Advanced Cell Misspent U.S. Funds, Auditors State

Advanced Cell Technology, a company trying to clone human embryos, misspent $150,000 in federal grants and must return it, government auditors said.

The auditors, from the Boston office of the inspector general at the Department of Health and Human Services, also raised questions about Advanced Cell’s financial condition.

The audit was requested by Rep. Joseph R. Pitts (R-Pa.) to determine whether federal funds were used to support human cloning research. The auditors found no evidence of that.

But they said the company charged the government $114,400 for equipment not covered by the grants. Auditors also found that Advanced Cell charged the government $35,000 for salaries that it could not properly account for, auditors said.

The audit recommended freezing the grants until Advanced Cell improves its accounting policies and procedures and meets other conditions--including providing evidence of its ability to continue as a going concern.

The National Institutes of Health, a unit of Health and Human Services, awarded Advanced Cell three grants totaling $2 million. The grants cover animal cloning research, including efforts to clone a cow and a mouse. The company has received $215,000 so far.

Advanced Cell, based in Worchester, Mass., did not respond to a request for comment. But in an interview with Bloomberg News, Michael West, the company’s chief executive, called the audit a “witch hunt” by opponents of human cloning. Advanced Cell wants to use cloned embryos as a source of stem cells that could be used to treat diseases.

Pitts opposes cloning for any purpose, and the House has passed a bill that would prohibit human cloning. The Senate will debate the issue soon.

On Wednesday, Pitts said no federal funds should go to Advanced Cell. The company has been awarded $1.8 million by the Advanced Technology Program, in addition to the NIH funding.

The Advanced Technology grant was frozen last winter pending an inspection of Advanced Cell’s financial management system, and the company has not yet received any of the funds. The grant was for biotechnology research involving adult cells and was first reported in The Times in November.

The Advanced Technology Program conducted its financial inspection of Advanced Cell on May2 and found no problems with the company’s financial management systems, said Michael Baum, an Advanced Technology spokesman. He said Advanced Technology, a unit of the Commerce Department, plans to make the grant money available to Advanced Cell.

In a letter to Health and Human Services auditors, West admitted the company could not “identify the exact hours worked.” But he said the company purchased the equipment only after receiving oral permission from the NIH.

West, in his letter, said the company planned to abandon research under one grant totaling $267,000. The company has completed a second grant totaling $99,729.

He said auditors based their concerns about the company’s financial health on an outdated report prepared by Advanced Cell’s accountants for the two years ended December 2000.