Recent Reports & Studies: GAO Finds Big Problems in NIH Royalty Income

With the rapid expansion of the research budget for the National Institutes of Health (NIH) and the high profile role of biotechnology in the New Economy, concerns have been raised in Congress as to whether or not NIH was keeping up on licensing and royalties. At the request of Congressmen Tom Bliley and Fred Upton, the General Accounting Office (GAO) has reviewed NIH’s internal controls. The results, reported in Financial Management: Improvements Needed in NIH’s Control over Royalty Income (GAO/AIMD-00-210), are less than positive: 

• The Office of Technology Transfer (OTT) only conducted one biennial audit of its licensees with sales that exceed $2 million. NIH has 1,204 active license agreements. Of the 13 licensees with annual sales exceeding $2 million, only one had provisions requiring an audit. 
• While NIH reported $45 million in royalty income in fiscal year 1999, the one audit conducted revealed previously uncollected royalty payments of $9.2 million and the expectation of an additional $1.2 million. 
• The office also did not enforce its collection policies and procedures to ensure timely payment of royalty fees. “As a result, institutes and inventors may not be receiving their share of royalty income in a timely manner,” the report said. Inventors are entitled to collect up to $150,000 in royalties for each license annually without special approval from the President. GAO identified 78 delinquent license agreements that owed $864,302 in royalties to the inventors and institutes. 
• The OTT did not exercise its right to designate auditors for the semiannual royalty reports majority of its licensees, making it difficult, if not impossible, to verify its royalty income receipts for those agreements. 
• Administrative procedures within NIH made reconciling the royalty payments with expectations laborious and potentially inaccurate. 

In response the GAO report, NIH thought if the GAO had conducted a study benchmarking the NIH against other organizations that license technologies, NIH would have emerged as leader in the level of sophistication of its monitoring activities. 

GAO/AIMD-00-210 can be downloaded from the GAO web site: http://www.gao.gov