Managing Public Research Funds

Introduction

The national government provides researchers with various forms of public research funds. The
substantial sums allocated to this funding under the national budget reflect how much
expectation and trust from the general public places in its country’s researchers. In order to
maintain the taxpayers’ trust and support, researchers are obliged to be extremely cautious in
their handling of public research funds.

To ensure that public research funds are used in an ethical manner, researchers are required to
refrain from making decisions solely based on their own sense and should have a view point of
their duty to society. This means researchers should not act solely on their own concept of values
and keep the social rules such as laws and regulations and administrative guidelines.

It is a waste of taxpayers’ money to be spent into act of fabrication, falsifications or studies

lacking scientific consideration. In this module, we will examine two other ethical issues arising
in handling of public research funds:
 Public research fund misappropriation and grant fraud
 Duplicated or excessive public research fund grant applications and receipt

Learning Objectives:
In the course of this module you will learn to:
 Explain two types of misconduct associated with the handling of public research funds.
 Explain the responsibilities of research institutions and accounting administrators.

 Explain the role of administrative personnel act as liaisons.

 Identify differences between the penalties for fraudulent accounting in Japan and the U.S.
 Enable to categorize examples each research fund misappropriation and grant fraud in
Japan.
 Explain the ethical reasons why the application for and receipt of duplicated and
excessive public research funds should be avoided.

 Explain why funding applicants must declare “effort” and how to calculate it.
Working toward Common Goals

Many individuals need to be involved in scientific research in order to succeed. It is not only the
participation of the principal investigator, co-researchers and technicians. For example, there are
grant proposal reviewers to vote for funding and peer reviewers to review manuscripts prior to
publication in academic journals. Administrative personnel also have an important role on the
research team. They work alongside researchers ensuring that taxpayers’ money is utilized in a
cost-effective manner which allows researchers to concentrate on their work.
Research institutions usually assign administrative personnel specialized in the use and
management of public research funds to both the research support division and the accounting
department. These personnel facilitate the flow of accounting information between the funding
agency and researchers and endeavor to prevent misappropriation of public research funds.
Research institutions that are receiving competitive funding are in compliance with the funding
agency’s policies and delegate the management or utilize awarded funds to administrative
personnel [1, 2, 6, 9, 17-22]. Recently, “indirect expenses” are included in funds granted by
competitive funds to allow research institutions to cover these administrative and accounting
expenses [3].

Therefore the role of administrative personnel is embodying to respond researchers needs and
demands within the funding rules established by the funding agency. Their role of private sector
employees are expected to undertake the responsibility to develop and protect the business. All
administrators are required to be familiar with the rules to achieve these goals. If they are more
familiar with the rules, they will be able to maximize the freedom for integral researchers’ work,
and making their own contribution to the research. Conversely, administrative personnel who
lack knowledge could tie researchers or commit policy violations that could even lead to the
termination of the research project. Later we will look at one unfortunate incident where an ill-
informed administrative worker, under the impression that a certain purchase was not allowed,
attained goods by false means and was charged with misconduct, even though the items in
question could actually have been attained by legitimate means.

The institution to which researchers belong is ultimately responsible for the management and
utilizing public research funds in Japan. In order to avoid risks as well as maximizing research
productivity, it is imperative, that the administrative personnel who act as liaisons between
researchers and funding agencies are required utmost to familiarize with the rules and potential
problems for the sake of both administrative personnel and researchers.

Particularly, accounting personnel are often placed in a position to make ethical decisions. While
observing the rules established by the funding agency is ultimately in the best interests of
researchers and the research institution, accounting personnel are also responsible for ensuring
that researchers have enough freedom to develop their research. In the course of their work, they
may be put under considerable pressure by researchers who are looking to break the rules. It may
also happen that an individual researcher’s personal interests are at odds with the interests of the
research institution or its parent company as a whole. Furthermore, fear of accounting audits
may tempt accounting personnel to cut administrative corners and as a result the researchers’
freedom is unnecessarily curtailed. Personnel are expected to make ethical decisions under such
circumstances.

Funding Agency Rules and Institutional Rules

There are two types of rules in research projects which is set by the funding agency and by the
research institution itself based on the agency’s rules [4,5]. All research activities must be
proceed under these two sets of rules. Accounting personnel are required to be familiar with both
rules and are in a position given the authority to approve every expense.
On the other hand, the public entrusts researchers with the commitment to carry out research
projects to produce fruitful results. In developing institutional rules, research institutions are
required to consider to prevent excessive restrictions toward researchers freedom.

Creation of Japanese Rules on the Use of Public Research Funds

Japanese government-funded public research funds such as Grants-in-Aid for Scientific

Research are subsidies which fall under the provisions of the Act on Regulation of Execution of
Budget Pertaining to Subsidies, etc. (Subsidies Regulation Act). If the researchers violate the
Subsidies Regulation Act, they face potential criminal penalties including imprisonment and
fines. Researchers must also be aware of the rules established by funding agencies including the
Grants-in-Aid for Scientific Research Program – KAKENHI – Grants-in-Aid for Scientific
Research JSPS Fellows Grant Usage Rules (Grant Conditions).

In 2006, the Council for Science, Technology and Innovation responded to sustain media
coverage on the misappropriation of public research funds and issue a report called On
Initiatives to Prevent the Misappropriation of Public Research Funds [6] to aim for ensuring that
the investment of government funds in research is utilized in an effective and efficient manner.
This report recommended that the relevant government agencies and research institutions abide
by setting a common guidelines to ensure that all accounting work is conducted correctly. In
response to this recommendation, the relevant government agencies formulated codes of good
practice such as the Guidelines for Managing and Auditing Public Research Funds at Research
Institutions [1] that were implemented by the Ministry of Education, Culture, Sports, Science
and Technology (MEXT). Furthermore, the Japanese government issued its Guidelines on the
Proper Implementation of Competitive Funds (revised October 17, 2012) in 2005 and all
relevant agencies (Cabinet Office – CAO, Ministry of Internal Affairs and Communications –
MIC, Ministry of Education, Culture, Sports, Science and Technology – MEXT, Ministry of
Health, Labour and Welfare – MHLW, Ministry of Agriculture, Forestry and Fisheries of Japan
– MAFF, Ministry of Economy, Trade and Industry – METI, Ministry of Land, Infrastructure,
Transport and Tourism – MLIT and, Ministry of the Environment – MOE) collectively
established a liaison committee to make arrangements. This liaison committee developed rules to
help eliminate grant fraud, misappropriation of competitive funds, unreasonable overlap of grant
proposals and over-funding to particular principal investigators as well as rules concerning other
forms of research misconduct such as fabrication [7]. Most research institutions have now
followed these government agencies in setting forth their own rules on an institutional level [8].

Responsibilities of Research Institutions

Japanese rules on the management and utilizing public research funds are characterized by the
amount of responsibility of research institutions. In the Guidelines for Managing and Auditing
Public Research Funds at Research Institutions [1] which may apply to competitive research
funds sponsored by MEXT or its delegated independent administrative corporations, MEXT
states that “responsibility for the management of funds etc. should be within the research
institution”. The guidelines stipulate that each institution is obliged to appoint a chief
administrative officer who are responsible for the management of research funds at an
institutional level and establishes uniform standards and systems for their implementation.
MEXT also makes it mandatory for institutions to appoint an administrative director who has
substantial managerial authority. In addition, each faculty or department is required to allow
compliance administrator to take responsibility of managing and operating each unit’s research
funds. These three positions are generally assigned by the president, vice-president and dean
respectively. In addition, compliance education (policies and rules on institutional fraud
countermeasures) is required to make all members involved in the management of competitive
funding fully understand what kind of action is misconduct. In the meanwhile, MEXT requires
that researchers and administrative personnel to establish mutual understanding to agree upon
the authority and responsibility in order to provide researchers to maximize their capabilities.
The guidelines also emphasize for administrative personnel to understand the nature of research
and researchers to understand the serious impact of fraudulent conduct on the entire institution as
well as everyone involved in the research. Also each research institution is required to develop a
comprehensive code of conduct that is applicable to all researchers and administrative personnel
and to establish monitoring and auditing systems.

Criminal Penalties for Misappropriation and Grant Fraud

As in Europe and North America, there are penalties for the misappropriation of public
research funds that is restitution of research funds and eligibility for grant application may
be suspended in Japan [9]. However, to lead to criminal proceedings are extremely rare in Japan.
One factor behind this discrepancy in enforcement is the absence of an independent third-party
organization in Japan that is equivalent to the United States’ Office of Research Integrity which
specializes in reviewing cases. Regarding education programs on research integrity, the Science
Council of Japan states that “while referring to education programs of other countries, be aware
of cultural differences between Japan and other countries” [10]. In other words, it seems that
criminal penalties concerning research fraud should be considered according to the
circumstances of each country.

Recognizing the great number of cases for public research fund misappropriation now began to
discover, the Japanese government has recently obliged research institutions to rigorously
prepare documents to strengthen monitoring institutions and increase penalties for researchers in
order to seek a thorough compliance with the rules on the use of research funds while the various
government agencies that grant public research funds have now collaborated to unify
information on fraudulent conduct to eliminate ‘loopholes’ in the vertical administrative
structure[2,11]. Although researchers and research institutions have complained about these
time-consuming and expensive formalities, for the government, entrusted as it is with making
proper use of taxpayers’ money, this clampdown can be seen as a natural reaction to ongoing
fraudulent research conduct. From this point of view, it should be understood that administrative
personnel are not only protecting the individual researchers they support through appropriate
action, but are also contributing to secure the activity of the entire research community.

However, there are other important things besides learning rules such as penalties for researchers
to carry out responsible conduct of research. Particularly, in the process of graduate students
aiming for becoming researchers, they are required to develop self-awareness and responsibility
as members of society. Having said that, in the course of their training, their seniors should not
treat them like children and force them to blindly obey seemingly arbitrary rules. On the
contrary, it is important that they receive ethics training that lets them see the rationale behind
the rules and develops their ability of right decision making.

Some Disclosed Cases of Public Research Fund Misappropriation

and Grant Fraud
(Cited from the MEXT Website [1,12,15])

Procurement Budget Misappropriation (Depositing)

The most common form of procurement budget misappropriation is a practice known as

“depositing” that a researcher makes a fake order of goods to a contracted supplier, the supplier
then submits fake accounting documents to the institution, the institution transfers money to the
supplier and the researcher asks the supplier to hold the money. Some researchers had used the
“depositing” to put money aside to tide them over until they receive funding in the next budget
period despite knowing “depositing” is against the rules. Since 2006, the carryover to the next
year can be accepted smoothly when the applications are approved to meet certain criteria due to
the simplification of documentations that researchers have to submit [13,14].

Examples of “Depositing”:
 In a Grants-in-Aid for Scientific Research project funded in FY2003, in order to secure
extra money for a business-class air ticket which was not supposed to be covered the cost
by the institution’s rules, a researcher had a contractor to issue him with a fake invoice as
consumables equal to the difference between the business- and economy-class fares and
successfully claimed reimbursement of the invoiced amount from the university. The
researcher also made other reimbursement claims to the university to purchase several
other items for personal use or not directly related to research such as a study guide for
junior high-school students and a shaver.
 In a 21st Century Center Of Excellence (COE) project funded in FY2004, a researcher
placed an order with a contractor to create a CD-ROM publication library as a part of
preparations for establishing a program research center. However, the researcher carried
out most work by himself under subcontract from the contractor. Through improper
manipulation of accounts, the researcher managed to circulate the money back to himself.
 In a Special Coordination Funds for Promoting Science and Technology project funded
between FY2004 to FY2006, a researcher instructed a contractor to submit fake delivery
slips and invoices for undelivered goods and had the contractor to hold onto the sum
which was paid as a deposit.
 In a Grants-in-Aid for Scientific Research project funded between FY2003 and FY2005
and in FY2007, a researcher instructed a contractor to submit documents such as invoices
for a transaction that never took place. This made the university to pay the amount of
research funds invoiced and the contractor was instructed to create a separate account to
deposit and then it was used to purchase research materials not relating to the funded
project or in some cases the contractor delivered goods (such as a PC) different from the
 contents of invoices.
 In a project funded by Grants-in-Aid for Scientific Research from FY2007 to FY2009, an
administrative worker ordered goods without authorization from researchers and took
them home for his personal use.

In some instances where the use of procurement budget has been deemed fraudulent the
researcher involved was acting out of ignorance or had been poorly informed by administrative
personnel and in fact, the item they were trying to procure could have been purchased
legitimately without resorting to falsified claims.
 In a project funded by Grants-in-Aid for Scientific Research from FY2003 to FY2007, a
researcher instructed a contractor to submit invoices etc. for a transaction that never took
place. The university paid the invoices out of research funds, but the contractor was
instructed to use this money to deliver items different from the description in the
invoices. This money was also used to pay for the lease and maintenance of a
photocopier. The researcher involved committed these violations because he had been
under the impression that, once submitted at the start of the project, the budget could
never be amended to cover unlisted items.

 In a Grants-in-Aid for Scientific Research project funded in FY2010, a researcher

falsified the date on some receipts for expensive research-related books that had been
purchased prior to the start of funding in order to claim the cost back from the institution.
This researcher had never participated in seminars aimed at preventing the
misappropriation of research funds, had never looked at the accounting manuals and
wasn’t aware of how funding accounts were processed. Also the institution had not
provided all of its personnel with sufficient precautions and information with regard to
misappropriation.

Travel Budget Misappropriation (Fake Business Trip)

There are various forms of travel budget misappropriation: a researcher claims costs for the
business travel which was not actually conducted, receives duplicate payments from two
institutions for the same business trip, pockets the difference between the standard fare written
on an invoice from a contractor and the discounted actual fare. Researchers also sometimes pad
their travel expenses to be able to use for research funds to extend their trip for non research-
related purposes or to cover the cost of family members.
Cases of Fake Business Trips:
 In an FY2003 Grants-in-Aid for Scientific Research funded project, a researcher
submitted a fake report to receive money to cover travel expenses for a business trip that
had been cancelled.
 In an FY2004 Grants-in-Aid for Scientific Research funded project, a researcher claimed
the expense for accompanying his family members to an overseas business trip and was
also reimbursed for accommodation in a separate location where he took part in a
meeting to discuss a collaborative research project unrelated to the funded research.
 In an FY2002 and FY2004 Grants-in-Aid for Scientific Research funded project, the
following violations were made: (1) an unnecessary business trip was taken; (2) despite
 staying at the location not for research purposes but for recreational purposes, a
researcher was fully reimbursed for the cost of a trip; (3) although the work was
completed one day earlier than scheduled, a researcher didn’t make shorter travel period
and later submitted a false travel expenses claim and neglected to pay back the excess
reimbursement.

 In an FY2004 to FY2010 Grants-in-Aid for Scientific Research funded project, some

researchers were reimbursed for business trips they did not participate or the length of
the actual business trip did not correspond to what was written on the reimbursement
application. A part of these cases, researchers asked contractors to issue fake invoices for
them to be able to claim the extra cost of family members.
Personnel Budget Misappropriation (Fake Remuneration)

This form of personnel budget misappropriation typically involves claims for money to be paid
to part-time workers. For example, a researcher makes students who are hired as research
assistants submit a fake time sheet which includes jobs they never did and then has a research
institute to pay to the students and finally extorts the money from the students.

Examples:
 In an FY1999 to FY2003 Special Coordination Funds for Promoting Science and
Technology funded project, an investment-trust type misappropriation was uncovered: a
researcher claimed for the remuneration of part-time workers who had not actually done
any work and then instructed the remunerated students to transfer the payments into the
researcher’s personal account. A contractor involved in the misappropriation was also
founds to have falsified bills.
 In an FY2001 to FY2006 Grants-in-Aid for Scientific Research funded project, a
researcher used the names of students in the laboratory to claim remuneration, instructed
the remunerated students to repay the money to the laboratory and used it to cover
expenses involved in running the laboratory, providing financial support for international
students, covering students’ field work expenses and paying registration fees for
academic conferences.
 In an FY2002 to FY2006 Grants-in-Aid for Scientific Research funded project, a
researcher instructed graduate students to fabricate working records for them to get paid
for work they had not done and used the remuneration money to send graduate students
for participating academic conferences.
 In an FY2005 and FY2006 Grants-in-Aid for Scientific Research funded project, a
researcher ordered postdoctoral in his laboratory to allow him to open bank accounts in
their names that he would control. He used these accounts to receive false remuneration
payments and kept the money for himself to continue to fund research after other funding
had expired.

 In an FY2007 Grants-in-Aid for Scientific Research funded project, a researcher

instructed research-support students to submit false working records in order to claim
remuneration for work that they had not done. The researcher collected all payments
received through these false claims and used the money for students to participate
 research conferences.
Other Cases
 Between FY1996 and FY2003, researchers who were not eligible to apply for Grants-in-
Aid for Scientific Research funding applied for the grant and received funding by
fraudulent means.

Besides these cases, public research funding is also subject to various forms of fraud such as
kickbacks and overly-extravagant and inappropriate client dinners.

Underlying Causes of Misappropriation

In most cases of misappropriated public research funds are not intended only for the researcher’s
personal use. Yet, the instances of misappropriation continue to be uncovered one after another,
today, researchers, research institutions and funding agencies must work to address the
following underlying problems:
 Researchers

1) A tendency to regard funding as their belonging rather than to the taxpayers.

2) A tendency to disregard rule violations that they believe that would help to
develop the research.

 Research Institutions:

3) Administrators’ lack of familiarity with research projects and research

equipment.

4) Lack of supervision at an institutional level.

 Funding Agencies:

5) Restrictions on carrying over of funds from one fiscal year to the next or the
reallocation of expenses.

6) Differences in the rules imposed by different agencies.

According to a recent survey by the Board of Audit of Japan [8], internal institutional rules to
prevent misappropriation are maintained at most research institutions. However, for the sake of
“simplifying workflow and efficiency”, many institutions allow researchers to select their own
contractors and to make purchase orders directly to them. It is estimated that approximately 60%
of total procurement orders of research goods were placed by researchers themselves. In
addition, it appears that suppliers selected and ordered by researchers are the same contractors
and some institutions even neglect to inspect and verify purchased goods. These circumstances
create a heightened risk that researchers and contractors may conspire to conduct fraudulent
transactions. On the other hand, guidelines for management and audit of public research
funds at research institutions are as follows. “In principle, the administrative department
implements ordering and inspection work, and the administrative department builds and
operates a system in which checks by third part function effectively.” However, there is a
possibility that fraud may occur due to adhesion between the administrative department and the
contractors.

Researchers have long complained that public research funds are not easy to handle and this
dissatisfaction seems to stem from the issues described in points 5 and 6 above. Point 5 also
entails the fact that, in Japan, even though funds are provided on a single fiscal year basis, grant
proposals are not adopted until the middle of the first fiscal year. Government agencies
recognize these inconveniences and now regularly hold workshops to improve the funding
system in order to expand freedom of researchers [23].

Instances of fraudulent public procurement (the use of public funds to pay for goods and
services) can be found in public works, defense projects or in any sectors of governmental work.
Mr. Yoshitsugu Kanemoto has identified the factors behind corruption in public works and his
proposals on how the situation can be improved (cited below) [24]. His words apply equally well
to the misappropriation of public research funds. The following is an excerpt in his proposals
“Lack of Incentives in Public Procurement”.

The ultimate distinguishing factor between procurement in the public sector and that in the
private sector is that public buyers don’t have any incentive to get good products and services at
a lower cost. Instead of offering incentives to reduce costs, the Japanese public sector approach
to controlling procurement has been to establish a set of detailed rules that limit the discretionary
power entrusted to public buyers. The biggest problem with this approach – that is, the use of
rules (legislation) to restrict buyers’ discretion – is that it gives rise to an attitude that as long as
buyers are following the rules there’s no need to try and cut costs. Restricting buyers’
discretionary power is not a good way to prevent corruption. Corruption should be dealt with
through exposure and punishment. Fortunately, procurement-related corruption rarely occurs in
the U.S. Federal Government. Another factor that prevents this problem from arising is the
practice whereby all communications between technicians (and other personnel who engage in
procurement) are documented on record.

Duplicated or Excessive Public Research Fund Applications and Awards

Unnecessary expenditure could arise when a researcher applies and receives funding for the
same project from more than one public research fund. This is why multiple applications are
considered a form of misconduct which is a potential waste of taxpayers’ money. It is also
considered as misconduct to receive funding from private corporations in addition to public
research funds. Researchers who commit this type of misconduct often try to justify themselves
that the additional funds are to be used to expand or accelerate the research beyond what had
originally been proposed. However, this is based on the researcher’s subjective judgment that
their research merits expansion or acceleration and deprives the right of the general public to
review the proposal.

Where researchers apply for funding of an important project, which may appear to overlap with
another project, they are required to provide a persuasive explanation of why the project is not
actually a duplicate and prepare evidence as specific as possible (e.g., indicating differences in
techniques or materials used).

Effort

No matter how capable they are, all researchers have to work long and hard to produce high
quality research results. Even inexperienced researchers may be able to achieve excellent results
if they devote enough time to a single project. When evaluating applications for public research
funds, reviewers assess how feasible – how likely to produce successful results – possibilities of
a proposed project. Feasibility is calculated on the basis of an index which is calculated by
multiplying the researcher’s competence by the amount of time allotted to the project. In other
words, feasibility should be equal to the product of quality and quantity.

On the bases of this approach, any researcher who is applying for public research funds now has
to declare the “effort”: which they must fill in what percentage of their total working hours will
be allotted to the project. Many applicants would be tempted to fill in as high a percentage as
possible to obtain their application approval. However, if the researcher is working on more than
one project concurrently, the total time to spend on the two (or more) projects could end up
exceeding 100 % of their total working hours which is obviously unacceptable. By requiring
applicants to declare their “effort”, the Japanese government tries to avoid providing more
funding for particular researchers or research groups actual effectively and efficiently.

Some researchers, who believe that they work more than others including Saturdays and
Sundays,15-hour a day, think they should be accepted exceeding 100% working hours.
However, since the “competence” of researchers evaluated on the bases of their
accomplishments which is the time he/she spent, it is only a percentage of the total work time
including “overtime” and should be stated as a time allocation to the project. Therefore, the
figure filled in on the application should reflect the percentage of the researcher’s total working
hours including overtime.

Researchers are required to declare “effort” as the percentage of their total working hours that
will be devoted to the project to apply for public research fund[15]. However, as it stands, a
funding agency is only informed of the “effort” that a given applicant intends to devote to the
particular project under review. As long as the total “effort” figure on any given application does
not exceed 100%, agencies don’t investigate any further. Applicants have been trusted to make
the ethical choice to leave room for other work including research contracted by private
companies and non-research activities within the total of 100%. To give an extreme example, a
professor working at a medical school clinical department may be very busy with other duties of
managing the clinic, seeing patients, training students and even working part-time at other
hospitals and may not have much time to devote to research. Although he may try to win
funding by claiming on the application that 100 % of working hours will be devoted to the
research project in question, this is definitely inappropriate. Not only this kind of unethical
behavior impede the effective use of research funds, it may also contribute to preserving the
unproductive hierarchical structure that is ingrained in the clinical departments of Japanese
medical schools where senior researchers control all projects and rob their younger colleagues of
the chance to advance their careers and establish themselves as independent researchers. Given
the ethical standards that accompany the rights and obligations enjoyed by authors worldwide, it
is wrong for a professor who hasn’t contributed substantial working time or intellectual input to
a project to be cited as a co-author on published results, even if he/she has been named as the
principal investigator of the public research funded project.

By contrast in the U.S., applicants have to include hours spent on non-research work such as
time spent seeing patients and teaching classes when declaring their total working hours.
Researchers receive salary from the funding agency, hospital, and the university according to
how much time they have allotted to each project. Monitoring and on-site inspections are also
performed in order to verify the number of working hours actually spent on research which
corresponds to the hours the applicant has declared. This system prevents researchers from
devoting significantly less time to the research project than they had claimed in their proposal.
Essential to this system is the fact that, in the U.S., public research funds cover researchers’
salaries and this is the major difference between the two systems. In Japan, although MEXT
funding does indirectly cover part of the salaries paid to some faculty members at private as well
as national universities, the amount paid does not correspond to the time researchers devote to
the project.

Conclusion

Many challenges such as economic crisis Japan faces lately, the government continues to
allocate huge sums of public funds to research, an investment that reflects the amount of trust
that the Japanese public places in its researchers. Having been entrusted with this precious
taxpayers’ money, it is depending on the scientific community and the administrative personnel
who work alongside to make efficient and effective use of the resources that have been put at
their disposal in order to get the best results possible. In addition, everyone involved in research
needs to strive to prevent the misappropriation of research funds including money diverted for
personal use and the arbitrary reallocation of funds because this kind of misconduct is a betrayal
of the public’s trust and expectations, and threatens to compromise the support society gives to
the research community.