Identification and Allocation of Indirect Costs at the Centers for Disease Control and Prevention

EXECUTIVE SUMMARY:

The final report points out that the Centers for Disease Control and Prevention (CDC) had not implemented a system to allocate its organization-wide indirect costs on a reasonable and consistent basis, as required by Federal accounting standards.  Instead, CDC relied on allocation methodologies that resulted in overcharges and undercharges affecting almost all programs and activities.  With the assistance of a consulting firm, CDC made some modifications to its allocation methods in 1998 and was able to reduce some of the overcharges and undercharges.  Agency projections showed, however, that HIV/AIDS, one of CDC's largest programs, was charged about $11.9 million for excessive indirect costs during FYs 2000 and 2001.  Implementation of the indirect costing system was delayed because CDC, viewing the system developed by the consulting firm in 1999 as overly complex and difficult to maintain, contracted with a public accounting firm to evaluate and simplify the proposed system.  CDC first implemented the simplified system in FY 2002, and, after evaluating the implementation and making some minor modifications, fully implemented it in FY 2003.  We believe the new system represents a significant improvement by allocating indirect costs more equitably and providing accurate information on the full costs of CDC's program and activities.  We recommended that CDC evaluate the effects of overcharging indirect costs to HIV/AIDS and its other programs to assure a correct accounting of program activities.  In addition, because program funding levels and requirements may change over time, we also recommended that CDC periodically evaluate indirect costing methods to ensure a continued equitable allocation of such costs.  CDC concurred with our recommendations.