Federal Grant Cost Recovery Slows for Universities

Universities and non-profits are waiting longer to be repaid for the overhead of federally funded projects. Accounting experts say staffing cuts under the Trump administration have slowed the process.

What recipients should do now

Kelly Rancourt, a CPA at Clark Nuber in Bellevue, Washington, says organizations should expect more policy changes. Her advice for grant recipients is to watch policy notices and guide updates from their agencies and track legal developments. They should read grant terms closely and keep the grantor's documentation and correspondence in files.

Recipients should also run a worst-case plan for what happens if caps on indirect cost rates are put in place, and how they would adjust. Tonya Moffitt, a CPA at Merina+Co in Portland, Oregon, added that the file must let an auditor follow what was done.

Slow negotiations carry audit risk

Several universities still cannot get rates settled, since HHS lost staff and shut some offices. The Interior Department's Business Center, which started negotiating for several agencies, also faces delays. "It's taking six months or longer to get something negotiated," Rancourt said. She added that having no actively negotiated rate raises audit risk.

In January, NIH changed its rules on salary caps for awards. Organizations cannot draw down funds above the limit for either direct or indirect costs. Before, in practice, the limits typically applied only to direct costs. An organization may still pay an Executive Level II employee above $228,000, yet NIH will not cover the difference. Many organizations had to re-examine their indirect cost pools for the cap.

Grant guidance moves back

The Office of Management and Budget proposed revisions in May to its uniform guidance. Under them, political appointees would approve awards to confirm they match the administration's priorities. To Rancourt's surprise there were no indirect-cost changes. The issuance date moved from October 1 to at least December 11 after a continuing resolution was signed in September.

The 15% caps that stalled

Four federal agencies tried to cap reimbursement of indirect research costs for universities at 15%. They are the National Institutes of Health, the Department of Energy, the National Science Foundation and the Department of Defense. Research universities sometimes have indirect rates above 50%, so a cap would have hit them financially.

The policies were challenged successfully in court or rescinded after Congress blocked such caps in an appropriations bill earlier this year. Panelists at a recent AICPA & CIMA conference said proposed cap changes have stalled. "We've kind of seen that die down," Rancourt said.

Direct, indirect and the rates between

Indirect expenses are the overhead that supports a whole organization and cannot be pinned on a single project. Moffitt said they include administrative pay and benefits, facility occupancy, depreciation and legal and auditing charges. The indirect cost rate is what an organization would be reimbursed for them.

Negotiated rates with an agency can recover a high amount. They rest on actual costs, take a lot of effort and extensive documentation, and suit entities with significant administrative infrastructure.

Smaller entities can instead take a flat de minimis rate: the payout is usually lower, but the paperwork is light. The Office of Management and Budget's 2024 guidance raised it from 10% to a maximum of 15% of modified total direct costs.

Source: CFO Dive