Keeping Harvard Bonest

HARVARD'S FINANCIAL STAFF got two places of bud news from the government last month; the University was forced to repay $4.6 million in misspent research funds, and new Congressional legislation may curtail all colleges' ability to issue tax-exempt bonds in the future.

While it appears that lobbyists may ultimately extricate colleges from the bulk of the tax-reform bill, both it and the research settlement will prove quite costly to Harvard in the long run. Tax-free bonds have been an extremely inexpensive form of paying for major construction projects, and as part of the research settlement, the University will have to spend money to design and maintain better accounting systems for research grants.

Although no one in the government has accused Harvard of fraud or wrongdoing, in both cases the University, like most other colleges, has been guilty of a "systematic abuse" of loosely-worded regulations and hazy guidelines. Within both the House Ways and Means Committee and the Department of Health and Human Services (HHS), officials have moved in recent years to tighten rules and close loopholes--moves that have affected Harvard's purse strings.

The settlement with HHS rested largely on two government audits of Harvard in the late 1970's, which revealed numerous improprieties such as research costs charged to the wrong grant, and professors arbitrarily shifting staff and funds among several projects. These practices apparently were common at all research institutions before HHS's crackdown began in 1977; and throughout the two years of negotiations. Harvard's Financial Vice President Thomas O'Brien has said academic research requires more flexible accounting than federal auditors realize.

Nevertheless, both sides acknowledge that the real problem lies in tax record-keeping. When federal auditors came across questionable transactions, often no records existed--or the researchers had long since left Cambridge--to confirm their validity. A. Simone Reagor, director of Harvard's office of sponsored research, recalls one case where a professor took a legitimate trip to Africa but had no plane ticket or other voucher to prove he actually made the journey. Only when he produced his expired passport with visa stamps did the auditors approve the cost of the trip.

Now stricter accounting procedures, including "effort reporting" that requires researchers to detail how they spend their time, should prevent any questioning of researchers, integrity. While this will put added burdens of time and cost on all university research, federal officials point out the cost of such record-keeping is included in all government grants.

While Harvard has been a victim of its ownlack laster unfunting the University really only followed the norms of research at all Universities. Federal official say that last week's $4.6 million settlement is not our of line with recent ones at other colleges, and that more schools haven't been forced to pay back funds only because the government lacks the staff to police all of them thoroughly.

NEXT YEAR, new regulations will expand the role of independent auditors in the process and ultimately result is coverage of all federal research dollars. The message to all university researchers is clear: everyone will have to follow the more burdensome federal guidelines, sacrificing some productivity but gaining back their integrity in the eyes of the government.

The controversy over tax-free bonds, however, is not so clear-cut. The bill has been rewritten several times, and it appears as though colleges will retain their ability to sell bonds to pay for construction projects. However, bonds which finance student loans remain on the endangered list, according to the bill now stalled in committee.

Ways and Means Committee officials say the tax-free bond market is overcrowded by colleges, hospitals, and other institutions seeking to raise funds cheaply. This scenario has driven interest rates higher and squeezed smaller colleges out of the bond market. While state authorities discredit this analysis, Harvard officials have essentially assented to it and have not lobbied heavily against the reforms. And everyone agrees that current laws contain moneymaking loopholes which many universities exploit.

With nearly $600 million of debt outstanding, Harvard ranks as the all-time college leader in issuing bonds. University officials freely admit that Harvard earns windfall profits by investing revenues from their bond sales. They also concede that selling tax-free bonds to pay for the profit earning Medical Area Total Energy Plant may not be totally ethical. But here again the university has broken no law, but rather simply followed the leads of other schools; in fact, Harvard has been relatively slow to exploit the bond market in comparison to ther colleges.

In both the audit and bond crackdowns, Harvard may well be the victim of its wealth and visibility. Although in each case the University has acted scrupulously and, as one should expect, in its own interests, it appears that Washington is seeking to make an example of the Harvard administration. But this is the price of prestige; as the self-styled leader of the educational community, Harvard must run its financial operations with the same attention and high principles that underly its academic pursuits.