Nonprofits are key partners in delivering federal services yet reportedly often struggle to cover their indirect costs (costs not readily identifiable with particular programs or projects). This raises concerns about fiscal strain on the sector. To provide information on nonprofits' indirect cost reimbursement, especially when funding flows through entities such as state and local governments, GAO (Government Accountability Office) was asked to review, for selected grants and nonprofits, (1) how indirect cost terminology and classification vary, (2) how indirect costs are reimbursed, and (3) if gaps occur between indirect costs incurred and reimbursed, steps taken to bridge gaps. GAO selected six Departments of Health and Human Services and Housing and Urban Development grants and 17 nonprofits in Louisiana, Maryland, and Wisconsin. GAO selected these agencies for their historical relationship with nonprofits. GAO reviewed policies and documents governing indirect costs and interviewed relevant officials. GAO also reviewed research on nonprofits' indirect costs. GAO recommends that the Director of the Office of Management and Budget (OMB) bring together federal, state, local, and nonprofit representatives to help clarify and improve understanding of how nonprofits' indirect costs should be treated, particularly for grants passed through state and local governments to nonprofits. OMB agreed with GAO's recommendation. Appendices include: (1) Objectives, Scope, and Methodology; and (2) GAO Contact and Staff Acknowledgments. (Contains 2 tables, 2 figures, and 41 footnotes.)