Institute for Systems Biology

Instance of noncompliance and significant deficiency in internal controls related to equipment and real property management. Federal Agency: U.S. Department of Health and Human Services, National Science Foundation, U.S. Department of Defense, U.S. Department of Energy Program Title: Research and Development Cluster - All Awards Assistance Listing Number: Various Award Numbers: All awards within the Research and Development Cluster Award Periods: Various Criteria Per equipment and real property management compliance requirements contained in the Uniform Guidance, Subpart D - Post-Federal Award Requirements and Contents of Federal Awards, Section 200.313, non-federal entities must perform a physical inventory of the property at least once every two years. Condition/Context The Institute’s internal control over equipment and real property management includes procedures to complete inventory counts every two years. However, the last count took place during 2022. As such, the Institute was not following their policies over equipment and real property management. Questioned Costs Not applicable. Cause The Institute’s internal controls related to the equipment and real property management compliance requirements were not sufficient to ensure compliance with the standards. Effect/Potential Effect The effect is the property records for the Institute may have discrepancies and changes in the status or condition of equipment on hand may not be captured in a timely manner. Repeat Finding Not applicable. Recommendation We recommend management implement procedures to ensure that documentation of a physical inventory and verification of condition for all equipment is received at least once every two years. Views of Responsible Officials Management agrees with the finding and has provided the accompanying corrective action plan.

INSTITUTE FOR SYSTEMS BIOLOGY (ISB) Corrective Action Plan For the Year Ended December 31, 2024 Finding Number 2024-001 Contact Person(s): Shanna Braga Director, Facilities and Operations shanna.braga@isbscience.org Gary Streicher Director of Finance gary.streicher@isbscience.org Explanation and specific reasons for disagreement with the audit findings or that corrective action is not required (if applicable): Not applicable, management agrees with audit findings. Corrective action Planned: In Q2 2025, the Facilities and Finance teams initiated a full inventory of all active equipment and other fixed assets funded by Federal awards. This process is being conducted to confirm the current location and status of each item, including whether it is still in service or has been disposed of. The findings will be used to update the Institute’s fixed asset accounting system accordingly. Inventory results will be documented with detailed records of status and location for each asset. Supporting documentation will be retained in accordance with Federal recordkeeping requirements The Institute will conduct a biannual inventory of Federally funded equipment, and a separate biannual inventory of all other active equipment and fixed asset Anticipated time frame of the inventor procedures would be Q2-Q3 of every other year; the next inventory will be done 2026. Anticipated completion date: July 15, 2025 (current inventory of Federally funded fixed assets)

Finding 2021-001 Instance of noncompliance and significant deficiency in internal controls related to equipment and real property management. Federal Agency: U.S. Department of Health and Human Services, National Science Foundation, U.S. Department of Defense, U.S. Department of Energy Program Title: Research and Development Cluster - All Awards Assistance Listing Number: Various Award Numbers: All awards within the Research and Development Cluster Award Periods: Various Criteria Per equipment and real property management compliance requirements contained in the Uniform Guidance, Subpart D - Post-Federal Award Requirements and Contents of Federal Awards, Section 200.313, non-federal entities must perform a physical inventory of the property at least once every two years. Condition/Context The Institute?s internal control over equipment and real property management includes procedures to complete inventory counts every two years. However, the last count took place during 2018. As such, the Institute was not following their policies over equipment and real property management. Questioned Costs Not applicable. Cause The Institute?s internal controls related to the equipment and real property management compliance requirements were not sufficient to ensure compliance with the standards. Effect/Potential Effect The effect is the property records for the Institute may have discrepancies and changes in the status or condition of equipment on hand may not be captured in a timely manner. Repeat Finding Not applicable. Recommendation We recommend management implement procedures to ensure that documentation of a physical inventory and verification of condition for all equipment is received at least once every two years. Views of Responsible Officials Management agrees with the finding and has provided the accompanying corrective action plan.

Finding Number 2021-001 Contact Person(s): Shanna Braga Director of Facilities & Operations Gary Streicher Director of Finance Explanation and specific reasons for disagreement with the audit finding or that corrective action is not required (if applicable): Not applicable, management agrees with audit finding. Corrective action planned: During 2022 Q3, the Facilities and Finance teams initiated an inventory of all active equipment and other fixed assets funded by Federal awards. The inventory has been conducted to identify the current location of each item and to discern if the item is still in service or has been taken out of service or otherwise disposed of. Status and location of each item will be updated in the Institute?s fixed asset accounting system. Prospectively, the Institute plans to a conduct an biannual inventory of all Federally funded equipment and a biannual inventory of all active equipment and other fixed assets. Anticipated time frame of these inventory procedures would be Q2- Q3 of every other year; the next inventory will be done in 2024. Anticipated completion date: September 30, 2022 (current inventory of Federally funded fixed assets)

Finding 2021-002 Instance of noncompliance and significant deficiency in internal controls related to special tests and provisions. Federal Agency: U.S. Department of Health and Human Services Program Title: Lung Diseases Research; COVID-19 Biomedical Advanced Research and Development Authority (BARDA), Biodefense Medical Countermeasure Assistance Listing Number: 93.838; 93.360 Award Numbers: 117046; HHSO10020160031C Award Periods: Various Criteria Per Uniform Guidance, Subpart D - Post-Federal Award Requirements and Contents of Federal Awards, Section 200.300(b), non-federal entities are required to comply with all requirements of the Federal award. The National Institute of Health through notice number NOT-OD-21-057 includes a salary limitation (salary cap) on the amount that may be charged directly to federal awards. This is considered a special test and provision under Uniform Guidance. Condition/Context During testing, it was noted that one selection did not have the proper allocation of wages to the federal award due to the improper allocation of the salary cap. This resulted in $11 being overcharged to the federal award for the pay-period selected for testing. Management reviewed all employees over the National Institute of Health?s salary cap for 2021 and noted one additional instance of the salary cap not being appropriately applied. The second instance resulted in an error of $257 over a 3.5-month period. The Institute?s internal control over the allocation of the salary cap, as required by the National Institutes of Health, did not include a proper allocation when an employee took paid time off. This was not a statistical sample. Questioned Costs 93.838 - Award 117046: $11 93.360 - Award HHSO10020160031C: $257 Cause The Institute?s internal controls related to the salary cap allocation was not sufficient to ensure compliance with the standards. Effect/Potential Effect The effect is there were amounts directly charged to the federal program over the salary cap. Repeat Finding Not applicable. Recommendation We recommend management implement procedures to ensure that the salary cap, as required by the National Institutes of Health, is properly by pay period. Views of Responsible Officials Management agrees with the finding and has provided the accompanying corrective action plan.

Finding Number 2021-002 Contact Person(s): Jeni Seko Director of Financial Planning & Analysis Gary Streicher Director of Finance Julie Thatcher Director of Sponsored Programs Explanation and specific reasons for disagreement with the audit finding or that corrective action is not required (if applicable): Not applicable, management agrees with audit finding. Corrective action planned: The Institute has planned and implemented a multi-step plan to review the effects of the NIH salary cap on all employees subject to the cap and to determine what returns may be needed of funds from the related awards. These steps include: [1] Identify all employees whose 2021 annual gross pay (including taxable fringe benefits) exceeded the cap. [2] Review the pay allocation % calculations for each employee from [1] to determine if those calculations correctly considered the cap. [3] For cases in [2] where the cap was not properly included in the pay allocation %, recalculate the pay allocation % based on the correct method. The recalculations are done for each award subject to the cap and for each month in 2021. [4] For cases in [3], compare recalculated pay allocation % to those actually used for each month in 2021 to determine the differential pay allocation % of any needed corrections. [5] Use the differential pay allocation % from [4] to calculate the adjustments to allocated pay needed to correct for the cap errors. This calculation applies to each month of 2021 and is based on allocable pay (which is gross pay less vacation taken). [6] Summarize the pay allocation corrections from [5] to determine total pay corrections. Calculate the related fringe benefits and indirect costs using the applicable standard rates. Sum all corrections for pay allocations, fringe benefits, and indirect costs to determine aggregate correction. [7] Work which each applicable funding source/payer to determine best method for return of funds. [8] Disburse returns of funds to payer/funding source. The above process has also been applied to 2022 YTD activity (through August). The correct pay allocation % determined by step [3] for 2022 will be applied prospectively starting on September 1 2022. Prospectively, the Institute will set up dashboard payroll reports to monitor for instances when an employee?s gross compensation exceeds the NIH salary cap. For cases identified by these monitoring reports, the Institute will use a standard template to calculate pay allocation % which properly include the effects of the salary cap. Anticipated completion date: Steps [1]-[6] for both 2021 and 2022 YTD will be done by September 10 2022. Steps [7]-[8] will be done as soon as practicable after September 10 2022; target date not later than October 15 2022. The prospective control changes will be implemented not later than 2022 Q4 (target date November 15 2022).