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Highlights

Nonprofits are key partners in delivering federal services yet reportedly often struggle to cover their indirect costs (costs not readily identifiable with particular programs or projects). This raises concerns about fiscal strain on the sector. To provide information on nonprofits' indirect cost reimbursement, especially when funding flows through entities such as state and local governments, GAO was asked to review, for selected grants and nonprofits, (1) how indirect cost terminology and classification vary, (2) how indirect costs are reimbursed, and (3) if gaps occur between indirect costs incurred and reimbursed, steps taken to bridge gaps. GAO selected six Departments of Health and Human Services and Housing and Urban Development grants and 17 nonprofits in Louisiana, Maryland, and Wisconsin. GAO selected these agencies for their historical relationship with nonprofits. GAO reviewed policies and documents governing indirect costs and interviewed relevant officials. GAO also reviewed research on nonprofits' indirect costs.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget 1. The Director of the Office of Management and Budget (OMB) should bring together federal, state, and local governments, and nonprofit representatives to propose ways to clarify and improve understanding of how indirect costs should be treated, particularly for grants passed through state and local governments to nonprofits by clarifying the definitions of indirect costs and administrative costs and their relationship to each other.
Closed - Implemented
OMB has reached out to professional organizations to provide training to nonprofit organizations, state and local governments and federal agencies on the treatment and recovery of indirect costs. Specifically, OMB has requested that the American Institute of CPAs (AICPA), the National Grants Management Association (NGMA), and the Maryland Association of CPAs (MACPA) provide training on indirect costs and other grants management issues at their nonprofit conferences. OMB has participated in this type of training at an NGMA Grants Training Conference and a MACPA conference held in April 2011, and will also participate at the AICPA Nonprofit Conference in June 2011 and another NGMA Grants Training Conference in September 2011.
Office of Management and Budget 2. The Director of the Office of Management and Budget (OMB) should bring together federal, state, and local governments, and nonprofit representatives to propose ways to clarify and improve understanding of how indirect costs should be treated, particularly for grants passed through state and local governments to nonprofits by considering ways to help nonprofits improve their understanding and ability to better capture, categorize, report, and recover indirect and administrative costs.
Closed - Implemented
OMB has reached out to professional organizations to provide training to nonprofit organizations, state and local governments and federal agencies on the treatment and recovery of indirect costs. Specifically, OMB has requested that the American Institute of CPAs (AICPA), the National Grants Management Association (NGMA), and the Maryland Association of CPAs (MACPA) provide training on indirect costs and other grants management issues at their nonprofit conferences. OMB has participated in this type of training at an NGMA Grants Training Conference and a MACPA conference held in April 2011, and will also participate at the AICPA Nonprofit Conference in June 2011 and another NGMA Grants Training Conference in September 2011.

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