MIT has agreed that slightly less than $1.2 million (about one percent) of its Fiscal Year 1990 indirect costs do not qualify for reimbursement by sponsors of research.
The audit calculations released in January by the Defense Contract Audit Agency (DCAA) asserted MIT had undercharged by $17.3 million on direct costs of research but had allegedly overcharged by $22.8 million of indirect costs.
The DCAA figures, therefore, indicated that MIT owed a net of $5.5 million for FY90. The DCAA recommendations were made to the Office of Naval Research, which oversees MIT's research budget on behalf of all government agencies.
An MIT spokesperson noted that the DCAA post-audit of Fiscal 1990, completed in January, was the first post-audit finished at MIT by DCAA in six years. MIT's withdrawal of $1.2 million ($1,187,894) for FY90 (about one percent) is consistent with previous post-audits, in which the auditors and MIT usually have concurred on the appropriateness of about 99 percent of the indirect costs.
The indirect cost rate, a percentage which is applied to the modified direct costs, is budgeted annually through an advance audit by DCAA to estimate the proportion of indirect costs of research which will be reimbursable in the coming year. After the year is finished, a post-audit is done by the DCAA and MIT to see how close the budget estimate came to the actual reimbursable amounts.
The changed numbers bring the amount of research done in Fiscal 1990 by MIT and all its laboratories, including Lincoln Laboratory, to $712 million-$597 million of direct costs and $115 million of indirect costs.
In challenging the DCAA audit, MIT told the Office of Naval Research that the DCCA's claims constituted "a serious assault on the effectiveness and ability of MIT to remain an institution at the forefront of science and technology and to continue its tradition of national service in the provision of quality research and trained scientists and engineers.
"The audit interpretation, approach and rationales employed by DCAA in preparing this report represent, in MIT's opinion, a fundamental and abrupt change from prior experience," the MIT response stated. It added that the government had "unilaterally and retroactively" attacked "long-standing, consistently followed and previously approved cost allocation methodologies including legally binding Memorandum of Understanding [MOU, or contractual advance agreements for specific areas of cost]."
These issues, MIT said, are of "critical importance to the MIT-US Government relationship."
It asked the ONR and other agencies involved in the matter "to seriously reflect on the enormity of the issues and their potential impact on MIT's ability to continue to function as an institution at the forefront of science." It added:
"MIT, as an Institution, has a long history of dedicated and cooperative service to the US government. We, jointly with ONR and DCAA, have developed administrative and accounting procedures which have protected the interest of the government and at the same time provided fair and full reimbursement of the allowable cost to MIT. We believe both parties have benefitted from this long and cooperative association."
MIT said that the DCAA, in previous audits, had consistently approved the MOU methodologies "which they now choose unilaterally, retroactively, and, MIT contends, illegally, to invalidate."
MIT said its position was that it owed nothing on the accounts covered by MOUs: research assistant tuition remission, library costs, student service costs, capitalization policy, and leasehold improvements to major research building.
Furthermore, MIT said the DCAA, in the six years since 1985, has limited its presence to advance (budgeting) audits rather than post-audits of costs actually incurred. "The absence of the DCAA incurred-cost audit presence at MIT for the six-year period. . . adds to the unreasonableness of the DCAA recommendations," MIT said. "A timely audit would have put MIT on notice of the concerns DCAA is now attempting to impose retroactively."
MIT said the DCAA made a $16.9 million error in its calculation of the cost impact of their recommendations on graduate student tuition remission. The error would more than offset the amount the DCAA claimed MIT owed for all items, including ones covered by the contractual agreements or MOUs.
"DCAA recalculated MIT's Employee Benefit rates retroactively (i.e., the On-Campus Research rate from 40.0% to 72.07%) but neglected to reflect the effect of the resulting under-distribution of cost caused by their new rates. Correcting this DCAA error requires an addition of $16,900,000 to the EB (Employee Benefits) Residual indirect cost pool. . ."
MIT said that $21.6 million of indirect costs questioned by DCAA were indeed eligible for reimbursement as indirect costs of research. These costs included $16.5 million in costs covered by contractual advance agreements signed by the government and MIT. The largest item was $10.5 million of indirect costs of graduate students, which the government wanted to reclassify as direct costs of research.
The MIT summary concluded: "MIT remains committed to seeking improved administrative and accounting procedures. We do not seek reimbursement at unreasonable levels nor reimbursement based on unsound methodologies.
"We remain willing at any time to review any and all administrative, accounting, allocation, and reimbursement methodologies on a prospective basis. We do, however, object in the strongest possible terms to the very substantial retroactive adjustments which the DCAA report is recommending be imposed unilaterally on MIT."
A version of this article appeared in the April 15, 1992 issue of MIT Tech Talk (Volume 36, Number 27).