Included in government research grants to universities are indirect cost payments designed to compensate for the researchers' use of the schools' facilities.

Stanford University received approximately \(\$ 240\) million in federal research funds annually. About \(\$ 75\) million went to actual research, whereas Stanford billed the federal government \(\$ 85\) million, or \(20 \%\) of its operating budget, for its overhead. \({ }^{74}\) The rest of the research funds went toward employee benefits. An audit of Stanford's research program in 1990 by U.S. Navy accountant Paul Biddle revealed that the school billed the government \(\$ 3,000\) for a cedar-lined closet in president Donald Kennedy's home (Hoover House); \(\$ 2,000\) for flowers; \(\$ 2,500\) for refurbishing a grand piano; \(\$ 7,000\) for bed sheets and table linens; \(\$ 4,000\) for a reception for trustees following Kennedy's 1987 wedding; and \$184,000 for depreciation for a 72 -foot yacht as part of the indirect costs for federally funded research...................

 Discussion Questions
1. Did Kennedy's ethics evolve during the crisis? Contrast his March 23, 1991, ethical posture with his December 18, 1990, assessment.
2. Is legal behavior always ethical behavior?
3. Do Casper's remarks reflect an ethical formula for Stanford's operations?
4. In a 2000 interview for an internal Stanford publication, Kennedy offered the following when asked about research and cost issues as he assumed the editorship of Science:
One of the factors in the explosive growth of Stanford during the ' 60 s and continuing into the '70s and '80s was the availability of fed. eral funding for research. The policy behind that support was always that the government benefited from basic research because it eventually produced findings that could be converted to human service in one way or another and so the government continualiy built that capacity and built that capacity in universities. Its policy was that it would pay the full cost of research, including not only the direct cost that could be associated with particular programs but the indirect costs that had to be made by the university in order to stay in the business of doing sponsored research.
Over time, the percentage of all research funding that was allocated to indirect cost grew. And it grew to a point in the late '80s and early '90s when it seemed to many people, some in Congress and some on this faculty, that it was an unacceptably large percentage and we recognized that though, probably not soon enough, made some efforts to constrain it, but in fact it was high enough to trouble people and it was calculated, the indirect costs were calculated on the basis on a pool accounting mechanism no one in the public understood and indeed few people on the faculty understood. And when Congressman Dingell decided to make that the subject of a very high profile Congressional investigation and made Stanford the subject of it, we had a very, very bad time. We took a beating. It was sufficiently bad that after the hearings and during the summer of 1991, it became clear to me that there was so much faculty concern about the ruckus and whether Stanford would continue to be a target for this kind of thing that I decided that if you're part of a problem, you can't be part of a solution and so I resigned. I think that steadied things down considerably. It wasn't any fun to do that. It was not any fun to take a certain amount of newspaper abuse in connection with it. Stanford's recovered nicely. We're still not paid the indirect cost rate I think we are entitled to under articulated government policies, but the sequelae to the whole furor, I think, made it plain to everybody that Stanford hadn't engaged in any wrongdoing I think there were a few people in other institutions who got caught up in the problem later when it was revealed that they had engaged in exactly the same practices we had who did a little finger pointing and said "Well, Stanford was pushing the envelope." But in fact we weren't. Our indirect cost rate was high but it was in a cluster of other high rates, two or three or four other institutions which were comparable or within three or four percentage points. So you can't make the case that we were doing stuff that others weren't also doing. List the rationalizations you see in this statement. Does he think Stanford did anything unethical?
5. The problems with universities and research funding continue. The U.S. Attorney for the District of Connecticut reached a settlement with Yale University on allegations that Yale violated federal regulations on grant administration and accounting. Without admitting guilt, Yale agreed to pay the federal government \(\$ 7.6\) million, half as damages and the other half as penalties. The investigation focused on the problem of funds left in federal grants. When the grant ends, the Feds get the funds back. The govermment alleged those at the university, however, transferred the funds to other unexpired grants for continuing use.
Also, the investigation focused on faculty summer salaries. Faculty members often serve under nine-month contracts. They are not paid in the summer unless they have summer school classes or have research dollars. However, to get those summer research dollars, faculty members must be devoted to research. Yale faculty, allegedly, did other things besides research during those summer periods but still billed the government for 100 percent of their salaries. They were compensated for those additional activities during the summer. The result is that the faculty has two sources of compensation. However, the activity reports faculty members must sign/certify that they have devoted 100 percent of their time to the lab and, because they are required by federal law, are signed under penalty of perjury. Why is the university responsible for the conduct of the faculty members? What advice would you offer to universities for the management of their grant funds? Should this all matter if the faculty are indeed performing the required research under their grants?