DAB Decision 12
December 12, 1975 Wayne State University Detroit, Michigan; Docket No.
21; Grant Nos. AM-05384-09 and -10, GM-11520-07,NB-07519-03; Decision
No. 12
DECISION
Wayne State University has received many Federal grants, including many
research and training grants from the National Institutes of Health
(NIH). The grants now in question are grants numbers AM-05384-09 and
10, GM-11520-07 and NB-07519-03. These were research grants which have
been well performed and renewed several times and have been highly
productive. To perform the research the University gathered a competent
staff of associates and assistants, including several holding doctorates
and several well qualified pre-doctoral students.
Compensation for the staff members was clearly a proper expense of the
research grants. The difficulty arises because the grantee referred to
the compensation arrangement as research fellowships and to the payments
as stipends. NIH disallowed payments amounting to $49,148 on these
grants.
DISCUSSION
The distinction between training (at high levels) and research is hard
to draw. Since separate funds are authorized for the two purposes,
efforts have appropriately been made on a government-wide basis, for
example in OMB Circular A-21, Sec. J and in PHS Grants for Research
Projects Policy Statement (as revised July 1, 1967, page 27), to avoid
additional blurring of this line. These rules could be stated, however,
with greater clarity and applied with more emphasis on underlying
reality.
The University's treatment of the matter unfortunately contributed to
confusion. In an apparent effort to obtain tax exemption for its
payments to researchers, it called the
'(Page 02 - 12 - 12/12/75)'
payments fellowship stipends, excluded them from its regular payroll,
used office forms that were ordinarily not used for employment
compensation, with legends denying the employee relationship and there
are instances where similar confusions occurred without justifications
offered in this case.
NIH Financial Advisory Services Board correctly noted (Letter dated
April 23, 1974, Appeal Attachment #1, p.3) that "the question has always
been whether the intent of the questioned payments was primarily for
work or training." We conclude that the intent was primarily for work.
In its response to the appeal the agency noted: "It is quite obvious
that the individuals' whose employment is being questioned did perform
extensive, detailed and highly skilled services for the grantee
institution which then was reimbursed for its services from National
Institutes of Health grant funds. In short, the individuals did perform
a service for the grants involved." In a later filing it is true the
agency sought to qualify this concession but the original statement
seems to us plainly correct and the later qualification forensically
motivated.
Several of the researchers held doctorates and were not candidates for
further degrees. They were employed on understandings which reflected
that their compensation was subject to increase depending on the value
of their contribution.
Pre-doctoral researchers were offered fellowships with lower
compensations. Letters to these reflect the importance of the
researcher's credentials and stress the contributions to be made.
There was no attempt to disguise what was being done. The University's
purpose was adequately expressed. Several reports of expenditures
flagged the payment of stipends and in at least one case, an award now
in question was expressly made after consideration of the prior ROE
(AM-05384-10).
Defense Contract Audit Agency reported on grantee's accounting records
and financial operating procedures for the year ending June 30, 1969.
This is the year preceeding the year in which the disallowances
occurred. The auditors concluded that:
'(Page 03 - 12 - 12/12/75)'
c. In our opinion, grantee's policies and procedures for
recording and reporting costs of performing DHEW research and
training grants are proper and adequate. d. Grantee' s
management practices affecting the reasonableness of grant
costs are considered to be generally adequate. e. Grantee's
financial statements fairly represent costs incurred in grant
performance..."
The next year, for which the disallowance occurred, involved no
substantive change in the arrangements with researchers.
The University's intent in this matter was fully explained to NIH in
connection with another grant not involved here, National Cancer
Institute Grant CA 03772, involving a roughly parallel problem. The
principal investigator there is also principal investigator under one of
the grants now appealed. After discussion, the grantee was specifically
advised: "Since the students 'employed' on grant CA 03772 are
performing work which contributes to the research and since the services
they are performing are required of all candidates for the Ph. D.
degree in Chemistry, the tax free salaries paid these students are
legitimately chargeable to the grant" and "Since the students being
paid
from this grant are receiving remuneration for services rendered, these
expenditures are allowable charges against this grant." (Attachments 29,
34 of the appeal). This action was taken in part by Thomas Reynolds,
then in Extramural Activities, National Cancer Institute, National
Institutes of Health, and now Executive Secretary of the Board. The
Board is aware of Mr. Reynolds' participation in this related matter,
and as a matter of caution special care has been taken in this case to
exclude him from the decisional process (see preamble to the Board's
Charter 40 FR 33936, column 2).
The agency disallowance is based primarily on a reading of OMB Circular
A-21 and the PHS Policy Statement for Grants for Research Projects
(revised July 1, 1967) and incidentally on a reading of IRS Code Sec.
117, all of which seems to us misplaced. The PHS Policy Statement, for
example, forbids stipends for fellows and trainees and states that such
stipends are "Not allowable when the purpose of the payment is for
training." This rule negatively makes clear that stipends if otherwise
allowable may be paid when the purpose of the payment is not for
training but for research, as is the case here.
May 7, 1992