Appropriations Funding for National Institute of Diabetes and Digestive and Kidney Diseases Contract HHSN267-2007-00014C With the University of South Florida

Our review found that during fiscal years 2007 through 2009, NIH's National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) did not comply with the time requirements and may not have complied with the amount requirements specified in appropriations statutes in administering contract HHSN267-2007-00014C (the Contract) with the University of South Florida. An agency may obligate appropriations for goods and services when (1) the purpose of the obligation or expenditure is authorized, (2) the obligation occurs within the time limits for which the appropriation is available, and (3) the obligation and expenditure are within the amounts provided by Congress. Federal statutes specify that a fiscal year appropriation may be obligated only to meet a legitimate, or bona fide, need arising in or continuing to exist in the appropriation's period of availability. The Antideficiency Act prohibits an agency from obligating or expending funds in advance of or in excess of an appropriation unless specifically authorized by law.

NIDDK funded only $46.2 million of the $169.4 million Contract obligation with fiscal year 2007 appropriations. NIDDK obligated $10.5 million of fiscal year 2008 appropriated funds in violation of the bona fide needs rule and planned to obligate funds appropriated for future years as well. Because the Contract was a nonseverable service contract (a single undertaking that provides for a single outcome chargeable to the fiscal year in which the contract was awarded), NIDDK was required to record the full amount of the Contract using fiscal year 2007 appropriated funds. By not recording the full obligation using fiscal year 2007 appropriations, NIDDK potentially violated the Antideficiency Act. (When services are severable they are continuing and recurring and chargeable to the fiscal year in which the services are provided.) In addition, the NIH Office of Financial Management paid a duplicate charge of $28,000 on behalf of NIDDK. NIDDK complied with the purpose requirements of appropriations statutes.

We recommended that NIDDK (1) deobligate $10.5 million of fiscal year 2008 funds, (2) deobligate any additional funds appropriated for years other than fiscal year 2007 that NIDDK may have obligated after our audit, (3) record the remaining $123.2 million of the $169.4 million Contract obligation against fiscal year 2007 funds, (4) report an Antideficiency Act violation if fiscal year 2007 funds are not available, and (5) obtain a refund for the duplicate payment of $28,000. NIH agreed that a bona fide needs violation had occurred and admitted violating the Antideficiency Act but disagreed with our characterization of the Contract as a nonseverable service contract. While the statement of work may contain severable elements, we maintain that, on balance, the Contract is nonseverable.