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Assuring Reasonableness of Rising Indirect Costs on NIH Research Grants--A Difficult Problem

HRD-84-3 Published: Mar 16, 1984. Publicly Released: Mar 16, 1984.
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In response to a congressional request, GAO reviewed the process followed by the Department of Health and Human Services (HHS) in establishing indirect cost rates for health research and development activities to: (1) identify HHS efforts to contain the growth of indirect costs; (2) assess HHS accountability over indirect costs; and (3) determine how often indirect cost audits are made and how the audit reports are used by HHS indirect cost negotiators.


Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget The Director, OMB, should revise Circular A-21 to establish a fixed allowance for large institutions' departmental administration expenses to replace the cost reimbursement method now used. Such an allowance could be computed in a manner similar to that permitted by OMB Circular A-21 for small institutions. The allowance could vary, if necessary, on an institution-by-institution basis, depending on individual circumstances. Such an allowance should represent a reasonable amount needed for effective research administration at the departmental level and, to the extent possible, be both relatively simple to compute and not result in disproportionate annual fluctuations compared to the direct costs of research.
Closed – Implemented
This report received credit in the Federal Register for identifying the action needed to resolve the controversy this issue raises among researchers, institutions, and the federal funding and auditing agencies. An accomplishment report will be prepared as soon as HHS gives an estimate of financial savings and other nonfinancial benefits which will occur due to the OMB Circular revision.

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