oversight

Performance Audit of Incurred Costs - University of Arizona

Published by the National Science Foundation, Office of Inspector General on 2017-10-03.

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

Performance Audit of Incurred Costs –
University of Arizona
REPORT PREPARED BY MOSS ADAMS LLP




October 3, 2017

OIG 17-1-010 (Revised)

AT A GLANCE
Performance Audit of Incurred Costs – University of Arizona
Report No. OIG 17-1-010 (Revised)
October 3, 2017

AUDIT OBJECTIVE
The National Science Foundation Office of Inspector General engaged Moss Adams LLP (Moss
Adams) to conduct a performance audit of incurred costs at the University of Arizona (UA) for the
period January 1, 2012, to December 31, 2014. The audit encompassed more than $176 million
comprising all costs claimed to NSF. The objective of the audit was to determine if costs claimed by
UA during this period were allocable, allowable, reasonable, and in conformity with NSF award
terms and conditions and applicable Federal financial assistance requirements. Moss Adams is
responsible for the attached auditor’s report and the conclusions expressed in this report. NSF OIG
does not express any opinion on the conclusions presented in Moss Adams’ audit report.

AUDIT RESULTS
Costs UA charged to its NSF-sponsored agreements did not always comply with Federal and NSF
award requirements. The auditors questioned $56,904 of costs claimed by UA during the audit
period. Specifically, auditors found $39,770 in inappropriate subaward payments; $12,196 in
improperly allocated compassionate leave; $3,529 in travel that did not appear to benefit the award;
$859 in unallowable pre-award charges; and $550 on an unallowable expenditure. Additionally, the
auditors noted an other matter related to an improperly coded transaction.

RECOMMENDATIONS
The auditors included five findings and an other matter in the report with associated
recommendations for NSF to resolve the questioned costs and to ensure UA strengthens its
administrative and management controls.

AUDITEE RESPONSE
UA agreed with some, but not all, of the findings in the report. UA contends that some of the costs
within the findings are allowable and disagreed with the auditors’ conclusions. After taking UA’s
comments into consideration, the auditors continue to question the costs and left the findings
unchanged. UA’s response is attached in its entirety to the report as Appendix A.

FOR FURTHER INFORMATION, CONTACT US AT (703) 292-7100 OR OIG@NSF.GOV.
MEMORANDUM

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

DATE:          October 3, 2017

SUBJECT:       Audit Report No. 17-1-010 (Revised), University of Arizona

Attached for your information is the Moss Adams LLP (Moss Adams) revised report for the audit of
costs totaling approximately $176 million charged by the University of Arizona (UA) to its sponsored
agreements with the National Science Foundation during the period January 1, 2012, to December 31,
2014. We revised the report to include UA’s complete response, part of which was erroneously omitted
from the original report, which was issued on September 28, 2017.

The objective of the audit was to determine if costs claimed by UA 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 monitoring responsibilities, the Office of Inspector General:

   •	 reviewed Moss Adams’ 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 Moss Adams, as necessary, to discuss audit progress, findings,
      and recommendations;
   •	 reviewed the audit report prepared by Moss Adams 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 Ken Lish at 703-292-7100.

Attachment

cc:
 John Anderson              Fae Korsmo                  Carrie Davison              Ken Lish
 John Veysey                Teresa Grancorvitz          Allison Lerner              Billy McCain
 Ann Bushmiller             Pamela Hawkins              Ken Chason                  Jeremy Hall
 Christina Sarris           Alex Wynnyk                 Susan Carnohan
 Joan Ferrini-Mundy         Rochelle Ray                Dan Buchtel
University of Arizona 

     Audit of Incurred Costs




National Science Foundation
	
 Office of Inspector General
	


       September 2017
Table of Contents

Background...................................................................................................................................................1
	
Results of Audit ............................................................................................................................................2
	
     Finding 1 –Subaward Costs ...................................................................................................................... 2
	
     Finding 2 – Unallowable Compassionate Leave ......................................................................................3
	
     Finding 3 – Unallowable Travel Charge...................................................................................................4
	
     Finding 4 – Unallowable Pre-Award Charge ........................................................................................... 5
	
     Finding 5 – Unallowable Cost Charged....................................................................................................6
	
     Other Matter .............................................................................................................................................7
	
Appendix A: Awardee Response.................................................................................................................. 8
	
Appendix B: Objective, Scope, Methodology and Criteria ........................................................................ 11
	
Appendix C: Questioned Costs Summary by Award ................................................................................. 13
	




Abbreviations

AAG                      Award and Administration Guide
ACM$                     Award Cash Management Service
CFR                      Code of Federal Regulation
UA                       University of Arizona
NSF                      National Science Foundation
OIG                      Office of Inspector General
OMB                      Office of Management and Budget
PI                       Principal Investigator
IDC                      Indirect Costs
Background
	

The National Science Foundation (NSF) is an independent Federal agency created 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.

NSF grantees must follow Federal and NSF grant regulations and guidance in administering their
NSF awards. The University of Arizona (UA or University) is a public university that was
established in 1885 and is a land-grant university with two medical schools. UA brings in more
than $606 million in research investment each year. UA is a member of the Association of
American Universities, which comprises the 62 leading public and private research universities.
During the audit period, UA had 568 NSF awards with $176,931,012 in costs claimed.

Moss Adams LLP, under contract with the NSF Office of Inspector General (OIG), audited the
costs claimed by UA on NSF awards for the period beginning January 1, 2012, and ending
December 31, 2014. In our testing of 250 judgmentally selected transactions, we identified 5
transactions with a total $56,904 (including associated Indirect Costs) of questioned costs charged
to 5 NSF awards and one transaction that was improperly coded within the correct grant.

The following findings were identified during our fieldwork of the above referenced selections and
are described in greater detail in the sections below.
        1.		 One (1) subaward payment totaling $39,770 (including estimated IDC) made outside
             of budget allocations.
        2.		 One (1) Compassionate Leave Expense in the amount of $12,196 (including estimated
             IDC) improperly allocated to the award based upon UA’s policy.
        3.		 One (1) Travel Charge in the amount of $3,529 (including OIG estimated IDC) that did
             not appear to benefit the grant.
        4.		 One (1) Pre-Award Charge in the amount of $859 (including estimated IDC) charged
             outside of the allowable limit.
        5.		 One (1) transaction in the amount of $550 that was not allowable based upon allowable
             cost guidance.
In addition, there was one (1) transaction in the amount of $12,000 related to consulting services
that was properly budgeted as consulting services on the initial NSF proposed budget but was
improperly coded to subawards rather than consulting when expensed. This did not result in a
monetary impact and therefore is noted as an other matter for the University’s consideration.

A schedule of questioned costs by award is included in Appendix C.



                                                1
	
Results of Audit
	

Finding 1 –Subaward Costs

We noted one transaction totaling $39,770, which included indirect costs of $9,371, that was
charged to an award for costs that had been classified as a subaward but was not budgeted within
the original and/or revised budgets, nor was any prior approval requested from NSF. According
to UA, the subaward was made to another university so that the PI, who transferred to that
university, could continue the work as originally described in the award proposal.

AAG, Chapter II, Section B.2. h (i) states if a PI plans to leave an organization during the course
of a grant, NSF gives the organization the prerogative to nominate a substitute PI or request
termination and close-out of the grant. But where the PI’s “original and new organizations agree,
NSF will facilitate a transfer of the grant and the assignment of remaining unobligated funds to
the [PI’s] new organization.” This should normally be done with a tripartite agreement or “by a
subaward arrangement (in certain circumstances) between the [PI’s ] original and new
organizations, subject to NSF’s consent.” Section B.2. h (ii) further states “[w]hen a [PI] plans to
leave an organization during the course of a grant, the [PI] or the Sponsored Projects Office, or
equivalent, shall notify the NSF Program Office…If the project is to be continued at the [PI’s]
new organization, and if NSF and both organizations agree, formal notification of the impending
transfer can be electronically initiated by either the [PI] or the [PI's] organization.” In addition,
AAG, Chapter II, Section B.3.a. states “[e]xcluding the procurement of items such as
commercially available supplies, materials, equipment, or general support services allowable
under the grant, no significant part of the research or substantive effort under an NSF grant may
be contracted or otherwise transferred to another organization without prior NSF authorization.”
In addition, Chapter II, Section B.3.b. states “If it becomes necessary to contract or otherwise
transfer a significant part of the research or substantive effort after a grant has been made, the
grantee shall submit [electronically], at a minimum: (i) a clear description of the work to be
performed; (ii) the basis for [the subawardee’s selection]; and (iii) a separate budget for each
subaward….NSF authorization will be indicated by an amendment to the grant.” There was no
evidence that UA requested or received any pre-authorization from NSF for the subcontracted
work. Table 1 details the questioned costs related to this transaction.


Table 1. Finding 1 Detailed Questioned Costs
                                                                                              Total
                                                                             Associated       Questioned
     Description                                      Award #   Direct Costs Indirect Costs   Cost
     Subaward was charged but never included in the
     budget                                                     $30,399      $9,371           $39,770

                                                                $30,399      $9,371           $39,770
Source: Auditor analysis of UA-transaction detail




                                                        2
Recommendations:

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

     1.		 Repay the $39,770 of questioned costs.
     2.		 Strengthen the administrative and management controls to ensure anticipated subawardee
          costs are identified within the original budget, or, if subawardee costs are later identified
          as necessary and reasonable for the grant, request prior approval from NSF through the
          appropriate steps. If a change is due to a PI transfer, administrative controls should be
          strengthened to identify the transfer and notify NSF.

University of Arizona Response: UA does not agree with the recommendation to repay the
questioned costs, although they do agree that they did not obtain NSF approval for the issuance of
the subaward. UA believes the subaward was used to continue the work originally described in
the proposal and there was a subsequent subaward approved by NSF for these activities. UA
believes the costs were appropriate.

Auditor’s Additional Comments: The subsequent subaward was related to undergraduate
researchers rather than the transfer of the PI. NSF requires prior approval for subawards as well
as changes/transfers of PIs, even though the subaward was furthering the goals of the agreement.
Our position regarding this finding does not change.

Finding 2 – Unallowable Compassionate Leave

We noted compassionate leave in the amount of $12,196, which includes fringe of $1,856 and
indirect costs of $4,146, for an employee that was identified as being charged to the grant as shown
in Table 2; however, compassionate leave is not allowable based upon UA’s compassionate
transfer of leave policy, which states “Grants and contracts may not be charged for compassionate
leave without approval of the sponsoring agency.” As no approval was documented, this charge is
unallowable based upon the University’s policy. Internal controls do not appear to be in place to
identify when compassionate leave is being identified as a charge to a grant so approval can be
requested in accordance with policy.

Table 2. Finding 2 Detailed Questioned Costs
                                                                                                   Total
                                                                                  Associated     Questioned
                                                                                Indirect Costs      Cost
Description                                   Award #   Direct Costs   Fringe
Grants and contracts may not be charged for
compassionate leave without approval of the
sponsoring agency.
                                                          $6,194       $1,856      $4,146         $12,196
                                                          $6,194       $1,856      $4,146         $12,196

Source: Auditor analysis of UA-transaction detail



                                                         3
Recommendations:

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

    1.		 Repay the $12,196 of questioned costs.
    2.		 Strengthen the administrative and management controls to ensure that there are processes
         in place to facilitate the adherence to UA policies and procedures.

University of Arizona Response: UA partially agrees with the finding and notes that Federal
and NSF guidance does not specifically prohibit charging compassionate leave, however does
agree that their internal procedures require sponsor approval.

Auditor’s Additional Comments: Our position regarding this finding does not change.

Finding 3 – Unallowable Travel Charge

We identified one transaction for travel expenses in the amount of $3,529, which included indirect
costs of $1,200, that were charged to a specified grant, but appears to benefit a different grant the
PI was working on, as shown in Table 3. The PI’s justification was the travel was for a meeting,
which advanced the goal of the project. In reviewing the original travel documentation, we noted
the Fiscal Officer had written the trip was for “giving invited talk at                  for extremely
large telescope to talk about            AO System.” The PI had noted the expense was for “giving
invited talk on Future AO systems at the                 conference.” Based upon our review of the
grant proposals and summaries, we noted that grant #              was specifically for research related
to the                                  AO System and therefore, appears to be directly related to a
different grant and not related to the grant the expenses were coded to when reviewing the Fiscal
Officer’s written documentation. In addition, the related payroll for the PI was charged to the other
grant, which further supports the travel was charged to the incorrect grant. Internal controls did
not seem to have been properly followed to ensure the expenditures were coded to the correct
grant.

Table 3. Finding 3 Detailed Questioned Costs
                                                                                                        Total
                                                                       Transaction     Associated     Questioned
Description                                                  Award #      total      Indirect Costs      Cost

Travel to           does not agree with budget description
for this award, but instead appears to be related to
award            . Question use of         funds for
          travel.                                                      $2,329        $1,200           $3,529

                                                                       $2,329        $1,200           $3,529
Source: Auditor analysis of UA-transaction detail




                                                               4
	
Recommendations:

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

    1.		 Repay the $3,529 of questioned costs.
    2.		 Strengthen the administrative and management controls to ensure charges to the grant
         directly benefit the grant being charged, rather than other grants on which the PI may be
         simultaneously working.

University of Arizona Response: UA disagrees with the finding and believes the PI’s travel
documentation justifies charging the travel to the award. They note the abstract for the award
describes the scope as being in-line with the conference the PI attended.

Auditor’s Additional Comments: Our position regarding this finding does not change. The PI’s
notes do not provide a clear indication of which grant the travel expenses related to; however, the
Fiscal Officer had additional notes related to the expenditure that imply they directly relate to
another grant. In addition, the related payroll costs which were charged to a different grant further
support our conclusion.

Finding 4 – Unallowable Pre-Award Charge

We identified one transaction related to a pre-award charge, which was outside of the NSF
specified time period for pre-award charges, for the amount of $859, which included indirect costs
of $292, as shown in Table 4. AAG, Chapter V, Section A.2.b.i. states that “grantees may incur
pre-award costs within the 90-day period immediately preceding the start date of the grant.” UA
has informed us that the grant had an anticipated start date of March 1, 2013, and, therefore, they
began work and incurred expenditures benefitting the grant in January 2013; however, due to
internal administrative reasons the grant did not commence until May 15, 2013, and the cost was
not identified as being outside the pre-award period. As the purchase was made prior to NSF’s 90-
day pre-award period, the charge is considered unallowable.

Table 4. Finding 4 Detailed Questioned Costs
                                                                                                     Total
                                                                    Transaction     Associated     Questioned
Description                                               Award #      Total      Indirect Costs      Cost

Purchase of Research supplies were charged against this
award 96 days prior to effective date                                $567          $292            $859

                                                                     $567          $292             $859
Source: Auditor analysis of UA-transaction detail




                                                            5
	
Recommendations:

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

    1.		 Repay the $859 of questioned costs.
    2.		 Strengthen the administrative and management controls to ensure procedures are in place
         to ensure pre-award purchases are made within the specified 90-day window.

University of Arizona Response: UA agrees with the finding; however, they noted the costs were
incurred as they had anticipated an earlier start date. They note the costs incurred were specifically
for the benefit of the project and would have otherwise been allowable.

Auditor’s Additional Comments: Our position regarding this finding does not change.

Finding 5 – Unallowable Cost Charged

We identified one transaction for $550, in which UA had charged gym access fees to a grant, as
shown in Table 5. Entertainment costs are not typically an allowable expense based upon OMB
Circular A-21, Section J. 17. In addition, membership in organizations are typically not allowable
based upon OMB Circular A-21, Section J. 33. It is not clear how the expenditure would have
benefitted the Federal award or that it was ordinary and necessary for the operation of the award.
It appears as though staff responsible for approving the expenditures were not aware that these
types of expenditures are typically unallowable based upon the CFRs.

Table 5. Finding 5 Detailed Questioned Costs
                                                                                               Total
                                                              Transaction     Associated     Questioned
Description                                         Award #      Total      Indirect Costs      Cost

Gym access fees are not allowable.                               $550                          $550

                                                                 $550                          $550
Source: Auditor analysis of UA-transaction detail

Recommendations:


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

     1.		 Repay the $550 of questioned costs.
     2.		 Strengthen the administrative and management controls to ensure charges to the grant are
          allowable per NSF guidelines.




                                                       6
	
University of Arizona Response: UA agreed with the finding although notes the costs were
incurred for the benefit of the students that participated on the project.

Auditor’s Additional Comments: Our position regarding this finding does not change.

Other Matter

During the review of budget versus actual transactions for award #          , we noted a transaction
for $12,000 related to consulting, which was charged to the subaward category, although it was
initially budgeted under consulting fees. Based upon discussions with UA, this was a clerical error,
which resulted in charging the incorrect budget code. As the transaction was for consulting
services, which were budgeted, we do not consider this a questioned cost; however, there appears
to be a deficiency in controls as the cost was coded to the incorrect account.

Recommendations:

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

    1. Strengthen the administrative and management controls to ensure charges made to each
        budget category are correctly expensed to the corresponding categories.

University of Arizona Response: UA agreed with the recommendation and plans to review their
controls pertaining to coding of subawards and consultant payments.

Auditor’s Additional Comments: Our position regarding this recommendation does not change.




Moss Adams LLP
	
September 22, 2017 





                                                 7
	
Appendix A: Awardee Response 





                                 8

9

10 

Appendix B: Objective, Scope, Methodology and Criteria 



The NSF OIG Office of Audits engaged Moss Adams, LLP (referred to as “we” in this report) to
conduct a performance audit of costs that the University of Arizona incurred on NSF awards for
the period from January 1, 2012, through December 31, 2014. The objectives of the audit were
to identify and report on instances of unallowable, unallocable, and unreasonable costs, as well
as instances of noncompliance with regulations, Federal financial assistance requirements, and
provisions of the NSF award agreements as they relate to the transactions tested.

UA management is responsible for establishing and maintaining effective internal control to ensure
that Federal award funds are used in compliance with laws, regulations, and award terms. In
planning and performing our audit, we considered UA’s internal control solely for the purpose of
understanding the policies and procedures relevant to the financial reporting and administration of
NSF awards in order to evaluate UA’s compliance with laws, regulations, and award terms
applicable to the items selected for testing, but not for the purpose of expressing an opinion on the
effectiveness of UA’s internal control over award financial reporting and administration.
Accordingly, we do not express an opinion on the effectiveness of UA’s internal control over its
award financial reporting and administration.

At NSF OIG’s request, UA provided detailed transaction data for all costs charged to NSF awards
for the period January 1, 2012, through December 31, 2014. NSF OIG reviewed available
accounting and administration policies and procedures, relevant documented management
initiatives, previously issued external audit reports and desk review reports, and schedules and
reconciliations prepared by UA.

After verifying the population of data was appropriate, NSF OIG analyzed the data contained in
UA’s general ledger and supporting detailed ledgers to identify anomalies, outliers, and aberrant
transactions. NSF OIG then judgmentally selected a sample of transactions to test based on criteria
that included, but were not limited to, large dollar amounts; possible duplications; indications of
unusual trends in spending; inconsistency with other transactions; even dollar amounts; and
descriptions indicating potentially unallowable costs and frequency.

NSF OIG identified and provided to us a list of 250 initial transactions for testing and then another
37 transactions for cluster testing. We sent this list to UA and requested documentation to support
each transaction. We reviewed the supporting documentation provided by UA and evaluated the
allowability, allocability, and reasonableness of each transaction. When necessary, we requested
additional supporting documentation, reviewed it, and obtained explanations and justifications
from PIs and other knowledgeable UA personnel until we had sufficient support to assess the
allowability, allocability, and reasonableness of each transaction. Our work required us to rely on
the computer-processed data obtained from UA and NSF OIG. We assessed NSF’s computer
processed data and found it to be sufficiently reliable for the purposes of this audit.



                                                 11
	
At the conclusion of our fieldwork, we provided a summary of our results to NSF OIG personnel
for review. We also provided the summary of results to UA personnel to ensure they were aware
of each of our findings and did not have any additional documentation to support the questioned
costs.

We conducted this performance audit in accordance with Generally Accepted Government
Auditing Standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.




                                              12
	
      Appendix C: Questioned Costs Summary by Award


                           Questioned Costs Summary by Award & Rule


                                                                                     Associated       Total         Total
          Selection                                                                  Indirect         Unsupported   Questioned
Finding   Group            Rule                             Award     Direct costs   Costs            Costs         Costs


1         Procurement      Subaward Budget vs. Actual                      $30,399           $9,371             0       $39,770




2         Payroll          Compassionate Leave                              $6,194           $6,002             0       $12,196



          General Ledger   Travel on Different Award than
3                          Payroll                                           2,329            1,200            0         $3,529


          General
4         Ledger           Pre-Award Charges                                   567             292             0              $859


          General
5         Ledger           Unallowable Costs                                   550                -             0             $550




                                                                                     Total                          $56,904




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