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NAVREF COMMENTS
REGARDING
VA OIG REPORT 03-03053-115 ADMINISTRATIVE INVESTIGATION
The following is a
synopsis of comments that NAVREF sent to Daniel Petrole
Assistant Inspector General for Investigations
April 5, 2004
Link to VA OIG Report:
VA
OIG Administrative Investigation 03-03053-115
SUBJECT: National
Association of Veterans’ Research and Education Foundations (NAVREF)
response to VA
OIG Administrative Investigation 03-03053-115, March 22, 2004.
NAVREF is the
association of the VA-affiliated nonprofit research and education
corporations established and operated under 38 U.S.C. 7361-7368.
Organizations managed in compliance with this statute are commonly
referred to as “NPCs.” As noted in the IG report, Friends Research
Institute (FRI) is not an NPC. However, the report references
NPCs in ways that NAVREF feels need to be addressed. Our comments focus on
just three topics.
First
and foremost, statements in the report create the erroneous perception
that NPCs were involved in transactions attributed to Dr. Wray and the
named or redacted ORD personnel. Please note the following:
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The NPC affiliated with the Houston
VAMC was incorporated in September 2002, but did not open its first bank account with a deposit of $100
until
December 9, 2003. As a result, during the time Dr. Wray told you
“ she used funds from that facility’s VA-affiliated research
corporation” (page 11) there was no active Houston NPC.
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The December 15 memo signed by Dr.
Perlin (page 48) is included in the IG report to bolster IG
findings in regard to FRI. However, the memo erroneously implies
that NPCs provided credit cards to ORD personnel and that NPCs
approved improper expenditures at their direction. We hope simple
confusion caused the author of the memo to attribute to NPCs
practices that were exclusive to FRI expenditures.
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We confirmed by phone with the
executive director of each NPC affiliated with a site named in
the report that none provided credit cards to Office of Research
and Development personnel. We are highly doubtful that this
would ever occur.
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Individual ORD personnel have no
authority to direct NPC expenditures. Rather, NPC expenditures
are governed by the authorizing statute under regulations
prescribed by the Secretary [38 USC 7361], VHA Handbooks 1200.17
and 1400.2, the terms of agreements between NPCs and sponsors,
applicable federal and state statutes and regulations and
policies and procedures established by each board of directors.
At ORD direction, some NPCs have received funds pursuant to
participation in cooperative studies, but the subsequent
expenditures are guided by the protocol and the guidance listed
above. Again, we confirmed by phone with the executive director
of each NPC affiliated
with a site named in the report that none made expenditures at
the direction of Dr. Wray or ORD personnel of the type described
in the report.
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VHA Handbooks 1200.17 and 1400.2
apply only to NPCs. They have no relevance to FRI.
Second,
please note the following misperceptions about NPCs that are reflected
in the report.
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The report states that NPCs “are
legally authorized to spend their funds, which are ‘public
monies,’ only for purposes directly related to VA-approved
research or education projects. . . “ (page 11)
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However, not all funds administered
by NPCs are “public monies.” The report appears to confuse
this term with “funds held in the public trust.” Only funds
subject to federal appropriations are “public monies.” These
include grants or contracts provided by federal agencies.
According to the executive summary of NPC reports submitted to VA
in June 2003, federal funds, or public monies, represent $65.7
million (35%) of NPC administered funds. Statutes and regulations
applicable to federal funds administered by private organizations
govern NPC expenditure of such funds.
All NPC funds are “held in
the public trust,” as nonprofit assets are commonly characterized.
According to the same report, $115 million (62.5%) of NPC revenues
originated in the private sector and were administered in accordance
with numerous applicable statutes and regulations. Federal employee
personnel and procurement regulations are not applicable to
expenditure of private sector funds administered by a private
organization.
The statement quoted above that NPC
expenditures must be directly related to VA-approved research or
education projects is an overstatement not supported by the NPC
authorizing statute or the December 15, 2003 VHA memo included in
the report Appendix which states, “Funds may also be expended to
generally further VA’s research and education missions . . .”
Consequently, some of the expenses the IG found improper during the
Miami and San Diego IG investigations referenced on page 11 were
consistent with the broader statutory purposes of the NPCs. All NPC
expenditures, including those that ensure a smoothly functioning NPC
workforce, should be viewed as benefiting VA research and education
regardless of the internal account from which they are drawn.
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We object to the broad statement
that NPCs “are likewise misusing money intended for VA research
projects to purchase meals and other personal items” (page 12).
NPC boards and managers work hard to understand and apply the
relevant guidance to expenditure decisions while still enabling
the NPCs to remain “flexible funding mechanisms” (38 USC 7361)
as intended by Congress. To the best of our knowledge, no NPC has
been found in violation of the numerous federal and state
regulations applicable to nonprofits generally. Indeed, the IRS is
particularly stringent in 1) requiring contributions to be used
for their intended purpose; and 2) requiring
nonprofits to guard against providing items of personal benefit. The
IRS levies stiff penalties for abuses, particularly by individuals
with significant influence over organization funds. To the best of our
knowledge, annual CPA audits of NPCs cite no deficiencies in these
areas.
NAVREF does not and never will defend
expenditures that violate applicable regulations. However, when
reading the IG reports regarding San Diego and Miami, it becomes apparent that even though many
transactions under investigation are acceptable for other nonprofits,
the IG finds them to be improper for NPCs. Often the IG evaluates
transactions according to standards that have not otherwise been
communicated to NPCs, but which are nonetheless applied retroactively.
Even the GAO appears to disagree with
standards used by the IG. For example, in 2002 the House Committee on
Veterans Affairs Subcommittee on Oversight and Investigations asked
the GAO to perform an oversight review of the NPCs. To comply, the GAO
conducted in-depth reviews of five NPCs, including the San Diego NPC.
During this review, the GAO examined many of the same expenditures
cited in the 2003 IG report on the San Diego NPC. The GAO found them
to be acceptable while the IG found them improper.
Finally, we wish to point out that the
Miami IG report reflects expenditures during 1996 through 2002. The
expenditures found inappropriate constitute only $15,787, less than
0.1% (one tenth of one percent) of the more than $16 million
administered by the NPC during that time. The San Diego IG
investigation covered 2001 and 2002. The $40,607 deemed to be improper
also represents 0.1% (one tenth of one percent) of total expenditures.
We contend that this attests to a remarkable degree of diligence by
NPCs. That said, NPCs take all negative IG findings very seriously and
adjust their policies and procedures accordingly. We are acutely aware
that negative findings at one are usually attributed to all and that
the NPCs facilitate VA research and education at the discretion of the
Secretary.
Third,
we disagree with the IG recommendation that funds currently administered
by FRI should be transferred to one or more NPCs.
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In our view, the uncertain
nature of the cooperative study agreements between VA and
pharmaceutical companies, and the unlikely inclusion of terms
necessary for approval of an agreement between an NPC and a
pharmaceutical company, would make the FRI funds inappropriate for NPC
administration.
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After consulting an expert in
federal funds management and a certified public accountant, we
disagree with the IG conclusion that pharmaceutical funds administered
by FRI pursuant to agreements between VA and the pharmaceutical
companies “must be characterized as “government funds” (page 4).
Should the IG persist in its assertion, disagreement over the
provenance of the funds could result in conflicting requirements, and
may mandate burdensome internal accounting. Further, NPC expenditures
are subject to policies and procedures established by the board,
and we would be opposed to giving ORD personnel discretionary control
over a portion of an NPC’s funds.
That said, should VA wish to involve
NPCs in administration of future cooperative studies, we would be
agreeable to reaching an understanding with VA on policies and
procedures consistent with those applied to other private sector funds
administered by NPCs. However, such an understanding should be reached
prior to assigning to any NPC responsibility for cooperative study
funds.
Also after consultation with a
CPA, we understand that VA’s ability to direct FRI to transfer funds
to other organizations, whether NPCs or GPFs, is questionable, and we
prefer that NPCs not become embroiled in a dispute over control of the
funds. All funds accepted by FRI legally belong to FRI and their
dispensation is subject to applicable statutes and regulations as well
as the terms of each individual grant. Where such terms are uncertain,
it may be in FRI’s best interests to retain full control over the
funds or to return them to the original donor.
We welcome the opportunity to address in
a proactive way any concerns that the IG or other VA officials may have
about NPC management so that NPCs may continue to serve as flexible
funding mechanisms for the conduct of VA’s highly important research
and education programs. Thank you for considering our views. We would be
pleased to discuss any of the above points or respond to any questions
you may have.
cc:
Secretary
Deputy Secretary
Under Secretary for Health
Deputy Under Secretary for Health
Chief of Staff
General Counsel
Chief Research and Development
Officer
Nonprofit Program Office
Chairman and Ranking Member Senate
Committee on Veterans Affairs
Chairman and Ranking Member House
Committee on Veterans Affairs
Chairman and Ranking Member House
Subcommittee on Oversight and Investigations
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