Get a Head Start on Analytics and Audits for Proactive Preparation and Responses to Federal Audits

Transcription

1 Get a Head Start on Analytics and Audits for Proactive Preparation and Responses to Federal Audits June 17, 2015 Anne Sullivan, Senior Director Marisa Zuskar, Director YOUR MISSION OUR SOLUTIONS Huron Consulting Group Inc. All Rights Reserved. Huron is a management consulting firm and not a CPA firm, and does not provide attest services, audits, or other engagements in accordance with the AICPA's Statements on Auditing Standards. Huron is not a law firm; it does not offer, and is not authorized to provide, legal advice or counseling in any jurisdiction.

2 Agenda I. Current Research Compliance Environment and Regulatory Trends II. III. IV. NSF Data Analytics Audit Approach Audit Life Cycle Proactive Management and Monitoring V. Questions/Discussion 2

3 Current Research Compliance Environment and Regulatory Trends

4 Receivables in Billions Research Compliance Trends CURRENT RESEARCH COMPLIANCE ENVIRONMENT A decrease in federal and non-federal funding for sponsored research has required research institutions to proactively address internal and external concerns and challenges in recent years. Internal Concerns & Challenges: Strong institutional expectations for research growth Increased complexity in fiscal management Increased focus on accountability Lack of preparation for the scrutiny that a federal fraud investigation entails Reduced resources to fund research administration operations Outdated technology and business processes Recoveries from federal investigations/audits are significant and receivables resulting from penalties increased in recent years. Regulatory Trends: In FY 2014, OIG reported $4.9 billion in financial penalties resulting from federal audits and investigations consisting of: $834.7 million in audit receivables $4.1 billion in investigative receivables Additionally, in the first half of FY 2014, the number of annual criminal actions against individuals or entities totaled 971 and 533 civil actions. Civil actions include false claims and unjust-enrichment lawsuits filed in Federal district court, CMP settlements, and administrative recoveries related to provider self-disclosure matters. External Concerns & Challenges: Ever-increasing volume of federal reporting and transparency requirements (ARRA, FFATA, Data Act, etc.) Final OMB Circular revisions, modified COI regulations and RCR requirements Steady stream of federal fraud cases in the university research area Concerns over effectiveness of A-133 audits Increased number of proactive compliance site visits $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $- Investigative Receivables by Fiscal Year $3.2 $4.0 $3.8 $4.6 $6.9 $5.0 $ Fiscal Year Source: Department of Health and Human Services Office of the Inspector General Work Plan FY

5 Research Compliance Trends EMPHASIZED COMPLIANCE & INVESTIGATION ISSUES This widespread, yet non-exhaustive, list of diverging fiscal and regulatory compliance issues creates a complex charge for the research compliance program at an institution. Financial Cost Transfers Cost Sharing Effort Reporting Extra Service Compensation Clinical Trial Billing Direct Charging Practices Equipment Claims Financial Reporting Other Support Recharge Centers Program Income Reporting Unallowable Costs Regulatory Animal Subject Protections (IACUC) Human Subject Protections (IRB) Conflicts of Interest Environmental Health & Safety Export Controls HIPAA Privacy Laws Invention Disclosures and Reporting Responsible Conduct of Research Scientific Overlap Scientific Misconduct Sub-Recipient Monitoring 5

6 Regulatory Trends HHS OIG Work Plans in Recent Years NIH Focus Areas Use of Appropriated Funds for Contracting X X Colleges and Universities Compliance with Cost Principles Oversight of Grants Management Policy Implementation X X X X X X X X X X Superfund Financial Activities for Previous Year X X X X X X Extramural Construction Grants at NIH Grantees X X X Integrity of Recovery Act Expenditures Enforcement of Whistleblower Protections X X Extra Service Compensation Payments Made by Education Institutions X X X Inappropriate Salary Draws from Multiple Universities X X Sources: 6

7 Regulatory Trends HHS OIG Work Plans in Recent Years NIH Focus Areas Human Subjects Protection Practices of NCI Extramural Grantees Collecting Biospecimens HHS Programs Vulnerabilities to Grant Fraud Equipment Claims by Grantees Use of HHS Grant Funds for Lobbying Activities X X X X Recharge Centers at Colleges and Universities X X Awardee Eligibility for Small Business Innovation Research Awards College and University Costs Claimed as Direct Costs (Recovery Act Reviews) X X X X Use of Data and Safety Monitoring Boards in Clinical Trials X X X X Cost Sharing Claimed by Universities X X Sources: 7

8 Regulatory Trends NSF OIG Approach and Work Plan NSF 2015 Management Challenges Establishing accountability over large cooperative agreements Improving grant administration Managing programs and resources in times of budget austerity Encouraging Ethical Conduct of Research Managing the U.S. Antarctic Program Moving NSF headquarters to a new building NSF OIG 2015 Work Plan : 1. Relocation of NSF Headquarters 2. Health and Safety in the U.S. Antarctic Program 3. Awardees Management of ARRA Funds 4. Assessment of Payroll Certification Pilots 5. Financial and/or Program Accountability Including financial/program audits of NSF Awardees Source: : 8

9 Regulatory Trends NSF and HHS OIG Future Audits NSF OIG budget request for FY16 is to increase by 5% Seeks to increase staff in Office of Investigations and Office of Audit Last two years has seen delays in completing investigations and increased workloads Cited a threefold increased in allegations the last decade and said studies indicate 25-30% of scientists engage in questionable research practices NSF will sustain the Data Analytic Audit business model With more staff, NSF could conduct 40 more investigations in FY16 HHS OIG budget request for FY16 is to increase by 20-25% HHS OIG established targets of 89 audit reports in FY15 and FY16 Other agencies are considering the use of data analytics in audits Source: Report on Research Compliance, Volume 12, Number 3, March

10 Regulatory Trends Spotlight on Recent NSF Data Analytics Audits UCSB UCLA Virginia Tech UCB Questioned $6M of costs claimed Summer salary, cost transfers, cost sharing, etc. After audit resolution, NSF only disallowed $43k Questioned $2.4M of costs claimed Summer salary, per diems, VISA fees, equipment, travel, etc. After audit resolution, NSF only disallowed $130k Questioned $1.6M of costs claimed NSF limit on senior salary, indirect costs, relocation, immigration fees, travel, equipment After audit resolution, NSF only disallowed $64k Questioned $1.9M of costs claimed NSF limit on senior salary, equipment, meals, travel, unallowables, immigration fees Still working through audit resolution Important Update: Initial findings from 8 NSF audit reports included questioned costs for senior personnel salaries that exceeded 2 months. In two recent audit resolution reports, NSF determined these 2 institutions were in full compliance with NSF policy on senior salaries and had rebudgeting authorities and allowed the full amount of questioned costs.

11 Regulatory Trends Spotlight on Recent NSF Audits University of California Santa Barbara UCSB - Findings IG questioned a total $6M of costs claimed by University to NSF, including $1.9M of overcharged summer salaries and $2.8M of cost share requirements not fulfilled (in addition to other areas). Alleged that University s system for allocating faculty summer salaries to NSF awards not based on actual work performed during the summer period. Claimed compensation structure allowed for individuals to receive summer compensation at a rate in excess of the academic year compensation Salary payments over the summer period did not coincide with a calendar month schedule. Cost sharing was not supported in the accounting system or activity reports University Response: University disputed the findings unilaterally As with many institutions on the 9/12 pay schedule, payroll for service during the academic term is disbursed during months that do not directly align with the term service months Because of structure of payroll system and actual dates of service, allocation of effort for summer is certified on two different effort reports, one of which (Spring) is a blended set of service periods (Spring and Summer). Cost sharing was documented at department level in records that reconciled to commitments. Resolution: NSF largely sided with University and revised the required refund to only $43k, which excluded all disallowances for summer salaries and cost sharing 11

12 NSF Data Analytics Audit Approach

13 NSF Data Analytics Audit Approach Why Use Data Analytics? The Challenge: How to enhance NSF OIG oversight with limited resources? Solution: Data Analytics Framework An automated, data-driven, risk-based methodology Use data analysis to surface questionable expenditures Data utilized spans the full transactional detail for the full award life cycle Allows for 100% review of key financial and program information Create a heat map flag award and expenditure anomalies Based on results, focus follow-up of traditional oversight approaches Standard process for reviewing process and transactions Source: Baker, Brett. Assistant Inspector General for Audit, Laura Koren, CPA, CFF: Director of Compliance Analytics, National Science Foundation. Grant Oversight Using Data Analytics. NSF OIG Webinar, 16 April

14 NSF Data Analytics Audit Approach How Does Data Analytics Work? Phase I Identify High Risk Transactions Phase II Identify Questionable Expenditures Source: Baker, Brett. Assistant Inspector General for Audit, Laura Koren, CPA, CFF: Director of Compliance Analytics, National Science Foundation. Grant Oversight Using Data Analytics. NSF OIG Webinar, 16 April

15 NSF Data Analytics Audit Approach What Actually Takes Place? Activities During Data Analytic Audit: Identification of systems Identification of key controls Anomalies between databases Changes in behavior over time Drawdown patterns (spikes, extinguishing grant funds, large budget reallocations) Composite burn rates of institution Tests including linking databases, computed fields, blank fields, invalid dates, duplicates Source: Baker, Brett. Assistant Inspector General for Audit, National Science Foundation. NSF OIG and Data Analytics. NCURA 56 th Annual Meeting. Washington Hilton, Washington, DC. 12 August

16 NSF Data Analytics Audit Approach What Are the Common Risks Reviewed? NSF published a framework for risks the agency reviews with Data Analytics throughout the sponsored research lifecycle. Source: : 16

17 Audit Life Cycle

18 Audit Life Cycle Entrance Conference and Data Request Sample Analysis Fieldwork Post-fieldwork Follow-up Draft Audit Report Final Audit Report / Audit Resolution 18

19 Audit Life Cycle Entrance Conference and Data Request Entrance Conference Determine audit logistics in advance Auditors will explain how fieldwork will be conducted Ask questions early and often Data Request Data Analytics Request will include: General Ledger and Subledgers (A/P, Payroll for all costs claimed) Control totals for all files provided Data models, system architecture, flow charts Data dictionary for data provided 19

20 Audit Life Cycle Sample Analysis The NSF will analyze your data in conjunction with their internal data Use this period to your advantage! Use your own data to identify weakness both at the transaction level and more broadly Are there specific types of charges that appear risky? Are there any patterns at the department/college level that raise flags? If you find any issues during this stage, consider what to tell the auditors and potential corrections that may need to be made NSF Data Public Data Your Data Manual Audit Testing Worksheet 20

21 Audit Life Cycle Sample Analysis Manual Audit Testing Worksheet The Manual Audit Testing Worksheet will be transaction specific and give you an idea about your preliminary findings and the audit focus. There may be more than one worksheet submitted we know institutions who have received multiple iterations of this worksheet questioning additional costs each time. Focus Areas can include: Senior Personnel Salaries (Two Month Limit) Equipment at the end of the Project Period Pre-Award Costs Visa Fees and other costs with questionable allocation methodologies Travel -especially when not originally budgeted Applied Indirect Rates (variations from the standard) 21

22 Audit Life Cycle Fieldwork Manual Audit Testing Worksheet Auditors may be onsite to review additional data related to those questioned costs listed in the Manual Audit Testing Worksheet. Review transactions in detail before turning data over to the auditors Have all of the documentation ready and organized Timely producing all requested material in a user-friendly manner is a key element of a successful audit Fieldwork Considerations Ensure logistics are set (parking, phone, internet, etc.) Put thought into small things such as where auditors should sit so that you deter any informal interviews Identify specific point of contact(s) 22

23 Audit Life Cycle Post Fieldwork Follow-up Manual Audit Testing Worksheet Initial Institutional Response Institutional response and follow-up after the fieldwork Institutions have the opportunity to review the auditors findings on the worksheet, provide additional commentary and supporting documentation Keep the lines of communication open with auditors Ask questions and inquire about status This is your chance to respond and support your position! 23

24 Audit Life Cycle Post Fieldwork Follow-up Manual Audit Testing Worksheet Initial Institutional Response Questioned cost by questioned cost review the worksheet and develop a response: Concede the charge perhaps the cost has already been removed Provide documentation showing the debit to the award Support the charge Reach out to Investigators and departments to request justification and additional supporting documentation Reference and provide copies of institutional policy Reference federal, sponsor and award regulations (or proposals) supporting the charge Develop worksheets to support calculations and unusual allocations Even if not accepted by the auditors, this work will prove useful during the audit resolution process Repeat 24

25 Audit Life Cycle Draft Audit Report Manual Audit Testing Worksheet Initial Institutional Response Draft Audit Report Analyze the draft audit report in detail Continue to ask questions and request work-papers to help inform your response Prepare and submit a comprehensive response Auditors will make changes from draft to final audit report 25

26 Audit Life Cycle Final Audit Report/Audit Resolution Manual Audit Testing Worksheet Initial Institutional Response Draft Audit Report Final Audit Report The sponsoring agency will typically resolve the findings with you not the auditors Audit resolution is a negotiation Be prepared to offer additional documentation and take the time to build your arguments Final audit negotiation may not end up in the public If a resolution cannot be reached, there are typically appeal mechanisms you can take 26

27 Proactive Management and Monitoring

28 Proactive Management and Monitoring Use Data Analytics as an Internal Audit Technique Use internal data analysis to conduct your own data analytics audit and test your compliance in specific high risk areas. Identify Risk Factors Use previous audits as an indicator Establish Risk Thresholds One you have the full data set, pair it down Even the feds use materiality thresholds Confirm Data Measurement Criteria What systems? What fields? What limits? Establish Monitoring Frequency How often will you repeat this exercise? 28

29 Proactive Management and Monitoring Risk Factors Areas to Measure Use reports to identify these high risk items and repeat the process. What is the total population (# and $)? Is documentation complete? Is justification documented and sufficient? Is allocation appropriate? How would you do if this were a real audit? Example Heat Map Metrics Equipment purchases in the last 6 months of an award Cost Transfers Especially within the last 90 days of the award Expenses posting after the Award End Date Summer Salary Totals Other Personnel Costs Visa Fees Relocation Costs Generally unallowable expenditure types Advertising Gifts 29

30 Proactive Management and Monitoring How would you fare? How do you improve? Use the results to shore up your practices be your own worst critic! Based on your results how can you improve? Do you need to re-emphasize appropriate direct charging practices? Retrain documentation standards? Increase internal controls (i.e. prior approvals, system budget checks, etc.) 30

31 Questions/Discussion

32 Contact Information Anne Sullivan Senior Director Huron Consulting Group (312) Marisa Zuskar Director Huron Consulting Group (312)