Amid new allegations that Stanford University presented the federal government with “outlandish” billings, a federal auditor testified Wednesday that the prestigious institution may have overcharged the government more than $160 million in research overhead costs during the last decade and may face a $28-million cut in payments this year alone.
The revelations of new, controversial billings by Stanford, which included charges for enlarging the university president’s bed and for flowers for a ceremony at the campus’ horse stables, came during a contentious seven-hour hearing by the House Energy and Commerce subcommittee on oversight and investigations.
With a broad investigation of research overhead practices spreading, the auditor--Fred J. Newton, deputy director of the Defense Contract Audit Agency--also revealed that Caltech recently had withdrawn more than $500,000 that had been claimed as research overhead charges from 1987 to 1990. He said that the items included $80,000 for a retreat by school trustees and entertainment expenses.
In a telephone interview, a Caltech spokesman said that there had never been any federal reimbursement of the $500,000 and that the charges were withdrawn because it would have “taken hours sifting through minutiae” to justify them. He said that the retreat was a business meeting at which research was discussed.
Stanford officials were hammered at the hearing for “stonewalling” the investigation as auditors and lawmakers detailed a new list of charges that went beyond previously disclosed items such as depreciation on a yacht and various costs at the official residence of university President Donald Kennedy. The residence costs included a wedding reception, a cedar-lined closet, flower arrangements and a refurbished grand piano.
Rep. John D. Dingell (D-Mich.), chairman of the subcommittee, cited an “early 19th-Century Italian fruitwood commode,” part of whose $1,200 cost was charged by Stanford to taxpayers; “the enlarging of Dr. Kennedy’s bed, $7,000 for sheets for the enlarged bed, two Voltaire chairs from Pierre Deux at $1,500 apiece and a pair of George II lead urns at a ‘special price’ of $12,084, as well as $400 for flowers for the dedication of the Stanford horse stables.”
“And where was the Board of Trustees while all of this was happening?” the congressman asked. “They were at Lake Tahoe on a retreat costing $45,250 that was also subsidized by the taxpayers.”
Dingell charged that a combination of “great incompetence” and “rascality” have been responsible for what he called Stanford’s “aggressive billing policy” and “outlandish charges.”
He said that investigators from the Defense Contract Audit Agency, the Naval Investigative Service, the General Accounting Office and his own committee “have found a number of charges in these certified accounts that are expressly unallowable,” and are looking into possible “criminal liability” of officials at Stanford and the Office of Naval Research, which oversees Stanford research grants that totaled $260 million last year.
Milton J. Socolar, a top auditor with the General Accounting Office, questioned other items, such as $184,000 charged for the Jacuzzi-equipped yacht, racing sculls and other athletic equipment and $185,000 for costs associated with a profitable shopping center owned by Stanford.
He also said that Stanford, in an unusual agreement with a federal grant oversight agency, recovered $2.3 million more than it should have by taking a certain form of depreciation on capital expenses. In similar agreements, he said, the university significantly increased its federal reimbursements for overhead in 1988 by wrongly increasing its claimed library expenses by $7 million and its utility expenses by $4.1 million.
Under questioning by skeptical lawmakers, Kennedy denied suggestions that the university had tried to defraud the government. He said that some controversial claims such as the yacht were mistakes and that many others, while allowable, should never have been made because they gave a bad appearance.
He noted that Stanford had withdrawn about $690,000 in charges for most of the embarrassing items listed by legislators and auditors Wednesday. He also reiterated that Stanford had hired a major accounting firm to help it improve its financial system.
After the hearing, Kennedy disputed Newton’s estimate that Stanford had overcharged the government by $16 million to $20 million a year from 1981 to 1990. He said that he expects the university to have to pay back relatively little because the charges stem from more than 100 agreements with the Office of Naval Research. Auditors criticized the pacts Wednesday for deviating from standard accounting policies.
Stunned by Newton’s estimate that Stanford faces a $28-million cut in research payments this year because of measures to correct abuses, Kennedy said that it would cause “a very heavy loss to our operating budget.” But he predicted that Stanford could negotiate a much smaller cut.
Lawmakers, however, were highly critical of Kennedy.
“It is really a disappointment to me to see the president of a fine university stonewalling the committee like a common politician,” Rep. John Bryan (D-Tex.) said when Kennedy had trouble explaining various billings, including a method of claiming silverware expenses for the president’s official residence when the cutlery had been donated to the university.