Congressional Hearing Reveals Billing Excesses

WASHINGTON--Federal investigators charged at a Congressional hearing here yesterday that Harvard University inappropriately billed the government almost one million dollars last year.

According to a recently completed audit conducted by the U.S. General Accounting Office (GAO) and presented to Congress yesterday, the Harvard Medical School included shuttle bus costs, legal fees, travel expenses and athletic facility costs as overhead costs on research charged to the government.

GAO officials also rejected an accounting system that the Medical School used to charge an extra $663,000 to the government during fiscal year 1991.

In addition to the new allegations about the University's indirect cost accounting, Rep. John D. Dingell (D--Mich.) and his House Subcommittee on Oversight and Investigations focused on more serious charges Directed at Stanford University and MIT, as well as the troubled condition of the government's over sight system.

Panelists and subcommittee members yesterday repeatedly lamented the "systemic" problems of the research overhead issue, problems that have resulted in overbillings at dozens of universities.

All told, some federal investigators say, American universities may have taken the government for as much as $1 billion in the name of research. Certainly, they say, $500 million is an accurate figure.

Harvard Medical School avoided the intense scrutiny of the subcommittee for most of the day, but ran into problems during government testimony on a few issues.

In particular, the Medical School's high indirect cost rate drew some hostile questions from some representatives.

With an 88 percent provisional rate, the Medical School bills the government more for every dollar spent on research than any other research university. And Harvard is currently asking the government to a approve a hike to 96 percent.

This would mean that for every dollar the Medical School receives in federal grant monies, the government would provide an extra 96 cents to help pay overhead costs, including building depreciation and administrative expenses.

"MIT and particularly Harvard Medical could be described, I believe, as being very aggressive in their reimbursement request policies," testified one GAO official, J. Dexter Peach, during the hearings.

Subcommittee member Thomas J. Bliley Jr. (R--Va.) said he was concerned with how the Department of Health and human services would set the Medical School's rate.

"Is there any kind of audit going on at Harvard?" asked Bliley, wondering how a fair rate could be determined in the absence of an audit.

Bliley suggested an alternative in the case theHarvard and the government could not agree on arate.

"HHS can take their research somewhere else,too," Bliley said. "They would have that option."

The GAO aired several new charges during thehearing yesterday about the University's latestreimbursement request to the government.

According to the GAO audit, Harvard asked thegovernment to subsidize the cost of employeememberships in a local health club, extra pensioncosts of a Harvard dean not at the Medical Schooland costs associated with recruiting a new facultymember--which included paying for mortgagepayments on a condominium.

The federal investigators also said Harvardbilled the government for the travel expenses ofthe University's governing board, including a tripto South Africa.

GAO officials ruled that all thesecosts--totalling $75,000--were unallowable. Thatfigure is in addition to the $250,000 that theMedical School withdrew last spring after hiringan accounting firm to conduct an independentaudit.

The University also asked the government to payfor more than $8000 in legal fees, including moneyspent defending a sex discrimination suit broughtagainst the business school and related to thesale of property in New York, officials said. TheGAO considered these costs "questionable, meaningthey appeared inappropriate but are not absolutelyunallowable.

Perhaps the most significant defeat for theMedical School yesterday was the GAO's technicaldecision to reject a Harvard accounting systemthat resulted in an additional $663,000 inbillings to the government.

"Harvard Medical did not adequately justifythis [accounting] approach's equity," the GAOsaid.

This last matter of cost allocation brings thetotal of questionable and overruled costs in lastyear's reimbursement request to nearly $1 million,including the $250,000 the Medical School hasalready volunteered to withdraw.

One federal investigator said there may be moreto come in the technical area of cost allocationand that the GAO may question hundreds ofthousands more dollars.

Hundreds of Schools.

Federal officials yesterday clarified theextent to which money is regularly and wronglybilled to the government as indirect researchcosts and emphasized the government's resolve toconduct an effective review of how schools chargethe government for overhead on research.

The Department of Health and Human Services hasalready completed a review of 126 schools and iscurrently looking at 72 more.

Officials said "in depth reviews at 14universities disclosed $20.4 million ofunallowable" indirect costs. Of the remainingschools, another $18 million more were cited.

The Pentagon's Direct Contract Audit Agency(DCAA) has completed audits of direct and indirectcost claims at 22 universities, covering a totalof 54 fiscal years. Officials said audits of 20more schools, covering 49 fiscal years, arecurrently in progress.

In addition to Stanford and MIT, the DCAA hascited Penn State for $6.4 million in excessivebillings to the government in the fiscal years1986 and 1990. The DCAA written testimony alsolisted thousands of dollars in unallowable traveland entertainment costs at such schools asCarnegie Mellon University and SyracuseUniversity.

Of particular concerns to the subcommittee wasthe government's finding that universitiescommonly gave foreign governments and privatecorporations substantially lower indirect costrates than the government. Some schools--Harvardwas not cited--charged foreign governmentsabsolutely nothing for indirect costs on research.

"Why wouldn't you charge Egyptian taxpayerswhen you would charge U.S. Taxpayers [forresearch]?" asked J. Roy Rowland (D--Ga.), whobriefly presided over the hearing.

Harvard's Vice President for Finance Robert H.Scott said in a telephone interview from Cambridgethat the University does not artificially lowerrates for non-federal groups.

But Scott acknowledged the indirect costs areoften lower for foreign governments because manyof the projects are based off campus, often in thesame country whose government is funding theresearch.

"We try to collect what we consider the fullindirect costs from everyone," Scott said.

No matter how badly Harvard fared atyesterday's hearing, Stanford and MIT did worse.

The Pentagon charged MIT with overbilling thegovernment by $19 million in 1990, and federalinvestigators told the Crimson that the audit'sfive-year finding, not yet completed, will totalapproximately $75 million.

MIT has already refunded the government nearly$700,000 for admitted overbillings.

In addition, Pentagon officials testifiedyesterday that MIT's accounting mistakes, all ofwhich they say favored MIT, may have beenintentional.

The Naval Investigative Service (NIS) isconducting a criminal investigation at MIT todetermine whether officials defrauded thegovernment.

The NIS is conducting similar in quiries atStanford and the University of Hawaii, butofficials yesterday refused to testify about theseinvestigations because they were still ongoing.

The Pentagon yesterday accused Stanford ofovercharging the government $231 million between1981 and 1988. Federal investigators said thetotal could exceed $300 million if those pastthree years were factored in.

Stanford has already paid the government $1.3million

Bliley suggested an alternative in the case theHarvard and the government could not agree on arate.

"HHS can take their research somewhere else,too," Bliley said. "They would have that option."

The GAO aired several new charges during thehearing yesterday about the University's latestreimbursement request to the government.

According to the GAO audit, Harvard asked thegovernment to subsidize the cost of employeememberships in a local health club, extra pensioncosts of a Harvard dean not at the Medical Schooland costs associated with recruiting a new facultymember--which included paying for mortgagepayments on a condominium.

The federal investigators also said Harvardbilled the government for the travel expenses ofthe University's governing board, including a tripto South Africa.

GAO officials ruled that all thesecosts--totalling $75,000--were unallowable. Thatfigure is in addition to the $250,000 that theMedical School withdrew last spring after hiringan accounting firm to conduct an independentaudit.

The University also asked the government to payfor more than $8000 in legal fees, including moneyspent defending a sex discrimination suit broughtagainst the business school and related to thesale of property in New York, officials said. TheGAO considered these costs "questionable, meaningthey appeared inappropriate but are not absolutelyunallowable.

Perhaps the most significant defeat for theMedical School yesterday was the GAO's technicaldecision to reject a Harvard accounting systemthat resulted in an additional $663,000 inbillings to the government.

"Harvard Medical did not adequately justifythis [accounting] approach's equity," the GAOsaid.

This last matter of cost allocation brings thetotal of questionable and overruled costs in lastyear's reimbursement request to nearly $1 million,including the $250,000 the Medical School hasalready volunteered to withdraw.

One federal investigator said there may be moreto come in the technical area of cost allocationand that the GAO may question hundreds ofthousands more dollars.

Hundreds of Schools.

Federal officials yesterday clarified theextent to which money is regularly and wronglybilled to the government as indirect researchcosts and emphasized the government's resolve toconduct an effective review of how schools chargethe government for overhead on research.

The Department of Health and Human Services hasalready completed a review of 126 schools and iscurrently looking at 72 more.

Officials said "in depth reviews at 14universities disclosed $20.4 million ofunallowable" indirect costs. Of the remainingschools, another $18 million more were cited.

The Pentagon's Direct Contract Audit Agency(DCAA) has completed audits of direct and indirectcost claims at 22 universities, covering a totalof 54 fiscal years. Officials said audits of 20more schools, covering 49 fiscal years, arecurrently in progress.

In addition to Stanford and MIT, the DCAA hascited Penn State for $6.4 million in excessivebillings to the government in the fiscal years1986 and 1990. The DCAA written testimony alsolisted thousands of dollars in unallowable traveland entertainment costs at such schools asCarnegie Mellon University and SyracuseUniversity.

Of particular concerns to the subcommittee wasthe government's finding that universitiescommonly gave foreign governments and privatecorporations substantially lower indirect costrates than the government. Some schools--Harvardwas not cited--charged foreign governmentsabsolutely nothing for indirect costs on research.

"Why wouldn't you charge Egyptian taxpayerswhen you would charge U.S. Taxpayers [forresearch]?" asked J. Roy Rowland (D--Ga.), whobriefly presided over the hearing.

Harvard's Vice President for Finance Robert H.Scott said in a telephone interview from Cambridgethat the University does not artificially lowerrates for non-federal groups.

But Scott acknowledged the indirect costs areoften lower for foreign governments because manyof the projects are based off campus, often in thesame country whose government is funding theresearch.

"We try to collect what we consider the fullindirect costs from everyone," Scott said.

No matter how badly Harvard fared atyesterday's hearing, Stanford and MIT did worse.

The Pentagon charged MIT with overbilling thegovernment by $19 million in 1990, and federalinvestigators told the Crimson that the audit'sfive-year finding, not yet completed, will totalapproximately $75 million.

MIT has already refunded the government nearly$700,000 for admitted overbillings.

In addition, Pentagon officials testifiedyesterday that MIT's accounting mistakes, all ofwhich they say favored MIT, may have beenintentional.

The Naval Investigative Service (NIS) isconducting a criminal investigation at MIT todetermine whether officials defrauded thegovernment.

The NIS is conducting similar in quiries atStanford and the University of Hawaii, butofficials yesterday refused to testify about theseinvestigations because they were still ongoing.

The Pentagon yesterday accused Stanford ofovercharging the government $231 million between1981 and 1988. Federal investigators said thetotal could exceed $300 million if those pastthree years were factored in.

Stanford has already paid the government $1.3million