CU's internal audit report about Donald Cooper

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UNIVERSITY OF COLORADO BOULDER

INSTITUTE FOR BEHAVIORAL GENETICS

INVESTIGATION REPORT

AUGUST 15, 2013

Internal Audit completed an investigation into allegations of employee fiscal misconduct

and conflict of interest by Donald Cooper, an associate professor in the Department of

Psychology and Neuroscience and a principal investigator in the Institute for Behavioral

Genetics (IBG) at the University of Colorado Boulder.

Allegations

The Office of the Vice Chancellor for Research contacted Internal Audit to review

possible overpayments of lab equipment purchases, directed by Mr. Cooper, from

Boulder Science Resource LLC (BSR). BSR is allegedly owned by Mr. Coopers father.

Summary and Overall Conclusion

Sufficient information was obtained to support a conclusion that the actions of Donald

Cooper, with respect to the allegations of overpayment of lab equipment purchases from

BSR, constitute fiscal misconduct as defined in Board of Regents Policy 13-E. In

addition, Internal Audit has concluded that a conflict of interest exists due to the less than

arms-length-transactions between Mr. Cooper and BSR.

Investigative Approach

Internal Audit performed the following

1. Obtained and reviewed conflict of interest documents completed by Mr. Cooper. 2. Obtained a listing of all BSR transactions through all purchasing mechanisms. 3. Obtained copies of Mr. Coopers university email. 4. Interviewed parties with knowledge of BSR transactions and purchases. 5. Interviewed Mr. Cooper. 6. Requested, but were not provided, documents from BSR to support what they paid for

items sold to the university to compare to the price the university paid for the items.

Definition of Fiscal Misconduct

A finding of fiscal misconduct, as defined in Board of Regents Policy 13-E, requires a

determination that the employee deliberately acted or failed to act, contrary to law, rule or

policy, with the intent to gain an unauthorized benefit, resulting in a loss or other damage

to the university. In the context of Board of Regents Policy 13-E, an unauthorized

benefit refers to obtaining a personal gain, for oneself or to advance a familial or personal

relationship, that is not authorized by university policy or rule.

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Conflicts of Interest and Commitment

Maintenance of the public's trust is critical to the mission and reputation of the university.

University teaching, research, outreach, and other activities shall not be compromised, or

perceived as compromised, by financial and/or business considerations. As a result of its

numerous, complex and valuable relationships with public and private entities, the

university shall have processes in place to identify any relationships involving financial

gain that could compromise, or appear to compromise, its integrity. It shall also have

processes then to manage, reduce, or eliminate any institutional conflict of interest.

The policy applies to all employees, including but not limited to administrators, faculty

members, research associates, research assistants, professional staff members, as well as

consultants.

Definitions

A. Individual Conflicts of Commitment

The term individual conflict of commitment refers to situations in which outside

relationships or activities (such as professional consulting for a fee) conflict, or have the

appearance of conflicting, with an employee's commitment to his/her university duties or

responsibilities. Such activities are acceptable when they comply with university policy

(including the one-sixth rule), promote professional development of faculty and student

employees, and enrich the individual's contributions to the institution, to their profession

and to the community.

B. Individual Conflicts of Interest

The term individual conflict of interest refers to situations in which financial or other

personal considerations may conflict, or have the appearance of conflicting, with an

employee's professional judgment in exercising any university duty or responsibility in

administration, management, instruction, research and other professional activities. The

bias such conflicts could conceivably impart may inappropriately affect the goals of

research, instructional, or administrative programs. The education of students, the

methods of analysis and interpretation of research data, the hiring of staff, procurement of

materials, and other administrative tasks at the university shall be free of the undue

influence of outside interests.

The mere appearance of a conflict may be as serious and potentially damaging as an

actual distortion of instructional, research, and/or administrative goals, processes, and/or

outcomes. Reports of conflicts based on appearances can undermine public trust in ways

that may not be adequately restored even when the mitigating facts of a situation are

brought to light. Apparent conflicts, therefore, should be disclosed and evaluated with

the same vigor as actual conflicts.

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Other Relevant University Policies

National Science Foundation (NSF) Grant Policy Manual, 510 Conflict of Interest Administrative Policy Statement, Conflicts of Interest and Commitment University of Colorado Boulder, Research Administration and Support, Conflict of

Interest and Commitment

Code of Federal Regulations, Title 34 Education, Part 75 Direct Grant Programs, 75.525 Conflict of Interest: Participation in a project

Procurement Service Center, Conflict of Interest Evaluation form Administrative Policy Statement, Fiscal Code of Ethics Administrative Policy Statement, Propriety of Expense (which includes the tests of

propriety)

OMB Circular A21 Cost Principles for Educational Institutions, Section J General provisions for selected items of cost, Section 31 Material and supplies costs

Background Information

A review of the Articles of Organization showed that BSR was formed in June 2008 prior

to Mr. Coopers employment with the university. His father and ex-wife are listed as officers/members of the business in a records search. Mr. Cooper was hired April 1,

2009 as a researcher in the IBG and associate professor in the Department of Psychology

and Neuroscience.

As a new employee, Mr. Cooper was required to complete training relevant to his job

duties, as well as those trainings required for all employees. Internal Audit reviewed a

summary of his completed training available in the human resources management system.

Mr. Cooper completed the following trainings as related to this report:

Training Name Date Taken Score Conflict of Interest NIH 12/5/2012 100

Discrimination & Harassment 7/21/2011 93

Procurement Purch & Contract 6/11/2009 75

Fiscal Code of Ethics 6/11/2009 79

FIN Procurement 5/12/2009 86

Procurement Card Holder 6/12/2009 80

As a result of the training completed, Mr. Cooper should be aware of the policies and

procedures of the university regarding purchasing and ethics requirements all employees

are to follow, as well as what constitutes a conflict of interest.

BSR Formation and Ownership

Internal Audit met with Mr. Cooper to ensure an understanding of the relationship

between BSR and Mr. Cooper, and the purchasing and subsequent sale of lab equipment

from BSR to the university. Mr. Cooper stated he formed BSR to provide his father with

income by purchasing lasers and other lab equipment through companies in China,

marking up the equipment, and selling it through BSR to IBG as he was not able to find

other work due to health issues. He further stated that his fathers experience was in

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business and not in the sciences. University records document that Mr. Coopers letter of offer is dated May 6, 2008 and public records show BSRs Articles of Organization formation date is June 30, 2008.

Currently, records show the BSR address is the same as Mr. Coopers home address, which is where his father also resides. Mr. Cooper stated that he helped his father set up

a PayPal account for BSR. He also said that he has access to the BSR account and that he

may have moved some funds from the BSR PayPal account to his own accounts. Mr.

Cooper stated that it was a matter of convenience for him to have the access.

BSR Equipment and Component Purchases

Mr. Cooper stated that his father purchases components from China, including several

lasers. According to Mr. Cooper, BSR sometimes purchases in the secondary market to

obtain used lasers at a lower price. Mr. Cooper said that BSR tests the lasers and other

items and provides a warranty when they sell the items purchased from China. Mr.

Cooper also stated that BSR sometimes refurbishes items and sells them at discounted

rates, but that BSR warranties those items.

A review of Mr. Coopers university email account showed that he was contacting companies in China for specifications and pricing of lasers for BSR purchases. His

emails showed that he went as far as inquiring as to whether our logo and the BSR name could be imprinted on the lasers before they were shipped.

Mr. Cooper stated that the Procurement Service Center (PSC) would not allow purchases

from China with an ACARD. However, conversations with certain employees in IBG

revealed that others researchers in Mr. Coopers lab purchase directly from China with an ACARD and from the same company as Mr. Cooper purchased from through BSR.

No other customers could be found for BSR other than the university and possibly

Mobile Assay. Mobile Assay is a tech transfer company owned by Mr. Cooper.

BSR Selling to the University

Mr. Coopers father contacted IBG regarding becoming a vendor but did not identify himself as Mr. Coopers father. His father subsequently contacted the PSC for the vendor forms as advised by IBG.

Before his first purchase through BSR, Mr. Cooper failed to obtain and submit the PSC

Conflict of Interest Evaluation form that is required to be completed when a conflict of

interest is known. The form is to be completed by an individual at the level of

department chair or above who is in a supervisory position to the individual whose

conflict is being evaluated. In this case, the appropriate individual would have been the

director of IBG. In addition, Mr. Cooper failed to identify the relationship on the annual

Disclosure of External Professional Activities (DEPA) form as required by the Boulder

campus Office of Research and Administration Support. Finally, Mr. Cooper did not verbally inform his supervisor of the nature of the relationship with BSR.

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Internal Audit queried the universitys information warehouse for all transactions recorded via all purchasing methods available except the ACARD. The Concur Travel

and Expense system was queried for all ACARD transactions with BSR. Those queries

show that Mr. Cooper requested and received payment for BSR using both the ACARD

and purchase orders. ACARD purchases total $26,877 and purchase orders total $70,677

for overall purchases totaling $97,554. The ACARD total includes $7,220 recorded to an

National Institute of Health (NIH) K01federal grant and the purchase order total includes

$15,288 recorded to a National Institute on Drug Abuse federal grant.

Analysis: Elements of Fiscal Misconduct

Based on a review of the available documentation and on interviews with university

personnel involved, Internal Audit identified the following issues related to Mr. Coopers actions.

1. Creation of a business for his father to purchase lab equipment and subsequently sell to the university.

2. Directing BSR to markup purchases from BSR resulting in Mr. Cooper or a family member receiving an unauthorized benefit.

3. Failure to declare his involvement with BSR and his conflict of interest regarding any transactions with BSR.

Deliberate Acts or Failures to Act

Mr. Cooper created BSR for the benefit of his father to purchase lasers and other lab

equipment through companies in China specifically to sell to IBG. The evidence showed

that Mr. Cooper negotiated BSRs purchases of lasers from China. Mr. Cooper admitted that he marked up the items BSR sold to the university for his lab by 300 to 400% over

BSRs purchase price. Mr. Cooper failed to disclose the relationship between BSR, himself, and his family in his annual DEPA form in order for the institution to be in

compliance with federal regulations and institutional policies. Mr. Cooper stated he

wasnt sure if he needed to report the relationship, which confirms that he was aware of the reporting requirement but chose not to report it for supervisor evaluation. In addition,

since Mr. Cooper completed the conflict of interest for NIH required training, he was

made aware of the disclosure requirements. He also failed to verbally inform his

supervisor about the conflict of interest. These conclusions are supported by Mr.

Coopers statements, the dates of his letter of offer, May 6, 2008, and the subsequent BSR Articles of Organization on June 30, 2008.

Contrary to Law, Rule or Policy

Mr. Coopers failure to disclose the relationship between BSR, himself, and his family in his annual DEPA form, as well as his failure to verbally inform his supervisor, violated

the universitys conflict of interest and conflict of commitment policies. . The Code of Federal Regulations and university policy prohibit private financial gain from their

participation in a grant/association with the university except as provided by explicit

policy In addition, OMB Circular A-21 Cost Principles for Educational Institutions,

states that purchased materials and supplies shall be charged at their actual prices.

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Finally, The NIH Grants Policy Statement, 7.2Cost Principles, Reasonableness, states A cost may be considered reasonable if the nature of the goods or services acquired or

applied and the associated dollar amount reflect (sic) the action that a prudent person

would have taken under the circumstances prevailing when the decision to incur the cost

was made. It also goes on to address considerations such as whether the recipient complied with its established organizational policies in incurring the cost or charge and

whether the individuals responsible for the expenditure acted with cue prudence in

carrying out their responsibilities to the federal government and the public at large as well

as to the organization.

Intent to Gain an Unauthorized Benefit

It is Internal Audits conclusion that the forgoing acts/failures to act were done with intent to gain an unauthorized benefit. It was not disputed by Mr. Cooper that BSR was

created to provide financial support to Mr. Coopers father, who lived with Mr. Cooper during the relevant period. Moreover, Mr. Cooper also admitted that he had direct access

to BSRs PayPal account and on occasion may have moved funds from BSRs account to his personal accounts for his own benefit. Mr. Cooper said that his father did the

purchasing of lasers and components. However, Mr. Cooper had informed Internal Audit

that it was he, not his father, who had the expertise to communicate the specifications to

the manufacturer. Mr. Cooper stated his father did not have a scientific background, as

his previous work was as an accountant and business administrator. Mr. Cooper said that

he was only in a consultant role with BSR to help his father, yet Internal Audit could find

no emails between him and his father related to BSR. However, review of Mr. Coopers university email account disclosed several communications with the manufacturer

regarding specifications for and purchase price of equipment.

In his role with BSR, Mr. Cooper stated he marked up the lasers and other equipment

before, in his role as a principal investigator, he made purchases from BSR for his

university lab at the percent noted previously. Mr. Cooper was asked to provide the

original documents to support what he, as BSR, paid for the lasers and components sold

to the university. Mr. Cooper said his father had the paperwork and but would put

something together. What Mr. Cooper eventually provided were not the documents

requested. He, instead, produced quotes from various companies that were not related to

the actual BSR purchases.

Resulting in a Loss to the University

Based on the price the university paid to BRS and Mr. Coopers assertion that he marked up the equipment at a margin of 300% to 400%, Internal Audit used an estimate of 300%

and calculated a loss of $65,036 (($97,554 / 300% = 32,518) 97,554 32,518 = $65,036)).

Conclusion

The information obtained and the analysis of that information support a conclusion that

the actions of Donald Cooper, with respect to the overpayment of purchase transactions

to BSR totaling $$65,036, were deliberate acts carried out with the intent to obtain an

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unauthorized benefit and committed in violation of university policy and as such,

constitute fiscal misconduct as defined by Board of Regents Policy 13-E.

In addition, Mr. Cooper recorded inappropriate/unallowable amounts to federal grants in

the process of selling to the university through BSR.

Overall Conclusion

The information obtained and the analysis above support a conclusion that the actions of

Mr. Cooper, as they relate to the transactions noted, constitute fiscal misconduct as

defined by Board of Regents Policy 13-E and warrant remedial action. Remedial actions

may include, but are not limited to: (1) taking disciplinary action (up to and including

termination of employment) against employees who engage in fiscal misconduct, (2) seeking restitution for all losses incurred, including investigation and legal expenses, (3)

forwarding information to the appropriate authorities for criminal prosecution of persons

who engage in fiscal misconduct, and (4) instituting civil action to recover losses. As

such, the university should consider seeking to recover the $65,036 in inappropriate

expenditures.

Board of Regents Policy 13-E also requires that administrative actions be taken as needed

to mitigate the risk of future fiscal misconduct. Mr. Cooper has demonstrated a

willingness to misrepresent the true cost of financial transactions by purchasing through a

separate legal entity and marking up the selling price to the university with the intent of

deriving private gain from his association with the university. Based on the information

obtained, allowing Mr. Cooper to continue to administer university funds would represent

a significant and ongoing risk to the university. In addition, consideration should be

given to correction of the amounts recorded to both of the federal grant projects.

Please provide the Department of Internal Audit a description of the resolution of this

matter as soon as it is known. Such information will be included in a periodic summary

report provided to senior management and the Board of Regents Audit Committee.

CU's internal audit report about Donald Cooper

Documents

Transcript of CU's internal audit report about Donald Cooper