Sneak Preview: Cognizant Agencies Aim To Fix Control Weaknesses

October 28, 2016 | By Jerry Ashworth | Post a Comment

xgran_bookshot(The following was excerpted from a recent article in the Federal Grants Management Handbook). The Department of Health and Human Services’ (HHS) Cost Allocation Services (CAS), which is one of three primary cognizant agencies that negotiates indirect cost rate agreements for recipients of National Institutes of Health (NIH) biomedical research awards, is developing a plan for its staff to periodically review its rate-setting guidance and make updates whenever changes are made to applicable regulations, in response to a recent recommendation from the Government Accountability Office (GAO). The three cognizant agencies each noted that they are taking various measures to improve internal controls pertaining to the rate-negotiation process.

HHS and the Office of Management and Budget (OMB) have designated three primary cognizant agencies for indirect costs for recipients of NIH awards — CAS, the NIH’s Division of Financial Advisory Services (DFAS) and the Department of Defense’s (DOD) Office of Naval Research (ONR). The cognizant agencies are responsible for ensuring that the negotiated indirect cost rate agreements comply with OMB guidance and the Federal Acquisition Regulations, as applicable. Research organizations that apply for NIH funding submit an indirect cost rate proposal, which is reviewed by the particular cognizant agency for indirect costs and are often audited by a third-party agency at the cognizant agency’s request prior to negotiating the acceptable rate agreement for the organization.

NIH relies on the cognizant agencies to design adequate internal controls over their processes for negotiating indirect cost rates with research organizations to help protect NIH funds against fraud, waste and abuse in the indirect cost rate-setting process. GAO said that these controls should include steps for the negotiator to: (1) determine the allowability, allocability and reasonableness of proposed indirect costs and assess a research organization’s methods for allocating such costs to the grant; (2) determine the composition of the distribution base; and (3) maintain sufficient documentation to support the negotiation and calculation of the indirect cost rates.

However, GAO found that while the three cognizant agencies had certain internal controls over setting indirect cost rates, it found numerous other deficiencies such as:

  • internal guidance at all three cognizant agencies was not updated to reflect current OMB guidance or changes in agency requirements;
  • ONR, which uses audits by the Defense Contract Audit Agency (DCAA) to determine the adequacy and compliance of the indirect cost proposals that it processes, lacks internal guidance to ensure that it reviews internal procedures when a DCAA audit was significantly delayed or resulted in a qualified opinion, or when DCAA rescinded a previously issued opinion;
  • internal guidance at all three cognizant agencies lacked detailed instructions to supervisors on their review responsibilities over the indirect cost rate process;
  • CAS and ONR had not developed internal guidance addressing differences in negotiating indirect cost rates with certain types of research organizations; and
  • ONR and DFAS had not developed ways to track key milestones for the indirect cost rate-setting process.

(The full version of this story has now been made available to all for a limited time on Thompson’s Grants Compliance Expert site.)

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