When College Extravagances are Billed to Uncle Sam

Pearl Harbor Day, 1986, saw a number of Johns Hopkins University dignitaries gather for an elegant banquet at the Hyatt Regency's Constellation Room to honor retiring provost Richard P. Longaker.

Also that year, then-president Steven Muller took one of his many trips to Europe to raise money for Hopkins.


At the University of Pittsburgh, the president's wife took a trip to the Grand Cayman Islands, and Pitt administrators and guests went to the opera.

Massachusetts Institute of Technology officials shopped at a posh jewelry store, and Cornell University representatives ordered exclusive Steuben wine glasses and paid off the president's overdue library fines.


Such extravagances occur in the bubble of higher education, where administrators and faculty often keep high and sometimes lofty profiles to court benefactors, impress alumni and establish a community presence.

But what seems like routine image maintenance has recently come to a screeching halt at many top research universities.

Call it the case of the Italian fruit wood commode.

In January, federal auditors at Stanford University flagged the institution for certain expenses it had charged to the taxpayers during the 1980s as costs related to federal scientific research.

Like the Hopkins retirement banquet, the Grand Cayman Islands trip and the Steuben wine glasses, Stanford administrators slid through costs for the commode, maintenance of three university-owned houses, depreciation of Stanford's 72-foot yacht "Victoria" and fresh flowers, bedsheets and antiques for the president's mansion.

Under the microscope, Stanford announced it would refund $500,000 to the U.S. treasury. The university originally had billed the government for this amount, claiming the expenses were research-related. Stanford issued a mea culpa after the story hit the national news, but the issue has since been a lightning rod for the ledgers of other research universities.

A team of federal auditors arrived at Hopkins on March 25 and this month news leaked that $175,183 has been identified as possible inappropriate overhead costs charged in 1987. The auditors found that the costs -- for catering, professional dues, parties, liquor, a farewell gift for an official and a workshop on Jewish-Christian relations -- may not be allowable under the federal guidelines.

Hopkins officials admitted that $33,000 of the flagged costs were wrongfully charged to a $49-million indirect cost bill in 1987. A portion of the remaining charges under question may be recouped by the government following a negotiation session.


At issue is how Hopkins and other research universities determine which expenditures they claim relate to federal research for so-called "overhead costs."

Overhead can be light and water bills, building maintenance for the location of the research and some administrative and office expenses.

Other allowable expenses include malpractice insurance premiums, library costs and depreciation of buildings.

The theory is that universities need libraries, computers and office equipment, employees and administrative costs to support research. To the extent that the government is commissioning ++ the research through contracts and grants, it pays a share of these "indirect costs." The indirect costs are a negotiated percentage of the total direct cost of the research grant and are added to the grant award.

Overhead costs total about $2.5 billion of the federal government's annual $9.2 billion research awards. The indirect costs are figured through a formula negotiated with either the Department of Health and Human Services, Energy or Defense and represent a fraction of the total research awards.

For example, at Hopkins the negotiated rate is 65 percent. This means that the university can bill the federal government for 65 percent over the total award for allowable expenses. On a grant with half a million dollars in direct costs, Hopkins would collect another $375,000 in "overhead."


The overhead funds are deposited in the university's general fund and used to pay for daily operating expenses because most are reimbursements for expenses the university has already paid, said Dennis O'Shea, Hopkins spokesman.

Critics charge that figuring the overhead costs is a creative financing game for many academic administrators which allows them to fatten operating coffers at the government's expense. The universities commonly explain errors as accounting mistakes erroneous "codings" into computer ledgers. At Hopkins, officials deduct $100,000 from the university's total indirect cost charges each year to set up a cushion for accounting errors.

Federal audits are supposed to occur every two years, but the Stanford scandal has revealed that the reviews are not regular.

In fact, earlier this month, the University of Maryland College Park and UM at Baltimore received letters from the inspector general asking if the institutions had performed self-audits of their overhead charges in light of the current controversy. The letters request that the universities return any funds deemed improperly charged along with documentation of their audits. Based on the responses, federal audits could be ordered this summer, said Judy Holtz, spokeswoman for the HHS inspector general's office.

Overhead charges are not new to research projects. Corporations involved in federally funded research charge overhead rates that are much higher than those allowed to colleges and universities.

Still, some members of Congress like Rep. John D. Dingell, D-Mich., charge that indirect cost reimbursements are a "cash cow for universities" in these recessionary times when private donations and state funding are being cut.


Mr. Dingell is chairing a Subcommittee on Oversight and Investigations that has probed the issue since the Stanford charges were revealed.

On deck is a movement to tighten the broad federal research regulations that were established in the early 1970s. The Office of Management and Budget moved last Wednesday to set the reimbursement cap at 26 percent, just below the national average. There is also popular support for a congressional subcommittee's bill that would set a 26 percent maximum for administrative overhead and limit construction and maintenance charges for buildings where research is conducted.

As auditors continue to probe the books of 12 universities that receive multi-million dollar research grants, Ms. Holtz promises further reports of free lunches and golf club memberships charged to Joe Taxpayer.

"This issue has ired a lot of American taxpayers and surfaced an issue that we needed to look at," said Ms. Holtz. "It will require a strengthening of the guidelines and make us take a closer look. It will prevent some universities from doing this sort of thing in the future."

Melody Simmons covers higher education for the Evening Sun.