GAB Decision 019
June 21, 1976 University of Missouri; Docket No. 75-11 DeGeorge,
Francis; Malone, Thomas Mason, Malcolm
This is an appeal by the University of Missouri pursuant to 45 CFR
Part 16 from the June 3, 1975 decision of the Regional Director, Region
VII, regarding the applicable provisional indirect cost rates for the
period beginning in fiscal year 1975.
Following indirect cost rate negotiations, HEW prepared a negotiation
agreement which, in relevant part, showed separate provisional rates for
each of the University's four campuses. The grantee objected to this
departure from the past practice of using a consolidated rate for the
entire University.
The Regional Comptroller, and then the Regional Director, found the
proposed use of separate campus rates to be proper. The Regional
Director indicated that his decision was based on the following factors:
(1) The Unifersity's accounting system adquately identifies cost to the
campus on which the cost is incurred, (2) There is a significantly
different level of cost generated between campuses, and (3) The amount
of research to which the rate applies is material. The latter two
criteria are derived from Federal Management Circular 73-8 (formerly OMB
Circular A-21) Paragraph G.1.b., which states that separate indirect
cost rates are called for where significantly different levels of cost
are generated by identifiable segments of research and where the amount
of research affected by the rates to be fixed is material.
Grantee in its letter of appeal acknowledges that the two criteria
stated in FMC 73-8 are met. However, it asserts that a consolidated
rate would actually produce for the University smaller recoveries of
indirect costs than the separate campus rates, specifically, that it
would result in an undercharge to the Government as a whole and an
overcharge only to HEW in an amount estimated at $40,000 which it
contends is not material as measured by total HEW grants of the order of
$15,000,000 annually. It contends that since the impact of the two
different rate approaches on the costs actually generated is
substantially the same, its preference for a consolidated rate should be
honored.
The relevant provision of FMC 73-8 helps to effectuate the Federal
statute requiring sums appropriated to be applied solely to the objects
for which they are appropriated, 31 U.S.C. 3628. As shown by the
University, an estimated $40,000 charged to HEW programs would be used
to support other Federal programs were a consolidated rate to be used
contrary to the requirements of FMC 73-8. Moreover, the Audit Agency
reported that only five of the twenty major Government agencies and
departments which sponsor research or instruction at the University have
programs on all four campuses, and that five of these twenty agencies
have programs at only one of the four campuses. In view of the range of
overhead rates among the campuses, from 48.8 percent for the Columbia
campus to 83.9 percent for the Rolla campus, it is clear that the
distribution of costs both among Federal agencies and among programs
within a Federal agency would be distorted by use of a consolidated
rate.
Even if the statutory violation using the current audited base be
considered immaterial in amount, reasonable projections further support
the use of multiple rates. a critical fact is that the amount of
research performed within the University system fluctuates from year to
year, the 200 percent increase in the research base at the Kansas City
campus in a 3-year period cited by the Regional Director being a case in
point. This might result in an increase of the excess of indirect cost
recoveries from each of one or more agencies over actual indirect costs
to the point where an undeniably substantial amount of grant funds
awarded for one program is used for another.
The Board is not persuaded by grantee's argument that a multiple
indirect rate structure would be contrary to the one-University concept
which it seeks to promote. At issue here is an accounting technique
which more accurately relates indirect cost payments to the actual
indirect costs of individual programs.
The use of multiple rates for research grants is not inconsistent
with the treatment accorded instructional grants, as contended by the
University. The separate rules governing each type of grant have been
properly applied.
There appears to be no basis in fact for the University's fear that
the HEW Regional Office will continue to demand more localized indirect
cost rates to the point where the University is required to develop and
negotiate rates on a departmental basis.
The Univesity stated that it has several multi-campus projects
sponsored by Federal grants and contracts, and campus rates would
complicate the award and reporting procedures for both the Federal
government and the University. However, it has not directly challenged
the Regional Director's previously noted assertion that the University's
accounting system adequately identifies cost to the campus on which the
cost is incurred, nor has it expressly noted the magnitude of the
problem, and it seems fair to conclude that the problem alleged is not
by itself sufficiently serious to preclude the use of mulitple rates if
otherwise justified.
Decision
There is a significantly different level of cost generated between
campuses and the amount of research to which the rate applies is
material. The criteria of FMC 73-8, Paragraph G.1.b, are thus met, and
its application serves the purposes of good grants management by
preventing inequities in the distribution of indirect costs. The
University has shown no compelling reason for the use of a consolidated
rate. The appeal is denied.
OCTOBER 04, 1983