Aquaculture institute overbilled feds $1 million

By Beverly Creamer
Advertiser Education Writer

Oceanic Institute, a private nonprofit aquaculture research group based in Waimanalo, overbilled the federal government by $1.05 million in grant reimbursements between 2000 and 2002, according to two internal audits.

President Chatt G. Wright of Hawai'i Pacific University, which entered an affiliation with the research institute last June to provide students on its two campuses access to ocean programs, said it will stand behind any debts owed and has no regrets about the affiliation.

"Mistakes were made, and they were made in past years and were uncovered," said Wright. "We've just said whatever we owe, we owe, and we're going to do the right thing." Federal agencies have not mentioned penalties, Wright said, although interest may be owed.

The institute's new financial officer, Lonnie Christiansen, said there was no intentional wrongdoing on Oceanic's part, and no jobs or research will be lost.

Colien Hefferan, Washington, D.C., administrator of the agency that was overbilled, said that while this is a "serious issue," there appears to be no criminal conduct and the situation should not affect Oceanic's ability to receive future grants, although oversight could increase.

"There's not any indication of any fraud or abuse here," said Hefferan, who heads the Cooperative State Research, Education and Extension Services of the U.S. Department of Agriculture, a major funder of grants to Oceanic.

"These are very complicated issues," said Hefferan. "We're getting good compliance from the people involved. There's not any intention to hide or to fail to pay back if there's a clear need to do so."

The research institute, situated next to Sea Life Park on a stretch of state and Hawaiian Homestead lands across from M?nana island in Waimanalo, is in negotiations with federal agencies as to how the money will be repaid — either in reductions of money coming back to the institute in future grants or by other means.

"We're in contact with all the agencies and we'll work out a satisfactory deal," said Gary Pruder, interim president for the institute after the March 31 resignation of former president Thomas Farewell. Both HPU and Farewell say his departure was not related to the overbilling.

"This showed up in the 2002 audit and was confirmed in the 2003 audit, and Oceanic Institute went to the federal government. It was a self-reported problem," said Pruder.

Pruder said the negotiations under way with federal agencies, primarily the U.S. Department of Agriculture, involve how to best resolve the debt to agencies overbilled in the area of indirect costs. Indirect costs are those monies reimbursed for overhead expenditures as part of a grant and based on a complex formula.

Pruder also said the actual money owed the federal government may be less than the estimated $1.05 million.

"Basically the negotiations (are talking about how) we'll pay for the research ourselves equal to the money involved," he said.

Farewell said when he left the institute he also thought the pay-back amount may be far less than what has been estimated by auditors.

"You don't know what your actual overhead rate is at the time of the grant," said Farewell. "They give you provisional rates which are approved by the agencies. They always go up and down. Every year is a different rate. You apply a rate approved at the time by the federal agency and that's subject to adjustment later."

Pruder said the institute will use private sources of financing for those research dollars, but CFO Christiansen said the money is already in hand to cover the costs.

Part of it could come from the $250,000 paid the institute quarterly as part of the June 2003 affiliation with HPU, which calls for the private university to pay $1 million a year for 10 years to the research institute.

HPU president Wright said the university's leadership didn't know the extent of the problem before the affiliation agreement and wasn't fully aware of its magnitude until October or November 2003 when they saw the 2002 audit.

"Had we known there were problems like this, we would have delved into them much more deeply," said Wright.

The $1.05 million liability also did not appear in the institute's 2002 annual report.

Reach Beverly Creamer at 525-8013 or bcreamer@honoluluadvertiser.com.