Federal Oversight of Sponsored Programs Bruce Elliott Executive Director OSR – Chicago

1. Federal Oversight of Sponsored Programs • Bruce Elliott • Executive Director • OSR – Chicago • April 11, 2011

2. How Does the Federal Government Provide Oversight of Cost Reimbursements to Universities? • Concern: to be properly reimbursed for DC and F&A costs, universities must properly identify and claim them in accordance with federal policy • Federal agencies have responsibility to ensure that grantees are able to financially manage grants and comply with T&C • Audit responsibility shared between: • Non-federal auditors (A-133 Audit) • Office of Inspector General (OIG) of each department

3. A-133 Audit • Rigorous, organization-wide audit performed annually by an independent CPA • Based on Generally Accepted Government Auditing Standards and guidance provided by the OMB Circular A-133 • To determine whether financial statements are presented fairly in accordance with GAAP • To determine whether internal controls are properly designated and placed in operation to provide reasonable assurance funds and property safeguarded • To determine whether there has been compliance with laws and regulations, which if violated, could have direct impact on financial amounts • To determine if institution can demonstrate compliance with specifically named items in A-133 compliance supplement

4. Office of Inspector General (OIG) • Each federal agency has an OIG that provides independent oversight of the agency’s programs and operations • Staffed with auditors, investigators, attorneys, scientists • Assesses internal controls, financial management, information technology, and other systems that affect the operation of programs • OIG is responsible for detecting fraud, waste, and abuse and for promoting efficiency and effectiveness in agency • OIG's duties are carried out through a network of audits, civil/criminal investigations, and inspections

5. What can Trigger a Federal Audit? • Lack of policies and procedures • A-133 Single audit oversight • OIG Routinely Monitors • Cost or Compliance Issues • Referral of issues to grant/program officer • Financial or performance issues • Site visit concerns • Complaints or allegations • Hotline complaints, whistleblowers

6. False Claims Act and Allegations of Fraud • FCA is a federal law that allows individuals to file actions against universities they accuse of committing fraud against the government. • Knowingly submitting a false or fraudulent claim for payment • Knowingly making or causing to be made a false record for a fraudulent claim to be submitted for payment • Conspiring to get a claim paid or approved • The act of filing such actions is informally called “whistle blowing,” and claims have typically been filed by persons with insider information. • Usually receive a portion (usually about 15–25 percent) of any recovered damages. • Feds do not have to prove specific intent to defraud; liability can be imposed for actual knowledge, deliberate ignorance, or reckless disregard for falsity of claim • Requirement built into ARRA terms and conditions

7. High-Risk OIG Audit Areas(many based on OIG review of A-133 audits)

8. Effort Reporting Commitments and Salary • Risks caused by: • IBS not clearly defined or inconsistently applied • Improper salary supplementation • Faculty members with teaching/admin/clinical responsibilities charging 100% salary to sponsored projects • Effort committed to NIH K awards less than 75% full-time professional effort • Effort certified by person without suitable means of verification • Committed effort is greater than 100% • Lack of accurate and timely effort reporting • Salary caps (NIH and K) not considered • Other Support does not include all sources of support

9. Effort Reporting: What the Auditors Look For • PI effort on grant is unsupported because there’s no effort report documenting that effort was expended • PI effort on grant is understated because she thought new proposal writing effort could be counted as grant effort • PI effort on grant is understated because he folded unrelated projects into his K award effort • PI attributes effort on grant 1 to grant 2 because grant 1 is out of funds • PI overstates effort on grant because he needs the grant salary in order to maintain his full salary • PI’s salary on grant is overstated because the certification was signed by an administrator who had no knowledge of PI’s true effort • PI’s summer effort on grant is misstated because the work was actually done during the academic year

10. Cost Transfers • Risks caused by: • Significant number of late cost transfers (>90 days after original charge) • Costs transferred from an account in deficit to an account with a large balance • Significant number of cost transfers from department accounts to sponsored accounts • Transfers with inadequate documentation or justification. • Transfers made at the end of a project that move cost overruns or spend out a project.

11. Cost Transfers: What the Auditors Look For • Transferring costs from grant A to grant B to clear the deficit on grant A – “for the purpose of avoiding or alleviating a deficit” • Transferring costs from grant C to grant D because grant D’s funds need to be used up before it’s over – “to utilize unexpended funds” • Charging grant E for grant F costs that grant F will not allow – “for the purpose of circumventing award restrictions” or “for the purpose of moving a cost that is unallowable on one project to another” • When the transfer is for the purpose of reimbursing a temporary "loan" of funds from another sponsored project – “docking expenses”

12. Direct Charging • Risks caused by: • Charges for normal administrative support inappropriately charged as direct costs • Office supplies such as pens, paper, computers, toner, postage, etc, are directly charged to grants in normal circumstances as opposed to unlike circumstances • Membership expenses, photocopying • Entertainment expenses • Payments are made on the basis of false invoices or non-existent companies (refer to new NU policy on vendors)

13. Direct Charging: What the Auditors Look For • Charging grant for the salary of an administrative assistant when NU typically charges these costs as F&A and there is no justification for charging the cost as a direct cost • Charging grant for a piece of equipment (or travel…) when the grant did not benefit from the equipment (or travel…) • Charging grant for the salary of PI during new proposal development • Charging grant for copying articles of general interest • Charging grant for basic computer set-up and wireless service costs • Charging grant for a laptop for the exclusive home use of a colleague when the colleague is only on the grant for 5% effort (there may be other issues with this scenario)

14. Allocability Issues • Expenditure patterns - accelerated or delayed • Charging costs at the end of the grant (especially equipment) • Inadequate documentation/explanation of benefit for charges made to grants (e.g. P-card purchases) • Inadequate substantiation of proportional benefit for allocation of costs among interrelated projects • Rotation of charges among grants unacceptable

15. Cost Sharing • Risks caused by: • University does not record and maintain documentation for reporting cost sharing to the funding agency • Mandatory cost sharing commitments are not met • Unallowable/inappropriate charges used to meet cost sharing commitments • Effort certification system does not verify cost sharing charges

16. Cost Sharing: What the Auditors Look For • PI proposes to spend 40% of his effort on grant but to charge only 20% of his salary to the project. The remaining 20% is not tracked or recorded as cost sharing in University’s effort reporting system.

17. Subrecipient Monitoring • Risks caused by: • Prime assumes the responsibility of providing proper oversight of subrecipients to meet monitoring requirements.  • Subrecipients are not debarred or suspended and are eligible to receive federal funds • Subrecipient has appropriate financial systems to manage sponsored funding • Subrecipient does not have outstanding audit issues that will negatively impact the overall project.  • Lack of A-133 certification documentation • Lack of internal controls related to subawards • Unallowable costs or lack of cost sharing documentation on subaward invoices

18. Selected 2010 NSF OIG Findings • Former university employee convicted for purchase card abuse (gift cards, video games). Now convicted felon • NSF terminated a graduate research fellowship and recovers $69,000 (lied about federal debt) • An Ohio university returned $86K after drawing down after project end • PI receives funding from three federal agencies for the same project (PI debarred) • An Oregon university repaid $55K for unsupported and ineligible costs • Student fabricated figures in research publication and Ph.D dissertation (pending debarment) • PI submits three proposals to NSF containing substantial plagiarism

19. Significant OIG Audits • Northwestern University 2003 • Whistleblower, HHS OIG and DOJ, $5.5M settlement • Acts constituting a false claim • “NU knowingly or recklessly overstated the amount of IBS for faculty members on research grants. Defendant did this by falsely treating the salary that doctors earned from NMFF as part of the IBS paid by the University.” • “In truth, many faculty research members devote only a small fraction of their effort to NU teaching, research, and administration. The bulk of their effort is devoted to the private medical practice. These private practices are operated through NMFF, a separate nonprofit corporation that is independent from the NU.” • “NU misleads the United States into paying more than it should for the researcher’s salaries.” • “There is no check on this system to reconcile the proposed salary and effort with the award commitment.”

20. Significant OIG Audits • University of Minnesota • 1998, HHS OIG and DOJ, $32 M settlement. Program Income • For more than two decades, the University illegally profited by selling an unlicensed drug, failed to report to the NIH income from selling the drug, improperly tested the drug on patients without their informed consent, and inflated billings on 29 federal grants. • The unlawful sales of an unlicensed, experimental drug generated more than $85 million for the University between 1969 and 1992. • University manufactured drug but did not report program income to NIH so NIH could adjust grant amounts. • University was required to forfeit profits earned on the illegal drug sales and pay the United States for mischarging federally funded grants. • Also, University charged salaries and supplies to grants that weren’t on the grants • NIH exceptional status 1995-2001

21. Significant HHS OIG Audits • Yale (subawardee to UMass Med School) 2006 • False claims in management of federal awards. Expanded into OIG investigation by 6 agencies; subpoenas • Cost transfers not adequately explained and documented (email stated salary C/T made to spend down account). Altered documentation to auditors • Failure to provide required effort • Overstated effort reports resulting in overcharges, e.g., 100% summer effort when PI worked on other projects • Unsupported direct charges to grants: supplies. Many direct costs requested by researchers not documented as working on project: supplies, core lab, equipment • Yale did not have cost accounting procedures for allocation • UMMS had to repay funds. Then Yale had $7.6 M settlement: • Yale now has stronger policies and procedures in place

22. Significant OIG Audits • Cornell Weill Medical College 2005 • Whistleblower settlement handled by HHS OIG and DOJ • Defrauded the Government in connection with NIH grant • Relator was a former employee (physician) • Original application and progress reports contained false statements designed to convince NIH to fund project • Full salaries of nurses and other staff paid from grant over 8 years even though some didn’t work on projects and others <100% • Required fellows to see an excess of private fee-for-service patients with other medical conditions. School double-billed Medicare for these services • Allowed single researcher and one division to receive all grant money even though grant supported many activities • Cornell paid $4.4 M settlement to government • Relator received $877,000

23. Significant OIG Audits • But wait – there’s more! • Federal Jury Finds Cornell University’s Medical College Committed Fraud AGAIN

24. Significant OIG Audits • Cornell Weill Medical College 2009 • Whistleblower settlement handled by HHS OIG and DOJ • Whistle blower was admin assistant • Made false statements to NIH in grant applications • PI and OSR failed to disclose all research activities in Other Support, depriving feds ability to determine if PI had adequate time for the project and no overlapping funds • Result: Overcommitted • “Cornell made material misrepresentations of fact to the United States with knowledge of their falsity, or in reckless disregard of their truth, in connection with NIH grants,” the federal complaint stated. “By reason of Cornell’s false claims, the United States has been damaged in a substantial amount.” • Cornell paid $2.6 M settlement to settle federal civil fraud charges

25. What do I do if I receive a subpoena, court order or search warrant? • Notify the Office of General Counsel (OGC) immediately and provide them with a copy of the subpoena, court order or search warrant.   OGC will then provide guidance on the appropriate response to the issuing/serving attorney, court or law enforcement agency. • Do not contact or discuss the subpoena, court order or search warrant with the issuing/serving party.  Let OGC do that for you if necessary.

26. Discussion • Bruce Elliott • 3-1780 • b-elliott@northwestern.edu • Next Brown Bag: Resource Sharing Expectations in NIH-Funded Research • References include: • Vernick, MJ, Ferreira WF, Sullivan, AM; The False Claims Act and Fraud Allegations in Sponsored Research; • The National Association of College and University Attorneys; November 10-12, 2010 Meeting