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Stanford gives government check, report on audit cooperation

STANFORD -- Stanford University has given federal officials a check for $924,517 for previously withdrawn charges for indirect costs of research and a report detailing how the University has been cooperating with federal auditors.

The check was enclosed in a letter hand-delivered Wednesday, May 8, to Michael Kuc in the Office of the Chief of Naval Research. It covers costs charged from 1980-81 to 1987-88 and withdrawn from last November through March.

Included in the refund are $533,238 in costs Stanford voluntarily removed, even though it believes them allowable, most of them involving University houses. Also included were items University officials said were mistakenly billed, such as $184,285 in department of physical education equipment costs, including the yacht Victoria, and $162,760 associated with Stanford Shopping Center.

Standard procedure for such a repayment is "adjusting the carryforward" -- that is, deducting the refund from future reimbursements by federal granting agencies. However, the Defense Contract Audit Agency first proposed two weeks ago that Stanford instead pay by check made out to the U.S. Treasury. The University agreed, once it was given assurance by Kuc that Stanford would not be subject to claims - - for example, by the agencies that originally provided the funds -- that it was the wrong procedure.

On the question of cooperation with federal auditors, Stanford President Donald Kennedy on Monday, May 6, sent a report to William H. Reed, director of the Defense Contract Audit Agency, detailing Stanford's steps to assist the auditors.

The report, by Senior University Counsel Debra Zumwalt, concluded that "Stanford has expended large amounts of time and resources to cooperate with DCAA and to be responsive to its needs in these extraordinary circumstances. Some delays have occurred as a result of the effort to accelerate years of auditing work into a few months, but Stanford has not improperly denied access to documents or information."

The only real problem, the report said, is a backlog in providing requested information as the audit agency races to catch up on uncompleted audits for the last decade. The Office of Naval Research, which oversees Stanford's federal grants, previously had not obtained the audits needed to close the books on any year since 1982-83.

In normal times, two to three auditors would be conducting two or three major audits, the report said. Now, however, 20 to 30 auditors are conducting 33 major audits.

The auditors are making 1,400 new requests for information per month, overloading Stanford's ability to respond and leading to a backlog of almost 2,000 requests, the report said. The University has provided more than 38,000 pages of documents since October, it said.

The report outlines the steps the University has taken to try to meet the requests. These include increasing the number of contact persons and staff members filling requests, providing online computer access to relevant accounting records, working with the audit agency to coordinate the process and hiring outside assistance.

"To help us respond in an efficient and timely manner with the large volume of audit activity at Stanford -- far beyond anything in our experience," Kennedy wrote to Reed, "we asked Arthur Andersen and government contracting specialists at Arnold & Porter to help us devise a set of procedures to accomplish our goal of full cooperation in a reasonable manner under the existing circumstances. I am informed that precisely such procedures are widely used in DCAA audits with other government contractors around the country."

Kennedy ordered the report after Fred J. Newton, deputy director of the audit agency, stated in April 23 congressional hearings that "Stanford is certainly at the far end of the spectrum" in being uncooperative.

After Kennedy spoke by telephone Monday to Reed, Stanford officials expected to meet with Newton to discuss the report. Despite repeated attempts by those officials, however, Newton refused to meet until after he testified in further congressional hearings Thursday, May 9.



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