a

GAO

United States General Accounting Office

Report to the Committee on Commerce, 

Science, and Transportation, United 

States Senate, and the Committee on 

Science, House of Representatives

November 2003 BUSINESS 

MODERNIZATION

NASA’s Integrated 

Financial Management 

Program Does Not 

Fully Address 

Agency’s External 

Reporting Issues

GAO-04-151
The core financial module of IFMP provides NASA its first agencywide 

accounting system—a significant improvement over the 10 disparate systems

previously used. However, to meet IFMP’s aggressive implementation 

schedule, NASA deferred testing and implementation of many key 

requirements of the core financial module. Consequently, when NASA 

announced, in June 2003, that this module was fully operational at each of its 

10 centers, about two-thirds of the financial events or transaction types 

needed to carry out day-to-day operations and produce external financial 

reports had not been implemented in the module. NASA officials 

acknowledged that, as part of their implementation strategy, they had not yet

converted the module to support full-cost accounting. In addition, we found 

that NASA also deferred implementation of other key core financial module 

capabilities. Because NASA did not use disciplined processes for defining, 

managing, and testing key system requirements, or substantially reengineer 

its business processes prior to implementation, the core financial module, as 

implemented in June 2003, does not address several long-standing external 

reporting issues and has created some new problems. 

• Long-standing external financial reporting issues have not been 

addressed. NASA has not used its implementation of the core financial 

module as an opportunity to drive needed changes in its management 

practices and business processes. Therefore, the system does little to 

address NASA’s ability to properly account for $37 billion of reported 

property or certain aspects of the agency’s $15 billion annual budget. 

• New financial reporting problems have emerged. NASA went 

forward with its aggressive implementation plans even though agency 

managers knew of problems with the module’s ability to properly 

process and record certain transactions. As a result, the module does 

not appropriately capture critical information on the cost of NASA’s 

operations, such as certain accrued costs, accounts payable, and 

obligation transactions. 

In April 2003, GAO reported that the core financial module did not address 

key internal management information requirements. Now, GAO has found 

that the module cannot reliably provide key financial data needed for 

external financial reporting. Although NASA intends to address many of 

these issues, its implementation approach raises concerns over its ability to 

do so. These deferred external reporting capabilities, combined with the 

findings from our April 2003 report, indicate that NASA’s June 2003 core 

financial module and related systems do not substantially comply with the 

requirements of FFMIA. FFMIA addresses the need for agencies’ financial 

systems to provide value to those who use financial data. NASA must 

address these issues if the core financial module and IFMP are to achieve the 

objective of providing reliable, timely financial information for both internal 

management decision-making and external reporting purposes. 

In April 2000, the National 

Aeronautics and Space 

Administration (NASA) began its 

Integrated Financial Management 

program (IFMP), its third attempt 

at modernizing its financial 

management processes and 

systems. In April 2003, GAO 

reported that NASA’s acquisition 

strategy has increased the risk that 

the agency will implement a system 

that will cost more and do less than 

planned. This report is one of a 

series of reviews of NASA’s 

acquisition and implementation of 

IFMP, and focuses on the core 

financial module’s ability to 

provide the information necessary 

for external financial reporting. 

GAO is recommending that NASA 

(1) identify all areas that are not 

compliant with the Federal 

Financial Management 

Improvement Act (FFMIA) of 1996 

and (2) develop an implementation 

plan for addressing those areas and 

incorporating them into IFMP, 

including the need for 

reengineering some processes, 

such as the cost and other 

information that it requires from 

contractors. This plan should 

include time frames and details on 

how any changes will be 

monitored, tested, and 

documented. NASA disagreed with 

GAO’s recommendations, saying 

that the report did not reflect 

IFMP’s most recent progress. GAO 

considered recent IFMP progress 

and reaffirmed its position. 

www.gao.gov GAO-04-151 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gregory D. 

Kutz at (202) 512-9095 or kutzg@gao.gov. 

Highlights of GAO-04-151, a report to the

Committee on Commerce, Science, and 

Transportation, U.S. Senate, and the 

Committee on Science, House of 

Representatives 

November 2003

BUSINESS MODERNIZATION 

NASA’s Integrated Financial Management 

Program Does Not Fully Address 

Agency’s External Reporting Issues 
Page i GAO-04-151 NASA’s External Reporting Issues

Contents

Letter 1

Results in Brief 3

Background 5

Schedule-driven Approach Limits Transaction Processing 

Capabilities 9

Long-standing External Reporting Issues Not Addressed 11

NASA’S Implementation of IFMP Has Created New Reporting 

Problems 15

Core Financial Module Does Not Substantially Comply 

With FFMIA 17

Conclusion 21

Recommendations 22

Agency Comments and Our Evaluation 22

Appendixes

Appendix I: Objective, Scope, and Methodology 30

Appendix II: Comments From the National Aeronautics and Space 

Administration 32

Appendix III: GAO Contact and Staff Acknowledgments 38

GAO Contact 38

Acknowledgments 38

Abbreviations

FASAB Federal Accounting Standards Advisory Board

FFMIA Federal Financial Management Improvement Act 

FFMSR Federal Financial Management System Requirements

IFMP Integrated Financial Management Program 

JFMIP Joint Financial Management Improvement Program

NASA National Aeronautics and Space Administration

OMB Office of Management and Budget

PP&E Property, Plant, and Equipment 

SFFAC Statement of Federal Financial Accounting Concepts

SFFAS Statement of Federal Financial Accounting Standards 

SGL U.S. Government Standard General Ledger
Page ii GAO-04-151 NASA’s External Reporting Issues

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-04-151 NASA’s External Reporting Issues

United States General Accounting Office

Washington, D.C. 20548

A

November 21, 2003 Letr

The Honorable John McCain

Chairman

The Honorable Ernest F. Hollings

Ranking Minority Member

Committee on Commerce, Science, 

and Transportation

United States Senate

The Honorable Sherwood L. Boehlert

Chairman

The Honorable Ralph M. Hall

Ranking Minority Member

Committee on Science

House of Representatives

For years, the National Aeronautics and Space Administration (NASA) has 

cited deficiencies with its financial management systems as a primary 

reason for not having the necessary data required to oversee its 

contractors, accurately account for the full cost of its operations, and 

efficiently produce accurate and reliable information needed for both 

management decision-making and external reporting purposes. 

Recognizing the importance of successfully implementing an integrated 

financial management system, in April 2000, NASA began an effort known 

as the Integrated Financial Management Program (IFMP). When 

completed, IFMP is planned to consist of nine modules1

 that will support a 

range of financial, administrative, and functional areas. On June 23, 2003, 

NASA announced that the core financial module—considered the 

backbone of IFMP—was fully operational at each of NASA’s 10 centers. 

The core financial module is intended to provide NASA’s financial and 

program managers with timely, consistent, and reliable cost and 

performance information for management decisions and external financial 

reporting.

NASA has made two efforts in the recent past to improve its financial 

management processes and systems but both of these efforts were 

1

The nine modules will consist of core financial, resume management, travel management, 

position description management, human resources, Erasmus, budget formulation, contract 

administration, and asset management.
Page 2 GAO-04-151 NASA’s External Reporting Issues

eventually abandoned after spending a total of 12 years and a reported 

$180 million. Given the importance of NASA’s current effort, you asked us 

to assess the program. In April 2003, we issued our first report on IFMP to 

alert you to concerns we had, based on our work to date. In that report, we 

provided you with, among other things, our assessment of the core 

financial module’s ability to satisfy NASA’s internal management decisionmaking needs. 

As agreed, we continued our review of IFMP in three areas to assess: 

(1) whether NASA has been acquiring and implementing IFMP in the 

context of an enterprise architecture, (2) the extent to which the core 

financial module will address NASA’s external reporting requirements, and 

(3) NASA’s life-cycle cost estimate and schedule for IFMP. We are 

responding to the first and third issues in separate reports,2

 and we have 

summarized our findings on all three issues in a summary report.3 This 

report addresses the second issue—the extent to which the core financial 

module, as completed in June 2003, will satisfy NASA’s key external 

reporting requirements. Specifically, we assessed whether the core 

financial module, as of June 2003, provides the functionality needed to

(1) accurately account for property, plant, and equipment (PP&E) and 

material, (2) properly account for the full cost of NASA’s projects and 

programs, (3) capture and report certain key budgetary information, 

(4) accurately record accounts payable, and (5) comply substantially with 

the requirements of the Federal Financial Management Improvement Act 

(FFMIA) of 1996.4

 FFMIA emphasizes the need for agencies to be able to 

provide financial management information, including cost information, for 

measuring the results of program performance on an ongoing basis. 

FFMIA also requires that an agency’s independent auditor report on the 

ability of agency financial management systems to comply substantially 

with these requirements. 

2

See U.S. General Accounting Office, Business Modernization: Disciplined Processes 

Needed to Better Manage NASA’s Integrated Financial Management Program, GAO-04-118

(Washington, D.C.: Nov. 21, 2003). Also, see U.S. General Accounting Office, Information 

Technology: Architecture Needed to Guide NASA’s Financial Management Modernization, 

GAO-04-43 (Washington, D.C.: Nov. 21, 2003).

3

See U.S. General Accounting Office, Business Modernization: NASA Challenges in 

Managing Its Integrated Financial Management Program, GAO-04-255 (Washington, D.C.: 

Nov. 21, 2003).

4

31 U.S.C. 3512 note (2000) (Federal Financial Management Improvement).
Page 3 GAO-04-151 NASA’s External Reporting Issues

We performed our work from April 2003 through September 2003 in 

accordance with generally accepted government auditing standards. 

Details on our objective, scope, and methodology are in appendix I. 

Results in Brief Although NASA has met its core financial module’s implementation 

schedule, the system, as implemented in June 2003, does not provide many 

key external financial reporting capabilities. In fact, when NASA 

announced, in June 2003, that the core financial module was fully 

operational at each of its 10 centers, about two-thirds of the financial 

events or transaction types needed to carry out day-to-day financial 

operations and produce external financial reports had not been 

implemented. At that time, NASA officials acknowledged that, as part of 

their implementation strategy, they had not yet converted the system to 

support full-cost accounting. However, because NASA did not use 

disciplined processes for defining, managing, and testing system 

requirements or substantially reengineer its business processes prior to 

implementation, we found that NASA also deferred implementation of 

other key core financial module capabilities. Key core financial module 

capabilities deferred for these reasons include (1) capturing, recording, and 

accounting for PP&E and material and (2) making adjustments to prior 

year obligations. In addition, NASA’s implementation approach has created 

new problems in recording certain accrued costs, accounts payable, and 

obligation transactions. These deferred external reporting capabilities and 

new problems, combined with the findings from our April 2003 report, 

indicate that NASA’s June 2003 core financial module and related systems 

do not substantially comply with the requirements of FFMIA.

According to NASA officials, NASA plans to address most of these 

problems between now and 2006 when it expects IFMP to be fully 

implemented. For example, after the core financial module’s 

implementation in June 2003, NASA began designing the agency’s new cost 

allocation structure and expected that by October 1, 2003, the core 

financial module would have the ability to capture the full cost of NASA’s 

programs and projects needed for external financial reporting purposes. 

In addition, although past software upgrades, or “patch” releases, have 

proven to be unsuccessful, NASA expected a new patch release to resolve 

the system problems associated with budgetary accounting by October 1, 

2003. 

However, even if the agency’s cost allocation structure is in place and the 

patch release is successful, NASA has not addressed its most challenging 
Page 4 GAO-04-151 NASA’s External Reporting Issues

external reporting issues—accurately capturing, recording, and accounting 

for PP&E and materials and ensuring that its system meets the broader 

objectives of federal managerial cost accounting standards. Specifically, 

NASA has not reengineered the agency’s processes for capturing contract 

costs associated with PP&E and material and therefore continues to update 

the core financial module using periodic summary-level manual entries. 

Although NASA plans to implement an integrated asset management 

module in 2005, this alone will not ensure that NASA uses transaction-level 

detail to update the core financial module and thereby provide independent 

control over its property. 

Further, as we reported in April 2003, the core financial module does not 

provide agency managers or the Congress with useful cost and related 

information with which to make informed decisions, manage daily 

operations, and ensure accountability on an ongoing basis. Consequently, 

the system does not meet the broader objectives of federal managerial cost 

accounting standards, which address the need to provide relevant and 

reliable information to both managers and the Congress. 

We are making recommendations that NASA develop and implement a 

corrective action plan to ensure that the agency’s financial management 

systems comply substantially with the requirements of FFMIA. The plan 

should provide a means for ensuring that all user requirements are met, 

including the need to reengineer key business processes where necessary. 

In written comments, which are reprinted in appendix II, NASA disagreed 

with all of our conclusions and recommendations in part because we 

reviewed the status of the core financial module as of June 23, 2003 instead 

of September 30, 2003—the date used for FFMIA reporting. We conducted 

our audit as of June 2003 because NASA represented that the core financial 

module was fully operational at all of its centers at that time, 

acknowledging only that they had not yet converted the system to support 

full-cost accounting, but not disclosing many other deferred capabilities. 

Moreover, NASA’s comments assert that for PP&E and budgetary reporting, 

the manual processes or workarounds it has developed to produce yearend balances for the agency’s annual financial statements also satisfy the 

requirements of FFMIA. We disagree with this assertion. The development 

of significant manual workarounds in these areas masks the fact that 

NASA’s core financial module is not designed to and cannot produce timely 

and reliable PP&E and budgetary data with traceability to transactionbased support. The ability to produce reliable numbers once a year for 
Page 5 GAO-04-151 NASA’s External Reporting Issues

financial reporting purposes does not by itself constitute FFMIA 

compliance. In its written comments, NASA indicated that it has made 

changes to the module since June and that the core financial module as 

implemented in October 2003 has many of the capabilities that were 

lacking in the June 2003 module. However, with the possible exception of 

full-cost accounting, which was planned for October 1, 2003, NASA 

acknowledges that the cited changes involve manual workarounds for 

producing year-end numbers. FFMIA goes well beyond producing 

auditable financial statements once a year; it requires financial systems 

that ensure accountability and accurate data for managerial and reporting 

purposes on an ongoing basis throughout the year. 

Background From 1996 through 2000, NASA was one of the few agencies to be judged 

by its independent auditor at that time, Arthur Andersen, as meeting all of 

the federal financial reporting requirements. That is, NASA was one of the 

few agencies to receive an unqualified, or “clean,” opinion on its financial 

statements, with no material internal control weaknesses noted, and no 

indications that its financial management systems were not in substantial 

compliance with the requirements of FFMIA.5

 FFMIA reflects the need for 

agencies to have systems that produce reliable, timely, and accurate 

financial information needed for day-to-day decision making by requiring 

agencies to implement and maintain financial management systems that 

substantially comply with (1) federal financial management systems 

requirements,6

 (2) the U.S. Government Standard General Ledger (SGL) at 

the transaction level,7 and (3) applicable federal accounting

5

FFMIA requires auditors to report whether agencies’ financial management systems 

comply with federal financial management systems requirements, applicable federal 

accounting standards (U.S. generally accepted accounting principles), and the U.S. Standard 

General Ledger at the transaction level.

6

Policies and standards prescribed for executive agencies to follow in developing, operating, 

evaluating, and reporting on financial management systems are defined in the Office of 

Management and Budget (OMB) Circular A-127, Financial Management Systems. These 

system requirements provide the framework for establishing integrated financial 

management systems to support the partnership between program and financial managers, 

and ensure the integrity of information for decision making and measuring performance. 

7

The SGL was established by an interagency task force under the direction of OMB and 

mandated for use by agencies in OMB and Treasury regulations in 1986. The SGL promotes 

consistency in financial transaction processing and reporting by providing a uniform chart 

of accounts and pro forma transactions used to standardize federal agencies’ financial 

information accumulation and processing throughout the year. 
Page 6 GAO-04-151 NASA’s External Reporting Issues

standards.8 Thus, the auditor’s report implied that NASA could not only 

generate reliable information once a year for external financial reporting 

purposes but also could provide the kind of information needed for day-today management decision making. 

However, as we and others have reported, the independent auditor’s 

reports did not provide an accurate picture of NASA’s financial 

management systems and, instead, failed to disclose pervasive financial 

management problems that existed at NASA. For example, we have 

identified NASA’s contract management function as an area of high risk 

since 1990 because of NASA’s inability to (1) oversee its contractors and 

their financial and program performance, and (2) implement a modern, 

integrated financial management system, which is integral to producing 

accurate and reliable financial information needed to support contract 

management.9

 Also, in February 2002, NASA’s new independent auditor, 

PricewaterhouseCoopers, further confirmed NASA’s financial management 

difficulties and disclaimed an opinion on the agency’s fiscal year 2001 

financial statements. The audit report also identified a number of material 

internal control weaknesses—primarily regarding PP&E and materials—

and stated that, contrary to previous financial audit reports, NASA’s 

financial management systems did not substantially comply with FFMIA. 

While NASA received an unqualified opinion for its fiscal year 2002 

financial statements, these results were achieved only through heroic 

efforts on the part of NASA and its auditor and again, the audit report 

identified a number of material internal control weaknesses and stated that 

NASA’s financial management systems did not substantially comply with 

FFMIA. To its credit, in April 2000, NASA began an effort known as IFMP. 

The schedule for implementing IFMP was originally planned for fiscal year 

8

In October 1990, the Secretary of the Treasury, the Director of OMB, and the Comptroller 

General established the Federal Accounting Standards Advisory Board (FASAB) to develop 

a set of generally accepted accounting standards for the federal government. FASAB 

promulgates federal accounting standards that agency Chief Financial Officers use in 

developing financial management systems and preparing financial statements. 

9

At that time, we began a special effort to review and report on the federal program areas 

that our work had identified as high risk because of vulnerabilities to waste, fraud, abuse, 

and mismanagement. We first issued our High-Risk Series in December 1992 and have 

continued to include NASA’s contract management as an area of high risk since. See U.S. 

General Accounting Office, High-Risk Series: NASA Contract Management, GAO/HR-93-11

(Washington, D.C.: December 1992) and Major Management Challenges and Program 

Risks: National Aeronautics and Space Administration, GAO-03-114 (Washington, D.C.: 

January 2003). 
Page 7 GAO-04-151 NASA’s External Reporting Issues

2008, but after NASA’s new Administrator came on board in fiscal year 

2002, the timeline was accelerated to fiscal year 2006, with the core 

financial module to be completed in fiscal year 2003. NASA’s IFMP 

includes nine module projects supporting a range of financial, 

administrative, and functional areas. According to NASA officials, of the 

nine module projects, five are in operation, one is currently in 

implementation, and three are future modules. The five modules in 

operation are resume management, position description management, 

travel management, executive financial management information (called 

Erasmus), and core financial; the one project in implementation is budget 

formulation; and the three future module projects are human resources, 

asset management, and contract administration. 

The core financial module, which utilizes the SAP R/3 system,10 is 

considered the backbone of IFMP and has become NASA’s standard, 

integrated accounting system used agencywide. The other IFMP module 

projects will be integrated/interfaced with the core financial module, where 

applicable. The Joint Financial Management Improvement Program 

(JFMIP)11 defines a core financial system (or module) as the backbone of 

an agency’s integrated financial management system: It should provide 

common processing routines, support common data for critical financial 

management functions affecting the entire agency, and maintain the 

required financial data integrity control over financial transactions, 

resource balances, and other financial systems. A core financial system 

should support an agency’s general ledger, funds management, payment, 

receivable, and cost management functions. Also, the system should 

receive data from other financial-related systems, such as inventory and 

property systems, and from direct user input, and it should provide data for 

financial statement preparation and for financial performance 

measurement and analysis.

The scope of NASA’s core financial module includes the general ledger, 

budget execution, purchasing, accounts receivable, accounts payable, and 

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

11JFMIP is a joint undertaking of the U.S. Department of the Treasury, General Accounting 

Office, Office of Management and Budget, and Office of Personnel Management, working in 

cooperation with one another, with other agencies, and with the private sector, to improve 

financial management in the federal government. The program was given statutory 

authorization in the Budget and Accounting Procedures Act of 1950 (31 U.S.C. 3511(d)). 

One of JFMIP’s roles has been to establish detailed requirements for agencies’ financial 

management systems. 
Page 8 GAO-04-151 NASA’s External Reporting Issues

cost management. NASA completed implementation of the core financial 

module at all 10 NASA centers in June 2003. The pilot for the core financial 

module—conducted at Marshall Space Flight Center—was implemented in 

October 2002. NASA then deployed the core financial module at the other 9 

NASA centers in three “waves,” the last of which was completed in June 

2003. 

In April 2003, we issued our first report on IFMP in response to your 

request.12 At that time, we reported that NASA was not following key best 

practices for acquiring and implementing the system, which may affect the 

agency’s ability to fully benefit from the new system’s capabilities. 

Specifically, we reported that NASA (1) did not analyze the relationships 

among selected and proposed IFMP components, (2) had deferred 

addressing the needs of key system stakeholders,13 including program 

managers and cost estimators, and (3) did not properly manage and test its 

system requirements prior to implementation of the core financial module. 

As a result, we reported that:

• NASA has increased its risks of implementing a system that will not 

optimize mission performance, and will cost more and take longer to 

implement than necessary; 

• the core financial module is not being designed to integrate the cost and 

schedule data that program managers need to oversee the work of 

NASA’s contractors; and 

• costly rework will likely be required to fix requirement defects not 

identified prior to implementation. 

12U.S. General Accounting Office, Business Modernization: Improvements Needed in 

Management of NASA’s Integrated Financial Management Program, GAO-03-507

(Washington, D.C.: Apr. 30, 2003).

13 NASA defined those in the financial accounting arena as the system’s users who, under 

NASA’s plan, would determine the system’s requirements, guide its implementation, and 

define and measure its success. Those who would benefit from the system’s new 

capabilities were identified as stakeholders. Under NASA’s plan, they would be the ultimate 

beneficiaries of the system improvements, but would not have a role in setting requirements 

or measuring and determining the success of the system’s implementation.
Page 9 GAO-04-151 NASA’s External Reporting Issues

Schedule-driven 

Approach Limits 

Transaction Processing 

Capabilities 

Although NASA has met the core financial management module’s 

implementation schedule, the system as implemented in June 2003 has 

limited external financial reporting capabilities. When NASA announced in 

June 2003 that the core financial management module was complete, NASA 

officials acknowledged that additional work remained, including the need 

to develop and configure a cost-allocation structure within the system so 

that it would accumulate the full cost of NASA’s programs and projects for 

external financial reporting purposes. However, to meet its 

implementation schedule, we also found that NASA (1) deferred 

requirements that require significant business process reengineering or 

extensive software configuration and (2) continues to rely on manual 

procedures for many transactions that should be automated in the new 

system. Consequently, only about one-third of the transaction types that 

NASA uses in its business processes are currently implemented and fully 

automated in the core financial module. 

The Full Cost of NASA’s 

Programs Not Yet Available

As part of its implementation strategy, NASA delayed conversion to fullcost accounting until the core financial module was implemented at all 

centers. After completing implementation of the module in June 2003, 

NASA began designing the agency’s new cost-allocation structure and 

expected that full-cost accounting capabilities needed to provide the full 

cost of its programs and projects for external financial reporting purposes 

would be available through the core financial module by October 1, 2003. 

Properly designing, configuring, and testing the cost-allocation structure is 

key to capturing the full costs of all direct and indirect resources and 

allocating them to NASA’s programs and activities. However, on May 30, 

2003, NASA’s Inspector General reported that NASA had not yet determined 

how to allocate space shuttle program costs to programs that benefit from 

space shuttle services or how to allocate civil service personnel costs to 

benefiting programs and projects.14 Once these issues were resolved, NASA 

would then have to configure the core financial module software to 

accommodate the new allocation structure and properly test the new 

configuration. Consequently, NASA’s Inspector General expressed 

concerns about NASA’s ability to meet its October 1, 2003, target date. In 

early October, we inquired about the status of full-cost accounting within 

14NASA Office of Inspector General, Integrated Financial Management Program Core 

Financial Module Conversion to Full Cost Accounting, IG-03-015 (Washington, D.C.: May 

30, 2003).
Page 10 GAO-04-151 NASA’s External Reporting Issues

the core financial module and IFMP officials told us that this capability 

would be fully implemented on October 26, 2003. However, because of the 

timing of this report, we did not verify whether this implementation date 

was met. 

If NASA is successful in implementing full-cost accounting, the new system 

should link all of NASA’s direct and indirect costs to specific programs and 

projects, and for the first time shed light on the full cost of these programs 

for external financial reporting purposes. As explained later, managerial 

cost accounting goes beyond providing the full cost of programs and 

projects and producing external financial reports, and is also critical for 

producing the type of cost information needed to effectively manage and 

oversee NASA’s programs. 

Deferred Requirements 

Include Transactions 

Critical to NASA’s Business 

Operations

NASA did not adequately test key requirements or configure the core 

financial module software to satisfy these requirements prior to 

implementing the module. Adequately testing and configuring a system 

prior to implementation helps assure the integrity and effectiveness of 

transactions that will be processed through the system, thereby reducing 

the likelihood of rejected transactions, labor-intensive manual 

workarounds, and inaccurate data. However, prior to implementation, 

NASA tested only 120, or 53 percent, of the 225 unique financial events or 

transaction types identified by NASA as critical for carrying out day-to-day 

operations and producing external financial reports. NASA deferred 

implementation of the remaining 105 transaction types until after June 23, 

2003, when the system would be implemented at all centers. 

Ideally, all transactions should be thoroughly tested prior to implementing 

a system. However, to meet the agency’s implementation schedule, NASA 

identified and deferred implementation of transactions that it determined 

would not have a significant or immediate impact on operations. For 

example, 29 of the deferred transactions were related to year-end closing 

procedures that would not be needed until September 30, 2003. However, 

other deferred transactions do have a significant and immediate impact on 

NASA’s operations throughout the year. For example, 40 transaction types 

were related to upward and downward adjustments to prior year data, 

many of which affected NASA’s ability to properly capture adjustments to 

obligations. Because NASA deferred implementing this capability, the 

agency has continued to rely on ad hoc, manual processes and 

“workarounds.” As discussed later, these are the same cumbersome 
Page 11 GAO-04-151 NASA’s External Reporting Issues

manual processes that resulted in a $644 million error in NASA’s fiscal year 

1999 financial statements. 

NASA hoped to implement most of these deferred transactions by October 

2003. In mid-October, NASA officials told us that 75 of the 105 deferred 

transaction types had been implemented, and the remaining 30 transaction 

types would be implemented later in fiscal year 2004. Until the remaining 

transaction types are implemented, however, NASA must continue to 

process them outside of the module using manual procedures.

Core Financial Module 

Relies Heavily on Manual 

Procedures

In addition to the 105 transaction types that NASA has deferred, NASA also 

uses manual accounting entries to record 43, or 36 percent, of the 120 

unique transaction types NASA considers implemented. NASA considers 

these 43 transaction types implemented because NASA has no current 

plans to automate them in the core financial module. Although manual 

accounting entries are sometimes necessary to record unusual or 

infrequent events, many of NASA’s manual entries are made to record 

routine events that should be processed electronically. For example, NASA 

uses summary-level manual processes to record all transactions occurring 

throughout the year related to its reported $37 billion of property. Such a 

large proportion of manual procedures runs contrary to the purpose of an 

automated system and makes the agency more vulnerable to processing 

errors and delays. In fact, prior to implementation, NASA’s consultant 

responsible for performing an independent compliance review of the core 

financial module raised concerns about the excessive number of 

transactions processed with manual journal voucher entries. Despite these 

concerns, NASA did not alter its implementation plan for the module. 

Long-standing External 

Reporting Issues Not 

Addressed

The core financial module may provide some improvements to NASA’s 

current accounting system environment by reducing the extensive amount 

of time and resources currently required to consolidate NASA’s 10 different 

reporting entities and close the books each accounting period. However, 

NASA did not thoroughly test or implement key requirements prior to 

implementation and has not used the new system as an opportunity to drive 

needed changes in its management practices and business processes. 

Therefore, the core financial module, as implemented in June 2003, does 

not (1) properly capture, record, and account for PP&E and materials 

balances or (2) provide key system requirements needed to prepare the 

agency’s Statement of Budgetary Resources. 
Page 12 GAO-04-151 NASA’s External Reporting Issues

NASA Has Not 

Reengineered Processes to 

Properly Account for PP&E 

and Materials

The core financial module, as implemented in June 2003, does not 

appropriately capture and record PP&E and material in the module’s 

general ledger at the transaction level. According to SGL requirements and 

NASA’s own accounting policy, recording PP&E and material in the general 

ledger at the transaction or item level provides independent control over 

these assets. However, NASA currently updates the core financial module’s 

general ledger using periodic summary-level manual entries. Although 

NASA plans to implement an integrated asset management module in 2005, 

this alone will not ensure that transaction-level detail is used to update the 

core financial module. 

NASA’s PP&E and materials are physically located at many locations 

throughout the world, including NASA centers, contractor facilities, other 

private or government run facilities, and in space. NASA’s most significant 

challenge, with respect to property accounting, stems from property 

located at contractor facilities, which accounts for almost $11 billion, or 

about one-third, of NASA’s reported $37 billion of PP&E and materials and 

consists primarily of equipment being constructed for NASA or items built 

or purchased for use in the construction process. NASA has not 

reengineered the agency’s processes for capturing contract costs 

associated with PP&E and material, though, and therefore, does not record 

these property costs in the general ledger at the transaction level. Instead, 

according to NASA officials, the agency plans to continue to (1) record the 

cost of PP&E and materials as expenses when initially incurred, 

(2) periodically determine which of those costs should have been 

capitalized, and (3) manually correct these records at a summary level. 

To illustrate, NASA’s contractors provide NASA with monthly contractor 

cost reports, which contain accrued cost information for any work 

performed during the month. However, these reports do not contain 

enough information for NASA to determine what portion of the reported 

cost pertains to the construction or acquisition of property and therefore, 

NASA initially records all costs reported by its contractors as an expense. 

Then, on a quarterly or annual basis,15 NASA receives a property report 

from its contractors that provides summary-level information on the 

amount of property constructed or purchased and currently in the 

15NASA has typically required its contractors to report information about property in their 

possession on an annual basis. However, NASA began requiring quarterly reports for its 55 

largest contracts as of June 30, 2003, and plans to incrementally establish quarterly 

reporting for all relevant contracts in the next couple of years.
Page 13 GAO-04-151 NASA’s External Reporting Issues

contractor’s possession. Based on these reports, NASA records the cost of 

contractor-held assets in its general ledger and reverses the expense 

previously recorded from the contractor cost reports. The problem with 

NASA’s current process for capturing, recording, and accounting for 

property in the possession of contractors is that it provides no way for 

NASA to ensure that the money it spends on the construction of its 

property is actually recorded as discrete property items. 

Although NASA plans to implement an integrated asset management 

module in 2005, the new system will not change the way NASA captures, 

records, and accounts for property in the possession of contractors. As 

noted above, because this problem stems from NASA’s inability to link 

accrued costs reported by its contractors with specific equipment items 

being constructed, the problem will not be alleviated when physical 

custody of the equipment is ultimately transferred to NASA and recorded in 

NASA’s property records.

Key Requirements Deferred 

for Statement of Budgetary 

Resources 

The core financial module does not capture and report certain key 

budgetary information needed to prepare the agency’s Statement of 

Budgetary Resources. Although the software that NASA purchased for the 

core financial module was certified by JFMIP as meeting all mandatory 

system requirements, NASA may have relied too heavily on the JFMIP 

certification. JFMIP has made it clear that its certification, by itself, does 

not automatically ensure compliance with the goals of FFMIA. Other 

important factors that affect compliance with Federal Financial 

Management System Requirements (FFMSR) include how well the 

software has been configured to work in the agency’s environment and the 

quality of transaction data in the agency’s feeder systems. When NASA 

later tested specific requirements related to adjustments to prior year 

obligations, the core financial module failed the test. Consequently, NASA 

deferred implementation of those requirements and opted to rely on 

manual compilations, system queries, or other workarounds to compensate 

for the system’s inadequacies. These workarounds are known to have 

caused reporting problems in the past.

According to FFMSR, an agency’s core financial module should 

automatically classify and record upward and downward adjustments of 

prior year obligations to the appropriate general ledger accounts. 

However, NASA’s core financial module, as implemented in June 2003, does 

not provide this capability. For example, if an upward adjustment is 

required because an invoice includes costs not previously included on the 
Page 14 GAO-04-151 NASA’s External Reporting Issues

purchase order, such as shipping costs, the system erroneously posts the 

upward adjustment to a prior year obligation instead of a current year 

obligation. Because the system does not properly capture and report these 

adjustments, NASA must rely on manual compilations and system queries 

to extract the data needed to prepare the agency’s Statement of Budgetary 

Resources—just as it did using its legacy general ledger systems. As we 

reported in March 2001, this cumbersome, labor-intensive effort to gather 

the information needed at the end of each fiscal year was the underlying 

cause of a $644 million misstatement in NASA’s fiscal year 1999 Statement 

of Budgetary Resources.16 

During its initial test of system requirements but prior to implementation at 

Marshall Space Flight Center and Glenn Research Center in October 2002, 

NASA became aware of the software’s limitations regarding upward and 

downward adjustments to prior year obligations. In order to meet its 

schedule, NASA IFMP officials deferred further system modifications to 

meet these requirements and opted to rely on a manual workaround to 

satisfy the federal requirement for upward and downward adjustments. 

NASA’s consultant responsible for performing an independent compliance 

review of the core financial module raised concerns about this approach. 

Despite these concerns, NASA went forward with its plans. At the time, 

NASA had hoped that a “patch” release or future software upgrade would 

remedy the problem and then NASA could incorporate the fix into the 

phased agency rollout of the core financial module. However, the upgrades 

incorporated after the initial implementation at Marshall and Glenn did not 

resolve all of the issues related to upward and downward adjustments. As 

a result, NASA continued to face significant problems in this area. 

According to NASA officials, the agency continued to work with the 

software vendor to reconfigure the software as necessary to accommodate 

adjustments to prior year obligations. NASA expected a new software 

patch to resolve any remaining problems by October 1, 2003. However, in 

mid-October, NASA officials acknowledged that it might be some time 

before this issue would be resolved completely. Until then, NASA will 

continue to rely on manual workarounds. 

16U.S. General Accounting Office, Financial Management: Misstatement of NASA’s 

Statement of Budgetary Resources, GAO-01-438 (Washington, D.C.: Mar. 30, 2001).
Page 15 GAO-04-151 NASA’s External Reporting Issues

NASA’S 

Implementation of 

IFMP Has Created New 

Reporting Problems 

NASA’s implementation of the core financial module has also created new 

reporting issues. Specifically, the core financial module does not 

appropriately capture accrued costs and record the corresponding 

liabilities as accounts payable. In addition, the core financial module 

records obligations to the general ledger before the obligations are legally 

binding. Although NASA knew about these problems prior to 

implementation, the agency went forward with its implementation plans. 

Accrued Costs and 

Accounts Payable Not 

Appropriately Captured and 

Reported

The core financial module, as implemented in June 2003, does not 

appropriately capture and record accrued contract costs and accounts 

payable information in accordance with federal accounting standards and 

NASA’s own financial management manual. Specifically, the core financial 

module does not capture accrued costs or record accounts payable if 

cumulative costs are in excess of obligations for a given contract. As of 

June 30, 2003, NASA had not processed approximately $245 million in costs 

that exceeded obligations, nor recorded the corresponding accounts 

payable, even though this amount represented a legitimate liability for 

NASA. Instead, these transactions are held outside of the general ledger in 

suspense until additional funds can be obligated. Thus, any report 

containing information on NASA’s costs or liabilities would likely be 

understated by the amount of costs held in suspense at the time of the 

report.

Federal accounting standards and NASA’s own financial management 

manual require costs to be accrued in the period in which they are incurred 

and any corresponding liability recorded as an account payable, regardless 

of amounts obligated. Further, federal standards require that agencies 

must disclose unfunded accrued costs—or costs in excess of obligations. 

However, NASA has designed the core financial module such that it will not 

post costs to the general ledger if they exceed the amount obligated. 

According to NASA officials, this is intended to be a “red flag” or internal 

control that alerts agency managers to potential cost overruns. 

While we agree that NASA could benefit from information that provides an 

early warning sign of possible cost or schedule problems, we disagree with 

NASA’s approach. Appropriately posting costs and accounts payable to the 

general ledger does not preclude NASA from monitoring unfunded accrued 

costs. Further, as we reported in April 2003, to adequately oversee NASA’s 

contracts, program managers need reliable contract cost data—both 

budgeted and actual—and the ability to integrate this data with contract 
Page 16 GAO-04-151 NASA’s External Reporting Issues

schedule information to monitor progress on the contract. However, 

because program managers were not involved in defining system 

requirements or reengineering business processes, the core financial 

module is not being designed to integrate cost and schedule data needed by 

program managers.

Core Financial Software 

Posts Obligations to the 

General Ledger Before They 

Are Binding

The core financial module was intended to streamline many of NASA’s 

processes and eliminate the need for many paper documents. However, in 

some areas, the new system has actually increased NASA’s workload. 

Specifically, because the core financial software allows obligations to be 

posted to the general ledger before a binding agreement exists, NASA must 

process purchase orders and contract documents outside the system until 

they are signed, or otherwise legally binding. At that point, NASA initiates 

the procurement action in the system and repeats the steps that were 

manually performed outside the system previously. 

Federal law requires that no amount be recorded as an obligation unless it 

is supported by documentary evidence of, among other things, a binding 

agreement.17 However, the processes that are embedded in the core 

financial module for processing purchase orders and contract documents 

do not accommodate this requirement. To illustrate, authorized users 

create electronic purchase requests in the system and release or forward 

the request to the appropriate approving official for electronic signature. 

Once signed, the purchase request is forwarded electronically to the 

purchasing department where purchasing staff create an electronic 

purchase order, secure a vendor, and place the order. According to federal 

appropriations law, a purchase order constitutes an obligation when the 

order is placed and when all relevant parties sign the purchase order. 

However, if a purchase order is entered into the system before it is 

finalized, the module automatically records the obligation. Similarly, if a 

contract or contract modification is entered into the module before it is 

signed and legally binding, the module automatically records the 

obligation. According to NASA officials, they are working with the 

software vendor to develop a solution and expect that the new software 

upgrade to be released on October 1, 2004, will alleviate this problem. In 

the meantime, they will manually process documents outside of the system 

1731 U.S.C. 1501 (a) (1) (2000).
Page 17 GAO-04-151 NASA’s External Reporting Issues

and monitor any documents that have been recorded without signatures to 

ensure that obligations are not overstated at month-end. 

Core Financial Module 

Does Not Substantially 

Comply With FFMIA

The system limitations discussed previously related to full-cost accounting, 

property accounting, budgetary accounting, accrued costs, and accounts 

payable—combined with the findings from our April 2003 report—indicate 

that NASA’s new core financial module and related systems, as 

implemented in June 2003, do not substantially comply with the 

requirements of FFMIA. This act provides agencies a blueprint for building 

fully integrated financial management systems that routinely provide 

decision makers with timely, reliable, and useful financial information. 

FFMIA requires agencies to implement and maintain financial management 

systems that substantially comply with (1) FFMSR, (2) the SGL at the 

transaction level, and (3) applicable federal accounting standards. 

Although NASA has made progress in addressing some of its financial 

management system weaknesses, the agency’s core financial module does 

not yet provide all the building blocks needed to achieve the ultimate goal 

of FFMIA. 

Noncompliance with 

FFMSR 

The core financial module, as implemented in June 2003, does not comply 

substantially with FFMSR. To ensure that automated federal financial 

management systems comply with this standard and provide the critical 

information needed for decision making, JFMIP issued specific functional 

requirements that core financial systems must meet in order to 

substantially comply with FFMIA. Compliance with this standard, at a 

minimum, means the core financial module must be configured to 

(1) ensure consistent and accurate processing, reporting, and tracking of 

program expenditures and budgetary resources, and (2) ensure that 

transactions are processed and recorded in accordance with laws and 

regulations, and federal accounting standards. However, the core financial 

module—although it uses software certified by JFMIP—does not perform 

all mandatory functions. Specifically, the module: 

• does not capture and record upward and downward adjustments of 

obligations incurred in prior fiscal years, and 

• posts obligations to the general ledger prior to approval. 
Page 18 GAO-04-151 NASA’s External Reporting Issues

Among other things, FFMSR requires federal financial management 

systems to produce accurate and reliable information for budgetary 

reports, including the Statement of Budgetary Resources18 and the Report 

on Budget Execution and Budgetary Resources (Standard Form 133).19 As 

previously discussed, the core financial module does not capture and 

record upward and downward adjustments of obligations incurred in prior 

fiscal years, which is essential for producing both the Statement of 

Budgetary Resources and Standard Form 133 reports. In addition, FFMSR 

requires federal financial management systems to process transactions in 

accordance with federal appropriations law, which states that no amount 

may be recorded as an obligation unless it has been approved and is 

supported by documentary evidence. As a result of system limitations we 

have discussed, the core financial module erroneously posts obligations to 

the general ledger prior to approval. 

Noncompliance with SGL The core financial module, as implemented in June 2003, does not 

substantially comply with the SGL at the transaction level. The SGL 

requirements ensure consistency in financial transaction processing and 

external reporting. Compliance with this standard, at a minimum, means 

that the core financial module must be configured such that (1) reports 

produced by the systems containing financial information can be traced 

directly to general ledger accounts, (2) transaction details supporting 

general ledger account balances are available and can be directly traced to 

specific general ledger accounts, and (3) the criteria (e.g., timing, 

processing rules/conditions) for recording financial events are consistent 

with accounting transaction definitions and processing rules defined in the 

SGL. 

As discussed previously, the core financial module does not accumulate 

transaction-based support for adjustments to prior year obligations, which 

is essential for producing the Statement of Budgetary Resources and 

Standard Form 133 reports. Instead, NASA must rely on estimates, manual 

compilations, and system queries to extract the data needed to prepare 

these required budgetary reports. As a result, key budgetary information 

18The Statement of Budgetary Resources provides information on the availability and use of 

budgetary resources, as well as the status of budgetary resources at the end of the period. 

19The Standard Form 133 is prepared quarterly and is the principal source of information for 

Statement of Budgetary Resources. It also fulfills the requirement that the President review 

federal expenditures at least four times a year. 
Page 19 GAO-04-151 NASA’s External Reporting Issues

reported on the Statement of Budgetary Resources and Standard Form 133 

cannot be traced directly to NASA’s general ledger accounts. NASA also 

does not properly record PP&E and materials as assets when they are first 

acquired. Instead, NASA initially records these items as expenses and then 

later corrects these records using manual procedures. Although this 

manual process provides NASA a vehicle for reporting PP&E and material 

costs for financial statement reporting, it is not sufficient for compliance 

with the SGL. Finally, NASA does not maintain transaction-level detail for 

its contractor-held property. Instead, it relies solely on its contractors to 

maintain such records and to periodically report summary-level 

information on these assets to NASA. This situation has resulted in 

material weaknesses over this property, as previously reported by NASA’s 

current independent auditor.

Noncompliance with 

Federal Accounting 

Standards

The core financial module and related systems, as implemented in June 

2003, do not substantially comply with federal accounting standards. 

Compliance with these standards is essential to providing useful and 

reliable financial information to external and internal users. Federal 

accounting standards20 are the authoritative requirements that guide 

agencies in developing financial management systems, as well as preparing 

financial statements. However, as discussed previously, the core financial 

module did not, as of June 2003, process and report financial information in 

accordance with federal accounting standards. 

The major reasons for the module’s noncompliance with federal accounting 

standards are as follows.

• The core financial module does not comply with SFFAS No. 1, 

Accounting for Selected Assets and Liabilities. This standard states that 

a liability should be recognized and recorded as an account payable 

when contractors construct facilities or equipment for the government. 

The liability should be based on an estimate of work completed. 

However, the core financial module does not capture accrued costs or 

20FASAB promulgates Federal Accounting Standards. Currently, there are 25 Statements of 

Federal Financial Accounting Standards (SFFAS) and 4 statements of federal financial 

accounting concepts (SFFAC). The accounting standards are authoritative statements of 

how particular types of transactions and other events should be reflected in financial 

statements. SFFACs explain the objectives and ideas upon which FASAB develops the 

standards. The concepts and standards provide the authoritative references for developing 

systems, financial statement reporting, and maintaining day-to-day financial records.
Page 20 GAO-04-151 NASA’s External Reporting Issues

record accounts payable when the cumulative costs for a given contract 

exceed obligations. Instead, these transactions are held outside the 

general ledger, in suspense, until additional funds are obligated, thus 

understating NASA’s reported program costs and liabilities. 

• The core financial module does not yet provide full-cost accounting 

capabilities in accordance with SFFAS No. 4, Managerial Cost 

Accounting Standards. This standard requires agencies to report the full 

cost of their programs in their general-purpose financial reports. 

However, as previously discussed, NASA, as of June 2003, had not 

defined, configured, or tested the appropriate cost pools and cost 

allocation structure, which are critical to implementing full-cost 

accounting. 

• The core financial module does not comply with the broader objective 

of SFFAS No. 4, Managerial Cost Accounting Standards. The concepts 

and standards included in SFFAS No. 4 are aimed at achieving three 

general objectives: (1) providing program managers with relevant and 

reliable information relating costs to program outputs, (2) providing 

relevant and reliable cost information to assist the Congress and 

executives in making decisions about allocating federal resources and 

evaluating program performance, and (3) ensuring consistency between 

costs reported in general purpose financial reports and costs reported to 

program managers. However, as we reported in April 2003, the core 

financial module does not provide program managers, cost estimators, 

or the Congress with managerially relevant cost information that they 

need to effectively manage and oversee NASA’s contracts and programs. 

As a result, NASA’s continuing inability to provide its managers with 

timely, relevant data on the cost, schedule, and performance of its 

programs is a key reason that GAO continues to report NASA’s contract 

management as an area of high risk. Because this information is not 

available through the core financial module, program managers will 

continue to rely on hard copy reports, electronic spreadsheets, or other 

means to monitor contractor performance. Consequently, NASA risks 

operating with two sets of books—one that is used to report information 

in the agency’s general-purpose financial reports and another that is 

used by program managers to run NASA’s projects and programs. 

Compliance with federal accounting standards goes far beyond 

receiving a “clean” opinion on financial statements. A key indicator that 

an agency’s financial management systems do not substantially comply 

with federal accounting standards is the existence of material 
Page 21 GAO-04-151 NASA’s External Reporting Issues

weaknesses in the agency’s internal controls. As noted earlier, NASA 

has not addressed material weaknesses in its internal controls and 

processes over PP&E and materials, which make up nearly 85 percent, 

or $37 billion, of NASA’s assets. Instead, NASA plans to rely on existing 

legacy systems and processes—including the extensive use of manual 

accounting entries—that the agency’s independent auditor has found to 

be inadequate for property accounting. As a result, NASA faces serious 

challenges in complying with these standards. 

Although NASA plans to implement an integrated asset management 

module in 2005, most of NASA’s issues related to property accounting have 

little to do with the lack of an integrated system. Instead, NASA faces two 

key challenges with respect to property accounting: (1) reengineering its 

processes for capturing and recording transaction-level detail in the core 

financial module’s general ledger and (2) addressing material weaknesses 

in its internal controls over property previously identified by NASA’s 

independent auditors. To date, NASA has yet to define specific 

requirements for its asset management module or determine how it plans 

to overcome the previously identified material weaknesses in NASA’s 

internal controls over PP&E and material. 

Conclusion If NASA continues on its current track, the core financial module and IFMP 

will fail to achieve the agency’s stated objective of providing reliable, timely 

financial information for both internal management decision-making and 

external reporting purposes. Thus far, NASA has focused on deploying the 

system on its established schedule, rather than ensuring that it satisfies the 

agency’s internal management and external reporting requirements. To 

meet its schedule, NASA has put off addressing user requirements that 

would necessitate significant business process reengineering or extensive 

software configuration. While NASA is meeting its implementation 

milestones, it is only able to do so because the agency has deferred critical 

system capabilities, such as the ability to properly capture, record, and 

account for its PP&E and material; process budgetary accounting entries; 

and provide managerially relevant cost information. Until, and unless, the 

agency deals with these issues, NASA risks making a substantial 

investment in a system that will fall far short of its stated goal of providing 

meaningful information for both internal management and external 

reporting purposes. 
Page 22 GAO-04-151 NASA’s External Reporting Issues

Recommendations Based on the findings from this review, in conjunction with our April 2003 

report, we reiterate our April 2003 recommendation that NASA:

• engage stakeholders—including program managers, cost estimators, 

and the Congress—in developing a complete and correct set of user 

requirements; and 

• reengineer its acquisition management processes, particularly with 

respect to the consistency and detail of budget and actual cost and 

schedule data provided by contractors.

We also recommend that the NASA Administrator direct the Program 

Executive Officer for IFMP to implement a corrective action plan in 

coordination with NASA’s Chief Financial Officer that will produce 

financial management systems that comply substantially with the 

requirements of FFMIA, including capabilities to produce timely, reliable, 

and useful financial information related to: 

• property, plant, equipment, and materials;

• budgetary information including adjustments to prior year obligations;

• accounts payable and accrued costs; and

• the full cost of programs for financial reporting purposes.

This plan should include time frames and details on how any changes will 

be monitored, tested, and documented.

Agency Comments and 

Our Evaluation

In written comments, reprinted in appendix II, NASA disagreed with all of 

our conclusions and recommendations in part because we reviewed the 

status of the core financial module as of June 23, 2003, instead of 

September 30, 2003—the date used for FFMIA reporting. Although NASA 

takes issue with the date of our review, it is important to note that we 

selected June 2003 because NASA represented that the core financial 

module was fully operational at all of its centers at that time. In making that 

representation, NASA officials acknowledged that, as part of their 

implementation strategy, they had not yet converted the system to support 

full-cost accounting. However, they did not disclose any other deferred 

capabilities. 
Page 23 GAO-04-151 NASA’s External Reporting Issues

Moreover, NASA’s comments assert that for PP&E and budgetary reporting, 

the manual processes or workarounds it has developed to produce yearend balances for the agency’s annual financial statements also satisfy the 

requirements of FFMIA. We disagree with this assertion. The development 

of significant manual workarounds in these areas masks the fact that 

NASA’s core financial module is not designed to, and cannot, produce 

timely and reliable PP&E and budgetary data with traceability to 

transaction-based support. The ability to produce reliable numbers once a 

year for financial reporting purposes does not by itself constitute FFMIA 

compliance. In its written comments, NASA indicated that it has made 

changes to the module since June and that the core financial module as 

implemented in October 2003 has many of the capabilities that were 

lacking in the June 2003 module. Although we requested status updates 

between June and October to track NASA’s progress, we did not reassess 

the module’s capabilities as of October 2003. However, with the possible 

exception of full-cost accounting, which was planned for October 1, 2003, 

the changes NASA has cited still involve manual workarounds for 

producing year-end numbers. FFMIA goes beyond producing auditable 

financial statements once a year and requires financial systems that ensure 

accountability on an ongoing basis throughout the year. 

Engaging Stakeholders In its response to our April 2003 recommendation, which we have restated 

in this report, to engage stakeholders in developing a complete and correct 

set of user requirements, NASA stated that it did engage stakeholders in the 

design of requirements for the core financial module. We disagree with 

NASA’s assertion. As we reported in April 2003, the program management 

staff we spoke with from NASA’s three largest space flight programs viewed 

the core financial module as an “accounting system” that would be used by 

the accountants but was not necessarily going to change the way they 

managed. With this understanding, it is not surprising that the core 

financial module does not meet the needs of program managers. Although 

the IFMP implementation team made an effort to include resource 

management staff from program management offices in various process 

teams, they did not effectively utilize program staff to help drive the 

improvement effort. Consequently, the information requirements of 

program managers and cost estimators were not fully addressed. 

Implementing an integrated financial management system that is intended 

to change the way an organization does business is extremely complex and 

involves cultural, organizational, and process improvements. It also 

means making financial management an agencywide priority. Our work at 

leading public and private sector organizations has shown that 

implementing a financial management system that meets the organization’s 
Page 24 GAO-04-151 NASA’s External Reporting Issues

business needs takes more than merely placing business or line 

management representation on the implementation team.21 Instead, at best 

practice organizations, business managers had a vested interest in the 

success of the project and were actively involved in leading the 

improvement effort. 

Although NASA disagreed with our assessment of key stakeholder 

involvement, the agency has indicated that it is in the process of 

addressing, or plans to address, a number of our concerns by more actively 

engaging key stakeholders. For example, NASA stated that to develop 

standard, agencywide internal management reports, it is using an 

enterprise- or program-led team to define the critical “decision-support” 

financial information that is needed by managers. The success of this 

effort is critical to ensure that NASA program managers use IFMP rather 

than other stovepiped systems or manually developed data that may or may 

not reconcile to the IFMP and core financial module. 

Reengineering Acquisition 

Management

In response to our April 2003 recommendation, which we have restated in 

this report, to reengineer its acquisition management processes, 

particularly with respect to the consistency and detail of budgeted and 

actual cost and schedule data provided by contractors, NASA indicated 

that it is in the process of addressing a number of our concerns. 

Specifically, NASA stated that it (1) has extended the data structure 

embedded in the core financial module to capture more detailed cost data, 

(2) is currently assessing its contractor reporting requirements, and (3) is 

evaluating the possibility of accommodating contract cost and schedule 

data in an integrated environment. While it is too early to assess the 

significance or impact of NASA’s current effort, we are encouraged that 

NASA is considering the possibility of reengineering its acquisition 

management processes. This would be an important first step toward 

ensuring that NASA’s contractors provide the appropriate level and type of 

cost data needed for both internal management and external reporting 

purposes and that the core financial module is properly configured to 

support the agency’s information needs. However, we continue to believe it 

would have been more effective and efficient if NASA had conducted its 

assessment of contractor reporting requirements as part of a larger 

reengineering effort prior to configuration of the core financial module. 

21U.S. General Accounting Office, Executive Guide: Creating Value Through World-class 

Financial Management, GAO/AIMD-00-134 (Washington, D.C.: Apr. 1, 2000).
Page 25 GAO-04-151 NASA’s External Reporting Issues

Further, any effort that falls short of end-to-end business process 

reengineering will likely not result in a system that substantially improves 

the data available for contract oversight or ensures consistency between 

costs reported in general purpose financial reports and costs reported to 

program mangers. 

In its written comments, NASA also emphasized that the core financial 

module alone cannot meet all of the functional requirements needed to 

manage a program or to prepare cost estimates and asserts that 

applications such as Erasmus, an executive-level program performance 

reporting tool, will enable NASA to meet the full depth and breadth of user 

requirements. We agree that the core financial module alone cannot meet 

all of NASA’s information needs and that an executive-level reporting tool 

such as Erasmus may provide NASA executives with greater visibility over 

program performance. However, Erasmus does little to help program 

managers oversee contractor performance, and like the core financial 

module, may contain cost data that are not consistent or reconcilable with 

cost data used by program managers to manage contracts. The underlying 

problem, as we reported in April 2003, is that NASA uses one set of 

contractor-reported cost data to update the core financial module while 

program managers use a separate set of contractor-reported cost data that 

resides outside the system to monitor contractor performance. 

Consequently, the cost data maintained in the core financial module and 

reported in NASA’s external financial reports are not consistent or 

reconcilable with cost data used by program managers to manage 

contracts. 

Finally, NASA stated that the asset management module, scheduled for 

implementation in 2005, will make a significant contribution to its program 

management and cost estimating activities. This module is primarily 

intended to maintain detailed property records for NASA-held property. 

Thus, we do not believe an asset management module would have any 

impact on the cost, schedule, and performance data needed for program 

management and cost estimating.

PP&E and Materials NASA disagreed with our recommendation related to IFMP’s ability to 

produce timely, reliable, and useful information for PP&E and materials in 

accordance with FFMIA requirements. NASA represented that its current 

processes for capturing and recording property for financial statement 

reporting purposes also meet the requirements of FFMIA because it has 

begun requiring more frequent and detailed property reporting by its 55 
Page 26 GAO-04-151 NASA’s External Reporting Issues

largest contractors. We disagree with NASA’s assertion. Because NASA’s 

current contractor cost-reporting processes do not provide the information 

needed to distinguish between capital and non-capital expenditures, NASA 

currently records as expenses all contractor costs as they are incurred and 

then manually adjusts previous entries to record assets based on periodic 

summary-level contractor property reports. While this process may satisfy 

NASA financial statement reporting needs, the development of significant 

manual workarounds in this area masks the fact that NASA’s core module is 

not designed to and cannot produce timely and reliable PP&E data with 

traceability to transaction-based support. The ability to produce reliable 

numbers once a year for financial reporting purposes does not equate to 

FFMIA compliance.

In accordance with FFMSR, federal accounting standards, and the SGL, 

when an agency incurs costs for the purchase or construction of PP&E and 

material, those costs should be recorded in both the agency’s asset 

management system and its core financial management systems’ general 

ledger. The only difference for contractor-held property is that the asset 

management system belongs to the contractor. The asset management 

system, whether NASA’s or its contractors’, would maintain the agency’s 

detailed logistical property records for PP&E and materials—including 

information related to asset location, date of purchase, useful life, quantity, 

cost, and condition—and the core financial module’s general ledger would 

maintain a cumulative balance of all purchased or constructed property 

based on the cost incurred for individual items. The ability to reconcile 

detailed transactions in the asset management system with amounts 

recorded in the general ledger provides an efficient way to maintain 

independent general ledger control over these assets. As mentioned above, 

NASA first expenses all PP&E in the core financial module, and then later, 

makes adjustments to record the costs of PP&E as assets at a summary 

level. There is currently no traceability from the core financial module 

general ledger to the detailed logistical property records of PP&E and 

materials. 

NASA also stated that one of the objectives of the asset management 

module, now in formulation, is to significantly improve reporting for 

contractor-held property. While it is our understanding that NASA’s new 

asset management module, as planned, will maintain detailed property 

records for NASA-held property and be integrated with other IFMP 

modules, including the core financial module, we know of no plans to add 

contractor-held property to this system. In fact, the Federal Acquisition 

Regulation requires contractors to maintain the logistical property records 
Page 27 GAO-04-151 NASA’s External Reporting Issues

for government property in their possession and prohibits government 

agencies from maintaining duplicate property records. Under these 

circumstances, as part of an overall effort to reengineer its acquisition 

management process, we believe that NASA must capture the cost and 

other information it needs from its contractors and develop traceability to

contractor logistical records to ensure accountability over its contractorheld property on an ongoing basis.

Budgetary Information NASA disagreed with our recommendation regarding its ability to produce 

reliable, timely, and useful budgetary information, including adjustments to 

prior year obligations. NASA stated that although it identified certain 

transactional reporting limitations in its initial deployment of the core 

financial module, it developed alternative or “workaround” procedures to 

ensure the accurate and timely reporting of the identified transactions. 

However, as stated previously, we do not believe that the manual processes 

or workarounds NASA uses to produce year-end balances for the agency’s 

annual financial statements satisfy the requirements of FFMIA. While 

NASA’s written comments indicate that many of these deferred capabilities 

were largely enabled by September 30, 2003, they also indicate that more 

time will be required before the module can process adjustments to prior 

year obligations. As a result, NASA must use manual workarounds to 

process these transactions related to fiscal year 2003 activity. We note that 

these are the same manual procedures used to compensate for deficiencies 

in NASA’s legacy systems that resulted in the $644 million error in NASA’s 

fiscal year 1999 Statement of Budgetary Resources.22

Accrued Costs and 

Accounts Payable

NASA disagreed with our conclusion that its overall financial management 

system does not properly capture and report all accrued costs and 

accounts payable. However, we did not report that the information was not 

contained within the system; rather, we reported that it was not posted to 

the general ledger. We recognize that NASA records costs that exceed 

current obligations in the IFMP business warehouse until additional funds 

are obligated and in order to highlight or detect potential program cost 

overruns. While we encourage NASA’s effort to monitor costs in excess of 

obligations, we do not believe its method for doing so is appropriate. We 

continue to believe that these costs should be properly recorded in the 

22GAO-01-438.
Page 28 GAO-04-151 NASA’s External Reporting Issues

general ledger in the period in which they are incurred. The risk in NASA’s 

method is that when costs and liabilities are not properly recorded in the 

general ledger, these balances are likely to be understated in any financial 

reports produced during the year, as well as at year-end.

It is also important to note that comparing costs with obligations will not 

necessarily detect a cost overrun. For example, this strategy would not 

have alerted NASA to its largest cost overrun in recent years—the $5 billion 

cost growth in the International Space Station program reported in 2001. 

This overrun was not the result of incurring more costs than the funds 

obligated. Instead, it was due to the cost growth projected to occur in the 

future—i.e., growth in the estimated costs to complete the program. This 

cost overrun went undetected for a long period of time because of NASA’s 

deeply-rooted culture of managing programs based on current year budgets 

rather than total costs. As we reported in 2002,23 for NASA to manage its 

program costs properly, it needs to focus on the total costs of a program 

rather than just annual budgets. Thus, NASA’s plan to hold costs in 

suspense when they exceed obligations will not make such cost overruns 

any easier to detect or manage. Instead, as we reported in April 2003, to 

adequately oversee NASA’s contracts, program managers need reliable 

contract cost data—both budgeted and actual—and the ability to integrate 

these data with contract schedule information to monitor progress on the 

contract. However, because program managers were not involved in 

defining system requirements or reengineering business processes, the 

core financial module was not designed to integrate cost and schedule data 

needed by program managers. 

Full-Cost Accounting NASA also disagreed with our recommendation concerning its system’s 

ability to account for the full cost of its programs and asserted that it 

completed implementation of its full-cost accounting capability within 

IFMP as of October 1, 2003. However, IFMP management told us in early 

October that this capability would not become operational until October 

26, 2003, after NASA completed its year-end closing procedures. Because 

of our reporting time frame, we did not conduct the detailed procedures 

that would have been necessary to determine whether or not this function 

had begun operating. 

23U.S. General Accounting Office, Space Station: Actions Under-way to Manage Cost, But 

Significant Challenges Remain, GAO-02-735 (Washington, D.C.: July 17, 2002).
Page 29 GAO-04-151 NASA’s External Reporting Issues

As agreed with your offices, unless you announce its contents earlier, we 

will not distribute this report further until 30 days from its date. At that 

time, we will send copies to interested congressional committees, the 

NASA Administrator, and the Director of the Office of Management and 

Budget. We will make copies available to others upon request. In addition, 

the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you or your staffs have any questions concerning this report, please 

contact me at (202) 512-9505 or kutzg@gao.gov, Keith Rhodes at (202) 512-

6412 or rhodesk@gao.gov, or Diane Handley at (404) 679-1986 or 

handleyd@gao.gov. Key contributors to this report are acknowledged in 

appendix III.

Gregory D. Kutz

Director

Financial Management and Assurance 

Keith A. Rhodes

Chief Technologist

Applied Research and Methods
Page 32 GAO-04-151 NASA’s External Reporting Issues

Appendix II

Comments From the National Aeronautics 

and Space Administration ApendxiI
Appendix II

Comments From the National Aeronautics 

and Space Administration

Page 33 GAO-04-151 NASA’s External Reporting Issues
Appendix II

Comments From the National Aeronautics 

and Space Administration

Page 34 GAO-04-151 NASA’s External Reporting Issues
Appendix II

Comments From the National Aeronautics 

and Space Administration

Page 35 GAO-04-151 NASA’s External Reporting Issues
Appendix II

Comments From the National Aeronautics 

and Space Administration

Page 36 GAO-04-151 NASA’s External Reporting Issues
Appendix II

Comments From the National Aeronautics 

and Space Administration

Page 37 GAO-04-151 NASA’s External Reporting Issues
Page 30 GAO-04-151 NASA’s External Reporting Issues

Appendix I

Objective, Scope, and Methodology ApApenednxidexiIs

The objective of this report was to assess whether the National Aeronautics 

and Space Administration (NASA) Integrated Financial Management 

Program’s (IFMP) core financial module, as implemented on June 2003, 

would satisfy NASA’s external reporting requirements, such as reliable and 

auditable financial statements, congressional information needs, and other 

reporting requirements. Specifically, we assessed whether the core 

financial module (1) accurately accounts for Property, Plant, and 

Equipment (PP&E) and materials and supplies, (2) properly accounts for 

the full cost of NASA’s projects and programs, (3) captures and reports 

certain key budgetary information, (4) accurately records accounts 

payable, and (5) complies substantially with the requirements of the 

Federal Financial Management Improvement Act (FFMIA) of 1996. We did 

not assess other aspects of the core financial module’s capabilities.

We interviewed officials from NASA’s financial management division and 

the NASA Office of Inspector General to identify various reporting 

requirements and weaknesses in meeting these requirements, and to 

determine how the core financial module will provide the data needed to 

meet these requirements. We evaluated fiscal year 2002 internal control 

weaknesses reported by PricewaterhouseCoopers, NASA’s independent 

auditors, related to PP&E, material and supplies, and financial reporting. 

However, for the purposes of this report we did not review the auditors’ 

underlying work paper support. We also reviewed NASA’s process for 

preparing the Statement of Budgetary Resources and reporting accounts 

payable, and any related issues identified by auditors. 

We reviewed applicable Treasury, Office of Management and Budget, and 

NASA guidance, and related federal accounting standards as well as federal 

financial management system requirements promulgated by the Joint 

Financial Management Improvement Program. 

At two NASA centers, we observed how transactions are recorded in the 

general ledger within the core financial module and discussed these 

processes with users of the system. We reviewed nonrepresentative 

selections of transactions for PP&E, materials, accounts payable, and 

budgetary transactions. We traced selected transactions to their source 

documents, and also traced selected source documents to the general 

ledger. We assessed whether transactions were recorded consistently with 

the Treasury Financial Manual. We also observed and discussed how 

information on contractor cost reports is recorded in the core financial 

module.
Appendix I

Objective, Scope, and Methodology

Page 31 GAO-04-151 NASA’s External Reporting Issues

We interviewed various officials from IFMP and its core financial project 

design and implementation teams, including the IFMP Deputy Program 

Director, the Core Financial Project Manager, and the Core Financial 

Deputy Project Manager to clarify our understanding of the core financial 

module’s functions and obtain the most recent information on the status of 

various implementation issues as of June 2003. We also reviewed relevant 

audit reports from the NASA IG and the results of an independent 

compliance review on the core financial module performed by NASA’s 

consultant. 

We performed our work primarily at NASA headquarters in Washington, 

D.C. and the two NASA centers—Marshall Space Center in Huntsville, 

Alabama and Glenn Research Center in Cleveland, Ohio—where the core 

financial module was implemented first. Our work was performed from 

April 2003 through September 2003 in accordance with generally accepted 

government auditing standards.

We requested comments on a draft of this report from the NASA 

Administrator or his designee. Written comments from the NASA Deputy 

Administrator are presented and evaluated in the “Agency Comments and 

Our Evaluation” section of this report and are reprinted in appendix II.
Page 38 GAO-04-151 NASA’s External Reporting Issues

Appendix III

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact Diane Handley (404) 679-1986

Acknowledgments Staff members who made key contributions to this report were Shawkat 

Ahmed, Fannie Bivins, Kristi Karls, Chris Martin, and Maria Storts.

(192087)
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