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Fostering Integrity in the Research Environment: The Value of Effective Compliance Programs SCCE 7th Annual Conference For Effective Compliance Programs In Higher Education Austin, TX 2 June 2009 Dr. James Kroll Head, Administrative Investigations Office of Inspector General National Science Foundation Case Study # 1 Allegation: • In two separate instances, a University accountant and a program coordinator use university purchase cards to pay for personal expenses Case Study # 1 • Accountant • State auditors notice excessive, unallowable purchases during audit of purchase cards • Over 5 yrs makes 3800 purchases ‐ over $316K • Mostly internet vendors; shipped to home or relatives • Concealed by submitting forged receipts to her supervisor Case Study # 1 • Purchases include groceries, clothing, football tix, digital cameras, 32” HDTV, lawn tractor, jet ski, frozen drink machine, frozen steaks, double wall over, dishwasher, RV air conditioners. • Indicted on 17 counts of mail fraud and 5 counts of theft of gov’t funds • sentenced to federal prison for 32 months, 3 years supervised probation, 250 hours of community service, and payment of restitution and fees totaling $319,074 Case Study # 1 • Program Coordinator • Again, state auditors find discrepancies in purchase card expenses • Over 5 yrs, $173K fraudulently spent • Purchases include auto insurance, jewelry, auto repairs, groceries. • Altered receipts to disguise her efforts. • Indicted for theft • Balks at 3 yr plea……gets 10 yrs SAME UNIVERSITY Why am I here? Offices of Inspector General Provide leadership and coordination to implement policies to: Prevent and detect fraud, waste, abuse Promote economy, efficiency, effectiveness Conduct investigations, audits, inspections, reviews of agency programs (funded activities), operations Features: Independent of agency management Jurisdiction (NSF activities, programs, operations) Staff of experts: administrators, attorneys, auditors, criminal investigators, and scientists Responsible for ensuring the integrity in NSF’s programs and operations The Partnership • National Science Foundation • Program Officers • Grants Officers • OIG • Institution Officials • Administrative • Financial • Education • Researchers • Students • Colleagues • Postdocs • Administration Expectations • NSF • Clear articulation of rules/expectations • Balance compliance, institution responsibility and latitude, reduction of bureaucracy • Numerous funding opportunities • Institution • An environment in which employees can operate with integrity • Responsible administrative, financial, and research management and oversight (e.g. Article 1, GC-1) • Investigators • Overall -- Uphold ethics and standards of community • Submit quality proposals and conduct the funded activity • Know and adhere to rules, regulations and ethics • Ensure compliance and education of staff, students NSF’s Requirements (GC-1) • The awardee has full responsibility for the conduct of the project or activity supported under this award and for adherence to the award conditions. Although the awardee is encouraged to seek the advice and opinion of NSF on special problems that may arise, such advice does not diminish the awardee’s responsibility for making sound scientific and administrative judgements and should not imply that the responsibility for operating decisions has shifted to NSF. The grantee is responsible for notifying NSF about: (1) any allegation of research misconduct that it concludes has substance and requires an investigation . . . (2) any significant problems relating to the administrative or financial aspects of the award. • By accepting this award, the awardee agrees to comply with the applicable Federal requirements for grants and cooperative agreements and to the prudent management of all expenditure and actions affecting the award. Deceased PI What IS a Compliance Program? • Use of internal controls to effectively monitor adherence to applicable statutes, regulations, and program requirements. • Finding your risks and minimizing the danger of abuse • HHS Integrity Agreements in Medicare • HHS Guidance • Council on Government Relations Guidance • University Programs • Sarbanes Oxley Why Have a Compliance Program? • Proactive prevention of abuse • “Protects” University when abuse is found The Antithesis of the Rationale: – Too expensive – Not enough staff – Hard to organize – No authority – No need – Too much trouble Effective Compliance Program Elements* a/k/a 7 HABITS OF EFFECTIVE ORGANIZATIONS 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 System (whistleblowing without fear of retaliation) 6) Consistent Enforcement of Standards through Appropriate Mechanisms (including failure to detect) 7) Respond Appropriately to the Offense (reporting to law enforcement, modify program, prevention) *FederalSentencing Guidelines U.S.S.G. §§ 8B2.1, 8C2.5(f), & 8D1.4(c)(1) (11/1/04) Risk and How to Find It Auditors Squeaky Wheels Whistleblowers Investigators ARE your friends Finding Risk • What needs more review? • Where’s your itch? • What’s autonomous? • Where’s the black hole? • Are your warning bells ringing madly when you hear someone else’s problems? • What gives you that “Gosh, gotta check that!” feeling? What do you look like? • Funding Characteristics • Grants, contracts and with what entity • Organizational Profile • Decentralized • Control Profile • Rainmakers, President, staff • Audit Profile • How easily can you get down into the weeds? • Activities Location • On-site, off-site, another country, LTER, SBIR, SGER • Activity Description • Animals, humans, collection, collaboration, toxins, radiation, equipment • Staffing Characteristics • Junior, independent, “senior and wise” • Training Profile • Comprehensive administrative, financial, oversight, fit the issues One University’s Risk Assessment Heat Map High Contracts & Grants Immigration & PROBABILITY Student Management Visa Processing Affairs Deferred Environmental, Privacy of Endowment Maintenance Health & Safety Information Human Animal Moderate Auxiliary Services Subjects Subjects Off-Campus Security Facilities Gifts & Construction Management Restricted Human Funds Executive Resource Acquisition Benefits Property Management Financial Reporting Management Technology Licensing Low Low Moderate High IMPACT Risk Areas • Allowable activities supported • Allowable costs and cost principles • Cash management • Eligibility for awards • Equipment and real property management • Period of availability of funds • Procurement suspension and debarment • Program income • Participant support • Timely required reporting • Special tests and provisions • Holding accounts • Summer salaries Other Risk Areas • Lack of adequate documentation – travel documentation – cost‐sharing – records retention – credit card receipts do not constitute adequate documentation • Time and effort reporting and procedures • Separate financial administration for each award, no pooling • Abuse or violations of institutional conflict of interest disclosure policies and procedures. • Updated/adequate RM policies and procedures • Subawardee monitoring (and A‐133s) • Residual funds • Oversight activities (Conflict of Interest, Humans, Animals) Ethical Issues Your Researchers WILL confront • Data Selection • Sharing and Using Ideas • Balancing Priorities • Making Financial Decisions • Authorship and Acknowledgements • Collaborations • Conflicts of Interest • Paraphrasing and Plagiarism • Mentorship/Advisor Problems • Merit Review • Obtaining Oversight Reviews The Magic Bullet Does NOT exist. Tailor your program: Where are your risks? Consequences of Significant Errors Special Oversight/Review Status Administrative Sanctions Suspension or Termination of Awards Civil/Criminal Violations Suspension/Debarment/Exclusion Corrective Action Plans Compliance Plans Fines, Penalties Exceptional Status May apply to either individual or entire institution Government Imposed Compliance Plans • $15 M; overcharging IDC • $30 M, exceptional status and oversight program; misuse of federal grant funds • $12 M; overbilling • $650,000; research fraud and abuse • $1.5 M, 5-year compliance program; cost-sharing • $1.2 M; inflated research grant costs • $150,000, 5-year compliance program; misuse of federal funds • $2.5 M, 5-year compliance program; cost-sharing, salaries, double charging • $6.5 M, increased oversight; mischarging awards • $3.4 M, 5-year compliance program; misuse of federal funds Policies and procedures inadequate or absent. 24% Most Frequent Audit Findings Lack of source documentation to support costs. 18% Inadequate system to track, manage, or account for costs and/or assets. 14% Unallowable costs. 7% Lack of proper approval, certification, or authorization. 6% Lack of subrecipient monitoring. 6% Inadequate or absent project or technical report. 6% Reconciliations inadequate or not performed. 4% Inadequate or absent financial report or proposal. 4% Costs claimed exceed amounts or rates allowed by award provisions or Federal regulations. 4% Lack of segregation of duties. 4% Lack of source documentation to support costs. $26.1 M Questioned Cost Findings Policies and procedures inadequate or absent. $3.4 M Inadequate record retention and retrieval. $3.4 M Lack of proper approval, certification, or authorization. $2.6 M Costs claimed exceed amounts allowed by award provisions or Federal regulations. $1.7 M Unallowable costs. $1.4 M Award obligation not met. $1.4 M Incorrect calculation of claimed costs. $1.3 M Common Types of Civil/Criminal Allegations 3% 9% 31% Theft/Embezzlement (31%) 13% False or Fraudulent Statements (24%) Miscellaneous* (20%) False or Fraudulent Claims (13%) Conflicts of Interest (9%) 20% Computer Fraud (3%) 24% *Includes mail fraud, false identification insurance fraud, impersonating a government officer, and copyright infringement. Data gathered from NSF OIG closed Investigative files (1990 – Present). Investigation Outcomes 11% 8% 8% Unsubstantiated Allegations* (32%) Restitution (21%) 21% Referral (11%) 6% Termination of Grant (8%) Miscellaneous** (8%) 6% Incarceration/Probation (6%) Termination of Employment (6%) 4% Civil Action (4%) 4% Debarment (4%) 32% * Allegation was preliminarily investigated but found to be insufficiently material to warrant further action. ** Includes monitoring, enacting new guidelines, letters of reprimand, etc. Data gathered from NSF OIG closed Investigative files (1990 – Present). Common Types of Administrative Allegations 2% 2% 2% 5% Animal /Permit / Biohazard / Humans (2%) Conflict of Interests (2%) Data sharing (2%) 16% Fabrication (5%) 42% Falsification (16%) Fraud (7%) Impeding Research Progress (2%) Abuse of Collegues/Students (5%) Mishandled Investigations /Retaliation (4%) 7% NSF Procedures (8%) Merit Review (6%) 2% Plagiarism (verbatim, Intellectual theft) (40%) 5% 6% 3% 8% Trends (x=year, y= relative increase, base year 1995) Total 4 3 2 1 0 95 96 97 98 99 00 01 02 03 04 05 Total FFP Allegations 3.5 3 2.5 2 1.5 1 0.5 0 95 96 97 98 99 00 01 02 03 04 05 Trends (x=year, y= relative increase, base year 1995) Plagiarism 9 8 7 6 5 Plagiarism 4 3 2 1 0 95 96 97 98 99 00 01 02 03 04 05 When you start looking, you can find interesting things! Developing Effective Compliance Programs requires tough choices and firm decisions A well-structured compliance program can reduce your risk and guide your decisions Fraud Triangle Opportunity – ability to commit Pressure – causes drive fraud to commit fraud Opportunity Pressure Rationalization Rationalization – reconciling ones behavior which is in conflict with the basic ethical norms Pressure – often financial; medical, mortgage, gambling, addictions, divorce, lifestyle; many times it is a private problem they must resolve in secret Opportunity – no fraudster wants to get caught; must believe they can go undetected; internal controls – this is where institutions have the greatest ability to impact Rationalization – no help available; have nothing to loose; label act as “borrowing”; justified for job satisfaction Common Traits • Wheeler/dealer • Beat the system attitude • Live beyond means • Close relationship with vendor • Don’t take sick days or vacation • Excessive OT • On outside, appear trustworthy • Don’t like people reviewing their work Behavior Changes • Increased purchases of material goods – living beyond their apparent means • Territorial over work related responsibilities • Turn down promotions • Arrive early/stay late • May mention family or financial problems • Signs of additions • Sense of job dissatisfaction Case Study # 2 • NSF awarded a 5‐year $3.8 million grant to an institution to create a center to enhance science teaching in public schools • Subject was hired to be a Co‐PI – Had prior conviction for burglarizing the homes of his and his mother’s friends – He lied on his Institution application about his criminal history Case Study # 2 • Subject habitually used the VISA card issued to him for the project as if it were his own — for example: – Groceries: 85 times at stores such as Safeway – Garden supplies, hardware, and pet supplies: 90 times at stores such as Home Depot – Expensive clothing and jewelry for his wife, and clothing and toys for his children: dozens of times • He submitted paperwork to Institution that lied about the items and their purpose Case Study # 2 • Institution hired subject’s wife to work on the subject’s project • For 2½ years, she was employed part time and paid 2½ for the hours worked at an hourly rate based on a hand-written timesheet submitted twice each month. hand-written • She never filled out her timesheets — instead, subject filled them out with exaggerated hours, forged her signature, and submitted them to Institution to receive fraudulently larger paychecks Case Study # 2 • Institution became suspicious of subject and began an internal review • He acknowledged the $108,497 fraud Institution uncovered, but did not inform them of any of his additional fraudulent activities • Institution allowed subject to continue working on the grant project, though it removed his ability to charge expenditures to the grant and required him to repay the $108,497 — of which it repaid him to repay the $108,497 — $56,676 to NSF Case Study # 2 • We and defense counsel submitted sentencing memoranda, argued in sentencing hearing • The court rejected a request for a reduction, sentenced him to: (1) 1 year in prison; (2) 2 years of supervised release following prison; and (3) pay restitution to NSF in the amount of $93,503 (in addition to the $56,676 previously repaid to NSF) • NSF may recover additional funds from Institution, for unallowable costs above $202,000 Case Study # 3 Tale of two University Administrators Administrator # 1: Had a gambling problem Had discretionary authority/responsibility to review requisitions and invoices No check and balance oversight Had signatory authority for four bank accounts of companies that did not exist A-133 audit identified problems Case Study # 3 Falsely authorized the “purchase” of goods and equipment from these companies Forged faculty signatures to authorize purchases Then approved authorizations as grant administrator Received checks at three separate PO Boxes Total fraud -- $235K over a 5 year period FBI involved—convicted on mail fraud charges Sentenced to 18 months and to reimburse University changed reimbursement system and instituted better oversight policy Case Study # 3 Administrator # 2: Well known and well liked administrator Fellow employee notices that he is picking up disbursement checks instead of normal mailing policy Administrator oversaw several NSF grants Scheme involved cutting stipend and honorarium checks to his wife who had a different last name Checks were then cashed at the local CU where he was a well known customer Case Study # 3 Over a 5 year period, he embezzled $480K Once confronted, he resigned in lieu of being fired Did not cooperate in the investigation until he was jailed—cooperation involved a plea to waive action against his wife Ordered to restore monies and is serving a 5-year sentence Other significant Cases • University fails to keep adequate records of expenses associated with multiple NSF grants ‐‐ $1.4 M settlement • University fails to adequately monitor participant support cost monies ‐‐ $100K reimbursement • University fails to adequately monitor participant support and travel costs – reimburses $79K • University fails to monitor NSF summer salary restriction – reimburses $273K INTEGRITY STARTS WITH YOU! If you are aware of, or suspect research misconduct fraud waste abuse Issues of economy or efficiency or if you just have questions, Please contact the NSF Office of Inspector General References • http://oig.hhs.gov/fraud/complianceguidance.html • http://www.nacua.org/documents/FedSentencingGuidelines.pdf • http://www.ussc.gov/corp/Murphy1.pdf • http://www.usdoj.gov/dag/cftf/corporate_guidelines.html • http://ethicspoint.sitestream.com/Webinar%20fulfillment/VickyNemers onMarch2005/EthicsPoint_FSG%20Whitepaper‐Feb05.pdf • Grant, G. Odell, G., and Forrester, R; Creating Effective Research Compliance Programs in Academic Institutions; Academic Medicine, Vol 74, No. 9, September 1999, p. 951. • Jordan, K.S.; and Murphy, J.E.; Compliance Programs: What the Government Really Wants. Page 121. • A variety of University web sites • Managing Externally funded Research Programs; A Guide to Effective Management Practices; Council on Government Relations, June 2005 • DHHS Draft OIG Compliance Program Guidance for Recipients of PHS Research Awards; Fed. Reg. Monday Nov 28, 2005, vol. 70#227, p:71312 Contact Information • Internet: http://www.nsf.gov/oig/ • E‐mail: email@example.com firstname.lastname@example.org (Jim) • Telephone: 703‐292‐5012 (Jim) • Anonymous: 1‐800‐428‐2189 • Write: 4201 Wilson Blvd. Suite II‐705 Arlington, VA 22230
"Fostering Integrity in the Research Environment The Value of"