National Institutes of Health Extramural Research Grants:
Oversight of Cost Reimbursements to Universities
GAO-07-294R: Published: Jan 31, 2007. Publicly Released: Mar 7, 2007.
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The Department of Health and Human Services' (HHS) National Institutes of Health (NIH) is the nation's leader in conducting and sponsoring biomedical research. More than 80 percent of NIH's budget, which totaled over $28 billion in fiscal year 2006, is used to support extramural research, which is primarily conducted at over 500 universities nationwide. NIH reimburses universities for direct costs that can be specifically attributed to research sponsored by NIH grants, including costs for labor and materials used solely to carry out the research. It also reimburses universities for indirect costs, which include various facility and administrative expenses incurred by the universities for the shared support of such research. To be reimbursed for direct and indirect costs, universities must properly identify and claim them in accordance with federal guidance. Because indirect costs cannot be specifically attributed to a particular research grant, they are charged via an indirect cost rate that is applied to the direct costs for each grant agreement. The oversight responsibilities of NIH's institutes and centers (IC) include the financial management of grants as well as ensuring that grantees comply with the terms of the grants. Audit responsibility for NIH research grants is shared between nonfederal auditors and HHS's Office of Inspector General (OIG). Because any incorrect allocation or claiming of costs could put federal funds at risk, Congress asked us to review indirect costs associated with NIH extramural research grants and oversight of direct and indirect costs claimed by universities receiving these grants. In response, we (1) describe the trends in indirect costs for NIH extramural research grants awarded to universities for fiscal years 2003 through 2005, (2) describe HHS's current key controls to ensure that grantees comply with federal guidance in claiming costs, (3) determine the frequency and scope of single and OIG audits of grantees, and (4) determine what actions NIH has taken to address auditors' findings of improper claiming of direct and indirect costs.
The proportion of NIH extramural research grant funds awarded to universities for reimbursement of indirect costs was stable at about 28.5 percent annually during fiscal years 2003 through 2005. The stability of the proportion of indirect costs reimbursed can be attributed to the stability of indirect cost rates during this period. During this period, indirect cost rates were stable because there was little change in the largest component of the indirect cost rate--the administrative component--and because indirect cost rates generally remain valid for 2 to 4 years once they are negotiated. HHS's key controls intended to ensure that grantees comply with federal guidance in claiming costs include the review of information submitted by universities when indirect cost rates are set and when grant applications and annual progress reports are submitted. Key controls for setting indirect cost rates are administered by HHS's Division of Cost Allocation (DCA) and involve reviewing indirect cost rate proposals. They can also include conducting on-site reviews and examining cost accounting practice disclosure statements. In carrying out these functions, DCA focuses much of its efforts on universities with the highest dollar value of federal funding received. HHS's key controls for overseeing reimbursements of costs claimed by universities are administered by NIH's institutes and centers and consist primarily of reviews that occur when universities apply for new grants and when universities submit their annual progress reports. Almost three-quarters of the approximately 530 universities receiving NIH extramural research grants--or about 390 of them--were required to have single audits conducted by nonfederal auditors annually in fiscal years 2003 and 2004, and about 4 per year received OIG audits during fiscal years 2003 through 2006. The scope of these two types of audits differed. The single audit includes an audit of the university's financial statements at the organization level and its system of internal control and compliance with federal laws and regulations that affect all federal funding, including grants, rather than specifically focusing on whether costs associated with universities' NIH grants were properly claimed. The OIG audits generally focused on a particular grant and the university's compliance with rules and regulations that pertained to that grant, rather than providing a broad examination of the university's internal controls and compliance with federal laws and regulations over all federal funding, including extramural grants. NIH required universities to address auditors' findings relating to a procedure or internal control that led--or could have led--to incorrect claiming of direct or indirect costs and to reimburse any questioned costs that it determined were not sufficiently supported. To resolve findings related to a procedure or internal control, NIH required each university to develop a corrective action plan, outlining the steps it would take to address the problem. Our review of the audit resolution files indicated that universities submitted evidence to NIH, such as a revised policy or documentation of their implementation of new controls, to show that the problems were addressed. To resolve findings concerning questioned costs, NIH determined how much of the amount in question the university was required to return. In resolving findings from OIG audits completed in fiscal years 2003 through 2006, NIH required universities to reimburse the full amount of questioned costs that it found were not sufficiently justified. In two audits, NIH required universities to reimburse the full amount of costs questioned by OIG, and in five other audits it determined that universities sufficiently justified either all or some of the costs questioned by OIG and did not require the universities to reimburse those costs.