The HHS Inspector General has released a “Review of Administrative and Clerical Costs at Duke University for the Period October 1, 2002, Through September 30, 2004.” Sounds scintillating, eh?
The bottom line is that the IG recommends that Duke “refund $1,661,011 to the Federal Government” in compensation for administrative and clerical salaries and other administrative costs that were “unallowable charges as direct costs to grants, contracts, and other agreements with HHS components.”
This is actually the revised amount (was originally $2.4M) based on Duke’s 19-page response to the initial IG findings. Duke was particularly upset that the IG estimated the amount owed based on a statistical sample: “Based on our two samples, consisting of 114 charges for administrative and clerical salaries and 120 charges for other administrative costs, we estimate that the University claimed approximately $1.7 million in unallowable charges as direct costs to grants, contracts, and other agreements with HHS components during fiscal years 2003 and 2004.”
I’m sure sponsored programs officers throughout the country are thrilled.
For those of you not familiar with the inadvisability of charging administrative and clerical costs as direct (versus indirect or Facilities & Administrative/F&A costs), the report background actually sums it up nicely:
Duke University (the University) is a private institution located in Durham, North Carolina. During the period October 1, 2002, through September 30, 2004, the University claimed reimbursement for $594,104,781 of costs incurred on 2,566 grants, contracts, and other agreements with components of the Department of Health and Human Services (HHS).
In accepting grants, contracts, and other agreements awarded by HHS and other Federal agencies, the University agreed to comply with regulations governing the use of Federal funds and ensure that costs charged to those grants, contracts, and other agreements were allowable under the cost principles established in Office of Management and Budget (OMB) Circular A-21 (the Circular). These cost principles require that, to be allowable, costs must be reasonable, be allocable, conform to any exclusions or limitations set forth in the cost principles or sponsored agreements, and be given consistent treatment through the application of generally accepted accounting principles.
One limitation is set forth in section F.6.b of the Circular. This section adds specific guidance regarding the treatment of charges for administrative and clerical expenses, the subject of this audit, incurred within various departments of a college or university, including the following: “The salaries of administrative and clerical staff should normally be treated as F&A [Facilities and Administrative] costs” (section F.6.b.2) and “Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A costs” (section F.6.b.3).
The only specific exception to this guidance is provided for “major projects,” where direct charging of administrative and clerical expenses may be appropriate. “Major projects” are defined in section F.6.b.2 of the Circular as projects that require an “extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments.”
Note the significant HHS outlay at Duke, which would make them worth the effort to audit. But … something to keep in mind for those of you enaging in some creative financial shell games with your dwindling grant dollars.