Video Transcript
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Narrator: Federal research grants power the science that leads to new cures and technologies. Yet past audits have uncovered dollars spent on inflated overhead and personal perks, fueling skepticism about how funds are used. The National Institutes of Health, or NIH, has proposed capping indirect costs at 15 percent across institutions. (gentle music) The goal is to cut waste, but is there a better way to do it without undermining the discoveries those funds are meant to deliver?
Anthony Le: The big-picture issue that we’re really looking at in the paper and we’re trying to address in the paper is this very classic agency issue that we have when we’re looking at, kind of, delegated funds that are being provided to researchers or individual units within a company, right? And so what we’re essentially looking at here is that the government needs to be able to allocate sufficient funds to researchers to be able to conduct very socially relevant research. But at the same time, the problem that the government has is that they can’t have oversight over where every single dollar is actually going, right?
Narrator: At Chicago Booth, Anthony Le and his coauthors examined what happened after the introduction of Cost Accounting Standards, or CAS, in 1996. Policymakers created CAS to bring clarity and consistency to how universities report their spending. The rules required schools to separate direct costs like lab equipment or research assistance from indirect costs, such as building maintenance or shared facilities, and to apply those classifications consistently. They also limited what kinds of expenses could be reimbursed. (gentle music)
Anthony Le: What we find is that after the Cost Accounting Standards are implemented at these universities, the cost of research actually goes down. And at the same time, what we’re seeing is that not only do the level of cost goes down but also the cost allocation becomes more consistent over time and it becomes more consistent across different projects.
Narrator: Lower costs might sound good for taxpayers, but the question is whether that hurts scientific output.
Anthony Le: So what we find is that when the Cost Accounting Standards are implemented, there’s actually no observable change in the total number of publications and the total number of patents that are being produced from these research projects. And so what it’s really looking like is that the Cost Accounting Standards are able to reduce costs, but not at the expense of the quality and the quantity of the research that is being produced.
Narrator: The evidence suggests that CAS worked not by micromanaging spending, (gentle music) but by giving agencies better information to screen grant proposals. That’s allowed more efficient researchers to rise to the top.
Anthony Le: The screening mechanism seems to be the one that’s really leading to these cost reductions, and it’s less about better oversight and more about this information really empowering the NIH to be able to filter out the applications that would be more likely to use those funds for nonresearch-related purposes.
Narrator: The lesson? (gentle music) Broad cost caps could stifle science, but if Washington wants to ensure its research dollars are being spent properly, targeted accounting rules like CAS offer a better path, making funding go further without sacrificing innovation. (gentle music fades)
