research compliance conference · – unique challenges 2. review of applicable regulations: from...

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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

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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






3. Building or refining your compliance program (Training, Monitoring,

Roles and Responsibilities)




options

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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





2. Review of applicable regulations: From effort

reporting to F&A






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


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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)


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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


Cost Transfers


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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)


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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


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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


Direct vs. Indirect

Charging Practices


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

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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







3. Building or refining your compliance program

(Training, Monitoring, Roles and Responsibilities)




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









4. Enforcement and agency update5. What to expect in an audit - Anatomy of an audit: how to prepare,


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


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


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


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

65

129










5. What to expect in an audit - Anatomy of an

audit: how to prepare, what to consider,

developing your strategy & understanding your

options130

66

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

67

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

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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:

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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.”

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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)

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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

• Auditor’s Quote – “Scientific Excellence is no longer enough… Financial

and Administrative Excellence is now required”

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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

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http://sites.nationalacademies.org/PGA/bhew/researchuniversities/index.htm

Questions

77

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