Archived Information

***FY 2002***

***Performance and Accountability Report***

**U. S. Department of Education**

**January 31, 2003**

> U.S. Department of Education
>
> Rod Paige
>
> Secretary
>
> Office of the Deputy Secretary
>
> William D. Hansen
>
> Deputy Secretary
>
> Strategic Accountability Service Office of the Chief Financial Officer
>
> Hugh Walkup Jack Martin
>
> Director Chief Financial Officer

This report is public domain. Authorization to reproduce it in whole or
in part is granted.

While permission to reprint this publication is not necessary, the
citation should be:

U.S. Department of Education. *U.S. Department of Education FY2002
Performance and Accountability Report*. Washington D.C., 20202, January
2003.

To order copies of this report:

Write to: ED Pubs, Education Publications Center, U.S. Department of
Education,

P.O. Box 1398, Jessup, MD 20794-1398; or

Fax your request to: (301) 470-1244; or

E-mail your request to: <edpubs@inet.ed.gov> ; or

Call in your request toll-free: 1-877-433-7827 (1-877-4-ED-PUBS).

If 877 service is not yet available in your area, call 1-800-872-5327
(1-800-USA-LEARN).

Those who use a telecommunications device for the deaf (TDD) or a
teletypewriter (TTY), should call

1-877-576-7734 or order online at:
[www.ed.gov/about/ordering.jsp](http://www.ed.gov/about/ordering.jsp).

This report is also available on the Department's web site at:
[www.ed.gov/pubs/planrpts.html](http://www.ed.gov/about/reports/strat/index.html).

On request, this publication is available in alternate formats, such as
Braille, large print, audiotape, or computer diskette. For more
information, please contact the Department's Alternate Format Center at
(202) 260-9895 or (202) 205-8113.

January 31, 2003

# Table of Contents {#table-of-contents .unnumbered}

Letter from the Secretary vi

Overview of the Report viii

Organization of the Report ix

Management's Discussion and Analysis

Mission 2

Introduction 3

Department of Education Organization Chart 7

Performance Overview 9

Strategic Goals and Objectives for 2002-2007 15

How to Read the Summary Sections 16

Goal 1: Create a Culture of Achievement 17

Goal 2: Improve Student Achievement 22

Goal 3: Develop Safe Schools and Strong Character 28

Goal 4: Transform Education into an Evidence-Based Field 32

Goal 5: Enhance the Quality of and Access to Postsecondary\
and Adult Education 37

Goal 6: Establish Management Excellence 40

Report Card on All Six Goals 45

Financial Overview 47

Financial Highlights 48

Management Controls 49

Federal Manager's Financial Integrity Act 50

High Risk Update 53

OMB Scorecard 53

Performance Details

Goal 1

Objective 1.1: Link federal education funding to accountability for
results 56

Objective 1.2: Increase flexibility and local control 63

Objective 1.3: Increase information and options for parents 72

Objective 1.4: Encourage the use of scientifically based methods within
federal\
education programs 78

Goal 2

Objective 2.1: Ensure that all students read on grade level by the third
grade 84

Objective 2.2: Improve mathematics and science achievement for all
students 94

Objective 2.3: Improve the performance of all high school students 98

Objective 2.4: Improve teacher and principal quality 109

Goal 3

Objective 3.1: Ensure that our nation's schools are safe and drug-free
and that\
students are free of alcohol, tobacco and other drugs. 113

Objective 3.2: Promote strong character and citizenship among our\
nation's youth 120

Goal 4

Objective 4.1: Raise the quality of research funded or conducted by\
the Department 125

Objective 4.2: Increase the relevance of our research in order to meet
the needs\
of our customers 132

Goal 5

Objective 5.1: Reduce the gaps in college access and completion among
student\
populations differing by race or ethnicity, socio-economic status,\
and disability while increasing the educational attainment of all 140

Objective 5.2: Strengthen accountability of postsecondary institutions
148

Objective 5.3: Establish effective funding mechanisms for postsecondary\
education 153

Objective 5.4: Strengthen Historically Black Colleges and Universities,
Hispanic\
Serving Institutions, and Tribal Colleges and Universities 160

Objective 5.5: Enhance the literacy and employment skills of American
adults 165

Goal 6

Objective 6.1: Develop and maintain financial integrity and management
and\
internal controls 171

Objective 6.2: Improve the strategic management of the Department's
human\
capital 181

Objective 6.3: Manage information technology resources, using e-gov,\
to improve services for our customers and partners 189

Objective 6.4: Modernize the Federal Student Assistance programs and
reduce\
their high-risk status 194

Objective 6.5: Achieve budget and performance integration to link
funding\
decisions to results 202

Objective 6.6: Leverage the contributions of community- and faith-based\
organizations to increase the effectiveness of Department\
programs 207

Objective 6.7: By becoming a high-performance, customer-focused
organization,\
earn the President's Quality Award. 211

Program-Specific Performance Indicators 214

Financial Details

Letter from the Chief Financial Officer 221

Limitations of Financial Statements 222

Principal Financial Statements 224

Notes on the Principal Financial Statements 229

Human Capital 265

Supplementary Information 273

Other Statutorily Required Reports

Semi-annual Report to Congress on Audit Follow-up 288

Credit Management and Debt Collection Improvement Act 289

Appendices

A. Crosswalk of Appropriations and Goals and Objectives A-1

B. Report on the President's Management Agenda, September 30, 2002 B-1

C. Findings from Education Department Evaluations FY 2002 C-1

D. OMB's Performance Assessment Rating Tool: The PART Process D-1

E. Information Quality and Data Quality: The Department's Guidelines\
and Standards E-1

F. Audit Reports F-1

G. Inspector General Summary of Serious Management Challenges G-1

H. Glossary of Acronyms H-1

## *FROM THE SECRETARY*

# ![](media/image1.jpeg){width="6.747222222222222in" height="8.18125in"}  {#section .unnumbered}

# OVERVIEW OF THE REPORT {#overview-of-the-report .unnumbered}

The Department of Education's Fiscal Year 2002 Performance and
Accountability Report integrates the separate Performance Reports and
Financial Statements that were produced in previous years. Our intention
is to more clearly communicate federal expenditures on national
education priorities and the results of those investments as measured
against our 2002-2007 Strategic Plan objectives. We regard this as a
significant step in our continuous efforts to improve accountability,
transparency, and effective management of the Department of Education.

Significant accomplishments in FY 2002 included that we:

-   Received a clean audit opinion.

-   Expedited implementation of the No Child Left Behind Act.

-   Designed a What Works Clearinghouse based on sound educational
    research.

-   Reduced grantees' reporting burden.

-   Improved Federal Student Assistance financial management and loan
    repayment.

-   Initiated work process reengineering to assure effective use of
    personnel and contractor resources.

-   86 percent of the 383 strategic action steps for 2002-2003 were
    completed or are on track for timely completion at the end of FY
    2002.

We still face significant challenges to meeting our national education
goals. Primary among these challenges is access to timely, reliable data
on our performance in meeting our goals and implementing our programs.
Our efforts to identify effective and ineffective programs in the
Department are severely limited by the frequent absence of useful data
about them. In FY 2002 we designed a performance-based data management
initiative which will provide much more robust information about our
programs and strategic objectives, as well as provide a strong
foundation for educational research and evaluation.

Information about what works in education is severely lacking. In FY
2002 we began focusing our research and evaluation resources on rigorous
experimental studies of effective practices. We expect this effort to
significantly improve our ability to target resources, manage programs,
and advise decision makers.

We also anticipate a number of changes in our programs. In addition to
the new directions for elementary and secondary education represented by
No Child Left Behind, we anticipate significant changes in special
education, secondary, postsecondary, and adult education programs. We
expect to aggressively implement these changes as Congress adopts them.

Given the limited federal role in education, we are committed to
improving our partnerships with state and local education agencies. Our
strategic goals and objectives are national rather than federal. We
cannot accomplish them within our federal offices alone.

Finally, the Department is committed to fully implementing the
President\'s Management Agenda and thereby earning the President\'s
Quality Award.

# ORGANIZATION OF THE REPORT {#organization-of-the-report .unnumbered}

The Department of Education's FY 2002 Performance and Accountability
Report is organized into five major sections: Management's Discussion
and Analysis, Performance Details, Financial Details, Other Statutorily
Required Reports, and Appendices.

Management's Discussion and Analysis includes introductory material, a
Performance Overview, a Financial Overview, and a section on Management
Controls. The introductory material states our mission, supplies an
organizational chart, discusses educational problems faced by our nation
and the efforts of the Department to identify solutions to these
problems, provides an overview and history of the federal role in
education, and explains how the Department is creating a culture of
organizational excellence.

The Performance Overview presents the Department's strategic objectives
for 2002--2007 and a brief discussion of the six performance goals. Each
goal discussion examines four areas: Inputs (an estimate of the amount
of funding that supports the goal); Implementation (what we accomplished
in FY 2002); Impact (our results on meeting our FY 2002 targets); and
Improvements (what changes will be made on the basis of results). A
summary page that contains highlights with graphics precedes each goal
discussion. An explanation of How to Read the Summary Sections (p. 16)
gives a key to our use of charts and graphics throughout the document.

The Financial Overview and the Management Controls sections include
financial highlights, financial strategies to optimize utilization of
available resources, data quality, information technology security
programs, and the Office of Management and Budget's (OMB) scorecard on
how well the Department is implementing the President's Management
Agenda (PMA).

The Performance Details section takes a close look at each objective
within each of the six goals. Like the goal discussions, each objective
discussion contains an easy to understand one-page summary of highlights
and a narrative discussion focused on the four areas: Inputs,
Implementation, Impacts, and Improvements. Additionally, each objective
discussion is followed by a detailed analysis of the indicators that
measure our success in meeting our targets, including source information
and data quality issues. The last few pages of the Performance Details
section list program clusters for which program-specific indicators
results are published in a full report on our Web site
([www.ed.gov](http://www.ed.gov/)[/pubs/planrpts.html]{.underline}).

The Financial Details section describes the limitations of financial
statements and includes Department Financial Statements, Notes to
Principal Financial Statements, and Supplementary Information. Other
Statutorily Required Reports follow the Financial Details section.

The final section contains eight appendices: a crosswalk showing how our
program funding supports our goals and objectives; a report on the
President's Management Agenda; findings from the program evaluations
completed in FY 2002; a description of OMB's Program Assessment Rating
Tool (PART) process; the Department's Guidelines on Information and Data
Quality; Audit Reports; the Inspector General's Summary of Serious
Management Challenges; and a Glossary of Acronyms.

***Management's\
Discussion and Analysis***

#  {#section-1 .unnumbered}

# *Mission* {#mission .unnumbered}

![](media/image2.bmp)

***To ensure equal access\
to education\
and to promote\
educational excellence throughout the nation***

# Introduction {#introduction .unnumbered}

It is a new day in education for America. Our nation has been called to
commit itself to the goal of creating an educational system that insists
on accountability. The No Child Left Behind Act of 2001 is the
President's landmark legislation to raise academic achievement for all
students and change the culture of America's schools.

This groundbreaking new law embodies four key principles---stronger
accountability for student achievement results; greater flexibility for
states, school districts, and schools in the use of federal funds; more
choices for parents of children from disadvantaged backgrounds; and a
focus on what works. The new law also focuses on improving reading,
especially for young children; enhancing the quality of our nation's
teachers; and ensuring that all children in America's schools learn
English.

Between 1996 and 2002, federal discretionary appropriation for the
Department of Education (Department) increased 117 percent, from \$23
billion to \$49.9 billion.[^1] In the past three and one-half decades,
the federal government has spent more than \$321 billion on the
Elementary and Secondary Education Act (ESEA) alone,[^2] while student
achievement has remained relatively flat.[^3]

Although many schools in America are doing a good job, national reports
cards showed a continuing achievement gap between important segments of
American society.

-   Two out of three fourth graders could not read proficiently.[^4]

-   Seven out of ten inner-city and rural fourth graders could not read
    at the most basic level.[^5]

-   America's 12th graders ranked among the lowest in mathematics and
    science achievement among their counterparts around the world.[^6]

We cannot recover the years that were wasted on an educational system
that failed so many children. But No Child Left Behind can recast the
future of education in America. Through this law, we will create schools
that are worthy of the next generation of Americans.

Reauthorization of the Individuals with Disabilities Act (IDEA), the
Higher Education Act (HEA), and the Carl D. Perkins Vocational and
Technical Education Act will provide opportunities to further align
national education policy and leadership with the four pillars of No
Child Left Behind and the first four objectives of our Strategic Plan:

-   Link federal education funding to accountability for results.

-   Increase flexibility and local control.

-   Increase information and options for parents.

-   Encourage the use of scientifically based methods within federal
    education programs.

Education in America has always been, and remains, primarily a state and
local responsibility. States and communities and public and private
organizations establish schools, develop curricula, and determine
requirements for enrollment and graduation. About 90 percent of all
funding for education comes from state, local and private sources.
Overall, the federal financial contribution to education is about 10
percent, with only about 7 percent coming directly from the Department
of Education.[^7]

Seven percent may not sound like much, but the Department makes these
dollars work hard by targeting funds where they can do the most good in
enhancing student performance. This targeting reflects the historical
development of the federal role in education as a means of meeting the
needs of students from disadvantaged and minority backgrounds and
filling gaps in state and local support for education when critical
national needs arise. Because federal funding is flexible in its
application, its importance to states, districts, and schools far
exceeds its percentage of the total.

The original Department of Education was created in 1867 to collect
information on schools and teaching that would help states establish
effective school systems. Although the agency's name and location within
the Executive Branch have changed over the past 135 years, this early
emphasis on getting information on what works in education to teachers
and education policymakers continues to the present day. The emphasis on
research in the Department's Strategic Plan, in No Child Left Behind,
and in the new Institute for Education Sciences will significantly
enhance the Department's role in these areas. The What Works
Clearinghouse is already under way to disseminate sound educational
information to teachers and administrators across the country.

In 1980, Congress established the Department of Education as a
Cabinet-level agency. Today, the Department administers a budget of
about \$54 billion a year and operates programs that touch every area
and level of education. The Department's elementary and secondary
programs annually serve about 15,000 school districts and more than 50
million students attending roughly 92,000 public schools and 27,000
private schools. Department programs provide grant, loan, and work-study
assistance to more than 8 million postsecondary students.[^8]

Despite the growth of the federal role in education, the Department has
never strayed far from what would become our official mission: to ensure
equal access to education and to promote educational excellence
throughout the nation. The Department carries out our mission in two
major ways.

-   First, the Secretary and the Department play a leadership role in
    raising national and community awareness of the education challenges
    confronting America, disseminating the latest discoveries on what
    works in teaching and learning, and helping communities work out
    solutions to difficult educational issues.

-   Second, the Department pursues its goals of access and excellence by
    administering grant programs that cover every area of education
    ranging from preschool education through postdoctoral research and
    by implementing federal education legislation.

Although the Department's programs and responsibilities have grown
substantially over the years, the Department itself has not. In fact,
with approximately 4,700 employees in FY 2002, our staff is nearly 40
percent below the 7,528 employees who administered federal education
programs in 1980.[^9] These staff reductions, along with a wide range of
management improvements, have helped limit the administrative costs to
less than 3 percent of the Department's budget, allowing us to use more
than 97 percent of our funding for education assistance to states,
school districts, postsecondary institutions, and students.[^10]

The Department cannot demand excellence and accountability for results
without holding itself to the same high standards it expects from
America's schools. When Secretary Paige arrived at the Department, he
found financial and management problems that had damaged the
Department's credibility with Congress and with the American public. He
immediately worked to set the agency back on a course toward management
excellence.

Secretary Paige formed a Management Improvement Team (MIT) and tasked it
with the job of identifying and correcting the Department's fiscal and
management problems. The MIT developed a Blueprint for Management
Excellence (Blueprint) to address long-standing management concerns. The
Blueprint identified persistent management challenges; communicated
Secretary Paige's vision of accountable, performance-based management;
and established a road map for management improvements to make the
Department a model of management excellence among federal agencies. Our
work to implement the Blueprint has established the solid management
foundation essential to achieving the President's education goals.

The Blueprint embraces key features of government-wide initiatives set
forth in the President's Management Agenda (PMA). The PMA is the
President's bold strategy for improving management within the federal
government through performance-based management and strong
accountability for results. The PMA identifies five government-wide
goals: the strategic management of human capital; competitive sourcing;
improved financial management; expanded e-government; and budget and
performance integration. These goals and the Blueprint have been
integrated into the Department's Strategic Goal 6, Establish Management
Excellence, and into the One-ED management improvement efforts of the
agency.

Through these efforts, Department leadership intends to develop an
organization of excellence---improving communications throughout the
Department; aligning work processes, resources, and technology to
achieve outcomes; getting the right people with the right skills in the
right jobs; evaluating performance; taking responsibility; and being
held accountable. This integrated change process within the Department
of Education underlies our commitment to create a culture of achievement
in education in which no child is left behind.

# Organization {#organization .unnumbered}

The Department is headquartered, with most of its operations, in
Washington, D.C. Additionally, about one-third of the Department's
employees are stationed in 10 regional offices and 11 field offices,
which makes it easy to serve state and local educational systems.
Regional staff are primarily involved in representing the Department's
goals and views within the region, particularly in the areas of student
financial assistance, civil rights enforcement, vocational
rehabilitation services for the disabled, and Inspector General audits
and investigations. The organization chart that follows shows the
structure that supported the day-to-day work in FY 2002.

## U.S. Department of Education, FY 2002

![](media/image3.wmf)

To more closely align the Department structure with our strategic goals,
Secretary Paige implemented a reorganization of the Department that was
finalized in December 2002.[^11]^1^ The new structure replaced the
Office of Educational Research and Improvement (OERI) with a new
Institute of Education Sciences (IES) and created two new program
offices: the Office of Innovation and Improvement and the Office of Safe
and Drug-Free Schools. The organization chart below shows the structure
that will support our work in the coming years.

## U.S. Department of Education, FY 2003

# ![](media/image4.png)  {#section-2 .unnumbered}

# *Performance Overview* {#performance-overview .unnumbered}

# Performance Overview {#performance-overview-1 .unnumbered}

In early March 2002, Secretary Rod Paige released the Department of
Education's *Strategic Plan for 2002 -- 2007.* This plan established six
ambitious, outcome-based goals for the agency and for the nation and
determined objectives and strategies for accomplishing the goals. These
goals are:

-   Create a culture of achievement.

-   Improve student achievement.

-   Develop safe schools and strong character.

-   Transform education into an evidence-based field.

-   Enhance the quality and access of postsecondary and adult education.

-   Establish management excellence.

These goals focus on the heart of what we are about---educational equity
and excellence. But since they are not self-measuring, we established
explicit indicators that can be measured. Over the five-year period of
the Strategic Plan, we will assess our progress on 210 distinct
indicators. The vast majority of these indicators are outcome based. We
ask ourselves not how much assistance did we provide to schools, but how
well did their students actually achieve. We do not ask how many
violence prevention programs did we institute, but how safe were our
children; not how much money did we loan college students, but how many
students actually attended college. And we hold ourselves to the hard
issues, setting targets not just for the aggregate of all students but
also for the groups that have traditionally experienced
underachievement---low-income students, African American students,
Hispanic students, students with disabilities, and English-language
learners.

Complementing our focus on student success is our attention to
management excellence. We can hardly hope to improve American education
if our own house is not in order. Here again, we have set our sights
high, and we target outcome-based measures. We challenge ourselves to
obtain a clean audit and to remove the Student Financial Assistance
programs from the General Accounting Office's (GAO) high-risk list. We
will assess our financial integrity by measuring such things as
erroneous payments and cost per grant transaction. We will analyze the
effectiveness of our use of human capital and information technology. We
test the satisfaction levels of our customers and our employees.

Our first Annual Plan under our current Strategic Plan, our *FY
2002*--*2003 Annual Plan, w*as released shortly after the Strategic
Plan; because it was released mid-year, it covers an 18-month period,
from March 2002 through September 2003. It is organized around the six
strategic goals and the 24 objectives within them. In addition to
including all the strategies in the Strategic Plan, it identified 383
specific action steps that will help us actualize the strategies and
achieve intermediate targets.

Our *FY 2002*--*2003 Annual Plan* also includes all indicators from the
Strategic Plan except those that represent legislative provisions that
are not yet in effect or those for which the periodic data collections
do not occur in that year. This Annual Plan sets distinct targets for FY
2002 and FY 2003. For FY 2002, 120 of the 210 Strategic Plan indicators
were identified for measurement.

Our *FY 2002 Performance and Accountability Report* (this document)
presents both the results of our Annual Plan and our agency's financial
statements in a unified document that demonstrates the Department's
financial integrity and helps chart a course to improve the performance
of the Department's programs and operations.

The performance sections of this report compare our actual performance
results with previously established targets for FY 2002---the
Performance Overview focuses on the goal level and the Performance
Details section examines each objective. We describe programs that
support our goals and objectives, report on our progress on the action
steps specified in the *FY 2002 -- 2003 Annual Plan,* make comparisons
of results and targets, and identify enhancements under way to improve
both performance and our information about it. The Performance Details
section also includes specific outcome performance data and trend data
where they are available for each of our FY 2002 indicators, and it
documents sources and data quality. FY 2002 data are now available for
40 performance measures out of the 120 indicators specified for FY 2002.
Pending or incomplete data are explained in the Performance Detail
section.

Our current Strategic Plan was put in place only last March, and our
centerpiece legislation, the No Child Left Behind Act, was enacted
barely a year ago. Indeed, most of the provisions of No Child Left
Behind went into effect only in July 2002. Schools will first implement
related changes in school year 2002--2003; and, as we began FY 2003,
regulations for some provisions were still being put in place. Thus our
FY 2002 performance results represent only the first small fraction of
what we expect to accomplish under our *FY 2002*--*2007 Strategic Plan*.
We have only just begun!

Together these three documents---the Strategic Plan, the Annual Plan,
and the Performance and Accountability Report---document a recurring
cycle of planning, implementation, and reporting and forge a strong link
between resources and performance. (These documents are all available on
the Department's Web site at
[www.ed.gov/pubs/planrpts.html](http://www.ed.gov/policy/gen/guid/infoqualguide.html).
Information for ordering hard copies is available on the inside front
cover of this document.)

[Integrating Performance and Budget]{.underline}

Connecting funding to performance is fundamental to good business
practices. This concept is reflected in the President's Management
Agenda, which requires the integration of performance and budgeting as
well as the effective management of resources. Effective uses of
funding---those that result in performance---should be sustained,
whereas ineffective processes, programs or initiatives should be revised
or not funded.

Under newly implemented procedures, past performance is tied to past
funding in an agency's performance and accountability report, and those
results are expected to inform funding requests for the following year's
President's budget request. The Department of Education has embraced
linking funding to performance as our first objective.

Although the concept is straightforward, implementation is not. In the
Department of Education, less than half of a given fiscal year's
appropriations are actually expended during that fiscal year; the
remaining appropriations reach schools and students in subsequent years.
Complex funding time lines complicate linking appropriated funds for a
particular fiscal year to program results for that year.

Our largest programs, which operate under formula distributions, such as
Title I and IDEA State Grants, are "forward funded." FY 2002 funds,
though appropriated shortly after the beginning of the fiscal year, were
not available for award until July 2002. They were awarded at that time
for use primarily during the 2002--2003 school year; and these funds can
be carried over for use through the end of September 2004.

Many discretionary grant programs award funds near the end of the fiscal
year and allow grantees 24 months to complete their funded projects, so
FY 2002 funds support programs that start up during the 2002--2003
school year and might be expected to yield most of their results during
the 2003--2004 school year.

In student aid programs, the issue is more complex still because most of
the contracts and some of the subsidies producing annual plan year
performance are the result of prior-year obligations, while others are
annual plan year obligations.

Activities of our central administration, including grant monitoring, as
well as activities of our Office for Civil Rights and our Office of the
General Counsel, are supported by annual plan year funding, but these
expenses represent only about 3 percent of the Department's total
budget.

Thus the results we see during FY 2002---and can measure for this
report---are not primarily the results of FY 2002 funds. They are the
results of some FY 2000 funds, some FY 2001 funds, and some FY 2002
funds.

Although we cannot isolate program results and link them directly to
that fiscal year's appropriations, we can let performance during a
single program year serve as a proxy because most of our programs are
ongoing. Therefore, in the spirit of budget and performance integration,
this report shows the approximate proportion of FY 2002 funds that
support each of the Department's strategic goals and objectives.

The Congress appropriates funds to the Department by program, not by our
strategic objectives. For the purpose of this report, we estimated the
amount of funds supporting each goal and further estimated these amounts
by each objective. Individual programs, however, support a variety of
objectives, so these estimates provide only general information. (See
Appendix A.)

We have based these estimates on the final FY 2002 appropriations,
rather than on expenditures. Using appropriations totals is consistent
with setting a context for future budget planning. We believe that FY
2002 expenditures closely reflect appropriations; however, our Statement
of Net Costs (see the Financial Detail section of this report) is not
subdivided precisely according to the six strategic goals. The
subdivisions in our Statement of Net Costs are related to the six goals
as follows:

+----------------------------------+-----------------------------------+
| Crosswalk of Statement of Net    |                                   |
| Cost to Strategic Plan Goals     |                                   |
+----------------------------------+-----------------------------------+
| Designation on Statement of Net  | Corresponding Goal from Strategic |
| Cost                             | Plan                              |
+----------------------------------+-----------------------------------+
| Enhancement of Postsecondary and | Goal 5: Enhance the Quality of    |
| Adult Education                  | and Access to Postsecondary and   |
|                                  | Adult Education                   |
+----------------------------------+-----------------------------------+
| Creation of Student Achievement, | Goal 1: Create a Culture of       |
| Culture of Achievement and Safe  | Achievement                       |
| Schools                          |                                   |
|                                  | Goal 2: Improve Student           |
|                                  | Achievement                       |
|                                  |                                   |
|                                  | Goal 3: Develop Safe Schools and  |
|                                  | Strong Character                  |
+----------------------------------+-----------------------------------+
| Transformation of Education      | Goal 4: Transform Education into  |
|                                  | an Evidence-Based Field           |
+----------------------------------+-----------------------------------+
| Special Education and Program    | Goal 2: Improve Student           |
| Execution                        | Achievement                       |
+----------------------------------+-----------------------------------+
| *These costs are distributed     | Goal 6: Establish Management      |
| across the four categories       | Excellence                        |
| above.*                          |                                   |
+----------------------------------+-----------------------------------+

[Timely Data Collection]{.underline}

The fact that 97 percent of our funding is awarded to state and local
agencies, institutions of higher education, and other non-profit
organizations for implementing programs and to students for furthering
their postsecondary education also has an impact on our measurement of
results, especially on the timing of data collection. For example, some
of our key indicators are those that measure student achievement. We
have set indicators based on state assessments and indicators based on
the National Assessment of Educational Progress (NAEP). Statewide
assessments are generally administered in late spring of the school
year. Typically, scores are not available to schools and districts until
late fall. After scores are available, they must be rolled up from
school level to district level to state level and ultimately submitted
to the Department. Each level requires careful review to ensure data
quality. Typically such data do not begin to reach the Department until
well into January, four months after the close of the fiscal year and
too late to be included in this report.

NAEP data, though not subject to the effect of multiple levels of roll
up, experience a full year of review from testing to data release,
during which time the Department's National Center for Education
Statistics (NCES) applies its rigorous analysis to ensure high-quality
data. For example, scores on the 2002 NAEP assessments will not be
released until May 2003, after publication of this report.

Therefore, results for slightly over half of our FY 2002 indicators are
"pending" as of the filing of this report. For these indicators,
comparisons to targets will be made in the subsequent performance and
accountability report.

To help overcome the time lag in collecting local and state data, the
Department is undertaking a Performance-Based Data Management
Initiative. Working in partnership with state leaders and the software
industry, we are developing an electronic data system that will allow us
ready access to high-quality achievement and other performance data in a
timely and seamless manner, while reducing the burden on our partners.
Although this project will take several years to implement, it holds
great potential for the future.

In addition to the time lag for some data, we were unable to collect
data for approximately 13 percent of the indicators we had set. In many
cases, surveys or procedures are under development, but were not
completed in time to measure FY 2002 results. We expect to have these in
place in time to measure FY 2003 results. In a few cases, we were
depending on external collections that did not occur or were delayed.
For these we will develop other data sources or we will revise our
indicators to measure the objective differently.

# Strategic Objectives for 2002 -- 2007 {#strategic-objectives-for-2002-2007 .unnumbered}

####### Goal One: Create a Culture of Achievement

1.  Link federal education funding to accountability for results.

2.  Increase flexibility and local control.

3.  Increase information and options for parents.

4.  Encourage the use of scientifically based methods within federal
    education programs.

####### Goal Two: Improve Student Achievement

1.  Ensure that all students read on grade level by the third grade.

2.  Improve math and science achievement for all students.

3.  Improve the performance of all high school students.

4.  Improve teacher and principal quality.

####### Goal Three: Develop Safe Schools and Strong Character

1.  Ensure that our nation's schools are safe and drug-free and that
    students are free of alcohol, tobacco, and other drugs.

2.  Promote strong character and citizenship among our nation's youth.

####### Goal Four: Transform Education into an Evidence-Based Field

1.  Raise the quality of research funded or conducted by the Department.

2.  Increase the relevance of our research in order to meet the needs of
    our customers.

####### Goal Five: Enhance the Quality of and Access to Postsecondary and Adult Education

1.  Reduce the gaps in college access and completion among student
    populations differing by race/ethnicity, socioeconomic status, and
    disability while increasing the educational attainment of all.

2.  Strengthen accountability of postsecondary institutions.

3.  Establish effective funding mechanisms for postsecondary education.

4.  Strengthen Historically Black Colleges and Universities, Hispanic
    Serving Institutions, and Tribal Colleges and Universities.

5.  Enhance the literacy and employment skills of American adults.

####### Goal Six: Establish Management Excellence 

1.  Develop and maintain financial integrity and management and internal
    controls.

2.  Improve the strategic management of the Department's human capital.

3.  Manage information technology resources, using e-gov, to improve
    service for our customers and partners.

4.  Modernize the Student Financial Assistance programs and reduce their
    high-risk status.

5.  Achieve budget and performance integration to link funding decisions
    to results.

6.  Leverage the contributions of community- and faith-based
    organizations to increase the effectiveness of Department programs.

7.  By becoming a high-performance, customer-focused organization, earn
    the President's Quality Award.

# How to Read the Summary Sections {#how-to-read-the-summary-sections .unnumbered}

This report tells the story of the Department over the last year. As
such, much of the report is organized sequentially from the beginning
(inputs), through the middle (implementation), to the present (impact),
and to the future (improvement). Below are descriptions of the content
in each of these areas, and, where summary data are presented, a
description of how those numbers were determined.

In the funding section, we use pie graphs to show the amount of our
appropriation that supports the relevant goal or objective. The text
lists programs that support the goal or objective. Data were estimated
on the basis of the proportion of program appropriations that support
each objective. (See Appendix A.)

In the implementation section, we explore the objectives, strategies,
and action steps that offices adopted to achieve the goals. Strategies
are relatively broad areas of focus, set for the 5-year period of the
Strategic Plan. Action steps refer to the management improvement steps
identified by senior Department officials as key to transforming the
agency over the 18 months from March 2002 to September 2003. The list of
strategies and action steps for FY 2002 is in our 2002-2003 Annual Plan,
which is available at
[www.ed.gov/pubs/planrpts.html](http://www.ed.gov/about/reports/strat/index.html).
To report, we use a scorecard system similar to the reports of the
President's Management Agenda. In the figure to the left, the number of
action steps that are on track for timely completion appears at the top
in green. The number of steps that are progressing but merit monitoring
appears in the middle in yellow, and the number of steps that need
intervention appears at the bottom in red. Data were taken from the
Department's online Planning and Performance Management Database (PPMD).

In the impact section, the Department discusses the extent to which the
targets were met, the results of program evaluations, and data quality
issues. Target results are shown in the same green-yellow-red style.
Data sources are provided in the Performance Detail section of this
report.

Green = Met or exceeded the target

Yellow = Almost met the target and the shortfall was not\
deemed significant or material

Red = Did not meet the target

P = Pending: Data for FY 2002 are not yet available

I = Incomplete: Data for FY 2002 are not expected[^12]

B = Set baseline

In this section, the Department reports the changes that are planned to
enhance future performance.

![](media/image7.wmf)The culture of the American education system has a
pervasive effect on the individuals who work in the nation's schools to
educate America's children. The Department facilitates this process by
providing funding to states and other grantees and by providing guidance
about federal programs, laws, and regulations to parents and education
officials.

-   Of ED's total FY 2002 appropriation, \$2.8 billion supported Goal 1
    activities. This is about 5% of ED's appropriation.

-   Programs that support Goal 1 activities include:

```{=html}
<!-- -->
```
-   Title I.

-   IDEA.

-   Charter Schools.

```{=html}
<!-- -->
```
-   \$58 million of ED salaries and expenses funds contributed to the
    \$2.8 billion supporting Goal 1.

To address Goal 1, the Department developed 4 objectives:

-   Link federal education funding to accountability for results.

-   Increase flexibility and local control.

-   Increase information and options for parents.

-   Encourage the use of scientifically based methods within federal
    education programs.

The Department established 16 strategies to achieve this goal. Within
those strategies, we developed 71 action steps to be completed across
FY 2002 and FY 2003, which made up about 19 percent of Department action
steps. At the end of FY 2002, 58 steps were on track for timely
completion (green); 5 more were progressing but merited monitoring
(yellow); and 8 needed intervention by senior management to ensure
completion (red). We anticipate that we will fully implement all action
steps by the end of FY 2003.

The Department identified 12 indicators to measure FY 2002 success in
meeting Goal 1. We met or exceeded the target for 2 indicators (green),
and we did not meet the target for 5 indicators (red). Four indicators
are incomplete (data are not expected), and we set a baseline for 1
indicator.

To enhance future performance, the Department plans these actions:

-   Issue rules for complete accountability systems.

-   Implement an electronic performance-data management system to
    improve the quality and timeliness of student data.

-   Develop common outcome measures for similar programs.

-   Produce "what works" guides.

-   Redesign discretionary grant applications to focus on applicants'
    potential to produce results.

To establish a culture of achievement in our nation's education system,
the Department of Education began implementing the core tenets of No
Child Left Behind. This landmark legislation lays the foundation for
improving achievement by expanding flexibility, local control, parental
options, and accountability and by promoting scientifically based
instructional practices.

To facilitate these changes, the Department began to change the way it
works with the states by revising guidance documents and providing
technical assistance to our partners. We provided guidance to inform
states of new provisions, rules, and regulations related to key No Child
Left Behind flexibility and local control provisions and to inform
parents of new school choice options and requirements.

In FY 2002 the Department continued to focus on the reduction of
reporting burden, and we successfully reduced data collection burdens on
our partners, making it easier for states and grantees to work with the
Department. At the same time we began focusing on performance
information and results.

Approximately \$2.8 billion of Department funding supported the
implementation of Goal 1 in FY 2002. Programs that support creating a
culture of achievement include Title I and Public Charter Schools, both
authorized by the Elementary and Secondary Education Act as amended by
the No Child Left Behind Act of 2001, and the Individuals with
Disabilities Education Act (IDEA).

All four objectives of Goal 1 represent key provisions of No Child Left
Behind. In order to receive federal education funding, states must
develop accountability systems that set targets for student achievement;
and a variety of consequences result if schools and local educational
agencies do not meet their targets. Title I establishes eligibility for
parental school choice options. Parents of students attending schools
that do not meet annual targets set by the state accountability system
have the option to transfer to another public school in the local
district. Schools that meet targets can use flexibility provisions to
waive certain federal education funding requirements, allowing school
administrators to focus federal education funding where it is needed
most. Transferability and State and Local Flexibility Demonstration
programs are other examples of flexibility provisions. And a focus
throughout No Child Left Behind is to base programs on evidence of what
works in education, especially as shown by scientifically based
research.

IDEA Grants to States assist states in providing a free appropriate
public education for children with disabilities. These funds help defray
the extra costs of educating children with disabilities and allow us to
insist on accountability for the academic success of children with
disabilities so that "no child left behind" really means no child.

The Public Charter Schools program provides financial assistance for the
planning, design, or initial implementation of charter schools and for
national activities to promote effective implementation of those
schools. The availability of these funds helps expand the number of
high-quality charter schools across the nation. Most grants are given to
implement or plan new charter schools, but 10 percent of an award to a
state may be used to make subgrants to successful charter schools so
that they can help other schools adopt their best practices.

In FY 2002 the Department worked to prepare states for new No Child Left
Behind requirements, informing parents of new flexibility, choice and
accountability options available to them under this legislation and
providing technical assistance to state and school officials regarding
the new regulations and requirements. We provided assistance through
nonregulatory guidance documents, other publications, Internet
resources, presentations, conferences, and public meetings across the
country. We issued regulations on several provisions of No Child Left
Behind and prepared draft regulations for the accountability provisions.

To assess the effectiveness of technical assistance, customer service,
and guidance provided by the Department to states, we administered a
Web-accessed Customer Satisfaction Survey to 52 Chief State School
Officers (CSSO). The intent of the survey was to hold the Department
publicly accountable for its success in providing satisfactory products
and services to its customers and to support the goal of establishing a
culture of achievement. The CSSOs voiced their degree of satisfaction
with Department products and services by responding to questions on a
variety of services: technical assistance, specific products and
services, our Web site, and our printed documentation. The survey was
administered for the first time in FY 2002; the Department expects to
use information to promote successful practices to improve customer
service strategies.

To reduce the amount of time and cost that school administrators must
devote to reporting data to the Department, we looked for ways to
promote efficiency by streamlining data collection. In FY 2002 the
Department reduced its data collection burden hour total by 3 million
hours, and the FED-UP project proposed rule changes to give higher
education officials some flexibility under the Higher Education Act.

Because of our commitment to support research-based instruction methods,
we developed guidelines for the creation of "what works" publications
that will provide educators with information on effective practices.

To further improve the effectiveness of the processes used to collect
data from grantees and to share information within the Department, we
began the development of the Performance Based Data Management
Initiative (PBDMI). PBDMI sponsored a two-day conference in July 2002 to
discuss the data issues of the No Child Left Behind education
legislation with representatives of 18 states. PBDMI staff then met with
representatives of Department Principal Offices to identify common data
elements and information needed by each office. These information
requirements were compared with statutory, regulatory, apportionment,
performance measurement, and risk avoidance criteria to ensure that only
critical information was identified. A preliminary draft of these
findings will be available by mid-October 2003.

For Goal 1, the Department developed 12 indicators. These indicators
were designed to measure aspects of school and Department program
accountability, flexibility and local control, parental information and
choice, and the use of scientifically based evidence in Department
publications.

We made notable progress in the reduction of burden hours on states' and
partners' reporting requirements. This reduction is key to giving states
and other grantees more flexibility by reducing the hours needed to
fulfill Department reporting requirements.

As a prelude to developing "what works" guides, which will provide
scientifically based evidence, we established the criteria for
research-based publications and awarded a contract for the What Works
Clearinghouse, an \$18.5 million investment to coordinate the
publication and distribution of these "what works" guides.

Forty-nine of 52 Chief State School Officers responded to the FY2002
Customer Satisfaction Survey administered by the Department. In response
to a single summary question, 63 percent of the 49 respondents were
satisfied overall with the quality of the Department's products and
services; this provided a baseline for our customer satisfaction
indicator.

Although we did not meet our targets for state participation in Ed-Flex
or for student enrollment in charter schools, numbers for both increased
from the prior year. During FY 2002 states were preparing for the full
implementation of No Child Left Behind, and most did not yet have
approved accountability systems in place, which is a requirement for
Ed-Flex. We expect increased participation in Ed-Flex once more states
have approved accountability systems. Data were not available for
several indicators, but we expect to be able to measure and report on
them in FY 2003.

Many Department actions in the coming months focus on the implementation
of No Child Left Behind---school year 2002--2003 (comparable to FY 2003)
is the first year that most provisions are in effect. One such area of
work is to complete the regulation process for programs, especially for
Title I, and to put in place a procedure for approving state
accountability systems. This will enable us to collect data on the
number of states with approved systems.

Another area of work is the continued development of the PBDMI. This
work will improve the current data-gathering processes to reduce
duplicate collections and centralize data into one Department-wide
repository. This repository will allow the Department to provide
benchmarking information to the states, districts, and schools. PBDMI is
positioned for full partnership with state systems beginning in the
spring of 2003 and for full implementation in 2004--2005. Growing out of
the work of PBDMI in considering overlaps of data needs, we will focus
on the development of common outcome measures for similar programs.

The Department will use the information collected in the Customer
Satisfaction Survey to guide plans for expanding our assessment of a
broader range of customers. In addition, we will expand our use of areas
of service, such as the Web, where levels of satisfaction were high, and
we will revise strategies and develop new actions to address issues
where our customers were less satisfied.

The Department will take actions to promote provisions such as charter
schools, supplemental services, public school choice, and other
flexibility programs. And, after all the groundwork done in FY 2002, we
will produce what works guides for a number of our programs in FY 2003.

As a result of the hard work of students, educators, parents, and
leaders at the state and local levels, the nation's students will
dramatically improve their achievement in reading, mathematics, and
science, while receiving a rich, well-rounded education.

![](media/image8.wmf)

-   Of ED's total FY 2002 appropriation, \$28 billion supported Goal 2
    activities.[^13] This is about 50% of ED's appropriation.

-   Programs that support Goal 2 activities include:

```{=html}
<!-- -->
```
-   Title I.

-   IDEA.

-   Teacher Quality.

-   Reading First.

```{=html}
<!-- -->
```
-   \$71 million of ED salaries and expenses funds contributed to the
    \$28 billion supporting Goal 2.

To address Goal 2, the Department developed 4 objectives:

-   Ensure that all students read on grade level by the third grade.

-   Improve mathematics and science achievement for all students.

-   Improve the performance of all high school students.

-   Improve teacher and principal quality.

The Department identified 21 strategies to achieve this goal. Within
those strategies, we developed 71 action steps to be completed across
FY 2002 and FY 2003, which made up about 19 percent of Department action
steps. At the end of FY 2002, 59 steps were on track for timely
completion (green); and 12 needed intervention by senior management to
ensure completion (red). We anticipate that we will fully implement all
action steps by the end of FY 2003.

The Department identified 32 indicators to measure FY 2002 success in
meeting Goal 2. We met or exceeded the target for 2 indicators (green),
we almost met the target for 1 indicator (yellow), and we did not meet
the target for 4 indicators (red). Twenty-five indicators are pending
(data are not yet available).

To enhance future performance, the Department plans these actions:

-   Evaluate the impact of programs by using performance measures that
    meaningfully reflect the mission of the program.

-   Establish a new measure for teacher quality.

The Department of Education has committed to leading a national campaign
to "ensure that all children have a fair, equal, and significant
opportunity to obtain a high-quality education and reach, at a minimum,
proficiency on challenging state academic achievement standards and
state academic assessments." (No Child Left Behind Act, Statement of
Purpose)

*All children* includes traditionally underserved subgroups of students,
such as students with disabilities and students with limited English
proficiency. And *all children* includes students in high-poverty and
high-need schools whose education should not be cramped because of their
socioeconomic status.

To improve student achievement for all children, No Child Left Behind
puts reading first. Under the new Reading First program, federal dollars
are supporting scientifically based reading instruction in the early
grades. The new Early Reading First program helps preschool children
develop the early reading skills necessary for reading success.

Because effective reading instruction is crucial in ensuring that all
children learn to read, federal funds are available to support
research-based reading instruction. Professional development helps
teachers strengthen old skills and gain new ones in effective reading
instructional techniques.

To improve student achievement in mathematics and science, No Child Left
Behind provides both targeted and flexible funding for strengthening
teaching and learning. Title I focuses on improving the achievement of
disadvantaged students. Title II funds allow all schools to improve the
quality of their teachers. The Department coordinates its professional
development efforts with other federal entities and with public and
private sector organizations.

To bolster high school student performance, federal programs provide
leadership in identifying learning options that keep adolescents in
school until they have completed their high school course work. Through
the Carl D. Perkins Vocational and Technical Education Act, the
Department is supporting states' efforts to improve academic skills and
technical skills, prevent dropouts, increase graduation rates, increase
postsecondary and advanced degree placement, and improve job outcomes.
America's Career Resource Network addresses the general interest of
helping individuals make better decisions about their education and
careers. The Tech-Prep Education State Grants provide financial
assistance to states to support programs that increase the number of
students who participate in postsecondary technical training.

At all levels of education, educational leaders---especially teachers
and principals---are crucial to improving student achievement.
"Education reform is empty if it does not take account of the needs of
educators. Teachers are not the objects of education reform. They are
the engines of education reform," according to President Bush. "They
have a high calling, and we must respect it." Goal 2 articulates the
Department's commitment to ensuring a source of high-quality teachers
for the present and the future. Programs such as the Improving Teacher
Quality State Grants program provide federal assistance to state and
local educational agencies for developing sustained and intensive
high-quality professional development. Other state and local educational
agency programs provide support for recruiting highly qualified recent
college graduates and mid-career professionals to the teaching
profession, for creating alternate routes to teacher certification, for
streamlining the certification process, and for instituting bonus pay or
merit pay.

Slightly over 50 percent (\$28 billion) of the total Department's budget
supports Goal 2 activities. The No Child Left Behind programs that
contribute major funding for improving student achievement include Title
I Grants to Local Educational Agencies and Title II Improving Teacher
Quality State Grants. The Individualities with Disabilities Education
Act (IDEA) Grants to States also provide significant funding for
improving the achievement of children with disabilities. Grant funds
from these programs are designated to assist state and local agencies as
they provide education for low-income students (Title I), for educators'
professional development (Title II), and for children with disabilities
(IDEA). State and local educational agencies have flexibility in how
they use these grant funds, but since improved teaching and learning are
the overall objectives of Title I, Title II, and IDEA, these program
funds primarily support Goal 2 activities to improve student
achievement.

Other program funds that substantially support Goal 2 activities include
Enhancing Education Through Technology, Reading First, Even Start, 21st
Century Community Learning Centers, Language Acquisition State Grants,
Vocational Education State Grants, Comprehensive School Reform grants,
and State Grants for Innovative Programs.

Funding from programs focused on special populations also enhance Goal
2. For example, the Education of Migratory Children grant program
supports the goal of improving student achievement; these grants are
distributed as formula funds to state education agencies to ensure that
the special educational needs of migrant children are identified and
addressed.

The Indian Education program is targeted to meet the unique educational
and culturally related academic needs of American Indian and Alaska
Native students so that they can meet the same challenging state student
academic achievement standards as all other students.

For some programs, such as Impact Aid, funds provide more general
support directly to eligible school districts affected by federal
activities. Because federal property is exempt from local property
taxes, Impact Aid helps replace the lost revenue that would otherwise be
available to pay for the education of children who live on federal
property or whose parent works on federal property. Although funds are
not readily associated with specific goals, for purposes of this report,
most Impact Aid funds are attributed to Goal 2.

The Department's commitment to improving student achievement received
support from several significant actions that were begun and either
completed or on their way to completion in FY 2002. An expert panel of
72 experienced researchers and practitioners reviewed state applications
for Reading First grants and approved 11 state applications as of
September 2002. The panel will continue its work until all states have
been awarded Reading First funds. Parents' efforts to enhance their
children's reading skills got a boost with the publication and
dissemination of *Helping Your Child Become a Reader*, *Helping Your
Child with Homework*, and *Helping Your Preschool Child*, which were
printed and distributed in September 2002.

Initiatives to support the recruitment of teachers moved forward in 2002
through the Transition to Teaching program, which awarded 95 grants: 7
national regional projects, 27 statewide projects, and 61 local
projects. All these projects will help recruit, prepare, and support a
wide range of talented career-changing professionals as they make the
transition to teaching, particularly in high-poverty schools and in
high-need subject areas.

Actions to further the Department's goal of investing federal dollars in
reading and professional development programs that are research based
and proven to be effective advanced on several fronts. The Office of
Educational Research and Improvement (OERI) created an editorial review
process in August 2002, which will raise the quality of research in
Department publications. The end goal of the process is to peer review
Department manuscripts for research accuracy before releasing them to
the public.

Two important studies reported in 2002 provided direction to improving
high school achievement. OERI, in March 2002, completed a review of
funded research on comprehensive school reform models and established a
scientific advisory group of distinguished methodologists to guide the
implementation and assessment of comprehensive school reform models. The
Department also issued an interim report on the National Assessment of
Vocational Education.

The Department's indicators for student achievement not only set targets
for the performance of all students, but also set targets for a variety
of subgroups of students, such as African-American and Hispanic
students, limited English proficient students, students with
disabilities, and low-income students. No Child Left Behind set targets
for subgroups that often underachieve to ensure that our measures focus
on leaving no child behind.

Data for the indicators that measure success in improving student
achievement come from several sources. The primary source of student
achievement data will be state assessment results as they become
available. State assessments are being significantly revised by each
state in response to the No Child Left Behind Act. Student achievement
results from existing assessments will be available later in 2003.
Supplementary data from the 2002 National Assessment of Educational
Progress (NAEP) fourth-grade and eighth-grade reading tests are expected
to be available in April 2003. The Department will report these data in
our FY2003 Performance and Accountability Report.

Academic improvement for high school students, in addition to being
measured by state tests, is measured by Advanced Placement participation
and achievement. For the indicators based on Advanced Placement
participation, we met two targets (for all students and for African
American students) and almost met the third target (for Hispanic
students). Our targets for achievement are disaggregated by subject.
Trend data show that we made progress in all four subject areas but did
not meet our FY 2002 targets.

High School completion rates serve as the third indicator of high school
success. We expect the Department's National Center for Education
Statistics to report 2001 and 2002 data for high school completion in
March 2003 and November 2003, respectively.

Because data for 25 of the 32 indicators included as measures for Goal 2
are not yet available, the Department is not yet able to fully determine
its success for this goal. Data for these 25 indicators are pending
because of the time lag in collecting state assessment data and the
infrequency of the NAEP administrations (generally every two years for
reading and math). A majority of the current indicators for this
objective reflect states' attainment of their targets for each year. The
Department intends to revise these indicators to more clearly reflect
gains in student achievement.

In addition to specific student achievement assessments, Department
programs designed to advance student academic progress were also
evaluated and assessed, using the Office of Management and Budget's
(OMB) Program Assessment Rating Tool (PART) process (see Appendix D).
PART was used in FY 2002 to evaluate several programs that are directly
responsible for meeting the goal of improved student achievement: IDEA
Grants to States, IDEA Preschool Grants, IDEA Infants and Families
Grants, Even Start Family Literacy, Comprehensive School Reform,
Vocational Education State Grants, Tech-Prep Education State Grants, and
the America's Career Resource Network. The results of these evaluations
showed that with one exception, all the programs had clear program
designs and purposes; however, the various PART reviews indicated
weaknesses for a majority of these programs in the area labeled Program
Results. Many of the programs reviewed did not have adequate measures of
program outcomes; consequently, the programs could not document results.

## 

The PART reviews of the programs that support improving student
achievement revealed a need for improving performance measures and
collecting data about program outcomes and results. The Department has
announced a new strategy for program evaluation and data collection that
will address some of the concerns raised by the PART reviews. A core
principle of the new strategy is a focus on results. A program will
increasingly be evaluated on the results the program is designed to
achieve rather than on process and compliance issues. Data collected
about the program will be used to show program outcomes and to measure
the program's level of success in accomplishing goals. Decision makers
will be able to look at the outcomes of each program as they make policy
changes and allocate funds. "What works" will be identified and become a
part of the knowledge base that directs education programs.

The Department is making additional changes to our data management
system, changes that are intended to increase the utility and timeliness
of data. Student achievement data are currently not available until a
year or two after assessments have been administered. State, local, and
national student achievement data; student characteristics; teacher
information; instructional programs; and other school-related data often
lack comparability, validity, and reliability across educational levels.
The power of such unreliable data to drive meaningful changes in
educational interventions and to undergird responsible funding decisions
is virtually negligible. Through the Performance Based Data Management
Initiative (PBDMI), the Department will align our data collection with
states and local districts in an effort to efficiently collect timely
and useful data.

Similarly, the Department's National Center for Education Statistics
will be striving to report NAEP results within six months after the
tests are taken, in accord with the provisions of No Child Left Behind.

The Department will continue to work with the states to implement Title
II of No Child Left Behind. We will provide intensive technical
assistance to help states meet the highly qualified teachers challenge
as they boost their standards for teachers, open their classrooms to
highly qualified individuals from other career fields, and develop
robust induction and mentoring programs for new recruits. We will also
work to strengthen alternate route programs throughout the nation by
convening a national conference on alternate routes to certification and
supporting a network to connect these programs to one another and to
good information about what works. As we prepare for the reauthorization
of the Higher Education Act, we will consider innovative ways to ensure
that both traditional schools of education and alternate routes to
certification are preparing teachers in scientifically based teaching
methods.

The No Child Left Behind Act has given us the tools to ensure that our
schools are alcohol, drug, and violence free and that our children are
safe from threats both foreign and domestic. The Department will work to
ensure a safe and drug-free environment in which all children can learn.
The President has said, "Our children must not only be educated in
reading and writing, but also in right and wrong."

![](media/image9.wmf)

-   Of ED's total FY 2002 appropriation,\
    \$1.05 billion supported Goal 3 activities.[^14]\
    This is about 1.9% of ED's appropriation.

-   Programs that support Goal 4 activities include:

```{=html}
<!-- -->
```
-   Safe and Drug-Free Schools.

-   21st Century Community Learning Centers.

```{=html}
<!-- -->
```
-   \$11 million of ED salaries and expenses funds contributed to the
    \$1.05 billion supporting Goal 3.

To address Goal 3, the Department developed 2 objectives:

-   Ensure that our nation's schools are safe and drug-free and that
    students are free of alcohol, tobacco, and other drugs.

-   Promote strong character and citizenship among our nation's youth.

The Department established 7 strategies to achieve this goal. Within
those strategies, we developed 16 action steps to be completed across
FY 2002 and FY 2003, which made up about 4 percent of Department action
steps. At the end of FY 2002, all 16 steps were on track for timely
completion (green). We anticipate that we will fully implement all
action steps by the end of FY 2003.

The Department identified 9 indicators to measure FY 2002 success in
meeting Goal 3. Seven indicators are pending (data are not yet
available), and 2 are incomplete (data are not expected).

To enhance future performance, the Department plans these actions:

-   Complete the development of a model school crisis plan and
    disseminate it to local educational agencies.

-   Develop plans to modify our data collection activities to better
    focus on effectiveness and performance of the Safe and Drug-Free
    Schools State Grants program.

-   Ensure that community- and faith-based organizations have equal
    access to Department funding.

demands even greater preparedness from our schools. To ensure that no
child is left behind, we must first ensure that each child is safe.
Schools must be places where students feel safe and respected and are
allowed to express their concerns without fear of shame or punishment.
We must also work to change the climate in our schools to a culture in
which every individual has worth---everyone is treated with dignity and
respect. We as adults, at home and in our communities, must do a better
job of listening to our children and connecting on a personal level.

Our Founding Fathers understood that our country would survive and
flourish if we were committed to good character and an unyielding
dedication to liberty and justice. Our greatest heroes practiced the
values of hard work, honesty, commitment to excellence, courage,
self-discipline, and perseverance. Reading and writing are not all we
need to teach our children. We need to make sure that we teach our
children to be responsible citizens who have good values and ethics.
Character education focuses on caring, civic virtue and citizenship,
justice and fairness, respect, responsibility and trustworthiness.
Character education should build community consensus on common values,
involve parents, and be fully integrated into a school's curriculum.

The Department's FY 2002 appropriation included more than \$1 billion to
support safe schools and strong character. The largest federal program
dedicated to achieving this objective is the Safe and Drug-Free Schools
and Communities Program (SDFSC), with a \$747 million appropriation in
FY 2002. The funding for this program goes substantially for violence-,
drug- and alcohol-prevention activities. Other programs that support
Goal 3 included 21st Century Community Learning Centers, which focus on
improving students' academic achievement and other activities such as
drug prevention and youth development, and Programs of National
Significance, which provide strategies for effective parent and
community involvement, including drug prevention education.

The Close-Up Fellowship Program provides funding for fellowships for
civic education to economically disadvantaged middle and secondary
school students and professional development in civic education for
teachers. The Civic Education Program supports grants to improve the
quality of civics and government education, foster civic competence and
responsibility, and improve the quality of civic and economic education
through exchange programs with emerging democracies.

***\
***The Department's Office of Educational Research and Improvement
awarded grants to support pilot programs in character education.
Department staff provided technical assistance to new and continuing
grantees at the State and District Coordinators' workshop of the
Character Education Partnership's 9th National Forum.

The Department developed, in collaboration with the Department of
Justice, an annual report on school safety. The Department also
disseminated information to the states about a model protocol for the
collection of data related to school safety issues. In conjunction with
the U.S. Secret Service, the Department trained educators and law
enforcement professionals on strategies for assessing threats of
significant school violence. More than 2,400 people participated in a
Department-sponsored teleconference that highlighted best practices in
providing mental health services.

The Department of Education, in conjunction with the Department of
Health and Human Services and the Department of Justice, provided
support for more than 40 grants under the Safe Schools/Healthy Students
initiative.

Finally, the Department's Office for Civil Rights provided technical
assistance to school districts and postsecondary institutions on issues
involving harassment.

The Department evaluates how safe our nation's schools are by measuring
school violence experienced by 12--18-year-olds while at school and
substance abuse by high school students both on school property and away
from school. The *Indicators of School Crime and Safety Report* provides
data for the first two indicators, with results from a special analysis
of the *National Crime Victimization Survey (NCVS)*. Reports are annual,
but data are reported two years after the survey. The National Household
Survey on Drug Abuse provides data for the other two indicators; these
data are reported one year after the collection. Therefore, data for FY
2002 are not yet available.

To determine the strength of character and inclination for good
citizenship demonstrated by our students, the Department has identified
two measures---participation in community service among students in
grades 6--12 and the attitudes of 14--18-year-olds toward cheating. We
are unable to provide FY 2002 data for either of these indicators. NCES,
which collected community service participation data, is no longer
including the relevant question in its survey. The Horatio Alger
Association, which provided information on the attitudes of
14--18-year-olds toward cheating, did not include the relevant question
in their 2001 or 2002 survey, but will include the question in 2003.

SDFSC was one of the Department's programs that received a PART review
(see Appendix D). The program was rated favorably for strategic
planning, program purpose and design, and program management, but the
effectiveness of program results was not established.

Several additional studies of SDFSC have been conducted within the last
several years. (See Appendix C.) Wide Scope Questionable Quality: Three
Reports from the Study on School Violence Prevention indicated that
schools need to improve the quality of prevention programming through
attention to needs assessment, planning, increased use of research-based
approaches, and monitoring of implementation. Westat has drafted a
feasibility study to gauge what data are available nationwide in schools
or districts on school crime and student substance abuse and to identify
and assess evaluation designs that could be used to measure the quality
and implementation of activities funded by the SDFSC Program.
Information from a report by the RAND Drug Policy Research Center in
2001[^15] suggests that concerns exist over the thin distribution of
funds that hinders school districts from implementing interventions that
are likely to have a significant impact on student behavior.

The Department will ensure that all principal offices providing
technical assistance to school districts and postsecondary institutions
on issues of harassment will include Department-identified best
practices. We will convene regional conferences featuring faith-based
community partners to showcase and disseminate best practices in
character education. The Department will give priority to the selection
of high-quality pilot sites to initiate strong character education
programs and to evaluate and publish their work and will provide support
to rigorous evaluations of the effectiveness of specific character
education interventions.

The Department is developing plans to modify our data collection
activities to better focus on the effectiveness and performance of the
Safe and Drug-Free Schools State Grants program.

In FY 2003 the Department will implement a reorganization designed to
highlight the importance of Goal 3 issues and enhance the coordination
of programs administered by the Department that relate substantially to
this goal. The reorganization brings a number of programs that support
safe schools and strong character together into a single organization,
headed by the Deputy Under Secretary for the new Office of Safe and
Drug-Free Schools.

![](media/image10.wmf)The Department intends to improve the quality and
relevancy of research funded or conducted by its programs, grantees, and
contractors. We will gather a knowledge base of "what works," which will
provide objective information to enable policymakers and educators to
make more informed decisions.

-   Of ED's total FY 2002 appropriation, \$434 million supported Goal 4
    activities.\
    This is slightly less than 1% of ED's appropriation.

-   Programs that support Goal 4 activities include:

```{=html}
<!-- -->
```
-   Research and Dissemination.

-   National Institute on Disability and Rehabilitation Research
    (NIDRR).

```{=html}
<!-- -->
```
-   \$61 million of ED salaries and expenses funds contributed to the
    \$434 million supporting Goal 4.

To address Goal 4, the Department developed 2 objectives:

-   Raise the quality of research funded or conducted by the Department.

-   Increase the relevance of our research in order to meet the needs of
    our customers.

> The Department established 9 strategies to achieve this goal. Within
> those strategies, we developed 19 action steps to be completed across
> FY 2002 and FY 2003, which made up about 5 percent of Department
> action steps. At the end of FY 2002, 17 steps were on track for timely
> completion (green), and 2 needed intervention by senior management to
> ensure completion (red). We anticipate that we will fully implement
> all action steps by the end of FY 2003.

The Department identified 8 indicators to measure FY 2002 success in\
meeting Goal 4. We exceeded our targets for 4 indicators (green); we did
not meet the target for 1 (red); and 1 indicator is incomplete (data are
not expected). We also set a baseline for 2 indicators.

To enhance future performance, the Department plans these actions:

-   Establish the National Center for Education Research and the
    National Center for Education Evaluation.

-   Fund new research projects in focused areas that will significantly
    advance solutions to major challenges in education, such as reading
    comprehension and the evaluation of preschool curriculum.

-   Implement new standards for the conduct of peer review and editorial
    review processes to focus on quality and relevance.

FY 2002 was a landmark year for establishing the context for
transforming education into an evidence-based field. The No Child Left
Behind Act emphasizes using scientifically based research to improve the
effectiveness of educational practice and policy in this country. At the
same time, No Child Left Behind strengthens accountability requirements
for states and sets standards for children's performance. Because of
this increased accountability, there will be an increased demand for
trustworthy information identifying educational practices that are most
effective for improving student learning.

To meet this increased demand, the Secretary established a strategic
plan that called for an increase in the quality of research funded or
conducted by the Department and an increase in the relevance of research
for education decision makers. This past year the Department engaged in
major activities to raise the quality and increase the relevance of
education research.

To improve student achievement, educators must rely on proven
research-based practices and programs. To ensure that federal education
dollars are invested in programs that work, the government must invest
in research to inform instructional and program practices and in data
collection needed to track student achievement and measure educational
outcomes. Proposals to significantly change the Department's research,
statistics, and assessment component were focused on improving the
quality and relevance of the Department's research activities through
new programs of research, more rigorous peer review processes, and
organizational changes.

Overall, the Department's allocation for Goal 4 for FY 2002 was \$434
million. Major programs that supported Goal 4 activities were located
substantially in the Office of Educational Research and
Improvement,[^16] which includes the National Center for Education
Statistics (NCES) and the National Assessment of Educational Progress
(NAEP). NCES administers the Department's statistics program to provide
general statistics about trends in education and collects data to
monitor reform, measure educational progress, and inform research. NAEP
is the only nationally representative and continuing assessment of
American students and has become a key measure of our nation's
educational performance.

The research and dissemination component of OERI was the major
Departmental entity focused on improving the quality and relevancy of
evidence based research. Research and dissemination provided funding for
research activities and the large-scale implementation of promising
educational practices and technologies, including collaborative research
efforts with the National Science Foundation and the National Institute
of Child Health and Human Development (NICHD). Additionally, the
Regional Educational Laboratories maintained a network of regional
research laboratories that carried out applied educational research
activities.

Another contribution to improving the quality and relevance of research
is the Office of Special Education and Rehabilitative Services' Office
of Special Education Programs (OSEP). OSEP research activities employed
randomized experimental designs in its research efforts and made
significant contributions to the Department's research initiatives
through three programs: the Research and Innovation program, the
Technology and Media Services program, and Demonstration Grants for
Students with Disabilities.

To improve the quality and relevance of its research, the Department
began a long process to change the structure and nature of its research
office, improve the process by which its research proposals are selected
for funding, modify the focus of its research and evaluation efforts,
and improve its dissemination practices.

The Department's most significant activity in 2002 was the
reauthorization of its research office.[^17] The new Institute of
Education Sciences focuses solely on research, evaluation, and
dissemination activities. The new office has the responsibility to
evaluate the impact of federal education programs and develop a new
generation of evaluations using scientifically rigorous randomized
trials that provide definitive evidence of what works and what does not.

The Department developed more rigorous standards for the quality of
funded proposals and began its efforts to improve the peer review of
research proposals by articulating clear standards in its requests for
grant applications.

To increase the relevance of its research and evaluation activities, the
Department held focused competitions in areas that needed a sustained
research program and that offered the potential of solutions to major
problems in education. For FY 2002, competitions were held in preschool
curriculum to identify curricula that best prepare children for
kindergarten, reading comprehension, and cognition and learning in the
classroom to understand how research on basic learning processes can be
brought to bear on instruction.

Additionally, the Department conducted and will periodically conduct
surveys of education decision makers to determine the issues that are
most current and important to state and local education decision makers
and policymakers.

The improved OERI editorial review process contributed toward raising
the quality of research in Department publications, including the
scientific rigor of our technical assistance materials on research-based
professional development. The purpose of the editorial review is to
ascertain the accuracy of research claims and findings in Department
publications intended for general distribution. OERI also created a
What's Works Clearinghouse to disseminate the results of rigorous
educational research.

The Department developed indicators to measure the quality, relevance,
and use of randomized experimental design in new research and evaluation
projects and publications. For these indicators, we evaluated projects
and publications of OERI and the Office of Special Education Programs
within OSERS. Where possible, baseline data from FY 2001 were collected.
The Department exceeded its targets for the use of randomized
experimental design, for the quality and relevance of publications, and
for the relevance of projects. Largely owing to improvements that had
begun in the baseline year of 2001, we did not meet our ambitious target
of increasing the percentage of projects rated as high in quality by 25
percentage points. However, the increase from 40 percent to 53 percent
was significant.

The creation of the What Works Clearinghouse was a major accomplishment
for the Department in 2002. The Clearinghouse will begin its evaluations
of existing studies on the effectiveness of education programs,
practices, and products in FY 2003. Therefore, data for this indicator
are incomplete and are not expected for 2002.

The Department developed indicators to measure the percentage of
policymakers and administrators who report that they routinely consider
evidence of effectiveness before adopting educational products and
approaches and the percentage who report that they use Department of
Education research products in policy-making decisions. Baselines were
set for 2002 for these indicators.

## 

Research expenditures in the Department have been dispersed over many
topics and projects, reducing their impact on the quality and relevance
of information disseminated to practitioners and policymakers.
Initiatives to reorganize our research functions should enable us to
focus research in areas that are consistent with long-term priorities
using rigorous research methodologies. The recent enactment of No Child
Left Behind, with its commitment of support to activities based on
scientifically based research, offers an opportunity to bring rapid
progress to U.S. elementary and secondary education.

In collaboration with the Coalition for Evidence-Based Policy, an arm of
the Council on Excellence in Government, the Department proposes to
expand the knowledge base of educational interventions proven effective
through randomized controlled trials in large-scale replications and to
provide strong incentives for the widespread use of proven interventions
by recipients of federal education funds. The Department has contracted
with the Coalition for Evidence Based Policy to develop materials and
workshops for state and local education administrators to help them
understand the rationale behind the use of randomized studies.

The Department intends to further its efforts to improve the quality and
relevance of its research by creating the National Center for Education
Research and the National Center for Education Evaluation. These Centers
will be housed within the new Institute of Education Sciences and will
provide the technical expertise to guide the Department in achieving a
more effective approach to accomplishing its research mission.

Also in FY 2003, the Department's research office will launch three new
research initiatives that will contribute to the solutions of specific
problems in education. The Research on Effective Mathematics Education
program will support research on instruction, curriculum, and assessment
that supports a successful transition to algebra; the Social and
Character Development research program will fund research that evaluates
the effectiveness of interventions and curricula designed to promote
positive social and character development; and the Teacher Quality
Research program will support research examining the effectiveness of
alternative approaches to professional development for teachers.

![](media/image11.wmf)adult education and employment by providing a
range of services that include financial aid, mentoring, and support to
help people with disabilities achieve employment.

-   Of ED's total FY 2002 appropriation, \$22.3 billion supported Goal 5
    activities.[^18] This is about 40% of ED's total appropriation.

-   Programs that support Goal 5 activities include:

```{=html}
<!-- -->
```
-   Federal Pell Grants.

-   Vocational Rehabilitation.

-   TRIO.

-   Adult Education.

```{=html}
<!-- -->
```
-   \$91 million of ED salaries and expenses funds contributed to the
    \$22.3 billion supporting Goal 5.

To address Goal 5, the Department developed 5 objectives:

-   Reduce the gaps in college access and completion among student
    populations differing by race/ethnicity, socioeconomic status, and
    disability while increasing the educational attainment of all.

-   Strengthen accountability of postsecondary institutions.

-   Establish effective funding mechanisms for postsecondary education.

-   Strengthen Historically Black Colleges and Universities, Hispanic
    Serving Institutions, and Tribal Colleges and Universities.

-   Enhance the literacy and employment skills of American adults.

ED established 16 strategies to achieve this goal. Within those
strategies, we developed 44 action steps to be completed across FY 2002
and FY 2003, which made up about 11 percent of action steps. At the end
of FY 2002, all 44 steps were on track for timely completion (green). We
anticipate that we will fully implement all action steps by the end of
FY 2003.

ED identified 32 indicators to measure FY 2002 success in meeting Goal
5. We met or exceeded the target for 1 indicator (green), and we did not
meet the target for 2 indicators (red). Twenty-five indicators are
pending (data are not yet available), and 4 are incomplete (data are not
expected).

To enhance future performance, the Department plans these actions:

-   Improve planning and increase the use of performance measures to
    improve management.

```{=html}
<!-- -->
```
-   Improve monitoring procedures and train staff on new procedures.

-   Apply current findings to revising programs during reauthorizations.

The Department provides support for enhancing the quality of and access
to postsecondary and adult education and employment in multiple ways.
The Department's programs provide financial aid to increase access to
college; help institutions of higher education improve their quality;
provide mentoring and tutoring services to help students master the
knowledge they need to get into and complete college; inform middle and
high school students about what it takes to go to college; provide
needed support to help people with disabilities achieve employment; and
provide support to adults in meeting more basic educational needs. The
Department will work to improve the effectiveness of all institutions,
including four-year colleges and universities, community colleges,
technology-based programs, and others.

Forty percent of the Department's budget goes toward the activities
supporting Goal 5. That investment falls almost entirely into the Pell
Grants and other postsecondary student aid programs. In many ways,
financial aid is the determining factor in access to higher education,
which is why the Department places so much emphasis here.

The Federal Pell Grant program (which constitutes 20 percent of the
Department's appropriation), the Perkins Loan program, the Federal
Family Education Loan program, and Federal Work Study program all
contribute to making college affordable and accessible. For example, the
Pell Grant program provides need-based grants to low-income
undergraduate and certain postbaccalaureate students to promote access
to postsecondary education. Students may use their grants at
approximately 6,000 participating postsecondary institutions.

Goal 5 also covers adult education and literacy, vocational education
and rehabilitation, and support for historically black colleges and
universities, such as Howard University, as well as Hispanic-serving
institutions and tribal colleges and universities.

All but one action step was green for Goal 5. The one action step
needing more attention was to "Assist in promoting the technology
infrastructure of institutions serving low-income and minority
students." Managers are working to address this action step, along with
the corresponding lack of data in this area (see Objective 5.4).

Actions in FY 2002 focused on training TRIO professionals on retention
and graduation strategies for nontraditional students; eliminating
regulatory barriers in the use of federal student aid for students
engaged in distance learning; identifying and completing initiatives to
assist parents, students, and schools on effective high
school-to-college transition for student with disabilities; encouraging
Student Support Service grantees to use the maximum amount of federal
grant funds (up to 20%) for grant aid by providing examples of how they
might reallocate funds; developing a Grantee Technology Resource page on
the Institutional Development and Undergraduate Education Service
(IDUES) Web site; and maintaining collaboration with the National
Institute of Child Health and Human Development to improve the research
base on literacy programs for adolescents and adults.

The Department is unable to report its success on the majority of Goal 5
indicators until 2003. Twenty-five of the 32 indicators do not yet have
data, but will, and an additional 4 indicators have incomplete data. The
3 indicators on which we were able to report showed mixed results.

Success was achieved by working with states to establish common data
definitions for Title II reporting (see Objective 5.2). Although the
Department achieved this year's target, a recent study showed that the
remaining states are having difficulties aligning their definitions.
Thus, it is unlikely that the Department will achieve next year's target
of 100 percent.

College tuition rates grew at a rate higher than our target and higher
than increases in the past decade. However the rate of increase was less
than the rate for the previous decade. For the indicator on state
reporting systems for graduation rates (see Objective 5.2), the
Department is reviewing other approaches to achieving the desired
results. The current strategy necessitates collaboration from numerous
sources including Congress.

Although few program evaluations were completed, the results from those
that did occur are encouraging. For example, a multiyear Longitudinal
Study of the Vocational Rehabilitation State Grants program, first
initiated in 1992, was recently completed. This study, which tracked
8,500 Vocational Rehabilitation (VR) consumers at 37 locations in the
United States for three years each, provides comprehensive information
on the VR program, including types of persons served, services provided,
costs, resources available, local environments, and short- and long-term
outcomes. Data from the Longitudinal Study show benefits to participants
in the VR program, particularly in terms of improvements in employment
and earning status. The study also found that VR consumers had excellent
job retention over time. Final reports from the Longitudinal Study are
currently undergoing agency and departmental clearance, but copies of
draft reports are available upon request.

A recurring theme (also evident in the OMB PART reviews) is the need to
obtain more timely and valid program performance data. The Department is
making agency-wide changes, such as One-ED and PBDMI to address those
challenges.

Two themes in improvement appear throughout Goal 5: improve monitoring
and data quality. For example, under the new Higher Education Act (HEA),
the Department will work to improve the information flow between the
Department and grantees. To this end, the Department will design and
implement a new grantee monitoring program and will convene discussion
groups on institutional planning, implementation, and evaluation of HEA
Title III and Title V grantees. In addition, the Department will
incorporate planning, implementation and evaluation components into an
annual project directors' meeting. Similarly, VR has worked on improving
the performance measures for its program. In VR's PART evaluation, the
reviewers noted that the program is working to improve its strategic
planning and has worked to develop common performance measures for job
training programs and standards and indicators for performance. This is
common across most programs and will continue to be emphasized into
2003.

![](media/image12.wmf)In order to create a culture of accountability,
the Department supported accountability systems for state education
systems, as well as measures to determine effective programs and to link
program costs and value.

-   Of ED's total FY 2002 appropriation, \$852 million supported Goal 6
    activities. This is about 1.5% of ED's appropriation.

-   \$829 million of ED salaries and expenses funds contributed to the
    \$852 million supporting Goal 6.

To address Goal 6, the Department developed 7 objectives:

-   Develop and maintain financial integrity and management and internal
    controls.

-   Improve the strategic management of the Department's human capital.

-   Manage information technology resources, using e-gov to improve
    service for our customers and partners.

-   Modernize the Federal Student Assistance programs and reduce their
    high-risk status.

-   Achieve budget and performance integration to link funding decisions
    to results.

-   Leverage the contributions of community- and faith-based
    organizations to increase the effectiveness of Department programs.

-   By becoming a high performance, customer-focused organization earn
    the President's Quality Award.

The Department established 21 strategies to achieve this goal. Within
these strategies we developed 162 action steps to be completed across
FY 2002 and FY 2003, which made up about 42 percent of Department action
steps. At the end of FY 2002, 124 steps were completed or on track for
timely completion (green); 23 more were progressing but merited
monitoring (yellow); and 15 were closed by merging into other action
steps.

The Department identified 27 indicators to measure FY 2002 success in
meeting Goal 6. We met or exceeded the target for 12 indicators (green);
we almost met the target for 1 (yellow); and we did not meet the target
for 1 (red). Six indicators are pending (data are not yet available),
and 5 are incomplete (data are not expected). We also set a baseline for
2 indicators.

To enhance future performance, the Department plans these actions:

-   Devise methodologies and procedures for reporting erroneous
    payments.

-   Determine a method for arriving at a administrative cost per grant
    transaction.

-   Improve our capacity to measure and report project variances from
    cost and schedule goals.

-   Improve our measurement and verification techniques to ensure
    accuracy of Pell Grant payments.

```{=html}
<!-- -->
```
-   Prepare for internal and OMB program reviews to document program
    effectiveness.

The Department of Education has undertaken sweeping management
improvement designed to enhance our ability to focus on our core mission
of improving the quality of education for all Americans.

One of Secretary Paige's first initiatives was to create a Management
Improvement Team of highly respected career professionals. This team,
together with senior officers, the Center for Excellence in Government,
and other partners, developed a Blueprint for Management Excellence
released in October 2001. The Secretary also created a Culture of
Accountability Team, which outlined recommendations to improve Strategic
Plan alignment, leadership, management, communication, work processes,
skills gaps, and performance evaluation in December 2001. The Blueprint
for Management Excellence Action Plan and the Culture of Accountability
Report recommendations, together with the President's Management Agenda,
laid the foundation for Goal 6. Each of the government-wide initiatives
outlined in the President's Management Agenda is integrated into Goal 6
of the Strategic Plan and, more important, into the management
improvement efforts of the Department.

Financial reforms recommended by the Management Improvement Team have
improved our ability to integrate and reconcile financial reports and
have significantly reduced the number of outstanding audit findings. We
accelerated the audit process by over a month by using mid-year credit
subsidy estimates and by integrating trial balance and financial
statement relationship tests into financial reports. The Department
received an unqualified opinion in the FY 2002 Financial Statement
Audit. This is a significant accomplishment and is the first unqualified
auditors' opinion since 1997.

To support the activities envisioned under Goal 6 of the Strategic Plan,
we developed One-ED, which provides an integrated, five-year human
capital, strategic sourcing, and restructuring plan that builds on the
Department's Blueprint for Management Excellence and Culture of
Accountability Report and the President's Management Agenda. As a
foundation of its strategic human capital management and the competitive
sourcing initiative, the Department developed the One-ED strategic
investment process to analyze and quantify functions performed in order
to reengineer more efficient, accountable, and effective work processes.

The Department also instituted systems to ensure enterprise-wide
management of its information systems and investments. A particular
focus of these efforts is to align information technology efforts
throughout education in order to eliminate unnecessary duplication and
burden and to increase the usefulness and accuracy of our information
for policy development, management, accountability, and budgeting.

Through these efforts we intend to improve our capacity to effectively
allocate and manage federal education resources in order to maximize
their impact on national education priorities.

The Department replaced its financial systems in January 2002 with our
new general ledger, Oracle Federal Financials. This project represented
the first fully operational Department-wide implementation of Oracle for
a Cabinet-level agency. The new system provides enhanced financial
integrity with more timely, accurate and reliable information for
managing the Department's programs. The system strengthens and enforces
Department internal controls and policies.

The Department has made tremendous progress in terms of the resolution
and closure of recommendations involving matters of financial integrity
as well as the management and internal controls that are contained in
the audit reports. The Department reduced open recommendations from
prior years by over 50 percent in FY 2002.

In the summer of 2002, we launched One-ED, which brings together the
Department's human capital, restructuring, and competitive sourcing
plans into a single five-year plan. One-ED is a cyclical process to
examine and improve the composition and skills of the Department's
workforce, its work processes, and its organizational structure. This
ensures that all Department services are provided with quality, on time,
and for the best value. Reviews are ongoing in five functional areas
with more planned over the next three years. One-ED has merited the
attention of OMB and OPM and has been promoted by OMB as a model for
other agencies to follow.

The Department has developed a new performance appraisal system, EDPAS,
which includes multiple performance levels and more job-specific
performance criteria to raise the bar on performance. EDPAS agreements
are tied to our Strategic Plan, Individual Development Plans, and
employee incentives. This system will become effective in FY 2003.

The Department focused on strengthening its information technology (IT)
security in the areas of management, technical, and operational policy
and procedural controls. The Department improved its IT investments with
an agency-wide business case review process. In addition to support for
government-wide e-gov initiatives, the Department has begun the
implementation of an Education Performance-Based Data Management
Initiative to use current technology to electronically integrate
student, school, and program performance information together with state
and private sector partners. We also performed risk assessment of all
major and significant systems, laying the foundation for a security plan
for the entire Department.

In pursuit of budget and performance integration, the Department
reorganized the strategic planning and budget staff under the Deputy
Secretary to coordinate budget decisions and strategic planning efforts
and to track progress on action steps. The Department also developed a
Department-wide evaluation plan for programs over \$100,000. To link
funding decisions to results, the Department integrated program
performance information with budget documents, including our
Congressional Justification. This is coupled with revisions to program
performance measures and targets to make them more meaningful and useful
to policymakers.

In 2002 the postsecondary student assistance programs made significant
strides in default management and prevention, meeting their default
collection targets and implementing performance-based contracts with
private collection agencies that have yielded increased collections for
lower costs. The Department has aggressively followed up on GAO and IG
recommendations, used data mining to help identify schools where
problems may exist, and instituted new systems to verify borrower
eligibility.

The Department made significant accomplishments in providing outreach
and technical assistance to faith-based and community-based
organizations. Our Office of the General Counsel developed a statement
of eligibility that contains a positive statement of how faith-based and
community organizations can use federal funds to run programs. This
statement was included in the Federal Register with all the grant
announcements.

The Department made substantial progress in achieving its management
excellence objectives, and we are committed to resolving our remaining
issues.

We received an unqualified "clean" audit opinion, we exceeded our target
for performance-based contract actions and we met our target for closing
open audit recommendations. We exceeded our target for the Federal
Student Aid (FSA) default recovery rate. We met our target in the area
of timeliness of FSA reconcilations to the general ledger by reconciling
within 30 days in the last two months of the fiscal year; the processes
that we implemented to achieve that will allow us to continue such
timely reconciliation.

For Pell grant overpayments, we met our target of not exceeding the FY
2001 baseline. Although the target that we stated in our FY 2002 Annual
Plan was expressed in absolute dollars, based on best business
practices, we have now converted to percentage targets. We also
significantly increased our accuracy in measuring overpayments.

We were unable to determine erroneous payments in all areas or to
compute administrative cost per grant transaction. This resulted in
incomplete information for three indicators. These areas require
operational definitions to be vetted within the Department, which we
expect to be forthcoming.

We also made considerable progress in implementing our plan for
addressing the issues that have been keeping FSA on GAO's high-risk
list, completing 94 percent of the action items in our plan. It should
be possible to fully complete the plan in the near future.

The Department established four indicators related to employee attitudes
and one related to manager satisfaction with hiring processes. To obtain
the employee information, we participated in a government-wide survey
conducted by OPM. When OPM releases those survey results, we will be
able to determine whether we met our targets. To obtain information on
manager satisfaction, we conducted an internal survey, which showed that
approximately half of our managers who hired staff in FY 2002 were
satisfied with the process.

For the indicator on employee skill gaps, we did not collect the needed
data and were not able to set the baselines in FY 2002, as our Annual
Plan projected. However, in One-ED, we have developed a detailed
innovative framework for developing competencies and learning tracks, by
staff level, for all our mission-critical occupations and major business
functions.

We exceeded our target for reduction of the data collection burden we
impose on our grantees. We set the baseline for customer satisfaction
with IT services, as we were scheduled to do. Data related to keeping IT
projects on schedule and within cost projections are not yet complete,
but preliminary information for the first half of the year is favorable.

The Department will address auditors' recommendations contained within
the Department's FY 2002 financial statement audit.

As One-ED progresses over the next year, it will allow us to collect the
data necessary to set baselines and determine whether we met our targets
for improving the management of our human capital. We will also continue
to implement the Strategic Investment Process, a component of One-ED,
which uses an analytic tool to analyze and quantify functions the
Department performs. The analyses will lead to a decision to continue to
perform the work internally or compete it to obtain the best value,
either by employees or external vendors. This process will support our
efforts to meet our target for competitive sourcing of positions.

The Department is completely reengineering its receipt and inventory
functions to increase accountability. Additional controls and procedures
are being implemented to ensure that purchases and inventory are tracked
more carefully and are better controlled, expanding those previously
implemented, such as controls on purchase cards and equipment inventory.
The Department will hire contractors for full-time support of the asset
management operation and will select and purchasing a new asset
management software and hardware system.

The Department will determine definitions and devise methodologies for
calculating erroneous payments and the administrative cost per grant
transaction so that we can report on these indicators in future
performance reports. We will implement a plan to remedy the remaining
items that prevent FSA from being removed from GAO's list of High-Risk
Programs.

The President's Performance-Based Data Management Initiative will be
implemented in 2003. This electronic data exchange will significantly
reduce grantees' reporting burden while significantly increasing the
timeliness and quality of program performance information for management
and budget decisions.

The Department will reapply for the President's Quality Award based on
lessons learned from the 2002 application and review experiences.

# Report Card On ALL Six goals {#report-card-on-all-six-goals .unnumbered}

![](media/image13.wmf)

![](media/image15.wmf)

<table>
<colgroup>
<col style="width: 11%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td></td>
<td colspan="21">Indicator Numbers</td>
</tr>
<tr class="even">
<td></td>
<td>.1</td>
<td>.2</td>
<td>.3</td>
<td>.4</td>
<td>.5</td>
<td>.6</td>
<td>.7</td>
<td>.8</td>
<td>.9</td>
<td>.10</td>
<td>.11</td>
<td>.12</td>
<td>.13</td>
<td>.14</td>
<td>.15</td>
<td>.16</td>
<td>.17</td>
<td>.18</td>
<td>.19</td>
<td>.20</td>
<td>.21</td>
</tr>
<tr class="odd">
<td><h4 id="obj-1.1"><strong>Obj 1.1</strong></h4></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><h4 id="obj-1.2"><strong>Obj 1.2</strong></h4></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 1.3</strong></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 1.4</strong></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 2.1</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 2.2</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 2.3</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 2.4</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 3.1</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 3.2</strong></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 4.1</strong></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 4.2</strong></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 5.1</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 5.2</strong></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 5.3</strong></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 5.4</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 5.5</strong></td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 6.1</strong></td>
<td>●</td>
<td></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 6.2</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 6.3</strong></td>
<td></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 6.4</strong></td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 6.5</strong></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>Obj 6.6</strong></td>
<td>●</td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Obj 6.7</strong></td>
<td>●</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

# *Financial Overview*

**FINANCIAL OVERVIEW**

# 

The Department's mission is to ensure equal access to education and
promote educational excellence throughout the nation. The Department
exists to benefit education and everyone who is touched by our business.
We believe that our success ultimately depends on our ability to build
and nurture relationships with constituents that are essential to our
business: state and local educational institutions, students,
universities, local communities, and our business partners. To serve and
create value for these constituents, the Department executes a
collaborative business strategy to focus attention and funding toward
educational opportunities for all.

We continue to see consistency and stability in our results over the
course of the year, demonstrating that the work we have done to improve
the efficiency and productivity of our operations is taking hold. At the
same time, we made considerable progress toward our strategic goals.

Our performance this year was led by the steady progress we made
implementing the President's Management Agenda (PMA). Through innovative
program development, we deepened the already strong connections between
our constituents and the Department.

The following management strategies are intended to optimize utilization
of available resources, thereby increasing the ability to meet the
Department's goals and the PMA.

*[Balance Sheet Management]{.underline}*: The Balance Sheet reflects
total assets of \$145.4 billion, a 17 percent increase over the previous
year. This increase is attributable to the implementation of the No
Child Left Behind program and the steady growth of the Federal Student
Aid Program. An investment in General Plant, Property and Equipment has
been recognized in FY 2002, which is consistent with the Department's
Strategic Goal 6 to Establish Management Excellence. This investment
gives management the ability to ensure efficient current and future
fiscal operations.

The majority of our liabilities, 66 percent, consist of
intragovernmental liabilities, which are primarily the result of the
Department's focus on ensuring that funds are available for any student
desiring a postsecondary education.

As a result of the Department's efficient use of resources and proper
Balance Sheet Management, Net Position increased by 23 percent.

*[Statement of Net Cost Management]{.underline}*: The Department's costs
are consistent with the Strategic Goals, the PMA and the appropriated
budget. The Department experienced a 39.4 percent increase in net costs
for the Enhancement of Post Secondary and Adult Education (Program A on
the Statement), which tracked with the Department's funding for
Strategic Goal 5. Additionally, the expenditures for Strategic Goals 1,
2 and 3 (Programs B and D on the Statement) are consistent with the
FY 2002 budgetary appropriation.

*[Statement of Budgetary Resources Management]{.underline}*: This
statement provides information about the provision of budgetary
resources and their status as of the end of the period. This statement
shows that the Department had \$104.4 billion in budgetary resources of
which \$12.5 billion remained unobligated with \$8.3 billion not
available at year-end. The Department had \$56.1 billion in Net Outlays
for FY 2002.

*[Statement of Financing Management]{.underline}*: This statement
demonstrates the relationship between an entity's proprietary and
budgetary accounting information. It links the net cost of operations
(proprietary) with net obligations (budgetary) by identifying key
differences between the two. This statement identifies \$65.9 billion of
resources used to finance activities, \$17.9 billion of resources not
part of the net cost of operations and \$1.8 billion of components of
net cost of operations that will not require or generate resources in
the current period.

The Department of Education is committed to management excellence and
recognizes the importance of strong financial systems and internal
controls to ensure accountability, integrity and reliability. The
Department has made significant progress and continues to work to
achieve a Culture of Accountability. Management, administrative and
financial system controls have been developed to ensure that:

-   All programs and operations achieve their intended results
    efficiently and effectively.

-   Resources are used in accordance with the Department's mission.

-   All programs and resources are protected from waste, fraud and
    mismanagement.

-   Laws and regulations are followed.

-   Reliable, complete and timely data are maintained and used for
    decision-making at all levels.

This year, the Department developed a required one-day seminar for
supervisors and managers to address the responsibilities of our managers
in ensuring that the Department has an effective system of internal
controls. Further, all employees were required to complete a one-hour
online internal control training course.

We believe that the rapid implementation of audit recommendations is
essential to improving the efficiency and effectiveness of our programs
and operations and to achieving our integrity and accountability goals.
We have accordingly instituted a comprehensive follow-up program to
ensure that the recommendations are implemented in a timely and
cost-effective manner.

During FY 2002, in accordance with the requirements of FMFIA and using
OMB and Departmental guidelines, the Department reviewed our management
control system. The objectives of our management control system are to
provide reasonable assurance that:

-   Our obligations and costs are in compliance with applicable laws.

-   Our assets are safeguarded against waste, loss, unauthorized use or
    misappropriation.

-   The revenues and expenditures applicable to agency operations are
    properly recorded and accounted for to permit the preparation of
    accounts and reliable financial reports and to maintain
    accountability over assets.

-   All programs are efficiently and effectively carried out in
    accordance with applicable laws and management policy.

The efficiency of the Department's operations is continually evaluated
by using information obtained from reviews conducted by the General
Accounting Office (GAO), the Office of the Inspector General (OIG),
specifically requested studies or observations of daily operations.
These reviews ensure that our systems and controls comply with the
standards established by FMFIA. Managers throughout the Department are
responsible for ensuring that effective controls are implemented in
their areas of responsibility. Individual assurance statements from
assistant secretaries are the primary basis for the Department's
assurance that management controls are adequate. The assurance
statements are based on each principal office's evaluation of (1)
progress made in correcting any previously reported problems; (2) new
problems identified by OIG, GAO and other management reports; and (3)
the management environment within each Principal Office. Department
organizations that identify material weaknesses are required to submit
plans for correcting those weaknesses. The plans, combined with the
individual assurance statements, provide the framework for monitoring
and improving the Department's management controls on an ongoing basis.

FMFIA Section 2, Management Control

During FY 2002 we completed all the corrective actions associated with
the two material weaknesses: Audit Tracking Resolution, first identified
in 2000 and Financial Reconciliation identified in 1999. They are no
longer reported.

Of the 80 internal control material weaknesses identified since the
inception of the program, 77 have been corrected and closed, leaving 3
unresolved weaknesses as of September 30, 2002.

+---------+-----------------+-------------------+--------------------+
| *       |                 |                   |                    |
| *Number |                 |                   |                    |
| of      |                 |                   |                    |
| M       |                 |                   |                    |
| aterial |                 |                   |                    |
| Weakn   |                 |                   |                    |
| esses** |                 |                   |                    |
+---------+-----------------+-------------------+--------------------+
| **P     | **Number        | **For That Year,  | **For That Year,   |
| eriod** | Reported for    | the Number        | the Number Still   |
|         | the First       | Corrected**       | Pending**          |
| **Rep   | Time**          |                   |                    |
| orted** |                 |                   |                    |
+---------+-----------------+-------------------+--------------------+
| Prior   | 78              | 76                | 2                  |
| Years   |                 |                   |                    |
+---------+-----------------+-------------------+--------------------+
| 2000    | 2               | 1                 | 1                  |
+---------+-----------------+-------------------+--------------------+
| 2001    | 0               | 0                 | 0                  |
+---------+-----------------+-------------------+--------------------+
| 2002    | 0               | 0                 | 0                  |
+---------+-----------------+-------------------+--------------------+
| Total   | 80              | 77                | 3                  |
+---------+-----------------+-------------------+--------------------+

Those three outstanding material weaknesses are:

-   Quality of data needed to support management decisions.

-   Information Technology (IT) security program.

-   Foreign school recertification.

No new material weaknesses were identified this year. These unresolved
weaknesses were identified prior to the 2002 report.

[Quality of data needed to support management decisions]{.underline}

This material weakness, first reported in 1995, deals with Federal
Student Aid (FSA) program's not having quality data to provide for
effective management decisions. Although the data quality issue was
initially associated with the Federal Family Education Loan (FFEL)
Program system, it was expanded to include the FSA systems. During the
past year, the Department has completed a considerable number of planned
actions to resolve this material weakness. Specifically, we continue
National Student Loan Data System (NSLDS) data quality efforts targeted
at improving timeliness and quality of lender and other FFEL data used
in subsidy estimation and program monitoring. Further, the Department
has implemented the Common Origination and Disbursement System and
developed and implemented an improved Direct Loan Credit Management
System to better support Direct Loan financial reporting. However,
long-term initiatives that involve coordinating with the Internal
Revenue Service (IRS) to obtain changes in legislations, policies, and
procedures to enable us to conduct routine data matches remain in
progress, thus leaving this material weakness still outstanding. The
Secretaries of Treasury and Education and the Director of the Office of
Management and Budget submitted proposed legislation to Congress this
year, and it is hoped that this weakness will be resolved during
FY 2003.

[Information technology (IT) security program]{.underline}

This material weakness, first reported in 1999, focuses on the need to
strengthen the security of the Department's information technology
systems to comply with the Computer Security Act and the Office of
Management and Budget (OMB) Circular A-130. We have completed many
initiatives to enhance security, including providing Department-wide IT
security training, implementing a capital planning and investment
control process that integrates security considerations, and completing
the Critical Infrastructure Protection Plan (CIPP) vulnerability and
threat assessment identification process. The Department will continue
to work to implement the remedial actions identified in the
vulnerability and threat assessments and to implement the corrective
actions developed as a result of the most recent Government Information
Security Reform Act audit. This weakness is scheduled to be resolved
during FY 2004.

[Foreign school recertification]{.underline}

Weaknesses in the foreign school recertification process were first
identified in an OIG audit report in FY 2000. The report stated that
FSA's process did not enforce statutory requirements for compliance
audits and foreign medical school eligibility ratios. The Department
worked very closely with the foreign school community and our OIG to
improve the administration of Title IV program in this community. Among
our significant accomplishments to address this issue were the
publication of the Foreign Schools Handbook to better educate foreign
schools about program requirements and the development and publication
of the Foreign Schools Audit Guide.

However, the Department is waiting to review the compliance audits
received from foreign schools before making a final determination on the
effectiveness of the corrective actions. This material weakness is
scheduled to be closed in FY 2003.

FMFIA Section 4, Financial Management Systems

During FY 2002 we completed all the corrective actions associated with
one material non-conformance: Financial Management Systems, first
identified in 1989. Thus, it is no longer reported.

Of the 95 financial management systems non-conformances identified since
the beginning of the program, 94 have been corrected and closed, leaving
1 unresolved non-conformance as of September 30, 2002.

###### 

  -------------------- ------------------- ------------------- --------------------
  **Number of Material                                         
  Non-Conformances**                                           

  **Period Reported**  **Number Reported   **For that Year,    **For That Year, the
                       for the First       the Number          Number Still
                       Time**              Corrected**         Pending**

  Prior Years          95                  94                  1

  2000                 0                   0                   0

  2001                 0                   0                   0

  2002                 0                   0                   0

  Total                95                  94                  1
  -------------------- ------------------- ------------------- --------------------

[Federal family education loans system---Inadequate accounting for loan
losses, interest subsidies and loan origination fees]{.underline}

This material non-conformance concerns the Federal Family Education Loan
Program (FFEL) and was first identified in 1990. GAO reported the
Department did not maintain financial systems necessary to determine
estimated loan losses, a liability for interest subsidies owed to
lenders or a receivable for loan origination fees due from lenders. We
initiated a number of steps to correct the deficiencies noted, and the
FFEL Program financial statements are in conformance with accounting and
reporting standards. Also, system improvements were achieved primarily
by implementing an integrated Oracle Financial System and a management
reporting system in Federal Student Aid (FSA). The FSA Financial
Management System (FMS) fully reconciles activity with the FFEL
operating partners through the Department's general ledger (FMSS).
Detailed financial data is maintained in FMS and summarized within the
general ledger. FSA must take additional actions during the current year
to ensure proprietary and budgetary transactions are properly recorded
and FSA has expanded this corrective action plan to recognize these
actions. This non-conformance is scheduled to be resolved in FY 2003.

One of the Department primary goals is resolving the management and
financial challenges that resulted in GAO designating the Federal
Student Aid (FSA) programs as high risk. GAO has outlined three actions
needed to remove FSA from its high-risk list: (1) the Department needs
to strengthen financial management and internal controls so that
relevant, timely information is available to manage the day-to-day
operations efficiently and effectively and provide adequate stewardship
and accountability; (2) FSA must implement an integrated set of
information systems to efficiently manage and effectively control Title
IV programs and administer high-quality services to students, colleges
and universities and financial institutions; and (3) FSA must maintain a
balanced management approach to minimize non-compliance and default
rates while promoting the widespread use of the program.

Although the Department believes that there is inherent risk in the
programs, we are committed to demonstrating responsible management of
the programs so that they are removed from the high-risk list. The
Department has met with GAO, OMB and others on actions needed to improve
FSA programs and remove them from the high-risk list. As a result, to
improve program integrity, the Director of OMB and the Secretaries of
Treasury and Education jointly proposed new IRS Tax Code legislation
aimed at improving the student eligibility verification process with tax
return information. If implemented, invalid applications for potentially
hundreds of millions of dollars in payments could be identified and
voided.

In addition, the Department has already made significant strides in the
area of student loan default management and prevention. We met our
targets for FY 2002 default collections and are working with schools and
loan holders to keep the statutory cohort default rate, currently at 5.9
percent (measuring defaults over a two-year period), under 8 percent.
The Department has improved our default collections in FY 2002 to over
\$269 million by using the Department of Health and Human Service's
National Directory of New Hires (NDNH) database to locate defaulted
borrowers. Including the NDNH collections, FY 2002 collections exceeded
goals by over 5 percent; non-consolidation collections totaled over
\$966 million. The Department's second annual National Default
Prevention Day (NDPD) familiarized more than 1,500 participants in 12
locations with the wide variety of default management and prevention
tools available. NDPD 2002 was a total partnership with the school,
Direct Loan and FFEL lending communities. In our FY 2002-2003 annual
plan, we outlined various additional activities and projects to help
ensure the removal of the FSA programs from the GAO high-risk programs
list.

####  

OMB tracks the Department's progress in our implementation of the
President's Management Agenda (PMA). The PMA identified five
government-wide goals: the strategic management of human capital;
competitive sourcing; improved financial management; expanded
e-government; and budget and performance integrations. OMB issues
quarterly scorecards to each agency and reports the scores to the public
semiannually. The scorecard for the quarter ending September 30
(appendix B) rates the Department's implementation process as "green" on
four of the five government-wide initiatives with a "yellow" in
financial management pending the outcome of our FY 2002 financial
statements audit. We attribute the high scores received from OMB to our
early action to address management problems. The Department embraced the
goals outlined by the PMA and has integrated them into our Strategic
Goal 6, Establish Management Excellence. A detailed description of the
initiatives and progress toward the implementation of the PMA is
available under Goal 6 in the Performance Detail portion of this report.

The Department takes pride in contributing to effective financial
management government wide. Department of Education staff participate in
intergovernmental workgroups to resolve issues common among federal
agencies and in 2002 were actively involved in the CFO Grants Management
Committee, the CFO Council, the Interagency Workgroup on Compliance
Supplement, Public Law 106-103 Grant Streamlining Cost Principles
Revision Workgroup, the E-Grant Executive Board and AGA training
activities. We anticipate a continued involvement in these and other
government-wide projects in the future.

[^1]: U.S. Department of Education, Office of the Under Secretary,
    Budget History Tables.
    [www.ed.gov/offices/OUS/Budget_History/Edhistory.pdf.](http://www.ed.gov/about/overview/budget/history/index.html)

[^2]: Resources+Reforms=Results, U.S. Department of Education, Office of
    the Deputy Secretary, October 2002.
    [www.ed.gov/offices/ODS/budget_resources/](http://www.ed.gov/about/offices/list/ods/resources-reform/index.html)[.]{.underline}

[^3]: National Assessment of Educational Progress (NAEP), Trends in
    Academic Progress, Three Decades of Student Performance, 1999.

[^4]: National Assessment of Educational Progress (NAEP), The Nation's
    Report Card, Fourth-Grade Reading, 2000.

[^5]: Ibid.

[^6]: Third International Mathematics and Science Study (TIMSS),
    International Study Center, Boston College, 1995.

[^7]: U.S. Department of Education, Office of the Under Secretary,
    Budget Service Website.
    [www.ed.gov/offices/OUS/fedrole.html](http://www.ed.gov/about/overview/fed/role.html).

[^8]: ^?^ Ibid.

[^9]: ^?^ Ibid.

[^10]: Ibid.

[^11]: ^11^ The new structure replaces the Office of Educational
    Research and Improvement (OERI) with a new Institute of Education
    Sciences and creates a new Office of Innovation and Improvement.
    However, this report will refer to the Office of Educational
    Research and Improvement, which was the existing nomenclature
    throughout FY 2002.

[^12]: For these indicators, we will locate or create data sources or
    replace the indicators in future years.

[^13]: \$26.5 billion targeted specific objectives under Goal 2, and
    \$1.6 billion supported Goal 2 in general, without focusing on a
    particular objective.

[^14]: \$89 million targeted specific objectives under Goal 3, and \$16
    million supported Goal 3 in general, without focusing on a
    particular objective.

[^15]: "Options for Restructuring the Safe and Drug-Free Schools and
    Communities Act." RAND Drug Policy Research Center, 2001.

[^16]: On November 6, 2002, the President signed the Education Sciences
    Reform Act of 2002 that replaces the Office of Educational Research
    and Improvement (OERI) with a new Institute of Education Sciences.
    However, this report will refer to the Office of Educational
    Research and Improvement, which was the existing nomenclature
    throughout FY 2002.

[^17]: Ibid

[^18]: \$22.4 billion targeted specific objectives under Goal 5, and
    \$170 million supported Goal 5 in general without focusing on a
    particular objective.