The topic of grant award audits is part of IT Works’ ongoing blog post series, and grant fraud is a key consideration. The information is based off my recent SRA International North Carolina Chapter Meeting presentation entitled “Review of Recent Audits and Fraud Cases.” During the event, I outlined audit findings related unallowable expenses, late purchases/cost transfers and other areas.
A previous post looked at cases of unallowable expenses. The post made the case that each institution is responsible for ensuring that direct expenses charged to federally sponsored agreements are allowable under a set of strict cost principles.
The second post in the series focused on audits stemming from misrepresenting effort. The post stressed the importance of tracking direct salary charges to sponsored projects, proving they are reasonable and reflect actual work performed.
Today, our attention turns to audit findings related to defrauding government funds.
Detecting Grant Fraud
According to the National Science Foundation (NSF), fraud related to grant awards is often difficult to detect and is typically determined after a careful examination of all the facts and circumstances.
The NSF publication “Possible Grant Fraud Indicators” handbook includes a generally accepted definition of fraud, along with possible indicators which may be indicators of fraud.
Fraudulent schemes are as varied and unique as the individual perpetrators, their motives, and the situations they seek to exploit. Some examples of possible fraudulent activity might include the misappropriation of funds for personal purposes, commingling grant funds with other funds, and submitting false or altered documents when requesting reimbursement from the funding source.
Grant Fraud: Examples of Recent Audits
Unfortunately, audit findings related to defrauding government funds takes place within research institutions. It’s something that is certainly not typical. For the most part, our nation’s research focused institutions are excellent stewards of the grant funds they receive. However, two recent findings summarized below illustrate that in rare occasions, grant fraud does exist.
A professor at Morgan State University was found to have fraudulently obtained research grants from the National Science Foundation.
According to the findings, the faculty member received $200,000 in grant funds for a highway project. It was found that the faculty member used the money to pay personal expenses, and was sentenced to three years in prison.
A former University of Florida nuclear engineering professor fraudulently obtained government contracts from NASA. The funds were part of research conducted by FSU’s Innovative Nuclear Space Power and Propulsion Institute. Documents allege the researchers submitted fraudulent invoices that included intentional overpayments to the main faculty member, underpayments to researchers and non-payments to some workers. He was sentenced to six months in prison.
Preventing Grant Fraud Audit Findings
Again, it’s important to note that defrauding government funds is certainly not typical. The majority of the nation’s research focused institutions manage grant award without any incident.
There are specific tactics to avoid cases of fraud, including misappropriation of funds for personal purposes, commingling grant funds with other funds, and submitting false or altered documents when requesting reimbursement. When these practices are put into place, the chance of fraud diminishes significantly.
Specific tactics include:
- Bank Statement Reconciliations
- Compliance Program
- Conflicts of Interest
- Data Analysis
- Internal Controls
- Open Lines of Communication
- Risk Assessment
- Suspension and Debarment
Throughout a grant award life, it’s critical to carefully review all aspects of financial reporting – from bank statements, to internal controls and communications. Training is also key, so all involved can have a shared understanding of appropriate behaviors.
Many institutions turn to a grants management system to help track and manage this process, and help avoid unfavorable audit findings. Automated systems offer built in controls, documentation and compliance reporting.
Keep on the lookout for additional summaries of the presentation about avoiding audits.