Department of Health and Human Services
Accountability Report: Fiscal Year 1996
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Table Of Contents
Message From The Secretary
Message From The Chief Financial Officer
Section I: Overview Of The Department Of Health And Human Services
Introduction
Accomplishments
Challenges
Budgetary Highlights
Operating Division Highlights
Section II: Financial Management Information and Accountability
Financial Management Responsibility
Financial Management Policy And Planning
Financial Reporting And Accounting Standards
Management, Internal Controls, And Audit Resolution
Information Resources Management And Financial Information Systems
Financial Analysis And Interpretation
Section III: Financial Statements
Combining Statement Of Financial Position
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Combining Statement Of Operations And Changes In Net Position
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Notes To The Financial Statements
Supplemental Combining Statement Of Financial Position By Operating Division
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Supplemental Combining Statement Of Operations And Changes In Net Position By
Operating Division
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Section IV: Auditor's Opinion
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Auditor's Opinion Of FY 1996 Financial Statements
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Appendices
Appendix A Comparison Of Audit And Program Review Results
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Appendix B HHS Office Of The Inspector General Reports With Questioned Costs
And Recommendations For Better Utilization Of Funds
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Appendix C Management Action On Costs Disallowed In Inspector General Reports
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Appendix D Management Action On OIG Reports With Recommendations That Funds Be
Put To Better Use
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Appendix E FY 1996 And 1995 Prompt Payment Report Summary
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Appendix F Acronyms
Appendix G Reference And For Further Information
Appendix H Department Of Health And Human Services Web Sites
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Message From the Secretary
I am pleased to present the U.S. Department of Health and Human Services (HHS)
Accountability Report for FY 1996, the first comprehensive report of its kind
for
our Department. It demonstrates our accountability for taxpayer dollars and
consolidates information from several other financial management reports, thus
providing a more comprehensive reference on HHS than ever before provided to
the
public.
Over the past four years, HHS has made important commitments to the American
people. We made a commitment to protect the Nation's children
and to pay special attention to the needs of adolescents. We enhanced our
long-term commitments to improving the health and independence of all
Americans.
And we made new commitments to tough management at HHS, finding new ways to do
business and get results.
Today, those commitments are paying off. Infant mortality is at an all-time
low.
There are two million fewer people on welfare, and teen pregnancy rates are
going down. We're making work pay with more child care, better child support
enforcement, an expanded Medicaid program, and a reformed welfare system.
We focused on prevention and outreach, to control disease and to help Americans
take more personal responsibility for their health through proper diet and
physical activity. We launched an historic children's tobacco initiative to
take
power back from the cigarette companies and put it in the hands of parents. We
demanded quality from every Head Start program. And we dramatically reduced
drug
approval time at the Food and Drug Administration, allowing new advances in
AIDS
and other pharmaceuticals to reach Americans faster, while preserving high
standards for safety and effectiveness.
Under our "zero tolerance" policy for fraud and abuse, Operation Restore Trust
is
estimated to be saving ten dollars in health care costs for every anti-fraud
dollar we spend. And we're protecting Medicare for seniors and the disabled,
giving beneficiaries enhanced benefits and greater choice in their medical
care.
This Accountability Report for Fiscal Year 1996 provides details on how we have
managed the funds entrusted to us to better the lives of all Americans. But
we
still have important challenges which we must meet. Significant issues were
raised by the FY 1996 Department wide financial statement audit and they are
being
addressed aggressively. In particular, we are pursuing a corrective action
plan
to address the Medicare claims error rate estimated in the financial
statements.
I am determined that we must be able to carefully account for our Medicare
spending, and that Medicare dollars must be used effectively to deliver high
quality care to our beneficiaries.
I am very proud of our accomplishments, and I look forward to the challenges
that lie ahead.
Donna E. Shalala
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Message From the Chief Financial Officer
As the Chief Financial Officer (CFO) of the U.S. Department of Health and
Human
Services (HHS), I am pleased to present our Accountability Report for FY 1996.
As HHS strives to improve the health of all Americans and the social services
provided to the Nation's most vulnerable citizens, a strong financial
management
infrastructure will further enhance the effectiveness of our program
operations.
My staff and I are working to ensure that our financial policies and operations
are not merely compliant with existing financial management legislation, but
also
serve the needs of our customers.
Strong financial management ensures that custodial parents receive proper child
support payments, that Federal grants monies are properly managed, and that
fees
charged to process new drug applications are accounted for appropriately. It
also ensures that the Federal Government minimizes its late payment penalties
paid to vendors in order to make more funds available for programmatic
purposes.
And strong internal controls over our information systems ensure that data
cannot
be altered without proper authorization.
Though our Department wide FY 1996 financial statements did not receive a clean
bill of health from the auditors, we have developed corrective action plans and
are committed to resolving weaknesses identified in the audit process. We
acknowledge the serious nature of one audit finding in particular: the high
error rate for the Medicare processed fee-for-service payments. We are very
concerned about this audit finding and have dedicated resources and developed
targeted plans to help resolve this issue.
We have many additional challenges ahead as we work to implement all of the
recent financial management legislation including the Government Performance
and
Results Act of 1993, the Government Management Reform Act of 1994, the Debt
Collection Improvement Act of 1996, and the Federal Financial Management
Improvement Act of 1996. We also face challenges in responding to
technological
changes in funds transfers, in integrating our financial systems, in developing
cross-servicing arrangements, and in adopting new accounting standards.
These are exciting times in the Federal financial management community. We
have
more tools than ever to help advance financial management. In the years since
the passage of the Chief Financial Officers Act of 1990, there has been a
marked improvement in the accuracy of our financial reports, the detection of
internal
control weaknesses, the integration of our financial systems, and the level of
professionalism in financial management. We hope this report provides you with
useful information on our accomplishments and our challenges, and we look
forward
to continuing to serve you.
John J. Callahan
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Introduction
Our mission is to protect and promote the health, social, and economic
well-being of all Americans by helping them and their families develop and
maintain healthy, productive, and independent lives.
This Accountability Report for FY 1996 is the first of its kind for the
Department of Health and Human Services (HHS). It is a summary of FY 1996
finances, management, and accomplishments that displays our stewardship of the
funds entrusted to us and our accountability for the management of our programs
which are dedicated to the health and well-being of all Americans.
This report highlights the programs and activities of HHS, both the familiar
and
the less well-known. It discusses the organizational structure of HHS and
provides information on the program and financial highlights for each operating
division. It also links financial, budget, and program information by
displaying
budget and financial information using the program functional categories in the
President's budget.
HHS is continuing to work better for the people that we serve and to respond to
the dramatically changing environment of the approaching 21st century.
In FY 1996, HHS made important commitments to the American people. We made a
commitment to protect our nation's children, and to pay special attention to
the
needs of our adolescents. We confirmed our long-term commitments to improving
the
health and enhancing the independence of all Americans. We pledged to improve
the
solvency of the major health care programs and to conduct research that will
result in long-term health benefits. We also made renewed commitments to tough
management at HHS, finding new ways to do business and get results.
Indicators of Our Success
Our success in achieving these goals should be measured by the steady, broad
improvements in the health and economic well-being of individuals, families,
and
communities in this country and advances in medicine and public health that
benefit the entire world. We can't succeed alone. Achieving this success is a
shared responsibility; we work with our partners—the States, tribes,
localities, and other important community institutions. And every American must
take a responsible role in managing his or her own health.
"We know that regular exercise wards off serious illnesses like heart disease
and
diabetes."
"Promoting fitness must be part of a larger health strategy."
"We ... have to challenge our governments at every level not just to talk the
talk of prevention, but also to walk the walk by making reasonable investments
in
health promotion, preventative health, school health, and other services that
encourage people to take personal responsibility for their health."
September 21, 1995 Secretary Donna E. Shalala Address to the Third IOC World
Congress of Sports Science
Long before the Government Performance and Results Act (GPRA) was law, HHS
began
focusing on measuring the progress and status of America's health. Healthy
People
2000 (HP2000) was initiated in 1979 by HHS, leading a consortium of over 300
organizations to identify the nation's health priorities and goals, and track
our
progress toward meeting those goals.
HP2000 has three broad goals: to increase the span of life for Americans, to
reduce health disparities among Americans, and to achieve access to preventive
services for all Americans. HP2000 identified 22 priority areas such as
Physical
Fitness, Nutrition, and Food and Drug Safety. Over 300 quantitative objectives
and baseline data under each area were established, and HP2000 has been
tracking
progress toward the objectives. The most recent update to the HP2000 data is
illustrated in the accompanying figure.
The figure summarizes the progress of the objectives by priority area at the
midpoint of the decade. Eight percent of the objectives have reached or
surpassed
the year 2000 targets. Progress toward the targets has been made for another 40
percent of the objectives, and 18 percent show movement away from the targets.
Data for 5 percent of the objectives show mixed results and 3 percent show no
change from the baseline. Seventy-five objectives (20 percent) have baseline
data
but have no new data with which to evaluate progress. Baselines have yet to be
obtained for 19 objectives (6 percent).
Healthy People 2000 Objectives: Summary of Progress by Priority Area
In FY 1996 we continued to use the Healthy People 2000 indicators of success
and
pilot-tested the use of performance measures for two other programs, the
Prescription Drug User Fee Act (PDUFA) program and the Child Support
Enforcement
(CSE) program. The results achieved for the pilot programs were positive and
progress was made toward the Healthy People 2000 goals.
Organizational Program Structure and Performance
The Department of Health and Human Services (HHS) is headed by the Secretary of
Health and Human Services, Donna Shalala, who is a member of President
Clinton's
Cabinet. HHS is headquartered in Washington, DC and has 10 regional offices.
HHS includes over 300 programs run by twelve components or operating divisions
(OPDIVs), including the Office of the Secretary and the Program Support Center.
The twelve OPDIVs are (in descending order of program spending magnitude in FY
1996):
Health Care Financing Administration (HCFA)
Administration for Children and Families (ACF)
National Institutes of Health (NIH)
Health Resources and Services
Administration (HRSA)
Centers for Disease Control and Prevention (CDC) and the closely-related Agency
for Toxic Substances and Disease
Registry (ATSDR)
Substance Abuse and Mental Health Services Administration (SAMHSA)
Indian Health Service (IHS)
Food and Drug Administration (FDA)
Administration on Aging (AoA)
Agency for Health Care Policy and Research (AHCPR)
Program Support Center (PSC)
Office of the Secretary (OS)
Our programs cover a wide spectrum of activities including:
medical insurance and service,
medical and social science research,
prevention of infectious disease including immunization services
food and drug safety, and
health advocacy and public awareness programs.
child support collection activities
cash assistance for needy families
During FY 1995, HHS was reorganized when the Social Security Administration
(SSA)
left the HHS organization to become an independent agency. SSA had accounted
for
approximately half of the HHS budget. After the independence of SSA and
additional organizational changes under REGO II (the Vice President's
government wide reinvention efforts), HHS' structure was reestablished as
illustrated in the accompanying organization chart.
As this Accountability Report went to print, the Balanced Budget Act of 1997
was
enacted. This Act will significantly effect the Medicare, Medicaid, and
Temporary
Assistance for Needy Families (TANF) programs.
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Accomplishments
HHS had a long list of programmatic and managerial accomplishments in FY1996.
While the benefits of programmatic accomplishments (such as research findings)
are more obvious to the public, managerial accomplishments help ensure that we
are better stewards of the resources entrusted to us to run our programs. Some
major accomplishments are highlighted here.
Welfare Reform Progress
Even before Congress passed welfare reform legislation in 1996, States were
trying new approaches. With encouragement, support and cooperation from the
Clinton Administration, 43 States moved forward with 78 welfare reform
experiments in FY 1996. Aid to Families with Dependent Children (AFDC)
caseloads
dropped seven percent from 1995 to 1996 (ten percent from 1994 to 1996). HHS,
addressing one of the key components of welfare reform — parental
responsibility — also encouraged teen mothers receiving welfare to stay in
school, required Federal employees to pay their child support, and cracked down
on people who owe child support and cross State lines.
Record Child Support Enforcement
The Child Support Enforcement (CSE) program was a GPRA pilot program in FY
1996.
The CSE program collects money from parents who are not currently supporting
their children and uses it to support their children so that the children don't
suffer financially. By maximizing child support, welfare costs will be reduced
as
well, so both the child and the taxpayer benefit. Paternities were established
for over one million children in FY 1996 (increasing over 400,000 above FY
1995).
This represents 75% of children born out of wedlock. For every dollar spent on
this program, almost four dollars were collected to support the children. CSE
collections increased by approximately $1.2 billion to $11.9 billion in FY
1996,
and increased almost fifty percent from FYs 1992 to 1996.
New Drug Approval Rate Increases
In FY 1996, FDA approved 121 new drug applications (NDAs) with a median
approval
time of 15 months. Ten of those 121 drug approvals were for the treatment of
AIDS. FDA approved 50 (70 percent) more NDAs in FY 1996 than it did in FY
1995,
and reached this level of achievement while decreasing the median approval
time
by 20 percent. FDA approved 42 of these NDAs in 12 months or less. This is a
110 percent increase over the number of NDAs approved in 12 months or less
during FY 1995.
Improved Performance Under The Prescription Drug User Fee Act
PDUFA was a GPRA pilot program in FY 1996. PDUFA authorizes the assessment and
collection of user fees for drug applications, establishment registrations, and
product listings in order to enhance and expand FDA's existing review process.
FDA committed to certain performance goals in response to these additional
resources. For the group of applications submitted in FY 1994 and 1995 (the
1994
and 1995 "cohorts"), FDA far exceeded the specific goals for PDUFA reviews.
(See
also section on FDA).
Medicare and Medicaid Fraud Detection and Prosecution
In the spring of 1995, under her authority "to use trust funds money to
develop
or demonstrate improved methods for investigating and prosecuting fraud,"
Secretary Shalala launched Project Operation Restore Trust (ORT) to target
fraud
and abuse in three high-growth areas of the health care industry: home health
agencies, nursing homes and durable medical equipment suppliers.
Operation Restore Trust Accomplishments as of September 30, 1996
Hotline Complaints Received Since Inception (June 1995) 12,533
Potential Recoveries From Hotline Complaints $1.3 million
Pending investigations 270
Criminal Convictions 49
Civil Actions 44
Indictments 38
Providers Excluded 132
Audit and Inspection Reports Issued 28
Audit and Inspection Reports Underway 56
Focusing on five States that had over a third of all Medicare and Medicaid
beneficiaries, the Office of Inspector General (OIG) as the ORT coordinator,
assembled State/Federal teams that included OIG investigators and those from
the
States' Medicaid Fraud Control Units; auditors and evaluators from OIG and
HCFA;
quality assurance specialists from the States and Medicare contractors; State
long-term care ombudsmen through AoA; and prosecutors from the Department of
Justice and State Attorneys General. The OIG also enlisted participation by
the
public and the targeted industries by establishing a telephone hotline to
receive
allegations of fraud and abuse on a confidential basis. The accompanying
chart
summarizes the FY 1996 accomplishments of ORT. Further, OIG's ORT activities
have either resulted in proposals or supported existing proposals to change
policy in order to correct systemic weaknesses.
The passage of the Health Insurance Portability and Accountability Act (HIPAA)
in the summer of 1996 expanded funding for our fraud detection activities.
The
lessons learned during the ORT demonstration will be institutionalized into the
way we do business. These strategies, combined with the upgraded funding
provided by HIPAA will enable us to more aggressively detect and prevent fraud,
waste, and abuse.
Fraud Hot Line: (410) 965-5933
Toll Free: (800) 447-8477
Research Advances
HHS received approximately 16% (approximately $11 billion) of all Federal
research funds in FY 1996. Most was appropriated to the National Institutes of
Health (NIH), though CDC, HRSA, and AHCPR also received research funding.
In 1996, 21 disease genes were isolated using genome maps — almost twice
as
many as the year before and nearly five times the number isolated the year the
genome project began. Among them are genes that contribute significantly to
human
diseases, including polycystic kidney disease, an adult form of diabetes, and
hereditary hemochromatosis.
Also in 1996, there were numerous advances in AIDS and HIV research. Protease
inhibitors, used in combination "cocktails" with other antiretroviral
therapies,
have been shown to dramatically diminish the amount of HIV in the blood of an
infected individual. Protease inhibitors are a powerful new class of anti-HIV
medications that block HIV protease enzyme, and thus the replication of the
virus. Receptors for molecules called chemokines have been identified as
critical
co-receptors for HIV, providing another potential target for therapeutic
research
to block viral replication. Scientists demonstrated that those individuals who
have defects in one set of these receptors are protected from HIV-infection
despite exposure to the virus, demonstrating the central role of this chemokine
receptor in the infection process.
Other research advances in 1996 include:
discovering a cancer gene, proving a curative therapy for Sickle Cell Disease,
developing a research tool for detecting presymptomatic Alzheimer's Disease,
and
finding that treatment for Hodgkin's Disease increases the risk of breast
cancer. For more information about HHS research, visit our Home Page. Health
Information Outreach
HHS continues its efforts to provide health information to the health community
and the public. The National Library of Medicine's (NLM) online database
network saw a 20 percent increase in user rates in 1996, fueled by the instant
popularity of the Internet Grateful Med. The recently introduced HealthSTAR
database gives users a file of 2.5 million bibliographic records for journal
articles, reports, books, newspaper articles, etc., dealing with health
services
research, health care administration, economics, planning, and technology
assessment. In response to requests from the scientific community, the Library
has even reached back in time and created on "OLDMEDLINE" from 307,000 journal
references NLM published in Index Medicus in 1964 and 1965.
Other HHS online health information is available on the Internet for the
general
public. Consumers are encouraged to visit the HHS Home Page as a starting
point
for finding information on such things as nutrition, food labeling, food
safety,
prevention, illnesses, and other related topics.
Growth in Managed Care Enrollment
The Health Care Financing Administration has been working in partnership with
the
States to offer managed care to Medicaid beneficiaries, as an alternative to
the
fee-for-service (FFS) system. In addition to lower costs than under FFS,
managed
health care provides several advantages for beneficiaries, such as enhanced
continuity of care, improved preventive care, and prevention of duplicative
and
contradictory treatments and/or medications. Medicaid law requires waivers of
existing Federal statutes to allow for the implementation of managed care, and
most states have taken advantage of these waivers. The number of Medicaid
beneficiaries enrolled in managed care has grown from slightly under 5 percent
in
1993 to 30 percent in 1996.
Gains in Health Indicators
In late 1996, Secretary Shalala released annual preliminary vital statistics
finding for 1995, showing broad gains in national health indicators. The
report,
"Births and Deaths for 1995," prepared by the National Center for Health
Statistics, part of the HHS' Centers for Disease Control and Prevention,
contains the latest preliminary U.S. natality and mortality statistics.
According to the report, the U.S. in 1995 achieved: an historic low infant
mortality rate; continued increase in the number of women obtaining prenatal
care; the first decline in the birth rate for unmarried women in almost 20
years;
continued decline in the teen birth rate; a dramatic decline in homicide rates;
a
leveling in the HIV/AIDS death rate, for the first time since the epidemic took
hold; and continued increase in life expectancy.
Preventing Birth Defects and Teen Pregnancy
As a result of action taken in 1996 by HHS and FDA, U.S. food manufacturers
will
add the nutrient folic acid to most enriched breads, flours, corn meals,
pastas,
rice and other grain products to reduce the risk of neural tube birth defects
in
newborns. Folic acid, or folate, reduces the risk of neural tube birth defects
such as spina bifida when consumed in adequate amounts by women before and
during
early pregnancy. It is a perfect example of how good nutrition can prevent
serious health problems and the associated emotional and financial costs.
The Administration's strategy to prevent teen pregnancy is based on five
principles that research and experience tell us are key to promising community
efforts: parental and adult involvement; strong messages of abstinence and
personal responsibility; clear strategies for young people's futures;
involvement
by all facets of the community; and a sustained commitment to young people.
Beginning in FY 1996, as part of President Clinton's teen pregnancy prevention
strategy, HHS funded 17 grants totaling $5 million to innovative and
comprehensive demonstration programs to prevent early teen sexual activity,
reduce teen pregnancies, and develop and implement innovative comprehensive
programs for pregnant and parenting teens. HHS also implemented the CDC Teen
Pregnancy Prevention Program with grants to 13 community wide coalitions in
communities with high rates of teen pregnancy. In addition, at President
Clinton's insistence, the new welfare law includes provisions requiring teen
mothers to live at home, stay in school, and turn their lives around. The
Department will build on our work in this area in launching a national strategy
to reduce out-of-wedlock teen pregnancy and assure that at least 25% of
communities have teen pregnancy programs in place.
Expanded Financial Audit Coverage and Resolved Audit Weaknesses
To implement the requirements of the GMRA in FY 1996, HHS expanded the
coverage
of funds and systems subjected to audit processes as part of the first-ever
Department wide financial statement audit. Eight HHS OPDIVs received financial
reviews of their accounts and activities — six financial statement audits
(five qualified opinions and one disclaimer) and two assessments of internal
controls. Additionally, audit coverage was provided to several management
information systems maintained by PSC and NIH. Although matters requiring
corrective action were reported on these systems, overall the results were
favorable. The HHS OPDIVs also made progress in resolving weaknesses cited in
FY
1995 audits. All of these efforts have provided HHS a viable foundation as we
work toward a clean opinion on Department wide financial statements.
Launching Initiative to Prevent Tobacco Use by Youth
On August 23, 1996, President Clinton announced the nation's first
comprehensive
program to prevent children and adolescents from smoking cigarettes or using
smokeless tobacco and beginning a lifetime of nicotine addiction. The
President's initiative to protect children is based on the final FDA rule,
published in August 1996, that will make it harder for young people to buy
cigarettes and smokeless tobacco and will reduce the appeal of tobacco products
to children under 18. The rule is based on the finding that cigarettes and
smokeless tobacco products are delivery devices for nicotine, an addictive
drug.
Issuing Surgeon General's Report on Physical Fitness
Secretary Shalala commissioned the first-ever Surgeon General's Report on
Physical Activity and Health, which was published on July 11, 1996. The report
states that physical activity offers substantial benefits in health and well-
being for the vast majority of Americans who are not currently physically
active. It also concludes that regular moderate physical activity can reduce
the
risk of developing or dying from heart disease, diabetes, colon cancer, and
high
blood pressure.
Preventing Violence Against Women
In February 1996, President Clinton announced the opening of a 24-hour,
toll-free hot-line to provide crisis assistance and local shelter referrals to
victims of domestic violence throughout the country. In less than a year, the
hot-line received over 72,000 calls. In October 1996, the Advisory Council on
Violence Against Women distributed a Community Checklist, which includes steps
that every facet of a community can take to prevent domestic violence. The
Council, created in July 1995, is co-chaired by the Attorney General and HHS
Secretary and consists of 47 experts -- representatives from law enforcement,
media, business, health and social services, victim advocacy and survivors --
helping to steer new efforts to prevent violence against women.
Hot-Line Number: 1-800-799-SAFE
"No longer can [domestic violence] be a stealth public menace -- or a family
problem to be solved behind closed doors. We are placing domestic violence on
everyone's radar screen -- where it belongs."
Secretary Donna Shalala March 3, 1996 Before the National Congress of the
Medicine/Public Health Initiative
_______________________________________________________________________________
Challenges
Our nation has never faced more challenges in addressing its citizen's health
than it does today. New highly-contagious infectious diseases that are
increasingly-resistent to pharmaceutical drugs are being transmitted globally
with increasing frequency. Sedentary lifestyles, poor nutrition, addictions,
and
environmental pollution are contributing to the increasing incidence and costs
of
chronic illnesses. The aging Baby Boom is starting to require more health care
services than in the past. Violence in our streets and in our homes presents
not
only an emotional strain on our nation, but a financial drain as well.
We also face challenges related to delivering our nation's needed social
services
which tend to the needs of children, families, and the elderly.
We recognize a multitude of challenges ahead for HHS in the present and near
future. We face challenges directly related to improving our nation's health
and
less directly, but no less importantly, related to building and strengthening
the
administrative infrastructure to enable the efficient delivery of health and
social services.
Welfare Reform
In 1996, Congress passed welfare reform legislation, The Personal
Responsibility
and Work Opportunity Reconciliation Act of 1996 (PRWORA) (P.L. 104-193). It
replaces the AFDC program with a new Temporary Assistance for Needy Families
(TANF) program, which places time limits on receipt of benefits, has work
participation requirements, and reduces benefits for certain families in which
a
family member has been convicted of a drug-related felony, to name a few
provisions. Welfare reform also affects Medicaid eligibility rules. In FY
1997,
HHS will be working diligently with the States and our other customers to
implement this new law, so that welfare regains its status as a "safety net"
rather than a "perma-net."
Medicare and Medicaid Fraud and Errors
Unfortunately, unscrupulous individuals have schemed and defrauded American
taxpayers out of millions of Medicare and Medicaid dollars. Our Operation
Restore Trust has been successfully prosecuting these criminals and recovering
these funds. We are expanding our efforts and dedicating more resources to
detect, prosecute, and prevent fraudulent activities. Medicare and Medicaid
have
also determined subsequent to payment that many claims have been paid in error.
Financial statement audit procedures performed by our OIG have provided us with
new information which has formed the basis for estimates of the frequency and
dollar value of payments made in error in the Medicare program's
fee-for-service
claims. The OIG could not quantify what portion of the error rate was
attributable to fraud but it is known that the errors originated at the
provider
level, not within HCFA. The estimates for errors in claims payments during FY
1996 ranges from $17.8 to $28.6 billion. The audit findings and estimates are
of
great concern to HHS/HCFA management. HCFA has developed an action plan in
response to these findings, which will reduce the opportunity for errors and
fraudulent claims.
Medicare Trust Fund Sustainability
Recent Trustee reports on the Medicare trust funds have focused interest on the
issue of solvency. The Hospital Insurance (HI) Trust Fund assets are invested
in
U.S. Treasury Securities which earn interest while Treasury uses those
resources
for other purposes (decreasing the Treasury's need to borrow from the public in
order to finance the Federal deficit). Unlike the assets of private pension
plans, trust funds do not consist of real economic assets that can be drawn
down
in the future to fund benefits. Instead, they are claims on the Treasury that,
when redeemed, will have to be financed by raising taxes, borrowing from the
public, or reducing benefits or other expenditures. The existence of large
trust fund balances, therefore, does not make it easier for the Government to
pay
benefits. Since 1995, the HI Trust Fund has had more expenditures than
revenues
and to fund the shortfall, HCFA has been redeeming those Treasury Securities.
The
HI Trust Fund assets are projected to be depleted in 2001. The Supplemental
Medical Insurance (SMI) Trust Fund expenditures are growing much faster than
the
overall economy and are requiring increasing amounts of general appropriations,
costs which are shifting to the general public and away from the beneficiaries
whose premiums are covering a decreasing portion of costs.
Health Care's Rising Costs
The cost of health care in America is at an all-time high, due to the higher
costs of treatment, the increasing incidence of health problems, and an aging
population. The Federal portion of these rising costs has contributed to a
substantial portion of the national budget and the national debt. To address
the rising treatment costs, health maintenance organizations (HMOs) are
becoming
more popular in the private sector. Medicare enrollees and Medicaid
beneficiaries are increasingly opting for coverage under managed care plans.
AHCPR's Medical Expenditures Panel Surveys (MEPS) collect detailed information
about the use and payment for health care services. MEPS data will help reach
the objective of assuring the long-term solvency and integrity of Medicare by
providing information for analysis on financing implications of proposed
changes
to Medicare. To address the increasing incidence of health problems, as
Secretary Shalala says, "It's time to focus like a laser beam on prevention."
HHS has many programs and initiatives working synergistically and dedicated to
prevention.
Illness Prevention
Although the United States has the safest food supply in the world, the Centers
for Disease Control and Prevention (CDC) estimates that there are as many as
9,000 food-related deaths and 80 million food-related illnesses each year in
this
country imposing substantial health care costs. Prevention of food-related
illnesses is the major thrust of several of FDA's programs. Many diseases
and
other health problems may be prevented if we can learn more about successful
prevention activities, and if Americans can be convinced to take more personal
responsibility for their health. NIH has research efforts underway to assist
in
the prevention of many health problems. NIH's prevention research is ongoing
in
the fields of: genetic medicine, vaccines, nutrition, environmental toxins,
women's health, and minority health, to name a few. CDC also has numerous
educational programs and other initiatives focusing on prevention including
those
aimed at: preventing diabetes, preventing tobacco use among young people,
promoting physical activity to prevent chronic disease, reducing the incidence
of
unintentional injuries and violence, preventing emerging infectious diseases,
and
lowering children's exposure to environmental hazards.
"...(W)e must complement the medical model - which focuses on treating illness
-
with the health model - which focuses on prevention."
March 21, 1996 Secretary Donna E. Shalala Addressing the Society of Adolescent
Medicine
Couch Potatoes Cost US Billion$
Prevention is Good for Your Health and Your Pocketbook
Every year, the U.S. spends billions of dollars on chronic illnesses and other
health problems that could have been prevented if Americans made better life
style choices. Nearly 47 percent of premature deaths could be avoided by
reducing behavioral risk factors — tobacco use, diet and activity
patterns,
alcohol, illicit use of drugs — and another 17 percent by reducing
exposure
to environmental hazards.
Here is just a sample of how our behavior directly affects our health and
impacts our nation's finances:
Regular, moderate physical activity can substantially reduce the risk of dying
from heart disease and can reduce the risk of developing colon cancer,
diabetes,
and high blood pressure.
Physical inactivity, coupled with poor nutrition, is responsible for at least
300,000 deaths per year in the U.S.
More than $4 billion could be saved if the sedentary adult population began
walking regularly.
Preventing diabetes through improved diets and active lifestyles can save
billions of dollars in Medicare expenditures. Currently, 27 percent of all
Medicare expenditures are related to diabetes.
Preventing chlamydia infection, one of the most prevalent sexually transmitted
diseases, can save $12 for every dollar spent.
Tobacco is the leading cause of avoidable death in the U.S. — killing
more
people than AIDS, automobile collisions, suicides, homicides, fires, and
illegal
drugs combined.
More than 420,000 tobacco-related deaths occur each year from cancer, stroke,
cardiovascular disease, lung disease, low birth weight and other problems of
infancy, childhood burns, and environmental tobacco smoke.
The direct medical costs associated with smoking are estimated at $50 billion
annually.
For every dollar invested in smoking cessation programs for pregnant women,
about
$6 is saved in neonatal intensive care costs and long-term care associated with
low birth weight.
Illegal drug use and illicit use of prescription drugs contribute to suicide,
homicide, motor vehicle injury, HIV infection, pneumonia, hepatitis,
tuberculosis, sexually transmitted diseases, and endocarditis.
An estimated 18 million U.S. residents suffer from alcohol dependence, and more
than 100,000 people die from misuse of alcohol each year.
An estimated 3 million people in the U.S. have serious drug problems.
Approximately 20,000 preventable deaths a year are attributable to the use of
illicit drugs and the illicit use of prescription drugs.
Injury is one of the leading causes of death and disability for all age
groups
— and is the leading cause of death for children and young adults. Major
causes of injury are toxic agents, firearms, motor vehicles, homicide, and
suicide attempts.
Injuries claim nearly 150,000 lives each year.
Including direct medical care and rehabilitation as well as lost income and
productivity, injuries cost an estimated $224 billion a year.
Placing all children in car safety seats could prevent 20,000 injuries, 200
deaths, and save $2 billion per year.
Information Technology
HHS is committed to serving our citizen customers quickly, accurately, and
efficiently. In these modern times, computer networks and systems are an
essential tool for such service. Our information technology challenges include
managing privacy and security issues, ensuring that the Year 2000 will not
interrupt our services, adapting our systems to accommodate electronic commerce
and electronic data interchange, and continuing to improve our internet
communications with our customers so they can have more access to health
information.
Audited Financial Statements
Since HHS accounted for almost 21% of the entire Federal budget in FY 1996, we
have an enormous amount of resources for which we are accountable. HHS is
committed to obtaining a clean audit opinion on its financial statements, both
at
the operating division (OPDIV) level and at the Department wide level. As none
of
the reporting entities received a clean opinion in FY 1996, we have a
significant challenge ahead to meet that goal. In FY 1996, virtually all HHS
funds were subject to a financial audit process, and we will continue these
intensive audit efforts into the future to assure our constituents that we are
accountable for the dollars entrusted to us. We believe that the goal of a
clean opinion will provide us with much more than a stamp of approval from our
auditors. It will signify that we have instilled in our organization and its
systems the internal controls, effective policies, and integrated information
systems which indicate the highest levels of financial discipline and
accountability.
Our commitment to this goal is heightened by the fact that the HHS financial
statements represent a key component of the
Government wide financial statements, which will be prepared for audit for the
first time in FY 1997.
The Government wide financial statements will be audited by the General
Accounting
Office (GAO) as provided in the Government Management Reform Act (GMRA) of
1994.
HHS' complex programs and the audit process and timeliness issues represent a
significant management challenge to our financial managers.
We face additional challenges dealing with the operational aspects of
implementing new accounting standards (especially the cost accounting standard)
and coding inter- and intra- agency transactions to facilitate the eliminations
process at the Departmental and Government wide level. The implementation of
cost
accounting will be integrated with our performance management efforts, and will
improve our ability to evaluate costs of HHS activities and programs.
Managing for Performance
The Government Performance and Results Act of 1993 (GPRA) provided HHS with an
important tool to enable us to manage our organization and allocate our
resources
in ways that will most effectively help us achieve our mission. Since 1993, we
have been developing our plans for implementing GPRA so that we can better
manage
for performance. We have encountered many challenges as we try to develop
outcome performance measures in the social services arena that are acceptable
to
all stakeholders, and even in developing an umbrella strategy for
implementation
that truly works for all of our diverse programs.
_______________________________________________________________________________
Budgetary Highlights
In FY 1996, HHS had net outlays of $319.8 billion, representing 20.5% of all
Federal net outlays. Only spending for Social Security (which became
independent
from HHS in FY 1995) and interest on Federal debt exceeded HHS spending during
the year. ("Net Outlay" is a budgetary term, and is defined as payments to
liquidate obligations, net of refunds and offsetting collections. Outlays do
not
exactly equate with expenses in the financial statements. Outlays are more of
a
cash-basis way of tracking dollars, and expenses are based on accrual
accounting. In this report, we are striving to link and integrate budgetary
and
financial reporting.)
HHS has not always accounted for such a large portion of Federal spending. In
1965, HHS (excluding the Social Security Administration) accounted for only 4%
of
Federal spending, but the accompanying chart reveals that the late 1960's and
the 1990's showed relatively sharp increases in HHS spending as a portion of
the
Federal budget. HHS is projected to account for 25% of the Federal budget by
2002.
Source: Budget of the United States Government: FY 1997
The accompanying charts illustrate the rate of growth of HHS spending and the
effect it has had on increased total Federal spending. Figures have been
adjusted
for the independence of the Social Security Administration, which occurred in
1995. Overall Federal spending has also seen significant growth since 1966.
Much of the growth in HHS' spending (and total Federal spending, in fact) is
attributable to the growing enrollments in entitlement programs. Three decades
ago, there were far fewer Americans enrolled in the Medicare and Medicaid
programs, the programs which account for most of HHS spending. Because many
of
our programs are entitlement programs, we cannot limit enrollment to a certain
number of people. We must enroll every individual who meets the programs'
criteria. Thus, funds are not managed in the same way as in the private sector
or with discretionary (non-entitlement) Federal funds.
There are two more ways of looking at the breakdown of HHS outlays: 1) by
budget function (types of accounts used in the budgetary process, but less
meaningful to the general public), and 2) by operating division (the
managerial/organizational structure of HHS).
The matrix of HHS Net Outlays by Budget Function helps to demonstrate the
concentration of outlays within the various budget functions by the respective
OPDIVs. The largest single budget function is Medicare (which has a category
all
its own), with $174.2 billion in spending, The second largest functional
category, at $113.5 billion, is Health where the bulk of the funds are spent
by
HCFA (for Medicaid) and NIH (for research). ACF has the bulk of
responsibility
for Education, Training and Social Services and also for Income Security
through
the Aid for Families with Dependent Children (AFDC) and Child Support
Enforcement
programs.
Having seen where the dollars are concentrated, next it is interesting to see
where the employees are concentrated. There is no direct correlation between
the
funding an OPDIV receives and the number of employees it has. For example,
HCFA
makes up 83% of the HHS budget, but has only 7% of the total number of HHS
employees. Conversely, IHS has 25% of the employees, but only 0.6% of the HHS
budget. Much of the difference is related to the degree to which OPDIVs
perform
their work through employees versus contractors and whether or not expense
categories include large amounts of entitlement payments and grant awards.
The remainder of Section I provides information on the HHS'
operating divisions,
in descending order of program spending magnitude.
____________________________________________________________________________
Operating Division Highlights
Health Care Financing Administration (HCFA)
The Health Care Financing Administration's (HCFA's) mission is to assure health
care security for Medicare enrollees and Medicaid beneficiaries. HCFA has
approximately 4,100 employees, about 1,400 of which work in 10 regional
offices
around the country providing direct services to Medicare contractors, State
agencies, providers, beneficiaries, and the general public. Approximately
2,700
employees work in Baltimore and Washington, D.C. providing funds to Medicare
contractors, writing policies and regulations, developing more efficient
operating systems, setting payment rates, managing programs to fight fraud,
waste, and abuse, monitoring contractor performance, and assisting States and
Territories with Medicaid issues.
The number of Medicare enrollees and Medicaid beneficiaries has been
continually
increasing, along with the general rises in chronic illnesses and in costs of
health care goods and services. These factors are reflected in the significant
increases in budgetary outlays as can be seen from the accompanying trend line.
HCFA, the largest purchaser of health care in the world, had $266 billion in
net
outlays in FY 1996, a 159% increase since FY 1987.
HCFA is by far the largest component of HHS, accounting for 83% of HHS
outlays
(on a budgetary basis), and almost 85% of HHS expenses (on an accrual
accounting
basis). Medicare expenses account for more than two times the Medicaid
expenses, as can be seen in the accompanying pie chart.
Since 1993, Medicare enrollment has increased by approximately two million. In
the same time period, Medicaid enrollment has increased by more than four
million.
HCFA has encouraged enrollment in managed care programs over fee-for-service
programs, and those efforts have been successful as the managed care rolls have
been growing annually in both Medicare and Medicaid programs.
The Medicare Part A Hospital Insurance (HI) Trust Fund is financed by a 1.45
percent tax on wages and salaries required to be paid by both U.S. employers
and
employees, for a total of 2.9 percent. Collections from today's work force are
deposited into the Trust Fund, and disbursements from the Trust Fund pay
expenses
for today's HI beneficiaries. In prior = years, collections in excess of
disbursements remained in the trust funds, but since calendar year 1995
disbursements began to exceed collections, and the HI Trust Fund asset balances
are declining. The HI Trust Fund is administered by the U.S. Treasury
Department
on behalf of the Health Care Financing Administration (HCFA) of HHS and the
Trustees of the Trust Fund. Trust Fund assets are invested in
interest-earning
U.S. Treasury securities. Interest revenue on investments is recognized by the
Trust Fund as it is earned. The HI program helps pay for hospital, home
health,
skilled nursing facility, and hospice care for the aged and disabled. In 1996,
the HI Trust Fund took in 87 cents for each dollar expended and drew down on
Trust Fund asset balances to make up for the shortfall in revenue. Reflecting
both the law and existing Federal accounting standards, no liability is
recorded
for benefits which will be paid on behalf of today's workers who are currently
paying taxes into the trust fund and will be future beneficiaries upon their
retirement.
Demographic trends pose a long-term challenge to the sustainability of the
trust
funds. There are expected to be 3.6 workers per HI beneficiary when the baby
boom
generation begins to reach age 65 in 2010. Then the worker/beneficiary ratio
is
expected to decline to 2.3 in 2030 as the last of the baby boomers reaches age
65. The ratio is expected to continue declining thereafter (but more
gradually)
as life expectancy continues to lengthen. HI expenditures are projected to
grow
rapidly as a fraction of worker's earnings, from 3.5 percent in 1996 to about
11.5 percent in 2070.
The Medicare Part B Supplementary Medical Insurance (SMI) Trust Fund receives
premium payments on behalf of Medicare beneficiaries who have elected
coverage,
usually as a monthly deduction from their Social Security benefit. In calendar
1995 (which included the first quarter of FY 1996), the monthly premium was
$46.10 per enrollee and in calendar 1996 (which included 3 quarters of FY
1996)
it was $42.50. These premiums are matched almost 3 to 1 by Congressional
appropriations of taxes paid by the general public. The SMI Trust Fund is
administered by the U.S. Treasury Department on behalf of the HCFA and the
Trustees of the Trust Fund. Trust Fund assets are invested in interest-earning
U.S. securities. Interest revenue on investments is recognized by the Trust
Fund
as it is earned. The SMI program pays for physician, outpatient, and other
services for the aged and disabled. In 1996, the SMI Trust Fund took in $1.21
for each dollar expended, despite the fact that the 1996 premium was reduced.
Excess revenues accumulated into the SMI Trust Fund.
The SMI Trust Fund is expected to remain adequately financed into the
indefinite
future, but only because current law provides for the establishment of program
financing each year based on an updated calculation of expected cost per SMI
beneficiary. Premium income is expected to cover a declining share of program
costs. Though the chart on Trust Fund Balances indicates a level of stability
for the SMI Trust Fund, according to the Trustees, there will be a shifting of
a
great share of the increasing program costs from beneficiaries to the general
public. This shift is illustrated in the accompanying chart on SMI Revenue.
Premiums accounted for 23 percent of SMI revenue in calendar year 1996, are
estimated to account for only 16 percent in calendar 2006, and a progressively
lower share thereafter. Because of the past and projected rapid growth in the
cost of the program, the Trustees urged the Congress to take appropriate steps
to more effectively control SMI costs.
Medicaid is the means-tested health care program for low-income Americans,
administered by HCFA in partnership with the States. Medicaid is the primary
source of health care for medically vulnerable Americans, including poor
families, the blind and disabled, and low-income elderly, disabled, and
mentally
retarded persons requiring long-term care. Medicaid now serves about 50
percent
of all AIDS patients and pays for the health care costs of over 90 percent of
the children and infants with AIDS. Total Medicaid spending for AIDS is
estimated
at $3.5 billion (almost four percent of all Medicaid expenses). Medicaid
enrollment has increased from 10 million in 1967 to 37.5 million in 1996, an
increase of 275 percent. Medicaid recipients are now 13.8 percent of the
total
civilian population.
Most of HCFA's work actually conducted through contractors and states;
administration and other accounts for less than 2 percent of total expenses.
HCFA's employees accomplish much of their work is contracted through and in
coordination with: (1) 22,000 employees at 75 Medicare contractors having
primary
responsibility for processing Medicare claims, providing technical assistance
to
providers and responding to queries from beneficiaries, (2) 34,000 State
employees who have primary responsibility for administering Medicaid, (3) 6,000
employees in 53 State survey agencies having responsibility for inspecting
hospitals and nursing homes and other facilities to ensure that health and
safety
standards are met, and (4) 53 Peer Review Organizations employing 1,600
employees
conducting a wide variety of quality improvement programs to ensure quality of
care provided to Medicare beneficiaries. The Social Security Administration
(SSA) and other Federal agencies also provide thousands of other staff, either
full or part time, for Medicare or Medicaid operations.
The HCFA FY 1996 financial statement audit tests included the first
comprehensive, statistically valid sample to determine the error rate of
Medicare fee-for-service benefit payments. The OIG estimates that the range of
improper payments at the 95 percent confidence level is $17.8 to $28.6 billion,
for an error rate of approximately 11 to 17 percent. The OIG used the
midpoint
of this range, or $23.2 billion (about 14% of the $168.6 billion in processed
fee-for-service payments) as the projected estimate of improper payments
caused
by errors made at the provider level. While HHS and HCFA management are not
pleased with the test results, we now have verification of the magnitude and
types of problems so that we could better prepare management's corrective
action
plan, which includes: expansion of Operation Restore Trust, payment safeguard
activities, legislative efforts, education efforts (aimed at providers),
development of sophisticated detection software, increased level of claims
reviews, collecting overpayments, and many other efforts.
The HCFA FY 1996 audited financial statements received a disclaimer of opinion
for reasons presented elsewhere in this accountability report. Due to the size
of
HCFA's financial operations in relation to HHS totals, audit findings related
to
several HCFA accounts will be a key factor in the rendering of the
Department wide financial statement audit opinion.
Medicare Trust Fund Solvency
The Medicare Trust Funds are composed of the excess of Medicare revenues over
expenses that have accumulated since the inception of the Medicare program in
1965. Medicare Trust Funds are invested in U.S. Treasury Securities with
varying
maturity dates and interest rates. Treasury is paying interest on the
Securities
to the Trust Funds for the use of those invested dollars until HCFA redeems
those
investments in order to pay Medicare claims. Each year, the respective Boards
of
Trustees issue Annual Reports on the status of the Trust Funds.
Historically, due to national demographics, Medicare's Hospital Insurance (HI)
Trust Fund has collected more revenue than it has paid in claims. However, in
1995 the HI Trust Funds began to have greater expenses than revenues. Due to
the
aging Baby Boom, this trend will continue into the foreseeable future. Some
key
items of interest from the 1996 Trustees' Report which help explain the
solvency
issues with the HI Trust Fund include:
HI covers 33 million aged and 4 million disabled beneficiaries in 1995.
Twenty-two percent of those beneficiaries used HI services.
HI benefits amounted to $116.4 billion, a 13% increase over the prior year.
Average expenditure per enrollee increased by 11 percent to $3,170.
Payroll taxes accounted for the bulk of total HI income in 1995, the remainder
being composed of interest on trust fund assets, income from taxation of
Social
Security benefits and other sources. Projected HI income would meet only a
declining share of expenditures under present law, and trust fund assets will
be
used to make up more of the difference.
There were 3.9 workers per HI beneficiary in 1995, but that number is expected
to
drop to 2.2 by the year 2030. Payroll tax rates are not scheduled to change in
the future.
Trust fund assets fell by 2.6% in 1995. Intermediate assumptions estimate that
the fund will fall by 9.6% in 1996, and continue to fall at increasing rates
over
the next decade.
Under present law, the HI program will be able to pay benefits for the next
several years from the current trust fund assets. Without corrective
legislation, however, the assets would progressively decline until becoming
exhausted early in calendar year 2001.
The HI program remains severely out of financial balance, and does not meet
even
the Trustees' short-range test of financial adequacy.
The amount of the contingency reserve needed in the Medicare Supplementary
Medical Insurance (SMI) program is much smaller (both in absolute dollars and
as
a fraction of annual program costs) than in the HI program. This is because
the
SMI premium rate and corresponding general revenue matching transfers are
determined annually based on estimated future costs, while the HI payroll tax
rates are set in law and are therefore much more difficult to adjust. However,
the SMI program has experienced increasing costs which are being subsidized by
matching appropriations as the enrollee premiums cover a smaller portion of
costs than in the past. Some key items of interest from the 1996 Trustees'
Report which help explain the problem with increasing SMI program costs
include:
In 1995, SMI benefits amounted to $65 billion, about an 11% increase over 1994.
Average expenditures per enrollee increased by 9% to $1,824.
Premiums account for 33% of total trust fund revenues, general appropriations
account for about 65%, and interest and other miscellaneous income accounted
for
the remainder. Premium income is expected to cover a declining share of
program
costs.
The SMI Trust Fund is expected to remain adequately financed into the
indefinite
future, but only because current law provides for the establishment of program
financing each year based on an updated calculation of expected cost per SMI
beneficiary.
SMI expenditures are expected to continue to grow faster than the economy as a
whole. SMI outlays were almost 1% of the Gross Domestic Product (GDP) in 1995
and are projected to grow to almost 3% by 2020.
In both Trustee reports, Trustees urged "prompt, effective, and decisive
action"
to deal with the growing problems of costs and trust fund solvency. As this
Accountability Report went to print, the Balanced Budget Act of 1997 was
enacted.
It will significantly effect trust fund solvency.
See 1996 Annual Report of the Board of Trustees of the Federal Hospital
Insurance Trust Fund, and 1996 Annual Report of the Board of Trustees of the
Federal Supplementary Medical Insurance Trust Fund.
Administration for Children and Families (ACF)
ACF's mission is to lead the nation in improving the economic and social
well-being of families, children, individuals, and communities. ACF manages 47
programs including some of the better-known Federal programs: Aid to Families
with Dependent Children (AFDC - recently replaced with another program under
new
welfare reform legislation), Child Support Enforcement (CSE), Head Start, and
the
Low Income Home Energy Assistance Program (LIHEAP).
ACF received $33.3 billion in FY 1996 appropriations, a $606 million increase
over FY 1995 appropriations due largely to higher appropriations for the Foster
Care and Aid to Families with Dependant Children (AFDC) programs. Congress
increased the appropriations for these programs based on projected increases in
their costs. Instead, AFDC caseloads fell, and cost increases in both programs
failed to materialize. The unused budget authority in Foster Care lapsed,
while
in AFDC, due to the no-year nature of its appropriations, unused budget
authority was carried forward into FY 1997. The lower costs also resulted in a
substantial decline in overall ACF outlays, as the accompanying chart
indicates.
Reduced funding for other large ACF programs such as the Low Income Home Energy
Assistance Program (LIHEAP) and the Social Services Block Grant (SSBG), and
reductions and/or elimination of a number of smaller ACF discretionary
programs
further reduced 1996 outlays.
AFDC was the nation's largest cash assistance program serving needy families
with
children. In FY 1996, combined Federal and State benefit payments of
approximately $20.5 billion ($11.5 billion in Federal dollars alone) went to
over
4.3 million families comprised of 12 million individuals.
In FY 1996, approximately $11.9 billion was collected in child support, and
services were provided to over 19 million cases through the CSE program. In
addition, over one million paternities and over one million new support orders
were established, and almost five million absent parents were located.
Head Start provides learning opportunities for children from low-income
families.
In FY 1996, the enrollment of approximately 752,000 pre-school children from
low-income families in about 1400 local Head Start programs
In 1996, benefits were paid on behalf of approximately 267,000 foster children
per month and the average monthly number of children for whom adoption
assistance payments were made was about 123,000. Also in 1996, ACF helped to
fund more than 375 youth shelters that provide short-term emergency shelter and
other services to runaway and homeless youth. Nearly 70 percent of the youth
entering the shelters were reunited with their families.
ACF's most immediate challenge is the implementation of recent welfare reform
legislation. The Personal Responsibility and Work Opportunity Reconciliation
Act
of 1996 (PRWORA) created the Temporary Assistance for Needy Families (TANF)
program to replace the AFDC and other programs. It contains requirements for
beneficiaries to work and provides a performance bonus to States for moving
welfare recipients into jobs. It shifts much of the responsibility of
managing
the welfare programs to the States, and ACF will be working closely with the
States to coordinate and facilitate this transition.
Child Abuse Incidence Rising
The National Incidence Study (NIS), which is funded by the National Center on
Child Abuse and Neglect, estimates that the number of abused and neglected
children grew from 1.4 million in 1986, when the last NIS report was conducted,
to over 2.8 million in 1993. During the same period, the number of children
who
were seriously injured quadrupled from about 143,000 to nearly 570,000. The
report also estimates that in 1993, only 28 percent of the children identified
by the study as harmed by abuse and neglect were investigated by state child
protective services, a significant decrease from the 44 percent investigated in
1986.
National Institutes of Health (NIH)
The National Institutes of Health (NIH) is the world leader in medical
research.
Its mission is to sponsor and conduct medical research that leads to better
health for all Americans.
NIH's broad array of research and research support activities are conducted
within and supported through the component Institutes and Centers. The major
share of the NIH budget — approximately 81 percent — is dedicated to
the support of more than 50,000 extramural investigators affiliated with 1,700
universities, academic medical centers, and other research facilities. These
extramural research sites are located in all 50 states, the District of
Columbia, Puerto Rico, Guam, the Virgin Islands, and points abroad. A smaller
portion of the NIH budget — approximately 11 percent — supports the
intramural research program, a core program of basic and clinical research
activities administered and staffed by NIH's own scientists.
The 10-year historical trend in net outlays for NIH is reflected in the
accompanying chart, which indicates a slight drop in net outlays in FY 1996.
This
drop is due to billing adjustments for grants from previous years which were
charged in 1995 causing a spike in the trend line. Research funding in FY 1996
actually increased by 6.1% over FY 1995, or $687 million.
In FY 1996, NIH had many significant research advances across the broad
spectrum
of research fields, including:
discovering a skin cancer gene, developing new leads on how HIV infects cells,
using gene therapy to prolong immune cell survival in HIV-infected patients,
proving a curative therapy for Sickle Cell Disease, developing a research tool
for detecting presymptomatic Alzheimer's Disease, using hemoglobin to help
regulate blood pressure, finding that Chlamydia screening reduces pelvic
inflammatory disease rates, finding that treatment for Hodgkin's Disease
increases the risk of breast cancer, and showing that children can be taught
to
lower fat intake and boost physical activity.
Grants and contracts represent NIH's two largest expense categories, and NIH
has
been working to modernize some of the administrative processes in those areas.
In FY 1996, NIH participated with the Departments of Energy and Defense in a
pilot study to test a new system for the submission of grant application
information using Electronic Data Interchange (EDI) standards developed
collaboratively by the Federal agencies. Also in 1996, the National Institute
of
Allergy and Infectious Diseases (NIAID) was posting its contract request for
proposals (RFPs) on the NIH Gopher server, and the National Cancer Institute
(NCI) and National Heart, Lung, and Blood Institute (NHLBI) were planning to do
the same. By posting Request for Proposals (RFPs) on the Gopher server, NIH
expected to realize substantial savings in the cost of mailing and copying,
and
in contract staff effort.
"We must continue to unlock the incremental mysteries in basic science that
culminate in blockbuster discoveries over time. But, we must cast a wider net
than that. It must encompass behavioral research, occupational research,
health
services and outcomes research, and environmental research -- all of which
hold
the potential to prevent disease -- and help Americans live healthier lives."
Secretary Donna Shalala March 3, 1996 Addressing the National Congress of the
Medicine/Public Health Initiative
Health Resources and Services Administration (HRSA)
The Health Resources and Services Administration (HRSA) improves the health of
the Nation by assuring quality health care to underserved and vulnerable
populations and by promoting primary care education and practice. HRSA
accomplishes its mission largely by awarding grants (over $2.5 billion in FY
1996) to organizations which have agreed to perform various functions,
research,
or other activities.
The 10-year trendline reflects a significant increase in net outlays due to the
steadily expanding appropriations for traditional HRSA programs such as
Community Health Centers and Maternal and Child Health grants and the
implementation of strongly funded new national programs such as the Ryan White
AIDS CARE Act. HRSA has succeeded in establishing new program initiatives and
expanding existing ones while maintaining a steady level of administrative
costs.
Community Health Centers expand availability of health care services.
HRSA administers the Public Housing Primary Care Program which was designed to
improve the health status of residents in public housing developments by
providing primary care on site or at immediately accessible locations. In FY
1996, 21 organizations in 20 cities were awarded approximately $9.3 million in
program funds, which the grantees must match dollar for dollar in nonfederal
funds.
HRSA administers the Federal Government's only programs focused on the critical
issues of health professions and nursing education. It administers student
assistance programs, including the Health Professions Student Loan (HPSL)
Program, the Health Education Assistance Loan (HEAL) Program, and the Nursing
Student Loans (NSL) Program. The amounts due from borrowers under these loan
programs are included in receivables on the HHS balance sheet. Health
education
grant programs are in the process of restructuring the grants award process in
light of recent staff reductions in those areas.
Additionally, HRSA supports numerous projects conducting research that seek to
reduce infant mortality and improve the health of children and families, and
strives to ensure the equitable distribution of available organs to patients
and
transplant centers throughout the nation. It also administers the National
Vaccine Injury Compensation Program to provide compensation for vaccine-related
injury or death.
Certified Nurse Midwives fill a need in the health community.
Community Health Centers Service Underserved Population
HRSA makes grants to Community Health Centers (CHCs), which are located in
areas
throughout the country where there are financial, geographic, or cultural
barriers to primary health care for a substantial portion of the population.
In
many communities, these centers are the sole providers of care to a highly
vulnerable, culturally diverse, medically needy population. Many underserved
individuals live in inner cities or rural areas that lack adequate resources,
especially primary care physicians. All are poor, near poor, or the working
poor. Many face financial, geographic, racial, ethnic and language barriers
that
inhibit their seeking of primary care and the efficacy of care they receive.
They are at risk for communicable and chronic illnesses, and multiple health
and
social needs.
As a result, Health Centers offer related social/support services on-site or in
proximity such as health education, outreach, transportation, translation, and
case management. Health Centers also link with services such as Women with
Infants and Children (WIC), welfare, Medicaid eligibility, substance abuse and
other social services which are, many times, located on-site providing
"one-stop
shopping." Centers also offer either early morning, early evening, late
evening,
or Saturday hours to assure that their patients have convenient and accessible
times to receive preventive and primary care services. In addition, Health
Centers establish firm arrangements for after-hours coverage among their own
providers or other community providers and follow-up center patients who
receive
such treatment.
Centers for Disease Control and Prevention (CDC)and Agency for Toxic Substances
and Diseases Registry (ATSDR)
The Centers for Disease Control and Prevention (CDC), headquartered in Atlanta,
Georgia, celebrated its 50th Anniversary in FY 1996. Over the past 50 years,
CDC
has dedicated some of the nation's best minds to fight against infectious and
chronic diseases, injuries, work place hazards, birth defects and disabilities,
and environmental hazards. CDC combats public health problems through a
comprehensive, systematic process that (1) detects problems, (2) determines
their
causes, (3) develops and tests potential strategies for handling problems, and
(4) implements health promotion and disease prevention programs. CDC's work is
important because control and prevention programs can reduce the proportion of
public and private dollars spent on health care.
"From Ebola in Zaire to the hantavirus in the United States, emerging
infectious
diseases know no borders--and our pursuit of their prevention and cures must
know no end."
Secretary Donna E. Shalala May 21, 1996 Addressing the 49th World Health
Assembly, Geneva, Switzerland
The trendline for CDC's net outlays for the past decade indicates a steady
increase in funding. Most of CDC's revenue is derived from Appropriated
Capital,
though there is some revenue from the sale of goods and services to other
governmental agencies and to the public. CDC's largest expense category is
"grants, subsidies, and contributions," because so much of its work is carried
out through grants to states, universities, and non-profit organizations.
In 1996, CDC:
supported broad-based immunization efforts worked to control infectious disease
threats including foodborne disease outbreaks, AIDS, and new, drug-resistent
strains of tuberculosis, focused efforts to prevent tobacco use, continued to
improve early detection and control systems for breast cancer and cervical
cancer, recommended that folic acid be added to foods to prevent certain birth
defects, conducted research to identify potential dangers of airbags to
infants,
and established a Division on Nutrition and Physical Activity whose activities
are intended to result in reduced levels of chronic disease.
CDC Addresses Dangerous Hantavirus
In collaboration with many state and local parties, CDC has investigated
hantavirus cases throughout the country. As of December 31, 1996, a total of
155 cases of hantavirus pulmonary syndrome (HPS) have been confirmed; of
these,
74 were fatal. The cases have been reported from 26 different states, as well
as
from Argentina, Brazil, Canada, and Paraguay. CDC has identified three, and
investigating the possibility of four, hantaviruses which cause human disease
in
the United States. It is important to determine how many more hantaviruses are
in this country, which kinds of rodents carry them, and whether they are
associated with human disease.
Entering or reopening unused buildings with active rodent populations has been
identified as an activity associated with risk for hantavirus infection. CDC
and
its collaborators developed guidelines on how to perform this activity safely
and
communicated these recommendations and other prevention messages to high risk
populations. An evaluation of the impact of these prevention messages on
behavior and disease prevalence is planned for the near future.
The effectiveness of the investigational antiviral drug ribavirin for treating
HPS has not been conclusively demonstrated. CDC assisted NIH in developing a
protocol to conduct a randomized, double-blind trial of ribavirin in 1996.
CDC
is also investigating ways the virus causes human disease and believes this
information will enable us to help develop new therapies for the disease.
CDC's FY 1996 financial statements were presented with those of the Agency for
Toxic Substances and Disease Registry (ATSDR). In this Accountability Report,
CDC's financial statements also include amounts for ATSDR. ATSDR receives its
funding from the Environmental Protection Agency's (EPA's) Superfund program
through an interagency agreement, and its outlays are included in the EPA
budget.
ATSDR works to prevent exposure and adverse human health effects associated
with
exposure to hazardous substances from waste sites, unplanned releases, and
other
sources of pollution.
"...infants and young people are particularly vulnerable to pesticides --
chemicals can go a long way in a small body."
President Bill Clinton August 3, 1996 Radio Address
Substance Abuse and Mental Health Services Administration (SAMHSA)
SAMHSA's mission is to improve the quality and availability of prevention,
early
intervention, treatment, and rehabilitation services for substance abuse and
mental illnesses, including co-occurring disorders, in order to improve health,
and reduce illness, death, disability, and cost to society.
The number of Americans with a diagnosable mental disorder is conservatively
estimated at 52 million adults and 8 million children. An estimated 21 million
Americans are chemically dependent and require treatment. The total economic
cost of substance abuse and mental illness (including the related effects on
crime, injuries, welfare, etc.) is estimated to be in excess of $314 billion.
SAMHSA operates three centers: The Center for Mental Health Services, the
Center
for Substance Abuse Prevention, and the Center for Substance Abuse Treatment.
SAMHSA's funds are channeled through Federal grants and contracts to States and
local agencies and to private service providers in order to improve the
effectiveness of existing prevention and treatment services, expand and
maintain
service capacity, as well as measure outcomes and promote program
accountability.
SAMHSA was formed in 1993, its highest historical year of net outlays. In
1996,
net outlays dropped significantly due to programmatic and administrative
overhead
cuts made by Congress. Specifically, SAMHSA's Knowledge Development and
Application program was reduced by 57% and its direct operations budget was cut
by 8%.
Students helped launch and promote SAMHSA'sChildren's Mental Health National
Education Campaign
SAMHSA's FY 1996 budget was $1.9 billion. Of these funds, $1.5 billion were
appropriated to two block grants to States - the Community Mental Health
Services
Block Grant ($275 million) and the Substance Abuse Prevention and Treatment
Block
Grant ($1.2 billion). Congress appropriated $220 million for SAMHSA's new
Knowledge Development and Application program. This amount was significantly
below the $346 million required to meet all of the Agency's outstanding
commitments for grants and programmatic contracts.
To determine the best possible approach for making the needed reductions in
grants and programmatic contracts, agency-wide criteria were established for
the
continuation of funding. Each Center went through a process that determined
which programs or groups of similar projects were most likely to further the
Agency's goals of developing new knowledge and ensuring that information
gained
gets into practice. SAMHSA reduced funding for grants by 36 percent and
contracts by 65 percent. Overall, 129 grants were discontinued and others
received reductions in funding. (Subsequently, in FY 1997, a significant
number
of discontinued grants were restored by Congressional "earmarking.")
In addition to the budgetary challenges faced in FY 1996, SAMHSA also faced a
reorganization effort which ultimately resulted in streamlined operations and
the
deployment of 44 full time equivalents (FTEs) from administrative and
grant/contract review functions to the Centers, to enhance the numbers and
capability of staff in areas which are considered essential for key program
areas of the future.
Federal Programs Shown Effective
A recent report by the National Treatment Improvement Evaluation Study (NTIES)
is
a five-year study of the impact of drug and alchohol treatment on 5,388
clients
treated in substance abuse treatment programs funded by SAMHSA. The largest
study
of its kind, the study showed an overall 50 percent decline in drug use one
year
after treatment among clients served by Federally-funded drug treatment
programs.
Indian Health Service (IHS)
The AI/AN population growth rate is approximately 2.1 percent per year.
The Indian Health Service (IHS) is responsible for providing Federal health
services to approximately 1.4 million American Indians and Alaska Natives
(AI/AN)
who belong to more than 550 Federally-recognized tribes in 35 states.
The 10-year trendline in net outlays reveals that after several years of
increasing outlays, 1996 net outlays increased at a slower rate.
IHS uses four distinct systems to deliver health care:
IHS Direct Health Care Services. The IHS administers 37 hospitals, 61 health
centers, 4 school health centers, and 48 smaller health stations. Services
provided include: inpatient and outpatient medical care, dental, mental
health,
alcohol and substance abuse treatment and prevention, public health nursing,
community health services, nutrition, and environmental health services.
Tribally-Operated Health Care Services. The IHS funds tribal governments and
organizations to provide direct care by contracts and other agreement
mechanisms
through 12 hospitals, 134 outpatient health centers, four school health
centers,
89 health stations, 152 Alaskan village clinics and 270 Community Health
Representative contracts.
Urban Indian Health Services. The IHS contracts with 34 urban Indian
communities
to provide health care services ranging from outreach and referral stations to
comprehensive outpatient health clinics.
Contract Health Services. The IHS administers a contract health services
program
for the purchase of medical services from non-IHS providers. Patients are
referred for episodic care when the needed services are unavailable in IHS or
tribally-operated facilities.
Because the IHS is in the health care delivery business, it has been operating
in
a performance based mode well before the government reinvention mandates. For
example, the Indian Health Care Improvement Act and the Healthy People 2000
initiative demand process and outcome objectives as well as performance
measures
and indicators. In many instances, complying with the requirements of the
Government Performance and Results Act will only require documentation of
ongoing efforts.
In FY 1996, the IHS submitted two pilot GPRA performance measures along with
the
FY 1998 budget. In addition, planning began for the FY 1999 GPRA process.
Improvements in the health of AI/ANs can best be expressed in the increase in
years of life expectancy, decrease in infant mortality rates and the decrease
in
mortality rates. The AI/AN health status has improved dramatically since 1973
as
measured by reduced mortality rates.
The difference in life expectancy at birth for AI/ANs as compared to the US
rate
for all races has narrowed to 2.6 years for calendar year 1992 (most recent
data
available).
Infant mortality and maternal mortality rates have declined 60 percent and 75
percent, respectively.
Food and Drug Administration (FDA)
"Americans have enough on their minds without having to worry about whether or
not the food they eat will put them in harm's way."
President Bill Clinton August 3, 1996 Radio Address
The Food and Drug Administration (FDA) is one of our nation's oldest consumer
protection agencies. It is a scientific regulatory agency mandated to protect
and promote the health and well-being of consumers in the United States. In
carrying out this mandate, FDA's approximately 9,000 employees monitor the
manufacture, import, transport, storage, and sale of $1 trillion worth of
products each year, which account for 25 cents of every dollar spent by
American
consumers.
The agency's responsibilities include ensuring that: (1) food is safe,
wholesome,
and free from adulteration; (2) human and animal drugs, biological products
(vaccines and blood products), and medical devices are safe and effective; (3)
radiological products are safe and do not expose people to unnecessary
radiation;
(4) cosmetics are safe and unadulterated; and (5) all the above mentioned
products are honestly and informatively labeled.
As can be seen in the 10-year trendline, FDA's net outlays were increasing at a
more rapid pace during some years in the late 1980's and in the 1990's. This
is
attributable to increased funding targeted towards expediting reviews of
applications for generic drugs and AIDS related products, food safety
inspections, the passage of the Safe Medical Devices Act, construction of new
facilities, and efforts to eliminate the backlog of overdue new drug
applications during those periods.
FDA ensures that drugs aretested for safety.
The Prescription Drug User Fee Act (PDUFA) of 1992 authorizes the assessment
and
collection of user fees for drug applications, establishment registrations,
and
product listings in order to enhance and expand FDA's review process. PDUFA
performance goals were established through negotiations between FDA and the
pharmaceutical and biologics industries. The goals phase-in expectations for
FDA's prompt review of new drug applications (NDAs) , resubmitted NDAs, and
efficacy and manufacturing supplements. The goals also required the
elimination
of overdue backlogs of such applications which pre-existed PDUFA. With each
passing cohort year, they become more stringent. (A cohort is defined as the
group of submissions filed with FDA during a particular fiscal year.)
Fifty-five
percent of the FY 1994 submission cohort must have been reviewed and acted upon
on time (12 months for NDAs and efficacy supplements, but only six months for
resubmissions and manufacturing supplements). The percentage changed to 70
percent for the FY 1995 submission cohort, 80 percent for the FY 1996
submission
cohort and is be 90 percent for the FY 1997 submission cohort. For priority
NDAs
and efficacy supplements in the FY 1997 submission cohort, the specified time
is
reduced from 12 to six months.
The FDA, committed to responding to these additional resources, has met or
exceeded these goals for the FY 1995 cohort and expects to do the same for FYs
1996 and 1997 cohorts. Progress related to the achievement of PDUFA goals is
stated as of a certain date, until all applications in the cohort are
considered
closed. In FY 1995, FDA eliminated the overdue backlog and continued to improve
the timeliness of its reviews during FY 1996. The following table shows
significant improvement in FDA's "on time" reviews for both FY 1994 and 1995
cohorts.
Percent of "On Time" Reviews for FY Cohorts As of 12/31/96
Other FDA accomplishments in FY 1996 included: approval of the first home
specimen collection HIV test system, completion of 80 food and color additive
petitions (equal to the FY 1996 goal and an increase from the 55 completed in
FY
1995), issuance of the Fish and Fishery Products Hazards and Control Guide,
training and certification of 64 Mammography Quality Standards Act (MQSA)
inspectors, and the performance of over 8,700 mammography facilities
inspections.
FDA Responds Quickly to "Mad Cow Disease"
In March 1996, an association between Bovine Spongiform Encephalopathy (BSE),
also known as "Mad Cow Disease," and an ailment in humans known as new variant
Creutzfeldt-Jakob disease (nv-CJD), was reported by researchers from the United
Kingdom. The FDA quickly responded by publishing an Advanced Notice of
Proposed
Rule making on May 14, 1996. This was followed by a proposed rule dated January
3, 1997 to regulate persons that manufacture, blend, process, and distribute
certain animal protein products and ruminant feeds containing such products.
After receiving over 700 comments on the proposed rule, a final rule was
published in the Federal Register on June 5, 1997 (62 FR 30963). The rule
prohibits, with certain exceptions, the use of proteins derived from mammals
in
feeds given to ruminant animals such as cows, sheep, and goats. Pig proteins
will be allowed. The BSE can be passed to animals through the ingestion of
feeds made from infected animals. Although no cases of the disease has ever
been
diagnosed in the United States, the rule is to prevent the establishment and
spreading of BSE in the United States and the potential risk of nv-CJD to
humans
who may consume foods made with BSE infected tissue. The final rule is
effective August 4, 1997.
Administration on Aging (AOA)
The Administration on Aging (AoA) serves older individuals and their caregivers
through the provision of grants and dissemination of information to States,
Tribes, tribal organizations, and other entities. AoA works through a
nationwide
network of regional offices, State and Area Agencies on Aging, and tribal
organizations to plan, coordinate, and develop community-level service systems.
The small staff of AoA (146 Full Time Equivalents), reduced by more than 20
percent over the last several years, is responsible for overseeing the vast
network of 57 State units, 222 Indian tribal organizations serving more than
300
tribes, 661 area agencies on aging and more than 27,000 service providers
throughout the country.
The trendline for AoA's net outlays reveals a drop in net outlays in FY 1996
compared to FY 1995 This is because funding for AoA's programs (including
formula grants) dropped $46.7 million or 5.3% in 1996.
One of AoA's most popular programs is its nutrition services ("Meals on
Wheels"), which provide over 240 million congregate and home-delivered meals
annually. It is one of the most efficient and effective Federal programs,
according to a Congressionally-mandated evaluation completed in 1996.
Other AoA activities include:
Alzheimer's demonstration grants Support services (rides to doctors and
pharmacies, nutrition related activities, information and referrals, etc.)
Elder
rights and legal assistance programs Outreach, counseling, and assistance, and
Prevention of elder abuse.
AoA's support services help meet the needs of Seniors.
Agency for Health Care Policy and Research (AHCPR)
The mission of the Agency for Health Care Policy and Research (AHCPR) is to
generate and disseminate information that improves the delivery of health
care.
AHCPR's research goals are to determine what works best in clinical practice;
improve the cost-effective use of health care resources; help consumers make
more informed choices; and measure and improve the quality of care.
In its brief history to date, AHCPR's net outlays have been a short series of
peaks and valleys. This is due to the volatile change in the mix of AHCPR's
funding sources, which include budget authority funds as well as offsetting
collections, from year to year. Net outlay amounts are calculated by deducting
offsetting collections from disbursements. Consequently, the "peaks" and
"valleys" are driven by the amount of offsetting collections appropriated to
AHCPR.
In April 1996, AHCPR released a landmark computer tool for widespread testing
and
use making it easier for health plans, providers, and purchasers to choose a
use
clinical performance measures to assess the quality of the services they
provide
and purchase. CONQUEST 1.0, the Computerized Needs-Oriented Quality
Measurement
Evaluation System, summarizes information on approximately 1200 clinical
performance measures developed by public and private sector organizations to
examine the quality of clinical care.
AHCPR informs the lay public about the results of research by publishing
consumer
guides based on scientific findings. In August 1996, AHCPR issued Prescription
Medicines and You: A Consumers Guide, to help consumers work with their
doctors
in: learning about proper use of medicines; monitoring their side effects;
considering their impact on allergies and pregnancy; evaluating medicines'
effectiveness, mixing them with other prescription and over-the-counter drugs,
and considering the patient's complete treatment including diet and exercise.
Other consumer guides include: Choosing and Using a Health Plan, Be Informed:
Questions to Ask Your Doctor Before You Have Surgery, and What You Should Know
About Stroke Prevention, as well as a list of clinical practice guidelines by
condition. All of the guides are posted on AHCPR's Internet site.
Program Support Center (PSC)
The PSC was formed in 1995 by combining the administrative services activities
formerly located in the Office of the Secretary, and funded by the OS Working
Capital Fund with activities formerly in the Office of the Assistant Secretary
for Health, the Food and Drug Administration, the Health Resources and Services
Administration and the Indian Health Service. These former Public Health
Service
(PHS) activities were funded by the PHS Service and Supply Fund. The formation
of the PSC resulted from the Department's REGO II analysis with a goal of
further streamlining and minimizing duplication of functions in the provision
of
cost effective administrative services to components of the Department and
other Federal agencies.
A newly revolving fund, the HHS Service and Supply Fund was established (by 42
USC 231) to support PSC's activities. An appropriated fund is managed for
retirement pay and medical benefits for commissioned corps personnel.
The formation of the PSC resulted from the Department's REGO II analysis with
a
goal of further streamlining and minimizing duplication of functions in the
provision of cost effective administrative services to its users. The PSC is
the first true business enterprise at HHS, providing services on a competitive,
fee-for-service basis to customers throughout HHS and to over 30 Federal
agencies. Services are provided in four broad business areas, each described
below.
The Human Resources Service provides a full range of personnel management
services including payroll management and operations; personnel operations
services for civilian and commissioned personnel; common needs training;
employee
relations and labor relations; and administration of the Board for Corrections
of PHS Commissioned Corps Personnel Records.
The Financial Management Service supports the financial operations of HHS and
other Federal Departments through the provision of payment management services
for departmental and other Federal grant and program activities; accounting and
fiscal services; debt management services; and the review negotiation and
approval of rates, including indirect cost rates, research patient care rates,
and fringe benefit rates.
The Administrative Operations Service supports the administrative management
functions within the Department in the areas of property and material
management, and support services ranging from telecommunications services and
commercial graphics to mail distribution. Included is the operation of a
medical
supply depot located in Perry Point, Maryland, that provides support to over
1,700 customers on a worldwide basis and is an economical source of supply for
all Federal customers.
The Information Technology Service provides automated data processing (ADP)
services for HHS and other Federal entities. It provides customers with
various
ADP services, resources, technical support and ADP planning assistance. In
addition, it develops and operates the Departmental Information Management
Exchange System, a nationwide telecommunications network, and serves as the HHS
Executive Agent for Department wide connectivity.
_______________________________________________________________________________
Notes To The Financial Statements
U.S. Department of Health and Human Services Notes to the Financial Statements
As
of September 30, 1995(Unaudited) and 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared to report the financial position
and
results of operations of the U.S. Department of Health and Human Services
(HHS)
as required by the Chief Financial Officers Act of 1990 and the Government
Management Reform Act of 1994. They have been prepared from Departmental
records in accordance with the form and content requirements of OMB Bulletin
97-01 and follow the hierarchy of accounting principles and standards
contained
therein. These statements are therefore different from financial reports
prepared
pursuant to other OMB directives that are primarily used to monitor and control
HHS's use of budgetary resources.
Statements of cash flows and statements of budgetary resources and actual
expenses are not included as principal financial statements for HHS and
Operating
Division (OPDIV) reports. The Office of Management and Budget (OMB) approved
HHS's request to waive these requirements for FY 1996 reporting.
The financial statements combine the balances of about one hundred forty
discrete appropriations and fund accounts, plus a number of accounts used for
suspense, collection of receipts and general Governmental functions. Account
balances are combined from the financial statements of HHS's twelve OPDIVs,
each
issued under separate cover. Supplemental information is accumulated from the
OPDIV reports, regulatory reports and other sources within HHS. Information is
generally presented herein on a summary level, hence, greater detail on OPDIV
programs and activities is found in the annual reports prepared by the OPDIVs.
For most HHS programs, transactions are recorded on an accrual accounting basis
and a budgetary basis. The cash basis is used by HCFA for Medicare benefit
payments and for Medicaid Program draws by States to cover current quarter
expenses. For both programs, an accrual method adjustment is made by recording
year-end estimates of unpaid liabilities. Under the accrual method, revenues
are recognized when earned and expenses are recognized when a liability is
incurred, without regard to the receipt or payment of cash.
Terminology
Certain terms are used on the statement of financial position which may be
unfamiliar to readers who are not working within the Federal financial
community:
Entity assets are those assets which the reporting entity holds and has the
authority to use in its operations; Non-entity assets are those the entity
holds
but does not have the authority to use; Unfunded liabilities are for which
budget
authority has not been received; Future Funding Requirements is a component of
net position disclosing the sum of all unfunded liabilities of the entity.
Financing Sources
Congressional appropriations are the primary funding source for most of the
Department's programs. For financial statement purposes, appropriations are
recognized as a financing source as expenses are incurred.
Medicare's HI Trust fund is financed by a 1.45 percent tax on employee earnings
required to be paid by both U.S. employers and employees; (2) The SMI Trust
fund
receives premium payments from Medicare beneficiaries and these amounts are
matched approximately 3 to 1 by Congressional appropriations. Interest revenue
on investments is recognized as it is earned.
Reimbursable service agreements between HHS activities and with other Federal
agencies generally recognize revenues when the related expenses are incurred.
Revolving funds and reimbursable agreements recognize revenue when goods are
delivered or services rendered. Various user fees are collected to recover the
full cost of services provided.
Retirement Plans
Most HHS employees participate in the Civil Service Retirement System (CSRS) or
the Federal Employee Retirement System (FERS). Under CSRS, HHS makes matching
contributions equal to 7 percent of basic pay. For FERS employees, HHS
contributes the employer's matching share for Social Security and contributes
an
amount equal to one percent of employee pay to a savings plan and matches up
to
an additional 4 percent of pay. Most employees hired after December 31, 1983
are covered by FERS. The Office of Personnel Management reports on CSRS and
FERS assets, accumulated plan benefits, unfunded liabilities, if any,
applicable
to Federal employees.
Note 8 provides information on the HHS-administered Public Health Service
Commissioned Corps Retirement System.
Leave
Annual leave is accrued as it is earned, and the accrual is reduced as leave is
taken. The accrual for accumulated annual leave is based on current year pay
rates. Sick leave and other types of leave are expensed as leave is taken.
Funds With U.S. Treasury
HHS does not maintain cash in commercial bank accounts. Cash receipts and
disbursements are processed for HHS by the U.S. Treasury. The balance of this
account primarily represents amounts available to pay current liabilities.
Accounts Receivable Accounts receivable consist of amounts owed to the
Department by other Federal agencies and the public. Amounts due from the
public
are presented net of allowances for uncollectible accounts. The estimate of
an
allowance is based on past collection experience and/or an analysis of the
outstanding balances.
Loans Receivable
Loans are accounted for as receivables after funds are disbursed. In
accordance
with Credit Reform legislation, for loans obligated prior to October 1, 1991,
loan principal, interest, and other costs are reduced by an allowance for
estimated uncollectible amounts based on historical data and current market
factors. For loans obligated on or after October 1, 1991, the loans receivable
is reduced by an allowance equal to the present value of the subsidy costs
associated with these loans.
Investments
Medicare Trust fund balances in excess of current needs are invested in
interest-bearing obligations of the United States or in obligations guaranteed
as to both principal and interest by the United States.
Inventories
HHS maintains inventories almost entirely for consumption by the purchasing
OPDIV
or other HHS components. Most inventories are of a medical nature, consisting
of such materials as pharmaceuticals, medical supplies, biological products
and
vaccines. Generally, these inventories are recorded at (1) the lower of cost
(using weighted-average cost method) or market, or (2) historical cost.
Property and Equipment
Property and equipment purchases and additions are valued at cost. Equipment
is
capitalized when its cost is $5,000 or more and it has a useful life of more
than two years. Both property and equipment are depreciated on a straight-line
basis over the estimated useful life of the item. Land is not depreciated.
Normal maintenance and repair costs are expensed as incurred.
Liabilities are recognized for amounts of probable future outflows or other
sacrifices of resources as a result of past transactions or events. Since
HHS
is a component of the U.S. Government, a sovereign entity, its liabilities
cannot be liquidated without legislation that provides resources to do so.
Unfunded liabilities are incurred when funding has not yet been made available
through Congressional appropriations or current earnings. HHS recognizes such
liabilities for employee annual leave earned but not taken, amounts billed by
the
Department of Labor for Federal Employee's Compensation Act (disability)
payments, and for Medicaid audit disallowances under appeal and for deferrals.
The total unfunded liabilities equals the future funding requirements provision
in the net position.
In accordance with Public Law and existing Federal accounting standards, no
estimated liability is recorded for any future payments expected to be made on
behalf of the nation's current workers (upon their retirement or disability)
who
are currently contributing to the Medicare Hospital Insurance (HI) Trust Fund.
Obligations Related to Canceled Appropriations
Payments may be required from current year appropriations due to obligations
incurred against canceled appropriations. The total obligations related to
cumulative canceled appropriations is estimated to be $622.2 million as of
September 30, 1996.
Intra-Governmental Relationships and Transactions
In the course of its operations, HHS has relationships and financial
transactions with numerous Federal agencies. The more prominent of these
being
with the Social Security Administration (SSA) and the U.S. Treasury Department.
The SSA determines eligibility for Medicare programs, and also allocates a
portion of Social Security benefit payments to the Medicare Part B Trust Fund
for Social Security beneficiaries who elect to enroll in the Medicare Part B
program. The U.S. Treasury Department receives the cumulative excess of
Medicare receipts and other financing over outlays, and issues interest-bearing
securities in exchange for the use of those monies. At the Government wide
level, the assets related to the trust funds on HHS' financial statements and
the
corresponding liabilities on the Treasury's financial statements would be
eliminated.
Grant Awards
The Single Audit Act of 1984, as revised, provides that recipients of Federal
financial assistance funds, such as those provided by HHS, have an annual audit
of its activities performed by an independent Non-federal auditor. The
results
of these audits provide information to Federal awarding agencies about the
validity of Federal financial awards expenditures, adequacy of internal
controls
over Federal assistance and the extent of compliance with grant rules and
regulations. Disallowed costs identified pursuant to these audits are used to
reduce future years' grant awards or returned to the awarding agency. Such
reduction or returned awards are reported in the year such determination is
made.
2. Fund Balances with Treasury
HHS's undisbursed account balances are listed below by fund type. Other funds
includes balances in deposit, suspense, clearing and related non-spending
accounts.
3. Investments
The Health Care Financing Administration (HCFA) invests Medicare Trust Funds'
cash that is in excess of current needs in U. S. Treasury Special Issues.
These
issues are exclusive to Medicare's Hospital Insurance (HI) and Supplementary
Medical Insurance (SMI) Trust Funds and are purchased and redeemed at face
value.
Certificates are short-term and pay from 6 7/8 to 7 1/8 percent. Bond interest
rates range from 6 1/4 to 13 3/4 percent. Bonds mature at various dates from
June 1997 to June 2011. The accrued interest receivable on the investments
totaled $2,899 million as of September 30, 1996.
The National Institutes of Health (NIH) invests a portion of their trust fund
cash in short-term U. S. Treasury Securities. The balances include principal
and
accrued interest.
4. Accounts and Loans Receivable, Net
The Health Care Financing Administration's (HCFA) Medicare receivables are
primarily due to overpayments to providers, beneficiaries, physicians and
suppliers, and to claims where Medicare should be secondary payer. The
Medicaid
balance is the net realizable value of disallowances in dispute with the
States.
Loans receivable are included for the Health Education Assistance Loans (HEAL)
program which is administered by the Health Resources and Services
Administration. The balance represents defaulted loans which have been paid to
lenders under the guarantee, and includes principal and interest.
HHS non-entity receivable balances represent amounts that cannot be used by HHS
once collected. Such receipts are transferred to the General Fund of the U.S.
Treasury.
5. Advances
Advances made to others are classified as assets on the statement of financial
position. Most of HHS's $12.3 billion consists of advances made from grant
program funds to the disbursing account maintained at the Program Support
Center's (PSC) Payment Management Division. These advances are identified as
"public" because the recipients of these grants are not Federal entities,
being
mostly state and local governments, but include universities, other non-profit
organizations and individuals. Although most of this end of year balance has
been disbursed to grantees, expense is not recognized until reconciliations of
the grant accounts determine the specific appropriations (within OPDIVs) to be
charged. A small portion of the balance is for employee travel and emergency
salary advances. The Federal balance is for amounts advanced to other Federal
agencies to provide goods and services to HHS.
Liabilities were recorded for amounts advanced to HHS by other Federal agencies
for the provision of goods and services.
6. Property and Equipment, Net
Balances for the major categories of HHS property and equipment are listed
below, recognized at acquisition cost.
7. Payables - Due the Public
Accounts Payable are amounts owed for goods and services received from,
progress
in contract performance made by, and rents due to others. Benefits payable
recognize accrued entitlement benefits earned in the current (or prior)
periods,
but not yet paid.
The balances below are all funded, i.e., budget authority has been received.
Unfunded Medicaid benefits payable of $5,609 million are presented under Other
Liabilities.
8. Pension Liability
HHS administers the Public Health Service Commissioned Corps Retirement System
for approximately 6,100 active duty officers and 3,400 retirees or survivors.
Authorized by Public Law 78-410, it is a defined benefit plan and is
non-contributory. Having no plan assets at the end of a year, funding is
provided entirely on a "pay as you go" basis by Congressional appropriations.
Administrative costs are not borne by the plan. (Note: Amounts presented on the
financial statements related to the retirement system are for the periods FY
1995
and 1994, respectively. Benefits of $132 million were paid to participants in
FY 1995. This amount was net of offsets for social security, Veteran's
Administration benefits, and contributions for survivor benefits. The
actuarial
present value of accumulated plan benefits is $3,134 million, of which $493
million is nonvested. The assumed interest rate is 6.75 percent. Economic
assumptions are the same as those used by the Military Retirement System.
Withdrawal and retirement rates are based on the historical trends of officers
in
the PHS retirement system.
9. Net Position
Net position is the residual difference between assets and liabilities.
Unobligated appropriations are either available for obligation or not available
(permanently or temporarily) pursuant to a specific provision in law.
Undelivered orders represents appropriations obligated (i.e. legally reserved)
for the amount of goods or services ordered but not yet received.
Invested capital represents the net investment of the Government in the
Department. This includes the corpus of revolving funds, net book value of
capital assets purchased with appropriations and donations. The cumulative
results of operations represents the net profit or loss of the entity since
inception. Balances are recorded in future funding requirements to identify
the
amount of future years' appropriations that will be needed to liquidate
liabilities recognized as of the end of the current fiscal year. A future
funding requirement does not represent a legal obligation, or indicate a
violation of anti-deficiency laws, but tends to be the result of recording
accrued expenses under applicable accounting standards.
The Medicaid program has recorded a $5.6 billion future funding requirement.
FY
1996 is the first time HCFA has accrued a liability for Medicaid service
expenses
incurred but not claimed by the States as of the end of the fiscal year.
This
information was provided by the States in response to a survey issued by HCFA
in
November, 1996. The liability ($11.1 billion out of the total $13.7 billion
for
Medicaid) is an estimate of medical services provided but not yet billed to
the
States, or billed but not yet paid by the States.
10. Adjustments
During FY 1996, HCFA recorded adjustments to various balances which related to
prior periods' activity. The Medicaid adjustment of ($12,217) million detailed
below includes ($9,564) million as HCFA's estimate of Medicaid services
incurred
but not reported as of September 30, 1995, based on data provided by the
States
in the November 1996 HCFA survey. An additional ($2,653) million represents
Medicaid expenses applicable to FY 1995 that exceeded advances drawn by the
States in FY 1995.
The Medicare program had net adjustments of $703 million. Payments of $1.3
billion to Health Maintenance Organization (HMO) plans that were charged to FY
1995, were later found to be expenses of FY 1996. Accounts Receivable for
Medicare contractor HI overpayments were overstated in FY 1995 by $602 million.
11. SMI Premiums Collected and Federal Matching Contributions
Supplementary Medical Insurance (SMI) benefits and administrative expenses are
financed by monthly premiums paid by Medicare beneficiaries and matched by the
Federal Government. The monthly SMI premium for the first 3 months of FY 1996
was $46.10; the monthly premium for the remainder of the fiscal year was
$42.50.
Premiums collected from beneficiaries totalled $18.9 billion in FY 1996 ($19.2
billion in FY 1995) and were matched by a $54.7 billion contribution from the
Federal Government ($37 billion in FY 1995). In March, 1996, the Federal
Government contributed an additional $7 billion to SMI to restore a shortfall
in
matched funds related to FY 1995 premium revenue, resulting in a total matching
contribution of $61.7 billion during FY 1996. While this amount is included
in
FY 1996 revenue (the year of appropriation), we (HCFA and HHS) are currently
working with OMB, GAO, and the OIG to determine the most appropriate year for
recognizing the revenue considering both the accounting standards and budgetary
law issues involved. This effort may result in a prior period accounting
adjustment in the FY 1997 financial statements of both HCFA and HHS. HCFA
uses
the Payments to the Health Care Trust Funds appropriation to match SMI premiums
collected from beneficiaries.
12. Medicare Claims Estimated Improper Payments
Federal Government audits require the review of programs for compliance with
Federal laws and regulations. Accordingly, the OIG reviewed a statistically
valid sample of Medicare claims to determine that claims were paid properly by
Medicare contractors, and that services were actually performed and were
medically necessary. Medicare, like other insurers, makes payments based on a
standard claims form. The internal claims process involves reviewing claims as
billed and paying the correct amount for the services rendered. This process
has
less than a 1 percent error rate. For the external billing process, i.e., the
documentation provided by providers to support their claims, the estimated
range
of improper payments at the 95 percent confidence level is $17.8-28.6 billion,
or
about 11 to 17 percent of the $168.6 billion of processed fee-for-service
payments reported by HCFA. Providers are supposed to retain supporting
documentation and make it available upon request. The majority of the errors
fell into four broad categories: insufficient or no documentation, lack of
medical necessity, non-covered or unallowable service, and incorrect coding.
Similar audit procedures were not performed in FY 1995; therefore, the
estimated
improper payments are not presented for FY 1995.
________________________________________________________________________________
Financial Management Responsibility
The responsibility for financial management and related activities at HHS is
delegated to the Assistant Secretary for Management and Budget (ASMB), who also
serves as the Chief Financial Officer (CFO) and the Chief Information Officer
(CIO). The Office of the CFO at HHS was established within the Office of the
Secretary as a result of the Chief Financial Officers Act of 1990. The HHS CFO
is appointed by the President and confirmed by the Senate. The HHS career
Deputy
CFO, a Deputy Assistant Secretary, heads the Office of Finance (OF). Other
offices reporting to the ASMB include the Office of Grants and Acquisition
Management (OGAM), the Office of Budget, the Office Information Resource
Management (OIRM), the Office of Human Resources (OHR), and the Administrative
Services Center (ASC). This section of the HHS FY 1996 Annual Accountability
Report provides highlights of various financial management and related
activities.
Financial management responsibility also rests with the CFOs of the HHS
Operating Divisions (OPDIVs). The OPDIV CFO Offices were established to
further
implement the CFO Act.
Financial Management Policy and Planning
The Office of Finance has responsibility for many new and ongoing initiatives
such as developing and implementing accounting and financial policies, systems
and reports; implementing financial and program performance measurement; prompt
payment; budget execution; improving reliability of financial information,
implementing debt collection, implementing all financial management
legislation,
and integrating all of the financial management initiatives. These
initiatives
are coordinated with the various OPDIVs of HHS through the policy-level HHS
CFO
Council and the operational-level Financial Policies Group (FPG). Accounting
operations were moved from the Office of Finance to the Program Support Center
(PSC) in HHS' 1995 reorganization. PSC provides administrative services for
most
of the HHS OPDIVs.
Information exchange among all financial management staff at HHS has been
expanded and improved with the installation of electronic mail systems and
internet access. ASMB has established Home Pages on the world wide web for
internal and external users. The address for external users is
[http://www.hhs.gov/progorg/asmb/asmbhome.htm].
HHS is involved in financial policy formulation at the government wide level
through participation in the U.S. CFO Council and its work groups and the
Federal
Accounting Standards Advisory Board (FASAB) task forces.
In recent years, there has been an expanding list of financial management
legislation. Implementation of this legislation requires intensified efforts
in
the areas of systems development, financial reporting, debt collection,
inter-agency cooperation, policy development, and monitoring activities. These
intensified efforts are being accomplished in an environment of reduced
staffing, hiring freezes, and cost containment. The list of financial
management legislation includes:
Prompt Pay Act of 1982
Federal Managers Financial Integrity Act (FMFIA) of 1982
Chief Financial Officers (CFOs) Act of 1990
Cash Management Improvement Act (CMIA) of 1990
Government Performance and Results Act (GPRA) of 1993
Government Management Reform Act (GMRA) of 1994
Federal Financial Management Improvement Act (FFMIA) of 1996
Debt Collection Improvement Act (DCIA) of 1996
Information Technology Management Reform Act (ITMRA) of 1996
The Office of Finance publishes (and posts on the internet) HHS' annual
Financial Management Status Report and Five Year Plan. The report details the
status of and plans for the broad array of financial management initiatives
and
ongoing work projects in the financial management arena. The information
contained in the Five Year Plan may eventually be included in the HHS Annual
Accountability Report in future efforts to streamline reporting.
Financial Reporting and Accounting Standards
Audited Financial Statements
This HHS FY 1996 Annual Accountability Report includes the first-ever
Department wide audited financial statement, in compliance with the Government
Management Reform Act (GMRA) of 1994. The statements are discussed in the
section of this report entitled "Financial Management Information and
Accountability." The Department wide statements were produced by combining the
OPDIV financial statements; elimination of inter-entity transactions was not
possible, though the ability to identify and eliminate inter-entity
transactions
is a goal of the FY 1997 financial statements. In FY 1996, audit coverage was
significantly expanded to include OPDIVs representing 99.6% of HHS' total
assets, though in the cases of CDC and NIH the audit work resulted in a
management letter, and in the case of HCFA the auditor disclaimed an opinion.
A
synopsis of the audit work and opinions rendered for 1995 and 1996 is presented
below.
Financial Statements
HHS has benefited substantially from the financial statement audit processes
instituted since the CFOs Act of 1990 (See accompanying information box on
"Benefits of Audited Financial Statements."). For example, we have improved
our
internal controls in our computer centers, identified cross-cutting accounting
problems, and identified an error rate for Medicare fee-for-service claims.
Limitations of the Financial Statements
In accordance with OMB Bulletin 94-01, "Form and Content of Agency Financial
Statements," we are disclosing the following limitations of the HHS FY 1996
financial statements, which are contained in this accountability report.
The financial statements have been prepared to report the financial position
and
results of operations of HHS, pursuant to the requirements of the Chief
Financial Officers (CFOs) Act of 1990 as amended by the Government Management
Reform Act of 1994.
While statements have been prepared from HHS' books and records in accordance
with the formats prescribed by OMB, the statements are different from the
financial reports used to monitor and control budgetary resources which are
prepared from the same books and records.
The statement should be read with the realization that they are for a component
of a sovereign entity, that liabilities not covered by budgetary resources
cannot be liquidated without the enactment of an appropriation, and the
payment
of all liabilities other than for contracts can be abrogated by the sovereign
entity.
Since this is our first Department wide audit opinion, we wanted to explain to
our
stakeholders the significance of the disclaimer opinion we obtained, as well as
the "clean opinion," we are striving for in the future. The FY 1996
"disclaimer
of opinion" from our auditors, the OIG, means that the audit did not provide
sufficient audit evidence for the auditors to render an opinion on the fairness
of the financial statements. This is due largely to weaknesses identified in
the HCFA audit, which are described later in this report.
One of the most significant findings in the FY 1996 audit process has been the
significantly high error rate in Medicare's fee-for-service claims. The
substantial sums involved (estimated between $17.8 and $28.6 billion) have been
addressed in a management action plan, as explained in other sections of this
report.
We are striving for an unqualified, or "clean," audit opinion; meaning that our
financial statements "fairly present" the financial position and results of
operations for the period, in accordance with Generally Accepted Accounting
Principles (GAAP) as defined for the Federal Government (or FedGAAP). It is
the
same level of assurance provided by auditors of publicly-traded companies.
We have many ongoing efforts aimed at improving the accuracy of all of our
accounting records — down to the transaction level, which form the basis
of
our Department wide financial statements. You will read about these efforts at
appropriate points throughout this report and in our HHS annual Financial
Management Status Report and Five Year Plan.
Additionally, we note that the U.S. Department of the Treasury, which
maintains
the Medicare Trust Funds as custodial accounts, had the Treasury OIG conduct a
limited scope audit of both the Medicare Part A and Medicare Part B Trust
Funds' financial statements. Both audits resulted in "clean" opinions. Those
trust fund balances are reflected as assets on both HCFA's and HHS's financial
statements. (On the FY 1997 consolidated government wide financial statements,
HHS's assets and Treasury's liabilities related to the trust funds would be
eliminated.)
The General Accounting Office participated in some aspects of the FY 1996
financial statement audit. For the FY 1997 financial statement audit, GAO will
conduct audit work related to the first-ever Government wide (executive branch)
financial statement audit, such as reviewing the audit work of both the HHS
OIG
and the private sector auditors.
Benefits of Audited Financial Statements
In the years since the CFOs Act began requiring audited financial statements of
selected Federal entities, HHS has welcomed and benefited from the audits. We
believe that financial statement audits result in more than just a piece of
paper with an auditor's opinion on it. Entities subjected to financial
statement
audits get an unbiased third party evaluation of financial management
processes,
internal controls, and financial information systems, all of which are the
source of information presented in the financial statements. The auditor also
attests to the fairness of the information presented in the financial
statement.
Often, auditors cite weaknesses in old systems and processes that had gone
unrecognized by busy managers. Sometimes, auditors cite weaknesses that
managers
were aware of, but did not have the resources to fix. When an independent
third
party reports that a weakness is significant enough to have an impact on the
reliability of the entity's financial operations, it helps management to
properly prioritize resources among competing activities and helps to ensure
that
problem areas are appropriately addressed.
At HHS, we have benefited in many ways from the financial audit process and the
findings of our auditors. Without the financial statement audit process,
these
issues may not have come to light, and we might not have had the opportunity to
better manage our dollars and our programs. Here are just a few of the
benefits
we have seen from the financial statement audits at HHS in the last several
years:
Identification of weaknesses in several OPDIVs in cross-cutting areas such as
accounting for property, weaknesses in electronic data processing (EDP)
controls,
and accounting for grants that had gone undetected for years.
Broader-based management's commitment toward timely implementation of
corrective
action plans, motivated by the public nature of the audit reports and
statutory
reporting deadlines.
Effective deterrence to fraud, waste, abuse, or negligence. (The HCFA 1996
audit
resulted in the first statistical-sampled-based estimate of errors in
Medicare
claims payments, a rate that turned out to be quite significant, requiring
immediate management attention.)
Encouragement of greater accountability, maintenance of internal controls,
and
adherence to policies, procedures, and standards.
Institutionalization of annual financial statement reporting to the public,
improved reliance on financial information, and greater accountability for our
share of Federal dollars.
Financial management at HHS has seen significant gains since the passage of
the
CFOs Act of 1990, and we have witnessed some very real benefits from the audit
process. We believe taxpayers are entitled to expect that their Federal
Government can properly account for the billions of tax dollars and other funds
entrusted to it, and we are committed to doing our part by working toward a
"clean" opinion on the HHS financial statements.
New Accounting Standards
In FY 1996, there were no new accounting standards to be implemented. However,
in FY 1997 HHS will be implementing SFFAS Nos. 4 and 5, "Managerial Cost
Accounting Concepts and Standards," and "Accounting for Liabilities of the
Federal Government," respectively. HHS expects to be in compliance with both
standards for FY 1997. HHS is represented on the U.S. CFO Council's task force
which is addressing the challenges of implementing the cost accounting
standard.
The Office of Finance is implementing these new standards by revising the
Departmental Accounting Manual (DAM), and working with Financial Policies Group
sub-groups.
HHS is involved with the development of accounting standards, with
representation on various Federal Accounting Standards Advisory Board (FASAB)
and
Standard General Ledger (SGL) task forces. In the immediate future, HHS will
be
particularly involved in the development of the standard for disclosing
information about the Medicare Trust Funds. Standards will be developed both
at
the Departmental level (where Medicare Trust Fund assets are shown as
investments
in Treasury Securities) and at the Government wide level (where the inter-entity
eliminations process will likely net to zero the Medicare Trust Fund
Investments
and the Treasury debt to the Trust Funds).
Report Streamlining
This Annual Accountability Report has been designed to include summaries from
various financial management reports. In the future, as part of the U.S. CFO
Council streamlining effort, HHS may decide that the summaries provided in the
Annual Accountability Reports will serve to replace the separate reporting
processes. This report incorporates information from the following reports
into
one streamlined Annual Accountability Report.
Audited Financial Statements
Auditor's Opinion
Program and Financial Performance Reporting
Budgetary reporting and information
Federal Managers Financial Integrity Act (FMFIA)
Prompt Payment Reporting
OIG Semiannual Report
OIG Orange Book
OIG Red Book
Management Report on Final Action
Healthy People 2000 and other health statistics
Management, Internal Controls, And Audit Resolution
Management's control over HHS' processes, programs, systems, and funds are
evaluated in several different ways. Briefly, the evaluations or reviews are
performed via: 1) the review of internal control weaknesses under the Federal
Managers' Financial Integrity Act (FMFIA), 2) the financial statement audits
performed under the Government Management Reform Act (GMRA), and 3) the various
audits and reviews of the Office of Inspector General compiled in the Orange
Book, Red Book, and Semiannual reports. Summaries and comparisons of these
findings are presented in Appendices to this Accountability Report. The
audited
financial statements are presented in Section III of this report, followed by
the
auditors' report in Section IV.
In the first Department wide financial statement audit, conducted for FY 1996,
there were seven scope limitations (including instances of insufficient audit
evidence) which precluded the auditor (the OIG) from expressing an opinion on
the
financial statements. This disclaimer of opinion is largely due to issues
related to HCFA, since all other OPDIV audits received qualified opinions. The
auditor also identified five categories of material internal control weaknesses
(two of which contributed to the disclaimer of opinion) in FY 1996.
The auditor's report on the FY 1996 HHS financial statements provides details
on
the audit findings for both the Department wide and the OPDIV audits. As this
Accountability Report is intended to report on past activities, it will not
contain details of action plans to correct these findings which will be
implemented by management. However, we expect that several of the FY 1996
scope
issues to be resolved in FY 1997, including those categories of SMI revenue,
net
position, pension liability, and initial audit. Most of the more challenging
issues are found at HCFA and include the claims error rate, accounts payable
and
receivable, and cost reports. Management has developed corrective action plans
for these complex issues.
Information Resources Management And Financial Information Systems
The HHS Offices of Finance and Information Resources Management are working to
improve the automated systems environment and technology, in part by grant
dollars drawn down by the grantee with no identification of which documents
(programs) to which the amounts should be allocated. This is allowed because
many grantees are recipients of numerous grant awards in multiple programs. On
a
quarterly basis, information on accurate allocations of dollars spent are
provided to HHS by the grantees and the "pooled" estimates and accounting
records
are adjusted and allocated appropriately. Better access to information on
"pooled" appropriations drawdowns by grantees facilitates improved outlay
estimations for budgeting staff. Eventually, HHS plans for FIRS to have query
capability for financial information arrayed along budgetary lines.
The Department's financial management systems are integrated. Financial
information is electronically transmitted between the centralized systems and
the
OPDIVs' accounting systems. Four cross-servicing systems at the Program Support
Center (PSC) received SAS 70 reviews in FY 1996, and no significant findings
were
reported. These SAS 70 reviews enable OPDIVs and external customers to place
reliance on the internal controls of those central systems.
In anticipation of the Year 2000, most of the HHS OPDIVs have developed a
schedule for implementing solutions to the Year 2000 problems. HHS has over one
thousand major applications, and the cost of conversion of most of those
systems will be absorbed into existing budgets. HHS estimates that its Year
2000
conversion costs over FYs 1997 - 2000 will be $90.7 million.
Cost accounting is one of the many issues that will have an impact on the
Department's financial systems. HHS is currently exploring the current system
capabilities that are available to meet the cost accounting requirement. As
GPRA
programs are defined, HHS will look to the Common applying the requirements for
performance and results-based management, capital planning, and investment
review
contained in the Information Technology Management Reform Act (ITMRA) of 1996.
The Deputy Chief Information Officer chairs the Departmental investment review
board, and the Deputy Chief Financial Officer is a member. Plans are in the
process of being developed for the implementation of the ITMRA in FY 1997.
The improvement of financial management systems continues to be one of HHS'
highest priorities. Accordingly, the Department expends significant resources
to
improve the operation and development of financial policy and participates on
numerous committees impacting financial management systems.
In FY 1995, HHS took steps to reduce its duplication of information systems,
and
centralized functions at the newly-formed Program Support Center (PSC). PSC is
providing support services, including information systems and data processing,
for the majority of HHS' OPDIVs, while HCFA (which accounts for the majority
of
HHS dollars), NIH, FDA, and CDC perform their own accounting.
In 1996, HHS continued expansion of the Financial Information Reporting System
(FIRS) database. The primary objective of FIRS is to provide an improved
methodology of determining the estimated outlays for the "pooled"
appropriations
that are processed through the Payment Management Service. "Pooled"
appropriations are Accounting Number (CAN) to be able to report cost by
program.
Plans will be finalized as guidance is issued by JFMIP and the CFO Council.
HHS will continue to identify opportunities to streamline and consolidate
operations in the financial management arena. The use of front-end modules
that
provide an automated feed to accounting systems will be pursued. Also,
planning
for systems changes required by OMB, GAO, and Treasury will be a coordinated
effort through the HHS Financial Policy Group to determine the best methods to
implement required changes to Departmental financial management systems. HHS
will
continue to be involved in government wide policy groups to remain abreast of
and
to influence required changes. The Five Year Plan includes the implementation
of
these changes and portrays a realistic approach based on available resources.
HHS is taking steps to improve the coordination of national health statistics
gathered by organizations nationwide and by the OPDIVs through the formation of
the Data Council. The work of the Data Council will facilitate better analysis
and monitoring of statistics on the health and well-being of the population,
especially with respect to the impact of changes in health and human services
programs.
Medicare Transaction System (MTS)
The Medicare Transaction System (MTS) initiative is an effort to develop and
implement a single, automated Medicare payment processing system and replace
the
nine different systems now in use. By implementing one single, standardized
automated information system, HCFA expects to vastly improve the efficiency and
quality of Medicare operations saving $200 million annually in administrative
costs; improve the oversight of Medicare intermediaries and carriers; and
increase the effectiveness of program safeguards against waste, fraud and
abuse.
It is the most significant infrastructure change HCFA has ever undertaken and
is
daunting and more complex than originally contemplated. HCFA has learned a
great
deal in the past three years about ways to improve the management of
complicated
technology projects with significant assistance from GAO. HCFA's recent
decisions
to issue a stop work order to the MTS software developer and to reassess the
MTS
development strategy are examples of prudent project management. HCFA is
acutely
aware of both the visibility of projects such as these and the responsibility
inherent in the investment of public funds. HCFA will continue to analyze the
cost and savings of MTS development strategies and will include calculations
of
return on investment (ROI). HCFA's current reassessment of MTS development
strategies will include an economic and risk analysis of alternative
development
strategies. Concurrent with MTS development efforts, HCFA is moving to a
standard Medicare A and B system for ongoing claims processing to ensure early
project savings available from the elimination of systems and data centers.
Electronic Funds Transfer Implementation (EFT)
HHS participates in the government wide electronic funds transfer (EFT)
implementation plan to meet legislated EFT goals. It is mandated that all
Federal payments be made via EFT by January 1999. In FY 1996, our progress
toward
EFT goals included:
EFT capabilities in all OPDIVs
Increased EFT payments to vendors and travelers
Implemented a quarterly report from OPDIVs of status of EFT payments
99% of PSC payments to grantees through EFT
94% of PSC salary payments through EFT
Increased use of credit cards
Draft EFT Implementation Plan to Treasury.
Electronic Benefits Transfer (EBT)
The May 1994 Report to the Vice President provided the blueprint for
implementing
a nationwide EBT System by March 1999 that provides Federal and State program
beneficiaries access to their benefits. According to the Report, the goal of
EBT is to use one card, which is user-friendly to provide unified electronic
delivery of benefits under a federal-State partnership. In FY 1996, OMB
transferred responsibility to GSA for coordinating Electronic Commerce (EC)
initiatives government wide with agencies with a significant investment in EC,
including HHS. OMB broadly defined EC to include the Electronic Benefits
Transfer Program (EBT), formerly under the Federal EBT Task Force, whose
functions were transferred to GSA. GSA has stated that its new role in EBT is
as
an agent for the participating agencies, and that GSA would leave program
policy
to the program agencies, including the Department of Agriculture's Food and
Consumer Service (USDA/FCS), which is the lead program agency for EBT, along
with
OMB and Treasury.
As one of the EBT Principals along with OMB, Treasury, GSA and the USDA/FCS,
HHS
continues to actively support the Vice President's goal of nationwide EBT.
However, due to the passage of the Personal Responsibility and Work
Opportunity
Reconciliation Act (PRWORA) of 1996, which eliminated the Aid to Families with
Dependent Children (AFDC) program replacing it with the Temporary Assistance to
Needy Families (TANF) Block Grant, the Administration for Children and
Families
(ACF) has no ongoing role in EBT implementation. From a CFO perspective, the
Department is working with ACF with regard to the preparation of ACF's first
financial statements for FY 1996 under the Government Management Reform Act
(GMRA), which will include the TANF program. HHS also continues to keep
apprised
of EBT policies for their potential impact on States with regard to
state-administered HHS programs including TANF.
The Office of Inspector General, since the inception of the EBT program, has
also been active in its implementation. As a member of the government wide EBT
Risk Management Forum, OIG is helping to ensure that necessary control and
accountability measures are installed in the system to prevent fraud and abuse
and to promote effective, efficient and cost conscious delivery of benefits to
recipients. This includes recommending card security measures and developing
risk assessments. Currently, the OIG is working with other OIGs in the audit
work group led by the Department of Agriculture OIG to develop system audit
procedures for reviewing EBT benefit cards, access controls, processing
controls,
security management, payment controls and performance measures.
HHS is also participating in a GSA-supported contractor effort with the Western
Governors' Association (WGA), on implementing EBT pilot programs under the
WGA's
Health Passport Program in several western states (Wyoming, Nevada, and North
Dakota). The pilots are scheduled to begin in 1998. This pilot effort
involves
the Medicaid program, as well as Head Start, Maternal and Child Health and CDC
programs, in addition to the Agriculture Department's Women, Infants and
Children
(WIC) Program. GSA says that HHS program offices (HCFA, ACF, PHS, CDC) will be
directly involved in the pilots, in addition to Agriculture and the Urban
Institute which is doing the evaluation of the pilots. GSA is also working
with
the Social Security Administration, the Departments of Education and Veterans
Affairs, and others to gather information about potential applications in those
areas which may have some limited interface with HHS programs.
Financial Analysis And Interpretation
Analysis of Financial Position (Balance Sheet)
In this Annual Accountability Report, HHS is presenting its Statement of
Financial Position, as of the fiscal year end for 1995 (unaudited) and 1996
(audited). It is made up of three principal components; assets, liabilities
and
net position and is similar to the balance sheet in the private sector; total
assets less total liabilities owed equals net position (also called fund
balance). Readers are encouraged to refer to Section III of this report for
the
financial statements.
Assets
HHS had approximately $221 billion in total assets at fiscal year end (FYE)
1996,
compared to $218 billion at FYE 1995 (unaudited). Assets can be analyzed from
three perspectives: type, budget function, and OPDIV. Each perspective
reveals
information about the composition and concentrations in assets. Investments
account for the bulk of assets (categorized by type), followed by Fund
Balances
and Advances and Prepayments.
When assets are analyzed by budget function, Medicare, which has its own budget
function category, appears very similar in size (71% of assets) to the
investments when assets are grouped by type. This is because the Medicare
program holds title to the Investments in Treasury Securities. The Health
function (which covers the Medicaid program, NIH, HRSA, CDC, SAMHSA, IHS, FDA,
and AHCPR) accounts for almost 19% of HHS' assets.
When assets are analyzed by OPDIV, HCFA accounts for 79% of HHS' assets due
largely to Medicare Trust Fund Investments in Treasury Securities and
receivables. With almost ten percent and six percent of HHS' assets
respectively, ACF and NIH assets are largely invested in Fund Balance with
Treasury and Advances to the Public (which are related to grants).
Cash Management and Prompt Payment. Fund Balance at Treasury, the equivalent of
"cash in bank" accounted for 21% of total assets. One of the most important
aspects of managing cash is the prompt payment of invoices and other payables
in order to minimize the payment of interest and penalties. During FY 1996,
HHS:
paid 1.3 million vendor invoices valued at $3.1 billion
paid 89% of these invoices on time, compared to 90.6% in 1995
paid interest penalties of $630,868, on 3.8% of vendor payments
paid an average penalty of only $13.56, and an average of $206 in penalties
for
every $1 million in vendor payments.
Historically, HHS had high rates of prompt payment, but as the accompanying
chart indicates, in recent years HHS's prompt pay rates have deteriorated.
Adjustments have been made to extract pre-1995 Social Security Administration
prompt pay figures from those presented below.
The declining prompt payment rates are due to deterioration of rates at NIH,
where the 1996 prompt pay rate was only 75.1%. There appears to be a number of
causes for NIH's poor performance including staff reductions, turnover, and the
untimely receipt of information from the decentralized 115 procurement
offices.
However, NIH staff developed an action plan that had five specific improvement
items. These improvement steps were all partially, or fully, implemented during
FY 1996. Some steps include actions to continue into FY 1997. Currently NIH
has
shown a substantial improvement in timely payments for the last two quarters of
FY 1996 and this improvement has continued, although at a somewhat slower rate
through the first quarter of FY 1997.
Although HHS's quarterly performance has fluctuated in the last 3 years, the
cumulative on time percentage for the last three years has been 90%.
We continue to seek methods to improve our payment performance through the use
of
improved automation, increased use of Electronic Funds Transfer (EFT),
increased
use of the government procurement card, and increased use of Electronic Data
Interchange. At the end of FY 1995 HHS closed our 10 Regional Finance Offices
and transferred the payment functions back to various headquarters offices. As
our human resources continue to be reduced we must depend more on new and
improved automated processes. HHS has one staff member detailed full time to
the
CFO Financial Implementation Team for Electronic Commerce (FITEC) that is
addressing financial issues related to implementing electronic commerce in the
government. Meanwhile we are trying to increase the use of EFT and EDI under
the existing systems configurations to meet the legislative mandate to make all
payments by EFT by the year 1999. Our goal is to increase vendor payments made
electronically by 65% and travel payments to 75% by the end of FY 1997.
Investments.When analyzing HHS assets by type, the accompanying pie chart
reveals
that the bulk of HHS assets (69%) are held in the Medicare Trust Funds, which
are
administered by HCFA and maintained by the U.S. Treasury Department. The
Investments are the assets of the Medicare Trust Funds, and are
interest-bearing
notes because the Treasury Department pays interest to the Trust Funds for
Treasury's use of the monies in the fund. (The Trust Funds are discussed in
other sections of this report in more detail. Readers are also referred to the
HCFA FY 1996 Financial Statements and the Trustees' Reports.)
Advances and Prepayments. Advances and Prepayments make up almost six percent
of
HHS assets, and they are largely attributable to 1) NIH research grants and 2)
ACF grants to States. Auditors cited the reconciliation of advances as a
weakness in several OPDIV FY 1996 financial statement audits. Now that we are
aware of this cross-cutting problem area, we can address the issues in a
systematic, coordinated fashion.
Accounts Receivable and Debt Collection Management. HHS had approximately $3.7
billion (net due from public) in receivables at FYE 1996. The volume of these
receivables represents a significant management challenge. HCFA, HRSA, and NIH
account for 99% of HHS net receivables. HHS' gross accounts receivable from
the
public (approximately $5.7 billion) are offset by allowances for doubtful
accounts of $2.0 billion (35% of gross receivables). There are also some
($0.2
billion) in receivables from other Federal agencies.
Accounts receivable are the focus of HHS' "debt collection" activities, as HHS
pursues every available avenue to collect debt owed to the Federal Government
from non-Federal sources. HHS's Chief Financial Officer has long supported
aggressive debt management practices throughout the Department. In addition to
managing the standard cadre of debt collection tools (tax refund offset,
administrative and salary offset, private collection agencies, referrals to the
Justice Department, etc.), the Debt Collection Improvement Act (DCIA) of 1996
established several challenging initiatives and deadlines. In recognition of
the
magnitude and complexity of the DCIA, the CFO alerted the HHS financial
community to his support of the Act and convened a special work group under
the
Office of Finance to review the major policy and operational implications of
the
DCIA. Senior HHS management has been briefed on the magnitude of the Act.
Major DCIA implementation hurdles include: the development/modification of
systems to refer delinquent debts to and interact with the new Treasury
programs
such as the Treasury Offset Program (TOP), the Treasury's Debt Management
Service
Center (DMSC), and Treasury designated Debt Collection Centers; applying to
become a Treasury designated Debt Collection Center; reviewing all debt
portfolios for potential sale to the private sector; establishing policies and
procedures to bar delinquent debtors from receiving Federal loans; improving
debt
management reporting systems; obtaining Tax Identification Numbers (TIN) for
all
persons doing business with HHS; reporting write offs to the Internal Revenue
Service; disseminating the names of delinquent debtors to the public;
increasing
Civil Monetary Penalties to adjust for inflation; making payments by electronic
funds transfer; implementing administrative wage garnishments; and assisting
States in recovering State debts, etc.
The DCIA work group established five initial priorities: an analysis of the
provisions of the Act itself; the development of an updated Department wide
inventory of all debts, both administrative and programmatic; an analysis of
existing HHS debt management regulations and other associated legal
requirements
such as the Privacy Act's "altered system of records" requirements; a review of
HHS debts to determine their potential suitability for sale; and establishing
working relationships with Treasury staff.
Our analysis determined that a single policy standard would not allow all HHS
OPDIVs the flexibility needed to implement the varied provisions of the Act.
OPDIVs were empowered to implement the individual provisions of the Act to
allow
for unique program differences.
A Department wide inventory of all debts was completed which will be an
invaluable tool in quickly identifying programs with unique debt management
differences (statute-derived) and assessing the impact of the Act on HHS
receivables.
HHS debt management regulations were determined to be sufficient to implement
the
two major provisions of the Act (TOP and DMSC) though they will need to be
updated after Treasury publishes revisions to the existing Government wide
"Federal Claims Collection Standards" regulations next year. However, it was
determined that we needed to revise our "altered systems of records" under the
Privacy Act. Meetings were held with General Counsel and we expect that they
will be updated and published in the Federal Register in the first half of FY
1997.
A preliminary survey of all OPDIVs on the suitably of the potential sale of
receivables was also completed. Preliminary results reflect a low suitability
of
HHS debts as they are not collateralized though further study utilizing the
expertise of the private sector is planned.
OPDIVs have been alerted to the payment waiver provisions under TOP and were
requested to analyze their programs for potential waiver candidates. The
newly
created Program Support Center will pursue designation as a Debt Collection
Center and is starting to prepare an application to submit to Treasury, pending
receipt of Treasury standards.
We have worked closely with Treasury staff and anticipate being one of the
first
agencies to refer delinquent debt to the Treasury TOP and DMSC programs. We
have
targeted our first referrals for the second quarter of FY 1997 and anticipate
being able to refer other eligible debts on a phased in basis thereafter.
At the end of FY 1996, 99% of grant payments and 94% of salary payments were
made by EFT. The existing Department wide Electronic Commerce project will be
expanded to include the new DCIA EFT requirements.
Additionally, we have developed draft regulations increasing covered Civil
Monetary Penalties by the rate of inflation and we expect to publish them in
final in early FY 1997.
Property, Plant, and Equipment (PP&E). PP&E represents almost $1.4
billion (or less than one percent) of HHS' assets. The bulk of HHS' PP&E
is held by NIH (with numerous high-tech research centers), IHS (with many
facilities), FDA, and CDC. The FY 1996 financial statement audits revealed
that
accounting for and managing property is a cross-cutting problem area at HHS,
and
we will be developing a coordinated approach to resolving those issues. In FY
1997, HHS amended its policy on capitalization thresholds, raising the
threshold
from $5 thousand to $25 thousand. This will help reduce the burden of
accounting for smaller equipment purchases.
Liabilities
Relative to HHS' assets, there are few liabilities, mainly because neither the
law nor Federal accounting standards recognize any long term liabilities
associated with the accumulated excess trust fund receipts. In FY 1997, FASAB
will continue to address disclosure and other representation issues for social
insurance programs as they develop an accounting standard on the topic. HHS
will
be working with FASAB in the development of that standard. Most of HHS'
liabilities are for accounts payable, typically for services provided under
grants and contracts, and most are associated with the Medicare program.
The noteworthy item in HHS' liabilities is the Amount of unfunded liabilities
(also called "Liabilities not covered by budgetary resources"). These unfunded
liabilities are caused by the inherent differences between the way funds are
appropriated in the Federal budget process, and how they are accounted for
under
generally accepted accounting principles (GAAP). Budgets are formulated on
more
of a cash basis, while GAAP is on an accrual basis.
The amount of unfunded liabilities accumulated at FYE 1996 is approximately
$9.2
billion. This amount consists of: 1) estimates for accruals of Medicaid claims
incurred at the State level but not yet reported to HCFA, 2) Medicaid program
deferrals and disallowances under appeal, and 3) annual leave, disability, and
pension expenses accruing for today's employees that will require future
funding.
The federal budget process does not recognize the future employee benefits
costs
of today's employees, but instead budgets for those future expenses in the
future years when they are actually paid. The result is that while employee
expenses (present and future) are recorded in accrual financial statements,
they
are under-represented in the Federal budget.
Net Position
Net position is the difference between total assets and total liabilities shown
on the statement of financial position. The statement further breaks down net
position by unexpended appropriations, invested capital, cumulative results of
operations and future funding requirements.
Unexpended appropriations is the amount of authority granted by Congress that
has
not been expended or used. It amounted to $50,535 million, attributed mostly
to
ACF and NIH. Invested capital of $1,727 million represents the initial
investment in a revolving fund and also the amount of funds that have been
used
to purchase property, plant and equipment in all funds. Invested capital is
reduced as assets are depreciated, sold, transferred to another entity or
otherwise disposed of, or when a revolving fund is dissolved.
The Cumulative results of operations means the net difference, since the
inception of the activity, between (1) expenses and losses and (2) financing
sources, including appropriations, revenues and gains i.e., the net
accumulation
of profits and losses since the beginning of the organization. It amounted to
$122,395 million at FYE 1996, attributed largely to the HCFA accumulations of
revenues over expenses.
The final component of net position is future funding requirements amounting
to
$9,204 million. This element represents the amount of liabilities for which
Congress has not yet appropriated funds. Examples include annual leave expense
and pension expense for Federal employees. This amount is subtracted from net
position in the statement of financial position. The amount of future funding
required should agree with the total of unfunded liabilities reported in the
liability section on the statement of financial position.
Analysis of Revenue and Financing Sources
Under Federal accounting standards, federal agency revenues includes receipts
from the sale of goods and services, and financing sources includes
appropriations. For ease of discussion, both will be referred to as
"revenues."
HHS' revenues can be analyzed from three perspectives, as is shown in the
accompanying charts. In the illustration by budget function, it is apparent
that
Medicare received 59% of HHS revenues in FY 1996, Health (including Medicaid)
received 31%, and Income Security (including Aid for Families with Dependent
Children) received almost 6%.
HHS had three major types of revenue, displayed in the accompanying chart:
general appropriations (includes matching contributions for Medicare Part B
program), employment taxes which help fund Medicare Part A insurance premiums
paid by Medicare Part B enrollees.
In evaluating revenue by OPDIV, HCFA accounted for 84%, ACF for 9%, NIH 3%, and
all others combined did not reach 4%.
Analysis of Expenses
HHS' total expenses grew approximately 11% from FY 1995 to FY 1996. The excess
of expenses over revenues for FY 1995 and FY 1996 were $1,155 million and
$11,512 million, respectively. Medicare accounts for 59% of HHS' total
expenses.
The accompanying charts provide information on expenses, categorized by budget
function, expense type, and OPDIV.
The Medicare budget function category represents 59% of HHS expenses, the
largest category. The Health budget function ranks second with approximately
32%
of expenses, and includes expenses from the Medicaid program and most other
OPDIVs (except for ACF and AoA).
The two major expense categories at HHS, accounting for over 95% of expenses
by
type, are:
insurance claims under Medicare for health services provided to beneficiaries,
and grants 1) for health-related research and 2) to States for Medicaid and
AFDC.
The insurance claims and indemnities represent health care payments under
Medicare. Increasing costs of health care services and the growth of
Medicare
enrollment helped produce a 16.9% increase in insurance claims and indemnities
expense from the prior fiscal year. Grants expense, however, only increased
approximately two percent from FY 1995 to FY 1996. All other expense types,
including contractual services, amounted to slightly over four percent of
total
expenses.
HCFA accounts for approximately 85% of HHS' expenses due to their
responsibility
to administer the Medicare and Medicaid programs. ACF accounts for
approximately
nine percent of total expenses, most of which is related to their grants to
States.
Grants Management
As the largest granting component in the Federal Government, the Department of
Health and Human Services plays a key role in the Federal grants management
arena. Of the $220 billion plus in Federal grants awarded yearly, HHS,
through
its 300 plus assistance programs, awards approximately 140 billion dollars of
these funds. Stewardship and oversight responsibilities for HHS grant programs
involve a variety of administrative functions being performed on an ongoing
basis. These administrative functions include: assisting OMB in its revisions
of key OMB Circulars pertinent to grants administration; providing training and
developing related guidance documents on these revised OMB circulars;
strengthening HHS indirect cost negotiation capabilities; resolving grantee
audit
findings and correcting deficiencies in accounting systems, internal controls,
and other management systems; updating internal Departmental grants
administrative procedures; and developing a Department wide grants management
information system to organize and consolidate data across all HHS grant
programs.
During Fiscal Year 1996, HHS provided substantial technical comments to OMB on
the final versions of Circular A-21, Cost Principles for Educational
Institutions
and Circular A-133, Audits of Institutions of Higher Education and Other
Non-Profit Institutions. With respect to developing guidance on newly revised
OMB Circulars, HHS undertook the update of the ASMB C-10, A Guide for State and
Local Government Agencies - Cost Principles and Procedures for Establishing
Cost
Allocation Plans and Indirect Cost Rates for Grants and Contracts with the
Federal Government. This document was issued and became effective in April
1997.
Monitoring of Federal reimbursement of grantee indirect costs was strengthened
and HHS' indirect cost negotiation capabilities were enhanced by HHS efforts in
the development of revised standards for use in assessing special studies
undertaken by colleges and universities. In addition, HHS' efforts in the
reassessment of reasonable premiums charged for various types of
self-insurance
funds operated by State governments and related accumulated cash reserve
balances
for these funds should result in cost savings to the Federal government.
HHS continued with its implementation of the Grants Policy Directive System
which is replacing the Departmental Grants Administration Manual with current
and
concise policy guidance. The directive outlining essential information to be
provided to potential applicants for HHS grant awards was issued and
development
began on a key directive pertinent to Departmental funding and competitive
review
policies. Effort also continued on the development of TAGGS (Tracking
Accountability in Government Grants System). The initial TAGGS Menus and Screen
Prototypes were developed to provide an outline of both the basic structure
for
querying data contained in TAGGS and the type of reporting capability that
will
be available. The prototype for the Grants Document Library, which provides
HHS
grants management staff with on-line access to the most up-to-date policies,
regulations, and other pertinent grants-related information, was also
completed.
Auditors cited the need for an Department wide system to track and identify
grantees' compliance with the Single Audit. This key grant management
monitoring
tool serves as an additional assurance of the fiscal integrity of grant funds.
The Department has a task force to address this issue in a systematic,
coordinated fashion.
Procurement Management
In FY 1996, approximately 900 HHS procurement personnel awarded and
administered
over 700,000 procurement actions worth more than $3.7 billion. Also, HHS
obligated an additional $1.5 billion from the Medicare Trust Fund for contracts
with Medicare intermediaries and carriers. These procurement actions and
contracts helped to meet the Secretary's goals of: ensuring cost-effective
health
care and human services; ensuring the integrity of the Medicare Program;
enhancing health promotion and disease prevention; improving access to health
care for all Americans; and providing adequate support for biomedical research.
For example, ASMB worked in partnership with NIH to craft the competitive
procurement strategy to award a $55 million contract for NIH's Division of
Computer Research and Technology — to provide essential computer support
permitting HHS to achieve critical R&D missions.
Major procurement accomplishments in FY 1996 include the following:
HHS developed and implemented a customer-oriented, results-driven and
GPRA-compliant Acquisition Performance Measurement and Improvement System. The
system tracks performance progress using the following survey instruments and
measures: Employee Survey — Quality Work Environment, Executive
Leadership,
and Project Officer Performance; Customer Survey — Timeliness,
Service/Partnership, and Quality; and Manager Survey — Mission Goals,
Work-Force Quality, Information Technology and Data Collection, and Acquisition
Excellence.
The Department's Acquisition and Project Officer Training Program provided
comprehensive, formal training for both contracting professionals and project
officers. 1,700 training slots were used by contracting personnel and 2,800
training slots were used by project officers. Moreover, HHS initiated the
design of a CD-ROM instructional module that will provide cost-effective,
customized, high-quality training for HHS project officers. The CD-ROM will be
used to replace two 4-day platform training courses. Also, the Department
developed a special course on the high-profile area of performance-based
service
contracting, as well as a special seminar on the Federal Acquisition
Streamlining
Act and Federal Acquisition Reform Act.
HHS used purchase cards to buy over $38 million of goods and services; and
played a leading role in developing and publicizing the Government wide Purchase
Card Interactive Customer Assistance CD-ROM — offering cost-effective,
customized, high-quality, Just-in-Time training for many purchase card users.
HHS refined its automated capability — under the Federal Acquisition
Computer Network (FACNET) — to award simplified acquisitions (under
$100,000) in an expedited fashion, at NIH, PSC, HCFA, FDA, CDC, and OS.
HHS upgraded its Departmental Contracts Information System to improve the
reliability, timeliness and utility of procurement management data, as well as
to
support executive decision-making.
Travel
The Office of Finance continues to be involved with several initiatives
dealing
with travel. Comparatively speaking, travel costs are not a significant factor
relative to HHS's total budget. However, due to its high visibility and to
relieve any public misperception that tax dollars are being spent to finance
junkets for Federal employees, the processes established over time to prevent
abuses have become very elaborate. Various interagency work groups have
concluded that the vast majority of Federal travelers are honest and have
suggested initiatives intended to streamline and simplify the travel
regulations
and processes while still maintaining system integrity and sufficient internal
controls.
HHS is working to implement, to the maximum extent possible, the various
recommendations of the National Performance Review (NPR) and the Joint
Financial
Management Improvement Program (JFMIP) as they relate to travel. HHS has
redelegated all travel authorities that had traditionally been held at a very
high level, based upon the NPR recommendations stressing the empowerment of
management. Also, HHS is using the Internet to provide employees around the
country with easy access to the Travel Management System (TMS) for travel
expense
reporting and reimbursement claims.
The focus on the JFMIP travel recommendations is to improve government wide
travel
policies by applying common sense to the development of new policies and
guidelines, and to assert that successful travel programs are those that embody
simplicity and integrity. To that end, HHS is stressing the increased usage of
the government provided travel card. HHS is also focusing on continued
improvement in the payment history and decreasing the delinquency rate of HHS
employees, who repay the government issued account personally and are
reimbursed
by HHS for official travel expenses.
______________________________________________________________________________
Appendix F
ACRONYMS
A/R Accounts Receivable ACF Administration for Children and Families AFDC Aid
to
Families with Dependent Children AHCPR Agency for Health Care Policy and
Research
AI American Indians AIDS Acquired Immunodeficiency Syndrome AMEX American
Express
AN Alaska Natives AOA Administration on Aging ASC Administrative Services
Center
ASMB Assistant Secretary for Management and Budget ATSDR Agency for Toxic
Substances and Disease Registry CDC Centers for Disease Control and Prevention
CFO Chief Financial Officers Act of 1990 CHCs Chief Financial Officers Act of
1990Consolidated Health Centers CIO Chief Information Officer CMIA Cash
Management Improvement Act CSE Child Support Enforcement CSRS Civil Service
Retirement System DAM Departmental Accounting Manual DCIA Debt Collection
Improvement Act of 1996 DPM Division of Payment Management DMSC Debt Management
Service Center EBT Electronic Benefits Transfer EC Electronic Commerce EDI
Electronic Data Interchange EDP Electronic Data Processing EFT Electronic Funds
Transfers FACNET Federal Acquisition Computer Network FASAB Federal Accounting
Standards Advisory Board FDA Food and Drug Administration FERS Federal Employee
Retirement System FFMIA Federal Financial Managers Improvement Act of 1996 FFS
Fee-For-Service FIRS Financial Information Reporting System FITEC Financial
Implementation Team for Electronic Commerce FMFIA Federal Managers Financial
Integrity Act of 1982 FPG Financial Policies Group FY Fiscal Year FYE Fiscal
Year End GAAP General Accepted Accounting Principles GAO General Accounting
Office GMRA Government Management Reform Act of 1994 GSA General Services
Administration GPRA Government Performance and Results Act of 1993 HCFA Health
Care Financing Administration HEAL Health Education Student Loan HHS Department
of Health and Human Services HI Hospital Insurance HIV Human Immunodeficiency
Virus HMOs Health Maintenance Organizations HP2000 Healthy People 2000 HPSL
Health Professions Student Loan HQ Headquarters HRSA Health Resources and
Services Administration ICD Institutes, Centers and Divisions (NIH) IHS Indian
Health Service ITMRA Information Technology Management Reform Act of 1996 JFMIP
Joint Financial Management Improvement Program LIHEAP Low Income Home Energy
Assistance Program MQSA Mammography Quality Standards Act NCI National Cancer
Institute NDAs New Drug Applications NHLBI National Heart, Lung, and Blood
Institute NIAID National Institute of Allergy and Infectious Disease NIH
National
Institutes of Health NLM National Library of Medicine NMEs New Molecular
Entities NPR National Performance Review NSL Nursing Student Loan OB Office of
Budget OCS Office of Child Support OF Office of Finance OGAM Office of Grants
and Acquisition Management OHR Office of Human Resources OIG Office of
Inspector
General OIRM Office of Information Resource Management OMB Office of Management
and Budget OPDIVs Operating Divisions ORT Operation Restore Trust OS Office of
the Secretary PCPFS President's Council on Physical Fitness and Sports PDUFA
Prescription Drug User Fee Act PHS Public Health Service PP&E Property, Plant
and
Equipment PSC Program Support Center PRWORA Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 REGO II Reinventing Government II RFPs
Requests for Proposals SAMHSA Substance Abuse and Mental Health Services
Administration SAS Statements of Auditing Standards SFFAS Statements of
federal Financial Accounting Standards SGL Standard General Ledger SLIAG State
Legalization Impact Assistance Grant SMI Supplementary Medical Insurance SSA
Social Security Administration SSBG Social Services Block Grant TAGGS Tracking
Accountability in Government Grants System TANF Temporary Assistance for Needy
Families TMS Travel Management System USDA/FCS Department of Agriculture's
Food
and Consumer Service WGA Western Governor's Association WIC Women, Infants and
Children
______________________________________________________________________________
Independent Auditor's Report
Inspector General's Report On The Department of Health and Human
Services Combined Financial Statements For Fiscal Year 1996
To: The Secretary of Health and Human Services
We undertook to audit the accompanying combined statement of financial position
of the Department of Health and Human Services (HHS) as of September 30, 1996,
and the related combined statement of operations and changes in net position
(principal financial statements) for the Fiscal Year (FY) ended September 30,
1996. These financial statements are the responsibility of HHS management.
Except for the following limitations on the scope of our work on the principal
financial statements, we did our work in accordance with generally accepted
government auditing standards and Office of Management and Budget (OMB)
bulletin 93-06. Because of the significance of the following matters and
because we were not able to apply necessary auditing procedures to satisfy
ourselves as to the fair presentation of the financial statements taken as a
whole, the scope of our work was not sufficient to enable us to express, and we
do not express, an opinion on the principal financial statements:
Medicare Accounts Payable. As of September 30, 1996, reported Medicare accounts
payable totaled $36.1 billion and comprised 71 percent of HCFA'S total
liabilities. These payables represent the Health Care Financing
Administration's (HCFA) estimate of actual or potential claims for services
provided to beneficiaries but not paid at the end of the FY. The HCFA did not
provide adequate support for this estimate. Additionally, we were unable to
determine, through alternative audit procedures, if the September 30, 1996,
Medicare accounts payable balance was fairly presented. Specifically, we could
not find support for $18.3 billion of the accounts payable amount using
historical claims data adjusted for costs associated with interim payments to
providers and settlements from providers' cost reports. Moreover, using
expenditure trends to assess the reasonableness of the payables estimate, we
noted that Medicare expenditures increased 16 percent while the accounts
payable increased 64 percent. Historically, when compared with expenditures,
the payables had erratic and inconsistent changes which HCFA could not explain.
Supplementary Medical Insurance (SMI) Revenue. The Social Security
Administration is responsible for withholding premiums from SMI beneficiaries'
Social Security checks and for transferring these funds to the Part B trust
fund each month. Premiums collected from beneficiaries, which also include
collections from other sources, totaled $18.9 billion in FY 1996. These
premiums were matched by a $61.7 billion contribution from the Federal
Government. The Congress sets the premium rate based on data provided by the
HCFA actuary. We did not review the rate setting process, nor has the SMI
revenue been audited. Further, the HHS Office of Inspector General (OIG) lacks
statutory authority to audit another Federal agency. As such, we were unable to
determine whether the SMI revenue account of $18.9 billion, as well as the
Federal match of $61.7 billion, which is material to HCFA'S statement of
operations, was fairly presented.
Medicare Medicaid Accounts Receivable. Reported net Medicare accounts
receivable totaling $2.68 billion at September 30, 1996, are amounts providers
owe due to overpayments. Medicare contractors did not maintain adequate
documentation to support reported accounts receivable activity, and they
inconsistently applied HCFA accounting policies. At several contractor
locations, millions could not be reconciled to contractor-reported amounts. As
a result, we could not audit the accounts receivable balance. In addition, we
were unable to perform sufficient procedures to satisfy ourselves on the
reasonableness and accuracy of the Medicaid accounts receivable. States
reported only an estimated $400 million as receivables, and we are concerned
that this could be substantially understated.
Cost Report Settlements. Part A providers are paid interim amounts throughout
the year and then file a cost report to reconcile actual costs to the interim
payments received. In FY 1996, approximately 37,700 cost reports were due from
providers. The value of the Medicare payments to all institutional providers
for FY 1996 was about $125 billion. Typically, these payments will not be
settled for 2 years. Although HCFA has a cost report audit process, the
provider audit function is limited to specific issue areas or cost report line
items and covers only a limited number of providers. Due to the limited scope
of the contractors' provider audit function, there is no assurance that amounts
eventually paid to providers through the final cost report settlement process
meet Medicare guidelines for reasonableness and appropriateness. Therefore, we
were unable to determine what adjustments, if any, were necessary to $3 billion
in cost settlements from prior years, as well as any subsequent adjustments
that maybe necessary to the cost reports filed for FY 1996.
Net Position Balance. The net position balance represents the difference
between total assets and total liabilities as shown on the statement of
financial position. The net position balance is comprised of four line items:
(1) unexpended appropriations, (2) the cumulative results of operations,
primarily representing the difference between Medicare revenues (beneficiaries'
contributions plus the Federal match) and expenditures since inception of the
Medicare program, (3) invested capital, e.g., the net value of buildings and
other capitalizable fixed assets under the control of the Department, and (4)
future funding requirements, representing the amount of liabilities, such as
pension expenses for Federal employees, for which Congress has not yet
appropriated funds. We are not able to determine fair presentation of the net
position balance, or the accounts comprising that balance, because four
agencies were not able to provide supporting documentation on a timely basis.
These agencies were not able to provide support for net position accounts
totaling $22.6 billion, or almost 14 percent of the reported balance of $165.5
billion. Specifically, the Administration for Children and Families (ACF) was
not able to provide timely support for $17.5 billion of undelivered orders
included in the unexpended appropriations component of its net position
balance, and three other agencies were not able to provide support for net
position balance components totaling $5.1 billion.
Pension Liability. The Department administers the Public Health Service
Commissioned Corps Retirement System for approximately 6,100 active duty
officers and 3,400 retirees or survivors. Authorized by Public Law 78-410, it
is a defined benefit pension plan and is noncontributory; funding is provided
entirely on a ³pay as you go² basis by congressional appropriation. The
actuarial present value of accumulated plan benefits is $3.1 billion, of which
$493 million is nonvested. Because documentation supporting the reported
actuarial estimate of plan benefits was not available for audit on a timely
basis, we were not able to determine the fairness of presentation of this
amount.
Initial Audit of the Principal Statements. We did not audit the FY 1995
principal financial statements, and we were unable to satisfy ourselves as to
the initial balances of departmental assets and liabilities through other audit
procedures. Since changes in the Department's assets and liabilities during FY
1996 enter into the determination of the cumulative results of operations
reported on the FY 1996 statement of financial position, we are unable to
determine whether that statement is fairly presented.
We also note that the HHS financial statements include Medicare trust fund
investment and interest activity which the United States Treasury reports to
HCFA. Our audit scope was limited to determining the correct recording of the
amounts reported by Treasury.
The accompanying statement of position as of September 30, 1995, and the
related statement of operations for the fiscal year then ended, which are being
presented for comparative purposes, were not audited by us, and accordingly, we
do not express an opinion on them.
The HHS Annual Accountability Report. The financial information presented in
the management overview section of the HHS FY 1996 Annual Accountability Report
is supplemental information required by OMB Bulletin 94-01 and is a required
part of the principal financial statements. This information, which included
Medicare trust find projections, has not been subjected to audit procedures
except as discussed in the following paragraph. Accordingly, we express no
opinion on it.
The supplementary combining statement of financial position and statement of
operations and changes in net financial position, which display financial
statement amounts by HHS operating agencies, have been subjected to the
auditing procedures applied in the audit of the principal financial statements.
However, we express no opinion on the information presented in these
supplementary statements since we are disclaiming an opinion on the principal
financial statements.
Report On Compliance With Laws And Regulations
Compliance with laws and regulations applicable to HHS is the responsibility of
HHS management. Although we performed tests of the Department's compliance with
certain provisions of the following laws and regulations, our objective was not
to provide an opinion on overall compliance with such provisions. Accordingly,
we do not express such an opinion.
Title XVIII and XIX of the Social Security Act, as amended, and implemented
in regulation 42 of the Code of Federal Regulations (RFC);
Chief Financial Officers (CFO) Act of 1990;
Government Management Reform Act of 1994; .
Federal Managers' Financial Integrity Act (FMFIA) of 1982;
Anti Deficiency Act;
Prompt Payment Act;
Debt Collection Act of 1982;
Civil Service Reform Act of 1978, as amended;
Civil Service Retirement Act of 1930;
Fair Labor Standards Act;
Federal Employees Compensation Act;
Budget Accounting and Procedures Act of 1950;
Single Audit Act of 1984;
Federal Employees Group Life Insurance Act of 1980; and
Federal Employees Retirement System Act of 1986.
Material instances of noncompliance are failures to follow applicable laws and
regulations to the extent that the effects of such noncompliance, in the
aggregate, cause the principal financial statements to be misstated.
Our tests disclosed one material instance of noncompliance concerning Medicare
fee-for-service payments. The estimated net effect of this material
noncompliance issue has been reflected in HHS' FY 1996 financial statements.
Following is a summary of the issue; full details are contained in our audit
report on HCFA's financial statements [Common Identification Number (CIN):
A-17-95 -OO096, dated July 17, 1997].
Medicare Fee-for-Service Payments Made Under Title XVIII of the Social Security
Act
In view of Medicare's 38 million beneficiaries, 800 million claims processed
and paid annually, complex reimbursement rules, decentralized operations, and
health care consumers who may not be alert to improper charges, the Medicare
program is inherently vulnerable to incorrect provider billing practices.
Through detailed medical and audit review of a statistical selection of 600
beneficiaries nationwide with 5,314 fee-for-service claims processed for
payment during FY 1996, we found 1,577 claims that did not comply with Medicare
laws and regulations. By projecting these sample results, we estimate that
during FY 1996 net overpayments totaled about $23.2 billion nationwide, or
about 14 percent of the $168.6 billion in Medicare fee-for-service benefit
payments. These improper payments could range from inadvertent mistakes to
outright fraud and abuse. We cannot quantify what portion of the error rate is
attributable to fraud.
As demonstrated in our review, unnecessary or improper benefit payments
continue to plague the Medicare program. Existing risks are sharply increased
by the significant growth in Medicare claims and expenditures, the inherent
complexities of the Medicare program, and restricted funding for program
safeguards to deter abusive providers. Our review also demonstrated the need
for stronger oversight by HCFA to ensure provider compliance with Medicare
reimbursement rules and regulations.
Although HCFA has recognized the need to reduce Medicare overpayments, a system
is needed to objectively measure the amount of improper payments so that
performance can be measured and corrective action taken promptly.
Recommendations on this issue are detailed in our report to HCFA.
Report On Internal Controls
In accordance with OMB Bulletin 93-06, we obtained an understanding of the
design of relevant HHS internal control policies and procedures. Except for
controls relating to performance measurement data, we then made sufficient tests
of internal control structure policies and procedures deemed to have been
properly designed and placed in operation to justify a low assessed level of
control risk. The purpose of this work was to determine auditing procedures
necessary for expressing an opinion on the financial statements, not to provide
assurance on the overall internal control structure. Accordingly, we do not
express such an opinion.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur without detection. Also, projection of any evaluation
of the internal control structure to future periods is subject to the risk that
procedures may become inadequate if conditions change or if the effectiveness
of the design and operation of policies and procedures deteriorates.
The HHS management is responsible for establishing and maintaining an internal
control structure. In fulfilling this responsibility, management makes
estimates and judgments of the expected benefits and costs of internal control
structure policies and procedures. The objectives of an internal control
structure are to provide management with reasonable, but not absolute,
assurance that:
transactions are properly recorded and accounted for to permit the
preparation of reliable financial statements and to maintain accountability
over assets;
funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition; and
transactions, including those related to obligations and costs, are
executed in compliance with (1) laws and regulations that could have a direct
and material effect on the principal financial statements or (2) other laws and
regulations that OMB, HHS, or we have identified as being significant for which
compliance can be objectively measured and evaluated.
Reportable conditions involve matters coming to our attention relating to
significant deficiencies in the design or operation of the internal control
structure that, in our judgment, could adversely affect the entity's ability to
record, process, summarize, and report financial data consistent with
management's assertions in the financial statements.
Material weaknesses are reportable conditions in which the design or operation
of one or more internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in amounts that
would be material in the financial statements may occur and not be detected
within a timely period by employees during the normal course of their duties.
Numerous internal control weaknesses, both reportable conditions and material
weaknesses, were identified in the reports of the HHS operating agencies: HCFA,
National Institutes of Health (NIH), Indian Health Service (IHS), Substance
Abuse and Mental Health Services Administration (SAMHSA), Centers for Disease
Control and Prevention (CDC), Health Resources and Services Administration
(HRSA), ACF, and Food and Drug Administration (FDA). ,The appendix of this
report summarizes these material weaknesses and reportable conditions. This
summary will provide a benchmark to evaluate the extent of corrective actions
taken by management in subsequent audits.
This report focuses on those internal control weaknesses that are systemic
across operating agencies, as well as significant dollar issues affecting only
one agency.
We have identified the following issues as material internal control
weaknesses, as explained below:
Monitoring National Compliance (Medicare fee-for-service payment error
rate),
Grant Oversight and Accounting,
Accounts Receivable and Accounts Payable,
Net Position Balance, and
Electronic Data Processing (EDP) Systems Controls.
The first material weakness affects Medicare fee-for-service payments and is
reported because of the dollar impact on the financial statements. Weaknesses
2-5 were frequently identified as problems, either as material weaknesses or
reportable conditions, throughout the Department. Because the problems are
systemic throughout the Department and because they relate either directly or
indirectly to material financial statement amounts, we conclude that, in the
aggregate, they constitute material weaknesses. For example, although the
auditors were able to recommend proper adjustments to correct balances related
to grant expenses, the grant expense accrual process is still inadequate for
financial reporting purposes.
Summary Of Internal Control Weaknesses
The five categories of weaknesses listed above are discussed in the next
section of this report. Additional details; including specific recommendations
for corrective actions, are contained in our reports on the individual
agencies' financial statements. (See the appendix for the specific report
numbers.)
We also identified a reportable condition involving deficiencies in accounting
and inventory controls relating to property, plant, and equipment which is
systemic to the Department and is discussed later in this report.
We are recommending that the Department's Chief Financial Officer exercise
appropriate oversight of the operating agencies to ensure that the material
weaknesses and reportable condition we identified in this report are promptly
addressed and, until resolved, consider reporting these material weaknesses in
the HHS FMFIA report.
Material Weaknesses
1) Monitoring National Compliance (Medicare Fee-for-Service Payment Error Rate)
The HCFA processes an estimated 800 million claims on behalf of its 38 million
beneficiaries through a complicated decentralized system involving 59
contractors and multiple shared systems. As previously discussed, we estimate
that improper payments approximate $23.2 billion nationwide, or about 14
percent of total Medicare fee-for-service benefit payments. Considering the
significance of the error rate, we conclude that HCFA'S oversight of the
Medicare program does not provide reasonable assurance of detecting and
preventing improper Medicare payments. Therefore, this constitutes a material
weakness which requires prompt corrective actions.
Because of resource considerations, HCFA placed more emphasis on prepayment
reviews than on postpayment reviews, and thus contractors used a variety of
software to target medical review efforts on suspect claims. We recognize that
HCFA cannot perform ³look behind² medical reviews of all claims. However,
current controls do not prevent or detect significant Medicare program losses
resulting from excessive, unnecessary, or unsubstantiated provider services.
Specifically, 99 percent of the improper payments in our sample were detected
through medical record reviews coordinated by the OIG in conjunction with
medical personnel. When these claims were submitted for payment to Medicare
contractors, they contained no visible errors. Therefore, HCFA must take a more
proactive role by focusing on an extensive postpayment analysis of claims to
identify the most aberrant procedures and services resulting in improper
payments.
Recommendation: Because of the significance of the national error rate, HCFA
needs to take aggressive steps to strengthen controls over monitoring the
integrity of claims. Accordingly, HCFA should consider additional prepayment
edits and look-behind reviews to detect and prevent the improper payments noted
in our review.
2) Grant Oversight And Accounting
Background: In FY 1996, the HHS operating agencies reported about $137 billion
in grant expenses by some 8,000 grantees, including State and local governments
primarily for expenditures under Medicaid and the Aid to Families with
Dependent Children program), colleges and universities, and gateway.html
organizations. Grant expenditures for the Department's 300 programs represent
about 39 percent of total HHS operating expenses.
Following is a summary of grant expenses by operating agency:
Weaknesses in grant oversight and accounting were noted at six operating
agencies: NIH, CDC, HRSA, ACF, IHS, and SAMHSA. These agencies: (1) lacked a
process for estimating and recording grant expenses incurred by grantees during
the fourth quarter of the fiscal year but not reported by grantees until after
yearend; (2) did not reconcile detailed grant advance records, which are
maintained by the Department's Payment Management System, with their general
ledger control accounts; or (3) lacked procedures to ensure that grantees
submit audit reports when required.
2a) Yearend Grant Accrual
At September 30, 1996, the operating agencies identified above had not
estimated and recorded fourth quarter grant expenses. As a result, grant
advances were overstated and grant expenses understated.
For example, grant advances at the following agencies were initially
overstated:
ACF--$ 7.6 billion,
HRSA--$825 million,
SAMHSA--$236 million, and
IHS--$ 140 million.
As part of the audit, financial statements we estimated fourth quarter grant
expenses at these agencies, and the were adjusted accordingly.
Following is an explanation of the cause of this problem. When a-grantee
receives an advance for estimated expenses, the operating agency records a
grant advance. When the grantee subsequently submits an expenditure report for
actual expenses incurred, the agency reduces the outstanding advance by the
amount of the approved expenses and records grantee expenses in the accounting
records. Because fourth quarter expense reports are not due until November 15,
actual expenditures are generally not known until after the end of the fiscal
year.
As a result, most operating agencies are recording grant expenses on a cash
basis, that is, recording the expenses when they are claimed by grantees rather
than when grantees incur the expense. However, Federal accounting guidelines
require agencies to maintain accounting records on an accrual basis. This means
that the agencies should record expenses when they are incurred by the
grantees. Because there is a lag between the time that a grantee incurs an
expense and claims the expense, the agencies must estimate grant expenses for
financial reporting purposes.
Without a Department wide process for estimating fourth quarter grant expenses
(estimated by the Department to be about $30 billion in FY 1996), there is no
assurance that expenses will be reported in the correct fiscal year. As such,
the Department does not have assurance that grant expenses are fairly presented
on the financial statements. Recommendation: We recommend that the Department
continue its efforts to implement an acceptable method for estimating fourth
quarter grant expenses that is in accordance with Federal accrual accounting
requirements. The Department is pilot testing such a method and expects the
process to be in place for FY 1997 reporting.
Recommendation: We recommend that the Department continue its efforts to
implement an acceptable method for estimating fourth quarter grant expenses
that is in accordance with Federal accrual accounting requirements. The
Department is pilot testing such a method and expects the process to be in
place for FY 1997 reporting.
2b) Reconciliation of Grant Advances
Three operating agencies, IHS, SAMHSA, and HRSA, did not reconcile detailed
records of grant advances provided through the Payment Management System (PMS)
with their own general ledger control accounts. As a result, unidentified
differences in the accounting records totaled $471 million.
Following are details of the differences:
HRSA--$286 million,
SAMHSA--$179 million, and
IHS--$5.7 million.
Through its PMS, the HHS Division of Payment Management maintains detailed
records of advances to grantees. The PMS is the central control system to pay
for most Federal assistance grants, block grants, and certain contracts. It
serves as the fiscal intermediary (the bank) between operating agencies and the
recipients of grants and contracts; that is, grantees obtain advances directly
from PMS rather than from the granting agency. .
Advances made by PMS during a month are distributed to an operating agency
based upon projected spending rates provided by operating agencies. Some
adjustments were made by an agency when actual expenses were reported by
grantees or when programs were transferred to other agencies. Many of these
adjustments were not reported to PMS. As a result, the agency's records did not
reconcile with PMS. This is a longstanding problem that will continue until the
new PMS charging system discussed below is implemented at all agencies.
A new method of charging advances to the agencies has been developed. This
method involves analyzing the advances to an individual grantee, distributing
those advances based on the grantee's awards, and then summarizing the award
advances to the related appropriations. Also under this new process, PMS will
make all adjustments. As a result, PMS and agency records will reconcile, and
the agency's general ledger control account will be supported by detailed
records in PMS. This new charging system process has been fully implemented
only by HCFA.
Recommendations: We recommend that the Department continue its efforts to filly
implement the new PMS charging process in all agencies and instruct agencies to
reconcile grant advance records on an ongoing basis. The Department expects to
have the new charging process fully implemented in FY 1998. Until the process
is filly implemented, we recommend that the Office - of Finance instruct all
operating agencies to reconcile their grant advance records with the PMS
records, at least on a quarterly basis, and to investigate and resolve
identified differences.
2C) Grant Oversight Using Single Audit Reports
We noted that six operating agencies, NIH, CDC, HRSA, SAMHSA, IHS, and ACF, did
not have procedures to ensure that grantees receiving over $100,000 in Federal
financial assistance submitted organization wide audit reports, referred to as
single audit reports.
A single audit of Federal funds received provides program managers with
important information on the validity of Federal program expenditures.
Specifically, single audits include information about whether grantees properly
accounted for the Federal finds they received, maintained adequacy of internal
controls over program funds, and complied with Federal program requirements.
Single audits also identify potentially unallowable expenditures that could
affect accounts receivable and grant expenses. Additionally, financial
statement auditors rely on the results of prior-year single audits to determine
the reasonableness of financial statement amounts related to grant activity and
to assess the fiscal integrity of grant finds.
Working with the operating agencies, we matched grant awards to the OIG'S data
base of nonfederal audits processed. We determined that the majority of grant
awards, or about 97 percent of total awards, were made to 292 entities,
primarily States, major universities, and large gateway.html organizations. Of the
292 entities receiving substantial awards from HHS, 257, or about 88 percent,
had submitted prior-year single audits.
Although the Department and its operating agencies did not have a formal
process for determining that required single audits were received, we
determined, as noted above, that the majority of grant dollars awarded had been
audited. However, the Department lacks assurance that a significant number of
grantees receiving HHS awards submitted reports. Numerous grantees that are
required to have single audits have not submitted reports.
If the single audit process is to be an effective internal control, the
Department needs to ensure that there is a system in place to monitor the
timely receipt of required audit reports and to determine where corrective
actions are needed for identified problems.
Recommendation: We recommend that the Department develop and implement a system
to track the submission of single audit reports and to identify grantees that
are not in compliance with the mandated audit requirements so that the
cognizant operating agency can take appropriate follow-up action.
Recognizing the need for a tracking system, the Department has established a
task force with representatives from the Office of the Assistant Secretary for
Management and Budget, the Program Support Center, the Division of Payment
Management, and the operating agencies to address Œthis control weakness in a
systematic, coordinated manner.
3) Accounts Payable and Accounts Recievable
Weaknesses in the accounting and reporting controls over accounts payable and
accounts receivable were noted at six operating agencies: HCFA, NIH, IHS, HRSA,
ACF, and FDA. The Medicare accounts receivable represents about 74 percent of
total HHS receivables, and the Medicare payables represent about 80 percent of
total HHS payables. Material weaknesses in the methods HCFA used to estimate
accounts payable and receivable led, in large part, to our disclaimer of
opinion on the HCFA financial statements, as well as on the HHS principal
financial statements. Although not material to the financial statements as a
whole, systemic deficiencies were noted in the accounting for accounts
receivable and accounts payable at other operating agencies and are included in
the discussion below.
3a) Medicare Accounts Payable
As previously discussed, we were unable to determine the reasonableness of the
Medicare accounts payable balance totaling $36.1 billion at September 30, 1996.
The first analysis that we made to determine the reasonableness of the payables
estimate was to compare FYs 1992- 1996 expenditures with accounts payable data.
There should be a direct relationship between Medicare expenditures and
estimated unpaid claims at yearend. However, we found erratic and inconsistent
changes in the accounts payable estimate compared with expenditures which HCFA
could not explain.
Next we compared actual claims data for services rendered but not paid at
yearend with HCFA'S actuarial estimate of accounts payable for FY 1993-1996. We
found significant differences which HCFA could not explain.
Comparison Of Estimates Of Accounts Payable Liability
In addition, using an actuary under contract with us, we reviewed HCFA'S FY
1996 Medicare accounts payable estimate. The actuary identified a $4.5 billion
computation error in the accounts payable estimate. This error increased the
reported Medicare accounts payable 14 percent.
We believe that HCFA'S method of estimating the Medicare accounts payable is
inadequate for accurate accrual-based financial statements and constitutes a
material internal control weakness. Medicare accounts payable was identified as
such in previous CFO audit reports.
Recommendation: We recommended that HCFA revise its method of estimating
Medicare accounts payable to more correctly reflect services provided but not
paid at yearend and periodically reconcile the estimate to paid claims data.
3b) Other Accounts Payable
The following internal control deficiencies relating to accounting for accounts
payable were also noted:
The NIH did not properly review its accounts payable balance, reported as
$193 million at September 30, 1996, to identify accounts that no longer
represent obligations and should be removed from the accounting records. A
significant amount of payable was over 1 year old.
The HRSA did not record an accounts payable for goods and services received
at September 30, 1996, resulting in a $26.7 million understatement of
liabilities, which was subsequently recorded. Similar problems were noted at
FDA.
The ACF did not prepare detailed (subsidiary) records supporting $14
million of accounts payable.
The IHS did not perform yearend reconciliations of accounts payable
subsidiary detail to general ledger control balances on a timely basis at 9 of
13 area offices.
3c) Medicare Accounts Receivable
As previously noted, we were unable to satisfy ourselves as to the
reasonableness and accuracy of $2.68 billion in Medicare accounts receivable
due from contractors at September 30, 1996. These are amounts owed Medicare by
providers who were overpaid.
The OIG reported in previous years that the internal controls over Medicare
accounts receivable processing were not adequate. These problems continue,
despite HCFA'S efforts to implement financial core requirements and to provide
training to ensure that contractors report their financial data in conformance
with the CFO Act. Contractors did not have adequate controls or consistently
apply HCFA'S accounting policies. Therefore, they did not properly estimate
accounts receivable, maintain adequate documentation to support accounts
receivable activity, or reconcile reported amounts with subsidiary records.
As a result of these weaknesses, HCFA may not be collecting millions of dollars
in overpayments from providers. Medicare accounts receivable was identified as
a material internal control weakness in previous CFO audit reports.
Recommendations: We recommended that HCFA review and monitor the accounts
receivable internal control structure to provide reasonable assurance that
reported amounts are valid and documented. For example, the HCFA regional
offices and/or outside independent audit firms could assess the adequacy of
controls. Additionally, we recommended that HCFA establish an integrated
financial management system to promote consistency and reliability in recording
and reporting accounts receivable information. These recommendations have been
addressed in HCFA'S corrective action plan for FY 1997 and future years.
3d) Medicaid Accounts Receivable and Accounts Payable
For the FY 1996 financial statements, HCFA recorded a Medicaid accounts payable
that was net of an amount for accounts receivable. In previous years, HCFA did
not record an amount for Medicaid accounts payable or receivable because no
process was in place to collect this information from the States. However, for
the FY 1996 financial-statements, HCFA did attempt to collect the Federal share
of accounts payable and receivable information recorded in the States'
financial statements. The HCFA received enough information on accounts payable
to reasonably estimate an amount, but the information provided on receivables
was very limited and, in some cases, nonexistent. Therefore, we were unable to
perform sufficient procedures to satisfy ourselves as to the reasonableness and
accuracy of the Medicaid accounts receivable, which comprise part of this
liability.
3e) Other Accounts Receivable
The NIH had not determined whether a significant amount of accounts receivable,
reported as $215 million at September 30, 1996, was collectible and did not
estimate an allowance for uncollectible accounts. Similar deficiencies were
noted at the IHS, which reported $23 million in accounts receivable at that
date.
Recommendation: Specific recommendations for corrective action were made to
these operating agencies.
4) Net Position Balance
The net position balance represents the difference between total assets and
total liabilities as shown on the statement of financial position. The net
position balance is comprised of four accounts: (1) unexpended appropriations,
(2) the cumulative results of operations, primarily representing the difference
between Medicare revenues (beneficiaries' contributions plus the Federal match)
and expenditures since inception of the Medicare program, (3) invested capital,
e.g., the net value of buildings and other capitalized fixed assets under the
control of the Department, and (4) future funding requirements, representing
the amount of liabilities, such as pension expenses for Federal employees, for
which Congress has not yet appropriated funds. The accounts comprising the net
position balance provide critical information on the status of funds for HHS.
However, four operating agencies could not adequately support these accounts:
IHS, SAMHSA, HRSA, and ACF. These agencies were not able to provide support for
net position accounts totaling $22.6 billion, or almost 14 percent of the
reported balance of $165.5 billion. Specifically, the ACF was not able to
provide timely support for $17.5 billion of undelivered orders included in the
unexpended appropriations component of its net position balance, and three
other agencies were not able to provide support for net position balance
components totaling $5.1 billion.
Recommendations: We recommended that the operating agencies (1) reconcile net
income or loss to the change in activity in the net position accounts to ensure
that financial statements properly reflect net position activity for the year,
(2) maintain supporting documentation for the accounts comprising the net
position balance, and (3) ensure that all yearend closing entries and audit
adjusting entries are recorded in the accounting records.
5) Electronic Data Processing System Controls
Weaknesses in the EDP systems general controls were noted at six operating
agencies: HCFA, NIH, SAMHSA, HRSA, IHS, and CDC. The EDP controls associated
with the general data processing environment are critical to ensuring the
reliability, confidentiality, and availability of HHS data. Such controls,
which are referred to as EDP general controls, primarily related to the
entity-wide security program, access controls, application development and
change controls, segregation of duties, operating system software, and service
continuity. These controls affect the integrity of all applications operating
within a single data processing facility.
The chart below summarizes the deficiencies by general control area:
Background: In preparing the FY 1996 financial systems inventory, we identified
over 100 financial management applications. We focused on reviewing the
effectiveness of the general computer controls at the following agencies or
service organizations that process agency transactions:
HCFA. The HCFA relies on extensive data processing operations at both HCFA and
fiscal contractors that process Medicare claims. Its Central Office computer
center maintains administrative data, such as Medicare enrollment, eligibility,
and paid claims data, and also processes all payments for managed care.
Medicare contractors use several ³shared systems² to process and pay
fee-for-service claims.
Program Support Center (PSC). The Program Support Center, through the PMS,
processes grant awards for the Department as well as many other Federal
agencies.
Division of Computer Research and Technology (DCRT). This service organization
processes transactions for NIH.
Information Technology Services (ITS) This service organization processes
transactions for SAMHSA, HRSA, and IHS. (In July 1997 ITS' functions were
transferred to DCRT.)
CDC. The CDC processes accounting transactions at its data center for itself
and Psc.
While we found no problems in the Program Support Center's controls, we found
weaknesses in the other agencies' and service organizations' general controls.
As noted below, these agencies and service organizations had (1) an ineffective
entity-wide security program, (2) weak system access controls, (3) deficiencies
in application software development and change control, (4) lack of segregation
of duties, (5) problems in access to systems software and physical access to
computers, or (6) inadequate contingency planning.
5a) Entity-Wide Security Program
HCFA. The HCFA'S entity-wide security program was ineffective. This program
should provide a framework for managing risk, developing security policies,
assigning responsibility, and monitoring the adequacy of computer-related
controls. The HCFA had not reviewed internal controls or developed security
plans for its computer center, telecommunications, networks, or significant
applications. Additionally, HCFA did not have a consistent set of policies to
oversee and review the effectiveness of general controls at its contractor
locations and did not adequately monitor these contractors.
5b) Systems Access
HCFA. System access weaknesses were found at HCFA'S Central Office,
Medicare contractors, and Common Working Files (CWF) host sites. The HCFA'S
Central Office did not have adequate access controls to protect data from
unauthorized modifications or destruction; however, specific access
vulnerabilities were immediately corrected by HCFA. Also, the Central Office
and CWF host sites granted access to an excessive number of people. At selected
Medicare contractors, some system programmers had unnecessary access to
sensitive data bases, and computer operators had unnecessary access to the
security data base.
SAMHSA, HRSA, and IHS. These agencies rely on the ITS system; as such, all
three agencies had the same system access control deficiencies:
Privileged Access to System: The ITS has granted an excessive number of
special and operational privileges. These privileges authorize individuals to
bypass technical and operational security controls. In addition, features that
monitor and record access by individuals with those privileges were not active.
As a result, management was not able to ensure that each access was authorized
and proper. Also, background screens were not completed when special and
operational privileges were granted.
Protection from Unauthorized Persons: The ITS did not promptly revoke
access privileges when individuals departed the organization or when their
duties no longer required access.
5c) Application Software Development and Change Control
HCFA. The centralized production control group controlled only about 15
percent of the production batch programs. In addition, HCFA did not use its
library management software to perform version control over application source
codes or to ensure that the executable program code was created from the
appropriate source code.
SAMHSA, HRSA, and IHS.. Program change documentation does not always
identify the individuals who changed the programs.
CDC. Although policies and procedures have been instituted to provide
adequate controls over software changes, these procedures are not adequately
documented.
5d) Segregation of Duties
HCFA. The HCFA Central Office did not adequately separate its electronic
data processing functions to prevent one individual from controlling key
aspects of computer-related operations.
CDC. The CDC data base administrator is also responsible for overall
systems development activities in a project leader capacity. The duties should
be segregated due to the sensitive nature of having on-going access to all
production files, data tables, and extract files that are used to develop
financial reports for management review.
5e) Access to Systems Software/Physical Access to Computers
HCFA. The HCFA allowed 67 contractors and 17 systems personnel update
access to the operating system software. This excessive access increased the
risk of accidental corruption of the operating system, which was exacerbated by
HCFA'S inadequate control over system software changes. Of the 53 system
software changes that we tested, 27 were implemented without proper approval.
NIH. Deficiencies were found in monitoring and removing access privileges
to the computer machine room.
5f) Service Continuity/Contingency Planning
HCFA. The HCFA had not updated its critical application list in the
contingency planning document since 1992. Due to changes in various
applications, the contingency plan could not ensure that critical applications
would be promptly restored in the event of a disaster.
CDC. The CDC contingency plan to reestablish computer operations in case of
disasters does not address coordination with a business resumption plan for
financial management operations.
Recommendations: Specific recommendations to the operating agencies and service
organizations were reported in separate reports. In summary, we recommend that
(1) systems access be properly controlled, passwords be granted consistent with
assigned responsibilities, and password changes be periodically required, (2)
application development and program change control procedures be in place to
protect against unauthorized changes, (3) computer-related duties be properly
segregated, and (4) service continuity plans be kept current and periodically
tested.
We also recommend that the Department's CFO oversee the implementation of the
corrective actions.
Reportable Condition
Property, Plant, and Equipment
As shown in the following chart, deficiencies in accounting and inventory
control were noted at five operating agencies: NIH, CDC, FDA, SAMHSA, and IHS.
The total net value of property, plant, and equipment (PPE) at these agencies
at September 30, 1996, was $1.3 billion, or about 95 percent of total PPE
reported on the HHS financial statements.
Generally, the problems noted were attributable to(1) the lack of an annual
inventory of PPE, (2) a failure to reconcile subsidiary property records, i.e.,
detailed listings of individual items of property owned, to general ledger
control accounts, or (3) accounting policies and procedures that were not in
accordance with Federal accounting guidelines or that were not consistently
followed. Because of these control weaknesses, there is no assurance that the
PPE reported on the financial statements is properly valued or, in some cases,
actually exists.
A summary of these problems follows:
la) Annual Inventories
An annual inventory provides assurance that the recorded amount of PPE is
complete and accurate. However, a complete physical inventory of NIH's PPE has
not been performed for 3 years. When inventories were taken at NIH's
Institutes, Centers, and Divisions, differences between the actual counts and
the accounting records were not resolved. Additionally, NIH has no centralized
responsibility for ensuring that inventories are completed and that identified
differences are appropriately resolved.
lb) Property Accounting Records
At FDA, the general ledger balance for PPE exceeded the total of the
subsidiary records by $36.4 million. The difference was attributable to several
accounting problems which are discussed below.
At CDC, the subsidiary records for Personal Property, which was valued at
approximately $53 million at the end of FY 1996, were not reconciled with the
general ledger control account on a monthly basis. As a result, unresolved
differences, which have accumulated over the years, between the records will
continue unless monthly reconciliations are performed or the property record
systems are integrated. As of September 30, 1996, the difference was
approximately $8.5 million.
The SAMHSA has not maintained accurate PPE records. The subsidiary list of
personal property at September 30, 1996, included 32 items valued at over
$800,000 and real property valued at $6.2 million which were either no longer
SAMHSA property or were never owned by SAMHSA. Also, 8 purchases totaling over
$100,000 were not recorded in the subsidiary property records.
The IHS had not maintained reliable property records supporting amounts
reported for real property originally costing $650 million. Additionally, IHS
did not perform a reconciliation of records supporting equipment property
during the year. When the reconciliation was finally performed as of September
30, 1996, the general ledger needed to be adjusted by approximately $2.7
million to bring it into agreement with the property records.
lc) Accounting Issues
The CDC'S real property, which comprises part of its total PPE, was valued
at approximately $82 million at the end of 1996. However, CDC does not have
accounting documentation to support the recorded amount. Although CDC has
complied with departmental record retention policies, it needs to establish a
reasonable basis for the valuation of real property on its financial
statements. Because many Federal agencies face similar problems,
government wide guidance has been issued to provide practical alternatives to
establish the value of fixed assets.
At CDC and FDA, leased assets were not properly accounted for. In CDC'S
case, two capitalizable leases valued at over $10 million were not recorded.
At IHS and FDA, equipment purchases that should have been capitalized,
i.e., included in the PPE balance, were incorrectly expensed. Also at FDA,
additions, alterations, and replacements to existing PPE were expensed rather
than added to the existing asset balance.
The FDA did not record retirements and other dispositions of PPE in the
general ledger. Additionally, gains and losses were not recorded, and the
accumulated depreciation account was not adjusted when PPE was disposed of. At
IHS, the trade-in value of equipment was not properly calculated.
The IHS did not calculate depreciation expenses on 1996 additions and
dispositions correctly. The FDA's depreciation expense was also incorrectly
computed because of incomplete accounting for purchases of fixed assets.
The FDA used the purchase order, rather than the invoice which showed the
actual amount paid, to record fixed asset purchases--a practice that could
result in recording incorrect amounts.
Recommendations: Specific recommendations for corrective actions were made to
the operating agencies. In summary, we recommended that inventories of PPE be
periodically taken and that detailed records of PPE owned be adjusted to
reflect actual inventory counts and reconciled to general Œledger control
accounts.
Additionally, we recommend that the Department's CFO oversee the implementation
of the agencies' corrective actions.
This report, which incorporates HHS informal comments where appropriate, is
intended for the information of the Department, the Secretary, and OMB.
However, this report is a matter of public record, and its distribution is not
limited.
June Gibbs Brown
Inspector General
Department of Health and Human Services
August 29, 1997
CIN: A-17-96-00001
______________________________________________________________________________
Appendix F
ACRONYMS
A/P Accounts Payable
A/R Accounts Receivable
ACF Administration for Children and Families
AFDC Aid to Families with Dependent Children
AHCPR Agency for Health Care Policy and Research
AI American Indians
AIDS Acquired Immunodeficiency Syndrome
AMEX American Express
AN Alaska Natives
AOA Administration on Aging
ASC Administrative Services Center
ASMB Assistant Secretary for Management and Budget
ATSDR Agency for Toxic Substances and Disease Registry
CDC Centers for Disease Control and Prevention
CFO Chief Financial Officers Act of 1990
CHCs Consolidated Health Centers
CIO Chief Information Officer
CMIA Cash Management Improvement Act
CSE Child Support Enforcement
CSRS Civil Service Retirement System
DAM Departmental Accounting Manual
DCIA Debt Collection Improvement Act of 1996
DPM Division of Payment Management
DMSC Debt Management Service Center
EBT Electronic Benefits Transfer
EC Electronic Commerce
EDI Electronic Data Interchange
EDP Electronic Data Processing
EFT Electronic Funds Transfers
FACNET Federal Acquisition Computer Network
FASAB Federal Accounting Standards Advisory Board
FDA Food and Drug Administration
FERS Federal Employee Retirement System
FFMIA Federal Financial Managers Improvement Act of 1996
FFS Fee-For-Service
FIRS Financial Information Reporting System
FITEC Financial Implementation Team for Electronic Commerce
FMFIA Federal Managers Financial Integrity Act of 1982
FPG Financial Policies Group
FY Fiscal Year
FYE Fiscal Year End
GAAP General Accepted Accounting Principles
GAO General Accounting Office
GMRA Government Management Reform Act of 1994
GSA General Services Administration
GPRA Government Performance and Results Act of 1993
HCFA Health Care Financing Administration
HEAL Health Education Student Loan
HHS Department of Health and Human Services
HI Hospital Insurance
HIV Human Immunodeficiency Virus
HMOs Health Maintenance Organizations
HP2000 Healthy People 2000
HPSL Health Professions Student Loan
HQ Headquarters
HRSA Health Resources and Services Administration
ICD Institutes, Centers and Divisions (NIH)
IHS Indian Health Service
ITMRA Information Technology Management Reform Act of 1996
JFMIP Joint Financial Management Improvement Program
LIHEAP Low Income Home Energy Assistance Program
MQSA Mammography Quality Standards Act
NCI National Cancer Institute
NDAs New Drug Applications
NHLBI National Heart, Lung, and Blood Institute
NIAID National Institute of Allergy and Infectious Disease
NIH National Institutes of Health
NLM National Library of Medicine
NMEs New Molecular Entities
NPR National Performance Review
NSL Nursing Student Loan
OB Office of Budget
OCS Office of Child Support
OF Office of Finance
OGAM Office of Grants and Acquisition Management
OHR Office of Human Resources
OIG Office of Inspector General
OIRM Office of Information Resource Management
OMB Office of Management and Budget
OPDIVs Operating Divisions
ORT Operation Restore Trust
OS Office of the Secretary
PCPFS President's Council on Physical Fitness and Sports
PDUFA Prescription Drug User Fee Act
PHS Public Health Service
PP&E Property, Plant and Equipment
PSC Program Support Center
PRWORA Personal Responsibility and Work Opportunity Reconciliation Act of 1996
REGO II Reinventing Government II
RFPs Requests for Proposals
SAMHSA Substance Abuse and Mental Health Services Administration
SAS Statements of Auditing Standards
SFFAS Statements of Federal financial Accounting Standards
SGL Standard General Ledger
SLIAG State Legalization Impact Assistance Grant
SMI Supplementary Medical Insurance
SSA Social Security Administration
SSBG Social Services Block Grant
TAGGS Tracking Accountability in Government Grants System
TANF Temporary Assistance for Needy Families
TMS Travel Management System
USDA/FCS Department of Agriculture's Food and Consumer Service
WGA Western Governor's Association
WIC Women, Infants and Children
Appendix G
Reference and For Further Information
1996 Annual Report of the Board of Trustees of the Federal Hospital Insurance
(HI) Trust Fund
1996 Annual Report of the Board of Trustees of the Federal Supplementary
Medical
Insurance (SMI) Trust Fund
Administration for Children and Families FY 1996 Audited Financial Statements
Administration on Aging FY 1996 Financial Statements
Agency for Health Care Policy and Research FY 1996 Financial Statements
Budget of the United States Government - FY 1997
Centers for Disease Control and Prevention FY 1996 Financial Statements
Food and Drug Administration FY 1996 Audited Financial Statements
Health Care Financing Administration FY 1996 Audited Financial Statements
Health Resources and Services Administration FY 1996 Audited Financial
Statements
Healthy People 2000 Review 1995-96
HHS Financial Management FY 1996 Status Report and Five Year Plan
HHS Office of Inspector General Semiannual Report April 1, 1996 - September 30,
1996
HHS Report on Federal Managers' Financial Integrity Act: 1996
Indian Health Service FY 1996 Audited Financial Statements
National Institutes of Health FY 1996 Financial Statements
Office of Management and Budget's and U.S. CFO Council's Federal Financial
Management Status Report and Five Year Plan, June 1996
Substance Abuse and Mental Health Services Administration FY 1996 Audited
Financial Statements
Treasury Department HI and SMI Trust Fund Custodial Audited Financial Statements
-
FY 1996
Appendix H
Department of Health and Human Services Web Sites
Office of the Secretary (OS)
Administration for Children and Families (ACF)
Administration on Aging (AOA)
Agency for Health Care Policy and Research (AHCPR)
Centers for Disease Control and Prevention (CDC)
Food and Drug Administration (FDA)
Health Care Financing Administration (HCFA)
Health Resources and Services Administration (HRSA)
Indian Health Service (IHS)
National Institutes of Health (NIH)
Program Support Center (PSC)
Substance Abuse and Mental Health Services Administration (SAMHSA)