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. Issues Repayment Audit Agency Year 1Effort Reporting, Admin Costs charged direct, Salary costs exceeding NIH cap$3,000,000OIG HHS2012 2Unsupported sub-award and travel costs$244,000OIG NSF2012 3Unsupported costs$169,000OIG NSF2012 4Inadequate Effort reporting, unsupported payroll and other unsupported costs, unapproved capital costs $1,700,000OIG NSF2011 5Non-Compliance with university policies and procedures in the areas of budget transfers; participant support costs; travel policies; payroll and fringe benefits; accounting and reporting of indirect costs; $351,000OIG NSF2011 6Effort reporting and Cost Sharing$500,000FCA DOJ2010 7PIs full research commitment not disclosed/exceeded 100%$2,600,000FCA DOJ2009 8Effort reporting and Cost Transfers$7,600,000FCA DOJ2009 9Unallowable admin and clerical salaries as well as “other administrative costs$1,600,000OIG HHS2009 10Faculty Additive/Supplemental pay inflated$1,000,000FCA DOJ2008 11Incorrect billing rates, excessive compensation, and cost sharing deficiencies$2,500,000FCA DOJ2006 12 Effort Reporting; Equipment purchases; improper billing 11,500,000FCA DOJ2005 13 Spending practices not in conformity with award requirements; improper reporting to sponsor; improper salary charges 4,300,000FCA DOJ2005 14 Effort reporting for physician salaries 3,390,000FCA DOJ2005 15Salaries, supplies, and costs of medical treatment were shifted at year's end to grants that had funds remaining; charges were not properly allocated as direct or indirect costs. 6,500,000FCA DOJ2005 16Costs charged improperly to project for which the funds were not intended2,300,000Internal Audit 2004 17 Unapproved human subjects research; did not adequately address conflicts of interest; and claimed unallowable costs. 1,000,000HHS OIG2004 18 Inappropriate salary charges and fraudulant reporting 2,400,000FCA DOJ2004 19 Over-commitment of effort for Physicians salaries 2,600,000FCA DOJ2004 20 Effort reporting for faculty and physician salaries 5,500,000FCA DOJ2003 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