These  tools, as explained in further detail later in the report, are to be used in  coordination with federal regulation and NSF guidance. This variation was based on various factors, such as by the  types of activities supported by the awards and the types of organizations  receiving the awards. Budgeted Indirect Costs on NSF Awards Varied from Year to Year

Budgeted indirect costs on NSF awards ranged from 16 to 24 percent of  the total annual amounts the agency awarded for fiscal years 2000  through 2016. The percentage fluctuated during this period, though it has  generally increased since reaching a low point in 2010. As shown in figure 3, our analysis of NSF data  indicates that on average, NSF budgeted about 23 percent of award  amounts for indirect costs on awards to organizations for which NSF did  not have indirect cost cognizance and about 11 percent for indirect costs  on awards to organizations for which NSF had cognizance. NSF Has Not Consistently Implemented Guidance for Setting Indirect Cost Rates and Has Not Included Certain Details and Procedures

NSF has developed internal guidance for setting ICRs, but NSF staff have  not consistently followed it. In addition, the internal guidance on  supervisory review does not include certain details and procedures. NSF has designed  control activities for setting ICRs and has implemented them through  internal guidance, such as Indirect Cost Rate Proposal Review Standing  Operating Guidance. Our review of a nongeneralizable sample of seven  NSF ICR agreement files showed that NSF staff followed many parts of  the agency’s internal guidance. For example, NSF’s internal  guidance includes procedures for NSF staff to use a standard  document checklist to verify that the awardee’s ICR proposal package  is complete and that all required documents have been submitted. For example, some  checklists required certifications of lobbying costs and indirect costs,  and others did not. In  particular, NSF’s existing internal guidance on supervisory activities,  which are a key part of the agency’s control activities for setting ICRs, did  not include details on (1) the criteria to be used by the supervisor to  assess the risk level of a proposal and determine the types of review  steps to be performed by staff for each risk level and (2) the steps that the  supervisor needs to take when reviewing and documenting the work  performed by NSF staff to set ICRs. By  adding procedures in its internal guidance for implementing the new  provisions, NSF could better ensure that NSF staff will apply the  provisions correctly in accordance with the Uniform Guidance. NSF officials described  ways that staff implement these procedures even though the procedures  are not fully detailed or included in guidance. However, including the  missing details and procedures in NSF’s internal guidance, and requiring  staff to follow the guidance, could help NSF ensure that staff properly and  consistently negotiate ICRs and that the rates negotiated comply with  applicable federal guidance, which in turn would help ensure that the  funding provided for indirect costs does not unnecessarily limit the  amount available for research. In its comments, reproduced in appendix I, NSF concurred with  our recommendations and described actions it would take to address  them.
Why GAO Did This Study

NSF awards billions of dollars to institutions of higher education (universities), K-12 school systems, industry, science associations, and other organizations to promote scientific progress by supporting research and education.
NSF reimburses awardees for direct and indirect costs incurred for most awards. Direct costs, such as salaries and equipment, can be attributed to a specific project that receives an NSF award. Indirect costs, such as the costs of operating and maintaining facilities, are not directly attributable to a specific project but are necessary for the general operation of an awardee's organization. For certain organizations, NSF also negotiates ICR agreements, which are then used for calculating reimbursements for indirect costs. ICR negotiations and reimbursements are to be done in accordance with federal guidance and regulation and NSF policy.
GAO was asked to review the amount of NSF funding for indirect costs and NSF's negotiation of ICRs. This report examines (1) what is known about indirect costs on NSF awards over time, and (2) the extent to which NSF has implemented guidance for setting ICRs for organizations over which it has cognizance. GAO reviewed relevant regulations, guidance, and agency documents; analyzed budget data and a nongeneralizable sample of nine ICR files from fiscal year 2016 selected based on award funding; and interviewed NSF officials.

What GAO Found

For National Science Foundation (NSF) awards during fiscal years 2000 through 2016, budgeted indirect costs varied from 16 to 24 percent of the total annual amounts the agency awarded. The percentage fluctuated during this period, though this percentage generally has increased since reaching a low point in 2010. The variation from year-to-year was based on various factors such as by the types of activities supported by the awards and the types of awardee organizations receiving the awards.
Note: Award funding has not been adjusted for inflation.
NSF has developed internal guidance for setting indirect cost rates (ICR) but has not consistently implemented this guidance and has not included certain details and procedures, in particular:
NSF has not consistently implemented its guidance because it has not yet required NSF staff to follow aspects of its guidance, such as using a documentation checklist that NSF developed to verify that an awardee's ICR proposal package is complete.
NSF did not include details on supervisory activities, such as the criteria to be used by the supervisor of the ICR process for assessing an ICR proposal's risk level and mitigating risks at each level.
NSF did not include certain procedures, such as for implementing new provisions of federal guidance on setting ICRs.
NSF officials described ways that staff implement procedures even though the procedures are not fully detailed or included in guidance. Nevertheless, with complete guidance that includes the missing details and procedures and that is consistently followed, NSF could better ensure that ICRs are set consistently and in accordance with federal guidance on indirect costs and with federal internal control standards.

What GAO Recommends

GAO recommends that NSF take three actions to improve its guidance for setting ICRs, including adding certain details and procedures. NSF concurred with GAO's recommendations and described plans to address them.