oversight

Federal Research: Guidance for Equipment Acquired Under Grants and Cooperative Agreements

Published by the Government Accountability Office on 1999-03-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              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
                      United States
GAO                   General Accounting Office
                      Washington, D.C. 20548                                                      Leter




                      Resources, Community, and
                      Economic Development Division                                               Leter




                      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.




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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              The Office of Management and Budget (OMB) has issued guidance to
                          agencies on requiring recipients to maintain records for equipment
Equipment Acquired        acquired with federal funds. However, the Federal Grant and Cooperative
Under Grants and          Agreement Act of 1977, as amended, allows agencies to differ from this
                          guidance in setting their own requirements for research equipment
Cooperative               acquired under an award to conduct basic or applied scientific research by
Agreements                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   OMB has issued guidance, in the form of property standards, for equipment
for Managing Property     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




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                           B-281935




                           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   The three agencies have different guidance for exempt equipment. NIH—
Different Guidance for     an agency within the Department of Health and Human Services—follows
                           its Department’s guidance, which adopts parts of the OMB guidance.
Exempt Equipment
                           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.




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                         Table 1: Guidance for Exempt Equipment Used by NIH, NOAA, and NSF
                                                                        Property
                                                                        management             Disposition of
                         Agency                 Title kept by           standards              property
                         National Institutes of Recipient               None                   NIH may require the
                         Health                                                                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       Recipient               OMB’s guidance         OMB’s guidance
                         and Atmospheric
                         Administration
                         National Science       Recipient in normal     OMB’s guidance         NSF may identify items
                         Foundation             situations and the                             of $5,000 or more in
                                                government in                                  which it retains the
                                                special situations                             right to transfer title to
                                                                                               the government or a
                                                                                               third party.
                         Source: GAO’s analysis of NSF, NIH, and NOAA’s guidance.




Annual Audits Provide    After they award grants and cooperative agreements, NIH, NOAA, and NSF
Some Assurance That      do not maintain records showing which equipment was actually purchased.
                         The agencies have some assurance that the equipment was acquired
Proposed Equipment Was
                         because institutions of higher education or other nonprofit organizations
Acquired                 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.




                         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.”




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Four Recipients         We reviewed 14 NSF research awards of varying dollar amounts that were
                        awarded to three universities and one nonprofit organization in the
Acquired the Property   Washington, D. C., area. We found that each recipient had documents
They Proposed           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 cost-
                        sharing arrangements in the award documents.



                        Table 2: Equipment Observed at the Four Institutions
                                                                               Government’s share Recipient’s share of
                        Equipment                     Total proposed cost               of costs                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                               $1,360,000a             $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
                        a
                            Includes funds for installing the equipment.
                        Source: GAO’s analysis of NSF’s data.




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                      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             To identify the guidance NSF, NIH, and NOAA use to ensure that recipients
                      of grants and cooperative agreements provide management controls over
Methodology           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



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        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.




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        B-281935




        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




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Appendix I

Comments From the National Science
Foundation                                                   AppeIx
                                                                  ndi




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             ertet   Page 10   GAO/RCED-99-73 Federal Research
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