oversight

Performance Audit of Incurred Costs on EPSCoR Awards‐University of Kansas Center for Research Inc.

Published by the National Science Foundation, Office of Inspector General on 2021-01-07.

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

Performance Audit of Incurred Costs on
EPSCoR Awards – University of Kansas
Center for Research, Inc.




January 7, 2021
OIG 21-1-001
  OIG 21-1-001
AT A GLANCE
Performance Audit of Incurred Costs on EPSCoR Awards –
University of Kansas Center for Research, Inc.
Report No. OIG 21-1-001
January 7, 2021

WHY WE DID THIS AUDIT
We conducted a performance audit of incurred costs on five Established Program to Stimulate
Competitive Research (EPSCoR) awards to the University of Kansas Center for Research, Inc.
(KUCR). The objective of this audit was to determine if costs claimed on these awards were
allowable, allocable, reasonable, and in conformity with NSF award terms and conditions and
applicable Federal requirements.

WHAT WE FOUND
We identified instances of noncompliance with certain Federal regulations and NSF policies in
KUCR’s administration of three of its five EPSCoR awards. Specifically, we questioned $1,550,054
in direct and indirect costs claimed by KUCR, including:

   •   $625,532 in inappropriately retained indirect costs;
   •   $15,854 in inappropriately charged indirect costs;
   •   $569,477 in unsupported charges;
   •   $328,494 in unsupported cost share; and
   •   $10,697 in unallowable charges.

Please see Appendix C for a breakdown of the questioned costs by finding.

WHAT WE RECOMMEND
We made 11 recommendations for NSF to resolve the questioned costs and to ensure KUCR
strengthens its administrative and management controls and processes.

AUDITEE RESPONSE
KUCR agreed with some of the findings and questioned costs in the report. KUCR's response is
attached in its entirety to the report as Appendix A.

FOR FURTHER INFORMATION, CONTACT US AT OIGPUBLICAFFAIRS@NSF.GOV.
                         National Science Foundation • Office of Inspector General
                            2415 Eisenhower Avenue, Alexandria, Virginia 22314

MEMORANDUM

DATE:                 January 7, 2021

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:              Final Report No. 21-1-001, Performance Audit of Incurred Costs on EPSCoR
                      Awards – University of Kansas Center for Research, Inc.


Attached is the final audit report on the subject audit. We have included University of Kansas Center for
Research, Inc.’s response to the report as an appendix.

Please coordinate with our office during the 6-month resolution period, as specified by Office of
Management and Budget Circular A-50, Audit Followup, to develop a mutually agreeable resolution of
the audit findings. The findings should not be closed until NSF determines that all recommendations
have been adequately addressed and the proposed corrective actions have been satisfactorily
implemented.

We appreciate the courtesies and assistance that was extended during this audit. If you have any
questions regarding this report, please contact Kelly Stefanko, Audit Manager, at          @nsf.gov or
703.292.7100 or oigpublicaffairs@nsf.gov.



cc:            Christina Sarris      Karen Scott            Loretta Moore     Carrie Davison
               Tim VanReken          Rochelle Ray           Ken Lish          Jeanette Hyatt
               Allison Lerner        Louise Nelson          Dan Buchtel       Emma Bright
               Elizabeth Kearns      Kelly Stefanko         Jennifer Miller   Jennifer Kendrick
TABLE OF CONTENTS
Background ......................................................................................................................................... 1
Results of Audit................................................................................................................................... 2
  Finding 1: Inappropriately Retained Indirect Costs .................................................................. 2
  Recommendations ........................................................................................................................ 3
  Finding 2: Inappropriately Charged Indirect Costs ................................................................... 4
  Recommendation .......................................................................................................................... 5
  Finding 3: Unsupported Expenses ............................................................................................... 5
  Recommendations ........................................................................................................................ 8
  Finding 4: Unsupported Cost Share Expenses......................................................................... 10
  Recommendation ........................................................................................................................ 12
  Finding 5: Unallowable Expenses .............................................................................................. 13
  Recommendations ...................................................................................................................... 15
Appendix A: KUCR’s Response ....................................................................................................... 17
Appendix B: Objective, Scope, and Methodology ........................................................................ 26
Appendix C: Summary of Questioned Costs by Finding ............................................................. 28


ABBREVIATIONS
Open Track-1 Award                            NSF Award No.
Closed Track-1 Award                          NSF Award No.
Haskell                                       Haskell Indian Nations University
HERS                                          Haskell Environmental Research Studies Summer
KSU                                           Kansas State University
KUCR                                          University of Kansas Center for Research, Inc.
PSC                                           participant support cost
STEM                                          science, technology, engineering, and math
Background
The National Science Foundation is an independent Federal agency created by Congress in 1950 “[t]o
promote the progress of science; to advance the national health, prosperity, and welfare; to secure the
national defense; and for other purposes” (Pub. L. No. 81-507). NSF is the funding source for
approximately 24 percent of all federally supported basic research conducted by America’s colleges and
universities. Each year, NSF supports an average of about 200,000 scientists, engineers, educators, and
students at universities, laboratories, and field sites throughout the United States and the world.

One way NSF funds such initiatives is by providing awards to targeted jurisdictions through its
Established Program to Stimulate Competitive Research (EPSCoR). EPSCoR’s mission is to develop
research competitiveness in these jurisdictions by strengthening science, technology, engineering, and
math (STEM) capability and capacity so that they may become recognized contributors to national and
global STEM research. States and territories receiving 0.75 percent or less of total NSF research funding
over a 3-year period are eligible to receive EPSCoR funding.

The state of Kansas, which received more than $102.5 million (approximately .61 percent) of NSF’s
total research support between fiscal years 2016 to 2018, is eligible to receive EPSCoR awards. As part
of this jurisdiction, the University of Kansas Center for Research, Inc. (KUCR), a not-for-profit research
foundation that operates under the administrative jurisdiction of the University of Kansas Office of
Research, received NSF-funded EPSCoR Research Infrastructure Improvement Program awards. KUCR
helps researchers by providing proposal and post-award services, overseeing research compliance,
managing and constructing research facilities, and handling financial services.

We conducted this audit of KUCR as part of our ongoing audit to assess whether NSF is ensuring award
recipients comply with NSF and Federal requirements in the administration of EPSCoR awards.
Specifically, we audited costs claimed on five EPSCoR awards to KUCR to determine if these costs
were allowable, allocable, reasonable, and in conformity with NSF award terms and conditions and
applicable Federal requirements. Two of the awards were Research Infrastructure Improvement Program
                                               1            2
“Track-1” awards (NSF Award Nos.                 and          ) and three were “Track-2” awards (NSF
Award Nos.            ,         , and         ).

Track-1 awards provide up to $20 million for 5 years and require the recipient to provide an additional
20 percent of the amount requested from NSF toward the total project cost (cost sharing). To broaden
their impacts, Track-1 awards fund research programs at other institutions (subrecipients) within the
jurisdiction through subaward agreements. Track-2 awards provide up to $1.5 million per year for up to
4 years to build collaborative teams of EPSCoR researchers across jurisdictions.




1
  We refer to this award as KUCR’s closed Track-1 award.
2
  We refer to this award as KUCR’s open Track-1 award. Jurisdictions are limited to having only one Track-1 award at a
time.


1      NSF.GOV/OIG | OIG 21-1-001
Results of Audit
We identified instances of noncompliance with certain Federal regulations and NSF policies in KUCR’s
administration of three of its five EPSCoR awards. Specifically, we questioned $1,550,054 in direct and
indirect costs claimed by KUCR, including:

    •    $625,532 in inappropriately retained indirect costs;
    •    $15,854 in inappropriately charged indirect costs;
    •    $569,477 in unsupported charges;
    •    $328,494 in unsupported cost share; and
    •    $10,697 in unallowable charges.

Please see Appendix C for a breakdown of the questioned costs by finding.

Finding 1: Inappropriately Retained Indirect Costs
KUCR’s charges to its EPSCoR awards exceeded costs paid to its subrecipients 3 on both of its Track-1
awards and one of its Track-2 awards. According to KUCR’s established practice, subrecipient state
institutions agreed to contribute towards EPSCoR program management costs that “are not appropriate
to be paid by research dollars.” According to KUCR, this practice was instituted “early in Kansas
EPSCoR history, most likely the mid‐1990s, but no written agreement…existed” until a Letter of
Agreement was signed on July 12, 2016, by the University of Kansas and the other state institutions
involved.

Under the agreement, subrecipients 4 billed KUCR for indirect costs on EPSCoR awards at rates that
were 8 percentage points lower than their formal negotiated indirect cost rates. KUCR paid subrecipients
at the lower rates, but it charged the EPSCoR awards for allowable indirect costs at the full, negotiated
indirect cost rates and retained the remainder. 5 KUCR did not disclose this agreement to NSF in its
proposals; instead, it included the full negotiated indirect cost rates on subrecipient budgets in its
proposals with the caveat that KUCR was not charging indirect costs on the first $25,000 of each
subaward, as would have been allowed by its negotiated rate. 6


3
  The subrecipients included Emporia State University, Fort Hays State University, Kansas State University, Pittsburg State
University, and Wichita State University.
4
  The only parties to the agreement are institutions in the Kansas Board of Regents System. Therefore, the agreement does
not include KUCR’s subrecipient Haskell Indian Nations University, University of Illinois, or Arizona State University.
5
  For example, if a subrecipient had a formal negotiated indirect cost rate of 50 percent of modified total direct costs, the
subrecipient would submit an invoice to KUCR as if its rate were 42 percent of modified total direct costs (8 percentage
points lower than the formal negotiated rate). KUCR would then charge the EPSCoR award for allowable indirect costs at the
full 50 percent indirect cost rate, remit the reduced amount (at 42 percent indirect cost rate) to the subrecipient, and retain the
remainder for EPSCoR program management costs.
6
  According to its Negotiated Indirect Cost Rate Agreement, KUCR can assess indirect costs on the first $25,000 of a
subaward. As part of its EPSCoR proposals, KUCR elected not to assess indirect costs on the first $25,000 of subawards
issued on the Track-1 and applicable Track-2 awards. In response to this finding, KUCR indicated that it will revise this
decision to help ensure the availability of necessary programmatic support for the Kansas NSF EPSCoR office.


2       NSF.GOV/OIG | OIG 21-1-001
KUCR improperly retained $625,532 of its subrecipients’ indirect costs: $522,529 charged to the two
Track-1 awards and $103,003 charged to one Track-2 award. By reducing the indirect cost rates from
the formal negotiated rates, KUCR’s subrecipients did not receive full reimbursement for allowable
indirect costs. Reducing an otherwise allowable expense creates an applicable credit that must be
credited to the EPSCoR awards as either a cost reduction or cash refund. 7

KUCR agreed to end the practice. We find KUCR’s proposed path forward of ending the practice to be
responsive to the finding.

KUCR concurred with all $625,532 in questioned costs, as illustrated in Table 1.

Table 1. Expenses Questioned as Indirect Costs Retained from Subrecipients

                                                                              Questioned Costs              KUCR Agreed
                                                                                                            to Adjust**
                   Description                       Award No.        Direct*       Indirect Total
 Indirect Costs Retained from Subrecipients                           $466,829            $0 $466,829               $466,829
 Indirect Costs Retained from Subrecipients                            $55,700            $0 $55,700                 $55,700
 Indirect Costs Retained from Subrecipients                           $103,003            $0 $103,003               $103,003
 Total                                                                $625,532            $0 $625,532               $625,532
Source: Auditor summary of expenses questioned as indirect costs retained from subrecipients.
*
  Although these were indirect costs of subrecipients, these are considered direct costs to the prime awardee, KUCR.
**
  KUCR agreed to remit these amounts to the appropriate subrecipients.

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

    1. Resolve the $625,532 in subrecipient indirect costs retained by KUCR and direct KUCR to
       correct or otherwise remove the sustained questioned costs from its NSF awards.

    2. Confirm that KUCR has ended the practice of retaining a portion of allowable subrecipient
       indirect costs charged to EPSCoR awards.

KUCR Response

KUCR disagreed that the practice of retaining a portion of allowable subrecipient indirect costs charged
to its EPSCoR awards resulted in an applicable credit, but agreed to discontinue the practice. KUCR
stated that this practice does not result in overcharges to the Government and that it represents an

7
  2 CFR 200.406(a) states, “Applicable credits refer to those receipts or reduction-of-expenditure-type transactions that offset
or reduce expense items allocable to the Federal award as direct or indirect (F&A) [Facilities and Administrative] costs.
Examples of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance
refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or
received by the non-Federal entity relate to allowable costs, they must be credited to the Federal award either as a cost
reduction or cash refund, as appropriate.”


3      NSF.GOV/OIG | OIG 21-1-001
agreement with other Regents Universities that is independent of NSF’s administration of the EPSCoR
awards. Additionally, KUCR noted that the practice was reviewed in a prior NSF OIG audit and did not
result in any associated findings.

Auditor Comment

Our position regarding this finding has not changed. The practice of retaining a portion of allowable
subrecipient indirect costs reduces an otherwise allowable expense, which creates an applicable credit
that must be credited to the EPSCoR awards as either a cost reduction or cash refund. In the applicable
award proposals, KUCR requested funding for the full amount of allowable indirect costs for its
subrecipients without intending to remit the full amount of those funds to its Regents Universities
subrecipients. Whenever this practice is fully integrated into the accounting and operation of the
EPSCoR award, it cannot be seen as outside of NSF’s oversight.

As KUCR noted, the OIG was aware of this practice during our prior audit and had significant concerns
about it. During the previous audit, when asked for documentation of its agreement with the Regents
Universities subrecipients, KUCR was unable to provide any. Subsequently, KUCR developed a written
agreement, dated July 12, 2016; therefore, there was a gap between when the 2016 agreement was
signed and the start of this practice in the 1990s. Prior to issuing the final report on the prior audit, we
decided to conduct a subsequent audit of KUCR to better understand and quantify this practice. This
report details the results of our subsequent audit.

In April 2020, KUCR told us that it would remit the questioned withheld indirect costs to the applicable
subawardees. This action would eliminate the applicable credit. We find this approach to be reasonable
and responsive to the finding.

Finding 2: Inappropriately Charged Indirect Costs
KUCR inappropriately charged $15,854 in indirect costs paid to its subrecipients of its open Track-1
award. KUCR stated this occurred because the expense account “Subcontractor F&A” was incorrectly
mapped in KUCR’s new financial system, causing it to misapply indirect costs. KUCR acknowledged
the issue and said it put a corrective action plan in place to identify all project costs on the account,
remove the incorrect indirect costs assessed, and offset its January 2020 draw-down from ACM$ to
adjust for the indirect costs it erroneously assessed. KUCR also said it will update its current financial
system to include a new expenditure type under the “No F&A” budget category to ensure this issue is
remedied in the future.

KUCR concurred with the $15,854 in questioned costs, as illustrated in Table 2.




4     NSF.GOV/OIG | OIG 21-1-001
Table 2. Expenses Questioned as Unallowable Indirect Costs
                                                                  Questioned Costs                  KUCR
                  Description                     Award No. Direct   Indirect Total                 Agreed to
                                                                                                    Reimburse
    Unallowable Indirect Costs                                            $0    $15,854   $15,854       $15,854
    Total                                                                 $0    $15,854   $15,854       $15,854
Source: Auditor summary of expenses questioned as unallowable indirect costs.


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

      1. Resolve the $15,854 in unsupported indirect costs charged, and direct KUCR to repay or
         otherwise remove the sustained questioned costs from its NSF award.

KUCR Response

KUCR stated that it has corrected the system mapping and implemented a corrective action plan to
identify and correct all erroneous postings. It stated that it returned $15,854 as an offset in its January
2020 draw‐down from ACM$.

Auditor Comment

We acknowledge KUCR’s concurrence with the finding. Our position regarding this finding remains the
same.

Finding 3: Unsupported Expenses

KUCR charged $569,477 of unsupported subaward expenses to two EPSCoR awards. These charges
included salary, fringe, material, supplies, and travel costs claimed by Haskell Indian Nations University
(Haskell), a tribal university operated by the U.S. Bureau of Indian Affairs.

Unsupported Subaward Salary and Fringe Expenses

Haskell charged $43,117 in unsupported salary and fringe benefits and $8,580 in associated indirect
costs to KUCR.

Haskell invoiced KUCR for salary and fringe benefits based on budget estimates rather than actual costs.
Neither Haskell nor KUCR provided documentation of Haskell’s actual costs. KUCR did not require
Haskell to provide supporting documentation with its subaward invoices and did not maintain
documentation of Haskell’s actual costs.

Haskell acknowledged that staff who charged salary and fringe benefits to the EPSCoR award also
worked on non-award related tasks, but it did not document how staff allocated time to EPSCoR-related


5        NSF.GOV/OIG | OIG 21-1-001
activities and to other projects or activities. Instead of charging the actual hours spent working on
EPSCoR-related activities, Haskell charged salaries up to the amounts in its subaward budget. To
support its salary charges, Haskell sent us employee pay stubs for periods it estimated the employees
worked on EPSCoR-related activities. However, the documentation did not demonstrate that the
employees worked on the subaward or distinguish between time spent working on EPSCoR and non-
EPSCoR activities.

To be allowable, costs must be determined in accordance with generally accepted accounting
principles, 8 be adequately documented, 9 and be allocable. 10 Further, charges to Federal awards for non-
faculty salaries and wages must be based on records that accurately reflect the work performed. 11 KUCR
included these requirements in its subaward agreement with Haskell. Therefore, we are questioning
$51,697 in unsupported salary and fringe benefits costs ($43,117) and associated indirect costs ($8,580)
Haskell charged to KUCR.

KUCR is responsible for determining the appropriate level of subrecipient monitoring based on each
subrecipient’s risk. 12 KUCR did not effectively assess the risk of entering into a subaward relationship
with Haskell. As a result, it may not have provided the appropriate level of monitoring. For example,
KUCR told us it was unaware that Haskell was using budget estimates instead of actual expenses to
charge costs to the subaward. It also was unaware that Haskell did not have policies or procedures to
document salaries and wages that accurately reflected the work performed on subawards. A more
effective risk assessment, identifying the need for additional terms and conditions requiring Haskell
provide supporting documentation with invoices, may have provided KUCR with additional insight on
the appropriate level of subrecipient monitoring to help ensure the subaward’s use for authorized
purposes and in compliance with applicable statutes, regulations, and terms and conditions.




8
  Under 2 CFR 200.403(e) except where otherwise authorized by statute, to be allowable, a cost must, “[b]e determined in
accordance with generally accepted accounting principles.”
9
  Under 2 CFR 200.403(g), except where otherwise authorized by statute, to be allowable, a cost must “[b]e adequately
documented.”
10
   Under 2 CFR 200.405(a), “A cost is allocable to a particular Federal award or other cost objective if the goods or services
involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.”
11
   2 CFR 200.430(h)(8)(i) states “Charges to Federal awards for salaries and wages must be based on records that accurately
reflect the work performed. These records must:(i) Be supported by a system of internal control which provides reasonable
assurance that the charges are accurate, allowable, and properly allocated…(vii) Support the distribution of the employee's
salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal
award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are
allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity.(viii) Budget
estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal
awards.”
12
   2 CFR 200.331 states the pass-through entity must “[e]valuate each subrecipient’s risk of noncompliance with Federal
statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate level of
subrecipient monitoring….” Further, the entity must “[m]onitor the activities of the subrecipient as necessary to ensure that
the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions
of the subaward; and that subaward performance goals are achieved.” The prior guidance (OMB A-133) also required
subrecipient monitoring.


6      NSF.GOV/OIG | OIG 21-1-001
Unsupported Subaward Material, Supplies, and Travel Expenses

KUCR charged $382 of materials and supplies and associated indirect costs that Haskell claimed that
had subsequently been refunded by the vendor or KUCR could not support. Further, KUCR charged
$1,941 of Haskell’s travel charges and associated indirect costs that it could not support.

To be allowable, costs must be adequately documented 13 and refunds must be credited to the award. 14
Therefore, we are questioning $2,322 in unsupported materials, supplies, travel, and associated indirect
costs. 15

Unsupported Subaward Expenses on Closed Award

Neither KUCR nor its subrecipient Haskell provided support for Haskell’s expenses charged to the
closed Track-1 award. At the time of our audit, KUCR was required to maintain support for costs
claimed on the award per record retention requirements. 16 KUCR did not require Haskell to provide
supporting documentation with its invoices and thus was unaware that Haskell was not maintaining
support for costs claimed on its subaward.

Initially, we selected $51,972 of Haskell expenses on the award for testing. When KUCR said Haskell
could not provide documentation substantiating these expenses, we asked KUCR to have Haskell
identify any transactions it could support on the award. Haskell stated that documentation for the award
may exist in long-term storage at the American Indian record repository or the National Archives, but
we should expect substantial delays in locating and accessing the documents.

KUCR is responsible for ensuring documentation is retained per Federal and NSF award requirements. 17
Because neither KUCR nor Haskell could provide supporting documentation for expenses charged to the


13
   Under 2 CFR 200.403(g) , except where otherwise authorized by statute, to be allowable, a cost must “[b]e adequately
documented.”
14
   2 CFR 200. 406(a) states “[a]pplicable credits refer to those receipts or reduction-of-expenditure-type transactions that
offset or reduce expense items allocable to the Federal award as direct or indirect (F&A) costs. Examples of such transactions
are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and
adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the non-Federal
entity relate to allowable costs, they must be credited to the Federal award either as a cost reduction or cash refund, as
appropriate.”
15
   Totals may not add due to rounding. Haskell charged KUCR $1,937 for direct materials, supplies, and travel costs, plus
$385 of associated indirect cost (19.9 percent).
16
   2 CFR Part 215.53(b) states “Financial records, supporting documents, statistical records, and all other records pertinent to
an award for a period of three years from the date of submission of the final expenditure report or, for awards that are
renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, as authorized by
the Federal awarding agency.” Further, “[i]f any litigation, claim or audit is started before the expiration of the 3-year period,
the records shall be retained until all litigation, claims or audit findings involving the records have been resolved and final
action taken.” The final expenditure report on the closed Track-1 award was submitted November 14, 2017 and our audit was
started July 2, 2019, less than three years after the final expenditure report.
17
   NSF Cooperative Agreement Financial & Administrative Terms and Conditions, effective January 4, 2010, which were
applicable to NSF award              , states KUCR remains “…responsible for maintaining the necessary documentation on all
subawards and making it available to NSF upon request.”


7      NSF.GOV/OIG | OIG 21-1-001
award, we are questioning all $515,458 of expenses Haskell charged to the award. 18

KUCR concurred with $2,322 of the questioned costs and disagreed with $567,155, as illustrated in
Table 3.

Table 3. Expenses Questioned as Unsupported

                   Description                        Award No.                  Questioned Costs                  KUCR
                                                                                                                  Agreed to
                                                                          Direct        Indirect       Total
                                                                                                                  Reimburse
 Unsupported Subaward Salary and Fringe                                     $51,697           $0      $51,697                 $0
 Unsupported Subaward Material and Supplies                                  $2,322           $0       $2,322             $2,322
 and Travel
 Unsupported Subaward Expenses on Closed                                   $515,458           $0      515,458                $0
 Award
 Total                                                                     $569,477           $0     $569,477             $2,322
Source: Auditor summary of expenses questioned as unsupported.


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

     1. Resolve the $569,477 in questioned unsupported subaward costs, and direct KUCR to repay or
        otherwise remove the sustained questioned costs from its NSF awards.
     2. Direct KUCR to provide additional oversight to ensure Haskell is charging its subaward based on
        actual costs incurred and develops processes and controls to appropriately account for salary and
        fringe benefit charges.
     3. Direct KUCR to strengthen its administrative and management controls and processes related to
        subaward risk assessment and oversight.
     4. Direct KUCR to strengthen its administrative and management controls and processes related to
        record retention.

KUCR Response

KUCR responded to the report findings by section, as follows.

Unsupported Subaward Salary and Fringe

KUCR stated that Haskell is a Federal university and uses Federal financial and payroll systems to post
and track expenditures to a general ledger. These systems limit Haskell’s ability to distribute payroll
charges across different cost objectives. To address these limitations, Haskell uses Excel files to allocate
and track expenses on projects. KUCR stated that Haskell’s manual process provides reasonable

18
  KUCR reimbursed Haskell $515,458 from the award and $273,030 with other funds as part of its cost share contribution.
See Finding 4.


8      NSF.GOV/OIG | OIG 21-1-001
assurance of allowability and allocability of costs charged to the EPSCoR award through “regular
monitoring and review of these Excel files.”

KUCR believes Haskell’s salary, fringe benefits, and associated indirect costs were reasonable for the
services provided. Based on KUCR’s process for approval of subrecipient invoices, KUCR maintains
that costs reported for Haskell are allowable and reasonable.

With respect to monitoring of the Haskell subaward, KUCR stated that its policies and practices for
monitoring, including performing a risk assessment, were in accordance with requirements included in
2 CFR 200.331. KUCR also stated that because Haskell is a Federal entity, the requirements of 2 CFR
200.331 do not apply to its subaward relationship with Haskell; however, KUCR still applied its risk
assessment and monitoring procedures to the Haskell agreement to ensure the subaward was used for
authorized purposes and performance goals were achieved. KUCR assessed Haskell to be a low-risk
subrecipient and applied its established monitoring activities for low-risk subrecipients to the subaward.
KUCR stated its defined subrecipient monitoring policies and procedures achieve the objectives of
ensuring compliance with applicable requirements.

Unsupported Subaward Material and Supplies and Travel

KUCR agreed to remove the questioned costs of $2,322 from the cost share reported to NSF 19 and to
work with Haskell to ensure adequate supporting documentation for subaward costs.

Unsupported Subaward Expenses on Closed Award

KUCR stated that as a Federal entity, Haskell consistently applies a 3-year retention period to applicable
documentation. KUCR and Haskell interpreted the applicable Federal regulation for records retention
under subawards to mean that Haskell’s 3-year retention period begins with submission of its final cost
claim to KUCR under a subaward. KUCR noted that NSF clarified its records retention requirements for
subawards on October 5, 2020. NSF’s updated award term states, “This includes ensuring necessary
documentation for all subawards is maintained for the same retention period as the grantee’s and making
it available to NSF upon request.” KUCR is working with its subrecipients to ensure compliance.

Finally, KUCR notes that it assessed Haskell to be a low-risk subrecipient that did not require escalated
monitoring. KUCR maintains that work was performed and reported to NSF in accordance with
EPSCoR award requirements and that NSF should accept Haskell’s costs as claimed.

Auditor Comment

Our finding remains unchanged. We disagree with KUCR's characterization of Haskell as a "federal
entity," as it relates to applicability of administrative requirements for Federal awards to non-Federal
entities. For Federal grantmaking purposes, it is our understanding is that Haskell, a tribal university 20

19
   Although KUCR’s response refers to these costs as cost share reported to NSF, documents provided by Haskell indicate
these costs were reimbursed by KUCR to Haskell with EPSCoR funds.
20
   20 USC 1059c


9      NSF.GOV/OIG | OIG 21-1-001
operated by the Bureau of Indian Education in the U.S. Department of the Interior, is considered an
“institution of higher education” 21 and is therefore a “non-Federal entity” 22 subject to applicable OMB
administrative requirements. Regardless, KUCR’s response did not address a primary concern stated in
the report finding — that Haskell’s salary and fringe benefits claims under its EPSCoR subawards were
based on budget estimates, rather than actual costs incurred by Haskell.

Regarding Haskell’s manual process of allocating and tracking expenses on projects, the Excel files
Haskell shared with us did not match the costs claimed to KUCR and did not demonstrate a reasonable
basis for the allocation of the costs to the EPSCoR award.

KUCR’s response stated that it determined Haskell was a low-risk subrecipient. KUCR was not aware
that Haskell’s claims under the EPSCoR subawards were based on budget estimates, rather than actual
costs incurred by Haskell. KUCR also was unaware that Haskell’s manual system of allocating payroll
costs to various cost objectives in a series of Excel files, including allocations to EPSCoR subawards,
did not produce records that supported the basis for the allocation and match amounts invoiced to
KUCR. The low-risk status allowed Haskell to submit invoices without supporting documentation.

KUCR agreed to remove the $2,322 of questioned materials and supplies and travel costs claimed by
Haskell. However, KUCR’s response referred to these as cost share expenses reported to NSF. These
costs were not reported as cost share to NSF but rather were included on Haskell’s invoice of EPSCoR
costs reimbursed by KUCR. Finally, as the primary recipient of the EPSCoR funds, KUCR has the
responsibility to ensure subrecipient costs are allowable. KUCR’s responsibility to maintain records
supporting allowability of costs is independent of subrecipients’ records retention requirements.

Finding 4: Unsupported Cost Share Expenses
KUCR reported $328,494 of unsupported subaward expenses as cost share to support two EPSCoR
awards. These charges included participant support, salary, fringe, and procurement card transactions.
Both awards required KUCR to commit to funding an additional $4 million per award as cost share.

Unsupported Subaward Participant Support, Salary, and Fringe Benefits Cost Share Expenses

Similar to the issue noted in Finding 2, Haskell invoiced KUCR for participant support, salary, and
fringe benefits costs reported as cost share based on budget estimates rather than actual costs. Neither
Haskell nor KUCR provided documentation of Haskell’s actual costs.

Haskell charged KUCR the amount budgeted in its subaward for participant support ($23,062) related to
lodging for participants in the Haskell Environmental Research Studies (HERS) summer internship
program but did not provide support for the actual costs. When we asked for support for the charges,
Haskell provided payroll documents for housing and food service staff that did not always coincide with
the HERS program dates. Additionally, the housing and food service staff did not solely dedicate time to
HERS (they also worked with summer school students on campus), and Haskell did not provide an

21
     2 CFR 200.55
22
     2 CFR 200.69


10       NSF.GOV/OIG | OIG 21-1-001
allocation of the staff’s time. When interviewed, Haskell officials acknowledged they charged budgeted
— rather than actual — amounts for participant support. KUCR did not require Haskell to provide
supporting documentation with its subaward invoices and did not maintain documentation of Haskell’s
actual costs.

Haskell also charged $17,417 in salary and fringe benefits as cost share and, as noted in Finding 2, did
not provide documentation demonstrating the employees worked on the EPSCoR project for the time
charged or the allocation of time between EPSCoR and other projects or activities.

To be allowable, costs must be adequately documented, allocable and determined in accordance with
generally accepted accounting principles. 23 Further, charges to non-faculty Federal awards for salaries
and wages must be based on records that accurately reflect the work performed. 24 KUCR included these
terms in its subaward agreement with Haskell. Therefore, we are questioning $23,062 in unsupported
subaward participant support costs and $17,417 in unsupported subaward salary and fringe benefits costs
reported charged as a cost share on the open Track-1 award.

Unsupported Subaward Procurement Card Expenditures

Kansas State University (KSU) charged $14,985 of procurement card expenditures as cost share. Neither
KUCR nor KSU provided support that the purchases were allowable, reasonable, and allocable to the
award. To be allowable, costs must be adequately documented. Therefore, we are questioning $14,985
in KSU purchase card expenditures charged as cost share.

Unsupported Subaward Cost Share Expenditures

As noted in Finding 2, neither KUCR nor its subrecipient Haskell provided support for Haskell’s
expenditures claimed on the closed Track-1 award. Since neither KUCR nor Haskell identified any
expenditures on the closed Track-1 award for which it could provide supporting documentation, we are
questioning all $273,030 of Haskell expenditures reported as cost share on that award.

KUCR concurred with $26,974 of the questioned costs and disagreed with $301,520, as illustrated in
Table 4.



23
   Under 2 CFR 200.403(e) and (g), except where otherwise authorized by statute, to be allowable, a cost must “[b]e
determined in accordance with generally accepted accounting principles” and “[b]e adequately documented.” Under 2 CFR
200.405, (a) “A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are
chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.”
24
   2 CFR 200.430(h)(8)(i) states “Charges to Federal awards for salaries and wages must be based on records that accurately
reflect the work performed. These records must:(i) Be supported by a system of internal control which provides reasonable
assurance that the charges are accurate, allowable, and properly allocated…(vii) Support the distribution of the employee's
salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal
award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are
allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity.(viii) Budget
estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal
awards.”


11     NSF.GOV/OIG | OIG 21-1-001
Table 4. Cost Share Expenses Questioned as Unsupported

                  Description                      Award No.                Questioned Costs              KUCR
                                                                                                         Agreed to
                                                                      Direct     Indirect      Total
                                                                                                         Reimburse
 Unsupported Subaward Participant Support                              $23,062         $0      $23,062     $11,989
 Unsupported Subaward Salary and Fringe                                $17,417         $0      $17,417          $0
 Unsupported Subaward Procurement Card                                 $14,985         $0      $14,985     $14,985
 Expenditures
 Unsupported Subaward Expenditures on                                 $273,030         $0   $273,030           $0
 Closed Award
 Total                                                                $328,494         $0   $328,494       $26,974
Source: Auditor summary of cost share expenses questioned as unsupported.


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

     1. Resolve the $328,494 in questioned cost share costs and direct KUCR to remove the sustained
        questioned costs from its cost share reports to NSF. If the removal of disallowed cost share
        causes the award to fall short of the mandatory cost share requirement, direct KUCR to repay
        NSF funds associated with the unmet cost share obligation.

KUCR Response

KUCR responded to the report findings by section, as follows.

Unsupported Subaward Participant Support and Unsupported Subaward Salary and Fringe

Regarding the questioned salary and fringe costs of $17,417, KUCR stated, “Based on KUCR’s policies
for the approval of all subrecipient invoices by the KUCR PI to assure that costs are reasonable for the
work performed, KUCR maintains that the salary charges claimed as cost share on the EPSCoR award
are allowable and reasonable.”

Regarding the $23,062 of questioned participant support cost share claim, KUCR acknowledged that
only 1 week of this period overlapped the actual HERS program dates and that $11,989 of the claim
should not have been reported as cost share. KUCR stated that Haskell incurred additional costs related
to the HERS program that were not reported as cost share, but KUCR did not detail these additional
costs in its response.

Unsupported Subaward Procurement Card Expenditures

In response to the $14,985 of questioned procurement charge transactions, because KSU was not able to
produce documentation supporting these costs, KUCR agreed to remove them from cost share reported
to NSF and will work with NSF to determine the impact on KUCR’s cost share obligation.


12     NSF.GOV/OIG | OIG 21-1-001
Unsupported Subaward Expenditures on Closed Award

KUCR referenced its response to report Finding 3, as the same position also applies to this finding.

Auditor Comment

Our position on this finding remains the same, for the same reasons we provided in our comments to
KUCR’s response to Finding 3. As the primary recipient of the EPSCoR funds, KUCR has the
responsibility to ensure subrecipient costs are reasonable and allocable to the award, and that supporting
documentation is properly maintained. We reviewed a spreadsheet and sample of payroll records
Haskell provided to support the costs claimed. The payroll records did not demonstrate a reasonable
basis for the allocation of the costs to the EPSCoR award.

We acknowledge KUCR’s agreement to remove the $14,985 unsupported KSU cost share claim from
the reported cost share.

Finding 5: Unallowable Expenses
KUCR charged $10,697 of unallowable direct ($9,140) and associated indirect ($1,557) expenses to
three EPSCoR awards, as follows:

Unnecessary and Unreasonable Expenses

KUCR charged $4,186 to two EPSCoR awards for water for its office staff. According to KUCR, it had
always charged water for the office directly to the EPSCoR Track-1 awards. To be allowable, costs must
be necessary and reasonable for the performance of the Federal award. 25 Supplying water to the office is
not necessary for the performance of the award. Therefore, we are questioning these charges ($4,186) as
unallowable.

Unallowable Alcohol-Related Expenses

KUCR charged its EPSCoR awards a total of $642 for wine and bar set up and corkage fees that it
incurred in 2011 and 2015. Federal guidance at the time, 26 as well as current guidance, states “costs of
alcoholic beverages are unallowable.” NSF policy also prohibits use of NSF funds for alcoholic
beverages. 27 KUCR explained these costs were charged to the award because staff followed a less


25
   Under 2 CFR 200.403(a), except where otherwise authorized by statute, to be allowable, a cost must “[b]e necessary and
reasonable for the performance of the Federal award and be allocable thereto under these principles.” Prior to the Uniform
Guidance, Appendix A to 2 CFR Part 220, J.22. applied, and it stated “[c]osts of goods or services for personal use of the
institution's employees are unallowable regardless of whether the cost is reported as taxable income to the employees.”
26
   Appendix A to 2 CFR Part 220, J.3., states, “Costs of alcoholic beverages are unallowable.” Current guidance is at 2 CFR
200.423.
27
   NSF Proposal and Award Policies and Procedures Guide (NSF 13-1 and NSF 08-1) state “No NSF funds may be spent on
alcoholic beverages.”


13     NSF.GOV/OIG | OIG 21-1-001
restrictive university hospitality policy rather than Federal award requirements. We are questioning the
wine and bar set up and corkage fees ($642) charged to the award.

Unallowable Promotional Expense Charged to Subaward

One of KUCR’s subrecipients, Haskell, purchased reusable tote bags imprinted with the name of its
EPSCoR-funded summer internship program at a cost of $1,562 ($1,303 direct, plus $259 of associated
indirect costs) to the award. According to Haskell officials, they used the bags as recruitment material at
conferences.

Federal guidance states that costs of promotional items, including gifts, are unallowable. 28 KUCR
included these terms in its subaward agreement with Haskell. 29 KUCR stated that it did not request
Haskell provide supporting documentation with its invoices, so it was unaware of the purchase. We are
questioning the $1,562 charged for the imprinted bags as an unallowable promotional expense.

Unallowable Indirect Costs Charged to Subaward

Haskell charged KUCR $4,629 in unallowable indirect costs on the open Track-1 award because it did
not appropriately identify certain expenses as participant support costs (PSC), for which indirect costs
are not allowed. Specifically, Haskell did not identify and account for $23,261 in research materials and
supplies incurred for the 2018 HERS summer internship program, such as backpacks and school
supplies, as PSCs.30 PSCs are “direct costs for items such as stipends or subsistence allowances, travel
allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in
connection with conferences, or training projects.” 31 Haskell purchased the supplies on behalf of the
students in the HERS program and charged the costs to the EPSCoR subaward, thus they fall within the
definition of participant support costs. Per award terms and conditions, indirect costs are not allowed on
PSCs.32

In its proposal, KUCR did not identify these supplies as PSCs, and Haskell did not account for them as
PSCs. As a result, KUCR allowed Haskell to charge indirect costs ($4,629, at a 19.9 percent rate)
against the $23,261 in supplies costs. We have already questioned $322 of the indirect charges Haskell
charged KUCR as part of Findings 3 and 5. Therefore, we question the remaining $4,307.

KUCR concurred with $4,828 of the questioned costs and disagreed with $5,869, as shown in Table 5.




28
   2 CFR 200.421 (e) states unallowable advertising and public relations costs include “(3) [c]osts of promotional items and
memorabilia, including models, gifts, and souvenirs[.]”
29
   KUCR subaward agreement No.
30
   KUCR charged these subrecipient indirect costs as a direct cost to the award.
31
   2 CFR §200.75.
32
   NSF’s Cooperative Agreement Financial & Administrative Terms and Conditions (CA-FATC), effective January 30, 2017,
state “Indirect costs (Facilities and Administrative Costs (F&A)) are not allowed on participant support costs.” Further, 2
CFR 200.68 states that Modified Total Direct Costs must exclude participant support costs.


14     NSF.GOV/OIG | OIG 21-1-001
Table 5. Expenses Questioned as Unallowable
                                                                     Questioned Costs         KUCR
                                                                                             Agreed to
            Description                  Award No.          Direct      Indirect   Total
                                                                                             Reimburse
 Corkage and bar set up fees                                   $135          $67      $202         $202
 Wine                                                          $300         $140      $440         $440
 Water for office                                            $1,832         $852    $2,684       $2,684
 Water for office                                            $1,004         $498    $1,502       $1,502
 Subaward Material and Supplies                              $1,562           $0    $1,562           $0
 Subaward Indirect Costs on                                  $4,307           $0    $4,307           $0
 Materials and Supplies
 Total                                                       $9,140       $1,557   $10,697       $4,828
 Source: Auditor summary of expenses questioned as unallowable.


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

     1. Resolve the $10,697 in questioned costs, and direct KUCR to repay or otherwise remove the
        sustained questioned costs from its NSF awards.

     2. Direct KUCR to provide training on Federal requirements prohibiting alcoholic beverages and
        requiring expenses to be necessary and reasonable for the performance of the Federal award.

     3. Direct KUCR to strengthen its administrative and management controls and processes related to
        participant support costs to ensure that they are budgeted and accounted for appropriately.

KUCR Response

KUCR agreed to remove the questioned water charge ($4,186) and alcohol-related expenses ($642) from
the EPSCoR awards and to ensure that staff is aware of the Uniform Guidance cost principles regarding
allowability and reasonableness.

KUCR did not agree that the $1,562 claimed for tote bags represent unallowable advertising and public
relations costs. KUCR stated that the tote bags were necessary for promoting the HERS program to
prospective participants. KUCR also referenced NSF policy stating that funding of items identified in an
award budget constitutes NSF approval to incur those costs. The budget justification for Haskell’s
subaward stated that the proposed budget included $5,080 per year for recruitment materials.

KUCR did not agree that $4,307 allocated by Haskell to materials and supplies costs for HERS program
participants are unallowable indirect costs allocated to participant support costs. KUCR stated that the
definition of participant support costs included in NSF’s PAPPG does not include supplies.




15     NSF.GOV/OIG | OIG 21-1-001
Auditor Comment

Our position that $1,562 in promotional items was an unallowable expense does not change; 2 CFR
200.421 (e) states unallowable advertising and public relations costs include “(3) [c]osts of promotional
items and memorabilia, including models, gifts, and souvenirs[.]”

Our position regarding the $4,307 in subaward costs on behalf of participants does not change.
Participant support costs must be specified, itemized and justified in the budget justification section of
the proposal, which KUCR acknowledged it did not do for the questioned supplies. Although NSF’s
definition does not specifically include supplies for participants, it also does not exclude it.

Finally, we do not agree with KUCR that the NSF Policy Newsletter (May/June 2017), which relates to
costs claimed by recipients of awards for which the primary purpose was to fund NSF-sponsored
conferences, pertains to our finding regarding participant support costs.




16    NSF.GOV/OIG | OIG 21-1-001
NSF      NATIONAL SCIENCE FOUNDATION
         OFFICE OF INSPECTOR GENERAL


 Appendix A: KUCR's Response


      T/T TCENTER FOR
       .l.'-\..J RESEARCH INC.
                               The University of Kansas

                 November 23, 2020



                 Kelly Stefanko

                 Audit Manager

                              @nsf.gov



                 Dear Ms. Stefanko,

                 Please find below the University of Kansas Center for Research, lnc.'s (KUCR) response to NSF OIG's


                               -
                 report on findings and recommendations on National Science Foundation EPSCoR awards
                                         ■■■I and ~ n d applicable cost sharing requirements.
                 Finding 1: Indirect Costs Claimed from Subrecipients

                 This audit finding and the associated questioned costs are the result of the mechanism agreed to by
                 KUCR and the Regent Universities to operationalize Administrative Contribution, minimize the number
                 of transactions between institutions in the Kansas Board of Regents System, and facilitate the
                 calculation and tracking of each Regent University's administrative cost sharing contribution.

                 KUCR has provided evidence through discussions with NSF auditors and supplied supporting
                 documentation that its policy for assessing the EPSCoR Administrative Contribution during the audit
                 period does not result in overcharges to the government. This practice was also reviewed in conjunction
                 with the 2014 NSF Incurred Cost Audit of KUCR (OIG Report No. 18-1-001) and did not result in any
                 associated findings as part of that process.

                 KUCR acknowledges that our administrative process can be misinterpreted. Therefore, to avoid any
                 appearance of non-compliance with Uniform Guidance §200.406, we agree to discontinue this current
                 practice.

                 KUCR does not believe this administrative practice results in an applicable credit requiring an expense
                 reduction under §200.406, but we value transparency and appreciate the opportunity to provide
                 context and address any appearance of mistreatment of costs or overcharges to the federal
                 government.

                 The Administrative Contribution represents an arrangement for those Regents Universities in the State
                 of Kansas benefitting from the state-wide EPSCoR Program to jointly share in the cost of administering
                 the program for expenses not directly allocable to the NSF awards. The Regent Universities are overseen




      Youngberg Hall
      238S Irving HIii Road
      Lawrence, KS 6604S                 785-864-3441phone         research.ku.edu




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NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




          by Kansas Board of Regents (KBOR) (32 K.5.A. § 74-3202a). This agreement with other Regents
          Universities is independent of the EPSCoR award itself and the NSF's administration of the award and
          serves as an internal mechanism between entities to properly account for the total cost of administering
          the program. KU serves as the administrative institution for the NSF EPSCoR Program, util izi ng facilities
          and resources on the KU campus. The cost of administering the EPSCoR Program is funded by a variety
          of sources, including KU's indirect returns on the EPSCoR award, a small amount of direct funding on the
          EPSCoR award, and other KU institutional funds .

          The Regents Universities in the State of Kansas recognized that the administration and management
          costs incurred by the state-wide EPSCoR Program should be shared across all Regents Universities
          benefiting from the program, not solely born by KU as the ' host' institution incurring the costs. As such,
          the Regents Universities entered into an agreement whereby each subrecipient Regents University
          institution would contribute fund s back to KU to share in the costs of administering the program. The
          Regents determined an equitable share to be 8% of Modified Total Direct Costs (MTDC) incurred on
          subawards issued under EPSCoR Program. The fixed percentage on subrecipient MTDC effectively
          prorates each institution's contribution according to the funding support received for research
          initiatives.

          KU believes that the distinction of each Regent University voluntarily agreeing to distribute 8% of their
          earned indirect return s back to KU to fund their share of the program administration as part of an
          independent inter-University agreement is critical to understanding the nature of the Administrative
          Contribution practice. As opposed to utilizing an inter-University funds transfer transaction, the Regent
          Universities agreed to the practice of incurring the full allowable indirect costs on all EPSCoR
          subrecipient MTDC but only distributing that amount less the agreed upon 8% back to the subrecipient
          institutions via the invoicing process. KU retains the difference to fund the costs of administering the
          state-wide EPSCoR program for all Regent Universities.

          It is important to note that no federal regulations, nor NSF requirements, govern how an institution may
          choose to distribute indirect cost returns it receives from the funding agency. As such, each Regents
          University EPSCoR subawardee has the flexibility to allocate 8% MTDC out of its total indirect cost
          recoveries to KU as the EPSCoR 'host' institution. This does not represent a non-compliant or
          unallowable use of indirect cost returns.

          Per the PAPPG, § X. D. Indirect Costs, 1. NSF Policy:

          "a. Except as noted in an NSF program solicitation, it is NSF policy that grantees ore entitled to
          reimbursement from grant funds for indirect costs (F&A) allocable to the NSF share of allowable direct
          costs of a project. NSF program staff are not authorized to negotiate indirect costs as a discrete item of a
          proposal budget. NSF program staff also are not authorized to suggest or request that PI/PDs seek
          reductions or waivers of indirect costs.




      IV

 18   NSF.G0V/OIG        I OIG 21-1-001
NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




          b. The awarded indirect cost rote is generally based upon a grantee's current Federally negotiated
          indirect cost rote agreement."

          Finding 2: Unallowable Indirect Cost

          This questioned cost resulted from an incorrectly mapped expense account in KUCR' s newly
          implemented financial system. KUCR has corrected the system mapping and implemented a corrective
          action plan to identify and correct all erroneous postings. The $15,854 was returned as an offset in the
          January 2020 draw-down from ACM$.

          Finding 3: Unsupported Expenses

          Unsupported Subaward Salary and Fringe

          Haskell Indian Nations University is a federal university and, as such, uses a federal financial and payroll
          system and the US Department of the Interior Financial and Business Management System (FBMS) to
          post and track expenditures against a general ledger. The mandatory use of this federal system limits
          Haskell's internal ability to distribute payroll charges across different costs objectives within the FBMS
          technology. Therefore, Haskell has adapted business processes to track expenditures and costs against
          separate cost objectives/ projects, such as the KUCR EPSCOR/HERS Program . Haskell uses Excel files to
          allocate and track the University' s expenditures (including salary and fringe costs) to individual projects
          or objectives.

          Though manual, this manual payroll allocation process does align with the federal requirements as
          defined in the Uniform Guidance §200.430 (i) Standards for Documentation of Personnel Expenses,
          specifically:

              •    (i)(l)(i) Be supported by a system of internal control which provides reasonable assurance that
                   the charges are accurate, allowable, and properly allocated
              •    (i)(l) (ii) Be incorporated into the official records of the non-Federal entity
                          o    Haskell's practice of allocating general ledger expenditures to individual cost objectives/
                               projects via a manual Excel-based process and the regular monitoring and review of
                               these Excel files provides reasonable assurance of the allowability and allocation of
                               costs charged to the EPSCoR award.
                          o    These manual Excel files, in conjunction with the DOI FBMS, are considered the official
                               records of Haskell University and accurately track costs allocated to the EPSCoR/HERS
                               program .
              •    (i)(l) (iii) Reasonably reflect the total activity for which the employee is compensated by the non­
                   Federal entity, not exceeding 100% of compensated activities (for /HE, this per the IHE's
                   definition of /BS)
              •    (i)(l) (vii) Support the distribution of the employee's salary or wages among specific activities or
                   cost objectives if the employee works on more than one Federal award; a Federal award and




      IV

 19   NSF.G0V/OIG             I OIG 21-1-001
NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




                  non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect
                  activities which are allocated using different allocation bases; or an unallowable activity and a
                  direct or indirect cost activity
                      o    These manual Excel files track each cost posted to Haskell's general ledger to individual
                           cost objectives/ projects and the reconciliation process ensures no cost (including a
                           given salary charge) is allocated to multiple cost objectives or projects (e.g. the Excel
                           files must reconcile to the general ledger). As such, the entirety of an individual salary/
                           compensation is distributed across separate cost objectives (Excel files) .
              •   (i)(l) (iv) Encompass federally-assisted and all other activities compensated by the non-Federal
                  entity on an integrated basis, but may include the use of subsidiary records as defined in the non­
                  Federal entity's written policy
                      o    Haskell's process involves the allocation of GL expenditures across all Haskell cost
                           objectives, using each Excel file as a subsidiary ledger to track this allocation.

          KUCR acknowledges Haskell process is manual but maintains that the salary, fringe and associated
          indirect charges incurred on KUCR's EPSCoR award are reasonable for the services rendered. As
          required by the Uniform Guidance §200.430 (h) Institutions of Higher Education (IHEs). (l)i. Allowable
          activities: charges to Federal awards may include reasonable amounts for activities contributing and
          directly related to work under an agreement. Based on KUCR's policies for the approval of all
          subrecipient invoices by the KUCR Pl or delegate (NSF EPSCoR's Assistant Director in this case) to assure
          that costs are reasonable for the work performed, KUCR maintains that the Haskell costs incurred on the
          EPSCoR award are allowable and reasonable .

          KUCR has established subrecipient monitoring policies and practices in accordance with NSF and federal
          requirements (2 CFR §200.331), including a risk assessment to "evaluate each subrecipient's risk of
          noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for
          purposes of determining the appropriate subrecipient monitoring." The Uniform Guidance also defines
          a subrecipient as "a non-Federal entity that receives a subaward from a pass-through entity to carry out

          part of a Federal program " (§200.93) . Haskell University is a federal entity and therefore the
          requirements for subrecipient monitoring, as defined in 2 CFR §200.331 do not apply to KUCR' s
          relationship with Haskell. However, KUCR takes it role as an EPSCoR recipient seriously and applied its
          subrecipient risk assessment and monitoring procedures to the Haskell agreement to ensure that the
          subaward is used for authorized purposes and that subaward performance goals are achieved .

          KUCR assessed Haskell University to be a low risk entity, primarily based on the following factors :

              •   Risk Assessment Score: KUCR's Subrecipient Risk Assessment Matrix was adapted from the risk
                  assessment questionnaire developed by the Federal Demonstration Partnership (FDP) focused
                  on assessing risk at a project (EPSCoR subawards) and institutional (Haskell University) basis.




      IV

 20   NSF.G0V/OIG         I OIG 21-1-001
NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




                  KUCR completed this risk assessment for Haskell (as it relates to the current Track I EPSCoR
                  award) in 2017, and the matrix framework indicated that Haskell University was well within the
                  Low Risk subawardee range .
              •   Federal Entity Status and Single Audit Exemption: KUCR' s Subrecipient Risk Assessment Matrix
                  captures whether an institution conduct a Single Audit, or alternative annual independent/
                  financial audit. In response to this question, Haskell provided a letter issued by the US
                  Department of the Interior Bureau of Indian Affairs dictating that Haskell was a) not subject to
                  Single Audit (previously A-133 Audit) requirements and b) Haskell University "is therefore a
                  Federal program and not subject to 0MB Circular A-133 ." Further, these letters describe the
                  requirements imposed on Haskell as a federal entity to "develop and reconcile appropriate
                  budgets.... On approved Financial Program Plans." These letters also describe a series of
                  financial controls in place, including the financial information to be provided by Haskell to be
                  included in the annual audit of the Bureau of Indian Affairs (a federal entity).
              •   Longstanding Partnership: Uniform Guidance Section §200.332(b)(l) indicates that a primary
                  consideration in evaluating a subrecipient's risk of noncompliance is "the subrecipient's prior
                  experience with the same or similar subawards." KUCR and Haskell have a long-standing
                  relationship and partnership across a variety of sponsored programs, not limited to NSF EPSCoR
                  awards. Based on this extensive and successful partnership, KUCR had confidence that Haskell
                  would use the EPSCoR funds for authorized purposes and that subaward performance goals are
                  achieved. The Uniform Guidance mandates subrecipient monitoring to ensure these
                  requirements are achieved, and as KUCR had confidence in Haskell's ability and reliability to
                  meet these objectives, escalated risk assessment and monitoring activities were not identified
                  as necessary.

          KUCR's established subrecipient monitoring activities for a low-risk auditee include reviewing and
          approving subaward invoices to confirm alignment with satisfactory technical progress and that invoice
          costs are in line with the approved budget, cost categories and terms and conditions defined in the
          subaward agreement. KUCR's subrecipient monitoring policies and procedures do not require low risk
          subrecipient entities receive escalated monitoring, such as requiring supporting documentation with
          invoices. KUCR' s application of these low-risk monitoring activities did not suggest that added scrutiny
          was required or that Haskell warranted a more-than-normal risk assessment.

          This audit has identified opportunities for KUCR to better partner with Haskell, as a federal entity, to
          ensure proper accountability and compliance with program requirements and achievement of
          performance goals. However, KUCR believe that its defined subrecipient monitoring policies and
          procedures, including the risk assessment process, achieve the objectives stated in the Uniform
          Guidance to ensure that subawards are used for authorized purposes, in compliance with Federal




      IV

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NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




          statutes, regulations, and the terms and conditions of the subaward and that subaward performance
          goals are achieved.

          Unsupported Subaward Material and Supplies and Travel

          KUCR agrees to remove these costs ($2,322) from the cost share reported to NSF and will work with
          Haskell to ensure adequate supporting documentation for costs incurred on KUCR subawards.

          Unsupported Subaward Expenses on Closed Award

          As a federal entity, Haskell Indian Nations University consistently applies the 3-year federal retention
          period to applicable documentation . Once the retention period has passed, transactional documents are
          destroyed or moved to the National American Indian archives.

          The NSF auditors requested documentation to support Haskell subaward charges on NSF award
                   . The federal regulations applicable to this subaward include 0MB Circular A-110, Subpart A,
          Section 53(b) which states:

                  (b) Financial records, supporting documents, statistical records, and all other records pertinent to
                  an award shall be retained for a period of three years from the date of submission of the final
                  expenditure report or, for awards that are renewed quarterly or annually, from the date of the
                  submission of the quarterly or annual financial report, as authorized by the Federal awarding
                  agency.

          Haskell's subaward on NSF award          ended as of 9/30/2014. KUCR and Haskell's application of
          these requirements to the Haskell subaward interpreted the date of the final expenditure report to be
          the date that Haskell submitted the final invoice (12/15/2014) and the award period to end when the
          Haskell subaward concluded (9/30/2014). As such, Haskell purged all records once the assumed
          retention date of 12/15/2017 had passed.

          The NSF clarified the appropriate retention period for subrecipient via the NSF Term and Condition
          clarification dated October 5, 2020, which included language regarding retention of subrecipient
          documentation:

                  Article 8.3. The grantee remains responsible for monitoring of the activities of the subrecipient as
                  necessary to ensure that the subaward is used for authorized purposes, in compliance with
                  Federal statutes, regulations and the terms and conditions of the subaward as outlined in 2 CFR
                  § 200.331. This includes ensuring necessary documentation for all subawards is maintained for
                  the same retention period as the grantee's and making it available to NSF upon request. The
                  grantee shall include subaward activities in the annual and final project reports that are
                  submitted to NSF.

          KUCR is working to implement a notification and tracking system to ensure subawardees are aware of
          and following retention requirements.




      IV

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NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




          KUCR assessed Haskell University to be a low risk entity, and therefore did not require escalated
          monitoring, such as requiring supporting documentation with invoices to support EPSCoR charges.
          Therefore KUCR did not receive or retain copies of this documentation.

          While supporting documentation is not available due to the interpretation of federal regulations, KUCR
          maintains that the work was performed and reported to NSF in accordance with the proposed scope of
          work for NSF a w a r d - KUCR believes that these costs should be sustained as allowable direct
          costs on the award.

          Finding 4: Unsupported Cost Share Expenses

          Unsupported Subaward Participant Support and Unsupported Subaward Salary and Fringe

          The questioned salary and fringe costs ($17,417) represented a portion of salary and fringe f o r -
         - t h e Haskell University Pl, from May 13 - July 21, 2018. It was during this time that Haskell was
         preparing for and holding the Haskell Environmental Research Studies (HERS) Summer Institute (June 3 -
         July 29 in 2018).

          As detailed in KUCR's response to Finding 3, KUCR maintains that the salary, fringe and associated
          indirect charges incurred on KUCR's EPSCoR award are reasonable for the services rendered. As
          required by the Uniform Guidance §200.430 (h) Institutions of Higher Education (IHEs). (l)i. Allowable
          activities: charges to Federal awards may include reasonable amounts for activities contributing and
          directly related to work under an agreement. Based on KUCR's policies for the approval of all
          subrecipient invoices by the KUCR Pl to assure that costs are reasonable for the work performed, KUCR
          maintains that the salary charges claimed as cost share on the EPSCoR award are allowable and
          reasonable.

          The questioned Participant Support costs ($23,062) claimed as cost share on the EPSCoR award
          represent salary and fringe for Haskell's Housing and Food Services staff, as these individuals provide
          associated services to students participating in the HERS summer internship program. Documentation
          was provided to indicate that this specific $23,062 included compensation charges for the staff for the
          May 27 -June 9, 2018 Pay Period. The HERS Summer Institute (June 3 -July 29 in 2018) overlapped
          with one week out of this two-week pay period. As such, KUCR concedes that $11,989 claimed as cost
          share should not be considered allocable to the HERS Summer Institute. KUCR also notes that additional
          costs were incurred by Haskell to support the HERS Summer Institute that were not formally reported as
          cost share via the invoicing process.

          Unsupported Subaward Procurement Card Expenditures

          KUCR has established subrecipient monitoring policies and practices in accordance with NSF and federal
          requirements (2 CFR §200.331), including a risk assessment to "evaluate each subrecipient's risk of
          noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for
          purposes of determining the appropriate subrecipient monitoring."




      IV

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NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




          KUCR assessed Kansas State University (KSU) to be a low risk entity, and as such did not require
          supporting documentation to support submitted invoices. KSU's Business Procurement Card Manual
          (BPC) states that "Standard payment policies require retention of receipts and other documentation . As
          with any credit/charge card, you must retain sales slips, cash register receipts, invoices, order forms and
          receiving documents. All of these documents should be submitted to your department accountant with
          your monthly statement." With this documentation control in place at KSU, and the flow down of all
          applicable Uniform Guidance terms in the issued subaward, including 2 CFR §200.403 regarding the
          requirement of adequate documentation of expense allowability, the KUCR subrecipient monitoring
          process was appropriately applied and followed . KSU was unable to provide the requested
          documentation, and this fact will be included in future risk assessments for subaward issuance to the
          University.

          KUCR agrees to remove these charges from the reported cost share and will work with NSF to determine
          how this may impact KUCR's cost share obligation .

          Unsupported Subaward Expenditures on Closed Award

          Please reference KUCR's response regarding records retention in Finding 3, as this position applies to
          Finding 4 as well.


          Finding 5: Unallowable Expenses

          Unnecessary and Unreasonable Expenses

          KUCR agrees to remove $4,186 in charges from the EPSCoR awards and to ensure that staff is aware of
          the Uniform Guidance cost principles regarding allowability and reasonableness.

          Unallowable Alcohol-Related Expenses

          KUCR agrees to remove $642 in charges from the EPSCoR awards and to ensure that staff is aware of the
          Uniform Guidance allowability requirements .

          Unallowable Promotional Expense Charged to Subaward

          Uniform Guidance §200.421 Advertising and public relations (d)(2) states "The only allowable public
          relations costs are: Costs of communicating with the public and press pertaining to specific activities or
          accomplishments which result from performance of the Federal award (these costs are considered
          necessary as part of the outreach effort for the Federal award)." The purchase of reusable tote bags
          with the EPSCoR-funded HERS summer internship program logo supported the promotion of the HERS
          program at conferences with the objective of recruiting future participants. KUCR believes the purchase
          of these tote bags is directly in line with this Uniform Guidance allowance.

          Further, the NSF Proposal and Award Policies and Procedures Guide (PAPPG) Chapter X.3.a states "The
          funding of items identified in the NSF award budget constitutes NS F's authorization for the grantee to




      IV

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NSF    NATIONAL SCIENCE FOUNDATION
       OFFICE OF INSPECTOR GENERAL




          incur these costs, provided there is not a specific limitation in the grant language and the costs are
          otherwise allowable, allocable, and reasonable in accordance with the cost principles contained in 2 CFR
          200, Subpart E." Haskell's submitted budget justification Section G. Other Costs states, "The Co-Pl
          requests $5,080 per year for recruitment materials - a cumulative total of $25,400 over the course of
          the project."

          Based on these applicable regulations and NSF terms and conditions, KUCR maintains that the cost of
          the HERS program tote bags are an allowable expense.

          Unallowable Indirect Costs Charged to Subaward

          NSF's Proposal & Award Policies & Procedures Guide (PAPPG) Chapter II.C.2g(v) defines the participant
          support budget category as direct costs "such as stipends or subsistence allowances, travel allowances,
          and registration fees paid to or on behalf of participants or trainees (but not employees) in connection
          with NSF-sponsored conferences or training projects." The NSF definition does not identify supplies as
          participant support costs, the University follows the NSF definition closely and does not propose or
          consider supplies participant support in NSF-funded work. The submitted proposal budget and budget
          justification clearly noted that supplies were "Other Costs" budget category G., "Research materials and
          supplies at $8,000 each year is requested from NSF for software, books, GPS units and other items
          required for fieldwork."

          Further, the NSF's May/ June Proposal & Award Policy Newsletter include the following FAQ related to
          Participant Support: Q: Are costs such as room rental fees, catering, supplies, etc. related to an NSF­
          sponsored conference considered participant support costs? A: No, the participant support cost line in
          the NSF budget should not be used for such costs. KUCR and Haskell classified the identified direct costs
          (backpacks and school supplies) to fit the definition of supplies, and this supplemental NSF guidance
          supports this determination .



          Thank you,




          Alicia M. Reed

          Director, Research Administration




      IV

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Appendix B: Objective, Scope, and Methodology
The objective of this performance audit was to determine if costs claimed by KUCR were allowable,
allocable, reasonable, and in conformity with NSF award terms and conditions and applicable Federal
requirements. To accomplish this objective, we examined costs claimed as well as mandatory cost share
contributions on five EPSCoR awards made to KUCR through July 2, 2019. We judgmentally selected a
sample of transactions based on amount and account description totaling $368,038 to identify potential
risk areas. 33

We obtained computer-processed information from KUCR and NSF during our audit. KUCR provided
detailed transaction data for costs charged to NSF awards and reported to NSF as cost sharing. We
assessed the reliability of the data provided by KUCR by (1) interviewing KUCR staff knowledgeable
about the data, (2) reviewing information about the data and the system that produced them, and (3)
performing reconciliations and testing of various data elements. We obtained NSF data by directly
accessing NSF’s various data systems. We corroborated the NSF data with other sources and determined
that the data were sufficiently reliable for the purposes of this report.

In assessing the allowability of costs claimed by KUCR, we also gained an understanding of the internal
control structure applicable to the scope of this audit and assessed all five components of internal control
through interviewing KUCR staff, reviewing policies and procedures, reviewing cost share and general
ledger transactions and accounting system documentation, and conducting transaction testing. We also
assessed KUCR’s compliance with the following:

     •    Office of Management and Budget Circular A-21, Cost Principles for Educational Institutions
     •    Office of Management and Budget Circular A-110, Uniform Administrative Requirements for
          Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-profit
          Organizations (2 CFR, Part 215)
     •    Office of Management and Budget, Uniform Administrative Requirements, Cost Principles, and
          Audit Requirements for Federal Awards (2 CFR, Part 200)
     •    National Science Foundation Proposal and Award Policies and Procedures Guide (NSF 11-1,
          NSF 09-1)
     •    NSF Cooperative Agreement Financial & Administrative Terms and Conditions, effective
          January 4, 2010

We conducted this performance audit between July 2019 and July 2020 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.


33
   Because neither KUCR nor Haskell was able to identify any Haskell transactions on the closed Track-1 award for which it
could provide supporting documentation, we questioned all $788,488 of Haskell transactions charged to that award.
Additionally, we identified and questioned indirect costs withheld from subrecipients that were not part of our transaction
testing.


26       NSF.GOV/OIG | OIG 21-1-001
We held an exit conference with KUCR management on October 6, 2020.

Elizabeth Kearns, Director, Audit Execution; Kelly Stefanko, Audit Manager; Jeanette Hyatt, Senior
Auditor; Ken Lish, Director, Contract Grant Audits; Emma Bright, Senior Data Analyst; Brittany Moon,
Project Manager; Jennifer Miller, Director, Compliance Analytics; Dan Buchtel, Deputy Assistant
Inspector General for Audits; Elizabeth Argeris Lewis, Executive Officer and Communications Analyst;
and Darrell Drake, Independent Report Referencer, made key contributions to this report.




27   NSF.GOV/OIG | OIG 21-1-001
Appendix C: Summary of Questioned Costs by Finding


 Finding Reference                        Description               Questioned Costs         Total
                                                                Unsupported Unallowable
     1       See Table 1      Indirect Costs Claimed from                $0     $625,532     $625,532
                              Subrecipients
     2       See Table 2      Unallowable Indirect Cost                  $0      $15,854      $15,854

     3       See Table 3      Unsupported Expenses                  $569,477           $0    $569,477

     4       See Table 4      Unsupported Cost Share Expenses       $328,494           $0    $328,494

     5       See Table 5      Unallowable Expenses                       $0      $10,697      $10,697

 Total                                                              $897,971    $652,083    $1,550,054
Source: Auditor summary of questioned transactions.




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About NSF OIG
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and prevent fraud, waste, and abuse within NSF or by individuals who receive NSF funding; and
identify and help to resolve cases of research misconduct. NSF OIG was established in 1989, in
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