oversight

Semiannual Report - September 2004

Published by the National Science Foundation, Office of Inspector General on 2004-09-01.

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

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

     NSF invests approximately $5 billion per year in almost 30,000 research and education
projects in science and engineering, and is responsible for the establishment of an information
base for science and engineering appropriate for development of national and international
policy. Over time, other responsibilities have been added including fostering and supporting
the development and use of computers and other scientific methods and technologies;
providing Antarctic research, facilities and logistic support; and addressing issues of equal
opportunity in science and engineering.


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


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

OIG Management Activities................................................... 7
        FY 2005 Management Challenges ................................................... 7
        Legal Review .................................................................................. 8
        Outreach ......................................................................................... 9

Audits & Reviews ..................................................................13
        Significant Reports ........................................................................        13
        Corrective Actions Prompted by Previous Audits ...........................                          20
        Work in Progress ..........................................................................         21
        A-133 Audit Reports ......................................................................          23

Investigations ...................................................................... 25
        Civil and Criminal Investigations .................................................... 25
        Administrative Investigations ......................................................... 27

Statistical Data ......................................................................35

Appendix ...............................................................................49
        FY 2005 Management Challenges Letter .......................................                        49
        Reporting Requirements ................................................................             61
        Acronyms ......................................................................................     63
        Awards ..........................................................................................   65
                         From the Inspector General
     This report highlights the activities of the National Science Foundation (NSF) Office of
Inspector General (OIG) for the six-month period ending September 30, 2004. Our office issued
10 audit reports that contained $1,218,677 in questioned costs and made recommendations
that would put $174,370 in NSF funds to better use. We closed 38 civil/criminal cases and 51
administrative cases, and our investigations produced $522,387 in recoveries. Three cases
were referred to the Department of Justice and 15 administrative cases were forwarded to NSF
management for action during this period. To minimize future occurrences of fraud, waste, and
abuse, our staff also conducts outreach activities to educate NSF grantees about the
responsibilities that go along with accepting Federal funds.

     The FY 2005 Management Challenges letter, which identifies the most serious management
and performance issues facing the agency, appears on page 49 of this report. Although most of
our audits are by necessity external, i.e., directed toward ensuring the financial and administrative
compliance of NSF grantees, we also conducted internal audits that focus on subjects directly
related to the Challenges. During this period, we reviewed aspects of the Math and Science
Partnership Program (p. 13), the cost of visiting IPAs (p. 14), and the United States Antarctic
Program (p. 15). Over the years OIG audits have been instrumental in identifying many
management challenges, including the administration of grantee cost sharing. In October, the
National Science Board approved a new policy intended to eliminate all but statutory and voluntary
cost sharing. We will carefully monitor the effect of this new policy.

     Since its inception, the position of NSF Inspector General has been appointed by and reports
to the National Science Board. This arrangement has served both NSF and the taxpayers well.
It has fostered a productive working relationship between the Board and OIG, while at the same
time allowing our office the independence from management needed to carry out its sensitive
mission of preventing fraud, waste and abuse, and promoting economy, efficiency and
effectiveness. We were, therefore, supportive when the Board reaffirmed the current IG
appointment and reporting structure in its August 2004 letter to the Subcommittee on Government
Efficiency and Financial Management.

    Finally, our efforts during this period have resulted in many constructive recommendations
to NSF. This is possible because of the strong support we have received from the Congress, the
Board, and NSF management, as well as the dedication and solid work of OIG employees. I
want to express my sincere appreciation to all, and I look forward to continued cooperation as we
work together to improve the agency operations that allow NSF to make its notable
accomplishments in science and technology.




                                                                          Christine C. Boesz, Dr.P.H.
                                                                                  Inspector General
                                                                               November 19, 2004
                                                 Executive Summary
• The OIG’s FY 2005 list of the most serious management
  and performance challenges facing the National Science
  Foundation appears on p. 49.

• OIG conducted an audit of the Math and Science
  Partnership (MSP) Program to determine the
  effectiveness of its evaluation processes. The audit
  reviewed nine partnerships funded in FY 2002 and found
  that five had effective evaluation plans, but four were
  missing key evaluation elements although steps could be
  taken to address these issues. Further, although NSF
  indicated it planned to evaluate the overall MSP program,
  it had not yet formalized its plans for a program evaluation
  process or set definitive timeframes or deadlines. (See
  p. 13)

• At the Agency’s request, OIG contracted with the Defense
  Contract Audit Agency (DCAA) to perform an incurred cost
  audit of NSF’s Antarctic Support Services Contractor. In
  September 2004, DCAA staff reported on the interim
  results of the first phase of this audit. Of the $363 million
  total costs claimed by the Contractor for the three-year
  period ending December 31, 2002, the auditor questioned
  $29.2 million because the Contractor improperly billed
  indirect costs to the contract. (See p. 15)

• An audit of a foreign treaty organization that has received
  $16.4 million in NSF awards for global change research
  found that NSF, on behalf of the United States, is funding
  a disproportionate share of the organization’s total costs.
  This occurred because 18 other member countries did
  not provide research contributions in the amounts originally
  anticipated. As a result, the foreign organization had
  average annual expenditures of only $2.6 million or 82
  percent less than expected, thereby impeding its ability
  to achieve its research goals. The U.S. contribution, which
  was initially expected to comprise 25 percent of the
  organization’s total funds, actually represented 87 percent
  of its income from 1996 to 2003. (See p. 17)



                                                                  5
Executive Summary




                    • The owner of a company that received Small Business Innovation
                      Research (SBIR) awards from NSF and other Federal agencies
                      pleaded guilty to mail fraud and tax evasion. The owner sent a
                      progress report to NSF for his SBIR Phase II award that included
                      research previously conducted by the company under an Air Force
                      SBIR award. He also used Federal SBIR funds to pay for personal
                      expenses, such as repairs and improvements to his home, thereby
                      evading over $93,000 in income tax on his personal tax return for
                      1999. The total loss of Federal funds related to the subject’s fraudulent
                      scheme is estimated at $1.4 million. (See p. 25)

                    • After receiving an allegation that a postdoctoral scientist fabricated
                      and falsified data in a published research paper, OIG concluded that
                      the researcher knowingly and intentionally fabricated data in multiple
                      analyses to make it appear that replicate experiments had been
                      completed when in fact only a single analysis had been performed.
                      The scientist’s actions ultimately led to the retraction of the entire
                      publication in which the fabricated and falsified data appeared. We
                      recommended that NSF make a finding of research misconduct
                      against the subject and debar him for two years. (See p. 28)

                    • OIG recommended that NSF debar a PI for two years for fabricating
                      the existence of and citations for two manuscripts referenced in his
                      two NSF awards. An investigation by the PI’s university determined
                      that he provided false biographical information as part of his NSF
                      proposals. The PI cited two manuscripts as “submitted to” two
                      prominent journals, and also referenced a “submitted” manuscript
                      within the text of the proposal for his CAREER award. The
                      manuscripts did not exist. The investigation also identified a pattern
                      of misrepresentation by the PI that extended over a 10-month period.
                      (See p. 29)




             6
                                  OIG Management Activities




2005 Management Challenges
     In October 2004, the Office of Inspector General (OIG)
submitted to agency management its list of what it considers to
be the most serious management and performance challenges
facing the National Science Foundation (NSF). The list was
compiled based on our audit work, general knowledge of the
agency’s operations, and the evaluative reports of others, such
as GAO and NSF’s various advisory committees, contractors,
and staff. The items on the list are unchanged from last year,
mainly because they reflect areas of fundamental program risk
that continue to pose obstacles to NSF’s accomplishment of its
mission. They will therefore require ongoing attention from NSF
management over the long term. The OIG’s management
challenges letter appears in its entirety in the Appendix on page
49. Additional information about the status of some challenges
appears elsewhere in this report and is referenced in
parentheses. The 11 specific challenges include:

     1.   Workforce Planning and Training (p. 14)
     2.   Administrative Infrastructure
     3.   Management of Large Infrastructure Projects
                                                                        HIGHLIGHTS
     4.   Post-Award Administration
     5.   Cost Sharing
     6.   Information Security                                      2005 Management
                                                                    Challenges        7
     7.   GPRA Reporting
     8.   Cost Accounting                                           Legal Review      8
     9.   Management of U. S. Antarctic Program (p. 15, 20)
    10.   Broadening Participation in the Merit Review Process      Outreach          9
    11.   Math and Science Partnership (p. 13)


                                                                    7
OIG Management
       Activities




                    Legal Review

                    Statutory and Regulatory Review

                         The Inspector General Act of 1978, as amended, mandates that our
                    office monitor and review legislative and regulatory proposals for their impact
                    on the OIG and NSF’s programs and operations. We perform these tasks
                    for the purpose of providing leadership in activities that are designed to
                    promote economy, effectiveness, efficiency, and the prevention of fraud,
                    waste, abuse and mismanagement. We also keep Congress and NSF
                    management informed of problems and monitor legal issues that have a
                    broad effect on the Inspector General community. During this reporting
                    period, we reviewed seven bills that affected NSF, OIG, or both. The following
                    legislation merits discussion in this section.

                    Program Fraud Civil Remedies Act of 1986
                    (PFCRA) (31 U.S.C. §§ 3801-3812)

                          A legislative priority that we support is amending PFCRA to include
                    NSF and the 26 other Designated Federal Entity (DFE) agencies that are
                    currently excluded from participation under the Act’s enforcement provisions.
                    The Office of Inspector General’s concern related to PFCRA involves the
                    ability of DFE agencies to fully implement their statutory mission to prevent
                    fraud, waste and abuse by availing themselves of the enforcement
                    capabilities contained within the Act. In fact, we have raised the issue of
                    NSF’s inclusion under the PFCRA legislation in several prior semi-annual
                    reports.

                         PFCRA sets forth administrative procedures that address allegations
                    of program fraud when the claims are less than $150,000. Currently, the
                    executive departments, military departments, establishments, as defined
                    under the Inspector General Act of 1978, and the United States Postal
                    Service, are the only agencies permitted to act under PFCRA. NSF and
                    other DFE agencies with Inspectors Generals appointed by agency heads
                    are not included.

                          We believe that using the enforcement provisions of PFCRA will
                    enhance NSF and other DFE agency recoveries in instances of fraud that
                    fall below PFCRA’s dollar threshold. In short, including NSF and other DFE
                    agencies under PFCRA will further the OIG community’s statutory mission
                    to deter fraud, waste and abuse.



            8
                                                            OIG Semiannual Report    September 2004




     Earlier this year, the joint legislative committee of the President’s Council
on Integrity and Efficiency (PCIE) and the Executive Council on Integrity and
Efficiency (ECIE) agreed to recommend to the entire OIG community that
PFCRA be amended, as described above, and adopted as a OIG legislative
priority. The NSF OIG has had a leading role in this effort.



Outreach
    As part of our ongoing efforts to prevent and detect fraud, waste, and
abuse, we reach out to the communities we serve to inform them about our
work. Our customers include the national and international research
communities, other Federal agencies and OIGs, and NSF.

Working with the Research Community

      IG Co-hosts International Accountability Forum. The Inspector
General co-hosted a workshop, Accountability in Science Research Funding,
with Dr. William Harris, Director General of the Science Foundation Ireland, in
Dublin Ireland on June 9 and 10, 2004. The purpose of the meetings was to
present and discuss models of monitoring and auditing science and
engineering projects and to share best practices among the participating
organizations. Fourteen countries were represented at the workshop including
officials from Austria, Belgium, China, Bulgaria, France, Germany, Switzerland,
and United Kingdom. Presenters at the workshop included Dr. Boesz the
Inspector General, Deborah Cureton the Associate Inspector General for Audit,
and NSF’s Chief Financial Officer Thomas Cooley.

     Presenters offered case studies to explore factors that make
accountability programs effective. Participants agreed that while international
collaborations make complex and expensive projects more feasible, the
accountability challenges are enormous both in terms of scope and resources
required. Strong global communication and cooperation among accountability
professionals are necessary to gain efficiency and to produce timely and
effective reporting systems. The workshop participants expressed interest in
continuing the dialogue and developing an auditor exchange program among
countries to facilitate better understanding of each other’s audit environment.

    AIGI Delivers Keynote Speech. OIG was invited to the Australian
Research Management Society (ARMS) in Fremantle, Western Australia,
where Peggy Fischer, Associate IG for Investigations, was a keynote speaker
discussing compliance programs. The session revealed both the differences



                                                                                       9
OIG Management
       Activities




 Effective compliance programs,             and similarities between the Australian and American
 as described by the Federal                approaches to funding research. The ARMS participants
 Sentencing       Guidelines for            have a strong interest in developing commercial funding
 Organizations, have seven
 characteristics:
                                            for academic research and were concerned about conflict-
 1) Establish compliance standards
                                            of-interests issues. ARMS members, as well as
 and procedures to prevent and              representatives from Denmark, Scotland and Great
 detect violations of law.                  Britain, also expressed concerns about the tension
 2) Have leadership and governing           between securing research funds and ensuring
 authority that is knowledgeable            compliance. The conference again illustrated that
 about the content and operation of         scientific and research communities around the world face
 the compliance program. Specific
                                            many of the same administrative problems and can greatly
 high-level individuals (with adequate
 resources and authority) should be         benefit from sharing their experiences and ideas.
 assigned overall responsibility to
 ensure implementation and                       OIG Staff Present at Conferences. OIG staff
 effectiveness of the program and
 should report directly to the
                                            members were also invited to speak at a wide range of
 governing body.                            conferences held by institutions and associations, as their
                                            members explore ethical dilemmas that arise in
 3) Use reasonable efforts not to
 include in its organization                conducting research and discuss ways to avoid research
 individuals with substantial authority     misconduct and the consequences of committing research
 whose conduct is inconsistent with         misconduct. Presentations were given at the annual
 an effective compliance program.           meeting of Federal Research Demonstration Partners;
 4) Communicate its compliance              Murray State University in Murray, KY as part of Scholars
 program to its employees, agents,          Week; the National Center for Atmospheric Research in
 leaders, and board.
                                            Bolder, CO; and Emory University’s Values in Science
 5) Take steps to monitor and audit         course. The Society for Research Administrators
 its systems to prevent and detect
                                            International requested that we hold workshops at their
 violations of law, evaluate its
 compliance         program,   and          meetings in Baton Rouge, LA and Portland, ME.
 implement a whistleblower system           Workshop attendees were interested in a number of
 that is free of retaliation.               subjects including conflicts of interests, the obligations and
 6) Provide incentive to ensure             commitments of principal investigators, implementing
 conformance with the program and           compliance programs, cost-sharing documentation, and
 disciplinary steps for engaging in         human subjects research.
 violations of law or for failing to take
 steps to prevent or detect those
 violations                                      A member of our staff participated in a panel
 7) Take steps to respond to
                                            discussion at the National Council of University Research
 violations of law and prevent future       Administrators (NCURA) 2004 Summer Conference in
 violations.                                Providence, RI. The panel addressed issues related to
                                            developing effective compliance plans such as
 These seven factors have provided          designating decision makers and providing proper
 the framework for compliance
 programs effected as part of
                                            training, and emphasized how a good compliance plan
 settlement agreements negotiated           can provide mitigating factors in administrative, civil, and
 by the Department of Justice and           criminal proceedings. We also participated in NCURA’s
 other Federal agencies.                    San Francisco meeting.




            10
                                                          OIG Semiannual Report    September 2004




Working with the Federal Community

     Workgroup Advises on Erroneous/Improper Payments. The
Improper Payments Improvement Act of 2002 (P.L. 107-300) requires agencies
to review all programs and activities annually and identify those that are
susceptible to significant improper payments. Under the direction of the Office
of Management and Budget (OMB), the Federal Workgroup on Erroneous/
Improper Payments is examining ways to address issues faced by grant-
making agencies in implementing this Act. In particular, collecting data on
improper payments from the awardee and subawardee has proven to be a
challenge.

     The workgroup is developing cost-effective approaches for identifying
and reporting improper payments. For example, it is drafting a sampling
methodology for grant programs. It is also examining Single Audit reports
maintained by the Department of Commerce to evaluate how the reports could
be used to identify and/or reduce improper payments. As the primary attendee
from the OIG community, the NSF OIG representative provided a perspective
on what actions the OIG community is planning to take on evaluating agency
actions to comply with this Act.

     Research Business Models Workgroup. During this reporting period,
we attended the first meeting of the Research Business Models Working
Group on Subrecipient Monitoring, sponsored by the
National Science and Technology Council’s Committee
on Science. The group plans to evaluate current Federal
guidance on subrecipient monitoring contained in OMB
Circular A-133 and attempt to simplify or eliminate
procedures for overseeing grant funds passed-through
to other organizations that may be redundant. The
meeting included representatives from OMB and from
other research agencies such as the Office of Naval
Research, the Department of Health and Human
Services, and the Environmental Protection Agency.
Because NSF relies on the A-133 audits to help monitor
awardees’ compliance with Federal requirements for
subrecipient monitoring, we will participate in future
meetings of the working group to keep abreast of
proposed revisions to OMB guidance and to offer input
from the audit perspective.

   ECIE Prepares for Investigative Peer Reviews.                Dr. Boesz discusses peer reviews for
NSF OIG has played a leading role in an ECIE working        investigative organizations with Don Hickman
                                                                   of the Tennesee Valley Authority.



                                                                                      11
OIG Management
       Activities




                    group that is preparing for upcoming investigative peer reviews. The working
                    group hosted a training session developed by the Inspector General Academy
                    to assist the ECIE OIGs in developing effective policies and procedures for
                    these voluntary reviews. Our Office of Investigations will undergo peer review
                    early in the upcoming semiannual period.

                          IG Counsels Discuss Electronic Signatures. As electronic
                    submissions from applicants, grantees, and contractors become more
                    commonplace, the matter of verifying who is actually submitting the electronic
                    information to the agency has become an issue in some investigations and
                    litigation. The Council of Counsels to Inspectors General has appointed a
                    group to evaluate the issues associated with electronic signatures, and we
                    participated in the opening meeting.

                         Misconduct in Research Working Group. In response to the Office
                    of Science and Technology Policy’s issuance four years ago of a common
                    Federal definition and procedure for investigation of allegations of research
                    misconduct, we continue to work with other Federal agencies and OIGs as
                    they implement appropriate policies and procedures. Over half of the 23
                    agencies that conduct or fund research have drafted or established a policy
                    on handling research misconduct allegations. Most of those policies articulate
                    a role for IG offices ranging from providing assistance, to handling any civil or
                    criminal matters related to the allegations, to the responsibility for investigation
                    of the research misconduct allegations.

                         PCIE/ECIE Committees. NSF OIG continues to play an active role on
                    the PCIE/ECIE Investigations Committee, which is overseeing the development
                    of a peer review process, and on the Inspection and Evaluation Committee,
                    which is revising its standards for inspections and developing a peer review
                    process for inspection units. OIG staff also participated in updating the PCIE/
                    ECIE Strategic Framework, which sets out the mission and goals of PCIE/
                    ECIE over the next five years.

                    Working with NSF

                         Conflict-of-Interest Briefings. NSF’s Designated Agency Ethics
                    Official continues to offer OIG staff an opportunity to discuss the roles and
                    responsibilities of our office at the conflict-of-interests briefings that occur
                    approximately twice a month. We also continue to participate in the agency’s
                    Program Management Seminar, which provides new NSF staff with detailed
                    information about the Foundation and its activities. Experienced OIG staff
                    serve as resource personnel at this three-day training.




           12
                                                     Audits
                                                                       &               Reviews
                                                           To view reports in their entirety, please visit
                                                                 www.inside.nsf.gov/oig/start.htm.




Significant Reports

Evaluation of Math and Science
Partnership Projects Can Be Improved
     OIG conducted an audit of the Math and Science Partnership
(MSP) Program to determine the effectiveness of its evaluation
processes. The audit reviewed nine partnerships funded in FY
2002 and found that five had effective evaluation plans, but four
were missing key evaluation elements although steps could be
taken to address these issues. Further, we found that, although
NSF indicated it planned to evaluate the overall MSP program, it
had not yet formalized its plans for a program evaluation process
or set definitive timeframes or deadlines.

     In fiscal years 2002 and 2003, NSF awarded a total of
$436.6 million for 35 comprehensive and targeted awards under
its MSP program, many of which will extend over a five-year
period. The legislation authorizing this program, which is intended
to strengthen elementary and secondary mathematics and                             HIGHLIGHTS
science education, requires evaluation processes and measures
to assess the impact of intervention strategies and activities on           Significant Reports              13
student achievement. It also requires NSF to evaluate its overall
                                                                            Corrective Actions
MSP program.
                                                                            Prompted by
                                                                            Previous Reports                 20
     To ensure that all MSP projects could report on the effect of
their intervention strategies on student achievement, we                    Work in Progress                 21
recommended that NSF require that the basic evaluation elements
identified in the audit report be included in all current and future        A-133 Audit Reports              23
MSP project evaluation plans. We also recommended that NSF


                                                                           13
Audits & Reviews




                   program officers verify that the basic evaluation elements are included in
                   current projects’ evaluation plans, and where needed, work with the projects
                   to address elements that are missing or need improvement. Finally, we
                   recommended that NSF develop and document a comprehensive
                   management plan for evaluating the overall MSP program that includes
                   definitive milestones and timeframes.

                        NSF agreed that appropriate overall guidance for evaluations should
                   be included in program solicitations, but did not agree that a framework of
                   required evaluation elements is necessary. However, NSF will convene a
                   workshop of evaluators currently engaged in MSP work to prepare an
                   evaluation statement of practice for current and future MSP projects. NSF
                   also stated that planning for the overall MSP program evaluation has
                   progressed and it has issued a contract for an evaluation of the overall MSP
                   program. Further, NSF stated it has an information system under
                   development that will collect common data elements to be analyzed.


                   Additional Costs of Visiting Personnel Identified
                         During this reporting period, we conducted an audit to identify any
                   additional costs associated with NSF’s use of temporary professionals
                   appointed under the Intergovernmental Personnel Act (IPA) and NSF’s
                   Visiting Scientists, Engineers, and Educators (VSEE) program, instead of
                   permanent staff. To stay in the forefront of scientific initiatives and innovation,
                   NSF relies on the services of highly qualified scientists and engineers in a
                   broad spectrum of fields. NSF refreshes and supplements its permanent
                   professional staff by hiring temporary “rotators” from the nation’s research
                   and education institutions, organizations, and industry.

                       NSF incurs no additional costs for employing VSEEs rather than
                   permanent employees. However, NSF’s additional costs for employing IPAs
                   were approximately $1.3 million annually, an average of $8,518 per IPA,
                   and were largely for higher salaries and compensation for lost consulting
                   fees. As of March 2004, NSF employed 147 IPAs and 39 VSEEs at an
                   approximate annual cost of $23 million and $4.6 million respectively.

                         The audit also found that rotators were the primary users of NSF’s
                   Individual Research and Development (IR/D) program which allow
                   employees and rotators time off and travel funding to conduct research,
                   usually at their home institutions. When rotators’ estimated travel costs for
                   this program are included, additional costs for IPAs and VSEEs nearly
                   doubled to approximately $2.4 million annually. Rotators accounted for
                   approximately 75 percent of the active IR/Ds on file as of May 2004, and if



          14
                                                                OIG Semiannual Report    September 2004




the estimates provided in the IR/D proposals are realized, NSF will annually
contribute 5,238 staff days or the equivalent of 20 full-time positions and $1.3
million in travel costs to support IPA and VSEE independent research.

     NSF complied with Office of Personnel Management and agency rules
and regulations governing rotator assignments. However, we identified a few
areas where NSF could further improve its administration of the IPA and VSEE
programs. For example, we recommended that NSF develop a program to
automate its IPA salary and benefit computation process, in order to improve
the accuracy of these computations. We also recommended that NSF explore
alternative methodologies for computing VSEEs’ salaries to avoid duplicating
payments in determining the salary amounts. NSF generally agreed with our
recommendations.


Interim Audit Questions $29.2 Million in Costs
Claimed by Antarctic Services Contractor
      At the Agency’s request, OIG contracted with the Defense Contract Audit
Agency (DCAA) to perform an incurred cost audit of NSF’s Antarctic Support
Services Contractor. NSF finances and supports Antarctic research, relying
on its Contractor to provide logistics and support services valued at
approximately $1.172 billion over ten
years, including the five-year award
and five-year option. In September
2004, DCAA staff reported on the
interim results of the first phase of this
audit. Of the $363 million total costs
claimed by Contractor for the three-
year period ending December 31,
2002, the auditor questioned $29.2
million because the Contractor
improperly billed indirect costs to the
contract.

      The auditors questioned $21.1
million because the Contractor did
                                                      An aerial view of McMurdo Station Antarctica
not bill indirect costs in accordance
                                                                (photo by Thomas Cross)
with the terms of the contract and its
own disclosed accounting practices.
Specifically, the Contractor claimed indirect costs as direct costs of the contract,
including $8.6 million related to home and corporate office costs, $5.7 million
related to facilities costs, $3.4 million related to human resources costs, $2.7
million related to financial management costs, and over $700,000 related to
sign-on bonus costs.


                                                                                            15
Audits & Reviews




                        The auditors also questioned $6.7 million because the Contractor claimed
                   overhead and General and Administrative (G&A) costs that exceeded the
                   limitations specified in the contract agreement. DCAA found that the
                   Contractor claimed $3.5 million and $3.2 million for overhead and G&A costs,
                   respectively, in excess of the contract limits. The remaining $1.4 million was
                   questioned because the fringe benefit costs claimed exceeded what was
                   allowable.

                        We referred the audit report to NSF’s Division of Contracts and Complex
                   Agreements and recommended that NSF consider these findings in its review
                   of the Contractor’s claim for final payment. The remaining phases of the
                   Antarctic Services Contract audit will include a review of the Contractor’s
                   internal controls for administering, monitoring, and accounting for the NSF
                   contract funds and a review of the direct costs and remaining indirect costs
                   charged to the contract through December 31, 2004.


                   NSF Awards for International Programs
                        International research partnerships bring together counties and scientists
                   with a wide range of backgrounds, information, expertise and resources in
                   the hope of fostering creative solutions to important global research problems.
                   NSF estimates that five to ten percent of its annual budget (between $240
                   and $480 million in fiscal year 2003) is invested in activities with significant
                   international scope. The vast majority of these funds go to U. S. institutions to
                   support international activities and collaboration, but approximately $60 million
                   was awarded directly to 24 foreign institutions during fiscal years 1998-2002.
                   As collaborative international research efforts increase in number, significance
                   and complexity, the challenge for NSF is to develop an effective approach for
                   managing its international activities.

                        Notwithstanding the many benefits of international research programs,
                   NSF awards made directly to foreign institutions may be at increased risk for
                   financial problems and lack of compliance with award requirements. Foreign
                   organizations are less likely to understand U.S. grant requirements and are
                   accustomed to different accounting practices and standards in their countries.
                   Furthermore, NSF processes that are typically applied to awarding and
                   administering domestic grants may not be appropriate for the unique nature
                   of most foreign funding arrangements.

                         In FY 2003 we identified four foreign organizations for audit that received
                   $46 million or 76 percent of total award funding provided directly to foreign
                   institutions during fiscal years 1998-2002. We are reporting on the second
                   of these audits below and are continuing work on the two remaining foreign
                   organizations.

          16
                                                              OIG Semiannual Report    September 2004




NSF Disproportionately Funds Foreign Treaty Organization

     In September, we issued an audit of a foreign treaty organization that
since 1996 has received $16.4 million in NSF awards for global change
research. We found that NSF, on behalf of the United States, is funding a
disproportionate share of the organization’s total costs. Although the U.S.
contribution was initially expected to comprise 25 percent of the organization’s
total funds, it actually represented 87 percent of its income from 1996 to
2003. This occurred because 18 other member countries did not provide
research contributions in the amounts originally anticipated. As a result, the
foreign organization had average annual expenditures of only $2.6 million or
82 percent less than expected, thereby impeding its ability to achieve its
research goals.

     Additionally, the foreign organization needs to improve financial
management and oversight of its 14 research network subawards, valued at
$10.3 million. The organization did not perform either pre-award assessments
of the subrecipients’ capability to administer NSF grant funds or post-award
monitoring to ensure grant funds were spent in accordance with its subaward
agreements. Consequently, the organization encountered serious problems
with two subrecipients that could not adequately support their claimed costs
on awards totaling $1.1 million.

     Funding for the organization did not materialize as expected because
the foreign organization’s treaty agreement required member countries to
provide only voluntary contributions to support its operational costs and
research programs. We found that the organization did not give adequate
priority or attention to seeking alternate sources of funding when the shortfalls
occurred. Similarly, the organization did not give sufficient priority to monitoring
and improving its oversight of subawardees because it did not understand its
responsibilities for NSF grants. NSF efforts to effect procedural changes in
the grantee’s managing and monitoring of award funds were difficult and not
always successful because the changes had to be approved & implemented
by the organization’s governing body, which included representatives from all
19 member countries.

     Given the lack of financial support by other member countries, we
recommended that NSF work with the governing body to promote and oversee
fundraising activities; re-assess the organization’s mission, goals, and staffing
levels if additional funding is not obtained; and ensure that the organization
establishes written subaward management policies and procedures. Finally,
we recommended that NSF cease providing additional research awards to
the organization until it has developed and implemented written monitoring
procedures to ensure its subawardees are properly accounting for and
managing NSF grant funds.

                                                                                         17
Audits & Reviews




                        NSF generally concurred with the audit conclusions and
                   recommendations. NSF agreed to continue working with the organization’s
                   governing body to direct the foreign organization to give priority to fund-raising
                   activities and to re-evaluate its programs if additional funding is not obtained.
                   Also, the foreign awardee stated that subaward management policies and
                   procedures were being developed and NSF agreed to provide technical
                   assistance in this regard.


                   Awards to Community Colleges
                           Community colleges historically have received approximately $30 to
                   $40 million in annual NSF funding. Prior audits of community colleges have
                   identified questioned costs and grant accounting control weaknesses, mostly
                   related to cost sharing, subawardee monitoring, and labor activity reporting.
                   To assess the extent of these problems, we initiated audits over the past
                   three years at 14 community colleges that had received 78 NSF awards
                   totaling about $46 million. In two prior Semiannual Reports1, we reported on
                   the results of eight community college audits. Since that time, we have
                   completed an additional three audits, including the one described in the
                   following section.

                   Northwestern Community College Unable to Document or Track
                   NSF Funds

                           OIG completed an audit of awards to a Northwestern community college
                   for an environmental technology-training center and for improving math and
                   science curriculum programs in rural communities. We were unable to
                   determine whether $1.1 million of costs claimed by the community college
                   were spent on those projects so we could not express an opinion on the claimed
                   costs or cost sharing. Consequently, we questioned all of the $1.1 million of
                   direct costs funded by NSF and the entire $35,000 of cost sharing required
                   on two expired awards. We also identified another $141,000 of cost sharing
                   on a third award that was still active at the time of our audit as being “at-risk”
                   that the contributions would not be made.

                         The community college lacked an adequate financial management
                   system for recording the receipt and expenditure of funds for projects
                   supported by NSF, and did not have source documentation to support the
                   costs charged to the NSF projects. We identified these as material


                   1
                       September 2002 Semiannual Report (pp.24-26);
                       September 2003 Semiannual Report (pp.22-23)



          18
                                                           OIG Semiannual Report    September 2004




deficiencies in the community college’s internal controls for administering NSF
awards. Given the pervasiveness of the financial management deficiencies
disclosed, we recommended that NSF identify this community college as a
high-risk grantee under its risk management program. Until the community
college implements corrective actions, NSF has little or no assurance that the
community college will spend NSF award funds on authorized purposes or
that the overall project goals will be achieved as originally anticipated. The
community college acknowledged the problems identified in the audit report,
and stated that since the audit was completed it had taken a number of actions
to improve its internal controls. We referred the audit report to NSF’s Division
of Institution and Award Support for resolution.


Audits of Indirect Cost Rates
     Approximately 20 percent of the $5 billion of costs incurred annually by
NSF grantees, or $1 billion, are for indirect costs. Because of the significance
of this type of expense and the risk of inflated indirect cost rates, we have
undertaken audits of a sample of twelve indirect cost proposals. During this
reporting period, we completed our tenth audit.

Scientific Society Needs to Improve Its Federal Award Administration
and Indirect Cost Rate Proposal Preparation

      OIG reviewed the FY 2000 and FY 2001 indirect cost proposals of a
scientific society with offices in Washington, D.C. and the Midwest. Based
on Federal cost principles, the awardee improperly included $178,075 of
unsupported travel costs in its indirect cost pools. The awardee also incorrectly
excluded $4.8 million of costs from the direct cost bases. These errors resulted
in the awardee overstating its proposed indirect cost rates by 1.9 percent
and 1.68 percent for fiscal years 2000 and 2001, respectively. In addition, we
found that the organization did not account for all employees’ activities as
required by Federal cost principles to ensure that actual labor costs would be
fairly charged to Federal awards.

      We recommended that NSF require the organization to develop and
implement written policies and procedures that covers the inclusion of all
activities in the direct cost base and the retention of adequate supporting
documentation for all travel costs. Further, we recommended the organization
not charge direct labor or allocate indirect labor charges to any Federal awards
until it maintains supporting documentation for labor charges that meets the
requirements in the Federal cost principles. The organization agreed with
our recommendations but stated that it should be allowed to charge labor as



                                                                                      19
Audits & Reviews




                   cost sharing on Federal awards without accounting for labor as prescribed
                   by Federal cost principles. We disagree and have referred the issue to NSF’s
                   designated audit resolution official for a decision.


                   Corrective Actions Prompted by
                   Previous Audits

                   Recommendation Addressing Antarctic
                   Infrastructure Planning Remains Unresolved
                         Our March 2003 Semiannual Report described an audit of the U.S.
                   Antarctic Program’s Medical and Occupational Health and Safety Programs
                   for which we recommended that NSF initiate life-cycle planning and associate
                   budget resources with its planned upgrades and replacements for USAP
                   facilities.2 This recommendation remains unresolved. Because we have been
                   unable to reach resolution with NSF management on this recommendation,
                   we are referring the matter to NSF’s designated audit resolution official, the
                   NSF Deputy Director, for a decision. The audit report is posted on the OIG
                   website, http://www.oig.nsf.gov/auditpubs.html.


                   Large Western University System Changes Policy
                   Allowing Excess Faculty Compensation
                        A western university system, that has received $280 million in NSF funding
                   over the last ten years, had allowed faculty to be paid up to 25 percent above
                   their full-time academic year salary from Federal funds without prior Federal
                   approval. However, as a result of an audit reported in our March Semiannual
                   Report3, the university system changed its long standing position and agreed
                   to instruct all of its campuses to clearly identify and obtain prior written NSF
                   approval for overload compensation, or for any extra salary for faculty members
                   during the academic year.

                         The specific campus we audited revised its grant policies in August 2004
                   to eliminate the provisions that previously allowed overload compensation.
                   NSF officials agreed that the change in policy could result in an estimated
                   $800,000 of NSF grant funds that can be used for other program purposes
                   over the next five years.



                   2
                       March 2003 Semiannual Report, p.19
                   3
                       March 2004 Semiannual Report, p.16


          20
                                                            OIG Semiannual Report    September 2004




Three Indirect Cost Rate Audits Resolved
    During this reporting period, NSF resolved indirect cost rate audits
previously reported in our September 2003 Semiannual Report4:

     For a natural history museum, NSF agreed that the five percentage point
reduction from the museum’s proposed indirect cost rate of 55.34 percent to
our audited rate of 50.02 percent would generate a projected $594,954 savings
to the Federal Government over five years. NSF also sustained $46,326 of
questionable costs that the museum charged to NSF grants. NSF will work
with this organization to finalize rates from past years. However, since NSF is
no longer cognizant for this organization, future rate proposals and the
methodology on which they are based will be worked out with the cognizant
agency.

     For a Midwestern botanical garden, NSF agreed to assess how to treat
$2 million of curatorial costs. If curatorial costs are excluded from its indirect
cost pool, the institution’s proposed indirect cost rate would drop by as much
as 46 percent. The institution agreed to make the necessary changes to its
accounting system to improve its general ledger accounting for indirect costs
and develop a time keeping system to document its staff work on Federal
projects.

     For a Midatlantic research institution, we found that the organization
misclassified $2 million of research stipends, which were de facto salary and
wages, thereby overstating its five separate indirect cost rates by as much as
39 percent. The institution disagreed claiming that stipends are participant
support, which is not used in the calculation of indirect cost rates. NSF agreed
to discuss research stipends further with the organization and determine how
such costs should be classified in calculating the institution’s indirect cost
rates.


Work In Progress

Grantee Reporting
      We are currently conducting an audit of the timeliness of required annual
and final reports from NSF award recipients. NSF collects a significant amount
of information on the progress and results of the awards it funds through these
reports. When a report submission is not timely, it can impact the program

4
    September 2003 Semiannual Report, p.21



                                                                                       21
Audits & Reviews




                   officer’s ability to effectively manage the award. Furthermore, missing reports
                   could impact NSF’s ability to report to stakeholders such as the National
                   Science Board and Congress on the contributions of funded research to
                   science and engineering. This audit examines both the timeliness and use of
                   annual and final project reports. We will issue our audit report during the next
                   semiannual reporting period.


                   Survey of a Science and Technology Center
                       Because of their size and complexity, awards to Science and Technology
                   Centers (STCs) contain more financial risk than most other NSF awards.
                   NSF’s Office of Integrative Activities requested that the OIG conduct audits of
                   several STCs that had recently undergone significant changes in leadership
                   and management. During this reporting period, we conducted a survey of an
                   STC to learn more about the STC program and observe Center operations.
                   Our survey identified several strengths in the Center’s leadership and
                   management, as well as opportunities to improve its internal controls in the
                   areas of monitoring sub-recipients and documenting policies and procedures.

                        We will use the results of this survey to conduct a performance audit of
                   two other STCs. The objective will be to assess whether each Center’s
                   management control environment supports the accomplishment of its goals
                   and research mission. In conjunction with this performance audit, we are
                   contracting with an independent public accounting firm to determine if the
                   Centers have adequate financial management controls to safeguard NSF
                   funds, properly account for payments and expenditures, and comply with award
                   requirements, including any cost sharing. We expect to issue reports on each
                   of these centers in the next semiannual reporting period.


                   Travel Cards
                         We recently initiated a follow-up audit of NSF’s Travel Charge Card
                   Program. The Travel and Transportation Reform Act of 1998 requires Federal
                   employees to use a government credit card to pay for official government
                   travel expenses such as hotels, transportation costs, and meals. This audit
                   will examine whether cardholders are using their government travel cards
                   properly and paying their bills in a timely manner. In addition, we will determine
                   if NSF is adequately managing its travel card accounts. We expect to issue
                   the audit report in the upcoming semiannual reporting period.




          22
                                                               OIG Semiannual Report   September 2004




A-133 Audit Reports
     The Single Audit Act of 1984 (Public Law 98-502), as amended,
established uniform requirements for audits of non-Federal entities receiving
Federal awards. Under the Act, non-Federal entities that expend $500,000 or
more a year in Federal funds are required to have an organization-wide audit
(referred to as an A-133 or Single Audit) of its financial statements and
compliance with Federal award requirements.


Desk Reviews
     In this reporting period, we conducted desk reviews of 88 A-133 audit
reports with NSF expenditures totaling $1.1 billion between FYs 2001 and
2003. Of those reviewed, 71 reports contained reportable
conditions and non-compliance findings. The most common
deficiencies related to non-compliance with Federal cost
principles, sub-recipient monitoring, and lack of source
documentation. Questioned costs included $415,500 of NSF
grants embezzled by a university employee and $170,199 in
matching funds for which an entity was unable to provide
adequate supporting documentation. In total, auditors
questioned $1,224,286 of NSF award costs claimed by award
recipients.

      Our office also continued to examine Management Letters
accompanying A-133 audit reports, which report less
significant internal control weaknesses that still require attention
by the institution’s management. Our examination of
Management Letters in this reporting period identified six
entities with internal control problems in the areas of financial
management, sub-recipient monitoring, and reporting. While              In June, OIG recognized staff
considered less significant at the time of the audit, we have             member Shirley Ross who
found that internal control weaknesses that are not addressed          received a degree in computer
may become more serious over time.                                          information systems.


Single Audit Quality Project
     A-133 audit reports are essential to helping NSF fulfill its responsibility
for monitoring the approximately $5 billion of awards it funds annually. However,
concerns raised by Quality Control Reviews (QCRs) conducted by a number
of Federal agencies have prompted the OIG community to conduct a



                                                                                          23
Audits & Reviews




                   government-wide project to assess and provide a baseline measurement of
                   Single Audit quality. Beginning in October 2004, the project will perform QCRs
                   of a statistically representative sample of A-133 audits. Serving on both the
                   Project Advisory Board and the Project Management Staff, the NSF OIG
                   actively participated in 1) developing the sampling methodology and the
                   evaluation instrument that will be used in the reviews, 2) drafting the Request
                   for Proposals, and 3) selecting independent public accountants to conduct
                   the reviews. Given the importance of A-133 audit quality to NSF’s post-award
                   administration, the OIG will continue to be involved in overseeing, conducting
                   and reporting on the results of the QCRs.




          24
                                                                    Investigations




Civil and Criminal Investigations

Small Business Owner Pleads Guilty to
Mail Fraud and Tax Evasion
     An investigation of the owner of a company that received
Small Business Innovation Research (SBIR) awards from NSF
and other Federal agencies resulted in the owner entering a plea
of guilty in Federal court. The investigation, which was conducted
by NSF OIG and other affected agencies’ OIGs, uncovered a
broad scheme by the owner to defraud the government by
submitting false statements in SBIR proposals and research
reports, and converting award funds to his personal use.

     The owner pled guilty to mail fraud, 18 U.S.C. § 1341, for
sending a progress report to NSF for his SBIR Phase II award
that included research that was previously conducted by the
company under an Air Force SBIR award. He also pled guilty to
tax evasion, 26 U.S.C. § 7201, for using Federal SBIR funds to
pay for personal expenses, such as repairs and improvements
to his home, thereby evading over $93,000 in income tax on his
personal tax return for 1999. The total loss of Federal funds related
to the subject’s fraudulent scheme is estimated at $1.4 million.             HIGHLIGHTS
    Based on the guilty plea and our recommendation, NSF                Civil/Criminal
recovered $120,000 of its funds that it withheld from the NSF           Investigations    25
grant pending the outcome of OIG’s investigation. We also
recommended that NSF exclude the owner and his company from             Administrative
receiving funds from any Federal agency. NSF’s decision is              Investigations    27
pending.


                                                                        25
  Investigations




                   University Admits to Mis-Charging Technical
                   Salaries to NSF Awards
                        OIG received a complaint that a university was charging a 5% surcharge
                   to NSF awards for technical support salaries. We initiated an investigation
                   and worked with the university to review technical support charges to NSF
                   awards. Although we found no evidence of fraud, the university restored
                   $364,539 to NSF for technical support expenses that were erroneously
                   charged to its NSF awards. Generally technical support costs can be charged
                   to Federal grants as direct costs only for particular services provided for
                   particular grants; otherwise such costs constitute administrative support
                   services costs that are included in the university’s indirect cost rate.

                        As a result of our investigation, the university changed its policies and
                   procedures to ensure that technical support is charged appropriately to Federal
                   awards. The university also identified $518,993 of technical support charges
                   that had been wrongfully charged to awards from 12 other Federal agencies.
                   We notified the other Federal agencies of this issue and obtained a
                   commitment from the university to work with each of them to resolve these
                   overcharges.


                   University Employee Sentenced for Theft of Grant
                   Funds
                                                     Last March we reported that a California
                                                university discovered that one of its employees had
                                                stolen $40,889 in NSF grant funds.5 The subject
                                                pled guilty to one count of violating 18 U.S.C. § 666,
                                                “theft or bribery concerning programs receiving
                                                Federal funds,” and was sentenced to 30 days in
                                                prison followed by 150 days of home confinement
                                                and 3 years of supervised release. We
                                                recommended that NSF debar the subject from
                                                obtaining the benefits of Federal awards for a period
Attorney Richard Woodford addresses a grant     of two years. NSF has not yet acted on this
     fraud conference hosted by NSF OIG.        recommendation.




                    5
                        March 2004 Semiannual Report, p.26



          26
                                                               OIG Semiannual Report   September 2004




Personal Use of Agency Information Technology
Resources Clarified
     Two recent Semiannual Reports described a case involving an NSF
employee who advertised stolen property for sale using NSF’s electronic
bulletin board.6 The employee did not cooperate with our investigation and
ultimately resigned. During the course of this investigation, we identified several
weaknesses in NSF’s policy for personal use of information technology (IT)
resources, and later issued a report with recommendations for corrective
actions. In response, NSF recently updated the policy, defining acceptable
personal uses of NSF’s IT resources and prohibiting private business use.
The revised policy provides that personal use of agency IT resources must
not result in additional charge to the government, be offensive to others, or
break the law. The revised policy also includes links to other relevant policies
such as NSF’s IT Security Policy for employees to review.


Administrative Investigations

Action by the Deputy Director

NSF Takes Action in Plagiarism Case

     Last September, we reported on our investigation of an allegation that a
proposal submitted to NSF that allegedly contained more than a page of text
and associated ideas plagiarized from a confidential research proposal
submitted to another agency.7 We referred the matter to the subject’s university,
which conducted an investigation and concluded that the acts of plagiarism
constituted reckless disregard of the standards of scholarship. We
recommended that NSF make a finding of research misconduct, debar the
subject from Federal funding for one year, and require certifications and
assurances for a period of two years. NSF made a finding of research
misconduct and debarred the subject from receiving Federal funds for a period
of one year. In addition, NSF imposed a requirement that certification and
assurance letters accompany the subject’s proposals to NSF for the year
following the debarment period, stating that the proposal complies with NSF’s
research misconduct regulation. Finally, NSF excluded the subject from
participating as an NSF panelist, reviewer, advisor or consultant for a period
of two years.



6
    September 2003 Semiannual Report, p.31; March 2004 Semiannual Report, p.27
7
    September 2003 Semiannual Report, p.35


                                                                                         27
Investigations




                 Plagiarism Results in Misconduct Finding Against PI

                      Last March, we discussed a case in which the subject plagiarized from a
                 published paper and an NSF proposal received through the confidential peer
                 review process.8 Based on our investigation report and recommendations,
                 NSF made a finding of research misconduct and required that any proposal
                 submitted by the subject be accompanied by certifications by the subject and
                 his department chair that his proposal contains no plagiarized material. The
                 subject requested and has been granted an extension of time to file an appeal
                 to NSF’s Director.


                 Reports Forwarded to the Deputy Director

                 Post-Doctoral Researcher Fabricates Data

                      OIG received an allegation that a postdoctoral scientist working at a
                 research institute affiliated with a major university in New York, fabricated
                 and falsified data in a published research paper. The scientist’s research,
                 supported by NSF and the Public Health Service (PHS), was part of a larger
                 collaborative project involving several universities located across the country,
                 supported jointly by several Federal agencies. After reviewing the institute’s
                 inquiry and investigation reports, we determined that the institute had not
                 followed its own published procedures for the investigation of allegations of
                 research misconduct and decided to conduct our own investigation.

                       We concluded that the researcher knowingly and intentionally fabricated
                 data in multiple analyses to make it appear that replicate experiments had
                 been completed when in fact only a single analysis had been performed. The
                 fabrication involved multiplying the values contained in the original data by a
                 common factor to provide a new set of numerical values that were then
                 presented as the replicate data set. To support the data fabrication, the
                 researcher manipulated corresponding graphical images to make the image
                 consistent with a falsified replicate analysis. The scientist’s actions ultimately
                 led to the retraction of the entire publication in which the fabricated and falsified
                 data appeared.

                      We recommended that NSF make a finding of research misconduct
                 against the subject and debar him for two years. Their decision is pending.
                 We worked closely with the Office of Research Integrity of PHS to coordinate
                 the joint final recommendation to both agencies.


                 8
                     March 2004 Semiannual Report p. 28



        28
                                                            OIG Semiannual Report    September 2004




PI Fabricates Publication Record

     OIG recommended that NSF debar a PI for two years for fabricating the
existence of and citations for two manuscripts referenced in his two NSF
awards, one of which was a CAREER award. An investigation by the PI’s
university determined that he provided false biographical information as part
of his NSF proposals. The PI cited two manuscripts as “submitted to” two
prominent journals, and also referenced a “submitted” manuscript within the
text of the proposal for his CAREER award. The investigation determined
not only that the manuscripts had not been submitted to the journals, but that
the manuscripts did not exist at all.

      The investigation identified a pattern of misrepresentation by the PI. In
five proposals submitted to other agencies over a 10-month period, he claimed
that the same two non-existent manuscripts were submitted to the same two
journals. He later claimed that he planned to submit manuscripts to those
journals shortly afterward, but neither manuscript existed when he submitted
the first proposal, neither existed 10 months later when he cited them in the
fifth proposal, and neither existed when we completed our investigation. The
PI’s pattern of misrepresentation also included an earlier misconduct case in
which the PI was found to have committed plagiarism and falsification under
a Public Health Service award when he was a postdoctoral fellow. The
investigation also determined that the PI incorporated the same material
involved in that case into another of his non-NSF proposals while he was a
faculty member at the university.

      As a result of its investigation, the University found that the PI committed
research misconduct under its policy. He resigned from the faculty, thereby
limiting the university’s ability to take action. The PI had already begun work
in a new position at a Federal research facility by the time he received a copy
of our draft investigation report for comments; after receiving the draft, he
resigned. To protect the Federal interest, we recommended that NSF debar
the PI for two years, and that certifications and assurances be required for
any proposals he might submit for a period of three years following his
debarment. Their decision is pending.

Researcher Commits Plagiarism

     We received an allegation that a PI at a California university copied
material from multiple published papers into a proposal she submitted to NSF.
In response to our questions about the copied text, the PI denied writing the
proposal, explaining that she was merely a sponsor for the author, a researcher
in her laboratory. Because the researcher was not eligible to be a PI under



                                                                                       29
Investigations




                 the university’s rules, the PI submitted the researcher’s proposal under her
                 name.

                       Following its investigation, the university concluded that the researcher
                 committed research misconduct, specifically plagiarism, and that the PI was
                 negligent in carrying out her responsibilities. Additionally, the investigation
                 discovered several significant inaccuracies in the proposal. The university
                 reprimanded the PI and the researcher, and took additional steps to ensure
                 that the researcher does not work for the university in any research capacity
                 or claim any association with the university for a period of two years.

                      We agreed with the university’s conclusions, and recommended that NSF
                 send a letter of reprimand to the researcher informing him he has committed
                 research misconduct. We recommended that NSF require him to provide
                 certifications that his submissions to NSF are properly referenced and
                 accurate, for three years from the resolution of this case. Their decision is
                 pending.

                 Co-PI Participates in Plagiarism of REU Proposal

                      We received an allegation that a Research Experiences for
                 Undergraduates (REU) proposal submitted by a PI and co-PI at a Michigan
                 university was plagiarized from a successful REU proposal written by scientists
                 at another institution. We compared the two proposals and found roughly six
                 and a half pages of identical or substantially similar text. The PI and co-PI
                 told us they obtained a paper copy of the source proposal from the authors,
                 made an electronic copy, and used this as the basis for their proposal. They
                 explained that they intended to delete all the original text, but inadvertently
                 neglected to do so.

                       As a result of its investigation, the university found that the co-PI committed
                 research misconduct under its policy. The PI’s case is not yet resolved. The
                 university reprimanded the co-PI, and, for a period of two years: 1) required
                 that an institutional official certify to the accuracy of reports under any of his
                 Federal awards and provide assurance of compliance with all relevant
                 institutional policies, regulations, and guidelines; 2) required that two
                 institutional officials review his requests for Federal funding prior to submission;
                 and 3) prohibited him from serving as an NSF reviewer. Consistent with the
                 university’s actions, we recommended that NSF find that the co-PI committed
                 research misconduct, send him a letter of reprimand, require assurances of
                 compliance for two years, and prohibit him from serving as an NSF reviewer
                 for two years. We also recommended that he be required to complete ethics
                 training.



        30
                                                            OIG Semiannual Report    September 2004




Other Administrative Activities Resulting from
Investigations

Court Enforces IG Subpoena

    OIG went to court to compel a state entity to comply with an Inspector
General subpoena; this is the first time we have been forced to seek judicial
enforcement of a subpoena. To facilitate investigations and audits, the
Inspector General Act provides broad authority to IGs to:

       require by subpoena the production of all information, documents,
       reports, answers, records, accounts, papers, and other data and
       documentary evidence necessary in the performance of the functions
       assigned by this Act, which subpoena, in the case of contumacy or
       refusal to obey, shall be enforceable by order of any appropriate
       United States district court . . .. (IG Act § 6(a)(4).)

    In conjunction with an ongoing investigation, we issued an administrative
subpoena to the Illinois Department of Revenue (IDR) for tax records and
supporting documentation filed on behalf of two corporations under
investigation. The IDR refused to comply, asserting that state law prevented
them from disclosing state tax records.

     The Federal subpoena authority under the IG Act preempts conflicting
state law. The U.S. Attorney’s Office for the Central District of Illinois filed a
motion for enforcement of our subpoena in the U.S. District Court, which the
IDR opposed. The Court agreed that the state law was preempted by the IG
Act and ordered the IDR to comply with the subpoena, which it did.

$68,826 in Program Income Recovered

     In past investigations and reports, we noted that grantees sometimes
use program income incorrectly. Last September,9 we discussed a proactive
review we conducted to analyze the use of program income in conference
and workshop awards. We selected a stratified random sample of awards
from fiscal year 2001 and requested financial information about the award
from the awardee institution.

    Of the awards in the sample, 25 percent were initially determined to contain
no program income issues. The remaining grants raised concerns that fell

9
    September 2003 Semiannual Report, p. 41



                                                                                       31
Investigations




         Program Income                   into four categories: failure to account for or properly
                                          use program income; inappropriate charges to the
NSF grants for conferences and            award; misuse of travel expenses; and reallocation of
workshops are governed by either the
Grant General Conditions (GC-1) or        participant support without NSF permission. As a result
the     Federal     Demonstration         of the review, we have thus far 1) recovered $68,826
Partnership (FDP) General Terms and       that the awardees determined was inappropriately used,
Conditions, and, if mentioned in the
award letter, by Grant Special            and 2) referred four matters to the Office of Audit. We
Conditions FL 26, “Administration of      also clarified the rules for handling conference award
NSF Conference or Group Travel            funds and associated program income with the
Award.”
                                          awardees and program officers involved. We continue
Both the current GC-1 and FDP             to work with the institutions to address the issues.
General Terms and Conditions mirror       During the coming semiannual period we expect to
OMB Circular A-110’s definition of
program income:                           complete the project and prepare a Management
                                          Implications        Report     containing      specific
“Program income means gross               recommendations for NSF.
income earned by the recipient that is
directly generated by a supported
activity or earned as a result of the
award. Program income includes, but
                                          NSF Clarifies Its Policy on Holiday Pay
is not limited to, income from fees for
services performed, the use or rental           In spring 2003, OIG received several inquiries from
of real or personal property acquired
under Federally-funded projects, the      employees regarding whether NSF was complying with
sale of commodities or items              the rules governing pay to employees required to work
fabricated under an award, license        on holidays. They expressed concern about whether
fees and royalties on patents and
copyrights, and interest on loans         holiday pay was available for such work and whether
made with award funds. Interest           supervisors would view their request negatively. We
earned on advances of Federal funds       researched the applicable law governing holiday pay
is not program income. Except as
otherwise provided in Federal             and compared it to NSF policy, procedure, and practice.
awarding agency regulations or the        Over the course of a year, we consulted with NSF’s Office
terms and conditions of the award,        of General Counsel and Division of Human Resource
program income does not include the
receipt of principal on loans, rebates,   Management regarding our findings. During this period,
credits, discounts, etc., or interest     NSF clarified its policy concerning holiday pay by issuing
earned on any of them.”                   an agency bulletin summarizing applicable law, providing
FL 26 states that:                        examples of the circumstances under which employees
                                          are entitled to holiday pay, and encouraging NSF
“Any registration or other fees paid by   Directorates and Offices to consult with the Division of
conference participants shall be used
to defray reasonable expenses             Human Resource Management regarding employee
directly associated with the              entitlement to holiday pay prior to the anticipated holiday
conference for which funds are not        work.
otherwise available. If fees exceed
such expenses, the remainder shall
be used to offset allowable costs
otherwise chargeable to this grant.”
                                          NSF Takes Steps To Improve Monitoring
                                          Of Human Subjects Research

                                              Past OIG investigations identified shortcomings
                                          with NSF’s procedures to monitor and enforce


         32
                                                              OIG Semiannual Report    September 2004




compliance with the Federal regulation for the protection of human subjects,
known as the Common Rule. Under the Common Rule, an institution must
have received approval from its institutional review board (IRB), or affirmatively
declare an exemption from the government-wide regulation, before NSF may
grant the award for a project involving human subjects. NSF currently relies
on grant applicants to self-identify the involvement of human subjects in
proposals; however, OIG investigations have drawn attention to the failure of
applicants to do so. In our March 2004 Semiannual Report, we reported that
a division within an NSF directorate failed to code NSF’s internal forms, which
are intended as a check on the self-reporting
system10. The omission compromised NSF’s
ability to track the involvement of human
subjects in NSF-funded projects in that
directorate. When we reported these concerns
to NSF, the agency changed the Grant
Proposal Guide to present the requirements
more clearly and emphasized the need for
someone other than the PI to declare the
relevant exemptions. The directorate involved
also took steps to improve its internal review
of human subjects compliance, including
requiring program officers to specifically Federal regulations aim to protect the health and safety
confirm human subjects compliance before an           of human and animal research subjects such as
award can be made.                                              “Pringles”, a potbelly pig.


Eight Travel Card Cases Receive Administrative Actions

      In our March 2004 Semiannual Report, we reported an investigation
concerning misuse of government travel cards11. In one case, involving the
falsification of official records to hide her misuse, the employee resigned her
NSF position and pled guilty to violation of 18 U.S.C. § 2071(b), the willful and
unlawful destruction of an official record, which is a felony. In eight less serious
cases, NSF employees had misused their government travel credit cards by
making ATM cash withdrawals and purchases that were unrelated to official
travel. As a result of that investigation, NSF management imposed a range of
administrative actions that varied with the seriousness of the violations. While
most were issued reprimands or warnings, the most senior employee involved
was issued a 5-day suspension and the travel cards of two employees were
either revoked or suspended. Our office continues to work with NSF
management to prevent and detect credit card fraud and abuse.



10
     March 2004 Semiannual Report, pp. 28-30
11
     March 2004 Semiannual Report, pp. 23-24


                                                                                         33
Investigations




        34
                                                      Statistical Data




Reporting Terms Defined                                 36

Audit Reports Issued
with Recommendations for Better Use of Funds            37

Audit Reports Issued with Questioned Costs              38


Audit Reports Involving Cost-Sharing Shortfalls         39


Status of Recommendations Involving
Internal NSF Management Operations                      40


List of Reports                                         41


Audit Reports With
Outstanding Management Decisions                        45


Investigative Case Activity                             46


Investigative Case Statistics                           47

Freedom of Information Act and Privacy Act Requests     48




                                                        35
Statistical Data




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

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

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

                   Unresolved Costs. Costs that have been claimed, but can not be evaluated
                   at the time of the audit because either: 1) the criteria for their measurement
                   has not been established; 2) the period for establishing the criteria is not
                   complete or 3) the criteria is unclear or ambiguous. This category most
                   frequently applies to indirect costs. For example, if a final indirect cost rate
                   has not been determined for a particular period, the claimed indirect costs
                   for that period would be classified by the auditor as unresolved costs.

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

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

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

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

          36
                                                       OIG Semiannual Report   September 2004




Audit Reports Issued with
Recommendations for Better Use of Funds
                                                            Dollar Value
A. For which no management decision has been made
   by the commencement of the reporting period                $11,738,793

B. Recommendations that were issued during the
   reporting period                                             $174,370

C. Adjustments related to prior recommendations                         0

Subtotal of A+B+C                                            $11,913,163

D. For which a management decision was made during
   the reporting period                                       $6,738,793

   i) Dollar value of management decisions that were
      consistent with OIG recommendations                     $2,070,730

   ii) Dollar value of recommendations that were not
       agreed to by management                                $4,668,063

E. For which no management decision had been made
   by the end of the reporting period                         $5,174,370

For which no management decision was made within
6 months of issuance                                          $5,000,000




                                                                                37
Statistical Data




                   Audit Reports Issued with Questioned Costs

                                                        Number    Questioned Unsupported
                                                             of       Costs       Costs
                                                        Reports
                   A. For which no management
                      decision has been made by
                      the commencement of the
                      reporting period                      10     $628,670     $117,300

                   B. That were issued during the
                      reporting period                      22    $2,442,963   $1,176,884

                   C. Adjustment related to prior
                      recommendations                        2     $550,186           $0

                   Subtotal of A+B+C                        34    $3,621,819   $1,294,184

                   D. For which a management
                      decision was made during the
                      reporting period                      12    $1,035,632    $118,244

                      i) dollar value of disallowed
                          costs                            N/A     $180,085          N/A
                      ii) dollar value of costs not
                          disallowed                       N/A     $855,547          N/A

                   E. For which no management
                      decision had been made by
                      the end of the reporting period       21    $2,586,187   $1,175,940

                   For which no management
                   decision was made within 6
                   months of issuance                        1     $202,168           $0




          38
                                                    OIG Semiannual Report   September 2004




Audit Reports Involving Cost-Sharing Shortfalls

                                   Number       Cost-      At Risk of      Actual
                                        of    Sharing   Cost Sharing Cost Sharing
                                   Reports   Promised       Shortfall   Shortfalls
                                                           (Ongoing   (Completed
                                                             Project)     Project)
 A. Reports with monetary
    findings for which no
    management decision has
    been made by the
    beginning of the reporting
    period:                              0         $0               $0                $0

 B. Reports with monetary
    findings that were issued
    during the reporting period:         1         $0         $141,114                $0


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

 Total of Reports with Cost
 Sharing Findings (A+B+C)                1         $0         $141,114                $0

 D. For which a management
    decision was made during
    the reporting period:              N/A         $0               $0                $0

    1. Dollar value of cost-
       sharing shortfall that
       grantee agreed to
       provide                         N/A        N/A               $0                $0
    2. Dollar value of cost-
       sharing shortfall that
       management waived               N/A        N/A               $0                $0

 E. Reports with monetary
    findings for which no
    management decision has
    been made by the end of
    the reporting period                 1        $0          $141,114                $0



                                                                             39
Statistical Data




                   Status of Recommendations Involving
                   Internal NSF Management Operations

                    Open Recommendations (as of 9/30/04)
                       Recommendations Open at the Beginning of the
                         Reporting Period                                                   48
                       New Recommendations Made During Reporting Period                     27
                       Total Recommendations to be Addressed                                75

                    Management Resolution of Recommendations12
                       Awaiting Resolution                                                  49
                       Resolved Consistent With OIG Recommendations                         26

                    Management Decision That No Action is Required                           0

                    Final Action on OIG Recommendations13
                        Final Action Completed                                              13
                        Recommendations Open at End of Period                               62

                    Aging of Open Recommendations

                            Awaiting Management Resolution:
                                  0 through 6 months                                        43
                                  7 through 12 months                                        0
                                  More than 12 months                                        6

                            Awaiting Final Action After Resolution:
                                  0 through 6 months                                         2
                                  7 through 12 months                                        5
                                  More than 12 months                                        6




                    12
                       “Management Resolution” occurs when the OIG and NSF management agree on
                    the corrective action plan that will be implemented in response to the audit
                    recommendations.
                    13
                       “Final Action” occurs when management has completed all actions it agreed to
                    in the corrective action plan.



          40
                                                OIG Semiannual Report   September 2004




List of Reports


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

04-1-008   Community College   $1,150,840    $1,150,840           $0      $141,114
04-1-009   Scientific Society          $0            $0           $0            $0
04-2-003   NSF internal review         $0            $0           $0            $0
04-2-005   NSF program report          $0            $0           $0            $0
04-2-006   NSF internal review         $0            $0           $0            $0
04-2-007   NSF internal review    $67,837            $0     $174,370            $0
04-2-008   NSF internal review         $0            $0           $0            $0
04-6-002   NSF Contractor              $0            $0           $0            $0
04-6-003   NSF Contractor              $0            $0           $0            $0
04-5-004   Research Foundation         $0            $0           $0            $0
           Total:              $1,218,677    $1,150,840     $174,370      $141,114




                                                                         41
Statistical Data




                   NSF-Cognizant Reports


                                                                            Cost
   Report                                    Questioned    Unsupported   Sharing
   Number            Subject                      Costs          Costs    At-Risk

   04-4-009        School corporation                 $0           $0         $0
   04-4-023        Research foundation                $0           $0         $0
   04-4-026        K-12 School                        $0           $0         $0
   04-4-027        Nonprofit corporation          $5,470           $0         $0
   04-4-029        Research center                    $0           $0         $0
   04-4-030        Nonprofit organization             $0           $0         $0
   04-4-031        Consortium                         $0           $0         $0
   04-4-032        School district                    $0           $0         $0
   04-4-033        Conservation organization          $0           $0         $0
   04-4-034        Educational research company       $0           $0         $0
   04-4-035        Museum                             $0           $0         $0
   04-4-036        School district                    $0           $0         $0
   04-4-037        School district                    $0           $0         $0
   04-4-038        Educational research company       $0           $0         $0
   04-4-040        K-12 school                        $0           $0         $0
   04-4-042        Research institute                 $0           $0         $0
   04-4-043        College                            $0           $0         $0
   04-4-044        State university                   $0           $0         $0
                   Total:                         $5,470           $0         $0




          42
                                       OIG Semiannual Report   September 2004




Other Federal Audits


                                                                        Cost
   Report                         Questioned   Unsupported           Sharing
   Number       Subject                Costs         Costs            At-Risk

   04-5-056   Community college      $58,000              $0              $0
   04-5-057   University             $25,100         $25,100              $0
   04-5-061   Corporation              $944            $944               $0
   04-5-081   College                $78,369              $0              $0
   04-5-088   College                $14,176              $0              $0
   04-5-095   Corporation              $485               $0              $0
   04-5-099   University               $694               $0              $0
   04-5-102   University              $9,997              $0              $0
   04-5-104   University             $18,600              $0              $0
   04-5-106   Institute              $18,471              $0              $0
   04-5-110   University           $415,500               $0              $0
   04-5-111   University             $51,968              $0              $0
   04-5-113   State Government         $378               $0              $0
   04-5-114   Corporation              $191               $0              $0
   04-5-115   University           $344,043               $0              $0
   04-5-123   Corporation             $3,998              $0              $0
   04-5-124   College                 $6,689              $0              $0
   04-5-125   College                 $1,014              $0              $0
   04-5-126   University           $170,199               $0              $0
              Total:              $1,218,816         $26,044              $0




                                                                43
Statistical Data




          44
                                                           OIG Semiannual Report    September 2004




Audit Reports With
Outstanding Management Decisions
      This section identifies audit reports involving questioned costs, funds put
to better use, and cost sharing at risk where management had not made a
final decision on the corrective action necessary for report resolution within 6
months of the report’s issue date. At the end of the reporting period there
were two reports remaining that met this condition. The status of
recommendations that involve internal NSF management is described on page
40.




                                                                                     45
Statistical Data




                   Investigations Case Activity


                    April 1, 2004 - September 30, 2004

                                      Preliminary Civil/Criminal Administrative   Total

                    Active Cases
                    at Beginning
                    of Period              34           66            54          154

                    Opened Cases           144          20            44          208

                    Closed Cases           105          38            51          194

                    Active Cases at
                    End of Period          73           48            47          168




          46
                                                                OIG Semiannual Report   September 2004




Investigations Case Statistics


      Referrals to DOJ                                                           3
      Criminal Convictions/Pleas                                                 1
      Civil Settlements                                                          0
      Administrative Actions                                                    11
      Investigative Recoveries                                          $522,387


      Research Misconduct Findings
      by NSF                                                                     1


      Cases Forwarded to NSF
      Management for Action                                                     15


      Cases Forwarded to NSF Management in Prior
      Periods Awaiting Action                                                    2


      Assurances and Certifications14

      Number of Cases Requiring Assurances During This Period                    1
      Number of Cases Requiring Certifications During This Period                1
      Assurances Received During This Period                                     1
      Certifications Received During This Period                                 0


      Number of Debarments in Effect During This Period                          7


 14
  NSF accompanies some actions with a certification and/or assurance requirement.
 For example, for a specified period, the subject may be required to confidentially
 submit to OIG a personal certification and/or institutional assurance that any newly
 submitted NSF proposal does not contain anything that violates NSF regulations.




                                                                                         47
Statistical Data




                   Freedom of Information Act and
                   Privacy Act Requests


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

                       • We received 19 FOIA requests. The response time ranged between
                         1 day and 22 days, with a median of 20 days and the average around
                         12 days.

                       • We received 2 Privacy Act requests.

                       • We received 1 appeal, which was denied.




          48
                                                           OIG Semiannual Report    September 2004



                                                                                       Appendix 1
                                     October 15, 2004

    MEMORANDUM

    To:         Dr. Warren Washington
                Chair, National Science Board

                Dr. Arden Bement
                Acting Director, National Science Foundation

    From:       Dr. Christine C. Boesz
                Inspector General, National Science Foundation

    Subject: Management Challenges for NSF in FY 2005

     In accordance with the Reports Consolidation Act of 2000, I am submitting
our annual statement summarizing what the Office of Inspector General (OIG)
considers to be the most serious management and performance challenges
facing the National Science Foundation (NSF). We have compiled this list
based on our audit work, general knowledge of the agency’s operations, and
the evaluative reports of others, such as GAO and NSF’s various advisory
committees, contractors, and staff.

     The challenges are unchanged from last year, mainly because they reflect
areas of fundamental program risk that continue to pose obstacles to NSF’s
accomplishment of its mission. They will therefore require ongoing attention
from NSF management over the long term. We have duly noted NSF’s progress
over the last year on many of the challenges listed, although much remains to
be done.

     The 11 specific challenges fall into five general categories, the first four
of which are linked to the President’s Management Agenda: 1) strategic
management of agency resources, 2) improved financial performance, 3)
expanded electronic government, 4) budget and performance integration, and
5) program-specific challenges.

     If you have any questions or need additional information, please call me
at 703-292-7100.




                                                                                      49
Appendix 1




             1. Strategic Management of Agency Resources

             Workforce Planning and Training

                  Workforce planning continues to be one of the most serious challenges
             facing NSF. Since 1999 the number of proposals processed has increased
             by 40 percent, while the number of program officers assigned to their review
             has remained relatively flat. Last year alone, the number of proposals
             increased by 14 percent to 40,075, the largest annual percentage increase
             in over a decade. The quantity of proposals transmitted to NSF is perhaps
             the single best indicator of its overall workload. According to NSF, program
             officers now spend 55 percent of their time on merit review, leaving less time
             available for other important responsibilities such as award management and
             oversight and program planning1.

                   NSF’s reliance on “non-permanent” personnel is another area of concern.
             Forty-seven percent of NSF’s 700 science and engineering staff are either
             visiting personnel, temporary employees, or intermittent employees. Visiting
             personnel make an important contribution to NSF’s mission by enabling the
             agency to refresh and supplement the knowledge base of its permanent
             professional staff. But managers who serve at NSF on a temporary basis
             frequently lack institutional knowledge and are less likely or able to make
             long-term planning a priority. In fact NSF’s Business Analysis project (a multi-
             year review aimed at reengineering the agency’s core business processes)
             reports that NSF in general is spending less time on forward-looking activities
             such as strategic planning and program development. Moreover, there are
             administrative costs that NSF incurs in recruiting, hiring, processing, and
             training personnel that rotate every 1 to 4 years. In FY 2004, we conducted
             an audit that identified the additional salary, fringe benefits, travel and other
             costs of visiting or temporary personnel, and found three areas where NSF
             could improve its administration of the programs2. Therefore, while visiting
             personnel are an important resource for NSF, the agency must continually
             balance the benefits of their services against the additional costs involved.

                  The agency’s response to these and other workforce issues is being
             formulated as part of the Business Analysis, which is scheduled for completion
             by the end of FY 2005. In FY 2004, NSF initiated an agency-wide workforce
             planning effort based on the findings of the business analysis to date. NSF’s

             1
               Report to the National Science Board on NSF’s Merit Review Process FY 2003 (May
             2004)
             2
               Audit of Costs Associated with Visiting Personnel, July 23, 2004, OIG 04-2-006.
             Opportunities for improvement cited in the report include consulting income documenta-
             tion, IPA pay computations, and VSEE cost of living adjustments.



     50
                                                            OIG Semiannual Report    September 2004




Human Capital Management Plan, which was delivered in December 2003,
integrates and links Human Capital activities to the NSF business plan and to
the Human Capital Assessment and Accountability Framework provided by
the Office of Personnel Management. While the current plan provides a
roadmap for identifying NSF’s future workforce needs, the needs themselves
are still in the process of being defined.

     Administrative Infrastructure

    A shortage of administrative resources continues to hinder NSF’s staff
from keeping pace with its growing workload. NSF states that over the past
year it has leased an additional 26,576 square feet of space and the travel
budget increased from $4.32 million in FY 2003 to $6.05 million in FY 2004 to
support the merit review process and increase oversight activities.
Management reports that it conducts ongoing assessments of space
management and allocation in addition to its regular budget analysis and
planning activities. It also encourages video conferencing and telecommuting
as methods of leveraging scarce administrative resources.

      While these efforts provided some relief, more than a third of the
management control weaknesses cited by NSF’s managers in the agency’s
FY 2004 controls assessment involves a shortage of human or administrative
resources. Space remains a critical issue, impeding the recruitment of quality
staff and the ability to store sensitive documents. In some cases, program
officers are sharing cubicles, while contractors are located in file rooms. Travel
funds were repeatedly cited as inadequate for the purpose of properly
overseeing existing awards. NSF must make it a priority to allocate more of
its funding for administrative resources in order to maximize the effectiveness
of staff.

2. Improved Financial Performance

Management of Large Infrastructure Projects

      NSF’s investment in large facilities and infrastructure projects presents
management with a number of budgetary and operational challenges. The
construction of projects such as telescopes, research equipment,
supercomputing databases, and earthquake simulators are inherently risky
due to their complex design, cutting-edge technology, and expense. A
disciplined project management approach is essential to success; at the same
time, modifications are sometimes necessary when developing a new
technological tool. NSF spends approximately $1.1 billion a year on these
scientific tools, with many of the projects costing as much as several hundred
million dollars each.


                                                                                       51
Appendix 1




                   NSF continues to make measured progress towards addressing the
             recommendations we offered during two past audits of large facility projects3.
             Our audit reports identified the need to improve oversight of large projects by
             enhancing organizational accountability, providing better guidance (particularly
             in the area of financial management), and improving NSF’s systems to capture
             complete information about project costs. During the past two years, NSF
             has hired a Deputy Director for Large Facility Projects and developed more
             detailed guidance to support its Facilities Management and Oversight Guide.

                  However, we remain concerned that NSF does not have adequate staff
             assigned to oversee and manage large projects, and that those assigned
             may not have sufficient resources or authority to carry out their responsibilities.
             In addition, many of the modules intended to support the Facilities
             Management and Oversight Guide are still under development, including
             those pertaining to financial management. Finally, the problem of recording
             and tracking the full costs of projects has not yet been addressed. A contract
             to enhance the financial system for tracking life cycle costs of Major Research
             Equipment and Facilities Construction projects was awarded at the end of
             FY 2004.

             Post-Award Administration

                  Since FY 2002, independent audits of NSF’s financial statements have
             cited weaknesses in the agency’s post-award monitoring of grantee institutions
             as a major deficiency. An effective post-award monitoring program should
             ensure that: awardees are complying with award terms and conditions and
             federal regulations; adequate progress is being made toward achieving the
             objectives and milestones of the program; and expenditures listed on NSF’s
             financial statements are accurate. While NSF has taken some steps over
             the past three years toward establishing a risk-based program for post-award
             monitoring of its grants, more needs to be done. NSF must broaden its
             approach to award monitoring to go beyond high-risk awardees, develop
             more effective award oversight guidance, and increase the coordination
             between program and financial officers.

                  In FY 2004, NSF reorganized the Office of Budget, Finance and Award
             Management to establish the Division of Institution and Award Support. The
             Division’s role is to manage federal funds awarded by NSF, including providing
             financial and administrative assistance to institutional awardees and NSF


             3
              Audit of the Financial Management of the Gemini Project, December 15, 2000,
             OIG 01-2001
             Audit of Funding for Major Research Equipment and Facilities, May 1, 2002, OIG 02-2007



     52
                                                              OIG Semiannual Report   September 2004




directorates to implement business models, processes and practices. In
addition, NSF has increased its outreach to at-risk institutions and developed
creative ideas for partnering with other agencies to monitor common grantees.
Together these actions represent progress toward addressing post-award
administration issues at NSF.

      However, NSF’s approach to post-award administration focuses too
narrowly on high-risk awardees. Because the agency considers only 42 out
of its 34,011 awards to be high-risk, the impact of the Award Monitoring and
Business Assistance Program (AMBAP) is effectively limited to 0.1% of its
award portfolio. To broaden the scope of its activities, NSF should apply
more cost-effective monitoring procedures such as desk reviews of reports
from awardees and computer-assisted screening to medium and low risk
awardees on a random basis.

     NSF also issued an award-monitoring guide in FY 2002 and a revised
site-visit guide in FY 2003 for agency staff; however, both guides need
improvement. In an assessment of NSF’s post-award monitoring efforts, IBM
Business Consulting commented, “the staff did not follow or only loosely
followed the AMBAP guide noting that it was too broad and extensive to be
implemented in a realistic timeframe.” Meanwhile, the site visit guide does
not address many important details for conducting a review, such as how and
what types of reviews should be conducted, and therefore does not assure
quality or consistency.

     The site-visit guide does not standardize documentation for performing
or recording the results of the review, thereby increasing the risk that
procedures may not be consistently applied. IBM noted that this lack of
documentation undermined the follow-up of site visits, and recommended
standardized procedures for writing the report, following up, and maintaining
documentation in a database for analysis of overall findings. Furthermore, in
a recent audit report we cited close coordination between the program and
administrative offices as an effective practice of organizations engaged in
post-award monitoring and oversight4. NSF should seek to develop one
comprehensive approach to award monitoring that would include both a
financial and programmatic component.

     Finally, the Improper Payments Improvement Act of 2002 requires
agencies to review all programs and activities annually and identify those that
are susceptible to significant improper payments. In May of 2003, the Office
of Management and Budget (OMB) issued guidance requiring agencies to


4
    Management Framework: Award Monitoring; September 30, 2003; OIG 03-2-015



                                                                                        53
Appendix 1




             statistically sample those programs at high risk for improper payments and
             establish baseline error rates and improvement targets for future reporting.
             NSF, like other grant making agencies, is challenged to implement the OMB
             requirements. Since improper payments include those made by NSF’s
             awardees and subawardees, designing a methodology to statistically sample
             the voluminous number of payments made by NSF’s 2500 awardees is
             complex.

             Cost Sharing

                  Cost sharing refers to the contribution of financial or in-kind support by
             recipients of federal grants to the cost of their research projects. Federal
             guidelines require that the accounting of cost-shared expenses be treated in
             a manner consistent with federal expenditures. However, our past audit work
             indicates that many awardees do not adequately account for or substantiate
             the value of cost-shared expenditures, raising questions about whether
             required contributions are actually being made.

                  Two years ago, NSF changed its policy to require cost sharing above
             the statutory requirement only when there is tangible benefit to the awardee,
             such as a facility that will outlast the life of the research project or income
             derived by the awardee as a result of the research. There is evidence that
             the new policy has effectively curtailed new cost sharing agreements. The
             number of new awards that include cost sharing declined from 3346 in FY
             2001 to just 1556 during FY 2004. During the same period, the amount of
             promised cost sharing declined by 54 percent. Less cost sharing reduces
             the potential for compliance problems and the burden on the agency for
             correcting them.

                  While reducing cost sharing requirements mitigates the challenge, it does
             not eliminate it since some cost sharing is required by statute and some is
             voluntary. The agency states that it is providing greater oversight in the risk
             assessment protocol and site reviews. Cost sharing is also identified as a
             high-risk factor and a focus of the new protocol. It is too early to assess the
             effectiveness of these efforts. In October, the agency acted to eliminate future
             cost sharing except for what is required by statute. The policy is likely to
             further reduce the amount of cost sharing entered into by the agency but to
             what extent is not known. We will continue to monitor the substantial amount
             of cost shared funds still outstanding and reassess changes brought about
             by the new policy.




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                                                           OIG Semiannual Report    September 2004




3. Expanded Electronic Government

Information Security

      NSF must have a comprehensive and effective information technology
(IT) security program both to meet Federal requirements and to mitigate risks
that threaten the successful operation and development of its IT systems. These
systems and the information they contain need to be protected from
unauthorized access, use, disclosure, disruption, modification, and
destruction. Over the past several years, NSF has taken a number of steps to
strengthen its IT security program. For example, it formed a Security Working
Group comprised of managers from across the agency to set NSF policy and
procedures, and established a new security office to implement them. All
staff are required to complete security awareness training each year. NSF
has undertaken penetration testing of its systems in order to find and address
vulnerabilities more quickly. In addition, the agency completed the certification
and accreditation of 18 of its 19 general support systems and major
applications by the end of FY 2003, and in FY 2004 began a triennial cycle of
recertification of all systems. Also in FY 2004, the Office of Polar Programs
completed a comprehensive inventory of the systems supporting the U.S.
Antarctic Program (USAP), classifying them as one general support system
and two major applications, rather than one major application as they had
been classified in 2003. The agency plans to certify and accredit those
systems by the end of CY 2004,

      Despite these accomplishments, IT security is an ongoing challenge for
NSF, as for all federal agencies, and some weaknesses remain. The OIG’s
FY 2004 Federal Information Security Management Act (FISMA) report issued
on June 30, 2004, noted that the systems serving the USAP still had not been
certified and accredited, information security policies had not been established
and implemented, and required background investigations for key information
security personnel had not been performed. Our review also found that NSF
had not updated its risk assessments and security plans to account for the
migration of its payroll and personnel systems to another federal agency, NSF’s
disaster recovery plan had not been fully tested, and access controls could be
strengthened. These vulnerabilities could result in unauthorized access to
and modification of financial, programmatic, and other sensitive information;
loss of assets; health and safety risks; and disruption of critical operations
and the ensuing costs associated with business downtime and recovery. NSF
has reported that it has made significant progress in all these areas since our
review.




                                                                                      55
Appendix 1




             4. Budget and Performance Integration

             GPRA Reporting

                  Congress enacted the Government Performance and Results Act (GPRA)
             in 1993 as a means of making government more results oriented. The Act
             requires each agency to develop a strategic plan that establishes specific
             goals against which its performance can be objectively evaluated. To further
             focus government agencies on results, the President’s Management Agenda
             requires that performance be considered in funding and management
             decisions and that programs work toward continual improvement. In support
             of these objectives, OMB introduced the Program Assessment Rating Tool
             (PART) to provide a framework for evaluating performance and generate
             program effectiveness ratings for Congress to consider when making budget
             decisions.

                  GPRA poses a significant challenge to agencies involved in science or
             education research because the benefits are difficult to measure and may
             only become apparent over time. Moreover performance measures must be
             carefully formulated so as not to discourage appropriate high-risk research
             that offers the potential for a “transformational” discovery. Because of the
             complexity involved in measuring the benefits of research, a full discussion of
             the methodology employed in reporting performance results should be
             prominently included in each performance report. Last year we issued an
             audit report on the Committee of Visitors panels that are used by NSF to
             provide qualitative data for GPRA reporting. We found that some of the
             limitations associated with the use of the data were not fully disclosed in the
             agency’s GPRA report. Further, we noted that NSF relied on judgmentally
             selected “nuggets” (research success stories) as evidence that it has achieved
             its GPRA goals, again without full disclosure. Our report indicated that a user
             of NSF’s performance report might infer that the nuggets are representative
             of the performance of the entire portfolio, and the credibility of the reports
             could become compromised. We recommended that NSF more clearly
             disclose the limitations associated with both issues.

                   In FY 2004, NSF has expanded its disclosure of the methodology it
             employed and while this disclosure has resolved the issues raised in the audit
             report, we continue to believe NSF should report on the performance results
             of its entire research portfolio. To do this, NSF will need to develop a
             knowledge management system to capture, categorize and analyze the
             research results.




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                                                             OIG Semiannual Report    September 2004




Cost Accounting

    An effective accounting and reporting system is essential to attaining the
objectives of the President’s Management Agenda and complying with GPRA.
However, NSF’s current information systems do not readily provide the cost
accounting information necessary to link its costs to program performance.
While NSF has been a leader in generating annual financial statements that
have received “unqualified” audit opinions for the past six years, it is only
beginning to focus on developing a cost accounting system to address its
program performance evaluation and reporting needs.

     For the past four years, each financial statement audit has recommended
that NSF identify management cost information requirements for each
organizational unit or program, establish activities/projects and corresponding
outcomes within each unit, and develop and report cost efficiency measures
that align with outputs and outcome goals. The auditors have also noted that
NSF’s systems do not track complete cost data for projects in which the costs
are borne by more than one NSF directorate or organizational unit.
Consequently, program officers cannot monitor the full cost of a project.

      In FY 2004, NSF management developed a Budget, Cost and
Performance Integration (BCPI) work plan that was approved by OMB. The
agency states that cost accounting is a key element of the BCPI plan. A
crosswalk was developed between the costs accounted for in the
appropriations reporting system and those in the new programmatic reporting
framework. When NSF is able to interface the crosswalk with the Financial
Accounting System, the agency will be able to identify the full direct costs of
its programs and projects, including its large facility projects. However, the
plan does not provide for tracking costs of NSF’s internal business processes
and activities such as the cost of soliciting grants, conducting merit reviews,
or performing post-award grant administration. Identifying the costs of these
internal functions is important for evaluating NSF’s performance
accomplishments under its organizational excellence strategic goal.

5. NSF Program-Specific Challenges

Management of U.S. Antarctic Program

        As part of its mission, NSF finances and supports Antarctic research,
providing over $197 million in FY 2004 for research activities in Antarctica.
Its single largest award is a contract for Antarctic logistics and support services
valued at $1.116 billion over 10 years. Each year the United States Antarctic




                                                                                        57
Appendix 1




             Program (USAP) deploys about 700 people to the continent to perform
             scientific research and another 2,500 to provide logistics in support of this
             research, including the operation and maintenance of year-round research
             stations. Those deployed include research teams from academia, industry,
             and government, military personnel, and contractor employees.

                   NSF’s contract for Antarctic support contains many inherent risks and
             complex requirements. The contractor must have technical expertise in a
             variety of disciplines, including medical and environmental engineering, and
             is responsible for managing a number of subcontractors in the U.S. and
             overseas. Therefore, NSF’s oversight of the programmatic and financial
             performance of this large contract is itself a formidable challenge, requiring
             considerable administrative and technical skill. The remote and harsh Antarctic
             landscape leaves little margin of error for many basic support activities. For
             example, weaknesses in the USAP information system were cited as a
             reportable condition during the agency’s most recent IT audit since they could
             potentially disrupt essential life support or science activities. The agency
             also has yet to resolve an outstanding recommendation from an audit report
             issued last year aimed at strengthening the USAP’s capital asset management
             program and renewing its aging infrastructure. The issue involves how best
             to assure funding is available to maintain the infrastructure in a timely manner.
             NSF comments that it has sustained an ongoing effort to maintain and upgrade
             facilities at McMurdo and Palmer Stations, albeit at a slower pace than is
             ideal, and affirms that the USAP is providing a safe and healthy environment.

                  A recent audit identified instances of overbilling by the contractor.
             Consequently, the OIG is planning to conduct a financial and compliance audit
             of the Antarctic Logistics and Support Contractor that will include a review of
             internal controls over cash management and compliance with various fund
             restrictions. We will also continue to monitor its information systems.

             Broadening Participation in the Merit Review Process

                  The merit review process is a cornerstone of NSF’s operations, ensuring
             the integrity and fairness of the proposal review process and maintaining the
             high standards of excellence for which NSF is known. NSF was able to fund
             only 27 percent of the more than 40,000 proposals it received in FY 2003.
             The agency decides which research, engineering and education projects to
             fund by subjecting most proposals to a rigorous merit review process that
             ensures each will receive knowledgeable and unbiased consideration based
             on specific criteria. It is largely through the merit review system that NSF
             adds value to the national research and education enterprise. One objective
             in NSF’s Strategic Plan is to increase the participation of underrepresented



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                                                            OIG Semiannual Report    September 2004




groups and institutions in all NSF programs and activities, including merit
review. Developing the untapped potential of underrepresented groups should
lead to expanded individual opportunity and improved national
competitiveness and prosperity.

     During FY 2003, the percentage of underrepresented groups that
received awards remained steady, with female and minority PIs funded at
approximately the same rate as the overall proposer population. The number
of awards made to minority PIs remains at 5 percent of total awards. Beginning
in FY 2001, NSF started requesting demographic data from all merit panel
reviewers to determine the extent of participation of underrepresented groups
in the NSF reviewer population. However, NSF cannot legally require
reviewers to provide demographic information. In FY 2003, out of a total of
40,020 reviewers who returned reviews, only 5,336 provided demographic
information. Thirty-four percent of those indicated they were members of an
underrepresented group. In FY 2004, NSF continued to use seminars and
workshops at minority-serving institutions in an effort to expand interest in
NSF’s programs. Reviewer diversity is emphasized through the use of a large
and expanding Foundation-wide reviewer database, explicit policy guidance,
mandatory training for all program officers, and directorate-level initiatives.
The agency will also continue to request demographic information and adjust
the FastLane reviewer module to make it more convenient for reviewers to
provide such information.

Math and Science Partnership

      NSF has responsibility for the Math and Science Partnership (MSP)
program, a key element of the President’s initiative, No Child Left Behind,
aimed at strengthening and reforming K-12 education. In FY 2002 and 2003,
NSF awarded a total of $280 million to fund partnerships between school
districts, colleges and universities, and other organizations for the purpose of
improving math and science education at the K-12 level. NSF has requested
an additional $80 million to support ongoing activities of the MSP program in
FY 2005. The program poses several challenges for NSF, including the need
to facilitate partnerships among institutions that do not normally collaborate,
monitor awardees that are unaccustomed to handling federal funds, and ensure
that projects are implemented as proposed and have effective evaluation plans
that adequately report their impact on student achievement.

     In a recent report, we reviewed the evaluation plans for nine of the first 23
MSP projects and found that five had effective evaluation plans. The other
four projects in our sample were missing key elements of an effective evaluation
process. In response to this finding, NSF plans to enlist the help of evaluation



                                                                                       59
Appendix 1




             experts to frame a statement of practice to serve as a framework for current
             and future MSP award recipients. We also recommended that the agency
             develop a comprehensive management plan for evaluating the MSP program.
             An award for an external evaluation of the MSP program consistent with the
             research and development nature of the program was recently made.




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                                                          OIG Semiannual Report    September 2004



                                                                                      Appendix 2

                                    Reporting Requirements


   Under the Inspector General Act, we report to the Congress every six
months on the following activities:

    • Reports issued, significant problems identified, the value of questioned
      costs and recommendations that funds be put to better use, and NSF’s
      decisions in response (or, if none, an explanation of why and a desired
      timetable for such decisions). (See p.p. 5,13,35)

    • Matters referred to prosecutors, and the resulting prosecutions and
      convictions. (See p.p. 25, 46-47)

    • Revisions to significant management decisions on previously reported
      recommendations, and significant recommendations for which NSF
      has not completed its response. (See p.45)

    • Legislation and regulations that may affect the efficiency or integrity of
      NSF’s programs. (See p. 8)

    • OIG disagreement with any significant decision by NSF management.
      (None)

    • Any matter in which the agency unreasonably refused to provide us
      with information or assistance. (None)




                                                                                     61
Appendix 1




     62
                                          OIG Semiannual Report   September 2004



                                                                     Appendix 3

                                             Acronyms


AIGI    Associate IG for Investigations
AMBAP   Award Monitoring and Business Assistance Program
ARMS    Australian Research Management Society
BCPI    Budget, Cost and Performance Integration
CFO     Chief Financial Officer
CIO     Chief Information Officer
COI     Conflict of Interest
COV     Committee of Visitors
DACS    Division of Acquisition and Cost Support
DCAA    Defense Contract Audit Agency
DD      Division Director
DFE     Designated Federal Entity
DGA     Division of Grants and Agreements
DOJ     Department of Justice
ECIE    Executive Council of Integrity and Efficiency
FDP     Federal Demonstration Partnership
FISMA   Federal Information Security Management Act
FOIA    Freedom of Information Act
FY      Fiscal Year
G&A     General & Administrative
GAO     General Accounting Office
GPM     Grant Policy Manual
GPRA    Government Performance and Results Act
IDR     Illinois Department of Revenue
IG      Inspector General
IPA     Intergovernmental Personnel Act
IRB     Institutional Review Board
IR/D    Individual Research and Development
MRE     Major Research Equipment
MREFC   Major Research Equipment and Facilities Construction
MSP     Math and Science Partnership
NCURA   National Council of University Research Administrators
NSB     National Science Board
NSF     National Science Foundation
OIG     Office of Inspector General
OMB     Office of Management and Budget
OPP     Office of Polar Programs
ORI     Office of Research Integrity



                                                                    63
Appendix 1




             Acronyms (cont’d)


               PART     Program Assessment Rating Tool
               PCIE     President’s Council on Integrity and Efficiency
               PHS      Public Health Service
               PI       Principal Investigator
               PFCRA    Program Fraud Civil Remedies Act
               REU      Research Experiences for Undergraduates
               SBIR     Small Business Innovation Research
               STC      Science and Technology Centers
               USAP     United States Antarctic Program
               VSEE     Visiting Scientists, Engineers and Educators




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                                                       OIG Semiannual Report    September 2004



                                    Awards




               Dr. Boesz congratulates Peggy Fischer and Ginna Ingram
                  on receiving the PCIE/ECIE Award for Excellence for
                 “Leadership in Development of the Investigations Peer
                                    Review Process”.




Debbie Hunter, Elizabeth Goebels, Jill Schamberger and Keri Campbell received the PCIE/
 ECIE Award for Excellence for their audit of the Math and Science Partnership Program.




                                                                                   65
Awards




 OIG staff Jannifer Jenkins, Catherine Walters, Joel Grover and NSF colleagues display their
Collaborative Integration Award for meeting the government’s accelerated schedule for producing
                           the Performance and Accountability Report.




                Dr. Boesz and Veronica Bankins congratulate Laurie Pena-Ariet
                  as she receives an award for exceptional efforts in planning
                                      OIG’s office space.




   66
                     Organization Chart



                            INSPECTOR
                             GENERAL
                          Christine C. Boesz

                          DEPUTY INSPECTOR
                              GENERAL
                              Tim Cross

COUNSEL TO THE
  INSPECTOR
   GENERAL

  Arthur A. Elkins




ASSOCIATE IG FOR                               ASSOCIATE IG FOR
    AUDIT                                       INVESTIGATIONS

Deborah H. Cureton                              Peggy L. Fischer




      AUDIT                ADMINISTRATIVE       INVESTIGATIVE
      STAFF                    STAFF                STAFF