	Indirect Costs on NSF Awards Ranged From 16 Percent to 24 Percent of Total Annual Award Funding from 2000 through 2016 and Differed by Type of Organization

Our preliminary analysis of NSF data indicates that for fiscal years 2000  through 2016, indirect costs on NSF awards ranged from 16 percent to 24  percent of the total annual amounts the agency awarded, though the  percentage generally has increased since 2010. NSF officials told us that variation in indirect costs from year to year can  be due to a variety of factors such as (1) differences in the types of  organizations awarded, (2) the types of activities supported by the  individual awards—research vs. individuals or students vs. infrastructure,  (3) the type of research activity, and (4) the disciplinary field of awards. According to NSF officials, prospective awardees are required to provide  direct and indirect costs in their proposed budgets using the  organization’s negotiated indirect cost rate. After an award is made, NSF  does not require awardees to report information about indirect costs when  requesting reimbursements for work done on their awards for projects. According to NSF officials, doing so would  unnecessarily increase the reporting burden on awardees. NSF Guidance for Setting Indirect Cost Rates Has Not Been Consistently Implemented and Does Not Include Certain Details

Our preliminary review of NSF’s guidance for setting indirect cost rates  and a nongeneralizable sample of nine indirect cost rate files indicates  that NSF has issued internal guidance that includes procedures for staff  to conduct timely and uniform reviews of indirect cost rate proposals,  collect data, set rates, and issue letters to formalize indirect cost rate  agreements. However, in our  preliminary analysis of NSF guidance, we found that (1) NSF staff did not  consistently follow guidance for updating the tracking system, (2) the  guidance did not include specific procedures for how supervisors are to  document their review of staff workpapers, and (3) NSF had not updated  the guidance to include procedures for implementing new provisions  issued under the Uniform Guidance. However, our preliminary analysis of reports from the  tracking database indicates that NSF staff have not consistently followed  the guidance for updating the tracking database with current data about  the awardees for which NSF has cognizance and the status of indirect  cost rate proposals. Moreover, our preliminary observations on NSF’s guidance indicates that  it does not include procedures for implementing certain aspects of OMB’s  Uniform Guidance, which became effective for grants awarded on or after  December 26, 2014. In closing, I would note that we are continuing our ongoing work to  examine NSF’s data on indirect costs for its awards over time and its  implementation of its guidance for setting indirect cost rates for  organizations over which it has cognizance. NSF awards billions of  dollars to organizations each year and, given the constrained budget  environment, it is essential that NSF ensures efficient and effective use of  federal science funding.
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 research 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 are not directly attributable to a specific project but are necessary for the general operation of an awardee organization, such as the costs of operating and maintaining facilities. For certain organizations, NSF also negotiates indirect cost rate agreements, which are then used for calculating reimbursements for indirect costs. Indirect cost rate negotiations and reimbursements are to be made in accordance with federal guidance and regulation and NSF policy.
This testimony reflects GAO's preliminary observations from its ongoing review that examines (1) what is known about NSF's indirect costs for its awards over time, and (2) the extent to which NSF has implemented guidance for setting indirect cost rates for organizations. GAO reviewed relevant regulation, guidance, and agency documents; analyzed budget data, a nongeneralizable sample of nine indirect cost rate files from fiscal year 2016 selected based on award funding; and interviewed NSF officials.

What GAO Found

GAO's preliminary analysis of National Science Foundation (NSF) data indicates that for fiscal years 2000 through 2016, indirect costs on NSF awards ranged from 16 percent to 24 percent of the total annual amounts awarded, though the percentage generally has increased since 2010 (see fig.). NSF officials stated that variation in indirect costs from year to year can be due to a variety of reasons, such as the types of organizations awarded and the disciplinary field of awards. GAO's observations are based on data from planned budgets on individual NSF awards, rather than actual indirect cost expenditures, because NSF does not require awardees to report indirect costs separately from direct costs in their reimbursement requests. According to NSF officials, collecting such information would unnecessarily increase the reporting burden on awardees.
NSF has issued guidance for negotiating indirect cost rate agreements that includes procedures for staff to conduct timely and uniform reviews of indirect cost rate proposals. GAO's preliminary review of NSF's guidance and a sample of nine indirect cost rate files found that (1) NSF staff did not consistently follow guidance for updating the agency's tracking database with current data about some awardees, (2) the guidance did not include specific procedures for how supervisors are to document their review of staff workpapers, and (3) NSF had not updated the guidance to include procedures for implementing certain aspects of Office of Management and Budget guidance that became effective for grants awarded on or after December 26, 2014, such as the circumstances in which NSF can provide an awardee with an extension of indirect cost rates.

What GAO Recommends

GAO is not making any recommendations in this testimony but will consider making recommendations, as appropriate, as it finalizes its work.