TITLE: Recovery of payment to Colorado State University, B-280018, January 27, 2000
BNUMBER: B-280018
DATE: January 27, 2000
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Recovery of payment to Colorado State University, B-280018, January 27, 2000
B-280018
January 27, 2000
Mr. David L. Burich
Authorized Certifying Officer
United States Forest Service
14th & Independence, SW, P.O. Box 96090
Washington, DC 20090-6090
Subject: Recovery of payment to Colorado State University
Dear Mr. Burich:
This responds to your request for our advice concerning a $425,952 payment
by the Forest Service for administrative personnel expenses treated as
direct, rather than indirect, costs under a cost-reimbursable research
agreement between the Forest Service and the Center for Ecological
Management of Military Lands (Center) at Colorado State University
(University). The Forest Service also paid $42,595 to the University as
indirect costs, calculated as ten percent of the direct costs, resulting
in a total payment of $468,547.
The Inspector General (IG), Department of Agriculture, has questioned the
payment of this amount, contending that the University had presented
insufficient documentation of these costs. Given the posture of this
matter and the factual gaps in the record, we think it is more
appropriately resolved by administrative officers charged with claims
collection responsibilities. Nevertheless, we are providing the following
information that may be of assistance to you in analyzing this matter.
In 1992, the Forest Service entered into a cost-reimbursable research
agreement with Colorado State University (Cost-Reimbursable Agreement
28-CR2-626, 1992) under authority of the National Agricultural Research
Extension and Teaching Policy Act of 1997 (the Act), 7 U.S.C. S: 3319a.
The Act authorizes the Secretary of Agriculture to enter into
cost-reimbursable agreements with educational institutions to carry out
agricultural research, extension, or teaching activities of mutual
interest.[2] 7 U.S.C. S: 3319a. The University*s Center agreed to
conduct ecological research studies of mutual interest to the government
and the University for the Department of Defense (DOD).[3]
At issue is application of the Act*s cost reimbursement provision. The
Act specifies that *[r]eimbursable costs under such agreements shall
include the actual direct costs of performance, as mutually agreed on by
the parties, and the indirect costs of performance, not exceeding 10
percent of the direct costs.* 7 U.S.C. S: 3319a. The Act does not define
direct or indirect costs. Agriculture Department regulations, however,
require that agreements made pursuant to the Act are to conform to the
provisions of OMB Circular A-21. 7 C.F.R. S: 3016.22(b). In that regard,
the Forest Service agreement with the University provided that *[a]ll
applicable laws, regulations, Executive Orders and other generally
applicable requirements . . . form a part of this agreement,* effectively
incorporating into the agreement the provisions of Agriculture*s
regulations and OMB Circular A-21. The OMB Circular defines direct costs
as *those costs that can be identified specifically with a particular
sponsored project, an instructional activity, or any other institutional
activity, or that can be directly assigned to such activities relatively
easily and with a high degree of accuracy.* OMB Circ. No. A-21, sec.
D.1. It defines indirect costs[4] as *costs that are incurred for common
or joint objectives and, therefore, cannot be readily and specifically
identified with a particular sponsored project, an instructional activity,
or any other institutional activity.* OMB Circ. No. A-21, sec. B.4.
For the period June 1992 through January 1996, the University charged
administrative personnel costs of $425,952 to the Forest Service as direct
costs. The Forest Service paid this amount, as well as an additional
$42,595 for indirect costs, calculated at ten percent of the amount
allowed as direct costs.
In March 1997, the IG reported on an audit of the Forest Service*s
cost-reimbursable research agreements, and questioned the Forest Service*s
payment of these administrative personnel costs as direct costs. USDA
OIG, Audit Report No. 08601-18-SF: Forest Service Research Cooperative and
Cost Reimbursable Agreements (Mar. 1997). The IG reported that the
agreement with the Center was only one of a number of cost-reimbursable
agreements that the Forest Service had with the University. The IG found
that the Forest Service had aggregated all of those agreements in order to
calculate and pay the ten-percent allowance for indirect costs. Finding
No. 6 of the IG*s report stated that *[the Center*s] staff of over 300
functions basically as a research center [within the University*s
Department of Range Science]. [The Center*s] administrative expenses,
therefore, would be departmental overhead, in accordance with OMB Circular
A-21.* Id. at 22. The IG concluded that the Center*s administrative
costs really were within the scope of, and part of, the University-wide
allowance for indirect costs. Id. at 21.
In response to this finding, a Forest Service accountant interviewed the
Center*s staff and reviewed the Center*s records. The Forest Service
concluded that the University had adequately documented the Center*s
administrative personnel costs. The Forest Service maintains that the
authority to allocate expenses between direct and indirect costs lies
solely *within [the] agency*s prerogative in managing cost-reimbursable
agreements.* The IG claims, however, that the Center did *not produce
actual verifiable hours charged, but had cost certifications which did not
have supportable accounting data.* The IG asserts that the Center*s
records of its direct costs under this agreement consist solely of
after-the-fact judgmental estimates based on the recollections of the
Center*s director, rather than contemporaneously prepared records of costs
actually incurred.
OMB Circular A-21 permits agencies to treat administrative personnel costs
as direct in certain circumstances. The Circular states that *[d]irect
charging of these costs may be appropriate where a major project or
activity explicitly budgets for administrative or clerical services and
individuals involved can be specifically identified with the project or
activity.* OMB Circ. No. A-21, sec. F.6.b(2). In the context of the
Forest Service*s agreement with the University, the Circular, and the
agreement which incorporated the Circular*s definitions, would permit the
Forest Service to reimburse the Center*s administrative and clerical costs
as direct costs so long as the University (1) had included those costs in
its budget for the agreement, and (2) can establish that the Center
incurred those costs specifically in performance of the agreement.
In an interpretive memorandum entitled *Direct Charging of Administrative
and Clerical Salaries,* July 13, 1994, OMB explained that in order to take
advantage of the authority under Circular A-21 to charge the salaries of
administrative and clerical support as direct costs, *the special
circumstances requiring direct charging of the services would need to be
justified to the satisfaction of the awarding agency in the grant
application or contract proposal.* There is no indication in the record
submitted to us by the Forest Service that (a) the University included in
its budgets a separate item for the Center*s administrative costs; (b) the
Forest Service requested or the University volunteered any explanation of
the *special circumstances* that would justify direct charging of the
Center*s administrative overhead; or (c) the Forest Service specifically
considered or approved that treatment for the Center when it entered into
or amended the cost-reimbursable agreement. In fact, it was not until
September 17, 1996, after the IG completed his audit, that the University
formally asked the Forest Service to approve direct cost status for the
Center*s administrative expenses. Nevertheless, the Forest Service
maintains that it has approved this status for the Center.
Given the Forest Service*s position, the question then becomes whether the
Center can establish having incurred the costs claimed in performance of
the agreement. In your May 1998 letter to us, the Forest Service asserts
that a Forest Service accountant *verified documentation provided by the
University in support of direct charging [Center] expenses which usually
may be considered as indirect expenses.* Despite our numerous requests
for the documentation, the Forest Service has failed to supply it.
According to the IG, the University tried to establish that the Center
incurred these costs in performance of this agreement only through
after-the-fact judgmental estimates, not by contemporaneously prepared
records. We would not object to the Forest Service*s use of
after-the-fact judgmental estimates as a basis for reimbursement so long
as the Forest Service can establish the reasonableness and reliability of
those estimates. See, e.g., Cost Accounting Standard No. 501, 48 C.F.R.
S: 9905.501-20 (*for any significant amount of estimated cost, the
contractor must be able to accumulate and report actual cost at a level
which permits sufficient and meaningful comparison with its estimates*).
In this case, however, the record does not permit us to resolve this
factual issue.
We trust this information will be helpful to you. Should you have any
questions concerning this matter, please contact Mr. Tom Armstrong or
Mr. Neill Martin-Rolsky of my staff at 202-512-5644.
Sincerely,
Gary L. Kepplinger
Associate General Counsel
B-280018
Digest
A certifying officer is advised that GAO is unable to advise whether the
Forest Service should recover, as recommended by the Agriculture Inspector
General, a payment to the Colorado State University for *indirect costs*
treated as *direct costs* under a cost-reimbursable coperative research
agreement (entered into under 7 U.S.C. S: 3319a) because the Forest
Service has failed to provide copies of the information upon which it
relies to justify the payment.
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[1] By law, agencies are required to try to collect all claims owed to the
United States that arise from their activities. 31 U.S.C. S: 3711(a).
Until relatively recently, when agencies had questions concerning the
validity of claims they were trying to collect, they could come to this
Office to have those claims settled and adjusted pursuant to 31 U.S.C. S:
3702. However, that authority has since been transferred to various
agencies, including the Office of Management and Budget. 31 U.S.C. S:S:
3529, 3702(a)(4), as amended by Pub. L. No. 104-316, S: 202(n)(n), 204,
110 Stat. 3826, 3843-44, 3845 (1996).
[2]In Departmental regulations, the Secretary of Agriculture has delegated
the authority to enter into such agreements to the Chief of the Forest
Service. 7 C.F.R. S: 2.60(a)(15).
[3]The Forest Service entered into this agreement on behalf of DOD, and
DOD reimbursed the Forest Service for its payment to the University.
[4]In a recent amendment to the Circular, OMB adopted the term *Facilities
and Administrative* (or *F&A*) costs in place of *indirect* costs, and
explained that it considers those terms to be synonymous. OMB Circ. No.
A-21, sec. D.1.