Ð 1999 The Minnesota Daily
University auditors investigating the Biomedical Engineering Institute for the past seven months have uncovered evidence of financial mismanagement that could threaten the institution’s already-shaky standing with a federal agency.
Allegations that Dennis L. Polla, head of the University’s biomedical institute, has mismanaged funds from his department, the University and federal agencies could affect the University’s chances of regaining good status with the National Institutes of Health this fall.
Polla mismanaged departmental funds almost from the start of his appointment in January 1998, one employee said.
“He robs Peter to pay Paul on almost every account,” that source said.
In addition, Polla worked as a consultant for many state and national companies, but used University students, facilities and money to fund consulting projects in violation of University policy, according to documents obtained by The Minnesota Daily.
But Polla — who has an master’s in business administration and a doctorate in electrical engineering from the University of California-Berkeley — didn’t stop his mismanagement at University funds, sources said.
Polla overspent several federal grants, including two military grants, bringing those accounts into deficit by spending the money on unrelated projects, sources told the Daily.
Polla said Sunday night that he knew that an investigation was ongoing, but declined to comment on what auditors would investigate in his department.
But employees who initially reported the suspicious activities to University auditors are now concerned that some officials are suppressing the audit’s findings. They fear that the report is being delayed until after an NIH team visits the University during the second week of October to re-evaluate the probationary status it placed on the University’s grants four years ago.
Three sources spoke to the Daily about the mismanagement and the audit, but wished to remain unnamed for fear of reprisal.
In mid-October, NIH officials will decide whether to remove the University’s status as an “exceptional organization.” The NIH put the University’s grants on probation in August 1995 following a series of high-profile financial mismanagement problems mostly related to the illegal distribution of an experimental anti-organ-rejection drug, ALG.
In late August, auditors said they were nearing the end of their investigation of Polla, sources close to the investigation said. But completion of the report was delayed after auditors met with Institute of Technology Dean H. Ted Davis and other University officials on Aug. 24, sources said.
The biomedical institute, which reports to both IT and the Medical School, engineers medical devices, such as a blood analysis machine the size of a credit card.
But allegations that Davis or others influenced the auditors are unfounded, said University President Mark Yudof.
“That’s baloney. I treat the auditors as extremely independent. I have never, ever — nor have I ever authorized anyone — to pick up the phone and say, ‘Delay an audit’ or ‘Take more time’ or ‘Pull your punches’ or anything like that,” Yudof said.
“If I were to find that someone did that, I would be very unhappy, but I have no knowledge that that happened,” he said. Yudof said the reason for the delay was the complexity of the investigation.
Auditors working on the investigation would not comment, and Gail Klatt, associate vice president of audits, could not be reached.
But Yudof said the audit had raised serious questions.
“I do know that there are genuine issues and that Gail Klatt and her audit staff are working hard on the audit,” Yudof said.
The National Institutes of Health
University and NIH officials have been hopeful that when an NIH team visits the University this fall, a new University grants management program will convince the team that the University has improved control over its research programs.
In addition to restricting authority of University researchers working on NIH grants, the exceptional status means that other grant-making agencies — especially federal agencies — are watching the University more carefully, said Winanne Schumi, assistant vice president of research.
“What we’re putting in place is different operations,” Schumi said. “There will be processes in place so that if patterns of problems surface, they will be brought to a department’s attention for resolution prior to them becoming a real problem.”
If the NIH is convinced, the exceptional status will be dropped.
But if the University incurs further violations while on probationary status, more extreme steps might be taken, said Christine Maziar, vice president of research.
What penalties the NIH might impose is unclear. Delaying the removal of the exceptional status is one possible option, Maziar confirmed. But she wouldn’t speculate on more extreme steps for fear of “jinxing” the University.
Diana Jaeger, director of the NIH’s Office of Policy for Extramural Research Administration, said further violations have already occurred while the University has been labeled as an “exceptional organization.”
“Over the last several years, since we first imposed the designation on the University and removed the expanded authorities from the University, we have provided closer monitoring of University activities that relate to grant administration,” Jaeger said. “And there have been issues that have come up, and they’ve been dealt with.”
Many of those issues have been raised through internal University audits, Jaeger said. Audit final reports are forwarded to the NIH, but ongoing investigations are typically not sent.
Jaeger said she wasn’t aware of any current, ongoing University audits.
Yudof confirmed that the NIH had not yet been told of the audit, but said officials there would be informed when the audit is complete.
“As soon as we have any really concrete information or as soon as it’s available, we will be sharing that with all those who are interested in these issues,” Yudof said.
Employees who contacted the University’s Department of Audits in early February allege that Polla mismanaged University and federal funds.
Under Polla’s leadership, the biomedical institute expanded from a division with two faculty members and a small graduate program to a full department with undergraduate and graduate programs as well as a string of research assistants and projects.
But sources told the Daily that Polla bragged about how the University covered for him when he first overspent accounts as an associate professor of electrical engineering.
Polla kept pushing the boundaries, one source said. His accounts went further and further into deficit as he waited for someone to stop him.
But no one ever did, the source said.
In one case in January 1995, the University received a $2.4 million grant from the Office of Naval Research through the Georgia Institute of Technology, according to University memos.
Polla received more than $2 million of that grant during a three-year period beginning in April 1995, according to a Department of Electrical Engineering memo.
By April 1998, however, the account was $85,000 in deficit, according to another University memo. Other memos show that equipment and supplies charged to this account were transferred to other accounts, and research assistants’ salaries were transferred to other federal grants, including a grant from the Defense Advanced Research Projects Agency, commonly known as DARPA.
Grant budgets can not be changed without permission from the sponsoring agency, Schumi said.
But even after the NIH-imposed restrictions were established, University documents show Polla continued to shift expenses and salaries from grant to grant without outside permission.
By December 1998, the DARPA account was also in deficit.
Nikolao Papanikolopoulos, administrator of the DARPA grant and a Computer Science and Engineering assistant professor, warned Polla not to charge equipment and salaries to the DARPA account in a December 1998 memo.
“Your account is in deficit, and I am a little bit concerned,” he wrote in the memo. “It seems also that there are efforts to appoint students retroactively since July 1, (1998,) on this account. I strongly suggest you avoid this. This account is under audit by the U, and we will have extra problems.”
But Polla did so anyway. In March 1999, salaries of three post-doctoral assistants were retroactively moved to the DARPA grant, according to departmental memos.
As of June 1, after the University audit was four months underway, Polla was replaced by Bill Robbins, an electrical engineering professor, as the administrator of the Office of Naval Research account.
In addition to mismanaging federal grant money, departmental documents also show that Polla misspent departmental and University money.
Board of Regents policy requires faculty to obtain prior approval for and submit annual reports on all consulting activity for outside companies.
But Polla had no administrator to report to, employees said.
On his curriculum vitae, which is an expanded rÇsumÇ for academicians, Polla claims to have consulted for numerous organizations. Those include the Department of Defense, DARPA, Texas Instruments Inc., DuPont, Bell Labs, General Electric Co., Honeywell Inc., Medtronic Inc., Affymax Research Institute, Hughes Aircraft Co. and B.F. Goodrich Co.
But Polla only lists a fraction of these organizations in mandatory annual University reports of outside activities, which were obtained by the Daily.
Board of Regents policy also limits outside consulting to 39 days per year for faculty like Polla.
Polla certified that he spent 34 days consulting for four organizations in 1997-98: 14 days with Bioanalytic Microsystems, 12 days for Affymax Research Institute, five days for the U.S. Department of Defense and three days for ADC Telecom Inc., according to his annual outside consulting report that year.
But other departmental documents indicate that Polla spent time consulting for other companies not reported at all that year.
Use of University facilities “in a way that significantly depletes University resources without first obtaining prior approval for and arranging for payment” with University administration violates the regents’ stated policy unless the facilities are generally available for a reasonable fee.
But sources allege that Polla regularly used University facilities, money and students to support his outside consulting work.
For instance, in October 1998, Polla signed a consulting agreement with St. Croix Medical Inc. to develop a device for that company in exchange for a $25,000 fee, according to a copy of the contract.
The consulting work was contracted independent of the University. But at least $5,000 in expenses were later billed to a Biomedical Engineering Institute fund, according to University payment authorization forms and purchase orders.
In addition, costs of at least $2,500 for University laboratories used by Polla and his assistants were charged to that University account at reduced rates.
In other unrelated cases, graduate and post-doctoral students had to wait months for paychecks and tuition benefits.
“It is really surprising that I was completely out of payroll without any prior notice,” one departmental assistant wrote in an April 1999 memo. “Had this been told to me, I would have made some alternative arrangements regarding my rent and other expenses.”
Others assistants were overpaid or continued to be paid after leaving the institute. In February, another student wrote to inform Polla that she left the country, but continued to be paid for working at the institute. She volunteered to repay the $2,844.24 she had been paid in error.
When Polla became head of the Biomedical Engineering Institute in January 1998, he stressed the importance of collaborating with businesses from the beginning of biomedical projects.
“What we want is to ensure that there is a pipeline of students graduating to populate companies and for research to expand so that we would have more direct research with these companies,” Polla said at a May 1998 press conference.
At that time, state Rep. Phyllis Kahn, DFL-Minneapolis, questioned the wisdom of forging closer ties to industry.
“It frustrates me when (this approach) is the only direction, when it becomes so important that it pushes everything else aside,” Kahn said then. “The only people you’re supporting are the people getting industrial-type grants.”
But as early as 1992, many of Polla’s accounts were in poor status.
A 1992 memo listed four of six Polla accounts in the red, with a total deficit of $53,435.
“As you can see, overall your accounts are in serious trouble,” reads the 1992 memo from Susan Shufelt, a senior accountant in the electrical engineering department.
“I am continuing to receive (journal vouchers) for services in the department and from outside the department for services which are being charged to accounts which are seriously in deficit,” she wrote. “At this point, I don’t feel that I am able to recommend that these charges be moved to another account.”
Now Polla is rearranging his department to remove the whistleblowers, even though Yudof’s chief of staff ordered Polla to stop restructuring his department, sources said. But University administrators have been reluctant to stop them.
That reluctance angers some within the department.
“The strongest issue to me is the misrepresentation and — to use a very strong word — deceit, that University administrators have done in not carrying through with what they said they were going to do,” a source said.
“Clearly that did not occur. The fact that that did not occur is known by the people higher up in administration, and they choose not to reprimand or prevent it.”
Tammy J. Oseid welcomes comments at [email protected] She can also be reached at (612) 627-4070 x3218.