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eports on Financial osition Not Always upported by General edgers

were not entered into the accounting system because necessary information on the appropriation account, which would have to be adjusted to reflect the change, was not provided. In addition, discrepancies totaling over $20 million were noted between the general ledger and subsidiary property systems of the Food and Drug Administration, the Office of the Secretary, and the Health Care Financing Administration.

SSA had similar control problems. Its general ledger personal property balance was not reconciled to its two subsidiary systems-the Property Accounting System, which controls personal property, and the Information Technology System Inventory System, which controls property related to automated data processing (ADP). As a result, there were no assurances that all property transactions were being processed by the general ledger system. Furthermore, the SSA general ledger did not accurately reflect the status of disposed property. SSA policies and procedures require that a disposition form be prepared by the Office of Materiel Resources and forwarded to the Division of Finance when property is no longer required or is determined to be excess so that the general ledger can be adjusted. We found that the disposition form was not forwarded when SSA disposed of ADP-related equipment.

Reports on Financial Position are one of the principal financial state-
ments of a federal agency. However, the HHS operating divisions'
Reports on Financial Position did not always flow from their accounting
systems (their general ledger and supporting subsidiary accounting sys-
tems), as required by the Comptroller General's accounting principles
and standards.

Besides the accounting system problems previously discussed, our review disclosed other instances in which the amounts shown on the operating divisions' Reports on Financial Position were not supported by the amounts recorded in their general ledger systems. Consequently, management using these reports might not have had accurate data on how federal funds were spent on various programs and administrative operations-an essential tool in accounting for and controlling the billions of dollars in resources entrusted to the Department.

Specifically, we found the following as of September 30, 1986:

The Office of the Secretary's advance balance on its Report on Financial
Position was $11 billion greater than the amount in the general ledger

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because the office had inappropriately included amounts the operating divisions recorded in their Reports on Financial Position.

The Health Resources and Services Administration's "other asset" balance on its Report on Financial Position showed a total of about $184 million, whereas the amount in the general ledger was zero. We found that $135 million of this total was recorded in the general ledger as part of structures, land, equipment, inventories, and construction-in-progress. The remaining $49 million was not supported by the general ledger. The Health Resources and Services Administration's accounts payable balance on its Report on Financial Position was about $32 million greater than the amount in the accounts payable balance from the general ledger. Health Resources and Services Administration officials were unable to explain the difference.

The Department's operating divisions need to strive to prepare accurate and reliable financial statements which can be audited by an independent party. The process of preparing and auditing financial statements instills discipline in agency accounting and reporting systems because it establishes accountability.

Over time, audited financial statements can help improve the

public reporting of and confidence in the results of the government's stewardship,

management information for Department officials, and

organizational discipline necessary to develop and maintain adequate systems of internal control and program accounting.

Audited financial statements can help ensure that there is a proper link among accounting transactions, accounting systems, financial statements, and financial reporting to Treasury, the Office of Management and Budget, the public, and the Congress. Further, the audit of financial statements provides an opportunity for an independent auditor—the agency inspector general, a public accounting firm, or GAO—to determine whether adequate safeguards are in place to protect resources entrusted to the agency and whether the agency accurately discloses the financial results of its operations.

Financial audits also reveal and focus attention on financial management problems affecting the agency's operations. Periodic disclosure of such weaknesses in reports and footnotes to financial statements could help focus attention on these problems and foster the organizational dis

HHS Lacks Accountability and Control Over
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st System hancement Efforts

ere Unsuccessful

andard Accounting stem

In fiscal year 1988, the HHS Inspector General completed an audit of
SSA's financial statements. The HHS Inspector General's staff indicated
that they plan to audit the financial statements of some of the other HHS
operating divisions in the future. We support the Inspector General's
efforts at SSA and encourage him to perform such audits elsewhere in the
Department.

While the reconciliation of accounting differences is an important com-
ponent of improved financial management, HHS' primary challenge is to
develop modern accounting and financial management systems. Over
the past 10 years, HHS has attempted to correct its serious financial man-
agement problems through two departmentwide system enhancement
initiatives the Standard Accounting System and the Financial/Admin-
istrative Integrated Management System. The Department was unable to
give us specific information on the cost of these unsuccessful initiatives,
but these were multiyear efforts which would have involved millions of
dollars for development and implementation. Since neither of these sys-
tems was successfully implemented, many of the Department's account-
ing system problems still existed at the time of our review.

The Standard Accounting System effort, initiated in 1978, tried to
develop a standard departmentwide financial management system. This
system's effort was undertaken in response to the significant limitations
and deficiencies which existed in the operating divisions' and Office of
Secretary's accounting systems. These systems were (1) no longer
responsive to management decision-making on a day-to-day basis,
(2) limited in their ability to produce management information, (3) slow
in recording transactions, (4) tied to outmoded computer technology,
and (5) duplicative. Consequently, Department managers used their own
personal computers and manual record-keeping systems rather than the
official accounting records.

According to a Department official, the operating divisions resisted the
full implementation of the Standard Accounting System because it
would have been more cumbersome and costly to operate than the sys-
tems that were in place. We were told they had never been supportive of
the effort. As a result, the project was terminated in April 1984, after
years of effort and unknown cost, with HHS still facing the financial
management difficulties discussed in our April 1984 report, Financial
Management Profile: Department of Health and Human Services (GAO/

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AFMD-84-15). A modified version of the system was implemented for the
Office of the Secretary in October 1983.

With the demise of the Standard Accounting System, HHS initiated
another enhancement effort—the Financial/Administrative Integrated
Management System—in April 1984. The aim of this project was to
develop a single financial management system. Its approach consisted of
purchasing computer software packages and a data base management
system from a single software vendor, and then modifying the software
to meet the Department's needs. The system, when implemented, was to
address problems such as

the Department's inability to obtain accurate and timely data and infor-
mation for use in executing its management oversight responsibilities,
obsolete and labor intensive accounting systems, and

redundant and costly to maintain information systems.

While a contract was awarded through the GSA Procurement Schedule
to purchase the computer software packages and a data base manage-
ment system, the project was halted in early 1986 because of a contrac-
tor's bid protest to us. We found that HHS had made changes to the
software that were not permissible. We were informed by HHS officials
that, as a result of our decision, HHS began to reevaluate its approach to
developing a single financial management system.

Discussions with HHS headquarters officials indicated that the operating
divisions did not fully support the Financial/Administrative Integrated
Management System effort because of their different organizational
styles and degrees of centralization. Officials we interviewed in the
operating divisions confirmed that they did not fully support the project
because, in their view, it was too complex. They did not consider them-
selves a part of the decision-making process and said the project was
forced on them. This was very similar to the Department's experience in
trying to implement the Standard Accounting System. The Department
decided not to proceed further with the new system because it felt the
barriers were too great to implement the approach successfully within a
reasonable time, and that the cost, schedule, and technical risks were
unacceptable. In early 1987, the project was terminated, with another
3 years lost and the amount of cost incurred unknown.

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HS' Financial tegrity Act Report eeds to Adequately isclose Status of Its ccounting Systems

When HHS initiated the Financial/Administrative Integrated Management System project, it placed a moratorium on all other financial management system enhancement projects except for SSA's System Modernization Plan (see page 41). The moratorium was put in place to avoid duplication of efforts in the Department's operating divisions and to control the system interfaces. During the moratorium, the Health Resources and Services Administration requested a waiver to correct long-standing problems in debt collection, and SSA requested a waiver to correct problems in property accountability. Each request was denied. HHS officials informed us that, as a result of the moratorium and their procurement difficulties, the Department's financial management systems are now, with few exceptions, 3 years older and even harder to maintain.

With the decision to terminate the Financial/Administrative Integrated Management System, the Department, for the second time in 10 years, halted efforts to correct many of its long-standing accounting system problems. In the succeeding months, the Department, in conjunction with its operating divisions, revised its approach to modernizing the Department's accounting operations and correcting its accounting system problems by developing the Phoenix Project Plan. This plan is discussed in greater detail in chapter 3.

While acknowledging a number of problems, the Department's fiscal year 1987 Federal Managers' Financial Integrity Act report to the President and the Congress did not adequately disclose all material accounting system weaknesses. Consequently, users of the Department's Financial Integrity Act report could conclude that the Department's accounting systems were operating essentially as intended and were providing reasonable assurance that the resources entrusted to the Department were adequately accounted for-a conclusion which we believe to be misleading.

The Comptroller General's accounting principles and standards specify
that an agency's accounting system must provide control over assets
and liabilities and accounting support for the financial management pro-
cess. The accounting system must be able to develop and report costs
and performances by major organizational segments, budget activities,
and program structures. To fairly present the financial information
needed by management, the reports, statements, and related disclosures
produced by the system must be accurate, useful, complete, timely, and
consistent.