Wednesday, August 03, 2011

$250,000 Stem Cell Agency Performance Audit to Skip its Scientific Performance

When is a "performance audit" not a performance audit? Answer: When the California stem cell agency commissions it.

Under a new law, the $3 billion state research effort is required to conduct its first-ever "performance" audit this year and again every three years. Under the law, CIRM could have stipulated that the audit would include scientific performance, but it has chosen not to do so.

Instead, the audit will primarily examine "policies and procedures" for issuing contracts, grants and treatment of intellectual property to determine how well the agency is doing.

Admirable goals but certainly not even close to a full measure of CIRM's performance. Most would agree that the paramount measure is whether the agency has made good on the promises of the 2004 election campaign that created it. To do that would require an examination of CIRM's scientific program and the results it has generated.

The agency plans to pay $250,000 for the audit, selecting a bidder next month. The deadline for firms to present their bids is Friday. At least 10 firms have expressed an interest in the contract. They include Teeb Lead Project Management Solutions, Capital Partnerships Inc. (also dba The Resources Company), Crowe Horwath LLP, KPMG LLP, IntelliBridge Partners, Moss Adams LLP, Level 4 Ventures, Inc., Thompson, Cobb, Bazilio& Associates, PC; Moss Adams LLP, Strategica, Inc., and Sjoberg Evashenk Consulting, Inc.

The requirement for the audit was contained in legislation authored by State Sen. Elaine Alquist, D-San Jose. When she introduced her bill last year, she said CIRM is "essentially accountable to no one."

Alquist initially would have placed the performance audit in the hands of an independent, third party, the state controller, instead of CIRM itself. The controller, the state's top fiscal officer, is chairman of the only state body, the Citizens Financial Accountability Oversight Committee, specifically charged with evaluating the performance of the stem cell agency and its board. Introduction of the legislation came after Controller John Chiang and the committee unanimously called for more accountability at CIRM.

The legislation  also originally provided that the audit would include CIRM's strategic policies and plans, which would have brought scientific matters under scrutiny.

But as the bill moved through the legislature, CIRM was successful in amending it to remove the "strategic policies and plans" language. Also inserted was language that the audit did not need to cover scientific performance, which gave CIRM more control of the scope of the audit.

However, CIRM took the matter further this summer. In its RFP for the audit, the agency misstated the statute, telling potential bidders that the law bars an examination of scientific performance, when in fact it does not.

Here is CIRM's language from the RFP:
"The statute specifically excludes scientific performance from the scope of the audit."
Here is the language from the law:
"The performance audit shall not be required to include a review of scientific performance."
Asked for a comment, CIRM defended the RFP characterization. Melissa King, executive director of the CIRM board, said in an email,
"The statement is correct because it is intended to convey that a scientific review is expressly excluded from the required audit areas. Furthermore, most government accounting firms do not have the expertise to conduct a scientific review. That is one of the reasons we have asked the IOM (Institute of Medicine) to conduct a study."
The $700,000 IOM study is more far-reaching, but has also been commissioned by CIRM. The IOM has a reputation for independence. However, any examination that is paid for by the agency that is the subject of the scrutiny will always face questions about its objectivity. It goes to the old saying about he who pays the piper, calls the tune.

Both the performance review and the IOM study are certain to become election campaign documents in a couple of years. CIRM survives only on money that the state borrows – bonds. And the agency is aiming for voter approval of another multibillion dollar bond measure to continue its operations beyond about 2017. To win support, CIRM and its backers undoubtedly will ballyhoo what it presumes will be favorable findings to bolster its bid for more cash.

When viewed in the context of a ballot campaign, CIRM efforts to limit the scope and shape the findings of either the performance audit or the IOM study will also undoubtedly damage their credibility.


  1. Jim Fossett10:45 AM

    I think this is a bit too cynical. CIRM's management is certainly aware that it needs to produce results, but it's worth remembering that it sponsors basic research in a field that's fairly new--hESC's were also isolated about ten years ago, so there's a lot to be learned. CIRM's first scientific strategic plan called for only one "proof in principal" of an effective therapy over its life cycle,with 3-5 other treatments in clinical trials.
    There's no easy answer to the problem of organizations paying for their own evaluations, but its worth noting that private companies pay for their own financial audits and have done so for years. Finally, Melissa King's right--the consulting firms that you pay to evaluate your administrative or IP procedures usually don't know anything about science. If you want to evaluate CIRM's funding portfolio, the IOM or some other body that can assemble the requisite scientific expertise is the way to go.

  2. Re the CIRM performance audit and the comment by Jim Fossett, CIRM could have chosen to leave the audit in the hands of the state controller, which would have removed questions about its credibility. But the agency did not because it wanted to control the nature of the examination. The agency has a track record of resistance, sometimes heated, to recommendations from outside sources. We should also note that the agency's first strategic plan was a far cry from the promises of the campaign, which is the performance measure that voters are likely to use if they are asked for more billions. If I were to guess, that will not be the measure that the IOM uses. Thank you, Jim, for your comments. They help to broaden the perspective on CIRM affairs.

  3. Jim Fossett12:15 PM

    State comptrollers are elected officials with their own political interests to look after, and my memory of your reporting is that the CA comptroller was very active in campaigning for Thomas as Klein's replacement. So he's got some kind of a dog in this fight. While the comptroller's professional staff has a very good reputation, I'm not aware that they have any particular scientific expertise. IOM does have the capacity to assemble such expertise, and hopefully will do it from members of the stem cell research community without major ties to California.

  4. Re the state controller and Jim Fossett's comment, the controller did not back Thomas but the other candidate. The controller, John Chiang, is a supporter of stem cell research but has long felt improvements need to be made at CIRM. The point about the "performance" audit is that it could have been left to a third party and would then have more credibility. But that was not a position that CIRM could tolerate. The result is a $250,000 audit that will be justifiably viewed with skepticism since CIRM is paying for it.

  5. Jim Fossett5:22 AM

    My apologies for relying on my aging memory and confusing the positions of the state comptroller and the state treasurer without checking. The rest of my comment still stands. The comptroller is still an elected official, and may even feel obligated to punish CIRM for voting his candidate down-it's been known to happen. The comptroller's staff still might be lacking in scientific expertise. And private companies still pay CPA firms to audit their books and certify compliance with accounting standards--there are abuses, but markets still rely on the results. And IOM's still a pretty good source of scientific advice.

  6. Re the "peformance" audit and Jim's latest comment, we have strayed from the essential point, which is that it is not a performance audit. It is a limited examination of some of the things that CIRM does. Nonetheless CIRM will bill the audit results as something more in order to win voter approval of a multibillion bond measure or to generate additional funding through some other mechanism. Is this a jaded expectation? No. Former CIRM Chairman Bob Klein, on more than one occasion, has cited the extremely limited routine annual audits, again paid for by CIRM, as a grand endorsement of the stem cell agency and its activities. It is significant that this sort of hypberbole occurs even when nothing major is at stake. Obviously CIRM or any other organization wants to portray itself as successful and righteous. But when an enterprise operates in a political, financial and scientific environment such as CIRM's, it must move with more deftness. Overselling audit results will not convince informed observers, who may instead wonder what else CIRM exaggerates. In a ballot campaign, discredited hyperbole can backfire if voters feel they are being deceived. All of which is not in the best interests of the $3 billion enterprise.


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