    Property Management: Lack of Accountability and Weak Internal
    Controls Leave NASA Equipment Vulnerable to Loss, Theft, and
    Misuse (25-JUN-07, GAO-07-432).

    For years, GAO and others have reported that the National
    Aeronautics and Space Administration (NASA) does not maintain
    effective control over the $35 billion of property, plant, and
    equipment (PP&E) and materials that it reports on its financial
    statements. GAO's report, the first in a planned series,
    addresses whether NASA's control environment and internal
    controls over NASA-held equipment provide reasonable assurance
    that (1) these assets are not vulnerable to loss, theft, and
    misuse and (2) all equipment costs are appropriately recorded in
    the agency's financial statements. GAO evaluated the design of
    NASA's property management controls by reviewing agencywide and
    local policies, obtaining equipment loss reports for all NASA
    centers, and evaluating actions taken to hold employees
    accountable. To confirm its understanding of the design of NASA's
    property controls, GAO conducted on-site visits at two NASA
    centers and interviewed property management officials at the
    remaining seven NASA centers.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-432
        ACCNO:   A71431
      TITLE:     Property Management: Lack of Accountability and Weak
    Internal Controls Leave NASA Equipment Vulnerable to Loss, Theft,
    and Misuse
         DATE:   06/25/2007
      SUBJECT:   Accountability
    	     Accounting procedures
    	     Equipment inventories
    	     Equipment management
    	     Federal property
    	     Federal property management
    	     Financial records
    	     Financial statements
    	     Internal controls
    	     Losses
    	     Policy evaluation
    	     Property and supply management
    	     Property losses
    	     Records
    	     Records management
    	     Waste, fraud, and abuse
    	     Policies and procedures

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    GAO-07-432

         * [1]Results in Brief
         * [2]Background

              * [3]NASA's Equipment Management Policies
              * [4]NASA's Property Management Organizational Responsibilities

         * [5]Lack of Accountability and Weak Internal Controls Leave NASA

              * [6]Weaknesses in NASA's Internal Control Environment Continue t

                   * [7]NASA Management Was Unresponsive to Prior Equipment
                     Manageme
                   * [8]Management Does Not Enforce Accountability for Equipment
                     Los
                   * [9]When Faced with High Equipment Loss Rates, NASA Removed
                     Cont

              * [10]NASA Failed to Track and Control Millions of Dollars of Equi

                   * [11]NASA Does Not Place Restrictions on the Amount or Type
                     of Eq
                   * [12]NASA Lacks Effective Equipment Management Training
                   * [13]NASA Lacks an Integrated Financial Management System
                     That Co

         * [14]NASA Does Not Report All Equipment Costs on Its Financial St
         * [15]Conclusion
         * [16]Recommendations for Executive Action
         * [17]Agency Comments and Our Evaluation
         * [18]GAO Comments
         * [19]GAO Contact
         * [20]Acknowledgments
         * [21]GAO's Mission
         * [22]Obtaining Copies of GAO Reports and Testimony

              * [23]Order by Mail or Phone

         * [24]To Report Fraud, Waste, and Abuse in Federal Programs
         * [25]Congressional Relations
         * [26]Public Affairs

    Report to the Chairman, Committee on Science and Technology, House of
    Representatives

    United States Government Accountability Office
    GAO

    June 2007

    PROPERTY MANAGEMENT

    Lack of Accountability and Weak Internal Controls Leave NASA Equipment
    Vulnerable to Loss, Theft, and Misuse

    [27]GAO-07-432

    Contents

    Letter 1

    Results in Brief 3
    Background 6
    Lack of Accountability and Weak Internal Controls Leave NASA Equipment
    Vulnerable to Loss, Theft, and Misuse 10
    NASA Does Not Report All Equipment Costs on Its Financial Statements 29
    Conclusion 31
    Recommendations for Executive Action 31
    Agency Comments and Our Evaluation 33
    Appendix I Objectives, Scope, and Methodology 35
    Appendix II Comments from the National Aeronautics and Space
    Administration 39
    GAO Comments 44
    Appendix III GAO Contact and Staff Acknowledgments 45

    Tables

    Table 1: Excerpts from Selected NASA Survey Reports Describing the
    Circumstances Surrounding Equipment Losses 16
    Table 2: Disposition of Recently Purchased Sensitive Equipment Costing
    Less Than NASA's Sensitive Equipment Threshold 20
    Table 3: Examples of Equipment Not Controlled in NASA's Property
    Management System 25
    Table 4: Description of the Population and Sample of Transactions 37

    Figures

    Figure 1: NASA Equipment Control Number (ECN) Tag Attached to Controlled
    Property 8
    Figure 2: NASA's Equipment Loss Rates for Fiscal Years 1997 through 2006
    11
    Figure 3: Noncontrolled Microscope Costing $1,700 18
    Figure 4: Noncontrolled Multimedia Projector Costing $2,450 19
    Figure 5: Camera Costing $1,500 Not Controlled in NASA's Property
    Management System 24
    Figure 6: Macintosh G5 Computer with a Cost of $2,449 Not Controlled in
    the Property Management System 26

    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 other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    Abbreviations

    ASTM American Society of Testing and Materials
    COTS commercial off-the-shelf
    ECN equipment control number
    ERP enterprise resource planning
    FMR Federal Management Regulation
    GSA General Services Administration
    IAM integrated asset management
    IEMP Integrated Enterprise Management Program
    LMD Logistics Management Division
    NASA National Aeronautics and Space Administration
    NEMS NASA Equipment Management System
    NPD NASA Policy Directive
    NPR NASA Procedures and Requirements
    OCFO Office of the Chief Financial Officer
    OIG Office of the Inspector General
    PDA personal digital assistant
    PP&E property, plant, and equipment
    RAIF Research Aircraft Integration Facility
    SEMO Supply Equipment Management Officer

    United States Government Accountability Office
    Washington, DC 20548

    June 25, 2007

    The Honorable Bart Gordon
    Chairman
    Committee on Science and Technology
    House of Representatives

    Dear Mr. Chairman:

    For years, we and others have reported that the National Aeronautics and
    Space Administration (NASA) has not maintained effective control over the
    $35 billion of property, plant, and equipment (PP&E) and materials that it
    reports on its financial statements. More specifically, NASA is not able
    to link the money it spends on the purchase or construction of its
    property to discrete property items and, therefore, is unable to provide
    independent control over these assets. Concerned that weaknesses in NASA's
    internal controls over PP&E and materials have made these assets
    vulnerable to loss, theft, and misuse, you asked us to determine whether
    NASA maintains appropriate accountability over its physical assets and
    properly accounts for all costs associated with the acquisition of its
    physical assets. NASA's PP&E and materials are physically located
    throughout the world, at locations including NASA centers, contractor
    facilities, other private or government-run facilities, and in space. In
    addition, the processes and controls over NASA's PP&E and materials vary
    depending on a wide variety of factors including the property's value,
    useful life, purpose, and location. As agreed with your staff, given the
    scope of the work required to audit the various types of NASA property, we
    plan to issue a series of reports that will address issues unique to each
    property category.

    This first report focuses on equipment items held by NASA. Specifically,
    this report addresses whether NASA's control environment and internal
    controls over NASA-held equipment provide reasonable assurance that

    (1) these assets are not vulnerable to loss, theft, and misuse and (2) all
    equipment costs are appropriately recorded in the agency's financial
    management system and subsequently reported on its financial statements.
    NASA defines equipment to include special tooling and test equipment and
    agency-peculiar property, such as the Space Shuttle, rockets, engines, and
    scientific components unique to NASA space programs. According to its
    fiscal year 2006 financial statements, NASA reported that it owned $623
    million^1 in NASA-held equipment. In addition to the amounts reported on
    its financial statements, in accordance with NASA's accounting policy, the
    agency also purchases hundreds of millions of dollars of equipment each
    year that it does not report on its financial statements. Although not
    reported in the agency's financial statements, it is NASA's policy to
    track and control equipment that meets the agency's definition of
    controlled property. NASA defines controlled equipment as (1) sensitive
    equipment--items that are pilferable or possibly hazardous--with an
    acquisition cost of $500 or more; (2) all weapons and hazardous devices,
    regardless of acquisition cost; and (3) all nonsensitive equipment with an
    acquisition cost of $5,000 or more that has an estimated service life of 2
    years or more, which will not be consumed or expended as part of an
    experiment.

    To determine whether NASA's control environment and internal controls over
    NASA-held equipment provide reasonable assurance that these assets are not
    vulnerable to loss, theft, and misuse, we (1) evaluated management's
    responsiveness to observations and recommendations made in prior audit
    reports and internal management reports, (2) documented agency-wide trends
    in equipment losses and evaluated actions taken by management to hold
    employees accountable, and (3) evaluated the design of NASA's internal
    controls by reviewing and analyzing agencywide and local equipment
    management policies and procedures and comparing NASA's policies and
    procedures with federal and other standards for controlling property. We
    also interviewed the agency's top property management officials to obtain
    their views on NASA's property management policies and processes and
    previously identified property management weaknesses. We conducted
    walkthroughs at two NASA centers and interviewed property management
    officials at the remaining seven NASA centers to confirm our understanding
    of the design of NASA's property management process and controls. To
    determine whether equipment items purchased by NASA are properly recorded
    in NASA's property management system and, therefore, subject to physical
    inventory inspection, we selected a statistical sample of equipment
    purchases made during fiscal years 2005 and 2006 that, based on our
    analysis, did not appear to be recorded in NASA's property management
    system. We also obtained and analyzed other internal property management
    reports.

    ^1This amount represents the reported book value of NASA-held equipment,
    which is the reported acquisition cost of $2.3 billion less accumulated
    depreciation of $1.6 billion.

    To determine whether equipment costs are appropriately recorded in the
    agency's financial management system and subsequently reported on its
    financial statements, we reviewed a nonrepresentative selection of
    equipment purchases and traced these transactions to their source
    documents and assessed whether all costs related to the purchases we
    reviewed were accurately recorded in the property management system. We
    interviewed officials with the Office of the Chief Financial Officer
    (OCFO) and property officials and documented NASA's process for recording
    equipment transactions in the agency's financial management system and
    general ledger. We determined that the data were sufficiently reliable for
    the purpose of this report. We performed our work from April 2006 through
    March 2007 in accordance with U.S. generally accepted government auditing
    standards. Details on our objective, scope, and methodology are in
    appendix I.

    We requested comments on a draft of this report from the NASA
    Administrator or his designee. Written comments from the Deputy
    Administrator are reprinted in appendix II. NASA also provided separate
    technical comments, which have been incorporated into our report as
    appropriate.

    Results in Brief

    Over the past 10 years, NASA has reported that it lost over $94 million in
    equipment and for 6 of those years, its equipment loss rate has exceeded
    its annual performance goal of 0.5 percent. Although, according to NASA,
    some of this equipment was eventually located during subsequent physical
    inventories,^2 NASA's failure to keep track of these items leaves them
    vulnerable to theft and misuse. The high equipment losses are due, in
    large part, to a weak internal control environment. NASA's internal
    control environment is characterized by management's (1) lack of
    responsiveness to prior equipment management recommendations, (2)
    reluctance to hold employees accountable for equipment loss, and (3)
    decision to remove from control (decontrol) millions of dollars of
    equipment, when faced with equipment losses that exceeded the agency's
    annual performance goal. Instead of tightening controls, as recommended by
    the agency's 2002 equipment loss study, when faced with equipment losses,
    NASA raised its threshold for tracking and controlling nonsensitive^3
    equipment items from $1,000 to $5,000. This essentially eliminated control
    over all nonsensitive equipment costing less than $5,000. In addition,
    NASA has yet to address previously reported weaknesses in its process for
    reviewing and investigating equipment losses or strengthen its policy
    related to users' accountability for equipment losses. As a result, NASA
    employees are rarely held accountable for equipment losses. Of the 1,136
    equipment loss reports completed during fiscal year 2006 that NASA
    provided to us, only 282--or about 25 percent--were investigated. Of those
    investigated, only
    2 reports indicated that employees would be disciplined or held
    financially accountable.

    ^2During the course of our audit, NASA was unable to provide us with
    information we requested on the total amount of equipment located during
    subsequent inventories for the 10-year period. In technical comments on a
    draft of this report, NASA stated the agency recovered $34.5 million in
    previously lost equipment over the 10-year period. However, the agency did
    not provide documentation to support these amounts, and we were unable to
    verify the reliability of these reported recovery amounts.

    Weaknesses in the design and operation of NASA's systems, processes, and
    policies over the receipt and acceptance of equipment do not provide
    reasonable assurance that equipment purchases that meet NASA's definition
    of controlled property are routinely entered into NASA's property
    management systems and, therefore, subject to physical inventory control.
    Specifically, NASA's equipment management policy allows employees to
    bypass the agency's central receiving function--which should serve as the
    primary control point for receipt and acceptance--and does not limit the
    amount or type of equipment purchases that may be sent directly to an
    end-user. Further, end-users are not adequately trained and, therefore, do
    not take the steps necessary to ensure that equipment is entered into the
    property management system. Finally, the agency lacks an integrated
    financial management system that could mitigate the problems associated
    with bypassing central receiving. As a result, over the past 10 years,
    NASA reported^4 that it failed to enter
    $199 million of controlled equipment purchases into its property
    management system. In addition, we estimated that NASA failed to track at
    least another $13 million of controlled equipment purchased during fiscal
    years 2005 and 2006, which represents approximately 4 percent of NASA's
    total reported controlled equipment purchased during the same period.
    Equipment not tracked in NASA's property management system is not subject
    to the same physical inventory procedures as other controlled equipment
    items and as a result, is at much higher risk of being lost or stolen
    without NASA being aware of it. Although NASA plans to implement a new
    integrated asset management (IAM) system in October 2007, the new system,
    as currently planned, will not significantly improve NASA's ability to
    provide reasonable assurance that all equipment purchases are
    appropriately recorded in the agency's property management system. Based
    on our assessment of NASA's IAM system requirements and other planning
    documents, NASA's planning effort thus far has been focused primarily on
    equipment that it reports on its financial statements. According to NASA
    officials, for external financial reporting purposes, IAM will identify
    the cost of capital equipment as those costs are incurred. However, for
    controlled equipment that NASA does not report on its financial
    statements, the system is not being designed with front-end controls that
    would identify or flag purchases as equipment when the item is ordered.
    Instead, NASA will continue to rely heavily on end-users to ensure that
    equipment is entered into the property management system after it has been
    received.

    ^3NASA defines nonsensitive equipment as items that are not pilferable or
    possibly hazardous.

    ^4NASA, Agency Annual Report of Controlled Equipment-Equipment by Center
    for fiscal years 1997 through 2006.

    In accordance with NASA's accounting policy, NASA reports only equipment
    items valued at $100,000 or more and with a useful life of
    2 years or more on its financial statements. Although these items
    represent only a portion of NASA's total equipment inventory, NASA is
    unable to accurately account for and report the value of this equipment.
    Because NASA uses the amounts recorded in its property records as the
    basis for reporting equipment amounts in its financial statements, the
    weaknesses in NASA's receipt and acceptance process also affect the
    agency's financial reporting capabilities. As a result, during fiscal
    years 2005 and 2006, NASA failed to accurately account for and report at
    least $2.3 million of the total equipment items purchased that cost
    $100,000 or more. In addition, although NASA often purchases components
    for the purpose of fabricating an equipment item, it does not have an
    effective way to identify and link the cost of the components with the
    end-item being produced. As a result, NASA often does not capture and
    report the full cost of these items on its financial statements. Without
    the systems and processes needed to identify all equipment costs as they
    are incurred, NASA must continue to rely on a retrospective review of
    transactions entered into NASA's property management system to determine
    which costs should be capitalized--a process that has proven to be
    ineffective.

    We are making 10 recommendations aimed at strengthening NASA's internal
    control environment and improving its property management controls. These
    recommendations are focused on designing an effective system of controls
    that includes, among other things, strengthening agencywide policy on user
    accountability for equipment loss, and improved financial and physical
    control over equipment. In written comments, which are reprinted in
    appendix II, NASA concurred with 8 of our 10 recommendations and partially
    concurred with the remaining
    2 recommendations related to (1) strengthening NASA's policy on user
    accountability for equipment loss and (2) defining and enforcing
    reasonable workload standards for property custodians. In its comments,
    NASA also stated that many of GAO's recommendations related to efforts
    currently under way.

    With respect to our recommendation related to strengthening NASA's policy
    on user accountability, NASA disagreed with the portion of that
    recommendation that would require employees to acknowledge in writing, for
    all personal use equipment, their responsibility for maintaining NASA
    equipment. Instead, NASA cited plans to implement other measures to
    reinforce user accountability requirements. These measures, if effectively
    implemented, would help establish user accountability for lost or missing
    property, which was the intent of our recommendation. In addition,
    although NASA agreed with the intent of our recommendation related to
    defining and enforcing reasonable workload standards for property
    custodians, the agency expressed concern that implementation of such a
    recommendation would be difficult to achieve. We continue to believe that
    reasonable parameters could be established and are a critical step in
    ensuring that the custodians are able to effectively carry out their
    responsibilities. NASA also provided separate technical comments, which
    have been incorporated into our report as appropriate.

    Background

    NASA's mission is to pioneer the future in space exploration, scientific
    discovery, and aeronautics research. To accomplish its mission, NASA
    procures, fabricates, and maintains billions of dollars of PP&E and
    operating materials and supplies. According to its fiscal year 2006
    financial statements, NASA reported $35 billion in PP&E and operating
    materials and supplies, which represents more than 77 percent of the
    agency's total assets. In accordance with NASA's capitalization policy,
    however, the amount reported on NASA's financial statements reflects PP&E
    and operating materials and supplies with a unit cost of $100,000 or more
    and a useful life of 2 years or more. NASA also purchases and expenses
    billions of dollars of equipment and materials each year, which are not
    reflected in the amount reported above.

    NASA's ability to effectively manage its PP&E and operating materials and
    supplies will continue to be important going forward. On January 14, 2004,
    the President announced a new exploration policy--A Renewed Spirit of
    Discovery: The President's Vision for U.S. Space Exploration
    (Vision)--that directs NASA to focus its efforts on returning humans to
    the moon by 2020 in preparation for future, more ambitious missions. Over
    the next two decades NASA plans to spend nearly $230 billion implementing
    the new exploration policy. Implementing the Vision will require that the
    agency procure, fabricate, and maintain significant amounts of PP&E and
    operating materials and supplies. As such, it is important that the agency
    have the processes, systems, and controls in place that are needed to
    manage and control this property.

    NASA's Equipment Management Policies

    NASA's PP&E and materials are physically located at many locations
    throughout the world, including NASA centers, contractor facilities, other
    private or government-run facilities, and in space. As discussed
    previously, this report focuses specifically on NASA-held equipment.
    According to its fiscal year 2006 financial statements, NASA reported that
    it owned
    $623 million^5 in NASA-held capital equipment. NASA defines capital
    equipment, in accordance with its capitalization criteria, to include
    special tooling and test equipment and agency-peculiar property, such as
    the Space Shuttle, rockets, engines, and scientific components unique to
    NASA space programs. However, according to NASA's equipment management
    policy, NASA also tracks and controls certain equipment such as laptop
    computers, cameras, cell phones, and other items that fall under its
    $100,000 capitalization threshold but meet its definition of controlled
    equipment. NASA defines controlled equipment as (1) sensitive
    equipment--items that are pilferable or possibly hazardous--with an
    acquisition cost of $500 or more; (2) all weapons and hazardous devices,
    regardless of acquisition cost; and (3) all nonsensitive equipment with an
    acquisition cost of $5,000 or more that has an estimated service life of
    2 years or more, and that will not be consumed or expended as part of an
    experiment. NASA defines noncontrolled items as sensitive items under $500
    and nonsensitive items under $5,000.

    NASA's equipment management policy requires that the agency assign a
    unique equipment control number (ECN), as shown in figure 1, to each
    controlled equipment item and that NASA use the NASA Equipment Management
    System (NEMS) to track and control these items.

    ^5This amount represents the reported book value of NASA-held equipment,
    which is the reported acquisition cost of $2.3 billion less accumulated
    depreciation of $1.6 billion.

    Figure 1: NASA Equipment Control Number (ECN) Tag Attached to Controlled
    Property

    NEMS contains information on controlled equipment such as the item's name,
    purchase price, manufacturer's information, item location and condition,
    property custodian, and end user and serves as the basis for performing
    periodic physical inventory procedures.

    NASA's Property Management Organizational Responsibilities

    According to NASA's property management policy^6 and procedural
    guidance,^7 property management at NASA involves five key players--the
    Logistics Management Division (LMD), the supply equipment management
    officer (SEMO), property custodians, end users, and central receiving. A
    description of their roles and responsibilities is as follows:

               o The LMD, which is located at NASA headquarters in Washington,
               D.C., is responsible for establishing policies and procedures that
               govern the agency's equipment management activities. The LMD is
               also responsible for (1) assisting NASA centers^8 in the
               development and operation of internal processes, procedures, and
               systems to ensure their compatibility with agency programs; (2)
               establishing necessary agency performance measures and reports on
               the overall implementation of equipment management programs; (3)
               conducting reviews and assessments of equipment management
               activities; and

               (4) defining training requirements to ensure properly trained
               property personnel across the agency.

               o The SEMO is responsible for managing the centers' equipment
               program--providing functional management, leadership, and
               necessary resources to ensure the implementation of an effective
               equipment management program. The SEMO is also responsible for (1)
               ensuring that loss, damage, or destruction of equipment is
               promptly reported, investigated, and reviewed to prevent
               recurrences, and taking corrective actions as recommended by the
               Property Survey Officer or Board; (2) implementing the necessary
               equipment control procedures to ensure proper accountability for
               center equipment; (3) ensuring that prescribed physical
               inventories of controlled equipment are taken and adjustments are
               made to property and financial records; and

               (4) establishing a process to ensure that all personnel associated
               with the utilization of government equipment receive documented,
               up-to-date property users training (with special emphasis on the
               consequences of poor stewardship and negligent use).

               o Property custodians are designated by the Division Director or
               chief for each property management area or program. Full-time
               property custodians may be appointed by the SEMO. Custodians'
               responsibilities include maintaining records for all controlled
               equipment assigned to them; educating employees that equipment is
               used for official purposes only; reporting untagged controlled
               equipment including fabricated equipment found in their assigned
               area to the SEMO, and assisting in identifying the circumstances
               relating to untagged items; cooperating in physical inventories
               and assisting in follow-up actions; identifying controlled
               equipment no longer needed and coordinating disposition with
               users; ensuring that missing or stolen equipment is investigated,
               documented, and reported promptly to the center logistics and
               property management and center security office; assigning
               sensitive items to a primary user; and ensuring that prior to
               retirement, transfer, or resignation of an employee, all equipment
               is properly transferred.

               o An individual end user has a duty to protect and conserve
               government property and should not use such property, or allow its
               use, for other than authorized purposes. The user should also
               report any missing or untagged equipment, transfer, location
               change, or user change of equipment to the property custodian
               immediately. Other responsibilities include notifying the property
               custodian, supervisor, and the center security officer immediately
               if theft of government property is suspected. The user should also
               ensure that equipment is used only in pursuit of approved NASA
               programs and projects and notify the property custodian of
               equipment not actively being used for determination of proper
               disposition. The individual is responsible for ensuring that
               equipment is returned through the property custodian when no
               longer needed.

               o Each center is required to establish a centralized receiving
               location for processing equipment purchases. The equipment, along
               with receiving documents, is delivered to a centralized receiving
               warehouse location, which may be managed by NASA contractors. Upon
               receipt, warehouse personnel inspect the equipment for possible
               damage or defects and ensure that the items received are
               consistent with the requirements of the acquisition documents
               before accepting the items. Using receiving documents and, when
               necessary, by consulting with the end user, warehouse officials
               determine whether the equipment meets NASA's definition of
               controlled property and if so, they attach an ECN tag and enter
               the equipment into NEMS. According to NASA's property management
               guidance, employees may bypass the central receiving warehouse and
               have equipment shipped directly to the end user, or NASA employees
               may also purchase equipment directly from local merchants using a
               government purchase card. In such cases, the employee receiving
               the equipment is required to notify the center's central receiving
               warehouse officials that they have received or purchased equipment
               that should be controlled in NEMS.

    ^6NASA, Equipment Management, NASA Policy Directive (NPD) 4200.1B (rev.
    Jan. 23, 2006).

    ^7NASA, Equipment Management Procedural Requirements, NASA Procedures and
    Requirements (NPR) 4200.1F (Nov. 14, 2006).

    ^8NASA activities are performed largely at its headquarters location in
    Washington, D.C., and its nine centers, as follows: Ames Research Center,
    Dryden Flight Research Center, Glenn Research Center, Goddard Space Flight
    Center, Johnson Space Center, Kennedy Space Center, Langley Research
    Center, Marshall Space Flight Center, and Stennis Space Center.

    Lack of Accountability and Weak Internal Controls Leave NASA Equipment
    Vulnerable to Loss, Theft, and Misuse

    Over the past 10 years, NASA has reported that it has lost over $94
    million in equipment. Although, according to NASA, some of this equipment
    was eventually located during subsequent physical inventories,^9 NASA's
    failure to keep track of these items leaves them vulnerable to theft and
    misuse. As shown in figure 2, NASA's reported equipment loss rate exceeded
    its annual performance goal of 0.5 percent for 6 of the past 10
    years--hitting a high of 1.046 percent in fiscal year 2001.

    ^9During the course of our audit, NASA was unable to provide us with
    information we requested on the total amount of equipment located during
    subsequent inventories for the 10-year period. In technical comments on a
    draft of this report, NASA stated the agency recovered $34.5 million in
    previously lost equipment over the 10-year period. However, the agency did
    not provide any documentation to support these amounts, and we were unable
    to verify the reliability of the reported recovery amounts.

    Figure 2: NASA's Equipment Loss Rates for Fiscal Years 1997 through 2006

    According to NASA's own studies and our assessment of the agency's
    equipment management policies, procedures, and control environment, the
    high equipment loss rates NASA has reported over the past decade are due,
    in large part, to a general lack of accountability and weak internal
    control environment. In addition, weaknesses in NASA's financial
    management system and property management processes and controls do not
    provide reasonable assurance that equipment is routinely tracked and
    controlled in NASA's property management system. As a result, over the
    past 10 years, NASA also reported^10 that it did not enter $199 million of
    controlled equipment purchases into the agency's property management
    system. In addition to the $199 million of equipment NASA reported, we
    estimated that NASA failed to track at least another $13 million of
    controlled equipment purchased during fiscal years 2005 and 2006--leaving
    these items vulnerable to theft or misuse, which represents approximately
    4 percent of NASA's total reported controlled equipment purchased during
    the same period. Because this equipment was not tracked in NASA's property
    management system, it is not subject to the same physical inventory
    procedures as other controlled equipment items and, therefore, is at much
    higher risk of being lost or stolen without NASA being aware of it.

    ^10NASA, Agency Annual Report of Controlled Equipment-Equipment by Center
    for fiscal years 1997 through 2006.

    Weaknesses in NASA's Internal Control Environment Continue to Drive High
    Equipment Loss Rates

    According to GAO's standards for internal control^11, an agency's internal
    control environment is essentially the organizational climate or culture
    in which job processes and internal controls operate and is shaped by the
    values maintained and demonstrated by management through its written
    policies, words, and actions. NASA's internal control environment is
    characterized by management's (1) lack of responsiveness to prior
    equipment management recommendations, (2) reluctance to hold employees
    accountable for equipment loss, and (3) decision to remove from control
    (decontrol) millions of dollars of equipment, when faced with high
    equipment loss rates.

      NASA Management Was Unresponsive to Prior Equipment Management Recommendations

    Although we and other auditors have reported for decades that weaknesses
    in NASA's equipment management systems, processes, and internal control
    environment leave NASA vulnerable to loss, theft, and misuse, NASA has
    done little to address the weaknesses identified. Many of the issues we
    raise in this report mirror those we reported on as far back as 1976,
    including failure on the part of NASA management to address known
    weaknesses in its property management control environment. More recently,
    in 1998, NASA's Office of Inspector General (OIG) reported^12 that NASA
    frequently did not investigate the loss of equipment, as required by
    NASA's equipment management policy. Further, the OIG reported that when
    NASA did investigate equipment losses, it rarely imposed disciplinary
    actions or pursued monetary recovery, although, in many cases, according
    to the OIG report, the property loss resulted from employee negligence. As
    discussed later, NASA has yet to address these weaknesses.

    Although a 2002 NASA study^13 identified the agency's weak internal
    control environment as the underlying cause of high equipment loss rates,
    NASA management has yet to establish an effective control environment and
    make property accountability a top priority. In response to high 2001
    equipment loss rates, NASA conducted this equipment loss review in August
    2002 to (1) determine what factors led to the excessive equipment losses
    and (2) evaluate the possibility of raising its accountability
    threshold--which, at the time, was set at $1,000. According to the 2002
    equipment loss study, NASA's high equipment loss rates were driven by
    weaknesses in NASA's control environment, which stemmed from a general
    lack of emphasis on equipment accountability and control. For example, the
    study cited factors such as a lack of security measures to prevent
    equipment theft, failure on the part of management to hold employees
    accountable for lost items, and span of control issues that made it
    difficult for property custodians to effectively track and manage
    equipment items.

    ^11GAO, Standards for Internal Control in the Federal Government, GAO/AIMD
    00-21.3.1 (Washington, D.C.: November 1999).

    ^12NASA OIG, Assessment of NASA Property Survey Boards and Officers Final
    Report, G-96-020 (Washington, D.C., February 1998).

    ^13NASA, NASA Headquarters Equipment Loss Analysis (Washington, D.C., Aug.
    22, 2002).

    To address these weaknesses, the study recommended a number of property
    management improvements including (1) instituting a variety of initiatives
    aimed at increasing property accountability awareness, (2) replacing the
    triennial inventory process with a biennial process, (3) reducing the
    amount of equipment assigned to property custodians, and (4) strengthening
    the agency's policy on users' accountability for lost items. However,
    according to NASA's LMD director, the recommendations included in the 2002
    equipment loss study were not so much recommendations as they were
    suggestions for improvement. He stressed that implementation of these
    recommendations by the centers was optional. Consequently, while some of
    the centers instituted initiatives aimed at increasing property
    accountability awareness, only four of NASA's nine centers converted from
    a triennial to either a biennial or annual inventory schedule and none of
    the centers addressed the issue of reducing the amount of property
    assigned to property custodians.

    According to NASA's property management guidance, property custodians play
    a key role in controlling equipment at NASA. However, NASA's 2002
    equipment loss study stated that property custodians were given
    responsibility for too many equipment items, making it difficult for them
    to effectively track and manage the items. Based on our analysis of NASA's
    fiscal year 2005 and 2006 property data, the number of equipment items
    assigned to each property custodian varied widely--with some property
    custodians responsible for as many as 4,000 items and others responsible
    for as few as one item. It is important to note that for most, the duties
    of property custodians are in addition to their primary job
    responsibilities. For example, at one center, a full-time engineering
    technician is also the property custodian for about 4,000 pieces of
    equipment. At another center, an administrative program analyst is also
    responsible for managing about 1,200 pieces of equipment.

    According to NASA officials, NASA's new property management guidance,
    issued in November 2006, strengthened the agency's policy on user
    accountability for equipment loss. However, NASA officials were unable to
    provide us the specific changes to the guidance that they believed
    strengthened the policy. Based on our review, the current language in
    NASA's equipment management guidance related to user accountability is the
    same as the previous version, and we believe the policy could be
    strengthened. For example, although NASA's equipment loss policy provides
    the authority to take disciplinary action or hold employees financially
    accountable for equipment losses that result from employee negligence, as
    discussed later, the policy does not clearly describe the minimum level of
    care that NASA expects employees to exercise over equipment. According to
    the LMD director, negligence is difficult to define and, therefore, each
    center should have the flexibility to define it as they see fit. As
    discussed further below, GAO does not share this view.

      Management Does Not Enforce Accountability for Equipment Losses

    One of the most effective ways for management to communicate the
    importance of maintaining accountability over government property is to
    hold employees accountable for equipment losses that result from
    negligence.^14 However, even when employee negligence may have led to
    equipment loss, we found that most centers did not hold employees
    accountable for equipment loss. According to NASA's property management
    policy and procedural guidance, when accountable government property is
    lost, damaged, or destroyed, the user is to immediately notify his or her
    property custodian and initiate the preparation of NASA Form 598--Property
    Survey Report--by providing a description of the circumstances surrounding
    the loss of property. According to NASA's policy, each survey report will
    be fully investigated and written findings provided by an independent
    Property Survey Board or Officer.^15 However, we found that equipment
    losses were not always reported promptly and when reported, losses were
    not always investigated. Of the 1,136 survey reports initiated during
    fiscal year 2006,^16 465, or 41 percent, involved equipment lost in fiscal
    years 2005 and prior. In addition, of the 1,136 survey reports NASA
    provided us, only 282--or about 25 percent--were investigated by either a
    Survey Board or Officer. For the remaining 854 survey reports, there was
    no evidence that these reports were investigated as required by NASA
    policy. Of those investigated, only 2 reports indicated that employees
    would be disciplined or held financially accountable.

    ^14An accepted definition of negligence is a determination, after a review
    of all the relevant facts, that a person who had a duty of care toward
    property failed to exercise the level of care that a reasonable person
    would have exercised under the circumstances and that failure caused the
    loss or damage of property.

    ^15Each center director is responsible for appointing a Property Survey
    Officer and the Property Survey Board.

    Although NASA's equipment loss policy provides the authority to take
    disciplinary action or hold employees financially accountable for
    equipment losses that result from employee negligence, as discussed
    previously, the policy does not clearly describe the minimum level of care
    that NASA expects employees to exercise. According to NASA's property
    management policy guidance, NASA employees have the duty to protect and
    conserve government property but the policy does not provide any
    additional information about what it means to protect or conserve property
    or describe the minimum level of care that it expects employees to
    exercise over equipment. For example, NASA does not provide guidance such
    as (1) assigned government property should not be stored in an unlocked
    vehicle or (2) laptop computers should be stored in a locked room or
    otherwise secured in such a way to deter theft when not in the possession
    of the employee. As a result, it was not surprising that our review of
    NASA's property survey reports revealed a widespread lack of
    accountability with few adverse consequences for equipment losses. Table 1
    provides examples from our review of NASA property survey reports
    initiated during fiscal year 2006, which show little accountability and no
    disciplinary actions taken for controlled equipment losses.

    ^16According to NASA's property management metrics, employees submitted
    1,452 survey reports during fiscal year 2006; however, NASA provided us
    with only 1,136 reports.

    Table 1: Excerpts from Selected NASA Survey Reports Describing the
    Circumstances Surrounding Equipment Losses

                        Equipment
    Equipment            value                                    Disciplinary
    description      (dollars)  Statement of circumstance         action taken
    Desktop computer    $4,855  Around 8 years ago, my wife was   None
    and laser                   in desperate need for a computer
    printer                     system at home to perform her
                                   work as a real estate broker. I
                                   could not afford a computer at
                                   the time because of my wife's
                                   medical expenses. I knew that
                                   surplus computers were available
                                   in the warehouse for checkout so
                                   I checked one out. It was already
                                   old and outdated but it helped my
                                   wife work at home, which was
                                   greatly appreciated. She used the
                                   computer for about 2  1/2 years
                                   and then I turned the computer
                                   back in. This occurred about 5
                                   years ago. I never received a
                                   receipt but I believe the
                                   computer was excessed and given
                                   to a school.
    Laptop computer      4,265  This computer, although assigned  None
                                   to me, was being used on board
                                   the International Space Station.
                                   I was informed that it was tossed
                                   overboard to be burned up in the
                                   atmosphere when it failed.
    Projector            7,525  User loaned the projector to      None
                                   another employee but does not
                                   recall when or to whom it was
                                   loaned.
    Micro computer       3,072  As system administrator, I had    None
                                   several items in my name. I gave
                                   the computer to someone and
                                   because I didn't keep good
                                   records, I do not remember who
                                   this was given to.
    Research           850,321  A thorough and reasonable search  None
    Aircraft                    was conducted but we were unable
    Integration                 to locate the missing property.
    Facility (RAIF)             Prior users were contacted to
    missing                     establish the whereabouts of the
    property, 65                property. These items are
    items                       normally located in the lab and
                                   office areas of the RAIF. Normal
                                   security procedures are in place;
                                   however, we are unable to lock
                                   down and control access to these
                                   RAIF areas at all times. In
                                   general, the missing items
                                   consist of older equipment that
                                   has been replaced or is no longer
                                   necessary for standard
                                   operations.
    DVD recorder,        6,087  I signed for these items when two None
    television set,             employees retired. It was my
    two desktop                 belief that these items would
    computers                   show up during our next scheduled
                                   inventory but they did not. I
                                   feel we have exhausted all known
                                   efforts to locate these items.
    Five desktop        10,527  I have no recollection of the     None
    computers                   whereabouts of this equipment. It
                                   has probably been excessed since
                                   for the past year I have not been
                                   able to find it.
    Notebook             3,399  This notebook was transferred     None
    computer                    into my name in 2004 but I never
                                   had a use for it. It was old and
                                   very outdated. It sat in my
                                   office for 6 to 8 months until I
                                   moved to my new office. I
                                   honestly don't know when I last
                                   saw the computer.
    Six computers,     $26,827  A property custodian, who was     None
    three display               assigned almost 100 items,
    units, recorder             retired but did not properly
                                   transfer accountability for the
                                   equipment. After many months of
                                   searching for the equipment, most
                                   of the equipment was located, but
                                   the listed items could not be
                                   found. Signing this form for
                                   these items does not signify that
                                   I am taking responsibility for
                                   the lost equipment.

    Source: GAO analysis of NASA data.

    Note: Data are from NASA survey reports for fiscal year 2006.

      When Faced with High Equipment Loss Rates, NASA Removed Control over Millions
      of Dollars of Equipment

    When faced with high equipment loss rates, instead of tightening controls
    as recommended by the agency's 2002 equipment loss study, in April 2003,
    NASA raised its threshold for tracking and controlling nonsensitive
    equipment items from $1,000 to $5,000--eliminating control over
    nonsensitive equipment costing less than $5,000. According to the analysis
    used to justify this decision, NASA estimated that raising the
    accountability threshold would remove control over $472 million of
    nonsensitive equipment--or 13 percent of the value of its total equipment
    inventory. Although NASA officials originally told us that they did not
    keep track of the actual quantity or dollar amount of equipment
    decontrolled due to the policy change, they subsequently told us that they
    decontrolled 75,576 items valued at $148 million. However, NASA did not
    provide us with documentation to support these figures. Further, according
    to the 2002 study, raising the threshold would allow the agency to
    prioritize its property management control activities. The study suggested
    that by raising the threshold, NASA could reduce the overall property
    management workload, which would allow property custodians to focus on
    higher-value equipment and sensitive items. Although NASA reduced its
    overall property management workload by raising its nonsensitive equipment
    accountability threshold, the agency has done little to prioritize its
    remaining workload to ensure that it is using its property management
    resources in a cost-effective way.

    NASA's 2002 equipment loss study warned that if NASA raised its
    accountability threshold, it should also implement the study's recommended
    improvement measures to mitigate the risk that raising the threshold could
    result in decreased oversight and thus, increased equipment losses.
    However, as discussed previously, NASA has not implemented most of the
    study's recommended property management improvements. In addition, NASA
    has not followed through on many of the tenets outlined in its April 2003
    policy memo announcing the new capitalization threshold for nonsensitive
    equipment. Specifically, the memo indicated that the new policy did not
    reduce the responsibility for proper stewardship of assets costing less
    than $5,000. The policy letter goes on to state that the Logistics
    Management Office will revise NASA's equipment management guidance to
    include the proper care, management, and protection of all NASA equipment,
    including noncontrolled equipment. However, when NASA issued its revised
    property guidance over 3 years later in November 2006, the only
    requirement related to noncontrolled equipment is the requirement that a
    sticker be placed on noncontrolled items that reads "Property of U.S.
    Government," as shown in figure 3.

    Figure 3: Noncontrolled Microscope Costing $1,700

    Prior to April 2003, NASA would have controlled the microscope shown in
    figure 3 as well as the multimedia projector shown in figure 4. However,
    NASA removed these items from its sensitive equipment list in April 2003,
    even though NASA's 2002 equipment loss study identified laboratory
    instruments and equipment and video projectors as high-loss equipment.

    NASA property sticker

    Figure 4: Noncontrolled Multimedia Projector Costing $2,450

    Note: The projector shown in figure 4 was in a box for 12 months after
    receipt. The NASA property sticker was not attached--increasing the
    projector's vulnerability to theft.

    According to NASA's equipment management policy, with the exception of
    weapons and hazardous devices, it also does not track or manage items that
    it considers pilferable, such as cell phones, digital cameras, or personal
    digital assistants (PDA), if these items cost less than $500. Based on our
    analysis of NASA's procurement data for fiscal years 2005 and 2006, NASA
    purchased over $14 million of equipment that met NASA's definition of
    sensitive equipment but fell under NASA's $500 sensitive equipment
    threshold. Tracking information on these items would be useful for
    maintenance/supply purposes or to ensure that the items are returned by
    employees upon their departure. However, NASA currently has no way of
    knowing to whom it has supplied cell phones, cameras, or other electronic
    devices costing less than $500.

    To gain a better understanding of who had these devices and how they were
    used, and to verify that the purchase price was less than $500, at one
    NASA center we spoke with the purchasers and users of recently purchased
    items. Using NASA's fiscal years 2005 and 2006 accounting records, we
    selected six items purchased with agency purchase cards. Although NASA did
    not maintain property records for the items we selected, all of the
    purchase card holders were able to recall for whom they had purchased the
    items. As shown in table 2, four of the six items were actually over the
    $500 sensitive equipment threshold--when the cost of other equipment
    peripherals was included in the purchase price--and should have been
    tracked as controlled equipment items. Of the remaining two items that
    fell below NASA's sensitive equipment threshold, one could not be located
    and the other was at the employee's home because, according to the
    employee, he no longer had a business use for it.

    Table 2: Disposition of Recently Purchased Sensitive Equipment Costing
    Less Than NASA's Sensitive Equipment Threshold

    Equipment description Cost (dollars)^a  Disposition of equipment
    Axim(TM) X50 personal                   This PDA meets NASA's control
    digital assistant                       criteria for sensitive equipment
    (PDA)                                   when the cost of the accompanying
                                               memory card ($68) and carrying
                                               case ($30) is added to the total
                                               cost of the PDA. According to the
                                               employee, the property was at home
                                               and is not used at work. The item
                                      $493.16  was not tracked in NEMS.
    Camera                                  This camera meets NASA's criteria
                                               for controllable equipment items
                                               when the telephoto lens costing
                                               $999.99 is added to the total cost
                                               of the camera. Neither the camera
                                               nor the lens was tracked or
                                       488.38  controlled in NEMS.
    Canon PowerShot(TM)                     This camera meets NASA's control
    Camera                                  criteria for sensitive equipment
                                               when the cost of the accompanying
                                               memory card ($140) is added to the
                                               total cost of the camera. This
                                               item was located in the employee's
                                               possession, but was not tracked in
                                       474.99  NEMS.
    Dell Axim(TM) X51V                      This PDA meets NASA's control
    PDA                                     criteria for sensitive equipment
                                               when the cost of the accompanying
                                               battery ($89) and aluminum case
                                               ($32) is added to the total cost
                                               of the PDA. This item was located
                                               in the employee's possession, but
                                       449.00  was not tracked in NEMS.
    Digital Camera                          NASA was unable to locate the
                                       459.97  property during our visit.
    Palm LifeDrive(TM)                      According to the employee,
    Handheld                                although he had the device for
                                               less than 6 months, NASA provided
                                               him with a newer model; therefore,
                                               he no longer had a business need
                                               for this equipment--which was at
                                      $449.00  the employee's home.

    Source: GAO Analysis of NASA data.

    aThe cost listed is the price of the equipment item, excluding the cost of
    any accompanying accessories.

    The examples provided in table 2 are based on a nonrepresentative
    selection of recent purchases because, as discussed previously, with the
    exception of weapons and hazardous devices, NASA does not maintain
    information on sensitive items under $500 and therefore, could not provide
    us with a complete population of these items from which to select a
    statistical sample.

    As discussed previously, more frequent inventories provide a valuable tool
    for maintaining control over property and other assets vulnerable to theft
    and loss, but physical inventory inspections take time and cost money. To
    balance the need to control equipment with the cost of performing physical
    inventories, agencies should prioritize these activities--focusing more
    attention on high-dollar equipment, sensitive or pilferable items, and
    property of strategic importance to the agency. NASA justified raising its
    accountability threshold based on the premise that doing so would allow
    property custodians to focus on higher-value equipment and sensitive
    items. However, NASA has not prioritized its remaining workload to ensure
    that it is using its property management resources in a cost-effective
    way. Instead, NASA has adopted an all-or-nothing approach to property
    management. With the exception of weapons and hazardous devices, NASA
    applies the same level of control to all equipment meeting its definition
    of controlled property. For example, NASA does not inventory sensitive or
    pilferable items or more valuable items more frequently than other
    equipment items. As discussed previously, most centers perform physical
    inventories on a triennial or biennial basis. Although NASA's property
    management guidance provides NASA centers with the option of performing a
    separate or more frequent inventory of sensitive equipment, according to
    each of the nine SEMO directors we spoke with, none have elected to do so.

    In designing an effective system of property management controls, an
    entity must weigh the cost of tracking, controlling, and inventorying
    equipment with the risk that the equipment may be lost, stolen, or
    damaged. Although comprehensive federal personal property management
    guidance does not exist,^17 the General Services Administration (GSA) has
    established several principles intended to govern the management of
    federal personal property. These include maximizing return on investment,
    managing inventory effectively, and minimizing the cost of management
    systems. GSA also encourages federal agencies to refer to other private
    sector authoritative property management resources such as the American
    Society for Testing and Materials (ASTM).

    According to ASTM, one commonly used method for prioritizing property
    management control activities involves Pareto's^18 principle--or the
    80/20 rule. Pareto's principle suggests that 80 percent of the value of an
    organization's property will be concentrated in 20 percent of its assets.
    As such, Pareto's principle can be an effective tool for analyzing,
    classifying, and prioritizing property control activities, as shown in the
    following example.

    ^17GSA has not issued a specific Federal Management Regulation (FMR) on
    the management of federal personal property. The FMR prescribes policies
    concerning property management and related administrative activities.
    Although GSA has reserved a section of the FMR, which is codified at 41
    C.F.R. pt.102, entitled management of personal property, there currently
    is no specific regulation governing the management of personal property.

    ^18Pareto's principle is named for a turn-of-the-century Italian economist
    and sociologist, Vilfredo Pareto, who is known for his theory on the
    distributions of wealth in different countries, concluding that a fairly
    consistent minority--about 20 percent--of people controlled the large
    majority--about 80 percent--of a society's wealth. This same distribution
    has been observed in other areas and has been termed the Pareto effect or
    Pareto's principle.

               o Equipment group A: the top 80 percent of the value concentrated
               in

               20 percent of the property.

               o Equipment group B: the next 15 percent of the value concentrated
               in another 35 percent of the property.
               o Equipment group C: the last 5 percent of the value concentrated
               in another 45 percent of the property.

    Based on these groupings, an organization is able to prioritize its
    property control activities--spending more time and effort on equipment
    group A and less effort on equipment groups B and C. In addition, other
    risk factors should be considered when determining how much time and
    effort should be spent tracking and controlling property--including
    whether an item is considered sensitive or pilferable.

    NASA Failed to Track and Control Millions of Dollars of Equipment Due to
    Weaknesses in Its Property Management System, Processes, and Policies

    NASA's systems, processes, and policies over its receipt and acceptance
    function do not provide reasonable assurance that purchases meeting NASA's
    definition of controlled equipment are routinely entered into NASA's
    property management systems. Specifically, NASA's property management
    guidance allows employees to bypass its central receiving function--which
    should serve as the primary control point for the receipt and acceptance
    of equipment--and does not limit the amount or type of equipment that is
    sent directly to the end user. Further, when equipment is sent to end
    users, they often do not understand their role in the receipt and
    acceptance process and fail to take the steps necessary to ensure that
    equipment is entered into NASA's property management system. Because this
    equipment is not tracked in NASA's property management system, it is not
    subject to the same physical inventory procedures as other
    controlled-equipment items and, as a result, is at much higher risk of
    being lost or stolen without NASA being aware of it. Finally, NASA lacks
    an integrated financial management system that, if designed and
    implemented appropriately, could mitigate the problems associated with
    NASA's practice of bypassing its central receiving function.

    As discussed previously, over the past 10 years, NASA reported that it
    failed to enter $199 million of controlled equipment purchases into its
    property management system. To identify other equipment items not recorded
    in the property management system, in addition to those reported by NASA,
    we compared equipment purchases recorded in NASA's core financial system
    for fiscal years 2005 and 2006 with detailed property records contained in
    NASA's property management system. Based on this comparison, we identified
    12,128 transactions in NASA's core financial system that were coded as
    equipment and met NASA's criteria for controlled equipment but that were
    not found in NASA's property management system. However, based on our
    assessment of the reliability of NASA's accounting and property data, we
    were concerned that coding errors in either system could result in false
    positives. For example, a nonequipment item that NASA mistakenly coded as
    equipment in its core financial system could falsely appear to be
    controlled equipment not recorded in NASA's property management system.

    Because of these data reliability issues, we tested a stratified random
    sample of the population of 12,128 transactions resulting from our
    comparison of the accounting and property data. Based on the results of
    our sample, we estimate that in addition to the $199 million of equipment
    NASA found and reported, at least another $13 million of the equipment
    NASA purchased during fiscal years 2005 and 2006 was not entered into its
    property management system. See appendix II for the detailed results of
    our sample. In addition, we found that NASA does not report all the
    untagged equipment that it discovers. According to NASA's property
    management guidance, when property officials discover equipment that has
    not been entered into its property management system, they are supposed to
    assign it a code in the property management system that identifies the
    equipment as "found on center." In some cases, however, we found that
    property officials enter this equipment into the property management
    system as if it were a new procurement. Specifically, we identified at
    least 41 controlled equipment purchases during fiscal years 2005 and
    2006--totaling $1.8 million--that were inappropriately coded as new
    procurements when in fact they should have been coded as "found on
    center." By miscoding these items, NASA is underreporting the problem of
    controlled equipment not being recorded in the property management system
    at the time of purchase.

      NASA Does Not Place Restrictions on the Amount or Type of Equipment Purchases
      Sent Directly to the End User

    According to NASA's property management guidance, all NASA centers are
    required to have a central receiving function--which should serve as the
    primary control point for the receipt and acceptance of equipment.
    However, NASA's property management guidance provides no further
    information on when the central receiving function should be used. As a
    result, we found that equipment was often sent directly to the end user,
    bypassing the central receiving function. We found this to be the case
    with both lower-cost items purchased by purchase card holders as well as
    high-dollar-value equipment purchased by procurement officials. When
    equipment is sent directly to the end user, according to NASA's property
    guidance, the end user must immediately notify central receiving personnel
    so that they can assign the equipment a unique control number and enter it
    into NASA's property management system.

    Based on our sample results and our site visits, we found that when
    equipment was sent directly to the end user, he or she often did not take
    the steps required to ensure that the equipment was entered into the
    property management system. For example, although the camera shown in
    figure 5 meets NASA's definition of controlled equipment, it was not
    controlled in NASA's property management system because, according to the
    end user, he had not gotten around to notifying the SEMO that he had
    purchased the camera 3 months earlier.

    Figure 5: Camera Costing $1,500 Not Controlled in NASA's Property
    Management System

    In some cases, although the equipment vendor sent the equipment to NASA's
    central receiving warehouse, receiving officials forwarded the item to the
    end user without first entering it into the property management system.
    For example, according to NASA officials at two NASA centers, central
    receiving does not open packages if they are purchase card orders or if
    the purchase order is not properly displayed on the front of the package.
    Instead, these items are sent unopened to the end user. Table 3
    illustrates the type of equipment that bypassed NASA's central receiving
    function or was sent unopened to the end user by central receiving. As a
    result, these items were not entered into NASA's property management
    system until we brought them to NASA's attention.

    Table 3: Examples of Equipment Not Controlled in NASA's Property
    Management System

                               Equipment value        Elapsed time before control
    Equipment description         (dollars)                           (months)
    Positioner with remote         $198,000                                 21
    controller
    Microscope                       18,256                                 12
    3 computer servers         6,328 (each)                                 11
    Abrasive jet-table              167,563                                  2
    Kodak camera                      4,475                                 20
    Balloon flight detector          23,800                                 13
    system
    Hardware modeler                 15,000                                 14
    Cryopump compressor              $6,077                                  8

    Source: GAO analysis of NASA data.

      NASA Lacks Effective Equipment Management Training

    Although NASA relies heavily on end users to ensure that property is
    entered into its property management system, NASA has not established or
    enforced agencywide or local training requirements. According to NASA's
    equipment management guidance, the LMD is responsible for defining
    agencywide training requirements and the SEMO is responsible for
    establishing a process to ensure that all personnel associated with the
    utilization of government equipment receive documented, up-to-date
    property training. Although most of NASA's centers reported implementing
    some type of property training and awareness initiatives, the LMD has yet
    to establish agencywide training requirements. Consequently, the training
    provided by most centers was not mandatory.

    Based on our site visits and the responses provided as part of our
    testing, some of NASA's employees are still unfamiliar with agency
    equipment policies and procedures. For example, we found that some
    officials--including an official from the property management
    office--mistakenly thought that NASA did not control any property under
    $5,000, to include sensitive items. They were not familiar with the agency
    listing of sensitive items and did not know that it is NASA's policy to
    tag and control this equipment. As shown in figure 6, a computer meeting
    NASA's definition of controlled equipment was not in NASA's property
    management system because, according to the end user, he was not aware of
    the requirement to control sensitive equipment under $5,000.

    Figure 6: Macintosh G5 Computer with a Cost of $2,449 Not Controlled in
    the Property Management System

    In another example, NASA did not tag or control an item costing $129,920
    because, according to the SEMO director, the item in question--which is
    used to convert force into a measurable electrical output--was a component
    of a larger end-item. However, according to NASA's property management
    guidance, components of a larger system--costing $5,000 or more--should be
    controlled in NASA's property management system.

      NASA Lacks an Integrated Financial Management System That Could Mitigate the
      Problems Associated with Bypassing Central Receiving

    A well-designed, integrated financial management system could mitigate the
    problems associated with NASA's practice of bypassing its central
    receiving function by facilitating the flow of information among the
    property, procurement, and accounting functions. Although NASA currently
    lacks an integrated financial management system, NASA's ongoing system
    modernization effort, known as the Integrated Enterprise Management
    Program (IEMP), includes plans to improve its equipment management
    capabilities. Specifically, NASA plans to implement its IAM module in
    October 2007. However, IAM, as currently planned, may not effectively
    mitigate the problems associated with NASA's practice of bypassing its
    central receiving function.

    The accurate flow of information between an entity's property,
    procurement, and accounting functions can support its ability to maintain
    physical control over its property. With such a system, receipt and
    acceptance information would only be entered once and it would allow
    property officials to establish operational control over equipment,
    accounting officials to accurately account for the cost of the equipment,
    and payment officials to pay equipment-related vendor and contractor
    invoices. Currently, because NASA's property, procurement, and accounting
    functions are not integrated, when equipment is received either by central
    receiving or an end user, receipt and acceptance must be acknowledged
    separately in the property management system and the accounting/vendor
    payment system. Because payment officials must match receipt and
    acceptance documentation with a vendor invoice before the invoice is paid,
    this provides a means of identifying instances when receipt and acceptance
    has not been properly acknowledged and updated in the vendor payment
    system. However, property officials have no such control mechanism, and
    therefore, have no effective way of knowing that equipment was received
    and accepted but not appropriately recorded in the property management
    system. As discussed later, NASA's current systems and processes also do
    not provide reasonable assurance that accounting officials accurately
    capture the cost of equipment and report it on the agency's financial
    statements.

    Traditionally, entities have relied on manual and automated interfaces to
    facilitate the flow of information among separate property, procurement,
    and accounting systems. More recently, both private sector and government
    entities--including NASA--have begun to replace their procurement,
    accounting, property, and other systems with commercial-off-the-shelf
    (COTS) Enterprise Resource Planning (ERP) systems. ERP software integrates
    all departments and functions across an entity onto a single computer
    system, using a single database that serves the needs of all departments.
    As such, ERP systems, if implemented properly, eliminate the need to
    update information in the procurement, property, and accounting systems
    using manual and automated interfaces. Instead, the system must be
    designed to ensure that the data contained in the ERP database serve the
    needs of the procurement, property, and accounting departments.

    To maximize the success of any business system modernization effort,
    organizations need to consider the redesign of their existing business
    processes. In fact, the Clinger-Cohen Act of 1996 requires agencies to
    analyze the missions of the agency and, according to the analysis, revise
    mission-related and administrative processes, as appropriate, before
    making significant investments in information technology used to support
    those missions.^19 Moreover, as we noted in our Executive Guide: Creating
    Value Through World-class Financial Management,^20 leading finance
    organizations have found that the key to successfully implementing COTS
    systems and best practices is reengineering business processes to fit new
    software applications. This is because COTS software, including that used
    for IEMP, is designed to employ best practices for carrying out standard
    business processes.

    Business processes are the various steps that must be followed to perform
    a certain activity. For example, the procurement or acquisition process
    would start when the agency defines its needs, and issues a solicitation
    for goods or services, and would continue through contract award, receipt
    of goods and services, and would end when the vendor properly receives
    payment. Using the agency's new COTS software and the business process
    supported by the software, a user would request the need for new
    equipment, the appropriate manager would approve the purchase request, the
    equipment would be purchased through the purchasing department, and an
    equipment account would be created and the vendor invoice paid when
    receipt and acceptance was acknowledged.

    ^19See 40 U.S.C. S 11303(b)(2)(C).

    ^20GAO, Executive Guide: Creating Value Through World-class Financial
    Management, GAO/AIMD-00-134 (Washington, D.C.: April 2000).

    By adopting the standard processes supported by NASA's COTS software, the
    software would identify purchases as controlled equipment when ordered,
    which would provide reasonable assurance that the agency's equipment
    records are updated upon receipt and acceptance of the property. Because
    acknowledging receipt and acceptance is a prerequisite to paying a vendor
    invoice, when receipt and acceptance is acknowledged as part of the vendor
    payment function, the system will automatically establish the appropriate
    equipment account for the purpose of establishing operational control over
    the property. Although still in the early planning stages, based on our
    assessment of NASA's IAM system requirements and other planning documents,
    NASA's planning effort thus far has been focused primarily on capital
    equipment items. According to NASA officials, IAM will identify the cost
    of capital equipment items as those costs are incurred. However, for
    noncapital controlled equipment, NASA will continue its practice of
    recording these purchases after they are received and accepted by NASA.

    NASA Does Not Report All Equipment Costs on Its Financial Statements

    NASA's controls over equipment do not provide reasonable assurance that
    all capital equipment costs are appropriately recorded in the agency's
    financial management system and subsequently reported in its financial
    statements. Because NASA's systems and processes are not designed to allow
    the agency to identify and record capital costs as they are incurred, we
    found that NASA did not account for and report all of the capital
    equipment items it purchased during fiscal years 2005 and 2006 and often
    did not capture the full cost of the equipment items it did capitalize.

    In accordance with NASA's accounting policy, NASA reports only equipment
    items valued at $100,000 or more and having a useful life of
    2 years or more on its financial statements. In its fiscal year 2006
    financial statements, NASA reported approximately $623 million, net of
    depreciation, in NASA-owned/NASA-held equipment. Although these items
    represent only a portion of NASA's total equipment inventory, NASA remains
    unable to accurately account for and report the value of this equipment in
    its financial statements. Just as we have reported in the past, NASA's
    independent auditor reported for fiscal year 2006^21 that until NASA
    successfully implements an integrated system for reporting PP&E, and
    develops a methodology to identify costs that need to be capitalized
    starting at the budget/procurement cycle through to the processing and
    disbursing of funds as the transaction is processed, NASA will continue to
    experience difficulties in recording property-related balances and
    transactions.

    ^21NASA, Performance and Accountability Report 2006 (Washington, D.C.,
    November 2006).

    Currently, NASA expenses all costs (except for certain construction of
    NASA-held real property) and then performs a retrospective review of
    transactions entered into NASA's property management system to determine
    which costs should be capitalized. The subsequent review increases the
    risk that related costs will not be properly captured and capitalized.
    Because NASA uses the amounts recorded in its accountable property records
    as the basis for reporting capital equipment amounts in its financial
    statements, the problems discussed previously that resulted in millions of
    dollars of equipment not being recorded in the property management system
    also limit NASA's ability to properly identify and report capital assets
    on its balance sheet. As part of our sample of fiscal years 2005 and 2006
    equipment purchases, discussed previously, we identified 11 equipment
    items each costing $100,000 or more, with a total cost of $2.3 million,
    that were not recorded in NASA's property management system and therefore,
    not subject to being reported in NASA's financial statements.

    We also found that NASA often did not capture the full cost of the
    equipment items it did capitalize. According to NASA policy and federal
    accounting standards, capitalized costs should include all costs incurred
    to bring the property to a form and location suitable for its intended
    use. However, we found that NASA does not have an effective way of
    identifying these costs. As a result, NASA does not consistently identify
    all shipping and installation costs associated with the capital assets it
    purchases. Moreover, if NASA purchased components for the purpose of
    fabricating a piece of equipment, it often did not aggregate the cost of
    all components to arrive at the total cost of the end-item and, instead,
    capitalized only the cost of the components costing more than $100,000. In
    some cases, if all the components were under $100,000, none of the costs
    were capitalized even if the aggregate cost of the components was over
    $100,000. For example:

               o In fiscal year 2005, NASA purchased and received a strain and
               motion analysis system costing $203,590. The system consisted of
               five components each costing less than $100,000. Although each
               component was tagged and entered into NASA's property management
               system, because none of the components exceeded $100,000, they
               were not identified in the property management system as capital
               equipment.
               o Also in fiscal year 2005, NASA purchased and received a
               microscope system costing $298,669. Although the system consisted
               of four components, only one component, which cost $187,459, was
               over $100,000. Therefore, the remaining three components with a
               combined cost of $111,210 were not identified in NASA's property
               management system as capital equipment.

    Without the systems and processes needed to identify all equipment costs
    as they are incurred, NASA must continue to rely on a retrospective review
    of transactions entered into NASA's property management system to
    determine which costs should be capitalized--a process that has proven to
    be ineffective. As discussed previously, NASA's ongoing systems
    modernization effort includes plans to implement IAM capabilities in
    October 2007. Although NASA is still in the early planning stages,
    according to NASA officials, IAM will identify the capital costs as they
    are incurred. To maximize the success of NASA's effort, as discussed
    previously, it will be important that NASA adopt the standard business
    processes supported by the IAM software it has selected.

    Conclusion

    While modernizing NASA's financial management system--which includes
    implementing a new asset management system--is essential for strengthening
    controls over the agency's equipment, NASA cannot rely on technology alone
    to solve its equipment management problems. Many of NASA's equipment
    management problems are deeply rooted in an agency culture that does not
    enforce accountability, which undermines its ability to carry out its
    stewardship responsibilities for managing millions of dollars of
    government equipment. Transforming NASA's culture and strengthening the
    agency's control environment will require the sustained attention and
    commitment of NASA's top leadership. This commitment must be demonstrated
    through both the words and actions of the agency's leadership. To send a
    clear message that equipment accountability is a priority, NASA management
    must start by holding employees accountable for equipment losses.

    Recommendations for Executive Action

    To strengthen NASA's control environment and internal controls, we
    recommend that NASA's Administrator direct the Assistant Administrator for
    the Office of Infrastructure and Administration to take the following
    eight actions:

               o Strengthen and enforce NASA's policy on user accountability for
               equipment loss, to include the following:

                            o Providing guidance on the minimum level of care
                            NASA expects employees to exercise over equipment and
                            the circumstances under which employees will be held
                            accountable for equipment loss.
                            o Requiring employees to acknowledge in writing, for
                            all personal use equipment, their responsibility for
                            maintaining NASA equipment including an
                            acknowledgment of the minimum level of care NASA
                            expects employees to exercise over equipment and the
                            circumstances in which they will be held accountable
                            for equipment loss.

                            o Requiring that employees be held financially
                            accountable or subject to other disciplinary actions
                            when equipment is lost due to user negligence.

               o Enforce the existing policy to prepare survey reports
               immediately when accountable property is lost, damaged, or
               destroyed.

               o Enforce the existing policy to fully investigate all survey
               reports and provide written findings to an independent Property
               Survey Board or Officer.

               o Define and enforce reasonable workload standards for property
               custodians.

               o Establish a sound methodology for prioritizing property
               management control activities, such as physical inventory
               inspections and investigations of equipment loss, to ensure that
               more time and effort is spent on high-dollar and sensitive or
               pilferable equipment.

               o Clarify property management guidance to maximize the use of
               NASA's central receiving function and at a minimum, require that
               all equipment sent through central receiving is properly tagged
               and entered into the property management system by warehouse
               personnel.

               o Require that all packages sent through central receiving are
               opened and tagged accordingly--regardless of whether they are
               procured with a purchase card or by purchase order.

               o Establish and enforce property management training requirements
               for all personnel involved in the use, stewardship, and management
               of equipment, including central receiving warehouse personnel, end
               users, purchase card holders, and property custodians.

    As part of NASA's ongoing system modernization effort, we recommend that
    NASA's Administrator direct the Assistant Administrator for the Office of
    Infrastructure and Administration to take the following two actions to
    work in coordination with the OCFO and the Director of NASA's IEMP to
    adopt the standard business process supported by its software to ensure
    that the new system will be capable of the following:

               o Identifying capital costs as they are incurred for all capital
               equipment items, starting at the budget/procurement cycle through
               to the processing and disbursing of funds as the equipment
               transaction is processed.

               o Identifying purchases as controlled equipment when ordered,
               which would provide reasonable assurance that the agency's
               equipment records are updated upon receipt and acceptance of the
               property.

    Agency Comments and Our Evaluation

    In written comments, which are reprinted in appendix II, NASA concurred
    with 8 of our 10 recommendations and partially concurred with the
    remaining 2 recommendations related to (1) strengthening NASA's policy on
    user accountability for equipment loss and (2) defining and enforcing
    reasonable workload standards for property custodians. In its comments,
    NASA also stated that many of GAO's recommendations related to efforts
    currently under way.

    With respect to our recommendation related to strengthening NASA's policy
    on user accountability, NASA disagreed with the portion of that
    recommendation that would require employees to acknowledge in writing, for
    all personal use equipment, their responsibility for maintaining NASA
    equipment. Instead, NASA cited plans to implement other measures to
    reinforce user accountability requirements. Specifically, NASA stated that
    it would (1) make viewing of its existing property management training
    video mandatory, (2) establish a process to be used at NASA centers in
    determining whether an employee will be held accountable for property that
    is lost, stolen, damaged, or destroyed, and (3) establish a process as
    part of its implementation of IAM to acknowledge receipt and
    accountability for property. These steps, if effectively implemented,
    would help establish user accountability for lost or missing property,
    which was the intent of our recommendation. In addition, although NASA
    agreed with the intent of our recommendation related to defining and
    enforcing reasonable workload standards for property custodians, the
    agency expressed concern that implementation of such a recommendation
    would be difficult to achieve. According to NASA, it would be difficult to
    dictate the number of items a property custodian should be responsible for
    controlling. While we agree that defining workload standards for property
    custodians may be difficult, we continue to believe that reasonable
    parameters could be established and are a critical step in ensuring that
    the custodians are able to effectively carry out their responsibilities.
    NASA also provided separate technical comments, which have been
    incorporated into our report as appropriate.

    As agreed with your office, unless you announce its contents earlier, we
    will not distribute this report further until 30 days from its date. 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 make copies available to others upon request. In addition,
    the report will be available at no charge on the GAO Web site at
    [28]http://www.gao.gov .

    If you or your staff have any questions concerning this report, please
    contact me at (202) 512-9095 or [29]williamsm1@gao.gov . Contact points
    for our Offices of Congressional Relations and Public Affairs may be found
    on the last page of this report. Key contributors to this report are
    acknowledged in appendix III.

    Sincerely,

    McCoy Williams
    Director, Financial Management and Assurance

    Appendix I: Objectives, Scope, and Methodology

    To determine whether the National Aeronautics and Space Administration's
    (NASA) control environment and internal controls over NASA-held equipment
    provide reasonable assurance that these assets are not vulnerable to loss,
    theft, and misuse, we evaluated management's responsiveness to
    observations and recommendations made in prior audit reports and internal
    management reports related to NASA's property management. Specifically, we
    (1) reviewed prior NASA internal, Office of the Inspector General (OIG),
    and independent public accountants' reports as well as prior GAO reports
    and report recommendations, (2) interviewed the agency's top property
    management officials to obtain their views on previously identified
    property management weaknesses, and (3) obtained documentation to support
    improvement claims made by agency officials. In addition, we documented
    trends in equipment losses and other equipment management problems by
    reviewing and analyzing NASA's equipment loss and other equipment
    management reports for fiscal years 1997 through 2006. We evaluated
    actions taken by management to hold employees accountable for equipment
    loss by requesting all NASA survey reports for fiscal year 2006 and
    reviewing and analyzing those reports provided to us by NASA.

    We evaluated the design of NASA's internal controls by reviewing and
    analyzing agencywide and local equipment management policies and
    procedures and comparing NASA's policies and procedures with federal and
    other standards for controlling property--including GAO's standards for
    internal control,^1 the General Services Administration's (GSA) principles
    for managing personal property, American Society for Testing and Materials
    (ASTM) property standards,^2 and GAO's best-practice guide for performing
    physical inventory counts.^3 We also obtained and reviewed the procedures
    used and results of fiscal year 2006 physical inventory inspections for
    headquarters and nine centers and NASA's internal control improvement
    initiatives. To confirm our understanding of NASA's property management
    process and controls, we conducted walkthroughs at two NASA centers.^4 We
    also interviewed NASA officials responsible for equipment management and
    reporting, including the Director of the Logistics Management Division
    (LMD), LMD Management Analyst, Asset Manager, Agency Equipment Program
    Manager, and the supply equipment management officer (SEMO) at
    headquarters and each of NASA's nine centers, warehouse officials, NASA
    Equipment Management System (NEMS) property managers, property custodians,
    purchasers, property users, and officials from the Office of the Chief
    Financial Officer.

    ^1GAO, Standards for Internal Control in the Federal Government,
    GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999)

    ^2ASTM International for the National Property Management Association,
    Standards for Moveable and Durable Property Management (West Conshohocken,
    Pa, 2005).

    ^3GAO, Executive Guide: Best Practices in Achieving Consistent, Accurate
    Physical Counts of Inventory and Related Property,  GAO-02-447G
    (Washington, D.C.: March 2002).

    To determine whether equipment items purchased by NASA are properly
    recorded in NASA's property management system and, therefore, are subject
    to physical inventory inspection, we selected a stratified random sample
    of equipment purchases made during fiscal years 2005 and 2006 that, based
    on our analysis, were not recorded in NASA's property management system.
    First, we interviewed NASA's NEMS program manager and equipment program
    manager for the core financial system, to gain a thorough understanding of
    NEMS and the core financial system. Next, we obtained NASA's property
    management database--NEMS--as of September 30, 2006, and all purchase
    transactions recorded in the agency's core financial system for fiscal
    years 2005 and 2006. Finally, to identify equipment items not recorded in
    the property management system, using a common data field, we compared
    equipment purchases recorded in NASA's core financial system with detailed
    property records contained in NASA's property management system.

    Based on this comparison, we identified 12,128 transactions in NASA's core
    financial system that were coded as equipment and met NASA's criteria for
    a controllable item but that were not found in NASA's property management
    system. However, based on our assessment of the reliability of NASA's
    accounting and property data, we were concerned that coding errors in
    either system could result in false positives. For example, a nonequipment
    item that NASA mistakenly coded as equipment in its core financial system
    could falsely appear to be controllable equipment not recorded in NASA's
    property management system.

    Because NASA's accounting and property data contained significant coding
    errors--which could result in false positives--we tested a stratified
    random sample of 172 transactions from the population of transactions
    resulting from our comparison of the accounting and property data. We
    stratified the population into three groups based on the unit cost of the
    transactions and selected all transactions with a unit cost of $100,000 or
    more. With this probability sample, each transaction in the population had
    a known, nonzero probability of being selected. Each selected transaction
    was subsequently weighted in the analysis to account statistically for all
    transactions in the population, including those that were not selected.

    ^4We conducted walkthroughs at Marshall Space Flight Center and Langley
    Research Center.

    Table 4: Description of the Population and Sample of Transactions

    Strata: unit cost Transactions population Transactions sample
    $500-4,999.99                      10,335                 100
    $5,000-99,999.99                    1,761                  40
    $100,000 and over                      32                  32
    Total                              12,128                 172

    Source: GAO.

    Because we selected a sample of transactions, our results are estimates of
    the population and thus are subject to sample errors that are associated
    with samples of this size and type. Our confidence in the precision of the
    results from this sample is expressed in 95 percent confidence intervals,
    which are expected to include the actual results in 95 percent of the
    samples of this type.

    We tested 172 sample transactions to determine whether they were equipment
    that met NASA's criteria for a controlled item but were not in NASA's
    property management system. Based on information provided by NASA, we
    determined that 121 of the sample transactions were either miscoded as
    equipment in NASA's financial records or miscoded in NASA's property
    management system. In other words, these transactions were false
    positives. The remaining 51 transactions tested were, in fact, equipment
    items that met NASA's definition as controlled equipment but were not
    recorded in the agency's property management system.

    To estimate the dollar amount of controlled equipment purchases that NASA
    did not record in the population, we multiplied the unit cost by the
    number of items for each transaction that was determined to be a
    controlled equipment item. We used a ratio estimator to generate an
    estimate of the total dollar amount and calculated the one-sided
    95-percent confidence lower bound. Based on our sample results, we are

    95-percent confident that during fiscal years 2005 and 2006, NASA did not
    record at least $13 million of controlled equipment purchases.

    To gain a better understanding of the controls over sensitive equipment
    costing less than $500, at one NASA center we spoke with the purchasers
    and users of recently purchased items. Because, with the exception of
    weapons and hazardous devices, NASA does not maintain information on
    sensitive items under $500, and could not provide us with a complete
    population of transactions from which to sample, we selected a
    nonrepresentative sample of six items purchased using a purchase card.

    To determine whether all equipment costs are appropriately recorded in the
    agency's financial management system and subsequently reported on its
    financial statements, we reviewed all the capital (i.e., $100,000 or more)
    equipment transactions from our stratified random sample. We traced
    selected transactions to their source documents and to NEMS. We assessed
    whether all costs were accurately recorded in NEMS. We reviewed NASA's
    financial management and reporting policies and procedures, reports by
    NASA's OIG, and fiscal years 2005 and 2006 internal control weaknesses
    reported by NASA's independent auditors. We also interviewed NASA OCFO and
    property officials to determine the process for recording capital
    equipment transactions in the agency's financial management system and
    general ledger. The scope of our work did not include an assessment of
    whether the equipment amounts reported on NASA's financial statements were
    fairly stated. Accordingly, our scope also did not address the materiality
    of the equipment amounts NASA failed to report on its fiscal year 2005 and
    2006 financial statements.

    To assess the current status of NASA's effort to implement its integrated
    asset management (IAM) system, we interviewed the IAM project manager and
    obtained and analyzed relevant planning documents, including IAM system
    requirements documentation.

    We conducted our work from April 2006 through March 2007 in accordance
    with U. S. generally accepted government auditing standards. We requested
    comments on a draft of this report from the NASA Administrator or his
    designee. Written comments from the NASA Deputy Administrator are
    presented and evaluated in the "Agency Comments and Our Evaluation"
    section of this report and are reprinted in appendix II.

    Appendix II: Comments from the National Aeronautics and Space
    Administration

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    See comment 1.

    See comment 1.

    See comment 2.

    GAO Comments

    The following are GAO's comments on the NASA letter dated June 7, 2007.

               1. See the "Agency Comments and Our Evaluation" section of this
               report.
               2. While we have made technical clarifications as appropriate, we
               do not agree that the draft included inaccurate statements.

    Appendix III: GAO Contact and Staff Acknowledgments

    GAO Contact

    McCoy Williams, (202) 512-9095 or williamsm1@gao.gov

    Acknowledgments

    Staff members who made key contribution to this report were Diane Handley,
    Assistant Director; James Ashley; Fannie Bivins; Francine DelVecchio;
    Yvonne Dorcas; Jody Ecie; Carmen Harris; and Inna Livits.

    (195085)

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    [36]www.gao.gov/cgi-bin/getrpt?GAO-07-432 .

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    Highlights of [37]GAO-07-432 , a report to the Chairman, Committee on
    Science and Technology, House of Representatives

    June 2007

    PROPERTY MANAGEMENT

    Lack of Accountability and Weak Internal Controls Leave NASA Equipment
    Vulnerable to Loss, Theft, and Misuse

    For years, GAO and others have reported that the National Aeronautics and
    Space Administration (NASA) does not maintain effective control over the
    $35 billion of property, plant, and equipment (PP&E) and materials that it
    reports on its financial statements. GAO's report, the first in a planned
    series, addresses whether NASA's control environment and internal controls
    over NASA-held equipment provide reasonable assurance that (1) these
    assets are not vulnerable to loss, theft, and misuse and (2) all equipment
    costs are appropriately recorded in the agency's financial statements. GAO
    evaluated the design of NASA's property management controls by reviewing
    agencywide and local policies, obtaining equipment loss reports for all
    NASA centers, and evaluating actions taken to hold employees accountable.
    To confirm its understanding of the design of NASA's property controls,
    GAO conducted on-site visits at two NASA centers and interviewed property
    management officials at the remaining seven NASA centers.

    [38]What GAO Recommends

    GAO is recommending 10 actions aimed at strengthening users'
    accountability for equipment loss and improving internal controls over
    equipment. NASA concurred with 8 of GAO's 10 recommendations and partially
    concurred with 2. NASA also provided technical comments that have been
    incorporated as appropriate

    Over the past 10 years, NASA reported that it lost over $94 million of
    equipment. The high equipment losses are due mainly to a weak internal
    control environment. Although some equipment was located during subsequent
    physical inventories, NASA's failure to keep track of these items leaves
    them vulnerable to theft and misuse. When faced with high equipment
    losses, instead of tightening controls, NASA raised its threshold for
    tracking and controlling equipment. Also, NASA management was unresponsive
    to prior equipment management recommendations, frequently did not
    investigate equipment losses, and was reluctant to hold employees
    accountable for loss--as shown in the following examples.

    Explanations Provided for Equipment Loss in Which No One Was Held
    Accountable

                             Equipment

                             value

    Equipment description (dollars)  Explanation provided
    Desktop computer and  4,855      My wife needed a computer at home to
    laser printer                    perform her work as a real estate broker
                                        so I checked one out from the surplus
                                        stock available. I turned the computer
                                        back in when she was done using it but
                                        never received a receipt.
    Laptop computer       4,265      This computer, although assigned to me,
                                        was being used on board the International
                                        Space Station. I was informed that it was
                                        tossed overboard to be burned up in the
                                        atmosphere when it failed.
    Various missing       850,321    A thorough and reasonable search was
    property, 65 items               conducted but we were unable to locate
                                        the missing property. In general, the
                                        missing items consist of older equipment
                                        that has been replaced or is no longer
                                        necessary for standard operations.

    Source: GAO analysis of NASA's fiscal year 2006 equipment loss reports.

    NASA also lacks the integrated systems and processes needed to provide
    reasonable assurance that equipment purchases are recorded in the property
    management system. As a result, over the past 10 years, NASA reported that
    it failed to enter $199 million of equipment purchases into its property
    management system. Equipment not tracked in NASA's property management
    system is not subject to the same physical inventory procedures as other
    controlled equipment items and, as a result, is at much higher risk of
    being lost or stolen without NASA being aware of it. Because NASA uses the
    amounts recorded in its property records as the basis for reporting
    equipment amounts in its financial statements, NASA did not report the
    full cost of this equipment on its financial statements. Although NASA
    expects its system modernization effort to improve controls for ensuring
    that equipment purchases are recorded in the property system, NASA cannot
    rely on technology alone to solve its equipment management problems. These
    problems are deeply rooted in an agency culture that does not demand
    accountability or fully recognize the value of effectively managing
    government assets.

    References

    Visible links
      27. http://www.gao.gov/cgi-bin/getrpt?GAO-07-432
      28. http://www.gao.gov/
      29. mailto:williamsml.@gao.gov
      30. http://www.gao.gov/
      31. http://www.gao.gov/
      32. http://www.gao.gov/fraudnet/fraudnet.htm
      33. mailto:fraudnet@gao.gov
      34. mailto:JarmonG@gao.gov
      35. mailto:AndersonP1@gao.gov
      36. http://www.gao.gov/cgi-bin/getrpt?GAO-07-432
      37. http://www.gao.gov/cgi-bin/getrpt?GAO-07-432
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