What Happened to Stanford's Expense Scandal?

November 20, 1994|By DAVID FOLKENFLIK | DAVID FOLKENFLIK,The Chronicle for Higher Education, Dec. 8, 1993, based on statistics from the National Science Foundation, the U.S. Department of Health and Human Services, and the Office of Naval Research.

It started with wine and flowers, silk sheets and fine silverware, and led to a yacht and an elaborate wedding $H ceremony at a campus mansion.

An elegant courtship? No, your tax dollars at work.

Or so government auditors argued in 1991 when they cited the luxury items as part of a research funding scandal at Stanford University that ultimately caused the downfall of its president.

Last month, Stanford quietly repaid $1.2 million -- a far cry from the $200 million investigators claimed the university overbilled the government for incidental costs.

The university also dropped a claim against the government for $56 million and agreed to a significantly lower rate for reimbursement of its indirect costs, effectively losing millions of dollars annually.

Higher education officials said the Stanford excesses set off a wave of audits at other campuses, and the news stories followed. Johns Hopkins, Harvard, the Massachusetts Institute of Technology, Duke, Michigan and Wisconsin all wound up repaying the government for disputed charges.

"They [Stanford] really took some liberties that many people in the scientific community resent, because it had an affect on all of us," said M. Daniel Lane, director of the division of biological chemistry at the Hopkins School of Medicine.

"Everybody is penalized by that," said the scientist, who receives $500,000 a year in government grants.

As a team of government auditors descended on the Baltimore campus in 1991, Hopkins returned $90,000 as a sign of good faith. When auditors demanded an additional $410,000, a government appeals board sided with Hopkins and denied the claim.

Beyond 'sticker price'

The overruns stemmed from the indirect costs or incidental expenses the universities incurred from their government grants. The sticker price of a grant does not cover all expenses, such as utility and maintenance bills. Other incidentals might be subscriptions to scientific journals, the salaries of administrative assistants who process campus payrolls or a scholar's travel expenses to academic conferences.

Because the incidental expenses are not always clearly linked to a grant, assessing the charges can be tricky.

Each campus negotiates with a single federal agency for all its indirect expenses.

In the case of Stanford, that agency was the Office of Naval Research. At Hopkins and many other universities, the chief negotiator is the Department of Health and Human Services.

The money paid for incidental expenses is not peanuts. From 1981 to 1992, Stanford received $813 million in indirect costs above the nearly $2 billion it received in grants and contracts, officials said.

But once it came under scrutiny, Stanford instituted rigorous new accounting procedures, returned $2.2 million and hired a slew of outside auditors -- at an ultimate cost of $25 million -- to check its books.

Yet unrelenting news reports in 1992 triggered the resignation of Stanford's president, W. Donald Kennedy.

University officials say that more than 1,200 articles were written about the financial difficulties from 1990 to 1992, enough grist for a Stanford graduate student's doctoral thesis.

"I felt no one did anything unethical here," Dr. Kennedy said recently. "We got made an example of. Our treatment in the media was rough."

Stanford officials said recently that the charges for items such as Dr. Kennedy's wedding, the silverware, silk sheets and the upkeep of a yacht donated to the athletic department were relatively minor ones due to clerical errors. Discrepancies on a small scale -- typically in the thousands -- are expected in hundred-million-dollar budgets and ironed out amicably.

Fraud charged

But Paul Biddle, the Navy's representative on the campus, asserted that there was fraud on a massive scale.

Mr. Biddle's suspicions were aroused in 1989 after informal discussions with Stanford professors who feared the university's high reimbursement claims would price them out of the market )) for future grants and contracts.

The concerns ultimately sparked investigations by the Navy, Rep. John Dingell, D-Michigan, and the Justice Department. During one particularly frantic period, the federal government had 30 auditors at Stanford.

"Some schools think of research in the national interest," Mr. Biddle said. "When you start thinking of research from the federal government as an income stream, you have a problem because there you start thinking of profit."

Although no longer with the Navy, Mr. Biddle has filed a federal whistleblower's lawsuit in San Jose, Calif., seeking as much as $200 million from Stanford. If the suit is successful, Mr. Biddle could receive as much as 30 percent of the award. Stanford calls his allegations groundless and self-serving.

Stanford's style

Higher education officials say it was Stanford's cowboy style that drew government skepticism toward academe.

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