This final audit report summarizes the results of recent audits conducted to determine compliance with Federal law and regulations applicable to institutions for mental diseases (IMD). The Social Security Act generally precludes Federal financial participation in the cost of care and treatment provided to individuals in IMDs who are between 22 and 64 years of age. Our reviews in several States identified unallowable Medicaid payments totaling over $33 million (Federal share). Partly as a result of these audits, regional offices of the Health Care Financing Administration identified and recovered an additional $40 million from the States. We estimate that the Federal Government will realize annual cost savings under the Medicaid program of $35 million.