This is the accessible text file for GAO report number GAO-07-432 
entitled 'Property Management: Lack of Accountability and Weak Internal 
Controls Leave NASA Equipment Vulnerable to Loss, Theft, and Misuse' 
which was released on July 25, 2007. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

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. 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. 

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: 

GAO-07-432: 

GAO Highlights: 

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

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

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

Equipment description: Desktop computer and laser printer; 
Equipment value (dollars): 4,855; 
Explanation provided: My wife needed a computer at home to 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. 

Equipment description: Laptop computer; 
Equipment value (dollars): 4,265; 
Explanation provided: 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. 

Equipment description: Various missing property, 65 items; 
Equipment value (dollars): 850,321; 
Explanation provided: A thorough and reasonable search was 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. 

[End of table] 

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. 

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. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-432]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact McCoy Williams at (202) 
512-9095 or williamsm1@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

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

NASA Does Not Report All Equipment Costs on Its Financial Statements: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the National Aeronautics and Space 
Administration: 

GAO Comments: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

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

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

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

Table 4: Description of the Population and Sample of Transactions: 

Figures: 

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

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

Figure 3: Noncontrolled Microscope Costing $1,700: 

Figure 4: Noncontrolled Multimedia Projector Costing $2,450: 

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

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

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[Footnote 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. 

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,[Footnote 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[Footnote 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. 

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[Footnote 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. 

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[Footnote 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. 

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

[See PDF for image] 

Source: GAO. 

[End of figure] 

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[Footnote 6] and 
procedural guidance,[Footnote 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: 

* 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[Footnote 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. 

* 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). 

* 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. 

* 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. 

* 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. 

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,[Footnote 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. 

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

[See PDF for image] 

Source: GAO analysis of NASA data. 

[End of figure] 

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[Footnote 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. 

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

According to GAO's standards for internal control[Footnote 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[Footnote 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[Footnote 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. 

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.[Footnote 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.[Footnote 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,[Footnote 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. 

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. 

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

Equipment description: Desktop computer and laser printer; 
Equipment value (dollars): $4,855; 
Statement of circumstance: Around 8 years ago, my wife was in desperate 
need for a computer 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 ½ 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; 
Disciplinary action taken: None. 

Equipment description: Laptop computer; 
Equipment value (dollars): 4,265; 
Statement of circumstance: 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; 
Disciplinary action taken: None. 

Equipment description: Projector; 
Equipment value (dollars): 7,525; 
Statement of circumstance: User loaned the projector to another 
employee but does not recall when or to whom it was loaned; 
Disciplinary action taken: None. 

Equipment description: Micro computer; 
Equipment value (dollars): 3,072; 
Statement of circumstance: As system administrator, I had 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; 
Disciplinary action taken: None. 

Equipment description: Research Aircraft Integration Facility (RAIF) 
missing property, 65 items; 
Equipment value (dollars): 850,321; 
Statement of circumstance: A thorough and reasonable search was 
conducted but we were unable to locate the missing property. Prior 
users were contacted to establish the whereabouts of the property. 
These items are 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; 
Disciplinary action taken: None. 

Equipment description: DVD recorder, television set, two desktop 
computers; 
Equipment value (dollars): 6,087; 
Statement of circumstance: I signed for these items when two employees 
retired. It was my belief that these items would show up during our 
next scheduled inventory but they did not. I feel we have exhausted all 
known efforts to locate these items; 
Disciplinary action taken: None. 

Equipment description: Five desktop computers; 
Equipment value (dollars): 10,527; 
Statement of circumstance: I have no recollection of the whereabouts of 
this equipment. It has probably been excessed since for the past year I 
have not been able to find it; 
Disciplinary action taken: None. 

Equipment description: Notebook computer; 
Equipment value (dollars): 3,399; 
Statement of circumstance: This notebook was transferred 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; 
Disciplinary action taken: None. 

Equipment description: Six computers, three display units, recorder; 
Equipment value (dollars): $26,827; 
Statement of circumstance: A property custodian, who was assigned 
almost 100 items, 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; 
Disciplinary action taken: None. 

Source: GAO analysis of NASA data. 

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

[End of table] 

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: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

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. 

Figure 4: Noncontrolled Multimedia Projector Costing $2,450: 

[See PDF for image] 

Source: GAO. 

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. 

[End of figure] 

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: Axim™ X50 personal digital assistant (PDA); 
Cost (dollars)[A]: $493.16; 
Disposition of equipment: This PDA meets NASA's control criteria for 
sensitive equipment 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 was not tracked in NEMS. 

Equipment description: Camera; 
Cost (dollars)[A]: 488.38; 
Disposition of equipment: 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 controlled in NEMS. 

Equipment description: Canon PowerShot™ Camera; 
Cost (dollars)[A]: 474.99; 
Disposition of equipment: This camera meets NASA's control 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 NEMS. 

Equipment description: Dell Axim™ X51V PDA; 
Cost (dollars)[A]: 449.00; 
Disposition of equipment: This PDA meets NASA's control 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 was not tracked in NEMS. 

Equipment description: Digital Camera; 
Cost (dollars)[A]: 459.97; 
Disposition of equipment: NASA was unable to locate the property during 
our visit. 

Equipment description: Palm LifeDrive™ Handheld; 
Cost (dollars)[A]: $449.00; 
Disposition of equipment: According to the employee, 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 the employee's home. 

Source: GAO Analysis of NASA data. 

[A] The cost listed is the price of the equipment item, excluding the 
cost of any accompanying accessories. 

[End of table] 

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,[Footnote 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[Footnote 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. 

* Equipment group A: the top 80 percent of the value concentrated in 20 
percent of the property. 

* Equipment group B: the next 15 percent of the value concentrated in 
another 35 percent of the property. 

* 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: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

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 description: Positioner with remote controller; 
Equipment value (dollars): $198,000; 
Elapsed time before control (months): 21. 

Equipment description: Microscope; 
Equipment value (dollars): 18,256; 
Elapsed time before control (months): 12. 

Equipment description: 3 computer servers; 
Equipment value (dollars): 6,328 (each); 
Elapsed time before control (months): 11. 

Equipment description: Abrasive jet-table; 
Equipment value (dollars): 167,563; 
Elapsed time before control (months): 2. 

Equipment description: Kodak camera; 
Equipment value (dollars): 4,475; 
Elapsed time before control (months): 20. 

Equipment description: Balloon flight detector system; 
Equipment value (dollars): 23,800; 
Elapsed time before control (months): 13. 

Equipment description: Hardware modeler; 
Equipment value (dollars): 15,000; 
Elapsed time before control (months): 14. 

Equipment description: Cryopump compressor; 
Equipment value (dollars): $6,077; 
Elapsed time before control (months): 8. 

Source: GAO analysis of NASA data. 

[End of table] 

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: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

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.[Footnote 19] Moreover, as we noted in our 
Executive Guide: Creating Value Through World-class Financial 
Management,[Footnote 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. 

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[Footnote 
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. 

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: 

* 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. 

* 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: 

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

- 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. 

- 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. 

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

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

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

* Define and enforce reasonable workload standards for property 
custodians. 

* 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. 

* 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. 

* 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. 

* 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: 

* 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. 

* 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 http://www.gao.gov. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-9095 or 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, 

Signed by: 

McCoy Williams: 
Director, Financial Management and Assurance: 

[End of section] 

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,[Footnote 22] the General Services 
Administration's (GSA) principles for managing personal property, 
American Society for Testing and Materials (ASTM) property 
standards,[Footnote 23] and GAO's best-practice guide for performing 
physical inventory counts.[Footnote 24] 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.[Footnote 25] 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. 

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. 

Table 4: Description of the Population and Sample of Transactions: 

Strata: unit cost: $500-4,999.99; 
Transactions population: 10,335; 
Transactions sample: 100. 

Strata: unit cost: $5,000-99,999.99; 
Transactions population: 1,761; 
Transactions sample: 40. 

Strata: unit cost: $100,000 and over; 
Transactions population: 32; 
Transactions sample: 32. 

Strata: unit cost: Total; 
Transactions population: 12,128; 
Transactions sample: 172. 

Source: GAO. 

[End of table] 

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. 

[End of section] 

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. 

National Aeronautics and Space Administration: 
Office of the Administrator: 
Washington, DC 20546-0001: 

June 7, 2007: 

Mr. McCoy Williams: 
Director: 
Financial Management and Assurance: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Williams: 

NASA welcomes the opportunity to comment on your draft report entitled 
"Property Management: Lack of Accountability and Weak Internal Controls 
Leave NASA Equipment Vulnerable to Loss, Theft, and Misuse" (GAO-07- 
432). 

In June 2005, the National Aeronautics and Space Administration (NASA) 
Administrator directed a review and rebaseline of the Agency's plans 
for asset management as part of an overall effort to improve the 
Agency's financial management practices. In response to this direction, 
NASA undertook an effort to identify near-term and long-term strategies 
for improvement, including: policy, process, and technological changes. 

In the draft report, the Government Accountability Office (GAO) makes 
ten recommendations to the NASA Administrator to strengthen NASA's 
property control environment and internal controls. Many of the GAO 
recommendations relate directly to the ongoing, integrated efforts 
being taken by the Integrated Enterprise Management Program (IEMP), the 
Office of Chief Financial Officer (OCFO), and the Office of 
Infrastructure and Administration (I&A). 

Recommendation 1: Strengthen and enforce NASA's policy on user 
accountability for equipment loss, to include: 

- 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. 

- Requiring employees to acknowledge in writing, for all personal use 
equipment, their responsibility for maintaining NASA equipment 
including an acknowledgement 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. 

- Requiring that employees be held financially accountable and/or 
describing other disciplinary actions that will be taken when equipment 
is lost due to user negligence. 

Response: NASA partially concurs with this recommendation. We concur 
with all the recommendations to strengthen and enforce NASA's policy on 
user accountability with the exception of the second requirement. We do 
not concur with that portion of the recommendation that requires 
employees to acknowledge, in writing, the minimum level of care in 
which they will be held liable. Instead, we intend to implement the 
following: 

1) Viewing of the existing property management training video will be 
made mandatory for all NASA employees and onsite contractors. This 
video is currently online in NASA's SATERN (System for Administration, 
Training, and Educational Resources for NASA). 

2) The Associate Administrator for the Office of Infrastructure and 
Administration will work with the Office of the General Counsel to 
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. 

3) The implementation of the Integrated Asset Management (IAM), 
Property, Plant, and Equipment (PP&E) module will include a process to 
acknowledge receipt and accountability for property. 

NASA is reengineering an integrated process for asset management. 
Financial and logistics teams are developing integrated functional 
requirements dedicated to improve the financial health of the Agency 
while, at the same time, identifying cross-functional processes to 
ensure proper accountability of all property items. As part of formal 
change management planning, NASA will implement all changes to 
processes, policy, and training implemented upon PP&E Module "go live" 
scheduled for April 2008. 

Recommendation 2: Enforce the existing policy to prepare survey reports 
immediately when accountable property is determined to be lost, 
damaged, or destroyed. 

Response: NASA concurs with the recommendation. NASA will enforce the 
existing policy to prepare survey reports immediately when accountable 
property is lost, damaged, or destroyed. Survey reports will be 
submitted to the Supply and Equipment Officer (SEMO) within 30 working 
days of the discovery of loss, damage, of the destruction of the 
property. 

Recommendation 3: Enforce the existing policy to fully investigate all 
survey reports and provide written findings to an independent property 
survey board or officer. 

Response: NASA concurs with the recommendation. NASA will enforce the 
existing policy to fully investigate all survey reports and provide 
written findings to an independent property survey board or officer. 

Recommendation 4: Define and enforce reasonable workload standards for 
property custodians. 

Response: NASA partially concurs with this recommendation. We concur 
with the intent of the recommendation, but implementation of such a 
recommendation would be difficult to achieve. Workload decisions are 
made by division directors or equivalent managers responsible for the 
property items assigned to their organization. It would be difficult to 
dictate the number of items a property custodian should be responsible 
for controlling. Additionally, NASA installations and internal 
organizations differ in scope and mission, and the number of assets 
utilized by those activities can vary significantly based upon 
geographic location, number of employees, and facility configuration. 
NASA policy delineated in NASA Procedural Requirements (NPR) 4200.1F, 
paragraphs 1.2.5, 1.2.5.1, and 1.2.6.1, respectively, states that: 

"The division director is the principal official in the NASA Equipment 
Management Program responsible for all equipment, controlled and non- 
controlled, assigned to the organization and in use by personnel within 
the organization, including all aspects of equipment condition and use. 
The division director shall: 

Appoint appropriate property custodians and ensure the appointees have 
proper oversight and knowledge of the equipment used within their 
areas. 

Property custodians are designated for each property area or program by 
the head of the organization, usually the division director or chief, 
with the approval of the SEMO. Full time employees may be appointed by 
the SEMO." 

Recommendation 5: 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. 

Response: NASA concurs with the recommendation. NASA's Logistics 
Management Division will work with each Center SEMO to establish the 
appropriate methodology for prioritizing property management. 

Recommendation 6: 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 system by warehouse personnel. 

Response: NASA concurs with the recommendation. NASA will clarify 
property management guidance to maximize the use of NASA's central 
receiving function, ensuring that all controlled assets are properly 
tagged and entered into the respective property system(s). 

Recommendation: 7: 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. 

Response: NASA concurs with the recommendation. NASA will 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. 

Recommendation 8: 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. 

Response: NASA concurs with the recommendation. NASA will 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 mentioned in our response to 
Recommendation 1 above, the current on-line training course will be 
made mandatory when the IAM PP&E module is implemented. This will 
ensure that all new process changes are incorporated at the "go live" 
milestone. Additionally, NASA will ensure that all installations 
conduct local training as required by current NASA policy. 

Recommendation 9: Identify 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. 

Response: NASA concurs with the recommendation. The tracking of capital 
equipment costs from the planning cycle through the disbursement of 
funds is part of the current OCFO corrective action plan. NASA's OCFO, 
Office of Procurement, IEMP Program Office, and Logistics Management 
Division will work to adopt standard business processes developed by 
the OCFO and supported by its software to ensure that the new Asset 
Management module of NASA's ERP (SAP), currently under development, 
will be capable of identifying, tracking, and reporting capital costs 
as they are incurred for capital equipment items. 

Recommendation 10: 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. 

Response: NASA concurs with the recommendation. NASA's OCFO, Office of 
Procurement, IEMP Program Office, and Logistics Management Division 
will work to adopt the standard business process supported by its 
software to ensure that the new system will be capable of 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. 

Thank you for the opportunity to review and comment on this draft 
report. While we noted several statements in the draft report that were 
either inaccurate or require further clarification, we accept the 
report for the critical insight it provides. We have provided technical 
comments separately to your staff in an effort to resolve these issues 
prior to the release of the final report. If you have any questions, 
please contact Mr. Dale Hupp, Acting Director of Logistics, on (202) 
358-2304, or at dale.r.hupp@NASA.gov. 

Sincerely, 

Signed by: 

Shana Dale: 
Deputy Administrator: 

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. 

[End of section] 

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. 

FOOTNOTES 

[1] This 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. 

[2] During 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. 

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

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

[5] This 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. 

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

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

[8] NASA 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. 

[9] During 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. 

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

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

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

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

[14] An 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. 

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

[16] According 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. 

[17] GSA 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. 

[18] Pareto'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. 

[19] See 40 U.S.C. § 11303(b)(2)(C). 

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

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

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

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

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

[25] We conducted walkthroughs at Marshall Space Flight Center and 
Langley Research Center. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: