NASA's Finances in Disarray; $565 Billion in Adjustments

NASA's Finances in Disarray; Auditor Departs





May 14, 2004 — By Arindam Nag and Deborah Zabarenko
NEW YORK/WASHINGTON (Reuters) - As NASA sets course for the moon and
Mars, the space agency's finances are in disarray, with significant
errors in its last financial statements and inadequate documentation
for $565 billion posted to its accounts, its former auditor reported.



NASA's chief for internal financial management said the problem
stemmed from a rough transition from 10 different internal accounting
programs to a new integrated one, but audit firm
PriceWaterhouseCoopers noted basic accounting errors and a breakdown
in NASA's financial controls.

PriceWaterhouseCoopers and NASA parted ways earlier this year,
according to the space agency's inspector general, Robert Cobb.
PriceWaterhouseCoopers declined to comment, but a source familiar with
the situation said the audit firm opted out of the contract because it
was unhappy with the relationship.

In a scathing report on NASA's Sept. 30, 2003, financial statement,
the audit firm accused the space agency of one of the cardinal sins of
the accounting world: failing to record its own costs properly.

The same report said the transition to the new accounting program
triggered a series of blunders that made completing the NASA audit
impossible.

There were hundreds of millions of dollars of "unreconciled" funds and
a $2 billion difference between what NASA said it had and what was
actually in its accounts, which are held by the Treasury Department,
PriceWaterhouseCoopers said in its report.

$565 BILLION

"The documentation NASA provided in support of its September 30, 2003,
financial statements was not adequate to support $565 billion in
adjustments to various financial statement accounts," the auditor
wrote in a Jan. 20 report to Cobb, NASA's inspector general. It also
noted "significant errors" in financial statements provided by NASA.

That big number -- $565 billion, with a "B" -- was the result of
posting problems, new software and a "massive cleanup" of 12 years of
NASA's financial records, said Patrick Ciganer, NASA's chief for
integrated financial management.

Under the new system, Ciganer said in a telephone interview, errors
that were discovered in the transition could show up multiple times in
the accounting process: once as an erroneous credit in one column,
then as a debit to delete the error, then as a credit in the correct
column. By this reckoning, a $40 billion contract that stretched over
nine years and several separate NASA centers generated $120 billion
worth of entries, and these were turned over to the auditors.

"They have weak controls and problems with their internal system and
that would make them vulnerable to (financial) fraud, although we
don't have that evidence yet," said Gregory Kutz, a director in the
General Accounting Office, which is looking into NASA's accounting
issues. A Senate hearing on the issue was set for Wednesday.

PRIORITIES

With a current annual budget of $16.2 billion, NASA's priorities
include an ambitious multi-year mission to the moon and possibly Mars,
finishing construction on the International Space Station and
returning the grounded shuttle fleet to flight after the 2003 Columbia
disaster.

The independent investigation of the Columbia accident, in which seven
astronauts died, found NASA's culture at fault. The same spirit that
fueled the early boom in space exploration in the 1950s evolved into
separate parts of a sprawling agency working independently rather than
cooperatively.

The same independent path extends to NASA's financial accounting, Cobb
said.

"You've got an environment at the agency where there are these 10
centers which pride themselves on their independence ... and it
becomes very difficult in connection with any of NASA's functional
management responsibilities to have people kowtow to the folks at
(NASA) headquarters who have the responsibility to pull it all
together," Cobb said.

Cinager said he was hopeful that NASA's culture would change, noting a
new "willingness of all of the constituencies in the agency to
introspectively look at how can they improve the way they are doing
their specific duties."

But Shyam Sundar, a professor in accounting with Yale School of
Management, described the event as "a big mess," after seeing the
auditor's report.

"If NASA would have been a public company, the management would have
been fired by now," he said.

Hmm, now this sounds very familiar, though on a grander scale. Many
companies seem to fall foul of this kind of making adjustments to allow for
cock ups and then forgetting and not documenting it, usually when they move
to a centralised accounting system, as all the local adjustments show up
until nobody really knows what is real and what is not. I'm surprised that
even after all this time (I encountered it in the 80s) people are still
falling into the same traps.

Sigh.

Brian

--

Brian Gaff....Note, this account does not accept Bcc: email.
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"Brian Gaff" wrote in message
et...

Hmm, now this sounds very familiar, though on a grander scale. Many
companies seem to fall foul of this kind of making adjustments to allow
for
cock ups and then forgetting and not documenting it, usually when they
move
to a centralised accounting system, as all the local adjustments show up
until nobody really knows what is real and what is not. I'm surprised that
even after all this time (I encountered it in the 80s) people are still
falling into the same traps.

shrug

in the '80s we had Ivan Boesky, Michael Milken and Robert Campeau. The fads
in business were junk bonds and leveraged buyouts.

The Black Monday hit and everybody took a real good look at their books adn
discoverd that a lot of the robust economy wasn't so robust at all.

In the '90s we had Worldcom and Enron (I'v forgotten the names of
individuals involved). The fads in business were IPOs, B2Bs and outsourcing.

Then the dotcom and tech bubbles burst and 9/11 gutted the travel industry.
Everybody took a real good look at their books adn discoverd that a lot of
the robust economy wasn't so robust at all.

You can carry this back to the tulip craze in mid-17th century Holland.
Hunamity never learns from history, because the people who learn the big
lessons soon leave their positions (and/or die), and the people who replace
them have to go through the same damn process all over again.

--
Terrell Miller


"At one point we were this Progressive edgy group and we can't really equate
that with Brother Bear so I don't know really."
-Tony Banks

"Terrell Miller"
Hunamity never learns from history

I am at a loss as to what lesson we should learn from tulips or Enron.
Anyone who invests has had the experience of buying at the top of the
market. It's called greed.

The original post is in reference to $565 billion in errors in NASA
ledgers....it was never real money, just idiocy on the part of overpaid
Federal employees.

On 2004-05-17, Revision wrote:
"Terrell Miller"
Hunamity never learns from history

I am at a loss as to what lesson we should learn from tulips or Enron.
Anyone who invests has had the experience of buying at the top of the
market. It's called greed.

Tulips, for one, have been pointed to as an interesting example of
group hysteria; I don't know much about that field, but it always seemed
an interesting one to read on, the whole self-reinforcing idiocy and so
forth.

The original post is in reference to $565 billion in errors in NASA
ledgers....it was never real money, just idiocy on the part of overpaid
Federal employees.

Oh, I wouldn't put it past the underpaid federal employees, either. God
knows I catch enough of my own mistakes, and others, often at a grand or
two a pop... as a low-level underpaid .uk government employee...

--
-Andrew Gray

"Revision" wrote in message
...

Hunamity never learns from history

I am at a loss as to what lesson we should learn from tulips or Enron.

which is *precisely* why the same thing will happen ten years from now, and
ten years after that, and...

--
Terrell Miller


"At one point we were this Progressive edgy group and we can't really equate
that with Brother Bear so I don't know really."
-Tony Banks

which is *precisely* why the same thing will happen ten years from now,
and
ten years after that, and...

And what is the lesson of history that would allow us to avoid this
error?

"Revision" wrote ...

which is *precisely* why the same thing will happen ten years from now,
and ten years after that, and...

And what is the lesson of history that would allow us to avoid this
error?

Not thwaping round the ears people who snip attributions when quoting.

"Revision" wrote in message ...
And what is the lesson of history that would allow us to avoid this
error?

If you want something done expensively and badly, make it a government program?

Mark