oversight

Statement Allison Lerner, Inspector General National Science Foundation before the U.S. House of Representatives Committee on Science, Space, and Technology: Subcommittee on Research and Technology

Published by the National Science Foundation, Office of Inspector General on 2017-03-09.

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

                                        Committee on

                               Science, Space, and Technology

                         Subcommittee on Research and Technology

                                U.S. House of Representatives

Chairwoman Comstock, Ranking Member Lipinski, and Members of the Subcommittee, 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 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

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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.

The OIG has two main components: the Office of Audits and the Office of Investigations. The
Office of Audits 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 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.

Ongoing Management Challenges

NSF leads the world as an innovative agency dedicated to advancing science. Its awards have led
to many discoveries that have contributed to the country and the world’s economic growth.
Beyond its scientific mission, as a federal agency NSF must be a responsible steward of taxpayer
dollars and spend scarce research funds properly. Inattention to its fiscal and administrative
responsibilities can compromise NSF’s ability to reach its fullest potential.
In this vein, each September the OIG identifies the top management challenges facing the
Foundation. I have attached a summary of the top challenges set forth in our most recent
Semiannual Report to Congress to this document; the complete version can be found
at:https://www.nsf.gov/oig/_pdf/FY17_Mgmt_Challenge.pdf

My testimony today will focus on three of NSF’s continuing accountability challenges and the
Foundation’s progress toward addressing associated OIG recommendations. The challenges are:



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              Establishing accountability over large cooperative agreements
              Management of the Intergovernmental Personnel Act (IPA) program, and
              Ensuring the ethical conduct of research

Effective responses to these challenges would help ensure the integrity of NSF-funded projects,
and, in the case of the first two challenges, often also reduce their costs. I will discuss each of
these three topics in greater detail below.
       Establishing Accountability over Large Cooperative Agreements

While NSF fulfills its mission primarily through grants to researchers and institutions to advance
promising science, the Foundation also uses cooperative agreements to construct and operate its
large research facility projects. 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 cumulatively to more than $4.4 billion.

Since 2010, my office has issued 28 reports containing more than 80 recommendations to
improve NSF’s use and management of cooperative agreements for the construction and
operation of its high-dollar, high-risk research facilities. As a result of these reports, NSF has
developed new policies and procedures to strengthen its monitoring of such facilities.

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. NSF’s new guidance also requires the Grants
and Agreements Officer to determine that a project’s estimated costs are reasonable prior to
making a construction award for a facility.

These new policies and procedures represent important steps by NSF toward the goal of
increased accountability over the Foundation’s largest and riskiest projects. These actions led to
the removal of a significant deficiency on NSF’s inadequate monitoring of large cooperative
agreements from the agency’s FY 2016 financial statement audit. While this progress is
significant, NSF’s work in this area is ongoing.

My testimony will focus on four major categories of recommendations (ones related to the need
for annual incurred cost submissions, the validation and certification of awardees’ earned value
management (EVM) systems and data, the creation of policies requiring end-to-end surveillance
of large cooperative agreements, and the oversight of management fees paid to large facility
awardees). These recommendations remain open and which are central to NSF’s ability to
enhance accountability over cooperative agreements for large facilities. My office and NSF
management continue to work together to resolve these recommendations.
       Incurred cost submissions
Incurred cost submissions, which include certified schedules of direct costs by award and applied
indirect expenses, provide information that is critical for NSF to properly discharge its
administrative and fiduciary responsibilities as a steward of Federal funds. They are also
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essential tools for the conduct of an incurred cost audit. In some cases, the absence of properly
prepared incurred cost submissions has added months, and even years, to the time required for
audits conducted by my office.
To address this problem, we recommended that NSF require awardees with large facility
cooperative agreements in excess of $50 million to submit annual incurred cost submissions to
ensure that costs are allowable, reasonable, and in compliance with Federal requirements.
In response to our recommendation, NSF has developed a tool to collect expenditure data from
large facilities valued at $100 million or more. This tool and revisions in NSF’s Large Facilities
Manual are awaiting OMB approval, which NSF expects to receive this month. In addition, the
contractor NSF is using to conduct incurred cost audits is testing this tool with one of the
Foundation’s current large facility awardees.
The effectiveness of this tool depends on the quality of its implementation. When awardees start
submitting expenditure data using this tool, we will evaluate both the information being provided
and the actions NSF takes in response to that information.
       Certification and Validation of Earned Value Management Systems
Proper oversight of a large facility project includes certifying the EVM system used to track the
project’s schedule and cost as well as validating the information the awardee provides in EVM
reports.
Certification of an EVM system is needed to ensure that an awardee maintains an acceptable
system, which includes data to support scheduling of work and interim progress reports, among
other things. Our examination of thresholds other Federal agencies use when determining
whether an awardee’s EVM system should be certified found thresholds ranging from $10
million and $50 million.
Although the large facility awardees we have audited receive hundreds of millions of dollars in
NSF funding, to date NSF has not required that their EVM systems be certified. In 2017, NSF
verified (a process it indicated is similar to certification) the EVM system for the $473 million
Large Synoptic Telescope project and the $344 Daniel K. Inouye Solar Telescope, projects
which had been under construction for several years.
Validation of the data submitted by an awardee is an important tool for monitoring a project’s
spending and progress. If data is not validated, there is an increased risk that the information is
inaccurate and does not correctly reflect the project’s progress. 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 recommended that NSF certify large facilities’ EVM systems and validate the EVM data.
NSF receives monthly reports from large facility awardees with earned value management
information, which is used to measure project schedule and costs. If the EVM system is
providing poor quality information, then an overrun may not be detected in a timely manner, as
happened with the NEON project.
NSF has developed new guidance requiring verification of large facilities’ EVM systems. It also
developed new guidance related to the validation of large facilities’ EVM systems and data, and
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informed us that it has begun validating inputs into EVM systems. We are reviewing the new
guidance to assess whether it is sufficiently robust to safeguard Federal funds and will provide
feedback on that point to NSF.
       End to End Cost Surveillance
Our audits and inspections of NSF’s high-dollar large facility construction projects identified risks
across the lifecycle of such projects. As a result, we recommended that NSF increase end-to-end
cost surveillance for its largest and riskiest cooperative agreements valued at more than $100
million. At the pre-award stage, such surveillance would include obtaining updated cost estimates
and audits of awardees’ proposed budgets and cost accounting systems/estimating practices. At
the post-award stage, the monitoring would include requiring annual incurred cost submissions
and incurred cost audits.
In response to this recommendation, NSF issued new policies, procedures and standard operating
guidance covering topics from reviewing proposal budgets to incurred cost audits and agreed to
have a third party evaluate the implementation of the new procedures. The estimated completion
date for the third party evaluation is September 30, 2017.
       Management Fees
Management fees have long been provided to Federally Funded Research and Development
Centers (FFRDCs) based on a recognition that these centers -- which are typically non-profit
entities almost wholly dependent on government funding -- might need to incur costs that cannot
be reimbursed by the government. Under such circumstances, management fee was created to
enable an FFRDC to be reimbursed for “ordinary and necessary” but otherwise unallowable
business expenses that were essential to maintaining the FFRDC’s financial viability. Such
expenses might include working capital and interest payments.
Audits of NSF’s negotiation, award, and management fee for two large facility projects found,
among other things, that NSF did not obtain supporting documentation to determine the need for
management fee and did not review actual expenditures that awardees paid using management fees
to determine if expenditures were for ordinary and necessary business expenses.
We recommended that NFS require that awardees seeking management fee submit a written
assertion of need detailing all their sources of revenue. NSF could use such information to help it
determine whether the awardee has insufficient access to non-Federal funding to cover otherwise
unallowable expenses necessary to maintain its financial viability and thus should receive
management fee.

In addition to our recommendations on this topic, the December 2015 National Academy of
Public Administration report which examined NSF’s use and management of large cooperative
agreements recommended that NSF end its use of management fees in cooperative agreements as
a means of eliminating the additional management burdens associated with monitoring the award
and because of the potential that inappropriate expenses will be funded by such fees.

NSF indicated it will be revising its management fee policies but has not committed to requiring
awardees to report on other sources of revenue. It also indicated that it would like to calculate
management fee using weighted guidelines similar to those found in contracts. We plan to
review the revised policy to assess whether it is consistent with the historical bases for such fees.

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OIG’s Ongoing and Future Work related to the Management of Large Cooperative
Agreements

While the Foundation has made real progress in its management of large cooperative agreements,
we will continue to monitor this area because of the unique challenges it poses to the Foundation.

Based on the serious nature of this challenge and the progress that has been made to date, our
objective moving forward is to examine how NSF is applying its new policies, procedures and
guidance to strengthen accountability for both construction and operations awards from the pre-
award stage through the lifecycle of the award. Successful implementation will require sustained
management attention, effective communication with the awardee community, clear award terms
and conditions, and most importantly, a continuing commitment to change culture at NSF.

We are currently auditing NSF’s application of its new policies and procedures in one of its large
facility research projects that is nearing the end of the construction phase. We expect to issue
that report in the next few months.

Additionally, we are auditing NSF’s oversight of a sample of sub-recipients including large
facility sub-recipients, in response to a provision in the American Innovation and Competiveness
Act. Prior audit work disclosed that NSF could strengthen accountability over significant
funding that is awarded to sub-recipients in large facility projects.

As we expand our work to examine NSF’s oversight of the operation phase of large facilities, we
recently started an audit to determine if NSF’s internal controls are sufficient to ensure that the
transfer of funds between construction and operation accounts follows applicable Federal
requirements.

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 Act 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, because IPAs can serve in a temporary capacity only up to four years, there is

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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 million1 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.

Finally, because most IPAs remain employees of their home institutions while at NSF and expect
to return there after their tenure at the Foundation ends, most come to NSF with known conflicts
of interests. In light of the Foundation’s reliance on IPAs to make funding decisions, it is critical
that strong controls be in place to identify and mitigate conflicts of interests that occur as a result
of IPAs’ own research activities or their connections with their home institutions. In June 2015
we issued a Management Implication Report (MIR), which disclosed a significant breakdown of
numerous controls over an IPA’s conflicts in one directorate.

Since 2010, we recommended that NSF evaluate ways to reduce IPA costs and have suggested,
among other things, that the Foundation consider expanding the use of telework for IPAs and
seeking greater cost sharing from IPAs’ home institutions. Because IPA salaries and benefits are
funded with program-related appropriations, savings in IPA costs would free up funds for
additional research. We also made recommendations intended to enhance the Foundation’s
ability to manage IPA conflicts of interests.
In response to our recommendations related to the costs of IPAs, 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
indicated that it will pilot a required 10 percent cost sharing of IPAs’ academic-year salary and
fringe benefits in FY 2017.
In its August 2015 response to our MIR, NSF management asserted that existing controls were
sufficient to address potential rotators’ COIs. On March 3, 2017, the NSF Director issued a
memorandum stressing how important it is for all employees and rotators to uphold the highest
ethical standards. The memorandum also urged employees to take seriously their obligations to
attend ethics training and to file timely financial reports.
Moving forward, we will continue to monitor NSF’s actions in response to our IPA-related
recommendations. We will also examine NSF’s actions in response to the American Innovation


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

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and Competitiveness Act, which required the Foundation to report on its efforts to cut costs
associated with employing IPAs.
Finally, in the next few weeks we expect to release a report assessing NSF’s controls over
rotators’ COIs with an emphasis on the Foundation’s progress in addressing recommendations
from our June 2015 MIR.
       Encouraging the Ethical Conduct of Research

Research misconduct—defined as plagiarism, data fabrication, or data falsification in proposed
or funded research--damages the scientific enterprise, is a potential misuse of public funds, and
undermines the trust of citizens in government-funded research. Falsification and fabrication in
NSF-funded projects can literally cost lives, while plagiarism in such work is dishonest (and
potentially actionable). It is therefore crucial to the integrity of research funded with taxpayer
dollars that NSF-funded scientists adhere to the highest ethical standards as they carry out their
projects. For these reasons, we continue to pursue allegations of research misconduct by NSF-
funded researchers.

In recent years, we have seen a significant rise in the number of substantive allegations of
research misconduct associated with NSF proposals and awards. Over the past four years, we
have reported 175 research misconduct cases in our semiannual reports to Congress

Examples of significant cases include plagiarism by a full professor who claimed that he did not
know that he should use quotation marks when he copied text into his NSF proposal; falsification
by a graduate student who lied to university officials and pursued a legal challenge to an OIG
subpoena; and data fabrication by a graduate student who improperly manipulated data.

 NSF takes research misconduct seriously, as do NSF’s awardee institutions. During our most
recent semiannual reporting period, institutions took actions against individuals found to have
committed research misconduct, ranging from letters of reprimand to termination of
employment. Over the past four years, NSF’s actions in response to our recommendations ranged
from a letter of reprimand to a 5-year government-wide debarment.

NSF and OIG recently developed a new system to track the Foundation’s response to our
recommendations related to our research misconduct investigations. This system provides
increased transparency and helps both NSF and OIG track the status of the recommendations.
We also perform outreach to universities and others in the research community to provide
training and preventing, detecting, and investigating research misconduct. These efforts include
briefings with university investigation and inquiry committees, research administrators, and
graduate school officials, among others. In addition, our website contains links to all research
misconduct case close-outs, which illustrate the fact patterns from our cases that can be used for
training.
We will continue our investigative and outreach efforts in this area. In addition, in the next few
weeks, we expect to issue a report detailing the results of our survey of institutions’ efforts to
implement Responsible Conduct of Research training required by the American COMPETES
Act of 2007.

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NSF/OIG Efforts to Strengthen Accountability: The Stewardship Collaborative

In conclusion, I would like to highlight the joint efforts NSF and OIG have made to improve the
stewardship of Federal funds. OIG and NSF established the Stewardship Collaborative in 2010 to
help achieve a shared mission – the proper stewardship of taxpayers’ investment in science,
engineering, and education.

The Collaborative is comprised of staff from NSF’s financial administration division and OIG’s
Office of Audits, and is chaired by Senior Executive leaders from both offices. It meets monthly
to discuss current issues and identify possible upcoming barriers to resolution, as well as
potential solutions. For example, it recently sponsored joint training to improve understanding of
the audit resolution process, including participants’ individual responsibilities.

In addition to increasing positive communication between NSF and OIG, the Collaborative has
been instrumental in ensuring that management decisions are made by the right people within
NSF. It has thus helped resolve a number of critical audit recommendations more efficiently.
Most importantly, the Collaborative has facilitated accountability over the use of Federal funds
without compromising OIG’s independence, a fundamental tenet of the Inspector General Act.

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.

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. 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.

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.

I would be happy to answer any questions.




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