```

                                                                 
Federal Student Aid: Additional Management Improvements Would	 
Clarify Strategic Direction and Enhance Accountability		 
(30-APR-02, GAO-02-255).					 
                                                                 
The Department of Education's Office of Federal Student Aid (FSA)
administers more than $53 billion in financial aid for more than 
8.1 million students. Since 1990, GAO has included student	 
financial aid on its high-risk list. To address these and other  
long-standing management weaknesses, Congress established FSA as 
a performance-based organization (PBO) within Education in 1998. 
To develop and implement a strategic direction, FSA set three	 
strategic goals, created indicators to measure progress toward	 
these goals, and developed a tool to link employees' day-to-day  
activities to these goals. The goals are to (1) increase customer
satisfaction, (2) increase employee satisfaction, and (3) reduce 
unit cost. FSA's efforts have generally improved customer and	 
employee satisfaction scores. FSA has begun to implement some	 
human capital practices to better organize its services and	 
manage its employees. But gaps exist, and FSA has not yet	 
implemented performance management initiatives to develop and	 
assess its employees. To better serve customers, FSA reorganized 
to reflect its different customers--students, schools, and	 
financial partners. To encourage accountability, FSA is linking  
staff bonuses to FSA's strategic goals. Education continues to	 
clarify FSA's level of independence and is now reviewing FSA's	 
role and responsibilities as part of the departmentwide 	 
management planning effort.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-255 					        
    ACCNO:   A03062						        
  TITLE:     Federal Student Aid: Additional Management Improvements  
Would Clarify Strategic Direction and Enhance Accountability	 
     DATE:   04/30/2002 
  SUBJECT:   Agency missions					 
	     Aid for education					 
	     Human resources utilization			 
	     Personnel management				 
	     Strategic planning 				 
	     Student financial aid				 
	     Federal Family Education Loan Program		 
	     Federal Pell Grant Program 			 
	     GAO High Risk Series				 
	     William D. Ford Federal Direct Loan		 
	     Program						 
                                                                 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-02-255
     
Report to Congressional Requesters

United States General Accounting Office

GAO

April 2002 FEDERAL STUDENT AID

Additional Management Improvements Would Clarify Strategic Direction and
Enhance Accountability

GAO- 02- 255

Page i GAO- 02- 255 Federal Student Aid Letter 1

Results in Brief 3 Background 5 FSA Has Taken Steps to Develop and Implement
a Strategic

Direction but Additional Actions Needed 7 FSA Has Begun to Better Organize
and Manage Its Workforce, but

Gaps Exist in Its Human Capital Strategy 15 Education Continues to Take
Steps to Clarify FSA?s Level of

Independence 22 Conclusions 24 Recommendations to the Secretary of Education
25 Agency Comments 26

Appendix I Comments from the Department of Education 28

Appendix II GAO Acknowledgments and Contacts 33 GAO Contacts 33 Staff
Acknowledgments 33

Tables

Table 1: Strategic Goal Measurements and Reported Results 8 Table 2: FSA
Training Resources and Availability 21

Figure

Figure 1: Distribution of FSA Employees by Organizational Unit 16 Contents

Page ii GAO- 02- 255 Federal Student Aid Abbreviations

ACSI American Customer Satisfaction Index ATO Air Traffic Organization CFO
Chief Financial Officer CIO Chief Information Officer CMO Case Management
and Oversight COO Chief Operating Officer FASAB Federal Accounting Standards
Advisory Board FSA Office of Federal Student Aid GAO General Accounting
Office HEA Higher Education Act IDP individual development plans IG
Inspector General MOU memorandums of understanding NAPA National Academy of
Public Adminstration PBO performance- based organization PDP Performance
Development Process PSC Private Sector Council USPTO United States Patent
and Trademark Office

Page 1 GAO- 02- 255 Federal Student Aid

April 30, 2002 The Honorable Edward M. Kennedy Chairman Committee on Health,
Education, Labor, and Pensions United States Senate

The Honorable James M. Jeffords United States Senate

The Department of Education?s Office of Federal Student Aid 1 (FSA)
administers more than $53 billion in federal financial aid for more than 8.1
million students. Since 1990, because of concerns about Education?s
vulnerabilities to losses due to fraud, waste, abuse, and mismanagement, GAO
has included student financial aid on our high- risk list. 2 To address
these and other longstanding management weaknesses, Congress amended the
Higher Education Act in 1998, establishing FSA as a performance- based
organization (PBO) within the Department of Education. A PBO is intended to
transform the delivery of public services by having the organization commit
to achieving specific measurable goals with targets for improvement in
exchange for being allowed to operate without the constraints of certain
rules and regulations to achieve these targets. As a PBO, FSA specifies how
it will achieve these targets through its performance plan, which includes
its longer- term strategic goals and annual performance goals as well as
strategies that it will use. In creating the PBO, Congress provided FSA,
subject to the direction of the secretary of education, with more
flexibility to manage its operations while requiring Education to retain
policy- making functions. It has been more than three years since Congress
created the PBO at FSA.

1 Financial aid programs are administered by an office previously known as
the Office of Student Financial Assistance (SFA). The name of SFA was
changed to Federal Student Aid on March 6, 2002.

2 U. S. General Accounting Office, High- Risk Series: Student Financial Aid,
GAO/ HR- 95- 10 (Washington, D. C.: Feb. 1, 1995); High- Risk Program:
Information on Selected High- Risk Areas, GAO/ HR- 97- 30 (Washington, D.
C.: May 16, 1997); High- Risk Series: An Update,

GAO/ HR- 99- 1 (Washington D. C.: Jan. 1, 1999); and High- Risk Series: An
Update,

GAO- 01- 263 (Washington, D. C.: Jan. 1, 2001). The former Guaranteed
Student Loan Program, now called the Federal Family Education Loan Program,
was included in our original 1990 list; in 1995 we revised this designation
to include all student financial aid programs included in Title IV of the
Higher Education Act of 1965 (commonly referred to as title IV financial aid
or title IV programs).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 255 Federal Student Aid

To respond to your interests concerning FSA?s progress since becoming a PBO,
we focused our review on addressing three questions:

1. What FSA has done to develop and implement a strategic direction- its
plan for achieving the goals Congress specified for it in the PBO
legislation- to accomplish its mission,

2. What human capital strategies FSA has adopted to ensure that it can carry
out its mission, and

3. What steps Education has taken to clarify FSA?s level of independence and
its relationship with other Education offices.

To identify this information, we reviewed FSA?s strategic and annual
performance plans and annual reports. We interviewed Education and FSA
officials in headquarters and FSA officials in 5 of its 10 regional offices-
Atlanta, Chicago, New York, Philadelphia, and San Francisco. We selected
these regional offices primarily because they oversee the largest number of
postsecondary institutions and because they oversee a variety of public and
private institutions. We also met with representatives of the secretary of
education?s Management Improvement Team. 3 We interviewed experts in federal
agency/ union relationships, higher education associations, an official with
the U. S. Patent and Trademark Office (also established as a PBO), and
officials with Education?s Office of Inspector General (IG). We used our
Human Capital Self- Assessment Checklist 4 and Internal Control Management
and Evaluation Tool 5 to assist us in reviewing FSA?s actions.

3 To address many long- standing management challenges facing the
department, the secretary of Education established a team of senior managers
and employees- the management improvement team (MIT)-- to address short-
term management recommendations and develop a plan to address longer- term
and structural issues. The MIT is charged with several responsibilities,
most notably to obtain a clean audit opinion from the department?s auditors,
have GAO?s high- risk designation removed for FSA programs, put in place an
effective system of internal controls, and provide a structure for measuring
progress toward solving identified problems. The Blueprint for Management
Excellence

published by the department in October 2001, specifies the department?s
plans to address these responsibilities.

4 U. S. General Accounting Office, Human Capital: A Self- Assessment
Checklist for Agency Leaders, GAO/ OCG- 00- 14G (Washington, D. C.: Sept. 1,
2000). See also U. S. General Accounting Office, A Model of Strategic Human
Capital Management, GAO- 02- 373SP (Washington, D. C.: March 15, 2002) for
our more recent tool intended to help federal agency leaders better manage
their human capital.

5 U. S. General Accounting Office, Internal Control Management and
Evaluation Tool,

GAO- 01- 1008G (Washington, D. C.: Aug. 2001).

Page 3 GAO- 02- 255 Federal Student Aid

We conducted our work between March 2001 and March 2002 in accordance with
generally accepted government auditing standards.

To develop and implement a strategic direction- its plan for achieving the
purposes Congress specified for it in the PBO legislation- FSA has developed
three strategic goals, created indicators to measure progress toward those
goals, and developed a tool to link employees? day- to- day activities to
these strategic goals. These strategic goals are to (1) increase customer
satisfaction, (2) increase employee satisfaction, and (3) reduce unit cost.
FSA?s efforts to date are having promising results in terms of the general
improvement of customer and employee satisfaction scores. Because the
indicator FSA uses to measure unit cost has certain limitations, such as not
measuring actual costs, it is difficult to gauge FSA?s progress in reducing
unit cost. In addition, FSA?s performance plan, which specifies how it will
achieve its strategic goals, could be more useful to congressional decision
makers by specifying how the annual goals and strategies it includes in the
performance plan will lead to the integration of FSA?s financial aid systems
and help ensure program integrity- explicit objectives of Congress in
establishing FSA as a PBO. For example, in its performance plan FSA includes
technical assistance projects- such as holding conferences to explain rules
and regulations to schools participating in financial aid programs. However,
FSA does not make clear how it will know whether compliance with rules and
regulations has improved as a result of such projects, thus enhancing
program integrity. Further, while the PBO legislation requires the PBO to
submit, through the secretary, to Congress an annual report on the
performance of FSA, the fiscal year 2000 report was prepared by FSA and
submitted to the secretary, but was not submitted to Congress. Like the
fiscal year 1999 report, the fiscal year 2000 report did not include all the
information specified by the legislation. FSA has not yet submitted the
fiscal year 2001 annual report to the secretary.

FSA has begun to implement some human capital practices to better organize
its services and manage its employees, but gaps exist in its human capital
strategy and it has not yet implemented performance management initiatives
to develop and assess its employees. To better serve customers, FSA
reorganized on the basis of the customer groups it serves- students,
schools, and financial partners (lenders and guaranty Results in Brief

Page 4 GAO- 02- 255 Federal Student Aid

agencies). 6 In addition, FSA has implemented some practices to ensure the
accountability of its senior leadership and to encourage accountability
throughout the organization by linking staff bonuses to FSA?s success in
meeting its strategic goals. Despite the gains FSA has made in these areas,
certain challenges remain. For example, FSA?s human capital senior manager
has not been an active participant in setting FSA?s strategic direction- as
have the heads of units managing its other key resources. Human capital
challenges include the need to engage in workforce planning and to assess
the training needs of staff. Moreover, FSA has not yet been able to
implement a performance management system that creates goals for the
performance of employees, groups, and the organization consistent with its
performance plan as required by its enabling legislation.

Education continues to take steps to clarify FSA?s level of independence and
its relationship with other Education offices while long term management
plans are being developed. With the arrival of the current administration,
in January 2001, Education established special interim operating procedures
for all department units, including FSA, that were intended to ensure that
personnel and financial resources are managed effectively and efficiently
throughout the department. As a result of these interim procedures,
Education now provides greater direction and oversight of FSA than was
provided previously. Education is currently reviewing FSA?s role and
responsibilities as part of the departmentwide management planning effort.
The results of this planning effort will be used to guide future decisions
concerning FSA?s level of independence and its relationship to other
department offices. Education expects to complete its review by Summer 2002.

In this report, we recommend that the secretary of education direct FSA, in
collaboration with the secretary, to make its performance plan more useful
to congressional decision makers in the areas of unit cost, systems
integration and program integrity, that the secretary of education and FSA?s
chief operating officer (COO) work cooperatively to ensure that annual
reports on the performance of the PBO are submitted to Congress in a timely
and complete fashion, and that the secretary of education and

6 State and private nonprofit guaranty agencies act as agents of the federal
government, providing a variety of services, including payment of defaulted
loans, collection of some defaulted loans, default- avoidance activities,
and counseling to schools and students.

Page 5 GAO- 02- 255 Federal Student Aid

FSA?s COO coordinate closely to develop and implement a comprehensive human
capital strategy.

We provided Education with a copy of our draft report for review and
comment. In written comments on our draft report, Education agreed with our
reported findings and recommendations. Education?s written comments appear
in appendix I.

FSA manages and administers student financial assistance programs authorized
under title IV of the Higher Education Act of 1965 (HEA), as amended. These
postsecondary programs include the William D. Ford Federal Direct Loan
Program (often referred to as the ?Direct Loan?), the Federal Family
Education Loan Program (often referred to as the ?Guaranteed Loan?), the
Federal Pell Grant Program, and campus- based programs. 7 Annually, these
programs provide more than $50 billion in student aid to approximately 8
million students and their families. As a consequence, the student financial
aid environment is large and complex. It involves about 5,300 schools
authorized to participate in the title IV program, 4,100 lenders, and 36
guaranty agencies. Currently, FSA oversees or directly manages approximately
$200 billion in outstanding loans representing about 100 million borrowers.

Congress has recognized the need to make federal agencies more
resultsoriented by shifting from a focus on adherence to required processes
to a focus on achieving program results and customer satisfaction. Toward
this end, Congress established PBOs, which are discrete management units
remaining in their current department under the policy guidance of the
department secretary. PBOs are to commit to clear management objectives and
specific targets for improved performance. These clearly defined performance
goals, coupled with flexibility in managing operations and direct ties
between the achievement of performance goals and the pay and tenure of the
head of the PBO and other senior managers are intended to lead to improved
performance.

In October 1998, Congress established FSA as the government?s first PBO. As
defined in the legislation, the specific purposes of the PBO are to

7 Campus- based programs, which include the Federal Work- Study Program, the
Federal Perkins Loan Program, and the Federal Supplemental Educational
Opportunity Grant Program, are administered jointly by FSA and postsecondary
institutions. Background

Page 6 GAO- 02- 255 Federal Student Aid

 improve service in the student financial assistance programs;  reduce
costs of administering the programs;  increase accountability of officials;
 provide a greater flexibility in management;  integrate information
systems;  implement an open, common, integrated delivery system; and 
develop and maintain a system containing complete, accurate and timely

data to ensure program integrity. FSA?s enabling legislation also, among
other things,  requires the appointment of a chief operating officer; 
requires the development of 5- year and annual performance plans;  requires
the PBO, through the secretary, to report annually on the

performance of the PBO;  requires the PBO to have performance agreements
for the COO and other

senior managers;  requires the COO in consultation with the secretary to
appoint a student

loan ombudsman;  allows for the payment of performance bonuses to the COO
and other

senior managers;  allows FSA to make use of certain personnel and
procurement

flexibilities. We have reported on selected agencies? use of performance
agreements, including FSA, the Department of Transportation, and the
Veterans Health Administration. Although these three agencies developed and
implemented agreements that reflected their specific organizational
priorities, structures and cultures, we identified five common emerging
benefits from each agency?s use of the agreements. These emerging benefits
include: strengthened alignments of results- oriented goals with daily
operations, collaboration across organizational boundaries, enhanced
opportunities to discuss and routinely use performance information to make
program improvements, results- oriented basis for individual accountability,
and continuity of program goals during leadership transitions. 8

In addition to FSA, other PBOs include the U. S. Patent and Trademark Office
(USPTO), established as a PBO in March 2000, and the Federal

8 U. S. General Accounting Office, Managing for Results: Emerging Benefits
from Selected Agencies? Use of Performance Agreements, GAO- 01- 115
(Washington, D. C.: Oct. 30, 2000).

Page 7 GAO- 02- 255 Federal Student Aid

Aviation Administration?s Air Traffic Organization (ATO), in December 2000.
Similar to FSA, USPTO, and ATO are subject to the policy direction of their
parent departments and are to have the flexibility and independence to
operate more like a business, with greater autonomy over their budget,
hiring, and procurements in carrying out their functions. Further, USPTO and
ATO are also required to designate an individual responsible for operational
improvements, develop multiyear and annual performance plans, implement
performance agreements, and provide for performance bonuses.

The British Next Steps initiative was used as a model in crafting the PBO
concept in the United States. The Next Steps agencies- now known as
executive agencies- are still the predominant form of service delivery in
the United Kingdom. As of December 2001, there were over 130 executive
agencies covering more than three- quarters of the British civil service.

FSA has taken several steps toward developing and implementing a strategic
direction- its plan for achieving the purposes Congress specified for it in
the PBO legislation- but, even though these efforts have shown promising
results, additional actions are needed. FSA?s performance plan discusses its
three strategic goals- increase customer and employee satisfaction while
decreasing unit cost- and the annual goals and strategies it will use to
accomplish these three goals. The performance plan, however, could be more
useful to congressional decision makers with respect to systems integration
and program integrity. FSA has also begun to implement a balanced scorecard-
a report that links employees? day- to- day activities with the
organization?s progress toward its strategic goals, but even with the
scorecard, some employees have found it difficult to make this link.
Finally, FSA and the department have not met its requirement to report
annually to Congress on its progress in meeting the goals laid out in its
performance plan, along with other requirements specified in the PBO
legislation.

FSA?s performance plan discusses strategic goals for increasing customer and
employee satisfaction and reducing unit costs. In addition, it includes
measures for gauging FSA progress in meeting each of these strategic goals.
(See table 1.) FSA?s management uses these goals and associated performance
measures to determine areas for quality improvement, monitor changes in
customer perceptions, and evaluate the success of ongoing quality
improvement efforts in its student aid delivery. FSA Has Taken Steps

to Develop and Implement a Strategic Direction but Additional Actions Needed

FSA Has Three Strategic Goals Addressing Important Outcomes

Page 8 GAO- 02- 255 Federal Student Aid

Table 1: Strategic Goal Measurements and Reported Results Reported Results
Strategic Goals Measurement

instrument What the instrument measures FY 1999 FY 2000 FY 2001

Increasing customer satisfaction

American Customer Satisfaction Index (ACSI) a

Customers? perception of overall service quality; their prior expectations;
staff accessibility, professionalism, helpfulness, and timeliness; and the
degree of customer complaints

63 b 72.9 74.2 Increasing employee satisfaction

Gallup Q12 c Employees? overall job satisfaction, their degree of loyalty
and productivity, whether they know what is expected of them, whether they
have opportunities to develop job skills, and whether they received
encouragement and feel valued at FSA

N/ A 3. 51 3. 74 Reducing unit cost FSA Calculation d The cost per loan and/
or grant recipient to administer

the student financial aid program. $18.72 $19.08 $19.57 a ACSI measures
customer satisfaction for public and private sector organizations and is
produced by

a partnership of the University of Michigan Business School, the American
Society for Quality, and the CFI Group. The highest possible score on the
index is 100. b The score for fiscal year 1999 measured only one element of
customer satisfaction.

c The Gallup Q12 is a 12- question survey instrument, designed by the Gallup
Organization, to measure employee engagement for private and public sector
organizations. Scores range from 1- 5, with 5 being the highest. d FSA?s
method of calculating unit cost changed in fiscal year 2001. See the
accompanying text for a

more detailed discussion of the change. Source: FSA.

To measure customer and employee satisfaction, FSA uses the American
Customer Satisfaction Index (ACSI) and the Gallup Q12, respectively. Both
measures are used by the private sector and other government entities, and,
as a result, FSA can compare its own scores with those of others. FSA?s
scores on both the ACSI and Gallup Q12 increased from fiscal year 1999
through fiscal year 2001, suggesting improvement in both areas. Indeed,
comments from representatives from several higher education associations we
interviewed and who work closely with FSA also suggest that customer
satisfaction has improved. For example, an association official noted the
willingness of FSA managers to listen and learn from students, schools, and
lending institutions.

To track reductions in costs, FSA has developed a unit cost measure. FSA
uses the measure to demonstrate how it is reducing the cost of administering
the student aid programs. However, FSA?s current calculation has some
limitations in this regard. First, in calculating unit cost, FSA divides
budget obligations (an obligation reserves funds for an eventual cash
payment for goods and services) by the total number of people who received
aid. This means that FSA?s unit cost does not

Page 9 GAO- 02- 255 Federal Student Aid

measure costs, per se. 9 Further, the unit cost calculation does not include
obligations FSA sees as beyond its control- obligations for services shared
with the department (e. g., telecommunications) and obligations associated
with loan consolidation, which is influenced by demand, for example.
Obligations FSA considers as fully under its control include those for
salaries and benefits, operations and modernization contracts, and general
operations, such as travel, training, printing, and equipment. This means
that unit cost does not measure total obligations per person receiving aid.
Second, the way FSA currently calculates unit cost is a change from the way
it calculated it in the past. This change makes comparing unit cost across
years difficult. In 1998 through 2000, FSA calculated unit cost by dividing
the actual cost (those it considered under its control) of administering
student aid (instead of budget obligations) by the total number of people
who had received aid. According to FSA officials, FSA changed the
calculation of unit cost to make it more useful as a management tool, in
part because actual costs for a particular year are sometimes not known
until well into the next fiscal year and because managers are more
accustomed to using budget obligations, in part because of their experience
in using obligations in budget formulation and execution. Using actual cost
in the calculation, the unit cost in fiscal year 2000 was $19.08. When FSA
recalculated unit cost for fiscal year 2000 using budget obligations
instead, the amount changed to $20.14.

FSA officials told us that they believe the unit cost measure is a useful
tool for internal management information purposes, allowing managers to
gauge the efficiency of their operations and to highlight, for its
employees, the importance of reducing costs. Although these are important
objectives, FSA?s unit cost measure is less useful to congressional decision
makers because, among other things, FSA does not include all program
obligations in the measure nor explain the basis of its measure in reporting
on its performance. According to the Federal Accounting Standards Advisory
Board (FASAB), decision makers in Congress as well as the public should

9 According to the Statements of Federal Financial Accounting Concepts and
Standards

(SFFACS), Appendix E: Consolidated Glossary, full cost refers to the total
amount of resources used to produce the output. More specifically, the full
cost of an output produced by a responsibility segment is the sum of (1) the
costs of resources consumed by the responsibility segment that directly or
indirectly contribute to the output, and (2) the costs of identifiable
supporting services provided by other responsibility segments within the
reporting entity and by other reporting entities (SFFAS No. 4. Managerial
Cost Accounting Concepts and Standards for the Federal Government, para. 89)
According to

OMB Circular No. A- 25 Revised, full cost includes all direct and indirect
costs to any part of the federal government of providing a good, resource,
or service.

Page 10 GAO- 02- 255 Federal Student Aid

be provided with information on the full costs of programs and their
outputs. 10 The FASAB has also stated that agencies should develop and
report cost information on consistent bases and that using different
accounting bases and measurement methods can confuse users of cost
information. 11 Because FSA does not relate its unit cost measures to total
program costs and because it has changed its method for calculating it, it
is difficult to discern whether changes in the measure are indicative of
changes in total program costs.

In addressing systems integration and program integrity, FSA?s performance
plan has several limitations. It is not always obvious how the goals and
strategies included in the plan relate to systems integration, or how FSA
can effectively assess systems integration by relying on measures for its
strategic goals. Moreover, the performance plan provides only limited
information regarding FSA?s strategies for achieving program integrity.

Congress designated FSA as a PBO, in part, to encourage the integration of
the many, disparate information systems used to deliver student financial
aid. In 1997, we reported that Education would likely be unable to correct
longstanding problems resulting from a lack of integration across its
student financial aid systems until a sound systems architecture was
established and effectively implemented. 12 FSA subsequently devised an
enterprise- wide systems architecture in response to our conclusion that
such an architecture was needed, and in response to our related
recommendations. 13 As part of its continuing systems integration efforts,
FSA recently initiated a new approach, commonly referred to as middleware,
to provide users with a more complete and integrated view of

10 Statements of Federal Financial Accounting Standards, No. 4 Managerial
Cost Accounting Standards in Basis for Conclusions, paragraph 201. 11
Statements of Federal Financial Accounting Standards, No. 4 Managerial Cost
Accounting Standards, paragraph 64. 12 U. S. General Accounting Office,
Student Financial Aid Information: Systems Architecture Needed to Improve
Programs? Efficiency, GAO/ AIMD- 97- 122 (Washington, D. C.: July 29, 1997).

13 We have not assessed the adequacy of this FSA architecture. FSA?s
Performance Plan

Can Be More Useful to Congressional Decision Makers, Especially with Respect
to Systems Integration and Enhancing Program Integrity

Systems Integration

Page 11 GAO- 02- 255 Federal Student Aid

information contained in multiple databases. We recently reported 14 that in
selecting middleware, FSA adopted a viable, industry- accepted means for
integrating and using its existing data on student loans and grants. FSA?s
implementation of the middleware technology remains in its early stages. FSA
now needs to properly implement and manage its strategy. If implemented and
managed properly, this new technology should help ameliorate FSA?s
longstanding database integration problems.

While FSA?s strategy for integrating its many computer systems shows
promise, both we and Education?s IG 15 have found that neither its
performance plans nor its subsequent annual reports readily provide
information about its progress in integrating systems. As a step toward
providing this information, the IG recommended that FSA include an overall
systems integration goal that was objective, quantifiable, and measurable.
The IG stated that an overall systems integration goal would help to inform
Congress and others of FSA?s progress in integrating systems. However, FSA?s
COO disagreed with this recommendation, arguing that FSA could not achieve
its strategic goals without integrating its systems and therefore a distinct
systems integration goal was unnecessary.

While FSA?s performance plans included numerous goals and strategies, it is
not always obvious how they relate to systems integration. For example, the
performance plan identifies one of FSA?s strategies as ?create the data
mart.? However, what the data mart is or how completing it would bring FSA
closer toward integrating its systems is never explained. Similarly, in an
earlier performance plan, FSA referred readers to its Modernization
Blueprint- its plan for integrating and modernizing its student aid
information systems- for additional information on its goals and strategies.
However, Education?s IG characterized the Modernization Blueprint as
lengthy, complex and lacking clear performance goals and measures.

FSA relies on the measures for its strategic goals to reflect the results of
its system integration effort, even though they were not specifically

14 U. S. General Accounting Office, Student Financial Aid: Use of Middleware
for Systems Integrations Holds Promise, GAO- 02- 7 (Washington, D. C.: Nov.
2001). 15 Department of Education, Office of the Inspector General,
Inspection Memorandum: Review of Student Financial Assistance?s Performance
Plan, ED- OIG/ A& I 2001- 02 (Washington, D. C.: 2001).

Page 12 GAO- 02- 255 Federal Student Aid

designed to do so. Many factors unrelated to FSA?s systems integration
efforts influence these measures. FSA?s technical assistance activities, for
example, may result in increased customer satisfaction even though these
activities do not involve systems integration. On the other hand, FSA could
make technological progress in integrating its systems that would not be
evident to the customer. For example, before implementing systems to
integrate databases, FSA spends considerable time developing the databases.
Measures of customer satisfaction would not capture these initial efforts.
As a result, FSA?s customer satisfaction measure may not fully reflect
progress made or lack of progress with regard to systems integration.

Another goal Congress prescribed for FSA was to enhance program integrity.
FSA had no strategic goal for program integrity in its fiscal year 2001 and
earlier performance plans, but draft documents FSA provided to us suggest
that its fiscal year 2002 plan may include such a goal. It is unclear from
these draft documents, however, how FSA will define measurable outcomes to
demonstrate its progress in enhancing program integrity. FSA works to ensure
program integrity in many ways, including providing technical assistance to
schools to increase compliance with regulations, working to prevent
defaults, and collecting on defaulted loans.

FSA?s draft fiscal year 2002 performance plan reflects its increasing
reliance on providing technical assistance to schools as a way to ensure
their compliance with financial aid rules and regulations. In the past, FSA
relied much more extensively on conducting on- site program reviews to
assess schools? compliance with rules and regulations. The following list,
taken from FSA?s fiscal year 2002 performance plan, shows the technical
assistance strategies FSA plans to implement during fiscal year 2002:

 Develop and deliver a series of services to new schools, which includes
assistance during the first 12 months of their participation in Title IV
programs.  Identify trends in risk areas and provide targeted technical
assistance to

schools.  Conduct at least three national conferences for schools. 
Develop a ?How To? guide with our oversight partners on processing

school closures that focuses on reducing the impact to students.  Promote
the Title IV schools? quality performance by providing them with

tools for understanding and improving management practices, program
requirements, and verification outcomes.  Identify areas for improving
compliance effectiveness and take the

appropriate steps to fix them. Program Integrity

Page 13 GAO- 02- 255 Federal Student Aid

While FSA has developed strategies intended to improve schools? regulatory
compliance, it is not clear how FSA will know whether its strategies are
effective. First, FSA has not developed an indicator of schools? compliance.
Second, while FSA?s fiscal year 2002 performance plan defines success for
the strategies shown above, the definitions may not be appropriate. For
example, FSA plans to conduct at least three national conferences for
schools to disseminate information about student financial aid programs and
processes including program integrity. FSA states that high scores on
participant evaluations of these national conferences will indicate its
success in disseminating this information. While participant evaluations may
reflect the quality of presentations, they will not indicate whether the
information helped institutions comply with applicable laws, regulations,
and procedures.

Another way that FSA ensures program integrity is through its efforts to
collect and prevent defaulted student loans. FSA?s draft fiscal year 2002
performance plan specifies the goals it has for default management; however,
it includes only limited information about the strategies it will use to
achieve those goals. For example, in its fiscal year 2002 plan, FSA includes
the following goals for default management: increase the fiscal year 2002
default recovery rate to 15 percent, ensure that the defaults recovered
exceed the total default claims for the fiscal year, demonstrate the pursuit
of improved default management and prevention strategies, and keep the
default rate under 8 percent. FSA?s plan, however, only includes one
strategy to address these goals- expand the use of the National Directory of
New Hires- a database matching program- to recover $200 million in defaulted
student loans. 16 As the result of not giving details on its strategies for
default recovery and prevention, it is not clear how FSA will achieve its
goals relating to default management and how its efforts help ensure program
integrity.

16 The National Directory of New Hires (NDNH) includes information from
state and/ or federal agencies on employers? new hires, quarterly wages, and
unemployment insurance. The purpose of the NDNH is to provide a national
repository of employment and unemployment insurance information to help
state child support enforcement agencies locate noncustodial parents and
establish and enforce child support orders, especially across state lines.
In 1999, authorized access to the NDNH, which is maintained by the
Department of Health and Human Services? Office of Child Support
Enforcement, was expanded to include collections of defaulted student loans.

Page 14 GAO- 02- 255 Federal Student Aid

In order to help employees connect the work of individual teams to the FSA-
wide strategic goals, FSA?s management has adopted the ?balanced scorecard.?
17 The scorecard is intended to provide a simple, one- page presentation of
FSA?s performance on its three strategic goals. The scorecard also reports
on team- specific contributions towards achieving the three strategic goals.

Because the balanced scorecard approach is a new initiative (about one
quarter of FSA?s teams are using it), FSA has not yet resolved some of the
difficulties that staff have in linking scorecard results to their work.
Some staff reported that it was difficult to understand how they could
influence scores for customer satisfaction and unit cost measures. For
example, one FSA manager told us that she thought the ACSI data was too
complicated and at too high a level for it to be useful to front- line staff
while others said their staff did not understand the unit cost calculation
and how they could affect it.

The PBO?s enabling legislation requires the COO, through the secretary, to
report annually on the performance of the PBO to Congress based on its
previous year?s performance plan. For fiscal year 2000, although FSA
prepared an annual report, it was not submitted to Congress as required by
the legislation. FSA submitted a draft fiscal year 2000 report to the
department in March 2001; however, the draft was incomplete and not in
compliance with the PBO legislation, according to a senior Education
official. Despite attempts to finalize the report, Education, in a
subsequent review of the draft late in the year, still found that the report
did not comply with statutory requirements. Given the late date and in light
of the fact that the subsequent year?s performance report would soon be due,
Education decided not to submit the fiscal year 2000 report at that time.
Instead, according to the official, Education and FSA plan to issue a
combined report for fiscal years 2000 and 2001. The department has not yet
received the combined report from FSA.

In transmitting the report through the secretary, FSA is required to submit
specific information related to the performance of the PBO, but FSA?s
reports have been incomplete. The annual report must include, among

17 The concept of the balanced scorecard was originally introduced by Robert
Kaplan and David Norton in ?The Balanced Scorecard: Measures That Drive
Performance,? Harvard Business Review, Jan/ Feb (1992). FSA Experimenting
with

Balanced Scorecard to Link Employee?s Day- toDay Activities to Strategic
Goals

FSA and Department Have Not Met the Requirement to Report Annually to
Congress on the PBO?s Performance

Page 15 GAO- 02- 255 Federal Student Aid

other things, the evaluation rating of the performance of the COO and other
senior managers including the amounts of bonus compensation awarded to these
individuals, and recommendations for legislative and regulatory changes to
improve service to students and their families, and to improve program
efficiency and integrity. In the documents FSA submitted for fiscal year
1999 and in its draft report for fiscal year 2000, did not include required
information such as recommendations for legislative and regulatory changes.
In addition, while FSA included information about the amounts of bonus
awarded to the COO and senior managers, it did not include the evaluation
rating for them as required.

FSA has begun to better organize its services and manage its employees, but
gaps exist in its human capital strategy 18 and it has not yet implemented
performance management initiatives to fully develop and assess its
employees. To better serve its customers and improve employee performance,
FSA reorganized its operations, hired senior managers accountable for
specific strategic goals, and encouraged accountability among all employees.
However, FSA?s human capital senior manager has not been an active
participant in setting FSA?s strategic direction. Also, FSA still faces
challenges in planning for the succession, deployment, and training of
staff. Moreover, FSA has not yet implemented a performance management system
though its enabling legislation requires it to do so.

Sound human capital principles state that organizations should be structured
on the basis of their strategic goals, have a strategic vision, and ensure
accountability for commitment to those goals and vision. FSA has taken steps
to adopt these practices.

Since being established as a PBO, FSA has restructured itself into three
customer- oriented ?channels?- one for students, schools, and financial
partners (guaranty agencies and lenders)-- each led by a channel general
manager. According to FSA officials, the realignment was intended to improve
the organization?s performance and increase coordination of mission-
critical activities. FSA also created a number of ?enterprise? units to
support the channels by focusing on internal customer or stakeholder needs.
These units, each with its own enterprise director, focus on

18 FSA prepared a draft Human Capital and Competitive Sourcing Plan for FY
2002- FY 2003 dated December 10, 2001. FSA Has Begun to

Better Organize and Manage Its Workforce, but Gaps Exist in Its Human
Capital Strategy

FSA Has Taken Several Steps to Restructure Its Organization and Ensure
Accountability

Page 16 GAO- 02- 255 Federal Student Aid

activities such as analysis, communications, and human resources. The
operations of the chief financial officer (CFO) and chief information
officer (CIO) are considered support organizations responsible for technical
and financial management practices and infrastructure. Figure 1 shows how
FSA?s total workforce of about 1,200 employees is organized and how the COO
positioned his office in the middle of FSA?s official organization chart to
stress the importance of the three customer- oriented channels.

Figure 1: Distribution of FSA Employees by Organizational Unit

Note: Numbers include all employees on board in both headquarters and
regions regardless of temporary or part time as of November 2001.

Source: FSA Human Resources.

In addition to changing the way its staff is organized, FSA also created a
management council to steer the organization strategically and ensure

Student Channel

289

Office of the Chief Information Officer

97

Accquisition and Contracts

6

Human Resources

8

Analysis

39

Communications

7

SFA University

46

Office of the Chief Operating Officer

10

Office of the Chief Financial Officer

79

School Channel

517

Ombudsman

8

SFA Intern Program

24

Financial Partner Channel

73

Page 17 GAO- 02- 255 Federal Student Aid

communication among the channels. The council is comprised of the COO, CIO,
CFO, each of the channel general managers, and representatives from FSA?s
primary contractors responsible for modernizing information systems.

To hold FSA accountable for achieving results, FSA?s enabling legislation
requires the COO and each senior manager to enter into an annual performance
agreement that sets forth measurable organizational and individual goals.
According to FSA officials, the organization?s annual performance plan
serves as the basis of these agreements. 19 The annual goals and strategies
for which each manager has responsibility serve as his or her agreement.
Since the annual goals and strategies contribute to one or more of FSA?s
three strategic goals, the performance agreements ensure that managers are
responsible for contributing to the organization?s overall performance. For
example, a channel manager may be responsible for increasing the number of
aid applications filed electronically and, in so doing, help FSA achieve its
strategic goals of increasing employee and customer satisfaction and
reducing unit cost. Each fall, senior managers submit to the COO a document
indicating how their work over the prior year has led to the accomplishment
of the annual goals and strategies in their performance agreements. If they
achieve their goals, they are awarded bonuses- 50 percent of the bonus is
based on the COO?s evaluation of the managers? overall contribution; the
remaining 50 percent is based on the extent to which FSA reached its three
strategic goals. The COO is also eligible for a bonus based on the
secretary?s evaluation of the COO?s performance. The COO and FSA senior
managers who have performance agreements with the COO are also subject to
removal for failing to achieve sufficient progress toward performance goals.

In fiscal year 2001, the COO received a bonus of $60,165 and 17 other senior
managers received bonuses ranging from $10,277 to $30,082. 20 FSA

19 According to a FSA official, the fiscal year 2002 performance agreements
are based not only on the FSA performance plan but also the department?s
draft 2002- 2007 Strategic Plan, the President?s Management Agenda, and the
Blueprint for Management Excellence.

The President?s Management Agenda is discussed in more detail later in this
report. 20 One of the requirements of the PBO legislation is that FSA report
the evaluation rating for the COO and senior managers in its annual report.
However, as previously discussed, FSA and Education have not yet submitted
the report to Congress. FSA officials told us that the COO?s fiscal year
2001 bonus was based on the department?s assessment of the degree to which
FSA met its organizational goals; senior managers? bonuses were based on the
criteria discussed above.

Page 18 GAO- 02- 255 Federal Student Aid

has also tried to encourage and reward high performance throughout the
organization by awarding bonuses to all staff based on the COO?s assessment
of FSA?s success in meeting its strategic goals. For fiscal year 2001, staff
received a bonus equivalent to 90 percent of their pay for one biweekly
period. An FSA employee making $1,000 per biweekly period would receive a
bonus of $900, for example. 21

FSA has taken important steps towards developing its human capital, but gaps
remain in its overall human capital approach. In its fiscal year 2002
performance plan and human capital plan FSA laid out its human capital
priorities, such as seeking to implement employee incentive and recognition
programs, but it did not discuss its strategy for using its human capital
resources to drive the organization toward achievement of its three
strategic goals. Our work on human capital management has shown that sound
human capital practices require agencies to transform their traditional
human resources function from a support office to a partner in setting the
organization?s strategic direction, preparing for future needs by
identifying pending retirements and anticipating hiring needs, and linking
training and development activities to employee skill sets and expectations
for job performance. 22 FSA?s efforts in these areas, however, have fallen
short because it has not fully addressed these critical elements of human
capital management.

The position of human resources unit director- the designated human capital
senior manager- was not permanently staffed until May 2000- in part, because
it was thought of as ?second tier,? according to one official. Further, the
existing human resources director does not have an active role on FSA?s
Management Council. While some of the members of the Management Council may
have human capital responsibilities for their particular offices, no one
person on the council has overall responsibility for FSA?s human capital
planning and management. The strategic role of human capital staff is vital
if FSA is to increase the effectiveness of its

21 Because the fiscal year 2000 annual report was not submitted to Congress,
information pertaining to bonuses, among other things, was not made public.
In fiscal year 2000, the COO received a bonus of $47, 213 and 14 other
senior managers received bonuses ranging from $6, 000 to $32,000. Staff
received a bonus equivalent to 97.5 percent of their pay for one biweekly
period.

22 See U. S. General Accounting Office, Human Capital: A Self- Assessment
Checklist for Agency Leaders, GAO/ OCG- 00- 14G (Washington, D. C.: Sept. 1,
2000) and A Model of Strategic Human Capital Management, GAO- 02- 373SP
(Washington, D. C.: Mar. 15, 2002). Gaps Exist in FSA?s Human

Capital Strategy to Enhance Workforce Planning and Development

Human Capital Focus

Page 19 GAO- 02- 255 Federal Student Aid

current human capital management practices. However, nothing in the
performance plan or FSA?s recently proposed human capital plan suggests that
the human capital function will be elevated in stature within FSA and hold
?a place at the table? among senior management in decision making. In the
high- performing organizations that we studied, 23 human capital staff
participated as full members of management teams and ensured that those
teams proactively addressed human capital issues. For example, several
organizations we studied told us that they involved their human capital
staff as decisionmakers and internal consultants by having leaders of their
human capital staff serve on senior executive planning committees similar to
FSA?s Management Council. In addition, while FSA, in its draft human capital
plan, has proposed expanding the role of its human capital unit to include
serving as a liaison to the department in carrying out agency- wide programs
and policies, and overseeing specific human capital initiatives within FSA,
it proposed a similarly expanded role in a September 2000 plan that was
never approved by the department.

As of September 2001, about 38 percent of FSA?s workforce was eligible for
retirement, yet FSA does not have a formal plan to address pending
retirements. Should those eligible to retire do so, FSA will be faced with a
substantial loss of institutional knowledge. FSA?s draft human capital plan
begins to address attrition by discussing how it will work to retain and
reward top performers, get rid of poor performers, use contractors to
complete appropriate business functions, but FSA has no hiring plans that
address such factors as how many staff are needed and the skills they should
possess. Having a plan that addresses such factors is important even though
FSA cannot immediately hire individuals for key positions due to
departmental hiring restrictions.

According to several FSA officials, hiring has been problematic in light of
special departmental procedures that have affected FSA?s ability to fill
about 300 vacancies. These procedures- effective since January 24, 2001-
restrict certain personnel selections, reassignments, and promotions at FSA
and a number of other offices within the department. Currently, FSA can only
reassign or detail its staff within the PBO, and it must request exemptions
to these procedures for all other decisions related to hiring, promoting, or
detailing staff. Decisions related to posting employment opportunities and
extending employment offers, for example,

23 See U. S. General Accounting Office, Human Capital: Key Principles From
Nine Private Sector Organizations, GAO/ GGD- 00- 28 (Washington, D. C.: Jan.
31, 2000). Workforce Planning

Page 20 GAO- 02- 255 Federal Student Aid

must first be approved by the department. Between February 7 and December 7,
2001, FSA requested 73 exemptions to these procedures. Of these, 33 were
approved, while the remaining have been denied or have not yet been acted
upon.

We found that concerns over hiring and the deployment of existing staff were
particularly prominent in the Case Management and Oversight (CMO) unit in
the schools channel, which performs functions critical to ensuring the
integrity of FSA?s financial aid programs. Among other things, CMO staff
certify schools? eligibility to participate in student aid programs and
enforce programmatic requirements. To more effectively use its staff and
fulfill its responsibilities, CMO has instituted a variety of strategies.
For example, CMO has recently implemented an assessment tool to identify
schools with the greatest likelihood of noncompliance with financial aid
regulations. Using this tool, CMO believes it can better target its staff?s
enforcement activities. However, in three of the five regional offices we
visited, CMO officials told us that these efforts were not enough. These
officials expressed concern that, without sufficient staff, institutional
oversight and technical assistance activities could decrease, potentially
compromising the integrity of the financial aid programs.

FSA has expanded the training opportunities available to its staff since its
PBO designation. Table 2 provides a description of current training
programs. Training

Page 21 GAO- 02- 255 Federal Student Aid

Table 2: FSA Training Resources and Availability Training resources
available to FSA employees Description of training Availability

FSA University Offers three courses that are designed in part to teach
employees about the history and facets of student aid delivery and the
organization?s mission, goals, and service standards..

Each course was offered multiple times during a three month period; no plans
to offer again until new staff are hired.

Career Zone Offers courses in giving presentations, preparing a business
plan, navigating the internet, and understanding the budget process.

Courses are offered multiple times a year FSA Learning Benefits Program
Provides $500 learning coupons to staff that can be applied

to any external training. Employees can apply for a coupon when they want to
take training. Education?s Training and Development Center (TDC)

FSA staff can enroll in courses related to customer service delivery,
contract administration, use of specific computer software packages, and
enhancing auditing and financial management skills. Additionally, FSA
managers also rely on staff from the TDC for instruction regarding
communicating performance expectations, understanding project management,
developing effective leadership skills, and resolving conflicts.

Courses are offered multiple times a year. Source: FSA and Education.

Even though FSA has expanded the courses it offers, it has yet to implement
tools that would allow it to assess its employees? training needs. FSA has
proposed what it calls the ?performance development process? (PDP). The PDP
has two core components- improving employee performance by introducing
Individual Development Plans (IDP) to the workforce 24 and documenting
employee skills through a comprehensive skills catalogue- intended to
identify employees? training needs. IDPs would allow all staff to link their
professional goals to the goals of FSA by developing work plans in
collaboration with their supervisors. FSA managers would appraise employees?
job performance by determining whether they?ve met, exceeded, or failed to
reach the goals they have selfassigned in their IDP. 25 The second part of
the PDP, the skills catalogue, will attempt to allow FSA managers to
identify employees? training needs by ascertaining the skills they already
have.

24 The department already has an Individual Development Plan tool in place.
However, employee use of this tool is voluntary and not systemically
encouraged. According to one department official, use of the IDP is
extremely limited.

25 FSA currently operates under the department?s pass/ fail appraisal
system.

Page 22 GAO- 02- 255 Federal Student Aid

FSA proposed the PDP not only as a sound human capital management tool, but
also in order to meet legislative requirements. The PBO legislation requires
FSA to establish a performance management system that creates goals for the
performance of employees, groups, and the organization consistent with the
PBO?s performance plan. Despite the steps discussed above, FSA?s
relationship with its union 26 has made implementation of many of these
initiatives difficult. Both FSA and union officials have had difficulty
negotiating on related proposals. According to its collective bargaining
agreement, the union has the opportunity to review actions affecting any
aspect of employee working conditions, including those related to training,
development, and appraisals. According to an FSA official, because FSA and
the union could not reach agreement on the proposed PDP, due to unresolved
differences regarding the appraisal component of the PDP, FSA has recently
withdrawn the proposal from negotiations, leaving the status of an integral
component of its human capital plans undecided.

Education continues to take steps to clarify FSA?s level of independence and
its relationship with other Education offices. The legislation establishing
FSA as a PBO provided that, subject to the secretary?s direction, FSA would
exercise independent control with respect to certain functions. To address
this issue, Education and FSA, under the previous administration, developed
and signed memorandums of understanding (MOU) to specify the authorities
provided to FSA and procedures concerning how FSA would interact with other
Education offices. With the arrival of the current administration in January
2001, Education established special interim procedures for all its
department units, including FSA, that were intended to ensure that personnel
and financial resources are managed effectively and efficiently throughout
the department while long term management plans are being developed. As a
result of the interim procedures, Education now provides greater direction
and oversight of FSA than did the previous administration. Education is
currently reviewing FSA?s role and responsibilities as part of that overall
departmentwide management planning effort. The results of this planning
effort will be used to make future decisions concerning FSA?s level of
independence and its relationship to other Education offices, according to
Education officials.

26 The American Federation of Government Employees, Council 252, represents
all eligible employees of Education, including those in FSA. Education
Continues

to Take Steps to Clarify FSA?s Level of Independence

Page 23 GAO- 02- 255 Federal Student Aid

The legislation establishing FSA as a PBO provided that, subject to the
secretary?s direction, FSA would exercise independent control with respect
to certain functions. In addition, the secretary in agreement with the COO,
is authorized to allocate to the PBO such other functions that they
determine necessary to achieve the purposes of the PBO. Interviews with FSA
and former Education officials indicated that together they struggled with
balancing the PBO?s independence and identifying how the organization fit
into the structure of the department. For example, issues of service
duplication with other Education offices in areas like human resources and
information technology had to be balanced with FSA?s desire to mold these
functions to meet its mission. To address such issues, the department and
FSA, under the previous administration, developed and signed memorandums of
understanding (MOUs) for human resource management, acquisition and
contracting, and information technology. These documents delegated certain
authorities to the COO and set out policies and guidelines to be followed
because FSA?s operations in these areas interacted with the rest of the
department. For example, in the area of human resources, the MOU delegated
authority for, among other things, establishing the performance management
system and hiring to FSA. Because some of these human capital functions
required union involvement to complete, the MOU required FSA to work in
consultation with the department to finalize any changes that impact the
terms of the department?s collective bargaining agreement.

Since the change in administration in January 2001, the department has been
reassessing the MOUs and FSA?s relationship with the department. In contrast
to the past, FSA is currently subject to special interim procedures
established by the department for all of its units in January 2001 and
updated in September 2001. According to a departmental memo, the special
procedures were put into place to allow the department to manage its
personnel and financial resources in the most effective and efficient ways
possible and in accordance with the President?s Management Agenda. An
overall strategy for improving the management and performance of the federal
government, the Agenda specifically includes taking actions that result in
FSA?s student financial aid programs no longer being designated as high risk
by GAO. The special procedures, for principal offices with senior political
appointees in place, require prior departmental approval to (1) advertise
and fill positions at the senior level, (2) reassign employees, (3) hire or
continue the services of any consultant, or (4) award any new contracts
above $100,000. The special procedures pertaining to FSA are stricter and
the same as those applicable to principal Efforts to Determine FSA?s

Role within the Department Had Been Ongoing under the Previous
Administration

Education Now Provides Greater Direction and Oversight of FSA; Current
Planning Efforts Will Guide Future Decisions about FSA

Page 24 GAO- 02- 255 Federal Student Aid

offices with vacancies at the senior political level. These procedures
require department- level officials to review and act on all administrative,
management, and policy issues. As a result of these changes, FSA?s
independence has lessened. As previously discussed, for example, hiring has
been problematic in light of the special departmental procedures and has
affected FSA?s ability to fill about 300 vacancies, according to several FSA
officials.

Education responded to the President?s Management Agenda by developing its
Blueprint for Management Excellence. The Blueprint

specifies the steps it will take to have GAO?s high- risk designation
removed from its student financial aid programs and addresses other
longstanding management challenges facing the department. As noted in its
Blueprint, the department is reviewing the prior MOUs to ?determine what is
and is not working as intended.? The Blueprint also provides that after
consultation with the community and members of Congress, the department will
resolve relationship issues between FSA and other department offices. To
help develop comprehensive strategies to implement its Blueprint, the
department is currently working with the National Academy of Public
Administration (NAPA) and the Private Sector Council( PSC). According to
Education officials, decisions concerning FSA as well as plans to address
departmental management challenges will be based on the results of these
efforts. Education expects its work with NAPA and PSC to result in a final
report, scheduled to be issued in June 2002.

Congress established FSA as a PBO in hopes that doing so would result in
long sought operational changes in its programs. As we have discussed,
elements of PBO reform include an expectation for results in exchange for
flexibility. Although established as a PBO for a relatively short time, FSA
has made important progress in undertaking reforms and its performance to
date, as reflected in gains in customer and employee satisfaction, shows
promise. Despite these gains, FSA needs to make additional improvements. As
a PBO, FSA must ensure that it meets its obligation to report the progress
it is making towards the goals Congress established for it. Key to reporting
results is submitting complete, useful, and timely information to Congress.
Because of the longstanding concerns over FSA?s lack of the financial and
management information needed to ensure the integrity of the student
financial aid programs, FSA needs to clearly inform Congress and the public
of its progress in addressing this issue. In particular, FSA needs to
improve its reporting of the progress it is making with regard to
implementing its plans for integrating its student financial Conclusions

Page 25 GAO- 02- 255 Federal Student Aid

aid data systems and enhancing the integrity of its student loan and grant
programs. In addition, in light of the complexity of FSA?s unit cost
calculation as well as recent changes in how it calculates costs, it will be
important for FSA to disclose these issues in future performance plans and
reports. FSA also needs to ensure it makes human capital management an
integral part of its strategic approach for accomplishing its mission.
Without doing so, FSA cannot ensure that its workforce is adequately
prepared to meet future challenges and accomplish its mission. In
particular, FSA needs to address critical issues including workforce
planning and development.

 To ensure that congressional decision makers and the public understand the
measure FSA uses to gauge its performance with respect to the costs of
administering student financial aid programs, we recommend that the
secretary of education direct FSA?s COO to fully disclose in its performance
plans and subsequent performance reports the bases of its unit cost
calculation and to clarify what costs are included and excluded from the
calculation.

 To ensure accountability for making continued progress toward its
legislative mandate to integrate systems, we recommend that the secretary of
education direct FSA?s COO, in collaboration with the secretary, to develop
and include clear goals, strategies, and measures to better demonstrate in
FSA?s performance plans and subsequent performance reports its progress in
implementing plans for integrating its financial aid systems.

 To ensure accountability for enhancing the integrity of its programs, we
recommend that the secretary of education direct FSA?s COO, in collaboration
with the secretary, to develop performance strategies and measures that
better demonstrate in its performance plans and subsequent performance
reports its progress in enhancing the integrity of its student loan and
grant programs. In particular, FSA should develop measures that better
demonstrate whether its technical assistance activities result in improved
compliance among schools and additional strategies for achieving its default
management goals. Recommendations

to the Secretary of Education

Page 26 GAO- 02- 255 Federal Student Aid

 To inform Congress about FSA?s performance and to comply with statutory
requirements, we recommend that the secretary of education and FSA?s COO
work collaboratively to take the steps necessary to ensure that complete and
timely annual performance reports are submitted to Congress.

 To ensure that FSA?s workforce is adequately prepared to meet future
challenges and accomplish its mission, we recommend that the secretary of
education and FSA?s COO coordinate closely to develop and implement a
comprehensive human capital strategy that incorporates succession planning
and addresses staff development.

In written comments on our draft report, Education agreed with our reported
findings and recommendations and discussed its efforts to address longer
term and structural issues that hinder the efficient and effective
performance of FSA and the department. In response to our recommendation
regarding FSA?s unit cost calculation, Education told us that it is in the
process of working with FSA senior management to refine the measure and will
stop using the current measure in the mid- year amendment to the FSA 2002
performance plan. In addition, Education said that it would include a
detailed explanation of how unit costs are calculated in the upcoming annual
performance report. Moreover, FSA?s performance plan will be revised to
establish measurable goals and milestones for systems integration efforts to
provide both direction to FSA and enhance its accountability. In response to
our recommendation regarding program integrity issues, Education said that
it is examining new performance measures that focus on compliance and risk.
Also, Education said that it is working with FSA to finalize the 2000- 2001
annual performance report and told us that it will submit a report that
meets all statutory requirements to Congress soon. Finally, Education said
that it is developing comprehensive strategies integrating human capital
management, competitive sourcing, and restructuring for the entire
Department. As part of this effort, Education said that it would direct
FSA?s COO to implement and execute the steps in these strategies that are
applicable to FSA?s goals and objectives. Education also provided technical
clarification, which we incorporated when appropriate. Education?s written
comments appear in appendix I. Agency Comments

Page 27 GAO- 02- 255 Federal Student Aid

We are sending copies of this report to the secretary of education and other
interested parties. We will also make copies available to others upon
request. This report is available at GAO?s homepage, http:// www. gao. gov.

If you or your staff have any questions about this report, please contact me
on (202) 512- 8403 or Jeff Appel at (202) 512- 9915. Other contacts and
acknowledgments are listed in appendix II.

Sincerely yours, Cornelia M. Ashby Director, Education, Workforce,

and Income Security

Appendix I: Comments from the Department of Education

Page 28 GAO- 02- 255 Federal Student Aid

Appendix I: Comments from the Department of Education

Appendix I: Comments from the Department of Education

Page 29 GAO- 02- 255 Federal Student Aid

Appendix I: Comments from the Department of Education

Page 30 GAO- 02- 255 Federal Student Aid

Appendix I: Comments from the Department of Education

Page 31 GAO- 02- 255 Federal Student Aid

Appendix I: Comments from the Department of Education

Page 32 GAO- 02- 255 Federal Student Aid

Appendix II: GAO Acknowledgments and Contacts

Page 33 GAO- 02- 255 Federal Student Aid

Jeff Appel, (202) 512- 9915 Gilly Martin, (202) 512- 8330

In addition to those named above, the following people made significant
contributions to this report: Jonathan Barker, Patricia Bundy, Patrick
DiBattista, Joy Gambino, Simin Ho, and Judith Kordahl. Appendix II: GAO
Acknowledgments and

Contacts GAO Contacts Staff Acknowledgments

(130026)

The General Accounting Office, the investigative arm of Congress, exists to
support Congress in meeting its constitutional responsibilities and to help
improve the performance and accountability of the federal government for the
American people. GAO examines the use of public funds; evaluates federal
programs and policies; and provides analyses, recommendations, and other
assistance to help Congress make informed oversight, policy, and funding
decisions. GAO?s commitment to good government is reflected in its core
values of accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost is
through the Internet. GAO?s Web site (www. gao. gov) contains abstracts and
fulltext files of current reports and testimony and an expanding archive of
older products. The Web site features a search engine to help you locate
documents using key words and phrases. You can print these documents in
their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as ?Today?s Reports,? on its Web
site daily. The list contains links to the full- text document files. To
have GAO e- mail this list to you every afternoon, go to www. gao. gov and
select ?Subscribe to daily E- mail alert for newly released products? under
the GAO Reports heading.

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:

U. S. General Accounting Office 441 G Street NW, Room LM Washington, D. C.
20548

To order by Phone: Voice: (202) 512- 6000 TDD: (202) 512- 2537 Fax: (202)
512- 6061

Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail: fraudnet@
gao. gov Automated answering system: (800) 424- 5454 or (202) 512- 7470

Jeff Nelligan, managing director, NelliganJ@ gao. gov (202) 512- 4800 U. S.
General Accounting Office, 441 G Street NW, Room 7149 Washington, D. C.
20548 GAO?s Mission

Obtaining Copies of GAO Reports and Testimony

Order by Mail or Phone To Report Fraud, Waste, and Abuse in Federal Programs

Public Affairs
*** End of document. ***
```