1. NASA Advisory Council Meeting Report of Audit and Finance Committee July 10, 2008 Members:NASA: Mr. Robert Hanisee, Chairman Mr. Terry Bowie Hon. Ted McPherson Hon. Michael Montelongo Mr. Howard Stanislawski

2. Audit & Finance Committee Glenn Research Center Fact-Finding Meeting Ohio Aerospace Institute, 1st Floor, Room 1E July 9, 2008 8:15 – 9:15Presentation # 1 Presentation from GRC CFODebra Watson 9:15 – 9:45 Presentation # 2 Update from Deputy CFOTerry Bowie Property Update 9:45 – 10:00Break 10:00 – 11:15Presentation # 3 Continuous Monitoring Program - May 2008 Results Leslie Hyland 11:15 – 12:00 Presentation # 4 Financial Statement Audit StatusThomas Green 12:00 - 12:45 Lunch Break 12:45 – 1:30Presentation # 5 NSSC Transition Update Joyce Short 2:30 – 5:30Administrative SessionA&F Members 5:30 Adjourn and Meet Bus

3. Glenn Research Center Briefing to NASA Advisory Council (Audit & Finance Committee) Debra Watson Chief Financial Officer July 9, 2008

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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)

10. 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

11. Continuous Monitoring Program And reports Exceptions in these Activities for each Center Total Percent of Exceptions for all of NASA 2008 FebruaryMarchAprilMay 24% 24% 15%17%

12. 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

13. FY2008 Financial Statement Audit Update Audit Milestones/Schedule FY07 Lessons Learned w/OIG & E&Y Jan. 29, 2008 FY08 Agency-wide Kick-Off Meeting Mar. 13, 2008 FY08 Walkthrough (Center) LaRC Mar. 31 – Apr. 4, 2008 GSFC Apr. 14 – 25, 2008 HQ Walkthrough Meetings Mar. 10 – Apr. 11, 2008 FY08 Internal Control Testing at CentersJun. 2, 2008 – Jul. 18, 2008 General Audit Information Technology Environmental Property, Plant and Equipment FY08 Substantive Testing – New Milestone Aug – Sept 2008 FY08 Field Work Completed Oct. 2008 FY08 Opinion Rendered - Agency Financial Report Completed Nov. 14, 2008

14. 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

15. NSSC Update Transition Schedule To 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 CentersAug. 2008 Grant Payments - All Centers (dependent on SAP release)Jan. 2009

16. NSSC Accounts Payable Key Indicators February – June 2008

17. NSSC Failure Analysis Note: 30% of late payments are w/in 2 days

18. 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

19. NSSC Update (Cont.) Successful Wave 3 Operational Readiness Review on June 26 Go Live July 1

20. Property, Plant and Equipment Update In GFY 07 wrote-off $13.3B of legacy assets – reclassification as R&D Remaining Problem Assets: Space Station$13.2B Space 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

21. 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 Comps 3. Reclassify as R&D Will recommend Option 3. Meanwhile the new Integrated Asset Management (IAM) tool was implemented in May.

22. Other Old Business Financial Staff Personnel Authorized FTE – 103 (Same as April) Current FTE 92 New hires but not on-board 6 FTE’s with New Hires 98 (an improvement of 5 FTE’s since April)

23. 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