Office of Inspector General

1. Office of Inspector General

2. Why is Cost Sharing a Management Challenge? • Of the $4.5 billion awarded by NSF annually, award recipients agree to contribute an additional $500 million a year. • Although NSF changed its cost-sharing policy in part because of problems encountered by auditors, significant problems persist with award recipients not making promised contributions.

3. Cost Sharing • A definition • Terminology • A brief history (at NSF) • Current NSF policy • Audit Issues and Recommendations

4. What is Cost Sharing? • At NSF, there are 2 types of cost sharing: • Required cost sharing of a minimum of 1 percent on awards resulting from unsolicited proposals. • Discretionary cost sharing when NSF believes there is tangible benefit to the award recipient such as capacity building, potential dollar revenues, or third party users.

5. Cost Sharing-Current NSF Policy • Unsolicited research proposals • Must comply with 1% statutory requirement • If prospective awardee proposes additional cost sharing NSF can make it a term & condition of the award • If prospective awardee receives benefit from the award, NSF may require additional cost sharing over the 1%

6. Cost Sharing-Current NSF Policy • Solicited proposals • Not part of the 1% statutory requirement • If prospective awardee proposes additional cost sharing NSF can make it a term & condition of the award • If prospective awardee receives benefit from the award, NSF may require additional cost sharing over the 1%

7. Cost Sharing - A Definition The Federal Government’s Definition (OMB Circular A-110) • Cost sharing or matching means that portion of project or program costs not borne by the Federal Government. • Cost sharing can be cash or in-kind (non-monetary) contributions that the grantee makes to an award.

8. Cost Sharing -Terminology • Cost sharing • Matching • Institutional support

9. Cost Sharing-A Brief History (at NSF) • Past treatment • Problems encountered • Solutions

10. Cost Sharing-A Brief History (at NSF) • Past treatment • Unclear rules of the game • PIs felt substantial cost sharing was necessary to be competitive • Cost sharing bidding wars for federal research dollars

11. Cost Sharing-A Brief History(at NSF) • Problems encountered • Proposers overstated cost sharing to make proposals more competitive • Auditors found that institutions were not meeting their promised cost sharing

12. Cost Sharing-A Brief History(at NSF) • Solutions • Make cost sharing a term and condition of the award by putting it in the award letter and on budget line M • Required Universities to certifying cost sharing amounts over $500,000

13. NSF Cost Sharing PolicyStaff O/D 99-10 (May 25, 1999) • In 1999, NSF implemented a new cost-sharing policy: • Cost sharing is a valuable mechanism for affirming the longstanding partnership between colleges and universities and the Federal government. • Made cost sharing an eligibility rather than review criterion.

14. NSF Cost Sharing PolicyStaff O/D 99-10 (May 25, 1999) • NSF can require cost sharing when we believe that there is tangible benefit to the award recipient(s) (normally beyond the immediate term or scope of the NSF supported activity

15. NSF Cost Sharing PolicyStaff O/D 99-10 (May 25, 1999) • NSF activities that are characterized by such benefits: • infrastructure building purposes (instrumentation/equip/centers/facilities) • awards where there is clear potential to make profit or generate income (e.g. curriculum development)

16. Auditing Cost Sharing • To be allowable cost sharing must be: • Verifiable from recipient records. • Not included as contributions for any other federally-assisted project. • Necessary and reasonable for the proper and efficient accomplishment of the project objectives.

17. Auditing Cost Sharing (cont’d) • Cost sharing must be: • Allowable under the applicable cost principles • Not paid by the federal government under another award, except where authorized • Provided for in the budget when required by the federal agency

18. Current Audits: A Look at Internal Controls • State University System • Having identified cost sharing as a concern at 5 campuses, we initiated an internal control survey at the University level (Chancellor’s Office) and audits of cost sharing at five additional campuses to determine whether there was a larger systemic problem throughout the State system.

19. Current Audits: A Look at Internal Controls • Nationwide Audits • To assess the risk of cost sharing nationwide, we selected for audit eight educational institutions, both small and large, whose awards required cost sharing of $500,000 or more. • In total, we audited $32 million in promised contributions.

20. Control Problems Continue • At 7 of 13 institutions that promised to contribute $12 million, the grant accounting systems did not identify cost sharing contributions. Almost 90 percent of the reported questioned cost sharing occurred at these 7 institutions. • At 10 of 13 institutions, annual cost-sharing certifications required by NSF were not submitted, were inaccurate, were not signed, or were based on budgeted (rather than actual) amounts.

21. What is the Effect? • As a result of the control weaknesses, cost-sharing amounts could not be audited, were unsupported, inaccurate, or were incurred after the expiration date of the award. • Cost sharing represents real contributions: • shortfalls can have a detrimental impact on research. • NSF may be paying more than its fair share of research costs.

22. Next Steps • Continue to recommend that awardees improve their internal controls for recording, documenting and monitoring cost sharing to ensure that any future contributions comply with the awards’ terms and conditions. • Continue to communicate with NSF management on these issues then focus more formally on NSF’s processes for monitoring cost sharing through internal audits.

23. NSF OIG HOTLINE 1-800-428-2189 Anonymous hotline oig@nsf.gov electronic mail hotline