Audit May Cost Stanford $480 Million : Education: But university officials dispute the assumptions made by Defense Department investigation of government research costs.

Stanford University officials are warning that an upcoming audit may find that the university owes the government almost $500 million dollars and they already are disputing its assumptions.

In a statement to appear this week in a school publication, President Donald Kennedy and James C. Gaither, chairman of the university trustees, warn that the Defense Department audit of government research costs from the 1980s may wind up costing the university up to $480 million.

“We are concerned that government auditors may be disregarding the memoranda of understanding,” the statement says, referring to the operating agreements Stanford made with the government over the years. “The government cannot now retroactively ignore those agreements to which it was a party and choose to apply different standards.”

The statement, which will appear this week in the Stanford Observer, also said the issue of how much the university may have to pay back “will be the dominant issue” this year at the school.

Defense Department accountants have been reviewing Stanford’s books for several months after being alerted to overbilling by the university by whistle-blower Paul Biddle, who worked for the Office of Naval Research.

Audit results by the Defense Department team are only advisory and are not the government’s final position on Stanford’s research overcharge debts. The final decision is made by the Office of Naval Research, which monitors most federal grants at Stanford.

Stanford officials have denied deliberate overbilling, but the school has repaid some $2 million in what it acknowledged were inappropriate charges. The improper bills included depreciation on a school yacht, and the cost of flowers, parties and furniture at Kennedy’s campus home.

The Stanford Observer is a 125,000-circulation publication mailed every other month to faculty members, administrators, alumni, university benefactors, legislators and the media.