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.

Status Legend:

Review Pending-GAO has not yet assessed implementation status.

Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.

Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.

Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.

• Review Pending
• Open
• Closed - implemented
• Closed - not implemented

Recommendations for Executive Action

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

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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

Status: Review Pending

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.