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OMB proposes new controls on indirect costs

By Dave Watt

In an effort to control the indirect costs of sponsored research, the Office of Management and Budget in Washington, DC, announced a proposal to restrict the percentage of federal grant money that can be used to pay for administrative expenses. The move is opposed by universities all over the country, including MIT.

The cap, set at 26 percent, applies only to administrative expenses, which are but one component of the total indirect costs that universities bill the government as part of their research contracts. MIT's total indirect cost rate is 57.5 percent of the billed cost of research, but its administrative indirect cost rate is only 21 percent.

Although the Institute would not be affected by the cost cap, MIT still opposes it. The cap "may well produce changes with the potential of irreparable harm to the long-term health of our universities and national system of research," wrote Vice President for Financial Operations James J. Culliton in a letter to OMB.

MIT accounting practices have kept its apparent administrative cost rates low, Culliton said in an interview with The Chronicle of Higher Education. Many universities bill the cost of providing secretaries to researchers as an administrative indirect cost. But at MIT, secretaries are considered a direct, not an indirect, cost. Therefore, professors pay for secretaries out of the money they are directly given for their laboratories, Culliton told the Chronicle.

The OMB and Congress have been scrutinizing indirect cost reimbursements at universities all over the country since an audit at Stanford University uncovered many questionable expenses billed to the federal government. Stanford eventually agreed to reimburse the government over $750,000.

MIT, responding to the Stanford audit, announced in April that it would pay back more than $731,000 to the government for inappropriate indirect cost expenses. Receptions at the president's house, a trip to Barbados, and over $100,000 in legal fees incurred by the Whitehead Institute had been billed to the government.

MIT's new government and community relations office in Washington will not be included in federal overhead costs, Culliton said. The OMB circular which governs indirect cost reimbursement specifically excludes lobbying expenses, according to OMB documents.

OMB also proposes

salary reimbursement cap

The OMB has also proposed new regulations that would prohibit certain expenses from being billed back to the government. These expenses include restrictions on houses for officers, advertising, and lobbying.

But in a move that Culliton called "punitive," OMB has also proposed to place a cap of $120,000 per year on the amount of professors' and administrators' salaries that can be billed back to the government as indirect costs.

Other local universities face sharp cuts in federal reimbursements for administration if the proposed cap goes into effect. Boston University has the highest administrative indirect cost rate in the country, at 41 percent, according to The Chronicle of Higher Education. BU officials have repeatedly declined to comment on their administrative costs. A spokesman would not say whether BU sent a response like Culliton's to the OMB during the comment period on the proposed cap.

Other local universities with high administrative cost rates include Tufts University (39 percent), Harvard Medical School (38 percent), and the University of Massachusetts at Worcester Medical School (37 percent), according to the Chronicle.

Other local schools

may be hurt more

Thus, Culliton explained, two universities with the same secretarial costs might receive different reimbursements for them, because one bill them as overhead, while the other billed them directly.

Cap proposal results

from billing abuses