JUNE 22, 2012

AUDIT REPORT

REPORT NO. IG-12-016 (ASSIGNMENT NO. A-12-003-00)

OFFICE OF AUDITS

AUDIT OF NASA GRANTS AWARDED TO THE ALABAMA 

SPACE SCIENCE EXHIBIT COMMISSION’S U.S. SPACE 

AND ROCKET CENTER

OFFICE OF INSPECTOR GENERAL

National Aeronautics and 

Space Administration

 
REPORT NO. IG-12-016 

Final report released by:

Paul K. Martin

Inspector General

Acronyms 

C.F.R Code of Federal Regulations

FY Fiscal Year

GIC Grant Information Circular

NPD NASA Policy Directive

NPR NASA Procedural Requirements

OIG Office of Inspector General

OMB Office of Management and Budget

PMS Payment Management System

U.S.C. United States Code 
JUNE 22, 2012

REPORT NO. IG-12-016 

OVERVIEW

AUDIT OF NASA GRANTS AWARDED TO THE 

ALABAMA SPACE SCIENCE EXHIBIT COMMISSION’S 

U.S. SPACE AND ROCKET CENTER

The Issue

In September 2011, the NASA Office of Inspector General (OIG) reported that NASA 

did not have an adequate system of controls in place to ensure proper administration and 

management of its grant program and that as a result some grant funds were not being 

used for their intended purposes.1

 Moreover, NASA itself has identified and reported in 

one of its 2009 Procurement Management Review reports weaknesses in its grant 

administration process. Among the Agency’s findings was that NASA had used grants 

and cooperative agreements rather than contracts to obtain office space for the use of 

NASA civil service personnel at the Alabama Space Science Exhibit Commission’s U.S. 

Space and Rocket Center (Rocket Center) in Huntsville, Alabama.2

The Rocket Center, established with the support of the State of Alabama, tells the story of 

space exploration and provides science-based displays and computer learning facilities 

for visitors, teachers, and students. The Rocket Center is the official visitor information 

center for NASA’s Marshall Space Flight Center (Marshall) and houses Marshall’s

Education Training Facility. It is also the site of SPACE CAMP®, a program founded in 

1982 to promote the study of math, science, and technology using classroom instruction

and hands-on activities to teach teamwork, decision-making, and leadership. Between 

July 2005 and September 2009, NASA awarded three grants totaling $5,271,121 to the 

Rocket Center for a variety of purposes, including restoration of the Center’s Saturn V 

rocket exhibit, development of educational exhibits, upgrades to the SPACE CAMP®

mission simulation program, and an educational workshop. NASA was directed to award 

each of these grants pursuant to the 2005 Consolidated Appropriations Act, the 2006 

Consolidated Appropriations Act, and the 2009 Omnibus Appropriations Act. 

 

The objective of this audit was to determine whether the Rocket Center used NASA’s 

grant funds as intended and whether the costs associated with the grants were allowable, 

reasonable, and in accordance with applicable laws, regulations, guidelines, and the terms 

and conditions of the grants. Specifically, we reviewed: (1) program performance and 

 

1 NASA OIG, “NASA’s Grant Administration and Management” (IG-11-026, September 12, 2011). 

2 The Alabama Space Science Exhibit Commission is an 18-member commission established as an agency 

of the State of Alabama that oversees the operation of the Rocket Center. 
OVERVIEW

ii REPORT NO. IG-12-016 

accomplishments; (2) budget management and control; (3) grant reporting; and 

(4) accounting and internal controls.

Results

We found that the Rocket Center properly managed the three grants we reviewed. 

Specifically, the Rocket Center fulfilled the grants’ performance goals, properly managed 

the associated budgets, timely and accurately filed the required financial and performance 

reports, maintained a strong system of accounting and internal controls, appropriately 

requested reimbursement for allowable and reasonable costs, and adequately accounted 

for expenditures. However, we identified two areas of concern related to NASA’s 

administration of the Rocket Center grants: 

• Grant funds totaling $424,816 were used to maintain office space for the direct 

benefit of NASA civil service personnel contrary to Federal and NASA 

regulations that require contracts be used for such purposes. 

• The independent auditors who conducted the required Single Audits for the 

Rocket Center reported that the Center’s current liabilities exceeded current assets 

in 2005 through 2010, that the Center suffered operating losses in four of those 

years, and that these conditions created an uncertainty as to the Rocket Center’s 

viability. Although NASA grant officials claimed to have assessed the risks 

associated with the Center’s impaired financial condition, they failed to 

sufficiently document this assessment. More broadly, NASA lacks a standard 

process to assess a potential grantee’s financial condition prior to grant award or 

to impose any additional reporting or oversight requirements that such a condition 

may warrant. Although identification of concerns regarding the financial health 

of potential grantees would not necessarily preclude making awards to them, such 

a process would help reduce the risk associated with such awards. 

Management Action

NASA needs to strengthen its policies, procedures, and internal controls to ensure that it 

uses contracts, grants, and cooperative agreements in the appropriate circumstances. We 

made the same finding in our September 2011 report on NASA’s overall grant 

management and recommended that the Assistant Administrator for Procurement 

establish internal controls, policies, and procedures to require the independent review and 

approval of all grants and supplements for propriety of choice of instrument prior to 

award. With regard to the financial stability of grantees, we recommended that the 

Assistant Administrator for Procurement assess the feasibility of implementing internal 

controls, policies, and procedures to ensure that the Agency assesses the financial health 

of grant recipients prior to award and imposes additional reporting requirements and 

oversight when warranted. 
OVERVIEW

REPORT NO. IG-12-016 iii

In response to a draft of our report, the Assistant Administrator for Procurement 

concurred with our recommendation, stating that he recognizes that the financial 

condition of an intended grant or cooperative agreement recipient is an important 

consideration in the award decision. He said that NASA will work closely with the 

Office of Management and Budget (OMB) to assess and evaluate the feasibility and 

effectiveness of proposed reforms recently published in the Federal Register that include 

a requirement that Federal agencies consider a prospective recipient’s financial condition 

prior to awarding a grant or cooperative agreement. We consider the Assistant 

Administrator’s proposed action responsive to our recommendation and will close the 

recommendation upon completion and verification of that action.

The Agency’s comments in response to a draft of this report are reprinted in Appendix B; 

the grantee’s comments are in Appendix C. The Agency previously provided technical 

comments on the draft, which we incorporated as appropriate. 

JUNE 22, 2012

REPORT NO. IG-12-016 

CONTENTS

INTRODUCTION

Background _________________________________________ 1 

Objectives __________________________________________ 2 

RESULTS

Findings and Recommendations__________________________ 4 

APPENDIX A 

Scope and Methodology_______________________________ 15

Review of Internal Controls ____________________________ 18

Prior Coverage ______________________________________ 18

APPENDIX B 

Agency Comments ___________________________________ 20

APPENDIX C 

Grantee Comments __________________________________ 22

APPENDIX D 

Report Distribution___________________________________ 23

JUNE 22, 2012

REPORT NO. IG-12-016 1 

INTRODUCTION

Background

NASA awards approximately $500 million in grants annually and faces the ongoing 

challenge of ensuring that these funds are administered appropriately and that grantees 

are accomplishing stated objectives. In September 2011, the NASA Office of Inspector 

General (OIG) reported that NASA did not have an adequate system of controls in place 

to ensure proper administration and management of its grant program and that as a result 

some grant funds were not being used for their intended purposes.3

 Additionally, the 

Agency identified and reported in its 2009 Annual Procurement Management Review 

weaknesses in its grant administration process, including use of grants and cooperative 

agreements rather than contracts to obtain facility space for NASA civil service 

employees at the Alabama Space Science Exhibit Commission’s U.S. Space and Rocket 

Center (Rocket Center).

4

The Rocket Center, established with the support of the State of Alabama, tells the story of 

space exploration and provides science-based displays and computer learning facilities 

for visitors, teachers, and students. The Rocket Center is the official visitor information 

center for NASA’s Marshall Space Flight Center (Marshall) and houses Marshall’s 

Education Training Facility. It is also the site of SPACE CAMP®, a program founded in 

1982 to promote the study of math, science, and technology using classroom instruction

and hands-on activities to teach teamwork, decision-making, and leadership. Between 

July 2005 and September 2009, NASA awarded three grants totaling $5,271,121 to the 

Rocket Center for a variety of purposes, including restoration of the Center’s Saturn V 

rocket exhibit, development of educational exhibits, upgrades to the SPACE CAMP®

mission simulation program, and an educational workshop (see Table 1 for individual 

grant award value). NASA was directed to award each of these grants pursuant to the 

2005 Consolidated Appropriations Act, the 2006 Consolidated Appropriations Act, and 

the 2009 Omnibus Appropriations Act. 

 

 

3 NASA OIG, “NASA’s Grant Administration and Management” (IG-11-026, September 12, 2011). 

4 The Alabama Space Science Exhibit Commission is an 18-member commission established as an agency 

of the State of Alabama that oversees the operation of the Rocket Center. 
INTRODUCTION

2 REPORT NO. IG-12-016 

Table 1. U.S. Space and Rocket Center Grants Reviewed

Grant Award

Number of 

Supplements Start Date End Date Award Amount

NNM05AA27G 12 7/11/2005 9/30/2010 $4,428,121

NNX09AR31G 0 9/1/2009 8/31/2010 500,000

NNX09AW17G 0 9/9/2009 9/08/2010 343,000

Total $5,271,121 

Source: NASA grant award files

The Rocket Center has two primary missions: to provide a unique learning environment 

designed to enhance science, technology, engineering, and mathematics skills and 

knowledge of space and aeronautics of teachers and students; and, through acquisition 

and display of space and missile artifacts, to be one of the world’s premier space 

museums. Since opening its doors in 1970, the Rocket Center has hosted over 13 million 

visitors. In fiscal year (FY) 2011, more than 500,000 visitors from 59 foreign countries 

toured the Center and 32,052 people attended its SPACE CAMP® programs.

The NASA Grant and Cooperative Agreement Handbook (Grant Handbook) contains the 

policies and procedures NASA procurement and technical officers and grantees must 

follow in the pre-award, award, post-award, and closeout phases of grant management.5

Objectives

 

The Grant Handbook serves as a reference manual and assists grantees in meeting their 

fiduciary responsibility to safeguard grant funds and ensure they use the funds 

appropriately and consistently with the terms and conditions of the award. By accepting 

NASA awards, the Rocket Center agreed to comply with the financial and administrative 

requirements set forth in the Grant Handbook. 

The overall audit objective was to determine whether the Rocket Center used NASA 

grant funds for their intended purposes and whether the associated expenditures were 

allowable, reasonable, and in accordance with applicable laws, regulations, guidelines, 

and the terms and conditions of the grants. Specifically, we reviewed the Rocket 

Center’s (1) program performance and accomplishments; (2) budget management and 

control; (3) grant reporting; and (4) accounting and internal controls.

 

5 NASA Procedural Requirements (NPR) 5800.1, “Grant and Cooperative Agreement Handbook,” is 

codified in the Code of Federal Regulations (C.F.R.) at Part 1260. NASA issues Grant Information 

Circulars to disseminate guidance internally and issues Grant Notices to publicize regulatory changes not 

yet incorporated in the current version of the Grant Handbook.
INTRODUCTION

REPORT NO. IG-12-016 3 

To accomplish our audit, we conducted interviews with representatives from Marshall’s 

Office of Procurement, grant officers, the grant technical officer, and Rocket Center 

officials. We visited the Rocket Center to observe the work completed with the grant 

funds and to document accounting, procurement, and project management processes and 

internal controls. We also reviewed laws, regulations, and other documentation pertinent 

to our review. Additional details of the audit scope and methodology, our review of 

internal controls, and prior audit coverage are in Appendix A. 
RESULTS

4 REPORT NO. IG-12-016 

FINDINGS AND RECOMMENDATIONS

We determined that the Rocket Center managed the three grants we examined in 

accordance with applicable laws, regulations, guidelines, and the terms and 

conditions of the grants. Specifically, we found that the Rocket Center fulfilled the 

performance goals of the grants, properly managed its grant budgets, timely and 

accurately filed the required financial and performance reports, maintained a strong 

system of accounting and internal controls, appropriately requested reimbursement 

for allowable and reasonable costs incurred, and adequately accounted for 

expenditures. However, we identified two areas in which NASA could improve its 

internal controls and grant oversight. First, NASA used eight grant supplements to 

procure office space for NASA civil service personnel when the appropriate 

procurement vehicle was a contract. Second, NASA lacks a standard process to 

assess a potential grantee’s financial health prior to grant award. Although 

identification of concerns regarding the financial health of potential grantees would 

not necessarily preclude making awards to them, such a process would help reduce 

the risk associated with such awards. 

Program Performance and Accomplishment 

The overarching goal of the three grants we reviewed was to improve the Rocket Center’s 

operations and space and technology exhibits. One of the grants was intended for the 

restoration of the Rocket Center’s Saturn V exhibit (see Figure 1), for the purchase of 

equipment, and to support the operations and maintenance of the Center’s Education 

Training Facility. The goal of the second grant was to update the Rocket Center’s

Mission Center Complex from a focus on NASA’s retiring Space Shuttle Program to the 

Constellation Program then in development and to provide an education workshop on the 

Constellation Program.6

 

6 The Constellation Program was later canceled. 

 The goal of the third grant was to design several new exhibits, 

including one displaying a moon rock collected during the Apollo 12 mission. 
RESULTS

REPORT NO. IG-12-016 5 

Figure 1. Saturn V Rocket Exhibit at the Rocket Center in Huntsville, Alabama

Source: U.S. Space and Rocket Center Photo Gallery

To determine if the Rocket Center met these objectives, we interviewed Center officials, 

toured the Rocket Center’s museum and training facility, observed the new and upgraded 

exhibits, and reviewed the Rocket Center’s final performance reports. Overall, we 

concluded that the Rocket Center adequately met the goals of all three grants. For 

example, we observed that the Rocket Center used grant funds to repaint, dry, and repair 

its Saturn V exhibit, to remove old Shuttle and International Space Station equipment and 

convert an exhibit on Space Shuttle Discovery to an exhibit on the Orion capsule, and to 

fabricate parts of other new exhibits including one featuring an Apollo 12 moon rock. 

Budget Management and Control

According to the Grant Handbook, the budget plan is the financial expression of the 

project or program as approved during the award process. Although NASA assumes no 

responsibility for budget overruns, recipients may spend grant funds without strict 

adherence to the individual allocations in their approved budgets, except for allocations 

relating to the acquisition of property, awarding of subcontracts, and certain revisions to 

budget and program plans. In addition, NASA may, but is not required to, restrict the 

grantee’s ability to transfer funds among direct cost categories or programs, functions, 

and activities for awards that exceed $100,000 when the cumulative amount of such 

transfers exceeds or is expected to exceed 10 percent of the total NASA-approved budget. 

As we noted in our September 2011 report reviewing NASA’s overall grant management, 

we believe allowing grant recipients such broad discretion to deviate from approved 

budgets increases the risk that they may incur unauthorized or unallowable costs or 

expenditures unrelated to the purpose of the grant. In this audit, we examined the extent 
RESULTS

6 REPORT NO. IG-12-016 

to which the Rocket Center adhered to the NASA-approved budgets by comparing the 

amounts the Rocket Center expended in each general ledger category to the approved 

budgets. 

We did not identify any instances in which the Rocket Center incurred costs or 

expenditures unrelated to the purpose of the grant or otherwise failed to conform to the 

requirements of the Grant Handbook. However, we noted one instance in which the 

Rocket Center paid personnel expenditures totaling $22,557 that were not included in the 

NASA-approved budget. According to the Executive Director, Rocket Center officials 

charged these costs to the grant because they determined that it was more cost-effective 

to have Rocket Center employees rather than contractors perform some of the exhibit 

work. She also said that at the time the charges were made she had confused this grant 

with another NASA grant that included approved personnel expenses, and therefore had 

not realized that the charges were not part of the approved budget. Because NASA’s 

current guidance allows recipients to spend grant funds without strict adherence to 

individual allocations within their approved budgets, we did not take exception with this 

deviation. 

In our September 2011 report, we recommended that the Assistant Administrator for 

Procurement revise the Grant Handbook to require a minimum threshold for all grantee 

budget deviations (excluding categories already requiring approval) and that technical 

officers approve budget deviations in excess of such threshold prior to the expenditure of 

grant funds. The Assistant Administrator for Procurement concurred with our 

recommendation and proposed corrective action. Accordingly, we are not making a 

recommendation concerning this issue in this report. 

Grant Reporting

The Grant Handbook requires grantees to submit quarterly and final Federal Financial 

Reports, annual and final performance reports, and final inventory reports to NASA. The 

Federal Financial Report shows the grantee’s expenditures and drawdowns for the 

reporting period.7

Financial Reports. The Grant Handbook requires grantees to submit quarterly Federal 

Financial Reports within 30 working days after the end of each reporting period. The 

grantee is required to report expenditures and drawdowns online for each calendar quarter 

of the award period. Grantees are also required to submit a final Federal Financial Report 

within 90 days after the award’s completion date. 

 Performance reports provide information on the progress of the work 

effort, and inventory reports document NASA-provided equipment and property valued 

at more than $5,000. 

 

7 The term “drawdown” refers to the action in which the grantee withdraws funds from the U.S. 

Department of Health and Human Services’ Payment Management System, which NASA and other 

Federal agencies use. 
RESULTS

REPORT NO. IG-12-016 7 

We analyzed the last four quarterly and the final Federal Financial Reports for the three 

grants we reviewed. We found that the Rocket Center submitted all reports timely and 

accurately recorded its general ledger expenditures and drawdown amounts in the 

Reports. 

Performance Reports. The Grant Handbook and the terms of each of the grants we 

reviewed required the Rocket Center to submit annual performance reports to NASA 

60 days prior to the grant anniversary date and a final performance report no later than 

90 days after the grant’s completion. 

Two of the grants had a 1-year period of performance, so only final reports were 

required. In both instances, the Rocket Center submitted timely and accurate final 

reports. The third grant had a 5-year period of performance; therefore, four annual 

performance reports and a final report were required. We found that two of the annual 

reports were submitted 18 and 29 days late, respectively. When we asked the Rocket 

Center’s Executive Director about these reports, she explained that the initial period of 

the grant was 1 year and that the performance period was extended through a series of 

supplements with differing periods of performance. According to the Executive Director, 

this caused some confusion regarding the anniversary dates for reporting purposes, so to 

maintain consistency she submitted the reports each May. Given the complexities 

involved, we believe this was a reasonable approach. We noted no other issues regarding 

the timeliness or content of the performance reports for this grant. 

Inventory Reports. The grant award required final inventory reports be submitted 60 

days after the completion of the award. We found that the grantee adhered to this

requirement and that the reports were accurate. 

Accounting and Internal Controls

According to the Grant Handbook, grant recipients are required to establish and maintain 

accounting and internal control systems to account for funds awarded to them. We 

reviewed the Rocket Center’s recent Single Audit reports to determine whether they 

reported any material weaknesses in the Rocket Center’s accounting and internal control 

systems that could affect the grants.8

We found that the Center had qualified and experienced staff responsible for the areas we 

reviewed and that the staff and management openly communicated regarding the Center’s 

mission and goals. We also found that the responsibility for financial duties was properly 

 We also interviewed Rocket Center employees 

responsible for payroll, purchasing, and accounts payable and observed accounting 

activities.

 

8 According to OMB Circular A-133, Single Audit reports are required for any grantee that expends more 

than $500,000 in Federal funds in any given year. Single Audits report on financial statements, internal 

controls, and compliance with laws and regulations, and can include the identification of any related 

questioned costs as well as recommendations to the grant recipient for corrective action.
RESULTS

8 REPORT NO. IG-12-016 

segregated among different staff members and that the Rocket Center had formally 

documented its standard operating procedures. Further, our review of Single Audit 

reports did not identify any material instances of noncompliance or other material 

weaknesses.9

Financial Management. According to the Grant Handbook, grantees’ financial 

management systems should provide for accurate, current, and complete disclosure of the 

financial results and records that adequately identify the source and application of funds 

for federally sponsored activities. Grantees should also have effective controls over and 

accountability for all funds, property, and other assets and should adequately safeguard 

all such assets and assure they are used solely for authorized purposes. Additionally, the 

grantee should have accounting records supported by source documentation. 

 

In March 2010, the Rocket Center transitioned to a new accounting system. Although the 

majority of the transactions for the grants we reviewed were maintained in its prior 

accounting system, we were able to verify and trace the audit trail to the related invoices, 

purchase requisitions, purchase orders, shipping and receiving documents, and bills of 

lading, demonstrating both systems’ ability to track expenditures and revenues 

appropriately. In addition, the Rocket Center maintained general ledger reports to track 

the actual program expenditures chargeable to the grant. The detailed documents 

supporting the general ledger transactions included employee time records as well as

information about other grant-related expenses, such as invoices from contractors, 

receiving documents, purchase requisitions, and purchase orders. We were able to 

compare information shown on the general ledger to the totals calculated from the 

supporting documentation and determine that the general ledger accurately reflected the 

Rocket Center’s expenditures. We did not identify any reportable conditions during our 

testing of this area.

Grant Drawdowns. The Grant Handbook establishes procedures for NASA to make 

payments to grantees. These procedures are designed to minimize the elapsed time 

between the transfer of funds to the grantee and disbursement of funds by the grantee. 

Accordingly, grantees can receive advance payment for imminent expenditures or can 

pay the expenses related to the grant and then draw down the funds necessary to 

reimburse itself for these expenditures. Grantees should draw down the minimum funds 

needed to cover expenses as incurred and must invest any funds that exceed expenses in 

an interest bearing account, remitting any interest above $250 to the U.S. Department of 

Health and Human Services’ Payment Management System (PMS) for ultimate return to 

the Treasury.

For the three grants we reviewed, NASA disbursed a total of $5,271,121. We compared 

drawdowns to grant expenditures and found that the Rocket Center based its drawdowns 

on the expenditures in its general ledger, did not have excess cash on hand, and made

 

9 As discussed in more detail later in this report, the Single Audit reports did raise an issue concerning the 

financial viability of the Rocket Center. 
RESULTS

REPORT NO. IG-12-016 9 

drawdowns in accordance with the Grant Handbook. Table 2 shows the number and 

amount of drawdowns from the PMS the Center made for each grant. 

Table 2. U.S. Space and Rocket Center Drawdowns

Grant Award

Amount of 

Drawdown 

per PMS

Grant Expenditures 

per the 

General Ledger

Reimbursements in 

Excess of 

Expenditures

NNM05AA27G $4,172,505 $4,172,505 0 

10,720 10,720 0 

105,096 105,096 0 

2,675 2,675 0 

61,837 61,837 0 

75,288 75,288 0 

Grant Total $4,428,121 $4,428,121

NNX09AR31G $156,976 $156,976 0 

209,024 209,024 0 

134,000 134,000 0 

Grant Total $500,000 $500,000

NNX09AW17G $ 15,013 $ 15,013 0 

8,942 8,942 0 

11,022 11,022 0 

13,240 13,240 0 

115,200 115,200 0 

115,200 115,200 0 

12,000 12,000 0 

52,383 52,383 0 

Grant Total $343,000 $343,000

 Source: PMS reports and the Rocket Center general ledger

Grant Expenditures. To determine the accuracy and allowability of costs charged to the 

grants, we reviewed a sample of the Rocket Center’s expenditures, including exhibit 

supplies, construction costs, consultant costs, and contractor expenses. We also 

examined the personnel costs charged to each grant. In total, we reviewed $2,582,756 in 

grant transactions, or 49 percent of the total amount expended. 
RESULTS

10 REPORT NO. IG-12-016 

Personnel Expenditures. Personnel costs represented the smallest category of 

expenditures by the Rocket Center: a total of $22,557 for the salaries and fringe benefits 

of employees who worked on grant NNX09AW17G. The other two grants had no 

associated personnel expenditures. 

We reviewed the time and payroll records associated with the $22,557 

expenditure. While we found the expenditures to be accurately recorded, properly 

allocated, and adequately supported, as discussed above, they were not authorized per the 

approved grant budget, which contained only two categories: contractual costs and costs 

for an informal educator workshop. However, as previously noted, because grantees may 

deviate from their proposed budgets without approval from NASA except when the 

change involves property or subcontract-related costs, the Rocket Center was not required 

to seek NASA’s permission to pay these personnel costs. 

Non-Personnel Expenditures. We reviewed 114 non-personnel transactions 

totaling $2,560,199, or 49 percent of total expenditures for the three grants. These 

transactions consisted of payments for items such as supplies, travel, and contractor 

expenses. We compared the transactions to the NASA-approved budgets and traced the 

transactions to supporting documentation. We determined that the expenditures were 

properly authorized, classified, supported, and charged to the grants and accurately 

recorded in the Rocket Center’s general ledger. We also found that the Rocket Center 

has established policies and procedures relating to the selection and monitoring of 

contractors. From our review of contract transactions, we found that the Rocket Center 

performed due diligence in selecting contractors, reviewing the debarment list, handling 

bids and proposals, and ensuring that the required certifications for liability issuance, 

drug-free work place, and equal employment opportunity were obtained. 

Inappropriate Use of Award Instrument. While performing expenditure 

testing, we found that select transactions were for the support and operation of the Rocket 

Center’s Education Training Facility. Upon further review, we learned that grant officers 

at Marshall awarded eight grant supplements to the Rocket Center totaling $424,816 to 

obtain space in the Education Training Facility for NASA’s direct use and benefit. As 

previously noted, the Agency’s own internal review also noted this issue. 

The Education Training Facility is a two-story building adjacent to the Rocket 

Center. The first floor, referred to as the Education Resource Center, contains an 

auditorium, science lab, classroom, and dining area dedicated to Rocket Center use. The 

NASA Academic Affairs Office occupies the second floor of the Center as well as 

approximately 4,266 square feet of space on the first floor, which it uses to support 

NASA’s off-site training and development activities. Although the rooms on the second 

floor are available for public use on a case-by-case basis, NASA has priority and NASA 

personnel are the principal users of the space. 

Under Federal law, agencies are required to use a contract when “the principal 

purpose of the instrument is to acquire (by purchase, lease, or barter) property or services 
RESULTS

REPORT NO. IG-12-016 11

for the direct benefit or use of the United States Government.”10

When we asked Marshall officials why they used a grant to acquire space in this 

particular case, they could not articulate a specific reason, but agreed that the use of a 

grant for this purpose was inappropriate and said they will not use grants for this purpose 

in the future. We confirmed that Marshall has corrected the situation at the Rocket 

Center by awarding a contract for this specific purpose on October 1, 2010. In addition, 

NASA’s Assistant Administrator for Procurement agreed with and is taking corrective 

action to address our previous recommendation to institute additional training. 

Accordingly, we are not making a recommendation regarding this issue in this report. 

 In contrast, a grant is 

the proper instrument when the principal purpose of the relationship is to carry out a 

public purpose of support or stimulation authorized by law. In our September 2011 

report, we found that NASA did not have adequate controls established to independently 

validate its choice of award instrument and recommended that the Assistant 

Administrator for Procurement establish a formal, recurring training program for grant 

officers and technical officers that addresses choice of award instrument. 

Single Audit. According to Office of Management and Budget (OMB) Circular 

No. A-133, “Audits of States, Local Governments and Non-Profit Organizations,” 

June 26, 2007, recipients of Federal funds are required to have a Single Audit performed 

annually if they expend more than $500,000 in Federal funds in any given year. The 

Circular states that the audit shall be submitted to the Federal Audit Clearinghouse within 

30 days of completion or 9 months after the end of the audit period, whichever is 

earlier.

11

We reviewed the Single Audit reports for the Rocket Center for FYs 2005 through 2010 

and found they were timely completed and submitted. The reports stated that the Rocket 

Center complied with the requirements of the laws, regulations, contracts, and grants that 

were applicable to each of its major Federal programs and identified no material internal 

control deficiencies. However, the notes to the corresponding financial statements 

identified an uncertainty concerning the Rocket Center’s ability to continue as a “going 

concern.”

 

12

Consideration of Grantees’ Financial Health. NASA does not have a process 

in place to assess a potential grantee’s financial health prior to making a grant award. 

 Specifically, the independent auditors reported that the Center’s current 

liabilities exceeded its current assets in FYs 2005 through 2010 and that the Center 

suffered operating losses during four of those years. The independent auditors noted that 

these conditions created an uncertainty as to the Rocket Center’s viability. 

 

10 31 U.S.C. 6303.

11 The Federal Audit Clearinghouse operates on behalf of OMB and its primary purposes are to disseminate 

audit information, support OMB oversight and assessment of Federal award audit requirements, assist 

Federal oversight agencies in obtaining A-133 data, and help minimize the reporting burden of 

complying with A-133 audit requirements.

12 “Going concern” is a term used to describe a company that has the resources needed in order to continue 

to operate indefinitely. If a company is not a going concern, it means the company has gone bankrupt.
RESULTS

12 REPORT NO. IG-12-016 

Although concerns regarding the financial health of a potential grantee would not 

necessarily preclude making an award, a standardized process would help reduce the risk 

associated with such awards. For example, NASA could impose additional reporting 

requirements or enhance its oversight efforts if it has concerns about a grantee’s financial 

health.

The technical officer responsible for the Rocket Center grants told us that NASA 

was aware of the Center’s financial condition and that before making the FY 2009 award, 

she conducted a financial health review with the assistance of the NASA Office of 

Legislative Affairs, the Chief Financial Officer, and the Office of Procurement. She said 

that based on this assessment she concluded that the Rocket Center would be able to 

execute the 2009 award without issue. She also said that she provided a grant status 

report to the Chief Financial Officer on a weekly basis.

However, we found no documentation in the grant files of such a review and the 

documentation provided to us as support for the review did not pertain to assessing the 

Center’s financial health. For example, the technical officer provided us with the Office 

of Education’s Proposed Evaluation Criteria, none of which address this issue. Further, 

no additional requirements were imposed on the Center in an attempt to mitigate the risk 

posed by its impaired financial condition. 

Recommendation, Management’s Response, and Evaluation of 

Management’s Response

We recommended that the NASA Assistant Administrator for Procurement assess the 

feasibility of implementing internal controls, policies, and procedures to ensure that grant 

officers consider the financial condition of intended grant recipients prior to award and that 

additional reporting requirements are imposed and/or enhanced oversight efforts undertaken 

in appropriate circumstances. 

Management’s Response. The Assistant Administrator for Procurement concurred, 

stating that he recognizes that the financial condition of an intended grant or cooperative 

agreement recipient is an important consideration in the award decision, particularly at 

increased dollar levels. He said that NASA will work closely with OMB to assess and 

evaluate the feasibility and effectiveness of proposed reforms recently published in the 

Federal Register that include a requirement that Federal agencies consider a prospective 

recipient’s financial condition prior to awarding a grant or cooperative agreement and 

will implement the final guidance. 

Evaluation of Management’s Response. Management’s proposed action to work with 

OMB to evaluate the feasibility of implementing a rule that considers a prospective 

recipient’s financial condition prior to the award of a grant or cooperative agreement and 

to implement the resulting guidance is responsive to our recommendation. Therefore, the 
RESULTS

REPORT NO. IG-12-016 13

recommendation is resolved and will be closed upon completion and verification of the 

proposed actions. 

APPENDIXES

REPORT NO. IG-12-016 15

APPENDIX A 

Scope and Methodology

We performed this audit from October 2011 through May 2012 in accordance with 

generally accepted government auditing standards. Those standards require that we plan 

and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions based on 

our audit objectives.

Our overall audit objective was to determine whether NASA’s grant funds were used for 

their intended purposes and whether the Agency was compliant with established laws, 

regulations, and NASA-specific requirements in its administration and management of 

the grants. We interviewed key personnel at the NASA Shared Services Center, Marshall 

Space Flight Center (Marshall), and the Alabama Space Science Exhibit Commission’s 

U.S. Space and Rocket Center (Rocket Center) involved in grant administration, 

management, and award processes. We identified and reviewed relevant Federal laws 

and regulations; NASA policies, procedures, plans, and requirements; and other criteria 

(a detailed list of items reviewed is provided on the following pages). The methodology 

we followed for the review is described below. 

Grant Selection. We judgmentally selected three grants awarded to the Rocket Center 

for review based on weaknesses reported in the Agency’s grant administration process in 

one of its Annual Procurement Management Review reports. All three grants selected for 

review were congressional earmark grants awarded by Marshall and the NASA Shared 

Services Center. 

Grant Award File Documentation. We reviewed grant award documentation, including 

technical and peer review reports, budget proposals, and summary financial reporting 

documentation. We interviewed NASA grant officers as well as the technical officer

responsible for the grants examined during the audit. 

Grantee Site Visits. We visited the grantee’s location in Huntsville, Alabama, including 

the museum where the exhibits are maintained and the Rocket Center’s Education 

Training Facility. We interviewed grantee officials, performed substantive transaction 

testing necessary to validate whether NASA grant funds were used for their intended 

purposes, and assessed the sufficiency of grantee performance.

Testing Conducted. We tested compliance with what we consider the most important 

conditions of the grant. Unless otherwise stated in our report, the criteria we audited

against are contained in the NASA Grant Handbook and other related NASA policy and 

guidance, grant award documents, and relevant OMB Circulars and Federal regulations. 
APPENDIX A 

16 REPORT NO. IG-12-016 

In conducting our audit, we employed a judgmental sampling design to obtain broad 

exposure to numerous facets of the grant reviewed, such as dollar amounts or expenditure 

category. This nonstatistical sample design does not allow projection of the test results to 

the universe from which the samples were selected. Further, we tested the Rocket 

Center’s: 

• Program Performance and Accomplishments to determine whether the grantee 

met or is capable of meeting the grant objectives and whether the grantee 

collected data and developed performance measures to assess accomplishment of 

the intended objectives. 

• Budget Management and Control to determine the amounts budgeted and the 

actual costs for each approved cost category and to determine if the grantee 

deviated from the approved budget, and if so, if the grantee received the necessary 

approval. 

• Grant Reporting to determine if the required reports were submitted on time and 

accurately reflected grant activity. 

• Accounting and Internal Controls to determine whether the grantee had 

sufficient accounting and internal controls to identify and report expenditures and 

reimbursements. This included testing: 

o Grant Drawdowns to determine whether grant drawdowns were 

adequately supported and if the grantee was managing grant receipts in 

accordance with federal requirements; and 

o Grant Expenditures to determine the accuracy and allowability of costs 

charged to the grant. 

Federal Laws, Regulations, Policies, and Requirements. We identified and reviewed

the following criteria as applicable to our audit objectives: 

Code of Federal Regulations (C.F.R.), Title 2, Part 215, “Uniform Administrative 

Requirements for Grants and Agreements with Institutions of Higher Education, 

Hospitals, and Other Non-Profit Organizations (OMB Circular A-110),” May 11, 2004 

2 C.F.R. Part 230, “Cost Principles for Non-Profit Organizations (OMB Circular 

A-122),” August 31, 2005 

14 C.F.R. Part 1260, “Grants and Cooperative Agreements,” Subpart A, October 19, 

2000 

14 C.F.R. Part 1260, Subpart B, “Uniform Administrative Requirements for Grants and 

Cooperative Agreements with Institutions of Higher Education, Hospitals, and Other 

Non-Profit Organizations,” October 19, 2000 
APPENDIX A 

REPORT

REPORT NO. IG-12-016 17

Title 31, United States Code, Chapter 63 (31 U.S.C. 63), “Using Procurement Contracts 

and Grant and Cooperative Agreements,” January 7, 2011 

OMB Circular A-133, “Audits of States, Local Governments, and Non-Profit 

Organizations,” June 26, 2007

NASA Policy Directive (NPD) 1200.1E, “NASA Internal Control,” July 21, 2008 

NASA Procedural Requirements (NPR) 5800.1, “Grant and Cooperative Agreement 

Handbook,” Section A, June 13, 2008, and Section B, April 20, 2007 

NPR 9010.3, “Financial Management Internal Control,” September 30, 2008 

NPR 9680.1, “NASA’s Management of Grants and Cooperative Agreements,” 

October 31, 2008 

Grant Information Circular (GIC) 05-03, “Additional Guidance Related to the Processing 

of Unsolicited Proposals, Successor Proposals and Congressional Interest Items 

(Earmarks),” April 7, 2005 

GIC 06-01, “Additional Guidance Related to the Processing of Congressional Interest 

Items (Earmarks),” April 12, 2006 

GIC 08-01, “Ensuring Only Allowable, Reasonable, and Necessary Costs in the Award of 

Grants and Cooperative Agreements,” February 14, 2008 

GIC 09-02, “Guidance On Processing Congressionally Directed Items (Earmarks) for 

Fiscal Year (FY) 2009,” July 23, 2009 

GIC 09-04, “Substitution of Standard Form (SF) 425 for Standard Form (SF) 272: Class 

Deviation from the Requirements at CFR 1260.26 and Exhibits D & G of 14 CFR 

Part 1260,” October 27, 2009 

GIC 11-01, “Implementation of the Federal Funding Accountability and Transparency 

Act (FFATA) of 2006,” January 24, 2011 

GIC 11-02, “Requirements for Non-Competitive Agency Grant and Cooperative 

Agreement Actions, Exclusive of those Actions Prescribed by 14 C.F.R. 1260.17, 

Evaluation and Selection of Unsolicited Proposals,” May 24, 2011 

Use of Computer-Processed Data. We relied on NASA computer-processed data to 

determine the NASA grants universe and to provide financial data. While we obtained 

grant drawdown data and the Federal Financial Reports used during the audit from the 

Department of Health and Human Services’ Payment Management System (PMS), we 

did not perform any substantive testing of the PMS system to validate the completeness 

or accuracy of the data. As a result, we placed limited reliance on the accuracy of the 

data obtained from the PMS System. Further, we also placed limited reliance on the 
APPENDIX A 

18 REPORT NO. IG-12-016 

information obtained from the grantee’s financial system to perform detailed transaction 

testing on the grantee’s financial records.

Review of Internal Controls 

We reviewed internal controls for the grantee’s administration and management of 

NASA grants, including policies and procedures. We also reviewed NASA’s oversight 

and monitoring of the grantee. The control weaknesses we identified are discussed in this 

report. Our recommendations in both this report and our September 2011 report, when

implemented, should correct the identified control weaknesses.

Prior Coverage

During the last 5 years, NASA and the GAO have issued the following reports and 

testimony that are of particular relevance to the subject of this report. Unrestricted 

reports can be accessed over the Internet at http://oig.nasa.gov/audits/reports/FY12/

(NASA OIG) and http://www.gao.gov (GAO).

NASA Office of Inspector General

“NASA’s Grant Administration and Management” (IG-11-026, September 12, 2011) 

“Audit of NASA’s Recovery Act Procurement Actions at Johnson Space Center, 

Goddard Space Flight Center, Langley Research Center, and Ames Research Center” 

(IG-10-017, July 27, 2010) 

“Final Memorandum on Audit of NASA Education and Training Grants” (IG-07-029-R, 

September 18, 2007) 

“Audit of NASA’s Management and Funding of Fiscal Year 2006 Congressional 

Earmarks” (IG-07-028, August 9, 2007) 

Government Accountability Office

“Federal Grants – Improvements Needed in Oversight and Accountability Processes” 

(GAO-11-773T, June 23, 2011) 

“Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue” (GAO-11-318SP, March 2011) 

“Grants Management – Attention Needed to Address Undisbursed Balances in Expired 

Grant Accounts” (GAO-08-432, August 2008) 
APPENDIX A 

REPORT

REPORT NO. IG-12-016 19

“Grants Management – Grantees’ Concerns with Efforts to Streamline and Simplify

Processes” (GAO-06-566, July 2006) 
APPENDIX B

20 REPORT NO. IG-12-016 

AGENCY COMMENTS
APPENDIX B

REPORT NO. IG-12-016 21
APPENDIX C 

22 REPORT NO. IG-12-016 

GRANTEE COMMENTS
APPENDIX D 

REPORT NO. IG-12-016 23

REPORT DISTRIBUTION

National Aeronautics and Space Administration

Administrator

Deputy Administrator

Chief of Staff

Associate Administrator for Education

Assistant Administrator for Procurement

NASA Advisory Council’s Audit, Finance, and Analysis Committee 

Director, Marshall Space Flight Center

Executive Director, NASA Shared Services Center

Non-NASA Organizations and Individuals

Executive Director, Alabama Space Science Exhibit Commission

Office of Management and Budget

Deputy Associate Director, Energy and Science Division

Branch Chief, Science and Space Programs Branch

Government Accountability Office

Director, Office of Financial Management and Assurance 

Director, Office of Acquisition and Sourcing Management 

Congressional Committees and Subcommittees, Chairman and 

Ranking Member

Senate Committee on Appropriations 

Subcommittee on Commerce, Justice, Science, and Related Agencies

Senate Committee on Commerce, Science, and Transportation

Subcommittee on Science and Space

Senate Committee on Homeland Security and Governmental Affairs

House Committee on Appropriations 

Subcommittee on Commerce, Justice, Science, and Related Agencies

House Committee on Oversight and Government Reform 

Subcommittee on Government Organization, Efficiency, and Financial Management

House Committee on Science, Space, and Technology 

Subcommittee on Investigations and Oversight 

Subcommittee on Space and Aeronautics

REPORT NO. IG-12-016 25

Major Contributors to the Report: 

Laura Nicolosi, Director, Mission Support Directorate

Joseph Shook, Project Manager

Daniel Birnbaum, Lead Auditor

Lynette Westfall, Senior Auditor

Annette Huffman, Program Assistant

Frank Mazurek, Associate Counsel, Office of Inspector General
JUNE 22, 2012

REPORT No. IG-12-016 

OFFICE OF AUDITS

OFFICE OF INSPECTOR GENERAL

ADDITIONAL COPIES

Visit http://oig.nasa.gov/audits/reports/FY12/ to obtain additional copies of this report, or contact the 

Assistant Inspector General for Audits at 202-358-1232. 

COMMENTS ON THIS REPORT

In order to help us improve the quality of our products, if you wish to comment on the quality or 

usefulness of this report, please send your comments to Mr. Laurence Hawkins, Audit Operations and 

Quality Assurance Director, at Laurence.B.Hawkins@nasa.gov or call 202-358-1543. 

SUGGESTIONS FOR FUTURE AUDITS

To suggest ideas for or to request future audits, contact the Assistant Inspector General for Audits. 

Ideas and requests can also be mailed to:

Assistant Inspector General for Audits 

NASA Headquarters

Washington, DC 20546-0001 

NASA HOTLINE

To report fraud, waste, abuse, or mismanagement, contact the NASA OIG Hotline at 800-424-9183 or 

800-535-8134 (TDD). You may also write to the NASA Inspector General, P.O. Box 23089, L’Enfant 

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each writer and caller can be kept confidential, upon request, to the extent permitted by law.