Summary: GAO discussed how universities conducting federally sponsored research charged indirect costs and if those costs were in accordance with Office of Management and Budget (OMB) guidelines, focusing on Stanford University's accounting system. GAO noted that: (1) Stanford's deficient cost allocation and charging practices, and inadequate federal oversight, led to significant overcharges to the government; (2) Stanford's indirect cost rates rose from 58 percent in fiscal year (FY) 1980 to 74 percent in FY 1990; (3) Stanford made $3.6 million in unallowable or inappropriate charges, with almost $1 million erroneously charged to the government; and (4) several key memorandums of understanding between Stanford and the federal government included questionable assumptions, did not provide adequate justification for allocation methods, and resulted in higher allocations of costs to organize research than the default method allowed. GAO believes that: (1) overcharges resulted because Stanford officials did not ensure the charging of proper costs to the government and either did not review, inadequately reviewed, or otherwise allowed unallowable costs; and (2) Stanford initiated actions recognizing shortcomings in its accounting system and announced a three-step approach that could bring the identified problems under control.
