COUNCIL ON GOVERNMENTAL RELATIONS

**1200 New York Avenue, N.W., Suite 320, Washington, D.C. 20005**

**(202) 289-6655/(202) 289-6698 (FAX)**

**APPENDIX**

*A: [Accountability]{.underline}*

Universities fully subscribe to the single audit concept embodied in the
Single Audit Act and OMB Circular A-133. Under these provisions, the
current system clearly provides adequate accountability and permits
demonstration of responsible use of public funds. However, a number of
federal agencies increasingly are insisting on performing their own
audits. As a result, the government may spend more on audits than it is
likely to recover from findings of deviations from requirements.
Government data indicate that the findings in university audits have not
skyrocketed, but in fact have declined. For example, audits by the NSF
Inspector General have identified questioned costs of \$8.7 million in
FY 2000, \$7.0 million on 2001, and \$5.7 million in 2002, with
corresponding sustained findings through the audit resolution process of
\$2.4 million, \$1.9 million and \$1.4 million. [^1]

There are other definite departures from the concept of the Single Audit
Act.  An example is guidance on Circular A-133 in the March 2003
Compliance Supplement, Part 6, Section M, Subrecipient Monitoring.
Currently, prime recipients meet their financial monitoring
responsibility by reviewing the latest Circular A-133 audit of the
subrecipient, which has been accepted by the subrecipient's audit
agency. The revised Circular A-133 guidance moves the oversight of
subrecipients in a direction diametrically opposed to the goals of the
Single Audit Act by requiring prime recipients to join the government
and audit firms as an additional auditor of their sister institutions. 
They are now either required or strongly encouraged to conduct
transaction testing to recalculate invoices, and arrange site visits to
examine procedures and inspect records. Subjecting subrecipients to
additional audit in this manner is an unnecessary waste of resources in
the case of all those subrecipients that have already demonstrated the
adequacy of their systems through their Circular A-133 audits. Such
additional reviews are duplicative, costly, and disruptive, particularly
since the vast majority of subawards issued by universities are made to
other universities for collaborative research projects where the funding
agency has already approved the participation of the collaborating
university. The potential for incurring unnecessary costs through such
activities will grow commensurate with the increase in collaborative
research.  As reported by NSF in InfoBrief 03-327, 7.2% of
federally-funded university research is passed through to subrecipients,
an increase from the 5.2% passed through in 1998.[^2]

Another example of redundant and costly government rules with respect to
financial accountability is the imposition of Cost Accounting Standards
on universities, finalized in 1996. A COGR paper, \"Cost Accounting
Standards Rules for Universities: A Case of Overzealous Bureaucracy\" -
explains the background and chronology of events that led to these
unnecessary rules.[^3]  Imposition of CAS and the Disclosure Statement
(DS-2) resulted in an estimated \$20 million in start-up costs for the
top 100 universities, and in the seven years since that time, only 25
universities have received audited and approved DS-2s from their
cognizant federal agency.[^4] The other 125 remain in limbo, unsure of
how to proceed when changes in accounting practices are needed.  This
uncertainty is particularly unnerving because under CAS rules, changes
should not be made until the DS-2 is approved so that the proposed
changes can be analyzed for cost impact. Even the few universities with
an approved DS-2, as predicted in the referenced paper, received
inconsistent interpretations by federal auditors and rate negotiators
with respect to cost items such as clerical and administrative salaries,
employee benefits, and administrative computing. It is noteworthy that
application of CAS to educational institutions was included in the
Office of Information and Regulatory Affairs' 2002 Report to Congress on
the Costs and Benefits of Regulations and Unfunded Mandates, as an
unnecessary and duplicative regulation to be referred to OMB for
evaluation.  However, OMB rejected the review without further
explanation

*B. [Inconsistency of policies and practices among federal agencies,
and]{.underline}*

*E. [Regulatory requirements]{.underline}*.

OMB Circular A-110 is based on principles that provide a reasonable
approach to the management of research supported by federal grants and
agreements at universities, but the OMB guidance has not been
implemented uniformly by the agencies. Over the past 20 years, the
regulations have become quite inconsistent, providing several layers of
administrative rules that obscure the core principles. Users now require
three sources of information: the OMB basic A-110 guidance on the core
principles; a diverse array of inconsistent agency implementing
regulations, and a further layer of expanded authorities granted by the
ten FDP member agencies to only a select group of university
participants, engaged in federally approved demonstrations under the
auspices of the Federal Demonstration Partnership (FDP). It is time that
these "demonstrations" (begun under the Florida Demonstration Project in
the early 1980's) be brought to a close and that Circular A-110 be
implemented uniformly and on a government-wide basis for all research.
[^5]

COGR has compiled a matrix of federal agency implementation of OMB
Circular A-110.[^6] It demonstrates the wide diversity in agency
implementation. It also is worth noting that "verbatim" implementation
by a number of agencies, as indicated in the matrix, in fact leads to
more inconsistencies, as Circular A-110 grants agencies the option to
make choices in the implementation of various provisions (e.g. prior
approvals). Verbatim implementation does not reveal which choices will
be made by individual agencies.

At present, inconsistencies exist not only between FDP member and
non-member research funding agencies, but variances exist even among the
FDP agencies. The FDP General Terms and Conditions implement the
"expanded authorities" contained in OMB Circular A-110 (.25(e)). 
However, the agency-specific requirements vary in their implementation
of these prior approvals (e.g. EPA, ONR). Review of the individual
agency terms and conditions indicates a wide variety of other
agency-specific requirements.[^7] The situation is similar with regard
to the Federal Acquisition Regulations (FAR) used by government agencies
in research contracts with universities. While there are standardized
FAR clauses, a great number of individual agency supplements exist. An
example is the area of rights in data, where there are considerable
individual agency variations from the basic FAR clause (FAR52.227; see
for example DFARS 252.227; DEAR 927.402).[^8]  Proliferation of these
agency variances undermines the concept of a uniform government
procurement system.

There are many other examples of inconsistencies in policies and
practices among federal research funding agencies in the implementation
of regulatory requirements. For example, only two agencies (NIH and NSF)
have implemented financial disclosure requirements with regard to
investigator conflicts of interest. While COGR generally supports the
NSF/NIH regulations, they are not fully consistent with each other. We
have consistently expressed a strong preference for a government-wide
policy.[^9] A similar example is research misconduct. We support both
OSTP's approach as set forth in the December, 2000 Federal Policy on
Research Misconduct and NSF's implementation (45 CFR Part 689) .
However, NSF is the only major research funding agency to date that has
issued final regulations, and we are concerned about the potential
inability to achieve uniform government-wide implementation.[^10] The
streamlining and simplification process initiated by the Federal
Financial Assistance Management Improvement Act of 1999 (P.L. 106-107)
also seems to be moving slowly.  While the initiatives undertaken by the
interagency groups established under the Act have laudable goals, we are
concerned that some of the proposed new approaches may increase, rather
than decrease, administrative burdens on universities.[^11]0

While we are not aware of efforts to quantify the impact of these
inconsistencies on recipients, it seems self evident that greater
consistency among federal funding agencies would improve efficiency,
reduce administrative burdens, and increase the cost effectiveness of
federal research funding. It also would facilitate compliance.

*H: [Research Infrastructure]{.underline}*

In this context, the term research infrastructure means research
buildings, space and equipment, as well as administrative needs. The
mechanism for defining and allocating the costs related to these
research needs is provided in OMB Circular A-21, which defines allowable
direct costs and the procedure for establishing facilities and
administrative rates (F&A).

We believe that over the past 10-15 years, short term political and
budget considerations have resulted in changes to Circular A-21 that
have trumped the government's stated goals of providing the best science
the country can afford.  A pressing issue is the cap on the
administrative portion of the F&A cost rate. The government has not
imposed such a restriction on any other class of research providers and
has not reviewed the cap in over a decade. As regulatory requirements
have dramatically increased during this time, most universities now have
administrative costs that exceed the cap. Currently we estimate that
underrecovery by universities of legitimate administrative costs amounts
to \$200 million annually. More importantly, the government has not
restrained the agencies from refusing to fully fund the government
negotiated rate.  As a result, the underrecovery of F&A costs by
universities due to arbitrary agency limitations far exceeds their loss
of funds due to the cap, and is estimated to be \$1 billion. These data
were gathered in a 2003 COGR study on the Cost of Doing Business.[^12]1
Its findings are consistent with a 2000 RAND report done for OSTP, which
estimated that universities are forced to fund between \$700 million and
\$1.5 billion of research infrastructure costs due to federally imposed
limits on F&A payments.[^13]2

Universities cannot and should not bear the burden of unfair cost
shifting. The 2002 NSF report on Science and Engineering Indicators
states that during the past three decades, university support for
academic R&D grew faster than funds from any other source except
industry and faster than any other source during the past five years. It
is estimated that in 2001, academic institutions have provided about \$6
billion or 20% of total academic R&D expenditures.  (This compares with
11% in 1973.)  According to NSF, throughout the 1980s and 1990s,
university R&D funds were divided roughly equally between two
components: separately budgeted institutional R&D funds and mandatory &
voluntary cost sharing, which includes unreimbursed facilities and
administrative costs.

With respect to facilities, a report to the NIH Director, issued in
2001, provides an analysis of the current insufficiency of biomedical
research facilities, estimates of needed expansion of facilities to
support research, and the financial roadblocks to facilities
renewal.[^14]3 Several of the recommendations in this report parallel
the findings described by COGR.  The report is entitled, "NIH Working
Group on Construction of Research Facilities: A Report to the Advisory
Committee of the Director, NIH".

In a further blow to the research infrastructure, the government has
prohibited special cost studies, which are intended to illustrate
special needs, such as for the use of energy required in high tech
laboratories. COGR has repeatedly reminded OMB of its promise to issue a
fair and equitable policy for utility cost recovery.[^15]4 Finally, we
have pointed out on several occasions requirements in Circular A-21 that
add no value and should be eliminated. A letter recommending elimination
of such provisions was sent to OMB on July 3, 2002.[^16]5

*I. [Information Technology]{.underline}*

We fully support government-wide initiatives to improve business
relationships through use of electronic systems.  However, after having
raised the issue with federal agencies individually, COGR expressed
concerns to OMB several months ago about the proliferation of federal
electronic grant application programs. We noted, "...it is with dismay
that we confront an increasing array of unique electronic application
systems created by federal agencies some of which, in their design, fail
to provide the university with the opportunity to meet its federally
mandated regulatory obligations....The development of separate systems
that hinder effective management will waste resources."[^17]6

This is an area of great concern to COGR and its member universities. As
stated by COGR Board member Marvin Parnes of the University of Michigan
in recent testimony before the House Energy and Commerce Subcommittee on
Technology, Information Policy, Intergovernmental Relations and the
Census, "...It is our opinion that much harm has been, and is being
done, in the current research environment. Many agencies have jumped on
the proverbial bandwagon of electronic grants systems. Each agency touts
its system as the easiest to use, the most comprehensive, the best and
foremost, and the most in tune with the users' needs. Indeed, taken
alone, each might be. Taken *en masse*, they become a cacophony. 
University grants offices, and often individual faculty and laboratory
staff, must learn all of the new systems introduced, often with less
than ideal instruction or documentation available, resulting in much
wasted effort. Without efficient and effective communication between the
granting agency, the researcher, and the university administrators
charged with fiduciary and administrative oversight, the introduction of
new systems might do more harm than good".

This testimony summarizes not only the concerns of universities in this
area, but also our recommendations. [^18]7

*J. [Technology Transfer Optimization]{.underline}*

COGR has worked closely with federal agencies and other higher education
associations to prepare reports that provide data and information on
intellectual property management. One example is the July 2001 NIH
Report to the U.S. Congress, entitled \"A Plan to Ensure Taxpayers\' 
Interests Are Protected\",  that discussed the returns on public
investment in biomedical research. [^19]8 Another example is the April,
2003 report of the President's Council of Advisors on S&T (PCAST) on
Technology Transfer of Federally Funded R&D.[^20]9 These reports provide
a wealth of data and information on federal technology transfer and the
university technology transfer activities resulting from the Bayh-Dole
Act of 1980 (P.L. 96-517) and related legislation. Both of these reports
concluded that the existing technology transfer framework under
Bayh-Dole works well and should not be changed. Statistical  data on
university technology transfer activities can be found in the annual
licensing surveys of the Association of University Technology Transfer
Managers (AUTM).[^21]0

COGR historically has strongly supported the goals and policy objectives
of the Bayh-Dole Act.  Therefore, we are concerned that recent
initiatives on the part of a number of government agencies have departed
from the uniform federal framework provided by the Act and its
implementing regulations (37 CFR Part 401).  [^22]1 We also are
concerned about the expansion of the previously unique DOD authority to
fund "transactions other than contracts, grants and cooperative
agreements" for basic, applied and advanced R&D projects and prototypes.
The authority has been expanded to the new Department of Homeland
Security (DHS), and further expansion to other agencies has been
discussed. "Other transactions (OTs)" are not subject to the normal
federal contract (i.e. FAR) or grant (i.e. OMB/agency grant regulations)
requirements.  Of particular significance, OTs do not require Bayh-Dole
Act patent rights or obligations to be applied to either prime or sub
awardees.  They also are not subject to standard government
administrative and financial compliance requirements.  While some
aspects of the flexibility provided by OTs might be beneficial both for
the government and research performers, we believe a further trend away
from Bayh-Dole patent rights is neither in the national interest nor in
the interests of universities. [^23]2

With respect to the impact of technology transfer on social
relationships, we point to testimony presented by COGR Board member
Andrew Neighbour of the University of California at Los Angeles before
the House Energy and Commerce Subcommittee on Health at its July 10,
2003 hearings on NIH: Moving Research from the Bench to the
Bedside.[^24]3 Dr. Neighbour noted in his testimony that "The passage of
the Bayh-Dole Act in 1980 was a bold and inspired move that shifted from
the government to universities the responsibility for protecting and
commercializing inventions made with federal funds. The Act applies to
research funded by any federal agency. However, because most life
sciences and biomedical research is supported through the NIH, and this
segment tends to generate the most intellectual property, it is the NIH
that plays perhaps the most visible role in Bayh-Dole implementation.
Over the past twenty years or so, the guidance, oversight and
coordination provided by NIH has served to build a collaborative
alliance between academe and the government leading to more and more
effective technology transfer."

Dr. Neighbour went on to note that unfortunately, however, these
successes have turned a spotlight onto the process which, in turn, has
caused some to ask whether universities are getting too rich from
taxpayer supported research or whether they are perhaps wasting this
resource and not realizing adequate return on investment. He indicated
that while oversight and monitoring of federally supported programs is
clearly appropriate and desirable, some of the criticisms appear to be
founded on misunderstandings of the process and the drivers that
motivate its participants[.]{.underline}

[^1]: ^1^ENDNOTES

    1 NSF audit resolution -- staff presentation at February 2003 COGR
    Meeting [Click here to
    view.](http://206.151.87.67/docs/NSF Audit Resolution Process.ppt)

[^2]: ^2^

    2 NSF INFOBRIEF 03-327, August 2003 [Click here to
    view.](http://www.nsf.gov/sbe/srs/infbrief/nsf03327/start.htm)

[^3]: ^3^

    3 "Cost Accounting Standards Rules for Universities: A Case of
    Overzealous Bureaucracy", Milton Goldberg and Kate Phillips [Click
    here to view](http://206.151.87.67/docs/CASOverzealous.doc)

[^4]: ^4^

    4 DHHS IG Staff Presentation at February 2003 COGR Meeting [Click
    here to view.](http://206.151.87.67/docs/DHHS IG Presentation.ppt)

[^5]: ^4^

[^6]: ^5^ Matrix of OMB Circular A-110 implementation by agency [Click
    here to view](http://206.151.87.67/docs/3103A110.doc)

[^7]: ^6^

    6 FDP Terms and Conditions [Click here to
    view.](http://www.nsf.gov/home/grants/grants_fdp.htm)

[^8]: ^7^

    7 Presentation by Robert Hardy, COGR Associate Director, at AUTM
    Meeting [Click here to view.](http://206.151.87.67/docs/slides.ppt)

[^9]: ^8^

    8 COGR letters to NSF and NIH on conflicts of interest [Click here
    to view NSF letter](http://206.151.87.67/docs/Leder.doc) and [Click
    here to view NIH letter](http://206.151.87.67/docs/Galasso.doc)

[^10]: ^9^

    9 COGR letter to OSTP on misconduct in science [Click here to
    view](http://206.151.87.67/docs/Francis.doc)

[^11]: ^1^

    10 COGR letter to DHHS on P.L. 106-107 [Click here to
    view](http://206.151.87.67/docs/PL106-107.doc)

[^12]: ^1^

    11 COGR Cost of Doing Business [Click here to
    view](http://206.151.87.67/docs/WhatsNew.htm)

[^13]: ^1^

    12 "Paying for University Research Facilities and Administration",
    Charles A. Goldman and T. Williams, 2000, RAND (301-451-7002)

[^14]: ^1^

    13 NIH Working Group on Construction of Research Facilities: A
    Report to the Advisory Committee of the Director, NIH, June 2001
    [Click here to view.](http://www.nih.gov/about/director/061901.htm)

[^15]: ^1^

    14 COGR letter to OMB on Utility Cost Adjustment [Click here to
    view.](http://206.151.87.67/docs/UCALetter.pdf) and supplemental
    information [Click here to
    view](http://206.151.87.67/docs/supplemental.doc)

[^16]: ^1^

    15 COGR letter to OMB on streamlining OMB Circular A-21 [Click here
    to view.](http://206.151.87.67/docs/Streamlining A-21.doc)

[^17]: ^1^

    16 COGR letter to OIRA on proliferation of electronic research
    administration systems [Click here to
    view](http://206.151.87.67/docs/OIRAEgrant.doc)

[^18]: ^1^

    17 Testimony of Dr. Marvin Parnes before the House Committee on
    Energy and Commerce, Subcommittee on Technology, April 2003 [Click
    here to view.](http://206.151.87.67/docs/ParnesTestimony.doc)

[^19]: ^1^

    18 NIH Report to Senator Ron Wyden [Click here to
    view.](http://www.nih.gov/news/070101wyden.htm)

[^20]: ^1^

    19 PCAST Report on Technology Transfer (Not published yet)

[^21]: ^2^

    20 AUTM Licensing Survey [Click here to view.](http://www.autm.net/)

[^22]: ^2^

    21 Foreign Entity Invention Rights [Click here to
    view.](http://206.151.87.67/docs/ForeignEntityInventionRights.doc)\
    COGR Letter to National Institutes of Mental Health on FAR Deviation
    in patent rights [Click here to
    view.](http://206.151.87.67/docs/NIMH DEC.doc)\
    COGR Letter to Department of Commerce on Veterans\' Administration
    and Bayh-Dole Act [Click here to
    view.](http://206.151.87.67/docs/RaubitschekLetter.doc)

[^23]: ^2^

    22 Other Transactions Concerns [Click here to
    view.](http://206.151.87.67/docs/OT Concerns.doc)

[^24]: ^2^

    23 Testimony of Dr. Andrew Neighbour before the House Committee on
    Energy and Commerce, Subcommittee on Health, July 2003 [Click here
    to view.](http://206.151.87.67/docs/TestimonyJuly10.doc)