OMB’s Uniform Guidance was issued on December 26, 2013, and became effective on December 26, 2014. The Uniform Guidance establishes the principles for defining, calculating, and negotiating ICRs for federally funded research. The guidance describes the classification and types of allowable indirect costs; methods of allocating such costs; reasonableness of claimed costs; and exclusions and descriptions of unallowable cost elements, such as alcohol and bad debt. The Uniform Guidance also provides the basis for OMB to systematically collect information from federal agencies on all their federal financial assistance programs and establishes federal policies for providing this information to the public. NSF implements the Uniform Guidance using its Proposal and Award Policies and Procedures Guide and Grant General Conditions. The guide consists of NSF’s proposal preparation and submission guidelines as well as NSF’s policy and procedures used to award, administer, and monitor grants and cooperative agreements. NSF awards are subject to the Grant General Conditions, which list awardee responsibilities, obligations, and rights, and other conditions for awards. In addition, NSF’s CAAR staff use the Indirect Cost Rate Proposal Review Standing Operating Guidance as a guide for reviewing and negotiating indirect cost proposals from the awardees for which NSF has cognizance. The internal guidance includes descriptions of the three stages of ICR proposal review. Briefly these stages are: 1. Intake and Adequacy Review: This stage consists of steps for processing an incoming proposal including verifying that NSF has rate cognizance for the awardee and entering the proposal into the MTD, conducting initial reviews, and assigning the proposal to staff for review and rate negotiation. 2. Proposal Analysis and Rate Negotiation: This stage consists of steps for reconciling total expenditures in the financial statements with the total expenditures in the indirect cost proposal, reviewing indirect costs, verifying unallowable costs, preparing a trend analysis (including the organization’s indirect costs and rates for the previous 2 years, if available), and negotiating the indirect rate with the awardee. 3. Rate Approval and Issuance: This stage consists of steps for approving the indirect rate, preparing and transmitting the rate agreement to the awardee for signature, and closing out the proposal review by updating the MTD and filing working papers in appropriate files. Additionally, NSF’s internal guidance includes tools to assist awardees in preparing ICR proposals and to expedite NSF’s review process. These tools, as explained in further detail later in the report, are to be used in coordination with federal regulation and NSF guidance. For fiscal year 2000 through fiscal year 2016, the percentage of total annual award funding that NSF budgeted for indirect costs varied from year to year. This variation was based on various factors, such as by the types of activities supported by the awards and the types of organizations receiving the awards. Budgeted indirect costs on NSF awards ranged from 16 to 24 percent of the total annual amounts the agency awarded for fiscal years 2000 through 2016. The percentage fluctuated during this period, though it has generally increased since reaching a low point in 2010. In fiscal year 2016, NSF awards included approximately $1.3 billion budgeted for indirect costs, or about 22 percent of the total $5.8 billion that NSF awarded. Budgeted indirect costs were 16 percent of total annual amounts twice during the 17-year period—in fiscal years 2002 and 2010—and reached their highest point of 24 percent of total annual amounts in fiscal year 2015. Figure 1 illustrates annual funding for direct and indirect costs over the 17-year period. Indirect costs on individual awards within a given year varied more widely than the year-to-year variation for all NSF awards. Most NSF awards included indirect costs in their budgets—for example, the budgets for about 90 percent of the 12,013 awards that NSF made in fiscal year 2016 included indirect costs. Our analysis indicated that the funding for indirect costs ranged from less than 1 percent to 59 percent of the total award. Among the organizations whose ICR files we examined at NSF, examples of awards with indirect costs of less than 1 percent included awards to organizations that provided funding for (1) student travel to a networking workshop for women on computer and network systems and (2) a university workshop on modeling magnetic interactions between stars and planets. In contrast, examples of awards with indirect costs that ranged from 50 to 59 percent included awards to (1) a small business to study the atmosphere and improve current models of air quality and climate change and (2) a policy research organization to study how to broaden participation of underrepresented groups in the academic disciplines of science, technology, engineering, and mathematics. NSF officials told us that the overall composition of NSF’s awards portfolio varies from year to year and that indirect costs as a percentage of budgeted total award costs for any given year will reflect that variation. In particular, officials said that variation in indirect costs among individual awards—and thus variation in total award costs from year to year—can be due to several factors: Type of award supported activity: NSF’s awards support various types of activities, and NSF allows awardees to budget for indirect costs on these activities to varying degrees. For example, it does not allow indirect costs on its awards for stipends and travel of participants in NSF-sponsored conferences or training projects. In contrast, NSF allows administrative and clerical salaries to be allowed as indirect costs. However, these salaries may be considered direct costs if, for example, administrative or clerical services are integral to an activity or the costs are not recovered as an indirect costs. Type of research: NSF supports a range of research activities, some of which require investment in expensive infrastructure such as a telescope to study the universe. Which research activities are funded each year depends on a variety of considerations including the types of proposals submitted, the objectives of scientific research, the outcome of the merit review process, and available funding. Type of disciplinary field: NSF supports research in biological sciences, engineering, and social sciences, among others, and the level of indirect costs associated with awards in these fields can vary, according to NSF officials. In our analysis of awards made in fiscal year 2016, we found that the indirect costs varied among the NSF directorates that focus on different disciplinary fields. For example, budgeted indirect costs as a percentage of total annual amounts of awards were 22.5 percent in the directorate for engineering and 26.3 percent in the directorate for geosciences. Type of organization: NSF’s data categorized awardees as federal, industry, small business, university, or other—a category that includes nonprofits and individual researchers. Figure 2 illustrates our analysis on the average percentage of total awards budgeted for indirect costs in fiscal year 2016, by type of awardee. As shown in the figure, university awardees had the highest average indirect costs— about 27 percent of the total amount of awards—and federal awardees had the lowest average indirect costs—about 8 percent of the total amount of awards. According to NSF officials, certain types of projects, such as those carried out at universities, typically involve more indirect costs than others. They said that this outcome is because, for example, of the universities’ expense for maintaining scientific research facilities, which may be included as an indirect cost in awards. Universities accounted for about 91 percent of the approximately $1.3 billion NSF budgeted for indirect costs in fiscal year 2016. Awards to organizations for which NSF had cognizance (e.g., non-profits, professional societies, museums, and operators of large shared-use facilities) averaged lower budgeted indirect costs than awards to organizations for which other federal agencies had cognizance (e.g., universities for which HHS or DOD have cognizance). According to NSF officials, this variance resulted from differences in the organizations and the types of awards they receive and does not reflect differences in how agencies negotiate ICRs. As shown in figure 3, our analysis of NSF data indicates that on average, NSF budgeted about 23 percent of award amounts for indirect costs on awards to organizations for which NSF did not have indirect cost cognizance and about 11 percent for indirect costs on awards to organizations for which NSF had cognizance. In fiscal year 2016, NSF made over 90 percent ($5.4 billion of $5.8 billion) of its awards to organizations for which it did not have cognizance. NSF has developed internal guidance for setting ICRs, but NSF staff have not consistently followed it. In addition, the internal guidance on supervisory review does not include certain details and procedures. Specifically, the guidance does not include the criteria to be used by the supervisor for risk assessment and mitigation and the steps for reviewing and documenting the work performed by NSF staff when setting ICRs. It also does not include procedures for implementing new provisions issued under the Uniform Guidance and for performing oversight of the ICRs set by Interior on NSF’s behalf. Standards for Internal Control in the Federal Government states that management should design control activities, such as controls to ensure the accuracy and completeness of an entity’s data, and implement the controls through guidance, including guidance on each office’s responsibility for an agency’s operational processes. NSF has designed control activities for setting ICRs and has implemented them through internal guidance, such as Indirect Cost Rate Proposal Review Standing Operating Guidance. Our review of a nongeneralizable sample of seven NSF ICR agreement files showed that NSF staff followed many parts of the agency’s internal guidance. For example, as required by the internal guidance, NSF staff reviewed awardees’ cost policy statements to obtain an understanding of awardees’ accounting systems, cost allocation methods, and types of costs charged as either direct or indirect prior to setting ICRs.