Federal Cost Principles Are Often Not Applied in Grants and Contracts With State and Local Governments

The Office of Management and Budget (OMB) promulgated uniform cost principles applicable to grants and contracts with State and local governments in a management circular issued in 1968. A review was made to determine the intent, adequacy, and extent of implementation of this circular. Federal assistance accounts for an estimated 25 percent of State and local resources. Agencies recognize and pay direct program costs; however, often they do not recognize and pay the allocated or indirect costs of providing support services.