oversight

Statement Allison Lerner, Inspector General National Science Foundation before the U.S. Senate Committee on Commerce, Science and Transportation

Published by the National Science Foundation, Office of Inspector General on 2017-02-08.

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

                         STATEMENT OF ALLISON C. LERNER

                                  INSPECTOR GENERAL

                           NATIONAL SCIENCE FOUNDATION

                                          Before the

              U.S Senate Committee on Commerce, Science & Transportation

                                       February 8, 2017

Mr. Chairman and Members of the Committee, I appreciate this opportunity to discuss the Office
of Inspector General’s (OIG) work to promote the efficiency and effectiveness of the National
Science Foundation’s (NSF) programs and operations and to safeguard their integrity. My office
is committed to providing rigorous, independent oversight of NSF, and I welcome the chance to
discuss some of the top management challenges facing the Foundation, NSF’s progress in
addressing these challenges, and work that remains to further advance accountability and
transparency at NSF.

Background

NSF is an independent federal agency and the funding source for approximately 24 percent of all
federally supported basic research conducted by the nation’s colleges and universities. In many
areas, such as mathematics and computer science, NSF is the major source of federal backing.
The Foundation funds approximately 12,000 new awards each year, thereby fulfilling its mission
to promote the progress of science. Proposals for funding are assessed by panels of experts as
part of NSF’s merit review process.

Awards are made primarily as grants to individuals and small groups of investigators, as well as
to research centers and facilities where scientists, engineers, and students undertake research
projects. The Foundation also uses cooperative agreements and contracts to fund major research
equipment such as telescopes, Antarctic research sites, and high-end computer facilities. In FY
2016 NSF was appropriated approximately $7.5 billion to carry out the Foundation’s programs
and operations.

The OIG is independent from NSF and reports directly to Congress and the National Science
Board (NSB). Our mission is to conduct independent and objective audits, inspections, reviews
and investigations of National Science Foundation programs and operations, and to recommend
policies and corrective actions to promote effectiveness and efficiency and prevent and detect
waste, fraud, and abuse. Consistent with our statutory mandate, the OIG has an oversight role
and does not determine policy or engage in management activities involving the Foundation or
program operations. Thus, my office is not responsible for managing any NSF programs, nor do
we attempt to assess the scientific merit of research funded by the Foundation.


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The OIG has two main components: the Office of Audit and the Office of Investigations. The
Office of Audit is responsible for auditing NSF’s internal operations, as well as the grants,
contracts, and cooperative agreements funded by the Foundation. Among its ongoing
responsibilities are the annual audits of NSF’s financial statements and the annual reviews of
NSF’s information system security program.

Through our audit work, we are able to monitor management functions that may pose significant
financial or programmatic risks to the Foundation. In determining priorities for this work, we
consider the results of prior audits and consult with the Foundation’s senior management, the
National Science Board and Congress, the Office of Management and Budget, and members of
the research community supported by the Foundation. In selecting areas for audit, we assess
factors such as the risk involved in the activity, the potential for monetary recovery for the
government, and the potential for the greatest substantive benefit for NSF.

The Office of Investigations (OI) is responsible for investigating allegations of wrongdoing
involving NSF programs and operations, agency personnel, and organizations or individuals who
submit proposals to, receive awards from, or conduct business with NSF. OI also houses a team
of investigative scientists responsible for investigating allegations of fabrication, falsification or
plagiarism in NSF-funded research. We focus our investigative resources on the most serious
cases, as measured by such factors as the amount of money involved, the seriousness of the
alleged criminal, civil or ethical violations, and the strength of the evidence. When appropriate,
the results of these investigations are referred to the Department of Justice for possible criminal
prosecution or civil litigation, or to NSF for administrative resolution.

NSF’s Top Management Challenges

In accordance with the Reports Consolidation Act of 2000, each year the OIG identifies what it
considers to be the most serious management and performance challenges facing NSF. The top
management challenges reflect fundamental program risk that are likely to require NSF’s
attention for years to come.

The OIG identified seven challenges for NSF for FY 2017. My testimony will focus on four of
NSF’s most pressing challenges: management of cooperative agreements for large facility
research projects, management of the Intergovernmental Personnel Act program, management of
the U.S. Antarctic Program, and improving grant administration. I will also briefly discuss risks
associated with NSF’s move to its new building, which is scheduled to begin toward the end of
this fiscal year.

       Management of Cooperative Agreements for Large Facility Research Projects

NSF uses cooperative agreements to construct and operate its most costly and highest risk
research facilities. As of January 25, 2017, NSF had 459 active cooperative agreements, totaling
nearly $8 billion. Twenty-two of these agreements are valued at over $50 million each and add
up to cumulatively to more than $4.4 billion.
Since 2010, my office has issued 28 reports containing more than 80 recommendations related to
NSF’s use and management of cooperative agreements for the construction and operation of its


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high-dollar, high-risk research facilities. Monitoring of cooperative agreements was also cited as
a significant deficiency in NSF’s financial statement audits for fiscal years 2011 through 2015.

In addition to OIG’s oversight, in the spring of 2015, at the request of the NSF Director and the
National Science Board, the National Academy of Public Administration (NAPA) examined
NSF’s use of cooperative agreements for large facilities and benchmarked its practices against
other, similar Federal agencies.

NAPA issued its report in December 2015. That document articulated the fundamental challenge
that NSF is facing:
       It is clear that, in the past, NSF has prioritized the innovative scientific aspects of large
       facility construction projects; the agency now needs to apply equal emphasis on increased
       internal management of the business practices critical to enhanced oversight and project
       success. In doing so, the Panel believes that NSF and NSB will enhance the agency’s
       ability to fulfill its mission of supporting groundbreaking science.1

The need for stronger oversight of large cooperative agreements begins before the award has
been made. Pre-award oversight should include audits of proposed budgets and accounting
systems to ensure that awardees’ cost estimates are fair and reasonable and that their accounting
systems are adequate to bill the government properly. Pre-award oversight is especially
important as the proposed budget for these projects, once approved by NSF, creates the basis
upon which awardees can draw down advanced funds over the course of the award.

The importance of pre-award oversight was underscored by the results of audits of three of
NSF’s large facility projects—the Ocean Observatories Initiative (OOI), the Daniel K. Inouye
Solar Telescope (DKIST)2, and the National Ecological Observatory Network (NEON). As a
result of those jobs, auditors questioned $305 million in unallowable or unsupported costs out of
$1.1 billion in total costs for the three projects.

The lack of support for costs in the $469.3 million NEON proposal was so significant that the
auditors issued an adverse opinion stating the proposal did not form an acceptable basis for
negotiation of a fair and reasonable price. Auditors disclaimed an opinion on the DKIST
proposal, concluding that cost data provided in the pre-award cost proposal for the $344 million
project was so significantly flawed that they were unable to perform an audit. Based on these
audits, we recommended that prior to making an award NSF obtain proposal and accounting
system audits for high risk cooperative agreements valued in excess of $50 million. The NAPA
report also recommended that NSF address potential cost proposal issues before making an
award.

The serious questions about the adequacy of the proposed budgets led us to examine NSF’s cost
surveillance throughout the lifecycle of large facility projects. Adequate oversight is essential


1 National Science Foundation: Use of Cooperative Agreements to
                                                             Support Large Scale Investment
in Research, National Academy of Public Administration (December 2015), pp. 6-7.
2 Formerly known as the Advanced Technology Solar Telescope.


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after the award is made to ensure that expenditures are consistent with the award’s terms and
conditions. To this end, we have recommended that NSF obtain incurred cost submissions and
incurred cost audits of high risk cooperative agreements valued in excess of $50 million. Such
submissions and audits will enable NSF to determine if costs claimed are reasonable and
allowable under federal requirements.

Proper oversight also includes validating the information awardees provide in Earned Value
Management (EVM) reports and certifying the EVM systems used to track project schedule and
cost. Our work has identified opportunities for improvement in this area. For example, monthly
EVM progress reports for the NEON project were not accurate, which undermined NSF’s ability
to promptly identify problems that ultimately led to NSF having to significantly de-scope the
project to avoid an $80 million cost overrun.

We are currently broadening our work in this area to encompass cooperative agreements for the
operations phase of large facility projects. Over time, NSF spends significantly more on
operating its facilities than it does on constructing them. To illustrate, NSF requested over $193
million for fiscal year 2017 to pay for four NSF large facility construction projects. In contrast,
NSF’s operation and maintenance request for its existing large facilities for the same time period
exceeded $1 billion, in addition to more than $200 million for Federally Funded Research and
Development Centers. We have just begun a job focusing on the risk of potential commingling
of construction and operations funds.

NSF has developed new policies and procedures for large facility awards to address some OIG
and NAPA recommendations. Among other things, NSF’s new guidance requires completion of
a Cost Proposal Review Document (CPRD) for each large facility proposal to ensure that a
thorough and well-documented record exists of NSF’s determination that proposed costs are
reasonable. The CPRD is NSF’s analysis of whether an awardee’s proposed costs are supported
adequately and describes NSF’s plans for oversight of the award.

In addition, according to NSF’s new guidance, the Grants and Agreements Officer must
determine that a project’s estimated costs are reasonable prior to making a construction award for
a facility. NSF has also instituted a new management fee policy, as well as implementing
guidance, to strengthen its oversight over awardees’ use of management fee.

These new policies represent important steps by NSF toward the goal of increased accountability
over the Foundation’s largest and riskiest projects. As a result of these actions, NSF’s most
recent financial statement audit removed a multi-year significant deficiency focused on NSF’s
monitoring of large cooperative agreements. While these outcomes reflect real progress on this
important issue, we will continue to monitor this area because of the unique challenges it poses
to the Foundation.

Based on the serious nature of these challenges and the progress that has been made to date, our
objective moving forward is to examine how NSF is applying its new policies to strengthen
accountability for both construction and operations awards from the pre-award stage through the
lifecycle of the award. Implementing these new policies will require sustained management

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attention, effective communication with the awardee community, clear award terms and
conditions, and most importantly, a continuing commitment to change culture at NSF.

We will also pay close attention to the actions NSF takes in response to requirements in the
American Innovation and Competitiveness Act. The Act contains a number of key oversight
requirements related to NSF’s large facility portfolio. For instance, it requires NSF to conduct a
pre-award analysis of costs before making an award, obtain periodic external reviews on project
management and performance, retain control over funds budgeted for contingency, and to
establish guidelines regarding inappropriate expenditures associated with all fee types.

          Management of the Intergovernmental Personnel Program
To further the agency’s mission of supporting science and engineering research and education,
NSF draws on scientists, engineers, and educators on rotational assignment from academia,
industry, or other eligible organizations. All of the non-permanent appointments are federal
employees with the exception of those who come to NSF under Intergovernmental Personnel Act
(IPA) assignments. Individuals on IPA appointments remain employees of their home
institutions. As a result, pay and benefits for IPAs are set by their home institutions and are not
subject to limitations on federal pay and benefits.

While there are benefits that come from having IPAs at NSF, there are also challenges. For
example, since IPAs can serve in a temporary capacity for up to four years, there is significant
turnover in staff at NSF, especially in executive positions charged with leading the Foundation
and setting its vision. As of December 2016, five of the seven Assistant Directors, whose
primary responsibility is providing leadership and direction to the Foundation’s scientific
directorates, are IPAs (one Assistant Director slot is vacant). In addition, as of the same date, 20
out of NSF’s 29 scientific divisions are led by IPAs (2 of those positions are vacant).

The Foundation’s use of IPAs comes at a high cost and these costs are rising. In 2015, NSF paid
nearly $8.9 million3 for 27 executive-level IPAs, compared to $6.5 million for the same expenses
for 21 executive-level IPAs in 2012. IPA salaries can also significantly exceed the salaries of the
highest paid federal employees. In 2015 the highest executive-level IPA salary was more than
$440,000, up 45 percent from $301,247 in 2012. In 2015 the salaries for all but two executive
level IPAs were more than the highest salary of a federal employee at NSF. The number of IPAs
has also increased--in 2009, there were 20 executive-level IPAs, whereas there were 29
executive-level IPAs in December 2016.

Since 2010, we have recommended that NSF evaluate ways to reduce IPA costs and have
suggested, among other things, that the Foundation consider expanding the use of telework and
seek greater cost sharing from IPAs’ home institutions. Because IPA salaries and benefits are



3   Includes salary, fringe benefits, lost consulting, and per diem.

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funded with program-related appropriations, savings in IPA costs would free up funds for
additional research.
In response to our recommendations NSF no longer reimburses IPAs for lost consulting income;
previously IPAs could receive up to $10,000 from NSF each year for consulting income they
received while at their institutions. NSF also formed a steering committee in April 2016 to
explore opportunities to reduce IPA costs. To this end, NSF has indicated that it will pilot a
required 10 percent cost sharing of IPAs’ academic-year salary and fringe benefits in FY 2017.
Moving forward, we will monitor NSF’s actions in response to our recommendations on this
topic. We will also examine NSF’s actions in response to the American Innovation and
Competitiveness Act, which required the Foundation to report on its efforts to cut costs
associated with employing IPAs.
       Management of the U.S. Antarctic Program

NSF, through the United States Antarctic Program (USAP), manages U.S. scientific research in
Antarctica. In December 2011, NSF awarded an Antarctic Support Contract to Lockheed Martin
to support NSF’s management of the USAP.4 The contract is NSF’s largest, valued at nearly $2
billion over 13 years. The Antarctic Support Contract and its subcontracts provide logistical
support for information technology, food, laboratory management, and other services which
enable the USAP’s three research stations (McMurdo, South Pole, and Palmer) to operate year-
round.

We have previously examined NSF’s response to a July 2012 Blue Ribbon Panel report and
suggested that including more specific information, such as interim milestones and target dates
for implementing actions, would enhance NSF’s ability to prioritize and track its corrective
actions in response to the Panel report. Given the large number of action items associated with
the Panel recommendations—the panel identified 84 implementing actions within three separate
categories--there is a real risk that NSF could lose track of its progress with respect to these
actions unless it approaches implementation systemically.

We have also examined NSF’s oversight of and the Antarctic Support Contractor’s actions to
ensure the health and safety of participants in the USAP. We found that in general NSF’s
oversight and the Contractor’s performance were effective in ensuring adequate health and
safety. We also identified four areas for improvement, including the lack of a process for
identifying, responding to, and tracking data on misconduct that occurs in the USAP, and
opportunities to enhance pharmacy operations.




4In August 2016, Leidos Holdings Inc. and Lockheed Martin’s Information Systems and Global
Solutions business segment merged. As a result of the merger, Leidos will hold the Antarctic
Support Contract, once plans for all contracts affected by the merger have been reviewed.

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In January 2018 we plan to visit the McMurdo and South Pole research stations to conduct
fieldwork for the 2017 financial statement audit, the 2017 audit of NSF’s information security
program, and other aspects of the USAP program as appropriate.

       Improving Grant Administration

Making grants in support of promising scientific research is central to NSF’s mission. Thus,
ensuring that grant funds are spent as intended is critical. While efforts to reduce the
administrative burden on grantees have value, the agency must proceed carefully so that
accountability for public funds is not compromised in the process.

Because many NSF awardees pass portions of their funding on to subrecipients that perform a
significant amount of the project’s work, NSF must ensure that such awardees are appropriately
overseeing the actions and expenditures of their subrecipients. We have recently started an audit
on NSF’s process to ensure that its awardees are monitoring their subrecipients and, pursuant to
the American Innovation and Competitiveness Act, we will provide our report and any associated
recommendations, to Congress no later than December 2017.

       Moving NSF Headquarters to a New Building

NSF has four months (September through December 2017) to complete its move from the two
buildings it currently occupies in Arlington, Virginia, to its new headquarters in Alexandria,
Virginia, and decommission its current offices before its current leases expire at the end of
December, 2017. If the current offices are not decommissioned prior to January 1, 2018, the
Foundation will have to begin paying possibly increased rent for the Arlington offices, in
addition to rent for its new Alexandria location. Our most recent examination of risks associated
with NSF’s move recommended that NSF improve its baseline schedule, which could play a
critical role in NSF’s ability to identify and manage project risk.

NSF management informed us that it does not intend to update its baseline schedule and
proposed an alternative approach that relies on its existing schedule. We will continue to closely
monitor NSF’s progress toward meeting the deadline to move and will provide updates to the
agency and the Congress as we identify risks.

NSF and OIG Efforts to Strengthen Accountability


As noted previously, the Foundation has begun to make progress in its efforts to achieve greater
accountability. A key contribution to the progress to date has been made by the Stewardship
Collaborative, a group which was established by NSF and OIG in 2010 as a collective effort by
both offices to help achieve the shared mission of proper stewardship of the taxpayer’s
investment in science, engineering, and education.
The Collaborative is made up of members from varying units within NSF and OIG and is chaired
by Senior Executive leaders from NSF’s financial administration division and OIG’s Office of
Audit. It meets monthly to discuss current issues and possible upcoming barriers to resolution—

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as well as potential solutions. For example, it recently developed a joint training effort to
improve understanding of the audit resolution process, including members’ responsibilities in the
process.
Along with increasing positive communication, the Collaborative has been instrumental in
resolving a number of critical audit recommendations. Most importantly, it has helped ensure
that NSF has addressed recommendations without impinging on the OIG’s independence — and
that management decisions are made by the right people within the Foundation.
Conclusion
Scientific research and discovery are the building blocks of the technological advances that are
essential for our nation’s economy to grow and to meet the challenges of the future, and NSF has
an essential role to play in promoting scientific discovery. For the agency to achieve its mission,
NSF must spend its research funds in the most effective and efficient manner while maintaining
the highest level of accountability over taxpayer dollars.

My office will continue to utilize the full range of our audit and investigative resources to
exercise robust oversight of NSF’s stewardship of federal funds and to safeguard the integrity of
the Foundation’s operations.

NSF applies its highest level of attention and scrutiny to determine the scientific merit of the
projects it decides to fund. It is imperative that NSF apply the same rigorous attention and
scrutiny to its financial management of its programs and operations. Public trust and confidence
demand the highest level of accountability, and we look forward to working with NSF
management, the National Science Board, and Congress to achieve this goal.




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