Title : Number 14--NSF OIG Semiannual Report to the Congress Type : Report NSF Org: OIG Date : June 17, 1996 File : oig14 National Science Foundation Office of Inspector General Semiannual Report to the Congress Number 14 October 1, 1995 - March 31, 1996 LETTER TO THE NATIONAL SCIENCE BOARD AND THE CONGRESS This report describes our activities and accomplishments for the first half of FY 1996. Section 5 of the Inspector General Act of 1978, as amended, requires that the National Science Board transmit this report to the Congress within 30 days of its receipt along with any comments the Board may wish to make. As described in the following pages, NSF and OIG operations were substantially curtailed in this reporting period because of agency closures due to funding lapses and heavy snowfall. In particular, we are concerned that our ability to complete a full audit of NSF's FY 1996 financial statements will be substantially impaired as a result of contracting delays directly attributable to these work interruptions. We are pleased that, after the close of this reporting period, the Congress signed an omnibus appropriation bill that will fund NSF until the end of this fiscal year. Despite the interruptions, OIG completed four inspections, as planned; investigations recovered over $6 million; and OIG audits and inspections identified over $7 million in potential cost savings for NSF. We continued to reduce our backlog of misconduct in science cases. We look forward to working with agency leadership to meet the challenges remaining in this fiscal year. Linda G. Sundro Inspector General April 30, 1996 EXECUTIVE SUMMARY Funding Lapses and Heavy Snowfall Close NSF Operations NSF is still recovering from the effects of closures due to funding lapses and heavy snowfall that forced the agency to close for 21 working days. Financial Audits Cost and compliance audits identified $4.5 million in questioned costs. The Ocean Drilling Program could allocate an additional $4.46 million for research over 5 years by reducing the costs of certain publications. The Office of Polar Programs decided to implement cost savings by limiting NSF funds used to pay hardship "bonuses" for contract employees in Antarctica. As cognizant federal audit agency, we recommended that other federal agencies limit fees paid to an atmospheric research organization. In preparation for our audit of NSF's FY 1996 financial statements, we recommended improvements in the administration of NSF's financial systems. Investigations Over $6 million was recovered from companies that fraudulently received federal awards under the Small Business Innovation Research program. Our investigations resulted in a felony conviction, an indictment, and two civil settlements. Misconduct in Science We conducted a study of the ethical codes published by professional societies. NSF's Deputy Director issued misconduct findings in three cases. Inspections We conducted four inspections; one recommended ways in which significant cost savings could be realized. An inspection at a state university identified noncompliance with NSF's Investigator Financial Disclosure Policy and material deficiencies in the university's financial disclosure policy for principal investigators. Legal The Comptroller General issued an opinion permitting NSF to use appropriated funds to pay for the National Science Board's annual awards dinner. CLOSURES DUE TO FUNDING LAPSES AND HEAVY SNOWFALL CURTAIL AGENCY OPERATIONS The Inspector General Act of 1978 requires that we report on significant problems relating to the administration of NSF programs and operations. In this reporting period, Congress and the President could not agree on FY 1996 spending levels for NSF (and most other federal agencies) by October 1, 1995, when the existing funding expired. On September 30, 1995, Congress passed, and the President signed, a short-term spending bill (called a continuing resolution or "CR") that kept federal agencies open until midnight on Monday, November 13. This CR extended the time allotted for Congress and the President to agree on spending levels; however, they could not reach an agreement during this extension period. The first shutdown began on Tuesday, November 14, 1995. NSF's 1,300 employees reported to work and were told to spend the remainder of the workday (not to exceed 8 hours) preparing for agency closure. Employees were not permitted to remain in the building and work, even if they were willing to work without pay. Only NSF's 2 full-time Presidential employees (the Director and Deputy Director) and an "excepted" skeleton staff of approximately 24 career employees were permitted to remain. Although an agreement on FY 1996 spending levels was not reached, a CR was passed on November 17 that funded NSF and most other federal agencies until midnight on Friday, December 15. NSF employees and contractors returned to work on Monday, November 20. Work at the agency had been significantly curtailed for 4 working days. A National Science Board meeting, which had been scheduled for November 16 and 17, was canceled. Between November 19 and December 15, the President and Congress agreed on bills to fund some federal agencies, but NSF's appropriation was not among them. So, when NSF's employees reported for duty on Monday, December 18, they were told that the agency would close again. This time, employees and contractors were only allowed 3 hours for "shutdown activities." The second shutdown lasted until January 6, 1996, and disrupted agency activities for 13 working days. Another CR was signed on January 6, 1996, that would have permitted agency employees to return to work on Monday, January 8. However, a blizzard forced federal offices in the Washington, D.C., metropolitan area to close from January 8 through 10. Many workers were able to return to work on Thursday, January 11, but another snowstorm forced federal offices to close again on Friday, January 12. Monday, January 15, was a federal holiday in observance of the birth of the Rev. Dr. Martin Luther King, Jr. Most routine work did not resume at NSF until Tuesday, January 16- almost 1 month to the day after the December closure. OIG Activities Curtailed OIG was able to accommodate the 4-day November shutdown, but the second shutdown and blizzard had a significant effect on this office's ability to perform its duties. The months of December and January are important audit planning months for our office. During this time, audit sites are chosen, audit teams are assigned, and audit programs are refined. Because of the closures, this planning process was significantly curtailed. The annual audit of NSF's financial statements in accordance with the Chief Financial Officers (CFO) Act was due on March 1, 1996. We received the financial statements for NSF's FY 1995 Donations Account (totaling $40 million) for audit on Thursday, December 14, one day before the second shutdown. As a result, instead of having about 11 weeks to audit these statements, we had about 6 weeks. We were able to complete CFO audit work in time to meet the statutory deadline, but at significant expense to other important projects. In FY 1996, we will be required to audit financial statements that cover all NSF operations (totaling $3.2 billion) for the first time. We were forced to delay plans for this greatly expanded audit requirement. We are also concerned about the delay in a major audit contract solicitation that is necessary to complete the FY 1996 CFO audit. NSF's contracting office could not process the CFO audit contract solicitation, or any other agency contract solicitation, during the second shutdown and blizzard. This delay, when combined with planning delays and the contracting backlog engendered by both shutdowns, will adversely affect our FY 1996 CFO audit schedule. An OIG inspection team was on-site in New Mexico when the agency closed on November 14. Even though the team had planned to work on-site 3 more days, team members were forced to return to the office and to reschedule the remainder of the inspection for later in the month. Another inspection had to be postponed as a result of the second shutdown, and significant delays in the production of inspection reports and the planning and execution of future inspections persist. Similarly, the shutdowns delayed the processing of about 80 misconduct in science cases. In particular, four major cases with recommended findings of misconduct that we had planned to send to the Office of the Director in this reporting period have been delayed. We estimate that, in addition to work that was delayed or deferred, OIG incurred approximately $187,000 in costs directly related to the agency shutdowns. This amount includes costs primarily associated with employee salaries for the period in which OIG staff members were furloughed and rescheduled travel. Effect Upon the Agency NSF incurred significant costs associated with these shutdowns. Congress and the President agreed to retroactively pay federal employees for both furloughs. At NSF, salaries and benefits paid to employees and contractors for the two periods during which they were not permitted to work totaled approximately $6.5 million. In addition, about $129,000 was spent on activities directly associated with planning for and recovering from the shutdowns (for example, communicating with contractors about the terms of the shutdowns, rescheduling work on major projects, and making special arrangements to keep external customers informed about the status of NSF operations, etc.). Loss of the November 1995 meeting of the National Science Board required deferral of action on major awards and delayed the submission of Science and Engineering Indicators, 1996, to the President and the Congress, as required by law. By January 16, 1996, 40,000 pieces of mail, including 2,860 funding proposals, had accumulated, unopened, in NSF's mailroom (where only a skeleton staff operated during the shutdowns). The agency also received a flood of proposals after it reopened in mid-January. To handle this unprecedented workload, NSF's Proposal Processing Unit and mailroom put their staffs on 12-hour shifts and paid about $24,000 in overtime salaries to agency and contract employees. NSF also authorized approximately $1,200 in overtime for its warehouse contractor to respond to a backlog of 1,500 requests for forms and publications from the public. The shutdowns resulted in the cancellation of about 21 proposal review panels--most of which were rescheduled. Six special grant competitions were canceled, and 15 were delayed. Many of NSF's scientists and engineers missed professional meetings during the shutdowns because they were not permitted to be on official travel while the government was closed. In one instance, $2,500 in prepaid hotel costs and conference fees was lost when four employees were unable to attend an out-of-town computer conference. One of NSF's management seminars for new program officers had to be canceled, which resulted not only in deferral of valuable training, but also in a loss of about $1,000 in travel costs that NSF paid for the contract seminar leader. NSF typically makes about 80 awards per business day. During the first shutdown, NSF did not make any new awards or any increments on existing continuing awards. During the second shutdown, no new awards were made, although the Office of Management and Budget did permit NSF to use FY 1995 money to fund increments to existing awards. Some of NSF's funded organizations incurred additional costs directly as a result of the government closures. For example, a supercomputer center did not receive an expected payment from NSF in December and therefore it could not make a lease payment on its facility. As a result, the center incurred a late payment charge of over $36,000. Human Costs of the Furlough NSF's shutdowns caused anxiety and financial hardship for many agency employees since their pay was interrupted and they had only informal assurances from government officials that they would be paid for the furlough periods. Even "excepted" workers, who were compelled to work during furlough periods, were not paid on time. Eventually, federal employees received their salaries and benefits for both shutdowns. This avoided compounding any injustice to federal workers, but at considerable expense to taxpayers. Workers at the lower end of the pay scale felt the effects of the pay interruption most severely. NSF employees received only a partial paycheck on December 29 for the pay period that ended on December 23, 1995. Federal employees who are furloughed are considered unemployed, and some NSF employees filed for unemployment insurance benefits. NSF's Division of Human Resource Management (HRM) received about 900 unemployment compensation claim forms during the two shutdowns. However, because of the timetable set by Virginia's Unemployment Commission for processing claims, no NSF employee actually received unemployment insurance benefits for either furlough. HRM also sent letters to landlords and creditors explaining why payments would be late. NSF's employees' bargaining union received about 100 telephone calls for help and responded by establishing a Food Drive and Emergency Cash Fund. During the second shutdown, 54 individuals applied to NSF's credit union for personal loans, and 41 of these loan requests were approved. The average amount of these loans was $1,500. Half of the employees who applied for loans earned under $25,000 annually. On January 12, 1996, employees received a paycheck for 120 hours of work--this covered furlough days for the last pay period in December and the first full pay period of 1996. Many of NSF's contract employees also experienced difficult financial times. Over 100 contract employees perform on-site administrative services for NSF. These services include security, computer maintenance, and mail processing. Some contract employees were terminated, but most were rehired when the second shutdown ended. For the most part, contractors tried to pay their employees during the shutdowns. They permitted employees to work part-time, advanced employees leave, allowed employees to share jobs, and rotated periods of nonpay status. One company provided loans to employees it could not pay who had financial emergencies. We estimate that contract employees lost about $20,000 in salaries, and the companies lost about $155,000 in payments from NSF as a result of the shutdowns. The two closures caused the longest work stoppage in NSF's history. The agency will be working for many months to make up for lost time. Some of the adverse effects on employee morale, confidence and commitment, and finances may linger after the work is made up. Dr. Neal Lane, NSF's Director, stated, "I think [the furlough] has done irreversible damage not just to government service but also to science in this country. I don't know when we will recover from it." TABLE OF CONTENTS AUDIT INVESTIGATIONS OVERSIGHT LEGAL AGENCY REFUSAL TO PROVIDE INFORMATION OR ASSISTANCE SIGNIFICANT MANAGEMENT DECISIONS THAT WERE REVISED INSPECTOR GENERAL'S DISAGREEMENT WITH SIGNIFICANT MANAGEMENT DECISIONS LIST OF REPORTS STATISTICAL INFORMATION REQUIRED BY THE INSPECTOR GENERAL ACT OF 1978, AS AMENDED INSPECTOR GENERAL REPORTS EXTERNAL AUDIT REPORTS WITH OUTSTANDING MANAGEMENT DECISIONS ADDITIONAL PERFORMANCE MEASURE ACRONYMS CFO Chief Financial Officer CPO Division of Contracts, Policy and Oversight DCAA Defense Contract Audit Agency DGA Division of Grants and Agreements DIS Division of Information Services DoD Department of Defense EDP Electronic Data Processing FAS Financial Accounting System FCTR Federal Cash Transactions Report HHS Department of Health and Human Services IPA Intergovernmental Personnel Act NSB National Science Board ODP Ocean Drilling Program OGC Office of General Counsel OGE Office of Government Ethics OMB Office of Management and Budget OPP Office of Polar Programs PI Principal Investigator REU Research Experiences for Undergraduates SBIR Small Business Innovation Research Program SSI Statewide Systemic Initiative REPORTING REQUIREMENTS The table cross-references the reporting requirements prescribed by the Inspector General Act of 1978, as amended, to the specific pages in the report where they are addressed. Requirements Section 4(a)(2) Review of Legislation and Regulation Section (5)(1) Significant Problems, Abuses, and Deficiencies Recommendations With Respect to Significant Section (5)(2) Problems, Abuses, and Deficiencies Prior Significant Recommendations on Which Section (5)(3) Corrective Action Has Not Been Completed Section (5)(4) Matters Referred to Prosecutive Authorities Summary of Instances Where Section (5)(5) Information Was Refused Section (5)(6) List of Audit Reports Section (5)(7) Summary of Each Particularly Significant Report Statistical Table Showing Number of Reports and Section (5)(8) Dollar Value of Questioned Costs Statistical Table Showing Number of Reports and Dollar Value of Recommendations That Funds Be Section (5)(9) Put to Better Use Summary of Each Audit Issued Before This Reporting Period for Which No Management Decision Was Made by the Section (5)(10) End of the Reporting Period Section (5)(11) Significant Revised Management Decisions Significant Management Decisions Section (5)(12) With Which the Inspector General Disagrees AUDIT The Office of Audit is responsible for auditing grants, contracts, and cooperative agreements funded by NSF's programs. It also reviews agency operations and ensures that financial, administrative, and program aspects of agency operations are reviewed. The Office evaluates internal controls, reviews data processing systems, and follows up on the implementation of recommendations included in audit reports. In addition, the Office assists in the financial, internal control, and compliance portions of OIG inspections. All audit reports are referred to NSF management for action or information. The Office of Audit advises and assists NSF in resolving audit recommendations. The Office also acts as a liaison between NSF and audit groups from the private sector and other federal agencies by arranging for special reviews, obtaining information, and providing technical advice. The Office of Audit provides speakers and staff assistance at seminars and courses sponsored by NSF and other federal agencies and at related professional and scientific meetings. PROMOTING EFFICIENT USE OF NSF FUNDS __________________________________________________________________ Helping NSF increase the cost-effectiveness of its expenditures is a fundamental objective of our office under the Inspector General Act, which requires that we "provide leadership and coordination and recommend policies for activities designed to promote economy, efficiency, and effectiveness in the administration of" NSF's programs and operations. Such activities will be increasingly important as budgetary pressures mount in coming years. __________________________________________________________________ For FY 1997, the President has requested $3.32 billion in funding for NSF. This represents only a small increase over NSF's FY 1996 budget. Given these budgetary constraints, we review NSF's programs to help NSF identify expenditures that can be redirected. By eliminating less critical expenditures, NSF can devote more funding to innovation in research and education. In this reporting period, we identified over $7 million in NSF funds that we believe could be better used to support core science and engineering research and education. Procedures for Resolving Recommendations That NSF Funds Be Put to Better Use The Inspector General Act requires that we include in every semiannual report to the Congress the dollar amounts of costs we have questioned and recommendations we have made for funds to be put to better use. We generate "questioned costs" by conducting cost and compliance audits of NSF awardees. These audits assess whether award funds are being spent properly, as specified by the individual award's terms and conditions as well as government-wide guidelines published by the Office of Management and Budget (OMB). NSF and the award recipient resolve questioned costs. We usually identify funds that could be put to better use by reviewing NSF programs, policies, and procedures in an attempt to identify ways money could be saved and made available elsewhere within the program. When we make recommendations that NSF put funds to better use, we engage in discussions with NSF program officials; NSF awardees are usually not involved in the resolution process. __________________________________________________________________ Funds to Be Put to Better Use Funds the OIG has identified in an audit recommendation that could be used more efficiently by reducing outlays, deobligating program or operational funds, avoiding unnecessary expenditures, or taking other efficiency measures. __________________________________________________________________ Cost and Compliance Audit Findings Result in Questioned Costs. OIG financial audits focus on compliance with federal requirements; the sufficiency of the organization's internal control structure; and the allowability, allocability, and reasonableness of costs that were actually charged to the award. After reviewing the awardee's procedures, the auditors prepare a report that includes their opinion on the adequacy of the documentation in the areas mentioned above. To ensure that the awardee is complying with federal requirements, the auditors check for compliance with federal laws and regulations, the provisions of NSF's Grant Policy Manual, and the specific terms and conditions of the award(s) being audited. In reviewing the organization's internal control structure, the auditors determine whether the awardee's policies and procedures regarding its internal control structure are sufficient to provide reasonable assurance that the federal funds provided to the organization are spent properly. The auditors also ensure that the policies and procedures are put into practice. The auditors also test the allowability, allocability, and reasonableness of claimed costs, which may ultimately result in the return of funds to NSF. The auditors test a variety of claimed osts to determine whether the charges are allowable under federal law, allocable to the particular award, and reasonable. If the claimed costs do not meet all three of these requirements, they are "questioned," that is, the agency's audit resolution office is asked to decide whether the cost will be paid or "disallowed." Once the auditors have completed their review, they draft an audit report. We send the awardee a copy of that draft audit report. The awardee may then respond to the findings in the draft audit report, and that response is included in the final report. When the report is final, it is sent to NSF financial specialists in the Division of Grants and Agreements (DGA) and the Division of Contracts, Policy and Oversight (CPO) for formal distribution and resolution. DGA and CPO review the recommendations in the report and resolve the issues raised with the awardee. During the resolution process, DGA and CPO keep us informed of their progress. Recommendations That Funds be Put to Better Use. In the course of a cost and compliance audit, we sometimes observe instances where NSF may save money by changing its own policies or procedures for an award or program. We also conduct focused reviews of NSF programs, which may identify a way to modify NSF's management of a program that would result in cost savings. We make recommendations for agency action to realize these savings and use the funds to achieve NSF's core scientific and educational objectives more efficiently. Our recommendations often involve prospective changes to NSF's management of a particular award or program. We specify where we believe cost savings can and should be realized, but program staff always have broad discretion to decide whether to adopt these savings, and, if they do, to decide how saved funds can be used to further the program's core scientific and educational objectives. The process used for deciding whether to implement cost saving recommendations is different from the resolution process for questioned costs. Because our recommendations often involve funding decisions by NSF management, we direct our findings to the responsible NSF program office, rather than to NSF's financial administrators. The program office has an opportunity to respond informally to our recommendations after it receives a discussion draft of our report. After considering the program office's response, we issue a second draft, which is resubmitted to the NSF program office so that it may formally respond in writing. When we receive the written response to our second draft, we make any final changes to the report we feel are appropriate and attach NSF's response. At this point, the report is "final" and becomes available to the public under the Freedom of Information Act. Recommendations that funds be put to better use are resolved through discussions between OIG and the NSF program office; we do not direct our recommendations to awardees because the recommendations involve funding decisions by NSF management. We follow up on reports by tracking recommendations through quarterly status reports on the agency's progress in implementing our recommendations. Sometimes a recommendation that funds be put to better use results in a one-time-only cost savings. Because most of these reviews involve long-term programs or projects, implementation of our recommendations for the better use of funds often results in cost savings that accumulate over time. To provide a reasonable estimate of the value of most of our recommendations, we are required to estimate the length of time over which savings will accrue. In some circumstances, the assessment is relatively easy-for example, in Semiannual Report Number 12 (page 3), we recommended renovation of a barracks in New Zealand for use by the Antarctic program. The Navy had estimated the renovated barracks would have a useful life of 15 years, so we estimated the savings for that period. Sometimes, however, there is no readily identifiable duration over which our recommended cost savings will accrue. Under the Government Performance and Results Act, federal agencies must submit a strategic plan for all program activities covering a period of at least 5 years. Since NSF will be making its strategic plans for 5-year periods, we believe it is appropriate to calculate cost savings over 5 years. Ocean Drilling Program Could Allocate an Additional $4.46 Million Over 5 Years for Scientific Research The Ocean Drilling Program (ODP) is an international collaboration that contributes to the fundamental knowledge of the earth's history and geology by obtaining and analyzing cores of sediment from ocean floors. Sixty percent of ODP's operations are funded by NSF, and the remaining 40 percent are funded by six international organizations; however, NSF manages all of the funds. The total FY 1996 budget for ODP's management and operations contract is approximately $45 million, which is the same as the amount that was budgeted in FY 1994, and $1 million less than FY 1995. With these budget constraints in mind, we reviewed the ODP in an effort to identify areas in which prospective changes would result in cost savings. We made recommendations for agency action to realize these savings so that the funds can be used to more directly achieve ODP's scientific objectives. In addition to obtaining data that add to the scientific understanding of earth's history and geology, one of ODP's objectives is to disseminate the information developed by the Program's research. ODP publishes its own hardbound volumes, the Proceedings of the Ocean Drilling Program (the Proceedings), which present the data and scientific results for each of the six trips made each year by ODP's drilling ship to obtain sediment cores from different locations. Each of these trips is called a cruise. We believe the costs of publishing the Proceedings are excessively high. In FY 1996, ODP will spend $1.7 million preparing the Proceedings. One volume of the Proceedings is produced for each cruise, for a total of six volumes per year. Each volume consists of two separate, hardbound issues: Scientific Results and Initial Reports. About 1,800 copies of each issue are printed, of which approximately 1,540 copies are distributed free of charge, about 50 are sold, and about 210 are kept for future distribution. It costs approximately $790,000 per year to produce the six issues of Scientific Results and about $904,000 to produce the six issues of Initial Reports. Initial Reports. Initial Reports are published about 1 year after each cruise ends and contain information on materials and raw data that were obtained during the cruise. Initial Reports are almost entirely collaboratively written by all of the scientists who are present on each cruise. Initial Reports typically contain about 400 pages of text and 400 pages of photographic and tabular data. Initial Reports serve an essential function by making the basic raw data and information from each cruise available to geologists and oceanographers worldwide. They must be widely and readily available to scientists seeking to obtain this information. ODP has begun producing Initial Reports on CD-ROM, and is considering making them available on the Internet. Since Initial Reports exist only to provide reference data for use by technically sophisticated scientists, we suggested that ODP shift its focus from bound issues to CD-ROMs and Internet availability. These formats are much less expensive than the bound issues currently being produced. The low cost of manufacturing CD-ROMs and the accessibility of Initial Reports over the Internet would greatly improve the availability of ODP data worldwide. Moreover, Initial Reports can be significantly more useful in electronic format because the text can be searchable, and the pictures, which are currently printed in black and white, can be reproduced in color without substantially increasing costs. ODP could save about $220,000 annually if it stops publishing the printed version of Initial Reports. The value of the savings over the 5-year planning period beginning in FY 1997 totals $1.1 million. However, NSF has approved ODP through FY 2003, and plans are underway to extend the ODP for an additional 10-year period beyond 2003. If the printed version of Initial Reports were eliminated in FY 1997, the annual cost savings would be maintained for at least 17 years. Scientific Results. Scientific Results are published about 3 years after each cruise ends. A typical Scientific Results issue is about 800 pages long and contains about 50 research articles written by scientists that participate in the cruise. These articles are of the type that ordinarily could be published in either general or specialized scientific journals. However, scientists affiliated with the cruise are required to publish articles in Scientific Results, even though many publish similar, or occasionally the same, articles in the general literature or would prefer to. Indeed, there is a perception among many ODP participants that increasingly the best manuscripts are submitted elsewhere, to journals that are circulated more widely and are more effective in enhancing a scientist's reputation and career. We recommended that ODP cease publishing these costly issues. Using essentially the same reasoning, last year, two ODP committees recommended that the requirement of publishing in Scientific Results be eliminated. A majority of the members of a third committee voted in favor of eliminating Scientific Results altogether, but the motion did not pass because it required a two-thirds majority and at least three non-U.S. votes for passage. We believe Scientific Results should be phased out over the approximately 18 months required to publish the volumes now in-process. In our view, the loss of Scientific Results as an ostensibly unified format for presenting each cruise's articles would be offset by the higher visibility afforded by publication of the results in scientific journals, which are distributed to a greater number of libraries. Since Scientific Results would be phased out over 18 months, the full annual cost savings would not be realized until FY 1998. We estimate cost savings of about $200,000 in FY 1997 and savings of about $790,000 each year thereafter for at least 16 years. Over the 5-year planning period beginning in FY 1997, ODP could save $3.36 million. If ODP stops printing bound issues of Initial Reports and stops publishing Scientific Results altogether, it will save $4.46 million over the 5-year planning cycle. If ODP adopts our recommendations, it will have greater resources to devote to awards for individual investigators as well as to technical innovations that, according to ODP, are sorely needed but have been delayed because of budgetary constraints. Because ODP is a cooperative international project, NSF management is forwarding our recommendations for consideration by the appropriate international advisory committees. Once the advisory committees have addressed the issue of ODP publications, NSF management will respond to our recommendations. ANTARCTIC PROGRAM CAN ALLOCATE ADDITIONAL FUNDS FOR RESEARCH __________________________________________________________________ NSF supports research in the Antarctic and has overall management responsibility for U.S. operations in Antarctica. In FY 1995, NSF spent over $160 million on logistic support and $29 million on scientific research. A portion of the logistics budget directly supports research, such as providing travel and field support. Nonetheless, it is clear that a relatively small cost savings in logistics could allow a relatively large increase in the Antarctic research budget. We identified three elements of the logistics budget that could be used to better support scientific research in Antarctica. __________________________________________________________________ Temporary Duty Pay to Contractors in Antarctica Can Be Reduced Logistic support for research in Antarctica is provided by a civilian contractor. In this reporting period, we reviewed the temporary duty salary supplements the contractor provides for its full-time employees who work year-round. The contractor pays salary supplements when it deploys its employees in Antarctica. The supplement or "bonus" is not given to employees as a reward for outstanding work; it is a hardship differential that is given to those employees who work in Antarctica's inhospitable climate. Over the 6-year contract period, the contractor increased the amount of bonuses paid from 13 to 24 percent of its employees' salaries and decreased the length of time employees had to be in Antarctica to be eligible for a bonus from 30 days to 1 day. These changes contributed to a 45-percent increase in bonus payments between 1993 and 1995. In 1995, the contractor paid its full-time employees $419,000 in bonuses. We also found that the temporary duty bonuses the contractor paid top and middle managers in 1995 totaled almost $50,000. We believe the base salaries of contract employees stationed on the ice take into consideration Antarctica's remote location and the length of deployment. The purpose of the temporary duty bonus is to compensate employees who spend an unusually extended period of time away from home, not just a few days. In contrast, federal employees and the contractor's seasonal employees do not earn a bonus beginning on the first day of service on the ice. Seasonal employees work under contract during the austral summer. These employees must complete a 6-month contract before they receive any bonus, and federal employees must complete 42 consecutive days of service in Antarctica. Federal employees begin to earn bonuses on their 43rd day of deployment and do not receive bonus payments that are retroactive from the first day of deployment. We recommended that NSF's Office of Polar Programs (OPP) limit the amount of NSF funds that can be used to pay for bonuses. The contractor remains free to fund additional bonus payments from other funding sources. Under our recommendations: Federal funds would support bonus payments only when the contractor's full-time employees serve at least 30 consecutive days in Antarctica. By making this change, we estimate that NSF would save $50,000 annually. NSF funds would not be used to support bonus payments retroactive to the first day of service in Antarctica. By not making the pay retroactive, OPP would save an additional $150,000 annually. OPP is evaluating our recommendations. We estimate that OPP will save about $1 million over 5 years if our recommendations are implemented. Cost Savings Associated With Antarctic Research Vessel In Semiannual Report Number 13 (page 8), we reported on our review of a subcontract with the owner of a research vessel used in the Antarctic program. We recommended $1.2 million in cost savings relating to the daily rate NSF pays to charter the vessel. During this reporting period, we reviewed the subcontractor's and NSF's responses to our recommended cost savings. The subcontractor submitted a revised proposal concerning the daily rate paid to charter the vessel for NSF's evaluation and approval. In the revised proposal, the subcontractor adopted some of our recommendations for cost savings. The subcontractor's revised proposed daily rate will save at least $512,000, based on the vessel being at sea 365 days a year. In addition, based on the subcontractor's estimate of time the vessel will spend in dry dock, we expect that NSF will save an additional $274,000, with the possibility for greater savings if more time is spent on vessel maintenance. NSF could have realized additional cost savings if the vessel was taken off hire during required Coast Guard inspections and the subcontractor assumed liability for catastrophic damage during the period of the lease. NSF and the subcontractor did not agree with these recommendations for additional cost savings. Recommendation for Better Use of Vacant Buildings in New Zealand Remains Under Review In Semiannual Report Number 12 (page 2), we discussed our recommendation that NSF refurbish one of several vacant barracks in New Zealand to house contractor employees and military personnel who provide logistical support for operations in Antarctica. We estimated that this would save at least $4 million. As of the end of this reporting period, NSF was still working on a cost-benefit analysis because of changes in NSF's leasing arrangement with the Christchurch Airport Authority, changes in the military's involvement with the program, and the recent shutdown of NSF's operations. Although we understand the reasons for the delay, we encourage as swift a completion of the cost-benefit analysis as possible in order to determine the best course of action to achieve cost savings for the program. AUDIT FOLLOWUP OF INSPECTION FINDINGS IDENTIFIES AREAS FOR COST SAVINGS __________________________________________________________________ Our auditors regularly work with inspection teams by reviewing the financial aspects of NSF awards. Two inspections resulted in substantial cost savings for NSF programs. __________________________________________________________________ Accurate Allocation of Costs to Biological Laboratory Saves NSF Funds In Semiannual Report Number 11 (page 35), we reported on our inspection at a nonprofit marine biological laboratory. The inspection observed that the laboratory neither recorded the time employees worked nor correctly allocated indirect costs. Costs for the program were being charged to only 23 of the 38 programs that fund the laboratory. As a result, NSF was charged for costs that should have been allocated to other projects at the laboratory. Because these findings were material, we conducted a follow-up audit to evaluate the laboratory's implementation of the recommendations made in our inspection report. Because the laboratory implemented our recommendations, NSF saved over $170,000 in 1995. We expect NSF to continue to save approximately the same amount in future years for a total savings of $850,000 over the 5-year planning cycle. We recommended that the laboratory begin recording the time employees worked on NSF awards and charge the employees' salaries to NSF based on the recorded time. The laboratory implemented our recommendation. Based on the employees' recorded time, the laboratory charged NSF $121,868 less in administrative salaries and related indirect costs in 1995 than it charged in 1993. If the laboratory continues to record and use actual time to charge salary costs to NSF awards, we expect the laboratory's future proposals will save NSF about $120,000 each year on administrative salary costs or $600,000 over the 5-year planning cycle. We also recommended that the laboratory review the allocation of "joint costs," that is, those costs that are allocable to all of the projects at the laboratory's research center. We examined the research center's joint cost rate and the application of that rate to federal awards. The research center had revised the procedures to allocate the joint costs on federal awards to all projects. These revised procedures ensured that all projects as well as the laboratory's indirect cost account would be allocated their share of the joint costs. Because the joint costs were allocated to more projects, there was a reduction in the joint cost rate from 15 to 5 percent. Based on the laboratory's revisions to the joint cost rate, we estimate that the research center charged NSF $47,781 less for joint costs in 1995. We expect that the research center will include less joint costs on future award proposals. NSF should save approximately $50,000 each year on joint costs or $250,000 over the 5-year planning cycle. Inspection Identifies Costs Savings in NSF Funding of Economic Research Institution An OIG inspection of an economic research institution made several recommendations that would reduce the institution's indirect cost rate. We recommended that NSF no longer pay for certain costs associated with working papers and honoraria for visiting scientists. We estimate that NSF could save approximately $800,000 over a 5-year period by implementing our recommendations. Based on an analysis of information collected during the inspection, we prepared a memorandum to NSF management quantifying the effect of our recommendations and responding to the institution's justifications for including certain costs in its indirect cost pool. NSF officials are reviewing our memorandum. FOLLOWUP ON SIGNIFICANT RECOMMENDATIONS FOR COST SAVINGS NSF Will Continue to Pay Fees to an Organization Specializing in Atmospheric Research We are responsible for auditing all federal funds at a nonprofit organization dedicated to atmospheric research. NSF and other federal agencies provide $100 million per year to this organization in the form of direct costs, indirect costs, and management fees. In Semiannual Report Number 13 (page 5), we reviewed management fees paid to the nonprofit organization and recommended that NSF no longer pay a fee. The nonprofit organization already receives federal funds to cover the indirect costs of research and uses the fees to cover costs that are unallowable under federal cost principles. We suggested that the nonprofit organization pay for "unallowable" costs by using funds it receives from nonfederal sources. In the last semiannual period, we estimated that NSF and other federal agencies could save in excess of $4.5 million over a 5-year period by not paying the fees. During this reporting period, the nonprofit organization requested an additional $1.3 million in fees from another federal agency. The nonprofit organization included the request for fees in a cost proposal for a new contract with that agency. The contracting officer for the other federal agency requested that we do a preaward review. Based on our preaward review, we suggested that the federal agency not provide the fee under the new contract. We are advised that the federal agency intends to discuss this issue during contract negotiations with the nonprofit organization. NSF's Deputy Director and the Assistant Director for Geosciences reviewed our recommendations that NSF no longer pay a fee. NSF management did not agree with our recommendation. The Deputy Director concurred with the Assistant Director's decision "that it is appropriate for NSF to continue to pay a modest fee" of $75,000 per year to the nonprofit organization. Further, the Deputy Director decided not to adopt an approach that would address fees paid by other federal agencies. The Deputy Director explained that it "does not seem to me appropriate to use NSF's fee relationship with (the nonprofit organization) as a vehicle to proscribe fees paid . . . by other federal agencies." Rather than paying a fee based on a percentage of the award, NSF caps the annual fee to the organization at $75,000 per year, which amounts to less than 0.2 percent of the award. The nonprofit organization has requested that other federal agencies pay a fee based on a percentage of the award-in some cases, as high as 3 percent. Under this approach, fees paid by other federal agencies over a 5-year period will total approximately $6 million. We advised the Inspectors General at the other federal agencies of NSF's decision to continue to pay a fixed fee of $75,000 per year. We suggested that the Inspectors General recommend that their federal agencies limit the percentage of funding that is paid as a fee to the percentage that NSF pays. By capping the fee in proportion to the amount paid by NSF, other federal agencies would save $5.8 million over 5 years. We also recommended that NSF notify Congress of all fees the government intends to pay the nonprofit organization and receive congressional approval. The Assistant Director for Geosciences rejected our recommendation, stating that he found "no rules, regulations, policies or compelling reasons to specifically request and receive Congressional approval for the payment of fees." NSF Saves Funds in Management of Supercomputer Center But Does Not Disallow Costs As described in Semiannual Report Number 12 (page 10), we audited a company that operates one of NSF's four supercomputer centers. We questioned nearly $3 million because we found that the company charged unallowable and unsupported costs. We also made recommendations to save costs in the future. The company returned $59,239 for excessive consultant fees. In a draft resolution memorandum sent to the company, CPO did not request that the company return $2,931,784 of the remaining questioned costs. CPO determined that $1.7 million of these costs were incurred prior to NSF's formal notification to the company that NSF will no longer fund independent research and development costs. Nonetheless, CPO formally advised the company that it would not provide future funds for additional independent research and development costs (estimated at $500,000 annually). We also questioned $1 million because the company commingled NSF's costs with costs paid by the State of California and industrial participants. CPO requested that the company make improvements to its accounting system so that the company will charge NSF only for costs related to the NSF project, but elected not to disallow past costs that were commingled in other accounts. CPO accepted three other recommendations that should save costs. It agreed to require that the company refinance outstanding loans if a more favorable rate can be obtained, examine large equipment purchases on a case-by-case basis to determine whether it is beneficial for NSF to own the equipment and thereby save the cost of state sales tax, and begin negotiations with the company that operates the supercomputer center to determine the equitable allocation of building costs among all funding sources. The company did not agree with all of CPO's proposed actions. CPO expects to make a final decision during the next reporting period. __________________________________________________________________ Questioned Cost A cost resulting from an alleged violation of law, regulation, or the terms and conditions of the grant, cooperative agreement, or other document governing the expenditure of funds. A cost can also be "questioned" because it is not supported by adequate documentation or because funds have been used for a purpose that appears to be unnecessary or unreasonable. __________________________________________________________________ OTHER AUDITS OF ORGANIZATIONS THAT RECEIVE NSF FUNDING __________________________________________________________________ We select organizations and awards for review based on a preliminary assessment of whether it appears these organizations would have difficulty complying with regulations that govern the use of federal funds. By using risk assessment principles, we try to identify those organizations or programs that have the greatest risk for financial irregularities and provide opportunities for the greatest dollar recoveries. This section describes audits of NSF awardees conducted in this reporting period that involve significant questioned costs. ___________________________________________________________________ State Systemic Initiative Program Needs to Improve Oversight of Subawards and Cost Sharing The Statewide Systemic Initiatives (SSI) program seeks to improve science education at the state level by providing grants directly to a state government agency or to a state-approved entity. Most SSI awards are for 5 years. In FY 1995, the SSI program allocated $45 million among 24 states and Puerto Rico. The SSI program's goals are to increase students' knowledge of science and mathematics and assist students in sharpening their critical thinking skills. The 20 participating states are expected to manage the awards, share in the program costs, and allocate personnel to support the program. In Semiannual Report Number 13 (page 13), we reported that our risk assessment process had identified the SSI program as one that warranted further review. We completed one audit of an SSI award during a prior reporting period. During this reporting period, we completed seven more audits of SSI awards. In these eight audits, we questioned $1,341,000 of the $30,027,024 claimed. Because most questioned costs involve subawards, we believe awardees need to significantly improve their monitoring of subawards. We also found that three awardees needed to increase their cash contributions to the projects because they had not provided 30 percent of their promised cost sharing. Subawardee Monitoring. Inadequate monitoring of subawards is particularly problematic because most primary SSI award recipients disburse large portions of their awards to other organizations. In fact, some states implement their SSI award by issuing subawards to as many as 200 different entities. Three awardees reviewed thus far failed to provide adequate oversight of subawardees, did not require that subawardees submit subcontracts to the awardee for review and approval, and/or maintained incomplete files on agreements with subawardees. One awardee did not receive expenditure reports from most of its subawardees. Of the $1,341,000 we questioned, subawardees claimed $1,242,919. Although subawardees accounted for only about 69 percent of the claimed costs, they were responsible for about 93 percent of questioned costs. We believe this high percentage stems from a combination of the awardees' failure to provide oversight of the subawardees and the subawardees' lack of financial accounting expertise. We questioned over $760,000 because subawardees from four states based their claims for NSF funds on budget estimates rather than actual expenditures and because advances paid to two subawardees exceeded their costs. One other awardee provided cash advances to subawardees that exceeded their immediate needs, and another advanced funds based on the budget rather than expenditures. Inadequate timecard systems and missing payroll records resulted in about $270,000 in questioned costs for subawardees in four states. We also questioned about $100,000 because of other kinds of inadequate documentation. Some subawardees did not appear to know which costs could properly be billed to the award. We questioned about $21,000 claimed by subawardees in two states because NSF had not approved the items claimed. Similarly, we questioned about $29,000 because the costs were not allocable to the award or did not benefit the program being charged for the expenditures. Some subawardees were unfamiliar with NSF's requirements regarding payments to consultants. Three subawardees exceeded NSF's restriction on payments to consultants. As a result, we questioned about $9,000 in costs. In addition, we questioned about $10,000 in consultant charges claimed by four subawardees that were not supported by agreements or invoices. We recommended that NSF program staff emphasize the need for a coordinated approach by the awardees and subawardees. We recommended that awardees annually report to NSF on their monitoring of subawardees, including information about site visits to subawardee facilities. The annual report should also include details on subawardee reporting of actual expenditures. Cost Sharing. Cost sharing was a significant problem for most awardees. States are expected to share in the costs of the SSI program. In fact, the program's solicitation states: An important consideration in the awarding and continuation of funding will be the degree to which proposals incorporate the use of state, local, and private resources. . . . No proposal will be considered that does not explicitly address the integration of activities to be carried out with state and local funds, private sector funds, and funds received from the Department of Education . . . and other federal funds. Federal funds from all sources can be only a relatively small part of the total effort which this program will initiate. Substantial fiscal commitments from state and local sources must be the major and continuing means to assure long term improvement. Despite this clear direction, our audits showed that several awardees fell short of their cost-sharing goals by about $800,000. Almost all of the cost-sharing shortfall involved three awardees. These three awardees had promised $2.6 million in cost sharing, but they provided only $1.8 million--a 30-percent shortfall. Three other awardees and several subawardees failed to maintain adequate cost-sharing records; however, most of these awardees and subawardees were able to gather documentation to support fulfillment of their cost-sharing obligation. We recommended that NSF management establish a system to monitor awardee cost sharing and ensure that awardees are providing the amount they promised in their proposals. NSF's Assistant Director for Education and Human Resources agreed to implement our recommendations. Ongoing Review of Participant Support Results in Significant Questioned Costs and Findings Many NSF grants support science and education conferences, meetings, symposia, training activities, and workshops. NSF uses the term "participant support costs" to describe "costs of transportation, per diem, stipends, and other related costs for participants or trainees (but not employees) in connection with these conferences and meetings." In this reporting period, we completed 17 on-site audits of participant support costs under NSF awards. We audited a cross section of NSF award recipients, including universities and colleges, museums, secondary public school districts, foundations, and other non-profit institutions. These audits questioned $1,304,447. In Semiannual Report Number 13 (page 11), we reported $600,000 in questioned participant support costs claimed by 50 awardees because funds were spent for items other than participant support without prior NSF approval. This issue arose again in audits conducted in this semiannual period, which resulted in our questioning an additional $183,682. As a result of our recommendations, CPO and DGA advised NSF program managers of the need for prior, specific written approvals for changes in participant support spending levels; required that program officials coordinate any requests for after-the-fact approvals with DGA; and began emphasizing in various outreach and training activities that participant support costs may only be used for other purposes with prior NSF approval. Audits conducted in this period identified other significant questioned costs involving participant support. We questioned $272,237 in costs claimed by 12 awardees for expenditures that were unallowable, ineligible, or not contemplated by the awards. Unallowable and ineligible questioned costs included claims for stipends or per diem paid for employees and local participants, costs not related to NSF awards, duplicate reimbursements, alcoholic beverages, trips to an amusement park, and tee-shirts. Other costs we questioned included: $113,605 in indirect costs that exceeded award limits; $212,735 in costs that were misclassified between participant support expenditures and other kinds of expenditures; $409,338 of costs that were not recorded in accounting records or were not supported by sufficient documentation; and $325,585 because three NSF awardees did not document cost sharing that they promised in return for receiving participant support from NSF awards. In several isolated incidents, we could not reconcile information provided by NSF awardees about funds the awardees told us they paid to participants with information supplied by the participants themselves. We referred these matters to our Investigations section for further review. Our audit reports with questioned costs for participant support were forwarded to CPO for audit resolution. We consider our findings in the area of participant support to be significant and plan to continue conducting reviews in this area. A Program Evaluations Contractor Charges Ineligible and Unsupported Costs to NSF Awards At the request of NSF's CPO, we conducted an audit of two contracts worth over $6 million. The two contracts were awarded to provide technical support to two NSF Offices in collecting, verifying, analyzing, and distributing quantitative and qualitative information on NSF science, mathematics, and engineering education programs. We questioned approximately $200,000 because the amount the contractor charged NSF for profit (defined in the contract as a "fixed fee") exceeded the limit specified in the contract. We also questioned approximately $700,000 because the contractor did not provide satisfactory records to establish that contract funds were actually expended for the costs claimed. This included labor costs that were charged to NSF in amounts greater than the amounts actually paid by the contractor. In one instance, the hourly rate claimed for an employee exceeded the hourly rate actually paid by $42. Our review of hourly charges was limited because the contractor was unable to provide detailed labor records promptly. Our review of hourly charges for employees will continue in the next reporting period. The contractor did not agree with our questioned costs, and we forwarded our report to CPO for resolution. Native American Community College Has Substantial Questioned Costs NSF awarded a 4-year, $314,521 grant to a community college located on a reservation for Native Americans. The award provided funds for the community college to improve the quality of education for Native Americans by conducting a reservation-wide conference and teacher workshops as well as piloting an associate degree program for science and mathematics. Our risk assessment process identified significant problems with the community college's financial management of the grant. We classified the community college as a high-risk organization and scheduled these awards for audit. We questioned $258,955 because the community college paid an employee $46,048 for time he did not work on the award; charged $50,563 for travel costs in excessive amounts and could not provide expense reports or receipts; charged $43,320 of participant support funds and other costs without NSF's approval; charged $33,190 for unallowable food, entertainment, personal items, and indirect costs; and did not contribute $84,921 for the community college's share of cost sharing proposed under the award. The community college did not agree with our questioned costs. CPO is reviewing our audit report to determine the amount of questioned costs that will be disallowed. Nonprofit Organization Returns Excess Funds NSF awarded a nonprofit organization a $363,565 grant to improve children's education in language and mathematics by training teachers, furnishing parents with home tutorial materials, and providing tutors for students who do not perform well in language and mathematics. The nonprofit organization received $66,928 more in award funds than it needed. After the completion of the grant, the organization had not returned the funds. We also found a material weakness in the organization's accounting for $232,209 in employees' salaries and fringe benefits. Based on our recommendations, the organization returned the $66,928 of unused funds and agreed to strengthen controls over salaries. Engineers' Society Needs to Identify Cost Sharing We audited a nonprofit society for engineers that received $842,103 from two NSF grants to develop engineering curriculums for middle school students. On one grant, the society promised to cost share $585,000 in the grant's first year, but only contributed $136,198. The society stated that the cost-sharing deficit would be made up during the next 2 years of the grant. We recommended that NSF monitor the society's cost sharing. We also questioned $28,792 because the society spent participant support funds on other costs without NSF's approval and charged for consultant services in excess of the maximum daily rate. CPO will resolve issues raised in our report during the audit resolution process. OTHER ACTIONS TAKEN TO PROTECT FEDERAL FUNDS __________________________________________________________________ We often review NSF awards before large amounts are expended to ensure that federal funds are properly protected. In this reporting period, we recommended that CPO/DGA take action to protect NSF funds at three funded organizations. One of these audits was conducted by our staff, and the other two were conducted by our colleagues at the Department of Health and Human Services' (HHS) OIG and the Defense Contract Audit Agency (DCAA). __________________________________________________________________ Urban Public School System Needs to Improve Internal Controls NSF management requested that we evaluate a public school system's ability to effectively administer a $13.5 million award. The school system is a fiscally dependent agency of a financially troubled local government. NSF awarded the school system $13.5 million to stimulate systemic reform in its science, mathematics, and technology programs. Because the school system had spent only $158,574 of the award at the time of our audit, we reviewed three additional NSF awards for a total of $500,000. The purpose of our audit was to assist the school system so it could better manage award funds. The school system did not comply with certain federal requirements for financial management, which could have significant consequences for the awards' objectives. The school system did not adequately record time employees worked on the award, obtain NSF approval to spend participant support funds in other areas, or monitor cost sharing. Because the school system did not record the time employees worked on NSF awards, one employee was paid for time he did not work on the award. We also identified costs budgeted for participant support that the school system expended in other categories without the NSF program officer's approval. Because the school system did not keep records on cost sharing, there was no systematic way for them to monitor, and for us to easily verify, that promised cost sharing had in fact been provided. We believe our findings are important because, over the 5-year life of the award, the school system has committed to cost share $21.4 million as well as expend $1 million in salaries and $1.4 million for participant support costs. We recommended that the school system account for cost sharing in a well-documented system, keep activity records for employees, and use funds allocated for participant support solely for participants. The school system generally agreed with our recommendations. Controls Needed on NSF Awards to a College HHS' OIG advised us that a college had a deficit of over $48 million in its unrestricted fund balance. Although this deficit is not as great as it was in the prior year, the college's Health Services Division, which was the principal cause of the college's financial problems, incurred a loss of almost $2 million for the year reviewed. Expenditures under NSF awards totaled almost $1.3 million during this same period. HHS' OIG reported that the college has managed to stay in operation by using transfers from other funds and bank loans. The college is also a defendant in several lawsuits that seek damages that exceed its insurance coverage. Based on this information, we questioned the college's ability to continue as a viable entity. NSF has $6.5 million in active awards with the college. Although we would not want to take action that would increase the college's financial predicament, we need to ensure that NSF funds are used solely for their intended purpose. We recommended that CPO take immediate action to ensure that NSF's funds are protected. In response to our recommendation, NSF has reviewed the college's portfolio of awards and has received additional financial information from the college. NSF will continue to monitor the college's financial status. NSF Award Suspended Because of Unreliable Accounting System DCAA identified a contractor that had awards from the Department of Defense (DoD) and NSF as having major deficiencies in its system for accumulating and reporting contract and grant costs. DCAA also determined that there were numerous discrepancies between the records on costs incurred and those claimed. DCAA recommended that the company's accounting system be disapproved. Based on the information developed by DCAA, both DoD and NSF stopped payment on awards to protect federal funds. The stop payment affected about $600,000 of $1,246,700 in DoD funding and $88,800 of $214,645 in NSF funding. The suspension will remain in effect until the accounting issues are resolved. AUDITS INVOLVING NSF'S INTERNAL FINANCIAL MANAGEMENT __________________________________________________________________ The Government Management Reform Act of 1994 amended the Chief Financial Officers Act (CFO) and increased the scope of our annual audit of NSF's financial operations. Our responsibilities increased from auditing financial statements for NSF's $40 million Donations (Trust Fund) Account to auditing NSF's entire $3.2 billion budget beginning in FY 1996. The CFO is presently making decisions on the report format and content of the FY 1996 financial statements. He is also considering changing the agency's accounting procedures to produce more accurate data for financial statement compilation. In July 1995, the CFO contracted with a private accounting firm at a cost of approximately $600,000 to provide assistance in preparing FY 1995 prototype financial statements and provide advice concerning the compilation of the FY 1996 financial statements. During this reporting period, the accounting firm issued a report to the CFO that suggested reporting formats and identified several areas where internal controls and accounting procedures should be improved, such as property, plant and equipment, accounts payable, financial reporting, and performance measures. According to the accounting firm's report, NSF may encounter significant difficulties when it attempts to place a value on property that is classified as an asset in NSF's financial statements. ___________________________________________________________________ CHIEF FINANCIAL OFFICER AUDIT ACTIVITIES Results of FY 1995 CFO Audit In this reporting period, we audited NSF's FY 1995 Donations Account Financial Statements and issued Auditor's Reports on Principal Statements, Internal Control, and Compliance. We provided an unqualified opinion on the Principal Statements and Compliance. We issued a qualified opinion on Internal Control because NSF did not have adequate controls for collecting and reporting performance data. To compensate for this lack of controls, we expanded our audit's scope to conduct a more detailed review of the supporting documentation and to verify all of the performance data in the financial statements. We were able to conduct a detailed review of the supporting documentation because this audit only involved the Donations Account, which has a total value of approximately $40 million. Preparation for Agency-Wide Audit We've been working with NSF's contract office, CPO, to complete the solicitation process to procure a public accounting firm to assist in the FY 1996 agency-wide financial statement audit. OIG does not have its own contracting official, so we rely on CPO to award our contracts and manage contract solicitations. As noted earlier in this report, the request for proposals for this contract was delayed significantly because of the shutdown of agency operations in November and December 1995 and January 1996. CPO issued the request for proposals on March 25, 1996, and hopes to award the contract by October 1, 1996. We are preparing for our audit of NSF's first agency-wide financial statements by conducting reviews in several key operational areas, including electronic data processing (EDP), budget, general ledger maintenance, and grantee cash management. Data will be generated from systems in these operational areas to compile NSF's first agency-wide financial statements. The results of these reviews are described below. Review of NSF's Federal Cash Transactions Report System. Each year, NSF issues grants to over 2,000 institutions. Approximately 15 percent of NSF's grantees account for about 85 percent of NSF's $3.2-billion cash authorization. NSF disburses funds to grantees primarily by the advance and reimbursement methods. NSF uses a Federal Cash Transactions Report (FCTR) to monitor cash advanced to recipient grant institutions, obtain disbursement information from the recipients, and record the disbursements in NSF's Financial Accounting System (FAS). Our audit observed that advances were overstated and expenses were understated because reimbursements to grantees are recorded in the FAS as advances. This could result in a material misstatement in the financial statements. We also identified redundant and inefficient internal processing procedures and made recommendations to reduce the time and cost of processing grantee cash requests and FCTRs. In addition, we made several recommendations to improve internal controls and ensure that all institutions required to do so submit an FCTR, the proper payment method is used to pay grantee institutions, maximum individual grant limits are not exceeded, expired grant accounts are properly closed and deobligated, and interest earned is properly remitted. Review of Electronic Data Processing Controls in the Financial Accounting System. We conducted the second and third phases of our review of EDP controls in NSF's FAS. The objectives of the second phase of the review were to identify the procedures and controls in various subsystems that provide information to, and receive information from, NSF's FAS and determine whether those controls were adequate to produce reasonably accurate and complete financial data. The subsystems we reviewed are used to process procurements, training requests, proposals, payroll, vendor express payments, intergovernmental payments, cash advances requested through the Internet, and vendor billing correspondence. Overall, we found the systems were operating as designed, and the controls were adequate to produce reasonably accurate and complete financial data in the FAS. The purpose of the third phase of our EDP review was to determine the adequacy of the general and application controls in the FAS. We also reviewed the security of the mainframe operating system, the use of encryption and passwords to protect data, and NSF's compliance with government-wide computer security directives. The audit identified deficiencies in password management, separation of duties, Internet security, the FastLane security plan, internal controls over duplicate payments, electronic mail address management, and grantee bank account verifications. Review of the General Ledger. We conducted a review of the daily maintenance of the general ledger structure and account balances. We found that, in some areas, NSF's general ledger structure differed from the U.S. Standard General Ledger. This occurred primarily because the proponent for the U.S. Standard General Ledger guidelines, the U.S. Department of the Treasury, has not provided government agencies with complete predefined accounting entries that support the latest revised general ledger accounts. NSF management reviewed its general ledger accounts and agreed to make the changes that were feasible, based on the available guidance from the Department of the Treasury. Review of NSF Budget Execution System. We examined the procedures and internal controls used to execute and monitor NSF's budget. Our overall objective was to determine whether NSF was in compliance with OMB budget execution guidelines. We specifically ascertained whether controls were in place to prevent and detect overobligation of appropriations, reprogramming of funds was in compliance with congressional guidelines and NSF policy, budget execution reports to OMB properly reflected the obligations incurred, and the budget execution process was adequately monitored. NSF's policies and practices for reprogramming funds and monitoring the budget execution were acceptable. NSF's internal controls provided reasonable assurance that funds were safeguarded from overobligation, but they allowed staff travel to be inadvertently charged to program accounts. In addition, NSF's reconciliation of the budget to actual obligations at the end of the fiscal year needs to be better documented. There were inadequately documented adjustments made to the obligation amounts recorded in the FAS to arrive at obligations to be reported in the annual Justification of Estimates of Appropriations to the Congress Report (Justification Report). This Report compares funds obligated to funds requested. The reporting structure of obligations in the FAS is more detailed than in the Justification Report. Although the inadequately documented adjustments had no effect on the total reported obligations in either source, we believe that all adjustments should be fully documented to explain the differences between obligations recorded in the FAS and the Justification Report. OTHER REVIEWS INVOLVING INTERNAL NSF FINANCIAL MANAGEMENT __________________________________________________________________ In addition to reviewing issues relevant to the preparation of NSF's financial statements, we review other issues involving NSF's internal management. ___________________________________________________________________ NSF Needs to Institute Better Controls Over Long-Distance Telephone Calls NSF employees used AT&T's federal calling cards and telephones located at NSF to make over $367,000 in long-distance telephone calls in FY 1995. NSF routinely pays for these calls without verifying that employees made the calls for business purposes. We recommended that NSF's Division of Information Services (DIS) develop a plan to verify the appropriateness of long-distance calls, with particular attention to calls made with calling cards. Calls Made From NSF Offices. DIS cannot supply offices with telephone listings that identify the employees who make long-distance calls on telephones located at NSF. For calls made at NSF offices, DIS is currently trying to match the employee's extension numbers with long-distance telephone listings. Once DIS is able to sort telephone logs by employee, DIS will provide offices with listings of long-distance calls. Calling Cards. NSF's DIS has listings that show long-distance calls charged to employees' AT&T calling cards. Because employees have their own AT&T calling cards and personal identification numbers, verification of long distance calls should be relatively easy. However, DIS does not make the AT&T calling card billing information available to offices for verification. Because NSF does not verify that long-distance telephone calls are for business purposes, NSF may be paying for nonbusiness telephone calls. The risk is greater for telephone calls placed on AT&T's calling cards because the employee's personal identification number is on the front of the card. If cards are misplaced or stolen, they could be used by anyone for long-distance telephone calls. DIS agreed to begin circulating telephone logs for AT&T calling cards to NSF offices for verification. NSF Modifies Rates Paid for Panelists NSF uses scientists from outside the agency to serve on panels that review science and engineering grant proposals. Previously, NSF paid all panelists $260 per day to compensate them for the costs of lodging and meals. We recommended that NSF management review the policy to determine whether all panelists residing in the local metropolitan area should be receiving this daily compensation. The Director of NSF's Division of Financial Management raised the issue with senior management at NSF, which decided that panelists: residing in the local metropolitan area in which the meeting is conducted should receive compensation of $130 for each day of the meeting, who travel from outside the area in which the meeting is held may receive $260 for each day of the meeting and $130 for any travel day immediately preceding and following the meeting, and will not receive any compensation for preparation day(s) for panel meetings. INVESTIGATIONS The investigations section is responsible for investigating violations of criminal statutes or regulations involving NSF employees, grantees, contractors, and other individuals conducting business with NSF. The results of these investigations are referred to federal, state, or local authorities for criminal or civil prosecution or to NSF's Office of the Director to initiate administrative sanctions or penalties. EMBEZZLEMENT OR DIVERSION OF NSF GRANT FUNDS __________________________________________________________________ We place a high priority on allegations involving embezzlement, diversion of grant or contract funds for personal use, or other illegal use of NSF funds. Deliberate diversion of NSF funds from their intended purpose is a criminal act that can be prosecuted under several statutes. We encourage universities and other grantees to notify NSF of any significant problems relating to the misuse of NSF funds. Early notification of significant problems increases our ability to investigate allegations and take corrective action to protect NSF and its grantees. __________________________________________________________________ __________________________________________________________________ TABLE 1: INVESTIGATIVE ACTIVITY Active Cases From Prior Reporting Periods 28 New Allegations 33 Total Cases 61 Cases Closed After Preliminary Assessment 6 Cases Closed After Inquiry/Investigation 17 Total Cases Closed 23 Active Cases 38 __________________________________________________________________ Over $6 Million Recovered From Investigations of Small Business Innovation Research Awards NSF's Small Business Innovation Research (SBIR) program is designed to stimulate technological innovation in the private sector, strengthen the role of small businesses in meeting federal research and development needs, and increase the commercial application of the results of federally supported research. NSF provides funds to SBIR companies in two phases. Phase I awards are for up to $75,000 and are provided to test the viability of research ideas. Companies that are successful in the first phase may compete for Phase II awards. In Phase II, companies may receive up to $300,000 to develop their idea for commercial application. NSF is required by statute to allocate 2 percent and 2.5 percent of its research funds to the SBIR program in FY 1996 and 1997, respectively. Based on this formula, NSF expects to spend about $40 million on SBIR awards in FY 1996 and approximately $50 million in FY 1997. Eleven other federal agencies also provide funds to SBIR companies. In this reporting period, the Department of Justice resolved two major cases this office investigated involving companies that applied for and obtained numerous SBIR awards from multiple agencies for the same project. While the government recovered the money these companies fraudulently obtained--along with substantial fines and penalties--the injury to the government in these cases transcended monetary loss. In several of our cases, companies have argued that even though they fraudulently received funding from several agencies for the same project, the government did not lose anything because the funds were used for research. We have often found this was untrue--research money was used for other purposes. However, even if the claim were true, the loss to the legitimate science community would still be substantial. Each SBIR program receives more qualified proposals than it can fund, and it relies on peer review within the scientific community to rank each proposal's intrinsic scientific merit and likelihood for commercial success. The peer review system assumes that the proposer is submitting truthful information. As a result of the fraudulent proposals submitted in these cases, these companies received funding that would have otherwise gone to honest applicants. As a result, worthy applicants lost support for their proposed research, and the country lost the scientific advancements these applicants would have developed. Our investigations have enabled the Department of Justice to recover over $6 million in restitution, fines, and penalties. In addition, one company pled guilty to a felony, and three companies and five individuals were debarred from receiving federal awards for 3 years. Felony Conviction and Civil and Administrative Settlements of SBIR Case Result in $4.37 Million Recovery In May 1994, a Program Manager from NSF's Small Business Technology Transfer Program found that a company specializing in super-conductor research submitted a proposal that contained a document supplied by a university. When the Program Manager contacted the university for additional information, the university was unable to authenticate the document. The company then withdrew the proposal, and the Program Manager referred this matter to us for investigation. We did not confine our investigation to the proposal the company withdrew but reviewed all federal awards to the company. We led a joint investigation involving special agents from NSF, DoD, and the National Aeronautics and Space Administration. We coordinated the investigative efforts with Assistant U.S. Attorneys from the Eastern District of Virginia who prosecuted this case. The investigation disclosed that the same individual owned and operated another company. We concluded that the two companies fraudulently received $1.7 million in SBIR grants and contracts from federal agencies. NSF awarded $600,000 to the two companies based on fraudulent proposals. Primary Employment of the Principal Investigator. During the 1980s, the first company received several SBIR awards. However, the principal investigator (PI) for those awards, who was also the owner's wife, was employed full-time at a national laboratory funded by the Department of Energy. The SBIR program requires that the PI be primarily employed by the company when the award is granted and when the research is conducted. The owner and the PI had falsely certified in SBIR proposals that the PI was primarily employed by the company and concealed the fact that the PI worked full-time at the national laboratory. In part, because of these false certifications about the PI's primary employment, the laser company received $288,000 in SBIR awards. The owner of the company admitted in affidavits that he understood that the PI had to be primarily employed by his company during the award, but "listed [his wife] as PI because she had very good credentials, was a woman and majority shareholder, and had good publications." Duplicate Proposals and Awards. The SBIR program requires that companies disclose whether they have submitted similar proposals to, or have received awards from, other federal entities so agencies can ensure that SBIR programs do not fund SBIR research that is being funded or has been funded by another agency. Our investigation found that the companies received duplicative SBIR awards by submitting substantially similar, sometimes identical, proposals to several federal agencies. The companies received duplicate SBIR awards by falsely certifying that no equivalent or similar proposals had been submitted or awards received for the proposed research. We found that the companies received $647,496 by submitting false statements that concealed the fact that the companies had already received SBIR awards for the proposed research. In fact, between 1989 and 1991, the first company received five Phase I awards from different agencies for the same proposed superconductor research. All five proposals used the same materials to develop the superconductor. According to NSF and DoD scientists, the only difference in these proposals was that each proposal listed slightly different wavelengths to be used to test the superconductor. However, the first company submitted the identical Phase I final report to the five different federal agencies. The five reports showed that only one wavelength was used to test the superconductor. Based on the research reported in these identical Phase I reports and similar Phase II proposals, the company then received two Phase II awards to conduct the same research. In a separate proposed project that was submitted in 1990, the first company received a Phase I award to develop another kind of superconductor. In 1991, the second company, which was owned by the same individual, received a Phase I award from a different federal agency to develop the same superconductor; the proposal the second company submitted was a photocopy of the proposal submitted by the first company only 1 year earlier. In addition, the companies submitted the same final report for each Phase I award. The owner of the companies admitted in affidavits that he understood that duplicate awards were not allowed under the SBIR program and that he was required to disclose on the proposal's cover sheet if he had submitted duplicate or equivalent proposals. The owner admitted that his companies submitted "some identical proposals and final reports." The owner claimed that he "submitted these proposals and final reports, with the intention of extending the research findings and [that] SBIR award money was invested in the company to grow the business. None of the money we received for these 'so-called' duplicate awards [was used] for buying personal items such as cars or jewelry etc. or any personal item." Research Not Conducted by the Companies. Continued investigation found that the companies actually performed little, and in most cases none, of the superconductor research detailed in SBIR final reports it submitted. Subpoenaed records from the companies revealed that they had no laboratory notebooks or other records to verify that they had conducted the superconducting research detailed in their SBIR reports. We determined that the superconducting research reported by the companies was actually conducted by postdoctoral researchers and graduate students at two universities. With the assistance of NSF and DoD scientists, we traced the research results and graphs in the company's SBIR reports to specific experiments conducted at the universities by reviewing and analyzing laboratory notebooks, research results, drafts of research articles, and dissertations, which had been subpoenaed from the universities and their former researchers. Virtually all of the substantive research reported by the two companies had been performed at the universities as much as 2 years before the companies' reports were submitted to the federal agencies, and the research had been previously submitted for publication as research articles and dissertations by the graduate students. The officers of the companies obtained the superconducting research results by maintaining professional and consulting relationships with scientists at these universities. As part of the relationships, the university scientists often provided the companies' officers with preprints of research articles, dissertations, and research results. We determined that the companies had been paid $755,496 from SBIR contracts and grants for research that the company did not conduct. Investigation Results. Our investigation concluded that every SBIR award the two companies received was based on a proposal that contained false statements. The fraud that these companies perpetrated was not only against the federal agencies that awarded the funds, but also against the legitimate and truthful small businesses that would have received the $1.7 million in SBIR funding that the company fraudulently obtained. In November 1995, the company with the most recent SBIR awards pled guilty to a felony charge of mail fraud as a result of the scheme to defraud the SBIR programs of several agencies. The company paid $600,000 in restitution and was fined $150,000 for its criminal actions. In addition, the other related company and its officers paid $1,123,536 in restitution and $1,596,464 in statutory damages and penalties in settlement of a civil False Claims action filed by the U.S. Attorney's Office. The two companies and two officers agreed to a 3-year, government-wide debarment, and $908,556 in current government awards were terminated. In total, the government recovered $4.37 million in restitution, fines, penalties, and canceled awards. This case was successfully investigated and resolved quickly because of the cooperative efforts of government investigators, attorneys, and scientists. Civil False Claims and Administrative Settlement About Duplicate Funded SBIR Awards Results in $2 Million Recovery In the fall of 1992, we received an allegation from an NSF reviewer that a company had submitted plagiarized material in an SBIR proposal. We compared the proposal with the paper and determined that the company's proposal contained extensive quantities of text, equations, and tables from an article that was published by a research group at an academic institution. Virtually every page of the scientifically substantive portion of the proposal contained varying amounts of plagiarized material. We also received an allegation from another NSF reviewer that the company's proposal falsely stated that one of the senior researchers for the project had a Ph.D. when he did not. The proposal was not funded. We did not confine our investigation to the allegations of plagiarism and misrepresentation in the unfunded proposal, but reviewed all federal awards to the company. We discovered that the company, which developed microcircuits and infrared detectors, not only submitted plagiarized material and falsely represented its employees' credentials, it routinely concealed the submission of duplicate research proposals to the SBIR programs of different federal agencies through false statements in the proposals and proposal certifications. We led an investigative team that consisted of special agents from NSF, DoD, the National Aeronautics and Space Administration, and the United States Marshals Service. With the assistance of scientists from NSF and OIG, we found that the company made numerous false statements to conceal the "recycling" of research projects in different proposals. Some of the recycled proposals contained only editorial changes, while others made only slight scientific changes. However, NSF scientists explained that the changes were so minor that the proposed research was essentially equivalent, and in most cases virtually identical, to the previously awarded research. The company's owner admitted in an affidavit that his actions were intentional. The owner stated: We sometimes recycle old proposals . . . and try to add a new twist to them. Sometimes we become lazy and submit the same proposal. When a proposal is funded a second time we honestly try to do different work. I do agree that we have received funding twice for the same proposal. That is true. But instead of telling the agencies, I give them a different twist on the same proposal. The company submitted additional false and misleading information in its proposals to influence the peer review process. The company often inflated the academic credentials of key personnel by listing doctorate degrees when, in fact, those individuals only had bachelors or masters degrees. The company also listed former employees, consultants, and former consultants as key personnel in proposals after those individuals ended their association with the company and were not aware that their names and credentials had been submitted in SBIR proposals. We also learned that the company often submitted falsified or forged commitment letters in their proposals. Proposers are encouraged to obtain funding commitments to allow further development of the product without interruption after government funding expires. Peer reviewers evaluate funding commitments when deciding whether to recommend a proposal for funding. Many of the commitment letters the company submitted had been copied from previous proposals, with only the date being changed. The company fabricated other commitment letters by using other companies' letterheads and forging signatures. Finally, although the owner claimed that all federal funds were used for science, the investigation found that the company mischarged salaries of the company's administrative personnel to SBIR grants and contracts. Review of the company's business records revealed that the salaries for the owner's wife and brother-in-law, who were officers of the company and only performed administrative duties, were often charged as engineering labor to SBIR grants and contracts. This review found at least $298,000 of the funds received were not applied to the science funded under SBIR awards. Based on the investigation, in September 1993, NSF suspended the company from receiving federal awards, which resulted in the suspension of $1.4 million in federal SBIR awards. In February 1994, the U.S. Attorney's Office for the Central District of California filed a civil complaint against the company and its officers for violating the False Claims Act. In one of the first actions of its kind, the U.S. Attorney's Office, with assistance from our attorneys and investigators, requested the defendants' assets be frozen under the Federal Debt Collection Procedures Act of 1990. The U.S. District Court found that the complaint demonstrated that the defendants were attempting to sell their properties and transfer their money overseas, and the Court ordered the federal seizure of the defendants' property and bank accounts. The government took control of approximately $530,000 in the company's and the owners' bank accounts. In March 1996, the U.S. Attorney's Office entered into a civil settlement that transferred the $530,000 in seized assets to the government. Under the terms of the settlement, the defendants also agreed to the cancellation of $1.4 million in grants and contracts that had been previously awarded to them. In addition, three officers of the company agreed to government-wide debarment for 3 years, and the company has been dissolved. President and Owner of Company Indicted for Wire Fraud and False Statements in Connection With NSF SBIR Grant In Semiannual Report Number 13 (page 22), we reported that we investigated a company as a result of concerns identified by NSF auditors. The company obtained over $210,000 in grant funds by completing and submitting invoices and FCTRs to NSF that falsely certified that it was expending all funds for scientific research under the grant. The PI had proposed to develop technology to enable the manufacture of a low-cost, table-top x-ray laser. We found that the PI on the grant, who was also the company's owner and sole employee, had conducted less than 3 months of research. Throughout the 2-year grant period, the PI continued to request and receive NSF funds without notifying NSF that he had stopped conducting research. We referred our findings to the U.S. Attorney's Office, and, on November 16, 1995, a Federal Grand Jury issued an indictment charging the PI with six counts of wire fraud, violations of 18 U.S.C. 1343, and six counts of false statements to a federal agency, violations of 18 U.S.C. 1001. If convicted, the PI could be imprisoned. __________________________________________________________________ TABLE 2: INVESTIGATIVE STATISTICS New Referrals 2 Referrals From Previous Reporting Period 3 Prosecutorial Declinations 1 Indictments (including criminal information) 2 Criminal Convictions/Pleas 1 Civil Settlements 2 Administrative Actions 11 Investigative Recoveries* $6,315,683 * Investigative Recoveries comprise civil penalties and criminal fines and restitutions as well as specific cost savings for the government. In this reporting period, Investigative Recoveries include government-wide recoveries on two cases where NSF was the lead investigative agency. __________________________________________________________________ Company Submitted False Statements Concealing Duplicate Proposals An OIG audit of a company that recently received an NSF award found that the company routinely submitted similar or identical proposals to different agencies and did not disclose the prior submission, as required in the proposals and certifications. The company received an SBIR Phase I grant from NSF 1 year after another agency awarded the company an SBIR Phase I contract for essentially the same research. The company then submitted the same research results in the SBIR Phase I final report to NSF and the other agency. We concluded that the company submitted false claims totaling $49,618 to NSF for this grant, a violation of the civil False Claims Act, 31 U.S.C. 3729. We also concluded that the company submitted false statements in the proposals and final reports concealing the essentially equivalent awards. The company submitted four different groups of research proposals to multiple agencies in attempts to receive more duplicate SBIR funding. These proposals contained false statements that concealed that essentially equivalent proposals had been submitted for the proposed research. However, even though the company attempted to get additional duplicate funding for each of the four groups of research proposals, the company only received one federal award. The other proposals were declined. We referred our findings to the U.S. Attorney for possible initiation of a civil False Claims action against the company. If the company is found liable under the civil False Claims Act, the government may recover triple damages as well as impose penalties of $10,000 for each false statement and claim. Review of SBIR Companies Will Continue We are convinced of the need to carefully monitor SBIR awardees. We have now referred five SBIR cases to the Department of Justice. Three of these cases were identified by audits. In the other two cases, the initial indication of wrongdoing was identified by an NSF program officer and by a peer reviewer, respectively. We are glad to report that NSF staff regularly advise our office of potential problems. In the past 6 months, NSF staff referred three cases to us for examination. We are refining our SBIR audit program to focus on analyzing the truthfulness of information provided to NSF by SBIR awardees. We are now regularly reviewing reports provided to NSF by SBIR companies that describe the progress of NSF-funded research. For each report we select for review, we intend to check the veracity of information provided by the SBIR companies concerning consultants, subcontractors, and suppliers. Where information provided by the companies cannot be reconciled with information provided by consultants, subcontractors, and suppliers, we intend to investigate thoroughly all aspects of SBIR awards to those companies. Our SBIR audit program will also continue to focus on companies that receive funding from multiple federal agencies. The Small Business Administration coordinates government-wide policy issues concerning the SBIR program. Based on our recommendations, which were endorsed by the General Accounting Office, the Small Business Administration developed a government-wide database of SBIR awards and will issue clarifying guidance on "overlapping" proposals. We will use this database to compare information provided by SBIR companies to NSF with information provided to other federal agencies. We can then limit our investigations to those companies that have essentially equivalent or overlapping awards involving NSF and other federal agencies. Our refined SBIR audit program should allow us to focus resources on those companies that have not provided the government accurate information. It should also allow us to minimize the burden associated with audits and investigations of companies that are truthful. We will also continue to evaluate information gathered during our investigations to identify vulnerabilities in the overall SBIR program and recommend additional changes designed to minimize fraud and abuse. OTHER CASE INVOLVING DIVERSION OR MISUSE OF NSF FUNDS Former NSF Division Director Sentenced for Embezzling Grant Funds In Semiannual Report Number 13 (page 20), we reported that our investigation of a former NSF Division Director, who went on to work as a senior official for an education association, resulted in the individual pleading guilty in U.S. District Court to violating 18 U.S.C. 666, Theft or Bribery Concerning Programs Receiving Federal Funds. The individual, who resigned from his position at the education association during our investigation, pled guilty in June 1995 and admitted to embezzling $19,598 in federal funds that were intended to support official travel expenses related to grants supporting science education reform. Based on the guilty plea, NSF debarred the individual from receiving future federal funds or participating in federal grants for a 3-year period. In November 1995, the individual was sentenced in U.S. District Court to 4 months of electronically monitored home detention, 1,000 hours of community service, and 3 years' probation. The individual was also fined $10,000 and ordered to pay full restitution for the nearly $20,000 he embezzled from federal grants. OTHER INVESTIGATIVE ACTIVITIES We reviewed several other matters involving alleged misuse of NSF funds and: Closed one case without action after we found no evidence to support allegations that a university was falsely charging student salary charges to an NSF grant. Found that an institution improperly charged approximately $2,000 in salary charges to an NSF grant for individuals who did not work on the grant. The institution credited the NSF grant for the salary charges and agreed to monitor future charges carefully. Several college students majoring in biological sciences paid processing fees for possible scholarships from an organization with a name similar to "National Science Foundation." The organization uses a mailing address in Washington, D.C., to solicit money from students by representing that the organization can award academic scholarships. Our investigation found that the owner of this organization had signed an agreement with the U.S. Postal Service in 1994, agreeing not to represent that he or his organization provides and/or obtains scholarships to promote academic studies. We are currently working with the U.S. Postal Inspector Service to enforce the 1994 agreement. Memory chips worth $3,500 were missing from several new computers purchased by NSF. We found no evidence that the memory chips were stolen from the computers. Instead, three computers had been shipped to NSF from the vendor without the memory chips that NSF had purchased. Our review of the vendor found no other irregularities. OVERSIGHT The Office of Oversight focuses on the science-engineering-education-related aspects of NSF operations and programs. It oversees the operations and technical management of the approximately 200 NSF programs that involve about 54,000 proposal and award actions each year. The Office conducts and supervises compliance, operations, and performance reviews of NSF's programs and operations; undertakes inspections and evaluations; and performs special studies. It also handles all allegations of nonfinancial misconduct in science, engineering, and education and is continuing studies on specific issues related to misconduct in science. MISCONDUCT IN SCIENCE AND ENGINEERING Codes of Professional Ethics Many professional associations have codes of ethics, which represent the collective judgment of members of that profession about their ethical standards. Because, in handling allegations of misconduct in science, we strive to reflect the standards of practice in the scientific community, we analyzed the content of these codes. We were especially interested in identifying which ethical transgressions were widely condemned and were considered serious enough to be labeled misconduct in science. We also sought to identify areas of agreement and disagreement among the associations. We looked at 90 ethics codes from broad-based professional organizations in fields that NSF funds. We classified the statements in the ethics codes, but we have not yet tested whether different people classify statements in the same way. Generally, the ethical guidance in the codes does not focus on the issues involved in investigating and adjudicating misconduct cases. Statements of scientific ethics exist on a continuum. At the first level are descriptions of exemplary conduct. Ethics codes usually concentrate on this end of the continuum. They point toward ethical ideals that scientists should emulate. Codes may also describe the second level on the continuum, proper conduct, which is a matter of duty. Whereas aspirations for ethical excellence have to be stated in terms of a few broad, enduring principles, duties can be articulated as rules, and doing one's duty requires less reflection than striving for excellence. Compared to principles, rules are relatively numerous, vary somewhat in different contexts (for example, disciplines have different rules governing authorship order on publications), and change more readily. For our misconduct cases, the crucial part of the continuum is the third and fourth levels, where the crucial distinction is between merely improper actions and actions that are so serious as to warrant formal corrective steps by the government. In ethics codes, statements about exemplary and proper conduct are not crafted with enforcement in mind. Ethics codes mainly address scientists who wish to do good, not scientists who want to know what evils are so bad as to be punishable. __________________________________________________________________ NSF's Definition of Misconduct in Science and Engineering Fabrication, falsification, plagiarism, or other serious deviation from accepted practices in proposing, carrying out, or reporting results from activities funded by NSF; or retaliation of any kind against a person who reported or provided information about suspected or alleged misconduct and who has not acted in bad faith. __________________________________________________________________ Failures to do one's duty are common and regrettable. Professional ethics codes generally do not delineate which failures are major. Distinguishing between the bad and the seriously bad is a problem for enforcement agencies, but not for most practicing scientists. Perhaps the writers of most ethics codes believe that the specialized needs of enforcement agencies are best addressed elsewhere and that the needs of scientists who treat ethical standards as a constraint and not a guide should not be addressed at all. Truthfulness is a central concern in the ethics codes we examined. About half of the codes make general statements about the value of honesty, and a somewhat smaller percentage make general statements encouraging scientists to properly credit the work of others. Less than one-third of the codes include statements about properly representing one's credentials or avoiding exaggerated statements of one's conclusions. Less than one-fifth make specific comments regarding truthfulness in managing data, proper recordkeeping, data retention, or particular undesirable publication or authorship designation practices. We believe that the codes indicate overwhelming agreement among scientific societies about scientific ethics. From our experience in handling misconduct in science cases, we suspect that the general principles governing scientific ethics are fairly uniform, but that relatively specific rules vary somewhat among the different disciplines. We found no significant instances of practices that were questionable in the sense that some organizations approved them and others did not. Most codes do not specify whether they are statements of aspirations or duties. Among those that clearly stress one kind of ethics statement, more say they are nonbinding than say they should be considered enforceable rules. Only nine codes went so far down the ethical continuum as to formally define misconduct. We believe that ethics codes can play a valuable educational role by clarifying standards of excellence and defining what is good practice. We found the codes less directly helpful for identifying serious ethical transgressions. We think the codes indirectly support NSF's emphasis on community standards in defining misconduct, because the codes support the idea that the scientific community can agree on ethical standards. We conclude that, at least for now, articulating those standards can best be done through close attention to cases and explanations of how, in specific situations, particular actions are clear and serious violations of those standards. NSF's Separation of Investigation From Adjudication Endorsed In November, HHS' Commission on Research Integrity issued its report Integrity and Misconduct in Research. This report fulfills the charge the Commission was given to advise the Secretary of HHS on "issues of research misconduct and integrity such as a new definition of misconduct, an assurance process for institutional compliance with DHHS regulations, processes by which to respond to and monitor related administrative processes and regulations, and development of a regulation to protect whistleblowers." One of the Commission's recommendations is that "The Secretary ensure that the investigation of misconduct and subsequent adjudication are organizationally separated in DHHS, as they are, for example, at the National Science Foundation." This separation of investigation from adjudication in NSF's procedures is explained in a paper published by NSF staff members, "Investigating Misconduct in Science: The National Science Foundation Model," Journal of Higher Education, Vol. 65, No. 3 (May/June 1994), pp. 384-400. The Commission's recommendations are addressed to HHS, rather than NSF. Still, we followed the Commission's deliberations with great interest and are studying its report. __________________________________________________________________ TABLE 3: MISCONDUCT CASE ACTIVITY FY 1995 FY 1996 Last Half First Half Active Cases From Prior Period 81 76 Received During Period 27 13 Closed Out During Period 32 21 In-Process at End of Period 76 68 __________________________________________________________________ MISCONDUCT CASES RESOLVED AS PART OF DEPARTMENT OF JUSTICE FRAUD CASES Allegations Against SBIR Firm Lead to Misconduct Conclusion In the fall of 1992, we received allegations from three separate NSF reviewers about proposals submitted by one firm to NSF's SBIR program. One reviewer alleged that the PI had copied, without attribution, three figures from another scientist's published paper. We found that the text in the proposal discussing the figures did contain citations to papers published by the other scientist; however, only one of these cited the correct paper. The other two figures appeared in different articles that were not cited. We concluded that, while these practices were sloppy, they did not constitute misconduct in science and closed the case in a previous semiannual reporting period. The second reviewer alleged that a different proposal submitted by the same company contained material plagiarized from a paper published by another research group. We compared the proposal with the paper and ascertained that the company's proposal contained extensive quantities of text, equations, and tables from that paper. Virtually every page of the scientifically substantive portion of the proposal contained some plagiarized material, and a few pages contained little else. The third reviewer alleged that, in the proposal discussed in the second case, a senior scientist had represented that he had a Ph.D. from a particular academic institution, when in fact he did not. We found that the researcher had attended the institution but had received only a specialization certificate, an intermediate degree between a Bachelor of Science and a Master of Science. We found that the same false representation had been made in the proposal in the first allegation. None of the proposals discussed above was funded. We considered these matters to be sufficiently serious to conduct our own on-site investigation. That effort was part of a broader fraud investigation, which is discussed in the Investigations section of this report. The Justice Department's settlement with the company involved monetary recovery and government-wide debarment and stated that the practices described by the second and third reviewers were serious deviations from accepted practices under NSF's misconduct in science regulation. We closed our cases against the company. Criminal and Civil Case Includes Misconduct Activities We received an allegation that a small company had submitted a proposal containing false statements to NSF's SBIR program. The proposal stated that a university professor had agreed to participate in the proposed research. However, according to the allegation, the professor had made no such agreement and his signature had been forged. Our investigation revealed other fraudulent misrepresentations in proposals from this company and a related company owned by the same individual, the subject in this case. The case was referred to the Department of Justice for prosecution and was resolved by a felony conviction, a substantial monetary recovery, and government-wide debarment of the companies and individuals involved, as described in the Investigations section of this report. By stipulating to these misrepresentations in the company's felony plea and civil settlement, the subject admitted to acts that amount to misconduct in science in addition to criminal and civil fraud. In particular, the subject had promised in NSF proposals that his companies would conduct a certain body of research, though, in fact, postdoctoral researchers and graduate students at two universities had already performed most of that research and submitted it for publication. The subject represented this work as his own when he reported his results to NSF and requested payment. By admitting to these actions, he admitted to intellectual theft of results obtained by others. CASES SENT TO THE OFFICE OF THE DIRECTOR FOR ADJUDICATION IN EARLIER SEMIANNUAL PERIOD __________________________________________________________________ At the beginning of this reporting period, the Office of the Director had five cases on which we had recommended a finding of misconduct and which had not yet been adjudicated. In this period, three of these were adjudicated, as described below. __________________________________________________________________ Plagiarism Falsely Attributed to Student In Semiannual Report Number 13 (page 35), we discussed the case of a PI who plagiarized his NSF proposal from an award that another PI had received from another federal agency. The subject claimed a former student had been responsible. However, our investigation verified that the student had not been responsible for the plagiarized proposal. We recommended that NSF send the subject a letter of reprimand and debar him from receiving federal funds for a period of 3 years. The Deputy Director concluded that the subject's actions constituted "plagiarism as well as a serious deviation from accepted practices." The Deputy Director sent the subject a letter notifying him of a finding of misconduct in science and of NSF's intent to debar him for a period of 2 years. Misrepresentation of Academic Credentials in NSF Proposal In Semiannual Report Number 13 (page 37), we discussed the case of a PI who submitted a proposal in which he falsely claimed to have a Master's Degree. We recommended that the subject be sent a letter of reprimand and be required to certify, if he served as a PI or co-PI on any NSF proposal over the next 3 years, that he had not misrepresented any information in his proposals. The Deputy Director concluded that the subject's misrepresentation constituted "falsification and is a serious deviation from accepted practices." The Deputy Director sent the subject a letter notifying him of a finding of misconduct in science and of NSF's intent to require that, for 1 year, when he was named as a PI or co-PI on an NSF proposal, he certify that the proposal did not contain any false statements. This certification is to be sent to the Assistant Inspector General for Oversight. Plagiarism of Proposals Received in Confidence In Semiannual Report Number 13 (page 36), we discussed the case of a PI who, in two separate incidents, incorporated material into her own NSF proposals that was plagiarized from proposals that NSF had sent her in confidence for merit review. NSF agreed with our conclusions and recommendations in this case. It found that the subject committed misconduct, and it entered into a voluntary exclusion agreement with the subject that barred her from applying for federal funds for a period of 1 year following the date of her university's final action on the case. It required that, for 1 year after her voluntary exclusion ended, when the subject is PI or co-PI on an NSF proposal, she obtain a signed assurance from her department chair that, to the best of his or her knowledge, the proposal does not contain plagiarized material. It also required that the subject certify that she recently reviewed NSF's definition of misconduct; to the best of her knowledge, her proposal is free of misconduct; and her proposal has been reviewed by her department chair as described above. This certification and assurance must be made separately and confidentially to the Assistant Inspector General for Oversight. NSF also prohibited the subject from serving as a mail or panel reviewer or as a member of a Committee of Visitors until February 1998. CASE CLOSED IN THIS PERIOD WITH NO INVESTIGATION REPORT TO THE OFFICE OF THE DIRECTOR Institution Investigates Alleged Intellectual Theft A scientist alleged that another researcher had stolen ideas from a proposal the researcher was sent for confidential peer review. The complainant alleged that the subject's publications repeated an erroneous claim contained in the complainant's proposal and averred that the subject's repetition of this claim was evidence that the subject had used the complainant's proposal as a source of his ideas. We concluded that an investigation was necessary and informed the institution of this conclusion. The institution informed us that it had already initiated an inquiry into the matter and that the inquiry committee was about to conclude that the allegations lacked substance. The institution stated that, because we had stressed that the complainant's declined proposal was confidential, the subject had felt obliged not to share it with the inquiry committee. We also learned that the inquiry committee, in addition to not examining the complainant's proposal, had not interviewed the complainant. The institution requested that we delay further investigative activity to permit the institution to complete its consideration of the case. The institution concluded that the subject had not committed misconduct and supplied documentation and reasoning that supported its conclusions. We analyzed the institution's report and the supplemental information that the institution sent in response to questions we raised about the report. We concluded that the report was thorough and objective and that it supported the institution's findings. However, the history of the institution's handling of the case caused us to have special concerns about whether its ultimate conclusions had been influenced by a predisposition not to find misconduct. We were especially concerned about the institution's apparent readiness to draw conclusions in the absence of necessary evidence and about its initial willingness to permit scientists with a close professional relationship to the subject to play key roles in its examination of the case. We asked a scientist knowledgeable about this area of research but unfamiliar with the investigative history at OIG and the institution to make an independent assessment of the evidence in the case. The scientist shared the judgment of OIG and the institution that the factual record in no way justified a finding of misconduct. The institution concluded that the ideas the subject allegedly misappropriated from the complainant's proposal were available in the published literature, and it provided citations substantiating this conclusion. It noted that the timing of the subject's work suggested that developments in the published literature, and not exposure to ideas in the complainant's proposal, were the impetus for the subject's initiation of the research in question. The institution concluded that the subject's data included evidence supporting the subject's interpretation of the data. It therefore determined that the subject's espousal of this interpretation was not evidence that he had repeated the complainant's scientific error and misused the complainant's proposal. This case illustrates how we work with institutions to ensure that their investigations are sufficiently thorough and unbiased to provide a sound basis for NSF action. By closely scrutinizing the institution's report at the end of the process, we were able to guard against the effects of possible bias at the institutional level without preempting the grantee institution's responsibility as the primary institution for handling misconduct matters. Staff Activities Oversight scientists participated in a meeting with the HHS Science Advisor to the Secretary, the NSF Deputy Director, and other NSF and HHS staff concerning the recommendations of the HHS Commission on Research Integrity; met with French scientists from the Centre National de la Recherche Scientifique (CNRS) in our offices to discuss OIG's oversight activities; and discussed policies for handling allegations of misconduct in science involving intramural research with the National Institutes of Health Committee on Scientific Conduct and Ethics. As part of the Office of Oversight's continuing outreach effort, the scientific staff also explained OIG activities to groups of NSF staff on six occasions including two NSF Program Management Seminars. One scientist joined the Advisory Board of the Ethics Center for Engineering & Science's World Wide Web page, which is maintained at the Massachusetts Institute of Technology. __________________________________________________________________ TABLE 4: ASSURANCES AND CERTIFICATIONS RECEIVED* Number of Cases Requiring Assurances at End of Period 5 Number of Cases Requiring Certifications at End of Period 8 Assurances Received During This Period 0 Certifications Received During This Period 3 * NSF accompanies some findings of misconduct in science with a certification and/or assurance requirement. For a specified period, the subject must confidentially submit to the Assistant Inspector General for Oversight a personal certification and/or institutional assurance that any newly submitted NSF proposal does not contain anything that violates NSF's regulation on misconduct in science and engineering. These certifications and assurances remain in the OIG and are not known to, or available to, NSF program officials. __________________________________________________________________ INSPECTIONS AND EVALUATIONS Our inspections are on-site reviews conducted at NSF or at organizations that receive NSF funding. Inspection findings and recommendations highlight what works well and identify problems or deficiencies so that managers at NSF and the funded organization can improve their operations and better achieve research and education goals. Inspection teams look for early indications of financial, administrative, or compliance problems so they can be addressed before they become so serious that their resolution requires an audit or investigation. We designed our inspections program to improve our understanding of NSF's grantee activities by integrating financial, administrative, and program analyses in a single review. We view inspections as an effective approach because they allow us to determine whether NSF's program goals are being achieved as well as review the financial and administrative management of NSF awards. Inspections are conducted by multidisciplinary review teams that may include scientists, engineers, auditors, computer specialists, investigators, lawyers, and management/program analysts. We completed four inspections during this reporting period: one at a private, nonprofit research institution in the northeast; two at private universities in the midwest and the southeast; and one at a state university in the southwest. Awards from the Directorates for Social, Behavioral and Economic Sciences; Engineering; Biological Sciences; Computer and Information Science and Engineering; and Education and Human Resources served as the bases for our inspections. Three of these inspections began after October 1, 1995, which was the effective date of NSF's Investigator Financial Disclosure Policy. INSPECTION AT A PRIVATE, NONPROFIT RESEARCH INSTITUTION IN THE NORTHEAST This inspection was based on 11 awards made by NSF's Directorate for Social, Behavioral and Economic Sciences to a private, nonprofit, and nonpartisan research institution to support institution-affiliated researchers who collectively represent a broad range of policy and theoretical perspectives in economics. These researchers, who are regularly employed at colleges and universities, use state of the art quantitative techniques to conduct empirical studies on economic issues relevant to U.S. government and business. Indirect Cost Rate NSF is the cognizant audit agency for this institution and sets its indirect cost rate. This rate covers the costs the institution incurs for activities, such as accounting, secretarial, and administrative work, that indirectly support the work done under federal awards. Our review identified several items that the institution classifies as indirect costs of federal awards that we believe should not be part of the indirect cost pool. In a memorandum to NSF management sent after we completed our inspection, we recommended that NSF financial and program managers exclude these items and recalculate the indirect cost rate. We estimate the savings to the government of adopting these recommendations to be about $800,000 over 5 years and almost $2.8 million over 10 years. Specifically, we recommended that most publication costs be charged either as direct costs to the federal award that supported the work the publication reports or, if they are not direct costs of federal awards, be paid for out of the institution's own funds. We also recommended that, if the institution continues to include publication costs as indirect costs of federal awards, the institution offset publication costs with the income that the publications generate. The institution pays $3,000 in honoraria from time to time to affiliated economists who participate actively in its research programs and includes these payments in its indirect cost pool. We concluded that these payments should be excluded because they are made in recognition of a mixture of activities, many of which are either direct costs to federal awards or are not costs to federal awards at all; in some cases, they were not consistent with NSF's policy of limiting PIs' supplemental salary compensation to two-ninths of their academic salaries; and they were not supported by appropriate time and attendance reports. Most research under awards to the institution is conducted away from the institution. We recommended that NSF establish separate indirect cost rates for on- and off-site activities at the institution. In our estimates above, we have not included the cost savings that adopting this recommendation would yield. Program Officers' Participation in Setting Indirect Cost Rates Officials in NSF's CPO told us it did not consult with knowledgeable NSF program officials when it set the institution's indirect cost rate. We learned that it therefore lacked basic information about the kinds of activities the government supported at the institution, such as the information that most work was conducted off-site. We recommended that CPO consider making it a routine practice to consult NSF program officials when setting indirect cost rates for institutions to which NSF has a significant commitment. The Directorate for Social, Behavioral and Economic Sciences strongly endorsed our recommendations about the institution's indirect cost rate. CPO agreed that it needed to consult with program officials in this case to determine whether to reclassify certain honoraria and publication costs and whether to establish an off-site indirect cost rate. CPO stated that it was likely to recommend changes in the institution's rate. It said that it may increase consultation with program officials when setting indirect cost rates, but that it does not believe it is necessary to make this a routine practice. The institution responded that many publication costs were difficult to anticipate and that NSF program officials did not wish to support the institution's working paper series as a direct cost activity. However, we believe that program officials are in the best position to determine whether the working papers series yields direct or indirect benefits to NSF-supported research that justify the cost of federal support. We believe the program officials' judgment that the government should not pay the costs of the working papers series suggests that the institution should pay for these costs with its own funds, not that NSF ought to treat these as indirect costs. The institution said it planned to develop documentation to demonstrate that honorarium payments covered management costs that were allowable as indirect costs. The institution said that most researchers, whether located on or off site, received the same benefits from their affiliation with the institution and that having two separate rates would be administratively burdensome. Reviewer Conflicts of Interest We concluded that this institution's unique role in the economics discipline posed special problems for NSF in securing knowledgeable and unbiased reviews of proposals from institution-affiliated economists. NSF awards approximately one-quarter of the grant funds from its economics program to this institution, and, in many subfields of economics, most leading researchers are affiliated with this institution. At the time of our inspection, NSF permitted institution-affiliated economists to review proposals from the institution under most circumstances. We recommended that NSF ask its Office of General Counsel (OGC) to review this practice. We recommended that, if OGC determines this practice is legally permissible, NSF take action to ensure that NSF is fully informed of reviewers' involvement with the institution. Because the primary employment affiliation for institution-affiliated economists is their university and not the institution, NSF is not always aware of an affiliation with the institution that creates a potential conflict of interest. We recommended that, when NSF solicits reviews of institution proposals, it elicit information from prospective reviewers about the nature and extent of their involvement with the institution. NSF agreed with our recommendations about the review of institution proposals and indicated that NSF's OGC was revising its guidance on how to handle the review of proposals from this institution by institution-affiliated economists. However, NSF indicated that it preferred to handle the problem of obtaining current information on potential institution conflicts by having the institution send NSF a list of economists who have had administrative or financial relationships with the institution during the preceding year. NSF would request this list twice a year before each review cycle. NSF noted that this approach would be simple and efficient and would enable NSF to avoid sending proposals from the institution to conflicted referees. Handling Allegations of Misconduct in Science The institution agreed with our recommendations to strengthen its policy by adopting NSF's definition of misconduct in science and identify a preponderance of the evidence as the standard of proof. The institution indicated it will reconsider its current policy of immediately informing the subject of an allegation in light of our concern that this would not be practicable in some circumstances. As of the time of our inspection, this institution had not received any allegations of misconduct in science. PI Financial Disclosure Policy The institution agreed to revise its Conflict of Interest Policies and Procedures to include adequate enforcement mechanisms and sanctions and provisions for keeping NSF's OGC informed if the institution were to be unsuccessful in managing an investigator conflict of interest. Drug Free Workplace The institution noted that it has not experienced any instances of drug abuse in the workplace. However, it agreed to amend its policy and practice to ensure that employees are informed of the dangers of drug abuse in the workplace and of employee responsibilities under the requirements of the 1988 Drug Free Workplace Act. INSPECTION AT A PRIVATE UNIVERSITY IN THE MIDWEST This inspection was based on nine grants in civil and mechanical engineering that NSF's Directorate for Engineering awarded to a private university. Four of the awards were for basic research, three were for equipment, one was a research initiation award, and one was an NSF Young Investigator Award. The university generally gave excellent support to research. We did, however, recommend that the university formalize and communicate its policies and procedures in some areas affecting research. Handling Allegations of Misconduct in Science Although the university certified annually to the Public Health Service that it had an official policy on misconduct in science by faculty members, it had only a draft policy. As a result of our recommendations, the university agreed to formalize its policy and publish it in the Faculty Handbook. The university's policy and procedures regarding misconduct by graduate students were not generally known within the College of Engineering, even by graduate students. We recommended that they be made widely known within the College and that individual departments make their policies consistent with university policy. We also recommended that the university's policies on misconduct by faculty, graduate students, and undergraduate students be made consistent with NSF's misconduct in science regulation. The university agreed with all of these recommendations and outlined the steps it was taking to implement them. Data Collection and Retention The university had no formal policy on data collection and retention, though it did have a draft document. Practices regarding data retention and security seemed to be informal. The university agreed with our recommendation to formally approve its policy on data retention and access and provided a detailed description of how data files are stored, secured, accessed, saved for backup and archived. Financial Controls The university generally complied with NSF's and other federal financial regulations. However, we did suggest that the university could strengthen its internal controls over federal funds by modifying its property management system and improving its accounting for cost sharing requirements. The university agreed that it would enhance its property management system by placing inventory tags on all equipment valued at $5,000 or more that is funded partially or wholly by the government, as well as by maintaining a written record of the location and condition of equipment. The university's practice has been for faculty members to orally report changes in the location and condition of equipment, but this information was not recorded in the official property management system. The university stated that it anticipates installation of a new property management system in the near future. The university agreed to consolidate its cost sharing records by recording all cost sharing as part of the university's official grant ledger except for in-kind contributions that typically represent tuition remission, which can be verified through the university's Student Accounts record. The university stated that its Office of Restricted Funds Accounting will review these accounts to verify the cost sharing commitment is met. PI Financial Disclosure We assessed the university's policy and procedures for PIs regarding conflicts of interest and determined that the university has formulated a conflict-of-interest policy and established and implemented a financial disclosure system that will identify, manage, and resolve conflicts of interest as required by NSF's Investigator Financial Disclosure Policy. We note that NSF's policy was not in effect when this inspection was conducted. INSPECTION AT A PRIVATE UNIVERSITY IN THE SOUTHEAST This inspection included 10 NSF grants. NSF's Directorate for Biological Sciences awarded six grants for basic research, one for equipment, and one for a Research Experiences for Undergraduates (REU) site grant. NSF's Directorate for Education and Human Resources awarded two grants for instrumentation and laboratory improvement. Financial Management and Controls The university generally complied with NSF's and other federal award requirements. We noted only three immaterial weaknesses and minor lapses in financial management and internal controls. The university maintained excellent written policies and procedures that assisted its personnel in complying with federal requirements. The Department of Biology's equipment records were in exceptionally good order. We believe the university's compliance with federal requirements demonstrated that personnel in the university's Accounting and Biology departments were familiar with most federal requirements. Integration of Research and Education Research and education were highly integrated in the university's Biology Department. The Biology Department emphasized engaging undergraduate students in research through intensive projects in undergraduate courses and by integrating the students into faculty research. PIs relied heavily on undergraduate students to carry out their research programs. NSF's REU site award and individual REU supplements were important in stimulating this undergraduate involvement. The equipment awards also contributed to the quality of the undergraduate laboratory experience. The students we spoke with were very pleased with their undergraduate research experience. Sometimes the students were listed as authors on publications because of their contributions to the laboratory research, but none of the undergraduates we spoke with said they had written a research publication or part of one. We believe that when student authorship is justified by the extent of research contributions, but the PI's greater expertise dictates that he or she write the paper, PIs should ensure that all authors, including students, take full responsibility for their contributions to the manuscript. Policies for Handling and Preventing Misconduct in Science The university had published guidelines addressing many areas of desirable research practices. The university had a readily available Misconduct in Science Policy and guidelines for the responsible conduct of research. The latter addressed authorship as well as data retention and sharing. Another policy statement covered data collection. These documents were often available in the PI's office or laboratory. Students reported that they received instruction on data collection and recordkeeping either in their laboratory courses or informally from PIs. Graduate students in the Department were required to take a course in research ethics, which explained the university's policies for handling misconduct. Because of the university's strong emphasis on involving undergraduate students in research, we were especially concerned about the applicability of its misconduct in science procedures to undergraduate students. The university handled allegations of misconduct by students through its Honor Code, which could result in a different finding from that under the university's Misconduct Policy or NSF's definition of misconduct in science. We therefore recommended that the university revise its policy to ensure that allegations of misconduct by students are handled in conformity with NSF's misconduct regulation. The university agreed that it would ensure that allegations of student misconduct in research are properly investigated. Because the university's Misconduct Policy was last revised in 1989, it contains certain information or references that are inapplicable or outdated. We therefore recommended that the university revise its Misconduct Policy to eliminate inapplicable or outdated references and to ensure that the Policy contains no provisions that are inappropriately attributed to NSF regulations. Moreover, because the university's Policy prohibits fraud in research, we recommended that it revise its Policy to ensure that it covers gross negligence as well as intentional or knowing acts of misconduct. We also recommended that the university's Policy specify a standard of proof for misconduct determinations. Finally, to promote confidentiality, we recommended that the university revise its Misconduct Policy to limit notification of the existence of an allegation to individuals principally involved in its resolution. The university generally agreed with these recommendations and indicated that it would revise its Misconduct Policy to address NSF's concerns. PI Financial Disclosure Policy We recommended that the university strengthen its policy on addressing federal investigator financial disclosure regulations by articulating its rules in a new set of documents separate from those originally written for other purposes. The university explained that its policy was written to comply with both National Institutes of Health and NSF's final rules for investigator financial disclosure. The University said it will consider our comments but it is doubtful that it will elect to implement a second conflict-of-interest policy for government-sponsored research because a multiplicity of policies invariably leads to faculty confusion. INSPECTION AT A STATE UNIVERSITY IN THE SOUTHWEST This inspection included nine NSF grants. NSF's Directorate for Computer and Information Science and Engineering awarded five grants for basic research, one for equipment, and one for travel costs of U.S. participants at an international workshop. NSF's Directorate for Education and Human Resources awarded one grant for research improvement at a minority institution, and NSF's SBE awarded one grant for USA-Europe collaborative research. Financial Controls The university generally complied with NSF and other federal award requirements. However, we did make recommendations that we believe would increase the university's compliance with federal regulations and strengthen its internal controls. These recommendations included appropriate use of participant support funds, adequate supporting documentation for travel costs, timely completion of personnel activity reports, and appropriate classification of costs to its book of accounts to avoid overcharging NSF's awards for indirect costs and overstating its claimed cost sharing. The university generally agreed with these recommendations and indicated it will take steps to ensure compliance except for the recommendation regarding travel. Human Subjects Regulation Of the nine grants included in this inspection, one grant and one supplement to another grant described research with human subjects. Federal regulations require that such research be approved and conducted in accordance with C.F.R. 690, the Common Rule on Protection of Human Subjects. Any human subjects research not determined to be exempt from the Common Rule by both the grantee and NSF, must receive initial approval from both organizations and be reviewed annually by the grantee's Institutional Review Board. We found that the grantee had reviewed and approved the research in the grant but not in the supplement, NSF had neither reviewed nor approved the human subjects research in either instance, and the institution did only spotty annual reviews. We learned that the research described in the grant had been conducted, but the research in the supplement had not. We concluded that, had the research been reviewed by NSF, it would most likely have been considered exempt from the Common Rule. We learned that the NSF program officers responsible for these grants were generally unaware of their responsibilities under the Common Rule. We were concerned that the process of reviewing and approving such research had failed at both the institution and NSF and made recommendations to correct this situation. The university agreed with our recommendation that it revise its policies to ensure that its procedures conform to the Common Rule. We recommended that NSF provide a refresher training session for all NSF program officers and include a discussion of the Human Subjects Regulation in the Program Management Seminars, which are conducted annually for new program officers. NSF records pertinent information about funding proposals on Form 1036, the Action Processing Form. The Form contains a line item that requests a "Y" (yes) or "N" (no) response to indicate whether the proposal contains human subjects research. For all NSF divisions except Social, Behavioral, and Economic Research this line is set to a default condition of "N." We suggested that NSF consider removing the default so that program managers are required to type "Y" or "N" based on their review of the proposal. In response to our suggestions, NSF's Deputy Director said that the discussion on human subjects at the Program Managers Seminars would be "augment[ed] . . . appropriately." She noted that there are "occasional briefings" for program staff members and that when the updated Proposal and Award Manual, which contains revised materials on human subjects, is issued, it will "help ameliorate the current uneven distribution of knowledge about research involving human subjects." She also said that "the benefit realized by changing the current [1036] practice is not commensurate with the cost on program officer time and productivity" but called for a records review to see if there are areas of the Foundation where such research is "sufficiently common" to warrant a change in the default condition of the line item. Handling Allegations of Misconduct in Science We concluded from our review of the university's policy for handling cases of misconduct in science that the policy was so deficient that, should the situation arise, we would be unable to defer an inquiry or investigation to it. For example, the policy differs from NSF's regulation by providing for two separate inquiries, one by the department chair and the second, if needed, by the dean, after which a formal investigation may take place. Senior university officials are informed of the case only when the second inquiry begins, and the funding agency is informed only when the investigation begins. In the case of minor infractions, sanctions can be imposed after the second inquiry and no investigation is required. We were concerned that this process encourages the informal resolution of potentially important cases at the department or college level, without notification of the funding agency, without the safeguards of the formal misconduct process, and without consistency across the institution. In addition, allegations must be in writing, may not be anonymous, and must be evaluated by the department head regardless of that person's involvement in the allegation. We were concerned that these provisions might intimidate whistleblowers. In serious cases of misconduct, imposed sanctions can be appealed through one of three different procedures, which we believe can cause confusion. The faculty members we interviewed were generally unaware of the university's current policy on handling misconduct in science. We learned that students alleged to have committed misconduct in science under NSF awards would be handled administratively under the Student Code of Conduct. Even if action were taken against the student for confirmed misconduct, NSF would not be notified. We recommended that the university review its policy, and the university agreed. The university stated that it would conduct training sessions to increase faculty awareness. PI Financial Disclosure Policy The university did not have a final conflict-of-interest policy that met the requirements of NSF's Investigator Financial Disclosure Policy. The university's designated official responsible for implementing the university's conflict-of-interest policy admitted that PIs had not made NSF-required financial disclosures on 11 proposals submitted to NSF since October 1, 1995, the effective date of NSF's policy. We informed NSF officials in CPO of this situation. NSF informed us that it has contacted the university about this matter and indicated that it will ensure that the university takes corrective action or appropriate sanctions will be imposed on the university. In our report, we recommended that: the university immediately ensure that all required investigator financial disclosures have been made and reviewed for all proposals submitted to NSF since October 1, 1995; the university establish an appropriate written and enforced conflict-of-interest policy that meets the requirements of NSF's Investigator Financial Disclosure Policy; the university disseminate its conflict-of-interest policy to all investigators and cognizant administrators or officials to ensure that investigators submit timely and appropriate financial disclosures for proposals submitted to NSF and the designated official review disclosures and resolve any resulting actual or potential conflicts of interest; and the university establish a system to maintain records of all financial disclosures and of all actions taken to resolve conflicts of interest for at least 3 years beyond the termination or completion of the grant to which they relate, or until the resolution of any NSF action involving those records, whichever is longer. The university responded that, by March 15, 1996, all required financial disclosures will have been made and reviewed for all proposals submitted to NSF since October 1, 1995. The university accepted all of our other recommendations and stated that the university's revised policy will be adopted by the administration during the 1996 spring semester. LEGAL Attorneys provide legal advice on all OIG activities, including investigations, audits, and oversight of NSF's functions and programs. OIG attorneys supported many of the activities that are described in other sections of this report. Under section 4 (A) (2) of the Inspector General Act, OIG is required to review and make recommendations concerning legislation and regulations that affect NSF and NSF-funded activities. OIG attorneys are responsible for conducting these reviews as well as general oversight of NSF's legal activities. CONFLICTS ISSUES Status of Conflicts Rules In August 1992, the Office of Government Ethics (OGE) promulgated new uniform standards of ethical conduct for executive branch employees. Before OGE finalized its standards, we expressed concern that these new standards might supersede certain ethics standards that NSF had tailored specifically for the agency (see Semiannual Report Number 5, page 38). Since the standards were finalized, NSF has worked with OGE to implement supplemental ethics standards that are tailored to NSF's needs. OGE approved supplemental ethics standards for NSF in late 1994. As of the end of this reporting period, NSF's Office of General Counsel was still studying these supplemental ethics standards, and they have not been implemented. However, in this reporting period, NSF did implement our recommendation, discussed in Semiannual Report Number 12 (page 43), that the agency require that scientists assigned to NSF under the Intergovernmental Personnel Act (IPA) sign a contractual agreement to comply with OGE regulations on financial disclosure and standards of ethical conduct. The agreement puts the IPAs on notice that they are subject to appropriate administrative sanctions if they fail to comply with the regulations. We also mentioned in Semiannual Report Number 12 (page 43) that the House Committee on Science added a provision to the Omnibus Civilian Science Authorization Act of 1995 (H.R. 2405, 127) that would subject NSF IPAs to the financial disclosure requirements and related sanctions under the Ethics in Government Act. Although this bill was passed by the House of Representatives during this reporting period, the Senate has not yet acted on the legislation. Board Committee Reexamines Salary Ban for Board Members It is long-standing NSF policy that members of the National Science Board (NSB) may apply for and receive awards from NSF, if they designate a "substitute negotiator" to represent the project and their institution in dealings with NSF officials, and do not receive salary under an award made while they are Board members. In this reporting period, the Board Chairman asked the Board's Audit and Oversight Committee, with the assistance of the General Counsel, to review the salary policy on Board Members' proposals and report back to the Board. Under 18 U.S.C. 208, federal employees are prohibited from knowingly participating personally and substantially in a particular matter in which they have a financial interest. Some Board members have a long history of NSF funding, and we believe that, by virtue of their preeminent stature in their respective fields of science, they have reasonable expectations that they will continue to receive NSF funding. We therefore expressed concern to NSF's General Counsel about whether, consistent with section 208, all Board members should participate in considering whether to change the salary policy--unless the change being considered affected only future Board members. The Chairman of the Audit and Oversight Committee addressed this concern by deciding that the Committee would only consider policy options that did not involve changing the salary policy for current members of the Board. When the Committee met and discussed the issue, its members voted to recommend no change in the salary policy to the full Board. OTHER LEGAL ISSUES Analysis of Legal Sufficiency of NSF's Misconduct in Science Definition to be Published In Semiannual Report Number 13 (page 49), we discussed the legal sufficiency of the phrase "serious deviation from accepted practices" in NSF's misconduct in science regulation. We concluded that the concept of serious deviation from accepted practices, as defined by the relevant scientific community's standard of professional conduct, is no less definite than standards of conduct upheld by the Supreme Court and other courts for other professions. Our manuscript containing a detailed legal analysis of this issue was recently accepted for publication in Jurimetrics Journal of Law, Science and Technology, the official journal of the American Bar Association's Section on Science and Technology. The article will likely be published this summer. General Accounting Office Approves Use of Appropriated Funds to Support the Annual Awards Dinner As discussed in Semiannual Report Number 10 (page 42), in response to OIG recommendations, NSF requested an opinion from the Comptroller General as to whether NSF can use appropriated funds to cover some of the expenses associated with its annual NSB awards dinner, which honors young scientists of exceptional promise. The Comptroller General concluded in a February 1996 opinion that, because the award being presented was statutorily authorized, the use of such funds was permissible for this occasion. The Comptroller General pointed out that NSF's authorizing legislation allows it to make expenditures that are necessary to carry out its functions. Since the Alan T. Waterman award presented at the NSB dinner is a statutorily created award designed to recognize the achievements of young scientists, the Comptroller General found that the expenses associated with its presentation are necessary. Furthermore, based on prior decisions regarding the proper presentation of awards that confer upon the recipient a measure of public recognition, the Comptroller General concluded that an awards dinner attended by prominent scientists is an appropriate forum for presentation of the award. Accordingly, it is permissible to spend appropriated funds on the dinner-related expenses of the annual NSB awards dinner. The opinion concluded that since the annual NSB dinner is an appropriate forum for presentation of the Waterman award, the cost of the recipient's and his or her spouse's travel and per diem are also necessary expenses that may be paid for from NSF's appropriation. Antarctic Legislation Introduced For several years, NSF has been working to achieve consensus with Greenpeace, the Antarctica Project, and other environmental groups on implementing legislation for the Antarctic Treaty's Protocol on Environmental Protection. In this reporting period, Representative Walker, Chairman of the House Science Committee, introduced legislation entitled, "The Antarctic Environmental Protection Act of 1996." The bill prohibits the introduction of banned substances, the disposal of waste on ice-free terrain or into freshwater systems, the disposal of waste that the Treaty requires to be removed, and the open burning of waste. It also prohibits the disposal of waste into Antarctic waters, introduction of nonnative species, the taking of native mammals or birds, and the harmful interference with plants, except pursuant to a permit. The legislation requires comprehensive environmental evaluations when any federal activities in the Antarctic will have more than a minor or transitory impact on the environment. Reciprocity Between Procurement and Nonprocurement Debarment and Suspension Regulations Procurement and nonprocurement debarment and suspension are accomplished under two different regulations for a variety of federal departments and agencies. "Procurement" involves purchasing things or services, such as NSF's contract with a manufacturer for computer equipment. "Nonprocurement" relates to government funding for other purposes, such as NSF's provision of funds to scientists for scientific research. In the past, when an agency wished to debar a person from receiving both procurement and nonprocurement awards from the federal government, it had to debar the person separately under each of the two debarment regimes, following procedures set out in two separate regulations. However, NSF recently joined with 33 federal departments and agencies to promulgate regulations that provide for reciprocity between procurement and nonprocurement debarment and suspension systems. Now, when a person is debarred under either an agency's procurement debarment and suspension regulation or an agency's nonprocurement debarment and suspension regulation, the person is ineligible to participate in both nonprocurement and procurement actions. AGENCY REFUSAL TO PROVIDE INFORMATION OR ASSISTANCE During this reporting period, there were no reports made to the National Science Board of instances where information or assistance, requested under Section 5 (a)(5) of the Inspector General Act of 1978, as amended, was unreasonably refused or not provided. SIGNIFICANT MANAGEMENT DECISIONS THAT WERE REVISED No significant management decisions were revised during this reporting period. INSPECTOR GENERAL'S DISAGREEMENT WITH SIGNIFICANT MANAGEMENT DECISION The Inspector General has no disagreement with significant management decisions made during this reporting period. LIST OF REPORTS NSF and CPA Performed Audits We issued the following audit reports during this reporting period. Where applicable, the total dollar value of questioned costs (including a separate category for the dollar value of unsupported costs) is listed for each report. Date Report Questioned Unsupported Number Grantee Issued Costs Costs South Dakota Department of Education and Cultural 96-1001 Affairs 11/09/96 47,246 5,778 North Carolina Office of the 96-1002 Governor 10/01/96 181,459 25,808 University of Texas 96-1003 at Austin 11/14/95 514,268 109,165 New Jersey Department 96-1004 of Education 01/30/96 584,460 584,460 Sacramento City Educational 96-1005 Foundation 03/01/96 2,911 0 Jefferson County 96-1006 Public District 11/10/95 8,680 0 96-1007 Bennett College 11/18/95 0 0 Santa Ana Unified 96-1008 School District 01/09/96 3,481 0 Society of Automotive 96-1009 Engineers 03/26/96 33,962 0 Minnesota Environmental Sciences 96-1010 Foundation 03/15/96 0 0 Miami Museum 96-1011 of Science 03/15/96 14,450 1,897 96-1012 The Network 03/15/96 35,899 11,713 Canton City 96-1013 Schools 03/15/96 0 0 American Educational Research 96-1014 Association 03/20/96 211,879 34,106 Blackfeet Community 96-1015 College 03/29/96 258,955 0 D.C. Public 96-1016 Schools 03/26/96 24,115 295 Normandy School 96-1017 District 03/26/96 2,109 1,750 Woodrow Wilson National Fellowship 96-1018 Foundation 03/27/96 24,657 0 Kentucky Department of 96-1019 Education 03/28/96 0 0 Montana State 96-1020 University 03/28/96 11,812 0 Little Big 96-1021 Horn College 03/28/96 67,452 67,427 Civil Engineering Research 96-1022 Foundation 03/28/96 24,625 2,130 Delaware State Department of Public 96-1023 Instruction 03/28/96 465,507 465,507 96-1024 The College Board 03/28/96 171,663 18,829 Franklin Institute Science 96-1025 Museum 03/28/96 237,678 119,165 Council for Basic 96-1026 Education 03/28/96 307,518 305,718 96-1027 Abt Associates 03/28/96 828,915 611,432 Prince George's County Public 96-1028 Schools 03/29/96 182,544 170,348 INTERNAL AUDITS Date Report Questioned Unsupported Number Grantee Issued Costs Costs Review of NSF's Federal Cash Transactions 96-2101 Report System 03/29/96 0 0 Review of Electronic Data Processing 96-2102 Controls in the FAS 03/29/96 0 0 NSF's Long Distance 96-2103 Phone System 03/21/96 0 0 Management Recommendations to Office of 96-2104 Polar Program (ASA) 03/29/96 0 0 Management Recommendations to the Directorate for Biological 96-2105 Sciences (MBL) 03/28/96 0 0 Management Recommendations to the Division of Social, Behavioral and Economic 96-2106 Research (NBER) 03/29/96 0 0 Review of NSF's 96-2107 Budget System 03/29/96 0 0 Review of Statewide Systemic 96-2108 Initiatives 03/29/96 0 0 NSF Cognizant Audits Date Report Questioned Unsupported Number Grantee Issued Costs Costs American Museum of Natural 96-4001 History 10/30/95 0 0 American Educational Research 96-4002 Association 11/01/95 0 0 Consortium for Mathematics and its 96-4003 Applications 11/01/95 0 0 American Meteorological 96-4004 Society 11/01/95 0 0 Association of American 96-4005 Geographers 11/02/96 0 0 American Bar Foundation 96-4006 (FY 1994) 01/23/96 0 0 American Bar Foundation 96-4007 (FY 1995) 01/23/96 0 0 Institute for Research on Learning 96-4008 (FY 1993) 01/23/96 0 0 Institute for Research on Learning 96-4009 (FY 1994) 01/23/96 0 0 Nebraskans for Public Television, Inc. 96-4010 (FY 1992) 01/23/96 0 0 Nebraskans for Public Television, Inc. 96-4011 (FY 1992) 01/23/96 0 0 Boyce Thompson Institute for 96-4012 Plant Research 03/09/96 0 0 Bermuda Biological Station for Research, Inc. 96-4013 (FY 1992) 03/17/96 21,605 12,834 Bermuda Biological Station for Research, Inc. 96-4014 (FY 1993) 03/17/96 1,500 0 The American Society of Mechanical Engineers 96-4015 (FY 1994) 03/13/96 1,744 399 Association of Science- Technology 96-4016 Centers 03/13/96 0 0 Astrophysical Research 96-4017 Consortium 03/13/96 0 0 Montana Council of Teachers of 96-4018 Mathematics 03/13/96 0 0 Astronomical Society of 96-4019 the Pacific 03/13/96 77 0 Astronomical Society of 96-4020 the Pacific 03/13/96 235 0 96-4021 The Bakken 03/15/96 0 0 96-4022 The Bakken 03/15/96 0 0 Association of Science- Technology 96-4023 Centers 03/15/96 0 0 National Council of Teachers of 96-4024 Mathematics 03/15/96 0 0 National Council of Teachers of 96-4025 Mathematics 03/15/96 0 0 Philadelphia Education 96-4026 Fund 03/19/96 0 0 Nantucket Maria Mitchell 96-4027 Association 03/25/96 0 0 QED Communication, 96-4028 Inc. 03/25/96 0 0 Genetics Society of 96-4029 America 03/25/96 0 0 Scientific Committee on Ocean 96-4030 Research 03/25/96 0 0 New York Botanical 96-4031 Garden 03/25/96 0 0 Cincinnati Museum of Natural 96-4032 History 03/25/96 0 0 Cincinnati Museum of Natural 96-4033 History 03/25/96 0 0 Cincinnati Museum of Natural 96-4034 History 03/25/96 0 0 Carnegie 96-4035 Institute 03/25/96 0 0 Biological Sciences Curriculum 96-4036 Study 03/25/96 0 0 Center for American 96-4037 Archeology 03/25/96 0 0 Joint Council on Economic 96-4038 Education 03/21/96 0 0 Children's 96-4039 Museum, Inc. 03/25/96 0 0 Berkeley Geochronology 96-4040 Center 03/21/96 0 0 American Statistical 96-4041 Association 03/25/96 0 0 American Study of Physics 96-4042 Teachers 03/25/96 0 0 Denver Audubon 96-4043 Society 03/26/96 0 0 American Society of Plant 96-4044 Physiologists 03/26/96 0 0 National Public 96-4045 Radio 03/27/96 0 0 Bigelow Laboratory for Ocean 96-4046 Sciences 03/27/96 0 0 Other Federal Audits We processed 154 reports provided by other federal agencies. Those reports included audit coverage of NSF programs. The following reports contained questioned costs that required NSF followup. Date Report Questioned Unsupported Number Grantee Issued Costs Costs Northwest Research 96-5003 Associates, Inc. 01/23/96 3,390 0 MPC 96-5004 Corporation 02/27/96 64,757 0 Meharry Medical 96-5005 College * 03/04/96 0 0 University 96-5006 of Chicago 03/04/96 4,050 550 University of Alabama at 96-5007 Huntsville 03/04/96 326 0 University & Community College System 96-5016 of Nevada 03/06/96 242 0 University of 96-5019 Maine System 03/06/96 1,579 0 University of 96-5020 Pennsylvania 03/06/96 13,716 13,716 University of 96-5024 Wisconsin System 03/06/96 177,669 0 University of 96-5033 Alabama/ Birmingham 03/13/96 275 0 96-5034 Harvard University 03/13/96 719 0 American Indian Higher Education 96-5037 Consortium 03/25/96 1,030 1,030 New Mexico 96-5040 MESA 03/20/96 18,302 934 Lawrence 96-5042 University 03/20/96 1,240 1,240 University 96-5070 of Alaska 03/21/96 39,046 0 Morehouse School of 96-5092 Medicine * 03/25/96 0 0 Colby 96-5108 College 03/27/96 431 0 Grand Valley State 96-5143 University 03/28/96 60 0 96-5154 Union College 03/29/96 1,610 0 * Referred to management because of significant issues that may affect NSF awards. Surveys Date Report Questioned Unsupported Number Grantee Issued Costs Costs University Corporation for Atmospheric 96-6001 Research (UCAR) 11/19/95 0 0 Monterey Bay Aquarium Research 96-6002 Institute 01/26/96 0 0 STATISTICAL INFORMATION REQUIRED BY THE INSPECTOR GENERAL ACT OF 1978, AS AMENDED Table I. Audit Reports Issued With Questioned Costs Questioned Unsupported Number Costs Costs A. For which no management decision has been made by the commencement of the reporting period 75 6,158,529 1,374,942 B. That were issued during the reporting period 46 4,599,848 2,566,231 C. Adjustments to questioned costs resulting from resolution activities 1 64,151 0 Subtotals of A+B+C 122 10,822,528 3,941,173 D. For which a management decision was made during the reporting period 59 1,333,984 128,199 (i) dollar value of disallowed costs N/A 760,989 N/A (ii) dollar value of costs not disallowed N/A 572,995 N/A E. For which no management decision has been made by the end of the reporting period 63 9,488,544 3,812,974 Report for which no management decision was made within 6 months of issuance 21 4,914,076 1,261,998 INSPECTOR GENERAL REPORTS Table II. 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 9,925,000 B. Recommendations that were issued during the reporting period-- (these were issued in five reports) 8,410,000 Subtotal of A+B 18,335,000 C. For which a management decision was made during the reporting period 1,800,00 (i) dollar value of recommendations that were agreed to by management based on proposed management action 986,000 based on proposed legislative action 0 (ii) dollar value of recommendations that were not agreed to by management 814,000 D. For which no management decision had been made by the end of the reporting period 16,535,000 Report for which no management decision was made within 6 months of issuance 8,125,000 Funds Put To Better Use--Items Over 6 Months Old With Outstanding Recommendations Issue Dollar Date Value Logistics Issues Related to the Antarctic Program 05/31/95 4,000,000 Fees Paid to Nonprofit Organization 09/21/95 4,125,000 EXTERNAL AUDIT REPORTS WITH OUTSTANDING MANAGEMENT DECISIONS This section identifies audit reports involving NSF awards where management had not made a final decision on the corrective action necessary for report resolution within 6 months of the report's issue date. CPO is tasked with making management's decisions concerning external audit reports. At the end of the reporting period, there were 21 audit reports with questioned costs that were not resolved. The status of systemic recommendations that involve internal NSF management are described in the Additional Performance Measure. Management Decision: Management's evaluation of audit findings and recommendations and issuance of a final decision concerning management's response to such findings and recommendations. Report Date Report Questioned Number Title Issued Costs Status Aurora Flight Sciences 94-1038 Corporation 08/08/94 207,482 1 Apeldyn 94-1046 Corporation 09/08/94 19,820 1 Better 94-1067 Education, Inc. 09/30/94 17,563 2 94-1070 Chemludens 09/30/94 72,952 2 BBN Systems and Technologies 95-1022 Corporation 03/06/95 122,067 2 95-1028 General Atomics 03/27/95 2,933,428 3 BIOSYM 95-1029 Technologies, Inc. 03/27/95 83,964 4 Rowe-Deines 95-1039 Instruments, Inc. 03/27/95 58,437 4 Mr. Wizard 95-1042 Foundation 03/31/95 157,780 1 H-Tech 95-1045 Laboratories 03/31/95 11,821 1 Virginia State Department of 95-1048 Education 09/01/95 317,664 1 ASA/Edison Chouest 95-1051 Offshore, Inc. 09/15/95 646,266 1 95-4077 Playing to Win 09/05/95 24,260 1 Zoological Society 95-6003 of Philadelphia 09/12/95 996 6 University of 95-5599 Hawaii (FY 1993) 06/13/95 31,104 5 University of 95-5645 Hawaii (FY 1992) 06/21/95 7,297 5 State of 95-5722 South Dakota 09/22/95 113,204 1 American Association for the Advancement 95-6007 of Science 09/25/95 29,355 1 Cold Spring Harbor 95-6014 Laboratory 09/27/95 39,122 1 National Gardening 95-6022 Association 09/25/95 9,494 1 University Corporation for Atmospheric 95-6039 Research 09/27/95 10,000 5 STATUS CODES 1 = Resolution is progressing with final action expected in next reporting period. 2 = Information requested from grantee not yet received in full. 3 = Resolution pending negotiations. 4 = Site Visit required and scheduled. 5 = Another federal agency must complete work before NSF can make final resolution determination. 6 = Grant being amended. ADDITIONAL PERFORMANCE MEASURE As required by the Inspector General Act of 1978, we provide tables in each Semiannual Report to the Congress that give statistical information on work conducted by our audit and investigation units. The General Accounting Office and OMB suggested that Offices of Inspector General develop additional performance measures that provide information about their activities. As a result, we developed an additional performance measure to better explain the work of our office. OIG staff members regularly review NSF's internal operations. These reviews often result in systemic recommendations that are designed to improve the economy and efficiency of NSF operations. We routinely track these systemic recommendations and report to NSF's Director and Deputy Director quarterly about the status of our recommendations. The following table provides statistical information about the status of all systemic recommendations that involve NSF's internal operations. The statistics demonstrate that NSF management has generally agreed to resolve our systemic recommendations in a reasonable manner. Status of Systemic Recommendations That Involve Internal NSF Management Open Recommendations Recommendations Open at the Beginning of the Reporting Period 37 New Recommendations Made During Reporting Period 43 Total Recommendations to be Addressed 80 Management Resolution of Recommendations 1 Recommendations Awaiting Management Resolution 41 Recommendations Resolved by Management 39 Management Agrees to Take Reasonable Action 80 Management Decides No Action is Required 0 Final Action on OIG Recommendations 2 Final Action Completed 21 Recommendations Open at End of Period 59 1 "Management Resolution" occurs when management completes its evaluation of an OIG recommendation and issues its official response identifying the specific action that will be implemented in response to the recommendation. 2 "Final Action" occurs when management has completed all actions it has decided are appropriate to address an OIG recommendation. Aging of Open Recommendations Awaiting Management Resolution 0 through 6 Months 41 7 through 12 Months 0 more than 12 Months 0 Awaiting Final Action After Resolution 0 through 6 Months 0 7 through 12 Months 11 13 through 18 Months 0 19 through 24 Months 2 more than 24 Months 5 Recommendations Where Management Decides No Action is Required None to report during this period. Recommendations Awaiting Management Resolution for More Than 12 Months None to report during this period. Recommendations Awaiting Final Action for More Than 24 Months 1. In Report Number OAO-15-04-88, "Review of the NSF Computer Security Program," April 15, 1988, we recommended that a risk analysis for computer operations be performed and a contingency plan consistent with published guidelines be developed. The responsible office is preparing the contingency plan and plans to allocate additional resources to facilitate the plan's completion. Although the delays in implementation are extensive, no losses have resulted. 2. By report "Review of NSFNET" dated March 23, 1993, concerning the management and control of the National Science Foundation Network (NSFNET), we recommended that NSF ensure that an audit is conducted of the company that manages NSFNET to verify that certain funds have been distributed appropriately. NSF management decided to delay the audit until all of the funds in the infrastructure pool are expended. NSF now expects that the audit will be conducted in April 1997. 3. In Semiannual Report Number 8 (page 33), we recommended that NSF issue ethics regulations that address concerns specific to NSF employees. OGC drafted these regulations and they were recently cleared by the Office Government Ethics. The NSF ethics official has prepared a draft decision paper seeking approval from NSF management to issue the regulations. OGC expects to issue these regulations soon. 4. In a September 29, 1993, memorandum, we recommended that all reviewers be more clearly informed, in writing, of all of the requirements of NSF's policy regarding the integrity of the confidential peer review process. The goal was to improve the review of proposals submitted to NSF. Language to address this goal has been fully incorporated in revised NSF reviewer forms. These forms are in the clearance process along with other proposed changes to the forms. Prepared by: Office of Inspector General National Science Foundation For additional copies, write: Office of Inspector General 4201 Wilson Boulevard Arlington, VA 22230 For additional information, call: Audit (703) 306-2001 Investigations (703) 306-2001 Oversight (including misconduct in science and inspections) (703) 306-2001 Legal (703) 306-2100 Electronic Mail Hotline oig@nsf.gov