Michelle Fortnam

1
The Code of Conduct The Responsible Use of
University Funds A Timely Friendly Reminder
Michelle Fortnam Associate Director of Internal
Audit and University Compliance Officer Patti
McCabe Director of Training Office of Research
Administration Debra Zumwalt Vice President and
General Counsel   Office of the General
Counsel February 7, 2005  
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Code of Conduct

• You come to a job with your sense of ethical
  values
• based on upbringing
• life experiences
• Stanford has developed the Code of Conduct to
  set clear ethical standards for its Community

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Provost John Etchemendy

• This code is based on high ideals, Stanford
  could not claim to be a world-class institution
  if, in the pursuit of our mission or in the
  conduct of any of our business, we as faculty and
  staff did not act with integrity.

4
The Stanford Code of Conduct

• Outlines the overarching core values of the
  university
• Reflects the university's high ethical
  expectations
• Guides all work-related activities

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Members of the Stanford University Community

• Are responsible for sustaining the highest
  ethical standards of this institution
• Must be cognizant of and comply with all relevant
  policies, standards, laws and regulations that
  guide our work
• Must avoid even the appearance of misconduct or
  impropriety
• Are individually and collectively accountable for
  our behavior

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Eight Categories

• The code consists of provisions that fall under
  eight general categories
• Standards of integrity and quality
• Confidentiality and privacy
• Conflict of interest and commitment
• Human resources
• Financial reporting
• Compliance with law
• Use of university resources
• Reporting suspected violations

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Reporting Suspected Violations

• The revised code emphasizes that reporting
  concerns will not have negative repercussions
• Raising them is a service to the university and
  will not put anyone's job in jeopardy
• Reports of alleged or actual violations, as well
  as subsequent investigations, will be kept
  confidential or anonymous (if requested)

8
The Current Environment

• Corporate - Governance scandals and reform
  efforts
• Enron, Global Crossing, Tyco
• Martha Stewart
• Marsh McClennan
• IRS - Increasing concern about personal
  inurement violations in the non-profit sector
• Nature Conservancy
• Religious and charitable organizations
• Stanford - Affirming a commitment to maintaining
  the highest ethical standards
• Code of Conduct
• Cabinet meeting

9
Higher Ed Not Immune

• Recent Wall Street Journal article revealed the
  forced resignation of a very visible faculty
  member (leader in corporate governance reforms)
  at Yale University for alleged financial
  irregularities involving 150K in travel expense
  reimbursements
• CFO at CalTech dismissed last year for personal
  use of university resources
• Dean of Divinity School at Ivy League school
  dismissed for financial irregularities

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Stanfords Privileges and Risks

• World-class research and educational institution

• Intense scrutiny by the media and Aunt Emma

• Constant presence of external auditors (DCAA,
  etc.)

• Recipient of significant sponsor and donor funds

• Tax exempt institution

• IRS regulations and audits

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Categories and Sources of Funds (FY04)

• Restricted can be spent only in accordance with
  the wishes of a sponsoring agency or donor
• Direct costs of sponsored projects (760M
  including SLAC)
• Endowment income (400M)
• Expendable gifts (105M)
• Unrestricted may be used for any institutional
  purpose
• Tuition and fees (332M )
• Indirect cost recovery (164M)
• Returns earned on unrestricted fund investments
  (77M)

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Responsibility for University Funds

• The Board of Trustees has delegated to deans,
  department chairs, directors, principal
  investigators and other University officers the
  responsibility for the management of funds.
• These officers have the authority to expend these
  funds to accomplish their assigned
  responsibilities, and are responsible for
  assuring that expenditures charged are
• Consistent with established University policies
  and practices applicable to the work of the
  University, including instruction, research, and
  public service.
• Consistent with sponsor or donor expenditure
  restrictions.
• Reasonable and necessary

Administrative Guide Memo 36
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Determining A Reasonable Cost

• A cost is reasonable if a prudent person would
  purchase the item at that price, under the
  circumstance prevailing at that time
• Determine whether a cost is reasonable by
  considering whether
• The cost is necessary for the performance of the
  activity
• Incurrence of the cost is consistent with
  established institutional polices and practices

14
Stanford Policy

• The University authorizes reimbursement of
  reasonable and necessary business expenses
• The person who incurs the expenses the approver
  are responsible for ensuring maximum practical
  economy in the expenditure of funds
• The price paid by the individual is compared with
  the price that would have been paid by the
  University in a similar situation
• When the price paid by the individual exceeds
  that
• which would have been paid by the University,
  the lesser
• amount will be reimbursed

Administrative Guide Memo 36.4
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Reasonable

• Is the expense a reasonable expense for
  reimbursement by
• The Federal government
• A donor
• The University

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IRS Restrictions

• Difference between a business expense and a
  personal expensealways an interest of IRS
• Limit on what gifts employees can be given
  without it being considered income subject to tax
  (25 guideline)
• IRS recently announced it will conduct audits of
  2000 nonprofits, focusing on compensation. Some
  universities already being audited.

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Litmus Tests

• When charging items to the University, ask
  yourself these four questions
• Is this the right thing to?
• Does it comply with applicable restrictions
  (IRS/ sponsor regulations, donor restrictions, SU
  policy, etc.) and the Stanford Code of Conduct?
• Is this something your administrative assistant,
  or other staff in central offices, would clearly
  see as a Stanford business expense?
• Would you be unconcerned reading about it in the
  Stanford Daily or Wall Street Journal? Would
  your family be at ease?
• If an IRS auditor picks it as part of the IRSs
  sample of extra benefit transactions for
  executives, would you be free from worry?

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Pop Quiz

• A research lab wants to encourage discussion
  about research findings so it hosts a monthly
  happy hour. How would you handle the expense?
• Charge it to the sponsored project that benefited
  from the discussion
• Charge it to the gift fund that benefited
• Charge the food to the sponsored project but not
  the alcohol
• Charge it to a Department fund
• Advise the PI that she should cover the cost of
  the happy hour

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Pop Quiz

• Professor Sharon Stone is late in registering for
  a conference at a major hotel in downtown NYC.
  The hotel rooms are fully booked up at the 200
  rate. Concerned about safety, Prof. Stone, opts
  for the available more expensive suite _at_ 450
  instead of booking a hotel five blocks down the
  street that would have cost 225 per night. Is
  this reasonable?
• yes
• no

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FY03 University Expenditures

• What would you do with
• Recurring restaurant dinners with colleagues from
  outside the University
• Expensive wine purchased for meals at home with
  colleagues
• Taking research lab staff, with spouses, to a
  concert
• Dinners with very expensive wine at upscale
  restaurants with Stanford colleagues, spouses,
  children, etc.
• Gifts for employee weddings and baby showers
• Taking departmental administrators on a Bay
  dinner cruise
• Recurring faculty club lunches (60 in a year for
  one individual)
• Subscription to an airline Club Room service
• Purchase of an espresso machine (over 1k) to
  equip a new lab

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Call to Action

• Maintain your integrity and that of the
  University
• Give some thought to your business expense
  reimbursements and those you processapply a
  cognitive process
• Weigh the use of every dollar spent
• Use the litmus test questions just listed
• If you or the person being reimbursed cant
  answer Yes! to each question dont approve the
  expense. If youre still uncertain call for
  advice.

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What You Can Do?

• Read the Code of Conduct and use it to guide your
  behavior
• Support your coworkers in this effort
• Report suspected violations to general counsel or
  institutional compliance after discussing with
  management

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Questions?

• fortnam_at_stanford.edu
• zumwalt_at_stanford.edu
• pmccabe_at_stanford.edu
• http//institutionalcompliance.stanford.edu
• http//codeofconduct.stanford.edu