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Report: Stanford Significantly Overcharged the Government

March 13, 1991

WASHINGTON (AP) _ Stanford University’s practice of billing the federal government for shopping center expenses, a 72-foot yacht and pre-football game parties could be criminal offenses, Rep. John Dingell charged Wednesday.

Dingell presided over a day-long hearing of a House Energy and Commerce subcommittee that is looking into allegations that Stanford overcharged the government as much as $200 million and had a ″cozy relationship″ with Navy officials charged with auditing the institution’s books.

Stanford’s charges to the federal government sometimes were waived for corporations and foreign countries like Japan, investigators have said.

Pointing to a report from the General Accounting Office and the Defense Contract Audit Agency, the Michigan Democrat said, ″What we have learned recently about Stanford has made (Defense) Secretary Weinberger look frugal with his $600 toilet seat.″

″Both reports raise a serious question as to criminal liability,″ said Dingell, chairman of the investigations subcommittee of the House Energy and Commerce Committee. He did not explain further.

Stanford President Donald Kennedy denied any deliberate overcharges and attributed some to miscoding during accounting work.

Milton Socolar of the GAO testified that investigators found that ″serious deficiencies in Stanford’s cost allocation and charging practices,″ combined with poor oversight by the Office of Naval Research, ″led to significant overcharges to the government.″

The report discussed government funds received by the university for research.

A university researcher commonly contracts with a government agency to carry out certain experiments. The university typically gets funds for research materials, salaries, equipment and so forth.

But universities also assign part of their general overhead costs - heating, building maintenance and so forth - to those research contracts, usually as a simple percentage addition to the value of the contract, sometimes called a charge for indirect costs.

Stanford owns a shopping center and a yacht. As an example of the accounting said by critics to be improper, Stanford said part of the costs of running the shopping center and the yacht were general university overhead, and thus recouped some of those costs from the overhead charge on government research contracts.

Stanford’s overhead charge rose from 58 percent of the value of the research contract to 74 percent during the 1980s but dropped to 70 percent after the inquiry began last year.

Stanford officials attribute most of the indirect cost rate increase to a multimillion-dollar building program.

Dingell said an investigation found that the taxpayers helped subsidize Stanford’s recent purchase of a $1,200 early 19th century Italian fruitwood commode, contributed to the enlarging of Kennedy’s bed and the purchase of $7,000 for sheets for the enlarged bed.

Other purchases by Stanford and charged to the government included two Voltaire charis from Pierre Deux at $1,500 apiece and a pair of George II lead urns at a ″special price″ of $12,084, and $400 for flowers for the dedication of the Stanford horse stables.

″The mischarging reflects an attitude that may permeate all too many universities,″ said Dingell. ″That attitude is unacceptable.″

Kennedy was left speechless by a series of intense questions by Dingell and other committee members that revealed that the university waived all overhead charges for research projects for Japan, Exxon, UpJohn, Ciba Geigy, Weight Watchers and others.

The Stanford president asked for additional time to respond to each research project, stressing that overhead may have been waived for legitimate reasons.

The GAO report said Stanford also charged to the government $185,000 for salaries and administrative expenses for the Stanford Shopping Center, which leases to such stores as Macy’s.

Stanford charged the government for the shopping center in 1986 and 1987 but eliminated it in 1988. On March 4 of this year, Janet Sweet, university assistant controller, acknowledged the charge was a mistake. However, the university did not correct the 1986 and 1987 charges, the GAO report said.

″While such errors highlight a breakdown in accounting control, of greater concern is the failure on Stanford’s part to correct those earlier years once the error was discovered,″ said the report. It said that while Stanford agreed to pay back the money, officials ″were unable to explain why corrections were not made to those years once the error was discovered in 1988.″

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