Federally Sponsored Research

In testimony last year, GAO discussed how Stanford University charged excessive indirect research costs, or "overhead" as it is commonly known, to the federal government. (See GAO/T-RCED-92-18, Mar. 13, 1992). This testimony focuses on three other institutions: Harvard Medical School, the Massachusetts Institute of Technology, and the University of California at Berkeley. GAO found many deficiencies in the cost allocation methods and charging practices at the three schools. In some cases, GAO discovered problems that the university, the university's external auditors, or government agencies had already reviewed but had not questioned. These problems arose because (1) certain Office of Management and Budget (OMB) Circular A-21 criteria were inadequate for determining which types of costs should be allowed or how costs should be properly allocated among different university functions; (2) universities generally lacked adequate systems and internal controls to ensure that only allowable indirect costs were charged to the government; and (3) lax oversight practices by federal agencies had resulted in universities claiming excessive indirect costs. Since the March 1991 hearings, all parties involved have taken steps to address these problems. However, GAO believes that this is an opportune time to reexamine the federal government's approach to reimbursing universities for indirect costs. Both OMB and the Department of Health and Human Services have already established task forces on the cost reimbursement system. Several proposals have been offered, both for simplifying the process and for reducing overall expenditures for indirect costs through the application of caps or fixed rates on the various categories of indirect costs. GAO plans to revisit this issue in an upcoming report.