Audit of the Indian Health Service Headquarters Cost Statement for Fiscal Year 2005

We found that the $173.9 million of obligations reported in the IHS Headquarters fiscal year (FY) 2005 Medicare cost statement included $3.4 million of unallowable obligations for the section 103 scholarship program, $10 million of obligations for the sections 104 and 112 scholarship programs on which we could not express an opinion, and $350,000 of unallowable obligations related to construction that were reimbursed by the National Institutes of Health. Federal regulations and CMS guidance establish standards for the allowability and allocability of costs included in Medicare cost statements.

We recommended that IHS (1) adjust a future Headquarters cost statement for $3.4 million of unallowable section 103 scholarship obligations, (2) review Headquarters cost statements before and after FY 2005 and adjust a future cost statement for section 103 scholarship obligations, (3) discontinue reporting section 103 scholarship obligations in its Headquarters cost statements, (4) work with CMS to determine the appropriate credits to offset $10 million of sections 104 and 112 scholarship obligations and adjust a future cost statement for these credits, (5) ensure that it identifies and reports appropriate credits in its cost statements for sections 104 and 112 scholarships for which recipients had not fulfilled their service obligations, (6) adjust a future Headquarters cost statement for $350,000 of unallowable obligations related to construction, and (7) strengthen its policies and procedures to ensure that it does not include obligations reimbursed by other governmental entities in Headquarters cost statements.

In its comments on our draft report, IHS disagreed that the section 103 scholarship obligations were unallowable under Medicare and did not explicitly address our recommendation to adjust a future Headquarters cost statement for $3.4 million. IHS disagreed with our second and third recommendations, did not explicitly address our fourth and fifth recommendations, and agreed with our sixth and seventh recommendations. Nothing in IHS's comments caused us to revise our findings or recommendations.