oversight

Semiannual Report - March 2003

Published by the National Science Foundation, Office of Inspector General on 2003-03-01.

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

Semiannual
Report to the Congress

                                  March 2003




                 National Science Foundation




Off ce of Inspector General
 About
 The National Science Foundation...
       The National Science Foundation (NSF) is charged with supporting and strengthening all research
 disciplines, and providing leadership across the broad and expanding frontiers of scientific and engineering
 knowledge. It is governed by the National Science Board which sets agency policies and provides oversight
 of its activities.

       NSF invests approximately $5 billion per year in almost 20,000 research and education projects in
 science and engineering, and is responsible for the establishment of an information base for science and
 engineering appropriate for development of national and international policy. Over time, other
 responsibilities have been added including fostering and supporting the development and use of
 computers and other scientific methods and technologies; providing Antarctic research, facilities and
 logistic support; and addressing issues of equal opportunity in science and engineering.

 ... And The Office of Inspector General
       NSF’s Office of Inspector General promotes economy, efficiency, and effectiveness in administering
 the Foundation’s programs; detects and prevents fraud, waste, and abuse within NSF or by individuals
 that receive NSF funding; and identifies and helps to resolve cases of misconduct in science. The OIG
 was established in 1989, in compliance with the Inspector General Act of 1978, as amended. Because
 the Inspector General reports directly to the National Science Board and Congress, the Office is
 organizationally and operationally independent from the agency.




Front cover photograph: A group of emperor penguins photographed at Cape Crozier.
NSF/Scripps Institution of Oceanography
                                             From the Inspector General

      This report highlights the activities of the National Science Foundation (NSF) Office of Inspector
General (OIG) for the six-month period ending March 31, 2003. It has been a most productive time.
We issued 15 audit reports that identified $9,720,295 in promised cost sharing “at risk” of not being
contributed, $4,159,513 in funds to be put to better use, and an additional $324,971 in questioned
costs. NSF disallowed $851,014 during the past 6 months that had been questioned in previous audit
reports. In addition, we closed 18 civil/criminal cases, 15 administrative cases, and made $1,524,127
in recoveries. Two cases were referred to the Department of Justice.

     The Office of Inspector General was established 25 years ago to be a watchdog for the taxpayer.
People that are part of the OIG community are often asked the question: who watches the watchdogs?
As members of Congress know, we are accountable to many. The NSF OIG reports to both the
National Science Board and to Congress. The Office of Management and Budget reviews our budget
request. The Executive Council of Integrity and Efficiency and even the press play a role in evaluating
our performance. And we can count on the agency to double-check our facts. To further enhance
our accountability to the public, we include in this Semiannual Report our first OIG Performance
Report. The quality improvements discussed in the Report have already contributed to the successful
peer review of our audit operations in this period, and include preparations for the first peer review
of our Investigations office, scheduled to take place during the next reporting period.

     In an effort to collect more information about best practices within our profession, we have
held many productive discussions and exchanges over the past few years with our counterparts among
the Federal OIGs and from other countries as well. These contacts have proven helpful not only in
improving audit and investigative methods, but in developing performance measures that will gauge
the overall effectiveness of our office. In this vein we will be hosting a conference at the end of this
month that will be attended by representatives of 14 oversight agencies representing 10 countries.

     Finally, we note a significant change in the way the National Science Board carries out its
responsibilities. The Board has surmounted various logistical obstacles within a short time frame to
open its committee meetings to the public for the first time. The new openness is certain to improve
understanding among the science community and the public, of NSF and the challenges it faces.




                                                                           Christine C. Boesz, Dr.P.H.
                                                                                     Inspector General
                                                                                         May 15, 2003
                                                                                            Table of Contents


Executive Summary ............................................................................ 5

OIG Management Activities ................................................................. 7
         Congressional Testimony ....................................................................................... 7
         Management Challenges ........................................................................................ 7
         Legal Review ......................................................................................................... 11
         Outreach/Prevention Activities ........................................................................ 13
         Quality Certifications ........................................................................................... 15

Audits and Reviews .......................................................................... 17
         Significant Reports................................................................................................ 17
         Corrective Actions Prompted by Previous Audit Findings ........................... 25
         Work in Progress ................................................................................................... 28
         A-133 Audit Reports ............................................................................................ 29

Investigations .................................................................................... 31
         Civil and Criminal Investigations ....................................................................... 31
         Administrative Investigations ............................................................................. 36

OIG FY 2002 Performance Report ................................................... 41
         Goal 1: Increase OIG Impact on NSF’s Effectiveness and Efficiency ....... 42
         Goal 2: Safeguard the Integrity of NSF Programs and Resources ............... 44
         Goal 3: Utilize OIG Resources Effectively and Efficiently.......................... 46

Statistical Data ................................................................................. 51

Appendicies
         Reporting Requirements ...................................................................................... 63
         Acronyms ............................................................................................................... 65
                                                   Executive Summary
•   OIG’s annual statement of what the office considers the most
    serious management and performance challenges facing NSF
    appears on p. 7.

•   The Fiscal Year 2002 Independent Auditor’s Report, which
    includes the results of the information security review, was
    issued during this reporting period. NSF received its fifth
    consecutive unqualified opinion on the financial statements.
    However, the audit report identified two reportable conditions
    in its Report on Internal Control over Financial Reporting. They
    relate to (1) post-award procedures for monitoring awardees’
    administrative and financial management and tracking of NSF-
    owned property, plant and equipment in the custody of
    awardees, and (2) entity-wide information security. The report
    also identifies 3 specific areas of vulnerability in NSF’s elec-
    tronic data information systems that were considered significant.
    See p. 17.

• In March, we issued our report on the audit of the medical and
  occupational health and safety programs that serve the United
  States Antarctic Program (USAP). We found that these pro-
  grams generally protect the overall health and safety of USAP
  participants. However, the review identified health and safety
  issues related to aging facilities and infrastructure. Since the
  USAP staff depends on the facilities for protection from the
  harsh elements, we recommended that NSF develop a capital
  asset management plan for the USAP. In order to assure that the
  plan is funded, we also recommended that NSF establish a
  separate line item within its budget so that it does not have to
  compete with other priorities for its funding. See p. 19.

•   NSF negotiates indirect cost rates for 112 awardees that receive
    approximately $585 million of Federal funding annually. Since
    most of these organizations are relatively small and possibly
    unfamiliar with the complexities of indirect cost proposals, we
    audited four indirect cost rate proposals during this period.
    Overall, we found that the organizations did not correctly
    calculate their proposed indirect cost rates and overstated their
    rates by an average of 8 percentage points. Four of the grantees
    could not support direct or indirect costs claimed because of
    either a lack of documentation or inadequate systems for
    tracking labor costs. In addition, two awardees did not submit

                                                                        5
Executive Summary




                        annual indirect cost proposals to NSF as required. While not necessarily
                        representative of all awards, the findings suggest that the negotiation of
                        indirect cost rates may need increased scrutiny by NSF. See p. 20.

                    •   An NSF grantee agreed to pay $1.4 million to the government to settle a case
                        that involved allegations of conflicts of interests, non-competitive procure-
                        ment, and the submission of proposals to NSF that omitted material informa-
                        tion. The grantee, a non-profit organization that provided computer network
                        services to institutions, carried out a complicated reorganization for the appar-
                        ent purpose of realizing a benefit from the sale of a lucrative network. Our
                        investigation confirmed the substance of the allegations made by a former
                        executive, and also found that the grantee violated NSF requirements concern-
                        ing program income. See p. 31.

                    •   Three universities that were victimized by fraud recently reported making
                        management improvements to prevent future occurrences. In one case re-
                        solved this period, an audit report disclosed that a university grant administra-
                        tor fraudulently charged approximately $235,000 to various university grant
                        accounts. The fraud included $79,220 to Federal grant accounts, of which
                        $3,480 was charged to an NSF grant account. The administrator pled guilty to
                        one count of mail fraud, and was sentenced to 18 months in prison followed by
                        3 years of supervised release, and ordered to pay restitution of $215,835.05.
                        We recommended that NSF debar him for three years. See p. 34.

                    • A computer scientist incorporated 90 lines of verbatim text from another
                      scientist’s successful proposal into his own Faculty Early Career Development
                      (CAREER) proposal, as well as unattributed text from a dozen other sources.
                      Moreover our review of 4 earlier NSF proposals, as well as other works by the
                      scientist, uncovered more indications of plagiarism that were previously
                      unknown. We recommended that NSF find that the subject committed mis-
                      conduct in science and send him a letter of reprimand. We also recommended
                      that the subject be debarred for three years and excluded from serving as an
                      NSF reviewer, advisor, or consultant for a period of five years. See p. 36.

                    •   In OIG’s first Performance Report, most goals were achieved. Many of the
                        goals were aimed at improving key internal processes. The Office of Audits
                        successfully implemented initiatives such as “team based auditing”, and the
                        development of new quality checks for documenting and reporting on audits.
                        These quality improvements contributed to a successful peer review of audit
                        operations by another Federal OIG. The Office of Investigations carried out a
                        major revision of its policy manual, conducted a mock peer review, and wrote
                        two articles published in professional journals. In addition, Audits and Investi-
                        gations collaborated to develop an effective process for referring matters that
                        require the other’s professional expertise. See p. 41.


             6
                                   OIG Management Activities

Congressional Testimony

     O
              n April 3, 2003, Dr. Boesz testified before the U.S. Senate
              Appropriations Subcommittee on VA, HUD and
              independent agencies about four of the most significant
challenges faced by NSF management: management of large
infrastructure projects, Antarctic infrastructure planning, award
administration, and the strategic management of human capital.
      Dr. Boesz noted that the OIG had conducted two audits focusing
on projects funded through NSF’s Major Research Equipment and
Facilities Construction appropriation account, and that approximately
half of the recommendations remain to be implemented. The IG also
discussed a report on health and safety issues in the Antarctic issued
last month, which recommended that NSF address its aging facilities
and infrastructure and that it initiate capital asset management planning
and separate line item budgeting processes.
      With regard to award administration, Dr. Boesz noted that this
challenge was based on a reportable condition that appeared in NSF’s
financial audit report. The auditors recommended that NSF implement
a comprehensive risk-based post-award monitoring program. Finally,
she testified that NSF’s human capital management plan is not expected
until 2004 and that meanwhile there is an urgent need for training,
office space, and equipment to support current and future human capital
needs. The full text of Dr. Boesz’s testimony is available on the NSF
OIG website: www.oig.nsf.gov.                                                            HIGHLIGHTS

                                                                                Congressional Testimony    7
Management Challenges
      Last December, OIG submitted its annual statement of what the
                                                                                Management Challenges     7
office considers the most serious management and performance
challenges facing NSF. Progress has been made on several of the                 Legal Review              11
challenges that reappear from last year’s list and actions are underway
to address the remaining issues. While the progress made to date is             Outreach/
encouraging, corrective actions have not advanced to the point where            Prevention Activities     13
NSF can afford to become complacent. The 11 specific challenges
that OIG has identified through audits and general knowledge are                Quality Certifications    15
summarized from the original letter below.


                                                                            7
OIG Management Activities




                                  Workforce Planning and Training. Planning for NSF’s future workforce
                            needs and training the large number of temporary staff continue to be serious
                            concerns. NSF has contracted for a multi-year “business analysis” of its operations
                            that will include a human capital management plan identifying its future workforce
                            requirements. Thus far, the contractor has reported that 40% of NSF’s permanent
                            workforce is currently eligible for either retirement or early out, and that number
                            will grow to nearly 60% by 2007. Personnel records also indicate that since 1996,
                            NSF’s reliance on temporary staff has increased in tandem with the size of its
                            appropriation. The increase in temporary staff places a greater burden on the agency
                            to continually recruit and train these personnel and find them suitable office space.
                                  Budget for Administration and Management. It is increasingly apparent
                            that NSF’s staff is in need of two basic resources: office space and travel funds.
                            Assistant Directors are reporting that program managers are being forced to double
                            up in offices or use cubicles that are inadequate for them to perform their work. If
                            office space is inadequate at current workforce levels, it will severely constrain the
                            agency’s ability to add the staff needed to grow at the rate intended by the NSF
                            Authorization Bill (HR 4664). The shortage of travel funds affects NSF’s ability to
                            successfully address several of the management challenges identified below. Funds
                            are needed to conduct on-site administrative and technical reviews and properly
                            oversee large infrastructure projects and other awards. NSF should seek to maximize
                            the effectiveness of staff by allocating more funding for these two essential resources.
                                 Management of Large Infrastructure Projects. The effective management
                            of NSF’s large infrastructure projects has been a concern of the OIG for several
                            years. In particular, fund control and the accurate accounting for infrastructure
                            projects have been cited as a problem in recent audit reports. At the request of a
                            Senate Appropriations Subcommittee, we performed an audit this past year of the
                            funding for major research equipment and facilities to determine if NSF used its
                            Major Research Equipment and Facilities Construction (MREFC) appropriation
                                                                           solely to fund the construction and
                                                                           acquisition costs for these projects
                                                                           as required. We found that NSF
                                                                           could not ensure that it stayed within
                                                                           its authorized funding limits or that
                                                                           it provided accurate and complete
                                                                           information about project costs to
                                                                           key decision makers. Since the
                                                                           release of the audit report, NSF has
                                                                           reported progress toward correcting
                                                                           the types of problems identified.
                             Dr. Boesz is greeted by Prof. Luciano Maiani,
                             Director General of CERN, during a visit to the
                                    Large Haldron Collider Project.




                    8
                                                               OIG Semiannual Report March 2003




      Award Administration. Although the agency has a robust system of award
management over its pre-award and award disbursement activities, NSF needs and
is developing a comprehensive, risk-based management program to monitor its grants
during the post-award phase. NSF should establish policies to ensure that awardees
are complying with the requirements of their grant agreements, including 1)
implementing a comprehensive risk-based program that describes when and how
monitoring will occur; and 2) establishing a system of risk assessment of awardees
to ensure that each receives the appropriate level of oversight. NSF recently issued
a draft version of a Risk Assessment and Award Monitoring Guide and has been
working closely with OIG to address this challenge. The Guide is generally
responsive to the recommendations outlined in the FY 2001 Management Letter
Report, however, more detail will be needed before the Guide can serve as an effective
reference covering the full range of issues that are likely to face many grant and
program officers.
      Cost Sharing. Our audit work indicates that NSF grantees continue to
experience significant problems in accounting for cost sharing, raising questions about
whether required contributions are actually being made. The issues cited in our
reports are primarily related to the commingling of reimbursable and cost-shared
expenses, time and effort reporting, and cost-sharing certification. Acting on a
recommendation by NSF, the National Science Board recently modified NSF’s policies
to eliminate voluntary cost sharing from proposals. While the new policy may help
limit the amount of cost sharing borne by awardees, problems with how it is accounted
for remain.
      Data Security. Although NSF has made significant progress in strengthening
data security in recent years, more improvements are needed. Our FY 2002 review
of NSF’s information security program identified three significant deficiencies related
to weaknesses in access controls, the security management structure, and the
certification and accreditation of major systems. Although NSF management
disagreed with our assessment of the severity of these problems, it agreed with our
recommendations and is taking action to correct the problems. Despite problems,
we commend the agency for many of the improvements made in its security program
over the past year.
     GPRA Data Quality. In order to achieve the performance-oriented government
envisioned in the President’s Management Agenda, the Office of Management and
Budget (OMB) has directed agencies to align program activities with outputs and
outcomes by FY 2004. However, according to an August 2002 report on performance,
budget, and cost integration prepared by an outside consultant hired by NSF, Division
Directors (DDs) have been critical of the large number of annual GPRA performance
goals presented by NSF and suggested they be prioritized. The report stated that
“DDs also questioned the value of the GPRA measures and mentioned that they do
not use them to develop their budgets.” A majority of DDs surveyed also indicated
that performance information captured by NSF institutionally was inadequate and



                                                                                          9
OIG Management Activities




                            had to be supplemented through the efforts of their respective staffs. If performance
                            measures are not relevant to either the preparation of budgets or management of a
                            program, an important purpose for compiling GPRA information has been overlooked.
                                  Cost Accounting Systems. Managerial (cost) accounting information is used
                            to assess operational effectiveness and efficiency and is also useful in informing
                            capital investment decisions such as prioritizing the funding of large infrastructure
                            projects. In the OIG’s FY 2001 Management Letter Report, our auditors found that
                            NSF had not developed a cost accounting system adequate to track cost data either
                            by infrastructure project or by strategic outcome goal. To obtain a full accounting
                            for these projects or outcomes, NSF currently must perform additional processing,
                            some of it manual, that increases the risk of errors and reduces its usefulness to
                            decision makers. NSF recently contracted with a consulting company to identify
                            options for establishing additional cost accounting and performance measurement
                            capabilities. As a result, NSF developed a draft action plan to achieve better
                            alignment between resources and goals of the agency. Once OMB approves the
                            final plan of action, NSF has indicated it will begin implementation.
                                  Management of U.S. Antarctic Program. Our audit work continues to
                            focus on Antarctic support activities because of their many inherent risks. One
                            issue that has been raised in Committee of Visitors (COV) reports, as well as our
                            audit work, is the need to improve long-range capital planning and budgeting for
                            repairing and maintaining the Antarctic infrastructure, including facilities,
                            transportation, and communications. As a recent COV report noted, most facilities
                            and equipment have been extended well beyond their useful lives. While OPP has
                            upgraded some of the facilities and equipment, there are still a considerable number
                            that are approaching or have exceeded their useful lives. Old buildings and equipment
                            present increased operational risks, and in some cases, may pose safety and health
                            concerns. Another important element of OPP’s plan to improve infrastructure is
                            the need to acquire specially modified tractors and equipment for support of more
                            overland science traverses. Such traverses are not only useful in conducting research
                            projects, but could deliver fuel and other supplies to South Pole Station and other
                            research locations, freeing LC-130 aircraft to perform other missions.
                                  Broadening Participation in the Merit Review Process. Increasing the
                            participation of minority scientists as proposers, reviewers, and investigators, while
                            maintaining the integrity of the award process, remains an important challenge for
                            NSF. The National Academy of Public Administration last year recommended
                            establishing broader-based review panels with participants drawn from a wider range
                            of institutions, disciplines, and underrepresented minorities. However, NSF’s efforts
                            to track the demographics of the reviewer population have been hampered by the
                            desire of many reviewers not to disclose their race or ethnicity. NSF’s Advisory
                            Committee on GPRA while noting progress commented: “NSF should consider
                            carefully the demographic changes that are anticipated in the academic research
                            community. The agency should develop and implement strategies to ensure as much



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                                                               OIG Semiannual Report March 2003




as possible that its processes incorporate broad representation of the full demographic
range of the future research community.” We agree with the Committee that NSF’s
success in broadening participation in the merit review process will help determine
its future effectiveness.
     Math and Science Partnership. As the performance of American school
children on math and science tests has lagged behind other countries, NSF was
designated in 2001 as the lead agency on a key element of the President’s initiative,
No Child Left Behind, aimed at strengthening and reforming K-12 math and science
education. The agency has already dispensed $147 million for comprehensive awards
designed to improve student achievement at all grade levels, and $90 million has
gone to targeted partnership grants that focus on specific disciplines or grade ranges.
The sustained involvement of NSF remains essential. NSF staff will need to help
coordinate the efforts of the various parties, monitor the progress of the projects,
and ensure that federal funds are handled properly, while at the same time
administering the subsequent program solicitation of approximately $200 million.


Legal Review
      The Inspector General Act of 1978, as amended, mandates that our office
monitor and review legislative and regulatory proposals for their impact on the Office
of Inspector General (OIG) and the National Science Foundation’s (NSF) programs
and operations. We perform these tasks for the purpose of providing leadership in
activities that are designed to promote economy, effectiveness, efficiency, and the
prevention of fraud, waste, abuse and mismanagement. We also keep Congress and
NSF management informed of problems and monitor legal issues that may have a
broad effect on the Inspector General community. The following issues merit
discussion in this section.

Program Fraud Civil Remedies
Act of 1986 (PFCRA) (31 U.S.C. §§ 3801-3812)
     We support legislation to amend PFCRA to include NSF and the 26 other DFE
agencies that are currently excluded from participation under PFCRA’s enforcement
provisions. The issue of NSF’s inclusion under PFCRA has been raised in several
prior semi-annual reports, and note that NSF has actively supported our
recommendation. The Office of Inspector General’s concern involves the ability of
“Designated Federal Entity” (DFE) agencies to fully implement their statutory
mission to prevent fraud, waste and abuse by availing themselves of the enforcement
capabilities contained within PFCRA.
      The DFEs are predominantly smaller agencies that are more likely to have
cases involving smaller dollar amounts. PFCRA sets forth administrative procedures
that enable defrauded agencies to proceed administratively to recover double damages


                                                                                          11
OIG Management Activities




                            and penalties when the amount of loss is less than $150,000.00. Using the
                            enforcement provisions of PFCRA will enhance the recovery efforts of NSF and
                            other DFE agencies in instances of fraud that fall below PFCRA’s financial cap of
                            $150,000.00. We believe that by not including DFE agencies under PFCRA, PFCRA
                            fails to maximize its potential. However, amending PFCRA to include NSF and the
                            other DFE agencies will further the OIG community’s statutory mission to deter
                            fraud, waste and abuse.




                                              Senate Staff Professional, Cheh Kim (center) confers
                                                with Art Elkins, Counsel to the IG, and Dr. Boesz
                                                           at a recent OIG conference


                            NSB Requests Sunshine Act Interpretation
                                 The newly enacted National Science Foundation Authorization Act of 2002,
                            Pub. L. No. 107-368 (2002), requires the National Science Board (NSB) to open its
                            committee, subcommittee and task force meetings to the public in accordance with
                            the Government in the Sunshine Act, 5 U.S.C. § 522b (2000). At the request of the
                            Board’s Chairman, our office researched the openness requirements of the Sunshine
                            Act and their application to Board meetings, particularly the meetings of its various
                            subdivisions. Our research suggested several issues for the Board to consider as it
                            develops policy for implementing the open meeting requirements of the NSF
                            Authorization Act of 2002.
                                 The first matter to be considered are the circumstances under which NSB
                            discussions might be considered a “meeting”. We suggested that the Board carefully
                            consider the nature of the business that it conducts through its subdivisions and
                            whether their discussions are deliberations that trigger the openness requirements
                            of the Sunshine Act. We also evaluated the Sunshine Act’s exemptions to open
                            meetings in light of the typical business conducted by the Board and its subdivisions
                            and suggested topics of discussion that may properly fall within an exemption and
                            those that may not. This information will assist the Board in making future decisions
                            regarding when closure of a meeting is proper.


                   12
                                                                    OIG Semiannual Report March 2003




     Finally, we suggested that the Board consider educating its members on the
procedural and substantive requirements of the Sunshine Act. Through greater
awareness of the open meeting requirements, Board members will have the tools
necessary to know when a meeting occurs and make informed decisions as to when
to properly close a meeting. Since the beginning of the year, the Board has succeeded
in achieving greater openness in its committee meetings.


Outreach / Prevention Activities
      Our office continues its efforts to educate those in the awardee and government
communities about our work. In addition to delivering presentations to NSF grantees
at conferences and university meetings, we have opened links between international
agencies engaged in science oversight, spearheaded working groups on grant fraud
and research misconduct, written papers on fraud and conflicts of interests, provided
training to the IG community, and presented an overview of the OIG role to
government employees.
       Partnering with International Agencies. NSF OIG is playing a leading role
in establishing channels of communication between science oversight agencies
around the world. In December, we hosted visitors from the National Natural
Science Foundation of China (NSFC). The NSFC modeled itself after NSF and is
particularly interested in how NSF, the OIG, and the National Science Board oversee
its large and diverse research portfolio. Over the two-day visit, we had a number of
informative discussions on a variety of audit and oversight issues. The delegation
also visited the National Aeronautics and Space Administration OIG to compare
how other federal agencies with a different mission handle their oversight
responsibilities. As part of our exchange with NSFC, we are hosting an NSFC manager
as an intern for a 6-month period. In March, we met with visitors from the Korea




              A delegation from The National Natural Science Foundation of
           China, led by Vice President, Li Zhuqi (seated center), poses with OIG
            staff during a December visit. Dr. Stanley Jaskolski of the National
              Science Board (standing far right) also attended the meetings.



                                                                                            13
OIG Management Activities




                            Science & Engineering Foundation and discussed the role of the OIG in the Federal
                            government and various audit related issues.
                                 The Inspector General is sponsoring an international workshop on accountability
                            and oversight in Paris, France, on May 27 and 28, 2003. The primary purpose of
                            the workshop is to gain a better understanding of best practices with respect to the
                            auditing of science projects and to look at accountability for international
                            collaborations.
                                 OIG Working Groups. We organized and hosted a meeting of the Grant
                            Fraud Working Group for OIG offices. During the October 2002 meeting, we
                            presented a three-part program focusing on critical issues involved in grant fraud
                            including: the regulatory requirements in OMB circulars and what auditors look for
                            when conducting an audit; possible indicators of grant fraud, particularly with regard
                            to motive, opportunity, and method; and specific categories of grants that have
                            proven to be most susceptible to fraud. Based on the favorable feedback received
                            from participants, plans are in progress to host the next meeting during the Summer/
                            Fall of 2003.
                                 We also continued to support the activities of the Inspector Generals’
                            Misconduct in Research Working Group chaired by the NSF IG. For instances in
                            which an agency rather than the OIG investigates research misconduct, we developed
                            an implementation checklist to guide OIGs in evaluating the agency process.
                                 Publications. Our article, “Research Misconduct and its Relationship to
                            Fraud,” was published in the Journal of Public Inquiry, Fall/Winter 2002 (see
                            www.ignet.gov). The article outlines our office’s procedures for investigating research
                            misconduct, highlights past instances in which research misconduct cases became
                            criminal fraud cases, and encourages OIGs to either investigate these allegations or
                            provide oversight of agency research misconduct investigations.
                                 Another article, “Key Issues in Conflict of Interest for Scientific, Engineering
                            and Educational Research”, appeared in The Journal of Research Administration1
                            published by the Society of Research Administrators (SRA). The concepts discussed
                            in this paper, along with other compliance issues, were presented at workshops
                            during the SRA Annual Meeting. We also prepared and displayed a poster featuring
                            COI issues, which received the 2002 Best Poster Award at the SRA Annual Meeting.
                                  Presentations. OIG staff presented at the bi-annual Conference for Deaf
                            and Hard of Hearing Federal Employees about the history, mission, and audit and
                            investigative responsibilities of the OIG. Our presentation helped to familiarize
                            hearing impaired feds with OIG activities and reduce their uneasiness in reporting
                            allegations of fraud, waste, and abuse. The conference was sponsored by the Deaf
                            & Hard of Hearing in Government, a non-profit organization that serves as a national
                            resource for the federal government.

                            1
                                Volume XXXIII 2002, Numbers 2 and 3



                   14
                                                                OIG Semiannual Report March 2003




     We also provided instructors for the
new IG Academy course, Editing
Investigative Products Training Program
(see www.tigta.gov/igacademy/course_
igeiptp.html). The three-day course
provides investigations’ supervisors with
the tools necessary to effectively and
responsibly edit investigative reports, and
to develop the writing skills of their
subordinates. Our office provided                  Sherrye McGregor, OIG staff attorney,
instr uctors and course materials for              speaks to university administrators
modules on legal issues and language                    about compliance issues.
development.
     Presentations were also made to
various awardee groups on a variety of
issues including the role of the OIG, the audit planning and audit selection process,
typical audit findings, and suggestions for award administration and oversight at the
grantee institution. The groups include:
     • Experimental Program to Stimulate Competitive Research (EPSCOR)
     • Historically Black Colleges and Universities-Undergraduate Program
       (HBCU-UP)
     • Tribal Colleges and Universities Program (TCUP)
     • Advanced Technological Education Program (ATE)
     • Urban Systemic Initiatives (USI)
     • Council for Undergraduate Research
     • National Council of University Research Administrators (NCURA)
     • Council on Governmental Relations (COGR)


Quality Certifications
     The following certifications of key internal control systems of the NSF Office
of Inspector General offer assurance to our stakeholders of the integrity and accuracy
of our processes and products.

Office of Audit Passes Peer Review
     Government Auditing Standards require OIGs to have an external quality
control review conducted of its audit operations and quality control system at least
once every three years. The purpose of the peer review is to determine whether the


                                                                                           15
OIG Management Activities




                            audit organization under review has a quality control system in place to provide
                            reasonable assurance that it is following all applicable auditing standards. During
                            this reporting period, the United States Postal Service (USPS) OIG conducted an
                            external quality control review of our audit operations. We are pleased to report
                            that USPS-OIG found that our quality control system provides reasonable assurance
                            that our audits are conducted in conformance with auditing standards. The peer
                            review report made 2 constructive comments including the improvement of audit
                            documentation, and the need to obtain timely background checks of OIG employees.
                            All issues are being addressed.

                            OIG Receives Certification
                            from the Office of Special Counsel
                                  Under Federal law, the head of each agency is required to ensure that Federal
                            employees are informed of their rights regarding the Whistleblower Protection Act
                            (WPA) and prohibited personnel practices (PPP). The Office of Special Counsel
                            (OSC) has created a certification program under which it will certify that an agency
                            is in compliance with this law if the agency undertakes 5 steps:
                                 1. Placing informational posters at agency facilities;
                                 2. Providing information about PPP’s and the WPA to new employees as part
                                    of the orientation process;
                                 3. Providing information to current employees about PPP’s and the WPA;
                                 4. Training supervisors on PPP’s and the WPA; and
                                 5. Creation of a computer link from the agency’s web site to OSC’s web site.
                                  NSF OIG has successfully completed each of these steps and received OSC
                            certification.

                            Information Technology Certification
                                 In February, we submitted a certification and accreditation package to the CIO,
                            that contained an internally prepared Security and Contingency Plan for the OIG
                            server, and a “System Testing and Evaluation Questionnaire” and “Certification
                            and Evaluation Report” prepared by IBM Business Consulting Services. These
                            documents, prepared in accordance with NSF IT security policies and guidance
                            from the National Institute of Standards and Technology (NIST), were the basis for
                            the IG to certify that the OIG server substantially meets all applicable Federal
                            policies, regulations and standards.




                   16
                                                            Audits & Reviews

Significant Reports
Financial Statement Audit Recommends
Increased NSF Award Oversight and Information
Security
      During this semiannual period we issued the Fiscal Year 2002
Independent Auditor’s Report, which includes the results of the
information security review. NSF received its fifth consecutive
unqualified opinion on the financial statements. However, it is
important to note that the audit report identified two reportable
conditions in its Report on Internal Control over Financial Reporting.
They relate to (1) post-award procedures for monitoring awardees’
administrative and financial management and tracking of NSF-owned
property, plant and equipment in the custody of awardees, and (2)
entity-wide information security. Both of these findings were also
identified as reportable conditions in the Fiscal Year 2001 Report on
Internal Control over Financial Reporting and have been reported as
management and performance challenges for the past two years.
     Improving financial management and information security has
been an important priority of the Federal Government for many years.
Since 1990, Congress has enacted several laws aimed at improving
Federal financial management and information systems security. The
Chief Financial Officer’s Act of 1990, as amended, requires that Federal
agencies prepare financial statements and the agency’s OIG, or an
independent public accounting firm selected by the OIG, audit these                 HIGHLIGHTS
statements annually. The Government Information Security Reform
Act of 2000 (GISRA) requires agencies to perform annual reviews            Significant Reports    17
and report to the Office of Management and Budget on their
information systems security programs. In addition, Inspectors General     Corrective Actions
are to provide independent evaluations of the information security
programs and practices of their agencies. We contracted with the
                                                                           Prompted by Previous
auditing firm KPMG, LLP to perform these reviews                           Audit Findings         25

     The FY 2001 audit report stated that NSF did not have a               Work in Progress       28
comprehensive and systematic risk-based process for monitoring its
grants once they have been awarded. The auditors found that while
NSF’s award management system includes financial and administrative
                                                                           A-133 Audit Reports    29


                                                                           17
Audits & Reviews




                   monitoring such as requiring the regular submission of federal cash transaction
                   reports, its post-award monitoring is not systematic, risk-based, documented, or
                   consistently applied. As a result, the risk of waste fraud and mismanagement, non-
                   compliance with laws and regulations, and inaccurate reporting is increased. The
                   risk grows larger as NSF’s awards become more costly and complex in nature.
                         NSF made progress in FY 2002 toward improving its post-award monitoring
                   activities. The agency developed a draft policy for conducting post-award oversight
                   of NSF’s high-risk awardees and invited comments from OIG. We anticipate that
                   our suggestions will be incorporated in the final version and look forward to the
                   implementation of the policy.
                        The report also states that NSF needs to further improve its process for
                   monitoring and reporting on at least $200 million of assets owned by NSF but held
                   by awardees. Since the finding was first reported in the FY 2001 audit, NSF has
                   developed procedures to periodically confirm the existence of these assets. However,
                   the procedures have not yet been implemented and do not go far enough. The
                   auditors recommend that NSF should also periodically assess the condition of these
                   assets as well as ensure the adequacy of the awardee’s systems for providing their
                   oversight and safekeeping.
                         Finally, the report also identifies specific areas of vulnerability in NSF’s
                   electronic data information systems that increase the risk of unauthorized access
                   to, and modification of financial, programmatic, and other sensitive information.
                   Three of these vulnerabilities were considered significant. They include the need
                   for NSF to (1) improve access controls, (2) strengthen its security management
                   structure, and (3) fully implement its certification and accreditation process. NSF
                   has recently undertaken corrective actions such as filling key management positions
                   responsible for NSF’s information system security program, and accrediting 6 of its
                   20 major systems. However, NSF still needs to ensure that: networked resources
                   and critical production systems are securely configured and security controls are
                   periodically reviewed to prevent unauthorized access to these resources; security
                   responsibilities and related authorities are adequately assigned and delegated; and
                   all major systems are certified and accredited.
                        NSF management generally concurred with the findings regarding each of the
                   reportable conditions. However, they do not believe that the problems cited
                   constitute significant deficiencies that rise to the level of reportable conditions. We
                   will continue to report on the status of NSF’s corrective actions in the next
                   Semiannual Report. In the next reporting period, we will also issue our FY 2002
                   Management Letter, which will address other matters involving NSF’s internal control
                   over financial reporting.




          18
                                                                           OIG Semiannual Report March 2003




Improvements Needed in Antarctic Infrastructure Planning
     In March, we issued our report on the results of our audit of the medical and
the occupational health and safety programs instituted by Raytheon Polar Services
Company. Raytheon is the primary support contractor for the United States Antarctic
Program (USAP)2. We found that these programs generally protect the overall health
and safety of USAP participants. Raytheon’s medical program has effective policies
and procedures in place to provide oversight and guidance for healthcare delivery to
a medically screened population in Antarctica. These guidelines are effective in
screening and qualifying candidates for participation in the USAP, and for delivering
routine and emergency healthcare in this remote environment.
     Similarly, the occupational health and safety program ensures a generally safe
and healthful work environment free of recognized hazards. Raytheon has
demonstrated a strong commitment to improving and maintaining the health and
safety and medical programs, and NSF’s review and oversight help to ensure the
continuing quality of these programs.
     However, the review identified health and safety issues related to aging facilities
and infrastructure in Antarctica. NSF’s Office of Polar Programs Committee of
Visitors has raised similar concerns. Because the USAP staff depends on the facilities
for protection from the harsh elements, ongoing maintenance and upgrades are
necessary to prevent health and safety crises from occurring. Therefore we have
recommended that NSF develop life cycle planning for the USAP assets that will
serve as a basis for a capital asset management plan. In addition, in order to assure
that the plan is funded, we recommended that NSF establish a separate line item
within its budget so that it does not have to compete with day-to-day USAP operations
or scientific research for its funding. NSF disagreed with this recommendation,
noting the importance of retaining the flexibility to respond to emerging situations.
     In addition, we recommended that NSF: develop and implement a formal work
center assessment program to identify hazards and conditions that contribute to
musculoskeletal injuries at specific work centers; develop procedures for overseeing
the shipboard medical programs on the R/V Nathaniel B. Palmer and the R/V
Laurence M. Gould, as well as ensure Raytheon’s compliance with its contractual
responsibility to provide emergency medical technicians (EMT) on board these ships.
NSF generally agreed with these recommendations.
     Although the Antarctic continent offers compelling scientific opportunities, its
extreme and isolated environment presents many challenges in protecting the overall

2
 Raytheon Polar Services Company (Raytheon), the USAP’s primary support contractor, is responsible
for maintaining a medical program, which includes medical screening of personnel deploying to
Antarctica, and the staffing and operation of medical clinics at the three U.S. research bases on the
Antarctic continent and aboard the two research vessels that support the USAP. Raytheon is also
responsible for providing an occupational health and safety program in Antarctica.


                                                                                                        19
Audits & Reviews




                   health and safety of the many employees, contractors, and researchers who participate
                   in the USAP. Temperatures at the USAP’s three year-round research stations range
                   from an average high of 2° Centigrade at Palmer Station to an average low of minus
                   28° Centigrade at South Pole Station.




                                  A McMurdo Station worker inspects two older D-8 Caterpillar
                                bulldozers in front of the Chalet administration building. The D-8s
                                    have not been built since 1963 and have been working in
                                                      Antarctica for 50 years.


                   Indirect Cost Audits Indicate Rates Are Overstated
                        In FY 2001, NSF funded over $1.2 billion in indirect costs. Indirect costs are
                   expenses that pertain to common administrative support activities, such as operation
                   and maintenance of buildings, rent, payroll and accounting functions, and information
                   technology services. Unlike direct costs, which are charged in their entirety to
                   awards, indirect costs are allocated based on an indirect cost rate that the awardee
                   negotiates with the Federal Government.
                         NSF negotiates indirect cost rates for 112 awardees that are primarily non-
                   profit organizations. They receive approximately $585 million of Federal funding
                   annually, $375 million of which is from NSF. Since most of these organizations are
                   relatively small and unfamiliar with Federal award requirements, particularly the
                   complexities of developing an indirect cost rate proposal, they pose a risk for improper
                   indirect cost charges to NSF and other Federal agencies. Accordingly, on the basis
                   of our risk analysis and in consultation with the NSF office that negotiates indirect
                   cost rates, we selected ten organizations for audits of indirect cost rate proposals.
                   In FY 2001, these ten organizations received nearly $40 million in Federal awards,
                   of which approximately $12 million was for indirect costs.




          20
                                                                    OIG Semiannual Report March 2003




      In this reporting period we completed four of these audits and resolved
outstanding issues for one other. Overall, we found that the organizations did not
correctly calculate their proposed indirect cost rates and, on average overstated their
indirect cost rates by 8 percentage points. All of the organizations we audited
misstated the indirect cost pool and the direct cost base, the two components of the
indirect cost rate. Four of the grantees could not support direct or indirect costs
claimed because of either a lack of documentation or inadequate systems for tracking
labor costs. In addition, two awardees did not submit annual indirect cost proposals
to NSF as required. Although we do not know if the findings in our sample of these
five high-risk institutions are representative of potential findings within the population
of 112 awardees, the findings suggest that the negotiation of indirect cost rates may
need increased scrutiny by NSF. The table below summarizes the common problems
we found in the five audits.


                                  Indirect Cost Issues
     Type of          Incorrect    Incorrect    Lack of   Inadequate Proposals
     Non-Profit          I/C         Direct    Supporting  Labor Cost   Not
     Institution        Pool       Cost Base Documentation Tracking   Annual
     Natural
     History             X            X           X             X
     Museum
     Scientific and
     Professional        X            X           X             X           X
     Society
     Science
     Educators’          X            X           X             X           X
     Association
     Biological
                         X            X
     Laboratory

     Mathematics
     Educators’          X            X                         X
     Association




Indirect Cost Pool and Direct Cost Base Miscalculations
     A high indirect cost rate benefits awardees since it enables them to claim more
costs for reimbursement. Therefore, to produce an advantageous indirect cost rate,
awardees have an interest in increasing the indirect cost pool and decreasing the direct
cost base. We found that all the awardees included unallowable costs in the indirect


                                                                                             21
Audits & Reviews




                   cost pool and incorrectly excluded costs that should have been included in the
                   direct cost base. Federal cost principles prohibit certain costs from being charged
                   to Federal awards or included in the indirect cost pool. The direct cost base must
                   include all costs that directly fund the organizations’ primary research and educational
                   missions. In addition, costs that may “distort” the base, such as equipment,
                   subcontracts, and participant support costs, typically should be excluded.
                        Indirect Cost Pools. The awardees included $208,525 of costs that Federal
                   cost principles explicitly state are unallowable in their indirect cost pools:
                        • An association of mathematics educators included $148,407 of bad debt
                          expense.
                        • An association of science educators included $25,739 of investment losses.
                        • Two associations of educators and one biological laboratory included a total
                          of $16,725 of questioned travel costs.
                        • A biological laboratory and a natural history museum included $6,946 of
                          entertainment costs.
                        • A natural history museum and a scientific and professional society included
                          $6,552 of alcohol expenses.
                        • An association of science educators and a natural history museum included
                          $4,156 of penalty costs.
                        Direct Cost Bases. The awardees also incorrectly excluded $2.4 million that
                   should have been included in the direct cost base:
                        • Three of the five awardees understated their direct cost bases by a total of
                          $2 million because for a period of up to three years they misclassified direct
                          program costs or member-related costs as indirect costs.
                        • Two of the five awardees incorrectly excluded $407,894 of costs that were
                          directly related to their programs.

                   Inadequate Support for Claimed Costs
                        Four awardees could not support costs included in the indirect cost pool or the
                   direct cost base, including labor costs of employees who worked on both direct and
                   indirect cost activities.
                        Lack of Supporting Documentation. Three awardees did not have adequate
                   records to support proposed costs. For example:
                        • A natural history museum did not have adequate records to support $726,486
                          of depreciation included in the indirect cost pool or $62,476 of voluntary
                          service costs in the direct cost base.



          22
                                                               OIG Semiannual Report March 2003




     • A scientific and professional society did not have invoices to support
       $371,668 of credit card charges included in the indirect cost pool.
     • An association of science educators lacked support for $29,362 of invoices
       included in the indirect cost pool.
     Inadequate Labor Cost Tracking. Four awardees could not support claimed
labor costs because they lacked adequate accounting processes to track and document
indirect labor costs. For example:
     • Two organizations could not support $1 million of labor costs charged to
       their indirect cost pools because of inadequate systems to track, document,
       or certify costs of employees who worked on both direct and indirect cost
       activities.
     • One organization overstated indirect labor costs by $2,501 because the staff
       did not update payroll time allocations each period.

Proposals Not Submitted Annually
      Two awardees did not submit yearly proposals to NSF, a violation of Federal
requirements. As a result, NSF was unable to make timely corrections to overstated
indirect rates in order to prevent over-recoveries on existing awards and the continued
use of outdated rates in new NSF and other Federal awards.

Indirect Cost Rates Are Overstated
     By including incorrect, unallowable, or unsupported amounts in their proposals,
awardees overstated their indirect cost rates by 4 to 11 percentage points, with an
average overstatement of 8 percentage points. Based on our audit-calculated rates,
two awardees over-recovered a total of $112,209 on their existing awards. Further,
we estimate that for four awardees NSF will save approximately $830,000 of costs
over a period of five years as a result of using the audit-calculated rates.
     The awardees generally overstated the indirect cost rates in the proposals
submitted to NSF because of accounting system weaknesses, such as failure to
separately identify allowable and unallowable costs in charts of accounts or general
ledgers and because their employees did not understand Federal and NSF
requirements. In general, we have found that non-profit organizations do not
adequately train their employees to understand the complex rules surrounding the
preparation of indirect cost proposals. NSF may need to provide more oversight of
and technical assistance to the organizations for which it negotiates indirect costs.
     We recommended that NSF require the awardees to: develop and implement
written procedures to prepare indirect cost proposals; train their staffs; establish a
process to track, document, and certify labor costs for employees spending time on
both direct and indirect cost activities; and comply with Federal and NSF


                                                                                          23
Audits & Reviews




                   requirements. In the case of the audit that was resolved this reporting period, NSF
                   sustained all our recommendations except one concerning an organization’s use of
                   manual spreadsheets to record salary and consulting expenditures. NSF stated that
                   automated systems are not a requirement, but did recommend that the auditee fully
                   document the processing of its manual accounts.

                   Significant Deficiencies in
                   Cost Proposal For Large Facility Project
                        At NSF’s request, we contracted with the Defense Contract Audit Agency
                   (DCAA) to perform an audit of a $160 million revised proposal submitted to NSF
                   by a western university. The proposal, covering the period October 1, 2001 through
                   September 30, 2006, was for the continued operations and research and development
                   associated with one of NSF’s large facilities dedicated to the detection of cosmic
                   gravitational waves and the measurement of these waves for scientific research.
                        The audit identified a number of significant findings to be considered in
                   negotiating a final award amount. Of $160 million in proposed costs, DCAA
                   identified over $4 million of questioned costs related to an unallowable contingency
                   reserve as well as unsupported advanced research and development tasks. The
                   university proposed the contingency reserve to cover unforeseen actual expenses in
                   excess of the cost estimates as well as costs that could not be anticipated at the
                   time the estimate was prepared. DCAA also questioned over $900,000 of the
                   proposed costs because the university did not provide adequate supporting
                   documentation for advanced research and development tasks scheduled for FY
                   2005 and 2006.
                         In addition, DCAA reported that the university understated its proposed fringe
                   benefits and indirect costs by $956,736 and $932,906 respectively, because it used
                   rates in pricing the proposal that were lower than its most recently negotiated federal
                   rates. In response to DCAA’s findings, the university said it would charge the fringe
                   benefits at the negotiated fringe benefit rate, but would charge indirect costs using
                   the lower proposed indirect cost rate.
                         DCAA recommended that if NSF accepts the lower indirect cost rate contained
                   in the proposal, conditions should be added that would require the university to
                   absorb the difference between the lower proposed rate and the higher negotiated
                   rate, in order to prevent the university from passing the additional costs on to other
                   government awards. With regard to salary costs, DCAA recommended that NSF
                   require the university to provide a detailed listing of students and visiting scientists
                   funded by the award, as they become known, to ensure that other NSF awards are
                   not also funding the proposed positions.
                        At the conclusion of DCAA’s audit, the university did not concur with the
                   findings and recommendations in the audit report. We have forwarded the audit
                   report to NSF’s Division of Grants and Agreements (DGA), who requested the

          24
                                                               OIG Semiannual Report March 2003




audit of this revised proposal. The university and NSF are working together to
resolve the findings and recommendations in the audit report.


Corrective Actions
Prompted By Previous Audit Findings
NSF Oversight of Large Facility Projects Improves,
But More Remains to Be Done
       In our March 2001 Semiannual Report, we reported on our audit of the financial
management of a large facility project. Our recommendations focused on enhancing
NSF’s oversight of these projects by updating existing policies and procedures and
developing new ones aimed at improving project management. Last year, we released
an audit report that raised additional concerns about NSF’s management of large
facility projects. Prompted by a Congressional request, the audit found that NSF’s
policies did not ensure that the projects remained within authorized funding levels,
or that accurate and complete information on the total costs of major research
equipment and facilities was available to decision makers. NSF responded that it
would combine corrective actions recommended by this audit with those initiated
as a result of the earlier audit.
      Thus far, the agency has implemented approximately half of the original
recommendations, including providing guidance to staff for charging expenditures
to the proper appropriations account. However, while a corrective action plan is in
place and progress is being made, key actions from both of these reports remain
unresolved. A major feature of NSF’s corrective action plan is the development of
a Facilities Management and Oversight Guide. While NSF staff have devoted
substantial time to this document over the past two years, it remains in draft form.
Additionally, the Guide does not fully address the audits’ recommendations. We
have commented to NSF that the Guide needs to contain more practical guidance
for staff who do the day-to-day work, and that the Guide does not address recording
and tracking the full cost of large facility projects.
     NSF plans to revise the Guide in May, and formally issue it by September 30,
2003. At that time, staff involved with large facility projects will need to be trained
on the revised policies and procedures that will affect its funding, accounting, and
monitoring. In the interim, NSF has begun to offer Project Management Certificate
Programs through the NSF Academy, to help program officers improve their skills in
managing large facility projects.




                                                                                          25
Audits & Reviews




                   Two Universities Improve Controls Over Cost Sharing
                        During this reporting period NSF resolved two audits, with cost sharing findings
                   that were previously reported in our September 2002 Semiannual Report. A
                   northeastern university with $3.8 million in cost-sharing commitments over a 6-
                   year period did not have adequate internal controls to manage or account for its
                   cost-sharing obligations. It commingled cost-shared expenditures with other expenses
                   unrelated to NSF projects and did not adequately monitor $682,497 of subrecipient
                   cost sharing. Given the serious nature of the findings, NSF performed an on-site
                   review of the university’s corrective actions at our recommendation.
                         The review confirmed that the university has implemented the recommendations
                   made in the audit report. They found that the university: 1) implemented a system
                   to link the cost-sharing accounts with project accounts on each award, and to support
                   cost-shared labor costs; 2) developed adequate policies and procedures to monitor
                   subaward cost sharing; 3) revised its subcontract agreement to require the subrecipient
                   to account for, document, report, and certify annual cost-sharing contributions to
                   the university; and 4) implemented policies and procedures to certify cost sharing to
                   NSF on an annual basis. At our suggestion, NSF also sent the university a letter
                   encouraging it to strengthen its subrecipient monitoring policies by including activities
                   such as site visits and limited scope audits of their processes for administering Federal
                   awards.
                         We also reported that a Southern university was at risk of not meeting $239,805
                   of required cost sharing, and did not have adequate procedures to monitor $414,477
                   of subrecipient cost sharing, or systems to separately account for NSF cost sharing.
                   In addition, the university did not certify its cost sharing to NSF when required.
                   During audit resolution, NSF verified that the university met its cost-sharing
                   obligation before expiration of the award, and had modified its accounting system
                   to separately track NSF cost sharing. They also developed written subrecipient
                   monitoring policies and added a clause to its standard subaward agreement that
                   specifies subrecipient responsibilities for cost sharing. NSF determined that the
                   university had updated its procedures to ensure compliance with cost-sharing
                   certification requirements.

                   School Districts Strengthen Internal Controls
                        In our September 2002 Semiannual Report (pp. 22-24), we reported on two
                   urban school districts that had deficiencies in their accounting systems for cost
                   sharing, payroll, and participant support costs. Of $8.6 million in costs claimed by
                   one school district, we questioned over $600,000 of participant support costs used
                   for unauthorized purchases of technical software. Also, while the school district
                   exceeded its cost-sharing requirement, $1.7 million of the amount claimed lacked
                   supporting documentation. In addition, we found that the school district was not



          26
                                                               OIG Semiannual Report March 2003




following its own policies for reviewing and certifying its time records. During the
resolution of the audit findings with NSF, the school district returned the full amount
of the questioned costs. The school district also reported that it has strengthened
its procedures to ensure that future award expenditures are for allowable costs as
required by federal and NSF grant requirements, cost-sharing claims are verifiable
from its accounting records, and payroll documentation is adequately reviewed and
certified.
      For the second school district, we reported that its entire required cost sharing
obligation of $9.5 million was not supported and at risk of not being met before the
expiration of the award. This material noncompliance occurred because the school
district lacked written policies and procedures and an accounting system for
accumulating and reporting cost sharing for the NSF award. For audit resolution
purposes, the school district submitted revised documentation certifying that it had
contributed $9.6 million in cost sharing, and provided NSF with its newly developed
policies and procedures for tracking accounting and documenting its cost-sharing
contributions. After reviewing the school district’s supporting accounting records
and source documents, NSF accepted the revised cost-sharing certification and
indicated that it would perform follow-up procedures to ensure that the recommended
policy changes are implemented.

Resolution of Contract Audits
Clarify Indirect Cost Questions
     NSF resolved two audits of contractors during this semiannual period. An
audit of a $7.2 million contract awarded to a for-profit company in support of various
science and engineering outreach activities was unable to determine the allowability
of over $1 million in claimed indirect costs because of unclear provisions related to
indirect cost recoveries in the contract. NSF had allowed certain salary costs in its
pre-award negotiations with the contractor, if the contractor agreed to distinguish
between indirect and direct expense for these salaries. However, their accounting
records did not clearly make this distinction.
     During audit resolution, NSF decided that the contractor’s claim for indirect
costs on the salaries was appropriate and is negotiating final indirect cost rates with
the contractor for the contract’s four-year period. Once these rates and the allowable
direct cost bases for each of these four years are determined, NSF will calculate the
allowable indirect costs for the contract. At our recommendation, NSF also issued
written guidance to its own staff that indirect cost provisions in NSF awards should
be written clearly, without ambiguity, and reflect their expectations for indirect cost
recovery. The guidance requires NSF awarding officials to document reasons for
any final decisions on indirect cost rates and application bases that are different
from recommendations by NSF cost analysts.




                                                                                          27
Audits & Reviews




                         In our March 2002 Semiannual Report (p. 31), we reported on a contract issued
                   to a southern consortium whose purpose is to provide facilities and personnel for
                   support and operation of the Graduate Research Fellowship Program. Of $12.4
                   million in costs and fees claimed by the contractor, we questioned $313,978 in
                   indirect costs because the contractor did not adjust its claim for indirect costs based
                   on actual final indirect cost rates. We also reported that for four years the contractor
                   failed to obtain required Federal audits. During audit resolution, NSF reviewed
                   with the contractor the indirect costs that could be charged to the NSF contract. As
                   a result, NSF required the contractor to reduce its contract billing to NSF by $57,545
                   for disallowed indirect costs. NSF also required the contractor to obtain required
                   Federal audits on its current NSF contract.


                   Work In Progress
                   NSF Awards for International Programs
                         As described in the September 2002 Semiannual Report (p.34), we are
                   performing audits of four foreign institutions. NSF estimates that it currently spends
                   five to ten percent of its annual budget, or between $240 and $480 million in fiscal
                   year 2003, on activities with a significant international scope. The vast majority of
                   these funds go to U.S. institutions to support international activities and
                   collaborations. NSF believes that international science and engineering collaborations
                   are important to staying current with new global discoveries and methods. Also,
                   many scientific tools, such as large instrumentation and facilities are made more
                   affordable through international partnerships. Thus, NSF anticipates that the funding
                   allocated to international scientific activities will increase.




                                     NSF staff Altie Metcalf, Marty Rubinstein, and Asst. IG
                                       for Audit, Debbie Cureton, prepare to depart New
                                                     Zealand for Anarctica.


          28
                                                               OIG Semiannual Report March 2003




      When NSF makes awards directly to foreign institutions, the awards are at
increased risk for financial problems and lack of compliance with award requirements
because foreign organizations are less likely to understand U. S. grant requirements
and have different accounting practices. Therefore, we initiated audits of four foreign
organizations representing $46 million in total NSF awards over the past five years.
The audits will evaluate the adequacy of NSF processes and controls for overseeing
and monitoring awards to foreign institutions and determine whether foreign grantees
are administering their awards in accordance with NSF terms and conditions. During
this reporting period, we completed fieldwork at one foreign institution and expect
to issue the audit in the next semiannual report. We have also initiated audits at two
more institutions.

Award Administration Best Practices
     In our September 2002 Semiannual Report (pp.33-34), we reported on the
progress of a best practices review being conducted to assist NSF in its efforts to
assess scientific progress and ensure effective financial management of its awards.
During the audit fieldwork, we studied how eight Federal, state, and private grant-
making organizations administer and monitor their awards, and document their
management and oversight policies and practices. We expect the report to be issued
in the next semiannual reporting period.

Committees of Visitors
     Audit work continues on our review of NSF’s Committees of Visitors (COVs)
program. NSF relies on these committees of external experts to conduct evaluations
and advise management on the performance of its scientific programs. The COV
assessments are also used as a measure of program performance. This audit is
examining how NSF evaluates and uses the COV reports currently, and whether the
process for developing the reports, and their utility to management, can be improved.
During this reporting period, the audit fieldwork was completed. We will issue the
report in the upcoming semiannual period.


A-133 Audit Reports
80 A-133 Audit Reports Are Reviewed;
Quality Control Reviews Planned
     The Single Audit Act of 1984, as amended, requires non-Federal entities
expending $300,000 or more in a year in Federal awards to have a single or program-
specific audit for that year. OMB Circular A-133, Audits of States, Local Governments,
and Non-Profit Organizations, provides implementing guidance for these audits
(generally referred to as A-133 audits), which are intended to provide Federal agencies
with information on how award recipients manage Federal funds.
                                                                                          29
Audits & Reviews




                         In this reporting period, we performed desk reviews on 80 A-133 audit reports
                   with NSF expenditures totaling $676 million for fiscal years 2000 through 2002. 39
                   of the reports identified internal control weaknesses and/or findings of
                   noncompliance with Federal grant requirements. The most common deficiencies
                   related to claims for unallowable costs, inadequate cash management and lack of
                   compliance with timely reporting of financial and program results. Additionally the
                   auditors questioned $18,895 of NSF-funded costs and cost sharing claimed by award
                   recipients. These reports have been forwarded to NSF’s Division of Acquisition
                   and Cost Support for audit resolution.
                        NSF relies on A-133 audits to meet its pre and post-award responsibilities for
                   monitoring the more than $4 billion of awards it funds annually. Thus, the quality
                   of these audits is important to enabling NSF to carry out its award administration
                   and stewardship responsibilities. However, as we reported in our September 2002
                   Semiannual Report, recent Quality Control Reviews (QCRs) conducted by other
                   Federal agencies have raised concerns about the quality of these audits and the
                   pervasiveness of this problem. Therefore, consistent with OIG responsibilities
                   under the Single Audit Act, we have identified this area as a new strategic focus of
                   our annual audit plan. One particular concern is the quality of A-133 audit coverage
                   that NSF awards receive, since these awards tend to be small relative to other Federal
                   awards.
                         NSF has audit oversight responsibility for 18 organizations, including two
                   universities and 13 school districts. In accordance with the draft guidelines issued
                   by the President’s Council on Integrity and Efficiency, we plan to conduct QCRs on
                   these 18 organizations over the next five years. Thus, in the upcoming reporting
                   period we will conduct three QCRs of the A-133 audits of institutions that receive
                   the largest share of their Federal funding from NSF.
                         Our office also participates in a Federal OIG working group that is exploring
                   the possibility of conducting QCRs of a statistically significant sample of A-133
                   audits, as part of a larger Federal OIG effort to assess the reliability of the A-133
                   audits government-wide. Over the next several months, a committee of Federal
                   and state agencies will develop the sampling methodology, testing documents,
                   contracting options, and training requirements. OMB has requested funding for
                   this project in the President’s FY 2004 budget.




          30
                                                                    Investigations


     T
             he Office of Investigations handles allegations of fraud,
             waste, abuse, and mismanagement in NSF programs and
             operations, as well as allegations of research misconduct
associated with NSF programs and operations. We work in partnership
with NSF, other agencies, and awardee institutions to resolve issues
whenever possible. As appropriate, we 1) refer our investigations to
the Department of Justice (DOJ) or other prosecutorial authorities for
criminal prosecution or civil litigation, 2) recommend administrative
action to NSF, or 3) recommend debarment . The following is an
overview of investigative activities, including civil and criminal
investigations, significant administrative cases, and focused reviews.


Civil and Criminal Investigations
Network Provider Settles False Claims Act Case for
$1.4 Million
      An NSF grantee agreed to pay $1.4 million to the government to
settle a case that involved allegations of conflicts of interests, non-
competitive procurement, and the submission of proposals to NSF
that omitted material information. Our investigation confirmed the
substance of the allegations and also uncovered additional wrongdoing.
      The grantee was created as a non-profit organization under a 1986
NSF grant, and received over $10 million in continuous NSF funding
to provide computer network services to its research and education
institution (R&E) members. In 1990 the grantee sold its network
infrastructure for stock that it later sold for over $20 million. These
funds were referred to as its “endowment.” Over the next several
years the grantee built up a new network and then decided to reorganize
into three entities: “Com,” a for-profit company that received the                HIGHLIGHTS
network infrastructure and staff; “Org,” a non-profit entity which
retained the R&E institution members and continued to apply for and       Civil and Criminal
receive NSF funds; and “Net,” the non-profit “parent” of Com and          Investigations       31
Org, which held stock in Com.
     Since state law prohibited the direct transfer of the endowment      Administrative
to Com, it was allocated to Net as part of the reorganization. But Net    Investigations       36



                                                                          31
Investigations




                              Dr. Jim Kroll (right), Director of Administrative Investigations,
                                exchanges views with his counterparts from the Chinese
                                                         government.


                 was allowed to provide $7.5 million of the endowment to a bank as collateral for a
                 loan to Com. Net then approved Com’s plan for the remainder of the assets to be
                 transferred to Com over several years, as payments to “subsidize” Com for the cost
                 of the network service provided to Org’s R&E members . The subsidy was available
                 only to members who purchased their services through Org from Com. In addition,
                 Org was contractually required to procure services for its members solely from Com.
                       Although legally separate and independent, in practice Org and Net operated
                 solely for the benefit of Com and were essentially corporate fictions. Net had no
                 employees, and Org’s staff were actually employees of Com, who worked in Com’s
                 offices performing tasks for Org. Com, Org, and Net also had significantly overlapping
                 boards of directors. Org’s newly hired president raised questions about the absence
                 of competitive procurement and the exorbitant charges Org was required to pay
                 Com for “rent,” personnel, and expenses. When he argued that Org should be run in
                 the best interests of its R&E members rather than those of Com, he was terminated
                 from his position. He then conveyed his concerns to the NSF OIG.
                      NSF grant conditions require competition in procurement and avoidance of
                 conflicts of interests. It was alleged that the combination of overlapping boards,
                 pervasive management control by Com, and the sole-source procurement contract,
                 made it impossible for Org to comply with these requirements. In addition, Org did
                 not disclose the facts about its reorganization to NSF as required under its grant
                 agreements, or in its subsequent proposals. Org’s withholding of this information
                 enabled it to receive grant funds it would otherwise be prohibited from receiving.
                 Documents provided by Com, Org, and Net (collectively, the defendants) in response
                 to our subpoenas substantiated all of the allegations.
                     We also found that the grantee violated NSF requirements concerning program
                 income. “Program income” refers to income earned by a grantee that is directly


       32
                                                              OIG Semiannual Report March 2003




generated by the grant activity. NSF grant conditions require that program income
be used to further the objectives of the grant project, subject to the same rules as
the direct federal grant funds. We concluded that all of the funds in the endowment
constituted program income.
     The former president of Org filed a qui tam action under the False Claims Act
(FCA) against the defendants. Qui tam actions are initially filed under seal, while
the Department of Justice (DOJ) assesses the evidence and the merits of the case to
decide whether DOJ will “intervene” and prosecute the case. After we apprised
DOJ of the evidence gathered in our investigation, it notified the defendants that
DOJ would intervene in the FCA case.
     The post-reorganization proposals and other requests for payment submitted
by the defendants (under the name of the original grantee) failed to disclose the
conflicted and non-competitive practices under which they operated, rendering the
proposals and other requests false claims under the FCA. As a result, the damages
to the government for these false claims was $2.4 million.
      Besides the FCA, there were two additional grounds for recovery by the
government based on the defendant’s possession and misuse of program income.
First, because the defendants’ corporate structure caused them to be intrinsically
unable to expend properly the program income in the endowment, the government
could recover those funds through the judicial imposition of a constructive trust.
Second, the grant and endowment funds paid by Org and Net to Com in violation of
the grant conditions could be deemed to have been illegally “converted” by Org and
Net, enabling the government to recover them by bringing a conversion action.
     While this case was pending, Net and Org took affirmative steps to make
themselves independent, including constituting boards that did not overlap with
Com’s, and acquiring their own office space and employees. Also during this time,
Com succumbed to the bursting of the dot-com bubble and entered into bankruptcy
proceedings, with the result that the $7.5 million of the endowment used to secure
the bank loan to Com was lost.
      Net and Org settled this case with DOJ by paying $1.4 million. Under the qui
tam provisions of the FCA, Org’s former president received 23% of the settlement
amount; and the non-profit was also required to pay the former president’s attorney’s
fees.

Small Business Grantee Receives Two Awards for Same Work
     A company submitted similar proposals that included much of the same work
to both the NSF Small Business Innovation Research (SBIR) Program and to the
U.S. Air Force (USAF) SBIR Program. In April 1996, the company received $75,000
from NSF and $99,962 from USAF for the overlapping Phase I awards. The company
did not disclose the USAF project to NSF, and falsely certified that it had “not
accepted funding for the same or overlapping work”. The company subsequently


                                                                                        33
Investigations




                 submitted Phase I Reports to NSF and USAF that included substantially the same
                 results. Later, it applied for and received follow-on Phase II awards from both
                 agencies that contained less overlapping material.
                       At our request, the NSF SBIR Program reviewed the Phase I proposals and
                 concluded that it would not have awarded the grant if it had known about the
                 USAF project. The Program also reviewed the Phase I final reports and concluded
                 that there was so much overlap that it would not have funded the NSF Phase II
                 proposal if the company had disclosed the existence of the USAF Phase I award
                 and Phase II proposal. We also asked an outside expert to review the proposals and
                 reports, and independently he came to the same conclusions.
                      Following our recommendation, the NSF SBIR Program declined to disburse
                 the $56,578 final payment under the Phase II grant. We referred our findings to the
                 U.S. Attorney’s Office, which engaged in discussions with the company’s counsel.
                 The company agreed to a civil settlement totaling $66,578 that included forfeit of
                 the remaining $56,578 of the Phase II grant, and payment of an additional $10,000
                 to the government.

                 Cases of Employee Fraud Prompt Universities to Strengthen
                 Controls
                      Three universities that were victimized by fraud recently reported making
                 management improvements to prevent future occurrences. In a case resolved this
                 period, an A-133 audit report disclosed that a university grant administrator
                 fraudulently charged approximately $235,000 to various university grant accounts.
                 The fraud included $79,220 to Federal grant accounts, of which $3,480 was charged
                 to an NSF grant account. The administrator pled guilty to one count of mail fraud
                 (18 U.S.C. § 1341), and was sentenced to 18 months in prison followed by 3 years
                 of supervised release, and ordered to pay restitution of $215,835.05. We
                 recommended that NSF debar him for three years.
                       When an investigation reveals that an employee of an awardee institution has
                 embezzled funds, we routinely ask the institution to describe what systemic actions
                 have been implemented to minimize the likelihood of a recurrence of fraudulent
                 activity. In response to our request for information, the university reported that
                 sign-off procedures had been strengthened to include random reviews of the verifying
                 vendor, signature cards, and documentation of approved check requisitions to ensure
                 that the grant administrators followed proper procedures. The university is also in
                 the process of implementing a new purchasing and account-payable system that
                 will require electronic approvals from authorized individuals as well as vendor review
                 and approval before expenditures are approved for payment.
                      In our September 2002 Semiannual Report (page 38), we discussed two cases
                 of fraud by university employees. In the first case, an Assistant Director of



       34
                                                                OIG Semiannual Report March 2003




Administration pled guilty to submitting fraudulent travel reimbursements, and was
sentenced to 3 years probation, 150 hours of community service, and ordered to
pay $19,871.63 in restitution. Following our recommendation, NSF debarred the
employee for 3 years. At our prompting, the university reported the following
improvements to internal controls: 1) travel reimbursements are audited monthly,
2) reimbursement requests for conferences attended are verified and reviewed to
ensure minimal stay, and 3) reimbursement requests from authorized delegates require
the signature of the Principal Investigator.
      In the second case, a Digital Image Specialist who also handled time cards for
her Department fraudulently endorsed and cashed 40 payroll checks payable to
temporary employees. The university terminated the employee and returned the
funds to the grants. NSF debarred the employee for a period of two years. In
response to our query, the university reported implementing: 1) required internal
training for department payroll administrators, 2) required countersignatures by the
Academic Department Manager after review and approval by the laboratory
administrator or Principal Investigator, and 3) the mailing of all university W-2 forms
directly to employees’ homes rather than distributed internally. Additional
improvements underway at the university include mandatory direct deposit of payroll,
expansion of a new automated time and attendance system for departments that are
heavy users of temporary employees, and new on-line processing technology
implementing an automated authentication process for signature authorizations.

False Assurance Results in Suspension and Strict Certification
Requirements
     In our March 2002 Semiannual Report (page 49), we discussed a case in which
a public university received an NSF award based on a false assurance that the proposed
vertebrate animal research had been reviewed and approved by its Institutional Animal
Care and Use Committee. During the course of our review, NSF suspended the
current award while NSF worked with the institution to develop a Special Project
Assurance for the research.
      Consistent with our recommendation, the Division of Grants and Agreements
imposed the following remedial actions: 1) in conjunction with each proposal
involving research with vertebrate animals, the university is required to provide a
statement that it has a formal mechanism for assuring compliance with relevant
federal regulations, and 2) faculty and staff who are responsible for the administration
and conduct of federal grants must receive appropriate training. In addition, during
the life of the current awards, the institution is required to provide annual follow-up
reports to NSF detailing actions it has taken in connection with NSF supported
vertebrate animal research, the results of any state or federal agency inspection of
its facilities, and its responses to any recommendations made in connection with
those inspections.



                                                                                           35
Investigations




                 University Violates Cost-Sharing Requirements
                      In our September 2002 Semiannual Report (page 43), we described a case in
                 which it was alleged that a northeastern university committed fraud by repeatedly
                 using Federal money as a source for cost-sharing funds under a Young Investigator
                 grant. Such funds were not eligible as a source for matching under the requirements
                 of the grant. We conducted an investigation into the fraud allegations and concluded
                 that the institution did not act with fraudulent intent. A concurrent audit report
                 confirmed our conclusion regarding the cost sharing. We referred the matter to the
                 Cost Analysis and Audit Resolution Branch of NSF’s Contracts, Policy and Oversight
                 (CPO) Division. CPO concluded that the university should repay $53,900 to NSF.
                 The university appealed that decision, but NSF’s Division of Grants and Agreements
                 concurred with CPO and the entire amount was sustained as an unallowable cost.
                 The institution’s Federal Cash Transaction Report for the period ending December
                 31, 2002 included an adjustment to the grant for the $53,900.


                 Administrative Investigations
                      Consistent with the guidance in the Office of Science and Technology Policy,
                 we coordinated our investigative efforts on three misconduct cases with other Federal
                 agencies. Significant cases solely within our jurisdiction are described below.

                 Pattern of Plagiarism Leads to Debarment Recommendation
                       We received a complaint that a computer scientist incorporated verbatim text
                 from another scientist’s successful proposal into his own Faculty Early Career
                 Development (CAREER) proposal. Our analysis indicated that the proposal,
                 submitted by an assistant professor of computer science at a Western university,
                 not only contained some 90 lines from another PI’s proposal, but also contained
                 unattributed text from a dozen other sources. In response to our request for
                 explanation, the subject acknowledged copying material without attribution and
                 distinction. We therefore notified the subject’s university and deferred further
                 investigation while the university conducted its own investigation. The university’s
                 investigating committee found that the subject committed plagiarism constituting
                 misconduct in science. The university Provost decided that the seriousness of the
                 matter warranted termination, and placed the subject on a one-year nonrenewable
                 contract.
                      After reviewing the university’s investigation report and evidence, we
                 determined that we could accept its findings and conclusions regarding the alleged
                 plagiarism at issue in this case. However, in deciding what final actions to recommend
                 to NSF management, our office must assess whether the misconduct was an isolated
                 event or part of a pattern. We reviewed documents for which the subject claimed
                 authorship and uncovered apparent plagiarism in four other NSF proposals as well



       36
                                                                    OIG Semiannual Report March 2003




as the subject’s doctoral dissertation, demonstrating a substantial pattern of
plagiarism.
     We recommended that NSF find the subject committed misconduct in science
and send him a letter of reprimand. In addition, to protect the interests of NSF and
the Federal government, we recommended that the subject be debarred for three
years and excluded from serving as an NSF reviewer, advisor, or consultant for a
period of five years.

NSF Support of Employee Research Should be Acknowledged
      We initiated a review of NSF’s Independent Research and Development
(IR/D) program, in connection with an allegation that an NSF employee authored
and edited publications under an IR/D agreement without acknowledging NSF
support. It was alleged that the employee’s publications related to the IR/D did not
provide acknowledgement of NSF support, or use the employee’s NSF address, or
contain a disclaimer about NSF endorsement of the contents of the paper. Because
NSF had no policy concerning such publications, we closed our investigation and
initiated a review of the IR/D issues.
     The IR/D program enables NSF employees to maintain their involvement in
professional research. Permanent and temporary employees may participate in the
program, and participants frequently publish research papers that describe the results
of their IR/D efforts. The IR/D program provides an excellent vehicle for NSF
employees to maintain their involvement in professional research. The IR/D
agreement must be approved by the applicant’s supervisor, and NSF’s Division of
Human Resource Management and reviewed for conflict-of-interest issues by the
Office of General Counsel.




            Julie Ostwald, an extern from Douglass College and Shanchao Wu,
             visiting intern from the NSFC, discuss OIG policies with Dr. Boesz.



                                                                                            37
Investigations




                      We reviewed the publications of permanent NSF employees with IR/D plans,
                 and found that half of these employees either provided NSF acknowledgement or
                 identified NSF as their mailing address, while the other half used the address of
                 another institution. We recommended that NSF develop a policy describing how
                 permanent NSF employees should acknowledge NSF support in their IR/D-related
                 publications, and NSF agreed. The new NSF policy covers all IRD participants
                 and: (1) requires acknowledgment of NSF support in IR/D-related publications
                 and provides recommended language for the acknowledgement; (2) requires the use
                 of a disclaimer stating that the publication does not necessarily reflect the views of
                 NSF (except when NSF has reviewed the material before publication); and (3) permits
                 the use of the employee’s NSF address for contact information.

                 Long Distance Phone Review Results in Investigation and
                 Recommendations to Improve NSF’s Process
                       A broad review was conducted of long-distance telephone calls made by NSF
                 employees over a 9-month period in 2002 in order to evaluate NSF’s practices and
                 the potential for abuse. We examined calls charged to NSF-issued calling cards, as
                 well as office calls, and reviewed governing policies and procedures. We concluded
                 that the timing of the calling card calls appeared consistent with periods of employee
                 travel on NSF business, and that the calls were appropriately related to the conduct
                 of NSF business.
                       With regard to long distance calls made from NSF office telephones, we paid
                 particular attention to records of lengthy and numerous calls to numbers outside
                 the local commuting area, or to numbers with no apparent connection to NSF
                 business. Our examination revealed an isolated instance in which an NSF employee
                 made an average of 940 minutes of personal calls every month over the period of
                 our review. These calls included long-distance calls in support of at least one of the
                 employee’s outside business activities. The employee often claimed credit hours on
                 the same workdays when she made lengthy personal telephone calls. Despite
                 admonitions from her supervisors that the calls were interfering with her job
                 performance, they continued. We referred the results of our investigation to NSF
                 for administrative resolution. In addition we issued a report to NSF recommending
                 that procedures aimed at informing employees of appropriate telephone usage along
                 with oversight of such use by supervisors, be strengthened.

                 Failed Collaborations Lead to Unnecessary Allegations of
                 Misconduct
                      NSF encourages researchers to participate in collaborative efforts as a way to
                 leverage and enhance the results produced. Previous semiannual reports have
                 discussed contentious issues that have arisen out of failed collaborative research.
                 Our office regularly receives research misconduct allegations arising from failed



       38
                                                              OIG Semiannual Report March 2003




collaborations where responsibilities and expectations were not well defined. During
this period, OIG spent significant time resolving three more cases involving failed
collaborative efforts.
      In one poignant case, an institution initiated an inquiry into an allegation of
duplicate funding and plagiarism by an employee. The allegations involved proposals
funded by or submitted to NSF that described several different collaborative research
efforts. The institution’s inquiry determined the allegation of duplicate funding had
no substance, however, it did initiate a full investigation into the allegation of
plagiarism. The institutional investigation ultimately was unable to determine the
original authorship of text in question and subsequently determined that the employee
did not commit research misconduct.
      Scientists can avoid misunderstandings with colleagues and being the focal
point of research misconduct investigations if they clearly document their individual
expectations regarding sample handling and storage, sharing of data and samples,
intellectual property, and publication responsibility before the collaborative effort
begins. We encourage awardee institutions to ensure that such agreements are
developed in both inter- and intra- institutional collaborations before the
collaborations are initiated.




                                                                                        39
                    OIG FY 2002 Performance Report




     T
             his section describes OIG’s accomplishments towards the
             three goals set forth in the OIG Performance Plan for FY
             2002:
     1. Increase OIG impact on NSF’s effectiveness and efficiency.
     2. Safeguard the integrity of NSF programs and resources.
     3. Utilize OIG resources effectively and efficiently.
      Overall, OIG accomplished most of its goals, many of which
were aimed at improving key internal processes. The Office of Audits
successfully implemented initiatives such as “team based auditing”,
and the development of new quality checks for documenting and
reporting on audits. Team based auditing involves OIG management
in decision making during critical junctures of an audit to increase its
focus on issues of systemic importance. These quality improvements
contributed to a successful peer review of audit operations by another
Federal OIG. The Office of Investigations carried out a major revision
                                                                                        HIGHLIGHTS
of its policy manual, conducted a mock peer review, and wrote two
articles published in professional journals. In particular, we expect the     Goal 1:
new Investigations Manual, which defines the criteria for a quality product   Increase OIG Impact on
and streamlines investigative procedures, to significantly impact
                                                                              NSF’s Effectiveness and
investigative operations. In addition, Audits and Investigations
collaborated to develop an effective process for referring matters that       Efficiency                    42
require the other’s professional expertise. We note that some actions
described were not fully implemented by the end of the period, including
                                                                              Goal 2:
the completion of enhancements to our Knowledge Management                    Safeguard the Integrity of
System, and a detailed, stratified analysis of NSF’s funding activities.      NSF Programs and
     Under each goal, we identified several strategies for achieving
                                                                              Resources                     44
the goal. For each strategy, we listed specific actions that we planned
to complete during FY 2002. Since for the purpose of performance              Goal 3:
reporting we are transitioning from a fiscal year reporting period            Utilize OIG Resources
(October thru September) to one that begins April 1, our report includes      Effectively and Efficiently   46
a few actions that were completed during the first half of FY 2003.


                                                                              41
      OIG FY 2002
Performance Report




                     Goal 1:
                     Increase OIG Impact on NSF’s Effectiveness and Efficiency
                     1.   Identify and implement approaches to improve audit product quality and
                          timeliness.
                          This strategy has 6 actions associated with its successful completion:
                          • Implement team-based auditing approach on high-risk audits.
                          • Develop audit workpaper quality standards.
                          • Develop audit report quality standards.
                          • Develop audit guide for contract auditors.
                          • Develop automated work-in-process tracking system.
                          • Conduct a Study of Audit Report Timeliness.
                          OIG made significant progress toward accomplishing this goal. Team-based
                     auditing calls for formal conferences between auditors and managers at key junctures
                     during an audit, thereby facilitating improved communications that result in timelier,
                     higher quality audit reports. During FY 2002, the Office of Audit developed policies
                     and procedures to establish the team-based process within our office and held team-
                     based conferences on a regular basis. Consequently OIG reports are focusing to a
                     greater degree on identifying systemic issues of importance to NSF, which we believe
                     will have greater impact. Implementation of the team-based approach for audits
                     performed by our contract accounting firms has proved more challenging, however,
                     and will be accomplished over the coming year.
                           During FY 2002, the Office of Audit issued a more comprehensive policy on
                     the documentation of evidence that supports the auditors’ significant conclusions,
                     judgments, findings, and opinions. The policy will improve the supervision and
                     oversight of our audits by ensuring that a uniform and complete record is provided
                     for each audit. The Office has also written a draft policy and checklist, based on
                     Government Audit Standards, aimed at improving the quality of audit reports. The
                     staff is already following many elements of the draft policy. We also initiated a
                     comprehensive revision of our audit guide for contractor-performed audits. The guide
                     has been updated to include all recent audit guidance related to government grants,
                     and it has been expanded to provide for more OIG oversight and quality control over
                     the final audit products. OIG staff will complete the guide during FY 2003.
                          The OIG Knowledge Management System (KMS) is an information technology
                     system designed to integrate and update dozens of existing “stovepipe” applications.
                     When completed, KMS will support virtually all audit functions, including audit
                     resolution, audit planning, project management, trend analysis, and audit performance
                     process components. During FY 2002, we migrated audit data from existing



            42
                                                                      OIG Semiannual Report March 2003




information systems and used KMS to prepare the data tables required in the
Semiannual Report to the Congress. Future tasks include identifying system
enhancements to support additional operational functions.
      During FY 2002, an internal study identified a number of reasons for untimely
audit reports, including the lack of familiarity of new OIG auditors with NSF awards
and programs, the demanding workload of audit managers, and the uneven
implementation of the team-based auditing process. To date, we have addressed
four of the five recommendations, including formalizing the team-based process
with a written policy and assessing whether team-based auditing is appropriate for
all audit work. During FY 2003, we will focus on ensuring that the audit staff
becomes more knowledgeable of NSF awards and programs.

2.   Strengthen our focus by refining approaches for selecting work and
     setting priorities.
     This strategy has 5 actions associated with its successful completion:
     • Continue to enhance audit planning processes to assess audit risk and focus on substantive
       agency and Federal issues by developing and formalizing an audit planning strategy.
     • Assign audit staff to program areas; develop agency expertise.
     • Conduct historic trend analysis of audit findings.
     • Conduct agency funding analysis by program and grantee institution.
     • Develop permanent files of programmatic and audit areas.
      A strong effort was made to improve our audit focus. Most significantly, OIG
developed and applied, for the first time, a formal audit planning methodology.
First, we identified eight broad strategic risk categories based on our knowledge of
NSF’s core business processes, e.g., award administration, human capital. We then
assessed each category according to its inherent risk (impact if a problem occurs)
and control risk (probability that a problem will occur) to develop a risk map. Finally
specific audits were selected, consistent with the risk map, to be performed in the
coming year. In FY 2003, we will assess the effectiveness of our new methodology
before finalizing the procedures.
     During FY 2002, we assigned responsibility for staying informed about specific
NSF program areas to individual audit staff to improve our collective knowledge
about NSF’s various programs. We also contracted with an accounting firm to perform
an analysis of historic audit data to identify past trends in reported compliance,
internal control, and questioned-cost findings. We expect that the results of the
analysis will enable us to enhance our audit planning and risk assessment processes.
In addition, the contractor will recommend modifications to data fields in our KMS
system, if necessary. The contractor is expected to conclude its work during FY
2003.



                                                                                                    43
      OIG FY 2002
Performance Report




                          Two planned actions were not completed during FY 2002. We concluded a
                     funding analysis of programs managed by the Agency’s Engineering Directorate,
                     but have not yet analyzed the remaining program directorates. In addition, we did
                     not develop permanent files in FY 2002, because this action follows upon the
                     completion of our agency funding analysis.

                     3.   Develop an OIG outreach plan to support NSF’s efforts to inform the
                          awardee community about the financial and compliance standards that
                          matter for efficiency and effectiveness.
                          This strategy has 1 action associated with its successful completion:
                          • Completion of an Outreach Plan for efficiency and effectiveness matters.
                          The Office of Audit developed a draft audit outreach plan for the activities
                     that comprise OIG’s audit-related outreach efforts. We identified three goals of
                     audit outreach: gaining a better understanding of NSF activities and operations;
                     monitoring audit-related changes in our OIG community; and educating NSF and
                     the external community on audit issues. We also continued to share our expertise
                     and experience with NSF and their awardees. We were invited to discuss our work
                     and give outreach presentations at a number of institutions and events outside NSF,
                     including Cal State University, Experimental Program to Stimulate Competitive
                     Research (EPSCOR) workshop, NSF Regional Grants Conference, ATE Workshop,
                     TCUP/HBCU Grant Management Workshop, the National Council of University
                     Research Administrators Conference, and the Committee on Government Relations
                     Conference.


                     Goal 2:
                     Safeguard the Integrity of NSF Programs and Resources
                     1.   Identify ways to improve investigative product quality and timeliness.
                          This strategy has 5 actions associated with its successful completion:
                          • Ensure consistency of investigative reports within each of the Investigative sections.
                          • Define the minimal contents and structure of an Administrative or Civil/Criminal
                            Investigative Report.
                          • Complete rewriting the Investigative Manual.
                          • Implement Milestones and develop target timelines.
                          • Define quality product.
                          To prepare for undergoing its first-ever peer review, the Office of Investigations
                     reviewed all investigative processes to ensure that they meet the standards articulated
                     in the Quality Standards for Investigations issued by the President’s Council for Integrity


            44
                                                                      OIG Semiannual Report March 2003




and Excellence (PCIE) and the Executive Council of Integrity and Excellence
(ECIE). Although the PCIE/ECIE did not finalize the Peer Review Guide by the
end of the fiscal year, we implemented many of the prescribed actions and
strengthened the processes that assure quality and timeliness.
      Many actions were carried out in conjunction with rewriting the Office’s
Investigations Manual, which clearly defines the criteria for a quality product and
streamlines investigative procedures. For example, in order to simplify case processing
and ensure consistency and quality, it eliminates the separate procedures used for
Administrative and Civil/Criminal cases. The new manual also outlines the minimum
requirements and model structure for Management Implication Reports,
Administrative and Civil/Criminal reports, and case closeouts.
     The process of review and approval of investigative closeouts and reports
includes investigative, legal and administrative considerations, thereby ensuring that
OIG only recommends actions consistent with previously resolved cases. As a check
on the timeliness of the process, the milestones used in administrative investigations
are now being applied in civil/criminal and preliminary cases, and are an integral
feature of the new Knowledge Management System.
     The Office of Investigations conducted a mock peer review using three staff
members as the peer review team. The team was charged with determining the
office’s compliance with the finalized Peer Review Guide. To make that
determination, the team spent approximately four days conducting an entrance
conference, reviewing files and supporting documentation, performing interviews,
and conducting an exit conference. This was useful both as a test of our office’s
procedures and operations and as a training tool for investigative staff.

2. Enhance outreach effectiveness.
   This strategy has 5 actions associated with it:
     • Revise the Outreach Plan to incorporate the plan of the audit office.
     • Develop a Civil/Criminal Investigations companion brochure.
     • Monitor and assess the effectiveness of outreach on case processing time, priorities, and
       allegation assessment.
     • Participate in NSF New Employee orientation.
     • Revise Program Management Seminar materials.
     The Inspector General Act of 1978 identifies preventing fraud and abuse as
one of the key roles of Inspectors General. Consistent with this mandate, our office
has identified outreach efforts to help educate the community as an important
preventative activity. During the fiscal year, we revised our Outreach Plan to include
a component for our Office of Audits and to emphasize contact with broader
audiences to increase the efficiency of our outreach efforts.


                                                                                                   45
      OIG FY 2002
Performance Report




                           The Office of Investigations developed two new themes for presentations at
                     conferences: managing compliance programs, and managing principal investigator
                     (researcher) and institutional conflicts of interest. The effectiveness of outreach
                     presentations is measured by feedback received on evaluation forms and by repeat
                     invitations to an event. We reached several hundred people during presentations to
                     external organizations during this period, and the evaluations showed that our
                     presentations were well received.
                           Information provided on the OIG website and the distribution of a variety of
                     OIG brochures extended our reach to those who cannot attend presentations. The
                     Office of Investigations developed a brochure on Civil/Criminal investigations,
                     revamped the existing handout on Research Misconduct, and developed two new
                     brochures: When must you report allegations to NSF’s Office of Inspector General, and
                     Conflict of Interest Considerations. The office also wrote two articles that were published
                     in professional journals: one explored the topic of conflicts of interest, and the
                     other discussed the relation of research misconduct to fraud.
                           During FY 2002, we ensured that new NSF employees were provided with
                     materials and brochures about OIG during the New Employee Orientation. We
                     also had representatives speak at each of the five NSF Program Management Seminars
                     for new program managers. We updated the Program Management Seminar binder
                     twice to ensure that it reflected current information on OIG, and we revised the
                     outreach plan to incorporate Audit participation in Program Management Seminars
                          We also reached NSF staff by giving presentations at the mandatory Conflict
                     of Interest briefings, of which there are more than 20 each year.


                     Goal 3:
                     Utilize OIG Resources Effectively and Efficiently
                     1. Enhance communication and collaboration between audit and
                        investigations.
                        This strategy has 5 actions associated with its successful completion:
                          • Share information about audit and investigative activities at all-staff meetings.
                          • Award and administer contract for the provision of audit services in support of
                            investigative activities.
                          • Provide opportunities for cross-cutting training for auditors, investigators, and other
                            OIG staff.
                          • Implement Grant Fraud Indicators pilot program.
                          • Provide timely information exchange and referrals between the audit and investigation
                            units.


            46
                                                                     OIG Semiannual Report March 2003




      Communications and contacts between auditors and investigators within OIG
increased over the past year as the offices worked to improve communication and
understanding where their respective responsibilities converge. During FY 2002,
the two offices briefed OIG staff on a regular basis about audit, investigative and
outreach activities at monthly staff meetings. At the request of investigations staff,
auditors gave a presentation to an interagency grant fraud working group on the
OMB Circulars and the relationship between non-compliance and fraud. In FY
2002, a contract was awarded to an accounting firm to provide audit services in
support of investigative activities. The assistance of audit staff in crafting the
contract and working with the audit contractor has been essential to several important
investigations. Investigations staff were required to obtain professionally recognized
training in the area of financial accounting and auditing. Similarly, auditors were
encouraged to attend classes that would broaden their knowledge and skills outside
their discipline.
     Audit and Investigations also worked together during FY 2002 to implement a
Grant Fraud Indicators pilot program. With the participation of both Audit and
Investigations staff, investigators developed a handbook to help identify potential
indications of fraud that may arise during audits of NSF awards and programs.
Auditors have begun to use the handbook in planning their audits and for guidance
during their fieldwork. During FY 2003, the Office of Audit will ensure that its
audit support contractors are also alert to the indicators described in the handbook.
      The two offices collaborated to develop the fundamentals of a timely and
efficient referral process. They implemented a monthly managers’ meeting to facilitate
exchanges of information and planning relative to referrals and other matters of
common interest. With the help of audit staff, Investigations developed an audit
referral form and added procedures for making referrals to Audit in the Investigations
Manual. Investigators referred several cases to Audit that raised accounting and
internal control issues, and auditors provided informal guidance in investigative
cases requiring audit expertise. Matters raising possible fraud and other investigatory
issues were also referred from Audit to Investigations. The Office of Audit began
to develop formal policies and procedures for referrals to Investigations.

2. Better utilize professional expertise and talents of all OIG staff.
   This strategy has 6 actions associated with it:
     • Conduct survey of OIG staff to obtain their views on the effectiveness of (1) OIG use
       of its resources in personnel, equipment, technology and contracting, (2) management
       planning, policies, and procedures, (3) internal cooperation and communications, and
       (4) OIG impact on NSF.
     • Analyze survey results and develop corrective actions for the problems identified.
     • Increase the use of the team approach in OIG activities.




                                                                                               47
      OIG FY 2002
Performance Report




                          • Develop an integrated MIS within the OIG.
                          • Develop OIG policies and procedures as needed.
                          • Ensure that all appropriate OIG activities and experiences are shared at all-staff
                            meetings.
                           At the end of the fiscal year, we conducted a survey of OIG employees to
                     obtain their views on the effectiveness of (1) OIG use of its resources, (2)
                     management planning, policies, and procedures, (3) internal cooperation and
                     communications, and (4) OIG impact on NSF. Seventy-six percent of OIG
                     employees submitted responses, and a staff committee analyzed the survey results.
                     They showed that employees believed they had a good understanding of the OIG
                     mission and goals, adequate training for individual growth and development, and
                     sufficient computer resources and support. OIG staff also felt that harassment
                     was not tolerated in the office, OIG worked well with its governing bodies (the
                     National Science Board and the Congress), and individual performance was evaluated
                     fairly in OIG. In terms of performance and impact, OIG staff believed that the
                     subjects of OIG audits and investigations were treated equitably, OIG work units
                     followed appropriate standards, OIG staff were qualified to do their jobs and
                     practiced the highest ethical standards, and OIG produced high quality work. They
                     felt that OIG outreach efforts were important to our mission and that the OIG
                     environment supported a balance between work and personal life.
                           The survey also pointed out several areas needing attention. Most significant
                     was the need to improve coordination and communications between the audit and
                     investigative units. The management review process for clearing reports and the
                     utilization of contractors by OIG were two other areas identified as in need of
                     improvement. Finally, OIG staff questioned whether OIG management had struck
                     the appropriate balance between asking for timeliness and meeting high quality
                     standards on reports. We have resolved to take concrete steps to address these
                     issues in FY 2003.
                           We made use of the team approach for several OIG activities, including the
                     planning of the annual office retreat, development of a pilot office assignment policy,
                     and evaluation of the employee survey results. As indicated above, we explored
                     ways to improve collaboration among staff members, including wider use of the
                     team approach. In FY 2002, we made significant progress in implementing an
                     integrated management information system, which was used effectively by the
                     investigations unit. The development of the system is ongoing, and full utilization
                     by the auditing and administrative staffs will be completed in FY 2003. We issued
                     final OIG policies on telecommuting, public release of OIG reports, and special
                     recognition awards, and we developed pilot procedures for office assignments. Each
                     month we held all-staff meetings to share information about OIG administrative
                     matters, update staff on audit and investigative activities, conduct training, and
                     hear outside speakers, primarily senior NSF managers describing their program
                     operations and issues.

            48
                                                                         OIG Semiannual Report March 2003




3.   Address recruiting and retention issues.
     This strategy has 5 actions associated with it:
     • Use survey results and other information to analyze OIG skill mix and determine
       whether it will meet the priority needs of the office in the future.
     • Focus recruiting efforts on correcting any skill deficiencies identified.
     • Assess the adequacy of existing NSF personnel services to the OIG and take steps to
       correct any problems.
     • Develop a system for tracking retention rates, turnover, and length of service.
     • Evaluate the use of telecommuting in OIG.
      We targeted our hiring based on an assessment of OIG’s priority needs, adding
five new FTE and filling behind departing staff in financial auditing, contract
oversight, perfor mance auditing, criminal investigations, administrative
investigations, and outreach. We restored our criminal investigations unit to full
strength and added staff to the financial audit unit. When two audit support
employees departed, we consolidated their primary functions into a single position,
freeing up a slot for other needs. On a pilot basis, we established a two-person staff
in Denver, Colorado, to address auditing needs in the western region more effectively.
We developed a Federal Career Intern program in OIG that will be used for recruiting
in FY 2003.
      OIG worked with NSF’s Human Resource Management staff on improving
the agency’s new E-Recruit system for processing our job applicants electronically,
and we discussed ways in which OIG may take on more responsibility for handling
its personnel tasks. Based on our assessment of our personnel needs and the over-
extended NSF human resource staff, we determined that we need to strengthen our
administrative unit in FY 2003 by hiring a specialist responsible for developing an
integrated personnel management system that includes core competencies, individual
development plans, updated position descriptions, and a personnel retention tracking
process. We did not achieve our planned action of developing a system for tracking
retention rates, turnover, and length of service during FY 2002, but we intend to do
so in FY 2003 as a new function in our knowledge management system. To enhance
both recruiting and retention, we established a telecommuting option for all
employees, and seven employees (13 percent) were approved for participation in
the program.

4.   Strengthen effectiveness of and investment in staff development and
     training.
     This strategy has 4 actions associated with it:
     • Develop an office-wide process for individual development plans.




                                                                                                 49
      OIG FY 2002
Performance Report




                          • Provide OIG training in NSF programs and procedures, professional skills, and other
                            subjects that have wide application within the office.
                          • Ensure that the requirements of the existing training policy are met by all OIG staff.
                          • Identify core competencies for staff by grade level/position.
                           Groundwork was laid for establishing an individual development plan (IDP)
                     process in OIG in April 2003, to coincide with the annual performance rating period
                     for all staff. We examined various IDP programs from both the public and private
                     sectors, and senior management will decide on the final format and procedures
                     prior to its introduction in FY 2003.
                           OIG aggressively promoted training during FY 2002, and the staff survey
                     reflected strong employee satisfaction with the opportunities for individual growth
                     and development. We conducted monthly all-staff meetings that brought in senior
                     officials from NSF directorates to discuss their operations and concerns, and the
                     annual OIG Retreat focused both on teambuilding and on individual Myers Briggs
                     indicators. The office arranged for special training programs for the staff in audit
                     and investigative techniques, and all except new employees met the OIG requirement
                     to complete at least 24 hours of training directly related to their work each year. We
                     were not successful in establishing staff core competencies during FY 2002, but we
                     completed early developmental work by gathering information on core competencies
                     used in other agencies and making plans to discuss the process with contractors
                     who will be providing similar services to NSF.
                           Finally, as further evidence of the effectiveness of OIG’s investment in staff
                     development and training, OIG received three key quality control certifications.
                     The United States Postal Service OIG conducted a quality control review of our
                     audit operations and found that our quality control system provides reasonable
                     assurance that our audits are conducted in conformance with auditing standards.
                     Also, under Federal law, the head of each agency is required to ensure that Federal
                     employees are informed of their rights regarding the Whistleblower Protection Act
                     (WPA) and prohibited personnel practices (PPP). The Office of Special Counsel
                     (OSC) has created a certification program under which it will certify that an agency
                     is in compliance with this law. NSF OIG has successfully completed each of these
                     steps and received OSC certification. And in February, we submitted a certification
                     and accreditation package to the CIO, prepared in accordance with NSF IT security
                     policies and guidance from the National Institute of Standards and Technology
                     (NIST), that was the basis for the IG to certify that the OIG server substantially
                     meets all applicable Federal policies, regulations and standards.




            50
                                                      Statistical Data




Audit Reports Issued
With Recommendations for Better Use of Funds             53


Audit Reports Issued With Questioned Costs               54


Audit Reports Involving Cost-Sharing Shortfalls          55


Status of Internal NSF Recommendations                   56


List of Reports                                          57


Audit Reports With Outstanding Management Decisions      59


Investigations Case Activity                             60


Investigations Case Statistics                           61


Freedom of Information Act and Privacy Act Requests      62




                                                          51
Statistical Data




                   Reporting Terms Defined

                        Some of the more common terms that we use in reporting audit statistics and
                   findings are defined below:

                   Questioned Cost. Auditors question costs because of an alleged violation of a
                   provision of a law, regulation, grant, cooperative agreement, or contract. In addition,
                   a questioned cost may be a finding in which, at the time of the audit, either a cost is
                   not supported by adequate documentation, or the expenditure of funds for the
                   intended purpose is deemed unnecessary or unreasonable.

                   Unsupported Cost. A cost that is questioned because it is not supported by adequate
                   documentation at the time of audit.

                   At-Risk Cost Sharing. Cost sharing is identified as “at risk” if an awardee is lagging
                   in meeting its cost-sharing obligation for an award that is still active. In some
                   situations, the awardee may purport to be funding its obligation but lacks internal
                   controls and documentation to support its claim, making it difficult to determine
                   their allowability under federal cost principles.

                   Management Decision. Management’s evaluation of the findings and
                   recommendations included in the audit report, and the issuance of a response or
                   final decision. It is important to note that NSF is responsible for making a
                   management decision regarding questioned costs that determines whether they will
                   be sustained (i.e., disallowed) or allowed.

                   Funds Put to Better Use. Audit recommendations that identify ways to improve
                   the efficiency of programs frequently lead to prospective benefits over the life of an
                   award or funds put to better use. Examples include reducing outlays, deobligating
                   funds, or avoiding unnecessary expenditures.

                   Final Action. The completion of all management actions that are described in a
                   management decision with respect to audit findings and recommendations. If
                   management concluded that no actions were necessary, final action occurs when a
                   management decision is issued.

                   Compliance or Internal Control Issues. Audits often result in recommendations
                   either to improve the auditee’s compliance with NSF and federal regulations, or to
                   strengthen the auditee’s internal control structure to safeguard federal funds from
                   fraud, waste, abuse, and mismanagement.




         52
                                                        OIG Semiannual Report March 2003




Audit Reports Issued With
Recommendations for Better Use of Funds
                                                                  Dollar Value

A. For which no management decision has been made by the
   commencement of the reporting period                             $443,103

B. Recommendations that were issued during the reporting period $4,159,513

C. Adjustments related to prior recommendations                            $0

Subtotal of A+B+C                                                  $4,603,616

D. For which a management decision was made during the
   reporting period                                                $4,517,416

   i) Dollar value of management decisions that were consistent
      with OIG recommendations                                      $444,103

   ii) Dollar value of recommendations that were not agreed
       to by management                                            $4,073,313

E. For which no management decision had been made by the
   end of the reporting period                                        $86,200

For which no management decision was made within
6 months of issuance                                                        0




                                                                                 53
Statistical Data




                   Audit Reports Issued With Questioned Costs

                                                   Number
                                                     of      Questioned   Unsupported
                                                   Reports     Costs         Costs

                      A. For      which       no
                      management decision    has
                      been made by           the
                      commencement of        the
                      reporting period               10      $1,183,111      $17,805

                      B. That were issued during
                      the reporting period            9       $343,866       $74,235

                      C. Adjustments related to
                      prior recommendations                     $9,147            $0

                   Subtotal of A+B+C                 19      $1,536,124      $92,040

                      D. For      which       a
                      management decision was
                      made during the reporting
                      period:                        11      $1,201,356      $17,805

                          1.   Dollar value of
                          disallowed costs          N/A       $851,014            N/A
                          2. Dollar value of
                          costs not disallowed      N/A       $350,342            N/A

                      E. For       which   no
                      management decision had
                      been made by the end of
                      the reporting period           7        $334,768       $74,235

                      For which no management
                      decision was made within
                      6 months of issuance
                                                                    $0            $0




         54
                                                                       OIG Semiannual Report March 2003




Audit Reports Involving Cost-Sharing Shortfalls
                                       Number    Cost-            At Risk of         Actual
                                         of     Sharing              Cost         Cost Sharing
                                       Reports Promised            Sharing         Shortfalls
                                                                  Shortfall       (Completed
                                                                  (Ongoing          Project)
   A. Reports with monetary
   findings for which no
   management decision has
   been made by the beginning
   of the reporting period:                2   $12,414,037        $9,720,295                  $0

   B. Reports with monetary
   findings that were issued
   during the reporting period:            2         $91,947                 $0        $63,797

   C. Adjustments related to
   prior recommendations                                    $0               $0               $0

Total of Reports with
 Cost Sharing Findings (A+B+C)             4   $12,505,984        $9,720,295           $63,797

   D. For      which       a
   management decision was
   made during the reporting
   period:                                 3    $12,414,037       $9,720,295             $8,948

       1. Dollar value of cost-
       sharing shortfall that
       grantee agreed to
       provide                           N/A               N/A               $0          $8,948
       2. Dollar value of cost-
       sharing shortfall that
       management waived3                N/A               N/A    $9,720,295                  $0

   E. Reports with monetary
   findings for which no
   management decision has
   been made by the end of
   the reporting period                    1         $91,947                 $0        $54,849
   3
    Indicates the dollar value waived by management or that the grantee provided additional
   documentation during audit resolution to support the at-risk amounts.



                                                                                                   55
Statistical Data




                   Status of Internal NSF Recommendations
                   Open Recommendations (as of 9/30/02)
                      Recommendations Open at the Beginning of the Reporting Period                           81
                      New Recommendations Made During Reporting Period                                         6
                      Total Recommendations to be Addressed                                                   87


                   Management Resolution of Recommendations4
                     Awaiting Resolution                                                                      38
                     Resolved Consistent With OIG Recommendations                                             49


                   Management Decision That No Action is Required                                               0


                   Final Action on OIG Recommendations5
                       Final Action Completed                                                                 38
                       Recommendations Open at End of Period                                                  49


                   Aging of Open Recommendations

                            Awaiting Management Resolution:
                            0 through 6 months                                                                30
                            7 through 12 months                                                                8
                            More than 12 months                                                                0

                            Awaiting Final Action After Resolution:
                            0 through 6 months                                                                 3
                            7 through 12 months                                                                3
                            more than 12 months                                                                5



                    4
                      “Management Resolution” occurs when the OIG and NSF management agree on the corrective
                    action plan that will be implemented in response to the audit recommendations.
                    5
                      “Final Action” occurs when management has completed all actions it agreed to in the corrective
                    action plan.




         56
                                                       OIG Semiannual Report March 2003




List of Reports

 NSF and CPA Performed Reviews
                                                                             Cost
                                                                   Better
 Report                                  Questioned Unsupported             Sharing
                     Subject                                       Use of
 Number                                    Costs       Costs                  At-
                                                                   Funds
                                                                             Risk

 03-1-001 Non-profit association               $0         $0      $86,200      $0
 03-1-002 College                        $212,762    $74,235           $0      $0
 03-1-003 Non-profit laboratory                $0         $0           $0      $0
 03-1-004 Non-profit association          $58,906         $0           $0      $0
 03-1-005 University system                    $0         $0           $0      $0
 03-1-006 Non-profit history museum       $53,303         $0           $0      $0
 03-2-001 NSF internal review                  $0         $0           $0      $0
 03-2-002 NSF internal review                  $0         $0           $0      $0
 03-2-003 NSF internal review                  $0         $0           $0      $0
 03-2-004 NSF internal review                  $0         $0           $0      $0
 03-2-005 NSF internal review                  $0         $0           $0      $0
 03-2-006 NSF internal review                  $0         $0           $0      $0
 03-2-007 NSF internal review                  $0         $0           $0      $0
 03-2-008 NSF internal review                  $0         $0           $0      $0
 03-6-001 University (proposal review)         $0         $0 $4,073,313        $0
           Total:                        $324,971    $74,235 $4,159,513        $0




                                                                                  57
Statistical Data




                   NSF-Cognizant Reports
                                                                                       Cost
                    Report                                     Questioned Unsupported
                                          Subject                                     Sharing
                    Number                                       Costs       Costs
                                                                                      At-Risk
                    03-4-001 School district                       $0         $0        $0
                    03-4-002 Non-profit organization               $0         $0        $0
                    03-4-003 Museum                                $0         $0        $0
                    03-4-004 Non-profit research station           $0         $0        $0
                    03-4-005 Non-profit science institution        $0         $0        $0
                    03-4-006 School district                       $0         $0        $0
                    03-4-007 School district                       $0         $0        $0
                    03-4-008 School district                       $0         $0        $0
                    03-4-009 Non-profit research corporation       $0         $0        $0
                    03-4-010 School district                       $0         $0        $0
                    03-4-011 Research foundation                   $0         $0        $0
                    03-4-012 School district                       $0         $0        $0
                    03-4-013 Educational council                   $0         $0        $0
                    03-4-014 Non-profit institute                  $0         $0        $0
                              Total:                               $0         $0        $0




                   Other Federal Audits
                                                                                      Cost
                    Report                                    Questioned Unsupported
                                        Subject                                      Sharing
                    Number                                      Costs       Costs
                                                                                     At-Risk
                    03-5-025 State education department          $541
                    03-5-031 College                             $150
                    03-5-034 University                        $1,617
                    03-5-039 University                        $8,948
                    03-5-042 University                        $3,480
                    03-5-063 University                        $4,159
                              Total:                          $18,895         $0       $0



         58
                                                              OIG Semiannual Report March 2003




Audit Reports With
Outstanding Management Decisions

      This section identifies audit reports involving questioned costs, funds put to
better use, and cost sharing at risk where management had not made a final decision
on the corrective action necessary for report resolution within 6 months of the
report’s issue date. At the end of the reporting period there were no reports
remaining that met this condition. The report involves questioned costs, totaling
$313,978. The status of recommendations that involve internal NSF management
is described on page 56.




                                                                                       59
Statistical Data




                   Investigations Case Activity

                     October 1, 2002 - March 31, 2003
                                    Preliminary   Civil/Criminal   Administrative   Total

                     Active Cases
                     at Beginning
                     of Period          21             25               21            67

                     Opened Cases       72             21               25          118

                     Closed Cases       79             18               15          112

                     Active Cases
                     at End of
                     Period             14             28               31            73




         60
                                                                               OIG Semiannual Report March 2003




Investigations Case Statistics
     Referrals to DOJ                                                                              2

     Criminal Convictions/Pleas                                                                    0

     Civil Settlements                                                                             2

     Administrative Actions                                                                        3

     Investigative Recoveries6                                                         $1,524,127

     Research Misconduct Findings by NSF                                                           0

     Cases Forwarded to NSF Management for Action                                                  3

     Cases Forwarded to NSF Management in Prior
     Periods Awaiting Action                                                                       0

     Assurances and Certifications7

        Number of Cases Requiring Assurances During This Period                                     4
        Number of Cases Requiring Certifications During This Period                                 6
        Assurances Received During This Period                                                      1
        Certifications Received During This Period                                                  1

     Number of Debarments in Effect During This Period                                             3



6
  Investigative recoveries include civil penalties, criminal fines, and funds paid in restitution, as well
as specific cost savings for the government.
7
  NSF accompanies some actions with a certification and/or assurance requirement. For
example, for a specified period, the subject may be required to confidentially submit to OIG a
personal certification and/or institutional assurance that any newly submitted NSF proposal
does not contain anything that violates NSF regulations.




                                                                                                             61
Statistical Data




                   Freedom of Information Act
                   and Privacy Act Requests
                        Our office responds to requests for information contained in our files under
                   the Freedom of Information Act (“FOIA,” 5 U.S.C. paragraph 552) and the Privacy
                   Act (5 U.S.C. paragraph 552a). During this reporting period:


                      •   We received 8 FOIA requests compared to 16 in the last reporting period.
                          The response rate ranged between 11 days and 20 days, with a median of
                          17 days and the average around 15 days.


                      •   We received one Privacy Act request, which was denied. No Privacy Act
                          requests were received last reporting period.


                      •   We received two appeals this reporting period and two last reporting period.
                          Both appeals were denied. Individuals who are not satisfied with our
                          responses to their requests can appeal to the Office of General Counsel
                          (OGC). One individual appealed to the OGC; that appeal was also denied.




         62
                                                             OIG Semiannual Report March 2003

                                                                                       Appendix 1


                                        Reporting Requirements

     Under the Inspector General Act, we report to the Congress every six months
on the following activities:
    • Reports issued, significant problems identified, the value of questioned costs
      and recommendations that funds be put to better use, and NSF’s decisions
      in response (or, if none, an explanation of why and a desired timetable for
      such decisions). (See pp.5-6, 51)
    • Matters referred to prosecutors, and the resulting prosecutions and
      convictions. (See p.31, 61)
    • Revisions to significant management decisions on previously reported
      recommendations, and significant recommendations for which NSF has not
      completed its response. (See p. 25, 56, 59)
    • Legislation and regulations that may affect the efficiency or integrity of
      NSF’s programs. (See p. 11)
    • OIG disagreement with any significant decision by NSF management. (None)
    • Any matter in which the agency unreasonably refused to provide us with
      information or assistance. (None)




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                                                  OIG Semiannual Report March 2003

                                                                         Appendix 2



                                                       Acronyms

ATE     Advanced Technological Education Program
CIO     Chief Information Officer
COI     Conflict of Interest
CPO     Division of Contracts, Policy and Oversight
COV     Committee of Visitors
DACS    Division of Acquisition and Cost Support
DCAA    Defense Contract Audit Agency
DD      Division Director
DFE     Designated Federal Entity
DGA     Division of Grants and Agreements
DOJ     Department of Justice
ECIE    Executive Council of Integrity and Efficiency
FCA     False Claims Act
FOIA    Freedom of Information Act
FTE     Full Time Equivalent Staff
FY      Fiscal Year
GISRA   Government Information Security Act
GPRA    Government Performance and Results Act
HBCU    Historically Black Colleges and Universities
HUD     Department of Housing and Urban Development
IDP     Individual Development Program
IR/D    Independent Research and Development
KMS     Knowledge Management System
MRE     Major Research Equipment
MREFC   Major Research Equipment and Facilities Construction
NIST    National Institute of Standards and Technology
NSB     National Science Board
NSF     National Science Foundation
NSFC    National Natural Science Foundation of China
OIG     Office of Inspector General
OMB     Office of Management and Budget
OPP     Office of Polar Programs
OSC     Office of Special Counsel
OSTP    Office of Science and Technology Policy
PCIE    President’s Council on Integrity and Efficiency
PI      Principal Investigator
PFCRA   Program Fraud Civil Remedies Act




                                                                          65
Statistical Data




                   Acronyms (cont’d)

                   QCR    Quality Control Review
                   SBIR   Small Business Innovation Research
                   SRA    Society of Research Administrators
                   TCUP   Tribal Colleges and Universities Program
                   USAP   United States Antarctic Program
                   USI    Urban Systemic Initiative
                   USP    Urban Systemic Program
                   USPS   United States Postal Service
                   VA     Veterans Administration
                   WPA    Whistleblowers Protection Act




         66
                                                        OIG Semiannual Report March 2003




                                                                  Awards




   Pictured receiving OIG Awards during the past 6 months are
  James Caras (top), Chris Gordon and Peggy Gartner (center) of
NSF’s Division of Administrative Services, and Gloria VanKan of OIG.




                                                                                67
                      Organization Chart



                            INSPECTOR
                             GENERAL
                           Christine C. Boesz

                          DEPUTY INSPECTOR
                              GENERAL
                               Tim Cross
COUNSEL TO THE
  INSPECTOR
   GENERAL

  Arthur A. Elkins




ASSOCIATE IG FOR                                ASSOCIATE IG FOR
     AUDIT                                      INVESTIGATIONS

 Deborah H. Cureton                               Peggy L. Fischer




      AUDIT                ADMINISTRATIVE        INVESTIGATIVE
      STAFF                    STAFF                 STAFF
                  National Science Foundation
                   Office of Inspector General
                  4201 Wilson Blvd., Rm. 1135
                      Arlington, VA 22230

             Internet Web Site: http://www.oig.nsf.gov
                     Telephone: 703-292-7100
To Report Fraud, Waste or Abuse, Call Our Hotline: 1-800-428-2189