Hearings Shaking Up Universities : Education: Schools rush to review billing as Congress gets ready to look at alleged abuses at Stanford.

When Rep. John D. Dingell bangs his gavel this week to start congressional hearings about alleged abuses of research overhead spending at Stanford University, the noise will be heard throughout American academia. In fact, the Michigan Democrat already can claim some impact before a word of testimony is spoken.

Universities around the nation report that they are rushing to review their billing habits in fear that they might be the next campus under investigation. Federal agencies, accused of laxity for allowing Stanford to charge the government for, among other things, expensive flower arrangements and a yacht, are becoming tougher watchdogs of taxpayers’ money at research institutions, knowledgeable observers say. And there is renewed talk of reform in the rules governing federal aid for university research.

“I’m certain that presidents and chancellors are at least asking whether their people are doing anything which could be criticized,” said UCLA Chancellor Charles E. Young.

Allen Sinisgalli, head of research administration at Princeton University, agreed, saying the prospect of the hearings has caused his school and many others to scour their books for potential embarrassments. “Unfortunately, I think this is causing a chill in the air that makes it all the more difficult for universities and government to come to required financial resolutions,” he said.

At the heart of the controversy are obscure and complicated accounting rules, which nonetheless affect the nation’s future in science and technology and involve billions of federal dollars paid out annually to universities.

The federal government funds a wide range of direct research costs for things like buying new laser machines and testing experimental medicines. But, in addition, universities receive monies for so-called indirect or overhead costs of research like heating, secretarial salaries, library books, catered luncheon meetings and loans to build laboratories. Those overhead charges are notoriously vague and much negotiated between schools and government regulators, usually the Office of Naval Research (ONR) or the Department of Health and Human Services.

“With limited funds for research, there is a lot of competition for those funds. So we’d like to see the bulk of it going to direct research. When $20,000 goes for catering, that’s $20,000 less for finding a cure for AIDS,” said a staffer at Dingell’s subcommittee on oversight and investigation of the House Energy and Commerce Committee.

In addition to that subcommittee, several federal agencies are investigating why Stanford has one of the highest rates of overhead reimbursement. The Navy official who has supervised all federal research grants to Stanford since 1988 alleges that the school may have overbilled the government as much as $200 million over the last 10 years, although a recent study by the ONR inspector general said that allegation appears to be exaggerated.

Furthermore, Dingell’s panel and other investigators are looking into why no overhead audits were done at the Northern California campus for a decade, plus whether previous Navy overseers had an overly cozy--possibly criminally cozy--relationship with Stanford. The ONR inspector general found no such improprieties.

Particularly embarrassing for Stanford were revelations that the school billed the government in part for such items as depreciation on a yacht, purchase of flowers and a cedar closet for the campus president’s house and a 1987 post-wedding reception to introduce the president’s new wife to the faculty. While insisting it did nothing wrong intentionally, Stanford has withdrawn about $690,000 in such charges over the last few months. The school maintains that it is working hard to improve its accounting standards.

“We fully expect Stanford to emerge from the rigorous scrutiny now under way a stronger and more effective institution in serving the public interest. Our goal is to become a model for the use and accountability for public funds by a research university,” the school’s president, Donald Kennedy, recently said.

However, the rest of American academia seems torn between defense of a sister institution and anger that Stanford’s widely acknowledged aggressiveness in billing the government may have triggered a witch hunt. Auditors from the federal General Accounting Office are scheduled to look at Harvard Medical School’s books soon. Dingell’s aides said they may later investigate the University of Pennsylvania, Johns Hopkins University and the Massachusetts Institute of Technology. USC may also be looked at, not so much for abuses but for comparison to Stanford as another large, private school on the West Coast, investigators say.

“I think there is a sort of general concern that whatever is happening at Stanford not lead to precipitous action in Washington,” said Robert Rosenzweig, president of the Assn. of American Universities, the organization of top research schools. Universities fear that strict limits on legitimate overhead costs will result, he said. If that happens, universities would have to tap already besieged sources like private donors or tuition for the difference or cut important research, he contended.

Many researchers at Stanford complain that their school’s high bills for overhead eat into funds for pure research and hurt their ability to compete with scientists at campuses less aggressively billing the government. That opinion reflects the uneasy embrace between top researchers and universities. Schools want superstar scientists and engineers for prestige and the grants they attract, but such stars demand expensive laboratories and offices. To help finance such facilities, schools rely on indirect research funding from the government.

A building program at Stanford was the main reason the school’s overhead cost rate grew, with approval from government overseers, from 58% in 1980 to 74% last year. That generally means that for every $100,000 in direct research monies from the government, the school received an additional $74,000 in 1990. Among major research institutions, only Harvard Medical School (77%) and Columbia University (74.1%) had higher rates. The government wants to cut Stanford to 70% this year, which could cost the school about $5 million, and further drops may follow. (In part because state schools usually pay for buildings with state dollars. UC Berkeley, for example, had a 49% federal overhead rate.)

Anne Scanley, an official at the Government-University-Industry Research Roundtable, a Washington think tank on research issues, said many schools are concerned that the Stanford inquiries could start “a wave of investigations,” ultimately tainting the entire research world.

“From my perspective, the questions are whether what happened at Stanford is unique or is it an indication of a systemic problem, and is the size of any problem big enough to warrant the magnitude of the effort necessary to correct it?” Scanley suggested. She said she did not know the answers.

Some schools contend that Dingell is engaged in “university bashing,” particularly in the way his subcommittee has leaked to the press damaging material about Stanford, including charges that Stanford is stonewalling the investigation.

Dingell’s staff insist they are looking only for abuses and have no intention of challenging a system that supports scientific and medical advances.

UCLA Chancellor Young said his recent in-house review has found no irregularities. At Princeton, research chief Sinisgalli reports that a $100 charge for a painted portrait of the school’s president is being withdrawn. Other schools say overhead bills always can be retroactively changed.

“The first step here is to get the fact,” Dennis Fitzgibbons, a Dingell aide, said of the one-day hearing on Stanford scheduled for Wednesday, which may be followed by sessions on other schools later this spring. “It’s pretty clear there are problems in the Stanford case. But is what Stanford has done standard practice? We can’t say yes and we can’t say no.”

Another subcommittee staffer, who asked not to be identified, was less equivocal. “I think Stanford could be the most aggressive and could be the worst example and I hope to God they are. But I have a feeling we’re going to find similar situations at other universities.”

Paul Biddle, the Navy overseer who is Stanford’s main accuser, explained the controversy this way during a recent interview: “How remote can a cost be and still be linked to organized research? What about Champagne flute glasses. . . . As a taxpayer, my point is, if we are rigorous in our taxing, we should be rigorous in our disbursements.”

Some of the government’s regulations are murky. For example, entertainment costs are not allowed in the overhead pool, but recreation expenses to improve employee morale are. A convoy of Desert Storm troop carriers could drive through that loophole. Furthermore, the ONR and Department of Health and Human Services enforce rules differently, contributing to varying overhead rates among campuses.

Although the agencies operate differently, they are becoming stricter as a result of the Stanford inquiries, government officials and university leaders say.

“It’s a more strained relationship already. Obviously, you can just tell, everybody’s just walking around on egg shells and that’s not productive,” said Earl J. Freise, director of sponsored research at Caltech in Pasadena.

Norman Hanson, director of public affairs for the chief of naval research, said the basic system should not be changed. “The problems at Stanford occurred because we had inadequate implementation of our own regulations. Our own Navy people out there were not as rigorous in their contract administration as they should have been,” he explained.

A 1988 report by the Assn. of American Universities recommended the system be reformed and made “simpler, more transparent and more credible.” Overhead costs for buildings and maintenance should be billed separately from the murkier administrative costs, such as those involving the president’s house at Stanford, according to the study; schools should take a standard 32% for administration or otherwise have to present a strong case.

The study panel, which was headed by Cornelius J. Pings, USC’s provost and senior vice president for academic affairs, declared in eerily predictive language: “Presidents and chancellors of our universities, who are called upon periodically to defend the system to their trustees and regents, to their faculties and the public, and to federal agencies and congressional staffs, find they are unable to do so with full enthusiasm and clarity. In the process, too much political capital is expended, perhaps costing universities not only dollars, but credibility as well.”

The proposals are still being discussed by schools and federal regulators, but the Stanford inquiry is providing new urgency. “As painful as (the investigation) is for the academic community,” said Dennis F. Dougherty, USC’s senior vice president for administration, who is involved in those reform negotiations, “the adoption of new, more objective regulations will be the outcome and that is a good outcome.”

RESEARCH FUNDS

The ten U.S. universities receiving the most federal funds for research and development in 1989:

Johns Hopkins: $411.8 million

Stanford: $239.8 million

M.I.T.: $207.1 million

U. of Washington: $203.6 million

UCLA: $170.8 million

U. of Michigan: $167.8 million

UC San Diego: $166.6 million

UC San Francisco: $159.02 million

U. of Wisconsin, Madison: $150.4 million

Columbia: $150.2 million

SOURCE: National Science Foundation