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  • 1. PM Challenge 2007:Implementation of Internal Controls at NASA Edward A. Healy February 7, 2007 1
  • 2. OutlineWhy Do Internal Controls?What Are Internal Controls?What Do Internal Controls Mean For a Program or ProjectManager?NASA’s Implementation PlanNote: Details of plan still being finalized. Presentations toNASA Operations Management Council on Feb 15, 2007 andApril 2007. 2
  • 3. RIPPED FROM THE HEADLINES!!!! ( Or Why Internal Controls?)Government buys $900 hammer!Government pays $600 for Toilet Seat!Senior Government Official uses government aircraft forpersonal trips!Federal Contracting official uses government credit card tobuy furniture for her home!Federal employee use government credit card to purchasejewelry!Program XX cost rises from $8B to $20B!Program YY is delayed by 5 years!Because of retirement of baby boomers, Agency lacksadequate work force to conduct mission!The best of all: Military communications example 3
  • 4. Why Internal Controls?Agency must comply with updated OMB Circular A-123,Management’s Responsibility for Internal Control, Dec. 2004 Provide assurances of internal controls Separate assurance on internal controls over financial reportingAssessment of internal controls must include programmatic,financial, and institutional management, and must beconducted as effectively and efficiently as possibleInternal controls must be implemented for all programs thatrequire Program Assessment and Rating Tool reporting!Congress has advocated internal controls for twenty years! 4
  • 5. Why Internal Controls: OMB RequirementsAll Federal Agencies Must Implement Internal Control ProgramsAgency Internal Controls Programs Must Ensure:1. Reliability of financial reporting2. Applicable laws and regulations are followed3. Operations and Programs are executed efficiently andeffectivelyAll Agency Heads Must Sign Statement of Assurance that Agencyis Complying and Identify Areas of Weakness At NASA, Associate Administrators, Center Directors and other HQ Officials in Charge send Statement of Assurance to the Administrator 5
  • 6. What are Internal Controls?Internal controls are management control measures used to ensureeffective and efficient operationsOMB Circular A-123: “…should occur in the normal course ofbusiness.”Control Measures in place (Sometimes called “control gates”)Examples: Programmatic (But wait, we already do these!!) Requirements Reviews Design Reviews Flight Readiness Reviews Institutional Facilities Inspection Long Range Plans Financial Audits Budget Formulation 6
  • 7. What are Internal Controls?Operations Management Council has recognized that NASA mustimprove internal control program.Reporting of Internal Controls not sufficient.Integration of Internal Controls needs significant improvement. (What the heck does this mean?) For example: Do we have the budget, facilities and workforce ready to conduct the Constellation program effectively? Program: Constellation Financial: Budget Institutional: Facilities and Workforce Who is responsible for all of this? 7
  • 8. Internal Controls FrameworkAssessable Units – Discrete Actions or DiscreteProgramsControl Environment – Organizational Structureand CultureRisk Assessment – What are the Risks to theMissionRisk Rating – What is the Risk Level – Low,Medium, HighControl Activities – Policies, Procedures, andReviews 8
  • 9. What Does This Mean For a Program or Project Manager?Conduct business as outlined in Technical Documents, but workclosely with your counterparts on the Institutional side to ensurethat your requirements are forecast and met!Report through your project to program to Mission Directorate.Matrix work force will also have the ability to report through Centerjust as they do with independent technical authority. 9
  • 10. Technical Authority Document Hierarchy NPD 1000.0 NPD 1000.3 Engineering NPD NPD 7120.4 NPD 8700.1 NPD 8900.5A Mission Support Office NPDsNPR 7123.1 and Other NPR 7120.5 and OSMA NPRs NID 1240-41 Support Org Engineering NPRs other PM NPRs NPRs Health & Engineering Program/Project SMA Medical MSO Functional Requirements Mgmt Requirements Requirements Requirements Requirements Mission Directorate Center Engineering & Programmatic Management Requirements Policies and Practices Program Plans Project Plans 10
  • 11. Need for Modification to Current Approach to Internal ControlsIn 2006, it became obvious that supporting documentationand evidence for the annual statement of assurance wasseverely lacking. Financial evidence was documented, butthe programmatic and institutional components were not.NASA relied upon external audit bodies to identifyweaknesses, instead of actively identifying, managing andcorrecting weaknesses internally.Perception existed that internal controls is strictly a financialtool 11
  • 12. Need for Modification to Current ApproachOMC was tasked with the responsibility of reviewing andmonitoring all reported internal control deficiencies. Thisproved to be an arduous task, and not an efficient role for theOMC. The SAT was not functioning as reviewing body.An Internal Controls workshop with representation fromprogrammatic, financial, and institutional componentsrevealed a stovepiped approach to managing internalcontrols. The SAT was not effectively integrating internalcontrols; as a consequence, risk to NASA increased both forinternal management effectiveness and external audits. 12
  • 13. NASA Governance Structure 13
  • 14. Current Governance Structure Operations Management Council (OMC) Senior Assessment Team Chaired by DCFOProgrammatic Financial Institutional 14
  • 15. Proposed Governance Structure Operations Management Council (OMC) Senior Assessment Team Chaired by Director of the OPIIProgrammatic Financial Institutional 15
  • 16. Proposed Responsibilities of the Senior Assessment TeamIntegrates and coordinates internal controls and policiesacross programmatic, financial, and institutionalmanagement for improved efficiency and effectiveness ofAgency internal management controlsProvides oversight of the design and implementation of aneffective and comprehensive Agency-wide internal controlprogramLeads Agency prioritization of internal control requirementsfor the current year and develops plans for prioritization inthe out-years consistent with Agency vision and missionMonitors and assesses Agency material weaknesses for theOMC; recommends action as appropriate 16
  • 17. Proposed Responsibilities of the Senior Assessment TeamReports material weaknesses to OMC for further actionTracks progress of Agency-wide corrective action resolutionSupports OMC and the establishment of an integrated set ofmetrics to measure the Agency’s progress towards its goalsCompiles supporting documentation for the Administrator’sStatement of Assurance from HQ Offices and CentersPromotes continuous internal controls evaluation andmonitors the progress of assessments throughout theAgency 17
  • 18. Justification for Change to Chair of the SATThe OPII, as SAT Chair, is best positioned to coordinate thedevelopment of an Integrated Internal Control Plan anddetermine appropriate assessable units for review and analysisThe OPII as SAT Chair, is best positioned to identify internalcontrol deficiencies within the Agency management systemsand recommend appropriate actionThe OPII, as SAT Chair, is best positioned to render decisionsin the overall best interests of the Agency, with no dominantprogrammatic, institutional or financial filter 18
  • 19. Justification for Change to Chair of the SATUnder the new governance structure, the Office of Program andInstitutional Integration (OPII) is the manager of Agency-levelintegration of programmatic and institutional functions andactivities, and is best positioned to recognize internalmanagement control deficiencies across programmatic,institutional, and financial entitiesThe SAT will enhance the OPII role as focal point forprogrammatic requirements and as the integrator of functionalpolicy requirements by providing current information on thestate of internal management controls to meet thoserequirements across the Agency 19
  • 20. Senior Assessment Team MembershipWORKING LISTDirector, Office of Programmatic and Institutional Integration (Chair)Assistant Associate AdministratorAssociate Administrator for Institutions and ManagementDeputy Chief Financial OfficerMission Directorate Deputy Associate AdministratorsDeputy Chief EngineerDeputy Director Safety and Mission AssuranceDeputy Director, PA&E2 Deputy Center Directors (Rotating)Others as needed 20
  • 21. Justification for New Office Reporting to AA, I&MThe new Office will improve compliance with Federal objectivesand requirements for internal management controls to assurethe accountability and effectiveness of Agency programs andoperations. New Office will also be responsible for managinginstitutional risk.The new Office will provide focused leadership to assess andintegrate a comprehensive internal management controlprogram consistent with the current governance structure ofthe AgencyThe new Office will provide a framework for successfulexecution of the Agency’s mission through effectivegovernance and decision-making, efficient resourceprioritization and alignment, and monitoring and assessment ofkey internal management controls 21
  • 22. Proposed Execution of Internal Controls Functions 22
  • 23. Plan of Action for ImplementationDecisions by the Deputy Administrator to: Modify responsibility and chairmanship of the Senior Assessment Team Move current management systems function from I&A to a new office for Internal Management Controls, which reports directly to the AA for Institutions and ManagementUpdate Charter with approved roles and responsibilitiesEstablish an organizational implementation plan to be presented toDeputy Administrator for approval ( Feb 07)Develop Integrated Internal Controls PlanBrief Plan to OMC (15 Feb 07 and April 07)Update Internal Control policy documentsImplement Plan in April 07 DETAILS STILL BEING FINALIZED 23