Date of Conferral





Michael S. Backenheimer, Ph.D


This study explores five elements pertaining to sound financial management in institutions of higher education as related to Government negotiated research contracting. The research tested the feasibility of five hypotheses presented as elements to be investigated in the study. Responses to a mail questionnaire were analyzed and final audit reports were examined. The data obtained were used as evidence to support the contention that sound financial management in universities as related to research negotiated contracting is important and can be improved through these five elements:

1. Financial management aids in developing the climate in which research can best be performed. It has been shown that research is performed in almost all the institutions of higher education. However, it is believed that the institutions would greatly enhance and improve the climate if they utilize management advisory services and provides staff training for their financial management personnel.

2. Universities and Government have a common interest in assuring the conservation of public funds. This can be accomplished by the universities having the capability of furnishing the Government with timely and accurate financial reports, accounting for the stewardship of the research funds, and by maintaining the financial accounts in such a manner as to readily reflect the segregated costs applicable to each research project. It would be a great improvement to the common interest of the university and the Government if all universities had their accounting firm review and approve their indirect cost proposals. The Government should then be able to accept the proposal if certified by the university's accounting firm to be reliable enough to use for negotiating the indirect cost rate without an audit by Government auditors.

3. Government financial policies and regulations, as they pertain to universities, are provided to encourage maximum realization of research. The representatives of universities and Government have worked together and made great progress in formulating procedures and methods for improving the financial aspects of research contracting. Some of the methods and procedures which provide evidence of the mutual endeavor are; (1) the use allowance in lieu of depreciation is acceptable under Office of Management and Budget Circular A-21 and the American Council on Education; (2) the procedure for testing title of research property is clearly established by Office of Management and Budget Circular A-101which aids in administering and closing the research contract without undue delay; and (3) the policy of one Government agency performing audit of direct and indirect costs, as well as negotiating indirect cost rates for a single university (OMB Circular A-88) greatly improves the uniformity of mutually accepted cost principles by universities and Government.

4. Mutual financial responsibility of universities and Government as related to research contracts is essential. Personnel of both contractual entities are making a concerted effort to recover indirect costs of university research through an equitable method and to provide a method of advancing funds through the letter-of-credit which alleviates the need of the university to use its own funds. It is believed that more emphasis should be placed on the review or research cost budgets by the financial management of the university.

5. Audit functions of Government audit agencies regarding the auditing of research contracts at universities could be performed by the institution's external auditors. Most universities have their accounting records audited by either independent accounting firms or by state or some independent audit group. These auditors are external auditors and have a professional integrity to maintain, therefore the audit performed by them and the financial reports issued should be acceptable to any interested party provided the reports contain an unqualified auditor’s opinion.

The finalization of the research contracts could be handled more expeditiously if the Government would accept the verification by external university auditors of the total costs incurred under cost-reimbursement contracts. This paper emphasizes the importance of sound financial management in educational institutions as related to Government research contracting and how it can be improved. The research has validated these essential factors.