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Transcript for audio podcast: HHS Annual Financial Report and Fiscal Year 2014 Audit of HHS Consolidated Financial Statements

From the Office of Inspector General of Department of Health and Human Services

[Sara Glickman] I'm Sara Glickman speaking with Kay Daly about the Department of Health and Human Services' fiscal year 2014 consolidated financial statements. Kay is the Assistant Inspector General for Audit Services. Kay, will you explain why HHS prepares annual financial statements?

[Kay Daly] I'd be glad to Sara. By federal law, the Inspector General is required to conduct a year-end review of the department's financial statements. We do this by contracting with Ernst & Young, a large international CPA firm, to look at how well HHS officials have managed the department's income and spending each year. It's critical that the funds spent on Medicare, Medicaid and all the other programs that millions of Americans depend on, are appropriately accounted for.

[Sara Glickman] What was the scope of the fiscal year 2014 audit?

[Kay Daly] The contractor audited the basic HHS financial statements, as well as those related to the hundreds of programs that are operated by HHS. It also reviewed the department's internal controls for financial management, and HHS's compliance with Federal laws and regulations.

[Sara Glickman] What were the results of the audit of the basic HHS financial statements?

[Kay Daly] HHS spent over $950 billion dollars on its programs and operations. For the two largest programs, Medicare spent $518 billion dollars, and Medicaid spent $305 billion dollars this past fiscal year.

[Sara Glickman] So is the department managing its budget effectively and efficiently?

[Kay Daly] The audit did find some significant deficiencies in some of HHS' internal controls.

[Sara Glickman] Interesting, can you give us an example?

[Kay Daly] Sure. The audit found that the department does not adequately ensure proper access to its financial systems, nor does it fully ensure that only properly authorized changes are made to key financial systems. For example, HHS did not timely review if users had appropriate access to the system in order to perform their job responsibilities. In addition, the audit found HHS could not verify if changes went through the proper approval processes. These are serious weaknesses because it is important that this information is accurate, reliable, and not misused.

[Sara Glickman] Was that the only deficiency?

[Kay Daly] No - the audit also found that HHS has incomplete policies and procedures, inconsistently performed reconciliations, as well as other shortcomings in internal control. HHS has made many improvements in financial reporting in 2014, but weaknesses still exist. The report recommends that HHS automate more of its accounting entries, integrate its accounting systems, and update its policies and procedures for reporting financial transactions.

[Sara Glickman] Did the audit identify any instances of non-compliance with Federal laws or regulations?

[Kay Daly] Yes, our contractor identified some instances of non-compliance with Federal laws and regulations. Most notably, HHS did not comply with the Improper Payment Information Act for a number of programs, including Medicare, Medicaid and the Temporary Assistance for Needy Families program, commonly known as TANF. Overall, HHS reported over $78 billion dollars in improper payments for fiscal year 2014.

[Sara Glickman] So how did HHS violate that law?

[Kay Daly] Well, improper payment rates for both Medicare and Medicaid increased significantly. Improper payments made by HHS programs account for the single largest share of improper payments made by the entire federal government. We will be looking at these issues in more detail and other areas where HHS is not following the Act in a report later this year.

[Sara Glickman] Tell us more about OIG's role in managing a private contractor's audit of HHS's financial statements?

[Kay Daly] We monitor Ernst & Young for its compliance with contract provisions and with government auditing standards. We review all workpapers, and work closely with this accounting firm, and HHS, to ensure the audit is completed in a timely manner. We also help ensure that HHS officials are made aware of any issues identified by the audit as soon as possible. This helps officials work quickly to improve their processes and internal controls.

[Sara Glickman] So what did the audit find with respect to HHS's Social Insurance programs like Medicare?

[Kay Daly] Projections about the health of the Medicare Trust funds depend on future health care policy decisions and how consumers, employers and providers react to the changing healthcare environment. There is uncertainty about Medicare's ability to pay for costs over a 75 year period that was identified initially in 2010. As from 2010 through 2014, Ernst & Young could not express an opinion on the actuarial soundness of Medicare going forward.

[Sara Glickman] Is there any other information of interest in the audit report?

[Kay Daly] Yes. The report also includes a description of the top ten areas where OIG has identified significant management challenges. The report outlines areas where HHS should make improvements for programs to meet their intended purpose, and to operate efficiently and effectively.

[Sara Glickman] Can you give us some examples?

[Kay Daly] These top management challenges include implementing the Affordable Care Act; ensuring quality in nursing homes, and hospices; fighting fraud, waste and abuse in the Medicare and Medicaid programs; and ensuring the safety of food, drug and medical devices.

[Sara Glickman] Where can I find the fiscal year 2014 HHS financial statements and the Ernst & Young audit reports?

[Kay Daly] You can find them along with our transmittal letter, and the top management challenges on the HHS website.

[Sara Glickman] Thank you for sharing this important information about HHS's financial statements, Kay.

[Kay Daly] Thank you, Sara.


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