NASA: International Space Station and Shuttle Support Cost Limits
(31-AUG-01, GAO-01-1000R).					 
								 
The National Aeronautics and Space Administration (NASA)	 
Authorization Act for Fiscal Year 2000 set cost limits on the	 
international space station and space shuttle programs. Under the
act, NASA may not obligate more than $25 billion for space	 
station development or more than $17.7 billion for shuttle	 
launches in connection with space station assembly. The act also 
stipulates that for the purpose of calculating launch costs not  
more than $380 million per launch shall be used. Finally, the act
requires that NASA, as part of its annual budget request, update 
Congress on its progress by (1) accounting for and reporting	 
amounts obligated against the limitations to date, (2)		 
identifying the amount of budget authority requested for the	 
future development and completion of the space station, and (3)  
arranging for GAO to verify the accounting submitted to Congress 
within 60 days after the submission of the budget request. NASA  
did not comply with the act's requirement to use obligations as  
its basis for reporting against the space station limit but	 
instead used budget authority. In addition, NASA was unable to	 
provide detailed transaction-based support for amounts obligated 
against the space station and shuttle limits for GAO to evaluate 
and meet the 60-day reporting requirement. Because NASA lacked	 
support for the actual cost of completed space station elements  
and subsystems, GAO could not determine whether NASA's costs were
reasonable. Also, the act does not require NASA to charge all	 
relevant obligations against the space station and shuttle	 
limits. As a result, NASA's accounting for the limits in its	 
fiscal year 2002 budget request did not include $2.5 billion of  
related obligations through fiscal year 2000.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1000R					        
    ACCNO:   A01707						        
  TITLE:     NASA: International Space Station and Shuttle Support    
             Cost Limits                                                      
     DATE:   08/31/2001 
  SUBJECT:   Accountability					 
	     Aerospace research 				 
	     Audits						 
	     Cost control					 
	     Reporting requirements				 
	     Budget obligations 				 
	     Budget authority					 
	     Financial management				 
	     Noncompliance					 
	     Space exploration					 
	     NASA International Space Station Alpha		 
	     Program						 
								 

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GAO-01-1000R
     
GAO- 01- 1000R NASA Cost Limits

United States General Accounting Office Washington, DC 20548

August 31, 2001 The Honorable Ernest Hollings Chairman The Honorable John
McCain Ranking Minority Member Committee on Commerce, Science,

and Transportation United States Senate

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

Subject: NASA: International Space Station and Shuttle Support Cost Limits
Section 202 of the National Aeronautics and Space Administration (NASA)
Authorization Act for Fiscal Year 2000 (P. L. 106- 391) establishes general
cost limitations on the international space station and space shuttle
programs. Under the act, through substantial completion of the space
station, NASA may not obligate more than $25 billion for space station
development or more than $17.7 billion for shuttle launches in connection
with space station assembly. The act further stipulates that for the purpose
of calculating launch costs not more than $380 million per launch shall be
used. Finally, the act requires that NASA, as part of its annual budget
request, update the Congress on its progress by (1) accounting for and
reporting amounts obligated against the limitations to date, (2) identifying
the amount of budget authority requested for the future development and
completion of the space station, and (3) arranging for GAO to verify the
accounting submitted to the Congress within 60 days after the submission of
the budget request.

In responding to the legislative requirement for verifying NASA?s
accounting, we planned to (1) assess NASA?s methodology for accumulating and
allocating amounts obligated against the space station and shuttle limits
and (2) audit the underlying obligation data supporting these amounts. Based
on discussions with your staffs, we also agreed to (1) evaluate whether
NASA?s costs, relative to the status of space station completion, were
reasonable and (2) assess the significance of amounts not reported against
the limits due to exclusions set forth under the act.

GAO- 01- 1000R NASA Cost Limits Page 2 In performing our work, we spoke with
officials responsible for preparing NASA?s

accounting for the space station and shuttle limits and identified and
reviewed the methodology they used. To test the completeness and accuracy of
NASA?s accounting, we requested transaction- level support for amounts
obligated for fiscal years 1998 though 2000. We further requested that the
transactions be identified as either space station and shuttle launch
support or all other programs so that we could use statistical sampling
techniques to test the propriety of transactions included in each group.

Also, as part of our review, we requested support for the actual cost of
space station components that were completed through September 30, 2000, so
that we could compare the percentage of resources expended with the
percentage of the space station completed. Except for the limits imposed by
NASA?s inability to provide us with timely data, we conducted our work from
March through June 2001 in accordance with generally accepted government
auditing standards.

On June 8, 2001, we briefed your staffs on the results of our work. As
agreed, this letter documents our findings and results. On August 23, 2001,
we received written comments on a draft of this letter from the NASA
Associate Deputy Administrator. These comments are reprinted in the
enclosure.

Results in Brief

We found that NASA did not comply with the act?s requirement to use
obligations as its basis for reporting against the space station limit but
instead used budget authority. In addition, NASA was not able to provide
detailed transaction- based support for amounts obligated against the space
station and shuttle limits for us to evaluate and meet the 60- day reporting
requirement. Consequently, we were unable to verify the information NASA
reported to the Congress. Further, NASA did not have support for the actual
cost of completed space station elements and subsystems. Therefore, we could
not determine whether NASA?s costs, relative to the status of space station
completion, were reasonable. NASA?s inability to provide timely data on
obligations or support for actual costs related to the space station and
shuttle raises concerns about NASA achieving the discipline and
accountability called for by the act.

Also, the act does not require NASA to charge all relevant obligations
against the space station and shuttle limits. As a result, NASA?s accounting
for the limits in its fiscal year 2002 budget request did not include $2.5
billion of related obligations through fiscal year 2000. Through fiscal year
2004, when NASA estimates the space station will be substantially complete,
an estimated $5.8 billion of related space station and shuttle obligations
may be excluded from the limits.

In commenting on a draft of this letter, NASA stated that it would work with
us and the Congress to address some of the problems we identified. However,
NASA also expressed concern about how we characterized its financial
reporting and costing practices for the space station.

GAO- 01- 1000R NASA Cost Limits Page 3

NASA Accounting for the Space Station Limit Not Based on Amounts Obligated

Although the act specifically requires NASA to report amounts obligated
against the limits, NASA instead reported in its fiscal year 2002 budget
request that it had received about $15.8 billion of budget authority related
to the space station limit through fiscal year 2000. NASA claims that the
budget authority received is, in essence, equivalent to its total
obligations because all but a negligible portion of the budget authority for
1994 through 2000 has been obligated. However, NASA officials have yet to
provide support for the amounts obligated against the space station limit in
order for us to verify their assertion.

NASA?s fiscal year 2002 budget request also included projected space station
spending through substantial completion in fiscal year 2004 and full
completion in fiscal year 2006. NASA again calculated these amounts using
projected budget authority for the space station. Using this methodology,
NASA projects it will spend a total $23.3 billion through substantial
completion in fiscal year 2004. The projection falls within the act?s limit,
but also assumes significant reductions in space station content.
Specifically, NASA plans to save about $3 billion by not funding remaining
high- cost hardware that is in development, such as the crew return vehicle
and habitation module. In addition, according to NASA officials, another $1
billion could be saved through planned program efficiencies. Absent these
changes and including spending through fiscal year 2006, NASA?s fiscal year
2002 budget projected that spending would exceed the space station budget by
over $4 billion at full completion. However, NASA was unable to provide us
with the details to support the savings resulting from planned space station
content reductions or other program efficiencies. In fact, when NASA
attempted to identify the specifics of the projected savings, instead of $1
billion in savings from planned program efficiencies, NASA?s analysts
identified new areas of cost growth- resulting in a net increase in total
projected space station spending. As of the date of this letter, NASA
continues to reassess its program budget and has not yet finalized its cost
overrun projection. We have ongoing work related to NASA?s projected space
station spending.

NASA Not Able to Provide Detailed Support Required for Audit

It was our intention to test the propriety of charges to various NASA
programs by ensuring that all charges to the space station and shuttle
programs were appropriate and that no space station or shuttle obligations
were charged to other programs. However, NASA could not provide the
requested data in time for us to perform our audit procedures. As a result,
we were unable to independently validate obligations related to the space
station and shuttle launches or to determine how closely the budget
authority information reported to the Congress mirrored the actual
obligations for the space station and shuttle programs.

According to NASA officials, transaction- level obligation data are
available at NASA?s 10 space centers on separate and different financial
systems. However, NASA was

GAO- 01- 1000R NASA Cost Limits Page 4 not able to provide the data in time
for us to review it and meet the 60- day reporting

requirement. NASA officials also told us that NASA has long- term plans for
implementing an integrated financial management system that will make access
to detailed obligation data more readily available.

NASA Does Not Have Needed Cost Data

NASA was also not able to provide detailed support for the actual costs of
completed space station components- either in total or by subsystems or
elements. Although NASA capitalized the cost of these items in its audited
fiscal year 2000 financial statements at about $8 billion, according to NASA
officials, these amounts are based primarily on cost estimates not actual
costs. 1 Further, NASA officials were not able to reconcile or adequately
explain the difference between the $15.8 billion in budget authority
reported against the space station limit and the $8 billion reported in
NASA?s financial statements.

NASA officials stated that its accounting systems were designed prior to the
implementation of current federal cost accounting standards and financial
systems standards that require agencies to track and maintain cost data
needed for management activities such as estimating and controlling costs,
performance measurement, and making economic trade- off decisions. As a
result, NASA's systems do not track the cost of individual space station
subsystems or elements. According to NASA officials, the agency manages and
tracks space station costs by contract and does not need to know the cost of
individual subsystems or elements to effectively manage the program. To the
contrary, we found that NASA identifies potential and probable future
program costs to estimate the impact of canceling, deferring, or adding
space station content. These cost estimates often identify the cost of
specific space station subsystems. However, because NASA does not attempt to
track costs by element or subsystems, the agency does not know the actual
cost of completed space station components and is not able to re- examine
its cost estimates for validity once costs have been realized.

The Act Does Not Require NASA to Report All Relevant Amounts

NASA?s fiscal year 2002 budget request reported that $1.5 billion had been
charged against the shuttle limit through fiscal year 2000. This amount was
calculated using $380 million per launch, the maximum amount per launch that
can be applied against the limit under the act. However, it does not reflect
the actual amount obligated or even NASA?s best estimate of the amount
obligated for shuttle support in connection with space station assembly.
According to NASA officials, NASA does not manage

1 Expenditures that are expected to benefit more than one accounting period
are considered capital expenditures and are to be reported on the statement
of financial position as capital assets. NASA capitalized $2.5 billion for
completed space station assets orbiting the earth and $5.4 billion for
completed contractor- held assets that are at the launch site for a total of
$8 billion. Completed assets at the launch site are reported in NASA?s
financial statements as contractor- held work in process. However, NASA was
not able to categorize the $5.4 billion by space station versus other
programs. Therefore, $8 billion represents the maximum amount attributable
to the space station.

GAO- 01- 1000R NASA Cost Limits Page 5 the shuttle program on a cost per
flight basis and therefore is not able to determine

the actual amount obligated for shuttle launches in connection with space
station assembly. Instead, for the purpose of allocating shuttle costs to
programs such as space station, NASA periodically calculates an average cost
per launch by dividing program costs for the fiscal year by the number of
launches. For fiscal year 2000, NASA calculated an average cost per launch
of $759 million based on four shuttle launches. Thus, for the four space
station assembly flights charged against the limit, approximately half of
NASA?s calculated costs ($ 379 million per launch or $1.5 billion in total)
are not reflected in NASA?s fiscal year 2000 accounting. Although NASA
capitalized shuttle- related costs for the space station at $441 million per
flight in its audited fiscal year 2000 financial statements, NASA officials
stated that its more recent calculation of $759 million per launch more
closely reflects actual cost. NASA officials were not sure what basis they
used to calculate the amount reported in NASA?s fiscal year 2000 financial
statements but speculated that the calculation was likely based on data from
a previous year.

NASA?s fiscal year 2002 budget request also included projected shuttle
spending of $11.4 billion through substantial space station completion in
fiscal year 2004. NASA again calculated this amount using $380 million per
launch, the maximum amount allowed by the act. While NASA?s projection falls
within the shuttle limit, due to planned space station content reductions,
the calculation assumes that only 30 assembly flights will be required
instead of 40 flights, as originally planned. In addition, reporting a
maximum amount per launch in accordance with the act will probably result in
a significant understatement of total launch costs. Specifically, NASA has
estimated that the average costs per launch for each of the 30 assembly
missions planned through fiscal year 2004 will exceed $380 million, ranging
between $437 and $759 million per launch. Based on NASA?s estimates, total
launch costs for the 30 planned flights would be understated by about $3.8
billion. If included, total launch costs through 2004 would be $15.2
billion.

In addition, the act does not require NASA to charge total costs such as in-
house labor costs related to the space station against the space station
limit. NASA currently accounts for all in- house labor costs under a
separate mission support appropriation, and the act does not require NASA to
charge these costs to the space station limit. As a result, NASA?s
accounting for the space station limit does not include $1 billion for civil
service compensation from fiscal years 1994 through 2000. NASA has estimated
that in- house labor costs for the space station from fiscal years 1994
through 2004 would total $2 billion. While in- house labor costs are not
applied to the limit, NASA does disclose these amounts as part of its budget
submission.

Agency Comments and Our Evaluation

In commenting on a draft of this report, the NASA Associate Deputy
Administrator stated that NASA would work with us and the Congress to
address some of the problems we identified but also expressed concern about
how we characterized NASA?s financial reporting and costing practices for
the space station. NASA believes that reporting budget authority fully
complies with the requirements of the act and that reporting amounts
obligated is not specifically required. This is based on NASA?s

GAO- 01- 1000R NASA Cost Limits Page 6 interpretation of the act and because
they assert that obligations closely approximate

budget authority at this stage of space station development. We disagree.
Subsection 202 (a) of the act states that ? . . . the total amount obligated
by the National Aeronautics and Space Administration for (A) costs of the
International Space Station may not exceed $25,000,000,000 . . .? and
subsection 202 (e) requires NASA to account for those cost limitations. This
language specifically identifies cost limitations and requires an accounting
of those limitations based on obligations. In order to resolve this issue,
NASA plans to discuss the reporting requirements with your committees.

NASA?s comments also discussed our findings on the difficulty of obtaining
support for specific obligations and component costs. NASA stated that it
will continue to work with us to compile detailed support for its space
station and other obligations. NASA also stated that it requires the
identification of costs supporting individual subsystems and hardware, but
that these support costs remain separate and are not included in the costs
of the subsystems and hardware elements. We continue to believe that NASA
needs to collect, maintain, and report the full cost of individual
subsystems and hardware so that NASA can make comparisons between estimates
and final costs and the Congress can hold NASA accountable for differences
between budgeted and actual costs.

- - - - We are sending copies of this letter to other interested
congressional committees as well as to NASA?s Administrator and Chief
Financial Officer. The letter will also be available on GAO?s home page at
http:// www. gao. gov.

If you or your staffs have any questions concerning this report, please
contact me at (202) 512- 9505 or by e- mail at kutzg@ gao. gov or Molly
Boyle, Assistant Director at (202) 512- 9524 or by e- mail at boylem@ gao.
gov. Major contributors to this effort were Diane Handley, Fannie Bivins,
and Maria Storts.

Gregory D. Kutz Director, Financial Management and Assurance

Enclosure

Enclosure GAO- 01- 1000R NASA Cost Limits Page 7

Comments From the National Aeronautics and Space Administration

Enclosure GAO- 01- 1000R NASA Cost Limits Page 8 (192028)
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