oversight

Grant Fraud

Published by the National Science Foundation, Office of Inspector General on 1997-07-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                        NATIONAL SCIENCE FOUNDATION
                                         OFFICE OF INSPECTOR GENERAL
                                           OFFICE OF INVESTIGATIONS

                                  CLOSEOUT MEMORANDUM

TO: AIGI       File Number: 197070030                                            Date: 02 March 2002

Subject: Closeout Memo                                                                     Page 1 of 1


      There was no closeout written at the time this case was closed. The following information was
      extracted from the file in conformance with standard closeout documents.

      An HHS-OIG agent1informed our office that the subject2was alleged to have transferred excess NSF
      grant dollars to a state account. In the settlement, the Department of Justice recovered and returned
      $7755.00 to NSF.

      Accordingly this case is closed.




       Agent
       Psychology Dept., U. of Washington



                 Prepared by:                     Cleared by:

                                                Supervisor:
                                                                               I
   Name:



 Signature &
    date:
1
\                  Report No. 5340

1
I
           UNIVERSITY
                   OF WASHINGTON
          DEPARTMENTOF PSYCHOLOGY


iI
I

                   Agency No. 3600
                     Special Audit
         July 1, 1987 Through August 31, 1993



     A U D I T              R E P O R T




                                                Washington
                                                State Auditor
                                                        Brian Sonntag
      LegislativeBuilding
                                   Washington State Auditor                                (206) 753-5277
        PO BOX 40021
Olympia,Washington 98504-0021
                                       Brian Sonntag                                       SCAN 234-5277
                                                                                  FAX (206)7534646 SCAN 234-0646



     Notice of Filing and Transmittal
     January 7, 1994



     Notice is given that the attached document is the special audit report of the University of Washington
     Department of Psychology for the period July 1, 1987, through August 31, 1993.

     The report was prepared, tiled and transmitted by the State Auditor's Division of Audit pursuant to
     Chapters 43.09 and 43.88 RCW.



     kc$-
      Brian Sonntag
      State Auditor
                               I




      Copies transmitted to:

             The Honorable Mike Lowry, Governor
             Dr. William P. Gerberding, President
               University of Washington
             The Honorable Christine 0. Gregoire, Attorney General
             The Honorable Nita Rinehart, Chair, Senate Ways and Means Committee
             The Honorable Helen Summers, Chair, House Appropriations Committee
             Cheryle Broom, Legislative Auditor, Legislative Budget Committee
             Ruta Fanning, Director, Office of Financial Management
             Marty Brown, Secretary, Washington State Senate
             Alan Thompson, Chief Clerk, House of Representatives
             Kathy Rosmund, Assistant Director, Planning and Policy Division
               Department of Information Services
             Laurie Fortier, State Publication Distribution, State Library
             Betty Gebhardt, Assistant Director, Higher Education Coordinating Board
             Department of Personnel, Higher Education Unit
             Office of Program Research, House of Representatives
             John Fisher, U.S. Department of Health and Human Services
             Office of State Auditor
TABLE OF CONTENTS


                                                                                       Page

           Background    ..................................................              1

           ScopeAndOpinion      .............................................2
           Schedule Of Findings:
              1. The University Of Washington Department Of Psychology
                  Should Comply With Federal Regulations And University
                  Guidelines When Directly Charging Salaries To Federal Grants   ....... 3
               2.   The University Of Washington Department Of Psychology
                    Should Charge Only Allowable Costs To Federal Grant ............. 5
               3. 'The University Of Washington Should Notify Federal And State
                  Officials Of False And Fictitious Claims Made Against
                   Federal Projects .......................................... 7
UNIVERSITYOF WASHINGTON
DEPARTMENTOFPSYCHOLOGY
Agency No. 3600
Special Audit
July 1, 1987 Through August 31,1993



Background

             In March 1993, university employees informed us of improper governmental actions existing in
             the University of Washington Department of Psychology. The complaints were filed under Chapter
             42.40 Revised Code of Washington, the "Whistleblower Act."

             University of Washington Internal Audit Memorandum No. 92-27AM dated October 27, 1992,
             stated that the Department of Psychology improperly charged departmentaladministrative costs and
             costs-for-services-not-provided to numerous federal research grants.

             These whistleblowers alleged the investigation by the University of Washington Intemal Audit
             Department was incomplete, the Department of Psychology did not appear to be taking corrective
             action, and the proper authorities were not notified.




                                    Slate AudHofs Onlce    -   DMslon d Audit
                                                     -1-
UNIVERSITYOF WASHINGTON
DEPARTMENTOF  PSYCHOLOGY
Agency No. 3600
Special Audit
July 1, 1987 Through August 31,1993



    And O~inion
Sco~e

           This report represents the results of our audit of grant and contract expenditures at the University
           of Washington Department of Psychology for the period July 1, 1987, through August 31, 1993.
           The purpose of our audit was to determine whether grant and contract expenditures were properly
           accounted for and controlled and made in compliance with federal and state laws and regulations.
           We also reviewed the audit work performed by the University of Washington Internal Audit
           Department to determine whether the audit was complete, whether the Department of Psychology
           had taken corrective action, and if University management had notified the proper authorities.

           Our audit was made in accordance with generally accepted auditing standards and, accordingly,
           included such tests of the accounting records and such other auditing procedures as we considered
           necessary in the circumstances. This audit was conducted under the authority of Chapter 42.40
           RCW.

           The scope of our audit was limited to determining whether grant expenditures were properly
           accounted for, controlled, and in compliance with federal and state laws and regulations. The
           scope of our work was not sufficient to enable us to express an opinion on the university's
           financial statements and we do not express an opinion on the financial position or results of
           operations of the University of Washington.

           In our opinion, as detailed in the following findings, the lack of compliance with federal and state
           laws and regulations resulted in questioned costs totaling $186,627 at the University of Washington
           Department of Psychology.
UNIVERSITYOF WASHINGTON
DEPARTMENTOF  PSYCHOLOGY
Agency No. 3600
Special Audit
July 1,1987 Through August 31,1993



Schedule Of Findings

           1.    The University Of Washington De~arhnentOf Psychology Should Comply With Feded
                 Regulations And University Guidelines When Directly Chargine Salaries To Federal
                 -
                 Grants

                 The University of Washington Department of Psychology did not keep detailed time
                 records required by Office of Management and Budget (OMB) Circular A-21 to support
                 grant monitoring services charged as a direct cost to federal grants.

                 Between May 1989 and June 1992, the salary and benefits of a grant monitor and her
                 support staff were routinely charged without adequate support to at least 35 federal and
                 nonfederal grants per month. Salaries and benefits were initially charged to departmental
                 operations and then recharged to grants by using cost transfer invoices.

                 OMB Circular A-21 states in part

                          Direct costs are those costs that can be identified specifically with a
                          particular sponsored project . . .

                          . . . a system of personnel activity reports will be used for
                          nonprofessional employees whose costs are charged direct or are
                          required to be distributed to more than one activity for purposes of
                          allocating indiect costs.

                          The distribution of salaries and wages whether treated as direct or
                          indiiect costs, will be based on payrolls documented in accordance with
                          the general accepted practices of colleges and universities.

                          The payroll distribution system will (i) be incorporated into the official
                          records of the university, (i) reasonably reflect the activity for which
                          the employee is compensated by the institution . . . .

                 The University Operations Manual. Policy D34.2, states in part:

                          The CII can only be used to charge for services or supplies provided
                          to other budget entities. Transfers of salaries . . . must be accomplished
                          by journal voucher.

                 Deparanent fiscal personnel thought the time of the grant monitor and her staff was
                 adequately supported by a time study conducted for only May and July 1989. The fiscal
                 staff did not recognize the need to maintain additional detailed time records in support of




                                Stale AudHots Onlca   -   DMslon ol Audn
                                                 -3-
         grant charges. The depamnent's practice tmded after an investigation by the university
         internal auditor.

         By using CTIs to recharge salaries the department bypassed the university's federal grant
         effort certification process which ensures compliance with federal regulations.

         To avoid disallowance of grant charges, we recommend the Department of Psychology
         comply with federal regulations and university guidelines for direct charges to grants and
         contracts.

                                                                    CFDA            Questioned
 Federal Agency                        i?zG!?l                      Number            Costs
 DOD                 Department of Navy                              12.99902       $    4,273
 NSF                  Other Federal Assistance                       47.999              5,875
 HHS                  Alcohol, Drug Abuse, Mental Health             93.992             42,249
 HHS                  National Cancer Institute                      93.99903             512
 HHS                  National Institute Child
                       Health/Development
 HHS                  National Eye Institute                         93.99906           16,148
 HHS                  National Heart, Lung, Blood Institute          93.99907            5,903
 HHS                  National Institute
                       DiabetesIDigtJKidney
 HHS                  National Institute Neuro/Comm.                 93.999 15          13,115
                       Disorders
 HHS                  Health Resources and Services                  93.99917            2,345
                       Administration
 Total

                                          Auditee *sResponse

The UW considers the costing practice utilized by Psychology during the audit period to be in
compliance with federal regulations and Universiv guidelines. During the period in question.
Psychology charged grants and contracts for the services of a grant monitor through a
departmental cost center (recharge center). Rates were developed using actual time and effort
devoted to various projects for the period May - June 1989. Subsequent rates were adjusted when
the grant monitor and supervisor determined that effort to specific project increased or decreased
suflciently to necessitate a change in the recharge rate. The lJW considers recharge rates that
are based on historical data and adjusted for major changes in service levels to constitute an
equitable and reasonable basisfor allocating costs in accordance with OMB Circular A-21, Section
C.4. In June 1992, Psychology provided institutional finds for the grant monitor function to
ensure compliance with new federal costing regulations proposed by OMB and finally published
as a July 15, 1993, revision to Circular A-21.

                                   Auditor's Concludinr!Remarks

The absence of detailed time records to support the university's subsequent rate adjustment does
not meet the requirements of OMB Circular A-21. We, therefore, reaffum our finding.


                        Slate Auditots Office   -   DMslon d Audi
                                          -4-
2.   The University Of Washington Department Of Psychology Should Charge on& Allowable
     Costs To Federal Grants

     Between November 1987 and April 1992, the Department of Psychology processed
     fictitious and unallowable claims totaling $97,738 against federal grants as follows:

     a.      Deficits on expiring federal grants totaling $13,676 were transferred to newly
             awarded federal grants.

     b.       Unexpended funds from expiring federal grants totaling $57,225 were transferred
              to the department's operating budget to avoid loss of the funds.

     c.       Nongrant related items totaling $26,837 were charged to federal grants.

     These transfers were effected by making false claims using cost transfer invoices, and by
     charging expenditures of one activity to that of another. The department maintained an
     accounting of all improper transfers and the transactions which effected the transfers.

     In response to recommendations from the university's internal auditor, the department
     returned $18,600 to federal sponsors.

     The Office of Management and Budget (OMB), Circular A-21. Cost Principles for
     Educational Institutions. Section C.4.b. states:

              Any costs allocable to a particular sponsored agreement under the
              standards provided in this Circular may not be shifted to other
              sponsored agreements in order to meet deficiencies caused by ovemms
              or other fund considerations . . . .

     Section C.4.c. states:

              Any costs allocable to activities sponsored . . . other sponsors may not
              be shifted to federally sponsored agreements.

     Section D.l states:

              Direct costs are those costs that can be identified specifically with a
              particular sponsored project . . . .

     Section C.2 states that costs must be reasonable and allocable under the principles and
     methods provided berein, and conform to any limitations or exclusions set forth therein
     or in the sponsored agreement as to types or amounts or cost items.

     United States Code, Title 18, Section 287, states in part

             Whoever makes or presents to any person . . . in the civil . . . services
             of the United States, or to any department or agency thereof, any claim
             upon or against the United States . . . knowing such claim to be false,
             fictitious, or fraudulent, shall be imprisoned not more than five years
             and shall be subject to a fine . . . .




                    Slale Audilol's Ofllce    -   Olvlsion of Audi
                                        -5-
         United States Code, Title 31, Section 3729 states in part:

                  Any person who (1) knowingly presents, or causes to be presented, to
                  an officer or employee of the United States government . . . a false or
                  fraudulent claim for payment or approval . . . is liable to the United
                  States Government for a civil penalty of not less than $5,000 and not
                  more than $10,000, plus 3 times the mount of damages which the
                  Government sustains because of the act of that person.

         Department personnel indicated the processing of false claims and charging of
         unallowable costs represented a long standing practice of the department's administration.

         By processing false claims and not complying with OMB Circular A-21, department
         administration circumvented federal regulations and university policies and procedures set
         up to ensure compliance with these regulations. They also subjected the university to
         substantial liability and criminal penalty.

         We recommend the Depamnent of Psychology comply with federal regulations and charge
         only allowable costs to federal grants.

  Federal Agency                 Pronrarn                       CFDA Number         Questioned Costs
        DOD            Department of Navy                               12.99902        $   3,863
        NSF            Other Federal Assistance                         47.999              1,880
        HHS            National Institute Child                         93.99905        10,026
                        HealthIDevelopment
        HHS            National Eye Institute                           93.99906            1,446
        HHS            National Heart, Lung,                            93.99907            7,008
                        Blood Institute
        HHS            National Institute                               93.99915            3,699
                        NeurdComm. Disorders
        HHS            Alcohol, Drug Abuse,                             93.99919        37,472
                        Mental Health
        HHS            Agency for Health Care                           93.9992 1       13,744
                        Policy and Res.
        Total

                                           Auditee's Resaonse

 In general, the University agrees with the auditor's finding and recommendation. However, we
 wish to stress that all funding created by the transfer of deficit and surplus balances was used in
 direct support of the research effort and not redirected to other departmental activities. The deficit
 transfers referred to in finding Za, were all made to competing renewals for the same research
projects; however, the necessary pre-award authority was not obtained. Of the $13,676 cited in
finding Za, $8,705 had been returned to federal sponsors prior to the audit.

In finding 2b. the department made every effort possible to ensure that surpluses transferred to the
department's operating budget were spent on the continuing research project of the Principal
Investigator involved Subsidiary records are available to document this practice. Of the $26,837


                         Stale Audiioh Otllca    -   Dlvlslon 01 Audi
                                           -6-
cited in finding 2c. $9,895 had been returned to the federal sponsors prior to the audit. Most costs
questioned in the finding were allocated to programsfinded by the Public Health Service (PHs).
The Department of Psychology has been using PHs expanded authorities, which allowfor no-cost
extensions, pre-award authority and carryforward of unexpended balances, without sponsor
approval, since April 1992. Very careful monitoring of grant projects has helped to ensure that
costs are assigned to the proper period and that minor overexpenditures and unexpended balances
are transferred in accordance with grantor regulations.

                                   Auditor's Concluding Remarks

We are pleased that the university concurs that only allowable costs should be charged to federal
grants.


3.       The Universitv Of Washington Should Notify Federal And State Officials Of False And
         Fictitious Claims Made Against Federal Proiects

         University of Washington management did not advise the federal cognizant agency or the
         State Auditor's Office of false and fictitious claims made against federal grants in the
         Department of Psychology (Psychology).

         Internal Audit Memorandum 92-27AM dated October 27, 1992, stated that Psychology
         improperly charged federal research for departmental administration costs, disallowed
         costs, and for services not provided. The management issues actached to the
         memorandum stated that "faculty and management could be prosecuted under the False
         Claims Act for making fictitious or fraudulent claims against the United States."

         The State Auditor's Office became aware of the Internal Audit Memorandum in March
         1993, while investigating a whistleblower complaint. Our investigation revealed that
         grants from the Department of Defense (Navy) and various National Institute of Health
         awarding units were involved.

         The Office of Management and Budget (OMB) C i l a r A-128. Audits of Stare and Local
         Governments, Section 12 states:

                  The recipient . . . shall promptly notify the cognizant agency of the
                  illegal acts or irregularities and of proposed and actual actions, if any.
                  Illegal acts and irregularities include such matters as . . . falsification of
                  records or reports, and misappropriation of funds . . . .

         OMB Circular A-110. G r a m and Agreements with Institutions of Higher Educatwn,
         Hospitals, and Other Nonprofit Organizations, Attachment F,Section 2 states:

                  Recipients' financial management systems shall provide for:

                  a.       Accurate, current and complete disclosure of the financial
                           results of each federally sponsored project.

         The University of Washington Operations Manual, Policy D 47.1 states in part:

                  If there is a reasonable cause to believe that an employee has engaged
                  in any improper activity, the Internal Auditor will report the matter to
                  the individual under investigation, the cognizant dean or vice-president,




                        State Audnofs Olllca    -   Dklslon of Audii
                                          -7-
                 the Attorney General, the State Auditor, and such other appropriate
                 authorities as necessary.

        University personnel believed they gave notice of corrective action to federal sponsors
        when adjusted federal financial reports were submitted for the improper charges identified
        in the Internal Audit Memorandum. The adjusted reports reflected only that the
        University reimbursed the federal grants, but did not inform the cognizant agency.

        Failure to notify the federal cognizant agency inhibits their ability to notify the appropriate
        sponsoring agencies.

        The Internal Audit Director stated there must be a loss of public funds before fraudulent
        activity would be reported to the State Auditor's Office.

        Revised Code of Washington 43.88.160states in part

                  (6) the state auditor shall:

                 (d) Be empowered to take exception to specific expenditures that have
                 been incurred by any agency or to take exception to other practices
                 related in any way to the agency's financial transactions and to cause
                 such exceptions to be ma& a matter of public record, including
                 disclosure to the agency concerned and to the director of financial
                 management

                  (e) Promptly report any irregularities to the Ammey General.

         As the public's advocate, the State Auditor's Office must be notified of all improprieties
         in order to inform the public and the proper officials as required by RCW 43.88.160.

         We recommend the university promptly notify federal and state officials of all false and
         fictitious claims.

                                            Auditee's Response

The University concurs with the auditor's recommendation. We question, however, the criteria that
the auditors have used as a basis for their recommendation.

OMB Circular A-128, section 12, when read in its entirety provides guidance only for those
situations where an illegal act or other irregularity is discovered during an audit conducted under
OMB Circular A-128. It requires that a recipient notifj, the cognizant agency whenever they are
given notice by the auditor of an illegal act found during a single audit. The transactions
transfem*nggrant deficit and surplus grant balances were discovered internally, and the federal
sponsors were notified when adjustedfederal financial reports were submitted and the umllowable
charges rerurned Additional transactions were then discovered by the state auditor during their
audit.

                                    Auditor's Concluding Remarks

We are pleased that the university concurs with our recommendation to promptly n o w federal and
state officials of all false and fictitious claims.




                        State Audiioi's Office   -   Dlvlslon of Audlt
                                           -a-
FACTS ABOUT THE STATE AUDITOR'S OFFICE
    The State Auditor's Officeis established by the state's Constitution and is part of the executive branch
of state government. The State Auditor is elected by the citizens of Washington and serves four-year tenns.

    Our mission is to be the public's advocate for government accountability. Our primary service is the
performance of regular financial and legal compliance audits of all state agencies and local governments.
We also perform fiaud, whistleblower and other special investigations. As an elected office, the State
Auditor's Officehas the independencenecessary to objectively perform audits and investigations. Our audits
are designed to comply with professional standards as well as to satisfy the requirements of federal. state,
and local laws.

    The State Auditor's Office is organized into three divisions and consists of 300 employees, who are
located strategically around the state to deliver our services effectively and efficiently. Approximately 65
percent of our staff are certified public accountants or hold other cextifications and advanced degrees.

Division of Audit
    The Division of Audit performs audits of more than 2,400 local governments in Washington consisting
of cities, counties, schools, ports, and various types of special purpose districts. Results of these audits are
published in individual audit reports for the various entities.

    The Division of Audit also audits all state agencies, boards and commissions (including public colleges
and universities) and is required to annually audit the State of Washington's General Purpose Financial
Statements. Results of these audits are published in the State of Washington's Annual Comprehensive
Financial Report, issued by the Office of Financial Management, and in the Statewide Single Audit Report
issued by our office.

  In addition to its other responsibilities, the division administers the Employee Disclosure or
"Whistleblower Act" and investigates citizen complaints.

Division of Legislative and Technical Services
    The Division of Legislative and Technical Services prescribes local govemments' uniform budgeting,
accounting and reporting systems;plans and implements audit practice aids, training and technical assistance;
prescribes the accounting manual for public school districts jointly with the Superintendent of Public
Instruction; annually publishes local government comparative statistics; and coordinates our audit efficiency
and quality assurance program.

Division of Management Services
    The Division of Management Services is responsible for all administrative functions in the office,
including budgeting, accounting, personnel, training, information processing and purchasing.


Directory of Key Officials
    State Auditor                                                                Brion Sonntag
    Chief Deputy Auditor                                                         Ken Raske
    Director, Division of Audit                                                  Lee Reaves, CXSA
    Deputy State Auditor -Division of legislative & Technical Services           Linda Sheler, CPA
                           -
    Deputy State Auditor Policy and Communications                               Jerry Pugnetti
                           -
    Deputy State Auditor Division of Management Services                         Chuck Pfeil, CPA

(Rev. 10193)
1                                     SETTLEMENT AGREEMEm


           1.    This Settlement Agreement ("Agreement") is entered into between the United states
    of America ("United States"), acting through its Department of Justice and the Department of
    Health and Human Services, Office of the Inspector General, and the UNIVERSITY OF
    WASH1NGTON.




            2.     Investigation by Special Agents for the United States Department of Health and
    Human Services, Office of Inspector General, has revealed that the PSYCHOLOGY
    DEPARTMENT OF THE UNIVERSITY OF WASHINGTON may have submitted false
    statements during a period starting January 1, 1989 and ending August 31, 1993 in financial status
    reports regarding grants funded by the National Institutes of Health, National Science Foundation,
    and other subagencies of the United States Department of Health and Human Services and the
    Department of the Navy.

            3.      The United States believes that i t may have certain claims and causes of action
    against the UNIVERSITY OF WASHINGTON and/or its departments, affiliates, divisions,
    regents, faculty members, and employees, and/or each of them (col tectively and severally
    "UNIVERSITY OF WASHINGTON AND AFFILIATES") predicated upon the False Claims Act,
    31 'U.S.C. 58 3729-3733,the Program Fraud Civil Remedies Act, 3 1 U.S.C. $$ 3801-3812, as
    well as common law, for refund of overpayments, damages, and penalties, and/or other remedies
    arising out of the matter described in paragraph 2.

           4.      he UNIVERSITY OF WASHINGTON AND AFFILIATES deny any liability or
    wrongdoing whatsoever and neither this Agreement nor any of its provisions, terms, or conditions
    constitute an admission of liability of wrongdoing or may be offered ox received in evidence of any
    action or proceeding as such an admission or evidence of liability or wrongdoing.

           5.      a at her than endure the risk and expense of litigation, the United States and the
    UNIVERSXTY OF WASHINGTON AND AFFILIATES both desire to reach a full and final
    compromise of any civil claim or cause of action raised by the matter described in paragraph 2,

            6.     Therefore, in consideration of the mutual promises, covenants, and obligations set
    forth in this Agreement, the United States and the UNIVERSITY OF WASHINGTON AND
    AFFILIATES intend to settle ahy potential civil andlor administrative claims for overpayment,
    damages, penalties, and other remedies arising from the matter described in paragraph 2.




1    SETTLEMENT AGREEMENT -- 1
                                                                            ATTORNEY GENERAL OF WASHINGTON
                                                                               101 C~RBEROINC  HALL, BOX 351260
                                                                                   UNIVERSITT OF WPSHI~IQTON
                                                                                  SEAT~E  W~nl~arer4
                                                                                            ,          98196
                                                                                        (206)W3dlt;O
 2
     1               7.  For good and valuable consideration, the receipt and adequacy of which is hereby
             acknowledged, the parties agrees as follows:
                          .   ,
                                  . .                                                                                        ,   . ..
                              A.        '   That the UNIVERSITY OF WASHINGTON shall pay a total of                     . .
                                            $181,744.04,. (One Hundred Eighty One Thousand Seven Hundred Forty
                                            Four Dollars and Four Cents). Payment shall be in the form of a certified 01
                                            cashier's check made payable to "The Department of Justice," or by means
                                            of electronic transfer to the Financial Litigation Unit, United States
                                                                       e , 3600, 800 Fifth Avenue, Seattle, Washington
                                            ~ t t o r n 'q~ ' ~ f f i cSuite
                                            98 1.04.

                     8.     In exchange for the items listed in paragraph 7. the United Stares, including without
             limitation the OIG, hereby release UNIVERSITY OF WASHINGTON AND AFFILIATES from
 g           any civil or administrative claim or cause of action which the United States has or may have under
             the False Claims Act, 31 U.S.C.99 3729-3733; at common law; under the Program Fraud Civil

,,
10           Remedies Act, 31 U.S.C.$$ 3801-12; or under 45 CFR $76.100 et seq. for the conduct described
             in paragraph 2.
         I
                    9.       All casts (as defined in the Federal Acquisition Regulations ("FAR") 3 1.205-47;
             U.S. Office of Management and Budget Circular A-21 Regulations paragraph J. 11; and as defined
             in Titles XVIII and XIX of the Social Security Act, 42 U.S.C. 1395, et seq. and $ 1396,er seq.
             and the regulations promulgated thereunder) incurred by or on behalf of UNIVERSITY OF
             WASHINGTON AND AFFILIATES in connection with 1) the matters covered by this
             Agreement, 2) the Government's audit and investigation of the matters covered by this Agreement,
             3) UNIVERSITY OF WASHINGTON AND AFFILIATES audits, investigations, and defenses,
             4) the negotiation o f this Agreement, and 5) the payments made to the United States pursuant to

l7   R       this Agreement shall be unallowable costs for government contract accounting and reimbursement
             purposes, including but not limited to, the cost principles applicable to federal grants, contracts,
             cooperative' agreements, and other agreements with educarional, institutions to which Circular A-21
             Regulations apply; and for Medicare and Medicaid purposes. These amounts will be separately
             accounted for by UNIVERSITY OF WASHINGTON AND AFFILIATES and UNIVERSITY OF
             WASHINGTON AND AFFILIATES will not charge such costs directly or indirectly to any
             federa.1G o v e m e n r contract or program.

                    10.      Each person signibg this Agreement represents that he/she has the full power and
             authority to enter into this Agreement and to perform the obligations set forth herein, and that
             hefshe is fully authorized to do so. This Agreement shall become final and binding only upon
             signing by all parties hereto.




                                                                                           ATTORNEY QENERAL OF WASHINOTON
                                                                                                           HILL,BOX 351260
                                                                                              101 GBRBERDINO
                                                                                                 UNlV6RsllY OF WASHINQTON
                                                                                                SEnmE, WASHIHOTON    98195
                                                                                                      (206) Sd3-6150
       11,   This Agreement constitutes the entire Agreement between the United States and the
UNIVERSITY OF WASHINGTON AND AFFILIA7'ES with regard to the matter described in
paragraph 2.



DATED:                                                     J,k&
                                             WELDON E. IHRIG
                                                                              ...   =
                                                                                    -/
                                             Executive Vice President,
                                             University of Washington
                            .    .




DATED:        6--
               2. 7 -*?
                     7-
                                             On Behalf of The United Stares




                                         Assistant inspector General for Legal Affairs
                                         Offices of Counsel for the Inspector General,
                                         Department of Health and Human Services



DATED:           /   25-   4.7           L
                                         -                        ,   3 ' f1 / A. 2 . 4
                                         TERRENCE J. ' T ~ C H A N
                                         Deputy Assistant Secretary for Grants and
                                         Acquisition Management,
                                         Department of Health and Human Services




                                                                         AlTORNEY GENERAL OF WASHINGTON
SETTLEMENT AGREEMENT -- 3                                                   101 C~SRBERPINO H ~ L LBOX
                                                                                                   ,   351260
                                                                                    UNIVERS~TI OF WASH~NQTOH
                                                                                Scam$ W ~ s n n r c ~88196
                                                                                                      o~
                                                                                          (208) 6434150