September 10, 2010

GAO Issues Report “University Research: Policies for the Reimbursement of Indirect Costs Need to be Updated”

In 2007, the U.S. Government Accountability Office (GAO) was asked to examine issues related to rates used to reimburse higher education institutions for indirect costs on federally funded research awards.

GAO issued the resulting report and recommendations,“University Research: Policies for the Reimbursement of Indirect Costs Need to be Updated,” on September 8.

A summary of recommendations from pages 38-39 of the full report is excerpted below:

Recommendations for Executive Action:

To address different processes for negotiating rates by the two cognizant rate-setting agencies for higher education institutions, we recommend that the Director of OMB:
  • Identify methods to ensure that the rate-setting process is applied consistently at all schools, regardless of which agency has rate cognizance. This would include identifying ways to ensure that differences in cognizant rate-setting agencies’ approaches, goals, policies, and practices do not lead to unintended differences in schools’ rate reductions for indirect costs.
To ensure that indirect cost reimbursement practices are consistent with the current state of indirect research costs at schools providing federal basic research, we recommend that the Director of OMB:
  • Clarify the roles and responsibilities of federal agencies (including DOD, HHS, and OMB) in accepting applications and reevaluating the eligibility of schools to receive the utility cost adjustment.
  • Reexamine and determine whether reimbursing administrative costs at a maximum rate of 26 percent achieves the appropriate level of cost control and achieves the government’s objective that the federal government bears its fair share of total costs.
To improve DOD’s ability to oversee reimbursement of allowable indirect costs to schools, we recommend that the Secretary of Defense direct that the Under Secretary of Defense for Acquisition, Technology and Logistics:
  • Establish a process for administrative grants/contracting officers to verify at grant closeout whether a school has requested reimbursement at the accurate indirect cost rate and dollar amount, which includes calculating whether the dollar amount reflects the appropriate application of rates for that award.
  • Assess the current level of audit coverage for monitoring DOD indirect cost reimbursement for schools and determine what level is sufficient and whether to expand use of closeout audits and other audits to oversee compliance.
  • Develop a policy for oversight of indirect costs that includes the use of alternative oversight information (1) for those schools not individually audited under the single audit, and (2) for those schools where the audit coverage of research and development awards is not sufficient for oversight of indirect costs.