

Sen. Charles E. Grassley (R-Iowa) says the Colorado-based National Ecological Observatory Network used taxpayer money for a lavish office Christmas party. (Cliff Owen /AP)

Two senators are investigating whether the National Science Foundation and Defense Department auditors skirted federal laws by signing off on a nonprofit organization’s use of taxpayer money for “unallowable expenses,” including alcohol, lobbying and extravagant parties.

Sen. Charles E. Grassley (R-Iowa) said the practice came to his attention earlier this year when a whistleblower provided him with a draft audit that showed a climate change group used federal funds to pay $112,000 for lobbying, $25,000 for an office Christmas party, and $11,000 for “premium coffee services” and an unspecific amount on French hotels.

The Colorado-based National Ecological Observatory Network (NEON) has received tens of millions of dollars in grant money from the NSF to build sites across the country for collecting climate change data.

“Spending taxpayer dollars on alcoholic beverages is absolutely prohibited, and spending taxpayer dollars on meals, entertainment, and travel that is not part of official business, which is paid from or attributable to a federal grant, is also prohibited by governmental regulation,” Grassley wrote in a Sept. 3 letter to NEON, that was also signed by Sen. Rand Paul (R-Ky.)

The senators said they are concerned that what they saw in the NEON draft audit may be a “widespread” problem with NSF grant programs since documents show the foundation was aware of the expenses and paid them.

In a written statement, NEON Chairman James P. Collins said his group “has spent all funding in strict compliance with our understanding of the guidelines provided.”

Collins said in his statement that NEON is in now compiling the records requested by the senators.

NSF spokeswoman Maria Zacharias said in a statement that it would “not be appropriate” at this time to comment because the ongoing audit and the senator’s inquiry are a “pending matter.” Zacharias added that being “a good steward of taxpayer funds is a priority for NSF, and we make awards to the most qualified entities in achieving our mission of supporting fundamental research.”

From 2009 to 2013, NEON classified all the expenses that Grassley and Paul are questioning as a “management fee.” Internal documents show that the NSF was told by NEON that it was having a difficult time covering the costs because it had little in the way of private funds.

The auditor concluded that the practice was a “mechanism by which NEON evaded the prohibition against the payment of unallowable costs,” documents show.

But top management within the Defense Contract Audit Agency — which employs the auditor — said in interviews and a prepared statement that it plans to override his findings and approve the costs. The NSF hired the audit agency to conduct the audit because of its expertise with large construction contracts, the foundation said. The final audit has not yet been released.

“Government regulations put no restrictions on the company’s use of this fee,” the auditing agency said in a prepared statement. “Because Government regulations put no restrictions on management fee expenditures, it is inappropriate for DCAA to disallow those costs.”

A fee is supposed to cover the costs of managing a contract or a cooperative agreement with a government agency, and typically is less than 1 percent of an organization’s budget, records show.

Grassley said in a statement that the approach is a “back-door” attempt to find a way to have taxpayers pay for the expenses that otherwise would be disallowed. The senators are now asking NEON and the foundation for correspondence between them related to the reimbursed expenditures, the justification for using taxpayer funds for the expenses and details about the nonprofit group’s lobbying efforts.

According to Grassley’s staff, the auditor said two levels of supervisors signed off on his work. However, he told the senator’s staff that he said he believes the audit had stalled because DCAA management was concerned about spark a controversy for the high-profile program, the foundation, and the defense department.

Grassley’s staff said the auditor came forward because he believed the audit was going to be “whitewashed.”

NEON received $90 million this year from the foundation — nearly half of all money it awarded for major research and development projects, records show.

The project is highlighted in the foundation’s 2015 budget proposal, which says NEON will “generate snapshots of ecosystem health by measuring ecological activity from strategic locations throughout the U.S.”

On its Web site, NEON says it will collect data on the impacts of climate change, land use change and invasive species on natural resources from 106 sites across the nation over a 30-year period. The sites where scientists will collect their data are still largely under construction, and NEON says it will not be in full operation until 2017.

Grassley and Paul said a 2008 letter from NEON to the foundation shows that NSF officials were not deceived by the nonprofit organization but willingly signed off on its practices.

Grassley said the “2008 letter to NSF seems to have started the now-standard practice at NEON of using a taxpayer-funded ‘management fee’ to cover costs for which federal grant money should not be awarded. ”