NASA chief seeks to remedy accounting woes

NASA Administrator Sean O'Keefe is moving aggressively to straighten out NASA's books and has hired a staffer dedicated solely to focusing on the agency's mismanaged finances, NASA officials told House lawmakers Wednesday.

The 1996 Federal Financial Management Improvement Act (FFMIA) requires agencies to produce timely and reliable financial statements that demonstrate their compliance with federal financial management systems requirements, federal accounting standards and the U.S. government standard general ledger.

NASA earned a disclaimer, or failing mark, on its financial statements in fiscal 2001. During a Wednesday morning hearing before the House Government Reform Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations, Patrick McNamee, of auditing firm PricewaterhouseCoopers, testified that NASA's failure to provide supporting evidence for its expenditures resulted in the failed audit.

"If the agency fails to provide sufficient documentation, and if the failure is significant and affects a number of accounts and financial statements, then the auditor cannot conclude the agency's financial statements are fairly stated," McNamee said.

NASA officials took responsibility for the poor audit, admitting that they should have provided the necessary financial information in a timely manner, but couldn't because the agency uses 10 "complicated and antiquated" accounting and record-keeping systems that aren't integrated. Agency officials also attributed the problems to a change in auditors and a shift in auditing styles, which required them to provide more information than in previous years. In 2000, Arthur Andersen's five-year contract with the agency ended and PricewaterhouseCoopers took over its auditing business.

But officials from the General Accounting Office disagreed with NASA's assertion that the problem was merely a "one-time" fluke related to a switch in auditors.

"NASA's financial management difficulties are not new," testified Gregory Kutz, director of financial management and assurance at GAO. " NASA has been on GAO's high-risk list …since 1990, partly because the agency has failed to successfully implement a modern, integrated financial management system which is central to producing accurate and reliable financial information needed to support contract management."

Subcommittee chairman Stephen Horn, R-Calif., questioned the validity of audits conducted in previous years.

"Did the agency's financial management problems begin in fiscal year 2001 or were they always present?" Horn asked witnesses.

According to GAO, NASA had a $644 million error in its fiscal 1999 financial statements that neither the agency nor the auditor, Arthur Andersen, found. House Science Committee staffers discovered the error.

"We questioned NASA management's and Arthur Andersen's determination that the agency's systems substantially complied with the requirements of FFMIA," Kutz said.

NASA General Counsel Paul Pastorek testified that O'Keefe was committed to improving NASA's financial management issues.

To date, O'Keefe has formed teams to address PricewaterhouseCoopers' recommendations, which include maintaining an audit trail to show why cost decisions were made. The administrator also met with top managers at PricewaterhouseCoopers and hired a special assistant who is solely responsible for financial management issues.

"The administrator is particularly determined to correct this problem as promptly as possible," Pastorek testified.

NASA is also in the midst of its third attempt to implement an integrated financial management system. From 1997 to 2000, the space agency spent $131 million on an integrated financial management project that did not work. O'Keefe has insisted that efforts be stepped up on implementing the new system, setting a target completion date of June 2003.

"The administrator and NASA are determined to do all that can be done to recover its unqualified audit opinion in the next audit cycle," Pastorek said.

Fiscal 2002 audits are due to the Office of Management and Budget on Feb. 1, 2003.

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