Stanford to Refund $500,000 to U.S. in Overbilling Probe

Stung by a federal probe into its government-backed research spending, Stanford University on Wednesday announced that it will review its controversial accounting methods and repay taxpayers for $500,000 worth of flowers, antiques, wine and other items the school charged to the government as research overhead.

In a prepared statement, university President Donald Kennedy said he has retained outside accountants and is appointing an advisory panel to evaluate the manner in which Stanford bills the government for the indirect costs of federally financed research.

Moreover, Kennedy said, the university has withdrawn its claims for reimbursement of costs associated with the operation of three university-owned residences, including Hoover House, where the president lives. The costs, he added, will amount to about $500,000.

Among the disputed expenditures on Stanford’s research overhead billings were such items as a $3,000 cedar-lined closet, up to $2,000 a month in floral arrangements and $2,500 to refurbish a grand piano at the Hoover House, and $184,286 the school claimed as depreciation on the Stanford Sailing Assn.’s 72-foot yacht, Victoria.

“Quite frankly, a number of charges have proved to be embarrassing to us, and I am convinced of the need for an aggressive program to ensure more stringent standards of accountability for the expenditure of taxpayer dollars,” Kennedy said in a letter this week to Adm. Bobby Inman, one of the panelists he appointed to review the university’s billing procedures. The letter was made public Wednesday by the university.

In his press statement, he added that “Stanford’s accounting system has some shortcomings--real as well as perceived,” and said the initiatives are intended to make Stanford “a model for the use of and accountability for public funds” in federally financed research.

The university became the target of a congressional investigation last year after federal auditors and faculty questioned its research overhead rates, which are among the highest in the nation. The overhead charges are meant to cover the indirect costs of research--items such as utilities, buildings, libraries and administration.

Stanford charges 74 cents overhead for every dollar the government spends on research at the school, which means the government must pay the school $1.74 million for a $1-million research project.

After questions about the rate were raised by the Office of Naval Research, which monitors payments for all government research, congressional investigators began a probe in August into whether Stanford and other universities were using the overhead charges to shift as many of their operating expenses as possible to the government.

Congressional investigators, who are preparing for a hearing this spring on Stanford’s billing practices and who spoke on condition of anonymity, said Kennedy’s announcement is a step in the right direction. But the $500,000 in repayments associated with the three university residences is just the tip of the iceberg of millions of dollars in disputed charges to the government by Stanford, they said.

Investigators believe the university may have overcharged the government by as much as $200 million over the past 10 years. Other schools with large government research grants are slated to come under scrutiny, they say.

Publicly, however, Kennedy’s announcement received a warm reception in Washington.

“It’s a good beginning,” said Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee. “We’re delighted they realize they have a problem and are taking some steps to solve it.”

Among the claims that Stanford agreed Wednesday to forgo are some $9,000 worth of antiques and $7,000 worth of bedsheets and tablecloths for the Hoover House; a $4,000 catering bill from Edible Art, a San Francisco gourmet caterer; $3,000 worth of dry cleaning at a French laundry, and “thousands of dollars a year” in beer and wine for Lake House.

Stanford agreed last month to return the yacht depreciation, saying the charges were a mistake. University officials argued at that time that the other charges are legitimate and technically permissible. Research grants should help cover the operating costs of university-owned residences, they contended, because research-related functions are often held there.

For example, Robert Freelen, Stanford’s vice president for public affairs, said the liquor bills for his university-owned residence, Lake House--including one for $931.34 in September, 1985, and another for $564.06 two months later--stemmed from the traditional football season receptions he holds each year at his home for faculty, many of whom have government research grants.

In his statement Wednesday, Kennedy also defended the residence-related claims.

Nonetheless, he said, because “acute public attention on these items threatens to overshadow the more important and fundamental issue of the support of federally sponsored research,” the university will repay the government any research billings made in connection with Hoover House, Lake House and Hanna House, which is the residence of the university’s senior vice president.