~ o "- NATIONAL SCIENCE FOUNDATION ~ <I( ~(') OFFICE OF INSPECTOR GENERAL z m OFFICE OF INVESTIGATIONS • • "'0 o~ CLOSEOUT MEMORANDUM (jNOp.l,.\ Case Number: 199090038 Page 1 of2 In September 2001, the Department of Justice and a Midwestern Universityl reached a settlement regarding allegations of mismanagement of Federal research grant funds. It was alleged that the subject: 2 • misapplied certain Federal research grant funds when paying staff who were actually working on unrelated, nonfederal projects • billed machine time in the University laboratory to Federal projects when in actuality the time was related to other, nonfederal projects, and • failed to disclose conflicts of interests between his Federal and nonfederal research interests. The allegations involved grants from the National Science Foundation and the Department of Defense. This is the second time the University has been subject to allegations of this nature. In the fIrst case, the subject' was alleged to have misused grant funds, illegally received Medicare payments, and earned funds from the sale of an unapproved drug. The subject of the fIrst case was found to have committed academic misconduct for his unapproved work with patients in the development ofthe drug. The University settled the fIrst case with the government for While the matter was pending, the Department of Health and Human Services put the University on "exceptional status" as part of a corrective action plan. In the present case the University and the Justice Department agreed to settle the matter for $812,494. Because the corrective action plan covered inadequate internal controls that were also at the center of these allegations, the Justice Department instructed the University to work with NSF-OIG to review the questionable internal control policies and procedures involved in the matter. Our review identifIed a number ofproblematic controls including: inadequate documentation for time and effort, personnel and equipment charges, cost sharing, and program income; commingling of funds among federally- and privately-supported projects; inadequate review of conflict of interests issues; and inadequate employee training in the relevant areas. We requested that the institution review the NSF awards to ensure that the actions within those awards demonstrated evidence of adequate internal controls. The institution agreed to review its 1 The University of Minnesota. 2 Dr. Dennis Polla, a faculty member at the University <fMinnesota. 3 NSF DIG Form 2 (11/02) I •• .11 It J o / NATIONAL SCIENCE FOUNDATION ~ ~~ OFFICE OF INSPECTOR GENERAL . .m q; (') Z OFFICE OF INVESTIGATIONS -\\0 UNO A:~\ O~ CLOSEOUT MEMORANDUM Case Number: 199090038 Page 2 of2 systems to ensure that the controls in question now provided reasonable assurance of good management of the NSF awards. Its response led to further questions and the eventual development of an internal audit plan that was reviewed and approved by an external reviewer,4 who also reviewed the results ofthat audit. The audit found that many of the university's systems put in place in response to the corrective action plan worked to ensure compliance with federal regulations. It noted that there were still instances where quarterly effort certification cards were not always completed, and effort reported as cost sharing was not accurately recorded. It found that purchases from the university storehouse were not adequately justified and that follow-up was needed to ensure the accuracy of annual internal activity reports. It found some instances in which annual technical reports were not submitted timely to federal agencies. The university stated that for each of the instances where it was not in compliance with its internal policies or its policies need revision, it had developed a mechanism for responding to the problems. Accordingly, this case is closed. 4 ~ 'i SETTLEMENT AGREEMENT I. PARTIES 1. This Agreement is entered into between the United States of America, acting through the United States Attorney's Office for the District of Minnesota ("the United States"); and the Board of Regents of the University of Minnesota that governs the University through its President, Officers, Deans, and faculty (past and present) (collectively the "University"). II. THE COVERED CONDUCT .:"-', 2. From May 1, 1995 through June 30, 1999, Dr. Dennis Polla, a member of the faculty of the University, was authorized by the University to expend funds relating to the following matters: a. ONR Prime Contract No. N00014-95-1-0539, otherwise known as "the Georgia Tech project"; b. Defense Advanced Research Administration Contract No. MDA972-98-C- 0008, otherwise known as "the DARPA project"); c. Office of Naval Research Contract No. N00014-94-C-2232, otherwise known as "the MTS Systems project"; d. United States Navy Cooperative Agreement No. N00014-98-3-0020, otherwise. known as "the Honeywell project"; e. United States Army Research Lab Prime Contract No. DAALOl-95-4-0035, otherwise known as "the Advanced Technology Materials project"; f. Air Force Prime Contract No. N00019-97-C-0038 otherwise known as "the Lockheed Martin project;" g. Office of Naval Research Boston 1998 IR&D Project otherwise known as "the Draper project." 3. The United States alleges that during and between May 1,1998 and September 1, 1999, Polla, acting within the scope of his agency for the University of Minnesota,misapplied certain funds available to him relating to the projects described in Paragraph 2 (a)-(g) above ("the projects"). In particular, the United States alleges that Dr. Poll a billed the time of paid research assistants to the projects when in fact the paid research assistants were working on other matters; and that Dr. Polla billed certain charges relating to machine time in the microtechnology laboratory of the University to the projects, when in fact the machine time related to other matters. Certain charges, after audit, could be determined to be inappropriate, while others could not be resolved due to a lack of documentation concerning the time or machine charges billed to the projects. 4. The United States alleges that in total, the misapplied paid graduate assistant time, misapplied machine time, and miscellaneous expenses totaled $645,453.05. The United States contends that as a consequence of the activities described in Paragraphs 2-4 above, it has certain civil claims against the University under various federal statutes and/or common law doctrines. 5. The University acknowledges that certain of the charges in fact were inappropriate, but believes that some or all of the charges which were undocumented benefited the grants due to the shared science involved in the charges. The University also denies that it .. knew or should have known of the misapplication of project funds, and affirmatively maintains that it took immediate corrective action when it learned of the alleged misapplication of funds. Finally, the University denies that certain of the projects were cost reimbursable contracts with the Government. 2 6. The conduct described in Paragraphs 1-5,above, as well as the conduct disclosed in the University's written disclosures dated January 5, 2001 and February 1, 2001, is "The Covered Conduct." TERMS AND CONDITIONS 7. In order to resolve their differences, the parties agree that on or before January 10, 2002, the University will pay to the United States the sum of $812,494.04 (which includes the principal sum of $645,453.05 plus accrued interest until June 7, 2001). The payment of $812,494.04 will settle all claims relating to The Covered Conduct, except as limited in Paragraph 9 below, and represents payment of all sums described in Paragraph 4 above. 8. The payment to the United States as described in paragraph 7 above shall be by Electronic Funds Transfer pursuant to written instructions by the United States. 9. In consideration of receipt of the payment specified in paragraph 7 above, and except as provided in paragraphs 11 below, the United States fully and finally releases the University, its current and fonner Regents, officers, and agents (except Dennis Polla) from any or all civil or administrative monetary claim arising out of the covered conduct the United States has asserted, could have asserted or may assert in the future under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C. §§ 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812; or the common law theories of payment by mistake, unjust enrichment, breach of contract and fraud, for the Covered Conduct, except as follows: a. Any liability to the United States (or any agencies thereof) for any conduct or circumstances other than as described in the Covered Conduct section of this Agreement; b. Any claims arising from a breach of this agreement; 3 '\ c. Any claim arising under the Internal Revenue Code, Title 26 of the United States Code; d. Any express or implied warranty claims or other claims for defective or deficient products or services, including quality of goods and services, provided by the University to the United States; e. Any claims for personal injury or property damage or for other consequential damages arising from deficient products or services; f. Any claims based on a failure to deliver items or services due; g. Any civil or administrative claims against individuals, including current or former directors, officers, employees, or agents of the University, who receive written notification that they are the target of a criminal investigation (as defined in the United States Attorneys' Manual), are criminally indicted or charged, or are convicted, or who enter into a criminal plea agreement related to the Covered Conduct; 10. The University fully and finally releases the United States, its agencies, employees, servants, and agents from any claims (including attorneys fees, costs, and expenses of every kind and however denominated) which The University has asserted, could have asserted, or may assert in the future against the United States, its agencies, e:o.;ployees, servants, and agents, related to the Covered Conduct and the United States' investigation and prosecution thereof through the effective date hereof. The parties understand and agree that this release is not intended to affect the University's right to contest the extent or nature of administrative sanctions which may arise from the covered conduct. 11. The University agrees that all costs (as defined in the Federal Acquisition Regulations ("FAR") § 31.205-47 and the regulations promulgated thereunder) incurred by or on 4 behalf of the University, in connection with: (1) the matters covered by this Agreement, (2) the Government's audit(s) and civil and any criminal investigation(s) of the matters covered by this Agreement, (3) the University's investigation, defense, and specific corrective actions undertaken in response to the Government's audit(s) and civil and any criminal investigation(s) in connection with the matters covered by this Agreement (including attorney's fees) through and including the effective date hereof (4) the negotiation of this Agreement, and (5) the payments made pursuant to this Agreement are unallowable costs on Government contracts and under. all ' " ' .. ',', '.",' federal programs (hereafter, "unallowable costs"). These unallowable costs will be separately estimated and accounted for by the University, and the University will not charge such unallowable costs directly or indirectly to any contracts with the United States or any state' thereof, or seek payment for such unallowable costs through any cost report, cost statement~ information statement or payment request submitted by the University to any federal or state programs. The University further agrees that, as appropriate, within 60 days of the effective date of this Agreement they will identify to the cognizant federal agency and prime contractor from whom the University has received payment, any unallowable costs (as defined in this paragraph) included in payments previously sought from the United States, or any state thereof, including, but nbt limited to, payments sought in any cost reports, cost statements, information reports, or payment requests already submitted by the University, and will request, and agree, that such cost reports, cost statements, information reports or payment requests, even if already settled, be adjusted to account for the effect of the inclusion of the unallowable costs. The University agrees that the United States will be entitled to recoup from the University any overpayment as a result of the inclusion of such unallowable costs on previously-submitted cost reports, 5 infonnation reports, cost statements or requests for payment. Any payments due after the adjustments have been made shall be paid to the United States pursuant to the direction of the Office of the United States Attorney for the District of Minnesota, and/or the affected agencies. The United States reserves its rights to disagree with any calculations submitted by the University or any subsidiaries on the effect of inclusion of unallowable costs (as defined in this paragraph) on the University's cost reports, cost statements or infonnation reports. Nothing in this Agreement shall constitute a waiver of the rights of the United States to examine or . ... ,,'•... ,;... ':... ;, , reexamine the unallowable costs described in this Paragraph. 12. Each party to the Agreement shall bear its own costs, expenses, and fees. 13.· This Agreement contains a complete description of the bargain between the .' parties. All material representations, understandings and promises of the parties are contained in this Agreement. Any modifications must be set forth in writing and signed by all parties. The University represents that this Agreement is entered into with knowledge of the events described herein, and upon the advice of legal counsel, and that it is entered into voluntarily, without any degree of duress or compulsion whatsoever. 14. The University waives and will not assert any defenses it may have in any matter, including but not limited to administrative action relating to the Covered Conduct, which· defenses may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth Amendment of the Constitution, this Settlement bars a remedy sought in such matter. The University agrees that this settlement is not punitive in purpose or effect, and does not violate the provisions of the Double Jeopardy or Excessive Fines Clauses of the United States Constitution. 6 15. Nothing in this paragraph or any other provision of this Agreement constitutes an agreement by the United States concerning the characterization of the Settlement Amount for purposes of the futernal Revenue Laws, Title 26 ofthe United States Code. 16. This Agreement is intended to be for the benefit of the parties, only, and by this instrument the parties do not release any claims against any other person or entity. 17. Should any action to enforce or interpret this Agreement, or to resolve any dispute hereunder be required, the parties acknowledge the jurisdiction of the federal courts and agree. that venue for any such action shall be in the United States District Court for the District of Minnesota. 18. Each person who signs this Agreement in a representative capacity warrants that he or she is duly authorized to do so. 19. This Agreement may be executed in original counterparts, each of which constitutes an original and all of which constitute one in the same agreement. 20. This Agreement will be deemed effective on the date that it is fully executed. On behalf of the UNITED STATES OF AMERICA, THOMASB.HEFFELFINGER Dated'9~ 3, DlC/:l~ United States Attorney I!/d~ BY: D. GERALD WILHELM Assistant U.S. Attorney Attorney ID No. (612) 664-5600 7 Dated: BY:._ _ _ _ _ _ _ _ __ ANITA EISENSTADT Associate General Counsel National Science Foundation Dated: BY: --~------~-------- HELEN RUBEN Office of Naval Litigation Office ofNaval Research BY:______________________ Dated: U.S. Anny Research Laboratory Dated: BY: -------------------- United States Air Force On behalf ofthe REGENTS OF THE UNIVERSITY OF MINNESOTA Dated: (~/Z_II 0 l BY:" , - / V - TooF - v -- J General Counsel Regents ofthe University ofMinnesota Dated: ):1../.:J.. ~ Jo ) Dtrsey & Whitney ounsel to the University of Minnesota ·. ( Dated: j /fo/o;z BY:adv/~ ANITA EISENSTADT Assistant General Counsel National Science Foundation Dated: BY:_ _ _ _ _ _ _ _ __ HELEN RUBEN Office ofNaval Litigation Office of Naval Research Dated: By:_---,._ _ _ _ _ _ _ __ V.'S. Army Research Laboratory Dated: By:_,....-_ _ _ _ _ _ _ _ __ United States Air Force
Published by the National Science Foundation, Office of Inspector General on 2003-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)