Challenge 8: Ensuring Effective Financial and Administrative Management
Why This Is a Challenge
The Department manages health care insurance, public health, social services, and research programs designed to enhance the health, safety, and well-being of all Americans. Responsible stewardship of these programs is vital. Underpinning such stewardship should be a financial management and administrative infrastructure that employs appropriate internal controls to minimize risk to the programs and safeguard resources.
Financial statement audits. Financial statement audit results provide an important assessment of financial management challenges an agency faces. For FY 2013, independent auditor Ernst & Young identified a material weakness in the Department's financial management systems related to IT security and a significant deficiency in its financial reporting systems, analyses, and oversight. Specifically, Ernst & Young recommended that the Department bolster IT security in its financial management systems and take steps to improve internal control deficiencies that impact HHS's ability to report accurate financial information on a timely basis.
The financial statement audit also revealed challenges the Department continues to face in addressing violations of certain provisions of the Anti-Deficiency Act. These violations highlight weaknesses in an agency's control over budgetary resources. Prior OIG audits of National Institutes of Health contracts revealed instances of improper funding in 11 of 18 contracts reviewed. Follow-up work is underway to assess the effectiveness of the remedial actions outlined by the Department in its 2011 report of Anti-Deficiency Act violations.
Improper payments. Improper payments cost federal programs billions of dollars annually. For FY 2013, the Department reported improper payments totaling almost $50 billion in the Medicare program and $65 billion overall. Pursuant to the Improper Payments Information Act of 2002 (IPIA), as amended, federal agencies are required to provide uniform, annual reporting on improper payments and their efforts to reduce them. Inspectors General are required to report annually to Congress and The President regarding agency compliance with IPIA. Although the Department met many requirements of the IPIA in FY 2013, it did not fully comply. The greatest challenges in this area are to report on all programs deemed susceptible to significant improper payments and minimize improper payments to acceptable levels. The Department has not published an improper payment estimate and other required information for the Temporary Assistance for Needy Families (TANF) program. For the Medicare fee-for-service program, the Department reported an improper payment rate that exceeded 10 percent of program outlays in FY 2013.
Administrative Oversight. Careful coordination of Departmental staff, contract staff, grantees, and other partners is essential to achieve mission objectives in accordance with federal, departmental, and agency requirements. Many grantees receive multiple awards from HHS. The discontinuation of the Department-wide Alert List in 2007 may pose challenges for awarding agencies to share concerns with one another regarding grantees' abilities to handle federal funds. Moreover, OIG found that only one of four agencies within HHS that awarded Small Business Innovation Research (SBIR) funds checked for duplicative funding within the Department, and none of the four completed a required check for duplicative awards across other federal agencies. OIG is currently evaluating the extent to which HHS programs maintain and share information about grantees vulnerable to fraud, waste, and abuse. (For more information on specific issues associated with grantee and contractor oversight and effectiveness, see Challenge 9.)
Progress in Addressing the Challenge
The Department has been taking steps to address outstanding financial management challenges. Most significantly, to help address a number of shortcomings, it has scheduled an upgrade of its accounting systems, which the Department expects to complete in 2016, to alleviate internal control deficiencies it has reported in the financial statement audits.
With respect to Anti-Deficiency Act violations related to systemic contract funding problems, the Department continues to provide its contracting workforce with an online reference tool for contract funding, formation, and appropriations law compliance. The Department conducts appropriations law compliance reviews of all contract actions exceeding certain thresholds, depending on the type of requirement reviewed and the awarding Operating Division (OpDiv) or Staff Division (StaffDiv). HHS has also revised its contract funding guidance to more accurately describe appropriations law and policy; these revisions incorporated best practices and lessons learned. Further, in its FY 2013 Agency Financial Report, the Department stated that it released a major update to its internal grants policies, featuring enhanced guidance on grants closeout, suspension and debarment, grants systems, and grants payments.
With regard to improper payments, the Head Start program had reported a consistently low improper payment rate which has been below the mandated threshold for reporting, and Office of Management and Budget (OMB) granted the Department relief from reporting annual error rate estimates in FY 2013. Further, between FY 2012 and FY 2013, the Department reduced the improper payment rate for Medicare Advantage from 11.4 percent to 9.5 percent, for Medicaid from 7.1 percent to 5.8 percent, for the Child Care and Development Fund from 9.4 percent to 5.9 percent, and for the Foster Care program from 6.2 percent to 5.3 percent.
HHS is drafting regulations to implement OMB's new Uniform Guidance: Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, commonly referred to as the Uniform Guidance. The Uniform Guidance consolidates eight federal regulations into a single guide to ease administrative burdens and strengthens oversight of federal awards to reduce the risk of fraud, waste, and abuse.
What Needs To Be Done
To ensure better financial management across all program areas, the Department should resolve weaknesses identified across all financial management systems currently in operation, as recommended by internal and external auditors. To bring the Department into full compliance with the IPIA, it should continue to reduce error rates in all programs via appropriate corrective action plans. However, full compliance would also require the Department to publish an improper payment estimate for the TANF program. To do this for TANF, the Department reports it needs legislative changes to require states to report information necessary to calculate and report improper payment estimates for TANF. The Department should actively seek such legislative changes. CMS should work to improve its oversight of corrective action plans to ensure their relevance to contractors' error measurement.
Grant-making agencies, including HHS, are scheduled to implement OMB's new Uniform Guidance by the end of calendar year 2014. In accordance with the new guidance, the Department will need to implement robust new processes, including enhancements to processing the Single Audit reports. OIG will monitor the Department's implementation of these new processes and future reform efforts. OIG will also continue to examine existing administrative controls and grants management practices across the Department.
The Department should continue to leverage technology to further prevent improper payments and ensure responsible program stewardship. The Department should also continue to expand its education efforts for providers, grantees, staff, contractors, and other partners. Implementation of planned program integrity efforts, such as evaluating and mitigating risks, identifying and addressing cross-cutting issues, resolving reported grantee audit findings, and sharing best practices across HHS, will help the Department integrate program integrity into all aspects of its operations and culture and fortify the financial and administrative infrastructure.
Key OIG Resource
- OIG Report, U.S. Department of Health and Human Services Met Many Requirements of the Improper Payments Information Act of 2002 but Did Not Fully Comply for Fiscal Year 2013, April 2014
- OIG Report, Medicare Claims Administration Contractors' Error Rate Reduction Plans, January 2014
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Priority recommendations summarized.
FY 2016 Work Plan
OIG projects planned for 2016.
Significant OIG activities in 6-month increments.