	NASA’s Long-standing Financial Management Challenges Threaten the Agency’s Ability to Manage Its Programs and Produce Auditable Financial Statements

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. NASA Lacks the Systems, Processes, and Human Capital Needed to Effectively Manage Its Programs

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. 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. 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. 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. While Most Agencies Receive Unqualified Opinions on Their Financial Statements, Systems Modernization Continues to be a Challenge

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. 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. 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. NASA Has Begun Taking Steps to Implement Some of Our Recommendations for IEMP, but Progress Is Slow

Our related report, released today, details our assessment of NASA’s  progress toward implementing our prior recommendations related to  IEMP. 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. The challenges that NASA faces in reforming its financial management  operations are daunting, but not insurmountable. Major Management Challenges and Program Risks: National  Aeronautics and Space Administration.
Why GAO Did This Study

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.

What GAO Found

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.