HON. GABRIELLE GIFFORDS, Arizona, Chair 

DAVID WU, Oregon 

DONNA F. EDWARDS, Maryland 

MARCIA L. FUDGE, Ohio 

PARKER GRIFFITH, Alabama 

STEVEN R. ROTHMAN, New Jersey 

BARON P. HILL, Indiana 

CHARLES A. WILSON, Ohio 

ALAN GRAYSON, Florida 

SUZANNE M. KOSMAS, Florida 

BART GORDON, Tennessee 

PETE OLSON, Texas 

F. JAMES SENSENBRENNER JR., 

Wisconsin 

DANA ROHRABACHER, California 

FRANK D. LUCAS, Oklahoma 

MICHAEL T. MCCAUL, Texas 

RALPH M. HALL, Texas 

RICHARD OBERMANN Subcommittee Staff Director 

PAM WHITNEY Democratic Professional Staff Member 

ALLEN LI Democratic Professional Staff Member 

KEN MONROE Republican Professional Staff Member 

ED FEDDEMAN Republican Professional Staff Member 

DEVIN BRYANT Research Assistant 

(V)

C O N T E N T S 

December 3, 2009

Page 

Witness List ............................................................................................................. 2

Hearing Charter ...................................................................................................... 3

Opening Statements

Statement by Representative Brad Miller, Chairman, Subcommittee on Investigations and Oversight, Committee on Science and Technology, U.S. House 

of Representatives ................................................................................................ 23

Written Statement ............................................................................................ 24

Statement by Representative Gabrielle Giffords, Chairwoman, Subcommittee 

on Space and Aeronautics, Committee on Science and Technology, U.S. 

House of Representatives .................................................................................... 26

Written Statement ............................................................................................ 27

Statement by Representative Paul C. Broun, Ranking Minority Member, Subcommittee on Investigations and Oversight, Committee on Science and 

Technology, U.S. House of Representatives ....................................................... 25

Written Statement ............................................................................................ 25

Statement by Representative Pete Olson, Ranking Minority Member, Subcommittee on Space and Aeronautics, Committee on Science and Technology, U.S. House of Representatives ............................................................... 27

Written Statement ............................................................................................ 28

Witnesses:

Hon. Paul K. Martin, Inspector General, National Aeronautics and Space 

Administration, Accompanied by Tom Howard, Deputy Inspector General, 

National Aeronautics and Space Administration 

Oral Statement ................................................................................................. 30

Written Statement ............................................................................................ 31

Daniel J. Murrin, Partner, Assurance and Advisory Business Services, Ernst 

& Young, LLP 

Oral Statement ................................................................................................. 36

Written Statement ............................................................................................ 37

Hon. Elizabeth Robinson, Chief Financial Officer, National Aeronautics and 

Space Administration 

Oral Statement ................................................................................................. 47

Written Statement ............................................................................................ 49

(1)

INDEPENDENT AUDIT OF THE NATIONAL 

AERONAUTICS AND SPACE ADMINISTRATION 

THURSDAY, DECEMBER 3, 2009

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INVESTIGATIONS & OVERSIGHT, AND

SUBCOMMITTEE ON SPACE AND AERONAUTICS, 

COMMITTEE ON SCIENCE AND TECHNOLOGY

Washington, DC.

The Subcommittees met, pursuant to call, at 2:46 p.m., in Room 

2318 of the Rayburn House Office Building, Hon. Brad Miller 

[Chairman of the Subcommittee on Investigations and Oversight] 

presiding.
2
3

HEARING CHARTER

U.S. HOUSE OF REPRESENTATIVES

COMMITTEE ON SCIENCE AND TECHNOLOGY

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

AND

SUBCOMMITTEE ON SPACE AND AERONAUTICS 

Independent Audit of the

National Aeronautics and Space Administration 

THURSDAY, DECEMBER 3, 2009

2:00–4:00 P.M.

2318 RAYBURN HOUSE OFFICE BUILDING

Purpose 

Each year, federal agencies are required to obtain an audit of their consolidated 

financial statements from independent auditing firms. The National Aeronautics 

and Space Administration (NASA) received .the report of Ernst & Young evaluating 

the Fiscal Year 2009 (FY09) financial statements on November 13, 2009. Ernst & 

Young determined that ‘‘. . . the scope of our work was not sufficient to enable us 

to express, and we do not express, an opinion on the consolidated balance sheets 

. . ..’’ This constitutes a ‘‘disclaimed opinion’’—one in which the auditing firm finds 

a material weakness in the accounting processes of the agency so severe that they 

cannot reliably verify the agency’s financial accounts. The Subcommittees on Investigations and Oversight and Space and Aeronautics will hold a hearing to determine 

what NASA needs to do to continue improving its financial control and accounting 

system.

Witnesses

Hon. Paul Martin

Inspector General

National Aeronautics and Space Administration (NASA)

accompanied by Hon. Tom Howard, Deputy Inspector General

Confirmed by the Senate as NASA Inspector General on November 20, 2009, Mr. 

Martin served as the Deputy Inspector General at the Department of Justice (DOJ) 

for 6 years. From 2001 to 2003, he served as the Counselor to the Inspector General, 

and previously as Special Counsel to the Inspector General from 1998 to 2001. Earlier Martin spent 13 years at the U.S. Sentencing Commission, and began his career 

as a reporter with The Greenville News in Greenville, South Carolina.

Mr. Dan Murrin

Partner, Assurance and Advisory Business Services

Ernst & Young LLP

Mr. Murrin has been the primary Ernst & Young partner managing the NASA 

audit team since the company won the independent audit contract in 2004. Murrin 

served as a Professional Accounting Fellow for 2 years at the Government Accountability Office (GAO) during passage and initial startup of the Chief Financial Officers Act of 1990. He then resumed his career at Ernst & Young in October 1992. 

He has 30 years total experience relating to public sector auditing issues.

Hon. Elizabeth Robinson

Chief Financial Officer

National Aeronautics and Space Administration

Dr. Robinson assumed her job as NASA’s Chief Financial Officer on November 9, 

2009, following her confirmation by the Senate. In her previous position, she served 

as Assistant Director for Budget at the Office of Management and Budget. She had 

also held the post of Deputy Director at the Congressional Budget Office. In her 
4

1 ‘‘. . . [A] reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.’’ 2Statements of Federal Financial Accounting Standards 6. 

3 ‘‘[A] deficiency, or a combination of deficiencies, in internal control that is less severe than 

a material weakness, yet important enough to merit attention by those charged with governance.’’

early career, Dr. Robinson served on the Science and Technology Committee evaluating Department of Energy programs and policies.

Findings in the FY09 Audit: Material Weakness 

Ernst & Young, NASA’s auditors, cited the continuing problem of valuing NASA’s 

older property, plant and equipment (PP&E)—the Space Shuttle and the International Space Station—as a material weakness.1 This situation has existed for a 

number of years and is a result of misinterpreting guidance on property management accounting during the past decade. The auditors credit NASA with a concerted 

multi-year effort to properly classify these assets and describe the agency’s progress 

in establishing proper valuations. However, the valuation of property In the International Space Station and Space Shuttle programs still failed to meet the requirements of the Federal Accounting Standards Advisory Board (FASAB) during the period of the audit, leading to Ernst & Young’s disclaimer of opinion on the financial 

statements. 

Until October, the Federal accounting standard for PP&E 2 required agencies to 

use actual cost data for these items listed on its balance sheets. NASA, like the Department of Defense (DOD), lacked the documentation needed to satisfy this requirement to the satisfaction of auditors. In such cases, the standard did provide 

for agency estimates of asset values, but this was to be based on actual cost data. 

Agencies with significant legacy assets attempting to comply with the strict interpretation of the standard were spending significant funds to locate available documentation and reconstruct the needed data, and in the end were not producing 

measurably better results. 

Responding to DOD’s concerns about its inability to meet the standard, FASAB 

developed and issued ‘‘Statement of Federal Financial Accounting Standards 35 

(SFFAS 35).’’ The Board amended the previous guidance on PP&E to allow ‘‘reasonable’’ estimates of historical costs as a means of valuing assets. The standard also 

offered more detailed guidance on the basis for estimates. In doing so, the Board 

indicated that actual data was still preferred and should underlie an agency’s estimates where possible. Further, agencies using estimates were encouraged to develop 

financial systems that would capture necessary information on transactions going 

forward. Ernst & Young’s report notes that NASA is working with other agencies 

to determine appropriate methods for implementing SFFAS 35, and that it has updated its internal controls on property beginning with contracts effective in Fiscal 

Year 2008 (October 1, 2007). 

The auditors made two recommendations relating to this material weakness. 

First, NASA needs to continue evaluating how it develops estimates allowed by 

SFFAS 35, especially when actual data is missing or questionable. NASA should 

also seek to avoid depending on contractor-provided estimates, trying instead to 

match outlays to particular property, plant or equipment if possible. The auditors 

encourage additional effort for older contracts lacking newer requirements for tracking property, plant and equipment. The second recommendation calls for ‘‘robust 

and rigorous review’’ as NASA continues to develop estimation techniques and seeks 

to assure completeness of documentation. Special attention to Center internal control processes for property is also suggested to insure that necessary information on 

property, plant and equipment is now captured.

Findings in the FY09 Audit: Significant Deficiencies 

The audit report also cited two significant deficiencies: 3 1) the agency’s method 

for estimating its liabilities for environmental cleanup and 2) the financial management system is not in substantial compliance with the Federal Financial Managers 

Integrity Act (FFMIA). According to the audit report, NASA has an estimated $922 million in environmental liabilities as of the end of Fiscal Year 2009. While the auditors note efforts 

by the agency to improve these estimates and implement recommendations in last 

year’s audit, there were still ‘‘. . . weaknesses in NASA’s ability to generate an 

auditable estimate on a timely basis of its UEL [unfunded environmental liability] 

environmental cleanup costs and its environmental liabilities associated with 

PP&E.’’ These estimates were prepared quickly and NASA told Ernst & Young that 

more training and greater control over the development of estimates is needed. Ex-
5

4 GAO/AFMD–91–74, August 21, 1991; p. 1. 5Window on Waste: Atrophy in NASA Management, Serial 142, 102nd Congress; May 7, 1992; 

p. 31. 6GAO–01–258, January 2001; p. 12. 

7GAO–02–551T, March 20, 2002; pp. 1–2. 

amining the software used for estimates of some twenty percent of environmental 

liabilities, the audit questioned whether it was generating reliable outputs. 

The audit also noted that NASA developed an estimation process that assumed 

that NASA would face a particular environmental liability during a 30-year window, 

unless there was available data to demonstrate that the agency was responsible for 

cleanups over a longer period of time. By making this assumption, the total environmental liability. was reduced by about 25 per cent in Fiscal Year 2009. Ernst & 

Young questioned the process by which this outcome was reached, and specifically 

raised concern that ‘‘[t]he estimate was compiled and aggregated by EMD [the Environmental Management Division] with little support from the individual project 

managers, and OCFO [the Office of the Chief Financial Officer] was not aware of 

the process.’’

Relating to the system weaknesses, the auditors state that integration between 

the core financial module and the real property module is lacking. They also question whether the tracking of changes within the system may be inadequate and that 

compensating external reviews to reconcile transactions and review integrity of data 

are not in place. While the auditors do not believe these control weaknesses would 

result in serious problems with the financial statements, NASA might be exposed 

to ‘‘. . . risks regarding safeguarding of assets.’’ These items led the auditors to declare that the system falls short of FFMIA requirements. The auditors recommend 

correcting these issues.

Agency response 

NASA’s response declared that the agency ‘‘is committed’’ to resolving the issues 

relating to legacy PP&E valuation using the guidance provided by SFFAS 35. It also 

stated that the significant deficiencies would also be addressed.

Background 

In 1988, NASA made its first attempt to develop an integrated financial management system; the NASA Accounting and Financial Information System (NAFIS). 

The program ran into trouble, as GAO noted in a report to then—Administrator 

Richard Truly: the cost estimate had jumped from $25.9 million to $45.7 million in 

just over 2 years.4 In May 1992, the Subcommittee on Investigations and Oversight 

held a hearing at which GAO detailed a number of major weaknesses in NASA financial management, including cases where budgetary obligations were made without assuring sufficient resources were available—violations of the Anti-Deficiency 

Act. GAO also noted that noted that NASA’s systems were ‘‘. . . nonintegrated, nonstandard, not fully automated, requiring multiple data entry and lengthy reconciliations . . .’’ 5

NASA then signed a fixed-price agreement in September 1997 with KPMG to use 

a commercial product to develop a new accounting system. In this case the number 

of changes needed to conform to government accounting requirements rapidly 

brought the program to a halt. Three years and $131 million into the contract NASA 

terminated the effort.6

During this time, as GAO testified before the Government Reform Committee in 

March 2002, NASA was receiving unqualified—or ‘‘clean’’—opinions from Arthur 

Andersen, then the independent auditor. It was therefore somewhat of a shock to 

the incoming Administrator, Sean O’Keefe, when the agency’s newly-hired audit 

team from PriceWaterhouseCoopers submitted a disclaimer on the Fiscal Year 2001 

audit for major internal control weaknesses and declared that the financial management systems were not in compliance with FFMIA.7 This episode badly affected re-
6

8Ms. Gross was removed at the behest of Administrator O’Keefe on February 14, 2002. Contemporaneous articles made it clear Ms. Gross did not go voluntarily and not for cause [Edward 

Walsh, ‘‘Inspectors General Ousted at 2 Agencies: Moves Raise Concerns for Watchdogs’ Role,’’ 

Washington Post, April 3, 2002; p. A21; Paul C. Light, ‘‘The Last Word: Off With Their Heads,’’ 

Government Executive, May 2002, p. 66]. The importance of NASA’s audit lapse was highlighted 

by Mr. O’Keefe’s statement in his first appearance before the Senate Appropriation Committee 

Subcommittee on VA, HUD and Independent Agencies that, ‘‘The idea of . . . a disclaimed opinion from independent auditors because they couldn’t get the data is unacceptable. So in my judgment, this will not be a topic of discussion next year.’’ [Jefferson Morris, ‘‘O’Keefe to Congress,’’ 

Aerospace Daily, May 2, 2002; p. 1.] Ms. Gross described the connection between her dismissal 

and the disclaimer of opinion by PriceWaterhouseCoopers in a 2007 interview with staff. 9 Competing claims about the PriceWaterhouse Coopers contract’s end came in allegations 

against former Inspector General Robert Cobb investigated by the Integrity Committee of the 

President’s Council on Integrity and Efficiency; in statements by Cobb when interviewed by 

committee staff in 2007, and in a Reuters article reporting that ‘‘. . . the audit firm opted out 

of the contract because it was unhappy with the relationship.’’ [Arindam Nag and Deborah 

Zabarenko, ‘‘NASA’s finances in disarry—auditor departs,’’ Reuters May 14, 2004 17:40 GMT]. 10 Financial Systems, Analyses and Oversight; Fund Balance with Treasury; Property; and 

Integrated Financial Management Program (IFMP) Systems Control Environment. 

lations between Mr. O’Keefe and Roberta Gross, then the NASA Inspector General.8

It also led to early termination of the PriceWaterhouseCoopers auditing contract.9

Since April 2000, NASA had been working to finish its third attempt at a financial management system, the Integrated Enterprise Management Program. In this 

case NASA adopted the R/3 enterprise management program developed for U.S. government agencies by the SAP Corporation. The core financial module was implemented at the agency field centers between October 2002 and June 2003. It was not 

a smooth transition; as noted in the agency’s the Fiscal Year 2003 audit, auditors 

from PriceWaterhouseCoopers found in their last report that:

‘‘. . . NASA management identified significant errors in its June 30, 2003, financial statements resulting from the implementation of the IFMP [Integrated 

Financial Management Program] system. NASA management communicated 

that it would correct these errors in the September 30, 2003, financial statements. When NASA first prepared its September 30, 2003, financial statements, 

NASA concluded that these financial statements also contained significant errors. NASA’s efforts to correct these errors led to significant delays in its completion of the September 30, 2003, financial statements and its compilation of 

documentation in support of amounts and disclosures in these financial statements, including support for resolution of the June 30, 2003, financial statement errors. The documentation NASA provided in support of its September 30, 

2003, financial statements was not adequate to support $565 billion in adjustments to various financial statement accounts, which it identified as being related to the conversion of data to the IFMP system; $2 billion in net adjustments to its Fund Balance with Treasury account, which had the effect of reducing NASA’s recorded balance so it equaled Treasury’s reported balance; and its 

corrections of the financial data errors that affected its June 30, 2003, and September 30, 2003, financial statements. Because of the delays in preparation of 

the September 30, 2003, financial statements, it was not possible to pursue further evidence in support of these transactions and amounts, nor was it possible 

to complete other planned auditing procedures within the reporting deadline established by Office of Management and Budget (OMB). Thus, we could not complete our audit and were unable to determine whether there were other matters 

that are required to be reported . . ..’’

In the reports it has issued since becoming the agency’s independent auditor, 

Ernst & Young has traced the changes NASA has made to correct the four material 

weaknesses they first identified in their Fiscal Year 2004 report.10 The Fiscal Year 

2005 audit declared the improvements in the IFMP control environment ‘‘substantially complete.’’ In the Fiscal Year 2006 audit, the Fund Balance With Treasury 

material weakness was combined with the broader Financial Systems, Analyses and 

Oversight issue. This year’s audit left only the Property material weakness discussed earlier. As a small measure of NASA’s progress it only took Ernst and Young 

12 pages in this year’s audit report compared to the 24 needed for its first report 

in Fiscal Year 2004. The bottom line is that while NASA received a disclaimed opinion, the agency has come a long way toward getting out of the woods on their accounting. With a solid implementation of SFFAS 35, NASA may get a qualified or 

clean opinion for the FY 2010 audit. 

Attached for information are the Inspector General’s letter to the Administrator, 

the Ernst & Young audit, and NASA’s response.
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Chairman MILLER. Good afternoon. I am pleased to call to order 

this session, this joint hearing of the Subcommittee on Investigations and Oversight and the Subcommittee on Space and Aeronautics. Our purpose today is to examine the fiscal year 2009 audit 

of financial operations at the National Aeronautics and Space Administration. 

NASA’s independent auditors, the firm of Ernst & Young, decided not to render an opinion on whether the agency’s financial 

documents fairly represented the financial condition of the agency 

in the last fiscal year. Such disclaimed opinions, they are called, 

had been very frequent at NASA in the last few years. 

Seventeen years ago, the Subcommittee on Investigations and 

Oversight held a hearing to discuss financial management at 

NASA. Then, NASA had just been placed on the GAO, the Government Accountability Office’s high-risk list for their lack of appropriate financial management system. The bottom line was that 

NASA could not tell you with confidence what their bottom line 

was. At that hearing, the Subcommittee learned that NASA apparently obligated to spend money without being sure it actually had 

the money it was spending, which is a violation of the 

Antideficiency Act. 

It took about half as long to get to the moon as it has to clean 

up NASA’s financial performance, but after three tries, hundreds 

of millions of dollars and the hard work of many NASA employees 

later, they have shown definite improvement. It is hard to take a 

lot of comfort from a disclaimed opinion. Finding comfort in that 

is like a student who was not promoted who took comfort in the 

fact they came much closer to passing the year before, but in all 

the circumstances, this really is improvement compared to where 

it has been. 

The message is encouraging. The disclaimer of this audit is very 

different from those NASA received earlier in the decade. Today we 

are only discussing one material weakness, not four, and is one 

that is kind of understandable. The significant remaining problem 

is that NASA has been unable to meet accounting requirements for 

setting an asset value on the Shuttle and Space Station programs. 

While any material weakness is disappointing and a concern, we 

have come a long way from the days when NASA could not say how 

they were spending their money, what they were spending it on, 

what they spent, when they spent it. We are no longer talking 

about accountants fixing records by moving around a few billion 

dollars and treating that as rounding error to make the books 

work. We really have the best disclaimed opinion an agency could 

possibly hope for. So it really is the case that you almost passed 

your grade this year, and we are fairly confident that next year you 

will be promoted. 

And we have more good news. NASA received guidance in October from the Federal Accounting Standards Advisory Board on how 

to value the Shuttle and the Space Station using estimates of 

value. That is a glimmer of hope that NASA can produce a valuation that really will pass muster, not be disclaimed by their accounting firm next year. It is my strong desire to see that happen 

this fiscal year so that if I see all of you again at this time next 

year, it will be at a holiday party, not at an oversight hearing. The 
24

difficulties in trying to value assets like the Space Shuttle and the 

Space Station—which don’t really have a market value—there is 

nobody who wants to buy a used Space Shuttle or a used Space 

Station, which makes it very hard to use market prices for valuation. There really was a time when the claim that NASA’s books 

were just a mess is no longer really true and that we really do have 

reason to think that next year’s audit will be a clear, clean audit. 

There are other matters that challenge NASA’s accounting operation. I am particularly concerned about the environmental liabilities that Ernst & Young spoke of—mentioned in their report. But 

I expect all the parties before us today can work together to sustain 

the progress we have seen in NASA’s financial management system. 

[The prepared statement of Chairman Miller follows:]

PREPARED STATEMENT OF CHAIRMAN BRAD MILLER

Good afternoon. I am pleased to call to order this joint hearing of the Subcommittee on Investigations and Oversight and the Subcommittee on Space and 

Aeronautics. Our purpose is to examine the Fiscal Year 2009 audit of financial operations at the National Aeronautics and Space Administration. 

NASA’s independent auditors, the firm of Ernst & Young, decided not to render 

an opinion on whether the agency’s financial documents fairly represented the financial condition of the agency in the last fiscal year. Such ‘‘disclaimed opinions’’ 

have been far too frequent in recent years at NASA. 

Seventeen years ago, the Subcommittee on Investigations and Oversight held a 

hearing to discuss financial management at NASA. In those days, NASA had just 

been placed on the Government Accountability Office’s ‘‘high-risk’’ list for their lack 

of an appropriate financial management system. The bottom line was that NASA 

could not tell you with confidence what their bottom line was. At that. hearing, the 

Subcommittee learned that NASA had apparently obligated to spend money without 

being sure it actually had the funds—which constitutes a violation of the Anti-Deficiency Act. 

It only took about half as long to get to the moon as it has taken to clean up 

NASA’s financial performance, but three tries, hundreds of millions of dollars and 

the hard work of many NASA employees later they have shown definite improvement. 

Our message today is encouraging—the disclaimer of this audit is very different 

from those NASA received earlier this decade. Today we are only discussing one material weakness, not four. The significant remaining problem is that NASA has been 

unable to meet accounting requirements for setting an asset value on the Shuttle 

and Space Station programs. While any material weakness is disappointing, we 

have come a long way from the days when NASA could not say with confidence who 

had spent money on what, when. We are no longer talking about NASA accountants 

fixing records by arbitrarily making adjustments to accounts on the order of billions 

of dollars. In short, this is the best disclaimed opinion an agency could hope for. 

And we have more good news: NASA received guidance in October from the Federal Accounting Standards Advisory Board on how to value the Shuttle and Station 

using estimates of value. This provides a glimmer of hope that NASA can produce 

a valuation that will pass muster with their accounting firm. It is my strong desire 

to see that happen, this fiscal year, so that if I see you the three of you this time 

next year, it will be at a Christmas party not an oversight hearing. The difficulties 

in trying to value assets such as the Space Shuttle and Space Station, that have 

no real market value, leads people to believe NASA can’t keep its books. There was 

a time when that claim would have been true, but it is not true today and I hope 

that the auditing done next year will make that clear. 

There are other matters that challenge NASA’s accounting operation—I am particularly concerned about the environmental liabilities issues that Ernst and Young 

mention. However, I expect all the parties before us today can work together to sustain the progress we have seen in NASA’s financial management system. 

At this time, I will thank the witnesses for participating in the hearing and now 

yield to Chairwoman Giffords for her opening statement.
25

Chairman MILLER. And now at this time, I think we agreed to 

go Chair, Chair, Ranking Member, Ranking Member. I am sorry, 

Chair, Ranking Member, Chair, Ranking Member. 

I now recognize Dr. Broun, the Ranking Member of the Investigations and Oversight Subcommittee. 

Mr. BROUN. Thank you, Mr. Chairman. Let me welcome our witnesses here today and congratulate two of you on your new appointments. Mr. Martin and Dr. Robinson, I look forward to working with you in the future, and I do congratulate you on your new 

appointments. And both of you have your work cut out for you in 

the future. I would be remiss if I did not mention the tremendous 

progress that your predecessors have made. NASA’s financial management was in tremendous disarray for many years. The agency 

is still not out of the woods yet, but the steps taken by your predecessors should obviously be noted and accolades to them. 

I hope that our witnesses today will continue that trend, and I 

look forward to your progress. Problems still remain, however. As 

Mr. Murrin will detail in his testimony, NASA once again has received a disclaimed opinion, meaning that the independent auditor 

could not express an opinion on the status of NASA’s balance 

sheets. This is certainly not the first time this has happened. Hopefully this may be the last, and I sure hope so just to reiterate what 

Chairman Miller said. Our Committee, GAO and NASA IG have all 

followed this issue closely for many years. GAO and the NASA IG 

have issued a litany of reports over the last two decades, and this 

Committee has had several hearings to address the topic. 

I am pleased to hear that NASA seems to have been brought in, 

quote unquote, to a single-standards accounting system rather than 

the multiple fiefdoms that were present in the past. NASA still 

faces the daunting task of evaluating property, plant and equipment, most notable, the Space Shuttle and International Space Station. While this problem may never be fixed, it may work itself over 

time as the Shuttle is planned to retire next year, and the Space 

Station operations will eventually end as well. Until then, I hope 

that solutions can be found that both respect appropriate accounting standard as well as real-world realities. 

I look forward to monitoring your progress and ensuring that 

NASA handles scarce taxpayer resources in a transparent and accountable manner. Thank you, Mr. Chairman, and I yield back the 

balance of my time. 

[The prepared statement of Mr. Broun follows:]

PREPARED STATEMENT OF REPRESENTATIVE PAUL C. BROUN

Thank you Mr. Chairman. 

Let me welcome our witnesses here today, and congratulate two of them on their 

new appointments. Mr. Martin and Dr. Robinson both have their work cut out for 

them, and I look forward to working with both of them in the future. I’d be remiss 

if I did not mention the tremendous progress their predecessors made. NASA’s financial management was in disarray for many years. The agency is still not out of 

the woods, but the steps taken by their predecessors should be noted. I hope that 

our witnesses today will continue this trend, and I look forward to following their 

progress. 

Problems still remain, however. As Mr. Murrin will detail in his testimony, NASA 

once again received a disclaimed opinion—meaning that the independent auditor 

could not express an opinion on the status of NASA’s balance sheets. This is certainly not the first time this has happened. Our Committee, GAO, and NASA IG 

have all followed this issue closely for many years. GAO and the NASA IG have 
26

issued a litany of reports over the last two decades and this Committee has held 

several hearings to address the topic. 

I’m pleased to hear that NASA seems to have ‘‘bought in’’ to a single standardized 

accounting system, rather than the multiple fiefdoms of the past. NASA still faces 

the daunting task of valuing Property Plant & Equipment (PP&E)—most notable 

the Space Shuttle and the International Space Station (ISS). While this problem 

may never be fixed, it may work itself out over time as the Shuttle is planned to 

retire next year, and ISS operations will eventually end as well. Until then, I hope 

that solutions can be found that both respect appropriate accounting standards, as 

well as real world realities. 

I look forward to monitoring your progress and ensuring that NASA handles 

scarce taxpayer resources in a transparent and accountable manner. 

Thank you Mr. Chairman, I yield back the balance of my time.

Chairman MILLER. Thank you, Dr. Broun. I now recognize the 

Chairwoman of the Subcommittee on Space and Aeronautics, who 

I am sure hopes the financial management at NASA will achieve 

the standards set by the astronauts, the Honorable Gabrielle Giffords for her opening statement. 

Ms. GIFFORDS. Thank you, Mr. Miller, Mr. Chairman. I would 

like to as well extend a welcome to our witnesses today. 

I am going to keep my comments as short as possible. I, along 

with other members here of Congress, are very strong supporters 

of NASA. We believe that NASA is truly the crown jewel of America’s R&D efforts. NASA can inspire, can educate, can improve our 

society throughout a variety of its activities. What we ask NASA 

to do is very, very difficult. So want to be careful to make sure that 

you have the resources that you need. But at the same time, there 

is a very strong responsibility to the American taxpayer to make 

sure that the funds being spent by NASA or any other agency is 

being well spent. We take that responsibility seriously. I do as the 

Chairwoman. I know my colleagues do as well, and that is why the 

Chairman and I have called today’s hearing. 

As many of you already know, NASA recently received the results of its annual independent financial audit. It once again received a disclaimed opinion. Of course, that is not what any of us 

want to see from NASA. At the same time, it was not totally a surprise, since NASA had been receiving disclaimed opinions for most 

of this decade. Now, that is the bad news, and one of the reasons 

we are holding today’s hearing. 

We need to know why NASA received a disclaimed opinion, how 

NASA can clean up that opinion, and what NASA intends to do to 

ensure that we are not going to be here next year to get the same 

decision. However, I also wanted to hold this hearing because it is 

clear that there is a lot of very good news coming out of NASA. The 

financial management has definitely improved. 

It is clear from the auditor’s report and the NASA IG’s findings 

have found that NASA has made truly significant improvements 

over its financial management systems and practices over the last 

many year, and in short, after almost a decade of serious shortcomings as mentioned by my colleague in NASA’s approach to financial management, now you are really coming very close to closing the books on those problems. So congratulations. It is good 

news. 

Before I close, I would also just like to say that solutions like this 

to problems in our government don’t happen overnight. They happen because of the hard work of some very dedicated government 
27

employees. The work that was done under the leadership of the 

former CFO, Honorable Ronald Spoehel, is something that is not 

widely known and recognized. He persevered in a thankless but ultimately very significant task, and he should take great pride in 

what he was able to accomplish. 

Again, we often overlook the work that has been done by so 

many who work for our government, and Mr. Spoehel and his team 

were tremendous individuals and are owed a debt of gratitude. 

Dr. Robinson, I know that you will continue to build on the 

progress that has been made to date. And as you assume the duties 

of CFO, I know that you will do so with great effectiveness and efficiency. 

With that, again I would like to welcome our witnesses, and we 

look forward to your testimony. Thank you. 

[The prepared statement of Chairwoman Giffords follows:]

PREPARED STATEMENT OF CHAIRWOMAN GABRIELLE GIFFORDS

Good afternoon. I want to join Chairman Miller in welcoming our witnesses to 

this afternoon’s hearing. In the interest of getting to our witnesses as soon as possible, I will be brief in my opening remarks. I am a strong supporter of NASA, because I believe that it is one of the ‘‘crown jewels’’ of the nation’s R&D enterprise. 

Moreover, it can inspire, educate, and improve our society through its activities. I 

want to ensure that NASA receives the resources that it will need to carry out the 

many tasks that we have given it. At the same time, I feel the equal responsibility 

of ensuring that NASA is a good steward of those resources—resources which ultimately come from the American taxpayers. I take that responsibility seriously, as 

I know my colleagues do. That is why Chairman Miller and I called today’s hearing. 

As many of you already know, NASA recently received the results of its annual 

independent financial audit. It once again received a ‘‘disclaimed’’ opinion. That is 

not what we want to see from NASA. At the same time, it was not totally a surprise, since NASA has been receiving disclaimed opinions for most of this decade. 

That’s the bad news, and one of the reasons we are holding today’s hearing. 

We need to know why NASA got a disclaimed opinion, how NASA can get a clean 

opinion, and what NASA intends to do to ensure that it won’t get another disclaimer 

next year. However, I also wanted to hold this hearing because it is clear that there 

is a lot of good news to report on the financial management front at NASA. 

It is clear from the auditor’s report and the NASA IG’s findings that NASA has 

made truly significant improvements in its financial management systems and practices. In short, after almost a decade of serious shortcomings in its approach to financial management, NASA is now very close to closing the books on those problems. That is very good news, and I hope that it will not get lost sight of today as 

we discuss what remains to be done. 

Before I close, I would note that the dramatic improvement we have seen in 

NASA’s financial management didn’t just happen. It was the result of a lot of hard 

work by a dedicated team under the leadership of the former CFO, the Honorable 

Ronald Spoehel. He persevered in a thankless but ultimately very significant task, 

and he should take great pride in what he was able to accomplish. We often overlook the important role that individuals can play in making our government work 

better. Mr. Spoehel and his team were such individuals, and we owe them our gratitude. Dr. Robinson, I hope that you will build on the progress made to date as you 

assume the duties of CFO, and I am confident that you will do so effectively and 

efficiently. 

With that, I again want to welcome our witnesses and I look forward to your testimony.

Chairman MILLER. Thank you, Ms. Giffords. The Chair now recognizes Mr. Olson from Texas, the Ranking Member of the Space 

and Aeronautics Subcommittee for his opening statement, the last 

of the four. 

Mr. OLSON. I would like to thank the chairs, Chairman Miller, 

Chairwoman Giffords, and Chairman Broun, for hosting this hearing today. Thank you to the witnesses for being here, taking the 
28

time to be here and may I offer a welcome particularly to Mr. Martin and Dr. Robinson. You have extremely critical positions at 

NASA, and I wish you the best in your new posts. I hope you know 

that you have folks on these Committees and in this Congress who 

are willing to stand up to make sure that the agency is on the right 

track to achieve the—missions it has and will undertake. 

Along those lines, I would like to say in regard to this hearing 

today that the diligent efforts by NASA over the last several years 

to get their financial house in order are bearing fruit, and the 

agency should be commended for the hard work it has done to get 

us to where we are today. 

I would like to especially recognize the work of Ron Spoehel and 

commend him for his services at NASA as a CFO at this time as 

well. 

I am a strong proponent of giving NASA the resources it needs 

to achieve its goals. While the agency is in desperate need of funds, 

we cannot and frankly should not advocate for increased taxpayer 

money unless we are confident that those funds are being spent efficiently, wisely and with accountability. An agency that is not adequately accountable for taxpayer resources should not be awarded 

with increased funding. That is why we are here, talking about this 

important initiative in any circumstance but particularly at this 

time in the agency’s history. 

Thank you for what you have done and what we will do together 

on behalf of the Nation’s space flight program. 

I yield back my time. 

[The prepared statement of Mr. Olson follows:]

PREPARED STATEMENT OF REPRESENTATIVE PETE OLSON

I’d like to thank the Chairs, Reps. Giffords and Miller, and Ranking Member 

Broun for holding this important hearing today. Thank you to the witnesses for taking the time to be here, and may I offer a welcome particularly to Mr. Martin and 

Ms. Robinson. You have extremely critical positions at NASA and I wish you the 

best in your new posts. I hope you know you have folks on this committee and in 

this Congress who stand willing to help make sure the agency is on the right track 

to achieve the worthy missions it has and will undertake. 

Along those lines, I’d like to say in regard to this hearing today that the efforts 

performed to get NASA’s financial house in order are seeing fruit, and the team 

should be commended for the hard work it has done to get us where we are today. 

I’d like to recognize the work of Ron Spoehel and thank him for his service at NASA 

as CFO at this time as well. 

I am a strong proponent of giving NASA the resources it needs to achieve its 

goals. While the agency is in desperate need for funds, we cannot, and frankly 

should not, advocate for increased taxpayer money if those already entrusted to it 

aren’t spent wisely, efficiently, and correctly. An agency that is not adequately accountable of government resources should not be entrusted with more of them. That 

is why what we are here talking about it important under any circumstance, but 

particularly at this time in the Agency’s history. 

Thank you for what you have done, and what we will do together on behalf of 

our nation’s space program.

Chairman MILLER. Thank you, Mr. Olson. I ask unanimous consent for all additional opening statements submitted by any member of either Subcommittee be included in the record. Without objection, so ordered. 

It is now my pleasure to introduce our witnesses. Members will 

be interested to know that Mr. Martin and Dr. Robinson are making their first appearance before our Committee or any Sub-
29

committee of our Committee. In between them they have 1 month 

in their new positions. 

Mr. Paul Martin is the new Inspector General of NASA. I am 

very pleased to say new Inspector General of NASA. He was confirmed by the Senate as a NASA Inspector General on November 

20 and previously served as a Deputy Inspector General at the Department of Justice. For 6 years from 2001 to 2003, he was a counselor to the Inspector General and previously was the Special 

Counsel to the Inspector General from 1998 to 2001. Earlier, he 

spent 13 years at the U.S. Sentencing Commission and began his 

career as a reporter with the Greenville News in Greenville, South 

Carolina. 

Accompanying Mr. Martin is Mr. Tom Howard who has served 

as Deputy Inspector General at NASA since 2002. He previously 

worked at the Department of Transportation in the Government 

Accountability Office. 

Mr. Dan Murrin is partner in the Assurance and Advisory Business Services division at Ernst & Young. Mr. Murrin has been the 

primary Ernst & Young partner managing the NASA audit team 

since the company won the independent audit contract in 2004. He 

served as a Professional Accounting Fellow for 2 years for the Government Accountability Office during passage and initial start-up 

of the Chief Financial Officers Act of 1990. He then resumed his 

career at Ernst & Young in October 1992. He has 30 years’ total 

experience relating to public sector auditing issues. 

And finally, Dr. Elizabeth Robinson is NASA’s chief financial officer and was confirmed by the Senate on November 9 of this year. 

In her previous position, she was Assistant Deputy for Budget at 

the Office of Management and Budget. She has also held the post 

of Deputy Director at the Congressional Budget Office, and early 

in her career, Dr. Robinson served here on the staff of the Science 

and Technology Committee evaluating the Department of Energy 

programs and policies. Dr. Robinson, I would have mentioned that 

you were a former staff member of this Committee, even if I had 

written these introductions myself. 

As our witnesses should know, you each have 5 minutes for your 

spoken testimony. Your written testimony will be included in the 

record for the hearing. When you all have completed your spoken 

testimony, we will begin with questions. Each member will have 5 

minutes to question the panel. It is the practice of this Subcommittee, our Subcommittee, Investigations and Oversight, to receive testimony under oath. Do any of you have any objection to 

taking an oath? The record should reflect that all the witnesses 

nodded in the affirmative that they have no objection. 

You also have the right to be represented by counsel. Do any of 

you have counsel here with you? The witnesses all again nodded 

in the affirmative. 

Please stand and raise your right hand. Do you swear to tell the 

truth and nothing but the truth? All the witnesses have now taken 

the oath. And now I assume that being advised of all of your rights 

you feel relaxed and prepared to talk to us. Let the record show 

that all these witnesses have taken the oath, and we will start with 

the first witness, Inspector General Martin. Mr. Martin, you are 

recognized for 5 minutes. 
30

STATEMENT OF HON. PAUL K. MARTIN, INSPECTOR GENERAL, 

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, ACCOMPANIED BY TOM HOWARD, DEPUTY INSPECTOR GENERAL, NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 

Mr. MARTIN. Thank you, Chairman Miller, Chairwoman Giffords 

and Ranking Members of the Committee. At the outset, I would 

like to thank you for your warm words of welcome. I can think of 

no better way to end my fourth day on the job than up here in 

front of the Committee. 

Thank you for the opportunity to allow us to discuss the fiscal 

year 2009 audit of NASA’s financial statements. With me today is 

Tom Howard, the Deputy Inspector General at NASA and the key 

supervisor at the OIG who has worked this issue over the last few 

years. 

As requested, our written statement that we submitted to the 

Committees addresses three main issues: first, the Office of Inspector General’s views of the issues identified by Ernst & Young, the 

independent public accounting firm that conducted the audit under 

contract with the OIG; second, NASA’s progress in remediating its 

financial management problems; and third, Ernst & Young’s recommendations to address ongoing issues. 

By way of background, for most of the past decade, the OIG has 

identified NASA’s need to improve its financial management as one 

of the agency’s most serious performance and management challenges; and to its credit, over the years NASA has focused considerable effort on resolving longstanding weaknesses in its financial 

management processes and systems. While the agency has made 

significant improvements, several key challenges remain as evidenced by the fact that Ernst & Young disclaimed an opinion on 

NASA’s financial statements again in fiscal year 2009. 

As was discussed, this disclaimer is based on the auditor’s inability to obtain sufficient evidentiary support for the amounts presented in the agency’s financial statements. The primary reason for 

this was NASA’s continued inability to accurately value its legacy 

assets, specifically the Space Shuttle and the International Space 

Station. Although we recognize that NASA has made significant 

progress in improving its financial processes and system, the 2009 

audit report identified three significant deficiencies in internal controls, one of which is considered a material weakness. Specifically, 

Ernst & Young reported a material weakness in NASA’s controls 

for ensuring that the value of legacy property, plant and equipment 

presented in the financial statement is fairly stated. This means 

there was a reasonable possibility that internal controls over 

NASA’s legacy assets were insufficient to prevent a material 

misstatement in the agency’s financial statements. The other two 

internal control deficiencies cited by Ernst & Young involve 

NASA’s process for estimating its environmental liabilities and its 

compliance with the Federal Financial Management Improvement 

Act of 1996. 

To help NASA leadership correct these weaknesses, the audit 

contains a series of recommendations, including that NASA focus 

on improving its implementation of recent guidance permitting the 

use of estimates in establishing the value of legacy assets. 
31

1During the reporting period of the FY 2009 audit, the American Institute of Certified Public 

Accountants standards defined a ‘‘significant deficiency’’ as a deficiency or a combination of deficiencies in internal control that is less severe than a material weakness, yet important enough 

to merit attention by those charged with governance. 

Through its own initiatives and through discussions with the 

OIG and Ernst & Young, NASA’s Office of the Chief Financial Officer is pursuing a series of actions to improve the agency’s financial 

management and address existing weaknesses in internal controls. 

Most notably, the agency has revised and improved its continuous 

monitoring program which helps NASA managers assess on an ongoing basis its financial management process and internal controls. 

This program also helps ensure that balances and activities reported in the agency’s financial statements are accurate and complete. 

As we look to the 2010 fiscal year, NASA is also working to address the valuation of its legacy assets, improve its process for estimating environmental liabilities and ensure compliance with 

FFMIA. 

In closing, we believe that NASA, through effective implementation of the recommendations contained in the 2009 audit report, together with a continued focus on is ongoing monitoring and remediation efforts, should be able to correct the existing weaknesses in 

its financial management processes and systems during fiscal year 

2010. 

This concludes our oral statement. We would be pleased to answer your questions. 

[The prepared statement of Mr. Martin follows:]

PREPARED STATEMENT OF HON. PAUL K. MARTIN

Chairman Miller and Chairwoman Giffords, Ranking Members, and Members of 

the Subcommittees: 

Thank you for the opportunity to discuss the fiscal year (FY) 2009 audit of the 

National Aeronautics and Space Administration’s (NASA) financial statements. The 

independent public accounting firm Ernst & Young LLP (E&Y) conducted the audit 

under a contract with the Office of Inspector General (OIG). 

As requested, this statement describes the OIG’s views of the issues identified by 

E&Y, NASA’s progress in remediating its financial management problems, and 

E&Y’s recommendations to address continuing issues. 

The OIG has identified the need to improve financial management at NASA as 

one of the most serious performance and management challenges facing Agency 

leadership for most of this decade. Over the years, NASA implemented a variety of 

corrective actions to address longstanding weaknesses in its financial management 

processes and systems. While the Agency has made significant improvements, several challenges remain to be addressed. 

For example, in its most recent report, E&Y disclaimed an opinion on NASA’s financial statements for FY 2009. The disclaimer indicates that E&Y was unable to 

obtain sufficient evidentiary support for the amounts presented in the Agency’s financial statements and resulted primarily because of continued weaknesses in 

NASA’s internal controls over accounting for legacy assets—specifically, the Space 

Shuttle and International Space Station (ISS). Although the auditor’s report recognizes that the Agency has made significant progress in improving its financial processes and systems, the report identified three significant deficiencies 1 in internal 

controls with one considered a material weakness. 

Specifically, E&Y reported a material weakness in NASA’s controls for assuring 

that the value of legacy property, plant, and equipment (PP&E) and materials presented in the financial statements is fairly stated. E&Y’s identification of internal 

controls over legacy assets as a material weakness means there was a reasonable 

possibility that the controls were not sufficient to prevent a material misstatement 

in the financial statements. The other two internal control deficiencies cited by E&Y 
32

2During the reporting period of the FY 2003 audit, the American Institute of Certified Public 

Accountants (AICPA) standards defined ‘‘reportable condition’’ as significant deficiencies in the 

design or operation of internal control that in the auditor’s judgment could adversely affect the 

entity’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. 3During the reporting period of the FY 2003 audit, AICPA standards defined ‘‘material weakness’’ as a reportable condition in which the design or operation of one or more of the internal 

control components does not reduce to a relatively low level the risk that misstatements caused 

by error or fraud in amounts that would be material in relation to the financial statements 

being audited may occur and not be detected within a timely period by employees in the normal 

course of performing their assigned functions.

involved NASA’s processes for estimating environmental liabilities and its compliance with the Federal Financial Management Improvement Act of 1996 (FFMIA). 

E&Y’s report contains specific recommendations to assist the Agency in remediating existing weaknesses during FY 2010. For example, E&Y identified areas for 

particular focus in improving the Agency’s implementation of recent guidance permitting the use of estimates in establishing the value of legacy assets. 

Through its own initiatives and as a result of discussions with our office and 

E&Y, NASA’s Office of the Chief Financial Officer is pursuing actions intended to 

improve financial management and address specific weaknesses in internal controls. 

Most notably, the Agency made improvements to and revised its Continuous Monitoring Program, which assesses financial management processes and internal controls for compliance with generally accepted accounting principles (GAAP) and ensures that balances and activities reported in the financial statements are accurate 

and complete. The Agency is also conducting specific remediation efforts to address 

the valuation of legacy assets, improve the process for estimating environmental liabilities, and ensure compliance with FFMIA. 

Through effective implementation of E&Y’s most recent recommendations and a 

continued focus on its ongoing monitoring and remediation efforts, the Agency 

should be able to correct existing weaknesses in financial management during FY 

2010.

NASA’s Weaknesses in Financial Management Are Longstanding

In FY 2002, NASA initiated a 7-year, Agency-wide effort to provide a single, integrated suite of financial, project, contract, and human capital tools. This new integrated financial management system was envisioned to help NASA manage its programs and prepare financial information on a timely basis. 

During FY 2003, NASA implemented the Core Financial module as part of its single, integrated financial management system. The Core Financial module replaced 

10 disparate Center-level accounting systems and the NASA Headquarters accounting system, along with approximately 120 ancillary subsystems in operation for the 

past 2 decades. The conversion of legacy accounting data into the Core Financial 

module posed a greater-than-expected challenge for the Agency because of the volume of data and the cumbersome techniques utilized to convert it from the legacy 

systems to the new system. The conversion had a significant impact on the quality 

and timeliness of the Agency’s financial information and necessitated complex, timeconsuming data cleanup efforts that were not well defined or easily accomplished. 

In January 2004, the independent auditor at the time—PricewaterhouseCoopers—

determined that it could not render an opinion on NASA’s financial statements for 

FY 2003 because of the data integrity issues resulting from the conversion. During 

its audit testing and review of the year-end financial statements, the auditor noted 

significant adjustments and discrepancies that the Agency could not explain. For example, the auditor found that in preparing the financial statements, NASA posted 

numerous manual adjustments outside of the Core Financial module. 

In its review of these adjustments and discrepancies, PricewaterhouseCoopers 

noted that the value of 87 adjustments was approximately $582 billion. Of the $582 

billion in adjustments, nearly $565 billion related to data conversion errors and 

nearly $2 billion related to net adjustments to the Agency’s Fund Balance with 

Treasury account. NASA could not provide documentary evidence to support the 

purpose and the validity of the adjustments. 

Also in its report on the FY 2003 financial statement audit, 

PricewaterhouseCoopers cited five reportable conditions,2 including four that it considered material weaknesses: 3

• Property, Plant, and Equipment (Material Weakness)

• Financial Statement Preparation Process (Material Weakness)
33

• Audit Trail and Documentation to Support the Financial Statements (Material Weakness)

• Fund Balance with Treasury (Material Weakness)

• General Information Technology (IT) Controls (Reportable Condition)

From FY 2003 through FY 2009, unresolved data integrity problems, material 

weaknesses in internal controls over assets, and ineffective report development processes continued to impair the Agency’s ability to prepare financial statements that 

were accurate and complete.

NASA Has Made Significant Progress in Remediating Financial Management Weaknesses

In the years that followed the conversion to the Core Financial module, NASA focused significant efforts on identifying and resolving long-standing systemic and financial management issues. As part of these efforts, NASA reorganized its financial 

management structure, reorganized its business processes to align with the financial 

management system, upgraded its system, developed new guidance, and provided 

training to its personnel to address these issues. 

As shown in the following table, NASA has made significant progress in remediating the majority of its material weaknesses in internal controls.

General IT Controls

In FY 2005, NASA completed corrective actions to substantially remediate weaknesses noted in the control environment of the integrated financial management 

system. NASA improved upon its entity-wide security program controls, its application software development and program change controls, and its system software 

controls that limit and monitor access to powerful programs and sensitive files that 

control computer hardware and secure applications supported by the system.

Fund Balance with Treasury

In FY 2006, NASA substantially remediated its material weakness concerning 

Fund Balance with Treasury reconciliations. An agency’s Fund Balance with Treasury represents monies an agency can spend for authorized transactions; these monies are based on budget spending authorizations and are made available through 

Treasury warrants. In the FY 2003 audit report, PricewaterhouseCoopers noted that 

to correct cash imbalances between NASA and Treasury, NASA made adjustments 

of nearly $2 billion, net, to its Fund Balance with Treasury account to agree with 

Treasury’s reported balance on September 30, 2003, but could not provide sufficient 

documentary evidence to explain the adjustments. 

Over the next few years, NASA expended significant effort in analyzing discrepancies related to the conversion and refining its procedures to ensure it was performing reconciliations properly to allow differences to be resolved in a timely manner. E&Y’s review of the FY 2006 reconciliations identified progress in the preparation and more timely identification and resolution of differences arising from cur-
34

rent-period transactions, thus eliminating the issue as a stand-alone material weakness for FY 2006 reporting.

Financial Systems, Analyses, and Oversight

The material weakness in financial systems, analyses, and oversight identified by 

E&Y in FY 2004 encompassed the underlying findings noted by 

PricewaterhouseCoopers in FY 2003 relating to NASA’s financial statement preparation process and its audit trail supporting the financial statements. In FY 2008, 

NASA developed the Comprehensive Compliance Strategy to help focus the Agency 

on ensuring compliance with GAAP and other financial reporting requirements. 

NASA also further developed its Continuous Monitoring Program (CMP) by requiring the Centers to perform a set of control activities to assess internal controls and 

compliance with GAAP to ensure that the evidence to support the balances and activity reported in NASA’s financial statements are accurate and complete. 

Throughout FY 2009, NASA continued to improve its internal controls over financial reporting by implementing and improving CMP. Ultimately, CMP operated as 

designed-by identifying exceptions through the execution of the control activities 

and then tracking the resolution of the exceptions in a timely manner. Successful 

implementation of the CMP was the major contributing factor in resolving the longstanding material weakness over financial systems, analyses, and oversight.

Property, Plant, and Equipment

To help address the material weakness in property, plant, and equipment (PP&E), 

NASA implemented new PP&E capitalization policy and procedures for assets procured on or after October 1, 2007. Successful implementation of the policy and procedures were intended to ensure that the value and completeness of capitalized assets procured after that date, whether Government-held or contractor-held, will be 

accurate. 

For contracts with effective dates on or after October 1, 2007, contractors are required to report the cost of each capitalized asset as a separate item on required 

contractor cost reports. NASA also designed a process to reconcile the monthly contractor cost reports and the capitalized PP&E amounts recorded in NASA’s Contractor-Held Asset Tracking System and the Core Financial module. Although E&Y 

recognized that NASA’s new policy and procedures represent significant progress in 

improving its internal controls over PP&E, the independent public accountant could 

not test the effectiveness of the controls because the Agency did not have any new 

contracts that fell into this category during FY 2008 or FY 2009.

E&Y’s Recommendations Can Help NASA Remediate Remaining Weaknesses in FY 

2010

As noted, NASA has made significant progress in developing policies, procedures, 

and controls to improve its financial processes and systems; nevertheless, challenges 

remain. Specifically, during FY 2009 both NASA and E&Y continued to identify deficiencies in the Agency’s system of internal control that impair its ability to timely 

report accurate and complete financial information. However, E&Y’s Report on Internal Control contains specific recommendations to assist the Agency in remediating the three identified deficiencies during FY 2010. 

Through its own initiatives and as a result of discussions with our office and 

E&Y, NASA’s Office of the Chief Financial Officer is pursuing actions intended to 

improve financial management and address specific weaknesses in internal controls. 

As noted, the Agency’s Continuous Monitoring Program was the major contributing 

factor in resolving the long-standing material weakness over financial systems, 

analyses, and oversight. Moving forward, continuing specific remediation efforts 

need to address the valuation of legacy assets, improve the process for estimating 

environmental liabilities, and ensure FFMIA compliance.

Legacy PP&E

The weakness in controls over PP&E discussed in E&Y’s FY 2009 report focuses 

primarily on controls over legacy assets that flow from contracts executed prior to 

October 1, 2007. For several years, audits of these legacy assets have identified serious weaknesses in internal controls over the completeness and accuracy of the value 

of the assets. 

In early FY 2010, the Federal Accounting Standards Advisory Board issued the 

Statement of Federal Financial Accounting Standards (SFFAS) No. 35, Estimating 

the Historical Cost of G–PP&E. The standard reaffirms that Federal entities should 
35

report their general PP&E based on historical cost in accordance with the asset recognition and measurement provisions of the earlier property accounting standards. 

However, the standard clarifies that it is acceptable to use reasonable estimates of 

historical costs to value general PP&E assets. The proper and effective implementation of this accounting standard will be an important step for NASA in remediating 

the material weakness in internal controls over legacy assets in FY 2010. 

During FY 2009, in preparation for the issuance of SFFAS No. 35, NASA performed an analysis of costs that were capitalized for major components of the International Space Station (ISS) and the Space Shuttle. During this analysis, NASA 

changed its capitalization-policy for Integration and Operations costs associated 

with the ISS, which was placed into service on September 30, 2001, and also 

changed its policy for capitalizing Shuttle launch service costs associated with the 

ISS. Because these policy changes affected costs that had been capitalized since 

2001, they resulted in the reclassification of approximately $11 billion of ISS costs; 

and because many of the adjustments affected prior periods, they represent a correction of an error in the financial statements. 

The Agency’s ongoing efforts to develop a robust and rigorous review process that 

both validates and challenges the adequacy of estimation techniques and the sufficiency of supporting documentation will serve the Agency well in preparing for the 

audit of these estimates in FY 2010 and future years.

Environmental Liability Estimation

Over the years, NASA has addressed challenges associated with estimating its unfunded environmental liability (UEL). The current challenge identified in the FY 

2009 audit focuses on establishing and implementing an Agency-wide policy to capture cleanup costs for removing, containing, and/or disposing of hazardous waste 

from property or material associated with the permanent or temporary shutdown of 

a program. 

SFFAS No. 6, Accounting for Property, Plant, and Equipment, requires agencies 

to capture this information when placing applicable property into service. The 

standard has been in effect since FY 1998; however, NASA made its first attempt 

to implement the standard in September 2009. Because the timing of this effort 

came so late in the fiscal year, it placed the Agency under severe time constraints, 

which compromised the effectiveness of the process for estimating and disclosing the 

costs in the financial statements. As a result, NASA needs to take additional steps 

to enhance and formalize the process for estimating environmental cleanup costs 

under SFFAS No. 6. 

In addition, during FY 2009 NASA changed the timeframe it uses to estimate its 

environmental liability to clean up contaminated sites. NASA now limits the length 

of the remediation period included in the UEL accrual estimates to 30 years as of 

the Balance Sheet date. According to NASA, beyond a 30-year horizon UEL estimates have not proven to be reliable for presentation in the financial statements. 

While NASA’s guidance regarding UEL estimates is under continued revision, 

NASA has articulated that it will consider reliable engineering estimates beyond the 

30-year period while developing the accrual estimates. 

To overcome the challenges associated with estimating its UEL, NASA needs to 

implement controls that are designed to coordinate changes in accounting policy related to environmental liabilities so as to ensure these policies comply with GAAP 

and are implemented appropriately.

Compliance with the Federal Financial Management Improvement Act of 1996

Substantial compliance with FFMIA has been elusive for the Agency. Under 

FFMIA, E&Y is required to report whether NASA’s financial management systems 

substantially comply with Federal financial management systems requirements, applicable Federal accounting standards, and the United States Standard General 

Ledger at the transaction level. E&Y noted certain instances, described below, in 

which NASA’s financial management systems did not substantially comply with 

Federal system and Federal accounting standard requirements:

• The real property system is not integrated with the Core Financial module.

• IT audits note issues related to access and change management.

• NASA was unable to meet certain requirements to ensure compliance with 

Federal accounting standards for legacy assets.

NASA should move forward with its plans in FY 2010 to integrate Governmentheld real property transactions into the Asset Accounting module of its integrated 
36

financial management system and to improve implementation of SFFAS No. 35, Estimating the Historical Cost of G–PP&E.

Closing

That concludes our prepared remarks. We would be happy to answer any questions you might have.

Chairman MILLER. Thank you, Mr. Martin. I understand Mr. 

Howard is not going to give opening testimony but yours is his as 

well and is here to answer questions. Mr. Howard can tell you, if 

you don’t know already, that not all NASA’s inspector generals 

have been warmly received by this Committee. So we look forward 

to continuing to receive you warmly. 

I now recognize Mr. Murrin for 5 minutes. Turn your microphone 

on, please. 

STATEMENT OF DANIEL J. MURRIN, PARTNER, ASSURANCE 

AND ADVISORY BUSINESS SERVICES, ERNST & YOUNG, LLP 

Mr. MURRIN. Good afternoon, Chairman Miller and Giffords and 

members of the Subcommittees. My name is Daniel Murrin. Thank 

you for the opportunity to testify before the Committee and answer 

any questions you may have. I am a partner in Ernst & Young 

LLP, a public accounting firm, and I have been in public accounting for over 30 years with a specialty in public sector auditing for 

the Federal Government. 

We have been asked to share with the Subcommittees the results 

of the fiscal year 2009 audit including the issues identified and our 

recommendations to correct them. This is our sixth audit of NASA 

for which I am the engagement partner. The NASA Office of Inspector General engaged Ernst & Young to conduct the audits of 

NASA’s financial statements for fiscal years 2004 through 2009. 

Our testimony today will focus on our fiscal year 2009 audit. 

As you are aware, Ernst & Young issued a disclaimed opinion 

with respect to NASA’s September 30, 2009, financial statements. 

Concurrent with the issuance of our audit report, we issued a Report on Internal Controls which detailed one material weakness 

and two significant deficiencies with eight recommendations to assist NASA in addressing internal control deficiencies. 

We also issued a report on compliance with laws and regulations 

and cited non-compliance with the Federal Financial Management 

Improvement Act. In my oral testimony today, I will give a brief 

overview of each report with a particular focus on the disclaimed 

opinion and the related recommendations. My written testimony 

goes into greater detail for your reference. 

Let me first discuss the Report of Independent Auditors. The reasons to disclaim on these financial statements for fiscal year 2009 

really flow from the property, plant and equipment, PP&E, and the 

related which really have been a longstanding concern for NASA 

and relate principally to assets that are capitalized in prior years 

which were not susceptible to audit. Those matters are reported as 

a material weakness in our Report on Internal Control. 

Progress has been made by NASA by revising its policies, and 

NASA has gained a deeper understanding of the components and 

its costs of capitalized assets. The adoption in fiscal year 2010 of 

the Statement of Federal Financial Accounting Standards No. 35 
37

regarding estimating the historical cost of governmental PP&E provides a unique opportunity for NASA to address the legacy valuation issues which have impaired its ability to prepare auditable financial statements. 

In our Report on Internal Controls, we made two recommendations. The first recommendation is that NASA continue to improve 

implementation of the new standard. Areas for particular focus included the appropriate approaches in critically assessing prior recorded amounts for legacy assets when the initial documentation to 

support those amounts is not available and the extent to which the 

entity must associate ongoing outlays with individual items of 

PP&E versus recording amounts based on contractor-provided estimates in bulk. 

The second recommendation is really that NASA develop an 

overarching key control activity that provides for a robust an rigorous review that both validates and challenges the adequacy of 

the estimation techniques used and the sufficiency of the documentation supporting those conclusions. 

The Shuttle program is currently scheduled for decommissioning 

in fiscal year 2010. The ISS is also nearing the end of its initially 

estimated useful life. The gradual reduction and the relative materiality of those assets combined with the flexibility provided for the 

new standard are expected by management to help resolve the 

longstanding issues and barriers to the clean opinion. 

Ernst & Young issued a Report on Internal Control documenting 

one material weakness discussed above and also two significant deficiencies. The first significant deficiency relates to NASA’s environmental liability and the need to continue the enhancement of that 

area, and I would be pleased to discuss that further as appropriate. 

And the second significant deficiency which, again, is a modified repeat condition related to NASA’s financial systems not being substantially compliant with FFMIA. 

While I have been asked to really address the issues and recommendations in my testimony today, I would like to take a 

minute to note that substantial improvements have been made in 

managing the business of NASA. Since our audit of 2004 and certainly the financial management issues that have been worked 

through systemically by prior groups of CFOs and OIGs have made 

progress, and we do note that progress. 

Thank you, and I would be pleased to answer any questions you 

may have. 

[The prepared statement of Mr. Murrin follows:]

PREPARED STATEMENT OF DANIEL J. MURRIN

Introduction 

My name is Daniel J. Murrin. I am a Partner and Americas Director of Government and Public Sector Services for Ernst & Young LLP, a public accounting firm. 

1 have been in public accounting for over 30 years, with a specialty in public sector 

auditing for the Federal Government. We have been asked to share with the Subcommittees the result of the fiscal year 2009 audit, as it relates to the decision by 

Ernst & Young to disclaim an opinion. In addition the Committee has requested 

that we share our recommendations to correct the deficiencies we have noted. This 

is our sixth audit of National Aeronautics and Space Administration (NASA), for 

which I am and have been the Engagement Partner. The NASA, Office of Inspector 

General, engaged Ernst & Young to conduct the audits of NASAs financial state-
38

1 Report of Independent Auditors—Determine and report on whether the financial statements and related notes present fairly, in all material respects, the assets, liabilities, and net 

position; net costs; changes in net position; and budgetary resources; in conformity with the accounting principles generally accepted in the United States.

The audit is to render an opinion on these statements, which could result in a: (1) unqualified 

or clean opinion; (2) qualified opinion; (3) adverse opinion; or (4) a disclaimer of an opinion.

As further discussed below, our Report of Independent Auditors for fiscal year 2009, disclaimed an opinion on the NASA financial statements. 2 Report on Internal Controls—Report based on the work performed in our audit findings 

regarding whether NASA’s internal control provide reasonable assurance of achieving the internal control objectives described in OMB Bulletin No. 07–04, Audit’ Requirements for Federal Financial Statements’’ Internal controls are important to assure programs achieve intended results and that programs and resources are protected from waste, fraud, and mismanagement. 3 Report of Compliance with Laws and Regulations—Report on whether NASA complied 

with applicable Federal laws and regulations which could have had a direst and material effect 

on the principal financial statements. Reports matters noted based upon the work performed 

in connection with our procedures. 4OMB Bulletin No. 07–04 sets forth the audit requirements for Federal Financial Statements. 

The Bulletin is designed to provide the necessary audit guidance in connection with the implementation of the Chief Financial Officers (CFO) Act, as expanded by the Government Management Reform Act (GMRA) of 1994, and provides formal definitions for a number of technical 

terms and requirement used throughout the Bulletin and formalizes a number of significant 

CFO Act requirements including:

• Defines audit scope

• Provides agency Inspector General’s (IG) with primary responsibility for the execution 

of audits; allows the 1G to provide for the execution of the audit by independent external auditors, and provides for audits to be performed by the Comptroller General 

of the United States (in consultation with the IG)

• Provides guidance on the IGs role, such as to:

Æ Ensure that audits are performed and audit reports completed in a timely manner 

and in accordance with the requirement of this Bulletin. This responsibility pertains to audits conducted directly by IG staff and audits conducted by independent 

auditors under contract.

Æ Provide technical advice and liaison to agency officials and independent external 

auditors.

Æ Obtain or make quality control reviews of audits made by independent external 

auditors and provide the results, when appropriate, to other interested organizations.

ments for the fiscal years ended September 30; 2004—September 30, 2009. Our testimony today will focus on our fiscal year 2009 audit. 

I will first make general comments on the scope of our contract with the Office 

of Inspector General, provide an overview of our audit and discuss in more detail 

the three reports issued as a result of an audit (1) Report of Independent Auditors; 

(2) Report on Internal Control; and (3) Report of Compliance with Laws and Regulations. I will then provide the results of our fiscal year 2009 audit as outlined in the 

three reports issued. 

Scope of Ernst & Young’s Contract With The Office of Inspector General 

The Office of Inspector General engaged Ernst & Young LLP, (EY) to conduct the 

audit of the fiscal year 2009 financial statements for the purpose of satisfying the 

requirements of the Government Management Reform Act (GMRA) of 1994. The following reports are required for a financial statement audit of the Federal agency: 

Report of Independent Auditors,1 Report on Internal Control,2 and a Report of Compliance with Laws and Regulations.3

The engagement to audit was to be performed in accordance with Government Auditing Standards, issued by the Comptroller General of the United States, Office of 

Management and Budget (OMB) Bulletin No. 07–04 4 as amended, Audit Requirements for Federal Financial Statements, and generally accepted auditing standards 

issued by the American Institute of Certified Public Accountants (AICPA).

Overview of Fiscal Year 2009 Audit Reports 

Ernst & Young LLP issued a disclaimed opinion in the Report of Independent 

Auditors with respect to NASA’s September 30, 2009 financial statements. Concurrent with the issuance of our Auditors Report, we issued a Report on Internal Con-
39

5 A material weakness is a deficiency, or a combination of deficiencies, in internal control such 

that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. 6 A significant deficiency is a deficiency or a combination of deficiencies in internal control that 

is less severe than a material weakness, yet important enough to merit attention by those 

charged with governance.

trols which detailed one material weakness 5 and two significant deficiencies,6 with 

eight recommendations to assist NASA in addressing its internal control deficiencies. We also issued a Report on Compliance with Laws and Regulations and 

cited noncompliance with the Federal Financial Management Improvement Act. As 

we will note, the Fiscal Year 2009 result was an improvement over Fiscal Year 

2008, but efforts to improve the NASA Financial Management are ongoing. 

Report of Independent Auditors and Obstacles to a Clean Opinion 

EY disclaimed an opinion with respect to the: (1) Consolidated Balance Sheet; (2) 

Consolidated Statement of Net Cost; (3) Consolidated Statement of Changes in Net 

Position; and (4) Combined Statement of Budgetary Resources for the year ended 

September 30, 2009. 

The reasons to disclaim our opinion on the statements mentioned above for fiscal 

year 2009 flow from property, plant and equipment (PP&E) related issues which 

have been a long standing concern for NASA. As noted in our Report of Independent 

Auditors, during fiscal year 2009, NASA continued its focused efforts to resolve longterm issues identified in its financial management processes and systems. Although 

significant progress has been made, NASA management and our work continue to 

identify issues related to internal control in its property accounting, principally relating to assets capitalized in prior years. Legacy financial and property management systems for NASA were developed and implemented in an era before certain 

such equipment was required to be capitalized and accounted for in NASA’s periodic 

financial reports. Systems and processes which were developed to support processing 

of contract actions and payments were not initially as intently focused on developing 

information needed to assess when property transactions were being executed and 

ensuring that such actions were appropriately accounted for under accrual accounting concepts embedded in applicable accounting standards. Those standards, developed by the Federal Accounting Standards Advisory Board (FASAB) have also 

evolved over time. 

Over the last several years, NASA has recorded a series of adjustments to reduce PP&E totaling approximately $20 billion which, when combined with the impact of 

periodic amortization for depreciation, offset in part by new acquisitions. have reduced the net recorded value for NASA’s PP&E from $33.2 billion as of September 

30, 2006 to $11.6 billion at September 30, 2009. An additional approximately $3 billion in inventors and related property are also reflected in NASA’s financial statements throughout this period utilizing similar systems and processes. The internal 

control issues noted, continuation of such adjustments, and the relative significance 

of the aggregate amounts in relation to total NASA assets and net costs in the range 

of $23 billion in the last several years precluded us from forming an opinion on the 

NASA financial statements. 

Progress has been made in revising NASA’s policies and NASA has gained a deeper understanding of the components of its capitalized assets. The adoption of Statement of Federal Financial Accounting Standards (SFFAS) No. 35, Estimating the 

Historical Cost of G–PP&E, in FY 2010 provides a unique opportunity for NASA to 

address the legacy valuation issues which have impaired its ability to prepare 

auditable financial statements. 

SFFAS No. 35 provides additional flexibility to NASA in recreating and establishing reasonable estimates of its PP&E activity and costs. This flexibility is expected to aid NASA in supporting its recorded balances and subjecting them to 

audit. 

As noted above, issues regarding whether broad components of PP&E should be 

recorded have arisen and been addressed over the last several years, in each case 

calling into question the reliability of prior processes and reported amounts. In connection with critically assessing management’s reported amounts for PP&E in FY 

2010 and subsequent years, as valuation issues are addressed utilizing the ongoing 

flexibility in the new FASAB guidance, the need to ensure that property records are 

complete and property items can be associated with estimates of their original acquisition costs consistent with the guidance in SFFAS No. 35 will loom larger. Subjecting such processes to rigorous self-assessment under management’s internal control review process under OMB Circular A–123, Management’s Responsibility for Internal Control, Appendix A—Internal Control over Financial Reporting, and robust 
40

assessments of the legacy property records for completeness and accuracy, perhaps 

in conjunction with ongoing monitoring activities, will serve NASA well in ensuring 

that reported amounts are complete and reliable. 

NASA is currently participating in work groups intended to assist agencies in exploring supportable approaches to developing valuation estimates and supporting 

such amounts to the extent needed to withstand audit processes, with an initial particular focus on contractor-held property. These deliberations may impact NASA and 

third-party assessments of whether the initial processes developed by NASA in an 

effort to address anticipated changes in the FASAB literature conform to the financial management community’s implementation guidelines for SFFAS No. 35. Going 

forward, internal controls, which have been revised to account for acquisitions of 

property under contracts with effective dates after October 1, 2007, hold promise in 

addressing new acquisitions; however, the effectiveness of such controls cannot currently be assessed pending issuance of new contracts that would be impacted by this 

policy. 

In our Report on Internal Controls, we recommended that NASA:

1. Continue to actively improve implementation of SFFAS No. 35. Areas for particular focus include: (1) appropriate approaches in critically assessing prior recorded amounts for legacy assets when the initial documentation to support recorded amounts is not available, and the extent to which such initial recorded 

amounts, perhaps in conjunction with budgetary or other collaborative information, can be viewed as reasonable estimates; and (2) the extent to which the entity must associate ongoing outlays with individual items of PP&E versus recording amounts based on contractor-provided estimates in bulk, particularly 

for legacy contracts which do not contain current NASA requirements intending 

to aid in identifying when PP&E is being acquired, and NASA’s responsibilities 

to verify reported amounts.

2. Develop an overarching key control activity that provides for a robust and 

rigorous review that both validates and challenges the adequacy of estimation 

techniques used and the sufficiency of documentation supporting those conclusions. This type of ongoing control activity is crucial for NASA as it implements 

and sustains any estimation modeling for valuing components of its PP&E. In 

addition, management should utilize existing monitoring activities and internal 

control assessments with a particular emphasis at the Center level in demonstrating that a comprehensive control process has been used to verify that detail property records are complete and reflect all PP&E, are reconciled to the 

recorded amounts in the general ledger, constitute NASA’s best estimates consistent with SFFAS No. 35 of the historical costs of such items and that available information to aid in collaborating such amounts has been validated and 

appropriately considered.

The Space Shuttle program is currently scheduled for decommissioning in fiscal 

year 2010, and the International Space Shuttle (ISS), which is also being depreciated, is also nearing the end of its initially estimated useful life. The gradual reduction in the relative materiality of these legacy assets which have had intractable 

cost estimation issues, combined with the flexibility embedded in SFFAS 35, are expected by management to help resolve the large standing barriers to a clean opinion.

Report on Internal Control 

Ernst & Young issued a Report on Internal Control documenting one material 

weakness and two significant deficiencies as noted in Attachment B, and in our 

Independent Auditors Report. The FY 2009 result reflects progress NASA has made 

in addressing issues raised in prior years, and reflects a reduction in aggregate significant comments from two material weaknesses in FY 2008 to one material weakness in FY 2009. The following is the material weakness and significant deficiencies 

issued in FY 2009:

• Enhancements Needed for Controls over Legacy PP&E and Materials Contracts, But SFFAS No. 35 Adoption May Aid In Resolving This Longstanding 

Issue (Modified Repeat Condition classified as a material weakness, further 

discussed above)

• Processes in Estimating NASA’s Environmental Liability Continue to Require 

Enhancement (Modified Repeat Condition)

• Financial Management Systems Not in Substantial Compliance with FFMIA 

(Modified Repeat Condition)
41

Report on Compliance with Laws and Regulations 

The Report on Compliance with Laws and Regulations noted that NASA had not 

complied with the Federal Financial Management Improvement Act (FFMIA) of 

1996. The principal components of such non compliance related to ongoing efforts 

to integrate property information with the financial management system. A key indication of FFMIA compliance also flows from the inability to obtain an unqualified 

audit opinion. The Report on Internal Control includes information related to the 

financial management systems that were found not to comply with the requirements, and presents relevant facts pertaining to the noncompliance and our recommendations related to the specific issues.

Improvements have been made in managing the business of NASA 

While legacy property issues continue to challenge NASA, progress was made in 

fiscal year 2009 in addressing issues noted in fiscal year 2008 and prior audits. As 

NASA’s system implementation was matured, financial management issues have 

been systematically addressed. For example, NASA:

• In FY 2009, NASA management continued to refine the Continuous Monitoring Program—a monthly process performed at the Centers and forwarded 

to Headquarters that is designed to identify issues impacting the integrity of 

the Centers’ financial management information and provide a means for communicating and tracking of the issues centrally within the Headquartersthrough training and improved guidance to allow for reliance on this entitywide control process.

• Routine reconciliations and analysis of financial statements and non-property 

related accounts were being performed with significant differences being reconciled on a timely basis.

While our testimony today largely focuses on fiscal year 2009, we note that these 

efforts built on strides made since our initial audit in fiscal year 2004 to leverage 

investment in a new management information system and build out of financial 

management oversight capabilities. The three matters noted in our fiscal year 2009 

Report on Internal Controls are briefly summarized below, and further discussed in 

Attachments A and B. 

Enhancements Needed for Controls over Legacy PP&E and Materials Contracts, But SFFAS No. 35 Adoption May Aid In Resolving This 

Longstanding Issue 

Prior-year audit reviews of legacy PP&E identified serious weaknesses in the design of internal controls over the completeness and accuracy of legacy assets which 

prevented material misstatements from being detected and corrected in a timely 

manner by NASA. Certain legacy issues noted in prior-year audit reports continue 

to challenge the Agency, particularly in relation to the International Space Station 

(ISS) and Space Shuttles. During FY 2009, NASA management undertook a systematic process to address the valuation and completeness issues related to the ISS and 

Space Shuttle assets in anticipation of an FY 2009 release of the Federal Accounting 

Standards Advisory Board (FASAB) Statement of Federal Financial Accounting 

Standards (SFFAS) No. 35, Estimating the Historical Cost of G–PP&E, which was 

ultimately released in FY 2010. This standard is expected to substantially improve 

NASA’s ability to account for these assets in accordance with generally accepted accounting principles in FY 2010. Note that Space Shuttle assets will be fully depreciated in FY 2010 as they will have reached the end of their useful lives and this 

timing coincides with the Space Shuttle Transition program. Adoption of changes in 

the internal control profess associated with. new contracts also holds promise in resolving these issues over time. 

During the past several years, NASA has continued to revise and correct its 

records for legacy assets to address these legacy issues. These legacy issues fundamentally flowed from the lack of a robust control structure whereby NASA did 

not determine at the point of budget formulation, obligation recognition, contract development, accounts payable recognition or disbursement the amounts of property 

it expects to bud; has contracted for or has purchased. 

Further information regarding this matter is provided earlier in connection with 

our discussion of Obstacles to a Clean Opinion. 

Processes in Estimating NASA’s Environmental Liability Continue to Require Enhancement 

NASA’s environmental liability is estimated at $922 million as of September 30, 

2009, including the estimated environmental cleanup cost associated with PP&E. 

We noted that the NASA Office of the Chief Financial Officer (OCFO) and the Envi-
42

ronmental Management Division (EMD) invested resources to resolve our prior-year 

finding related to the internal controls for the unfunded environmental liability 

(UEL) estimation process. NASA developed an estimate in September 2009 of the 

anticipated environmental cleanup costs associated with PP&E, implementing our 

prior recommendation to develop such estimate in accordance with SFFAS No. 6, 

Accounting for Properly, Plant, and Equipment. The joint review process, a key control NASA implemented to enhance its estimation processes, began to mature in FY 

2009 and added additional consistency to the UEL estimation process. While NASA 

continues to make year-to-year progress, we noted weaknesses in NASA’s ability to 

generate an auditable estimate on a timely basis of its UEL environmental cleanup 

costs and its environmental liabilities associated with PP&E.

Financial Management Systems Not in Substantial Compliance with FFMIA 

NASA’s financial management systems are not substantially compliant with the 

Federal Financial Management Improvement Act of 1996 (FFMIA). During FY 2009, 

NASA management took actions to address its noncompliance with the FFMIA. Although these steps corrected certain weaknesses noted during the past five years, 

other weaknesses continue to exist. Our discussions with NASA management indicated that its corrective action plans, related to environmental liabilities, PP&E, 

property system integration and systems security, are scheduled to have certain 

issues resolved during FY 2010. 

ATTACHMENT A

Summary of Fiscal Year 2009

Report of Internal Controls

The chart below summarizes the current status of the prior year weaknesses, as 

well as any new weaknesses identified during the fiscal year 2009 audit. Details for 

fiscal year 2009 comments are included in Attachment B.

A material weakness is a deficiency, or a combination of deficiencies, in internal 

control such that there is a reasonable possibility that a material misstatement of 

the entity’s financial statements will not be prevented, or detected and corrected on 

a timely basis. 
43

A significant deficiency is a deficiency or a combination of deficiencies in internal 

control that is less severe than a material weakness, yet important enough to merit 

attention by those charged with governance. 

ATTACHMENT B

Detail of Material Weakness and Significant Deficiencies (Extracted from 

page F–52—F–58 of the NASA FY 2009 Performance and Accountability Report) 

Material Weakness

Enhancements Needed for Controls over Legacy PP&E and Materials Contracts, But SFFAS No. 35 Adoption May Aid In Resolving This 

Longstanding Issue (Modified Repeat Condition) 

Prior-year audit reviews of legacy PP&E identified serious weaknesses in the design of internal controls over the completeness and accuracy of legacy assets which 

prevented material misstatements from being detected and corrected in a timely 

manner by NASA. Certain legacy issues noted in prior-year audit reports continue 

to challenge the Agency, particularly in relation to the International Space Station 

(ISS) and Space Shuttles. During FY 2009, NASA management undertook a systematic process to address the valuation and completeness issues related to the ISS and 

Space Shuttle assets in anticipation of an FY 2009 release of the Federal Accounting 

Standards Advisory Board (FASAB) Statement of Federal Financial Accounting 

Standards (SFFAS) No. 35, Estimating the Historical Cost of G–PP&E, which was 

ultimately released in FY 2010. This standard is expected to substantially improve 

NASA’s ability to account for these assets in accordance with generally accepted accounting principles in FY 2010. Note that Space Shuttle assets will be fully depreciated in FY 2010 as they will have reached the end of their useful lives and this 

timing coincides with the Space Shuttle Transition program. Adoption of changes in 

the internal control process associated with new contracts also holds promise in resolving these issues over time. 

During the past several years, NASA has continued to revise and correct its 

records for legacy assets to address these legacy issues. These legacy issues fundamentally flowed from the lack of a robust control structure whereby NASA did 

not determine at the point of budget formulation, obligation recognition, contract development, accounts payable recognition or disbursement the amounts of property 

it expects to buy, has contracted for or has purchased. For example:

• In FY 2007, NASA recorded a $12.7 billion adjustment to write off the net 

book value (NBV) of legacy assets (previously reported as ‘‘theme assets’’) 

which it believed were inappropriately capitalized since NASA’s implementation of SFFAS No. 6, Accounting for Property Plant and Equipment, in FY 

1998. NASA recorded this adjustment as a change in accounting principle 

based upon a technical release issued by the Accounting and Auditing Policy 

Committee of the FASAB. Prior to this cumulative effect adjustment, the 

NBV of NASA’s PP&E was $33.3 billion as of September 30, 2006.

• In FY 2008, NASA recorded an adjustment of $2.9 billion to expense costs 

previously capitalized as launch costs during the year as these costs were associated with taking foreign-owned components, rather than governmentowned components, to the ISS. Prior to this year-end adjustment, the NBV 

of NASA’s PP&E would have been $24.5 billion as of September 30, 2008. The 

process to correct this item in FY 2008 was an indicator of the effectiveness 

of some of the financial management review processes which NASA had been 

developing, but also highlighted the need for the development of consistent 

controls regarding capitalization approaches, with appropriately vetted position papers and notification for pending areas of review to ensure that no significant year-end adjustments are needed. As noted below, launch cost calculations were revisited in FY 2009, and additional errors were noted.

• In FY 2009, NASA recorded a series of adjustments during the third and 

fourth quarters to correct for additional errors in the valuation of legacy assets related to the accounting for launch costs and integration and operational 

costs capitalized as part of the ISS. During NASA’s analysis of the accounting 

for launch costs, management concluded that prior methodologies and 

amounts recorded were inaccurate since FY 1998, when the first component 

of the ISS was carried by the Space Shuttle. Management recorded a $5.2 billion adjustment to write off the NBV of previously capitalized launch costs. 
44

Management revised its methodology during FY 2009 and, based upon its 

new estimates, it recorded an adjustment of $84 million to capitalize the NBV 

of launch costs. In our initial reviews of management’s revised methodology, 

developed in anticipation of the release of SFFAS No. 35, and estimation for 

capitalized launch costs, we noted that estimates were not fully supported by 

prior historical cost data, but management believes it has sufficient information to support reasonable estimates of such costs consistent with SFFAS No. 

35 which will be effective in FY 2010.

• Ongoing efforts by NASA management to develop a robust and rigorous review process that both validates and challenges the adequacy of estimation 

techniques used and the sufficiency of documentation supporting those conclusions will serve NASA management well in preparing for the audit of these 

estimates. This type of ongoing control activity is crucial for the Agency as 

it implements and sustains any estimation modeling for valuing components 

of its PP&E. For the integration and operational costs, NASA noted that it 

had been capitalizing Integration and Operations (I&O) costs associated with 

the ISS after the ISS was placed into service on September 30, 2001. According to NASA’s inquiries of an ISS specialist, these costs included ground and 

flight support, maintenance and repairs and NASA’s current financial management team concluded these costs should have been expensed as operation 

costs and not capitalized. Management recorded a $1.4 billion adjustment to 

write off the NBV of previously capitalized I&O costs. Prior to these FY 2009 

recorded adjustments, the NBV of NASA’s PP&E would have been $18.1 billion as of September 30, 2009.

Progress has been made in revising NASA’s policies and NASA has gained a deeper understanding of the components of its capitalized assets. The adoption of SFFAS 

No. 35, Estimating the Historical Cost of G–PP&E, in FY 2010 provides a unique 

opportunity for NASA to address the legacy valuation issues which have impaired 

its ability to prepare auditable financial statements. As noted above, issues regarding whether broad components of PP&E should be recorded have arisen and been 

addressed over the last several years, in each case calling into question the reliability of prior processes and reported amounts. In connection with critically assessing management’s reported amounts for PP&E in FY 2010 and subsequent years, 

as valuation issues are addressed utilizing the ongoing flexibility in the new FASAB 

guidance, the need to ensure that property records are complete and property items 

can be associated with estimates of their original acquisition costs consistent with 

the guidance in SFFAS No. 35 will loom larger. Subjecting such processes to rigorous self assessment under management’s internal control review process under 

OMB Circular A-123, Managements Responsibility for Internal Control, Appendix 

A—Internal Control over Financial Reporting, and robust assessments of the legacy 

property records for completeness and accuracy, perhaps in conjunction with ongoing monitoring activities, will serve NASA well in ensuring that reported amounts 

are complete and reliable. NASA is currently participating in work groups intended 

to assist agencies in exploring supportable approaches to developing valuation estimates and supporting such amounts to the extent needed to withstand audit processes, with an initial particular focus on contractor-held property. These deliberations may impact NASA and third-party assessments of whether the initial processes developed by NASA in an effort to address anticipated changes in the FASAB 

literature conform to the financial management community’s implementation guidelines for SFFAS No. 35. Going forward, internal controls, which have been revised 

to account for acquisitions of property under contracts with effective dates after October 1, 2007, hold promise in addressing new acquisitions; however, the effectiveness of such controls cannot currently be assessed pending issuance of new contracts 

that would be impacted by this policy.

Recommendation

We recommend that NASA:

1. Continue to actively improve implementation of SFFAS No. 35. Areas for particular focus include: (1) appropriate approaches in critically assessing prior recorded amounts for legacy assets when the initial documentation to support recorded amounts is not available, and the extent to which such initial recorded 

amounts, perhaps in conjunction with budgetary or other collaborative information, can be viewed as reasonable estimates; and (2) the extent to which the entity must associate ongoing outlays with individual items of PP&E versus recording amounts based on contractor-provided estimates in bulk, particularly 

for legacy contracts which do not contain current NASA requirements intending 
45

to aid in identifying when PP&E is being acquired, and NASA’s responsibilities 

to verify reported amounts.

2. Develop an overarching key control activity that provides for a robust and 

rigorous review that both validates and challenges the adequacy of estimation 

techniques used and the sufficiency of documentation supporting those conclusions. This type of ongoing control activity is crucial for NASA as it implements 

and sustains any estimation modeling for valuing components of its PP&E. In 

addition, management should utilize existing monitoring activities and internal 

control assessments with a particular emphasis at the Center level in demonstrating that a comprehensive control process has been used to verify that detail property records are complete and reflect all PP&E, are reconciled to the 

recorded amounts in the general ledger, constitute NASA’s best estimates consistent with SFFAS No. 35 of the historical costs of such items and that available information to aid in collaborating such amounts has been validated and 

appropriately considered.

Significant Deficiencies

Processes in Estimating NASA’s Environmental Liability Continue to Require Enhancement (Modified Repeat Condition) 

NASA’s environmental liability is estimated at $922 million as of September 30, 

2009, including the estimated environmental cleanup cost associated with PP&E. 

We noted that the NASA Office of the Chief Financial Officer (OCFO) and the Environmental Management Division (EMD) invested resources to resolve our prior-year 

finding related to the internal controls for the unfunded environmental liability 

(UEL) estimation process. NASA developed an estimate in September 2009 of the 

anticipated environmental cleanup costs associated with PP&E, implementing our 

prior recommendation to develop such estimate in accordance with SFFAS No. 6, 

Accounting for Property, Plant, and Equipment. The joint review process, a key control NASA implemented to enhance its estimation processes, began to mature in FY 

2009 and added additional consistency to the UEL estimation process. While NASA 

continues to make year-to-year progress, we noted weaknesses in NASA’s ability to 

generate an auditable estimate on a timely basis of its UEL environmental cleanup 

costs and its environmental liabilities associated with PP&E. Specifically:

• While the estimates for environmental costs associated with PP&E were not 

provided with sufficient time to support the audit process, NASA has acknowledged a need to develop training and controls supporting the development of the estimates, and noted that the estimates were initially developed 

under severe time constraints and resource limitations. To the extent further 

such resources and adequate time are devoted to this process, changes in the 

estimates may emerge. This includes but is not limited to the reclassification 

of SFFAS No. 5 liabilities to SFFAS No. 6.

• Approximately $170 million, or 17% of the UEL estimate, is developed using 

the parametric models within NASA’s Integrated Data Evaluation & Analysis 

Library (IDEAL) estimating software. NASA has not completed the design 

and implementation of its general and application controls for this model. Examples include: NASA-prepared security plans for IDEAL, in which it indicated that actions to mitigate security risks need to be resolved. NASA finalized its Configuration Management Plan and verification reports for five centers in October 2009. A preliminary assessment noted that the Configuration 

Management Plan did not address system audits or reporting. We noted that 

preliminary analysis of the verification reports revealed certain unit costs embedded in IDEAL indicate that such factors may be overstated by 100% and 

300%, but NASA has not yet fully assessed how, if at all, to change the models for this finding, or completed an analysis of other such inputs. In addition, 

NASA has had large year-to-year changes in environmental estimates, due in 

part to varying interpretations of certain markup definitions in the software 

and, as discussed below, revisions to its process used in assessing the number 

of years for which sufficiently reliable cost estimates can be developed.

• During FY 2009, NASA revised its estimation process to reflect that in general UEL estimates for the first 30 years of a project’s lifespan will be recorded as a liability in the NASA financial statements. While the guidance 

is under continued revision, it is our understanding that if a sufficiently reliable engineering estimate has been developed beyond this 30-year period, 

such estimate will be considered in developing the accrual. This revision in 

the estimation process resulted in an approximate 25% reduction in the ac-
46

crual for the related estimates. The process to develop this revision in NASA’s 

procedures called into question the extent of coordination between OCFO and 

EMD, with aspects of the policy as initially articulated not conforming to 

GAAP. In addition, no formalized process for calculating and aggregating the 

SFFAS No. 5 reasonably possible estimate has been established. In FY 2009, 

an initial reasonably possible estimate was intended in part to capture the 

portion of long-term UEL estimates which exceeded 30 years and by definition, under NASA’s policy, was judged not to be sufficiently reliable to record 

in the accrual, calling into question the reliability of the information for disclosure purposes as well. The estimate was compiled and aggregated by EMD 

with little support from the individual project managers, and OCFO was not 

aware of the process.

Recommendation

As it relates to the estimation of environmental liabilities, we recommend that 

NASA:

1. Enhance and formalize the process it has developed to estimate environmental cleanup costs under SFFAS No. 6, Accounting for Property, Plant, and 

Equipment, including dedicating additional resources to ensure compliance with 

the requirements, implementing internal controls and developing training. To 

the extent a portion of the previously reported environmental liability estimates 

subsume closure costs more appropriately recognized under SFFAS No. 6, 

NASA financial reporting can be enhanced by reclassification of footnote disclosures for such costs.

2. Complete the development and implementation of general and application 

controls as they relate to IDEAL. The initial focus should be on demonstrating 

the accuracy of both the parametric model and aggregation output. An alternative recommendation is to use a commercially available software tool that already meets these conditions.

3. Recode IDEAL to simplify markup inputs. For example, at present, the prime 

contractor markup is comprised of two embedded components to capture markup for the prime contractor and subcontractor, which should be revised to only 

allow input for one NASA component at a time. Re-emphasize in the annual 

training provided to NASA’s center EMD and OCFO personnel the explanations 

of these entries.

4. Implement preventative actions (i.e., controls) to address change management 

for accounting policy alterations to environmental liabilities and implement rigorous quality control efforts regarding associated footnote disclosures of reasonably possible and recorded amounts, including explicit discussion and conclusion 

on these items in the joint review process. Assign roles and responsibilities for 

implementation and for proper communication throughout the organization.

Financial Management Systems Not in Substantial Compliance with FFMIA 

(Modified Repeat Condition) 

NASA’s financial management systems are not substantially compliant with the 

Federal Financial Management Improvement Act of 1996 (FFMIA). During FY 2009, 

as discussed above, NASA management took action to address its noncompliance 

with the FFMIA. Although these steps corrected certain weaknesses noted during 

the past five years, other weaknesses continue to exist. Specific weaknesses noted 

include the following:

• The real property system is not integrated with the Core Financial Module.

• Issues related to access and change management were noted as a result of 

information technology (IT) audit procedures. The level of risk associated with 

these IT issues depends in part upon the extent to which financial-related 

compensating controls (such as reconciliations and data integrity reviews of 

output) are in place and operating effectively throughout the audit period. 

Certain of these controls designed to detect errors or inappropriate processing 

may also not be executed in a manner which can be expected to identify errors, which, while perhaps not material to the financial statements as a 

whole, may subject NASA to risks regarding safeguarding of assets. Although 

NASA has made progress in addressing and resolving prior-year IT findings, 

these IT-related issues, along with issues noted by Ernst & Young, the Government Accountability Office (GAO) and the NASA Office of Inspector General (OIG) in their reviews through the year, merit continued management 

focus.
47

• NASA was unable to meet certain requirements to ensure compliance with 

federal accounting standards, as discussed in various sections within this report.

Recommendation

We recommend that NASA:

1. Move forward to integrate government-held real property transactions into 

the Asset Accounting Module of SAP in February 2010 and continue efforts to 

integrate recording of PP&E transactions contemporaneous with their occurrence,

2. Resolve issues identified during our IT procedures in our audit related to access and change management surrounding its financial management systems.

Chairman MILLER. Thank you, Mr. Murrin. Dr. Robinson is recognized for 5 minutes. 

STATEMENT OF HON. ELIZABETH ROBINSON, CFO, NATIONAL 

AERONAUTICS AND SPACE ADMINISTRATION 

Ms. ROBINSON. Thank you. Chairs Miller and Giffords and Ranking Members Broun and Olson and members of the Subcommittees, 

good afternoon, and thanks for the opportunity to appear today. 

Before I begin my remarks, I would like to recognize two of the 

leaders from the CFO office who, along with many at NASA, have 

been doing all the hard work that has been recognized today and 

produced all the good results, Deputy CFO, Terry Bowie, and the 

Associate Deputy CFO, Bruce Ward. And there are many others, 

too. It has been a group effort. 

Today I would like to briefly outline three points, many of which 

have already been discussed but the first one is the progress that 

NASA has made and what we have done over the last several years 

to explain the one main material weakness and then to describe 

NASA’s path forward. 

As everyone here today has noted, NASA has made significant 

progress in improving its financial processes and systems. There is 

a chart in my written testimony, but it shows that the last time 

we had a clean opinion was back in 2002. But then in 2003, NASA 

took the bold step of trying to consolidate all of the financial systems of its 10 centers and headquarters into one. But then systems 

and data issues caused some serious problems and resulted in the 

first of what had now been seven disclaimed opinions. 

Since that time, though, systems improvements, data cleanup 

initiatives, policies and process changes, a lot of staff training and 

development, have helped to eliminate all of the material weaknesses except for one related to legacy property, plant and equipment or what people in the business call PP&E. 

You have also heard that we have two significant deficiencies, 

not material ones but significant ones, related to NASA’s environmental liability and compliance with the Federal Financial Management Improvement Act. For both items, NASA has plans in 

place to remediate the deficiencies. And before turning back to why 

the remaining material weakness continues to challenge the agency, I do want to assure the Committee that today, using current 

systems and processes, NASA is able to track and control its funds, 

account for the cost related to individual programs and projects, 

and manage the agency’s day-to-day operations. 
48

While accounting for the agency’s legacy PP&E is an important 

financial statement issue, it does not impact the day-to-day and 

year-to-year operational decision-making at NASA. 

Now to the second point explaining the material weakness. 

NASA’s legacy PP&E, particularly in relation to the Space Station 

and Shuttles has been a challenge for the agency back to when the 

Federal Accounting Standards for Space Exploration Equipment 

were established in 1996. At that time, Federal standards required 

that such equipment be fully expensed in the year where the costs 

were incurred, and NASA complied with those requirements. Then 

in 1998, the standards were significantly changed to require that 

costs for such equipment and for NASA, the Shuttle and Station, 

be tracked as individual assets and not expensed when incurred as 

program costs and that those costs be depreciated or expensed over 

a specified number of years. 

Now, NASA’s processes and contracts were designed to comply 

with annual expense accounting requirements, not the new requirement for asset depreciation accounting, and consequently, NASA 

does not have the historical records necessary to support individual 

asset balances for the ISS and Shuttles. 

Since 2002, when NASA received its last unqualified opinion, the 

agency has implemented significant changes to meet the revised accounting standards on a going-forward basis, but none of those efforts can recreate records that did not exist prior to 2003. 

The Station and Shuttle had together a total net book value of 

approximately $9 billion at the end of the fiscal year comprising 

about 77 percent of the total PP&E and 38 percent of total assets. 

Due to the size of the balances, the auditors have determined that 

NASA’s lack of support for these asset balances resulted insufficient evidential support for them to complete their audit and hence, 

the disclaimed opinion. 

It is important to note as has been stated before that the Space 

Station and Shuttle are scheduled for retirement in coming years, 

and continued depreciation of these assets is bringing the net asset 

balances on the balance sheet to levels that will become immaterial 

to financial statements. While the International Space Station depreciation schedule naturally leads to 2016 as an outside date for 

resolving all these issues, NASA has been working to achieve a 

timelier yet still cost-efficient and effective solution. 

And so to the final point. What is the prognosis going forward? 

As the Chair mentioned, the FASAB, Financial Accounting Standards Advisory Board, on October 14 published a new standard, for 

the kinds of assets like the Shuttle and ISS. The standard amends 

the existing accounting standards to clarify the reasonable methods 

of estimating historical cost and accumulated depreciation may be 

used to value general PP&E. This is important to NASA because 

it provides a way forward. And as FASAB notes in the standard, 

the use of estimates is a more cost-effective means of valuing certain assets than reconstructing the history. 

As recommended by the auditor, NASA will adopt the amended 

standards, but because the new standard does not provide a single 

specific method, implementation will require some collaboration 

among all of us to implement and implement correctly. 
49

And so in closing, I would like to re-emphasize that NASA takes 

seriously the need to resolve its financial weakness and to continue 

to take the necessary steps to do so. We recognize the need to work 

with everyone at this table and others. But I also want to emphasize that NASA’s financial systems are on a day-to-day basis and 

an annual basis very strong and can track all of the needed financial data for the agency’s important decision making. 

So thank you, and I look forward to hearing your questions. 

Thanks. 

[The prepared statement of Ms. Robinson follows:]

PREPARED STATEMENT OF HON. ELIZABETH ROBINSON

Chairman Miller, Chairwoman Giffords, and Members of the Subcommittees, 

thank you for the opportunity to appear today to discuss the NASA FY 2009 audit 

report and the Agency’s plan for correcting the longstanding material weakness 

identified in the auditor’s disclaimed opinion on the Agency’s financial statements. 

As the independent auditors and Inspector General have noted in their reports, 

NASA has made significant progress in improving its financial processes and systems. In fact, in FY 2009 NASA eliminated a longstanding material weakness related to financial systems, analyses, and oversight. However, while progress has 

been made, the Agency’s financial management challenges have not yet been fully 

resolved. 

The FY 2009 disclaimed audit opinion is the 7th consecutive disclaimed opinion 

NASA has received. NASA received its last unqualified opinion in FY 2002, when 

the Agency’s independent auditors, PricewaterhouseCoopers, identified two material 

weaknesses; one related to controls over the Agency Property, Plant, and Equipment 

(PP&E) and the other related to controls over processes used to prepare financial 

statements and the Performance and Accountability Report. In FY 2002, NASA operated with 10 separate and unique center-based accounting systems. Information 

from these systems was integrated through electronic spreadsheets at the Agency 

level and consolidated into one Agency financial statement. In 2003, in line with 

Federal guidance, NASA implemented a new Agency-wide financial system that replaced the financial systems at its 10 centers and required the conversion and integration of data from those legacy systems. 

This new integrated system was intended to improve access to information by decision makers across the Agency, standardize and speed reporting, and reduce costs. 

While NASA has since realized many of its initial goals and expectations, at the 

time, the Agency’s Inspector General noted in testimony of May 2004 before the 

House Subcommittee on Government Efficiency and Financial Management, that 

‘‘Many of the weaknesses the audit disclosed resulted from a lack of effective internal control procedures and problems with NASA’s conversion during FY 2003 from 

10 separate systems to a new single integrated financial management program 

(IFMP).’’ In 2003, the Agency received a disclaimed opinion. 

NASA has been working to resolve those auditor-reported weaknesses over the 

past six years through systems improvements, data cleanup initiatives, policy and 

process changes, and staff training and development. As displayed in the attached 

chart, ‘‘Summary of Material Weaknesses During the Past Eight Years,’’ the Agency’s efforts have reduced the four material weaknesses in FY 2003 to one material 

weakness in FY 2009. 

As of September 30, 2009, NASA’s one outstanding material weakness was related 

to internal controls over legacy PP&E and materials contracts. The legacy PP&E 

weakness is related to internal control weaknesses in the Agency’s space exploration 

PP&E, particularly the International Space Station (ISS) and the Space Shuttle. 

NASA’s space exploration assets had a total net book value of $8.9 billion as of September 30, 2009, comprising 77 percent of total PP&E ($11.6 billion) and 38 percent 

of total assets ($23.7 billion). The independent auditor’s Report on Internal Control

also identified two significant deficiencies. The first is related to processes used to 

estimate NASA’s Environmental Liability. The auditors noted that while NASA continues to make year-to-year progress, the Agency also continues to have weaknesses 

in its ability to generate auditable Environmental Liability estimates on a timely 

basis. The second deficiency is related to a lack of substantial compliance with the 

Federal Financial Management Improvement Act of 1996 (FFMIA), including a lack 

of integration between NASA’s real property system and its core financial system. 

The independent auditors and the NASA Inspector General noted that this year’s 
50

disclaimed opinion resulted from the continued weaknesses in internal controls over 

accounting for legacy PP&E. 

Background: Weaknesses in Controls Over Legacy PP&E and Materials 

Contracts 

The Federal accounting standards related to space exploration property have 

changed over the years, with serious impacts on NASA’s financial statements. 

When the Federal accounting standard for Property, Plant, and Equipment (Statement of Federal Financial Accounting Standards [SFFAS] No. 6, Accounting for 

Property, Plant, and Equipment) was introduced in 1996, space exploration equipment (including the ISS and Space Shuttle) was placed into a category called Federal Mission PP&E. SFFAS No. 6 contained explicit requirements for the costs of 

space exploration property to be expensed in the year incurred; no asset balances 

were to be maintained or reported for space exploration PP&E on the Agency’s balance sheet. A separate category of PP&E, called General PP&E, was established at 

this time to address accounting requirements for more traditional PP&E (including 

buildings and land). Unlike Federal Mission PP&E, General PP&E are recognized 

as assets and are reported on an entity’s balance sheet. Determining a balance for 

General PP&E assets requires tracking costs at the individual asset level and expensing (depreciating) those costs over a specified period of years. Consistent with 

these standards, NASA expensed all space exploration equipment in the year that 

costs were incurred. 

The Federal Financial Accounting Standards Advisory Board (FASAB) reversed 

this guidance in 1998 through SFFAS No. 11, Amendments to Accounting for Property, plant, and Equipment: Definitions, which also replaced the definition of Federal 

Mission Property with ‘‘National Defense (ND) PP&E.’’ SFFAS No. 11 changed the 

existing accounting guidance for space exploration equipment, and now required 

NASA to meet the SFFAS No. 6 General PP&E standards for tracking, recording 

and depreciating historical costs for each individual asset. However, NASA’s processes and long-standing contracts for acquiring ISS and Space Shuttle assets were 

established to comply with Federal Mission PP&E requirements, not General PP&E. 

These practices rely on contractors to report the balances of contractor-held property, in accordance with guidelines set forth in the NASA FAR Supplement. 

NASA has introduced compensating controls, introduced new accounting policies, 

revised accounting processes, increased the frequency and improved the quality of 

contractor property reporting, and implemented new property accounting systems to 

improve its accounting for the Agency’s PP&E and to provide program management 

with the necessary information to support programmatic decision making. However, 

since NASA does not have the documentation required to support its space exploration asset balances under General PP&E standards and since there are no comparable assets with which to establish a reasonable balance, the auditors have continued to report a material weakness related to controls over legacy PP&E and disclaimed audit opinions. 

Both the ISS and Space Shuttle are scheduled for retirement in this decade. Continuing depreciation of these space exploration assets is bringing the net asset balances on the balance sheet to levels that will become immaterial to the financial 

statements. The Shuttle assets are being depreciated through their expected useful 

life based on their current schedule for retirement in 2010, and the International 

Space Station is being depreciated based upon a 15-year specification life, through 

2016, which would not change, in accordance with accounting requirements, if the 

ISS is extended beyond this period. While the International Space Station depreciation schedule naturally leads to 2016 as an outside date for resolution of this PP&E 

issue, NASA has been working to achieve a timelier, albeit still cost efficient and 

effective, solution for this issue.

Legacy PP&E Improvements

In FY 2007, NASA obtained guidance from the FASAB’s Accounting and Auditing 

Policy Committee (AAPC) to reclassify certain space exploration assets as research 

and development expenses, per Financial Accounting Standard No. 2, Accounting for 

Research and Development Cost. In addition to more appropriately classifying the 

costs for these assets, this also focused the legacy property issue to primarily the 

ISS and Space Shuttle assets. 

Also in 2007, NASA implemented a new policy and related procedures for identifying the cost of individual assets throughout such assets’ acquisition lifecycle, consistent with SFFAS No. 6. The procedural changes facilitate the identification, 

verification and reconciliation of asset values for assets created or developed under 
51

contracts awarded after implementation of the revised policy and to certain large 

pre-existing contracts. 

Additionally, during FY 2008, the Agency implemented a new asset management 

module within its core financial management system. This module integrates personal property equipment data with the core financial accounting system, addressing a key part of the prior year’s material weakness and a noted noncompliance 

with FFMIA. This module provides: (1) more accurate, timely recording and valuation of PP&E; (2) improved valuation, capitalization, and depreciation processes; 

(3) improved audit trail of capitalized PP&E; (4) greater standardization of property 

management processes; and (5) elimination of many manual processes. 

In FY 2009, NASA performed a review of the processes used to track, validate 

and record costs for the ISS and Space Shuttle. This review resulted in changes to 

NASA’s capitalization policies for Space Shuttle launch costs and for ISS Integration 

and Operations costs. Following this review, NASA recorded a subsequent downward adjustment to the net book value of the ISS. 

The review also supported NASA’s preparation for the release of SFFAS No. 35, 

Estimating the Historical Cost of General Property, Plant, & Equipment: Amending 

Statements of Federal Financial Accounting Standards 6 and 23 on October 14, 

2009. This standard is intended to provide entities, like NASA, who have significant 

investments in assets but, at the time these assets were acquired, did not have adequate controls or systems in place to capture historical PP&E costs, with a cost effective method for complying with Federal property accounting standards.

NASA Planned Corrective Actions

1. As recommended by the independent auditor, NASA will adopt SFFAS No. 

35 to establish auditable values for those legacy assets—including NASA’s space 

exploration PP&E, particularly the ISS and Space Shuttle—for which the Agency does not have the necessary historical cost records or for which it would not 

be cost effective to recreate such records. SFFAS No. 35 amends existing accounting standards to clarify that reasonable methods of estimating historical 

cost and accumulated depreciation may be used to value general property, 

plant, and equipment. As FASAB notes in the standard, use of estimates is a 

more cost-effective means of valuing certain assets than reconstructing actual 

historical amounts based on inadequate or nonexistent accounting records.

The adoption of SFFAS No. 35 requires NASA management to identify and 

adopt a basis for determining reasonable estimates of historical cost information. Implementation of the standard will require collaboration between the 

Agency and its auditor on the basis for the reasonable estimate, the approach 

for implementing that basis, the information required to support the resulting 

estimates, and the timeframe within which the estimates can be generated. 

Working through a process for implementing SFFAS No. 35 is a challenge for. 

the Agency that may impact NASA’s approach and timeline for resolving the 

legacy PP&E weakness. SFFAS No. 35 provides NASA with a way forward, but 

it is not a pre-defined solution to the Agency’s one remaining material weakness.

2. NASA will also continue to identify key PP&E control activities as a part of 

the Agency’s ongoing Continuous Monitoring Program (CMP). The CMP is a 

monthly process that provides for robust and rigorous reviews to validate the 

quality and sufficiency of information for key accounts and accounting transactions. Changes in key processes, like those associated with the valuation of 

legacy PP&E, will be accompanied by reviews and, if required, improvements 

in the related CMP control activities.

3. Additionally, NASA will integrate its real property assets, which comprise 8 

percent of NASA’s total asset value, into the core financial system’s asset management module in FY 2010. This will improve overall PP&E accounting, and 

will address a specific FFMIA weakness identified in the auditor’s Report on Internal Control.

Conclusion

In closing, NASA has taken clear and positive steps toward resolving its financial 

management weaknesses. Today, using current systems and processes, NASA is 

able to track and control its funds, account for the costs related to individual programs and projects, and manage the Agency’s day-to-day operations. The Agency remains committed to resolving the legacy property weaknesses, particularly through 

the guidance contained in the recently released SFFAS No. 35. Combined with the 

Agency’s rigorous on-going control reviews and the introduction of additional system 
52

capabilities, we expect our efforts will result in a more acceptable audit outcome and 

opinion. 

Chairman Miller and Chairwoman Giffords, I would be pleased to respond to any 

questions that you or the other Members of the Subcommittees may have.
53

Chairman MILLER. Thank you, Dr. Robinson. We will now have 

questions, the first round and maybe our only round. I now recognize myself for 5 minutes. 

Mr. Murrin and Dr. Robinson mentioned that FASAB has now 

issued guidance for how to value legacy assets. Obviously NASA is 

not the only agency that has a problem like this. The Defense Department is the other obvious example, although there might be 

willing buyers for some of what the Defense Department has. They 

are not necessarily anyone that we want to sell that stuff to. Have 

you looked at those standards? Do they seem workable? Would they 

get NASA in compliance? 

Mr. MURRIN. Well, the standards themselves are really quite 

brief and provide really a summary of how to do it. It is really the 

devil is going to be in the details of how NASA, DoD and the other 

agencies work together to come up with what reasonable approaches are. I think that Dr. Robinson had the right track of just 

saying the agencies and their auditors are going to need to work 

together to really cooperate to really figure out what is enough. We 

don’t want to over-expend resources in pursuit of this and getting 

down to minute detail, particularly since FASAB has spoken on 

this issue. But there is not a cookbook as yet to implement the 

standard. The standard really became effective in October. So we 

don’t have a series of agencies that have actually implemented it 

as yet. 

Chairman MILLER. Have you taken even a preliminary look at, 

or do you have the data, the information, upon which to take a preliminary look at how the FASAB standards—what valuation they 

might lead to with respect to the Space Shuttle and the Space Station? 

Mr. MURRIN. Well, the agency actually has done that. They have 

a series of materials that were pulled together in the summer of 

2009 that were intended to develop an estimate under that new 

standard were the standard applicable in 2009. We have begun our 

process along with the Office of Inspector General to look at that 

information and how it might apply for 2010. 

Chairman MILLER. Okay. Mr. Martin, obviously all of you have 

a great desire to get this worked out and you want to maintain the 

independence of your auditor, but it does appear that one approach 

to the immediate problem might be to ask the auditor to kind of 

revise or take a second look at this year’s valuations based on the 

new FASAB standards. Have you considered doing that? Is that 

something you might do? 

Mr. MARTIN. I would have to actually speak with Dan and with 

Tom, but I think we have just kicked off the fiscal year 2010 audit 

review, and I am not sure if they have gotten to that level of detail 

yet. That is certainly one approach that we can look into at the 

outset. 

Chairman MILLER. Okay. Mr. Murrin, with the benefit now of 

the FASAB guidance for legacy assets, do you feel reasonably confident that next year’s audit will not have a qualification to it, will 

not have an asterisk? It will be a clean audit, or can it be? 

Mr. MURRIN. Yes, somewhat regrettably I get that kind of a 

question just about every year from every client at one point or another, and we really can’t prejudge what the outcome of a par-
54

ticular year’s audit process is. I would say that the situation here, 

where FASAB has developed a document that should be helpful to 

NASA in assisting and resolving this, and FASAB developed that 

document at least with NASA and DoD and some of these other entities in mind as they developed the standard certainly is a helpful 

thing that should help in this process. But I can’t prejudge the answer for it. 

Chairman MILLER. Okay. Perhaps you should have—you missed 

your calling. Perhaps you should have become a lawyer. Your answer I think was, it depends. But perhaps that is an accountant’s 

ultimate answer for everything as well. 

But with respect with these specific problems, assuming that 

there are no new problems, does applying the new FASAB guidance with presumed cooperation, does that give you confidence that 

whatever new problems may arise, that problem can be solved? 

Mr. MURRIN. The two recommendations we have which were reasonably specific in providing a roadmap on how one might apply 

the FASAB 35 guidance in addressing some of the contractor-held 

property issues, you know, those recommendations I think do provide a roadmap. And if NASA, cooperatively working together with 

us sort of talks through what we have in mind there, I think there 

are certainly opportunities for them to have an improved outcome. 

Chairman MILLER. Okay. So the answer is, it still depends. My 

time is expired. I now recognize Dr. Broun for 5 minutes. 

Mr. BROUN. Thank you, Mr. Chairman. I would like to ask the 

panel, are there any risks to using estimates or any impediments 

to using estimates instead of real numbers for determining legacy 

asset value? We will start with Mr. Murrin and then Dr. Robinson 

and anybody else that wants to pipe in. 

Mr. MURRIN. Yeah, I think in the context of NASA’s operations 

and the items that we are principally speaking about, legacy assets, the Shuttle and the Space Station, relatively less risks involved in that. Do we really need to know exactly what the invoiced 

amounts were versus having, you know, range of estimates that is 

a reasonable estimate for those assets? Depending on the assets 

that you have, I think there may be more of a risk involved in developing and using estimates, but certainly for the two particular 

assets that are most of the focus of this, relatively less. 

Mr. BROUN. Impediments to making an estimate, reasons, picking a number, et cetera? Just try to get something that Dr. Robinson can work with and that you can work with in the future? 

Mr. MURRIN. Probably the principal impediment is that the first 

shot at the estimate is going to be the recorded amounts because 

those are the amounts that were recorded in the records over the 

years. But unfortunately, the records to support the amounts that 

went into the estimates are not available anymore, either. So is the 

estimate based on a number that was not supported any better 

than the number that was not originally supported just because 

now you can call it an estimate. So that would be the impediment. 

So I think that is where if you look at our recommendation, we are 

really looking for whether there are things that can corroborate the 

amount that has been recorded, whether it is the amount that was 

budgeted in each of those years that can somehow get compared to 

what got capitalized or some other second item that can help cor-
55

roborate it so that we are not just saying, well, now it is an estimate. We don’t really have to audit it because that is not really 

what happens. We do still have to audit it. 

Mr. BROUN. So from what I am gathering from what you are telling us is that basically there is no other way to truly clear this up 

until we retire the assets, is that correct? 

Mr. MURRIN. Well, I don’t think so, I think the estimation process does hold some promise and certainly FASAB speaking on this 

matter and reinforcing that estimates are acceptable, you know, 

gives some comfort to say that FASAB is not looking for an exact 

number here for these assets. Certainly retiring them would definitively resolve it, but short of that, you know, it is possible to get 

some corroborating evidence to say that the amounts that are there 

are reasonable. 

Mr. BROUN. Dr. Robinson? 

Ms. ROBINSON. I agree with what Mr. Murrin said. The one thing 

I would add here is that in the course of this long trial on constructing the station and trying to record the costs, we also had a 

change in auditor. And so one of the numbers that we are talking 

about was actually approved in our previous audit, the one where 

we had a clean opinion. And so they did do an evaluation and came 

up with a number, and we have been relying on that as our previous auditors. 

But as Mr. Murrin points out, a lot of the documentation and 

other things were with them, and now they are no longer our auditors. So this tale has gone for so many years that there are so 

many twists and turns that it is really hard to nail down every single one. 

On the other hand, the Shuttle and Station are things. We are 

trying to value an asset. It may not have a market value, but the 

components are identifiable and recognizable. And so there certainly is an ability to be sure that we have it about right. And so 

I think it is not just that we look at the invoice cost but we can 

also look at what has been built and make sure that we are in the 

right ballpark. 

Mr. BROUN. All right. Mr. Chairman, my time is about expired, 

so I will yield back. Thank you, sir. 

Chairman MILLER. Thank you. I now recognize the other Chair, 

Ms. Giffords, for 5 minutes. 

Ms. GIFFORDS. Thank you, Mr. Chairman. Dr. Robinson and Mr. 

Martin, obviously a financial management system should tell us 

how much money NASA has, it should tell us where the money is 

flowing in and how the money is being spent. With the system 

right now, can we get those answers and can we trust them? 

Ms. ROBINSON. Yes. 

Ms. GIFFORDS. Mr. Martin? 

Mr. MARTIN. I believe so on a day-to-day basis, yes. 

Ms. GIFFORDS. Mr. Howard? 

Mr. HOWARD. Yes, ma’am, you can. 

Ms. GIFFORDS. And Mr. Murrin, do you believe that NASA’s in 

a position now that is able to answer those questions? 

Mr. MURRIN. You know, unfortunately, I get to do the lawyerly 

thing. We do end up having to speak as a firm through our reports 

and the public documents, and to the extent that we are dis-
56

claiming opinion that is because under the professional standards 

given the size of the PP&E matter, we are not in a position to give 

a piecemeal opinion and opine on the rest of the financial statements. And therefore, really, I am not in a position to answer that 

definitively. 

Ms. GIFFORDS. Thank you. You know, the past is the past, and 

we have obviously spent some time talking about where the agency 

has come from and where we are today. We have spent some years 

trying to get some answers to the value of Space Shuttle and the 

International Space Station, and a lot of it goes back to the accounting system of the 1970’s and the 1980’s and how it didn’t exactly capture the actual cost information called for by government 

accounting rules. 

Are we in better shape to meet those accounting requirements for 

the assets that NASA has today and is currently developing? 

Ms. ROBINSON. I think so. It is now standard practice in our contracts to require the accounting information that we need, and we 

don’t anticipate problems going forward, beyond the fact that many 

of these systems are very large and are just difficult to value in 

terms of the entire numbers. But we will have the data in order 

to do it. 

Ms. GIFFORDS. Dr. Robinson, what assurances can you give to 

Members of Congress that this is actually going to take place and 

that we can know that—we can take this information and be very 

satisfied that we are getting the correct information? 

Ms. ROBINSON. I think that NASA, even over the last couple of 

years, has demonstrated that it can produce auditable financial 

transactions, can appreciate assets and expense its contracts and 

grants according to guidance. We do not believe that there are 

large problems, and I think our contractors would agree with that. 

They have felt the burden of giving us all of the data and have 

worked very closely with us to make sure it is the right data and 

what we need. So the proof will always be in the pudding. We are 

going to be audited every year, so we will see. But we feel like we 

are on a strong footing. 

Ms. GIFFORDS. And are there benchmarks that we should look for 

here in the Congress? 

Ms. ROBINSON. When you look at the financial data, when you 

talk about money at NASA, you talk about the financial reports, 

but you are also talking about the budgetary estimates and you are 

talking about the program cost and schedule estimates. And all of 

that data goes into real confidence about whether or not an entity 

has control of its day-to-day operations. It is not just the financial 

transactions. 

And so I think there has been a lot of work that has been done 

by the IG’s office and by others and very much so within NASA to 

try to beef up all of those parts of the financial enterprise, in particular to improve our joint cost and schedule estimates to baseline 

programs and hold them accountable for that. And so I think we 

have seen improvements that have been across the board on all aspects of money at NASA. 

Ms. GIFFORDS. Mr. Martin, would you care to comment? 

Mr. MARTIN. To your specific point on assets, at the beginning of 

fiscal year 2008, NASA implemented a new system for all other as-
57

sets that it is acquiring besides the Shuttle and the Station. We 

have taken a look at that, Ernst & Young has taken a look at it. 

We think it positions the agency to be able to accurately report the 

value of assets going forward. 

Ms. GIFFORDS. Thank you. Mr. Chairman, I see I am almost out 

of time. I appreciate the time. Thank you. 

Chairman MILLER. Thank you. Ms. Giffords yields back. Mr. 

Olson is recognized for 5 minutes. 

Mr. OLSON. Well, thank you very much, Mr. Chairman, and I 

would like to talk a little bit and ask questions about legacy systems, probably directed to Mr. Martin and Dr. Robinson. But anybody, if you want to chime in and give an answer, feel free to do 

so. 

With regard to the material weaknesses in NASA’s controls for 

assuring that the value of legacy property, plant and equipment, 

notably the Space Shuttle and the ISS, is fairly stated, all of you 

have testified that the upcoming retirement of the Shuttle and the 

write-off of the Space Station will largely resolve the problem. Are 

there other, albeit smaller, legacy issues that are still haunting 

NASA, and if so, how can they be dealt with. Dr. Robinson? 

Ms. ROBINSON. Well, I am going to plead a little ignorance here 

since I have only been on the job for 3 weeks, but I have asked 

those questions about what are the kinds of things coming down 

the road. And really, in terms of our portfolio of assets, the Shuttle 

and Station are even different among that very unique set. We 

have a lot of highly specialized research satellites and other things 

which don’t trigger these kinds of requirements. They are much 

more simple from an accounting perspective. 

And so I don’t see it, but on the other hand, I have only been 

here 3 weeks. So I haven’t learned everything. 

Mr. OLSON. Mr. Howard, I don’t want to take your—kind of read 

something into your actions there, Mr. Martin. It looks like, Mr. 

Howard, you want to say something? 

Mr. MARTIN. My legacy goes back 3 days, so I am going to look 

to Tom. 

Mr. OLSON. Thank you. Mr. Howard? 

Mr. HOWARD. The two assets that we talked about are the principal ones, and there may be some others that are associated with 

the contractors who are building things and some of the property 

that has happened. But for the most part, the focus is on the Shuttle and the International Space Station. And if the agency can get 

those resolved, that is the bulk of the problem. 

Mr. OLSON. Thank you very much for that answer. And another 

question just involving the costs to NASA of compliance. The past 

20 years, how much money has NASA spent to bring it into compliance with Federal accounting standards? Is that you, Mr. Howard, 

again? 

Mr. HOWARD. I would have to defer to the agency for an accurate 

answer on that. 

Ms. ROBINSON. We will take that question for the record, but I 

will tell you, it is a not-insignificant sum, and that would be true 

for all agencies as they have built financial systems. 

Mr. OLSON. Thanks for that answer. You kind of read my mind 

there, and I appreciate a statement for the record. 
58

Looking ahead, what is your assessment about the cost curve for 

NASA to sustain this effort? Do you think the agency needs to continue heavily investing or is it at a point now where growth in 

spending on financial management systems and personnel can 

begin to flatten out? 

Mr. HOWARD. From our perspective, I would say it is the latter, 

that the agency has been implementing this current system for 7 

years now, and it is at the point where it is working effectively. So 

we should be at a point where it can begin to flatten out. 

Ms. ROBINSON. I would say that we have some milestones coming 

up where we will be integrating our real property systems. So we 

still have a number of things, but albeit in the near future, not the 

long future. And then of course, then we have to maintain quite a 

lot of vigilance. No system is going to produce great numbers. People have to create great numbers to put in the system. So we will 

have to continue that. 

Mr. OLSON. Dr. Robinson, thank you for that answer. Mr. Howard, thank you. Mr. Martin, thank you for your time. Mr. Murrin, 

thank you. I greatly appreciate everything, and I know coming up 

here after a couple, 3 weeks and 4 days, I really, really appreciate 

you coming here and testifying today. Thank you very much. I yield 

back my time. 

Chairman MILLER. Thank you, Ms. Olson. By far the most conscientious member of the I&O Subcommittee, Ms. Dahlkemper is 

recognized for 5 minutes. 

Ms. DAHLKEMPER. Well, thank you for that endorsement, Mr. 

Chairman. Thank you, our witnesses, for being here today. 

Chairman Miller in the beginning said that we don’t want to return next year with the same material weakness, and I would just 

like to extend his remarks by saying that I don’t want to come back 

here next year and find we have new material weakness. 

Mr. Murrin, you noted in a report that NASA wasn’t able to provide its estimates for environmental liability costs with sufficient 

time to support the audit process. Am I right in reading this to say 

that we don’t have the same depth of understanding on this problem that we do on material weakness we have been discussing? 

Mr. MURRIN. I actually do think that the record for last year 

shows some progress by the agency and their environmental liabilities. To some extent it was work that was done at the last minute 

to get a comment behind them. So a lot of things were done in, you 

know, July, August, September, literally getting some things to us 

the last week in September to be able to say, well, we have a balance now. Here it is. Unfortunately, in a multi-billon dollar entity, 

getting a number on the last day of the year is not sufficient time 

in which to actually go in and have the firm develop the work that 

we would need to do to stand behind that number as well and 

opine on that number. So it is a situation in which we think that 

if they work through the four recommendations we have there, 

they should be able to make continued progress as well and get to 

the point where we are not talking about those numbers being materially misstated and are in a position to think anyway that if not 

a material weakness, perhaps no longer a significant deficiency, 

that they certainly constituted a significant deficiency this year. 
59

Ms. DAHLKEMPER. Thank you for that. Given the severe time 

constraints and resource limitations, you mentioned in your testimony, should our committee be confident that $922 million is a 

well-grounded estimate of NASA’s environmental liabilities? 

Mr. MURRIN. Well, we don’t as a firm opinion on individual elements of the financial statements, but the comment that we are 

making about the significant deficiency for environmental liability 

is an indicator that we think that more work by the agency can be 

done around its environmental liabilities, and it wouldn’t be entirely surprising to have that number move as the agency further 

refines its process for estimating environmental liabilities. And we 

do our audit work around those estimates to verify whether they 

are appropriate or not. 

Ms. DAHLKEMPER. Okay. Dr. Robinson, your testimony doesn’t 

describe steps to deal with the incomplete training for staff working on the liability estimates or the fixes needed in estimating software described in their Ernst & Young reports. Can you describe 

for us what kind of corrective actions you will be pursuing on that? 

Ms. ROBINSON. Well, incorporation with the Environmental Management Office at NASA, I think there is a real commitment there 

to train the staff, to improve their estimates. If you look across government at agencies trying to deal with environmental liabilities, 

there are a few who have very different liabilities than others. DoE 

and NASA particularly have nuclear liabilities. We have DoD and 

we have a lot that are associated with fuel and operating systems. 

And so I think there has just been a lot of effort over the last 10 

years to try to develop acceptable methodologies and models to do 

that. This is not just work that is going on at NASA. It is going 

on everywhere to try to perfect these estimates. And so I do think 

our Environmental Management Office is very keen in producing 

the best ones possible. 

And then in the Federal Government, you report it many times. 

You report for the budget, you report for financial report for all 

that, and getting every office in a large agency like NASA to 

produce numbers at the right time, it is a big effort. And so I do 

think the Environmental Management Office and NASA as a whole 

is there now, and we do expect to get much more timely information from them. 

Ms. DAHLKEMPER. So you expect that you will be able to do that, 

you will be able to get the corrective actions done that you need 

to? 

Ms. ROBINSON. Um-hum. Definitely. 

Ms. DAHLKEMPER. Okay. Well, I just want to close by reiterating, 

you know, what Chairman Miller has said, and I just hope that 

NASA gets its financial accounting system into the best shape possible, that we want transparency. And I look forward to not having 

to have this discussion next year. So thank you very much for your 

time. I yield back. 

Chairman MILLER. Thank you, Ms. Dahlkemper. That ends the 

questioning. I don’t think we will have a second round, but the 

staff points out I needed a clearer answer to one of my earlier questions. I think one extension of southern politeness has a tendency 

toward indirection. We also have the highest murder rate in the 

Nation, so sometimes it doesn’t work as well. 
60

Mr. Martin, will you ask Ernst & Young, your auditor, to apply 

the new FASAB guidance for valuing legacy assets for 2009 for the 

Space Shuttle and the Space Station, the significant assets that 

calls the qualified the not-clean audit? It is obviously work you are 

going to have to do again next year. I understand Mr. Murrin 

doesn’t want to commit to what kind of audit he will give, what 

kind of report he will give next year. But will you ask them to look 

at those assets again and work with all the folks that you need to 

work with to apply the new guidance to try to come up with an acceptable valuation for those assets? 

Mr. MARTIN. We will certainly work hand-in-glove with NASA 

and with Ernst & Young. But Tom, correct me if I am wrong, I 

think the burden is on Dr. Robinson in her shop to do the initial 

estimations, again, working with the accounting firm and with the 

OIG. 

Chairman MILLER. Okay. 

Mr. MARTIN. We certainly pledge to work together toward that 

end. 

Chairman MILLER. Well, it is not entirely clear exactly who has 

got to ask who to do what. But Mr. Howard, Mr. Martin, will you 

tell Ms. Robinson what she needs to know? Ms. Robinson, will you 

commit——

Ms. ROBINSON. Again, before I got there, the agency I think did 

yeoman’s work to try to make all the adjustments in the 2009. So 

we believe we have done it, and we are ready to be evaluated. 

Chairman MILLER. For 2009? 

Ms. ROBINSON. We are ready to be evaluated for the new estimation methodology, and all the adjustments have been made already to the legacy assets. And so we could start now to value them 

under the new FASAB standard and work on that in the next couple months. 

Chairman MILLER. Will everyone here commit to do that? Mr. 

Martin? Mr. Howard? 

Mr. HOWARD. Yes, sir. We have, and as Dr. Robinson said, the 

agency began the process last year. Ernst & Young is going to take 

a look at that as part of the 2010 audit. The Office of Inspector 

General is going to take a look at it as part of the 2010 audit. We 

are not asking them to go back and revisit the 2009. The standard 

was approved in October of 2009. It is not retroactive to fiscal year 

2009. So we are applying it to fiscal year 2010. 

Chairman MILLER. But you didn’t pass your grade. You got held 

back. 

Mr. HOWARD. Right. 

Chairman MILLER. Think of this as summer school. Will you ask 

them—provide all the information necessary, ask them to value the 

assets based upon the FASAB guidance that you now have, even 

though the books are now closed. That is obviously work you will 

have to do again for the 2010 audit. I know the books are closed. 

I know that the audit is in, but do it anyway. Will you do it anyway? 

Mr. HOWARD. No, sir, not for 2009. We are focused on 2010 now 

and going forward. 

Chairman MILLER. Ms. Robinson? 
61

Ms. ROBINSON. I think the distinction here is that these are legacy assets. And so the valuations and the corrections to them are—

they don’t change every year. And so I think the issue here is—

what I think the Chairman is asking is can we get an early read 

so that we don’t wait until the end of the audit so that in the next 

couple of months we get a read on whether or not we have made 

all the appropriate adjustments so that—and if we haven’t, we can 

then work on it, but we are not going to wait until next fall to 

know whether or not we have to come back up here. 

Chairman MILLER. What she said. 

Mr. HOWARD. Yes, we have already talked, Mr. Murrin and myself, and Dr. Robinson’s Deputy, Mr. Bowie, have talked about 

doing exactly that, sitting down, looking at what the agency has 

done to date, having a good discussion about what is good about 

it and what can be improved about it and making specific recommendations so that the adjustments can be made timely if there 

needs to be additional adjustments. 

Chairman MILLER. Okay. That sounds like as close a commitment as we are going to get. And with that, before bringing the 

hearing to a close, I want to thank all of our witnesses for testifying before our Subcommittee today. Under the rules of the Committee, the record will remain open for 2 weeks for additional statements from the members for answers to any follow-up questions 

the Subcommittees may have for the witnesses. The witnesses are 

excused. The hearing is now adjourned. 

[Whereupon, at 3:50 p.m., the Subcommittees were adjourned.]

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