oversight

Semiannual Report - September 2007

Published by the National Science Foundation, Office of Inspector General on 2007-09-01.

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

 National Science Foundation
  Office of Inspector General
 4201 Wilson Blvd., Suite 1135
                                    National      Office of
      Arlington, VA 22230           Science      Inspector
          703.292.7100
                                    Foundation     General



    HTTP://www.nsf.gov/oig
To report fraud, waste, or abuse,
 call our hotline 1.800.428.2189




                                                       Semiannual
                                                         Report to
                                                         Congress
                                                              September 2007
About The National Science Foundation...


The National Science Foundation (NSF) is charged with supporting and strengthening all
research discplines, and providing leadership across the broad and expanding frontiers of sci-
ence 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 a portfolio of approximately 35,000 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 technolo-
gies; providing Antarctic research, facilities and logistic support; and addressing issues of equal
opportunity in science and engineering.


And The Office of the Inspector General...


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


About the Cover...


Front and Back Cover Photos by Kenneth L. Busch.
                                                                                   Table of Contents
Report Highlights ............................................................................................................5

Legal Review......................................................................................................................7

Outreach . ..........................................................................................................................8

Audits & Reviews........................................................................................................... 13

Significant Audits and Reviews ....................................................................................... 13

Contract Audits................................................................................................................. 15

Grant Audit....................................................................................................................... 16

Required Annual Single Audits ........................................................................................ 17

Audit Resolution............................................................................................................... 21

Work in Progress..............................................................................................................24

Investigations.................................................................................................................25

Civil and Criminal Investigations....................................................................................... 25

Administrative Investigations............................................................................................29

Other Matters................................................................................................................... 37

Statistical Data...............................................................................................................39

Audits ..............................................................................................................................39

Investigations . .................................................................................................................48

Appendix ........................................................................................................................ 51

Management Challenges Letter ...................................................................................... 51

Reporting Requirements . ................................................................................................ 61

Acronyms ........................................................................................................................62
[Blank Page]
                 From the Inspector General

This Semiannual Report to Congress summarizes the accomplishments of the National
Science Foundation (NSF) Office of Inspector General (OIG) for the six months ending
September 30, 2007. I am pleased to report that our office had a very productive pe-
riod: we obtained two criminal convictions, secured $806,399 in investigative recover-
ies, and disposed of 61 civil, criminal, and administrative cases. Our investigations into
research misconduct resulted in 10 referrals to NSF for action, while past investigations
yielded 4 misconduct findings and 7 debarments by the agency. In addition we issued
9 audit reports with $197,371 in questioned costs. We thank NSF for its assistance and
cooperation in these accomplishments.

This semiannual period has been notable for more than just positive statistics. We
are pleased that Congress this summer amended the Program Fraud Civil Remedies
Act to bring NSF within its coverage. This authority, which we have long advocated,
allows the agency to pursue administratively all losses of up to $150,000 associated
with fraud. In addition, I would like to recognize Ginna Ingram, a staff attorney, whose
excellent article on compliance programs was published in the most recent Journal of
Public Inquiry. Compliance plans have proven to be effective in raising the awareness
of oversight boards and senior managers regarding their responsibilities in this area,
as well as increasing accountability for their actions. Finally, on p. 17 we report on
the status of our ongoing series of audits of labor effort charges. We are gratified that
Nature Magazine in its October issue thought the audit findings significant enough to
devote both a feature article and an editorial to discuss their implications. The next
audit report in this series will be issued early in 2008.

Our annual assessment of the most serious management challenges facing NSF
appears in the appendix of this report. While NSF has made significant progress in ad-
dressing several longstanding challenges, such as award administration and workforce
planning, two new challenges have emerged over the past year: the audit resolution
process, and the management of United States Antarctic Program plant, property, and
equipment. As the National Science Board reviews whether cost sharing should be
brought back, this semiannual report contains two discussions of the problems NSF
has encountered in administering cost sharing: one in the management challenges
letter on p. , and one in the investigations section on p.

Finally, as I write this letter, the House of Representatives has passed H.R. 928
amending the IG Act of 1978, and the Senate is actively working on 5.2324 aimed
at strengthening the independence of the Inspectors General. While legislation that
would enhance the independence and accountability of the federal IGs is welcome,
the language in the final bill regarding sensitive issues such as an IG’s compensation
must be carefully crafted to take into account the diverse set of circumstances our IGs
work under. In the case of the National Science Foundation, I am concerned that an
unintended consequence may be that future candidates for my position with strong
credentials will be reluctant to accept a position with total compensation that is not
competitive with that of comparable federal positions.



                                                           Christine C. Boesz, Dr.P.H.
                                                                    Inspector General
                                                                     October 19, 2007
[Blank Page]
                                                    Report Highlights
•   A management consulting firm retained by OIG determined
    that as of September 30, 2004 the unfunded liability for post-
    retirement benefits at NSF’s five Federally Funded Research
    and Development Centers (FFRDC) surpassed $80 million,
    and that this liability was expected to increase by another $6.8
    million in the following fiscal year. The firm also found that the
    value of medical benefits varied significantly among the five
    FFRDCs, with two having a higher value than benefits provided
    by comparable groups, and two with much lower values. All
    of the FFRDCs were found to have very similar pension
    programs, which exceeded the value of those provided by most
    comparative groups. The study made several recommenda-
    tions including periodically comparing the benefit plans of the
    FFRDCs to those of comparable organizations as a check on
    their reasonableness, and provided specific ideas for helping to
    control benefit costs. (See p. 14)

•   An audit of three awards for $9.4 million to the University of
    Maryland Baltimore County (UMBC) found serious internal
    control deficiencies, including inconsistent adherence with
    UMBC’s established financial management practices. These
    deficiencies resulted in $174,655 of erroneous costs claimed to
    NSF grants and if not corrected, could have a significant impact
    on UMBC’s ability to administer future award funds. Auditors
    found as a material weakness that UMBC staff did not always
    follow the University’s cost accounting procedures to ensure
    that costs charged to NSF awards were accurate, allowable,
    and allocable. The university also lacked procedures to detect
    errors in the amount of indirect costs claimed, and failed to
    adequately monitor subawardees. UMBC concurred with all the
    report findings and indicated that it was taking corrective action.
    (See p. 16)

•   The Inspector General community issued its Report on National
    Single Audit Sampling Project on the quality of annual audits
    performed by state auditors or independent public accountants
    and required by the Single Audit Act of 1984. The IGs’ report
    established that improvements in performance of these single
    audits are needed government-wide. Quality control reviews
    of a random sample of 208 audits found that 115 were of
    acceptable quality, but that 30 or 16 percent had significant
    deficiencies and were therefore of limited reliability, and 63 or
    35.5 percent were unacceptable and could not be relied upon.
    The most prevalent deficiencies were insufficient documenta-
    tion of the understanding of internal controls over compliance
    and inadequate compliance testing of OMB A-133 compliance
    requirements. (See p. 17)

                                                                          
Report Highlights


                    •   A former professor at a Tennessee university pled guilty to a federal felony
                        charge of making a false statement under an NSF grant. The professor
                        admitted to sending university employees to conduct an evaluation project
                        in support of the professor’s private consulting business. The evaluation
                        project was separate from the professor’s work under the NSF grant at the
                        university, and she was paid consulting fees separate from her university
                        salary. The professor also admitted that the false statements and other
                        conduct caused a loss of between $10,000 and $30,000 and that she
                        abused a position of trust as Principal Investigator on the NSF grant and
                        center director at the university. On July 30, 2007, the professor was
                        sentenced to six months home confinement, 2 years probation, and ordered
                        to pay restitution of $25,598. (See p. 25)

                    •   A former employee of an NSF-funded research center pled guilty to one
                        count of mail fraud, in response to an indictment charging the subject with
                        seven counts of mail fraud. On June 25, 2007, the subject was sentenced
                        in U.S. District Court to 16 months in prison, 3 years of supervised release,
                        payment of restitution of $18,214.15, and payment of a special assessment
                        of $100. We referred the outcome of this investigation to NSF with a recom-
                        mendation that the subject be debarred for a period of 5 years because
                        she abused her position of trust and could readily obtain the same type of
                        employment elsewhere, as well as the fact that her actions were intended
                        solely for her personal financial gain. NSF’s decision is pending.
                        (See p. 25)

                    •   A proposal by a professor at an Oregon university contained extensive
                        sections of text and multiple figures duplicated from an earlier proposal that
                        NSF had asked the professor to review according to an OIG inquiry and a
                        university investigation. The investigation concluded that his actions were
                        intentional, violated academic standards of scholarship, and that his plagia-
                        rism was therefore an act of research misconduct. The university prohibited
                        the subject from submitting external proposals for 3 years, required 2 years
                        of subsequent official prior review of any external proposals submitted, and
                        placed a letter of reprimand in the professor’s personnel file. Based on our
                        recommendations, NSF made a finding of research misconduct, and applied
                        several sanctions including proposing that the professor be debarred from
                        receiving federal funds for a period of 3 years. (See p. 29)

                    •   In an egregious example of student misconduct, a graduate student at a
                        Washington university admitted he falsified and fabricated NSF-funded
                        research data in four manuscripts, three of which were published. Our
                        office received the allegation following the university’s inquiry. During
                        the investigation, the student admitted he falsified and fabricated the data
                        because of “a combination of lack of motivation, laziness and a lack of
                        interest in the work (especially experiments).” The university made a finding
                        of research misconduct, dismissed the student from the university, and
                        revoked his master’s degree. We recommended that NSF: make a finding
                        of research misconduct; send the subject a letter of reprimand; debar him
                        for 3 years, require both certifications and assurances for 3 years following
                        debarment, and bar the subject from serving as an NSF reviewer for 3
                        years. (See p. 31)


               
                                OIG Management Activities
Legal Review

Program Fraud Civil Remedies Act of 1986

Over the past several years, OIG Semiannual Reports have
noted our long-standing support for an amendment to the
PFCRA to bring the National Science Foundation (NSF) within
the statute’s coverage. The 2007 NSF Reauthorization Act,
which passed in August, included this amendment. PFCRA
authority provides the agency an administrative mechanism to
recover losses resulting from fraud cases under $150,000 when
DOJ declines to prosecute. We believe that PFCRA, when
implemented by NSF, offers a valuable and important oppor-
tunity to protect appropriated dollars and to ensure such funds
serve their intended purposes. OIG looks forward to working
with the Foundation to expedite implementation of the Act.

H.R. 928 -- Improving Government
Accountability Act

OIG has concerns regarding certain provisions of H.R. 928,
which passed the House on October 3, 2007, and which would
amend the Inspector General Act of 1978 in several major
respects. Specifically, OIG is concerned that amendments
designed to strengthen independence may, in fact, erode it (e.g.,
seven-year term because of the possibility of reappointment). In
a recent letter to members of Congress, the National Science
Board also expressed concern over provisions in the bill.

As the Board noted, provisions that alter compensation would
undermine its ability to recruit and retain the best qualified
individuals to serve in the IG position. More precisely, the lack
of bonus and award eligibility would create an incentive for
incumbents and candidates alike to seek other positions that
offer more competitive pay packages. Similar concerns extend
to the seven-year term limits that the bill seeks to impose.
Unlike their presidentially-appointed counterparts, most IGs who
are appointed by agency heads are career federal employees
who have served in positions with civil service status. The
imposition of term limits could very well deter candidates from
exchanging a permanent position for the temporary status of a           HIGHLIGHTS
term appointment.
                                                                        Legal Review		   7

                                                                        Outreach		       8
                                                                        	


                                                                    
OIG Management




                 Outreach
                 During this semiannual period, NSF OIG continued to conduct outreach to
                 other federal agencies and their OIGs, the national and international research
                 communities, and to NSF. Our outreach activities are intended to inform and
                 educate the research community about all aspects of our mission of prevention
                 and detection of fraud, waste, and abuse, and to enhance the efforts of federal
                 and international oversight officials in addressing these issues.

                 Many of our presentations emphasize the value of compliance programs,
                 particularly when we attend outreach events that include administrators, prin-
                 cipal investigators, university officials, and international funding agencies. We
                 explain the value of such programs and the significant risks that universities and
                 other members of the research community assume in their absence. Effective
                 compliance programs reduce the risk of fraud and abuse, achieve technical
                 compliance with federal requirements, enhance the research enterprise, and
                 contribute to the successful commitment of federal funds for their intended
                 purposes. During this semiannual period, OIG staff members wrote an article
                 for an IG community publication demonstrating the positive impact compliance
                 programs can have on research institutions and organizations.

                 Working with the Federal Community

                 NSF IG Appointed Vice-Chair of ECIE. In May, Dr. Christine C. Boesz was
                 appointed Vice-Chair of the Executive Council for Integrity and Efficiency
                 (ECIE) by the Deputy Director of the Office of Management and Budget. The
                 ECIE is comprised of 34 Inspectors General who are appointed by the heads
                 of their respective agencies. It was established by executive order in 1992 to
                 address integrity, economy, and effectiveness issues that transcend individual
                 government agencies; and increase the professionalism and effectiveness of
                 IG personnel throughout the federal government. To accomplish their mission,
                 the ECIE members conduct interagency and inter-entity audit, inspection, and
                 investigation projects to promote efficiency in federal programs and operations
                 and better address government-wide issues of fraud, waste, and abuse. The
                 Council members also develop policies, standards, and approaches to aid in the
                 establishment of a well-trained and highly skilled IG workforce.

                 Investigators, Auditors Engage Federal Colleagues. NSF OIG staff worked
                 with individuals from a number of other federal agencies and OIGs on a wide
                 range of professional matters. These included activities in conjunction with the
                 Inspector General Academy, the Federal Law Enforcement Training Center, the
                 Federal Bureau of Investigation, the U.S. Forest Service, the Office of Manage-
                 ment and Budget, the Office of Science and Technology Policy, and the Depart-
                 ment of Justice. We also interacted with OIGs from the Department of Defense,
                 Department of Treasury, the Denali Commission, and NASA. These contacts
                 were pursued directly with other offices, community-wide through the Council of
                 Counsels to Inspectors General, and in multi-agency efforts coordinated by one
                 of the committees of the PCIE/ECIE.



            
                                                            OIG Semiannual Report   September 2007




During this semiannual period, NSF OIG investigators continued to actively
participate in the Grant Fraud Subcommittee of the Department of Justice
National Procurement Fraud Task Force. We actively supported the initiative
to increase outreach efforts to the grant community and to enhance federal
certification standards. We worked with the Federal Law Enforcement Training
Center in developing a grant fraud investigation training program in support of
the Grant Fraud Subcommittee. Investigators also contributed to the Regional
Procurement Fraud Working Group, hosted by the U.S. Attorney’s Office for the
Eastern District of Virginia. NSF OIG staff also participated in the Task Force’s
Legislation Committee.

OIG auditors provided extensive comments to OMB on best practices for
coordinating federal financial statement audits and participated in the IG
community’s Federal Audit Executive Council (FAEC), which helps coordinate
audit policy and operations government-wide. Auditors met monthly with the
Financial Statement Audit Network, a working group of a FAEC standing com-
mittee, and worked with other OIGs on human resource issues. Our auditors
also assisted in updating the GAO/PCIE Financial Audit Manual, which helps
ensure consistent, efficient, and high quality financial statement audits of
federal agencies.

The Inspector General, who is Chair of the PCIE/ECIE Misconduct in Research
Working Group, continued to coordinate efforts within the IG community to
identify, investigate, and prevent research misconduct. NSF OIG staff were
also active in the PCIE Inspections and Evaluation Committee, the PCIE/ECIE
Computer Forensics Working Group, and the PCIE GPRA Round-
table.

Working with the Research Community

International Meetings Promote Dialogue. Dr. Boesz co-
hosted an International Workshop on Accountability Challenges
with the European Science Foundation, which took place in June
in Strasbourg, France. The agenda focused on evaluating and
managing risks, general auditing and internal control issues, and
investigating misconduct in research allegations. The IG and the
Associate IG for Audit made a total of three presentations on audit
committee responsibilities, the single audit concept, and effective
compliance programs. Fourteen countries were represented at
the workshop.

In addition, the Inspector General and Associate IG for Investiga-
tions (AIGI) attended a World Conference on Research Integrity
in Lisbon, Portugal, in September. The IG made a keynote
                                                                                    The IG and AIG for
presentation to the conference on Legal Aspects of Investigations and Interna-      Audits pose with other
tional Cooperation and the AIGI made a presentation on investigating research       participants at the
misconduct across international borders. The purpose of the conference was          International Work-
to further world dialogue on the topic of research misconduct, understand the       shop on Accountability
varied regulations and practices among the participating countries, recognize       Challenges.



                                                                                    
OIG Management


                 common problems, and identify best practices for addressing them. There is
                 not yet a standard definition world-wide for research misconduct, conflict of
                 interest, or plagiarism, and the conference represented an initial effort to begin
                 the dialogue and establish a framework for future discussions. The event was
                 closely linked to the OECD Global Science Forum and attracted many of the
                 same participants.

                 OIG Staff Participate in Conferences. To maximize our limited resources,
                 we try to select the best opportunities to communicate our message to the
                 research community from among the many workshops, conferences, and other
                 events sponsored by institutions and associations of research professionals.
                 During this semiannual period, our audiences included the Society of Research
                 Administrators International, the National Council of University Research
                 Administrators, and the National Grants Management Association. We also
                 presented at several NSF-sponsored events, including the Small Business
                 Innovation Research grant recipients, Education and Human Resources’ Joint
                 Annual Meeting, the Regional Grant Recipients Seminars, and Experimental
                 Program to Stimulate Competitive Research (EPSCoR) Project Administrators
                 Annual Meeting.

                 These events afforded us the opportunity to educate the research community,
                 to obtain its input on matters of concern to OIG, and to collaborate with other
                 organizations in identifying and communicating best practices in the operation
                 of the research enterprise. Our goal is to assist individuals and organizations
                 in their efforts to create systems and tools to identify, resolve, and prevent
                 misconduct or mismanagement, and thereby promote an environment of ethical
                 conduct in scientific research and grant administration.

                 Presentations at Universities. NSF OIG staff members are frequently invited
                 to provide training to, and answer questions from, university officers and other
                 individuals. During this semiannual period, we addressed audiences at ten
                 universities involved in applying for or administering NSF awards, performing
                 supported research, or conducting university-level inquiries into allegations of
                 research misconduct. When we presented to faculty and administration officials
                 involved in the performance of research misconduct inquiries and investiga-
                 tions, we also shared best practices on the enhancement of compliance and
                 ethics programs that can help reduce research misconduct.

                 Working with NSF

                 Our many briefings, meetings, and presentations within NSF reflect our com-
                 mitment to maximizing the frequency and effectiveness of communications
                 between OIG personnel and agency personnel. During this semiannual period,
                 OIG staff and their contractors briefed National Science Board members at
                 each Audit and Oversight Committee meeting on significant audit and investiga-
                 tive matters, such as the annual audit of NSF’s financial statements. Staff also
                 participated as resource personnel in the NSF Program Managers Seminars,
                 which provide new NSF staff with detailed information about the Foundation
                 and its activities. In addition, we regularly participate in an internal media
                 communication effort within NSF, whereby we explain the OIG mission and
                 responsibilities and the channels through which employees can bring matters to
                 our attention.

            10
                                                             OIG Semiannual Report   September 2007


Much of our success in establishing and maintaining effective communication
and professional relationships with the individual directorates and offices within
NSF is due to the strength of our liaison program. Our liaison teams (generally
one investigator and one auditor) served as valuable conduits of information
between our offices in the course of approximately 20 liaison events.




                                                                                     11
OIG Management




            12
                                                   Audits & Reviews
In this semiannual period we completed a required evaluation
of NSF’s information technology (IT) security program, two
informational studies that we provided to NSF management, and
audits of two NSF contractors and of several grants to a university.
In addition, we completed a quality control review of a required
annual audit of an NSF awardee and found deficiencies similar to
those reported in a recently issued national sampling project on the
quality of these annual audits. We also reviewed 151 annual audits
of NSF awardees that reported a total of 203 findings. Finally, in
the last six months we worked with NSF to resolve findings and
recommendations in six audits completed in prior periods. We
are continuing to work on several audits, including reviews of 1)
the terms and conditions of NSF’s cooperative agreements, 2) the
agency’s handling of personally identifiable information and 3) labor
effort audits at select universities.



Significant Audits and Reviews

FY 2007 FISMA Evaluation Affirms NSF IT
Security Program But Recommends
Improvements

According to our FY 2007 Federal Information Security Manage-
ment Act (FISMA) evaluation, NSF has an established information
security program and has been proactive in reviewing security
controls and identifying areas that should be strengthened. NSF
also corrected four of the six findings in the prior year’s FISMA
Report. However, the auditors reported four new findings relating
to system access controls, an off-site applications system, the
return of NSF equipment by out-going contractors, and specific
rules of behavior for one of NSF’s systems. These findings
do not individually or collectively rise to the level of “significant
deficiency”, but should be addressed promptly. NSF management
concurred with the report and will provide a corrective action plan
for the recommendations. FISMA requires agencies to adopt a
risk-based approach to improving computer security that includes
annual security program reviews and an independent evaluation            HIGHLIGHTS
by the Inspector General. Under a contract with the OIG, Clifton
                                                                         Significant Audits &
Gunderson LLP conducted this independent evaluation for FY 2007
                                                                           Reviews		            13
and will review implementation of corrective actions as part of the
                                                                         Contract Audits		      15
FY 2008 independent evaluation.                                          Grant Audit		          16
                                                                         Required Annual
                                                                           Single Audits		      17
                                                                         Audit Resolution	      21	
                                                                         Work in Progress	      24


                                                                        13
    Audits & Reviews


                       NSF’s Administrative and Overhead Costs
                       May Be Understated

                       In response to a Congressional request, OIG reviewed the portion of NSF’s
                       FY 2005 budget devoted to administrative and overhead costs. Our review
                       identified $322,137,984 of NSF’s FY 2005 administrative and overhead costs,
                       which represented 5.8 percent of NSF’s budget for that fiscal year. While this
                       percentage is consistent with NSF’s estimates that historically, 5 to 6 percent of
                       its budget is spent on administrative and overhead expenses, the amount was
                       10.2 percent more than the $292,426,388 NSF reported in its FY 2005 financial
                       statements.

                       The variance was primarily due to differences in interpretation of what con-
                       stitutes an administrative and overhead cost. Our approach was to include
                       all costs associated with NSF’s award making and management processes,
                       such as $23,001,112 to conduct panel and mail reviews of research proposals,
                       $6,439,300 in estimated donated merit reviewer time, as well as $405,309 for
                       information systems and personnel support contracts. In response, NSF stated
                       that its current approach of classifying award making and management costs as
                       direct costs to NSF programs is consistent with applicable federal guidance and
                       that it does not plan to change its interpretation.

                                        Evaluation of Medical and Pension Benefits at NSF’s
                                        FFRDCs Finds Unfunded Liability of Over $80 Million

                                        The OIG engaged Aon Consulting, an expert in the field of
                                        global human capital and management consulting, to determine
                                        the unfunded current and future medical and pension liability
                                        for each of the five Federally Funded R&D Centers (FFRDC)
                                        that NSF supports. It was also asked to review the reasonable-
                                        ness of medical and pension benefits for active and retired
                                        personnel. The study found that as of September 30, 2004 the
                                        unfunded liability for post-retirement benefits at NSF’s FFRDCs
                                        was over $80 million, and this liability was expected to increase
                                        by another $6.8 million in the following fiscal year. In 2006,
                                        NSF provided approximately $240 million to fund the opera-
                                        tions of its five FFRDCs. This included about $21 million or 9
                                        percent for medical and pension benefits.

                                        In addition, the value of medical benefits varied significantly
                                        among the five FFRDCs, with two having a higher value than
                                        benefits provided by comparable groups, and two with much
Sunrise over Kitt
                       lower values. All of the FFRDCs were found to have very similar pension
Peak National
Observatory, part of   programs, which exceeded the value of those provided by most comparative
the National Optical   groups.
Astronomy
Observatory (NOAO),    The study made several recommendations. It suggested that NSF establish a
an FFRDC supported     formalized process for periodically reviewing and comparing the benefit plans of
by NSF.                its FFRDCs to those of comparable organizations as a check on their reason-
                       ableness. It also suggested that NSF establish reasonable baseline parameters
                       on expected medical and pension costs at the FFRDCs based on the best

                  14
                                                                                  OIG Semiannual Report           September 2007


practices of similar organizations. In addition, the study provided specific ideas
for economizing that have been used successfully by other employers to help
control benefit costs. NSF could suggest these ideas to the managers of the
FFRDCs to make their employee benefits plans more commensurate with those
of comparable organizations.

Overall, NSF found the study helpful as baseline information, but that it would
have been more valuable if it considered salaries and other benefits that com-
prise total compensation. Although NSF believes it cannot direct the FFRDCs
to limit medical and pension benefits, the study may be useful in assessing the
reasonableness of the amount that the FFRDC proposes to NSF for reimburse-
ment of employee benefits in accordance with provisions of the awards, federal
guidelines, and other legal and accounting requirements.



Contract Audits

Increase in Fee to be Paid to Arctic
Contractor Should be Reversed

During the last six months, OIG completed two audits of VECO USA Inc. which
provides logistics support to NSF’s research activities in the Arctic and recom-
mended that a $45,240 fee increase be reversed and those funds put to better
use.

We contracted with the Defense Contract Audit Agency (DCAA) to conduct
the first audit of a revised Disclosure Statement and associated Cost Impact
Proposal that VECO submitted in May 2006. The revised documents pertained
to VECO’s proposed change in its method of accounting used to calculate its
indirect cost rates for government contracts. The DCAA auditors found that the
change complied with applicable Cost Accounting Standards and the Federal
Acquisition Regulations (FAR) and that VECO’s revised Disclosure Statement
was consistent with its actual practice. As such, the auditors did not object to
the associated $1.5 million (or 3.3 percent) increase in total cost to the NSF
contract that resulted from the accounting change.

Because the DCAA auditors did not express an opinion on $45,240 of increased
profit that VECO proposed to charge NSF as a result of its accounting change,
OIG reviewed the reasonableness of these charges and found that the proposed
fee increase was not allowable under the FAR, which prohibits a cost-plus-a-
percentage-of-cost system of contracting. Since it is not permissible to pay a
contractor greater profit if it incurs additional costs as a result of an accounting
change, we recommended that NSF negotiate with VECO to reverse the in-
creased fee of $45,240. The NSF Contracting Officer agreed and indicated her
intention to disallow the increase in fee. Although this VECO contract has
1
  In our September 2006 Semiannual Report, p. 20, we reported on an incurred cost audit for FYs 2001-2003
of a $46 million cost-plus-fixed-fee VECO contract, which expired in May 2005. In that audit auditors qualified
their opinion on $2.6 million of direct labor costs charged to NSF because the contractor’s time cards were not
routinely signed by employees and supervisors to certify their accuracy. In addition, the auditors questioned
$17,200 of unallowable employee bonus payments. During audit resolution NSF sustained all $17,200 of
questioned costs and ensured that VECO implemented adequate timekeeping policies. NSF, in coordination
with the Defense Contract Audit Agency, is currently reviewing VECO’s revised bonus policy.

                                                                                                                  15
Audits & Reviews


                   expired, our audits of this company have future implications, because NSF has
                   a follow-on VECO contract with a potential value of $107 million through May
                   2012.

                   NSF Contractor Overcharges $22,716

                   Auditors found that Abt Associates included $2.2 million of unallowable indirect
                   costs in calculating its indirect rates charged to its federal contracts, which
                   resulted in Abt overcharging NSF $22,716. The OIG contracted with DCAA
                   to perform an audit of costs Abt claimed on four NSF contracts, amounting to
                   $1.64 million, to provide technical and evaluation support for NSF’s Engineering
                   and Education Directorates.

                   Of the $2.2 million of unallowable indirect costs, $1.07 million, or 49 percent,
                   was for employee stock options that appeared to distribute profits, which are
                   unallowable under federal regulations. Another $485,027, or 22 percent, was for
                   a change in Abt’s method of accounting for indirect costs. Abt had violated Cost
                   Accounting Standards (CAS) because it had not informed the government or
                   received its approval for the accounting change. Finally, the auditors found that
                   $336,427 in fringe benefits, or 15 percent, of the $2.2 million, was for unallow-
                   able labor costs.

                   The auditors recommended that NSF require Abt to submit revised claimed cost
                   billings that reflect the corrected indirect cost rates. Further they recommended
                   that NSF coordinate with Abt’s cognizant federal agency, US AID, to determine
                   the effect of Abt’s CAS noncompliance on any unallowable costs charged to
                   NSF contracts. We have forwarded the audit report to NSF’s Division of Ac-
                   quisition and Cooperative Support to resolve any questioned costs and ensure
                   corrective actions.


                   Grant Audit

                   Significant Control Weaknesses Identified at University Campus

                   An audit of three awards amounting to $9.4 million to the University of Maryland
                   Baltimore County (UMBC) found serious internal control deficiencies, includ-
                   ing inconsistent adherence with UMBC’s established financial management
                   practices. These internal control deficiencies resulted in $174,655 of erroneous
                   costs claimed to NSF grants and if left uncorrected, could have a significant
                   impact on UMBC’s ability to administer future awards funds.

                   Auditors found as a material weakness that UMBC staff did not always follow
                   the University’s cost accounting procedures to ensure that costs charged to
                   NSF awards were accurate, allowable, and allocable. UMBC’s cost accounting
                   procedures required the creation of separate accounts for each NSF award,
                   monthly analysis of award costs to ensure that expenditures claimed to a
                   particular NSF award were allowable and reasonable, and an electronic time
                   and effort certification process to capture labor effort spent on NSF awards.
                   However, because the procedures were not always followed, $358,203 of
                   erroneous labor, fringe benefit, and participant support costs were charged to

             16
                                                                               OIG Semiannual Report         September 2007


NSF awards. Based on our audit, UMBC corrected all of the erroneous charges
on its March 31, 2006 financial management report to NSF, except for $41,511,
which the auditors subsequently questioned.

In addition, UMBC did not have adequate procedures to detect errors in the
amount of indirect costs claimed to NSF. It relied on its accounting system to
calculate the amount of indirect costs on NSF awards, and as a result, over-
stated its indirect costs by $131,510.

Also, contrary to its established procedures, UMBC did not always monitor the
subaward costs and cost sharing it charged to its NSF awards. UMBC did not
enforce its requirement to obtain supporting documentation from its subaward-
ees as a basis to claim costs to NSF. As a result of these internal control weak-
nesses, UMBC could not be certain that the subawardee amounts it claimed to
NSF were valid or correct. Only by auditing the subawardees directly were the
auditors ultimately able to affirm that approximately $5.3 million of subawardee
direct and indirect costs and claimed cost sharing were allowable, allocable, and
sufficiently supported. UMBC will not be able to ensure the propriety of future
subaward costs claimed to NSF until these weaknesses are corrected.

The auditors recommended that UMBC develop and implement a subawardee
fiscal monitoring plan, policies and procedures to obtain and review cost sharing
data and related supporting documentation from its subawardees, written poli-
cies and procedures to perform periodic compliance reviews with established
cost control processes, and procedures to review indirect costs charged to NSF
awards for allowability and allocability. UMBC concurred with all the report
findings and indicated that it was taking corrective action.



Required Annual Single Audits

National Single Audit Sampling Project Indicates
Improvements Are Needed

In June 2007 the Inspector General community issued its Report on National
Single Audit Sampling Project on the quality of annual audits performed by state
auditors or independent public accountants and required by the Single Audit Act
of 1984. The IGs launched a government-wide initiative in November 2004 to
assess the quality of these annual audits, which are also referred to as A-133
audits because OMB Circular A-133 provides guidance for them. The National
Single Audit Sampling Project randomly selected 208 A-133 audits for review
covering $57 billion of government funds from a universe of over 38,000 audits.
NSF OIG’s AIG for Audits, Deborah Cureton, served on the Project Advisory
Board, while Kathy Leone, Audit Manager, served as part of project
management.




  Non-federal entities that expend $500,000 or more in a year in Federal awards are required, under the
Single Audit Act of 1984, as amended, to have a Single Audit conducted for that year. Office of Management
and Budget (OMB) Circular A-133, Audits of States, Local Governments and Non-Profit Organizations,
provides the requirements under which these audits are conducted.

                                                                                                             17
Audits & Reviews


                   The IGs’ report established that improvements in performance of these single
                   audits are needed. Quality control reviews of the 208 audits found that 115 were
                   of acceptable quality, but that 30 or 16 percent had significant deficiencies and
                   were therefore of limited reliability, and 63 or 35.5 percent were unacceptable
                   and could not be relied upon. The most prevalent deficiencies were insufficient
                   documentation of the understanding of internal controls over compliance and
                   inadequate compliance testing of OMB A-133 compliance requirements.

                   The project report directed its recommendations to enhance and clarify Single
                   Audit guidance and requirements, require auditor training on Single Audits as a
                   prerequisite for conducting such audits, and address sanctions for substandard
                   Single Audits to OMB, various federal agencies, and the American Institute of
                   Certified Public Accountants. Implementation of the recommendations in this
                   report is expected to have a significant impact on future performance of these
                   audits and enhance the enforcement process when they are substandard.

                   Single Audit of NSF Awardee Found to Be Insufficient

                   During this semiannual period we completed a quality control review of an
                   annual audit performed at Barrow Arctic Science Consortium (Consortium) by
                   a public accounting firm and found deficiencies and causes for the deficiencies
                   similar to those found in the national sampling project report (see sidebar). Our
                   review found that the auditor did not adequately perform the required tests of
                   controls over federal grant compliance requirements. The auditor’s workpapers
                   contained assessments of certain controls they deemed to be low risk but did
                   not contain any evidence of testing to support the low risk level assessments.
                   In addition, the auditor did not report on instances of noncompliance that were
                   identified during the audit, such as the lack of: 1) appropriate records of equip-
                   ment purchased with federal funds, 2) a bi-annual inventory of such equipment,
                   and 3) a formal vendor approval process.

                   As a result, we were unable to determine whether the auditor identified all
                   instances of material non-compliance with federal grant compliance require-
                   ments. While the auditor did qualify its opinion on compliance, it is possible that
                   additional audit work may have resulted in additional findings and a more seri-
                   ous adverse or disclaimer of opinion on the Consortium’s compliance controls.
                   We recommended that the auditor obtain additional training on the planning and
                   performance of A-133 audits; improve its processes for planning and performing
                   A-133 audits; and conduct additional testing at the Consortium to ensure that
                   certain capital assets were procured in accordance with OMB requirements
                   and equipment purchased with federal funds were properly inventoried and
                   safeguarded.

                   The auditor responded that it had complied with federal audit requirements but
                   agreed with the findings and recommendations. In addition, the auditor stated
                   that is has already begun implementing corrective actions to improve the quality
                   of OMB Circular A-133 audits and is in the process of conducting additional
                   testing on equipment and procurement. We plan to follow up on the status of
                   corrective actions taken within six months.

                   
                       The 16 % is based on point estimates. See Report on National Single Audit Sampling Project, p. 10.
                   
                       The 35.5 % is based on point estimates. See Report on National Single Audit Sampling Project, p. 10.


             18
                                                             OIG Semiannual Report    September 2007


203 Findings Reported in A-133 Audit Reports

In the last six months we reviewed 151 audit reports, covering NSF expenditures
of more than $8 billion from fiscal year 2002 through 2006 to determine
questioned costs related to NSF awards and whether the reports comply with
the requirements of OMB Circular A-133. Among the findings were compliance
deficiencies and internal control weaknesses resulting in $380,690 of ques-
tioned costs. The findings in A-133 reports help to identify potential risks to NSF
awards and are useful to both NSF and the OIG in planning site visits, post-
award monitoring, or future audits. Because of the importance of A-133 reports
in monitoring awardees, the OIG returns reports that are judged inadequate to
the awardees to work with the audit firms to take corrective action.


                       Findings Related to NSF Awards

 Category of Finding         Type of Finding
                             Compliance    Internal Controls Monetary      Total
 Financial and Award         53            24                3             80
 Management

 Salary/Wages                24            7                 9             40
 Subawards                   15            5                 1             21
 Procurement System          13            6                 2             21
 Equipment                   14            3                 1             18

 Cost-Sharing                4             1                 2             7
 Indirect Costs              2                               2             4

 Property Management         3                                             3
 System
 Other Direct Costs          2                               1             3
 Travel                                    2                               2
 Materials and Supplies      1                                             1
 Program Income              1                                             1
 Participant Support Costs                                   1             1
 Consultant Services                                         1             1
 TOTAL                       132           48                23            203



In the 151 reports we reviewed, the auditors issued 5 qualified or adverse
opinions on the financial statements and 22 qualified or adverse opinions on the
entity’s compliance with federal award requirements. These modified opinions
reflect serious internal control and compliance issues. The reports revealed
132 instances where awardees failed to comply with federal requirements and
48 instances where weaknesses in awardees’ internal controls could lead to
future violations. The auditors also identified 23 instances of non-compliance



                                                                                      19
     Audits & Reviews


                         with federal requirements that caused them to question a total of $380,690
                         costs claimed by recipients of NSF awards. As detailed in the above table, the
                         most common violations were related to financial and award management and
                         salary/wages.

                         We also examined management letters accompanying the A-133 audit reports.
                         Auditors use these letters to identify internal control deficiencies that are not
                         significant enough to include in the audit report, but which could become more
                         serious over time if not addressed. Auditors issued management letters to 111
                         entities in this reporting period. The letters we examined disclosed deficiencies
                         that could affect NSF awards in areas such as (1) tracking, managing, and
                         accounting for NSF costs, and (2) policies and procedures related to financial
                         and award management.

                         Findings Related to Timeliness and Quality of Audit
                         Reports

                         Of the 151 audit reports we reviewed in which NSF was the cognizant or
                         oversight agency, we found that 38, or 26 percent of the total, had been submit-
                         ted late or the audit reporting package was incomplete. OMB Circular A-133
                         requires audits to be completed and reports submitted by the awardee to the
                         Federal Audit Clearinghouse within the earlier of 30 days after the awardee’s
                         receipt of the auditors’ report(s), or nine months after the end of the audit period,
                         unless a longer period is agreed to in advance by the cognizant or oversight
                         agency for audit. In each case, we informed the auditee that the late submission
                         of a complete reporting package could affect the organization’s risk profile and
                         suggested that all future A-133 audits be performed and submitted in a timely
                         matter.

                                                                The A-133 reports we reviewed also
                                                                revealed problems with audit quality. For
                                                                example, 16 reports (42 percent) either did
                                                                not include a Corrective Action Plan or the
                                                                plan was incomplete. OMB Circular A-133
                                                                states that, at the completion of the audit,
                                                                the auditee shall prepare a corrective action
                                                                plan to address each audit finding included
                                                                in the current year auditor’s reports. In
                                                                addition, auditors are required to follow
                                                                the Circular’s guidelines regarding the
                                                                presentation of the audit findings. However,
                                                                we found that 14 reports (37 percent) did
                                                                not present the findings in sufficient detail.
                                                                Generally, the auditors did not adequately
                                                                identify (1) the federal award to which the
OIG staff consider                                              findings applied, (2) the criteria or regulatory
the leadership skills    requirement upon which the findings were based, and/or (3) the cause and effect
and sacrifice of         of the findings. Finally, we found that 15 reports (39 percent) did not present the
those who fought         Schedule of Expenditures of Federal Awards (SEFA) in accordance with A-133
at Gettysburg at a       requirements. In most instances, the SEFA did not provide sufficient information
recent retreat.
                         to allow for identification of awards received from non-federal “pass-through”
                         entities.

                    20
                                                            OIG Semiannual Report   September 2007


The OIG identified each of the potential errors and contacted the auditors and
awardees, as appropriate, for explanations. In each case, the auditors and
awardees either provided adequate explanations or additional information to
demonstrate compliance with the Circular, or the error did not affect the results
of the audit. While some of the errors were clearly immaterial, the auditors and
awardees generally acknowledged that the errors reduced the reliability of the
reports. We issued a letter to each awardee to inform them of the results of our
review and the specific issues on which to work with the auditors during future
audits to improve the quality and reliability of the report.


Audit Resolution

DOD Withdraws Prior Finding of Non-compliance
Affecting Millions in Payments to Polar
Support Contractor

Beginning with our September 2004 Semiannual Report, we have reported on
a number of audits of Raytheon Polar Services Corporation’s (RPSC) financial
records and its compliance with its Cost Accounting Standards (CAS) disclosure
statement. Among the findings contained in these audits, the auditors ques-
tioned about $56 million of claimed costs for the five-year period 2000 through
2004 and identified $26.6 million of potential increased contract costs for years
2005 through 2010, due to a change in RPSC’s disclosed accounting practices.
These audits cited RPSC’s parent, Raytheon Technical Services Company
(RTSC), for failing to comply with its federally disclosed accounting practices
in its CAS disclosure statement. As a result, DOD, which is responsible for
overseeing RTSC’s compliance with its accounting disclosure statement, cited
RTSC with a final determination of noncompliance for 2000-2002, and an initial
determination of non-compliance for 2003-2004.

As of the end of this reporting period none of the $56 million in claimed costs
or the $26.6 million of potential increased costs has been resolved. However,
during the last six months the DOD contracting officer responsible for Raytheon
withdrew his determinations of noncompliance as it affects $21.3 million of
questioned costs and the $26.6 million of projected increased costs for the
Centennial, Colorado RPSC office operations. The NSF contracting officer
concurred with the change in the DOD position and in turn has proposed to
allow the associated $21.3 million of costs questioned by the auditors. As a
corollary, the $26.6 million of projected increased costs would also be consid-
ered allowable. Given the infrequent nature of such reversals of a determination
of noncompliance and the large sum of money involved, we requested and
are currently reviewing information provided by DOD and NSF to support their
recent actions. Additionally, the DOD OIG has initiated a separate review to
assess the reasonableness of the DOD contracting officer’s decision.

Of the remaining $34.7 million of questioned costs, NSF addressed $6.9 million
of the $7.6 million in direct costs and fringe benefits for FYs 2000 though 2004
that were questioned because RPSC did not have documentation to show how

    September 2004 Semiannual Report, pp. 15-16.

    $56 million - $21.3 million = $34.7 million.

                                                                                    21
Audits & Reviews


                   the costs were allowable under Federal Acquisition Regulation or related to the
                   NSF contract, or because RPSC charged estimated rather than actual fringe
                   benefit costs to the NSF contract. NSF has proposed the recovery of $3.05
                   million or 40 percent of the $7.6 million in questioned direct costs; NSF did not
                   sustain $3.86 million because RPSC was subsequently able to support these
                   costs. The remaining $0.7 million of questioned direct and fringe benefit costs,
                   an additional $12.2 million in questioned over-ceiling indirect costs, and $14.9
                   million in questioned Corporate and RTSC management costs will be resolved
                   in future semiannual periods.

                   NSF to Clarify in Contracts When the Purchase of Alcohol is an Al-
                   lowable Cost

                   An audit of a $7 million NSF contract with Mayatech, which provides technical
                   support for NSF’s “Presidential Awards for Excellence in Mathematics and
                   Science Teaching,” questioned $14,089 in claimed costs related to alcoholic
                   beverages, because NSF’s contract was not clear about its intent and legal
                   basis to fund alcohol. During this semiannual period NSF resolved this audit
                   report by allowing the questioned costs on its Mayatech contract and accepting
                   the recommendation that NSF clarify in its future contracts when alcohol will be
                   an allowable cost.

                   School District Must Repay $91,191

                   An audit of two NSF awards to the Dallas Independent School District (DISD)
                   totaling $26.5 million found inadequate internal controls over record retention,
                   cost sharing, participant support costs, and expenditure reporting, causing
                   auditors to question $91,216 of DISD claimed costs. DISD concurred with the
                   auditors’ findings and reported that it has taken steps to implement all of the
                   report recommendations. During audit resolution, NSF reviewed the docu-
                   mentation submitted by DISD in support of its corrective actions and sustained
                   $91,191 of the questioned costs.

                   University Revises Policies and Procedures for Labor Costs and
                   Subrecipient Monitoring

                   Auditors of a $9.8 million award to the University of Hawaii (UH) found that over
                   the five-year period of the award UH used budgeted percentages to charge time
                   and effort cost sharing without making any adjustments to reflect changes in
                   actual workload, and that UH could not locate some documentation to support
                   subcontract costs. The audit resulted in a qualified opinion and identified ap-
                   proximately $1.7 million in unverifiable labor cost sharing, approximately

                   $265,449 of undocumented subcontract costs, and $305,706 of undocumented
                   subcontractor cost sharing. UH generally agreed with the findings and recom-
                   mendations in the report and revised its policies and procedures to account for

                   labor costs and to monitor subrecipients. During audit resolution, NSF reviewed
                   additional documentation that UH submitted in support of its questioned claimed
                   costs and sustained $22,202, or 8 percent, of the $265,449 questioned subcon-
                   tract costs.

             22
                                                             OIG Semiannual Report    September 2007


Identification of Voluntary Faculty Effort Provided on Sponsored
Projects Reduces Indirect Cost

A recent audit to assess the adequacy of accounting and reporting processes
for labor costs charged to NSF grants at the California Institute of Technology
(Caltech) found that the university needed to develop a system to provide accu-
rate reporting of voluntary cost sharing by faculty members.10 Caltech generally
agreed with the audit finding and recommendations. As such, it developed a
new methodology to estimate the amount of voluntary faculty labor effort for
projects, with no faculty salary reimbursements, to include in the organized
research base used for negotiating its indirect cost rate. During the audit resolu-
tion, NSF worked with the cognizant audit agency to review the reasonableness
of the new methodology. Using the new methodology, Caltech estimated that
$1.6 million of such voluntary labor effort was provided by faculty members on
federally sponsored projects in FY 2005. Including the previously unreported
amount in the organized research base lowered Caltech’s indirect cost rate by
one-half percentage point and resulted in the federal government reducing its
reimbursement of FY 2005 indirect costs by approximately $600,000.

NSF Continues to Improve Large Facility Management

In FY 2002, we issued an audit report on NSF’s funding for major research
equipment and facilities that recommended that NSF identify, record, and
track the total cost of these large facility projects throughout the entire project
lifecycle.11 Based on NSF’s recent development and update of a cost-tracking
system for large facility projects, we have closed this recommendation. Once
staff involved with tracking and overseeing these projects are trained on the use
of the cost-tracking system, we will be able to close the last remaining recom-
mendation from this audit.

This step represents further progress by NSF to fully respond to OIG recom-
mendations regarding large facility management that began in FY 2001 with our
Audit of the Financial Management of the Gemini Project.12 Recommendations
from this audit relating to the development of policies and procedures for the
management of large facility projects remain open. We will continue to monitor
NSF’s efforts in this area to ensure that it adequately addresses the outstanding
findings and recommendations related to large facility management.




10
     March 2007 Semiannual Report, pp.18-19.
11
     September 2002 Semiannual Report, pp. 18-19.
12
     March 2001 Semiannual Report, pp. 6-7.

                                                                                      23
Audits & Reviews


                   Work in Progress

                   Sufficiency of NSF’s Cooperative Agreements for Large Facility
                   Projects

                   As reported in our March 2007 Semiannual Report,13 the OIG has initiated an
                   audit to determine whether the terms and conditions included in NSF’s coopera-
                   tive agreements for the management and operation of its large facilities projects
                   are sufficient for NSF to provide stewardship over its programs and assets. We
                   have chosen a representative sample of six facilities, currently in the operations
                   phase, which together contain characteristics common to all of NSF’s currently
                   operating large facilities. Using these six facilities, we are conducting a series
                   of four in-depth audits to determine the sufficiency of NSF’s cooperative agree-
                   ments to ensure: 1) accomplishment of programmatic goals; 2) financial and
                   administrative accountability; 3) protection of NSF assets; and 4) compliance
                   with laws and regulations. The first of these audits is underway with a report to
                   be issued during the next semiannual period.

                   Audit of NSF Controls over the Collection, Storage, Access and
                   Use of Personally Identifiable Information

                   The OIG has initiated an audit of the adequacy of NSF controls for electronic
                   and paper forms of personally identifiable information. In response to recent
                   breaches and data losses at federal agencies, both the Office of Management
                   and Budget and Office of Personnel Management have issued directives to
                   strengthen the protection of personal information from theft or loss. We will
                   be reviewing NSF’s processes and procedures to identify potential risks and
                   assessing the adequacy of its controls to protect the personal information of its
                   employees, visitors, principal investigators and reviewers.

                   Labor Effort at Universities

                   As first reported in our September 2005 Semiannual Report,14 the OIG is con-
                   ducting a series of reviews to assess the adequacy of accounting and reporting
                   processes for labor costs at NSF’s top-funded universities. Approximately,
                   one-third of all NSF award costs provided to universities are for salaries and
                   wages, amounting to $1.2 billion annually. Reviews performed to date at the
                   University of Pennsylvania and the California Institute of Technology found
                   systemic weaknesses in those universities’ effort reporting systems raising
                   concerns about the reasonableness of the labor effort charges and whether the
                   level of effort promised was actually performed.

                   Additional audits of labor effort practices are being completed at the University
                   of Illinois at Urbana-Champaign, the University of Utah, the University of Cali-
                   fornia – Berkeley, the University of California - San Diego, and Vanderbilt Uni-
                   versity. These reviews are being performed by independent public accounting
                   firms under contract to our office. We anticipate awarding contracts for audits of
                   labor effort practices at another five universities in October 2007 and performing
                   an audit at a sixth university ourselves.
                   13
                        March 2007 Semiannual Report, p. 25.
                   14
                        September 2005 Semiannual Report, p. 20.


             24
                                                                          Investigations
Civil and Criminal Investigations

Former Professor Pleads Guilty

On May 1, 2007, a former professor at a Tennessee university pled
guilty to a federal felony charge of making a false statement under
an NSF grant.15 When the professor entered the guilty plea, she
admitted to sending university employees to a different state to
conduct an evaluation project in support of the professor’s private
consulting business. The evaluation project was separate from the
professor’s work under the NSF grant at the university, and she was
paid consulting fees separate from her university salary.

The university employees were not aware that this work was not
part of their regular duties related to the NSF grant, and they sub-
mitted the travel claims to the professor. The professor presented
the travel claims to the university for reimbursement under the NSF
grant, knowing that the work was unrelated to the NSF grant. The
professor also admitted that the false statements and other conduct
caused a loss of between $10,000 and $30,000 and that she
abused a position of trust as Principal Investigator (PI) on the NSF
grant and center director at the university.

On July 30, 2007, the professor was sentenced to six months home
confinement and 2 years probation, and ordered to pay restitution of
$25,598.

Former Research Center Employee Sentenced to Prison
for Mail Fraud

As reported in a previous Semiannual Report,16 a former employee
of an NSF-funded research center pled guilty to one count of mail
fraud, in response to an indictment charging the former employee
with seven counts of mail fraud. On June 25, 2007, the former em-
ployee was sentenced in U.S. District Court to 16 months in prison,
3 years of supervised release, payment of restitution of $18,214.15,
and payment of a special assessment of $100. We referred the
outcome of this investigation to NSF with a recommendation that
the subject be debarred for a period of 5 years because she abused

                                                                                                HIGHLIGHTS
                                                                                                Civil & Criminal
                                                                                                  Investigations		   25
15
   The professor entered the plea in the U.S. District Court for the Middle District of Ten-    Administrative
nessee in response to a superseding information charging the professor with violation of 18
U.S.C. § 1001. The superseding information replaced a September 2006 indictment for one
                                                                                                  Investigations		   29
count of wire fraud and one count of mail fraud, as reported previously. September 2006         Other Matters		      37	
Semiannual Report, p.32.
16
    March 2007 Semiannual Report, p.30.
                                                                                               25
Audits & Reviews


                   her position of trust and could readily obtain the same type of
                   employment elsewhere, as well as the fact that her actions were intended solely
                   for her personal financial gain. NSF’s decision is pending.

                   SBIR Phase II Grant Obtained Under False Pretenses is Terminated

                   We received a complaint that a PI and small business owner may have wrong-
                   fully received a Phase II grant from NSF’s Small Business Innovation Research
                   (SBIR) Program. The PI had been an officer and shareholder of the company
                   that received the Phase I grant, but started her own company. Only a Phase I
                   grantee (or an affiliate or successor) is eligible to receive a Phase II SBIR grant.

                   The PI submitted the Phase II proposal under the name of the original company
                   (Phase I grantee), and listed herself as both PI and Authorized Organizational
                   Representative (AOR). During the Phase II grant process, the PI, as AOR for
                   the original company, told NSF that a “spin-off” company had been formed,
                   and the Phase II research could only be conducted by the “spin-off”17 company
                   and not at the original Phase I company. Based on the PI’s representations as
                   AOR for the original company, NSF accepted the change in grant entity from the
                   original company to the PI’s new company.

                   NSF requested investigative assistance after the President of the original
                   company inquired about the Phase II SBIR grant. Our investigation found that
                   the PI’s new company was not an affiliate, or “spin-off,” of the original company
                   because the other officers were not aware that the PI negotiated the change
                   of grant entity with NSF and did not approve the transfer of the Phase II grant
                   to the new company. Based on the PI’s misrepresentations, NSF terminated
                   the grant to the PI’s new company, thereby making $274,999 available for other
                   purposes. We referred the case to the Department of Justice, which declined to
                   prosecute in lieu of strong administrative action by NSF.

                   Explicit Material Discovered on NSF Employee’s
                   Computer

                   We received information that an NSF employee’s computer contained inappro-
                   priate material. The employee’s hard drive was turned over to OIG in order to
                   perform a computer forensic analysis. Our analysis found over 8,000 inappro-
                   priate, sexually-explicit images, videos, and movie files. We determined that the
                   employee had been accessing inappropriate web sites and downloading sexu-
                   ally explicit material onto his NSF computer during work hours. The employee
                   violated NSF’s policy regarding the personal use of NSF’s communication
                   resources by accessing, viewing, and downloading the sexually explicit material
                   onto his NSF computer. We interviewed the employee and he acknowledged
                   the inappropriate behavior. We referred this matter to NSF for action, and the
                   employee’s supervisor issued a counseling letter that was not placed in the
                   employee’s personnel file. The employee was subsequently terminated from his
                   position for other reasons.



                   17
                      A “spin-off” occurs when a parent company transfers some of its assets to establish a separate company,
                   and distributes the stock of the new company among the parent company’s stockholders.


             26
                                                               OIG Semiannual Report    September 2007


Investigation Identifies $78,637 to Be Put to Better Use

During the course of an investigation, we identified $78,637 to be put to better
use at an Alaskan university. We received an anonymous allegation that the
PI was using NSF funds to pay for travel unrelated to two NSF grants. We
reviewed the documentation and identified $78,637 of participant support costs,
travel expenses, and indirect costs inappropriately charged to the two grants.
The university credited the funds back to the grants, and they will be available
for proper expenditures. While there was a problematic use of NSF grant funds,
we determined that the allegation about travel abuse was not substantiated.

Material False Statements in a Proposal Resulted in Suspension of
Grant and Referral to NSF for Administrative Action

We received a complaint that the executive director of an education-oriented
research firm made false statements in an NSF proposal, and was awarded over
$2 million, in reliance in part on the false statements. Our investigation revealed
that the firm submitted an altered letter of support to demonstrate a collabora-
tion that it did not have. In response to our recommendation, NSF suspended
the grant during the course of the investigation. After a financial analysis, the
U.S. Attorney’s Office for the District of Massachusetts declined this case in
lieu of strong administrative action by NSF. We referred this matter to NSF with
a recommendation that the grant be terminated and the executive director be
debarred for a period of 5 years. NSF’s decision is pending.

PI Repeatedly Falsifies Grant Project Reports

OIG Investigations received a referral from our Office of Audit regarding material
inaccuracies in a final report project for an NSF grant awarded to a university in
Pennsylvania. The purpose of the grant was to facilitate collaboration between
the PI and a foreign scientist. The NSF program manager told us he rejected
the PI’s final report because the foreign scientist told him (1) he did not know
he was listed on the PI’s grant as a collaborator; and (2) he had not even heard
from the PI, much less collaborated with him.

The PI then submitted a revised final report which did not list the foreign scien-
tist as a collaborator. When we first interviewed the PI, he insisted he collabo-
rated with the foreign scientist, but he was unable to produce any evidence of
collaboration. The PI asserted that he made an attempt to collaborate with the
foreign scientist through the foreign scientist’s supervisor, but due to restrictions
on foreign travel after 9/11/2001, the foreign scientist was unable to visit. The
foreign scientist said the person the PI indicated had never been his supervisor,
and that person also did not recall receiving an invitation from the PI.

Because the PI made false statements to NSF in the final project reports and his
statement to us, we referred the matter to the Department of Justice. It declined
to prosecute in lieu of administrative action by NSF. The PI’s home institution
returned $6,720, the funds designated as Participant Support, and prohibited
the PI from serving as PI or co-PI on any federal grant. We recommended the
Director debar the PI for 3 years. A final decision is pending.


                                                                                        27
        Investigations


                         Compliance Plan Oversight Efforts

                         OIG investigations of civil and criminal fraud committed against NSF by
                         institutions, universities, public school systems, or corporations are frequently
                         resolved through the offices of United States Attorneys. Terms of sentences
                         and/or settlement agreements typically include the requirement for mandatory
                         Compliance Agreements, based generally upon the principles of the United
                         States Sentencing Commission’s Federal Sentencing Guidelines.18 The
                         Compliance Agreements include the establishment of reasonable compliance
                         standards and procedures; identification of specific high-level personnel re-
                         sponsible for the program; exercise of due care in assignments with substantial
                         discretionary authority; effective communication of standards and procedures;
                         establishment of monitoring, auditing, and reporting systems; consistent
                         enforcement of standards; and a system to respond appropriately to violations.
                         Most such agreements run for 5 years.

                                                                       For the duration of such agreements, OIG
                                                                       staff members work in conjunction with NSF
                                                                       personnel to monitor and oversee the imple-
                                                                       mentation of the required actions. The goal is
                                                                       the establishment of processes and structures
                                                                       at the institution to protect federal NSF funds.
                                                                       We hope and expect that these compliance
                                                                       programs, although imposed as a result of
                                                                       civil or criminal settlements, will lead to a more
                                                                       compliance-oriented environment and will
                                                                       contribute to enhanced operational integrity.

                                                            Though the majority of parties subject to such
                                                            agreements have embraced them as a means
Ginna Ingram poses
with colleagues who
                         of improving their compliance efforts and fostering ethics and integrity, one
contributed to her       university was found to be in breach of the agreement for failing to provide a
article on compliance    required annual audit. OIG and NSF contacted the university and determined
programs published       that no effort had been made to conduct the required audit. The university was
in the most recent       then found to be in breach of the agreement. The university, already on NSF’s
Journal of Public        list of high-risk organizations, was at risk of losing all NSF funds. The audit
Inquiry.                 was subsequently conducted and the university assured OIG and NSF that the
                         problem will not be repeated with this year’s annual audit.




                         18
                              U.S.S.G. §§ 8B2.1, 8C2.5(f), & 8D1.4(c)(1).


                   28
                                                             OIG Semiannual Report     September 2007


Administrative Investigations

Actions by NSF Management

NSF Proposes to Debar a PI for Five Years

In our last Semiannual Report,19 we discussed the civil settlement of a False
Claims Act case between the Department of Justice and an institution resulting
from its wrongful drawdown and expenditure of over $27,000 in NSF funds
after an NSF grant had expired. This settlement resulted in a recovery of over
$52,000.

On August 22, 2007, NSF issued a Notice of Proposed Debarment for a period
of five years against the individual responsible for the wrongful drawdown
because of the gravity of the misconduct. This is only the third time in its history
that NSF has proposed a 5-year debarment. The subject may file an appeal
within 30 days of the Notice or the debarment will become final.

Professor Reviews Proposal for NSF, Then Plagiarizes From It Into
His Own Proposal

Our inquiry into a significant allegation of plagiarism confirmed that a proposal
by a professor at an Oregon university contained extensive sections of text and
multiple figures duplicated from an earlier proposal that NSF had asked the
professor to review. After the professor did not respond to our request for an
explanation, we referred the investigation to the university.

The university investigation revealed that the professor kept a copy of the
NSF proposal that he had been asked to review, and then re-used text and
figures from that proposal in his own proposal, without permission and without
attribution. The professor claimed that he did not recognize that the text and
figures were not his own, and that his actions were unintentional. However, the
university concluded that his actions were intentional, violated academic stan-
dards of scholarship, and that his plagiarism was therefore an act of research
misconduct. The university prohibited the subject from submitting external
proposals for 3 years, required 2 years of subsequent official prior review of any
external proposals submitted, and placed a letter of reprimand in the professor’s
personnel file.

We agreed with the university’s conclusions. Based on our recommendations,
NSF: made a finding of research misconduct; sent a letter of reprimand to the
professor; proposed that the professor be debarred from receiving federal funds
for a period of 3 years; required that a responsible official submit assurances to
NSF OIG for a period of 3 years after debarment; prohibited the professor, for
a period of 3 years, from serving as a peer reviewer of proposals; and required
that the professor provide certification to NSF OIG that he has attended an
ethics training class.



19
     March 2007 Semiannual Report, p.29.

                                                                                       29
Investigations


                 Deputy Director Finds Research Misconduct in Plagiarism Cases

                 NSF’s Deputy Director made research misconduct findings in several cases we
                 forwarded to her office:

                 •      Our most recent Semiannual Report20 summarized an egregious case of a
                        New York university professor who plagiarized extensive amounts of text
                        and figures into three proposals submitted to NSF. Consistent with our
                        recommendations, the NSF Deputy Director made a finding of research
                        misconduct; debarred the professor for 3 years from receiving federal funds;
                        prohibited the professor from serving as a reviewer, consultant, or advisor
                        for NSF, and from having responsibility for any other agreements with the
                        federal government; and required that, for 3 years following the period of
                        debarment, the professor certify, and a responsible official of his employer
                        provide an assurance, that any NSF proposals or reports submitted do not
                        contain plagiarized, falsified, or fabricated material. The professor appealed
                        these actions to the NSF Deputy Director, who upheld the actions taken.
                        The professor then appealed to the NSF Director, who also upheld the
                        actions stating the debarment was necessary to “protect the interests of the
                        Federal government.”

                 •      A second professor from a New York university plagiarized extensive
                        text from multiple sources into a proposal submitted to NSF, and into two
                        concurrent research publications acknowledging NSF support.21 In his
                        defense, the professor claimed that a post-doctoral researcher provided
                        the plagiarized text; however, the institution’s investigation proved he was
                        solely responsible. Consistent with our recommendations, NSF made a
                        finding of research misconduct; proposed that the professor be debarred
                        from receiving federal funds for a period of 2 years; prohibited the professor
                        from serving as a reviewer of NSF proposals for 2 years; required, for a
                        period of 2 years after the debarment period, that the professor certify that
                        proposals or reports submitted to NSF do not contain plagiarized, falsified,
                        or fabricated material; required, for a period of 2 years after the debarment
                        period, that the professor submit assurances by a responsible official of his
                        employer that any proposals or reports submitted to NSF do not contain
                        plagiarized, falsified or fabricated material; and required that the professor
                        complete an ethics training course on plagiarism.

                 •      An institution concluded that the PI’s act of plagiarizing into four proposals
                        was part of a “pattern of behavior and manifest serious ethical shortcom-
                        ings.” NSF agreed with our recommendations to make a finding of research
                        misconduct against the PI.22 For the next 2 years, the PI is required to
                        personally certify and to also obtain assurances from his supervisor that any
                        proposals he submits to NSF does not contain any plagiarized, falsified, or
                        fabricated material. He must also attend a research ethics course within 8
                        months and provide a certification of attendance and a copy of the course
                        syllabus to OIG.



                 20
                      March 2007 Semiannual Report, p.34.
                 21
                      March 2007 Semiannual Report, p.34.
                 22
                      March 2007 Semiannual Report, p.35-36.


           30
                                                               OIG Semiannual Report    September 2007


•      A Texas university professor resigned from his tenure-track position after a
       university investigation concluded that he had plagiarized text into CAREER
       proposals submitted to NSF.23 In addition, the institution determined that the
       professor displayed a pattern of plagiarism by copying text into proposals
       submitted to other agencies. Consistent with our recommendations, NSF
       made a finding of research misconduct, required the professor to attend a
       course on research ethics, and, for a period of 2 years from the date of the
       finding, required the professor to certify that any proposals that he submits
       to NSF do not contain any plagiarized, falsified, or fabricated materials.

•      Finally, as noted in our March 2007 Semiannual Report,24 we recommended
       NSF make a finding of research misconduct, specifically plagiarism, against
       a co-PI. We also recommended NSF require a certification from the co-PI
       for 1 year stating nothing she submits to NSF violates NSF’s research
       misconduct regulation. The Deputy Director agreed with our recommenda-
       tions and implemented them.

Reports Forwarded to NSF Management

Student Claims “Laziness” Caused Him to Fabricate/Falsify Data in
Four Manuscripts

In the most serious case of student misconduct our office has ever investigated,
a graduate student at a Washington university admitted he falsified and
fabricated NSF-funded research data in four manuscripts, three of which were
published. Our office received the allegation following the university’s inquiry.
During the investigation, the student admitted he falsified and fabricated the
data because of “a combination of lack of motivation, laziness and a lack of
interest in the work (especially experiments).”

The university’s investigation committee found that a preponderance of the
evidence proved that the subject intentionally fabricated and falsified data. The
university made a finding of research misconduct, dismissed the student from
the university, and revoked his master’s degree. The university also encour-
aged the removal of the publications from the co-authors’ websites, retraction
of the affected publications, and education of the university community about
scientific misconduct.

We concurred with the university’s findings and we have recommended that
NSF: make a finding of research misconduct; send the subject a letter of
reprimand; debar him for 3 years, require both certifications and assurances
for 3 years following debarment, and bar the subject from serving as an NSF
reviewer for 3 years.

Post-Doctoral Researcher Falsifies Data

A Pennsylvania university notified us it was conducting an investigation into
an allegation of data falsification. The investigation focused on a figure in a
paper, whose lead author was a post-doctoral researcher (the subject) working
23
     September 2006 Semiannual Report, p.39.
24
     March 2007 Semiannual Report, p.35.

                                                                                        31
Investigations


                 in an NSF-supported PI’s laboratory. When the questionable figure was initially
                 brought to the PI’s attention, she asked the subject to provide the raw data for
                 review. The subject provided neither the raw data nor a suitable explanation.
                 Subsequently, the PI asked the subject to leave her group and asked another
                 researcher to review the subject’s lab computer files related to the figure. None
                 of the data files on the lab computer supported the behavior depicted in the
                 figure. Instead, the researcher found a command file from the subject’s plotting
                 software that purportedly showed how the figure was created by manipulating
                 existing data.

                 During his interview with the investigation committee, the subject agreed the
                 data appeared falsified, but he denied any wrongdoing. He told the committee
                 he prepared the first draft of the manuscript and the figure in question. The
                 committee found none of the subject’s data supported the figure as portrayed in
                 the paper. In his defense, the subject alleged that the true data files had been
                 deleted from the computer. However, no evidence could be found to support his
                 assertion.

                 The committee found a preponderance of the evidence supported the conclu-
                 sion that the subject falsified the figure, that it was done intentionally, and the
                 falsification was a significant departure from the accepted practices in the
                 physics community. The university’s adjudicator reviewed the documentation
                 and accepted the finding of the committee. Since the subject is no longer at the
                 university, it took no action.

                 We concurred with the university’s conclusion and concluded the subject’s
                 falsification was research misconduct. We recommended NSF take the fol-
                 lowing actions: send a letter of reprimand to the subject; debar the subject for
                 2 years; require certifications from the subject and his supervisor for 2 years
                 after the debarment that his submissions to NSF are in compliance with NSF’s
                 research misconduct policy; require the subject to provide proof of the retraction
                 of the published paper; and require the subject to attend an ethics class and
                 provide a copy of the training material.

                 PI Copied Significant Text, Tries to Blame Post-Doc

                 We investigated an allegation of plagiarism in a proposal submitted from a New
                 Mexico university. We found significant text and two figures copied from mul-
                 tiple sources, with copied material in nearly every section of the proposal. The
                 proposal listed a PI and two co-PIs, all from different universities. We wrote
                 each subject asking for an explanation and the two co-PIs responded saying
                 the PI was responsible for the copied text.

                 In telephone discussions with the PI, he claimed that his former post-doctoral
                 researcher prepared most of the material for a report submitted to a state
                 agency. He said he incorporated material from that document into his proposal
                 without checking whether it was properly referenced.

                 At that point, we referred the matter to the subject’s university for investigation.
                 The university committee contacted the post-doc, who refuted the subject’s
                 claims and admitted only limited writing, amounting to one paragraph and


           32
                                                              OIG Semiannual Report     September 2007


material incorporated from one co-PI’s paper (which included one figure). The
committee decided not to dwell on the details of who wrote the text, but recog-
nized that the subject, as the signatory to the NSF proposal, is responsible for
the material contained in it and, accordingly, committed plagiarism.

The committee recommended the following sanctions: for 1 year, the subject
is prohibited from submitting proposals as the sole PI (he must name a col-
laborator from the university as PI); for 3 years, the subject’s proposals must
be reviewed by two senior researchers before submission to a sponsor; and
the subject must instruct new faculty members enrolled in the university’s PI
certification course on the seriousness of plagiarism and on the techniques to
check their work. These recommendations were accepted by the university
adjudicator as well as the subject.

We reviewed two of the subject’s prior NSF proposals for plagiarism, one
submitted before our inquiry began and one afterward. The proposal submitted
before our inquiry began had smaller amounts of text copied from several
sources. We concluded there was evidence of a pattern of plagiarism. We
recommended that NSF: send the subject a letter of reprimand informing him
NSF is making a finding of research misconduct; debar him for 1 year; require
him to submit assurances by a responsible official of the University that any
proposals he submits do not contain plagiarized, falsified, or fabricated material
for 3 years require certifications from the subject for 3 years that all documents
he submits to NSF are either his original work or are properly cited; and require
the subject to take an ethics course and provide a copy of the training materials
to us. A decision regarding this matter is pending.

Professor Plagiarizes in Four NSF Proposals

An investigation revealed that four proposals submitted to NSF by a Michigan
university professor contained plagiarism. We initially received an allegation
that two of the professor’s NSF proposals contained plagiarism. The university
investigated and found that the professor knowingly committed significant pla-
giarism in a total of four NSF proposals, as well as small amounts of plagiarism
in numerous proposals he submitted to other funding entities. The university
froze the professor’s salary for 2 years, required him to receive and provide
training on academic integrity, and required him to provide certifications to his
department chair for 1 year that proposals he submits are free of plagiarism.

All of the professor’s plagiarism was derived from sources available on the
internet. In both his initial response to us and in his testimony in the university’s
investigation, the professor explained his view that material that he found on the
internet, or that he considered to be common knowledge, or that did not contain
technical content, did not warrant distinction and citation. He also perceived
plagiarism to embrace only the misappropriation of someone else’s ideas, as
opposed to words that he viewed as conveying no significant ideas. However,
in the course of our review of the university’s investigation, the professor told us
that he is now aware of and embraces the scholarly community’s standards for
quotation and attribution, and he has changed his practices appropriately.




                                                                                        33
Investigations


                 We concluded that the professor knowingly copied a significant quantity of
                 text and two figures in his four NSF proposals. We recommended that NSF’s
                 Deputy Director: send a letter of reprimand to the professor informing him that
                 NSF has made a finding of research misconduct; require him to certify and
                 obtain supervisory assurance that each proposal and report he submits to NSF
                 does not contain plagiarized, falsified, or fabricated material for 3 years after the
                 date of the finding of research misconduct; and require him to submit proof that
                 he completed a research ethics course within 1 year of the finding of research
                 misconduct. NSF’s decision is pending.

                 PI Plagiarizes in Four NSF Proposals

                 Our investigation concluded that a PI at a Massachusetts university plagiarized
                 text from several source documents into four NSF proposals, two of which
                 were funded. As part of our initial review, the PI described the copied text as
                 definitions or facts, all of which appeared in the background sections of the
                 proposals. The PI claimed there was no intent on his part to omit any acknowl-
                 edgments.

                 We did not accept his explanations, and referred the investigation to his institu-
                 tion. The institution’s investigation committee concluded that in addition to
                 plagiarized text in the three earlier proposals, the PI also plagiarized text in a
                 fourth proposal, his most recent submission to NSF. The committee concluded
                 the PI committed research misconduct and recommended the PI: receive a
                 letter of censure; get appropriate training and education in this matter; provide
                 certification and assurances for 2 years to the chair of his department that his
                 proposals and reports follow accepted practices; and develop, implement, and
                 deliver a presentation to new faculty on the acceptable practices in citing the
                 work of others. The institution’s adjudicator endorsed the finding and recom-
                 mendations of the committee.

                 We concurred with the university’s conclusion that the PI committed research
                 misconduct. We recommended that NSF: send a letter of reprimand to the PI
                 informing him that NSF has made a finding of research misconduct; for 3 years
                 after the debarment, require him to certify and obtain supervisor assurance that
                 proposals he submits to NSF do not contain plagiarized, falsified, or fabricated
                 material; bar him from serving as a peer reviewer of NSF proposals for 2 years;
                 and direct him to attend a course in research ethics. We await the Deputy
                 Director’s decision regarding this matter.

                 University Holds PI and Two Co-PIs Accountable for
                 Plagiarized Text

                 A Wisconsin university held a PI and two co-PIs responsible for plagiarized ma-
                 terial inserted into in an NSF proposal by just one of the co-PIs. We determined
                 that a proposal submitted to NSF by a university in Wisconsin contained text
                 copied from multiple sources. We wrote separately to the PI and two co-PIs,
                 who responded jointly that they were taking the allegation seriously—and they
                 had referred the matter to the university. They stated some of the copied text
                 was probably appropriate as it was in the public domain. However, they also ac-
                 knowledged the inadequacy of citations in the literature review. The questioned

           34
                                                             OIG Semiannual Report    September 2007


text was prepared by one of the co-PIs (the subject), a research associate, but
the PI and other co-PI said they did not provide enough supervision during the
preparation of the proposal.

In the interviews with the university’s investigation committee, all three agreed
that parts of the literature review in the NSF proposal were not correctly cited.
The subject took responsibility for the copied text. The PI and co-PIs, in sup-
port of their belief that some of the text was in the public domain, referenced a
CDC website stating “materials produced by federal agencies are in the public
domain and may be reproduced without permission.” The committee concluded
that neither the concept of public domain nor the idea that content can be
reproduced without permission implies that text written by another person can
be copied without attribution.

The committee concluded this was a clear case of plagiarism and suggested
the university require for 1 year that grant applications from the three investiga-
tors be certified by a committee of researchers. The university’s adjudicator de-
termined the act constituted plagiarism and all three subjects were responsible
for the content of the grant proposal. The adjudicator accepted the committee’s
recommendation and concluded that all three investigators committed research
misconduct.

We believe that the university’s actions were appropriate and reflected high
academic standards in holding the subject, the PI, and the co-PI all accountable
for the contents of their proposal. However, we concurred with the university’s
assessment that the PI and the co-PI acted negligently (carelessly), which does
not meet the threshold for a finding of research misconduct under NSF’s regula-
tion. We also concurred with the university that a preponderance of evidence
proves the subject’s action was a significant departure from accepted practices.

We recommended that NSF send a letter of reprimand to the subject informing
him he has been found to have committed research misconduct. Since the
subject will have his grant proposals certified by a university-appointed commit-
tee of researchers for 1 year, we recommended that NSF require the subject to
provide a copy of the committee’s certification for 1 year. In addition, we recom-
mended that NSF: require the subject to provide a certification that nothing he
submits to NSF for a period of 1 year violates its research misconduct regula-
tion; and require the subject to take an ethics class to better learn about ethical
issues and scholarly standards regarding plagiarism.




                                                                                      35
Investigations



                 Plagiarism On the Increase

                 Serious allegations of plagiarism received by OIG have been on the rise
                 for the past several years. NSF takes plagiarism seriously, as illustrated by
                 the agency’s Proposal and Award Policies and Procedures Guide (PAPPG),
                 where for two decades it has stated:

                           NSF expects strict adherence to the rules of proper scholar-
                           ship and attribution. The responsibility for proper attribution
                           and citation rests with authors of a proposal; all parts of
                           the proposal should be prepared with equal care for this
                           concern. Authors other than the PI (or any co-PI) should be
                           named and acknowledged. Serious failure to adhere to such
                           standards can result in findings of research misconduct.25

                 Subjects of our plagiarism investigations often express the belief that NSF
                 proposals are not held to the same standards as journal publications.
                 However, NSF’s PAPPG and its predecessors are very clear regarding the
                 agency’s expectation for proper citation to any reference materials used
                 in the development of a proposal. This expectation extends to the use of
                 reference materials from electronic web sites.

                 In recent years we have also seen an increase in the number of subjects
                 who blame graduate students for plagiarized material in their proposals.
                 Subjects claim they asked their graduate students to provide background
                 summary material and then use that material directly in their proposal. In a
                 number of these investigations, the graduate student had left the university
                 and there was no documentation to prove a student ever provided the
                 material. In these cases, professors have been held accountable for the
                 plagiarism in their proposal.

                 If NSF believes that plagiarism is serious enough to warrant a finding of
                 research misconduct, the consequences can be significant. Agency actions
                 against a researcher can include a letter of reprimand, request for certifica-
                 tions from the researcher on future submissions, requests for assurances
                 from the researchers Dean or Department Chair regarding future submis-
                 sions, and debarment in the most egregious cases. Researchers should
                 take great care when developing proposals, and especially when using
                 summary materials provided by a graduate student or colleague. Each
                 proposal’s PI and any co-PIs are personally responsible for the content of
                 that proposal and its adherence to the highest scholarly standards.




                 25
                   NSF 07-140 at I-4. The language has changed little since it first appeared in the 1987 revision of
                 Grants for Research and Education in Science and Engineering, NSF 83-57.



           36
                                                             OIG Semiannual Report    September 2007


Other Matters

NSF Agrees to Enhance Oversight of Cost Sharing
Compliance

In October 2004, the National Science Foundation changed its policy to
eliminate cost sharing requirements imposed by NSF programs. The change
in policy applied only to new solicitations, and did not affect prior or subsequent
awards that promised cost-sharing contributions, even when not required to by
a solicitation.

Having promised cost sharing, awardees
are required to: meet their cost sharing
commitments; maintain records of their
contributions; and, if the total cost shar-
ing commitment is $500,000 or more,
provide annual and final certifications
of the amount of cost sharing provided.
Because several recent investigations
revealed significant failures to meet cost
sharing commitments, we conducted
a review of grantees’ compliance with
cost sharing reporting requirements, as
well as NSF’s oversight of those reports.
While most awardees were meeting their                                                OIG summer interns
cost sharing commitments, 24 of the 85 awards we reviewed had cumulative              celebrate an award
shortfalls ranging from approximately $44,000 to nearly $1.8 million. Numerous        to colleague John
awards were missing cost sharing reports, or the reports contained inconsistent       Merkel with Dr. Boesz
information.                                                                          and Bill Kilgallin.

The failure of awardees to provide clear information demonstrating that they
were meeting their cost sharing obligations shouldn’t raise a policy or proce-
dural issue, because procedures are already in place to ensure that the NSF
program officer reviews the information provided and takes action when neces-
sary. However, our review indicates that those procedures are not always being
followed. In fact, the extent of the missing reports and documented shortfalls
was notable because for each of these awards the program officer and division
director approved additional incremental funding despite inadequate documen-
tation of cost sharing compliance. We investigated each incident to determine
whether disparities in reporting and compliance reflect false statements or
claims by certain awardees.

Under NSF’s revised cost sharing policy, relatively few new awards involve cost
sharing obligations, but those obligations should be met. We recommended
that NSF develop an initiative to require program officers to review the cost
sharing information provided by awardees carefully, take action when cost shar-
ing commitments fall short, and ensure that in no circumstances will an awardee
be provided further funding under an award when it has failed to provide the
required information and certifications. NSF accepted our recommendation and
implemented steps to ensure compliance with cost sharing obligations.


                                                                                      37
Investigations


                 The National Science Board has been asked to report to Congress on the
                 impact of its policy to eliminate cost sharing. The response taken by NSF to our
                 recommendation in this matter will help ensure that the cost sharing require-
                 ments in place for any current and future awards will be enforced.

                 Antideficiency Act Investigation Leads to Management
                 Recommendations

                 We received an allegation that NSF had been conducting an internal investiga-
                 tion into a possible Antideficiency Act violation, a matter within our investigative
                 purview.26 We found that NSF had actually been processing a negotiated
                 settlement of a contract claim received in fiscal year (FY) 2007 for FY 2006
                 contract costs, and that the claim created the potential for a violation of the Act,
                 depending on the availability of FY 2006 funds and the validity of the claim.

                 NSF ultimately negotiated a 50% reduction in the costs as part of a proposed
                 settlement of the contract claim, and eventually determined that sufficient FY
                 2006 funds to pay the negotiated settlement could be obtained by deobligating
                 funds not spent under other contracts, and paid the claim using those funds.
                 Thus, no violation of the Act occurred.

                 In the course of the investigation, OIG noted certain aspects of NSF’s contract-
                 ing and budget functions that warrant further evaluation by NSF. First, OIG
                 recommended that NSF develop better policies for managing the risk of simple
                 human error in reviewing and analyzing financial documents in routine contract-
                 ing transactions, and incorporate those policies into its Contracting Oversight
                 Program.

                 Second, because of the substantial responsibility placed on COTRs and the
                 lack of useful reference materials, OIG recommended that NSF accelerate
                 publication of a planned COTR handbook, noting that a well-trained COTR can
                 and should function as an important management control.

                 Third, NSF did not appear to review the available universe of contracts and
                 other sources of FY 2006 funds for available excess funds to pay this claim
                 for at least 8 months after the potential appropriation deficiency became
                 known. NSF’s delay was in part an effort to reserve funds to pay for indirect-
                 rate adjustments and other unanticipated charges. The contractor’s claim, in
                 combination with NSF’s delay in resolving the claim, gave rise to the allegation
                 we investigated. OIG therefore recommended that NSF review its procedures
                 for responding timely to potential appropriation deficiencies.




                 26
                    The Antideficiency Act provides that government employees may not obligate or spend more government
                 funds than Congress provides to agencies, or make purchases or contracts before funds are made available
                 by Congress. Violations of the Act must be reported to the President, Congress, and the Comptroller
                 General, and violators are subject to civil and criminal penalties.




           38
                                                        Statistical Data
                           Audit Data

      Audit Reports Issued with Recommendations
                for Better Use of Funds

                                                        Dollar Value

A.    For which no management decision has been
      made by the                                        $1,900,000
      commencement of the reporting period
B.    Recommendations that were issued during the         $45,240
      reporting period
C.    Adjustments related to prior recommendations           $0
Subtotal of A+B+C                                        $1,945,240
D.    For which a management decision was made
      during the reporting period                            $0
      i)    Dollar value of management decisions that
            were consistent with OIG recommendations         $0
      ii)   Dollar value of recommendations that were
            not agreed to by                                 $0
            management
E.    For which no management decision had been
      made by the end of the reporting period            $1,945,240
For which no management decision was made within 6       $1,900,000
months of issuance




                                                                       39
Statistical Data




                         Audit Reports Issued with Questioned Costs

                                                   Number of   Questioned    Unsupported
                                                   Reports     Costs         Costs

  A.   For which no management decision has
       been made by the commencement of the        23          $61,915,138   $3,080,693
       reporting period
  B.   That were issued during the reporting
       period                                      19          $578,061      $277,299
  C.   Adjustment related to prior
       recommendations                             -1          -$44,101      $0
  Subtotal of A+B+C                                41          $62,449,098   $3,357,992

  D.   For which a management decision was
       made during the reporting period            12          $1,570,915    $541,939
            i)	    dollar value of disallowed costs N/A        $141,932      N/A
            ii)	   dollar value of costs not disal-
                   lowed                            N/A        $1,428,983    N/A
  E.   For which no management decision had        29          $60,878,183   $2,816,052
       been made by the end of the
       reporting period
  For which no management decision was made        12          $60,483,959   $2,722,591
  within 6 months of issuance




             40
                                                           OIG Semiannual Report     September 2007




                     Audit Reports Involving Cost-Sharing Shortfalls

                                        Number of   Cost-Sharing   At Risk of Cost   Actual Cost
                                        Reports     Promised       Sharing Short-    Sharing
                                                                   fall (Ongoing     Shortfalls
                                                                   Project)          (Completed
                                                                                     Project)
A.   Reports with monetary                  3        $6,828,044       $790,476            $0
     findings for which no
     management decision has been
     made by the beginning of the
     reporting period:
B.   Reports with monetary                  2            $0            $6,304             $0
     findings that were issued
     during the reporting period:
C.   Adjustments related to prior           0            $0              $0               $0
     recommendations
Total of reports with cost sharing          5        $6,828,044       $796,780            $0
findings (A+B+C)
D.   For which a management                 1            $0             $50               $0
     decision was made during the
     reporting period:
     1.Dollar value of cost-sharing         0            $0              $0               $0
     shortfall that grantee agreed to
     provide
     2.Dollar value of cost-                1            $0             $50               $0
     sharing shortfall that
     management waived
E.   Reports with monetary                  4        $6,828,044       $796,730            0
     findings for which no
     management decision has been
     made by the end of the reporting
     period




                                                                                     41
Statistical Data




                               Status of Recommendations that Involve
                                Internal NSF Management Operations

  Open Recommendations (as of 3/31/2007)
  Recommendations Open at the Beginning of the Reporting Period                                       66
  New Recommendations Made During Reporting Period                                                    7
  Total Recommendations to be Addressed                                                               73
  Management Resolution of Recommendations              24


  Awaiting Resolution                                                                                 28
  Resolved Consistent With OIG Recommendations                                                        45
  Management Decision That No Action is Required                                                      0
  Final Action on OIG Recommendations25
  Final Action Completed                                                                              21
  Recommendations Open at End of Period                                                               52




                                     Aging of Open Recommendations

  Awaiting Management Resolution:
  0 through 6 months                                                                                  7
  7 through 12 months                                                                                 16
  More than 12 months                                                                                 5
  Awaiting Final Action After Resolution
  0 through 6 months                                                                                  0
  7 through 12 months                                                                                 6
  More than 12 months                                                                                 18




24
   “Management Resolution” occurs when the OIG and NSF management agree on the corrective action plan that will be imple-
mented in response to the audit recommendations.
25
   “Final Action” occurs when management has completed all actions it agreed to in the corrective action plan.


             42
                                                            OIG Semiannual Report     September 2007




                       List of NSF and CPA Performed Reviews

Report     Subject                           Questioned     Unsupported      Better        Cost
Number                                       Costs          Costs            Use of        Sharing
                                                                             Funds         At-Risk
07-1-016   VECO Polar Resources                       $0                $0          $0           $0
           Disclosure Statement & Cost
           Impact Proposal
07-1-017   Supplemental report to                     $0                $0          $0           $0
           #06-1-023
07-1-018   BIOS Bermuda Biological                    $0                $0          $0           $0
           Station for Research,
           Accounting System
07-1-019   Abt Associates                         $22,716               $0          $0           $0
07-1-020   University of Maryland                $174,655               $0          $0           $0
           Baltimore County
07-2-006   FISMA 2007 Independent                     $0                $0          $0           $0
           Evaluation Report
07-2-007   FY2007 FISMA Independent                   $0                $0          $0           $0
           Evaluation Summary
07-3-002   Internal Quality Control Review            $0                $0          $0           $0
           of OIG Monitoring University of
           Hawaii
07-6-003   Quality Control Review of 12-04            $0                $0          $0           $0
           Barrow Arctic Science
           Consortium
           Total:                                $197,371               $0          $0           $0




                                                                                      43
Statistical Data




                                        NSF-Cognizant Reports

  Report           Subject                               Questioned     Unsupported     Cost Sharing
  Number                                                 Costs          Costs           At-Risk
  07-4-003         12-05 Earthquake Engineering                   $0              $0             $0
                   Research Center
  07-4-004         6-04 Jackson Public School District            $0              $0             $0
  07-4-008         6-04 Atlanta Independent School                $0              $0             $0
                   District
  07-4-018         6-04 Wisconsin Educational                     $0              $0             $0
                   Partnership Initiative, Inc.
  07-4-020         6-05 Columbus City School                      $0              $0             $0
                   District
  07-4-025         12-05 Santa Fe Institute                       $0              $0             $0
  07-4-026         12-04 Barrow Arctic Science                $89,000        $89,000             $0
                   Consortium
  07-4-027         12-05 Barrow Arctic Science                    $0              $0             $0
                   Consortium
  07-4-046         9-05 Joint Oceanographic                       $0              $0             $0
                   Institutions, Inc.
  07-4-047         6-06 Institute of Ecosystem                    $0              $0             $0
                   Studies, Inc.
  07-4-049         12-05 American Physical Society            $10,000             $0             $0
  07-4-050         12-05 Divergence, Inc.                         $0              $0             $0
  07-4-051         12-06 Earthquake Engineering                   $0              $0             $0
                   Research Center
  07-4-052         6-05 San Diego Society of                      $0              $0             $0
                   Natural History
  07-4-053         6-05 Museum of Science                      $4,700          $4,700            $0
  07-4-054         6-03 Columbus City School                      $0              $0             $0
                   District
  07-4-055         6-04 Columbus City School                      $0              $0             $0
                   District
  07-4-056         12-05 Horizon Research, Inc.                   $0              $0             $0
  07-4-057         12-05 American Association of                  $0              $0             $0
                   Physics Teachers
  07-4-059         9-05 Universities Research                     $0              $0             $0
                   Association
  07-4-060         6-06 William Marsh Rice                        $0              $0             $0
                   University
  07-4-061         6-06 WEPI, Inc.                                $0              $0             $0
  07-4-062         5-06 University of Tulsa                       $0              $0             $0
  07-4-063         12-04Consortium of Universities for            $0              $0             $0
                   Advancement of Hydrologic Science




             44
                                                     OIG Semiannual Report   September 2007




07-4-064   12-05 Consortium of Universities for        $0               $0            $0
           Advancement of Hydrologic Science
07-4-065   6-06 Keck Graduate Institute of Ap-         $0               $0            $0
           plied Life Sciences
07-4-066   6-06 Southwest Center for                   $0               $0            $0
           Educational Excellence
07-4-067   6-05 Computing Research                     $0               $0            $0
           Association, Inc.
07-4-068   6-05 Exploratorium                          $0               $0            $0
07-4-069   6-06 Exploratorium                          $0               $0            $0
07-4-070   6-06 Michigan State University              $0               $0            $0
07-4-071   6-06 Harvey Mudd College                    $0               $0            $0
07-4-073   12-06 Carnegie Institute                    $0               $0            $0

07-4-077   6-05 Incorporated Research                  $0               $0            $0
           Institutions for Seismology
07-4-080   9-04 IOPD Management                        $0               $0            $0
           International, Inc.
07-4-081   9-05IOPD Management                         $0               $0            $0
           International, Inc.
07-4-082   9-06 IOPD Management                        $0               $0            $0
           International, Inc.
07-4-083   8-06 WGBH Educational Foundation          $154             $154          $154
           Total:                                 $103,854        $93,854             $0




                                                                             45
Statistical Data




                                               Other Federal Audits

  Report           Subject                             Questioned        Unsupported        Cost Sharing
  Number                                               Costs             Costs              At-Risk
  07-5-101         6-05 Tuskegee University                    $347                    $0              $0
  07-5-102         6-05 Georgia Tech Research                       $0                 $0             $50
                   Corporation-Georgia Institute of
                   Technology
  07-5-103         6-05 Ursinus College                     $94,838             $94,838                $0
  07-5-134         9-05 Blackfeet Community                  $1,000              $1,000                $0
                   College
  07-5-135         6-05 University of Missouri              $41,921                    $0              $0
  07-5-136         12-05 National Opinion Research           $9,012                    $0              $0
                   Center
  07-5-139         5-06 Our Lady of the Lake of San           $2,115                   $0              $0
                   Antonio
  07-5-140         6-06 University of Toledo                  $1,514                   $0              $0
  07-5-200         6-06 The College of Wooster               $1,500              $1,500                $0
  07-5-201         6-06 Maricopa County                     $45,323,            $31,823                $0
                   Community College
  07-5-202         6-06 University of Richmond              $60,680             $36,041                $0
  07-5-203         8-06 Stanford University                    $343                    $0          $6,254
  07-5-204         6-06 State of North Dakota                 $2,170             $2,170                $0
  07-5-210         9-06 Smithsonian Institution             $16,073             $16,073                $0
                   Total:                                  $276,836            $183,445            $6,304




             46
                                                          OIG Semiannual Report    September 2007



             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 six months of the report’s issue date.  At the end
of the reporting period there were eight reports remaining that met this condition.  The status
of recommendations that involve internal NSF management is described on page 42.




                                                                                   47
Statistical Data




                                               Investigations Data

   Civil/Criminal Investigative Activities

     Referrals to Prosecutors					                                               0
     Criminal Convictions/Pleas				                                              2	
     Civil Settlements						                                                     0	
     Indictments/Information					                                                0
     Investigative Recoveries					                                               $806,399.65

   Administrative Investigative Activities

     Referrals to NSF Management for Action		                                    10
     Research Misconduct Findings				                                            4	
     Debarments						                                                            7		
     Administrative Actions					                                                 27	
     Certification and Assurance Actions 26			                                   17




   Investigative Case Statistics

   			                            		              Preliminary	         Civil/Criminal		              Administrative

   Active at Beginning of Period		                          86		                 64			                         64	
   Opened					                                              95		                 28		  	                       34	
   Closed					                                              121		                25			                         36	
   Active at End of Period			                               60		                 67			                         62	




26
   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.



             48
                                                           OIG Semiannual Report    September 2007




                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:

•   Requests Received			                     18

•   Requests Processed			                    18

•   Appeals Received				                     1

•   Appeals Upheld				                       1

Response time ranged between 12 day and 19 days, with the median around 15 days and the
average around 16 days.




                                                                                    49
Statistical Data




             50
                                                            Appendix
               Management Challenges Letter

                        October 17, 2007

MEMORANDUM
To:		          Dr. Steven C. Beering
		             Chair, National Science Board

		             Dr. Arden Bement
		             Director, National Science Foundation

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

Subject:	      Management Challenges for NSF in FY 2008

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

This year’s management challenges are again organized under six
broad issue areas: award administration; human capital; budget,
cost and performance integration; information technology; U.S.
Antarctic Program; and merit review. Ten challenges are drawn
from last year’s list, some of which reflect areas of fundamental
program risk that are likely to require management’s attention for
years to come. Two new management challenges appear on this
year’s list: USAP property plant and equipment, and audit resolu-
tion. We note that NSF continued to make progress this past year
on several longstanding challenges.

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




                                                                        51
Appendix


           Award and Contract Administration

           Post-award administration policies. NSF has worked toward developing
           and implementing an improved post-award administration regimen since 2002,
           when the OIG audit of NSF’s financial statements first recommended that the
           agency strengthen its policies and practices. An effective post-award monitor-
           ing program should ensure that: awardees are complying with award terms and
           conditions and federal regulations; adequate progress is being made toward
           achieving the objectives and milestones of the program and; expenditures listed
           on NSF’s financial statements are accurate. In FY 2007, NSF continued to
           make progress toward achieving those goals by correcting problems, such as
           poor documentation, that prevented the auditors from determining whether the
           program had been effectively implemented. Along with improving the quality
           and consistency of the documentation, the agency increased its oversight of
           high risk awardees by conducting 22 site visits and 115 desk reviews this year.
           NSF’s administrative oversight of these awards has greatly improved over
           the past five years, and the financial statement auditors determined this year
           that it should no longer be classified as a significant deficiency. However, our
           auditors will continue to monitor NSF’s efforts to follow up and act on problems
           identified in NSF’s site visits and reviews.

           The challenge for the agency going forward is to maintain its commitment to
           effective post-award administration and refocus its efforts toward improving the
           monitoring of programmatic performance. The responsibility for this activity
           resides with NSF’s program officers, who need adequate time, written guid-
           ance, appropriate training, and effective monitoring tools to perform this vital
           function. But, since their primary responsibility is proposal review and award
           selection, little time is left for managing on-going awards. In addition, NSF
           provides limited guidance to program officers on how to oversee the program-
           matic performance of awardees, and no formal training is offered on the
           administrative and financial requirements contained in OMB Circulars. Finally,
           a recent OIG audit indicated that over the five-year period from May 1, 1999 to
           May 31, 2004, more than 45,000 (42%) required annual project reports on the
           progress of individual NSF awards had not been submitted. Without adequate
           support from the agency in the form of additional time, training, guidance, and
           monitoring tools, program officers may not be able to detect problems with an
           award in time to intervene.

           Post-award oversight of cost-shared commitments by NSF awardees continues
           to pose a challenge to the agency. Although new cost-shared commitments by
           awardees have steadily decreased since the National Science Board decided
           to eliminate non-statutory cost-sharing requirements in 2004, our audits
           continue to find poorly documented cost-shared contributions on awards made
           before the Board acted. Last year, OIG auditors reviewed awards with more
           than $13 million in cost-shared funds. In one case, a university was not able to
           document 90 percent of the $2.1 million it claimed to cost-share. Recently the
           National Science Board decided to reconsider its policy on cost sharing. The
           Board has formed a task force to review the implications of their 2004 action
           and has been asked by Congress to report on the impact of suspending cost-
           sharing for existing programs that were developed around industry partnerships



     52
                                                                            OIG Semiannual Report         September 2007


and that historically required cost sharing. Whether or not cost sharing is
reintroduced in the future, the challenge for the agency is to assure that award-
ees fulfill their remaining cost sharing obligations, which are still significant.

Contract monitoring. The monitoring and administration of NSF contracts
first appeared as an internal control deficiency in the FY 2004 audit of the
agency’s financial statements because NSF did not adequately review vouchers
submitted by contractors who received advance payments. NSF has initiated
corrective actions over the past two years, including reviewing vouchers submit-
ted by larger contractors on a regular basis. It has also updated its contracting
manual to strengthen its pre-award risk assessment guidance, contracting
personnel roles, and contracting responsibilities to provide assurance that the
problem will not recur.

However, contract monitoring remains a major management challenge because
NSF does not have a comprehensive, risk-based system to oversee and
monitor its contract awards and ensure that the requirements of each contract
are being met. This year the financial auditors reviewed NSF’s progress and
identified additional areas for improvement in post-award contract monitoring
activities. They found that the contracting manual lacks sufficient material on
post-award monitoring, risk assessment, and risk mitigation procedures. In
fact, the problems that have affected NSF’s recordkeeping for its property, plant
and equipment in Antarctica (see USAP management challenge) are a direct
result of inadequate monitoring of an NSF contractor. The agency also needs
a program to provide training for contracting officer’s technical representatives
and detailed policies and procedures that make clear what is required of them.

Management of large infrastructure projects. NSF’s investment in large
infrastructure projects and instruments such as telescopes and earthquake
simulators presents the agency with a host of administrative and financial
issues. In past audits, we have focused on the difficult challenge of managing
the design, construction, and financing of these cutting edge projects and
completing the facilities on time and within budget. The agency made progress
this past year in addressing some of our longstanding concerns. For example,
NSF has implemented our recommendation to establish a system that tracks
the total costs of major equipment and facilities. Such information is necessary
to maintaining effective project management during the construction phase and
fostering an increased awareness of the total life-cycle costs of a large facility,
including operations and maintenance. Training of agency staff on the new
systems is scheduled for the coming year.

However, some of the issues we have raised in the past persist. While NSF
has increased the personnel assigned to its Large Facilities Office to four, we
are concerned that it is not adequately staffed to handle its increasing respon-
sibilities for oversight of the full life-cycle of these facilities. Though the agency
updated its facilities manual during the past year, it still has not completed
the in-depth guidance necessary to carry out the broader policy. In addition,
recommendations made last year by the Business and Operations Advisory
Committee27 to establish annual facility reviews, formal risk-assessments, and
27
  Report by the Facilities Subcommittee of the NSF Business and Operations Advisory Committee, June 10,
2006



                                                                                                          53
Appendix


           a process for projecting how long the facility will meet future research needs,
           have not yet been implemented. Though progress was made on developing a
           guide for on-site visits, a final version of the guide has yet to be issued.

           While NSF has improved its management of the construction phase of new
           facilities, it must continue to not only improve its management of and knowledge
           about the entire facility life cycle but also plan for the increased impact that
           facilities are having on NSF’s portfolio of awards as a whole. NSF’s challenge
           for managing future investments in facilities and infrastructure projects lies in
           the agency’s ability to perform more comprehensive planning for the overall
           life-cycle of these projects, and to include consideration of project risk manage-
           ment principles in making funding and other significant decisions.

           In addition, NSF needs to determine a method for making strategic portfolio-
           management decisions. Operating costs of large facilities are continuing to
           grow, as are the number of active facilities in all phases of development. NSF
           is now faced with making tough funding decisions among competing priorities.
           Proposed facilities are competing for scarce resources not only with other
           new facilities, but also with existing facilities and traditional single-investigator
           research. NSF’s challenge is to create a portfolio management plan that takes
           into account these competing priorities and the research needs of the entire
           scientific community.

           Audit resolution. Audit resolution, closure, and follow-up represent the
           final critical steps of the oversight process envisioned by the Congress when
           it passed the IG Act of 1978. Without properly developed and executed
           procedures to evaluate audit findings and correct the problems that have been
           identified, the value of audits and program reviews is largely lost, and a key
           element of an agency’s internal control system is seriously impaired. It is vital
           that NSF ensure prompt and proper resolution of OIG audits, the complete and
           timely implementation of audit recommendations, and the optimal recovery
           of questioned costs. For unknown reasons, the historic rate at which NSF
           has sustained costs questioned by its auditors has been low relative to other
           government agencies. Another challenge for NSF is to ensure effective imple-
           mentation of proposed corrective actions given resource constraints and the
           large number of NSF awardees. OIG plans to contract with a third party in FY
           2008 to review this important agency responsibility.

           Human Capital

           Workforce planning. OIG has identified workforce planning as a management
           challenge since 2002, the year that NSF’s Management Controls Committee
           first highlighted human capital as “a significant concern” during a long period
           in which its workload was growing much more rapidly than its workforce. By
           some measures, NSF’s workload has become more manageable over the
           past two years as the number of program officers has risen from 385 to 438,
           effectively reducing the number of proposals handled per program officer from
           113 in FY 2004 to 97 in FY 2006.




     54
                                                            OIG Semiannual Report    September 2007


NSF appears to have made progress toward the goal of improving the planning
process. During FY 2006, the agency developed a workload analysis tool to
determine the FTE needs of the agency as a whole based on a directorate-by-
directorate analysis. Although the tool is currently of limited use in allocating
FTEs across directorates or prioritizing needed FTEs, it provides an objective
basis for projecting and justifying the agency’s overall staffing needs. Over
the past year NSF has initiated a succession planning process for recruiting,
developing, and training NSF’s future managers. The agency also reports
that a workforce plan aligned to the goals of the new NSF strategic plan has
been completed and is being reviewed for compatibility with other key planning
documents, such as the human capital plan and the succession plan.

However, in June 2007, OMB downgraded NSF’s score for human capital
because it did not deliver a skill gap assessment for all mission-critical occupa-
tions to the Office of Personnel Management (OPM). NSF has subsequently
worked with OMB and OPM to revise the list of future deliverables and expects
to recover its “green” status for human capital within the next two quarters. The
agency acknowledges that it has other remaining human capital challenges,
including distributing administrative functions more effectively, implementing the
workforce and succession plans, and completing a new human capital manage-
ment plan.

The agency is also considering potential solutions to the various issues associ-
ated with the employment of temporary professional staff known as “rotators”.
NSF has long valued rotators for the fresh scientific knowledge they bring to the
agency, but are vulnerable to criticism for their lack of institutional knowledge
and management skills, which are particularly important at the senior level. In
2008, NSF expects to initiate an executive-level mentoring and training program
called “on-boarding” that will include learning modules specifically geared
toward those who lack experience and knowledge about the ways of NSF and
the federal government. The proposal came out of a report issued by a com-
mittee of senior staff tasked with assessing the adequacy of the agency’s senior
executive leadership in terms of quantity, quality, and balance between per-
manent and temporary professionals. The committee recommended that the
agency improve the balance between permanent and temporary executive-level
leadership across NSF’s organizational units to ensure organizational stability,
the retention of institutional knowledge, and the infusion of new talent. While
senior management has accepted these recommendations, implementation will
pose a challenge.

Administrative infrastructure. Inadequate office space and travel funds
continue to constrain NSF’s ability to administer its growing award portfolio
by limiting the number of new hires that can be processed and on-site visits
made to monitor the performance of awardees. The amount spent on office
space has risen at a rate of just 6% per year, while funds available for travel
have increased just 7% per year over the past 4 years, barely keeping pace
with price increases. Meanwhile, the widespread perception of problems that
has beset NSF’s hiring and travel processing systems continued to produce
low ratings from staff that participated in the most recent employee satisfaction
survey. Both systems have been improved and upgraded over the past year,
and the agency expects that this year’s surveys will reflect increased satisfac-
tion with these two systems. However, problems in integrating the travel and

                                                                                     55
Appendix


           financial systems in particular persist, causing inconvenience to the staff and
           consuming more of the traveler’s time than necessary. The challenge for NSF
           is to continue to improve the systems so they are easier for staff to use.

           Budget, Cost and Performance Integration

           Performance reporting. The Government Performance and Results Act
           (GPRA) was enacted in 1993 for the purpose of making government agencies
           more results-oriented. The Act requires each agency to develop a strategic
           plan that establishes specific goals against which its performance can be
           measured. GPRA poses a significant challenge to agencies engaged in
           scientific research because the benefits are notoriously difficult to measure
           and in some cases may only become apparent over many years. To assist in
           this assignment, NSF convenes an Advisory Committee on GPRA each year
           to assess progress in achieving its strategic goals. As in past years, this year’s
           committee made its evaluations based on a judgmental sample of awards
           chosen by NSF staff. The committee suggested that their conclusions would
           be more “robust” if it had better assurance that the awards selected by NSF for
           their review were representative of the entire project portfolio. The committee
           also stated that the issue, which had been raised in previous years, “needs to
           be addressed to enhance the credibility of the assessment process.” Lastly, the
           committee expressed additional concerns pertaining to the portfolio balance of
           some strategic goal areas and the criteria it was asked to apply in carrying out
           its evaluation responsibilities.28

           Publicizing the results of scientific research is also important to advancing
           NSF’s science and education goals. OIG issued two related reports during
           2006 on disseminating the results of NSF-funded research to the public. In
           the first report, we recommended that the agency make publication citations
           for each research project that it funds available on its website.29 In a follow-on
           report, OIG assessed interest among NSF’s stakeholders and managers in
           making even more information about research outcomes available to the public,
           and found strong interest in providing brief summaries of the results of each
           project NSF funds on the agency website.30 NSF agreed to take action in
           both cases and is in the process of implementing the recommendations. Most
           recently, the Congress has mandated through legislation that the agency report
           research results. The America Competes Act (Public Law No. 110) requires
           that NSF ensure that all final project reports and citations of published research
           documents resulting from research funded, in whole or in part, by the agency
           are made available to the public in a timely manner and electronically through
           NSF’s website. The agency should expeditiously implement this provision in
           order to further the public’s knowledge and understanding of scientific research,
           assist researchers in building on prior work in their fields, and ultimately make
           its operations more transparent and accountable.

           Cost information. Managerial (cost) accounting information is used to evalu-
           ate operational effectiveness and efficiency. However, NSF does not collect
           enough information about its operational costs to enable its managers

           28
                Report of the Advisory Committee for GPRA Performance Assessment FY 2007, pp. 10-11
           29
                NSF’s Policies on Public Access to the Results of NSF-Funded Research, February 2006, OIG 06-2-004
           30
                Interest in NSF Providing More Research Results, September 2006, OIG 06-2-013

     56
                                                             OIG Semiannual Report    September 2007


and oversight officials to adequately assess its past performance or to provide
a historical context that would inform future decisions. We continue to believe
that the measurement and comparison of inputs to outputs is essential to any

meaningful review of an organization’s efficiency and that NSF would greatly
benefit by adding this capability. In recent years, the agency has enhanced its
cost accounting system so it can track costs according to strategic goals, as
well as the ten investment categories that are subject to OMB evaluation. While
the current system provides aggregated costs that may be useful in assessing
strategy, it does not track the costs of NSF’s internal business processes and
activities, such as soliciting grants, conducting merit reviews, or performing
post-award grant administration. Such information would have been especially
useful in evaluating the costs and benefits of many of the recommendations to
re-engineer its business processes that the agency received as a result of its
recent Business Analysis contract. The challenge for NSF is to obtain such
information at a modest expense and without placing an additional recordkeep-
ing burden on staff.

Information Technology

Implementing enterprise architecture. Enterprise architecture (EA) is a key
component of the President’s Management Agenda and its Expanded Elec-
tronic Government initiative. EA refers to a blueprint for organizational change
that describes, in both operational and technological terms, how an entity
currently operates and how it intends to operate in the future. It also includes a
plan for transitioning to this future state. A well-defined EA is an essential tool
for leveraging information technology (IT) in the transformation of business and
mission operations.

In 2006, the Government Accountability Office (GAO) issued a report on the
progress made by 27 federal departments and agencies toward establishing
EA programs. GAO found that NSF lagged behind all but four of the agencies
studied, satisfying only 52 percent of GAO’s core elements for effective EA
management. In 2007, the Office of Management and Budget (OMB) reviewed
NSF’s EA program, rated the program as “Green” both overall and in each
individual assessment area, and gave it one of the highest scores of the 26
programs it reviewed. However, OMB also made several recommendations
pertaining to various elements of EA such as transition strategy, cross agency
initiatives, value measurement, outcomes, and performance data. NSF has
developed a plan to address these recommendations as it continues to imple-
ment its EA program.

Successful implementation of its EA program is critical to almost all of NSF’s
activities, and should result in both cost savings and improved performance.
Some of the desired outcomes NSF describes in its EA Management Guide are
fewer applications, reduced system complexity, and improved application and
systems interoperability, data integration, and information sharing. In particular,
we note that navigating NSF systems to get coordinated financial and program-
matic information can be difficult and may impede the efforts of program
managers and other staff from overseeing the financial and administrative
requirements of their awardees. We, therefore, consider EA to be a challenge
that continues to require management attention and support.

                                                                                      57
Appendix


           United States Antarctic Program

           USAP long-term planning. At a time of growing public interest in scientific
           research, the U.S. Antarctic Program (USAP) carries a higher profile than many
           other NSF-funded projects. The agency’s Office of Polar Programs (OPP)
           oversees the USAP and manages all U.S. activities in the Antarctic serving
           the scientific community as a single program. Like a small government, OPP
           provides basic services through a number of contractors to as many as 3000
           Americans who reside and work in Antarctica, as well as the infrastructure,
           instrumentation, and logistics necessary to support the research efforts of
           scientists from around the world. The successful operation of the USAP
           requires a unique management and administrative skill set. OPP staff must not
           only know the science, but must also manage contractors engaged in delivering
           a broad range of services to the American scientific community located in a
           difficult and dangerous environment.

           Over the past few years, several program reviews have focused on needed
           improvements in long-range planning for the USAP. A 2003 OIG audit recom-
           mended that NSF develop a life-cycle oriented capital asset management
           program to ensure that infrastructure is replenished as needed and does not
           jeopardize the safety, security, or mission of those who locate in Antarctica.31
           This recommendation remains unresolved. However, during FY 2007, OPP
           began to address recommendations to improve long-range planning made by
           last year’s Committee of Visitors (COV). The COV identified the important need
           for long-range planning to 1) take into account future research needs and their
           attendant logistical challenges, and 2) include improved projections for the cost
           of servicing specific research projects in order to ensure adequate planning. At
           the USAP annual planning conference attended by scientists, contractors, and
           NSF staff, OPP presented future infrastructure improvements that are either be-
           ing planned or contemplated and listened as researchers discussed their future
           needs for services and technology. In response to the second recommenda-
           tion, OPP presented a new costing methodology at the conference aimed at
           simplifying cost projections and making them more accurate. However it is too
           soon to know if this approach will resolve the issues identified by the COV.

           Information technology systems also play an essential life-support role in such
           a harsh environment. The evaluation report our office is required to prepare
           under the Federal Information Security Management Act (FISMA) noted again
           in 2007 that NSF needed to make improvements in the USAP operating plat-
           form and in disaster recovery, though progress had been made in both areas.32
           The agency is funding studies on what course of action will best address the
           problems raised in the report. The lack of a disaster recovery plan means that
           USAP may not be able to recover in a timely or complete manner from a signifi-
           cant incident, possibly resulting in USAP incapacity to carry out its life-support
           mission at the Antarctic bases. The risks inherent in the USAP program create
           a significant ongoing challenge for NSF.




           31
              Audit of Occupational Health & Safety and Medical Programs in the United States Antarctic Program, OIG
           03-2-003, March 2003
           32
              NSF Federal Information Security Management Act, 2007 Independent Evaluation

     58
                                                               OIG Semiannual Report     September 2007


Property, plant, and equipment. In FY 2006, the financial statement auditors
noted that NSF had not been verifying cost information submitted by its primary
USAP contractor or by third parties providing shipping and transportation
services. The cost of shipping construction materials to Antarctica is signifi-
cant, sometimes more than that of the materials themselves, and is capitalized
as part of the construction cost of the asset. The auditors also noted that NSF
had not maintained original source documentation for USAP property plant and
equipment (PP&E) acquisitions.

Without proper verification, as the auditors’ FY 2006 report pointed out, NSF
could not be certain that the cost information provided by the contractors was
reliable. Therefore, NSF management could not have assurance that the mil-
lions of dollars related to PP&E carried on NSF’s balance sheet are accurate.
The auditors have recommended that NSF obtain documentation for capital-
ized property acquired in past years, implement documentation verification
procedures for Antarctic contractor’s FY 2007 and future activity, and maintain
an electronic copy of significant source documentation examined during that
verification process. In FY 2007, NSF began to verify accounting information
from its primary contractor for current year activity, but not for prior years nor for
transportation services.

During the past year, auditors have found numerous instances in which NSF’s
contractor did not record property transactions in a timely manner, support
recorded transactions with the proper documentation, or properly calculate and
record freight costs. The auditors found that NSF’s oversight of the contractor’s
internal controls over the processing, recording, and reporting of PP&E needs
improvement.

NSF and its contractor use various PP&E systems to capture and report
their activities for the USAP. Financial information from those systems is not
integrated with NSF’s general ledger system so the data are more vulnerable
to internal control problems and error, as the information must be manually
reentered in each system. In addition, a majority of USAP PP&E financial
activities originate from the contractor’s outdated software, resulting in a manu-
ally intensive and time-consuming financial reporting process that is prone to
human error. Because NSF’s contractual relationship with the contractor is not
permanent in nature, the change to another contractor also exposes NSF to
potential loss of data.

Merit Review

Broadening Participation in the Merit Review Process. At the core of
NSF’s operations is the merit review process, which is intended to ensure that
the review and selection of proposals for funding are fair and conducted ac-
cording to the highest standards. Broadening the participation of minorities and
women in the merit review process continues to be a high priority of the agency
and a critical step in accomplishing the broader goal of diversifying the STEM33
workforce. NSF’s 2006-2011 strategic plan elevated the status of broadening
participation, stating that it will “expand efforts to broaden participation from


33
     Science, Technology, Engineering and Mathematics


                                                                                         59
Appendix


           underrepresented groups and diverse institutions in all NSF activities”.34 During
           FY 2006, the funding rate for both underrepresented minorities and women
           increased from the previous year by one percentage point, but failed to keep
           pace with the increase in the funding rate for all PIs, which increased by two
           points. The funding rate for African American PIs ran counter to the trend of an
           increasing overall funding rate and slipped from 24% to 22%, three points below
           the rate for all PIs. Year-to-year variation in the funding rate of any particular
           group is not necessarily a cause for concern, but it should be monitored to
           determine if there are any developing trends that require further review or
           corrective action.

           Although NSF cannot legally require its merit panel reviewers to provide demo-
           graphic information, it has since 2001 requested that they provide such data to
           determine the extent to which underrepresented groups participate in the NSF
           reviewer population. The percentage of reviewers who report demographic
           information has increased from just 9% in 2002 to 25% in 2006. Among review-
           ers who voluntarily provided demographic information, 36% indicated that they
           were members of an underrepresented group, a proportion that has remained
           fairly stable over time. Last year, both the National Science Board and the
           Advisory Committee on GPRA recommended that NSF improve the information
           in the reviewers database. In its most recent report, the Committee on Equal
           Opportunities in Science and Engineering recommended that NSF “survey and
           report annually on the participation of women, underrepresented minorities, and
           persons with disabilities in each review panel, advisory committee, and com-
           mittee of visitors”.35 Because developing the full potential of underrepresented
           groups is likely to confer important social and economic benefits, the effort to
           broaden participation will continue to be an important challenge facing NSF.




           34
                National Science Foundation Strategic Plan FY 2006-2011, pp. 9-10
           35
                2005-2006 CEOSE Biennial Report to Congress, p.32

     60
                                                             OIG Semiannual Report   September 2007


                        Reporting Requirements


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

Reports issued, significant problems identified, the value of questioned costs
and recommendations that funds be put to better use, and NSF’s decisions in
response (or, if none, an explanation of why and a desired timetable for such
decisions). (See pp. 5, 13, 39)

Matters referred to prosecutors, and the resulting prosecutions and convictions.
(See pp.25, 47)

Revisions to significant management decisions on previously reported
recommendations, and significant recommendations for which NSF has not
completed its response. (See pp. 21, 46)

Legislation and regulations that may affect the efficiency or integrity of NSF’s
programs. (See p. 7)

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

Any matter in which the agency unreasonably refused to provide us with infor-
mation or assistance. (None)




                                                                                     61
Appendix


                                    ACRONYMS


           AOR		     Authorized Organizational Representative
           CASB		    Cost Accounting Standards Board
           CFO		     Chief Financial Officer
           CO		      Contracting Officer
           COTR		    Contracting Officer’s Technical Representative
           COI		     Conflict of Interest
           COV		     Committee of Visitors
           DACS		    Division of Acquisition and Cost Support
           DCAA		    Defense Contract Audit Agency
           DD		      Deputy Director
           DGA		     Division of Grants and Agreements
           DIAS		    Division of Institution and Award Support
           DoD		     Department of Defense
           DoJ		     Department of Justice
           ECIE		    Executive Council of Integrity and Efficiency
           EPSCoR	   Experimental Program to Stimulate Competitive Research
           FAEC		    Financial Audit Executive Council
           FASAB		   Federal Accounting Standards Advisory Board
           FFRDC	    Federally Funded Research and Development Centers
           FISMA		   Federal Information Security Management Act
           FOIA		    Freedom of Information Act
           GAO		     Government Accountability Office
           GPRA		    Government Performance and Results Act
           HHS		     Department of Health and Human Services
           IG 		     Inspector General
           MIRWG	    Misconduct in Research Working Group
           MREFC	    Major Research Equipment and Facilities Construction
           NASA		    National Aeronautics and Space Administration
           NSB		     National Science Board
           NSF		     National Science Foundation
           OECD		    Organization for Economic Co-operation and Development
           OIG		     Office of Inspector General
           OMB		     Office of Management and Budget
           OPP		     Office of Polar Programs
           PAPPG	    Proposal and Award Policies and Procedures Guide
           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
           STC 		    Science and Technology Centers
           USAP		    United States Antarctic Program
           USAO		    United States Attorney’s Office




     62
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