Audit Stories: Examples and Impact of Audits on Sponsored Research Activities

1. Audit Stories: Examples and Impact of Audits on Sponsored Research Activities Timothy Gordon Associate Director MIT Audit Division

2. Overview: • Types of Sponsored Program Audits at Universities • Audit Response Management • Examples of Unfavorable Federal Award Audits • Causes of Findings • List of Higher Ed Audits/Investigations with significant repayment requirements • Inspector Generals’ Work-plans • International Programs - Audit Requirements • Summary

3. What do auditors do to liven up the office party? Not show up

4. Types of Audits: • OMB Circular A-133 Audits • Independent Audit Firm • Office of Inspector General (OIG) • HHS, NSF, DoD, DOE, etc • Audits and Investigations • Annual Plans highlighting areas of interest • Semi-annual reports to Congress • Dept of Justice Investigations (False Claims) • Foundations and International Program Audits • Internal Audit Activities

5. Risks of Non-Compliance – “3 Rs” • Research: • Hinders research progress • Repayment: • Unallowable costs, penalties and fines • Reputation: • Potential reputational damage

6. Audit Response Management • Assign Primary Point of Contact • All communication flows to/from POC • Strategic/controlled workspace for audit team • Team approach for Investigative Audits • To include reps from Compliance Office, OSP, Controllers Office, Internal Audit, General Council, Department • Strong leadership in the coordination and management of institution’s response is critical

7. Example 1 • Major University – Medical School with Affiliated Hospitals • University self-reported matter to sponsor (reduced settlement) • Issues: • Training Grants • Annual Technical Reports • Cost Transfers • Effort exceeding 100% • DOJ Investigation • Dept Administrator and PI were terminated • Department research activity significantly reduced • 2.5m Unallowable Costs

8. Example 1: Specific Unallowable Charges Salaries: • Scientists who did not work on the grant • Scientists who did not meet award citizenship requirements • Scientists who did not award meet the 75% effort requirement • PI salary expenses in excess of the budgeted amount Supply and Equipment charges • Costs incurred by scientists who were not eligible to work on the award or did not work on award • Animal Charges that were not related to the award or used by scientists who were not eligible to work on the grant Causes: Rogue PI; Weak Dept Administration; Lack of coordination between University and Hospital

9. Example 2 • Major Public University • Issues: • Administrative Costs Charged Direct • Amount Charged to award greater than actual effort • No effort report to support charge • Salary charges in excess of NIH salary caps • General use supplies charged direct • Unreasonable equipment costs • $302,000 in actual unallowable costs extrapolated to $3,000,000 in recommended repayment

10. Example 2: Causes Lack of Oversight: • University left it to the discretion of its individual colleges and departments to interpret the procedures correctly and to comply with Federal regulations • University did not review transactions to ensure that the departments and PIs charged costs to awards that fully complied with Federal regulations • Inadequate controls over the charging and allocation of admin costs

11. List of Higher Ed Audits/Investigations by School (unnamed)

12. HHS OIG Work-plan (FY13) • Human Subject Protection Practices • Compliance With Cost Principles (Indirect cost audits) • Extra Service Compensation Payments • Use of Data and Safety Monitoring Boards in Clinical Trials • Oversight of Grants Management Policy Implementation • Inappropriate Salary Draws From Multiple Universities • Cost Sharing Claimed by Universities • Contract and grant closeouts • Bid proposal audits

13. International Program Audits • Common requirement for many International Agreements • Typically performed by Independent Audit Firm or possibly University Internal Audit • Potential Issues: • Dept tries to handle it alone • Firm is unfamiliar with control environment • Audit methodology may call for more substantial testing compared to A-133 or other Federal audits

14. Example 3: International Program • International Agreement with a University • 10 year agreement • Agreement contained audit clause - never executed • Award terminated by sponsor after 5 years • Issues: • Sponsor unsatisfied with progress • Fraudulent travel costs • Cost Transfers from Federal awards • General overall questioned costs – undetermined purpose • Treated like a discretionary account • Audit had ancillary affect on other programs……

15. Results of Mis-Conduct Investigations HEADLINES “Former Professor Faces Indictment for $3 Million Grant Fraud” “Participants in Cancer Study sue University, Discredited Researcher” “Former Post-Doc found Guilty of Research Misconduct” “Former Faculty member found Guilty of Research Misconduct” **All names have been redacted

16. Closing Summary • Research Funds are subject to audit scrutiny from many audit and investigative agencies • Appropriate and coordinated response is critical • Be aware of audit issues arising at other Universities • Always recognize the consequences of our actions or inactions relative to “3 Rs” • Promote an ethical, compliance minded culture and do your part to avoid the pitfalls of serious audit findings

17. Questions? • Thank You • Timothy Gordon • tgordon@mit.edu