U. repays feds $930,462 in grant overhead costs

The administration has repaid the federal government $930,462 in research overhead costs which auditors determined the University should not have received over the past five years. Vice President for Finance Selimo Rael said Friday that the University and the U.S. Health and Human Services Department reached agreement Wednesday, and the University handed over the money on the same day. Six universities from across the country have returned money to the government for improper overhead allocations, but according to government officials, the University's reinbursement is the largest to HHS so far. Budget Director Stephen Golding said the University would pay the money back by drawing on balances in bank accounts so that departments within the University would not have to bear the brunt immediately. He said departments would have the next several years to help reimburse the accounts, adding there would be "no immediate impact on any programs." "It's a lot of money at any time, and in particular now that universities don't have excessive funds available to them," Rael said. "But we hope to be able to spread it out in a way to minimize impact on any one area." Between fiscal years 1988 and 1992, the University was paid $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 the University's 65 percent overhead rate was too high because the proposal used to calculate this rate included "questionable costs" totaling $1.25 million from fiscal year 1987. These costs included expenditures for alumni relations, fundraising activities, entertainment, upkeep of the president's house, chaplain activities and public relations -- all costs auditors felt were not supporting research as federal guidelines require. Rael said HHS reduced the $1.25 million of "questionable costs" in the cost pool to $1.1 million after negotiations with the University, deciding that costs for the University's federal relations office and some of the upkeep of the president's house were allowable under federal guidelines. But because the federal government only pays a portion of all the indirect costs the University incurs through its research, much of those "questionable costs" were actually paid by the University or other sources. Therefore, only $186,000 of the $1.1 million in costs the University improperly included in its proposal was paid by the federal government. Under the agreement with HHS, the University will return this $186,000 for each of the five years the 65 percent rate was in effect. This equals the $930,642 that was returned. While not "de-emphasizing" the amount of money returned, Rael said the total reimbursement represented less than one half of one percent of the $219 million in federal research overhead payments for the last five years. Rael said if the University had not been able to negotiate down, the government could have requested the University to pay back as much as $1.5 million. Contrary to popular belief, the government has not claimed that the University misspent any money recovered as indirect research costs. They have simply claimed that the amount the University received was too high because it was based on faulty figures. The federal government has not audited the University's spending between 1988 and 1992, relying instead on the rate proposal using the 1987 figures. How the University actually spent federal overhead money from '88 to '92 was outside the scope of the HHS investigation. But Rael said last week that although questionable costs were used to determine the 65 percent rate, "almost 100 percent" of the recovered money was returned to academic departments, and not spent on "questionable" items like alumni relations. Rael said the inclusion of questionable costs in the rate proposal resulted largely from the "complexity of federal costing guidelines as well as the vague nature in which they were written." He said the recent revision of the guidelines by the Office of Management and Budget "will clear up a lot of ambiguity that left things up to personal interpretations." He admitted, though, that the national scandal which led to the new guidelines could also make negotiating a new rate "tougher because of the environment." He said the University would seek a new overall rate of 65.9 percent. Rep. John Dingell (D.-Mich.), chairman of the oversight and investigations subcommittee of the House Energy and Commerce Committee, had scheduled hearings for Thursday to hear the results of audits conducted at the University and several other schools. But Gary Talesnik, an official with HHS in Washington, D.C. said the hearings have been pushed back to next month.

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