Grants - When Internal Controls Went Awry and when Those Controls Caught Problems.

The following are real life incidents in which grant recipients did not work within the boundaries established by the grant provisions, rules from the granting agency, or institutional policies. Generally speaking, any institution determined by the granting organization to be out of compliance with any requirements can be assessed double the amount of the grant money involved.
The various institution is not included. Internal auditors from all over the country sent these stories as illustrations of when the institution did not follow all the rules.

1. A department collected money for a get acquainted party for a federal training grant, spending it on brats and beer. When the grant was audited during close out, the auditors discovered those expenses and disallowed them. The Feds not only wanted reimbursement for the costs of the party as not being allowable under the grant, they wanted the amount of receipts refunded because the terms of the grant did not specify that grant related income could be used to further the purpose of the grant. A negotiated settlement was reached whereby the expenses were reimbursed and the university agreed to identify in future registration materials and separate out money collected for unallowable social costs from registration fees.
2. A faculty member and his assistant diverted registration fees from conferences paid for by a federal project (<$100,000) for personal gain. Both were convicted in Federal court and did time in prison. The university had to repay the funding agency. This was discovered by a federal closeout audit.
3. A university served as the granting agency for certain state tax funds designated for research. The administrators discovered that they were not notified in two instances when the principle investigators (PI) left the grantee institution. In one case, the grant that was under the "New Investigator" program designed to develop new researchers. Funds were recovered back to the time of the PI's departure for all costs incurred, including the time of other researchers on the project.
4. A PI, who was also a faculty member, did independent consulting and used grant funded personal for the work as well as paying some related travel costs from the account. He was caught (because of publicity about his consulting work) and convicted in Federal court and did time in prison. The university had to repay the value of services (about $50k) paid by the grant.
5. A university settled a civil case for $2.6 million dollars. The case included two separate grant issues. This penalty was double the total value of the two grants. In one instance, a whistleblower alleged the study findings were manufactured. In the other instance, the principle investigator listed in the grant application was not in the country during the course of the grant.
6. The NSF is aggressively auditing the area of cost sharing. A couple of the campuses within a statewide higher education system have been notified of deficiencies in substantiating cost sharing and have been directed to return in excess of $100,000 each.
7. A storeroom did not provide PIs with a detailed list of items picked up by a project; instead it just gave a summary of charges. A PI had to come to the storeroom to question the amount and disapprove it. When the Feds performed a closeout audit, they disallowed all charges because the PI did not receive a timely and detailed list of purchases to approve. The institution negotiated settlement, including an agreement to have PIs approve a detailed listing of charges within a month of the billing date.
8. A department administrator deposited gift funds received in a department into a petty cash checking account under her control. By not recording the deposit and marking as void the checks written, she diverted approximately $50,000 for a period of time. She was caught when an independent party reconciled the full account. She was convicted in state court and served time in prison. The department never fully recovered the losses.
9. A PI provided specialized testing around the country using grant-funded personnel. Revenues were deposited to an unrestricted gift account and used for expenses unrelated to the grant. An audit of credits to his gift account discovered the diversion of funds. The university had to spend an amount equal to the revenue, plus overhead recovered, (approximately $300,000) on projects designated by the funding agency.
10. A PI submitted airline tickets for reimbursement by grant funds for travel that auditors determined was for his son. This audit was triggered by an employee complaint. The PI was convicted and served time for this fraud.
11. Several administrators colluded to double bill various grants under which they received funding. The auditors never went back to the beginning of the frauds, but the amounts they calculated exceeded $6 million. They were convicted and served time in state prison.
12. The manager of a research center inflated the number of members of a consortium that supported his facility in a federal report on the effectiveness of his grant support. An employee turned him in. The Feds prosecuted him for filing false reports and he served six months in federal prison. The granting agency cut funding significantly.
13. A PI ran up huge phone bills while working overseas. An employee complaint about this led to an audit that disclosed the situation. The PI was terminated because of the audit results. She then sued for sexual harassment, based on her "close personal relationship" with the research center director. He resigned and made reimbursement for part of the calls. She lost the sexual harassment lawsuit and was ordered to make restitution for another part of the telephone bills. The university made full restitution to the funding agency for all calls determined to be personal-more than $35,000.