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Top management's continued involvement and commitment are essential for the success of this plan and the improvement of the Department's financial system environment.

Principal Findings

Accounting Systems Are

The Department's current accounting systems do not effectively account for and control billions of dollars in resources. Differences amounting to billions of dollars exist between the balances recorded in the His operating divisions' accounting systems and internal and external financial reports. As a result, His does not know the amount of (1) funds it has available, (2) advances made to grant recipients, and (3) property it is responsible for controlling. Also, His is not aggressively pursuing the collection of about $31 million in audit disallowances. Collection efforts have been hampered by inadequate documentation of the audit disallowance, untimely recording of accounts receivable, and the lack of written debt collection procedures.

Further, the Social Security Administration continues to experience serious problems in accurately accounting for hundreds of millions of dollars in overpayments made to beneficiaries because of delays in implementing a new debt management system. (See chapter 2.)

Past System Enhancement
Efforts Were Unsuccessful

HHS has long been interested in improving its accounting system. Over the past 10 years, His has initiated two major departmentwide accounting system enhancement efforts. Neither was successful, partially because hhs' operating divisions were not supportive. (See chapter 2.)

Finanical Integrity Act
Report Contains
Inadequate Disclosure

While Hus is aware of its accounting system problems and has acted to improve accountability, its fiscal year 1987 Financial Integrity Act report did not adequately identify all material accounting system weaknesses. Without adequate disclosure, the President, the Congress, and the public are not fully aware of the Department's problems and the efforts needed to correct them. (See chapter 2.)

Executive Summary

Efforts Underway to
Improve Accounting

HHS has taken action to refocus its accounting system improvement
efforts. The Department has developed a financial management plan
which is aimed at improving the efficiency of its accounting systems and
addressing the long-standing problems. This current effort, referred to
as the Phoenix Project Plan, has the support of the Department's operat-
ing divisions. A good foundation has been set, and the Department has
shown a genuine interest in developing modern accounting systems. It is
now critical that this effort be sustained over time and have the continu-
ing support of top management if it is ultimately to succeed.

GAO believes some additional actions would further enhance the Department's ongoing efforts and thereby increase the likelihood that the Phoenix Project Plan will succeed. One action would be to integrate its programmatic system enhancement efforts with the Phoenix Project Plan; another would be to establish a focal point for financial management in each operating division. (See chapter 3.)


GAO is making several recommendations to the Secretary to help strengthen the operating divisions' accounting and internal control systems. GAO also recommends that the Secretary closely monitor the current redesign efforts through periodic briefings and progress reports from the Assistant Secretary for Management and Budget, the Department's Chief Financial Officer. This will help to ensure that known system problems are corrected. (See chapters 2 and 3.)

Agency Comments

HHS generally concurred with the recommendations Gao made to
improve its financial management systems. The Department believes
that the recommendations regarding its system enhancement efforts
under the Phoenix Project Plan are consistent with ongoing efforts to
modernize the operating divisions' accounting systems. Hus, however,
did not completely agree with the report's characterization of its finan-
cial operations. The Department believes that his is an intensely com-
plex fiscal environment and that more credit should have been given to
the Department's system enhancement efforts under the Phoenix Project

GAO believes the report accurately reflects the current status of the HHS operating divisions' accounting and internal control systems. The results of GAO's review were based upon an analysis of the financial information that was reported in the accounting systems and shown on the financial reports the Department submitted to Treasury. The accounting system

problems Gao identified were discussed with appropriate operating division officials, who for the most part were unable to explain them. GAO believes the Phoenix Project Plan is an important first step in the development of modern accounting systems at HHs, and the report credits the Department with this initiative. Improved accounting is ultimately dependent on the operating divisions' new accounting systems becoming operational in the future and will require a sustained commitment and priority.

The report has been revised to indicate the corrective actions the Department has initiated subsequent to the completion of Gao's review.

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