oversight

Business Modernization: NASA's Challenges in Managing Its Integrated Financial Management Program

Published by the Government Accountability Office on 2003-11-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Summary Report to the Committee on
                Commerce, Science, and
                Transportation, U.S. Senate, and the
                Committee on Science, House of
                Representatives
November 2003
                BUSINESS
                MODERNIZATION
                NASA’s Challenges in
                Managing Its
                Integrated Financial
                Management Program




GAO-04-255
                                                 November 2003


                                                 BUSINESS MODERNIZATION

                                                 NASA’s Challenges in Managing Its
Highlights of GAO-04-255, a summary              Integrated Financial Management
report of GAO-04-43, GAO-04-151, and
GAO-04-118, reports to the Senate                Program
Committee on Commerce, Science, and
Transportation, and the House Committee
on Science




The National Aeronautics and                     IFMP offers NASA an opportunity to modernize its business processes and
Space Administration (NASA)                      systems and improve its operations. However, NASA’s acquisition strategy
spends 90 percent—$13 billion—of                 has created a number of challenges for IFMP. First, NASA has acquired and
its budget on contractors. Yet since             implemented many IFMP components—including the Core Financial
1990, GAO has designated NASA’s                  module, the backbone of the system—without an enterprise architecture, or
contract management as a high-risk
area—in part because the agency
                                                 modernization blueprint, to guide and constrain the program. NASA has
failed to implement a financial                  since recognized the need for an architecture and, after GAO completed its
management system to provide                     audit work, released one that NASA stated was incomplete. NASA has also
information needed to make key                   taken steps to implement key architecture management capabilities, such as
program decisions. In April 2000,                establishing an architecture program office and designating a chief architect.
NASA initiated its most recent                   However, NASA has yet to establish other key architecture management
effort to implement an effective                 capabilities, such as designating an accountable corporate entity to lead the
financial management system—the                  architecture effort. Moreover, the architecture products NASA has used to
Integrated Financial Management                  date were insufficient to manage its investment in IFMP. NASA’s approach
Program (IFMP). Three years into                 of acquiring and implementing IFMP outside the context of an architecture
the program, GAO found NASA                      increases the risk that the system’s components will not support agencywide
risks building a system that will
cost more and do less than
                                                 operations—an outcome that could cause costly system rework.
planned. As a result, the Congress
requested reviews of NASA’s IFMP                 Two years into IFMP’s development, NASA accelerated its implementation
enterprise architecture and                      schedule from fiscal year 2008 to fiscal year 2006, with the Core Financial
financial reporting and program                  module to be completed in June 2003. To meet this aggressive schedule,
cost and schedule controls.                      NASA deferred testing and configuration of many key capabilities of the
                                                 Core Financial module, including the ability to report the full cost of its
                                                 programs. When the module was implemented at each of NASA’s 10 centers,
                                                 many of the financial events or transaction types needed by program
GAO is making recommendations
in three separate reports:                       managers to carry out day-to-day operations and produce useful financial
•    On IFMP’s enterprise                        reports had not been included. As a result of these and other weaknesses,
     architecture, GAO                           NASA cannot ensure that the system routinely provides its program
     recommends that NASA                        managers and other key stakeholders and decision makers—including the
     establish an effective                      Congress—with the financial information needed to measure program
     architecture to guide and                   performance and ensure accountability.
     constrain the program.
•    On IFMP’s financial reporting,              IFMP is further challenged by questionable cost estimates, an optimistic
     GAO recommends that NASA                    schedule, and insufficient processes for ensuring adequate funding reserves.
     identify and address all areas              IFMP’s current life-cycle cost estimate does not include the full cost likely to
     that do not comply with
                                                 be incurred during the life of the program. Until NASA uses more disciplined
     federal systems requirements.
•    On IFMP’s cost and schedule                 processes to prepare IFMP’s life-cycle cost estimate, the program will have
     control, GAO recommends that                difficulty controlling costs. In addition, IFMP’s schedule margins may be too
     NASA follow best practices                  compressed to manage program challenges—such as personnel shortages,
     and NASA guidance in                        uncertainties about software availability, and Office of Management and
     preparing the life-cycle                    Budget initiatives to implement electronic systems for agency business
     cost estimate.                              processes governmentwide. These initiatives have already affected planning
                                                 for IFMP’s payroll, procurement, and travel components, an outcome that
 www.gao.gov/cgi-bin/getrpt?GAO-04-255.          could result in schedule delays and cost growth. Finally, reserve funding for
 To view the full product, including the scope
                                                 IFMP contingencies may be insufficient—particularly problematic, given the
 and methodology, click on the link above.       significant risks confronting the program.
Contents


Letter                                                                                                1


Appendix   NASA’s Challenges in Managing Its Integrated Financial
           Management Program                                    4
           Results in Brief                                                                          4
           IFMP Has Proceeded without an Enterprise Architecture, and
             NASA’s Ongoing Architecture Management Efforts Are Missing
             Key Elements                                                                             7
           Core Financial Module Lacks Capabilities to Facilitate Timely and
             Accurate Reporting and Comply with Federal Law                                           9
           IFMP Further Challenged by Questionable Cost Estimates and an
             Optimistic Schedule                                                                     11
           Conclusions                                                                               13




           Abbreviations

           IFMP              Integrated Financial Management Program
           FFMIA             Federal Financial Managememt Improvement Act of 1996
           NASA              National Aeronautics and Space Administration
           OMB               Office of Management and Budget


           This is a work of the U.S. government and is not subject to copyright protection in the
           United States. It may be reproduced and distributed in its entirety without further
           permission from GAO. However, because this work may contain copyrighted images or
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           Page i                                               GAO-04-255 Business Modernization
United States General Accounting Office
Washington, DC 20548




                                   November 21, 2003

                                   The Honorable John McCain
                                   Chairman
                                   The Honorable Ernest F. Hollings
                                   Ranking Minority Member
                                   Committee on Commerce, Science, and Transportation
                                   United States Senate

                                   The Honorable Sherwood L. Boehlert
                                   Chairman
                                   The Honorable Ralph M. Hall
                                   Ranking Minority Member
                                   Committee on Science
                                   House of Representatives

                                   The National Aeronautics and Space Administration’s (NASA) activities
                                   encompasses a broad range of complex and technical endeavors—from
                                   investigating the composition and resources of Mars to providing satellite
                                   and aircraft observations of Earth for scientific and weather forecasting
                                   purposes. Over the past decade, NASA has advanced space exploration,
                                   scientific knowledge, and international cooperation, and has accomplished
                                   unparalleled feats of engineering.

                                   More than two-thirds of NASA’s workforce is made up of contractors and
                                   grantees, and 90 percent, or roughly $13 billion, of NASA’s annual budget
                                   is spent on work performed by its contractors. Yet since 1990, we have
                                   identified NASA’s contract management as a high-risk area—in part
                                   because the agency has failed to implement a modern, fully integrated
                                   financial management system. The lack of such a system has hampered
                                   NASA’s ability to oversee contracts, control program costs, and ensure an
                                   effective human capital strategy—raising serious concerns about NASA’s
                                   management of its largest and most costly programs, including the space
                                   shuttle program and the International Space Station.

                                   In April 2000, NASA initiated its third and most recent effort to implement
                                   an effective financial management system—the Integrated Financial
                                   Management Program (IFMP)—which NASA expects to complete in fiscal
                                   year 2006. Through IFMP, NASA plans to replace the separate and
                                   incompatible financial management systems used by NASA’s 10 centers
                                   with one integrated system. The new system is expected to provide better


                                   Page 1                                      GAO-04-255 Business Modernization
decision data, consistent information across centers, and improved
functionality, thereby improving agencywide management of NASA’s
financial, physical, and human resources.

However, 3 years into the development of IFMP—with significant
investment already made in the program—we found that NASA’s
acquisition strategy has increased the risk that the agency will implement
a system that will cost more and do less than planned. As a result, the
Congress requested reviews of IFMP in three areas: enterprise
architecture, financial reporting, and program cost and schedule control.
This report provides a summary of the results of these reviews, which are
being reported today in the following three separate products:

•   Information Technology: Architecture Needed to Guide NASA’s
    Financial Management Modernization, GAO-04-43 (Washington, D.C.:
    Nov. 21, 2003). For more information on this report, please contact
    Randolph C. Hite at (202) 512-3439 or hiter@gao.gov.

•   Business Modernization: NASA’s Integrated Financial Management
    Program Does Not Fully Address External Reporting Issues, GAO-04-
    151 (Washington, D.C.: Nov. 21, 2003). For more information on this
    report, please contact Gregory D. Kutz at (202) 512-9095 or
    kutzg@gao.gov, Keith A. Rhodes at (202) 512-6412 or Rhodes@gao.gov,
    or Diane Handley at (404) 679-1986 or handleyd@gao.gov.

•   Business Modernization: Disciplined Processes Needed to Better
    Manage NASA’s Integrated Financial Management Program, GAO-04-
    118 (Washington, D.C.: Nov. 21, 2003). For more information on this
    report, please contact Allen Li at (202) 512-4841 or lia@gao.gov.




Page 2                                      GAO-04-255 Business Modernization
This summary report—along with our three reports—will not be further
distributed until 30 days from its date, unless you announce its contents
earlier. At that time, we will send copies to interested congressional
committees, the NASA Administrator, and the Director of the Office of
Management and Budget. We will also make copies available to others
upon request. In addition, the report will be available at no charge on the
GAO Web site at http://www.gao.gov.




Randolph C. Hite, Director
Information Technology Architecture and Systems Issues




Gregory D. Kutz, Director
Financial Management and Assurance




Keith A. Rhodes, Chief Technologist
Applied Research and Methods




Allen Li, Director
Acquisition and Sourcing Management




Page 3                                       GAO-04-255 Business Modernization
                   Appendix: NASA’s Challenges in Managing Its
Appendix: NASA’s Challenges in Managing Its
                   Integrated Financial Management Program



Integrated Financial Management Program

                   For more than a decade, we have identified weak contract management
                   and the lack of reliable financial and performance information as posing
                   significant challenges to NASA’s ability to effectively run its largest and
                   most costly programs. While NASA has made some progress in addressing
                   its contract management weaknesses through improved management
                   controls and evaluation of its procurement activities, NASA has struggled
                   to implement a modern integrated financial management system. Such a
                   system is key to efficiently producing accurate and reliable information to
                   oversee contracts, estimate and control program costs, and report
                   program financial activities to the Congress and other stakeholders.

                   In April 2003, we issued a report on the agency’s Integrated Financial
                   Management Program (IFMP)—NASA’s latest effort to implement a
                   modern financial management system—and found that the agency has not
                   followed key best practices for acquiring and implementing IFMP and
                   concluded that the agency was at risk of implementing a system that
                   would not optimize mission performance.1 As agreed with the Congress,
                   we continued our review to determine (1) whether NASA has been
                   acquiring and implementing IFMP in the context of an enterprise
                   architecture; (2) the extent to which key components of IFMP will assist
                   NASA in meeting its external reporting requirements; and (3) the
                   reasonableness of NASA’s life-cycle cost estimate, schedule, and reserve
                   funding for IFMP.


                   Through IFMP, NASA has committed to modernizing its business
Results in Brief   processes and systems in a way that will introduce interoperability and
                   thereby improve the efficiency and effectiveness of its operations as well
                   as bring the agency into compliance with federal financial management
                   requirements. NASA has also committed to implementing IFMP within
                   specific cost and schedule constraints. However, earlier this year, we
                   reported that NASA faced considerable challenges in meeting these
                   commitments. Through our reviews of NASA’s enterprise architecture and
                   IFMP’s financial reporting and program cost and schedule control, we
                   found that NASA remains challenged in its ability to meet its IFMP
                   commitments in several areas—areas that continue to put the agency’s
                   resources and programs at high risk.



                   1
                    U.S. General Accounting Office, Business Modernization: Improvements Needed in
                   Management of NASA’s Integrated Financial Management Program, GAO-03-507
                   (Washington, D.C.: Apr. 30, 2003).




                   Page 4                                           GAO-04-255 Business Modernization
Appendix: NASA’s Challenges in Managing Its
Integrated Financial Management Program




First, NASA has acquired and implemented significant components of
IFMP—including the Core Financial module, the backbone of the
system—without an enterprise architecture, or blueprint, to guide and
constrain the program. Our research has shown that attempting major
modernization programs like IFMP without having a well-defined
architecture risks, for example, implementing processes and building
supporting systems that are duplicative, lack interoperability, and do not
effectively and efficiently support mission operations and performance.
Since we completed our audit work, NASA issued an initial version of an
enterprise architecture, continuing its commitment to pursing a complete
architecture and acquiring and implementing IFMP within the context of
that architecture. However, because of the timing of our report, we were
unable to assess NASA’s initial architecture. NASA has also established
some important architecture management controls—such as establishing
an enterprise architecture program office and designating a chief architect.
However, it has not yet established others, which will make its efforts to
develop, implement, and maintain a well-defined architecture more
challenging.

Second, NASA has been pursuing an aggressive IFMP implementation
schedule, to the point of delaying implementation of many system
capabilities. NASA accelerated its schedule by 2 years, with the Core
Financial module to be completed in fiscal year 2003. To meet this
compressed schedule, NASA deferred configuration and testing of many
key capabilities of the Core Financial module, including the ability to
report the full cost of its programs. When NASA announced in June 2003,
full implementation of the module at each of its 10 centers, many of the
financial events or transaction types needed by program managers to carry
out day-to-day operations and produce useful financial reports had not
been included. If these and other weaknesses are not addressed, the Core
Financial module and related systems will not comply with the
requirements of the Federal Financial Management Improvement Act
(FFMIA) of 1996.2 Specifically, NASA cannot ensure that the system
routinely provides NASA program managers and other key stakeholders
and decision makers—including the Congress—with reliable, useful, and
timely financial information needed to measure program performance and
ensure accountability.




2
    31 U.S.C. 3512 note (2000) (Federal Financial Management Improvement).




Page 5                                               GAO-04-255 Business Modernization
Appendix: NASA’s Challenges in Managing Its
Integrated Financial Management Program




Finally, questionable cost estimates, an optimistic schedule, and
insufficient processes for ensuring adequate funding reserves put IFMP at
further risk of not meeting its cost and schedule commitments. In
preparing the current cost estimate for IFMP’s 10-year life cycle, NASA
did not include the full cost likely to be incurred during the life of the
program, including costs to retire the system and other direct and indirect
costs. Until NASA uses more disciplined processes in preparing the
program’s cost estimate, the reliability of the life-cycle cost estimate will
be uncertain and the program will have difficulty controlling costs. In
addition, IFMP’s compressed schedule margins may be insufficient to
manage program challenges—such as personnel shortages, uncertainties
about software availability, and Office of Management and Budget (OMB)
initiatives to implement electronic systems for agency business processes
governmentwide. These OMB initiatives have put IFMP in a reactionary
mode and are already affecting planning for the payroll, procurement, and
travel components of the integrated system, further impacting the
program’s cost and schedule. Reserve funding for IFMP contingencies may
also be insufficient—which is particularly problematic, given the
significant risks facing the program. The Budget Formulation module is
already experiencing shortfalls in its reserves.

We have made a number of recommendations in our three reports to
improve NASA’s acquisition strategy for IFMP. NASA reviewed and
provided comments on drafts of each of the three reports and concurred
with all of our recommendations aimed at establishing and maintaining an
effective enterprise architecture and accurately estimating program cost
and predicting the impact of program challenges. However, NASA did not
concur with our recommendations aimed at ensuring compliance with
FFMIA requirements because the agency believes that it is currently in
compliance. NASA’s comments and our response can be found in the full
reports. Because this summary report draws exclusively from our three
IFMP reports and previously issued reports, we did not ask NASA to
provide separate comments on a draft of the summary report.




Page 6                                        GAO-04-255 Business Modernization
                        Appendix: NASA’s Challenges in Managing Its
                        Integrated Financial Management Program




                        NASA has thus far acquired and deployed system components of IFMP
IFMP Has Proceeded      without an enterprise architecture, or agencywide modernization
without an Enterprise   blueprint, to guide and constrain program investment decisions—actions
                        that increased the chances that these system components will require
Architecture, and       additional time and resources to be modified and to operate effectively
NASA’s Ongoing          and efficiently. To correct this past practice, NASA released an initial
                        version of a new enterprise architecture after we completed our audit
Architecture            work, which NASA recognizes as not yet complete but plans to evolve and
Management Efforts      use to guide and constrain future IFMP investment decisions. NASA’s
Are Missing Key         ability to do so effectively, however, is constrained by missing architecture
                        management capabilities. NASA’s chief technology officer agreed that
Elements                these capabilities need to be established and said that NASA plans to do
                        so.

                        More specifically, NASA’s stated intention is to use an architecture as the
                        basis for agencywide business transformation and systems modernization.
                        Such an intention necessitates that its architecture products provide
                        considerable depth and detail as well as logical and rational structuring
                        and internal linkages. That is, it means that these architecture products
                        should contain sufficient scope and detail so that, for example, (1)
                        duplicative business operations and systems are eliminated, (2) business
                        operations are standardized and integrated and supporting systems are
                        interoperable, (3) use of enterprisewide services are maximized, and (4)
                        related shared solutions are aligned, like OMB’s e-Government initiatives.3
                        Moreover, this scope and detail should be accomplished in a way that (1)
                        provides flexibility in adapting to changes in the enterprise’s internal and
                        external environments; (2) facilitates its usefulness and comprehension by
                        varying perspectives, users, or stakeholders; and (3) provides for properly
                        sequencing investments to recognize, for example, the investments’
                        respective dependencies and relative business value.

                        The architecture artifacts that NASA’s chief technology officer provided to
                        us and represented as those used to date in acquiring and implementing
                        IFMP do not contain sufficient context (depth and scope of agencywide
                        operational and technical requirements) to effectively guide and constrain



                        3
                         OMB has identified 24 Electronic Government—or “e-Government”—initiatives that
                        advocate the use of Internet-based technologies governmentwide for agency business
                        processes, such as payroll, travel management, and recruiting. These initiatives are
                        expected to support the goal of the President’s Management Agenda and ultimately
                        provide improved government services to citizens, businesses, and other levels of
                        government.




                        Page 7                                              GAO-04-255 Business Modernization
Appendix: NASA’s Challenges in Managing Its
Integrated Financial Management Program




agencywide business transformation and systems modernization efforts.
More specifically, these artifacts do not satisfy the most basic
characteristics of architecture content, such as clearly distinguishing
between artifacts that represent the “As Is” and the “To Be” environments.
In general, these products were limited to descriptions of (1) technology
characteristics, which is one of many enterprise architecture elements,
and (2) one of nine business operations (finance and accounting). The
chief technology officer agreed that the architecture products used to date
to acquire and implement IFMP do not provide sufficient scope and
content to constitute a well-defined enterprise architecture.

Moreover, as NASA proceeds with its enterprise architecture effort, it is
critical that it employs rigorous and disciplined management practices.
Such practices form the basis of our architecture management maturity
framework,4 which specifies by stages the key architecture management
controls that are embodied in federal guidance and best practices,
provides an explicit benchmark for gauging the effectiveness of
architecture management and provides a road map for making
improvements. During the course of our review of IFMP, NASA
implemented some of these key architecture management capabilities,
such as having an enterprise architecture program office, designating a
chief architect, and using an architecture development methodology,
framework, and automated tools. However, NASA has not established
other key architecture management capabilities, such as designating an
accountable corporate entity to lead the architecture effort, having an
approved policy for developing and maintaining the architecture, and
implementing an independent verification and validation function to
provide needed assurance that architecture products and architecture
management processes are effective.

The chief technology officer agreed that NASA needs an effective
enterprise architecture program and stated that efforts are under way to
establish one. The chief technology officer also provided us with an initial
version of a NASA enterprise architecture on September 24, 2003, which
was after we completed our audit work. According to this official, while
this initial version of the architecture is incomplete, it does provide some




4
 U.S. General Accounting Office, Information Technology: A Framework for Assessing
and Improving Enterprise Architecture Management (Version 1.1), GAO-03-584G
(Washington, D.C.: Apr. 1, 2003).




Page 8                                            GAO-04-255 Business Modernization
                        Appendix: NASA’s Challenges in Managing Its
                        Integrated Financial Management Program




                        of the missing contextual information (operational and technical) that we
                        had identified during our review.

                        Based on our experience in reviewing other agencies, not having an
                        effective enterprise architecture program is attributable to limited senior
                        management understanding and commitment, and cultural resistance to
                        having and using one. Our experience with federal agencies has also
                        shown that attempting to define and build major IT systems, like IFMP,
                        without first completing an enterprise architecture often results in IT
                        systems that are duplicative, are not well integrated, are unnecessarily
                        costly to maintain and interface, and do not effectively optimize mission
                        performance.


                        The Core Financial module, considered the backbone of IFMP,5 is intended
Core Financial          to provide NASA’s financial and program managers with timely,
Module Lacks            consistent, and reliable cost and performance data to support management
                        decisions and external financial reporting. However, as we reported in
Capabilities to         April 2003, the Core Financial module was not designed to integrate the
Facilitate Timely and   cost and schedule data needed to oversee NASA’s contractors—primarily
                        because NASA did not adequately define the requirements of key
Accurate Reporting      stakeholders, including program managers and cost estimators, to allow it
and Comply with         to configure the module to address their needs.
Federal Law             NASA originally planned to complete implementation of IFMP in fiscal
                        year 2008, but in fiscal year 2002, NASA accelerated the implementation
                        schedule to fiscal year 2006, with the Core Financial module to be
                        completed in fiscal year 2003. To meet this compressed schedule, NASA
                        deferred configuration and testing of almost half of the financial events or
                        transaction types that NASA identified as critical for carrying out day-to-
                        day operations and for producing external financial reports. Moreover,
                        NASA does not plan to automate more than a third of the critical
                        transaction types. Rather, NASA plans to continue entering these
                        transactions manually, making the agency more vulnerable to processing
                        errors and delays. For example, the Core Financial module does not
                        appropriately capture and record property, plant, and equipment and
                        material in its general ledger at the transaction level—which is needed to
                        provide independent control over these assets.



                        5
                         Related IFMP modules will be integrated or interfaced with the Core Financial module,
                        where applicable.




                        Page 9                                              GAO-04-255 Business Modernization
Appendix: NASA’s Challenges in Managing Its
Integrated Financial Management Program




As part of its implementation strategy, NASA delayed conversion to full-
cost accounting until the Core Financial module was implemented at all
centers. After announcing in June 2003 full implementation of the module
at each of its 10 centers, NASA began designing the new cost allocation
structure and expected that the full-cost accounting capabilities needed to
provide the full cost of its programs and projects for external reporting
purposes would be available through the Core Financial module in
October 2003. Because of the timing of our reports, we could not verify the
availability of this capability.

The Core Financial module as implemented in June 2003 also lacks the
capability to automatically classify and record upward and downward
adjustments of prior year obligations to the appropriate general ledger
accounts—a federal financial management system requirement and a key
capability to providing the data needed to prepare a Statement of
Budgetary Resources.6 When NASA tested specific requirements related to
adjustments to prior year obligations, the Core Financial module
incorrectly posted the adjustments. Consequently, NASA deferred
implementation of these requirements and opted to rely on manual
compilations, system queries, or other work-arounds to extract these data.
This cumbersome, labor-intensive effort to gather end-of-year information
greatly increases the risk of misreporting—as we stated in March 2001,
when NASA reported a misstatement of $644 million in its fiscal year 1999
Statement of Budgetary Resources.7 While NASA had hoped to use a
“patch” release or future software upgrade to post upward and downward
adjustments—and thereby eliminate manual work-arounds—these efforts
have proven unsuccessful. NASA is continuing to work with the software
vendor to reconfigure the software as necessary to accommodate upward
and downward adjustment processing.

Finally, the Core Financial module does not capture accrued costs or
record accounts payable if the cumulative costs exceed obligations for a
given contract. Yet, federal accounting standards and NASA guidance
require costs to be accrued in the period in which they are incurred and
any corresponding liability to be recorded as an account payable—
regardless of amounts obligated. Further, federal standards require


6
 The Statement of Budgetary Resources provides information on the availability and use of
budgetary resources, as well as the status of budgetary resources at the end of the period.
7
 U. S. General Accounting Office, Financial Management: Misstatement of NASA’s
Statement of Budgetary Resources GAO-01-438, Mar. 30, 2001).




Page 10                                              GAO-04-255 Business Modernization
                      Appendix: NASA’s Challenges in Managing Its
                      Integrated Financial Management Program




                      agencies to disclose unfunded accrued costs—that is, costs in excess of
                      obligations. As of June 30, 2003, NASA had not processed approximately
                      $245 million in costs that exceeded obligations or recorded the
                      corresponding accounts payable. Instead, these transactions have been
                      held outside of the general ledger in suspense until additional money can
                      be obligated. As a result, costs or liabilities could be understated in its
                      reports by the amount held in suspense if NASA fails to adjust these
                      amounts.

                      The Core Financial module was intended to streamline many of NASA’s
                      processes and eliminate the need for many paper documents. However, in
                      some areas, the new system has actually increased NASA’s workload.
                      Because the core financial software allows obligations to be posted to the
                      general ledger before a binding agreement exists, NASA must process
                      purchase orders and contract documents outside the system until they are
                      signed or otherwise legally binding. At that point, NASA initiates the
                      procurement action in the system and repeats the steps that were
                      manually performed outside the system.

                      If NASA continues on its current track—one that has resulted in
                      significant limitations with regard to property accounting, full-cost
                      reporting capabilities, budgetary accounting, accrued costs, and accounts
                      payable—the Core Financial module and IFMP will fail to comply with
                      FFMIA requirements to build a fully integrated financial management
                      system that routinely provides decision makers with timely, reliable, and
                      useful financial information.


                      Questionable cost estimates, an optimistic schedule, and insufficient
IFMP Further          processes for ensuring adequate funding reserves have put IFMP at an
Challenged by         even greater risk of not meeting program objectives. In preparing its life-
                      cycle cost estimates for IFMP,8 NASA did not use disciplined cost-
Questionable Cost     estimating processes as required by NASA and recognized as best
Estimates and an      practices. For example, NASA’s current IFMP life-cycle cost estimate—
                      which totals $982.7 million and is 14 percent, or $121.8 million, over the
Optimistic Schedule   previous IFMP life-cycle cost estimate—was not prepared on a full-cost
                      basis. The estimate includes IFMP direct program costs, NASA enterprise
                      support, and civil service salaries and benefits, but it does not include the
                      cost of retiring the system, enterprise travel costs, the cost of nonleased


                      8
                          Fiscal years 2001 through 2010.




                      Page 11                                       GAO-04-255 Business Modernization
Appendix: NASA’s Challenges in Managing Its
Integrated Financial Management Program




NASA facilities for housing IFMP, and other direct and indirect costs likely
to be incurred during the life of the program. In addition, NASA did not
consistently use breakdowns of work in preparing the cost estimate,
although NASA guidance calls for breaking down work into smaller units
to facilitate cost estimating and project and contract management as well
as to help ensure that relevant costs are not omitted. In cases where work
breakdowns were used, the agency did not always show the connection
between the work breakdown estimates and the official program cost
estimate. This has been a weakness since the inception of the program.
Without a reliable life-cycle cost estimate, NASA will have difficulty
controlling program costs.

In addition, NASA’s schedule may not be sufficient to address program
challenges, such as personnel shortages and uncertainties about software
availability. To address personnel shortages during the implementation of
the Core Financial module, NASA paid nearly $400,000 for extra hours
worked by center employees and avoided a slip in IFMP’s compressed
schedule. However, the schedule for implementing the Budget
Formulation module has slipped because IFMP implemented this module
simultaneously with the Core Financial module—an action advised against
by a contractor conducting a lessons-learned study—placing heavy
demand on already scarce resources. Uncertainty regarding software
availability also puts the program at risk for completing the integrated
system on schedule. OMB’s e-Government initiatives—which aim to
eliminate redundant systems governmentwide by using “best of suite”
software—could also create more difficult interface development and a
less integrated system, risking additional schedule delays and cost growth.
E-Government initiatives are already affecting planning for IFMP’s payroll-
and procurement-related modules, and OMB’s e-Travel could replace
IFMP’s Travel Management module, which has already been implemented.
IFMP’s fiscal year 2002 Independent Annual Review found that e-
Government initiatives are forcing the program into a reactive mode,
noting that (1) the benefits of a fully integrated system could be lost under
e-Government, (2) the scope of IFMP and timing of future projects’
implementation have become uncertain, and (3) cost increases and
schedule slippage to accommodate directives may occur.

Finally, the program did not consistently perform in-depth analyses of the
potential cost impact of risks and unknowns specific to IFMP, as required
by NASA guidance. Instead, the program established funding reserves on
the basis of reserve levels set by other high-risk NASA programs. As a
result, reserve funding for IFMP contingencies may be insufficient—which
is particularly problematic, given the program’s questionable cost


Page 12                                       GAO-04-255 Business Modernization
              Appendix: NASA’s Challenges in Managing Its
              Integrated Financial Management Program




              estimates and optimistic schedule. One module—Budget Formulation—is
              already experiencing shortfalls in its reserves, and project officials
              expressed concern that the module’s functionality may have to be
              reduced. Moreover, the program did not quantify the cost impact of high-
              criticality risks—risks that have a high likelihood of occurrence and a high
              magnitude of impact—or link these risks to funding reserves to help IFMP
              develop realistic budget estimates.


              NASA’s latest effort to develop and implement an integrated financial
Conclusions   management system has been driven by an aggressive schedule—not by
              requirements, available resources, and strategic planning. Without a
              mature enterprise architecture to rationalize IFMP’s implementation
              schedule and reliable life-cycle cost estimates to ensure program
              efficiency, NASA is creating a system that may lack the functionality to
              achieve its intended goal: to provide accurate and timely financial data
              needed to manage NASA’s programs and account for the billions of dollars
              the agency spends annually on work performed by its contractors.

              In our three reports being issued today, we make a number of
              recommendations to the NASA Administrator, which if implemented
              appropriately should help program managers get IFMP on track and,
              ultimately, provide NASA with the fully integrated financial management
              system that it has sought to acquire for more than a decade.




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              Page 13                                       GAO-04-255 Business Modernization
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