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Recent OIG Audit Findings in Brief!
Kris Rhodes, Director, MAXIMUS
Doyle Smith, Director, MAXIMUS
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Learning Objectives
1) Use information from recent audits to
mitigate organizational risk
2) Use information from recent audits to
improve your organizational
infrastructure
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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
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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
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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.
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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;
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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.
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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.
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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
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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.
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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
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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
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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
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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, SloanKettering 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/IG14-028.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.
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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
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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.
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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, NEHOIG 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.
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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.
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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.
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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, email, 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.
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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
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Questions
• Email: [email protected]
[email protected]
• Website: http://www.maximus.com/higher-education
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