Federal Research:

System for Reimbursing Universities' Indirect Costs Should Be Reevaluated

RCED-92-203: Published: Aug 26, 1992. Publicly Released: Aug 26, 1992.

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Pursuant to a congressional request, GAO examined how the federal government reimburses universities for overhead, or indirect costs, related to federally funded scientific research.

GAO found that: (1) due to inadequate federal guidance, oversight, and weak internal controls at the universities, the government has been charged millions of dollars for unallowable, questionable, or improperly allocated indirect costs; (2) recent disclosures of inappropriate charges have spurred corrective actions, the Office of Management and Budget (OMB) has revised OMB Circular A-21, and universities have initiated their own indirect cost reviews to address identified problems; (3) such actions were appropriate to deal with the immediate problems, but they could contribute to an increase in indirect costs because universities are likely to pass on to the government a portion of the costs incurred to improve their accounting systems and internal controls; (4) the depth and persistence of the problems make this an opportune time to consider fundamental changes to the existing reimbursement system; and (5) a multiagency task force is addressing the need for such changes.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OMB's actions indicate that it intends to work with the two cognizant agencies to achieve consistency rather than going with only one. The ONR has implemented procedural changes to tighten central review of universities' indirect cost rates. DOD also is pursuing changes to the Defense Supplement of the Federal Acquisition Regulation to enable ONR to negotiate predetermined multiyear indirect cost rates with universities.

    Recommendation: The Director, OMB, should designate a single cognizant federal agency, using a consistent approach, to negotiate indirect cost rates for federally sponsored research at universities.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Not Implemented

    Comments: In a July 25, 1994, letter, the Acting Director of OMB and the Director of OSTP stated that they planned no pervasive review of A-21 this year in order to give the 1993 revisions to A-21 the chance to demonstrate sufficiency in practice before revisiting them. OMB and OSTP officials met with university representatives in May 1994. The Association of American Universities is serving as a point of continuing contact between senior administration officials and the university community.

    Recommendation: OMB should examine ways to more directly involve a cross section of the university community in the work of the task force, either through direct membership or as a separate advisory committee, in evaluating alternative methods (including, but not limited to, ones GAO identified) for reimbursing universities for indirect costs related to federally sponsored research.

    Agency Affected: Executive Office of the President: Office of Management and Budget


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