Financial Statements & Accounting Data

Financial Statements &Accounting Data

Tom SadauskasDHA/Financial Operations Directorate (J8) Acting Chief, DHP Audit Division

“Medically Ready Force…Ready Medical Force” 1

Briefing Outline

∎ Financial Statement Reporting Requirements

∎ Legacy & New Replacement Accounting Systems

∎ FY 2018 Financial Statement Audit Update

∎ Medical Accounts Receivable (A/R)


Financial Management Requirements

∎ CFO Act of 1990: Integrated Financial Management (FM) systems supporting DoD accounting needs are key to effective financial management

∎ Federal Financial Management Improvement Act (FFMIA) of 1996: ALL Federal agencies to comply Implement/maintain systems that meet Federal FM system

requirements (Joint Financial Management Improvement Program (JFMIP))

Support Federal accounting standards (Federal Accounting Standards Advisory Board (FASAB))

Apply US Standard General Ledger (USSGL) at the transaction level


Congressional Deadline

∎ Since passage of CFO Act of 1990, DoD has expressed its intentions to achieve auditable financial statements

∎ Twenty three of 24 government agencies covered by the CFO Act have received at least one or more Unmodified (“clean”) Audit Opinions since 1990DoD is the only government agency that still keeps getting a

Disclaimer Audit Opinion∎ Congress became impatient with DoD progress and mandated a

30 September 2017 deadline for DoD’s financial statements to be validated as ready for auditNational Defense Authorization Act (NDAA) for FY 2010 (Public

Law 111-84), Section 1003, describes the mandated requirements


FY 2010 NDAA - Section 1003 – Audit Readiness of Financial Statements of DoD

∎ Development and maintenance of the Financial Improvement and Audit Readiness (FIAR) Planhttp://comptroller.defense.gov/fiar/plan.aspx

∎ Ensure the financial statements of the DoD are validated as ready for audit NLT 30 September 2017

∎ Semi-annually submit a report to Congress (NLT 15 May and 15 November) to the Congressional Defense Committeeshttp://comptroller.defense.gov/fiar/plan.aspx

∎ FIAR Guidance as of April 2017http://comptroller.defense.gov/fiar/fiarguidance.aspx


SecDef Call to Action


“I’ve directed the Department to cut in half the time it will take to achieve audit readiness for the Statement of Budgetary Resources so that by 2014 we will have the ability to conduct a full-budget audit.”

Secretary Leon E. Panetta, 13 October 2011Testimony before the House Armed Services Committee

SecDef Directive

∎ Within 60 days, the USD(C) was required to submit a revised plan to:Achieve audit readiness of the Statement of Budgetary

Resources (SBR) by the end of FY 2014Increase emphasis on accountability of assetsReview all financial controls over the next two yearsEstablish course-based certification program for financial

managers (i.e., DoD Financial Management Certification Program)

Resource efforts to meet these goalsAchieve full audit readiness by end of FY 2017


SBR Congressional Mandate

∎ NDAA for FY 2012 signed into law 31 December 2011. Section 1003 – Additional Requirements Relating to the

Development of the Financial Improvement and Audit Readiness Plan. “…to support the goal established by the Secretary of Defense that the statement of budgetary resources is validated to audit not later than September 30, 2014.”


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Financial StatementsDHP Financial Statement Reporting Entities (FSREs)

“Medically Ready Force…Ready Medical Force”For Official Use Only

DHP

DHA Consolidated

DHA-FOD CRM USUHS

SMA Consolidated

SMAArmy

SMANavy

SMAAir Force

NCRMD

97-0130 O&M

97-0130 PROC

97-0130 RDT&E

97-0130 O&M

97-0130 O&M

97-0130 PROC

97-0130 RDT&E

97-0130 Operations & Maintenance (O&M)

97-0130 Procurement (PROC)

97-0130 Research Dvlpmt Test & Eval. (RDT&E) (except NCR-MD)

97-0500 MILCON (except NCR-MD)

97-0501 Recovery Act – MILCON (except SMA-AF,NCR-MD)

97-0150 Recovery Act – FSRM (except SMA-AF, NCR-MD)

DHP: Defense Health Agency – SMA: Service Medical ActivityMERHCF: Medicare-Eligible Retiree Health Care FundDHA-FOD – Financial Operations DivisionCRM: Contract Resource ManagementUSUHS: Uniformed Services University of the Health SciencesNCR-MD: National Capital Region-Medical Directorate97-0130: Defense Health Program Appropriation

MERHCF

*MERHCF and CRM are currently under a standalone full financial statement audit.

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Accounting System Acronyms


DAI – Defense Agencies InitiativeDEAMS – Defense Enterprise Accounting and Management System DHA – Defense Health Agency FSRE – Financial Statement Reporting EntitiesGAFS-R – General Accounting Financial System – RehostGFEBS – General Fund Enterprise Business SystemSTANFINS – Standard Army Finance Information SystemSTARS-FL – Standard Accounting and Reporting System - Field LevelUSUHS – Uniformed Services University of the Health Sciences

Fiscal Management Requirements

∎ Office of Management & Budget (OMB)Use commercial off-the-shelf (COTS) JFMIP-certified

software for replacement of core FM systems (OMB Circular A-127)

∎ New Service FM COTS are JFMIP-certifiedArmy – General Fund Enterprise Business System (GFEBS) SAP COTS (fully deployed)

Navy – Navy Enterprise Resource Planning (ERP) SAP COTS (partial deployment)

Air Force – Defense Enterprise Accounting and Management System (DEAMS) Oracle COTS


What is SFIS?

∎ Standard Financial Information Structure (SFIS)A comprehensive, standard “business language” that

defines financial information that supports all DoD-wide budget, cost/performance management, and external reporting requirements

SFIS is NOT an IT systemhttp://cmo.defense.gov/Products-and-Services/Standard-

Financial-Information-Structure/


Financial Statements

∎ FSRE Structure ChallengesDHA has a clear chain of command and organizational structureMERHCF has actuarial and accounting informationSMA components have two lines of authority (command and

control, and finance business rules) vs. dollar flow. Face issues related to MILDEP priorities vs. fund flow priorities: financial impact, accounting system, financial business rules

∎ NDAA for FY 2017, Section 702Transfer of certain authorities and control from the Military

Departments to the DHA effective 1 October 2017. 5+2 MTFs


Financial Statement (Con’t)

∎ FSRE Structure Challenges (continued)Solution: single accounting system with common business

rules and chain of command simplifies, streamlines the financial statement, financial reporting, and financial performance reporting

∎ Conversion of Walter Reed National Military Medical Center (WRNMMC) in FY 2015 from Navy STAR-FL to Army GFEBS was the start of DHP moving to increased standardization

∎ DHA-Comptroller and USUHS to migrated from DAI to GFEBS on 1 Apr 2018

∎ SMA-Navy will migrate to GFEBS; SMA-Air Force (TBD)


Audit Basics

What – Financial Statement Audit - An audit is an official inspection of an individual’s or organization’s accounts, typically by an independent body. Audits are performed to ascertain the validity and reliability of information provided by an entity. Audits provide an assessment of a system’s internal controls.

Who – Independent Public Accountant (IPA) – Kearney & Company

Scope – FY 2018 Defense Health Program (DHP) Financial Statements

Why – Congressionally mandated by the CFO Act of 1990 and the National Defense Authorization Act for FY 2010.

Started – August 2017

Audit Opinion – To be issued NLT 15 November 2018

“Medically Ready Force…Ready Medical Force”1514 December 2011

FY 2018 Full Audit of the DHP

∎ FY 2018 Audit of the Defense Health Program (DHP) will cover four different financial statementsBalance SheetStatement of Net CostStatement of Net PositionStatement of Budgetary Resources

∎ Opinion for FY 2018 financial statements will be issued NLT 15 November 2018 (45 days after close of fiscal year)


Audit Status Overview

The audit covers the FY 2018 DHP Financial Statement and covers all beginning balances and current FY 2018 execution

Involves all of the DHP Components to include all Service Medical Activities (SMAs), DHA-Financial Operations Division, and Uniformed Services University of the Health Sciences (USUHS)

The DHP Audit Division has received and responded to over 3800audit requests for documentation. Additional requests will include samples numbering in the 1000s

DHP Audit Division has already received Notification of Findings and Recommendations (NFRs) and are working corrective actions plans (CAPs).

“Medically Ready Force…Ready Medical Force”1714 December 2011

DHP Audit Update

∎ Status of PBC requests:

∎ Current challenges, including unanticipated/unexpected issues:GFEBS walkthrough limitation due to competing audit

requirements and personnel capacityArmed Forces Billing and Collection Utilization Solution (ABACUS)

limitation due to contractual requirements

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DHP Audit Update

Open PBCs Overdue PBCs Closed PBCs Total PBC Requests Received

86 30 3,698 3,814

Content as of May 11, 2018

∎ NFR Status:NFR Status Deficiency Owner Deficiency Description

Final, Signed DHP Enterprise-level Unable to reconcile UoT through the DHP Financial Statements

Final, Signed Service Medical Activity (SMA)-Air Force

Unfunded Annual Leave Liability is not recorded and lacks related internal control activities

Final, Signed SMA-Air Force Full cost of operations, including imputed costs, are not recognized/disclosed

Final, Signed Defense Health Agency (DHA)-Financial Operations Division (FOD)

DHA accounts for stockpile material using the purchase method of accounting, directly expensing the assets upon purchase. The purchase method of accounting is not allowable under SFFAS No. 3 for stockpile material

Final, Signed DHP Enterprise-level The opening balances for PP&E at the DHP Consolidated Level are not Generally AcceptedAccounting Principles (GAAP)-compliant

Draft DHP Enterprise-level Oversight of the Universe of Transactions (UoT) reconciliations performed by OUSD(C), DHP, and DFAS

Draft SMA-Navy Undocumented policies and procedures for access control and inadequate segregation of duties for the Standard Procurement System (SPS)

DHP Audit Update (con’t)

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DHP Audit Update

Content as of May 11, 2018

Accounts Receivable (A/R)

∎ Two types of A/R in governmental accountingIntra-Governmental (e.g., Coast Guard, VA) Expect to get paid 100% of Billed Amount Disputes regarding claims against other federal

agencies (e.g., Coast Guard, VA) are to be resolved per Code of Federal Regulations 4 CFR 101

Public (e.g., civilian emergencies, Third Party Collections) Need to establish an allowance for bad debt Gross versus Net (reduced amount)


DoD References

∎ DoD Financial Management Regulation (FMR), Volume 4, Chapter 3, “Receivables” dated February 2016

∎ DoD Financial Management Regulation (FMR), Volume 6B, Chapter 10, “Notes to the Financial Statements” dated April 2013

∎ Located at OSD (Comptroller) Web site:http://comptroller.defense.gov/fmr.aspx


Service Financial Statements

∎ A/R are reported on the annual audited financial statements

∎ Service Financial Statements located at OSD(Comptroller) Web site:http://comptroller.defense.gov/ODCFO/cfs2017.aspx

∎ Medical A/R previously was NOT being reported by the SMA activities


MHS Accounts Receivable Policy

∎ Accounts Receivable Policy Memorandum (with attachment)Policy signed on 8 May 2008

∎ PurposeEstablish policy for the recognition (“as rendered”),

classification, recording, aging, collection, disposition and reporting of accounts receivable in order to improve the accuracy of financial statements

Compliance with DoD’s Financial Management Regulation (FMR) and Generally Accepted Accounting Principles (GAAP)


Third Party Collections (TPC)

∎ Total Third Party Collections (TPC) Billings in FY 2016 were $326.5 million

∎ Total TPC Collections from insurers in FY 2016 were $102.3 million

∎ On average, from FY12-FY16, 54% of total MHS TPCP charges billed can be attributed to acceptable third party payer denials (co-pay, deductibles, out of network, non-covered benefits).


Medical Services Account (MSA)

∎ Combination of both Intra-governmental A/R (e.g., Coast Guard, VA) and Public A/R (e.g., civilian emergencies)

∎ Total MSA amount collected for medical care provided in MTFs for FY 2015 was $337 million


Medical Affirmative Claims (MAC)

∎ Medical Affirmative Claims (MAC) A/R is all Public A/R (e.g., insurance companies, liable individuals)

∎ Total MAC amount collected for medical care provided in MTFs for FY 2015 was $13.5 million

∎ ALL FUNDS collected (i.e., TPC, MSA and MAC) are retained by your MTFTPC funds are in addition to your MTF’s O&M Budget


Financial Metrics – Intra-Governmental

∎ FY 2018 (as of 31 March 2018) Intra-Governmental Accounts Receivable (100% Collected)SMA-Army ($397.3 Million)SMA-Navy ($7.8 Million)SMA-Air Force ($0.0 Million)SMA-NCR Medical Directorate ($55.2 Million)


Financial Metrics – Nonfederal (Public)

∎ FY 2018 (as of 31 March 2018) Nonfederal Receivables from the Public, Net (reduced by Allowance for Estimated Uncollectibles)SMA-Army ($150.4 Million)SMA-Navy ($11.9 Million)SMA-Air Force ($94.4 Million)SMA-NCR Medical Directorate ($74.8 Million)


Questions?

Tom SadauskasActing Chief, DHP Audit Division

DHA/Financial Operations Directorate (J8) 703-681-5827 DSN 761

[email protected]


Financial Statements & Accounting Data

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