FOR CHILDREN AND FAMILIES

I am pleased to present the Administration for Children and Families’ Audited Financial Statements for FY 1998. ACF is the lead agency in the Department of Health and Human Services for programs serving America’s children, youth and families. Our programs are at the heart of the Federal effort to strengthen families and give all children a decent chance to succeed.

Fiscal Year 1998 was a year of challenges and successes.

Welfare caseloads continued to decline throughout 1998. By the end of the fiscal year, the caseload had dropped to fewer than 8 million recipients and fewer than 2.9 million families, the lowest figures since the 1960s.

Evaluations of welfare-to-work efforts showed substantial progress in increasing employment and family earnings. A Los Angeles County evaluation gave important early evidence that welfare reform can succeed in large cities. A Portland, Oregon welfare-to-work program reduced welfare expenditures by 17 percent over a two-year period, while increasing recipients' earnings by 35 percent.

Thanks to the introduction of a new Federal Case Registry of all child support cases that allows ongoing matchings with the National Directory of New Hires, ACF announced an estimated $14.4 billion in child support collections in 1998, an increase of 80 percent over the $8 billion collected in 1992. At the same time, paternity establishments swelled to 1.3 million, nearly triple 1992’s number. For the first time, paternities established outnumbered out-of-wedlock births, indicating "backlogged" paternities are now being established for children born in earlier years.

In July, the President signed the Child Support Performance and Incentives Act, placing tough new penalties on States that fail to automate their child support computer systems on time. It established a system to reward States for their performance on a wide range of child support goals, such as the number of paternities established and child support orders, rather than only on cost-effectiveness as previous law provided.

Also in July, HHS published final child care regulations to promote affordable, accessible and quality care for children. These final regulations help guide States in the implementation of the child care program included in the 1996 welfare reform law. HHS also released an easy-to-use guide for parents to choose quality child care providers and a brochure for States on providing helpful consumer information to parents.

Under the expanded authority of the Adoption and Safe Families Act signed by President Clinton, ACF approved demonstration projects in eight States to test new ways to protect children at risk and secure permanent homes for those in foster care.

We have accomplished much this year, and we look forward to the challenges ahead.

ACF remains committed to achieving its mission: "To lead the nation in improving the economic and social well-being of families, children, individuals, and communities." To accomplish this, we will remain responsive to our nation’s evolving needs. ACF will maximize its resources, strengthen collaborations among our partners, and work to increase cooperation at every level.

/s/

Olivia A. Golden
March 17, 1999

I am pleased to have the opportunity to share with you ACF’s FY 1998 Audited Financial Statements.

For the past two years, ACF has received a "qualified" opinion from the auditors on our annual audited financial statements. Starting with the FY 1998 audit, the Office of Management and Budget (OMB) required four new statements (and one new required supplemental disclosure statement) and two old statements to be prepared and audited. Because of their complexity, guidance concerning preparation of some of the new statements was not available from OMB until the last quarter of the fiscal year. For lack of time, the auditors were unable to give an opinion on three of the more difficult new statements (and the supplemental disclosure). However, through our collaborative efforts with the Program Support Center (PSC), the auditors, and other Departmental officials, for the FY 1998 audit, ACF received an "unqualified" opinion on one of the new statements and two of the old statements. This is a major accomplishment!

On another positive note, due to everyone’s hard work and cooperation, ACF’s audit resulted in no qualifications for FY 1998. While three material weaknesses were identified for some continuing PSC accounting activities, many of the material weaknesses identified for the FY 1997 audit were either corrected or reduced to reportable conditions for the FY 1998 audit. We will continue to support and encourage remaining changes that will lead ACF and other OPDIVS served by PSC to a clean opinion in future years.

It should be noted that those of us involved with the audit have gained new insight and respect for this process as a valuable financial management oversight tool. Our almost daily contact with PSC and the auditors toward the development and completion of the financial statements and supporting processes and documentation has taught us the importance of ensuring that ACF has highly skilled and well-trained financial managers throughout the organization. In addition, based on prior year audits and the Department’s review of our grants management/administrative processes, ACF decided to declare two new material weaknesses in FY 1998 under the Federal Managers’ Financial Integrity Act (FMFIA) program—inadequate discretionary grants monitoring and untimely audit resolution. Though these weaknesses were no surprise, the identification of them by two official review mechanisms highlighted the extent of the problems which need to be fixed. We will all need to work together to improve, but our past progress on other problems attests to our ability to meet challenges. I look forward to success in these corrective actions as well.

During FY 1998, ACF senior managers and their staffs continued to work closely with HHS officials and OMB reviewers to develop the FY 2000 ACF Performance Plan that accompanied our FY 2000 budget submission. This planning process and document--required by the Government Performance and Results Act of 1994--has created a dynamic environment for holding ACF more accountable for showing where the tax dollars are going, as well as the results of our program efforts. Similar collaborative efforts occurred during the development of the ACF Overview that accompanies this audited financial statements package.

In addition, my CFO staff worked on an HHS Task Force to revise and improve the annual CFO Financial Management Status Report and Five Year Plan. With the commitment of HHS and OPDIV managers, the Department was able to develop a GPRA-type document with quantitative and qualitative financial management measures and results. This new format will enable better tracking and reporting of financial management accomplishments and challenges across the Department.

One of ACF’s biggest financial management accomplishments during FY 1998 involved the development of a cost accounting methodology for determining full program costs (both direct and indirect). Our methodology—involving a human resource survey completed by all organizational components within the Agency—was approved by the auditors, the Office of Inspector General, and PSC. The survey results were collated and provided to PSC to allocate the indirect costs in proportion to the resulting direct staff ratio. Since FY 1998 was the first year that Federal agency financial statements were required to report on both direct and indirect costs, we are extremely pleased that our methodology was supported.

Likewise, we take pride in ACF’s implementation of the "real closeout" of all FY 1998 transactions--including all obligations and reconciliation actions—on midnight September 30, 1998. This "real closeout" enabled PSC to close the CORE accounting system on time and focus on preparation of the FY 1998 financial statements within the time constraints established by the HHS CFO. With collaborative efforts, commitment and advance planning among my CFO staff, ACF’s budget office, grants officials, and senior management, ACF was able to achieve that difficult deadline. Given the benefits for all aspects of ACF’s work of accomplishing the "real closeout," we intend to follow this practice for FY 1999 and future years.

Another major effort in which ACF takes much pride is its accomplishment of Year 2000 (Y2K) Compliance for its mission critical systems. ACF has prepared for the impact of the new millennium on its computer systems in a variety of ways. It identified 55 mission critical systems that needed to be repaired, replaced, or retired. The vast majority of these mission critical systems carried out functions related to grant making and tracking. Therefore, 47 systems were subsumed into ACF’s new Grant Application Tracking and Evaluation System (GATES). The functions that these systems carried out are now performed by GATES, which was designed and constructed as a Y2K compliant system. The achievement of Y2K compliance for GATES and the other six mission critical systems makes us a leader in the Department’s Y2K compliance efforts. Further, ACF was appointed as the HHS lead OPDIV for the Y2K Outreach Human Services Sector Working Group. The focus for this group is directed primarily at data exchange partners, such as States, territories, private providers, Indian Tribes, and grantees.

We appreciate your interest in our audited financial statements. As ACF strives to achieve higher levels of accountability, these statements will help us focus our efforts and gauge our progress.

/s/

Elizabeth M. James Duke

March 9, 1999