oversight

Performance Audit of Incurred Costs - University of California, San Diego

Published by the National Science Foundation, Office of Inspector General on 2017-03-29.

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

                                                     At a Glance
                                         Performance Audit of Incurred Costs —
                                           University of California, San Diego



Report No. 17-1-006, March 29, 2017

Audit Objective                            Audit Results
The National Science Foundation Office
of Inspector General (OIG) engaged         Costs UCSD charged to its NSF-sponsored agreements did
WithumSmith+Brown (WSB) to conduct         not always comply with Federal and NSF award
a performance audit of incurred costs at   requirements. The auditors questioned $283,801 of costs
University of California, San Diego        claimed by UCSD during the audit period. Specifically,
(UCSD) for the period April 1, 2012, to    auditors found:
March 31, 2015. The audit universe             • $214,177 in equipment, materials, and supplies
included more than $197 million in costs          expenses unreasonably purchased near award
claimed to NSF. The objective of the              expiration;
audit was to determine if costs claimed        • $54,472 in unreasonable travel;
by UCSD during this period were                • $8,744 in unreasonable participant support
allocable, allowable, reasonable, and in          expenditures;
conformity with NSF award terms and            • $5,178 in unallowable indirect costs; and
conditions and applicable Federal              • $1,230 in unallocable visa immigration fees.
financial assistance requirements.

WSB is responsible for the attached
auditor’s report and the conclusions
expressed in this report. NSF OIG does
not express any opinion on the             Awardee Response
conclusions presented in WSB’s audit
report.                                    Of the five findings in the report, UCSD agreed in total with
                                           two, partially agreed with two, and disagreed with one. UCSD
                                           contends that the costs within the disputed findings are
Recommendations                            allowable and disagreed with the auditors’ interpretation of the
The auditors included five findings in
                                           Federal guidance. UCSD also did not agree with the auditors’
the report with associated
                                           statements that there were weaknesses in management and
recommendations for NSF to resolve the
                                           administrative controls. After taking UCSD’s comments into
questioned costs and to ensure UCSD
                                           consideration, the auditors continue to question the costs and
strengthens administrative and
                                           left the findings unchanged.
management controls.
                                           UCSD’s response is attached in its entirety to the report as
                                           Appendix A.




Contact Information
For further information, contact NSF
OIG at (703) 292-7100 or oig@nsf.gov.
                        National Science Foundation • Office of Inspector General
                        4201 Wilson Boulevard, Suite 1-1135, Arlington, Virginia 22230

MEMORANDUM

Date:            March 29, 2017

To:              Dale Bell
                 Director, Division oflnstitution and Award Support

                 Jamie French
                 Director, Division of Grants and Agreements

From:            Mark Bell
                 Assistant Inspector General, Office of Audits

Subject:         Audit Report No. 17-1-006,
                 University of California, San Diego

This memo transmits the WithumSmith+Brown (WSB) report for the audit of costs totaling
approximately $197 million charged by University of California, San Diego (UCSD) 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 UCSD 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 of the 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
      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 .................................................................................................. 15
Appendix B: Objectives, Scope, and Methodology ...................................................................... 35
Appendix C: Questioned Cost Summary by Award ..................................................................... 37




ACRONYMS

 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
 UCSD                         University of California, San Diego
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 University of California, San Diego (UCSD) is an NSF award recipient.

UCSD is a research university with an academic portfolio that includes 6 undergraduate colleges
and 10 academic divisions and professional schools. The university’s mission is to educate,
generate and disseminate knowledge, and engage in public service. In fiscal year 2014, UCSD
received $644 million in sponsored Federal research dollars.

WithumSmith+Brown, under contract with NSF OIG, audited the costs claimed by UCSD 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
UCSD all 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 $197 million, in
approximately 252,000 transactions, across 708 individual NSF awards. For transaction testing we
judgmentally selected 286 transactions totaling $2.5 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 $2.5 million in the transaction testing, our audit questioned $283,801 of costs claimed on
19 NSF awards because UCSD did not comply with Federal and NSF award requirements.
Specifically, we noted: $214,177 in unreasonable equipment, materials, and supplies expenses;
$54,472 in unreasonable travel; $8,744 in unreasonable participant support expenditures; $5,178
in unallowable indirect costs; and $1,230 in unallocable visa immigration fees. These questioned
costs resulted in five areas identified where UCSD controls could be improved to ensure
compliance with laws and regulations.

UCSD reviewed and agreed with the facts for $50,748 in questioned costs. UCSD did not agree
with $233,053 in questioned costs: 1) $174,581 in unreasonable equipment, materials, and supplies
                                                                                                   1
expenses; 2) $54,472 in unreasonable travel; and 3) $4,000 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.

Findings and Recommendations

Finding 1 – Unreasonable Equipment, Materials, and Supplies Charges
Equipment, materials, and supply expenses totaling $214,177 charged to 14 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.

Additionally, NSF’s Award and Administration 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.

Unreasonable Equipment Purchases

We questioned $158,940 charged to one NSF award for equipment and accessories. Specifically,
we questioned the following purchases:

      $62,767 for the purchase of two environmental rooms. UCSD agreed that $31,383 (50
       percent) of the purchase should have been allocated to other projects receiving benefit.
       UCSD did not provide support for the allocation of the equipment’s usage, and therefore,
       we continue to question the remaining 50 percent.
      $62,752 for the purchase of equipment parts for a wide-field laser illuminator.
      $33,421 for the purchase of a camera and accessories.

The original NSF award budget included $125,000 for equipment; however, when the NSF
Program Office required budget reductions, the Principal Investigator (PI) voluntarily removed the
equipment from the budget because he believed the existing equipment would be sufficient to
reach the goals of the project. Despite the voluntary removal of the equipment from the budget,

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the PI spent $158,940 on equipment in the first year of this 5-year award. This was a 21 percent
increase over the original equipment budget that was eliminated.

We are questioning whether it was reasonable or prudent for the awardee to claim charges for
items specifically requested and subsequently removed from the budget, per NSF’s budget
reduction request.

Computer Purchases

We questioned $24,882 charged to seven NSF awards for general-purpose computers purchased
near the award expiration. These purchases did not appear to benefit the awards nor appear to be
prudent considering the limited time remaining on the awards.

      $8,340 for the purchase of two Mac Pros. The computers were received on September 23,
       2013, on a 4-year award that expired on September 30, 2013. The two computers were
       available for less than 1 percent of the grant life (7 out of 1,460 days).
      $6,629 for the purchase of a MacBook Pro, two storage arrays, and other computer
       accessories that were charged to the NSF award by mistake. UCSD has taken corrective
       action to remove the charges from the NSF award.
      $4,044 for the purchase of two MacBook Airs. The computers were purchased on June 13,
       2013, on a 4-year award that expired on June 30, 2013. The two computers were available
       for 1 percent of the grant life (17 out of 1,445 days).
      $2,071 for the purchase of an iMac. The computer was purchased on May 8, 2013, on a 4-
       year award that expired on May 31, 2013. The computer was available for less than 2
       percent of the grant life (23 out of 1,460 days).
      $2,071 for the purchase of a MacBook Air. The computer was purchased on March 5, 2014,
       on a 5-year award that expired on July 31, 2014. The computer was available for 8 percent
       of the grant life (148 out of 1,825 days). UCSD stated the computer was not used
       exclusively on the NSF award as it was the PI’s sole computer and he also used it to carry
       out other activities to support his teaching, departmental service, and research missions.
      $1,076 for the purchase of a Dell computer. The computer was received on August 23,
       2013, on a 4-year award that expired on August 31, 2013. The computer was available for
       less than 1 percent of the grant life (8 out of 1,445 days).
      $651 for the purchase on an iPad. The iPad, shipped on April 6, 2012, after the NSF award
       expired on March 31, 2012. The iPad was not received until after award expiration, and
       therefore, could not have benefitted this NSF award.

Materials and Supplies

We questioned $30,355 charged to six awards for materials and supplies purchased near the award
expiration that did not appear to benefit the award or that did not appear necessary considering the
limited time remaining on the awards.

We questioned $11,954 charged to four awards for materials and supplies. Specifically, we
questioned the following purchases:

                                                                                                  3
      $5,066 for the purchase of tip seal kits and permeation test tubes. The supplies were
       purchased on September 23, 2013, on a 3-year award that expired on September 30, 2013.
       The supplies were purchased 7 days prior to award expiration (7 out of 1,095 days).
      $3,334 for the purchase of a tube furnace on July 24, 2014, on a 4-year award that expired
       on July 31, 2014. The item was not received until August 5, 2014, 5 days after the award
       expiration.
      $1,584 for the purchase of software. The software license was purchased on October 1,
       2014, on a 5-year award that expired on September 30, 2014. The software was not
       purchased until after the award expiration. UCSD concurs and has agreed to remove the
       cost from the award.
      $1,970 for an annual membership to the Transaction Processing Council. The annual
       membership covered the period of January 1 through December 31, 2013. The award
       expired on January 31, 2013 — 1 month after the annual membership period began.

We questioned $13,697 charged to one award for materials and supplies. Specifically, we
questioned the following purchases:

      $7,332 for the purchase of a microtome, oscilloscope, and automatic knife sharpener. The
       supplies were purchased on August 16, 2012, on a 6-year award that expired on August 31,
       2012. The supplies were purchased with just 15 days remaining before award expiration
       (15 out of 2,175 days).
      $3,529 for the purchase of chloroform, dissect blade, kaleidoscope, balance, stirrer/hot
       plate, and other laboratory supplies. The supplies were shipped on August 30, 2012, with
       1 day remaining before award expiration. These supplies were not received until after the
       award expiration, and therefore, could not benefit the award.
      $1,824 for the purchase of a 30" flat panel monitor. The monitor was purchased on August
       1, 2012, on a 6-year award that expired on August 31, 2012. The monitor was available for
       1 percent of the grant life (30 out of 2,175 days).
      $1,012 for the purchase of a refrigerator. The refrigerator was delivered on September 11,
       2012, after the NSF award expired on August 31, 2012.

We questioned $4,704 charged to one award for materials and supplies. Specifically, we
questioned the following purchases:

      $2,793 for giant microbe figures. The figures were received on August 19, 2014, on a 6-
       year award that expired on August 31, 2014. The figures were available for less than 1
       percent of the grant life (12 out of 2,190 days).
      $1,911 for robot parts. The parts were received on August 29, 2014, on a 6-year award that
       expired on August 31, 2014. The parts were available for less than 1 percent of the grant
       life (2 out of 2,190 days).

UCSD personnel did not adequately review the expenditures charged to the NSF awards, which
resulted in questionable costs. Without an effective process in place to ensure the allowability of
equipment, materials, and supplies expenses, there is the increased risk that funds may not be used

                                                                                                 4
as required to accomplish the necessary project objectives in accordance with Federal and NSF
requirements. UCSD indicated that it has performed corrective actions to remove $39,596 in
unallowable costs from the awards in question, leaving $174,581 remaining unresolved. NSF,
during the audit resolution process, should ensure that the award has been credited as appropriate.

Recommendation 1:
We recommend that the NSF’s Director of the DIAS request that UCSD:
       1) Resolve the $174,581 of questioned costs and ensure the $39,596 of questioned costs
          has been removed from the NSF award.
       2) Strengthen the administrative and management controls and processes for reviewing
          and approving costs charged to NSF awards for equipment, materials and supplies.

Summary of Awardee Response:

Unreasonable Equipment Purchases

UCSD does not concur with questioned costs totaling $127,557. UCSD stated that when the
equipment was removed from the NSF award budget, UCSD believed that existing equipment
could be used to complete the aims of the project. However, after the project was awarded, UCSD
was unable to use the available equipment to reach the goals of the project and determined the
project could not be completed without the equipment purchases. The equipment was purchased
in the first year of the 5-year NSF CAREER award. UCSD stated that NSF continues to benefit
from the equipment.

UCSD agrees that $31,383 (50 percent) of the cost of the two environmental rooms should be
removed and allocated to the other projects receiving benefit.

Computer Purchases

UCSD does not concur with questioned costs totaling $18,253 for computer purchases charged to
seven awards. UCSD believes these questioned costs benefitted the awards charged and were
reasonable and necessary for the performance of the sponsored agreement. For each of the costs
we questioned, UCSD provided a detailed response as to why the institution believes the costs
were necessary and reasonable and how they benefited the awards.
UCSD agrees with the conclusion for $6,629 of questioned costs and agrees to refund $6,629.

Materials and Supplies

UCSD does not concur with the questioned costs totaling $28,771 for materials and supplies
purchases charged to five awards. UCSD believes these questioned costs benefitted the awards
charged and were reasonable and necessary for the performance of the sponsored agreement. For
each of the costs we questioned, UCSD provided a detailed response as to why the institution
believes the costs were necessary and reasonable and how they benefited the awards.

UCSD agrees with the conclusion for $1,584 of questioned costs and agrees to refund $1,584.
                                                                                                 5
See Appendix A for the complete UCSD response.

Auditor Comments:

Unreasonable Equipment Purchases

For the $127,557 of equipment purchases that UCSD disagreed with, our conclusions remain
unchanged. The additional information provided by UCSD did not change our view that these
unreasonable and unallocable equipment and accessory purchases, as noted above in Finding 1,
should be questioned. To be allowable for a Federal grant, a cost must be allocable and reasonable
for the administration and performance of the award. No allocation methodology for the
environmental rooms has been provided. Furthermore, the total equipment and accessory
purchases represent 14 percent of the total award budget of $1.14 million. Therefore, the report
finding and recommendations remain as stated.

UCSD’s comment related to the $31,383 (50 percent) of the cost of the environmental rooms is
responsive to the issue noted in this finding. Once NSF determines that $31,383 in questioned
costs has been returned, this portion of the issue should be closed.

Computer Purchases

For the $18,253 of computer purchases that UCSD disagreed with, our conclusions remain
unchanged. The additional information provided by UCSD did not change our view that these
purchases near the various award expiration dates, as noted above in Finding 1, should be
questioned. 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. Four of the computers were available for less than 2 percent of the grant
life, one computer was received after the award expiration, and one computer was available for 8
percent of the grant life but was not used solely on the NSF award, and appeared to be a general
purpose computer. Therefore, the report finding and recommendations remain as stated.

UCSD’s comment related to the $6,629 is responsive to the MacBook Pro purchase noted in this
finding. Once NSF determines that $6,629 in questioned costs has been returned, this issue
related to the MacBook Pro purchase should be closed.

Materials and Supplies

For the $28,771 of materials and supplies purchases that UCSD disagreed with, our conclusions
remain unchanged. The additional information provided by UCSD did not change our view that
these purchases near the various award expiration dates, as noted above in Finding 1, should be
questioned. According to NSF policy, 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. All of the questioned materials and
supplies were purchased with less than 1 percent of the grant life remaining, and several were
received after the award expiration. Therefore, the report finding and recommendations remain as
stated.
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UCSD’s comment related to the $1,584 is responsive to the software purchase noted in this finding.
Once NSF determines that $1,584 in questioned costs has been returned, this issue related to the
software purchase should be closed.

Finding 2 – Unreasonable Travel
Travel expenses totaling $54,472 charged to two NSF awards were not necessary or reasonable 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.”

We questioned $48,556 ($31,426 plus $17,130 associated indirect costs) charged to one NSF
award for seven foreign travel trips. The following leads us to conclude that the foreign travel trips
were not reasonable or prudent for the administration of the award:

      The travel expenses were not approved and charged to the NSF award until one to two
       years after the travel occurred.
      The award was on its second no-cost extension when the travel was approved by UCSD.
      No travel was requested in the NSF award budget, but 14 percent of the award budget was
       rebudgeted for travel.
      The funds spent on travel were originally budgeted to fund graduate student researchers.
      The travel was not mentioned in the annual reports or the final report.
      The lack of a clear benefit and necessity to the award for any of these trips.

The actual travel occurred between March 2011 and October 2012. Of the seven trips, four of the
travel expense forms were dated August 2013 and three were dated June 2013, which was 1 to 2
years after the travel occurred.

Per UCSD, these reimbursements were not submitted timely because they were set aside in favor
of conducting more productive (and urgent) work activities in research, teaching, and service. The
reimbursements were submitted when it was recalled and realized that the reimbursements would
be forfeited once the award expired.

UCSD travel policies require travel expense claims be submitted within 45 days after the end of a
trip. Travel reimbursement requests submitted more than 45 days after travel are left to the
discretion of the campus. Per UCSD, the referenced travel events were approved because they
were deemed by the travel office to be reasonable, prudent, and relevant to advancing the work
under the sponsored agreement and within its project period. However, not only were the travel
expense claims not approved timely (1 to 2 years after the travel occurred), but also the award was
on its second no-cost extension when the travel was approved by UCSD. It is not reasonable that
the $31,426 in unsubmitted travel reimbursements were not mentioned in either of the two no-cost
extensions filed after the travel was taken.
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Additionally, the NSF award budget did not include travel. The cumulative NSF award budget was
$599,765. During our audit period, we noted $85,932 in travel costs charged to this NSF award;
this represents 14 percent of the cumulative award budget.

Per UCSD, given the budget limit for the solicitation and the growing lab, UCSD wanted to fund
as many graduate student researchers as possible. UCSD anticipated receiving unrestricted gift
monies to fund the project’s travel expenses. Thus, three students and zero travel dollars were
budgeted into the project. At the time of the award, only two qualified students were available to
work on the project, so the unused student salary was reallocated for travel.

We tested $62,705 of these travel costs and questioned $48,556 in foreign travel expenses for one
individual charged to the NSF award:

      $16,588 for travel expenses incurred from April 27 to June 22, 2011, while at the
                    in               . Airfare and per diem were charged to the NSF award while
       at the                   ; however, neither the travel, nor the collaboration with the Free
                     was mentioned in the annual report. There were also charges to attend a
       conference in                   , from June           , 2011. The travel expense form was dated
       August 12, 2013; more than 2 years after the travel occurred.
      $6,671 for travel to                        , from March          , 2011, to attend a conference.
       The travel expense form was dated August 12, 2013; almost 2.5 years after the travel
       occurred.
      $6,065 for travel to                       , from March 23 to April 2, 2012, for a conference.
       The conference was from March                 , 2012. The travel expense form was dated August
       12, 2013; almost 1.5 years after the travel occurred.
      $5,710 for travel to                 , from June 25 to July 11, 2012, to sit on a
       committee and for a research visit with an advisor. The travel expense report was dated
       June 11, 2013; 1 year after the travel occurred.
      $4,659 for travel to                      , from August 31 to September 9, 2012, to attend a
       workshop from September           , 2012. The travel expense report was dated June 4, 2013; 9
       months after the travel occurred.
      $4,603 for travel to              , from October 13-20, 2012, to attend a three-day workshop.
       The travel expense report was dated June 4, 2013; 7 months after the travel occurred.
      $4,260 for travel to                      , from October 13-23, 2011, to attend a seminar from
       October         , 2011. The travel expense report was dated August 12, 2013; almost 2 years
       after the travel occurred.

Additionally, we questioned $5,916 charged for foreign meals and lodging per diem for a senior
personnel on one NSF award. The travel occurred from June 27 to August 27, 2013. The award
expired on August 31, 2013. There was no travel in the NSF award budget and there was no
mention of the travel in the final report.

UCSD personnel did not adequately review the expenditures charged to NSF awards, which
resulted in unreasonable travel costs. Without an effective process in place to ensure the

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reasonableness of the travel costs and consistency with the award objectives, 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 2:

We recommend that the NSF’s Director of the DIAS request that UCSD:
      1) Resolve the $54,472 of questioned costs.
      2) Strengthen the administrative and management controls and processes for reviewing
         and approving costs charged to NSF awards for travel expenditures.

Summary of Awardee Response:

UCSD does not concur with the questioned costs totaling $54,472 for travel expenses for one
individual charged to two NSF awards. UCSD stated that unspent funds were rebudgeted to travel,
which was within the University’s rebudgeting authority under the Federal Demonstration
Partnership. Traveling to conferences is important in the computer science community and
presenting at conferences and workshops is the recognized method for disseminating results in the
field. UCSD stated that they agree some of the travel expenses may have been submitted untimely,
but it was not done with malicious intent. For each of the costs we questioned, UCSD provided a
detailed response as to why the institution believes the travel benefited the awards.

See Appendix A for the complete UCSD response.

Auditor Comments:

For the $54,472 of travel expenses that UCSD disagreed with, our conclusions remain unchanged.
The additional information provided by UCSD did not change our view that these travel expenses,
as noted above in Finding 2, should be questioned. If travel was necessary for the performance and
administration of this award, then travel should have been included in the NSF award budget.
Additionally, the travel reimbursements should have been submitted timely. These reimbursement
requests were submitted one to two years after the travel occurred, when the award was on its
second no-cost extension. It is not reasonable that the $48,556 ($31,426 plus $17,130 associated
indirect costs) in unsubmitted travel reimbursements was not mentioned in either of the two no-
cost extensions filed after the travel had occurred.

The travel expenses totaling $5,916 charged for foreign meals and lodging occurred June 27 to
August 27, 2013, on an award that expired on August 31, 2013. There was no travel in the NSF
award budget, and there was no mention of the travel in the final report. The travel was not
necessary for the performance of the award. Therefore, the report finding remains as previously
stated.

Finding 3 – Unallowable Participant Support Expenditures

Participant support expenditures totaling $8,744 charged to two NSF awards were unallowable in
accordance with Federal cost principles.
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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.”

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.

Specifically, we questioned the following unallowable participant support expenditures:

      $4,744 for travel costs for UCSD employees charged to one award. No travel costs were
       included in the NSF approved budget; the entire award budget was for participant support.
       UCSD has agreed to remove the costs from the award.
      $4,000 for social media and marketing services charged to one award. The total NSF award
       budget was $15,000 for participant support funds to provide hotel accommodations and
       travel support for attendees at a workshop. UCSD spent 27 percent of the total NSF award
       budget on social media and marketing activities. UCSD did not receive prior NSF written
       approval to use participant support funds for the marketing activities.

UCSD personnel did not adequately review the expenditures charged to the NSF awards, which
resulted in unallowable 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. UCSD indicated that it has performed corrective actions to remove $4,744 in
unallowable costs from the award in question, leaving $4,000 remaining unresolved. NSF, during
the audit resolution process, should ensure that the award has been credited as appropriate.

Recommendation 3:
We recommend that the NSF’s Director of the DIAS request that UCSD:
       1) Resolve the $4,000 of questioned costs and ensure the $4,744 of questioned costs has
          been removed from the NSF award.
       2) Strengthen the administrative and management controls and processes for reviewing
          and approving participant support transactions charged to NSF awards.

Summary of Awardee Response:

UCSD agrees with the conclusion for $4,744 of questioned costs and agrees to refund $4,744.

UCSD does not concur with questioned costs totaling $4,000 for social media and marketing
services. UCSD believes these questioned costs benefitted the award. UCSD stated these resources
were used by the participants and contributed to their learning experience, and therefore, these

                                                                                                 10
services were meaningful and necessary in support of each participants attendance and
contribution at the workshop.

See Appendix A for the complete UCSD response.

Auditor Comments:

UCSD’s comment related to the $4,744 is responsive to the travel expenses noted in this finding.
Once NSF determines that $4,744 in questioned costs has been returned, this issue related to the
travel expenses should be closed.

For the $4,000 of social media and marketing services that UCSD disagreed with, our conclusions
remain unchanged. The additional information provided by UCSD did not change our view that
these social media and marketing services, as noted above in Finding 3, should be questioned. A
grantee is required to obtain written authorization from the cognizant NSF program officer prior
to the reallocation of funds budgeted for participant support. Therefore, the report finding and
recommendations remain as stated.

Finding 4 – Unallowable Indirect Costs

Indirect (facilities and administrative) costs totaling $5,178 charged to one NSF award were
unallowable in accordance with Federal cost principles.

According to 2 CFR 220, Appendix A, Section G.2, 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. Equipment and capital expenditures are to be
excluded from modified total direct costs.

Specifically, we questioned $5,178 in indirect costs charged for the purchase of a component used
for equipment fabrication. UCSD personnel stated that the equipment was part of a fabrication and
should not have been assessed indirect costs.

UCSD personnel incorrectly coded the transaction as inventorial equipment, and therefore, it was
assessed indirect costs. Without an effective process in place to ensure equipment is properly coded
and excluded from modified total direct costs, there is the increased risk that funds may not be
spent in accordance with Federal requirements. UCSD indicated that it has performed corrective
actions to remove $5,178 in unallowable costs from the award in question. NSF, during the audit
resolution process, should ensure that the award has been credited as appropriate.

Recommendation 4:
We recommend that the NSF’s Director of the DIAS request that UCSD:
       1) Ensure the $5,178 of questioned costs has been removed from the NSF award.
       2) Strengthen the administrative and management controls and processes for reviewing
          and approving indirect costs charged to NSF awards.


                                                                                                 11
Summary of Awardee Response:

UCSD agrees with the conclusion for $5,178 of questioned costs and agrees to refund $5,178.

See Appendix A for the complete UCSD response.

Auditor Comments:

UCSD’s comment related to the $5,178 is responsive to the issue noted in this finding. Once NSF
determines that the recommendation has been adequately addressed and the $5,178 in questioned
costs has been returned, this issue should be closed.

Finding 5 – Unallocable Visa Immigration Fees

Visa immigration fees totaling $1,230 charged to one NSF award were unallocable in accordance
with Federal cost principles. In the first year after hire, the employee only worked 35 percent on
the NSF award, but 100 percent of the visa fees were charged to the award. We are questioning 65
percent of the visa fees charged to the NSF award.

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.

UCSD personnel did not adequately review the expenditures charged to NSF awards which
resulted in unallowable costs. Without an effective process in place to ensure the proper monitoring
of visa fees charged, there is the increased risk that funds may not be spent in accordance with
Federal requirements. UCSD indicated that it has performed corrective actions to remove $1,230
in unallocable visa fees from the award in question. NSF, during the audit resolution process,
should ensure that the award has been credited as appropriate.
Recommendation 5:
We recommend that the NSF’s Director of the DIAS request that UCSD:
       1) Ensure the $1,230 of questioned cost has been removed from the NSF award.
       2) Strengthen the administrative and management controls and processes for reviewing
          and approving visa fees charged to NSF awards.

Summary of Awardee Response:

UCSD agrees with the conclusion for $1,230 of questioned costs and agrees to refund $1,230.

See Appendix A for the complete UCSD response.

                                                                                                 12
Auditor Comments:

UCSD’s comment related to the $1,230 is responsive to the issue noted in this finding. Once NSF
determines that the recommendation has been adequately addressed and the $1,230 in questioned
costs has been returned, this issue should be closed.



WithumSmith+Brown, PC
Date




                                                                                            13
APPENDICES




             14
                   APPENDIX A
AWARDEE RESPONSE




                           15
                   APPENDIX A
AWARDEE RESPONSE




                           16
                   APPENDIX A
AWARDEE RESPONSE




                           17
                   APPENDIX A
AWARDEE RESPONSE




                           18
                   APPENDIX A
AWARDEE RESPONSE




                           19
                   APPENDIX A
AWARDEE RESPONSE




                           20
                   APPENDIX A
AWARDEE RESPONSE




                           21
                   APPENDIX A
AWARDEE RESPONSE




                           22
                   APPENDIX A
AWARDEE RESPONSE




                           23
                   APPENDIX A
AWARDEE RESPONSE




                           24
                   APPENDIX A
AWARDEE RESPONSE




                           25
                   APPENDIX A
AWARDEE RESPONSE




                           26
                   APPENDIX A
AWARDEE RESPONSE




                           27
                   APPENDIX A
AWARDEE RESPONSE




                           28
                   APPENDIX A
AWARDEE RESPONSE




                           29
                   APPENDIX A
AWARDEE RESPONSE




                           30
                   APPENDIX A
AWARDEE RESPONSE




                           31
                   APPENDIX A
AWARDEE RESPONSE




                           32
                   APPENDIX A
AWARDEE RESPONSE




                           33
                   APPENDIX A
AWARDEE RESPONSE




                           34
                                                                                     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 UCSD 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
UCSD 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 $197 million, in
approximately 252,000 transactions, across 708 individual NSF awards. For transaction testing we
judgmentally selected 286 transactions totaling $2.5 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 UCSD and NSF. At our
request, UCSD 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 UCSD 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 UCSD by: 1) comparing costs charged to NSF
award accounts within UCSD’s accounting records to reported net expenditures, as reflected in
UCSD’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
UCSD used to extract transaction data from its accounting records and systems.

Based on our testing, we found UCSD 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 UCSD, we also gained an understanding
of the internal controls applicable to the scope of this audit through interviews with UCSD, review
of policies and procedures, and conducting walkthroughs as applicable.

We assessed UCSD’s compliance with the University’s 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);

                                                                                                 35
                                                                             APPENDIX B
OBJECTIVES, SCOPE, AND METHODOLOGY

     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.




                                                                                          36
                                                                                           APPENDIX C
Questioned Cost Summary by Award

                                      Amount                Overhead
            Award ID                                                           Total Questioned
                                     Questioned             Questioned

        Finding 1 – Unreasonable Equipment, Materials, and Supplies Purchases
                             $             158,940      $              -   $            158,940
                                             8,866                  4,831                13,697
                                             3,044                  1,660                 4,704
                                             5,398                  2,942                 8,340
                                             6,629                       -                6,629
                                             3,279                  1,787                 5,066
                                             2,618                  1,426                 4,044
                                             2,158                  1,176                 3,334
                                             1,341                    730                 2,071
                                             1,341                    730                 2,071
                                             1,275                    695                 1,970
                                             1,025                    559                 1,584
                                               696                    380                 1,076
                                               651                       -                  651
        Finding 1 Total                    197,261                 16,916               214,177

        Finding 2 – Unreasonable Travel
        0910820                             31,426                 17,130                48,556
        0916515                              3,829                  2,087                 5,916
         Finding 2 Total                    35,255                 19,217                54,472

        Finding 3 – Unreasonable Participant Support Expenditures
                                             4,744                         -              4,744
                                             4,000                         -              4,000
        Finding 3 Total                      8,744                         -              8,744

        Finding 4 – Unallowable Indirect Costs
        1305427                                -                    5,178                 5,178
        Finding 4 Total                             -               5,178                 5,178

        Finding 5 – Unallocable Visa Immigration Fees
                                                  796                    434              1,230
        Finding 5 Total          $            796       $            434       $          1,230




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