Research Compliance Trends Jeff Seo, JD, LL.M. Director of Research Compliance Harvard Medical School
Topics • Recent Settlements & Lessons To Be Learned Yale St. Louis Georgia Cornell • Anatomy of Cost Transfers • Back to Basics
Current Support in Grant Applications: Weill Medical College of Cornell • Department of Justice alleged • False statements to NIH and DOD in grant applications; • PI (Chair of Pharmacology Dep’t) failed to disclose extent of active research projects • Had disclosure been accurate, would have exceeded 100% of PI’s available time; • Government couldn’t accurately assess PI’s ability to perform projects • $2.6 M September 2007 • Original lawsuit alleges that PI misrepresented which researchers were working on particular grants; misapplied and fraudulently accounted for grant funds; falsified data from research; and submitted same projects multiple times even if funded by other grants
Research Falsification: University of Georgia: 2006 Lawsuit • charges that researchers "knowingly used false statements and fabricated scientific data…" that discounted the toxicity of sewage sludge • Alleges that sludge samples • were not included from farms that reported animal deaths • were taken only during drought periods, when toxin levels would be lowest
Cost Principles: Faculty Effort Reporting St. Louis University School of Public Health • Allegations included • overstatement of time spent by faculty members on CDC grants • overpayment of supplemental income; • other NIH and HUD grants also may be affected • SLU says this was a good faith dispute over how to apply “highly complicated cost accounting principles governed by regulations that are hundreds of pages long.” • Settlement: $1 Million
Yale Settlement How it Started “Routine” DHHS OIG Review of one NIH Subaward to Yale • $5.5M Award to UMass; $1.7M Subaward to Yale • “Genes Expressed in Stem Cells” research project • Review Covered 19 months, $508K in expenditures • OIG Final Report issued/published February 2006: • Improper Cost Transfers (Inadequate documentation of justification for transfers; one altered justification; and transfers from overspent accounts) • Improper Allocation of Costs to Grant (Unconfirmed/unsigned effort reports; lack of justification of charges) • PI Effort Reporting & Effort Expenditure Problem (Yale records and charges indicated PI worked less than promised; Approval of prime grantee (UMass) should have been obtained)
Yale Settlement • Yale settlement announced on 12/23/08; • $7.6 million total ($3.8 million actual damages + $3.8 million punitive); Consulting & legal fees likely exceed damages. • Cost Transfers: Yale researchers allegedly motivated to spend down the remaining grant funds near expiration dates via cost transfers that were deemed not “allocable” (costs that relate to the specific objectives of the specific project). Regulations require that unspent grant funds be returned to the government. • Salary Charges: Yale submitted time and effort reports for summer salary paid from federal grants that charged 100% of summer effort to federal grants when researchers actually expended significant effort on unrelated work. *Yale FAS (like Harvard FAS) do not receive summer salaries unless engaged in teaching or in research. To obtain research funds, must be devoted to research. Investigation allegedly revealed that Yale faculty engaged in other activities besides research during the summer but still billed the government for 100% of their salaries.
Remember Mayo Clinic? • Mayo Clinic • May 2005 ( 3 yr. investigation); $6.5 million False Claims Act settlement • Alleged that Mayo misallocated expenses (salaries, supplies, patient care charges) to unrelated grant projects and object codes; and no benefit could be identified • Complaint elaborated that the transfers occurred in order to shift expenses from overspent grants to underspent grants which involved retroactive alteration of certified time and effort reports
What’s wrong with cost transfers? • A cost transfer is simply a re-allocation of a cost charge from the account to which it was originally allocated, to another account • There is nothing inherently improper about cost transfers – charging errors do frequently occur, and when they are detected, they must be corrected promptly, usually via a cost transfer • Many legitimate cost transfers arise from circumstances other than charging errors • The problem is that many cost transfers involve the re-allocation of cost charges to accounts to which they do not belong, resulting in a misallocation of costs to federal awards • Often there is evidence that the misallocation is knowing or deliberate • When the receiving grant awards are federal, such misallocations may result in overcharges to the awards, and in some cases, the conditions of the False Claims Act and other federal fraud statutes may come into play
Observations from the front line • Abusive cost transfers continue to be a real problem at many institutions • Federal auditors and investigators have learned to recognize the familiar signs of abusive cost transfers • Transfers that exactly clear deficits • Round dollar amount transfers • “Mixed bag” transfers – e.g. salary without fringe • Large batch transfers • Late transfers • High volumes of transfers • Poorly documented transfers • Post-effort report transfers, inconsistent with effort report
Common causes of cost transfers • Poor financial reports, which prevent PIs and administrators from keeping track of where charges are going, and whether deficits are looming • Decentralized accounting systems, which allow low-level and uninformed personnel to transfer costs • Inflexible accounting systems – e.g., lack of “suspense accounts” for pre-award costs • Poor PI management of accounts • A culture that views federal funding as “fungible” • Inadequate policies, procedures, and training
The basic federal cost transfer rule “Any costs allocable to a particular sponsored agreement under the standards provided in this Appendix may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.” -- OMB Circular A-21, Section C.4
NIH cost transfer rules Cost transfers to NIH grants by grantees, consortium participants, or contractors under grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official of the grantee, consortium participant, or contractor. An explanation merely stating that the transfer was made “to correct error” or “to transfer to correct project” is not sufficient. Transfers of costs from one project to another or from one competitive segment to the next solely to cover cost overruns are not allowable. Grantees must maintain documentation of cost transfers, pursuant to 45 CFR 74.53 or 92.42, and must make it available for audit or other review (see “Administrative Requirements—Monitoring—Record Retention and Access”). The grantee should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, grantees are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. NIH also may require a grantee to take corrective action by imposing additional terms and conditions on an award(s). -- NIH Grants Policy Statement, December 2003
Rationale behind the NIH rule? • By its terms, it applies only to cost transfers resulting from clerical or bookkeeping errors • The 90 day rule runs from the date the error was discovered • Why should the validity of a cost transfer depend on the length of time that elapses between the discovery of an error and the correction of the error? • Does the failure to correct the “error” within a reasonable time create a presumption that the “error” was not really an error? • Or is the NIH 90 day rule a “stick” to encourage grantees to correct errors promptly, purely as a matter of good internal control?
SPECIFIC HARVARD/HMS CONTROLS AND COMPLIANCE EFFORTS TARGETING “YALE RISKS” • Internal Controls - Central OSP review and approval required for all cost transfers; - Payroll and salary certification system requires certifications by PIs of all effort expended by faculty/staff on sponsored grants; - Strongly recommend written documentation of all cost allocation justifications for expenses related to common/shared lab resources.
Sponsored Programs Risk Areas at HMS • Effort Reporting • Faculty Salaries • Subrecipient Monitoring • Allowable Costs • Cost Transfer • Research Activities Outside of Large Academic Departments
Sponsored Programs Risk Areas at HMS • Effort Reporting • Increase in cross school and cross institution projects • How “owns” responsibility for effort reporting on cross school projects • Academic year salary vs. full year salary • How to account for effort at other institutions • Charging 100% of salaries to research
Sponsored Programs Risk Areas at HMS • Faculty Salaries • Faculty with multiple paychecks • Faculty with different base salary rates • Different rates for different components of work • Lining up effort when it cannot be based on salary charges • Establishing IBS (institutional base salary) for HMS research
Sponsored Programs Risk Areas at HMS • Subrecipient Monitoring • Prime grantee is responsible for entire award • Verification of PI monitoring of subcontractee programmatic performance • Additional risks with foreign subs
Sponsored Programs Risk Areas at HMS • Allowable Costs • Government pays research costs in 2 ways: direct costs and indirect costs • Decisions about allowable direct costs is frequently a judgment call • Direct Costs are defined as those expenses that can be associated with a specific grant activity with a high degree of accuracy • Certain expenses, as admin salaries, are allowable on large program projects (P01s) but not allowable on less complex awards (R01s) • CAS requirement regarding consistent treatment of expenses
Sponsored Programs Risk Areas at HMS • “Sensitive costs” • Admin and clerical salaries • General purpose equipment • Software • Office supplies • Memberships • Subscriptions and books • Telephone • Computers • Meals