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

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.

"Nothing about the settlement had anything to do with Homeland Security money," he added. Menendez aides noted that, while he and other New Jersey lawmakers took an active role in pursuing earmarks for Stevens, they would have played a far smaller role in pursuing federal grants for the school. Still, Afshin Mohamadi, Menendez's press secretary, said the senator will monitor the Homeland Security matter and is now taking immediate steps to make certain all the defense department funds he helped Stevens secure have been properly accounted for.

"The senator takes seriously this news about DHS scrutiny of one particular grant and will review its findings when complete," Mohamadi said. "In the meantime, our staff will proactively contact the Department of Defense project manager in New Jersey who oversees the ongoing project that involves Stevens to ensure that it is progressing smoothly."

Mohamadi said the senator was aware, through news reports, that there were warning signs about possible financial troubles at Stevens.

In 2008, Stevens was forced to pay the Internal Revenue Service $750,000 in penalties and back taxes from its various subsidiaries, according to court records. In May of that year, a former associate vice president of the university pleaded guilty to embezzling approximately $264,000 from the U.S. Department of Education's Upward Bound program, money that was supposed to be used to help prepare disadvantaged inner-city New Jersey children for college.

During this period, Stevens aggressively pursued federal support.

The university has spent more than $1.2 million on lobbying in Washington since 2007, according to the Center for Responsible Politics.

The university also hired a former Menendez aide to lobby for funds, though Menendez staffers noted it was a different Stevens lobbyist who approached their office about the federal earmarks. At the same time, Stevens officials have been prolific donors to New Jersey lawmakers. Raveche, the Stevens University president, and his wife have donated more than $17,000 to Menendez's campaign accounts over the past two decades, campaign finance reports show.

Questions about the fate of the money secured for Stevens have surfaced just as Congress has begun to consider concrete steps to curtail the use of earmarks. Melanie Sloan, executive director of the advocacy group Citizens for Responsibility and Ethics in Washington, said lax vetting of earmark recipients has long been a concern with the way members of congress dole out taxpayer money.

"There's no scrutiny ever," Sloan said. "There's literally no vetting to make sure the people who get the earmarks are qualified to provide the government with what they've been tasked with. This gets to the heart of the problem with earmarks."

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