MANAGEMENT’S DISCUSSION AND ANALYSIS
2 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

The U.S. Department of Education (the 

Department) continued to enhance the content 

quality, report layout, and public accessibility 

of the Fiscal Year (FY) 2017 Agency Financial Report 

(AFR) by providing additional graphics and more useful, 

balanced, and easily understood information about 

the Department’s grant and loan programs, including 

additional cost and risk information. Additionally, 

we augmented information provided in the body of 

the AFR with relevant web content to provide users 

with additional information about the Department’s 

operations and performance. To take advantage of the 

hyperlinks embedded in the report, the Department 

recommends reading it on the Internet. To help us 

continue to improve the quality and usefulness of 

information provided in our AFR, we encourage our 

public and other stakeholders to provide feedback and 

suggestions at AFRComments@ed.gov.

This section highlights information on the Department’s 

performance, financial statements, systems and controls, 

compliance with laws and regulations, and actions taken 

or planned to address select challenges.

MISSION AND ORGANIZATIONAL STRUCTURE

This section provides information about the Department’s 

mission, an overview of its history, and its structure. The 

active links include the organization chart and principal 

offices and a link to the full list of Department offices

with a description of selected offices by function.

DISCUSSION OF PERFORMANCE

This section includes an overview of performance 

reporting and a high-level discussion on the Department’s 

focus areas for FY 2017. The results achieved from 

Department expenditures are discussed at a high level 

in the AFR. For more details about performance, please 

refer to the Department’s budget and performance web 

page and performance.gov. 

To view information on all Department programs, visit 

the Department’s website.

FORWARD-LOOKING INFORMATION

The Forward-Looking Information section describes 

the challenges that the Department aims to address to 

achieve progress on Direct Loans, Shared Services, and 

Enterprise Risk Management (ERM).

FINANCIAL HIGHLIGHTS

The Department expends a substantial portion of its 

budgetary resources and cash on multiple loan and grant 

programs intended to support state and local efforts 

to improve learning outcomes for all prekindergarten 

through 12th grade (P–12) students in every community 

and to expand postsecondary education options and 

improve outcomes to foster economic opportunity 

and informed, thoughtful, and productive citizens. 

Accordingly, the Department included more highlevel details about sources and uses of the federal funds 

received and net costs by program.

ANALYSIS OF SYSTEMS, CONTROLS, AND 

LEGAL COMPLIANCE

The Department’s internal control framework and its 

assessment of controls, in accordance with Office of 

Management and Budget (OMB) Circular A-123, 

Management’s Responsibility for Enterprise Risk 

Management and Internal Control, provide assurance 

to Department leadership and external stakeholders that 

financial data produced by the Department’s business and 

financial processes and systems are complete, accurate, 

and reliable. 

ABOUT THE MANAGEMENT’S DISCUSSION AND ANALYSIS
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 3

ABOUT THE DEPARTMENT

Who We Are. In 1867, the federal government recognized 

that furthering education was a national priority and 

created a federal education agency to collect and report 

statistical data. The Department was established as a 

cabinet-level agency in 1980. Today, the Department 

supports programs in every area and level of education 

from preschool through postdoctoral research.

The Department makes funds and information 

available to individuals pursuing education, colleges and 

universities, state education agencies, and school districts 

by engaging in four major types of activities:

 establishing policies related to federal education 

funding, including distributing funds, collecting 

on student loans, and using data to monitor the 

use of funds;

 supporting data collection and research on 

America’s schools;

 identifying major issues in education and focusing 

national attention on them; and

 enforcing federal laws promoting equal access and 

prohibiting discrimination in programs that receive 

federal funds.

Our Public Benefit. The Department executes the 

laws passed by Congress to promote student academic 

achievement and preparation for global competitiveness. 

The Department works with students, parents, 

OUR MISSION

The U.S. Department of Education’s mission is to promote student achievement 

and preparation for global competitiveness by fostering educational excellence and 

ensuring equal access.

educational institutions, school districts, and states to 

foster educational excellence and to ensure equal access 

to a high quality education for all students. While 

recognizing the primary role of states and school districts 

in providing high quality education, the Department 

is committed to helping ensure students throughout 

the nation develop skills to succeed in school, pursue 

postsecondary options, and transition to the workforce. 

The Department’s vision is to improve educational 

outcomes for all students.

Many of the Department’s programs involve awarding 

grants to state and local educational agencies and 

providing grants and loans to postsecondary students. 

The Department’s largest outlays are for its portfolio of 

student loans (see the Financial Highlights and Notes

sections). Grant programs constitute the second-largest 

driver of outlays. The grant programs include: student 

aid to help pay for college through Pell Grants, Work 

Study, and other campus-based programs; grants awarded 

based on statutory formulas mostly for elementary and 

secondary education (see the chart on page 5); and 

competitive grant programs to promote innovation 

(see The Department’s Approach to Performance 

Management section). The Department also supports 

research, collects education statistics, and enforces civil 

rights statutes. We manage and spend financial resources 

on programs designed to support parents, teachers, 

principals, school leadership, institutions, and states in 

the pursuit of instilling knowledge and transferring skills 

to students.
4 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OUR ORGANIZATION IN FISCAL YEAR 2017

This chart reflects the coordinating structure of the U.S. Department of Education. Interactive

and text versions of the FY 2017 coordinating structure of the Department are available.

 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

5

FY 2016 ACTUAL FORMULA GRANT DISTRIBUTION BY REGION AND STATE

The figures in these tables are made up of funding from multiple programs allocated to states 

based on statutory formulas. These do not include discretionary grants, need-based grants, 

or federal loans. For more details, view the Department’s State Budget Tables.

West Grades K–12 Postsec All Other

Alaska $ 258 $ 36 $ 12

Arizona 829 1,044 100

California 4,058 3,791 404

Colorado 440 418 51

Hawaii 165 75 16

Idaho 163 162 21

Montana 170 67 16

Nevada 253 133 24

New Mexico 348 181 30

Oregon 372 342 58

Utah 272 378 34

Washington 662 429 68

Wyoming 112 29 11

TOTAL $ 8,103 $ 7,086 $ 844

South Grades K–12 Postsec All Other

Alabama $ 538 $ 496 $ 74

Arkansas 352 268 53

Delaware 116 60 15

District of 

Columbia 93 132 18

Florida 1,865 1,807 227

Georgia 1,111 942 111

Kentucky 495 379 65

Louisiana 627 383 47

Maryland 535 378 53

Mississippi 401 325 52

North Carolina 986 803 129

Oklahoma 457 295 45

South Carolina 525 379 68

Tennessee 678 529 73

Texas 3,217 2,166 308

Virginia 725 668 92

West Virginia 217 206 37

TOTAL $ 12,936 $ 10,217 $ 1,469

Midwest Grades K–12 Postsec All Other

Illinois $ 1,488 $ 1,140 $ 137

Indiana 660 724 71

Iowa 285 374 35

Kansas 332 237 28

Michigan 1,149 829 124

Minnesota 483 461 59

Missouri 620 532 78

Nebraska 212 132 24

North Dakota 120 46 12

Ohio 1,275 793 129

South Dakota 164 86 12

Wisconsin 564 390 73

TOTAL $ 7,352 $ 5,744 $ 782

Northeast Grades K–12 Postsec All Other

Connecticut $ 330 $ 266 $ 33

Maine 148 107 19

Massachusetts 656 518 71

New Hampshire 128 117 13

New Jersey 898 617 80

New York 2,478 1,923 204

Pennsylvania 1,280 937 166

Rhode Island 131 108 16

Vermont 95 48 14

TOTAL $ 6,144 $ 4,640 $ 616

Other Grades K–12 Postsec All Other

American 

Samoa $ 26 $ 4 $ 1

Freely 

Associated 

States

7 16 0

Guam 43 15 4

Indian setaside 247 - 43

Northern 

Mariana 

Islands

18 4 1

Puerto Rico 682 890 69

Virgin Islands 25 5 3

All Other 329 - 2

TOTAL $ 1,376 $ 934 $ 123

 

NOTES: Dollars in millions. Detail may not add to totals due to 

rounding. Data are current as of September 13, 2017.
6 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

challenges the Department faces from the perspective 

of the Department’s Office of Inspector General are 

provided in the Other Information section of the report.

AGENCY ACHIEVEMENTS AND LOOKING AHEAD 

The U.S. Department of Education’s mission is to 

promote student achievement and preparation for global 

competitiveness by fostering educational excellence 

and ensuring equal access. This mission is manifested 

in the Department’s efforts to continually improve the 

educational environment for all students, and address 

their education needs. The Department’s National 

Center for Education Statistics (NCES) estimates that 

50.7 million students are attending public elementary 

and secondary schools in the fall of 2017, with a 

projected 35.6 million in prekindergarten through grade 

8 and a projected 15.1 million in grades 9 through 12. 

An additional 5.2 million students are expected to attend 

private elementary and secondary schools. In fact, NCES 

predicts that the total P–12 enrollment will continue 

to grow to an all-time high of 56.8 million by 2026, 

indicating the increasing need for the highest quality 

agency performance. 

Looking to the future, the Department plans to focus in 

the key areas of: (1) supporting state and local efforts to 

improve learning outcomes for all P–12 students in every 

community; (2) expanding postsecondary education 

options and improving outcomes to foster economic 

opportunity and informed, thoughtful, and productive 

citizens; (3) strengthening the quality, accessibility, and 

use of education data through better management, 

increased privacy protections, and transparency; and (4) 

reforming the effectiveness, efficiency, and accountability 

of the Department.

SUPPORTING STATE AND LOCAL EFFORTS 

TO IMPROVE LEARNING OUTCOMES FOR 

P–12 STUDENTS

In March, the Department released a revised 

consolidated state plan template to support states 

in meeting the requirements of the Elementary 

and Secondary Education Act of 1965 (ESEA), as 

PERFORMANCE MANAGEMENT FRAMEWORK 

The Government Performance and Results 

Act Modernization Act of 2010 (GPRAMA)

requires agencies to establish a strategic plan that 

presents the long-term goals that the agency intends to 

accomplish. GPRAMA requires agencies to establish 

a four-year strategic plan at the beginning of each 

Administration. The Strategic Plan describes the key 

policy and operational priorities for the agency, detailing 

the Department’s strategic performance goals that will 

guide human capital and budget planning.

Throughout Fiscal Year (FY) 2017, the Department 

conducted a series of strategic planning meetings to 

develop the FY 2018–22 Strategic Plan. These meetings 

included a focus on capturing lessons learned and 

developing a framework for the new Strategic Plan. The 

Department also consulted with Congress and the Office 

of Management and Budget (OMB). The Department 

plans to publish the FY 2018–22 Strategic Plan with the 

President’s FY 2019 Budget in February 2018. Questions 

or comments about the Department’s performance 

management framework and reporting should be 

e-mailed to PIO@ed.gov.

INFORMATION IN THE AGENCY 

FINANCIAL REPORT

The Department has elected to produce separate financial 

and performance reports. The Agency Financial Report for 

FY 2017 provides a high-level description of performance 

measures and goals based on the FY 2014–18 Strategic 

Plan. A detailed discussion of performance information 

for FY 2017 will be provided in the Department’s Annual 

Performance Report to be released at the same time as the 

President’s FY 2019 Budget. The Department’s annual 

performance reports for prior years are available online. 

We also urge readers to seek programmatic data as it is 

reported in the Congressional Budget Justification, as 

well as on the web pages of individual programs.

The high-level discussion of performance information 

in this year’s AFR includes performance matters that 

inform decisions of the Department and its partners. 

Discussions about the most serious management 

THE DEPARTMENT’S APPROACH TO 

PERFORMANCE MANAGEMENT
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

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amended by the Every Student Succeeds Act (ESSA). The 

Department worked with state educational agencies 

(SEAs), and other state and local stakeholders, to develop 

a revised template that is structured to reduce burden 

and promote innovation, flexibility, transparency, and 

accountability, while maintaining essential protections 

for all students. The revised template asks states only 

to provide detail on their plans in areas (a) explicitly 

required by law and (b) deemed absolutely necessary 

for consideration of such a plan, consistent with ESEA 

section 8302(b)(3), leveraging input of states, local 

educators, and parents. State plans have been submitted 

to the Department, peer-reviewed, and approved. 

Looking Ahead: Every student—regardless of 

background or circumstance—deserves an opportunity 

to fulfill his or her potential. High-quality educational 

opportunities are critical when it comes to achieving 

that goal, especially for the most vulnerable students 

and communities. The President’s FY 2018 Budget is 

an indication of the commitment to support the most 

vulnerable. Level funding of the Title I Grants program

totaling $14.9 billion would be allocated to local 

educational agencies’ programs to support state and local 

efforts to ensure that more than 25 million students in 

high-poverty schools have access to rigorous coursework 

and teaching. Additionally, the federal investment in 

the Individuals with Disabilities Education Act

formula grant programs at $12.7 billion would support 

services to 6.8 million children with disabilities and 

to states to design and implement special education 

program improvement efforts under the Department’s 

Results Driven Accountability framework. The English 

Language Acquisition program would receive $736 

million to implement effective language instruction 

programs designed to help English learners attain English 

language proficiency. 

The Administration’s education priority is to help ensure 

every student in America has an equal opportunity for 

a great education by giving parents more control and 

greater options. The proposed FY 2018 budget includes 

a $167 million increase for the Charter Schools Grants 

program to strengthen state efforts to start new charter 

schools or expand and replicate existing high-performing 

charter schools while providing up to $100 million to 

meet the demand for charter school facilities.

The Department is also focused on promoting evidencebased decision making with the intention to support 

states and districts in using and building evidence 

effectively. To this end, in FY 2017, the Department 

published revised evidence definitions and related 

selection criteria for competitive grant programs 

in Education Department General Administrative 

Regulations that align with ESSA; disseminated 

nonregulatory guidance on evidence in ESSA, Using 

Evidence to Strengthen Education Investments, 

which contains a five-step decision-making framework 

that shapes evidence as a mechanism for continuous 

improvement and recommends criteria for each of the 

four evidence levels in ESSA; awarded $16 million to 

support rigorous evaluations and researcher-practitioner 

partnerships focused on state and local education 

priorities; and awarded 60-month contracts for nine 

Regional Educational Laboratories, which work in 

partnership with states and districts to bridge research, 

policy, and practice in education. 

EXPANDING POSTSECONDARY EDUCATION 

OPTIONS AND IMPROVING OUTCOMES 

With the passage of the FY 2017 spending bill, yearround Pell grants were restored, and the Department 

announced that these grants would become available 

to college students beginning July 1, 2017. The 

Department recommended that unless a student had 

remaining eligibility from the 2016–17 award year, 

institutions should award Pell Grant funds for this 

past summer out of the 2017–18 award year since the 

additional funding will be available later in the year (e.g., 

spring or summer of 2018). The change allows an eligible 

student to receive up to 150 percent of the student’s 

scheduled Pell Grant for an award year beginning with 

the 2017–18 award year. This change gives hundreds of 

thousands of college students more resources to finish 

their coursework in a timeframe meeting their individual 

needs. Students will be able to graduate more quickly and 

with less debt. 

The Department is transforming how Federal Student 

Aid (FSA) provides customer service to more than 42 

million student loan borrowers. FSA customers will 

transition to a new processing and servicing environment 

in 2019, providing a customer support system that will 

give a better experience for students and benefits for 

taxpayers. The FSA Next Generation Processing and 

Servicing Environment will provide for a single data 

processing platform to house all student loan information 

while also allowing for customer account servicing to 

be performed either by a single contract servicer or by 

multiple contract servicers. This approach is expected to 

require separate acquisitions for database housing, system 

processing, and customer account servicing, allowing 
8 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

for maximum flexibility. These changes to the servicing 

and processing environment are expected to provide 

the opportunity for additional companies to submit 

proposals for contracting with FSA. 

The Department issued a reset, or pause, regarding 

two postsecondary regulations—Borrower Defense to 

Repayment, concerning forgiveness of student loan 

debt, and Gainful Employment, concerning educational 

programs that prepare students for gainful employment 

in a recognized occupation. Two negotiated rulemaking 

committees have been established to rethink these two 

higher education regulations, with the intent to develop 

fair, effective, and improved regulations to protect 

individual borrowers from fraud, ensure accountability 

across institutions of higher education, and protect 

taxpayer interests. It is the Department’s aim to protect 

students from predatory practices while also providing 

clear, fair, and balanced rules for colleges and universities 

to follow. 

Looking Ahead: Year-round Pell grants were proposed 

in the 2018 President’s Budget, which should safeguard 

and strengthen the Pell Grant program by level funding 

the discretionary appropriation and the year-round Pell 

grants. It is estimated that year-round Pell grants will 

increase aid available to eligible students by $16.3 billion 

over 10 years.

In an effort to address the fact that student loan financing 

can be confusing for millions of students and families 

who want to invest in postsecondary education, the 2018 

budget proposal lays out changes in repayment and loan 

forgiveness plans for new borrowers after July 1, 2018. 

The changes simplify loan repayment for students by 

replacing five different income-driven repayment plans 

with a single plan aimed at prioritizing expedited loan 

repayment for undergraduate borrowers. These changes 

will save taxpayers an estimated $143 billion over the 

next decade while insulating current borrowers from 

changes to their loan programs. Proposed funding of 

$492 million is intended to help close gaps among racial 

and socioeconomic groups in college enrollment and 

degree attainment by improving academic programs, 

institutional capacity and student support services for 

Historically Black Colleges and Universities, MinorityServing Institutions, and Hispanic-Serving Institutions. 

The proposed budget also provides $808.3 million for 

students from disadvantaged backgrounds, who are part 

of the Federal TRIO Programs and $219 million for 

those in the Gaining Early Awareness and Readiness 

for Undergraduate Programs. 

STRENGTHENING THE QUALITY, ACCESSIBILITY, 

AND USE OF EDUCATION DATA 

The Department’s College Scorecard supports 

postsecondary students by providing the public with 

clear, easily accessible, and critical information on 

college performance. Feedback from the intended 

users—students, parents, counselors, and others—helps 

determine the design of the site and the information it 

contains. The College Scorecard integrates self-reported 

data from institutions of higher education collected by 

NCES with administrative data from FSA and U.S. 

Department of Treasury’s tax data. The Department 

established a data-sharing agreement with Treasury’s 

Statistics of Income (SOI) for five years to obtain 

administrative earnings data to inform the College 

Scorecard. The Department will continue to provide SOI 

with individual-level data on several cohorts of students 

from all Title IV institutions and receive back institutionlevel data on salary after attending the institution. Most 

recently, the Department developed a user-requested 

comparison tool feature for the College Scorecard to 

allow users to compare multiple school profiles and data 

points at once.

The Department’s National Assessment of Educational 

Progress (NAEP), the largest nationally representative 

and continuing assessment of student knowledge in 

various subject areas, is evolving to address schools’ 

transition to digitally based assessments. Since 1969, 

NAEP has provided a common measure of student 

achievement across the country, continuing to explore 

new testing methods and question types that reflect the 

growing use of technology in education, and continuing 

to work to be paperless.

The Department’s InformED initiative is intended to 

transform how the Department makes information 

available—and actionable—for internal users and for 

the public. Through a cross-office steering committee, 

InformED has led in the identification and development 

of high-priority open data initiatives. In addition, to 

ensure coordination around the collection, use, and 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

9

analysis of agency data, the Department has supported 

the Data Strategy Team with representatives from the 

Department’s Office of Management, NCES, and Office 

of Planning, Evaluation and Policy Development.

Looking Ahead: The President’s Budget includes $616.8 

million for the Department’s Institute of Education 

Sciences to continue to support state and local-based 

research, evaluations, and statistics that help educators, 

policymakers, and other stakeholders improve student 

outcomes. $42 million is suggested for Supporting 

Effective Educator Development grants to provide 

evidence-based professional development activities and 

prepare teachers and principals from nontraditional 

preparation and certification routes to serve in highneed LEAs.

$120 million is suggested for Education Innovation 

and Research (EIR) grants to develop and expand the 

evidence base for effective interventions and innovations 

responding to other education needs, including those 

identified by Secretarial priorities and those emerging 

from the field. This continued investment is particularly 

necessary in light of new ESEA requirements for states 

and school districts to support the use of evidence-based 

interventions in schools identified for comprehensive 

support and improvement or implementing targeted 

support and improvement plans. Robust Federal 

investment in identifying such interventions through 

the EIR program is essential to ensuring that LEAs have 

the tools they need to address the persistent challenges 

in their lowest-performing schools.

REFORMING THE EFFECTIVENESS, 

EFFICIENCY, AND ACCOUNTABILITY OF 

THE DEPARTMENT

In response to President Trump’s Executive Order 

13777, Enforcing the Regulatory Reform Agenda, 

the Department established a Regulatory Reform Task 

Force that has catalogued over 150 regulations and more 

than 1,700 items of policy guidance at the Department. 

The task force, comprised of agency political appointees 

and career staff, provided recommendations on which 

regulations and guidance documents to repeal, modify, 

or keep in an effort to ensure those items that remain 

adequately protect students while giving states, 

institutions, teachers, parents, and students the flexibility 

to improve student achievement. Each principal office has 

made initial recommendations to the task force whether 

regulations and guidance under its purview meet the 

Order’s criteria for repeal, replacement, or modification. 

As previously discussed, candidates for modification that 

have been identified include the Gainful Employment 

and Borrower Defense to Repayment, and a reset for 

these regulations is underway.

Also, in response to Executive Order 13781, 

Comprehensive Plan for Reorganizing the Executive 

Branch, which requires development of a plan to enhance 

employee performance, the Department submitted an 

Agency Reform Plan to OMB, describing proposals the 

Department is considering. For the OMB submission, 

work groups considered the areas of: (a) reviewing 

potential reform areas, (b) determining if reform is 

needed or helpful and whether reform will benefit the 

agency and the public, and (c) developing proposals for 

implementing the reform if the work group determines 

it is needed or helpful. Agency staff continue to assess 

reform factors that include: new activities or functions 

the Department should initiate; ways the agency can be 

more efficient in meeting the needs of students, families, 

and education partners; activities or functions the 

Department should consider combining or modifying; 

agency activities or functions that duplicate what others 

are doing; and how the Department could best deliver the 

education services or products to students and educators. 

Looking Ahead: The Department intends to continue 

to build on what’s working well to create an agency that 

better serves America’s students and educators. Beginning 

with its FY 2018 Annual Performance Report, the 

Department will report the appropriate performance data 

for performance indicators that will relate to deregulatory 

actions, as outlined in the Executive Order 13777. 

The results of this internal reform will better align and 

support the new strategic plan, which is the basis for the 

Department’s performance management framework. 

The Department uses quarterly performance reviews, 

targeted strategic initiatives, and outreach to leaders and 

stakeholders to assess progress and garner engagement 

toward achieving strategic goals and outcomes. The 

FY 2018–22 Strategic Plan will be published with the 

President’s FY 2019 Budget.
10 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FORWARD-LOOKING INFORMATION

This section summarizes information pertinent to the 

Department’s future progress and success.

DIRECT LOAN PROGRAM

The Department’s largest program, the William D. 

Ford Federal Direct Loan (Direct Loan) program, 

provides students and their families with funds to 

help pay for their postsecondary education costs. Easing 

the burden of student loan debt is a significant priority 

for the Department. The following is a discussion of 

(1) the steps the Department has taken to ensure that 

student debt is manageable and (2) the risks inherent in 

estimating the cost of the program.

Managing Student Loan Debt

Each year, federal student loans help millions of 

Americans obtain a college education—an investment 

that, on average, has high returns. While the average 

return to a college degree remains high, substantial 

inequities in outcomes exist, and some students leave 

school poorly equipped to manage their debt, whether 

due to limited labor market opportunities or high debt.

Traditionally, federal loans of this type have had flat 

10-year repayment schedules, making it difficult for 

borrowers to pay at the start of their career when their 

salaries are lower. The recent expansion of income-driven 

repayment plans grants students the opportunity for 

greater financial flexibility as it pertains to their monthly 

payment. For more details on these plans, visit FSA’s 

How to Repay Your Loans Portal.

As the labor market declined during the financial crisis 

of 2008, serious challenges in student debt repayment 

came to the forefront of conversations. The availability 

of income-driven repayment plans like Pay As You 

Earn (PAYE) and an improving labor market has led to 

substantial improvement, signifying Departmental progress 

in the focus area of higher education, namely, its efforts to 

innovate loan program guidelines in order to make student 

loan debt more manageable for borrowers across the board. 

Recent trends in student loan repayment data show that:

 More than 80 percent of Direct Loan recipients with 

loans in repayment are current on their loans.

 Growing numbers of borrowers are taking action and 

responsibility with regard to their student loans when 

they are in need of modifications and support. As of 

June 2017, nearly 6.3 million Direct Loan recipients 

were enrolled in income-driven repayment plans, 

representing a 19 percent increase from June 2016 

and a 62 percent increase from June 2015.

The Department has made progress in this area and 

continues to work relentlessly to make student debt more 

manageable. Looking to the future, the Department will 

build on its recent successes by:

 Conducting significant outreach efforts to inform 

student loan borrowers of their repayment options, 

including the protections provided by income-driven 

repayment plans.

 Ensuring that borrowers have access to an affordable 

repayment plan, high-quality customer service, 

reliable information, and fair treatment.

 Continuing to support additional tools like the College 

Scorecard and Financial Aid Shopping Sheet to increase 

transparency around higher education costs and 

outcomes, in an effort to help students and families 

make informed decisions before college enrollment.

Managing Risks and Uncertainty Facing 

the Direct Loan Program’s Cost Estimates

Direct Loan program costs are estimated consistent with 

the requirements of the Federal Credit Reform Act of 1990. 

Under the Act, the future costs and revenues associated 

with a loan are estimated for the entire life of the loan, up 

to 40 years in this case. The actual performance of a loan 

cohort tends to deviate from the estimated performance 

during that time, which is not unexpected given the 

inherent uncertainty involved in developing estimates. 

There are four types of risk that make estimating lifetime 

program costs a difficult task.

Legislative, Regulatory, and Policy Risk

There are inherent risks from the possibility that the cost 

structure of the Direct Loan program may be altered 

through legislative, regulatory, or administrative action. 

In addition, recent legislative, regulatory, and policy 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

11

action may be difficult to interpret with regard to effects 

on financial modeling and estimation, given the lack of 

actual trend data availability. Some examples of current 

risks include the following:

Income-Driven Repayment Plans: Several new incomedriven repayment plans have been introduced in recent 

years, including Income-Based Repayment, PAYE, and 

Revised Pay As You Earn. In general, the proliferation 

of plans has made income-driven repayment terms 

more generous (and more costly to the government) 

and made the plans available to a greater number of 

borrowers. Having more plans complicates repayment 

plan selection, since the tradeoffs between available plans 

vary by borrower and may not always be entirely clear. 

Selected comparisons between projected originations and 

borrower repayments under the different income-driven 

repayment plans are available on the Department’s 

website. The Department has also engaged in outreach 

campaigns to broaden borrower awareness of these plans. 

However, future commitment to market and increased 

participation in these plans are areas of uncertainty.

Public Service Loan Forgiveness: Enacted in 2007, the 

Public Service Loan Forgiveness (PSLF) program allows 

a Direct student loan borrower to have the balance of 

their Direct student loans forgiven after having made 

120 qualifying monthly payments under a qualifying 

repayment plan, while working full time for a qualifying 

public service employer (such as government or certain 

types of nonprofit organizations). In general, forgiveness 

provided via PSLF raises the cost of the Direct Loan 

program; however, there is still uncertainty as to how 

many borrowers will take advantage of the program. 

Much of this uncertainty arises because borrowers do not 

need to apply for the program until after having made the 

120 qualifying monthly payments. While data on current 

applications is helpful to gauge potential forgiveness, it 

may not be representative of final participation figures. In 

addition, since the first date by which a borrower could 

receive forgiveness under this program is October 1, 

2017, the Department does not yet have a robust set of 

actual forgiveness data. The available data on borrowers 

who have already certified their employment, nearly 

740,000 borrowers as of September 2017, is less valuable 

than it appears since it does not track breaks in their 

repayment or qualifying employment. The Department 

continues to remain informed on, and manage the risk 

that may arise in relation to, the uncertainty about 

the effect of further borrower outreach on boosting 

participation in the PSLF program.

Borrower Defense: In May 2015, Corinthian Colleges, 

Inc. (Corinthian), a publicly traded company operating 

numerous postsecondary schools that enrolled over 

70,000 students at more than 100 campuses nationwide, 

filed for bankruptcy under deteriorating financial 

conditions and while subject to multiple state and federal 

investigations. The Department received thousands of 

claims for student loan relief from Corinthian students 

under a provision in the Higher Education Act of 1965

(HEA) referred to as “borrower defense.” Valid borrower 

defense claims would lead to the discharge of borrower 

debt, thus increasing the cost of the Direct Loan 

program to taxpayers. However, it is unknown how 

many of the claims are valid. Since Corinthian, several 

other postsecondary schools have closed under similar 

circumstances, including ITT Technical Institute.

In August 2015, the Department initiated a rulemaking 

process to establish a more accessible and consistent 

borrower defense standard to clarify and streamline 

the borrower defense process to protect borrowers. The 

legality of this rule has since been challenged in court 

(California Association of Private Postsecondary Schools 

v. DeVos) and certain provisions of the rule have been 

subsequently delayed. In addition, the Department 

has initiated a new rulemaking process to consider 

potential changes to the original rule. The overall level 

of activity that could lead to valid borrower defense 

claims, particularly in the for-profit postsecondary sector, 

coupled with the uncertainty as to the framework of the 

final rule, make projections as to the financial impact 

exceedingly difficult. The Department continues to 

monitor instances of this risk factor to its programs.

Estimation Risk

Actual student loan outcomes may deviate from estimated 

student loan outcomes, which is not unexpected given 

the long projection window of up to 40 years. The Direct 

Loan program is subject to a large number of future 

borrower level events and economic factors that heavily 

impact the ultimate cost of issued loans. For example, 

estimates that need to be made for loans originating in 

FY 2017 include how long students will remain in school; 

what repayment plan will be chosen; whether the loan will 

be consolidated; whether the borrower will die, become 

disabled, bankrupt, or have another claim for discharge or 

forgiveness (closed school, borrower defense, etc.); if the 

loan will go into deferment or forbearance; if the loan will 

go into default and, if so, what collections will be received 

on the defaulted loan; and, if the loan is in income-driven 

repayment, what the borrower’s employment (public 

sector or not) and income and family status will be over 
12 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

the next 25 years. These types of projections are not only 

extremely difficult to make but also are subject to change 

if future student behaviors deviate from past experience. 

Changes in private student loan markets, such as the 

recent increase in refinancing of federal student loans 

into private student loans, also add a layer of uncertainty 

to student loan estimates. Lastly, the Direct student loan 

portfolio has grown from around $380 billion in FY 2011 

to around $1.06 trillion as of the end of FY 2017. This 

growth naturally results in increased re-estimates, since a 

re-estimate worth 1 percent of the portfolio today would 

be more than twice as large as a similar re-estimate in FY 

2011 ($10.6 billion vs. $3.8 billion).

Macroeconomic Risk

The ultimate amount, timing and value of future 

borrower repayments under the Direct Loan program are 

heavily affected by certain economic factors, especially 

since the introduction of income-based repayment plans. 

Some examples include the following:

Interest Rates: Direct Loan subsidy estimates are very 

sensitive to changes in interest rates. Recent interest rate 

history has been atypical, as interest rates have continued 

to remain lower than their historical averages. Under the 

current program terms, the fixed borrower rates for direct 

loans are established in advance of the upcoming school 

year, while the Treasury fixed interest rate on borrowings 

to fund those loans is not set until after those awards are 

fully disbursed, which can be as much as 18 months later. 

Unexpected changes in interest rates during this time can 

significantly impact the subsidy cost of these loans.

Unemployment: The financial crisis of 2008 and ensuing 

spike in unemployment rates had a dramatic effect on 

both student loan volume and student loan performance. 

Student loan volume peaked along with unemployment, 

as many displaced workers sought higher education 

opportunities. Student loan performance suffered as 

many borrowers repaying their loans were left with much 

less disposable income with which to make their loan 

payments. For example, the default rate for students was 

at a high of 14.7 percent for loans entering repayment 

in 2010, while the most recent rate is 11.5 percent for 

loans entering repayment in 2014. While recessions and 

economic downturns are cyclical phenomena, their exact 

timing and impact on the cost estimates remain an area 

of uncertainty.

Wage Growth: The estimated costs of income-driven 

repayment plans are largely dependent on trends in 

observed wage growth. To the extent that future wage 

growth deviates significantly from prior wage growth, 

actual costs of income-driven repayment plans may 

deviate from projected estimated costs. The Department 

continues to manage risks in this area by continuing to 

learn about its borrower base and remain informed on 

such labor market statistics.

Operational Risk

Unforeseen issues in administering and servicing student 

loans may impact the cost estimates. For example, in 

March 2017, a tool used to automatically transfer a 

family’s tax information to both student aid applications 

and income-driven repayment (IDR) plan applications 

was taken down due to security concerns. Although usage 

of the tool for IDR recertification has since been brought 

back up, it is yet uncertain what, if any, impact this outage 

may have had on student loan cost estimates. However, 

this example highlights that there is an inherent risk that 

future, unpredictable disruptions in the administrative 

status quo may impact student loan cost estimates.

CONTINUOUS IMPROVEMENT

Improving critical infrastructure, systems, and overall 

capacity, and ensuring sound strategic decision making 

regarding allocation of resources are essential to the 

Department’s future progress and success. Exploring 

the expanded use of shared services and incorporating 

enterprise risk management into Department decision 

making are two of the Department’s key initiatives.

Shared Services

The Department of Education uses shared services where 

feasible and practical, including payroll and travel. The 

Department will explore other options to further leverage 

shared services for other mission support areas in the 

coming years.

Enterprise Risk Management

The Department plans to implement Enterprise Risk 

Management (ERM) practices by integrating its existing 

risk management processes and governance bodies into a 

suitable ERM framework and including risk as a central 

element in all critical day-to-day and strategic decisionmaking activities. The Department will also develop a more 

risk-aware culture that facilitates increased focus on the 

wide range of risks the Department faces and fosters more 

open discussions about how those risks might impact the 

accomplishment of the Department’s mission and whether 

allocation of resources is aligned to best mitigate risks to 

an acceptable level. The Senior Management Council will 

oversee the implementation of ERM in accordance with 

OMB Circular A-123, Management’s Responsibility for 

Enterprise Risk Management and Internal Control.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 13

FINANCIAL HIGHLIGHTS

INTRODUCTION

This section provides summarized information and 

analyses about the Department’s assets, liabilities, 

net position, sources and uses of funds, program 

costs, and related trend data. It also provides a high-level 

perspective of the detailed information contained in the 

financial statements and related notes.

The Department consistently produces complete, 

accurate, and timely financial information. The 

Department’s financial statements and notes are prepared 

in accordance with accounting principles generally 

accepted in the United States for federal agencies issued 

by the Federal Accounting Standards Advisory Board 

(FASAB) and the format and content specified by OMB 

Circular No. A-136, Financial Reporting Requirements. 

The financial statements, notes, and underlying business 

processes, systems, and controls are audited by an 

independent accounting firm with audit oversight 

provided by the Office of Inspector General (OIG). 

For 16 consecutive years, the Department has earned 

an unmodified (or “clean”) audit opinion. The financial 

statements and notes for FY 2017 are on pages 32–69 and 

the Independent Auditors’ Report begins on page 78.

BALANCE SHEET

The consolidated balance sheet presents, as of a 

specific point in time (the end of the fiscal year), 

the Department’s total assets, total liabilities, and 

net position.

The Department’s assets totaled $1,259.2 billion as of 

September 30, 2017. The vast majority of the assets 

relate to credit program receivables, which comprised 

91.1 percent of all assets. Direct loans comprise the 

largest share of these receivables, totaling $1,041.6 

billion. All other assets totaled $112.5 billion, most of 

which was Fund Balance with Treasury.

The Department’s liabilities totaled $1,202.1 billion 

as of September 30, 2017. As with assets, the vast 

majority of the Department’s liabilities are associated 

with credit programs, primarily amounts borrowed from 

the U.S. Department of the Treasury (Treasury) to fund 

student loans. This debt totaled $1,180.1 billion as of 

September 30, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
14 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Figure 3 shows the changes in the Direct Loan 

receivables components over the past five years. The 

principal continues to grow as the Direct Loan program 

has originated all new federal loans since July 2010. 

However, the rate of increase in principal has slowed, as 

the Direct Loan program has originated fewer new loans 

each year since FY 2013 as a result of stagnant and in 

some cases declining enrollment, coinciding with the 

recovery from the 2007–09 recession. Even so, new loan 

disbursements continue to exceed overall loan principal 

repayments—student loan borrowers now have more 

options to stretch out their repayment terms and reduce 

their monthly payments. 

In accordance with the Federal Credit Reform Act of 1990

(FCRA), the Department’s financial statements report the 

value of direct loans and loan guarantees (credit program 

receivables) at the net present value of their future cash 

flows, discounted at a fixed rate established based on 

Treasury securities. The difference between the recorded 

principal and interest balance and the net present value 

of the loans is referred to as the “allowance for subsidy,” 

which can be positive or negative.

Prior years’ positive allowance for subsidy balances 

represented estimates of funds expected to be recovered 

in excess of principal loaned less anticipated defaults, 

loan cancellations, and other adjustments. These positive 

allowance for subsidy balances resulted primarily from 

the difference between the interest rates charged by the 

Department to borrowers and the interest rates charged to 

the Department on amounts borrowed from Treasury to 

make the loans. The reduction in the positive allowance 

since FY 2013 is due primarily to higher subsidy costs 

to the government, the main cause being increasing 

participation in income-driven repayment plans discussed 

elsewhere in this AFR as (a) new plans have become 

available that are more advantageous to borrowers, (b) 

new plans have become available that expand the potential 

pool of borrowers, and (c) the Department has conducted 

targeted outreach to borrowers to make them aware of 

their potential eligibility for these plans. During FY 2017, 

the allowance for subsidy changed from a positive to a 

negative balance. In practical terms, this means that the 

present value of funds expected to be recovered is now less 

than the principal loaned, which represents an increased 

cost to the taxpayer.

Table 1 shows the payment status of the Direct Loan 

principal and interest balances outstanding over the past 

5 years. The Current Repayment category consists of 

loans that are being paid back on time, including the 

current portion of loans refinanced pursuant to incomedriven repayment plans. 

 

Loan Status

Fiscal Year

2013 2014 2015 2016 2017

Total Dollar 

Amount of 

Direct Loans 

Outstanding

613.8 731.2 845.1 953.6 1,058.4

Current 

Repayment 188.5 247.2 332.0 406.8 467.9

In School, 

Grace Period, 

and Education 

Deferments

265.5 281.8 284.3 289.6 291.7

Forbearance and 

Noneducation 

Deferments

70.5 97.8 103.0 106.5 122.5

Delinquent 47.8 54.6 65.1 71.8 79.5

Default/

Bankruptcy/Other 41.5 49.8 60.7 78.9 96.8

Total No. of Direct 

Loan Recipients 

(in Millions)

25.6 27.9 29.9 31.5 33.0

Table 1. Payment Status of Direct Loan 

Principal and Interest Balances

(Dollars in Billions)
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

15

Loans in the Delinquent category are considered in 

“repayment” status, but payments are anywhere from 31 

to 360 days late. Default/Bankruptcy/Other includes 

loans that are over 360 days delinquent (default status); 

loans in a nondefaulted bankruptcy status; and loans 

in disability status. The percentage of loans in default 

continues to grow, even as delinquencies and new 

defaults have declined, because defaulted loans can be 

difficult to collect on or rehabilitate. The percentage of 

the portfolio in current repayment, which rose from 

31 percent in FY 2013 to 44 percent in FY 2017, has 

eclipsed payments temporarily postponed and has grown 

far faster than loans in default. 

The Department borrows funds from the Treasury to 

disburse new loans and pay credit program outlays and 

related costs. The Department repays Treasury after 

consideration of cash position and the liability for future 

cash outflows. Figure 4 shows the Direct Loan program 

cumulative borrowing and repayment activity since 

the inception of the program that resulted in the debt 

amount on the balance sheet. Figure 6 (see page 16) 

illustrates the Direct Loan program financing process and 

provides financing and disbursing trend data.

STATEMENT OF NET COST

The consolidated statement of net cost reports the 

Department’s components of the net costs of operations 

for a given fiscal year. Net cost of operations consists of 

the gross cost incurred less any exchange (i.e., earned) 

revenue from activities. Gross cost is composed of the 

cost of credit and grant programs, and operating costs. 

Exchange revenues are primarily interest earned on credit 

program loans. Figure 5 shows the Department’s gross 

costs and earned revenues over the past five years.

 
16 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Treasury Financing and Subsidy Cost of Direct Loans (Dollars in Billions)

Fiscal Year 2013 2014 2015 2016 2017 

Net Borrowing 149.0 120.6 90.9 84.4 67.3

Borrowing from Treasury 177.7 171.2 159.7 147.0 160.5

Debt Repayments to Treasury (28.7) (50.6) (68.7) (62.6) (93.2)

Interest Expense to Treasury (22.7) (25.2) (27.6) (30.5) (31.3)

Interest Earned from Treasury 3.4 3.7 4.2 3.9 4.3

Cumulative Taxpayer Cost / (Savings) (65.2) (47.4) (35.5) (5.3) 16.8

Current Subsidy Expense (Revenue) (39.6) 8.1 (0.9) 16.1 5.3

Direct Loan Program Cash Transactions with Borrowers (Dollars in Billions)

Fiscal Year 2013 2014 2015 2016 2017 

Loan Disbursements 129.5 134.1 142.2 140.5 142.5

Stafford Subsidized 26.5 25.9 24.0 23.8 23.4

Stafford Unsubsidized 56.1 54.7 52.7 52.3 51.4

Parent PLUS 19.4 18.9 19.2 19.0 18.7

Consolidation1 27.5 34.5 46.4 45.5 49.0

Loan Collections 36.2 48.8 65.1 73.2 82.0

Principal 26.4 36.3 50.0 55.9 62.6

 Interest 8.1 10.8 13.4 15.5 17.6

 Fees 1.7 1.8 1.8 1.8 1.9

 

1

 Consolidation disbursement amounts stem from a number of loan programs, including most notably FFEL, in addition to Direct Loans.

Numbers may not add up due to rounding.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

17

The major components of the Department’s gross cost and earned revenue are shown in Figure 7 and include:

 Credit program interest expense offset by credit program interest revenue and administrative fees as the result of 

subsidy amortization;

 Credit program subsidy expense (see also Figure 8); and

 Grant expenses (see also Figure 9).

One of the components significantly impacting the 

Department’s gross costs pertains to the estimated subsidy 

expense of the Direct Loan program. The Department’s 

gross costs can fluctuate significantly each year as a result 

of changes in the estimated subsidy expense. Subsidy 

expense is an estimate of the cost of providing direct 

loans, but excludes the administrative costs of issuing and 

servicing the loans. The Department estimates subsidy 

expense using economic models that project cash flows 

on a net present value basis.

The Department estimates subsidy costs annually for new 

loans disbursed in the current year; updates the previous 

cost estimates for outstanding loans disbursed in prior 

years (subsidy re-estimates); and updates previous cost 

estimates based on changes to terms of existing loans 

(subsidy modifications). Figure 8 shows these three 

components of the Direct Loan program subsidy expense 

for the past five years.

Factors such as interest rates charged to the borrower, 

interest rates on Treasury debt, default rates, fees, and other 

costs impact the estimated cost calculation and determine 

whether the overall subsidy expense is positive or negative. 

Subsidy expense for new loans has been negative in recent 

years primarily because lending interest rates charged 

 

2013 2014 2015 2016 2017

Subsidy Expense for 

New Loans Disbursed 

in the Current Year

$(27.0) $(22.1) $(6.2) $(5.7) (2.6)

Subsidy 

Re-estimates (12.6) 30.2 (4.6) 21.8 7.9 

Subsidy Modification - - 9.9 - -

Total Subsidy 

Expense—(negative) 

and positive

$(39.6) $8.1 $(0.9) $16.1 5.3

 
18 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

to student and parent borrowers were greater than the 

historically low rates at which the Department borrowed 

from Treasury. In practical terms, a negative subsidy and/

or a downward re-estimate of prior years’ subsidy occurs 

when the interest and/or fees charged to the borrower 

are more than sufficient to cover the interest on Treasury 

borrowings and the costs of borrower default. Conversely, 

a positive subsidy and/or an upward re-estimate of prior 

years’ subsidy occurs when the interest and/or fees charged 

to the borrower do not cover the interest on Treasury 

borrowings and the cost of borrower defaults.

Direct Loan program re-estimated subsidy cost was 

adjusted upward by $7.9 billion in FY 2017. In addition 

to the major assumption updates described below, the 

re-estimate reflects several other assumption updates, 

including interest rates provided by the Office of 

Management and Budget, volume, and enter repayment 

rates. Prepayment rates increased from the FY 2016 

estimate, resulting in a $2.4 billion upward re-estimate. 

Contract collection costs were updated for new data 

reflecting lower overall average commission rates, resulting 

in a $5.1 billion downward re-estimate. 

 IDR Model Changes. The U.S. Government 

Accountability Office (GAO) audit, Federal Student 

Loans: Education Needs to Improve Its Income Driven 

Repayment Plan Budget Estimates, identified several 

areas in which the Department could improve its IDR 

cost estimates. Largely in response to this audit, as well 

as concerns raised in FY 2016’s Independent Auditors’ 

Report, in FY 2017 the Department incorporated an 

adjustment for inflation into the Department’s IDR 

submodel, modified the current IDR submodel to 

estimate IDR subsidies by loan type, and implemented 

methods to address concerns regarding the volatility 

of the submodel’s income data. In addition, default; 

collection; death, disability, and bankruptcy; and 

prepayment rate assumptions used by the submodel 

were updated. The combined effect of these changes 

was a net downward re-estimate of $14.7 billion.

 Repayment Plan Selection. The GAO audit referred 

to above also recommended the Department help 

ensure that subsidy estimates reasonably reflect 

trends in IDR plan participation. In response, the 

Department updated its methodology for repayment 

plan selection, taking into account the timing of 

repayment plan selection as well as recent growth 

trends in the selection of income-driven repayment 

plans. The combined effect of these changes was a net 

upward re-estimate of $18.4 billion.

 Death, Disability, and Bankruptcy. The 

Department made major updates to the death, 

disability, and bankruptcy assumption in FY 2017. 

These updates included a revised accounting for the 

effect of a matching agreement with Social Security 

Administration, updates to closed school regulations, 

and revised borrower defense regulations. Updates 

to the data used to calculate discharges were also 

incorporated. The combined effect of these changes 

was a net upward re-estimate of $9.2 billion.

The Department has more than 100 grant and loan 

programs (www.ed.gov/programs/inventory.html). The 

largest grant programs are shown in Figure 9 and include:

 Pell Grants—provides need-based grants to lowincome undergraduate and certain postbaccalaureate 

students to promote access to postsecondary 

education. Students may use their grants at any one 

of approximately 5,400 participating postsecondary 

institutions. Grant amounts are dependent on: the 

student’s expected family contribution; the cost of 

attendance (as determined by the institution); the 

student’s enrollment status (full-time or part-time); 

and whether the student attends for a full academic 

year or less.

 Title I Grants to Local Educational Agencies—

provides financial assistance through state educational 

agencies to local educational agencies and public 

schools with high numbers or percentages of poor 

children to help ensure that all children meet 

challenging state academic content and student 

academic achievement standards.

 Individuals with Disabilities Education Act 

Grants—provides formula grants to states to 

assist them in providing a free appropriate public 

education in the least restrictive environment for 

children with disabilities ages 3 through 21 and 

assists states in providing early intervention services 

for infants and toddlers from birth through age 

two and their families. Also provides discretionary 

grants to institutions of higher education, public 

agencies, and nonprofit organizations to support 

research, demonstrations, technical assistance and 

dissemination, technology, personnel development 

and parent-training and information centers. 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

19

 

 

In addition to student loans and grants, the Department 

offers other discretionary grants under a variety of 

authorizing legislation, awarded using a competitive 

process and formula grants, using formulas determined 

by Congress with no application process. 

STATEMENT OF CHANGES IN NET POSITION

The consolidated statement of changes in net position 

reports the beginning net position, the summary effect 

of transactions that affect net position during the fiscal 

year, and the ending net position. Net position consists 

of unexpended appropriations and cumulative results 

of operations. Unexpended appropriations include 

undelivered orders and unobligated balances for grant 

and administrative operations. Cumulative results of 

operations represent the net difference since inception 

between (1) expenses and (2) revenues and financing 

sources. Net position of the Department totaled $57.2 

billion as of September 30, 2017. This reflects a 74.4 

percent increase over the net position of $32.8 billion 

from the prior fiscal year.

STATEMENT OF BUDGETARY RESOURCES

The combined statement of budgetary resources presents 

information on how budgetary resources were made 

available and their status at the end of the fiscal year. 

Information in the statement is based on budgetary 

transactions as prescribed by OMB and Treasury.

The Department’s budgetary resources totaled $398.5 

billion for the period ended September 30, 2017, 

increasing from $335.0 billion, or approximately 19.0 

percent from the prior year. Budgetary resources are 

comprised of appropriated budgetary resources of $152.2 

billion and non-budgetary credit reform resources 

of $246.3 billion. The non-budgetary credit reform 

resources are predominantly borrowing authority for the 

loan programs.
20 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

The Department’s gross outlays totaled $340.0 billion 

for the period ended September 30, 2017. Gross 

outlays are primarily comprised of credit program loan 

disbursements and claim payments, credit program 

subsidy interest payments to Treasury, and grant 

payments. Credit program gross outlays were offset 

by $168.2 billion of collections—primarily principal, 

interest and subsidy collections.

Billions %

CREDIT PROGRAMS $ 263.0 77.4%

DIRECT LOAN PROGRAM 237.0 69.7%

FFEL PROGRAM 25.2 7.4%

OTHER CREDIT PROGRAMS FOR 

HIGHER EDUCATION 0.8 0.2%

GRANTS $ 73.5 21.6%

PELL GRANTS 26.9 7.9%

TITLE I GRANTS TO LOCAL 

EDUCATIONAL AGENCIES 15.2 4.5%

INDIVIDUALS WITH DISABILITIES 

EDUCATION ACT GRANTS 12.7 3.7%

ALL OTHER GRANTS 18.7 5.5%

CONTRACTUAL SERVICES $ 2.8 0.8%

PERSONNEL COMPENSATION 

AND BENEFITS $ 0.6 0.2%

OTHER $ 0.1 0.0%

TOTAL $ 340.0 100.0%

LIMITATIONS OF THE FINANCIAL STATEMENTS

Management has prepared the accompanying financial 

statements to report the financial position and 

operational results for the U.S. Department of Education 

for FY 2017 and FY 2016, pursuant to the requirements 

of Title 31 of the United States Code, section 3515(b).

While these statements have been prepared from the 

books and records of the Department in accordance 

with generally accepted accounting principles for federal 

entities and the formats prescribed by OMB, these 

statements are in addition to the financial reports used 

to monitor and control budgetary resources, which are 

prepared from the same books and records.

The statements should be read with the realization that 

they are a component of the U.S. government, a sovereign 

entity. The implications of this are that the liabilities 

presented herein cannot be liquidated without the 

enactment of appropriations, and that ongoing operations 

are subject to the enactment of future appropriations.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 21

ANALYSIS OF SYSTEMS, CONTROLS, 

AND LEGAL COMPLIANCE

MANAGEMENT ASSURANCES

The Secretary of Education’s 2017 Statement of Assurance provided below is the final report produced by the 

Department’s annual assurance process. Although the Department has not identified any material weaknesses, it 

acknowledges that there are significant weaknesses and management challenges to be addressed that are identified 

elsewhere in this report.

STATEMENT OF ASSURANCE 

FISCAL YEAR 2017

November 13, 2017

The Department of Education (the Department) management is responsible for meeting 

the objectives of the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) by 

establishing, maintaining, evaluating and reporting on the Department’s internal control 

and financial systems. 

In accordance with Section 2 of FMFIA and Office of Management and Budget (OMB) 

Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal 

Control, management evaluated the effectiveness of the Department’s internal controls to 

support effective and efficient operations, reliable reporting and compliance with applicable 

laws and regulations.

Section 4 of FMFIA and the Federal Financial Management Improvement Act of 1996

(FFMIA) require management to ensure the Department’s financial management systems 

provide reliable, consistent disclosure of financial data. In accordance with Appendix D 

of OMB Circular A-123, management evaluated whether the Department’s financial 

management systems substantially complied with FFMIA requirements. The Department 

also conducted a separate assessment of the effectiveness of its internal control over 

financial reporting, including controls designed to prevent, detect and recover improper 

payments, in accordance with Appendix A of OMB Circular A-123.

The Department has not identified any material weaknesses in operations, reporting or 

compliance with applicable laws and regulations. 

Based on the results of the Department’s assessments described above, our system of 

internal controls provides Department management with reasonable assurance that the 

objectives of sections 2 and 4 of the FMFIA were achieved as of September 30, 2017.

Betsy DeVos
22 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Strong risk management practices and internal 

control help an entity run its operations efficiently 

and effectively, report reliable information about 

its operations and financial position, and comply with 

applicable laws and regulations. The FMFIA requires 

federal agencies to establish internal controls that 

provide reasonable assurance that agency objectives will 

be achieved. OMB Circular A-123, Management’s 

Responsibility for Enterprise Risk Management and 

Internal Control implements FMFIA and defines 

management’s responsibilities for ERM and internal 

control. The Circular provides guidance to federal 

managers to improve accountability and effectiveness of 

federal programs, as well as mission support operations 

through implementation of ERM practices and by 

establishing, maintaining, and assessing internal control 

effectiveness. The guidance requires federal agencies to 

provide reasonable assurance that it has met the three 

objectives of internal controls:

 Operations—Effectiveness and efficiency of operations; 

 Reporting—Reliability of reporting for internal and 

external use; and 

 Compliance—Compliance with applicable laws 

and regulations. 

This section describes the Department’s internal control 

framework, an analysis of the effectiveness of its internal 

controls, and assurances provided by the Department’s 

leadership that internal controls were in place and working 

as intended during FY 2017 to meet the three objectives.

Control Framework

The Department’s internal control framework helps to 

ensure that the Department achieves its strategic goals 

and objectives related to delivering education services 

effectively and efficiently while complying with applicable 

laws and regulations and preparing accurate reports. This 

includes providing reasonable assurance to Department 

leadership and external stakeholders that financial data 

produced by the Department’s financial systems are 

complete, accurate, and reliable enough to support the 

preparation and fair presentation of financial statements 

that conform to federal standards, facilitate sound financial 

decision-making, and provide transparency about how 

the Department spent federal funds and maintains 

stewardship over its financial resources.

The Department maintains a comprehensive internal 

control framework and assurance process as depicted in 

the following diagram. 

 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

23

The Office of the Chief Financial Officer (OCFO) 

manages the assurance process on behalf of Department 

leadership. The Department established governance over 

the process, consisting of a Senior Management Council, 

a Senior Assessment Team (SAT), and a Core Assessment 

Team (CAT). The Senior Management Council is 

comprised of senior leaders from across the Department. 

It is the primary governance structure for internal 

control and provides oversight to ensure management 

accountability for effective controls across the 

Department. The SAT and CAT include representatives 

from OCFO, the Office of the Chief Information Officer 

(OCIO), student loan and grant-making program offices, 

Risk Management Service, and other operational support 

offices (including the Office of Management). The SAT 

and CAT provide greater oversight and monitoring of 

activities related to internal control assessments. 

The annual assurance process is the primary mechanism 

by which the Department implements FMFIA and 

OMB requirements pertaining to internal control. It 

requires the head of each principal office to evaluate its 

respective internal controls and to assert, in a letter to the 

Chief Financial Officer, that it has reasonable assurance 

that key internal controls are in place and working as 

intended or to provide a detailed description of significant 

deficiencies, material weaknesses, and other matters of 

nonconformance. In making this assessment, the head of 

the principal office considers information such as office 

managers’ personal knowledge of operations, external audit 

results, internal assessments, and other related material. 

OCFO staff work with the principal offices to help them 

identify potential control deficiencies and consult with 

the SAT to determine whether they represent significant 

deficiencies or potential material weaknesses. Any 

principal office that identifies a significant deficiency or 

material weakness must prepare a Corrective Action Plan 

to address the issue. These Corrective Action Plans, in 

addition to daily operational oversight and managementinitiated evaluations, facilitate the correction and 

monitoring of controls. If potential material weaknesses 

are identified, they are evaluated by the Senior 

Management Council to determine if they should be 

reported on the Department’s Statement of Assurance.

Analysis of Controls

Overall, the Department relies on the principal office 

annual assurances, supported by risk-based internal control 

evaluations and testing, to provide reasonable assurance 

that its internal controls are well designed and in place 

and working as intended. The Department also considers 

issues identified by external auditors. During FY 2016, 

the Department revised its annual assurance process to 

conform to the new requirements contained in the revised 

U.S. Government Accountability Office publication, 

Standards for Internal Control in the Federal Government

(commonly referred to as the “Green Book”). In FY 2017, 

the Department further revised the process to conform to 

the revised OMB Circular A-123 issued on July 15, 2016.

In FY 2017, the Department identified no material 

control weaknesses related to effective, efficient program 

operations and no areas of noncompliance with laws 

and regulations other than those noted in the Internal 

Control Exceptions section below. Although no material 

weaknesses were identified, the Department realizes that 

it has areas of control that need further strengthening, 

such as those disclosed in this report and the major 

challenges identified by the Department’s OIG in its 

OIG FY 2018 Management Challenges report. The 

Department continues to demonstrate its commitment 

to addressing, mitigating, or resolving its identified 

management challenges.

In accordance with OMB Circular A-123, the Department 

also conducted an additional assessment of the effectiveness 

of the Department’s internal controls over financial 

reporting and compliance with key financial management 

laws and regulations as described below. 
24 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Internal Control over Financial Reporting 

The Department maintains strong internal controls 

to identify, document, and assess internal control over 

financial reporting, which includes: 

 comprehensive process documentation for the 

Department’s significant business processes’ 

and subprocesses,

 maintenance of a control catalogue comprised of 

3,631 key financial, operational, and IT controls 

that align to the business processes (the Department 

documents 312 key controls and FSA documents 

3,319 key controls [1,411 Business Process and 

Entity-Level controls and 1,908 IT controls]),1

 technical assistance provided to principal offices to 

help them understand and assess key financial controls,

 a risk-based testing strategy, and

 a process to develop corrective action plans when 

control deficiencies are found and to track progress 

against those plans.

During FY 2017, the Department tested 84 key financial 

controls. Although some control deficiencies were 

detected in the design and effectiveness of controls, the 

Department did not identify any significant deficiencies 

or material weaknesses. Corrective actions have been 

initiated for the deficiencies identified. 

In FY 2017, FSA tested 2,810 key controls: 1,342 Business 

Process and Entity-Level controls and 1,468 IT controls. 

FSA assessed that 96 percent of the controls tested are 

designed and operating effectively. The other 4 percent 

are immaterial deficiencies for which FSA has established 

or is establishing corrective actions. FSA will continue to 

repeat this assessment process on a regular basis, constantly 

looking for opportunities to improve operations.

Internal Control over Financial Management Systems

The FFMIA requires management to ensure that the 

Department’s financial management systems consistently 

provide reliable data that comply with federal financial 

1

 These figures include FSA.

management system requirements, applicable federal 

accounting standards, and the U.S. Standard General 

Ledger at the transaction level. Appendix D to OMB 

Circular A-123, Compliance with the Federal Financial 

Management Improvement Act of 1996, and OMB Circular 

A-130, Managing Federal Information as a Strategic 

Resource, provide specific guidance to agency managers 

when assessing conformance to FFMIA requirements. 

The Department’s core financial systems are under the 

umbrella of the Education Central Automated Processing 

System (EDCAPS), serving approximately 8,800 

Departmental internal users in Washington, D.C., and 

10 regional offices throughout the United States, as well 

as 39,600 external users. EDCAPS is composed of five 

main linked components: 

 Financial Management Support System (FMSS),

 Contracts and Purchasing Support System (CPSS),

 Grants Management System (G5),

 E2 Travel System, and

 Hyperion Budget Planning.

The Department designated the FMSS as a missioncritical system that provides core financial management 

services, and focused its system strategy on the following 

areas during FY 2017: 

 Managing and implementing cross-validation 

rules throughout the fiscal year to prevent invalid 

accounting transactions from being processed,

 Transmitting the Department’s spending data related 

to contracts, grants, loans, and other financial 

assistance awards for the USASpending.gov initiative 

as part of the Federal Funding Accountability and 

Transparency Act of 2006,

 Transmitting the Department’s spending data related 

to contracts, grants, loans, and other financial 

assistance awards for the Digital Accountability 

and Transparency Act of 2014 (DATA Act) 

implementation, and
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 Initiating the upgrade of the FMSS Oracle E-Business 

Suite application to Oracle R12, to ensure continued 

vendor support, improved security, improved 

infrastructure and enhanced functionality.

In FY 2018, EDCAPS will continue to provide customer 

service and improve security of its systems by completing 

the Department’s implementation of Oracle E-Business 

Suite R12. In doing so, the Department will be current 

and ready to provide a more secure and better integrated 

financial management application.

The Department’s financial management systems are 

designed to support effective internal control and 

produce accurate, reliable, and timely financial data 

and information. Based on self-assessments, systemlevel general controls tests, and the results of internal 

and external audits, the Department has not identified 

any material weaknesses in controls over systems. The 

Department has also determined that its financial 

management systems substantially comply with FFMIA 

requirements. However, as noted below in the Internal 

Control Exceptions section, the Department continues to 

address issues and improve its controls over systems.

Federal Information Security Modernization 

Act of 2014

The Federal Information Security Modernization Act of 

2014 (FISMA) requires federal agencies to develop, 

document, and implement an agency wide program to 

provide security for the information and information 

systems that support the operations and assets of the 

agency and ensure the confidentiality, integrity, and 

availability of system-related information.

The Department’s and FSA’s information security 

programs completed a number of significant activities 

in FY 2016 and FY 2017 to improve cybersecurity 

capabilities and functions, some of which included:

 In March 2017, the Office of the Chief Information 

Officer (OCIO) initiated an Information Technology 

(IT) Systems Assessment process, designed to 

improve management of the Department’s IT systems 

inventory by:

 Reexamining/revising the IT systems baseline 

for both FISMA reportable and non-FISMA 

reportable IT systems,

 Enhancing governance and security posture of 

the Department’s IT systems portfolio, informing 

strategy to address externally hosted systems,

 Establishing long/short term corrective 

action plans to address findings, and

 Rationalizing the IT systems portfolio 

and inventory.

 The IT Systems Assessment process began with 

examining the 19 High Value Asset (HVA) systems 

within the Department. As of September 2017, the 

OCIO team had completed assessments for all 19 

HVA systems.

 With the issuance by OMB of the federal 

government’s Cybersecurity Strategy and 

Implementation Plan (CSIP), the Department focused 

many of its efforts to address the recommendations 

and actions highlighted in the CSIP in order to resolve 

any cybersecurity gaps and emerging priorities that 

were noted across the government. The CSIP required 

the Department to prioritize the identification and 

protection of high-value information and assets. The 

Department completed this action and re-validated 

its list of HVAs in January 2017, which will enable 

the Department to better understand the potential 

impact from a cyber incident, and helps to ensure 

that robust physical and cybersecurity protections are 

in place for our high-value assets. The Department 

completed development of its Cybersecurity Strategy 

and Implementation Plan (ED-CSIP) in February 

2017, which includes the cybersecurity initiatives and 

activities that demonstrate how the Department is 

implementing the Cybersecurity Framework functions 

of Identify, Protect, Detect, Respond, and Recover.
26 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 The Department continued to enhance the capabilities 

of the Department’s Security Operations Centers 

(SOCs). The Department has fully deployed the 

Einstein capabilities in order to enhance our ability 

to detect cyber vulnerabilities and protect against 

cyber threats. The Department has also continued to 

strengthen its partnership with the Department of 

Homeland Security for the project planning that will 

accelerate the deployment of Continuous Diagnostics 

and Mitigation (CDM) capabilities. This will further 

enhance capabilities that the Department initiated 

in 2016 to implement network access control and 

data loss prevention (DLP) solutions. The DLP 

capability has been activated for the Department’s 

primary network and is effectively detecting and 

preventing any inadvertent attempts by staff to send 

social security numbers via e-mail. The CDM solution 

will also enable the Department to enhance our 

configuration management capabilities.

 The Department continued its progress of 

implementing and enforcing the use of multifactor 

authentication for all federal employees, contractors, 

and other authorized users. The Department and FSA 

focused on increasing the issuance of Personal Identity 

Verification (PIV) cards to privileged users to meet 

OMB requirements. The Department has consistently 

reported each quarter achieving the Cross Agency 

Priority target requiring our users to be technically 

enforced to use their PIV cards when logging on to 

the network.

 The Department made significant strides in 

its identification, tracking, and remediation of 

unsupported software across the enterprise.

 100 percent of Department users completed the 

annual computer security and privacy awareness 

training course in FY 2017. The Department strictly 

enforced compliance with annual security and 

privacy awareness training requirements, and disabled 

network accounts for noncompliant users.

 There has also been an increased Departmental focus 

on data security at institutions of higher education 

(IHEs). FSA issued a new “Dear Colleague Letter” to 

IHEs that receive financial aid stressing the need to 

comply with the Gramm-Leach-Bliley-Act standards 

and announcing that these standards would now be 

included in future reviews to be conducted by the 

Department. The Department recognizes that it is 

vital to focus on cybersecurity at these IHEs as they 

connect to FSA systems and access FSA data. It is 

noteworthy that the Department has successfully 

implemented two-factor authentication for all external 

users of the G5 system, which is a customer-facing 

grants management system. The Department has also 

engaged the General Services Administration and 

we have signed a memorandum of understanding to 

implement a pilot for the use of Login.gov for twofactor authentication to other Department citizenfacing information systems.

As a result of the Department implementing a 

comprehensive set of activities to strengthen the overall 

cybersecurity of the Department’s networks, systems, 

and data, the Department completed actions to close 10 

of the 15 recommendations to address the 11 findings 

made by the OIG in its FY 2016 annual FISMA audit. 

For the FY 2017 annual FISMA audit, the OIG is 

reporting 37 recommendations covering the seven 

FISMA metrics domains. 

The OIG FISMA Audit objective was to conduct 

annual independent evaluations and tests to determine 

the effectiveness of the information security program 

policies, procedures, and practices of the Department and 

Federal Student Aid (FSA). The FY 2017 OIG FISMA 

reporting metrics were organized around the five security 

functions outlined in the National Institute of Standards 

and Technology’s “Framework for Improving Critical 

Infrastructure Cybersecurity (Cybersecurity Framework): 

Identify, Protect, Detect, Respond, and Recover.” The 

FY 2017 maturity model was more comprehensive and 

attributes were assessed differently than the previous 

year’s maturity model indicator scoring. As a result, 

certain functions were assessed at a lower level, and the 

OIG found the Department and FSA were not effective 

in all five security functions.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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INTERNAL CONTROL EXCEPTIONS

The Department identified two instances of 

noncompliance with laws and regulations in FY 2017. 

Additionally, reviews and assessments conducted pursuant 

to information technology-related laws and regulations 

identified challenges still facing the Department. 

IMPROPER PAYMENTS INFORMATION 

ACT OF 2002

The Improper Payments Information Act of 2002 (IPIA), 

Pub. L. 107-300, 116 Stat. 2350, as amended by the 

Improper Payments Elimination and Recovery Act of 2010

(IPERA), Pub. L. 111-204, 124 Stat. 2224, and the 

Improper Payments Elimination and Recovery Improvement 

Act of 2012 (IPERIA), Pub. L. 112-248, 126 Stat. 2390, 

require federal agencies to annually report improper 

payments for programs that are deemed susceptible to 

significant improper payments. IPERA also requires each 

agency’s Office of Inspector General (OIG) to review 

the agency’s improper payment reporting in its AFR and 

accompanying materials, and to determine whether the 

agency has met six compliance requirements.

In its annual improper payment compliance audit for FY 

2016, the OIG concluded that the Department was not 

compliant with IPERA because it did not meet two of 

IPERA’s six compliance requirements. The Department 

reported improper payment rates for the Direct Loan and 

Pell Grant (Pell) programs that did not meet the FY 2016 

reduction targets and the Department’s risk assessments for 

its grant programs managed by offices other than Federal 

Student Aid (FSA) and contracting activities managed by 

FSA did not conform to applicable guidance.

This determination of noncompliance with IPERA does 

not represent a material weakness in the Department’s 

internal controls.

DEBT COLLECTION IMPROVEMENT ACT OF 1996

The Debt Collection Improvement Act of 1996 (DCIA), 

Pub. L. 104-134, 110 Stat. 1321-358, was enacted into 

law as part of the Omnibus Consolidated Rescissions and 

Appropriations Act of 1996, Pub. L. 104-134, 110 Stat. 

1321. The primary purpose of the DCIA is to increase 

the collection of nontax debts owed to the federal 

government. Additionally, the DATA Act, Pub. L. 113-

101, 128 Stat. 1146, amended Section 3716(c)(6) of the 

DCIA to require referral of delinquent debt to Treasury’s 

Offset Program within 120 days. 

Due to unique program requirements of HEA, the 

Department requested guidance from Treasury’s 

Bureau of Fiscal Service, Office of General Counsel for 

the application of this revised DCIA requirement to 

Title IV debt. Treasury provided its interpretation of 

this requirement for Title IV debt in July 2015. As of 

September 30, 2017, the Department and FSA were not 

in compliance with the new 120-day referral requirement 

in 31 U.S.C. Section 3716(c)(6) because FSA had not 

yet revised its loan servicing systems, procedures, and 

internal processes in response to this interpretation. 

During FY 2017, FSA initiated the change management 

process for its default loan servicer to refer eligible debts 

to the Treasury Offset Program sooner, developed DCIA 

compliant referral exclusions, and continued to identify 

policy changes required to work towards achieving 

compliance. This area of noncompliance is noted in the 

independent auditors’ report, exhibit B.

This determination of noncompliance with the 

DCIA does not represent a material weakness in the 

Department’s internal controls.
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