######## March 4, 2002

Honorable Roderick Paige

Secretary of Education

Washington, D.C. 20202

Dear Mr. Secretary:

The enclosed report presents the results of the U.S. Department of
Education's Federal Agencies' Centralized Trial-Balance System (FACTS)
verification agreed-upon procedures engagement for fiscal year 2001. The
report is intended to assist the Department of the Treasury, Financial
Management Service (FMS), the General Accounting Office (GAO), and the
Office of Management and Budget (OMB), in evaluating Department
management\'s assertions about the summarized FACTS data. The Office of
Inspector General (OIG) contracted with Ernst & Young, LLP, Certified
Public Accountants, to perform the engagement. The OIG monitored the
progress and completion of the work to ensure compliance with
*Government Auditing Standards* and standards established by the
American Institute of Certified Public Accountants.

The results of the engagement were discussed with Department officials
having management responsibility. In addition to providing the report to
FMS, OMB and GAO, a copy is also being provided to the Department's
Office of the Chief Financial Officer.

In accordance with the Freedom of Information Act (Public Law 90-23),
reports issued by the OIG are available, if requested, to members of the
press and general public to the extent information contained therein is
not subject to exemptions in the Act.

We appreciate the cooperation given us and Ernst & Young, LLP, during
the engagement.

Sincerely,

/ s /

Lorraine Lewis

Enclosure

####### 

####### 

####### 

####### **Independent Accountant's Report**

**On Applying Agreed-Upon Procedures**

######## 

To the Inspector General

U.S. Department of Education

We have performed the procedures enumerated in the attachment, which
were agreed to by the Department of the Treasury's Financial Management
Service (FMS), the General Accounting Office (GAO), and the Office of
Management (OMB). These procedures were performed solely to assist them
in evaluating the U.S. Department of Education (the Department)
management\'s assertion that it compared the Federal Agencies'
Centralized Trial-Balance (FACTS) I Data of March 4, 2002 to the related
information in the Department's consolidated financial statements as of
and for the year ended September 30, 2001, and determined that such
information is in agreement except for the differences identified on the
account grouping worksheets (AGWs) for the Balance Sheet, Statement of
Changes in Net Position and Statement of Net Cost. This agreed-upon
procedures engagement was performed in accordance with attestation
standards established by the American Institute of Certified Public
Accountants. The sufficiency of these procedures is solely the
responsibility of FMS, GAO and OMB. Consequently, we make no
representation regarding the sufficiency of the procedures described in
the attachment either for the purpose for which this report was
requested or for any other purpose. The procedures performed and the
related findings are enumerated in the attachment.

We were not engaged to, and did not, conduct an examination, the
objective of which would be an expression of an opinion on management's
assertion. Accordingly, we do not express such an opinion. Had we
performed additional procedures, other matters might have come to our
attention that would have been reported to you.

This report is intended solely for the information and use of FMS, GAO
and OMB and is not intended to be and should not be used by any one
other than these specified parties.

/ s /

March 4, 2002

Washington, D.C.

# AGREED-UPON PROCEDURES AND E&Y FINDINGS

####### **Procedure 1**

We traced the amounts for split Standard General Ledger accounts in the
Department records to the Account Groupings Worksheet (AGW) split
account worksheet and clearly explained any differences. No exceptions
were noted.

**Procedure 2**

We traced the amounts for each line item in the audited Department
consolidated balance sheet and audited Department consolidated Statement
of Changes in Net Position to the related amounts on the AGW column
titled "Amounts from Agency Financial Statement" provided by the CFO and
clearly explained any differences. We noted immaterial differences due
to rounding.

**Procedure 3**

We traced the amounts for each line item on the AGW Balance Sheet and
AGW Statement of Changes in Net Position for the column titled "Amounts
from Agency Financial Statements" to the related amounts on the audited
Department consolidated Balance Sheet and the audited Department
consolidated Statement of Changes in Net Position and clearly explained
any differences. We noted immaterial differences due to rounding.

**Procedure 4**

We footed the AGW Balance Sheet and AGW Statement of Changes in Net
Position column titled "Amounts from Agency Financial Statements." We
footed and cross-footed the AGW Balance Sheet and AGW Statement of
Changes in Net Position column titled "Difference" and clearly explained
any differences. No exceptions were noted.

**Procedure 5**

We read the explanation for any differences identified by the CFO for
the AGW Balance Sheet and AGW Statement of Changes in Net Position
listed on each AGW. We reviewed the explanation for consistency with (1)
supporting documentation, and (2) the results of audit procedures
performed in conjunction with the current year audit of the consolidated
financial statements and clearly explained any differences. No
exceptions were noted.

**Procedure 6**

For amounts labeled as "Differences" on the Unreconciled Change in Net
Position line at the bottom of the Statement of Changes in Net Position
on the AGW, we read and compared the explanations for the differences
identified by the CFO to the supporting documentation for the
differences and clearly explained any differences. No exceptions noted.

**Procedure 7**

We traced the amounts for each line item for gross cost, earned revenue
and net cost for transactions, net of intradepartmental amounts by
budget functional classification from the audited Department
consolidated financial statement footnote to the amounts on the AGW
Statement of Net Cost column titled "Amount from agency financial
statement" provided by the CFO and clearly explained any differences. We
noted immaterial differences due to rounding.

**Procedure 8**

We traced the amounts for each line item for total gross cost, total
earned revenue and total net cost, net of intradepartamental amounts by
budget functional classification from the AGW Statement of Net Cost
column titled "Amount from Agency Financial Statement" to the related
amounts on the audited Department consolidated financial statement
footnote, provided by the CFO and clearly explained any differences. We
noted immaterial differences due to rounding.

**Procedure 9**

We traced the amounts for each line item in the audited agency
consolidated financial statement footnote for gross cost, earned
revenue, and net cost for interdepartmental amounts by budget functional
classification to the related amounts on the AGW Statement of Net Cost
column titled "Amount from Agency Financial Statements" and clearly
explained any differences. We noted that consistent with prior years,
the Department did not disclose interdepartmental amounts in the
financial statements.

**Procedure 10**

We traced the amounts for each line item for gross cost, earned revenue,
and net cost for interdepartmental amounts by budget functional code
from the AGW Statement of Net Cost column titled "Amount from Agency
Financial Statements" to the related amounts on the audited agency
consolidated financial statement footnote and clearly explained any
differences. We noted that consistent with prior years, the Department
did not disclose interdepartmental amounts in the financial statements.

**Procedure 11**

We traced the amounts for each line item for total gross cost, total
earned revenue, and total net cost from the AGW Statement of Net Cost
column titled "Amount from Agency Financial Statements" to the related
amounts on the audited agency consolidated financial statement footnote
and clearly explained any differences. We noted immaterial differences
due to rounding.

**Procedure 12**

We traced the amounts for each line item for total gross cost, total
earned revenue, and total net cost from the audited agency consolidated
financial statement footnote to the related amounts on the AGW Statement
of Net Cost column titled "Amount from Agency Financial Statements" and
clearly explained any differences. We noted immaterial differences due
to rounding.

**Procedure 13**

We footed the AGW Statement of Net Cost column titled "Amount from
Agency Financial Statements." We footed and crossfooted the AGW
Statement of Net Cost column titled "Difference." No exceptions were
noted.

**Procedure 14**

We read the explanations for the differences identified by the CFO for
the Statement of Net Cost and compared with supporting documentation and
the results of the audit procedures performed in conjunction with the
audit of the related financial statements, as listed on the AGW, and
clearly explained any differences. No exceptions were noted.

**Procedure 15**

We traced the amounts for each respective line item on the AGW FACTS I
NOTES Review Schedule from the agency financial statements footnotes, to
the amounts on the AGW FACTS I NOTES Review Schedule columns titled
"Agency Source" and "Amount from Agency Sources." We performed this
procedure at the department level and clearly explained any differences.
Our findings were as follows:

1.  While Sections C and D (related to Loans Receivable) reflected a
    balance of zero in the "Difference" column, we noted a difference of
    \$945 thousand between the FACTS I Note 6 -- Loan Receivables and
    the Department's financial statement note 4 -- Credit Program
    Receivables.

2.  FACTS I Review Schedule contained a difference of \$3 million in
    Note 20 (Human Capital) between the column titled "Amount from
    Agency Source Data" and the column titled "Amount from FACTS I
    NOTE."

**Procedure 16**

We footed the AGW FACTS I NOTES Review Schedule "Amount from Agency
Source" column and crossfooted the AGW FACTS I NOTES Review Schedule
column titled "Differences." No exceptions were noted.

**Procedure 17**

We read the explanations for the differences identified by the CFO for
the AGW FACTS I NOTES Review Schedule. We reviewed the explanations for
consistency with supporting documentation and with the results of the
audit procedures performed in conjunction with the audit of the related
financial statements and clearly explained any differences. No
exceptions were noted.