Consultant's Review of the Social Security Administration's Cost Assignment Methodology

Published by the Government Accountability Office on 1997-10-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

3   A0   United States
         General Accounting Office
         Washington, D.C. 20548

         Accounting and Information
         Management Division


         October 1, 1997

         The Honorable Donna E. Shalala
         The Secretary of Health and Human Services

         The Honorable Kenneth S. Apfel
         The Social Security Administration

         Subject: Consultant’s Review of the Social Securitv Administration’s Cost
                  Assignment Methodology

         This letter responds to an October 18, 1996, joint request from the Secretary of
         the Department of Health and Human Services and the Commissioner of the
         Social Security Administration (SSA) for GAO’s assistance in carrying out a
         study of the cost assignment methodology SSA uses to charge costs to the
         Medicare Trust Funds. The conference committee report on the Social Security
         Independence and Program Improvements Act of 1994 (Public Law 103-296)
         requires SSA and the Department of Health and Human Service’s Health Care
         Financing Administration (HCFA) to conduct this study. GAO’s assistance was
         requested to help produce an objective and technically sound cost allocation

         In March 1997, after a series of discussions with your agencies’staffs, we
         agreed to assist in performing the study by engaging a public accounting firm,
         Price Waterhouse LIP, to review SSA’s cost assignment methodology, on a
         reimbursable basis from your agencies. In connection with the contract, we
         developed the scope of work, selected the contractor, reviewed Price
         Waterhouse’s report and related workpapers, and discussed the work with its
         representatives. We also kept SSA, HCFA, and Office of Management and
         Budget representatives involved throughout the project. Price Waterhouse LLP
         discussed its review results with representatives of your agencies, who have
         agreed with the study’s findings and recommendations.

                                                        GAOIAIMD-9%3RSSA Cost Methodology
Price Waterhouse LLP issued a report dated September 29, 1997, entitled Social
Securitv Administration Cost Assignment Methodologv Review, which has been
provided to you. In summary, Price Waterhouse UP reports that, although
SSA’s cost practices are consistent with a cost assignment methodology
developed in the early 1970s for assigning SSA’s administrative costs for the
programs it supported, including the Medicare programs-which are now
administered by HCFA-and while this methodology may have satisfied costing
needs at the time, changes in federal activities, requirements, technologies, and
assumptions over the last several years indicate that many of SSA’s cost
assignment bases need to be revisited and updated. Consequently, the report
includes a number of recommendations to significantly change SSA’s cost
assignment methodology to more accurately allocate costs among programs.
These recommendations also will provide cost information to support
performance measurement and reporting requirements of the Government
Performance and Results Act and the Chief Financial Officers Act.

Our review, as differentiated from an audit performed in accordance with
generally accepted government auditing standards, was not intended to enable
us to express, and we do not express, an opinion on SSA’s cost accounting
system. Price Waterhouse LLP is responsible for the report and the conclusions
expressed in it. However, the results of our review disclosed no instances
where Price Waterhouse LLP did not comply, in all material respects, with
applicable professional standards.

We believe that the consultant’s conclusions are reasonable and its
recommendations are appropriate. We are available to provide assistance as
SSA undertakes efforts to implement the recommendations.

 Please contact me at (202) 512-3900 if you or your staffs have any questions
 about this letter.

 Chief Accountant

 (9 17605)

 Page 2                                          GAO/AIMD-9&3R SSA Cost Methodology
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