Response to the Department of Education's Request to Reconsider the High-Risk Designation of Federal Student Aid Programs

Published by the Government Accountability Office on 2003-06-09.

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

United States General Accounting Office
Washington, DC 20548

          June 9, 2003

          The Honorable Rod Paige
          The Secretary of Education

          Subject: Response to the Department of Education’s Request to Reconsider the
                   High-Risk Designation of Federal Student Aid Programs

          Dear Mr. Secretary:

          This letter is in response to your May 2, 2003, letter requesting that we make a
          commitment to reconsider by early this summer our high-risk designation of the
          Department of Education’s Student Financial Aid (SFA) programs. In that letter you
          outlined how the department has addressed many of the concerns we have identified
          and the plans it has underway for continued improvements, as well as its plans to
          update Federal Student Aid’s (FSA) Five-Year Performance Plan. In order to help
          ensure that planned and completed actions address the issues raised in our recent
          High-Risk and Performance and Accountability reports, you offered to provide a
          series of briefings to our key managers on:

             •   plans and progress for sustaining the clean opinion on the department’s
                 financial statements;
             •   FSA progress on its modernization efforts and FSA Data Strategies
             •   FSA program integrity initiatives, including FSA default prevention and
                 collection strategies; and
             •   progress on One-ED (the department’s human capital planning initiative).

          We accept the offer to attend these briefings and look forward to the opportunity to
          keep informed of significant progress toward resolving management issues and
          sustaining improvement in SFA programs.

          In 1990, we began our program of reporting on government operations that we
          identified as high risk. Since then, generally coinciding with the start of each new
          Congress, we have periodically reported on the status of progress to address high-risk

                                              GAO-03-885R Education’s High Risk Designation
areas and updated our high-risk list. In our January 2003 update1 for the new 108th
Congress, we identified the following actions related to SFA programs as remaining
to be completed by the department:

    •    continue with systems integration and improve plans and reports to better
         demonstrate progress,
    •    make comprehensive improvements to address financial management and
         internal control weaknesses,
    •    improve plans and reports to clearly explain strategies for achieving default
         management goals, and
    •    continue implementation of strategic human capital measures, including
         succession planning and staff development.

Previously, at the department’s request, specific actions needed to address each of
these areas were provided to the department in the attached copy of our letter of
August 1, 2001, to Deputy Secretary William Hansen. In that letter we compiled a
summary of major actions that are critical in addressing the underlying root causes
that have resulted in the high-risk designation of SFA programs measured against
criteria we use for designation of programs as high risk. For example, the attachment
to that letter lays out the following three key measurements of sound financial
management for the department and FSA:

    •    an unqualified audit opinion on the department’s financial statements,
    •    full compliance with the Federal Financial Management Improvement Act
         (FFMIA) of 1996, and
    •    correction of material internal control weaknesses identified in the financial
         statement audit

The department has taken actions over the last several years to improve its financial
management and the weaknesses identified. Significant progress was made recently
when the department received an unqualified – or “clean” – opinion on its financial
statements for fiscal year 2002. While this is an important milestone, significant
management weaknesses remain that must be addressed in the other two key
measurements we identified, which are discussed in more detail below. In addition,
it is important that the department demonstrate that it can sustain the clean opinion,
as well as other improvements that are made. As you know, the department first
received an unqualified audit opinion on its fiscal year 1997 financial statements, but
was not able to sustain that result, nor repeat it until this year.

The first key measure that remains a weakness is compliance with FFMIA. FFMIA
requires agencies to institute financial management systems that substantially comply
with federal financial management systems requirements, applicable accounting
standards, and the federal government’s Standard General Ledger. Every year since
FFMIA was enacted, the department’s auditors have reported that the department’s

 U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.:
January 2003).

Page 2                                    GAO-03-885R Education’s High Risk Designation
systems did not substantially comply with the act’s requirements. This continued for
fiscal year 2002. According to the auditors, although the department implemented a
new financial management system during fiscal year 2002, issues associated with the
transition to the new system contributed to difficulties in providing reliable, timely
information for managing current operations and timely reporting of financial
information to central agencies. The auditors also reported that the department
needs to address identified computer security weaknesses in its financial
management and other information systems.

The second key measure that remains uncorrected is material internal control
weaknesses identified in the financial statement audits. The department’s auditors
have consistently reported major internal control weaknesses related to financial
management systems and financial reporting. In fiscal year 2002, the auditor again
reported that significant financial management issues continued to impair the
department’s ability to accumulate, analyze, and present reliable financial
information. While the auditor reported improvements in the latter part of the fiscal
year, they reported that they continue to believe that the department needs to place
additional focus on reconciliation procedures, account analysis, and financial
reporting. Until these issues are fully resolved, the department’s ability to produce
timely, accurate, and useful financial information for its managers and stakeholders
will be greatly impeded.

Designations of programs as high risk because of their greater vulnerabilities to
waste, fraud, abuse, and mismanagement, as well as removal of programs’ high-risk
designations, are the independent and objective judgment of GAO professionals. One
of the key factors that enters into the judgment regarding removal of the designation
is whether the corrective measures are effective and can be sustained. We have
developed and will continue to refine the criteria we use to form judgments on
removing high-risk designations. At the time of our January 2003 update to the
Congress, agencies were required to have accomplished the following steps before a
program’s high-risk designation could be removed:

    •    a demonstrated strong commitment and top leadership support to address the
    •    the capacity (that is, the people and other resources) to resolve the risk(s);
    •    a corrective action plan(s) that defines the root causes, identifies effective
         solutions, and provides for substantially completing corrective measures near
         term, including but not limited to, steps necessary to implement solutions we
    •    a program to monitor and independently validate the effectiveness and
         sustainability of corrective measures; and
    •    the ability to demonstrate progress in implementing corrective measures.

We are impressed with the level of commitment to addressing the factors that
resulted in this high-risk designation, and progress has clearly been made. However,
in our independent and professional judgment as of January 2003, the SFA programs
did not fully satisfy the criteria for removal from the high-risk list, largely because of

Page 3                                 GAO-03-885R Education’s High Risk Designation
the remaining financial management issues. In addition, it is not our policy to
address high-risk designations “out of cycle." One key reason for this is to allow
enough time between assessments to demonstrate the sustainability of corrective
measures. Furthermore, providing for an out of cycle assessment for the Department
of Education would set a precedent that would result in other agencies asking for
such interim determinations. This would result in a significant unplanned use of
resources that would adversely affect our ability to meet congressional mandates and
requests on time.

Thus, although we decline to commit to reconsider our January 2003 decision to
classify the SFA program as high risk at this time, we will continue to work with the
department to ensure that we are informed about and have validated the progress
made in resolving these issues and sustaining improvement in all three areas. This
proactive approach, which includes consideration of our ongoing work as well as that
of the department’s outside auditors and the Inspector General, will enable us to
promptly assess progress made and challenges that remain in preparation for the
next high-risk cycle. In this regard, our next high-risk list is scheduled for publication
in January 2005.

We are sending copies of this report to the Secretary of Education and the
department’s congressional oversight committees. We are also sending copies to the
Subcommittee on Government Efficiency and Financial Management, House
Committee on Government Reform, the Senate Committee on Governmental Affairs,
and other interested parties.

We remain encouraged by the department’s commitment to addressing these
important challenges. We look forward to continuing to work with you in the future
on these very important issues.

Sincerely yours,

David M. Walker
Comptroller General
of the United States



Page 4                                GAO-03-885R Education’s High Risk Designation

Page 5      GAO-03-885R Education’s High Risk Designation

Page 6      GAO-03-885R Education’s High Risk Designation

Page 7      GAO-03-885R Education’s High Risk Designation

Page 8      GAO-03-885R Education’s High Risk Designation

Page 9      GAO-03-885R Education’s High Risk Designation
                         The General Accounting Office, the audit, evaluation and investigative arm of
GAO’s Mission            Congress, exists to support Congress in meeting its constitutional responsibilities
                         and to help improve the performance and accountability of the federal
                         government for the American people. GAO examines the use of public funds;
                         evaluates federal programs and policies; and provides analyses,
                         recommendations, and other assistance to help Congress make informed
                         oversight, policy, and funding decisions. GAO’s commitment to good government
                         is reflected in its core values of accountability, integrity, and reliability.

                         The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of      through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full-
GAO Reports and          text files of current reports and testimony and an expanding archive of older
                         products. The Web site features a search engine to help you locate documents
Testimony                using key words and phrases. You can print these documents in their entirety,
                         including charts and other graphics.
                         Each day, GAO issues a list of newly released reports, testimony, and
                         correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site
                         daily. The list contains links to the full-text document files. To have GAO e-mail
                         this list to you every afternoon, go to www.gao.gov and select “Subscribe to daily
                         E-mail alert for newly released products” under the GAO Reports heading.

Order by Mail or Phone   The first copy of each printed report is free. Additional copies are $2 each. A
                         check or money order should be made out to the Superintendent of Documents.
                         GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a
                         single address are discounted 25 percent. Orders should be sent to:
                         U.S. General Accounting Office
                         441 G Street NW, Room LM
                         Washington, D.C. 20548
                         To order by Phone:     Voice:    (202) 512-6000
                                                TDD:      (202) 512-2537
                                                Fax:      (202) 512-6061

To Report Fraud,
                         Web site: www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in      E-mail: fraudnet@gao.gov
Federal Programs         Automated answering system: (800) 424-5454 or (202) 512-7470

                         Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800
Public Affairs           U.S. General Accounting Office, 441 G Street NW, Room 7149
                         Washington, D.C. 20548
This is a work of the U.S. government and is not subject to copyright protection in the
United States. It may be reproduced and distributed in its entirety without further
permission from GAO. However, because this work may contain copyrighted images or
other material, permission from the copyright holder may be necessary if you wish to
reproduce this material separately.