CIRM's Troubled Grant Management System: A $1 Billion Oversight Matter

The California stem cell agency is likely to have approved $1 billion in grants by the end of this year, but its grants management system appears to be in disarray, which may be something of an understatement.

CIRM has never publicly revealed the full nature of the problems, which date at least back to 2006. However, in its budget presentation last month, the agency identified oversight of grants as an area of “risk.”

In January, the California State Auditor reported that CIRM was not in compliance with the auditor’s two-year-old recommendations for implementation of a comprehensive grants management system. As the result of a months-long study in 2006, the auditor said that a system was needed to provide accountability and assess how well CIRM was meeting its strategic goals.

CIRM plans to spend at least $575,000 and likely more this year to help fix its problems. CIRM did not provide comparable figures for last year.

It is not clear how much has been spent in the last two years since directors were told that the “complete cost” of a solution from Grantium would be $757,000. The Grantium software now appears to have been tossed out.

CIRM’s budget for this year allots $335,000 for software, training and development connected to the grant management system. Another $240,000 is slated for Kutir Corp. of Newark, Ca., for information technology services. Kutir had a $200,000 contract during the last fiscal year.

This year’s contract with Kutir – size unspecified -- comes before the CIRM directors Governance Subcommittee on July 21 at a teleconference meeting with locations around California.

The June staff's budget commentary on the grants management system said,

“CIRM’s ability to track and report on its grant research portfolio
needs improvement.

“There is a critical need to have a robust electronic grants management system for managing grants, reporting outcomes, monitoring finances, complying with regulations and meeting other requirements as they arise. CIRM had been testing a grants management program that is not able to meet all if its needs. CIRM has revised its approach and has purchased, or is investigating, components of a grant management system that will be flexible enough to handle its evolving programs and processes. Funds for this process are included in this budget. In the long run it is expected that this new approach will be less costly to CIRM than the previous approach."

During next week's look at the Kutir contract, one would hope that there would be a full discussion of past costs connected to the Grantium system, the nature of the problems, the plan to resolve the issues and its likely cost.

Locations where the public can take part can be found in San Francisco (2), Los Angeles (2), La Jolla, Sacramento, Irvine and Stanford. Specific addresses are on the agenda.

CIRM PR Puffs Fanciful Budget Number

Here is a link to the press release that the California stem cell agency issued concerning its board meeting last week. In it, the agency persists in trying to paint the budget as a 3 percent decrease, rather than a 25 percent increase.

CIRM Chairman Robert Klein at one point last week described comments on the budget by board member Jeff Sheehy as a “gross distortion.” In reality, the distortion is coming from Klein and CIRM. As we have noted, Klein's use of fanciful figures raises questions about the reliability of other financial information that he presents to the board.

You can read more about the budget via these links: 25 percent increase, festering issues, budget puffery, budget poorly documented.

Klein's Misguided Budget Puffery

SAN DIEGO – Robert Klein, chairman of the $3 billion California stem cell agency, is a man who should know his numbers.

He is a real estate investment banker and sometimes even seems to revel in the arcane world of state bond financing.

But he persisted at this week's CIRM board meeting here, along with CIRM president Alan Trounson, in trying to characterize CIRM's budget for the coming fiscal year as a 3 percent decrease.

The reality is that it is a 25 increase over what is being spent by CIRM this year.

The peg on which Klein hangs his dubious, PR spin is that the budget is 3 percent less than the unrealistic spending plan proposed 12 months ago. But Klein's posturing defies well-accepted accounting and budget standards for describing year-to-year budget changes.

It is difficult to understand why Klein is trying characterize CIRM's spending plan as something it isn't. One can dispute some of the expenditures, but the total amount the agency is spending on operations is not excessive. Indeed, it may even be too little, as suggested by some CIRM directors.

Klein's misguided puffery does not serve him or CIRM well. It only generates skepticism about other CIRM actions and creates suspicion that the agency may be engaged in activities that cannot stand the light of day.

CIRM Spending Plan Poorly Documented, Lacking Key Information

The budget presented this week for the $3 billion California stem cell agency is a sad disappointment.

One would expect more from an enterprise that is now overseeing $761 million in state-funded grants. The budget lacks important details needed for the agency's board of directors to determine whether the agency is being properly run. CIRM directors served notice on Thursday they want more, including such basic information as how the spending plan for the next fiscal year compares to actual expenditures this year.

It is easy to regard budget preparation as mindless number-crunching. But a budget reflects the agency's thinking, priorities and direction. It is a key tool for directors. A spending plan should open a window on management's effectiveness. It identifies problems that remain unresolved. Failure to produce a realistic and well-documented budget raises questions about management's abilities in other areas.

Here are some of the highlights from the slim information that CIRM has given to directors and made public on its Web site.

The two-page spending plan for 2009-10 totals $12.98 million. CIRM staff compared that to a $13.4 million plan advanced 12 months ago, a budget that was clearly not on target. CIRM did not provide a current estimate for what its spending will total in three weeks, which is the end of the current fiscal year. However, the most recent CIRM documents available showed that as of the end of March, CIRM had spent only 50 percent of its budget for this year. Parsimony can account for part of that savings. But the disparity between the budget and actual spending shows that the original proposal was flawed, to put it mildly.

The major expense, as usual, for the coming year is salaries and benefits. They amount to $7.4 million and reflect a much-needed increase in staff from 44.5 positions to 47 positions. The agency is capped by law at 50 employees.

The No. 2 spending category is outside contracts at $2.1 million, although that figure seems to be vastly understated. It does not include $853,000 for information technology, most of which appears to be linked to Grantium, its troubled grant management program. The $2.1 million also does not include $208,000 for outside help from other state agencies.

CIRM directors were told in October 2007 that the “complete cost” of Grantium program would be $757,000. The proposed budget appears to allocate $610,000 for Grantium issues, including a $275,000 contract with Kutir Corp. for “development” of the grant management program. Some of the $610,000 may include funds that were included in the original $757,000, but the CIRM budget did not include that information.

The latest information on Grantium dates back to a March report, which included figures only as of December 2008. CIRM reported that it had a $702,000 contract with Grantium running from April 2008 to April 2011. Payments of $28,112 were listed. The March document also reported $389,750 in IT contracts for this fiscal year, including $200,000 to Kutir. (The CIRM Web site redesign appears to have dropped the link to the March outside contracts report. If you are interested in a copy, please email djensen@californiastemcellreport.com.)

If all this about Grantium sounds confusing, that's because it is. The proposed budget sheds no light on the matter.

The largest component of the $2.1 million contracts figure is $945,000 for legal services. That figure is based on our calculations, since CIRM did not provide a total in the category. No total was also provided for “communications/media” services, which ran, by our calculations, $455,000. As with other components of outside contracts, CIRM made no comparisons to actual spending this year or even last year's proposed budget.

Another $250,000 was allotted for an economic impact analysis, which could be classified as public relations since that is one of its prime functions. That contract was originally scheduled to be let during this fiscal year.

One category that raised questions last year was travel, which would total $497,000 for the coming year. The category, however, is not defined and may not include travel by board members to CIRM board meetings. John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., analyzed last year's travel plans, pointing out that they would put CIRM Chairman Robert Klein out of the state on CIRM business for 88 days, CIRM President Alan Trounson 68 days and Chief Science Officer Marie Csete 75 days. Simpson has not yet produced a similar analysis for the latest proposed budget.

The proposed CIRM budget will come before the full board of directors at its meetings next week in San Diego.

CIRM Says California Stem Cell Report is 'One-Sided'

The chief PR person for the California stem cell agency this morning volunteered the following comment on the items that appeared last night on the California Stem Cell Report.

Don Gibbons said in an email:

"Once again you have written a one sided piece using only half Dr Pizzo's quote. He said we have heard two avenues this evening, a route to darkness AND a path to hope. We presented creative solutions to make existing funds stretch to meet all commitmets through October and a solution for ongoing funding that a national expert gave us 80 to 90 percent odds of suceeding."

Philip Pizzo is dean of the Stanford Medical School and a director of the California stem cell agency.

During last night's meeting, he raised questions about the proposal to sell bonds privately for CIRM.

At one point, Pizzo said that while he loved or respected the notion that there is a "pathway out of a route to darkness," the situation has changed dramatically from 2006 when CIRM sold bond anticipation notes to finance its operations. He said potential investors in CIRM bonds are feeling "tremendous pain right now." He said that "a reality check" might be in order on the prospects for the private placement plan.

The California Stem Cell Agency and $435 Million in Budget 'Bafflegab'

The finances of the $3 billion California stem cell agency are something less than transparent, a situation that today led a longtime CIRM observer to write about its "funny money" and the lack of an accurate accounting of where the agency stands.

The comments came from John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., who wrote against the backdrop of California's $40 billion budget crisis. Simpson ran through the budget arithmetic and noted that CIRM has awarded $635 million in grants, many of which are multiyear. According to information Simpson compiled from CIRM, the state treasurer and state controller's offices, he said CIRM has committed $435 million it doesn't yet have.

CIRM Chairman Robert Klein had a chance to explain the situation last week before the directors' Finance Subcommittee. Instead, Simpson wrote, "there was discussion of a proposed loan program and two recaps" of how CIRM dealt with bond anticipation notes in 2005 and 2006.

Simpson said,

"What's been missing in all of this is an accurate accounting of where CIRM stands financially."

Simpson continued,

"Here's my two-cents worth:  Somebody in this highly paid group needs to present a real budget that shows when CIRM will run out of money.  Then there needs to  be a serious, realistic discussion about what to do about it. Approving more grants when you're already $435 million in the hole might just not be the prudent course.

"One thing for certain, the ICOC (the CIRM board) and public are entitled to a clear explanation of where CIRM stands financially, not bafflegab about pie-in-the sky funding schemes and Obama stimulus packages."

The subject of CIRM finances is on the board of directors' agenda for Thursday and Friday as it was last week before the Finance panel. In the past, the subcommittee presentation is merely repeated at the full board meeting.

What is needed is a straight-forward budget and finance document (far more than a sketchy PowerPoint presentation). It should include all the numbers, written explanations of assumptions and caveats, possible future scenarios, strategies to deal with various contingencies and the pros and cons. Anything less is a disservice to the people of California, not to mention the CIRM board and the hundreds of scientists whose work hangs on CIRM's financial well-being.

(We have told CIRM that if it has any comments on Simpson's remarks or this posting, we will carry its response verbatim. If you have comments, you can post them directly on this blog by clicking on the word "comments" below. Anonymous comments are permitted.)

(Editor's note: An earlier version of this item incorrectly said CIRM had approved $653 million in grants. The correct figure is $635 million.)

The Murky World of $2 Million in CIRM Spending

A key committee of directors of the California stem cell agency on Wednesday will examine one of the most important aspects of the $3 billion institute's operating budget, but one that remains hidden from the public with only one day left before the matter is to be aired.

One can only speculate about the reasons for the secrecy. Perhaps it is a deliberate and quite possibly illegal attempt to avoid public scrutiny of CIRM's outside contracts, which are the second largest element in its budget. Or perhaps the secrecy is related to CIRM's inability to produce budget documents in a timely fashion.

Whatever the reason, both are causes for concern. After nearly four years, CIRM should be able to produce routine budget documents quickly. Trying to avoid public scrutiny is hardly fitting for an enterprise that styles itself as an exemplar of bioethics and openness. Withholding the information also makes it virtually impossible for the public or other interested parties to comment intelligently before the CIRM Governance Subcommittee, which convenes on Wednesday to examine the agency's $2 million or so in outside contracts.

CIRM has an operating budget of about $8 million. The largest item in the budget – something like $5 million -- goes for benefits and salaries, including two salaries that rank among the top 10 highest for California state employees, according to a San Francisco Chronicle story this past weekend.

When we cite the budget figures, we must qualify them with terms such as "or so" and "roughly" because CIRM's latest effort at a budget is something of a hodge-podge, missing such things as updated totals with year-to-year comparisons. The most recent available document came up last December. It appears to show something like a $200,000 to $600,000-plus increase in outside contracts since last June, although some of that will be for the 2008-09 budget year.

Up for consideration at Wednesday's Governance meeting is a modification in the roughly $500,000-a-year contract for legal services with the law firm of Remcho, Johhansen & Purcell of the San Leandro, Ca. The Remcho contract is on top of the salaries of four other attorneys working for CIRM including a general counsel but not attorney/Chairman Robert Klein.

James Harrison is the lawyer with Remcho who appears to do most of his firm's work for CIRM. He has been working with Klein since at least the 2004 campaign for Prop. 71, which created CIRM. Harrison wrote portions of the initiative as did Klein. Harrison appears to be a skilled and competent attorney. The agenda item on his contract suggests that it will be extended or perhaps payments will be increased or both. It is not likely that Klein is bringing the contract before the directors in order to cut it.

How much is the proposed increase? We can't tell you. CIRM will not disclose details of the budget item. We began asking for some indication of the details on May 22. At first we were told that the information would not be made public until tomorrow morning, one day before the meeting. That raised a question of whether a document on the matter existed at CIRM. In that case, it would be a public record that would have to be disclosed under state law. We were then told that all of the information about the matter was "verbal," as of last Friday. We were told at another point that a one-page, proposed unsigned contract extension existed for Remcho but that it was deemed not to be a public record.

Whatever the actual facts are, it would not be the first time that public information has been withheld by CIRM for reasons that are difficult to understand. One memorable case last year involved a $31 million proposal by the California State University and College system. Klein's office refused to release the document, but the California Stem Cell Report linked to it after finding it on a non-CIRM Internet site.

Also on the agenda of the Governance Subcommittee, which is chaired by former Hollywood studio executive Sherry Lansing, is more information that is not available to the public. It deals with a look at all the outside contracting, but again we can tell you nothing further about its specifics because CIRM has chosen to withhold the report.

CIRM's staff is capped by law at 50(currently it has only about 26 employees). And "privatizing" some of its work work is necessary and makes good sense. But the use of outside contractors by government agencies requires careful selection and keen oversight.

The California legislative analyst said in a lengthy report in 1996 that outside contracting problems for state government include accountability, accurate cost comparisons and quality control. We also wonder whether it is possible for CIRM's tiny staff to properly monitor a host of contractors, particularly in the case of the proposed $500 million biotech lending program.

We asked John M. Simpson of Consumer Watchdog for his thoughts on outside contracting by CIRM. Simpson, who has watched CIRM closely for about three years, said,

"While there are some services that are best performed by outside contractors, there is a real danger of going outside when it's unnecessary and the work should be performed by staff.

"For instance, while I greatly respect James Harrison's abilities as a lawyer, I am hard pressed to understand why the stem cell agency spends so much on an outside legal counsel when it has a staff counsel.

"The point is that contracts with outside vendors offer a multitude of opportunities for waste and abuse. All of them must be closely evaluated by the oversight board. Moreover, circumstances change. Some of what made sense to be contracted out as the institute was in start-up mode, might now be more appropriately handled by staff."