NATIONAL SCIENCE FOUNDATION OFFICE OF INSPECTOR GENERAL OFFICE OF INVESTIGATIONS CLOSEOUT MEMORANDUM TO: AIGI File Number: 197070030 Date: 02 March 2002 Subject: Closeout Memo Page 1 of 1 There was no closeout written at the time this case was closed. The following information was extracted from the file in conformance with standard closeout documents. An HHS-OIG agent1informed our office that the subject2was alleged to have transferred excess NSF grant dollars to a state account. In the settlement, the Department of Justice recovered and returned $7755.00 to NSF. Accordingly this case is closed. Agent Psychology Dept., U. of Washington Prepared by: Cleared by: Supervisor: I Name: Signature & date: 1 \ Report No. 5340 1 I UNIVERSITY OF WASHINGTON DEPARTMENTOF PSYCHOLOGY iI I Agency No. 3600 Special Audit July 1, 1987 Through August 31, 1993 A U D I T R E P O R T Washington State Auditor Brian Sonntag LegislativeBuilding Washington State Auditor (206) 753-5277 PO BOX 40021 Olympia,Washington 98504-0021 Brian Sonntag SCAN 234-5277 FAX (206)7534646 SCAN 234-0646 Notice of Filing and Transmittal January 7, 1994 Notice is given that the attached document is the special audit report of the University of Washington Department of Psychology for the period July 1, 1987, through August 31, 1993. The report was prepared, tiled and transmitted by the State Auditor's Division of Audit pursuant to Chapters 43.09 and 43.88 RCW. kc$- Brian Sonntag State Auditor I Copies transmitted to: The Honorable Mike Lowry, Governor Dr. William P. Gerberding, President University of Washington The Honorable Christine 0. Gregoire, Attorney General The Honorable Nita Rinehart, Chair, Senate Ways and Means Committee The Honorable Helen Summers, Chair, House Appropriations Committee Cheryle Broom, Legislative Auditor, Legislative Budget Committee Ruta Fanning, Director, Office of Financial Management Marty Brown, Secretary, Washington State Senate Alan Thompson, Chief Clerk, House of Representatives Kathy Rosmund, Assistant Director, Planning and Policy Division Department of Information Services Laurie Fortier, State Publication Distribution, State Library Betty Gebhardt, Assistant Director, Higher Education Coordinating Board Department of Personnel, Higher Education Unit Office of Program Research, House of Representatives John Fisher, U.S. Department of Health and Human Services Office of State Auditor TABLE OF CONTENTS Page Background .................................................. 1 ScopeAndOpinion .............................................2 Schedule Of Findings: 1. The University Of Washington Department Of Psychology Should Comply With Federal Regulations And University Guidelines When Directly Charging Salaries To Federal Grants ....... 3 2. The University Of Washington Department Of Psychology Should Charge Only Allowable Costs To Federal Grant ............. 5 3. 'The University Of Washington Should Notify Federal And State Officials Of False And Fictitious Claims Made Against Federal Projects .......................................... 7 UNIVERSITYOF WASHINGTON DEPARTMENTOFPSYCHOLOGY Agency No. 3600 Special Audit July 1, 1987 Through August 31,1993 Background In March 1993, university employees informed us of improper governmental actions existing in the University of Washington Department of Psychology. The complaints were filed under Chapter 42.40 Revised Code of Washington, the "Whistleblower Act." University of Washington Internal Audit Memorandum No. 92-27AM dated October 27, 1992, stated that the Department of Psychology improperly charged departmentaladministrative costs and costs-for-services-not-provided to numerous federal research grants. These whistleblowers alleged the investigation by the University of Washington Intemal Audit Department was incomplete, the Department of Psychology did not appear to be taking corrective action, and the proper authorities were not notified. Slate AudHofs Onlce - DMslon d Audit -1- UNIVERSITYOF WASHINGTON DEPARTMENTOF PSYCHOLOGY Agency No. 3600 Special Audit July 1, 1987 Through August 31,1993 And O~inion Sco~e This report represents the results of our audit of grant and contract expenditures at the University of Washington Department of Psychology for the period July 1, 1987, through August 31, 1993. The purpose of our audit was to determine whether grant and contract expenditures were properly accounted for and controlled and made in compliance with federal and state laws and regulations. We also reviewed the audit work performed by the University of Washington Internal Audit Department to determine whether the audit was complete, whether the Department of Psychology had taken corrective action, and if University management had notified the proper authorities. Our audit was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. This audit was conducted under the authority of Chapter 42.40 RCW. The scope of our audit was limited to determining whether grant expenditures were properly accounted for, controlled, and in compliance with federal and state laws and regulations. The scope of our work was not sufficient to enable us to express an opinion on the university's financial statements and we do not express an opinion on the financial position or results of operations of the University of Washington. In our opinion, as detailed in the following findings, the lack of compliance with federal and state laws and regulations resulted in questioned costs totaling $186,627 at the University of Washington Department of Psychology. UNIVERSITYOF WASHINGTON DEPARTMENTOF PSYCHOLOGY Agency No. 3600 Special Audit July 1,1987 Through August 31,1993 Schedule Of Findings 1. The University Of Washington De~arhnentOf Psychology Should Comply With Feded Regulations And University Guidelines When Directly Chargine Salaries To Federal - Grants The University of Washington Department of Psychology did not keep detailed time records required by Office of Management and Budget (OMB) Circular A-21 to support grant monitoring services charged as a direct cost to federal grants. Between May 1989 and June 1992, the salary and benefits of a grant monitor and her support staff were routinely charged without adequate support to at least 35 federal and nonfederal grants per month. Salaries and benefits were initially charged to departmental operations and then recharged to grants by using cost transfer invoices. OMB Circular A-21 states in part Direct costs are those costs that can be identified specifically with a particular sponsored project . . . . . . a system of personnel activity reports will be used for nonprofessional employees whose costs are charged direct or are required to be distributed to more than one activity for purposes of allocating indiect costs. The distribution of salaries and wages whether treated as direct or indiiect costs, will be based on payrolls documented in accordance with the general accepted practices of colleges and universities. The payroll distribution system will (i) be incorporated into the official records of the university, (i) reasonably reflect the activity for which the employee is compensated by the institution . . . . The University Operations Manual. Policy D34.2, states in part: The CII can only be used to charge for services or supplies provided to other budget entities. Transfers of salaries . . . must be accomplished by journal voucher. Deparanent fiscal personnel thought the time of the grant monitor and her staff was adequately supported by a time study conducted for only May and July 1989. The fiscal staff did not recognize the need to maintain additional detailed time records in support of Stale AudHots Onlca - DMslon ol Audn -3- grant charges. The depamnent's practice tmded after an investigation by the university internal auditor. By using CTIs to recharge salaries the department bypassed the university's federal grant effort certification process which ensures compliance with federal regulations. To avoid disallowance of grant charges, we recommend the Department of Psychology comply with federal regulations and university guidelines for direct charges to grants and contracts. CFDA Questioned Federal Agency i?zG!?l Number Costs DOD Department of Navy 12.99902 $ 4,273 NSF Other Federal Assistance 47.999 5,875 HHS Alcohol, Drug Abuse, Mental Health 93.992 42,249 HHS National Cancer Institute 93.99903 512 HHS National Institute Child Health/Development HHS National Eye Institute 93.99906 16,148 HHS National Heart, Lung, Blood Institute 93.99907 5,903 HHS National Institute DiabetesIDigtJKidney HHS National Institute Neuro/Comm. 93.999 15 13,115 Disorders HHS Health Resources and Services 93.99917 2,345 Administration Total Auditee *sResponse The UW considers the costing practice utilized by Psychology during the audit period to be in compliance with federal regulations and Universiv guidelines. During the period in question. Psychology charged grants and contracts for the services of a grant monitor through a departmental cost center (recharge center). Rates were developed using actual time and effort devoted to various projects for the period May - June 1989. Subsequent rates were adjusted when the grant monitor and supervisor determined that effort to specific project increased or decreased suflciently to necessitate a change in the recharge rate. The lJW considers recharge rates that are based on historical data and adjusted for major changes in service levels to constitute an equitable and reasonable basisfor allocating costs in accordance with OMB Circular A-21, Section C.4. In June 1992, Psychology provided institutional finds for the grant monitor function to ensure compliance with new federal costing regulations proposed by OMB and finally published as a July 15, 1993, revision to Circular A-21. Auditor's Concludinr!Remarks The absence of detailed time records to support the university's subsequent rate adjustment does not meet the requirements of OMB Circular A-21. We, therefore, reaffum our finding. Slate Auditots Office - DMslon d Audi -4- 2. The University Of Washington Department Of Psychology Should Charge on& Allowable Costs To Federal Grants Between November 1987 and April 1992, the Department of Psychology processed fictitious and unallowable claims totaling $97,738 against federal grants as follows: a. Deficits on expiring federal grants totaling $13,676 were transferred to newly awarded federal grants. b. Unexpended funds from expiring federal grants totaling $57,225 were transferred to the department's operating budget to avoid loss of the funds. c. Nongrant related items totaling $26,837 were charged to federal grants. These transfers were effected by making false claims using cost transfer invoices, and by charging expenditures of one activity to that of another. The department maintained an accounting of all improper transfers and the transactions which effected the transfers. In response to recommendations from the university's internal auditor, the department returned $18,600 to federal sponsors. The Office of Management and Budget (OMB), Circular A-21. Cost Principles for Educational Institutions. Section C.4.b. states: Any costs allocable to a particular sponsored agreement under the standards provided in this Circular may not be shifted to other sponsored agreements in order to meet deficiencies caused by ovemms or other fund considerations . . . . Section C.4.c. states: Any costs allocable to activities sponsored . . . other sponsors may not be shifted to federally sponsored agreements. Section D.l states: Direct costs are those costs that can be identified specifically with a particular sponsored project . . . . Section C.2 states that costs must be reasonable and allocable under the principles and methods provided berein, and conform to any limitations or exclusions set forth therein or in the sponsored agreement as to types or amounts or cost items. United States Code, Title 18, Section 287, states in part Whoever makes or presents to any person . . . in the civil . . . services of the United States, or to any department or agency thereof, any claim upon or against the United States . . . knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine . . . . Slale Audilol's Ofllce - Olvlsion of Audi -5- United States Code, Title 31, Section 3729 states in part: Any person who (1) knowingly presents, or causes to be presented, to an officer or employee of the United States government . . . a false or fraudulent claim for payment or approval . . . is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the mount of damages which the Government sustains because of the act of that person. Department personnel indicated the processing of false claims and charging of unallowable costs represented a long standing practice of the department's administration. By processing false claims and not complying with OMB Circular A-21, department administration circumvented federal regulations and university policies and procedures set up to ensure compliance with these regulations. They also subjected the university to substantial liability and criminal penalty. We recommend the Depamnent of Psychology comply with federal regulations and charge only allowable costs to federal grants. Federal Agency Pronrarn CFDA Number Questioned Costs DOD Department of Navy 12.99902 $ 3,863 NSF Other Federal Assistance 47.999 1,880 HHS National Institute Child 93.99905 10,026 HealthIDevelopment HHS National Eye Institute 93.99906 1,446 HHS National Heart, Lung, 93.99907 7,008 Blood Institute HHS National Institute 93.99915 3,699 NeurdComm. Disorders HHS Alcohol, Drug Abuse, 93.99919 37,472 Mental Health HHS Agency for Health Care 93.9992 1 13,744 Policy and Res. Total Auditee's Resaonse In general, the University agrees with the auditor's finding and recommendation. However, we wish to stress that all funding created by the transfer of deficit and surplus balances was used in direct support of the research effort and not redirected to other departmental activities. The deficit transfers referred to in finding Za, were all made to competing renewals for the same research projects; however, the necessary pre-award authority was not obtained. Of the $13,676 cited in finding Za, $8,705 had been returned to federal sponsors prior to the audit. In finding 2b. the department made every effort possible to ensure that surpluses transferred to the department's operating budget were spent on the continuing research project of the Principal Investigator involved Subsidiary records are available to document this practice. Of the $26,837 Stale Audiioh Otllca - Dlvlslon 01 Audi -6- cited in finding 2c. $9,895 had been returned to the federal sponsors prior to the audit. Most costs questioned in the finding were allocated to programsfinded by the Public Health Service (PHs). The Department of Psychology has been using PHs expanded authorities, which allowfor no-cost extensions, pre-award authority and carryforward of unexpended balances, without sponsor approval, since April 1992. Very careful monitoring of grant projects has helped to ensure that costs are assigned to the proper period and that minor overexpenditures and unexpended balances are transferred in accordance with grantor regulations. Auditor's Concluding Remarks We are pleased that the university concurs that only allowable costs should be charged to federal grants. 3. The Universitv Of Washington Should Notify Federal And State Officials Of False And Fictitious Claims Made Against Federal Proiects University of Washington management did not advise the federal cognizant agency or the State Auditor's Office of false and fictitious claims made against federal grants in the Department of Psychology (Psychology). Internal Audit Memorandum 92-27AM dated October 27, 1992, stated that Psychology improperly charged federal research for departmental administration costs, disallowed costs, and for services not provided. The management issues actached to the memorandum stated that "faculty and management could be prosecuted under the False Claims Act for making fictitious or fraudulent claims against the United States." The State Auditor's Office became aware of the Internal Audit Memorandum in March 1993, while investigating a whistleblower complaint. Our investigation revealed that grants from the Department of Defense (Navy) and various National Institute of Health awarding units were involved. The Office of Management and Budget (OMB) C i l a r A-128. Audits of Stare and Local Governments, Section 12 states: The recipient . . . shall promptly notify the cognizant agency of the illegal acts or irregularities and of proposed and actual actions, if any. Illegal acts and irregularities include such matters as . . . falsification of records or reports, and misappropriation of funds . . . . OMB Circular A-110. G r a m and Agreements with Institutions of Higher Educatwn, Hospitals, and Other Nonprofit Organizations, Attachment F,Section 2 states: Recipients' financial management systems shall provide for: a. Accurate, current and complete disclosure of the financial results of each federally sponsored project. The University of Washington Operations Manual, Policy D 47.1 states in part: If there is a reasonable cause to believe that an employee has engaged in any improper activity, the Internal Auditor will report the matter to the individual under investigation, the cognizant dean or vice-president, State Audnofs Olllca - Dklslon of Audii -7- the Attorney General, the State Auditor, and such other appropriate authorities as necessary. University personnel believed they gave notice of corrective action to federal sponsors when adjusted federal financial reports were submitted for the improper charges identified in the Internal Audit Memorandum. The adjusted reports reflected only that the University reimbursed the federal grants, but did not inform the cognizant agency. Failure to notify the federal cognizant agency inhibits their ability to notify the appropriate sponsoring agencies. The Internal Audit Director stated there must be a loss of public funds before fraudulent activity would be reported to the State Auditor's Office. Revised Code of Washington 43.88.160states in part (6) the state auditor shall: (d) Be empowered to take exception to specific expenditures that have been incurred by any agency or to take exception to other practices related in any way to the agency's financial transactions and to cause such exceptions to be ma& a matter of public record, including disclosure to the agency concerned and to the director of financial management (e) Promptly report any irregularities to the Ammey General. As the public's advocate, the State Auditor's Office must be notified of all improprieties in order to inform the public and the proper officials as required by RCW 43.88.160. We recommend the university promptly notify federal and state officials of all false and fictitious claims. Auditee's Response The University concurs with the auditor's recommendation. We question, however, the criteria that the auditors have used as a basis for their recommendation. OMB Circular A-128, section 12, when read in its entirety provides guidance only for those situations where an illegal act or other irregularity is discovered during an audit conducted under OMB Circular A-128. It requires that a recipient notifj, the cognizant agency whenever they are given notice by the auditor of an illegal act found during a single audit. The transactions transfem*nggrant deficit and surplus grant balances were discovered internally, and the federal sponsors were notified when adjustedfederal financial reports were submitted and the umllowable charges rerurned Additional transactions were then discovered by the state auditor during their audit. Auditor's Concluding Remarks We are pleased that the university concurs with our recommendation to promptly n o w federal and state officials of all false and fictitious claims. State Audiioi's Office - Dlvlslon of Audlt -a- FACTS ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Officeis established by the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year tenns. Our mission is to be the public's advocate for government accountability. Our primary service is the performance of regular financial and legal compliance audits of all state agencies and local governments. We also perform fiaud, whistleblower and other special investigations. As an elected office, the State Auditor's Officehas the independencenecessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal. state, and local laws. The State Auditor's Office is organized into three divisions and consists of 300 employees, who are located strategically around the state to deliver our services effectively and efficiently. Approximately 65 percent of our staff are certified public accountants or hold other cextifications and advanced degrees. Division of Audit The Division of Audit performs audits of more than 2,400 local governments in Washington consisting of cities, counties, schools, ports, and various types of special purpose districts. Results of these audits are published in individual audit reports for the various entities. The Division of Audit also audits all state agencies, boards and commissions (including public colleges and universities) and is required to annually audit the State of Washington's General Purpose Financial Statements. Results of these audits are published in the State of Washington's Annual Comprehensive Financial Report, issued by the Office of Financial Management, and in the Statewide Single Audit Report issued by our office. In addition to its other responsibilities, the division administers the Employee Disclosure or "Whistleblower Act" and investigates citizen complaints. Division of Legislative and Technical Services The Division of Legislative and Technical Services prescribes local govemments' uniform budgeting, accounting and reporting systems;plans and implements audit practice aids, training and technical assistance; prescribes the accounting manual for public school districts jointly with the Superintendent of Public Instruction; annually publishes local government comparative statistics; and coordinates our audit efficiency and quality assurance program. Division of Management Services The Division of Management Services is responsible for all administrative functions in the office, including budgeting, accounting, personnel, training, information processing and purchasing. Directory of Key Officials State Auditor Brion Sonntag Chief Deputy Auditor Ken Raske Director, Division of Audit Lee Reaves, CXSA Deputy State Auditor -Division of legislative & Technical Services Linda Sheler, CPA - Deputy State Auditor Policy and Communications Jerry Pugnetti - Deputy State Auditor Division of Management Services Chuck Pfeil, CPA (Rev. 10193) 1 SETTLEMENT AGREEMEm 1. This Settlement Agreement ("Agreement") is entered into between the United states of America ("United States"), acting through its Department of Justice and the Department of Health and Human Services, Office of the Inspector General, and the UNIVERSITY OF WASH1NGTON. 2. Investigation by Special Agents for the United States Department of Health and Human Services, Office of Inspector General, has revealed that the PSYCHOLOGY DEPARTMENT OF THE UNIVERSITY OF WASHINGTON may have submitted false statements during a period starting January 1, 1989 and ending August 31, 1993 in financial status reports regarding grants funded by the National Institutes of Health, National Science Foundation, and other subagencies of the United States Department of Health and Human Services and the Department of the Navy. 3. The United States believes that i t may have certain claims and causes of action against the UNIVERSITY OF WASHINGTON and/or its departments, affiliates, divisions, regents, faculty members, and employees, and/or each of them (col tectively and severally "UNIVERSITY OF WASHINGTON AND AFFILIATES") predicated upon the False Claims Act, 31 'U.S.C. 58 3729-3733,the Program Fraud Civil Remedies Act, 3 1 U.S.C. $$ 3801-3812, as well as common law, for refund of overpayments, damages, and penalties, and/or other remedies arising out of the matter described in paragraph 2. 4. he UNIVERSITY OF WASHINGTON AND AFFILIATES deny any liability or wrongdoing whatsoever and neither this Agreement nor any of its provisions, terms, or conditions constitute an admission of liability of wrongdoing or may be offered ox received in evidence of any action or proceeding as such an admission or evidence of liability or wrongdoing. 5. a at her than endure the risk and expense of litigation, the United States and the UNIVERSXTY OF WASHINGTON AND AFFILIATES both desire to reach a full and final compromise of any civil claim or cause of action raised by the matter described in paragraph 2, 6. Therefore, in consideration of the mutual promises, covenants, and obligations set forth in this Agreement, the United States and the UNIVERSITY OF WASHINGTON AND AFFILIATES intend to settle ahy potential civil andlor administrative claims for overpayment, damages, penalties, and other remedies arising from the matter described in paragraph 2. 1 SETTLEMENT AGREEMENT -- 1 ATTORNEY GENERAL OF WASHINGTON 101 C~RBEROINC HALL, BOX 351260 UNIVERSITT OF WPSHI~IQTON SEAT~E W~nl~arer4 , 98196 (206)W3dlt;O 2 1 7. For good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agrees as follows: . , . . , . .. A. ' That the UNIVERSITY OF WASHINGTON shall pay a total of . . $181,744.04,. (One Hundred Eighty One Thousand Seven Hundred Forty Four Dollars and Four Cents). Payment shall be in the form of a certified 01 cashier's check made payable to "The Department of Justice," or by means of electronic transfer to the Financial Litigation Unit, United States e , 3600, 800 Fifth Avenue, Seattle, Washington ~ t t o r n 'q~ ' ~ f f i cSuite 98 1.04. 8. In exchange for the items listed in paragraph 7. the United Stares, including without limitation the OIG, hereby release UNIVERSITY OF WASHINGTON AND AFFILIATES from g any civil or administrative claim or cause of action which the United States has or may have under the False Claims Act, 31 U.S.C.99 3729-3733; at common law; under the Program Fraud Civil ,, 10 Remedies Act, 31 U.S.C.$$ 3801-12; or under 45 CFR $76.100 et seq. for the conduct described in paragraph 2. I 9. All casts (as defined in the Federal Acquisition Regulations ("FAR") 3 1.205-47; U.S. Office of Management and Budget Circular A-21 Regulations paragraph J. 11; and as defined in Titles XVIII and XIX of the Social Security Act, 42 U.S.C. 1395, et seq. and $ 1396,er seq. and the regulations promulgated thereunder) incurred by or on behalf of UNIVERSITY OF WASHINGTON AND AFFILIATES in connection with 1) the matters covered by this Agreement, 2) the Government's audit and investigation of the matters covered by this Agreement, 3) UNIVERSITY OF WASHINGTON AND AFFILIATES audits, investigations, and defenses, 4) the negotiation o f this Agreement, and 5) the payments made to the United States pursuant to l7 R this Agreement shall be unallowable costs for government contract accounting and reimbursement purposes, including but not limited to, the cost principles applicable to federal grants, contracts, cooperative' agreements, and other agreements with educarional, institutions to which Circular A-21 Regulations apply; and for Medicare and Medicaid purposes. These amounts will be separately accounted for by UNIVERSITY OF WASHINGTON AND AFFILIATES and UNIVERSITY OF WASHINGTON AND AFFILIATES will not charge such costs directly or indirectly to any federa.1G o v e m e n r contract or program. 10. Each person signibg this Agreement represents that he/she has the full power and authority to enter into this Agreement and to perform the obligations set forth herein, and that hefshe is fully authorized to do so. This Agreement shall become final and binding only upon signing by all parties hereto. ATTORNEY QENERAL OF WASHINOTON HILL,BOX 351260 101 GBRBERDINO UNlV6RsllY OF WASHINQTON SEnmE, WASHIHOTON 98195 (206) Sd3-6150 11, This Agreement constitutes the entire Agreement between the United States and the UNIVERSITY OF WASHINGTON AND AFFILIA7'ES with regard to the matter described in paragraph 2. DATED: J,k& WELDON E. IHRIG ... = -/ Executive Vice President, University of Washington . . DATED: 6-- 2. 7 -*? 7- On Behalf of The United Stares Assistant inspector General for Legal Affairs Offices of Counsel for the Inspector General, Department of Health and Human Services DATED: / 25- 4.7 L - , 3 ' f1 / A. 2 . 4 TERRENCE J. ' T ~ C H A N Deputy Assistant Secretary for Grants and Acquisition Management, Department of Health and Human Services AlTORNEY GENERAL OF WASHINGTON SETTLEMENT AGREEMENT -- 3 101 C~SRBERPINO H ~ L LBOX , 351260 UNIVERS~TI OF WASH~NQTOH Scam$ W ~ s n n r c ~88196 o~ (208) 6434150
Published by the National Science Foundation, Office of Inspector General on 1997-07-16.
Below is a raw (and likely hideous) rendition of the original report. (PDF)