Cost Accounting Standards (seventh in a series)

by Thomas B. Higerd, Ph.D. Professor and Associate Dean, College of Medicine

This is the last article in the series on Cost Accounting Standards. One CAS subject not covered in this series is the financial treatment of MUSC's affiliated entities. A working group on "Affiliates Guidelines" continues to study the impact of including these entities in the cost accounting of MUSC.

This list of affiliates includes, for example, the UMA and Carolina Family Care, the Health Science Foundation, The VA Hospital, the Pharmaceutical Development Center, and the University Foundation for Research Development.

Ken Roozen, Ph.D., chairs the group deliberating these issues and their effect on MUSC's direct and indirect cost rate equations. While our accountants wrestle with bottom-line issues, the decision to include certain affiliates currently excluded will have a major consequence on research faculty, particularly on the maximum level of faculty compensation via grant support and on the range of activities covered by faculty effort reports. The decision to include these affiliates in MUSC's accounting practices has not been made; hence, the series ends one topic short.

To quote Mark Twain, "You may have noticed that the less I know about a subject, the more confidence I have, and the more new light I throw on it."

In the complex world of CAS, I have related to Mr. Twain. It is only fitting that I conclude this series copying unashamedly an article by Dr. Ralph Amado, vice provost for research at the University of Pennsylvania*:

A pretty good first cut for making life choices, be they personal or professional, is to ask, Is it illegal? Is it immoral? Is it stupid? Busy people at the university can get into trouble, particularly with regard to the differences between their private benefit and their responsibility to Penn, by forgetting to pose these questions.

Forgetting to ask recently brought discredit to some faculty at an Ivy League institution, and considerable institutional embarrassment as well. Let's call the place Ivybridge. An audit of federally-funded cost reimbursement grants at Ivybridge revealed that a number of university employees, including senior faculty who were also principal investigators, were at the same time employees of a commercial business. The business also had federal contracts and was owned by one of the senior faculty's family. The grants to the business were supporting many of the same activities as those at Ivybridge. The hours that faculty and other employees reported to have worked at the commercial business raised serious doubts about the time devoted to the grant at Ivybridge. For example, one principal investigator, a faculty member, was a full-time employee of the company and its chairman, working an average of 170 hours monthly at the company during a five-month period in which he also claimed to be on the full-time faculty at Ivybridge. Furthermore one report claimed reimbursement to someone for work at Ivybridge on June 31 and Sept. 31.

In summary the audit found extensive violation of Ivybridge's policies on outside paid professional activity and nepotism, as well as lapses in research accounting procedures. This story is not a joke. It is a true cautionary tale. Even talented and experienced faculty can, in their busy lives, do things that may be illegal and are certainly stupid. Usually the excesses are not nearly so blatant as those at Ivybridge. ln fact, often they involve conflicts that are as much perceived as real. Nevertheless, these acts damage the reputation of the faculty members, and they also bring discredit and the wrath of the federal auditors down on the institution. We must guard against them.

At Penn, each individual employee bears primary responsibility for managing his or her own behavior. The faculty rightly cherish their academic freedom, but freedom carries responsibility with it. A creative environment like ours needs to be as free as possible, but at the same time we need to be scrupulous in separating our personal interests and gain from our institutional responsibilities. Failure to do so will end by restricting the freedom of all. * Reproduced with permission of the Trustees of the University of Pennsylvania and Dr. Amado. His article entitled, "Illegal, Immoral, or Stupid," was published in the May 5, edition of Penn's weekly faculty newsletter, the Almanac.

When this series first appeared in May, a web response page was established to capture reader comments. Few responded. To assess readership, our consulting group at PricewaterhouseCoopers (formerly known as Coopers and Lybrand) has agreed to provide a certificate for two dinners at Magnolia's Restaurant to the first faculty member who reads this article and calls me at 792-4333.

How can you respond? The full report is available in paper copy or through MUSC's web page cited below. Included in these web sites are links to a CAS-specific on-line web discussion group where you may view responses from others and/or provide your own response. I will collect and collate your responses for presentation to the chair of this working group and to the steering committee.

Any questions, opinions or ideas? Call 792-4333 or e-mail <higerdtb@musc.edu>

To obtain: Paper copy of full report call David Welch, 792-2850

Web site of full report <http://www.musc.edu/research/cas/toc.htm>

Web site for The Catalyst <http://www.musc.edu/catalyst/>

Web site for responding <http://www.musc.edu/research/cas/response/>

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