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

We found that the $14.7 million of obligations reported in the Indian Health Service's (IHS) fiscal year (FY) 2005 cost statement for the Oklahoma City area office included $260,000 in duplicate obligations of the National Supply Service Center (which manages the purchase and distribution of drugs and other medical supplies in all 12 IHS areas) and $430,000 for salaries, fringe benefits, and depreciation costs on which we could not express an opinion. IHS cost statements identify the portion of obligations from Headquarters and the area offices that is allowable under Medicare and allocable to IHS providers. Allowable Headquarters obligations are allocated to each area office. These obligations, combined with the area offices' own obligations, are then allocated among all IHS providers.

We recommended that IHS (1) adjust its next cost statement for the Oklahoma City area office to correct the $260,000 of reported unallowable costs, (2) improve its oversight of cost statement preparation, (3) work with the Centers for Medicare & Medicaid Services (CMS) to determine how much of the $286,000 in reported salaries and fringe benefits was allocable and adjust its next cost statement for obligations determined to be unallocable, (4) develop and implement policies and procedures to ensure that obligations are allocated in a timely manner, (5) work with CMS to determine how much of the $144,000 in reported depreciation costs was allowable and adjust its next cost statement for depreciation determined to be unallowable, (6) review the Oklahoma City area office's cost statements after FY 2005 and adjust its next cost statement for any unallowable depreciation costs, and (7) develop and implement policies and procedures to ensure that depreciation records contain the necessary information to properly support depreciation costs. IHS generally agreed with our recommendations.