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Pages 1--25 of the Inspector General's Report on Costs Charged to CFS Research at CDC

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DEPARTMENT OF HEALTH & HUMAN SERVICES Office of Inspector General
Memorandum
Date MAY 10, 1999

From June Gibbs Brown
Inspector General

Subject
Audit of Costs Charged to the Chronic Fatigue Syndrome Program at the Centers for Disease Control and Prevention (CIN: A-04-98-04226)

To Jeffrey P. Koplan, M.D., M.P.H.

Director, Centers for Disease Control and Prevention

The attached final report provides you with the results of our audit of costs charged to
the Chronic Fatigue Syndrome program by the Centers for Disease Control and
Prevention (CDC) for Fiscal Years 1995 through 1998.

In written comments dated April 21, 1999, CDC generally concurred with our
recommendations and identified actions that have or will be taken to fully implement
the recommendations.

Please advise us within 60 days on the status of any further action taken or planned on
our recommendations. If you have any questions, please call me or have your staff
contact Joseph J. Green, Assistant Inspector General for Public Health Service Audits,
at (301) 443-3582.

To facilitate identification, please refer to Common Identification Number
A-04-98-04226 in all correspondence related to this report.

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JUNE GIBBS BROWN
Inspector General

MAY 1999
A-04-98-04226

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DEPARTMENT OF HEALTH & HUMAN SERVICES Office of Inspector General
Memorandum

Date . May 10 1999

From June Gibbs Brown

Subject Audit Of Costs Charged to theChronic Fatigue Syndrome Program at the Centers for Disease Control and Prevention (CIN: A-04-98-04226)

To Jeffrey P. Koplan, M.D., M.P.H.

Director, Centers for Disease Control
and Prevention

This report discusses our audit of costs charged to the Chronic Fatigue Syndrome
(CFS) program by the Centers for Disease Control and Prevention (CDC). Our audit
was requested by CDC officials following allegations that CDC had diverted CFS funds
to other programs and had provided erroneous information to Congress regarding the
scope and cost of CFS research.

EXECUTIVE SUMMARY

OBJECTIVE
The objective of our audit was to determine whether costs charged to the CFS program
during Fiscal Years (FY) 1995 through 1998 were actually incurred for that program in
accordance with applicable laws, regulations, and accounting standards.

SUMMARY OF FINDINGS
During FYs 1995 through 1998, CDC spent significant portions of CFS funds on the
costs of other programs and activities unrelated to CFS and failed to adequately
document the relevance of other costs charged to the CFS program. Specifically, of
the almost $22.7 million charged to the CFS program during FYs 1995 through 1998:

• we accepted $9.8 million (43 percent) as actually incurred for program
  purposes;
  .
• we could not accept $8.8 million (39 percent) because it was incurred for non
  . CFS-related activities; and .
  

• we could not determine the applicability of $4.1 million (18 percent) of indirect
  costs to the CFS program because it was not documented in sufficient detail,
  although it is reasonable to expect that a portion of these costs were allocable to
  CFS.

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Page 2 -Jeffrey P. Koplan, M.D., M.P.H.

Although CDC is not statutorily prohibited from spending funds budgeted for CFS on
other programs, it is clear that Congress expected the agency to spend the amount it
budgets for CFS only on CFS.

These questionable charges resulted from deficiencies in CDC's internal control system
regarding the handling of direct and indirect costs. As a result of these inappropriate
charges, CDC officials provided inaccurate information to Congress regarding the use
of CFS funds, and have not supported the CFS program to the extent recommended and
encouraged by Congress.

Based on our audit, we are recommending that CDC officials:

1. Implement a training and certification program for managers and staff
responsible for budget and accounting functions within all organizational
components to ensure they are aware of requirements applicable to the use of
Federal funds and understand how to properly use CDC's accounting system.

2. Establish an internal quality assurance capacity within the Financial
Management Office to carry out regular assessments of CDC's policies,
procedures, practices, and controls related to budget and accounting functions.

3. Continue development of systems to properly identify and allocate
organizationwide indirect costs at the CDC level and begin development of
similar systems to identify and allocate indirect costs at its component units
based on the relative benefits provided.

In formal comments on a draft of this report, CDC generally concurred with our
findings, but raised questions concerning our conclusions as to the extent that indirect
costs should have been considered allocable to the CFS program. In response to those
questions, additional discussion has been provided in the Management Comments and
OIG Response sections of the report. The full text of CDC's comments is
incorporated as Appendix B to the report.

The CDC's comments recognize the need for enhanced controls over charges at the
program level. The CDC officials have already taken action to initiate the
recommendations stated above and have also committed to share a comprehensive
spending plan for the CFS program with the national CFS advisory committee, the
Congress, and nonprofit organizations providing support services to CFS patients.

[Return to top of Report]

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CDC MISSION AND ORGANIZATION
The CDC is a major organizational component of the Department of Health and Human
Services (HHS), with the mission of promoting good health and quality of life through
preventing and controlling disease, injury, and disability. The CDC serves as a
national focal point for developing and applying disease prevention and control,
environmental health, health promotion, and health education activities designed to
improve the health of people in the United States and around the world.

WHAT IS CFS?
According to CDC, CFS is a debilitating disorder characterized by profound fatigue
and lack of stamina, which is not improved by bed rest and may be worsened by
physical or mental activity. The CFS may persist for years, with the nature of
symptoms varying from patient to patient and fluctuating in severity from time to time.
There is no definitive diagnostic test for CFS at this time, and the illness may not be
recognized or may frequently be mistaken for other disorders.

CONCERNS REGARDING CDC'S USE OF CFS FUNDS
Although the causes and transmission mechanisms have never been identified, the
belief that CFS was possibly viral led to placement of the program at CDC's National
Center for Infectious Diseases (Center). Within the Center, the CFS program is
operated by the Viral Exanthems and Herpesvirus Branch (Branch) of the Division of
Viral and Rickettsial Diseases (Division).

In July 1998, the Branch Chief alleged that significant portions of the funds reported as
expended for CFS research had not actually been used for that program. In brief, the
Branch Chief asserted that the Division Director had diverted CFS funds and presented
false information as to the actual costs of CFS research. The Branch Chief further
alleged that CDC officials had knowingly provided false and misleading information to
the Congress to conceal the diversion of CFS funds from their intended purpose. In
August 1998, CDC management officials contacted the Office of Inspector General and
requested that we perform an independent audit to assess the validity of the Branch
Chiefs claims. .

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OBJECTIVE
The objective of our audit was to determine whether costs charged to the CFS program
during FYs 1995 through 1998 were actually incurred for that program in compliance
with applicable laws, regulations, and accounting standards.

SCOPE AND METHODOLOGY
To accomplish our objective, we:

• identified and reviewed laws, regulations, and other criteria establishing
  requirements for budget and accounting operations by Federal agencies;

• analyzed the language in CDC's annual appropriations acts and congressional
  reports to determine specified funding levels for the CFS program and identify
  congressional concerns and suggestions regarding program activities;

• reviewed congressional testimony provided by CDC officials regarding costs of
  the CFS program;

• met with the Branch Chief and the Division Director to gain an understanding
  of CFS program history, current operations, and plans for the future as well as
  identify Center, Division, and Branch policies, procedures, and practices related
  to funding of the program;

• interviewed Center, Division, and Branch scientists and staff to discuss their
  involvement in the CFS program over the period of our audit, and the
  relationship of work performed within their particular organizational units to the
  CFS program; and

• examined CDC's accounting records related to the CFS program and
  documentation for specific transactions involving charges to the CFS program.
  

Our review did not include a full assessment of the internal control structure related to
CDC's accounting system. In lieu of a comprehensive internal control review, we

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increased our substantive testing of individual transactions as necessary to assess the
extent and effectiveness of those controls.

Our audit was performed in accordance with generally accepted government auditing
standards. Field work was performed at CDC in Atlanta, Georgia, from August 1998
through February 1999.

During FYs 1995 through 1998, CDC spent significant portions of CFS funds on the
costs of other programs and activities unrelated to CFS and failed to adequately
document the relevance of other costs charged to the CFS program. Specifically, of
the almost $22.7 million charged to the CFS program during FYs 1995 through 1998:

• . we accepted $9.8 million (43 percent) as actually incurred for program
  purposes;
  

• we could not accept $8.8 million (39 percent) because it was incurred for non
  CFS-related activities; and
  

• we could not determine the applicability of $4.1 million (18 percent) of indirect
  costs to the CFS program because it was not documented in sufficient detail,
  although it is reasonable to expect that a portion of these costs were allocable to
  CFS.
  

CRITERIA -FEDERAL AGENCIES MUST MAINTAIN
ACCOUNTABILITY OVER APPROPRIATED FUNDS

Federal laws, regulations, and other guidance establish a broad framework of
accountability for financial management in agencies such as CDC. Agencies must
maintain accountability for the financial results of actions taken, control over financial
resources, and protection of assets. .

As stated in Office of Management and Budget Circular A-127, agencies such as CDC
are required to maintain financial management systems and the related internal and
management controls that:

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" . . . provide complete, reliable, consistent, timely and useful financial
management information on Federal Government operations to enable central
management agencies, individual operating agencies, divisions, bureaus and
other subunits to carry out their fiduciary responsibilities; deter fraud, waste,
and abuse of Federal Government resources; and facilitate efficient and effective
delivery of programs . . . ."

Although CDC is not statutorily prohibited from spending funds budgeted for CFS on
other programs, it is clear that Congress expected the agency to spend the amount it
budgets for CFS only on CFS. Since FY 1993, CDC has incorporated funding for
CFS in its annual budget requests and funds for the CFS program have been included
without specific identification in the CDC budget covering most of the agency's
programs and activities.

During the period of our audit, CDC budgeted a total of $23.4 million for CFS
research, as shown below.

CONDITION -SOME CHARGES TO THE CFS PROGRAM WERE
ACCEPTABLE, BUT MOST WERE NOT

Of the almost $22.7 million charged to the CFS program during FYs 1995 through
1998, we accepted $9.8 million as actually incurred for program purposes. We could
not accept $8.8 million because it was actually incurred for other programs and
activities not related to CFS; and $4.1 million was not documented in sufficient detail
for us to discern its applicability to the CFS program. .

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Acceptable Charges to the CFS Program: $9.8 Million

In total, we accepted $9.8 million of costs as actually incurred for CFS program
purposes. In addition to such items as salaries, supplies, travel, and equipment directly
supporting CFS activities at CDC, this amount included $4.3 million expended for a
contractor to carry out CFS research studies in Wichita, Kansas, and other locations.

Unacceptable Charges to the CFS Program: $8.8 Million
Of the charges spent on non-CFS activities, we identified:

• $5.1 million of salaries, travel, equipment, supplies, and other expenses
  charged as direct costs¹ of the CFS program; and
  

  ---

  
  ¹    Direct charges are for expenses that can be specifically identified with an individual program or
  activity. For example, the costs of salaries for employees working on a program, the equipment used
  for the program, materials, supplies, or other items specifically identifiable to a particular program
  should be charged as direct costs.
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• $3.7 million charged to the CFS program as its share of indirect costs² at the
  CDC, Center, and Division levels.
  

We identified $5.1 million in salaries, travel, equipment, supplies, and other costs
actually incurred to benefit other programs, including:

• $4 million of costs which were not justified by the actual efforts of the
  organizational components from which the costs were transferred. The CDC
  scientists and other staff members interviewed during our audit advised us that
  their work was not related to CFS research.³ For example:
  
  • $98,570 of data processing equipment costs were charged to the
    Poxvirus, Human Papillomavirus, and other Sections and transferred to
    the CFS program on September 28, 1995. Scientists from these units
    told us that none of their work had any applicability to CFS.
    

  • $1,649,562 of equipment, supplies, travel, and other costs were
    originally charged to the Division's Measles and Poliomyelitis Sections
    and transferred to CFS on September 30, 1996. Scientists in both those
    sections stated that their work could not be related in any way to the
    CFS program.
    

  • $320,000 of laboratory supplies and chemical costs were originally
    charged to the Respiratory and Enterovirus Branch (REVB) account and
    transferred to CFS on September 30, 1996. We determined from
    discussions with scientists from REVB that none of the ongoing
    laboratory research was applicable to CFS.
    

• $1.1 million of costs which exceeded the amounts actually incurred under the
  accounts from which the costs were transferred. There was no way to identify
  the actual nature of the claimed costs, the programs, or activities for which the
  

.

³     During our audit, we recognized CDC's position that research into one disease may also apply to
another disease, which would then justify an equitable sharing of research costs. Accordingly, we
accepted transferred costs where there was any agreement among the involved scientists that research
was even potentially applicable to CFS.

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costs were actually incurred, or the actual relationship of the costs to CFS
research. Examples of such costs include:

• $546,029 in excess of the amount actually recorded for salary and
  retirement costs charged to the Branch general account. This amount
  was transferred to the account on September 28, 1995.
  

• $150,507 in excess of the data processing equipment costs charged to the
  Branch general account, which were transferred to the CFS program on
  September 28, 1995.
  

• $41,959 of costs originally charged to the Branch general account which
  were transferred to the CFS program on September 30, 1997, and
  recorded as laboratory supplies. The amount actually represented the
  balance of Branch credit card charges that could not be reconciled to any
  particular account because CDC could not provide us with the receipts.
  There was no documentation from which we could determine exactly
  what had been purchased or to what program the costs should have been
  applied.
  

• $1.8 million charged to the CFS program, but allocable to the questionable
  direct costs discussed in the preceding section of our report. During FY 1997,
  for example, the CFS program was overcharged:
  

• $67,819 for indirect costs at the Division level based on unrelated direct
  costs.
  

• $109,932 for indirect costs at the Center level based on unrelated direct
  costs. .
  

• $142,779 for organizationwide CDC level based. on unrelated direct
  costs. .
  

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  ⁴    In the absence of data needed to identify and allocate indirect costs in a more specific manner, it was
  necessary to estimate appropriate amounts on a total cost basis.
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• $1.9 million charged to the CFS program based on allocations that were
  excessive in relation to charges made to other Division programs. During
  FY 1997, for example, the CFS program was charged:
  
  • $1.2 million for CDC level organizationwide indirect costs. However,
    information compiled by the CDC's Financial Management Offrce
    indicates that the CFS share of CDC indirect costs actually allocated to
    Center programs would have been only about $. 7 million.
    

  • $. 6 million for Division level indirect costs, even though the CFS
    program should have been allocated only about $. 3 million for its share
    of these indirect costs for the operation of Division programs.
    

  Undocumented Charges to the CFS Program: $4.1 Million

  Because CDC has not developed and implemented appropriate policies, procedures, or
  practices to ensure that indirect costs are properly identified and consistently allocated
  among the benefitting programs, we cannot express an opinion on the $4.1 million
  balance of indirect costs charged to the CFS program. Nevertheless, it is reasonable to
  expect that a portion of these indirect costs were allocable to the CFS program.
  

  CAUSE -INEFFECTIVE INTERNAL CONTROLS

  The questionable charges discussed above resulted from basic deficiencies in CDC's
  internal control system related to both direct and indirect costs. In response to our
  audit work, CDC is taking action to bolster these controls.
  

  Controls over Direct Costs
  After identifying a consistent pattern where unrelated costs were transferred to the CFS
  program, we determined that CDC does not have adequate controls to ensure that direct
  costs charged at the program activity level are based upon the actual efforts of the
  involved personnel and the actual use of other resources. Lacking such controls, the
  Division Director, who generally justified the transfer of CFS costs to ensure that other
  division programs were sufficiently funded, was able to transfer unrelated costs to the
  CFS program without appropriate analysis, documentation, or justification.
  

  The Division Director and his Associate Director for Management told us the cost
  transfers were based on the Division Director's knowledge of Division activities and
  estimates of each person's time. However, our interviews with Division scientists and
  other staff and our review of internal reports summarizing Division activities, showed
  that the Division Director consistently overstated the extent of effort devoted to CFS
  research.

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  Controls Over Indirect Costs

  Similar to the direct costs area, we determined that CDC has inadequate controls to
  ensure that indirect costs from all organizational levels are properly identified and
  consistently allocated among various programs and activities. As demonstrated earlier
  in this report, indirect costs charged to the CFS program were generally excessive in
  relation to other programs and were largely undocumented.
  

  Although CDC has long maintained formal policies and procedures addressing the
  allocation of organizationwide indirect costs, numerous exceptions to these policies
  have been made over the years. As a result, allocations of organizationwide indirect
  costs have been arbitrary and inconsistent, with some programs significantly
  overcharged while other programs were charged far less than their fair share.
  

  Regarding indirect costs within an organizational component, such as a Center or
  Division, CDC has not yet developed formal policies for identifying and allocating
  such costs. Thus, CDC's various Centers, Divisions, and Branches are able to
  arbitrarily charge indirect costs to some or all of their programs, with no assurance that
  those charges will be reasonable and consistent.
  

  Actions Taken by CDC to Strengthen Internal Controls
  We discussed our tentative findings and conclusions with CDC officials during the
  course of our audit, and they concurred with the need for strengthened internal controls
  over charges at the program level. Further, a number of actions are now underway
  which we believe will significantly bolster control over the use of funds within all their
  organizational components.
  

  With respect to direct costs, such as described earlier in this report, CDC officials
  advised us that they have limited the use of cost transfers by employees within its
  organizational components. Thus, cost transfers, such as were made against the CFS
  program, will be detected by CDC's Financial Management Office before funds are
  diverted for unjustified purposes.
  

  In addition, CDC is in the process of implementing policies, procedures, and practices
  related to the identification and allocation of indirect costs at the CDC level. At the
  request of CDC, we have worked with its staff to ensure that this new system will
  consistently and equitably distribute CDC's organizationwide indirect costs. We
  understand the new system will be ready for full implementation prior to FY 2000.

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  EFFECT -CDC PROVIDED INACCURATE DATA TO
  CONGRESS AND DID NOT SPEND CFS FUNDS
  ACCORDING TO CONGRESSIONAL EXPECTATIONS
  

  The questionable charges discussed above resulted in two serious effects: (1) CDC
  officials provided inaccurate and potentially misleading information to Congress
  concerning the scope and cost of CFS research activities; and (2) CDC did not spend
  CFS funds in a manner recommended and encouraged by Congress.
  

  Inaccurate Data Provided to Congress
  The CDC provided inaccurate and potentially misleading information to Congress
  concerning the scope and cost of CFS research activities. For example, during
  testimony provided on March 5, 1998, before the House Appropriations Committee
  regarding the budget request for FY 1999, the Acting Director of CDC provided
  testimony and data summarizing the use of CFS funds for FYs 1996 through 1998--
  testimony and data that we concluded was inaccurate and potentially misleading about
  the nature, scope, and cost of the CFS program.
  

  CFS Funds Not Spent According to Congressional Intent
  The diversion of CFS funds to other programs has adversely affected the CDC's ability
  to comply with congressional intent regarding CFS research. While specific funding
  levels are no longer mandated through CDC's annual appropriations, Congress has
  continued to express a strong interest in the CFS program. For example,
  

  • In several congressional reports, ⁵ CDC was encouraged to enhance its
    laboratory studies and surveillance projects, including outreach to
    minority populations, children, and adolescents. These are efforts
    related to CFS research.
    
  • In its July 25, 1997 report, the House Committee on Appropriations,
    Subcommittee on Health, Human Services and Labor, encouraged CDC
    to add a neuroendocrinologist to the CFS research program to enable
    expansion of its research efforts and pursue promising findings from
    other Federal agencies and the private sector.
    

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Page 13 -Jeffrey P. Koplan, M.D., M.P.H.

Despite congressional encouragement for these efforts, at the time of our audit, CDC
had discontinued its adolescent study and had not hired a neuroendocrinologist.
Internal correspondence at the Division and Branch levels indicated that delays were
forced due to a "lack of available funds." Yet, we found that large portions of
budgeted CFS funds had been held in reserve by the Division Director during the year,
and were not released until after the deadline for obligations had passed. Thus, while
important enhancements were not being implemented, more than $850,000 of FY 1998
budgeted funds were never made available to the program.

• implement a training and certification program for managers and staff
  responsible for budget and accounting functions within all organizational
  components to ensure they are aware of requirements applicable to the use of
  Federal funds and understand how to properly use CDC's accounting system.
  
• establish an internal quality assurance capacity within the Financial Management
  Office. Among its responsibilities, this unit could carry out regular assessments
  of CDC's policies, procedures, practices, and controls related to budget and
  accounting functions.
  
• continue development of systems to properly identify and allocate indirect costs
  at the CDC level and begin development of similar systems to identify and
  allocate indirect costs at its organizational components based on the relative
  benefits provided.
  

Management Comments

In its formal comments on a draft of this report, CDC generally concurred with our
findings that significant amounts budgeted for CFS research were actually used for
other programs and activities. The CDC cited actions it has taken to implement our
recommendations and also committed to share a comprehensive spending plan for the
CFS program with the national CFS advisory committee, the Congress and non-profit
organizations providing support services to CFS patients.

The CDC made several editorial suggestions that it believed would improve the balance
of the report and disagreed with a statement in the draft report regarding the timing of
the allegations regarding CFS funds.

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The CDC also raised questions concerning our determination as to the extent that
indirect costs should have been considered allocable to the CFS program. The CDC
argued that ". . . the auditors were able to allocate indirect costs to non-CFS direct
costs and were able to determine excessive amounts allocated to the CFS program.
Since the auditors could determine those indirect costs not associated with CFS, we
believe that CFS indirect costs are also determinable. Specifically, we believe that
$4.1 million reported as undocumented costs should be accepted as indirect cots related
toCFS.. . ." The CDC added that ". . . a CDC-wide rate of 20 percent on non-
grant funds was consistently applied to CFS. Therefore, we believe that the auditors
should accept CDC-wide indirect charges to CFS based on the historical allocation
technique. "

OIG Response
We are pleased that CDC recognizes the need for enhanced controls at the program
level.

Where we believe they would improve the fairness or accuracy of our presentation, we
have incorporated CDC's editorial suggestions into our final report.

We do not agree with CDC's arguments that the $4.1 million reported as
undocumented costs should be accepted as indirect costs related to CFS. Our
identification of $3.7 million in excessive indirect costs and indirect costs allocable to
non-CFS direct costs has no effect on the remaining $4.1 million of indirect costs
which remain questionable because they are undocumented. The CDC has an
allocation system scheduled to be implemented in FY 2000 that will identify CDC-wide
indirect costs. Without such a system, we cannot determine how much of the $4.1
million is properly charged to CFS. The fact that CDC has historically charged 20
percent on non-grant funds is irrelevant unless CDC can demonstrate that 20 percent
was the appropriate rate.

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Appendix A

Page 1 of 5

	Total CFS		Not Allocable	Not
	Costs	Accepted	to CFS	Supported
Personnel	$4,699,580	$2,870,615	$1,828,965
Travel	221,460	125,283	96,177
Transportation	11,552	6,133	5,419
Communication	330	0	330
Printing	38,533	34,013	4,520
Contracts, Agreements, Other	6,945,917	5,573,566	1,372,351
Supplies	1,188,661	350,155	838,506
Equipment	1,744,798	814,100	930,698
Subtotal	$14,850,831	$9,773,865	$5,076,966
DVRD OD Overhead	$1,311,065	0	$773,385	$537,680
DVRD Biometrics (Computer Support)	342,829	0	132,768	210,061
NCID Overhead	1,956,083	0	608,948	1,347,135
CDC Overhead	4,183,559	0	2,187,854	1,995,705
Subtotal	$7,793,536	0	$3,702,955	$4,090,581
Total CFS Costs:	$22,644,367	$9,773,865	$8,779,921	$4,090,581

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Appendix A

Page 2 of 5

	Total CFS		Not Allocable	Not
	Costs	Accepted	to CFS	Supported
Personnel	$2,130,693	$1,533,392	$597,301
Travel	70,636	25,961	44,675
Transportation	4,726	2,727	1,999
Communication	330	0	330
Printing	23,784	23,065	719
Contracts, Agreements, Other	1,391,260	1,255,801	135,459
Supplies	321,607	169,230	152,377
Equipment	320,561	94,342	226,219
Subtotal	$4,263,597	$3,104,518	$1,159,079
DVRD OD Overhead	0
DVRD Biometrics (Computer Support)	0
NCID Overhead	$563,448	0	$153,176	$410,272
CDC Overhead	1,214,955	0	640,382	574,573
Subtotal	$1,778,403	$0	$793,558	$984,845
Total CFS Costs:	$6,042,000	$3,104,518	$1,952,637	$984,845

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Appendix A

Page 3 of 5

	Total CFS		Not Allocable	Not
	Costs	Accepted	to CFS	Supported
Personnel	$780,119	$376,048	$404,071
Travel	24,968	24,968
Transportation	28	28
Communication
Printing	8,750	8,750
Contracts, Agreements, Other	1,916,715	1,016,715	900,000
Supplies	600,863	6,301	594,562
Equipment	732,119	257,119	475,000
Subtotal	$4,063,562	$1,689,929	$2,373,633
DVRD OD Overhead	$200,000	$0	$75,676	$124,324
DVRD Biometrics (Computer Support)	77,089	0	22,887	54,202
NCID Overhead	361,698	0	$211,277	$150,421
CDC Overhead	1,164,355	0	786,846	377,509
Subtotal	$1,803,142	$0	$1,096,686	$706,456
Total CFS Costs:	$5,866,704	$1,689,929	$3,470,319	$706,456

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Appendix A

Page 4 of 5

	Total CFS		Not Allocable	Not
	Costs	Accepted	to CFS	Supported
Personnel	$704,258	$510,935	$193,323
Travel	66,549	28,255	38,294
Transportation	1,407	1,407
Communication
Printing	3,894	93	3,801
Contracts, Agreements, Other	2,259,661	2,006,083	253,578
Supplies	84,305	42,346	41,959
Equipment	345,202	172,344	172,858
Subtotal	$3,465,276	$2,761,463	$703,813
DVRD OD Overhead	$529,488	$0	$330,207	$199,281
DVRD Biometrics (Computer Support)	98,001	0	31,184	66,817
NCID Overhead	541,257	0	109,932	431,325
CDC Overhead	1,164,355	0	603,583	560,772
Subtotal	$2,333,101	$0	$1,074,906	$1,258,195
Total CFS Costs:	$5,798,377	$2,761,463	$1,778,719	$1,258,195

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Appendix A

Page 5 of 5

	Total CFS		Not Allocable	Not
	Costs	Accepted	to CFS	Supported
Personnel	$1,084,510	$450,240	$634,270
Travel	59,307	46,099	13,208
Transportation	5,391	1,971	3,420
Communication
Printing	2,105	2,105
Contracts, Agreements, Other	1,378,281	1,294,967	83,314
Supplies	181,886	132,278	49,608
Equipment	346,916	290,295	56,621
Subtotal	$3,058,396	$2,217,955	$840,441
DVRD OD Overhead	$581,577	0	$367,502	$214,075
DVRD Biometrics (Computer Support)	167,739	0	78,697	89,042
NCID Overhead	489,680	0	134,563	355,117
CDC Overhead	639,894	0	157,043	482,851
Subtotal	$1,878,890	$0	$737,805	$1,141,085
Total CFS Costs:	$4,937,286	$2,217,955	$1,578,246	$1,141,085

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APPENDIX B

Page 1 of 3

Public Health Service

Centers for Disease Control

and Prevention (CDC)

DEPARTMENT OF HEALTH & HUMAN SERVICES

Memorandum

Date: April 21, 1999

From: Director
Centers for Disease Control and Prevention
Subject: Audit of Costs Charged to the Chronic Fatigue Syndrome Program at the Centers for
Disease ControI and Preventionn (CIN: A-04-98-04226)

To: June Gibbs Brown
Inspector General

The Centers for Disease Control and Prevention (CDC) appreciates the opportunity to
review and provide comments on the Office of lnspector General Draft Report, "Audit of
Costs Charged to the Chronic Fatigue Syndrome (CFS) Program" and your expeditious
response to CDC's request for an audit.

Although the audit concludes that CDC spent portions of CFS funds on other programs and
provided incorrect information to Congress concerning CFS program costs, the funds
that were not expended for CFS were spent in extremely important disease areas, such as
measles, poliomyelitis, and human papillomavirus. While CDC is not legally prohibited
from spending funds budgeted for CFS on other programs, we acknowledger the importance
of complying with the intent of Congress and providing correct information to Congress.
In response to your recommendations, the following actions have or will be completed:

• Share a CFS spending plan for this year with rhe CFS Advisory Committee, Congress,
  the nonprofit organizations providing support services to CFS patients, and eventually
  the general public.
  

• Implement a training and certification program for managers and staff responsible for
  budget and accounting functions within all organizational components to ensure
  awareness of statutory and regulatory requirements for Federal funds and understanding
  of how to use CDC's accounting system properly.
  

• Establish an internal review capacity to carry out regular assessments of CDC'S
  policies, procedures, peactices, and controls related to budget and accounting functions.
  

• Develop a new allocation system for identification of CDC-wide indirect costs
  (implementationn to be completed by fiscal year [FY] 2000). .In addition, develop
  systems to identufy and allocate indirect costs at lower organizational components based
  on the relative benefits provided
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  Page 24
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  APPENDIX B

  Page 2 of 3

  Page 2 -June Gibbs Brown

  The following specific comments are provided for your consideration regarding the CFS
  audit and Report recommendations as they relate to specific sections in the Report:
  

  EXECUTIVE SUMMARY

  SUMMARY OF FINDINGS
  

  CONCERNS REGARDING CDC'S USE OF CFS FUNDS
  Thc Report does not mention that in August 1996, a six-member external peer review group,
  led by Professor Anthony Komaroff of Harvard University, conducted a thorough review of
  all aspects of the CFS Program at CDC. The review group was pleased with the progress of
  CDC's CFS program and made special recommendations for future efforts, including
  continued studies of the possible role of human herpesvirus 6, Borna disease virus, and other
  microorganisms in CFS. The peer group recommendations support the view that the funding
  and of several diseases could provide insight into the cause of another disease. The
  audit report does not acknowledge that several CDC officials voiced their support for investigation of several diseases that might provide further knowledge of CFS.
  The time line in the second paragraph is not correct. CDC requests that the first two
  sentences of this paragraph be deleted. During the April 1998 meeting of the Chronic
  Fatigue Syndrome Coordinatng Committee (CFSCC), the Branch Chief made no allegations
  concerning the use of CFS funds. On July 21,1998, when CDC became aware of the
  allegations, CDC immediately contacted the Inspector Generat to request this review.

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  Page 25
  

  APPENDIX B

  Page 3 of 3

  Page 3 -June Gibbs Brown

  AUDIT FINDINGS IN DETAIL

  CONDITION - SOME CHARGES TO THE CFS PROGRAM WERE ACCEPTABLE, BUT MOST WERE NOT

  In the Report, all indirect costs were classified as either unacceptable or undocumented.
  However, indirect costs that were assessed by CDC, the Center, Division, and Branch were
  necessary to operate the CFS program. The auditors were able to allocate indirect costs to
  nonCFS direct costs and were able to determine excessive amounts allocated to the CFS
  program. Since the auditors could determine those indirect costs not associated with CFS.
  we believe that CFS indirect costs are also determinable. Specifically, we believe that
  $4.1 million reported as undocumented costs should bc accepted as indirect cost related to
  CFS. Failure to recognize indirect costs significantly understates the actual CFS costs
  incurred.
  

  For a ten-year period through FY 1997, a CDC-wide rate of 20 percent on non-grant funds
  was consistently applied CFS. Therefore, we believe that the auditors should accept
  

  CDC-wide lndirect charges to CFS based on the historical allocation technique.
  

  We appreciate the opportunity to provide comments on this Report. If you should have
  questions regarding these comments , please contact Ms. Virginia Bales, Deputy Director for
  Program Managment. CDC. Ms. Bales may be contacted at telephone (404) 639-7000.
  

  (signed)

  Jeffery P. Koplan

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