Department of Health and Human Services FY 2011 Agency Financial Report November 15, 2011 FY 2011 Agency Financial Report |U.S. Department of Health and Human Services FY 2011 Agency Financial Report FY 2011 Agency Financial Report U.S. Department of Health and Human Services |i CONTENTS INTRODUCTION ii MESSAGE FROM THE SECRETARY iii SECTION I: MANAGEMENTS DISCUSSION AND ANALYSIS Mission and Organizational Structure I - 1 Strategic Goals I - 4 Analysis of Financial Statements and Stewardship Information I - 18 Systems, Legal Compliance, and Management Assurances I  25 Management Assurance Statement I  27 Other Management Information and Initiatives I - 29 Looking Ahead to 2012 I - 30 Summary of Top Management Challenges I - 32 SECTION II: FINANCIAL REPORTS Message from the Chief Financial Officer II - 2 Audit Reports II - 4 Financial Statements II - 47 Notes to the Principal Financial Statements II - 55 Required Supplementary Stewardship Information II - 91 Required Supplementary Information II - 95 SECTION III: OTHER ACCOMPANYING INFORMATION Other Financial Information III - 1 Improper Payments Information Act Report III - 8 Management Report on Final Action III - 40 Summary of Financial Statement Audit and Management Assurances III - 43 OIG Top Management and Performance Challenges III - 46  III  65 FY 2011 Top Management and Performance Challenges Summary III - 66 GLOSSARY Glossary IV - 1 LAWS, REGULATIONS, AND GUIDANCE Laws, Regulations, and Guidance V  1 FY 2011 Agency Financial Report ii |U.S. Department of Health and Human Services INTRODUCTION Purpose of This Report Our fiscal year 2011 Agency Financial Report provides fiscal and high-level performance results that enable the President, Congress, and American people to assess our accomplishments for the reporting period October 1, 2010, through September 30, 2011. This report provides an overview of our programs, accomplishments, challenges, and  entrusted to us. We have prepared this report in accordance with the requirements of the Office of Management and Budget Circular A- 136, Financial Reporting Requirements. How This Report is Organized This report includes a message from the Secretary, followed by three sections: Section I: Management’s Discussion and Analysis contains information on our mission and organizational structure; strategic goals and highlights of our accomplishments; analysis of the financial statements and stewardship information; systems, legal compliance and controls; and other management initiatives and information. Section II: Financial Reports contains a message from the Chief Financial Officer, the independent audit reports, the financial statements and notes, required supplementary stewardship information, and required supplementary information. Section III: Other Accompanying Information includes other annually required reports, Improper Payments Elimination and Recovery Act (Public Law 111-204) reporting details, the management report on final action, the summary of financial statement audit and management assurance findings, the Office of summary of top management challenges and our response to those challenges. We Welcome Your Comments Thank you for your interest in the Department of Health and Human Services. We welcome your comments and questions regarding this Agency Financial Report and appreciate any suggestions for reader improvements. Please contact us at hhsdeputycfo@hhs.gov or at: Department of Health and Human Services Office of Finance/DFMP Mail Stop 522D 200 Independence Avenue, S.W. Washington, DC 20201 FY 2011 Agency Financial Report U. S. Department of Health and Human Services | iii MESSAGE FROM THE SECRETARY  FY 2011 Agency Financial Report for the Department of Health and Human Services. - being of all Americans through effective health and human services and by fostering sound, sustained advances in care, research, public health and social services. We fulfill that mission every day by providing millions of children, families, and seniors with access to high-quality health care, by helping people find jobs and parents find affordable childcare, by keeping food safe and infectious diseases at bay, and by pushing the boundaries of how we diagnose and treat disease. This year, we saw the enactment of the FDA Food Safety Modernization Act (Public Law (P.L.) 111-353) and the Healthy Hunger-Free Kids Act (P.L. 111-296), two new laws that help us give Americans more control over their health care. The FDA Food Safety Modernization Act gives HHS the opportunity to work with public and private partners and build a new system of food safety oversight  one focused on applying the best available science and good common sense. The Healthy Hunger- Free Kids Act is a significant step forward in our effort to help America's children thrive and grow to be healthy adults by tackling child hunger and obesity rates around the country. I am proud of our continued work on health reform. The Affordable Care Act (P.L. 111-148 and 111-152) is delivering on its promise of better care, better health and lower costs for all Americans. In FY 2011, we had a number of significant accomplishments. Transforming Health Care Thanks to the Affordable Care Act, millions of Americans, including Americans with Medicare, are already enjoying better access to health care. 18.9 million Americans with Medicare have received free preventive services and their prescription drug premiums remain low. In addition, Medicare  their covered name brand prescriptions, saving almost $1 billion. And,  seven years of solvency to the Medicare Trust Fund. Advancing Scientific Knowledge and Innovation The Affordable Care Act also funded therapeutic discovery tax credits and grants for small bio- technology companies with big potential in nearly every State, and the District of Columbia. These companies are producing new therapies for unmet medical needs, reducing health care costs by targeting chronic disease, and advancing the development of new treatments for cancer. In addition, these tax credits and grants will help our small business and entrepreneurs invest, innovate, and strengthen our economy far into the future. Advancing the Health, Safety, and Well-Being of Americans We continue to drive the goals set out by the Affordable Care Act’s National Quality Strategy by supporting local, State and national efforts to transform our health care system away from a focus on sickness and disease to one focused on prevention and wellness. This stops small health problems from becoming big ones and reduces costs in our system. Increasing Efficiency, Transparency, and Accountability of Our Programs During fiscal year (FY) 2011, we improved in our role as stewards of the public trust. This year we obtained a clean opinion on our Consolidated Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and the Combined Statement of Budgetary Resources. The auditors did not express an opinion on the Statement of Social Insurance, derived from information from the annual Kathleen Sebelius FY 2011 Agency Financial Report iv |U.S. Department of Health and Human Services report of the Medicare trust funds. The FY 2011 Statement of Social Insurance projections contained in this report incorporate the effects of the Affordable Care Act, prepared in accordance with the standards issued by the Federal Accounting Standards Advisory Board, and reflect current law. We are committed to responsible management and accountability of taxpayer dollars. We are transparent in our activities with honest disclosure of potential conflicts of interest and no tolerance for waste or abuse. The first of its kind in government, our Program Integrity Initiative takes a comprehensive, proactive approach to programmatic challenges, and assessing and mitigating risks associated with our programs. Our initial efforts have established a strong foundation for ensuring taxpayer dollars are spent effectively, efficiently, and for their intended purpose. As required by the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and the Office of Management and Budget-123, Management’s Responsibility for Internal Control, we also evaluated our internal controls and financial management systems. We found only one material weakness in the Department related to Information Systems Controls and Security. This weakness, which we are committed to eliminating in the future, also constitutes a system non-conformance under Section 4 of the FMFIA. This is an improvement over prior years, as we have focused efforts to improve required to identify this as a weakness. The Department of Health and Human Services manages one of the largest budgets in the world and improves the health and lives of Americans every day. Our accomplishments are not possible without the dedication and commitment of our employees and the strong support of our State, local, and non-profit partners. I am proud of the incredible work this Department does to improve the health and well-being of all Americans, especially those who are least able to help themselves. /Kathleen Sebelius/ Kathleen Sebelius Secretary November 15, 2011 FY 2011 Agency Financial Report U.S. Department of Health & Human Services|  FY 2011 Agency Financial Report | U. S. Department of Health and Human Services [Page Left Intentionally Blank] FY 2011 Agency Financial Report U. S. Department of Health and Human Services | I-1 AGENCY FINANCIAL REPORT ACKNOWLEDGEMENT We present our fiscal year (FY) 2011 Agency Financial Report. This report is presented in conformity with the Office of Management -136, Financial Reporting Requirements. The FY 2011 Annual Performance Report and the FY 2013 Congressional Budget Justification will be available in February 2012, as will the Summary of Performance and Financial Information. These reports will be available on our Web site at www.hhs.gov at that time We believe this format provides the reader and decision-makers more transparent and enhanced financial and performance reporting. MISSION AND ORGANIZATIONAL STRUCTURE Our mission is to enhance the health and well-being of Americans by providing for effective health and human services, and by fostering sound, sustained advances in the sciences, underlying medicine, public health, and social services. Our vision is to provide the building blocks that Americans need to live healthy, successful lives. We fulfill our mission and vision daily by providing millions of children, families, and seniors with access to high- quality health care, helping people find jobs, assisting parents to find affordable childcare, , and pushing the boundaries of how we diagnose and treat disease. Each HHS component contributes to our mission and vision as follows: The Administration for Children and Families (ACF) is responsible for federal programs that promote the economic and social well-being of families, children, individuals, and communities. The Administration on Aging (AoA) is responsible for developing a comprehensive, coordinated, and cost- effective system of home- and community-based services that help elderly individuals maintain health and independence in their homes and communities. The AoA serves as the primary federal focal point and advocacy agent for older Americans via State and local area agency networks on aging, as well as providing grants to States, Tribal organizations, and other community services. The Agency for Healthcare Research and Quality (AHRQ) improves the quality, safety, efficiency, and effectiveness of health care for all Americans. The AHRQ fulfills this mission by conducting health services research in order to identify the most effective ways to organize, manage, finance, and deliver high-quality health care, reduce medical errors, and improve patient safety. The Agency for Toxic Substances and Disease Registry (ATSDR) serves the public by using the best science, taking responsive public health actions, and providing trusted health information to prevent harmful exposures or disease-related exposures to toxic substances. The Centers for Disease Control and Prevention (CDC) collaborates to create the expertise, information, and tools that people and communities need to protect their health  through health promotion; prevention of disease, injury and disability; and preparedness for new health threats. The Centers for Medicare and Medicaid Services (CMS) administers public insurance programs, which serve as the primary sources of health care coverage for seniors and a large population of medically vulnerable individuals, and act as a catalyst for enormous changes in the availability and quality of health care for all Americans. In addition to these programs, CMS has the responsibility to ensure effective, up-to-date health care coverage, and promote quality care for beneficiaries. CMS also has responsibility with helping implement many provisions of the Affordable Care Act such as the establishment of the Consumer Operated and Oriented Plan (CO-OP), which will foster the creation of qualified non-profit health insurance issuers to offer competitive health plans in the individual and small group markets. The Food and Drug Administration (FDA) is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological  supply, cosmetics, and products that emit radiation. The FDA is also responsible for advancing the public health by helping to speed innovations that make medicines and foods effective, affordable, and safe; and helping the public get the accurate, science- based information they need to use medicines and foods to improve their health. FY 2011 Agency Financial Report I-2 | U. S. Department of Health and Human Services The Health Resources and Services Administration (HRSA) is responsible for improving health care, and achieving health care equity through access to quality services, a skilled health workforce and innovative programs. The HRSA focuses on uninsured, underserved, and special needs populations in its goals and program activities. The Indian Health Service (IHS) raises the physical, mental, social, and spiritual health of American Indians and Alaska Natives to the highest level. The National Institutes of Health (NIH) are the stewards of medical and behavioral research for the nation. The NIH promotes science in pursuit of fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to extend healthy life and reduce the burdens of illness and disability. The Substance Abuse and Mental Health Services Administration (SAMHSA) is responsible for reducing the impact of substance abuse and mental illness on . The SAMHSA accomplishes its mission by providing leadership, developing service capacity, communicating with the public, setting standards; and improving practice in communities and in primary and specialty care settings. Our Secretary leads our components to provide a wide range of services and benefits to the American people. In addition, the following staff offices report directly to the Secretary, and support the operating components in carrying out our mission. They are: Office of the Assistant Secretary for Administration Office of the Assistant Secretary for Financial Resources Office of the Assistant Secretary for Health Office of the Assistant Secretary for Legislation Office of the Assistant Secretary for Planning and Evaluation Office of the Assistant Secretary for Public Affairs Office of the Assistant Secretary for Preparedness and Response Center for Faith-Based and Neighborhood Partnerships Departmental Appeals Board Office for Civil Rights Office on Disability Office of the General Counsel Office of Global Affairs Office of Health Reform Office of the Inspector General Office of Intergovernmental Affairs Office of Medicare Hearings and Appeals Office of the National Coordinator for Health Information Technology Office of Security and Strategic Information On the next page, we present our organizational chart, which consists of the Office of the Secretary, including the noted staff offices, and 10 operating components, and further details concerning each componentthe accomplishment of our overall mission and strategic goals, incorporating those of the staff offices. To find further information regarding our organization, components, and programs, visit our Web site at www.hhs.gov. [...]... and compliance /Kathleen Sebelius/ Kathleen Sebelius November 15, 2011 U S Department of Health and Human Services | I-27 FY 2011 Agency Financial Report Table 1 Summary of Material Weakness and System Non-Conformance FMFIA Section 2 Control Area FMFIA Section 4 Operations (As of 9/30 /2011) Compliance (As of 9/30 /2011) Financial Reporting (As of 6/30 /2011) System Non-Conformance X − − X Information System... I-17 FY 2011 Agency Financial Report preparation and audit of these statements, which are part of our efforts for continuous improvement of financial management The production of accurate and reliable financial information is necessary for making sound decisions, assessing performance, and allocating resources Section II of the report presents our audited financial statements and notes ANALYSIS OF FINANCIAL. . .FY 2011 Agency Financial Report Budget Functions: ETSS = Education, Training and Social Services; H = Health; IS = Income Security; M = Medicare U S Department of Health and Human Services | I-3 FY 2011 Agency Financial Report STRATEGIC GOALS We strive for continuous improvement, enhancing the health and well-being... INFORMATION The financial statements were prepared in accordance with federal accounting standards and audited by the independent accounting firm of Ernst & Young LLP under the direction of our Inspector General The Chief Financial Officers Act of 1990 (P.L 101-576) requires the Table 1: Summary of Financial Condition Trends (in Billions) FY2 007 Total Assets FY2 008 FY2 009 FY2 010 FY2 011 Increase (Decrease)... status of the Medicare Trust Funds FY 2011 Agency Financial Report SYSTEMS, LEGAL COMPLIANCE, AND MANAGEMENT ASSURANCES Systems Our overall goals for financial management systems focus on ensuring effective internal controls, sound financial management practices, systems integration, and the ability to produce timely and reliable financial and performance data for reporting Management’s priority is... performance measures The FY 2011 Summary of Performance and Financial Information, available in February 2012, will provide a complete presentation and analysis U S Department of Health and Human Services | I-5 FY 2011 Agency Financial Report STRATEGIC GOAL HIGHLIGHTS We accomplish our strategic goals by managing hundreds of programs across several disciplines As a major grant-making agency, our grantees... appropriations At the end of FY 2011, our net position was $428.0 billion, a decrease of $36.5 billion, or 7.9 percent from FY 2010 Of the $428.0 billion, $297.6 billion was for earmarked funds compared to $319.0 billion in FY 2010, and $130.4 billion for all other funds compared to the FY 2010 ending balance of $145.5 billion September 30, 2011, totaled $878.1 billion Figure 2 depicts our FY 2011 Net Cost of... have FY 2011 data for many program measures due to the expected data lag resulting from the timing of the reporting requirements for our grantees In FY 2011, HHS began implementing the newly reauthorized Government Performance and Results Modernization Act (P.L 111–352) Accordingly, HHS evaluated performance reporting and consolidated the Department’s 18 performance reports into a consolidated report. .. FY 2011 under the guidelines of the American Institute of Certified Public Accountants’ SSAE No 16 This examination reports on management’s representation of and the operational effectiveness of those controls at service organizations when those controls are likely to be relevant to user entities' internal control over financial reporting U S Department of Health and Human Services | I-25 FY 2011 Agency. .. enhancement plans to improve the services provided by the PSC and CIT Legal Compliance Anti-Deficiency Act As noted in our FY 2010 Agency Financial Report, we indicated HHS was investigating potential reportable violations During FY 2011, we completed our investigation and identified reportable violations As required by the AntiDeficiency Act, we notified all appropriate authorities of such violations . FY 2011 Agency Financial Report November 15, 2011 FY 2011 Agency Financial Report |U.S. Department of Health and Human Services FY 2011 Agency.  FY 2011 Agency Financial Report | U. S. Department of Health and Human Services [Page Left Intentionally Blank] FY 2011 Agency Financial Report