Centers for Disease Control and Prevention:

An Appropriate Methodology Is Needed for Determining Administrative Costs Attributable to the Agency for Toxic Substances and Disease Registry

GAO-10-610R: Published: May 20, 2010. Publicly Released: May 20, 2010.

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This letter formally transmits and summarizes an oral briefing we gave on April 12, 2010, in response to House of Representatives Explanatory Statement, 155 Cong. Rec. H2113 (daily ed., Feb. 23, 2009), accompanying the Omnibus Appropriations Act, 2009 (Pub. L. No. 111-8, 123 Stat. 524) (2009). GAO was directed to review the indirect costs the Agency for Toxic Substances and Disease Registry (ATSDR) paid the Centers for Disease Control and Prevention (CDC). Specifically, our objectives were to (1) describe CDC's methodology for determining and allocating indirect costs to bill ATSDR for administrative services and (2) determine if the methodology CDC uses to bill ATSDR appropriately considers relevant laws and guidance.

We found that CDC had charged ATSDR approximately $12.1 million annually for indirect costs each year since 2004. This was the amount calculated for fiscal year 2004 using the methodology CDC implemented in fiscal year 2002. We also found that CDC's approach to determine indirect costs to charge ATSDR did not appropriately address relevant laws or guidance. Specifically, CDC had not calculated the actual costs of providing services to ATSDR as required under the Economy Act. Also, it had not updated its approach to use an appropriate methodology with current cost information and assumptions as called for by relevant guidance. Under the Economy Act, ATSDR must reimburse CDC for the "actual cost" of providing the services, which generally includes all direct and indirect (e.g., overhead) costs. Other relevant guidance for calculating indirect costs states that entities should (1) use and consistently follow costing methodologies or cost finding techniques most appropriate to the operating environment to accumulate and assign costs; (2) document managerial cost accounting activities, processes, and procedures; and (3) periodically evaluate indirect costing methods. Because CDC had not used an appropriate documented cost methodology, it is not possible to determine whether ATSDR may have been overcharged or undercharged for the administrative services provided by CDC. In April 2010, CDC awarded a task order for a new indirect cost study. The contractor is expected to provide CDC with a final report no later than 270 days following the award of the task order, and the task order requires that the new indirect cost methodology comply with relevant laws and guidance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 2011, the Centers for Disease Control and Prevention delivered its final report documenting an indirect cost methodology which assigns the agency's centralized business service support costs based on cost pools, cost drivers, and cost rates in compliance with federal laws and regulations. Further, the final report provided the models and calculations for estimating Fiscal Year 2011 indirect cost rates using Fiscal Year 2010 costs as a baseline.

    Recommendation: Because of the importance of having an appropriate methodology in place to provide a reasonable basis for the indirect costs charged and to assist the Congress and agency officials in making decisions about allocating federal resources, the Director of CDC should continue efforts to develop and implement an appropriate methodology for identifying and allocating actual costs, including direct and indirect costs to ATSDR, that is in compliance with federal statutes and relevant guidance.

    Agency Affected: Department of Health and Human Services: Public Health Service: Centers for Disease Control

  2. Status: Closed - Implemented

    Comments: In April 2011, the Centers for Disease Control and Prevention delivered its final report documenting an indirect cost methodology which assigns the agency's centralized business service support costs based on cost pools, cost drivers, and cost rates in compliance with federal laws and regulations. The final report provided the models and calculations for estimating Fiscal Year 2011 indirect cost rates using Fiscal Year 2010 costs as a baseline. CDC will be able to use this methodology to routinely update its indirect cost rates.

    Recommendation: Because of the importance of having an appropriate methodology in place to provide a reasonable basis for the indirect costs charged and to assist the Congress and agency officials in making decisions about allocating federal resources, the Director of CDC should document its cost methodology and its process for determining the amount charged to ATSDR.

    Agency Affected: Department of Health and Human Services: Public Health Service: Centers for Disease Control

  3. Status: Closed - Implemented

    Comments: In April 2011, a Centers for Disease Control and Prevention (CDC) contractor delivered a document to assist CDC in understanding their respective roles and responsibilities in the context of the indirect costs methodology and provide indirect costs stakeholders with the tools necessary to document processes, allocate workload among employees, and keep abreast of tasks that must be completed in order to refresh and sustain the indirect costs methodology. The document identified key milestones, timeframes, tasks and activities that would need to be completed through fiscal year 2013. Also, in October 2011, CDC implemented a indirect costs methodology Standard Operating Procedures (SOP) manual which included detailed guidance for the annual updated for the indirect costs pools and drivers. This methodology will be followed by CDC to refresh the cost data and operational data for the use in the indirect costs methodology, which is scheduled to be performed annually in October. CDC also developed an indirect cost governance board to provide a structure and effective governance process for the IDC methodology by ensuring senior level engagement and oversight, and promoting transparency. The governing body was formed during Fiscal Year 2012. Furthermore, CDC stated that it completed an effort to refine the IDC methodology by expanding the original 19 cost pools in the Fiscal Year 2011 model to 35 cost pools in the Fiscal Year 2012 model.

    Recommendation: Because of the importance of having an appropriate methodology in place to provide a reasonable basis for the indirect costs charged and to assist the Congress and agency officials in making decisions about allocating federal resources, the Director of CDC should reevaluate its indirect cost methodology on a regular basis to ensure that it is adequately identifying and allocating current indirect costs.

    Agency Affected: Department of Health and Human Services: Public Health Service: Centers for Disease Control

 

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