oversight

Semiannual Report - March 2004

Published by the National Science Foundation, Office of Inspector General on 2004-03-01.

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




... And The Office of Inspector General

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


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

OIG Management Activities ............................................................... 7
         Congressional Testimony .......................................................................... 7
         2004 Management Challenges .................................................................. 8
         Legal Review ............................................................................................. 9
         Outreach ................................................................................................... 9


Audits and Reviews .......................................................................... 13
         Significant Reports .................................................................................. 13
         Corrective Actions Prompted by Previous Audits ................................... 18
         A-133 Audit Reports ................................................................................ 21


Investigations .................................................................................... 23
         Civil and Criminal Investigations ............................................................. 23
         Administrative Investigations ................................................................... 28


OIG FY 2003 Performance Report ................................................... 33
         Goal 1: Increase OIG Impact on NSF’s
                 Effectiveness and Efficiency ....................................................... 33
         Goal 2: Safeguard the Integrity of NSF
                 Programs and Resources .......................................................... 36
         Goal 3: Utilize OIG Resources Effectively
                 and Efficiently ............................................................................. 38


Statistical Data ................................................................................. 45

Appendicies
         Memorandum: Management Challenges for NSF in FY 2004 ................. 59
         Reporting Requirements.......................................................................... 67
         Acronyms ................................................................................................ 69
                              From the Inspector General


     This report highlights the activities of the National Science Foundation (NSF) Office of Inspector
General for the six-month period ending March 31, 2004. The past six months have been extremely
productive. Our office issued 10 audit reports that contained $330,037 in questioned costs and
made recommendations that would put $7,400,000 in funds to better use. We closed 28 civil/
criminal cases and 32 administrative cases, and our investigations recovered $147,978. In addition,
two cases were referred to the Department of Justice and three administrative cases were forwarded
to NSF management for action during this period.
      Research in basic science continues to make a significant contribution to innovation and
economic growth. NSF is the primary source of federal funding for basic science and engineering
research, principally through universities and colleges. The agency also supports education
initiatives in mathematics and science. For more than 50 years NSF has continued to have a
remarkable impact on the United States' scientific and engineering enterprise. Over that time the
scientific challenges have grown in complexity, requiring more collaborations, greater integration,
and a wider range of state-of -the art tools and facilities. As a catalyst for innovation, NSF has
been adjusting to these changes in many ways. However, NSF faces management challenges
that need immediate attention and resource constraints that will force difficult decisions in order to
meet the demands of an ever-changing environment. My office has identified several management
challenges, e.g., post-award administration, human capital resources, and large-facility construction
management, that are discussed in this report on page 8.
     Demonstrating that NSF is accountable for results and a vigilant steward of public money is
fundamental to good governance. Toward that end, the NSF Office of Inspector General strives to
give the public and the Congress confidence that each dollar provided to NSF will be spent in the
most efficient and effective way possible. On page 13 of this report, we provide details about
NSF's most recent financial statement audit, which produced another unqualified opinion. Finally,
on page 33, we include a summary of the accomplishments our office has made towards its goals
over the past 12 months. I am pleased to report that we made significant progress in meeting the
goals of our work plan.
     There have been changes in NSF's senior management during this period. In February, Dr.
Rita Colwell resigned as Director, and Dr. Arden Bement was appointed as Acting Director until a
permanent Director is found. Every two years the terms of one-third of the National Science Board
(NSB) end in May and we lose the services of eight distinguished and valued members. This year
we thank Drs. Steven Beering, Anita Jones, George Langford, Joseph Miller, Robert Richardson,
Maxine Savitz, and Luis Sequeira for their service to NSF and the country.
     I especially want to recognize the contributions of NSB member Dr. Pamela Ferguson, who
supported the work of the Office of Inspector General with her insights and management expertise.
Dr. Ferguson died in April of this year. She will be remembered by the OIG for years to come
because of her valuable contributions to audit planning and her ability to focus on important
management issues. As a mathematician, a professor, and a college president, she had the skills
and the experience to assist us in navigating through complex issues. She also had a sense of humor,
much appreciated by OIG staff.
     During the next reporting period we will continue our commitment to work with NSF to address its
management challenges and to ensure the efficiency, effectiveness, and integrity of agency operations.
Finally, I want to express my appreciation for the strong support shown by the National Science Board,
NSF senior management, and program officials at all levels of NSF, as well as the members of the
Senate and House of Representatives and their respective staffs with whom we work.




                                                                          Christine C. Boesz, Dr.P.H.
                                                                                   Inspector General
                                                                                        May 17, 2004
                                                    Executive Summary

• The OIG's list of the most serious management and performance
  challenges facing NSF appears on page 8.
• NSF received an unqualified opinion on its financial statements in
  the FY 2003 Independent Auditors Report, but the independent
  auditors again identified a reportable condition related to NSF's
  post-award grant monitoring. In addition, the related FY 2003
  Management Letter discussed the need for NSF to implement a
  process for closing out certain types of grants in a timely way, and
  to establish an effective cost accounting system. (See p. 13)
• OIG issued a summary of 11 cost-sharing audits and a report on
  excessive, or "overload" salary compensation at a large western
  university system that found the university could not support
  $32 million of the $51 million of cost sharing it claimed on NSF
  awards over a nine-year period. In addition, the university claimed
  $484,000 in excess salary compensation and related costs during
  one year, representing funds that could have been awarded to
  other NSF projects. (See p. 15)
• An audit of the National Science Board's (NSB) compliance with
  the provisions of the Government in the Sunshine Act, as mandated
  by the NSF Authorization Act of 2002 found that the NSB
  demonstrated a clear intent to provide for greater access to and
  increased openness in its meetings, and that it properly closed its
  meetings consistent with the exemptions contained in the Sunshine
  Act. The audit identified a few areas for improvement. (See p. 17)
• An OIG investigation revealed that NSF's Travel Card Program
  Manager misused her own travel card and then altered official
  records to hide the evidence. The manager pled guilty to a felony
  and was sentenced to 20 weekends in jail, 2 years supervised
  probation, fined $1,000, and permanently barred from government
  service. The Manager was responsible for the daily administration
  of the Travel Card program, including oversight of misuse.
  (See p. 23)
• A northern California university grants and contracts administrator
  was convicted of embezzling $487,425, including $415,500 in NSF
  grant funds, over a period of five years. The administrator was
  responsible for reviewing and authorizing disbursements on NSF
  and other grants. He pled guilty to four state fraud and tax code
  violations. As part of the plea agreement, he was sentenced to
  four years in prison and ordered to pay $480,383 in restitution.
  (See p. 25)


                                                                         5
Executive Summary




                    • OIG recommended that NSF reprimand a Co-Principal Investigator for
                      plagiarizing parts of a research proposal from a confidential proposal submitted
                      earlier to NSF. We found that the source proposal was reviewed by the Co-PI,
                      who appeared to also violate the confidentiality of NSF's merit review process.
                      OIG referred the allegations of plagiarism and violation of the confidentiality of
                      NSF's merit review process to the subject's university for investigation. The
                      institution concluded that the Co-PI engaged in research misconduct and applied
                      sanctions. In a separate case, NSF sent a letter of reprimand to a PI who
                      inserted 2 pages of plagiarized material into 2 NSF proposals, and directed him
                      to provide written certifications for a period of 2 years that any newly submitted
                      proposals comply with NSF's research misconduct regulation. (See p. 28)
                    • The OIG 2003 Performance Report describes OIG's progress in
                     achieving three goals: increase OIG impact on NSF's effectiveness and
                     efficiency; safeguard the integrity of NSF programs and resources; utilize OIG
                     resources effectively and efficiently. (See p. 33)




             6
                                   OIG Management Activities

Congressional Testimony
     In February, Dr. Boesz testified before the U.S. Senate
Committee on Appropriations, Subcommittee on VA, HUD, and
Independent Agencies, in connection with NSF's FY 2005 budget
request. She praised the extraordinary work produced by NSF over
its 54-year history, while noting that the nature of the scientific
enterprise has changed and that NSF must be prepared to meet new
challenges. Dr. Boesz updated the Committee on the progress being
made in meeting three of those challenges.
      NSF has made gradual progress towards completing the
corrective actions aimed at improving its management of large
infrastructure projects, she reported. The action plans came as a
response to 2 audit reports issued in the past 3 years that discussed
the need to increase oversight of large projects as well as capture
complete information about their costs.                 However key
recommendations remain open. The new guidelines that apply to
large projects do not provide the level of detail necessary to assist
staff engaged in their day-to-day oversight. Nor do the guidelines
address the problem of recording and tracking the full costs of projects.
NSF is planning to address these issues by expanding the content of
its new guidelines. Dr. Boesz expressed concern that the newly hired
Deputy Director for Large Facility Projects may not be receiving the
resources necessary to complete the job, and said that additional
staff is needed.
       Another ongoing management challenge at NSF involves the
establishment of a comprehensive, risk-based program for monitoring
its grants and cooperative agreements. Recent OIG audits of high-
risk awardees such as foreign grantees and Urban Systemic Initiative
                                                                                  HIGHLIGHTS
awards confirm that in the absence of effective post-award monitoring,
certain problems tend to reappear. While the agency has developed
                                                                            Congressional
a Risk Assessment and Award Monitoring Guide and has taken good
                                                                            Testimony          7
first steps toward addressing this challenge, Dr. Boesz told Congress
that weaknesses persist. The criteria for identifying high-risk
                                                                            2004 Management
awardees are not comprehensive, ignoring obvious risk factors such
                                                                            Challenges         8
as past performance. Also, the Guide does not address the issue of
what type of oversight should be accorded to medium and low-risk
grantees. Finally, the site visits that are being conducted do not follow   Legal Review       9
a consistent protocol and are not adequately documented.
                                                                            Outreach           9



                                                                            7
OIG Management Activities




                                  The two previous management challenges may be symptomatic of a larger,
                            more pressing need for improved strategic management of NSF's human capital.
                            Dr. Boesz noted that NSF's rapidly increasing workload has forced the agency to
                            become increasingly dependent on temporary staff and contractors to handle the
                            additional work. NSF's past efforts to justify an increase in staff have been impeded
                            by the lack of a comprehensive workforce plan. Without such a plan, NSF cannot
                            determine whether it has the appropriate number of people and competencies to
                            accomplish its strategic goals. The agency has contracted for a human capital
                            workforce plan, but it will take more than a year before the plan will be complete.
                            Dr. Boesz said that the workforce issues facing NSF would undermine the agency's
                            ability to successfully meet other pressing management challenges.



                            2004 Management Challenges
                                 In October 2003, the OIG submitted a report to the Congress on what it
                            considers to be the most serious management and performance challenges facing
                            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. Although there was no
                            fundamental change in the challenges from the previous year, NSF has made
                            progress in addressing the challenges OIG has identified. The original
                            management challenges letter appears in its entirety in the Appendix. 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 (see p. 7)
                                  2.   Administrative Infrastructure
                                  3.   Management of Large Infrastructure Projects (see p. 7, 19)
                                  4.   Post-Award Administration. (see p. 7, 13)
                                  5.   Cost Sharing.
                                  6.   Information Security.
                                  7.   GPRA Reporting. (see p. 19)
                                  8.   Cost Accounting. (see p. 14)
                                  9.   Management of U. S. Antarctic Program (see p. 20)
                                 10.   Broadening Participation in the Merit Review Process
                                 11.   Math and Science Partnership




                    8
                                                             OIG Semiannual Report    March 2004




Legal Review
     The Inspector General Act of 1978, as amended, mandates that our office
monitor and review legislative and regulatory proposals for their impact on the
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 the Congress and NSF management informed of
problems and monitor legal issues that may have a broad effect on the Inspector
General community. During this reporting period, we reviewed 14 bills that affected
either NSF, OIG, or both. The following bill 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 27 other "Designated Federal Entity" (DFE) agencies that are currently excluded
from participation under PFCRA's enforcement provisions. The OIG's concern
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 PFCRA. In fact, we have raised the issue of NSF's
inclusion under PFCRA in several prior semiannual reports.
     The DFEs are generally smaller agencies that intrinsically are more likely to
have cases involving smaller dollar amounts. PFCRA sets forth administrative
procedures that enable defrauded agencies to proceed administratively to recover
double damages and penalties when the amount of loss is less than $150,000.
Using the enforcement provisions of PFCRA will enhance NSF and other DFE
agencies recovery efforts in instances of fraud that fall below PFCRA's financial
threshold of $150,000. We believe that by not including DFE agencies under
PFCRA, the Act fails to maximize its potential. Amending PFCRA to include NSF
and the other DFE agencies would strengthen the OIG community's statutory
mission to deter fraud, waste and abuse.



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

    Along with officials from the National Natural Science Foundation of China,
we coordinated an International Symposium on Accountability in Science Funding.


                                                                                        9
OIG Management Activities




                            Representatives from 13 nations attended meetings focused on issues of financial
                            accountability and research misconduct. Many of the attendees had come to the
                            symposium believing that their concerns were unique to their communities, but
                            learned over the course of the meeting that the issues confronting them are
                            universal. Research is increasingly a global enterprise and coordination among
                            nations regarding financial and research compliance is key to successful ventures




                                                   Representatives from 13 nations attended the
                                    International Symposium on Accountability in Science Funding in Beijing.

                            and the effective prevention of fraud, waste, and abuse.
                                 The Executive Assistant to the Associate Inspector General for Audit remained
                            in China when the symposium ended as part of an exchange of visiting staff
                            between NSFC and OIG. Over three weeks, he observed NSFC's operations
                            and participated in discussions about their oversight and inspection practices.
                            He also attended a regional grants conference sponsored by the NSFC staff in
                            the Xi'an region of China and visited an academic research institution to see how
                            grant recipients use NSFC funds. At the end of his stay, the Executive Assistant
                            made a presentation to an audience of NSFC management and staff that compared
                            and contrasted the different approaches to auditing and oversight of the Chinese
                            and U.S. governments.
                                 At the March meeting of the National Council of University Research
                            Administrators meeting in San Diego, California, the Inspector General moderated
                            a panel discussion on how IGs view their roles and responsibilities. In addition to
                            Dr. Boesz, the panelists included the Inspectors General of the National Aeronautics
                            and Space Administration and Department of Energy, and NSF's Associate
                            Inspector General for Audit. The panelists discussed their respective legislative
                            mandates, approaches to auditing Federal awards, and the role of investigations
                            with respect to research and development award issues.
                                 OIG staff participated in outreach activities at four universities: George
                            Washington University, Florida State University, the Ana G. Mendez University
                            System, and Howard University. We were invited to discuss issues related to the
                            responsible conduct of research, and what constitutes research misconduct. We
                            also presented several seminars to student groups on ethics and issues they are


                   10
                                                                 OIG Semiannual Report      March 2004




likely to confront during their professional careers. Speaking at universities enables
us to emphasize the importance of ethical conduct to research professionals at
the start of their careers. At these meetings, we strive to create an environment
where people feel comfortable seeking advice about sensitive issues and
concerns.
      OIG staff were also invited to speak to professional societies such as the
Washington Academy of Sciences, the American Chemical Society, the American
Physical Society, and the Society of Research Administrators International, on
the following subjects: "Research Misconduct: Policy and Practice," "Responsible
Conduct of Research," and "Conflicts of Interests from a Federal Perspective."
Members of the research community are encouraged to check our website (http:/
/oig.nsf.gov/pubs.htm) for additional information on these topics and others.
     This period we also participated in an NSF Regional Grants Seminar, which
was attended by numerous officials from awardee institutions as well as Principal
Investigators. We presented on issues related to compliance, research misconduct,
fraud, and audit, and emphasized the importance of early reporting of any concerns
to OIG, and how establishing effective policies and good internal controls can
preempt questions raised later by investigators and auditors.

Working with the Federal Community

      As Chairperson of the President's and Executive Councils on Integrity and
Efficiency (PCIE/ECIE) Misconduct in Research Working Group, the IG contin-
ues to lead efforts to educate the community about this issue. We briefed mem-
bers of the PCIE/ECIE Inspection and Evaluation Committee on the guidelines the
working group prepared to assist other agencies in developing research miscon-
duct policies, and conducting professional investigations of research misconduct.
OIGs were urged to
perform oversight re-
views of their agen-
cies' efforts to imple-
ment research mis-
conduct policies that
are consistent with
published Office of
Science and Tech-
nology Policy (OSTP)
guidelines.
     At a Council of
Science     Editors
meeting, convened
by the Department of
Health and Human
Services' Office of
Research Integrity           President Bush meets with Dr. Boesz and other Inspectors General to
(ORI), we partici-                    commemorate the 25th anniversary of the IG Act.



                                                                                               11
OIG Management Activities




                            pated on a panel focusing on research misconduct and the different approaches
                            being taken within the Federal community to address this problem. We discussed
                            NSF's perspective on research misconduct and highlighted the ways in which our
                            procedures differ from ORI's. Journal editors were encouraged to contact OIG
                            directly when they suspect plagiarism, falsification, or fabrication.
                                  The annual Grant Fraud Investigation Training Program focused on
                            disseminating methods used by the IG community to uncover, investigate, and
                            prosecute grant fraud. Hosted by our Investigations staff, the program attracted
                            the largest turnout ever. Over 50 members of the OIG community, including criminal
                            investigators, auditors, and senior managers from 20 different OIGs attended the
                            one-day session held in October 2003.
                                 The ECIE OIGs adopted the Qualitative Investigative Peer Review Guide
                            during this period. Meanwhile, we continue to work with ECIE working group
                            members to prepare ECIE OIGs for investigative peer review by assisting them in
                            developing effective policies and procedures. The working group has developed
                            a schedule for the ECIE voluntary peer review, and has addressed issues related
                            to the modification of Privacy Act systems of records, FOIA considerations, and
                            records retirement.


                            Working with NSF
                                           In conjunction with other Federal OIGs, we observed the 25th
                            anniversary of the Inspector General Act and invited NSF staff to attend our Open
                            House held in October. The Open House was an opportunity to establish better
                            communications with our colleagues, and inform them about subjects such as
                            identity theft and NSF's policy on peer-to-peer (P2P) file sharing. Educational
                            initiatives involving identity theft and P2P are being undertaken jointly with agency
                            officials.
                                                 NSF requires program officers and others to attend conflict
                                            of interests briefings presented by NSF's Designated Agency
                                            Ethics Official (DAEO). OIG staff members provide a short
                                            discussion at the beginning of each session, which allows us the
                                            opportunity to interact with program officers and other NSF staff
                                            on a regular basis to explain our function, encourage them to seek
                                            COI advice from the DAEO, and remind them of their duty to report
                                            wrongdoing to OIG. As in the past, a number of our staff has
                                            served as resource advisors at NSF's Program Manager's
                                            Seminar. This allows members of the staff to interact with new
                                            program officers and acquaint them with our purpose and
                                            procedures.




                   12
                                                          Audits & Reviews

Significant Reports

Financial Statement Audit
      The Federal Government has made the improvement of financial
management a high priority for many years. The President’s
Management Agenda identified improved financial management as
one of its top five government-wide initiatives. The President’s goal
is to ensure that Federal financial management systems produce
accurate and timely information to support operating, budget, and
policy decisions.
     The Chief Financial Officer’s (CFO) Act of 1990, as amended,
requires Federal agencies to prepare annual financial statements and
the agency Office of Inspector General (OIG), or an independent
public accounting firm selected by the OIG, to audit these statements.
During this semiannual period we issued the Fiscal Year (FY) 2003
Independent Auditors’ Report on NSF’s financial statements and the
FY 2003 Management Letter, which noted certain matters involving
internal controls and other operational matters identified during the
financial statement audit.

The FY 2003 Independent Auditors’ Report

      The FY 2003 Independent Auditors’ Report, prepared under the
Office of Management and Budget’s (OMB) accelerated schedule,
was issued for the first time within seven weeks of the end of the
fiscal year and over two months earlier than the prior year. NSF
received an unqualified opinion on its financial statements in the FY
2003 Independent Auditors Report, but the independent auditors again
identified a reportable condition related to NSF’s post-award grant            HIGHLIGHTS
monitoring. Although NSF spends nearly 90 percent of its $5 billion
budget on approximately 30,000 ongoing awards, it has not fully          Significant Reports    13
implemented a comprehensive and systematic risk-based internal
grants management program to administer these awards after they          Corrective Actions
are made. Such a program would ensure that awardees are expending        Prompted by Previous
their grant funds in accordance with their award agreements and          Audits                 18
Federal regulations.
    In FY 2003, NSF revised its award-monitoring guide and               A-133 Audit Reports    21
conducted several on-site monitoring visits. However, the guide needs

                                                                         13
Audits & Reviews




                   further revision to include more criteria for identifying high-risk grantees, additional
                   review procedures for medium and low risk grantees, and procedures for periodic
                   monitoring of financial expenditure reports. In addition, NSF needs to ensure that
                   its staff consistently follows the guide when conducting monitoring reviews and
                   that the results are documented and tracked to ensure that any weaknesses
                   identified are corrected. Finally, NSF needs to allocate sufficient resources to
                   implement these improvements, or it will not be able to ensure that the grant
                   objectives are met and that its programs and resources are adequately protected
                   from waste, fraud and mismanagement.
                        NSF has begun to address these issues by increasing the scope of its award
                   monitoring guide, performing additional site visits, and hiring a contractor to assist
                   in analyzing and assessing its post-award monitoring program. In addition, NSF
                   has proposed to establish a separate division within the Office of Budget, Finance,
                                                                           and Award Management
                                                                           which will provide for greater
                                                                           focus on post-award
                                                                           management and proactive
                                                                           business assistance to
                                                                           grantees. While these steps
                                                                           are important, NSF senior
                                                                           management needs to
                                                                           ensure that sufficient
                                                                           resources for staffing,
                                                                           training, and travel are made
                                                                           available to implement its
                                                                           plan. Adequately staffing
                                                                           this effort will send a clear
                                                                           message to both its
                                                                           employees and the awardee
                                                                           community that the agency
                           Dr. Boesz presents award to Dan Kovlak and      considers award monitoring
                                Jula Jefferson of KPMG for meeting         to be an integral part of it’s
                            the accelerated schedule for completing        stewardship responsibilities.
                                NSF’s financial statement audit.



                   The FY 2003 Management Letter

                         The FY 2003 Management Letter discussed the need for NSF to implement a
                   process for closing out certain types of grants in a timely way, and to establish an
                   effective cost accounting system. The audit identified over $5 million of unspent
                   funds associated with expired grants that were not properly closed out from as far
                   back as FY 1984. If they had been found within a specified period of time, these
                   funds could have been reprogrammed to support other NSF programs. But by the
                   time of the audit, $1.1 million in grant funds had expired and were no longer available.
                   To address this problem, NSF has committed to periodically review expired grants
                   to determine whether unspent funds can be reprogrammed, and made available
                   for other award opportunities.

          14
                                                              OIG Semiannual Report     March 2004




      Also, the management letter reported for the third consecutive year that NSF
needs to implement a meaningful cost accounting architecture that will provide
accurate and timely information to support management decision-making, including
information to assess the full cost and performance of its programs and activities.
Without full cost information, NSF stakeholders (i.e. NSF management, the National
Science Board, congressional committees, and OMB) are at a disadvantage in
determining funding priorities and how best to allocate and manage project or
program costs. In addition, NSF needs to be able to track and report the full cost
of its programs to meet the objectives set by the government-wide initiative on
“Budget and Performance Integration,” mandated by the President’s Management
Agenda. Such information is necessary to establish a clear link between the
resources invested in NSF programs and their benefits.
       Although NSF has indicated that it has a plan to develop a cost accounting
architecture, the plan does not account for costs or provide for monthly reports at
the program level. Given the amount of time that has transpired since this deficiency
first appeared in the management letter, NSF should make this effort an immediate
priority by providing sufficient staffing and funding to support it.


Western University with $280 Million in NSF Awards Needs
to Improve Internal Controls and Comply with Federal
Requirements for Excess Compensation
      We have completed a summary of 11 cost-sharing audits and a report on
excessive, or “overload” salary compensation at a large western university system
that received $280 million in NSF funding and was required to provide $85 million
in cost sharing over the last 10 years. These audits found that the university could
not support as much as $32 million of the $51 million of cost sharing it claimed on
NSF awards over a nine-year period. In addition, the university claimed $484,000
in excess salary compensation and related costs during one year, representing
funds that NSF could have otherwise awarded to other projects.

University Needs to Continue to Improve Its Management of Cost Sharing

     Prior audits at the western university found that nine of the campuses did not
effectively manage their NSF cost-sharing awards, suggesting a university-wide
weakness in controls to oversee grants administration, particularly cost sharing.
The audits, which covered the period from September 1, 1992 through January
12, 2001, found: a lack of written policies and procedures; inadequate systems to
track or maintain supporting documentation for cost sharing; overstatement of in-
kind cost sharing; inadequate monitoring, particularly of subrecipient cost sharing;
and an absence of cost-sharing certification.
      Since the completion of the audits, the university has taken steps to improve
its oversight of cost sharing. These actions include the issuance of new guidance
on cost sharing to its campuses and the completion of 11 grant and contract audits.
However, the university still needs to establish a management structure that provides

                                                                                          15
Audits & Reviews




                   overall direction and oversight of the grant administration operations at its various
                   campuses. We also recommended that the university provide more detailed
                   guidance on cost sharing; establish responsibilities for a system-wide structure
                   and framework to direct and oversee sponsored research and cost sharing; enable
                   the University Auditor to assess compliance with Federal requirements for grants
                   management, including cost sharing, on a regular basis; and ensure that campuses
                   with large amounts of Federal awards provide for routine audits of internal controls
                   over award administration.
                         The university generally agreed with our recommendations, but disagreed
                   that it should establish new positions of responsibility for system-wide management
                   of Federal awards, since ultimate responsibility for award administration rests at
                   the campus level. However, we believe that the pattern of weaknesses in cost-
                   sharing administration identified in our audits indicates the need for more centralized
                   leadership, guidance, and oversight of award administration at the campuses.
                   Given the pervasive nature of the university’s cost-sharing control weaknesses,
                   we referred the report to the Department of Health and Human Services, the
                   cognizant agency for a majority of campuses, which has agreed to follow up on
                   the findings and recommendations on behalf of all Federal agencies.

                   Five Campuses Charge $484,000 In Excess Faculty Compensation

                        In our audit of cost sharing at one of the campuses, we identified payments to
                   faculty members in excess of their regular salary, which is commonly referred to
                   as overload compensation. Federal regulations permit overload compensation
                   when such arrangements are either specified in the award or approved in writing
                   by the sponsoring agency. However, university policy allows faculty to be paid up
                   to 25 percent above their full-time academic yearly salary from Federal funds without
                   Federal approval. We found that five of eight campuses used this university policy
                   to charge $484,000 in excess compensation.
                         We recommended that NSF require the university system to specifically
                   request overload compensation in grant proposals and allow extra salary
                   compensation only when NSF had approved the request in writing. The university
                   disagreed because it had received approval for this practice from its cognizant
                   Federal agency. In response, we stated that the Office of Management and Budget
                   agreed with our position that campuses need to get approval from sponsoring
                   agencies before charging overload compensation. We referred this matter to NSF’s
                   Division of Acquisition and Cost Support for resolution.

                   Memorandum to NSF Management Regarding $37.7 Million Potential
                   Overload Compensation

                        While performing the audit on overload compensation we identified an
                   inconsistency between NSF’s policy manual and requirements included in its grant
                   agreements. NSF’s Grants Policy Manual (GPM) requires that overload
                   compensation for researchers be explicitly provided for in the program solicitation


          16
                                                                OIG Semiannual Report      March 2004




and approved by NSF. However, NSF award conditions do not include this
provision, thereby jeopardizing NSF’s ability to enforce this policy. The financial
implications of the overload-compensation requirement are significant for NSF.
An analysis of all NSF awards made to universities from FY 2000-2002 showed
that 7 percent of the awards included budgets totaling an estimated $37.7 million
for academic year salary support for senior personnel, which may have been used
to pay overload compensation. overload compensation.
      We recommended that NSF include in its award letter the GPM requirements
that permit overload compensation only under the following circumstances: 1) the
award solicitation explicitly allows it, 2) the awardee specifically requests it, and 3)
NSF approves it. More generally, we also recommended that NSF ensure that all
significant policies in the GPM are incorporated into the award letters. NSF
management agreed to consider the recommendation as it pertains to incorporating
GPM provisions about overload compensation in award letters and will present
this issue at an upcoming National Science Board meeting. NSF management will
address the more general requirements, which will take considerable time to
analyze and implement, as resources become available.


National Science Board Demonstrates Clear Intent to
Comply with Sunshine Act
     During this semiannual period, we issued our first annual report on the National
Science Board’s (NSB) compliance with the provisions of the Government in the
Sunshine Act, as mandated by the NSF Authorization Act of 2002. We found that
the NSB demonstrated a clear intent to provide for greater access to and increased
openness in its meetings, and that it properly closed its meetings consistent with
the exemptions contained in the Sunshine Act.
      However, the audit identified a few areas for improvement. For instance, the
NSB did not always provide public notice of its meetings one week in advance,
and had difficulty making written copies of its votes and related explanations to
close meetings to the public with one day’s notice. Also, electronic recordings for
some of its closed meetings, though required, were not made due to technical
difficulties.
     To help ensure that the NSB and its staff improve compliance with the Sunshine
Act’s many requirements, we recommended that the NSB develop, implement,
and provide training on formal policies and procedures that define the various
participants’ roles and responsibilities for compliance. The NSB agreed with the
report’s findings, recommendations, and suggestions and is undertaking steps to
address them.




                                                                                             17
Audits & Reviews




                   Risk Assessment for Federally Funded Research and
                   Development Center
                         We conducted a joint review of a large Federally Funded Research and
                   Development Center (FFRDC) with the Department of Commerce OIG to find out
                   whether the FFRDC’s self-evaluation known as a “business risk assessment”
                   offers assurance that Federal funds are managed effectively. Although the risk
                   assessment of the FFRDC’s business and research operations succeeded in
                   raising awareness of risk management throughout the organization, we found that
                   it did not address the FFRDC’s risk of managing Federal awards, which provide
                   $186.5 million or 89 percent of the FFRDC funding. In addition, FFRDC
                   management did not take effective action to follow up on the results of the risk
                   assessment. Consequently, NSF and the Department of Commerce are unable
                   to rely on the assessments as a primary means to ensure the adequacy of Federal
                   grants management and systems controls.



                   Corrective Actions Prompted by
                   Previous Audits

                   NSF Strengthens Controls Over Grants To A Foreign Organization

                         In response to our audit of a foreign grantee, NSF has taken corrective actions
                   to improve its management and monitoring of foreign grants for compliance with
                   applicable Federal grant requirements and NSF award terms and conditions. NSF
                   directed its grant officers to exercise particular care and diligence in its pre-award
                   review of new foreign awardees to ensure both their financial viability and legal
                   standing to receive NSF grant funds. Grant officers were reminded to coordinate
                   with the NSF Office of General Counsel if questions arise during these preaward
                   reviews. Additionally, the foreign grantee reviewed in the audit is working with its
                   host and founding organizations to properly establish its legal status.
                        Further, NSF has developed new award terms and conditions to clarify the
                   Federal grant requirements applicable to these international organizations. As
                   recommended, NSF amended its grant agreement with the audited foreign
                   organization to provide funding through a fixed amount award rather than the
                   standard NSF research grant agreement. The agency is in the last stages of the
                   process of resolving concerns regarding the foreign awardee’s financial
                   responsibility and accountability related to the award in question. We will continue
                   to work with NSF to ensure that an organization with legal status is identified to
                   accept responsibility for the pass-through funds.




          18
                                                             OIG Semiannual Report     March 2004




Western University Repays NSF $1.4 Million In Unallowable Costs

      During this reporting period, a western university repaid $1.3 million to NSF
for inappropriately recovering administrative services costs above the maximum
allowed under federal regulations. It previously had reimbursed NSF $148,098 for
over-recovering such expenses. The university incurred the costs in carrying out
administrative functions such as payroll, purchasing, travel administration, award
monitoring, project accounting, and procurement of supplies. Although Federal
regulations consider these costs to be indirect costs recoverable by an institution
through its facilities and administrative (F&A) rate, the university charged these
costs separately as direct costs of Federal awards. We informed the cognizant
agency of our resolution of the issue since the recovery may have broader
implications for the Federal Government. The university charged 20 Federal
agencies a total of $5.7 million of administrative costs. The university agreed not
to charge these types of costs to the Federal Government in the future.

Resolution of Recommendations for NSF’s Committees of Visitors

      During this semiannual period, NSF completed actions to respond to one
recommendation from our audit of NSF’s Committees of Visitors1 (COVs) and
submitted an action plan to implement the second recommendation. In response
to the first recommendation, NSF fully disclosed in its FY 2003 performance report
the limitations of the data used in its performance assessment process for reporting
under the Government and Performance and Results Act of 1993. Decision makers
can now make an informed judgment about the reliability, adequacy and quality of
the data used to assess NSF’s performance.
     To address our recommendation that NSF document its response to the
recommendations from the COVs, NSF plans to update its procedures and
implement a system to formally track its response to COV recommendations. It
also plans to make this information available to later COVs through the Internet.
During this semiannual period, NSF initiated actions to implement these plans.

Key Recommendations to Improve NSF’s Oversight of Large
Facility Projects Remain Open

      In prior semiannual reports (March 2001 and September 2002), we reported
on the results of our audits of NSF’s financial management of its large facility
projects. While NSF continues to make progress in implementing corrective actions,
five of nine recommendations in the two audit reports remain open.
     The major part of NSF’s corrective action program is the development of a
Facilities Management and Oversight Guide (the Guide) that should enable NSF
managers and awardees to better oversee and manage these large projects.
Although NSF issued the Guide in July 2003, we noted in comments provided to


1
    See September 2003 Semiannual Report, p.16


                                                                                         19
Audits & Reviews




                   the agency that the Guide needs more practical and detailed guidance for Program
                   Officers doing the day-to-day work. The Guide does not address the recording
                   and tracking of the full cost of large facility projects, which is necessary to ensure
                   that projects remain within authorized funding levels and is needed by decision
                   makers to establish funding priorities.
                         NSF plans to provide this detailed guidance through as many as 20
                   supplemental modules. During this semiannual period, the agency provided us
                                                                     with drafts of two of these modules:
                                                                     Risk Management and Roles and
                                                                     Responsibilities. In general, these
                                                                     drafts begin to provide the specific
                                                                     information needed by NSF staff to
                                                                     manage these projects. However,
                                                                     we remain concerned about the
                                                                     amount of time taken to develop the
                                                                     guidance, and believe that NSF is not
                                                                     allocating enough resources to
                                                                     support this important and complex
                    NSB Chairman Dr. Warren Washington tours the
                        Laser Interferometer Gravitational-Wave      effort. We are concerned that the
                     Observatory (LIGO) site in Louisiana with other guidance provided in the modules is
                               Board members and the IG.             of an advisory nature, leaving many
                                                                     activities and decisions to the
                                                                     discretion of the individual program
                   officers. As such, the guidance does not provide adequate accountability for
                   managing these projects.

                   Recommendations Concerning Reporting on Antarctic Infrastructure
                   Remain Unresolved

                         Although NSF has implemented two of three recommendations from our
                   March 2003 audit of the Occupational Health and Safety and Medical Programs in
                   the United States Antarctic Program (USAP), our recommendation that NSF initiate
                   life-cycle planning and identify the resources associated with its planned upgrades
                   and replacements of USAP facilities remains unresolved. NSF has recently issued
                   an update to its McMurdo Station Long-Range Development Plan, which covers
                   the majority of the USAP facilities. This plan reflects a robust methodology for
                   identifying and prioritizing facilities requirements, and properly recognizes projects
                   with safety and environmental concerns as being the highest priority, “Level 1.”
                         However, additional actions are needed to ensure that adequate funding for
                   the Level 1 projects is included in the request for resources. Resource requests
                   should clearly identify which of the Level 1 facilities projects NSF is requesting
                   funding for in the fiscal year, and a crosswalk should be provided between the
                   total resources requested for these projects and the long-range Plan. Also, to
                   ensure that the information in the Plan remains current and relevant, it should be
                   reviewed and updated on a regular basis to reflect the current priorities, costs,
                   and estimated start dates of the projects.


          20
                                                               OIG Semiannual Report     March 2004




       NSF believes that the
planning and prioritization
done in preparation for the
annual Congressional budget
request serves the function
of updating the long-range
Plan on a regular basis.
While we agree that NSF
does extensive planning and
prioritization preparing for its
annual budget request, the
formal document provided to
Congress and the Office of
Management and Budget
does not clearly identify the Pausing during a recent site visit to McMurdo Station in
priority projects for which it is Antarctica are Steve Toth (Raytheon), Erik Boxhoorn
requesting funding, nor does       (KPMG), John Lynskey (NSF), Tim Cross (Deputy IG),
it relate the priority projects       Don Farineau (KPMG), and Pat Smith (NSF).
to specific resources.
Further, it does not contain information such as changes in project start dates,
time frames and anticipated associated resources for the Level 1 facilities projects
that did not make the current year’s budget request. Updating such information on
an annual basis provides decision makers with the information needed to understand
NSF’s decision-making process, and the trade-offs that must be made within that
process.
     We continue to discuss this recommendation with NSF management.



A-133 Audit Reports
      The Single Audit Act of 1984 (Public Law 98-502) and the Single Audit Act
amendments of 1996 (Public Law 104-156) 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 awards are required to
have an organization-wide audit that includes the non-Federal entity’s financial
statements and compliance with Federal award requirements.
     Desk Reviews. In this reporting period, we reviewed 79 A-133 audit reports
with NSF expenditures of $727 million for fiscal years 2000 through 2003. Of the
79 A-133 reports reviewed, 53 reports contained reportable conditions and non-
compliance findings. The most common deficiencies related to non-compliance
with Federal cost principles, unallowable costs, equipment management, reporting,
and subrecipient monitoring. In total, the auditors questioned $372,322 of NSF-
funded costs claimed by award recipients. A non-profit organization earned
$124,676 in program income and failed to reduce the reimbursement total by this
amount, therefore receiving a premature cash outlay. Another entity was unable



                                                                                           21
Audits & Reviews




                   to provide time and effort reports supporting $201,168 in salaries, payroll taxes,
                   and related fringe benefits.
                         Our office also continued to examine Management Letters, which report
                   internal control weaknesses that are generally less significant than those reported
                   in the A-133 reports, but still require the non-Federal entity management’s attention.
                   Our examination of the Management Letters in this reporting period identified 13
                   entities with internal control problems in the areas of financial management,
                   reporting, and subrecipient monitoring.




          22
                                                                     Investigations

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



Civil & Criminal Investigations

NSF Manager Convicted and Sentenced for
Destruction of Government Records
     An OIG investigation revealed that NSF's Travel Card Program
Manager misused her own travel card and then altered official records
to hide the evidence. The manager pled guilty to a felony and was
sentenced to 20 weekends in jail, 2 years supervised probation, fined
$1,000, and permanently barred from government service. The
Manager was responsible for the daily administration of the Travel
Card program, including oversight of misuse and recommending salary
offset for delinquent accounts.
     Following a 2002 audit and subsequent investigative review of
NSF travel records, we received an anonymous tip alleging that the
travel card program manager (a GS-15 Supervisory Accountant) was
misusing her own travel card by making unauthorized ATM cash
withdrawals. ATM cash withdrawals are only authorized when made
in connection with official government travel. Otherwise, such
withdrawals amount to personal, interest-free loans.                             HIGHLIGHTS
     Our review of NSF and Bank of America records confirmed that
                                                                           Civil and Criminal
the manager frequently used the travel card to make purchases from
                                                                           Investigations       23
local retailers and ATM withdrawals, unrelated to official travel.
Significantly, these unauthorized transactions appeared in the original
                                                                           Administrative
Bank of America records but not in any of the electronic agency
                                                                           Investigations       28
records that the manager maintained as a part of her official duties.



                                                                           23
Investigations




                 These altered government agency electronic records had previously been provided
                 to OIG Audit as part of the September 2002 audit, and provided separately to OIG
                 Investigations as part of our proactive review of travel records.
                       When interviewed, the manager revealed that she made frequent use of the
                 travel card for personal, non-official transactions on dozens of occasions over 3
                 years, and even allowed her children to make withdrawals with her card. She
                 also admitted to altering NSF's electronic records every month to conceal her
                 misuse from both the agency and OIG. Although the manager's supervisor was
                 informed on 2 occasions that she was misusing the travel card, her supervisor
                 failed to take any corrective or disciplinary action, and thereby enabled the misuse
                 to continue.
                      Based on our referral, the U.S. Attorney for the Eastern District of Virginia
                 (USA/EDVa) accepted this case for prosecution. In accordance with the manager's
                 plea agreement, she resigned from NSF on December 15, 2003, and the next day
                 pled guilty to violation of 18 U.S.C. § 2071(b), the willful and unlawful destruction
                 of an official record, a felony. On March 26, 2004, the former manager was sen-
                 tenced to 2 years of supervised probation and required to pay a $1,000 fine and
                 $100 Special Assessment Fee-she was also sentenced to 20 weekends in jail to
                 serve as a deterrent to others.
                      As part of the plea agreement, as required by § 2071(b), the former manager
                 is permanently barred from holding Federal office. OIG recommended that NSF
                 debar the former manager government wide for 3 years to ensure that she does
                 not work in the private sector under a Federal grant or contract.

                 Eight Travel Card Cases to Be Submitted to NSF for Administrative Action

                       In addition to the preceding case, OIG's review of travel records identified 11
                 other cases involving suspected misuse of travel cards by NSF employees. These
                 cases largely involved ATM cash withdrawals and purchases from local merchants
                 that appeared to be unrelated to official travel. OIG investigators reviewed Bank
                 of America electronic records and conducted interviews to determine what charges,
                 if any, were authorized.
                     Eight cases were referred to the USA/EDVa for possible criminal prosecution
                 under 18 U.S.C. § 1029(a)(2), fraudulent unauthorized use of an access device.
                 USA/EDVa declined to prosecute these matters in lieu of administrative action,
                 and we are therefore referring them to NSF management for appropriate action.
                      In the remaining 3 cases, we determined that the employees had used the
                 travel card for purchases that were authorized but unrelated to official travel. We
                 advised the employees that use of the travel card for purchases unrelated to official
                 travel was inappropriate, and these cases were closed without further action.

                 Changes to Travel Card Policies Recommended

                      Based on the experience gained from recent investigations involving travel
                 card use, we provided NSF with specific recommendations for tightening internal


        24
                                                               OIG Semiannual Report     March 2004




controls and improving the monitoring of travel card misuse and delinquency. NSF
responded by revising certain policies, including requiring additional training of all
travel card users and suspending the cards of users who have not traveled recently.
      In our September 2003 Semiannual Report to Congress (page 42), we
discussed our recent implementation of regular proactive reviews of use of travel
cards. These reviews were initiated in response to heightened public and
Congressional interest, as well as an increase in fraud allegations pertaining to
use of the travel card. Our review of recent travel card transactions found that
employee credit card fraud and abuse, while never widespread, has significantly
decreased in recent months. Our office will continue to conduct proactive reviews
to identify common problems, and work with Bank of America and NSF to develop
new approaches to prevent and detect credit card fraud and abuse.

University Employee Sentenced to 4 Years Incarceration
for Embezzling NSF Funds
     A northern California university grants and contracts administrator was
convicted of embezzling $487,425, including $415,500 in NSF grant funds, over a
period of five years. The administrator was responsible for reviewing and
authorizing disbursements on NSF and other grants. He abused his position by
requesting monthly disbursements (stipend payments) for his wife, who he falsely
claimed was a program participant. He then forged the signature of the project
director, approved the request as the grants and contracts administrator, and
submitted the request to the accounts payable department. On each request he
indicated that he would pick up the check once it was ready, and then deposited
the checks, which ranged from $1,200 to $6,500, in his university credit union
account.
      We worked with the San Francisco District Attorney's (DA's) office to assist
in the prosecution of the grants administrator. The DA indicted the administrator for
multiple counts of fraud, forgery, and revenue and tax code violations. On March
12, 2004, the administrator pled guilty to four state fraud and tax code violations.
As part of the plea agreement, he was sentenced to four years in prison and ordered
to pay $480,383 in restitution. We recommended that NSF debar the former
administrator to ensure that the institutions receiving public funds will only employ
responsible individuals.
      The university reviewed the fraudulent expenditures from the NSF grants, as
well as its cost sharing contributions and other charges, and determined that a
total of $1,206,314 should be returned to NSF or credited to the open grant accounts.
To date, the university has returned or restored $867,681 to NSF or NSF grant
accounts. The university is cooperating with NSF/OIG to ensure that all NSF
funds are returned and that adequate internal controls are implemented to prevent
future occurrences.




                                                                                           25
Investigations




                 University Employee Gambles with Stolen Federal Funds
                       An employee of a west coast university was convicted of stealing $40,899 in
                 grant money from an NSF sponsored research facility. The subject was responsible
                 for the facility's petty cash fund account, and had access to an ATM card. The
                 university discovered the theft when the subject was on vacation, and another
                 employee discovered 2 checks attached to copies of the same invoice, making it
                 appear that it had been paid twice. The facility director received copies of the
                 cashed checks from the bank and learned that one of the checks had been altered
                 to make it payable to the subject. The endorsement signature on the back of the
                 check indicated that she had cashed the check herself.
                       The university immediately suspended the subject pending an investigation.
                 After the university found five suspicious checks totaling $6,000, a university official
                 interviewed the subject. The subject admitted to her fraud, blaming her actions on
                 a gambling problem and depression, and explained that she wrote checks to herself
                                                                          on the account and forged
                                                                          her supervisor's signature
                                                                          on the checks.           She
                                                                          concealed her crime by
                                                                          preparing copies of blank
                                                                          checks payable to legitimate
                                                                          vendors,       and      then
                                                                          submitting them to her
                                                                          supervisor to confirm
                                                                          payment of the invoices.
                                                                             The subject had
                                                                       unlimited signature authority
                                                                       on the petty cash checking
                      Darrell Drake and Crystal Blackshear receive the accounts, and admitted to
                       ECIE Award for Excellence from Federal Reserve  altering five to ten checks
                                       IG Barry Snyder
                                                                       totaling an unknown amount
                                                                       of money. The records
                 ultimately revealed that the subject cashed $23,992 in checks, charged $3,139 to
                 her ATM card for AT&T wireless charges, charged $2,922 to her ATM card in
                 other unauthorized purchases, and withdrew $2,399 in cash, for a subtotal of
                 $32,452 in fraudulent expenditures. Moreover, when the indirect costs charged to
                 the award as a result of her theft are included, the total loss of Federal funds
                 amounted to $40,889.
                      After the university notified OIG of the theft, we interviewed the subject and
                 obtained a written statement admitting to the theft of the funds. We referred the
                 case to the U.S. Attorney's Office, and on March 19, 2004, the subject pled guilty
                 to one count of violating 18 U.S.C. § 666, "theft or bribery concerning programs
                 receiving federal funds." The subject is scheduled to be sentenced in June 2004.
                 The university restored $40,889 to the account for the NSF award. As part of the
                 plea agreement, the subject agreed to pay full restitution to the university.




        26
                                                                OIG Semiannual Report      March 2004




Two Employee Investigations Result in Separation
from Service
     The September 2003 Semiannual Report (page 31), contains a summary of
the case of an NSF employee who advertised stolen property using the agency's
electronic bulletin board. Although the employee was repeatedly counseled by
OIG and her supervisor about her obligation to cooperate with our investigation,
the employee continually refused. Following the completion of OIG's investigation,
we referred the matter to NSF for administrative action. NSF management issued
a proposed termination notice to the employee for failure to cooperate with an OIG
investigation, and the employee resigned prior to the agency's final decision.
     In another case, reported in our September 2003 Semiannual Report (page
35), an NSF program assistant intentionally fabricated and submitted a jury duty
notice to justify her absence from work. We reported our findings to management
for appropriate action, and on December 16, 2003, the program assistant was
terminated for cause.

Company Official Returns Funds Obtained by False
Certification
     A company official for a first-time recipient of a Small Business Innovation
Research (SBIR) award falsely certified that the primary employment of the Principal
Investigator (PI) was with the firm. Based on the certification, NSF made an initial
payment of $33,000 to the company. When NSF found that the PI was not employed
at the company, NSF terminated the grant and referred the matter to OIG. After
the grant was terminated, the company ceased operations and went out of business.
     During our investigation, the company official admitted that he signed the
"Request for Initial Payment" form despite knowing that the company did not
primarily employ the PI. However, the official said that he did not understand the
NSF grant requirements, and claimed that other officers of the company were
responsible for preparing and submitting the documents to NSF. Following our
consultation with the U.S. Attorney's Office, the company official agreed to refund
a portion of the award to NSF, and the U.S. Attorney declined to prosecute. In
addition, the company official stated in writing his intention to comply with all rules
and regulations when applying for future Federal awards.

University's Computer Purchase Fulfills Cost-Sharing
Requirements
      In our September 2003 Semiannual Report (page 32), we summarized the
case of a university that failed to fulfill its cost-sharing requirement. The university
had agreed to purchase the computer equipment initially identified as their cost-
sharing obligation. In December 2003, the university submitted documentation
verifying the purchase of the computer system at a cost of $58,229. This amount
exceeded their cost-sharing requirement and fulfilled their obligation.


                                                                                             27
Investigations




                 Administrative Investigations

                 Reports Forwarded to the Deputy Director

                 PI Recommended for Reprimand for Plagiarism.

                      OIG recommended that NSF reprimand a PI for plagiarizing parts of a research
                 proposal. We received an allegation that an NSF proposal, submitted by a PI and
                 four co-PIs, contained material copied from a confidential proposal submitted to
                 NSF. Our examination of NSF's database indicated that the source proposal was
                 reviewed by one of the co-PIs, leading to the suspicion that the co-PI also violated
                 the confidentiality of NSF's merit review process. During our inquiry, we identified
                 additional text copied verbatim from a separately published paper.
                      Our inquiry determined that the PI had received a copy of the proposal from
                 the co-PI, who received it from NSF to review, and the PI (the subject) alone was
                 responsible for the inclusion of the copied text into the proposal. We referred the
                 allegations of plagiarism and violation of the confidentiality of NSF's merit review
                 process to the subject's university for investigation. The university found the
                 subject copied a moderate amount of material, including text, a figure, and
                 references, from the source proposal, and several lines of text from the paper.
                 The university concluded that the subject's plagiarism and violation of the
                 confidentiality of NSF's merit review process constituted research misconduct
                 under its policy. The university reprimanded the subject and required him to attend
                 a research ethics conference and participate in the university's research ethics
                 course for its graduate students. We agreed with the university's conclusions
                 and recommended that NSF send a letter of reprimand to the subject and require
                 him to provide certifications for 2 years.

                 Action by the Deputy Director
                       NSF took action against a PI who inserted 2 pages of plagiarized material
                 into 2 NSF proposals, as first reported in our September 2003 Semiannual Report
                 (pages 36-37). On the basis of our investigation and recommendations, NSF
                 sent a letter of reprimand to the PI and directed him to provide NSF written
                 certifications for a period of 2 years that any newly submitted proposals comply
                 with NSF's research misconduct regulation.

                 Significant Administrative Cases

                 Human Subjects Protection Issues Uncovered by Contradictions in
                 Awardee's Annual Report

                     Allegations concerning a first-time grantee's compliance with the Common
                 Rule for the Protection of Human Subjects resulted in corrections by the grantee

        28
                                                                    OIG Semiannual Report      March 2004




and improved compliance oversight by the NSF programs. Under the Common
Rule, an awardee must certify to NSF that an approved Institutional Review Board
(IRB) has reviewed and approved the use of human subjects before any such
research is funded. While reviewing an awardee's annual report, we identified
contradictory information about whether the awardee had secured IRB approval
for its project involving children.
      Our investigation revealed that the awardee had no prior experience with
human subjects research and had not received adequate IRB approval before
starting the NSF project. We also found identifying personal information about
children participating in the program publicly available on the awardee's web site,
which also cited NSF as a funding source. The Common Rule specifically requires
an IRB to determine that additional safeguards are in place to protect special groups,
including children and others who may be vulnerable. On our recommendation,
NSF suspended the award pending IRB approval of the project, and the awardee
removed the website.
      We worked with the awardee,
its IRB, and NSF to achieve
compliance, in part, by ensuring the
IRB received all relevant information.
Meanwhile, we learned the posting
of the children's personal information
on the web site was part of the
awardee's non-NSF-supported
activities. 2 After reviewing the
materials, the IRB determined that
the NSF project requires IRB
oversight but involves not-greater-
than-minimal risk to the participants.
Following our recommendations,
NSF urged the awardee to attend
                                       OIG attorneys Fara Damelin and Ginna Ingram
professional grants management                     confer about a case.
training, required the awardee to
submit the results of subsequent
IRB reviews to NSF, has treated the award as an at-risk award, and lifted the
suspension.
    We found other awards in this NSF program that raised compliance issues
under the Common Rule. Out of 17 awards, only 7 had been submitted designating
human subjects involvement on the proposal cover page as required by NSF policy.
NSF also explicitly requires awardees to certify IRB approval of human subjects
work before an award is made. In this case, NSF had received only 3 IRB


2
  The awardee had established a connection between the NSF project and these activities by
erroneously using NSF funds in these activities. To correct the accounting error the awardee
credited the NSF grant account for the erroneous payments, thus severing the connection
between the website and NSF and eliminating the need to have the IRB approve the children's
web pages as part of the NSF award.



                                                                                                 29
Investigations




                 certifications before the awards were approved and funds expended. Furthermore,
                 the program officer had failed to designate all 17 awards as involving human subjects
                 on NSF's internal processing form.
                        In response to our recommendations, the affected NSF directorate corrected
                 the 17 award files and provided awareness training for division directors and staff.
                 It is working to sample active awards for compliance, and to institute a directorate-
                 wide automatic hold in electronic proposal processing that requires program officers
                 to actively confirm their review of human subjects issues. In the majority of
                 directorates, all proposals are coded by default in the electronic proposal
                 processing system as not having a human subjects component. At the agency
                 level, NSF implemented and publicized web-based training to relevant program
                 staff, and intends to modify the policy manuals to clarify program officers'
                 responsibilities. NSF agreed to look into additional outreach methods and to make
                 an informal assessment of program areas involving large-scale human subjects
                 research, which may require refresher training for NSF personnel.

                 Conflicts Arise in Merit Review of Proposals

                       During this semiannual period, several matters arose that highlight how
                 conflict-of-interests (COI) issues can arise in the process of NSF's merit review
                 process. We received information that a program officer participated in the award
                 of a proposal for which his fiancée was listed as a co-PI. When we interviewed
                 him, the program officer denied having anything other than a collegial professional
                 relationship with the co-PI, until he was confronted with the evidence. However,
                 since he did not share financial interests or a household with the co-PI, there was
                 neither a statutory COI violation, nor a violation of NSF's own COI rules. We
                 pointed out to NSF that its rules for panelists and advisory committee members
                 identified close personal relationships as raising COI concerns, and in response
                 to our recommendation NSF added a parallel provision to the COI rules for NSF
                 employees.
                      In addition, we investigated several other allegations of violations of the terms
                 of the "Conflict-of-Interests and Confidentiality Statement for NSF Panelists" (the
                 Confidentiality Statement) which is signed by NSF panelists prior to reviewing
                 proposals:
                      • A panelist admitted lobbying and voting for a proposal from his university,
                        even though the Confidentiality Statement clearly prohibits panelists from
                        participating in the evaluation of proposals from their home institutions.
                        Although the panelist believed his COI was irrelevant because the panel
                        ultimately did not recommend the proposal, this did not mitigate his
                        responsibility and we reiterated the importance of this rule to him.
                      • A panelist reviewed a proposal from an institution for which the panelist is
                        a subcontractor. Although this would be a COI under NSF's rules, this
                        proposal was reviewed as part of an interagency program, in a process
                        initially governed by another agency's rules. This proposal was
                        unsuccessful in the first stage, and the program has changed its review



        30
                                                        OIG Semiannual Report     March 2004




  procedures for the upcoming year in a manner that will prevent a recurrence
  of this issue.
• Review panelists discussed alleged prior unethical behavior of a PI whose
  proposal was being considered. The program officer overseeing the panel
  appropriately halted the discussion, and reminded the panelists to disregard
  the allegation in evaluating the merit of the proposal. Believing that the
  accused PI had the right to know of and defend against the allegation, one
  reviewer emailed the PI and others about the discussion. We emphasized
  to the reviewer that NSF policy is to bring allegations of unethical behavior
  to us, and that discussion held by panelists should not otherwise be shared
  with individuals outside the review process.




                                                                                    31
Investigations




        32
                      OIG FY 2003 Performance Report



     This section describes OIG's accomplishments towards the
three goals set forth in the OIG Performance Plan for 2003:
     1.    Increase OIG impact on NSF's effectiveness and efficiency.
     2. Safeguard the integrity of NSF programs and resources.
     3. Utilize OIG resources effectively and efficiently.
     Under each of these goals, we identified several strategies for
achieving the goal. For each strategy, we listed specific actions that
we planned to complete during the performance period, which ran
from April 1, 2003, to March 31, 2004.

Goal 1: Increase OIG Impact on NSF's Effectiveness and
        Efficiency

1. Identify and implement approaches to improve audit product quality
and timeliness.
     • Continue to implement team-based auditing approach on                       HIGHLIGHTS
          high-risk audits.
     • Provide team-based audit training to audit staff and contract       Goal 1:
          auditors.                                                        Increase OIG Impact on
     • Finalize audit guide for contract auditors; incorporate team-       NSF’s Effectiveness and
          based auditing concepts in our contract audit guidance.          Efficiency             33
     • Finalize audit report quality standards.
                                                                           Goal 2:
     • Continue to enhance automated work-in-process audit                 Safeguard the Integrity
          tracking system.                                                 of NSF Programs and
                                                                           Resources               36
     • Establish on-the-job training plan to ensure that new and
          existing audit staff quickly gain experience conducting audits
          of NSF awards and programs.                                      Goal 3:
                                                                           Utilize OIG Resources
     • Develop Contracting Officer's Technical Representative              Effectively and
          procedures manual.                                               Efficiently             38



                                                                           33
       OIG FY 2003
Performance Report




                          • Develop audit contract monitoring procedures manual.
                          • Develop audit quality control standards document.
                          • Develop measures to assess audit product quality and timeliness.
                          • Develop results-based performance measures for Audit Office in 2004.
                           OIG made significant progress towards achieving our goal of improving audit
                     timeliness and quality. The team-based auditing approach we have adopted calls
                     for formal meetings between auditors and managers at key points in an audit,
                     thereby facilitating communications that result in timelier, higher quality audit reports.
                     During 2003, the Audit Office implemented the team-based auditing approach on
                     high-risk audits conducted by internal audit staff as well as contractor staff. We
                     provided comprehensive team-based audit training to OIG audit staff and
                     representatives from CPA firms under contract with OIG in joint training sessions
                     in August 2003. The Audit Office will complete an audit guide for use by private
                     accounting firms under contract with OIG early in the 2004 performance period.
                     This document will provide detailed guidance for contractors on implementing team-
                     based auditing concepts, and it will ensure that a consistent approach to the conduct
                     of audits is taken by both internal and contractor audit staff.
                          The Audit Office also made progress in developing three other policy
                     documents focused on quality assurance procedures and standards. First, we
                     completed two procedures manuals for OIG audit staff responsible for monitoring
                     contract audits that is expected to improve both the quality and timeliness of these
                     reviews. In addition, the Audit Office is continuing to develop an audit quality
                     control policy. When complete, the policy will establish detailed standards and
                     expectations regarding audit independence, supervision, planning, documentation,
                     team-based auditing, and outreach activities. To complete our program of quality
                     assurance improvements, we developed performance measures for assessing
                     the quality and timeliness of our audits.
                           During the past year, we made progress towards establishing an on-the-job
                     training program to acquaint staff with the new quality assurance practices we
                     developed and ensure that our audit work is consistent. The new training program,
                     which we expect to complete in 2004, will also provide staff with opportunities to
                     cross train among the various types of audit work we perform. We believe that
                     cross-training will not only broaden and enhance the skills of our auditors in
                     performing their current job, but will also result in improved versatility and job
                     satisfaction.
                           In 2003 we continued to use the OIG Knowledge Management System (KMS)
                     to track audit milestones, monitor audit resolution activity, and prepare data tables
                     required in the semiannual report to the Congress. Several enhancements were
                     added to the audit tracking system, including an audit planning module, an outreach
                     tracking module, and an automated process for conducting trend analysis of historic
                     audit data.




            34
                                                                   OIG Semiannual Report    March 2004




2. Strengthen our focus by refining our approaches for selecting work and setting
priorities.
     • Finalize audit planning policy document.
     • Finalize historical trend analysis of audit findings.
     • Develop a process for conducting future automated trend analysis.
     • Strengthen OIG expertise in NSF programs to assist in setting audit
        priorities.
     • Complete agency funding analysis by program and grantee institution to
        assist in setting audit priorities
     The Audit Office made significant progress towards finalizing an audit planning
policy document. It establishes a formal methodology for analyzing and performing
assessments of risk, developing audit proposals based on those assessments,
ranking audit proposals, and selecting audits based on an analysis of the staff
resources available. Senior audit managers have reviewed the draft document
and their comments have been incorporated.
       A key component of the audit planning process is our strategy for using the
data from past OIG audits to better manage future reviews. In 2003, the Audit
Office completed a trend analysis that organized and measured the results of past
audits going back to 1998 by type of finding and institution audited. This information
enables us to better allocate scarce audit resources among the many organizations
that receive NSF funds. We also developed a methodology that uses the KMS
system to monitor the results of future audits for changes to these patterns. By
the end of 2004, the historic audit data will be uploaded into our KMS system to
fully integrate the trend analysis process.
      We completed two strategies that will help inform the process for determining
audit priorities. First, the Audit Office participated in the OIG Liaison Program, in
which designated staff serve as points of contact to improve communication
between NSF program staff and OIG. The Liaison Program provides an opportunity
for audit staff to learn details about agency award programs and internal operations
that can be used to uncover areas of risk not readily apparent. In addition, the
Audit Office successfully completed an in-depth analysis of agency funding patterns
by program and institution. The results will provide audit staff with additional insights
into high-risk awardees and program areas.
3. Strengthen outreach regarding effectiveness and efficiency issues.
     • Finalize an OIG outreach plan to support NSF's efforts to inform the awardee
        community about the financial and compliance standards that matter for
        efficiency and effectiveness.
     • Conduct outreach sessions on effectiveness and efficiency issues for NSF
        staff and awardees at NSF, institutions, conferences, and other appropriate
        sites.
     The Audit Office completed an outreach plan that includes three strategies:


                                                                                              35
       OIG FY 2003
Performance Report




                     gaining a better understanding of NSF activities and operations; monitoring audit-
                     related changes in the professional audit and OIG communities; and educating
                     NSF, its stakeholders, and the external community on our audit issues and
                     activities. To facilitate formal tracking and measurement of OIG outreach activities
                     in 2003, we developed an outreach module in the KMS system. Implementation of
                     these actions will provide a more consistent approach to conducting, tracking,
                     and measuring the effectiveness of outreach by audit staff in 2004.

                     Goal 2: Safeguard the Integrity of NSF Programs and Resources

                     1. Identify ways to improve case product quality and timeliness.
                          • Ensure investigations are consistent with PCIE/ECIE quality standards
                            for investigations.
                          • Ensure consistency of investigative efforts with Investigations Manual.
                          • Make high-quality oral and written presentations to prosecutors or agency
                            decision makers.
                          • Assess timeliness and appropriateness of case milestones.
                          • Ensure high-quality referral of audit issues arising from investigations.
                          • Maintain high-quality training for investigators.
                          • Assess results-based performance measures for applicability to OIG
                            investigations activities in 2004
                          • Perform quality check for each investigation.
                           NSF OIG has assumed a co-leadership role in preparing the ECIE community
                     for investigative peer review, a job that has also improved our own focus on quality
                     and readiness for the peer review. We continued to improve our internal processes
                     and procedures by issuing two updates to our Investigations Manual. We have
                     shared our manual with other ECIE offices and engaged in discussions aimed at
                     improving investigative processes. We spearheaded the ECIE adoption of the
                     Qualitative Assessment Review Guidelines for Federal Offices of Investigation
                     and developed a peer review schedule for the 17 participating ECIE offices. We
                     are coordinating the training of ECIE staff that will participate in the peer review
                     effort.
                          The Office of Investigations has significantly increased its use of contract
                     forensic services, thereby strengthening our abilities to investigate financial fraud.
                     We have substantially increased the number of referrals we provide to audit in
                     connection with internal control matters arising from our cases, as we continue to
                     refine their quality. In order to more effectively investigate instances of research
                     misconduct, we have also increased the number of site visits made in connection
                     with these cases. We have worked closely with prosecutors to ensure that the
                     evidence we present is effective, and results in proportionate action being taken
                     against the perpetrators. Our investigation and management implication reports
                     have prompted agency officials to initiate significant actions against culpable


            36
                                                                OIG Semiannual Report   March 2004




individuals, and in some cases to modify agency processes to avoid future
wrongdoing.
     Finally, we scrutinized each case closeout and investigation report to ensure
that it meets standards articulated in the PCIE/ECIE Quality Standards for
Investigations and to assess the potential for taking subsequent actions such as
issuing management implication reports or audit referrals. Management closely
monitored the timeliness of the investigative process through the milestones entered
in the OIG Knowledge Management System for each project. Investigators
continued to attend training to expand and hone their skills. Most notably during
this period, we arranged office-wide training on forensic accounting and fraud
investigations.
2. Strengthen proactive activities (outreach, reviews) in integrity matters.
     • Ensure information is accessible to public and NSF.
     • Develop a Compliance brochure.
     • Emphasize OIG liaison activity.
     • Continue developing Grant Fraud Working Group.
     • Monitor and assess the effect of outreach on targeted communities.
     • Analyze closed cases to assess areas for proactive reviews.
     • Monitor and assess the effect of proactive activities on case processing
       time, priorities, and allegation assessment.
     • Ensure all FOIA/PA requests are responded to in a timely manner.
      The Office of Investigations has emphasized both proactive and reactive
capabilities to ensure that our efforts support the Inspectors General's statutory
mandate to prevent and detect fraud and abuse. Our proactive data-mining efforts
have produced both investiga-
tive leads that have resulted in
an increased number of signifi-
cant cases, as well as the dis-
covery of management control
issues that were referred to the
agency in management implica-
tion reports. The serious nature
of some of these cases caused
us to reevaluate our outreach
efforts and to focus on high im-
pact events. Feedback we
have received indicates that our
presentations are effective and
contain information that is both       OIG associate, Dr. Catherine Ball lecturing at
helpful and meaningful. We have             Capital Science 2004 Conference.
updated the IG website to en-



                                                                                          37
       OIG FY 2003
Performance Report




                     sure the clarity and accessibility of the information. We also continue to present
                     at NSF's conflicts of interests briefings, new program manager orientations, and
                     regional grants seminars.
                           Before publishing a compliance brochure, we have decided to focus our efforts
                     on developing a compliance initiative, from which we will develop a brochure. We
                     published two new brochures this year: one on employee use of peer-to-peer file-
                     sharing software and another on identity theft. Both brochures were developed in
                     conjunction with the agency to enhance the working environment of agency
                     employees. These brochures were introduced at the OIG Open House and are
                     available to anyone visiting our offices or our website. Our liaisons continue to
                     meet with their assigned NSF offices and are encouraged to use the two new
                     brochures as focal points for their discussions. We convened one meeting of the
                     inter-agency Grant Fraud Working Group which was attended by over 50 members
                     of the OIG community, including criminal investigators, auditors, and senior
                     managers from 20 different OIGs. More meetings are planned. Finally, we were
                     able to process all of the Freedom of Information Act (FOIA) and Privacy Act
                     requests we received within the allotted time frames.

                     Goal 3: Utilize OIG Resources Effectively and Efficiently

                     1. Utilize professional expertise and talents of all OIG staff.
                          • Conduct annual survey of OIG staff to obtain its views on the effectiveness
                            of:
                          • OIG use of its resources in personnel, equipment, technology and
                            contracting,
                          • Management planning, policies, and procedures,
                          • Internal communications and coordination, and
                          • OIG impact on NSF.
                          • Analyze survey results and develop corrective actions for the problems
                            identified.
                          • Continue the use of the team approach in brainstorming and resolving OIG
                            internal management issues and in developing OIG activities.
                          • Complete development of an integrated Knowledge Management System
                            within the OIG.
                          With a response rate of just over 60 percent, our second annual survey of
                     OIG staff revealed that progress has been made in a number of management,
                     resource, support, and policy areas. At the same time, it also showed that there is
                     room for improvement in others. We view this survey as an effective means for
                     taking the measure of how well we are using staff professional expertise and
                     whether we are providing our employees with the guidance and resources needed
                     to do their jobs. The results conveyed strong satisfaction in several areas,
                     including our overall mission as an office, the availability of computer and training


            38
                                                                OIG Semiannual Report   March 2004




resources, and the support of family-friendly policies. OIG received high marks in
management's support of alternative work schedules and telecommuting, and most
agreed that the office provides a working environment supportive of a balance
between work and personal life. There was a consensus that diversity is valued
and that harassment is not tolerated in the workplace. Staff reported that they
understand the goals and mission of this office. They also acknowledged the
professional competence, strong ethics, and mutual respect displayed by their
coworkers. The respondents believe that we treat other entities and individuals in
an equitable manner.
     The OIG appropriation for FY 2003 allowed sufficient resources to cover
increased staffing costs, including ten new positions; all audit, investigative, and
administrative contract requirements; and internal technology support. OIG
continued to make substantial use of the team approach for planning office activities
and resolving internal management issues. Committees and working groups were
effective in planning and conducting a highly successful OIG Open House,
assessing internal communications and coordination issues that were identified in
last year's staff survey, planning the annual office retreat, administering and
analyzing the results of this year's staff survey, refining drafts of a new policy on
referrals and informal consultations within OIG, and planning for the move of three-
quarters of our staff into new office space.
     We had intended to complete the new Knowledge Management System (KMS),
which integrates and replaces dozens of pre-existing or outdated "stovepipe"
applications, but at the end of the performance period, work was still ongoing to
develop additional improvements to the system, incorporate a more effective referral
process among OIG units, and resolve various issues that arose during the testing
of earlier phases. Through its integration with the NSF email system, KMS now
supports office-wide communications about project assignments,
accomplishments, and other significant events. Over the past year, we added
modules for tracking and reporting on outreach activities, FOIA requests,
investigative recoveries, and staff training. We also added mechanisms for
preparing and submitting audit proposals and for classifying the results of
investigations. A new information technology position will be filled early in the
2004 performance period, and one of its roles will be to maintain and manage
future upgrades to KMS after the contractor has finished initial development.
      The staff survey revealed that we have more work to do on continuing problems
in information sharing, coordination, cooperation, and communication among our
OIG units. These issues are further addressed in #3 below.
2. Strengthen staff recruitment, development, and training.
     • Use OIG survey results and other information to analyze OIG skill mix to
       determine whether it will meet future priority needs of the office.
     • Assume greater responsibility within OIG for handling personnel recruitment
       and hiring.
     • Develop an office-wide process for individual development plans.



                                                                                          39
       OIG FY 2003
Performance Report




                          • Provide OIG training in NSF programs and procedures, professional skills,
                             and other subjects that have wide application within the office.
                          • Ensure that all OIG staff meet OIG training requirements.
                          • Add at least one critical element to all staff performance appraisals to tie
                             individual performance to the OIG Performance Plan.
                           OIG survey results and other information were used to prepare an analysis
                     of past and present OIG skill mixes and to determine hiring requirements for the
                     year. While OIG continued to rely on NSF for human resource administrative
                     support, we took several steps to facilitate the process. First, we made greater
                     use of direct hire programs that enable expedited hiring procedures with less
                     cumbersome administrative requirements. During the 2003 performance period,
                     we took full advantage of the Federal Career Intern Program, Federal Cybercorp
                     Scholarship for Service, and the Federal Scholars Program to recruit excellent
                     staff for entry-level positions across the office. Second, we made more effective
                     use of the agency's electronic E-Recruit system to streamline hiring outside the
                     special federal programs. Early in the period we participated in an NSF working
                     group charged with developing ways to improve the system, and it now provides
                     the flexibility we need to screen applicants for our varied positions. Third, we
                     selected a management analyst who will assume several personnel-related
                     responsibilities, including oversight of the individual development plans, updating
                     position descriptions, and performing liaison functions with the agency's Human
                     Resource Management staff. Over the last 12 months, OIG hired 15 staff
                     members, including 10 for new positions.




                        Student interns Chae Kim (right)
                        and Julia Purn (below) visit with
                        the IG and Deputy IG.




            40
                                                                OIG Semiannual Report    March 2004




     During this period we conducted a pilot program for individual development
plans. It enabled employees and their supervisors to identify near-term professional
development goals and the types of work assignments and training that would
promote the achievement of those goals. At the midterm, employees and
supervisors gauged their progress and made any adjustments, and now that we
are at the end of the period, they will assess in writing how the extent to which the
goals were met. We will evaluate the results of this pilot early in the 2004
performance period. We also offered telecommuting to OIG staff, and 25 have
been authorized to participate in the program, most on an ad hoc basis.
     Each month we held an all-staff meeting that featured an outside speaker on
a program or topic of interest to OIG and presentations by OIG staff on their
respective activities. We also conducted office-wide training in forensic accounting
and fraud investigations, as well as training for all auditors and audit contractors
on team-based auditing. Except for those most recently hired, all staff members
met the OIG requirement for at least 24 hours of job-related training during the
period. All performance appraisal standards were revised to include a critical
element that ties individual performance to the OIG Performance Plan.
3. Improve communication and collaboration within OIG.
     • Develop an intra-office referral policy.
     • Provide timely information exchange and referrals between the audit and
       investigation units. Provide Audit Office support for financial analysis
       services in support of investigative activities.
     • Develop indicators for deciding when it makes sense to use multi-
       disciplinary professional resources on OIG assignments.
     • Provide opportunities for joint training and discussions of cross-cutting
       issues for auditors, investigators, and other OIG staff.
     • Assess Grant Fraud Indicators pilot program.
     • Share information about audit and investigative activities at all-staff
       meetings.
       In response to the findings of last year's staff survey, OIG devoted its annual
retreat to examining issues on communications and coordination within the office.
The staff continued to meet in small groups to brainstorm alternative courses for
addressing the problems that had been identified, and OIG held a follow-up mini-
retreat to discuss possible solutions in a plenary session. A Communications
Committee was formed early in the period to review ideas that came out of the
staff retreats and the network groups. The committee recently finished refining a
draft policy, which is currently being reviewed by the senior management staff. In
addition to setting forth essential principles and procedures, the policy will also
establish technological processes, through the OIG Knowledge Management
System, for ensuring timely information exchange and referrals among the units.
It will also provide automated prompting for feedback to the staff members making
referrals. We anticipate implementing a new policy early in the 2004 performance
period.


                                                                                           41
       OIG FY 2003
Performance Report




                          A contractor provided financial analysis expertise for investigative activities,
                     with support from the Audit Office. It has proven invaluable to investigations that
                     involve financial complexity, and it assists investigators in identifying potential
                     matters for referral to the Audit Office. We were unable to develop indicators for
                     the use of multi-disciplinary resources, nor were we able to complete an
                     assessment of the Grant Fraud Indicators pilot program. At each monthly all-staff
                     meeting, the Audit and Investigations Offices shared information on investigative
                     and audit activities. In addition, senior managers from both units met periodically
                     throughout the year to discuss issues of common concern. The Audit Office
                     provided training on the new fraud audit standard to audit and investigative staff,
                     and the Investigations Office included auditors in the planning and execution of
                     investigations based on Audit Office referrals.
                     4. Ensure effective external communications and consultation.
                          • Produce timely external reports on OIG results and issues.
                          • Provide testimony and other requested information to congressional
                            committees.
                          • Provide briefings toConsult with the NSB, Congress, OMB, NSF, and
                            others regarding OIG plans, priorities, and progress.
                          • Update NSF leadership regularly on OIG activities and concerns.
                          • Play an active role in the IG community.
                           All semiannual reports to the Congress, the budget submissions to the Office
                     of Management and Budget and to the Congress, Management Letter to NSF,
                     annual OIG performance Report, and responses to data calls from the Executive
                     Council for Integrity and Efficiency were completed by the prescribed target dates.
                     The IG testified twice at Congressional hearings and provided all information
                     requested by committee members and staff concerning OIG plans and the progress
                     and results of audits, investigations, and other reviews. Our staff presented regular
                     briefings to the Administrative and Oversight Committee of the National Science
                     Board on OIG activities and other matters of interest to the Board. The IG and
                     Deputy IG had six regularly scheduled meetings with the NSF Director and Deputy
                     Director to update them on ongoing OIG activities, and more urgent issues were
                     brought to their attention immediately.
                          OIG engaged in extensive outreach efforts during the 12-month period,
                     including presentations at 7 NSF Program Management Seminars (orientations
                     for new program officers), over 20 briefings on conflicts of interest for NSF
                     employees, and approximately 25 presentations to principal investigators, university
                     faculties and administrators, students, professional associations, and other
                     members of the research community. OIG staff also served as guest lecturers,
                     panel members, and moderators before various government and private-sector
                     audiences. We also consulted frequently with representatives from NSF, other
                     federal agencies, OMB, Congressional committees, and other OIGs on matters
                     of mutual interest.




            42
                                                             OIG Semiannual Report   March 2004




      OIG has been active in support of the President's Council on Integrity and
Efficiency and the Executive Council on Integrity and Efficiency, which are
composed of all federal IGs. The NSF IG continued to serve as chair of the
Committee on Misconduct in Research and as a member of the Inspection and
Evaluation Committee and Investigations Committee. She also served as the
elected representative to the PCIE/ECIE Council. The Deputy IG served on an ad
hoc committee to update the PCIE/ECIE Strategic Framework, and other OIG
staff members have participated in various PCIE/ECIE initiatives, from training
other OIGs in handling research misconduct investigations to developing peer
review standards. We convened a meeting of the inter-agency Grant Fraud
Working Group that was attended by over 50 members of the OIG community,
including criminal investigators, auditors, and senior managers from 20 different
IG offices.




                                                                                       43
       OIG FY 2003
Performance Report




            44
                                                  Statistical Data




Audit Reports Issued
With Recommendations for Better Use of Funds          47


Audit Reports Issued With Questioned Costs            48


Audit Reports Involving Cost-Sharing Shortfalls       49


Status of Internal NSF Recommendations                50


List of Reports                                       51-53


Audit Reports With Outstanding Management Decisions   55


Investigations Case Activity                          56


Investigations Case Statistics                        57


Freedom of Information Act and Privacy Act Requests   58




                                                       45
Statistical Data




                   Reporting Terms Defined

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

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

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

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

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

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

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

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




         46
                                                         OIG Semiannual Report   March 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                            $4,619,248

B. Recommendations that were issued during the reporting period $7,400,000

C. Adjustments related to prior recommendations                            $0

Subtotal of A+B+C                                                 $12,019,248

D. For which a management decision was made during the
   reporting period                                                 $280,455

   i) Dollar value of management decisions that were consistent
      with OIG recommendations                                      $280,455

   ii) Dollar value of recommendations that were not agreed
       to by management                                                    $0

E. For which no management decision had been made by the
   end of the reporting period                                    $11,738,793

For which no management decision was made within
6 months of issuance                                               $4,338,793




                                                                                   47
Statistical Data




                   Audit Reports Issued With Questioned Costs

                                                     Number
                                                       of      Questioned   Unsupported
                                                     Reports     Costs         Costs

                      A. For which no manage-
                      ment decision has been
                      made by the commence-
                      ment of the reporting
                      period                           10      $2,877,430      $39,247

                      B. That     were issued
                      during the reporting period       9       $702,359      $117,300

                      C. Adjustments related to
                      prior recommendations             2           $337            $0

                   Subtotal of A+B+C                   21      $3,580,126     $156,547

                      D. For which a manage-
                      ment decision was made
                      during the reporting period:      9      $2,951,456      $39,247

                          1.   Dollar value of
                          disallowed costs             N/A     $1,606,227          N/A
                          2. Dollar value of
                          costs not disallowed         N/A     $1,345,229          N/A

                      E. For which no manage-
                      ment decision had been
                      made by the end of the
                      reporting period                 10       $628,670      $117,300

                      For which no management
                      decision was made within
                      6 months of issuance              2        $50,987            $0




         48
                                                                      OIG Semiannual Report         March 2004




Audit Reports Involving Cost-Sharing Shortfalls
                                     Number    Cost-            At Risk of        Actual
                                       of     Sharing              Cost        Cost Sharing
                                     Reports Promised            Sharing        Shortfalls
                                                                Shortfall      (Completed
                                                                (Ongoing         Project)
      A. Reports with monetary
                                                                 Project)
      findings for which no
      management decision has
      been made by the beginning
      of the reporting period:           1     $5,758,278                 $0     $1,209,714

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

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

Total of Reports with Cost
Sharing Findings (A+B+C)                 1     $5,758,278                 $0     $1,209,714

      D. For which a manage-
      ment decision was made
      during the reporting period:       1     $5,758,278                 $0     $1,209,714

          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     $1,209,714

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


  *
   Indicates the dollar value waived by management primarily due to additional documentation
  provided during audit resolution to support the at-risk amounts.



                                                                                                      49
Statistical Data




                   Status of Internal NSF Recommendations

                   Open Recommendations (as of 9/30/03)
                      Recommendations Open at the Beginning of the Reporting Period                             41
                      New Recommendations Made During Reporting Period                                          22
                      Total Recommendations to be Addressed                                                     63


                   Management Resolution of Recommendations3
                     Awaiting Resolution                                                                        28
                     Resolved Consistent With OIG Recommendations                                               35


                   Management Decision That No Action is Required                                                 0


                   Final Action on OIG Recommendations4
                       Final Action Completed                                                                   15
                       Recommendations Open at End of Period                                                    48


                   Aging of Open Recommendations

                            Awaiting Management Resolution:
                            0 through 6 months                                                                  22
                            7 through 12 months                                                                  4
                            More than 12 months                                                                  2

                            Awaiting Final Action After Resolution:
                            0 through 6 months                                                                   7
                            7 through 12 months                                                                  8
                            More than 12 months                                                                  5



                    3
                      “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.
                    4
                      “Final Action” occurs when management has completed all actions it agreed to in the corrective
                    action plan.




         50
                                                  OIG Semiannual Report   March 2004




List of Reports

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

 04-1-001 Non-profit Corporation          $0         $0           $0       $0
 04-1-002 State university          $189,114         $0   $2,400,000       $0
 04-1-003 Community college         $115,763   $111.222           $0       $0
 04-1-004 Community college               $0         $0           $0       $0
 04-1-005 State university system         $0         $0           $0       $0
 04-1-006 For-profit company              $0         $0           $0       $0
 04-1-007 Non-profit Foundation      $25,160     $6,078           $0       $0
 04-2-002 NSF internal review             $0         $0           $0       $0
 04-2-004 NSF internal review             $0         $0   $5,000,000       $0
 04-6-001 Non-profit corporation          $0         $0           $0       $0
           Total:                   $330,037   $117,300   $7,400,000       $0




                                                                            51
Statistical Data




                   NSF-Cognizant Reports
                                                                                      Cost
                    Report                                    Questioned Unsupported
                                         Subject                                     Sharing
                    Number                                      Costs       Costs
                                                                                     At-Risk
                    04-4-001 Non-profit research institute        $0         $0        $0
                    04-4-002 School district                      $0         $0        $0
                    04-4-003 School district                      $0         $0        $0
                    04-4-004 Science museum                       $0         $0        $0
                    04-4-005 Educational association              $0         $0        $0
                    04-4-006 Science organization                 $0         $0        $0
                    04-4-007 School district                  $13,705        $0        $0
                    04-4-008 Non-profit society                   $0         $0        $0
                    04-4-010 State university                     $0         $0        $0
                    04-4-011 School district                      $0         $0        $0
                    04-4-012 Non-profit consortium                $0         $0        $0
                    04-4-013 Non-profit organization              $0         $0        $0
                    04-4-014 Scientific society                   $0         $0        $0
                    04-4-015 Professional association        $124,676        $0        $0
                    04-4-016 Scientific consortium                $0         $0        $0
                    04-4-017 School district                      $0         $0        $0
                    04-4-018 School district                      $0         $0        $0
                    04-4-019 Non-profit corporation               $0         $0        $0
                    04-4-020 School district                      $0         $0        $0
                    04-4-021 Research institute                   $0         $0        $0
                    04-4-022 Educational association              $0         $0        $0
                    04-4-024 Non-profit association               $0         $0        $0
                    04-4-025 School district                      $0         $0        $0
                    04-4-028 Non-profit academy              $202,168        $0        $0


                              Total:                         $340,549        $0        $0




         52
                                                     OIG Semiannual Report   March 2004




Other Federal Audits
                                                               Cost
 Report                                Questioned Unsupported
                    Subject                                   Sharing
 Number                                  Costs       Costs
                                                              At-Risk
 04-5-009 College                       $9,068        $0         $0
 04-5-013 Non-profit research center      $705        $0         $0
 04-5-045 Public School                $22,000        $0         $0
           Total:                      $31,773        $0         $0




                                                                               53
Statistical Data




         54
                                                              OIG Semiannual Report   March 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 with 6 months
of the report’s issue date. At the end of the reporting period there were three
reports remaining that met this condition. The status of recommendations that
involve internal NSF management is described on page 50.
     The IG is continuing discussions with Agency management on audit report
number 03 1007 to reach a final decision on audit resolution. OMB Circular A-50
defines resolution as “the point at which the audit organization and agency
management….agree on action to be taken on reported findings and
recommendations; or, in the event of disagreement, the point at which the audit
follow-up official determines the matter to be resolved.” In keeping with OMB
Circular A-50, the IG considers audit report number 03-1007 unresolved. In
contrast, the Agency believes the audit is resolved. Recommendations for better
use of funds and questioned costs in the subject report total $3,100,438 and
$4,661, respectively.




                                                                                        55
Statistical Data




                   Investigations Case Activity

                     October 1, 2003 - March 31, 2004
                                    Preliminary   Civil/Criminal   Administrative   Total

                     Active Cases
                     at Beginning
                     of Period          75             40               40          155

                     Opened Cases      109             54               46          209

                     Closed Cases      150             28               32          210

                     Active Cases
                     at End of
                     Period             34             66               54          154




         56
                                                                       OIG Semiannual Report     March 2004




Investigations Case Statistics
    Referrals to DOJ                                                                     2

    Criminal Convictions/Pleas                                                           2

    Civil Settlements                                                                    0

    Administrative Actions                                                               4

    Investigative Recoveries                                                 $147,978.10

    Research Misconduct Findings by NSF                                                  1

    Cases Forwarded to NSF Management for Action                                         3

    Cases Forwarded to NSF Management in Prior
    Periods Awaiting Action                                                              1

    Assurances and Certifications5

       Number of Cases Requiring Assurances During This Period                           2
       Number of Cases Requiring Certifications During This Period                       2
       Assurances Received During This Period                                            3
       Certifications Received During This Period                                        0
       Number of Debarments in Effect During This Period                                 5




5
 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.




                                                                                                   57
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 10 FOIA requests this reporting period. The response time
                          ranged between 4 days and 20 days, with a median of 16 days and the
                          average around 15 days.


                      •   No Privacy Act requests were received this reporting period.




         58
                                                               OIG Semiannual Report    March 2004


                                                                                          Appendix 1

                                   October 17, 2003


     MEMORANDUM


     To:        Dr. Warren Washington
                Chair, National Science Board
                Dr. Rita R. Colwell
                Director, National Science Foundation


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


     Subject: Management Challenges for NSF in FY 2004


     As required by 31 U.S.C. § 3516(d), I am pleased to submit 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.
      Because of this year's accelerated financial and performance reporting
schedule, we are providing the list in October rather than December. There has
been no fundamental change in the challenges this year. I should note, however,
that NSF has made progress in addressing the challenges OIG has identified.
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.
1. Strategic Management of Agency Resources
Workforce Planning and Training
     Planning for NSF's future workforce needs and training large numbers of
temporary staff remains a serious problem. The workload of the agency, as
reflected by the number of proposals forwarded to NSF for review, has increased
by 36% over the past three years, while the agency's permanent workforce has
increased just 3.6% over the past 20 years. Although advancements in technology
have enhanced productivity across the board, NSF's rapidly increasing workload
has forced the agency to become increasingly dependent on temporary staff and
contractors to handle the additional work. For the second year in a row, NSF's
Management Controls Committee has cited the grim assessments submitted by
the directorates and called human capital "a significant concern."

                                                                                          59
Management Challenges
    for NSF in FY 2004




                               In addition, we consider NSF's reliance on temporary personnel, particularly
                         in management positions, to be an area of program risk. According to NSF, 59%
                         of the agency's program officers are in a temporary status, such as rotators from
                         research institutions. Managers who serve at NSF on a short-term basis frequently
                         lack institutional knowledge and are less likely to make long-term workforce planning
                         a priority.
                               NSF's efforts to justify an increase in staff have been impeded by the lack of
                         a comprehensive workforce plan that identifies workforce gaps and outlines specific
                         actions for addressing them. Without such a plan, NSF cannot determine whether
                         it has the appropriate number of people and competencies to accomplish its
                         strategic goals. It was partly for this reason that NSF contracted in FY 2002 for a
                         "business analysis," a multi-year review of its core business processes that will
                         include a human capital management plan. As the business analysis approaches
                         its mid-point, the preliminary assessment provided by the contractor confirms that
                         NSF's current workforce planning activities are limited and identifies opportunities
                         for improvement.
                              The first draft of the human capital management plan is expected to be only a
                         blueprint for developing a process for managing human capital, containing few
                         specific recommendations that will have near-term impact. According to the project
                         schedule, it will be two more years before the plan will identify the specific gaps
                         that NSF needs for justifying budget requests for additional staff resources. We
                         believe that NSF cannot afford to wait that long to address its workforce issues.
                         Administrative Infrastructure
                               NSF's directorates again reported as part of their annual certification of the
                         agency's management controls that some of the resources necessary to administer
                         their responsibilities are inadequate. Travel funds and office space remain scarce,
                         and these shortages impede the ability of staff to properly oversee existing awards.
                         Adequate travel funds are necessary to conduct on-site inspections and monitor
                         large infrastructure projects and other awards. The lack of office space adversely
                         affects staff morale, the recruitment of new staff, and the agency's ability to store
                         sensitive documents. If office space is inadequate at current workforce levels, it
                         will severely constrain the agency's ability to add the staff needed to keep pace
                         with its growing workload and budget.
                              The agency states that it is addressing these shortages through budget
                         analyses and planning, assessments of space management and allocation, and
                         increased emphasis on innovative approaches. However, 7 of the 10 directorates
                         cited administrative resource shortages as undermining effective management
                         controls and creating significant concern.
                         2. Improved Financial Performance
                         Management of Large Infrastructure Projects
                               Our audit of the Gemini Project in FY 2001 recommended that NSF improve
                         its oversight and management of large infrastructure projects by, among other
                         things, updating and expanding existing policies and procedures. In FY 2002, we
                         released an audit report of the financial management of NSF's large facility projects


                60
                                                                OIG Semiannual Report     March 2004




that raised additional concerns about their management. The audit, which was
conducted at the request of Congress, found that NSF's policies failed to ensure
1) that the projects remained within authorized funding levels and 2) that accurate
and complete information on the total costs of major research equipment and
facilities was available to decision makers. NSF responded that it would combine
corrective actions recommended by this audit with those initiated as a result of the
earlier Gemini audit.
      During the past year NSF has continued to make gradual progress toward
completing the corrective action plans. Thus far, the agency has implemented
approximately half of the original recommendations, including providing guidance
to staff for charging expenditures to the proper appropriations account. In June
2003, NSF hired a new Deputy Director for Large Facility Projects, and in July the
agency issued a Facilities Management and Oversight Guide. NSF has also begun
to offer Project Management Certificate Programs through the NSF Academy to
help program officers improve their skills in managing large facility projects.
      Nonetheless, key actions remain incomplete. Although the agency is planning
supplements to the Facilities Management and Oversight Guide, it does not yet
address the problem of recording and tracking the full cost of large facility projects,
and it needs to contain more practical guidance for staff who perform the day-to-
day work. A systematic process for reporting and tracking both the operational
milestones and the associated financial transactions that occur during a project's
lifecycle, particularly those pertaining to changes in scope, is still needed. Finally,
staff involved with large facility projects need to be trained on the revised policies
and procedures that affect funding, accounting, and monitoring.
Post-Award Administration
     While NSF has a proven system for administering its pre-award and award
disbursement responsibilities, the agency still lacks a comprehensive, risk-based
program for monitoring its grants once the money has been awarded. As a result,
there is little assurance that NSF award funds are adequately protected from fraud,
waste, abuse and mismanagement. Recent audits of high-risk awardees, such
as foreign organizations and recipients of Urban Systemic Initiative (USI) grants,
confirm that in the absence of an effective post-award monitoring program, problems
with certain types of grants tend to recur.
     In FY 2002, NSF reviewed 35,165 proposals in order to fund 10,406 grants
and cooperative agreements. Given the amount of work required to process an
award, NSF is challenged to monitor its $18.7 billion award portfolio (including all
active multi-year awards) for both scientific accomplishment and financial
compliance. Booz-Allen and Hamilton estimates that program officers spend just
23% of their time on award management and oversight activities and that program
directors commit only 12% of their time to these efforts. During the FY 2001 and
2002 audits of NSF's financial statements, weaknesses in the agency's internal
controls over the financial, administrative, and compliance aspects of post-award
management were cited as a reportable condition.
    NSF management has recognized these concerns and is taking steps to
improve its award administration and monitoring activities. The agency has


                                                                                            61
Management Challenges
    for NSF in FY 2004




                         developed a risk assessment and award-monitoring document to provide guidance
                         to staff responsible for tracking the financial aspects of awards. Using this guidance,
                         NSF has begun to identify awardees requiring a higher level of oversight and to
                         perform on-site evaluations of their activities. NSF has also included award
                         management and oversight as a core business process to be evaluated in its
                         agency-wide business analysis.
                              While these actions are encouraging, more needs to be done. NSF should
                         provide more detail in its Risk Assessment and Award Monitoring Guide to ensure
                         both comprehensive and consistent award monitoring activities. In addition, NSF's
                         current practices should be strengthened by increasing the application of simple,
                         cost-effective monitoring tools, such as periodic telephone calls to monitor
                         performance and provide technical assistance, random desk reviews to ensure
                         compliance with reporting requirements, and comparisons of financial and progress
                         reports to proactively locate potential problems. Finally, NSF would benefit from
                         better oversight coordination between its program officers and financial and grants
                         managers to ensure effective sharing of information and action to address
                         compliance issues.
                         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. In the past, NSF
                         program officers have usually requested cost sharing to help determine an
                         awardee's commitment to a project and to leverage federal support of research.
                         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.
                               During the past year NSF has employed a dual strategy for dealing with this
                         challenge. First, NSF has 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. The agency also states that it is providing
                         greater oversight in the risk assessment protocol and site reviews. It is too early
                         to determine whether the change in policy is having the intended effect -- reducing
                         cost-sharing not required by statute or program solicitation -- or to assess the
                         effectiveness of the new risk assessment protocol. However, increased funding
                         for travel will be needed to implement the site reviews associated with the new
                         risk protocol, and several NSF directorates recently reported that the resources
                         available for travel were inadequate (see Administrative Infrastructure).
                         3. Expanded Electronic Government
                         Information Security
                              The challenge for NSF is to implement a security program that protects key
                         information and information systems against unauthorized access, misuse, and
                         corruption, while maintaining the open and collaborative working environment


                62
                                                                   OIG Semiannual Report      March 2004




necessary to carry out NSF's mission. Despite having made significant progress
strengthening information security over the past few years, the recent hacking of
the U.S. Antarctic Program's operations center in a high-profile but unsuccessful
extortion attempt is a dramatic example of how vulnerable some parts of NSF's
network remain to this persistent threat.
      NSF's Management Controls Committee describes IT security as a significant
concern in the wake of recent regional electrical blackouts, disruptions to NSF's
computer network, and the demand for improved systems integration from NSF
staff. Our FY 2003 review of NSF's information security program identified three
significant deficiencies: lack of certification and accreditation of major systems,
vulnerabilities in the United States Antarctic Program information systems, and
inadequate development and implementation of agency-wide security policies.
Although NSF management disagreed with our assessment of the severity of these
problems, it agreed with our recommendations and is taking action to correct the
problems.
      The agency deserves credit for the improvements made to its security program
in recent years, including implementation of a mandatory security awareness
training program, establishment of an intrusion detection system, formal assignment
of security responsibilities and authorities, restructuring of key security positions,
appointment of an agency-wide security officer, updated security policies and
procedures, and certification and accreditation of most major systems. These
accomplishments are evidence of the agency's commitment to information security.
However, as information security threats become more aggressive and potentially
more destructive, the challenge to NSF's security program will be to provide
increasing vigilance, continuous system improvement, and support at all
organizational levels to ensure the integrity, confidentiality, and availability of mission
critical information and information systems.
4. Budget and Performance Integration
GPRA Reporting
     The Government Performance and Results Act (GPRA) was enacted by
Congress in 1993 and requires each agency to produce a strategic plan that
establishes specific goals against which its performance can be objectively
evaluated. Building on the foundation of GPRA, the President's Management
Agenda has sought to link program performance with budget decisions about
agency funding. To accomplish this goal, the Office of Management and Budget
(OMB) has introduced the Program Assessment Rating Tool as a means of
integrating an agency's performance and budget.
     But for agencies engaged in funding scientific research, GPRA poses a
challenge because the benefits of basic research are not easy to measure and
may not be evident for years to come. NSF relies in part on Committees of Visitors
(COV) to do the difficult work of evaluating its award decisions and providing
qualitative data about its performance that is used in GPRA reporting. In the past
we have expressed concerns about the lack of validation for the COV information
used in NSF's GPRA reports. A recent OIG audit of the COV process found that
some COVs do not provide complete responses to questions regarding NSF's


                                                                                                63
Management Challenges
    for NSF in FY 2004




                         strategic goals and indicators. While NSF acknowledges in its performance report
                         that limitations may exist, it does not discuss the exact nature of the data limitations.
                         OIG recommends that these data limitations be fully disclosed so that users of the
                         information will not misinterpret the data.
                               The OIG report also notes that NSF has changed how it collects and reviews
                         data for its GPRA performance reporting in ways that raise new concerns about
                         the objectivity of the data collection process. Beginning with FY 2002, NSF
                         established an external Advisory Committee for GPRA Performance Assessment
                         that reviews and assesses NSF's performance in achieving its strategic goals
                         and related performance indicators. The Committee relies heavily on COV reports,
                         and NSF selected "nuggets," i.e., research, engineering, and education highlights,
                         to make its assessments. Since the nuggets are judgmentally selected success
                         stories and do not represent the performance of the entire research portfolio, we
                         believe that their usefulness as a primary assessment tool is limited. If NSF
                         continues to use judgmental sampling, it should clearly disclose and discuss its
                         data collection methodology in order to better inform decision makers and to comply
                         with GPRA's reporting requirements for a complete, balanced, and objective
                         assessment of an agency's performance. Without either a change in its data
                         gathering process or adequate disclosure of the method's limitations, the credibility
                         of NSF's performance reporting is compromised.
                         Cost Accounting
                              The requirement to maintain managerial cost information has gained increasing
                         recognition over the years as an important element of an agency's reporting system.
                         It appears in the CFO Act of 1990, and has been a federal accounting standard
                         since 1998. Most recently, the President's Management Agenda requires an
                         effective accounting and reporting system in order to successfully integrate budget
                         and performance information. The measurement and comparison of inputs to
                         outputs is fundamental to any meaningful organizational evaluation. However, at
                         present, NSF's information systems do not readily provide basic cost accounting
                         information needed to link its costs to its program performance. The agency is
                         only just beginning to focus on developing a cost accounting system that will
                         enhance its management information systems and GPRA reporting.
                               The FY 2002 Management Letter Report notes that NSF's financial and award
                         systems do not track or maintain cost data for its programs and projects, and
                         costs incurred under different funding sources are not linked to provide program
                         officers with information to monitor the full cost of a program or project. The FY
                         2000, 2001 and 2002 Management Letter Reports accompanying the annual
                         financial statement audit reports recommended that NSF identify management
                         cost information needs for its programs, activities and projects; establish output
                         and outcome goals for each; and develop and report cost efficiency measures
                         that align costs with output and outcome goals. Although NSF management plans
                         to institute cost-measurement practices, they have stated that they must first work
                         with the Office of Management and Budget to define NSF programs in order to
                         establish a system for identifying and measuring the cost of these programs.




                64
                                                                OIG Semiannual Report     March 2004




5. NSF Program-Specific Challenges
Management of U. S. Antarctic Program
       The U.S. Antarctic Program provides the means by which American scientists
are able to conduct polar research. Last year, the USAP sponsored nearly 700
researchers conducting 141 projects. Through its contractors, the USAP also
operates the three U.S. year-round stations in Antarctica at McMurdo, Amunsden-
Scott South Pole, and Palmer, as well as two research vessels. Two thousand
civilian contract employees and U.S. military personnel support the work of the
Antarctic scientists. NSF's contract for Antarctic support is both costly and
complex. The contractor must have technical expertise in a variety of disciplines
(medical, environmental engineering, etc.) and is responsible for managing a number
of subcontractors in the U.S. and overseas. Therefore, it is important that NSF
closely monitor the programmatic and financial performance of this large contract.
     The oversight of the United States Antarctica Program remains an ongoing
challenge for NSF in part because of its responsibility for the safety and good
health of the more than 1000 scientists and contractors that work there during the
year. When Antarctic-based personnel become ill questions are raised about
whether additional measures can be taken to protect workers in Antarctica from
being subjected to unnecessary risks. To address these questions, our office
performed an audit of the occupational health and safety, and medical programs
established by the USAP contractor.
       We found that in general these programs are effective in protecting the health
of Antarctic scientists and support staff. However, the audit report notes that
facilities and infrastructure at the Antarctic research stations are deteriorating from
age and use, and it recommends developing a life-cycle oriented capital asset
management program that would serve as support for a dedicated line item (funding
source) in its Research and Related Activities budget request. Also, the aged
condition of the USAP's physical infrastructure was mentioned by two external
committees charged with reviewing the USAP since 1997, and poses a potential
health and safety hazard to the men and women who work in the harsh polar
environment.
Broadening Participation in the Merit Review Process
     A key NSF strategy is to broaden participation and enhance diversity in all
NSF activities involving researchers, educators, and students. NSF reported both
successes and frustrations in achieving their objectives over the past year.
Significant gains have been made in attracting more proposals from women and
minorities. Proposals from female PIs increased by 13% in 2002, while proposals
from minority PIs have gone up by 29% over the past two years. NSF reported
that they have expanded the use of seminars and workshops, focusing on
underrepresented minorities, minority serving institutions, and geographic regions
that have not in the past received major research support from the government.
      However, the number of minority awards remains a relatively small percentage
of the total number of awards (5%), and the percentage has only increased slightly
over the past 8 years. In addition, NSF continues to lag in its attempts to track


                                                                                            65
Management Challenges
    for NSF in FY 2004




                         diversity among reviewers participating in the merit review process. Increasing
                         the number of minority reviewers is considered an effective means of promoting
                         increases in the number of proposals from and awards to minority PIs.
                         Demographic information was volunteered for only 3,507 out of a total of 37,943
                         distinct reviewers. NSF intends to continue its efforts to identify new reviewers
                         from underrepresented groups, but states that it cannot require reviewers to provide
                         demographic information.
                         Math and Science Partnership
                              In spite of the significant amount of money invested by the federal government
                         in programs to improve K-12 education, the Nation's Report Card and other
                         evaluations of math and science education continue to indicate that achievement
                         gaps still exist between American schoolchildren and their foreign counterparts.
                         The Math and Science Partnership Program was established to promote
                         partnerships between state and local school districts, and colleges and universities
                         to improve math and science education at the K-12 level. NSF made 23 multi-
                         year awards worth approximately $230 million in FY 2002, and 12 multi-year awards
                         worth approximately $203 million in FY 2003. NSF will fund many of these projects
                         for up to five years.
                              To be successful, NSF will need to resolve difficult issues such as how best
                         to facilitate partnerships between parties that are not used to working together
                         (e.g., university math and science departments, and local school systems),
                         determining how the success of the projects will be evaluated, and the challenge
                         of monitoring awardees with limited experience in handling federal funds. Although
                         NSF has developed a 6-pronged plan for the oversight and management of MSP
                         awards that includes site and reverse site visits to awardees, use of cooperative
                         agreements for the larger more complex awards, and a contract to develop a
                         substantial overall program evaluation, the plan will be difficult to implement given
                         resource and technical constraints. An audit of specific issues associated with
                         the administration of the program is planned for the fall.




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                                                                                            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. 5, 45)
   •   Matters referred to prosecutors, and the resulting prosecutions and
       convictions. (See p. 23, 57)
   •   Revisions to significant management decisions on previously reported
       recommendations, and significant recommendations for which NSF has
       not completed its response. (See p. 18, 55)
   •   Legislation and regulations that may affect the efficiency or integrity of NSF's
       programs. (See p. 9)
   •   OIG disagreement with any significant decision by NSF management.
       (None)
   •   Any matter in which the agency unreasonably refused to provide us with
       information or assistance. (None)




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Statistical Data




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                                                  OIG Semiannual Report   March 2004

                                                                           Appendix 3



                                                      Acronyms

CFO     Chief Financial Officer
CIO     Chief Information Officer
COI     Conflict of Interest
COV     Committee of Visitors
DA      District Attorney
DACS    Division of Acquisition and Cost Support
DAEO    Designated Agency Ethics Official
DD      Division Director
DFE     Designated Federal Entity
DGA     Division of Grants and Agreements
DOJ     Department of Justice
ECIE    Executive Council of Integrity and Efficiency
FAC     Federal Audit Clearinghouse
FFRDC   Federally Funded Research and Development Center
FOIA    Freedom of Information Act
FY      Fiscal Year
GAO     General Accounting Office
GPM     Grant Policy Manual
GPRA    Government Performance and Results Act
HHS     Department of Health and Human Services
HUD     Department of Housing and Urban Development
IG      Inspector General
IRB     Institutional Review Board
KMS     Knowledge Management System
MIRWG   Misconduct in Research Working Group
MRE     Major Research Equipment
MREFC   Major Research Equipment and Facilities Construction
MSP     Math and Science Partnership
NSB     National Science Board
NSF     National Science Foundation
NSFC    National Natural Science Foundation of China
OIG     Office of Inspector General
OMB     Office of Management and Budget
OPP     Office of Polar Programs
ORI     Office of Research Integrity
OSTP    Office of Science and Technology Policy
PCIE    President's Council on Integrity and Efficiency
PI      Principal Investigator
PFCRA   Program Fraud Civil Remedies Act
QCR     Quality Control Review
SBIR    Small Business Innovation Research
STTR    Small Business Technology Transfer




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Statistical Data




                   Acronyms (cont’d)

                   USAP       United States Antarctic Program
                   USA/EDVa   United States Attorney, Eastern District of Va.
                   USI        Urban Systemic Initiative
                   USP        Urban Systemic Program
                   VA         Veterans Administration




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                                           OIG Semiannual Report       March 2004




                     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




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