Although originally developed as a “space-privatization” program in 2003, auditors found the joint efforts of UM's Northern Rockies Center for Space Privatization and the spinoff company it started, the Inland Northwest Space Alliance, do not appear to have significantly furthered the commercialization of space-related technologies in the region.
Despite UM's lack of success, the audit states there is evidence that the Northern Rockies Center “delivered in line with the educational and outreach expectations of NASA.”
Because funding for the space programs came in the form of federal appropriations and were not subject to peer review or a competitive granting process, auditors recommended that UM and the entire Montana university system monitor similarly funded programs with greater diligence.
Noting that most research conducted at Montana's public universities is only funded after a rigorous process of independent peer review and assessment of merit, the report states: “The lack of competitive selection process for earmarked federal grants should serve as an indicator of potential risk and the need for elevated scrutiny of these activities.”
One of the biggest risks in UM's space effort, the auditors said, was creation of the Inland Northwest Space Alliance.
UM officials didn't get approval from the Montana Board of Regents to start the Northern Rockies Center for Space Privatization - stating the center was never a center, but rather a series of grants. However, UM should have gotten the regents' approval to create INSA, the report states.
From its inception, INSA was similar to “technology transfer activities” - and, according to the report, “board review and approval is required before university employees can be employed by business entities seeking to commercialize intellectual property developed through research activities.”
Furthermore, UM should have had better management of the spinoff company.
The proposal to get the NASA funding was conceived and managed through the office of Lloyd Chesnut, former vice president for research and development at UM, rather than through an academic department or university center - as would normally be the case, the report explains.
“INSA was not an independent entity already operating outside the university, but was essentially established specifically to fulfill terms of the NASA grant. INSA was staffed largely by former UM employees with direct links to the office of the Vice President of Research and Development.”
Unlike the system in place at Montana State University, the report states, UM does not require the principal investigator - the chief administrator of the grant - to answer questions regarding potential conflicts of interest for themselves, personally, their family members or others involved in the research.
Conflict of interest is generally defined as a divergence between an individual's public or professional duties and their private interests, the report explains. In public institutions, a potential conflict of interest exists when an employee or other official engages in activities where their private financial or other interest appear to be given priority over their responsibility to uphold public trust.
“Actual conflicts of interest are relatively easy to define and identify,” the report states. “Potential conflicts of interest, however, are a bit more difficult to identify, and more prevalent.”
For this reason, managing risk becomes especially important, the report states, and UM fell down on the job.
“Our review showed potential conflicts existed within the NRCSP activities, but UM lacked effective procedures for managing the situation,” the report states.
Former UM employees identified in the report as having clear potential conflicts: George Bailey, INSA's executive director, worked for Chesnut and helped create INSA and the job he would take at the company while he was a UM employee; Chesnut's wife, Rollene, managed a few UM grants connected to her husband's office and was hired as INSA's business manager; Chesnut helped create INSA, and began earning a $3,000-a-month stipend as INSA board chairman upon leaving his position as UM vice president.
With no external review of NRCSP activities, INSA or procedures to properly document potential conflict of interest, Chesnut, the reports claims, was essentially “in a position to act as judge and jury on the question of whether he and his direct subordinates had potential conflicts of interest.”
The auditors also pointed out three major problems with the space center's grant activities: INSA hired as its lobbyist Leo Giacometto in 2004 and 2005 and has not yet submitted a lobbying activity disclosure form to UM; INSA, as a subcontractor to UM, hired its own subcontractors to do the UM work without notifying the university; and while records show INSA hired a Missoula-based consulting firm and an attorney in Washington, D.C., there is little information about the vetting process, how they were selected and what the assigned scope of work was.
The very uniqueness of how the entities were funded and started, the report states, “serves as an indicator of the potentially high level of risk involved in these activities.
“Mitigating this risk should have been a priority for university administrators, but our review shows several opportunities to do so were missed. The university, either by action or omission, failed to ensure a sufficient level of control was exercised over activities relating to the NRCSP grant.”
The auditors said their investigation was guided by a single objective: “Determine if sponsored research activities involving the former Vice President for Research and Development at UM were conducted in compliance with federal and state law, and Board of Regents and university policies and procedures.”
The auditors were asked by the commissioner of higher education to look into Chesnut's activities and space research after Missoulian reports showed that since it began, the center hasn't achieved its mission and has little to show for the funding - and that Chesnut is the focus of an ongoing investigation at the University of North Texas, where he worked after leaving UM in the summer of 2003.
Chesnut resigned under pressure from his Texas job last year and is being investigated by UNT officials for conflict of interest charges and also by the U.S. Department of Defense and the Federal Bureau of Investigation for undisclosed matters.
Among the report's pointed messages and findings is a series of clear recommendations.
UM President George Dennison concurred with the findings after UM staff and auditors met for a preliminary report meeting last week. A letter included in the final report and signed by Dennison said UM will implement all of the revised policies and procedures by the beginning of the next academic year.
Some of the recommendations:
- Revise procedures to ensure disclosure of potential conflicts of interest are properly documented.
- Revise procedures to ensure research activities involving members of staff within the office of the vice president for research and development are subject to independent review of potential conflicts of interest.
- Develop procedures to ensure compliance with lobbying disclosure requirements for all private sub-recipients receiving federal funds in excess of $100,000.
- Modify procedures to ensure the granting agency approval of subcontracts is verified and documented before subcontractor is paid.
Reporter Betsy Cohen can be reached at 523-5253 or at bcohen@missoulian.com
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