Title : OIG12 Number 12--NSF OIG Semiannual Report to the Congress Type : Report NSF Org: OIG Date : August 7, 1995 File : oig12 Semiannual Report to the Congress Number 12 October 1, 1994-March 31, 1995 Office of Inspector General National Science Foundation LETTER TO THE NATIONAL SCIENCE BOARD AND THE CONGRESS This report describes our activities and accomplishments for the first half of FY 1995. Section 5 of the Inspector General Act of 1978, as amended, requires that the National Science Board transmit this report to the Congress within 30 days of its receipt along with any comments the Board may wish to make. We completed our first on-site review of NSF's management and operations of the United States Antarctic Program. We reviewed logistical operations in Colorado; California; Christchurch, New Zealand; and at McMurdo and South Pole stations on the Antarctic continent. We completed our fourth audit of NSF's donations account financial statements, as required by the Chief Financial Officers Act, and continued to prepare to audit all of the Foundation's financial statements in FY 1996. We would like to welcome seven new members to the National Science Board. Four of the new members have been assigned to the Board's Committee on Audit and Oversight, which provides general supervision of OIG activities. We look forward to working with the Board and NSF management to advance NSF's goals in the coming months. Linda G. Sundro Inspector General April 30, 1995 EXECUTIVE SUMMARY PROGRAM AND FINANCIAL AUDITS We reviewed logistical operations that support NSF's Antarctic program because this area has the greatest potential for cost savings. Although we were generally impressed with operations in Antarctica, we made several recommendations for significant cost savings and improved efficiency or safety. NSF is reviewing our findings and recommendations. The Chief Financial Officers (CFO) Act of 1990 and the Government Management Reform Act of 1994 require that we increase the scope of our annual internal audit of NSF's financial operations. The Acts require that, beginning in FY 1996, we annually audit agency-wide financial statements. This is the first time all of NSF's accounts will be audited. OIG personnel and funds previously designated for internal discretionary reviews will be used to conduct the audit of the agency-wide financial statements. In addition, we must realign other audit staff resources and obtain additional funds to contract for services from certified public accounting firms. In 62 audits of NSF awards, we questioned approximately $4.7 million in costs and recommended better uses for about $10 million. NSF agreed to implement recommendations, which will result in savings of over $5 million in future awards to a supercomputer center. LEGAL ACTIVITIES Individuals employed under the Intergovernmental Personnel Act (IPA) are not covered by the standards of conduct that apply to career civil servants. We recommended that NSF devise a means of enforcing comparable standards of ethical conduct for IPAs. INVESTIGATIONS A Principal Investigator (PI) fraudulently diverted federal funds to his personal account. The PI was sentenced to 5 years' probation, ordered to perform 500 hours of community service, and ordered to pay restitution. We continue to conduct investigations involving fraud in the Small Business Innovation Research (SBIR) program. As a result of our recommendations in previous semiannual reports, the General Accounting Office (GAO) reviewed the issue of duplicate funding for SBIR awards. GAO agreed with our conclusion that the information available on government-wide SBIR awards is not adequate. In this reporting period, investigative recoveries totaled $445,506. MISCONDUCT IN SCIENCE NSF's Deputy Director resolved three cases involving misconduct that we had referred to her for adjudication. These cases involved a funding request for research that was already completed, plagiarism, and a violation of confidential peer review. We recommended that the Deputy Director find misconduct in four new cases. These cases involved plagiarism and misrepresentation of publications and academic credentials. INSPECTIONS This report contains an analysis of common findings from our first 12 inspections. In this period, we inspected NSF awards at a state university; a private, technical institute; and two primarily undergraduate institutions. TABLE OF CONTENTS AUDIT INVESTIGATIONS OVERSIGHT LEGAL SIGNIFICANT AUDIT RECOMMENDATIONS FROM PREVIOUS SEMIANNUAL REPORTS REPORTS WITH OUTSTANDING MANAGEMENT DECISIONS AGENCY REFUSAL TO PROVIDE INFORMATION OR ASSISTANCE SIGNIFICANT MANAGEMENT DECISIONS THAT WERE REVISED INSPECTOR GENERAL'S DISAGREEMENT WITH SIGNIFICANT MANAGEMENT DECISIONS LIST OF REPORTS STATISTICAL INFORMATION REQUIRED BY THE INSPECTOR GENERAL ACT OF 1978, AS AMENDED INSPECTOR GENERAL REPORTS ADDITIONAL PERFORMANCE MEASURE ACRONYMS ASA Antarctic Support Associates ASC Advanced Scientific Computing CFO Chief Financial Officer COAS College of Oceanic and Atmospheric Sciences CPO Division of Contracts, Policy, and Oversight EHR Division of Education and Human Resources FAS Financial Accounting System GAO General Accounting Office GEO Directorate for Geosciences GRFP Graduate Research Fellowship Program HHS Department of Health and Human Services ILI Instrumentation and Laboratory Improvement IPAs Scientists Employed Under the Intergovernmental Personnel Act OMB Office of Management and Budget OPP Office of Polar Programs PI Principal Investigator SBA Small Business Administration SBIR Small Business Innovation Research USAP United States Antarctic Program REPORTING REQUIREMENTS The table cross-references the reporting requirements prescribed by the Inspector General Act of 1978, as amended, to the specific pages in the report where they are addressed. Requirements Section 4(a)(2) Review of Legislation and Regulation Section 5(a)(1) Significant Problems, Abuses, and Deficiencies Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, and Deficiencies Section 5(a)(3) Prior Significant Recommendations on Which Corrective Action Has Not Been Completed Section 5(a)(4) Matters Referred to Prosecutive Authorities Section 5(a)(5) Summary of Instances Where Information Was Refused Section 5(a)(6) List of Audit Reports Section 5(a)(7) Summary of Each Particularly Significant Report Section 5(a)(8) Statistical Table Showing Number of Reports and Dollar Value of Questioned Costs Section 5(a)(9) Statistical Table Showing Number of Reports and Dollar Value of Recommendations That Funds Be Put to Better Use Section 5(a)(10) Summary of Each Audit Issued Before This Reporting Period for Which No Management Decision Was Made by the End of the Reporting Period Section 5(a)(11) Significant Revised Management Decisions Section 5(a)(12) Significant Management Decisions With Which the Inspector General Disagrees AUDIT The Office of Audit is responsible for auditing grants, contracts, and cooperative agreements funded by NSF's programs and operations and for ensuring that financial, administrative, and program aspects of those activities are reviewed. The Office evaluates internal controls, reviews data processing systems, and follows up on the implementation of recommendations included in audit reports. In addition, the Office assists in the financial, internal control, and compliance portions of OIG inspections. All audit reports are referred to NSF management for action or information. The Office of Audit advises and assists NSF in resolving audit recommendations. The Office also acts as a liaison between NSF and audit groups from the private sector and other federal agencies by arranging for special reviews, obtaining information, and providing technical advice. The Office of Audit provides speakers and staff assistance at seminars and courses sponsored by NSF and other federal agencies and at related professional and scientific meetings. ANTARCTIC PROGRAM NSF manages and operates the United States Antarctic Program (USAP). In FY 1995, NSF will spend $195 million to support research in Antarctica. To support Antarctic research, NSF operates three stations year-round: McMurdo, the South Pole, and Palmer stations. Each station is akin to a small town, where NSF provides everything from housing to recreational facilities for researchers and support personnel. During the austral summer, which is when most of the research operations in Antarctica are conducted, there are about 1,200 people at all 3 stations. These stations operate with reduced populations during the austral winter. To operate the USAP, NSF must comply with many U.S. and foreign laws as well as international treaties. These laws affect USAP's operations within Antarctica and the transportation of supplies and people to and from Antarctica. Everything from transporting common household waste to contact with Antarctic animals is regulated. It takes about 30 hours to fly from Washington, D.C., to McMurdo station, and travel to the other two stations takes longer. Because Antarctica is so remote, it is difficult to conduct routine audits and reviews to ensure that program objectives are being met and program funds are properly managed. The difficulty of providing routine audit coverage combined with the large dollar amount and high visibility of USAP were factors that contributed to our decision to identify USAP as a focus area in our strategic plan. There are many issues unique to Antarctica that are relevant to our oversight of USAP. These issues include the environment, safety and search-and-rescue operations, international issues, tourism, personnel issues, and logistics. We decided to focus our current reviews on USAP's logistical operations because cost savings associated with the program's logistics presented the greatest potential for us to have a positive effect on the program's scientific objectives. For example, in FY 1995, NSF will spend over $160 million on logistical support and $29 million on science. A portion of the logistics budget directly supports research, such as by providing travel and field support. Nonetheless, it is clear that a relatively small cost savings in logistics could allow a relatively large increase in the Antarctic science research budget. Most logistical support is provided through a contract with Antarctic Support Associates (ASA) and cost-reimbursable services from the Navy. NSF's Office of Polar Programs (OPP) coordinates logistics between ASA and the Navy and is responsible for maximizing efficiency and safety and minimizing duplication of effort. In this reporting period, we visited logistical operations in Christchurch, New Zealand, and at the McMurdo and South Pole stations in Antarctica. We were generally impressed with USAP's operations. However, we made several recommendations that we believe will lead to cost savings or improved efficiency or safety. NSF and ASA are reviewing our findings and recommendations, which are summarized below. We will discuss NSF's responses in our next semiannual report. Issues Involving Significant Cost Savings Vacant Buildings and Hotel Costs. The Navy leases land in Christchurch, New Zealand, for its Antarctic operations. Some of the buildings on this land were formerly Navy barracks and are currently empty. These vacant barracks are not up to the Navy's standards for overnight accommodation. To house its personnel, the Navy leases 110 hotel rooms where it houses up to 220 people per night. USAP pays about $950,000 over a 5-month period ($190,000 per month) to lease these rooms. The Navy has obtained estimates of about $544,000 from contractors in New Zealand to renovate the barracks that is in the best condition. The renovated barracks would house 80 people and would obviate the need for 40 hotel rooms, which cost $368,640 per 5-month season. NSF could also pay reduced meal per diem to Navy personnel living in the barracks for a savings of $519,440 per season. The Navy estimates that the annual cost of operating a barracks is $10,000 to $30,000. Using this estimate, the $544,000-renovation cost would be recouped during the first year, with over $300,000 in additional savings. USAP could also forego an estimated annual cost of over $800,000 (the cost of the hotel rooms and the higher meal per diem minus the cost of maintaining the barracks) in every year thereafter. According to Navy personnel, the useful life of the renovated barracks would be about 15 years. Over a 15-year period, USAP could save over $13 million if it used the barracks rather than hotel rooms. Using a 6-percent interest rate, we estimate that the present value of the savings would be about $7.8 million. It seems possible that the Air Force will assume logistical support of USAP in the near future. Under NSF's plan to phase out naval support, some current Navy responsibilities would be contracted-out to New Zealand firms, and fewer military personnel would be lodged in Christchurch. Even so, ASA and NSF personnel and scientists traveling to Antarctica through Christchurch could stay in the barracks. Under this scenario, the net present value of the cost savings would be about $4 million. We recommended that NSF provide the funds to renovate the barracks and use the cost savings to make more funds available for research in the years following the renovation. Fuel Charges. USAP distributes jet and heating fuel to several entities in the Antarctic. NSF bills the Italian, New Zealand, and Russian research programs for the fuel it provides for their planes and facilities in Antarctica. We believe USAP should recover all associated costs for the fuel it sells to other nations. Associated costs include storage, transportation, maintenance of fuel lines and tanks, and related overhead costs. We estimate that if NSF bills these costs to the Italian, New Zealand, and Russian research programs, it will recoup about $115,000 per year. For accounting purposes, NSF allocates fuel charges to the entity that operates the aircraft fueled--either the Navy or the Air Force--to ensure that the costs of flying the aircraft are accurately reflected in USAP's records. We recommended that all associated fuel costs be proportionately allocated to the entity using the fuel. Other Areas for Improvement The following findings will not result in significant cost savings; however, we believe they will improve the overall management of Antarctic operations. Reporting Nonpermitted Releases. The Antarctic environment is very fragile. To help keep the Antarctic pristine, NSF strictly controls the release of laboratory chemicals, fuel, and oil. ASA is required to report to NSF's Director all "nonpermitted" (accidental) releases of foreign substances into the Antarctic environment that involve ASA and scientific personnel. Our reviews indicated that, while reports of nonpermitted releases involving administrative personnel seem to have been made routinely, scientific personnel may not be reporting all accidental releases for which they are responsible. We recommended that NSF educate scientific personnel on the need for reporting nonpermitted releases and require that ASA periodically verify that no releases have occurred at field sites where research is being conducted. Sewage Treatment. Sewage from McMurdo station is not chemically treated before it is discharged into McMurdo Sound. We recommended that NSF assess the costs and benefits of treating sewage before its release and, if appropriate, promptly implement a treatment program. Graywater. Water is a valuable commodity in the Antarctic, so water conservation is considered an important part of ASA's management. At the South Pole, the elevated dorm uses "graywater" from showers and sinks to flush the toilets. We recommended that ASA formally consider using graywater in all new buildings constructed in the Antarctic. The increased use of graywater would reduce the desalination plant's fuel needs and operational requirements. Toilet Facilities on USAP Airplanes. The flight from Christchurch to McMurdo station is about 8 hours. NSF's airplanes have primitive toilet facilities with minimal privacy. In a June 1988 report, the USAP Safety Review Panel recognized this as a problem because some people, particularly women, avoid drinking before the flight so they will not have to use the toilet. This practice can result in dehydration and present a health hazard. The percentage of women involved in USAP has increased to almost 30 percent of total staff. NSF has spent about $44.5 million since 1990 to redesign five of its seven aircraft. Nonetheless, NSF has not taken any action to improve the adequacy of the toilet facilities. We recommended that NSF ensure that all USAP airplanes have toilet facilities that afford basic privacy for those who use them. Automated Systems. ASA is using automated purchasing and inventory systems at its Denver headquarters and at most of the work units at the McMurdo and South Pole stations. In Christchurch, we found these automated systems were not fully implemented, which resulted in some duplication of effort. This duplication could be avoided by modifying the existing software or installing new software. We recommended that ASA modify its software in Christchurch to correct this problem. South Pole Medical Services. Although there is a physician stationed at the South Pole, there is no one else there who is qualified to administer medical treatment. We recommended that NSF ensure there is at least one other person who is, at minimum, qualified as an Emergency Medical Technician to handle problems if the physician is incapacitated. Financial Audits Document Efficient Management In addition to our reviews of USAP's logistical operations, we conducted two financial audits involving USAP. One of these audits involved a research facility at the South Pole, and the other involved an ecological research site near McMurdo station. Our reviews gave us renewed confidence in the financial management of these parts of NSF's Antarctic program. Science and Technology Center. The objectives of NSF's Science and Technology Center program are to develop opportunities in science that may entail multidisciplinary research or research within a single scientific discipline; involve students and researchers in developing applications for scientific discoveries and transferring that knowledge between the university community and industry; and provide stable, long-term funding for continued research in science and technology. NSF awarded an $11,034,885 cooperative agreement to a large, midwestern university to establish a Science and Technology Center with an observation site at the South Pole. The site's research facilities use the South Pole's unique atmospheric conditions to observe the universe. We found the university was effectively administering this award; however, we questioned $7,386 and identified some procedural problems. We questioned $2,590 because the center charged a dental procedure to the award and $4,796 because the center's claims of cost sharing were unsupported. We also found that the university's procedures for documenting the efforts of center personnel for the purposes of cost sharing were inadequate. We found that the center failed to submit overdue final project reports, adopt screening procedures to avoid unnecessary procurements, take advantage of available purchase discounts, and obtain prior written authorization for travel. Ecological Research Site. NSF awarded $1,151,393 to a research institute to establish a Long-Term Ecological Research site in the Dry Valleys near McMurdo station in Antarctica. The institute will use environmental data collection, long-term experiments, and model development to study the integration of the biological processes within the lakes, streams, and ecosystems in an area of the Dry Valleys. We conducted a survey of the institute's financial system, and, based on the results of that survey, we concluded that the institute was properly accounting for financial expenditures. **************************************************************** QUESTIONED COST A cost resulting from an alleged violation of law, regulation, or the terms and conditions of the grant, cooperative agreement, or other document governing the expenditure of funds. A cost can also be "questioned" because it is not supported by adequate documentation or because funds have been used for a purpose that appears to be unnecessary. ***************************************************************** Management's Response To Previous Recommendations Regarding USAP's Procurement and Supply System In Semiannual Report Number 11 (page 9), we described our review of ASA's procurement and supply system. We provided our report to ASA; NSF's OPP; and NSF's Division of Contracts, Policy, and Oversight (CPO). As a result of our recommendations: NSF will continue working with ASA to improve the process for procuring high-cost items. ASA is working toward implementing a simplified purchase requisition process for small procurements. NSF will carefully analyze ASA's subcontracts before approving them and will identify subcontracts to companies affiliated with ASA for increased oversight. ASA will improve its documentation of decisions to award subcontracts, particularly those awarded to ASA affiliates. NSF and ASA have agreed that ASA will competitively award subcontracts for a number of functions that were previously performed by ASA employees or affiliated companies. CPO is considering ways of shortening the procurement process; however, it was uncertain whether the process could be shortened without adversely affecting NSF's interests. OPP stated that it will work with ASA to decrease the number of "eleventh hour" procurements. In addition, NSF and ASA are collecting data on last-minute procurements to identify recurring problems so that procedures can be implemented to ensure maximum competition. ASA has implemented several controls to minimize duplicate procurements. ASA is also developing a computer program that will interface with the existing automated systems to ensure that items are returned or otherwise accounted for when they are to be returned to storage. AUDITS RELATING TO NSF's INTERNAL FINANCIAL OPERATIONS We review NSF's financial and administrative activities and evaluate NSF's policies and procedures to ensure that: NSF is complying with federal laws and regulations; the Foundation's financial and accounting policies and procedures are adequate to maintain the financial accounting system (FAS) and produce accurate financial accounting statements; and internal controls are in place to prevent and/or detect fraud, waste, and abuse. We have always conducted statutory and discretionary reviews of NSF's financial operations. Statutory reviews are required by law and must be performed within specified time constraints. Discretionary reviews are performed if resources are available and if we identify programs that appear vulnerable. Current Chief Financial Officers Audit Requirement The Chief Financial Officers (CFO) Act of 1990 and the Government Management Reform Act of 1994 require that we increase the scope of our annual internal audit of NSF's financial operations. The CFO Act currently requires that we conduct an annual audit of our Donations Account financial statements. The Donations Account represents less than 1.5 percent of NSF's approximate $3-billion budget. While auditing the Donations Account financial statements, we perform tests to ensure that adequate controls exist in the FAS as well as in the cash receipts, cash disbursement, and financial statement compilation processes. Expanded CFO Audit Requirement The Government Management Reform Act requires that, beginning in FY 1996, we audit agency-wide financial statements by March 1 following each fiscal year. An audit of all of NSF's accounts has never been conducted in the Foundation's 45-year history. Our expanded audit requirement will increase our scope to include general ledger maintenance and control; grantee cash management; grant and contract administration; plant, property, and equipment control; payroll; and the budget process. OIG personnel and funds previously designated for internal discretionary reviews will be used to conduct the audit of the agency-wide financial statements. In addition, we must realign other audit staff resources and obtain additional funds to contract for services from certified public accounting firms. We are reducing our audit coverage of NSF's internal operations when not required to do so by statute. For instance, FY 1994 was the first year that we were not statutorily required to review consulting advisory services that NSF obtains by contract. Because of other internal audit priorities, we did not conduct an audit in that area. In addition, at NSF management's request, we previously audited financial statements for the Ocean Drilling Project. Because our internal audit resources are so strained, we advised Ocean Drilling Project management that it will have to reimburse us for our audit costs if we are to continue providing this service. CFO Audit Activities for FYs 1995 and 1996 To comply with the CFO and Government Management Reform Acts' expanded requirements, we are preparing for the FY 1996 agency-wide financial statement audit. In this reporting period, we: completed our audit of NSF's 1994 Donations Account financial statements; completed initial reviews of NSF's general ledger, electronic data processing controls, and property controls; met with the National Science Board and NSF management to discuss the FY 1996 audit financing; and continued planning to procure contracted certified public accountant services for the FY 1996 financial statement audit. In February 1995, the National Science Board's Committee on Audit and Oversight decided to limit FY 1996 CFO audit expenditures to $500,000. Half of these funds will be provided by our appropriation, and the other half will be assessed from the accounts audited. It is too soon for us to know how this strategy will affect the ratio of contract audit support to staff auditors or how thoroughly NSF's FY 1996 financial statements can be reviewed. We will be learning more about the most effective ways of designing the CFO audit program in FYs 1996 and 1997 after NSF's CFO has assembled the statements. Audit Results for Current Reporting Period The results of audits completed during this reporting period are described below. NSF generally agreed with our recommendations. Audit of NSF's Donations Account Financial Statements. We audited NSF's 1994 Donations Account (Trust Fund) Financial Statements and issued Auditor's Reports on Principal Statements, Internal Control, and Compliance. We provided an unqualified opinion on the Principal Statements, Notes, and Schedules after management corrected minor errors. We also provided an unqualified opinion on Compliance. We issued a qualified opinion on Internal Control because NSF did not have adequate controls established for collecting and reporting performance data. To compensate for this lack of control, we expanded our audit's scope to conduct a more detailed review of the supporting documentation and to verify all of the performance data in the financial statements. We identified a $200,000 contribution that was included in NSF's performance data but was never actually sent by the contributing company. We advised management of the situation, and NSF obtained the $200,000 from the contributing company. Review of Electronic Data Processing Controls in the FAS. NSF uses an automated FAS to record all of its financial transactions. Financial statements are based on the sum of the transactions in NSF's general ledger. In this reporting period, we completed one of several planned reviews of the Electronic Data Processing controls in the FAS. We reviewed NSF's User Profile System, which was designed to provide security for access to the FAS database. We determined that NSF's control procedures were adequate to prevent unauthorized access to the FAS. However, some of the data on specific users were incorrect or outdated. We made recommendations to correct the user data and properly maintain the User Profile System. We also reviewed the most recent FAS database maintenance project, which was designed to streamline the active database files and improve overall system performance. The project was well coordinated, and it successfully reduced the active database file by 5.8 million financial records. Finally, we reviewed the electronic edits of data input into the FAS. The edits effectively verified the accuracy of data. However, discrepancies in the error message definitions existed that could confuse the users entering data into the system. We made recommendations to correct those definitions. Review of Property Controls. Property is a highly vulnerable asset within any agency or organization. As of August 1994, over $18 million in property was recorded in NSF's general ledger. During our review of personal computers and related equipment, we found that NSF had not adequately maintained property records; physically inventoried equipment; or annually reconciled property records, as prescribed in NSF's policies and procedures. As a result, there were discrepancies between the general ledger balances, the property management system, and subsidiary property records maintained by property custodians in each office. We recommended that NSF management conduct a complete inventory, reconcile all NSF property, and update the property files to reflect correct account balances and inventory descriptions; provide additional guidance and training for property custodians; and implement internal controls to ensure that the property management system is properly maintained. Review of the General Ledger. We reviewed NSF's general ledger and compared it to the U.S. Standard General Ledger prescribed by the U.S. Department of Treasury and used by all federal agencies. In most instances, NSF's general ledger complied with the U.S. Standard General Ledger. We reported all of the inconsistencies we found to NSF management for further review and correction. SIGNIFICANT AUDITS INVOLVING NSF AWARDS The following summaries describe other significant audits of NSF grants, contracts, or cooperative agreements. Division of Advanced Scientific Computing Could Save NSF Funds Supercomputer centers provide for the advancement of scientific research and enhance U.S. industrial competitiveness. NSF's Division of Advanced Scientific Computing (ASC) awarded a $74.7-million cooperative agreement to a large, commercial company to operate one of NSF's four supercomputer centers. Of that amount, the company claimed $60.9 million. The National Science Board has approved a 2-year extension of the cooperative agreement at approximately $32 million. At the end of the 2-year extension, the center will either be phased out over a 1-year period or continue to operate under a new 5-year award. The Board's decision ensures that the center will continue to operate for at least 3 more years and for as many as 7 more years. The results of our review of the company's administration of the cooperative agreement follow. Future Savings. We estimate that ASC could save $5.5 million over the next 3 years. If the cooperative agreement is extended for 7 years, we estimate that ASC could save $12.8 million. Below are examples of how these savings could be achieved. ASC had been paying about $1.3 million per year to purchase the building that houses the supercomputer center. As of May 31, 1995, the loan will be fully paid. We believe ASC can reduce annual award payments by about $1.3 million per year without reducing the research effort. The company claimed $1.7 million in independent research and development costs for the 44-month period covered by the audit (about $470,000 per year). NSF does not typically pay independent research and development costs. In Grant Policy Manual Transmittal Memorandum No. 8 (February 25, 1994), NSF explained that funding independent research and development circumvents NSF's peer review process by supporting research that has not been peer reviewed. As a result, we recommended that the company reduce the amount of the extension by $470,000 per year. In our opinion, this reduction will not have an adverse effect on the activities conducted under the cooperative agreement. The company charged $1.5 million in operating costs to the cooperative agreement even though it used the supercomputer center to perform other grant and contract work. ASC would save about $50,000 per year if it instructed the company to allocate the operating costs proportionally to all projects performed at the center. Because title to equipment purchased under the cooperative agreement vests in the university instead of the government, the company pays state sales tax on equipment purchased with federal funds. As a result, the government paid over $400,000 in sales tax during the 44-month audit period. ASC is planning to spend $1 million to upgrade the computer memory at the center. Given the 8.5-percent state sales tax, ASC will pay approximately $85,000 in sales tax. However, ASC would save that amount if the cooperative agreement were amended to vest title in the government. ASC generally agreed with our recommendations except for the sales tax issue, which ASC is still studying. Unallowable and Unsupported Costs. We questioned $2,933,428 because we found unallowable ($1,877,794) and unsupported ($1,055,634) costs. Examples of these costs follow. Of the unallowable costs, $1,726,773, was for independent research and development, which, as discussed above, is not typically an allowable cost for NSF awards. The company overran its budget from the previous cooperative agreement even though NSF provided the company all of the funds in the award budget. As a result, the company carried forward $1,055,634 in costs from the previous cooperative agreement and charged those costs to the current award. Because the company could not explain why it claimed those costs, we questioned the amount that was carried forward. The company billed NSF a rate of pay that exceeded the allowed rate. We estimate that consultant rates exceeded the amount allowed by $25,000 for all consultant charges. We are reviewing the company's documentation of payments to consultants to determine the actual amount overpaid. The company agreed that consultants were paid above allowable rates but disagreed with all other questioned costs. Inadequate Accounting System. Under the cooperative agreement, NSF provided funds for the supercomputer center's general management and operation. Funds for specific activities were provided by a state, a university, commercial companies, and 25 NSF grants. The company combined all of these funds in a single account. Thus, there was about $84 million in the account; NSF provided about $61 million of that amount. Cost accounting standards, as well as good accounting practices, require that costs associated with specific program objectives be accounted for separately. As a result of the company combining funds in one account, NSF had no assurance that the company properly used NSF funds, and we could not verify the company's responses to several of our recommendations. NSF management will resolve the questioned costs and audit recommendations during the audit resolution process. We will continue to monitor this matter and describe NSF's final actions in our next semiannual report. Audit of Nonprofit Institution Reveals Improper Expenditures and Inadequate Internal Controls In Semiannual Report Number 11 (page 22), we discussed an investigation related to an NSF award to an education association. The NSF award and a related Department of Education award supported a national reform of secondary school science education programs. The investigation revealed a conflict of interest and fraud by one of the association's senior officials. The senior official resigned from the association, but the Department of Justice is still reviewing his actions. In coordination with the criminal investigation, we conducted an audit of the 14 education awards that NSF awarded to the association. The association's management of 13 of the 14 awards was generally acceptable. However, we questioned $173,408 related to the remaining award, which was for an education reform project. The questioned costs were due to irregularities in the practices of one of the association's senior officials and internal control weaknesses. These irregularities and weaknesses created an environment in which the official could engage, undetected, in a variety of questionable practices. Of the $173,408, we questioned $57,092 because the costs were unsupported or improperly charged. Unjustified travel expenses and personal expenses billed to the association's credit cards were often recharged to the federal project because the association did not require advance approval of travel or documentation of expenses incurred in travel vouchers prepared after travel. The association paid for the grant-related travel expenses of one of its senior officials with funds from the education reform project. The official also received reimbursements for the same travel expenses from the institutions he visited. He improperly retained these duplicate payments and deposited them into his personal bank accounts. We questioned $89,567 in payroll costs charged to the education reform project primarily because one senior official charged hours that he spent on personal business to the project. However, we found a broader pattern of timekeeping deficiencies at the association, including missing or late time sheets and failure to require time sheets. One of the association's senior officials received consulting and speaking fees and honorariums totaling $6,900 for conducting activities that were required of him under the federally funded project. Those fees and honorariums should have been treated as project income and used to further the project's objectives. We also questioned $185,020 charged to awards other than the education reform project. The association did not obtain NSF's approval to spend $102,640 that was designated as participant support costs in other categories. We also questioned indirect costs ($47,580) and fringe benefit costs ($22,390) because the association calculated them incorrectly. The association agreed to refund $290,091 of the questioned costs, including all costs that we questioned with respect to the education reform project. We will refer the remaining $68,337 to CPO for audit resolution. The association also agreed to improve its documentation and approval of award-related travel and its timekeeping system. Nonprofit Company Claims Unallowed and Unsupported Costs NSF awarded a nonprofit company two grants totaling $1,122,409 to teach elementary and high school minority students biology, chemistry, engineering, and mathematics through after-school and summer courses. The company claimed $973,372, and we questioned $525,306. We questioned $219,840 because the company charged costs to NSF on the Federal Cash Transactions Report that it did not record on its accounting records. At the time of our review, the accounting records were incomplete, and the fiscal officer could not justify charges to NSF. There was also $21,242 charged to NSF and recorded on the accounting records that was not supported by invoices or receipts. The company's management acknowledged that its prior accountant and accounting records were inadequate. At the time of our review, the company was implementing a new accounting system. We also questioned $53,120 in participant support costs that was budgeted to support minority students' costs to travel to science fairs and scientific programs as well as field trips to museums and engineering firms. The funds were actually used for salaries for teachers and administrative personnel, entertainment, materials and supplies, and meals at meetings attended by company employees. The company told us these errors occurred because it was not familiar with NSF's restrictions on participant support costs even though NSF had sent the company documentation that clearly described these restrictions. The company did not comply with NSF's award letter, which stated that because "an amount for indirect costs has not been requested in the proposal or included in the amount awarded . . . indirect costs associated with this project will not be reimbursed by NSF." Although NSF decided it would not pay indirect costs on the award, the company had charged NSF $23,381 for charges usually treated as indirect costs, such as general purpose office equipment, supplies, telephone, travel, publication, and inappropriate costs. In the project proposal, the company requested, and the grant officer approved, the reimbursement of administrative (such as secretarial) salaries and fringe benefits as direct costs. Administrative salaries are usually charged as indirect costs because these employees work on multiple projects. We questioned $207,723 because salaries could not be readily identified with the NSF-funded project. We questioned all of these costs because the company did not maintain timecards showing how employees spent their time. The grantee did not agree with our questioned costs. However, the company did agree to identify, support, and record costs in its accounting system. NSF will finalize disallowed costs during audit resolution. Continued Problems With Two Principal Investigators From a Television Science Program In 1990, we reviewed two grants totaling $2,255,496 that NSF provided to a for-profit company owned by two principal investigators (PIs), a married couple. At that time, the company claimed $2,113,620, and we questioned $410,338. During this reporting period, CPO resolved the costs questioned in the 1990 audit. In 1992, the PIs submitted a new proposal to NSF. The PIs submitted the proposal as employees of a nonprofit foundation. The proposal was for the production of 10- to 15-minute films that provide science teachers with improved instruction techniques for elementary school children. NSF awarded the nonprofit foundation a $2,711,043 grant. At the time of our audit, the grantee had claimed 1,662,248. When NSF issued the 1992 grant, it considered the 1990 report's findings concerning the PIs and stated that the nonprofit foundation could not request cash advances or receive indirect costs that exceeded a specific rate. However, the nonprofit foundation requested and received excessive cash advances and claimed indirect costs and reimbursement for certain items in such a way that it exceeded the maximum indirect cost rate. We recommended that NSF take steps to enforce the grant terms. We also found that the PIs may claim excessive salaries under the 1992 grant. The nonprofit foundation's contractual agreements with the PIs included clauses for bonus payments. The contract did not specify the amount of, or limits on, the bonuses. We recommended that NSF put a ceiling on the salaries and bonuses that can be paid to the PIs. We recommended that NSF recover $157, 870. The grantee disagreed with our findings and recommendations. NSF management will resolve these issues during the audit resolution process. Follow Up of a University's Internal Investigation NSF awarded an $83,536 grant to a university to study the family environment. A special review board investigated allegations of misconduct by the PI and the improper use of NSF funds charged to the grant. The review board concluded that the PI did not conduct the research proposed in the grant or properly use grant funds. Therefore, the special university review board recommended that we review claimed costs. At the time of our audit, the university claimed $66,753. Based on the results of the special review board's investigation, we requested additional information and found that the university was at fault for some of the problems identified in its internal investigation. We questioned $63,031 because salaries and fringe benefits were related to work performed on other studies; costs paid from a personal checking account were also used on other studies and were not supported by documentation; equipment costs were unrelated to the proposed study, and the equipment could not be found on the university premises. University procedures allowed the PI to request an advance of NSF funds to be set aside in a personal checking account, but the university had no control over the checking account. In addition, the PI used NSF funds to pay for costs related to other studies; checks were made out to cash and the PI; some participants were not paid; and the balance of the account was not returned to NSF. The university did not promptly notify NSF that the PI took a leave of absence, and later resigned, from the university. We believe it was important to notify NSF of the PI's leave of absence and resignation because NSF's decision to support the grant was based primarily on its evaluation of the PI's knowledge of the field of study and her ability to conduct the research. The PI resigned from the university before she completed the project. Consequently, the university did not submit a final project report to NSF. We made several recommendations to improve the university's compliance with federal regulations and to strengthen the internal control structure. The University was generally receptive to our findings and recommendations. Nonprofit Institution Has Satisfactory Review Since 1986, the government has contributed $11 million to a nonprofit consortium to enhance the competitiveness of the U.S. semiconductor industry. Government agencies provided NSF with over $10 million, and NSF contributed the additional $1 million. NSF issued two awards to the consortium. We conducted this review because we are the federal oversight agency (cognizant agency) for all of the federal funds under the awards. The consortium includes more than 70 companies and federal agencies. Each year, the consortium provides $20 million in research contracts to 60 universities and nonprofit institutions. The consortium met the program's goals and most compliance requirements. However, the consortium did not: obtain an audit, as required by Office of Management and Budget (OMB) Circular A-133, "Audits of Institutions of Higher Education and Other Nonprofit Institutions"; incorporate Equal Employment Opportunity clauses in subcontracts; have an accounting system that identified and segregated unallowable costs; and have complete written accounting policies and procedures. We made recommendations to address these issues. The consortium generally agreed with our recommendations. Weak Internal Controls Persist at a Federally Funded Research and Development Center NSF is the primary funding source for, and is responsible for the oversight of, five Federally Funded Research and Development Centers. As of January 1, 1991, NSF awarded a $63.7 million, 5-year cooperative agreement to a university to manage a Federally Funded Research and Development Center that conducts research in radio and radar astronomy and atmospheric science. We reviewed the internal control structure and assessed the observatory's compliance with federal regulations. We found 15 internal control and compliance weaknesses, of which 10 were reported in an October 1987 report by the Division of Audit and Oversight (our predecessor office). The observatory did not separate the payroll assistant's responsibilities for calculating and distributing an annual cash payroll; the administrative assistant's responsibilities for preparing bills and receiving the payments for those bills; or the purchasing manager's responsibilities for authorizing purchases and making payments for those purchases from a petty cash fund. These functions should be separated to reduce the potential for fraud and abuse. We made recommendations in our report to correct these weaknesses and ensure that the University implements internal controls to protect NSF funds (as also recommended in the 1987 report). Educational Society Reduces Proposed Cost Sharing NSF awarded a $375,000 grant to an educational society to support high-school chemistry and biology teachers' summer research projects. We found that the society had reduced its promised cost sharing for teacher stipends without notifying NSF. According to the original award proposal, NSF and the society planned to spend $900,000 in teacher stipends to support the award objectives. NSF was to provide $300,000 for stipends for 150 teachers ($2,000 per teacher), and the society was to provide $600,000 ($4,000 per teacher). However, the society reduced its planned cost sharing amount from $600,000 to $450,000 ($3,000 per teacher). The society determined the lower teacher stipends were more reasonable than the original amount. We recommended that NSF require that the society notify the NSF grants officer of its intention to reduce teacher stipends by $150,000 and proportionally reduce NSF's costs for teacher stipends. The society agreed to contact NSF to discuss alternatives to the cost sharing arrangements. NSF's grant and program offices will make the final decision on the issues discussed in the report. Academic Institution Made Excessive Cash Requests for NSF Grants NSF, by authority of Treasury Department Circular No. 1075 (31 CFR, chapter II, part 205), allows academic institutions as well as other award recipients under the Letter-of-Credit -Treasury Financial Communication System to use E-Mail messages to request federal funds. This System was designed to make cash advances available to an award recipient within 1 workday of the recipient's request. An academic institution in the northcentral United States did not require periodic reviews of the total amount of available federal cash. As a result, the institution requested and drew down funds that exceeded the awards' immediate disbursement needs. We determined that the institution earned $98,834 in interest over a 5-year period on the excessive cash balances on NSF awards. This interest was not remitted to NSF as required. We recommended that the interest earned be returned to the government. The institution generally concurred with the finding and recommendations. INVESTIGATIONS The investigations section is responsible for investigating violations of criminal statutes or regulations involving NSF employees, grantees, contractors, and other individuals conducting business with NSF. The results of these investigations are referred to federal, state, or local authorities for criminal or civil prosecution or to NSF's Office of the Director to initiate administrative sanctions or penalties. EMBEZZLEMENT OR DIVERSION OF NSF GRANT FUNDS We place a high priority on allegations involving embezzlement, diversion of grant or contract funds for personal use, or other illegal use of NSF funds. Deliberate diversion of NSF funds from their intended purpose is a criminal act that can be prosecuted under several statutes. We encourage universities and other grantees to notify NSF of any significant problems relating to the misuse of NSF funds. Early notification of significant problems increases our ability to investigate allegations and take corrective action to protect NSF and its grantees. __________________________________________________________ TABLE 1: INVESTIGATIVE ACTIVITY __________________________________________________________ Active Cases From Prior Reporting Periods 26 New Allegations 21 Total Cases 47 Cases Closed After Preliminary Assessment 2 Cases Closed After Inquiry/Investigation 17 Total Cases Closed 19 Active Cases 28 The following section describes cases involving the diversion of funds that we investigated during this reporting period. Felony Conviction Involving Science Education Award In Semiannual Report Number 11 (page 21), we reported that, as a result of our investigation, a PI at a western research foundation and university agreed to plead guilty to violating 18 U.S.C. 666, Theft or Bribery Concerning Programs Receiving Federal Funds. The PI fraudulently diverted $27,118 in NSF and Department of Education grant funds to his personal financial account. In addition, the PI caused unauthorized stipend payments to be issued, totaling $60,249, under the grants. The PI was able to misuse these funds by obtaining sole signature authority for grant expenditures. The PI caused illegitimate stipend checks to be issued by appending false names onto stipend vouchers and signing the vouchers; once the checks were issued, the PI picked them up from the business office. Though the research foundation's policy required that stipend checks be reviewed by two or more persons, the PI, by obtaining sole signature authority and retrieving the checks himself, was able to conceal the improper checks. The PI then either forged the payees' signatures or told the payees that the checks were issued in error and requested a cash refund, then deposited the funds into his personal account. The PI also used the stipend checks to provide Christmas bonuses, pay for clerical help to work on the PI's non-grant-related textbook, and provide financial assistance to students. After providing a sworn statement detailing these facts, the PI resigned from his positions at the research foundation and university, reimbursed the research foundation $87,361 for the fraudulent and improper expenditures, and agreed to plead guilty in U.S. District Court. However, before the PI's court appearance, further investigation and audit of the grant accounts found that the PI had improperly spent an additional $52,886 in grant funds. On February 17, 1995, the PI was arraigned and sentenced to 5 years' probation, ordered to perform 500 hours of community service, and ordered to pay $52,886 in additional restitution. If the PI fails to pay the full restitution, his probation will be revoked, and he will be imprisoned. We also recommended to NSF that the PI be debarred from receiving federal funds and participating in grants for 3 years. NSF Funds Awarded for Physics Research Misused We were notified by a southern university that an internal audit had identified a possible misuse of NSF funds. The university alleged that an NSF grantee's wife improperly received payment under three of the PI's NSF grants. We conducted an investigation, which we coordinated with university officials. We found that the PI's wife owned a business that, from September 1986 to May 1994, submitted 119 invoices for payment to the university. Based on these invoices, the university issued payments totaling $80,237. Of this amount, $61,186 was charged to the NSF awards. The company submitted invoices for services that were almost exclusively provided by the PI's wife, who assisted her husband with nontechnical research, the preparation of proposals and reports, academic activities, and other general secretarial duties. Many of the duties the PI's wife performed were not related to the NSF grants. The PI's wife conducted her work in his office and laboratory at the university, then, at the PI's direction, submitted invoices to the university. We found that the PI caused payments to be charged to the NSF grants with full knowledge that much of the work performed did not relate to the grants. We also found that, while the PI charged secretarial and administrative assistance provided by his wife to three separate NSF grants, the grant budget proposals he submitted to NSF did not request funds for secretarial, administrative, consultant, or subcontract services. The PI also did not request that the university approve the rebudgeting of grant funds to pay for the services provided by his wife presumably because the university's personnel process would have excluded his wife from working as his assistant. All payments from NSF grants to the wife's business were inappropriate under the university's policy, NSF's grant conditions, and OMB Circular A-110, attachment O. Attachment O states, "No employee, officer or agent shall participate in the selection, award or administration of a contract in which Federal funds are used, where, to his knowledge, he or his immediate family. . . has a financial interest." We found that the PI had a clear financial interest in the company, and, as a university employee, the PI knowingly participated in the selection, award, and administration of a contract to his wife's company. As a result of our investigation, the university refunded to NSF $61,186, the amount charged to the NSF grants for payments to the company. The university also developed systemic controls to supervise the PI's future expenditure of NSF funds. Misuse of NSF Funds Awarded for Engineering Research We received an allegation that a researcher at a west coast research center had been shifting funds from an NSF grant to other research projects without the knowledge of the grant's PI. The researcher allegedly used postdoctorate and graduate research assistants, who were paid with NSF grant funds, to conduct research on other, unrelated projects. Our review disclosed that one postdoctorate research assistant, whose salary was supported solely by an NSF grant, expended 45 percent of his time on research that was not related to the NSF grant. The PI on this grant had not authorized the research assistant to work on other projects and had notified the research center about the problem. After our review, the research center credited the NSF grant $14,000 and agreed to monitor the researcher's future charges. INVESTIGATIONS OF SMALL BUSINESS INNOVATION RESEARCH AWARDS Small Business Innovation Research Company Pleads Guilty to a Felony We continue to conduct investigations involving fraud in the Small Business Innovation Research (SBIR) program. Several cases remain under review by the Department of Justice. During this reporting period, an SBIR company agreed to a settlement that resolved all of the criminal, civil, and administrative issues that were developed during our investigation of the company. The company agreed to plead guilty to one felony count of submitting false statements concealing the submission of identical Phase I SBIR proposals to NSF and the National Aeronautics and Space Administration. The company had been paid $50,000 each for the two duplicate Phase I awards it wrongfully received, and the company agreed to pay $115,000 to the government in a civil settlement. In addition, the company and the PI agreed to a voluntary 3-year exclusion from the SBIR program. Recommendations for Systemic Reform in the SBIR and Small Business Technology Transfer Programs In Semiannual Report Number 10 (page 21), we described several systemic recommendations to reduce the potential for fraud and abuse in the SBIR program. We recommended that the Small Business Technology Transfer program also consider implementing these recommendations because the same potential for fraud exists in that program as exists in the SBIR program. In this reporting period, NSF made significant progress toward implementing our recommendations. Fixed-Price Awards for Phase II. In Semiannual Report Number 10 (page 20), we discussed NSF's decision to award fixed-price grants for Phase II awards. This change means that the grantee will not provide detailed financial information during the period of the award. We are concerned that this could diminish our ability to detect and prosecute fraud from misuse of NSF funds. We recommended that NSF ensure that sufficient financial information is received during the course of these $300,000 awards. In this reporting period, NSF decided to conduct a 2-year experiment during which one half of the SBIR Phase II awardees will report detailed financial expenditures by category and by overall estimated expenditures. The other half will report only their overall estimated expenditures. At the end of the experiment, NSF will determine whether obtaining expenditures by category is helpful in identifying fraud. We are working with NSF to choose the two groups for the experiment. We will develop data, in cooperation with NSF, on our ability to detect fraud in each group. Grant Funds to be Used for Research-Related Purposes Only. Under fixed-price awards, recipients may use excess funds for any purpose they desire. Fixed-price awards are usually used when a particular product is expected as a result of work completed under the award. The government agrees to pay a set amount for this product, regardless of the actual production cost. As a result, the awardee assumes the risk of the cost exceeding the award amount but receives a monetary benefit if the work costs less than expected. The fixed-price concept does not fit SBIR awards perfectly because there can be great flexibility in the conduct of the funded research. Since the research protocol is flexible, we were concerned that awardees might be encouraged to choose less costly alternatives to their proposed research so that they can keep the excess money instead of those more expensive alternatives that would further the project to a greater extent. We recommended that NSF require that all grant funds under these awards be used for research-related purposes. NSF's Engineering division, which administers the SBIR program, has amended the solicitation to include this requirement, which they believe more accurately reflects the program's intent. ____________________________________________________ TABLE 2 ____________________________________________________ New Referrals 2 Referrals From Previous Reporting Period 5 Prosecutorial Declinations 3 Criminal Convictions/Pleas 1 Civil Action Initiated 1 Civil Complaints From Previous Reporting Period 1 Civil Judgments/Settlements 2 Administrative Actions 3 Investigative Recoveries* $445,506 _______________________________________________________________ *Investigative Recoveries comprise civil and criminal judgments, fines, and restitutions as well as specific cost savings for the government. NSF's Progress on Other SBIR Recommendations. NSF has issued solicitations for the SBIR and Small Business Technology Transfer programs that implement our recommendations. In addition, the Small Business Administration (SBA) has continued work on an SBIR program-wide database, which, when implemented, will reduce the potential that duplicate proposals could receive awards from different agencies. General Accounting Office's Endorsement of OIG Recommendations. Since we issued our recommendations, the General Accounting Office (GAO) began to review the SBIR program. In its March 1995 report, "Interim Report on the Small Business Innovation Research Program," GAO agreed with our conclusion that the information available on SBIR awards government-wide is outdated. Accordingly, GAO adopted our recommendation that the SBA create an SBIR program-wide database. GAO also agreed with our assessment that duplicate funding is a problem in the SBIR program and that the system of certifications is inadequate because the questions asked are vague. NSF has alleviated this problem in its solicitation by adopting our recommendations defining "overlapping work," "overlapping proposals," and "equivalent proposals," key terms in the certification regarding duplicate funding. To address these problems programwide, GAO recommended that the SBA implement our recommendations regarding the definition of key terms involving duplicate funding and the strengthening of the certifications regarding the submission of duplicate proposals. OTHER INVESTIGATIVE MATTERS Procurement Integrity Act Violation In Semiannual Report Number 11 (page 26), we reported that during our investigation of a violation of the Procurement Integrity Act, a senior NSF official admitted that he released source selection information to a contract bidder. We found that the contract bidder had received the source selection information from the NSF official and used that information to submit a final bid for the contract. In this reporting period, the U.S. Attorney and the contract bidder agreed to a civil settlement to resolve this matter. In addition, the contract bidder agreed to a voluntary 3-year government-wide exclusion from federal procurement. Insurance Sales Abuses We received complaints from NSF employees that uninvited insurance agents had been pressuring them to buy health and life insurance and had misrepresented the insurance they were offering. NSF employees told us that the insurance agents made numerous unexpected telephone calls and visits to NSF offices during business hours. The insurance agents also misrepresented themselves as affiliated with NSF during initial contacts with the employees. Federal regulations forbid any solicitation on government property without arranging an appointment in advance with an employee and receiving prior authorization from management. We confirmed that three agents from different companies had been soliciting supplemental life insurance on NSF property and misrepresenting themselves. Although we found that the companies were legitimate, the agents had neither received prior authorization to be present on government property nor, in some cases, previously scheduled appointments with NSF employees. We also found that the agents regularly advised their NSF clients to switch to different insurance carriers with claims of providing better benefits without loss to the employee. The practice allowed the agents to regularly collect first-year commissions. However, by switching insurance carriers, NSF employees would often lose some or all of the money invested in their previous insurance carrier. We referred our findings, including possible misrepresentation, to the Bureau of Insurance for the Commonwealth of Virginia, State Corporation Commission. The Bureau's investigation of one of the agents is complete, and final disciplinary action, which could result in suspension of the agent's insurance license, is pending. The investigations of the two other agents are continuing. After the State of Virginia's final actions, the reports will be referred to the Bureaus of Insurance in Maryland and Washington, D.C., for continued investigation and possible action in those jurisdictions. Metro Subsidy Abuse NSF employees at pay Grades 10 and below use Metro (the Washington, D.C., metropolitan area public transportation system) to travel to and from NSF are eligible for a $21-per month subsidy. To receive the Metro subsidy, employees certify that the Metro or other form of public transportation is their primary mode of transportation to and from NSF. During an investigation, we identified two NSF employees who had been receiving the Metro subsidy since January 1994, but who had been commuting to work daily by car. When questioned, the employees admitted that they had been driving to and from NSF and not using public transportation. We recommended that NSF recover the costs of the Metro subsidy paid to these employees and take administrative action. OVERSIGHT The Office of Oversight focuses on the science-engineering- education-related aspects of NSF operations and programs. It oversees the operations and technical management of the approximately 200 NSF programs that involve about 60,000 proposal and award actions each year. The Office conducts and supervises compliance, operations, and performance reviews of NSF's programs and operations; undertakes inspections and evaluations; and performs special studies. It also handles all allegations of nonfinancial misconduct in science, engineering, and education and in continuing studies on specific issues related to misconduct in science. MISCONDUCT IN SCIENCE AND ENGINEERING NSF AND UNIVERSITIES: INDEPENDENCE AND PARTNERSHIP NSF's misconduct in science regulation affirms that "awardee institutions bear primary responsibility for prevention and detection of misconduct" (45 C.F.R. 689.3 (a)). Awardee institutions are routinely called upon to protect the integrity of science, engineering, and education activities in which NSF is involved, and most of them have internal regulations that serve this purpose. At the same time, NSF has its own independent responsibility, which it cannot delegate to awardees, for dealing with misconduct in science in connection activities it funds. When we deal with awardee universities in connection with misconduct cases, we try to achieve a cooperative partnership that does not compromise either partner's independence. We have observed that awardees do not always fully understand our relationship and may feel that an investigation is a task we give them to perform according to our specifications. It would benefit both partners if there were a better understanding of the cooperation and independence that the proper handling of these cases requires. In particular, everyone should understand that both partners can take their own actions when the case is concluded. In some instances, the partners will legitimately take different actions. Active cooperation on a case usually begins when either we or an awardee has conducted an inquiry and has determined that an allegation of misconduct requires investigation. If the awardee has conducted the inquiry, it informs us that it is about to begin an investigation. If we conducted the inquiry, we usually inform the subject's institution, which may ask us to delay our investigation while it does its own. We prefer that, whenever feasible, awardees conduct their own investigations of allegations directed at their faculty members or students. When the awardee university begins an investigation, we provide guidance about what would make the investigation adequate for our purposes. The university is not our agent or our subordinate and is not required to follow our guidance. It must comply with its own standards for conducting investigations. However, we hope that the university's investigation will provide the information we need so we do not have to conduct a separate investigation. When a university completes its investigation and adjudication of a case, it sends us an investigation report. We review the report, and we often go back to the university with questions that give it the opportunity to clarify its report or to collect evidence relevant to our questions. If we have difficulties with the university's investigation that cannot be resolved, we perform our own investigation. The purpose of our review is not to approve or disapprove of the university's way of conducting investigations, but to decide whether we can use the university's investigation in place of one we would do ourselves. Similarly, we want to know what action the institution took regarding a case to decide whether that action is sufficient to protect public funds in the future or whether NSF needs to take additional action. When the university has completed its investigation and adjudication, its action is final, and NSF has no authority to overturn it. On the other hand, NSF has the authority to take an action of its own that is independent of the university's action. If we wish to recommend a finding of misconduct and an action by NSF, we write a report explaining our conclusions and recommendations to NSF's Deputy Director, and she adjudicates the case. In her adjudications, she reaches her own decisions about the facts and applies the standards in NSF's regulation on misconduct in science, not the university's standards. As a result, the Deputy Director may sometimes make a finding of misconduct where the university did not, or she may not find misconduct even though the university did. There are numerous reasons why a university and NSF might reach different conclusions about a case. For example, they may have different definitions of misconduct, standards of proof, assessments of evidence, or views about the role of intent in misconduct findings. Where a university and NSF agree that a subject has committed misconduct, they may not agree as to the actions that should be taken. It is entirely appropriate for NSF and the university to exercise independent judgment and arrive at different conclusions. NSF makes adjudications of misconduct cases involving NSF proposals and awards because, in the final analysis, NSF has its own responsibility for protecting federal funds by upholding ethical standards in NSF's proposal and award processes. This responsibility is parallel to, but independent of, the university's responsibility. We try to cooperate with awardee institutions and the scientific community to achieve our shared goals and meet our independent responsibilities. ***************************************************************** NSF's DEFINITION OF MISCONDUCT IN SCIENCE AND ENGINEERING Fabrication, falsification, plagiarism, or other serious deviation from accepted practices in proposing, carrying out, or reporting results from activities funded by NSF; or retaliation of any kind against a person who reported or provided information about suspected or alleged misconduct and who has not acted in bad faith. ***************************************************************** SIGNIFICANT NEW CASES OIG Accepts University Assessment of Seriousness A review panel member alleged that a researcher included in an NSF proposal a paragraph describing a laboratory procedure that was practically identical to a paragraph in a published article written by another scientist. Further inquiry revealed two additional instances in which the subject had incorporated this paragraph into proposals without proper citation. We determined that an investigation was warranted, and the subject's university conducted it. The university's investigating committee decided that the subject had not committed misconduct in science. It based its conclusion on its assessment of the subject's intent. However, the evidence indicated that the subject copied the material knowingly. We concluded that the subject's intent would not preclude a finding of misconduct. We were uncertain, however, whether what the subject did was sufficiently serious to be considered "a serious deviation from accepted practices" and hence to be misconduct as NSF defines it. We asked the university whether it believed the subject's act, if done knowingly, would be misconduct in science. The dean replied that, in view of the total set of circumstances surrounding the act, the university did not view it as misconduct. In this case, several factors, no one of which alone would disqualify an act from being misconduct, mitigated the seriousness of what the subject did. Among these were the following facts. The copied paragraph occurred in proposals in which the article was frequently cited. The subject made clear the source of the ideas. The only originality of the passage that the subject copied lay in its original combination of words. The passage itself was only one paragraph long. The subject was an inexperienced investigator with a limited command of the English language who had been trained in another country. The dean of the university sent the subject a letter stressing the importance of appropriate citation and quotation, and the chair of the investigating committee spoke to the subject about this matter. We concluded that the subject's university officially recognized the inappropriateness of what the subject did and took suitable action. The university found that the behavior, though inappropriate, did not rise to the level of misconduct in science. This case illustrates that, where the seriousness of a clearly inappropriate act is in question, we give great weight to the university's assessment of whether, in its local ethical environment, the act was considered serious enough to be misconduct. _________________________________________________________________ TABLE 3: MISCONDUCT CASE ACTIVITY _________________________________________________________________ FY 1994 FY 1995 Last Half First Half Active Cases From Prior Period 80 80 Received During Period 20 27 Closed Out During Period 20 26 In-Process at End of Period 80 81 NEW CASES INVOLVING REPORTS TO DEPUTY DIRECTOR Plagiarism in Three Proposals Submitted to NSF We were informed that officials from a southern institution were conducting an inquiry into possible plagiarism in a proposal submitted to NSF. At the end of the inquiry, rather than conducting an investigation, the officials informed the subject that he could either submit the matter to a faculty committee, resign, or acknowledge unauthorized use of material. The subject acknowledged unauthorized use of material and apologized to the source proposal's co-PI. Thereafter, the subject was denied tenure and left the institution. Based on the institution's inquiry, we found that there was sufficient substance to the allegation of misconduct to warrant an investigation to determine how the subject obtained the source material and the extent of his culpability. Ordinarily, we defer such investigations to the institution. However, because the subject was no longer affiliated with the institution, we conducted our own investigation. We determined that material from the source proposal had been incorporated into three NSF proposals for which the subject was the PI. In 2 proposals, 69 lines were identical to those in the source or had many words in common; in the third, 109 lines had identical or substantially similar wording. We concluded that this was a significant case of plagiarism because the text copied was extensive and described the overall rationale of a student training program, which was central to the review and evaluation of the proposals. Moreover, the subject engaged in a pattern of plagiarism by copying text into three different proposals. The subject further impaired his credibility and responsibility by developing different and contradictory explanations as to how the material became incorporated in his proposals. We forwarded our report to NSF's Deputy Director with a recommendation that she find that the subject had committed misconduct in science. We recommended that NSF debar the subject from receiving funds from any federal agency for 1 year. We also recommended that NSF inform the subject's new institution that the subject has been debarred so that the institution can comply with the debarment certification on the cover sheet on any proposals the subject submits to NSF. The institution had a misconduct policy that required an investigation if the charges were not dismissed after the inquiry, but the institution conducted no investigation. This case illustrates why it is important for institutions to handle allegations of misconduct in accordance with their institutional policies. In doing so, they can fully address the issues and bring the matter to closure so that the subject does not face proceedings after moving to a new institution. Finding of Misconduct Without Intent to Deceive A PI submitted a proposal that contained several paragraphs in its literature review that were identical or substantially similar to material in an article published by two other scientists. He told us that when he submitted the proposal, he believed the grammatical changes he made in the original text rendered the use of quotation marks inappropriate, and that he "may have erred by using parts of sentences verbatim without proper citation." We referred this case to the subject's university for investigation. The university found that the subject had committed plagiarism and reprimanded him. It required that for 2 years, whenever the subject submits manuscripts for publication or proposals for funding, he certify to university officials that he has properly cited his source materials. The university's investigating committee noted that when the subject submitted the proposal he "did not appreciate that he was making a mistake" and was not aware of "what constitutes plagiarism in this context." The university concluded that these facts did not preclude a finding of misconduct. We agreed with this conclusion. In our report to the Deputy Director, we explained that a senior scientist, such as the subject, who believes that he does not need to indicate that his NSF proposal incorporates the words of a published article is grossly negligent. He has failed to acquire knowledge that is central to an essential competence of his community, i.e., knowledge of how to credit the work of other scientists and avoid misappropriating credit for himself. We concluded that NSF should not excuse plagiarism that stemmed from this failure, even if the subject did not knowingly intend to deceive. We recommended that NSF make a finding of misconduct and reprimand the subject. We did not recommend that NSF take additional action because we believed the subject's university had acted responsibly and, in imposing its own certification requirement, had adequately protected NSF's interest in maintaining the integrity of its proposal and award processes. NSF agreed with our recommendations. It found that the subject's act was plagiarism "regardless of whether [he] realized at the time that citations should have been provided," and it sent the subject a letter of reprimand. This case illustrates why a finding of misconduct should not require proof of an intent to deceive. The case also illustrates the successful partnership between OIG and a grantee university in handling an allegation of misconduct. When we informed the university of the allegation, it investigated competently and acted judiciously to resolve the matter. Such responsible action is a model for handling misconduct cases. Misrepresentations of Publications in Proposals Submitted to NSF We were informed by an institution that it had concluded an inquiry into allegations that the subject had misrepresented the status of his scientific research publications in a variety of documents, including proposals to NSF, and that it was beginning an investigation into these allegations. The institution subsequently provided us with its investigation report, its finding of misconduct in science, and a copy of its letter of censure to the subject. We found that we required additional information for our evaluation of these allegations and initiated our own investigation. We determined that the subject had misrepresented his research productivity. He stated that he had submitted three manuscripts to scientific journals when they actually were only drafts or partial drafts. These misrepresentations appeared in seven proposals variously submitted to the institution, NSF, another federal agency, and a private foundation. We found these misrepresentations in many of the submitted curricula vitae, bibliographies, and prior support statements accompanying these proposals. We also found misrepresentations in materials submitted for two annual reviews at the institution, in a departmental brochure, and in a final report submitted to a state funding agency. We found a total of 40 misrepresentations, of which 13 appeared in NSF proposals. One of the NSF proposals became a large multiyear award. The subject told us that he had not intentionally tried to deceive anyone and characterized his misrepresentations as administratively careless. He said he made the false statements because proposal evaluation takes so long and he fully expected to submit the manuscripts to the journals shortly after he had submitted the documents containing the false statements. He said that such misrepresentations were common practice within his scientific community. We found that, among other things, the subject had made false representations about the status of his manuscripts in several documents that did not have long lead times associated with their review. Hence, we did not find the subject's explanation credible. The institution's investigating committee concluded that the institution's personnel committee's intense pressure on the subject to publish papers and obtain funding motivated his actions. After reviewing the chronology and content of the personnel reviews, we agreed with the committee's assessment. We concluded that a preponderance of the evidence showed that the subject willfully misrepresented the status of his manuscripts and successfully deceived reviewers, program managers, and institutional officials into thinking he was more successful than he really was. It is not a common practice in the subject's scientific community, or the broader scientific community, to present false information to federal agencies. The presence of these misrepresentations in so many places, and over a period of 13 months, demonstrated a broad pattern of behavior. We forwarded our report to NSF's Deputy Director with a recommendation that she find that the subject had committed misconduct in science. We also recommended that for 5 years, any proposals the subject submits, or on which he is named as a co-PI, be accompanied by a certification to our office from the subject that they contain nothing that violates NSF's misconduct in science regulation. We also recommended that the subject obtain, and send to our office, his department chairperson's assurance that, to the best of that person's knowledge, the submission does not contain any false representations about the status of manuscripts. These recommendations are awaiting NSF's action. Misrepresentation of Credentials A computer research company informed us that a PI in its employment submitted proposals on two occasions to NSF that misrepresented his credentials. The proposals, which involved providing network services, included a resume claiming that the subject had earned a B.S. degree in biology, when, as our investigation confirmed, he had not. After the company learned of the subject's misrepresentation, it took steps to terminate the subject's employment, and he resigned from his position. In response to the subject's misconduct and to emphasize the importance that NSF places on truthful representations in proposals and other documents submitted to NSF, we recommended that NSF's Deputy Director make a finding of misconduct and that the subject be sent a letter of reprimand. We also recommended that for a period of 1 year, the subject be required, when he submits proposals to NSF, to certify to OIG that all information in his proposals is correct to the best of his knowledge. Because the subject had already lost his long-held job as a direct result of his misrepresentation to NSF, we concluded that more severe actions by NSF were unnecessary. In this case, the subject's 25 years of experience in working with computers were probably far more relevant in assessing his qualifications for the proposed work than his alleged possession of a B.S. degree in an unrelated scientific discipline. Nonetheless, a misrepresentation need not have been material to NSF's decision about a PI's competence to be considered misconduct. The subject's action seriously violated professional standards for the preparation of proposals, and we believe that NSF needs to reinforce those standards by making a finding of misconduct in this case. RESOLUTION OF CASES FROM PREVIOUS SEMIANNUAL REPORTS Proposal Seeking Funds for Already Completed Research In Semiannual Report Number 11 (page 30), we discussed a case in which a scientist submitted a proposal misrepresenting research that had already been completed as work that would be done under the NSF award that he sought. The scientist also directed that his collaborator's name be signed on the proposal's certification page without the collaborator's permission. NSF's Deputy Director concurred with our recommendations in this case. She found that the subject committed misconduct, sent him a letter of reprimand, and required that until January 1, 1997, when the subject submits proposals to NSF, both he and an official of his institution certify to the Assistant Inspector General for Oversight that to the best of their knowledge the proposal accurately states what parts of the research agenda have and have not been performed. Plagiarism in a Proposal Submitted to NSF In Semiannual Report Number 11 (page 28), we discussed a case in which a PI had plagiarized text in his NSF proposal from another scientist's dissertation. As a result of our recommendation NSF's Deputy Director found that the PI had committed misconduct in science and she required that, for the next 3 years, when the subject is the PI or co-PI on an NSF proposal, he submit a certification to our office stating that he had reviewed NSF's misconduct regulations and that the proposal is free of anything that violates those regulations. The Deputy Director also required that the subject submit an assurance from his department chairperson that, to the best of that person's knowledge, the submission does not contain plagiarized material. Violation of Confidential Peer Review In Semiannual Report Number 11 (page 29), we discussed a case in which a foreign scientist had submitted a proposal to a foundation in his country that contained text, figures, and equations plagiarized from an NSF proposal he had received for peer review. We recommended that NSF's Deputy Director find that the reviewer had committed misconduct in science and bar him from serving as an NSF peer reviewer for 5 years. The Deputy Director concluded that, while the reviewer's conduct was inappropriate, she could not concur with our recommendation for a finding of scientific misconduct because the situation was not clearly covered under NSF's scientific misconduct regulations. The Deputy Director directed that ". . . NSF proceed with a clarifying amendment to those regulations that will specifically include activities carried out in the course of review of NSF proposals as one of the areas in which NSF will consider issues of misconduct in science." In an administrative action outside of NSF's misconduct regulation, the subject was sent a letter of reprimand and barred from participating in NSF's peer review system for 5 years. OUTREACH ACTIVITIES In addition to their work on misconduct in science cases and inspections, the Office of Oversight's scientists and engineers helped organize and participated in the American Association for the Advancement of Science-American Bar Association 2-day seminar on Investigating Allegations of Misconduct: A Practicum held in San Francisco, California, on December 12 - 13, 1994; presented a paper on NSF misconduct in science policies and procedures in a session on ethics in research at the Boston Colloquium for Philosophy of Science held on November 14 - 15, 1994, at Boston University; attended all seven Washington, D.C., meetings of the Department of Health and Human Services' (HHS) Commission on Research Integrity; accepted an invitation to attend the HHS Commission's regional meeting in Chicago; initiated a series of seminars with scientists and engineers in NSF's 33 research and education divisions to enhance communication between NSF and OIG and to discuss OIG's role in handling allegations of misconduct in science; conducted briefings on the OIG for NSF staff members; and coordinated OIG's reviews of NSF's draft Grant Policy Manual and NSF's draft Grant Proposal Guide. _________________________________________________________________ TABLE 4: ASSURANCES AND CERTIFICATIONS RECEIVED* _________________________________________________________________ Number of Cases Requiring Assurances and/or Certifications at End of Period 5 Assurances Received During This Period 2 Certifications Received During This Period 5 *The Deputy Director accompanies some findings of misconduct in science with a certification requirement. For a specified period, the person found by the Deputy Director to have committed misconduct must confidentially submit to the Assistant Inspector General for Oversight a personal certification and sometimes an institutional assurance that any newly submitted NSF proposal does not contain anything that violates NSF's regulation on misconduct in science and engineering. These documents remain in the Office of Inspector General and are not known to, or available to, NSF program officials. INSPECTIONS AND EVALUATIONS In March 1993, the President's Council on Integrity and Efficiency issued its Quality Standards for Inspections to guide the conduct of inspection work. These standards define an inspection as a process, other than an audit or investigation, that evaluates, reviews, studies, and/or analyzes the programs and activities of a Department or Agency to provide information to managers for decisionmaking; make recommendations to improve programs, policies, or procedures; and recommend administrative action. We view inspections as an especially effective approach for OIG oversight in our agency because of the highly technical nature of NSF's mission. Our inspections are on-site reviews both within the NSF itself and at the institutions that receive NSF funding. OIG staff assess organizations' compliance and effectiveness in three major areas: finance, administration, and achievement of science and engineering program goals in research and education. Our inspections supplement OIG's ongoing audit and investigative activities by broadening accountability beyond financial and administrative compliance requirements to assess the responsiveness of research and education activities to program goals. Our external on-site reviews promote an increased awareness by PIs and their sponsoring institutions of the importance of accountability in the management of, and performance under, NSF awards. The composition of any team depends on the expertise required to understand the research or activity to be inspected. Team members may include scientists and engineers, auditors, computer specialists, investigators, lawyers, or management/program analysts. If the expertise is not represented by OIG staff, consultants from the private sector or other federal agencies may be used. Evaluation of the inspected institution's policies and procedures, award documentation, and related financial records is performed both in advance of, and during, the inspection. _________________________________________________________________ During our inspections, we conduct reviews in the following three areas. Financial Review Our objectives are to evaluate the adequacy of internal controls for NSF awards within the department or other institutional subunit, and to assess compliance with the institution's financial policies and procedures established to meet federal laws and regulations. Management and Administrative Review The objectives of this portion of the inspection are to evaluate the institution's ability to resolve allegations of misconduct in science and to determine the adequacy of the institution's handling of misconduct allegations; assess the institution's compliance with regulatory requirements, such as drug-free workplace, lobbying certification and reporting, and nondiscrimination; assess the climate for the advancement of women and racial minorities as scientists and faculty members; and learn about and evaluate any institutional requirements governing employees' financial disclosures. Program and Research Review The objectives of this portion of the inspection are to assess the scientific aspects of the projects funded under the grant awards reviewed, evaluate the adequacy of the facilities and other institutional support for these efforts, determine the PIs' views on issues related to the NSF awards covered by the inspection, and develop an understanding of the PIs' impressions of the quality and adequacy of NSF's proposal review and award processes including NSF program officials' interactions with PIs. _________________________________________________________________ Our First Twelve Inspections--Common Problems, Positive Findings, and Model Programs We have now conducted 12 inspections at 6 state research universities; 3 private research institutions; and 3 private, primarily undergraduate institutions. Common Problems In all of the inspections, we raised questions about the institutions' procedures for handling allegations of misconduct in science. Our recommendations in this area were intended to help institutions handle allegations in a way that is consistent with NSF's Regulation on Misconduct in Science. For example, we recommended that eight institutions establish a standard of proof for determining whether evidence warrants a finding of misconduct in science. We also noted that five institutions did not indicate if or how their misconduct policies and procedures would apply to students working under NSF awards. Despite NSF's requirement, one institution had no stipulation in its policy for informing NSF when it begins an investigation, and another institution had no misconduct policy or procedure. We recommended that five institutions increase their faculty members' and students' awareness about their policies and procedures for handling allegations of misconduct in science as well as about NSF's Misconduct Regulation. To address these concerns, we emphasized to three institutions the importance of training graduate students in the ethics of research. In other areas, we recommended that nine institutions establish an institutional policy for retention of, and access to, research records produced under NSF awards. We encouraged three institutions to increase their efforts to recruit and retain minority and female faculty members and students. All of the institutions generally complied with financial requirements in NSF's award documents, the Grant Policy Manual, the Grant General Conditions, OMB Circulars, and other federal requirements. However, we did make recommendations to improve compliance and strengthen internal controls. At one institution, we found so many material deficiencies that we recommended the initiation of a financial and compliance audit by our Office of Audit. We recommended that four institutions implement a system to ensure that cost sharing is traceable in the official books of account and that institutions conduct after-the-fact confirmation of personnel activity reports, which are initially based on estimates. At three institutions, we recommended that they ensure that cost or price analyses are conducted for all purchases made. We recommended that eight institutions strengthen their internal controls by requiring preapproval of certain costs by a qualified institutional official other than the PI on the NSF awards. These costs involved changes to original budgets, travel and its associated costs, and requisitions for supplies and services. We assessed each institution to determine its preparedness to meet NSF's planned Investigator Financial Disclosure Policy. Of the 10 institutions that had conflict-of-interest policies, none would meet all of the requirements of NSF's new policy. Two institutions had only draft policies. All the institutions indicated that they were revising their policies to comply with the expected disclosure requirements. Positive Findings and Model Programs We found that a state university's financial system for handling cost sharing and its internal control system for personnel activity reporting were notably good (OIG 94-3503). A private institution designed and implemented a procurement system that properly documents some form of cost or price analysis for purchases made on federal awards (OIG 94-3506). These three systems were significantly better than those we observed at other institutions and clearly demonstrated that cost sharing, effort reporting, and cost or price analyses can be documented in ways that comply with federal requirements and are cost-effective and viable for the funded institution. We learned about programs or mechanisms that officials at inspected institutions viewed as successful in recruiting women and minorities to careers in science and related technical/academic pursuits. We believe that some of these could serve as models, in whole or in part, for other institutions. An undergraduate institution attracted minorities to careers in the aquatic sciences by facilitating student attendance and participation at professional scientific meetings (OIG 95-3503). A state university facilitated graduate study using a Summer Pre-Graduate Research Experience Program and the Partnership for Minority Access to Doctoral Degrees Program (OIG 94-3503). A state university orchestrated six, unrelated state and federally funded programs that focused on science and math skills to provide an academic bridge from sixth grade through college level (OIG 94-3504). A state university and eight school districts co-sponsored a science and math enrichment program that gives hands-on learning experiences to minority and disadvantaged students in grades 4 through 12 in rural communities. Another program at this university sponsors Native American undergraduate students in mentored marine science research projects (OIG 95-3501). During our program reviews, we did not find any major problems regarding institutional implementation of NSF's awards for research and education in science and engineering. Inspections in specific cases revealed adequate to commendable research facilities infrastructure, and good to excellent faculty/student relationships. Four Most Recent Inspections We assessed compliance and performance based on NSF's awards to PIs at a state university; a private, technical institute; and two primarily undergraduate institutions. Inspection at a State University in the Pacific Northwest This inspection was based on nine grants that NSF's Directorate for Geosciences (GEO) awarded to five PIs in the University's College of Oceanic and Atmospheric Sciences (COAS). Six of these awards were for basic research in different areas of oceanographic science, one was an instrumentation grant, one was a Research Experiences for Undergraduates site grant, and one supported research experiences in marine sciences for Native American and Alaskan Native undergraduates. We also visited an NSF-owned scientific research vessel that is operated by the University and is shared with the scientific community through the University-National Oceanographic Laboratory System. The COAS facilities were well-maintained and were available to the entire research community. We found no major financial deficiencies. The University generally complied with NSF's and other federal award requirements. We did make some compliance and internal control recommendations to improve controls, assurances, and approval of expenditures involved with budget changes, participant support costs, travel, and usage rates for specialized services. Generally, the University's response indicated its preference to delegate responsibility to the operating level, but it did agree to clarify, and/or remind personnel of, regulations and procedures. It also agreed to document University approvals, such as those involved with significant budget changes. The University agreed with our recommendations to clarify and add flexibility to its procedures for handling allegations of misconduct in science. The University stated it will specify preponderance of the evidence as a standard of proof in its procedures and will change its procedures so that it could proceed directly to an investigation without duplicating an inquiry conducted by a federal agency, but it will reserve the right to conduct a second inquiry if it deems that one is necessary. The University also revised its policy on grant research records to indicate that the University must have access to such records including those research records that accompany PIs who permanently leave the University. As a result of this inspection, NSF's Assistant Director for Geosciences agreed to formalize GEO's preproposal process, which up to now has not operated with written procedures. Inspection at a Private, Technical Institution in the Northeast This inspection was based on nine research grants that two divisions in NSF's Engineering Directorate awarded to six PIs in the Institution's Department of Chemical Engineering. These included a Presidential Young Investigator award and a Small Grants for Exploratory Research award. We found no major financial deficiencies during this inspection. Our financial compliance review noted some areas of noncompliance and internal control weaknesses regarding obtaining and/or documenting approval of travel expenditures and changes to budget items in grants, as well as effort reporting and procurement. The Institution agreed to strengthen internal controls for travel and effort reporting but maintained that it was already complying with procedures for approval of budget changes and procurement. Our management and administrative compliance review noted some weaknesses in the Institution's policies for misconduct in science and the ownership and retention of research data. We also raised questions about laboratory safety. In addition, the Institution stated that it intended to emphasize to faculty members the need to protect the confidentiality of NSF proposals they receive for review, particularly regarding not sharing proposals with graduate students or others unless the NSF program officer's permission has been obtained. The Institution stated that our recommendations about its misconduct policies and procedures and the issue of standards for the recording and retention of data will be addressed. The Institution explained its safety procedures in some detail and assured us that they meet regulatory standards. NSF's Engineering Directorate agreed to revise its letter to proposal reviewers to ensure the confidentiality of research proposals. Inspection at a Private, Primarily Undergraduate College This was our first inspection at an undergraduate, liberal arts college. The 13 grants reviewed during this inspection support undergraduate science education by providing instructional laboratory instruments, encouraging research careers for minority students, developing courses to enhance the science content for Kindergarten-12th grade teachers, and by partially paying for the renovation of academic laboratories. NSF's Education and Human Resources (EHR) Directorate made 12 grants, and NSF's Office of Science and Technology Infrastructure made 1 award for renovating the college's behavioral research facilities. The PIs for these awards were members of the departments of biology, chemistry, education, environmental sciences, geology, physics, and psychology. The college generally complied with NSF's and other federal award requirements. In reviewing the renovation grant, we found that the college did an excellent job of ensuring compliance with federal regulations on construction contracts. The college agreed with our recommendation that it establish time and attendance records to support the faculty members' salaries charged to NSF grants, as well as other recommendations to improve compliance and strengthen the college's internal control structure. In response to our recommendations, the college is finalizing and plans to distribute its policy on misconduct in science. Also, in response to our recommendation the college has issued a written policy on retention of, and access to, research records produced under federal awards. Based on information obtained from our review of award documentation and from the college, we recommended that NSF's Assistant Director for EHR review operations in three programs to ensure compliance with NSF requirements for proposal and award administration. For a continuing award in one of these programs, we also recommended a review of the timeliness of program funding decisions and the promptness with which those decisions are communicated to PIs and institutions. EHR's Assistant Director responded that he plans to draw staff members' attention to the requirements for proper organization of award files and prompt filing of all official award documentation. He also stated that the cognizant program, based upon a strategy developed by staff members and the PI, will take final action during FY 1995 on the delayed funding of the continuing award. Inspection at a Small, Historically Black College This inspection was based on six grants awarded to a primarily undergraduate, minority University. The grants covered in this inspection were aimed at improving minority students' access to research and research careers or at systemically reforming elementary and middle school science education. NSF's Directorate for Geosciences, through its Oceanographic Facilities Program, awarded two of the grants, which were designed to increase minority careers in aquatic sciences. We believe that the program developed under these two awards could serve as a recruitment model for other disciplines. Essentially, the program enables undergraduate students to attend, and actively participate in, professional scientific meetings. NSF's EHR awarded four of the grants: two for teacher enhancement, one for research improvement at a minority institution, and one for instrumentation and laboratory improvement (ILI). The University generally complied with NSF's and other federal award requirements. The University agreed to correct the immaterial instances of noncompliance and weaknesses in its internal control structure that we noted in our financial review. The University also agreed with our recommendations to review its policy and procedures for misconduct in science to clarify its terminology, review its definition of misconduct in science, ensure that its policy would meet the requirements of NSF's misconduct regulation, and ensure all PIs and NSF-supported students understand that NSF's regulation would apply to them. The University agreed with our recommendation to establish a written policy about retention of, and access to, research records produced under federal awards. We recommended that NSF's Assistant Director for EHR consider the impact that the broad latitude PIs are given for equipment substitution under ILI grants has on NSF program managers' ability to monitor the appropriate use of NSF funds, and assess the success of the directorate's preproposal system with an eye toward informing other directorates about this system. NSF's Assistant Director for EHR responded that the policy regarding substitute equipment adequately reflects NSF policy and that EHR believes it is the university's responsibility to ensure that this policy is appropriately followed. EHR stated that it will continue to monitor the efficacy of the preproposal system in EHR and that EHR would be pleased to share information about the use of proposals with other NSF units as appropriate. LEGAL OIG attorneys provide legal advice on all OIG activities, including investigations, audits, and oversight of NSF's functions and programs. OIG attorneys supported many of the activities that are described in other sections of this report. Under section 4(A)(2) of the Inspector General Act, OIG is required to review and make recommendations concerning legislation and regulations that affect NSF and NSF-funded activities. OIG attorneys are responsible for conducting these reviews as well as general oversight of NSF's legal activities. Conflicts Rules for IPAs NSF uses the Intergovernmental Personnel Act to obtain the services of many scientists (IPAs). NSF currently has 146 IPAs who function as program officers, division directors, and assistant directors. Although IPAs are covered by criminal, conflict-of-interest statutes, they are not covered by the government's financial disclosure requirements or the standards of ethical conduct that apply to permanent federal employees (5 C.F.R. part 2635). NSF requests that IPAs disclose their financial interests on the same forms used by permanent federal employees. If an IPA refuses to file a disclosure form, provides false information on the disclosure form, or violates the standards of ethical conduct required of permanent federal employees, NSF's ability to pursue administrative action is limited. In our view, NSF needs to promptly implement an explicit means of enforcing standards of ethical conduct for IPAs that extends beyond the narrow parameters of criminal rules. Accordingly, we recommended that NSF develop and implement a contractual agreement that requires that IPAs file financial disclosure forms appropriate to their NSF position and comply with the standards of ethical conduct set forth in 5 C.F.R. part 2635. We also recommended that the contractual agreement formally notify IPAs that NSF may take disciplinary and/or corrective actions for violations of ethical standards. We expect to report on NSF's response to our recommendations in our next semiannual report. Selection of Graduate Research Fellows We conducted a limited review of the selection process used by the Graduate Research Fellowship Program (GRFP). The purpose of our review was to determine whether GRFP's selection procedures discriminated against women in fields of study where there are more female applicants than male applicants. The GRFP awards fellowships to graduate students who have been identified as having exceptional promise as future scientists, mathematicians, and engineers. NSF's Division of Graduate Education and Research Development administers the GRFP and sets out the decision rules governing the selection process each year. Although merit is the primary selection factor, the selection process is complex, considering a number of criteria, including geographic region, gender, and field of study. Overall, the selection procedures improve the representation of women amongst awardees, including in those fields with high percentages of female applicants. Sometimes, the procedures result in sizable and unpredictable variations in the representation of female awardees in each field of study. However, we found no discrimination against female applicants in any field of study. OTHER LEGAL ISSUES NSF Declines to Further Clarify PI Time and Effort Commitment. In Semiannual Report Number 9 (page 40), we discussed our recommendation that NSF amend the guidance provided to applicants for NSF grants to include an unambiguous explanation of level of efffort. At that time, the NSF proposal form asked applicants to provide information on the "level of effort" committed by the PIs and other key personnel, but there was no definition of "level of effort." It was our view that, to assess an applicant's ability to perform the proposed work, NSF program officers must have reasonably accurate information on the present and proposed time commitments of the PIs and other key personnel. NSF responded to our recommendation by replacing "level of effort" with "person-months," but again with no definition of that expression. We felt that the new expression was ambiguous, and we recommended that NSF define it. Specifically, we suggested that the definition clarify that no single person can commit to expending more than 1 person-month in any calendar month. After consultation with the Division of Grants and Agreements, the Contracts and Policy Office, and other relevant operating units, NSF's Deputy Director determined that the term "person months" was well-understood and sufficiently precise to accomplish NSF's purposes. NSF plans no further clarification of the language. NSF Amends Financial Disclosure Policy for PIs. In Semiannual Report Number 11 (page 40), we discussed NSF's publication of a final financial disclosure policy for PIs. NSF worked with the Department of Health and Human Services (HHS), the Office of Science and Technology Policy, and OMB to coordinate the development of HHS' final PI financial disclosure policy. The effective date of NSF's policy, which was previously set for June 28, 1995, will be delayed to coincide with the effective date of HHS' policy, which has not yet been determined. NSF's Response to HHS' Misconduct Determinations. As discussed in Semiannual Report Number 9 (page 38), HHS now publicly disseminates the identities of persons it finds to have committed misconduct in science. We mentioned two issues for NSF that arose from HHS' action: (1) What, if anything, should NSF do if an individual who applies to NSF for an award has been found by HHS to have committed misconduct in science but against whom HHS did not apply a government-wide sanction? and (2) Should NSF actively disseminate the identities of individuals that NSF finds to have committed misconduct in science? We asked that the Director consult with the Office of General Counsel ". . . to obtain guidance on what actions--if any--NSF should take with regard to the individuals who were the subject of these non-disbarment HHS misconduct cases. . ." During this reporting period, NSF's Deputy Director informed us that, following the suggested consultation, it was determined that no further action was necessary. SIGNIFICANT AUDIT RECOMMENDATIONS FROM PREVIOUS SEMIANNUAL REPORTS We are responsible for reporting to Congress and following up on the resolution of audit recommendations. From October 1, 1994, through March 31, 1995, NSF resolved 19 reports with significant audit recommendations. Commercial Firm Earns Interest on NSF Funds Period First Reported: October 1, 1990 - March 31, 1991 NSF awarded two grants totaling $2,225,496 to a privately owned, for-profit corporation that provides technical and scientific information to commercial television stations. The corporation claimed $2,113,620, and we questioned $410,338 because the corporation charged unsupported salary costs to the grant, did not make invoices supporting expenditures available, and charged indirect costs at a rate higher than the actual or maximum provisional rate. We recommended that the corporation return to NSF an additional $21,175 in interest earned on NSF advances. NSF negotiated a final settlement with the corporation, which requires that the corporation repay NSF $129,264. Museum of Science and Industry Period First Reported: April 1, 1993 - September 30, 1993 NSF awarded over $1.3 million to a not-for-profit museum to support construction of a new exhibit. NSF made the award with the expectation that the grantee would cost share approximately $3.7 million of the project's total costs. As of the date of the audit, the museum had not provided its part of the cost sharing. The grantee claimed $150,777 against the NSF award, and we questioned $29,389. NSF disallowed $8,274 of the questioned costs. Antarctic Program Period First Reported: April 1, 1993 - September 30, 1993 NSF awarded a 6.5-year, cost-plus-award-fee contract to ASA to fund research activities and operations as well as maintain facilities and equipment at sites in Antarctica. ASA claimed approximately $169 million. We questioned $652,352 because inadequate, and in some cases, no documentation was provided to support claimed costs related to equipment, travel, and other services; reimbursement for travel in personal automobiles was not always justified; documentation on the use of foreign-flag air carriers was not maintained; and payment made by ASA for services rendered by its two parent companies was not supported by adequate documentation or a contractual agreement to be used to determine the reasonableness of the billed costs. We also noted the following compliance and internal control deficiencies: ASA did not notify NSF before it made changes, totaling $148,000, to a subcontract; formal policies and procedures related to the use of foreign-flag air carriers and cash drawdowns were not developed; and appropriate approval was not obtained to change the level of ASA's liability insurance. NSF disallowed $50,665 of the questioned costs. Vanderbilt University Period First Reported: April 1, 1993 - September 30, 1993 NSF's Division of Physics awarded Vanderbilt University five grants totaling $2,028,300. The University claimed $1,933,467, and we questioned $82,507. Questioned costs resulted from personnel activity reports that were incomplete; costs that were incurred before the effective dates of the preaward periods; travel costs that were not supported; and indirect costs that were incorrectly charged against equipment. We also found that cost and price analyses were not always documented, property records were incomplete, and a system to monitor cost sharing was not maintained. NSF disallowed $51,143, of which $41,101 is to be repaid and $10,042 in unclaimed costs is to be used to offset questioned costs. Catholic University Period First Reported: April 1, 1993 - September 30, 1993 NSF's Division of Physics awarded Catholic University four grants totaling over $1.6 million. The University claimed $1,499,353, and we questioned $41,244 because salaries were not supported by personnel activity reports; expenditures were not supported by documentation; tuition was charged when graduate students were not working on the awards; and indirect costs were incorrectly charged against equipment and tuition. We also found that equipment was not tagged, physical inventories were not performed, and a system was not maintained to monitor cost sharing. NSF required that the University repay $15,168. American University Period First Reported: April 1, 1993 - September 30, 1993 NSF's Division of Physics awarded American University four grants totaling $2,629,736. The University claimed $2,037,474, and we questioned $543,755 because salaries, wages, and tuition costs were not supported by personnel activity reports and participant support costs were not tracked in the University's accounting system. In addition, there was no written documentation to support price and cost analyses, including competition for purchases of $10,000 or more, or sole source vendor selection. NSF disallowed $86,139 and has requested payment. For-Profit Company Claims Ineligible and Unsupported Costs Period First Reported: October 1, 1993 - March 31, 1994 NSF granted $260,000 to a for-profit company to develop electronics equipment under a Phase II SBIR award. The company claimed $91,427, and we questioned $41,427 because salaries and wages, travel costs, and subcontract costs were not supported. The company also claimed ineligible indirect costs. NSF disallowed $41,427. The grantee has appealed this decision. Nonprofit Educational Corporation Cannot Locate Equipment Charged to Award Period First Reported: October 1, 1993 - March 31, 1994 NSF awarded $562,624 to a nonprofit corporation to support the development of a national science education conferencing network. The corporation claimed $562,624, and we questioned $98,308 because the grantee could not locate the equipment claimed as purchased under the grant and did not provide adequate support for other costs claimed. NSF disallowed $9,530, which the corporation has paid. Small Business Overclaims Indirect Costs Period First Reported: October 1, 1993 - March 31, 1994 NSF awarded two grants totaling $356,117 to a for-profit corporation to assist in the development of computer software models that aid in the performance evaluation of complex manufacturing systems. The grantee claimed $356,045, and we questioned $15,596 because actual indirect cost rates were lower than those claimed, and claimed costs were not supported. NSF disallowed $4,248. NSF and the corporation have agreed on a repayment schedule. Costs Questioned in Connection With a Science and Math Award Period First Reported: October 1, 1993 - March 31, 1994 NSF awarded three grants totaling $1,123,562 to a nonprofit association to use a national research laboratory's facilities, personnel, and equipment to develop ways of enhancing precollege science and mathematics education. The association claimed $1,100,979, and we questioned $61,391 of direct costs claimed under the grants and $323,944 of indirect costs claimed in the association's indirect cost pools. NSF disallowed $26,679. NSF allowed $2,925 in offsets with $23,754 to be repaid. SBIR Company Overclaims Indirect Costs Period First Reported: October 1, 1993 - March 31, 1994 NSF awarded $250,000 to an SBIR company to develop new materials to use as part of biosensors. The company claimed $250,000, and we questioned $9,826 because claimed indirect costs exceeded allowable amounts. NSF disallowed $9,826. Review of Grant for the Development of Elementary Curriculum Period First Reported: October 1, 1993 - March 31, 1994 NSF awarded a $2,208,868 grant to a nonprofit organization to support the development of a hands-on, elementary science curriculum. We questioned $35,813 because the grantee used NSF funds to reimburse NSF for costs questioned in a prior audit, time sheets did not support claimed costs, costs were charged for expenditures incurred after the award expired, and claimed costs were not supported by adequate documentation. NSF requested that the grantee repay $20,076. Museum Improperly Charges Costs Period First Reported: October 1, 1993 - March 31, 1994 NSF provided four awards to support scientific exhibits and a science carnival. The museum claimed $522,357, and we questioned $22,950 because claimed costs exceeded actual expenditures; salary costs were based on rates or time and effort reports that were not properly approved; and there were improperly charged supplies, computer hardware, and advertising costs. NSF disallowed $21,123. Engineering Research Centers and Science and Technology Centers Period First Reported: April 1, 1994 - September 30, 1994 In reviews of two Engineering Research Centers and four Science and Technology Centers, we questioned claimed costs of $1,300,000 ($740,000 in cost sharing and $560,000 in cost reimbursement). During this reporting period, NSF disallowed all of the questioned cost sharing amounts and required that the Centers provide additional project support in the amount disallowed. NSF also disallowed $367,721 of the questioned reimbursements and required that the Centers remove those claimed costs from the NSF awards; charge their own accounts for those changes; and make appropriate adjustments to their books, records, and reports to NSF. REPORTS WITH OUTSTANDING MANAGEMENT DECISIONS This section identifies audit reports where management has not made a final decision on the corrective action necessary for report resolution within 6 months of the report's issue date. CPO is tasked with making management's decision concerning external audit reports. At the end of the reporting period, there were 10 audit reports with questioned costs that were not resolved. There were 24 reports over 6 months old requiring final resolution decisions at the end of the last reporting period. ***************************************************************** Management Decision: Management's evaluation of audit findings and recommendations and issuance of a final decision concerning management's response to such findings and recommendations. ***************************************************************** Report Date Report Number Title Issued Reports with questioned costs: 94-1017 American Express Travel 03/04/94 94-1019 Draco Technology 03/14/94 94-1038 Aurora Flight Sciences Corporation 08/08/94 94-1046 Apeldyn Corporation 09/08/94 94-1050 Southern Connecticut State University 09/13/94 94-1055 Dames & Moore 09/28/94 94-1065 University Consortium for Atmospheric Research 09/30/94 94-1067 Better Education, Inc. 09/30/94 94-1070 Chemludens 09/30/94 94-1072 Decision Development Corporation 09/30/94 Travel Services Provider Fails to Follow Contract Requirements Period First Reported: October 1, 1993 - March 31, 1994 The Division of International Programs awarded a 4-year, $5.8-million contract to a travel services provider to arrange for international travel for U.S. scientists traveling abroad and foreign scientists traveling to the United States. The contractor claimed $1,559,147, and we questioned $48,787 because funds were expended on unauthorized or unallowable items, travelers did not return excess funds, traveler's refunded amounts were not returned to the NSF account, and claimed costs were not supported by source documentation. The contractor is providing additional documentation. NSF expects to finalize negotiations during the next reporting period. SBIR Grantee Refuses to Provide Final Project Report Period First Reported: October 1, 1993 - March 31, 1994 NSF awarded a $199,335 grant to a private, for-profit business to develop a suspension core drill that will maximize drilling speeds. The grantee claimed $193,102, and we questioned $52,976 because the grantee did not provide adequate documents to support indirect costs. NSF received the necessary documentation from the grantee and is resolving the procedural findings. Resolution is expected during the next reporting period. For-Profit Claims Unallowed Expenses Period First Reported: April 1, 1994 - September 30, 1994 NSF awarded two grants totaling $797,589 to a for-profit organization to develop unmanned aircraft to conduct research on changes in the global climate. The organization claimed $551,626, and we questioned $207,482 because the grantee charged $32,024 for cost overruns (salaries and fringe-benefit costs) from a non-NSF contract; $86,277 in equipment, consultant, travel, and other direct costs that were not approved in the award budgets; and $89,181 in indirect costs that were not applicable to the awards. The organization is providing additional documentation, and resolution is expected before September 30, 1995. Audit of a Federally Funded Research and Development Center Identified the Possibility of Substantial Cost Savings Period First Reported: April 1, 1994 - September 30, 1994 NSF provides approximately $50 million per year to support the National Center for Atmospheric Research. We identified $800,000 that could be saved in negotiating the 1995 indirect cost rate proposal. We also made recommendations addressing internal control and compliance deficiencies in the areas of timecard certifications for administrative employees; unauthorized journal entries in the accounting records; and excessive per diem amounts paid for certain travel claims. NSF is negotiating with the Center on these issues. Resolution is expected during the next reporting period. For-Profit Corporation Claims Ineligible and Unsupported Costs Period First Reported: April 1, 1994 - September 30,1994 NSF awarded a $249,960 grant to a for-profit corporation to investigate coherent fiber-optic communication systems. The grantee claimed $94,883, and we questioned $19,820 because salaries and wages, travel costs, materials and supplies, and subcontract claimed costs were ineligible for reimbursement or unsupported. We also suspended $9,082 in indirect costs until the grantee calculates an indirect cost rate for the year ended December 31, 1993, to support its claimed indirect costs. We also found that the grantee did not have an adequate financial management system and failed to notify NSF of equipment purchases. The corporation requested and received an extension for submitting the requested documentation. Resolution is expected by September 30, 1995. Southern Connecticut State University Period First Reported: April 1, 1994 - September 30, 1994 NSF awarded Southern Connecticut State University four grants totaling $316,036. The University claimed $275,434, and we questioned $151,969. Questioned costs resulted from participant support costs that were spent in other cost categories without NSF's prior approval. In addition, the University maintained insufficient documentation to support its cost sharing contributions and the expenditure of funds on the grant-funded program. Our review of internal controls and compliance issues also disclosed that payroll costs were not properly allocated between departments; time sheets were incomplete; and duties within the University's payroll department were insufficiently segregated. NSF expects to resolve these issues in the next reporting period. For-Profit Corporation Claims Unsupported Costs Period First Reported: April 1, 1994 - September 30, 1994 NSF awarded a for-profit corporation 11 grants totaling $749,965. The grantee claimed $712,951, and we questioned $11,267. We questioned costs because vendor invoices were not provided to support travel, consultant, computer, and publication costs. The grantee has promised supporting documentation. NSF expects to resolve these issues in the next reporting period. Grantee Overclaims Indirect Costs Period First Reported: April 1, 1994 - September 30, 1994 NSF awarded a $317,800 grant to a for-profit organization to investigate, and provide data on, the benefits of classroom communications systems in various educational environments. The grantee claimed $297,550, and we questioned $17,563. We questioned costs because participant support costs were spent in other cost categories without NSF's prior approval; the grantee claimed unallowable costs; the grantee charged indirect costs as direct costs and claimed the incorrect amounts as indirect costs; and the grantee did not remit to NSF interest earned on cash advances. We also classified $48,115 in indirect costs as unresolved because the grantee did not have an indirect cost rate proposal prepared for 1993. We found that cash advances were obtained in excess of cash needs; NSF funds were not deposited into interest bearing accounts; property records were not maintained or submitted to NSF; and the grantee's policies and procedures did not require that management review travel claims for cost allowability. The grantee has promised data supporting the indirect cost negotiations. NSF expects to resolve these issues during the next reporting period. Small Business Claims Indirect Costs as Direct Costs Period First Reported: April 1, 1994 - September 30, 1994 NSF awarded a $253,356 grant to a for-profit organization under NSF's SBIR program. The grantee claimed $140,931, and we questioned $72,952 because the grantee claimed indirect costs as direct costs; purchased equipment without NSF's prior written approval; and charged salary costs at a rate higher than proposed in the grant budget. We found that cash advances were requested that exceeded 1-month's needs; interest earned on cash advances was not remitted to NSF; a progress report was not promptly submitted; indirect and direct costs were not properly identified and segregated in the accounting records; and accounting duties were not adequately segregated. The grantee has agreed to provide supporting information by the end of April 1995. NSF expects to resolve these issues by June 30, 1995. For-Profit Organization Claims Improper Costs Period First Reported: April 1, 1994 - September 30, 1994 NSF awarded a $737,232 grant to a for-profit organization that publishes educational software. The grantee claimed $343,869, and we questioned $209,585. We questioned costs because the grantee claimed unallowable, unsupported, unallocable, and duplicate costs and did not remit interest earned on cash advances to NSF. We found that the grantee did not have an adequate financial management system; requested cash advances that exceeded its current needs; and did not segregate unallowable costs from costs claimed. Negotiations between NSF and the organization are underway. NSF expects to resolve these issues before September 30, 1995. Agency Refusal To Provide Information Or Assistance During this reporting period, there were no reports made to the National Science Board of instances where information or assistance, requested under section 5(a)(5) of the Inspector General Act of 1978, as amended, was unreasonably refused or not provided. Significant Management Decisions That Were Revised No significant management decisions were revised during the reporting period. Inspector General's Disagreement With Significant Management Decisions The Inspector General has no disagreement with significant management decisions made during this reporting period. LIST OF REPORTS We issued the following audit reports during this reporting period. Where applicable, the total dollar value of questioned costs (including a separate category for the dollar value of unsupported costs) is listed for each report. NSF and CPA Performed Audits Date Report Questioned Unsupported Number Grantee Issued Costs Costs 95-1001 Key Curriculum Press 11/04/94 7,547 2,763 95-1002 West Virginia University 11/09/94 63,031 0 95-1003 Joint Oceanographic Institutions, Incorporated, Overseas Drilling Limited 11/29/94 43,297 43,297 95-1004 Phoenix Systems, Inc. 11/29/94 12,091 875 95-1005 McLean Media 11/29/94 8,982 8,982 95-1006 Joint Oceanographic Institutions, Inc. 11/29/94 80,391 1,520 95-1007 Meeting the Challenge, Inc. 12/05/94 0 0 95-1008 IntelliGenetics, Inc. 12/05/94 17,102 0 95-1009 American Society of Biochemistry and Molecular Biology 01/04/95 0 0 95-1010 University Corporation for Atmospheric Research 01/04/95 300 0 95-1011 History Associates, Inc. 01/31/95 1,586 1,586 95-1012 Policy Studies Associates, Inc. 01/31/95 3,871 572 95-1013 Phoenix Systems, Inc. 01/31/95 0 0 95-1014 History of Science Society 02/06/95 4,409 1,051 95-1015 Transitions Research Corporation 02/06/95 4,507 42 95-1016 Crisis Management Corporation 02/06/95 3,710 0 95-1017 Science Skills Center 02/17/95 525,306 21,242 95-1018 Antarctic Support Associates 02/22/95 0 0 95-1019 American Society for Photogrammetry and Remote Sensing 02/22/95 58,816 629 95-1020 Lassen Research 03/01/95 12,732 12,732 95-1021 Hone Productions (KQED,, Inc.) 03/01/95 54,983 42,258 95-1022 BBN Systems and Technologies Corporation 03/06/95 122,067 0 95-1023 California Bio-Marine Technologies Corporation 03/06/95 7,536 0 95-1024 Creative Enterprises 03/06/95 16,341 11,837 95-1025 KJS Associates, Inc. 03/06/95 13,582 532 95-1026 Aerodyne Research, Inc. 03/06/95 17,521 0 95-1027 BioWest Research 03/06/95 2,345 0 95-1028 General Atomics 03/27/95 2,933,428 1,055,634 95-1029 BIOSYS Technologies, Inc. 03/27/95 83,964 7,239 95-1030 TCI Software Research, Inc. 03/27/95 6,541 6,541 95-1031 Marine Science Society of the Pacific Northwest 03/27/95 87,096 87,014 95-1032 Semiconductor Research Corporation 03/27/95 0 0 95-1033 National Astronomy and Ionosphere Center 03/27/95 1,532 0 95-1034 MicroMed Systems, Inc. 03/27/95 276 0 95-1035 Unicon Research Corporation 03/27/95 958 958 95-1036 Quest Structures 03/27/95 0 0 95-1037 MacConnell Research 03/27/95 324 0 95-1038 EQE International, Inc. 03/27/95 4,984 821 95-1039 Rowe-Deines Instruments, Inc. 03/27/95 58,437 58 95-1040 Innova Laboratories, Inc. 03/27/95 23,771 0 95-1041 University of Chicago 03/27/95 7,386 0 95-1042 The Mr. Wizard Foundation 03/31/95 157,780 0 INTERNAL AUDITS Date Report Questioned Unsupported Number Grantee Issued Costs Costs 95-2101 NSF's 1994 Donations Account Financial Statements 03/24/95 0 0 95-2102 Review of EDP Controls in the FAS 03/31/95 0 0 95-2103 Review of NSF Property Management 03/31/95 0 0 95-2104 Review of NSF General Ledger Accounts 03/31/95 0 0 NSF COGNIZANT AUDITS Date Report Questioned Unsupported Number Grantee Issued Costs Costs 95-4001 Southwest Museum ('93) 10/21/94 0 0 95-4002 The New York Botanical Garden 10/21/94 0 0 95-4003 Southwest Museum ('92) 10/21/94 0 0 95-4004 World Media Foundation, Inc. 10/21/94 0 0 95-4005 National Council for the Social Studies 11/14/94 6,544 6,544 95-4006 American Statistical Association 11/29/94 0 0 95-4007 The National Association of Biology Teachers, Inc. 11/29/94 0 0 95-4008 Incorporated Research Institutions for Seismology 11/29/94 0 0 95-4009 Sea Educational Association, Inc. 11/29/94 0 0 95-4010 Biological Sciences Curriculum Study 11/29/94 0 0 95-4011 Corporation for National Research Initiatives 11/29/94 0 0 95-4012 Center for American Archeology 11/29/94 0 0 95-4013 Museum of Science 11/29/94 0 0 95-4014 Association of American Geographers 11/29/94 0 0 95-4015 Joint Oceanographic Institutions, Inc. 12/05/94 0 0 95-4016 Santa Barbara Museum of Natural History 12/05/94 0 0 95-4017 New York Hall of Science 12/05/94 0 0 95-4018 XXVII International Geographical Congress 01/17/95 0 0 95-4019 Monterey Bay Aquarium Research Institute 01/23/95 0 0 95-4020 Boyce Thompson Institute for Plant Research, Inc. 01/23/95 0 0 95-4021 Canyon Ferry Limnological Institute, Inc. 01/23/95 645 645 95-4022 College-University Resources Institute, Inc. 01/23/95 0 0 95-4023 National Bureau of Economic Research, Inc. 01/23/95 0 0 95-4024 Quality Education for Minorities (QEM) Network 01/23/95 595 0 95-4025 Science Museum of Minnesota 01/23/95 0 0 95-4026 Ventures in Education 01/23/95 0 0 95-4027 Canyon Ferry Limnological Institute, Inc. 01/23/95 0 0 95-4028 American Association of Community Colleges 02/06/95 12,657 12,657 95-4029 American Mathematical Society 02/06/95 430 430 95-4030 Ann Arbor Hands-on Museum ('91) 02/06/95 0 0 95-4031 Ann Arbor Hands-on Museum ('92) 02/06/95 0 0 95-4032 Applied Technology Council 02/06/95 0 0 95-4033 Connecticut Business & Industry Association 02/06/95 0 0 95-4034 Farnet, Inc. 02/06/95 0 0 95-4035 Institute for Research on Learning 02/06/95 2,400 0 95-4036 Marine Environmental Sciences Consortium 02/06/95 150 0 95-4037 Minnesota Private College Research Foundation 02/06/95 0 0 95-4038 PATHS/PRISM 02/06/95 0 0 95-4039 Somerset/Hunterdon Business and Education Partnership, Inc. ('92) 02/06/95 0 0 95-4040 Somerset/Hunterdon Business and Education Partnership, Inc. ('93) 02/06/95 0 0 95-4041 The Tech Museum of Innovation ('93) 02/06/95 0 0 95-4042 The Tech Museum of Innovation ('92) 02/06/95 0 0 95-4043 The Cleveland Foundation 02/06/95 15,090 0 95-4044 The Exploratorium 02/06/95 0 0 95-4045 Cooperating School Districts of the St. Louis Suburban Area, Inc. 02/06/95 0 0 95-4046 American Society of Civil Engineers 02/22/95 0 0 95-4047 The Children's Museum 02/22/95 745 745 95-4048 Decision Science Research Institute, Inc. 02/22/95 0 0 95-4049 Consortium for Mathematics and its Applications 02/22/95 0 0 95-4050 National Council of Teachers of Mathematics 02/22/95 0 0 95-4051 Minnesota Environmental Sciences Foundation, Inc. 02/22/95 0 0 95-4052 Community Television of Southern California ('94) 02/22/95 0 0 95-4053 Community Television of Southern California ('93) 02/22/95 0 0 95-4054 Nysernet, Inc. 02/22/95 0 0 95-4055 American Geographical Institute 02/22/95 0 0 95-4056 American Institute of Physics 02/22/95 3,270 1,000 95-4057 Kentucky Science and Technology Council, Inc. 02/22/95 0 0 95-4058 Technical Education Research Centers, Inc. 02/22/95 0 0 95-4059 Bigelow Laboratory for Ocean Sciences ('94) 03/01/95 0 0 95-4060 Bigelow Laboratory for Ocean Sciences ('93) 03/01/95 0 0 95-4061 Educational Equity Concepts, Inc. 03/01/95 0 0 95-4062 Illinois State Museum Society 03/01/95 0 0 95-4063 Archbold Expeditions- Archbold Biological Station 03/06/95 0 0 95-4064 Science Museum of Minnesota 03/06/95 0 0 95-4065 The American Museum of Natural History 03/06/95 0 0 95-4066 Denver Museum of Natural History 03/06/95 0 0 95-4067 The Mathematical Association of America, Inc. 03/06/95 0 0 95-4068 Society for the History of Technology 03/06/95 0 0 95-4069 Woods Hole Oceanographic Institute 03/06/95 0 0 95-4070 Astrophysical Research Consortium 03/27/95 0 0 95-4071 Austin Children's Museum 03/27/95 0 0 95-4072 Los Angeles County Museum of Natural History Foundation 03/29/95 0 0 95-4073 International Society for Photogrammetry & Remote Sensing XVII Congress 03/30/95 9,043 0 OTHER FEDERAL AUDITS We processed 500 reports provided by other federal agencies. Those reports included audit coverage of the NSF programs. The following reports contained questioned costs that required NSF followup. Date Report Questioned Unsupported Number Grantee Issued Costs Costs 95-5007 The American University ('92) 01/31/95 17 0 95-5013 Bowdoin College 01/31/95 9,495 9,495 95-5056 University of Michigan 02/01/95 2,931 0 95-5063 Buena Vista College 02/06/95 36,859 0 95-5065 University of Michigan 02/10/95 98,834 0 95-5206 State of Delaware 02/23/95 1,045 0 95-5212 State of Washington 02/23/95 7,755 5,875 95-5318 Embry-Riddle Aeronautical University, Inc. 03/08/95 1,852 0 95-5325 Union College 03/08/95 1,610 1,550 95-5411 The American University 03/16/95 198 198 95-5424 Pennsylvania State University 03/16/95 1,343 1,343 95-5425 University of Notre Dame Du Lac 03/16/95 37,706 1,183 95-5451 Wright State University 03/20/95 5,812 0 95-5487 Colgate University 03/20/95 5 0 95-5492 William Marsh Rice University 03/20/95 34,182 33,699 STATISTICAL INFORMATION REQUIRED BY THE INSPECTOR GENERAL ACT OF 1978, AS AMENDED Table I. Audit Reports Issued With Questioned Costs Questioned Unsupported Number Costs Costs A. For which no management decision has been made by the commencement of the reporting period. 82 6,719,903 3,685,164 B. Which were issued during the reporting period. 62 4,739,743 1,383,547 C. Adjustments to questioned costs resulting from resolution activities. 0 0 0 Subtotals of (A+B+C) 144 11,459,646 5,068,711 D. For which a management decision was made during the reporting period. 85 6,095,984 3,275,127 (i) dollar value of disallowed costs 0 2,136,156 N/A (ii) dollar value of costs not disallowed 0 3,959,828 N/A E. For which no management decision has been made by the end of the reporting period. 59 5,363,662 1,793,584 Reports for which no management decision was made within 6 months of issuance. 10 792,401 25,049 INSPECTOR GENERAL REPORTS ***************************************************************** Funds to be Put to Better Use: Funds the OIG has identified in an audit recommendation that could be used more efficiently by reducing outlays, deobligating program or operational funds, avoiding unnecessary expenditures, or taking other efficiency measures. ***************************************************************** Table II. Audit Reports Issued With Recommendations For Better Use of Funds Number Dollar Value A. For which no management decision had been made by the commencement of the reporting period. 1 800,000 B. Recommendations that were issued during the reporting period. (These were issued in two reports.) 7 10,600,000 Subtotals of A & B 8 11,400,000 C. For which a management decision was made during the reporting period. 5 6,500,000 (i) dollar value of recommendations that were agreed to by management 5 6,500,000 based on proposed management action 5 6,500,000 based on proposed legislative action 0 0 (ii) dollar value of recommendations that were not agreed to by management 0 0 D. For which no management decision has been made by the end of the reporting period. 3 4,900,000 Report for which no management decision was made within 6 months of issuance. 1 800,000 ADDITIONAL PERFORMANCE MEASURE As required by the Inspector General Act of 1978, we provide tables in each Semiannual Report to the Congress that give statistical information on work conducted by our audit and investigation units. Tables that provide statistics concerning these required performance measures are on pages 22, 63, and 64. Vice President Gore's National Performance Review, GAO, and OMB have suggested that Offices of Inspector General develop additional performance measures that provide information about their activities. As a result, we developed an additional performance measure to better explain the work of our office. OIG staff members regularly conduct reviews of internal NSF operations. These reviews often result in systemic recommendations that are designed to improve the economy and efficiency of NSF operations. We routinely track these systemic recommendations and report to NSF's Director and Deputy Director quarterly about the status of our recommendations. The following table provides statistical information about the status of all systemic recommendations that involve NSF's internal operations. The statistics demonstrate that NSF management has, in general, agreed to resolve our systemic recommendations in a reasonable manner. Status of Systemic Recommendations That Involve Internal NSF Management Open Recommendations Recommendations Open at the Beginning of the Reporting Period 54 New Recommendations Made During Reporting Period 37 Total Recommendations to be Addressed 91 Management Resolution of Recommendations1 Recommendations Awaiting Management Resolution 17 Recommendations Resolved by Management 74 Management Agrees to Take Reasonable Action 91 Management Decides No Action is Required 0 Final Action on OIG Recommendations2 Final Action Completed 52 Recommendations Open at End of Period 39 [Footnote 1] "Management Resolution" occurs when management completes its evaluation of an OIG recommendation and issues its official response identifying the specific action that will be implemented in response to the recommendation. [Footnote 2] "Final Action" occurs when management has completed all actions it has decided are appropriate to address an OIG recommendation. Aging of Open Recommendations Awaiting Management Resolution: 0 through 6 Months 17 7 through 12 Months 0 more than 12 Months 0 Awaiting Final Action After Resolution: 0 through 6 Months 6 7 through 12 Months 6 13 through 18 Months 0 19 through 24 Months 2 more than 24 Months 8 Recommendations Where Management Decides No Action is Required None to report during this period. Recommendations Awaiting Management Resolution for More Than 12 Months None to report during this period. Recommendations Awaiting Final Action for More Than 24 Months 1. In Report Number OAO-15-04-88, "Review of the NSF Computer Security Program," April 15, 1988, we recommended that a risk analysis for computer operations be performed and a contingency plan consistent with published guidelines be developed. Preparation of the contingency plan is anticipated to begin shortly. Although the delays in implementation were extensive, no losses have resulted. We consider the current action to be reasonable. 2. In a July 1, 1992, memorandum, we recommended that NSF enact an amendment to bring NSF under the jurisdiction of the Program Fraud Civil Remedies Act. NSF prepared an amendment to the Act and submitted it to the Congress on May 11, 1993. The Congress did not act on the proposed amendment. The House and Senate staffs have indicated support for the amendment and a willingness to consider including it in suitable legislation when the opportunity arises. NSF management will include this amendment in its FY 1996 legislative program. We consider management's action to be reasonable. 3. In Report Number OIG 92-2112, "Review of FAR Requirements to Evaluate Federally Funded Research and Development Centers," December 30, 1992, we recommended that guidelines be established concerning the ownership of a telescope at an observatory in Chile. Discussions continue, but a final decision is uncertain because of sensitive international issues. We consider management's action to be reasonable. 4. In our Review of NSFNET, March 23, 1993, concerning the management control of the National Science Foundation Network (NSFNET), we recommended that NSF (a) ensure that an audit is conducted of the company that manages NSFNET is audited to verify that certain funds have been distributed appropriately, (b) take appropriate action to implement the Acceptable Use Policy (AUP), and (c) disseminate the Acceptable Use Policy so that all end-users are aware of its prohibitions. NSF plans to arrange for the audit and address the Acceptable Use Policy recommendations after the implementation of the new NSFNET highspeed network, which is scheduled for April 1995. We consider management's action to be reasonable. 5. In Semiannual Report Number 8 (page 33), we recommended that NSF issue ethics regulations that address concerns specific to NSF employees. The Office of General Counsel drafted these regulations, and they have been cleared by the Office of Government Ethics. The Office of General Counsel expects to issue these regulations by May 1995. We consider management's action to be reasonable. 6. In Report Number OIG 93-2101, "Review of National Science Board Members' Bank Account," March 31, 1993, we recommended that NSF's Director seek approval from the Comptroller General to fund the awards dinner from NSF's appropriations accounts. NSF requested an opinion from the Comptroller General. A response is expected soon. We consider NSF management's response to be reasonable. Prepared by: Office of Inspector General National Science Foundation For additional copies, write: Office of Inspector General 4201 Wilson Boulevard Arlington, VA 22230 For additional information, call: Audit (703) 306-2001 Investigations (703) 306-2004 Oversight (including misconduct in science and inspections) (703) 306-2006 Legal (703) 306-2100 Electronic Mail Hotline: firstname.lastname@example.org
Semiannual Report - March 1995
Published by the National Science Foundation, Office of Inspector General on 1995-03-01.
Below is a raw (and likely hideous) rendition of the original report.