Report on the Financial Statement Audit of the Indian Health Service for Fiscal Year 1995

EXECUTIVE SUMMARY:

This report presents the results of the certified public accounting firm Clifton, Gunderson L.L.C. (CG) in its audit of the Department of Health and Human Services, Indian Health Service (IHS) statement of financial position (balance sheet) for the fiscal year (FY) ended September 30, 1995. The Office of Inspector General exercised technical oversight and quality control over the audit.

We engaged CG to audit the statement of financial position and to express an opinion on that statement. The firm issued a disclaimer of opinion on the IHS statement of financial position because of several matters which limited the scope of CG's work. Most significantly, property and equipment balances were not supported by adequate documentation as of September 30, 1995. In addition, documentation was not available to support the balances of advances, deferred revenue, accounts payable, other liabilities, and components of net position for September 30, 1995.

As part of the audit engagement, CG also rendered separate reports on internal controls and on compliance with laws and regulations. In the report on internal controls, CG noted four material weakness and five reportable conditions. The four material weaknesses, which resulted in the disclaimer indicated above, are as follows:

• Property and equipment cost balances ($636,356,000) were not reliable or supported by adequate documentation;
  
• Accounts receivable balances ($20,000,000) in the general ledger could not be adequately supported;
  
• Deferred revenue amounts ($48,000,000) could not be supported by adequate documentation; and
  
• Accounts payable reconciliations were not performed on a timely basis.

In addition, CG noted the following five reportable conditions:

• Treasury fund accounts were not reconciled in a timely manner;
  
• Inventory at various hospitals was not counted or valued as of September 30, 1995;
  
• Goods and services received at the end of the year were not being accrued in the appropriate year;
  
• Commissioned corps leave balances and accrued leave amounts were not available or recorded in IHS's financial statements; and
  
• Security access and administrative controls of IHS financial systems need improvement.

In the report on compliance with laws and regulations, CG noted no instances of noncompliance required to be reported under Government Auditing Standards. In our oversight of the audit, we found nothing to indicate that CG's work is inappropriate or that CG's reports cannot be relied upon.

The IHS management has concurred with all of the findings and recommendations identified during the FY 1995 audit. We are encouraged by IHS management's responsiveness to the issues and to the progress being made as the audit of the FY 1996 financial statements proceeds.

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