oversight

University of California Davis: Audit of Incurred Costs Claimed on National Science Foundation Awards for the Period January 1, 2008 through December 31, 2010

Published by the National Science Foundation, Office of Inspector General on 2017-02-27.

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

                      National Science Foundation • Office of Inspector General
                      4201 Wilson Boulevard, Suite I-1135, Arlington, Virginia 22230

MEMORANDUM

Date:

To:            Dale Bell
               Director, Division of Institution and Award Support

               Jamie French
               Director, Division of Grants and Agreements


From:          Mark Bell
               Assistant Inspector General, Office of Audits

Subject:       Audit Report No. 17-1-002
               University of California-Davis

This memo transmits our report for the audit of costs totaling approximately $142 million
charged by University of California-Davis (UC-Davis) to its sponsored agreements with the
National Science Foundation (NSF) during the period January 1, 2008, to December 31, 2010.
The objectives of this audit were to determine whether (1) UC-Davis has adequate systems in
place to account for and safeguard NSF funds, and (2) costs claimed by UC-Davis under a
number of NSF awards were reasonable, allowable, and allocable and in conformity with NSF
award terms and conditions and applicable Federal financial assistance award requirements.

We found that costs UC-Davis charged to its NSF sponsored agreements did not always comply
with applicable Federal, NSF, and university-specific award requirements. Our audit questioned
$382,646 of equipment charges for which UC-Davis could not document allowability on NSF
awards; $83,488 of improper cost transfers; $39,578 of unallowable and unallocable
entertainment costs; $14,164 of improper purchase card transactions; and $1,810,627 of salary,
benefits, and associated indirect costs for faculty and other senior personnel that were
unreasonable and exceeded NSF limitations. The report includes recommendations for NSF to
resolve the questioned costs and to ensure UC-Davis strengthens administrative and management
controls. UC-Davis’s response, provided on May 31, 2016, is attached in its entirety to the report
as Appendix A.

In accordance with Office of Management and Budget Circular A-50, Audit Followup, please
provide a written corrective action plan to address the report recommendations. In addressing the
report’s recommendations, this corrective action plan should detail specific actions and
associated milestone dates. Please provide the action plan within 60 calendar days of the date of
this report.
We thank your staff for the assistance that was extended to the auditors during this audit. If you
have any questions regarding this report, please contact Dan Buchtel at 303-844-5645.

Attachment

cc:   Alex Wynnyk, Staff Associate for Oversight, DIAS
      Rochelle Ray, Branch Chief, Resolution and Advanced Monitoring Branch, DIAS
      John Anderson, Chair, Oversight Committee, NSB
      Christina Sarris, Assistant General Counsel, OD
      Ken Chason, Counsel to the Inspector General, OIG




                                                 2
             University of California-Davis

           Audit of Incurred Costs Claimed on
           National Science Foundation Awards
For the Period January 1, 2008 through December 31, 2010

              National Science Foundation
              Office of Inspector General

                    February 27, 2017
                      OIG 17-1-002
Table of Contents

Introduction ........................................................................................................................................ 2

Audit Results ...................................................................................................................................... 2
     Finding 1: More than $382,000 of Questioned Equipment Charges ............................................ 3
         Equipment Charges Not Included in Award’s Approved Budget ............................................. 3
         Equipment Charges in Final 60 Days of Award Periods or After Expiration .......................... 3
     Finding 2: $83,488 Questioned for Cost Transfers ...................................................................... 6
     Finding 3: $39,578 of Questioned Entertainment Costs ............................................................ 12
     Finding 4: $14,164 of Questioned Purchase Card Transactions ................................................ 14
     Finding 5: Over $1.8 Million of Salary and Benefits Were Unreasonable and Exceeded NSF
     Limits .......................................................................................................................................... 16

Recommendations ............................................................................................................................ 20

Appendix A: UC-Davis Response to Draft Audit Report ................................................................. 21

Appendix B: Summary of Questioned Salaries, Benefits, and Indirect Costs ................................. 42

Appendix C: Objectives, Scope, and Methodology ......................................................................... 46
Introduction

The National Science Foundation (NSF) is an independent Federal agency whose mission is “to
promote the progress of science; to advance the national health, prosperity, and welfare; and to
secure the national defense.” NSF funds research and education in most fields of science and
engineering. NSF does this through grants and cooperative agreements to more than 2,000 colleges,
universities, K-12 school systems, businesses, informal science organizations, and other research
organizations throughout the U.S.

NSF OIG conducted a performance audit of incurred costs for the University of California-Davis
(UC-Davis). The audit covered the period from January 1, 2008, through December 31, 2010, and
examined $142,277,798 in costs claimed by UC-Davis under 783 NSF awards.

We conducted this performance audit in accordance with generally accepted government auditing
standards, issued by the Government Accountability Office. We provided a preliminary notification
of our findings and recommendations to UC-Davis and discussed the findings with UC-Davis
officials. UC-Davis provided comments and additional documentation which resolved some of the
questioned items. This report contains the findings that were not resolved by UC-Davis’s
submissions.

Audit Results

Our audit questioned $2,330,503 of costs claimed by UC-Davis during the audit period of January 1,
2008, through December 31, 2010. Specifically, we questioned:

      $382,646 of equipment charges for which UC-Davis could not document allowability on
       NSF awards;
      $83,488 of improper cost transfers;
      $39,578 of unallowable and unallocable entertainment costs;
      $14,164 of improper purchase card transactions; and
      $1,810,627 of salary, benefits, and associated indirect costs for faculty and other senior
       personnel that were unreasonable and exceeded NSF limitations.

Generally accepted government auditing standards require us to perform and report on our work
independent of outside influences that might compromise our professional judgment, including
NSF’s past actions on audit findings and recommendations. With respect to the $1.8 million of
questioned salary, benefits, and indirect costs, similar charges have been questioned in several prior
audits. NSF did not agree with the auditors and did not sustain the questioned costs, even when the
auditee university agreed to repay the disputed amounts. In line with auditing standards that require
us to maintain independence of mind and appearance, we continue to question these charges for the
reasons detailed in Finding 5 of this report.

Our draft audit report questioned $2,497,087. UC-Davis agreed with $20,156 of the questioned
costs and disagreed with $2,476,931 and provided documentation to support its assertions. We
examined UC-Davis’s submissions and removed $166,684 questioned in our draft report. We
continue to question $2,330,503, as detailed in this report.

                                                                                                     2
Finding 1: More than $382,000 of Questioned Equipment Charges

We flagged two types of equipment costs for additional analysis. Based on this analysis, we
questioned a total of $382,646 of equipment charges on NSF awards — $188,352 for which no
equipment costs were included in the approved budgets, and $194,294 for equipment charged
within 60 days of the awards’ expiration dates or after awards expired. Following are the details of
the questioned equipment charges.

Equipment Charges Not Included in Award’s Approved Budget

We questioned $188,352 for equipment and an associated maintenance agreement charged to an
award for equipment that was not included in the NSF approved budget.1 These charges amounted
to 36 percent of total award funding. We found that the budget justification the university submitted
stated that the co-principal investigators’ laboratories were “excellently equipped” to perform all of
the tasks on the project, therefore “no additional equipment is requested.” The fact that more than
one-third of the total award funds were allocated to an equipment purchase that was deemed
unnecessary in the approved budget raised concerns about whether UC-Davis significantly changed
the scope from the project approved by NSF. NSF General Grant Conditions require prior approval
by the Grants Officer for significant changes in project scope or objective.2

Documents provided by UC-Davis show that about $175,000 of the funding used for the
unbudgeted equipment purchase was transferred from funds that NSF had approved to pay salaries,
benefits, and associated indirect costs for post-doctoral associates and graduate and undergraduate
researchers. UC-Davis provided a copy of an e-mail from the NSF Program Officer indicating
approval to “move funds from some budget lines” to purchase the equipment. We asked UC-Davis
officials whether the Principal Investigator discussed with the NSF Program Officer the magnitude
of the rebudgeting and whether such a significant change might be a change in scope requiring NSF
review and approval. UC-Davis provided a statement from the PI that he discussed the rebudgeting
with the Program Officer by telephone, but did not have any written record of the discussion. The
PI’s statement noted that the Program Officer advised the PI that a rebudgeting of this magnitude
should only be allowed in an exceptional case. However, the PI’s statement did not indicate he
discussed with the Program Officer whether the particular circumstances caused a change in scope
requiring NSF approval. The only indication that the question of a possible scope change was
considered is in an internal UC-Davis communication in which the PI informed the Sponsored
Programs Office “there will be no change in project scope at all.” We continue to question this
equipment purchase because UC-Davis did not provide evidence that the NSF Grants Officer
approved this change in project scope or that NSF advised UC-Davis that no such approval was
necessary.

Equipment Charges in Final 60 Days of Award Periods or After Expiration

Our audit questioned $194,294 for equipment purchased within 60 days of the end of the award or
after the award expired. Although Federal cost principles generally permit recipients to incur
project-related costs until the award expiration date, such costs must meet allowability
requirements, including proper allocation of costs to sponsored projects. NSF reinforced this

1
    NSF Award No. 0542755
2
    NSF General Grant Conditions, Article 2.a.1.(b)
                                                                                                       3
requirement in the Award and Administration Guide, which states equipment purchases must be
necessary for the research or activity supported by the grant.3

We found that the university charged $131,789 for equipment that had final acceptance on May 1,
2009, several months after the award expired on July 31, 2008.4 Since the NSF award had already
expired before the equipment was delivered and accepted, it does not appear that this equipment
benefitted the NSF award. Further, this purchase is noteworthy because NSF amended the award in
June 2007, at UC-Davis’s request, to extend it to July 31, 2008. According to the amendment, the
equipment purchased was necessary to accomplish the primary objective of the award — testing of
new imaging devices. We did not find any evidence that UC-Davis requested another extension
when it became apparent the equipment would not arrive before the award expiration.

We also questioned $53,719 for three equipment purchases in March and May 2008. UC-Davis
charged these purchases to the same NSF award discussed in the previous paragraph. The PI stated
that the purchases were for components for a device that would not be assembled and tested until
after the award expired. Therefore, it does not appear that these purchases benefitted the NSF
award.

Finally, we identified $8,786 in equipment costs charged in July 2008 to an award that expired at
the end of August 2008.5 We examined the documents UC-Davis provided and found that the
claimed costs constituted an advance payment to the vendor and that the equipment was not
delivered to UC-Davis until after the NSF award had expired. According to UC-Davis, the PI
borrowed an identical item from another professor and this purchase was to replace the borrowed
item. While there may have been benefit to the award from the use of the borrowed item, UC-Davis
did not provide evidence of the allowable cost in accordance with OMB requirements. If the
borrowed item was owned by UC-Davis, then the allowable cost would be limited to the actual
costs of the use of the item, reported in UC-Davis’s accounting records.6 If the borrowed item was
not owned by the university, the allowable cost would be limited to the fair market value on the date
of the transfer, as reflected in UC-Davis’s accounting records.7

UC-Davis Response

OIG’s draft audit report questioned $399,201 of equipment charges for which there were no
equipment costs in the approved award budget ($204,907) or when equipment was purchased in the
final 60 days of the award period or after the award had expired ($194,294). UC-Davis disagreed
with all $399,201 of equipment costs questioned in the draft audit report. The following summarizes
UC-Davis’s responses to the questioned equipment costs.

       UC-Davis did not agree that $188,352 claimed for purchases of equipment and a
        maintenance agreement that were not included in the proposal budget is questionable. OIG
        had questioned the costs on the basis that they appeared to be an unapproved change in the
        project scope. UC-Davis reiterated the PI’s statement that the project scope did not change

3
  NSF Award and Administration Guide, Chapter IV, Section E.2.a.(i)
4
  NSF Award No. 0441069 expired July 31, 2008. Final equipment acceptance was May 1, 2009.
5
  NSF Award No. 0503765
6
  2 CFR Part 215, Sections 215.23(a)(1), 215.23(c), and 215.23(g)(2)
7
  2 CFR Part 215, Sections 215.23(a)(1) and 215.23(h)(2)
                                                                                                      4
        and that the equipment was needed to overcome a “technological bottleneck.” The university
        also reiterated that its Sponsored Programs Office contacted the NSF Program Officer about
        a change in scope and required a written response from the Program Officer before
        proceeding with the reprogramming of funds.

        UC-Davis also commented on OIG’s concern stated in the draft audit report that the funds
        used to purchase the equipment were taken from amounts budgeted to fund non-faculty
        researchers. UC-Davis stated that researchers and students working on the project were paid
        with university funds. We accepted UC-Davis’s explanation and removed the paragraph
        from the final audit report.
       UC-Davis provided clarification of the PI’s statement supporting allowability of a
        questioned $16,556 equipment purchase. We removed the questioned costs from the final
        report.
       UC-Davis disagreed that two equipment purchases of $131,789 and $53,719 should be
        questioned. According to UC-Davis, the purpose of the grant was to build a test facility for
        future use and its final assembly was impacted by vendor delays and “(t)he fact that these
        components arrived after the grant expired in no way negates the usefulness or benefit to the
        project.” UC-Davis also provided a statement from the NSF Program Officer,

                 We have always felt that equipment purchased late in an award was
                 acceptable as long as it was used for a continuation of the project and
                 connected research ... I can state that to the best of my knowledge as NSF
                 program officer ... since the time of this award, all equipment continues to be
                 used on continuations of the work for which that award was made, in the
                 context of the larger ... project.

        UC-Davis also included text from NSF’s Award and Administration Guide, stating,
        “commitment of project funds is valid when specialized (research) equipment is ordered
        well in advance of the expiration date but where, due to unusual or unforeseen
        circumstances, delivery of such equipment is delayed beyond the expiration date.”8 Finally,
        the university stated it has internal procedures in place to review large equipment purchases
        late in awards to ensure appropriateness.
       UC-Davis disagreed with OIG’s questioning of an $8,786 transaction for which the
        equipment was delivered more than year after the award expired. The university stated the
        equipment in question, a valve ordered in 2007, would not be delivered in time to complete
        the award. The PI arranged to “borrow” an identical valve from a colleague with the
        understanding the new valve would be given to the colleague as a replacement.

OIG Comments

We accepted UC-Davis’s responses for $16,556 of costs that were questioned in the draft audit
report and removed those questioned items from the final report. We continue to question $382,646
of equipment costs, as explained below.9

8
  UC-Davis’s response cites this as NSF Award and Administration Guide 602.3. The correct citation for the provision
is NSF Award and Administration Guide, Chapter V, Section A.2.c.
9
  Due to rounding in multiple equipment transactions, the sum of costs questioned ($382,646) and costs accepted
($16,556) differs by $1 from equipment costs questioned in the draft report ($399,201). Amounts reported above are
                                                                                                                       5
        UC-Davis provided no new information to support the allowability of $188,352 claimed for
        unbudgeted equipment. We recognize that UC-Davis contacted the Program Officer
        concerning the purchase; however, there is no indication in the written record that the
        Program Officer was aware of the magnitude of this purchase — 36 percent of the total
        grant budget — or advised UC-Davis this was not a change in scope. Although NSF’s
        Award and Administration Guide does not provide guidelines to consider in assessing
        changes in scope, we found that the National Institutes of Health (NIH) has published such
        guidance.10 While other agency guidelines are not binding on NSF grants, the fact that this
        transaction substantially exceeded those thresholds supports our concerns with this purchase.
       UC-Davis did not provide new information to support the allowability of $131,789 and
        $53,719 of equipment purchases questioned in the draft audit report. The amendment
        extending the award in question clearly states that the award’s purpose was to test imaging
        devices using the equipment purchased with NSF funds. Since the equipment was not
        delivered before the award’s expiration, the testing could not have been completed during
        the award period; thus, the equipment did not benefit accomplishment of award objectives.
        The Program Officer’s statement that the equipment remains in use on the overall larger
        project further supports our contention that it did not benefit the award charged, which
        expired July 31, 2008, but rather should have been charged to another award.

        UC-Davis cited the Award and Administration Guide, specifically language stating that
        specialized research equipment ordered well in advance of the expiration date but delivered
        after an award expires could be allowable. However, the overarching principle for
        allowability requires direct benefit to accomplishing the objectives of the award. As
        explained above, the equipment did not benefit the award to which it was charged.
       We continue to question $8,786 claimed for equipment that was delivered well after the
        award expired. UC-Davis explained that the equipment was replacement for an identical
        item borrowed from another professor. UC-Davis did not provide support that the amount
        claimed is the correct allowable cost in accordance with OMB requirements.

Finding 2: $83,488 Questioned for Cost Transfers

Cost transfers are defined as the charging of an expenditure initially posted to one project or award
over to another project or award. We flagged two types of cost transfers for additional analysis —
transfers within the final 60 days of award periods and transfers made after awards expired. Federal
regulations prohibit awardees from incurring costs on Federal awards after the award’s expiration
date.11 In addition, Federal cost principles state that costs must be charged on the award they
benefit12 and that overruns on an award cannot be charged to another award that has available
funding.13 We flagged transfers made within the final 60 days of award periods because such
transactions indicate a risk of costs being transferred simply to liquidate available funds with costs
that do not benefit the award, and/or to recover losses on other awards.

correct.
10
   NIH published a list of 11 actions “that are likely to be considered a change in scope,” including (1) significant
rebudgeting, which NIH defines as deviations within a single direct cost budget category of more than 25 percent, and
(2) purchasing a unit of equipment exceeding $25,000.
11
   2 CFR, Part 215, Section 215.28
12
   OMB Circular A-21, Appendix A, Section C.4.a
13
   OMB Circular A-21, Appendix A, Section J.29
                                                                                                                        6
Based on our analysis of the support for these transfers, we questioned 30 cost transfer transactions,
totaling $83,488, that were made within the final 60 days of the award periods. The questioned costs
include $76,935 of direct costs and $6,553 of associated indirect costs.

Nineteen of the questioned transactions ($45,323) were for costs transferred from an award in the
two days before the expiration date to another award, which began immediately after the first award
expired. On July 30 and 31, 2009, UC-Davis transferred $45,323, in a series of three financial
journal entries, from an award expiring July 31, 2009, to an award starting August 1, 2009.14 UC-
Davis’s justification for the transfers was that it incurred the costs within 90 days prior to the starting
date of the new award. NSF permits awardees to incur allowable costs within 90 days of the start of
an award, provided the advanced funding is necessary for the effective and economical performance
of the project.15 We questioned the $45,323 transfer because the original award was in place to fund
the costs, thus UC-Davis did not have a need for advanced funding from the new award. Further,
cost summaries provided by UC-Davis showed some of the transferred costs were incurred as early
as November 2008, well over 90 days before the new award started, on August 1, 2009.

We also found that the award from which the $45,323 was transferred had been financially closed as
of March 31, 2010, with all Federal funds disbursed. Thus, had UC-Davis not transferred the costs
out of this award in the final two days of the award period onto an award with available funds, the
expiring award would have been in a loss position. Federal cost principles state that losses on one
award cannot be absorbed by another award with available funds.

In another example of an apparent transfer of a loss, we questioned $5,924 of direct costs and
$3,080 of associated indirect costs that were transferred in three transactions from one NSF award to
another award within a month of the first award’s expiration.16 UC-Davis’s financial report to NSF
for the quarter prior to the transfers shows all NSF funds had been expended. Additionally, the
report submitted after the transfers showed that all NSF funds had been spent. Thus, the award
would have been in a loss position if the transfers had not been made.

We also questioned $15,000 of workshop costs transferred to an NSF award less than two months
before the award expired.17 The transfer represented one-half of the $30,000 contributed by a UC-
Davis center to support a workshop conducted at another University of California campus. UC-
Davis did not demonstrate sufficiently how it determined that one-half of the total commitment
benefitted the NSF award. Further, UC-Davis stated that the NSF contribution was used to fund
speakers’ transportation, lodging, and other travel costs for workshop participants. UC-Davis did not
provide details of the travel costs paid with the NSF funds and as a result, we could not assess
whether these costs were allowable.

We questioned $1,518 of travel costs that were transferred onto on NSF award two weeks before its
expiration date.18 This transfer was one of a series of 22 transfers onto an NSF award in March 2009
for costs related to a workshop held six months earlier, in September 2008. Although the workshop

14
   Costs transferred from NSF Award No. 0645461 onto NSF Award No. 0844115.
15
   NSF Award and Administration Guide, Chapter V, Section A.2.b.
16
   Costs transferred from NSF Award No. 0344743 to NSF Award No. 0641696.
17
   NSF Award No. 0747699
18
   NSF Award No. 0447860
                                                                                                         7
to which the transfers were related took place in September 2008, support for the $1,518 transaction
shows that it was for an international airfare with travel dates of October 20–25, 2008, more than a
month after the workshop. UC-Davis did not explain its rationale for claiming this cost incurred a
month after the related workshop.

In another example, we questioned a $1,120 transfer made on May 15, 2008, for travel costs related
to a conference in September 2007, nearly eight months prior to the date of the cost transfer.19 This
transfer did not comply with the university’s policy on timeliness of transfers, which states, “If the
expense is being transferred to a Federal or Federal flow-through account, it must be recorded in the
general ledger within 120 days from the close of the month in which the original charge posts to the
ledger.” UC-Davis’s policy allows transfers beyond the 120-day deadline in “very rare occasions” if
the requester explains and documents the unavoidable circumstances that led to the late transfer. The
documents UC-Davis provided did not demonstrate that transferring the cost after the 120-day
transfer period was “unavoidable,” as UC-Davis policy required. We also found that UC-Davis’s
annual report to NSF listed students who attended the conference, but the list did not include the
name associated with the late cost transfer.

We identified $4,391 of direct costs and $2,261 of indirect costs transferred in three transactions
onto an NSF award one month before it expired.20 UC-Davis provided documents that showed the
transfers were a portion of monthly chemistry stores purchases totaling more than $19,000 over a
four-month period. The documents UC-Davis provided lacked sufficient detail to determine which
items among the numerous purchases comprised the $4,391 of direct cost transfers; thus, we were
not able to assess whether they were allowable, and we questioned these costs.

Finally, we questioned two cost transfers for which UC-Davis’s documentation did not support that
the costs benefitted the NSF award. In the first example, UC-Davis transferred $2,354 for direct
travel costs and $1,212 for associated indirect costs onto an NSF award for a trip that did not appear
to benefit the award.21 The university’s expense report stated that this travel was for
“Reconnaissance field work ... for future research,” not for the award to which the costs were
charged.

In the second example, the university transferred $1,305 for graduate student fees and health
insurance costs.22 UC-Davis’s final report for this award did not include this graduate student among
the students listed as having worked on the project.

UC-Davis Response

OIG’s draft audit report questioned $101,988 of cost transfers that occurred within the final 60 days
of the respective award periods and an additional $80,830 of cost transfers that were made after the
awards expired. UC-Davis agreed with $15,656 and disagreed with $86,332 of questioned costs
transfers that occurred within the final 60 days of the award periods. UC-Davis also disagreed with
$80,830 of questioned cost transfers that occurred after awards expired.


19
   NSF Award No. 0737745
20
   NSF Award No. 0614756
21
   NSF Award No. 0503625
22
   NSF Award No. 0716691
                                                                                                      8
The transfers UC-Davis agreed were questionable and committed to remove costs from the
respective awards include:

      Transfer of an apparent loss from one NSF award onto another NSF award, totaling $9,004
       of direct ($5,924) and associated indirect costs ($3,080).
      Transfer of supplies purchases totaling $6,652 of direct ($4,391) and associated indirect
       costs ($2,261) that lacked sufficient detail to assess allowability to the NSF award.

The university disagreed with the following transfers made within 60 days of award expiration and
questioned in the draft audit report.

      UC-Davis disagreed that 19 transfers, totaling $45,323, between two NSF awards should be
       questioned. UC-Davis stated that the second award was a continuation award and pointed to
       NSF’s policy that allows preaward costs incurred within 90 days prior to the effective date
       of an award.
      UC-Davis believes a $15,000 transfer onto an NSF award related to a workshop held at
       another University of California campus is allowable. The transfer is in line with the award
       proposal in which UC-Davis requested NSF funding for half the cost of sponsored
       workshops. UC-Davis noted that at the time the costs were incurred it did not require
       detailed cost records from its sister campuses but is developing procedures to “require more
       accountability.”
      UC-Davis provided additional support for its calculation of $5,774 of direct costs and
       $3,002 of associated indirect costs that were questioned in the draft audit report. OIG
       removed these questioned costs from the final report.
      UC-Davis disagreed with OIG’s questioning of $10,563 in a series of 22 cost transfers onto
       an NSF award within two weeks of its expiration date. The response stated, “The questioned
       costs represent six individual travel expense claims for workshop participants originally
       posting into the ledgers in November/December 2008. The subsequent cost transfers
       occurred in March 2009 which is a reasonable time period in which to make corrections.”
       Based on initial recording dates in November and December 2008, the associated transfers
       in March 2009 were within the 120-day limit established by UC-Davis policy. OIG removed
       $9,045 of questioned costs from the final audit report, but continues to question $1,518, as
       discussed above.
      UC-Davis disagreed with $1,120 questioned for a May 2008 transfer of costs related to a
       September 2007 conference. The response stated, “During award closeout it was discovered
       this travel had been posted to another account in error and the cost transfer was made to
       correct this error. UC Davis maintains its position that this was an allowable and allocable
       expense.” The response did not address OIG’s concerns about the timeliness of the cost
       transfer.
      UC-Davis did not agree with the draft report questioning $2,354 of direct travel costs and
       $1,212 of associated indirect costs transferred onto an NSF award less than a month before it
       expired. UC-Davis’s response stated, “The idea (of the NSF-funded project) was to foster
       mentorship through a camp-style field experience and this trip was taken to check out
       potential sites of geologic interest, assess camping facilities, possible routes, and estimate
       costs.” UC-Davis asserted that the costs were allowable as claimed on the NSF award.
      UC-Davis disagreed with $1,305 of graduate student fees and health insurance costs, plus
       $679 of indirect costs. First, UC-Davis stated that no indirect costs were charged in this cost
                                                                                                    9
       transfer. The response then stated the transfer was to correct an error when fees and benefits
       were omitted from the student’s salary and restated UC-Davis’s position that the costs are
       allowable.

The university disagreed with the following transfers made after awards had expired and questioned
in the draft audit report.

      UC-Davis explained that $15,194 of direct supplies costs and $7,901 of associated indirect
       costs were not charged to an NSF award when incurred due to concerns about the award
       budget. UC-Davis provided documentation showing the costs were in line with other regular
       supply charges on the award. We removed these questioned costs from the final audit report.
      UC-Davis provided documents showing that even after removing $9,657 of direct costs and
       $5,021 of associated indirect costs from an NSF award account after expiration, total
       expenditures exceeded approved NSF funding and thus no credit was due NSF after the cost
       transfers. We removed these questioned costs from the final audit report.
      UC-Davis disagreed with $14,072 of direct ($9,197) and indirect ($4,875) costs questioned
       in a series of 24 transactions from an expired NSF award onto an active award. The response
       highlighted the PI’s justification that the costs were directly related to the scope of the active
       award and therefore allowable. UC-Davis also provided weekly cash draw analyses for the
       transfer period. We removed the questioned costs from the final report.
      UC-Davis provided a transaction listing for an NSF award from which $7,559 of direct costs
       and $3,930 of associated indirect costs were transferred after expiration, but no credit was
       given to NSF. The transaction listing shows there were sufficient expenditures in excess of
       total NSF funding to absorb the credit. We removed the questioned costs from the final
       report.
      UC-Davis provided a transaction listing and cash reconciliation showing that NSF received
       appropriate credits for $4,141 of direct costs and $2,153 of associated indirect costs
       transferred from an NSF award after it expired. We removed the questioned costs from the
       final report.
      UC-Davis explained that two transfers totaling $3,518 corrected an error in posting of costs
       to an NSF doctoral dissertation improvement grant. OIG reviewed the university’s
       explanation and supporting documentation and removed the questioned costs from the final
       report.
      UC-Davis provided documentation to support its claim that a $3,124 indirect cost transfer
       was credited to NSF. We removed the questioned costs from the draft audit report.
      UC-Davis explained that $3,000 of direct benefits costs questioned in the draft audit report
       related to correction of a system error that caused the amount of a prior transfer of benefits
       costs to be incorrectly posted. OIG examined UC-Davis’s supporting documentation and
       removed the $3,000 of questioned direct costs from the final report, along with $1,560 of
       OIG-computed indirect costs that also were questioned in the draft report.

OIG Comments

We accepted UC-Davis’s responses for $99,330 of costs that were questioned in the draft audit
report and removed those questioned items from the final report. We continue to question $83,488,
including the $15,656 with which UC-Davis agreed. The following items summarize our
disagreements with UC-Davis’s response.
                                                                                                      10
          UC-Davis did not provide new documentation to support allowability of $45,323 transferred
           between two NSF awards as one was expiring and another beginning. NSF policy related to
           renewed support — when an ongoing project receives renewed funding under a new award
           number — states, “Costs incurred under the old award cannot be transferred to the new
           grant.”23 The costs in question were incurred prior to the July 31, 2009, expiration of the old
           award and before the new award’s effective date of August 1, 2009; thus, NSF policy
           prohibits transfer to the new award.

           We do not agree that the costs should be allowable based on NSF’s pre-award cost policy.
           NSF allows pre-award costs when “the advanced funding is necessary for the effective and
           economical conduct of the project.”24 Advanced funding from the new award was not
           necessary because there was an ongoing NSF award in effect when the costs were incurred.
           Furthermore, although the cost transfers took place within two days of the effective date of
           the new award, the transferred costs were incurred as early as November 2008, well over 90
           days before the award start date. UC-Davis did not address this issue in its response.
          UC-Davis did not provide new documentation for a questioned $15,000 cost transfer related
           to a workshop held at another University of California campus. As noted in UC-Davis’s
           response, the proposal requested NSF funding to support half the cost of sponsored
           workshops. UC-Davis acknowledged that it did not require cost records from its sister
           campuses and thus cannot provide cost records in support of the claim. We continue to
           question this $15,000 transfer.
          OIG continues to question $1,518 that is one of 22 transfers, totaling $10,563, questioned in
           the draft audit report. UC-Davis provided no additional information to support allowability
           of travel costs incurred in October 2008 for a workshop that took place a month earlier.
          UC-Davis did not provide new information supporting allowability of $1,120 of travel costs
           transferred onto an NSF award nearly eight months after they were incurred. In particular,
           UC-Davis did not provide justification for the untimely transfer or explanation of the
           unavoidable circumstances that prevented a timely cost transfer, as required by UC-Davis
           policy. We continue to question these costs.
          OIG continues to question $3,566 of direct ($2,354) and associated indirect ($1,212) costs
           related to travel costs charged for “reconnaissance field work ... for future research.” While
           the purpose of the NSF award may have included funding field research projects, UC-Davis
           did not provide evidence that this reconnaissance trip, in September 2008, resulted in “future
           research” prior to the end of the award on December 31, 2008.
          OIG continues to question $1,305 for graduate student fees and health insurance costs
           transferred onto an NSF award. UC-Davis did not provide support for its contention that this
           student worked on the award. As stated above, the final report submitted to NSF did not list
           this student among the graduate students who worked on the award. OIG did remove the
           $679 of indirect costs questioned in the draft audit report based on UC-Davis’s assertion that
           no indirect costs were allocated to this transaction.




23
     NSF Award and Administration Guide, Chapter I, Section E.2.
24
     NSF Award and Administration Guide, Chapter V, Section A.2.b.(i)(b)
                                                                                                       11
Finding 3: $39,578 of Questioned Entertainment Costs

We examined a selection of 26 transactions that were flagged for additional review by three or
more of our analytical tests. Our use of data analytics enabled us to test transactions that exhibit
certain risk factors. Total direct costs claimed in these 26 transactions were $113,831. We
identified a total of $39,578 in questioned entertainment costs.25

UC-Davis claimed $39,578 of questioned entertainment costs in a series of three transactions. The
first two transactions were for workshops held in August and November 2007. Costs for these
events were not charged to an NSF award until February 2008.26 The third transaction was for the
January 2008 annual conference of the Institute for Complex Adaptive Matter (ICAM).27 For each
of these events, UC-Davis allocated some costs to an NSF award and some costs to another
university account. While UC-Davis provided invoices showing the total costs charged to the
university for each event, it did not identify which costs were allocable to the NSF awards.
Additionally, in two of the three cases, UC-Davis appears to have simply split the total costs equally
between NSF and UC-Davis accounts. Federal cost principles state that a cost is allocable, and thus
allowable, to a particular project or award based on the relative benefits received. UC-Davis did not
provide sufficient evidence of its calculations to demonstrate how it determined exactly one-half
the costs of these two workshops were directly related to the NSF award. We questioned costs for
three workshops because UC-Davis did not identify which costs on invoices submitted were
allocable to the NSF award and did not provide evidence to support how it determined these
allocations.

The following summarizes the $39,578 of questioned entertainment costs:

         Superfluid Universe Workshop: Total charges for this August 2007 workshop were
          $15,334, of which $5,838 was paid during our audit period and split equally between the
          NSF award and another account. We questioned the $2,919 portion that was charged to
          NSF during the audit period.

         Heavy Fermion Workshop: We questioned the $13,026 UC-Davis charged NSF.
          This represents exactly one-half the total cost for the November 2007 workshop.

         ICAM Annual Conference: Total cost for the January 2008 conference was $43,633;
          UC-Davis charged $23,633 to NSF and $20,000 to another university account. We
          questioned the $23,633.

Further, invoices for the three events included a total of $4,881 for purchases of alcoholic
beverages, which are prohibited by Federal cost principles. Although UC-Davis claims no Federal
funds were used to purchase alcohol, we could not verify UC-Davis’s claim because the university
could not provide evidence for how it split costs between the NSF awards and other accounts. UC-
Davis should improve its accounting procedures in cases where Federal and nonfederal funds are
applied to a pool of transactions to clearly demonstrate which costs are paid with Federal money

25
   The term “entertainment costs” is based on UC-Davis’s accounting object code title.
26
   NSF Award No. 0747699
27
   NSF Award No. 0645461
                                                                                                       12
and reduce concerns that Federal funds were used for unallowable purposes.

UC-Davis Response

OIG’s draft audit report had questioned $68,162 of entertainment and supplies costs. UC-Davis
disagreed with all costs questioned in the draft audit report. The following summarizes the bases for
UC-Davis’s disagreement:

      UC-Davis stated that the $39,578 of questioned entertainment costs charged to two NSF
       awards supported ongoing programs of the Institute for Complex Adaptive Matter (ICAM)
       and pointed out that the proposal budget justification for one of the awards stated that UC-
       Davis was seeking NSF support for half of the cost of each ICAM workshop.

       The draft audit report also questioned the reasonableness of $320 charged for a conference
       attendee who arrived two days before the conference began and was charged a higher
       lodging rate by the hotel. UC-Davis explained that this individual was an IT support person
       for the conference and needed to arrive early to set up. UC-Davis stated that the hotel would
       not honor the conference lodging rate for the early arrival.

       UC-Davis reasserted its claim that charges for alcohol were paid from the portion of costs
       not allocated to NSF.
      OIG’s draft audit report had questioned $23,799 of direct entertainment and associated
       indirect costs. UC-Davis provided a detail of the individual charges that made up the
       $20,438 of direct costs claimed on the NSF award. We removed these questioned costs from
       the final report.
      The draft audit report had questioned $3,662 of direct supplies and associated indirect costs
       claimed on the award expiration date. UC-Davis provided a listing of all DNA extractions
       performed as well as the publication that resulted from the research. We removed these
       questioned costs from the final audit report.
      OIG’s draft audit report had questioned $1,000 of entertainment costs claimed for a
       nonrefundable deposit paid in October 2010 for an annual business meeting to be held later
       in the year. UC-Davis provided an invoice showing that the meeting did take place as
       scheduled. We removed these questioned costs from the final audit report.
      OIG had questioned $123 of entertainment costs claimed for 11 lunches in July 2010. UC-
       Davis stated the lunches were provided in connection with a summer training program and
       were included in the grant proposal budget. After reviewing the documents, we removed
       these questioned costs from the final audit report.

OIG Comments

We removed $28,584 that had been questioned in our draft audit report and continue to question
$39,578 for the reasons stated in the finding section above. UC-Davis did not provide a detailed
accounting of which costs among the many included on the various invoices made up the $39,578
of entertainment costs charged to NSF, as it did with other entertainment costs questioned in the
draft audit report.

UC-Davis did not provide evidence to support its claim that charges for alcohol provided at the
                                                                                                    13
workshops and conference were not paid by NSF funds. UC-Davis’s practice of simply splitting the
total cost, which included the alcohol, between NSF and non-NSF funds raises questions about UC-
Davis’s controls to prevent expenditure of Federal funds on unallowable purchases of alcoholic
beverages.

Finding 4: $14,164 of Questioned Purchase Card Transactions

We selected 39 purchase card transactions, totaling $108,807, for examination. The selected
transactions were claimed on 27 different NSF awards and represented all reported purchase card
transactions in excess of $2,000 each. We questioned five of the selected transactions, totaling
$14,164, claimed on five NSF awards.

Two of the questioned transactions, totaling $6,693, were to buy computers or technology-related
items for which UC-Davis charged the entire purchase cost to the respective NSF award, while its
explanations for the purchases indicate the items would benefit the NSF award and other work. UC-
Davis did not provide documentation to support what portions of the costs were allocable to the
NSF awards to which they were charged. The two questioned transactions involve purchases of
$4,47028 and $2,223.29

UC-Davis did not provide documentation supporting the allowability of two purchase card
transactions of $2,23030 and $2,031.31 In the case of the $2,230 charge, UC-Davis staff explained
that both the principal investigator and purchaser of this item were no longer employed by UC-
Davis so they were unable to obtain justification for the purchase. UC-Davis staff informed us that
they were awaiting justification from the principal investigator for the $2,031 purchase. We
discussed this finding with UC-Davis officials during our exit conference, but UC-Davis has not
provided additional justification.

We also questioned a $3,210 purchase card transaction. The costs associated with this purchase of a
laptop computer were transferred from one NSF award onto another in May 2008, after the
principal investigator was notified that the original award was in an overdraft position.32 We noted
that the proposal for the grant onto which the costs were moved stated that computer equipment
required for the project would be provided by funding from the university. Given that Federal cost
principles state that losses on another sponsored agreement cannot be absorbed by an award with
available funds, and that UC-Davis’s proposal stated that computer equipment required for the
project would be provided by internal sources, we questioned this $3,210 purchase card transaction.

UC-Davis Response

OIG’s draft audit report had questioned $26,113 of purchase card transactions. UC-Davis agreed
with $3,210 and disagreed with $22,903. UC-Davis disagreed with the following transactions
questioned in the draft audit report:


28
   NSF Award No. 0238348
29
   NSF Award No. 0402824
30
   NSF Award No. 0505677
31
   NSF Award No. 0554349
32
   Costs transferred from NSF Award No. 0238348 onto NSF Award No. 0520320.
                                                                                                   14
      UC-Davis disagreed with $4,470 questioned in OIG’s draft report. The university’s response
       stated that the PI split the cost of two servers between two awards based on her “best
       estimate” of the workload between the awards.
      UC-Davis disagreed with $3,543 and provided the PI’s justification for charging the full cost
       of the server to the NSF award. We removed these questioned costs from the final report.
      UC-Davis referred to the award proposal as evidence that a $3,268 laptop computer was
       needed for the award. We removed these questioned costs from the final report.
      UC-Davis referred to documentation that supported the use of a $2,382 computer for the
       award. We removed these questioned costs from the final report.
      The university disagreed with $2,223 questioned in OIG’s draft report and responded that it
       relies on the PI to allocate costs properly to sponsored and non-sponsored projects.
      UC-Davis disagreed with $2,230 questioned in OIG’s draft report. UC-Davis stated that the
       computer was needed for extensive calculations and it relies on the PI to allocate costs
       properly to sponsored and non-sponsored projects.
      UC-Davis disagreed with $2,031 questioned in OIG’s draft report. UC-Davis stated that the
       computer was needed for extensive calculations.
      UC-Davis disagreed with $2,756 and reiterated its position that the total purchase price of
       the computer in question was allocated between the NSF award and another account based
       on anticipated benefits. We removed these questioned costs from the final report.

OIG Comments

We removed $11,949 questioned in our draft audit report and continue to question $14,164,
including the $3,210, with which UC-Davis agreed. The following items summarize our
disagreements with UC-Davis’s response.

      UC-Davis responded that the $4,470 questioned was allocated between two NSF awards
       based on the PI’s workload computation. However, documents provided by UC-Davis show
       that the amount claimed was the total invoice cost of the two servers in question.
       Furthermore, UC-Davis’s final report for NSF Award No. 0238348 stated that the servers
       were also used by another researcher, yet there was no allocation of the costs to his research.
       We continue to question $4,470.
      UC-Davis responded that the $2,223 questioned computer purchase is allowable because the
       PI used it “to work on this particular NSF project and no other projects.” While prior
       statements from the PI indicate the computer was used for the NSF award, the statements
       also mention continued use after the end of the award. We continue to question $2,223
       because UC-Davis did not provide adequate support for its contention that the computer was
       only used in support of the award to which it was fully charged.
      Although UC-Davis responded that the PI stated the computer associated with the $2,230
       questioned purchased was needed for the award, UC-Davis did not provide support for its
       assertion. UC-Davis’s response contradicts earlier statements from UC-Davis that both the
       PI and computer purchaser had left the institution and could not be reached for further
       comment on the purchase. Since UC-Davis did not provide new information, we continue to
       question $2,230.
      UC-Davis responded that the workstation associated with the $2,031 questioned purchase
       was needed for the award, but did not provide support for its assertion. Prior to our draft
       report, UC-Davis was awaiting the PI’s justification. Since UC-Davis did not provide
                                                                                                    15
        support for its claim, we continue to question $2,031.

Finding 5: Over $1.8 Million of Salary and Benefits Were Unreasonable and Exceeded NSF
Limits
We found that UC-Davis claimed $1,810,62733 of questioned salary ($897,803), benefits
($289,371), and associated indirect costs ($623,453). The questioned costs involve salaries of faculty
members and other senior project personnel that exceeded limits in NSF policy.

At the time of our audit, NSF’s long-standing position was that research is a normal function of
faculty members and “[c]ompensation for time normally spent on research within the term of
appointment is deemed to be included within the faculty member’s regular organizational salary.”34
Given NSF’s position that faculty are paid by their institutions to conduct research during academic
appointment terms, it would be unreasonable for awardees to transfer this obligation to NSF by
requesting reimbursement for such research without NSF’s approval. NSF reinforced its position and
established compensation limits in the Award and Administration Guide, which sets forth NSF
policies and is applicable to all NSF grants unless otherwise noted in the award. During the period
we audited the Guide stated:

          NSF normally limits salary compensation for senior project personnel on awards
          made by the Foundation, to no more than two months of their regular salary in
          any one year. This limit includes salary received from all NSF funded grants. …
          As such, proposal budgets submitted should not request, and NSF-approved
          budgets will not include, funding for an individual investigator or co-principal
          investigator which exceeds two months of their regular year salary. If anticipated,
          any compensation for such personnel in excess of two months must be disclosed
          in the proposal budget, justified in the budget justification, and must be
          specifically approved by NSF in the award notice.35 [Emphasis added.]

While NSF generally considers inclusion of items in an approved budget as authorization to incur
those costs,36 this is not the case with senior personnel salaries that exceed two months in any one
year. The Award and Administration Guide stated, during the time of our audit, that NSF-approved
budgets will not include senior personnel salaries that exceed two months and that such salaries are
only allowable if they meet the three requirements described above, including specific approval by
NSF in the award notice. Furthermore, the Award and Administration Guide listed the components
of an NSF award instrument and distinguished the award notice as being separate from the award
budget and the proposal.37 Since the allowability requirement in effect during the time period of our
audit stated that NSF approval for salaries exceeding two months per year must be specifically
provided “in the award notice,” simply mentioning such salaries in a proposal and/or including them
in an award budget is not sufficient to establish allowability.

In addition, NSF policy allows awardees significant latitude to rebudget funds between budget

33
   UC-Davis claimed $22,945 of the questioned salaries in 2008, and $1,787,682 of the questioned salaries in 2009 and
2010, after a revision to NSF’s policy became effective in January 2009.
34
   NSF Grant Proposal Guide, Chapter II, Section C.2.g.(i)(a).
35
   NSF Award and Administration Guide, effective January 2009, Chapter V, Section B.1.a.(ii)(a).
36
   NSF Award and Administration Guide, Chapter V, Section A.3.b.(i).
37
   NSF Award and Administration Guide, Chapter I, Section B.1.
                                                                                                                    16
categories,38 but during the period of our audit, this authority did not allow awardees to rebudget
funds to pay senior personnel salaries that exceed two months in any one year. During the audit
period, salaries exceeding two months were allowable only if specifically approved by NSF in the
award notice. Awardees could not transform unallowable costs — in this case, senior personnel
salaries that exceeded two months per year and were not approved by NSF in the award notice —
into allowable costs simply by moving funds from other budget categories to pay them. NSF
recognized this in the Award and Administration Guide, which states, “... the grantee is authorized
to transfer funds from one budget category to another for allowable expenditures.”39

Using employee classification and salary information provided by UC-Davis, we examined senior
personnel salaries charged to NSF awards during calendar years 2009 and 2010. We identified 31
UC-Davis employees for whom salaries exceeding two months were charged on 35 different NSF
awards. We examined each of those awards to determine whether (1) UC-Davis had disclosed the
excess salaries in the respective proposal budgets, (2) UC-Davis justified the excess salaries in the
proposal budget justifications, and (3) NSF had specifically approved the excess salaries in the
award notices. We found $884,344 of salaries, $287,735 of benefits, and $615,603 of associated
indirect costs claimed for 31 employees on 35 NSF awards did not comply with the three
requirements in NSF policy. (See Appendix B for details of the questioned costs.)

The following table summarizes the questioned salaries claimed in 2009 and 2010 by number of
months in excess of two.

        Months                              Salary              Benefits      Indirect          Total
          Over       Instances          Questioned           Questioned    Questioned      Questioned
        0 to 0.99           26             $69,628              $19,960        $47,033       $136,621
        1 to 1.99           15            $141,964              $40,977        $96,108       $279,049
        2 to 2.99            9            $137,146              $46,586        $96,503       $280,235
        3 to 3.99            6            $126,233              $43,526        $89,565       $259,324
        4 to 4.99            4            $177,829              $59,190      $124,729        $361,748
        5 to 5.99            1             $32,916               $8,558        $21,981        $63,455
        6 to 6.99            1             $41,025              $13,949        $29,136        $84,110
        7 to 7.99            2            $107,624              $38,996        $76,243       $222,863
        8 to 8.99            1             $49,979              $15,993        $34,305       $100,277
                            65            $884,344             $287,735      $615,603      $1,787,682

While NSF’s Award and Administration Guide requires NSF approval for all senior personnel
salaries in excess of two months per year, we are particularly concerned about unapproved salaries
that exceed three months in a year. Since faculty academic appointments are generally nine months,
unapproved charges to NSF that exceed three months in a year could indicate an awardee
unreasonably transferring part of its research compensation obligation to NSF without NSF’s
approval. These unreasonable charges are shown in the preceding table in “Months Over” rows
greater than one and represent 39 of the 65 instances of questioned salaries, accounting for
$1,651,061 of questioned costs.


38
     NSF Award and Administration Guide, Chapter II, Section C.
39
     Ibid. (Emphasis added.)
                                                                                                    17
NSF’s salary limitation policy differed in 2008 from the policy in effect for 2009 and 2010. In
2008, NSF’s Award and Administration Guide limited salary compensation paid to faculty
members during the summer months to two-ninths of their regular annual salaries. The 2008
limitation applied to compensation received from all NSF awards. Although the 2008 guidance did
not include a provision for awardees to request NSF approval for summer salaries in excess of the
limit, we did not question such salaries if they were disclosed and justified in the proposal budget
and specifically approved by NSF in the award notice.

We identified six UC-Davis faculty members for whom 2008 summer salaries exceeding two-ninths
of their annual salary rates were charged on 12 different NSF awards. We examined each of the
awards to determine whether UC-Davis had disclosed and justified the excess salaries in the
respective proposal budgets and NSF had specifically approved the excess salaries in the award
notices. We found that $22,945 — $13,459 of salaries, $1,636 of benefits, and $7,850 of associated
indirect costs — claimed for five UC-Davis faculty members on 10 NSF awards exceeded the limit
and were not properly justified by UC-Davis and approved by NSF. (See Appendix B for details of
the questioned costs.)

UC-Davis Response

UC-Davis disagreed with all of the questioned salary, benefits, and associated indirect costs and
cited four main points.

      UC-Davis disagreed with OIG’s application of the two-month salary limitation to a number
       of NSF awards for which proposals were submitted prior to the January 5, 2009 effective
       date of the Award and Administration Guide. The university’s response states, “UC Davis
       believes that NSF-OIG audited the senior personnel salaries against a policy that was not in
       place at the issuance of the awards and was therefore not applicable and should not have
       been applied to these salaries.” According to UC-Davis, awards based on proposals
       submitted prior to January 5, 2009, should be evaluated against the prior criteria, which
       limited summer salaries for faculty to two-ninths of the annual rate.
      UC-Davis’s second point of contention involved the types of employees whose salaries were
       questioned. UC-Davis identified 30 employees who were serving in positions that did not
       qualify to receive summer compensation. Although the questioned costs were claimed
       during 2009 and 2010, they related to awards with proposals submitted prior to January
       2009 and UC-Davis asserts they should have been examined under the prior salary limitation
       that applied only to faculty salaries during the summer. These 30 employees accounted for
       $1,558,066 of the questioned costs.
      UC-Davis identified four employees who worked on awards with proposals submitted after
       January 5, 2009. UC-Davis claimed these salaries met the three allowability requirements
       included in NSF’s Award and Administration Guide and should not have been questioned.
       These four employees accounted for $169,548 of the questioned costs.
      UC-Davis believes the remaining $60,068 questioned for 2009 and 2010, and all of the 2008
       questioned salaries should be allowable under rebudgeting authority granted by NSF. The
       university’s response highlighted language in the Award and Administration Guide that
       requires action if there is a substantial decrease in time a PI or co-PI will spend on a project,
       but stated there is no similar language in this particular section addressing minor increases in
       time after an award is made.
                                                                                                     18
Finally, UC-Davis commented on OIG’s draft report finding of a possible change in the scope of an
award that did not appear to receive the proposed level of commitment from senior university
personnel. UC-Davis stated there was extensive NSF involvement and communication throughout
the award and that annual reports to NSF further demonstrated the awardee’s senior personnel
commitments to the project. We accept UC-Davis’s response and have removed this finding and the
associated recommendation from the final audit report.

OIG Comments

We continue to question $1,787,682 of salaries, benefits, and associated indirect costs claimed
during 2009 and 2010. Our draft audit report had questioned $23,191 of salaries and associated
costs claimed during 2008; however, we identified $246 questioned for two employees that were the
result of regular salary increases and not unapproved summer salaries. We removed the $246 and
continue to question the remaining $22,945 claimed in 2008. Our responses to UC-Davis’s
contentions follow.

      Regarding UC-Davis’s contention that the January 5, 2009 revision to the Award and
       Administration Guide only applies to awards based on proposals submitted after that date,
       we point to the language of the document itself. In the section, Summary of Significant
       Changes, the Guide states, “[The section establishing requirements for allowable salaries]
       has undergone a major revision of NSF’s salary reimbursement policy. In general, the
       Foundation will now limit salary compensation for senior project personnel to no more than
       two months of their regular salary in any one year.” The Guide further states, “This Guide is
       applicable to NSF grants and cooperative agreements, unless noted otherwise in the award
       instrument.” Given NSF’s statements that the guide is applicable to awards and that NSF
       will now limit salary compensation in accordance with policy, we concluded that the
       January 2009 revision is applicable to awards in effect on January 5, 2009, regardless of
       their proposal submission dates.
      UC-Davis’s second point of disagreement is based on application of the pre-January 2009
       limitation to certain types of employees’ salaries during 2009 and 2010. As stated above, the
       language contained in the January 2009 revision of the Award and Administration indicates
       it was applicable to awards in effect at that time. UC-Davis’s assertion that the 30
       questioned salaries should be allowable does not have a basis in NSF policy.
      We reviewed the award documents for four questioned salaries UC-Davis claimed were
       approved in accordance with the Award and Administration Guide. We found none of the
       four met the requirement for specific approval in the award notice. As stated above, NSF
       defines three distinct components of an award instrument, two of which are the award notice
       and the award budget. While the four salaries in question were included in the award
       budgets, there was no specific approval in the respective award notices. The Award and
       Administration Guide states that approval for senior personnel salaries exceeding two
       months must be specifically given in the award notice.
      We disagree with UC-Davis’s assertion that $60,068 of the questioned salaries in 2009 and
       2010, and all of the 2008 questioned salaries, should be allowable under rebudgeting
       authority. As stated above, an awardee cannot transform costs from unallowable to
       allowable simply by moving funds from other budget categories to pay them. UC-Davis did
       not provide documentation of NSF’s approval, in the respective award notices, of the
                                                                                                 19
      questioned salaries.

Recommendations

We recommend that NSF’s Director of the Division of Institution and Award Support (DIAS)
request UC-Davis to:

      1.   Repay to NSF the $2,330,503 of questioned costs claimed by UC-Davis during the
           audit period. Specifically:
              a. $382,646 of equipment charges for which UC-Davis could not
                   document allowability on NSF awards;
              b. $83,488 of questionable cost transfers;
              c. $39,578 of questioned entertainment costs;
              d. $14,164 of questioned purchase card transactions; and
              e. $1,810,627 of salary, benefits, and associated indirect costs for faculty and
                   other senior personnel that were unreasonable and exceeded NSF limitations.

      2.   Strengthen the administrative and management controls and processes over
           equipment costs charged to NSF awards to ensure costs are reasonable and necessary
           to accomplish the scope and objectives of the NSF award(s) to which they were
           charged.

      3.   Strengthen the administrative and management controls and processes over cost
           transfers to ensure costs charged to NSF awards reflect reasonable and necessary
           costs of the award and that the transfers complied with UC-Davis policies and
           procedures.

      4.   Strengthen accounting procedures in cases where Federal and nonfederal funds
           are applied to a pool of transactions to clearly demonstrate which costs are paid
           with Federal money and reduce concerns that Federal funds were used for
           unallowable purposes.

      5.   Strengthen the administrative and management controls and processes over
           allocation of senior personnel salaries to NSF awards to ensure compliance with
           NSF’s published limitations.




                                                                                                 20
Appendix A: UC-Davis Response to Draft Audit Report




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27
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29
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31
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33
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37
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40
41
Appendix B: Summary of Questioned Salaries, Benefits, and Indirect Costs

2009–2010 Senior Personnel Salaries Questioned
We found $884,344 of salaries, $287,735 of fringe benefits, and $615,603 of associated indirect
costs claimed for 31 employees on 35 NSF awards did not comply with all three allowability
criteria in NSF’s Award and Administration Guide. On one of the 35 questioned awards — NSF
Award No. 0120999 — the award notice specifically approved UC-Davis to charge salaries in
excess of two months per year for four senior positions. Our initial test found that UC-Davis had
charged salaries in excess of two months per year for seven employees during 2009 and 2010. One
of the seven was among those specifically approved by NSF. UC-Davis did not claim salaries in
excess of two months per year for employees occupying the other three approved positions. We
accepted salaries as claimed for the approved employee and questioned the salaries in excess of
two months per year for the remaining six employees for which NSF did not give specific approval.

Of the remaining 34 questioned awards, none received specific NSF approval for senior personnel
salaries in excess of two months per employee, per year and we question all such salaries, benefits,
and associated indirect costs.40 The following table summarizes questioned salaries by NSF award
number and UC-Davis employee ID number.

            Award/Employee       Sum of Salary      Sum of Benefits     Sum of Indirect
            Number               Questioned         Questioned          Questioned           Total Questioned
            0120999                 $364,867.00         $127,145.00          $258,433.00           $750,445.00
              105487227              $10,632.00           $3,934.00            $7,574.00            $22,140.00
              614680429              $61,345.00          $23,901.00           $44,740.00           $129,986.00
              789751872              $83,557.00          $27,559.00           $58,330.00           $169,446.00
              798076584              $95,760.00          $28,045.00           $65,445.00           $189,250.00
              870890092              $13,688.00           $4,403.00             $9,479.00           $27,570.00
              928077668              $99,885.00          $39,303.00           $72,865.00           $212,053.00
            0457660                    $6,167.00          $1,665.00            $4,073.00            $11,905.00
              819461211               $6,167.00           $1,665.00            $4,073.00            $11,905.00
            0531935                  $21,373.00           $5,771.00           $14,270.00            $41,414.00
              091071472              $21,373.00           $5,771.00           $14,270.00            $41,414.00
            0549676                    $717.00             $179.00              $466.00              $1,362.00
              828499749                 $717.00             $179.00              $466.00             $1,362.00
            0612326                  $29,398.00          $10,734.00           $20,926.00            $61,058.00
              456293406                 $760.00              $76.00              $443.00             $1,279.00
            558262408                $13,839.00           $5,536.00           $10,075.00            $29,450.00
              983324179              $14,799.00           $5,122.00           $10,408.00            $30,329.00
            0619139                    $1,194.00            $119.00              $696.00              $2,009.00




40
  Nine of the 34 questioned proposals met two of the three allowability criteria by including the additional senior
personnel salaries in the proposal budget and justifying the excess in the proposal justification. An additional seven
proposals met the first allowability criterion of including salaries in excess of two months in the proposal budget.
                                                                                                                         42
  456293406    $1,194.00     $119.00       $696.00     $2,009.00
0621523        $4,538.00     $545.00     $2,643.00     $7,726.00
 491052023     $4,538.00      $545.00    $2,643.00     $7,726.00
 0630033      $36,692.00   $11,885.00   $25,335.00    $73,912.00
  282175017    $4,800.00      $48.00     $2,521.00     $7,369.00
456293406        $706.00      $71.00       $412.00     $1,189.00
 558262408    $15,105.00    $6,042.00   $10,996.00    $32,143.00
983324179     $16,081.00    $5,724.00   $11,406.00    $33,211.00
 0636985        $517.00      $165.00      $361.00      $1,043.00
072568876        $517.00      $165.00      $361.00     $1,043.00
  0653984     $12,350.00    $5,745.00    $9,504.00    $27,599.00
205399132     $12,350.00    $5,745.00    $9,504.00    $27,599.00
  0701916      $9,270.00    $3,810.00    $6,921.00    $20,001.00
 177545720     $1,057.00       $32.00      $566.00     $1,655.00
 213596265     $8,213.00    $3,778.00    $6,355.00    $18,346.00
 0705427      $45,090.00    $9,391.00   $28,557.00    $83,038.00
665404083     $45,090.00    $9,391.00   $28,557.00    $83,038.00
  0716332     $27,018.00    $5,267.00   $16,925.00    $49,210.00
570163618     $27,018.00    $5,267.00   $16,925.00    $49,210.00
  0722079     $59,349.00   $22,393.00   $42,873.00   $124,615.00
  983324179   $59,349.00   $22,393.00   $42,873.00   $124,615.00
0727576       $14,403.00    $3,719.00    $9,573.00    $27,695.00
  828499749   $14,403.00    $3,719.00    $9,573.00    $27,695.00
0745353        $3,980.00       $40.00    $2,090.00     $6,110.00
  785317793    $3,980.00       $40.00    $2,090.00     $6,110.00
0753407       $17,020.00    $7,148.00   $12,809.00    $36,977.00
  353235724   $17,020.00    $7,148.00   $12,809.00    $36,977.00
0755053        $2,420.00     $290.00     $1,409.00     $4,119.00
  491052023    $2,420.00      $290.00    $1,409.00     $4,119.00
0755578        $3,072.00    $1,290.00    $2,312.00     $6,674.00
  353235724    $3,072.00    $1,290.00    $2,312.00     $6,674.00
0801430       $21,883.00    $5,908.00   $14,606.00    $42,397.00
  091071472   $21,883.00    $5,908.00   $14,606.00    $42,397.00
0807702       $50,402.00   $16,128.00   $34,601.00   $101,131.00
  072568876   $50,402.00   $16,128.00   $34,601.00   $101,131.00
0822393       $31,243.00   $12,497.00   $23,182.00    $66,922.00
  126459858   $31,243.00   $12,497.00   $23,182.00    $66,922.00
0827021        $9,424.00    $1,131.00    $5,594.00    $16,149.00
  079781738    $9,424.00    $1,131.00    $5,594.00    $16,149.00
0852090        $6,369.00    $2,971.00    $4,917.00    $14,257.00
  205399132    $6,369.00    $2,971.00    $4,917.00    $14,257.00
0852891       $11,729.00    $4,497.00    $8,448.00    $24,674.00


                                                                   43
           870890092          $1,265.00         $416.00         $885.00          $2,566.00
         928077668           $10,464.00       $4,081.00        $7,563.00        $22,108.00
           0855092            $2,370.00         $166.00        $1,344.00         $3,880.00
         353883002            $2,370.00         $166.00        $1,344.00         $3,880.00
           0917945            $1,179.00         $236.00         $750.00          $2,165.00
         306537101            $1,179.00         $236.00          $750.00        $2,165.00
           0920454           $43,952.00      $11,096.00       $29,039.00       $84,087.00
         809836653           $43,952.00      $11,096.00       $29,039.00        $84,087.00
           0927255            $3,625.00        $652.00         $2,267.00         $6,544.00
           857024905          $3,625.00         $652.00        $2,267.00         $6,544.00
         0943992              $5,450.00         $927.00        $3,380.00         $9,757.00
           703384115          $5,450.00         $927.00        $3,380.00        $9,757.00
         0949415             $17,327.00       $8,837.00       $13,867.00       $40,031.00
           468490180         $17,327.00       $8,837.00       $13,867.00       $40,031.00
         0957264             $18,359.00       $4,957.00       $12,357.00       $35,673.00
           918257833         $18,359.00       $4,957.00       $12,357.00        $35,673.00
         0961412               $838.00         $218.00          $560.00          $1,616.00
           828499749            $838.00         $218.00         $560.00          $1,616.00
         1014838                $484.00         $164.00         $343.00           $991.00
           870890092            $484.00         $164.00         $343.00           $991.00
         1041089                $275.00          $49.00         $172.00           $496.00
           857024905            $275.00          $49.00         $172.00           $496.00
         Grand Total        $884,344.00     $287,735.00      $615,603.00     $1,787,682.00

2008 Faculty Summer Salaries Questioned
We found $13,459 of salaries, $1,636 of fringe benefits, and $7,850 of associated indirect costs
claimed for five UC-Davis faculty members on 10 NSF awards did not comply with allowability
criteria in NSF’s Award and Administration Guide. In none of the proposal budget justifications for
the 10 questioned awards did UC-Davis disclose that the faculty members identified in our testing
would be charging summer salaries in excess of two-ninths of the annual salary rates. Furthermore,
none of the 10 award notices specifically approved UC-Davis to charge excess summer salaries.
The following table summarizes questioned salaries by NSF award number and UC-Davis
employee ID number.




                                                                                                44
Award/Employee   Sum of Salary   Sum of Benefits   Sum of Indirect   Total
Number           Questioned      Questioned        Questioned        Questioned
0421492             $9,156.00       $1,126.00        $5,347.00       $15,629.00
  515791044          $9,156.00      $1,126.00        $5,347.00       $15,629.00
0448613                $98.00          $12.00           $57.00          $167.00
  324828482            $98.00          $12.00           $57.00          $167.00
0520126                $96.00          $12.00           $56.00          $164.00
  324828482            $96.00          $12.00           $56.00          $164.00
0533368               $109.00          $12.00           $63.00          $184.00
  456293406           $109.00          $12.00           $63.00          $184.00
0612326               $429.00          $46.00          $247.00          $722.00
  456293406           $429.00          $46.00          $247.00          $722.00
0619139               $323.00          $35.00          $186.00          $544.00
  456293406           $323.00          $35.00          $186.00          $544.00
0621523             $2,160.00         $263.00        $1,260.00        $3,683.00
  491052023          $2,160.00        $263.00        $1,260.00        $3,683.00
0646273               $296.00          $34.00          $172.00          $502.00
  320715584           $296.00          $34.00          $172.00          $502.00
0755053               $628.00          $76.00          $366.00        $1,070.00
  491052023           $628.00          $76.00          $366.00        $1,070.00
0829536               $164.00          $20.00           $96.00          $280.00
  491052023           $164.00          $20.00           $96.00          $280.00
Grand Total        $13,459.00       $1,636.00        $7,850.00       $22,945.00




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Appendix C: Objectives, Scope, and Methodology

The objectives of this performance audit were to determine whether (1) UC-Davis has adequate
systems in place to account for and safeguard NSF funds, and (2) costs claimed by UC-Davis under
a number of NSF awards were reasonable, allowable, and allocable and in conformity with NSF
award terms and conditions and applicable Federal financial assistance award requirements. To
accomplish the first objective, we reviewed UC-Davis policies, procedures, and systems, as well as
relevant policies and procedures imposed on UC-Davis by the University of California, Office of
the President (UCOP). We also interviewed appropriate UC-Davis personnel responsible for
establishing and implementing control policies, procedures, and systems and performed tests of
UC-Davis systems to assess their effectiveness in providing reliable management information and
safeguarding NSF funds. Weaknesses identified are discussed in relevant sections of this report. To
the extent weaknesses affected our ability to rely on UC-Davis data, we limited reliance on those
data and expanded substantive tests of transactions.

To accomplish the second objective of determining reasonableness, allowability, and allocability
of costs, we examined all awards for which costs were reported to NSF during the period of
January 1, 2008, through December 31, 2010. This provided an audit universe of $142,277,798 in
costs claimed by UC-Davis under 783 NSF awards. Our work required reliance on computer-
processed data obtained from UC-Davis and NSF. At our request, UC-Davis provided detailed
transaction data for all costs charged to NSF awards during the audit period. We obtained NSF data
by directly accessing NSF’s various data systems. To select transactions for further review, we
designed and performed automated tests of UC-Davis and NSF data to identify areas of risk and
conducted detailed reviews of transactions in those areas.

We assessed the reliability of the data provided by UC-Davis by (1) comparing costs charged to
NSF award accounts within UC-Davis’s accounting records to reported net expenditures, as
reflected in UC-Davis’s quarterly financial reports submitted to NSF for the corresponding periods,
performing General Ledger to Sub-Ledger reconciliations of UC-Davis accounting data, and
reviewing and testing the parameters UC-Davis used to extract transaction data from its accounting
records and systems. Based on our testing, we found UC-Davis’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 databases were accurate or reliable; however the independent
auditor’s report on NSF’s financial statements for fiscal years 2010 and 2011 found no reportable
instances in which NSF’s financial management systems did not substantially comply with
applicable requirements.41 As this office monitored the work of the auditor, we believe a
reasonable basis exists for relying on the accuracy and completeness of NSF’s data.

In assessing the allowability of costs reported to NSF by UC-Davis, we also gained an
understanding of the internal control structure applicable to the scope of this audit through
interviews with UC-Davis staff, review of policies and procedures, conducting walkthroughs as
applicable and reviews of general ledger transactions and accounting system and database
documentation. We determined UC-Davis’s compliance with UC-Davis and UCOP policies and
procedures, as well as the following:

41
  The financial statements were audited by an independent public accounting firm operating under a contract monitored
by the NSF Office of Inspector General.
                                                                                                                    46
       Office of Management and Budget Circular A-21, Cost Principles for Educational
        Institutions (2 CFR, Part 220)
       Office of Management and Budget Circular A-110, Uniform Administrative
        Requirements for Grants and Agreements with Institutions of Higher Education,
        Hospitals, and Other Non-profit Organizations (2 CFR, Part 215)
       National Science Foundation Award and Administration Guide
       National Science Foundation Federal Demonstration Partnership Terms and Conditions
       Award-specific terms and conditions

We identified instances of noncompliance resulting in questioned costs that are discussed in the
relevant sections of this report.

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.




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