Indian Health Service: Millions of Dollars in Property and Equipment Continue to Be Lost or Stolen
Published: 2009-06-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2008, GAO issued a report and testimony revealing gross mismanagement of property at the Indian Health Service (IHS). GAO found that 5,000 items with an acquisition value of $15.8 million were reported lost or stolen for fiscal years 2004 through 2007. GAO attributed the property mismanagement and waste to weak internal controls. GAO made 10 recommendations to IHS. IHS ultimately agreed to implement all 10 recommendations. Given the extent and seriousness of the property management problems at IHS, GAO was asked to determine (1) whether property loss, property theft, and wasteful spending continue at IHS; and (2) to what extent IHS made progress in implementing GAO's prior recommendations. GAO analyzed IHS property records from fiscal year 2008 through January 2009, conducted a full physical inventory at IHS headquarters, and performed a probability sample of information technology equipment inventory at six IHS field locations. GAO also examined IHS policies, analyzed documents, and conducted interviews with IHS officials.
section_title: What GAO Found
paragraphs: IHS continues to lose property at an alarming rate, reporting lost or stolen property with an acquisition value of about $3.5 million dollars in little over a year, including new medical equipment. IHS management's failure to implement most of our June 2008 recommendations and hold staff accountable for losses contributes significantly to ongoing property problems. These property losses at IHS are in addition to what GAO identified in its June 2008 report. GAO completed a full audit of IHS headquarters and found that 126 items worth $216,000 (or 8 percent of the items tested) had been lost, stolen, or were otherwise unaccounted for. GAO also estimates that about 800 equipment items at six field locations with an acquisition value of about $1.7 million were lost, stolen, or unaccounted for. Furthermore, although IHS performed an annual inventory as GAO recommended, as of March 2009, it had not finished reconciling the inventory and cannot locate many items, including medical equipment. These items include a 2002 ultrasound unit valued at $170,000; a 2003 X-ray mammography machine valued at $100,795; dental chairs, cardiac and vital sign monitors; and a pharmacy tablet counter machine. Aside from issuing a memorandum from the IHS Director that restated and refined existing policies, IHS has taken little action to ensure that employees are aware of and complying with property policies. One way to enforce policies involves holding individuals accountable; however, GAO found that the Senior Service Executive in charge of the IHS property group and other areas was given a $13,000 bonus after GAO's report exposed mismanagement of property under the executive's purview. Furthermore, IHS could only provide one example of an individual held financially liable for lost or stolen property over a 1-year period; but at the time of our audit, the individual still had not reimbursed the government for the loss. GAO also identified the following examples where IHS investigated the loss of property but did not hold anyone accountable.

section_title: Letter
paragraphs: This report responds to your request to perform a follow-up audit to assess  the Indian Health Service’s (IHS) progress in improving its property  management. In a June 2008 report and July 2008 testimony we revealed  gross mismanagement of property and waste at IHS, including the loss or  theft of 5,000 computers and other property worth $15.8 million.  Furthermore, we discussed examples of waste at IHS and estimated that  there were about 10 pieces of information technology (IT) equipment per  each headquarters employee. We attributed the property mismanagement  and waste to a weak internal control environment and ineffective  implementation of numerous existing property policies. We stressed that  this lack of control had persisted for years due to management failures and  a weak “tone at the top.”
We made 10 recommendations to IHS to improve its property  management. Among our recommendations, we indicated that IHS needed  to update its policies, enforce existing policies, and hold staff accountable  for lost or stolen property where applicable. In a response to our findings  reported in June 2008, IHS ultimately agreed with all 10 of the  recommendations and stated they would implement them.
In 1997, the former IHS Director issued a memorandum to IHS  headquarters staff stating that thousands of dollars in computer equipment  had been lost or stolen over a 2-year period. These losses were blamed on  negligence and disregard for the appropriate safeguards. The  memorandum provides evidence that problems related to lost and stolen  property have existed at IHS for over 12 years. Given the extent and  seriousness of the property management problems at IHS, you asked us to  perform a follow-up audit to determine (1) whether property loss, property  theft, and wasteful spending continue at IHS; and (2) to what extent IHS  made progress in implementing our prior recommendations.
To answer these questions, we analyzed IHS documents that reported lost  or stolen property for fiscal year 2008 and part of fiscal year 2009 covering  the dates October 2007 through January 2009; conducted interviews with  IHS and Department of Health & Human Services (HHS) officials;  reviewed IHS and HHS responses to our recommendations as well as  updated polices and procedures; conducted a full physical inventory of  property at IHS headquarters; and performed a probability sample of IT  equipment inventory at six field locations that we selected based on book  value of inventory and geographic proximity to other testing locations. To  identify specific cases of lack of accountability, lost or stolen property,  and wasteful spending, we analyzed IHS documents and made  observations during our physical inventory and statistical tests. We limited  our scope to testing only IT equipment items which are highly pilferable or  can be easily converted to personal use, such as laptops, desktop  computers, digital cameras, and personal data assistants (PDA). Although  we did not perform a systematic review of IHS internal controls, we  identified the key causes of lost and stolen property and wasteful spending  at IHS by examining IHS policies and procedures, conducting interviews  with IHS officials, and assessing the physical security of property through  our inventory testing.
We conducted this forensic audit from October 2008 through March 2009  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. A detailed discussion of our  scope and methodology is included in appendix I.
subsections: section_title: Background
paragraphs: IHS, an operating division of HHS, is responsible for providing health  services to federally recognized tribes of American Indians and Alaska  Natives. According to IHS, in 2008, it provided health services to  approximately 1.9 million American Indians and Alaska Natives from more  than 562 federally recognized tribes. As an operating division of HHS, IHS  is included in the agency’s consolidated financial statement and has not  been audited independently since 2002.
IHS is divided into 12 regions with 161 service units throughout the  country. Service units may contain one or more health facilities, including  hospitals, health centers, village clinics, health stations, and school health  centers. There are 124 IHS-operated health facilities and 522 tribally  operated health facilities. The IHS budget appropriation in 2008 was $3.39  billion. Overall, over 40 percent of the IHS budget authority appropriation  is administered by tribes, primarily through various contracts and  compacts with the federal government.
section_title: Alarming Rate of Property Loss Continues at IHS
paragraphs: We found that property continues to be lost or stolen at IHS at an alarming  rate. From October 2007 through January 2009, IHS identified about 1,400  items with an acquisition value of about $3.5 million that were lost or  stolen agencywide. These property losses are in addition to what we  identified in our June 2008 report. Our full headquarters inventory testing  and our random sample testing of six field offices estimated that over a  million dollars worth of IT equipment was lost, stolen, or unaccounted for,  confirming that property management weaknesses continue at IHS. Also,  IHS headquarters and many IHS regions continue to reconcile 2008  inventory as of March 2009. In addition to the $3.5 million reported as lost  or stolen, IHS also had thousands of unreconciled and unaccounted for  property items with an acquisition value of $14.5 million missing about 2  months after conducting its 2008 inventory. These unreconciled and  unaccounted for items had largely been located at four field locations that  had over 40 percent of inventory items missing. Some of these items will  likely be reported as lost or stolen.
subsections: section_title: IHS Records Indicate Over $3.5 Million in Lost or Stolen Property
paragraphs: We analyzed IHS Report of Survey documents from fiscal years 2008 and  2009 covering the period of October 2007 through January 2009 for IHS  headquarters, National Programs, and the 12 regions. These reports  identified that about 1,400 items with an acquisition value of about $3.5  million were reported lost or stolen in little over a year. Some of the more  egregious examples of lost or stolen property during October 2007 through  January 2009 on reports of survey include the following:    An audiometer—a machine used for evaluating hearing loss—with an  acquisition value of $961 was “put out for trash” at an Oklahoma  location that was new and listed in “UNUSED-GOOD” condition.
A laboratory analyzer at a Navajo health care facility with an  acquisition value of $37,000.
A defibrillator with an acquisition value of $7,000 and over $13,000 in  desktop and laptop computers that were new in June 2007 at a Tucson  location.
A telephone switch from National Programs in Albuquerque with an  acquisition value of $25,500.
A trailer with an acquisition value of $7,300 stolen from a Nashville  Region Office parking lot over the weekend when the security gates  were broken and remained open.
We also found that about 2 months after conducting its 2008 inventory,  IHS was still looking for about $14.5 million in items it identified as  missing. Items that IHS continued to search for include the following:   A 2002 ultrasound unit valued at $170,000, a 2003 X-ray mammography  machine valued at $100,795, and a 2004 medication dispensing system  valued at $168,285.
A new pharmacy tablet counter with an acquisition value of $4,000  from a Washington location.
A new electrocardiograph—a machine used to record the electrical  activity of the heart—with an acquisition value of $4,000.
Seven vital sign monitors from a South Dakota Hospital purchased at  $731 each.
Multiple dental chairs from a Kansas location with acquisition values  of $3,200 each.
High-dollar-value IT equipment purchased in 2006 including a Central  Processing Unit with an acquisition value over $30,000 and two servers  worth $29,000 and $12,000.
A $14,000 John Deere tractor purchased in 2005.
Unused IT equipment purchased in 2007 including laptops, desktops,  an $11,000 server, and a television.
section_title: GAO Inventory of IHS Headquarters and Selected Field Locations Shows Continuing Property Loss
paragraphs: Our physical inventory testing results were similar to IHS’s inventory  results and confirmed lost, stolen, or unaccounted for property. Our full  inventory testing at IHS headquarters identified that out of the 1,518 items  tested that were on IHS’s inventory records as of December 5, 2008, 126  items with an acquisition value of $216,000 (or about 8 percent of the items  tested) were lost, stolen, or unaccounted for—including 13 computers  purchased in the summer of 2008. These 126 missing items were in  addition to the 35 assets that IHS stated were missing in their physical  inventory ending September 2008. The types of equipment missing  included digital cameras, laptops, PDAs, and cell phones.
Furthermore, we performed limited testing on new purchases made in  fiscal year 2008 at IHS headquarters. We analyzed 19 new purchases to  determine if the items existed and were on IHS books. We found that 10 of  the 19 items that we tested were not in IHS’s inventory records as of  December 2008. In addition, IHS could not account for 7 of the 19 items— 37 percent of the newly purchased equipment.
We also identified examples of waste that we observed during our audit of  IHS headquarters. During our exit conference discussions, IHS agreed  some equipment may be underutilized. We identified the following  examples of waste:    One employee was issued a PDA but told GAO that he had not used it  in 2 years.
Another employee was issued a laptop and never used the laptop.
One user was assigned three laptops but only used one of them. The  employee stated that one of the laptops was to be disposed of but  provided no explanation for the third laptop.
We selected a probability sample of IT equipment inventory at six IHS field  offices to determine whether the lack of accountability for inventory was  confined to headquarters or present elsewhere within the agency. Our  estimates are based on a probability sample of 250 items from a population  of 6,085 IT equipment items worth over $19 million recorded in property  records for IT equipment at the six field locations. Similar to our finding at  IHS headquarters, our sample results indicate that a substantial number of  pieces of IT equipment such as laptops, desktops, and printers were lost,  stolen, or unaccounted for. Specifically, we estimate that for the six  locations, about 800 equipment items with an acquisition value of $1.7  million were lost, stolen, or unaccounted for. This amounts to about 13  percent of all the IT equipment at these six locations. Table 1 below  summarizes the disposition of the 250 sampled IT items.
section_title: IHS Has Made Limited Progress in Implementing GAO’s Recommendations
paragraphs: Weak “tone at the top” persists at IHS, with senior leadership failing to  fully implement and enforce 8 of the 10 recommendations we made in  June 2008. These failures strongly contribute to the continued loss and  theft of property at IHS. Aside from issuing a memorandum from the IHS  Director that restated and refined existing IHS policies, IHS has taken little  action to provide assurance that employees are aware of and complying  with property policies. One way to enforce policies involves holding  individuals accountable. However, we found little evidence that IHS has  held employees accountable for thousands of lost or stolen items worth  millions of dollars. For example, in December 2008, the IHS executive in  charge of the property group and other areas received a $13,000  performance award (8 percent of the executive’s salary) from IHS senior  leadership. This award was granted 5 months after the July 2008 hearing  exposed mismanagement of property under the executive’s purview. By  failing to hold this key property management official accountable, the IHS  Director and senior managers missed an opportunity to communicate the  seriousness of IHS property problems to the responsible official.
Although IHS has taken steps to update policy and perform physical  inventories, most of our recommendations were only partially  implemented. Of the 10 recommendations, IHS has fully implemented 2  and has begun taking steps to implement the remaining items. Table 2  shows the IHS action and status of implementing our recommendations.
Although IHS took some steps in implementing our recommendations  such as changing their policy on handling sensitive items to include  Blackberries regardless of the threshold, we identified the following  examples of problems fully implementing these corrective actions.
Investigating circumstances surrounding missing property. We saw  little improvement in investigating incidents of lost or stolen property.  Without these investigations, IHS remains unable to hold individuals  financially liable. Out of 1,400 items with an acquisition value of $3.5  million reported as lost or stolen in IHS Reports of Survey for fiscal year  2008 through January 2009, IHS could only provide one example in which  an employee was found to be financially liable for lost or stolen property.  However, as of February 2009, the individual has still not reimbursed the  government for the loss—4 months after he was found financially liable.  We identified other examples where individuals were not held  accountable:    One employee who was assigned a laptop that was missing told IHS  property managers that she could not remember what happened to the  laptop. IHS wrote the laptop off its books in September 2008 without  holding the employee responsible.
A laptop was given to an employee in Oklahoma to use at home but  IHS did not issue a hand receipt. The employee left the agency and did  not return the laptop. According to the Report of Survey, IHS did not  hold the employee accountable because the employee left the agency.
A Phoenix employee’s cellular phone was stolen after he left the phone  on his desk overnight. The board of survey concluded that the  individual was negligent in not properly safeguarding his cellular  phone, but recommended that no assessment of liability be held  against the employee.
According to a Portland property officer, a laptop was stolen from an  employee’s workstation. The workstation was accessible to the public  and was not secured in accordance with HHS regulations. According to  an IHS property official, the employee had several laptops assigned to  him and he did not know that the computer was missing. However, the  board did not hold the employee financially liable for the missing  laptop.
Enforcing annual physical inventories. Although IHS made progress by  conducting a 100 percent physical inventory at IHS headquarters, National  Programs, and all 12 regions for the first time in at least 4 years,  improvements are needed in timely reconciliation of shortages and  updating of its inventory records. Although physical inventories should be  performed over a finite period, IHS officials performed extensive searches  in an attempt to locate missing items before preparing Reports of Survey  to write them off. As of March 2009, IHS headquarters property officials  stated that IHS headquarters and many of the regions were still in the  process of reconciling their 2008 physical inventory which they stated they  completed in September 2008. For example, we verified in December 2008  that IHS was able to find the Jaws of Life medical equipment reported as  lost or stolen in September 2006, but for about 2 years these items were  unaccounted for. Furthermore, according to IHS property officials, a  board of survey was recently established in March 2009 at IHS  headquarters, but has not yet determined what actions should be taken to  finalize Reports of Survey in order to update inventory records. In fact,  IHS headquarters has not completed a Report of Survey to finalize  inventories since 2004.
Enforcing the use of hand receipts. HHS requires the use of hand  receipts, known as HHS form 439, any time property is issued to an  employee. This form should be retained by a property official so that  property can be tracked at the time of transfer, separation, change in  duties, or when requested by the proper authority. By signing this form, an  IHS employee takes responsibility for the government-issued equipment.  In our last audit, we found IHS headquarters did not use the HHS form 439,  nor did they use any other type of hand receipt. To enforce this policy, the  Director of IHS issued a memorandum in November 2008 which stated  that a hand receipt should be signed by employees for all property issued  in order to acknowledge receipt and assign responsibility. Based on our  limited testing of hand receipts, we confirmed that IHS has begun to  implement hand receipts at headquarters and a majority of the field  locations where we performed site visits for items such as PDAs and  laptops but has not yet started issuing hand receipts for all issued items  such as desktops. Also, we found that some of the items we tested did not  have hand receipts and one field location has not yet started issuing hand  receipts for any type of property.
Maintaining information on users and location. HHS requires IHS to  document information on the user and the location of equipment,  including building and room number, in order to easily track and locate  property. Although the IHS Director included in his November 2008  memorandum a requirement to designate user information for each asset  in PMIS, not all of the IHS field locations that we tested maintained  specific user and location information in PMIS. Also, our tests of user and  location data in PMIS at IHS headquarters and at the six field location  shows that PMIS user and location information is not accurate. More  specifically, IHS headquarters had user and location errors of 21 percent  and 28 percent, respectively; these errors were much higher at the tested  field locations at about 87 and 89 percent, respectively. As a result of  inaccurate user and location information, field staff took several days to  locate items that were included in our sample inventory, and IHS  headquarters had delays in finding remaining inventory items during  GAO’s full physical inventory. Inaccurate user and location information  also contributes to the lengthy duration of IHS physical inventories— taking several months to reconcile and locate items.
Enforcing the use of PMIS to create reliable inventory records. In a  November 2008 memorandum, the IHS director mandated the use of PMIS  and removal of all legacy systems. Despite this memorandum, our  inquiries at field locations found that legacy systems are still being used.  Training has not been completed at the property custodial officer level and  not all service units have full access to edit and add items to PMIS. IHS’s  database is incomplete—at IHS headquarters property officials identified  over 500 items during their fiscal year 2008 inventory that need to be  added to the PMIS database. This was also the case at one of the field  locations where we performed our sample testing; the Aberdeen, South  Dakota location has not entered any inventory assets into PMIS since 2007  (about 1,000 items) and stated that they have not been updating any  system of record (neither their legacy nor PMIS) since August 2008.  Another field location added that they only migrated about 60 percent of  their inventory from their legacy system to PMIS. Our testing further  verified the incompleteness of IHS’s inventory records identifying nearly  half of the items selected at the six field locations as not recorded in PMIS.
In addition to ensuring that inventory assets are included in PMIS, a  reliable database also should remove from inventory records items that  have been disposed of. Our tests showed that at IHS headquarters there  was a 63 percent failure rate and the six field locations where we  performed testing had an estimated 100 percent failure rate of removing  disposed items from property records. We found examples of property  items that had been disposed of as far back as 2003 still on the inventory  records. IHS property officials said that some of the difficulty in removing  the items arises in coordinating with the Program Support Center (PSC)  which maintains the PMIS system and reviews and approves items to be  removed from the records. Improved communication and procedures are  needed to expedite removing disposal items from the inventory records.  Because it has not entered all property information into PMIS or removed  all assets that have been disposed of, IHS does not have reliable inventory  records for management to be able to make sound purchase decisions.
Physically securing assets. The IHS Director’s memorandum issued in  November of 2008 stated explicitly the responsibility of supervisors and  users of equipment to safeguard property from loss and misuse. However,  during our inventory tests of IHS headquarters and selected field locations  we still identified examples showing that the policy is not enforced. For  example, we identified new IT equipment stored in unlocked vacant  offices—see figure 1.
Physical security weaknesses increase the risk of loss and theft. For  example, we identified that a laptop, digital camera, and digital voice  recorder, with a total acquisition value of $3,510, were stolen in April 2008  from an office at IHS headquarters.
Failure to secure assets also leaves IHS vulnerable to data breaches. For  example, in August 2008, a USB stick that contained personally  identifiable information on six patients was stolen from IHS’s Phoenix  health office. This theft has already been referred to HHS through their  breach response process.
We also identified a security vulnerability in which the lock for the  computer server room in one of the region offices was broken. Rather than  repair the door, IHS attempted to restrict access by posting a  memorandum on the door—an ineffective means of securing expensive  server equipment which could potentially contain sensitive information.  See figure 2.
section_title: Conclusions
paragraphs: A 1997 memorandum issued by the former IHS Director shows that  problems related to lost and stolen property have existed at IHS for over  12 years. Although the memorandum indicates that individuals will be held  financially liable for missing items, we found no evidence that IHS has  ever taken such steps. As a result, property management problems have  continued, and IHS property managers are now faced with the large  challenge of gaining control under a decentralized and wide-ranging  service structure. Although IHS has taken some steps to improve property  management since our June 2008 report, our work shows that these steps  are incomplete and that serious attention and effort is required to stop the  alarming rate of property loss. Ultimately these problems hinder IHS’s  mission to deliver health care to American Indians and Alaska Natives.
section_title: Recommendations
paragraphs: We recommend that the Director of IHS strengthen IHS’s overall control  environment and “tone at the top” by fully implementing our prior  recommendations and enforcing and updating its property management  policies and procedures. As part of this effort, the Director of IHS should  direct IHS property officials to take the following six additional actions:    Develop and enforce procedures and deadlines to reconcile and  update inventory records in a timely manner.
Establish specific deadlines and enforce them for finalizing a Report of  Survey once an inventory has been completed so that research on  missing items is completed expeditiously and does not continue  indefinitely.
Enforce policy to dispose of unused inventory in a timely manner.
Establish an approach to stop loss of property to include addressing  region-specific inventory shortages.
Work with PSC to develop procedures to remove disposed items from  inventory records in a timely manner.
Work with PSC to develop procedures to enter overages in PMIS in a  timely manner.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided HHS with a draft of this report for review and comment. The  Acting Assistant Secretary for Legislation of HHS provided written  comments that are reprinted in appendix II. HHS agreed with all six of our  recommendations to strengthen property management at IHS. As part of  its response, HHS outlined actions it plans to take or has taken to address  current and prior recommendations. The following represents a summary  and overall evaluation of the HHS response. We also summarize and  evaluate the actions IHS plans to take to address our recommendations.  We provide comments on specific sections of the HHS response letter in  appendix II.
In its response, HHS stated that IHS is committed to proper and  accountable property management. According to the response, IHS has  spent thousands of hours to respond to our requests and to implement our  recommendations. Further, IHS is confident that most, if not all, inventory  currently unaccounted for will be identified as a result of the  implementation of the PMIS system. HHS also highlighted that training on  an agencywide scale has begun on PMIS and that employees are being  educated on both the use of this system as well as on agency property  policies and guidelines for accountability. A number of actions IHS has  taken or plans to take to address our prior recommendations were  summarized, including plans to address our current recommendations.
We are pleased that IHS has devoted considerable time and resources to  fixing its property management system and to respond to our audit  requests. However, we are concerned that numerous significant issues  raised by our report were not addressed in the response. Specifically, we  are concerned that HHS did not acknowledge the rate of property loss at  IHS and the continuing lack of employee accountability for millions of  dollars of lost and stolen property. The response indicated that the  implementation of PMIS will allow IHS to locate the property that it could  not find during the 2008 annual inventory, but we note that completing  annual physical inventories is key to identifying missing property.  Therefore, IHS should focus on addressing our recommendation to  reconcile and update inventory records in a timely manner in order to  locate missing property. Further, we note that the accuracy of a system is  only as good as the data that is put into it, and that our work has found  ongoing, significant errors with the completeness and accuracy of the data  input into the PMIS system. IHS has been attempting to implement the  PMIS system for nearly 2 years, and our work shows that it continues to  experience significant problems. While IHS struggles to implement PMIS,  property losses continue.
Regarding our recommendations, HHS agreed with all six of our new  recommendations and cited actions that IHS will take to address them.  However, the response to some of our recommendations provided little  specificity on actions and timing. Further, for two of our  recommendations, the HHS response listed actions with no clear link to  our recommendations.
GAO Recommendation #1. We recommended that IHS develop and  enforce procedures and deadlines to reconcile and update inventory  records in a timely manner. This recommendation resulted from our  finding that IHS was unable to complete its 2008 inventory due to  reconciliation issues and that millions of dollars in missing items  cannot be found. To be effective, an annual inventory needs to be  resolved quickly. However, the HHS response addressed inventory  overages and indicated that policies regarding receiving and  inspection, inventory management, reports of survey, and property  disposal were “in process.” The link between this response and our  recommendation is not clear and the issue of how IHS will hold staff  accountable for completing the inventory in a timely manner is  unresolved. This is a particularly important issue given that IHS will  need to prepare for its 2009 inventory soon.
GAO Recommendation #2. We recommended that IHS establish  specific deadlines and enforce them for finalizing a Report of Survey  once an inventory has been completed. The response to our  recommendation indicates that IHS is enhancing the Report of Survey  process to include timelines and guidance on Board of Survey  requirements, but provides no specific details for when this process  will be complete. IHS also does not address how it plans to enforce the  new guidelines once they are in place.
GAO Recommendation #3. We recommended that IHS enforce the  policy to dispose of unused inventory in a timely manner. In response,  HHS indicates that IHS has a number of agreements with other  agencies to assist it in disposing of property. It also lists several  actions it plans to take to address our recommendation, including  establishing specific timeframes in a new policy to address timely  disposal. HHS indicates that IHS will also “emphasize” a policy to  conduct walk-through surveys of IHS facilities and remind staff that  proper and adequate justifications must be provided for new  acquisitions. Although these actions will help address our  recommendation, many of the problems we identified with missing  property related to a lack of enforcement of existing disposal policies.  The IHS response does not include specific details on enforcement.
GAO Recommendation #4. We recommended that IHS establish an  approach to stop the loss of property to include addressing region- specific inventory shortages. This recommendation directly resulted  from our finding that property loss continued at an alarming rate, and  that some regions had substantial numbers of missing property.  However, the HHS response did not address property loss and instead  addressed the IHS policy for issuing hand receipts. The link between  this response and our recommendation is not clear. The issuance of  hand receipts is only part of the solution to stopping property loss and  addressing region-specific inventory shortages. A more appropriate  response would have involved the development of a strategic plan to  stop property loss with a focus on specific regions, outlining the  specific controls and enforcement procedures that should be put in  place.
GAO Recommendation #5. We recommended that IHS work with  PSC to develop procedures to remove disposed items from inventory  records in a timely manner. In response to our recommendation IHS  stated that PSC distributed a procedures guide to all PMIS users in  March 2009 and that PSC discussed the guide at an April meeting.  According to HHS, the guide outlines the specific requirements and  forms needed to process all final events in the property management  system. These actions are a step forward, but they do not address how  disposal will be completed in a timely manner. Further, HHS stated  that a revised property disposal policy will also assist IHS property  managers; however IHS provides no detail on what the new disposal  policy entails, how it will improve inventory records, or when this  policy will be updated.
GAO Recommendation #6. We recommended that IHS work with  PSC to develop procedures to enter overages in PMIS in a timely  manner.  In their response, HHS stated that the new Purchase Order  interface between the Unified Financial Management System and the  PMIS will reduce the number of inventory overages that are currently  being recorded. In addition, the response stated that IHS can utilize the  PSC on a fee basis to add their overages to PMIS. We agree that this  new process is likely to help decrease the number of future overages  needing to be recorded. However, IHS must still work with PSC to  ensure that all current overages are added to PMIS in a timely manner.
If you or your staffs have any questions concerning this report, please  contact Gregory D. Kutz at (202) 512-6722 or kutzg@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff who made major  contributions to this report are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine whether property loss, property theft, and wasteful spending  continues at the Indian Health Service (IHS) and to what extent IHS made  progress in implementing our prior recommendations, we analyzed IHS  documents that identified lost or stolen property from fiscal year 2008  through January 2009, reviewed IHS and Department of Health & Human  Services (HHS) responses to our recommendations and updated policies  and procedures, conducted a full physical inventory of property at IHS  headquarters, and statistically tested information technology (IT)  equipment inventory at six selected IHS field locations. To identify specific  cases of lack of accountability, lost or stolen property, and wasteful  spending, we analyzed IHS documents and made observations during our  physical inventory and statistical tests.
We evaluated IHS’s progress in implementing our previously reported  recommendations by reviewing agency documentation and interviewing  property management officials on actions taken in response to  recommendations in our June 2008 report. To identify management  actions taken in response to previously identified control weaknesses, we  obtained and reviewed copies of new and revised IHS and HHS policies  and procedures. We reviewed training certificates and property custodial  designations, and randomly selected and tested for hand receipts on a  limited number of assets at both IHS headquarters and some of the  selected field locations.
To determine if IHS physical inventory testing identified continuing  weaknesses in property management, we obtained and reviewed  information on IHS physical inventory results from all IHS headquarters,  National Programs, and 12 IHS regions.
We also performed a full physical inventory at IHS where we identified  problems disclosed in our June 2008 report. Specifically, we tested all  1,518 headquarters property items—largely these items were IT equipment  that IHS had recorded in its property records as of December 5, 2008. We  physically observed each item and its related IHS-issued bar code and  verified that the serial number related to the bar code was consistent with  IHS property records. In addition, we selected a nonrepresentative sample  of new purchases made in fiscal year 2008 for testing at IHS headquarters  from documents provided by an IHS vendor and IHS officials. We tested  each sample item by either (1) physically observing the asset or (2)  obtaining a picture of the asset with a visible bar code and serial number.
Although IHS property at the field locations includes inventory items such  as medical equipment and heavy machinery, we performed a statistical  test of only IT equipment inventory at six IHS field locations. We limited  our scope to testing only IT equipment items that are highly pilferable or  can be easily converted to personal use such as laptops, desktop  computers, digital cameras and personal data assistants. We selected the  six field locations based on the book value of inventory and geographic  proximity to other testing locations. We retested five sites that we  sampled last year and added the Aberdeen, South Dakota location because  of the high dollar value of assets. Our findings at these six locations can  not be generalized to IHS’s other locations.
To estimate the extent of lost or stolen property at these six locations, we  selected a simple random sample of 250 items from a population of 6,085  IT items valued at over $19 million. Because we followed a probability  procedure based on random selections with each item having an equal  chance of being selected, our sample is only one of a large number of  samples that we might have drawn. Because each sample could have  provided different estimates, we express our confidence in the precision  of our particular sample’s results as a 95 percent confidence interval. This  is the interval that would contain the actual population value for 95  percent of the samples we could have drawn. As a result, we are 95  percent confident that each of the confidence intervals in this report will  include the true values in the study population. Based on this sample, we  estimate the percentage missing or with other errors, the number of and  the dollar amount of lost, stolen, or unaccounted for property for these six  IHS locations. The following table summarizes the estimates used in this  report along with their corresponding 95 percent confidence intervals.
We considered equipment to be lost, stolen, or unaccounted for if (1) we  could not physically observe the item during the inventory; (2) IHS could  not provide us with a picture of the item, with a visible bar code and serial  number, within 1 week of our initial request; or (3) IHS could not provide  us with adequate documentation to support the disposal of the equipment.
To evaluate IHS’s progress in implementing GAO’s recommendation that  IHS maintain information on users of accountable property including their  building and room numbers, we tested each asset for user and location  accuracy for IHS headquarters and the random sample testing at the six  field locations. Once an item was determined to exist in current inventory,  we assessed whether the asset’s principal user and physical location  matched what was recorded in the inventory property database. We also  tested the inventory status accuracy in IHS’s property database. If  adequate disposal documentation was provided for an asset, the asset was  identified as an Inventory Status Error rather than missing.
We performed appropriate data reliability procedures for our physical  inventory testing at IHS headquarters and sample testing at the six field  locations including (1) testing the existence of items in the database by  observing physical existence of all items at the IHS headquarters and IT  equipment selected in our sample; (2) testing the accuracy of the database  by comparing user, location and inventory status; and (3) testing the  completeness of the database by performing a 100 percent floor-to-book  inventory at IHS headquarters and judgmentally selecting up to two items  in the same or adjacent rooms of the randomly selected items tested for  existence to determine if these items were maintained in IHS inventory  records. Although our testing of the existence, accuracy, and  completeness of IHS property records determined that IHS inventory  records are neither accurate nor complete, we determined that the data  were sufficient to perform these tests and project our results to the  population of IT equipment. In addition, we interviewed IHS agency  officials, property management staff, and other IHS employees. We also  interviewed officials at the Program Support Center (PSC) and individuals  from the HHS Office of Inspector General.
Although we did not perform a systematic review of IHS internal controls,  we identified key causes of lost and stolen property and wasteful spending  at IHS by examining IHS and HHS policies and procedures, conducting  interviews with IHS officials and our observations of property through our  inventory testing.
We conducted this forensic audit from October 2008 through March 2009  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Health & Human Services
paragraphs: Our comments on the Department of Health & Human Services (HHS)  letter dated May 1, 2009, follow.
subsections: section_title: GAO Comments
paragraphs: 1. Time spent responding to GAO requests and recommendations.  In its response, HHS emphasizes a commitment to proper and accountable  property management and stresses that IHS has spent thousands of hours  responding to GAO requests and recommendations. We are pleased to see  that IHS has begun devoting resources to addressing the chronic issue of  lost and stolen property. As we reported in June of 2008, IHS property  management problems date back to at least 1997. Given the chronic nature  of the problem, IHS should be prepared to spend additional hours in the  future, and should dedicate resources to enforcement and compliance  when, and if, the significant challenges it faces have been resolved. 2. PMIS. In its response, IHS states that it is confident that  implementation of its new property management system will eliminate  “most, if not all, inventory currently unaccounted for.” This widespread  property management problem will not simply be resolved as a result of  implementing a new system. IHS must actively manage its property and  enforce existing HHS property management policies, to include annual  inventories, the issuance of hand receipts, physical security measures,  and, critically, a commitment to holding IHS employees accountable for  lost or stolen property.   3. Referrals from Prior Report. In our first report, we found evidence  that an IHS property employee had fabricated documents and that a “yard  sale” of IHS equipment had occurred in Nevada. We referred these  incidents to the HHS Office of Inspector General (OIG) for further  investigation. In its response to this report, HHS indicated that the OIG  had concluded an investigation and that referrals of charges against IHS  employees for fabrication of documents and a yard sale could not be  substantiated. Concerning the allegations of fabricated documents, the  OIG presented the case to the United States Attorney’s Office (USAO) for  the District of Maryland—Southern District. Based on the lack of evidence,  a criminal prosecution was declined by the USAO. We reported on this  incident because an IHS property official admitted to GAO to fabricating  documents in order to satisfy our request for the disposition of property.  Concerning the yard sale, the OIG reported that no criminal activity was  found to have occurred. We reported on this “yard sale” based on the  confirmation of eight IHS property officials, including the Phoenix Area  executive officer. Although criminal charges could not be substantiated in  these cases, we believe that administrative action could still be warranted.
We believe these cases are important because they represent opportunities  for IHS to improve accountability for property management.   4. Physical Inventory. IHS stated that it completed an “agencywide 100  percent physical inventory.” We are pleased that IHS has conducted  inventories at all locations as of the end of fiscal year 2008. However,  conducting and completing inventories are separate matters. Specifically,  reconciliation of missing items, to include the use of reports of survey to  hold employees accountable for missing property, is the final step in  completing an annual inventory. As of April 2009, IHS had not completed  the reconciliation process.  5. Hand Receipts. We found that IHS had not fully implemented the use  of hand receipts agencywide. In its response, IHS attributes this to the fact  that it has issued a new policy and given Area Directors until September  2009 to have the policy fully implemented. Further, IHS mentions that  “performance will be monitored in FY 2009.” The proper use and  enforcement of hand receipts is a critical issue for IHS and it remains to be  seen whether IHS will effectively manage its hand receipt program.   6. Determination of Lost, Stolen or Unaccounted For Property. We  provided IHS with three options for proving that property was not lost,  stolen, or otherwise unaccounted for during our field tests; these options  were (1) direct physical observation; (2) for items not readily available for  inspection, photographs with a visible bar code and serial number, to be  provided within 1 week; and (3) for items represented as being disposed  of, supporting documentation (e.g., disposal records). In response to our  draft, HHS stated that these options were not sufficient because, “in many  cases these items are temporarily unavailable to be inspected… because  they are in use by employees who are out in the field.” We understand that  IHS is a decentralized organization with numerous field locations. We  believe that we provided a reasonable amount of time for a federal agency  such as IHS to locate the items we selected, given its access to digital  photography, mobile phones, and the Internet. The fact that IHS was  unable to readily identify and provide support for the location of  numerous items during our audit is consistent with the results of its 2008  annual inventory.  7. Physical Security of Property. We have identified physical security of  property as an ongoing issue for IHS. We disagree with the statement that  “IHS continues to safeguard all property.” We understand that property  security was addressed in a memorandum from the IHS Director in  November 2008, but without an enforcement mechanism to ensure that a  policy or procedure is implemented and operating effectively, IHS has no  assurance that it is safeguarding property effectively. Further, we did not  systematically evaluate perimeter security, but we found examples where  a lack of perimeter security facilitated a loss of property. For example, one  Report of Survey indicated a trailer with an acquisition value of $7,300 was  stolen from a Nashville Region Office parking lot when the security gates  were broken and remained open. In another Report of Survey, a laptop  was stolen from an employee’s workstation in Portland. The workstation  was accessible to the public and was not secured. Further, we identified  additional examples of unsecured equipment including an unsecured  server room at one IHS area office.  8. Status of Prior Year Recommendations. In its response, HHS  includes a table showing the status of progress made in implementing our  prior year recommendations. However, the findings in our report  contradict some of the statements made in this table:
Regarding our recommendation to designate property custodial  officers in writing, IHS states that “property custodial officers are  designated by each Area Property Management Officer.” Designating  property custodial officers in writing is important because it  establishes clear responsibility and accountability for property.  However, as discussed previously, we found that IHS designated  property custodial officers in writing for some of the regions but there  were still gaps of written designations at IHS headquarters and at 4 of  the 12 regions. This creates uncertainty over property management  responsibilities and fosters a lack of accountability at IHS  headquarters and the 4 regions.
Regarding our recommendation to enforce barcoding of accountable  property, IHS states that all accountable and sensitive property items  were reviewed and barcode tags affixed as part of the 2008 inventory.  However, our inventory testing identified over 50 accountable items  with no barcode at IHS headquarters. These tests began 2 months after  the IHS 2008 annual inventory, indicating that IHS still faces challenges  ensuring that all accountable property is affixed with barcodes.
Regarding our prior recommendation to maintain information on the  users of all accountable property, IHS states that it reviewed this  information during the 2008 annual inventory and that “this is an  ongoing process.” However, as previously discussed, we tested  inventory at IHS headquarters and found user and location errors of 21  percent and 28 percent, respectively. These errors were much higher at  the tested field locations, where we found errors of 87 and 89 percent,  respectively. These tests were performed 2 months after the IHS  annual inventory, indicating that IHS still faces significant challenges  in keeping PMIS accurate. Regarding the comment that “this is an  ongoing process,” we agree; for as long as IHS continues to purchase  property, enter it into PMIS, and assign it to staff, property managers  must remain vigilant to ensure that records are accurate.
section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Cindy Brown Barnes, Assistant  Director; John Ahern, Donald Brown, Arturo Cornejo, Jennifer Costello,  Paul Desaulniers, Dennis Fauber, Heather Hill, Christopher Howard,  Elizabeth Isom, Leslie Kirsch, Barbara Lewis, Andrew McIntosh, Sandra  Moore, James Murphy, Andy O’Connell, George Ogilvie, Lerone Reid, Phil  Reiff, Verginie Tarpinian, and Emily Wold made key contributions to this  report.