Re: administrative fee Len Paplauskas 18 Oct 1994 09:27 EST

"Sherry A. Marts" <xxxxxx@AOL.COM> writes:
>
>I am the research grants director for a small private foundation that
>provides grants for research on Alzheimer's disease, glaucoma, and heart
>disease and stroke.

 I'm delighted to see more individuals from the sponsoring agency
 side of the ledger in this group, your perspective is both
 interesting and important.

>The foundation I work for does not pay indirect costs.
>The Board of Directors believe this is necessary because the money for the
>grants comes from contributions from the general public, and our contributors
>would want all of the grant funds to go to research. I realize this is a
>perception problem, and that indirect costs are part of the cost of doing
>research, but that "indirect" or "administrative" tag is enough to set the
>BoD's teeth on edge.

 Most, if not all, research institutions will accept the IDC
 policies of foundations, charities and voluntary health organizations.
 They will also abide by the published policies of those agencies,
 so that if your organization prohibits any administrative costs,
 I doubt that you'd see too many proposals from grantees trying to
 sneak one past you.  The key, however, is that grantees need to
 know up front what the ground rules are!

>The other reason why charities like the one I work for don't pay indirect
>costs. It is accepted practice in non-profit accounting to include such costs
>as in-kind contributions to the charity. This means that if we give a $100K
>grant to a university and that university's indirect cost rate is 60%, we get
>to add a $60,000 contribution to our revenue for the year.

 This is fascinating!  Doesn't this practice have an impact on the
 amount of funding you are required to distribute annually?  I was
 under the impression that IRS rules require that foundations
 distribute a certain percentage of their capital each year.  By
 including in-kind contributions (we would normally refer to such as
 cost sharing) as revenue, don't you affect how much of your capital
 has to be distributed?

>I want to warn against trying to hide indirect costs in a budget that is
>supposed to include only direct costs. We have run across this a few times
>and have required that the budget be re-done
>before we issued the check for the grant. If we were to find out that an
>institution had used funds from our grant for indirect or administrative
>costs, we would consider that a serious violation of the terms of the grant
>award and would take whatever action seemed appropriate, and would consider
>turning back any future applications from that institution.

 I assume that somewhere in your published guidelines you would
 explicitly prohibit such administrative costs as part of the
 grant's budget.  Correct?

>A more constructive way to address this issue would be to assemble all the
>arguments in favor of private foundations/ charities paying indirect costs.

 Here goes a first attempt at this:

 1.  American universities and academic health centers are experiencing
 one of the most devastating economic periods in their history.  The
 impact of the recession of the late '80s/early '90s has resulted in
 significantly reduced charitable contributions (sound familiar?), and
 the realignments of the health insurance industry have reduced clinical
 income.  Thus, whereas in the past universities and health centers
 could absorb certain costs by cost shifting within their own macro
 budgets, the flexibility to do so is eroding faster than anyone
 imagined 5 years ago.  Nowadays, if our cost centers do not generate
 revenue, then their value is examined constantly, and we cannot provide
 services which do not pay for themselves.

 2.  The American research university system was developed after WWII
 as a resource which met a critical national need, and was financed
 largely by the federal gov't.  The infrastructure developed to support
 this research enterprise was financed through the IDC policy of the
 gov't.  And that infrastructure is significant.  You can't run a
 major research university without buildings, power, admin. services,
 etc.  To the best of my knowledge, the critical national need for
 a continued strong research university system has not been disputed,
 or debated.

 3.  Despite the acceptance by all sectors that this resource needs
 to be maintained, the federal gov't.'s share of funding research
 has (and continues to) declined.  In 1985, the federal share of all
 R&D expenditures in the U.S. was 46%; in 1993, it was only 42%.
 (Source:  NSF Science and Engineering Indicators, 1993).

 4.  The university share of all U.S. R&D expenditures has increased
 since 1985, up from 9% to 13%.

 5.  Universities are rapidly approaching the point where they can
 no longer afford to increase their share of supporting the
 infrastructure, and either the funds to support this will have to
 come from sources which were not aggressively asked to contribute
 in the past, or the enterprise will begin to shrink.

 6.  Private supporters of research attach, for good reason, a number
 of requirements on the award of grants, e.g., fiscal reports,
 human and animal research clearances, etc.  These services cost!
 Yes, we have to provide them for federally sponsored programs
 anyway, but the time may be coming when we'll no longer be able to
 provide them for all grantors, only those which agree to pay for them.
 Already some institutions are accepting awards with reduced IDC rates
 if the sponsor agrees to forgo annual fiscal reports, technology
 transfer limitations, etc.  Maybe the time will come when universities
 will limit the human/animal subjects clearances only to those
 grantors which agree to pay for them.  I certainly hope not, but my
 guess is that this question is being considered somewhere in the U.S.

Anyway, I've spent far too much time musing here that I should, and invite
anyone else to respond to, or build upon, my comments.

Len

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Leonard P. Paplauskas    Assistant Vice President for Research     |
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