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 Framework; • 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 1 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 risk(s); • 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 recommended; • 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 Enclosure (190099) Page 4 GAO-03-885R Education’s High Risk Designation Enclosure Page 5 GAO-03-885R Education’s High Risk Designation Enclosure Page 6 GAO-03-885R Education’s High Risk Designation Enclosure Page 7 GAO-03-885R Education’s High Risk Designation Enclosure Page 8 GAO-03-885R Education’s High Risk Designation Enclosure 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 Contact: To Report Fraud, Web site: www.gao.gov/fraudnet/fraudnet.htm Waste, and Abuse in E-mail: email@example.com 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.
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)