AT THE RISK OF INVITING the ire of clients and friends, I think it’s fair to say that colleges and universities are the “chosen ones” of the federal grants world. They have more favorable rules compared to those in other areas. Yet government auditors, campus whistleblowers, and even federal prosecutors have become interested in the management of federal grant funds by higher ed institutions. Could this possibly be the unintended consequence of successful efforts over the past 30 years to ensure that IHEs are provided considerable flexibility in documenting and accounting for costs charged to their grants? To some extent, I would say yes.
What favorable rules? The White House’s Office of Management and Budget issues rules, known as “cost principles,” for spending federal grants. The rules that apply depend on the type of entity receiving the grant rather than on what agency provides the funds. Thus, a grant made to a college is covered by different rules than the same grant made to a nonprofit research organization.
Take the issue of payroll distribution—or how the cost of an employee is distributed or charged to a federal grant. A nonprofit conducting groundbreaking research must have employees turn in personal activity reports showing the percentage of time spent on all main activity, grant funded or not, at least monthly. Employees of local, tribal, and state governments, presumably a trustworthy crowd, must also report monthly. Defense contractors have to keep track of their work by the hour. Employees of stand-alone research hospitals are given a break, with reports due every other month. Educational institutions, by contrast, have in some cases up to one year to document their time.
The cost principles applicable to IHEs provide general criteria for any payroll distribution system and describe three acceptable systems: the plan confirmation method, the after-the-fact activity record method, and the multiple confirmation records method. The plan confirmation method requires a “responsible official” to confirm the time charged to federal awards “at least annually.” The after-the-fact and multiple confirmation records methods take a stricter view, requiring “professorial and professional staff” to prepare activity reports “each academic term, but no less frequently than every six months.”
Cutting IHEs a break by reducing paperwork seems like an admirable goal. However, since the provisions are so lax, they may actually have harmed some colleges and universities and set them up for failure. Who can accurately remember what he or she did over the past six months or a year? Such an impossible standard sends a message to employees that the rules really don’t matter much.
Provisions such as those for payroll distribution are a likely culprit for the numerous settlements paid by IHEs in the past few years due to alleged failures in accounting for federal funds. For example, it was reported last summer that officials at St. Louis University, while denying any wrongdoing, paid approximately $1 million to settle a claim that the “School of Public Health over-billed and defrauded the federal government by inflating the number of hours its faculty members worked on research grants and contracts.” This type of settlement is all too familiar.
Moreover, the possibility of having a similar problem has increased as law firms representing “qui tam relators” increasingly view institutions as easy targets. Qui tam relators are whistleblowers, most often university employees, who can bring an action under the Federal Civil False Claims Act for submitting false claims to the government for payment.
What can be done to avoid becoming a newspaper story?
— Don’t overlook the obvious: Know the terms and conditions of all federal grants.
— Form an internal monitoring system to ensure that employees follow an institution’s policies and procedures.
— Avoid the temptation, in response to the many well-reported cases, to implement a new system that is so onerous as to become unworkable.
— Make every effort to explain the whys and wherefores of policies and procedures to staff. After all, when dealing with intelligent, well-educated employees, telling them to do something without explaining why rarely results in the desired outcome.
As a co-managing partner based in the Washington, D.C., office of Feldesman Tucker Leifer Fidell, Edward T. Waters has practiced grants law for 20 years. He has also served as board president for the National Grants Management Association. He can be reached at firstname.lastname@example.org.