Recent OIG Audit Findings in Brief! Kris Rhodes, Director, MAXIMUS Doyle Smith, Director, MAXIMUS 1
Learning Objectives 1) Use information from recent audits to mitigate organizational risk 2) Use information from recent audits to improve your organizational infrastructure 2
Audits Conducted by: NSF, HHS, NASA, NEH, and ED Auditees 1. University of California at Los Angeles 2. Virginia Tech 3. Stanford University 4. New York University 5. University of South Florida 6. University of North Carolina at Chapel Hill 7. Memorial Sloan-Kettering 8. University of Colorado at Boulder 9. Eastern Michigan 10.Puerto Rico Department of Education 3
Top Audit Finding Categories 1) Unallowable Costs includes expressly unallowable costs, unallocable, unreasonable, and inconsistent treatment of costs 2) Effort/Compensation 3) Procurement issues 4) Internal controls 5) Delinquent reporting 4
Breakdown of Unallowable Costs 5
NSF Audit at UCLA for Incurred Costs from 7/1/09 6/30/12 Report Issued: August 2014 http://www.nsf.gov/oig/reports/ ucla.pdf 6
NSF Audit at UCLA Effort Reporting UCLA s effort certification and reporting system does not ensure that all effort reports are certified on a timely basis. In 50 out of 93 sampled salary transactions, employees had not certified effort reports within specified time period If reports are not timely, it could result in labor costs being inappropriately allocated and charged to grants The PI s memory of amount and type of activities performed is less reliable over time, making it essential that all effort reports are certified on a timely basis Based on the documents NSF reviewed, UCLA personnel only recently certified effort they expended on NSF grants from over 3 years ago. 7
NSF Audit at UCLA - $2.4 Million Also identified were $2,358,380 in questioned costs. Summer Salary: $2,111,653 in overcharged summer salaries due to a daily compensation calculation methodology resulting in overcharging between 9.52% to 17.39% versus a monthly allocation. Travel: $131,139 in unsupported per diem costs for travel in excess of 30 days inconsistent with university policy Visa charges: $73,135 in costs related to visa application fees was inconsistent with individual effort certification distributions and/or inconsistent with UCLA requirements for recruitment of a foreign nationals (waiver for grants and allowance of expedited processing fees). Equipment: $15,700 in equipment purchases made at the end of a grant period Unallocable Salary: $15,186 in retro active salary expenses Domestic travel: $6,104 in unallocable domestic travel Indirect Costs: $3,200 indirect costs charged on participant support Technology Fees: $2,263 in unallowable technology infrastructure fees (TIFs) 8
NSF Audit at Virginia Tech for Incurred Costs from 1/1/10 12/31/12 Report Issued: July 2014 http://www.nsf.gov/oig/repor ts/vatech.pdf 9
NSF Audit at Virginia Tech - $1.6 Million The auditors questioned $1,604,129 of costs claimed on 109 NSF awards. Specifically, the auditors noted: 2-month salary limit: $1,456,716 in senior personnel salary exceeded the limitation. Indirect cost: $15,585 in cost overcharges due to failure to exclude rent and tuition; Moving expense allocability: $8,485 in moving expenses for an employee who did not work on the award for 12 months following hiring and charging of the expense; Immigration fees: $2,913 in fees charged inconsistent with the associated effort; 10
NSF Audit at Virginia Tech - $1.6 Million (cont.) Travel: $2,101 travel expenses (illegible meal receipts, alcohol charges, nine days of a fourteen-day Australia trip, no show/cancellation fees, and for a workshop hotel room rate exceeding others). Equipment: $118,329 in project expenses were rebudgeted for equipment across nine awards. Auditors questioned: whether the research project as approved by NSF could be accomplished with the excessive rebudgeting to equipment and contended that the rebudgeting potentially represented a change in scope. whether a prudent person would have spent more than 20 to 25 percent of the total funding approved for a project on additional equipment. Some of the equipment purchases were made near the end of the award or appeared to be general purpose and lacked allocability. 11
NSF Audit at Stanford University for incurred costs from 9/1/03 3/31/09 for EarthScope award Report Issued: September 2013 http://www.nsf.gov/oig/reports/1 3-1-005-earthscope.pdf 12
NSF Audit at Stanford - $339,277 Finding 1: $290,000 in Questioned Costs for Uninsured Drilling Equipment Stanford had a subaward with ThermaSource, Inc. (ThermaSource) to serve as the prime contractor for all drilling services and drilling-related activities, which were critical components of the project. To address risk, the subaward contained an insurance clause which required ThermaSource to obtain and maintain comprehensive liability insurance or self-insurance sufficient to cover its responsibilities under this project. Drilling activities began and subsequently, ThermaSource lost and abandoned an uninsured logging string down a project drill hole while attempting to obtain a second set of core samples. Stanford improperly expended $290,000 of NSF award funds to reimburse the subcontractor for this logging string. OMB Circular A-21, Attachment J, Section 25, states that insurance required by a sponsored agreement is an allowable cost, and losses which could have been covered by permissible insurance are unallowable. As noted above, Stanford officials were unable to provide any evidence to support that obtaining insurance as the agreement required, was not possible due to the risk involved. 13
Stanford and Subawardee Payments Finding 2: $43,024 in Questioned Costs for Overpayment to Subawardee Stanford used NSF funds to pay ThermaSource, a subawardee, $43,024 in excess of the total ceiling amount of the subaward agreement. We questioned this $43,024 overpayment because it was not in compliance with the terms of the subaward agreement or with Stanford s internal policy requirements. The overpayment occurred because Stanford s Accounts Payable department did not associate related pre-award planning and water rights expenditures directly with the ThermaSource subaward in the new accounting system. When Stanford converted to a new accounting system, the department, through error, did not include the preaward expenditures in the ThermaSource account, thereby, reducing the total expenditures on the subaward. At the end of the award, Stanford s accounting records indicated a remaining balance for the ThermaSource subaward of $20,522. However, this balance did not include the $63,546 of preaward costs, resulting in a net overpayment to ThermaSource of $43,024. 14
Stanford Unallowable Expenditures Finding 3: $6,253 in Questioned Costs for Unallowable Expenditures Including Sales Taxes and Promotional Materials 1. Sales taxes on two separate purchases, A-21 Section J.49 states that, Taxes are allowable, except for taxes from which exemptions are available to the institution directly or which are available to the institution based on an exemption afforded the Federal Government. 2. Promotional materials (t-shirts), A-21 Section 1.f. states, Unallowable advertising and public relations costs include the following.(3) Costs of promotional items and memorabilia. 3. Alcohol and related sales taxes, A-21 Section 3 states that, Costs of alcoholic beverages are unallowable. 4. Meal unrelated to official travel, Stanford s Administrative Guide Memo 36.7 Travel Expenses states that if the traveler remains at the business destination for nonbusiness reasons, reimbursement of meals and lodging is not allowed. Due to oversight, Stanford officials did not comply with either the relevant cost principles or their policies when they paid for these unallowable items using NSF funds. 15
NSF Audit at New York University for Incurred Costs from 7/1/09 6/30/12 Report Issued: June 2014 http://www.nsf.gov/oig/reports/n yu.pdf 16
NSF Audit at NYU - $75,494 Indirect Costs: An incorrect indirect cost rate was used to calculate recoverable indirect costs and the calculation contained mathematical errors, as a result indirect costs were overstated by $35,054. Foreign Travel: A principal investigator (PI) charged the costs of numerous trips to foreign countries to NSF, despite the fact that no funding had been budgeted for foreign travel. The purpose statements of several of these trips indicated that they were related in whole or in part to other projects, but the costs were charged entirely to the NSF grant. NSF questioned the $19,018 of travel costs and the associated indirect costs because NYU was unable to provide documentation showing that the costs were allocable to the NSF Award or that costs were allocated to it in accordance with relative benefits received or another equitable relationship. Equipment: Less than 90 days prior to the expiration date for the award NYU purchased computer workstations totaling $10,027 on the award. These purchases were not available for use during most of the award period and therefore were not necessary to accomplish the award objectives and did not benefit the program. 17
HHS Audit at University of South Florida for Incurred Costs from 10/1/09 9/30/11 Report Issued: April 2014 https://oig.hhs.gov/oas/reports/regio n4/41201016.pdf 18
HHS Audit at the University of South Florida: $6.4 Million Cost Disallowance Clerical and Administrative Salaries: Costs for administrative and clerical work such as ordering supplies, performing general information technology work, and supervising data collections were charged and neither the nature of the work performed nor circumstances justified any unusual degree of administrative support or showed that the employees were necessary for the performance of the awards. The employees administrative duties benefited multiple activities and could not be tied to an individual project. Because the administrative activities did not solely benefit the project to which the University charged the salary, we expected compliance with cost principles statement that the apportionment of employees salaries and wages which are chargeable to more than one sponsored agreement or other cost objective will be accomplished by methods which will (iii) distinguish the employees direct activities from their F&A activities (J.10.b (1)(b) of the Circular). In addition, we could not determine the percentage of effort these employees spent on administrative activities because the University s effort reports did not reflect time spent on administrative tasks. 19
University of South Florida and Compensation Compensation in Excess of IBS: Three transactions included payments at a rate in excess of the employees supported salary rates. University officials agreed with two of the three transactions that we questioned because they exceeded salary rates. Although they initially argued that they had sponsor approval for the transaction involving extra compensation, they concurred with our finding that the extra compensation was incorrectly paid at a time-and-a-half rate. The officials said that a third transaction was a retroactive pay increase that was accurately documented and allocated. The OIG contended that the additional documentation that the University provided did not show the pay increase as being retroactive. 20
University of South Florida and Compensation Graduate Student Pay: Amounts in excess of NIH guidelines for graduate student compensation were paid. Graduate student pay cannot exceed the stipend levels set by NIH for National Research Service Awards. Compensation for unallowable activities: Salary was charged for an employee hired for the sole purpose of distributing promotional items. University officials indicated that the University s contract required it to engage in public relations efforts, including the use of incentive items such as keychains to encourage individuals to participate in a clinical trial. University officials agreed that promotional items were not allowable charges to Federal awards, but they argued that these keychains were incentives rather than promotional items. Terminal Leave: 100 percent of a payout for a terminated employee was charged to a grant rather than allocating the payout on the basis of the employee s former workload. 21
University of South Florida and Nonsalary Transactions Vendor v. Subawardee:. The University treated transactions as vendor procurements, fully burdening the transactions with F&A, when they were actually subcontract costs. The work performed by the entity was central to the work of the award and the entity had responsibility for dealing directly with other subcontractors, giving them a decision-making role and responsibility for program compliance. Supporting Documentation: The University charged shipping fees without documenting that the costs were allocable to the grant. It did not track the destination or contents of the shipment. Service Center Charges: The University did not provide a schedule of rates or a cost basis for its telecommunications center and did not always document the allocation of animal center costs on the basis of usage. 22
University of South Florida and Nonsalary Transactions Unallowable Costs: Costs for media consulting was paid without an agreement that specified either the service to be provided or the rate of compensation in violation of the regulations at the Circular J.37.b.(8)). Other transactions included a donation and promotional items (Circular J.15.a. and J.1.f.(3)). Normally Indirect: General-use supplies such as toner, computers, and tablet computers, were charged directly to the award. While computers were included in the sponsor approved budget the University did not provide documentation to show that the computers were used solely on the award and, therefore, did not adequately address why 17 computers should be allowed. 23
University of South Florida and Nonsalary Transactions Reasonableness: One consideration for reasonableness is whether the type of cost is generally recognized as necessary for the conduct of the organization or the award performance (the Circular C.3.(a)). The University had a contract with a labware supplier that included a handling fee in the cost of the items; however, it routinely paid extra handling fees to receive partial shipments rather than ordering a full shipment. The University did not provide a justification for partial shipments. Allocability: One transaction was for a large amount of fiberoptic cable with no justification showing that it was used for the performance of the award. 24
HHS Audit at UNC Chapel Hill for Incurred Costs from 7/1/09 6/30/11 Report Issued: June 2014 http://oig.hhs.gov/oas/reports/re gion4/41301024.pdf 25
HHS Audit at UNC Chapel Hill - $335,874 The University did not always claim selected costs charged directly to HHS awards in accordance with Federal requirements. Of the 163 transactions totaling $8,496,835 that auditors reviewed, 155 transactions totaling $8,160,961 were allowable, but 8 transactions totaling $335,874 were either not allowable or partially allowable. Of the $335,874 in costs the auditors questioned their concerned centered on either: Cost Transfers: inadequate documentation and timeliness (10 months), $298,275 Duplicate Payments: lack of reasonableness, $34,557 General Purpose: inconsistent treatment, $3,042 for laptop and printer cartridges In addition, the University claimed unallowable facilities and administrative costs totaling $16,969 that were related to the unallowable transactions. 26
HHS Audit at Memorial Sloan-Kettering for Construction Costs from 4/1/10 6/30/12 Report Issued: July 2014 http://oig.hhs.gov/oas/reports/region 2/21202013.pdf 27
HHS Audit at Memorial Sloan-Kettering - $126,416 Auditors reviewed $5,508,046 in Sloan-Kettering s extramural construction costs and found that $5,381,630 was allowable. However, the remaining costs of $126,416, were unallowable. Specifically, Sloan-Kettering claimed costs for the construction of a tunnel/service corridor ($120,880) and moving services ($5,536) that did not benefit the grant. Sloan-Kettering procured goods and services in accordance with Federal requirements and the terms of the grant. Also, as of the reporting period ending March 31, 2013, Sloan-Kettering met all Recovery Act and NIH reporting requirements. Finally, Sloan- Kettering had met the milestone date of November 13, 2012 for substantial project completion. 28
NASA Audit at University of Colorado at Boulder BioServe Space Technologies Report Issued: August 2014 http://oig.nasa.gov/audits/reports/fy14/ig- 14-028.pdf 29
NASA Audit at the University of Colorado at Boulder The UC Boulder BioServe project expended funds for their intended purposes and no questioned costs were identified. Weaknesses were identified in BioServe and NASA internal controls related to administration and management. Specifically, BioServe requires an additional $520,000, or about 36 percent, more than the approved budget in order to complete development, delivery, integration, operations, and launch of the bio lab units and $75,000, or 15 percent, more to complete the multi-well plates. In addition, current project plans have BioServe delivering the products about 16 and 10 months, respectively, beyond the original schedule. 30
NASA Audit at the University of Colorado at Boulder The cost overruns and delays occurred because BioServe and NASA underestimated the complexity of the development effort and failed to identify all technical requirements and because BioServe did not track and compare actual expenditures to approved project budgets. The auditors recommended additional efforts were needed to better identify and price technical requirements and account for costs in this agreement. Failure to address these concerns increases the risk of cost and schedule overruns in the existing and any future cooperative agreements with BioServe. 31
NEH Audit at Eastern Michigan University for a Grant Award Report Issued: February 2014 http://www.neh.gov/files/about/oig/oi g-14-01-ea.pdf 32
NEH Eastern Michigan Audit - $3,793 The principal objectives of this limited audit were to determine: 1) Whether grant expenditures were made in accordance with applicable provisions of the Program guidance, NEH's General Terms and Conditions for Awards to Organizations (GTAC), and the terms of the approved grant award. 2) The underlying reasons that led to a) the delinquent filing of the final financial and performance reports b) the reduction in project scope 3) Whether proper controls over the use of the Federal funds existed in accordance with minimum standards prescribed by OMB Circulars. 33
NEH Eastern Michigan Audit - $3,793 The following issues were identified: Unallowable or Questioned Costs: Expenditure testing identified unallowable costs totaling $3,093.60 (duplicate billing) and questioned costs of $700 (travel rates) Delinquent Reporting: The University missed filing deadlines associated with the final grant reports (both performance and financial). In fact, submission of the reports did not take place until the OIG became involved Deliverables: Several unfortunate events prevented the grantee from completing the proposed project deliverables resulting in the deobligation of almost $62,000 in grant funds. 34
EMU - Delinquent Final Reports & Grantee Report Monitoring Procedures The University missed filing and final reporting deadlines, NEH- OIG initially became aware of the delinquent reports after the issuance of the third (or 90-day) "Delinquency Notice" by the NEH Office of Grant Management. The Delinquency Notices are an automated communication, which is emailed to the Project Director and the Institutional Grant Administrator on record, informs the project officials of the delinquency status of financial and/or performance reports. Delinquency notices are issued monthly, beginning thirty days after the final reporting deadlines. 35
EMU - Delinquent Final Reports & Grantee Report Monitoring Procedures Final Financial Report: Preparation and submission of the financial reports falls under the purview of Sponsored Research Accounting. The department submitted final SF270 (Request for Advance or Reimbursement) and SF272 (Federal Cash Transaction Report) reports within fifteen days of the grant expiration. Management was unaware that these older forms had been superseded by the new Form SF-425 (Federal Financial Report). Institutional Official: The University failed to notify the NEH Office of Grant Management of the change in the Institutional Grant Administrator. Therefore, the delinquency notices intended for this individual were routed to an inactive email account and thus never acted upon by SRA management. Once the NEH Program Officer became actively involved, the University promptly prepared and submitted the SF-425 within a matter of days. 36
EMU Corrective Action Recommendations Although EMU management believes the unique facts and circumstances associated with this case represent an isolated incident, the OIG recommends that the University consider implementing several new procedures to safeguard against a recurrence as follows: 1. Expand sponsored research s responsibilities to include oversight of both the financial and performance reports. This would entail the additional task of coordinating with the Principal Investigator to ensure the University submits performance reports in a timely fashion. 2. Develop new procedures to immediately notify NEH (or any other Federal funder) of any Principal Investigator or Institutional Grant Administrator staffing changes. This step will ensure any past-due notices and/ or other automated communications from NEH are properly delivered to valid email addresses. 3. If not already in place, link the preparation and timely filing of performance reports to the Principal Investigator's job evaluations. 37
USDE Audit of the Puerto Rico Department of Education for Incurred Costs from 1/1/11 12/31/11 Report Issued: February 2013 http://www2.ed.gov/about/offic es/list/oig/auditreports/fy2013/a 04m0014.pdf 38
USDE audit of Puerto Rico Department of Education (PRDE) Equipment: $3.5 million in computer equipment was not used as intended because the required software had not been installed. As part of the project s work plan 6,125 tablet computers at a cost of $568 each for a total of $3.5 million in funds to be used in the 49 schools. More than a year after acquiring the tablet computers, the teachers and students had not been able to use the computers for the intended purpose because the required software had not been installed. PRDE did not adequately coordinate with the Central Procurement Office (CPO) to purchase and install the required software before the computers were delivered to the schools. 39
USDE audit of Puerto Rico Department of Education (PRDE) Services not rendered: $7,000 of its Title I Recovery Act funds for professional services were paid to the University of Puerto Rico (UPR), but no services were rendered. During the review of the payments made to UPR, it was found that PRDE overpaid UPR $7,000. PRDE reviewed a UPR invoice for $1,197,000 and found supporting documentation for only 88 of the 171 teachers the UPR claimed. The other 83 teachers PRDE was billed for were either not eligible or had been double billed. PRDE discovered the error, but paid the UPR $623,000 for the 88 teachers instead of the $616,000 that it should have paid. The error resulted in the UPR receiving an overpayment of $7,000. 40
PRDE and Procurement PRDE did not follow proper procurement procedures when using funds to purchase equipment totaling more than $3.4 million. The procurement office did not follow procurement policies and procedures for: 1) Three sole-source purchases to two vendors for $3.4 million 2) One purchase to another vendor for $15,995 3) One purchase for $33,000 Although procurement policies and procedures were in place, a purchasing officer did not follow them and supervisors did not enforce them. Supervisors approved purchases without having adequate documentation to support that the lowest and best offer was obtained. 41
PRDE and Procurement PRDE policies indicate procurements: <$6,000 are subject to an informal procurement processes requiring a minimum of three quotes, Between $6,000 and $25,000, a minimum of three quotes must be requested in writing and obtained either by mail, e- mail, fax, or any other form of written communication, and $25,000 to $50,000 a minimum of five written quotes are required. PRDE s former chief procurement officer and several other PRDE officials, including the purchasing officer who processed the purchases in this finding, were indicted by a Federal grand jury on multiple charges related to their procurement activities. 42
PRDE and Procurement Sole Source Purchases: PRDE s CPO approved and awarded the three sole source purchases without documenting efforts to search and exhaust all available resources, including all possible sources of information such as the Puerto Rico General Services Administration bidders registry, commercial phonebooks, Internet Web sites, companies that supplied similar products, catalogs, and others. PRDE s Procurement Policies and Procedures require a formal competitive procurement process when the purchase request exceeds $50,000, and indicates that a sole-source purchase can be conducted only when it is determined that no other suppliers in the market can provide the goods and services needed. 43
PRDE and Procurement Lack of Competition: Auditors found evidence of four quote requests, the only quote available for review was the one received from selected provider. The price according to provider s quote did not match the amount paid for the copier: Quote = $8,692, Paid = $5,995. Financial accounting system data was reviewed to determine whether the procurement process was documented and the three required quotes received. Price quotes from two vendors had been entered $16,895 for National Copier and $15,995 for PMB, the winning bid. Documentation to support the quote for National Copier was not found and the PMB s quote was $7,303 less than the amount entered into the system. 44
Take Aways! Consistent treatment, allowability, and allocability are key! Effort is and always will be a hot button audit item. Immigration/Visa fees/relo costs: make sure the amount charged is allocable. Travel: allocability, consistent treatment, compliance with institutional policies Equipment: Allocability and benefit continues to be a challenge, as are purchases in the last 90 days. Procurement: compliance with policies and documentation of sufficient number of bids 45
Questions Email: Krisrhodes@maximus.com DoyleSmith@maximus.com Website: http://www.maximus.com/higher-education 46