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#4 Improving Financial and Administrative Management

Why This Is a Challenge

HHS is the largest civilian agency within the Federal Government. In FY 2015, HHS reported total costs of approximately $1 trillion. Responsible stewardship of HHS programs is vital, and operating a financial management and administrative infrastructure that employs appropriate safeguards to minimize risk and provide oversight for the protection of resources remains a challenge for HHS. HHS must also ensure the completeness, accuracy, and timeliness of any financial and program information provided to other entities, both internal and external to the Federal Government.

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Key Components of the Challenge

Financial Management Systems. We continue to report a material weakness in HHS's financial management systems related to inadequate internal controls over segregation of duties, configuration management, and access to HHS financial systems. HHS still does not substantially comply with financial management system requirements due to these issues. Under the Federal Financial Management Improvement Act of 1996, Federal agencies must establish and maintain financial management systems, and Inspectors General must determine compliance by their respective agency. These systems are intended to help agencies ensure the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

Improper Payments. Reducing improper payments is a critical element in protecting the financial integrity of HHS programs. Although not all improper payments are fraud, all improper payments pose a risk to the financial security of Federal programs. 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. In its most recent Agency Financial Report (AFR), HHS reported improper payments totaling $89.7 billion overall for FY 2015 (excluding Superstorm Sandy programs). Our audit of HHS's FY 2015 AFR, published in May 2016, found that HHS did not meet all IPIA requirements. Specifically, we found that HHS did not report an improper payment rate for the Temporary Assistance for Needy Families (TANF) program, reported that the improper payment rate exceeded 10 percent for the Medicare Fee-for-Service program, reported four other risk-susceptible programs that did not meet their FY 2015 target error rates, and did not perform a risk assessment of payments to employees and charge card payments. HHS does not have the statutory authority to collect data from States that is necessary for calculating a TANF improper payment rate.

Contracts Management. HHS is one of the largest contracting agencies in the Federal Government. Given the high dollar amount and complexity of contracts, it is paramount that HHS have strong monitoring and oversight. OIG has raised issues about acquisition planning and procurement, contract monitoring, and payments to contractors related to the Federal Health Insurance Marketplaces operated by the Centers for Medicare & Medicaid Services (CMS). OIG has also identified issues regarding contract closeouts. OIG found that CMS had not closed out contracts totaling $25 billion, as required by the Federal Acquisition Regulation. Because the closeout process is typically the final opportunity for improper payments to be detected and recovered, delays in the closeout process pose a substantial financial risk. Additionally, OIG has identified weaknesses in CMS's oversight and performance measurement for its benefit integrity contractors.

Digital Accountability and Transparency Act. The Digital Accountability and Transparency Act (DATA Act) required the Office of Management and Budget (OMB) and Department of the Treasury to establish Governmentwide data standards for reporting financial and payment information by May 2015. Broadly, the DATA Act requires HHS to begin using the Governmentwide data standards to enter information into USA Spending by May 2017 in an effort to ultimately increase transparency and accountability. Our readiness review of HHS's implementation of the DATA Act as of June 30, 2016, found that although HHS made progress, they have not fully met the requirements of the four initial steps of Treasury's Agency 8-Step Plan. Specifically, we found that HHS did not complete detailed project plans or determine how it will certify that the data is accurate and complete. Given the difficulty of defining and developing common data elements across multiple reporting areas and the volume of diverse programs administered by HHS, we determined that HHS will face challenges implementing these uniform data standards within the required timeframe.

Progress in Addressing the Challenge

HHS has taken corrective actions to resolve the information technology-related deficiencies reported in the AFR. In FY 2015, senior leadership placed additional focus on this area, which has remediated a number of deficiencies related to HHS financial management systems identified in past audits. HHS reviewed and updated critical entitywide governance documentation, such as authorities that allow systems to operate, plans to account for and improve system security, and configuration management. HHS also updated application-level contingency plans and backup policies and procedures and performed testing to improve redundancy and availability of the supporting information technology infrastructure and financial application system.

HHS has stated that when legislation is considered to reauthorize TANF, HHS plans to work with Congress to address a set of issues related to accountability and how funds are used, and to craft statutory changes that would allow for reliable error rate measurement, if appropriate. HHS also stated that it would perform risk assessments of payments to employees and charge card payments in FY 2016 and publish the results in the FY 2016 AFR.

In November 2015, HHS published a final rule that updated the HHS Acquisition Regulation (HHSAR) to supplement the Federal Acquisition Regulation. The HHSAR provides additional policy and procedural guidance to foster financial integrity and accountability across the acquisition lifecycle, from the concept of need through contract closeout. Additionally, CMS reported that it has prioritized closing out contracts. Since February 1, 2014, CMS reported that it has closed 4,909 contracts with an obligated value of $2.2 billion and de-obligated $82.49 million.

HHS has established a DATA Act Project Management Office within the Office of the Assistant Secretary for Financial Resources. This encompasses representatives from all of its operating divisions. HHS expects that these actions will enable it to meet the May 2017 due date for implementing the Governmentwide data standards. The HHS DATA Act Program Management Office has also been appointed by OMB's Office of Federal Financial Management (OFFM) as the executing agent of the financial assistance portion of the pilot required by Section V of the DATA Act. OFFM maintains strategic oversight for the pilot, while HHS is tasked with providing tactical leadership and establishing a pilot program to inform recommendations to Congress on methods to standardize reporting elements across the Federal Government, eliminate unnecessary duplication in financial reporting, and reduce compliance costs for recipients of financial awards.

What Needs To Be Done

HHS should continue to address and resolve financial management system weaknesses identified by OIG, the Government Accountability Office, and other auditors contracted by OIG or HHS.

In addition, HHS must meet improper payment reduction targets and reduce improper payments to less than 10 percent for all programs. HHS must conduct thorough root cause analyses of significant improper payments and develop robust corrective action plans that target identified causes. HHS also must conduct a risk assessment of payments made to employees and use of charge cards.

CMS should improve coordination and collaboration across departmental staff with contract closeout responsibilities. CMS must also ensure that acquisition strategies are completed as required. Further, CMS must strengthen its contracts oversight, including proper accounting for contract costs related to the Federal Marketplace.

HHS must implement the Governmentwide data standards established by OMB and Department of the Treasury in accordance with the timeframes established by the DATA Act. HHS must also ensure that any information provided to comply with the Governmentwide data standards is complete, accurate, and timely.

Key OIG Resources

  • 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 2015," May 2016.
  • OIG Report on Financial Statement Audit of Health and Human Services for Fiscal Year 2015, November 2015.
  • OIG Report, "CMS Has Not Performed Required Closeouts of Contracts Worth Billions," December 2015.
  • OIG Report, "CMS Did Not Identify All Federal Marketplace Contract Costs and Did Not Properly Validate the Amount to Withhold for Defect Resolution on the Principal Federal Marketplace Contract," September 2015.
  • OIG Report, "Report on the DATA Act Readiness Review Audit of the Department of Health and Human Services," November 2016.
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