Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of Royalty Payments for Intramural Inventions Received by the National Institutes of Health in Fiscal Year 2004," (A-03-04-03000)

November 20, 2006

PDF File Complete Text of Report is available in PDF format (598 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.

EXECUTIVE SUMMARY:

Under its technology transfer program, the Office of Technology Transfer (OTT), within NIH's Office of Intramural Research, enters into license agreements to move new technologies developed in its laboratories to the private sector for further development and commercialization. NIH retains title to these licensed technologies and receives royalty payments from the licensees. Our objective was to determine whether OTT monitored the fiscal year (FY) 2004 royalty payments that it received for intramural inventions and ensured timely collection of the payments.

For FY 2004, OTT did not adequately monitor the royalty payments that it received or ensure the timely collection of payments. Contrary to the requirements of the “United States Public Health Service Technology Transfer Manual” (the Manual), OTT did not review all licensee sales and earned royalty reports or require licensees that met the $2 million sales threshold to obtain compliance audits of earned royalties. OTT also did not take all steps required by the Manual to collect delinquent royalty payments, nor did it seek to impose interest and penalty charges or terminate license agreements.

We recommended that NIH (1) finalize Chapter 310 of the Manual and implement a process to ensure that OTT performs and documents reviews of all sales and earned royalty reports; (2) develop and follow a revised policy regarding audits of earned royalties; and (3) enforce the requirement to send late notices, terminate delinquent license agreements when appropriate, and forward delinquent licensees to the NIH Debt Collection Office to be considered for interest and penalty charges. In its comments on the draft report, NIH concurred with the first and third recommendations but disagreed with the second recommendation, saying that OTT had an effective system for identifying unpaid royalties and that OTT planned to revise its compliance audit policy. Accordingly, we modified our second recommendation.