In the last two weeks, you have been told that government workers are criminals and frauds, and that biomedical scientists like me are ripping us off. Despite this rhetoric, there has been no evidence presented at all to show where the fraud is or what the fraud is. So here is the science of how federal research grants work in the United States, and why activities like potential new medical treatment development will simply stop if we chop away the indirect cost components of grants.
University (academic) research is the source of discovery for over 90% of the medical therapeutic drugs developed for American's illnesses. IDC rates are determined with thorough accounting analysis, updated every 5-years, and are vital in covering the shared support resources and work spaces for all active research projects at a university. IDCs are not arbitrary and they are not slush money. Without adequate IDC rates, we will NOT have graduate student training in sciences, engineering, or medicine, to develop our future scientists and entrepreneurs because there will not be enough research lab spaces to train them.
Consider this for a moment: If the goal of the Department of Governmental Oversight and Efficiency (DOGE) is to identify inefficiency or even fraud, why fire up to 15 Inspectors General, many of whom were appointed during the first Trump administration term by President Trump?
These inspectors are experts in auditing, supported by staff whose full-time responsibilities include rigorously evaluating government departments and their expenditures. They generate detailed reports on issues and concerns that are often used to reform processes continuously. Seems to me that we have just decapitated away the independent officers whose job is to be the watchdog. What do you think can happen now when they are out of way and no one is watching what happens with our hard-won tax dollars?
What about this Indirect Cost on grants issue? Before you decide if indirect costs are fraudulent, like Mr. Musk says, maybe you would like to know what they are and how they work. You can also keep in mind that Elon Musk is happy that federal grants to Space-X have completely covered Indirect Costs, and he does not feel they should be removed from his own grants.
Indirect costs are just one part of a grant that has a Direct Cost component and an Indirect Cost component. The actual grant budget is made up from adding these components together. Indirect Cost (IDC) rates are NOT arbitrary; they are real costs generated by a research project, which were derived from a detailed accounting analysis. Direct Costs, are the specific direct expenses related to a research project like paying the lab technician doing some of the work, purchasing chemicals used for the project, and acquiring equipment and supplies for the project.
For example, you might have a project with $150,000 of Direct Costs. The other part of the grant's budget is the Indirect Costs. They are usually calculated as a percentage of the direct costs to accurately cover other indirect expenses that running your project will generate for your university. Those are a real cost component. At my university, the Indirect Cost Rate (IDC rate) with the federal government is 50%. So this grant's total budget would look like this:
Direct Costs = $150,000 Indirect Costs (50% of DC) = $75,000
TOTAL GRANT COST: $225,000, which is what the university or company can spend, but only if they get the grant. (In biomedical research we compete for grants and most grant applications do not win funding.)
To continue this example, consider preclinical research on a drug, such as one I recently invented a biotech production method for. If we are approved to directly spend $150,000 on the experiments and analysis in my lab, the university will experience about $75,000 of indirect exspences to provide the research lab spaces where we do this project. Utilities, the provision of university staff who run health and safety compliance, core labs with analytical systems that many different labs share to reduce costs. Furthermore, if I use mice or rats in my research, they do not live in my garage at home, they have to be kept clean and healthy in our animal care facility, with animal care staff, 365 days per year.
The Indirect Cost (IDC) component encompasses all of the expenses required to support general infrastructure, the place where that research can be accomplished. We cannot do this work in a classroom or on the lawn. We have obvious things to list here, a room with laboratory benches, shelves, sinks, gas-lines, fume-hoods and BSL-2 (Biosafety Level 2) cabinets. This space requires electricity, water, gas, HVAC, 365 days a year just like your house or your small business. The university or company will also require staff to ensure compliance with safety requirements, including lab safety, radiation safety, chemical waste reduction and disposal, human subjects research monitoring, animal research monitoring, and employing certified animal care technicians and a veterinarian in central animal care facilities. The pooling of indirect costs from all grants held at the university is required to cover these very real costs of research activity.
Without essential infrastructure, a university would not have biomedical research activity and would function only as a college teaching in classrooms "from textbooks". They would not have R&D, nor be able to train students in R&D activity experiences and skills.
To reduce the government's costs of managing grants, universities complete an IDC-rate analysis with the federal government, and they redo this process at least every five years. This involves providing detailed accounting calculations of the real indirect costs generated to maintain the physical space and infrastructure supporting the research projects. In addition to those mentioned above we also need staff in the Research Office who oversee purchasing approval and accounting, manage grant submissions and annual reports on progress via platforms like Grants.gov and NIH eCommons.
Grantee organizations must audit all purchases, monthly, to ensure that they are permitted expenses. Universities and companies with a federal grant are legally obligated to run accounting and audit processes, or they cannot even apply for a federal grant. This is done through a legal process called assurance, where the institution's chief financial officers certify that they will follow these accounting processes. Accounting processes that any company requires for its own operations.
You should also appreciate that the federal government does not disburse all grant funds at once. For that example $150,000 direct cost grant, the federal government does not send us that money. The federal government's electronic banking and payment system will reimburse us for approved project purchases after we make them. A grant award just means that you may be reimbursed up to a total amount approved with the grant award. After covering any justified expenses with your own cash, you then apply for reimbursement, to "draw down" funds to pay off your own purchasing deficit. As noted above, the grantee organization must keep detailed expense records for audits. Furthermore, if we do not spend the approved funds by the grant's end-date, any unspent amount is lost to us and stays with the federal government.
With this strict control of grant spending, it is actually very hard to use research funds fraudulently, and those who have eventually get caught and pay retribution for their foolishness. (It's easy to follow the accounting records for auditors.)
Remember the COVID19 business fraud? Many companies and individuals who fraudulently took COVID19 support funds were caught and then rightly prosecuted for fraud, recovering billions of dollars back to the US Treasury, including additional amounts from their fines. It was easy for government accountants to find the fraud because those persons who were drawing down money assumed they would not be audited for proper invoices and justification of funding use. They were fools, because everyone who gets a federal grant gets audited on a regular basis. Although, if DOGE continues to fire all of the federal accounting staff who normally take care of the auditing of thousands of contracts, the potential for fraud will increase and then OUR tax dollars will allow crooks to enrich themselves. We the people, will be the only suckers.
More about Indirect Cost (IDC) rates for Federal Grants versus Private Foundations.
Reducing IDC rates to just 15% will be inadequate to cover the indirect costs generated by biomedical research and development projects. Most medical research in the United States would stop. No question. While many private foundations only allow for 0-15 % indirect cost rates, when it comes to medical research they are giving their funding to institutions that already have facilities supported by federal medical research grant support. Without sufficient federal grant indirect cost support, the physical infrastructure where the research is done would simply not exist for a private foundations to add their desired projects. Let me illustrate with another real example.
One of our bench-to-bedside projects is providing research DNA-sequencing of children with rare inherited pediatric retinal diseases, with the goal of finding the gene and variant responsible for their condition. To do this, we used our know-how to design targeted gene sequencing panels we extract DNA from a tiny blood sample, or mouth swab, and we sequence the genes of interest. Private foundations are the source of funds to cover reagent and DNA-sequencing costs. We have never asked any Family to pay for this service. The IDC rate of the private foundations is ZERO percent. However, since we have a lab for pediatric retinal research projects, we have infrastructure to add their support to carry out pediatric patient DNA sequencing. This allows us to serve the greater US community, finding the genetic cause for a child's FEVR, Norrie Disease, or Retinoschisis. This is also bench-to-bedside research that allows us to train undergraduate and medical students in applied human genetics, so they will know how to continue this kind of research in their future careers. Without the federal research grants and their full IDC support, I would not be able to leverage private foundation support to do this research DNA-sequencing because there would be no labs in which to do the work.
Most biomedical research grants range from a hundred-thousand dollars to a few million dollars, and the later cover several years of research effort. For really big contracts like the ones Space-X gets, over $3-BILLION dollars, their Indirect and Direct Costs are detailed within those contracts. I do not have time to do an analysis of their accounts, but even if Space-X had just 20% Indirect Costs, that is $600-MILLION dollars. That not only covers their utility bills, and lab spaces, but it would let them build entire buildings for making and launching their rockets. An average medium university gets about 5-Million dollars in federal grants total (Direct + Indirect Costs) and a 50% IDC rate gives them about $1.6 million dollars towards operating over a hundred lab spaces, a certified animal care facility, and safety and compliance support staff, graduate students, and auditors.
No matter what you call them, if you do not cover the actual total costs of running the research project then the research will not happen.
Sincerely,
Ken Mitton
