August 1, 2013

Update Your Compliance Programs to Address Increased Federal Scrutiny of Academic Research and Grant Funding

Holland & Knight Alert
Jeremy M. Sternberg

The federal government has stepped-up its enforcement efforts in the areas of academic research and grant funding. Just this week, Northwestern University agreed to pay $2.93 million to settle a federal whistleblower suit charging that one of its former researchers misused funds from a cancer research grant from the National Institutes of Health (NIH). In light of this increased government scrutiny, educational institutions are well-advised to respond by updating their compliance programs. The U.S. Department of Justice and its law enforcement partners, such as the Health and Human Services (HHS) Office of Inspector General and the National Science Foundation (NSF) Office of Inspector General, have been cracking down hard on research fraud and the mishandling of federal and private funds by research institutions. This enforcement initiative is fueled by shrinking grants, increased resources for investigation and prosecution, and a few notable government successes. In combination, these forces pressure educational institutions to ensure legal compliance.

This alert briefly explains the federal government's recent enforcement efforts, how those efforts impact higher education, and what institutions can do to maximize compliance and minimize risk.

Increasingly Competitive Landscape

More researchers today are competing for a declining pool of federal research dollars. For example, the NIH will seek to make average awards at fiscal year 2011 levels or lower and the NSF funds only about a quarter of the proposals submitted. The scarcity of research dollars, combined with the continuing need for faculty and researchers to obtain sustaining grant funds, provides strong incentives for fraudulent and unfair conduct in academic research.

What Is the Government Doing?

The advent of additional agency resources, growing use of whistleblower suits, and prosecutors' growing interest in research fraud has led to an unprecedented level of enforcement activity in the last few years. In the past three years in Massachusetts alone, there has been a criminal conviction of a doctor for falsifying research based on private grants, a criminal conviction of professor for falsifying information on an NIH grant application and an administrative sanction of another professor for publishing articles with false data paid for by federal grants. The federal Office of Research Integrity (ORI) has reported ever increasing numbers of administrative enforcement actions based on findings of research misconduct.

What Issues Are Attracting Government Scrutiny?

There are four primary areas of concern that the federal government is focusing on:

  1. embezzlement/theft of federal research dollars
  2. false statements in connection with obtaining or maintaining federal research dollars
  3. false claims/bills for payment
  4. mismanagement of federal funds

Misconduct in these areas can include criminal activity — such as stealing grant funds for personal use, to unintentional wrongdoing, such as an accounting mistake meriting no government action.

What Forms of Government Contact Raise Compliance/Enforcement Risk?

Most enforcement actions with respect to academic research/grant fraud have started at the agency level, typically the Office of Inspector General of HHS, NSF, or another federal agency. Some of these investigations are spawned by routine audits, while others result from complaints to the agencies. These agencies now possess a greater range and depth of personnel and capabilities to address complicated fraud claims. Consequently, institutions under investigation should not assume that the government will be unable to deal effectively with complex science or accounting data.

What Are the Current Hot Button Issues for the Government?

The prevailing hot topic for government enforcement in the research/grant fraud area appears to be Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants. Most relevant to the higher education community are the STTR grants because this program creates funding for joint venture opportunities between small businesses and nonprofit research institutions.

A recent example of government enforcement of STTR grants is the prosecution of a professor at Morgan State University in Maryland who was charged with fraud in connection with obtaining $200,000 in grant funds from the NSF's STTR program. This criminal case is pending in federal court in Baltimore and represents a joint effort between the U.S. Attorney's Office in Maryland and NSF's Office of Inspector General. Manoj Kumar Jha was a full time professor at Morgan State University. On behalf of a business that he owned, he submitted a proposal to STTR for enhancing certain models used by highway planners to optimize routes. According to the indictment, Jha represented that he would take leave from his professorship to perform work on this project and that he would use the funds in furtherance of the project. The indictment charges that Jha stayed on full time at Morgan State, misrepresented his contribution to the project and used the funds for personal items, including mortgage and credit card payments.   

In This Enforcement Landscape, What Steps Should a Research Institution Take?

Up-front investments in compliance programs, and routine upkeep through audit and monitoring, will yield returns in reducing the risk and impact of government inquiry. For many reasons, including cost and control, it is preferable to invest in a voluntary compliance program than to have one mandated by the government as part of the resolution of a government investigation.

While there is no one-size-fits-all program for effective compliance, there are certain features that effective programs share. The best programs have clear and sensible written policies and a culture in which compliance is an ongoing team effort. Of paramount importance is how the program is audited and monitored, as well as how the organization responds to issues or problems that are detected by the auditing and monitoring.

The U.S. Attorney's Manual Comment at §9-28.800 on Corporate Compliance Programs offers some useful guidance:

While the Department recognizes that no compliance program can ever prevent all criminal activity by a corporation's employees, the critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives. The Department has no formulaic requirements regarding corporate compliance programs. The fundamental questions any prosecutor should ask are: Is the corporation's compliance program well designed? Is the program being applied earnestly and in good faith? Does the corporation's compliance program work? In answering these questions, the prosecutor should consider the comprehensiveness of the compliance program; the extent and pervasiveness of the criminal misconduct; the number and level of the corporate employees involved; the seriousness, duration, and frequency of the misconduct; and any remedial actions taken by the corporation, including, for example, disciplinary action against past violators uncovered by the prior compliance program, and revisions to corporate compliance programs in light of lessons learned.

This formulation highlights the importance of the day-to-day functioning of the compliance system, rather than the mere words in the manuals. Institutions should put this information to use by asking themselves these questions about their compliance programs — before these same questions are posed by federal agents.

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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