Life Sciences Advisory Bulletin
Office of Inspector General Identifies Compliance Risk Areas for Researchers with Federal Funding
By Edwin D. Rauzi
[December 2005]
On Nov. 28, 2005, the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services published draft guidance on compliance plans for research organizations that receive grants from the Public Health Service (PHS). The guidance is similar to those that have been published over the last several years in adopting—as an organizational framework for the compliance plans—the elements of the Federal Sentencing Guidelines. The most significant aspect of the guidance, however, may be the areas of compliance vulnerability that the OIG identifies. If past is prologue, then research organizations may expect regulators and whistleblowers to consider alleging that research organizations have failings in the areas about which the government has expressed concern.
The risk areas that the OIG emphasized were:
- time and effort reporting;
- properly allocating charges to award projects;
- reporting of financial support from other sources; and
- for those organizations that subcontract, monitoring subcontractors.
Time and Effort Reporting
It is difficult to place a value on creative activities as they occur and shortly thereafter. Almost by default, recording the time and effort spent on a creative activity is one of the few methods whereby a grantor can audit the use of grant funds.
In the research context, the task is complicated by the existence of both multiple grantors and multiple responsibilities that researchers must discharge. As CMS noted, “In the course of a researcher’s workday, the separation between these areas of activity can sometimes be hard to discern...” Since it is not possible to discern fully how the money was spent, being able to discern how the time was spent by the person who received the money is required as a proxy.
In a variation of the cliché that there are “only 24 hours in a day,” the OIG looks askance at researchers who represent to three different grantors that they will spend 50 percent of their time on each of the three projects. Another example is the commitment of 100 percent of time to research when clinical and administrative duties are also being performed.
These rules are not new. The OIG cites and refers research organizations to OMB Circular A–21, Five Cost Principles for Educational Institutions, which dates from the 1970’s.
Another “number” susceptible to abuse is the identification of the researcher’s institutional base salary (IBS). The IBS sometimes serves as a reference in calculating the percentage of an employee’s activity allocated to a particular federal grant. In the OIG’s view, IBS includes only nonclinical work; some institutions take a more expansive view. For cost reporting purposes, those institutions are admonished to take special care in reporting the clinical and nonclinical work activities of researchers so that salary is correctly allocated.
Properly Allocating Charges to Award Projects
Funding for research institutions often is gathered from several sources in addition to the PHS. The accounting for those various sources must be kept separate. An area of abuse is “banking” or trading award funds by principal investigators. As another example, the OIG cited a recent settlement based on allegations that the research organization made end-of-year transfers of direct costs on various research awards from overspent accounts to underspent accounts to avoid having to refund grant moneys not spent as intended.
An organization that comes under scrutiny is forewarned not to characterize the issue as a mere ‘‘accounting problem,’’ since that is likely to inflame the passions of regulators. To the OIG, failure to allocate charges correctly draws away limited funds from projects the government decided to support, and is not to be belittled.
Reporting Financial Support from Other Sources
In the OIG’s view, the PHS is charged with deciding not only which research should be supported, but to what extent. If that decision occurs without the benefit of knowing that other funding is available, a misallocation of resources may result. In the worst case, the same research may be funded twice.
Grant applicants are required to identify other funding support. The first page of the application requires written certifications from both the principal investigator and research organization that all statements in the application are true and complete. The form also warns persons who sign the applications that false statements may be punished.
Subcontracting
Although not addressed in any detail, organizations that serve as a clearinghouse for research funds also have compliance risks. To the extent federal funds pass through the organization before being spent on research by another organization, the conduit organization may be responsible for the subcontractor or subgrantee. As a consequence, subcontractors may expect to see more emphasis on representations and warranties regarding compliance in their contracts with non-governmental grantors.
Conclusion
For persons familiar with the rules that govern government research funding, there are no new substantive requirements and the elements of the recommended compliance plans remain the same as those affecting other parts of the health care delivery system. The substantive rules, however, are very broad, which makes them open to interpretation and difficult to apply in specific situations. The relative lack of prior enforcement of the rules also creates a temptation for institutions to adopt interpretations that are somewhat self-serving and minimizes the friction between the accounting and research cultures that might result (e.g., demanding the daily time sheets be completed before researchers can go home).
The significance of the notice is the OIG's signal that it intends to become more active in investigating research funding. The OIG is also sending a message to disgruntled current and former employees about where to look for problems. As has been the case with other government-funded industries highlighted by the OIG, those who ignore the signals do so at their peril.
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This Life Sciences Advisory Bulletin is a publication of the Life Sciences Group of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory Bulletin is to inform our clients and friends of developments in life sciences law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may be given only in response to inquiries regarding particular situations.
Copyright © 2005, Davis Wright Tremaine LLP.
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