National Science Foundation Office of Inspector General Update National Conference on College Cost Accounting 2015 Annual Conference October 13, 2015 Brett M. Baker, Ph.D, CPA, CISA Assistant Inspector General for Audit National Science Foundation

Overview NSF OIG overview Audit update DATA Act and IPERA Data analytics in the federal government Applications in grant oversight Dr. Brett Baker, AIGA, NSF OIG

Inspectors General 72 Federal Inspectors General (IGs) Promote economy and efficiency Prevent and detect fraud, waste, and abuse Audit and evaluate agency programs and activities Investigate allegations of wrongdoing Operate a fraud hotline Review agency compliance with legislation and regulations Advise agency head and Congress Dr. Brett Baker, AIGA, NSF OIG

Inspectors General Do Not…. Operate programs or decide funding Perform management functions Make agency employment decisions Enforce implementation of OIG recommendations Suspend or debar recipients Dr. Brett Baker, AIGA, NSF OIG

Who We Are Expertise in areas of research, Inspector General Assistant IG for Audit Counsel to the IG Assistant IG for Investigations Financial Statement and IT Audit Administrative Investigations OIG Management Support Performance Audit Civil/Criminal Investigations External Audit Investigative Legal / Outreach Audit Services and Data Analytics Expertise in areas of research, grant, and contract administration Investigations Specialists and Support Staff Dr. Brett Baker, AIGA, NSF OIG

OUTREACH Two Sides of the House Audit Investigations External Audit Program Audits of awardee financial, administrative and internal controls. Reports findings to NSF for audit resolution (e.g., return of funds). Internal Audit Program Audits of NSF programs and operations to determine program compliance and efficiency of operations. Report findings to Congress, National Science Board, and NSF. Investigations Civil and Criminal Cases of Fraud, Theft, Conspiracy, Embezzlement, False Statements, etc. Consequences: Restitution, Fines, Prison, Compliance Plans. Administrative Cases of Research Misconduct; Breach of Confidentiality; Human Subjects, Animal Welfare. Consequences: Debarment, Certifications and Assurances, Remedial Training, etc. OUTREACH Semiannual Reports to Congress

Audit Planning Work Required by Law: Discretionary Work: Agency Financial Statement Audit (CFO Act) Federal Information Security Management Act (FISMA) Improper Payment Elimination and Recovery Act (IPERA) Conference spending and government purchase card oversight DATA Act Discretionary Work: OIG Risk-based Assessments Internal NSF operations External award oversight Referrals from Investigations NSF Management Challenges National Science Board and NSF Suggestions Congressional Requests Dr. Brett Baker, AIGA, NSF OIG

Distribution of Audit Work Dr. Brett Baker, AIGA, NSF OIG

Greater Attention to Analytics in Government DATA Act Promotes data sharing across government agencies Treasury data analytics center for OIGs – automated oversight Government-wide structured data standards for financial reporting USASpending data should be standardized and machine-readable OIGs will audit data quality Improper Payments Elimination and Recovery Act (IPERA) Amends the Improper Payments Information Act of 2002 IPERIA strengthens estimations Strengthens detection, prevention, and recovery efforts Pre-award and pre-payment checks with Do Not Pay Annual risk assessments of covered programs Published improper payment estimates with reduction targets Goal to reduce improper payments by $50B and recover $2B in 2 yrs Dr. Brett Baker, AIGA, NSF OIG

Programs with Improper Payment Estimates Over $1 Billion in FY 2014 Source: GAO Dr. Brett Baker, AIGA, NSF OIG

Risk Identification for Oversight Why look for risk? Helps ensure programs are working and funds are being used properly. Government responsible for all activity, risk-based approaches help focus effort on things we need to pay more attention to. General risks What an institution is…. Some contract and grant awards are riskier than others -- Smaller institutions tend to have weaker internal controls Activity-based risks What an institution does…. Award actions that stand out from normal activity -- Large drawdown on a single date – end of a fiscal year -- Spending out remaining award fund just before and after the award Challenges General risks can be more obvious Activity-based risks are more revealing, but can be harder to see Dr. Brett Baker, AIGA, NSF OIG

Focus on Risk Many to the Few 600,000 Grant award drawdowns annually totaling $7 billion Each assigned a risk score Spikes, near award expiration charges 40,000 Active awards Summarize drawdown risks by award 2,000 Institutions Summarize award risk and add CCR, EPLS, FAC risks 20 Audits of higher risk institutions Each audit tests all expenditures for all awards with automated risk indicators 15,000,000 Transaction-level expenditures tested Dr. Brett Baker, AIGA, NSF OIG

Forensic Audit Framework Set Objectives and Define Universe Structured brainstorming with subject matter experts Map out End-to-End Process Identify systems, key processes and controls Obtain Transaction-Level Data Build Targeted Business Rules and Run Against Data 100% review with automated business rules based on risk Award/institution anomalies and changes in patterns over time Examine Anomalies Dr. Brett Baker, AIGA, NSF OIG

Risk Identification through Automated Oversight Improved risk identification 100% transaction review – limited statistical sampling Automated business rules based on risks Focus review on higher risks Key data analytics software techniques Join databases (need linking field) Summarize data (many to the few) Apply risk indicators using computed fields Develop risk profiles by institution, award-type, transaction-type Summarize risk into one number Agencies and recipients can use similar data analytics techniques Monitor grant spending Identify anomalies early Dr. Brett Baker, AIGA, NSF OIG

Comparing Data Files (Three Bucket Theory) Vendors Paid and In Vendor Table Vendors Paid but not In Vendor Table Vendors Not Paid Yet Vendor Table (Valid vendors) Disbursing Transactions Linking field allows for comparison Dr. Brett Baker, AIGA, NSF OIG

Normal Distribution Anomalous Activity Anomalous Activity Normal Activity Dr. Brett Baker, AIGA, NSF OIG

Building a Forensic Capability Develop organizational capability All staff should have basic skill with data analysis tools Forensic units perform more sophisticated analyses Targeted reviews are more efficient in time and cost Phased development Hardware and software Access to internal and external data Staff: system savvy, analytical, business process knowledge Training, then immediate application to work Very important component is tone at the top Dr. Brett Baker, AIGA, NSF OIG

Transaction-level Data Framework for Data Analytics Using Government and Publicly Available Data Award-level Data Grants, Contracts Transaction-level Data Payee, Contract No, CLINs, Payment Amount, Date Award Systems Payment Systems Disbursing Systems Federal Reserve System Commercial Bank Data Download Data Download Data Download Data Download Contract Invoices Grant Pmt Req’s Data Analytics Join databases Apply risk indicators Risk rank transactions Identify anomalies for testing Oversight Review by Auditors Investigators Agencies Data Download Data Download Data Download Data Download Data Download GuideStar (non-profits) SAM (CCR, EPLS) Federal Audit Clearinghouse Master Death File (SSA) CPARS, FPDS Examples of systems that can be used to help understand payment transactions Dr. Brett Baker, AIGA, NSF OIG

U.S. Financial Assistance Overview $600 billion in awards 88,000 awardees and 26 Federal grant making agencies Project and research, block, and formula Outcomes are designed to promote public good Challenges Limited visibility of how Federal funds are spent by awardees Support for funding requests much less than for contracts American Recovery and Reinvestment Act (2009) $840 billion of assistance to stimulate the economy Greater accountability and transparency over spending than ever Opportunities to enhance oversight with less Automated oversight Dr. Brett Baker, AIGA, NSF OIG

Framework for Grant Oversight Data analytics-driven, risk-based methodology to improve oversight Identify institutions that may not use Federal funds properly Techniques to surface questionable expenditures Life cycle approach to oversight Mapping of end-to-end process to identify controls 100% review of key financial and program information Focus attention to award and expenditure anomalies Complements traditional oversight approaches Techniques to review process and transactions are similar Transactions of questionable activities are targeted Recipients and Agency Officials can use data analytics Identify high risk activities through continuous monitoring Dr. Brett Baker, AIGA, NSF OIG

Grants Differ From Contracts Promote services for the Public Good Merit review (competitive) Multiple awardees Award budget No government ownership Grant payments Summary drawdowns No invoices for claims Expenditures not easily visible Salary percentages CONTRACTS Specified deliverables (Goods and Services) Competitive process One awardee Contract Price Government ownership Contract payments Itemized payment requests Invoices to support claims Detailed costs Salary hourly rates Dr. Brett Baker, AIGA, NSF OIG

End to End Process for Grant Oversight CASH DISBURSEMENTS PAY/ ENTITLEMENT PRE-AWARD REVIEW CASH REQUEST AWARD CLOSE-OUT SOLICITATIONS PROPOSALS POST AWARD AWARD PRE-AWARD RISKS ACTIVE AWARD RISKS AWARD END RISKS No /Late Final Reports Cost Transfers Spend-out Financial Adjustments Unmet Cost Share Funding Over Time Conflict of Interest False Statements False Certifications Duplicate Funding Inflated Budgets Candidate Suspended/Debarred Unallowable, Unallocable, Unreasonable Costs Inadequate Documentation General Ledger Differs from Draw Amount Burn Rate No /Late/Inadequate Reports Sub-awards, Consultants, Contracts Duplicate Payments Excess Cash on Hand/Cost transfers Unreported Program Income DATA ANALYSIS Dr. Brett Baker, AIGA, NSF OIG

Look at Red Flag Areas Use Data Analytics to identify anomalies that are potential fraud indicators, such as: breaks in trends, outliers… 2 3 The more red flags, the higher the risk. Proposals Solicitations Recipient Project System Pay System Acctg System HR System Reports Internal Grants Portal Awards System Proposal System External Grants Portal Award Close-Out Post Award Monitoring Award Notification Pre-Award Review Research Idea 5 RISK 6 1 The less red flags, the lower the risk. 7 Funding RISK 4 8 9 Dr. Brett Baker, AIGA, NSF OIG

Data Sources Internal External Recipient financial system records Proposals: budgets, panel scores Agency award systems, recipient reporting External Excluded Parties List System (EPLS) Central Contractor Registration (CCR/SAM) Public tax filings Federal Audit Clearinghouse (A-133 audits) Recipient financial system records General ledger and subsidiary ledgers Effort reporting Property Travel and purchase card Subaward monitoring Dr. Brett Baker, AIGA, NSF OIG

Identification of Higher Risk Institutions and Transactions Dr. Brett Baker, AIGA, NSF OIG

Anomalous Drawdown Patterns $$ Spending Remaining Grant funds (before expiration) Spending Remaining Grant funds (after expiration) Start up costs Drawdown Spike Normal drawdown pattern Grant Award Grant Expiration 26 Dr. Brett Baker, AIGA, NSF OIG

Early Drawdown Dr. Brett Baker, AIGA, NSF OIG

Draw Spike Dr. Brett Baker, AIGA, NSF OIG

Spend out Pattern Dr. Brett Baker, AIGA, NSF OIG

Does this drawdown pattern look okay? Dr. Brett Baker, AIGA, NSF OIG

Common Audit Findings Pre-Data Analytics Audits Data Analytics Audits (stat sampling projections) Unsupported costs Effort reporting Effort reporting (subaward) Pre-award charges Data Analytics Audits (actual transactions) Unallowable, unallocable, unreasonable costs Excess salary Indirect Costs Equipment Dr. Brett Baker, AIGA, NSF OIG

When should you contact OIG? Report significant administrative or financial problems Report allegations of wrongdoing Research misconduct Fraud / theft involving NSF funds Violation of regulation, directive, or policy 1-800-428-2189 (anonymous hotline) 703-292-7100 (business hours), or 703-328-3932 (non-business hours) Online hotline through our website webform. www.nsf.gov Email: oig@nsf.gov NSF Hotline Dr. Brett Baker, AIGA, NSF OIG

OIG Outreach Presentations at conferences and seminars For students, PIs, and administrators OIG outreach visit can be requested Fact sheets and brochures, briefings, conference presentations www.nsf.gov/oig/outreach_all.jsp OIG Semiannual Report http://www.nsf.gov/oig/pubs.jsp Requests: oig@nsf.gov Dr. Brett Baker, AIGA, NSF OIG

Questions? Dr. Brett M. Baker Assistant Inspector General for Audit National Science Foundation Office of Inspector General Phone: 703-292-7100