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Universities Go Under the Financial Microscope

April 4, 1991

WASHINGTON (AP) _ The Bush administration is looking harder at the way colleges and universities bill research costs to the federal government, an official said Thursday.

Twelve major institutions have been selected for the financial reviews following questions about Stanford University’s billing luxury costs to the government, but Health and Human Services Inspector General Richard Kusserow said ″there’s no smoking gun″ among the 12.

Some were selected because they have higher than average overhead rates, but others had already been slated for audits, he said.

Auditors found that Stanford had billed the government for items like an antique commode and depreciation on a yacht.

″They want to know whether the pattern at Stanford″ is happening elsewhere, Kusserow said.

Kusserow’s office has begun audits at Yale University, the University of Pennsylvania, Johns Hopkins University and Dartmouth College.

His office is contacting eight other schools about upcoming audits, but officials would not identify them until they had been notified. It was known that Dartmouth College was among them.

The office plans audits at eight to 10 additional colleges and universities not yet selected, said Judy Holtz, a spokeswoman for the inspector general.

Another agency, the General Accounting Office, began an audit Wednesday at the Harvard Medical School in Boston, and expects to begin audits soon at Massachusetts Institute of Technology and the University of California at Berkeley.

It was the GAO, the investigating arm of Congress, that uncovered the extra charges at Stanford.

Johns Hopkins, Yale and Pennsylvania were among top recipients of federal money in 1989, according to the inspector general’s office. Johns Hopkins topped the list with $411 million in research contracts and grants. Yale was 11th with $146 million and Pennsylvania was 14th with $133 million.

When a university researcher contracts with a government agency to conduct experiments, the agency agrees to pay direct costs, such as equipment and materials and computer time - sometimes even salaries.

For some but not all agencies, the university then adds on to the contract a fixed percentage supposed to cover costs not directly associated with the research, but necessary anyway - heat and maintenance of the laboratories and library costs, for instance.

Johns Hopkins and Pennsylvania had overhead add-on rates of 65 percent, and Yale, 68 percent, of their direct research program costs, the inspector general said.

Yale officials said they were confident nothing significant would turn up in the audit.

″I’m not losing sleep, because I think we are very careful,″ said Edward Adelberg, deputy provost for biomedical sciences at Yale.

Johns Hopkins spokesman Dennis O’Shea said, ″We believe any objective outside review would conclude that the accounting system (at Johns Hopkins) is adequate to protect the interest of the federal government.″

University of Pennsylvania officials had no immediate comment.

Dartmouth was not on the list of the top 20 recipients, but it was selected for an audit because the inspector general’s office had already been asked by another government agency to help in a different but related accounting review of the school, Kusserow said.

John Kavanagh, director of grants and contracts at Dartmouth in Hanover, N.H., said the college on average gets reimbursed ″significantly less″ than its overhead rate.

Dartmouth has a 55 percent overhead rate, which means that in addition to the $28 million it received last year in grants, the school could have billed the government an additional $15.4 million.

But Kavanagh said Dartmouth was reimbursed for only about $7 million, because not all agencies awarding grants cover indirect costs. ″Dartmouth ends up subsidizing a lot of federal programs,″ Kavanagh said.

The audit at Stanford, the second-largest recipient of academic research grants, was conducted by the General Accounting Office, a watchdog arm of Congress, at the request of Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce investigations subcommittee.

Auditors found that Stanford had billed the government for expenses related to such items as a $1,200 antique commode, a $10,000 set of donated silverware, depreciation on a 72-foot yacht and a university-owned shopping center. Later Stanford withdrew about $700,000 in billings.

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