Federal agents are investigating the State University of New York and an associated

research foundation to determine whether federal money dedicated to research is being used

properly, law enforcement officials told The Buffalo News.

The investigation revolves around one question: When the University at Buffalo and other

state institutions receive federal funds designated for one research project, do they

sometimes use that money on other projects?

Authorities said the probe could have serious ramifications for SUNY, which receives more

than $500 million annually to fund research projects at UB and throughout the state.

While law enforcement officials said the investigation has been under way for months, it

became more widely known last week, when the U.S. attorney's office in Buffalo issued

subpoenas for numerous documents in Albany.

Those subpoenas require SUNY and the Research Foundation of the State University of New

York -- a private, not-for-profit organization based in Albany that works closely with SUNY

-- to turn over records on how federal money was spent on research projects all over the state,

said Assistant U.S. Attorney Robert G. Trusiak.

"The subpoenas relate to the allocation of costs on certain federal grants," Trusiak told The Buffalo News. "The government requested a significant amount of records from both SUNY and the Research Foundation."

When asked if the investigation is criminal or noncriminal, the prosecutor said that

determination has not been made yet.

"The government is securing this information in order to determine whether the concerns

that have been raised require some kind of administrative action or some kind of court

action," Trusiak said.

He said the investigation is being conducted by the Health and Human Services inspector

general's office, which looks into allegations of improper use of funds awarded by the federal

government for health-related research.

The Albany-based Research Foundation is "absolutely" cooperating with the federal probe,

according to Cathy Kaszluga, vice president for communications.

Foundation officials feel they already have "a multitude of controls in place, as well as

significant audits and oversight" to make sure that federal funds are spent in compliance with

federal laws, she said.

"The internal audit office continually monitors expenditures to ensure their propriety and

compliance with sponsor rules and regulations," Kaszluga said.

She added that the foundation also hires outside auditing companies to conduct independent

reviews of its financial operations.

"SUNY is cooperating fully with the federal agency's efforts," said David M. Henahan,

director of media relations for the SUNY system. He said SUNY administrators are declining to

comment further at this time.

What touched off the investigation?

Trusiak declined to comment, but other sources familiar with the case said the probe began

with a series of complaints made by William Fals-Stewart of Eden, a former researcher at UB's

Research Institute on Addictions.

Fals-Stewart told The News he learned that the SUNY system sometimes obtains federal

funding that is specifically designated for one project but then spends the money on several other projects.

He said he has suspicions about the use of federal funding throughout the SUNY system,

which is the nation's largest state university system, with 439,000 students at 64 campuses.

He said he has raised questions -- with officials at UB and others in the SUNY system -- for

nearly five years.

"I raised questions because I determined that money that was supposed to be set aside for

computer work on a research project I was working on was actually being used for other

purposes," said Fals-Stewart, who left his UB job in 2005.

According to his lawyer, Barry Nelson Covert, an audit conducted at UB in 2008 confirmed

some of Fals-Stewart's suspicions.

"[Fals-Stewart] first raised these concerns years ago. The university's own audit confirmed

them. Now, the federal government is taking its own look to see what happened -- not only at

UB, but through the whole SUNY system," Covert said.

The News obtained a copy of a 2008 audit report that found "inconsistencies" in how federal

grant money was spent on computer services at the Research Institute on Addictions in 2002-04.

The report raised questions about the activities of data input workers at the Research

Institute.

According to the report, one worker certified that, during a five-month period, she spent

"100 percent" of her time working on Fals-Stewart's federally funded project.

But a closer examination of the institute's records showed that the supervisor actually

worked on 20 different projects at that time, and Fals-Stewart's was not one of them, auditors

wrote.

Referring to another computer worker, auditors said three different federal grants were

billed for her time, but in actuality, she didn't work on any of those projects.

Auditors said they found at least 17 other instances in which computer workers said they

were spending their time on one or two federally funded projects, when, in fact, they were

working on many projects.

According to the report, auditors recommended changes in the Research Institute's billing

procedures, and, according to a UB spokesman, those changes have been made.

"The audit found no fraudulent billing, but it found that the method that was being used to

allocate costs for computer services at the [Research Institute] was flawed. We took action to

correct it about 18 months ago," said Joseph A. Brennan, associate vice president for

university communications.

"Our general comment about the investigation is that the university is a very responsible

manager of its grants. We have about $350 million a year in total research expenditures for

hundreds of projects."

UB's use of grant money is frequently audited by outside agencies, and "we generally do

very well in those audits," Brennan said.

Fals-Stewart is now a professor and researcher at the University of Rochester's Nursing

School.

Brennan said he does not believe similar problems exist in other departments at UB and said

he could not comment on procedures at other state universities.