oversight

NSF's Management and Oversight of the R/V Sikuliaq Construction Project

Published by the National Science Foundation, Office of Inspector General on 2014-09-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  National Science Foundation • Office of Inspector General
                  4201 Wilson Bonlevard, Suite l-1135, Arlington, Vixginia 22230


MEMORANDUM


DATE:                  SEP 1 0 2014
TO:




FROM:


SUBJECT:              Audit ofNSF's Management and Oversight of the RIV Sikuliaq
                      Construction Project, Report No. 14-2-008

Attached is the final report on the subject audit. The report contains one fmding with
three reconunendations on NSF's management and oversight of contingency for the RN
Sikuliaq Construction project.

In accordance with Office of Management and Budget Circular A-50, Audit Followup,
please provide a written corrective action plan within 60 days to address the report
reconunendations. This corrective action plan should detail specific actions and milestone
dates.

We appreciate the courtesies and assistance provided by so many NSF staff during the
review. If you have any questions, please contact Louise Nelson, Director of Western
External Audits, at (303) 844-4689.

Attachment

cc:           Ruth David                       Matthew Hawkins
              Michael Van Woert                Bauke Houtman
              Cliff Gabriel                    Scott Horner
              Jeffrey Lupis                    Rochelle Ray
              Mary Santonastasso               Allison Lerner
              Joanne Rom                       Susan Camohan
              Jeff Leithead                    Louise Nelson
              Roger Wakimoto                   KenLish
              Bart Bridwell
Audit of NSF’s Management and Oversight of the
       R/V Sikuliaq Construction Project

           National Science Foundation
           Office of Inspector General

                September 10, 2014
                  OIG 14-2-008




                                         TM#13-D-1-019
Table of Contents


Introduction ................................................................................................................................................... 2
Audit Results................................................................................................................................................. 2
   Table: Four Cooperative Support Agreements for Sikuliaq Project ........................................................ 3
Inadequate Controls over Calculation and Expenditure of Nearly $32 Million of Recovery Act Funds
Budgeted for Contingency in Sikuliaq Construction .................................................................................... 3
   Inadequate Controls over Contingency in Proposed Budget for Sikuliaq Construction ........................... 3
   Inadequate Controls over Contingency Expenditures in Sikuliaq Construction ....................................... 5
Other Matters ................................................................................................................................................ 5
   Construction Contract ............................................................................................................................... 5
   Compliance with Recovery Act Requirements ......................................................................................... 5
Recommendations ......................................................................................................................................... 6
Summary of Agency Response and OIG Comments .................................................................................... 6
OIG Contact and Staff Acknowledgements .................................................................................................. 7
Appendix A: Agency’s Response ................................................................................................................ 8
Appendix B: Objectives, Scope, and Methodology ................................................................................... 12




                                                                                1
Introduction

In August 2007, the National Science Foundation (NSF) entered into an agreement with the
University of Alaska Fairbanks (UAF) for construction and operation of the Alaska Region
Research Vessel – later named the Sikuliaq. The ship is expected to provide a larger platform for
complex multidisciplinary research and to expand research capabilities in the Arctic up to 300
science days at sea annually. The project consisted of four phases with a total awarded cost of
$199.5 million. The Sikuliaq project was NSF’s first and largest award made with American
Recovery and Reinvestment Act (Recovery Act or ARRA) funds, and the $148 million
construction phase was funded entirely with Recovery Act funds. The $148 million award also
included $31.7 million in contingency funds.

In recent years, NSF has instituted a policy of ensuring that its large facility construction projects
do not exceed their planned budgets by requiring a level of “contingency” costs in the initial
proposed budget. As of September 30, 2013, NSF had 16 active construction type cooperative
agreements aggregating approximately $1.9 billion in obligations, which includes approximately
$303 million in contingency funds, representing approximately 16 percent of the total award
obligation amount.

Federal cost principles define how award funds may be budgeted and spent. Among other
things, OMB Circular 2 CFR 220 does not allow “[c]ontributions to a contingency reserve or any
similar provision made for events the occurrence of which cannot be foretold with certainty as to
time, intensity, or with an assurance of their happening.” Based on audits of three of NSF’s large
construction projects and an audit of contingency in a $197 million cooperative agreement, we
identified compliance with Federal cost principles for contingency as a high-risk area.

We conducted an audit of the Sikuliaq project for two reasons —the large amount of Recovery
Act funds awarded to the project and the problems previous audits disclosed with contingency
funds in NSF’s large construction projects, which placed federal funds at a heightened risk of
being misused for non-contingent expenses or to hide cost overruns due to poor management or
oversight.


Audit Results

NSF requires contingency estimates in the budgets of large Major Research Equipment and
Facilities Construction projects in an effort to ensure that actual costs do not exceed planned
costs. Thus, NSF required project officials to include contingency in the budget proposals for
each of the project’s four phases. The University of Alaska Fairbanks included $38.1 million in
contingency for the total project. Of this amount, $31.7 million was for the construction phase
and was funded entirely by Recovery Act funds.

We found that 1) the inclusion of the contingency for each project phase did not comply with the
certainty requirement in the OMB cost principles; and 2) the contingency amounts in the
proposed budgets were not supported by adequate cost data. Therefore, since the project’s total
awarded amount is based on the approved budget, there is a heightened risk that the contingency

                                                  2
funds will be misused. Additionally, since the contingency expenditures were not separately
tracked in UAF’s accounting system, we could not verify how the budgeted contingency funds
were ultimately spent.

We found that NSF generally complied with the Recovery Act requirements we reviewed.



 Table: Four Cooperative Support Agreements for Sikuliaq Project
                                                      Awarded
                                                    Contingency                           Federal Funds
                             Award Amount(1)       (percentage of                         Disbursed as of
              Phase                               award amount)                           June 30, 2013
1 Phase 1&2 Contracting           $18,197,515         $1,462,906                            $15,577,530
   Procedures/Design                                        (8%)
   Review
2 Phase 3 Construction of        $148,070,000    $31,700,000(2)                             $119,949,124
   the R/V Sikuliaq                                      (21.4%)
   (ARRA only award)
3 Phase 3 UAF                     $22,054,387         $3,484,195                             $12,642,635
   Management/Oversight of                               (15.8%)
   Construction Phase
4 Phase 4 Post Delivery and       $11,178,098         $1,498,846                                         $0
   Sea Trials                                            (13.4%)
                      Total      $199,500,000        $38,145,947                            $148,169,289
                                                        (19.2%)
(1) includes estimated contingency
(2) awarded contingency was reduced by $6.8 million due to
resulting in a revised contingency estimate of $24.9 million


Inadequate Controls over Calculation and Expenditure of Nearly $32 Million of Recovery
Act Funds Budgeted for Contingency in Sikuliaq Construction

Inadequate Controls over Contingency in Proposed Budget for Sikuliaq Construction

The Sikuliaq project consisted of four phases (as shown above), and each phase included
contingency funding at NSF’s direction. NSF and the awardee estimated the contingency
amount using a risk management plan, which they developed by identifying risk factors such as
increases in vendor costs, late equipment delivery, and design changes. UAF officials then
evaluated the risk factors by the probability that they might occur and conducted a Monte Carlo
simulation 1 to reach a 90 percent confidence level that the estimates were sufficient.



1
A Monte Carlo simulation involves the use of random sampling techniques to obtain approximate solutions to
mathematical or physical problems. This assessment technique is encouraged in NSF’s Guidelines for Planning,
Use, and Oversight of Contingency in the Construction of Large Facilities policy.

                                                         3
We focused our attention on contingency funds in the construction phase; however, it is
important to note that the risk management plan estimated contingency for the project as a
whole, not for each project phase individually. The NSF Program Officer overseeing the project
told us that the basis for the estimate in the risk management plan was “personal knowledge,
experience, and judgment.” When it was determined that the construction phase would be
funded with Recovery Act dollars, the UAF project officer told us that he “identified which risk
elements I felt were most closely associated with ship construction” and assigned the associated
dollar amounts to the contingency in the construction phase. Additionally, he stated that he
estimated risk based on the total project scope and that, for the construction phase, he made a
“final adjustment in the contingency.” According to the project officer, he made this final
adjustment because of additional risk factors he attributed to the use of Recovery Act funds.

The inclusion of contingency in the project’s proposed budget was unallowable based on OMB
circular 2 CFR 220, which states, “[c]ontributions to a contingency reserve or any similar
provision made for events the occurrence of which cannot be foretold with certainty as to time,
intensity, or with an assurance of their happening, are unallowable.”

As discussed above, the awardee’s use of a risk management plan to estimate contingency in the
project’s budget did not meet the certainty requirement in the cost principle. The documents
provided by the awardee, as well as information from the NSF Program Officer and UAF
officials, confirmed that the contingency estimates did not demonstrate how the certainty
requirements were met, but rather demonstrated that contingency was based on professional
judgment related to risk elements. We were unable to find, and project officials were unable to
provide, supporting evidence to demonstrate that the contingency estimates derived from their
risk management plan met the cost principle’s “with certainty” requirement, or that this
requirement was a component of the personal “judgment” used to develop the contingency
estimates. As we have previously stated, while it is important to estimate all contingency costs,
only those which meet the cost principle’s certainty requirement should be added to a federal
award.

In addition to including contingency costs that did not meet the cost principle’s certainty
requirement, it is important to note that even if the proposed contingency expenses met the cost
principle’s certainty requirement, the estimates used to quantify those costs did not rest on
adequate supporting documentation. Contingency, like all other line items in a proposed budget,
must be supported by documentation which establishes the reasonableness, allowability, and
allocability of the costs. Instead, project officials produced detailed “risk sheets” for each risk
identified in the plan, and we were told that the information supporting the material in the risk
sheets was based on the “best available knowledge on hand.” Thus, according to statements
from both the NSF Program Officer and the UAF project officer, personal knowledge,
experience, and judgment, not verifiable cost information, were the basis for the amount of
contingency in the project. NSF officials also confirmed that there was no additional supporting
documentation (such as historical cost estimates or vendor estimates) to support the risk sheets
provided

.



                                                 4
Inadequate Controls over Contingency Expenditures in Sikuliaq Construction

In addition to inadequate controls over the inclusion of contingency in the budget proposal, there
were also inadequate controls and a lack of visibility over the expenditure of funds for contingent
events because such expenditures were not separately tracked in the awardee’s accounting
system. Although the change control log showed how the contingency funds for change orders
over $50,000 were approved to be spent, the change order log was not integrated, nor was it
electronically linked, with the university accounting system. As a result, we could not confirm
that contingency funds were spent as requested and approved in the associated change orders.

While UAF was not required to track expenditures to budgeted contingency amounts, the lack of
visibility over contingency expenditures increases the risk that contingency funds may be
misused. This risk is particularly troubling given the fact that the $32 million contingency for
the Sikuliaq construction was Recovery Act funds.



Other Matters

Construction Contract

UAF entered into a firm fixed price contract with the                                            to
construct the Sikuliaq. The initial contract was signed on December 18, 2009, for a total of
                 As of May 17, 2012, there had been 45 modifications to the contract that
increased the total amount by                up to               . The UAF project officer stated
that a firm fixed price contract was used to help control the risks of the project. It is noteworthy
that the UAF project official acknowledged that a different funding vehicle would have been
more appropriate for the project.
Compliance with Recovery Act Requirements

We found that NSF generally complied with the Recovery Act requirements. We reviewed the
Davis Bacon Act, the Buy America Act, suspension and debarment, accelerated spending and
overall recipient reporting requirements. However, we did note three instances where the
awardee and NSF did not comply with Davis Bacon prevailing wage requirements. First, NSF
did not include the required prevailing wage provisions in the award terms and conditions, or
ensure that the awardee included required provisions in the construction contract. Second, NSF
did not obtain the required certification from the contractor and subcontractors confirming that
they were complying with wage requirements. Finally, NSF released funds to UAF before it
obtained the required wage certification from the awardee.

Our audit included testing a sample of certified payrolls against the prevailing wages to verify
that workers were paid the required rate. Although we did not identify any instances of workers
being paid less than the required wage rate as a result of these instances of noncompliance, the
fact that the required certifications were not obtained increased the risk that workers would not
be paid prevailing wage rates. When this oversight was pointed out to NSF during the course of
the audit, NSF agreed and ensured that they would explore the lessons learned. It is important to

                                                  5
note that ensuring that workers are paid in accordance with Federal wage rate requirements is not
limited to projects receiving Recovery Act funds, but may apply to future NSF construction
projects as well.


Recommendations

We recommend that the NSF Chief Financial Officer take appropriate action to strengthen
controls over the calculation and expenditure of contingency funds in construction projects.

Among other things, NSF should require awardees

   1) to only include amounts for allowable contingencies in an award;

   2) to support contingency estimates in budget proposals with adequate, verifiable,
      supporting data; and

   3) to properly account for the funds consistent with their estimates and separately track
      budgeted versus actual contingency costs.



Summary of Agency Response and OIG Comments

In its response, NSF concurred with the OIG’s first two recommendations, but disagreed with the
assertion that it is not currently compliant with these requirements. NSF stated that the OIG
extrapolated the “certainty requirement” to mean that all costs must be known in advance, and
that if this were the case, there would be no need to budget for contingency risks. As stated in the
report, the documents provided to the OIG did not demonstrate how the certainty requirement
was met, but rather demonstrated that contingency was based on professional judgment related to
risk elements. It is our position that the supporting documents that the contingency estimates
relied upon were not of sufficient detail to provide the level of assurance necessary to meet the
certainty requirement. Many of the estimates lacked any tangible support, and were based solely
on professional judgment.

NSF’s response also discusses that the GAO Cost Estimating and Assessment Guide (GAO
Guide) states “…the data used in program risk analysis are often based on individuals’ expert
judgment…” While it is true that the GAO Guide makes this statement, it also states that if
historical data is not available, “… how qualitative judgment was applied should be
explained…” Further, “because the quality and availability of the data affect the cost estimate’s
uncertainty, these should be well documented and understood.” The documentation provided did
not adequately describe or support the basis for many of the risk elements that were evaluated
based on professional judgment. Considering that nearly 20% of the project was comprised of
contingency funds, it was of the utmost importance that the method of estimating the risks be
verifiable and in compliance with all applicable laws and regulations. However, the


                                                 6
documentation provided did not provide adequate, verifiable support for how the risks were
estimated or how the contingency amounts were derived.

In response to the third recommendation, NSF disagrees that budgeted versus actual contingency
costs should be separately tracked. NSF pointed out that this level of tracking is not required by
OMB, and thus views this recommendation as an extra administrative requirement that it
declines to administer. However, by not tracking budgeted versus actual contingency costs and
because the contingency budget and change order processes do not tie to the accounting system,
there is no way of verifying that contingency funds were actually used in the manner proposed in
the associated change orders. If there is no way to ensure that contingency funds were used in
the manner proposed, the entire change order process becomes invalidated and meaningless. The
only way to ensure that the change order process is effective is to be able to track budgeted
versus actual contingency expenditures in the accounting system itself.

We have included NSF’s response to this report in its entirety as Appendix A.


OIG Contact and Staff Acknowledgements

Louise Nelson - Director of Western External Audits
(303) 844-4689 or lnelson@nsf.gov

In addition to Ms. Nelson, Lisa Hansen, Susan Crismon, and Ken Lish made key contributions to
this report.




                                                7
Appendix A: Agency’s Response


                     National Science Foundation
                     4201 Wilson Boulevard, Arlington, Virginia 22230




 MEMORANDUM:



 Date:             June 11, 2014


 From:             Ms.   Ma~stein
                   Office   ~:a~ ~~~-bJ~~f Financial Officer
                   Office of Budget, Finance, and Award Management


 To:               Dr. Brett M. Baker
                   Assistant Inspector General for Audit
                   Office o f Inspector General


 Subj ect:         Response to Official Draft Report: Audit of NSF's Management and Oversight of tile R/V
                   Sikulioq ConsttCJCtion Project



 This memorandum's purpose is t o set forth comments on the conclusions reached and the three
 recommendations in the draft audit report referenced above. Though we disagree with the report's
 interpretation of OMB policies and the impact of that interpre tation on validity of the detailed find ings
 of the report, the agency is presently taking steps to strengthen its contfols and process over future
 agreements for project development and proj ect execution (i.e., large facility construction}. These steps
 are detailed In two corrective action plans prepared in response to:


       •   OIG Report No. 12-2-010, titled Management of Contingency in the EarthScope Awards, and
       •   OIG Report No. 12-6-001, titled NSF's M anagement of Cooperative Agreements


 The four actions the agency is undertaking, all in the form of revisions to NSF's Large Facilities Manual.
 are summarized as follows:


       •   Preparation of standards for analysis of recipient cost estimates,
       •   Preparation of standards for project cost book preparation,
       •   Preparation of policy guidance for use of auditing in overseeing and closing out cooperative
           agreements, and
       •   Preparation of policy guidance on the use of contingency budgets


                                                        8
Our comments with respect to each of the draft report's three recommendations follow.


Rec 1. NSF should require awardees to only include amounts for allowable contingencies in an award.

&u.        NSF should require awardees to support oontingency estimates in budget proposals with
           adequate, verifiable, supporting data.

Resp.      We agree with the recommendations as stated. We do not agree with the audit report's
           assertions that NSF is not cur rently compl iant with these requirements.


           Specific to Recommendation 1, NSF does and should require awardees to budget only for
           allowable contingencies. What is at issue is w hat constitutes acceptable budgeting practices for
           a contingency. In the audit report the auditors conflate the concept of responsibly budgeting
           for contingencies, using a risk+based methodology to estimate variations in established
           allowable construction costs under the cost principles with the cost of paying into a general,
           non~s pecl fic contingency   reserve. The latter is a separate cost category and we agree with the
           auditors that such payments are not allowable costs. OMS has recenHy clarified the difference
           between the two different concepts (see below). Further, the auditors, by relying on this
           conftation, extrapolate the term "'certainty requirement" to mean that all costs must be know n
           in advance. This is paradoxical; if certainty existed. there would be no need, nor professional
           Industry standards, for budgeting for contingency risks.

           In making t hese recommendations the OIG cites the contingency provision of 2 CFR 220 1 and
           concludes that the pro ject's budget did not meet t he certainty requirement of the
           aforementione-d cost principle nor did the estimate rest on adequate supporting
           documentation. However, the Office or Management and Budget has recently addressed these
           matters in publishi11g its Vniform Adminlstrotlve Requirements, Cost Principles, and Audit
           Requirements for Federal Awards (refer to 2 CFR 200, hereinafter Uniform Guidance) and t he
           ru l e~maki ng   process.


           Early in this process OMB noted that the text addressing the use of contingency budgets in
           federal awa rds included in the proposed rule represented a clarification, not the adoption of a
           revised cost principle. (78 FR 7290)1 That same text notes that use of contingency estimates Is


1
    "'Contributions to a contingency re$erve or any similar provision made for events the occ;urrence of which cannot
be foretold with certainty as to time, intensity, or with a11 assurance of their happening. are unallowable:'' (2 Cf'R
220, Appelldlx A, Se<tlon J.lt)

~ "The ANPG (Advance Notice of p-roposed Guidance) discussed cfari!Ving that budgeting for contingency funds
asso ciat~d with a Federal award fot the oo.nstruction or upgrade of a large facility o r Instrument. or for IT syste.ms_.

Is an acceptable and necessary practice ..."' OMB made a similar statement when publishing th~ Uniform
Guidance: ''Many commenters noted that thls proposed section (2 CFR200.433) made positive itnd helpful

                                                           9
        an acceptable and necessary practice, planned for in accordance with Ge nerally ACcepted
        Accounting Principles and standard project-management practices. It goes on t o distinguish
        between the acceptable use of contingency as an estimating practice, versus the un at~ptable
        practice of recipients establishing a front-loaded 1·eserve fu nd througl> draw down o f aw ard
        funds in advance of t>artlcular events actually otcurring. Thl.s same constr\ICt carries through to
        the final form of the Uniform Guidance. Compare 2 CFR 200.43 3, paragraph (b), that states it is
        permissible for contingency amounts to be explicitly Included In budcet estimates provided they
        a re estimated using broadly-acce pted cost estimating methodologies, with its paragraph (c),
        that states t hat pa yments by fed eral agencies • •• m<Ode lor events the occurrence or whkh
        cannot be foretold with certainty as to the time or intensity~ or with an assurance of their
        happening, are unallowable .. ." (78 FR 78650)


        Specific to Recommendation 2. -in this case the reclplel'lt estimated contingency anCI supported
        its estimate co nsistent w ith 1he broadly-accepted rne lhodology set forth in U1e GAO Cost
        Estimating a nd Assessment Guide. (pp. 159-175, hereinafter GAO Guid e) A risk register w as
        prepared and scored by project pe rsonnel to ldenllfy project risk, and assess the like lihood of an
        event occurring and corresponding conse quences. {pp. 164-l65) As noted in the GAO Guide,


            -· the data used In program rislc analysis are derived from it>-depth int erviews or In risk
            \Yorl<shops. In other words, the data used on program risk analysis are often based on
            individuals' expert Judgment ... (p. 161)

        Once this step was accomplished, a Monte Carlo simulation was perfo rmed (pp. 172·173), •
        cumulative probability distribution calculated (p. 173), and an a mount of contingency budgeted
        to provide 90 percent confidence that the project could be accomplished within the total
        amount budgeted (pp. 173· 174}.


        Finally, we note that while the agency and its re(lpient are r;ompliant with OMB regulatiOn and
        consistent with GAO rec:ommended practice for e.s·11mating contingency, NSF has iden1ifi~
        publication of policy requirements for the development of cost estimates, including cont ingency
        estimates, as an area to be addr-essed ill strengthening its controlsover future coopl!rative
        agreements for project development and project e)lecollon, as stated i n the aforementkJned
        corrective action plans. 0 Uf emphasis will be on documenting the judgments and conclusions
        made by recipients when os.sessing project schedule, technical and cos.t risk, and their
        monetllatlon-'




daflf~t.ions which eoable •   better unde<standing of how c:on11ne•ncv costs may be bu<fseted and charaed." (78
FR 786021
• Ref'er to the CAP for OIG Report No. 12·2..0 10, Response to Recommendation 1 and Recommendation 2, Md the
CAP for OIG Repott No. 12~b.001, Response to Recommendation 2, both datl!d April3, 2014.




                                                       10
Rec 3. NSF should require awardecs to properly account for the funds consistent with their estimates
        and separately track budgeted versus actual contingency costs.


Resp.   We agree that NSF should continue to require awardees to properly account for funds. We
        disagree w ith the premise that costs incurred will always conform with the o riginally estimated
        budgets for a project at the cost element level. We further disagree with the assert ed
        requirement to separately track budgeted versus actual contingency costs.


        In making this recommendation the OIG concludes that inadequate controls and a lack of
        visibility over the e)(penditure of funds exists because expenses reimbursed using contingency
        funds were not separately tracked in the recipient's financial accounting system. However,
        OMB squarely addressed this matter when publishing the Uniform Guidance~ discussing
        comments recewed dunng the rule·making process.


        Specifically, OMB stated that " ... commenters suggested adding a requirement to track funds
        that are spent as contingency funds throughout the non-Federal entity's records."' (78 FR
        78602) OM6 went on to say In pertinent part:

            The COFAR {i.e., the COuncil on Federal Assistance Reform) reviewed the language (of
            the contingency cost principle, 2 CFR 200.433) and concluded that It does provide
            sufficient controls to Federal agencies to manage Federal awards. The CO FAR noted
            that ... actual costs incurred must be verifiable from the non·Federal entity's records.
            The CO FAR considered t his last requirement to be sufficient for tracking the use of
            funds, as contingency funds should most properly be charged not as "'contingency
            funds" specifically, but according to the cost category into which they would naturally
            fall. TheCOFAR did not recommend any changes to the proposed language. {78 FR
            78602-73603)

        Given t hat one objective of the Uniform Guidance is to ease administrative burden (78 FR
        78590)1 we decline to add an administrative requlremeM already identified as unnecessary
        by OMS.


Thank you for the o~portunity to provide our c-o mments on the draft report. You may contact Mr.
JeffS. Leithead of the Division of Acquisition and Cooperative Support by telephone at Extension
4595 or by e·mail atjleithea@nsf.gov for infor mation of an administrative nature. Contact Mr. Bob
Houtman of the Division of Ocean Sciences by l elephone at Extension 7704 o r by e-mail at
bhoutman@nsf.gov for information of a technical nature.




                                                   11
Appendix B: Objectives, Scope, and Methodology

The objectives of this audit were to review NSF’s processes for overseeing the construction
project and managing the associated risks (including contingency), and compliance with
Recovery Act requirements. The scope of our audit focused on the four cooperative support
agreements (CSAs) awarded to complete the Sikuliaq construction project.

We conducted this performance audit from February 2012 to May 2014. To answer our
objectives, we obtained information on the contingency from NSF and UAF officials and NSF’s
eJacket reporting system for the project period of August 1, 2007 through June 30, 2013.

To meet our objectives, we:

   •    Obtained and reviewed relevant laws, regulations, policies, and procedures,
   •    Obtained and reviewed prior Federal audits and reviews,
   •    Communicated with the NSF OIG Office of Investigations,
   •    Consulted with NSF OIG Legal Counsel,
   •    Interviewed and communicated with NSF and UAF officials,
   •    Obtained and reviewed CA and CSA award documents,
   •    Obtained and reviewed UAF award and invoice documents,
   •    Obtained and reviewed contingency change orders and supporting documentation for the
        three awards using contingency funds through June 30, 2013, and
   •    Observed the 2012 R/V Sikuliaq Annual Review and participated in the shipyard tour.

We reviewed NSF’s compliance with applicable provisions of pertinent laws and regulations
including:

    •   2 CFR Part 220, Cost Principles for Educational Institutions,
    •   2 CFR Part 215, Uniform Administrative Requirements for Grants and Agreements with
        Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations,
    •   2 CFR Part 176, Requirements for Implementing Sections 1512, 1605, and 1606 of the
        American Recovery and Reinvestment Act of 2009 for Financial Assistance Awards,
    •   2 CFR Part 180, OMB Guidelines to Agencies on Government wide Debarment and
        Suspension (Nonprocurement),
    •   2 CFR Part 2520, Nonprocurement Debarment and Suspension, and
    •   29 CFR Parts 1, 3, 5, 6, 7, Labor.

We also obtained an understanding of the management controls over NSF’s process for
reviewing, managing, and overseeing contingency as well as its implementation of Recovery Act
requirements through interviews and communications with NSF officials and by reviewing NSF
policies and procedures. We identified internal control deficiencies, which we discuss in this
report. However, we did not identify any instances of fraud, illegal acts, or abuse.

Our work required reliance on computer-processed data obtained from NSF and UAF. We
obtained NSF data by directly accessing NSF’s Federal Financial Report (FFR) system and it’s

                                              12
Award Cash Management Service (ACM$). We assessed the reliability of the data provided by
UAF by comparing costs charged to the NSF award account within UAF’s accounting records to
the federal share of expenditures, as reflected in UAF’s FFRs submitted to NSF as of September
30, 2012. Based on our testing, we found UAF’s computer-processed data sufficiently reliable
for the purposes of this audit. We did not review or test whether the data contained in, or
controls over, NSF’s FFR and ACM$ systems were accurate or reliable.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our first audit objective to examine the sufficiency of
NSF’s oversight of awardees’ expenditure of contingency.

We held an exit conference with NSF officials on May 5, 2014.




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