The Money Trail: Did New Jersey University Misspend Federal Funds?

March 12, 2010 — -- Department of Homeland Security investigators have contacted New Jersey officials with questions about the fate of federal grant money awarded to Stevens Institute of Technology to help improve the nation's port security, ABC News has learned.

Two state officials described the federal inquiries about the possible misuse of nearly $3 million in Homeland Security grant money distributed to the Hoboken-based technical college, which has spent months under fire over allegations that it mismanaged its books. The state officials discussed the conversations on the condition they not be identified.

The non-profit university had in recent years become a darling of New Jersey's congressional delegation, which has directed millions of dollars in congressional earmarks and federal grants to the school. In 2008 alone, Stevens received $12.8 million in defense related earmarks requested by Sens. Robert Menendez (D), Frank Lautenberg (D) and other New Jersey lawmakers. Stevens also received $4.8 million in stimulus funds through grants from the National Science Foundation and the U.S. departments of transportation, health and human services, and education.

The Homeland Security money came as part of a 2008 program aimed at finding new ways to protect American ports. Menendez was tapped to be a featured speaker when Stevens unveiled the "Center of Excellence in Port Security" on its campus in mid-2008. The designation came with funding of up to $2 million a year for up to six years. To date, the university has received roughly $2,896,000 in research money.

But in the months after being selected to receive the Homeland Security funds, Stevens became mired in an ugly legal battle with the state attorney general's office over allegations that it not only misspent money, but that it grossly overpaid its president and floated him sweetheart loans for a vacation home in Vermont.

In a lawsuit filed last year, the state sought to remove Stevens President Harold L. Raveche, noting that his salary and bonus pay had reached as high as $1.1 million, considerably more than the presidents of much larger universities. The lawsuit also raised questions about Stevens's handling of research grant money, unearthing an internal audit that found "internal controls at Stevens Institute are below acceptable levels throughout the organization" and that "accounting practices relating to certain research revenue included 'significant deficiencies.'"

That legal fight ended in January after Raveche stepped down and university trustees reached a settlement that added financial safeguards and changed the way the school handled its books.The inquiries from Homeland Security officials came next, one New Jersey official said, with questions about whether any of the federal money intended for researching port security had become comingled with money that was allegedly being misspent.

The Homeland Security Department would not say whether an investigation was underway. DHS officials did tell ABC News that the grant was "very specific on how funds can be used, with line items classified by project code and object code."

"Any evidence of fraud or abuse regarding DHS funding will be immediately referred to the DHS office of the Inspector General," an agency spokesman said in response to questions.Stevens Institute officials told ABC News that they were unaware of any inquiry, and they believe the recent legal settlement resolved any questions about the school's bookkeeping. "I think the settlement makes clear that all the necessary financial requirements and safeguards have been put in place," said Pete McDonough, a consultant who has advised the university during the settlement process.