GAO

United States General Accounting Office

Report to the Chairman

Committee on Commerce

House of Representatives

June 1999 FEDERAL 

RESEARCH GRANTS

Compensation Paid to 

Graduate Students at 

the University of 

California

GAO/OSI-99-8

Page 1 GAO/OSI-99-8 Federal Research Grants

United States General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

B-282325 Letter

June 22, 1999

The Honorable Thomas J. Bliley, Jr., 

Chairman, Committee on Commerce

House of Representatives

Dear Mr. Chairman:

This letter responds to your May 1, 1998, request and subsequent 

discussions with your office that we investigate the use of federal research 

and development grant funds by the University of California system in its 

payments to graduate student researchers (GSRs). The University of 

California is one of the leading research universities in the United States. 

In fiscal years 1996, 1997, and 1998, the university charged approximately 

$201 million against federal research grants for GSR compensation. You 

asked that we determine if

• the compensation paid to GSRs was in accordance with the guidelines 

set forth in the Office of Management and Budget’s (OMB) Circular No. 

A-21, “Principles for Determining Costs Applicable to Grants, Contracts, 

and Other Agreements With Educational Institutions”;

• foreign students were receiving a larger share of federal research funds 

than resident students as compensation for performing as GSRs; and

• the university’s treatment of GSR compensation for federal income tax 

purposes was consistent with its actions in charging such moneys to the 

federal grants under OMB Circular No. A-21.

In addition, you asked us to review the adequacy of the oversight provided 

by the Department of Health and Human Services (HHS) in safeguarding 

against the diversion of funds from federal research grant awards.

Results in Brief OMB Circular No. A-21 (July 1993)1

 establishes the principles to be applied 

in determining allowable costs for research and development, training, and 

other sponsored work performed by colleges and universities under grants, 

1

The version of OMB Circular No. A-21 issued in July 1993 is applicable for the period we investigated. 

The circular was revised in Oct. 1998, but no substantive changes regarding the issues discussed in this 

report were made.
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contracts, and other agreements with the federal government. It allows 

universities and colleges to charge to federally sponsored programs

“... tuition remission and other forms of compensation paid as, or in lieu of, 

wages ...” to GSRs on those programs, provided that (1) there is a bona fide 

employer-employee relationship and (2) the tuition remission or other 

payments are reasonable compensation for the work performed and 

conditioned explicitly upon the performance of necessary work. It must 

also be a university’s practice to similarly compensate students in 

nonsponsored activities.

GSRs receive a salary and tuition and/or fee remission from the University 

of California as compensation for their work on federally sponsored 

research projects. According to the university, its practice of charging the 

salary and remissions against federally funded research grants complies 

with OMB Circular No. A-21. However, based on our review of the 

compensation paid to GSRs for services charged to federal research grants, 

we found that these payments sometimes exceeded the allowable costs 

that could be charged to such grants.

We compared the compensation paid to individual GSRs assigned to 

federally sponsored research projects against (1) the National Institutes of 

Health (NIH) guideline that establishes an award level of $23,000 per GSR 

and (2) the salary of a first-level postdoctoral researcher at the university 

performing comparable work at an equivalent level of effort. Of the 

$201 million charged by the university to federally sponsored research 

during school years 1995-96 through 1997-98, $4.4 million was charged in 

excess of the NIH maximum award in what we believe to have been 

unreasonable compensation. The university also charged federally 

sponsored grants approximately $19. 3million for GSR compensation that 

exceeded the salary of a first-level postdoctoral researcher during the same 

period.

Although all GSRs receive substantially the same salary for work 

performed on federal research grants, foreign students receive a 

proportionally larger share of fee and tuition payments charged to the 

grants because they pay a higher nonresident student tuition. While 

representing 21 to 24 percent of the GSRs at the university in school years 

1995-96, 1996-97, and 1997-98, foreign students received 34 to 38 percent, 

for a total of $13.9 million, of the $38.6 million charged to federal research 

grants for tuition and fee remission.
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Although the university treats GSRs’ salary and tuition and/or fee remission 

as compensation for purposes of the OMB circular, traditionally it has 

treated only the salaries as part of the GSRs’ gross income for federal 

income taxes. The university excludes all tuition and fee remission from 

gross income as qualified remission, asserting that this practice is in 

accordance with Internal Revenue Code section 117(d). When we asked 

the Internal Revenue Service (IRS) for its views of this practice, IRS 

informed us that, as a general principle, reasonable tuition remission 

provided as a result of an employer-employee relationship can properly be 

considered a fringe benefit and excludable from the employee’s gross 

income for tax purposes. IRS explained that the treatment of the 

compensation by the employer under OMB Circular No. A-21 is not relevant 

to its determination of the tax consequences of the compensation under the 

Internal Revenue Code. Similarly, HHS and NIH officials told us that in 

determining whether tuition remission is allowed under the grant, they pay 

no attention to the taxability issue. A district court case is pending against 

the University of California in which the relator2

 has asserted False Claims 

Act violations by the university for its treatment of the tuition remission 

paid to GSRs under the OMB circular. In view of this pending case and the 

HHS and NIH opinions, we do not address in this report whether the tuition 

remission provided to GSRs should have been taxed or whether the 

university’s treatment of the tuition remission for tax purposes is 

consistent with the OMB circular.

As the cognizant audit agency for the University of California, HHS does 

not routinely conduct preaward or postaward audits. When audits are 

conducted in response to specific requests for awarding agencies other 

than NIH, HHS determines only whether line-item amounts exceed the 

amounts approved by the awarding agencies. When auditing NIH awards, 

HHS follows the same action except with respect to the specific costs 

involving GSR compensation. For these costs, it ensures that the 

institution has not requested GSR compensation that would exceed the 

NIH cap of $23,000 (now $26,000) per GSR identified in the request. HHS 

relies on the respective universities to ensure that compensation paid to 

GSRs is reasonable and does not exceed the established guidelines.

2

A relator is the person on whose complaint, or at whose instance, certain writs are issued.
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Background Since World War II, the federal government has been a key supporter of 

research activities at universities and is the leading source of funding for 

academic research and development in the United States. Its involvement 

has been generally viewed as beneficial to the university community as well 

as to the nation as a whole. Each year, the Department of Defense, the 

National Science Foundation, NIH, and other departments and agencies of 

the federal government provide universities with billions of dollars for 

basic and applied research under federal grants. The universities in turn 

use these funds to pay the costs of the research, including the salaries of 

professors and GSRs.

OMB Circular No. A-21 (July 1993) establishes the principles to be applied 

in determining allowable costs for research and development, training, and 

other sponsored work performed by colleges and universities under grants, 

contracts, and other agreements with the federal government. It applies to 

compensation provided by colleges and universities to graduate students 

who work on federally sponsored research projects at those institutions.

The OMB circular states that tuition remission and other forms of 

compensation, paid as or in lieu of wages, to students performing 

necessary work are allowable provided that (1) a bona fide employeremployee relationship exists between the student and the institution for 

the work performed, (2) the tuition or other payments are reasonable 

compensation for the work performed and conditioned explicitly upon the 

performance of necessary work, and (3) it is the university’s practice to 

similarly compensate students in nonsponsored, as well as sponsored, 

activities.3

OMB Circular No. A-21 applies a “prudent person” test in determining 

whether the compensation is reasonable. It provides that in determining 

reasonableness, major considerations are (1) whether or not the cost is of a 

type generally recognized as necessary for the operation of the institution 

or the performance of the sponsored agreement; (2) the restraints imposed 

by such factors as arm’s length bargaining; (3) whether or not concerned 

individuals acted with due prudence in the circumstances, considering 

their responsibilities to the institution, its employees, its students, the

3

Id. ¶ J.41.a.
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government, and the public at large; and (4) the extent to which the actions 

taken are consistent with established institutional policies and practices.4

In an October 1994 audit report of GSR compensation charged to NIH 

awards at four selected (non-California) universities, the HHS Office of 

Inspector General (OIG) noted that the OMB circular did not provide clear 

guidance on reasonable compensation to graduate students. The OIG 

recommended that the HHS Assistant Secretary for Management and 

Budget work with OMB to provide guidance on the standard of 

reasonableness for graduate student compensation.5

 To date, the HHS 

Assistant Secretary has not made a formal request to OMB concerning this 

issue, and OMB has not issued additional guidance on the reasonableness 

standard.

However, following the HHS OIG report, NIH issued new guidelines in May 

1995 that related to the determination of reasonable compensation for 

GSRs employed on NIH research grants. As in the past, the guidelines 

provided that NIH would continue to consider compensation for personal 

services of GSRs rendered on an NIH research project to be allowable so 

long as the compensation (1) is reasonable, (2) conforms to the established 

consistently applied salary and wage policies of the institution, and (3) 

reflects the percentage of time actually devoted to the funded project. 

However, according to the guidelines, reasonable compensation for GSRs 

could not exceed the amount allowable for a first-level postdoctoral 

researcher performing comparable work at the same institution.

On January 26, 1996, NIH amended its guidance. It reiterated that NIH 

would continue to consider compensation for personal services of GSRs as 

employees on NIH research projects to be allowable so long as the 

compensation is reasonable. The guidance also stated that in no case 

should the total compensation package for GSRs exceed that of a first-level 

postdoctoral researcher at the same institution. NIH noted that its National 

Institute of General Medical Sciences generally provides total 

compensation of $20,000 to $23,000 to GSRs employed on research grants. 

In March 1996, NIH issued additional guidance, stating that, if reasonable, it 

4Id. ¶ C.3.

5

The OIG utilized the starting salary of a first-level postdoctoral researcher at each university as a 

measure of reasonableness for that university. The OIG estimated that three of the four universities it 

studied had charged federally sponsored research about $5. 7million in unreasonable GSR 

compensation.
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would award the actual amount requested for GSR compensation, up to a 

maximum of $23,000. The guidance further provided that recipients could 

rebudget funds to charge more than $23,000 to the grant award, provided 

that it was in accordance with OMB Circular No. A-21. NIH explained, 

however, that the amount could not exceed the amount paid to a first-year 

postdoctoral researcher doing comparable work at the same institution. 

On December 4, 1998, NIH raised the cap to $26,000. As with the earlier 

guidance, it permitted institutions to rebudget funds to charge more than 

$26,000 to the grant award, provided the amount does not exceed the 

amount paid to a first-year postdoctoral researcher performing comparable 

work at the same institution.

Compensation for 

GSRs

As one of the leading research universities in the United States, the 

University of California receives funding controlled by individual 

agreements between federal award agencies and representatives of the 

university.6

 Annually, approximately 38,000 graduate students are at the 

university, about 7,000 (18 percent) of whom are doctoral degree 

candidates. With few exceptions, it is the 7,000 doctoral candidates who 

receive funding as GSRs through research grants. Of these, approximately 

6,000 work on federal research grants. The work performed by GSRs on 

these grants is conducted under the direction of faculty members at one of 

the nine campuses in the university system.7

 In order to earn a doctoral 

degree, GSRs must conduct research activities related to their degree 

subject and prepare a written dissertation.

University officials told us that university policy limits GSRs to a maximum 

appointment level of 50 percent (20 hours per week) during the academic 

year (9 months) and 100 percent (40 hours per week) during the 

nonacademic periods (3 months). GSR appointments are limited by the 

availability of funds, and most appointments are for less than the maximum 

level. For their work, GSRs receive a salary and tuition and/or fee 

remission from the university. In the fiscal years 1996 through 1998, the 

university charged approximately $20 1million to federal research grants 

for GSR compensation.

6The University of California also receives research grant funds from the state and private and 

corporate donors. In fiscal year 1997, the university received $284 million in state funds and $314 

million from private and corporate donors for university research.

7

The University of California has campuses at Berkeley, Davis, Irvine, Los Angeles, Riverside, San 

Diego, San Francisco, Santa Barbara, and Santa Cruz.
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The salary GSRs receive depends upon the number of hours they work and 

the course of study. According to university officials, most GSRs are 

appointed to federal research grants after completing the first year of a 

doctoral program; and most of these are compensated at the step II or 

higher GSR salary level, which ranges from $13.40 per hour to $18.65 per 

hour.

The tuition and fee remission portion of the compensation paid to GSRs is 

based on the residency status of the student and the level of appointment. 

GSRs who are foreign, nonresident aliens receive up to $14,500 per year in 

tuition and fee remission—the amount of tuition and fees charged 

nonresident citizens at the university. GSRs who are California residents, 

on the other hand, receive up to $4,400 per year in fee remission, which is 

the fee charged residents.8

 GSRs having an appointment level of less than 

25 percent receive no fee and/or tuition remission benefits. GSRs who are 

working on a part-time basis—25 to 44 percent of the time—receive up to 

50-percent remissions; and those who are on appointments of 45 to 50 

percent receive up to 100-percent remissions.

We reviewed the compensation paid to GSRs assigned to federally funded 

grants at the university to determine if the compensation was reasonable. 

Because OMB Circular No. A-21 does not provide clear guidance regarding 

reasonable compensation for graduate students, we therefore compared 

the total compensation paid to individual GSRs against the NIH guideline 

establishing an award level of $23,000 per GSR and the salary paid to a firstlevel postdoctoral researcher at the university performing comparable 

work at an equivalent level of effort.9

Using the NIH standard of $23,000 per GSR, we reviewed the compensation 

paid to GSRs assigned to federally funded grants for 3 school years—1995-

96, 1996-97, and 1997-98—for all campuses of the university. We found that 

6.5 percent, or 1,194 GSRs out of 18,389, received compensation in excess 

of $23,000 per GSR for those years. Furthermore, out of a total of 

$201 million charged by the university to federally sponsored research, 

8California residents are not charged tuition. Depending upon the appointment level, non-California 

residents are charged both fees and tuition. The fees include educational fees, registration fees, and 

other charges depending on the campus and program of enrollment.

9

For a brief period of our review, the fall semester of 1995, the $23,000 figure had not been established 

by NIH.
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$4.4 million was charged in what we believe to be unreasonable 

compensation. Table 1 details our findings.

Table 1: Compensation Above NIH Standard in Federal Dollars for School Years 

1995-96, 1996-97, and 1997-98

We also reviewed a May 1997 GSR compensation report that the university 

prepared for the HHS Inspector General, covering approximately 2,556 

GSRs working on federally funded research grants at three of its 

campuses—Berkeley, Davis, and Los Angeles—for the 1995-96 academic 

year. The report showed that 202 GSRs had received compensation in 

excess of the $23,000 NIH standard. This represented approximately 

8 percent of the total GSRs for the covered period. The three campuses 

received over $625,000 in reimbursements that exceeded the NIH 

guidelines for these students’ compensation.

In addition, we reviewed individual student compensation for calendar 

year 1997 NIH-approved grants at the Berkeley campus and found that 14 of 

the 408 GSRs, or 3.4 percent, had exceeded the NIH standard of $23,000. 

The university charged federally sponsored research $43,126 in excess of 

the NIH standard for these students’ compensation. The total 

reimbursement at the Berkeley campus for calendar year 1997 was 

$3,384,580. In one case, a GSR received over $35,000 in compensation that 

was charged to federal grants.

We also compared the compensation paid to GSRs assigned to federally 

sponsored research projects to the salary received by a first-level 

postdoctoral researcher performing comparable work at the same level of 

effort at the university. We found that during school years 1995-96 through 

1997-98, the hourly rate for GSRs at the first level ranged from $12.45 to 

$12.95 per hour. However, most GSRs were compensated above the first 

1995-96 1996-97 1997-98 Totals

GSRs working on 

federal research 

projects 6,213 6,108 6,068 18,389

GSRs exceeding 

$23,000 369 370 455 1,194

Total compensation in 

federal dollars $67 million $67 million $67 million $201 million

GSR compensation 

that exceeded $23,000 $1.4 million $1.4 million $1.6 million $4.4 million
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level and received a salary from $13.40 to $18.65 per hour for the same 

period. The hourly rate for a first-level postdoctoral researcher was $12.98 

to $13.72 for the same period. Furthermore, while most GSRs received 

either fee or fee and tuition remission, which could range between $4,400 

and $14,500 per GSR, postdoctoral researchers received no remissions.

Table 2 sets forth the compensation that a GSR at the step II salary level 

would have earned at the university, assuming the maximum level of effort, 

i.e., a 50-percent level of effort during the academic period and a 

100-percent level of effort during the nonacademic period. The 

compensation paid to a first-level postdoctoral researcher performing 

comparable work at the same level of effort is also set forth below.

Table 2: Compensation for Step II GSRs and First-Level Postdoctoral Researchers

Based on our analysis of University of California data, we found that during 

the 3 school years 1995-96, 1996-97, and 1997-98, 4,386 GSRs out of 18,389, 

about 24 percent, received compensation that exceeded the compensation 

paid to a first-level postdoctoral researcher performing comparable work 

at the same level of effort.10 The university charged federally sponsored 

research $19.3 million for these students’ compensation in excess of what it 

paid first-level postdoctoral researchers at a comparable level of work and 

effort.

The university asserts that it complied with OMB requirements because the 

salary and tuition and/or fee remission constituted reasonable 

compensation for the work performed and was conditional upon the 

performance of necessary work. However, in a February 22, 1995, internal 

memorandum to the university’s Senior Vice President for Business and 

Finance, the Director of Resources and Administration made the following 

Academic 

school year GSR step II salary only

GSR step II salary with fee

remission

GSR step II salary with fee

and tuition remission

First-level postdoctoral

researcher compensation

1995-96 $17,490 $22,123 $29,822 $17,138

1996-97 $17,843 $22,508 $30,857 $17,483

1997-98 $18,203 $22,925 $31,909 $17,835

10Sufficient data were not available to compute the proper compensation amounts for those GSRs who 

had less than maximum appointments.
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comments on the 1994 HHS audit report concerning the allowability of fee 

and tuition payments as costs chargeable to federal research grants.

“Had the audit taken place at UCLA [University of California at Los Angeles], the auditors 

may well have questioned the reasonableness of our policies and procedures. In most if not 

all instances the total compensation paid to UC [University of California] graduate students 

employed on research projects will substantially exceed the published salary for entry-level 

postdoctoral researchers working at the same level of effort. The current salary scale for 

graduate students, depending on the specific job title used, is either slightly below or 

identical with the salary scale for postdoctoral researchers. Graduate students working in 

research are also eligible for tuition and/or fee remission, not available to postdoctoral 

researchers, with an equivalent value ranging from $1,866 to $12,089 annually.

“Paragraph J.41 of Circular A-21 states that ‘tuition remission and other forms of 

compensation paid as or in lieu of wages to students performing necessary work are 

allowable...(emphasis added).’ The underlined language raises two additional issues about 

UC’s tuition and fee remission programs. First, for the six campuses with a tuition 

remission program, non-residency status increases the graduate student researcher’s total 

compensation by $7,699 above that paid to residents in the same job title and step. This may 

support a finding that tuition remission at UC is paid as a fringe benefit or as student aid, 

rather than paid ‘as, or in lieu of,’ salaries and wages. Second the University does not 

withhold income tax on the value of tuition and fee remission. This accounting treatment 

may further support a finding that such charges are not being paid as, or in lieu of, wages.”

Foreign GSRs and 

Tuition Remission 

Funds 

While the salary was proportionally the same for resident and foreign GSRs 

during school years 1995-96 through 1997-98, foreign GSRs received a 

larger proportionate share of the total tuition and fee remission costs 

charged against federal grants than did resident GSRs. This resulted 

because of the university’s policy to provide nonresident tuition remission 

to foreign students and include the amounts as part of the GSR 

compensation charged to the federal grants for nonresident GSRs.

Neither OMB nor HHS provides educational institutions with clear 

guidance on whether out-of-state tuition costs should be passed on to the 

federal government. However, in reviewing an internal university 

document prepared in 1996, we noted that the university had found that no 

other public universities charged the cost of out-of-state tuition to federal 

grants. We also noted that the state of California does not allow the 

university to charge state grant awards for nonresident tuition remission. 

Similar policies have been established by several major private research 

foundations.

Although foreign GSRs comprised 21 to 24 percent of the total GSRs at the 

university for the school years 1995-96 through 1997-98, they received 34 to 
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38 percent of the tuition and fee remission moneys in those years. Foreign 

student GSRs were compensated at a higher level because their 

nonresident status made their tuition and fee remission approximately 

$7,700 higher than that of resident GSRs performing the same work in 1995-

96, approximately $8,400 higher in 1996-97, and $9,000 higher in 1997-98. 

The tuition remission awards to resident and foreign GSRs assigned to 

federally funded grants were distributed as illustrated in table 3.

Table 3: Tuition Remission Received by GSRs Assigned to Federally Funded Grants

a “Resident” includes 4 percent of GSRs who are U.S. citizens and/or resident aliens but are not 

California state residents. University policy precludes these GSRs from receiving nonresident tuition 

benefits beyond 1 year’s attendance.

GSR Compensation 

and the Internal 

Revenue Code

Although the university treats GSRs’ salary and tuition and/or fee remission 

as compensation for purposes of the OMB circular, traditionally the 

university has treated only the salaries as part of the GSRs’ gross income 

subject to federal income tax. Therefore, the university has not treated the 

tuition and/or fee remissions as part of the GSRs’ gross income subject to 

federal income tax. The university cites section 117 of the Internal 

Revenue Code (26 U.S.C. section 117) as its authority for not considering 

the tuition and fee remission as part of the GSRs’ gross income.

Section 117(a) of the Code excludes from certain individuals’ gross income 

qualified scholarships and tuition remission. Subsections 117(d)(2) and 

(d)(5)[4] indicate that a qualified tuition remission or reduction is the 

amount of any reduction in tuition provided to an employee of an 

organization, such as the university, for the education of the individual at 

the undergraduate level or at the graduate level if the employee is engaged 

in teaching or research activities. The exclusion from gross income for 

scholarships and tuition remission is limited, however, by subsection 

117(c), which provides that the exclusion does not apply to that portion of 

Residenta Foreign

School year

Number of

GSRs

Percent of

GSR

population

Fee

remission

funds (in

millions)

Percent of

funds

Number of

GSRs

Percent of

GSR

population

Tuition and fee

remission

funds (in

millions)

Percent of

funds

1995-96 3,402 79 $7.9 65 887 21 $4.3 35

1996-97 3,278 79 $8.4 66 868 21 $4.4 34

1997-98 3,366 76 $8.4 62 1,090 24 $5.2 38
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any amount received by a student that represents payment for teaching, 

research, or other services by the student required as a condition for 

receiving the scholarship or tuition remission.

On July 13, 1998, we wrote IRS and requested its views on whether the 

university could exclude tuition remission from gross income even though 

the remission is treated as reasonable compensation for purposes of OMB 

Circular No. A-21. IRS replied to our request on January 6, 1999. (See 

app. I.)

In its letter, IRS recognized that under reimbursement guidelines set forth 

in OMB Circular No. A-21, universities are allowed to recover the costs of 

compensation for personal services incurred in carrying out sponsored 

research programs, including amounts expended for wages and fringe 

benefits, provided such amounts represent reasonable compensation. It 

also recognized that expenses for tuition or tuition remission are allowed in 

certain circumstances. On the other hand, IRS noted that for tax purposes, 

the grantors may not treat the scholarship amounts as includable in the 

recipients’ gross incomes or otherwise regard the payments as 

compensatory scholarships. IRS did not, however, view these positions as 

necessarily inconsistent. It explained, “[C]ircular A-21 has no effect on the 

proper federal income tax treatment of any amount paid an employee or 

student, nor would an employer’s claim for reimbursement from the 

government for amounts paid to students have any effect on a particular 

student’s tax liability.” Instead, IRS stated that the “tax consequences of 

any amount paid a student or employee are determined by the particular 

facts and circumstances attendant to the particular grant or payments to 

the student, and not by any employer reimbursement claims.”

To ensure that we fully understood IRS’s position, we spoke with a Senior 

Attorney in IRS’s Office of Chief Counsel. He informed us that a reasonable 

tuition remission provided as a result of an employer-employee relationship 

could properly be considered as an employee fringe benefit and excludable 

from the employee’s gross income for tax purposes. The information 

provided by the Senior Attorney and in the IRS letter was general in nature 

and did not apply to any particular individual or university.

In view of IRS comments on this matter, it would be difficult for us to reach 

any conclusion as to the proper tax treatment of the tuition remission 

provided to GSRs by the University of California. Similarly, we refrain from 

taking any position with respect to whether the exclusion of GSRs’ tuition 

remission from gross income is inconsistent with the treatment accorded 
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such remissions under OMB Circular No. A-21. In this regard, we note that 

both HHS and NIH officials told us that in determining whether tuition 

remission is allowable under a grant, they pay no attention to the taxability 

issue. Insofar as the university’s treatment of tuition remission as 

nontaxable compensation for income tax purposes, HHS and NIH stated 

that they believe this is an IRS issue, which has no bearing on whether 

GSRs’ compensation is reasonable under the OMB circular. HHS and NIH 

officials added that since the number of paid hours worked is controlled by 

the university and students report spending many additional hours on the 

grant’s work, tuition remission could be considered compensation for these 

added hours.

Furthermore, in a qui tam case pending in the United States District Court 

of California, the relator has alleged that the University of California 

violated the False Claims Act by, among other things, knowingly charging 

to government-sponsored research projects numerous payments to 

graduate students that were unallowable under OMB Circular No. A-21. In 

support of this allegation, the relator has alleged that the university 

knowingly failed to disclose to the government that it had excluded from 

gross income, under 26 U.S.C. section 117, tuition remission received by its 

graduate students for work on federally sponsored research grants. The 

decision in this case may have a bearing on whether the university’s 

treatment of the tuition remission for tax purposes is inconsistent with the 

OMB circular. This constitutes an additional reason why we do not believe 

it would be appropriate for us to address this issue.

Grant Management and 

HHS Oversight Issues

HHS is the cognizant audit agency for the University of California. 

Routinely, HHS does not conduct preaward or postaward audits. When 

requested to conduct audits for awarding agencies other than NIH, it 

examines the total aggregate amounts for each line item to ensure that the 

institution has not exceeded the amounts approved by the awarding 

agency. With respect to NIH awards, it follows the same action except with 

regard to the specific costs involving GSR compensation. For these costs, 

it ensures that the institution has not requested GSR compensation that 

would exceed the NIH cap of $23,000 (currently $26,000) per GSR identified 

in the request. HHS officials rely on the Sponsored Projects Office at the 

institution to ensure that the compensation is reasonable and has not 

exceeded what the institution would have paid a first-year postdoctoral 

researcher working at the same level of effort as the GSR.
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Scope and 

Methodology

We conducted our investigation from May 1998 to May 1999. We reviewed 

University of California administrative and GSR records and interviewed 

administrative staff, faculty, and GSRs at five campus locations—Berkeley, 

Irvine, Los Angeles, San Diego, and San Francisco. We also reviewed 

documents at OMB, HHS, NIH, and the IRS and interviewed cognizant 

officials at these agencies. We did not conduct an audit of GSRs or 

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As agreed with your office, unless you announce its contents earlier, we 

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Sincerely yours,

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Acting Assistant Comptroller General 

 for Special Investigations
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Appendix I

January 6, 1999, IRS Letter ApeInxdi
Appendix I

January 6, 1999, IRS Letter

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Appendix I

January 6, 1999, IRS Letter

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Appendix I

January 6, 1999, IRS Letter

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Appendix I

January 6, 1999, IRS Letter

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January 6, 1999, IRS Letter

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January 6, 1999, IRS Letter

(600477) Lret Page 23 GAO/OSI-99-8 Federal Research Grants
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