Automated Techniques Enhance Grant Oversight
A
federal grant is an award of financial assistance from a federal agency to carry out a public purpose of support or stimulation authorized by law. Recipients must expend grant funds in compliance with federal regulations and execute the programs and activities as described in the terms and conditions of the awards. The federal government made $600 billion in financial assistance awards to 88,000 recipients annually. Grants management officials in 26 federal agencies are charged with ensuring that award requirements are accomplished and that federal funds are accounted for properly. The National Science Foundation (NSF) reviews over 50,000 applications and makes approximately 11,000 awards totaling $7 billion annually to more than made $600 billion in 2,000 institutions. Because NSF accomplishes its mission to promote science, financial assistance awards technology, engineering and mathematics primarily through grants to individual researchers and institutions, robust oversight of grants management is essential to 88,000 recipients for proper accountability over scarce federal tax dollars intended to advance progress in science. annually. The federal government
There is less visibility over grants than contracts because grant recipients request payments as an aggregate dollar amount and, unlike contractors, do not have to present supporting documentation such as invoices and receipts to receive payment from the agency. To address these challenges in its oversight mission, the NSF Office of Inspector General (OIG) is using automated techniques to: • Identify high-risk awardees and target work • Use fewer resources and save time • Increase oversight from a sample of transactions at an institution for a small number of
awards to 100 percent coverage of all transactions and all awards • Conduct continuous monitoring in real time to expose problems sooner and prevent misuse
of funds
ABOUT THE AUTHOR
Dr. Brett Baker is the Assistant Inspector General for Audit at the National Science Foundation Office of Inspector General (NSF OIG). He is responsible for directing performance and financial audits of NSF programs, operations and awards. He is also a member of the GAO Green Book Advisory Council and Chair of the Federal Audit Executive Council. ACUA Fall 2014, Vol. 56, No. 3
Using automated techniques that extract from multiple databases enables us to compare and analyze data to identify anomalies in costs and expenditure patterns. The approach helps separate out and highlight potentially unallowable activity from the many grant expenditure transactions under review. These techniques provide a level of transparency for recipient spending that was unavailable using traditional methods. Some examples of the data sources we use are listed below. These sources integrated with automated tools and techniques significantly improve our oversight of grants. • Internally available data – proposal budgets, progress reports and drawdown patterns • Externally available data – Excluded Parties List System (EPLS) and Federal Audit
Clearinghouse (tracks single audits) • Recipient financial system data – general and subsidiary ledger, travel and purchase cards
Agency proposal and award data combined with externally available information can show awardee activity over time, including anomalous patterns. Agencies maintain grant proposal and award financial information at the grant level and institution level as part of their award and post-award monitoring efforts. This information includes proposal narratives, panel scoring, quarterly reports, drawdowns and closeout reconciliation. This information can be 7 COLLEGE & UNIVERSITY AUDITOR
Compliance
By Dr. Brett Baker, CPA, CISA
Compliance
extracted into an OIG database and combined with other open-source information (information available on the Internet) to produce an institution risk profile that can be compared against other institutions to surface outliers.
Incorporating institution financial and program management data after an awardee has been selected helps identify the highest-risk areas and transactions on which to focus the audit review. Automated analytical tests of general ledger information can uncover questionable expenditures that review teams can test in depth for allowability, allocability and reasonableness. The NSF OIG’s use of automated techniques is a starting point in its grant audit work, not an end point. These techniques complement traditional audit techniques. Automated techniques focus attention on higher risk awards and transactions and allow audit teams to more directly test allowability, allocability and reasonableness through interviews and review of supporting documentation. These automated techniques are similar to those used in private industry and other governmental entities. For The NSF OIG’s use of example, these are the types of tools banks and credit card companies use to flag usage automated techniques anomalies that may indicate fraudulent credit card use. Similarly, government agencies charged with medical payment oversight use such techniques to examine millions of medical is a starting point in claim transactions to more readily identify costly providers and beneficiary fraud. its grant audit work, It is also important to note that the techniques we use can be used by the awardees themselves. not an end point. Institutions can and should analyze their funding requests to federal agencies and test award expenditures in their institutions’ financial and program systems. Institutions also have access These techniques to open source grant award information, such as Single Audit Act reports. A number of complement traditional research institutions have or are developing units to identify expenditure anomalies to complement and enhance their existing sponsored research oversight activities. Agency grants audit techniques. management officials are also able to perform similar funding request and project reporting analyses to identify anomalies, such as payment-request spikes, unusual award end-spend patterns, and uncommon items associated with completion of reporting requirements. LIFECYCLE APPROACH TO GRANT OVERSIGHT Automated audit techniques provide greater insight on risks and expand the capacity for oversight throughout the lifecycle of grant awards – solicitation, proposal review, award, research, payment and award closeout. Risks associated with each phase in the life cycle of grants—pre-award, active award and award/closeout – are shown below. ACUA Fall 2014, Vol. 56, No. 3
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Compliance Risks during the pre-award phase can include those associated with inaccurate proposal information, unknown eligibility restrictions, or conflicts of interest in the evaluation process. During the active award phase, recipients expend grant funds throughout the period of performance, which typically ranges from one to five years. Recipients request reimbursement payments from the awarding agency generally as an aggregate dollar amount, and unlike for contract payments, recipients do not provide an invoice or other billing detail to support the expenditures. While recipients provide quarterly, annual and final reports, those reports do not detail how the grant funds were expended, that is, what specifically the funds were used for. The limited visibility over expenditure information is a significant challenge for agency grants officials and makes it difficult to determine whether payments made to an institution have been used only for costs that were allowable, allocable or reasonable. During the award end and closeout phase, no further costs are allowed to be incurred after the period of performance for a grant has ended. Thus, the recipient is responsible for reporting total expended award funds to the awarding agency, both to close the agency’s award financial account and as part of the final project report that describes the results and benefits of the project financed with federal Data analysis of agency award funds. Inappropriate cost transfers and late, incomplete or missing final reporting award information are common risks during this phase. combined with available CONCLUSION external and awardee In summary, using data analytics throughout the grant life cycle can provide oversight data can help identify organizations with greater visibility and insight into how institutions are using federal higher risk institutions for funds, resulting in greater accountability and transparency. Data analysis of agency planning purposes as well award information combined with available external and awardee data can help identify higher risk institutions for planning purposes as well as surface anomalous and as surface anomalous questionable grant expenditures during audit work. While offices of inspectors general can enhance their oversight using this framework for grant oversight, other oversight and questionable grant organizations within federal agencies can also benefit from the approach. Collectively, expenditures during audit these organizations can provide greater assurance to the public that government funds work. are being used appropriately. n
ACUA Fall 2014, Vol. 56, No. 3
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