National Aeronautics and Space Administration: Long-standing Financial Management Challenges Threaten the Agency's Ability to Manage Its Programs
Published: 2005-10-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress asked GAO to testify on the status of the National Aeronautics and Space Administration's (NASA) financial management reform efforts. NASA faces major financial management challenges that, if not addressed, will weaken its ability to manage its highly complex programs. NASA has been on GAO's high-risk list since 1990 because of its failure to effectively oversee its contracts, due in part to the agency's lack of accurate and reliable information on contract spending. GAO's statement focuses on (1) NASA's key financial management challenges, (2) how NASA's financial management challenges compare with other federal agencies, (3) GAO's assessment of NASA's progress toward implementing recommendations aimed at improving its financial management system, and (4) the steps NASA must take to reform its financial management organization. In its related report, released today, GAO recommends that NASA develop an integrated enterprise master schedule and milestones--including improvement activities and plans, dates for completion, performance measures, and clear accountability.
section_title: What GAO Found
paragraphs: NASA's new core financial management system has not addressed many of the agency's most significant management challenges--including improving contract management, producing credible cost estimates, and producing auditable financial statements. Because NASA did not use disciplined acquisition and implementation practices, the new system lacks basic functionality--such as the ability to (1) produce transaction-level support for key account balances, (2) properly identify adjustments or correcting entries, and (3) correctly and consistently post transactions to the right accounts. In addition, NASA did not use the implementation of its new system as an opportunity to transform its operations and instead, automated many of its existing, ineffective processes. Compounding its existing problems, NASA also failed to recognize the importance and need for highly skilled, well-trained financial personnel. Most federal agencies have been able to obtain unqualified audit opinions, while NASA's financial statements remain unauditable. However, the problems experienced by NASA in its effort to reform its financial management organization and implement a modern, integrated financial management system are not uncommon among federal agencies. In fact, many federal financial system modernization efforts have exceeded budgeted cost and scheduled delivery dates without providing the anticipated system functionality. GAO's related report, released today, details NASA's progress toward implementing prior recommendations related to its financial management system. Overall progress has been slow, but in some areas NASA is beginning to take steps toward improvements. To its credit, NASA has recognized the need to enhance the capabilities and improve the functioning of its core financial management system. Strong executive leadership will be critical for ensuring that NASA's financial management organization delivers the kind of analysis and forward-looking information it needs to effectively manage its many complex programs. Such leadership must be combined with effective organizational alignment, strategic human capital management, and end-to-end business process reform.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss the financial management  challenges facing the National Aeronautics and Space Administration  (NASA). Since its inception in 1958, NASA has undertaken numerous  programs—involving earth and space science, aerospace technology,  human space flight, and biological and physical research—that have  resulted in significant scientific and technological advances and enhanced  the quality of life on earth. In recent years, NASA has experienced a  number of setbacks with its programs and operations, including massive  cost overruns associated with the International Space Station and, with  the Columbia tragedy, the need for the agency to develop return-to-flight  strategies and mitigate the impact of the loss of the shuttle on the  construction of the space station. On January 14, 2004, President Bush  outlined a bold new vision for U.S. space exploration that will set a new  course for NASA. However, a key to the successful execution of this new  vision is NASA’s ability to address a number of long-standing financial  management challenges that threaten NASA’s ability to manage its  programs, oversee its contractors, and effectively allocate its budget  across its numerous projects and programs.
For years, NASA has cited deficiencies within its financial management  systems as a primary reason for not having the 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. In fact,  since 1990 we have identified NASA’s contract management as an area of  high risk, in part because the agency lacked effective systems and  processes for overseeing contract spending and performance. In April  2000, NASA began its third attempt at modernizing its financial  management processes and systems. The first two efforts were eventually  abandoned after a total of 12 years and a reported $180 million investment.  NASA expects this current effort, known as the Integrated Enterprise  Management Program (IEMP), to produce an integrated, agencywide  financial management system through the acquisition and incremental  implementation of commercial software packages and related hardware  and software components. However, in April and November 2003—3 years  into NASA’s IEMP implementation effort and with significant investment  already made in the program—we issued a series of four reports that  detailed weaknesses in NASA’s acquisition and implementation strategy  for IEMP. As part of the four reports we issued, we made 45  recommendations aimed at improving NASA’s overall management and  implementation of IEMP. Our related report, released today, details our  assessment of NASA’s progress toward implementing each of our 45  recommendations.
Our testimony today will focus on the results of our recent work related to  NASA’s financial management challenges and the agency’s efforts to  implement our recommendations related to IEMP. Specifically, I will  discuss (1) NASA’s key financial management challenges, (2) how NASA’s  financial management challenges compare with other federal agencies,   (3) our assessment of NASA’s progress toward implementing our  recommendations aimed at improving IEMP, and (4) the steps NASA must  take to reform its financial management organization.
We have performed work and issued several reports in response to  legislative mandates and at the request of the House Science Committee.  We also reviewed the reports of NASA’s Office of Inspector General and  the independent public accounting (IPA) firms that audited NASA’s  financial statements for fiscal year 2004 and for several previous years.  However, we did not review the IPA’s underlying audit work. We  performed all work in accordance with U.S. generally accepted  government auditing standards. Our statement today is drawn from the  findings and conclusions in reports issued by GAO, NASA’s Office of  Inspector General, and the IPAs.
In summary, NASA currently lacks the systems, processes, and human  capital needed to produce credible cost estimates, oversee its contractors  and their financial and program performance, control program costs, and  produce timely, reliable financial information and auditable annual  financial statements. Although NASA has acknowledged the need for  improved financial management systems, processes, and human capital  and has begun to take steps toward achieving that goal, progress has been  slow. Because NASA did not adopt disciplined acquisition and  implementation practices when implementing its financial management  system, IEMP, it has been forced to take actions that should have been  accomplished prior to implementation—causing the agency to  unnecessarily invest time and resources to rework already deployed  system components in order to produce a system that meets user  requirements. Further, NASA did not use IEMP as an opportunity to  transform the way it does business and instead, automated many of its  existing ineffective business processes. As a result, NASA has yet to  address its most significant program management and external financial  reporting issues—including improving contract management, producing  credible cost estimates, and properly accounting for nearly $38 billion of  reported property, plant, and equipment (PP&E) and material.
subsections: section_title: NASA’s Long-standing Financial Management Challenges Threaten the Agency’s Ability to Manage Its Programs and Produce Auditable Financial Statements
paragraphs: NASA has fundamental problems with its financial management  operations that not only affect its ability to externally report reliable  information, but more importantly, hamper its ability to effectively manage  and oversee its major programs, such as the space station and shuttle  program. Since 1990, we have identified NASA’s contract management as a  high-risk area. This assessment has been based in part on our repeated  finding that NASA does not have good cost-estimating processes or the  financial information needed to develop good cost estimates for its  programs, making it difficult for NASA to oversee its contracts and control  costs. NASA’s difficulties are rooted in an agency culture that has not  viewed financial management as an integral part of the agency’s program  management decision process. Although NASA has acknowledged the  need for improved financial management information and has begun to  take steps toward achieving that goal, NASA currently lacks the systems,  processes, and human capital needed to produce credible cost estimates,  oversee its contractors and its financial and program performance, control  program costs, and produce auditable financial statements.
subsections: section_title: NASA Lacks the Systems, Processes, and Human Capital Needed to Effectively Manage Its Programs
paragraphs: As currently designed, NASA’s financial management system has not  addressed many of the agency’s most significant program management  challenges—including improving contract management and producing  credible cost estimates. Because program managers and cost estimators  were not involved in the initial design and implementation of the core  financial module, the system was not designed to meet their needs and  thus, does not contain the cost data needed to manage NASA’s most  complex projects and programs. This, combined with NASA’s failure to  reengineer its contractor cost-reporting processes and a lack of trained  financial management personnel, has undermined NASA’s recent efforts to  improve its cost-estimating and contract monitoring capabilities.
As we have reported numerous times, NASA consistently develops  unrealistic cost and schedule estimates, which at least in part, contributes  to the cost growth and schedule increases in many of its programs. To  adequately oversee NASA’s largest and most complex programs and  projects and mitigate potential cost growth and schedule increases,  managers need well-defined processes for estimating the cost of programs  and monitoring progress against those estimates. A well-recognized  technique used to monitor progress on contracts, and a long-time NASA  program management requirement, is earned value management (EVM).  EVM goes beyond the two-dimensional approach of comparing budgeted  costs to actuals. Instead, it attempts to compare the value of work  accomplished during a given period with the work scheduled for that  period. Recognizing the need to establish a disciplined cost-estimating  process that incorporates the concepts of EVM, NASA developed a cost- estimating handbook in 2002—the first such guidance provided to its cost- estimating community and program and project managers. However, as we  reported in April 2003, the information requirements of program managers  and cost estimators, which were outlined in the cost-estimating handbook,  were not considered when NASA designed and implemented the core  financial module—the backbone of IEMP.
When NASA deployed the core financial module in 2003, NASA’s cost- estimating guidance was inconsistently applied across programs.  However, NASA has recently begun to take steps to institutionalize the use  of more disciplined cost-estimating and contract-management processes.
For this initiative to be successful, as we have previously recommended,  NASA will also need to reengineer its business processes—including its  contractor cost-reporting requirements—and configure its financial system  to accommodate the information required by program managers and cost  estimators. However, NASA has yet to fully address weaknesses in its (1)  contractor cost-reporting requirements and (2) financial and technical  work-breakdown structure.
Weaknesses in NASA contractor cost-reporting requirements affect  NASA’s ability to manage its programs and monitor contractor  performance. NASA obtains contractor cost data from two primary  sources—monthly contractor financial management reports (i.e., NASA  Form 533), and monthly contractor cost performance reports. Both  reports contain budget and actual cost data, but only contractor cost- performance reports contain the data needed to perform EVM analysis.  However, NASA did not evaluate the adequacy of its existing contractor  cost-reporting vehicles to determine whether the reports met the  information needs of program managers and cost estimators. Instead,  NASA chose to use NASA Form 533 data to populate the core financial  module without considering the merits of the data contained in the  contractor cost-performance reports. Consequently, the cost data  maintained in the core financial module are not adequate for monitoring  contractor performance for NASA’s largest, most complex contracts— those requiring EVM reporting and analysis. As discussed in our related  report, through an initiative known as Project Management Information  Improvement (PMI), NASA plans to enhance the core financial module to  provide better project management information for decision-making  purposes. As part of this initiative, NASA plans to evaluate its contractor  cost-reporting policies and processes.
The core financial module as currently implemented does not capture cost  information at the same level of detail that it is received from NASA’s  contractors. Instead of implementing a financial-coding structure that met  the information needs of program managers, NASA embedded the same  financial-coding structure that it used in its legacy reporting systems in the  core financial module. As a result, the availability of detailed cost data  depends on the adequacy of NASA’s legacy-coding structure. Therefore, in  some cases, contractor-provided cost data must be aggregated to a higher,  less detailed level before they are posted against the legacy financial- coding structure. To its credit, as part of PMIdisciplined cost-estimating practices and EVM analysis was undermined by  a lack or trained staff and ineffective use and placement of cost analysts  across the agency. According to NASA officials, at the time, resource  constraints have prevented the agency from staffing many project offices  with appropriate personnel to fulfill all project functions. In response to  recommendations we made in our May 2004 report, NASA has begun to  take action to improve the efficiency and effectiveness of its cost- estimating and EVM analysis staffs. Specifically, NASA has included  requirements in its March 2005 update to NASA’s Program and Project  Management Processes and Requirements document that should facilitate  efficient and effective use of cost-estimating EVM analysis staff. Further,  according to NASA, it plans to provide both awareness briefings and in- depth training to project management and cost-estimating and analysis  personnel to ensure understanding and knowledge of NASA’s cost- estimating and program management policies and procedures. However,  because these initiatives have only recently begun, we cannot determine to  what degree these efforts will enable NASA to provide credible cost  estimates.
As discussed in our related report, released today, NASA has recognized  the need to enhance the capabilities of the core financial module in order  to better serve its program management and cost-estimating communities.  As NASA proceeds with its planned improvements, it will be critical that  the agency address weaknesses in its financial management systems,  processes, and human capital in a comprehensive manner. Anything short  of this will continue to put NASA’s programs at risk of cost and schedule  overruns.
section_title: Ineffective Systems and Processes and Inadequately Trained Financial Management Personnel Hamper External Financial- Reporting Efforts
paragraphs: NASA’s core financial module—the backbone of IEMP—does not  currently address many of the agency’s most challenging external  reporting issues—including problems related to budgetary accounting and  property accounting. NASA’s independent financial statement auditors  disclaimed an opinion on NASA’s fiscal year 2003 and 2004 financial  statements. The disclaimer resulted from NASA’s inability to provide the  auditors with sufficient evidence to support the financial statements  throughout the fiscal year and at year end. Further, material weaknesses  were found in NASA’s controls for: (1) financial systems, analysis, and  oversight used to prepare the financial statements; (2) reconciling  differences in Fund Balance with Treasury; (3) assuring that PP&E and  materials are presented fairly; and (4) securing the computing  environment that supports IEMP. Although many of these material  weaknesses and NASA’s difficulty in producing auditable financial  statements can be linked to IEMP, weaknesses in NASA’s business  processes and human capital management are also factors. Based on our  review of NASA’s fiscal year 2005 interim financial statements, problems  associated with NASA’s financial management persisted during fiscal year  2005.
Although NASA has been working to stabilize the core financial module  since it was deployed in June 2003, NASA has yet to produce auditable  interim or annual financial statements. In fact, as part of its report  disclaiming an opinion on NASA’s fiscal year 2004 financial statements,  NASA’s independent auditor reported that the core financial module was  unable to (1) produce transaction-level detail in support of financial  statement account balances, (2) identify adjustments or correcting entries,  and (3) correctly and consistently post transactions to the right accounts.  These are basic system requirements that are integral to the effective  functioning of a financial management system. For this and other reasons,  for fiscal year 2004, NASA’s auditor found that NASA’s financial system did  not comply substantially with the requirements of the Federal Financial  Management Improvement Act of 1996 (FFMIA). FFMIA stresses the need  for agencies to have systems that can generate timely, accurate, and useful  financial information with which to make informed decisions, manage  daily operations, and ensure accountability on an ongoing basis. NASA’s  ongoing inability to meet the basic requirements of FFMIA is central to our  reporting of NASA’s contract management as an area of high risk.
Because NASA’s core financial module does not meet basic federal  financial management system requirements, NASA was unable to provide  support for certain fiscal year 2004 financial statement balances including  accounts payable and undelivered orders. Additionally, NASA was unable  to provide the auditors with subsidiary listings of cash receipts and cash  disbursements to support its budgetary outlays during the fiscal year.  Finally, according to the auditor’s report, NASA management continues to  identify certain transactions that are being posted incorrectly due to  improper configuration of the core financial module. Based on our review  of NASA’s fiscal 2005 quarterly financial statement notes, many of these  same problems remain. For example, due to functionality and  configuration issues, the system continues to create inappropriate  transactional postings which result in abnormal balances and  misstatements in unobligated balances and other budgetary accounts. In  addition, due to data integrity issues from fiscal years 2003 and 2004, the  opening balances for many budgetary and proprietary accounts in fiscal  year 2005 are misstated.
Similarly, as part of our recent work assessing NASA’s controls over travel  and the use of its passenger aircraft, NASA was unable to provide us with  timely, reliable data and support for amounts spent on travel for fiscal year  2004. After 4 months of trying to extract travel data from the IEMP system,  NASA officials provided us with what they said was a complete population  of travel-related disbursement transactions. However, the data provided  were missing significant travel expense categories. For example, NASA  had several contracts with major hotel chains to provide rooms at  discount rates; however, NASA did not include the charges related to  rooms purchased under these contracts as travel-related expenses.  Further, although agency personnel regularly used NASA-owned  passenger aircraft and other charter aircraft in support of official business  travel, the cost associated with the use of these aircraft was not  considered a travel expense and, therefore, the millions of dollars  associated with this travel were not included in the data provided. In  addition to missing data, the travel data NASA provided contained  duplicate transactions and other data anomalies that made it appear as if  NASA were paying the same bill multiple times, which, for those  transactions we tested, was not the case.
NASA’s failure to provide reliable data related to its travel disbursements  is significant for three reasons. First, it illustrates the shortcomings of  NASA’s financial management system and NASA’s ongoing struggle to  provide transaction-level support for key account balances. Second, it  indicates that the budget amounts NASA reports for travel each year to the  Congress are significantly understated. As part of its budget submission,  NASA is required to report estimated and actual obligations in terms of  object classification. Object classes describe the nature of the service or  article for which the obligations are first incurred. One such object class is  object class 21, travel and transportation of persons. However, because  NASA does not properly classify certain travel expense categories as  object class 21—including business travel on noncommercial aircraft and  travel services procured using a contract—the agency travel budget is  significantly understated. Finally, the problems we found with NASA’s  travel data point to weaknesses in NASA’s full-cost accounting initiative.  According to NASA, on October 1, 2003, NASA implemented its full-cost  initiative and is currently operating in a total full-cost environment, which  includes managing programs and projects in terms of their total costs;  accounting for all costs as either direct or as general and administrative;  and budgeting for a program or project’s full costs. However, if NASA has  failed to capture and properly link travel-related costs to the appropriate  object classification, it raises serious questions about the agency’s ability  to properly classify other less straightforward cost categories.
As discussed previously, NASA did not use IEMP as an opportunity to  transform the way it does business and instead, NASA automated many of  its existing, ineffective business processes—including its process for  recording PP&E and material in its general ledger. As we reported in  November 2003, NASA does not appropriately capture and record PP&E  and material in the core financial module general ledger at the  transactions level. Instead, NASA first expenses its property acquisitions  and then updates the core financial module’s general ledger using periodic  summary-level manual entries—for both NASA-held and contractor-held  property.
Recording PP&E and material in the general ledger at the transaction level  or item level at the time NASA makes disbursement for it would provide  independent control over these assets. However, just as it did with its  legacy systems, NASA continues 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 adjust  these records at a summary level. Because NASA does not maintain  transaction-level detail, the agency is not able to link the money it spends  on the purchase or construction of its property to discrete property items,  which is needed to provide independent control over these assets.  Although NASA manually records property at the summary level for both  NASA-held and contractor-held property, NASA’s most significant  challenge with respect to property accounting stems from property  located at contractor facilities—which accounts for $8.5 billion or about  one-fourth of NASA’s reported $34.6 billion of PP&E and materials— because NASA must rely solely on its contractors to periodically report  summary-level information on these assets to NASA. Until NASA  successfully implements a single integrated system for reporting property,  and develops a methodology to identify and record capital costs as they  occur, the agency will continue to experience difficulties maintaining  effective control over PP&E and ensuring that it is not vulnerable to fraud,  waste, and abuse.
In fiscal years 2003 and 2004, NASA’s auditor reported that continued  weaknesses in NASA’s financial statement preparation processes resulted  in major delays and errors in preparing fiscal year-end financial  statements. According to the auditor’s report, NASA personnel were not  consistently utilizing uniform accounting processes that record, classify,  and summarize information for the preparation of financial statements.  Further, because significant weaknesses exist in the core financial  module, NASA management must compensate for the weaknesses by  implementing and strengthening additional controls that will ensure that  errors and irregularities are detected in a timely manner. However,  according to the auditor’s report, many of these control procedures were  not adequately performed. As such, the auditor recommended that NASA  provide additional training for financial personnel to ensure that they  understand their role in processing transactions, performing account  analysis and reconciliations, and maintaining supporting documentation.
section_title: While Most Agencies Receive Unqualified Opinions on Their Financial Statements, Systems Modernization Continues to be a Challenge
paragraphs: The problems experienced by NASA in its effort to reform its financial  management organization and implement a modern, integrated financial  management system are not uncommon. While the majority of CFO Act  agencies have obtained clean or unqualified audit opinions on their  financial statements, the underlying agency financial systems remain a  serious problem. Agencies still generally lack the capacity to create the full  range of information needed to effectively manage day-to-day operations.  As shown in table 1, for fiscal year 2004, auditors reported that financial  management systems of only 7 of the 23 CFO Act agencies complied  substantially with the requirements of FFMIA.
Similarly, as shown in table 1, auditors reported that only four agencies  had no material internal control weaknesses. A material weakness is a  condition that precludes the entity’s internal control from providing  reasonable assurance that misstatements, losses, or noncompliance  material in relation to the financial statements or to stewardship  information would be prevented or detected on a timely basis.
NASA’s problems implementing IEMP are similar to those of other  agencies we have audited. Modernizing financial management systems is  critical to instituting strong financial management so that the systematic  measurement of performance, the development of cost information, and  the integration of program, budget, and financial information for  management reporting can be achieved. The federal government has spent  billions of dollars developing and implementing financial management  systems throughout federal agencies. However, many of these efforts have  exceeded budgeted cost and scheduled delivery dates without providing  the anticipated system functionality.
Although the implementation of any major system is not risk free,  organizations that follow and effectively implement disciplined processes,  along with effective human capital and IT management practices, can  reduce these risks to acceptable levels. We have issued numerous reports  highlighting the problems associated with the inability to effectively  implement disciplined processes in the areas of requirements  management, testing, data conversion and system interfaces, risk  management, and project management. For example, ill-defined or  incomplete requirements have been identified by many experts as a root  cause of system failure. As a case in point, we recently reported that the  Army has encountered problems implementing a new system intended to  improve depot operations. One reason that users had not been provided  with the intended systems capabilities was because of the breakdown in  the requirements management process. As a consequence, the Army  implemented error-prone, time-consuming manual workarounds to  minimize disruption to critical operations, and the financial management  operations continued to be affected by systems problems.
Similarly, many of NASA’s financial management problems outlined in our  testimony are the result of an undisciplined, ineffective requirements  management process—including the failure of NASA’s financial  management system to (1) post transactions to the right accounts, (2)  properly identify adjustment or correcting entries, and (3) provide the  information program managers and cost estimators need to monitor  contractor performance and produce credible cost estimates. To its credit,  as discussed in our related report released today, NASA officials  acknowledged that the requirements management and testing  methodology and tools used to implement the core financial module did  not result in requirements that were consistent, verifiable, and traceable,  or that contained the necessary specificity to minimize the requirement- related defects. NASA has recently implemented a new requirements  management and testing methodology. However, NASA does not plan to  use its improved requirements management process to properly define and  document system requirements for already deployed IEMP modules until  October 2006—when NASA plans to redefine the core financial module  requirements as part of the core financial module system upgrade.
section_title: NASA Has Begun Taking Steps to Implement Some of Our Recommendations for IEMP, but Progress Is Slow
paragraphs: Our related report, released today, details our assessment of NASA’s  progress toward implementing our prior recommendations related to  IEMP. Overall, progress has been slow, particularly with respect to  developing a well-defined enterprise architecture, which is critical for  guiding and constraining NASA’s investment in IEMP. However, in some  other areas—such as NASA’s initiative to enhance the core financial  module to provide better project management information—NASA is  beginning to make progress. Of the 45 recommendations we made, NASA  has closed 3 and partially implemented 13; however, 29 recommendations  remain open.
In 2003, we issued four reports outlining the considerable challenges  NASA faces in meeting its IEMP commitments and providing NASA with  the necessary tools to oversee its contracts and manage its programs. For  example, in April 2003, we reported that NASA had deferred addressing  the needs of key system stakeholders, including program managers and  cost estimators, and was not following key best practices for acquiring and  implementing the system. Then, in November 2003, we reported that NASA  (1) acquired and deployed system components of IEMP without an  enterprise architecture, or agencywide modernization blueprint, to guide  and constrain program investment decisions; (2) did not use disciplined  cost-estimating processes or recognized best practices in preparing its life- cycle cost estimates; and (3) had delayed implementation of many key  external reporting capabilities.
As part of the four reports we issued on IEMP, we made 45  recommendations in the following areas: commercial system component  integration; enterprise architecture development and use; risk mitigation;  system requirements definition, management, and testing; external  financial reporting; and program cost and schedule control. Since that  time, NASA’s effort has been focused primarily on trying to stabilize the  core financial module, the backbone of IEMP. However, in our report  being released today, we recognize that NASA has begun taking steps to  implement a number of our recommendations. Table 2 summarizes our  assessment of the extent to which NASA has implemented our  recommendations.
In its written comments on our draft report, NASA raised concerns that  our characterization of certain recommendations as “open” did not  appropriately recognize the full extent of the agency’s effort and suggested  that we use instead “partially implemented” or, whenever appropriate,  “closed.” We disagree with NASA’s assessment.
We considered a recommendation closed when NASA provided us with  documentation that demonstrated it had fully addressed the concerns we  raised in our prior reports. Recognizing that many of our  recommendations may take considerable time and effort to fully  implement, we considered the recommendation to be partially  implemented if the documentation provided indicated that NASA had  made significant progress addressing our concerns. For recommendations  we consider open, NASA’s documentation indicated that the agency was  either in the very early planning stages or had not yet begun to implement  the recommendation.
section_title: NASA Faces Significant Challenges in Reforming Its Financial Management Operations
paragraphs: Successfully stabilizing and enhancing NASA’s financial management  system are essential to enabling the agency to provide its managers with  the kind of timely, relevant, and reliable information that they need to  manage cost, measure performance, and make program-funding decisions.  However, NASA cannot rely on technology alone to solve its financial  management problems. Rather, NASA must transform its financial  management organization into a customer-focused partner in program  results, but its ability to do this hinges on the sustained leadership of  NASA’s top executives.
Clear, strong executive leadership will be critical for ensuring that NASA’s  financial management organization delivers the kind of analysis and  forward-looking information that the agency needs to effectively manage  its many complex programs. To be effective, such leadership must also  combine with effective organizational alignment, strategic human capital  management, and end-to-end business process improvement. This goes far  beyond merely obtaining an unqualified audit opinion and requires that  agency financial managers focus on their overall operations in a strategic  way and not be content with an automated system that helps the agency  get a “clean” audit opinion once a year without providing additional value  to the program managers and cost estimators who use its financial data.
The challenges that NASA faces in reforming its financial management  operations are daunting, but not insurmountable. However, our experience  has shown that improvements in several key elements are needed for  NASA to effectively address the underlying causes of its financial  management challenges. These elements, which will be key to any  successful approach to financial management reform, include:    addressing NASA’s financial management challenges as part of a  comprehensive, integrated, NASA-wide business process reform;    providing for sustained leadership by the Administrator to implement  needed financial management reforms;    establishing clear lines of responsibility, authority, and accountability  for such reform tied to the Administrator;  incorporating results-oriented performance measures and monitoring  tied to financial management reforms;    providing appropriate incentives or consequences for action or    developing and using an enterprisewide system architecture to guide  and direct financial management modernization investments; and    ensuring effective oversight and monitoring.
section_title: Conclusion
paragraphs: As NASA embarks upon the new course set by the President in 2004, a key  to successfully implementing the vision of expanded U.S. space  exploration is NASA’s ability to address a number of long-standing  financial management challenges. The lack of reliable, day-to-day  information continues to threaten NASA’s ability to manage its programs,  oversee its contractors, and effectively allocate its budget across its  numerous projects and programs. Although NASA has acknowledged the  need for improved financial management systems, business processes, and  human capital management and has begun to take steps toward achieving  those goals, progress has been slow. By expeditiously implementing each  of the recommendations contained in our related report, NASA has the  opportunity to minimize the impact of past mistakes and begin to reap the  benefits of operating with an integrated financial management system.  Further, clear, strong executive leadership will be critical for ensuring that  NASA’s financial management organization delivers the kind of analysis  and forward-looking information needed to effectively manage its many  complex programs.
In closing, we commend the Subcommittees for holding this hearing as a  catalyst for improving NASA’s financial management and business  processes. Continued oversight will be critical to ensuring that NASA  achieves its goals for improved financial management and reformed  business processes. Mr. Chairmen, this concludes our prepared statement.  We would be pleased to respond to any questions that you or other  members of the subcommittees may have.
section_title: Contacts and Acknowledgments
paragraphs: For further information regarding this testimony, please contact Gregory  D. Kutz at (202) 512-9095 or kutzg@gao.gov, Allen Li at (202) 512-3600 or  lia@gao.gov, Randolph C. Hite at (202) 512-3439 or hiter@gao.gov, or Keith  Rhodes at (202) 512-6412 or rhodesk@gao.gov. Individuals making key  contributions to this testimony included Fannie Bivins, Francine  DelVecchio, Diane Handley, and Chris Martin.
section_title: Related GAO Products
paragraphs: NASA: Compliance with Cost Limits. GAO-05-492R. Washington, D.C.:  April 8, 2005.
National Aeronautics and Space Administration: Significant Actions  Needed to Address Long-standing Financial Management Problems.  GAO-04-754T. Washington, D.C.: May 19, 2004.
NASA: Compliance with Cost Limits. GAO-04-648R. Washington, D.C.:  April 2, 2004.
Space Shuttle: Further Improvements Needed in NASA’s Modernization  Efforts. GAO-04-203. Washington, D.C.: January 15, 2004.
Business Modernization: Disciplined Processes Needed to Better Manage  NASA’s Integrated Financial Management Program. GAO-04-118.  Washington, D.C.: November 21, 2003.
Business Modernization: NASA’s Integrated Financial Management  Program Does Not Fully Address Agency’s External Reporting Issues.  GAO-04-151. Washington, D.C.: November 21, 2003.
Business Modernization: NASA’s Challenges in Managing Its Integrated  Financial Management Program. GAO-04-255. Washington, D.C.:  November 21, 2003.
Information Technology: Architecture Needed to Guide NASA’s  Financial Management Modernization. GAO-04-43. Washington, D.C.:  November 21, 2003.
NASA: Major Management Challenges and Program Risks. GAO-03-849T.  Washington, D.C.: June 12, 2003.
Business Modernization: Improvements Needed in Management of  NASA’s Integrated Financial Management Program. GAO-03-507.  Washington D.C.: April 30, 2003.
Major Management Challenges and Program Risks: National  Aeronautics and Space Administration. GAO-03-114. Washington, D.C.:  January 2003.
NASA: Compliance With Cost Limits Cannot Be Verified. GAO-02-504R.  Washington, D.C.: April 10, 2002.
NASA: Leadership and Systems Needed to Effect Financial Management  Improvements. GAO-02-551T. Washington, D.C.: March 20, 2002.
NASA: International Space Station and Shuttle Support Cost  Limits.GAO-01-1000R. Washington, D.C.: August 31, 2001.
Financial Management: Misstatement of NASA’s Statement of Budgetary  Resources. GAO-01-438. Washington, D.C.: March 30, 2001.
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