Financial Statements & Accounting Data DHA Business Support Directorate Financial Integrity Division “Medically Ready Force…Ready Medical Force” 1

Briefing Outline ∎ Financial Statement Reporting Requirements ∎ Legacy Accounting Systems ∎ Medical Accounts Receivable (A/R) “Medically Ready Force…Ready Medical Force” 2

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 “Medically Ready Force…Ready Medical Force” 3

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 received Unmodified (“clean”) Audit Opinions for FY 2014  DoD is the only government agency still with 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 audit  National Defense Authorization Act (NDAA) for FY 2010 (Public Law ), Section 1003, describes the mandated requirements “Medically Ready Force…Ready Medical Force” 4

Section 1003 – Audit Readiness of Financial Statements of DoD ∎ Development and maintenance of the Financial Improvement and Audit Readiness (FIAR) Plan  ∎ 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 Committees  “Medically Ready Force…Ready Medical Force” 5

SecDef Call to Action “Medically Ready Force…Ready Medical Force” 6 “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 2011 Testimony 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 2014  Increase emphasis on accountability of assets  Review all financial controls over the next two years  Establish course-based certification program for financial managers (i.e., DoD Financial Management Certification Program)  Resource efforts to meet these goals  Achieve full audit readiness by end of FY 2017 “Medically Ready Force…Ready Medical Force” 7

SBR Congressional Mandate ∎ NDAA for FY 2012 signed into law 31 December  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.” “Medically Ready Force…Ready Medical Force” 8

Important Dates ∎ Important Dates for CY 2014  31 March: Components assert SBR audit readiness  30 September: USD(C) validates audit readiness of Component SBRs for FY 2013  By 31 December: Begin Auditing SBRs ∎ DHP Schedule of Budgetary Accounts (SBA) Examination began April 2015  Covers financial period of 1 October 2014 to 31 March 2015 ∎ Full audit of DHP to begin in FY 2016 “Medically Ready Force…Ready Medical Force” 9

FY 2016 Full Audit of DHP ∎ FY 2016 Audit of DHP will cover four financial statements  Balance Sheet  Statement of Net Cost  Statement of Net Position  Statement of Budgetary Resources ∎ Opinion for FY 2016 financial statements will be issued NLT 15 November 2015 (45 days after close of fiscal year) “Medically Ready Force…Ready Medical Force” 10

11 Financial Statements DHP Financial Statement Reporting Entities (FSREs) “Medically Ready Force…Ready Medical Force” For Official Use Only DHP DHA Consolidated ComptrollerCRMUSUHS SMA Consolidated SMA Army SMA Navy SMA Air Force NCR MD O&M PROC RDT&E O&M PROC RDT&E Operations & Maintenance (O&M) Procurement (PROC) Research Dvlpmt Test & Eval. (RDT&E) (except NCR-MD) MILCON (except NCR-MD) Recovery Act – MILCON (except SMA-AF, NCR-MD) Recovery Act – FSRM (except SMA-AF, NCR- MD) DHP: Defense Health Agency – SMA: Service Medical Activity MERHCF: Medicare-Eligible Retiree Health Care Fund CRM: Contract Resource Management USUHS: Uniformed Services University of the Health Sciences NCR-MD: National Capital Region-Medical Directorate : Defense Health Program Appropriation MERHCF * MERHCF and CRM are currently under a standalone full financial statement audit. * *

Financial & Accounting Data FSRELegacyEnterpriseBusiness RulesCommand & Control DHA-ComptrollerWAASDAIDHA-ComptrollerDHA USUHSCUFSDAIUSUHS ArmySTANFINSGFEBSArmy NavySTARS-FLNavy ERPNavy Air ForceGAFS-RDEAMSAir Force “Medically Ready Force…Ready Medical Force” 12

Accounting System Acronyms “Medically Ready Force…Ready Medical Force” 13 CUFS – College and University Financial System DAI – Defense Agencies Initiative DEAMS – Defense Enterprise Accounting and Management System DHA – Defense Health Agency FSRE – Financial Statement Reporting Entities GAFS-R – General Accounting Financial System – Rehost GFEBS – General Fund Enterprise Business System STANFINS – Standard Army Finance Information System STARS-FL – Standard Accounting and Reporting System - Field Level USUHS – Uniformed Services University of the Health Sciences WAAS – Washington Headquarters Services (WHS) Allotment Accounting System

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-certified  Army – 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 “Medically Ready Force…Ready Medical Force” 14

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 system  financial-information-structure/ “Medically Ready Force…Ready Medical Force” 15

Financial Statements ∎ FSRE Structure Challenges  DHA has a clear chain of command and organizational structure  MERHCF has actuarial and accounting information  SMA 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 “Medically Ready Force…Ready Medical Force” 16

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 an example of DHA moving to increased standardization “Medically Ready Force…Ready Medical Force” 17

Accounts Receivable (A/R) ∎ Two types of A/R in governmental accounting  Intra-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 (civilian emergencies, Third Party Collections)  Need to establish an allowance for bad debt “Medically Ready Force…Ready Medical Force” 18

DoD References ∎ DoD Financial Management Regulation (FMR), Volume 4, Chapter 3, “Receivables” dated June 2014 ∎ DoD Financial Management Regulation (FMR), Volume 6B, Chapter 10, “Notes to the Financial Statements” dated April 2013 ∎ Located at OSD (Comptroller) Web site:  “Medically Ready Force…Ready Medical Force” 19

Service Financial Statements ∎ A/R are reported on the annual audited financial statements ∎ Service Financial Statements located at OSD(Comptroller) Web site:  orts/cfs2014.aspx ∎ Medical A/R previously was NOT being reported by the SMA activities “Medically Ready Force…Ready Medical Force” 20

MHS Accounts Receivable Policy ∎ Accounts Receivable Policy Memorandum (with attachment)  Policy signed on 8 May 2008 ∎ Purpose  Establish 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) “Medically Ready Force…Ready Medical Force” 21

Third Party Collections (TPC) ∎ Total Third Party Collections (TPC) Billings in FY 2014 were $307.4 million ∎ Total TPC Collections from insurers in FY 2014 were $135.3 million ∎ On average, from FY12-FY14, 46% of total MHS TPCP charges billed was attributed to acceptable third party payer denials (co-pay, deductibles, out of network, non-covered benefits. ∎ How much is really being written off as uncollectible, and how much is still on the books as Medical A/R? “Medically Ready Force…Ready Medical Force” 22

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 2014 was $289.8 million “Medically Ready Force…Ready Medical Force” 23

Medical Affirmative Claims (MAC) ∎ Medical Affirmative Claims (MAC) A/R is all Public A/R (e.g., insurance companies, liable individuals) ∎ Total amount collected for medical care provided in MTFs for FY 2014 was $12.9 million “Medically Ready Force…Ready Medical Force” 24

Financial Metrics ∎ FY 2014 (as of 30 Sep 2014) Nonfederal Receivables from the Public, Net (reduced by Allowance for Estimated Uncollectibles)  SMA-Army $149.5 Million)  SMA-Navy ($23.0 Million)  SMA-Air Force ($64.0 Million)  SMA-NCR Medical Directorate ($517,000) “Medically Ready Force…Ready Medical Force” 25

Write Off of Aged A/R Due from the Public ∎ On 22 December 2011, TMA issued to the Services a memorandum with the subject “Write Off of Aged Accounts Receivable Due From the Public” ∎ Requires Services to write off delinquent public A/R over 2 years old IAW OMB Circular A-129 ∎ Write off of delinquent public A/R must be completed by the Services within 90 days of the issuance of the memorandum ∎ Waiver of requirement can be requested if collection efforts are still continuing on the delinquent public A/R ∎ Waived public A/R accounts over 2 years old will be reclassified as Currently not Collectible (CNC) “Medically Ready Force…Ready Medical Force” 26

Questions? “Medically Ready Force…Ready Medical Force” 27