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California Controller to Begin Auditing CIRM After Reed, Grant Controversies

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California comptroller John Chiang next month will begin auditing the finances and practices of the California Institute for Regenerative Medicine after a pair of recent controversies rekindled past criticism that the agency is too vulnerable to conflicts of interest and too secretive.
 
Hallye Jordan, a spokeswoman for Chiang, told BioRegion News last week that the audit will be carried out in addition to the reviews it will carry out every year of the outside-agency audits that CIRM is required to perform annually.
 
“Immediate action is necessary to guarantee the institute is effectively overseeing grants, and that grant recipients are using state funds appropriately and in a manner consistent with the stem-cell initiative,” Chiang told the Citizens Financial Accountability Oversight Committee, according to a statement.
 
The comptroller’s office is currently performing “the preliminary work right now, and they will begin the audit in January,” Jordan said. No timeline for the investigation has been set.
 
The audit will investigate CIRM’s 2005-2006 finances and activities, according to Chiang, who disclosed his intentions late last month during the annual meeting of the CFAOC, a state fiscal-watchdog panel he chairs.
 
Jordan told BRN that Chiang will convene a meeting of the CFAOC sometime next spring to also review CIRM’s finances and activities during the year ended June 30.
 
“His plan was to have the [2005-06] audit completed at that time to be reviewed at the same meeting,” Jordan said.
 
Chiang’s audit follows one carried out for CIRM by outside accountants Gilbert Associates of Sacramento, Calif. The results of that process, which reviewed the year 2005-’06, angered Chiang after CIRM refused to show his office certain documents it had examined and called proprietary. CIRM responded by hiring a new accounting firm, Maricas Gini & O’Connell. The changeover led to a 17-month delay of that audit, which was completed last month.
 
“The comptroller wants to get us back on schedule,” Jordan told BRN. “We’re not providing appropriate financial oversight if there’s such a gap in the time. We need to be more timely.”
 
A review of that audit by Chiang’s office recommended that CIRM improve its financial reporting and internal spending controls. It also announced plans to audit the institute in greater detail, citing concern over conflicts of interest stemming from a news report during the summer describing a letter written by a member of CIRM’s oversight board asking the institute to reverse a CIRM decision to reject a $638,000 grant request.
 
Chiang has asked the California state Fair Political Practices Commission to investigate the letter. A commission spokesman confirmed to BRN last week that FPPC had launched an investigation but said the commission does not offer public updates on complaints.
 
Jordan said Chiang’s audit would review CIRM’s conflict-of-interest standards and its compliance with state law, as well as expenditure practices typically reviewed in an audit.
 
“We’re going to be looking at not just the pre-approval of grants, but once the grants have been awarded, what kinds of benchmarks are there to insure that those funds are being spent by the researchers appropriately?” said Jordan. “We’re going to be [conducting] a pretty broad look at the financial activities and conflict of interest possibilities” at CIRM.
 
Concern for Sender
 
On Aug. 2, John Reed, president of the Burnham Institute in La Jolla, Calif., and a member of CIRM’s oversight board, the Independent Citizens' Oversight Committee,, asked the institute in a letter to reverse a decision rejecting a $638,000 grant request by Burnham.
 
The seven-page letter, written to Arlene Chiu, CIRM’s interim chief scientific officer, was unsuccessful. Chiu, who also served as CIRM’s director of scientific program and review activities, left the institute in October “to pursue new professional directions.”
 
In a response three weeks later upholding its denial of the grant request, CIRM also questioned the eligibility of a Burnham researcher, David Smotrich, to serve as a principal investigator for the grant, which was intended to help support Burnham’s Stem Cell Resource.
 
CIRM noted that Smotrich was not a full-time Burnham faculty member. Principal investigators requesting funding through CRIM’s Scientific Excellence through Exploration and Development, or SEED, program may be either senior or junior faculty but “must be full-time employees of the grantee organization,” according to SEED.
 

“One of the fundamental problems with Proposition 71 is that it fundamentally created a board — a supposedly independent board — that is just fraught with conflicts from the beginning. Most of the people who are on the board are the very same representatives of the institutions that will be getting much of the research money."

Reed took issue with the response and claimed that Smotrich was qualified for faculty status and “is treated by our organization as a full member of the faculty in every way.”
 
Smotrich’s SEED request “is of strategic importance for the success of the CIRM initiative,” Reed wrote in his Aug. 2 letter to Chiu, which CIRM made public after the news website California Stem Cell Report asked to see a copy. “The grant in question is solely to fund [Burnham’s Stem Cell Resource, which] makes it possible to collect thousands of unwanted human embryos under strict IRB-approved, informed consent procedures and to derive new hESC lines.”
 
Reed added that to date, Smotrich has “received and banked over 1,000 frozen embryos from IVF clinics across the country, rescuing normal embryos that would otherwise be discarded.”
 
On Aug. 27, Tamar Pachter, general counsel for CIRM, sent Reed a reply denying his request to reconsider Smochter’s grant. “Burnham may disagree with CIRM about whether those criteria were appropriate or not, but the fact remains that those criteria govern eligibility.”
 
Andrea Moser, a Burnham spokeswoman, said Reed wrote his letter to Chiu at the suggestion of ICOC Chairman Robert Klein. She also noted that Reed sits on the oversight board as a private citizen, not in his capacity as president and CEO of Burnham.
Reed has recused himself from any activity with the ICOC pending the outcome of Chiang’s audit. “[Reed] now understands why that [letter] was interpreted the way it was interpreted,” Moser said.
 
‘Public Trust’
 
The Burnham was one of five institutions that had a grant request rejected by CIRM because of institutional conflict-of-interest violations — namely the writing of letters supporting the applications by deans who were also ICOC members. The other four institutions were the University of Southern California, and the Los Angeles, San Diego, and San Francisco campuses of the University of California.
 
A longtime critic of state funding for stem-cell research said Reed’s initial letter demonstrates the type of conflict that he warned against during his unsuccessful two-and-a-half-year court battle to overturn a referendum that cleared the way for the CIRM.
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“I would like to suggest one of the fundamental problems with [the referendum] Proposition 71 is that it fundamentally created a board — a supposedly independent board — that is just fraught with conflicts from the beginning,” said John Simpson, the stem cell project director for the Foundation for Taxpayer and Consumer Rights, a consumer-rights group based in Santa Monica, Calif. “Most of the people who are on the board are the very same representatives of the institutions that will be getting much of the research money. Whatever conflict of interest rules are put in place, it is absolutely essential that they be adhered to, and it hasn’t been the case here.”
 
He added: “The California Institute for Regenerative Medicine is not a private club or foundation. It's a state agency doing the public's business and needs to be run that way.”
 
CIRM disclosed the names of the other four rejected institutions on Dec. 12, the day it announced the 22 winners of its New Faculty Grants, which totaled more than $54 million. At its meeting that day, ICOC members were told they could consider awarding additional grants, though the ICOC board has yet to decide if it will do so.
 
According to CIRM spokeswoman Ellen Rose, if the board decides to award additional New Faculty grants the rejected institutions can reapply.
 
Rose said the conflict controversy has led CIRM to add additional procedures for reviewing grant requests: The group will require two levels of internal review before formal requests for awards are issued; it will send specific advice or “guidance” about each program to board members and staffers; and it would make lawyers available to the board and staff to answer questions.
 
“Those are additional filters or steps that would add rigor to our processes, which are already pretty rigorous, to ensure that these things do not happen again,” Rose said.
 
CIRM said the dispute over Reed’s letter should not overshadow what it calls its success in maintaining California’s national leadership in stem-cell research. CIRM disclosed last week it has awarded a total of almost $260 million to 22 research institutions and universities since April 2006, 17 months after voters approved issuing $3 billion in state bonds to pay for measures outlined in Proposition 71.

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