IG-00-044

AUDIT

REPORT TRANSFER OF EXTERNAL TANK DISPLAY TO

KENNEDY SPACE CENTER

VISITOR COMPLEX

September 14, 2000

National Aeronautics and

Space Administration

OFFICE OF INSPECTOR

GENERAL
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Acronyms

FY Fiscal Year

NHB NASA Handbook

NPD NASA Policy Directive

NPG NASA Procedures and Guidelines

OIG Office of Inspector General
W September 14, 2000

TO: A/Administrator

FROM: W/Inspector General

SUBJECT: INFORMATION: Transfer of External Tank Display to Kennedy Space Center

Visitor Complex

Report Number IG-00-044

The NASA Office of Inspector General has completed an audit of the Stennis Space Center

(Stennis) transfer of a Space Shuttle external tank display (external tank) to the Kennedy Space

Center (Kennedy) Visitor Complex. We found that the Stennis Public Affairs Office used

nonappropriated funds to effect an unauthorized augmentation of NASA's budget. This

condition occurred because senior Kennedy and Stennis officials did not follow Agency policy

in entering into a bilateral agreement to transfer a mock-up1 external tank to Kennedy's Visitor

Complex. In exchange for transferring the external tank, the Kennedy Visitor Complex

Concessioner, Delaware North Parks Services of Spaceport, Inc. (Delaware North), paid

$500,000 in nonappropriated funds to the Stennis Exchange,2 which deposited the amount in an

interest-bearing account for use by the Stennis Public Affairs Office. That office subsequently

used the $500,000 to construct an addition to the Stennis Visitor Center and to acquire new

exhibits. Stennis should have paid for those activities with appropriated funds, because no

statutory authority provides for the acceptance and use of the nonappropriated funds from

Delaware North.

Background

The external tank is one of three major elements3 of the Space Shuttle's main propulsion system

and serves as the Shuttle's structural backbone. The external tank holds more than a half million

gallons of liquid oxygen and liquid hydrogen that fuel the Shuttle's main

 

1

 A mock-up is a scale model, usually a full-sized replica, of a structure or apparatus used for instructional or

experimental purposes. The transferred external tank is a full-sized replica.

2

 The Stennis Exchange is a nonappropriated fund instrumentality whose mission is to operate activities

contributing to the efficiency, welfare, and morale of NASA personnel. NASA Policy Directive (NPD)

9050.6E, “NASA Exchange Activities,” December 2, 1997, states that the purpose of the NASA Exchange is

to operate activities contributing to the efficiency, welfare, and morale of NASA personnel.

3

 The three major elements that comprise the Space Shuttle's main propulsion system are (1) two solid rocket

boosters, (2) three main engines, and (3) the external tank.
2

engines during liftoff. NASA purchased the subject external tank in 1977 for $500,000.4

The tank was initially located at the Marshall Space Flight Center (Marshall). Marshall

transferred the external tank to Stennis in April 1990.

On February 27, 1997, the Directors of Kennedy and Stennis Space Centers entered into a

bilateral agreement (see Appendix B) whereby Stennis agreed to transfer an external tank

mock-up display, located at the Stennis Visitor Center, to the Kennedy Visitor Complex for use

as a major exhibit. In return for the external tank, Kennedy directed its Visitor Complex

Concessioner, Delaware North, to pay $500,0005 to the Stennis Exchange. The bilateral

agreement stated that the payment was to compensate Stennis for the potential loss of future

revenue to the Stennis Visitor Program due to the external tank transfer. Stennis officials

subsequently stated that because appropriated funds were not available for a proposed

expansion of the Stennis Visitor Center, the funds received for the external tank transfer would

be used for construction.

Recommendations

We recommended that the Director, John C. Stennis Space Center direct the Stennis Chief

Financial Officer to reimburse the Stennis Exchange from appropriated funds, an amount equal

to all nonappropriated funds obligated by the Stennis Exchange that were used to augment

NASA's appropriation by constructing the addition to the Stennis Visitor Center and to acquire

new exhibits. Also, upon receipt of the appropriated funds reimbursement, the Stennis

Exchange Council should refund the $500,000 payment received for the external tank transfer

and the accumulated interest to Delaware North. Further, the Director, John F. Kennedy

Space Center, should direct the NASA Contracting Officer for Kennedy's concession

agreement to direct Delaware North to redeposit the $500,000 and accumulated interest

received from the Stennis Exchange to the exhibits fund.

Management's Response

Management nonconcurred with the conclusions and recommendations in the report (see

Appendix C). Management stated that we used a narrow interpretation of the broad authority

given to the Agency in the Space Act and disputes the underlying premise of the report.

Management stated that the transfer of the external tank to Kennedy and the payment of

nonappropriated funds to the Stennis Exchange were two separate transactions.

We reaffirm our position with respect to both the finding and recommendations and have

requested management to reconsider its position and provide additional comments. We

3

 

4

 The NASA Equipment Management System shows the cost of the external tank (Equipment Control

Number 1013861) as $500,000.

5

 Prior to the February 27, 1997, agreement, Delaware North had budgeted funds to contract for the

fabrication of a new external tank mock-up to display at the Kennedy Visitor Complex.
do not agree with management's position and believe it is based on an overly broad and liberal

interpretation of not only the Space Act, but also of Kennedy's concession agreement with

Delaware North. The documentation supporting this transaction clearly shows that the payment

of $500,000 to the Stennis Exchange was dependent on delivery of the external tank to

Kennedy and was, in substance, a single transaction rather than two separate and unrelated

events.

We provide a detailed response to management's comments in Appendix D of the report.

[original signed by]

Roberta L. Gross

Enclosure

 Final Report on Audit of Transfer of External Tank Display to Kennedy Space Center

 Visitor Complex
FINAL REPORT

AUDIT OF TRANSFER OF EXTERNAL TANK DISPLAY TO

KENNEDY SPACE CENTER VISITOR COMPLEX 
W September 14, 2000

TO: AA/Director, John C. Stennis Space Center

AA/Director, John F. Kennedy Space Center

B/Chief Financial Officer

J/Associate Administrator for Management Systems

FROM: W/Assistant Inspector General for Auditing

SUBJECT: Final Report on Audit ofTransfer of External Tank Display to Kennedy Space

Center Visitor Complex

Assignment Number A0000200

Report Number IG-00-044

The subject final report is provided for your use and comments. Our evaluation of your response

is incorporated into the body of the report and into Appendix D. With respect to management's

nonconcurrence with the recommendations, we request that management reconsider its position

and submit additional comments by November 13, 2000. The recommendations will remain

open for reporting purposes.

If you have questions concerning the report, please contact Mr. Kevin J. Carson, Program

Director, Safety and Technology Audits, at (301) 286-0498, or Mr. Oscar Lindley, Auditor-inCharge, at (228) 688-1493. We appreciate the courtesies extended to the audit staff. The final

report distribution is in Appendix E.

[original signed by]

Russell A. Rau

Enclosure
2

cc:

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

JM/Acting Director, Management Assessment Division

M/Associate Administrator for Space Flight

P/Associate Administrator for Public Affairs
NASA Office of Inspector General

IG-00-044 September 14, 2000

 A0000200

Transfer of External Tank Display to Kennedy Space Center

Visitor Complex

Introduction

The NASA Office of Inspector General (OIG) has completed an audit of the Stennis transfer of

a Space Shuttle external tank display (external tank) to the Kennedy Visitor Complex. The

overall objective of the audit was to evaluate the propriety and use of $500,000 paid by the

Kennedy Visitor Complex Concessioner to the NASA Exchange at Stennis in relation to the

transfer of the external tank. The specific objective was to determine whether the payments

were appropriate and reasonable and were for authorized purposes.

The Stennis Exchange is a nonappropriated fund instrumentality whose mission is to operate

activities contributing to the efficiency, welfare, and morale of NASA personnel.

Appendix A contains further details on the audit objectives, scope, and methodology.

Results in Brief

Senior Management Officials at Kennedy and Stennis did not follow established policies for

transferring property between NASA Centers without reimbursement of property cost.

Consequently, the Kennedy Visitor Complex Concessioner made an unauthorized payment of

$500,000 in nonappropriated funds to the Stennis Exchange. The Stennis Public Affairs Office

used the $500,000 to fund a construction project and additional public exhibits at the Stennis

Visitor Center, which resulted in an unauthorized augmentation of NASA's appropriation.

Background

The National Aeronautics and Space Act of 1958 (Space Act), as amended, allows NASA to

use nonappropriated funds of concessioners to fund construction, maintenance, and operation of

all manner of facilities and equipment for visitors and to provide services incidental to the

dissemination of information concerning the Agency's activities. The Stennis Visitor Center is

not operated under a concession agreement. The Stennis Public Affairs Office manages the

Stennis Visitor Center with support personnel provided by the Center's facilities operations

contractor. The Stennis Exchange is not a concessioner, but rather an instrumentality of the

Federal Government under NASA's control.6

 

6

 NPD 9050.6E, "NASA Exchange Activities," December 2, 1997, identifies NASA Exchanges as

instrumentalities of the United States that must be under NASA's control, and ownership interests must be

with the Government.
2

The Delaware North concession agreement with Kennedy states that the Government will

provide on a no-charge basis, various exhibits, displays, and artifacts7 for public viewing at the

Kennedy Visitor Complex. The external tank transferred from Stennis is classified as an artifact

and is permanently displayed in the Space Shuttle Exhibit at the Kennedy Visitor Complex.

Stennis and Delaware North completed the transfer of the external tank with Delaware North

reporting the tank as "Contractor Acquired Property" with a value of $500,000 on NASA

Form 1018, "NASA Property in the Custody of Contractors." Delaware North also paid

shipping costs of approximately $112,000 to transport the external tank from Stennis to the

Kennedy Visitor Complex.

Transfer of Space Shuttle External Tank

Finding. The Stennis Public Affairs Office used nonappropriated funds to effect an unauthorized

augmentation of NASA's budget. This condition occurred because senior Kennedy and Stennis

officials did not follow Agency policy in entering into a bilateral agreement to transfer a mock-up

external tank to Kennedy's Visitor Complex. In exchange for transferring the external tank, the

Kennedy Visitor Complex Concessioner, Delaware North, paid $500,000 in nonappropriated

funds to the Stennis Exchange, which deposited the amount in an interest-bearing account for

use by the Stennis Public Affairs Office. That office subsequently used the $500,000 to

construct an addition to the Stennis Visitor Center and to acquire new exhibits. Stennis should

have paid for those activities with appropriated funds, because no statutory authority provides

for the acceptance and use of the nonappropriated funds from Delaware North.

NASA Requirements Governing Transfers of Property

NASA Handbook (NHB) 4200.1D, "Equipment Management Manual," April 1, 1992,

establishes requirements and procedures for NASA and its contractors to screen the NASA

Equipment Management System prior to purchasing new equipment. Screening the system is

done to determine whether the desired item or an acceptable substitute is available. The system

identifies available items as having status codes of B, C, or D. Status code B items include

"inactive equipment approved for retention as a national asset,"which would include the external

tank transferred to Kennedy since it is classified as an artifact. Once an item is identified as

being available for transfer and the requester

 

7

 An artifact is a unique object that documents the history of the science and technology of aeronautics and

astronautics. Its significance and interest stem mainly from its relation to: (1) historic flights, programs,

activities, or incidents; (2) achievements or improvements in technology; (3) our understanding of the

universe; and 4) important or well-known personalities.
3

has agreed to accept the transfer, the transfer is effected using an unfunded purchase request.

Using an unfunded purchase request to transfer property, in effect, means that the transfer is to

be made without reimbursement.

NHB 4300.1, "NASA Personal Property Disposal Manual," March 27, 1987, states that

NASA installations will use excess and surplus property to the maximum extent feasible to fill

existing needs and satisfy requirements prior to initiating new acquisitions. The NHB further

requires that a NASA Center requesting excess property from another Center pay only for

shipping expenses, except when the requested item is installed. For installed items, the

requesting Center is also required to bear the costs of dismantling and removing the item.

Federal Appropriations Guidance

Section 4-5 of General Accounting Office, "Principles of Federal Appropriations Law," states

that "an agency cannot do indirectly what it is not permitted to do directly." Additionally, Section

6-103 states:

As a general proposition, an agency may not augment its appropriation

from outside sources without specific statutory authority. The

prohibition against augmentation is a corollary of the separation of

powers doctrine. When Congress makes an appropriation, it is also

establishing an authorized program level. In other words, it is telling the

Agency that it cannot operate beyond the level that it can finance under

its appropriation. To permit an Agency to operate beyond this level

with funds derived from some other source without specific

congressional sanction would amount to a usurpation of the

congressional prerogative. Restated, the objective of the rule against

augmentation of appropriations is to prevent a Government agency from

undercutting the congressional power of the purse by circuitously

exceeding the amount Congress has appropriated for that activity.

External Tank Transfer to Kennedy in Exchange for Reimbursement

As part of the transfer agreement signed by the Kennedy and Stennis Center Directors, Stennis

agreed to release any and all interest in the external tank if Kennedy:

• Will direct its concessioner (Delaware North), through its Visitor Complex, to pay the

Stennis Exchange $500,000 to compensate Stennis for the potential loss of future revenue

to the Stennis Visitor Program due to the external tank transfer. A payment of $250,000

will be made when the external tank is delivered at Kennedy, with the remaining $250,000

paid before April 30, 1998.

• Will allow Stennis to review the list of artifacts and/or mock-ups not used by the Kennedy

Visitor Program for possible use at the Stennis Visitor Center.

• Will provide advice, through its Visitor Complex, to Stennis in terms of design concepts for

Stennis Visitor Center enhancements and/or construction.
4

• Agreed that Stennis will receive priority in obtaining another external tank for display in the

event another one becomes available for Visitor Center programs.

Stennis shipped the external tank to Kennedy in December 1996. In April 1997, Delaware

North made the first payment of $250,000 to the Stennis Exchange and made the second

payment in May 1998.

Payments to the Stennis Exchange for External Tank

Stennis transferred the external tank, an item of NASA equipment, to Kennedy in exchange for

reimbursement. NHB's 4200.1D and 4300.1 state that transfers of equipment or personal

property between NASA Centers are nonreimbursable, with the exception of shipping charges

paid by the requesting Center. The $500,000 paid to the

Stennis Exchange was derived from the Delaware North Exhibits Fund,8 held in trust by

Delaware North for improvements to the Visitor Complex as part of the concession agreement

with Kennedy. The Delaware North Exhibits Fund was established to provide for the

replacement, renovation, upgrade, and general improvement of existing Kennedy Visitor

Complex exhibits, displays, and major audio-visual equipment. The fund is not intended for

making payments for the "potential loss of future revenue" or for funding projects at other

NASA Centers.

At the time the agreement to transfer the tank was signed, Delaware North had budgeted to use

a portion of the Exhibits Fund to contract for the fabrication of a new external tank mock-up to

display at the Kennedy Visitor Complex. Evidence that the $500,000 payment was for

acquiring the external tank and was not related to a potential loss of future revenue is provided

in Kennedy's direction to Delaware North. In a letter dated April 21, 1997, the NASA

Contracting Officer directs Delaware North to make the first $250,000 payment to the Stennis

Exchange. The letter states that the payment is "for the external tank for the Shuttle Orbiter

Exhibit." In a May 12, 1998, memorandum to Delaware North, the Kennedy Director of

Procurement states that "Delaware North purchased the external tank from Stennis."

The transaction between Delaware North and Stennis appears to be payment from Delaware

North to a nonappropriated fund activity that would not require enabling statutory authority.

However, the substance of the transaction is a payment from Delaware North to construct an

 

8

 Delaware North's Concession Agreement with the Kennedy Space Center provides for the establishment of

three funds to be held in trust for Kennedy Visitor Complex improvements. The three funds and their

authorized uses are as follows:

Exhibits Fund - A trust account to provide, as directed by the Contracting Officer, for the

replacement, renovation, upgrade, and general improvement of existing Kennedy Visitor Complex

exhibits, displays, and major audio-visual equipment.

Facilities Fund - A trust account to provide, as directed by the Contracting Officer, for the

replacement, renovation, upgrade, and general improvement of existing Kennedy Visitor Complex

facilities, collateral equipment, and support infrastructure.

Transportation Fund - A trust account to provide, as directed by the Contracting Officer, for the

replacement, upgrade, and general improvement of existing Kennedy Visitor Complex vehicles and

transportation systems, and expansion of the base fleet.
5

addition to the Stennis Visitor Center, which is an activity requiring the use of funds

appropriated by Congress for this purpose. Correcting this transaction to ensure compliance

with applicable appropriations guidance can result in an Anti-Deficiency Act9 Violation. Such a

violation would occur to the extent that insufficient appropriated funds of the correct type and

fiscal year (FY) are available to obligate and disburse for construction of the Visitor Center

addition and for the acquisition of new exhibits.

The external tank transfer was clearly conditional upon the payment of funds from Delaware

North to the Stennis Exchange. Stennis officials involved in the transfer told us that the external

tank was the focal point of the outdoor exhibits at the Stennis Visitor Center and that the Center

would not have agreed to its transfer without compensation for its loss. Stennis officials also

stated that at the time of the transfer, appropriated funds were not available for a planned

expansion of the Stennis Visitor Center. This resulted in the bilateral agreement between the

Directors of Kennedy and Stennis to transfer the tank to Kennedy in return for the funds

necessary to construct an addition to the Visitor Center.

Stennis properly prepared the documentation required by NHB 4200.1D and NHB 4300.1 for

initiating a nonreimbursable transfer of the external tank to Kennedy. However, Stennis actually

effected a reimbursable transfer by requiring Kennedy to provide compensation of $500,000,

which was NASA’s original cost of the tank. Identifying the $500,000 payment as

compensation for potential loss of future revenue to the Stennis Visitor Program, as cited in the

transfer agreement between Kennedy and Stennis, does not make this transaction a

nonreimbursable transfer.

Basis for Potential Loss of Revenue

Stennis could provide no evidence for its position that the $500,000 payment was to

compensate for the potential loss of future revenue to the Stennis Visitor Program. Rather, the

amount paid for lost revenue ($500,000) was identical to the cost of the external tank reported

in NASA's Equipment Management System. Stennis receives no revenue from the public in

operating its Visitor Center. The general public is allowed to view all exhibits and participate in

activities without charge. Stennis management officials stated that the "potential loss of future

revenue" really meant an anticipated loss of revenue to the Stennis Exchange. The Stennis

Exchange operates a souvenir shop in the Visitor Center, and it was anticipated that the shop

would have reduced revenues as a result of transferring the external tank, one of the Visitor

Center's focal point exhibits. Stennis management officials told us that a significant decrease in

the number of visitors was projected because of the absence of the external tank. However,

Stennis could provide no support for the projected decrease. Our analysis of visitor statistics

and souvenir shop sales data showed that the projected decrease did not occur. In fact, there

was an increase in the number of visitors and a corresponding increase in revenues of the

Exchange’s souvenir shop as shown in the following table.

 

9

 The Anti-Deficiency Act (31 United States Code 1341, 1342, and 1517) provides that Federal employees

shall not authorize an obligation under any appropriation in excess of the amount available or for any

purpose in advance of authorization by law.
6

Stennis Visitor Center

Number of Visitors/Souvenir Shop Gross Sales

FY Number of Visitors Gross Sales

1990 (Stennis receives external tank) 116,646 $182,500

1991 114,202 $149,200

1992 113,726 $171,100

1993 111,931 $154,600

1994 103,031 $163,000

1995 102,982 $183,700

1996 (external tank transferred to Kennedy) 91,1851 $179,100

1997 109,6282 $212,200

1998 111,765 $187,900

1999 112,454 $189,800

1

 The Visitor Center auditorium was closed for a 4-month period for refurbishment. Bookings of school

groups were suspended during that time.

2

 The increase was attributed to new exhibits, special events, increased tourism, and heightened media

awareness of the Stennis Visitor Center through use of a Web site.

During FY's 1990 through 1996, the Stennis Visitor Center had an average annual attendance

of 107,672. From FY's 1997 through 1999, or after the external tank was transferred, average

attendance at the Stennis Visitor Center increased to 111,282. During this same period,

average annual gross sales at the Exchange's souvenir shop rose from $169,029 to $196,633.

Even if a programmatic decision had been made to transfer the external tank in furtherance of a

NASA program or mission, the Exchange would not be due any form of compensation for the

financial impact. NASA has authority to transfer exhibits, without consideration of Exchange

activities, to locations that best promote NASA’s programs and mission.10 As previously

stated, however, the transfer of the external tank does not change the substance of the

transaction that resulted in Delaware North funds being used for purposes that require the use of

appropriated funds.

 

10 NHB 4200.1D, "NASA Equipment Management Manual," states Government equipment is not owned by

the holder, and action will be taken, when it makes economic and programmatic sense, to move such

equipment from one use and user to another, including movement among offices, functions, programs,

contractors, and installations.
7

Addition to Visitor Center Constructed With Funds Received From Delaware North

The Stennis Exchange deposited the $500,000 payment from Delaware North into an interestbearing account with the Hancock Bank for the exclusive use of the Stennis Public Affairs

Office for making Visitor Center improvements. In June 1998, the Stennis Exchange awarded a

firm-fixed-price contract for $432,031 to D.N.P., Inc., to construct a 7,000 square foot

expansion to the Stennis Visitor Center, a facility that was originally constructed with

appropriated funds. The Stennis Exchange paid for this contract with funds from the Stennis

Exchange's account with Hancock Bank. At the direction of the Stennis Public Affairs Office,

the Stennis Exchange is also using funds, including accrued interest from the same account, to

acquire exhibits to be displayed in the expanded Visitor Center.

Although the Space Act allows NASA to use nonappropriated funds of concessioners for

construction and other activities, the Stennis Exchange is not a concessioner, but an

instrumentality of the Federal Government under NASA's control. Therefore, the Stennis

Exchange lacks the authority given concessioners to use nonappropriated funds for constructing

a Visitor Center expansion. Further, NASA Visitor Center exhibits and displays promoting the

mission and programs of NASA are also normally acquired with appropriated funds provided

for public affairs activities.11 It is the responsibility of NASA, not the Stennis Exchange, to

promote the Agency's programs and projects. By constructing the addition and acquiring

exhibits, the Stennis Exchange is involved in activities outside its authorized purpose. The

resulting facility construction and acquisition of exhibits occurred outside specific appropriation

authority and without congressional approval.

Unauthorized Augmentation of NASA's Budget

The Stennis Public Affairs Office use of nonappropriated funds to construct the Visitor Center

addition and to acquire new exhibits constitutes an unauthorized augmentation of NASA's

budget. The General Accounting Office Principles of Federal Appropriations Law states that an

agency cannot do indirectly what it is not authorized to do directly with appropriated funds and

that an agency may not augment its appropriation from outside sources without specific statutory

authority.

The Comptroller General of the United States referenced the prohibition against an agency

augmenting its appropriation in an opinion concerning an agency's use of interest earned on

appropriated funds. In an opinion dated February 24, 2000, to the Trustee, Court Services and

Offender Supervision Agency for the District of Columbia, the Comptroller General stated:

When an agency retains and spends funds received from outside

sources, it augments its appropriation to the extent that such amounts

result in agency spending in excess of the level established by the

appropriation act. An agency's authority to augment its appropriation

 

11 NASA Management Instruction 1387.1D, “NASA Exhibits Program,” December 19, 1990, states that

funding for the design, construction, and procurement of exhibits, exhibit materials, and exhibit

refurbishment will normally be borne by the proponent installation.
8

is no greater than its authority to spend funds in the absence of an

appropriation. Further, even when a law authorizes an officer or

employee to receive funds from outside sources, the authority to spend

the funds must be provided in law. The authority to spend may not be

inferred from the absence of an express prohibition to spend in the law

authorizing the collection.

Regarding the use of nonappropriated funds for construction and the acquisition of new exhibits,

Stennis did not have specific statutory authority to either receive the funds from Delaware North

or to use the funds for these purposes.

Conclusion

In our opinion, Stennis and Kennedy management pursued "creative financing" to further the

NASA mission. However, management lacked the statutory authority to do so. Accordingly,

management should ensure that (1) only appropriated funds are used for the facility construction

project and purchase of exhibits; (2) the $500,000 and accrued interest is repaid to Delaware

North; and (3) Delaware North redeposits the funds in the exhibits fund. In addition, Stennis

should ensure that sufficient appropriated funds of the correct appropriation and fiscal year are

available to fund construction activities.

Recommendations, Management's Response, and Evaluation of

Response

The Director, John C. Stennis Space Center, should:

1. Direct the Stennis Chief Financial Officer to take appropriate actions to

reimburse the Stennis Exchange from appropriated funds, an amount equal to all

nonappropriated funds obligated by the Stennis Exchange that were used to

augment NASA's appropriation by constructing the building addition to the Stennis

Visitor Center and to acquire new exhibits. The appropriated funds should be from

the fiscal year in which the obligations were incurred.

2. Upon receipt of the appropriated funds reimbursement, direct the Stennis

Exchange Council to refund the $500,000 payment received for the external tank

transfer and the accumulated interest to Delaware North.

3. The Director, John F. Kennedy Space Center, should direct the NASA Contracting

Officer for Kennedy's concession agreement with Delaware North to direct Delaware

North to redeposit the $500,000 and accumulated interest received from the Stennis

Exchange to the exhibits fund.

Management's Response. Nonconcur. Management stated that the OIG used a narrow

interpretation of the broad authority given to the Agency in the Space Act and that management

disputes the underlying premise of the report. Management stated that the transfer of the
9

external tank to Kennedy and the payment of nonappropriated funds to the Stennis Exchange

were two separate transactions that need to be examined. On the one hand, one NASA Center

transferred a Government-owned external tank to another, with title retained in the Government

at all times. Such transfers happen regularly between NASA Centers and, as long as the

transfer is properly documented, there should be no questions about its propriety. On the other

hand as a separate transaction, a NASA concessioner from one Center provided

nonappropriated funds for an addition to a Visitor Center at another NASA Center. It is clear

that the Space Act authorizes the use of nonappropriated funds from concessioners to do

exactly that.

The complete text of management's comments is in Appendix C.

Evaluation of Management's Response. Management's comments are not responsive to

the recommendations. We do not agree with management's position and believe it is based on

an overly broad and liberal interpretation of not only the Space Act, but also of Kennedy's

concession agreement with Delaware North. The Space Act does allow NASA to use

nonappropriated funds of concessioners to fund construction, maintenance, and operation of all

manner of facilities and equipment for visitors. However, the Stennis Visitor Center is not

operated under a concession agreement. The nonappropriated funds were deposited in the

Stennis Exchange account. The Stennis Exchange is not a concessioner, but rather an

instrumentality of the Federal Government under NASA's control, and its primary mission is to

operate activities contributing to the efficiency, welfare, and morale of NASA personnel. We

also take exception to management's rationale that Kennedy's current concession agreement

allows Delaware North funds to be used at other NASA Centers for constructing facilities. The

$500,000 paid to the Stennis Exchange was derived from Delaware North's "Exhibits Fund"

which, as defined in the concession agreement, is to provide, as directed by the Contracting

Officer, for the replacement, renovation, upgrade, and general improvement of existing Kennedy

Visitor Complex exhibits, displays, and major audio-visual equipment. There is no mention in

the concession agreement that these funds can be used to construct facilities at any NASA

Center other than Kennedy.

Management has no foundation for its comment that separate transactions effected the transfer

of the tank and the providing of nonappropriated funds from a concessioner at one Center for

the construction of an addition at another Center. Although Centers routinely transfer property,

such transfers do not normally occur under the auspices of a formal written agreement signed by

not only the Center Directors, but also senior NASA officials on the Directors' respective staffs.

Further, the agreement clearly states that in return for transferring the external tank to Kennedy,

the Kennedy concessioner would pay the NASA Exchange at Stennis $500,000, payable in an

amount of $250,000 when the tank is
10

delivered to Kennedy and another $250,000 by April 30, 1998. The agreement as worded,

clearly indicates that the payment of $500,000 to the Stennis Exchange was dependent on

delivery of the external tank.

We are requesting that management reconsider its position and provide additional comments on

each of the recommendations. The recommendations are unresolved and will remain

undispositioned and open for reporting purposes. Our additional comments on management's

response are in Appendix D.
11

Appendix A. Objectives, Scope, and Methodology

Objectives

The overall objective of the audit was to evaluate the propriety and use of funds paid to the

NASA Exchange at Stennis in relation to the transfer of an external tank to the Kennedy Visitor

Complex. The specific objective was to determine whether the payments were appropriate and

reasonable and were used for authorized purposes.

Scope and Methodology

To accomplish our objectives, we:

• Obtained an overall understanding of the February 27, 1997, bilateral agreement between

the Kennedy and Stennis Center Directors regarding the transfer of the external tank.

• Reviewed the payments made by Delaware North to the Stennis Exchange and the

subsequent use of the funds.

• Reviewed NASA’s policies and procedures for (1) equipment transfers between Centers,

(2) activities of NASA Exchanges, and (3) management of the NASA Exhibits Program.

• Reviewed the Kennedy Visitor Complex's Concession Agreement with Delaware North

and the agreement's relationship to the external tank transfer in order to identify the

responsibilities and requirements of the Kennedy Concessioner.

• Reviewed the National Aeronautics and Space Act of 1958 to determine NASA’s authority

to (1) use a concessioner to operate a NASA Visitor Complex, (2) establish a NASA

Exchange, and (3) accept cash donations from outside sources.

• Reviewed the General Accounting Office "Principles of Federal Appropriations Law" to

identify policies and procedures related to the augmentation of appropriations.

• Reviewed Stennis Exchange files and documents relative to the receipt and use of funds

obtained from Delaware North.

• Interviewed personnel at Kennedy, Stennis, and NASA Headquarters regarding the

external tank transfer and associated payments, including the basis for the amount of funds

received.
12

Appendix A

• Interviewed Delaware North personnel to obtain information regarding payments made to

the Stennis Exchange and to understand processes used to carry out contractual

responsibilities.

• Reviewed the Stennis Exchange construction contract with D.N.P., Inc.

Management Controls Reviewed

We reviewed management controls relative to (1) transferring personal property or equipment,

(2) nonappropriated fund activities including NASA exchanges, and (3) uses of appropriated

and nonappropriated funds. As discussed in the finding, sufficient management controls are in

place governing the transfer of personal property or equipment and the proper use of

appropriated and nonappropriated funds. However, as described in the finding section of this

report, the two Centers did not follow these controls.

Audit Field Work

We conducted field work from October 1999 through March 2000 at NASA Headquarters,

Stennis, and Kennedy. We performed the audit in accordance with generally accepted

government auditing standards.
13

Appendix B. Agreement Terms
14

Appendix B
15

Appendix B
16

 Appendix B
17

Appendix C. Management's Response
18

Appendix C

See Appendix D,

OIG Comment 1

See Appendix D,

OIG Comment 2
19

Appendix C
20

Appendix C

See Appendix D,

OIG Comment 3

See Appendix D,

OIG Comment 4
21

Appendix C
22

Appendix C

See Appendix D,

OIG Comment 7

See Appendix D,

OIG Comment 5

See Appendix D,

OIG Comment 6
23

Appendix C

See Appendix D,

OIG Comment 8

See Appendix D,

OIG Comment 9
24

Appendix C

See Appendix D, OIG

Comment 10

See Appendix D,

OIG Comment 11

See Appendix D,

OIG Comment 12

See Appendix D,

OIG Comment 13

See Appendix D,

OIG Comment 14

See Appendix D,

OIG Comment 15
25

Appendix C

See Appendix D, OIG

Comment 16

See Appendix D,

OIG Comment 17

See Appendix D,

OIG Comment 18
26

Appendix C
27

Appendix C

See Appendix D,

OIG Comment 7
28

Appendix C
29

Appendix C
30

Appendix C
31

Appendix C
32

Appendix C
33

Appendix C
34

Appendix C
35

Appendix C
36

Appendix C
37

Appendix C
38

Appendix D. OIG Comments on Management's Response

NASA management provided the following comments in response to our draft report. Our

responses to the comments are also provided.

Management’s Comment. The OIG takes a narrow interpretation of the broad authority

given to NASA in the NASA Space Act. The foundation of the OIG’s position is that the

construction of an addition to the Stennis Visitor Center “is an activity requiring the use of funds

appropriated by Congress for this purpose.”

1. OIG Comments. Management’s statement regarding the foundation of our position is a

misrepresentation of the facts. We take exception to the funding arrangement and accounting

method the two Centers used to execute the transfer of funds to Stennis and to fund Visitor

Center improvements at Stennis, which resulted in an unauthorized augmentation of

appropriated funds.

The funding arrangement between Kennedy and Stennis is inappropriate for the following

reasons:

• The Kennedy Visitor Complex Concessioner paid the Stennis Exchange in return for

NASA property. The concession agreement with Delaware North states that the

Government will make available excess property from Kennedy and other NASA Centers

for the operation of the Public Visitor Program. Delaware North paid the Stennis Exchange

from its exhibits fund, which shows the payment was for an exhibit as opposed to providing

funds for the Stennis Visitor Center expansion. In fact, Kennedy procurement officials

directed Delaware North to make payments to the Stennis Exchange for the external tank,

and Delaware North reported the tank to NASA as contractor-acquired property as

opposed to Government-furnished property. Funds for the construction of visitor facilities

would be properly paid from another Delaware North account established for that purpose.

Furthermore, transfers of property between NASA Centers are to be nonreimbursable.

• Concessioner funds are by the concession agreement for the purpose of the Kennedy Public

Visitor Program and are not for use at other NASA Centers. The Delaware North

agreement makes it clear that funds generated from the Kennedy Public Visitor Program

and the Kennedy Visitor Complex are for use at Kennedy.
39

Appendix D

The accounting of the funds at Stennis is inappropriate for the following reasons:

• Even if reimbursement for the external tank were appropriate, disposition of funds collected

from Delaware North for the external tank was improper. The concessioner funds were

improperly paid to the Stennis Exchange for Stennis’ use, as opposed to being paid directly

to Stennis for deposit into a U.S. Treasury or NASA account. Normally, funds received

for the sale of property are to be deposited to the General Fund Proprietary Receipts

account and are not available for use by NASA. However, if the funds collected will be

used to replace an item (which was not the case with the external tank), then proper

disposition would be to reimburse the procuring appropriation. In the case of a

reimbursable transfer of property, funds collected would be a reimbursement to the

appropriation that bore the cost of procuring the item transferred. In the external tank

transaction, Stennis did not collect the funds into the General Fund Proprietary Receipts

account nor did Stennis credit the proper appropriation. Regardless of the fact that the

funds were nonappropriated concessioner revenues, it was improper to use the Stennis

Exchange, also a nonappropriated activity, as a mechanism to account for and use the

funds, at Stennis’ direction, for projects outside the scope of the Exchange’s authority. The

Stennis Exchange is not a concessioner and, therefore, lacks the authority provided to

concessioners by the Space Act. It is inappropriate for NASA to use the Exchange as a

substitute for a concessioner in accomplishing the visitor program at Stennis. If Stennis

lacked the authority and means to deposit the funds into NASA’s account and to exercise

direct control over use of the funds, then it also lacked authority to indirectly account for

and use the funds to accomplish its mission through the Stennis Exchange.

• Interest on deposits into NASA’s account, had funds been properly accounted for, would

not have accrued. Therefore, interest earned on the concessioner funds in the Exchange

account would not be allowable for use by Stennis. If Stennis had the authority to use

Kennedy concessioner funds for its Visitor Center expansion and exhibits, the proper

accounting practice would be to deposit the funds directly into NASA’s account. Direct

deposit to NASA would result in no accrued interest being earned; thus, Stennis’ use of

interest accrued indirectly through use of the Exchange account would result in an

augmentation as NASA cannot do indirectly what it is not authorized to do directly.

Management’s Comment. There is no question that the transfer and use of the concession

revenues should have been better documented.

2. OIG Comments. Management’s acknowledgement that the transfer of the external tank

and use of the concession revenues were inadequately documented does not address the Letter

Agreement between Kennedy and Stennis and other supporting evidence, which clearly show

management’s intent to enter into a reimbursable transaction. Stennis
40

Appendix D

effected a reimbursable transfer of property by requiring receipt of funds in exchange for the

external tank. We are not questioning the lack of documentation for this transaction; we are

questioning the propriety of the transaction itself.

Management’s Comment. While the OIG draft report refers to the existence of this

“concessioner” language (Space Act, as amended) in several places in the report, the OIG fails

to fully appreciate its significance. Under this statutory authority, nonappropriated revenues

from a NASA concession agreement were properly used to construct an addition to the Visitor

Center at Stennis.

3. OIG Comments. Again, management does not recognize that our conclusions are not

based solely on the language in the Space Act that gives NASA authority to use concessioner

revenues to construct visitor facilities. As stated previously, we take no exception to the

position that NASA has specific statutory authority to use nonappropriated funds from

concessioners to construct and improve facilities for visitors. We do take exception to the

means by which Kennedy and Stennis accomplished the end result, which was to exchange the

external tank at Stennis for funds to expand and improve a visitor facility. Our position is as

follows:

• Stennis violated established policy and procedure for transferring property. In accordance

with NASA Handbook (NHB) 4200.1D and NHB 4300.1, property transfers between

NASA Centers are to be on a nonreimbursable basis. Stennis transferred the external tank

to the Kennedy Visitor Complex only after Kennedy agreed to have its concessioner pay

$500,000 to the Stennis Exchange, as evidenced in the Letter Agreement between

Kennedy and Stennis, and other documentation and interviews. The transmittal letter from

the Stennis Legal Office to the Kennedy Legal Office states “you have advised that as soon

as the tank is at Kennedy, the Kennedy concessionaire will make the first payment to the

NASA Exchange – Stennis Branch.”

• Kennedy misused its concessioner by directing it to pay for the external tank from

concessioner-generated revenues. The concession agreement states that the Government

will make available excess property from Kennedy and other NASA Centers for the

operation of the Public Visitor Program. Also, the Kennedy concession agreement clearly

states that revenues generated from the Kennedy Public Visitor Program and Visitor

Complex are for use at Kennedy.

• Stennis violated established accounting procedure for the disposition of funds collected for

the sale of property or for a reimbursable transfer of property and in so doing, misused the

Stennis Exchange as a mechanism to indirectly account for and use the funds for Stennis.

As stated previously, the Stennis Exchange is not a concessioner and should not have been

used as a substitute concessioner to indirectly accomplish what should have been done

directly through the NASA accounts.
41

Appendix D

• The Letter Agreement misrepresented that the $500,000 is to “compensate Stennis for the

potential loss of future revenue to the Stennis Visitor Program due to transfer of this major

exhibit.” As shown in this report, Stennis never generated any revenue from its Visitor

Program, and Stennis officials informed us that the anticipated loss of revenue was actually

to the Stennis Exchange. Nevertheless, the fact that the Letter Agreement specifies that the

funds were for potential losses of revenue and not for construction of facilities further shows

that Kennedy and Stennis officials were not forthright in identifying how the funds were to

be used.

If Stennis had authority to receive the funds for the external tank from the Kennedy

concessioner and to use the funds for improving its visitor facilities, we question why significant

efforts were made to complete this transaction indirectly through the Stennis Exchange.

Management’s Comment. Nonappropriated funds from Kennedy have been used, at least

once before, in 1984 to construct the first major modification to the Visitor Center at Stennis.

4. OIG Comments. We believe comparing the recent facility expansion and improvement to

the 1984 modification is irrelevant. Juxtaposition and comparison of events relative to the 1984

modification and the current expansion show the following key differences:

• The previous concession agreement contained specific language not included in the current

concession agreement with Delaware North that allowed concessioner funds to be used to

support the visitor program at Kennedy and other NASA Centers.

• Appropriate NASA Headquarters approval was obtained prior to the transfer of funds from

the Kennedy concessioner in 1983, which was not the case for the transfer of funds from

Delaware North. The Letter Agreement between Kennedy and Stennis did not receive

Headquarters approval and neither did subsequent payments of funds. The Stennis Center

Director at the time of the 1984 modification made it clear in his recollection of events that

the 1983 fund transfer and 1984 modification to the Stennis Visitor Center was a concerted

effort on the part of Kennedy, Stennis, and NASA Headquarters throughout the entire

process.

• There is no mention of using the Stennis Exchange as a means of collecting, accounting for,

and using the funds at the direction of Stennis for the 1984 modification, as is the case with

the funds received from Delaware North. The then Stennis Center Director further stated

that the Assistant to the NASA Comptroller at that time objected to using nonappropriated

Exchange funds from the Johnson Space Center.
42

Appendix D

• Unlike the transfer of funds for the recent Stennis Visitor Center expansion and exhibits in

which Kennedy received an external tank display in return, the 1983 transfer of funds from

the Kennedy concessioner was unconditional. Kennedy received nothing in return for the

funds paid to Stennis.

Management’s Comment. Under Kennedy's current concession agreement, Delaware North

can be directed to send concession revenues to other NASA Centers (as was the case under

prior concession agreements with other concessioners).

5. OIG Comments. The Delaware North concession agreement has no language that

authorizes payments to other NASA Centers for Visitor Center enhancements. Also,

management refers to an article from the previous concession agreement that specifically relates

to the “Service Improvement Account.” Management's use of the “Service Improvement

Account” article from the previous concession agreement is not germane because the

questionable payments to Stennis from Delaware North were paid from the Exhibits Fund and

were for the external tank.

Management’s Comment. In this case, nonappropriated concession revenues were sent to

Stennis at the direction of Kennedy management for the specific purpose of funding the

improvement of NASA facilities in concert with the legislative intent expressed in the Space Act.

6. OIG Comments. Contemporaneous events and justifications belie management’s

comment. Concessioner funds paid to Stennis were payment for the external tank and did not

constitute a simple transfer of funds for visitor program improvements.

Management’s Comment. Footnote 6 of management’s response states:

Since the Visitor Center reopened in May of 2000, an Exchange

concessioner operates the new restaurant, the Rocketeria, and another

Exchange concessioner operates the new motion simulator ride at the

Visitor Center. As the OIG report acknowledges, the Exchange has also

operated a gift/souvenir shop since April of 1981. Stennis management

believes it has the authority under section (c) (11) of the Space Act to

use nonappropriated Exchange revenues generated by these

concession operations to construct and improve facilities for visitors at

Stennis, consistent with the policy stated in NASA Policy Directive

(NPD) 9050.6E that Exchange funds are to be used to contribute to the

efficiency, morale and welfare of NASA employees. It should not be

difficult to justify such Exchange expenses to the extent that such

construction and/or improvements enhance the income-generating

capacity of Exchange operations at facilities for visitors that are

constructed and/or improved.
43

Appendix D

7. OIG Comments. We take exception to management’s broad and unprecedented

interpretation of the Space Act in concluding that Exchange funds generated either from direct

Exchange operations or from Exchange concessioners can be used to construct or improve

visitor facilities. Section (c) (3) of the Space Act authorizes the Exchange “to provide...for

cafeterias and other necessary facilities for the welfare of employees of the Administration.”

The Space Act allows NASA to provide facilities primarily for the welfare of its employees, but

does not authorize the support of NASA programs with nonappropriated Exchange funds.

NPD 9050.6E lists functions the Exchanges may perform, including:

Conduct other activities authorized by the Center Director with the prior

concurrence of the Center Chief Counsel and the Center Public Affairs

Officer, when activities involve the public and are clearly in NASA’s

and its employees’ interests.

While this NPD language may appear to give the Exchange authority to provide for a facility

designed to serve the public, that would be too expansive an interpretation. The statutory

authority is to provide for the welfare of NASA employees. Furthermore, the NPD language

itself requires that activities involving the public must be “clearly in NASA’s and its employees’

interests.” Regarding the Visitor Center addition and improvements addressed in this report,

the Exchange provided the funding for a facility primarily for the benefit of the public, with only

an incidental benefit to NASA employees.

Management disregards other key elements of the Space Act in its conclusion that Exchange

concessioners fall within the authorities granted in section (c) (11). This section authorizes

NASA to provide by concession “...the construction, maintenance, and operation of all manner

of facilities and equipment for visitors to the several installations of the Administration and, in

connection therewith, to provide services incident to the dissemination of information concerning

its activities to such visitors....” The primary purpose of the Stennis Exchange souvenir shop

and Exchange concessioners at the Visitor Center is to produce revenues for the Exchange and

is not to disseminate information concerning NASA activities to visitors. Therefore, revenues

generated to the Exchange by these activities are subject to legislative limitations of section (c)

(3) of the Space Act, which authorizes Exchange activities. It is also evident that the Space Act

authorizes NASA to directly enter into Visitor Center concession agreements and not indirectly

through the NASA Exchange.

Using the rationale that the Exchange can expend funds on facility construction and

improvements to enhance the income-generating capacity of Exchange operations, management

could inappropriately justify the use of Exchange funds for any project in which the Exchange

indirectly benefits.
44

Appendix D

Management’s Comment. Broad language in the new concession agreement still provides a

vehicle for transferring nonappropriated concession revenues from Kennedy to fund

improvements to facilities for visitors at other NASA installations.

8. OIG Comments. A reading of the entire concession agreement shows that the

concessioner’s undertakings are for the benefit of the Kennedy Public Visitor Program (PVP).

Article 1, section C, paragraph 1, identifies PVP as follows:

The Government hereby bargains, sells and conveys to the

Concessioner, under the terms and conditions stated in this Agreement,

a preferential right, not an exclusive or monopolistic right, and grants

necessary access, to conduct the revenue-producing activities

described in this Agreement associated with the Kennedy Public Visitor

Program (PVP) and Spaceport USA.” [Spaceport USA was later

renamed Kennedy Space Center Visitor Complex.]

The above language specifically identifies PVP as being the Kennedy Public Visitor Program

and not the overall NASA public visitor program as described by management's comments.

Once the acronym PVP was established, it was used throughout the agreement to identify the

Kennedy Public Visitor Program. We maintain our position that the concession agreement does

not authorize payments for visitor program improvements at other NASA Centers.

Management’s Comment. The Stennis Center Director planned to transfer the external tank

regardless of any “potential loss of future revenue” and without any requirement for

compensation; it was clear to him that this was the right thing for NASA to do.

9. OIG Comments. To discern the intent of the parties, we give more credence to the

documentation created at the time the transaction took place than to a memorandum created in

July 2000, more than 3 years later. When establishing the Letter Agreement and executing its

terms, it is evident that other management officials involved in transferring the external tank to

Kennedy were not as clear as the Stennis Center Director who understood the right thing for

NASA to do was not require any compensation for the tank. The Stennis Center Director’s

July 2000 understanding that compensation should not have been made for the tank is correct

and is also the our position. Nevertheless, the Stennis Center Director signed the agreement

that specifically requires compensation once the external tank is delivered to Kennedy, and thus

effected an improper reimbursable transfer of property that ultimately resulted in an unauthorized

augmentation of funds.

Management’s Comment. There were really two separate transactions that need to be

examined. On the one hand, one NASA Center transferred a Government-owned external

tank to another, with title retained in the Government at all times. On the other hand, as a

separate transaction, a NASA concessioner from one Center provided nonappropriated
45

Appendix D

funds for an addition to a Visitor Center at another NASA Center. It is clear that the Space

Act authorizes the use of nonappropriated funds from concessioners to do exactly that.

10. OIG Comments. In actuality, consideration to Stennis in exchange for the external tank

was the issue, as it is so clearly stated in the Letter Agreement and other supporting evidence.

The Letter Agreement and evidence gathered during the audit clearly show the two transactions

are interrelated in that the external tank transfer and payment of concessioner funds were

dependent on each other. In reality, this is one transaction – transfer of the external tank for

cash. Therefore, our position remains that Kennedy and Stennis effected a reimbursable

transfer of property.

Management’s Comment. The attorneys who drafted the letter agreement were not privy to

the original conversation between the two NASA Center Directors.

11. OIG Comments. This assertion is irrelevant. The attorneys who drafted the Letter

Agreement must have known at least some of the details discussed by the NASA Center

Directors, otherwise those officials would not have known an agreement was needed. In a July

18, 2000, memorandum, Subject: “External Tank Transaction,” the Stennis Center Director

states “...I informed my Chief Counsel, . . ., about these discussions. I asked him to follow up

with Kennedy officials and work out the details.” Moreover, the Stennis Center Director's

February 27, 1997, letter to the Kennedy Center Director incorporating the Letter Agreement

states “This letter agreement captures the essence of conversations we, members of our staffs,

and Marshall Space Flight Center (MSFC) employees have had regarding the Space Shuttle

External Fuel Tank (external tank) that has been displayed at the Visitors Center at Stennis

Space Center.” (emphasis added)

Management’s Comment. The external tank actually left Stennis and began its journey to

Kennedy in late 1996, before the letter agreement was drafted.

12. OIG Comments. We specifically asked the Stennis Chief Counsel why the Letter

Agreement was dated after actual shipment of the external tank from Stennis in December

1996. The Stennis Chief Counsel responded in writing as follows:

Prior to December 1996, detailed discussions and negotiations were

ongoing as to how this transaction would be recorded. Based upon the

fact that Kennedy faced an impending deadline for the opening of the

new exhibit, it was determined that Stennis would allow the external tank

to be shipped to Michoud Assembly Facility in December 1996 before

the agreement was fully executed. The parties recognized that in

addition to the time involved in actually moving the external tank to

Kennedy, there was substantial work to be performed on the tank prior

to its installation at the Kennedy display. Since negotiations on the

terms of the agreement were essentially complete by December 9th and

the agreement was in the review and concurrence cycle at the two
46

Appendix D

NASA Centers, it was determined that it would be appropriate to release

the external tank prior to the final execution of the written agreement.

After actual shipment, no particular urgency required formal agreement

signature, which occurred in February 1997.

As evidenced by the above statement, the fact that the tank left Stennis prior to a signed

agreement is no indication that Stennis would have transferred the tank without an agreement

specifying terms of compensation from the Kennedy concessioner. Indeed, according to the

Stennis Chief Counsel's written response, the terms had already been agreed to. Only the

formalities remained to be accomplished.

Management’s Comment. In retrospect, the justification for the transfer of the concession

revenues to Stennis should have simply (and more accurately) stated that Kennedy would direct

the transfer of the concession funds under the authority of section (c) (11) of the Space Act in

order for Stennis to modify and improve its Visitor Center.

13. OIG Comments. In retrospect, the Chief Counsels at either Kennedy or Stennis should

have rendered a legal opinion, considering all factors and parties involved, on the plans to

transfer and use concessioner funds paid to the Stennis Exchange prior to carrying out the

transaction. We maintain our position that concessioner funds were improperly paid to the

Stennis Exchange in return for the external tank display and that the Exchange acted outside its

designated authority in accounting for and using the funds at Stennis.

Management’s Comment. It is not reasonable for the OIG to attempt to characterize the

transfer of the external tank as a sale. First, there was no change of ownership of the external

tank. Second, Stennis transferred the external tank to Kennedy, not Delaware North, despite

the statement on page 2 of the audit report that “Stennis and Delaware North completed the

transfer of the external tank....” Finally, Delaware North had neither the power nor authority to

“pay” Stennis for the external tank. Kennedy management, under the terms of its concession

agreement, directed Delaware North to send the concession funds to Stennis.

14. OIG Comments. We did not characterize the tank as a sale, but as evidenced in the

Letter Agreement, NASA officials made it clear from the transaction’s inception that funds in

the amount of $500,000 were to be transferred in exchange for the external tank. Our position

is that, although Kennedy and Stennis documented a nonreimbursable transfer of property, the

two Centers actually entered into an improper reimbursable agreement whereby Stennis

required consideration in the form of Kennedy concessioner revenues for the external tank.

While the property transfer arrangement worked out between the two Centers did not result in a

change in property ownership, it was not a nonreimbursable transfer.
47

Appendix D

Management is correct in its statement that Stennis transferred the external tank to Kennedy,

not Delaware North. The audit report clearly states on page 5 that Stennis transferred the tank

to Kennedy. Specifically:

Stennis properly prepared the documentation required by NHB 4200.1D

and NHB 4300.1 for initiating a nonreimbursable transfer of the external

tank to Kennedy. However, Stennis actually effected a reimbursable

transfer by requiring Kennedy to provide compensation of $500,000,

which was NASA’s original cost of the tank.

We agree with management’s statement that Delaware North had neither the power nor

authority to “pay” Stennis for the external tank, but not for the same reasons management

provides. We also take the position that the concession agreement with Delaware North does

not contain language that authorizes concessioner revenues to be used at other NASA Centers

and, as a result, Kennedy management is not authorized to direct these payments to Stennis.

Management’s Comment. As evidence of its contention that the tank was sold, the OIG

audit report also cites letters from two Kennedy officials who either characterize the transfer as

a purchase by Delaware North or refer to “payment” for the external tank. The transfer should

have been better documented, and it may well have been mischaracterized by various NASA

officials, but the fact remains that when one NASA Center transfers a piece of Governmentowned property to another NASA Center, it is not a sale.

15. OIG Comments. Our position is that Kennedy officials did not mischaracterize the

transfer, but acted in accordance with the Letter Agreement in their direction to Delaware North

to make payments to the Stennis Exchange for the external tank. The Letter Agreement

expresses the intent to transfer the tank in exchange for the payment of $500,000 of

concessioner revenues to the Stennis Exchange. While we agree with management that the

transfer did not result in a sale of property, we continue to disagree that it represented a proper

nonreimbursable transfer as management portrays.

Management’s Comment. The concession revenues from Kennedy were not transformed

into something different by virtue of being deposited, for bookkeeping purposes, into an

interest-bearing account for nonappropriated funds in the name of the Stennis branch of the

NASA Exchange. It is contradictory for the OIG to assert that, for the purposes of modifying

the Stennis Visitor Center, the funds from the Exchange account were Exchange funds and not

concessioner funds, but for the purpose of devising a remedy for a perceived fiscal law

violation, the same funds must be returned to its concessioner source. Although, there is, at

times, some overlap between the authorized purposes to which nonappropriated Exchange

funds and nonappropriated concession funds can be used, in this case, the segregated funds

from each source (and the interest accruing thereto) were accounted for separately in order to

preserve their character and maintain a distinction in terms of the separate purpose and source

of each.
48

Appendix D

The Stennis branch of the NASA Exchange was merely used as a banking repository for the

funds from the Kennedy concessioner. The Exchange account was used as a matter of

administrative convenience to achieve the joint Kennedy/Stennis purpose of constructing an

addition to the Stennis Visitor Center. Stennis was not yet ready to contract for the new

addition at the time the nonappropriated funds from Delaware North arrived at Stennis. The

only account for nonappropriated funds that was available to hold the concession revenues from

Kennedy was that of the Stennis branch of the NASA Exchange.

16. OIG Comments. If Stennis lacked the authority and means to deposit the funds into

NASA’s account and to exercise direct control over use of the funds, then it also lacked

authority to indirectly account for and use the funds to accomplish its mission through the Stennis

Exchange. Regardless of the fact that funds were nonappropriated concessioner revenues, it

was improper to use the Stennis Exchange, also a nonappropriated activity, as a convenient

mechanism to account for and use the funds at Stennis’ direction for projects outside the scope

of the Exchange’s authority. The Stennis Exchange is not a concessioner.

Our assertion that funds from the Exchange account were Exchange funds and not concessioner

funds is derived from language in the Letter Agreement and from oral and written testimony of

the Chief Counsel and the Exchange Operations Manager at Stennis. The Letter Agreement

states “Kennedy will direct its concessioner...to make payment to the NASA Exchange –

Stennis Branch the sum of $500,000 to compensate Stennis for the potential loss of future

revenue to Stennis’ Visitor Program....” In our entrance conference with Stennis officials, the

Stennis Chief Counsel and the Stennis Exchange Operations Manager who is also Special

Assistant to the Stennis Center Director, informed us that funds received from Delaware North

were for future potential loss of revenue to the Stennis Exchange Souvenir Shop located at the

Stennis Visitor Center. These officials stated that the external tank was its largest exhibit, and

because of its loss to Kennedy, the number of visitors would be significantly reduced and would

result in lower sales revenues at the souvenir shop. Finally, the Stennis Chief Counsel wrote “It

was noted that the transfer of any funds would serve as a means of compensating the Stennis

Space Center (and its Exchange) for the anticipated loss of Visitor Center traffic

and revenue....” Because the Stennis Visitor Program received no revenues from visitors, it

would be logical that any revenue reimbursements would be to the Stennis Exchange and would

thus become subject to the usage authority provided the Exchange by the Space Act.

Management’s Comment. Stennis submitted a NASA Facility Project-Brief Project

Document (Form 1509) to Headquarters early in May 1998 as part of NASA’s internal

authorization process. The project was properly approved at Headquarters several weeks

before the construction contract was executed. The Form 1509 correctly identifies
49

Appendix D

nonappropriated funds from the NASA Exchange as the funding source, but in retrospect, a

more insightful disclosure should have stated that “nonappropriated concession revenues from

Kennedy” were being used by Stennis.

17. OIG Comments. The OIG agrees with management that the Form 1509 was insufficiently

documented to provide detailed information necessary for approving officials to make a fully

informed decision regarding the Visitor Center addition. Again, we are not primarily concerned

about insufficient documentation. We question the propriety of the transaction itself.

Management’s Comment. According to the OIG position, in the absence of a concession

agreement at a particular installation, appropriated funds must be used to fund the construction

of NASA facilities for visitors at that installation. The basis for the OIG’s position is not clear in

the OIG audit report, it is contrary to previous NASA policy and practice, and it is not

grounded on any justifiable legal foundation.

18. OIG Comments. The basis for our position is clear in the report. Throughout the report,

we take no exception to NASA’s authority to use concessioner funds for visitor facilities, but

instead identify as inappropriate the mechanism used to accomplish the Visitor Center expansion

and improvements at Stennis. Our position was not conjecture. Rather, we reached our

conclusions after considering all the in-depth criteria and evidence regarding the transfer of the

external tank, payment of concessioner funds to the Stennis Exchange, and accounting and use

of concessioner funds paid the Exchange. Our conclusions and recommendations remain

unchanged.
50

Appendix E. Report Distribution

National Aeronautics and Space Administration (NASA) Headquarters

A/Administrator

AI/Associate Deputy Administrator

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Associate Administrator for Procurement

J/Associate Administrator for Management Systems

JM/Acting Director, Management Assessment Division

L/Associate Administrator for Legislative Affairs

M/Associate Administrator for Space Flight

P/Associate Administrator for Public Affairs

Z/Associate Administrator for Policy and Plans

NASA Centers

Director, Ames Research Center

Director, Dryden Flight Research Center

Director, John H. Glenn Research Center at Lewis Field

Director, Goddard Space Flight Center

Director, Jet Propulsion Laboratory

Director, Lyndon B. Johnson Space Center

Director, Langley Research Center

Director, George C. Marshall Space Flight Center

 Chief Counsel, Kennedy Space Center

Non-NASA Federal Organizations and Individuals

Assistant to the President for Science and Technology Policy

Deputy Associate Director, Energy and Science Division, Office of Management and Budget

Branch Chief, Science and Space Programs Branch, Energy and Science Division, Office of

Management and Budget

Associate Director, National Security and International Affairs Division, Defense Acquisition

Issues, General Accounting Office

Professional Assistant, Senate Subcommittee on Science, Technology, and Space
51

Appendix E

Chairman and Ranking Minority Member - Congressional Committees and

Subcommittees

Senate Committee on Appropriations

Senate Subcommittee on VA, HUD, and Independent Agencies

Senate Committee on Commerce, Science, and Transportation

Senate Subcommittee on Science, Technology, and Space

Senate Committee on Governmental Affairs

House Committee on Appropriations

House Subcommittee on VA, HUD, and Independent Agencies

House Committee on Government Reform

House Subcommittee on Government Management, Information, and Technology

House Subcommittee on National Security, Veterans Affairs, and International Relations

House Committee on Science

House Subcommittee on Space and Aeronautics

Congressional Member

Honorable Pete Sessions, U.S. House of Representatives
NASA Assistant Inspector General for Auditing

Reader Survey

The NASA Office of Inspector General has a continuing interest in improving the usefulness of

our reports. We wish to make our reports responsive to our customers’ interests, consistent

with our statutory responsibility. Could you help us by completing our reader survey? For your

convenience, the questionnaire can be completed electronically through our homepage at

http://www.hq.nasa.gov/office/oig/hq/audits.html or can be mailed to the Assistant Inspector

General for Auditing; NASA Headquarters, Code W, Washington, DC 20546-0001.

Report Title: Transfer of External Tank Display to Kennedy Space Center Visitor

Complex

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Thank you for your cooperation in completing this survey.
Major Contributors to the Report

Kevin J. Carson, Program Director, Safety and Technology Audits

Oscar E. Lindley, Auditor-in-Charge

Robert A. Ameiss, Auditor

Elizabeth M. Richardson, Associate Attorney-Advisor

Iris Purcarey, Program Assistant

Nancy C. Cipolla, Report Process Manager