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NSF OIG Finds Some
Weaknesses in Penn's Effort Reporting Procedures
The National Science Foundation
(NSF) Office of the Inspector General (OIG) has posted the first
in a series of effort reporting audits, this one of the University
of Pennsylvania (Penn).
Because of recent civil settlements
that involved institutions overcharging labor costs to federal grants,
the NSF-OIG is reviewing the foundation's top-funded universities
to assess their accounting and effort reporting practices. The NSF
OIG noted that approximately $1.3 billion-approximately one third
of NSF's annual grants-is budgeted for wages and salaries.
The OIG's objectives in the
Penn audit were to evaluate the adequacy of Penn's internal controls
to ensure salary and wages were allowable and determine the amount
of unallowable salary and wages charged to NSF awards in FYs 2002-2004.
Audit Focus on Cost
Distribution, Reporting
Penn's research community
includes 25 research centers and institutes, more than 1,000 faculty,
1000 postdoctoral fellows, 3,000 graduate students, and 5,000support
staff. In dollars and cents, Penn's annual research community budget
totals more than $750 million.
In FY2004, Penn spent more
than $554 million in federal funding, of that total, $529 million
came from NSF, and of that NSF funding, $9.4 million was for salaries
and wages for faculty, staff, and students working on research activities
directly related to award objectives.
The OIG focused the audit
on the university's payroll distribution and effort reporting system,
and it reviewed internal controls for ensuring that labor costs
charged to NSF were actually incurred and that the costs benefited
NSF awards. In addition, the OIG sought proof that the costs were
recorded accurately and timely and charged to NSF, and the activities
were allowable as required by federal and NSF requirements.
The OIG randomly selected
a statistical sample of 46 effort records, valued at $371,081 and
supported by 65 effort reports covering 45 employees. The 46 records
came from the universe of all Penn salary and wage records greater
than $100 from the period under review.
The
Findings
The OIG found 23 approved
and signed effort reports without after-the-fact confirmation or
determination of whether the effort reports represented reasonable
estimates of actual effort expended; these reports represented $177,894
or 48 percent of the statistical sample.
Also, Penn principle investigators
and business managers did not approve 24 effort reports within the
Penn specified 45-day turnaround period; these represented $109,163
or 29 percent of effort costs charged to NSF.
The OIG found that “without
timely or suitable means to verify effort reports, Penn was unable
to ensure that a substantial amount of salary and wage costs charged
to NSF reasonably reflected actual effort.” Based on its sample,
the OIG stated that it was 95 percent confident Penn could not demonstrate
that at least $9.2 million or 27 percent of the$24.9 million of
labor costs charged to NSF (in FYs2002-2004) actually benefited
the NSF awards. The systemic nature of the control weaknesses, the
OIG said, raises concerns about the reasonableness and allowability
of the effort charges to Penn's other $525 million in federal awards.
Behind the Weaknesses;
Moving Forward
The OIG reported that Penn's
systemic control weaknesses occurred because specific procedures
were not in place; department chairs were not held accountable for
ensuring effort reports were completed within 45 days; and Penn
failed to conduct an independent evaluation of its payroll distribution
system. In general, the university agreed.
The OIG determined that “NSF
should work with the cognizant audit agency and/or Penn to ensure
Penn develops an acceptable corrective action plan.”
In brief, the OIG recommended
that the “NSF Director of the Division of Grants and Agreements
and the Director of the Division of Institution and Award Support
coordinate with the cognizant audit agency, as needed,” to implement
the following recommendations:
Work with Penn to establish
an internal control structure that ensures the existence of an effective
review and approval process for charging labor costs to NSF awards.
At minimum, Penn should develop and implement the following policies
and procedures:
- Conduct an independent internal evaluation of the university's
payroll distribution system for compliance with federal, NSF,
and Penn requirements.
- Ensure business managers obtain from principal investigators
written after-the-fact verification that the work represented
on effort reports was actually performed prior to approving and
signing the reports.
- Revise the effort reporting policy and procedures to state business
managers must obtain written after-the-fact verification from
principal investigators before approving and signing effort reports.
- Require that hourly employees' weekly timesheets itemize all
specific projects or activities worked on during the covered time
period and that the workload breakdowns support the effort allocations
to each federal award.
- Implement the university's electronic-based effort reporting
review and certification system as quickly as possible.
- Hold department chairs accountable for the completion of effort
reports within the 45-day turn around period as required by University
of Pennsylvania policy.
Finally, recover the questioned salary
and wage costs along with the associated fringe benefits and indirect
costs, totaling $27,121.
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