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NIS may study MIT overhead

By Dave Watt

Federal investigators have charged that some universities are spending too much of their federal research grant money on internal overhead costs, and not enough on the direct costs of research.

A criminal investigation at Stanford University conducted by the Naval Investigative Service has uncovered cases of mismanagement of federal money. These findings have prompted audits of universities, including Harvard Medical School.

Several newspapers, including the San Francisco Chronicle, have mentioned that MIT is likely to be a target of later investigations by the NIS, citing congressional aides. However, James J. Culliton, vice president for financial operations, said he is hopeful that MIT will not be a target of the NIS investigations.

Federal investigators found that Stanford had used federal research money to depreciate the purchase of a yacht and pay for athletic equipment, flowers and antiques, according to the Chronicle of Higher Education. Stanford will forgo overhead charges on other items totaling at least $680,000 to repay the money.

Stanford's problems have received widespread attention in West Coast media, and have led Rep. John D. Dingell (D-MI) to announce plans to hold congressional hearings on Stanford's overhead charges.

"I think we're in a good position. . . . [The General Accounting Office] has had intensive audit activity here this past year," so they are not going to be

surprised by MIT's accounting records, Culliton said.

Furthermore, MIT has been participating in a pilot program with the GAO to see if there can be a "better, more comprehensive, less costly way to carry out university audits," according to Culliton. The program is the reason for the more intense audit activity at MIT, Culliton explained. He added that the program has been "very successful."

University administrators around the country are watching the Stanford and Harvard audits closely, fearing that higher education's image with the public may be tarnished as a result of the allegations, according to the San Francisco Chronicle.

If MIT is forced to decrease its overhead charges as a result of a federal investigation, it would mean that professors and graduate students might be able to spend more research money on equipment. But it could also lead to higher tuition as the Institute tried to recover its costs by other means.

All universities

collect overhead

Much of the federal money paid to professors to carry on research is not directly spent on research equipment and salaries. At MIT, the indirect cost or overhead rate is 57.5 percent, according to Culliton. For every $100 a professor actually spends from a federal research grant, the university takes another $57.50 to pay for its overhead costs.

The fees for indirect costs pay for administration, physical plant operations, libraries, and for part of the cost of the buildings in which research actually takes place, according to Culliton. The cost of the buildings themselves is the largest part of the indirect cost rate, he explained.

Since most MIT buildings are used both for teaching and research, a percentage of the building cost is charged to the indirect cost rate, based on the percentage of the building used for research, Culliton explained.

If more teaching occurs in the building, then MIT general funds -- including funds from the endowment and tuition -- pay for more of the building. On the other hand, if more building space is used for research, then the federal government pays more of its cost. Thus, in the long run, the more research that takes place in MIT buildings, the less MIT has to pay for them.

A memo from Culliton to department heads explained the impact of instructional growth on indirect costs. "An increase in the instructional program relative to the sponsored research program increases the percentage allocation of indirect costs to instruction," Culliton wrote.

"This increase reduces the indirect costs allocated to [federally] sponsored research and adds to the demand on MIT general funds for payment of shared indirect costs. To the extent that an increase in instructional activity adds to total indirect costs, the demand on MIT funds is increased further," Culliton added.

Overhead rates at MIT are determined through a long process of accounting, negotiation and auditing with the Office of Naval Research, according to Culliton. They are also based on how much grant money professors spend during a given fiscal year. Because professors' spending is unpredictable, setting indirect cost rates becomes an inexact science, Culliton noted.

Private universities use

federal money for buildings

Public universities usually have lower overhead rates on their federal research contracts than private ones. For example, the University of California at Berkeley has an indirect cost rate of 49 percent.

But at public universities, the cost of the buildings is borne by the taxpayers of the state, not by the federal government, Culliton explained.

MIT's new biology building, to be constructed at the site of the parking lot behind Building 66, is likely to drive overhead rates up by another four percentage points over the next several years, Culliton said.

Researchers all over the campus, even outside the biology field, wind up paying for the cost of the new building, Culliton noted.

Sometimes that creates friction among the faculty. "You see one set of faculty who do not see any benefit out of a building, and they will say, `Why should we be paying for a biology building?' But the same thing happens to other departments as well," he added.