My question concerns the calculation of MTDC on awards from the Small
Business Administration although it may have implications for other federal
sponsors. I am especially interested in hearing from other institutions that
administer small business development centers with subcenters.

Our institution has for some years received funds from the Small Business
Administration to operate small business development centers in this region.
Each year we submit a proposal and each year we receive a new award for this
purpose. We then issue subawards to three other entities that operate the
subcenters. Because we issue and close out new subawards each year we have
included the first $25,000 of each subaward in our calculation of MTDC.

We recently received the results of an audit with the following
disallowance:

 The indirect cost agreement and OMB Circulars only allow a host
institution to calculate indirect cost of the first $25,000 of each new
subcontract because of the initial costs incurred in the bidding process. In
subsequent years, the Host is not to include any subcontract costs in the
indirect cost calculation.  This inclusion resulted in the overstatement of
indirect cost match by $32,750 on the SF-269. This amount needs to be
disallowed from their indirect cost calculation.

Attached to the audit report was a 1997 letter from the DHHS Division of
Cost Allocation. We believe the letter supports our position, but the SBA
auditors interpret it as allowing the inclusion of the first $25,000 of each
subaward only when a truly open and competitive bidding process occurs.

We have submitted additional information to SBA pointing out that for each
subaward we go through proposal, negotiation, and closeout every year, but
the SBA auditors have not changed their position.

Have other institutions had similar disallowances? If so, what was the final
outcome?

Thanks in advance.

Kathleen

Kathleen Harris
Associate Vice President for Research
Texas Tech University
203 Holden Hall
Lubbock, TX 79409-1035
Phone: 806-742-3884
FAX: 806-742-3892
www.ors.ttu.edu

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