Basis of Presentation

These financial statements have been prepared to report the financial position and the net cost of operations, changes in net position, budgetary resources, financing and custodial activities of Administration for Children and Families (ACF), as required by the Chief Financial Officers Act of 1990, and as amended by the Government Management Reform Act of 1994. They have been prepared from ACF’s accounting records, in accordance with the form and content requirements specified by the Office of Management and Budget’s (OMB) Bulletin 97-01, the Federal Accounting Standard Advisory Board’s (FASAB) Statements of Federal Financial Accounting Standards (SFFASs), and ACF’s accounting policies which are summarized in this note.

For fiscal year (FY) 1998, the Balance Sheet is the only financial statement format that is repeated from prior years ACF reports. Five additional statements are now required. These new statements embody the financial accounting concepts and the recognition and measurement requirements contained in the Statements of Federal Financial Accounting Concepts (SFFACs) and Standards recommended by FASAB and approved by the Secretary of the Treasury, the Director of the OMB, and the Comptroller General.

ACF uses both the accrual basis and budgetary basis of accounting to record transactions. Under the accrual basis, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. These financial statements were prepared following accrual accounting. Budgetary account balances are included in certain statements as appropriate. Budgetary accounting principles ensure that funds are obligated according to legal requirements. Balances on these statements may therefore differ from those on financial reports prepared pursuant to other OMB directives that are primarily used to monitor and control ACF’s use of budgetary resources.

Reporting Entity

ACF is an operating division (OPDIV) of the Department of Health and Human Services (HHS), which is a Cabinet agency of the Executive Branch of the United States Government. ACF was established in 1991 to merge two major HHS OPDIVs: the Family Support Administration and the Office of Human Development Services. The purpose of the merger was to bring together under one agency all service and assistance payments that support children and families. ACF provides national leadership and direction to plan, manage and coordinate the nationwide

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

administration of comprehensive and supportive programs for vulnerable children and families, Native Americans, persons with developmental disabilities, refugees and legalized aliens, to help them achieve stability, economic security, responsibility and self-sufficiency.

HHS’s Chief Financial Officer’s (CFO) office provides the Department-wide accounting policy oversight. The Division of Financial Operations (DFO) of the Program Support Center (PSC) provides the accounting and fiscal services, including the preparation of the financial statements, on a fee for service basis. DFO is considered part of the ACF’s management.

The majority of ACF’s appropriated funds are used to support authorized entitlement and discretionary grant programs. Such programs are carried out by state, county, city and tribal governments as well as public and private local agencies. In addition, ACF also utilizes a number of receipt, deposit, and/or budget clearing accounts. The financial statements report activity for the appropriated funds listed below, with the related appropriation account symbols and period of fund availability.

Annual Appropriations

75 1501 Family Support Payments to State

75 1502 Low Income Home Energy Assistance

75 1503 Refugee Entrant Assistance

75 1504 Community Services Block Grant

75 1508 Interim Assistance to States for Legalization

75 1509 Payment to States for AFDC Work Programs

75 1511 Refugee Resettlement Assistance

75 1512 Administration for Children and Families

75 1515 Payments to States for Child Care Assistance

75 1534 Social Services Block Grant

75 1536 Administration for Children and Families

75 1545 Payment to States for Foster Care and Adoption Assistance

75 1550 Child Care Entitlement

75 1551 Federal Loan for State Welfare

75 1552 Child Care Temporary Assistance for Needy Families

75 1553 Children’s Research & Technical Assistance

75 3107 Personal Responsibility and Work Opportunity Act

75 8605 Administration for Children and Families

Indefinite Appropriations

75 X 1501 Family Support Payments to States

75 X 1504 Community Services Block Grant

75 X 1534 Social Services Block Grant

75 X 1536 Administration for Children and Families

75 X 1553 Children’s Research & Technical Assistance

75 X 6234 Collections for Past Due Support from Federal Tax Refunds

75 X 6288 Payment to States from Receipts for Child Support

Multi-Year Appropriations

75 1502 (7/8) Low Income Home Energy Assistance

75 1503 (4/6, 5/7) Refugee Entrant Assistance

75 1508 (8/4, 8/5, 9/5, 0/5, 1/5,3/5, 4/5) Interim Assistance to States for Legalization

75 1522 (7/1) Contingency Fund for State Welfare

75 1550 (7/8) Child Care Entitlement

Budgets and Budgetary Accounting

Financing sources are provided through Congressional appropriations on an annual, multi-year and no-year basis, or through reimbursable agreements. Annual appropriations are available for incurring obligations during a specified year; multi-year appropriations are generally available for two years. No-year or "X-year" appropriations are available for an indefinite period. For financial statement purposes, appropriations are recognized as financing sources as expenses are incurred.

Reimbursable service agreements generally recognize revenues when goods are delivered or services rendered between ACF and other Federal agencies, OPDIVs, and the public. In addition, other financing sources are provided in the form of gifts from the public, interest on investments, and miscellaneous sales. All of these financing sources may be used to finance operating expenses and for capital expenditures, as specified by law.

Use of Estimates in Preparing Financial Statements

The preparation of financial statements, in conformity with Federal accounting standards, requires management to make estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

Fund Balances with the U. S. Treasury

ACF’s cash receipts and disbursements are processed by the U. S. Treasury. No cash balances are maintained outside of the U. S. Treasury.

Accounts Receivable and Earned Revenues

Accounts receivable, including interest receivable, consist of amounts owed to ACF by other Federal agencies and the public. These balances are presented net of allowances for uncollectable accounts. The allowance estimates are based on past collection experience and/or an aging analysis of the outstanding balances. Earned revenues associated with programs are immaterial and netted in the Statement of Net Cost.

Property, Plant and Equipment

Property and equipment purchases and capital improvements are valued at cost. Equipment is capitalized when cost is $25 or more and it has a useful life of more than two years. Equipment, buildings and capital improvements are depreciated on a straight-line basis over the estimated useful life of the asset; land is not depreciated. Routine maintenance and repair costs are expensed as incurred.

Liabilities

Liabilities are recognized for amounts of probable future outflows or other sacrifices of resources as a result of past transactions or events. Since ACF is a component of the U. S. Government, a sovereign entity, its liabilities cannot be liquidated without legislation that provides resources to do so. Payment of all liabilities other than contracts can be abrogated by the sovereign entity.

Unfunded liabilities are incurred when funding has not yet been made available through Congressional appropriations or current earnings. ACF recognizes such liabilities for employee annual leave earned but not taken, and amounts billed by the Department of Labor (DOL) for the worker’s compensation benefits. In accordance to Public Law and existing Federal accounting standards, a liability is not recorded for any future payment made on behalf of current workers contributing to the Medicare Hospital Insurance Trust Fund.

Grants

ACF funds various grant programs such as the Temporary Assistance to Needy Families (TANF), Social Services, Child Welfare and Head Start. Recipients are paid through the Division of Payment Management (DPM) of the Program Support Center (PSC). Grant advances are recorded in the CORE Accounting System monthly, based on actual grant advance disbursements plus an allocation of HHS net disbursements reported to Treasury. The allocated portion considers the impact of multiple grants provided by several HHS agencies.

Advances are liquidated upon the grantee’s reporting of expenditures on the quarterly 272 Report, which in many cases are received several months after the grantee actually incurs the expense reported thereon. In addition to recording actual grant expenditures referred in the preceding paragraph, ACF also estimates amounts due grantees for their expenditures made through the end of the year, for which expenditure reports (principally SF-272 Reports) have not been received from such grantees by September 30. The accrual estimate is based on historical grantee advance and expenditure data and spending habits of grantees at the end of ACF’s fiscal year (September 30).

Employee Leave

Annual leave is accrued as it is earned and the accrual is reduced by leave taken. The accrual for accumulated annual leave is based on current year pay rates. Sick and other types of leave are expensed as taken.

Retirement Plans

Most ACF employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Under CSRS, ACF makes matching contributions equal to 7 percent of basic pay. Under FERS, ACF contributes the employer’s matching share for Social Security and an amount equal to one percent of employee’s pay to a savings plan. ACF will also match an employee’s savings plan contribution up to an additional 4 percent of pay. Employees hired after December 31, 1983, are automatically covered by FERS. The Office of Personnel Management (OPM) is responsible for reporting on CSRS and FERS plan assets, accumulated plan benefits, and unfunded liabilities, if any, applicable to Federal civilian employees.

The FASAB’s SFFAS Number 5, "Accounting for Liabilities of the Federal Government," requires that employing agencies recognize the full cost of pensions, health and life insurance benefits, during their employees’ active years of service. OPM, as the administrator of the CSRS and FERS plans, the Federal Employees Health Benefits Program and the Federal Employees Group Life Insurance Program, must provide the "cost factors" that adjust the agency contribution rate to the full cost for the applicable benefit programs. Accordingly, an imputed financing source and corresponding imputed personnel cost of $13,000 are reflected in the Statement of Changes in Net Position, the Statement of Net Costs, and the Statement of Financing, respectively. These imputed balances do not affect ACF’s net position.

Payroll Processing

The HHS centralized payroll system (i.e., Accounting for Pay System) computes employee payroll and benefits.

Obligations Related to Canceled Appropriations

In FY 1998, ACF reported to OMB and the U. S. Treasury $349,000 of obligational write-offs. Due to these write-offs, payments may be required from current year appropriations for liabilities related to these canceled appropriations.

Non-Entity Transactions

Non-entity assets and revenues are held by ACF, with no authority for use. In most cases, these represent custodial/fiduciary activities for the General Fund of the U. S. Treasury. Offsetting liabilities are recorded to ensure that these balances are not recognized as equity of ACF. The presentation of non-entity assets, custodial liabilities and revenues in a separate, self-balancing set of subsidiary accounts ensures that the net position presents only those resources which will be consumed in current or future operating cycles. The current year’s collections and disbursements are reported on the Statement of Custodial Activity.

  NOTE 2 - FUND BALANCES WITH TREASURY
The aggregate amounts of ACF’s accounts with the U. S. Treasury for which ACF is authorized to make expenditures and pay liabilities are listed below by fund types. The funds classify as Others include balances in the deposit, suspense, clearing and non-entity accounts. The non-entity amount on the Balance Sheet consists of funds transferred from the Internal Revenue Service to ACF, which are to be forwarded to States for Child Support payments.

	Entity	Non-Entity	Totals
Appropriated Funds:
Annual/Multi-Year	$ 22,359,422	$ -	$ 22,359,422
Indefinite	3,886,631		3,886,631
Subtotal	26,246,053	-	26,246,053
Other Fund Types		623	623
Totals	$ 26,246,053	$ 623	$ 26,246,676

NOTE 3 - ACCOUNTS RECEIVABLE

Entity accounts receivable are primarily intragovernmental in nature. The non-entity receivables are the results of audit disallowances of non-Federal sources. These disallowances are recorded as miscellaneous receipts for the General Fund of the U. S. Treasury.

	Entity	Non-Entity	Totals
Accounts Receivable, Gross	$ 13,397	$ 123,995	$ 137,392
Interest Receivable	-	47,730	47,730
Allowance for Uncollectable Accounts	(5,490)	-	(5,490)
Totals	$ 7,907	$ 171,725	$ 179,632

NOTE 4 - ADVANCES AND PREPAYMENTS AND PRIOR PERIOD ADJUSTMENT

Most non-governmental advances are made from grant program funds primarily to state and local governments, as well as universities, non-profit organizations, and individuals. Grant recipients are paid through the Division of Payment Management’s (DPM) Payment Management System (PMS). A small portion of the advances is for employee travel and emergency salary payments.

Advances are liquidated upon the grantee’s reporting of expenditures on the quarterly SF-272 Report, which in many cases are received several months after the grantee actually incurs the expense reported thereon. In 1997, ACF adopted a Department wide accrual methodology to estimate and accrue amounts due grantees for their expenditures made through September 30, 1997, for which expenditure reports (principally SF-272 Reports) have not been received from such grantees as of September 30, 1997. Accrual amounts were determined by PSC’s Division of Payment Management (DPM), the manager of HHS’s central grants payment system. The accrual estimate was based on a formula which calculated an average daily spending rate for each non-block grant program. The calculation assumed that the grantees expended their funds equally over the life of the grant. At September 30, 1997, an accrual of $6,422,000 was reflected in ACF’s Consolidated Balance Sheet. However, ACF and HHS have been unable to fully develop support for this accrual methodology.

In 1998, the Department refined the estimate methodology used in 1997 by utilizing additional historical grantee advance and expenditure data and surveys from a selected group of grantees on their spending habits at the end of ACF’s fiscal year (September 30). This revised accrual estimate methodology resulted in an accrual estimate of approximately $6,452,000 at September 30, 1998 and is reflected net in the Advance balance of $516,960 reflected on the Consolidated Balance Sheet at September 30, 1998. As part of this refinement process, ACF determined that a portion of the 1997 grant accrual calculation relating to SF-272s received after the end of the year was in error due to a summary of SF-272 reports and other information, being prepared in error. The effect of this error was an understatement of the grant accrual at September 30, 1997 by $525,000. Such amount is reflected as a prior period adjustment in the 1998 Consolidated Statement of Net Position.

Advances and prepayments at September 30, 1998 are summarized as follows:

Grant advances	$ 6,969,084
Less accrual for incurred but not reported	(6,452,232)
Net grant advances	516,852
Non-grant advances	108
Total	$ 516,960

NOTE 5 - PROPERTY AND EQUIPMENT

ACF has equipment with an acquisition cost of $707 and accumulated depreciation of $175, with a net value of $532. Most buildings occupied by ACF are provided by the General Services Administration (GSA).GSA charges ACF a Standard Level Users Charge (SLUC), which approximates commercial rental rates for similar properties. Expense for SLUC was approximately $12,700 for FY 1998.

NOTE 6 - WORKER’S COMPENSATION

The liability for future workers’ compensation benefits includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases. The amount of this liability is provided to ACF by DOL’s Employment Standards Administration, pursuant to the Federal Employees’ Compensation Act. The liability is determined using a method that utilizes historical benefit payment patterns, related to a specific incurred period, to predict the ultimate payment related to that period. Consistent with past practice, these projected annual benefit payments (i.e., over 37 years) have been discounted to present value using the OMB’s economic assumptions for 10-year Treasury notes and bonds. Interest rate assumption utilized for discounting for FY 1998 is 5.69 percent for year one and thereafter.

NOTE 7 - UNEXPENDED APPROPRIATIONS

Unobligated:
Available	$ 3,627,379
Unavailable	5,536,289
Total unobligated	9,163,668
Undelivered orders	17,571,835
Total unexpended appropriations	$ 26,735,503

NOTE 8 - GRANT AWARDS

The Single Audit Act of 1984, as revised, provides that recipients receiving $300 or more in Federal financial assistance have an annual audit of its activities performed by an independent non-Federal auditor. The results of these audits furnish information to awarding agencies about the validity of their financial assistance awards expenditures, adequacy of internal controls over Federal assistance, and the extent of compliance with grant rules and regulations. Disallowed costs identified pursuant to these audits are used to reduce future years’ grant awards, or returned to the awarding agency or general receipt funds, as required by appropriation law. Such reduction or returned awards are reported in the year the determination is made.

Final determination of allowable costs, relating to grants provided by ACF in FY 1998, have not been completed. Accordingly, awards issued and expensed may ultimately be adjusted for recipients’ costs determined disallowed pursuant to the audit. As a result, later reviews may identify disallowances of FY 1998 expenditures after the financial statements have been issued. Even though the periods are not compatible, it should be noted that the FY 1998 audit disallowances are approximately $6,500. ACF believes that the amount of expenditures, relating to the audit of awards as of September 30, 1998, expected to be disallowed, will not have a material impact on the financial statements.

NOTE 9 – INTRAGOVERNMENTAL ADVANCES AND PRIOR PERIOD ADJUSTMENT

ACF transfers funds to other governmental agencies for the purpose of funding various programs monitored at other agencies for which ACF has an interest. Correspondingly, ACF also receives funds from other governmental agencies in anticipation of assisting ACF in funding certain programs that they monitor, for which the other agency has an interest. At September 30, 1997 the non-grant advance liability of approximately $275,000 shown on the Balance Sheet represented non-grant advance liabilities aggregating approximately $353,000 less non-grant assets aggregating approximately $78,000 at September 30, 1997. ACF had not maintained adequate documentation to support these balances at September 30, 1997. In 1998, management determined that the amounts reported at September 30, 1997 were in error. Accordingly, the Statement of Changes in Net Position reflects a prior period adjustment of $275,000 to correct this error.

NOTE 10 - CONTINGENCIES

ACF has certain claims and lawsuits pending against it. When claims are expected to result in payments, and the payment amounts can be reasonably estimated, appropriate provision is included in the accompanying principal statements. In the opinion of management and legal counsel, the resolution of other claims and lawsuits will not materially affect the financial position or operations of ACF.

SUPPLEMENTAL INFORMATION

INVESTMENTS IN HUMAN CAPITAL

ACF is unable to provide baseline data for two of its programs for FY 1998. Under both the Temporary Assistance for Needy Families (TANF) program and the Office of Refugee Resettlement (ORR), States have flexibility in how they spend their money. By definition, "Investment in Human Capital" refer to those expensed incurred for programs for education and training of the public that are intended to maintain or increase national productive capacity.

In contrast, the Administration on Developmental Disabilities (ADD) program is able to estimate their investment in human capital from existing data collection activities. Under ADD 22 grants were awarded for Projects of National Significance (PNS). PNS grants are awarded to public or private, non-profit institutions to enhance the independence, productivity, integration and inclusion into the community of people with developmental disabilities. Monies also support the development of national and state policy to serve this community. For FY 1998, grants awarded totaled $1,044.

INVESTMENTS IN RESEARCH AND DEVELOPMENT

ACF oversees research and development programs intended to increase or maintain national economic productive capacity. For FY 1998, ACF invested $12,732 in research and development, of which $11,949 was for applied research, and $783 was for administrative costs.