NIH Biomedical Research: Agencies Involved in the Indirect Cost Rate-Setting Process Need to Improve Controls

NIH spent over $23 billion to support extramural research in 2015, including $6.3 billion for indirect costs, which are costs not directly attributable to a specific research project or function, such as utilities expenses, for grants and cooperative agreements. NIH relies on designated cognizant agencies to design adequate internal controls over the processes for negotiating indirect cost rates with research organizations. Once set, these rates must be accepted by NIH and all federal awarding agencies. GAO was asked to review the internal controls for overseeing the validity of indirect cost rates for NIH's research organizations. This report examines the extent to which the three primary cognizant agencies (CAS, NIH-DFAS, and ONR) that set indirect cost rates on NIH's behalf have designed internal controls to mitigate the potential for fraud, waste, and abuse in the indirect cost rate-setting process. GAO reviewed OMB guidance, the FAR, and the cognizant agencies' internal guidance on indirect cost rate negotiation; interviewed staff at the cognizant agencies; and reviewed a nongeneralizable sample of negotiation case files to obtain an understanding of the design of controls.