The University Record, January 18, 1993

U to pay government $2.8 million for MTS overcharges

The University has reached a settlement with the U.S. Department of Health and Human Services and the Department of Justice regarding inadvertent overcharges for federally funded research use of the

U-M’s academic mainframe computer, the Michigan Terminal System (MTS).

The University will pay the government $2.8 million for inadvertently overcharging researchers on federal grants for using the MTS system in connection with their research between 1986 and 1992. In addition, the University has agreed to provide $300,000 in free computing services to the government. The settlement amount to be paid by the University includes, in addition to alleged overcharges, interest for the years 1986 through 1992 and the government’s audit costs.

The settlement negotiated by the University, the Department of Justice, and the Department of Health and Human Services arose out of a qui tam action under the federal False Claims Act filed by a former University employee, Robert Moore. Under the Act, Moore may collect between 15 percent and 25 percent of the settlement paid to the government. The Act allows the court to award to a qui tam plaintiff part of the total award, even if the plaintiff was involved in the alleged overcharges.

The dispute between the University and the Department of Health and Human Services arose out of complex cost accounting issues concerning computation of MTS computing center rates, according to Walter Harrison, executive director of university relations.

The University’s Information Technology Division (ITD), which included the computing center, underwent a major reorganization in 1990 and prior to that there had been an ongoing shift in computing on campus away from the use of mainframe computers toward personal computers.

The government maintained that this shift in computer usage at ITD altered the underlying cost structure of ITD, which required a re-computation of the MTS computer rates charged to users, including federal agencies.

The criteria for determining whether the University had charged appropriate rates to federal users are set forth in Office of Management and Budget Policy Circular No. A-21. The guideline essentially provides that universities should charge federal government users at “cost” without specifying what cost accounting approach should be used.

Moore, as manager, budget/finance, and later as director of finance and facilities for ITD, was responsible for accounting, budget, cost analyses, and rate reviews. In the fall of 1986, Moore devised a cost accounting concept he called “flow-through funding” which, among other things, the government subsequently challenged.

In early 1990, after ITD had undergone its reorganization, its newly appointed managers attempted to assess the MTS/ITD budget situation, which included the appropriateness of MTS rates and the underlying costs related to those rates. They sought cost accounting information, documents and data from Moore, but he failed to assist them adequately.

In March 1991 Moore was discharged by the University. Following a grievance by Moore, he was reinstated as an administrative manager in ITD’s resource administration unit, where he was no longer responsible for ITD’s MTS accounting practices. He remained there until August 1992, when he terminated his employment to accept a position outside the University.

In January 1992 Moore filed a private lawsuit as part of his qui tam action, which remains pending. It alleges that the U-M violated the law when it terminated Moore for insubordination. The suit was kept under seal by the district court and its existence was not revealed to the University until April 1992.

Between October 1991 and April 1992 the University, on its own initiative, undertook a comprehensive analysis of MTS costs. At the conclusion of its internal rate review, the University announced a rate adjustment and a rebate of $252,000 for fiscal year 1992 for all federal government accounts. Rates were restructured again for the current fiscal year.

After the University had begun its audit, the Department of Justice began an audit of the University’s charges, prompted by Moore’s filing his federal False Claims action.

Commenting on the agreement, President James J. Duderstadt said: “The University has had a long-standing, good relationship with the Department of Health and Human Services. We intend to continue to work cooperatively with HHS and other units of the federal government to establish rates that accurately reflect the cost of computing at the University of Michigan.”