oversight

COI (Non-NSF)

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)

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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)
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                            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
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'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