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Ongoing Probe into Institute's Use of U.S. Funds Results in Hearings

By Eva Moy
Staff Reporter
____The Defense Contract Audit Agency claimed in early January that MIT owed the government $22 million, then retracted its claim only a few weeks later.

The DCAA had recommended that MIT withdraw $22 million of the amount billed to the government for research-related expenses for fiscal year 1992. The audits had been ordered by the House Oversight and Investigations Subcommittee, headed by Rep. John D. Dingell (D-Mich.), after the subcommittee held a hearing on Stanford University's use of government funds one year ago, according to Dennis B. Fitzgibbons, a spokesman for the subcommittee.

The "committee is responsible for federal research money. . . . [It] always has interest in seeing that the taxpayers' money is properly spent," Fitzgibbons said.

About a dozen other schools are the focus of such government audits, including Stanford, the California Institute of Technology, Columbia University and Harvard Medical School.

The DCAA retracted the entire $22 million request on Jan. 17 to allow further investigation, according to James J. Culliton, vice president for financial operations. The retraction letter said circumstances had changed since the audit began, including a $778,261 payment by MIT to the government and the creation of a $6 million trust fund for employee benefits, Culliton said.

MIT claims that most of the disputed amount stems from disagreements and changes in policy rather than erroneous or improper accounting. The government customarily signs Memoranda of Understanding with universities, under which it agrees to determine reimbursable expenditures in certain ways, Culliton explained.

Eight of the 10 MOU that MIT has signed with the government have been disputed by the DCAA, Culliton said. "The MOUs that we entered into are contractual obligations. . . . Retroactively they should not be aggravated."

MIT also disagrees with DCAA's audit concerning where research assistants' tuition is accounted and the allowable library cost recovery rate, among other items.

If the Office of Naval Research decides to accept the DCAA's recommendations, MIT will challenge their decision at the judicial level of the Armed Forces Board of Appeals, Culliton said.

MIT questions audit

MIT and the DCAA disagree on several related issues. The agency has recommended distributing the cost of research assistants' tuition to individual projects. This expense is currently grouped with the rest of the Institute's salaries, Campbell said. Though the move would save MIT money, Campbell believes it would also decrease the number of RA's each project could hire, thus reducing MIT's ability to compete with other research universities.

Also in question is whether off-campus administrative costs, such as those associated with Lincoln Laboratory, can be included as indirect costs. These costs total about $8 million, Culliton said.

The audit also scrutinizes overhead, which includes building use, equipment depreciation, operations and maintenance, departmental and general administration and partial maintenance of libraries for research purposes, according to an MIT News Office release.

MIT had signed an MOU with the government to set the library cost recovery rate at 49 percent for 1986-1990, Culliton said. DCAA has proposed that MIT recover only 21.5 percent of library costs for FY 1992, a change which would cost MIT approximately $3.4 million. Culliton did not think this would be an issue after the DCAA examines the results of MIT studies which confirm that a 49 percent recovery rate is appropriate and in line with previous years' charges.

MIT has begun another such study and has invited both the DCAA and the ONR to participate.

$11 million accounted for

About half of the disputed $22 million should not be in question, according to Culliton. MIT has reimbursed the government for more than $750,000 and never actually charged an additional $4 million. Another $6 million will be removed as soon as a Voluntary Employees' Beneficiary Association is set up, Culliton said.

MIT sent the government a check for $778,261 for money billed for expenses including receptions, an MIT Corporation party and a trip to Barbados. Also included is money claimed by the Whitehead Institute for Biomedical Research to cover legal expenses relating to charges of scientific fraud for a research paper signed by former Whitehead Director David Baltimore '61.

"To put it another way, our accounting for indirect costs for those five years is around 99 and 84/100 percent accurate. That does not excuse the errors that were made; it simply puts them in some perspective," Culliton said in the News Office release.

To prevent future inappropriate indirect cost charges, MIT will give all Institute account supervisors an "update on the process for identifying and screening unallowable costs as now defined." In addition, the MIT Audit Division will tighten its screening of costs billed to the government, Culliton said.

"We have the responsibility to American taxpayers, including ourselves, our own faculty and employees, to make sure that scientific research in the non-profit university environment is being conducted economically," said President Charles M. Vest in a statement.

MIT also saved the government about $8 million over five fiscal years because of "an understanding" under which MIT does not take advantage of the indirect cost policy, Culliton said.

"Although MIT research policy is to assure full cost recovery for properly allocable expenses, we have consistently not established or used procedures that would take advantage of . . . government accounting rules," Culliton said.

If MIT is forced to decrease its overhead charges, professors and graduate students might be required to spend more research money on equipment. Such a decrease could also lead to higher tuition if the Institute tries to recover its costs by other means.

MIT's current indirect cost rate is 57.5 percent, which means that for every $100 a professor actually spends from a federal research grant, the Institute charges another $57.50 to pay for its overhead costs.

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 part of the building used for research.

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.

"To the extent that an increase in instructional activity adds to total indirect costs, the demand on MIT funds is increased further," Culliton said.

MIT's new biology building, currently under construction, is likely to drive overhead rates up four percentage points over the next several years. Researchers all over the campus, even those outside the field of biology, wind up paying for the cost of the new building, Culliton noted.