oversight

Performance Audit of Incurred Costs - Scripps Institution of Oceanography, University of California, San Diego

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

                                     Performance Audit of Incurred Costs —

                                      Scripps Institution of Oceanography,

                                       University of California, San Diego

Report No. 17-1-005, March 23, 2017

Audit Objective                              Audit Results
The National Science Foundation, Office
of Inspector General (OIG) engaged           Costs Scripps charged to its NSF-sponsored agreements did
WithumSmith+Brown (WSB) to conduct           not comply with Federal and NSF award requirements. The
a performance audit of incurred costs at     auditors questioned $111,516 of costs claimed by Scripps
Scripps Institution of Oceanography,         during the audit period. Specifically, auditors found:
University of California, San Diego              • $95,203 in equipment, materials, and supplies expenses
(Scripps) for the period April 1, 2012, to           unreasonably purchased near award expiration;
March 31, 2015. The audit universe               • $7,723 in unallowable indirect costs;
included more than $110 million in costs         • $4,700 in unreasonable participant support
claimed to NSF. The objective of the                 expenditures; and
audit was to determine if costs claimed          • $3,890 in unallocable transactions.
by Scripps during this period were
allocable, allowable, reasonable, and in
conformity with NSF award terms and
conditions and applicable Federal
financial assistance requirements.

WSB is responsible for the attached
auditor’s report and the conclusions
expressed in this report. The NSF OIG        Awardee Response
does not express any opinion on the
conclusions presented in WSB’s audit          Of the four findings in the report, Scripps agreed with two
report.                                       and disagreed with two. Scripps contends that the costs
                                              within the findings are allowable and disagreed with the
                                              auditors’ interpretation of the Federal guidance. Scripps also
Recommendations                               did not agree with the auditors’ statements that there were
The auditors included four findings in        weaknesses in management and administrative controls.
the report with associated                    After taking Scripps’ comments into consideration, the
recommendations for NSF to resolve the        auditors continue to question the costs and left the findings
questioned costs and to ensure Scripps        unchanged.
strengthens administrative and
management controls.                          Scripps’ response is attached in its entirety to the report as
                                              Appendix A.
Contact Information
For further information, contact the NSF
OIG at (703) 292-7100 or oig@nsf.gov.
                         National Science Foundation • Office oflnspector General
                         4201 Wilson Boulevard, Suite 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. 17-1-005
                  Scripps Institution of Oceanography, University of California, San Diego

This memo transmits the WithumSmith+Brown (WSB) report for the audit of costs totaling
approximately $110 million charged by Scripps Institution of Oceanography, University of
California, San Diego (Scripps) to .its sponsored agreements with the National Science
Foundation during the period April 1, 2012, to March 31, 2015 . The objective of the audit was to
determine if costs claimed by Scripps during this period were allocable, allowable, reasonable,
and in conformity with NSF award terms and conditions and applicable Federal financial
assistance 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 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.

OIG Oversight of Audit

To fulfill our responsibilities under generally accepted government auditing standards, the Office of
Inspector General:

      •	   reviewed WSB's approach and planning of the audit;
      •	   evaluated the qualifications and independence of the auditors;
      •	   monitored the progress ofthe audit at key points;
      •	   coordinated periodic meetings with WSB and NSF officials, as necessary, to discuss audit
           progress, findings, and recommendations;
    • 	 reviewed the audit report prepared by WSB to ensure compliance with generally accepted
        government auditing standards; and
    • 	 coordinated issuance of the audit 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 Keith Nackerud at 303-844-5745.

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




                                                  2

     Scripps Institution of Oceanography

      University of California San Diego

         Audit of Incurred Costs for

     National Science Foundation Awards

For the Period April 1, 2012 to March 31, 2015

TABLE OF CONTENTS



                                                                                                                                                        Page

Independent Auditors’ Report....................................................................................................................... 1

Results in Brief ............................................................................................................................................. 1

Findings and Recommendations ................................................................................................................... 2

Appendix A: Awardee Response .................................................................................................................. 9

Appendix B: Objectives, Scope, and Methodology .................................................................................... 15

Appendix C: Questioned Cost Summary by Award ................................................................................... 16





ACRONYMS

 ARRA                           American Recovery and Reinvestment Act
 CFR                            Code of Federal Regulation
 DIAS                           Division of Institution and Award Support
 NSF                            National Science Foundation
 OIG                            Office of Inspector General
 OMB                            Office of Management and Budget
 PI                             Principal Investigator
 P.L.                           Public Law
 SIO                            Scripps Institution of Oceanography
Independent Auditors’ Report

The National Science Foundation (NSF) is an independent Federal agency created by the National Science
Foundation Act of 1950 (P.L. 810-507). Its mission is “to promote the progress of science; to advance the
national health, prosperity, and welfare; and to secure the national defense.” NSF is also committed to
ensuring an adequate supply of the Nation’s scientists, engineers, and science educators. NSF funds
research and education in science and engineering by awarding grants and contracts to educational and
research institutions in all parts of the United States. Through grants, cooperative agreements, and contracts,
NSF enters into relationships with non-federal organizations to fund research education initiatives and assist
in supporting internal program operations. The Scripps Institution of Oceanography, University of
California San Diego (SIO) is an NSF award recipient.

The mission of SIO is to communicate scientific understanding of the oceans, atmosphere, Earth, and other
planets for the benefit of society and the environment. In fiscal year 2015, SIO received $124 million in
sponsored Federal research dollars. NSF was the largest contributor at $32 million. Because SIO receives
significant NSF awards, the NSF Office of Inspector General (OIG) selected SIO for audit.

WithumSmith+Brown, under contract with NSF OIG, audited the costs claimed by SIO on NSF awards for
the period beginning April 1, 2012, and ending March 31, 2015. The audit objective was to determine
whether the costs claimed complied with NSF award terms and conditions and Federal financial assistance
requirements. We conducted this performance audit in accordance with generally accepted government
auditing standards, which require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on
our audit objectives. Our objectives, scope, methodology, and criteria are detailed in Appendix B.

Results in Brief

To aid in determining reasonableness, allowability, and allocability of costs, we obtained from SIO all
award transactions comprising costs claimed on NSF awards during the period of April 1, 2012, through
March 31, 2015. This provided an audit universe of approximately $110 million, in approximately 63,000
transactions, across 291 individual NSF awards. For transaction testing we judgmentally selected 283
transactions totaling $2.0 million and utilized a data analytics approach to identify potential risk areas. We
also performed additional non-transaction based tests as we deemed necessary.

Of the $2.0 million in the transaction testing, our audit questioned $111,516 of costs claimed on nine NSF
awards because SIO did not comply with Federal and NSF award requirements. Specifically, we noted:
$95,203 in equipment, materials, and supplies expenses unreasonably purchased near award expiration;
$7,723 in unallowable indirect costs; $4,700 in unreasonable participant support expenditures; and $3,890
in unallocable transactions. These questioned costs resulted in four areas identified where SIO controls
could be improved to ensure compliance with laws and regulations.

SIO reviewed and agreed with the facts for $7,723 in unallowable indirect costs and $3,890 in unallocable
costs. SIO did not agree with $99,903 in questioned costs: 1) $95,203 in equipment, materials, and supplies
expenses unreasonably purchased near award expiration; and 2) $4,700 in unreasonable participant support
expenditures. The findings are outlined in our report and presented by award in Appendix C. Additional
information concerning the questioned items was provided separately by OIG to the Division of Institution
and Award Support (DIAS), Resolution and Advanced Monitoring Branch.



                                                                                                             1
Findings and Recommendations

Finding 1 – Equipment, Materials, and Supplies Unreasonably Purchased Near Award Expiration

We found that equipment, materials, and supply expenses totaling $95,203 charged to five NSF awards
were not necessary or reasonable in accordance with Federal cost principles.

According to 2 Code of Federal Regulation (CFR) 220 (2 CFR 220), Appendix A, Section C, to be allowable
for a Federal grant, a cost must be allocable to the Federal award and be necessary and reasonable for the
administration and performance of the award. Furthermore, Section C.3 provides that a reasonable cost is
one that a “prudent person” would have incurred under similar circumstances.

2 CFR 220, Appendix A, Section C.4 states that a cost is allocable to a sponsored agreement if it is incurred
solely to advance the work under the sponsored agreement or it benefits both the sponsored agreement and
other work of the institution in proportions that can be approximated through use of reasonable methods.
The recipient institution is responsible for ensuring that costs charged to a sponsored agreement are
allowable, allocable, and reasonable under these cost principles. Section A states, “the accounting practices
of individual colleges and universities must support the accumulation of costs as required by the principles,
and must provide for adequate documentation to support costs charged to sponsored agreements.”

Additionally, NSF’s Award and Administrative Guide, Chapter V, Section A.2.c states that a grantee should
not purchase items of equipment, computing devices, or restock materials and supplies where there is little
or no time left for such items to be utilized in the actual conduct of the research.

Specifically, we questioned the $95,203 below on five awards for equipment and supplies purchased near
the award expiration that did not appear to benefit the award or that did not appear reasonable or prudent
considering the limited time remaining on the awards.

    	 $67,545 ($43,577 plus $23,968 associated indirect costs) for the purchase of 11 recorders on one
       award. The recorders were shipped between July 14 and July 24, 2014, on a 4-year award that
       expired on August 31, 2014. The recorders were shipped with only 3 percent of the grant life
       remaining (48 out of 1,460 days). Per SIO, “these recorders were replacements/upgrades of
       recorders that were lost in the Antarctic on birds that did not return from sea.... As indicated in our
       budget justification, we had recorders on hand at the beginning of the award, and these were used
       during this project's field seasons. We also indicated that the NSF would be used to replace the lost
       recorders.” Per the revised NSF award budget justification, SIO had 10 recorders on hand at the
       beginning of the award ready for deployment and had budgeted $7,800 to cover the potential
       damage or loss at sea of two recorders. It is unreasonable that SIO, with 3 percent of the grant life
       remaining, spent $67,545, 17 percent of the total NSF award budget, on recorders that were never
       used on the NSF award.
    	 $12,024 ($7,782 plus $4,242 associated indirect costs) for the purchase of a Mac Pro, MacBook
       Pro, iPad Air, and computer accessories on one award. The MacBook Pro, iPad Air, and computer
       accessories were purchased on August 26, 2014, and the Mac Pro was purchased on August 29,
       2014, on a 6-year award that expired on August 31, 2014. The MacBook Pro, iPad Air, and
       computer accessories were available for 5 days prior to the award expiration (5 out of 2,190 days),
       and the Mac Pro was available for 2 days prior to the award expiration (2 out of 2,190 days).
    	 $7,231 ($4,681 plus $2,550 associated indirect costs) for the purchase of a Mac Pro. The computer
       was purchased on April 5, 2012, 25 days prior to the award expiration on April 30, 2012. The entire
       award budget was meant to cover the cost of securing ship time on a vessel; the purchase of the
       computer does not appear reasonable or necessary.
                                                                                                             1
    	 $4,255 ($2,754 plus $1,501 associated indirect costs) for the purchase of a Navigator Pump. The
       item was shipped on August 14, 2014, on a 4-year award that expired on August 31, 2014. The
       pump was available for 1 percent of the grant life (17 out of 1,446 days).
    	 $4,148 ($2,685 plus $1,463 associated indirect costs) for the purchase of a MacBook Pro and an
       iMac. The two computers were purchased on May 11, 2013, on a 3-year award that expired on July
       31, 2013. The computers were available for 7 percent of the grant life (81 out of 1,095 days). The
       PI stated, the “iMac replaced my old iMac, which was so slow it was unusable, and the MacBook
       was an addition to compliment [sic] my workstation and also to allow mobility….” The purchase
       of two computers at the end of the grant life does not appear prudent or necessary.

SIO personnel did not adequately review the expenditures charged to the NSF awards, which resulted in
unreasonable costs. Without an effective process in place to ensure the reasonableness of equipment,
materials, and supplies expenses, there is the increased risk that funds may not be used as required to
accomplish the necessary project objectives in accordance with Federal and NSF requirements.

Recommendation 1:

We recommend that the NSF’s Director of the DIAS address and resolve the following SIO
recommendations:

        1) Work with NSF to resolve the $95,203 of questioned costs; and
        2) Strengthen the administrative and management controls and processes for reviewing and
           approving equipment, materials, and supplies charged to NSF awards.

Summary of Awardee Response:

SIO disagrees with the conclusions for the $95,203 of questioned costs.

SIO does not concur with questioned costs totaling $67,545 for the purchase of 11 recorders. SIO stated
that all of the researcher’s federally funded awards are so closely interrelated that it is unreasonable to
prorate the expenses. The proposal stated that 10 recorders were on hand at the beginning of the project,
and the budgeted expenses were to cover recorders that were damaged or lost. SIO stated that the
replacement recorders will be used for continuing research funded by NSF and the National Oceanic and
Atmospheric Administration (pending awards).

SIO does not concur with questioned costs totaling $12,024 for the purchase of a Mac Pro, MacBook Pro,
iPad Air, and computer accessories. SIO believes the computers and related accessories were reasonable
and necessary, and stated that the purchase continues to be used in support of NSF-sponsored research.

SIO does not concur with questioned costs totaling $7,231 for the purchase of a Mac Pro. SIO stated that
the award budget was funded as a supplement to an American Recovery and Reinvestment Act award and
the funds requested were for securing additional ship time on a vessel. The additional ship time allowed the
researchers to collect a large volume of data and SIO believes the purchase of the computer was reasonable
and necessary to carry out the data quality control and analysis.

SIO does not concur with questioned costs totaling $4,255 for the repair of a Navigator Pump. SIO stated
the pump repair was needed to validate data collected throughout the life of the project and without the
pump repair the PI would not have had conclusive verified results to report.

SIO does not concur with questioned costs totaling $4,148 for the purchase of a MacBook Pro and iMac.
SIO believes the computers were necessary to achieve the aims of the project.
                                                                                                    2
See Appendix A for the complete SIO response.

Auditor Comments:

The purchase of 11 recorders costing $67,545 was not reasonable. Per the revised NSF award budget
justification, SIO had 10 recorders on hand at the beginning of the award ready for deployment and had
budgeted $7,800 to cover the potential damage or loss at sea of two recorders. It is unreasonable that SIO,
with 3 percent of the grant life remaining, spent $67,545, 17 percent of the total NSF award budget, on
recorders that were never used on this NSF award. Therefore, the report finding remains as previously
stated.

The purchase of a Mac Pro, MacBook Pro, iPad Air, and computer accessories, costing $12,024, with just
5 days remaining on the award, was not reasonable or prudent. Although the computers may have benefitted
the research efforts, given the limited time remaining on the NSF award, that benefit is greater for future
research projects. Therefore, the report finding related to these matters remains as previously stated.

The purchase of a MacPro costing $7,321 was not reasonable. The entire award budget was meant to cover
the cost of securing ship time on a vessel; the computer should have been charged to the larger project, not
the supplemental award. Additionally, per NSF’s Award and Administrative Guide, Chapter I, Section E.2,
residual funds remaining in the old grant cannot be transferred to the new grant. Therefore, the report
finding related to this matter remains as previously stated.

The repair of the Navigator Pump costing $4,255 with less than 1 percent of the grant life remaining was
not reasonable. Although the pump may have benefitted the research efforts, given the limited time
remaining on the NSF award, that benefit is greater for future research projects. Therefore, the report finding
related to this matter remains as previously stated.

The purchase of a MacBook Pro and an iMac costing $4,148 for use by the PI at the end of the grant life
was not prudent or necessary. Therefore, the report finding related to these matters remains as previously
stated.

Finding 2 – Unallowable Indirect Costs

We questioned $7,723 in unallowable indirect costs charged to two NSF awards. The indirect costs were
assessed against equipment purchases, which is unallowable in accordance with Federal cost principles.

According to 2 CFR 220, Appendix A, Section G.2,

        “F&A [facilities and administrative] costs shall be distributed to applicable sponsored agreements
        and other benefiting activities within each major function on the basis of modified total direct costs,
        consisting of all salaries and wages, fringe benefits, materials and supplies, services, travel, and
        subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of
        the period covered by the subgrant or subcontract). Equipment, capital expenditures, charges for
        patient care and tuition remission, rental costs, scholarships, and fellowships as well as the portion
        of each subgrant and subcontract in excess of $25,000 shall be excluded from modified total direct
        costs.”




                                                                                                             3
Specifically, we questioned the indirect costs assessed against the following purchases:

       $5,545 for indirect costs charged on the purchase of computer servers.
       $2,178 for indirect costs charged on the purchase of a broadband transducer.

SIO personnel incorrectly coded the above transactions as non-inventorial equipment, and, therefore, they
were assessed indirect costs. Without an effective process in place to ensure equipment is excluded from
modified total direct costs, there is the increased risk that funds may not be spent in accordance with Federal
requirements. SIO indicated that it has performed corrective actions to remove $7,723 in unallowable costs
from the awards in question. NSF, during the audit resolution process, should ensure that the awards have
been credited as appropriate.

Recommendation 2:

We recommend that the NSF’s Director of the DIAS address and resolve the following SIO
recommendations:

        1) Work with NSF to ensure the $7,723 of questioned costs have been removed from NSF
           awards; and
        2) Strengthen the administrative and management controls and processes for reviewing and
           approving indirect costs charged to NSF awards.

Summary of Awardee Response:

SIO agrees with the conclusion for $7,723 of questioned costs. SIO agrees to refund $5,545 and has taken
corrective action to reverse the $2,178.

See Appendix A for the complete SIO response.

Auditor Comments:

SIO’s comment related to the $7,723 is responsive to the issue noted in this finding. Once NSF determines
that the recommendation has been adequately addressed and the $7,723 in questioned costs has been
returned, this issue should be closed.

Finding 3 – Unreasonable Participant Support Expenditures

We questioned $4,700 charged to one NSF award for rental of the Scripps Forum facility to hold a
workshop, which was not in accordance with Federal cost principles.

According to 2 CFR 220, Appendix A, Section C, to be allowable for a Federal grant, a cost must be
allocable to the Federal award and be necessary and reasonable for the administration and performance of
the award. Furthermore, Appendix A, Section C.3, provides that a reasonable cost is one that a “prudent
person would have incurred under similar circumstances.”

The total NSF award budget was $52,998, of which $47,564 was budgeted for participant support funds
requested “for 37 workshop participants’ travel, subsistence and lodging,” to attend the workshop held at
the Scripps Forum facility. The budget also included $3,800 for materials, supplies, and salaries. The cost
of the Scripps Forum facility rental was not included in the NSF award budget.



                                                                                                             4
Per the NSF Grant Proposal Guide (effective Dec. 26, 2014) Chapter II, (C.2.g.v), participant support refers
to costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid
to or on behalf of participants or trainees in connection with NSF-sponsored conferences or training
projects. Funds provided for participant support may not be used for other categories of expense without
specific prior NSF written approval.

The $4,700 for rental of the Scripps Forum facility was not participant support, and SIO did not receive
prior NSF written approval to use participant support funds for the facility rental. The $4,700 that was
charged to rent the facility could have been used on additional workshop participants. Additionally, the
$4,700 for the cost of the facility rental was transferred on August 13, 2013, from another award that was
over budget and expired on August 31, 2013.

Finally, per the “Facilities, Equipment and Other Resources” statement in the award proposal, access to the
Scripps Forum was necessary and available. According to the NSF Grant Proposal Guide, the Foundation
expects the resources identified will be provided, or made available, should the proposal be funded. It is
not reasonable to charge NSF $4,700 for the facility rental that the proposal indicated would be available.

SIO personnel did not adequately review the expenditures charged to the NSF award, which resulted in
unreasonable participant support costs. Without an effective process in place to ensure the reasonableness
of expenditures, there is the increased risk that funds may not be used as required to accomplish the
necessary project objectives in accordance with Federal and NSF requirements.

Recommendation 3:

We recommend that the NSF’s Director of the DIAS address and resolve the following SIO
recommendations:

        1) Work with NSF to resolve the $4,700 of questioned costs; and
        2) Strengthen the administrative and management controls and processes for reviewing and
           approving transactions charged to NSF awards.

Summary of Awardee Response:

SIO does not concur with questioned costs totaling $4,700 for the rental of the Scripps Forum facility. SIO
stated that this NSF grant was awarded to fund the EarthCube End User Workshop, the proposal discusses
the use of Scripps Forum as the venue for this conference, and the cost of the venue was specifically targeted
for participant support. SIO believes the venue costs were meaningful and necessary expenses in support
of each participant attending and contributing to the EarthCube End User Workshop.

See Appendix A for the complete SIO response.

Auditor Comments:

The $4,700 for rental of the Scripps Forum facility was not participant support, and SIO did not receive
prior NSF written approval to use participant support funds for the facility rental. Per the NSF award budget,
participant support funds were requested to fund 37 workshop participants’ travel, subsistence and lodging;
the cost of the Scripps Forum facility rental was not included in the NSF award budget. Per the “Facilities,
Equipment and Other Resources” statement in the award proposal, access to the Scripps Forum was
necessary and available. According to the NSF Grant Proposal Guide, the grantee is required to obtain
written authorization before reallocating participant support funds and the Foundation expects the resources

                                                                                                            5
identified will be provided should the proposal be funded. Therefore, the report finding related to these
matters remains as previously stated.

Finding 4 – Unallocable Transactions

We questioned $3,890 charged to one award for the purchase of a data storage system that was not in
accordance with Federal cost principles.

2 CFR 220, Appendix A, Section C.4 states that a cost is allocable to a sponsored agreement if it is incurred
solely to advance the work under the sponsored agreement or it benefits both the sponsored agreement and
other work of the institution in proportions that can be approximated through the use of reasonable methods.
The recipient institution is responsible for ensuring that costs charged to a sponsored agreement are
allowable, allocable, and reasonable under these cost principles.

SIO purchased parts for a data storage system costing $7,780 ($6,592 plus $1,188 associated indirect costs)
and charged the entire cost to the NSF award; however, SIO personnel stated that the data storage system
was only used 50 percent on the NSF award. We are questioning 50 percent of the $7,780 charged to NSF
because it was not allocable to the NSF award; $3,890 ($3,296 plus $594 associated indirect costs).

SIO personnel did not adequately review the expenditures charged to NSF awards, which resulted in
unallocable costs. Without an effective process in place to ensure costs are allocable to the award, there is
the increased risk that funds may not be used as required to accomplish the necessary project objectives in
accordance with Federal and NSF requirements.

Recommendation 4:

We recommend that the NSF’s Director of the DIAS address and resolve the following SIO
recommendations:

        1) Work with NSF to resolve the $3,890 of questioned costs; and
        2) Strengthen the administrative and management controls and processes for reviewing and
           approving transactions charged to NSF awards.

Summary of Awardee Response:

SIO agrees with the conclusion for $3,890 of questioned costs and agrees to refund $3,890.

See Appendix A for the complete SIO response.

Auditor Comments:

SIO’s comment related to the $3,890 is responsive to the issue noted in this finding. Once NSF determines
that the recommendation has been adequately addressed and the $3,890 in questioned costs has been
returned, this issue should be closed.




WithumSmith+Brown, PC
3/21/17


                                                                                                           6
APPENDICES





              7
                                                                                                                                APPENDIX A
AWARDEE RESPONSE




      UNfVERSITY OF CALIFORNIA, SAN DIEGO 	                                                                         UCSD




     l\UDIT & MAllll\GBMBNT ADVISORY SERVICES 	                                        9500 GI LMAN DRIV!<
     TEL: tlm) 534-3617                                                                I.A JQJ, 1,.A. CALI FORNIA 920\IJ-0919
     f AX; (858) 534-7632 fAX


                                                                February 6, 2017




     WithumSmith+Brown PC
     Two Logan Square, Suite 2001
     Eighteeth & Arch Streets
     P hiladelphia, Pennsylvania 19 l 03-2726


     The University of California, San Diego (Un iversity) submits the following comments in response to
     Wi l h11mSmith~ Brown's (WS B) draft report for the Audit o f Incurred Costs fo r National Science Fouodaiion
     (NSF) Awards to Scripps lns tilution of Oceanography (SIO) for the period April I, 2012 to March 3 1, 20 15.

      WSB identified four findings on nine NSF awards. Responses to each are provided below.

      1. 	 Equipinent, Materials, a nd Supplies Unreasonably P urch ased near Awn rd ~ plra lion
           WBS found thal equipment, materials, 311d supply expenses totaling $95,203 charged to five NSF awards
           were not necessary or reaso nable in accordance with Federal cost principles.

         A. $67,545 (S43.577 plus $23,968 associated indirecl costs) for the purchase of 11 rceordcrs on one awa.rd.

             llnjversitv Response:

             T he University does not concur with the auditor's conclusion. All of the researcher's federelly funded
             research awards are in support of the same techniques and goals, measuring blood oxygen depletion, heart
             rate, and other physiological variab les in marine mammals and emperor pengu ins. These projects are so
             closely interrelated that it is unreasonable to prorate the expenses as the loggers wou ld benefit m011y of
             the researcher's ongoing projects. Recorders fro m other projects that were current in 2010-201 1 (and
             o thers th at were st ill functional from prior proje<:ts) were utilized in lhe polar programs projecl. Use of
             this pool of recorders among different projects allows projects to be accomplished in these times o f
             budge! restrai nt~ . Some of the recorders have been used in the researcher' s Federal Demonstration
             Partnership (FOP) Office of Naval Research (ONR) project with sea lions and he will continue to use
             them on current and future l~DP related sponsored research.

             The proposal for this award included a lmdget for replacement of digital ECG re<:orders and TDR. The
             proposal clearl)' slates thal live ECG recorders and five TDR' s were on hand at the beginning of the
             project, and the budgeted expenses were to cover potential damage ro recorders , or recorders chat have
             been lost 111 sea. The recorders were all lost while at sea., and the funds were used to replace the recorders,

                                                           l'ngc I o f6




                                                                                                                                         8
                                                                                                                           APPENDIX A
AWARDEE RESPONSE




           as stated in the proposal. These replacement recorders will be used for continuing research funded by
           NSF and National Oceanic and Atmospheric Administra1ion (NOAA) (pending awards).

           PerFDP:

          "(2) The following clarification applies to the standard in paragraph c.4.d. ofOMB Circular A-2 1, which
          relates 10 allocation ofcosts for interrelated projects supported by multiple Federal awards: The
          interrelationsh ip between or among projects does not have to be formally stipulated, but must be
          dcmonslmblc on lhc basis of Che following crilcriu. Either: (a) the theoretical approac hes are interrelated;
          (b) s tudies o f the same phenomena are conducted by the same or different techniques; or (c) scudics of
          different phenomena are conducted by the same technique."

           Additionally, per 2 CFR 220 Appendix A, Section C.4.d:

          "(3) Direct cost allocation principles. !fa cost benefits two or more projeclS or activities in proportions
          that can be determined without undue effon or cost, the cost should be allocated to the projects f)ased on
          the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be
          determined because of the ioterrelaiionsh ip of the wol'k involved, then, notwilhsl.llndingsubsection b, the
          costs may be allocated or transferred to benefited projects on any reasonable basis, consistent with
          s ubsections d. ( I) and (2).•

          If lhe audit finding is sustained, it would p lace an undue burden on tl1e Univers ity to fund an expense thai
          was anticipated and budgeted by the UnivcrSity, and approved by NSF. This would not be an equitable or
          reasonable outcome.

       B. 	 $ 12.024 ($7.782 plus $4,242 associated indirect costs) for the purchase ofa Mac Pro, Mac8ook l>ro, i?ad
            Air and computer accessories on one award.

           Un iversity Resoonse:

          The University does not concur with the auditor's conclusion. The computer and related accessories were
          used for data analysis, manuscript preparation, and science presentations related to the award. The
          purchase continues to be used in supp ort o f NSF sponsored research with the receipt of an NSF FDP
          related award in September .         T he new award is a continuation of the sampled award of tl1e PJ's
          research focus on microbi ~.I d iversity and adaptation in ocean trenche$.

          Per 2 CFR 220, Appendix A, Section C.3, this cost should be cotisidered reasonable as it was necessary
          for the perfonnance of the sponsored agreement. Additionally, the award end date does not constitute end
          of the work performed fo r the award. As d efined by NSF Granl Policy Manual, the "expiracion date is the
          date spec ified in the grant notice aficr which expenditures may not be charged against Inc grant except to
          satisfy obligations lo pay allowable project costs committed on or before that date.• The NSF Grant
          Policy Manual recognizes that it could be detem1ined on the last day o f the award that additional expenses
          arc n~eded to complete the performance of the sponsored agreement.

          We would also like to emphasize that Uniform G uidance (2 CFR 200) recognized tliat ttie requirement~
          set fonh in prior c irculars relating to the direct charging of computing devices was overly reslrictive.
          Uniform Guidance has eased those restrictions by allowing the direct charging of compllling devices
          when they are essential and benefit the project. and no longer req uires that lhu duvices be solely dedicated
          to the project.

                                                       Page 2of6




                                                                                                                                    9
                                                                                                                             APPENDIX A
AWARDEE RESPONSE




       C. $7,23 1 ($4,681 plus $2,550 associated indirect costs) for the purchase of a Mac Pro.

           Vniversjtv Resoonse:

          The Universi1y does not concur with the auditor's conclusion. The award bud et was funded as a
          supplement to NSF American Recovery and Reinvest111ent Acl (ARRA)
          The requested supplemental budget clearly stated that it was for SUPJ'.><>11 of the
          • • • • T he reason 1he fund s were requested was for additional ship days and the use o f a bigger
          barge. The auditor states th.at "'The entire award budget was meant to cover the cost of securing ship time
          on a vessel.'" T he auditors are ignoring 1he purpose ofwhy there was the need to secure the ship time in
          the first place. The ship time by itself accomplishes nothing. The ship time must be in support of a larger
           project. II is - lso im   rtant to note 1~he actual ship time was split funded 50/50 between
             SF ARRA                      and NSF­

           NSF                 was awarded as a new award due 10 NSF's funding limitation. The project was
           initially proposed as a 3-year project and was funded from ARRA funds (ARRA             I I      ). All 3
           year's funding was received in one increment. Under normal circumstances, lhe supplement would have
           been funded as a modification to lhe exist ing award. However, al the lime the supplement was reyuested
           NSF no longer had ARRA funds. Because you cannot coming.le funds, a new award NSF                 •
           was issued. NSF                   vas not funded as an independe nt project but was funded to support the
           existing ARRA -                 project.

           T his ship lime allowed the researchers to collect a large volume of d ata and the purchase ofthe computer
           was reasonable and necessary 10 carry ~ty control and analysis. The proje.ct continued
           until September 30,•      • and the NSF ~roject received the full bc11cfi1 of this purchase.

          We would a lso like to emphasi1.e that Uniform G uidance (2 CFR 200) recognized that the requirements
          set forth in prior circulars relating to the direct charging ofcomputing devices was overl y restrictive.
          Unifonn G1.1idance has eased those restrictions by allowing the direct charging of computing d evices
          when they are essential !I/Id benefit the project, nnd 110 lo11ger requires that the devices be solely dedicated
          10 the project.

       D. $4,255 ($2 ,754 pllL~ $1,501 associated indirect costs) for the purchase of a Navigator Pump.

           University Response :

          The University does not concur with the auditor's conclusion. This expellse was to repair a navigator
          pump, not the purchase ofa new pump as asserted by lhc auditors. T his repair was c ri tic.al in acf'lieving
          seve ral stated goals oftl1e award. T he duration of use is irrelevant to the allocation o f the expense
          because ii is not a production environment where a component (pump) is used to produce a certain
          number of units over a defined time period. The pump repair was needed lo validate data collected
          throughout the life of the project. Without the pump repair, the Principal Investigator (Pl) would have
          had no conclusive verified results to report.

          As stated in the NSF G rant Pol icy Manual, the "expiration date is the date spec ified in the gmnt notice
          after which expenditures may not be charged against the gmnt except to satisfy obligations to pay
          allowable project costs commit1ed on or before that date.• The G rant Po licy Manual recognizes that it


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                                                                                                                                     10
                                                                                                                            APPENDIX A
AWARDEE RESPONSE




              could be dctcrmjncd on the last day ofthe award that additional expenses are needed to complete the
              performance of the sponsorud agreement. A reasonable and prudent person would undcrStand that the end
              date of the award does not constitute the end of the work performed for the project. Additionally, as
              outlined in 2 CFR 220 Appendix A, Section C3, the expense should be m:ognized as a reasonable cost
              because it was necessary for the performance of the sponsored agreement. It would not have been
              reasonable to put the expense on another award when it was purchased exclusively fo r this award, nor
              would it have been reasonable to allocate the cost based on arbitrary assumptions.

          E. $4,148 (S2,68S plus $1 ,463 associaied indirect costs) for the purchase ofa MacBook Pro and iMac.

              Un jvers itv Response:

              The University does not concur with the auditor's conclusion. TI1e purchase of the computers was
              necessary to achieve the aims ofthe project. The co.mp\l\CTS were used to analyze the large data sets that
              were collected throughout the life of the project.

              Per 2 CFR 220, Appendix A, Section C.J, this cost should be considered reasonable as it was necessary
              for the pcrfonnancc of the sponsored agTeement. Add icionally, the award end date docs not constitute end
              of the work perfonne~ for the award. As defined by NSF Grant Policy Manual, tJ1e "expiration date is the
              date specified in tJ1e grant notice after which expenditures may not be charged against che grant except to
              satisfy obligations to pay allowable project costs committed on or before that dote." The GPM recognizes
              that it could be determined on the lase day of the award that additional expenses are needed to complete
              the performance of the sponsored agreement

              We would olso like to emphasize that Uniform Guidance (2 CFR 200) recognized that the requirements
              set forth in prior circulars relating to the dire.ct charging of computir1g devices was overly restrictive.
              Uniform Guidance has eased those restrictions by allowing the direct charging ofcomputing devices
              when they are essential and allocable to the project, and no longer requires that the devices be solely
              dedicated to the project.

     2.   Unellowable bicllrcct Costs

          WSB found S7.723 in unnllowable indirect costs charged to two NS awards.

          A. $5.545 for indirect costs charged on the purchase of computer servers.

              University Response;

             The University concurs with auditor's conclusion, The Univarsity agrees lo refund $5.545.

          B. S2, I78 for indirect costs charged on the purchase of a broadband transducer.

              University ResoooSCi

              TI1e University concurs with che auditor's conclusion. Corrective action has been taken to reverse the
              JDC assessment. Therefore, a refund for the $2, 178 is unnecessary.




                                                           Page 4 of6




                                                                                                                                    11
                                                                                                                      APPENDIX A
AWARDEE RESPONSE




      4. 	 Unreasonable Participant Support Expenditures

         WSB found $4,700 charged to one NSF award for rental of the Scripps Forum facility to hold a workshop,
         which was not in accordance with Federal cost principles.

             University Response:

             The University does not concur with the auditor's conclusion.

             This NSF grant was awarded to fund the EarthCube End User Workshop. The cost of the venue was
             specifically targeted for participant support. These costs were directly attributed to individual participants
             as each participant benefitted from the use ofthe fac ility/ lab resource. The venue is not only a location to
             hold the workshop but a teaching lab with resources, including digital projection, research tools that
             support data sharing, networking capacity, and other research and communication capabilities in direct
             support and benefit to each individual workshop participant. The venue costs were meaningful and
             necessary expenses in support of each participant attending and contributing to the Earth Cube End User
             Workshop.

             Additionally, to help defray the costs of each participant in the Earth Cube End User Workshop by not
             charging a registration fee, funds for the venue were expended. We point to the proposal regarding the use
             of Scripps Forum as the venue for this conference.

              I. 	 Page 8 of the proposal under Project Description, in the second paragraph 3rd sentence reads: "The
                   physical workshop will be held at Scripps Institution of Oceanography in La Jolla, California, with
                   virtual presence of the SERC website (src.carleton,edu), . ... "

             2. 	 "Workshop Format & Logistics", it c learly states that the workshop will take place at the "Scripps
                  Forum."

             3. 	 Page 37 under "Facilities" Offices and Proj ect Support Scripps Forum. This document in the proposal
                  gives a detailed description of the faci lity and its resources.

             Moreover, the venue expense was limited to the duration of the workshop. It was reasonable, necessary
             and limited to the days of attendance at the conference. The costs were also accounted for separately
             under participant support to refl ect the project costs components. Therefore the costs should be
             considered reasonable and allocable to the participant in support of their attendance to the Earth Cube
             Conference project. Each participant directly benefited from the rental ofthe facility.

      5. 	 Unallocable Transactions

          WBS found $3,890 charged to one award for the purchase of a data storage system that was not in accordance
          with Federal cost principles.

              University Response:

              The University concurs with auditor's conclusion. The University agrees to refund $3,890.




                                                           Page 5 of6




                                                                                                                              12
                                                                                                                      APPENDIX A
AWARDEE RESPONSE




      4. 	 Unreasonable Participant Support Expenditures

         WSB found $4,700 charged to one NSF award for rental of the Scripps Forum facility to hold a workshop,
         which was not in accordance with Federal cost principles.

             University Response:

             The University does not concur with the auditor's conclusion.

             This NSF grant was awarded to fund the EarthCube End User Workshop. The cost of the venue was
             specifically targeted for participant support. These costs were directly attributed to individual participants
             as each participant benefitted from the use ofthe fac ility/ lab resource. The venue is not only a location to
             hold the workshop but a teaching lab with resources, including digital projection, research tools that
             support data sharing, networking capacity, and other research and communication capabilities in direct
             support and benefit to each individual workshop participant. The venue costs were meaningful and
             necessary expenses in support of each participant attending and contributing to the Earth Cube End User
             Workshop.

             Additionally, to help defray the costs of each participant in the Earth Cube End User Workshop by not
             charging a registration fee, funds for the venue were expended. We point to the proposal regarding the use
             of Scripps Forum as the venue for this conference.

              I. 	 Page 8 of the proposal under Project Description, in the second paragraph 3rd sentence reads: "The
                   physical workshop will be held at Scripps Institution of Oceanography in La Jolla, California, with
                   virtual presence of the SERC website (src.carleton,edu), . ... "

             2. 	 "Workshop Format & Logistics", it c learly states that the workshop will take place at the "Scripps
                  Forum."

             3. 	 Page 37 under "Facilities" Offices and Proj ect Support Scripps Forum. This document in the proposal
                  gives a detailed description of the faci lity and its resources.

             Moreover, the venue expense was limited to the duration of the workshop. It was reasonable, necessary
             and limited to the days of attendance at the conference. The costs were also accounted for separately
             under participant support to refl ect the project costs components. Therefore the costs should be
             considered reasonable and allocable to the participant in support of their attendance to the Earth Cube
             Conference project. Each participant directly benefited from the rental ofthe facility.

      5. 	 Unallocable Transactions

          WBS found $3,890 charged to one award for the purchase of a data storage system that was not in accordance
          with Federal cost principles.

              University Response:

              The University concurs with auditor's conclusion. The University agrees to refund $3,890.




                                                           Page 5 of6




                                                                                                                              13
                                                                                                                    APPENDIX A
AWARDEE RESPONSE




     Thank you for the opportunity to respond to the findings that were identified in your audit. If you have any
     questions related to the response provided, please contact me at 858-534-1334.




                                                              David Meier
                                                              Oire<:tor
                                                              Audit and Management Advisory Services
                                                              Universiiy of California, San Diego




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                                                                                                                            14
                                                                                              APPENDIX B
OBJECTIVES, SCOPE, AND METHODOLOGY

The audit objective was to determine whether the costs claimed complied with NSF award terms and
conditions and Federal financial assistance requirements. Our audit included assessing the allowability,
allocability, and reasonableness of costs claimed by SIO through the Award Cash Management $ervice for
the 3-year period beginning April 1, 2012, through March 31, 2015. The audit was performed in accordance
with Government Auditing Standards for performance audits.

To aid in determining reasonableness, allowability, and allocability of costs, we obtained from SIO all
award transactions comprising all costs claimed to NSF during the period of April 1, 2012, through March
31, 2015. This provided an audit universe of approximately $110 million, in approximately 63,000
transactions, across 291 individual NSF awards. For transaction testing we judgmentally selected 283
transactions totaling $2.0 million and utilized a data analytics approach to identify potential risk areas. We
also performed additional, non-transaction based tests as we deemed necessary.

Our work required reliance on computer-processed data obtained from SIO and NSF. At our request, SIO
provided detailed transaction data for all costs charged to NSF awards during our audit period. We also
extracted award data directly from NSF’s various data systems. To select transactions for further review,
we designed and performed automated tests of SIO 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 SIO by: 1) comparing costs charged to NSF award
accounts within SIO’s accounting records to reported net expenditures, as reflected in SIO’s financial
reports submitted to NSF for the corresponding periods; 2) performing general ledger to sub-ledger
reconciliations of accounting data; and 3) reviewing and testing the parameters SIO used to extract
transaction data from its accounting records and systems.

Based on our testing, we found SIO 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 auditors’ report on NSF’s financial statements for fiscal
years 2014 and 2015 found no reportable instances in which NSF’s financial management systems did not
substantially comply with applicable requirements.

In assessing the allowability of costs claimed to NSF by SIO, we also gained an understanding of the
internal controls applicable to the scope of this audit through interviews with SIO, review of policies and
procedures, and conducting walkthroughs as applicable.

We assessed SIO’s compliance with its internal policies and procedures, as well as the following:

       2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements
        for Federal Awards;
       2 CFR Part 220, Cost Principles for Educational Institutions (OMB Circular A-21);
       2 CFR Part 215, Uniform Administrative Requirements for Grants and Agreements with Institutions
        of Higher Education, Hospitals, and Other Non-Profit Organizations (OMB Circular A-110);
       NSF Proposal and Award Policies and Procedures Guide (includes the Grant Proposal Guide and
        Award and Administration Guide);
       NSF Award Specific Terms and Conditions; and
       NSF Federal Demonstration Partnership Terms and Conditions.




                                                                                                           15
                                                                                    APPENDIX C
Questioned Cost Summary by Award

                                 Amount              Overhead
           Award ID                                                   Total Questioned
                               Questioned           Questioned
        Finding 1 – Equipment, Materials, and Supplies Unreasonable Purchases Near Award
        Expiration
        0944220                $        43,577      $       23,968         $       67,545

        0827051                          7,782               4,242                 12,024

        1132984                          4,681               2,550                  7,231

        1013423                          2,754               1,501                  4,255

        0948338                          2,685               1,463                  4,148

        Finding 1 Total                 61,479              33,724                 95,203

        Finding 2 – Unallowable Indirect Costs
        1220630                                -             5,545                  5,545
        1440580                                -             2,178                  2,178
         Finding 2 Total                       -             7,723                  7,723

        Finding 3 – Unreasonable Participant Support Expenditures
        1313870                          4,700                      -               4,700

         Finding 3 Total                 4,700                      -               4,700

        Finding 4 – Unallocable Transactions
        1061050                          3,296                 594                  3,890

        Finding 4 Total         $        3,296       $         594         $        3,890




                                                                                             16