Feds may force U. to repay improper overhead charges

The federal government will probably ask the University to repay some of the federal money it has used to pay for research-related costs since July 1988, University officials said yesterday. From fiscal year 1989 to 1992, the University was paid an additional $65 for every $100 of research money it received from the government to pay for "indirect costs" -- administrative and maintenance costs incurred while conducting federal research. But a government audit completed this summer concluded that this 65 percent indirect cost rate, which was based on spending in 1987, was too high because it included "questionable costs" totaling $1,250,620 from fiscal year 1987. These costs included expenditures for alumni relations and development activities, entertainment, upkeep of the president's house, chaplain activities and public relations -- all costs determined by auditors not to support research as federal guidelines require. Vice President for Finance Selimo Rael said he will meet with government officials today in Washington, D.C., to "resolve" the audit, adding "it is very likely" the government will ask for a reimbursement. Rael refused to predict how much the University may be asked to repay, saying the "negotiations are at a point now where I wouldn't want to jeopardize the process." But he did say the use of the questionable 1987 costs had "almost no effect" on the calculation of the 65-percent rate, which he estimated probably should have been in the range of "64.98 percent." "The University doesn't have overly abundant dollars for any purpose and any reimbursement would be problematic for the University," he said. "But I think it's not going to have an overly significant effect." And Rael said although questionable costs were used to determine the rate, once the rate was in place "almost 100 percent" of the recovered money was returned to academic departments and not spent on "questionable" items like alumni relations. Periodically, universities throughout the nation negotiate indirect research rates with the federal government based on what overhead has cost in the past. Government audits conducted over the past year revealed that a number of schools have padded these figures by including expenditures that were not linked to research overhead. The most egregious case, and the one which set off the government audits, was at Stanford University, where school officials included approximately $200 million in inappropriate costs over 10 years. The University's audit, conducted by the Department of Health and Human Services, which distributes most of the University's federal grants, listed as questionable all costs that did not meet certain criteria in the Office of Management and Budget's guidelines governing indirect cost rates. The criteria, which require that costs be "allowable, allocable and reasonable," have been criticized by both University and government officials for their ambiguity, which many blame for the recent scandals. About $1.1 million of the "questionable" expenditures at the University fall into five accounts: the chaplain's office, the president's house account, alumni relations, maintenance on the exteriors of sculptures, and federal relations. The remaining $182,392 of questionable costs were spread out over 13 other University accounts. The University agreed that alumni relations costs, which totaled more than $782,000, should not have been included in the proposal, and said in a letter to a senior HHS auditor that the University "inadvertently failed to eliminate this account" from the proposal. But the University defended its inclusion of the other four accounts. In the letter, signed by University Comptroller Alfred Beers, the University argued the $98,000 in chaplain's costs were allowable under OMB guidelines because the chaplain does not hold denominational services and has a "primary function" of providing counseling services to the University community. The University said the nearly $59,000 spent on the president's house could be justified because the first floor is a "public area used for many official functions of the University" and the bulk of costs included in the proposal were used "primarily for housekeepers and cleaning supplies." The University defended including the Office of Federal Relations costs, which totaled over $122,000 in 1987, because the office keeps University officials aware of relevant legislation and allows the University to follow new legislative mandates from Washington. Finally, the University said including the expenses "associated with the cleaning and painting of exterior sculptures" is allowable under OMB guidelines. One source of the dispute has been the University's assertion that auditors were basing many of their conclusions on OMB guidelines that were proposed last spring, long after the 1987 numbers were used to compute an overhead rate. But claims from officials at other schools accused of abuses that many of the expenditures are valid under ambiguous federal guidelines have largely fallen on deaf ears on Capitol Hill. A staff member of the House Energy and Commerce Committee's investigations and oversight subcommittee, who did not want to be identified, said universities have used that excuse only to exploit the rules. He agreed some of the guidelines are vague, but accused many universities of blatantly ignoring the laws, which he says were intended for honest administrators who would not abuse them. "When you leave your house you might ask your children not to play with the stove," he said. "But it would never occur to you to tell them explicitly that they shouldn't set fire to the cat or invite 400 people over for mud wrestling. There is a presumption that there will be reasonableness." "To say something is legal is not to say it is appropriate," he continued. "Just because it is not explicitly prohibited does not mean it is proper." Despite disagreeing with the government over interpretations of the guidelines, University officials have agreed to exclude all questionable costs, except those connected with the chaplain, from future requests. And University officials voluntarily agreed to cut membership and dues accounts, worth $97,000, from future proposals even though the auditors recommended only that $9,665 be cut. Rael said the University's new indirect cost recovery rate would not be set until some time next summer, but he said the University has proposed an overall rate of just under 66 percent. He said the administrative portion of that rate, currently 30 percent, would be reduced to under 26 percent. This is important because new OMB guidelines, approved earlier this month, have capped the administrative rate at 26 percent.

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