Financial Management: Improvements Needed in NIH's Controls Over Royalty Income
AIMD-00-210
Published: Jul 21, 2000. Publicly Released: Jul 21, 2000.
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Highlights
Pursuant to a congressional request, GAO provided information on the deficiencies in the National Institutes of Health (NIH) internal controls over royalty income that is distributed to institutes and inventors.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| National Institutes of Health | To strengthen controls over the royalty receipt process, the Acting Director of NIH should review and revise NIH policies and procedures for monitoring activities to include: (1) the use of biennial audits for all licensees with sales over $2 million; (2) periodic reviews of the accuracy of semiannual royalty sales reports, including those under $2 million; and (3) specific due dates for the submission of biennial audit reports. |
NIH will not be addressing this recommendation. In NIH's July 2000 comments on the report, NIH agreed that appropriate and timely monitoring activities are necessary, but it did not concur with particular aspects of the recommendation. In a September 2001 update on the status of actions taken, NIH did not address this recommendation. Further, in March 2005, NIH confirmed that it will not address this recommendation.
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| National Institutes of Health | To strengthen controls over the royalty receipt process, the Acting Director of NIH should impose and collect interest and penalties on licensees delinquent in submitting royalty payments. | NIH has taken action to address this recommendation. In a September 2001 update on the status of actions taken, NIH stated that its Office of Technology Transfer (OTT) recruited a person to assist the Royalty Administration unit who helped identify problem licenses and resolve payment issues in a more timely manner and enhanced NIH's ability to move cases to the NIH Debt Collection Officer (DCO) for assessment of interest and penalties and collection of delinquent royalty payments. In March 2005, NIH told us that OTT had referred approximately 27 cases to the DCO for the period CY 2001-2004. Most of the cases have been resolved. OTT and the Office of Financial Management will review the...
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| National Institutes of Health | To strengthen controls over the royalty receipt process, the Acting Director of NIH should discontinue the practice of recording royalty income in the Treasury suspense account when received--instead, record royalty income in the NIH general ledger when it is received. |
NIH will not be addressing this recommendation. In NIH's July 2000 comments on the report, NIH stated that when it receives cash, often there is insufficient data upon which to properly classify the receipts in a timely manner. In a September 2001 update on the status of actions taken, NIH did not address this recommendation. In March 2005, NIH stated it continues to record royalty income into the Treasury suspense account until it has been properly identified and reconciled and confirmed that it will not address this recommendation.
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| National Institutes of Health | To strengthen controls over the royalty receipt process, the Acting Director of NIH should prepare timely royalty income reconciliations and ensure proper supervisory review and approval of these reconciliations. |
NIH concurred that royalty income reconciliations should be prepared in a timely manner, and NIH believes that the reconciliation is completed in a timely manner considering the complexity of the process. Regarding supervisory review, NIH initiated a requirement that all participating Institutes or Centers approve the final reconciliation before payments are made.
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| National Institutes of Health | To strengthen controls over the royalty receipt process, the Acting Director of NIH should develop and implement a centralized database system that integrates data used by OFM and OTT to facilitate the reconciliation process. | According to NIH, HHS has directed the department-wide use of an off-the-shelf business software package that automates and integrates NIH's administrative processes such as finance, travel, acquisitions, and property. It was not designed or modified to address the complex requirements of tracking patents and licenses. NIH's Office of Technology Transfer designed and uses proprietary software for the administration of Employee Invention Reports, Patents, Cooperative Research and Development Agreements, Waivers, Licenses, and Royalties. Because of the incompatibility of the software, it is unlikely that the systems will be directly integrated. However, NIH said that OTT recently hired a...
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| National Institutes of Health | To strengthen controls over the royalty receipt process, the Acting Director of NIH should ensure that royalty income apportionment requests are approved prior to issuance of advice of allotments to institutes. | The report cited a one-time occurrence of this situation. In a September 2001 update on the status of actions taken, NIH stated that the individual responsible had been informed that this event was inappropriate and not consistent with NIH policy and that funds control mechanisms were in place to ensure this situation did not occur again. In March 2005, NIH explained the corrective action. The Royalty Coordinator sends an electronic copy of the backup for an apportionment request to the General Ledger Branch (GLB) as well as Central Services Branch. The GLB reviews and provides their concurrence prior to the creation of the apportionment request. NIH's Office of Financial Management...
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Topics
Accounting proceduresFinancial managementInternal controlsLicense agreementsResearch and developmentRoyalty paymentsTechnology transferAudit reportsBiennial auditsReconciliation process