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Research Compliance
Conference
Research Accounting: The Rules, The Right Way,
The Enforcers and How to Prepare for
Engagement
THE GOOD, THE BAD, AND THE THE GOOD, THE BAD, AND THE
UGLYUGLY
Juli Tenney, The University of North Carolina at Chapel Hill;
Jim Luther, Duke University
Overview
1. The Regulatory Environment
– Federal and University Perspective
– Recent Pressures (Negative and Positive)
– The Washington Way
– Unique Challenges
2. Review of applicable regulations: From effort reporting to F&A
3. Building or refining your compliance program (Training,
Monitoring, Roles and Responsibilities)
4. Enforcement and agency update
5. What to expect in an audit - Anatomy of an audit: how to prepare,
what to consider, developing your strategy & understanding your
options2
2
INTRODUCTIONS
Juliann (Juli) Tenney, JD, CHRC, Institutional Research
Compliance and HIPAA Privacy Officer, Director,
Institutional Research Compliance Program,
The University of North Carolina at Chapel Hill;
James Luther (Jim), Assistant Vice President, Finance &
Research Costing Compliance Officer
Duke University3
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Objective
• Develop an appreciation
for the varying
perspectives related to
research funding,
administration and
compliance.
THE GOOD,
THE BAD,AND THE
UNKNOWN
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Overview
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1. The Regulatory Environment
– Federal and University Perspective
– Recent Pressures (Negative and Positive)
– The Washington Way
– Unique Challenges
2. Review of applicable regulations: From effort reporting to F&A
3. Building or refining your compliance program (Training, Monitoring,
Roles and Responsibilities)
4. Enforcement and agency update
5. What to expect in an audit - Anatomy of an audit: how to prepare,
what to consider, developing your strategy & understanding your
options
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4
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• Increased complexity in fiscal management
• Increased focus on accountability
– Concerns over effectiveness of A-133 audits
– Increased number of proactive compliance site visits
• Institutions experiencing rapid growth often lag in the
development of an appropriate infrastructure to support the
research growth
• Recent economic downturn leading to further budget pressures
• Over-burdened faculty
Current Trends
Compliance Environment
Trends related to research compliance at universities include:
However…… there may be opportunities….
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Compliance Landscape
• Program side of sponsor often permit budgeting of expenditures that would never withstand an audit (office supplies, other support effort)
• Complexity of Regulations– Not well communicated
– Interpretations changes by branch of government, region in country, and auditors within a particular office
– Even after findings, guidance is sometimes unclear
– Quality of science and work conducted irrelevant to auditor
• Feds � practical experience in the operation of a complex university?
However…… there may be opportunities….
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Why The Growth Why The Growth of Regulatory Oversight / of Regulatory Oversight /
Enforcement Over the Enforcement Over the Last 10 Years?Last 10 Years?
• New Areas of Compliance• E.g., export controls, IT security (particularly for patient health
information, but also FISMA, NIST)
• Congressional mandates and resulting focus by OIG on specific compliance areas
• Change of OIG interpretations on existing regulations • Frequent changes, audit experiences (e.g., effort reporting, monitoring
of subcontracts, conflict of interest, appropriate charging of clerical and
administrative expenses).
• Clinical research oversight• Protection of human research subjects: site based clinical research
complexity - intertwined with clinical practices
National National
PerspectivePerspective
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Audit Environment
• OMB Circular A-133 Background –
– Federally mandated single audit intended to promote sound financial management, including effective internal controls, with respect to federal awards (sponsored research/training and financial aid). Findings are published in national database for review by other federal agencies and peer institutions.
• External Sponsored Research Programs Audit Environment
– Perceived Value/Quality of OMB A-133 Reports -
• General lack of trust of A-133
• June 2007 President’s Council on Integrity and Efficiency report on the quality of Single Audits.
– Stratum I: (>$50M) 37% classified “limited reliability” or “unacceptable”
– Stratum II: (<$50M) 52% classified “limited reliability” or “unacceptable”
– October 2007 Congressional testimony, a Government Accountability Office (GAO) representative stated:
• “The PCIE report presents compelling evidence that a serious problem with single audit quality continues to exist. GAO is concerned that audits are not being conducted in accordance with professional standards and requirements. These audits may provide a false sense of assurance and could mislead users of the single audit reports.”
Compliance Landscape:
Transparency & Accountability ��
Congressional oversight/interest
Congressional Memo from Education & Labor Committee to GAO: “We
respectfully request that GAO examine how universities, including the
University of California, track how funds provided for laboratory research
grants are spent, including any "facilities and administration" overhead
payments, ...
NIH 'Stepping Up' Grants Compliance: The NIH recently beefed up the
staff overseeing grantees' compliance with federal regulations and has
undertaken "site visit initiatives,“ ... NIH is "looking forward to
strengthening this partnership to ensure efficient and effective
management of federal funds." Site initiatives include "proactive site
visits, which were designed to promote open communication of policy
issues between NIH and grantee institutions.
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T H E G O T H E G O OO DD
National Academies - Study on Research
Universities
“What are the top ten actions that Congress, the federal government,
state governments, research universities, and others could take to
assure the ability of the American research university to maintain the
excellence in research and doctoral education needed to help the
United States compete, prosper, and achieve national goals for health,
energy, the environment, and security in the global community of the
21st century?”
“Envision the mission and organization of these diverse institutions 10-
20 years into the future and the steps needed to get there.”
http://sites.nationalacademies.org/PGA/bhew/researchuniversities/index.htm#scope
Chaired by former CEO Dupont / BOA; includes members
from universities and industry
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“The Gathering Storm”
• National Academy of Sciences' 2005 report "Rising Above the Gathering Storm"
– Called for a ten per cent annual increase in government funding of basic scientific
research for seven years (rare bipartisan support in Congress for America COMPETES)
– COMPETES & ARRA set to expire
• Updated report was authored by a 17-member committee chaired by Norman Augustine, a
former CEO of Lockheed Martin corporation
– Credits US lawmakers with implementing several of the 2005 recommendations
– But because of the economic downturn, and because other recommendations…were not
implemented or not promptly financed, the competitiveness situation for the United
States has worsened
– "In spite of the efforts of both those in government and the private sector, the outlook for
America to compete for quality jobs has further deteriorated over the past five years."
– Long-term investment in science and education will help to improve living standards
and create better-paying jobs because skilled and educated workers with access to
technology can be more productive
15National Academies reports don’t focus on a particular scientific issue, but instead looks broadly at the role
of science in society - "The challenge is the linkage between science and technology and the economy."
T H E U N K N O W NT H E U N K N O W N
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Regulatory Burden Report Update
• Recent Events– Obama Op-ed (Jan 18th, 2011)
– Joint COGR/AAU letter to NAS and members of Congress
• Obama Executive Order:– Requires that when a regulation is proposed/adopted, agencies must determine that
the benefits justify the costs; demonstrate that the chosen approach is the most effective; and consider alternatives to regulations such as guidance or economic incentives to encourage the desired behavior
– May 18th: Preliminary plan due from agencies identifying how they will comply with EO
• Themes from letter to NAS and members of Congress
– OMB fully enforce existing cost-reimbursement rules and prohibit federal agencies from practices and/or policies inconsistent with Federal cost principles. (BARDA example)
– OMB ensure that rate setting practices by government negotiators are consistent and fair across all institutions.
– Researchers be allowed to charge some level of administrative and compliance support directly to their Federal grants and contracts.
– The current 26 percent cap on the administrative cost reimbursement rate be adjusted to account for increasing Federal compliance costs.
The Horizon
• Money
– “Gathering Storm” & National
Academies � support for research
investment
• Congressional requests – (Lamar
Alexander)
– Budget Pressure
• Accountability
– ARRA oversight and accountability �
Audits
– Universities feel “over-complianced”
– STAR Metrics18
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DHHS OIG Audits
ARRA
OIG Workplan
GAO Report
A-133 FindingsOther Grant Issues
- Reported/Public
With the government’s focus on transparency and accountability, there is a great
deal more integration of audit findings into the agency and OIG enterprise risk
management process. Per recent meetings with the OIG this drives future audit
focus and selection of institutions.
OIG Workplan
NSF
OIG Workplan
The Gathering Storm
(Insert
Your
Institution
Here)
Welcome to the show, to the Welcome to the show, to the
show … I just want to know!show … I just want to know!
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Research - definition
• Research means a systematic investigation designed to develop or contribute to generalizable knowledge.
• Research includes research development, testing and evaluation.
• Research activities which meet this definition constitute research, whether or not they are conducted or supported under a program which is considered research for other purposes. For example, some demonstration and service programs may include research activities.
Introduction to Sponsored Research at DukeTypes of Research
• Basic – underlying biological mechanisms
• Epidemiologic - distribution and determinants of health-related states and events in populations
• Translational – basic research with intended clinical application
• Clinical research – involves human subjects
• Clinical trials (Phases I, II, III, IV)– assigns human participants to treatments and tests effects
• Devices – research involving a mechanical instrument
• Outcomes – research on economic and/or quality of life aspects related to treatments
Types of Research…..Types of Research
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Overview1. The Regulatory Environment
– Federal and University Perspective
– Recent Pressures (Negative and Positive)
– The Washington Way
– Unique Challenges
2. Review of applicable regulations: From effort
reporting to F&A
3. Building or refining your compliance program (Training, Monitoring,
Roles and Responsibilities)
4. Enforcement and agency update
5. What to expect in an audit - Anatomy of an audit: how to prepare,
what to consider, developing your strategy & understanding your
options 23
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Laws/Executive Orders
Office of Management and Budget
A-21 Cost Principles A-110 Administrative Requirements A-133 Audits
Specific Agency Rules, Policies and Guidelines
University General Accounting Procedures
Directives, Clarifications, Faculty Handbook, OSP Manual
Individual Office Policies and Processes
Financial Pyramid of Sponsored
Program Rules and Regulations
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Example: University Procedures
Most laws passed by Congress are public laws. Public laws citations include the
abbreviation, P.L, the number of the ordinal Congress (e.g., 106), and the
chronological order of the law in that Congress: for example P.L. 106-107.
Every six years, public laws are incorporated into the United States Code,
which is a codification of all general and permanent laws of the U.S. The U.S.
Code does not include regulations issued by executive branch agencies.
Code of Federal Regulations (CFR)Code of Federal Regulations (CFR)
Executive Branch agencies implement laws and rules using the Code of Federal
Regulations (CFR). The CFR is the codification of the general and permanent
rules published in the Federal Register by the executive departments and
agencies of the Federal Government. It is divided into 50 titles that represent
broad areas subject to Federal regulation. Each volume of the CFR is updated
once each calendar year and is issued on a quarterly basis.
Statutes and RegulationsStatutes and RegulationsPublic Laws & US CodePublic Laws & US Code
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Statutes and RegulationsExecutive Orders
• A regulation by the President which has the effect of law
• Text appears in the Federal Register
• A given executive order is subject to change as new Executive orders, Presidential proclamations, rules & regulations, notices, & public laws often amend or otherwise affect them
Sources:• Statutory requirements (i.e., an
Act of Congress, becoming
Public Law)
• Presidential Executive Order
• Federal regulations
• Sponsor’s terms and conditions
NIH Salary Cap appears as statutory language in the HHS
appropriations act
Affirmative Action
NSF regulations on Uniform Administrative Requirements
appear in 45 CFR 602
NSF grant terms and conditions appear in the NSF Grant Policy Manual & NSF
Grant General Conditions (CG-1)
Examples:Examples:
Grants Regulatory FrameworkGrants Regulatory FrameworkHierarchy of Federal RegulationsHierarchy of Federal Regulations
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What’s a Circular?
A set of instructions, rules or policies
that apply to all federal agencies
uniformly!
OMB Circulars
Office of Management and Budget
• Cost Principles
– A-21 Educational institutions
– A-87 State, local, & Indian tribal governments
– A-122 Nonprofit organizations
• Administrative Requirements
– A-110 Institutions of higher education, hospitals, & other
nonprofits
• Audits
– A-133 States, local gov’ts & nonprofits
What are
the rules
governing
allowable
charges?
What are the rules for an
institution’s financial and grants
management systems?
Are we doing it
right?
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• Basic considerations:
• Composition of total costs
• Factors affecting allowability of
costs
• Reasonable costs
• Allocable costs
• Consistently Applied Costs
OMB CircularsCost Principles: OMB A-21 (2 CFR 220)
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Documenting Expenses
• Concept of allowability (A-21)
• Concept of direct benefit (A-21)
• Concept of source documentation (A-110)
• Receipts with enough detail to support the charge
• Written explanation of how the expense benefited the project.
– Bottom line: Complete files protect you in an audit
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OMB Circular A-21, “Cost Principles for
Educational Institutions”
• Contents of Circular:
– Sets forth allowability principles for the reimbursement of costs associated with Federally sponsored agreements (Direct and F&A)
– Describes what costs can be included in the F&A rate and methods for its calculation
– Prescribes methods to distribute F&A costs to various functions of the University (e.g., instruction, research, other activities)
– Determination and application of F&A rates
– Simplified method for small institutions
– General provisions for selected items of cost
– Certification of charges by “authorized official”
How do I know what I can charge to
a sponsored project?
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What Does “Allowable” Mean?
• An allowable cost must be:
– REASONABLE: A prudent business person
would have purchased this item and paid this
price.
– ALLOCABLE: It can be assigned to the activity
on some reasonable basis.
– CONSISTENTLY TREATED: Like costs must be
treated the same in like circumstances, as either
direct or F&A costs.
• If a cost cannot meet the above criteria, it is
unallowable, no matter what it is for.
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Direct Costs: OMB Circular A-21
• Costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity; or that can be directly assigned to such activities relatively easily with a high degree of accuracy
• Examples of Direct Costs:– Salary of Researcher (including benefit costs)
– Laboratory Supplies purchased for project
– Technician
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Direct Costs (A-21, section C.4.)
• A cost is allocable as a direct cost if the goods or services provided are assignable in accordance with the relative benefits received….
– It is incurred solely to advance the work under the sponsored agreement
– It benefits both the work under the sponsored agreement and other work of the institution in proportions that can be approximated
– If a cost benefits two or more interrelated projects in proportions that cannot be determined the cost may be allocated on any reasonable basis
• Section C.4.b: Any costs allocable to a particular sponsored agreement ….may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.
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Allocation and Documentation Standard:
A-21, section C.4.d.
• Cost principles. The recipient institution is responsible for ensuring that costs charged to a sponsored agreement are allowable, allocable, and reasonable under these cost principles.
�There is a higher standard for documentation of direct costs; must substantiate the relationship of the cost to the project
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Direct Cost “Challenges”
• Administrative and Clerical Costs
• Procurement Cards
• Cost Transfers
• Decentralized purchasing authority
– Numerous procurement methods
– Numerous procurers
– Front-end controls?
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Procurement Cards
• Most institutions have procurement cards that are utilized for small purchases
• Some of the issues with procurement cards– Justify why the expense is allocable to the award
– Make sure there are detailed receipts
– Is a cost transfer required?
– How are unallowable costs monitored on procurement cards?
– How are reconciliations handled?
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Hot Topics in Research
Financial Compliance
� Effort Reporting
� Cost Transfers
� Direct vs. Indirect Charging Practices
� Service Center
Topics for Discussion
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• Effort is the proportion of time spent on any activity and expressed as
a percentage of the total professional activity for which an individual
is employed by the institution
• OMB Circular A-21, section J.10 requires an effort reporting system
that:
– Encompasses all employee activities
– Confirms effort expended after-the-fact
– Requires certification to be performed by an individual with knowledge
of all of an employee’s activities or suitable means of verification
– Requires certification to be performed regularly
Definition
Effort Reporting
Top Compliance Risks
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Effort ReportingCompliance & Risk Update
Background
• Effort Reporting– The mechanism to confirm that salaries and wages charged to
a sponsored agreement are reasonable in relation to the actual work performed.
• Regulations– OMB Circular A-21 (Cost Principles for Educational Institutions)
• Requires that institutions maintain systems and procedures to document the accurate distribution of activity and subsequent payroll charges.
– OMB Circular A-110 (Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations)
• Requires that institutional systems provide accurate and current disclosure of financial results of each project and that the accounting records be supported by source documentation.
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• Institutional Base Salary (IBS) not clearly defined or consistently
applied
• Faculty members with teaching/admin/clinical responsibilities
charging 100% of salary to sponsored projects
• Effort certified by person without first-hand knowledge, and who
did not use suitable means of verification
• Lack of accurate and timely effort reporting (no certifications
exist)
• Committed effort is greater than 100 percent
Potential Audit Findings
Effort Reporting
Top Compliance Risks
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Effort Reporting Risks
• Over-commitment leading to False Claims
• Not meeting “awarded” effort commitments
• Management of Total Professional Effort
• K-award compliance
• Large number of retroactive cost-transfers– Crossing certified periods
– Untimely
• Faculty charging effort to grants that is not reasonable or measurable
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Effort Reporting –
Strategic Management Plan
• Training and Education
– Training Classes/Roles and Responsibilities
– Policy clarification: K-award, Timeliness of reporting, etc.
– Direct Communication to PI’s
– Research Administrator Educational Materials
• Business Process and Controls
– Effort Reporting System
– Post-award Close-out Checklist
• Sampling and Monitoring (Reinforcement and Accountability)
Top Compliance Risks
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Compliance Landscape –
Effort Reporting
• External– Peer Findings
• Six peer institutions with recent multi-million dollar settlements/fines
– OIG’s Annual Work-plan
• DHHS and NSF includes Effort Reporting audits
– Congressional letters to OIG (September 2005)
• House Energy and Commerce Committee leaders have asked the Department of Health and Human Services (HHS) inspector general to examine the alleged misuse of millions of taxpayer dollars at some of America’s top universities, including effort reporting and false claims.
– Federal Register (Vol. 70, No. 227/Monday, November 28, 2005)
• Time and Effort Reporting: audit focus on “accurate reporting vs. reasonable definition of over-funding”
– Random “Not-for-cause” Pilot Audits and Site Reviews Underway
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Faculty Perspective Government Issues University Compliance Concerns
“Active researcher who teaches, consults, and
works far beyond a 40-hour week can be a hard
animal to track…” Nature
“Simply put, it’s against the law to apply
resources from an existing grant towards a new
project.” Science
“Compliance officer positions are probably the
biggest growth industry in terms of administrative
positions at major research universities.” Science
“Mid-career researchers winning their first RO1,
70% said they had used funds awarded for one
project for other projects within the previous three
years.” Nature
“’Federal agencies are [now] less willing to treat
universities differently than they would treat a
defense contractor’ with regard to documenting
costs and time spent on projects.” Science
“Two common stumbling blocks are 1. trying to
separate time spent on patient care form time spent
on a clinical trial, and 2. assigning existing federal
grants effort devoted to gathering data for an
unfunded project.” Science
“The federal government didn’t always press
scientists to follow its rules to the letter. …A-21
allows for some flexibility, and ‘since no one was
enforcing it, people shaded more on the latitude of
it’” Science
“But for auditors, a scientist’s productivity isn’t
what matters.” Science
“In the halls of US academia, stories abound of
brilliant researchers whose time-reporting for their
several big grants would add up to well over 100%
of their time.” Nature
“Scientists and university administrators would
like the government to focus on the
accomplishments of the research project rather
than the percentage of a researcher’s time devoted
to it. “ Science
“ A fundamental assumption …is that it’s
relatively easy for scientists to allocate their time
among various project.” Science
“Who should be held responsible is the big issue.”
Nature
Dudley’s (sic) lab runs on grants from NIH, the
VA, and the American Heart Association. Dudley
also teaches, runs an NIH-funded clinical trial at
Emory university, and sees patients at the VA
Medical Center, where he ‘s chief of Cardiology.”
Science
“Federal agencies….require applicants to estimate
how much time they will spend on a particular
project, and if successful, notify the funder if their
workload changes during the course of the
project.” Science
‘’Either there are rules or there aren’t rules. The
government getting into the business of just being
helpful….is easily misinterpreted.’” Science
“’I’ll just go home and work on my grant.’ …That
assumption is not correct….All effort matters and
needs to be counted in the equation.” Science
The November, 2005, (sic) HHS guidance
appears to stress “timekeeping” more heavily than
does A-21.” Science
“One of the most common problems in a federal
audit…is a university’s failure to properly
document faculty time and effort.” Science
“‘Time is sort of false.’” “’The so-called time
spent on a grant is an elaborate fiction.’” Science
“We want to be sure that we’re getting what we’re
paying for.” Science
“Most schools are in the process of reassessing
their compliance structures.” Science
U.S. Rules on Accounting for Grants Amount to More Than a Hill of Beans (Science)
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Enforcement Examples
• 3/06 - University of Rochester: Unpaid OT. $9.5 Million settlement.
• 1/06 - University of Connecticut: Extra Compensation & Cost Sharing. $2.5
Million settlement.
• 5/05 - Mayo Clinic: Allocation & Cost Transfers. $6.5 Million settlement.
• 6/05 - Cornell University: Grant money used to support patients care at
affiliate hospital. $4.4 Million settlement.
• 4/05 - University of Alabama-Birmingham. Effort reporting. $3.4 Million
• 6/04 - Harvard University and an affiliated teaching hospital: Effort reporting,
equipment, HR issues. $3.3 Million settlement
• 3/04 - John Hopkins University: Effort reporting. $2.6 Million settlement.
• 2/03 - Northwestern University: Effort reporting. $5.5 Million settlement
http://www.costaccounting.org/CBNAudit5.htm
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Cost TransfersCost Transfers
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Cost Transfers
• Definition: after-the-fact reallocation
(transfer) of cost from one institutional
account to another
• Cost transfers can occur between two
sponsored accounts, from a non-sponsored
account to a sponsored account, or from a
sponsored account to a non-sponsored
account.
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NIH Grants Policy Statement
• “The grantee should have systems in place to detect
such errors within a reasonable time frame;
untimely discovery of errors could be an indication
of poor internal controls.
• Frequent errors in recording costs may indicate the
need for accounting system improvements,
enhanced internal controls, or both…”
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NIH Grants Policy Statement
• “Cost transfers to NIH grants by grantees…..under grants that
represent corrections of clerical or bookkeeping errors should be
accomplished within 90 days of when the error was discovered.”
• “The transfers must be supported by documentation that fully
explains how the error occurred and a certification of the
correctness of the new charge by a responsible organizational
official….”
• “An explanation merely stating that the transfer was made ‘to
correct error’ or ‘to transfer to correct project’ is not sufficient.”
• “Transfers of costs from one project to another or from one
competitive segment to the next solely to cover cost overruns are
not allowable.”
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• Insufficient documentation for cost transfers
• Significant number of late cost transfers (greater than
90-120 days after original charge)
• Costs transferred from an account in overrun status to an
account with large balance
• Significant number of cost transfers from departmental
account to sponsored accounts
Potential Audit Findings
Cost Transfers
Top Compliance Risks
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Why are Cost Transfers Problematic?
• A cost that is originally placed on an account is certified for
allowability, allocability tests and direct benefit to a project
– A cost transfer invalidates that original certification (effort reporting
implications)
• Problems:
– Transfer to Federal projects occurring more than 90 days after the
original transaction
– Transfers to Federal projects at the end of the project period
• Transfers between two Federal projects that clears a deficit off one of the
projects
• Inadequate explanation/justification for cost transfer (e.g., “to
correct error”)
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Cost Transfers –
Management Process
• Training and Education– Training Classes / Roles and Responsibilities
– General Accounting Procedure
– Policy: added clarity regarding approval process
– Training tool-kit with best-practice recommendations & Reports
• Business Process and Controls– Forces more accurate documentation and workflow routing
– Close-out Checklist
• Requires that both a grant manager and PI attest to the allowability and compliance with federal regulations of the charges on the grant
• Sampling and Monitoring (Reinforcement and Accountability)
Top Compliance Risks
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Direct vs. Indirect Direct vs. Indirect
ChargingCharging
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OMB A-21:F6(b)]
• “The salaries of administrative and clerical staff should normally be treated as F&A costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity.
• Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs."
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Implications of F.6.b. Guidance
• OMB: “Direct charging….may be appropriate where a
major project or activity explicitly budgets for
administrative or clerical services”
– Do we explicitly budget for these costs in the research
proposal?
– Does the proposal include a written justification (i.e. why the
“normally indirect” costs are necessary for project
performance)
– Is this a “major project” as defined in Exhibit C of A-21?
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OMB Guidance on A-21 Revision to
section F.6.b. (July 1993)
“In developing the departmental
administration cost pool, special care should
be exercised to ensure that costs incurred
for the same purpose in like circumstances
are treated consistently as either direct or
F&A costs....”
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• Section D.1 of OMB Circular A-21 states:
Costs incurred for the same purpose in like circumstances must be treated
consistently as either direct or indirect costs.
• Section F.6.b of OMB Circular A-21 states:
– The salaries of administrative and clerical staff should normally be treated as F&A
costs. Direct charging of these costs may be appropriate where a major project or
activity explicitly budgets for administrative or clerical services and individuals
involved can be specifically identified with the project or activity.
– Items such as office supplies, postage, local telephone costs, and memberships shall
normally be treated as F&A costs.
Definition
Direct vs Indirect Charging Practices are a focus of the HHS OIG FY20011 Work Plan –Specifically, the OIG is reviewing whether colleges and universities properly charged university administrative and clerical salaries to federally sponsored grants and cooperative agreements
Direct vs. Indirect
Charging Practices
Top Compliance Risks
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• Charges for normal administrative support inappropriately charged as
direct costs
• Pens, paper, clerical salary, postage, memberships, etc. are direct
charged to grants in normal circumstances as opposed to unlike
circumstances
• Departmental charges distributed to multiple grants
• Departmental or institute business manager allocated to multiple
grants
• Large research centers/institutes do NOT distinguish unlike
circumstances and charge administrative costs direct
Potential Audit Findings
Direct vs. Indirect
Charging Practices
Top Compliance Risks
Post-Award Closeout Checklist
(Handout)
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Service CentersService Centers
What is a Service Center?
• Unit that provides goods or specific
technical or administrative services to the
university. They charge directly for these
goods or services using rates based on costs
incurred.
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Service Center Objectives
• To provide services or goods in a more convenient manner
than is available from outside vendors
• To provide services or goods at a total cost that is less than
that of outside vendors
• To provide services or goods required within the institution
that are not readily available from outside vendors and/or
facilities
• To provide a mechanism for capturing the cost of
providing services or goods and to distribute that cost to
institutional users
Types of Service Centers
• Service Component:
Primary purpose is to provide goods or services to other university departments
• Shared Resource:
Provide goods and/or services that do not represent the major purpose of the generating department
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New Draft Guidance from NIH
Draft Published: September 2010
“Created to provide NIH staff and awardees with a set of common questions and answers to aid in assuring core facilities operate in compliance with the terms of award including applicable Federal Cost Principles.”Notice Number: NOT-OD-10-138
Title: FAQs to Explain Costing Issues for Core Facilities
Web Link:http://grants.nih.gov/grants/guide/notice-files/NOT-OD-10-138.html
• Comment Period Ended in December 2010⁻ Comment Letter from Council of Governmental Relations (COGR) and many
universities.
• Expect Final Document in CY 2011?
Development of Recharge Rates
• Recharge rates should be based on the actual cost of providing services
• If expected to recover full cost via the recharge mechanism, rates must be within the competitive pricing ranges established by independent for-profit businesses
• Full cost can include both direct and space and general administrative expenses for Service Components and only direct expenses for Shared Resources
37
Allowable Costs
Direct:
• salaries, wages, fringe benefits
• supplies and materials
• subcontracts
• outside services
Unallowable Costs
• Scholarship/Fellowships
• Capital Acquisitions
• Advertising and Publicity
• Bad Debts
• Contributions/Donations/Subsidies
• Public Relations and Social Expenses/Alcoholic Beverages
• Interest Expense: Internal
• Losses/Damages/Write-off
• Transfers
38
Calculating the Recharge Rate
• Rates must be based on actual costs
• Users should be charged directly based upon the
actual number of units purchased multiplied by the
approved recharge rate.
• Rates must be consistently applied to all internal
customers (Federal grants and contracts must always
be charged the lowest rate.)
• Rates must be reviewed annually and approved by
the appropriate official.
Calculating the Recharge Rate
• Service centers can not generate a surplus for a
prolonged period (2-3 years?).
• Year-end surpluses from operations should be carried
forward into the development of the next year’s rate
calculations.
• The same guidelines apply to deficits or the deficit may
be subsidized by other university funds.
• A working capital balance can be maintained but may
not exceed 2-3 (?) months of operating expenditures.
39
Service Center Rate Calculation Form
(Handout)
Application of Approved
Recharge Rates
• Rates must be consistently applied to all internal
customers (Federal grants and contracts must always
be charged the lowest rate.)
• The service center should charge users no less
frequently than quarterly.
• The user should receive an invoice at a sufficient
level of detail to support effective reconciliation.
• Advanced billing for services or products is not
allowed.
40
Charges to External Users
• Because sales of goods and services to persons
or organizations outside of the University
community may raise legal, tax, accounting
and community relations issues, managers of
service centers should use extreme caution in
making services available to users outside the
institution.
• Coordination with Counsel is required.
Service Center Management
• Responsible for preparing and
administering the service center budget,
maintaining adequate records (ex: daily
logs), and accurately invoicing users on a
timely (no less than quarterly) basis.
• Determine the proper rate development
methodology incorporating historical data,
projected data, or both.
41
Service Center Management
• Responsible for preparing and supporting a
schedule of rates for services or products charged
to users of the service center.
• Must ensure that all internal (federal and non-
federal) users are charged the same rate and is
consistent with the rate schedule.
• Must be able to support internal and external audit
requests and show satisfactory accounting and
management control.
External Review
• Recharge rates for service centers are subject to review and approval by the university's federal cognizant agency.
• Recharge rates that result in over-recovery of full cost (direct and indirect) over time can cause one or both of the following: – a one-time full or partial settlement
– future recharge rate reductions resulting in the under-recovery of full cost to compensate for past over-charges
42
• DHHS OIG 2011 Work-plan
• Recharge Centers at Colleges and Universities
– We will determine whether recharge centers at colleges and universities
have a reasonable and consistent rate schedule and comply with the
standards set forth in OMB Circular A‐21.
– Findings from 1994 OIG Audit of Recharge Centers
• accumulated surplus fund balances and deficits and did not adjust
related billing rates accordingly;
• included duplicate or unallowable costs in the calculation of billing
rates;
• used funds of recharge center accounts for unrelated purposes; and
• billed some users at reduced rates.
84
• Federally mandated and published document where the University’s direct and indirect charging practices to sponsored projects (including effort reporting) is disclosed.
• Sections
– COVER SHEET AND CERTIFICATION
– PART I - General Information
– PART II - Direct Costs
– PART III - Indirect Costs
– PART IV - Depreciation and Use Allowances
– PART V - Other Costs and Credits
– PART VI - Deferred Compensation and Insurance Costs
– PART VII - Central System or Group Expenses
Cost Accounting Standards Board Disclosure Statement (CASB DS-2)
43
What should I do if there is a
change in the project?
86
A-110 Tells Us When We Must Ask For
Agency Permission To Change A Budget Or
Program Plan
• PIs are required to report (significant) deviation from budget & program plans to the sponsor
• Inst. MUST request prior approval from the sponsor for:• Change in scope
• Change in key personnel
• PI absence for more than 3 months or >25% reduction in time
• The need for additional funding
• Significant budget change/revision (significant change is generally considered to be >25%)
• Prior approval means having approval from the sponsor documented BEFORE the change is made
• (In these cases it is always best to ask for permission instead of forgiveness!)
44
Overview1. The Regulatory Environment
– Federal and University Perspective
– Recent Pressures (Negative and Positive)
– The Washington Way
– Unique Challenges
2. Review of applicable regulations: From effort reporting to F&A
3. Building or refining your compliance program
(Training, Monitoring, Roles and Responsibilities)
4. Enforcement and agency update
5. What to expect in an audit - Anatomy of an audit: how to prepare,
what to consider, developing your strategy & understanding your
options
87
Topics
• Overview of the Federal Sentencing
Guidelines
• Training & Education
• Monitoring
88
45
89
History of Research Costing
Compliance
•2002: Compliance Assessment Conducted by External Firm
•Spring 2003: Endorsement for mandatory training
– 1,500 research faculty, 1,200 grant managers, 200 business managers
•Summer / Fall 2003
– Certification Program rolled out to grants managers / Mandatory training rolled out to research faculty and staff
– Mandatory training/education for faculty, business managers, and grant managers
•Summer 2004: Risk Assessment Prepared Annually
•Summer 2007: Monitoring
•Summer 2008: RAA (Research Administration Academy) Certification
•Summer 2009: RAI (Research Administration Institute) Certification
•Summer 2010: AGM (Advanced Grant Manager) Certification
90
8 Elements of a “Successful”
Compliance Program
1. Implementing written policies and procedures
2. Designating a compliance officer and a compliance committee
3. Conducting effective training and education
4. Developing effective lines of communication
5. Conducting internal monitoring and auditing
6. Enforcing standards through well-publicized disciplinary guidelines
7. Responding promptly to detected problems and undertaking corrective action
8. Roles and responsibilities and assigning oversight responsibility
Source: Federal Sentencing Guidelines
46
91
400 regulatory requirements grouped into 70 different categories
92
Typical Research Management Structure
• Decentralized management that provides faculty flexibility and responsiveness
• Departments are primary managers of sponsored program activity; varying levels of research admin infrastructure
• Diffuse organizational chain-of-command, making accountability difficult
• Difficulty in keeping department (and central) grant managers trained
47
93
Financial Accountability
Sponsor
University
Mgmt CentersChair’s Office
Dean’s Office
Financial
Administrator
Principal
InvestigatorCompliance
Internal Audit
94
RCC Approach to
Compliance Management
• Monitor: Assessment of Current Status through data collection and analysis
• Integrate: Integrate monitoring with measures that mitigate risk to Duke University. RCC coordinates basic data monitoring with:
– Training
– Communication
– Policy and Procedure review
– Review/Enhancement of System / Internal Controls
• Remediate: Through regularly scheduled meetings
with management , enhanced reporting in response to perceived needs, collaborative work to achieve technology solutions, comprehensive training and updating for grant managers, and direct intervention in departments (answering departments’ request for training and clarifications.)
Comprehensive review of
policies, procedures, training
materials, monitoring, and DS-2
to ensure alignment and
consistency underway.
48
95
96Procurers, Grant AssistantsBasic Compliance on-line, Grant Management for Lab Managers and Procurers, SPS, Basic
Financial Services introductory classes
Research Administration Academy, FasTracks in
dedicated specialty, Basic Compliance on-line,
Research Administration at Duke on-line
Advanced Grant Management, featuring
advanced training in complex proposal
development and project management
Research Administration
Institute, featuring
seminar approach to
advanced compliance
topics and functions
CRARCC offers test preparation
sessions for those seeking
the CRA; 68% passed in last
prep group Business Manager Training
Financial Management Certificate, plus
Tier II RCC Research Management,
features Basic Compliance, Research
Administration at Duke, and Grant
Management for Business Managers plus
required Continuing Education
Principal Investigator required on-
line education
Progressive Training and Career Path
49
Training in Complement to Monitoring
• Certification
– RAA:
• Targets entry level/new grant managers; features mentors, lead department trainers,
extensive evaluation, graduation, student projects
• Next steps: implementation of more rigorous testing and exit criteria
– RAI:
• Targets senior level grant managers and business managers at all levels; features
discussion of peripheral functions that senior level personnel must be aware of:
RCR, IRB, IACUC, Clinical Trials, Export Controls, Contracting, national
compliance issues, advance effort issues
• Mandatory
– Grant Manager: Mandatory Annual Training: Selected Post-award Issues
• Targets all grant managers, required for certificate holders; features updates on
current “hot” compliance topics, process changes, etc.
– PI Continuing Education:
• Targets all PIs prior to receiving an award; features on-line overview of key risk
issues.97
Training in Complement to Monitoring
• Mandatory (continued)
– Business Manager:
• Continuing Education: Targets business managers at all levels; features continuing education
with timely topics relating to processes, policy adjustments, discussions of compliance
management as good business practices
• Grant Management for Business Managers: Targets business managers at all levels; features
discussion of grant management functions and how to effectively manage compliance
– Lab Manager/Procurer:
• Targets individuals who regular charge costs to federal awards; features fundamental training in
compliance risk, allowability, and managing projects and project codes
• Specialized
– FasTracks: Targets individual with limited grant management assignments; features focused
discussion of single topics (closeout, reconciliation, award set-up, etc.)
– Advanced Grant Management: Targets intermediate/advanced grant managers; features in-depth
discussion of strategies for managing more complex projects
– CRA Prep
• FY2011 Symposium: “Continuous Improvement in a Time of Change”
– Features “Newcomer” Breakfast for new grant managers
• Grant Management Community Newsletter continues to grow readership98
50
Grant Management Community
News
Enhanced
communication
strategy to include
webpage update and
enhanced Toolbox
100
Overview of the
Office of Research Costing Compliance
• Targeted classes (e.g. Post-award
Admin, Effort Reporting)
• Mandatory Training (Most have testing
component)
– Grant Manager (8 hour Basic Compliance; Effort Reporting, Internal Controls/Reconciliation, GM: Best Practices)
– Business Manager (2-4 hour case study)
– Faculty (30 minute on-line)
• Certification Program
– Curriculum includes 13 classes (50
hours)/Students work at their own pace (12 months to complete)
– Each class has a required test; comprehensive final exam (open-book)
• Research Administration Academy
– Designed for current grant managers wishing to acquire practical/“hands-on” grants management training
– Jointly developed with pre-award offices, dept’l reps, and oversight from Steering Committee
– Participants required to attend all classes in sequence
– Program conducted over a 3-month period; avg of 2 classes/ month
– 2 tracks: Basic training track (<2
years) and Refresher track (>2
years)
51
101
102
Overview of the
Office of Research Costing Compliance
• Roles and Responsibilities: Integration with HR
and sponsored projects
• Sampling and Monitoring
– Risk assessment process developed to monitor specific
areas of potential risk
– Focus on: OIG Work-plans, Recent Peer Audits, &
Other risk areas
– Data reported to management and Audit Committee
52
103
University Board of Trustees
Audit Committee
President
Steering Committee (Senior
Leadership)
Compliance Liaisons
Compliance
Coordinating Committee
Office of
Internal
Audits
104
Coordination
� Coordinate planning, resources and risk assessments with liaisons who own institutional risks
� Review monitoring done by area specific compliance offices
� Coordinate identification of Laws and Regulations with compliance requirements
� Defined impact types: Financial Operational Reputational Strategic
� Identify Senior Leadership owner of each compliance risk and ‘Compliance Liaison’ with oversight and operational responsibility for each regulation
� Report to Senior Leadership and Audit Committee on monitoring activities based on risk assessment
53
105
106
Compliance
Liaisons
Role
Assess Impact
& Probability
Comm. /
Training of
Staff
Develop
Monitoring
Plan
Identify/Docu
ment Laws &
Regulations
Reporting
Remediate
Describe and
Rank Impact
Documentation to occur throughout process
54
Monitoring Tiered Strategy
Management
Center
(Management
Oversight)
Department
(Mitigation)
Audit
Committee
(Institutional
Risk)
IIIIIIIIIIIIIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIIIIII
108
55
Monitoring Tiered StrategyManagement Centers � Management Oversight & Accountability
Management Center
Performance
Measurements -
Departments
Assess performance for departments using established metrics: reports provided for all
departments; additional analysis for poorest performing departments
Parent BFR DESCRIPTION NSCT #UT
% UT of
SOM
Total
% UT of
Unit
NSCT
6860509500 Center HIV/AIDS Vaccine Immunology 449 187 32% 42%
6860505000 Duke Clinical Research Center 364 167 28% 46%
6860201500 Medicine 271 111 19% 41%
465 79%
Rollup Departments Responsible for 79% of Untimely NSCT in SOM during Pd. 7
Period 7 analysis of performance by parent BFR
Parent DESCRIPTION # Trans # CT
% of All
CT % CT Parent DESCRIPTION # CT # UT
% of
All UT % UT
6860509500 Center HIV/AIDS Vaccine Immunology 1896 449 20% 24% 6860509500
Center HIV/AIDS Vaccine
Immunology 449 187 32% 42%
6860505000 Duke Clinical Research Center 1857 364 16% 20% 6860505000 Duke Clinical Research Center 364 167 28% 46%
6860201500 Medicine 3369 271 12% 8% 6860201500 Medicine 271 111 19% 41%
6860500200 Institute for Genome Sciences & Policy 798 226 10% 28% 6860105000
Molecular Genetics and
Microbiology 111 33 6% 30%
6860207000 Surgery 1137 217 10% 19% 6860101000 Cell Biology 67 32 5% 48%
6860105000 Molecular Genetics and Microbiology 567 111 5% 20% 6860500200
Institute for Genome Sciences &
Policy 226 14 2% 6%
6860204000 Radiation Oncology 488 102 5% 21% 6860201300 Dermatology 24 10 2% 42%
6860102000 Biochemistry 470 79 3% 17% 6860503000 Comprehensive Cancer Center 41 10 2% 24%
6860101000 Cell Biology 729 67 3% 9% 6860207000 Surgery 217 7 1% 3%
6860104500 Pharmacology & Cancer Biology 1155 54 2% 5% 6860202500 Pediatrics 24 5 1% 21%
6860503000 Comprehensive Cancer Center 527 41 2% 8% 6860102000 Biochemistry 79 3 1% 4%
6860204500 Pathology 245 39 2% 16% 6860102500 Immunology 8 2 0% 25%
6860203000 Psychiatry 1011 38 2% 4% 6860206000 Ophthalmology 2 2 0% 100%
6860103500 Neurobiology 633 31 1% 5% 6860104500 Pharmacology & Cancer Biology 54 1 0% 2%
6860450100 Duke Translational Medicine Institute 221 31 1% 14% 6860204000 Radiation Oncology 102 1 0% 1%
6860201300 Dermatology 49 24 1% 49% 6860204500 Pathology 39 1 0% 3%
6860202500 Pediatrics 628 24 1% 4% 6860205500 Obstetrics/Gynecology 7 1 0% 14%
6860203500 Radiology 175 22 1% 13% 6860450100
Duke Translational Medicine
Institute 31 1 0% 3%
6860201000 Community and Family Medicine 377 20 1% 5% 6860103500 Neurobiology 31 0 0% 0%
6860205000 Anesthesiology 142 15 1% 11% 6860106000 Interdisciplinary Programs 3 0 0% 0%
6860450200 Duke Clinical Research Unit 108 13 1% 12% 6860201000 Community and Family Medicine 20 0 0% 0%
6860102500 Immunology 347 8 0% 2% 6860203000 Psychiatry 38 0 0% 0%
6860205500 Obstetrics/Gynecology 85 7 0% 8% 6860203500 Radiology 22 0 0% 0%
6860106000 Interdisciplinary Programs 44 3 0% 7% 6860205000 Anesthesiology 15 0 0% 0%
6860206000 Ophthalmology 428 2 0% 0% 6860450200 Duke Clinical Research Unit 13 0 0% 0%
17,486 2258 100% 2258 588 100%
Pd 7 Transactions to Cost Transfers Pd 7 Cost Transfers to Untimely Cost Transfers
109
Department
(Mitigation)
Management
Center(Manage
mentOversigh
t)
Dr. Trask / IECP / Audit
Committee(Institution
al Risk)
Example – Monitoring Data
56
Proposed Critical Monitoring Elements
(Focused elements for 2011)
111
RiskImprovements
Since Last YearCurrent Risk Projected Risk Improvements Summary
Awarded vs.
Actual Effort Low High/High High/High
RCC continues to work with ASM in the development of a productive
monitoring tool. Management and oversight of this risk is dependent on
implementation of Commitment Management.
Effort (Annual
Effort
Certifications)Significant (Training
and Enforcement)
Low/ Low (Revised
from Med/ Med) Low/ Low
With 100% compliance and the new ECRT system, it appears that the
current ranking is accurate.
Effort (Highly
committed -
G90)
Improvements in
additional review
and revised criteria High/ High High/ High
RCC and the Management Centers have revised the inclusion criteria,
reflecting analysis of three years of previous data; RCC has also initiated
follow-up review of Management Plans and their relationship to
subsequent corrective actions.
Direct Charging
(CAS)
Significant (Training
and Internal Control
Improvement; new
proposed policy) High/ Med High/High
The pending ARRA audit will likely focus on CAS; significant remediation
actions are taking place, and a new policy is being proposed to add more
rigor to correction requirements.
Retroactive
Salary Cost
Transfers Low Unknown High/Medium
Review of audits of peers in past five years indicates this as a national
high risk potential. Currently inadequate mechanisms to monitor
retroactive changes ; working with ASM to develop monitoring reporting
tool/management tool.
Cost Transfers
Significant (New
Policy and
Technology
Improvement)
Medium/High
(Revised from
High/ High)
Medium/ High
With the introduction of the new ZF 418 tool, the risk of poorly
documented cost transfers was eliminated; however, subsequent RCC
monitoring demonstrates that cost transfers continue to be indicators of
certain poorly managed functions: lack of reconciliation and improper
initial charging. Further, a drill down analysis reveals that charges TO
federal awards beyond 90 days is significant, and poses an external audit
concern.
112
Issue: Managing Compliance Costs
• Objective
– Risk Management: Avoidance, Mitigation,
Awareness?
– Improve Business Process and reduce transaction
cost
– Relieve Faculty Burden to support research
mission
57
113
Financial Accountability
Sponsor
University
Mgmt CentersChair’s Office
Dean’s Office
Financial
Administrator
Principal
InvestigatorCompliance
Internal Audit
114
8 Elements of a “Successful”
Compliance Program
1. Implementing written policies and procedures
2. Designating a compliance officer and a compliance committee
3. Conducting effective training and education
4. Developing effective lines of communication
5. Conducting internal monitoring and auditing
6. Enforcing standards through well-publicized disciplinary guidelines
7. Responding promptly to detected problems and undertaking corrective action
8. Roles and responsibilities and assigning oversight responsibility
Source: Federal Sentencing Guidelines
58
Overview1. The Regulatory Environment
– Federal and University Perspective
– Recent Pressures (Negative and Positive)
– The Washington Way
– Unique Challenges
2. Review of applicable regulations: From effort reporting to F&A
3. Building or refining your compliance program (Training, Monitoring,
Roles and Responsibilities)
4. Enforcement and agency update5. What to expect in an audit - Anatomy of an audit: how to prepare,
what to consider, developing your strategy & understanding your
options
115
116
Office of Inspector General
• Created to provide targeted monitoring and oversight for both
internal (agency-specific) and external (recipient) organizations
• Guided by annual “workplan” that identifies critical audit issues
to be reviewed during the audit cycle.
• Priority driven by:
• Amount of ARRA funds
• A-133 findings and any trends of uncorrected findings
• Prior OIG findings
• Input from NIH
• Input from DCA, DHHS
• Proximity to OIG regional resources
59
DHHS OIG 2011 Workplan
• Background
– DHHS is first to post its work-plan. Planning conference occurred Nov 1st – 5th.
– Priority driven by: Amount of ARRA funds, A-133 findings and any trends of uncorrected
findings, Prior OIG findings, Input from NIH, Input from DCA, Proximity to OIG regional
resources
– Anticipate NSF and DOD work-plan in next 30 days.
• Review of Extra Service Compensation Payments Made By Education
Institutions
– We will review payments for extra compensation charged to Federally sponsored grants, contracts,
and cooperative agreements ….
• Recharge Centers at Colleges and Universities
– We will determine whether recharge centers at colleges and universities have a reasonable and
consistent rate schedule and comply with the standards set forth in OMB Circular A‐21.
– Findings from 1994 OIG Audit of Recharge Centers
• accumulated surplus fund balances and deficits and did not adjust related billing rates accordingly;
• included duplicate or unallowable costs in the calculation of billing rates;
• used funds of recharge center accounts for unrelated purposes; and
• billed some users at reduced rates.
• College and University Indirect Costs Claimed as Direct Costs (ARRA)
– We will determine whether colleges and universities have appropriately charged
administrative and clerical salaries to federally sponsored grants. Prior audit work
found problems in this area…
• Colleges’ and Universities’ Compliance With Cost Principles
– We will review colleges’ and universities’ compliance with selected cost
principles issued by OMB Circular A‐21, Cost Principles for Educational
Institutions. We will conduct reviews at selected schools based on the dollar value
of Federal grants received and on input from HHS operating divisions ….
• Pre‐‐‐‐award Screening of Potential Grant Recipients
– We will develop a process by which HHS granting agencies will be able to
quickly consult with OIG to determine whether there are any OIG or other
criminal investigations in progress before making awards. This will reinforce
HHS’s efforts to ensure integrity in the awarding of Recovery Act funds.
DHHS OIG 2011 Workplan - ARRA
60
• National Institute of Environmental Health Science’s Grant Process
– Determine whether NIEHS complied with the HHS Grants Administration
Manual when making awards and whether FY 2005 to 2007 expenses
incurred by its Director’s office were in accordance with NIH policies.
• SAMHSA Oversight of High‐Risk Grantees
• NIH - Implementation of Internal Controls for Grantee Reporting (ARRA)
• Internal Controls for Extramural Construction/Instrumentation (NIH)
• Cross‐Cutting Activities - Recipient Compliance With Reporting
Requirements
• National Center for Research Resources’ Oversight of Clinical and
Translational Science Awards
• Other – Non Financial– Violations of Select Agent Requirements
– Use of Data and Safety Monitoring Boards in Clinical Trials
– FDA’s Oversight of Investigational New Drug Applications
– FDA’s Policies and Procedures for Resolving Scientific Disputes
DHHS OIG 2011 Workplan - Secondary
Creates
possibility
of residual
fallout in
future
120
DHHS OIG 2010 Work Plan
• High Level of importance– Colleges’ and Universities’ Compliance with Cost Principles
• We will review colleges and universities compliance with selected cost principles issued by OMB Circular A-21, Cost Principles for Educational Institutions.
– Recipient Capability Audits (ARRA)• We will review selected NIH grantees to determine whether they have the capacity to
manage and account for Federal funds and to operate in accordance with Recovery Act requirements.
– Recipient Compliance With Grant Requirements (ARRA)• We will review NIH grant recipients’ compliance with the Recovery Act and
applicable Federal regulations.
– College and University Indirect Costs Claimed as Direct Costs (CAS)• We will determine whether colleges and universities have appropriately charged
administrative and clerical salaries to federally sponsored grants.
61
121
DHHS OIG 2010 Work Plan
• Related Issues to be Aware of– Financial Interest Held by Institutions Receiving National
Institutes of Health Research Grants • We will determine if and to what extent grantee institutions receiving
NIH grants have financial interests that could be affected by the research.
– Non-Federal Audits• We will continue to review the quality of audits conducted by non-
Federal auditors. As part of our reviews of A-133 audits, we will ensure that the auditors have audited and reported on compliance with provisions of the Recovery Act.
– Enforcement of Whistleblower Protections• We will review and evaluate credible allegations relating to reprisals
perpetrated against whistleblowers by entities or individuals receiving Recovery Act funds.
122
Summary of DHHS OIG Workplan
NIH Focus Areas 2006 2007 2008 2009
University Administrative and Clerical Salaries X X X
Colleges’ and Universities Compliance with
Cost Principles
X X
Level of Commitment X X
Conflicts of Interest X
NIH Monitoring of Extramural Conflicts of
Interest
X X X
Cost Transfers X X
Monitoring of NIH Research Grants X X
Subrecipient Costs and Monitoring X
Government Focus
Compliance Environment
62
123
Summary of DHHS OIG Workplan
NIH Focus Areas 2006 2007 2008 2009
National Institute of Environmental Health Science’s Grant
Process
X
Safeguard Over Controlled Substances X X
Royalty Income From Intramural Inventions X
Superfund Financial Activities for Previous Year X X X X
Clinical and Translational Science Awards X
Use of Data and Safety Monitoring Boards in Clinical Trials X
Compensation of Graduate Students Involved in NIH-Funded
Research
X
National Institutes of Health’s Implementation of Select Agent
Regulations
X X
Government Focus
Compliance Environment
124
Summary of NSF Management Challenges
NSF Award Administration Challenges 2005 2006 2007 2008
Administrative Infrastructure X
Management of Large Infrastructure Projects X X X X
Post-Award Administration X X X X
Cost Sharing X
Promoting Integrity X X
Contract Monitoring X X
Audit Resolution X
Government Focus
Compliance Environment
63
125
NSF Audit – Expanded Focus
• Assessment
– “(i) ARRA funds are segregated and separately tracked in the universities grants
accounting system,
– (ii) quarterly ARRA reporting is timely and compliant with OMB and NSF guidance, and
– (iii) ARRA funds have been utilized in a timely manner.”
• Data / Information Request
– Org chart, policies & procedures, CASB DS-2, ARRA reports, transaction reports, etc.
– “Financial or management audit and/or evaluation reports that have been generated,
internally or externally, during the past three years regarding subjects associated with
federal grants management. This should include reports associated with programmatic
management of major types of costs charged to federal awards, i.e. reviews of payroll
systems, procurement systems, etc.”
– During onsite access: all accounting records, general and subsidiary ledgers, effort
reports, vendor invoices, and cancelled checks
• FAPIIS requires of reporting of certain information pertaining to criminal, civil, and
administrative proceedings; reporting will occur through the Central Contracting
Registration ("CCR") database;
• The four basic categories of information that a contractor must report (when in
connection with award or performance of federal contract or grant) are:
– Criminal Convictions: proceeding that resulted in a criminal conviction
– Civil Liability: proceeding that resulted in a finding of fault and liability and
required payment of a monetary fine, penalty, reimbursement, restitution, or
damages of $5,000
– Administrative Proceedings: proceeding that resulted in a finding of fault and
liability and required the payment of monetary fine or penalty of $5000 or more, or
the payment of any reimbursement, restitution, or damages in excess of $100,000.
– Settlements: a federal or state criminal, civil, or administrative proceeding was
disposed of by consent or compromise with an acknowledgment of fault by the
contractor, if the proceeding could have led to any of the reportable events discussed
above.
FAPIIS
Federal Awardee Performance and Integrity
Information System
64
Miscellaneous Government Comments
1. NIH 'Stepping Up' Grants Compliance
• The National Institutes of Health recently beefed up the staff overseeing grantees'
compliance with federal regulations and has undertaken "site visit initiatives," according
to …. acting director of NIH's Office of Extramural Research. …. NIH is "looking
forward to strengthening this partnership to ensure efficient and effective management of
federal funds." Site initiatives include "proactive site visits, which were designed to
promote open communication of policy issues between NIH and grantee institutions.
2. GAO Audit: “In our discussions with cognizant agencies for audit, we learned that recent
audits of research awards to schools at HHS have led to some significant findings of improper
billings of indirect costs… Moreover, because of the weaknesses in its oversight methods,
DOD lacks assurance that it is reimbursing indirect costs appropriately.”
3. Congressional Memo from Education & Labor Committee to GAO: audit of F&A recovery
• “Accordingly, we respectfully request that GAO examine how universities, including the
University of California, track how funds provided for laboratory research grants are
spent, including any "facilities and administration" overhead payments, and identify the
terms and conditions governing those grants. ….127
128
Federal Update
• ARRA
– Congressional Request for NIH ARRA Funding
Information (see attached)
• A September 11, 2009 memo from the Committee on
Energy & Commerce has requested a GAO review of
NIH awarding process and job retention/creation by NIH
ARRA awards (Waxman, Barton, Dingell)
• Briefing requested prior to “final awards being made”
• Anticipate closer scrutiny of research awards
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129
Overview1. The Regulatory Environment
– Federal and University Perspective
– Recent Pressures (Negative and Positive)
– The Washington Way
– Unique Challenges
2. Review of applicable regulations: From effort reporting to F&A
3. Building or refining your compliance program (Training, Monitoring,
Roles and Responsibilities)
4. Enforcement and agency update
5. What to expect in an audit - Anatomy of an
audit: how to prepare, what to consider,
developing your strategy & understanding your
options130
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Pilot Audit – Clerical & Admin Costs
• Background and Overview of Audit
• Allowability Standards for Direct Charges of
Administrative Costs
• Lessons Learned from the Conduct of the
Audit
Background and Overview of Audit
• Chronology
– April 2005 DHHS OIG selected 5 institutions for Pilot audits
– May 2005 Entrance conference
– January 2008 Final Draft Audit Letter distributed to President
– August 2009 Settlement
• Audit Phases
– May 2005: Onsite discussion with auditors & Response to data requests
– July 2008 – August 2009: Audit Resolution / Settlement
• Allowability standards
• Application of consistency / Direct Charge Equivalent methodology
• University position on the defended charges
• Extrapolation
• Adequacy of internal controls
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Allowability standards for direct
charges of administrative costs
• Primary issues: – Specific Identification and Consistency
• Salary– Requirements
• Major project: Large and Complex, Large amount of clerical support, Inaccessible to normal support (Common theme: services not available through normal department admin)
• Included in Proposal Budget
• Specific Identifiable
• “Significantly greater than the routine level”
– Considerations: Small levels of effort, Technical salaries
• Non-salary– “Identification with the sponsored work rather than the nature of the goods and services
involved is the determining factor in distinguishing direct from F&A costs”
– Specific identification is the only requirement: cost is “identified readily and specifically with a particular sponsored project”
– No major project requirement / No budget requirement
• Regulations
Allowability standards for direct
charges of administrative costs
• Regulations– General
• Re-budgeting: NIH Guide, Vol. 23, No. 34 (1994)• Consistency in charging can be achieved by use of a DCE.
NIH Guide, Vol. 23, No. 34 (1994)
– Training Grants• NIH and HRSA expressly allow for direct charges of
administrative costs to training grants• NIH GPS (2003) at 175, 197• HHS Grants Policy Statement (2007) at II-111
– Modular Grants• August 23, 2006 NIH guidance on modular grants specifically
states that “you will not need NIH approval to charge [administrative] costs to the project.”
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Lessons Learned
• Conduct of Audit
– Communication
• Internal
– Senior leadership, chairs, deans
– Prepare departments for the request for a five year old $7 receipt
(extrapolation and lack of internal controls)
• Auditors
– Exit Conference
– Don’t assume that no response from the auditors means that all is
OK
– Keep doors open to communication as long as possible; once you
go to audit resolution there is no turning back
– Track all incoming and outgoing communication: Transmittal
letters
Lessons Learned
• Conduct of Audit
– Team Structure, Organization, and Management
• Response Team Staffing
– Operational, Statistician, Legal Counsel (internal and external),
Project manager, Technical resources for data analysis (Internal
Audit & Compliance Office)
• Organization
– Filing
– Collection & Organization of materials
• Track all incoming and outgoing communication
• Note that feds will likely review your institutional website
for information
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Lessons Learned• Conduct of Audit - Strategy
– Have a process – focus on internal controls
– Evaluate options• Related to appeals and next steps (Are the audit results public?
What are the PR implications? What is the ongoing costs to defend?)
• What does the other side really want: payback amount, reasonable settlement should they be reviewed, move on, etc.
• What is your primary objective: payback amount, relationship, credibility, etc.
– Who is responsible for audit resolution? • Keep in mind the importance of the relationship between the audit
resolution team and the office that conducted the initial audit
– Expect a re-audit
– Note that other agencies could pile on at some point
138
NSF Labor Audits - Language from
Recent Reports
• “We consider Arizona’s internal control procedural weaknesses identified in the audit findings to be significant…. the effort reporting system did not ensure salaries.. reasonably reflected actual work performed…”
• Cornell: The nature of this control weakness coupled with the University administration delaying acting on internal audit recommendations, raises concerns about the reasonableness and allowability of the remaining $38 million of FY07 labor charges to NSF grants, and could affect the reliability of the salary portion of Cornell’s other $262 million of Federal awards.
• “Specifically, based on our statistical sampling results, we are 95 percent confident UPENN could not demonstrate that …37% of the labor costs charged to NSF in fiscal years 2002 through 2004, actually benefited NSF awards as opposed to other Federal or university activities. Further, the systemic nature of this control weakness raises concerns about the reasonableness and allowability of the labor effort charges on UPENN’s other $525 million of Federal awards.”
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Peer University: Audits and
Reviews• University of Michigan
– Questioned costs included salaries, travel, internal service charges, participant support, and other direct costs for lack of adequate documentation.
– Auditor Findings
• Lack of Effective Record Retention System for Maintaining Source Documentation.
– The auditors selected 657 cost transactions for audit testing, 300 remained unsupported at the time the field work concluded. The auditors extended the deadline and 69 unsupported transactions were noted in the audit report. UM officials indicated that it required over 10 people more than 250 hours to assemble the documentation.
• Lack of Adequate Centralized Monitoring Control.
– The OSP (central office) reviews and approves transactions on a risk assessment basis (equipment purchases, foreign travel, consulting, cost transfers, budget creation/modification.) The auditors noted that OSP performs its monitoring control at award closeout, which is usually years after a cost is incurred.
• University of Nevada– Cost Transfers Processed during Last Month of Grant
– Salary Charges did not benefit project; Salaries Exceed Two-Month Salary Limitation
– Employee Training for Key Officials Not Mandatory
• University of Delaware– 5. Independent Comprehensive Evaluations: ….but did not interview employees to corroborate
information on effort report.
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The Bottom-Line
• Federal oversight to continue…because– External sponsors (NIH, NSF, DOD) are receiving pressure
from GAO, Congress, OIGs
– Peer Settlements/Findings are continuing – Validates OIG’s mission/cost-effectiveness
– Whistleblowers
• NSF Auditor’s Quote – “Scientific Excellence is no longer enough… Financial and
Administrative Excellence is now required”
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141
Federal Compliance Landscape
• Negative publicity
• Audit Findings & Disallowances, Extrapolation �
Large financial settlements
• Significant difficulty negotiating F&A rates & other
interactions with cognizant organization
• Greatly reduced flexibility in the management
of federally provided resources
Consequences of non-compliance for universities include:
142
Audit Environment
• OMB Circular A-133 Background –
– Federally mandated single audit intended to promote sound financial management, including effective internal controls, with respect to federal awards (sponsored research/training and financial aid). Findings are published in national database for review by other federal agencies and peer institutions
• External Sponsored Research Programs Audit Environment
– Perceived Value/Quality of OMB A-133 Reports -
• General lack of trust of A-133
• June 2007 President’s Council on Integrity and Efficiency report on the quality of Single Audits.
– Stratum I: (>$50M) 37% classified “limited reliability” or “unacceptable”
– Stratum II: (<$50M) 52% classified “limited reliability” or “unacceptable”
– October 2007 Congressional testimony, a Government Accountability Office (GAO) representative stated:
• “The PCIE report presents compelling evidence that a serious problem with single audit quality continues to exist. GAO is concerned that audits are not being conducted in accordance with professional standards and requirements. These audits may provide a false sense of assurance and could mislead users of the single audit reports.”
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Miscellaneous
• Federal auditor: “Scientific Excellence is no longer enough…
Financial and Administrative Excellence is now required” (Training
& externally sub’d)
• Outdated regulations – OMB A-21
– “Telegrams/messenger”
– No reference to technology changes (fiber, VOIP, Wireless, computers)
– No recognition of complexity of faculty relationships
– Allocation and cost structure based on 25 year old concepts
• Congressional interest – alignment and understanding
• Goldwater Report – “Administrative Bloat at American Universities:
The Real Reason for High Costs in Higher Education”
• Federal sponsors continue to push accountability to universities via
sub-contracts (FFATA)
144
The Bottom-Line
• Federal oversight to continue…because– External sponsors (NIH, NSF, DOD) are receiving pressure
from GAO, Congress, OIGs
– Peer Settlements/Findings are continuing – Validates OIG’s mission/cost-effectiveness
– Whistleblowers
• Auditor’s Quote – “Scientific Excellence is no longer enough… Financial
and Administrative Excellence is now required”
73
The Horizon
• Money
– “Gathering Storm” & National
Academies � support for research
investment
• Congressional requests (Pos & Neg)
– Budget Pressure
• Accountability
– ARRA oversight and accountability �
Audits
– Universities feel “over-complianced”
– STAR Metrics
145
SUMMARY
74
147
Challenges to Expanding Administrative
Burden
• Challenges– “Reinterpretation” of OMB Circular A-21
• Cognizant and non-cognizant audits (NSF Effort Audits)
• Annual Officer of Inspector General (OIG) work-plan
• OMB A-133 compliance supplements and ensuing clarifications
• Documents from various agencies (e.g. NIH Grants Policy Statements)
• Institutional Response– Review/revise internal controls, policies, procedures
– Adjust training and communication
– Implement technology and business process improvements and
– Revise and update compliance monitoring practices.
All of these adjustments require significant additional infrastructure and resources.
148
• Program side of sponsor often permits budgeting of expenditures that
won’t withstand an audit (office supplies, effort)
• Complexity and ambiguity of regulations
– Clarity of communication
– Interpretations may differ sponsor, region, and auditors within a
particular office
– Even after findings, adequate guidance may still be needed
– Quality of science and work conducted is not a factor in audit
• Auditors expertise in University (applied knowledge)
• Congress provides catalyst for action – level of understanding and
information?
Challenges to Expanding
Administrative Burden
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Faculty Perspective Government Issues University Compliance Concerns
“Active researcher who teaches, consults, and
works far beyond a 40-hour week can be a hard
animal to track…” Nature
“Simply put, it’s against the law to apply
resources from an existing grant towards a new
project.” Science
“Compliance officer positions are probably the
biggest growth industry in terms of administrative
positions at major research universities.” Science
“Mid-career researchers winning their first RO1,
70% said they had used funds awarded for one
project for other projects within the previous three
years.” Nature
“’Federal agencies are [now] less willing to treat
universities differently than they would treat a
defense contractor’ with regard to documenting
costs and time spent on projects.” Science
“Two common stumbling blocks are 1. trying to
separate time spent on patient care form time spent
on a clinical trial, and 2. assigning existing federal
grants effort devoted to gathering data for an
unfunded project.” Science
“The federal government didn’t always press
scientists to follow its rules to the letter. …A-21
allows for some flexibility, and ‘since no one was
enforcing it, people shaded more on the latitude of
it’” Science
“But for auditors, a scientist’s productivity isn’t
what matters.” Science
“In the halls of US academia, stories abound of
brilliant researchers whose time-reporting for their
several big grants would add up to well over 100%
of their time.” Nature
“Scientists and university administrators would
like the government to focus on the
accomplishments of the research project rather
than the percentage of a researcher’s time devoted
to it. “ Science
“ A fundamental assumption …is that it’s
relatively easy for scientists to allocate their time
among various project.” Science
“Who should be held responsible is the big issue.”
Nature
Dudley’s (sic) lab runs on grants from NIH, the
VA, and the American Heart Association. Dudley
also teaches, runs an NIH-funded clinical trial at
Emory university, and sees patients at the VA
Medical Center, where he ‘s chief of Cardiology.”
Science
“Federal agencies….require applicants to estimate
how much time they will spend on a particular
project, and if successful, notify the funder if their
workload changes during the course of the
project.” Science
‘’Either there are rules or there aren’t rules. The
government getting into the business of just being
helpful….is easily misinterpreted.’” Science
“’I’ll just go home and work on my grant.’ …That
assumption is not correct….All effort matters and
needs to be counted in the equation.” Science
The November, 2005, (sic) HHS guidance
appears to stress “timekeeping” more heavily than
does A-21.” Science
“One of the most common problems in a federal
audit…is a university’s failure to properly
document faculty time and effort.” Science
“‘Time is sort of false.’” “’The so-called time
spent on a grant is an elaborate fiction.’” Science
“We want to be sure that we’re getting what we’re
paying for.” Science
“Most schools are in the process of reassessing
their compliance structures.” Science
U.S. Rules on Accounting for Grants Amount to More Than a Hill of Beans (Science)
DHHS OIG Audits
ARRA
OIG Workplan
GAO Report
A-133 FindingsOther Grant Issues
- Reported/Public
With the government’s focus on transparency and accountability, there is a great
deal more integration of audit findings into the agency and OIG enterprise risk
management process. Per recent meetings with the OIG this drives future audit
focus and selection of institutions.
OIG Workplan
NSF
OIG Workplan
The Gathering Storm
(Insert
Your
Institution
Here)
76
• Chad Holliday - (Chair) DuPont (retired) and Bank of America Peter Agre Johns Hopkins University
• Enriqueta Bond Burroughs Wellcome Fund (retired) C.W. "Paul" Chu University of Houston
• Francisco Cigarroa The University Of Texas System James Duderstadt University of Michigan
• Ronald Ehrenberg Cornell University William Frist Former Majority Leader
• William Green Accenture John Hennessy Stanford University
• Walter Massey Morehouse College (retired) Burton McMurtry (Technology Venture Inv (ret)
• Ernest Moniz Massachusetts Institute of Technology Heather Munroe-Blum McGill University
• Cherry Murray Harvard University John Reed Citigroup (retired) and MIT Corporation
• Teresa Sullivan University of Virginia Sidney Taurel Eli Lilly & Company
• Lee Todd University of Kentucky Laura d ‘Andrea Tyson Univ. California, Berkeley
• Padmasree Warrior Cisco Systems, Incorporated
151
http://sites.nationalacademies.org/PGA/bhew/researchuniversities/index.htm
Questions
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153
Juliann (Juli) Tenney, JD, CHRC, Institutional Research
Compliance and HIPAA Privacy Officer, Director,
Institutional Research Compliance Program,
The University of North Carolina at Chapel Hill;
James Luther (Jim), Assistant Vice President, Finance &
Research Costing Compliance Officer
Duke University
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