Audit 392770

Assistance Listing, Federal Agency, and Program Name R&D Cluster: 10.500, U.S. Department of Agriculture, Cooperative Extension Service 12.800, U.S. Department of Defense, Air Force Defense Research Sciences Program 47.074, National Science Foundation, Biological Sciences Federal Award Identification Number and Year 10.500: 2021 48709 35659, 2021 12.800: FA9550 21 1 0202, 2021 47.074: DBI 2335029, 2024 Pass through Entity N/A all direct funded awards Finding Type Significant deficiency Repeat Finding Yes 2024 003 Criteria As outlined in 2 CFR 200.305(b)(3), for recipients and subrecipients other than states, payment methods must minimize the time elapsing between the transfer of funds from the federal agency or the pass through entity and the disbursement of funds by the recipient or subrecipient, regardless of whether the payment is made by electronic funds transfer or by other means. Further, when the reimbursement method is used for payment, organizations must make a payment within 30 calendar days after receipt of the billing unless the federal awarding agency or pass through entity reasonably believes the request to be improper. Condition The University did not have adequate controls in place to ensure invoices to subrecipients were paid timely within the 30 calendar day requirement. Questioned Costs None If questioned costs are not determinable, description of why known questioned costs were undetermined or otherwise could not be reported N/A, no questioned costs. Identification of How Questioned Costs Were Computed There were no questioned costs identified. Context Out of 40 payments to subrecipients that were tested, 4 were made after the 30 calendar day requirement. In all samples tested, payment was made to the subrecipient; however, the delayed payments ranged from 33 to 190 days between the invoice being received by the University and payment being made to the subrecipient. Cause and Effect The University’s controls are not designed to ensure payment for all subrecipients was made in accordance with the 2 CFR 200.305(b)(3). Recommendation The University should implement a control to ensure that payments made to subrecipients are completed within the 30 calendar day requirement. Views of Responsible Officials and Corrective Action Plan Penn State concurs with the audit finding. Penn State has already implementing stronger internal controls to ensure its subrecipients are paid timely. This was a repeat finding and after receiving the finding last year, Penn State created a new Subaward Administration and Compliance Office to provide oversight over key subaward compliance processes. This office was created more than halfway through the current audit period and was not anticipated to be fully implemented, per our corrective action plan, until FY2026, therefore a portion of the audit period did not have central oversight from the new office. Penn State created a new Subaward Administration and Compliance Office (SACO), which is part of the new Post Award Contractual Compliance Office. The SACO is led by its own director and provides central oversight over key subaward compliance processes, such as subrecipient payments, and provide training to campus on subrecipient processes. This function has already implemented new changes and workflows in the financial system to allow for better tracking and reporting of subaward compliance activities, and continues to refine subaward processes. The creation of this office demonstrates Penn State’s commitment to compliance for subaward activities.

Assistance Listing, Federal Agency, and Program Name R&D Cluster: 10.310, U.S. Department of Agriculture, Agriculture and Food Research Initiative (AFRI) 12.351, U.S. Department of Defense, Scientific Research Combating Weapons of Mass Destruction 12.RD, U.S. Department of Defense, U.S. Department of Defense Research and Development 81.049, U.S. Department of Energy, Office of Science Financial Assistance Program 81.086, U.S. Department of Energy, Conservation Research and Development 81.121, U.S. Department of Energy, Nuclear Energy Research, Development and Demonstration 93.847, U.S. Department of Health and Human Services, Diabetes, Digestive, and Kidney Diseases Extramural Research Federal Award Identification Number and Year 10.310: 2021 67021 34146, 2021 12.351: HDTRA1 21 1 0039, 2021 12.RD: N0002422F8404, 2022 12.RD: 140D0424C0020, 2024 81.049: DE SC0001090, 2009 81.086: DE EE0009694, 2021 81.121: DE NE0008997, 2020 93.847: 1 R01 DK132953 01, 2022 Pass through Entity N/A all direct funded awards Finding Type Significant deficiency Repeat Finding No Criteria As outlined in 2 CFR 200.344, a recipient must liquidate all financial obligations incurred under the federal award not later than 120 calendar days after the end date of the period of performance as specified in the terms and conditions of the federal award and must have controls in place as part of that liquidation process in order to ensure that all costs charged to the grant were incurred during the period of performance. Condition The University did not complete full grant closeout procedures in a timely manner for 8 out of 40 grants that were tested with a period of performance that ended in the year ended June 30, 2025. Questioned Costs N/A If questioned costs are not determinable, description of why known questioned costs were undetermined or otherwise could not be reported N/A, no questioned costs. Identification of How Questioned Costs Were Computed The issue identified was related to timeliness of grant closeout procedures. Context In all samples tested, grant closeout procedures were completed; however, they were outside of an effective time window in order to meet the CFR requirements. The late reviews occurred between 136 days and 341 days after the period of performance ended. Cause and Effect The University does have a formal grant closeout process in place, which includes a level of review of the grant checklist complete; however, the procedures were not followed or were misunderstood by certain staff, leading to procedures being completed late and a lack of review. Recommendation The University should implement additional training over the procedures in place and consider whether any additional controls should be designed to mitigate the risk of procedures and reviews not being done in a timely manner. Views of Responsible Officials and Planned Corrective Actions Penn State concurs with the audit finding. Penn State created a new Financial Analysis and Compliance Office during FY25 (current audit period) to provide central oversight and monitoring over key compliance processes. This office provides training, guidance, and monitoring activities to the campus. The creation of this office demonstrates Penn State’s commitment to compliance. Penn State will raise awareness of the late closeout issue at various committee, workgroup, and council meetings during Spring 2026, and enforce compliance with our existing policy. These meetings involve research leadership at all colleges, such as Associate Deans for Research, College Research Administration Officers, and College Strategic Financial Partners. Penn State will provide additional trainings throughout the year to educate colleges on the closeout process through the Financial Analysis and Compliance Office.