The Department of Health and Human Services is the largest civil fed-
eral agency. In one way or another—whether it is mailing out social
security checks or making health services more widely available-HHS
touches the lives of more Americans than any other federal agency. HHS
fulfills these responsibilities through three broad program areas:
(1) retirement, disability, and medical insurance benefit payment pro-
grams, (2) public assistance and medical payment benefit programs for
the economically disadvantaged, and (3) medical research (for food,
drug, and cosmetic regulation) and various human development
programs.

The Department is headed by the Secretary of Health and Human Ser-
vices, who is supported by six major operating divisions in carrying out
the Department's responsibilities and administering its various pro-
grams. The six major operating divisions are the Office of the Secretary
(which includes nine staff offices' and the Department's regional
offices), the Family Support Administration, the Health Care Financing
Administration, the Office of Human Development Services, the Public
Health Service,2 and the Social Security Administration (SSA).

For fiscal year 1988, the President requested over $425 billion in budget authority for HHS, which represents over 37 percent of his budget authority request. These funds are provided primarily from

employee and employer payroll taxes under the Federal Insurance Contribution Act and Self Employment Contribution Act, and

ams Are sified

HHS programs cover a wide spectrum of activities involving federal,
state and local government agencies, educational institutions, and vari-
ous health insurance carriers. For example, SSA is responsible for making
benefit payments to over 40 million Americans. For fiscal year 1988, SSA
estimates that its benefit payments will exceed $226 billion, which is
over one-fifth of the federal budget. SSA also is responsible for making

The nine staff offices are the (1) Office of Assistant Secretary for Management and Budget,
(2) Office of Assistant Secretary for Legislation, (3) Office of Assistant Secretary for Personnel
Administration, (4) Office of Assistant Secretary for Public Affairs, (5) Office of Assistant Secretary
for Planning and Evaluation, (6) Office of General Counsel, (7) Office of Civil Rights, (8) Office of
Inspector General, and (9) Office of Consumer Affairs.

2The Public Health Service is comprised of six organizational components: (1) the Agency for Toxic
Substance and Disease Registry, (2) the Alcohol, Drug Abuse, and Mental Health Administration,
(3) the Center for Disease Control, (4) the Food and Drug Administration, (5) the Health Resources
and Services Administration, and (6) the National Institutes of Health.

Introduction

over $900 million in payments to selected beneficiaries under the Black Lung program.

The Health Care Financing Administration administers two federal health insurance programs-Medicare and Medicaid. However, the dayto-day operations of both programs-authorizing and disbursing benefit payments—are administered by third party contractors. The day-to-day Medicare program operations are handled by health insurance carriers, while the Medicaid program operations are handled by numerous state, county, and local government welfare departments and offices. Under both programs, the Health Care Financing Administration is primarily responsible for (1) providing third-party contractors with federal funds to make benefit payments and (2) monitoring contractors' performance.

HHS also provides funds to participating institutions that train individuals in the health professions. The schools use the funds to make loans to eligible health profession students. HHS also provides funds for the building and operating of health care facilities. The Department operates six direct loan programs and three loan guarantee programs.

The six direct loan programs are the

Health Resources and Services Administration Direct Loans,

Health Profession Graduate Student Loan Insurance Fund,

Under the direct loan programs, the federal government makes loans to applicants and then collects principal and interest over an agreed upon payback period. In essence, the Department acts as a banker. The President's fiscal year 1988 budget request estimated that at the end of fiscal year 1988, the Department would have over $560 million in outstanding direct loans.

The three loan guarantee programs are the

Health Profession Graduate Student Loan Insurance Fund, Health Resources and Services Administration Loan Guarantee Fund, and

Introduction

Under the loan guarantee programs, an applicant secures a loan from a private financial institution, and the federal government guarantees to the financial institution the full payment of the loan if the borrower defaults. The President's fiscal year 1988 budget request estimated that at the end of fiscal year 1988 the Department would be guarantor for over $2 billion in loans.

ncial Management cture

The Assistant Secretary for Management and Budget provides advice and guidance to the Secretary on administrative and financial management matters, and provides for the direction and coordination of these activities in the Department. The activities include overseeing the preparation of the Department's budget, maintenance of the departmentwide system for developing and administering financial operating plans, and review and analysis of organizations and information systems.

The Department's individual operating divisions and their organizational components are responsible for carrying out HHS' financial management activities. These include accounting for and controlling the Department's resources and assessing its financial management systems for conformance with the Comptroller General's accounting principles, standards, and related requirements,3 as specified in the Federal Managers' Financial Integrity Act and the internal control standards issued pursuant to the act.

HHS operates 13 major financial management systems-seven primary accounting systems, three subsidiary financial systems, and three program financial systems. These systems are used to (1) record and control appropriated funds and other financial resources, (2) record summary

3The GAO Policy and Procedures Manual for Guidance of Federal Agencies contains the principles, standards, and related requirements to be observed by federal agencies. Specifically, appendix I of title 2 of the manual prescribes the accounting principles and standards. Titles 4, 5, 6, and 7 of the manual specify requirements governing claims; transportation; pay, leave, and allowances; and fiscal procedures, respectively. Also, agency accounting systems must comply with the Comptroller General's internal control and accounting system standards, as prescribed in appendixes II and III of title 2 of the manual, respectively, as well as requirements set forth in the Treasury Financial Manual and Office of Management and Budget (OMB) circulars.

4The Federal Managers' Financial Integrity Act of 1982 (31 U.S.C. 3512(b) and (c)) gives agency management the primary responsibility for maintaining adequate systems of internal control and accounting. The act requires agency heads to report annually to the President and the Congress on the status of these systems, and it holds managers responsible for correcting identified deficiencies.

"The GAO Policy and Procedures Manual for Guidance of Federal Agencies, title 2, appendix II,
"Standards for Internal Controls in the Federal Government." The standards were also published in a
booklet in June 1983.

To identify and describe HHS' financial management systems, we reviewed policies and procedures pertaining to HHS' programs and organizations; agency descriptions of financial management systems; and previous reports by GAO, the HHS Inspector General, and HHS itself pursuant to the Federal Managers' Financial Integrity Act.

We interviewed financial management officials in the Department's operating divisions concerning the weaknesses identified during our review of their accounting systems. We also followed up on selected accounting system problems previously identified by GAO, HHS' Inspector General, and HHS itself, pursuant to the Federal Managers' Financial Integrity Act reports submitted to the President and the Congress for fiscal years 1983 to 1987.

We evaluated selected internal and external financial reports generated by the Department's financial management systems to determine if they contain accurate and complete information, and are useful to HHS in managing its financial and program operations. We tested the reliability of system information by comparing data among systems and against financial reports submitted to the Department of the Treasury dated as of September 30, 1986, which were the most readily available reports at the time of our review.

We also evaluated the Department's efforts to enhance its accounting systems by interviewing financial management officials at headquarters and the operating divisions and analyzing the Department's financial management system plan.

Chapter 2 of this report describes HHS' accounting and related internal control systems. It discusses the effectiveness of certain systems and whether these systems provide managers with reliable financial information on the results of operations. (Appendix II expands on the information presented in chapter 2.)