State Audit: CIRM Likely to Find the Devil in the Details

Dispassionate blandness dominated the report by the California State Auditor on the state's $3 billion stem cell agency, but the details are certain to provide ammunition for the full range of its critics.

The auditors picked apart the two-year-old agency and many of its procedures. Its overall findings seemed reasonable enough that CIRM itself pronounced the report "accurate," "fair" and "valuable." Certainly many of the auditor's findings were to be expected involving the fledgling agency that, in many ways, initially was more like a semi-floundering business startup than a government department.

But the details from the report are likely to be aired with vigor during upcoming public hearings on the billion dollar issues involving who shares the wealth – if any – from state-funded stem cell discoveries – not to mention affordable access to stem cell cures and therapies.

The auditor also raised to a new level long-standing questions – including those by this blog -- about conflicts of interests involving the persons who review tens of millions of dollars in CIRM grant applications.

The auditor recommended that CIRM seek an opinion from the attorney general on its position that grant reviewers do not need to make a public disclosure on their economic interests. The auditor said:

"In view of the seriousness of a violation of conflict-of-interest laws and the concerns raised by the FPPC, we believe that it would benefit the institute to seek a formal opinion from the attorney general regarding whether the exemptions created for working groups from conflict-of-interest laws are intended to exempt them from the conflict-of-interest provisions that apply if the recommendations of an advisory body are adopted routinely and regularly by the decision-making body to whom they are made."

The auditor referred to previously undisclosed exchanges between the Fair Political Practices Commission, which is charged with overseeing the state's economic disclosure laws, and CIRM. The FPPC, the auditor said, believes working group members "may act as decision makers if they make substantive recommendations that are, over an extended period, regularly approved without significant amendment or modification by the (CIRM Oversight) committee." That means that reviewers would have to make a public disclosure of their economic interests.

CIRM says it is consulting with its private attorneys to determine whether to seek an opinion from Attorney General Jerry Brown. (We will have more on this subject in a separate item later today.)

Some of the other details likely to be bandied about publicly involve already-being-corrected contracting procedures that seemed a little fast and loose – our words, not the auditors – along with chauffeured vehicles, lunches that cost $36, dinners that cost $65 and pricey air travel.

But the big money issues – perhaps running into billions of dollars - surround formulation of CIRM's intellectual property rules -- sharing the profits from stem cell therapies and cures, as well providing affordable access to those therapies and cures.

The subject is known as IP. CIRM has spent many months wrestling with the issue, trying to come up with solid, well-supported policies. Its IP meetings have been sparsely attended even by institutions and businesses that would be deeply affected by CIRM's decisions. The public has been invisible along with the media, for the most part. Often times because of its unique nature, CIRM ventured into an IP wilderness where no trail guides existed.

Auditors complained of the lack of documentation for CIRM's existing policies. For example, the report said, "The vice chair and his deputy could not provide adequate documentation to demonstrate why the 25 percent (royalty) figure is an appropriate payment from nonprofit organizations. As such, they also could not demonstrate that 17 percent is an appropriate payment from for-profit grantees."

At another point, the auditor remarked on the fraility of notes in scores of interviews conducted by CIRM staff involving IP, saying, "Most of the information in the notes consisted of stand-alone sentences and references with very little or no context."

And there was more. This is what auditors do. They pick apart material that was often gathered not knowing that it would be subject to such exquisite scrutiny. Newspaper reporters sometimes find themselves in a similar situation involving their notes and stories when litigation comes up, as the news gatherers testifying in the Libby trial in Washington, D.C., recently learned.

Nonetheless, it will all be fodder as hearings begin later this year on IP legislation (SB771)by Sen. Sheila Kuehl, D-Santa Monica, chair of the Senate Health Committee. Her position is that CIRM has not done enough to ensure a return to the state and to provide affordable access. The auditor's report will fit neatly into her arguments.

From CIRM's perspective, the auditor's report could have been worse, and it could have been better. CIRM's formal response embodied in the report was tactful and appropriate. The audit offers a road map to improvements, many of which CIRM already knew needed to be made. But an outside voice can provide the sharp prod to ensure that they are accomplished.