Audit of Indian Health Service Fiscal Year 2005 Cost Statement for the Phoenix Area Office

We found that the $25.8 million of obligations reported in IHS's fiscal year (FY) 2005 cost statement for the Phoenix area office included $66,000 for unallowable depreciation and $2 million for unsupported salaries, fringe benefits, and related obligations on which we could not express an opinion. Based on our review of judgmentally selected obligations totaling $5.6 million and our limited review of IHS's internal controls, we concluded that the remaining $23.7 million reported in the cost statement was allowable.

We recommended that IHS (1) adjust its next cost statement for the Phoenix area office for $66,000 of unallowable depreciation that was reported in the FY 2005 cost statement; (2) review the Phoenix area office's cost statements before and after FY 2005 and adjust its next cost statement for unallowable depreciation that was reported; (3) strengthen its policies and procedures to ensure that depreciation is not reported for items that are fully depreciated; (4) work with the Centers for Medicare & Medicaid Services to determine how much of the $2 million for salaries, fringe benefits, and related obligations reported in the Phoenix area office's FY 2005 cost statement was allowable and adjust its next cost statement for obligations that are determined to be unallowable; and (5) develop and implement policies and procedures to ensure that estimates used to allocate obligations in cost statements are supported with cost information that is current, accurate, and in sufficient detail. IHS party agreed and partly disagreed with our recommendations.