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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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Department of Health and Human Services

OFFICE OF
INSPECTOR GENERAL

AUDIT OF COSTS CHARGED TO THE
CHRONIC FATIGUE SYNDROME
PROGRAlM AT THE CENTERS FOR
DISEASE CONTROL AND PREVENTION


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:

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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.

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Page 3 -Jeffrey P. Koplan, M.D., M.P.H.

BACKGROUND

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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Page 4 -Jeffrey P. Koplan, M.D., M.P.H.

OBJECTIVES, SCOPE, AND METHODOLOGY

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:

We met with CDC officials during the course of our field work to advise them of our
tentative findings, discuss additional sources of relevant information, and explore
alternative methods to strengthen their internal controls over charges at the program
level.

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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Page 5 -Jeffrey P. Koplan, M.D., M.P.H.

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.

AUDIT FINDINGS IN DETAIL

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:

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.

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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Page 6 -Jeffrey P. Koplan, M.D., M.P.H.

" . . . 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.

Fiscal Year CFS Funding
1995 $ 6,042,000
1996 $ 5,789,000
1997 $ 5,789,000
1998 $ 5,789,000
Total $23,409,000

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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Page 7 -Jeffrey P. Kaplan, M.D., M.P.H.

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:

Direct Costs: $5.1 Million

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

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2     Indirect charges are for expenses related to activities benefitting more than one program, such as
accounting, personnel, payroll, or security.

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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Page 9 -Jeffrey P. Koplan, M.D., M.P.H.

Indirect Costs -$3.7 Million

We identified $3.7 million4 of indirect costs that should have been allocated to other
CDC programs, including:


5     House of on Representatives, Committee Appropriations Reports 104-659 and 105-205, dated July 8,
1996, and July 25, 1997, respectively; and Senate Committee on Appropriations Report 104-368,
dated September 12, 1996.

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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.

RECOMMENDATIONS

Based on our audit, we recommend that CDC officials:

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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Page 14 -Jeffrey P. Koplan, M.D., M.P.H.

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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APPENDICES

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                                        Appendix A
                                        Page 1 of 5

Centers for Disease Control and Prevention
National Center for Infectious Diseases
CIN: A-04-98-04226

Chronic Fatigue Syndrome Costs -FYs 1995 through 1998

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


Total CFS Not Allocable Not
costs Accepted to CFS Supported

.

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                                        Appendix A
                                        Page 2 of 5

Centers for Disease Control and Prevention
National Center for Infectious Diseases
CIN: A-04-98-04226

Chronic Fatigue Syndrome Costs -FY 1995

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

Centers for Disease Control and Prevention
National Center for Infectious Diseases
CIN: A-04-98-04226

Chronic Fatigue Syndrome Costs - FY 1996

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

Centers for Disease Control and Prevention
National Center for Infectious Diseases
CIN: A-04-98-04226

Chronic Fatigue Syndrome Costs - FY 1997

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

Centers for Disease Control and Prevention
National Center for Infectious Diseases
CIN: A-04-98-04226

Chronic Fatigue Syndrome Costs - FY 1998

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:

Last updated: May 18, 1999
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