oversight

before the Committee on Budget on Matters Relating to Management Challenges at the Department of Education on February 17, 2000 PDF [191K]

Published by the Department of Education, Office of Inspector General on 2000-02-17.

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

                  Testimony of Lorraine Lewis
        Inspector General, U.S. Department of Education
                           Before the
                   Committee on the Budget
                 U.S. House of Representatives

                        February 17, 2000



Good morning Mr. Chairman and members of the Committee. I am
pleased to testify before the Committee on the Budget on matters
relating to management challenges at the Department of Education.


On December 8, 1999, we provided to Congress an assessment of
the Department’s significant management challenges.        Many of
these challenges concern long-term issues that we are continuing
to monitor.       The December 8 letter describes the work the
Department is doing, or needs to do, to meet these challenges. I
have attached a copy of the December 8 letter for the record.


FINANCIAL MANAGEMENT AND INTERNAL CONTROLS


A top priority for the Department, and one of its most significant
challenges, is its preparation of and access to accurate financial
data.    This information is critical for the Department to make
informed decisions, manage for results and ensure the integrity of
its operations.    It is an area identified by the Department as a
material weakness in its fiscal year (FY) 1999 Federal Managers’
Financial Integrity Act (FMFIA) report.


Due to weaknesses in the Department’s financial system, the work
performed on the Department’s FY 1998 financial statements
resulted in reports containing disclaimers of opinion. The work on



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the FY 1999 Department-wide and Student Financial Assistance
(SFA) financial statements is continuing, but it appears that the
audit reports will contain four qualified opinions and one disclaimer
of opinion.

Although significant internal control weaknesses carried over from
FY 1998, and will continue to be reported for FY 1999, the
Department has developed processes and utilized contractor
support to work around the underlying systemic problems. As a
result, the Department was able to prepare financial statements in a
more timely manner and provide sufficient support for amounts
shown.    This enabled the auditors to complete their audit and
render a qualified opinion on four statements, but a disclaimer of
opinion on the Department’s and SFA’s Statement of Financing.


One of the significant weaknesses in its financial reporting process
relates to the Department’s general ledger software package. To
address this issue, the Department is in the process of procuring a
new general ledger system intended to overcome many of the
system weaknesses preventing the preparation of timely financial
statements.     However, until its new accounting system is
operational, the Department will have to continue its work around
procedures.


During FY 1998 and again in FY 1999, the Department’s
reconciliation procedures were not performed on a timely basis. In
addition, the identified reconciliation differences were not always
adequately explained, resolved and posted to the Department’s
general ledger. Weaknesses in the Department’s internal controls
over the reconciliation process prevented timely detection and
correction of errors in its underlying accounting records. Despite



                               2
these underlying control weaknesses, the auditors were able to
conduct sufficient tests of balances and transactions to enable
them to express a qualified opinion on four of the financial
statements. The Department is in the process of implementing new
automated procedures to assist in the cash reconciliation process
and the reconciliation of other internal accounting records. The
Department also is performing more timely reconciliations of its
fund balance with Treasury.


When I testified before the Subcommittee on Oversight and
Investigations, Committee on Education and the Workforce on
December 6, 1999, I stated that we would issue the audit reports
for the FY 1999 financial statements of the Department and SFA by
March 1, 2000.        I still plan to meet my commitment.   We will
continue to work with the Department and Congress to improve the
Department’s financial management.


IRS DATA MATCH AND DISCHARGE OF STUDENT LOANS


Another management challenge that we have identified is the
under-reporting of income by applicants for student aid (and their
parents).   Our audit and investigative work has shown this is a
problem that is costing federal taxpayers over a hundred million
dollars annually in overawards of Pell Grants and awards to
ineligible persons.


In a 1997 audit report, we found that 3.7 million out of 9.1 million
applicants for federal student aid received Pell Grants during the
1995-96 award year. For 2.3 million of these applicants, we verified
the adjusted gross income they reported on their financial aid
applications with income data maintained by the Internal Revenue



                                3
Service (IRS).     Out of this sample, we reported that 102,000
students received Pell Grant overawards totaling approximately
$109 million.    This is a conservative amount because we were
unable to verify the reported income of parents of dependent
students.


As recommended by our office, and supported by the Department,
the Higher Education Act (HEA) Amendments of 1998 included a
provision authorizing the Department, in cooperation with Treasury,
to confirm with the IRS the adjusted gross income, federal income
taxes paid, filing status and exemptions reported by applicants
(including parents) on their federal income tax returns for the
purpose of verifying the information reported on their student
financial aid applications.


Currently, the Department is discussing the development of a test
match study with the IRS. The Department has indicated that it will
send samples of student aid applicant data to the IRS in March and
June 2000. The IRS will match these data against its records and
provide the Department with statistical summaries evaluating the
accuracy of the applicant data.


It is our understanding that the Department will use the statistical
information provided by the IRS to identify the types of students
who are most likely to under-report their income. The Department
intends to use the information to better focus their selection of
student applicants for income verification at the school level. The
Department also intends to use the IRS information to better
evaluate the extent of income under-reporting and use the data in
support of its continuing effort to conduct a full-scale data match
with the IRS.



                                  4
Although the HEA authorizes the Department to confirm student
applicant income with the IRS, the IRS has indicated that it cannot
disclose this information to the Department because such release is
not authorized by the Internal Revenue Code.         Without specific
authorization in the Code, the IRS indicates that it must obtain
written taxpayer consent before individual income information may
be released to the Department. In an attempt to overcome these
obstacles to full-scale verification, the Department, Treasury and
OMB are working together to develop possible solutions, including
legislative and administrative changes.


Another concern in the SFA area is the inappropriate discharge of
student loans based on disability or death. The HEA provides for
the discharge of a student loan when the borrower becomes either
totally and permanently disabled or dies.


At the request of the Department, we conducted an audit of the
Department’s controls over the discharge of student loans due to
disability or death. In June 1999, we reported that borrowers who
received disability discharges of over $73 million were earning
wages and borrowers who received disability discharges of nearly
$11.5 million returned to school and received additional loans and
grants. Additionally, our review identified over $3.8 million in loans
discharged for borrowers who inappropriately received a death
discharge.


To help correct this abuse, we recommended that the Department
take several steps to enhance the current discharge determination
procedures, including revising the disability form to include, at a
minimum, the doctor’s professional license number and office



                                5
telephone number and requiring certified copies of death
certificates.   In response, the Department modified its disability
form to incorporate our recommendations and OMB approved the
form.    In addition, the Department now requires that a death
discharge be based only on an original or certified copy of the
death certificate.


Our office continues to pursue this matter and we are engaged in a
project to identify fraudulent disability and death loan discharges.
In order to identify fraudulent death discharges, we conducted a
data match with the Social Security Administration’s Death Index to
determine persons who received loan discharges based upon
death but who do not appear in the Social Security records.
Working with a sample of these data and with information filed by
those who obtained substantial discharges from Sallie Mae and a
guaranty agency, our investigators are pursuing initial leads
generated by the match. We intend to continue this effort as more
of the match data are analyzed. In the area of disability discharge
fraud, we are working with a number of guaranty agencies to
identify potential fraud cases and following up on leads developed
from the data. These projects involve coordination with a number
of other entities, including the Department’s program office,
guaranty agencies, state agencies and Sallie Mae.


The OIG also is investigating a number of individuals for disability
and death discharge fraud. In one completed case, a defendant
was recently prosecuted and sentenced for obtaining the discharge
of five loans totaling $37,000, based upon false claims of disability
for mental illness.    Two other indictments for false claims of
disability also are pending in OIG cases.          In addition, our
investigative efforts to date have led to the reinstatement of over



                                6
$560,000 in student loans for borrowers who falsely claimed to be
totally and permanently disabled.


INFORMATION SYSTEMS AND SECURITY CONTROLS


The Department has been successful in its efforts to ensure its
programs are Year 2000 (Y2K) compliant.          This success was
accomplished through a concentrated effort on the part of the
Department, including technical assistance from our office.       We
contributed to the Department's success by evaluating its progress,
identifying high-risk areas and providing information on the status of
its major trading partners. The Department's commitment resulted
in there being no interruption in its customer service and no loss of
critical data from its computer systems. We would like to see the
Department undertake a similar initiative in the area of security
controls.


In December 1999, we issued a draft audit report on the
Department’s security policies and plans for its 14 mission-critical
systems.     The 14 systems include 11 SFA systems; the
Department’s Central Automated Processing System (EDCAPS);
the Department-wide network (EDNET); and the Impact Aid
System. Our review revealed that the Department has significant
control weaknesses including a lack of security plans and reviews
for six mission-critical systems, no process to ensure resolution of
identified security deficiencies and a lack of technical security
training for many employees responsible for overseeing the
Department’s computer security. The Department has informed us
that it concurs with our findings.




                                 7
Our draft findings indicate a weakness in the Department’s
compliance with the security requirements of the Computer Security
Act, Paperwork Reduction Act and OMB Circular A-130.                   The
Department also identifies this area as a material weakness in its
FY 1999 FMFIA report. Currently, we are conducting a follow-up
audit to determine the adequacy of security reviews performed on
eight mission-critical systems to meet OMB A-130 requirements.
Additionally, we are evaluating the public, internal and privileged
access vulnerabilities of the Department's EDNET communication
infrastructure. We plan additional reviews of security controls for
other systems in the future.


We also are participating with 16 federal agencies in a President's
Council on Integrity and Efficiency (PCIE) effort to evaluate
compliance with Presidential Decision Directive (PDD) 63. PDD 63
calls for a national effort to ensure the security of the
interconnected infrastructures of the United States. Our work
focuses    on   the    Department's    efforts   to   comply    with   the
requirements of PDD 63. Additionally, we have initiated an audit of
the Department's disaster recovery planning for its mission-critical
systems.


In another information systems area, the Department continues to
explore ways to make its SFA program delivery systems electronic
and paperless.        The Department’s goal of paperless systems
creates new opportunities for efficiency, but requires effective
controls to ensure accountability, security and legal enforcement. A
particular challenge is the implementation of an electronic signature
validation process that meets the requirements of OMB's
implementation        guidance   for   the   Government        Paperwork
Elimination Act, which is expected to be released in April 2000. To



                                 8
assist the Department, we will provide advice to SFA on its current
implementation of Personal Identification Numbers (PINs) in its
financial aid application process. Additionally, we are researching
the major components within a well-controlled Public Key
Infrastructure (PKI) environment to assist the Department in its
future PKI implementation efforts.


The Department also is working to implement three key
requirements of the Clinger-Cohen Act, which requires agencies to
improve   management       of   information   technology.    These
requirements include the implementation of a capital planning and
investment control process, development of a sound and integrated
information technology architecture and an assessment of the
information resource management knowledge and skills of agency
personnel. Although the Department has not fully implemented the
requirements of the Act, it is making progress in addressing
recommendations made by our office. The Department recently
produced a draft Capital Planning and Investment Control Program
and is working with a contractor to complete an information
technology architecture.    The Department also is working to
complete a skills inventory to assess the existing skills of its
information technology employees.


RESULTS ACT


The Department’s first performance report, required by the
Government Performance and Results Act, is due in March 2000.
The Results Act reporting requirement presents significant
challenges for the Department.       These challenges include the
supplemental funding role of the Department, relative to state and
local government entities, in many education programs; the heavy



                                9
dependence on third parties such as lenders, guaranty agencies
and state and local education agencies to provide performance
data; and priorities that compete with data collection such as the
desire to reduce regulatory burden and increase flexibility in
program implementation.       These conditions will present ongoing
challenges for the Department in its data collection and reporting
efforts.


In a September 1998 audit report assessing the Department’s
implementation of the Results Act, we recommended that the
Department establish controls over the analysis and reporting of
data, establish standards for reporting performance information and
establish a formal system for tracking indicators.   Last year, the
Department developed draft data quality standards and conducted
training on these standards. The Department also plans to develop
an electronic system for indicator tracking.


At the request of the Department, we also reviewed the processes
used by State Education Agencies (SEAs) to collect and report data
to the Department. Our review focused on two of the Department’s
major state formula grant programs -- the Elementary and
Secondary Education Act Title I Program and the Perkins
Vocational and Technical Education Program.


Our January 2000 draft report documented the challenges of
collecting and processing required student data and provided
insight into state quality control procedures. We reported that the
SEA process of collecting data for the two formula grant programs
is complex because of the thousands of entities providing data.
Each SEA also has its own unique control structure and processes
for the collection of data.



                                10
To address the complexities of the data collecting and reporting
process under the Results Act, the Department is working with
states to reduce paperwork and to streamline the federal education
program reporting system. The Department also is developing a
pilot project called the Integrated Performance and Benchmarking
System, which is designed to be an Internet-based system for
harvesting data from states about federal program activities at the
school and district level.   The Department is working with the
Council of Chief State School Officers on this project.


We will continue to assist the Department in its effort to improve
data quality under the Results Act. During the development of its
Strategic Plan, the Department agreed with our recommendation to
include in its performance report an assertion from Department
program managers regarding the reliability and validity of the data
used for performance measurement. The impact of this assertion
requirement will be addressed in the Department’s upcoming
performance report. We also have been conducting a continuing
assessment of the Department’s selection of performance
indicators and its reporting process. Based on this assessment and
our review of the Department’s first report, we will provide the
Department with recommendations for improvement for the next
reporting cycle.


COMPLIANCE MONITORING


With the increasing emphasis on accountability for results, it is
important to consider the implications of this change on program
oversight for the Department, State Education Agencies (SEAs),
local educational agencies (LEAs) and schools. Program oversight



                               11
is essential in the enforcement of program requirements, the
development of necessary program guidance and the evaluation of
program     modifications       during      the   legislative    reauthorization
process.


In a February 1999 report, we recommended that the Department
assume a greater role in ensuring elementary and secondary
program integrity.            Specifically, we recommended that the
Department integrate on-site program reviews, audits, technical
assistance,       reporting    and    evaluative      studies.          We     also
recommended that the Department’s oversight consider SEA
analyses of LEA single audit findings and emphasize corrective
action follow-up.


With the increasing delegation of elementary and secondary
program     oversight     to    SEAs        and   LEAs,    our        report   also
recommended that the Department establish minimum standards
for SEAs in monitoring the LEA administration of these programs.
Our recommended standards included a requirement for SEAs to
systematically analyze the results of LEA audits and other oversight
activities to identify trends in findings and develop monitoring and
technical assistance strategies to reduce occurrences of similar
problems.


The Department has taken steps to address some of these
oversight concerns.           The Office of Elementary and Secondary
Education has established integrated review teams to perform
coordinated, multi-program reviews of the implementation of federal
education programs by SEAs. The Department also included in its
proposal    for     reauthorizing     the     Elementary        and     Secondary
Education Act a section under Title XI that addresses state



                                     12
requirements for monitoring LEA compliance with the Act.         In
addition, our office is participating with the Department in a pilot
program with four SEAs that will address the better use of LEA
single audits for targeting monitoring and technical assistance
activities.


We are conducting additional reviews of compliance monitoring in
elementary and secondary programs. We are completing an audit
to determine whether the Higher Education Act Title III program is
being monitored in an efficient and effective manner and whether
adequate enforcement action is being taken by the program office.
Another audit will evaluate the Department’s monitoring of
elementary and secondary formula grant programs.


We also will continue our work with the Department on the K-12
Auditing, Monitoring and Technical Assistance Support Project to
develop an internal data exchange system to improve the
Department’s program monitoring process.


At this time, I would be pleased to answer any questions you may
have.




                              13
                        OFFICE OF INSPECTOR GENERAL
                         DEPARTMENT OF EDUCATION

1. The Department must address long-standing problems with financial management.

Department officials require accurate financial data in order to make informed decisions, manage
for results and ensure integrity of operations.

The work performed on the Department’s fiscal year (FY) 1998 financial statements resulted in a
report containing a disclaimer of opinion on the financial statements due to weaknesses with the
financial system. Weaknesses included the system’s inability to perform a year-end closing
process or produce automated consolidated financial statements. In addition, the Department did
not adequately perform reconciliations and could not provide sufficient documentation
supporting transactions.

A Report on Internal Control was also issued documenting seven weaknesses. The three most
serious of these were as follows: the accounting system’s inability to perform a year-end closing
process or produce automated consolidated financial statements; the lack of proper or timely
reconciliations of the accounting records; and, deficiencies in controls surrounding information
systems.

Finally, a Report on Compliance with Laws and Regulations was issued documenting two
instances of noncompliance. These were: failure to meet the March 1, 1999 statutory deadline
for submission of audited financial statements to OMB, as required by the GMRA; and non-
compliance with the system requirements of the Federal Financial Management Improvement
Act (FFMIA) of 1996.

The Department was unable to receive an opinion on the FY 1995 and FY 1996 financial
statements due primarily to a lack of reliable and complete data supporting the estimated liability
for loan guarantees related to the Federal Family Education Loan Program (FFELP). This
barrier to a clean opinion was overcome for the FY 1997 financial statements through an
extraordinary data gathering effort by the Department, guaranty agencies and their independent
public accountants, the OIG and its contract auditors at that time. This was the culmination of 18
months of effort that began initially for the FY 96 financial statement audit. This provided
reliable and complete data independent from the Department’s systems that enabled an opinion
to be expressed.

From 1995 through 1998, repeat internal control weaknesses were reported in the areas of:

•   reconciliation of Fund Balance with Treasury,
•   overall monitoring of Department programs, and
•   information systems controls.

There have been a total of 115 recommendations, of which 88 remain open and 27 are closed.

For fiscal year 1997, financial reporting was identified as a new significant control weakness. It
was reported again in 1998. In contrast, in FY 1998 the Department was able to correct the
longstanding significant control weakness related to its FFELP loan liability estimate.
                                                                                                        2




Both the FY 1997 and FY 1998 Report on Compliance with Laws and Regulations contained the
finding that the Department did not meet the statutory reporting date of March 1 and did not
comply with the requirements of the FFMIA.

Looking ahead, responsibilities for fiscal year 1999 have been expanded to include preparing and
auditing the financial statements of Student Financial Assistance (SFA) in addition to the
Department’s consolidated financial statements. We are committed to meeting the March 1st
deadline for both audits.



2. Year 2000 remains a management challenge for the Department.

The Department has made significant progress in its preparations for the Year 2000 (Y2K) and
has completed implementation and end-to-end testing of its internal systems. The primary
challenge remaining is the readiness status of postsecondary institutions and elementary and
secondary school districts. The Department conducted extensive outreach to these institutions,
but risks remain. No matter how extensive its outreach efforts, the Department cannot ensure
that its trading partners will become Y2K compliant. The Department’s most recent surveys,
conducted in September and October, show that more than one-third of postsecondary
institutions and school districts were not yet fully Y2K compliant. Additionally, only 16 percent
of approximately 7,000 postsecondary institutions have tested their data exchanges with the
Department. These entities must take the steps necessary to mitigate Y2K risks for their
organizations. The Department is taking steps to understand the readiness of its trading partners
and provide additional testing opportunities to encourage schools to test their data exchanges.

As Year 2000 approaches, the Department is concentrating its efforts on testing and refining its
Y2K business continuity and contingency plans. These plans document the Department's
alternative procedures in the event of failures in its internal systems or the systems of its trading
partners.



3. The Department must improve its security posture, policy and plans for its systems.

The Department must comply with security requirements of the Computer Security Act,
Paperwork Reduction Act, and OMB Circular A-130. We are completing our review of the
Department’s security posture, policies and plans for its 14 mission critical systems and are
identifying areas that need improvement. The 14 systems include 11 SFA systems, the
Department of Education Central Automated Processing System (EDCAPS), its department-wide
network (EDNET) and the Impact Aid System.

Our preliminary findings show weaknesses in the Department’s security controls. These
weaknesses represent noncompliance with significant requirements of Circular A-130. Because
the Department is not adhering to significant requirements of the Circular, it may not be in
                                                                                                    3


compliance with the Paperwork Reduction Act, which requires agencies to follow OMB’s
security policies, principles, standards and guidelines. Additionally, two of our findings may
represent noncompliance with two requirements of the Computer Security Act.

We discussed our preliminary results with the Chief Information Officers (CIO) of the
Department and Student Financial Assistance. Both CIOs were recently appointed. They stated
that they recognize the seriousness of these issues and they are taking steps to address them.



4. The implementation of the Student Financial Assistance's Modernization Blueprint and
   Performance Plan present unique challenges.

Student Financial Assistance (SFA) recently released the third draft of its “Modernization
Blueprint” (Blueprint), which represents the current plan to update and reengineer core business
processes through applied technology. We have been reviewing SFA’s draft modernization
plans, including its roots in the Department's Easy Access for Students and Institutions (EASI)
vision, first set forth as a directive from the Secretary of Education in 1995. Based on our
observations, the key management challenges are as follows:

•   Current and forecast business problems for SFA may not be adequately defined. Lack of
    definition could lead to the potential for increased cost and complexity due to scope and
    technology changes in later phases of the project to resolve unanticipated issues.
•   Viable alternatives must be continually assessed during all phases of implementation to
    insure that they are the most cost effective.
•   The impact of external factors on SFA planning may be understated.
•   Technical challenges, such as platform scaling, may not be sufficiently appreciated.
•   The project timetable may be unrealistic.
•   Resources sufficient to complete the planned effort may not be available.
•   The Blueprint’s vision of “buy a little, test a little, fix a little” may prove unworkable.

The Blueprint is an ambitious proposal that depends on radical change at SFA, and by extension,
the Department of Education as a whole. While the vision underlying this proposal reflects years
of conscientious development and the application of countless hours of effort by Department
staff and contractors, it appears that the resulting system plans still exist at a highly conceptual,
idealized level.

In September 1999 we recommended that SFA conduct an in-process review of its
modernization effort to determine if controls are in place for managing risks during the
implementation phase. We also pointed out the importance of establishing controls in the early
stages of a project to provide reasonable assurance that the project will be:

•   Successful in meeting the defined objectives;
•   Achieved at the lowest possible costs commensurate with the risks assumed; and
•   Accomplished in the shortest possible timeframe commensurate with the risks assumed.
                                                                                                   4


The Higher Education Act (HEA) requires the Chief Operating Officer for the Performance-
Based Organization (PBO) and the Secretary to agree on, and make available to the public, a
performance plan for the PBO for the succeeding five years that establishes measurable goals
and objectives for the organization. Our comments, to date, on drafts of the plan have focused
on the following areas: statutory reporting requirements under the HEA and the Government
Performance and Results Act (GPRA), the unit cost calculation, the measures for both customer
and employee satisfaction and balance between customer service and program integrity.

The challenge for SFA is to ensure that the implementation of this plan meets the responsibilities
required of SFA by HEA in four key areas: improving service including making those programs
more understandable to students and their parents, reducing costs, improvement and integration
of support systems and delivery of information systems.



5. The Department's goal of "paperless" systems for SFA fund delivery creates new
   opportunities for efficiency and requires effective controls to ensure accountability,
   security and legal enforcement.

The Department is still considering ways to make its SFA program delivery systems electronic
and paperless. We believe that the steps the Department is taking on a pilot project to conduct
the student aid application and delivery process electronically over the World Wide Web, which
is a part of a government-wide effort called “Access America,” is a step in the right direction.
Successful transition from the pilot project to full implementation of an electronic signature
validation process that meets the requirements of the General Accounting Office (GAO) remains
a challenge.



6. The Department needs to fully implement the Clinger-Cohen Act.

The Clinger-Cohen Act requires agencies to take steps to improve management of information
technology. In March 1998, OIG reported that the Department had not achieved full compliance
with important requirements of the Act. Since that time, the Department has made progress,
however it has not fully implemented three key requirements:

 •     Implementation of a capital planning and investment control process;
 •     Development of a sound and integrated information technology architecture; and
 •     Assessment of the information resource management knowledge and skills of agency
       personnel and development of a plan to correct identified deficiencies.

In September 1999, OIG and the Office of Chief Information Officer agreed on a corrective
action plan to address our audit recommendations. Completing these corrective actions will be a
challenge for the Department’s newly appointed CIO. The Department recently awarded a
contract for assistance with development of an integrated information architecture over the next
year, plans for full implementation of its capital planning and investment management process
                                                                                                    5


for budget year 2002, and plans to complete skills assessments and training for information
technology professionals by March 2000.



7. Obtaining quality data to measure the performance of its programs and to meet the
   reporting requirements of the Results Act presents significant challenges.

The Department's first performance report on fiscal year 1999, required by the Government
Performance and Results Act of 1993 (Results Act), is due in March 2000. The Department's
strategic plan and annual performance plans for 1999 and 2000 were rated among the highest by
the GAO. However, the Department faces a significant challenge in obtaining quality data to
measure the performance of its programs and to meet the reporting requirements of the Results
Act because of its heavy dependence on third parties to provide the data.

The availability of quality data has been identified by both the Department and the GAO as a
concern. The Department's annual plans have noted that the lack of integration of its SFA
systems and its heavy dependence on external systems hampers its ability to provide timely and
accurate information. GAO included the lack of quality data in its January 1999 report on
Education Challenges. In that report, GAO noted that the absence of information often results
from the nature of the programs themselves.



8. Balancing Compliance Monitoring and Technical Assistance Presents a Management
   Challenge for Elementary and Secondary Education Programs

In February 1999, we issued "An OIG Perspective on the Reauthorization of the Elementary and
Secondary Education Act" that highlighted the need to improve compliance monitoring. We
reported that with the increasing emphasis on accountability for results, it is important to
consider the implications of this change on the oversight for the Department, State Education
Agencies (SEAs), local educational agencies (LEAs), and schools.

We analyzed 39 state-level single audit reports and found that the most common type of finding
related to weaknesses in the oversight of elementary and secondary programs. Of the state-level
single audits, over half reported that SEA oversight of the LEAs was unsatisfactory. We
recommended that the Department establish minimum standards for SEAs in monitoring LEA
administration of Elementary and Secondary Education Act (ESEA) programs. We also
recommended that the Department consider ways it can play a stronger role in ensuring ESEA
program integrity. Many of our suggestions were adopted in the monitoring and reporting
section of the 1999 Education Flexibility Partnership Act.

The Department has taken several steps to address monitoring concerns. The Department
included in its proposal for reauthorizing the ESEA a section under Title XI that addresses State
requirements for monitoring LEA compliance with ESEA. The section addresses the need for
documenting monitoring activities, providing technical assistance, and analyzing the results of
                                                                                                      6


audits and other monitoring activities to identify trends and develop strategies for correcting
problems. The Office of Elementary and Secondary Education (OESE) also developed a
monitoring instrument that will be used during integrated reviews at States that merges
compliance monitoring and technical assistance.

OESE also invited the OIG to participate in a pilot program with three SEAs that will address
making better use of LEA Single Audits for targeting monitoring and technical assistance
activities. The pilot project will also develop training modules for auditors so they have a better
understanding of ESEA programs and can provide the most useful audit reports.

The OIG and the Department are working with an interagency work group on issues relating to
the Trust Territories. The group is currently working on delinquent Single Audits, oversight
issues, Year 2000 readiness and other matters related to the Virgin Islands.



9. The Department must continue to work with the Internal Revenue Service to
   implement a data match to ensure that SFA recipients accurately report income to
   qualify for financial aid.

As previously reported, an OIG audit and numerous OIG investigations provided evidence that
under-reporting of income by applicants for student aid and their parents is a serious and
growing problem that is costing federal taxpayers hundreds of millions of dollars in overawards
of Pell Grants and awards to ineligible persons. We performed a match of income data reported
by 2.3 million student aid applicants with that reported to the Internal Revenue Service (IRS) in
the 1995-96 award year.

We recommended that the Department be permitted to verify with the IRS the income
information reported by students and their parents on the Free Application for Student Aid
(FAFSA). Income and dependency elements are critical in calculating the expected family
contribution needed to compute eligibility for student aid.

The Higher Education Act Amendments of 1998 (P.L. 105-244, October 7, 1998) provided the
Department of Education with the authority to confirm with the Internal Revenue Service the
adjusted gross income, Federal income taxes paid, filing status and exemptions reported by
applicants (including parents) on their Federal income tax returns for the purpose of verifying the
information reported by applicants on student financial aid applications.

The Department is discussing this matter with the IRS.