2015 ngma slides
TRANSCRIPT
Key Lessons that Grant Recipients and Grantors
Can Learn from IG Audits and Investigations
AUDITORAUDITOR
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5
Fara DamelinDirector, Office of Investigations Legal Division
National Science Foundation
Office of Inspector General
2N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5
NSF Office of Inspector GeneralOffice of Investigations
Hot Topics
NGMA ConferenceApril 22, 2015
Fara DamelinDirector, Office of Investigations Legal Division
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BACKGROUND:
NSF OIG INVESTIGATIONS• Who Are We?
o Special agents (Federal Law Enforcement Officers)
o Investigative Scientists
o Investigative Attorneys
o Analysts
• How are investigations initiated?o Reactive
o Proactive
• What types of Investigations?o Civil/Criminal o Administrative
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What Types of Issues do we Investigate?
CIVIL/CRIMINAL
• Theft/embezzlement
• Financial mismanagement
• Misuse of grant funds
• Conflicts of Interests
• False statements/False Claims
o Often certified
ADMINISTRATIVE
• Research Misconduct: Plagiarism, Fabrication, Falsification
• Conflicts of Interests
• Merit review violations
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Possible Outcomes of Investigations
• Civil Action
• Civil False Claims Act (Treble damages)
• Criminal Action (Prosecution)
• Criminal False Claims/False Statements
• Theft/Embezzlement
• Mail/Wire Fraud
• Conspiracy and Obstruction
• Administrative Action
• Suspension/termination of current NSF awards
• Government-wide suspension/debarment
• Program Fraud Civil Remedies Act
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How Do Grantees Get In Trouble?
• Mismanagement of Federal Funds
• Failure to Train Personnel in Federal Grant
Requirements
• Lack of Procedures and Processes to Hold
Personnel Accountable
• Not Knowing What Their Employees Are Involved In
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Top 10 (or 11) Things You Don’t Want To Say To
An OIG Investigator1. Do you think I have time to read all of your rules?
2. We don’t actually have any written policies about the expenditure of
federal grant funds.
3. Sorry, I can’t get you the records; they are being archived in a dangerous
building.
4. Wow..Really? Entertainment can’t be charged to federal awards?
5. If I have to go back and create cost share records now, that’s what I’ll do!
6. I had no idea our records were such a mess.
7. I probably threw out the COI disclosure form…I throw out anything that
looks bureaucratic.
8. Chicken Dinner Analogy: which goes…
9. I signed the purchase requisition because I saw that everyone else signed
too…. Besides, I couldn’t tell what was actually being purchased.
10. No, I haven’t received any formal training about federal grants
management. BUT I have received “on the job” training.
11. But what are you complaining about…we did the work!
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NSF Award Budget includes the purchase of Engineering Equipment, but High End Cameras purchased instead:
Agilent Technologies
Signal Analyzer
$67,970
Dodd Camera and Video
Sinar P3 Camera + accessories
$44,346
Subcontracts
• Do you require that the prime contract/grant be
provided?
• Who is the PI on the Prime?
• Who is the PI on the Subcontract?
• What is the relationship?
• Are you being paid?
• If not, are you reporting that?
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Outside Commitments and Dealings
• What are your Conflict of Commitment Reporting
Requirements?o Do you have mandatory reporting requirements? Affirmative reporting even if
nothing to report?
o What happens if employees don’t file mandatory reports? Consequences?
• Do any of your PI’s have dual appointments as tenured
faculty at two institutions at the same time?o Multiple investigations involved this scheme
o Dual employment not reported to universities
o Dual employment not on resumes submitted with federal grant proposals
• Are any of your personnel subcontracting out to family
members or using company vendors that they own, or
are owned by their immediate family members?
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Who is Signing Off on What, and Why?
• Fraud happens
• “I signed off on it because Joe did,” is not going to
prevent or catch fraud
• Multiple Investigations reveal a lack of true scrutiny
for purchases made with grant funds and lack of
training
• Similar issues posed with financial reporting to
agencieso There are certifications
o Who is ensuring the accuracy of what is being reported, and what funds
are being drawn down?
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Cost Transfers and Financial Reports
• What are your current policies?
• Are they being followed?
• Do you have source documentation to support your
expenditures charged to federal awards, to include
time and effort?
• Who is responsible for the accuracy of reports
made to the federal government?
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What Are You Reporting Out to the Govt?
And How Accurate Is It?
o Investigation of a Cooperative agreement, totaling $2,494,078
o Initial response: $2,201,728
o During site visit: $2,533,078
o Response to IG subpoena: $2,494,078
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HOW TO AVOID TROUBLE:
• Read and know the applicable grant conditions, rules
and regulations when receiving federal grant funds:
• Provide and Document Training (Mandatory)
• Maintain (during, not after the fact) adequate
documentation to support all expenditures
• Ensure your financial reporting matches your financial
records
• Do not expend award funds post-expiration or for
purposes unrelated to the award (COST TRANSFERS)
• Do not provide inaccurate information or false
certifications to Grantee institution or Federal Agency
• Know and be able to document how you spent federal
funds (including program income and cost share)
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HOT OFF THE PRESS: RECENT CASES
• University/Small Business PI s Convicted and
Sentenced
• Grantees Settle Civil Cases with Federal
Government and enter into Mandatory
Compliance Plans
o Universities
o Non-Profits Organizations
o For Profit Companies
• University PIs Suspended and Debarred
o Government-Wide
o For a number of years
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Compliance Program
A SYSTEM OF RESPONSIBLE ADMINISTRATIVE, FINANCIAL AND
RESEARCH MANAGEMENT AND OVERSIGHT, CREATING AN
ENVIRONMENT IN WHICH EMPLOYEES CAN OPERATE WITH
INTEGRITY
• Demonstrates commitment to ethical conduct
• Ensures Accountability
• Minimizes or detects criminal conduct
• Encourages reporting
• Creates awareness through training
• Prevents improper expenditures; improves grant administration
• May help avoid the filing of legal actions
• Mitigation, e.g., may reduce penalty or administrative actions
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Elements of an Effective Compliance Program
1. Reasonable Compliance Standards and Procedures
2. Specific High-Level Personnel Responsible
3. Due Care in Assignments with Substantial Discretionary Authority
4. Effective Communication of Standards and Procedures
5. Establish Monitoring and Auditing Systems and Reporting Systems (whistleblowing without fear of retaliation)
6. Consistent Enforcement of Standards
7. Respond Appropriately to the Offense (reporting to law enforcement, modify program, prevention)
* Federal Sentencing Guidelines U.S.S.G. 8B2.5(f) & 8D1.4(c)(1) (11/1/04)
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Contact Information• Anonymous Communications:
• Hotline:1-800-428-2189 OR www.nsf.gov (click on IG Hotline)
Confidential Communications
E-mail: [email protected]
Mail: NSF—ATTN: OIG HOTLINE
4201 Wilson Boulevard; II-705
Arlington, VA. 22230
• Fara Damelin, Director, Office of Investigations Legal Division,
OIG/NSF
• 703/292-8873
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Elise WoodsSpecial Agent-in-Charge, Headquarters Operations
Department of Transportation
Office of Inspector General
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5 20
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U.S. Department of TransportationOffice of Inspector General
Elise WoodsSpecial Agent-in-Charge
USDOT-OIG
Headquarters Operations
Washington, DC
National Grants Management Association
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Investigative Priorities: Grant & Procurement Fraud
• Bribery, Kickbacks, and Corruption
• Bid-rigging and Collusion
• Conflict of Interest
• False Statements and Claims
• Product Substitution
• Quality Control Testing Fraud
• Labor, Time, and Materials Overcharging
• Disadvantaged Business Enterprise Fraud
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Materials OverchargingDishonest contractors think you aren’t checking the bills…
• A contractor misrepresents how much construction material
was actually used on the job and then is paid for excess
material to increase job profit
Discrepancies between contractor-provided quality documentation and observed
data, including yield calculations
Refusal or inability to provide supporting documentation
Truck weight tickets or plant production records with altered or missing
information
Unusually high volume of purchases from one vendor
Invoiced good cannot be located in inventory or accounted for
No receiving report for invoiced goods
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PA Landers, Inc.Materials Overcharging
A Plymouth, MA based road construction contractor
PA Landers – the company
Preston Landers – the owner
Gregory Keelan- former vice president
All three were convicted in 2007 for false claims by
providing fake and inflated asphalt tickets on
federally funded contracts
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PA Landers, Inc. (cont.)
Company- fined $3 million dollars and ordered to pay restitution of $332,686 to Massachusetts
Preston Landers –ordered to serve 42 months in prison, pay $150,000 fine and restitution of $332,686
Gregory Keelan-ordered to serve 30 months in prison, pay a fine of $10,000 and restitution of $332,686
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Asphalt
Shipped
Private Jobs
Asphalt
Produced
Plant
Production
Report
shows 1,380
tons more
asphalt
shipped
(5,692) than
produced
(4,310) on
this day
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PA Landers, Inc. (cont.)
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• Contractor on the airport terminal
expansion project in Reading, PA
funded by the FAA
• Created and submitted fraudulent
invoices to the Airport Authority,
which inflated the number of billable
hours worked by employees.
• Fraudulent billings totaled $317k
• Convicted after a 2-week federal
jury trial.
• Sentenced to 3 years in prison and
$317k in restitution.
Vitillo Engineering - Reading PA Airport Improvement Program Fraud
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Altered Time Card – Created at Vitillo’s direction31.5 hours added to the FAA Project
Original Time Card – filled out by employee
Shows no time billed to the FAA Project
Vitillo Engineering (cont.)
Another Vitillo employee testified at trial that she was on jury duty one week,
which she accurately recorded on her original timecard
Vitillo altered her timecard and charged her jury duty time to the FAA Project
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Vitillo’s internal copyThe original total is $7,487.14
Invoice submitted to the Reading
Aiport Authority with inflated hours
Vitillo directed his Project Mgr to
keep track of actual vs. billed hrs Bill inflated to over $35,000
Vitillo Engineering (cont.)
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Disadvantaged Business Enterprise FraudAre they really meeting ALL the contract goals?
• A contractor misrepresents who performs the contract work
in order to increase job profit while appearing to be in
compliance with contract goals for involvement of minority-or
women-owned businesses
DBE owner lacking background, expertise, or equipment to perform
subcontract work
Employees shuttling back and forth between prime contractor and DBE-owned
business payrolls
Business names on equipment and vehicles covered with paint or magnetic
signs
Orders and payment for necessary supplies made by individuals not employed
by DBE-owned business
Prime contractor facilitated purchase of DBE-owned business
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Marikina / Schuylkill Products
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• Scheme caused $136M in fraudulent DBE credit
to be awarded towards DBE goals
• Largest DBE Fraud in US History
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Marikina / Schuylkill Products (cont.)
SPI, a non-DBE concrete bridge beam manufacturer, set up a Connecticut based DBE to operate as a pass through DBE in Pennsylvania
SPI used their non-DBE subsidiary, CDS Engineering, to perform all of Marikina’s DBE work
SPI/CDS ran 339 DBE projects through Marikina for 15 years in Pennsylvania alone:
– 336 highway projects totaling $119.4M in fraud
– 3 transit projects totaling $16.4M in fraud32
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Marikina / Schuylkill Products (cont.)
SPI and CDS employees actually performed, managed, controlled, and supervised the beam installations on Marikina DBE projects
SPI and CDS employees pretended to be Marikina employees by: – Using Marikina business cards, email addresses,
stationary, and signature stamps
– Using Marikina magnetic placards to cover up SPI logos on SPI company vehicles
– Using dedicated cell phones for SPI employees to use when posing as Marikina employees
– Changing the fax header on an SPI fax machine to make it appear faxes were originating from Marikina
– Setting up a phony business location in PA33
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Early in the scheme SPI used
Marikina magnetic signs on
SPI trucks
Later – SPI stenciled
Marikina’s name on SPI trucks
Marikina / Schuylkill Products (cont.)
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Do DBEs lie in order to get certified?
Marikina’s Vice-president testified at trial
Asked if Marikina lied to PENNDOT in obtaining DBE certification in PA?
Her response: “We lie big time!”35
Marikina / Schuylkill Products (cont.)
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Prosecution and Administrative Results
Dennis Campbell, SPI Vice-president – (2 years in prison)
– Charged with Conspiracy – PLED GUILTY
Romeo Cruz, owner of Marikina – (3 years in prison)
– Charged with Conspiracy and Tax Fraud – PLED GUILTY
Tim Hubler, SPI/CDS Vice-president – (3 years in prison)
– Charged with Conspiracy and Tax Fraud – PLED GUILTY
Ernie Fink, co-owner of SPI & CDS – (4 years in prison)
– Charged with Conspiracy – PLED GUILTY
Joe Nagle, co-owner of SPI & CDS – (7 years in prison)
– Charged with Conspiracy, Mail Fraud, Wire Fraud, & Money Laundering - CONVICTED AFTER A 4-WEEK TRIAL
All individuals and companies debarred by FHWA & PENNDOT36
Marikina / Schuylkill Products (cont.)
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Research & Development Fraud
On July 23, 2014, the Assistant Division
Administrator of the Federal Highway
Administration (FHWA), New Jersey Division,
was arrested and charged with making false
statements and mail fraud.
According to the criminal complaint, the
defendant is accused of using a straw
company to obtain FHWA grant funds, which
he oversaw as a public official.37
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Research & Development Fraud (cont.)
The funds were part of federal research
grants awarded to the Rutgers University
Center for Advanced Infrastructure and
Transportation and the New Jersey Institute
of Technology.
Note: Criminal Complaints are only
accusations by the Government. All
defendants are presumed innocent unless
and until proven guilty.38
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Assistant Inspector General for Audit
National Science Foundation
Office of Inspector General
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5
Brett M. Baker
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NGMA CONFERENCEAPRIL 22, 2015
NSF OIG Audit Update
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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 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
ARRA spending still being tested in audit work
Greater accountability and transparency over spending than ever
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Grants Differ From Contracts
GRANTS
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
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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 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
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End to End Process for Grant Oversight
•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
PRE-AWARD RISKS ACTIVE AWARD RISKSAWARD END
RISKS
Dr. Brett M. Baker, 2010
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Risk Assessment and Identification of Questionable Transactions
Agency Award Data
Project reporting
Cash draw downs
External Data
Single Audits
SAM (CCR, EPLS)
Data Analytics
Continuous monitoring of
grant awards
Awardee Data
General ledger
Subaward data
Phase IIdentify High Risk Institutions
Data Analytics
Apply risk indicators to GL.
Compare to Agency data
Agency Award Data
Project reporting
Cash draw downs
External Data
Single Audits
SAM (CCR, EPLS)
Phase IIIdentify Questionable Expenditures
Review
Questionable
Transactions
Dr. Brett Baker (2012)
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Identification of Higher Risk Institutions and Transactions
Dr. Brett Baker
AIGA. NSF-OIG46
Anomalous Drawdown Patterns
Normal drawdown pattern
ExtinguishingRemaining
Grant funds(before expiration)
Grant Expiration
ExtinguishingRemaining
Grant funds(after expiration)
Grant Award
Start upcosts
$$
DrawdownSpike
Dr. Brett Baker
AIGA. NSF-OIG
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Burn Rate – Actual vs Expected
Award Amount ($K)
Expended($K)
% Expend AwardDays
Days Active
% Total Days
Delta
1 10,000 9,000 90% 1095 769 70% 1.29
2 5,000 4,000 80% 1095 524 48% 1.67
3 2,000 1,500 75% 1095 404 37% 2.03
4 1,000 995 99% 365 200 55% 1.81
5 20,000 12,000 60% 1826 500 27% 2.22
6 10,000 5,000 50% 1826 1600 88% 0.57
AwardeeTotals
48,000 32,495 68% 7,302 3,997 55% 1.24
Actual Expected
1.00 would be normal
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Example: Equipment Charges Incurred Immediately Before Grant Expiration Date
GRANT ID OBJECT DESCRIPTION
GRANT
EXPIRATION
DATE
TRANSACTION
DATE
LEDGER
POST DATE
FINANCIAL
AMOUNT
XXXXX42 CONSTRUCTION AND ACQUISITION 09/30/2009 09/30/2009 10/06/2009 51,851.22
GRANT ID OBJECT DESCRIPTION
GRANT
EXPIRATION
DATE
TRANSACTION
DATE
LEDGER
POST DATE
FINANCIAL
AMOUNT
XXXXX27 INVENTORIAL EQUIPMENT 07/31/2010 06/04/2010 08/11/2010 31,621.56
GRANT ID OBJECT DESCRIPTION
GRANT
EXPIRATION
DATE
TRANSACTION
DATE
LEDGER
POST DATE
FINANCIAL
AMOUNT
XXXXX77 INVENTORIAL EQUIPMENT 08/31/2009 07/16/2009 09/10/2009 23,163.75
106,636.53 TOTAL
Same day as expiration
57 days before expiration
46 days before expiration
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Travel Related to Award?
NSF_OIG_Transaction Expiration Date Transaction Date Expense Type Amount
GL Trans-030745 09/25/2007 08/31/2007 TRAVEL-IN-STATE 73,519
GL Trans-099671 06/11/2010 06/01/2010 TRAVEL - FOREIGN 41,474
GL Trans-084844 11/02/2010 10/31/2010 TRAVEL - OUT-OF-STATE 37,516
GL Trans-045792 02/09/2010 02/01/2010 TRAVEL-IN-STATE 28,905
GL Trans-117607 06/11/2010 07/15/2010 TRAVEL - FOREIGN 27,262
GL Trans-126299 08/19/2010 09/30/2010 TRAVEL-IN-STATE 20,975
Just after award expiration
Just before award expiration
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Questions?
Dr. Brett M. Baker
Assistant Inspector General for Audit
National Science Foundation
Office of Inspector General
Phone: 703-292-7100
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Assistant Inspector General for Acquisition and Procurement Audits
Department of TransportationOffice of Inspector General
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5
Mary Kay Langan-Feirson
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How To Achieve a Clean Audit of Your Grant Program
U.S. Department of TransportationOffice of Inspector General
Office of Acquisition and Procurement Audits (JA-60)
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Types of Audits
Audits have different objectives and will require different types of interaction from the organization being audited. Common audit types include:
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Single Audit Act
• Annual review of financial statements, schedule of expenditures of Federal awards, internal controls, compliance, and audit follow up
• Circular A-133 Compliance Supplement covers compliance and agency programs requirement testing
Programmatic
• Provide analysis to improve program performance and operations, reduce costs,, and contribute to public accountability.
• Usually focuses on program effectiveness, economy, and efficiency; internal control; compliance; and prospective analysis (analysis of events that may occur in the future.)
Grant-Specific
• Review of grants, including deliverables, controls, and claimed costs
• May highlight issues as diverse as safety or contracting.
Key Factors That Contribute to a Clean Audit
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• General, programmatic, and grant-specific requirements can all be audited.
Knowing your grant requirements.
• Effective processes and controls can help you comply with and meet the intent of all requirements.
Using good business processes and controls.
• Organized and retrievable records will go a long way toward a smooth audit.
Maintaining documentation.
• Meeting grant goals and completing required facilities, products, studies, or reports can positively impact an audit’s conclusions.
Achieving grant requirements.
Knowing Your Grant Requirements
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General
• 2 CFR – Outlines responsibilities for Federal granting agencies and grant recipients
• Single Audit Act –Circular A-133
Programmatic
• Legislative requirements –23 USC Chapter 1 , The American Recovery and Reinvestment Act of 2009, Disaster Relief Appropriations Act of 2013
• Implementing regulations –23 CFR 635, 49 CFR 26
Grant-Specific
• Deliverables
• Standard terms and conditions
• Agency Policies or Circulars
• Socio-economic and other objectives –Disadvantages Business Enterprise (DBE) participation, Buy American Act requirements
Audits can specifically target business processes and internal controls for
• Program Management
• Financial Management
• Procurement
• Subrecipient Monitoring and Management
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Using Good Business Processes and Controls
Audit Example: Improper Payments
ARRA Lessons Learned—Opportunities Exist for FAA to Further Improve its Oversight of Airport Grant Payments (4/18/14)
Why we did this audit - The American Recovery and Reinvestment Act (ARRA) provided funding for infrastructure investments, including $1.1 billion for FAA’s Airport Improvement Program (AIP) grants, and required Federal agencies to hold grantees accountable for these expenditures.
What we looked at - Whether FAA’s oversight of ARRA grantees was sufficient to (1) prevent or detect improper payments and (2) ensure funds were used in accordance with ARRA requirements. We reviewed sampled grant reimbursement requests and contractor payments at 19 of 292 randomly selected airports, comparing contractor payments with supporting documents, evaluating the sampled payments for accuracy, and ensuring the payments were for approved purposes.
What we found - FAA’s oversight process was not sufficient to prevent more than $1.4 million in improper payments. For example, San Francisco International Airport officials improperly billed ARRA for over $832,000 for unapproved taxiway and drainage work, as well as ineligible survey equipment. In response, FAA recovered $2.2 million in improper payments, conducted its own systemic review of 5 years of prior grants to San Francisco International which identified millions in additional ineligible work, and revised its grant procedures to increase airport oversight.
How to Achieve a Clean audit - Effectively vet tasks prior to performance (including obtaining agency approval) to ensure funds are used in accordance with grant program and special (ARRA ) requirements.
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Audit Example: Fraud on Cooperative Agreements With Universities
Report on Audit of Actions to Prevent Fraud on Cooperative Agreements with Universities (9/30/05)
Why we did this audit - A University running a research center under DOT cooperative agreements notified FHWA of financial misconduct by the Center’s principal investigator (PI) that resulted in overcharges and unsupported billings to the agreements.
What we looked at - A multidisciplinary investigation team of DOTOIG criminal investigators, auditors, and attorneys uncovered evidence that the PI defrauded the Government using schemes that included paying himself, his relatives, and his friends by submitting unsupported invoices containing fictitious and inflated expenses for labor, student support services, equipment, and consulting services.
What we found - The University billed the Government about $1.6 million for inflated or fictitious labor, equipment, and other charges submitted by its PI. The PI was arrested and subsequently pled guilty to theft from programs receiving Federal funds, 18 USC § 666. He was sentenced to over 3 years in prison and ordered to pay over $872,000 in restitution. These fraudulent activities occurred and continued for a period of 5 years without being detected for two reasons. First, the university lacked basic controls to prevent or detect fraud, and second, FHWA rubber stamped approvals on payment requests.
How to Achieve a Clean audit - Implement controls such as separation of duties such as authorization and payment, verification of receipt of goods and services prior to payment, verification of enrollment prior to payment of student stipends
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Lessons Learned From ARRA: Improved FHWA Oversight Can Enhance States’ Use Of Federal-Aid Funds (4/5/12)
Why we did this audit – ARRA added roughly $27 billion to the Federal Highway Administration’s (FHWA)
budget—a 67 percent, one-time increase for State highway construction and improvement projects. It also mandated that funds be obligated in 19 months , required enhanced oversight, and emphasized the use of competitive procedures. We performed this audit to (1) examine the competition for State DOT awarded ARRA contracts and evaluate FHWA policies and guidance for oversight of State DOT contracting practices.
What we looked at - State DOT procurement and FHWA oversight practices, examining contract files for 59
randomly selected ARRA projects.
What we found - One-fifth of State DOT ARRA contracts were awarded with 1 or 2 bids. Based on our
sample, prices for contracts with 1 or 2 bids were, on average, 11 percent higher than prices for those with 3 bids. We projected that the average price difference between contracts with 1 or 2 bids versus 3 bids was at least $179 million dollars. State practices and results varied widely – 3 of the 9 states we reviewed in detail received 3 or more bids for 95 % of their contracts, 3 received 3 or more bids for 90 to 95 %, but the remaining 3 received 3 or more bids for only 50 – 82 %.
How to Achieve a Clean audit - Use good procurement practices to maximize competition, achieve effective competition, or document reasons why it could not be obtained.
Audit Example: Grantee Procurement
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Written support for all facets of performance will facilitate an audit.
Key documentation include:
• Rationale and approvals for program decisions
• Expenditure support, showing costs are allowable, allocable, and reasonable
• Project monitoring and progress reports
• Contract award, change order, and administration documentation
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Maintaining documentation
Audit Example: Insufficient Financial Controls
MWAA’s Financial Management To Ensure Eligibility of Expenses on FTA’s Dulles Rail Project Grant (1/16/14)
Why we did this audit – This was an outgrowth of a congressional requested audit that identified weaknesses in the Metropolitan Washington Airport Authority's (MWAA) internal controls that led to questionable procurement practices, mismanagement, and a lack of overall accountability.
What we looked at – whether MWAA had controls in place to ensure FTA funds for the Dulles Rail Project Phase 1 were spent on eligible expenditures. We reviewed a statistical sample of 6 of 37 FTA Dulles rail project disbursements, consisting of 283 transactions—such as payroll expenses, travel reimbursements, and contract expenses—totaling $281 million ($104.5 million reimbursed by FTA.)
What we found - MWAA lacked adequate controls to ensure that expenses claimed for funding on FTA’s grant were eligible for reimbursement. MWAA lacked sufficient documentation to support expenses reimbursed with $36 million in FTA grant funds, from which we projected that MWAA received $139 million for unsupported transactions (about 36 percent of the total $384 million disbursements during the period). Also, MWAA received a total of $119,000 in FTA grant funding for unallowable costs, such as payments to lobbyists, from which we project that MWAA received $350,000 in Federal grant funds for unallowable transactions. The audit resulted in FTA placing the recipient on “restricted” drawdowns.
How to Get a Clean Audit – Maintain effectively organized records of costs claimed.
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Achieving the grant’s goals and delivering agreed-to projects, goods, or services will be important to ensuring a clean audit.
Goals and requirements can include:
• Facilities, products, andstudies
• Socio-economic requirements
• Reports and deliverables
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Achieving grant requirements
Audit Example: Inadequately Tested Train Track Support
Actions Needed To Improve FTA’s Oversight of the Dulles Corridor Metrorail Project’s Phase 1 (7/26/12)
Why we did this audit – In September 2008, a credible source contacted us asserting testing was not sufficient to ascertain whether eleven pier foundations and underlying steel piles that were built 30 years ago would support a portion of the project’s new guiderail. In October 2009, our office issued a management advisory to FTA expressing concern about the safety of using 11 pier foundations to support part of the project’s guideway. These foundations are composed of 30-year-old steel piles topped with a concrete cap.
What we looked at – whether (1) FTA’s oversight of the process to test the 30-year-old foundations was sufficient to resolve safety concerns and (2) FTA’s oversight activities effectively addressed significant project schedule, cost, and funding risks. We interviewed officials from FTA, their oversight consultant, the grantee, their design-build contractor. In consultation with our engineers, we assessed key documents, including results of the foundation tests, assessments of the testing process, and monthly project reports.
What we found – FTA had yet to take sufficient follow-up actions to resolve issues with the foundations’ ability to withstand lateral loads (horizontal forces that push from the side) and to obtain assurance that the structure would meet the 50-year service life specified in FTA guidance.
How to Get a Clean Audit – Use good quality assurance/ quality control procedures.
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Audit Example: DBE Program
Weaknesses in the Department’s Disadvantaged Business Enterprise Program Limit Achievement of Its Objectives (4/23/13)
Why we did this audit – This self-initiated audit was sparked through audit and investigative coordination because OIG investigators experienced a spike in their DBE fraud caseload. DOT distributed an average of over $3 billion per year in 2009 and 2010 for this nationwide program while DBE fraud and abuse cases increased significantly, making up nearly 25 percent of OIG active investigations for procurement and grant fraud in fiscal year 2010.
What we looked at – whether DOT (1) provides adequate program management, (2) Operating Administrations and recipients sufficiently oversee and implement the program, and (3) achieves its program objective to help develop DBEs to succeed in the marketplace. We visited or surveyed 15 States with a statistical sample of 121 DBE firms working on active federally funded projects and interviewed Department, OAs, and State recipients representatives.
What we found - The Department does not provide effective program management; OAs and recipients do not adequately oversee or implement the program; and the Department has limited success in achieving its program objective to develop DBEs to succeed in the marketplace.
How to get a Clean Audit - Recipients need to have stronger certification and compliance practices to allow for sufficient oversight of DBE firms working on federally funded projects.
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We’re going to parachute in and do a surprise audit, but I want to keep the whole thing low key.
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