Success, At A Price
An engineering research center helped Florida International University build a national reputation. But the school is now paying millions to settle allegations that the center misused federal grant money.
Modesto "Mitch" Maidique became president of Florida International University in 1986 after earning a fortune in the semiconductor business and later as a venture capitalist. A graduate of M.I.T. and Harvard Business School, Maidique is recognized as an authority on the management of high-tech enterprises.
Maidique, the school's fourth president, took the helm of a fast-growing institution that already had made the transition from a state university offering only junior- and senior-level undergraduate courses to a four-year university with doctoral students. Maidique pushed the school's entrepreneurial spirit even further. Among his benchmarks for success: Achieving the highest possible rating, "Doctoral/Research-Extensive," within the classification system of the Carnegie Foundation for the Advancement of Teaching.
AT THE HELM: At the helm: Engineering Professor M. Ali Ebadian steered HCET to early success but clashed with university controllers over his handling of grant money (see editor’s note at the end of this story). Only 4% of the nation's universities, including Harvard, Stanford and the University of Michigan, have the designation. In addition to conferring status, the Carnegie rating can help a school attract better students, better faculty and more funding for research and infrastructure, and it can lessen dependence on the purse strings of state lawmakers. Without the Carnegie calling card, "We essentially were a nonentity in the world of higher education," says Mark B. Rosenberg, the FIU provost recently named chancellor of the State University System.
FIU's 1995 strategic plan, "Reaching for the Top," established the Carnegie rating as an overriding goal. To meet it, however, the school needed a lot more doctoral students and federal grant money -- the most crucial factors that Carnegie weighed at the time in arriving at its ratings.
For FIU, the means to those ends arrived in the form of the Hemispheric Center for Environmental Technologies (HCET), a startup research and development facility with the potential to garner a steady stream of federal research grant money. Maidique and other FIU officials believed the center, operated within the College of Engineering, could carve out a lucrative niche by developing cleanup technologies for toxic and nuclear waste sites and then transferring those ideas to the commercial marketplace. The U.S. Department of Energy agreed, awarding the center a $22-million grant in 1995 -- at the time the largest in FIU history. Since its creation that same year, HCET has received $84 million in sponsored research grants, nearly all of it from the Energy Department.
Maidique put M. Ali Ebadian, a tenured professor in the Department of Mechanical and Materials Engineering, in charge of HCET. Within two years of its founding, HCET, with about 60 employees, was generating one-quarter of all sponsored research at FIU. In 1997, Maidique traveled to Buenos Aires, Argentina, with Ebadian to help promote the center's work to a delegation of private sector managers. Records also show that Maidique routinely hosted dignitaries, including former U.S. Environmental Protection Agency Administrator Christie Whitman and former U.S. Secretaries of Energy Bill Richardson and Spencer Abraham, who were invited to campus to tour HCET facilities.
The center was successful enough that Maidique created a special task force in 1998 to propose ways to speed the process of winning the Carnegie rating. Meanwhile, however, a dark cloud had begun to swirl at HCET.
Internal documents reveal that Ebadian repeatedly clashed with the university controller's office over HCET's practice of shuttling money among various grant accounts to cover unapproved expenditures and other costs not directly related to HCET's sponsored research. In June 1999, an FIU internal audit revealed that HCET personnel had circumvented university and federal guidelines in how it had used some grant funds. According to the audit, HCET hired outside consultants without proper review and approval. In other cases, the center awarded subcontracts without competitive bidding. Auditors also found HCET paid some employees using grant money earmarked for other uses. Such practices, the auditors concluded, "could cause compliance issues to be raised by federal oversight personnel."
ENTREPRENEURIAL: FIU President Mitch Maidique brought an entrepreneurial approach to the school from his experience in the semiconductor business and as a venture capitalist.In an August 1999 memo to his superiors, FIU Assistant Controller Sean St. Louis wrote that he was "extremely uncomfortable with these accounting practices. Although we have addressed these issues with HCET administration, nothing has changed in the 2+ years I have been working in (the department of) Contracts & Grants. While it is not my intention to hinder Dr. Ebadian's research, I cannot close my eyes to what is going on... Based on the transactions that come across my desk I am sure the problems are more extensive than what is listed in the audit findings."
Success and audits
St. Louis was right, but university officials ignored him and their own audits. Meanwhile, Ebadian received the prestigious Professorial Excellence Program Award in 1999 recognizing the top tenured professors within Florida's State University System.
In August 2000, FIU got the prize it coveted: The Carnegie Foundation bestowed its "Doctoral/Research-Extensive" rating on the school. School officials were ecstatic. Barely two months later, Energy Secretary Richardson returned to campus to announce a $35-million, five-year research grant to HCET -- the largest single grant in university history.
Then, in August 2002 the Department of Energy conducted its own routine audit of HCET. "We believe our audit findings demonstrate not only a lack of appropriate regard for basic (federal accounting) principles by individuals responsible for University and HCET operations, but also reflect a lack of institutional control over HCET operations by the University," the government auditors concluded.
Alarmed by that report, the federal government launched a more extensive audit of HCET operations. The findings, released in April 2003, hit FIU like a bombshell. Dozens of possible violations, some ongoing for years, were cited. Of the $27.8 million awarded to the center during the period under review, auditors could verify that only $3.3 million had been properly spent.
Among the audit's findings were allegations that the center had hired a number of consultants and subcontractors without competitive bidding. Among the contracts the auditors questioned: $18,000 to a consultant to "assess HCET's procedures and policies." In another questioned contract, more than $100,000 was allegedly spent on "equipment manuals, operating procedures and maintenance documents."
HCET had retained at least four former Department of Energy employees and two from NOAA under consulting contracts. The center classified their services as "training and education" and routinely paid their fees with research grant funds. But internal documents suggest that in each case the former officials were engaged in lobbying and "business development," apparently helping HCET attract more federal research grants using funds from earlier grants -- a possible violation of the federal Byrd Amendment, according to FIU documents.
Another consultant hired with grant funds was former Miami-Dade Assistant County Manager Cynthia Curry, who also had served as FIU's vice president for business and finance. As in the other cases, Curry's work was classified generically as "training and education," although her work for HCET appeared to consist of lobbying, according to FIU documents. Curry, whose website lists HCET as a client, did not return calls for comment.
Documents reveal a similar consulting arrangement with a senior research official from Clark Atlanta University at a time when that institution was subcontracting large amounts of work to HCET. Auditors also challenged millions of dollars in travel expenses and equipment costs. In one cited example, HCET purchased $25,000 worth of personal computers in the last 90 days of a grant period "at which point," the auditors concluded, "the grant could have received little direct benefit."
Federal officials also objected to HCET's high salaries. Auditors found the salaries for some 20 HCET employees, on average, were 54% higher than for comparable employees elsewhere at FIU. At least four were paid twice the maximum allowable under the university's salary scale. (A later internal report suggested a bloated payroll, with 14 of 15 administrative positions at HCET deemed unnecessary given the work volume.)
TOP NOTCH: Without excusing HCET's former staff's mistakes, former FIU Provost Mark B. Rosenberg says the center's work has been first rate. "Entrepreneurship doesn't come without risk," he says.Auditors also alleged that HCET used millions of dollars in so-called matching costs -- money that should have reimbursed the university for overhead -- to build laboratories, purchase furniture and fund the center's basic operations. They also found that HCET improperly charged the federal government for its
administrative and clerical costs.
In the end, federal auditors recommended that FIU be designated a "High Risk Recipient," jeopardizing the university's access to additional federal funding, and they itemized $24.5 million in improper or questionable expenditures of grant money.
FIU officials avoided the "high risk" label by responding quickly to the audit, instituting new accounting procedures and establishing an Office of Compliance to monitor grant funds. Senior officers were replaced at FIU's Division of Sponsored Research and Training and in the Controller's Office. Vice President of Research Thomas Breslin stepped down to resume teaching.
Ebadian resigned as director and later departed for a year on sabbatical. He's now back in the classroom. Rosenberg says the university took no disciplinary action against him. At least 20 other HCET employees lost their jobs, along with two Ebadian family members who were on the payroll at the engineering school. In addition, university officials gave the center a new name, calling it the Applied Research Center.
Also out of a job is Sean St. Louis, the assistant controller who protested HCET's accounting practices. St. Louis claims he fell from favor at FIU after cooperating with investigators from the U.S. Justice Department, directing them to files that bolstered their case against HCET. St. Louis has a legal case pending against the university.
Before the shake-up, FIU disputed nearly all of the audit findings. In a detailed response, the university argued that HCET's size and importance as a research center should have entitled it, under federal guidelines, to flexibility in how it spent and accounted for grant money. Such flexibility was needed to help the center get off the ground, quite literally, as it built labs, classrooms and other infrastructure. FIU officials also defended HCET's high salaries, explaining that it relied on private sector recruits who balked at low faculty wages.
Last February, after months of negotiations, the U.S. Department of Justice announced a settlement: FIU would pay the government $11.5 million and waive claims to $1.7 million. (FIU officials declined a request for an itemized breakdown of those figures.) As part of the settlement, which is believed to be among the largest of its kind in the U.S., the university denied any wrongdoing.
Maidique declined to be interviewed for this story. Through his attorney, Ebadian also declined to comment. The matter is not closed. A spokesperson with the Department of Energy's Office of Inspector General, the agency's investigative arm, says the HCET case is ongoing, declining further comment.
Rosenberg, interviewed in his fifth-floor office overlooking FIU's University Park campus within the sprawl of western Miami-Dade County, says, "This experience has been demoralizing and disheartening to all of us. In general there is a wounded spirit at the university."
Without excusing HCET's former staff for their mistakes, he says the center's work has been first rate. Further, he points out, nobody was accused of stealing funds or other personal gain. The real sin was overexuberance at a time of phenomenal growth, high expectations and lofty dreams. "Entrepreneurship doesn't come without risk," he says.
Last spring HCET received a $7-million federal research grant to continue its work. "The culture of FIU has always been to turn the impossible into the inevitable," Rosenberg says. "That's the attitude that put us on the map."
Inquiries by the Department of Justice and Department of Energy into the administration of HCET grant funds found no wrongdoing by Dr. Ebadian. He was never charged with a crime, and he continues his scientific career as a tenured professor at FIU. He continues working with both the federal government and the private sector, and at their request he serves on various energy and environmental panels. In the wake of the investigation, the university instituted procedural and structural changes to better comply with federal grant administration requirements.