oversight

Research Vessel Oceanus at Oregon State University Audit of Incurred Costs Claimed on National Science Foundation Awards for the Period January 1, 2012 through December 31, 2015

Published by the National Science Foundation, Office of Inspector General on 2017-03-23.

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

                                                          At a Glance
                                     Research Vessel Oceanus at Oregon State University: 

                                             Audit of Incurred Costs Claimed on 

                                             National Science Foundation Awards 

                                     For the Period January 1, 2012 to December 31, 2015

Report No. OIG 17-1-004 | March 23, 2017

Why We Did This Audit                     What We Found
We received a complaint alleging that
                                          OSU claimed more than $11 million during our audit period
Oregon State University (OSU) was
                                          under two cooperative agreements for maintenance and
maintaining a surplus of Federal funds
                                          operations of the Oceanus research vessel. OSU generally
for operations and maintenance of the
                                          complied with Federal and university requirements for
Oceanus research vessel (R/V), and
                                          requesting and managing Federal funding, but based some
had not accurately accounted for and
                                          funding requests on budgeted amounts rather than actual
reported its expenditures to NSF. This
                                          expenses. As a result, OSU had a surplus of $315,016 of
report addresses both allegations.
                                          unspent funds, which it did not report to NSF. OSU needs to
                                          return the unspent funds to NSF and ensure its annual reports
                                          and funding requests reflect unspent funds. Additionally,
What We Recommend                         OSU needs to return $3,050 in salary and benefit expenses

We recommend NSF request that             for an employee who did not work on the R/V Oceanus.

OSU return the $315,016 of unspent

operations and maintenance funds and 

the $3,050 in improper salary and 

benefits expenses; limit future

requests to amounts that already have

been spent or will be spent within 3

days; and ensure annual financial

reports and funding requests properly 

account for and apply any remaining 

funding balances.

                                          Awardee Response
                                          OSU does not concur with our first recommendation. It
                                          noted, however, that the methodology for cost accumulation
                                          and drawdowns of Major Overhaul and Stabilization
                                          Account funds should be modernized, and that it is
                                          committed to working with NSF to implement
                                          modifications. OSU concurred with the remaining two
Contact Us                                recommendations.

For further information, contact us at

(703) 292-7100 or oig@nsf.gov.
                       National Science Foundation • Office oflnspector General
                       4201 Wilson Boulevard, Srute I-1135, Arlington, Virginia 22230

MEMORANDUM 


Date:           March 23, 2017

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. 17-1-004
                Research Vessel Oceanus at Oregon State University

This memo transmits our report for the audit of costs totaling approximately $11 million charged
by Oregon State University to two cooperative agreements with the National Science Foundation
for operation and maintenance of the Research Vessel Oceanus during the period January 1,
2012, to December 31, 2015. The objective of this performance audit was to determine if costs
claimed are allowable, allocable, reasonable and in conformity with NSF award terms and
conditions and applicable federal requirements.

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 corr~ctive 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: 	     Dr. Joan Ferrini-Mundy, Chief Operating Officer (Acting), OD
          Fae Korsmo, Senior Advisor, OD
          Christina Sarris, Assistant General Counsel, OD
          Teresa Grancorvitz, Deputy Office Head, Office of Budget, Finance, and Award
          Management
          Pamela Hawkins, Director of Operations, Division of Grants and Agreements
          Alex Wynnyk, Staff Associate for Oversight, DIAS
Rochelle Ray, Branch Chief, Resolution and Advanced Monitoring Branch, DIAS
Carrie Davison, Lead Analyst for Audit Resolution, Resolution and Advanced Monitoring
Branch, DIAS
John Anderson, Chair, Oversight Committee, NSB
Ken Chason, Counsel to the Inspector General, OIG
Rose Dufour, Program Director, Ship Operations, GEO




                                       2

Research Vessel Oceanus at Oregon State University

         Audit of Incurred Costs Claimed on

        National Science Foundation Awards

For the Period January 1, 2012 to December 31, 2015





          National Science Foundation

           Office of Inspector General



                  March 23, 2017

                   OIG 17-1-004

                                        Office of Inspector General
                                                  National Science Foundation



Table of Contents

Background ..........................................................................................................................2

Results of Audit ...................................................................................................................2

       OSU Maintained a Surplus of Federal Funds for MOSA ........................................3

       OSU Could Not Provide Assurance It Will Spend MOSA Funds as Intended .......3

       OSU Submitted Inaccurate Annual Reports and Overstated MOSA Funding

       Requirements ...........................................................................................................4

       OSU Should Return Improper Salary and Related Charges ....................................4

Conclusion ...........................................................................................................................5

Recommendations................................................................................................................5

Appendix A: Awardee Response .........................................................................................6

Appendix B: Objective, Scope, and Methodology ..............................................................8

Appendix C: OIG Contact and Staff Acknowledgments.....................................................9



Abbreviations

MOSA                  Major Overhaul and Stabilization Account
NSF                   National Science Foundations
OIG                   Office of Inspector General
OMB                   Office of Management and Budget
OSU                   Oregon State University
R/V                   Research Vessel




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Background

The National Science Foundation (NSF) funds operations and maintenance costs for the research
vessel (R/V) Oceanus, operated by Oregon State University (OSU), under a cooperative
agreement that is renewed every 5 years.

OSU budgets for two types of ship costs. The first type is day-to-day operations of the ship and
the second, known as the Major Overhaul and Stabilization Account (MOSA), covers large-scale
maintenance and repair.

Our audit included all costs incurred from January 1, 2012, through December 31, 2015 for
operations and maintenance of R/V Oceanus. This included the final 8 months of the cooperative
agreement that ended August 31, 2012,1 and the current cooperative agreement, which became
effective April 1, 2012.2

Figure 1: The research vessel (R/V) Oceanus




Source: OSU website



Results of Audit 

OSU claimed more than $11 million under two cooperative agreements for the operation and
maintenance of the R/V Oceanus from January 1, 2012, through December 31, 2015. OSU
generally complied with Federal and university requirements for requesting and managing
Federal funding, but based some funding requests on budgeted amounts rather than actual
expenses. As a result, OSU had a surplus of $315,016, which it did not report to NSF. OSU
needs to return the unspent funds to NSF and ensure its annual reports and funding requests
reflect unspent funds. Additionally, OSU needs to return $3,050 in salary and benefit expenses
claimed to NSF for an employee who did not work on the R/V Oceanus.

1
    NSF Cooperative Agreement No. 0504814
2
    NSF Cooperative Agreement No. 1232396

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                                    National Science Foundation




OSU Maintained a Surplus of Federal Funds for MOSA
OSU requested advances of NSF funds for budgeted MOSA expenses, rather than actual
expenses. In doing so, OSU did not comply with OMB, NSF, and university requirements for
managing Federal funds3 and generated a surplus of NSF funds that exceeded $513,000 at one
point. As of December 31, 2015, the end of our audit period, OSU was holding more than
$315,000 of Federal funds that were not tied to expenditures. Returning the surplus to NSF and
coordinating future drawdowns more closely with expenditure needs will bring OSU into
compliance with Federal and university requirements and result in a better use of Federal funds.

Summary of OSU’s Response: OSU did not agree with this finding. However, it noted that the
methodology for cost accumulation and drawdowns of MOSA funds should be modernized and
committed to work with NSF to implement modifications. OSU stated that its practice for
accumulating and expending MOSA funds was based on guidance contained in NSF’s 2011 ship
operations proposal guidelines General Programmatic Terms and Conditions for Ship Operations
Awards, and from NSF’s Ship Operations Program Officer. OSU stated that MOSA funding is a
component of the daily rate charged to all ship users, including NSF, and asserted that the
unexpended MOSA balance cited in the audit report includes funds collected from NSF as well
as other Federal and Nonfederal users. It also stated that MOSA is critical to complete repairs
and that if funds are returned, it is unclear if this would conflict with General Programmatic
Conditions. Finally, OSU stated it reached out to other ship operators for best practices and that
it is exploring implementing a Specialized Service Facility model for more transparent ship
operations.

OIG’s Additional Comments: We reviewed the guidance OSU cited as the basis for its practice
of drawing MOSA funds in advance of the actual need. We did not find any direction to ignore,
or waive, OMB, NSF, or university requirements for managing Federal funds. OSU did not
provide documentation of correspondence from the Program Officer directing it to treat MOSA
funds differently from other program expenditures. OSU did not provide support for its assertion
that the MOSA surplus noted in the report came from other Federal and Nonfederal sources. Our
analysis of NSF drawdowns found no indication that the surplus includes funds from other
sources. We reaffirm this finding. We express no opinion on the Specialized Service Facility best
practice as it is outside the scope of this audit.

OSU Could Not Provide Assurance It Will Spend MOSA Funds as Intended
OSU did not have supporting and source documentation for the MOSA funds it received and we
could not match the amounts OSU received to individual expenditures, as required by OMB

3
 2 CFR 220 Appendix J; 2 CFR 215.22; 2 CFR 200.305; NSF’s Award and Administration Guide (NSF 15-1),
Chapter III, Section C.2.a.; and OSU’s Fiscal Policy Manual Number 105.400.160 B


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                                        National Science Foundation



Circular A-110 and 2 CFR 200.4 Rather than the required expenditure records, OSU provided
budget pages from its annual funding proposals and memos of account transfers instead of
receipts. Although past MOSA expenditures appeared to be reasonable, allocable, and allowable,
OSU could not provide assurance the funds received in advance of actual need will be spent as
intended.

Summary of OSU’s Response: OSU agreed with this finding and recommendation.

OSU Submitted Inaccurate Annual Reports and Overstated MOSA Funding
Requirements
In its annual reports to NSF, OSU incorrectly reported spending all the MOSA funds it received
from NSF in the same year they were received. Because OSU’s annual reports did not account
for the funds it had not spent in each year, the funding request for each subsequent year was
overstated. If OSU had accurately reported the unspent MOSA balances, it could have requested
less NSF funding. Table 1 illustrates MOSA funding requests and expenses during the audit
period.

Table 1: MOSA Funding Requests and Expenditures, by year
     Year           MOSA                  MOSA                Annual         Cumulative
                Funding Requests        Expenditures         Difference        Surplus
     2012                $619,284          $598,588             $20,696        $20,696
     2013                $697,295          $204,644            $492,651       $513,347
     2014                $562,800         $1,050,872         ($488,072)        $25,275
     2015                $305,200            $15,459           $289,741       $315,016
     Total             $2,184,579         $1,869,563           $315,016

Source: OIG Analysis of NSF and OSU budget and financial records

Summary of OSU’s Response: OSU agreed with this finding and recommendation.

OSU Should Return Improper Salary and Related Charges
OSU charged $5,130 of improper salary, benefits, and indirect costs for an employee who did not
work on R/V Oceanus. OSU identified the charges during our audit and brought the issue to our
attention. OSU provided documentation showing it removed $2,080 of these incorrect charges
from the current cooperative agreement in March 2016. Of the remaining $3,050 of the
questioned costs, $2,426 was charged to the prior cooperative agreement that expired August 31,
2012, and $624 was charged to the current cooperative agreement. OSU needs to return the
remaining $3,050 to NSF to correct the improper charges.


4
    OMB Circular A-110, Sections 215.21(b)(2) and (b)(7) and 2 CFR 200, Section 200.302(b)(3)

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                                National Science Foundation



Summary of OSU’s response: OSU concurs with this finding and recommendation.


Conclusion

OSU’s practice of requesting Federal funds for MOSA in advance of actual need is not allowable
under Federal requirements and placed NSF funds at heightened risk of misuse. Additionally,
OSU could not provide assurance it will spend MOSA funds as intended because the university
did not maintain the required supporting and source documentation. Finally, because OSU did
not accurately reflect the MOSA funding surplus in its annual reports to NSF, OSU overstated its
annual budget requests and thus accumulated a surplus of NSF funds.


Recommendations

We recommend that NSF’s Director of the Division of Institution and Award Support request
that OSU:

   1.	 Return the $315,016 of unexpended MOSA funds to NSF and limit future NSF
       drawdowns to amounts already expended or anticipated to be expended within 3 days of
       the drawdown, as required by NSF policy.

   2.	 Work with the NSF Program Officer to ensure annual financial reports and funding
       requests properly account for and apply any residual funding balances.

   3.	 Return the $3,050 charged for an employee who did not work on the ship.




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                                           National Science Foundation




Appendix A: Awardee Response 




      SU
                      Cynthia. Sagers, PhD
                      Vico Pr~sident for Research
                      Oregcm Slate University, A312 Kerr Administration Building. Corvallis, Oregon 97331-2140
                      T 541-737-0864 1F541-737-9041 I Cynthia.Sagers@oregons!ate.edy
 Oregon State
     UNIVE RSITY
                      htlp:ffresearch.oregonstate.edul



January 9, 2017



Daniel J. Buchtel
Director, Externa l Audit
National Science Foundation, OIG
999 18th Street, Suite 1155
Denver, co 80202



Oregon State University has review ed the draft report from the National Science Foundation's Office of
Inspector General received on December 9, 2016. We appreciate the opportunity t.o review and
comment on the proposed recommend ation in advance of the report' s Issuance.

The NSF IG team with whom we worked has been professional, and responsive to our q uestions, and
working with them has been a positive experience.

Oregon State University's responses to t he t hree recommendations are provided below:

Recommendation 1 - Return $315,016 of unexpended MOSA Funds t NSF and limit future drawdowns
to amounts already expended or anticipated to be expended within three days ofthe drawdown.

Oregon State University {OSU) agrees that the current cost accumulation methodology for the Major
Overhaul and Stabilization Acco unt (MOSA) and its associated drawdowns should be modernized. We
are committed to working with the NSF to Implement modifications.

OSU has been accumulating and expending MOSA funds, based upon the 2011 ship operations proposal
submission guidelines (NSF 04·052), the General Programmatic Terms and Condit ions for NSF 04·052
that was referenced In the award document (copy attached), and guidance from the NSF Ship
Operat ions Progra m Director. All MOSA funds are held in an account specifically desfgnated for major
overall and repair expenses and are only expended after review and approval by the NSF Program Staff.

MOSA funding rs a component of the daily rate charged to all vessel users and the unexpended MOSA
balance reflected i n t he audit report Includes funds collected from NSF, the Office of Naval Research, t he
National Oceanic and Atmospheric Administration, and the State of Oregon as we ll as other vessel users.
These funds are set aside for required major overhaul and re pair expense s.such as main engine reb uilds
or dry docklngs. For example, the R/V Oceanus is due for dry dock work in February of 2017. Upon
approval for these required major overhaul/repa ir expenditures by the NSF Project Officer, the
une)(pended MOSA funds will be utilized to cover those expenses.




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                                          National Science Foundation




  The unexpended MOSA Funds are critical to complete necessary repairs and refu rbishment for th e
  vessel to sail safely in support of already· funded science,. and scheduled voyages, for the oceanographic
  research community for the period covered by t he cooperative agreement. If OSU returns the
  recommended amount, it is unclear whether this action would put us in conflict w ith the Genera l
  Prog rammatic Condit ions. OSU is committed to continuing this conversat ion w ith NSF.

  As a result of our discussion wit h t he IG team, we reached out to other vessel operators in t he
  University· Natlonal Oceanographic Laboratory System (UNOLS) fleet to understand the best MOSA­
  costing practic.e s being ut ilized. This research ident ified t hat a Specialized Service Facility (SSF) model for
  ship operations has become a common practice by UNOLS vessel opera t ors. The SSF model presents a
  much clearer and mor·e t rans parent model for accumulating M OSA funds for deferred maintenance. It
  also ls In line with t he guidance provided in 2 CFR 200.468. OSU will work with NSF to explore
  implementing t his model for the R/V Oceanus ope rations once the existing cooperative agreement ends
  in 2017.

  Recommendation 2 - Work with 'the NSF Program Officer to ensure annualfinancial reports and
  funding requests properly account for and apply any re$/dual funding balances.

  OS U concurs with the recommendation. As noted in our response t o Recommendat ion 1, we welcome
  t he opport unity to work w it h t he NSF Program Officer t o incorporate best practices and will obtain
  written guidance to support these practices.

  Recommendation 3 - Return the $3,050 charged for an employee who did not work on the ship.

  OSU concurs wit h the recommendation, and will prompt ly return these fu nds when Instructions are
  provided. We will cont inue to enhance our internal controls to prevent a reoccurre nce.

  OSU appreciates the Inspector General's views, recommendations and observat ions. We believe t his
  audit has provided an opportuni ty to review the university's current practices and identify areas for
  improvement. Further, t he audit fu lly supports OSU's commitment t o compliance and alignment with
  bes t practlces.

  Tha nk you again for t he opportunity to provide comment on t he draft repo rt before lts final Issuance.

  Sincerely,




  Cyn hia Sagers, PhD
  Vice President fo r Research




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Appendix B: Objective, Scope, and Methodology

The objective of this performance audit was to determine if costs claimed are allowable,
allocable, reasonable, and in conformity with NSF award terms and conditions and applicable
Federal requirements. To accomplish this objective, we examined both awards for which costs
were reported to NSF during the period of January 1, 2012, through December 31, 2015. This
provided an audit universe of $11,402,944 in costs claimed by OSU under two cooperative
agreements. Our work required reliance on computer-processed data obtained from OSU and
NSF. OSU provided detailed transaction data for examined costs charged to NSF awards during
the audit period. We obtained NSF data by directly accessing NSF’s various data systems.

In assessing the allowability of costs OSU reported to NSF, we also gained an understanding of
the internal control structure applicable to the scope of this audit through interviewing OSU staff,
reviewing policies and procedures, conducting site visits as applicable, and reviewing ledger
transactions and accounting system and database documentation. We assessed OSU’s
compliance with internal university and Oregon University System policies and procedures, as
well as the following:

   	 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)

    Office of Management and Budget Uniform Administrative Requirements, Cost
      Principles, and Audit Requirements for Federal Awards (2 CFR, Part 200)
    National Science Foundation Proposal and Award Policies and Procedures Guide, Part II:
      Award & Administration Guide
    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 between January 2016 and September 2016 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.

We held an exit conference with OSU management on September 16, 2016.




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                               National Science Foundation




Appendix C: OIG Contact and Staff Acknowledgments

Daniel Buchtel, Director, External Audits; Keith Nackerud, Senior Management Analyst; Jeremy
Hall, Management Analyst; Darrell Drake, Independent Report Referencer; Billy McCain,
Independent Report Referencer; Holly Snow, Audit Manager; and Elizabeth Argeris,
Communications Analyst, made key contributions to this report.




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