The Internal Revenue Service needs to improve the process it uses to account for and report the costs associated with the implementation of the Affordable Care Act, according to a new government report.

The report, by the Treasury Inspector General for Tax Administration, found that the controls over the tracking of direct labor charges associated with the Health Insurance Reform Implementation Fund, or HIRIF, could be improved. From fiscal year 2010 to fiscal year 2012, the IRS reported a cost of $488 million to implement the health insurance reform law paid for HIRIF, which is administered by the Department of Health and Human Services. TIGTA found that costs charged to HIRIF funding related to direct labor were sometimes inaccurate and not always substantiated by reliable supporting documentation.

TIGTA also found that the IRS did not track all costs associated with implementation of the ACA including costs not charged to the HIRIF. Specifically, the IRS did not account for or attempt to quantify approximately $67 million of indirect ACA costs incurred for fiscal years 2010 through 2012. Indirect costs include, for example, providing employees with workspace and information technology support.

The IRS established a methodology to track ACA costs in its accounting records. However, the IRS accounted for only direct costs, such as labor and contract costs, because it did not believe that indirect costs should be recovered from the HIRIF, TIGTA pointed out. The IRS’s use of HIRIF funding only for ACA direct costs is consistent with the HIRIF requirements.

However, by not also identifying and tracking indirect costs, the IRS lacks complete information regarding the full cost of ACA implementation.  This lack of complete information on ACA implementation costs limits the IRS’s ability to accurately report to stakeholders the total resources it applied to the ACA implementation and fully estimate the resources needed in the future for this effort.

An IRS spokesman sent Accounting Today a statement from the IRS in response to the report. “The IRS takes seriously its obligation to be good stewards of government resources and recognizes the importance of ensuring accurate accounting of resources,” said the IRS. “The IRS ensured that ACA funds were accurately tracked, including those funded by the Health Insurance Reform Implementation Fund (HRIF). We appreciate TIGTA’s finding that IRS’s use of the HIRIF funding for ACA labor and contract costs was consistent with the HIRIF’s intended purpose of meeting the immediate funding needs associated with ACA implementation. The IRS agreed with TIGTA’s recommendations in this report, and has already implemented procedures for addressing them.”

The IRS has a significant role in implementing the Affordable Care Act, with responsibility to implement and oversee the numerous tax law changes, TIGTA’s report pointed out. "Because implementation of the ACA remains an ongoing effort, it is critical that the IRS has complete and reliable information regarding all costs associated with the implementation in order to effectively manage taxpayer funds devoted to this effort," said the report.

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