national conference on college cost accounting 2015 annual conference october 13, 2015 national...

National Conference on College Cost Accounting 2015 Annual Conference

October 13, 2015

National Science Foundation Office of Inspector General Update

Brett M. Baker, Ph.D, CPA, CISA Assistant Inspector General for Audit National Science Foundation

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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

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Inspectors General

72 Federal Inspectors General (IGs)

Promote economy and efficiencyPrevent and detect fraud, waste, and abuse

Audit and evaluate agency programs and activitiesInvestigate allegations of wrongdoingOperate a fraud hotline

Review agency compliance with legislation and regulations

Advise agency head and Congress

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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

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Dr. Brett Baker, AIGA, NSF OIG

Who We Are

Assistant IG for Investigations

Assistant IG forAudit

Inspector General

Counsel to the IG

Administrative Investigations

Civil/Criminal Investigations

Investigative Legal / Outreach

Investigations Specialists and Support Staff

Financial Statement and IT Audit

Performance Audit

External Audit

Audit Services and Data Analytics Expertise in areas of

research, grant, and contract

administration Dr. Brett Baker, AIGA, NSF OIG

OIG Management Support

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Two Sides of the House

Audit 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.

OU

TR

EA

CH

Semiannual Reports

to Congress

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Audit Planning

Work Required by Law: 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

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Dr. Brett Baker, AIGA, NSF OIG

Distribution of Audit Work8

Mandatory

Con-gres-sional

Request

NSF Re-

quested

OIG Internal

OIG External

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

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Dr. Brett Baker, AIGA, NSF OIG

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Medicare

Fee-fo

r-Servi

ce

Earned In

come T

ax Cre

dit

Medicaid

Medicare

Adva

ntage (Part C

)

Unemployment In

sura

nce

Supplemental Secu

rity In

sura

nce

Old Age, S

urvivo

rs, and D

isabilit

y Insu

rance

Supplemental Nutrit

ion Ass

istance

Pro

gram

Medicare

Pre

scrip

tion D

rug

School L

unch

Direct

Loan

Public H

ousing/R

ental Ass

istance

$0

$10

$20

$30

$40

$50$45.8

$17.7$17.5$12.2

$5.6 $5.1 $3.0 $2.4 $1.9 $1.7 $1.5 $1.0

Dollars (in billions)

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

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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 Each assigned a risk score Summarize drawdown risks by award

2,000 Institutions Each assigned a risk score 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 Each assigned a risk score Dr. Brett Baker, AIGA, NSF OIG

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Forensic Audit Framework

Set Objectives and Define UniverseStructured brainstorming with subject matter

expertsMap 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

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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

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Comparing Data Files(Three Bucket Theory)

DisbursingTransactions

Vendor Table(Valid vendors)

VendorsNot Paid

Yet

VendorsPaid andIn Vendor

Table

VendorsPaid but not

In VendorTable

Dr. Brett Baker, AIGA, NSF OIG

Linking field allowsfor comparison

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Normal Distribution

Normal Activity AnomalousActivity

AnomalousActivity

Dr. Brett Baker, AIGA, NSF OIG

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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 topDr. Brett Baker, AIGA, NSF OIG

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Dat

a D

ownl

oad

Framework for Data Analytics Using Government and Publicly Available Data

Federal Reserve System

Disbursing Systems

CommercialBank

AwardSystems

Data Analytics

PaymentSystems

Federal AuditClearinghouse

Master DeathFile (SSA)

Dr. Brett Baker, AIGA, NSF OIG

Oversight Review by

• Auditors• Investigators• Agencies

CPARS, FPDS SAM(CCR, EPLS)

GuideStar(non-profits)

Dat

a D

ownl

oad

Transaction-level Data Payee, Contract No, CLINs, Payment Amount, Date

Examples of systems that can be used to help understand payment transactions

Award-level Data Grants, Contracts

Dat

a D

ownl

oad

Dat

a D

ownl

oad

Dat

a D

ownl

oad

Dat

a D

ownl

oad

Dat

a D

ownl

oad

Dat

a D

ownl

oad

Dat

a D

ownl

oad

Contract Invoices

Grant Pmt Req’s

Join databasesApply risk indicators

Risk rank transactionsIdentify anomalies for testing

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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 goodChallenges

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

everOpportunities to enhance oversight with less

Automated oversight

Dr. Brett Baker, AIGA, NSF OIG

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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 expendituresLife 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

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Grants Differ From Contracts

GRANTS Promote services for the Public Good Merit review

(competitive)Multiple awardeesAward budgetNo government

ownershipGrant payments

Summary drawdowns No invoices for claims Expenditures not easily

visibleSalary percentages

CONTRACTS Specified deliverables (Goods and Services)Competitive processOne awardeeContract PriceGovernment

ownershipContract payments

Itemized payment requests

Invoices to support claims

Detailed costs Salary hourly rates

Dr. Brett Baker, AIGA, NSF OIG

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End to End Process for Grant Oversight

PROPOSALSPRE-AWARD

REVIEW AWARD

CLOSE-OUTPOST AWARDCASH

DISBURSEMENTSPAY/

ENTITLEMENT

AWARDSOLICITATIONS

CASH

REQUEST

• 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•

• No /Late

Final Reports• Cost

Transfers• Spend-out• Financial Adjustments• Unmet Cost

Share

D A T A A N A L Y S I S

PRE-AWARD RISKS

ACTIVE AWARD RISKSAWARD END

RISKS

Dr. Brett Baker, AIGA, NSF OIG

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Prop

osal

s

Solic

itati

ons

Recipient

Project System

Pay System

Acctg System

HR System

Reports

Internal Grants Portal

Acctg Syste

m

Awards System

Proposal System

External GrantsPortal

Award Close-Out

Post Award Monitoring

Award Notificatio

n

Pre-Award Review

Look at Red Flag

Areas

RISK

RISK

The more red flags, the higher the risk.

The less red flags,the lower the risk.

Use Data Analytics to identify anomalies that are potential fraud indicators, such as:

• breaks in trends, outliers…

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2 3

4

5

7

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Funding

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Dr. Brett Baker, AIGA, NSF OIG23

Data Sources

Internal 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

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Dr. Brett Baker, AIGA, NSF OIG

Identification of Higher Risk Institutions and Transactions

Dr. Brett Baker, AIGA, NSF OIG25

Anomalous Drawdown Patterns

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Normal drawdown pattern

SpendingRemaining

Grant funds(before expiration)

Grant Expiration

SpendingRemaining

Grant funds(after expiration)

Grant Award

Start upcosts

$$

DrawdownSpike

Dr. Brett Baker, AIGA, NSF OIG

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Early Drawdown

Dr. Brett Baker, AIGA, NSF OIG

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Draw Spike

Dr. Brett Baker, AIGA, NSF OIG

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Spend out Pattern

Dr. Brett Baker, AIGA, NSF OIG

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Does this drawdown pattern look okay?

Dr. Brett Baker, AIGA, NSF OIG

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Common Audit Findings

Data Analytics Audits (actual transactions)

Unallowable, unallocable, unreasonable costs

Excess salary Indirect Costs Equipment

Pre-Data Analytics Audits (stat sampling projections)

Unsupported costs Effort reporting Effort reporting (subaward) Pre-award charges

Dr. Brett Baker, AIGA, NSF OIG

When should you contact OIG?

Report significant administrative or financial problemsReport 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.govEmail: oig@nsf.gov

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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 Reporthttp://www.nsf.gov/oig/pubs.jsp

Requests: oig@nsf.gov

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Dr. Brett Baker, AIGA, NSF OIG

Questions?

Dr. Brett M. BakerAssistant Inspector General for Audit

National Science Foundation Office of Inspector General

Phone: 703-292-7100

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