An Audit Report on Indirect Cost Recovery Funds at State General Academic Universities
August 2006
Report Number 06-058
Overall Conclusion
The State Auditor's Office could not determine whether state general academic universities budget indirect cost recovery funds in a manner that enables them to spend these funds in accordance with statutory requirements.
Texas Education Code, Chapter 145, requires universities to spend indirect cost recovery funds for specific types of projects to encourage further research at the level at which research was originally conducted. However, most universities do not identify specific revenue streams during their budgeting processes and, therefore, cannot identify the specific source of funds used to make specific research expenditures.
We conducted audit work at three universities: the University of Texas at Austin, Texas A&M University, and the University of Houston. We also surveyed 25 other universities. The results of that work, which are summarized in Appendix 2 of this report, indicated that most universities pool all revenue sources and allocate their funds based on university-wide needs and predefined objectives. Universities reported that they have a large number of revenue streams, which (1) makes it impractical for them to budget each stream separately and (2) makes it impossible for them to determine the sources of the funds used to purchase any specific item.
The 3 universities we audited and the 25 others we surveyed reported that they received a total of approximately $112 million in indirect cost recovery funds in fiscal year 2005. To hold universities accountable for the use of indirect cost recovery funds, the Legislature should consider requiring them to account separately for the uses of those funds. An alternative approach would be for the Legislature to consider using outcome measures as a way to ensure accountability for the use of those funds.
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