Federal Research: Guidance for Equipment Acquired Under Grants and
Cooperative Agreements (Letter Report, 03/24/99, GAO/RCED-99-73).

Pursuant to a congressional request, GAO provided information on: (1)
the guidance the National Science Foundation (NSF), the National
Institutes of Health, and the National Oceanic and Atmospheric
Administration used to ensure that the recipients of grants and
cooperative agreements for scientific research provide management
controls over the equipment they acquire with federal funds; and (2)
whether four NSF recipients from the Washington, D.C., area had acquired
equipment under 14 awards of varying dollar amounts.

GAO noted that: (1) each of the three agencies generally allows the
recipients of grants and cooperative agreements to have title to the
purchased equipment, but also provides some guidance on how recipients
are to account for this equipment; (2) after the grants and cooperative
agreements are awarded, these agencies do not maintain records showing
which equipment was actually purchased; (3) however, the agencies have
some assurance that the equipment was in fact purchased because these
organizations have audits to ensure compliance with the award
agreements, and these audits, together with the recipients' proposals,
identify the equipment that the recipients proposed acquiring; and (4)
GAO reviewed the documents showing that the recipients GAO visited had
acquired the equipment specified in their proposals, and GAO saw the
equipment either being used or awaiting installation.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-99-73
     TITLE:  Federal Research: Guidance for Equipment Acquired Under 
             Grants and Cooperative Agreements
      DATE:  03/24/99
   SUBJECT:  Grant monitoring
             Research grants
             Government grants
             Cooperative agreements
             Fund audits
             Research and development
             Equipment management
             Internal controls
IDENTIFIER:  District of Columbia
             
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covers-2.book GAO United States General Accounting Office

Report to the Chairman, Committee on Science, House of
Representatives

March 1999 FEDERAL RESEARCH

Guidance for Equipment Acquired Under Grants and Cooperative
Agreements




GAO/RCED-99-73

  GAO/RCED-99-73

United States General Accounting Office Washington, D. C. 20548
Lett er

Page 1 GAO/RCED-99-73 Federal Research

GAO

Resources, Community, and Economic Development Division Lett er

B-281935 March 24, 1999 The Honorable F. James Sensenbrenner, Jr.
Chairman, Committee on Science House of Representatives

Dear Mr. Chairman: During fiscal year 1997, three agencies-- the
National Science Foundation (NSF), National Institutes of Health
(NIH), and the National Oceanic and Atmospheric Administration
(NOAA)-- awarded over $12 billion in grants and cooperative
agreements to nonprofit scientific organizations or

nonprofit institutions of higher education to conduct basic or
applied scientific research. These funds included several hundred
million dollars for equipment.

As requested, we  identified the guidance NSF, NIH, and NOAA used
to ensure that the

recipients of grants and cooperative agreements for scientific
research provide management controls over the equipment they
acquire with federal funds; and

 determined if four NSF recipients from the Washington, D. C.,
area had acquired equipment under 14 awards of varying dollar
amounts.

Results in Brief Each of the three agencies generally allows the
recipients of grants and cooperative agreements to have title to
the purchased equipment, but they also provide some guidance on
how recipients are to account for this equipment. After the grants
and cooperative agreements are awarded, these agencies do not
maintain records showing which equipment was

actually purchased. However, the agencies have some assurance that
the equipment was in fact purchased because these organizations
have audits to ensure compliance with the award agreements, and
these audits,

together with the recipients' proposals, identify the equipment
that the recipients proposed acquiring.

We reviewed documents showing that the recipients we visited had
acquired the equipment specified in their proposals, and we saw
the equipment either being used or awaiting installation. Lett er

B-281935 Page 2 GAO/RCED-99-73 Federal Research

Background Under the Federal Grant and Cooperative Agreement Act
of 1977, as amended, executive agencies have the authority to give
title to tangible personal property-- including equipment-- to
nonprofit institutions of higher education or nonprofit
organizations whose primary purpose is scientific research, if
this property is acquired with federal funds under a grant or
cooperative agreement for scientific research. The legislative
history indicates that this authority is provided, in part, to
eliminate the costs to the government associated with maintaining
the property records for this

equipment. Using this authority, executive agencies can give title
to such a recipient institution when (1) the recipient acquires
the equipment using federal funds and (2) the agency decides
giving title furthers its objectives. The agency head has
discretion to give title without further obligation to the federal
government or under the conditions that the head of the agency
considers appropriate. Oversight of

Equipment Acquired Under Grants and Cooperative Agreements

The Office of Management and Budget (OMB) has issued guidance to
agencies on requiring recipients to maintain records for equipment
acquired with federal funds. However, the Federal Grant and
Cooperative Agreement Act of 1977, as amended, allows agencies to
differ from this guidance in setting their own requirements for
research equipment

acquired under an award to conduct basic or applied scientific
research by a nonprofit institution of higher education or a
nonprofit organization whose primary purpose is conducting
scientific research. For this type of equipment, the three
agencies use their own guidance, which adopt

different parts of the OMB guidance. While the agencies do not
maintain records of the equipment after it is acquired, required
annual audits help ensure that the equipment was purchased.

OMB Has Issued Guidance for Managing Property

OMB has issued guidance, in the form of property standards, for
equipment that is acquired under grants and cooperative agreements
with federal funds by institutions of higher education, hospitals,
and other nonprofit organizations. Although such a recipient holds
title to the equipment, the

recipient is required to follow OMB's guidance if the equipment
has a useful life of more than 1 year and cost $5,000 or more. As
part of this guidance, recipients are to maintain property
management records that include a description of the equipment,
the identification numbers, the source, the

Lett er

B-281935 Page 3 GAO/RCED-99-73 Federal Research

acquisition date, and the cost. The institution must inventory the
equipment at least once every 2 years. The OMB guidance also
includes procedures for the disposition of the equipment. When
this type of recipient no longer needs the equipment for the
original purpose for which it was acquired, the recipient may use
it for

other federally sponsored activities. However, if the recipient
does so, and the equipment has a current fair market value of $5,
000 or more, the recipient must compensate the government for the
percentage of the

current fair market value attributable to the government's share
of the original project or program. If the recipient has no need
for the equipment, it is to request disposition instructions from
the federal government. These

instructions may require the recipient to return the equipment to
the government. Alternatively, the recipient can sell, transfer,
or dispose of the equipment and reimburse the government for its
fair share.

Although OMB has issued guidance, the Federal Grant and
Cooperative Agreement Act of 1977, as amended, gives the heads of
executive agencies the discretion to give title to equipment
acquired through grants or cooperative agreements for scientific
research to certain types of recipients without further obligation
to the federal government. The act

also allows agencies to set general property standards for this
equipment at their discretion. When the heads of executive
agencies exercise this authority, the equipment is exempt from OMB
guidance. NIH, NOAA, and NSF Adopt Different Guidance for Exempt
Equipment

The three agencies have different guidance for exempt equipment.
NIH an agency within the Department of Health and Human Services
follows its Department's guidance, which adopts parts of the OMB
guidance. NOAA an agency within the Department of Commerce follows
that Department's guidance. Commerce fully adopted OMB's guidance.
NSF

uses guidance that it developed. Table 1 compares the agencies'
property management standards and disposition guidance for exempt
equipment.

Lett er

B-281935 Page 4 GAO/RCED-99-73 Federal Research

Table 1: Guidance for Exempt Equipment Used by NIH, NOAA, and NSF

Source: GAO's analysis of NSF, NIH, and NOAA's guidance.

Annual Audits Provide Some Assurance That Proposed Equipment Was
Acquired

After they award grants and cooperative agreements, NIH, NOAA, and
NSF do not maintain records showing which equipment was actually
purchased. The agencies have some assurance that the equipment was
acquired because institutions of higher education or other
nonprofit organizations are subject to the audit requirements
contained in the Single Audit Act Amendments of 1996. 1 Under this
act and OMB Circular A- 133, nonprofit institutions of higher
education and other nonprofit organizations that spend $300,000 or
more in a year in federal awards must have an audit

conducted for that year. Among other things, the audit is to
assess the recipient's compliance with the provisions of the award
agreements identifying the equipment proposed for acquisition.

Agency Title kept by Property management standards Disposition of

property

National Institutes of Health Recipient None NIH may require the

transfer of title to equipment to the government or a third party
if equipment has an acquisition cost of $5,000 or more. If NIH
exercises its rights to transfer property,

guidance similar to OMB's is followed.

National Oceanic and Atmospheric Administration Recipient OMB's
guidance OMB's guidance

National Science Foundation Recipient in normal situations and the

government in special situations OMB's guidance NSF may identify
items of $5, 000 or more in

which it retains the right to transfer title to the government or
a third party. 1 OMB's audit guidance implementing the 1996
amendments is included in OMB Circular A- 133, Audits

of States, Local Governments, and Non- Profit Organizations.

Lett er

B-281935 Page 5 GAO/RCED-99-73 Federal Research

Four Recipients Acquired the Property They Proposed

We reviewed 14 NSF research awards of varying dollar amounts that
were awarded to three universities and one nonprofit organization
in the Washington, D. C., area. We found that each recipient had
documents showing that it had acquired the equipment specified in
its proposals, and we saw the equipment either being used or
awaiting installation.

For 11 of the 14 awards, the NSF funds for equipment were
supplemented by the recipients' funds. Table 2 shows the equipment
that we observed and the amounts that NSF and the recipients had
proposed for the costsharing arrangements in the award documents.

Table 2: Equipment Observed at the Four Institutions

a Includes funds for installing the equipment. Source: GAO's
analysis of NSF's data.

Equipment Total proposed cost Government's share of costs
Recipient's share of

costs

Laser system $174, 785 $94, 785 $80, 000 Workstations $63,978 $49,
648 $14, 330 Shaking table $485,186 $300, 000 $185, 186 Very high
speed Backbone Network System $700, 000 $350, 000 $350, 000

Electron microscope $617, 000 $617, 000 0 Laser system $85,000
$85, 000 0 Electron microscope $603, 176 $422, 223 $180, 953 High-
resolution electron microscopy facilities $1, 360, 000 a $680, 000
$680, 000

High performance computer system and X- ray detector $602,128
$402, 128 $200, 000

Very high speed backbone network system $196, 200 $46, 200 $150,
000 Spectrophotometer $46,000 $46, 000 0 Workstations $90,000 $45,
000 $45, 000 Supercomputer 548,480 $383, 936 $164, 544 Mass
spectrometer $1, 043, 950 $574, 172 $469, 778

Lett er

B-281935 Page 6 GAO/RCED-99-73 Federal Research

We found that the four recipients had acquired either the
equipment they had proposed purchasing in their applications or
similar equipment. Generally, the recipients explained that
differences between the proposed and acquired equipment were due
to manufacturers' improvements or lower market prices between the
time the equipment was proposed and acquired.

All the recipients provided us with records showing that the
equipment that they had proposed was acquired and listed in their
records, and they explained that their equipment records were
audited in accordance with the Single Audit Act Amendments of 1996
and OMB Circular A- 133. We saw

the equipment, but in some cases it had not been completely
installed because more time was needed to build it or to modify
buildings to house it. For example, one recipient had acquired a
large electron microscope system, but modifications to the
building that will house the equipment had not been finished. In
these cases, we observed the equipment that had been acquired and
stored at the recipients' facility.

Agency Comments NSF, NIH, and NOAA commented on the information in
the report pertaining to their respective agency. They provided
some technical clarifications concerning their guidance. We made
the suggested revisions,

and the agencies agreed that our report is factually correct.
Additionally, the George Washington University, the Johns Hopkins
University, the University of Maryland, and the Carnegie
Institution of Washington agreed that the information concerning
their awards was correct.

Scope and Methodology To identify the guidance NSF, NIH, and NOAA
use to ensure that recipients

of grants and cooperative agreements provide management controls
over the property they acquire, we reviewed OMB's and the three
agencies' guidance. Additionally, we discussed this guidance with
representatives of the three agencies. To review the equipment
acquired by recipients of grants and cooperative agreements
awarded by NSF, we selected 13 grants and 1 cooperative agreement
awarded to three universities and one nonprofit organization in
the Washington, D. C., area: the George Washington University,
Washington, D. C.; the Johns Hopkins University, Baltimore,
Maryland; the University of Maryland, College Park, Maryland; and
the Carnegie Institution of Washington, Washington, D. C. We
selected the educational Lett er

B-281935 Page 7 GAO/RCED-99-73 Federal Research

institutions because they were three of the largest recipients of
NSF funds in the Washington, D. C., area. We selected the Carnegie
Institution of Washington to include a nonprofit research
organization in our review. At the recipients' facilities, we
reviewed documentation to show that the equipment was accounted
for in the recipients' records, observed the

equipment, and spoke with either the principal investigators or
with a person familiar with the operations of the equipment. We
selected equipment for review by using NSF award data for fiscal
year 1992 through fiscal year 1997. These award data identify the
award and the

dollar amount that NSF budgeted for acquiring equipment under the
award. After we selected the awards for our review, we obtained
the individual award files from NSF and identified the equipment
that the recipients had proposed acquiring. We selected equipment
valued at different amounts for our review.

We conducted our work from June 1998 through February 1999 in
accordance with generally accepted government auditing standards.
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
for 7 days after the date of this letter. At that time, we will
send copies to Senator John McCain, Chairman, and Senator Ernest
Hollings, Ranking Member, Senate Committee on Commerce, Science,
and Transportation; Senator Ted Stevens, Chairman, and Senator
Robert Byrd, Ranking Member, Senate Committee on Appropriations;
Representative George E. Brown, Jr., Ranking Member, House
Committee on Science; Representative C. W. Bill Young, Chairman,
and Representative David R. Obey, Ranking Member,

House Committee on Appropriations; We are also sending copies of
the report to the Honorable Jacob J. Lew, Director, Office of
Management and Budget; the Honorable Dr. Rita R. Colwell,
Director, National Science Foundation; the Honorable Dr. Harold
Varmus, Director, National Institutes of Health; and the Honorable
D. James Baker, Administrator, National Oceanic and Atmospheric
Administration. Additionally, we are sending copies of this report
to the Honorable Clayton D. Mote, President, University of
Maryland; the Honorable William R. Brody, President, Johns

Hopkins University; the Honorable Stephen Joel Trachtenberg,
President, George Washington University; and the Honorable Dr.
Maxine Singer, President, Carnegie Institution of Washington. We
will also make copies available to others on request.

Lett er

B-281935 Page 8 GAO/RCED-99-73 Federal Research

If you or your staff have any questions about this report, please
call me at (202) 512- 3841. Sincerely yours,

Susan D. Kladiva Associate Director, Energy,

Resources, and Science Lett er

Page 9 GAO/RCED-99-73 Federal Research

Page 10 GAO/RCED-99-73 Federal Research

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