For over 40 years, the promotion of scientific research has benefitted from a comfortable relationship between the government and institutions of higher learning.

Scholars and federal officials shared an interest in the pursuit of research--in the fields of medicine, engineering and national security, for instance.

With this common goal in mind, the government and higher education came to an understanding-- the universities do the research, and the government covers the costs.

And during that time, everyone profited from this arrangement. The government could hire the best people in the country to do research, and the universities could build and maintain their facilities with federal funds.

Now, the government is not so comfortable with the relationship.

In fact, they're angry, and they're changing the terms of the deal.

In September of 1990, several representatives in the House, led by Rep. John D. Dingell (D-Mich.), decided to look into where federal research money was actually going.

The next month, the Subcommittee on Oversight and Investigations arrived at its guinea pig site, Stanford University, and the government discovered significantly, costly improprieties. As their interest piqued, investigators then broadened the scope to Harvard Medical School and MIT. And now, after nine months, what began as a low-key fact-finding mission has snowballed into a massive federal inquiry that has drawn the interest of at least seven independent federal agenices and has engulfed nearly 300 colleges and universities.

The government investigations are concerned with billings for overhead costs on research-- called indirect costs. Each school receives a certain amount of money over and above the direct federal grant money, tagged for expenditures such as building depreciation, heating and lighting.

For example, for every dollar of federal research money granted to a Harvard Medical School researcher, the University can charge the government up to 88 cents more to cover overhead costs.

Inappropriate Billings

Under the heat of federal inquiry, 17 schools have admitted improper billings to the government for indirect costs and have either offered to pay back the government or reduce billing requests--in many cases, billings totaling hundreds of thousands of dollars.

For example, Harvard announced in April that it would withdraw $500,000 from this year's request for indirect cost reimbursements. The University cited as questionable billings a senior dean's retirement party (University officials will not disclose the name of the dean), contributions to Boston public schools and any costs relating to the home of President Derek C. Bok.

And at Stanford, investigators revealed that the university charged the government for depreciation on a 72-foot yacht (complete with jacuzzi) and floral arrangements and cabinets for the home of President Donald Kennedy '52.

Stanford presented the Office of Naval Research (ONR), its regulatory agency for research, with a check worth in excess of $900,000 at a Congressional hearing last month, but the check was rejected because Stanford attached conditions that the ONR could not accept. Federal investigators for the subcommittee have said that Stanford overcharged taxpayers nearly $200 million over the last decade.

MIT has admitted to overcharging the government over $700,000, and many other colleges have admitted similar improper billings. The Department of Health and Human Services (HHS) has found further significant overbillings by at least 12 colleges that have already admitted to inappropriate charges, according to one investigator who spoke on condition of anonymity.

Federal Action

The General Accounting Office (GAO) has wrapped up its inquiry at Stanford and is now conducting investigations at Harvard, MIT and the University of California at Berkeley. HHS is auditing over 20 schools and the Navy is performing audits at over 40 schools.

In addition, HHS has sent a letter to over 200 schools advising them of the indirect cost issue and of their responsibility to properly bill the government.

The White House's Office of Management and Budget (OMB), which sets the regulations for what can be charged as indirect costs, has proposed capping the rate of administrative indirect costs--one of several categories of indirect costs--at 26 percent of direct costs.

OMB will be drafting a new version of Circular A-21--the all-encompassing set of regulations defining appropriate indirect cost billing--that will attempt to further restrict overhead reimbursements in light of the findings of the GAO and HHS.

When the GAO has completed its inquiries into indirect costs, it will prepare a comprehensive report on its findings for the subcommittee, an investigator says.

Already, the inquiry into indirect costs has raised questions about research practices behind the walls of the Ivory Tower. Both the media and government officials have simplified the issue into a battle between the taxpayer-conscious government watchdogs and the spending-abusive administrators of research institutions.

But those watchdogs may have been sleeping on the job, allowing universities to indiscriminately

At Stanford, one of the federal inquiries was not into university finances at all, but rather into the practices of Stanford's regulatory agency, the Office of Naval Research. The subcommittee is also concerned about the practices of HHS, which oversees hundreds of schools.

And federal auditors have not regularly kept track of higher education accounts. For many schools, including Harvard, in-depth audits are few and far between.

The public eye, though, has turned to the spenders themselves, and the Ivory Tower is lined with red faces.

"There's a lot of people that are suspicious about where indirect costs go," says Lehman Professor of Microbiology and Molecular Genetics Bernard N. Fields. "That's not my belief."

"I think it has [tarnished our reputation], and I think it's unfortunate," Fields says.

"The economy is tough," he says. "People are out of work. I think this is a very vulnerable target."

And government-funded research is a vulnerable target for federal budget cutters, causing administrators and researchers to question the future of higher education's relationship with its federal sponsors.

* Will Congress lower the amount of money given to research?

* Will the National Institutes of Health--the major source of research money for medical institutions--abandon "indirect cost-blind" peer review, with science taking a back seat to funds?

* Will the White House seize the opportunity to take away a perceived cash cow from the universities and add significant restrictions to Circular A-21?

* Most importantly, will the regulatory agencies that set indirect cost rates decide to greatly reduce the rates they hand down to universities?

HHS, which sets Harvard's indirect cost rates, has already given a tentative answer to the last question.

Last month, HHS decided that the ongoing negotiations for a new rate were not going well, choosing unilaterally to reduce the Medical School's provisional rate of 88 percent to 63.5 percent.

Last year, when Harvard's negotiated rate with HHS was 77 percent, the Medical School received $19.2 million in direct federal dollars and $13.5 million in indirect cost reimbursements. This year, the University expects direct funds of about $20.1 million and has requested $18.8 million in indirect cost reimbursements, or 96 percent.

If HHS were to set a permanent rate near 65 percent, Harvard would receive about $6 million less per year than it has asked for in indirect cost reimbursements.

"If that money is arbitrarily cut, it could be very damaging," Fields says. "At research-intensive places, the indirect costs have to be high."

If HHS were to hand down a lower rate, says Vice President for Finance Robert H. Scott, "We'd have to change the cost structure of the Medical School."

Harvard would have to redouble its fundraising efforts, reduce its funding for maintenance at the Medical School and cut administrative costs, Scott says.

Harvard is not asking the government to cover expenditures not related to research, Scott says. "We are asking them to pay for the space they use."

Changing the Rules

While the government considers how to best alter the indirect cost regulations, Scott, Fields and R. John Collier, Presley professor of microbiology and molecular genetics, are concerned that the government has already changed the "ground rules" with respect to indirect costs--that the government is not maintaining "its side of the bargain."

"We're caught in a Catch-22," says Collier. "The government doesn't give you a strict definition of what's eligible [for indirect cost allocation]...then they come back and hit you in the stomach."

"The abuses have been greatly magnified out of proportion to their real nature," Collier said.

At the subcommittee, one investigator insists about the flak the universities have received, "It's not damage that has not been deserved."

And the government won't be downscaling its nationwide inquiry anytime soon.

"There's been a significant increase in interest," the investigator said. "And I think it's going to grow. It's not at the end yet. There's more questions being raised every day."

Under the microscope of the General Accounting Office, the University has admitted to making $500,00 of mistaken or questionable billings to the government for overhead on research at the Medical School. Now, the federal 'indirect cost' inquiry has engulfed nearly 300 schools.