oversight

Semiannual Report - September 2003

Published by the National Science Foundation, Office of Inspector General on 2003-09-01.

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

About
The National Science Foundation...

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

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




... And The Office of Inspector General

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

     This report highlights the activities of the National Science Foundation (NSF) Office of Inspector
General (OIG) for the six-month period ending September 30, 2003. It has been another eventful
reporting period for our office. We issued 15 audit reports that contained $2,837,713 in questioned
costs. We also made recommendations that would put $4,619,248 in funds to better use. In addition,
we closed 11 civil/criminal cases, 29 administrative cases, and made $1,218,883 in recoveries. Finally,
we referred 3 criminal/civil cases to the Department of Justice, and 4 administrative cases to NSF
management.
     In October, we marked the 25th anniversary of the signing of the Inspector General Act which
established the institution of an independent IG at most large agencies. Upon signing the bill, President
Carter called the Act “a chance to protect the taxpayer’s dollar, to root out corruption, fraud, waste,
mismanagement, in the most effective and enthusiastic fashion.” The effectiveness of the IG Act
has been born out over time, but it is interesting that the President chose to use the word “enthusiastic.”
The people I have met in the OIG community are enthusiastic, I believe, because it is a privilege to
be doing this important work.
      During the October meeting of the National Science
Board, Dr. Warren Washington, Chairman, recognized the
contributions that Inspectors General make to the general
efficiency and effectiveness of government, and specifically
thanked the NSF’s OIG for assisting the Board in overseeing
the complex and challenging operations of NSF.
      Science and engineering research is becoming
increasingly global. Through both formal and informal
collaborations, individual researchers around the world are
engaging in diverse and complex projects intended to foster
creative solutions to important global challenges. In practice,
international collaborations are frequently a good
investment. They ease the financial burden on any one             National Science Board Chairman
nation for shouldering the cost of complex and expensive             Dr. Warren Washington with
projects, while they enhance the scientific knowledge base      Inspector  General Dr. Christine Boesz
                                                                       (Picture by Christy Bowe,
for participating nations. NSF supports international                    Imagecatcher News)
science through both U.S. and foreign institutions. During
the past six months I have had the opportunity to meet
with some of my colleagues engaged in the oversight of research funding. The purpose of the
meetings was to promote an international exchange among those responsible for providing
accountability through audits and investigations. These meetings were productive and demonstrated
a commonality among those charged with detecting and preventing fraud and waste. While the countries
with a shorter history of science funding benefited from exchanging information with their more
experienced counterparts, all participants came away with a fresh perspective on familiar problems.
      As NSF moves into fiscal year 2004, the OIG is committed to assisting the agency as it faces the
challenges in a rapidly changing world of science and technology. We appreciate the cooperation and
responsiveness of NSF management and staff, and look forward to a continuing productive relationship.




                                                                          Christine C. Boesz, Dr.P.H.
                                                                                    Inspector General
                                                                                 November 17, 2003
                                                                                            Table of Contents


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

OIG Management Activities ................................................................. 7
         Legal Review ........................................................................................................... 7
         Outreach/Prevention Activities .......................................................................... 8

Audits and Reviews .......................................................................... 13
         Significant Reports................................................................................................ 13
         Corrective Actions Prompted by Previous Audits .......................................... 23
         Work in Progress ................................................................................................... 26
         A-133 Audit Reports ............................................................................................ 27

Investigations .................................................................................... 29
         Civil and Criminal Investigations ....................................................................... 29
         Administrative Investigations ............................................................................. 35
         Proactive Reviews ................................................................................................ 41

Statistical Data ................................................................................. 43

Appendicies
         Reporting Requirements ...................................................................................... 57
         Acronyms ............................................................................................................... 59
                                                Executive Summary

• The FY 2002 Management Letter Report provides details on two
  internal control findings identified during the FY 2002 financial
  statement audit: post-award management and cost accounting.
  The audit found that NSF had initiated steps to improve post-
  award monitoring, but that the procedures needed to be
  refined and implemented before effective monitoring can take
  place. More comprehensive criteria for identifying high-risk
  awardees, as well as increased guidance for conducting on-site
  reviews are needed. In addition, NSF needs to develop a
  meaningful cost accounting architecture that will provide
  accurate and timely information to support management
  decision-making and performance reporting. NSF recently
  submitted its revised Strategic Plan to Congress and has stated
  that its next step is to develop a full cost allocation process
  that will link the costs of its programs to their performance.
  (See p. 13)
• An audit report on NSF’s Committees of Visitors (COVs)
  discusses NSF’s reliance on these committees of external
  experts convened to evaluate the quality of NSF’s management
  of its portfolio of awards, the performance of its grant
  programs, and the extent to which agency programs contribute
  to NSF attaining its strategic goals. The audit found that COVs
  provide valuable independent feedback to NSF on its
  programs, and constructive suggestions for improvement.
  However, NSF does not have a process to document how it
  has responded to recommendations in the COV reports. Also,
  in its GPRA performance reports provided to Congress and
  the Office of Management and Budget, NSF does not clearly
  disclose the limitations of data related to COV evaluations
  and judgmental sampling, upon which the reports rely.
  (See p. 16)
• A western university inappropriately recovered $1.43 million
  in routine administrative and indirect type costs greater than
  the maximum allowed under federal regulations. NSF first
  questioned the appropriateness of the university adding
  research management services (RMS) charges as direct costs
  to its award proposals in 1994, and directed the university to
  obtain written approval from HHS, its cognizant federal agency
  for audit, before including RMS charges on future proposals.

                                                                      5
Executive Summary




                       In 1997, HHS concluded that the university’s RMS costing methodology
                       did not comply with federal grant regulations for direct-charging of
                       administrative and clerical costs to federal awards. However, the university
                       continued to direct-charge RMS to NSF awards while simultaneously
                       recovering the full amount of administrative support service costs allowed
                       through its approved F&A cost rate. NSF has been working with the
                       university to resolve the $1.43 million of questioned RMS costs. (See p. 19)
                    • A researcher was sentenced to a year in prison after pleading guilty to
                      embezzling $202,000 in NSF grant money and other funds. The subject was
                      hired in 1994 to work as Co-Principal Investigator, and spent the next 5
                      years embezzling funds and stealing items purchased under the project. When
                      the fraud was discovered by the grantee, it required him to repay the
                      organization $108,497 over 4 years, reimburse $56,676 to NSF, and removed
                      his ability to charge expenditures to the grant, but allowed him to continue
                      working on the grant project. However OIG found a large number of
                      suspicious transactions that had not been previously identified by the
                      organization. The Government and the subject agreed that the amount of
                      loss was $202,000. Based on his admissions and the evidence against him,
                      the subject agreed to plead guilty to one count of stealing federal funds.
                      The court sentenced him to serve 1 year in prison, and ordered him to pay
                      additional restitution to NSF. (See p. 29)
                    • The U.S. Antarctic Program experienced three separate computer related
                      incidents in as many months. In the most serious incident, NSF received an
                      email from a hacker stating that he had breached the South Pole Station
                      network. The hacker claimed to have downloaded everything on the network
                      and threatened to sell the information to “the Russians or the media” if
                      NSF did not pay him. A joint investigation with the FBI resulted in the
                      apprehension of two computer hackers in Bucharest, Romania. The hackers
                      are awaiting trial in Romania, pursuant to cyber-crime related violations and
                      extortion. (See p. 32)
                    • A university committee determined that a PI had committed an egregious
                      act of plagiarism by submitting a proposal to NSF that contained more than
                      a page of text and ideas taken from a confidential research proposal submitted
                      by others. The allegation was referred to the university by OIG after verifying
                      that it contained substance. The committee found that the copied material
                      represented the scientific core of the NSF proposal. It concluded that the
                      PI’s plagiarism represented very serious research misconduct, aggravated
                      by the breach of confidentiality in the peer review process, and applied
                      sanctions. Based on the evidence, we concurred with the university’s findings
                      and accepted its report. Consistent with the university’s actions, we
                      recommended the PI be debarred for 2 years from receiving any federal funds
                      and, further, to protect the merit review process, we recommended that the
                      PI be prohibited from reviewing any NSF proposals for 3 years. (See p. 35)


             6
                                   OIG Management Activities

Legal Review
      The Inspector General Act of 1978, as amended, mandates that
our office monitor and review legislative and regulatory proposals for
their impact on the Office of Inspector General (OIG) and the National
Science Foundation’s (NSF) programs and operations. We perform
these tasks for the purpose of providing leadership in activities that
are designed to promote economy, effectiveness, efficiency, and the
prevention of fraud, waste, abuse and mismanagement. We also keep
Congress and NSF management informed of problems and monitor
legal issues that may have a broad effect on the Inspector General
community. During this reporting period, we reviewed 9 bills that either
affected NSF, OIG, or both. The following bill merits discussion in
this section.

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

     A legislative priority that we support is amending PFCRA to
include NSF and the 27 other Designated Federal Entity (DFE)
agencies that are currently excluded from participation under PFCRA’s
enforcement provisions. The OIG’s concern involves the ability of
DFE agencies to fully implement their statutory mission to prevent
fraud, waste and abuse by availing themselves of the enforcement
capabilities contained within PFCRA. We have raised the issue of
NSF’s inclusion under PFCRA in several prior semiannual reports.
      The DFEs are generally smaller agencies that intrinsically are more
likely to have cases involving smaller dollar amounts. PFCRA sets
forth administrative procedures that enable defrauded agencies to
proceed administratively to recover double damages and penalties when
the amount of loss is less than $150,000.00. Using the enforcement                       HIGHLIGHTS
provisions of PFCRA will enhance NSF and other DFE agencies
recovery efforts in instances of fraud that fall below PFCRA’s financial
                                                                                Legal Review            7
cap of $150,000.00. We believe that by not including DFE agencies,
PFCRA fails to maximize its potential. Amending PFCRA to include
                                                                                Outreach/
NSF and the other DFE agencies will strengthen the OIG community’s
                                                                                Prevention Activities   8
statutory mission to deter fraud, waste and abuse.


                                                                            7
OIG Management Activities




                            Outreach/Prevention Activities

                            Partnering with International Agencies

                                 Workshop on International Audit Issues. Our office is continuing its work
                            to ensure the appropriate use of NSF funds spent overseas. We initiated and
                            coordinated the workshop Accountability in Science Research Funding to enable compliance
                            and auditing officials from multiple countries to meet, learn about differing
                            requirements, and discuss best practices. Participants presented and discussed models
                            of award monitoring and auditing for science and engineering projects and shared




                                         Discussing international audit issues are: David Schindel NSF,
                                          Henry L. Barrett AID Director of Audit, Mary Santonastasso NSF,
                                         Debbie Cureton NSF, Tina Boesz NSF IG, Everett L. Mosley AID IG.

                            best practices. Projects involving international collaborations were also discussed
                            at the meeting. Countries represented at the workshop included Austria, Finland,
                            France, Germany, Netherlands, Norway, Switzerland, European Community, and
                            the United States.
                                 Korean National Science Organizations. OIG audit staff met with
                            representatives from various Korean science and technology organizations, including
                            the Ministry of Science and Technology and the Korean Science and Engineering
                            Foundation, to discuss the role of the OIG in the federal government and issues
                            such as the federal audit resolution process and our relationships with other audit
                            organizations such as the GAO.



                    8
                                                                 OIG Semiannual Report   September 2003




Working with the Federal Community

      Misconduct in Research Working Group Activities. NSF OIG continues
in its leadership role with the President’s/Executive Councils of Integrity and
Efficiency (PCIE/ECIE) Misconduct in Research Working Group (MIRWG). We
presented an update on the status of agency implementation of the federal policy
on research misconduct at a PCIE/ECIE meeting. A representative from the
working group also provided a report on the status of MIRWG activities to a group
from the Office of Science and Technology Policy. Later this fall, we are planning
to brief the roundtable of the PCIE/ECIE Inspections and Evaluations Committee
on the guidelines the MIRWG has developed to assist other agencies and IGs in
conducting investigations of research misconduct allegations. We expect the
MIRWG to reconvene late in the year.
     Erroneous Payments Working Group. The OIG is participating in a joint
working group of members of the PCIE and Chief Financial Officer Council (CFOC)
to address improper and erroneous payments. The working group is developing
benchmark methods to reduce improper payments and assisting OMB in establishing
appropriate guidance. The Improper Payments Information Act of 2002 (Public
Law No: 107-300) expanded the Administration’s efforts to identify and reduce
erroneous payments in the government’s programs and activities. All CFO Act
agencies must submit their plans for implementation of P.L. 107-300 to OMB by
November 30, 2003. Consequently, agencies are carefully examining the risk of
erroneous payments in all programs and activities they administer, including grant
programs. The Erroneous Payments Working Group will continue to explore this
issue and develop guidance and best practices to assist the agencies in their efforts.
     Financial Statement Audit Network. One of our senior auditors currently
serves as the Chairman of the Financial Statement Audit Network (FSAN), a
subcommittee of the Federal Audit Executive Council (FAEC). The FSAN
is comprised of auditors from federal agencies, the General Accounting Office, the
Federal Accounting Standards Advisory Board, and the Office of Management and
Budget. The purpose of the FSAN is to highlight financial statement related issues
for discussion during the monthly FAEC meeting. The same OIG auditor is also
the co-Chairman of the Members in Government Committee of the Maryland
Association of Certified Public Accountants (MACPA).
     Inspector General Academy. OIG investigative staff continued to contribute
to the Inspector General Academy’s “Editing Investigative Products Training
Program,” teaching a module on English grammar and style under the supervision
of Executive Director Terry Freedy.




                                                                                           9
OIG Management Activities




                            Presentations

                                 AGA Professional Development Conference and Exposition. At the
                            Association of Government Accountants’ 52nd Annual Professional Development
                            Conference & Exposition, OIG presented information and participated in a panel
                            discussion regarding Federal Audit Committees: why federal agencies should have
                            them, and what rules they should follow. Our office was able to provide unique
                            insight regarding this matter, since NSF is one of the few federal agencies that has
                            an audit committee, and our IG reports to the Audit and Oversight Committee of
                            the National Science Board. This topic was of particular interest to the audience
                            because of the new Sarbanes-Oxley law and its implications for the audit community.
                                 OIG Meets with Universities, Small Businesses. During this reporting
                            period, OIG conducted several outreach activities to help raise awareness of
                            compliance issues among NSF grantees. We visited three universities, where we
                            discussed university misconduct policies with administrators, undergraduate and
                            graduate students, and faculty. We explored with administrators what constitutes
                            an effective misconduct policy and how a policy can be formulated to encourage
                            people to bring complaints forward. For example, a university policy might assure
                            complainants that their identity would be kept confidential and that if desired, they
                            could seek the support of their Chair or Dean for bringing an allegation forward.
                                 We also recommended that university misconduct policies state that the specific
                            agency making the grant should be contacted regarding allegations, to avoid delays
                            in case processing.     For example, the Office of Research Integrity, which only
                            handles allegations regarding the Department of Health and Human Services, often
                            receives allegations related to other agencies’ grants. Finally, we discussed the
                            expectations of the community for the present government-wide misconduct policy
                            and NSF’s misconduct regulation, and encouraged the universities to establish a
                            record retention policy for research records created by its researchers.
                                 In discussions with students, we explained general OIG procedures, defined
                            misconduct, discussed data sharing and ownership issues, and conducted case studies.
                            In one session with undergraduates, we had an opportunity to focus on the philosophy
                            behind research ethics, as well as present case studies intended to foster a pragmatic
                            approach to the resolution of misconduct issues.
                                  We also continued our outreach efforts to small business grantees by
                            participating in the 2003 Phase I Grantees Workshop sponsored by the Small Business
                            Innovation Research / Small Business Technology Transfer (SBIR/STTR) programs.
                            We focused on issues that are common with small business grantees and how these
                            grantees can avoid compliance problems.
                                 Assisting NSF with FMFIA briefings. The Federal Managers Financial
                            Integrity Act (FMFIA) requires that all federal agencies assess their management
                            controls and provide an assurance statement on the condition of those controls on


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                                                                   OIG Semiannual Report    September 2003




an annual basis. The self-assessment process raises awareness among managers of
the importance of good internal controls and surfaces problems at an early stage.
During this reporting period, one of our senior audit managers briefed NSF staff on
audit risk-assessment techniques and how these techniques can be used in the annual
FMFIA annual assurance process.

Publications

      Interns Develop Outreach Publications, Facilitate OIG Work. OIG
summer interns enhanced our outreach efforts by producing two brochures, one
booklet, and one poster. They also developed a database of our civil and criminal
cases, from the inception of NSF OIG in 1989 through the present that will assist
us in preparing proactive reviews aimed at identifying activities or types of grants
that are at risk for fraud. The characteristics of the various cases were summarized
and depicted in the brochure and poster, and highlighted in several case studies.
     Our interns also worked with the Federal Trade Commission to produce a
brochure and a booklet for NSF on Identity Theft. These materials will be distributed
to NSF employees at new employee orientation and during the NSF OIG Open
House. Our interns further facilitated our work by developing the agenda for the
Grant Fraud Working Group meeting to be convened in October, implementing a
plagiarism detection program that will facilitate our investigation of these allegations,
and analyzing our process for gathering evidence within research misconduct cases.




                                                                                              11
OIG Management Activities




                   12
                                                            Audits & Reviews

Significant Reports

Financial Statement Audit and Review of
Information Systems
     Improving financial management and information security has
been an important priority of the federal government for many years.
The President’s Management Agenda identified improved financial
management as one of its five government-wide initiatives. The
President’s goal is to ensure that federal financial management systems
produce accurate and timely information to support operating, budget,
and policy decisions.
     Since 1990, Congress has enacted several laws intended to
improve federal financial management and information systems
security. The Chief Financial Officer’s (CFO) Act of 1990, as amended,
requires that federal agencies prepare financial statements and that
each agency’s OIG, or an independent public accounting firm selected
by the OIG, audit these statements annually. The Federal Information
Security Management Act of 2002 (FISMA) requires agencies to
perform annual reviews and report to the Office of Management and
Budget on their information systems’ security programs. In addition,
Inspectors General are to provide independent evaluations of the
information security programs and practices of their agencies.
     During this semiannual period we issued three reports on work
performed for NSF in accordance with the CFO Act and FISMA: the                     HIGHLIGHTS
FY 2002 Management Letter Report, the FY 2003 Federal Information
Security Management Act (FISMA) Independent Evaluation Report,             Significant Reports    13
and the FY 2003 FISMA Evaluation Summary Report.
                                                                           Corrective Actions
The FY 2002 Management Letter Report                                       Prompted by Previous
                                                                           Audits                 23
     The FY 2002 Management Letter Report provides details on internal
control findings identified during the FY 2002 financial statement audit   Work in Progress       26
(see discussion of audit in the March 2003 Semiannual Report, p. 17).
The Report again identifies two areas of significant concern: post-award   A-133 Audit Reports    27
management, and cost accounting.

                                                                           13
Audits & Reviews




                        Post-Award Management: Although NSF has a robust system of award
                   management over its pre-award and award phases, NSF does not have a
                   comprehensive and systematic risk-based grants management program for monitoring
                   grants once they are issued. As a result, awardees’ use of federal funds may not be
                   consistent with the objectives of the grant; programs and resources may not be
                   protected from waste, fraud and mismanagement; laws and regulations may not be
                   followed; and reliable and timely information needed for decision makers may not
                   be obtained.
                        In FY 2002, NSF initiated steps to improve post-award monitoring including
                   the development of a Risk Assessment and Award Monitoring Guide that includes
                   post-award monitoring policies and procedures, a process for identifying high-risk
                   awardees, and various techniques for analyzing the risks associated with grantees.
                   However, the audit found that the procedures in the Guide needed to be improved
                   and implemented before effective monitoring can take place. For example, the
                   Guide needed more comprehensive criteria for identifying high-risk grantees including
                   additional factors such as poor financial award management or poor program
                   performance on previous grants.
                        Also, NSF’s procedures for conducting on-site reviews lacked sufficient detail
                   describing how they are to be conducted and documented, how key financial risk
                   areas will be analyzed, and how the grantee internal control systems will be evaluated.
                   The guidance does not include follow-up procedures for addressing concerns raised
                   as a result of the on-site reviews. Finally, in implementing the guidance NSF did
                   not use a consistent methodology for conducting on-site reviews. NSF management
                   concurred with substantially all of our recommendations concerning post-award
                   monitoring.
                         Because NSF funding at many institutions does not meet the threshold to require
                   audit coverage under OMB’s Circular A-133, Audits of States, Local Governments and
                   Nonprofit Organizations, effective post-award monitoring is imperative to ensure the
                   integrity and accuracy of grantee expenditures reported in the NSF financial
                   statements. Currently, grantee expenditures represent approximately 90 percent of
                   total NSF expenditures in any year. In addition, the recent enactment of the Improper
                   Payments Act of 2002 requires federal agencies to assess risk and estimate potential
                   erroneous payments at awardee organizations, responsibilities that require a stronger
                   award oversight role on the part of NSF.
                         Accordingly, while NSF is taking action to improve its post-award management,
                   a strong commitment by NSF senior management to provide the leadership and the
                   appropriate resources for this task is needed to address this significant and continuing
                   issue.
                        Cost Accounting: The FY 2002 Management Letter also identified an internal
                   control finding related to cost accounting. NSF needs to develop a meaningful cost
                   accounting architecture that will provide accurate and timely information to support


          14
                                                                   OIG Semiannual Report    September 2003




management decision-making including information to assess the full cost and
performance of its programs and activities. We have reported this issue in the
Management Letter Reports for the past three years and the Inspector General has
included cost accounting in her management challenges letter since FY 2001.
      The President’s Management Agenda (PMA) has also identified “Budget and
Performance Integration” as one of its five initiatives for improving government
performance. The goal of this initiative is to provide greater focus on performance
results and accountability, and to facilitate allocation of budget resources. It requires
agencies to track and report the full cost of their programs and associated
performance outcomes. Currently however, NSF’s financial and award systems do
not aggregate full cost data for its programs and projects. This makes monitoring
the full cost of a program or project difficult.
      Over the past year, NSF has been working with OMB to begin to address this
issue. On September 30, 2003, NSF submitted its revised strategic plan to Congress
as required under the Government Performance and Results Act of 1993. The
plan, which was previously approved by OMB, defines a program framework for
performance reporting purposes. The framework establishes investment categories
that tie to NSF’s strategic goals of People, Ideas, Tools and Organizational
Excellence. NSF has stated that its next step is to develop a full cost allocation
process that will link the costs of its programs to their performance.
     We will monitor NSF’s progress in implementing its post-award grant-monitoring
program and in developing a methodology for identifying the full cost of its programs
and their associated performance outcomes. OIG will report on the status of the
agency’s efforts to address these findings in the FY 2003 Financial Statement
Auditors’ Report and Management Letter Report to be issued in the upcoming
semiannual period.

FY 2003 FISMA Information Systems Reports

      During this semiannual period we also issued the FY 2003 Federal Information
Security Management Act (FISMA) Independent Evaluation Report and the FY 2003 FISMA
Evaluation Summary Report, which reported three findings that we identified as
significant deficiencies: 1) not all major information systems have been certified
and accredited; 2) the U.S. Antarctic Program information system security program
needs to be strengthened to meet federal requirements such as those related to patch
management and configuration standards; and 3) additional security policies and
procedures need to be implemented and enforced in all NSF directorates and offices.
These weaknesses in NSF’s security program could result in unauthorized access to
and modification of financial, programmatic, and other sensitive information; loss
of assets; and disruption of critical operations.




                                                                                              15
Audits & Reviews




                         Despite these deficiencies, the FY 2003 Independent Evaluation Report also
                   indicated that NSF had made significant progress in developing, refining, and
                   implementing its information security program. Since the issuance of the FISMA
                   Independent Evaluation Report, NSF has informed the OIG that as of September 30,
                   2003, 18 of the 19 of its major systems have been certified and accredited.
                   Management generally agreed with the findings and recommendations in these reports.
                   However, NSF does not agree that the findings rise to the level of a significant
                   deficiency designation because they do not believe that they represent a weakness
                   in a policy, procedure, or practice that materially impacts the effectiveness of the
                   entity-wide security program.


                   Committees of Visitors Provide
                   Useful Information to NSF Managers
                         In September we issued our report on the results of our audit of NSF’s
                   Committees of Visitors (COVs). NSF relies on these committees of external experts
                   from academia, industry, and the public sector to evaluate the quality of NSF’s
                   management of its research and education portfolio of awards, and to assess the
                   performance of its grant programs. The COVs also provide NSF with expert
                   judgments about the extent to which agency programs contribute to NSF attaining
                   its strategic goals under the Government Performance and Results Act of 1993
                   (GPRA).
                         The audit found that COVs provide a valuable service to NSF by performing
                   independent assessments of the quality and management of its award portfolio, as
                   well as the programs’ contributions to the overall accomplishment of NSF’s mission.
                   The COV reports provide NSF with important feedback on its programs and make
                   constructive suggestions and recommendations for improvement. For example,
                   program managers have used COV recommendations to improve how the agency
                   documents the accomplishments of principal investigators. However, NSF does
                   not have a process to document how it has responded to recommendations in the
                   COV reports. As a result, the benefits of the COV process, particularly given NSF’s
                   transient workforce, could be lost and the recommended improvements could be
                   overlooked.
                         Additionally, in its GPRA performance reports provided to Congress and the
                   Office of Management and Budget, NSF does not clearly disclose the limitations of
                   data upon which the reports rely. For example, NSF relies on COV’s ratings of its
                   strategic goals and indicators in measuring its performance. However, the COV’s
                   ratings were incomplete in that not all strategic goals and indicators were rated. Yet
                   NSF did not adequately discuss this data limitation in its FY 2001 performance
                   report.
                        Further, changes made to NSF’s performance data and collection process in


          16
                                                                    OIG Semiannual Report    September 2003




FY 2002 raise new concerns about the objectivity of its performance reports. NSF
established a new external advisory committee to assess its success in achieving
strategic goals and indicators. To conduct the assessment, the committee relied
primarily on the COV reports and “nuggets,” i.e., examples of noteworthy or
significant research, engineering and education outcomes, judgmentally selected for
the committee by NSF. NSF did not adequately disclose this limitation in its FY
2002 performance report. As a result, decision makers and other users of NSF’s
performance reports may be unaware of the data limitations and may not be able to
adequately judge the methodology and reliability of the data used to assess NSF’s
performance.
     To address these issues, we recommended that NSF require its directorates to
document whether or not they implemented the COV recommendations with their
rationale, and that NSF provide the next COV with the written record of actions
taken regarding the previous COV recommendations. Furthermore, to ensure that
decision makers are fully able to judge the reliability of the data used to assess
NSF’s performance, we recommended that NSF disclose in its GPRA performance
reports all limitations in the data collection and reporting process. Although NSF
does not agree with our characterization of judgmental sampling as a limitation of
its GPRA reporting process, the agency has agreed to implement the report’s
recommendations.


NSF Awards for International Programs
     NSF estimates that five to ten percent of its annual budget (between $240 to
$480 million in fiscal year 2003) is invested in activities with significant international
scope. The vast majority of these funds go to U. S. institutions to support international
activities and collaboration, but
approximately $60 million was
awarded directly to foreign
institutions during fiscal years
1998-2002. NSF believes that by
bringing together people from
different countries and diverse
backgrounds with a wide variety of
infor mation, expertise, and
resources, there is the potential to
foster creative solutions to
important global research Auditors Jeff Salisbury and Joyce Werking visit an
problems. Also, many scientific          international science organization that receives
                                                           NSF funding.
tools,      such       as     large
instrumentation and facilities, are
affordable only through international partnerships. Thus, NSF anticipates that the
funding allocated to international scientific activities will increase.

                                                                                               17
Audits & Reviews




                         Notwithstanding the many benefits of international research programs, NSF
                   awards made directly to foreign institutions are at increased risk for financial problems
                   and lack of compliance with award requirements. Foreign organizations are less
                   likely to understand U. S. grant requirements and are accustomed to different
                   accounting practices and standards in their countries. Furthermore, NSF processes
                   that are typically applied to awarding and administering domestic grants may not be
                   appropriate for the unique nature of most foreign funding arrangements.
                         Therefore, we plan to audit four foreign organizations that directly received
                   $46 million (76 percent of total awards made directly to foreign institutions) during
                   fiscal years 1998-2002. The audit objectives are to evaluate the adequacy of NSF
                   processes and controls for awarding and monitoring foreign institutions and to
                   determine whether foreign grantees are administering their awards in accordance
                   with NSF terms and conditions. During this reporting period, we completed one of
                   the audits, as discussed below, and are continuing audit work at two other recipient
                   organizations.

                   NSF Management of Grants To Foreign
                   Organization Needs Improvement

                        In September, we issued our report on an audit of a foreign organization that
                   since 1993 has received $6.5 million in NSF awards. The NSF funds represent the
                   United States contribution to the operating costs of the organization. Fifty other
                   countries also support the organization, which coordinates global change research.
                         While the audit did not disclose any misspending, it did identify weaknesses in
                   NSF’s procedures for managing and monitoring foreign grants. NSF grant award
                   letters were unclear as to what organization was the grantee institution, and whether
                   or not NSF had verified the legal status of the foreign organization. Further, NSF’s
                   grant agreements inappropriately allowed the foreign organization to commingle its
                   NSF funds with other revenue sources rather than requiring separate accounting for
                   NSF’s awards.
                         Additionally, the agreements did not establish financial accountability for $1.3
                   million the awardee was directed to pass through to two other foreign organizations.
                   As a result, NSF had little assurance that subrecipient expenditures were properly
                   spent for authorized grant purposes and limited recourse if grant funds were misspent.
                   NSF was effectively precluded from fulfilling its oversight responsibilities for
                   monitoring grant expenditures to ensure funds were spent in compliance with federal
                   and NSF policies and procedures.
                        The report identified several reasons for NSF’s weak grant administration
                   procedures. In particular, NSF staff did not adapt their normal procedures and
                   practices to allow for the unusual nature of the awards. NSF was not able to
                   demonstrate what documentation it requested or reviewed to make a determination


          18
                                                                   OIG Semiannual Report    September 2003




of the legal status of these foreign institutions. Furthermore NSF’s grant agreements
did not address the unique circumstances of the award, as a contribution in support
of the overall infrastructure of a foreign organization rather than for specific research
projects. Instead, NSF modified its standard cost reimbursable grant agreement,
typically used for domestic research awards, without addressing the implications for
financial compliance that flowed from these modifications.
      We recommended that NSF: 1) ensure that its grant officers follow existing
procedures to verify and document the legal status of new foreign awardees;
2) notify its intended foreign awardee institution of federal grant requirements and
assess its understanding of these requirements; 3) use a fixed amount award
instrument for foreign contribution type awards and perform a rigorous preaward
analysis of proposed grant costs; and 4) identify an organization, having legal status,
that will accept the pass-through grant funding to the foreign subrecipient organization
and establish an award agreement that will contractually obligate that subrecipient
to comply with NSF award terms and conditions.
      NSF disagreed with our finding that its awards were to a foreign organization
with no legal standing, but did not take a position with respect to the other audit
findings and recommendations. Nevertheless, pursuant to recommendations included
in our draft audit report, NSF has taken some corrective actions, including developing
new foreign grant terms and conditions and changing the name of the awardee
institution cited in its grant award letters. We have revised the final audit report and
recommendations to reflect these corrective actions. NSF is currently considering
our final audit report and we will continue to work with them in resolving the
recommendations.


A Western University Inappropriately Claims
$1.4 Million For Reimbursement
     A western state university inappropriately recovered $1.43 million in routine
administrative and indirect type costs greater than the maximum allowed under federal
regulations. We reviewed these research management services (RMS) costs claimed
by the university from July 1994 to April 2001 to determine whether these costs
were allowable as direct grant charges. The university incurred RMS costs in carrying
out administrative functions such as payroll, purchasing, travel-forms processing,
award-expenditure monitoring, project accounting, and the receiving and inventorying
of supplies. Although federal regulations consider RMS costs to be indirect
administrative support services costs recoverable through an institution’s facilities
and administrative (F&A) rate, the University charged these costs separately as direct
costs to federal awards.
      NSF first questioned the appropriateness of the university adding RMS charges
as direct costs to its award proposals in July 1994. In July 1995, NSF directed the


                                                                                              19
Audits & Reviews




                   university to obtain written approval from the Department of Health and Human
                   Services (HHS), its cognizant federal agency for audit, before including RMS charges
                   on future proposals. In January 1997, HHS concluded that the university’s RMS
                   costing methodology did not comply with federal grant regulations for direct-charging
                   of administrative and clerical costs to federal awards. However, the university
                   continued to direct-charge RMS to NSF awards while simultaneously recovering
                   the full amount of administrative support service costs allowed through its approved
                   F&A cost rate.
                        Since the issuance of our May 2003 audit report, NSF has been working with
                   the university to resolve the $1.43 million of questioned RMS costs. To date, the
                   university has agreed to return $1.17 million to NSF, but believes that $262,339 is
                   allowable under federal regulations. We will continue to work with NSF in resolving
                   the audit finding.


                   A Management Framework for Effective Award Monitoring
                         We reported on the results of our study of practices used by eight federal,
                   state, and private grant-making organizations to administer and monitor their awards,
                   during this period. Given the increasing size and complexity of its award portfolio
                   and its limited staffing, NSF is challenged to adequately monitor its awards. This
                   study was intended to assist NSF in meeting this challenge by reporting on the
                   award administration activities that other grant-making organizations have found
                   effective.
                        The study used the basic management control framework developed by the
                   Committee of Sponsoring Organizations of the Treadway Commission (COSO), a
                   voluntary private sector organization dedicated to improving the quality of financial
                   reporting through business ethics, effective internal controls, and corporate
                   governance. In this internal control framework, we identified a set of 6 management
                   principles for effective award monitoring, and within each principle, identified 15
                   policies and practices of the grant-making organizations that best exemplified those
                   principles.
                         The management framework notes that fundamental to an effective award
                   monitoring program is senior management’s recognition of the importance of this
                   activity, as well as its willingness to commit time and resources to support monitoring.
                   Accordingly, the first two principles, establishing senior management commitment
                   and vision and establishing an effective organizational structure, are the basic building
                   blocks for a successful award-monitoring program. Within those fundamental
                   principles, objectives for award administration and monitoring are specified, and
                   award monitoring roles and responsibilities are defined for both financial and
                   programmatic oversight personnel.



          20
                                                                  OIG Semiannual Report   September 2003




     The next three principles call for: implementing award monitoring policies and
procedures; training personnel on their roles, responsibilities, and procedures for
monitoring awards; and using information systems to facilitate and automate award
monitoring. Within these principles, practices such as establishing risk-based award
monitoring policies and procedures, and developing policies for managing known
high-risk awardees are noted.
      Finally, the framework states that management should periodically evaluate its
own processes to ensure that the objectives of the monitoring program are being
carried out effectively and efficiently. Collectively, the practices and methods used
by these organizations provide a strategic management framework for effectively
monitoring awards. We are hopeful that our report will assist NSF in improving its
award monitoring procedures.


Indirect Cost Rate Audits Projected To Save
Government $5.3 Million
      Approximately one-third, or $1.6 billion of the more than $5 billion of costs
incurred annually on NSF awards, are indirect costs. Based on both our own risk
assessments and NSF recommendations, OIG has selected twelve indirect cost
proposals submitted by NSF awardees for audit. In total, these awardees received
$41.4 million of federal funding in FY 2001, which included approximately $14
million for indirect costs. Of the eight audits that have been completed to date, we
have found that awardees have overstated their indirect cost rates by as much as 45
percentage points. We estimate that NSF could save about $2.2 million and the
federal government more than $5.3 million over five years, when NSF negotiates
future indirect cost rates with these awardees based on the unallowable indirect
costs and other issues identified during our audits.
      During this reporting period, we completed three of these audits. We found
that one scientific organization included $450,202 of unallowable costs in its indirect
costs pools. The unallowable costs included such items as the salary for an investment
manager, charitable contributions, gifts, artwork, alcohol, fines, and penalties. The
awardee did not offset $948,794 of revenues against associated costs included in
the indirect cost pools, thus simultaneously recovering the same costs from revenue
and through the indirect cost rates. The awardee also incorrectly excluded $1.7
million of stipends for postdoctoral associates and fellows from the direct cost base.
These errors resulted in the awardee overstating its proposed indirect costs rates by
an average of 12 percentage points.
     Another audit of a botanical garden that received an NSF award overstated its
proposed indirect cost rates by 45 percentage points by incorrectly including the
costs to maintain its botanical gardens in the indirect cost pool. Although plant
preservation and maintenance (i.e., curatorial costs) support research at the botanical


                                                                                            21
Audits & Reviews




                   garden, this curatorial activity is part of the garden’s core mission and should not be
                   allocated to federal awards through indirect cost rates in accordance with federal
                   guidelines. The botanical garden included over $4.0 million or 51 percent of these
                   mission related costs in its indirect cost pools over two years, resulting in the
                   overstated indirect costs rates.
                         A third audit found that a natural and cultural history museum overstated its
                   indirect cost rate by 5 percentage points because it included $534,929 of unallowable
                   costs such as depreciation on government-funded assets, advertising, fundraising,
                   and entertainment in its indirect cost pool. The museum also excluded $271,839 of
                   costs for advertising, rental, and entertainment costs that should have been included
                   in the direct cost base. Although these costs were for unallowable activities, they
                   nevertheless should have been treated as allocated indirect costs by including them
                   in the indirect cost base. The costs were incurred to generate revenue and benefited
                   from the museum’s indirect activities.
                         In general, these errors occurred because the organizations did not understand
                   the federal requirements for preparing indirect cost proposals, had inadequate
                   accounting systems to segregate direct and indirect costs, and lack the necessary
                   documentation to support the classification of costs as either indirect or direct
                   activities. We made a number of recommendations to address the internal control
                   weaknesses and compliance deficiencies. Although the awardees generally agreed
                   with our recommendations to strengthen the internal controls over the process for
                   developing the indirect cost rates, they mostly disagreed with recommendations
                   that would result in reducing their indirect cost rates. We referred the audit reports
                   to NSF’s Division of Acquisition and Cost Support for audit resolution.


                   Audits of Community Colleges
                        Community colleges historically have received approximately $30 to $40 million
                   in annual NSF funding. Our prior audits of community colleges have identified
                   questioned costs and grant accounting control weaknesses. To assess the extent of
                   these problems, we initiated audits over the past two years at 14 community colleges
                   that had received 78 NSF awards totaling about $46 million.
                         In our September 2002 Semiannual Report (pp. 24-26), we reported on the
                   results of four community college audits. We identified significant weaknesses in
                   some of the colleges’ systems of accounting for and administering a total of $9.8
                   million in NSF awards. Since then we have completed an additional four audits of
                   community colleges. Similar to our prior audits, we found that the colleges had
                   weaknesses in the areas of cost sharing, subawardee monitoring, and labor activity
                   reporting.
                         In particular, the colleges did not have either the primary documentation for,
                   or an adequate system to track, $14.1 million or 71 percent of their claimed costs


          22
                                                                 OIG Semiannual Report   September 2003




and cost sharing. Two colleges did not track or record any of their $11.5 million of
required cost sharing. Two colleges did not have adequate subawardee monitoring
procedures to ensure the accuracy and validity of $1.7 million or 46 percent of the
total in expenditures that their subawardees claimed on the NSF awards. In addition,
one college did not maintain labor activity reports to support its over $900,000 in
salary and wage and related fringe benefit costs, representing 32 percent of the total
claimed costs.
     Without adequate primary documentation, we had to perform significant and
costly additional audit procedures in order to determine the allowability of the costs
claimed by these community colleges. These additional procedures involved
interviews and extensive crosschecking of alternative records and information. While
the audits were able to eventually substantiate all but $300,000 of the NSF funded
costs and $1.2 million of the cost sharing claimed under the NSF awards, neither
the colleges nor NSF have assurance that the existing grants management accounting
and control systems at these colleges ensure the propriety of costs claimed under
NSF awards. Currently, the four colleges have 14 active awards valued at over
$10.7 million. Overall the colleges agreed to take actions to correct the weaknesses
identified in these reports, as part of the audit resolution process.


Corrective Action Prompted by Previous Audits

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

     In prior semiannual reports, we have reported on two audits of NSF’s financial
management of its large facility projects. While NSF continues to make progress
towards implementation, many of the recommendations associated with these two
audits remain unresolved. The recommendations in our initial report on NSF’s
financial management of large facility projects focused on enhancing NSF’s oversight
of these projects by updating and expanding existing policies and procedures to
improve project management. Our subsequent audit recommended that NSF ensure
that its projects remain within authorized funding levels, and that the means be
developed to make accurate and complete information on the total costs of major
research equipment and facilities available to decision makers.
     NSF has made progress toward implementing the original recommendations.
Most notably, it appointed a Deputy Director for Large Facilities Projects Management
and Oversight during this semiannual period. However, while a corrective action
plan is in place and progress is being made, key actions from both audit reports
remain unresolved. A major feature of NSF’s corrective action plan is the
development of a Facilities Management and Oversight Guide. Earlier this year,
we provided NSF with our comments on a draft version of the Guide, noting that

                                                                                           23
Audits & Reviews




                   the Guide needs to contain more practical and detailed guidance for Program Officers
                   doing the day-to-day work. Moreover, we noted that the Guide does not address
                   recording and tracking the full cost of large facility projects.
                        In July 2003, NSF issued the Guide in final form, and informed us that it plans
                   to provide the detailed guidance we suggested through the development of on-line
                   modules that will supplement the Guide. The modules will contain in-depth
                   discussions of topics such as financial management, risk management, and the roles
                   and responsibilities of NSF management and the awardee. According to the Guide,
                   these detailed modules will not be available for use until Fall 2003. Once these
                   supplemental modules are completed and published, we will reassess whether the
                   Guide and the modules together adequately address the audits’ recommendations.

                   Resolution of Recommendations for Antarctic
                   Infrastructure Planning

                        In March 2003, we issued our report on the audit of the Occupational Health
                   and Safety and Medical Programs in the United States Antarctic Program (USAP).
                   Although our primary finding was that the programs generally protect the overall
                   health and safety of USAP participants, we noted several opportunities for
                   improvement. We recommended that NSF initiate life cycle planning for the aging
                   USAP facilities and infrastructure. By performing periodic planning for needed
                   maintenance, improvement, and replacement, NSF would be able to maintain the
                   structural integrity and soundness of the physical facilities and infrastructure
                   supporting the Antarctic researchers and contractors, thereby enhancing their
                   personal safety.
                         To ensure that the replenishment of these assets do not have to compete for
                   funding with day-to-day USAP operations or scientific research activities, we also
                   recommended that NSF fund this plan through a separate budget line item. NSF
                   disagreed with this recommendation, preferring instead to retain the flexibility of
                   its current practice of using its funds, as circumstances require. We continue to
                   discuss this recommendation with NSF management.
                         Finally we recommended that NSF: 1) develop and implement a formal work
                   center assessment program to identify hazards and conditions that contribute to
                   musculoskeletal injuries at specific work centers; 2) develop procedures for
                   overseeing the shipboard medical programs on the R/V Nathaniel B. Palmer and
                   the R/V Laurence M. Gould; and 3) ensure Raytheon’s compliance with its
                   contractual responsibility to provide emergency medical technicians (EMT) on board
                   these ships. NSF generally agreed with these recommendations and will complete
                   their implementation this fall.




          24
                                                                   OIG Semiannual Report    September 2003




Indirect Cost Audits Resolved

     During this reporting period, NSF successfully resolved 25 recommendations
in four indirect cost audits issued last semiannual period by ensuring that the awardee
organizations strengthened internal controls and developed procedures to help ensure
compliance with federal guidelines in developing indirect cost rates. For one awardee,
our recommendations will help save the federal government $86,200 of indirect
costs on future awards. For two other awardees, NSF sustained $49,271 of questioned
indirect costs, and the awardees have agreed to offset the questioned amount against
current costs or return the funds to NSF.
      NSF found that awardees had complied with our recommendations to develop
and implement policies and procedures for indirect cost proposal preparation and to
train their staffs on the federal requirements for preparing indirect proposals. These
corrective actions should help ensure that awardees: (1) correctly classify direct and
indirect costs to prevent future overcharges on indirect costs; (2) use revenue related
to indirect activities to reduce indirect costs; (3) properly allocate indirect costs by
excluding from the direct cost base certain unallowable items such as participant
support, equipment costs and subcontract costs; (4) record and retain adequate records
to support claimed indirect costs; and, (5) improve controls over labor effort reporting.
Each of these actions will help ensure that the federal government is charged for
only allowable indirect costs associated with each awardee.

Community Colleges Agree to Strengthen Internal Controls

      In this Semiannual (pp. 22-23) and our September 2002 Reports (pp. 24-26),
we reported on eight community college audits. In general, the colleges did not
consistently monitor subawardee expenditures, failed to comply with activity
reporting to indicate effort expended on NSF awards, and underspent participant
support without obtaining NSF prior approval. In addition, they did not consistently
document how consultants were selected, observe the statutory consultant maximum
daily rate of pay limitation, and record and report cost sharing on NSF awards as
required. Costs questioned as a result of these audits would have been greater, but
for the additional audit work performed at the government’s expense, to ensure that
the costs in question are allowable. During the resolution of the findings, the colleges
generally agreed to take corrective actions to address the issues raised during the
audits.




                                                                                              25
Audits & Reviews




                   Work in Progress

                   Audit of NSF’s Math and Science Partnership Program

                        We recently initiated an audit of NSF’s Math and Science Partnership Program
                   (MSP). NSF has been designated the lead agency on MSP, a key element of the
                   President’s initiative No Child Left Behind, aimed at strengthening and reforming K-
                   12 education. Through MSP, NSF plans to invest $240 million over 5 years for
                   partnerships between school districts and colleges and universities dedicated to
                   improving math and science education at the pre K-12 level. The program provided
                   approximately $160 million in FYs 2002 and 2003 to implement MSP projects.
                   This audit will examine how NSF plans to measure and evaluate the projects funded
                   by MSP, as well as how NSF oversees the programmatic and fiscal operations of the
                   projects after they receive their NSF awards. We expect to issue the audit report in
                   the next semiannual reporting period.

                   Quality Control Reviews of A-133 Audits

                        Non-federal entities expending more than $25 million a year in federal awards
                   ($50 million for fiscal years ending after December 31, 2003) have a cognizant agency for
                   audit, that is responsible for conducting quality control reviews (QCRs) of A-133
                   audits performed by non-federal auditors. As a cognizant agency, NSF is currently
                   responsible for 18 non-federal entities1. During this reporting period, we reviewed
                   auditors’ work for A-133 audits at two NSF awardees and expect to issue reports on
                   our reviews in the next semiannual report. In fiscal year 2004, we plan to complete
                   two more QCRs of A-133 audits. These reviews are part of a longer-term OIG
                   effort to assess the extent to which NSF can rely on the A-133 audits to provide
                   assurance that NSF awardees are properly accounting for and managing NSF funds.

                   Urban School District Reviews

                        In our September 2002 Semiannual Report (p. 22), we reported on four audits
                   of urban school district awardees under NSF’s Urban Systemic Program and Urban
                   Systemic Initiative (USP/USI). USP/USI Programs were established to strengthen
                   the science, mathematics, and technology education infrastructure of the nation’s
                   urban centers and represent a significant investment of NSF’s resources. Two audits
                   of these awardees identified financial management deficiencies, particularly in internal
                   controls over systems for cost sharing, payroll, and participant support costs.
                   Therefore, we have continued audits of the USP/USI awardees to determine the


                   1
                       The number will decrease to 11 with the change in threshold for 2004.

          26
                                                                  OIG Semiannual Report   September 2003




extent of these and other problems. Currently, we are conducting seven audits of
USP/USI awardees, three of which we plan to finish during this semiannual period.
The seven audits in process cover eleven awards, with a total value of more than
$83 million, and committed cost sharing of more than $231 million.


A-133 Audit Reports
      The Single Audit Act of 1984 (Public Law 98-502) and the Single Audit Act
amendments of 1996 (Public Law 104-156) established uniform requirements for
audits of non-federal entities receiving federal awards. Under the Act, non-Federal
entities that expend $300,000 or more a year in Federal awards are required to have
an organization-wide audit that includes the non-federal entity’s financial statements
and compliance with federal award requirements. OMB is increasing the threshold
from $300,000 to $500,000 effective for audits having fiscal years ending after
December 31, 2003. The non-federal entities are responsible for procuring these
audits and submitting the report
through the Federal Audit
Clearinghouse (FAC) within nine
months after the end of their fiscal
year. Single audits are usually
performed by an independent
public accountant or State auditor,
and must be conducted according
to     Government        Auditing
Standards. OMB Circular A-133,
“Audits of States, Local
Governments, and Non-Profit
Organizations” (the Circular) is the
implementing guidance for the Act
and sets forth standards for
obtaining consistency and
uniformity among federal agencies
for these audits.
     Audit Quality. NSF, like
other federal agencies, relies on the During a quality control review, auditor Jennifer
results of the single audit to           Agee inspects samples of the earth’s core
monitor the more than $5 billion        collected by the NSF funded Ocean Drilling
                                                          Program.
of awards it funds annually. Thus,
the quality of these audits is
important to enabling NSF to carryout its stewardship responsibilities. However, as
reported in our previous semiannual reports, recent Quality Control Reviews (QCR)


                                                                                            27
Audits & Reviews




                   conducted by other federal agencies has raised concerns about the overall quality of
                   these audits and the pervasiveness of the problem. Of particular concern is the
                   amount and quality of A-133 audit coverage NSF awards received, since these
                   awards tend to be small relative to the awardee’s other federal awards.
                         To address audit quality concerns, a government-wide project commenced in
                   FY 2003 to assess the quality of Single Audits and to provide a baseline for measuring
                   Single Audit quality in the future. The project will perform QCRs of a statistically
                   representative sample of A-133 audits and project the results to the universe of
                   single audits. Development of a sampling methodology and an evaluation instrument
                   are currently underway and the reviews are expected to begin in the spring of 2004.
                   OMB has requested funding for this project in the President’s FY 2004 budget.
                   Given the importance of the A-133 audits to NSF’s post award administration, the
                   OIG is participating in both the planning of the approach for this project and the
                   performance of the QCRs.
                        We also continue to participate in various federal A-133 audit groups including
                   the PCIE National Single Audit Coordinators and the AICPA Single Audit
                   Roundtable. These groups provide an opportunity for government single audit
                   coordinators and the private sector auditors to discuss current developments and
                   future directions for audits of federal awards.
                        Desk Reviews. In this reporting period, we reviewed 90 A-133 audit reports
                   with NSF expenditures of $1.1 billion for fiscal years 1998 through 2002. In total,
                   the auditors questioned $40,666 of NSF-funded costs and cost sharing claimed by
                   award recipients. Of the 90 A-133 reports reviewed, 57 contained reportable
                   conditions and non-compliance findings. The most common deficiencies related to
                   non-compliance with federal cost principles, unallowable costs, cash management,
                   equipment management, reporting, and subrecipent monitoring.
                         Our office also continued to examine Management Letters, which report internal
                   control weaknesses that are generally less significant than those reported in the A-
                   133 reports, but still require management’s attention. Our examination of
                   Management Letters in this reporting period identified 16 awardees with internal
                   control problems in the areas of financial management and information systems
                   related to NSF awards. Awardees cited for internal control problems may be at
                   higher risk for fraud, waste, and abuse.




          28
                                                                       Investigations

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


Civil and Criminal Investigations

Investigation Leads to Guilty Plea and Prison

      A researcher was sentenced to a year in prison after pleading guilty
to embezzling $202,000 in NSF grant money and other funds. In 1994,
a nonprofit organization engaged in scientific research and education
activities received a 5-year, $3.8 million grant to enhance local public
school teachers’ communication of science to their students. The
subject was hired to work under the grant as Co-Principal Investigator,
and spent the next 5 years embezzling funds and stealing items
purchased under the project.
     The organization became suspicious of the subject in 1999 and
began an internal review. He acknowledged the fraud uncovered by
the organization, but did not disclose the full extent of his fraudulent
activities, which were subsequently uncovered during the OIG                          HIGHLIGHTS
investigation. The organization allowed the subject to continue
                                                                             Civil and Criminal
working on the grant project, though it removed his ability to charge
                                                                             Investigations        29
expenditures to the grant and required him to repay the $108,497 over
the next 4 years. The organization reimbursed $56,676 to NSF, the
                                                                             Administrative
portion of the subject’s theft attributable to the NSF grant.
                                                                             Investigations        35
     After examining all of the organization’s records pertaining to
expenditures under the NSF grant, we found a large number of                 Proactive Reviews     41
suspicious transactions that had not been previously identified by the


                                                                             29
Investigations




                 organization. An extensive interview with the subject confirmed the full scope of
                 his fraudulent activities.
                      Slightly more than half of the subject’s fraud was accomplished by purchasing
                 items with NSF grant funds and other project-related accounts and taking them
                 home for his personal use, thereby committing the crime of conversion. The subject
                 converted literally hundreds of items over a period of five years. He habitually
                 used the VISA card issued to him for the project by the organization as if it were his
                 own, buying expensive clothing and jewelry for his wife, clothing and toys for his
                 children, and household items such as groceries, garden and pet supplies, and
                 hardware.
                       When the subject purchased items for his personal use that could plausibly be
                 considered as project-related (such as science-related children’s books), he accurately
                 identified them on the reimbursement form. For receipts that contained no
                 information about the nature of the store or the items purchased, the subject simply
                 made up explanations that sounded project-related. He also fabricated invoices
                 and receipts when the actual receipt or invoice would reveal that the items were
                 clearly for his personal use. An example is shown below.




                            The original receipt (left) indicates that the subject bought furniture
                          for his home using the organization’s VISA card. The document on the
                               right was fabricated using a blank receipt from the store pad.




        30
                                                                  OIG Semiannual Report   September 2003




     The subject also embezzled funds from the grant. For a 2½-year period when
his wife worked on the project, the subject filled out her timesheets with falsified
hours and forged her signature. Although the subject kept no records of the hours
his wife actually worked, based on his testimony it is estimated that the subject
embezzled approximately $83,646.
     Based on his admissions and the extensive evidence against him, the subject
agreed to plead guilty to one count of violating 18 U.S.C. § 666, “theft or bribery
concerning programs receiving federal funds.” The Government and the subject
agreed that the amount of loss was $202,000. The subject sought a reduction of the
sentence range mandated by the U.S. Sentencing Guidelines, arguing diminished
mental capacity. The subject’s expert diagnosed him as suffering from bipolar disorder,
and urged the court to absolve the subject of all responsibility for his crimes.
However, an expert retained by the Government noted that, regardless of whether
the subject is or was suffering from bipolar disorder, his condition did not impair his
mental abilities between 1994 and 1999 in the manner required for a reduction
under the Guidelines. The court rejected the subject’s request for a reduction and
sentenced him to serve 1 year in prison, followed by 2 years of supervised release.
He was also ordered to pay restitution to NSF in the amount of $93,503, in addition
to what had been previously repaid.

NSF Employee Refuses to Cooperate With Investigation

      An NSF employee sold stolen property thru the agency’s electronic bulletin
board (EBB) and then refused to cooperate with a subsequent investigation. OIG
has recommended that her employment be terminated. The investigation was opened
when a number of identical electronic devices were advertised for sale on the EBB
at a steeply discounted price. Current NSF policy permits employees to use NSF
resources, including the EBB, if there is no cost to the agency and the use is neither
illegal nor in promotion of personal business interests. In this case, advertising
several identical items seemed consistent with conducting a business, and prompted
OIG to investigate.
     In the course of the investigation, the employee provided serial numbers for
two of the electronic devices sold through the EBB, from which we determined that
they were part of a stolen shipment. During questioning, the employee acknowledged
placing the advertisement on the EBB, but refused to tell investigators where she
got the items and to whom she sold them. All efforts to identify the source of the
items and the subsequent purchasers by other means were unsuccessful. The
employee repeatedly refused to cooperate with our investigation, even after she was
informed of NSF’s policy requiring full cooperation with OIG investigations.




                                                                                            31
Investigations




                 South Pole Computer Security Is Compromised in
                 Three Incidents

                       The U.S. Antarctic Program experienced three separate computer related
                 incidents in as many months. In the most serious incident, NSF received an email
                 from a hacker stating that he had breached the South Pole Station network. The
                 hacker claimed to have downloaded everything on the network and threatened to
                 sell the information to “the Russians or the media” if NSF did not pay him. A joint
                 investigation with the FBI resulted in the arrest of two computer hackers in Bucharest,
                 Romania. The hackers are awaiting trial in Romania, pursuant to cyber-crime related
                 violations and extortion.
                       In another incident, a grantee’s computer servers at NSF’s Admundson Scott
                 South Pole Station were defaced by a hacker. The intrusions exploited vulnerabilities
                 in the servers’ operating system (which had not been upgraded) as well as inadequate
                 firewall rules. While this hack did not threaten the safety of station personnel or
                 continued operations, we were concerned because other systems share the same
                 network and could have been affected had the intruder introduced a hidden program.
                      Finally, it was reported to NSF that a computer on its U.S. Antarctic Program
                 network had been compromised and was part of a drone network, meaning it could
                 be used to commit a Distributed Denial of Service attack. The machine was a
                 personal laptop owned by a grantee working at McMurdo Station. Apparently, no
                 operational systems were affected, and the compromised machine was promptly
                 removed from the network. This incident highlighted the need for procedures to
                 ensure that compromised machines do not connect to NSF’s networks.

                 Investigation of Cost-Sharing Concerns

                       A Principal Investigator submitted a final report to NSF stating that required
                 cost-sharing funds were not used to upgrade the computer as proposed. We asked
                 that the university supply us with financial documentation to support the costs
                 associated with the grant. While assembling the documents, the university confirmed
                 that, it had not fulfilled its cost-sharing requirement.
                      As part of its reply, the university expressed a strong desire to correct its
                 oversight and included several proposals for corrective action. We forwarded these
                 proposals to NSF’s Division of Grants Administration for comments and approval.
                 NSF decided that the university would be permitted to purchase the computer
                 equipment initially identified to fulfill the cost-sharing requirement for the original
                 grant and provide continued support to current grants in the same research field.
                 The university was notified and agreed to provide funds totaling approximately
                 $42,000 for the purchase of the computer upgrades.




        32
                                                                    OIG Semiannual Report    September 2003




Over $100,000 in Grant Funds Are Restored

     A university returned over $100,000 in funds that were incorrectly charged to
a grant as the result of an OIG inquiry into two allegations that NSF grant funds
were spent for unauthorized projects.
     The first allegation was that various claimed costs that went primarily for supplies
were inflated and billed to grant accounts, with the funds transferred to other university
unrestricted accounts for use by the department. We found that the university had
been informed of the allegation and audited the NSF grants associated with the
department. The audit did not identify any specific wrongdoing on the part of
university staff, but did find $16,770 in unsupported costs that we confirmed were
returned to the grant. In response to the audit report, the university also implemented
new procedures for allocating supply expenses to various grant accounts.
      The second allegation asserted that a Principal Investigator (PI) for an NSF
grant had improperly charged approximately $18,000 in labor and other indirect
costs to the NSF grant. It was alleged that on two occasions the PI billed the NSF
account to pay employees for work performed for his private company, and that the
PI’s lab was being financially mismanaged, with an operating deficit in excess of
$1.5 million.
     We requested that the university conduct an audit of the labor costs associated
with the NSF grant at issue. The audit report identified a total of $95,606 in labor
charges and associated indirect costs that were inappropriately charged to the NSF
grant account, due to poor financial management of the lab. There was no information
or evidence to indicate that the incorrect charges were intentional or involved any
potentially criminal activity. Based on the audit findings, the university returned
$95,606 to the active grant account to be used in accordance with the grant
conditions, and implemented appropriate corrective actions.

NSF Places Research Company on Cost-Reimbursement
Status

      At OIG’s recommendation, NSF placed a for-profit research firm on cost-
reimbursement status because of inadequate accounting. We received an allegation
that the company had over-billed NSF for hotel and meal expenses. At our request,
the company retained an outside auditing firm that determined that the company’s
accounting procedures, systems, and supporting documentation were flawed and
did not provide adequate information about expenditures. The review also revealed
numerous other problems with the company’s accounting system. Although our
review of company records and interviews with employees raised additional concerns
regarding the management of the federal funds, we found no evidence of fraud.




                                                                                               33
Investigations




                      The company agreed to establish adequate accounting systems and to reconstruct
                 accounting records for NSF awards to comply with the grant terms and conditions.
                 Based on the company’s unreliable records and poor management of NSF award
                 funds, we recommended that NSF place the company on a Reimbursement Payment
                 Agreement. We plan to monitor the company for a period of one year to assess
                 progress in complying with the imposed cost reimbursement payment agreement.

                 Grantee University Works to Develop Sound Internal
                 Audit System

                      In connection with an $812,494 settlement of a case against a major
                 northwestern university, OIG conducted a review of the questionable internal control
                 policies and procedures involved in the matter. The university had adopted a
                 corrective action plan as part of the settlement of a previous case with another
                 federal agency. However, when reviewing the university’s internal investigation
                 report, we identified a number of problematic controls including: 1) inadequate
                 documentation for time and effort, personnel and equipment charges, cost sharing,
                 and program income; 2) commingling of federal project charges and of private and
                 federal funds; 3) inadequate review of conflict-of-interests issues; and, 4) absence
                 of employee training in the relevant areas.
                        At our request, the institution conducted an independent audit of its systems
                 to ensure that the controls in question provide reasonable assurance of good
                 management. The audit was reviewed and approved by an external reviewer. The
                 audit found that many of the university’s systems that were established as part of
                 the corrective action plan worked to ensure compliance with federal regulations,
                 but it also noted that there were still instances where quarterly effort certification
                 cards were not always completed, and effort reported as cost sharing was not
                 accurately recorded. It also found that purchases from the university storehouse
                                                                 were not adequately justified and that
                                                                 follow-up was needed to ensure the
                                                                 accuracy of annual internal activity
                                                                 reports. Finally, the university found
                                                                 some instances in which annual
                                                                 technical reports were not submitted
                                                                 timely to federal agencies. The
                                                                 university stated that for the instances
                                                                 where it was not in compliance with
                                                                 its internal policies or its policies
                                                                 needed revision, it had developed
                                                                 resolutions to the problems. The
                                                                 external reviewer concurred with the
                  Dr. Boesz congratulates Barbara Palmer for her results of the audit and the university’s
                     35 years of distinguished federal service.  proposed resolutions.


        34
                                                                OIG Semiannual Report   September 2003




NSF Program Assistant Fabricates Jury Duty Notice

     We received an allegation that an NSF program assistant (PA) asked a colleague
to create a jury duty notice to justify the PA’s absence from work. Accompanying
the allegation were two supporting documents: a copy of an apparent jury duty
notice from Prince George’s (PG) County, Maryland; and an email message from the
PA to the colleague containing the same PG County logo as appears on the jury duty
notice.
     We determined that the jury duty notice had been fabricated by the PA and
intentionally submitted to receive salary for a day she did not work. We reported
our findings and conclusions to the PA’s division director and recommended that
appropriate action be taken.

NSF Proposes Debarment of University Grant Administrator

      In our March 2003 Semiannual Report (Page 34) we reported that an A-133
audit revealed that a university grant administrator fraudulently charged $235,000
to various university accounts. The administrator pled guilty and was sentenced to
18 months in prison followed by 3 years of supervised release and ordered to pay
restitution to the institution. The institution implemented procedures to minimize a
recurrence of the fraudulent activity. In August 2003, NSF sent the former grant
administrator a letter advising him of NSF’s proposal to debar him from obtaining
the benefits of federal grants for a period of three years.


Administrative Investigations

Reports Forwarded to the Deputy Director

PI Takes Ideas for NSF Proposal From Another PI’s Proposal

     We received an allegation that a proposal submitted to NSF contained more
than a page of text and associated ideas plagiarized from a confidential research
proposal submitted by other scientists to another agency. After confirming that the
PI had received the research proposal for merit review prior to his submission of the
NSF proposal, we wrote separately to the PI and co-PI requesting explanations.
Only the PI responded, admitting that he received the research proposal for review
and accepting full responsibility for the copied text. The PI said he developed the
ideas, working closely with one of the research proposal’s authors. He opined that,
because he suggested one of the research proposal’s authors as a reviewer for his



                                                                                          35
Investigations




                 NSF proposal, he clearly did not plagiarize intentionally. We determined that the
                 allegation had substance and referred it to the university for investigation.
                       The university committee interviewed the PI, the co-PI, several experts, and
                 one of the research proposal’s authors. It exonerated the co-PI from any culpability,
                 but found that the PI knowingly copied the language and ideas from the research
                 proposal, an act that was a significant departure from the standards within his field
                 of study. The committee determined that the copied material represented the
                 scientific core of the research proposal and the NSF proposal. It concluded that the
                 PI’s plagiarism from a confidential proposal was egregious, representing a threat to
                 the integrity of science because (1) it is harder to discover plagiarism in confidential
                 proposals; (2) it raises the possibility of individual gain with the use of new and
                 novel ideas not yet in the published arena; and (3) it potentially discourages scientists
                 from presenting their best ideas in confidential proposals.
                       The Committee concluded that the PI’s plagiarism represented very serious
                 research misconduct, aggravated by: (1) the PI’s breach of the confidentiality in the
                 peer review process clearly established by the agency; (2) the PI’s “inability or
                 unwillingness” to comprehend the serious nature of his misconduct; and (3) the
                 PI’s interception of OIG’s initial Federal Express letter to the co-PI, which prevented
                 the co-PI from responding to defend himself, potentially obstructing NSF’s inquiry.
                      The university sanctioned the PI by: 1) reprimanding him; 2) withdrawing any
                 federal government proposals he submitted as PI; 3) removing his name from pending
                 federal government proposals on which he was a co-PI or key personnel; 4) prohibiting
                 him from submitting proposals for funding to any federal agency for 2 years; 5)
                 prohibiting him from acting as a peer reviewer for research proposals for any federal
                 agency for 3 years; and 6) requiring him to certify and provide assurances for 3 years
                 for any proposal he submits to any funding source that the work in the proposal is
                 original to him or appropriately cited. Based on the evidence, we concurred with
                 the university’s findings and accepted its report.
                       We forwarded our report to NSF, recommending that NSF make a finding of
                 research misconduct. Consistent with the university’s actions, we recommended
                 the PI receive a letter of reprimand, be debarred for 2 years from receiving any
                 federal funds and, further, to protect the merit review process, we recommended
                 that the PI be prohibited from reviewing any NSF proposals for 3 years. This case is
                 awaiting the agency’s adjudication.

                 Debarment Recommended in Plagiarism Case

                      We received an allegation of multiple instances of plagiarized text in a
                 collaborative proposal submitted to NSF. We contacted the PI (subject) who assumed
                 responsibility for inclusion of the duplicated texts and conceded that the sources
                 were not referenced in the proposal. He asserted that because the text was used for



        36
                                                                     OIG Semiannual Report    September 2003




general descriptions, he did not consider it necessary to cite the references. Further,
because some of the plagiarized documents were authored by researchers with whom
collaborations were proposed, he did not consider citations necessary in those cases
either. Finally, he suggested that the rush to complete the proposal by the submission
deadline might have changed his citation practices.
      The subject assured us that there were no other instances of plagiarism in
proposals he had previously submitted to NSF. However, after examining three
other NSF proposals submitted by the subject, we found one that contained a
substantial overlap in text with the original proposal examined, as well as additional
instances of plagiarism. We determined that the allegation had substance and referred
it to the university for investigation.
      The subject suggested to the university’s investigation committee that proposals
should be held to different standards of scholarship than publications. The subject
indicated that two proposals he submitted to other federal agencies included the
same plagiarized text identified within the NSF proposals. After being confronted
with the allegation of plagiarism in his NSF proposal, he contacted the program
officers at those agencies to provide correct attributions for the text in those proposals.
      The committee concluded that each instance of text duplication in the two
NSF proposals constituted plagiarism. Moreover, it questioned whether the subject
had a clear understanding of scholarship standards and practices of proper citation,
citing the subject’s contention that the plagiarized materials were in the introduction
of the proposal and provided only background and context. The Committee
unanimously concluded, by a preponderance of the evidence, that the collective
actions of the subject represented a reckless disregard of standards of scholarship,
and as such constituted research misconduct. The university’s adjudicative actions
in this case included non-renewal of the subject’s contract with the university,
prevention of submission of any grant proposals through the university, review of
all research publications submitted by the subject, and a requirement for completion
by the subject of a course on ethics and integrity in research.
      We agreed with the university that the preponderance of the evidence
demonstrates that the subject did introduce significant amounts of plagiarized text
into each of two proposals submitted to NSF, and we accepted the report of the
Committee in lieu of conducting our own investigation. We also concluded that his
lack of proper citations departed significantly from the standards of scholarship and
that the subject’s intent was to save time and effort in proposal preparation. Based
on extensive plagiarism in two proposals submitted by the subject to NSF, and similar
plagiarism in proposals submitted to other federal agencies, we concluded that the
plagiarism was part of a pattern of behavior by the subject.
     We have forwarded our report to the agency and have recommended that NSF
take the following actions as final disposition in this case: 1) a letter of reprimand
informing the subject that NSF has made a finding of research misconduct against



                                                                                                37
Investigations




                 him; 2) debarment of the subject from participation in federal programs for a period
                 of one year from the date of an agency finding of research misconduct; and 3)
                 certification and assurances for two years following the end of the debarment period,
                 by a responsible official, that proposals submitted by the subject are free of plagiarism.
                 This case is awaiting agency adjudication.


                 Action by the Deputy Director

                 Computer Scientist Enters into Voluntary Exclusion
                 Agreement

                       In our March 2003 Semiannual Report (pp. 36-37), we described the case of
                 an assistant professor of computer science (the subject) who incorporated text from
                 another scientist’s successful proposal into his own Faculty Early Career
                 Development proposal. We referred the matter to the subject’s university, which
                 investigated and found that he had committed plagiarism constituting misconduct
                 in science. The university Provost decided that the seriousness of the matter
                 warranted termination and placed the subject on a one-year nonrenewable contract.
                 Our further investigation uncovered plagiarism in four other NSF proposals as well
                 as the subject’s doctoral dissertation, demonstrating a substantial pattern of plagiarism
                 warranting debarment. To protect the interests of NSF and the federal government,
                 we recommended that the subject be debarred for three years and excluded from
                 serving as an NSF reviewer, advisor, or consultant for a period of five years.
                      During this semiannual period, the subject completed his one-year teaching
                 contract and took a faculty position outside the United States. NSF and the subject
                 entered into a settlement agreement under which the subject voluntarily excludes
                 himself from receiving U.S. federal assistance and benefits for a period of 18 months
                 and is prohibited from serving as an NSF peer reviewer or panelist during that period.
                 The subject also agreed to complete a two-week training session on citation methods
                 and practices for scientific papers.


                 Significant Administrative Cases

                 PI Plagiarizes Text From Published Article

                       We received an allegation that an NSF proposal contained more than two
                 paragraphs of background text plagiarized from a published paper. In response to
                 our inquiry, the PI accepted full responsibility for the plagiarism, explaining that he
                 failed to cite the text in his rush to complete the proposal. Because the allegation
                 had substance, we referred it to the PI’s university for investigation.



        38
                                                                    OIG Semiannual Report   September 2003




      The university’s investigative committee determined that the                  FINDING OF
PI was solely responsible for the copied text. Further, it found                MISCONDUCT DEFINED
that the PI committed self plagiarism when he copied background
text from his earlier publication into a more recent publication              A finding of misconduct by
without appropriately citing the source of the text. Finally, it             NSF under the new research
concluded that the PI’s copying of text in the NSF proposal and                  misconduct regulation
his self-plagiarism was a deviation from accepted practices and                    requires proof by a
represented a pattern of behavior. The committee concluded that                   preponderance of the
the PI committed misconduct in science, as defined by the                    evidence that: (1) there was
university’s policy.                                                         a significant departure from
                                                                               accepted practices of the
     The university’s adjudicator accepted the committee’s                          relevant research
assessment that the PI plagiarized text from the paper into his NSF             community; and (2) the
proposal, but disagreed that the PI’s self-plagiarism constituted             research misconduct was
evidence of a pattern of behavior. The adjudicator concluded the                committed intentionally,
PI committed misconduct in science, sent him a letter of reprimand,         knowingly, or recklessly. We
                                                                                 asked the university to
and required him to certify to university officials for 3 years that
                                                                            readdress these points, since
any proposal sent to an external funding agency contains no                    the language of its report
plagiarized material.                                                         was unclear. Because the
     We accepted the university’s evaluation and decision. Because            alleged conduct occurred
the university did not find the PI’s behavior to be a serious deviation       before April 17, 2002, NSF
                                                                             used the following definition
from accepted practice within his community, the conduct did not
                                                                              of misconduct in science:
meet the federal definition of research misconduct. We also believe           “Fabrication, falsification,
the university’s actions adequately protected the interests of the           plagiarism, or other serious
federal government. We discussed our decision with NSF and wrote                deviation from accepted
to the PI warning him to be more vigilant in the future when he                  practices in proposing,
prepares material for proposals or publication.                                carrying out, or reporting
                                                                            results from activities funded
Employee Who Abused Telephone Privilege                                         by NSF.” The university,
                                                                              using the prior definition of
Resigns                                                                          misconduct in science
                                                                                   explained that (1) it
       Our March 2003 Semiannual Report to the Congress (page                considered the PI’s act to be
38) summarized the results of a proactive review into long distance         a deviation, but not a serious
phone charges at NSF and an isolated instance in which an NSF                  deviation, from accepted
employee made a large number of personal long distance phone                practice; and (2) it found that
calls, including calls in support of the employee’s outside business            the PI acted knowingly.
activities. We completed an investigation in the case of that
employee and referred the results to NSF for administrative resolution. Shortly
thereafter, NSF provided a notice of proposed separation to the employee and
afforded the employee a statutorily mandated response period. Rather than
responding, the employee resigned from her position and from the federal service.




                                                                                              39
Investigations




                 Failure to Comply with Certification Requirements

                       In this period we addressed three matters involving significant failures to comply
                 with administrative requirements imposed by NSF as a resolution of misconduct
                 cases. In our September 2001 (pp. 35-36) and September 2002 Semiannual Reports
                 (p. 42), we described a case in which a scientist failed to observe requirements
                 imposed by NSF following a finding that he committed misconduct in science. That
                 matter, in which the subject repeatedly and knowingly failed to provide the
                 certifications or assurances that he was required to submit, was resolved with a
                 settlement agreement that required the subject to provide detailed certifications
                 and assurances in connection with any research proposals or reports he submits to
                 NSF for an additional term.
                      We described a case in our March 2001 (p. 27) and March 2002 (p. 47)
                 Semiannual Reports in which the Deputy Director found that the subject committed
                 misconduct in science when he plagiarized material from another scientist’s proposal.
                 The Deputy Director required the subject to provide certifications to OIG for 2
                 years starting in October 2001, in connection with any proposal submitted to NSF.
                 When we asked the subject why he failed to provide certifications for three proposals
                 he submitted to NSF, both the subject and his dean stated their understanding that
                 the subject’s obligations were met by providing certifications to the university (a
                 requirement that had been imposed on the subject by the university before NSF’s
                 action). The dean provided copies of certification pages that the subject apparently
                 signed, dated, and provided to the university when the proposals were submitted,
                 and on that basis we concluded that the university had acted in good faith.
                       In contrast, we concluded that the subject had not acted in good faith. The
                 letter from NSF’s Deputy Director, which was sent to the subject and not the
                 university, was unambiguous in imposing a distinct requirement that certifications
                 be provided to our office. However, we concluded that the subject’s failure to
                 comply with the requirement imposed on him by NSF’s Deputy Director did not
                 warrant additional action by NSF. We emphasized to the subject that he should
                 take care to comply with the certification requirement with any proposals he
                 submitted to NSF for the time remaining, and we subsequently received certifications
                 from him during that period.
                       Finally, we discussed a case in our September 1999 (pp. 19-21) and September
                 2000 (p. 26) Semiannual Reports in which we concluded that an institution failed to
                 provide reasonable oversight of biohazardous research. On the basis of our report,
                 NSF concluded that “questions remain concerning the effectiveness of the oversight
                 structure of biohazardous research” at the institution, and NSF required the
                 institution to submit supporting documentation with any proposal sent to NSF
                 relating to biohazardous research for a period of three years.
                     During the three-year period, which expired in July 2003, the institution
                 submitted 16 proposals to NSF related to biohazardous research, but submitted the


        40
                                                                    OIG Semiannual Report    September 2003




required letters with only half of those. On the occasions when we contacted the
institution about proposals submitted without the required letters, they were
belatedly provided. We wrote to the institution, expressing our concern that its
haphazard approach to compliance with the requirements imposed by NSF appeared
to reflect continued indifference to biosafety. We sought the institution’s views on
why additional administrative requirements should not be imposed and asked it to
suggest requirements that would result in actual compliance. The institution stated
that it would audit its compliance with the requirements for biohazardous research,
and also continue to provide documentation of compliance for another year. We
determined that these additional steps were responsive to our concerns.


Proactive Reviews

Review of Conference Awards Prompts Investigations

     A proactive review of NSF awards for conferences, workshops, and symposia
uncovered numerous instances of non-compliance with a variety of grant conditions.
Our interest in these awards was prompted by the case of an engineering professor
who failed to account properly for $124,955 in conference registration fees, spent
NSF funds improperly, and violated conflict-of-interest rules in the planning and
implementation of an NSF-sponsored conference (March 2002 Semiannual Report,
p. 50). The award in question was governed by special grant conditions (FL26)
which require that conference fees be used to defray reasonable meeting expenses
and to offset allowable costs otherwise chargeable to the grant.
      We used a stratified random sample of 71 awards for review, drawn from one
year’s awards for conferences, workshops and symposia. Specific information about
the awards was requested from the grantee institutions. Preliminary results indicate
that activities associated with these awards generated close to $1 million in registration
and other fees, some of which grantees first discovered in the course of responding
to our request for information. We also found numerous instances where grant
conditions were violated, particularly in the area of funds designated specifically for
participant support. Investigations have been opened, where appropriate, to pursue
recoveries and to consider allegations of fraud. One such investigation has already
resulted in the return of over $20,000 in unspent program income to NSF. During
the next semiannual period we expect to report on the further outcomes of this
project.




                                                                                               41
Investigations




                 OIG Reviews Travel Card Issues

                      Every NSF employee who travels on official business more than three times a
                 year has a Government Travel Credit Card VISA (“Travel Card”) issued by the
                 Bank of America. At NSF, there are over 1,200 active Travel Card accounts, with
                 a combined credit limit total of over $19,000,000. While travel Cards are accepted
                 at business establishments like any other VISA card, they are supposed to be used
                 only for official travel and travel related expenses. All NSF travel cardholders are
                 required to sign a Bank of America agreement before activating a travel card. This
                 agreement contains provisions regarding procedures and rules for travel card
                 purchases.
                       In response to public and congressional interest, as well as an increase in fraud
                 allegations, OIG recently established procedures for periodic proactive reviews of
                 NSF’s travel cards to detect possible fraud and/or abuse. These reviews, along
                 with the investigation of any individual travel card fraud allegations brought through
                 traditional channels, will be conducted with the help of a Bank of America system
                 that enables us to download information on all NSF Travel Card transactions. Our
                 review plan draws on our recent experience with credit card investigations,
                 interagency training, and extensive research on recent federal agency credit card
                 fraud reports. During this semiannual period, our office reviewed several instances
                 of travel card misuse and delinquency by non-frequent travelers. The misuse of the
                 travel card typically involved cash advances and personal, non-travel related
                 purchases in the local area. The misuse cases are being reviewed for appropriate
                 disposition and/or disciplinary action. By following up on the leads generated by
                 the proactive review plan and information obtained from the agency, we provided
                 the agency with specific recommendations for tightening internal controls and
                 improving the monitoring of travel card misuse or delinquency.

                 OIG Prepares for ECIE Investigative Quality
                 Assessment Review Peer Review

                       OIG Offices of Investigations across the federal government have been working
                 to develop a process by which they can be peer reviewed to ensure that investigations
                 meet the standards articulated in the President’s Council for Integrity and Efficiency/
                 Executive Council for Integrity and Efficiency (PCIE/ECIE) Quality Standards for
                 Investigations. In connection with the Homeland Security Bill and the receipt of
                 statutory law enforcement authority, the PCIE OIGs developed a schedule for
                 conducting peer reviews of PCIE OIG investigative operations. We are working
                 closely with Government Printing Office’s Office of Investigation to develop
                 voluntary participation in a similar peer review process for ECIE OIGs. At two
                 meetings of the ECIE peer review planning group during this reporting period,
                 representatives of 12 ECIE OIG offices agreed to participate in the process and
                 began preparations for conducting the peer reviews.


        42
                                                      Statistical Data




Audit Reports Issued
With Recommendations for Better Use of Funds             45


Audit Reports Issued With Questioned Costs               46


Audit Reports Involving Cost-Sharing Shortfalls          47


Status of Internal NSF Recommendations                   48


List of Reports                                          49


Audit Reports With Outstanding Management Decisions      53


Investigations Case Activity                             54


Investigations Case Statistics                           55


Freedom of Information Act and Privacy Act Requests      56




                                                          43
Statistical Data




                   Reporting Terms Defined

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

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

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

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

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

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

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

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




         44
                                                          OIG Semiannual Report   September 2003




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

A. For which no management decision has been made by the
   commencement of the reporting period                               $86,200

B. Recommendations that were issued during the reporting period $4,619,248

C. Adjustments related to prior recommendations                            $0

Subtotal of A+B+C                                                  $4,705,448

D. For which a management decision was made during the
   reporting period                                                   $86,200

   i) Dollar value of management decisions that were consistent
      with OIG recommendations                                        $86,200

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

E. For which no management decision had been made by the
   end of the reporting period                                     $4,619,248

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




                                                                                    45
Statistical Data




                   Audit Reports Issued With Questioned Costs

                                                     Number
                                                       of      Questioned   Unsupported
                                                     Reports     Costs         Costs

                      A. For which no manage-
                      ment decision has been
                      made by the commence-
                      ment of the reporting
                      period                            7       $334,768       $74,235

                      B. That     were issued
                      during the reporting period      11      $2,878,379      $40,196

                      C. Adjustments related to
                      prior recommendations                           $0            $0

                   Subtotal of A+B+C                   18      $3,213,147     $114,431

                      D. For which a manage-
                      ment decision was made
                      during the reporting period:      8       $335,717       $75,184

                          1.   Dollar value of
                          disallowed costs             N/A       $44,241            N/A
                          2. Dollar value of
                          costs not disallowed         N/A      $291,476            N/A

                      E. For which no manage-
                      ment decision had been
                      made by the end of the
                      reporting period                 10      $2,877,430      $39,247

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




         46
                                                                         OIG Semiannual Report    September 2003




Audit Reports Involving Cost-Sharing Shortfalls
                                      Number    Cost-             At Risk of        Actual
                                        of     Sharing               Cost        Cost Sharing
                                      Reports Promised             Sharing        Shortfalls
                                                                  Shortfall      (Completed
                                                                  (Ongoing         Project)
      A. Reports with monetary                                     Project)
      findings for which no
      management decision has
      been made by the beginning
      of the reporting period:            1         $91,947                 $0         $54,849

      B. Reports with monetary
      findings that were issued
      during the reporting period:        1     $5,758,278                  $0     $1,209,714

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

Total of Reports with Cost
Sharing Findings (A+B+C)                  2     $5,850,225                  $0     $1,264,563

      D. For which a manage-
      ment decision was made
      during the reporting period:        1         $91,947                 $0         $54,849

          1. Dollar value of cost-
          sharing shortfall that
          grantee agreed to
          provide                        N/A              N/A               $0               $0
          2. Dollar value of cost-
          sharing shortfall that
          management waived1             N/A              N/A               $0         $54,849

      E. Reports with monetary
      findings for which no
      management decision has
      been made by the end of
      the reporting period                1     $5,758,278                  $0     $1,209,714

  1
   Indicates the dollar value waived by management or that the grantee provided additional
  documentation during audit resolution to support the at-risk amounts.



                                                                                                    47
Statistical Data




                   Status of Internal NSF Recommendations

                   Open Recommendations (as of 9/30/03)
                      Recommendations Open at the Beginning of the Reporting Period                             49
                      New Recommendations Made During Reporting Period                                          49
                      Total Recommendations to be Addressed                                                     98


                   Management Resolution of Recommendations2
                     Awaiting Resolution                                                                        36
                     Resolved Consistent With OIG Recommendations                                               62


                   Management Decision That No Action is Required                                                 0


                   Final Action on OIG Recommendations3
                       Final Action Completed                                                                   57
                       Recommendations Open at End of Period                                                    41


                   Aging of Open Recommendations

                            Awaiting Management Resolution:
                            0 through 6 months                                                                  29
                            7 through 12 months                                                                  7
                            More than 12 months                                                                  0

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



                    2
                      “Management Resolution” occurs when the OIG and NSF management agree on the corrective
                    action plan that will be implemented in response to the audit recommendations.
                    3
                      “Final Action” occurs when management has completed all actions it agreed to in the corrective
                    action plan.




         48
                                                        OIG Semiannual Report   September 2003




List of Reports

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

 03-1-007 Non-profit association          $4,661         $0   $3,100,438         $0
 03-1-008 State university             $1,428,971        $0             $0       $0
 03-1-009 Community college            $1,209,174        $0             $0       $0
 03-1-010 Museum                         $46,326         $0      $594,954        $0
 03-1-011 Botanical garden                    $0         $0      $643,401        $0
 03-1-012 Community college             $133,092         $0             $0       $0
 03-1-013 Community college              $15,489         $0             $0       $0
 03-2-009 NSF internal review                 $0         $0             $0       $0
 03-2-010 NSF internal review                 $0         $0             $0       $0
 03-2-011 NSF internal review                 $0         $0             $0       $0
 03-2-012 NSF internal review                 $0         $0             $0       $0
 03-2-013 NSF internal review                 $0         $0             $0       $0
 03-2-014 International organization          $0         $0      $280,455        $0
 03-2-015 NSF internal review                 $0         $0             $0       $0
 03-6-002 NSF internal review                 $0         $0             $0       $0
           Total:                      $2,837,713        $0   $4,619,248         $0




                                                                                  49
Statistical Data




                   NSF-Cognizant Reports
                                                                                     Cost
                    Report                                   Questioned Unsupported
                                         Subject                                    Sharing
                    Number                                     Costs       Costs
                                                                                    At-Risk
                    03-4-015 Non-profit research institute       $0         $0        $0
                    03-4-016 School district                     $0         $0        $0
                    03-4-017 School district                     $0         $0        $0
                    03-4-018 Science museum                      $0         $0        $0
                    03-4-019 Educational association             $0         $0        $0
                    03-4-020 Science organization                $0         $0        $0
                    03-4-021 School district                     $0         $0        $0
                    03-4-022 Non-profit society                  $0         $0        $0
                    03-4-023 State university                    $0         $0        $0
                    03-4-024 School district                     $0         $0        $0
                    03-4-025 Non-profit consortium               $0         $0        $0
                    03-4-026 Non-profit organization             $0         $0        $0
                    03-4-027 Scientific society                  $0         $0        $0
                    03-4-028 Professional association          $470         $0        $0
                    03-4-029 Scientific consortium               $0         $0        $0
                    03-4-030 School district                     $0         $0        $0
                    03-4-031 School district                     $0         $0        $0
                    03-4-032 Non-profit corporation          $18,400   $18,400        $0
                    03-4-033 School district                     $0         $0        $0
                    03-4-034 Research institute                  $0         $0        $0
                    03-4-035 Educational association             $0         $0        $0
                    03-4-036 Non-profit association              $0         $0        $0
                    03-4-037 School district                     $0         $0        $0
                    03-4-038 Non-profit academy              $18,437   $18,437        $0
                    03-4-039 School district                     $0         $0        $0
                              Total:                         $37,307   $36,837        $0




         50
                                             OIG Semiannual Report   September 2003




Other Federal Audits
                                                      Cost
 Report                       Questioned Unsupported
                    Subject                          Sharing
 Number                         Costs       Costs
                                                     At-Risk
 03-5-067 University             $949        $949        $0
 03-5-130 College              $2,500      $2,500        $0
          Total:               $3,449       $3,449       $0




                                                                       51
Statistical Data




         52
                                                                  OIG Semiannual Report   September 2003




Audit Reports With
Outstanding Management Decisions
      This section identifies audit reports involving questioned costs, funds put to
better use, and cost sharing at risk where management had not made a final decision
on the corrective action necessary for report resolution with 6 months of the report’s
issue date. At the end of the reporting period there were no reports remaining that
met this condition. The status of recommendations that involve internal NSF
management is described on page 48.




                                                                                            53
Statistical Data




                   Investigations Case Activity

                     April 1, 2003 - September 30, 2003
                                    Preliminary   Civil/Criminal   Administrative   Total

                     Active Cases
                     at Beginning
                     of Period          14             28               31            73

                     Opened Cases      161             23               38          222

                     Closed Cases      100             11               29          140

                     Active Cases
                     at End of
                     Period             75             40               40          155




         54
                                                                                  OIG Semiannual Report      September 2003




Investigations Case Statistics
     Referrals to DOJ                                                                               3

     Criminal Convictions/Pleas                                                                     1

     Civil Settlements                                                                              0

     Administrative Actions                                                                         4

     Investigative Recoveries4                                                     $1,218,883.60

     Research Misconduct Findings by NSF                                                            1

     Cases Forwarded to NSF Management for Action                                                   4

     Cases Forwarded to NSF Management in Prior
     Periods Awaiting Action                                                                        0

     Assurances and Certifications5

        Number of Cases Requiring Assurances During This Period                                     3
        Number of Cases Requiring Certifications During This Period                                 3
        Assurances Received During This Period                                                      0
        Certifications Received During This Period                                                  1
        Number of Debarments in Effect During This Period                                           5




4
  Investigative recoveries include civil penalties, criminal fines, and funds paid in restitution, as well
as specific cost savings for the government.
5
  NSF accompanies some actions with a certification and/or assurance requirement. For example,
for a specified period, the subject may be required to confidentially submit to OIG a personal
certification and/or institutional assurance that any newly submitted NSF proposal does not
contain anything that violates NSF regulations.




                                                                                                               55
Statistical Data




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


                      •   We received 10 FOIA requests compared to 8 in the last reporting period.
                          The response time ranged between 2 days and 20 days, with a median of
                          14 days and the average around 13 days.


                      •   No Privacy Act requests were received this reporting period.


                      •   We received one appeal this reporting period, which was later withdrawn
                          by the appellant.




         56
                                                                OIG Semiannual Report   September 2003


                                                                                          Appendix 1


                                         Reporting Requirements

     Under the Inspector General Act, we report to the Congress every six months
on the following activities:
   •   Reports issued, significant problems identified, the value of questioned costs
       and recommendations that funds be put to better use, and NSF’s decisions
       in response (or, if none, an explanation of why and a desired timetable for
       such decisions). (See p.5-6, 45)
   •   Matters referred to prosecutors, and the resulting prosecutions and
       convictions. (See p.29, 57)
   •   Revisions to significant management decisions on previously reported
       recommendations, and significant recommendations for which NSF has not
       completed its response. (See p.23, 50)
   •   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
       information or assistance. (None)




                                                                                          57
                                                  OIG Semiannual Report   September 2003

                                                                           Appendix 2



                                                    Acronyms

AICPA   Association of Independent Certified Public Accountants
AGA     Association of Government Accountants
CFOC    Chief Financial Officer Council
CIO     Chief Information Officer
COI     Conflict of Interest
COSO    Committee of Sponsoring Organizations Treadway Commission
COV     Committee of Visitors
CPO     Division of Contracts, Policy and Oversight
DACS    Division of Acquisition and Cost Support
DCAA    Defense Contract Audit Agency
DD      Division Director
DFE     Designated Federal Entity
DGA     Division of Grants and Agreements
DOJ     Department of Justice
EBB     Electronic Bulletin Board
ECIE    Executive Council of Integrity and Efficiency
FAC     Federal Audit Clearinghouse
FAEC    Financial Audit Executive Council
FISMA   Federal Information Security Management Act
FMFIA   Federal Managers Financial Integrity Act
FOIA    Freedom of Information Act
FSAN    Financial Statement Audit Network
FY      Fiscal Year
GISRA   Government Information Security Act
GPRA    Government Performance and Results Act
HHS     Department of Health and Human Services
HUD     Department of Housing and Urban Development
IG      Inspector General
MIRWG   Misconduct in Research Working Group
MRE     Major Research Equipment
MREFC   Major Research Equipment and Facilities Construction
MSP     Math and Science Partnership
NSB     National Science Board
NSF     National Science Foundation
OIG     Office of Inspector General
OMB     Office of Management and Budget
OPP     Office of Polar Programs




                                                                            59
Statistical Data




                   Acronyms (cont’d)

                   OSTP    Office of Science and Technology Policy
                   PA      Program Assistant
                   PCIE    President’s Council on Integrity and Efficiency
                   PI      Principal Investigator
                   PFCRA   Program Fraud Civil Remedies Act
                   QCR     Quality Control Review
                   RMS     Research Management Services
                   SBIR    Small Business Innovation Research
                   STTR    Small Business Technology Transfer
                   USAP    United States Antarctic Program
                   USI     Urban Systemic Initiative
                   USP     Urban Systemic Program




         60
                      Organization Chart



                            INSPECTOR
                             GENERAL
                           Christine C. Boesz

                          DEPUTY INSPECTOR
                              GENERAL
                               Tim Cross
COUNSEL TO THE
  INSPECTOR
   GENERAL

  Arthur A. Elkins




ASSOCIATE IG FOR                                ASSOCIATE IG FOR
     AUDIT                                      INVESTIGATIONS

 Deborah H. Cureton                               Peggy L. Fischer




      AUDIT                ADMINISTRATIVE        INVESTIGATIVE
      STAFF                    STAFF                 STAFF