HHS Operating Divisions' Accountability and
Control Over Resources

In addition, the Information Technology System Inventory System was the subject of an HHS Inspector General report issued in September 1987. The Inspector General performed physical inventories at 10 randomly selected SSA sites and compared its inventory results with those maintained by the Information Technology System Inventory System. Discrepancies were noted at all 10 sites. For example, of the 115 microcomputers the Inspector General staff inventoried, only 17 appeared on the inventory listing. The report cited the lack of a policy for controlling and recording microcomputer purchases and transfers as the main reason for the discrepancies.

Furthermore, the SSA general ledger does 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 excess so that the general ledger can be adjusted. We found that the disposition form was not forwarded when ADP-related equipment was disposed.

SSA officials stated that they had assumed that the Office of Systems, which reviews and forwards the disposal actions to the Office of Materiel Resources was performing this task. An Office of Systems official, who for the last 2 years has been responsible for processing the disposal actions, informed us that he had not forwarded any disposal actions to the Division of Finance.

Our review of the disposal actions processed by the Division of Finance from January 1987 to August 1987 disclosed that ADP-related actions processed by the Office of Systems had not been received by the Division of Finance. For example, we found that several disposal actions forms processed in March 1987 pertained to ADP equipment valued at over $520,000, which had not been received by the Division of Finance as of August 1987. When informed of this situation, an SSA financial officer agreed that SSA's general ledger account for equipment would be understated and stated that steps would be taken to correct the problem.

screpancies Exist in
her Operating Divisions

Besides the problems at the Health Resources and Services Administration and SSA, we noted discrepancies of over $20 million between some of the other operating divisions' general ledger and subsidiary property systems. Specifically, as of September 30, 1986:

HHS Operating Divisions' Accountability and
Control Over Resources

The Food and Drug Administration's general ledger property balance was approximately $5.4 million greater than the supporting subsidiary property system. Of this amount, $5.2 million represented a difference in the structures account. Agency officials were unable to explain this difference. The remaining difference of $247,000 was attributed to a failure to record two transactions in the accounting system.

The Office of the Secretary general ledger property balance was greater than the subsidiary property system by about $4 million. The Acting Director of the Division of Accounting Operations told us that he did not have the staff to perform needed reconciliations.

The Health Care Financing Administration's general ledger property balance was about $13 million greater than the amount in its property system. We noted two potential causes of the problem. First, the general ledger uses information from the invoices, while the property system uses information from the purchase orders. The information on these two documents can contain different dollar amounts. Second, property acquisitions and dispositions noted during the taking of physical inventories are reflected only in the property system. As a result of these differences, the general ledger property balance was adjusted for about $13 million at fiscal year-end to reflect the amount in the agency's property system, and the reasons for the differences were not determined. A Health Care Financing Administration official informed us that the administration did not reconcile property differences between the general ledger and property systems because of incompatible systems hardware. While the two systems may be incompatible, which is a problem in itself, this does not preclude a manual reconciliation of the differences to determine the correct balance.

Enclosed are the Department's comments on your draft report,
"Financial Management: Top Management's Continued Commitment Is
Needed to Correct HHS' Accounting Systems Problems." The
enclosed comments represent the tentative position of the
Department and are subject to reevaluation when the final versio
of this report is received.

The Department appreciates the opportunity to comment on this draft report before its publication.

Sincerely yours,

Diz Kunen

Richard P. Kusserow
Inspector General

Enclosure

Comments From the Department of Health
and Human Services

!.

COMMENTS OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES
ON THE U.S. GENERAL ACCOUNTING OFFICE'S DRAFT REPORT
"FINANCIAL MANAGEMENT: TOP MANAGEMENT'S CONTINUED COMMITMENT
IS NEEDED TO CORRECT HHS' ACCOUNTING SYSTEMS PROBLEMS"

GENERAL COMMENTS

We appreciate the opportunity to provide comments on this draft report. The GAO report first asserts that the Department's key accounting and related internal control systems have serious weaknesses that adversely affect the Department's ability to effectively manage its programs and operations, that appropriated funds and other financial resources are not adequately accounted for, and that financial reports are unreliable and not supported by the accounting system. Then, the GAO report recognizes that HHS has a large scale effort underway to create new financial management systems and, after basically endorsing this approach, makes some minor recommendations for improvements in the plan.

The position of the two basic thrusts of the GAO report unfortunately provides the reader with an overly negative view of the financial management situation in HHS. We feel it would be more productive for the report to first focus on our plan for improvements in financial management systems and then to use validated operational problems to support the need for improvements in systems and operations.

To put the Department's accounting systems into perspective, it
is helpful to first have some understanding of the scope of its
fiscal operations. Specifically, HHS' outlays are about 36
percent of the Federal Government's outlays of more than
$1 trillion. The accounting for these dollars is as complex as
any organization in government, if not more so. HHS operates
under 121 appropriations and several trust funds. Further, there
are about 1,200 apportionment controls on HHS' operations,
showing that HHS is an intensely complex fiscal environment, and
far from any "textbook" type of operation.

With respect to GAO's views on HHS' plan to improve its financial
management systems, we believe that the spirit of the
recommendations are consistent with our plan. We take some minor
exceptions to the wording of some recommendations, but these
should not detract from our general concurrence with GAO's
positive views of our plan to develop new financial management
systems in HHS. We are also pleased to report that, at this
point, all major aspects of the improvement plan are on or ahead
of schedule and that our approach has the complete support of the
Office of Management and Budget and the Treasury.

We believe that the report would be strengthened if more credit were given to several integral aspects of the Department's improvement plan. Among these are:

Comments From the Department of Health
and Human Services

e comment 4.

The development of the Phoenix Project Plan to replace the Department's seven primary accounting systems, and the Phoenix Project Design Guidelines to identify and establish the appropriate standards for the controlled acquisition and implementation of these systems and their interfaces with the Department's other administrative and programmatic systems.

The appointment of a new Deputy Assistant Secretary for Finance and a major redirection of how the Department coordinates its finance and accounting activities with its operating components.

The initiation of system design and control efforts by HHS' operating components which will lead to the initial implementation of new core accounting system software for SSA, HCFA, HRSA, and CDC -- four of the seven primary accounting systems -- by the end of December 1988, with the initial completion of work for all seven systems by FY 1991. FDA's accounts payable software was implemented in October 1987.

The implementation of a formal Phoenix Project progress monitoring program with the requirement for quarterly status reports.

The creation of a council of Departmental Financial Management Officers (FMOs), and the establishment of a regular meeting schedule. These meetings include a status update by each FMO and are attended by Treasury and other control agency officials.

The initiation of formal semiannual reviews of action plans under the Federal Managers' Financial Integrity Act (FMFIA) with the Department's Under Secretary. The last review was held on May 17, 1988; the next review will be held in October.

While the report can be made mush more constructive by juxtapositioning its two major thrusts, we do not completely agree with the report's negative characterization of HHS' financial operations. As we indicate in our technical comments, there are some cases with which we take factual exception and some in which corrective actions have already been taken.

Two examples of the integrity of HHS systems are those of the Health Care Financing Administration (HCFA) and the Social Security Administration (SSA), whose budgeted outlays represent about 29 percent and 62 percent, respectively, of total HHS outlays, for a total of 91 percent of all HHS outlays.

2