When Tracking Obamacare Costs, IRS Needs to Follow its Own Rules

Taxpayers are not the only ones who get audited. The tables are often turned on the IRS as the Treasury Inspector General for Tax Administration (TIGTA) is constantly scrutinizing the agency.

The TIGTA studied the IRS’ participation in the implementation of the Affordable Care Act between 2010 and 2012 and released its findings last month. The report reviewed the implementation costs of the president’s signature legislation and how the IRS tracked the hefty expenses, and found that how the agency handles their expense needs to be improved.

Here are the findings:

The cost of implementing the act during that two-year time period was $488 million which was paid for by the Health Insurance Reform Implementation Fund (HIRIF) administered by the Department of Health and Human Services. Experts expect the cost of the reform to increase as more of its requirements become a reality and taxpayer dollars will play a bigger role in funding.

The TIGTA was primarily interested in the accuracy of reporting the costs of implementing the reform. The audit shows “costs charged to HIRIF funding related to direct labor were sometimes inaccurate and not always substantiated by reliable supporting documentation.”

What’s that? The IRS wasn’t keeping accurate records? Ironic.

On top of that, the report found the IRS did not track all costs. There was approximately $67 million of indirect ACA costs incurred during the two year time period that went unaccounted.

The IRS didn’t feel a responsibility to track these indirect costs, thus skewing the actual cost of implementing the legislation, according to the TIGTA. Direct labor and contract costs were the only expenses that were tracked.

This IRS’s problem can be explained in business terms: When determining the cost to produce a particular product or service, you begin with the hard cost of creating the product or service. For example, if you make and sell donuts, your direct costs are the materials used to create the donut, the payroll for the bakers and kitchen help.

However, it is important to add in indirect expenses as well in order to know what your actual total expenses are of being in the donut-making business. These include administrative overhead costs such as insurance, rent, utilities, telephone, administrative salaries and wages, etc. If you do not include these figures in your overall business model, you will not arrive at an accurate overall cost.

One would think the IRS would be aware of this principle.

The IRS’ accounting program is set up to track the indirect costs, but it just wasn’t accomplished and wasn’t considered a necessary component in determining overall costs

Therefore, American taxpayers and Congress are being fed inaccurate historical data. The TIGTA states, “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.”

Because the ACA is such an expansive program and because this country is suffering severely from budget problems, we need to have an accurate overall cost to taxpayers. The IRS has agreed with the TIGTA report and promises to use full costs “when appropriate” according to the report.