Stanford Investigated on New Overbilling Charges

The federal government is investigating new allegations that Stanford University overbilled taxpayers as much as $480 million for research in the 1980s, more than twice previous estimates.

“There have been some new questions brought up, which we’re looking into, but nothing has been resolved yet,” Norm Hanson, spokesman for the Office of Naval Research, said Friday. “This is all part of the review process.”

Stanford financial chief Peter Van Etten called the new charges “incredible” and a “figment of the imagination” of the Navy’s on-campus research contract negotiator.

“There is absolutely no basis for that new figure,” Van Etten said. “I can’t even understand how someone could come up with that.”

Government auditors have been investigating to determine if Stanford overcharged as much as $180 million in the 1980s for research overhead in an inquiry that spread to other U.S. schools and prompted a congressional hearing.

Stanford officials have denied any intentional attempt to overcharge, but the school has paid back about $2 million in inappropriate charges. Improper bills included depreciation on a school yacht and flowers, parties and furniture at Stanford President Donald Kennedy’s campus home. Kennedy has announced that he will resign in August because of the scandal.

Paul Biddle, the on-campus contract negotiator for the Office of Naval Research, prompted the investigation after alleging last year that Stanford overcharged $200 million for research overhead in the 1980s.

On Thursday, Biddle raised his estimate to $480 million by including another $180 million in Stanford employee benefits and $100 million resulting from mishandled federal property.

“The bill keeps rising and Stanford is still denying anything’s wrong,” Biddle said.

Van Etten acknowledged that auditors with the Defense Contract Audit Agency have questioned the amount of employee fringe benefits Stanford charges off to research, but he said that is only a one-year dispute.

In September, Stanford asked for a 29% reimbursement rate for 1991-92 fringe benefits, meaning the school could get 29 cents for every $1 in direct research funding. Auditors suggested a 19% rate instead. The issue is still under negotiation.

Biddle used those opposing rates to estimate that Stanford overcharged for research fringe benefits throughout the 1980s by about $180 million.

On the issue of federal property, taxpayers pick up the cost of research equipment--such as microscopes--and the school gets to keep the items after a study project is completed. Biddle found a $100-million discrepancy between the government’s inventory and Stanford’s inventory of such items.

Van Etten said he has not received any official notice of the new allegations.

“There’s been no formal questions raised,” Van Etten said. “I haven’t seen any documentation for any of this.”

Stanford, which normally conducts about $200 million worth of research each year, cannot afford to have its research overhead budget cut any more, Van Etten said.

Stanford’s rate was cut this year from 70% to 55.5%, which cost the school about $20 million. Van Etten said the government is no longer paying its fair share for research.

On Thursday, Stanford appealed the reduced rate to the Armed Services Board of Contract Appeals in Washington, D.C.,which hears pleas from individuals or organizations doing business with the Defense Department.