semiannual report to the congress march, 2005 · 2017. 3. 24. · research on march 9, 2005. dr....

AboutThe National Science Foundation...

The National Science Foundation (NSF) is charged with supporting and strengtheningall research disciplines, and providing leadership across the broad and expanding frontiersof scientific and engineering knowledge. It is governed by the National Science Board whichsets agency policies and provides oversight of its activities.

NSF invests approximately $5 billion per year in almost 30,000 research and educationprojects in science and engineering, and is responsible for the establishment of an informationbase for science and engineering appropriate for development of national and internationalpolicy. Over time, other responsibilities have been added including fostering and supportingthe development and use of computers and other scientific methods and technologies;providing Antarctic research, facilities and logistic support; and addressing issues of equalopportunity in science and engineering.

... And The Office of Inspector GeneralNSF’s Office of Inspector General promotes economy, efficiency, and effectiveness in

administering the Foundation’s programs; detects and prevents fraud, waste, and abusewithin NSF or by individuals that receive NSF funding; and identifies and helps to resolvecases of misconduct in science. The OIG was established in 1989, in compliance with theInspector General Act of 1978, as amended. Because the Inspector General reports directlyto the National Science Board and Congress, the Office is organizationally and operationallyindependent from the agency.

Cover photograph by Dr. Ken Busch

Table of Contents

Executive Summary...............................................................5

OIG Management Activities...................................................7Congressional Testimony ................................................................ 7Legislation Review .......................................................................... 8Outreach ......................................................................................... 9

Audits & Reviews..................................................................13Significant Reports ........................................................................ 13Other Reports ................................................................................ 20A-133 Audit Reports ...................................................................... 21Corrective Actions Prompted by Previous Audits ........................... 24Work in Progress .......................................................................... 25

Investigations ...................................................................... 27Civil and Criminal Investigations .................................................... 27Administrative Investigations ......................................................... 30Reviews ........................................................................................ 37

OIG FY 2004 Performance Report .................................... 39Goal 1: Increase OIG Impact on NSF’s Effectiveness and Efficiency ............................................. 39Goal 2: Safeguard the Integrity of NSF Programs and Resources ................................................ 43Goal 3: Utilize OIG Resources Effectively and Efficiently .................................................................. 46

Statistical Data ......................................................................51

Appendix .............................................................................. 65Reporting Requirements ................................................................ 65Acronyms ...................................................................................... 66

From the Inspector General

This report highlights the activities of the National Science Foundation (NSF) Office ofInspector General (OIG) for the six months ending March 31, 2005. I am extremely proud of thestaff’s efforts during this period. Our office issued 15 audit reports and reviews containing$41,602,281 in questioned costs and made recommendations that would put $620,020 in federalfunds to better use. We closed 27 civil/criminal cases and 31 administrative cases, and ourinvestigations produced $230,568 in recoveries. In an era when government budgets are gettingtighter, these savings represent a significant source of NSF funding for new research and improvedpost-award operations. More about OIG’s accomplishments is included in our annual PerformanceReport on p. 39.

Last December, the Inspector General community issued A Strategic Framework whichpresented our collective mission, vision and goals for the next five years. It states that the federalOffices of Inspector General have two basic roles: 1) to identify and report on current problemsand 2) to foster effective program management to prevent future problems. Consistent withthese important responsibilities, this Semiannual continues to report on audits and investigationsthat reflect the significant management challenges we have identified at NSF, such as post-award administration, the strategic management of human capital, and the management of largeinfrastructure projects. I am confident that the agency will continue its efforts to address thesechallenges, and I look forward to providing whatever OIG assistance may be needed.

I would also like to offer a warm welcome to the new members of the National ScienceBoard: Dr. Dan Arvizu, Dr. G. Wayne Clough, Dr. Kelvin Droegemeier, Dr. Louis Lanzerotti, Dr.Alan Leshner, Dr. Jon Strauss, and Dr. Kathryn Sullivan. It is a privilege to work with you and ourreturning Board members to continue the agency’s impressive record of accomplishment.

Christine C. Boesz, Dr.P.H.Inspector General

May 19, 2005

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Executive Summary

• The Inspector General testified before the U.S. House ofRepresentatives, Committee on Science, Subcommitteeon Research that the two most important managementchallenges facing NSF are strategic management of NSFresources and improved financial performance. Dr. Boeszalso submitted a statement for the record before the U.S.Senate Committee on Appropriations that discussed inmore detail NSF’s challenge in managing largeinfrastructure projects. (p. 7)

• In accordance with the Chief Financial Officer’s Act of1990, KPMG LLP conducted an audit of NSF’s financialstatements for FY 2004 and issued another unqualifiedopinion to NSF. However, the auditors identified post-award monitoring as a reportable condition for the fourthconsecutive year. The auditors also identified a secondreportable condition concerning NSF’s monitoring of itslargest contractors. (p. 13)

• At NSF’s request, the OIG contracted with the DefenseContract Audit Agency (DCAA), to complete an audit ofRaytheon Polar Services Company (RPSC) discussedin an earlier Semiannual Report. The auditors added $4million in unsupported costs over what was previouslyreported, bringing total questioned costs to $33.4million, or 9.2 percent of the $363 million total costsclaimed by the contractor for the three year period endingDecember 31, 2002. Raytheon Polar Services is NSF’sprimary support contractor for the United States AntarcticProgram. (p. 15)

• OIG auditors found that over a 5-year period, approximately47 percent of the 151,000 final and annual reports requiredby the terms and conditions of NSF’s grants andcooperative agreements were submitted late or not at all.Of the 43,000 final project reports, 8 percent were neversubmitted, and 53 percent were submitted, on average, 5months late. Of the 108,000 annual progress reports, 42percent were never submitted. (p. 16)

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Executive Summary

• An audit of awards made by NSF, NASA, EPA, and USDA to establishan endowment fund for the United States-Mexico Foundation forScience (USMFS) found that conditions for the funding stipulated byCongress were not included in the grant agreements. Consequently,the USMFS did not obtain $5 million or 45 percent of matchingendowment contributions from Mexico or implement adequate financialcontrols to account for and administer almost $11 million of U.S.endowment funds. (p. 17)

• The investigation of an NSF award to a large city school district wasresolved with the execution of settlement and compliance agreementsand a $150,000 reduction in a current award to the district. The casearose when OIG attempted to audit the district and identified a numberof significant issues including the district’s inability or unwillingness toprovide adequate documentation to support the $13.8 million in costsclaimed and $21 million in claimed cost sharing. (p. 27)

• NSF declined to debar its former Travel Card Program Manager whopled guilty to the willful and unlawful destruction of an official governmentrecord, a felony. The manager misused her own government travelcard on approximately four dozen occasions, and concealed hermisuse from an OIG audit by deleting information from official agencyrecords. (p. 28)

• An EPSCoR institution in Oklahoma voluntarily suspended work withanimals under an REU award and ultimately changed the scope of theproject to eliminate the animal work when it was unable to achievecompliance with NSF policy. The institution failed to self-identify itswork with humans and animals in the proposal, as required, despiteits use of both as research subjects. (p. 35)

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OIG Management Activities

HIGHLIGHTS

CongressionalTestimony

Legislation Review

Outreach

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Congressional Testimony

The Inspector General testified before the U.S. House ofRepresentatives, Committee on Science, Subcommittee onResearch on March 9, 2005. Dr. Boesz told Congress that sheconsiders the two most important management challenges facingNSF to be strategic management of NSF resources andimproved financial performance.

The IG said that strategic management of NSF administrativeresources, especially human capital, remains a pressing issue.In 2002, NSF launched a multi-year business analysis effort toaddress this challenge, yet is still engaged in the development ofa workforce plan. While NSF’s workload has rapidly increasedover the past few years, the agency has not identified the amountof staffing and other administrative resources needed to addressthis growing disparity. NSF’s critical staffing shortage is evidentin the agency’s management and oversight of its large facilityportfolio. It is also apparent by the lack of resources that havebeen assigned to carry out many of NSF’s general post-awardmonitoring responsibilities.

The second challenge Dr. Boesz discussed was improvedfinancial performance through better post-award administration.For four consecutive years auditors have found that NSF’smonitoring of grantee institutions has significant weaknesses.Primarily, NSF’s current program is not comprehensive enoughfor it to be effective in identifying and resolving issues. She saidthat an effective monitoring program would ensure that awardeesare complying with federal requirements, making adequateprogress toward achieving research objectives, and charging

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OIG ManagementActivities

allowable costs. Further, a recent audit by OIG found that many researchreports, which are used to monitor progress, are submitted significantly lateor not at all.

While NSF has taken steps over the past 3 years to improve its post-award administration, progress is slow and much remains to be done. Whilenew resources would be desirable, Dr. Boesz testified that she believedthat realignment of certain management priorities would ease some of theburden. Just as the scientific enterprise has changed over the past fewdecades, NSF must address its changing administrative challenges byreassessing how it conducts its business. In an environment of increasedaccountability and stewardship of limited federal funds, effective awardadministration is essential.

On February 17, 2005, Dr. Boesz submitted a statement for the recordbefore the U.S. Senate Committee on Appropriations. In addition to the twochallenges emphasized before the House Subcommittee, the statementdiscussed in more detail NSF’s challenge in managing large infrastructureprojects. Although gradual progress is being made, the Large FacilityProjects Office that was created by NSF to implement a viable managementand oversight program for these projects, faces a number of obstacles. Toenable this Office to develop a more influential role, NSF’s seniormanagement must clearly recognize and champion its oversightresponsibility, and provide it the authority and resources necessary to handleit. Lacking formal influence and staff, the role of the Office is likely to remainprimarily advisory and therefore less effective than it could be.

Legislation Review

Statutory and Regulatory Review

The Inspector General Act of 1978, as amended, mandates that ouroffice monitor and review legislative and regulatory proposals for their impacton the Office of Inspector General (OIG) and the National ScienceFoundation’s (NSF) programs and operations. We perform these tasks forthe purpose of providing leadership in activities that are designed to promoteeconomy, effectiveness, efficiency, and the prevention of fraud, waste, abuseand mismanagement. We also keep Congress and NSF managementinformed of problems and monitor legal issues that have a broad effect onthe Inspector General community. During this reporting period, we reviewed8 bills that either affected NSF, OIG, or both. The following legislation meritsdiscussion in this section.

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OIG Semiannual Report March 2005

Program Fraud Civil Remedies Act of 1986(PFCRA)

A legislative priority that we support is amending PFCRA to include NSFand the 26 other DFE agencies that are currently excluded from participationunder the Act’s enforcement provisions. The Office of Inspector General’sconcern related to PFCRA involves the ability of “Designated Federal Entity”(DFE) agencies to fully implement their statutory mission to prevent fraud,waste and abuse by availing themselves of the enforcement capabilitiescontained within the Act. In fact, we have raised the issue of NSF’s inclusionunder the PFCRA legislation in several prior semi-annual reports.

PFCRA sets forth administrative procedures that address allegations ofprogram fraud when the claims are less than $150,000.00. Currently, theexecutive departments, military departments, establishments, as defined underthe Inspector General Act of 1978, and the United States Postal Service, arethe only agencies permitted to proceed under PFCRA. NSF and other DFEagencies with Inspectors Generals appointed by agency heads are not included.

We believe that using the enforcement provisions of PFCRA will enhanceNSF and other DFE agency recoveries in instances of fraud that fall belowPFCRA’s jurisdictional threshold of $150,000.00. In short, including NSFand other DFE agencies under PFCRA will further the OIG community’sstatutory mission to deter fraud, waste and abuse.

Outreach

As part our ongoing efforts to preventand detect fraud, waste, and abuse, weseek opportunities to communicate faceto face with the communities we serve inorder to inform them about the OIG’smission and work, explain NSF’s policiesand regulations, and learn about thechallenges that researchers face in tryingto achieve compliance with federalrequirements. Our community includes thenational and international researchcommunities, other Federal agencies andOIGs, and NSF.

National Science Board members and the Inspector Generaltour a border crossing in Texas to observe how technologyis being applied to improve homeland security.

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Working with the Research Community

OIG Staff Present at Professional Conferences and Universities.Organizations within the national and international research communitiescontinue to voice questions about the many complex issues associated withresearch misconduct, award administration, and regulatory compliance. OIGstaff members were invited to attend and present at a wide range ofconferences and events held by institutions and associations such as theSociety for Research Administrators, the Conference on Institutional Conflictsof Interest, the National Council of University Research Administrators andthe American Association for the Advancement of Science. In theirpresentations, OIG staff contributed to the community’s effort to examine theseissues, explained the processes in place to correct problems, and encouragedconsideration of proactive measures to prevent their recurrence.

University research administrators make requests for OIG staff to providetraining or answer questions from university officials involved in applying forand administering NSF awards, conducting supported research, and pursuinguniversity-level inquiries into allegations of research misconduct. During thissemiannual period, we visited eight universities for such presentations. Ineach of these forums, our staff engaged a broad spectrum of the researchcommunity in both formal and informal discussions. Among the topics ofdiscussion were identification and prevention of fraud; research misconduct(plagiarism, fabrication, and falsification); cost-sharing and time/effortdocumentation and reporting; conflicts of interests; and the establishment ofcompliance programs and committees at research institutions.

Working with the Federal Community

OIG Hosts the 2004 Grants Fraud Workshop. During this semiannualperiod, we organized and hosted a successful one-day Grant Fraud Workshopthat was attended by 80 individuals from the Inspector General communities.Presentations were given by 10 representatives from 6 agencies. Casestudies on successful grant fraud investigations and prosecutions werepresented and discussed at length. The workshop gave participants anopportunity to make new professional acquaintances and discuss bestpractices currently in use. Our survey of participants indicated that they foundthe workshop relevant and valuable.

Participation on PCIE/ECIE Committees. OIG continues to lead thePCIE/ECIE Misconduct in Research Working Group (MIRWG), which ischaired by NSF’s Inspector General. The MIRWG met during this period to

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review and update the status of agency efforts to establishpolicies addressing research misconduct. Many agencies nowhave active policies regarding this issue. The MIRWG alsoreviewed case studies of research misconduct that constitutedfraud, which OIG representatives found helpful in understandingthe potential link between research misconduct and fraud. TheMIRWG finalized its Assessment Checklist, which OIGs mayuse to assess if their respective agencies are complying withthe federal policy and investigative standards when conductingtheir own research misconduct investigations.

The Inspector General serves as an elected member ofthe Executive Council of IGs, a steering committee for PCIE/ECIE policies and activities. OIG staff continue to activelyparticipate in the PCIE/ECIE Investigations Committee, thePCIE/ECIE Inspections and Evaluation Committee, and thePCIE GPRA Roundtable, which is a forum for discussion ofthe integration of GPRA requirements into the audit function.

Audit Community Activities. NSF OIG audit staff isparticipating in the Comptroller General’s Domestic GrantWorking Group with auditors from Federal agencies, states,and a local agency to develop a guide for improvingaccountability for grant funds. The final document will conveythat accountability for dollars and results needs to beconsidered throughout the grant process, from planning a grantprogram through managing the grant and evaluation ofprogram results.

Audit staff is also actively involved with the PCIE/ECIE Federal AuditExecutive Council, which discusses and coordinates the implementation ofFederal initiatives that affect the policy and operations of OIG auditorganizations. OIG auditors work with the Financial Statement Audit Network,a committee of the Federal Audit Executive Council, which conducts a forumto discuss key issues concerning the preparation and audit of federal financialstatements.

OIG staff serve as members of the Working Group on Stewardship andAccountability sponsored by the National Science and Technology CouncilResearch Business Models Subcommittee. This working group is addressingways to streamline subrecipient monitoring and improve financial performance.

Office of InvestigationsUndergoes Successful PeerReview

NSF OIG has played a leading rolein a working group designed toassist in the development ofeffective policies and proceduresfor voluntary investigative peerreview. In October 2004, our Officeof Investigations was peerreviewed by a team from the Officeof Inspector General of theGovernment Printing Office. Overa two-week period, the peer reviewteam evaluated the Office ofInvestigations’ internal safeguardsand management procedures.The peer review was conductedaccording to the QualitativeAssessment Review Guidelinesfor federal Offices of InspectorGeneral. The team concluded thatthe system of internal safeguardsand management procedures forthe investigative function of NSFOIG is in full compliance with thequality standards and guidelinesestablished by the PCIE and ECIE.

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Working with NSF

OIG/NSF Liaison Program. OIG has continued its efforts to establishand maintain effective communication and professional relationships with theindividual directorates and offices within NSF. Each NSF office has two OIGliaisons, generally one investigator and one auditor. During this semi-annualperiod, OIG requested an opportunity to present to each office. In addition,for the first time OIG provided a voluntary survey to Directors, Division Directors,and other staff principals to evaluate the effectiveness of our liaison program.We received replies from over 90% of those surveyed. The overall results ofthe survey have been very positive. Of particular note, 96% of our NSFcolleagues know and are comfortable communicating with their OIG liaisons,and 92% understand both the IG mission and how it supports the NSF mission.OIG is committed to building strong lines of communication with the agencyand plans to use information from the survey to identify opportunities toimprove.

OIG Staff participated in several NSF sponsored events:

• NSF Regional Grants Conference at Washington University. OIGauditors and investigators traveled to Washington University in St. Louisto discuss our activities with awardees from the region, and what isreviewed during a financial and compliance audit.

• Conflict-of-Interest Briefings. At the mandatory conflict of interestbriefings conducted approximately twice per month by NSF’sDesignated Agency Ethics Official, we continue to provide a briefoverview of the OIG mission and responsibilities; our ongoing liaisonprogram with NSF; and the manner by which employees can bringmatters to our attention.

• Program Manager Seminar Briefings. OIG staff continue toparticipate as Resource Personnel in the NSF Program ManagerSeminar, which provides new NSF staff with detailed information aboutthe Foundation and its activities.

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OIG FY 2004 Performance Report

HIGHLIGHTS

Goal 1:Increase OIG Impact onNSF’s Effectivenessand Efficiency

Goal 2:Safeguard the Integrityof NSF Programs andResources

Goal 3:Utilize OIG ResourcesEffectively andEfficiently

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This section describes OIG’s accomplishments towards thethree goals set forth in the OIG Performance Plan for 2004:

1. Increase OIG impact on NSF’s effectiveness andefficiency.

2. Safeguard the integrity of NSF programs and resources.

3. Utilize OIG resources effectively and efficiently.

Under each of these goals, we identified several strategiesfor achieving the goal. For each strategy, we listed specific actionsthat we planned to complete during the performance period, whichran from April 1, 2004, to March 31, 2005.

Goal 1: Increase OIG Impact on NSF’s Effectiveness and Efficiency

1. Identify and implement approaches to improve auditproduct quality and timeliness.

• Develop and implement a tool to assess effectiveness ofthe story-conferencing process as a means to improveaudit product quality and timeliness.

• Obtain a consultant with Government Auditing Standardsexpertise to review and comment on the draft audit guidefor contract auditors; revise guide as necessary and issue.

• Assess on-the-job training needs of current audit staff andidentify job enrichment training opportunities to broadenauditor experience with various types of NSF audit work.

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OIG FY 2004Performance Report

• Update and streamline current contract audit monitoring manuals.

• Develop table of contents and milestones to finalize Office of Auditaudit quality control standards and procedures manual.

• Assess results of employee survey and develop appropriate steps toaddress concerns from auditors.

The OIG made progress towards achieving our goal of improving audittimeliness and quality. We used a team-based auditing approach that relieson formal story-conferences between auditors and managers at key points inan audit, thereby facilitating improved communication that results in timelier,higher quality audit reports. Since FY 2003, the Office of Audit (OA) has usedthe team-based auditing approach on high-risk audits conducted by internalaudit staff as well as independent public accounting (IPA) staff that conductaudits under contract with OIG. To assess the effectiveness and efficiency ofthis process, we developed a questionnaire in FY 2005, which will beincorporated into our Knowledge Management System (KMS) database. Atthe end of each audit, every audit team member will receive a prompt tocomplete the questionnaire and the results will be sent to audit managementfor appropriate action.

The OA retained a consultant with expertise in Government AuditingStandards to review and comment on our draft audit guide for audits performedby IPA firms under contract with OIG. This guide will present the team-basedauditing concepts and provide detailed guidance for contractors on theirimplementation. We also made significant progress in developing policydocuments focused on audit quality assurance procedures and standards.OA updated and streamlined procedures manuals for OIG audit staff withresponsibility for monitoring contract audits to ensure audit quality andtimeliness.

In addition, we added four new sections to our audit quality control policypertaining to OA standards and expectations regarding independence,independent report referencing, internal quality control, and job rotation. Inparticular, the job rotation policy provides audit staff with job enrichment trainingopportunities within OA aimed at broadening their experience by performingdifferent types of NSF audit work. In response to last year’s employee survey,we began documenting and distributing the minutes of weekly senior auditmanager meetings to ensure that issues of common concern and importanceare regularly communicated to all audit staff. Together, these policies andprocedures should ensure a more consistent approach to the conduct of audits.

In 2004, we developed measures to compare our actual accomplishmentsto specific performance objectives. In 2005, we compiled baseline data to

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assist us in setting future performance and productivity targets. The baselinedata is maintained in our KMS system and includes information such asmilestones and scheduling, budgeted and actual hours, monetary and non-monetary recommendations, and the status of the resolution of those auditrecommendations.

2. Enhance communication and collaboration between audit and investigation,ensuring that multi-disciplinary approaches are used, where appropriate, toaddress NSF issues.

• Share information about audit and investigative activities at OIG all-staff meetings.

• Finalize OIG policy on audit/investigative referrals; ensure itsimplementation.

• Continue to provide audit support for the contractual provision of auditservices in support of investigative activities.

• Continue to meet regularly with investigators to discuss cross-cuttingissues and means of identifying mutually beneficial issues ofimportance.

In 2005, the OA shared information on audit activities at all-staff meetingsand continued to provide audit support for contractual audit services in supportof investigative activities. In addition, OA contributed to the development ofan OIG policy on audit and investigative referrals and continued to meet withinvestigators formally and informally to discuss issues of mutual interest andthe status of work resulting from both investigative and audit referrals.

3. Strengthen our focus by refining our approaches for selecting work andsetting priorities.

• Implement the Office of Audit planning policy for audits.

• Create permanent files of information gathered during audit planningefforts.

• Finalize automated audit report trend analysis process; upload historicaudit report data into KMS; develop standard trend analysis reports.

• Develop a process for conducting future automated trend analysis.

• Continue to refine our Agency funding analysis by standardizing

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techniques and data reports obtained annually for use in assessingrisk of NSF’s award portfolio.

OA finalized an audit planning guide to establish a formal methodologyfor analyzing and assessing risk, and developing and ranking audit proposalsbased on those assessments. We then select audits to perform based ontheir priority, their technical requirements, and the availability of requisite staff.This new process was used for the first time in the development of the FY2005 Annual Audit Plan. The Plan was completed on schedule and presentedto the National Science Board at its October 2004 meeting.

Over the past 12 months, we continued to upgrade an automated processfor conducting trend analysis of historic audit data. Currently, all audit findingsare coded according to type of finding, cost category (e.g., payroll, travel,equipment), and finding condition when entered in KMS. Categorizing pastfindings helps inform our audit planning process and facilitates the measuringand reporting of audit issues. We continued to use KMS to track auditmilestones and the time staff devote to each audit so that future audits arebased on realistic estimates of the staffing resources that will be needed tocomplete them. In last year’s audit planning cycle, we created permanentfiles of past and present audit proposals and added an appendix to ourplanning guide that provides links to on-line sources of audit planninginformation. Together, these efforts should ensure a more robust and efficientaudit planning process.

4. Perform outreach regarding effectiveness and efficiency issues.

• Document execution of outreach policy in KMS outreach and time-tracking modules.

• Create a library of information gathered from our outreach efforts (e.g.,testimony, minutes of meetings with NSF officials or advisorycommittee meetings) and make use of this information during the auditplanning process.

The outreach plan developed by OA includes three strategies: 1) gaininga better understanding of NSF activities and operations; 2) monitoring audit-related changes in the professional audit and OIG communities; and 3)educating NSF, its stakeholders, and the external community on our auditissues and activities. In 2005, OA staff members were invited to speak at anNSF-sponsored regional grants conference and a conference of universityresearch administrators. Staff also participated in several NSF-sponsoredprogram manager seminars to learn more about NSF’s many programs,explain the OIG’s role and responsibilities to the new program officers, and to

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act as resource advisors, providing a ready contact within OIG. OA staff wereinvolved in a number of federal community initiatives aimed at solving problemsrelated to improper payments, Single Audit quality, federal financial statementsand IT security, and grant oversight. OA participates in the OIG LiaisonProgram, which communicates information about OIG activities and reportsto senior agency managers, allows a constructive discussion of NSF and OIGconcerns, and provides a point of contact should they wish to communicatefurther with OIG. We documented these and other outreach efforts in the KMSoutreach module and while we did not create a library of information gatheredfrom our outreach efforts, the information gathered during these activities wasformally communicated to staff at our monthly “all-hands” meeting.

Goal 2: Safeguard the Integrity of NSF Programs and Resources

1. Identify ways to improve case product quality and timeliness.

• Ensure investigations are consistent with PCIE/ECIE quality standardsfor investigations.

• Ensure consistency of investigative efforts with Investigations Manual.

• Make high-quality oral and written presentations to prosecutors oragency decision makers.

• Assess timeliness and appropriateness of case milestones.

• Ensure high-quality referral of audit issues arising from investigations.

• Maintain high-quality training for investigators.

• Assess results-based performance measures for applicability to OIGinvestigations activities in 2004.

• Perform a quality check for each investigation.

The Office of Investigations (OI) successfully employed the strategiesdescribed above to meet the goal of improving case quality and timeliness.We continued our co-leadership role in preparing the Executive Council onIntegrity and Efficiency (ECIE) community for investigative peer review. NSFOIG was the first ECIE investigations office to undergo peer review based onthe new PCIE/ECIE quality standards for investigations. The review concludedthat OI was in full compliance with the applicable investigative standards. Weimplemented improvements in our training system and file security suggestedby the review team. In our continuing effort to refine and improve our processes,we modified several sections of our Investigations Manual.

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Each investigative case was subjected to both quality control and qualityassurance reviews to ensure that 1) they were performed in accordance withour Investigations Manual, and 2) each Report of Investigation or ManagementImplication Report addressed the relevant elements. These reviews alsoverified that cases with underlying audit issues were referred to the OA foraudit consideration. Several referrals were subsequently included in the auditplan. We successfully completed site visits related to both researchmisconduct and criminal/civil cases and increased the number of casesreferred to the Department of Justice for prosecution or to NSF managementfor adjudication. Included among these cases, was the first resolution of aninvestigation by means of a Settlement Agreement and Compliance Plancosigned by the agency, OIG, and the subject institution. We worked closelywith our contract forensic auditors to make certain that accurate and completefinancial information was identified, analyzed, and incorporated into theinvestigative product. These efforts have significantly increased our abilitiesto detect fraud and to successfully present cases for prosecution to theDepartment of Justice.

Each case was monitored for timely completion through the milestonesin OIG’s KMS. Several new milestones were added to the system this year,and others were modified to improve our tracking capability and assist in thedevelopment of new procedures for tracking case processing statistics byindividual investigator. These statistics will form the basis for producingmeaningful results-based performance measures.

At the beginning of this performance year, we ensured that all membersof OI completed an Individual Development Plan and we worked throughoutthe year to meet both individual and group training objectives to increaseboth individual and office-wide skill levels. We have implemented an electronicmechanism for tracking planned and completed training to make our effortsmore efficient. We continue to survey staff participating in training and otherOI offices to ensure our training is of the highest quality available.

2. Strengthen proactive activities (outreach, reviews) in integrity matters.

• Ensure information is accessible to public and NSF.

• Ensure materials are accurate and up-to-date.

• Develop elements of a Compliance program.

• Emphasize OIG liaison activity.

• Convene one Grant Fraud Working Group meeting.

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• Analyze closed cases to assess areas for proactive reviews.

• Monitor and assess the effect of proactive activities on case processingtime, priorities, and allegation assessment.

• Ensure all FOIA/PA requests are responded to in a timely manner.

The Inspector General Act identifies the detection and prevention of fraudand abuse as primary responsibilities of an Office of Inspector General. Inresponse to this charge, we conduct proactive investigative reviews as timepermits and have an active outreach program to NSF and the communities itserves. Through the use of OIG’s web site, we made current and relevantinformation available to our various audiences, including NSF staff, the NationalScience Board, the Congress, and the research community at large. Wealso provide information to the public in response to Freedom of InformationAct requests. This year we again responded to each request within the timerequirements identified in the statute, and we ensured timely responses bymodifying our electronic tracking system.

We participated in numerous NSF events such as program managementseminars, conflict of interest briefings, and regional grants seminars, sendingknowledgeable OIG representatives to discuss issues of interest and answerquestions. OIG staff members were also assigned as liaisons to NSF officesto ensure good communication between OIG and the agency’s directorates.A survey to determine the effectiveness of OIG liaison efforts indicated thatthe content, format, and frequency of liaison events were appropriate and wellreceived, and that NSF managers were comfortable communicating with OIGliaisons.

We conducted the second annual Grant Fraud Investigation’s TrainingProgram for PCIE/ECIE investigators, which was attended by 80 staff fromthe IG community. Ten representatives from six IG offices gave presentationsthat focused on case studies of successful grant fraud investigations andprosecutions. Our survey of participants indicated that they found the workshopextremely useful both for the information that was shared and for thestrengthening of professional networks. The workshops have become sopopular that we are working with the Inspector General Criminal InvestigatorAcademy to accommodate all who want to attend.

This year, we expanded our efforts to develop and disseminateinformation about effective compliance programs. For example, we introducednew presentations at professional meetings on compliance programs basedon the United States Sentencing Commission Federal Sentencing Guidelines,and we developed a new poster that was displayed at a recent National Science

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Board Meeting. The poster will also be exhibited at professional meetings toprompt discussion about the use of compliance plans in the resolution ofparticular cases. We made effective use of our compliance initiative to resolvea significant case with the execution of a Settlement Agreement andCompliance Plan.

Our efforts to conduct proactive reviews this year were curtailed becausewe experienced a significant increase in both the number and complexity ofallegations. We did not have adequate resources to devote to this importanttask or to complete a planned data-mining project. Nevertheless we are inthe final stages of completing three proactive reviews initiated in previousyears that are likely to result in recommendations to NSF for managementimprovements.

Goal 3: Utilize OIG Resources Effectively and Efficiently

1. Utilize professional expertise and talents of all OIG staff.

• Conduct annual survey of OIG staff to obtain its views on theeffectiveness of:

– OIG use of its resources in personnel, equipment, technologyand contracting,

– Management planning, policies, and procedures,– Internal communications and coordination, and– OIG impact on NSF.

• Analyze survey results and develop corrective actions for the problemsidentified.

• Continue the use of the team approach in brainstorming and resolvingOIG internal management issues and in developing OIG activities.

• Complete development of an integrated Knowledge ManagementSystem within the OIG.

• Develop in-house technical expertise for maintaining KMS.

• Complete a KMS users manual for OIG staff.

Approximately 70 percent of OIG staff responded to the annual employeesurvey this year, the most ever. We view this survey as an effective means formeasuring how well we are using the staff’s professional expertise and whetherwe are providing our employees with the guidance and resources needed to

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do their jobs. Although there is still room for improvement in some areas,overall ratings increased by about five percentage points from last year. Moreimportantly, some of the areas that earlier surveys had indicated weresignificant problems received considerably higher ratings. The mostimprovement occurred in issues related to cooperation among OIG units, theutilization of contractors, and communications between the various units withinOIG. We believe that the progress is due at least in part to a concerted effortby the office to address these issues. We used the annual OIG retreat andother all-hands meetings to help define the issues, reach a commonunderstanding, and achieve a consensus on actions to improve ourperformance. Specific areas in which the staff perceived relatively high OIGeffectiveness included technology support within the office, OIG’s impact inhelping to solve important agency problems, the guidance provided in OIGpolicies and procedures, the utilization of OIG staff skills and abilities,communications within OIG for keeping staff informed, and the use ofcontractors by OIG.

OIG continued to make effective use of the team approach in internalmanagement issues and in OIG activities. We used teams to assess theannual survey, organize the annual OIG retreat, advise on the development ofinternal OIG policies, and serve as OIG liaisons to the directorates and officesin NSF. Most investigations are conducted by teams composed ofinvestigators, attorneys, scientists, and/or other appropriate OIG staffmembers. Ad hoc staff groups are often formed to produce briefings,congressional testimony, or special reports, and as indicated above, mostaudits are conducted using a team-based auditing approach.

The integrated KMS made significant strides during the past year, butsome problems persisted and we fell short of our goal to finish its development.In many cases, as more staff members became regular users, we identifiedadditional functions or enhancements to build into the system to make it morerobust in meeting OIG data management and tracking needs. The additionaldemands on the system, particularly during the semiannual reporting period,created processing delays and other technological issues that need to beresolved. KMS has advanced our data analysis beyond the disaggregatedand obsolete stovepipe systems it replaced and we are continuing to refine it.This year’s enhancements included modules for managing FOIA requests,individual development plans, and OIG subpoenas, as well as strengtheningthe modules for managing and tracking audits, investigations, referrals,training, outreach, and other activities. We hired a second IT specialist forthe office, and his primary responsibility is to develop in-house expertise foradministering and maintaining KMS. We completed KMS users’ manuals forinvestigators and auditors, who represent the bulk of the system’s users.

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2. Strengthen staff recruitment, development, and training.

• Assess results of pilot test for an office-wide process for individualdevelopment plans and establish a permanent IDP process within OIG.

• Ensure that all OIG staff meet OIG training requirements.

• Revise individual performance appraisal forms to link the criticalelements to the OIG Performance Plan.

• Update auditor and management analyst position descriptions.

• Develop a core audit training program and core audit competencies.

We evaluated the results of an office-wide pilot test of individualdevelopment plans and decided to implement them on a permanent basis.They are now synchronized with the annual performance appraisal processfor OIG employees. All office staff members met or exceeded OIG’s annualtraining requirements, and we revised the employee appraisal forms to linkthem more closely to the OIG Performance Plan. We also worked with NSFto modify our SES appraisal forms to conform to new OPM requirements.We achieved a provisional certification for this year, and we have further revisedthe appraisals for resubmission to OPM for permanent certification. Finally ateam from OA is reviewing core audit competencies that will serve as afoundation for developing an audit training regimen, and updated positiondescriptions.

3. Improve communication and collaboration within OIG.

• Develop an intra-office referral policy.

• Provide timely information exchange and referrals between the auditand investigation units.

• Share information about audit and investigative activities at all-staffmeetings.

We formed a committee with representatives from all the units and drafteda policy to improve coordination, informal consultations, and referrals withinthe office. The policy was approved by senior management and issued inOctober 2004. We believe that it has been instrumental, along with otheractions taken within the office, in improving the working relations among ourunits and fostering an environment conducive to sharing information and

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expertise, referring matters that may be of interest to another unit, and workingmore collaboratively on issues that concern more than one unit. Feedbackfrom the OIG employee survey indicates that the relationships betweeninvestigators and auditors, in particular, have continued to improve. At almostall our monthly all-hands meetings, either investigators, auditors oradministrative staff discuss a significant project. These exchanges have beeneffective in improving mutual understanding of the roles and concerns of eachof the various units.

4. Ensure effective external communications and consultation.

• Produce timely external reports on OIG results and issues.

• Provide testimony and other requested information to congressionalcommittees.

• Provide briefings to consult with the NSB, Congress, OMB, NSF, andothers regarding OIG plans, priorities, and progress.

• Issue two OIG newsletters by e-mail.

• Update NSF leadership regularly on OIG activities and concerns.

• Collaborate with federal and international agencies to advancecommon audit, investigative, and management goals.

• Provide leadership and active participation in the IG community.

The OIG’s Semiannual Reports to the Congress, budget submissions tothe Office of Management and Budget and to the Congress, ManagementLetter to NSF, annual Performance Report, and Management Challenges Letterwere designed to produce timely information on OIG findings and concerns tokey stakeholders. We also issued two electronic OIG Newsletters to a broadaudience in the federal government and research communities. The IG testifiedbefore the House of Representatives Committee on Science Subcommitteeon Research and provided all information requested by committee membersand staff. Her testimony focused on investigative and audit activities, as wellas significant management challenges facing NSF. Our staff presented regularbriefings on OIG activities to the Audit and Oversight Committee of the NationalScience Board. The subjects included the results of the annual audit of NSF’sfinancial statements, the findings and recommendations of severalperformance audits, and the OIG budget submission. The Inspector Generaland Deputy Inspector General regularly briefed the NSF Director and Deputy

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Director on recent, ongoing, and planned OIG activities, as well as othermatters concerning the management and operations of the agency.

As part of our continuing efforts to prevent and detect fraud, waste, andabuse, we regularly reached out to domestic and international communitiesto inform them both about our work and about their responsibilities in ensuringthe integrity and effectiveness of research activities. Our office played aleadership role in establishing a dialog among international officials engagedin research compliance. The Inspector General co-hosted a workshop,Accountability in Science Research Funding, with the Director General of theScience Foundation Ireland, in Dublin, Ireland, in June 2004. The purpose ofthe meetings, which were attended by representatives from 14 countries, wasto discuss methods for monitoring and auditing science and engineeringprojects and to share best practices among the participating organizations.Our Associate Inspector General for Investigations was a keynote speaker ata meeting of the Australian Research Management Society in Australia, whereshe discussed establishing compliance programs as a means to correctproblems found during the course of investigations.

OIG staff members were also invited to speak at a wide range ofconferences held by institutions and associations and participated on severalfederal committees and task forces, including the Office of Management andBudget (OMB) directed Federal Workgroup on Erroneous/ImproperPayments. As the primary attendee from the IG community, the NSF OIGrepresentative provided a perspective on what actions the IG community isplanning to take on evaluating agency actions to comply with this Act. Wealso worked closely with other OIGs and federal agencies on jointinvestigations, and our investigators provided briefings to the IG communityfollowing our successful resolution of a case involving federal travel card abuse,which has been a widespread problem in the federal government.

We attended the first meeting of the Research Business Models workinggroup on subrecipient monitoring, sponsored by the National Science andTechnology Council’s Committee on Science. The group is evaluating currentfederal guidance on subrecipient monitoring contained in OMB Circular A-133 and ways to simplify or eliminate procedures for overseeing grant fundspassed through to other organizations. NSF OIG has also played a leadingrole in an Executive Council on Integrity and Efficiency (ECIE) working groupthat is developing investigative peer reviews. OIG staff also participated inupdating the five-year PCIE/ECIE Strategic Framework. We continued towork with other federal agencies and OIGs as they implemented policies andprocedures for investigating allegations of research misconduct. AsChairperson of the PCIE/ECIE Misconduct in Research Working Group, theNSF Inspector General led efforts to educate the community about this issue.

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Audits Reviews

HIGHLIGHTS

Significant Reports

Other Reports

A-133 Audit Reports

Corrected ActionsPrompted byPrevious Audits

Work in Progress

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Significant Reports

The following audit reports issued in the past six monthscontribute additional information about the challenges NSF facesin improving its post-award monitoring program, and underscorethe need for prompt action on the part of the agency. Thoughdifferent in many respects, most of the problems cited belowwould be mitigated if more attention were given to post-awardadministration.

An effective post-award monitoring program should ensurethat: awardees are complying with award terms and conditionsand federal regulations; adequate progress is being made towardachieving the objectives and milestones of the funded researchproject and; awardee expenditures listed on NSF’s financialstatements represent costs that are accurate and allowable.While NSF has taken some steps over the past three years towardestablishing a risk-based program for post-award monitoring ofits grants, the audits discussed below suggest that more needsto be done.

Fiscal Year 2004 Independent AuditorsIssue Unqualified Opinion, RecognizeNeed for Improved Award Oversight

In accordance with the Chief Financial Officer’s Act of 1990,KPMG LLP conducted an audit of NSF’s financial statementsfor Fiscal Year (FY) 2004 and issued another unqualified opinionto NSF. However, the auditors identified post-award monitoringas a reportable condition for the fourth consecutive year. The

&To view reports in their entirety, please visit

www.inside.nsf.gov/oig/start.htm.

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Audits & Reviews

auditors also identified a second reportable condition on NSF’s monitoringof its largest contractors.

NSF funds over 10,000 new awards annually. At any point in time,NSF is administering as many as 30,000 ongoing awards amounting tomore than $5 billion to support basic science and engineering researchand education. Assessing scientific progress and ensuring effective financialand administrative oversight of these funds are critical elements in managingNSF’s award programs. However, in FY 2004 the auditors found that NSFmust broaden its approach to award monitoring. Specifically: (1) NSF’scurrent risk model for focusing its monitoring efforts does not adequatelycapture all high-risk awardees; (2) NSF’s award-monitoring program doesnot address procedures for both baseline and advanced monitoringdepending on the financial risk of the award; (3) NSF needs to provide adetailed response to suggestions included in the report: Post AwardMonitoring Assessment prepared by a consultant under contract to theagency; and (4) NSF needs to increase the resources dedicated to its post-award monitoring efforts.

The independent auditor identified similar problems with NSF’s processof monitoring the financial performance of its largest contractors who receiveadvance payments. The auditors found that: (1) NSF does not adequatelyreview the public vouchers submitted by the contractors who receive advancepayments to ensure that the reported expenditures are proper and allowableunder the contracts; and (2) the contractors did not certify the public vouchersas representing valid and authorized expenditures under the contract. Withoutadequately performing such procedures, misstatements and unauthorizedexpenditures of substantial amounts may go undetected. In FY 2004, NSFacquired approximately $388 million in goods and services through outsidevendors, including an estimated $192 million or 57 percent paid throughadvance payments to NSF’s three largest contractors for logistical andsupport services for polar and ocean research.

In February, NSF submitted its proposed action plans to address thesix recommendations related to these reportable conditions. Unfortunatelythe auditors could not accept NSF’s proposed corrective actions for fiverecommendations because in general they did not identify specificdeliverables nor provide expected completion dates. One set of correctiveactions aimed at improving NSF’s risk-assessment process containedenough specifics to be accepted. The OIG and the independent auditor willcontinue working with NSF management to ensure these issues are resolvedin a timely manner.

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$33 Million in Raytheon Polar Services CompanyCosts Questioned

At NSF’s request, the OIG contracted with the Defense Contract AuditAgency (DCAA), to complete an audit of Raytheon Polar Services Company(RPSC) that was discussed in an earlier Semiannual Report.1 The auditorsadded $4 million in unsupported costs over what was previously reported,bringing total questioned costs to $33.4 million, or 9.2 percent of the $363million total costs claimed by the contractor for the three year period endingDecember 31, 2002.

Raytheon Polar Services isNSF’s primary support contractor forthe United States Antarctic Program,providing logistics and supportservices valued at approximately$1.172 billion over ten years. DCAAhad previously identified $29.2million in improperly billed indirectcosts in its interim report issued inSeptember 2004. In completing itsaudit, DCAA questioned anadditional $4 million of direct costsand $52,000 of miscellaneous costs,mostly related to the handling of apetty cash fund located in NewZealand, because RPSC did nothave documentation to show how thecosts were allowable or benefited theNSF contract.

We recommended that NSF disallow these questioned costs and ensurethat Raytheon accurately classifies and records future overhead and generaland administrative costs in its accounting system. NSF also needs to ensurethat Raytheon establishes policies and procedures to: (1) preclude chargesover indirect cost ceilings; (2) routinely adjust claimed fringe benefit costs toreflect actual costs rather than budgeted; (3) maintain adequate documentationfor claimed costs. These actions will ensure that any costs paid for the U.S.Antarctic Program are proper and accurate. NSF states that they are reviewingthe recommendations.

A worker at Admundsen-Scott South Pole station waves goodbye toan LC-130 aircraft as it departs with approximately 35 employeeswho had “wintered over” at the bottom of the world.NSF/USAP Photo by Mark Buckley, RPSC (2001).

1 September 2004 Semiannual Report to Congress, p. 15

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Audits & Reviews

Increased Commitment to Large Facility ProjectManagement Needed

A survey of NSF’s Large Facility Project (LFP) Office found that progresstoward issuing project management guidance and providing oversight ofcurrent large facility projects has been slow, constrained by workload andstaffing issues. NSF established the LFP Office in 2003 to addressCongressional concerns and Office of Inspector General auditrecommendations regarding NSF’s management and oversight of its portfolioof large facility projects. These projects represent a substantial portion ofNSF’s research portfolio and range from tens to hundreds of millions each.While the LFP Office has made some progress, NSF has not provided it withthe appropriate institutional authority and staff resources necessary toaccomplish its intended oversight responsibility.

The LFP Office needs a high-level champion, such as the NSF Director,to ensure organizational authority, and dedicated resources specific to theOffice’s oversight responsibilities. Further, the Office needs a more structuredmanagement approach that includes a formal mission statement, specificgoals and measures, and a realistic staffing plan. Continued delay inaddressing large facility management puts NSF’s sizeable investments inthese important projects, and taxpayer dollars, at risk of potentialmismanagement and waste.

Many Required Project Reports Late or Missing

In another audit report that suggests opportunities for NSF to improve itspost-award administration activities, OIG auditors found that over a 5-yearperiod, approximately 47 percent of the 151,000 final and annual reportsrequired by the terms and conditions of NSF’s grants and cooperativeagreements were submitted late or not at all. Of the 43,000 final projectreports, 8 percent were never submitted, and 53 percent were submitted, onaverage, 5 months late. Of the 108,000 annual progress reports, 42 percentwere never submitted. NSF collects information on the progress and resultsof the awards it funds through these reports. They provide NSF with importantinformation while helping to enhance accountability for these federal funds.

Furthermore, although NSF has a policy that prohibits principalinvestigators who have not submitted final project reports in the past fromreceiving new awards, in 74 of 571 (13%) occurrences over the past 5 yearsNSF provided delinquent PIs new award funding. In 29 of these occurrences,it was not clear whether the automated system had failed or whether thesystem’s controls had been manually overridden to allow new funding.

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We recommended that NSF continue its plans to develop report trackingand automated reminder systems to assist its awardees in submitting projectreports on time. Additionally, NSF should emphasize the importance of thesereports to awardees and monitor its automated award system to ensure manualoverrides occur only with written authorization and documentation. NSFgenerally agreed with the recommendations and plans to have its correctiveactions implemented by July 2006.

Conditions for International Grant Omitted fromAgreements

An audit of awards made by NSF and NASA, EPA, and USDA to establishan endowment fund for the United States-Mexico Foundation for Science(USMFS) found that conditions for the funding stipulated by Congress werenot included in the grant agreements. Consequently, the USMFS did not obtain$5 million or 45 percent of matching endowment contributions from Mexico orimplement adequate financial controls to account for and administer almost$11 million of U.S. endowment funds.

Of the total $11 million of U.S. contributions, Mexico essentially matchedNSF’s contribution of $4 million along with some contributions made by otheragencies; however, Mexico has not matched the remaining $5 million of U.S.funding, primarily from the other three agencies. While NSF’s initial fundingarrangement for the USMFS pre-dated the congressionally stipulatedconditions, NSF did not amend the agreement when Congress approved thefunding conditions and provided NSF with additional funds for USMFS. Thisoccurred because the legislative requirements were not communicated togrant and program officials for inclusion in the award agreements. Further, asa new, foreign-based awardee, the USMFS did not fully understand itsresponsibilities related to complying with US grant provisions.

We recommended that as the largest U.S. contributor, NSF bring theseconcerns to the attention of the President’s Office of Science and TechnologyPolicy (OSTP) in order to facilitate a coordinated U.S. effort to securecorrective actions on the part of the USMFS. While NSF responded favorablyto the audit report, it does not agree that it should take a leading role incoordinating corrective actions for the entire U.S. Government since it has nolegal responsibility for oversight of other U.S. agencies. Nevertheless, NSFdoes generally agree to implement the remaining audit recommendations tosecure at the USMFS, improved financial controls over NSF’s contributions.OSTP is currently considering the audit recommendations.

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Audits & Reviews

University’s Research Program Outgrows GrantAdministration

An audit of the University of South Dakota (USD) found that USD filedlate and sometimes inaccurate annual reports, inadequately managed somesubawards and subcontracts, and charged $142,593 of questioned costsand cost sharing to NSF grants. Our review of an annual report filed by USDfound that the University overstated the level of effort staff contributed to thatproject, the extent of technical progress and accomplishments that had beenachieved, and understated the difficulties the project faced in meeting itsintended objectives. Concerning USD’s management of subawards, we foundthat work began before agreements were formalized, statements of work wereunclear, and several subrecipients did not submit all required reports.

Many of USD’s problems occurred because the resources allocated forgrant administration did not keep pace with the growth of its research program,which doubled between FY 1998 and 2003. Also, USD did not have anadequate understanding of its indirect cost rate structure and did not have aformal policy or process to determine and appropriately classify direct andindirect costs. During the audit, USD took steps to correct some of theseconcerns. The University generally agreed with the findings related to lateannual reporting and management of subawards, but disputed most of thequestioned costs and cost sharing. Based on the information provided bythis audit NSF declined to exercise option years four and five on one of thegrants, allowing for $620,020 of NSF funds to be redirected to other programsby the Directorate for Computer and Information Science and Engineering.The audit report was provided to NSF’s Division of Institution and AwardSupport for audit resolution.

Production Company Financial Systems areFound Inadequate

Auditors questioned $921,489 or 34 percent of total claimed costs fortwo awards given to the production company ScienCentral Inc. (SCI), and aclosely related non-profit organization, The Center for Science in the Media(CSMI) because they did not have adequate financial systems to account forits NSF funded expenses and cost sharing claimed on NSF awards. Inaddition, CSMI did not have the required OMB Circular A-133 audits for itsfiscal years 2000 and 2001. OIG recommended that NSF recognize SCI andCSMI as high-risk awardees and not grant them new funds until theorganizations implemented adequate accounting systems and controls toeffectively administer and monitor their NSF awards. In response to the audit

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report, SCI and CSMI management identified a number of actions they havealready taken to improve the financial management system and to supportsome of the questioned costs.

$6.8 Million in Cost Sharing Required of SchoolDistrict is Questioned

OIG audited the financial report submitted by Fresno Unified SchoolDistrict (FUSD) in California for the five-year period ending August 31, 2000as part of our ongoing review of awardees under NSF’s Urban SystemicProgram and Urban Systemic Initiative (USP/USI). While the school districtwas able to support the $15 million of NSF funded costs claimed under theaward, it lacked sufficient and adequate records to evidence meeting its $17.5million in cost sharing commitments. As a result of this material weakness,we questioned $6.8 million of NSF’s share of total project costs.

Over $220,000 of indirect costs were also questioned because theawardee did not accurately calculate or consistently charge its indirect costrate. $5.1 million in claimed salary, wage and fringe benefit costs would havebeen questioned had the auditors not performed additional verificationprocedures at the government’s expense, because the school district did notmaintain the required supporting documentation. FUSD officials stated thatas a first-time NSF award recipient, they were not aware of the accountingand documentation requirements for NSF awards. They indicated that theyhave taken actions to address the internal control and compliance findingsand recommendations in the report.

NSF should direct FUSD to develop and implement a financialmanagement system and adequate procedures to effectively administer andmonitor NSF funds. These steps should include: (1) implementing propersystems to identify, track, and report cost sharing and participant support costs,(2) providing training to appropriate personnel to properly calculate indirectcosts, and (3) ensuring that employees maintain the proper documentation tosupport salary and wage charges in compliance with federal and NSFrequirements. The audit report was forwarded to NSF’s Division of Institutionand Award Support for audit resolution.

Grant Management at Community CollegesNeed Improvement

In our on-going assessment of grants management at communitycolleges, two additional audits have been completed. Like the prior audits,

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Audits & Reviews

these community colleges also have grant accounting control weaknesses,especially in the areas related to labor activity reporting, cost sharing,subawards, and consultant costs.

Springfield Technical Community College (STCC) claimedquestionable and inadequately supported cost sharing and could not providedocumentation to support the claim that consultant costs benefited the NSFaward. In total, we questioned $230,133 of the $2,945,325 costs claimed onthis award that was intended to increase the number of trainees in thetelecommunications industry.

Similarly, an audit of Texas State Technical College – West Texas(TSTC) identified material deficiencies in the College’s financial controls overlabor activity reporting and cost sharing. Among the costs questioned was$24,745 of salaries and related fringe benefits, which the College claimedfor work that had not yet been performed. The College was also unable tolocate 81 percent of the employee activity reports, representing approximately$650,000, or over 50 percent of the total $1.25 million costs TSTC claimedon the NSF award. OIG also found that TSTC: 1) lacked a system to track,record, and monitor its required cost sharing; 2) did not obtain financialdisclosure statements from investigators working on the NSF award; and 3)did not prepare contractual agreements with all of its consultants, which couldhave jeopardized TSTC’s ability to meet its programmatic objectives andcomply with federal and NSF requirements. TSTC officials stated that theseproblems occurred because the project director of the award had receivedlittle or no oversight from other responsible TSTC officials.

Officials at both STCC and TSTC West Texas agreed with the internalcontrol and compliance findings and recommendations and reported that theyhave implemented corrective actions. Both audit reports were forwarded toNSF’s Division of Institution and Award Support for audit resolution.

Other Reports

FY 2004 FISMA Information Systems Reports

During this semiannual period OIG issued the FY 2004 FederalInformation Security Management Act (FISMA) Independent EvaluationReport and the FY 2004 FISMA Evaluation Summary Report. The reportstates that NSF has an established information security program and hasbeen proactive in reviewing security controls and identifying areas tostrengthen this program. However, the report identified one reportable

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condition concerning the need to strengthen the information security programat NSF’s contractor-operated facilities supporting Antarctic operations. Fourother less significant weaknesses were also identified. Management agreedwith the findings and recommendations in these reports and indicated that, inmany instances, it has already initiated corrective action.

National Science Board’s Compliance withSunshine Act

At the request of Congress, OIG conducts an annual review of the NationalScience Board’s compliance with the Sunshine Act. In 2004, the Board againdemonstrated a clear intent to provide for greater access to and increasedopenness in its meetings, and properly closed meetings consistent with theexemptions contained in the Sunshine Act. However, as the Board is continuingto develop the formal policies and procedures recommended in last year’saudit, it again experienced challenges in meeting some of the many proceduralrequirements of the Sunshine Act. For example, while the Board for the mostpart provided timely public announcement of its regular schedule, it met thisrequirement only 33 percent of the time for its ad hoc meetings. The Boardshould implement formal guidance for handling such ad hoc meetings andensure that its members and staff are familiar with it.

To provide needed structure and protocol and to ensure greaterconsistency and accountability in complying with Sunshine Act requirements,the NSB needs to complete its plans to develop, implement, and providetraining on formal policies and procedures on Sunshine Act requirements.The Board expects to implement this guidance during the first half of 2005.

A-133 Audit Reports

The Single Audit Act of 1984 (Public Law 98-502) and the Single AuditAct amendments of 1996 (Public Law 104-156) established uniformrequirements for audits of non-federal entities receiving federal awards. Underthe Act, non-federal entities that expend $500,000 or more a year in federalawards are required to have an organization-wide audit that includes the non-federal entity’s financial statements and compliance with federal awardrequirements. OIG work with respect to A-133 audit reports is summarizedbelow:

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Audits & Reviews

Quality Control Review

During this reporting period, OIG conducted a quality control review ofan audit performed by an accounting firm under the Single Audit Act. Thereview found that the firm’s auditors did not address a $31.7 million liabilityfor postretirement health benefits and the related disclosure omitted from thegrantee’s financial statements. The seriousness of this auditing deficiencycompelled us to refer the matter to the American Institute of Certified PublicAccountants Professional Ethics Division for resolution. The AICPA isreviewing the matter and will advise us of their decision.

Additionally as part of the review, we found that the auditor did not reportthe grantee’s non-compliance with federal property disposal requirements.Further, the auditors’ work papers did not sufficiently document the internalcontrol structure and audit steps used to test the grantee’s compliance withfederal requirements. Although the auditor disagreed with the findings relatedto the omitted liability and federal property disposal requirements, they agreedto improve the documentation of the internal control structure and audit stepstaken to test compliance.

Desk Reviews

After A-133 audit reports are submitted by the non-federal entities tothe Federal Audit Clearinghouse, we conduct desk reviews of audits whereNSF is the cognizant or oversight agency or the audit report identified findingsspecific to NSF awards. In this reporting period, we conducted desk reviewsof 43 A-133 audit reports with NSF expenditures totaling $319 million betweenfiscal years 2002 and 2004. For 21 of these A 133 audit reports, auditorsfound a total of 86 compliance and internal control findings related to NSFawards. The most common findings related to deficiencies in financialmanagement and lack of adequate support for salary and wages. Auditorsquestioned $561,615 of NSF award costs claimed by award recipients.Examples include $240,232 in over charges for indirect costs at Clark AtlantaUniversity, and $290,262 of unsupported sub-recipient costs claimed byUniversity of Puerto Rico. The following table summarizes findings found inthe A-133 audit reports:

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We also examined Management Letters accompanying A-133 auditreports. While management letters report less significant internal controldeficiencies, these deficiencies can become more serious over time if notaddressed. Twenty-one entities were issued Management Letters in thisreporting period identifying internal control problems such as segregation ofduties, adherence to allowable cost rules, and lack of procedures to mitigatefraud.

Single Audit Quality Project Update

A-133 audit reports are essential to helping NSF fulfill its responsibilityfor monitoring the approximately $5 billion of awards it funds annually. Aspreviously reported, concerns raised by Quality Control Reviews (QCRs)conducted by a number of federal agencies have prompted the OIG communityto conduct a government-wide project to assess and provide a baselinemeasurement of the quality of Single Audits. In November 2004, auditorsparticipating in the project began conducting QCRs on a statisticallyrepresentative sample of 208 A-133 audits submitted to the government.

Serving on both the Project Advisory Board and as part of the projectmanagement staff, the NSF OIG helped develop guidance material and trainingfor auditors conducting the reviews, monitored on-going reviews, andexamined completed QCRs. The NSF OIG plans to conduct two QCRs duringthe next semiannual reporting period. Given the importance of A-133 audit

Findings Related to NSF Awards by Category

Category of FindingCategory of Cost, Income Internal

or Activity Compliance Controls Monetary Total

Financial Management 9 6 3 18Salary/Wages 10 10Award ManagementRequirement 9 9Other Direct Costs 9 9Sub-awards 7 1 8Indirect Costs 5 1 6Equipment 4 4Other 17 4 1 22Total 70 10 6 86

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Audits & Reviews

quality to NSF’s post-award administration, our office will continue to beinvolved in overseeing and reporting on the results of this government-wideSingle Audit quality project.

Corrective Actions Prompted byPrevious Audits

NSF and Foreign Awardee Improve Management ofGrant Funds

A prior audit of NSF awards worth $16.4 million to the Inter-AmericanInstitute for Global Change Research (IAI) in Brazil, disclosed that NSF, onbehalf of the United States, was funding a disproportionate share of theorganization’s total costs, and that the organization had not properly monitored14 research subawards, valued at $10.3 million2. Pursuant to the auditrecommendations, NSF has reaffirmed, with the President’s Office of Scienceand Technology Policy (OSTP) and the Department of State, the continuedU.S. commitment for sustained funding of IAI research projects. Although theother 18 IAI member countries have not committed to providing any additionalresearch contributions, both OSTP and NSF believe that engaging thesecountries in scientific assessments of global change issues remains a USpriority and that the IAI serves as an effective means of encouraginginternational collaboration. Also, NSF has continued to work with IAI’sgoverning body to increase the organization’s efforts in the area of fundraising.IAI has been directed to develop a fundraising strategy document withestablished milestone dates.

The IAI is also improving its management of NSF grant funds, both forthe organization’s research projects and core operational expenditures. IAIis developing a Project Management Manual to establish clear writtensubaward policies and procedures for administering and monitoring NSFresearch funds passed-through to other institutions. The Institute is also inthe process of hiring a new Director. NSF is working closely with IAI toimplement these improvements and has informed IAI that additional researchfunding will not be approved until the Project Management Manual has beencompleted.

2 September 2004 Semiannual Report, p.17

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Work in Process

Collection of Research Information

Our office is currently conducting survey work on the effectiveness of NSF’smethods of collecting, documenting, and analyzing the information resultingfrom the research it funds. This audit will also examine how other federalagencies that fund basic research collect research information, for the purposeof identifying good business practices.

Science and Technology Centers

NSF’s Office of Integrative Activities requested that OIG conduct auditsof two Science and Technology Centers (STCs) that had recently undergonesignificant changes in leadership and management. Using information gainedduring our survey on the STC program and Center operations, we began auditwork at two separate universities with STC awards. Because of their sizeand complexity, STCs contain more financial risk than most other NSF awards.Strong leadership is essential if an STC is to be successful in bringing talentedresearchers and students together to work on cutting-edge scientific issues.

A model of downtownMinneapolis is prepared fortesting in the boundary layerwind tunnel at the Universityof Minnesota’s St. AnthonyFalls Laboratory (SAFL). Thetest will study the effects ofwind on structures. The SAFLwas recently awarded aScience and TechnologyCenter award.Courtesy Pat Swanson,St. Anthony Falls Laboratory,Univ. of Minnesota.

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Audits & Reviews

Retirement Benefits Paid by Awardees NSF’sLarge Facilities and Programs

Our office initiated an audit to review the reasonableness of retirementbenefits approved by NSF at five awardees managing some of NSF’s largestfacilities and programs. As part of the evaluation, we plan to compare theretirement benefits offered to workers at these facilities with those of othersimilar institutions. The liability for post retirement health benefits for NSF’sfacilities and programs is over $85 million at these five awardees. The growingunfunded liability may have a major impact on future NSF budgets.

Review of Thrift Savings Plan Catch-UpContributions

A review of all Thrift Savings Plan (TSP) catch-up contributions made byNSF employees in 2003 and 2004 was initiated because of concerns raisedby employees over the accuracy of contribution data reported on employees’quarterly TSP statements. Catch-up contributions are supplemental tax-deferred contributions available to TSP (U.S. government employee retirementsavings plan) participants age 50 or older who are already contributing themaximum amount for which they are eligible. To complete this review andensure that TSP catch-up contributions withholdings from each employee’spay were properly transferred to their federal TSP account, we are workingwith staff from NSF’s Division of Financial Management and the TSP tocompare and analyze NSF payroll withholding data to the contribution datareflected in the TSP system. We expect to provide NSF with an analysis byemployee of any errors found and issue the report in the next semiannualperiod.

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Investigations

HIGHLIGHTS

Civil/CriminalInvestigations

AdministrativeInvestigations

Reviews

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Civil and Criminal Investigations

School District Agrees to Settlementand Compliance Plan

The investigation of an NSF award to a large city schooldistrict was resolved with the execution of settlement andcompliance agreements and a $150,000 reduction in a currentaward to the district. The case arose when OIG attempted toaudit the district and identified a number of significant issuesincluding the district’s inability or unwillingness to provideadequate documentation to support the $13.8 million in costsclaimed and $21 million in claimed cost sharing. The auditorswere unable to express an opinion on claimed costs and citedmaterial weaknesses in internal controls and non-compliance withfederal requirements.

Because of the nature and scope of the problems identified,and the lack of cooperation it received, the Office of Auditsreferred the matter to the Office of Investigations. OIGsubpoenaed relevant records from the district, which cooperatedwith the investigation. However, the district was not able to providesufficient source documentation to contest most of the auditfindings.

The district acknowledged numerous systemic weaknessesin its award management practices and voluntarily implementedcorrective actions. After consulting with the United StatesAttorney’s Office, and in coordination with NSF management,OIG determined that settlement of this case should include a plan

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Investigations

to ensure future compliance with federalrequirements and to safeguard current andfuture funds awarded to the district. Thecompliance plan requires the district to forma compliance committee to oversee theimplementation of procedures outlined in theagreement, and to report annually for fiveyears to OIG. The settlement also resulted inthe reduction of the district’s current awardby a total of $150,000.

Former NSF EmployeeConvicted of Felony NotDebarred

Two years ago NSF’s former Travel CardProgram Manager pled guilty to the willful andunlawful destruction of an official governmentrecord, a felony.6 The manager misused herown government travel card on approximatelyfour dozen occasions, and initially concealedher misuse from an OIG audit by deletinginformation from official agency records.Following an investigation that resulted in herconviction, the manager was sentenced to 20weekends in jail, 2 years supervisedprobation, fined $1,000, and permanentlybarred from all employment with the federalgovernment.

Although her sentence prohibited themanager from serving as a governmentemployee, there was nothing to prevent herfrom seeking private employment for afederal government contractor orsubcontractor. In light of the seriousness of

The Benefits of Compliance Programs

The use of compliance programs as part of the resolutionof investigations of organizational misdeeds is increasing.Compliance plans have proven to be an effective meansof strengthening internal controls, curbing misconduct, andchanging the culture of organizations. Such programs alsoserve the interests of federal agencies in ensuringcompliance with their regulations and policies.

According to the Department of Justice (DOJ):

“Corporations should not be treated leniently because oftheir artificial nature nor should they be subject to harshertreatment. Vigorous enforcement of the criminal lawsagainst corporate wrongdoers, where appropriate resultsin great benefits for law enforcement and the public,particularly in the area of white-collar crime. Indictingcorporations for wrongdoing enables the government toaddress and be a force for positive change of corporateculture, alter corporate behavior, and prevent, discover, andpunish white-collar crime3.”

DOJ therefore actively promotes the implementation ofcompliance programs:

“Compliance programs are established by corporatemanagement to prevent and to detect misconduct and toensure that corporate activities are conducted inaccordance with all applicable criminal and civil laws,regulations, and rules. The Department encourages suchcorporate self-policing, including voluntary disclosures tothe government of any problems that a corporationdiscovers on its own4.”

The U.S. Sentencing Guidelines recognize the benefits ofcompliance programs, and when organizational criminalwrongdoing does occur, entities with compliance programsin place are accorded consideration by the Guidelines.5The Guidelines set out seven components fororganizational compliance programs:

(1) Establish standards and procedures to preventand detect criminal conduct.

(2) Managerial knowledge and specific responsibilityfor the content and operation of the compliance program.

(3) Avoid employing personnel who have engagedin illegal activities or other misconduct.

(4) Periodic training of personnel about therequirements of the compliance program.

(5) Monitoring and auditing of

semiannual report to the congress march, 2005 · 2017. 3. 24. · research on march 9, 2005. dr....

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