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Notes to the Principal Financial Statements
Note 1—Significant Accounting Policies
Basis of Presentation
These financial statements have been prepared to report the financial position and results of operations of AHRQ, as required by the Chief Financial Officers Act of 1990, as amended by the Government Management Reform Act of 1994. They were prepared from AHRQ 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 AHRQ's accounting policies which are summarized in this note.
For fiscal year (FY) 2001, the Balance Sheet, Net Cost, Changes in Financial Position, Budgetary Resources, and Financing statements are repeated from prior year AHRQ reports. These 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.
The AHRQ 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 therefore may differ from those on financial reports prepared pursuant to other OMB directives that are used primarily to monitor and control AHRQ's use of budgetary resources.
The AHRQ 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. The AHRQ, formerly known as the Agency for Health Care Policy and Research (AHCPR), was established in December 1989 under Public Law 101-239, Omnibus Budget Reconciliation Act of 1989, to enhance the quality, appropriateness, and effectiveness of health care services and access to these services. The Agency's mission is to generate and disseminate information to improve the health care system. The AHRQ is structured into the following 11 major functional components:
- Office of the Director.
- Office of Management.
- Office of Priority Populations Research.
- Office of Research, Review, Education, and Policy.
- Office of Health Care Information.
- Center for Cost and Financing Studies.
- Center for Organization and Delivery Studies.
- Center for Outcomes and Effectiveness Research.
- Center for Primary Care Research.
- Center for Practice and Technology Assessment.
- Center for Quality Improvement and Patient Safety.
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 AHRQ's management.
The AHRQ maintains only appropriated funds. The appropriated accounts may include 1-year, multiyear, and indefinite authority. In addition, the AHRQ also uses a number of receipt, deposit, and budget clearing accounts. The financial statements report activity for the appropriated funds listed below. Also included are the related appropriation account symbols, and such activity is considered a health research and training function. AHRQ's programs are designated by OMB as falling under the health budget function category. Of
AHRQ's net cost of $49.1 million, only $25.1 million was determined to be payments within the Government.
75X1700: Agency for Healthcare Research and Quality.
75 1700: Agency for Healthcare Research and Quality.
Budgets and Budgetary Accounting
Financing sources are provided through congressional appropriations on an annual, multiyear and no-year basis, or 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 the AHRQ 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 generally accepted accounting principles, requires management to make estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of 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
AHRQ maintains all cash accounts with the U.S. Treasury. The account "Fund Balance with Treasury" represents appropriated, revolving, trust, and other funds available to pay current liabilities. The U.S. Treasury processes cash receipts and disbursements for AHRQ.
Accounts receivable, including interest receivables, consist of amounts owed to the AHRQ by other Federal agencies and the public. The nongovernmental 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
Accrued Grants are classified as non-block grants. Non-block grants draw funds to meet their immediate cash needs, and the grantees report actual disbursements (cash expenditures) quarterly. Therefore, the year-end accrual fornon-block grants is equal to the estimate of the fourth quarter disbursements, plus an average of 2-week expenditures for expenses incurred without immediate cash needs.
Property, Plant, and Equipment
Property and equipment purchases and additions are valued at cost. Equipment is capitalized when cost is $25,000 or more and it has a useful life of more than 2 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 are recognized for amounts of probable future outflows or other sacrifices of resources as a result of past transactions or events. Since the AHRQ 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. The AHRQ 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 with 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.
Annual leave is accrued as it is earned and the accrual is reduced as leave is taken. Each year, the balance in the accrued annual leave account is adjusted to reflect current pay rates. To the extent that current or prior year funding is not available to cover annual leave earned but not taken, funding will be obtained from future financing sources. Any liability for sick leave that is accrued but not taken, funding will be obtained from future financing sources. Any liability for sick leave that is accrued but not taken by a CSRS-covered employee is transferred to the Office of Personnel Management upon the retirement of that individual. No credit is given for sick leave balances upon the retirement of FERS-covered employees.
Most AHRQ employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Under CSRS, AHRQ makes matching contributions equal to 7.4 percent of basic pay. Under
FERS, AHRQ contributes the employer's matching share for Social Security and an amount equal to one percent of employee's pay to a savings plan. AHRQ 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 and 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 $1.4 million are reflected in both the Statement of Changes in Net Position and the Statement of Net Costs, respectively. These imputed balances do not affect the AHRQ's net position.
The HHS centralized payroll system (i.e., Accounting for Pay System) computes employee payroll and benefits.
Obligations Related to Canceled Appropriations
Payments may be required of up to 1 percent of current year appropriations for valid obligations incurred against prior year appropriations that have been canceled. The total potential payments related to canceled appropriations is estimated to be $3.47 million as of September 30, 2001.
A contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to the Department/OPDIV. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. With the exception of pending, threatened, or potential litigation, a
contingent liability is recognized when a past transaction or event has occurred, a future outflow or other sacrifice of resources is more likely than not, and the related future outflow or sacrifice of resources is measurable. For pending, threatened, or potential litigation, a liability is recognized when a past transaction
or event has occurred, a future outflow or other sacrifice of resources is likely, and the related future outflow or sacrifice of resources is measurable.
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Note 2—Fund Balances with the U.S. Treasury
AHRQ's undisbursed account balances at September 30, 2001 and 2000, are listed below by fund type. Other funds include deposit, suspense, clearing, and related non-spending accounts. AHRQ has no revolving or trust funds.
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Note 3—Accounts Receivable
The majority of the intra-governmental accounts receivable are the result of intra-agency and inter-agency agreements. The non-governmental accounts receivable are amounts due to the AHRQ from non-Federal sources, such as private corporations, and State and local governments.
|From the Public
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Note 4—Advances and Prepayments
Most non-governmental advances are grant advances. Other advances are emergency salary payments or travel advances.
Net Grantee Advances are paid through the Division of Payment Management's (DPM) Payment Management System (PMS). Grant advances are liquidated upon the grantee's reporting of expenditures on the quarterly PMS 272 Report, Federal Cash Transactions Report. In many cases, these reports are received several months after the grantee actually incurred the expenses reported therein. As a result, DPM and DFO estimate grant accrual amounts.
|Less: Grant Accrual
|Net Accrued Grant Advance
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Note 5—Property and Equipment
The AHRQ has equipment in FY 2001 with an acquisition cost of $744 thousand and accumulated depreciation of $309 thousand, with a net value of $435 thousand. In FY 2000, the acquisition cost was $341 thousand with a
depreciation of $178 thousand, resulting in a net value of $163 thousand. Most buildings occupied by the AHRQ are provided by the General Services Administration (GSA). GSA charges AHRQ a Standard Level Users Charge (SLUC), which approximates commercial rental rates for similar properties. Expense for SLUC was approximately $2.6 million for FY 2001 and $2 million for FY 2000.
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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 the AHRQ by the Department of Labor's Employment Standards Administration, pursuant to the Federal Employees' Compensation Act. The liability is determined using a method that uses 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 used for discounting for FY 2001 is 5.21 percent for year one and thereafter.
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Note 7—Unexpended Appropriations
| Undelivered Orders
|Cumulative Results of Operations
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Note 8—Grant Awards
The Single Audit Act of 1984, as revised, provides that recipients receiving $300 thousand or more in Federal financial assistance have an annual audit of their 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 award 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 may be 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 the AHRQ in FY 2000, has not been completed. Accordingly, awards issued and expensed may ultimately be adjusted for recipients' costs determined disallowed pursuant to an audit. As a result, later reviews may identify disallowances of FY 2001 expenditures after the financial statements have been issued.
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Appendix A. AHRQ's Organizational Structure
AHRQ has ten major components. They are:
- Center for Outcomes and Effectiveness Research. COER conducts and supports studies of the outcomes and effectiveness of diagnostic, therapeutic, and preventive health care services and procedures. Director: Carolyn M. Clancy, M.D.
- Center for Primary Care Research. CPCR conducts and supports studies of primary care and clinical, preventive, and public health policies and systems, including the effective application of information technology in health care. Director: Helen Burstin, M.D.
- Center for Organization and Delivery Studies. CODS conducts and manages studies of the structure, financing, organization, behavior, and performance of the health care system and providers within it. Director: Irene Fraser, Ph.D.
- Center for Cost and Financing Studies. CCFS conducts and supports studies of the cost and financing of health care and develops data sets to support policy and behavioral research and analyses. Director: Steven B. Cohen, Ph.D.
- Center for Quality Measurement and Improvement. CQMI conducts and supports research on the measurement and improvement of health care quality, including surveys regarding people's experiences with health care services and systems and research related to patient safety and medical errors. Director: Gregg Meyer, M.D., M.Sc.
- Center for Practice and Technology Assessment. CPTA directs the evidence-based practice program, consisting of: (1) the Evidence-based Practice Centers that develop evidence reports and technology assessments; (2) the Internet-based National Guideline Clearinghouse®; (3) the National Quality Measures
Clearinghouse; (4) the U.S. Preventive Services Task Force; and (5) research and evaluation on translating evidence-based findings into clinical practice. CPTA also is responsible for research on the assessment of medical technologies, including conducting and sponsoring technology assessments to assist decisionmaking in other agencies. Director: Robert Graham, M.D.
- Office of Priority Populations Research. OPPR coordinates, supports, manages, and conducts health services research on priority populations, including racial and ethnic minorities, women, children and adolescents, the elderly, people with special needs (disabilities, chronic illness, end-of-life issues), low-income populations, and those from inner-city and rural (including frontier) areas with health care delivery issues. Acting Director: Carolyn Clancy, M.D.
- Office of Management. OM directs and coordinates Agency-wide administrative activities, including human resources, financial management, grant and contract management, information resources management, and other support services. Acting Director: Barry N. Flaer.
- Office of Research Review, Education, and Policy. ORREP directs the scientific peer review process for grants and Small Business Innovation Research (SBIR) contracts, assigns projects to Agency components, plans and manages Agency health services research training and career development programs, develops and implements Agency policies and procedures regarding extramural research programs, and evaluates the scientific contribution of proposed and ongoing research, demonstrations, and evaluations. Director: Francis D.
Chesley, Jr., M.D.
- Office of Health Care Information. OHCI designs, develops, implements, and manages programs for disseminating the results of Agency activities, including public affairs, print and electronic publishing and dissemination, reference services, research translation and synthesis, and liaison activities with State and local health policy officials. Director: Christine G. Williams, M.Ed.
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Appendix B. AHRQ Organizational Chart
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Appendix C. National Advisory Council for Healthcare Research and Quality
The National Advisory Council for Healthcare Research and Quality provides advice and recommendations to AHRQ's Director and to the Secretary of the Department of Health and Human Services (HHS), on activities to enhance the quality of health care, improve health care outcomes and access to care, and reduce the costs of health care services.
The 21-member council includes at least 17 private-sector experts who bring a varied perspective to the council. The private-sector members represent health care plans, clinicians, purchasers, consumers, and researchers.
Also serving as members of the council in an ex-officio capacity are the Assistant Secretary for Health, HHS, and representatives from seven Federal agencies that address health care issues: the National Institutes of Health (NIH); the Department of Defense (Health Affairs) (DoD); the Centers for Disease Control and Prevention (CDC); the Department of Veterans Affairs (VA); the Substance Abuse and Mental Health Services Administration (SAMHSA); the Food and Drug Administration (FDA); and the Centers for Medicare & Medicaid Services (formerly the Health Care Financing Administration).
The council advises the Director of AHRQ and the Secretary of HHS on:
- Priorities for health care research, especially studies related to quality, outcomes, cost, use of health care, and access to care.
- Training needs in the field of health care research and dissemination of information about health care quality.
- AHRQ's role in each of these areas in light of private-sector activity and opportunities for public-private partnerships.
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Appendix D. AHRQ's Research Continuum
AHRQ's activities fall into the following three areas, which provide the steps needed to achieve the Agency's mission and goals:
1. New research on priority health issues. In this area, the Agency supports new research to answer important questions about what works in health care. The effort helps build the essential knowledge base to help us understand the determinants of the outcomes, quality, accessibility, and costs of care, as well as
identify instances when care falls short of achieving its intended outcomes.
2. New tools and talent for a new century. This involves development of tools to apply the knowledge gained through the investment in new research. Here, the work of researchers is applied, and the effort begins to translate this new knowledge into instruments for measurement, databases, informatics, and other applications that can be used to assess and improve care. In addition, AHRQ provides training for the individuals who conduct this research and those who use it to build an effective and talented cadre of health services researchers and a strong research infrastructure.
3. Translating Research into Practice. Here is where all of the previous investment comes together. Research from the first area and the tools developed in the second area are translated into resources to close the gap between what we know and what we can do to improve health care quality. In this area, we fund research and demonstrations to translate the knowledge and tools into measurable improvements in the care Americans receive. We also develop partnerships with public- and private-sector organizations to disseminate the
knowledge and tools for use throughout the health care system.
This third category is a central focus of the Agency through our Translating Research Into Practice (TRIP) initiative aimed at implementing evidence-based tools and information in diverse health care settings among practitioners caring for diverse populations. The theme of translating research into practice is woven throughout all the initiatives undertaken by AHRQ in FY 2001.
AHRQ's Cycle of Research
In order to produce meaningful contributions to health care, AHRQ must set and monitor priorities, develop research initiatives based on those priorities, and keep a close watch on the processes and products that result from Agency-supported research. Four processes are involved in the AHRQ research cycle: needs assessment, knowledge creation, translation and dissemination, and evaluation.
Needs assessment. AHRQ's activities begin and finish with the end-users of our research. Our research agenda is based on an assessment of gaps in the knowledge base and the needs of patients, clinicians, health care managers, institutions, plans, purchasers, and State and Federal policymakers for evidence-based
information. Needs assessment helps us shape the research initiatives undertaken by the Agency.
Knowledge creation. AHRQ continues to support and conduct research to produce the knowledge needed to improve the health care system in the coming years.
Translation and dissemination. Simply producing knowledge is not enough. Findings must be presented in ways that are useful and made widely available to clinicians, patients, health care managers, and other decisionmakers. AHRQ synthesizes and translates knowledge into products and tools that help our customers solve problems and make decisions. We are proactive in our dissemination of the knowledge, products, and tools to appropriate audiences, and we form partnerships with other organizations to leverage our resources.
Evaluation. To assess the ultimate outcomes of AHRQ research, we evaluate the impact and usefulness of Agency-supported work in health care settings and policymaking. This involves a variety of evaluation activities, including smaller, short-term projects that assess processes, outputs, and interim outcomes to larger, retrospective projects that assess the ultimate outcomes and impact of AHRQ activities on the health care system.
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Current as of February 2002
AHRQ Publication No. 02-0008