New HHS OIG Work Plan Indicates Focus on Subrecipient Monitoring
Particularly noteworthy is OIG’s interest in controls over subawards issued under HHS grants and cooperative agreements. OIG states, in full:
We will assess colleges’ and universities’ controls over the subcontracting of NIH grant and contract work. Specifically, we will determine whether colleges and universities effectively monitor the services subcontracted to other organizations and ensure that Federal funds are spent on allowable goods and services in compliance with selected cost principles and the terms and conditions of the grants and subcontracts . . . The principles shall also be used in determining the costs of work performed by such institutions under subgrants, cost-reimbursement subcontracts, and other awards made to them under sponsored agreements. We will conduct reviews at selected organizations based on the dollar value of Federal grants received and on input from NIH. (OAS; W-00-15-51001; various reviews; expected issue date: FY 2016; new start).
The obligation to “monitor” subrecipients is nothing new; the OMB Uniform Guidance (including its predecessor OMB Circulars A-110, A-133, A-21, and A-122) and the NIH Grants Policy Statement have long maintained subrecipient monitoring as a fundamental obligation of prime awardees. The challenge is how to effectuate subrecipient monitoring, especially as new (and often inexperienced) subrecipients come aboard, as foreign subrecipients proliferate, and as resources are ever more constrained for administrative monitoring functions. Over the years, institutions have generated volumes of processes to oversee the financial, administrative, and technical performance of their subrecipients, including subrecipient intake forms, risk categorizations, subaward templates, reporting requirements, and other routine review procedures. The OIG Work Plan will bring renewed attention to these procedures.
Federal regulators increasingly hold prime awardee responsible for unallowable or unallocable costs charged by domestic and foreign subrecipients. The author is familiar with several such instances in the past year. Given OIG’s focus on “compliance with selected cost principles and the terms and conditions of the grants”, institutions may wish to consider, for example, whether their subaward agreement templates sufficiently support flowdown and subrecipient monitoring obligations. Often parties look to the subaward agreement (among other forms and certifications) to determine whether and how subrecipients must refund to the prime awardee costs that an auditor deems unallowable, unallocable, or unreasonable under the applicable cost principles. For research subawards, many institutions also have taken steps to gauge whether the subagreement sufficiently facilitates monitoring of human subjects issues, animal research, research misconduct, and financial conflicts of interest.
Other items of interest in the OIG Work Plan include, for example:
- HHS will review CDC’s award process for cooperative agreements under the President’s Emergency Plan for AIDS Relief (PEPFAR) to ensure compliance with applicable laws, regulations, and departmental guidance.
- HHS will examine CDC’s oversight of the Select Agent Program (SAP), which regulates the possession, use, and transfer of biological agents and toxins. HHS indicates interest in the number, frequency, and results of CDC inspections of entities registered with SAP, and in CDC’s response to noncompliance with SAP regulatory requirements.
- HHS will continue to focus on college and university compliance with applicable cost principles under grants and cooperative agreements.
- HHS will assess whether foreign grantees manage PEPFAR funds in accordance with award terms and conditions. Prior audits identified several weaknesses in the internal control infrastructure of non-U.S. grantees.
- HHS will review the Office of Human Research Protections (OHRP) compliance oversight process relative to violations of human subjects research regulations (i.e., the Common Rule at 45 CFR part 46).
Various legislators also have asked HHS OIG to conduct a comprehensive audit of all fetal tissue research supported by HHS to determine compliance with laws governing such research. If OIG takes up this matter, it almost certainly will affect HHS awardees involved in this research.
It’s worth noting that the National Science Foundation Office of Inspector General also recently released its FY 2016 Work Plan. The NSF Work Pan retains its usual focus on universities, nonprofits, and for-profit entities relative to whether costs charged to awards are allowable, allocable, and reasonable. And NSF will continue to employ its “data analytics” technique which purportedly enhances OIG’s efficient identification of anomalous and unallowable costing patterns at institutions. In its accompanying FY 2016 Management Challenges document, NSF OIG notes that the Uniform Guidance “changed requirements related to documentation of labor effort, making it more challenging to assess the allowability of salaries and related costs on an ongoing basis.” NSF writes:
As OMB is changing its documentation requirements for research salaries, ongoing initiatives to reduce administrative requirements on sponsored researchers present additional challenges to NSF. Among these is an effort to change the manner in which salaries are certified as allowable charges to federal grants. OIG recently issued reports on implementation of pilot payroll certification systems at two NSF awardee institutions. Our audits highlighted the challenges NSF faces in providing effective stewardship over taxpayer money without placing unnecessary administrative burdens on researchers. The reports noted that any system’s ability to properly account for federal research funds relies on the controls built into the system. They reminded NSF to reinforce with its awardees the need to design and implement controls that reduce the risk of improper charges to federal awards and provide a means to ensure the controls are achieving that objective.
Documentation of personnel compensation—which generally is the largest expense item in sponsored budgets—will continue to draw attention from auditors and regulators in FY 2016 and beyond.
Hogan Lovells partner Bill Ferreira advises institutions on international programs, federal grants, and sponsored research.