Research Compliance Trends

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Research Compliance Trends

• Jeff Seo, JD, LL.M.
• Director of Research Compliance
• Harvard Medical School

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Topics

• Recent Settlements Lessons To Be Learned
• Yale
• St. Louis
• Georgia
• Cornell
• Anatomy of Cost Transfers
• Back to Basics

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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 Dept) failed to
  disclose extent of active research projects
• Had disclosure been accurate, would have exceeded
  100 of PIs available time
• Government couldnt accurately assess PIs
  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

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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

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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

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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)

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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.

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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

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Whats 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

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The Good, the Bad and the Ugly
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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

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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

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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

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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 RequirementsMonitoringRecor
  d 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

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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?

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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.

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Sponsored Programs Risk Areas at HMS

• Effort Reporting
• Faculty Salaries
• Subrecipient Monitoring
• Allowable Costs
• Cost Transfer
• Research Activities Outside of Large Academic
  Departments

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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

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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

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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

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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

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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