NASA Advisory Council Meeting

Report of Audit and Finance Committee

July 10, 2008

Members: NASA:Mr. Robert Hanisee, Chairman Mr. Terry Bowie Hon. Ted McPhersonHon. Michael MontelongoMr. Howard Stanislawski

Audit & Finance CommitteeGlenn Research Center Fact-Finding Meeting

Ohio Aerospace Institute, 1st Floor, Room 1E July 9, 2008

8:15 – 9:15 Presentation # 1Presentation from GRC CFO Debra

Watson

9:15 – 9:45 Presentation # 2Update from Deputy CFO Terry BowieProperty Update

9:45 – 10:00 Break

10:00 – 11:15 Presentation # 3 Continuous Monitoring Program -May 2008 Results Leslie Hyland

11:15 – 12:00 Presentation # 4 Financial Statement Audit Status Thomas

Green 12:00 - 12:45 Lunch Break

12:45 – 1:30 Presentation # 5NSSC Transition Update Joyce Short

2:30 – 5:30 Administrative Session A&F Members

5:30 Adjourn and Meet Bus

Glenn Research Center

Briefing to NASA Advisory Council(Audit & Finance Committee)Debra WatsonChief Financial OfficerJuly 9, 2008

Glenn Research Center (Cont.)

Other Members of Glenn Chief Financial Office in Attendance

Lawrence Sivic – Deputy CFO

Karen McLaughlin – Accounting & Financial Analysis

Robert Sefcik – Cost & Economic Analysis

GRC CFO Organization

Responsible for the Center leadership and management of:

Accounting—financial analysis/accounting transactions—Standard General Ledger, funds distribution, payroll, obligations, cost accounting, payment oversight, property accounting, reporting, travel, labor analysis, Continuous Monitoring Program/Error Tracking, financial policy, bank card monitoring

Budget—resources management (dollars and workforce)—formulation, execution, analysis, verification, expenditure status/variances/metrics, phasing plans, reimbursables, workforce planning/pricing/analysis (civil service & contractors)

All Business Systems —system operations & integration, processes, reporting, IEMP/SAP, PMT, N2 Budget, procurement support, Center Business Process Lead – Core Finance/Travel/WebTADS

GRC CFO Organization

Responsible for the Center leadership and management of:

Financial Audits & Internal Controls —audits, policy compliance, efficient operating procedures

Cost Estimating & Economic Analysis —independent analysis, cost estimating and program support to entire center, cost modeling, Earned Value Management (EVM) procedure development/implementation

GRC (Continued)

Many significant changes at GRC since 2006 Center focus has been moved from principally

Aeronautics to roughly equal split between Aero and Exploration

Center CFO office staffing: 89 FTE’s: 71 civil servants, 18 contractors

GRC support for NSSC implementation – transferred accounts payable to NSSC in May - reduced staff by 8 FTE’s

Positive Budget Outlook – Stable Financial Statement Audit - May/June Week long E&Y review conducted – Minimum concerns expressed

NASA Comprehensive Compliance Strategy

Includes: Internal Control procedures, external audit, corrective action plan, etc.

and importantly NASA’s….

Continuous Monitoring Program which is the overall framework , implemented in February 2008 to assess and evaluate…. Internal controls for accounting, financial

management and stewardship Compliance with Generally Accepted

Accounting Principles

NASA Comprehensive Compliance Strategy

Evidence that account balances support the auditable Financial Statement

Consistency in Federal Management Practices across NASA projects, programs, missions and centers.

(Based on presentation delivered to the NAC Audit and Finance Committee by Leslie Hyland, Director, Financial Management Division, Office of the Chief Financial Officer)

Continuous Monitoring Program

Assesses accounting and control activities for transactions such as:

Fund Balance wit Treasury, Cash Outlays/Investments Accounts Receivable Inventory of Materials and Supplies, Property Accounts Payable Purchase Orders Status of Funds Etc.

And Reports Exceptions in these activities for each Center

Continuous Monitoring Program

And reports Exceptions in these Activities for each Center

Total Percent of Exceptions for all of NASA

2008

February March AprilMay

24% 24% 15% 17%

Continuous Monitoring Program

Accounting activities in need of attention: Prepaid Expenses/Advances/Intra-NASA Transactions Monthly Variance Analysis

Other:• Annual calculation of Unfunded Environmental Liability• Intra-Governmental transactions

Business Benefits of Continuous Monitoring Program are REAL• Provides a System of Internal Control• Transactions are properly recorded to assure data integrity• Foundation for auditable financial statements and management reporting such as

“phasing” reports provided by NASA CFO

Next Steps• Encourage transactions “clean-up” during each month • Increased investment in Training so as to imbed, refine and sustain Continuous

Monitoring Program• Continue to implement front-end edits and reduce rework

FY2008 Financial Statement Audit Update

Audit Milestones/ScheduleFY07 Lessons Learned w/OIG & E&Y Jan. 29, 2008FY08 Agency-wide Kick-Off Meeting Mar. 13, 2008FY08 Walkthrough (Center)

LaRC Mar. 31 – Apr. 4, 2008

GSFC Apr. 14 – 25, 2008

HQ Walkthrough Meetings Mar. 10 – Apr. 11, 2008FY08 Internal Control Testing at Centers Jun. 2, 2008 – Jul. 18, 2008

• General Audit• Information Technology• Environmental• Property, Plant and Equipment

FY08 Substantive Testing – New Milestone Aug – Sept 2008FY08 Field Work Completed Oct. 2008FY08 Opinion Rendered - Agency Financial Report Completed Nov. 14, 2008

FY2008 Financial Statement Audit Update

Audit Status Summary• FY08 audit approx 50% complete

• All Data Requested by E&Y, to date, has been delivered ON TIME

• Quality of Internal Control Testing has significantly improved due to process improvements thereby enhancing auditors ability to rely on financial data

• NO significant show stoppers identified to date

NSSC Update

Transition ScheduleTo Date:

Accts Payable/Accts Receivable/Fund Balance With Treasury- Wave 1 (DFRC, MSFC, SSC) Feb. 2008- Wave II (GRC, KSC, LaRC) Apr. 2008- Wave III (ARC, JSC) Jul. 2008

To Come:- Wave IV (GSFC, NMO, HQ) Aug. 2008

Finance Only Invoices- ALL Centers Aug. 2008

Grant Payments- All Centers (dependent on SAP release) Jan. 2009

90

82

9296 97

70

75

80

85

90

95

100

Feb Mar Apr May June

On Time Payments as a Percentage of All Payments

163

140146

79

270

50

100

150

200

Feb Mar Apr May June

Interest Payments per $1M Payments

NSSC Accounts Payable Key Indicators February – June 2008

NSSC Failure Analysis

Note: 30% of late payments are w/in 2 days

Distribution of Late Payments by Days Late(4/1/08 - 6/23/08)

1 Day24%

2 Days6%

3 Days5%4 Days

6%5 Days

3%6-10 Days

16%

11-15 Days11%

16-30 Days15%

31-60 Days10%

>61 Days4%

NSSC Update (Cont.)

Wave I transition went well, but not without problems

Wave II transition was much smoother; key indicators have improved Much improved performance

• Evidence of learning from Wave I transition• Proactive communication with Centers• Significant effort/support from Centers

NSSC Update (Cont.)

Successful Wave 3 Operational Readiness Review on June 26

Go Live July 1

Property, Plant and Equipment

Update

In GFY 07 wrote-off $13.3B of legacy assets – reclassification as R&D

Remaining Problem Assets: Space Station $13.2BSpace Shuttle 1.0B

E&Y Position – No chance for a Clean Opinion until issue resolved

OIG opined that cost to re-create auditable trail is to high to justify

OCFO approach – Appeal to FASAB to permit reclassification as R&D

- Met with OIG & E&Y in April to push

Property, Plant and Equipment

Update (cont.)

New Strategy: Terry Bowie writing white paper addressed to FASAB, OMB and GAO outlining options:

1. Re-create data from manifests – OIG says No

2. Identify Comps3. Reclassify as R&D

Will recommend Option 3.

Meanwhile the new Integrated Asset Management (IAM) tool was implemented in May.

Other Old Business

Financial Staff PersonnelAuthorized FTE – 103 (Same as April)

Current FTE 92New hires but not o n-board 6FTE’s with New Hires 98

(an improvement of 5 FTE’s since April)

Other Old Business

Grant Accounting: October Rollout – On Schedule: Will permit Grant by Grant Accounting

GFY 07 Audit – Noted Deficiencies - Environmental Liabilities – E&Y wanted estimates of environmental liability

at Program Start

OCFO response – Put together an environmental Group which expects to have estimates completed by Year End - Open Contracts – E&Y noted a number of travel, grants and contracts still open

OCFO response: Travel – Dollars not material but effort underway

Contracts – Progress Noted Grants – Will be resolved by new Grant Accounting Software