GAO-01-1000R NASA Cost Limits

United States General Accounting Office

Washington, DC 20548

August 31, 2001

The Honorable Ernest Hollings

Chairman

The Honorable John McCain

Ranking Minority Member

Committee on Commerce, Science,

 and Transportation

United States Senate

The Honorable Sherwood L. Boehlert

Chairman

The Honorable Ralph Hall

Ranking Minority Member

Committee on Science

House of Representatives

Subject: NASA: International Space Station and Shuttle Support Cost Limits

Section 202 of the National Aeronautics and Space Administration (NASA)

Authorization Act for Fiscal Year 2000 (P.L. 106-391) establishes general cost

limitations on the international space station and space shuttle programs. Under the

act, through substantial completion of the space station, NASA may not obligate more

than $25 billion for space station development or more than $17.7 billion for shuttle

launches in connection with space station assembly. The act further stipulates that

for the purpose of calculating launch costs not more than $380 million per launch

shall be used. Finally, the act requires that NASA, as part of its annual budget

request, update the Congress on its progress by (1) accounting for and reporting

amounts obligated against the limitations to date, (2) identifying the amount of

budget authority requested for the future development and completion of the space

station, and (3) arranging for GAO to verify the accounting submitted to the Congress

within 60 days after the submission of the budget request.

In responding to the legislative requirement for verifying NASA’s accounting, we

planned to (1) assess NASA’s methodology for accumulating and allocating amounts

obligated against the space station and shuttle limits and (2) audit the underlying

obligation data supporting these amounts. Based on discussions with your staffs, we

also agreed to (1) evaluate whether NASA’s costs, relative to the status of space

station completion, were reasonable and (2) assess the significance of amounts not

reported against the limits due to exclusions set forth under the act.
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In performing our work, we spoke with officials responsible for preparing NASA’s

accounting for the space station and shuttle limits and identified and reviewed the

methodology they used. To test the completeness and accuracy of NASA’s

accounting, we requested transaction-level support for amounts obligated for fiscal

years 1998 though 2000. We further requested that the transactions be identified as

either space station and shuttle launch support or all other programs so that we could

use statistical sampling techniques to test the propriety of transactions included in

each group.

Also, as part of our review, we requested support for the actual cost of space station

components that were completed through September 30, 2000, so that we could

compare the percentage of resources expended with the percentage of the space

station completed. Except for the limits imposed by NASA’s inability to provide us

with timely data, we conducted our work from March through June 2001 in

accordance with generally accepted government auditing standards.

On June 8, 2001, we briefed your staffs on the results of our work. As agreed, this

letter documents our findings and results. On August 23, 2001, we received written

comments on a draft of this letter from the NASA Associate Deputy Administrator.

These comments are reprinted in the enclosure.

Results in Brief

We found that NASA did not comply with the act’s requirement to use obligations as

its basis for reporting against the space station limit but instead used budget

authority. In addition, NASA was not able to provide detailed transaction-based

support for amounts obligated against the space station and shuttle limits for us to

evaluate and meet the 60-day reporting requirement. Consequently, we were unable

to verify the information NASA reported to the Congress. Further, NASA did not

have support for the actual cost of completed space station elements and subsystems.

Therefore, we could not determine whether NASA’s costs, relative to the status of

space station completion, were reasonable. NASA’s inability to provide timely data on

obligations or support for actual costs related to the space station and shuttle raises

concerns about NASA achieving the discipline and accountability called for by the

act.

Also, the act does not require NASA to charge all relevant obligations against the

space station and shuttle limits. As a result, NASA’s accounting for the limits in its

fiscal year 2002 budget request did not include $2.5 billion of related obligations

through fiscal year 2000. Through fiscal year 2004, when NASA estimates the space

station will be substantially complete, an estimated $5.8 billion of related space

station and shuttle obligations may be excluded from the limits.

In commenting on a draft of this letter, NASA stated that it would work with us and

the Congress to address some of the problems we identified. However, NASA also

expressed concern about how we characterized its financial reporting and costing

practices for the space station.
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NASA Accounting for the Space Station

Limit Not Based on Amounts Obligated

Although the act specifically requires NASA to report amounts obligated against the

limits, NASA instead reported in its fiscal year 2002 budget request that it had

received about $15.8 billion of budget authority related to the space station limit

through fiscal year 2000. NASA claims that the budget authority received is, in

essence, equivalent to its total obligations because all but a negligible portion of the

budget authority for 1994 through 2000 has been obligated. However, NASA officials

have yet to provide support for the amounts obligated against the space station limit

in order for us to verify their assertion.

NASA’s fiscal year 2002 budget request also included projected space station

spending through substantial completion in fiscal year 2004 and full completion in

fiscal year 2006. NASA again calculated these amounts using projected budget

authority for the space station. Using this methodology, NASA projects it will spend a

total $23.3 billion through substantial completion in fiscal year 2004. The projection

falls within the act’s limit, but also assumes significant reductions in space station

content. Specifically, NASA plans to save about $3 billion by not funding remaining

high-cost hardware that is in development, such as the crew return vehicle and

habitation module. In addition, according to NASA officials, another $1 billion could

be saved through planned program efficiencies. Absent these changes and including

spending through fiscal year 2006, NASA’s fiscal year 2002 budget projected that

spending would exceed the space station budget by over $4 billion at full completion.

However, NASA was unable to provide us with the details to support the savings

resulting from planned space station content reductions or other program

efficiencies. In fact, when NASA attempted to identify the specifics of the projected

savings, instead of $1 billion in savings from planned program efficiencies, NASA’s

analysts identified new areas of cost growth—resulting in a net increase in total

projected space station spending. As of the date of this letter, NASA continues to

reassess its program budget and has not yet finalized its cost overrun projection. We

have ongoing work related to NASA’s projected space station spending.

NASA Not Able to Provide

Detailed Support Required for Audit

It was our intention to test the propriety of charges to various NASA programs by

ensuring that all charges to the space station and shuttle programs were appropriate

and that no space station or shuttle obligations were charged to other programs.

However, NASA could not provide the requested data in time for us to perform our

audit procedures. As a result, we were unable to independently validate obligations

related to the space station and shuttle launches or to determine how closely the

budget authority information reported to the Congress mirrored the actual

obligations for the space station and shuttle programs.

According to NASA officials, transaction-level obligation data are available at NASA’s

10 space centers on separate and different financial systems. However, NASA was
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not able to provide the data in time for us to review it and meet the 60-day reporting

requirement. NASA officials also told us that NASA has long-term plans for

implementing an integrated financial management system that will make access to

detailed obligation data more readily available.

NASA Does Not Have Needed Cost Data

NASA was also not able to provide detailed support for the actual costs of completed

space station components—either in total or by subsystems or elements. Although

NASA capitalized the cost of these items in its audited fiscal year 2000 financial

statements at about $8 billion, according to NASA officials, these amounts are based

primarily on cost estimates not actual costs.1

 Further, NASA officials were not able

to reconcile or adequately explain the difference between the $15.8 billion in budget

authority reported against the space station limit and the $8 billion reported in

NASA’s financial statements.

NASA officials stated that its accounting systems were designed prior to the

implementation of current federal cost accounting standards and financial systems

standards that require agencies to track and maintain cost data needed for

management activities such as estimating and controlling costs, performance

measurement, and making economic trade-off decisions. As a result, NASA's systems

do not track the cost of individual space station subsystems or elements. According

to NASA officials, the agency manages and tracks space station costs by contract and

does not need to know the cost of individual subsystems or elements to effectively

manage the program. To the contrary, we found that NASA identifies potential and

probable future program costs to estimate the impact of canceling, deferring, or

adding space station content. These cost estimates often identify the cost of specific

space station subsystems. However, because NASA does not attempt to track costs

by element or subsystems, the agency does not know the actual cost of completed

space station components and is not able to re-examine its cost estimates for validity

once costs have been realized.

The Act Does Not Require NASA

to Report All Relevant Amounts

NASA’s fiscal year 2002 budget request reported that $1.5 billion had been charged

against the shuttle limit through fiscal year 2000. This amount was calculated using

$380 million per launch, the maximum amount per launch that can be applied against

the limit under the act. However, it does not reflect the actual amount obligated or

even NASA’s best estimate of the amount obligated for shuttle support in connection

with space station assembly. According to NASA officials, NASA does not manage

 1

Expenditures that are expected to benefit more than one accounting period are considered capital

expenditures and are to be reported on the statement of financial position as capital assets. NASA

capitalized $2.5 billion for completed space station assets orbiting the earth and $5.4 billion for

completed contractor-held assets that are at the launch site for a total of $8 billion. Completed assets

at the launch site are reported in NASA’s financial statements as contractor-held work in process.

However, NASA was not able to categorize the $5.4 billion by space station versus other programs.

Therefore, $8 billion represents the maximum amount attributable to the space station.
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the shuttle program on a cost per flight basis and therefore is not able to determine

the actual amount obligated for shuttle launches in connection with space station

assembly. Instead, for the purpose of allocating shuttle costs to programs such as

space station, NASA periodically calculates an average cost per launch by dividing

program costs for the fiscal year by the number of launches. For fiscal year 2000,

NASA calculated an average cost per launch of $759 million based on four shuttle

launches. Thus, for the four space station assembly flights charged against the limit,

approximately half of NASA’s calculated costs ($379 million per launch or $1.5 billion

in total) are not reflected in NASA’s fiscal year 2000 accounting. Although NASA

capitalized shuttle-related costs for the space station at $441 million per flight in its

audited fiscal year 2000 financial statements, NASA officials stated that its more

recent calculation of $759 million per launch more closely reflects actual cost. NASA

officials were not sure what basis they used to calculate the amount reported in

NASA’s fiscal year 2000 financial statements but speculated that the calculation was

likely based on data from a previous year.

NASA’s fiscal year 2002 budget request also included projected shuttle spending of

$11.4 billion through substantial space station completion in fiscal year 2004. NASA

again calculated this amount using $380 million per launch, the maximum amount

allowed by the act. While NASA’s projection falls within the shuttle limit, due to

planned space station content reductions, the calculation assumes that only 30

assembly flights will be required instead of 40 flights, as originally planned. In

addition, reporting a maximum amount per launch in accordance with the act will

probably result in a significant understatement of total launch costs. Specifically,

NASA has estimated that the average costs per launch for each of the 30 assembly

missions planned through fiscal year 2004 will exceed $380 million, ranging between

$437 and $759 million per launch. Based on NASA’s estimates, total launch costs for

the 30 planned flights would be understated by about $3.8 billion. If included, total

launch costs through 2004 would be $15.2 billion.

In addition, the act does not require NASA to charge total costs such as in-house

labor costs related to the space station against the space station limit. NASA

currently accounts for all in-house labor costs under a separate mission support

appropriation, and the act does not require NASA to charge these costs to the space

station limit. As a result, NASA’s accounting for the space station limit does not

include $1 billion for civil service compensation from fiscal years 1994 through 2000.

NASA has estimated that in-house labor costs for the space station from fiscal years

1994 through 2004 would total $2 billion. While in-house labor costs are not applied

to the limit, NASA does disclose these amounts as part of its budget submission.

Agency Comments and Our Evaluation

In commenting on a draft of this report, the NASA Associate Deputy Administrator

stated that NASA would work with us and the Congress to address some of the

problems we identified but also expressed concern about how we characterized

NASA’s financial reporting and costing practices for the space station. NASA believes

that reporting budget authority fully complies with the requirements of the act and

that reporting amounts obligated is not specifically required. This is based on NASA’s
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interpretation of the act and because they assert that obligations closely approximate

budget authority at this stage of space station development. We disagree. Subsection

202 (a) of the act states that “ . . . the total amount obligated by the National

Aeronautics and Space Administration for (A) costs of the International Space Station

may not exceed $25,000,000,000 . . .” and subsection 202 (e) requires NASA to account

for those cost limitations. This language specifically identifies cost limitations and

requires an accounting of those limitations based on obligations. In order to resolve

this issue, NASA plans to discuss the reporting requirements with your committees.

NASA’s comments also discussed our findings on the difficulty of obtaining support

for specific obligations and component costs. NASA stated that it will continue to

work with us to compile detailed support for its space station and other obligations.

NASA also stated that it requires the identification of costs supporting individual

subsystems and hardware, but that these support costs remain separate and are not

included in the costs of the subsystems and hardware elements. We continue to

believe that NASA needs to collect, maintain, and report the full cost of individual

subsystems and hardware so that NASA can make comparisons between estimates

and final costs and the Congress can hold NASA accountable for differences between

budgeted and actual costs.

- - - - -

We are sending copies of this letter to other interested congressional committees as

well as to NASA’s Administrator and Chief Financial Officer. The letter will also be

available on GAO’s home page at http://www.gao.gov.

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

(202) 512-9505 or by e-mail at kutzg@gao.gov or Molly Boyle, Assistant Director at

(202) 512-9524 or by e-mail at boylem@gao.gov. Major contributors to this effort

were Diane Handley, Fannie Bivins, and Maria Storts.

Gregory D. Kutz

Director, Financial Management and Assurance

Enclosure
Enclosure

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Comments From the National Aeronautics and Space Administration
Enclosure

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