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AHRQ Annual Report on Research and Management, FY 2002

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Notes to Financial Statements

Note 1—Significant Accounting Policies

Basis of Presentation

The financial statements of the Agency for Healthcare Research and Quality (AHRQ) have been prepared from its accounting records to report its financial position, net cost, changes in net position, budgetary resources, and reconciliation of net cost to budgetary resources. Such financial statements have been prepared in accordance with generally accepted accounting principles (GAAP), and the form and content requirements specified by the Office of Management and Budget's (OMB) Bulletins entitled Form and Content of Agency Financial Statements (No. 97-01, as amended, and the portions of No. 01-09 that are required to be implemented in fiscal 2002). GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB), which has been designated as the official accounting standards-setting body for the Federal Government by the American Institute of Certified Public Accountants.

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 may therefore differ from those on financial reports prepared pursuant to other OMB directives that are primarily used to monitor and control AHRQ's use of budgetary resources.

Reporting Entity

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. 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

The office of HHS's Chief Financial Officer (CFO) provides 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.

AHRQ maintains only appropriated funds. The appropriated accounts may include 1-year, multi-year, and indefinite authority. In addition, 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 $276,000, only $29,000 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, multi-year and no-year basis or through reimbursable agreements. Annual appropriations are available for incurring obligations during a specified year; and multi-year appropriations are generally available for multiple years. No-year or "X-year" appropriations are available for obligations until the purpose for which they are provided is carried out, and therefore, they are 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 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 non-exchange revenues. 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 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

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 and Earned Revenues

Accounts receivable, including interest receivable, consist of amounts owed to AHRQ by other Federal agencies and the public. These balances are presented net of allowances for uncollectable accounts, if needed. The allowance estimates are based on past collection experience and/or an aging analysis of the outstanding balances.

Accrued Grants

Accrued grants generally are classified as non-block grants. Non-block grantees draw funds to meet their immediate cash needs, and the grantees report actual disbursements (cash expenditures) quarterly. Hence, the year-end accrual for non-block grants is equal to the estimate of the fourth quarter disbursements, plus an average of 2 weeks' expenditures for expenses incurred prior to cash withdraws.

Property and Equipment

Equipment includes medical, administrative, and automated data processing equipment. Equipment is capitalized at cost if the initial acquisition cost is $25 or more. All transactions are maintained in AHRQ's Property Management System.

Depreciation on equipment, buildings, and capital improvements is computed using the straight-line method based on the useful life of the assets with one-half year's depreciation taken in year of acquisition. Property and equipment is depreciated as follows: Equipment over useful lives ranging from 5 to 15 years, ADP Software for 5 years, and structures, facilities, and capital improvements ranging from 6 to 40 years. Class lives for all property are based on an Internal Revenue Service classification system. 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 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. 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.

FECA Liability

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 AHRQ by DOL's Employment Standards Administration, pursuant to the Federal Employees' Compensation Act (FECA). 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 have been discounted to present value using the OMB's economic assumptions for 10-year Treasury notes and bonds. Interest rate assumptions utilized economic assumptions for 10-year Treasury notes and bonds. Accordingly, discounting is 5.2% for year one and thereafter.

Employee Leave

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. Sick leave and other types of non-vested leave are expensed as taken. 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.

Retirement Plans

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 1 percent of the 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.

Commissioned officers participate in the PHS Commissioned Corps Retirement System. The PSC reports the retirement pension and post-retirement medical benefit liabilities applicable to all Commissioned Corps employees in the financial statements of PSC.

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 are reflected in the Statements of Changes in Net Position, the Statements of Net Costs, and the Statements of Financing, respectively. These imputed balances do not affect AHRQ'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

Payments may be required of up to 1 percent of current year appropriations for valid obligations incurred against prior canceled appropriations. We are not aware of any valid obligations incurred against cancelled appropriations. One percent of current year appropriations are $1,176 and $3,470 as of September 30, 2002 and 2001, respectively.


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 Treasury

The aggregate amounts of AHRQ's accounts with the U. S. Treasury for which AHRQ is authorized to make expenditures and pay liabilities are listed below by fund types as of September 30, 2002 and 2001. The funds classified as Other include balances in the deposit, suspense, and clearing accounts.

Funds 2002 2001
Fund Types:    
Appropriated $357,439 $286,892
Other (1,016) (114)
Total $356,423 $286,778
Status of Fund Balance with Treasury    
Unobligated Balance    
Available $8,567 $1,312
Unavailable 14,170 3,884
Obligated Balance not yet Disbursed 333,686 281,582
Total $356,423 $286,778

Unobligated balances are either available for obligation or not available (permanently or temporarily) pursuant to a specific provision in law. Obligated balance not yet disbursed or undelivered orders represent appropriations obligated (i.e. legally reserved) for the amount of goods or services ordered but not yet received. The "Unobligated Balances Unavailable" above include appropriations of approximately $15 in 2002 and $0 in 2001 not available pursuant to public law.

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Note 3—Accounts Receivable, Net

Aged receivables are reviewed periodically to determine their collectibility. Intra-OPDIV eliminations relating to accounts receivable are immaterial. Receivables at September 30, 2002 and 2001 are as follows:

Accounts Receivable 2002 2001
Accounts Receivables Principal Allowance Net Accounts Receivable Accounts Receivables Principal Allowance Net Accounts Receivable
Intragovernmental $800 $- $800 $ 1 $- $ 1
From the public      1000 (748) 252
Total $800 $ $800 $1,001 $(748) $253

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Note 4—General Property, Plant, and Equipment, Net

Most buildings occupied by 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 $3,800 in 2002 and $2,600 in 2001.

Acquisition 2002 2001
Acquisition Cost Accumulated Depreciation Book Value Acquisition Cost Accumulated Depreciation Book Value
Land $ $- $ $ $- $
Equipment 635 (260) 375 744 (309) 435
Total $635 $(260) $375 $744 $(309) $435

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Note 5—Accrued Grant Advance

Accrued Grant Advances relate to grant program funds provided primarily to universities and nonprofit organizations. Grant recipients are paid through the Division of Payment Management's (DPM) Payment Management System (PMS), the manager of HHS's central grants payment system.

Grant advances are liquidated upon the grantee's reporting of expenditures on the quarterly SF-272 Report, Federal Cash Transaction Report. In many cases, these reports are received several months after the grantee actually incurs the expense reported therein. AHRQ adopted a Department-wide accrual methodology to estimate and accrue amounts due grantees for their expenditures made through September 30th, for which expenditure reports (principally SF-272 reports) had not been received from such grantees as of September 30th and had not been reported by that date. These estimated accrual amounts were determined by DPM.

Advances and prepayments at September 30, 2002 and 2001 are summarized as follows:

Advances and Prepayments 2002 2001
Grant advances outstanding $32,902 $19,838
Less estimated accrual for amounts due to grantees (40,126) (24,805)
Net grant advance liability $(7,224) $(4,967)

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Note 6—Liabilities Not Covered by Budgetary Resources

Liability 2002 2001
Accrued FECA liability $ 516 $ 439
Accrued leave 2,010 1,899
Liability for deposit funds (679) 328
Total liabilities not covered by budgetary resources 1,847 2,666
Total liabilities covered by budgetary resources 23,948 17,984
Total liabilities $25,795 $20,650

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Note 7—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 result 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 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.

The final determination of allowable costs relating to grants provided by AHRQ in FY 2002 has not been completed. Accordingly, awards issued and expensed may ultimately be adjusted for recipients' costs determined to be disallowed pursuant to the audit. As a result, later reviews may identify disallowances of FY 2002 or 2001 expenditures after the financial statements have been issued.

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Required Supplementary Stewardship Information (RSSI)

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Investment in Research and Development

AHRQ oversees research and development programs intended to increase or maintain national economic productive capacity. AHRQ invested in research and development during the year ended September 30, 2002 and 2001 as follows:

Research/ Costs 2002 2001
Applied research $149,626 $126,600
Administrative costs    
Total $149,626 $126,600

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