U.S. Department of Education FY 1999 Financial Statement Audit Reports.

Published by the Department of Education, Office of Inspector General on 2000-02-28.

Below is a raw (and likely hideous) rendition of the original report.

Archived -- 1999 Financial Management Status Report and Five-Year Plan
Archived Information
Financial Management Status Report
& Five-Year Plan
Table of Contents
Executive Summary
Goal 1 - Financial Management Systems
Goal 2 - Culture of Financial Stewardship
Goal 3 - Timely Information and Assistance
Goal 4 - Qualified Personnel
Discussion of Audited Financial Statements
Executive Summary
The Office of the Chief Financial (OCFO) supports the mission of the U.S. Department     of Education (Department or ED) "to ensure equal access to education and     to promote educational excellence throughout the nation". The OCFO promotes     this mission by providing accurate, timely, financial and program information,     including grant, contract, and administrative and support services to all of     the Department?s stakeholders.
In order to "make the Department a high-performance organization by focusing     on results, service quality, and customer satisfaction" (Goal 4 of the     Department?s Strategic Plan), OCFO devised its own Strategic Plan to help guide     the financial management of the Department. Included in this plan are the following     four goals:
Goal 1: The Department?s core financial management system     provides reliable and timely financial data to program managers, ED recipients,     OMB, the Treasury, and the Congress.
Goal 2: A culture of financial stewardship exists among senior officers     and program management personnel throughout the Department.
Goal 3: Department staff, ED recipients, members of the education community     and other external entities receive timely information and assistance in their     pursuit of Departmental goals.
Goal 4: OCFO personnel are qualified to provide quality service and     technical assistance to program managers, contractors, and ED recipients.
These OCFO goals are consistent with the government-wide strategies and initiatives     disclosed in the most recent Federal Financial Management Status Report and     Five-Year Plan, issued jointly by the Office of Management and Budget (OMB)     and the Chief Financial Officers (CFO) Council. Those strategies and initiatives     seek to improve financial management systems, reporting, human resources, receivables     management, accountability, and the administration of federal assistance programs.
ED is submitting this report in compliance with the CFOs Act requirement that     agencies prepare and annually revise a plan to implement the OMB Federal Financial     Management Status Report and Five-Year Plan. The following are a few of the     report's highlights:
Projects to improve ED?s Central Automated Processing System (EDCAPS) are       proceeding.
Actions are underway to enable the accurate and timely preparation of ED's       financial statements.
Student Financial Assistance developed a "Modernization Blueprint" that       documents how SFA will design its system architecture to create a streamlined,       integrated delivery system.
A project utilizing a core competencies based individual development plan       process to support career development for financial management personnel is       underway.
Streamlined procedures for drawing Education funds provide more accurate       and timely financial information to community partners nationwide, as well       as reduce reporting burdens.
ED?s Cooperative Audit Resolution and Oversight Initiative (a winner of       the Vice President?s Hammer Award) is creating effective partnerships among       Department officials, auditors, State and local officials through a paradigm       shift in audit follow-up.
Program office access to financial management information is being expanded       so that program staff can more effectively serve their clients.
Goal 1: The Department's core financial management system provides reliable and timely financial data to program managers, ED recipients, OMB, the Treasury, and the Congress.
ED's current core financial system, an integrated financial and administrative     system, interfaces with program feeder systems and the U.S. Treasury. EDCAPS     supports the Department's core management information functions utilizing a     seamlessly interfaced client-server environment.
Education's Central Automated Processing System (EDCAPS) Project
In 1994, the U.S. Department of Education (ED) began the upgrade and streamlining     of its core management work processes, including the systems and technologies     supporting these processes. This effort, entitled Education's Central Automated     Processing System (EDCAPS) was sponsored by the Office of the Chief Financial     Officer (OCFO).
The EDCAPS project was initiated as the result of the Chief Financial Officers     Act of 1990. The project, chartered by the Deputy Secretary of the Department,     received unanimous support from Senior Staff. EDCAPS implementation replaced     existing legacy financial systems including the Primary Accounting System (PAS),     Education Payment Management System (EDPMS), Grants and Contracts Management     System (GCMS), and the Central Registry System (CRS). In the near future, functions     currently met by PC-TRVL (travel) will be integrated into EDCAPS, and these     PC applications will no longer be used. EDCAPS consists of the following primary     components:
Financial Management Systems Software (FMSS) provides the functionality         identified by the JFMIP Core Financial Management Systems Requirements Document         for general ledger and funds management, including budget formulation, budget         execution, funds control, and all related internal and external reports.         FMSS also provides for the generation of financial statements as set forth         by the OMB Bulletins 94-01 and 97-01. FMSS functionally supports receipt         management; administrative funds payment management; funds control; cost         management, including performance measures; and fixed asset accounting.         A commercial off-the-shelf (COTS) software product was chosen for FMSS.         ED is using Affiliated Computer Services (formerly Computer Data Systems,         Inc's) Information Engineered Financial Accounting and Reporting System         (i.e. FARS).
Contracts and Purchasing Support Software (CPSS) supports the contract         pre- and post-award process, as well as the purchasing processes. It interfaces         with the FMSS at the detail level for fund control, general ledger, accounts         payable, and accounts receivable processing. ED selected the CACI Standard         Automated Contracting System (SACONS), another COTS product, to provide         CPSS functionality.
Grants Administration and Payment System (GAPS) supports the grant         planning, pre-award, and award management of ED programs including discretionary,         formula, fellowship, and block grants. GAPS interfaces with program office         systems (feeder systems) to process obligation and payment data. These feeder         systems typically support the planning, scheduling, and award processes         performed by the program office to manage programs (e.g., Impact Aid, Campus-Based,         Pell Grant). GAPS provides funds control for programs, including payments         for grants and direct loans and various other program-related obligations.         GAPS has a subsidiary relationship to the FMSS general ledger for program-related         obligations, payments, and expenditures. GAPS interfaces with FMSS at the         summary level for purposes of funds control and general ledger postings.         GAPS supports ED's regulatory development and clearance process and maintains         the regulatory library.
Recipient System (RS) serves as the central repository of all recipients         having a financial relationship with ED. It maintains core information about         a recipient and tracks reference data to support information on recipients         (e.g. counties, states, and congressional districts). RS interfaces with         systems external to EDCAPS including the Postsecondary Education Participants         System (PEPS) and Impact Aid.
The purpose of EDCAPS is to create a single, integrated business processing     system for use by the Department and all its customers, to improve customer     service and accountability in accordance with the Department's Strategic Plan.
The Program Financial Feeder Systems
Student Financial Assistance (SFA) operates four financial management systems:     the Pell Grant, FFEL, Direct Loan, and Campus-Based programs systems. The Office     of Elementary and Secondary Education also operates a feeder system, the Impact     Aid System. These independent systems interface with EDCAPS to provide financial     management data.
The Recipient and Financial Management System (RFMS) is the new         name for the system used to report and request funds under the Federal Pell         Grant Program for the 1999-2000 award year and beyond. The Pell Grant Recipient         Financial Management System (PGRFMS) was the name of this system for award         years prior to 1999-2000.
Under RFMS, all institutions submit an origination record and one or more         disbursement records for each student who is eligible for a Federal Pell         Grant. Origination and disbursement records contain basically the same payment         data information reported to PGRFMS. Institutions send RFMS batches of origination         or disbursement records as a result of paying or expecting to pay Pell Grant         funds to students. Once RFMS accepts an origination record for a particular         recipient, the institution submits disbursement records for each payment         to the student, just prior to or after the disbursement date.
RFMS authorizes the distribution of over $7.3 billion to over 5,100 participating         institutions that permits payment of grants to approximately 4 million eligible         students.
The FFEL System is composed of four major components: the Lender         and School Subsystem, the Debt Collection Subsystem, the Guaranty Agency         Subsystem, and the Support Subsystem. SFA works with participating lending         institutions, such as banks and credit unions, to make Federal Family Education         Loan (FFEL) program loans, which are guaranteed by state or national guaranty         agencies and underwritten by the federal government. FFEL program loans         consist of subsidized and unsubsidized Federal Stafford Loans (for students),         Federal PLUS Loans (for parents), and FFEL Consolidation Loans (for both         students and parents).
Guaranty agencies and lenders provide regular reports on their activities         to SFA and receive benefit payments and reimbursements from SFA. ED receives         on average approximately 5,000 Form 799 reports from lenders on a quarterly         basis. The 36 guaranty agencies submit a monthly Form 1189 and a quarterly         Form 1130. In 1998, the last complete year for which we have data, SFA authorized         payments to guaranty agencies of more than $2.4 billion and payments of         more than $2 billion to lenders. As of September 13, 1999, SFA had authorized         payments of over $2.4 billion to guaranty agencies and $1.4 billion to lenders         for 1999. Lenders (and their designated servicers) service a cumulative         outstanding loan portfolio of about $110 billion. In addition, guaranty         agencies paid more than $3 billion to lenders for defaulted claims. The         Debt Collections Subsystems process nearly 78 million transactions annually         in support of the collection of defaulted student loans. The Support Subsystem         processes the financial and accounting transactions resulting from the processing         by the other subsystems.
The Direct Loan Program System, which began operations on         June 15, 1994, is a new way for students and parents to borrow money from         the federal government to pay for education and related expenses after high         school. The Direct Loan System performs loan origination, funds drawdown         through GAPS, loan servicing, financial accounting, and reporting for federal         direct loans. The systems also support program administration, program evaluation,         and customer service. For the FY 1998-99 academic year, approximately 1,200         institutions participated in the Direct Loan program processing loans to         over 2.3 million borrowers. From the inception of the program through July         1999, 11.7 million loans have been processed.
The Campus-Based Programs System annually processes about         3,800 awards supporting the Federal Supplemental Educational Opportunity         Grant Program, 3,400 Federal Work-Study awards, and 1,500 Perkins Loan awards.
The Impact Aid System processes payments through the Department?s         payment system to local education agencies in areas where tax revenue is         reduced because of Federally owned land.
Cross-Servicing Agreements
The Department presently uses two interagency cross-servicing agreements. First,     the Department of Interior provides payroll/personnel support. Second, the U.S.     Department of Agriculture's National Finance Center (NFC) travel subsystem is     being used.
EDCAPS Improvements
Conversion activities related to the new payment and accounting system complicated     the preparation of the FY 1998 financial statements. In fact, the conversion     to the new system was the major reason the Department received a disclaimer     of opinion on the FY 1998 financial statements after receiving an unqualified     opinion on the FY 1997 statements. The audit process revealed three material     weaknesses as reported by the auditors:
Financial Reporting Needs to be Strengthened
Reconciliations Need to be Improved
Controls Surrounding Information Systems Need Enhancement
Financial Reporting Needs to be Strengthened
One of the significant weaknesses in the reporting process relates to the Department's     new general ledger software package, FMSS. The weaknesses in the general ledger     system were driving factors in the Department's inability to prepare accurate     financial statements in a timely manner. Currently, FMSS does not allow the     user to perform a year-end closing process. For example, the FMSS general ledger     trial balances contained two fiscal years of revenue and expense data (FY 1997     and FY 1998), and the assets and equity accounts did not reflect the proper     balances. In addition, FMSS does not allow the Department to produce a general     ledger trial balance at the reporting group level or at a consolidated level.     Instead, FMSS can only generate trial balance at the appropriation level.
Remediation Plan
ED has started a general ledger replacement initiative to replace the FMSS     component of EDCAPS. As pointed out above, the software in production has proven     to be inadequate for the Department's requirements, and the long term viability     of the product and its vendors is suspect.
Actions Completed During FY 1999
Since the general ledger replacement system cannot be implemented immediately,     the Department created a separate reporting system for the purpose of preparing     group level and consolidated financial statements. ED also enhanced the current     system to enable closing on a monthly and year-end basis. These efforts will     assist the Department in the accurate and timely production of FY 1999 financial     statements.
Planned Actions for FY 2000
Identify and procure a suitable FMSS replacement.
Conduct a parallel conversion and complete implementation.
Phase I
Implement accounts receivable and general ledger functions.
Review and streamline the ED's accounting classification structure
Phase II
Migrate administrative payment functions and program feeder system data feeds   (FFELP and Direct Loans)
Implement budget execution and initial Treasury SF-224 reporting capability.
Planned Actions for FY 2001
Phase III
Migrate accounts payable functions for IMPAC Cards and the third party     payment data
Integrate contracts and purchasing (CPSS) and travel systems
Phase IV
Transfer all Treasury reporting
Reconciliations Need to be Improved
A major objective on internal controls is to ensure the integrity of the underlying     accounting data supporting the financial statements. An important control in     this regard is the periodic reconciliation of the Department's accounting records.     An adequate reconciliation provides the assurance that processed transactions     are properly and timely recorded in the Department's accounting records and     financial statements, which then facilitates management's ability to analyze     its financial condition and results of operation on a routine basis.
ED has had difficulty identifying and resolving differences between its accounting     records and cash transactions reported by Treasury for several years. ED attributes     its reconciliation difficulties to inadequate integration between its general     ledger system and its payments and funds control systems, which are the original     points of entry for many cash transactions. These integration issues result     in certain cash transactions not being properly and timely transferred from     the originating systems to the Department's general ledger system, thus causing     the Department's Fund Balance with Treasury as recorded per the general ledger     to differ from Treasury.
Remediation Plan
Actions Completed During FY 1999
OCFO developed a database matching tool that vastly improved the fund balance     reconciliation. Matching the data between the general ledger and the Statement     of Transactions (SF224) was very labor intensive, taking upwards of 60 days     to complete. The new tool has reduced the time required for this effort to 2-3     days. The results include more timely and accurate reconciliations and better     access to data. OCFO now prepares monthly fund balance reconciliations at the     appropriation and departmentwide levels.
Planned Actions for FY 2000
OCFO plans to reengineer the Statement of Transactions (SF224) process and     implement Fund Expedite software. The software will enable the department to     perform more rapid and timely reconciliations allowing more resources to be     applied to researching differences.
Controls Surrounding Information Systems Need Enhancement
ED still needs to develop, document, and test a comprehensive disaster recovery     plan for EDCAPS. In the event of a disaster, the timely restoration of EDCAPS     may not be possible; thereby preventing ED from resuming business in an adequate     manner. The audit noted the following information systems control deficiencies     in addition to the lack of an adequate disaster recovery plan:
User account and password standards stated in the EDCAPS Security Plan are       not fully implemented.
The approach and methodology for design, selection, coordination and maintenance       of technology architecture has not been formally documented.
The Security Plan does not contain current procedures for requesting, authorizing,       revalidating, and granting access to computing resources.
Physical and environmental controls over computer rooms are not sufficient.
Remediation Plan
Planned Actions for FY 2000
Update and test disaster recovery plan.
Develop updated security plan.
Develop and incorporate updated user ID and password standards into the updated     security plan.
Standardize user ID and password standards across EDCAPS.
Upgrade physical and environmental controls over computer rooms.
Student Financial Aid Delivery System Improvements
SFA is currently moving forward with a comprehensive strategy to modernize     and integrate the systems that support the Student Financial Assistance Programs.     Under the Higher Education Amendments of 1998, SFA was transformed into a Performance     Based Organization (PBO) to enhance services through increased flexibility and     performance incentives in exchange for greater accountability for results. The     PBO legislation requires SFA to implement an open, common, and integrated system     for delivering student aid that contains complete, accurate, and timely data     to ensure program integrity. To reduce costs, SFA is also developing a financial     management system that will permit unit cost tracking and control in every segment     of SFA?s operations.
In 1999, SFA developed a "Modernization Blueprint" that documents     how SFA will design its systems architecture to create a streamlined, integrated     delivery system. The Modernization Blueprint continues and incorporates the     work SFA, students, educators, and the business community began under Project     EASI (Easy Access for Students and Institutions). SFA?s goal is to develop a     student financial aid delivery system using state-of-the-art information technology     that is:
Provides a single point of contact for students and institutions;
Streamlines and simplifies business processes;
Provides secure access to information with stringent privacy protection;       and
Improves program integrity and oversight
The Modernization Blueprint?s basic strategy to cut cost and deliver modern     service is as follows:
Use middleware to separate applications from their "stovepiped"       databases.
Use a secure Intranet to create a virtual database for new applications,       with information stored only once.
Retire or transform many of the old systems over the next three years.
In addition, SFA?s comprehensive plan contains a flexible, long-term acquisition     strategy to improve customer service while it leverages legacy IT systems, implements     state-of-the-art technology, and reduces the cost of delivering services. These     include:
Retention of a ?Modernization Partner? to assist in PBO program management       and planning, change management, and other requirements associated with the       implementation of the SFA Modernization Blueprint.
Development or implementation of Internet, Web-based applications and middleware       as well as crosscutting software development, maintenance, and support.
Renegotiation of legacy systems contracts to interweave performance measures       in all such contracts.
The planning and award of new performance-based contracts to replace and/or       consolidate legacy systems contracts for the delivery of business functions.
Inclusion of performance measures in the Virtual Data Center contract, which       is scheduled to consolidate all of SFA?s data processing requirements by August       2000.
Work on the development of Internet, Web-based applications as well as software       development, maintenance, and support for the implementation of the Modernization       Blueprint.
Financial Management System
During 1999, SFA designed a subsidiary-type financial management system that     supports SFA and will be integrated with the Department?s financial management     system. In addition, SFA established a baseline estimate of the overall costs     of delivering student aid and created core measures for judging cost reduction     performance. SFA is continuing to validate and refine the measures and baseline     costs. Our new financial management system will allow every channel and segment     manager to focus attention on making SFA work better and cost less.
During the first year of development, SFA anticipates the development and implementation     of the following:
Phase I of the Financial Management System (to include the development and       implementation of a Budget Execution module)
FFEL subsidiary ledger
Direct Loan subsidiary ledger
Ultimately, SFA will have a financial management system that will include subsidiary     structures supporting all of the PBO?s requirements as well as provide appropriate     information to the Department?s financial management system.
Pell Improvements
The new Federal Pell Grant Program?s Recipient Financial Management System     (RFMS) was implemented in the 1999-2000 award year for institutions to report     student payment information and request funds. A COTS package (Oracle) was selected     to provide the basic financial management infrastructure for RFMS processing.
The new system provides institutions* with the following benefits:
All electronic process?so no more paper to submit;
Speeds the processing of origination and disbursement records so an institution?s       records are processed and acknowledged within 24 to 36 hours after submission;
Processes records several times a day rather than once a day;
Moves toward common standard data transactions and business processes; and
Provides institutions with the ability to query RFMS? data through the web.
* Does not apply to institutions on reimbursement system of payment.
FFEL and Defaulted Loan Collection Improvements
In 1999, SFA completed work with guaranty agencies on the redesign of the FFEL     guaranty agency forms?1189/1130. On August 25, 1999, ED submitted a request     for an extension on the 1189 and 1130 forms, and began the internal clearance     process on Form 2000 (the redesigned 1189/1130). After the internal clearance     process is completed, Form 2000 will be submitted to the Office of Management     and Budget for approval. The purpose of this work was to streamline reporting     processes, improve payment processing and improve the quality and reliability     of the information being submitted by guaranty agencies that the Department     relies on for payment, monitoring and reporting to management and outside entities.     This process included analyzing the three guaranty agency forms being provided     to the Department, providing line-by-line justification for all information     being provided and a comparison of that information with data elements in the     National Student Loan Data System (NSLDS).
In 1999, SFA accomplished the following: In July 1999, SFA sent lenders and     servicers invitations to submit their requests for interest and special allowance     payments electronically, using EDI transaction sets. This process will provide     better and more timely information to the Department on which to make interest     and special allowance payments. The Department is also now paying guaranty agencies     loan processing and issuance fees based on disbursements reported to the NSLDS.
In 1999, the Department awarded 17 performance-based collection contracts aimed     at improving collections of defaulted loans, while reducing private agency costs.     On a quarterly basis, the performance of the contractors is reviewed and the     assignment of additional defaulted loans and bonuses are based on their performance.     These contracts will run until 2001. Currently, SFA is working on the recompete     of private collection contracts and expects to award those contracts by the     fall of 2000.
Planned FY 2000 enhancements to the FFEL and defaulted loan debt collection     systems include the following:
Phase in the guaranty agency portion of development of permanent subsidiary       ledgers for FFEL using a commercial off-the shelf (COTS) software package.       This will improve the auditability of the financial statements and support       financial management reporting for program managers, including the tracking       of guaranty activity by guaranty agency.
Develop the infrastructure to support redesigned FFEL forms. This infrastructure       will include:
Revising and implementing new FFEL reconciliations for redesigned forms       and processes,
Revising the appropriate audit guides to ensure that steps are included       to audit the redesigned form amounts, particularly the loans receivable collections       and reserve balances, and better aligned data submitted to NSLDS, and
Establishing procedures to periodically ensure that the amounts reported       on the redesigned forms agrees with NSLDS data, if not based on NSLDS data.
Evaluate current defaulted loan collection strategies to expand student       loan recoveries through either a structured sales transaction(s) or specialized       servicing arrangement(s).
Continue development of client server/distributed database technology for       various applications on the FFEL System.
Implement enhancements to the Debt Collection System to provide improved       service to student debtors and increase collections.
Continue analysis of the lender billing data elements and processing to       support streamlining and improved data quality and processing of the lender       information.
Direct Loan Program Improvements
During 1999 many improvements were implemented in the Direct Loan program.     Notably, a pilot, Access America for Students (AAFS) was developed to allow     students, parents, and schools access to financial aid information on the Direct     Loan and other programs in the Student Account Manager (SAM). AAFS also allows     schools to receive funds in a "Just-in-Time" process through a commercial     delivery system.
A Program Year Closeout (PYCO) Team for the Direct Loan Program was also formed     in 1999 to assist schools with their reconciliation of drawdowns and disbursements     with the Loan Origination Center. An automated approach to Direct Loan intersystem     balancing was also developed and is partially implemented at this time. The     new automated approach provides for a daily and monthly reconciliation of financial     transactions flowing between Direct Loan systems, and it readily identifies     and resolves reconciliation challenges. We also developed and implemented a     process for Certified Public Accountants to perform confirmations of key data     elements in the Direct Loan Servicing System when they conduct annual compliance     audits of institutions participating in the Direct Loan Program.
In addition, the loan consolidation process was improved to assure more timely     and accurate processing of Direct Loan consolidations. Borrowers can now apply     for a consolidated loan via the Web; this process is projected to shorten consolidation     time. For Academic Year 1999-2000, SFA began using the Master Promissory Note     for subsidized and unsubsidized Direct Loans. As a result, borrowers can now     sign one note for both an unsubsidized and a subsidized loan.
Enhancements planned in 2000 in the Direct Loan program include the following:
Move the Direct Loan subsidiary ledger to a JFMIP approved COTS package       in a summarized fashion that will better facilitate credit reform, internal       and external reporting and management information needs.
Continue to implement the Direct Loan automated systems balancing and reconciliation       procedures across all systems affecting the Direct Loan program.
Continue to implement improved procedures to assure appropriate monitoring       of Direct Loan schools to include cash management and revised reconciliation       processes.
Develop and implement an electronic Direct Consolidated Loan lender payment       process to accurately and timely pay lenders.
Improve Web access by school to the Loan Origination System.
A one-quarter of one percent discount will be offered to Direct Loan borrowers       to encourage them to use the Electronic Debit Account (EDA) payment method.
Student borrowers at certain institutions will be able to use the multi-year       functionality of the master promissory note beginning February 2000.
The National Student Loan Data System (NSLDS) Improvements
NSLDS was implemented in November 1994. It serves as the central database for     Title IV loan and grant level information. NSLDS includes loan-level data on     the FFELP, Direct Loan Program, and the Federal Perkins Loan Program. NSLDS     also includes data on Pell Grant recipients as well as overpayment statuses     for both Pell and Federal Supplemental Educational Opportunity Grants (FSEOG).
NSLDS is currently used to prescreen applications for Title IV aid to reduce     the potential default exposure of the Department of Education. The prescreening     process prevents applicants who are in default on previously awarded aid, from     receiving further loan or grant assistance. The applicant?s loan history is     provided to the Central Processing System (CPS) for inclusion with the Student     Aid Report/Institutional Student Information Report (SAR/ISIR). Financial Aid     Administrators also use this information to prevent borrowers from exceeding     maximum loan limits. For school year 1998-1999, NSLDS also implemented a postscreening     process whereby institutions are advised when a student?s eligibility for aid     may have changed.
NSLDS also supports a variety of operation functions aimed at improving program     administration and delivery of student aid, incorporating the application of     automation and standardization. Various system functions and the statuses of     each are as follows:
Official 1997 cohort default rates for schools, lenders, and guaranty agencies       were calculated and released in September 1999, as required by Congress.
An automated Student Status Confirmation Report (SSCR) was designed to assist       schools and lenders in the verification of the enrollment status of their       FFEL and Direct Loan Program borrowers. SSCRs are now being received for FFEL       and Direct Loan programs. Currently, more than 7,000 schools are processing       electronic SSCRs. This has significantly reduced the paperwork burden on schools       and guaranty agencies.
An automated Financial Aid Transcript (FAT) was designed to provide a summary       of all Title IV aid the student has received from previously attended schools       and, if applicable, the school the student is currently attending. FATs are       now being used by the school community. In conjunction with the CPS, expanded       FAT information now appears on the NSLDS history page of the SAR/ISIR. Providing       the information, electronically for most applications, has significantly reduced       the burden on schools in accessing FAT information for each financial aid       applicant.
Twenty-seven extracts and preplanned reports are now available for Department       of Education users. Canned queries for schools and guaranty agencies are also       available. On-line secured access, for school and guaranty agency functions,       is now available.
Student demographic data, captured by the CPS from student aid applications,       is loaded into NSLDS every six months.
Loan-level data for Federal Family Education Loan, Direct Loan, and the       Federal Perkins Loan programs are loaded into NSLDS on a monthly basis by       the guaranty agencies, the Direct Loan servicer and Perkins institutions.       Information on approximately 40 million aid recipients and 115 million loans       now reside in the NSLDS database.
Pell Grant recipient data for 1993/94, 1994/95, 1995/96, 1996/97, 1997/98,       and 1998/99 have been loaded into the NSLDS database. NSLDS receives daily       loads from the Pell Grant Recipient and Financial Management System (RFMS).
On-line screens for school reporting of all Pell, FSEOG and Perkins overpayments       became available in July 1998.
As required by the 1998 Amendments to the HEA, students are now able to       access their NSLDS data via the Internet.
Financial aid professionals in schools and elsewhere can now access NSLDS       data they need via the Internet.
Beginning with FY 1999, NSLDS data is being used to pay guaranty agencies?       administrative fees.
In mid FY 2000, subject to the availability of funds, SFA will provide schools       with the ability to better manage their future official cohort default rates       by allowing them to request their schools' cohort default rate information       online for the most recently completed 24-month period (i.e., If the school       requests the information on October 10, 2000, NSLDS will provide the school's       default rate information for the 24-month period October 1, 1998 through September       30, 2000.)
The Postsecondary Education Participants System (PEPS) Project
This contract supports the Department?s program integrity efforts by providing     detailed information on all institutions participating in federal student aid     programs, as well as other programs authorized under the Higher Education Act.     PEPS acquires data from a web application completed by postsecondary institutions     when they apply for initial or continued participation in the programs, uploads     from the Audit Clearinghouse, interfaces with the FFEL system and NSLDS, and     from on-line data entry performed by SFA staff and the guarantors. Some PEPS     data include: data on school eligibility and certification, educational programs,     accreditation, default rate history, program review results, and audit findings.     Since the first modules of this system came on line in FY 1995, this system     has been an integral part of the Department?s gatekeeping efforts. In addition,     the PEPS system is used by guarantors, accreditors, state licensors, state education     agencies, the Office of Inspector General, the Government Accounting Office,     and the Office of General Counsel.
In FY 1999, SFA completed research into the feasibility of converting PEPS     into a web-based application, and is currently completing development activities     on the system?s final modules: Direct Loan school selection and information     modules and guarantor and lender default rate screens. In addition, SFA began     major revisions to existing modules, including eligibility and certification;     the PEPS security module; the PEPS school file provided to NSLDS, Pell, and     Direct Loan, and guarantor systems, and is in the process of revising the OPE     ID to allow IPOS to number school locations over 99.
In FY 2000, subject to availability of funds, SFA plans to add key financial     statement and surety information to PEPS, as well as information on administrative     actions and appeals.
Reporting Year 2000 (Y2K) Issues
The Department of Education (ED) completed its systems conversion effort with     the last system being implemented on March 8, 1999. One hundred percent of the     Department?s 175 systems (including all Departmental financial systems) are     either retired (28) or are Y2K compliant and fully implemented (147).
Goal 2: A culture of financial stewardship exists among senior officers and    program management personnel throughout the Department.
Financial Management Organization
The Office of the Chief Financial Officer (OCFO) is comprised of five primary     organizations: Contracts and Purchasing Operations (CPO), Financial Improvement     and Post Audit Operations (FIPAO), Grants Policy and Oversight (GPOS), Financial     Management Operations (FMO), and Financial Systems Operations (FSO). During     fiscal year 1998, OCFO reorganized to better align functional responsibilities,     streamline operations, and reduce the number of management layers. OCFO has     reduced its number of supervisors by approximately one-half and its employee     to supervisor ratio is now 11:1.
Other Principal Offices (POs) within the Department have financial management     responsibilities within their respective program areas. For example, Student     Financial Assistance has financial management responsibilities related to student     financial assistance programs and has its own Chief Financial Officer.
Development of Performance Measures
ED has developed measures to monitor financial management performance, based     on indicators defined in the OCFO Strategic Plan, the departmentwide Financial     Management Strategic Plan, and by OMB. Performance measurement data is reported     in the Department?s fiscal year 1998 Accountability Report and in the Annual     Performance Plan and Report. Ongoing reinvention efforts are designed to improve     overall performance.
Federal Managers Financial Integrity Act
In fiscal year 1995, OCFO led a successful departmentwide effort to reinvent     the process used to meet the requirements of the Federal Managers Financial     Integrity Act (FMFIA). The FMFIA requires agencies to assess the controls in     place to assure that the government?s assets are protected and to report serious     weaknesses to the President and the Congress. Traditionally, this assurance     was provided through a series of paper and labor intensive self-reviews performed     by all Principal Offices at ED. The estimated cost of training reviewers, performing     the reviews, managing the process, and producing the report in previous years     could exceed $1 million.
The reinvented process used to assess management controls places the responsibility     of identifying weaknesses and non-conformances on office managers. Senior Officers     review the status of the weaknesses identified, add new weaknesses they feel     need to be reported, and certify that all known material weaknesses for their     office are reported. The Senior Officer certifications form the basis for the     report to the President and the Congress. This reinvented approach brings a     high level focus to the FMFIA process and allows personnel to concentrate on     fixing previously identified problems.
As highlighted in the fiscal year 1998 FMFIA Report, ED has identified four     areas within the Department as material weaknesses (most involving the area     of student financial assistance) and reported two material financial system     non-conformances. Corrective actions are being implemented to resolve the weaknesses     and non-conformances.
Credit Management/Debt Collection
ED has designed and implemented a comprehensive credit management and debt     collection program that enables the agency to effectively administer its multi-billion     dollar student loan and other programs. The credit management and debt collection     program covers each phase of the credit cycle--including prescreening of loan     applicants, account servicing, collection and close-out--and it conforms to     the governmentwide policies in the Federal Claims Collection Standards, OMB     Circular A-129, and the Debt Collection Improvement Act.
The national student loan cohort default rate has been steadily declining and     has been cut more than half, from 22.4 percent in 1991 to 8.8 percent in 1997.     The declining default rate is a function of ED?s aggressive debt collection     program and steps it has taken in the gatekeeping area to remove schools with     high default rates from participating in federal student loan programs.
Borrowers who default on student loans face serious repercussions, such as     the withholding of federal income tax refunds, wage garnishment, adverse reports     to credit bureaus, denial of further federal student aid, and litigation. To     avoid these sanctions, defaulters now have the option to consolidate their loans     and establish an income-based repayment plan that more realistically matches     their ability to pay.
ED continues to conduct computer matches with eight other Federal agencies     as part of its effort to strengthen the management and oversight of student     financial assistance programs. ED has computer matching agreements with the     Department of Defense, Department of Justice, Immigration and Naturalization     Service, Department of Housing and Urban Development, Internal Revenue Service,     Selective Service, Social Security Administration and the U.S. Postal Service.     These computer matches are designed to ensure that students meet various eligibility     criteria and to increase the collections from students who have defaulted on     their loans.
The Department has an agreement with the Department of the Treasury to furnish     collection services for institutional and miscellaneous receivables that become     more than 180 days delinquent as provided for in the Debt Collection Improvement     Act. ED has been quick to take advantage of the agreement and has forwarded     1,787 institutional debts totaling $827 million for additional collection actions.     ED is benefiting from the greater resources of Treasury for general collection     activities as well as its ability to offset against other Federal disbursements.
Goal 3: Departmental staff, ED recipients, members of the education community    and other external entities receive timely information and assistance in their    pursuit of Departmental goals.
Cooperative Audit Resolution and Oversight Initiative
The Department has been working with states and school districts to provide     support and flexibility to implement legislative requirements without impairing     accountability for results. Since its inception in July 1995, the Cooperative     Audit Resolution and Oversight Initiative (CAROI) has used four strategies to     advance this objective: (1) creating and maintaining dialogue with states, (2)     working with states to address audit findings that are open or under appeal,     (3) improving the process used in single audits of federal aid recipients (annual     or biennial evaluations of financial operations and compliance requirements     of all major programs in accordance with the Single Audit Act), and (4) coordinating     within ED the resolution of audit findings with monitoring site visits and technical     assistance. The CAROI program is a previous winner of Vice President Gore's     Hammer Award and The Association of Government Accountants recently recognized     this innovative program as a government-wide "Best Practice."
Increased number of CAROI states
At the end of fiscal year 1999, ED had undertaken 29 CAROI projects in 22 states.     The target level of participation is 40 projects by the end of 2000. CAROI serves     as a collaborative method that links program, finance, auditing, and legal staffs     at the federal and state levels to provide alternative and effective approaches     to resolve findings and recurring problems identified through audits. The goal     of CAROI is to improve education programs and the management of those programs     at state and local levels through better use of audits, monitoring, and technical     assistance. A primary objective of addressing issues in a straightforward and     collaborative manner is to minimize costly litigation.
Recurring findings
Recurring findings identified during audits, such as those under the Single     Audit Act, provide one measure of the success of corrective action taken by     grantees to better manage federal education funds and adhere to grant terms.     CAROI efforts to resolve audits to date, in specific States, have yielded reductions     in instances of time distribution violations and other significant recurring     findings. The Department plans to continue to employ the CAROI approach to effectively     address audit issues and prevent findings from recurring in subsequent years.     Data collections to create baseline data for future performance measurement     began in late 1998.
Improved Access to Grant and Payment Information for Recipients
The EDCAPS Grants Administration and Payments System (GAPS) was developed and     implemented by ED to streamline payment processing and reporting for our recipients.     GAPS provides recipients on-line capabilities to request payments from ED and     continuous access to current grant and payment information. In addition, recipients     are no longer required to submit monthly expenditure reports. These changes     provide more accurate and timely financial information to our community partners     nationwide and reduces reporting burdens.
Goal 4: OCF&IO personnel are qualified to provide quality service and technical    assistance to program managers, contractors, and ED recipients.
Utilizing a Core Competencies Based IDP Process to Support Career Development
As a key step to ensure the development of a high quality financial management     workforce, OCFO maintains a standard that all OCFO personnel will receive a     minimum of 40 hours of job-related training annually. This standard was established     as an average baseline in FY 1992 and was strengthened for FY 1999 to address     the rapid technological changes in financial management. The responsibility     for identifying and participating in appropriate training is the joint responsibility     of each staff member, his or her immediate supervisor, and the division level     director. An Individual Development Plan (IDP) process is being implemented     for FY 2000 linked to the Core Competencies for Financial Management Personnel     in the Federal Government. The IDP process will serve as an assessment and planning     tool for OCFO staff in scheduling career development and related training activities.     The process will also enable division level directors to assess individual and     organizational training needs and develop needs based training budgets.
In FY 1996, ED developed a basic accounting course with a focus on proprietary     and Federal budgetary accounting applications. The course consists of ten 3-hour     modules and includes case study assignments modeled on the ED accounting environment.     The course, taught by OCFO staff, broadens the accounting capabilities of employees     in all offices, as well as helps to develop an understanding of the ED financial     management process. The Department?s Training and Development Center selected     this course for a pilot project in developing computer-based learning applications.     The enhanced applications were completed during FY 1999 and will support course     participants in FY 2000. More than 250 ED staff completed the course through     FY 1999.
Supporting the objective to attract and retain high quality staff, OCFO cooperates     with the Training and Development Center to ensure that qualified training opportunities     are available at ED to fulfill the continuing professional educational (CPE)     requirements of ED staff holding CPA, CMA, and CGFM certifications. In FY 2000     ED will continue to be recognized by the National Association of State Boards     of Accountancy (NASBA) as a qualified CPE provider.
Discussion of Audited Financial Statements
The Department of Education operated under a new accounting system in FY 1998.     The accounting system has several limitations in the financial reporting process.     The weaknesses with the system, such as the system's inability to perform a     year-end closing process or to produce automated consolidated financial statements,     were significant factors in the Department's inability to prepare consolidated     financial statements in a timely manner. In addition to the weaknesses surrounding     the accounting system, the Department was unable to perform timely reconciliations     and was not able to provide sufficient timely documentation supporting transactions     including adjustments from the trial balance to the financial statements. As     a result of these limitations, the independent auditors were unable to issue     an opinion on the FY 1998 financial statements.
As outlined previously in this report, the Department is diligently pursuing     corrective actions that will allow the production of accurate and timely financial     statements for FY 1999. The Department is making every effort to achieve an     unqualified opinion on the FY 1999 financial statements.
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