Outside auditor takes critical look at stem cell agency

California’s $12 billion stem cell agency needs to do better in several critical areas, ranging from planning for the replacement of its current chair to handling information that is key to its operations as well as the tracking of potential sources of royalties.

That’s according to that latest performance audit of the 17-year-old agency, an enterprise that voters expect to develop stem cell cures and treatments for afflictions ranging from cancer to diabetes.

The audit commended the agency for its work in 2019-20 in dealing with its financial problems, shrinking staff and the pandemic. But it said improvements were needed in a number of areas. The audit also declared that some of its recommendations from previous years have not been fully implemented, particularly those dealing with information and how it is handled.

Moss Adams has conducted all four performance audits that are required every three years by state law at a cost of about $230,000 each year.

“The ability to quickly and reliably provide requested information, particularly historical information, is key to ongoing support for the organization, confidence in its operations, and demonstrated accountability to California voters,” said Moss Adams, an accounting and consulting firm.

The area that Moss Adams refers to is known generally as information technology (IT), a term that puts many to sleep until they find that they cannot dig out the needed information when it comes time to make important decisions.

IT has been a problem in one form or another since the early days of the agency, known formally as the California Institute for Regenerative Medicine (CIRM). In 2012, the first performance audit by Moss Adams said, “Key performance information is not readily available to CIRM leadership and other stakeholders on an ongoing basis.” While the situation has improved since then, the audit said more work is needed.

Moss Adams has conducted all four performance audits that are required every three years by state law at a cost of about $230,000 each year. The audits are excluded by law from examining CIRM’s scientific portfolio and making judgments about it.

The audit is aimed at assessing “the economy, efficiency, and effectiveness” of CIRM, which is in the process of determining how it will spend the fresh $5.5 billion that voters gave it last year.

The latest audit, which covers the 2019-2020 fiscal year,  was hailed by CIRM Chairman Jonathan Thomas as “very, very positive” when it was presented last month to CIRM’s governing board. Its 35 members had little to say about its conclusions. In the report itself, CIRM said it was at “peak performance” during a period when it was running out of money, losing staff and coping with the impact of Covid 19.

The staff said it will present a plan to the board in January to deal with the report’s recommendations. The agency has already started to deal with some of the issues.

The audit is aimed at assessing “the economy, efficiency, and effectiveness” of CIRM, which is in the process of determining how it will spend the fresh $5.5 billion that voters gave it last year.  When that money begins to run out in a little more than a decade or so, CIRM will face another funding crisis.

Meantime, its chairman and vice-chairman are losing their positions next year because of the term limits built into the 17,000-word statute that created CIRM and micromanages many aspects of it.

The law says that various constitutional officers, including the governor, must nominate candidates for chair, a post now held by Jonathan Thomas, who is only the second chair of the agency since 2004. The CIRM board cannot formally nominate its own candidates.

Nonetheless, CIRM’s board is moving to step into the process in a major way. A meeting of the board’s governance subcommittee is slated for January to consider the matter. Undoubtedly, informal conversations are already underway outside of the public gaze.

Both the chair and vice-chair are paid — $400,003 annually in the case of the chair, a full-time position, and $225,000 in the case of the vice-chair, which is a part-time job.  Former state Sen. Art Torres is the vice-chair.

“Actions to support leadership transition should continue on the part of both (the board) members and staff to ensure a successful organizational change,” Moss Adams said.

“CIRM should deliberately plan for (board) leadership succession. Succession planning is best practice in the event of planned and unplanned vacancies.”

Moss Adams’ review of CIRM’s information problems was delicately phrased. But it said that they were leading to staff confusion and lack of coordination in some cases.

On Wednesday (Nov.10),  the only state body specifically charged with evaluating CIRM’s financial practices is scheduled to meet — but the performance audit is not on the agenda.

“Staff continue to report confusion related to records retention requirements, which can negatively impact the organization’s ability to respond to information requests,” the audit said.

“Staff report that data is not collected or stored in a consistent place and there is often a disconnect between some of the business relationships and grantee relationships. For example, one employee at CIRM may have recruited a grantee to apply as a result of promising research, while another is supporting the grantee in establishing industry relationships to manufacture testing products. However, these interactions are not consistently tracked over the lifecycle of CIRM’s relationship with the grantee.”

Moss Adams recommended improvement in tracking the results of CIRM-funded research that could be involved in generating royalties.

“Certain” unidentified recipients of CIIRM awards “are not pro-active in voluntarily complying with CIRM regulations” and require follow-up, the audit said. “To enable more effective monitoring of technology disclosures, CIRM should implement an IT control that flags missing documentation and alerts responsible CIRM staff.”

On Wednesday (Nov.10),  the only state body (the Citizens Financial Accountability Oversight Committee — CFAOC )  specifically charged with evaluating CIRM’s financial practices is scheduled to meet. However, the performance audit is not on the agenda.

Here are links to the earlier performance audits and coverage of them by the California Stem Cell Report.

2012 — IP to Grant Oversight: Study Calls for Host of Improvements at California Stem Cell Agency

(The above notes that legislation originally said the CFAOC should perform the performance audit but that was changed to the agency itself. Here is a link to a piece about how that change came about.)

2015 — Conflict-of-Interest Failings Reported in Application Reviews at California Stem Cell Agency

California Stem Cell Audit: Praise for Mills but More Work Needed on IP, Conflicts of Interest

2018 — Performance Audit of California Stem Cell Agency: Improvements Needed in $200 Million Fund-Raising Program, Staff Retention and Use of Board Members

Potential Death of California Stem Cell Program Hangs Over Its Performance Evaluation

Links to the full reports in previous years

Text of 2012 performance audit

Text of 2015 performance audit

Text of 2018 performance audit
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Editor’s Note: David Jensen, a regular contributor to Capitol Weekly,  is the founder and editor of the The California Stem Cell Report, and has covered the California Institute of Regenerative Medicine since its inception.