Administrative Costs

Administrative activities such as managing finances and facilities,  ensuring quality, and reporting project status are essential to the  operation of grant programs. Programs have different  missions, priorities, services, and clients, and jurisdiction for the programs  are spread among numerous congressional committees; therefore federal  agencies’ definitions of allowable (or prohibited) administrative costs vary  from program to program. Agencies Reviewed Have Mechanisms in Place to Collect Data on Federal Grant Administrative Costs, but These Data May Not Reflect Actual Cost of Administration

Although grant-making agencies are not required to track grant  administrative cost data specifically, all six of the grant programs we  reviewed collect grant administrative cost data in some form. Each of the  grant programs we reviewed had mechanisms in place to capture the  administrative costs charged to their grant programs, via either a  computerized system or paper reporting.collection system varied, as follows:   However, each program’s data
HHS’s On-Line Data Collection System used for the CCDF grant and  HUD’s Integrated Disbursement & Information System used for both  HOME and CDBG are computerized data collection systems available  to the grantee and agency that capture grant program budgetary  information and actual post-award expenditure reporting. Officials for all of the selected programs reported that they use these  systems to review their grantees’ costs for appropriateness. The six programs we reviewed track grant expenses in different ways,  which can make it challenging to identify aggregate administrative costs. For some of these programs, administrative costs and program costs may  be included in the same line items and program officials told us that  separating these costs would be labor intensive. Grant recipients of all the programs we reviewed told us that since  administrative costs are not always reimbursed by their federal grants  they must cover some administrative expenses themselves. We found  examples of grantees absorbing part of the costs to administer a grant. Another CCDF state grantee told us that he  relies on state appropriations to cover the majority of administrative costs,  and therefore his organization’s federally reported administrative costs  remain well under the cap set by the program. The  variation in administrative cost caps—the limit to the amount of the grant  that may be charged as administrative costs to the federal government— presents challenges to comparing costs across programs. As a result of this variation, the  administrative costs of some programs may appear more expensive than  others. As we have previously concluded, because  there are differences in which activities are defined as administrative  costs for financial reporting purposes, a program with high administrative  spending is not necessarily less efficient than a program with low   Programs with higher administrative cost caps  administrative spending.may be assumed—incorrectly—to have higher administrative costs; so it  is important to have an understanding of individual caps in place before  any cross program comparisons are made. For example, the salary of an enrollment specialist at  Head Start, who enrolls children in the program, is considered a program- related cost. However, the salary of similar position as an intake specialist  for the Low Income Home Energy Assistance Program, who determines  the eligibility and benefit level for participants, may be an administrative  cost in some states where the program is administered. However, comparisons of costs may be more  appropriate when comparing programs that fulfill similar missions or  provide similar services. Comparisons of costs may be appropriate when reviewing programs that  fulfill similar missions or provide similar service. However, comparisons of  administrative costs across grant programs that provide different services  should be made with caution. Agency Comments and Our Evaluation

We provided a draft of this report to the Secretary of the Department of  Health and Human Services and the Secretary of the Department of  Housing and Urban Development. Appendix I: Objectives, Scope, and Methodology

This report examines (1) the extent to which selected federal agencies  and grantees have mechanisms and guidance in place to distinguish  between administrative and program costs and to facilitate the availability  of these data to Congress and the public; and (2) the extent to which  there are challenges that hinder the comparability of grant administrative  cost data. Although the results of our review  are not generalizable to other grant programs in other agencies, they are  indicative of the wide variation associated with the mechanisms and  guidance for tracking grant administrative costs and the utility of these  costs for program management. Costs for administration are limited  to 26 percent of total direct costs.
Why GAO Did This Study

The federal government spends billions of dollars on various grants to achieve diverse purposes. The total cost of a grant includes both program costs that directly support the grant's mission and services and administrative costs to run the program. These administrative activities, such as managing finances, are essential. It is important for agencies to track the cost of these activities to provide accountability for efficient use of federal resources.
GAO was asked to review how costs associated with the administration of grants are tracked and the availability of this information. GAO examined (1) the extent to which selected federal agencies and grantees have mechanisms and guidance in place to distinguish between administrative and program costs and to facilitate the availability of these data to Congress and the public; and (2) the extent to which there are challenges that hinder the comparability of grant administrative cost data. For this review GAO selected six grant programs—three in HHS and three in the Department of Housing and Urban Development (HUD). Agencies and grant programs were selected in part based on obligation amounts and grant types. GAO reviewed each program's statutes, regulations, guidance, and grant documents, as applicable, and interviewed agency officials. Although GAO's findings are not generalizable, they are indicative of the wide variation associated with the mechanisms and guidance for tracking grant administrative costs.
GAO received and incorporated, as appropriate, technical comments from HHS. HUD did not provide comments.

What GAO Found

All six of the grant programs GAO reviewed had mechanisms in place to capture the administrative costs charged to their grant programs, either via a computerized system or paper reporting. All the programs reported that they reviewed their grantees' costs for appropriateness. Two of the programs make administrative cost data available online. The programs GAO reviewed track administrative costs in different ways. For some programs administrative and program costs are reported separately, while for others they are included in the same line items. Administrative costs reported to the federal government may understate the actual cost to administer a grant program. GAO found examples of grantees absorbing part of the costs to administer a grant. Some primary grant recipients stated that when such costs were not reimbursed by the federal grant, they would cover those expenses themselves. Another grantee said he relies on state appropriations to cover the majority of administrative costs.
GAO identified two factors that hinder the comparability of administrative cost data in the programs it reviewed. First, is the existence of cost caps. These caps limit the amount of the grant that may be charged as administrative costs, and thereby affect what is reported to the federal government as administrative costs. For the programs GAO reviewed caps ranged from 5 to 26 percent, with one program having no cap. This variation can make some programs look more administratively expensive than others. Second, differences in what is defined as an administrative cost can present an even greater challenge to comparing costs across programs. Programs have different missions, priorities, services, and clients; as a result definitions of administrative costs vary from program to program. Therefore, different programs may treat similar costs differently. A cost that may be classified as administrative in one program may be considered a direct program delivery cost by another. For example, the salary of an employee who enrolls participants in one Department of Health and Human Services (HHS) program is considered a program cost but an employee who holds a similar position determining the eligibility of participants in another HHS program may be considered an administrative cost depending on the state where it is administered. This variation in definitions means that a program with high administrative costs may not be less efficient than a program with low administrative costs.
Given these issues, it is challenging to collect comparable information for different grant programs. Any use of information on administrative costs needs to recognize these concerns particularly when comparing programs with different types of objectives, projects, or services. Comparisons of costs may be appropriate when reviewing programs that fulfill similar missions or provide similar services. However, comparisons across different types of grant programs should be made with caution.