U. S. Department of Education 

Fiscal Year 2006 

Performance and 

Accountability Report 
U.S. Department of Education 

Margaret Spellings 

Secretary

Office of the Chief Financial Officer 

Lawrence Warder 

Chief Financial Officer 

 

November 15, 2006 

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

permission to reprint this publication is not necessary, the citation should be: U.S. Department of Education, 

U.S. Department of Education Fiscal Year 2006 Performance and Accountability Report, Washington D.C., 

2006. 

About the Department of Education’s 

Fiscal Year 2006 Performance and Accountability Report 

The Department of Education’s publicly available Fiscal Year 2006 Performance and Accountability Report

(PAR) will be available on the Department’s Web site at 

http://www.ed.gov/about/reports/annual2006report/index.html. This print version, provided in limited 

distribution, contains the exact content provided in the online version. 

Additionally, a color print highlights document containing a CD of the entire PAR will be available in January

2007. 

To request a copy of our Highlights Report in print, 

with CD of the full Performance and Accountability Report, 

contact edpubs@inet.ed.gov. 

To provide comments and suggestions on both the content and

presentation of the report, 

contact PARcomments@ed.gov. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
MESSAGE FROM THE SECRETARY

It is my pleasure to present to you our Fiscal Year 2006 Performance and 

Accountability Report—a report card of the U.S. Department of Education’s efforts 

and the resulting outcomes during the past fiscal year. 

This year, there is a new look and feel to our Performance and Accountability Report. 

The new approach reflects our efforts to streamline the report, be more transparent, 

and communicate our goals, objectives and outcomes in plain language for our 

readers. The report provides program performance results and financial information 

so that all Americans can assess how we are meeting our goals and objectives. This 

report also emphasizes our achievements and challenges in meeting the President's and 

America's vision that no child will be left behind. 

It has been almost five years since President Bush and the Congress led our nation in a historic commitment to 

a quality education for every child—regardless of race, income, or special need. We now have the data to see 

what’s working in our schools and where we need to reconsider. Now, we must build on the successful 

foundation of No Child Left Behind. This past year, we have focused attention on accountability in our high 

schools, with the goal of ensuring that a high school diploma becomes a record of achievement, not just 

attendance. 

We are heading in the right direction thanks to No Child Left Behind. However, we need to continue to focus 

on grade-level proficiency in math and reading, to increase rigor in math and science, to improve American 

competitiveness by increasing accountability in high schools, and to continue to ensure equal access to higher 

education through our student financial aid and postsecondary education programs. 

Although our performance data are fundamentally complete and reliable, we continue to work to improve 

timeliness and accuracy as discussed in the Management’s Discussion and Analysis section of this report. We 

have partnered with state educational agencies, colleges and universities, and financial institutions to streamline 

our reporting systems and to create common definitions for performance data. 

Along with performance data, the report presents financial data about the Department’s operations. I am

pleased to announce that for the fifth year in a row, the Department has earned a “clean” opinion from

independent auditors on our financial statements. The report also includes the information and assurances 

about the Department’s financial management systems and management controls required by the Federal 

Managers’ Financial Integrity Act. The Department’s financial management systems and management 

controls, taken as a whole, provide reasonable assurance that the objectives of the act are being met, except for 

two material weaknesses identified by management. The two material weaknesses identified are related to 

Information Security and Program Management Controls. For further discussion, please see the Management’s

Assurances section of Management’s Discussion and Analysis on pages 23-25 of this report.

We are a nation where education touches everyone. There is not one person in America who is not affected by

the success of our educational systems. The Department of Education is committed to meeting the highest 

standards of accountability as we carry out our mission. 

/s/ 

Margaret Spellings 

November 15, 2006 

FY 2006 Performance and Accountability Report—U.S. Department of Education 

 iii 
FY 2006 Performance and Accountability Report—U.S. Department of Education 

iv
TABLE OF CONTENTS

Contents 

Message From the Secretary..................................................................................................................................iii 

Management’s Discussion and Analysis 

Our Mission............................................................................................................................................................ 3 

History and Organization ....................................................................................................................................... 4 

Our Customers........................................................................................................................................................ 6 

Performance Results and Highlights ...................................................................................................................... 7 

Data Quality.......................................................................................................................................................... 13 

Financial Highlights ............................................................................................................................................. 15 

President’s Management Agenda - Scorecard Results......................................................................................... 18 

Management Challenges and Future Initiatives ................................................................................................... 19 

Integration of Performance and Financial Information ........................................................................................ 22

Management’s Assurances................................................................................................................................... 23 

Improper Payments Overview.............................................................................................................................. 26 

Performance Details 

Performance Details Overview............................................................................................................................. 30 

Goal 1: Create a Culture of Achievement............................................................................................................. 32 

Goal 2: Improve Student Achievement ................................................................................................................ 40 

Goal 3: Develop Safe and Drug-Free Schools...................................................................................................... 53 

Goal 4: Transform Education Into an Evidence-Based Field............................................................................... 58 

Goal 5: Enhance the Quality of and Access to Postsecondary and Adult Education ........................................... 62 

Goal 6: Establish Management Excellence .......................................................................................................... 80 

Summary of Inspector General and Government Accountability Office Reports................................................ 86 

Financial Details 

Message From the Chief Financial Officer .......................................................................................................... 92 

Financial Summary .............................................................................................................................................. 93 

Limitations of Financial Statements..................................................................................................................... 93 

Principal Financial Statements ............................................................................................................................. 95 

Notes to Principal Financial Statements............................................................................................................. 101 

Required Supplementary Information ................................................................................................................ 129 

Required Supplementary Stewardship Information............................................................................................ 133 

Report of the Independent Auditors ................................................................................................................... 139 

Other Accompanying Information 

Improper Payments Information Act Reporting Details..................................................................................... 158 

Report to Congress on Audit Follow-up............................................................................................................. 172 

Credit Management and Debt Collection Improvement Act.............................................................................. 173 

Management Challenges for Fiscal Year 2007................................................................................................... 175 

Glossary 

Glossary of Acronyms and Abbreviations.......................................................................................................... 181 

FY 2006 Performance and Accountability Report—U.S. Department of Education 

 v 
FY 2006 Performance and Accountability Report—U.S. Department of Education 

vi
 

Management’s 

Discussion 

and 

Analysis 

Management’s Discussion and Analysis 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Our Mission 

Historically, the Department’s mission has 

been “to ensure equal access to education and 

to promote educational excellence throughout 

the nation.” Nearly five years after the 

enactment of the No Child Left Behind Act of 

2001, this mission requires the Department to 

focus on achieving academic proficiency by 

2014, increasing the rigor of mathematics and 

science curricula, improving American 

competitiveness, and providing access to 

higher education for all. 

Of the many services that government 

provides to its citizens, few are as farreaching as education. Every community 

throughout America has schools that provide 

instruction in reading, writing, mathematics, 

and science, as well as immersion in 

American history and culture. Most 

communities also have a high school where 

students learn science, mathematics, and 

other subjects that help them become 

informed American citizens. In addition, 

technical and 

postsecondary 

educational 

institutions are 

available to 

Americans to 

further improve 

their skills and 

education and 

enable them to 

become 

contributing 

members of our 

society. 

The Department 

is proud to be a 

part of this grand 

enterprise. 

Nationally, education expenditures are 

approximately $900 billion. The Department 

provides $99.8 billion—or 11 percent of the 

total—to help leverage the balance of funding 

and ensure that every child has the opportunity to 

learn and to reap the benefits of a high quality 

education. 

Our nation’s schools are the foundation for an 

economic engine that helps ensure we are a country 

with educated citizenry, full employment, and the 

ability to be fully competitive in the international 

marketplace. 

To maintain our national competitiveness we must 

have world-class higher education and continuous 

learning systems. These systems derive from a 

secondary education system that graduates high 

school students with advanced mathematics and 

science skills. Students with these skills are the 

product of rigorous mathematics and science 

programs in elementary schools. These programs 

focus on inclusion of all students in challenging 

and comprehensive instruction using best practices 

and research-based techniques. 

Management’s Discussion and Analysis 

America has the world’s greatest range of 

educational environments to meet the diverse needs 

of its students: public schools, public charter 

schools, specialized schools, and nonpublic 

schools. This report discusses how the Department 

of Education has supported and will continue to 

support these initiatives and activities. 

Continuous National Improvement

Through Education

Elementary

Reading &

Mathematics

Proficiency

Increased

Rigor in

Mathematics

& Science

Improvement

in High

School

Competitiveness

More Students

Accessing

Postsecondary

Education

Improved

Job

Competitiveness

Improved

National

Competitiveness

Teacher Quality

Students & Parents

Continuous National Improvement

Through Education

Elementary

Reading &

Mathematics

Proficiency

Increased

Rigor in

Mathematics

& Science

Improvement

in High

School

Competitiveness

More Students

Accessing

Postsecondary

Education

Improved

Job

Competitiveness

Improved

National

Competitiveness

Teacher Quality

Students & Parents

Elementary

Reading &

Mathematics

Proficiency

Increased

Rigor in

Mathematics

& Science

Improvement

in High

School

Competitiveness

More Students

Accessing

Postsecondary

Education

Improved

Job

Competitiveness

Improved

National

Competitiveness

Elementary

Reading &

Mathematics

Proficiency

Increased

Rigor in

Mathematics

& Science

Improvement

in High

School

Competitiveness

More Students

Accessing

Postsecondary

Education

Improved

Job

Competitiveness

Improved

National

Competitiveness

Teacher Quality

Students & Parents

FY 2006 Performance and Accountability Report—U.S. Department of Education 3
MANAGEMENT’S DISCUSSION AND ANALYSIS

History and Organization 

The federal government recognized that 

furthering education is a national priority in 

1867, when its initial role in education 

encompassed statistical data collection and 

reporting. Although the agency’s form and 

location in the Executive Branch have 

changed over the years, the federal focus has 

remained on identifying and sharing what 

works in education with teachers and 

education policymakers. It was not until 

May 1980 that the Congress established the 

Department of Education as a Cabinet-level 

agency. 

By that time, several major legislative actions 

had been taken to channel federal support to 

improve the quality of, and access to, 

education. Legislation in the late 1800s and 

early 1900s focused on the areas of education 

that would support America’s overall 

economic progress, such as the creation of 

land-grant colleges and universities, and on 

agricultural, industrial, and home economics 

training for high school students. Later major 

legislative actions included the Lanham Act 

of 1941, Impact Aid, and the “GI Bill.” 

These actions, a direct result of the impact of 

World War II on our country’s families, 

supported school districts that were affected 

by the large number of military enlistments 

and provided opportunities for education for 

those men and women who served their 

country. 

Management’s Discussion and Analysis 

Between World War II and 1980, several 

landmark legislative actions shaped 

America’s education systems. The focus 

during this period was equal access, and the 

legislation included Title VI of the Civil 

Rights Act of 1964, the Elementary and 

Secondary Education Act of 1965, the Higher 

Education Act of 1965, Title IX of the 

Education Amendments of 1972, Section 504 

of the Rehabilitation Act of 1973, and the 

Education of All Handicapped Children Act 

of 1975, now known as the Individuals with 

Disabilities Education Act. 

The Elementary and Secondary Education Act 

launched a comprehensive set of programs that are 

still administered by the Department today. To 

further enhance this legislation, President Bush 

recommended, and the Congress enacted, the 

No Child Left Behind Act of 2001. This recent 

amendment to the 1965 act established programs 

that account for more than 40 percent of the 

Department’s fiscal year 2006 discretionary 

spending. 

Today, the Department operates programs that 

touch every area and level of education. The 

elementary and secondary programs annually serve 

15,500 school districts and approximately 

50 million students. Department programs also 

provide grant, loan, and work-study assistance to 

more than 10 million postsecondary students. 

The Department strives to achieve these results 

with the smallest workforce of the 15 Cabinet-level 

departments. Fewer than 4,200 full-timeequivalent staff manage approximately $58 billion 

in annual discretionary funds and oversee a student 

financial loan portfolio exceeding $400 billion. 

In 2005, Secretary Spellings announced a new 

coordinating structure—one that better focuses 

resources on assisting our educational partners and 

emphasizes tangible results as the yardstick of our 

success. This structure will result in a Department 

that is increasingly responsive to the needs of 

states, districts, schools, teachers, students, 

institutions of higher education, and other 

stakeholders in fostering academic achievement. 

The revised coordinating structure is displayed on 

the next page. 

The Department recognizes the primary role of 

states and school districts in providing a high 

quality education, employing highly qualified 

teachers and administrators, and establishing 

challenging content and achievement standards. 

The federal role is to supplement these state and 

local efforts with leadership, expertise, and targeted 

resources that optimize opportunities and improve 

achievements for all Americans. 

4 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Department of Education Coordinating Structure 

FY 2006 

Management’s Discussion and Analysis 

FY 2006 Performance and Accountability Report—U.S. Department of Education 5
MANAGEMENT’S DISCUSSION AND ANALYSIS

Our Customers

Every American has a stake in the nation’s education success. 

The Department’s customers include 

American taxpayers, students, teachers, 

parents, postsecondary students, institutions, 

and global citizens. When No Child Left 

Behind took effect, the government 

intensified its commitment to the students of 

America’s elementary and secondary schools. 

The act benefits children, empowers parents, 

supports teachers, and strengthens schools. 

Elementary and Secondary Students 

According to the Department’s report, The 

Condition of Education 2006, there are signs 

of improved achievement at the elementary 

and secondary levels. U.S. fourth-grade 

students had higher average scores in reading 

literacy than the international average as 

measured in the 2001 Progress in 

International Reading Literacy Study. Thirtyfive countries participated, and the U.S. 

students had a higher average than 23 of the 

other 34 countries that participated. 

Management’s Discussion and Analysis 

In mathematics and science, the U.S. 

demonstrated mixed results. U.S. fourthgrade students showed no measurable change 

in performance in the 2003 Trends in 

International Mathematics and Science Study, 

while eighth-graders’ performance improved. 

The standings of fourth-graders actually 

declined in both mathematics and science 

relative to students from the 14 other 

countries that participated in both the 1995 

and 2003 assessments. 

Since the inception of the Individuals with 

Disabilities Education Act, the number and 

percentage of youth aged 3–21 enrolled in 

public schools who receive special education 

services have steadily increased. In 2004–05, 

more than 6.7 million youth aged 3–21 were 

served under the act.

Parents 

The provisions of No Child Left Behind have 

made schools more accountable to parents 

and provided parents with information about 

their children and what they should expect 

from their schools. No Child Left Behind

requires that parents be informed about their 

child’s test results and whether their child’s school 

is making adequate yearly progress. If a school 

does not make progress, parents can choose to have 

their child transferred to another school. The 

following year if the school does not make 

progress, parents are informed and students are 

provided supplemental education services.

Teachers 

According to the 2004 School and Staffing Survey, 

there were 3.3 million public school teachers and 

87,621 principals working in 15,500 school 

districts throughout the country. No Child Left 

Behind includes provisions stating that all teachers 

in core academic areas must be highly qualified in 

the core academic subjects they teach by the end of 

the 2005–06 school year. In general, a highly 

qualified teacher must have a bachelor’s degree, 

full state certification as defined by the state, and 

demonstrated competency as defined by the state in 

each core academic subject he or she teaches. 

Postsecondary Students and Institutions 

More students are enrolling in colleges and getting 

degrees, and the enrollment increase is projected to 

continue through 2015. The number of bachelor’s 

degrees awarded increased by 33 percent between 

1989–90 and 2003–04, while the number of 

associate’s degrees increased by 46 percent. 

Female college enrollment passed male enrollment 

in 1978, and the gender gap has widened and is 

expected to grow. 

To help students who could not otherwise afford 

postsecondary education, the Department provides 

assistance through various programs such as the 

Federal Family Education Loan Program, the 

Federal Direct Loan Program, the Pell Grant 

Program, the Perkins Loan Program, and the 

Federal Work-Study Program, authorized under 

Title IV of the Higher Education Act. In 2006, the 

Department’s office of Federal Student Aid 

delivered approximately $77 billion in aid to more 

than 10 million students attending over 

6,100 institutions. 

6 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Performance Results and Highlights 

In fiscal year (FY) 2006, the Department 

administered and assessed 150 programs. 

The key measures provided in this report 

represent those measures that provide an 

overall assessment of the Department’s 

progress in achieving improvements in the 

educational system. 

The table below summarizes the 

Department’s performance results for 

FY 2006 key measures. There are 64 key 

performance measures that support the 

Department’s mission and strategic goals. 

For the most recent data available, the 

Department met or exceeded targets for 

33 key measures, did not meet 15, and is 

awaiting data for the remainder. This year, 

data are pending for 16 key measures, which 

is a result of the time lag of between 12 and 

24 months from the end of the measurement 

period. 

Each year, the Department assesses key measures 

for that year’s performance plan and evaluates the 

utility and appropriateness of those measures. As a 

result, key measures are continued, replaced, or 

completely removed from the objective key 

measurement process. This assessment process 

provides a method for continued improvement and 

enhancement in Department programs. 

Shown below are the actual results for each key 

measure. The table presents whether the actual 

result met, failed to meet, or exceeded the expected 

target. The shaded areas indicate that a measure 

was not in place during the time period. In some 

cases, establishing a baseline is the target and is 

recognized as met if the data are available and the 

baseline is established. For measures where data 

are not currently available, the date the data are 

expected is indicated. 

Management’s Discussion and Analysis 

Legend

NA = No measure for period √ = Met target + = Exceeded target

T = Measure replaced or 

discontinued

r = Less than target or prior 

year level

Performance Results Summary Cohort FY 2004 FY 2005 FY 2006

Strategic Goal 1 – Create a Culture of Achievement

1.1 – Link federal education funding to accountability for results 

A. Number of states that have reading/language arts assessments that align with the state’s 

academic content standards for all students in grades 3–8 and in high school. [1201] √ r r

B. Number of states that have mathematics assessments that align with the state’s 

academic content standards for all students in grades 3–8 and in high school. [1202] √ r r

C. Number of states that have science assessments that align with the state’s academic 

content standards for all students in grades 3–8 and in high school. [1203] NA NA Dec. 

2007 

D. Number of states that have completed field testing of the required assessments in 

reading/language arts. [1204] NA + √ T 

E. Number of states that have completed field testing of the required assessments in 

mathematics. [1205] NA + √ T

F. Number of states that have completed field testing of the required assessments in 

science. [1206] NA NA +

1.2 – Increase flexibility and local control 

A. Percentage of eligible school districts utilizing the Rural Education Achievement Program 

flexibility authority. [1473] r r Apr. 2007 

B. Overall American Customer Satisfaction Index as scored by Department grantees. [2200] NA √ r

1.3 – Increase information and options for parents 

A. Number of charter schools in operation around the nation. [1146] r + + 

B. Amount of funding program grantees’ leverage for the acquisition, construction or 

renovation of charter school facilities. [1208] r + Feb. 2007 

FY 2006 Performance and Accountability Report—U.S. Department of Education 7
MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis 

Performance Results Summary Cohort FY 2004 FY 2005 FY 2006

1.4 – Encourage the use of scientifically based methods within federal education programs 

A. Proportion of school-adopted approaches that have strong evidence of effectiveness 

compared to programs and interventions without such evidence. [2201] NA NA Dec. 2007 

Strategic Goal 2 – Improve Student Achievement

2.1 – Ensure that all students read on grade level by the third grade 

A. Number of states reporting an increase in the percentage of fourth-grade low-income 

students meeting state performance standards by scoring at or above proficient in 

reading/language arts on state assessments. [1066] 

NA r Aug. 

2007

B. Number of states reporting an increase in the percentage of fourth-grade students with 

disabilities meeting state performance standards by scoring at or above proficient on 

state assessments in reading. [1519] 

NA r Aug. 

2007 

C. Number of states that met the state target for attainment of English language proficiency. 

[1830] NA NA Jan. 

2007 

2.2 – Improve mathematics and science achievement for all students 

A. Number of states reporting an increase in the percentage of eighth-grade low-income 

students meeting state performance standards by achieving proficiency or above in 

mathematics on state assessments. [1067] 

NA + Aug. 

2007

B. Number of states reporting an increase in the percentage of eighth-grade students with 

disabilities meeting state performance standards by scoring at or above proficient on 

state assessments in mathematics. [1520] 

NA + Aug. 

2007 

2.3 – Improve the performance of all high school students 

A. Percentage of students with disabilities who graduate from high school with a regular high 

school diploma. [1527] NA √ Aug. 

2007 

B. Percentage of students with disabilities who drop out of school. [1528] NA + Aug. 

2007 

C. Number of Advanced Placement tests taken by low-income public school students 

nationally. [1149] NA NA Jan. 

2007

2.4 – Improve teacher and principal quality 

A. Percentage of core academic classes in high-poverty schools taught by highly qualified 

teachers. [1180] NA √ Dec. 

2007 

B. Percentage of core academic classes in elementary schools taught by highly qualified 

teachers. [1182] + + Dec. 2007 

C. Percentage of core academic classes in secondary schools taught by highly qualified 

teachers. [1183] + + Dec. 2007 

Strategic Goal 3 – Develop Safe Schools and Strong Character

3.1 – Ensure that our nation’s schools are safe and drug free, and that students are free of 

alcohol, tobacco, and other drugs 

04 NA √ Dec. 

2006 

A. Percentage of Safe Schools/Healthy Students grant sites that experience a decrease in 

the number of violent incidents at schools during the three-year grant period (by cohort). 

[1825 & 2019] 05 NA NA Dec. 

2006 

04 NA √ Dec. 

2006 

B. Percentage of Safe Schools/Healthy Students grant sites that experience a decrease in 

substance abuse during the three-year grant period (by cohort). [1826 & 2020] 

05 NA NA Dec. 

2006 

04 NA √ Dec. 

2006 

C. Percentage of Safe Schools/Healthy Students grant sites that improve school attendance 

during the three-year grant period (by cohort). [1827 & 2021] 

05 NA NA Dec. 

2006 

D. Percentage of Student Drug Testing grantees that experience a 5 percent annual 

reduction in the incidence of past-month drug use by students in the target population (by 

cohort). [1828] 

03 NA NA √

E. Percentage of Student Drug Testing grantees that experience a 5 percent annual 

reduction in the incidence of past-year drug use by students in the target population (by 

cohort). [1829] 

03 NA NA √

3.2 – Promote strong character and citizenship among our nation’s youth. 

8 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis 

Performance Results Summary Cohort FY 2004 FY 2005 FY 2006

Strategic Goal 4 – Transform Education into an Evidence-Based Field

4.1 – Raise the quality of research funded or conducted by the Department 

A. Percentage of new research proposals funded by the Department’s National Center for 

Education Research that receive an average score of excellent or higher from an 

independent review panel of qualified scientists. [1022] 

NA √ r

B. Percentage of new research proposals funded by the Department’s National Center for 

Special Education Research that receive an average score of excellent or higher from an 

independent review panel of qualified scientists. [1940] 

NA NA √

4.2 – Increase the relevance of our research in order to meet the needs of our customers 

A. Percentage of new research projects funded by the Department’s National Center for 

Education Research and National Center for Education Evaluation and Regional 

Assistance that are deemed to be of high relevance to education practices as determined 

by an independent review panel of qualified practitioners. [1028] 

√ Dec. 

2006 

Mar. 

2007 

B. Percentage of new research projects funded by the Department’s National Center for 

Special Education Research that are deemed to be of high relevance by an independent 

panel of qualified practitioners. [1942] 

NA NA √

Strategic Goal 5 – Enhance the Quality of and Access to Postsecondary and Adult Education

5.1 – Reduce the gaps in college access and completion among student populations differing 

by race or ethnicity, socioeconomic status, and disability while increasing the educational 

attainment of all 

A. Percentage of TRIO Educational Opportunity Centers participants enrolling in college. 

[1612] + r Dec. 2007 

B. Percentage of TRIO Student Support Services participants persisting at the same 

institution. [1617] + + Dec. 

2007 

C. Percentage of TRIO Student Support Services participants completing an associate’s 

degree at the original institution or transferring to a four-year institution within three years. 

[1618] 

NA NA Dec. 

2007 

D. Percentage of TRIO Student Support Services first-year students completing a bachelor’s 

degree at the original institution within six years. [1619] r r Dec. 2007 

E. Percentage of TRIO McNair participants enrolling in graduate school. [1614] + + Dec. 

2007 

F. Percentage of TRIO McNair participants persisting in graduate school. [1615] + + Dec. 

2007 

5.2 – Strengthen the accountability of postsecondary institutions 

5.3 – Establish funding mechanisms for postsecondary education 

5.4 – Strengthen Historically Black Colleges and Universities, Hispanic-Serving Institutions, and 

Tribal Colleges and Universities 

A. Percentage of full-time undergraduate students who were in their first year of 

postsecondary enrollment in the previous year and are enrolled in the current year at the 

same Historically Black College or University. [1587] 

NA NA r

B. Percentage of students enrolled at four-year Historically Black Colleges and Universities 

graduating within six years of enrollment. [1589] NA NA Dec. 

2007 

C. Number of Ph.D., first professional, and master’s degrees awarded at Historically Black 

Graduate Institutions. [1595] NA NA Dec. 

2007

D. Percentage of full-time undergraduate students who were in their first year of 

postsecondary enrollment in the previous year and are enrolled in the current year at the 

same Tribally Controlled College or University. [1569] 

NA NA +

E. Percentage of students enrolled at four-year Tribally Controlled Colleges and Universities 

graduating within six years of enrollment. [1571] NA NA Dec. 

2007

F. Percentage of students enrolled at two-year Tribally Controlled Colleges and Universities 

who graduate within three years of enrollment. [1572] NA NA Dec. 

2007

G. Percentage of full-time undergraduate students who were in their first year of 

postsecondary enrollment in the previous year and are enrolled in the current year at the 

same Hispanic-Serving Institution.[1601] 

NA NA Dec. 

2007 

H. Percentage of students enrolled at four-year Hispanic-Serving Institutions graduating 

within six years of enrollment. [1603] NA NA Dec. 

2007

I. Percentage of students enrolled at two-year Hispanic-Serving Institutions who graduate 

within three years of enrollment. [1604] NA NA Dec. 

2007

5.5 – Enhance the literacy and employment skills of American adults 

A. Percentage of general and combined state vocational rehabilitation agencies that assist 

at least 55.8 percent of individuals receiving services to achieve employment. [1681] r r Apr. 2007 

FY 2006 Performance and Accountability Report—U.S. Department of Education 9
MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis 

Performance Results Summary Cohort FY 2004 FY 2005 FY 2006

B. Percentage of adults with a high school completion goal who earn a high school diploma 

or recognized equivalent. [1386] + + Dec. 2006 

C. Percentage of adults enrolled in English literacy programs who acquire the level of 

English language skills needed to complete the levels of instruction in which they 

enrolled. [1384] 

r r Dec. 

2006 

5.6 – Increase the capacity of U.S. postsecondary education institutions to teach world 

languages, area studies, and international issues 

A. Percentage of critical languages taught, as reflected by the list of critical languages 

referenced in the HEA, Title VI program statute. [1665] NA Dec. 

2006 

Dec. 

2007 

B. Percentage of National Resource Center Ph.D. graduates who find employment in higher 

education, government and national security. [1664] + Dec. 

2006 

Dec. 

2007 

C. Average competency score of Foreign Language and Area Studies Fellowship Program 

recipients at the end of one full year of instruction minus the average score at the 

beginning of the year. [1671] 

+ √ Dec. 

2006 

Strategic Goal 6 – Establish Management Excellence 

6.1 – Develop and maintain financial integrity and management internal controls 

A. Achieve an unqualified opinion. [2204] √ √ √

6.2 – Improve the strategic management of the Department’s human capital 

A. Index of quality human capital performance management activities. [2205] NA √ r

6.3 – Manage information technology resources, using e-gov, to improve service for our 

customers and partners 

A. Percentage of grant programs providing online application capability. [2206] NA + √

6.4 – Modernize the Federal Student Assistance programs 

A. Customer service level for Free Application for Federal Student Assistance on the Web. 

[2207] NA r r

B. Customer service level for Direct Loan Servicing. [2208] NA r + 

C. Customer service level for Common Origination and Disbursement. [2209] NA + + 

D. Customer service level for Lender Reporting System. [2210] NA r r

6.5 – Achieve budget and performance integration to link funding decisions to results 

A. Percentage of Department program dollars associated with programs reviewed under the 

Program Assessment Rating Tool process that demonstrate effectiveness. [2211] NA + Aug. 2007 

6.6 – Leverage the contributions of faith-based and community organizations to increase the 

effectiveness of Department programs 

A. Percentage of applications in competitions of amenable discretionary programs that are 

faith-based or community organizations. [2212] NA NA √

Performance Achievements 

Five years after the enactment of the No Child Left 

Behind Act, the revolutionary changes to our 

education system called for by President Bush are 

almost implemented. States have put in place 

rigorous new accountability systems and are 

implementing reading and math assessments 

covering all students in grades three through eight. 

Improved data collection and reporting on teacher 

qualifications are helping states to ensure that all 

teachers are highly qualified. School districts are 

providing new support and assistance to lowperforming schools while making available public 

school choice and supplemental educational service 

options to millions of students who attend those 

schools. 

Despite the great promise and progress of No Child 

Left Behind, gaps remain in the federal effort to 

improve the performance of America’s public 

schools. These gaps are exposed by the rapid pace 

of technological change and increasing global 

economic competition. 

To ensure a strong and prosperous America in the 

21st century, our students must possess the 

mathematics and science knowledge that is the 

foundation of our nation’s long dominance in 

science, technology, and innovation; graduate from 

high school prepared to enter college or the 

globally competitive workforce; and master critical 

foreign languages needed both for success in the 

global business arena and to ensure our national 

security in the war on terrorism. 

10 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

FY 2006 Performance and Accountability Report—U.S. Department of Education 11

Management’s Discussion and Analysis 

In FY 2006, the Department of Education 

administered over $77 billion in new grants, loans, 

and work-study assistance to help over 10 million 

students and their families pay for college. In 

addition to student financial assistance, the 

Department provides continuing support for 

institutional development at colleges and 

universities serving large percentages of minority 

students and funds opportunities for postsecondary 

students to gain international expertise and training 

as language and area specialists. 

Hurricane Relief 

On December 30, 2005, President Bush signed into 

law the Hurricane Education Recovery Act. This 

act provided $1.4 billion to help school districts 

and schools meet the educational needs of students 

displaced by Hurricanes Katrina and Rita. The 

funding provided under the act also helped schools 

that closed as a result of the hurricanes to reopen as 

quickly and effectively as possible. The act also 

provided funding of $200 million to help higher 

education institutions directly affected by the 

hurricanes, as well as other colleges and 

universities around the country that enrolled 

displaced students. An additional $285 million was 

later authorized and provided by the Congress, 

totaling $1.9 billion to assist the educational 

institutions in the immediately affected areas and 

those educational systems that provided assistance 

for displaced students. Approximately 

$900 million, or 47 percent of authorized funding, 

was provided to assist local educational agencies 

that accepted and assisted displaced students. 

The Hurricane Education Recovery Act also 

authorized the Secretary, under certain 

circumstances, to waive or modify any statutory or 

regulatory provision applicable to the student 

financial assistance programs under Title IV of the 

Higher Education Act, as amended. The Secretary 

determined that institutions in the impacted areas in 

possession of Title IV funds awarded to students 

enrolled for the disrupted academic period will, 

generally, not be required to return funds for the 

students who withdrew or never began attendance. 

The aid related to this waiver was approximately 

$28 million. 

As of September 30, 2006, over $230 million had 

been expended from the Emergency Impact Aid for 

Displaced Students program for restart aid. This 

funding was intended by the Congress for expenses 

related to the restart of school operations, the 

reopening of and the re-enrollment of students in 

elementary and secondary schools in Gulf Coast 

states.

In addition, the Department received approximately 

$61 million in foreign aid donations to rebuild and 

restore educational institutions at all levels in the 

affected areas. Of this amount, $35 million has 

been awarded. 

President’s Management Agenda 

During FY 2006, the Department made significant 

improvements on the President’s Management 

Agenda scorecard. The Office of Management and 

Budget recognized improved status for the 

Department in three areas: E-government, 

Budget-Performance Integration, and Eliminating 

Improper Payments. E-government met all 

milestones and continues to improve overall. 

Budget-Performance Integration met efficiency 

measures for all PART and marginal cost 

standards, and has assessed 99.4 percent of the 

budgeted dollars, excluding programs that are 

exempted. In addition, the Department has 

assessed many programs that are not required to be 

assessed. The Department continues to make 

progress in the Eliminating Improper Payments 

initiative by developing timelines for specific risk 

assessments and finalizing estimates for major 

programs. See p. 18 for the Scorecard Results.

Funds Appropriated for

Hurricane Relief

 Higher

Education

13%

 Homeless

Youth < 1%

 Displaced

Students

47%

 Restart

Operations

40%
MANAGEMENT’S DISCUSSION AND ANALYSIS

Civil Rights Enforcement 

The enforcement of civil rights laws drives student 

outcomes by ensuring that discrimination does not 

deny or limit student access to education programs 

and activities at any educational level. The 

Department enforces five civil rights laws that 

protect students against discrimination on the basis 

of race, color, national origin, sex, disability, and 

age primarily in educational institutions that 

receive federal funds. In addition, the Department 

ensures that the Boy Scouts of America and other 

designated youth groups have equal access to meet 

in elementary and secondary schools that receive 

federal funds from the Department. These 

antidiscrimination laws protect approximately 

50 million students attending elementary and 

secondary schools and more than 17.7 million 

students attending colleges and universities. 

The Office for Civil Rights, a law enforcement 

agency within the Department, performs civil rights 

enforcement responsibilities in a variety of ways. 

Civil rights enforcement responsibilities include 

investigating complaints alleging discrimination, 

conducting compliance reviews of educational 

institutions, and providing technical assistance to 

educational institutions on compliance with the law 

and to parents and students on their rights under the 

law. The Department also issues regulations on 

civil rights laws, develops policy guidance 

interpreting the laws, and distributes the 

information broadly. 

At the beginning of FY 2006, the Office for Civil 

Rights had 1,546 pending complaints of 

discrimination. During the year, the Department 

received an additional 5,805 complaints and 

resolved 5,893. The goal of each investigation is to 

address the alleged discrimination promptly and to 

determine if civil rights laws and regulations have 

been violated. As shown in the chart below, the 

majority of complaints received by the Department 

allege discrimination due to disability.

Management’s Discussion and Analysis 

FY 2006 Discrimination Complaints

Sex 6% Age 1%

Disability 

52%

Multiple 13%

Other** 11%

Race/ 

National 

Origin 17%

** Indicates no jurisdiction or jurisdiction not yet determined. 

12 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Data Quality 

Complete, accurate, and reliable data are 

essential for effective decision-making. State 

and local educational agencies have 

historically provided education performance 

data that do not fully meet information 

quality standards. With the passage of the No 

Child Left Behind Act, the accuracy of state 

and local educational performance data is 

even more crucial. Funding decisions are 

made and management actions are taken on 

the basis of this performance information. 

Reliable information is a prerequisite for 

effective management. However, ensuring 

that data are high quality is not solely the 

responsibility of our grantees. 

Performance Data 

Management’s Discussion and Analysis 

Collecting Data from the States Through 

EDFacts. EDFacts is a collaborative effort 

among the Department, state educational 

agencies, and industry partners to place the 

use of timely and accurate performance data 

at the core of decision- and policy-making in 

education. This initiative provides a 

centralized tool to collect, access, and use 

educational performance data in support of 

the requirements of No Child Left Behind. It 

also organizes collection activities in a way 

that minimizes the burden on the state 

educational agencies, which provide the 

Department with these data. 

Data collected will be used to evaluate the 

effectiveness of federal education programs 

and monitor the status of states in meeting the 

requirements of No Child Left Behind. The 

data will provide the transparency required to 

track and improve program management, 

including identifying the federal education 

programs that provide the best outcomes for 

students and their families. 

Confidence in the programs and their results 

begins with data quality. There are two major 

areas of focus in the EDFacts data quality 

program: 

• External—Prior to submission to 

EDFacts, data collection at the school, 

district, and state levels will be conducted 

using well-organized and methodologically 

rigorous techniques. 

• Internal—After the data files have been 

submitted by the state educational agencies, 

data will be validated through electronic and 

human subject matter expert review processes. 

These data quality control procedures and 

checkpoints ensure both the quality of the data and 

that reports produced by EDFacts will be accurate 

and timely. 

To remedy the challenges faced in the collection of 

data, EDFacts is undergoing a rigorous assessment 

to determine the best course of development for the 

further enhancement of the data quality control 

processes. Once this assessment is completed and 

the recommended options selected, the data quality 

program will be refined and enhanced, enabling the 

Department to do the following: 

• Validate and improve data accuracy by 

identifying data collection gaps, inaccurate 

data, and data anomalies. 

• Ensure that the data presented in reports 

represent valid comparisons. 

• Display quality metrics on reports. 

• Provide reporting tools and data access to 

Department leadership, federal program 

offices, state and local educational agencies, 

schools, and the public. 

• Limit access to data based on security and 

privacy requirements. 

• Provide predefined reports that display 

transmittal statistics on the state’s submissions, 

and provide the Department with the same 

information at the national level. 

The Department’s future data quality improvement 

requirements include the following: 

• An organization responsible for data quality. 

• The ability for state educational agencies to 

view and resolve data submission errors via a 

user-friendly Web interface. 

• A centralized data certification system and 

process. 

• A single data repository for data usage. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 13
MANAGEMENT’S DISCUSSION AND ANALYSIS

• Access to financial data related to 

program management and monitoring. 

Federal Student Aid. Federal Student Aid is 

improving systems to yield reliable 

performance data to make informed budget 

and policy decisions. These systems will 

enhance the budget process and increase the 

accuracy and reliability of information 

received from operating partners. 

Department Data Quality 

The Department itself also develops and uses 

data. One of the most visible areas in which 

this occurs is the annual budget development 

process. One goal of the budget process is to 

use program performance data in the 

formulation and execution of the 

Department’s budget. One of the five 

government-wide elements of the President’s 

Management Agenda is the integration of 

budget and performance, which focuses on 

making budget decisions based on results. 

The Department recognizes the benefits of 

and need for improving the completeness, 

accuracy and reliability of data for No Child Left 

Behind reporting, integrated performance-based 

budgeting and general program management. In 

addition to completeness, accuracy and reliability, 

the Department acknowledges the need for 

improvements in the timeliness of data. Currently, 

data time lags between 12 and 24 months exist for 

some performance data. The Department expects 

that the implementation of EDFacts will help to 

reduce the reporting burden on state and local 

educational agencies, resulting in an improvement 

in the timeliness of data. 

The Department also produces financial data for 

official submission to the Congress, the Office of 

Management and Budget, and other federal 

authorities as mandated in the Government 

Performance and Results Act. The data quality 

processes for financial data are reflected in our 

audit report and management’s internal control 

over financial reporting assessment. The financial 

statements, associated notes, and auditor’s reports 

can be found on pp. 91-155, which include the 

required Limitations of the Financial Statements. 

Management’s Assurance of internal control can be 

found on p. 24. 

Management’s Discussion and Analysis 

14 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Highlights

In order to support state and school districts 

in providing quality education, the Office of 

the Chief Financial Officer is responsible for 

providing accurate, timely, and useful grant, 

loan, contract, and financial management 

information to all Department stakeholders. 

The Department continues to enhance the 

model for what constitutes a high-quality 

financial reporting environment. This model 

will result in financial reports that reflect the 

underlying economics of the business in a 

comparable, consistent fashion. The model 

emphasizes transparency as the method to 

facilitate the free flow of information to 

decision-makers and stakeholders. 

The Department consistently produces 

accurate and timely financial information that 

is used by management to inform decisionmaking and drive results in key areas of 

operation. For the fifth consecutive year, we 

achieved an unqualified (clean) opinion from 

independent auditors on the annual financial 

statements. Since 2003, the auditors have 

found no material weaknesses in the 

Department’s internal control over financial 

reporting. In accordance with the Office of 

Management and Budget’s Circular 

No. A-123, Management’s Responsibility for 

Internal Control, the Department continues to 

test and evaluate findings and risk 

determinations uncovered in management’s 

internal control assessment. 

Management’s Discussion and Analysis 

In the first quarter of FY 2007, the 

Department will complete the implementation 

of an upgraded financial management system. 

This system implementation will provide the 

Department an enhanced financial 

management solution by improving reporting 

capabilities, data processing, and general 

financial management. The new system will 

also allow the Department to enhance the 

ability to link financial data to performance 

measures. 

Sources of Funds 

We managed a budget of approximately 

$99.8 billion in FY 2006, of which 36 percent 

supported elementary and secondary grant 

programs. Postsecondary grants and administration 

of student financial assistance accounted for 

58 percent, including loan programs costs that 

helped more than 10 million students and their 

parents to better afford higher education during 

FY 2006. An additional 5 percent went toward 

other programs and grants encompassing research, 

development, and dissemination, as well as 

rehabilitation services. Administrative 

expenditures are less than 2 percent of the 

Department’s appropriations. 

Nearly all the Department’s non-administrative 

appropriations support three primary lines of 

business—grants, guaranteed loans, and direct 

loans. The original principal balances of the 

Federal Family Education Loans and Federal Direct 

Student Loans, which compose a large share of 

federal student financial assistance, are funded by 

commercial bank guarantees and borrowings. 

The Department’s three largest grant programs are 

Title I grants for elementary and secondary 

education, Pell Grants for postsecondary financial 

aid, and Special Education Grants to States under 

the Individuals with Disabilities Education Act. 

Each program’s FY 2006 appropriation exceeded 

$10 billion. 

The Federal Family Education Loan Program 

insures the loan capital from more than 3,200 

private lenders available to students and their 

families. Through 35 active state and private 

nonprofit Guaranty Agencies, the Department 

administers the federal loan guarantee program to 

protect lenders against losses related to borrower 

default. As of the end of September 2006, the total 

principal balance of outstanding guaranteed loans 

held by lenders was approximately $325 billion. 

The government’s estimated maximum exposure 

for defaulted loans is approximately $321 billion. 

The Federal Direct Student Loan Program, created 

by the Student Loan Reform Act of 1993, provides 

an alternative method for delivering assistance to 

students. This program uses Treasury funds to 

provide loan capital directly to postsecondary 

schools. The schools then disburse loan funds to 

students. As of September 30, 2006, the value of 

the Department’s direct loan portfolio was 

$92.6 billion. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 15
MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Position 

The Department’s financial statements are 

prepared in accordance with established 

federal accounting standards and are audited 

by the independent accounting firm of Ernst 

& Young, LLP. FY 2006 financial 

statements and footnotes appear on pp. 95-

127. Analyses of the principal financial 

statements follow. 

Balance Sheet. The Balance Sheet presents, 

as of a specific point in time, the economic 

value of assets and liabilities retained or 

managed by the Department. The difference 

between assets and liabilities represents the 

net position of the Department. The Balance 

Sheet displayed on p. 95 reflects total assets 

of $214.4 billion, a 15 percent increase over 

FY 2005. Fund Balance with the Treasury 

increased by 38 percent over FY 2005. This 

increase is attributable to (1) an increase in 

collections from borrowers due to 

consolidation prepayments, and (2) an 

increase in the estimated long term cost of 

loan guarantees the Department makes to 

private lenders. 

Liabilities for Loan Guarantees increased 

71 percent or $21.8 billion. The $21.8 billion 

increase is primarily attributed to the marked 

increase in student loan consolidation activity. 

Student loan consolidations represent borrowers 

consolidating underlying variable rate loans into a 

new fixed rate loan. 

In fiscal years 2006 and 2005, the Department 

experienced record highs in consolidation activity 

as a result of rising interest rates. As market 

interest rates increase, special allowance payments 

to lenders also increase. Special allowance 

payments are made to lenders when the market 

interest rate exceeds the borrower rate. 

Several factors influenced the change in the 

Department’s net position in FY 2006. The factors 

include the subsidy re-estimates for federal student 

loan programs and the increase in FY 2006 grant 

appropriations. Net position increased by 9 percent 

over FY 2005. 

Management’s Discussion and Analysis 

$145.4

$110.1

$157.3

$117.8

$172.6

$128.3

$186.6

$143.7

$214.4

$167.6

$0

$50

$100

$150

$200

$250

Billions

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

Total Assets vs Total Liabilities

Total Assets Total Liabilities

16 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Statement of Net Cost. The Statement of Net 

Cost presents the components of the 

Department’s net cost, which is the gross cost 

incurred less any revenues earned from the 

Department’s activities. The Statement of Net 

Cost is presented to be consistent with the 

Department’s strategic goals and the President’s 

Management Agenda. The Department’s total 

program net costs, as reflected on the Statement 

of Net Cost, p. 96, are $96.8 billion, a 29 percent 

increase over FY 2005. The following chart 

provides a detailed crosswalk of the 

Department’s Net Cost programs linking them to 

Strategic Plan Goals 2 through 5. 

Management’s Discussion and Analysis 

The Department considers Strategic Goal 1, 

Create a Culture of Achievement, a synopsis of 

the four pillars on which educational excellence 

is established. Strategic Goal 6, Establishing 

Management Excellence, emphasizes 

administrative and oversight responsibilities. 

These two strategic goals support the 

Department’s programmatic mission, and as a 

result, we do not assign specific program costs 

to either of them for presentation in the 

The Enhancement of Pos

Statement of Net Cost. 

tsecondary and Adult 

$49.8

$58.8 $63.6

$75.2

$96.8

$0

$20

$40

$60

$80

$100

Billions

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

Net Cost by Fiscal Year

Education experienced a 57 percent increase in 

costs over FY 2005. The increase is largely 

attributed to two factors associated with the 

Federal Family Education Loan Program, 

subsidy reestimate and consolidation loan 

volume. 

Statement of Budgetary Resources. This 

es are 

h 

Statement of Financing. This statement 

s 

) with 

he 

ations 

statement provides information about the 

provision of budgetary resources and their 

status as of the end of the reporting period. 

The statement displayed on p. 98 shows that 

the Department had $210.9 billion in 

budgetary resources for the year ended 

September 30, 2006. Budgetary resourc

composed of $104.3 billion in appropriated 

budgetary resources and $106.6 billion in 

non-budgetary credit reform resources, whic

primarily consist of borrowing authority for 

the loan programs. Of the $51.7 billion that 

remained unobligated at year-end, 

$47.6 billion represents funding provided in 

advance for activities in future periods that 

was not available at year end. These funds 

will become available during the next or 

future fiscal years. 

demonstrates the relationship between an entity’

proprietary and budgetary accounting information. 

It links the net cost of operations (proprietary

net obligations (budgetary) by identifying key 

differences between the two statements. This 

statement is structured to identify total resources 

used during the fiscal year, with adjustments based 

on whether the resources were used to finance t

net obligations or net cost. This statement, 

displayed on p. 99, identifies $74.9 billion of 

resources used to finance activities, $19.6 billion of 

resources not part of the net cost of operations, and

$2.3 billion of components of net cost of oper

that will not require or generate resources in the 

current period. 

Net Cost Program 

Goal 

No. Strategic Goal 

Enhancement of 

Postsecondary and 

Adult Education 

5 Enhance the Quality of 

and Access to 

Postsecondary and 

Adult Education 

Creation of Student 2 

Achievement, Culture 

of Achievement and 

Safe Schools 

3 

Improve Student 

Achievement 

Develop Safe and DrugFree Schools 

Transformation of 

Education 

4 Transform Education 

into an Evidence-Based 

Field 

Special Education and 

Program Execution 

Cuts across Strategic 

Goals 2, 3, 4 and 5 

FY 2006 Performance and Accountability Report—U.S. Department of Education 17
MANAGEMENT’S DISCUSSION AND ANALYSIS

President’s Management Agenda 

Scorecard Results

Under the President’s Management Agenda, 

the Executive Branch Management 

Scorecards track how well the departments 

and major agencies are executing five 

government-wide initiatives and other 

agency-specific program initiatives. The 

scorecard employs a simple grading system 

common today in well-run businesses: green 

for success, yellow for mixed results, and red 

for unsatisfactory. 

Status. Scores for “status” are based on the 

scorecard standards for success developed by 

the President’s Management Council and 

discussed with experts throughout 

government and academe, including the 

National Academy of Public Administration. 

The standards have subsequently been refined 

with continued experience implementing the

President’s Management Agenda. Under 

each of these standards, an agency is “green” 

or “yellow” if it meets all of the standards for 

a given level of success identified and agreed 

upon by the agency and the Office of 

Management and Budget; it is “red” if it has 

any one of a number of serious flaws 

identified for the agency. 

Progress. The Office of Management and Budget 

assesses “progress” on a case-by-case basis against 

the agreed-upon deliverables and time lines 

established for the five initiatives as follows: green 

represents that implementation is proceeding 

according to plan; yellow indicates there is some 

slippage or other issues requiring adjustment by the 

agency in order to achieve the initiative objectives 

on a timely basis; and red indicates the initiative is 

in serious jeopardy and the agency is unlikely to 

realize objectives absent significant management 

intervention.

Department of Education Results. During 

FY 2006, the Department made significant 

improvements on the scorecard. The Office of 

Management and Budget recognized improvement 

of status for the Department in three areas: 

E-government, Budget-Performance Integration, 

and Eliminating Improper Payments. 

Improved Credit Management is a new initiative 

developed in the fourth quarter of FY 2006 and is 

the primary reason we currently have a “red” 

status. 

Management’s Discussion and Analysis 

President’s Management Agenda 

FY 2006 Scorecard

Q4-2005 Q4-2006 

Target Area Status Progress Status Progress 

Financial Performance G G G G

Competitive Sourcing G G G G

Human Capital Y G Y G

E-government Y G G G

Government-wide 

Initiatives 

Budget-Performance Integration Y G G G

Faith-Based and Community Initiatives G G G G

Eliminating Improper Payments R G Y G

Program 

Initiatives 

Improved Credit Management 

(New Initiative in FY 2006) NA NA R Y

G = green Y = yellow R = red NA = not applicable

18 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Management Challenges and Future Initiatives 

Management’s challenges and future 

a 

ctive operational 

ted 

documenting processes, control assessments, 

and risk evaluation, are the same ac

required by enterprise risk management. T

convergence of these procedures permits 

organizations to gain effici

compliance costs by el undant 

controls and dup fectively 

streamlining operations. 

It is im ent management 

begin to sur , and then 

establish acceptable levels of risk in daily 

operations. The y integrated 

Web-based system

technology, and telecommunication s s 

has increased th

barriers to serving custom

These advances of the interconnected world 

have co nd hat 

management mu

governance fram

account for such risks, but will also have to 

 measurement and 

gement, program management, 

 the 

e 

imary 

e 

Oversight of the Federal Managers’ Financial 

Integrity Act (FMFIA) annual assessment and 

corrective action plan processes. 

of significant risks facing the 

tment through the review and monitoring 

of significant findings fro and 

 the Office of Inspector 

enera f au s and 

udits by t overnm Accoun ility 

epartmen onitoring reviews. 

• eview of signific risks ide ied in the 

nternal Co ol Eval n Staff ews. 

• Review of the status of the Department’s 

ompliance with applicable federal laws and 

regulations. 

• Discussion of potential risks that may result 

om anticipated legislative changes, 

environmental changes, and changes in human 

sources.

initiatives will involve the enhancement of 

the Department’s governance process. This 

process will be based on accountability with

central focus on compliance and risk 

management. Numerous recent federal

regulations have increased the pressure on

government entities to measure and mitigate 

risks involving financial loss, as well as 

damage to their reputations. 

Implementing an effe

governance framework represents one of 

management’s most pressing challenges 

moving into the future. While extremely 

demanding, the benefits of a well-construc

governance framework simultaneously 

provide increased visibility into operations 

leading to enhanced performance, reduced 

costs, and the necessary transparency to 

properly analyze risk. In the future, 

successful governance frameworks 

implemented by management will have to 

account for and integrate risk and compliance 

procedures into the Department’s core values.

A number of the rigorous regulatory activities

required to perform recently instituted

compliance requirements, such as 

Management’s Discussion and Analysis 

tivities 

he 

• Identification 

Depar

encies and reduce 

iminating red

lication of effort, ef

perative that Departm

 mea e, monitor risk

 advent of full

s, advancing information 

ystem

e speed of, and decreased the 

ers. 

rrespo ingly increased the risks t

st mitigate. Future 

eworks will not only have to 

proactively enable a continuing

monitoring process. That process will allow 

management to either accept or mitigate the risks 

associated with the many benefits of the latest 

technological innovations. 

To ensure the implementation of a governance

strategy based on accountability and risk, 

management is implementing an executive-level 

process. This process will ensure that senior 

management’s attention is focused on the most 

significant risk management issues facing the 

Department. Risk management issues include 

financial mana

human capital, security, and compliance with 

applicable laws and regulations. 

Management has recently established a Risk 

Management and Compliance Committee. This 

committee will be an essential component of

risk management and internal control infrastructur

of the Department. The committee’s pr

responsibilities are to ensure management is awar

of the risks facing the Department and that 

appropriate measures are taken to mitigate those 

risks. Specifically, the committee will provide: 

•

m audits 

investigations

G

 by

l, external inancial dits, review

a he G ent tab

Office, non-federal single audits, and 

D t m

R the ant ntif

I ntr uatio revi

c

fr

re 

FY 2006 Performance and Accountability Report—U.S. Department of Education 19
MANAGEMENT’S DISCUSSION AND ANALYSIS

• Review of the an

Office of Inspector General and the 

nd 

epartment’s 

ation 

in 

ncial 

iciencies. These 

proving 

sight 

g 

he 

ion 

an 

ting 

pro

2.5 percent threshold that requires a statistical 

it

wor

con . 

Pro

con ce 

cha artment 

issued new procedures that required that contract 

n

exis

con

gov n the Department. The 

pro ailability 

of i

Ass n of this report (see p. 24). The 

Department has continued efforts to strengthen 

individual business cases and to map proposed 

nual work plans of the Department Response

Internal Control Evaluation Staff. 

The implementation of a comprehensive 

business governance strategy will improve 

the Department’s business processes a

drive efficiencies across the enterprise. 

Credit Reform Management 

A significant amount of the D

fiscal activity is related to the administr

of direct and guaranteed loans. As a result, 

the Department has significant challenges 

addressing the estimates related to credit 

reform. 

In response to the Office of Management and 

Budget’s recent addition of an Improved 

Credit Management Scorecard, the 

Department continues to improve its fina

management. This fiscal year, the 

Department has done the following with 

respect to credit management: 

• Defined target borrower segments. 

Management’s Discussion and Analysis 

• Improved its lending policies and 

procedures. 

• Established cost control estimates. 

Management Challenges Identified by 

the Inspector General 

Other current and future management 

challenges include those identified by the 

Inspector General in the annual report to 

improve departmental eff

recommendations are provided in the Other 

Accompanying Information section of this 

report (see pp. 175-180). The 

recommendations include: improving 

oversight and management of programs by 

establishing and maintaining appropriate 

internal control accountability, identifying 

and correcting improper payments, im

procurement and monitoring of contracted 

services, human capital planning, and 

managing information security and 

technology investments. 

The Department continues to address the 

challenges associated with management’s over

of internal controls related to programs, improper 

payments and procurement. 

Accountability. Progress has been made in the 

oversight of certain programs through monitorin

plans that include technical support provided by t

staff of the Office of the Chief Financial Officer. 

The Department has also implemented a Grant 

High Risk Module within the Grant Administrat

Payment System to alert program offices of 

existing high risk conditions such that awards c

be made with appropriate restrictions and 

requirements. 

Improper Payments. Identifying and correc

improper payments remains a challenge for the 

Department. It has increased its participation in 

performing monthly monitoring site visits for the 

Titles I and III of the Elementary and Secondary 

Education Act programs at various state and local 

educational agencies. 

The Department also enlists the assistance of 

outside resources to perform risk analysis of its 

programs. Recent analysis indicates that the Title I 

grams were not at risk of exceeding the 

review. The student financial assistance program

in iatives are continuing and the Deparment is 

king with other government agencies to 

duct studies and utilize statistical sampling

curement. The Department’s procurement and 

tract management processes continues to fa

llenges. However, in FY 2006, the Dep

mo itoring plans be developed for all new and 

ting contracts. 

Information Security. Information security 

tinues to be a concern throughout the 

ernment and i

Department works to improve security controls to

tect the confidentiality, integrity and av

ts data and systems as noted in the Management 

urance sectio

20 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

investments to the Department’s enterprise 

itecture strategy. In addition, the 

artment recently established plans t

arch

Dep o 

improve controls relating to the protection of 

e 

Department as well as other agencies 

epartment 

will see a significant percentage of its 

In 

Managers must develop succession plans and 

nt 

that is 

ff 

agement 

t elp 

a

r

le to accomplish this 

al 

d further integrating our 

personally identifiable information. 

Human Capital. Human capital planning

remains a significant challenge facing th

throughout the government. The D

workforce eligible for retirement in 2007. 

addition, the advent of technology has 

changed critical skill requirements for staff. 

As a result, staff are being challenged outside

their current position requirements. 

identify training needs for their staff to 

mitigate these challenges. The Departme

requires managers to attend training 

designed to improve their understanding of 

and assist in the development of sta

performance standards. In addition, 

communication and project man

Management’s Discussion and Analysis 

raining is also offered to employees to h

ddress essential management skill gaps

equired to carry out their mission. 

Summary 

Ensuring equal access to education and promoting 

educational excellence throughout the nation is our 

mission. Achieving management excellence is the

foundation on which we are ab

mission. Department management made great 

strides in improving the nation’s educational 

opportunities through data collection and reporting 

strategies. Producing accurate, timely, and reliable 

financial reports and taking steps to minimize the 

risk of making improper payments enables the 

Department to execute its mission effectively. 

The Department acknowledges the challenges it 

faces, but only by focusing on human capit

management an

performance and financial information will we 

continue to ensure access to, and excellence in, the

nation’s educational system. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 21
MANAGEMENT’S DISCUSSION AND ANALYSIS

Integration of Perfor

Focusing on results and accountability 

through performance monitoring and 

financial reporting is a sound practic

mance cial Information 

e for 

nk 

l 

ures, 

e 

udget 

ol 

Budget uses this mechanism consistently 

across government and works with federal 

agencies to judge the effectiveness of 

programs with regard to their stated purpose, 

strategic planning, internal management, and 

results and accountability. PART reviews 

provide critical information that is used to 

establish funding priorities for budget 

planning and development. Once a program 

has been through the PART process, the 

Department implements follow-up actions 

based on PART recommendations. 

By September 2006, the Department had 

completed PART reviews on 74 programs. 

This report includes information from PART 

reviews performed in preparation for the 

Department’s FY 2007 budget submission. 

Integrating Performance Plan Into Budget. 

Since FY 2005, the Department has combined 

the annual performance plan and annual 

budget to create an annual performance 

budget, consistent with the Office of 

ed 

t

and Finan

increasing the Department’s productivity. 

One gauge of how effectively taxpayer 

dollars are being used is for an agency to li

the performance of its programs to 

subsequent budget determinations. 

The Department constantly seeks to 

strengthen the linkage between financia

investments and program quality. The 

Department enhances this linkage by 

developing and using program meas

reporting mechanisms, and effective budget 

Management’s Discussion and Analysis 

management. This report is one example of 

how we provide comprehensive, accurat

information to the American public in a 

timely manner. 

Program Assessment Rating Tool. Since 

2002, the Office of Management and B

has required federal agencies to 

systematically assess the quality of 

government programs using a diagnostic tool

called the Program Assessment Rating To

(PART). The Office of Management and 

Management and Budget’s guidance. Additionally,

the Department shifted from the use of strategic 

measures that reported the national status of 

education to focus on program-related measures 

that more accurately reflect Department objectives. 

The entire program performance report requir

under the Government Performance and Results 

Act is available at 

http://www.ed.gov/about/reports/annual/2006repor

/program.html. 

Challenges Linking Performance to Funding. 

he 

 the funding 

schedule for these programs. 

In the Department, only a portion of a given fiscal 

year’s appropriation is available to state, school, 

organization, and student recipients during the 

fiscal year in which the funds are appropriated. 

The remainder is available at or near the end of the 

appropriation year or in the subsequent year. The 

funds remain available to recipients for varying 

lengths of time. 

Funds for competitive grant programs are generally 

available when appropriations are passed by the 

Congress. However, the processes required for 

conducting the grant competitions often result in 

the award of grants near the end of the fiscal year 

with funding available to grantees for additional 

fiscal years. 

Thus, the results presented in this report cannot be 

attributed solely to the actions taken related to 

FY 2006 funds but to a combination of funds from 

fiscal years 2004 through 2006. Furthermore, the 

results of education programs may not be apparent 

for many years after the funds are expended. 

Although we cannot isolate program results and 

directly link them to a fiscal year’s funding, 

performance results during a specific single fiscal 

year serve as a proxy. Most Department programs 

are continuous and funded each year through the 

appropriation process. 

The Department’s challenge of linking 

performance results, expenditures, and budget is 

complicated by the fact that we accomplish 

objectives indirectly. More than 98 percent of t

Department’s funding is disbursed through grants 

and loans. The challenge of linking performance to 

expenditures is further complicated by

22 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Assurances 

Federal Managers’ Financial Integ

Act 

As required under the Federal Managers’ 

Financial Integrity Act, the Department 

reviewed its management control system. 

The objectives of the management c

system are to provide reasonable assu

rity 

ontrol 

rance 

ce 

ble 

accounted for to permit the 

ctively 

d 

ify 

it 

eness 

of Controls. Department management does 

, 

t 

f 

e control system, misstatements 

ement 

ces of which the 

ng 

ur 

ment systems. 

e 

rabilities identified by the Inspector 

 by 

isk management program. 

that the following occur: 

• Obligations and costs are in complian

with applicable laws. 

• Assets are safeguarded against waste, 

loss, unauthorized use, or 

misappropriation. 

• The revenues and expenditures applica

to agency operations are properly 

recorded and 

Management’s Discussion and Analysis 

preparation of accounts and reliable 

financial and statistical reports, and 

maintain accountability over assets. 

• Programs are efficiently and effe

carried out in accordance with applicable 

laws and management policy. 

Managers throughout the Department are 

responsible for ensuring that effective 

controls are implemented in their areas of 

responsibility. Individual assurance 

statements from senior management serve as 

a primary basis for the Department’s 

assurance that management controls are 

adequate. The assurance statement provide

on p. 24 is the result of our annual assessment

and is based upon each senior officer’s 

evaluation of controls. 

Department organizations that ident

material deficiencies are required to subm

plans for correcting the cited weaknesses. 

The plans must include a risk assessment, 

cost of correction, and estimated date of 

completion. These corrective action plans, 

combined with the individual assurance 

statements, provide the framework for 

continual monitoring and improving of the 

Department’s management controls. 

Inherent Limitations on the Effectiv

not expect that our disclosure on controls over 

financial reporting will prevent all errors and all 

fraud. A control system, no matter how well 

conceived and operated, can provide only 

reasonable, not absolute, assurance that the 

objectives of the control system are met. Further

the design of a control system must reflect the fac

that there are resource constraints. The benefits o

the controls must be considered relative to their 

associated cost. Because of the inherent limitations 

in a cost effectiv

due to error or fraud may occur and not be 

detected. 

Federal Financial Management Improv

Act 

The Secretary has determined that the Department 

is in compliance with the Federal Financial 

Management Improvement Act (FFMIA), although 

our auditor has identified instan

Department’s financial management systems did 

not substantially comply with the act. 

We are cognizant of our auditor’s concerns relati

to instances of non-compliance with FFMIA as 

noted in the Compliance with Laws and 

Regulations Report located on pp. 152-154 of this 

report. We continue to strengthen and improve o

financial manage

However, since our last FFMIA report, the 

Department has continued to invest a considerabl

amount of time, effort and resources in assessing 

the security controls protecting its information and

information resources. As a result of these 

assessments, the Department has learned that 

certain vulne

General and our auditors in this year’s reports were

previously accepted on an enterprise-wide basis

the Department’s Designated Approving 

Authorities, Certifier and Government Technical 

Expert. 

To this end, the Department has made a wellinformed and documented risk-based business 

decision to operate its networks, systems and

applications in the presence of certain 

vulnerabilities and security exposures. This 

acceptance of risk is in keeping with the rules and

principles governing a r

FY 2006 Performance and Accountability Report—U.S. Department of Education 23
MANAGEMENT’S DISCUSSION AND ANALYSIS

Furthermore, the Department fully

understands the risks inherent in operati

sures. To assist in the management of 

tify, 

remediate and monitor for 

This 

r 

rked 

agers’ Fi

Department of Education i

ng 

research, manage, 

vulnerabilities and security exposures. 

information resources in the presence of 

common vulnerabilities and security 

expo

the potential risks, the Department has 

implemented proactive processes to iden

Federal Man

remediation cycle can be an extended process fo

any particular vulnerability and as a result, at any

given time as they await remediation, 

vulnerabilities may be present in any netwo

environment, including the Department’s.

nancial Integrity Act 

Management for the s responsible for establishing and maintaining 

effective internal control and financial management systems that meet the intent and

objectives of the Federal Managers’ Financial I ct ntegrity A (FMFIA). I am able to provide a 

qualified statement of assurance that the Department’s internal control structure and financial 

management systems meet the objectives of FMFIA, with the exception of two material 

weaknesses. The details of these exceptions are provided in Exhibit 1. 

The Department conducted its assessment of internal control in compliance with applicable 

Management’s Discussion and Analysis 

laws and regulations, and in accordance with the Office of Management and Budget’s 

Circular No. A-123, Management’s Responsibility for Internal Control. Based upon the 

results of this evaluation, the Department identified two material weaknesses in its internal 

control over the effectiveness and efficiency of operations, and compliance with applicable 

laws and regulations, as of September 30, 2006. Other than the exceptions noted in Exhibit 1, 

the internal controls were operating effectively, and no material weaknesses were found in 

the design or operation of the internal controls. 

In addition, the Department conducted an assessment of the effectiveness of internal control 

over financial reporting, which includes safeguarding of assets and compliance with 

applicable laws and regulations, in accordance with the requirements of Appendix A of the 

Office of Management and Budget’s Circular No. A-123, Management’s Responsibility for 

Internal Control. Based on the results of this evaluation, the Department of Education can 

provide reasonable assurance that its internal control over financial reporting as of June 30, 

2006, was operating effectively and that no material weaknesses were found in the design or 

operation of the internal control over financial reporting. 

/ s / 

November 15, 2006 

24 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Exhibit 1 – FMFIA Material Weaknesses 

ID 

Material 

Weakness Description Corrective Action 

Anticipated 

Correction Date 

1 Information 

Technology 

Security

Instances of inadequate security cont

including password protection, encrypt

and intrusion detection.

he Office of the Chief Information Officer 

CIO) is implementing a number of 

itigating actions to correct information 

Corrective actions are 

currently being implemented,

and are expected t

(FISMA) 

rols, 

ion, 

T

(O

m

technology security deficiencies found in 

management, operational and technical 

control controls. 

procuring a world class managed security 

service provider who would have

o be 

completed by September 30, 

2007. 

Some of the mitigating actions include 

independent verification & validation 

responsibilities in the areas of operational 

intrusion detection monitoring and incident 

escalation, situational awareness, 

vulnerability and configuration 

management, software assurance, and 

security operations center management. 

OCIO plans to mitigate weaknesses in 

password protection by implementing a twofactor authentication solution derived from 

Homeland Security Presidential Directive 12 

(Hspd-12). OCIO also plans to correct 

deficiencies found in protecting personally 

identifiable information (PII) by encrypting 

backup tapes, laptop computers and other 

mobile media instruments containing PII 

such as thumb drives, CDs and DVDs. 

Management’s Discussion and Analysis 

2 P

M

C

e Office of Elementary and Secondary 

s, including the repayment 

 funds, including the return of 

3.6 million from Puerto Rico, are currently 

 implemented. 

Reading First program, 

the Department is implementing corrective 

actions to address all of the 

commendations made by the Office of 

or General in an inspection report, 

and is also making additional 

improvements. 

ed, 

1, 

tive 

ted, 

including the return of 

$13.6 million from Puerto Rico; 

further repayments from other 

states may take one year or 

more to complete. 

Many corrective actions are 

being implemented currently, 

and will be completed by 

December 31, 2006; all 

corrective actions are 

expected to be completed by 

December 31, 2007. 

rogram In two programs, the Reading First and the Th

anagement 

ontrol 

Migrant Education programs, the Department 

identified possible instances of lack of proper 

controls and management oversight in 

several past years in the implementation of 

the programs. 

Education is implementing compensating 

controls to correct or mitigate weaknesses 

in both programs. 

With regard to the Migrant Education 

program, the Office of Migrant Education is 

implementing compensating controls to 

correct or mitigate weaknesses. States are 

submitting new information related to 

eligibility based on appropriate controls. 

Corrective action

Corrective actions are 

currently being implement

and most actions will be 

completed by December 3

2007. Some of the correc

actions have been comple

of

$1

being

With regard to the

re

Inspect

FY 2006 Performance and Accountability Report—U.S. Department of Education 25
MANAGEMENT’S DISCUSSION AND ANALYSIS

Improper Payments Overview 

he Improper Payments Information Act of 2002 

encies to an and 

e s and act

s e to 

paym guid the Office 

of M nt and Budget defines significant 

improper payments as those annual erroneous 

payments that exceed both $10 million and 

2.5 percent of the program payments. For each 

program identified, agencies are required to 

report the annual estimated amount of improper 

payments and the steps taken to reduce or 

eliminate them. 

The Department has undertaken the following 

initiatives relating to the implementation of the 

Improper Payments Information Act of 2002. 

Student Financial Assistance Programs 

Federal Student Aid operates and administers 

the majority of the Higher Education Act of 

1965, as amended, Title IV Student Assistance 

(Title IV) programs for the Department. In 

FY 2006, nearly $77 billion was provided to 

students and families to help them overcome the 

a tha

and tse

Student Aid adminis

loans, and loan guarantees through its financial 

assistance programs. The processes developed 

to administer the programs are responsive to 

changes in statutes, the reauthorization of 

existing statutes, and the changing needs of 

educational institutions and their students. 

Title IV student assistance programs are large 

and complex. Federal Student Aid relies on over 

6,100 eligible postsecondary institutions, 3,200 

lenders, 35 loan Guaranty Agencies, and a 

number of private loan servicers to ad

p r funds r

an

ive d 

r th

e c

A, Federal Student Aid 

 during FY 2006, and 

yments made during 

t complete fiscal year 

ble), to assess the risk 

mount of improper payments 

w identified and then 

rams (Federal Family 

, Federal Pell Grant 

ental Educational 

ral Work-Study 

 Program), 

t of Federal Student 

 

 programs were identified 

e to risk: Federal 

Program, Federal Pell 

-based programs, the 

ord Federal Direct Loan Program, 

h

A

each s 

p

nc

ing table provid

three of the primary Federa

program estimates. 

T

(IPIA)

ass

 requires ag

 all program

nually review

ss

e susceptibl

ents. The 

anageme

ivities to identify 

significant improper 

ance provided by

tho

fin ncial barriers

complete pos

t make it difficult to attend 

condary education. Federal 

ters a variety of grants, 

minister its 

eceived as an 

, Federal Student

rograms. Except fo

administrative cost allow

Aid program funds rece

in trust by the school fo

Department, and, in som

lenders and Guaranty Agencies. 

ce

d by a school are hel

e students, the 

ases, for private 

As required by the IPI

inventoried its programs

reviewed program pa

FY 2005 (the most recen

for which data are availa

that a significant a

were made. The revie

focused on five key prog

Education Loan Program

Program, Federal Supplem

Opportunity Grant, Fede

Programs and Direct Loan

representing 98.7 percen

Aid’s FY 2005 outlays. 

The following Title IV

Management’s Discussion and Analysis 

as potentially susceptibl

Family Education Loan 

Grant Program, Campus

William D. F

Loan Consolidations, and t

Competitiveness and SM

detailed discussion of 

can be found in the Impro

section of this Performa

Report on pp. 158-171. 

The follow

e Academic 

RT Grant program. A

 of these program

er Payments Details 

e and Accountability 

es the outlook for 

l Student Aid

Federal Student Aid Improper Payment Reduction Outlook Fiscal Years 2005 – 2009

($ in millions)

Actual Estimated

2005 2006 2007 2008 2009

Program Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ 

Direct Loan 

Program $12,231 NA NA NA NA NA NA NA NA NA NA NA NA NA NA 

FFEL 

Program $8,626 2.2% $190 $18,245 2.2% $401 $5,340 2.2% $117 $5,340 2.2% $117 $5,340 2.2% $117

Pell Grant 

Program $12,749 3.48% $444 $12,117 3.48% $422 $12,825 3.48% $446 $12,825 3.48% $446 $12,825 3.48% $446

26 FY 2006 Performance and Accountability Report—U.S. Department of Education 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Federal Student Aid Manager

Federal Student Aid program managers are 

. The 

s 

f 

FY 2006. The Erroneous Payments Risk 

ies 

Management and Budget Circular A-133 single 

ir 

program mo

findings that most frequently occur. 

Additionally, a new gran itoring training 

course is now offered and a post-audit follow-up 

overview course is currently being developed to 

e e ss h e

ircular A-133 single 

 to p en

ep p to er

 training for managers that will focus on 

ls m T

y seminar for all Department 

de a framework for 

he 

t’s 

 Programs 

tuted a 

ms. The Department continued to 

 Department of Energy’s 

ge National La ory to perform

ng i ti va l F ra

Audit Clearinghouse’s Single Audit Database, 

t e me Gr Ad nis on 

Payment System, and the Department’s Audit 

u l l ng te

 Accountability. mandatory one-da

managers will provi

responsible for making recommended 

improvements and achieving quantifiable 

savings. The Federal Student Aid Executive 

Management Team monitors these efforts

Executive Management Team is composed of 

key managers and is the executive decisionmaking body within Federal Student Aid. 

Further, the Office of Inspector General 

conducts periodic audits of student aid programs

and makes appropriate recommendations to 

management and the Congress. 

Title I Program

Management’s Discussion and Analysis 

The Department performed a risk assessment o

the Elementary and Secondary Education Act 

Title I Program, parts A, B, and D, during 

Assessment Project Report documented that the 

risk of improper payments under the current 

statutory requirements is very low. In order to

validate the assessment data, the Department 

initiated a three-year review cycle in FY 2006. 

The review encompasses all states and territor

receiving Title I funds. The Office of the Chief 

Financial Officer participated with the Office of 

Elementary and Secondary Education in the 

monitoring process, beginning March 2005, to 

provide technical support regarding fiduciary 

compliance. There were no findings in the 

monitoring reviews with questioned costs that 

contradicted the data in the risk assessment. 

Manager Accountability. In FY 2006, the 

Department used a database of the Office of 

audit findings to provide feedback to program 

managers regarding the frequency and 

distribution of findings within their programs. 

This will assist the managers in tailoring the

administering the improper payment controls 

program utilizing applicable regulations, 

guidelines, and best practices. Part of this oneday training will focus on the utilization of the 

risk assessment criteria to properly assess t

risk of improper payments in the Departmen

programs. 

nitoring efforts to the type of During FY 2006, the Department insti

more detailed risk assessment of all its other 

ts mon grant progra

improv the us fulne of t e Offic of 

Manage

audits

ment and Budget C

 the De artm t. 

The D artment also lans develop int nal 

control

contro to eliminate i proper payments. he 

Remaining Grant

work with the

Rid

Oak 

borat datamini on nforma on a ilab e in the ede l 

he D part nt’s ant mi trati and

Acco ntabi ity and Reso ution Tracki Sys m. 

The Department is leveraging the results of the 

Grant Program 

Improper Payment Estimates 

% 

Functional Program 2001 2002 2003 2004

E

St

ducation Research, 

atistics & Assessment 

0.00 0.02 0.36 0.0 

E

E

lementary & Secondary 

ducation 

0.13 0.12 0.13 0.6

E

A

nglish Language 

cquisition 

0.00 0.02 0.10 0.1 

Higher Education 2.72 0.29 0.21 0.4 

Impact Aid 0.00 0.55 0.04 0.4 

Innovat

I

ion and 

mprovement 

0.28 0.21 0.23 0.1 

R

D

ehabilitation Services & 

isability Research 

0.07 0.12 0.32 2.1

Safe & Drug-Free Schools 0.37 0.33 0.13 1.2 

Special Education 0.09 0.06 0.83 0.1 

Title I 0.04 0.16 1.19 0.2 

V

E

ocational & Adult 

ducation 

0.20 0.25 0.12 0.2 

Total 0.06 0.04 0.16 0.4 

FY 2006 Performance and Accountability Report—U.S. Department of Education 27
MANAGEMENT’S DISCUSSION AND ANALYSIS

thousands of single audits already being 

performed by independent auditors on grant 

recipients. 

The Department sought to develop a 

methodology to produce statistically valid 

improper payment estimates that could be 

applied uniformly across non-Federal Student 

Aid grant programs. This approach establish

level of quality control for all programs wh

simultaneously producing a cost-effective 

measure. 

In FY 2006, the risk assessments

es a 

ile 

 were 

performed at the program level to ensure that 

or rates are not masked by 

ts 

neral has 

gate 

 in place by 

r 

ector General titled “The Reading 

First Program’s Grant Application Process.” 

Summar

ion co

I er e

ct. While there are still challenges 

e De e de tra

it is i e g t

ty of its progr T fic

and Budget re ze

s in managin proper paym s when 

 Departm i e n 

progress score to green on the PMA initiative for 

ating Improper Paym 

rtment is focused on identifying and 

g the risk o o ym

ities. In 0 e w nti

and 

sp G l to ore

ethods for i en

proper p ity r 

s, and to ensure continued com liance 

IPIA. 

improper payment err

large groupings or scope. The details of this 

analysis are available from the Office of the 

Chief Financial Officer upon request. 

Recovery Auditing Progress 

To effectively address the risk of improper 

administrative payments, the Department 

continued a recovery auditing initiative to 

review contract payments. All vendor payment 

transactions made from FY 1998 through 

FY 2005 were reviewed. Potential recoveries 

are minimal. Fiscal year 2006 payments will be 

reviewed during FY 2007. Our purchase and 

travel card programs remain subject to monthly

reviews and reconciliations to identify potential

misuse or abuse. 

Other Matters 

Management’s Discussion and Analysis 

During the fiscal year, the Inspector General 

issued an audit report that questioned paymen

made to an entity that participates in the Federal 

Family Education Loan Program. The findings 

cited in this report are under consideration by 

the Department. Until the matter is resolved, the 

potential impact, if any, on the Department’s 

financial position is not possible to estimate. 

In addition, the Office of Inspector Ge

identified potential improper payments related to

Migrant Education. The Migrant Education 

program is currently implementing 

compensating controls to correct or miti

control weaknesses. These compensating 

controls are expected to be

December 31, 2007. In addition, the states are 

submitting new information related to eligibility 

based on appropriate controls. The Department 

has also received repayment from Puerto Rico in

the amount of $13.6 million, with furthe

repayments from other states anticipated over 

the next year. 

With respect to the Reading First program, the 

Department is implementing corrective actions 

to address recommendations contained in the 

inspection report released September 29, 2006 

by the Insp

y 

The Department of Educat

efforts to comply with the

ntinues its 

mprop Paym nts 

Information A

to overcome, th partm nt has mons ted 

in FY 2006 that 

integri

 comm

ams. 

tted to

he Of

nsurin

e of 

he 

Management 

progres

cogni d our 

g im ent

it raised the ent’s mplem ntatio

Elimin ents. 

The Depa

managin f impr per pa ent 

problems and mitigating the risk with adequate 

control activ FY 2 07, w ill co nue 

to work with the Office of Managem

Budget and the In

ent 

ector enera expl

additional m

potential im

d

aymen

tifying an

t activ

d reducing 

 in ou

program

with the 

p

28 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

Performance 

Details 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

PERFORMANCE DETAILS

GOAL 1: CREATE A CULTURE OF ACHIEVEMENT

Performance Details Overview

The Department presents the key measures for each of the strategic goals, results, and Program

Assessment Rating Tool reviews, where applicable. The Performance Details section provides an 

overview of the results for the key measures for each strategic goal. 

Key Measures 

For each strategic goal, the Department has selected key program measures that center around the 

desired outcomes. Each goal chapter provides specific details about the performance progress for 

each key measure. 

How to Read This Report

Each chapter presents a description of the goal and objectives. Within the objective discussion is a 

table that describes the key measures, indicates the actual performance, and summarizes the results. 

The insert below describes the information that is presented for each key measure. 

Explanation of Documentation for Key Measures 

Table. Provides trend data including the latest reported data. Boldface entries represent data not previously reported 

in an annual performance report. Status row shows relationship between new actual values and targets as follows: 

• Exceeded if the measure performance was better than the target. 

• Met if the measure performance reached the target without exceeding it. 

• Made progress if the measure performance was better than the prior reported data but fell short of the target. 

• Did not meet if the measure performance fell short of the target and did not show progress. 

• Set baseline if the Department collected data on the measure for the first time. 

Source. Provides bibliographic information.

Analysis of Progress. Provides insights into the Department’s progress, including explanations for unmet targets 

and actions being taken or planned. 

Data Quality. Incorporates information such as the universe included in the measure; definitions; the way data were 

collected, calculated, and reviewed; data strengths and limitations; and plans for data quality improvement. 

Target Context. Explains the rationale for targets, especially where anomalies exist. 

Additional Information. Provides relevant background or other pertinent information about a measure. 

Not all measures will have all data fields described above. 

Program Assessment Rating Tool Analysis 

The Program Assessment Rating Tool (PART) was developed and implemented by the Office of 

Management and Budget as a standardized process for determining program effectiveness in a 

consistent way across government agencies. Programs are assessed and receive scores on a scale of 

0 to 100 in each of four weighted sections: program purpose and design (weighted 20 percent), 

strategic planning (10 percent), program management (20 percent), and program results and 

accountability (50 percent). Weighted scores are combined and translated into one of four ratings 

(effective, moderately effective, adequate, and ineffective); a rating of results not demonstrated is 

given if the program does not have agreed-upon performance measures or lacks baseline 

performance data. The Department has conducted 74 program reviews using the Program

Assessment Rating Tool. 

30 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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GOAL 1: CREATE A CULTURE OF ACHIEVEMENT

Programs 

The Department administers 150 programs. Each program supports one of our strategic goals. In 

applicable goal chapters, a table provides a summary of each program’s performance results for four 

years, its FY 2006 budget, and FY 2006 expenditures. 

Methodology for Program Performance Summary 

In keeping with the Government Performance and Results Act, the Department has established program-specific 

annual plans with measures and targets for the majority of the grant and loan programs and has provided the

corresponding program performance reports in conjunction with the publication of the annual Performance and 

Accountability Report. Since 2002, these program performance plans and reports have been published on the

Department’s Web site at http://www.ed.gov/about/reports/annual/index.html?src=pn. 

In the Program Performance Summary tables that are part of each goal chapter of this FY 2006 Performance and 

Accountability Report, we provide an overview of the performance results on the program measures for each of 

the past four years, from FY 2003 through FY 2006. For each year, we assess performance on the measures that 

were established for that year in the program’s published plan and provide the percentage of measures whose 

targets were met (including exceeded), the percentage whose targets were not met, and the percentage for which 

we have no data. 

The percentage with no data may include measures for which we were unable to collect data and measures with

pending data. In some cases, the target was defined as the establishment of a baseline; this was necessary when

No Child Left Behind created a new program environment and trend data were not available for many important

concepts. In the case of these measures, if data were collected and a baseline established, then that measure was

considered “met”; if we were unable to collect the data to establish the baseline, we counted that measure as “no 

data.” 

The tables also identify, by shading, those programs that did not have a performance plan for a particular year 

from FY 2003 through FY 2006. 

The table includes the PART assessment rating for each program.

The full individual program performance reports for FY 2006 are available at 

http://www.ed.gov/about/reports/annual/2006report/program.html. The FY 2006 program performance reports 

also show the targets and actual values for prior years (except for measures that were discontinued prior to

FY 2006). 

FY 2006 Performance and Accountability Report—U.S. Department of Education 31
 

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GOAL 1: CREATE A CULTURE OF ACHIEVEMENT

Goal 1: Create a Culture of Achievement 

Key Measures 

The Department’s first strategic goal is to create a culture of achievement in education. 

Achievement can only be determined if measures are identified and tracked, and accountability for 

results is required. Accountability for results is the foundation for the other five goals. We have not 

specified programs or funding streams directly supporting Goal 1—this goal is the foundation for all 

Department programs and activities. We have, however, identified 11 key measures that indicate our 

progress in meeting the objectives of Goal 1. 

State Accountability Systems in Compliance 

The No Child Left Behind Act of 2001 placed specific requirements on state accountability systems, 

requirements designed to improve student achievement. The basic components of a state 

accountability system, as outlined in the law, are standards and assessments, goals of adequate yearly

progress for schools and districts to have all students meet state standards, public school choice, 

supplemental services, and teacher quality. 

The Department measured states’ progress on implementing state accountability systems by

calculating the number of states with approved assessment systems in reading and mathematics and 

the number of states that are field testing reading and mathematics assessments. In FY 2006, the 

Department added measures 1.1.C and 1.1.F, which address the number of states that have completed 

field testing for science and developed science assessments as required by No Child Left Behind by

SY 2007–08.

1.1.A State Assessments. 

The number of states that have 

reading/language arts 

assessments that align with the 

state’s academic content 

standards for all students in 

grades three through eight and 

in high school. [1201] 

1.1.B State Assessments. 

The number of states that have 

mathematics assessments that 

align with the state’s academic

content standards for all 

students in grades three 

through eight and in high

school. [1202] 

1.1.C State Assessments. 

The number of states that 

have science assessments 

that align with the state’s 

academic content standards 

for all students in grades three

through eight and in high

school. [1203] 

Fiscal Year Actual Fiscal Year Actual Fiscal Year Actual

2004 0 2004 0 2004 NA

2005 0 2005 0 2005 NA

2006 51 2006 51 2006 0 

Made progress in 2006 

Target of 52 not met 

Made progress in 2006 

Target of 52 not met 

New measure in 2006 

2006 data expected Dec. 2007

NA = Not applicable; measure is new. 

Note. These measures refer to states with assessment systems that have been approved by the Department as meeting the 

requirements of No Child Left Behind. 

U.S. Department of Education, Standards and Assessment External Peer Review Process, Title I review processes, staff 

recommendations, and decisions by the Secretary of Education. 

Analysis of Progress. The Department did not meet established targets for the numbers of states 

that have approved reading/language arts and mathematics assessments at the requisite grade levels. 

32 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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However, measures 1.1.A and 1.1.B showed significant improvement over FY 2005. Fifty-one states 

have been designated either fully approved, approved with recommendations, approval expected, or 

approval pending. One state is not approved. 

States were required to have their reading/language arts and mathematics assessments in place by 

SY 2005–06. The state assessments for science are not required to be completed until the end of 

SY 2007–08 and no state has submitted a science assessment implementation plan at this time. 

Data Quality. The universe for this measure is the 52 entities (50 states, the District of Columbia 

and Puerto Rico) that are required by No Child Left Behind to administer reading/language arts and 

mathematics assessments in grades three through eight and high school by SY 2005–06 and science 

assessments for grades three through eight and high school by SY 2007–08. 

Target Context. The targets for these measures represent the 52 entities that are required to have 

their standards and assessments peer reviewed and approved. The 52 entities are required to have a 

science assessment plan in place by the end of SY 2007–08, and the target represents, for measure 

1.1.C, the number of states that will have plans submitted and approved for FY 2006. 

Additional Information. No Child Left Behind required state assessments for reading/language arts 

and mathematics to be implemented by SY 2005–06. 

1.1.D State Assessments. 

The number of states that have 

completed field testing of the 

required assessments in 

reading/language arts. [1204]

1.1.E State Assessments. 

The number of states that 

have completed field testing of

the required assessments in 

mathematics. [1205] 

1.1.F State Assessments. 

The number of states that 

have completed field testing of

the required assessments in 

science. [1206]

Fiscal Year Actual Fiscal Year Actual Fiscal Year Actual

2003 16 2003 16 2003 NA

2004 20 2004 20 2004 NA

2005 47 2005 47 2005 NA

2006 52 2006 52 2006 26 

2006 target of 52 met 2006 target of 52 met 2006 target of 20 exceeded 

NA = Not applicable; measure not in place.

U.S. Department of Education, Consolidated State Performance Report, grantee submissions; state Web sites. 

Analysis of Progress. The Department met the established targets for the numbers of states 

completing the field testing of reading/language arts and mathematics assessments. These measures 

were required for the completion of objectives 1.1.A and 1.1.B. This is the last year that measures 

1.1.D and 1.1.E will be presented for reading/language arts and mathematics. 

Measure 1.1.F requires that states complete field testing of the required assessments for science prior 

to the submission and approval of the state assessment plan. The target of 20 states completing field 

testing was exceeded in FY 2006. This measure will continue through FY 2008. 

Data Quality. Fifty-two entities (50 states, the District of Columbia and Puerto Rico) are required 

by No Child Left Behind to have reading/language arts and mathematics assessments in grades 

three through eight and in high school by SY 2005–06. Each state developed a schedule by which its 

reading/language arts, mathematics and science assessments will be developed, field tested, and 

submitted to the Department for review and approval prior to implementation. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 33
 

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Target Context. The target of 52 was set for measures 1.1.D and 1.1.E with the knowledge that 

states were required by law to have standards and assessments for grades three through eight and 

high school by the end of SY 2005–06. The target of 20 states completing field testing for science 

was set based upon state schedules by which science assessments will be developed, field tested, and 

submitted to the Department for review and approval prior to implementation. 

Additional Information. Field testing is one of the initial phases of establishing statewide 

reading/language arts, mathematics, and science assessments prior to the actual administration of the 

assessment. Field testing helps ensure the validity and reliability of test items and permits states to 

omit those test items that are deemed biased, too difficult, or too easy, thus affecting the rigor of the 

test. 

Local Flexibility for Targeting Federal Funds 

A collection of federal provisions gives states, school districts, and schools the authority to target 

identified federal program funds toward unique local education needs. These provisions include the 

following: 

• Funding Transferability for State and Local Educational Agencies. 

• State-Flexibility Demonstration Program. 

• Local-Flexibility Demonstration Program. 

• Rural Education Achievement Program. 

States reported that in FY 2005 (the most recent year for which the Department has data), 4,780 local 

educational agencies were eligible to utilize the Rural Education Achievement Program flexibility

authority, and 2,694 local educational agencies took advantage of the authority. 

The Alternative Uses of Funds Authority under the Rural Education Achievement Program allows 

eligible local educational agencies the authority to combine funding under certain federal programs 

to carry out activities under other specified federal programs. Eligible districts are those that serve 

relatively small numbers of students and are located in rural areas (ESEA Section 6221(b)(1)). 

The Department measured the use of flexibility authorities by collecting data on the percentage of 

eligible local educational agencies that used the Rural Education Achievement Program flexibility

authority.

Analysis of Progress. The flexibility

authority offered in the Rural Education 

Achievement Program has been available for 

five years. Approximately 60 percent of the 

4,700 districts eligible to use this authority 

have done so according to the latest reports 

from the states. The Department has provided 

extensive information about the availability of 

this authority over the past five years and 

considers that 60 percent is close to the 

percentage of districts that need this authority

to allocate resources effectively. 

1.2.A Rural Education Program. The percentage 

of eligible school districts utilizing the Rural Education 

Achievement Program flexibility authority. [1473] 

Fiscal Year Actual

2003 61

2004 59

2005 56 

2006 Target is 65 

2005 target of 65 not met 

2006 data expected Apr. 2007 

U.S. Department of Education, Consolidated State 

Performance Report, grantee submissions.

34 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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Data Quality. Department staff reviewed Consolidated State Performance Reports submitted by 

state educational agencies in spring 2006 for SY 2004–05. 

Target Context. The expectation is that less than 100 percent of eligible districts would use the 

authority. This is a desired outcome because it reflects that the normal allocation of federal 

resources, without the Rural Education Achievement Program, meets districts’ needs. Despite 

outreach, the Department has not seen an increase in the percentage of eligible school districts using 

the Rural Education Achievement program flexibility authority, suggesting that there does not appear 

to be an unmet need among the non-participating districts. 

Customer Satisfaction With the Department

To measure how well the Department’s products and services meet the needs of the people we serve, 

we conduct several customer satisfaction surveys. The Grantee Satisfaction Survey queries the chief 

state school officers and nine groups of state-level education leaders who direct federal programs in 

their states. The questionnaire includes general questions about the Department’s performance in 

five areas: use of technology, online resources, documents, technical assistance provided by 

Department-funded providers, and technical assistance provided by Department staff. The 

questionnaire also includes custom questions for each grantee group. In the final section of the 

survey, respondents are asked to answer three culminating questions that provide the American 

Customer Satisfaction Index score. The index score allows the Department to benchmark customer 

satisfaction against that of businesses and other federal agencies. 

Other major Department surveys include a biennial customer survey conducted by the National 

Center for Education Statistics and an annual survey conducted by Federal Student Aid. The results 

from the Federal Student Aid survey are reported in Goal 6, pp. 82-83, under Student Financial 

Assistance programs. 

Analysis of Progress. For perspective on 

how to interpret the Department’s American 

Customer Satisfaction Index score of 62, it is 

notable that the most recent average score for 

federal agencies was 71. It is important to 

note that federal agencies that serve grantees 

or interact in a regulatory role typically score 

in the low 60s. A score of 62, while below the 

federal agency average, is on a par with the 

typical scores of comparable grant-making 

agencies. The scores of grant-making agencies range from the high 50s to the low 60s. In response 

to survey results, Department program offices that participated in the survey identified areas of 

greatest impact, which will guide their direction for making improvements. 

1.2.B The overall American Customer Satisfaction 

Index (ACSI) as scored by Department grantees. 

[2200] 

Fiscal Year Actual

2005 63

2006 62 

2006 target of 64 not met 

U.S. Department of Education, Grantee Satisfaction 

Survey. 

Data Quality. The CFI Group, under contract to the Department, conducted the 2006 survey using 

the methodology of the American Customer Satisfaction Index. The index was developed by the 

University of Michigan Business School, the CFI Group, and the American Society for Quality and 

meets their standards for data quality. The CFI Group reports business and federal agency customer 

satisfaction indices quarterly in major news outlets, which allows for standardization of customer 

satisfaction information. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 35
 

PERFORMANCE DETAILS

GOAL 1: CREATE A CULTURE OF ACHIEVEMENT

Grantee Satisfaction Survey respondents included the chief state school officers and the state-level 

directors and coordinators of the Early Intervention, Special Education, Education Data Exchange 

Network, Career and Technical Education, Adult Education and Literacy, English Language 

Acquisition (Title III), Improving the Academic Achievement for Disadvantaged Students Grants to 

Local Educational Agencies (Title I), and Educational Technology programs. The survey was emailed to 571 potential respondents; the response rate was 70 percent. 

Target Context. The FY 2006 actual value of 62 is the American Customer Satisfaction Index score 

reported by our revised customer survey. It is not a percentage; rather, the score is best thought of as 

a weighted scale based on multiple responses to questions in the survey. Survey scores are indexed 

on a 100-point scale. Agencies that score in the 80s are ranked as world class. 

Expansion of Choice Options for Parents 

Parents of public school children who attend a Title I school that has been designated by the state to 

be in need of improvement have choices under the provisions of No Child Left Behind. They may

send their child to another public school in the district, and, if the school’s status remains “in need of 

improvement” for more than one year, families whose children stay in the home school may enroll 

their children in supplemental educational services (tutoring). Parents’ options within the public 

school system have also increased with the growing numbers of public charter schools that create 

alternatives to the traditional public school. 

Department data collected from the Center for Education Reform indicate that the number of charter 

schools in operation around the nation has increased 8 percent, from 3,344 in September 2005 to 

3,997 in 2006. To help inform parents, the Department created a listserv whereby interested parents 

can automatically receive periodic notification of relevant charter school information posted on the 

Department’s Web site, www.ed.gov. 

As of May 2006, state lists posted online include 3,168 approved supplemental service providers, 

compared to 2,734 in May 2005. The number of students nationwide receiving services under the 

Supplemental Educational Services program grew from 245,267 in SY 2003–04 to 430,044 in 

SY 2004–05. In a May 15, 2006, letter to all chief state school officers, the Secretary directed states 

to help their districts become fully compliant with supplemental educational services in SY 2006–07 

through monitoring and the provision of technical assistance. 

Additionally, the Department has assigned to the Comprehensive Center on Innovation and 

Improvement the task of developing a technical assistance effort to respond to the needs of states, 

districts, and community-based organizations on supplemental education services issues. The center 

will be implementing this effort in sites around the country during SY 2006–07. During its meeting 

with state supplemental educational services directors in October 2006, the Department disseminated 

promising practices including information on successful state actions that ensure a diversity of 

providers and successful partnerships between districts, schools, and providers. 

36 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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Analysis of Progress. The number of charter 

schools increased at a rate of approximately

20 percent, surpassing Department expectations. The 

Department’s Charter Schools Grants program will 

continue to increase national awareness of the charter 

schools model by funding national leadership 

activities that result in the dissemination of successful

charter schools practices and policies. 

Data Quality. Data are verified by Department 

program staff through on-site monitoring, data from

the Center for Education Reform, technical assistance

activities, and reviews of the Government

Accountability Office and Office of Inspector 

General reports. 

There are substantial differences in the definition of 

charter schools among states. Some states count a 

single charter with multiple sites as a single charter 

school, while other states count a single charter with 

multiple sites as multiple charter schools, causing variability in the counts reported by state 

educational agencies. Reported data are based on each state’s definition of charter schools. 

1.3.A Charter Schools Grants. The 

number of charter schools in operation. 

[1146] 

Fiscal Year Actual

1996 255

1997 428

1998 790

1999 1,100

2000 1,700

2001 2,110

2002 2,431

2003 2,700

2004 2,996

2005 3,344

2006 3,997 

2006 target of 3,600 exceeded

Center for Education Reform, Annual Survey of 

America’s Charter Schools. 

Target Context. Targets are set based on previous growth trends, which have averaged 10 percent 

per year over the last five years. The Education Commission of the States compiles statistics, policy

reviews, and case studies on charter schools as part of its public education issues data collection. 

Additional Information. Growth in the number of charter schools is largely under the control of 

state legislatures, which maintain the authority to pass laws authorizing the creation and regulation of 

charter schools. While some states have reached capacity in terms of the number of charter schools 

allowed by their laws, other states have amended their statutes to allow for multiple authorizers and, 

therefore, greater flexibility. In addition, some states have used No Child Left Behind provisions that 

allow local educational agencies to convert low-performing Title I schools into charter schools. 

Analysis of Progress. The Credit 

Enhancement for Charter School 

Facilities program helps charter schools 

with their facility needs typically by

guaranteeing debt and some leases used 

to obtain their facilities. The program, 

which first issued grants in 2002, 

reported leveraging $140 million in debt 

and leases as of the end of FY 2004. 

The total amount leveraged will be 

much greater over the 5- to 20-year 

lifespan of the grants. 

1.3.B Credit Enhancement for Charter School Facilities. 

The amount of funding grantees leverage for the acquisition,

construction, or renovation of charter school facilities. [1208]

Fiscal Year Actual

2003 $66 million

2004 $74 million

2005 $109 million 

2006 Target is $100 million 

2005 target of $100 million exceeded 

Data for 2006 are expected Feb. 2007 

U.S. Department of Education, Credit Enhancement for Charter School

Facilities Program Performance Reports. 

Data Quality. Data are self-reported annually by grantees. Department program staff verifies these 

data during site visits to grantees and to the schools that grantees serve. The number of dollars 

leveraged consists of the dollar amount raised as a direct result of the guarantee. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 37
 

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Some grantees under the Credit Enhancement program have loan pools through which they work 

with a number of lenders to raise a given amount of funds for charter school facility loans. If the 

grantee received a non-Department of Education grant (such as a New Markets Tax Credit 

allocation1

) and is using it to provide additional leveraging for a school served by the federal grant, 

such leveraging may also be counted as funds leveraged by the federal grant. A grantee may count 

senior debt toward the total amount of funds leveraged if it uses grant funds to guarantee or insure 

subordinate debt. Likewise, grantees may count subordinate debt toward the total amount of funds 

leveraged if they only use grant funds to credit-enhance senior debt. 

The Department originally computed the dollars pledged by lenders as the amount of dollars 

leveraged in the year the loan pool closed. After learning that these pledges have contingencies, the 

Department revised the methodology to reflect only the funds in loans that have closed. Trend data 

shown in the table reflect this revised approach. 

Target Context. The Department modified the FY 2005 target to be more realistic based on the 

updated methodology. 

Additional Information. Grantees for this program receive multiyear funding at the beginning of 

the first project period. The federal funds and earnings on those funds remain available until they 

have been expended for the grant’s purposes or until financing facilitated by the grant has been 

retired, whichever is later. Most of the Department’s grantees are required to report midyear 

performance data to qualify for continuation awards, but, because there are no continuation awards 

for this program, we allow these grantees to report after the end of each fiscal year to give them a full 

year of performance before reporting data. 

Evidence-Based Approaches to Instruction 

The No Child Left Behind goal—all students proficient in reading and mathematics by SY 2013–

14—has the best chance of being met if classroom instruction is built around what works. The What 

Works Clearinghouse (WWC) was established in 2002 by the Department’s Institute of Education 

Sciences to provide educators, policymakers, researchers, and the public with a central and trusted 

source of scientific evidence of what works in education. The WWC can be found at 

http://www.whatworks.ed.gov. 

The WWC provides education consumers with high-quality reviews of the effectiveness of 

educational interventions (programs, products, practices, and policies) that are designed to improve 

student outcomes. The WWC promotes informed education decision-making through a set of easily

accessible databases and user-friendly reports that provide education consumers with high-quality

reviews of the effectiveness of replicable educational interventions. To do this, the WWC uses 

standards for reviewing and synthesizing research. The WWC is currently conducting systematic 

reviews of existing research, and producing intervention and topic reports. Topics being explored 

include character education, dropout prevention, early childhood education, English language 

learning, and mathematics and reading interventions.

 1 The U.S. Treasury Department provides New Markets Tax Credits on a competitive basis. These tax credits are used to attract 

development in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed

over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to 5 percent of the total 

amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is 6 percent annually. 

Investors may not redeem their investments prior to the conclusion of the seven-year period.

38 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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GOAL 1: CREATE A CULTURE OF ACHIEVEMENT

Analysis of Progress. Data on the use 

of evidence-based interventions cannot 

be collected until the clearinghouse has 

released more information on such 

interventions. To date, information is 

available only on middle school 

mathematics programs. The 

Department intends to retain this 

measure and will collect data when more information is available to schools about a range of 

evidence-based approaches. 

1.4.A The proportion of school-adopted approaches that 

have strong evidence of effectiveness compared to 

programs and interventions without such evidence. [2201] 

Fiscal Year Actual

2006 Establish Baseline 

2006 data expected Dec. 2007

U.S. Department of Education, Institute of Education Sciences, 

National Center for Education Research survey. 

Discontinued Strategic Measures 

The following measure was discontinued after FY 2004, but was reported as pending in the FY 2005 

Performance and Accountability Report. The latest data are reported below. 

Measure

Fiscal 

Year Target Actual Status

2003 Set 

baseline

7% Target met 

Baseline set 

1.3.3 Of eligible children, the percentage using 

supplemental educational services under the 

provisions of ESEA Title I 

2004 Baseline 

+ 5 PP 19% Exceeded 

target 

PP = percentage point 

Sources

1.3.3 U.S. Department of Education, Evaluation of Title I Accountability and School Improvement Efforts 

(TASSIE): Findings From 2002–2003 and 2003–2004.

FY 2006 Performance and Accountability Report—U.S. Department of Education 39
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

Goal 2: Improve Student Achievement 

Key Measures 

Improving student proficiency and closing the achievement gap are the cornerstones of the 

Department’s work. In FY 2006, the Department administered 74 distinct programs that supported 

Goal 2, Improve Student Achievement. From the universe of measures that help determine these 

programs’ effectiveness, the Department identified 11 key measures to report our progress. Results 

on these key measures are shown below. 

See p. 30 for an explanation of the documentation fields for the key measures. 

Reading Achievement 

Research shows that students who fail to read well by the fourth grade have a greater likelihood of 

dropping out of school and diminished life opportunities. Providing consistent support for reading 

success from the earliest age has critically important benefits. As of FY 2006, $5.3 billion has been 

expended on national reading initiatives. These funds provide assistance to support local efforts 

through competitive grants that enhance the school readiness of young children. Additional federal 

support for reading instruction goes to states through the large formula grants for disadvantaged 

students (Title I Grants to Local Educational Agencies), for special education (Special Education 

Grants to States), and for vocational education (Vocational Education State Grants). 

2.1.A Title I Grants to Local Educational 

Agencies. The number of states reporting an 

increase in the percentage of fourth-grade lowincome students meeting state performance 

standards by scoring at or above proficient on 

state assessments in reading/language arts. 

[1066] 

Fiscal Year Actual

2004 25 

2005 22 

2006 Target is 25 

2005 target of 25 not met 

2006 data expected Aug. 2007 

U.S. Department of Education, Consolidated State 

Performance Report. 

2.1.B Special Education Grants to States. 

The number of states reporting an increase in the 

percentage of fourth-grade students with 

disabilities meeting state performance standards 

by scoring at or above proficient on state 

assessments in reading. [1519] 

Fiscal Year Actual

2004 24 

2005 13 

2006 Target is 25 

2005 target of 25 not met 

2006 data expected Aug. 2007 

U.S. Department of Education, Consolidated State 

Performance Report. 

Analysis of Progress. For measure 2.1.A, 22 out of the 34 states that tested fourth-grade students in 

reading/language arts in both 2004 and 2005 reported an increase in the percentage of these students 

scoring proficient or above on state assessments in reading/language arts. Although the target of 25 

was just missed, the difference between the target and the actual is in part a reflection of the fact that 

only 34 states tested fourth-graders in this subject both years. A solid majority of the 34 states that 

did test both years showed increases. 

Measure 2.1.B shows that there was a significant decrease in the number of states reporting an 

increase in the percentage of fourth-grade students with disabilities scoring at or above proficient on 

state assessments in reading/language arts. Although the target of 25 was not met, the difference 

between the target and the actual is in part a reflection of the fact that only 34 states tested fourth40 
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

graders in this subject both years. A solid majority of the 34 states that did test both years showed 

increases. 

This measure parallels the measure for Title I Grants to Local Educational Agencies program (2.1.A) 

under the Elementary and Secondary Education Act. The Department has proposed regulations to 

provide flexibility to states to include in the calculations of the "proficient" scores of students with 

the most significant cognitive disabilities those who take assessments based on alternate achievement 

standards. Additional regulations have been proposed that would allow some children with 

disabilities to be proficient based on modified achievement standards. 

Beginning in FY 2007 the reading/language arts measures will change from single state level 

indicators to student level indicators for each measure. 

Data Quality. Data are self-reported by grantees. 

Target Context. The FY 2006 targets were set prior to the receipt of data. The universe for these 

measures is 52 entities (50 states, the District of Columbia, and Puerto Rico) that are required by No

Child Left Behind to administer reading/language arts assessments in grades 3 through 8. 

Additional information. Prior to the 2005-2006 school year, states only had to test one time during 

grades three through five and one time during grades six through nine, which is why there is not 

consistently two years of data across all states for these indicators. 

Analysis of Progress. New key measure for 

FY 2006. 2.1.C English Language Acquisition. The 

number of states that met the target for 

attainment of English language proficiency. 

[1830]

Fiscal Year Actual

2005 23 

2006 Target is 29 

New measure in 2006 

2006 data expected Jan. 2007 

U.S. Department of Education, Consolidated State 

Performance Report and Office of English Language 

Acquisition Title III Biennial Evaluation Reports. 

Data Quality. Data are self-reported by grantees. 

Additional Information. Baseline data reflect 

partial state data from the 2005 Consolidated State 

Performance Report. Beginning in FY 2007, data 

will be available through EDFacts. 

Mathematics Achievement 

American students’ performance on international mathematics assessments provides a compelling 

rationale for intensive, targeted initiatives designed to strengthen the mathematics skills of our 

students. Results from the 2003 Program for International Student Assessment suggest that 

American high school students continue to lag behind students in other countries in mathematics, and 

the gap in mathematics learning between American students and students in other countries is 

widening. 

On the Program for International Student Assessment, the United States 15-year-old students scored 

lower than 20 other countries belonging to the Organization for Economic Cooperation and 

Development. 

To raise the number of highly qualified teachers in mathematics and science, and to increase the 

number of students reaching proficiency in these subjects, school districts use federal resources from 

41
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

the Mathematics and Science Partnership program. The program connects university professors, 

business leaders, and staff from nonprofit or for-profit organizations with educators from high-need 

school districts to improve science and mathematics learning. The results from a descriptive analysis 

of successful applications to the program indicate that this partnership program is on track in meeting 

its goals. 

Highlights of the descriptive analysis show 90 percent of the partnership projects link content to state 

mathematics and science standards. Ninety-two percent offer teachers summer institutes with an 

average of 64 hours of instruction and 48 hours of follow-up instruction. Two-thirds administer 

content knowledge tests to teachers, conduct observations, and make pretest and posttest 

comparisons, and 92.2 percent include partnerships with professors from mathematics or science 

departments in key planning or oversight roles. The preliminary evaluation pointed to one potential 

problem area for many of the projects: the quality of project evaluation plans. In response to this 

finding, the Department enlisted the Coalition for Evidence-Based Policy to produce “How to Solicit 

Rigorous Evaluations of Mathematics and Science Partnerships Projects” for state coordinators of 

the programs. 

2.2.A Title I Grants to Local Education 

Agencies. The number of states reporting an 

increase in the percentage of eighth-grade lowincome students meeting state performance 

standards by scoring proficient or above on state 

assessments in mathematics. [1067] 

Fiscal Year Actual

2004 30 

2005 30 

2006 Target is 25 

2005 target of 25 exceeded 

2006 data expected Aug. 2007 

U.S. Department of Education, Consolidated State 

Performance Report.

2.2.B Special Education Grants to States. 

The number of states reporting an increase in the 

percentage of eighth-grade students with 

disabilities meeting state performance standards 

by scoring at or above proficient on state 

assessments in mathematics. [1520] 

Fiscal Year Actual

2004 26 

2005 32 

2006 Target is 25 

2005 target of 25 exceeded 

2006 data expected Aug. 2007 

U.S. Department of Education, Consolidated State 

Performance Report.

Analysis of Progress. For measure 2.2.A, 30 out of the 42 states that tested eighth-grade students in 

mathematics in both 2004 and 2005 reported an increase in the percentage of these students scoring 

proficient or above on state assessments in mathematics. The target of 25 was exceeded, despite the 

fact that only 42 States tested 8th graders in this subject both years. 

The target for measure 2.2.B was exceeded. The number of states reporting increases in proficiency 

shows positive movement. More states reported that students with disabilities were achieving at or 

above proficient than had reported the previous year. This measure parallels a measure for the Title I 

Grants to Local Educational Agencies program (2.2.B) under the Elementary and Secondary 

Education Act. The Department has provided flexibility to states to include in the calculations of the 

"proficient" scores of students with the most significant cognitive disabilities those who take 

assessments based on alternate achievement standards.

Also, beginning next year the mathematics measures will change from single state level indicators to 

student level indicators for each measurement. 

Data Quality. Data are self-reported by grantees. 

42 
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

Target Context. The FY 2006 targets were set prior to the receipt of data. The universe for these 

measures is 52 entities (50 states, the District of Columbia, and Puerto Rico) that are required by No 

Child Left Behind to administer mathematics assessments in grades 3 through 8. 

Additional information. Prior to the 2005-2006 school year, states only had to test one time during 

grades three through five and one time during grades six through nine, which is why there is not 

consistently two years of data across all States for these indicators. The number of states reporting an 

increase is continuing to slowly increase.

High School Completion 

There is a consensus for high school reform among governors, business leaders, for-profit and 

nonprofit leaders, and the Department. This reform must start with an honest calculation of 

graduation rates. 

Accurate graduation rates are crucial to meeting the requirements of No Child Left Behind. States 

are required to set high school graduation rate targets as one indicator for measuring a high school’s 

progress. 

One of the major complications for states in accurately calculating high school graduation rates is the 

lack of a comprehensive data collection system that tracks students over time. Until states have the 

capacity to collect these data, the Department has committed to publishing two sets of state 

graduation rates: state-reported rates and standardized rates prepared by the Department. According 

to a Government Accountability Office report, as of July 2005, 12 states used a graduation rate 

definition referred to as the cohort definition, which tracks students from when they enter high 

school to when they leave. Thirty-two states used a definition based primarily on the number of 

dropouts over a four-year period and the number of graduates. For its calculation, the Department 

uses enrollment and other data found in the Common Core of Data at the National Center for 

Education Statistics. 

Additional effort to reform our nation’s high schools is evident in the Department’s initiative to 

support formula grants to state educational agencies that reserve a portion of the funds to support the 

development of additional reading/language arts and mathematics assessments as part of their state 

assessment systems. States award the remaining funds competitively to local educational agencies to 

implement targeted interventions in high-need secondary schools to increase student achievement 

and narrow achievement gaps. 

43
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

Analysis of Progress. The nation is continuing 

to make steady progress ensuring that students 

with disabilities graduate from high school at 

increasing rates within the mainstream 

curriculum. 

Data Quality. Data are self-reported by 

grantees. 

Target Context. The graduation rate is 

calculated by dividing the number of students 

aged 14 and older with disabilities who 

graduated with a regular diploma by the total 

number of students with disabilities in the same 

age group who graduate with a regular 

diploma, receive a certificate of completion, 

reach the maximum age for services, die, drop 

out, or move and are not known to have 

continued in education.

2.3.A Special Education Grants to States. The 

percentage of students with disabilities that 

graduate from high school with a regular high 

school diploma. [1527] 

Fiscal Year Actual

1996 42 

1997 43 

1998 45 

1999 47 

2000 46 

2001 48 

2002 51 

2003 52 

2004 54 

2005 54 

2006 Target is 56 

2005 target of 54 met 

Additional Information. This includes 

calculations for 57 entities (50 states, the 

District of Columbia, Puerto Rico, Guam, 

American Samoa, the Virgin Islands, Northern Marianas and the Bureau of Indian Affairs).

2006 data expected Aug. 2007 

U.S. Department of Education, Office of Special 

Education and Rehabilitative Services, Office of Special 

Education Programs, section 618 state-reported data. 

Analysis of Progress. The FY 2005 target of 

34 was exceeded. Dropout rates for students 

with disabilities continue to decline 

proportionally with the increase in graduation 

rates. 

Data Quality. Data are self-reported by 

grantees. 

Target Context. The dropout rate is calculated 

by dividing the number of students aged 14 and 

older with disabilities who dropped out or 

moved and are not known to have continued in 

education by the total number of students with 

disabilities in the same age group who graduate 

with a regular diploma, receive a certificate of 

completion, reach the maximum age for 

services, die, drop out, or move and are not 

known to have continued in education.

Additional Information. This includes 

calculations for 57 entities (50 states, the 

District of Columbia, Puerto Rico, Guam, American Samoa, Virgin Islands, Northern Marianas and 

the Bureau of Indian Affairs). 

2.3.B Special Education Grants to States. The 

percentage of students with disabilities who drop 

out of school. [1528] 

Fiscal Year Actual

1996 47 

1997 46 

1998 44 

1999 42 

2000 42 

2001 41 

2002 38 

2003 34 

2004 31 

2005 28 

2006 Target is 29 

2005 target of 34 exceeded 

2006 data expected Aug. 2007 

U.S. Department of Education, Office of Special 

Education and Rehabilitative Services, Office of Special 

Education Programs, section 618 state-reported data. 

44 
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

Advanced Placement Participation 

Enrollment in Advanced Placement courses has nearly tripled over the past decade. Participation by 

minority and low-income students has increased, but an access gap continues. According to the 

College Board, the number of students from low-income families who took the Board’s Advanced 

Placement exams increased more than 13 percent between 2004 and 2005. However, participation in 

advanced placement programs is still highly correlated with family income. In 2005, only 12 percent 

of all students who took Advanced Placement exams were from low-income families. 

Some minority groups continue to be underrepresented among students who take Advanced 

Placement exams. According to the College Board, African American students make up 

13.4 percent of the nation’s student population but only 6.4 percent take Advanced Placement exams. 

Hispanic students represent 13.4 percent of the nation’s student population and 13.6 percent of the 

students who take Advanced Placement exams. However, Hispanic students take approximately 

53 percent of Advanced Placement Spanish Language exams and 77 percent of the Advanced 

Placement Spanish Literature exams. 

Participation in advanced placement programs for low-income and minority students is associated 

with higher levels of postsecondary enrollment and completion. In his 2006 study, The Toolbox 

Revisited, Clifford Adelman found that participation in a challenging curriculum is related to 

students’ completion of a college degree. Advanced Placement courses strengthen the high school 

curriculum and hold students to high standards of achievement. 

The focus on the learning of foreign languages is in line with the National Security Language 

Initiative, and efforts to increase challenging coursework in mathematics and science are critical to 

increased national security and America’s success in the global economy. 

Analysis of Progress. New key measure for 

FY 2006. This measure was adjusted to focus 

on public school students. Prior year data 

included data for public and non-public school 

students. The measure now aligns with the 

population served by the program. Prior year 

data are provided for historical purposes. 

Data Quality. The Fee Reduction Summary 

Report is a year-end accounting file that 

provides a final count of Advanced Placement 

test fee reductions granted. Test fee reductions 

are provided to students with acute need. 

Target Context. The FY 2006 target was 

established based on public and non-public 

school data. Targets for FY 2007 and forward 

are calculated based on the previous year’s target plus ten percent. 

2.3.C Advanced Placement. The number of 

Advanced Placement tests taken by low-income 

public school students nationally. [1149] 

Fiscal Year Actual

1999 87,149 

2000 92,083 

2001 105,138 

2002 132,459 

2003 157,334 

2004 187,691 

2005 223,263 

2006 Target is 209,411 

New measure for 2006 

2006 data expected Jan. 2007 

Fee Reduction Summary Report. 

Teacher Quality 

The Department continues to work with states and school districts to ensure that all teachers are 

highly qualified, especially in core academic subjects. Monitoring visits to states indicate that states 

have made changes to their certification requirements. These changes include requiring more 

45
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

content knowledge, having teacher candidates pass written examinations, encouraging alternative 

certification programs, requiring teacher preparation institutions to improve their programs, requiring 

secondary school teachers to have a major in the subjects they teach, and implementing incentive 

systems to attract and retain highly qualified teachers. 

Many local educational agencies had difficulty ensuring their special education and secondary 

mathematics and science teachers were highly qualified. In spring 2006, the Department reviewed 

states’ progress in meeting the highly qualified teacher requirement and requested states to submit 

revised plans for reaching the requirement of having all teachers highly qualified by the end of 

SY 2006–07. No Child Left Behind requires that all public school teachers of core academic 

subjects meet the qualifications outlined in the definition by the end of SY 2005–06. 

For the first time, the Congress legislated the goal that teachers in every core academic class have a 

bachelor’s degree, have a state license or a certificate, and be competent in the subjects they teach. 

In addition, the recently reauthorized Individuals with Disabilities Education Act addresses teacher 

qualification and requires all special educators who teach core academic subjects to be highly 

qualified. Resources provided states to meet the goal of a “highly qualified teacher” in every core 

academic class include major funding from the $3 billion Improving Teacher Quality State Grants 

and the $68 million Teacher Quality Enhancement programs. 

2.4.A Improving Teacher 

Quality State Grants. The 

percentage of core academic 

classes in high-poverty schools 

taught by highly qualified 

teachers. [1180] 

2.4.B Improving Teacher 

Quality State Grants. The 

percentage of core academic 

classes in elementary schools 

taught by highly qualified 

teachers. [1182] 

2.4.C Improving Teacher 

Quality State Grants. The 

percentage of core academic 

classes in secondary schools 

taught by highly qualified 

teachers. [1183] 

Fiscal Year Actual Fiscal Year Actual Fiscal Year Actual

2003 74 2003 85 2003 80 

2004 86 2004 91 2004 88 

2005 90 2005 93 2005 89 

2006 Target is 95 2006 Target is 95 2006 Target is 92 

2004 actual updated 

2005 target of 90 met 

2006 data expected Dec. 2007 

2004 actual updated 

2005 target of 90 exceeded 

2006 data expected Dec. 2007 

2004 actual updated 

2005 target of 85 exceeded 

2006 data expected Dec. 2007 

U.S. Department of Education, Consolidated State Performance Report, grantee submissions. 

Analysis of Progress. The data reported through the Consolidated State Performance Report show 

that states are about 90 percent of the way toward having all classes taught by highly qualified 

teachers. 

Data Quality. During monitoring visits to states over the past three years, the Department found 

that many states were confused about the definition of “highly qualified teacher”, particularly for 

special education teachers; therefore, previous years’ data may not have been entirely accurate. 

Most states are now using the correct definition, and data are now considered to be generally 

accurate. 

46 
PERFORMANCE DETAILS

GOAL 2: IMPROVE STUDENT ACHIEVEMENT

FY 2006 Performance and Accountability Report—U.S. Department of Education 

Discontinued Strategic Measures 

The following measures were discontinued after FY 2005 but were reported as pending in the 

FY 2005 Performance and Accountability Report. The latest data are reported below. 

Measure Fiscal Year 

Discontinued Target Actual Status

All Students 2004 87.5 87.5 Target met 

African American 

Students 2004 85.5 83 Target not 

met 

2.3.20–

2.3.22

The percentage of 18- to 

24-year-olds who have 

completed high school. 

Hispanic American 

Students 2004 69.0 70 Target met 

2.14 Vocational Education State Grants. The 

percentage of vocational concentrators meeting 

state-established academic standards. 

2005 77 78 Exceeded 

target 

2.19 The percentage of program completers who are 

highly qualified teachers. 2005 80 95 Exceeded 

target 

Sources and Notes 

2.3.20–2.3.22 Federal Interagency Forum on Child and Family Statistics, America’s Children: Key National 

Indicators of Well-Being, 2005. 

Previously reported FY 2002 data were estimated and preliminary. Final data were 87.3 percent (all 

students), 84.8 percent (African Americans), and 67.9 percent (Hispanic Americans). 

2.14 U.S. Department of Education, Office of Vocational and Adult Education, Vocational Technical 

Education Annual Performance and Financial Report. 

2.19 U.S. Department of Education, Office of Postsecondary Education, Teacher Quality Enhancement 

Program Performance Report. 

47
48 FY 2006 Performance and Accountability Report—U.S. Department of Education Goal 2: Improve Student Achievement Program Performance Summary Seventy-four of our grant programs most directly support Goal 2. These programs are listed below. In the table, an overvi

results of each program on its program performance measures. (See p. 31 for the methodology of calculating the percentag

met, and without data.) Individual program performance reports are available at http://www.ed.gov/about/reports/annual/2006r

Appropriation and expenditure data for FY 2006 are included for each of these programs. Program Name PART Rating Appro- pria- tions† Expen- ditures ‡ Program Performance Resu

Percent of Targets Met, Not Met, Wi

FY 2006 FY 2005 FY 2004 

FY 2006 $ in millions FY 2006 $ in millions % Met % Not Met %No Data % Met % Not Met %No Data % Met % Not Met 

APEB: American Printing House for the Blind RND 18 19 38 54 8 60 40 0 100 0 CFAA: Supplemental Education Grants NA 18 16 /// (not fundeCRA: Training and Advisory Services RND 7 7 100 0 0 0 100 0 0 0 ESEA: 21st Century Community Learning Centers A 981 838 0 0 100 0 100 0 45 55 ESEA: Advanced Credentialing NA 17 0 100 0 0 100 0 0 100 0 ESEA: Advanced Placement ME 32 29 40 20 40 0 0 100 100 0 ESEA: Alaska Native Education Equity NA 34 33 33 67 0 100 0 0 0 100 ESEA: Arts In Education NA 35 38 0 0 100 0 0 100 ESEA: Charter Schools Grants A 215 187 25 13 62 50 50 0 0 100 ESEA: Civic Education: Cooperative Education Exchange NA 12 13 100 0 0 ESEA: Comprehensive School Reform A 8 238 0 0 100 0 0 100 0 0 ESEA: Credit Enhancement for Charter School Facilities NA 37 33 0 0 100 100 0 0 50 50 ESEA: Dropout Prevention Programs NA 5 3 ESEA: Early Childhood Educator Professional 

Development NA 15 12 0 0 100 0 67 33 67 33 
FY 2006 Performance and Accountability Report—U.S. Department of Education 49 Program Name PART Rating Appro- pria- tions† Expen- ditures

‡

Program Performance Resu

Percent of Targets Met, Not Met, Wi

FY 2006 FY 2005 FY 2004 

FY 2006

$ in 

millions

FY 2006

$ in 

millions

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

ESEA: Early Reading First NA 103 89 0 0 100 100 0 0 100 0 ESEA: Education for Native Hawaiians NA 34 34 0 0 100 100 0 0 0 100 ESEA: Educational Technology State Grants RND 272 552 0 0 100 0 0 100 0 0 ESEA: English Language Acquisition NA 669 647 0 0 100 60 0 40 20 0 ESEA: Even Start I 99 226 0 0 100 20 80 0 50 50 ESEA: Excellence in Economic Education NA 2 1 0 0 100 0 0 100 ESEA: Foreign Language Assistance NA 22 16 0 0 100 100 0 0 ESEA: Fund for the Improvement of Education 

Programs of National Significance NA 12 228 

ESEA: Impact Aid Basic Support Payments RND 1,092 989 50 50 0 ESEA: Impact Aid Payments for Children with 

Disabilities RND 49 42 0 50 50 100 0 0 100 0 

ESEA: Impact Aid Construction A 18 40 0 0 100 0 100 0 0 100 ESEA: Impact Aid Facilities Maintenance NA 5 4 ESEA: Impact Aid Payments for Federal 

Property RND 64 70 0 50 50 

ESEA: Improving Teacher Quality State Grants ME 2,887 2,711 0 0 100 80 20 0 100 0 ESEA: Indian Education Grants to Local 

Educational Agencies NA 95 82 25 75 0 0 0 

ESEA: Javits Gifted and Talented Education NA 10 12 0 0 100 100 0 0 ESEA: Literacy Through School Libraries NA 19 20 0 0 100 0 50 50 50 50 ESEA: Magnet Schools Assistance A 107 108 0 0 100 0 0 100 0 0 ESEA: Mathematics and Science Partnerships NA 182 142 0 0 100 0 0 100 50 50 ESEA: Migrant State Agency Program NA 387 406 0 0 100 0 0 100 17 33 ESEA: National Writing Project RND 22 20 0 0 100 0 0 100 0 100 
50 FY 2006 Performance and Accountability Report—U.S. Department of Education Program Name PART Rating Appro- pria- tions† Expen- ditures

‡

Program Performance Resu

Percent of Targets Met, Not Met, Wi

FY 2006 FY 2005 FY 2004 

FY 2006

$ in 

millions

FY 2006

$ in 

millions

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

ESEA: Neglected and Delinquent State Agency 

Program RND 50 73 0 0 100 100 0 0 0 100 

ESEA: Parental Information and Resource 

Centers RND 40 40 0 0 100 100 0 0 100 0 

ESEA: Reading First State Grants NA 1,029 1,057 0 0 100 0 0 0 ESEA: Reading Is Fundamental/ Inexpensive 

Book Distribution NA 25 24 0 0 100 0 100 0 0 100 

ESEA: Ready to Teach NA 11 9 0 0 100 0 0 100 0 0 ESEA: Ready-to-Learn Television RND 24 23 0 0 100 50 25 25 0 0 ESEA: Rural Education NA 169 170 0 0 100 67 33 0 0 100 ESEA: School Leadership NA 15 14 0 0 100 0 0 100 100 0 ESEA: Smaller Learning Communities RND 94 120 0 0 100 0 0 100 33 67 ESEA: Special Programs for Indian Children NA 19 21 0 0 100 0 0 100 0 0 ESEA: Star Schools Program NA 15 16 0 0 100 ESEA: State Assessments A 408 417 50 33 17 40 60 0 0 100 ESEA: State Grants for Innovative Programs RND 99 229 0 0 100 75 25 0 50 50 ESEA: Striving Readers NA 30 4 /// /// (not fundeESEA: Teaching American History RND 122 100 0 0 100 0 0 100 0 0 ESEA: Title I Grants to Local Educational 

Agencies NA 12,713 12,597 0 0 100 33 67 0 25 0 

ESEA: Transition to Teaching A 44 42 0 0 100 0 100 0 0 100 ESEA: Troops-to-Teachers A 15 16 0 0 100 100 0 0 100 0 ESEA: Voluntary Public School Choice NA 26 29 0 0 100 100 0 0 0 0 ESEA: Women’s Educational Equity

N

A 3 3 0 0 100 0 0 100

ESRA: Comprehensive Centers RND 56 31 0 0 100 /// /// (not funde
FY 2006 Performance and Accountability Report—U.S. Department of Education 51 Program Name PART Rating Appro- pria- tions† Expen- ditures

‡

Program Performance Resu

Percent of Targets Met, Not Met, Wi

FY 2006 FY 2005 FY 2004 

FY 2006

$ in 

millions

FY 2006

$ in 

millions

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

ESRA: National Assessment E 88 51 (off year for collection) 100 0 0 (off year for colleESRA: Regional Educational Laboratories NA 66 18 0 0 100 0 0 100 0 0 ESRA: Statewide Data Systems NA 25 3 /// /// (not fundeHEA: High School Equivalency Program RND 19 19 0 0 100 0 0 100 0 0 HEA: State Grants for Incarcerated Youth 

Offenders NA 23 19 100 0 0 0 100 0 100 0 

HEA: Teacher Quality Enhancement and 

Teacher Incentive Fund RND 157 86 0 0 100 67 33 0 0 0 

HERA: Aid for Elementary and Secondary 

Education (Hurricane Relief) NA 1,635 973 

N

A

IDEA: Special Education Grants for Infants 

and Families RND 436 471 0 67 33 33 67 0 25 50 

IDEA: Special Education Grants to States A 10,583 10,676 13 0 87 34 33 33 0 100 IDEA: Special Education Parent Information 

Centers RND 26 25 0 0 100 0 0 100 0 0 

IDEA: Special Education Personnel 

Preparation RND 90 84 0 0 100 25 25 50 0 0 

IDEA: Special Education Preschool Grants RND 381 390 0 67 33 0 50 50 0 100 IDEA: Special Education State Personnel 

Grants NA 50 50 0 0 100 /// /// (not funde

IDEA: Special Education Technical Assistance 

and Dissemination RND 49 57 0 0 100 0 0 100 0 0 

IDEA: Special Education Technology and 

Media Services NA 38 38 0 0 100 100 0 0 0 0 

MVHAA: Education for Homeless Children and 

Youths NA 62 81 0 0 100 100 0 0 33 33 
52 FY 2006 Performance and Accountability Report—U.S. Department of Education Program Name PART Rating Appro- pria- tions† Expen- ditures

‡

Program Performance Resu

Percent of Targets Met, Not Met, Wi

FY 2006 FY 2005 FY 2004 

FY 2006

$ in 

millions

FY 2006

$ in 

millions

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

%

No 

Data

% 

Met

% 

Not 

Met

VTEA: Occupational and Employment 

Information RND 0 9 0 0 100 50 50 0 50 50 

VTEA: Tech-Prep Demonstration NA 0 3 0 0 100 33 67 0 VTEA: Vocational Education National 

Programs NA 9 11 0 0 100 40 60 0 60 40 

VTEA: Tech-Prep Education State Grants RND 105 112VTEA: Vocational Education State Grants I 1182 1,185

27 13 60 50 50 0 27 73 

Administrative and Support Funding for Goal 2# NA 5 5 #

#

#

TOTAL 37,620 *37,306

† Budget for each program represents program budget authority. ‡ Expenditures occur when recipients draw down funds to cover actual outlays. FY 2006 expenditures may include funds from prior years’ appropriations. 

A shaded cell denotes that the program did not have targets for the specified year. 

/// Denotes programs not yet implemented. (Programs are often implemented near the end of the year they are first funded.) # The Department does not plan to develop performance measures for programs, activities, or budgetary line items that are administrative in nature or that serve to support other programs * Expenditures by program do not include outlays in the amount of $90 million for prior years’ obligations for Goal 2 programs that were not funded in FY 2006 and FY 2006 estimated accr

APEB: Act to Promote the Education of the Blind CFAA: Compact of Free Association Act, Amendments of 2003 CRA: Civil Rights Act ESEA: Elementary and Secondary Education Act of 1965 ESRA: Education Sciences Reform Act of 2002 HEA: Higher Education Act of 1965 HERA: Hurricane Education Recovery Act IDEA: Individuals with Disabilities Education Act MVHAA: McKinney-Vento Homeless Assistance Act VTEA: Perkins Vocational and Technical Education Act 

PART Rating

E = Effective ME = Moderately Effective A = Adequate I = Ineffective RND = Results Not Demonstrated NA = Program has not been assessed 
PERFORMANCE DETAILS

GOAL 3: DEVELOP SAFE AND DRUG-FREE SCHOOLS

Goal 3: Develop Safe and Drug-Free Schools

Key Measures 

In FY 2006, the Department designated eight existing key measures to track the performance of two 

programs: Safe Schools/Healthy Students, and Student Drug Testing. The data for these key measures 

track specific indicators of success related to the activities of those two programs. The Department’s 

third strategic goal also addresses the development of strong character. We have not identified measures 

for this objective; however, the 12 programs identified as supporting Goal 3 include programs that 

support character development and safe and drug-free schools. See p. 30 for an explanation of the 

documentation fields for the key measures. 

Drug use, violence, and crime continue to be serious problems for school-age youth. Students cannot be 

expected to learn to the high standards envisioned by No Child Left Behind in schools where they are 

threatened by violence, drugs or dealing with mental health issues. 

In response to the recent school shootings, which heightened public concern about school safety, 

President Bush and Secretary Spellings convened a conference of leading experts, law enforcement 

officials, and stakeholders to discuss how federal, state, and local governments and communities can 

work together to help ensure the schools are safe places for students to learn. The conference highlighted 

best practices for making schools safe, shared lessons learned from prior incidents of school violence, and 

identified resources and experts to help make schools safer, and to assist communities and families to 

recover from school tragedies. 

In FY 2006, the Department identified strategic measures that reflect programs that provide direct support 

to local educational agencies, address key national concerns, and are structured in a way to enable 

grantees and independent evaluators to measure progress, demonstrate accountability, and identify the 

most effective interventions. 

Safe Schools/Healthy Students 

Grants support local educational agencies in the development of community-wide approaches to creating 

safe and drug-free schools and promoting healthy childhood development. Programs are intended to 

prevent violence and the illegal use of drugs to promote safety and discipline. Coordination with other 

community-based organizations is required. This program is jointly funded and administered by the 

departments of Education, Justice, and Health and Human Services. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 53
PERFORMANCE DETAILS

GOAL 3: DEVELOP SAFE AND DRUG-FREE SCHOOLS

3.1.A Safe and Drug-Free

Schools and Communities

Other National Programs. The 

percentage of Safe Schools/ 

Healthy Students grant sites that 

experience a decrease in the 

number of violent incidents at 

schools during the three-year 

grant period. 2004 cohort [1825] 

3.1.B Safe and Drug-Free

Schools and Communities

Other National Programs. 

The percentage of Safe 

Schools/ Healthy Students 

grant sites that experience a 

decrease in substance abuse 

during the three-year grant 

period. 2004 cohort [1826] 

3.1.C Safe and Drug-Free

Schools and Communities

Other National Programs. The 

percentage of Safe Schools/ 

Healthy Students grant sites that 

improve school attendance 

during the three-year grant 

period. 2004 cohort [1827] 

Fiscal Year Actual Fiscal Year Actual Fiscal Year Actual 

2005 Baseline data 

collected 2005 Baseline data 

collected 2005 Baseline data 

collected

2006 Dec 2006 2006 Dec 2006 2006 Dec 2006

2005 target to set baseline met 

2006 data expected Dec. 2006

2005 target to set baseline met

2006 data expected Dec. 2006

2005 target to set baseline met 

2006 data expected Dec. 2006

3.1.A Safe and Drug-Free

Schools and Communities

Other National Programs. The 

percentage of Safe 

Schools/Healthy Students grant 

sites that experience a decrease 

in the number of violent incidents 

at schools during the three-year 

grant period. 2005 cohort [2019] 

3.1.B Safe and Drug-Free

Schools and Communities

Other National Programs. 

The percentage of Safe 

Schools/Healthy Students 

grant sites that experience a 

decrease in substance abuse 

during the three-year grant 

period. 2005 cohort [2020] 

3.1.C Safe and Drug-Free

Schools and Communities

Other National Programs. The 

percentage of Safe 

Schools/Healthy Students grant 

sites that improve school 

attendance during the three-year 

grant period. 2005 cohort

[2021] 

Fiscal Year Actual Fiscal Year Actual Fiscal Year Actual 

2006 Establish 

baseline 

2006 Establish 

baseline

2006 Establish 

baseline

2006 data expected Dec. 2006 2006 data expected Dec. 2006 2006 data expected Dec. 2006

U.S. Department of Education, Office of Safe and Drug Free Schools, Safe and Drug-Free Schools and Communities, Other

National Programs Annual Grantee Performance Report. 

Analysis of Progress. Data to set baseline were collected for the 2004 and 2005 cohorts. 

Data Quality. There are 24 grantees in the 2004 cohort of Safe Schools/Healthy Students. All three 

measures established for this program require three years of data, as the performance measures look at 

grantee performance at the conclusion of the three-year grant period. Grantees submitted their first 

annual reports in 2005. Nineteen grantees provided the baseline data requested, resulting in a 79 percent 

response rate. These data are reported via school incident reports and self-report behavioral surveys 

conducted by evaluators at each site. 

Grantees are anticipated to submit their three-year performance reports in November 2007. The data will 

be compared to year-one data to determine the percentage of grantees that experienced improvement in 

each measure’s data over the three-year grant period. Baseline data were collected in 2005. They will be 

compared with 2007 data to determine if the target was met over the three-year period. 

Similarly, the 40 grantees for the Safe Schools/Healthy Students 2005 cohort submitted baseline data in 

2006, and are expected to submit their three-year performance reports in November 2008. 

54 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 3: DEVELOP SAFE AND DRUG-FREE SCHOOLS

Student Drug Testing 

This program provides funds to develop and implement, or expand, school-based mandatory random or 

voluntary drug-testing programs for students. Any drug-testing program awarded funds under this 

program must be limited to one or more of the following: students who participate in the school’s athletic 

program, and students who are engaged in competitive, extracurricular, school-sponsored activities. 

3.1.D Safe and Drug-Free Schools and

Communities Other National Programs. The 

percentage of Student Drug Testing grantees that 

experience a five percent annual reduction in the 

incidence of past-month drug use by students in the 

target population. 2003 cohort [1828] 

3.1.E Safe and Drug-Free Schools and

Communities Other National Programs. The 

percentage of Student Drug Testing grantees that 

experience a five percent annual reduction in the 

incidence of past-year drug use by students in the 

target population. 2003 cohort [1829] 

Fiscal Year Actual Fiscal Year Actual 

2005 Baseline data collected 2005 Baseline data collected

2006 33 2006 25 

The 2006 target to establish a baseline was met The 2006 target to establish a baseline was met 

U.S. Department of Education, Office of Safe and Drug-Free Schools, Safe and Drug-Free Schools and Communities, Other

National Programs Annual Grantee Performance Report. 

Analysis of Progress. There were eight grantees in the 2003 cohort of Drug Testing grantees. 

Implementation of all grants was behind by a year due to a delay in Institutional Review Board approval. 

This measure requires two years of data because the measure is an assessment of the grant sites that 

experience decrease in student drug use. No data were available for the 2003 cohort until 2006 for setting 

the performance baseline because of the nature of the measure and the Institutional Review Board-related

delay.

Data Quality. Cohort data for 2003 quality issues include the requirement for two years of data from

self-report use surveys, which creates a potential issue if the grantee does not use identical measurements 

in both years. The decrease in past-month and past-year drug use must be by at least 5 percent to meet the

threshold established for this measure. Of the 8 grantees, 3 provided two years of comparable data 

(38 percent response rate). Of those, one experienced a decrease in past-month drug use of 5 percent or 

more. Due to the very low response rate, caution is recommended when interpreting the data and drawing 

conclusions about the program’s performance. For past-year drug use, of the 8 grantees, 4 provided two 

years of valid data (a 50 percent response rate). Of those, one experienced a decrease in past-year drug 

use of 5 percent or more. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 55
PERFORMANCE DETAILS

GOAL 3: DEVELOP SAFE AND DRUG-FREE SCHOOLS

Discontinued Strategic Measures 

The following measures were discontinued after FY 2005 but were reported as pending in the FY 2005

Performance and Accountability Report. The latest data are reported below. 

Measure

Fiscal 

Year Target Actual Status

3.1 The percentage of students in grades 9 through 12 

who were offered, sold, or given an illegal drug on 

school property during the past 12 months 

2005 28 25 Target 

exceeded

3.2 The percentage of students in grades 9 through 12 

who used marijuana one or more times during the 

past 30 days 

2005 21 20 Target 

exceeded

3.3 The percentage of students in grades 9 through 12 

who had five or more drinks of alcohol in a row (that 

is, within a couple of hours) one or more times during 

the past 30 days 

2005 27 26 Target 

exceeded

3.4 The percentage of students in grades 9 through 12 

who were in a physical fight on school property one or 

more times during the past 12 months 

2005 12 14 Target not met 

3.5 The percentage of students in grades 9-12 who 

carried a weapon such as a gun, knife, or club on 

school property one or more times during the past 30 

days 

2005 5 7 Target not met 

3.1.1 The rate of violent crimes and serious violent crimes 2003 24/1000 28/1000 Target not met 

experienced at school by students aged 12 through 

18 2004 23/1000 Pending

Data expected

12/2006 

3.1.2 The rate of violent crimes and serious violent crimes 2003 4/1000 6/1000 Target not met 

experienced at school by students aged 12 through 

18 2004 4/1000 Pending

Data expected

12/2006 

Alcohol 2004 14 18 Target not met 

Tobacco 

(Cigarettes) 2004 11 12 Target not met 

3.1.3–

3.1.5 

The percentage of youth aged

12 through 17 who reported 

using the following substances 

in the past 30 days Marijuana 2004 7 7 Target met

3.2.2 The percentage of students in grade 12 who think 

most of the students in their classes would dislike it or 

dislike it very much if a student intentionally did things 

to make his/her teachers angry 

2004 36 35 Target not met 

3.2.3 The percentage of students in grade 12 who think that 

most students in their classes would dislike it or 

dislike it very much if a student cheated on a test 

2004 19 15 Target not met 

Sources

3.1-3.5 U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, Youth Risk

Behavior Surveillance System (YRBSS). 

3.1.1–3.1.2 U.S. Departments of Education and Justice, Indicators of School Crime and Safety.

3.1.3–3.1.5 U.S. Department of Health and Human Services, Substance Abuse and Mental Health Services

Administration (SAMHSA), National Survey on Drug Use and Health (formerly called the National 

Household Survey on Drug Abuse). 

3.2.2–3.2.3 University of Michigan, Survey Research Center, Monitoring the Future. 

56 FY 2006 Performance and Accountability Report—U.S. Department of Education 
57

FY 2006 Performance and Accountability Report—U.S. Department of Education Goal 3: Develop Safe and Drug-Free Schools Program Performance Summary Twelve of our grant programs most directly support Goal 3. These programs are listed below. In the table, an overview is prov

each program on its program performance measures. (See p. 31 for the methodology of calculating the percentage of targets m

data.) Individual program performance reports are available at http://www.ed.gov/about/reports/annual/2006report/program.ht

expenditure data for FY 2006 are included for each of these programs. 

Progra

m Name

PA

R

T

Rating

A

ppropriations† Expenditures‡ Pro

gram Perf

ormance Results 

Percent of Targets Met, Not Met, Withou

FY 2006 FY 2005 FY 2004 

FY 2006

$ in

millions

FY 2006

$ in

millions

% 

Met 

% 

Not 

Met 

% 

No 

Data

% 

Met 

% 

Not 

Met 

% 

No 

Data

% 

Met 

% 

Not 

Met 

% 

N

D

ESEA: Alcohol Abuse Reduction

N

A 32 35 0 0 100 0 0 100 

ESEA: Character Education

N

A 24 25 0 0 100 0 0 1

ESEA: Civic Education: We the People

N

A 17 16 0 0 100 

ESEA: CloseUp Fellowships

N

A 1 1 0 0 100 0 0 100 0 0 1

ESEA: Elementary and Secondary School 

Counseling

N

A 35 34 0 0 100 0 0 100 

ESEA: Exchanges with Historic Whaling and 

Trading Partners N

A 9 9 0 0 100 0 0 100 60 0 4

ESEA: Foundations for Learning

N

A 1 1 /// (not funded)

ESEA: Mental Health Integration in Schools

N

A 5 2 /// /// (not funded) 

ESEA: Physical Education Program

R

N

D 73 70 0 0 100 0 0 100 

ESEA: Mentoring Program

N

A 49 50 100 0 0 0 0 100

ESEA: Safe and Drug-Free Schools and 

Communities Other National Programs

N

A 141 126 25 0 75 80 20 0 

ESEA: Safe and Drug-Free Schools and 

Communities State Grants I 347 434 0 0 100 0 0 100 

TO

T

AL 734 *803

† Budget for each program represents program budget authority.‡ Expenditures occur when recipients dra

w down funds to cover actual outlays. FY 2006 expenditures may include funds from prior years’ appropriations.

A shaded cell denotes that the program did not have targets for the specified year.

/// Programs not yet implemented. (Programs are often imple

mented near the end of the year they are first funded.) 

* Expenditures by program do not include outlays in the amount of $10 million for prior years’ obligations for Goal 3 programs that were not funded in FY 2006 or FY 2006 estimated accruals in t

ESEA: Elementary and Secondary Education Act 

PART Rating I = Ineffective RND = Results not demonstrated NA = Program has not been assessed
PERFORMANCE DETAILS

GOAL 4: TRANSFORM EDUCATION INTO AN EVIDENCE-BASED FIELD

Goal 4: Transform Education Into an Evidence-Based Field 

Key Measures 

No Child Left Behind grounds education improvement in the application of scientifically based research 

that is rigorous, systematic, and objective in order to obtain reliable and valid knowledge relevant to 

education activities and programs. In FY 2006, the Department administered five distinct programs 

supporting the objectives of Goal 4. Each program established measures and targets to assess its 

performance. From these measures, the Department identified four key measures that focus on the quality 

and relevance of its educational research. 

See p. 30 for an explanation of the documentation fields for key measures. 

Quality of Education Research 

The Department has elevated the standards and methodologies for Department-sponsored education 

research. Funding of research proposals is based on clear criteria for research excellence. As in other 

scientifically based fields, rigorous research methods in education contribute to reliable and valid 

conclusions. The Department demonstrated a thorough commitment to research quality by expanding the 

use of scientifically based procedures for the evaluation of Department programs, training a new 

generation of education researchers in rigorous methodologies and improving the quality of data 

collections. In addition, the Department requires all research proposals to be reviewed by an independent 

panel of qualified scientists. 

Analysis of Progress. Data on this measure were 

first collected in FY 2003. Although there has been 

a steady increase in the percentage of proposals for 

newly funded education research that receive an 

average score of excellent or higher, the score 

decreased because the Department elected to fund 

two proposals that scored below excellent. These 

proposals addressed gaps in the research portfolio, 

and the deficiencies in the proposals noted by the 

review panel were problems that could be remedied 

prior to implementation. 

Data Quality. The Department established a 

system of peer review that is similar in many ways

to the peer review process used by the National 

Institutes of Health. Independent review panels of 

leading researchers evaluate the scientific and 

technical merit of research proposals. 

4.1.A Research, Development, and

Dissemination. The percentage of new research 

proposals funded by the Department’s National 

Center for Education Research that receive an 

average score of excellent or higher from an 

independent review panel of qualified scientists. 

[1022] 

Fiscal Year Actual 

2003 88

2004 97

2005 100

2006 94 

2006 target of 100 not met 

U.S. Department of Education, National Center for 

Education Research, independent external review panels. 

Target Context. The measure is calculated as the average review panel score for newly funded research 

proposals. 

58 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 4: TRANSFORM EDUCATION INTO AN EVIDENCE-BASED FIELD

Analysis of Progress. This is a new measure for 

FY 2006, and the target was to set a baseline. 

4.1.B Research in Special Education. The 

percentage of new research proposals funded by

the Department’s National Center for Special

Education Research that receive an average

score of excellent or higher from an independent 

review panel of qualified scientists. [1940] 

Fiscal Year Actual 

2006 89 

2006 baseline established 

U.S. Department of Education, National Center for 

Education Research, independent external review

panels. 

Data Quality. The Department has established a 

system of peer review that is similar in many ways to 

the process of peer review at the National Institutes of 

Health. Independent panels of leading researchers 

evaluate the scientific and technical merit of research 

proposals. 

Relevance of Education Research 

In addition to a focus on sound methodology, education researchers need to address practical problems in 

powerful ways. The Department aligns its priorities with the needs of education practitioners and 

policymakers to ensure that we are providing information that is relevant to the improvement of 

education. Too few high quality evidence-based studies have been done to provide education 

policymakers and practitioners with the level and type of information they need for educational decisionmaking. The Department supports research that contributes to improved academic achievement for all 

students, and particularly for those whose educational prospects are hindered by conditions associated 

with poverty, minority status, family circumstance, and inadequate educational services. The Department 

supports research that identifies, develops, and validates effective educational programs and practices. 

The Department ensures the production of relevant education research by having all newly funded 

research reviewed by an independent panel of qualified practitioners. For FY 2006, grants were awarded 

on such topics as high school reform, cognition and student learning, reading and writing education, 

mathematics and science education, teacher quality, education finance, leadership and management, postdoctoral research training, and national research and development centers. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 59
PERFORMANCE DETAILS

GOAL 4: TRANSFORM EDUCATION INTO AN EVIDENCE-BASED FIELD

Analysis of Progress. Data for FY 2005 are 

pending. 

Data Quality. To evaluate the relevance of 

newly funded research projects, a panel of 

experienced education practitioners and 

administrators reviews descriptions of a 

randomly selected sample of newly funded 

projects and rates the degree to which the 

projects are relevant to education practice. 

These panels are convened after the close of 

the fiscal year to review the proposals of the 

prior year.

Target Context. The target of 75 percent 

recognizes that some important research may

not seem immediately relevant, but will make 

important contributions over the long term. 

4.2.A Research, Development, and Dissemination. 

The percentage of new research projects funded by the 

Department’s National Center for Education Research 

and National Center for Education Evaluation and 

Regional Assistance that are deemed to be of high 

relevance to education practice as determined by an 

independent review panel of qualified practitioners. [1028] 

Fiscal Year Actual 

2001 21

2002 25

2003 60

2004 50

2005 Target is 65 

2006 Target is 75 

2005 data are pending

2006 data expected Mar. 2007

U.S. Department of Education, National Center for Education 

Research, independent external review panels. 

Analysis of Progress. In FY 2006, the 

target was to set a baseline. At the time of 

the publication of this document, the 

FY 2006 data are not available. 

Data Quality. To evaluate the relevance of 

newly funded research projects, a panel of 

experienced education practitioners and 

administrators reviews descriptions of a 

randomly selected sample of newly funded 

projects and rates the degree to which the 

projects are relevant to education practice. 

These panels are convened after the close of the fiscal year to review the proposals of the prior year.

4.2.B Research in Special Education. The percentage of 

new research projects funded by the Department’s National 

Center for Special Education Research that are deemed to 

be of high relevance by an independent review panel of 

qualified practitioners. [1942] 

Fiscal Year Actual 

2006 Establish baseline 

2006 target to set baseline met 

Data are pending 

U.S. Department of Education, National Center for Education 

Research, independent external review panels. 

60 FY 2006 Performance and Accountability Report—U.S. Department of Education 
Goal 4: Transform Education Into an Evidence-Based Field 

FY 2006 Performance and Accountability Report—U.S. Department of Education 61 

Program Performance Summary Five of our grant programs most directly support Goal 4. These programs are listed below. In the table, an overview is pro

each program on its program performance measures. (See p. 31 for the methodology of calculating the percentage of targe

without data.) Individual program performance reports are available at http://www.ed.gov/about/reports/annual/2006report

Appropriation and expenditure data for FY 2006 are included for each of these programs. Program Name PART Rating Appro- pria- tions† Expen- ditures‡ Program Performance Result

Percent of Targets Met, Not Met, With

FY 2006 FY 2005 FY 2004 

FY 2006 $ in millions FY 2006 $ in millions % Met % Not Met % No Data % Met % Not Met % No Data % Met % Not Met 

ESEA: Indian Education National Activities NA 4 6 0 0 100 ESRA: Research, Development and Dissemination NA 163 224 40 20 40 80 0 20 67 33 ESRA: Statistics E 90 53 14 29 57 15 85 0 43 57 ESRA: Research in Special Education RND 72 24 33 0 67 /// /// (not fundRA: National Institute on Disability and Rehabilitation Research A 107 104 18 10 72 25 12 63 0 100 Administrative and Support Funding for Goal 4# 19 9 # # 

TOTAL 455 *420 † Budget for each program represents program budget authority. ‡ Expenditures occur when recipients draw down funds to cover actual outlays. FY 2006 expenditures may include funds from prior years’ appropriations. A shaded cell denotes that the program did not have targets for the specified year. /// Programs not yet implemented. (Programs are often implemented near the end of the year they are first funded.) # The Department does not plan to develop performance measures for programs, activities, or budgetary line items that are administrative in nature or that serve to support other programs 

* Expenditures by program do not include FY 2006 estimated accruals in the amount of $2 million. ESEA: Elementary and Secondary Education Act ESRA: Education Sciences Reform Act RA: Rehabilitation Act PART Rating E = Effective A = Adequate RND = Results not demonstrated NA = Program has not been assessed 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Goal 5: Enhance the Quality of and Access to 

Postsecondary and Adult Education 

Key Measures 

In FY 2006, the Department administered 58 distinct programs that supported the objectives of Goal 5. 

The Department identified 21 key measures, drawn from the program-specific measures that focus on 

significant areas of performance related to Goal 5. 

See p. 30 for an explanation of the documentation fields for key measures. 

Growth in college tuition and fees has outpaced both inflation and median family income since the early 

1990s. In the face of this fiscal reality, the federal higher education programs are critical for ensuring 

access to postsecondary and adult education across America and closing the gaps in enrollment and 

completion among student populations differing by race, ethnicity, socioeconomic status and disability. 

Postsecondary Persistence and Completion 

Grants and loans are the major forms of federal financial support to postsecondary students. In the 

2003-04 school year, 72 percent of all low-income dependent undergraduate students received federal 

grants and 42 percent received federal loans. The Department delivered about $77 billion dollars in new 

federal aid to about 10 million postsecondary students and their families in 2005. This is a tremendous 

increase from the $27.0 billion delivered to 7.1 million recipients just over a decade ago. 

To assess the performance of the student financial aid programs, the Department measures the percentage 

of high school completers immediately enrolling in college and the percentage of college enrollees who 

graduate from college within six years. The percentage of high school completers who enrolled in college 

in the fall immediately after high school rose to 67 percent in FY 2005. This reflects an increase from 

64 percent in FY 2004 and 62 percent in FY 2002. The percentage of students completing a four-year 

degree within six years of enrollment was 57 percent in FY 2004, up from 56 percent in FY 2003.

Federal TRIO programs provide an array of programs to help disadvantaged students, who are 

traditionally underrepresented in higher education, prepare for and succeed in college. TRIO Educational 

Opportunity Centers help adults apply for college, Student Support Services provide support to increase 

postsecondary retention and graduation rates and McNair Postbaccalaureate Achievement prepares 

undergraduate students for doctoral study. The Department measured the percentage of McNair 

participants enrolling in graduate school and persistence and completion rates for Student Support 

Services and McNair participants. 

62 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. In FY 2005, more than 

half of all TRIO Educational Opportunity 

Centers program participants enrolled in 

college. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Increasing targets reflect the 

aim of the TRIO Educational Opportunity 

Centers program to increase the percentage of 

adult participants enrolling in college. 

5.1.A TRIO Educational Opportunity Centers. The 

percentage of TRIO Educational Opportunity Centers 

participants enrolling in college. [1612] 

Fiscal Year Actual 

2000 57 

2001 66 

2002 66 

2003 56 

2004 57.4 

2005 56.9 

2006 Target is 58 

2005 target of 57.5 not met 

2006 data expected Dec. 2007 

U.S. Department of Education, Office of Postsecondary 

Education, TRIO Annual Performance Report, grantee 

submissions. 

Analysis of Progress. The percentage of 

students participating in Student Support 

Services who persist in college has exceeded 70 

percent continuously since 2001, showing 

program improvement that also exceeded 

established performance target increases. 

TRIO’s performance with disadvantaged 

students is helping to bring their persistence 

rate close to the overall retention rate 

nationwide. Persistence rates were 72 percent 

for fall 2004 for all two- and four-year 

postsecondary institutions eligible for Title IV 

grants or loans. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

5.1.B TRIO Student Support Services. The 

percentage of Student Support Services participants 

persisting at the same institution. [1617] 

Fiscal Year Actual 

2000 67 

2001 70 

2002 72 

2003 72 

2004 73.1 

2005 74.1 

2006 Target is 72 

2005 target of 69 exceeded 

2006 data expected Dec. 2007 

U.S. Department of Education, Office of Postsecondary 

Education, Student Support Services Program Annual 

Performance Report, grantee submissions. 

Target Context. Targets for FY 2004 and FY 2005 were set before data for FY 2001 through FY 2003 

were available. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 63
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. Between FY 2001 and 

2005, approximately one quarter of Student 

Support Services participants completed an 

associate’s degree at a two-year institution or 

transferred to a four-year institution within 

three years. Although performance did not 

increase in 2005, it did maintain the 2004 

performance level. Nationally, less than one 

quarter of students at two-year institutions 

complete an associate’s or bachelor’s degree 

within five years. The Student Support 

Services program serves students who are most 

at-risk for dropping out of college. 

5.1.C TRIO Student Support Services. The 

percentage of Student Support Services participants 

completing an associate’s degree at the original 

institution or transferring to a four-year institution within 

three years. [1618] 

Fiscal Year Actual 

2001 23.1 

2002 26 

2003 27.7 

2004 25.6 

2005 24.5 

2006 Target is 27 

New measure in 2006 

2006 data expected Dec. 2007 

U.S. Department of Education, Office of Postsecondary 

Education, Student Support Services Program Annual 

Performance Report, grantee submissions. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Analysis of Progress. This is a new key 

measure for FY 2006. It is a replacement for 

the previous TRIO measure for students 

completing a degree at the same institution. 

See p. 74. 

5.1.D TRIO Student Support Services. The 

percentage of Student Support Services first-year 

students completing a bachelor’s degree at the original 

institution within six years. [1619] 

Fiscal Year Actual 

2004 28.1 

2005 29.4 

2006 Target is 28 

New measure in 2006 

2005 target of 30.5 not met 

2006 data expected Dec. 2007 

U.S. Department of Education, Office of Postsecondary 

Education, Student Support Services Program Annual 

Performance Report, grantee submissions. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

64 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. Over the past six years, 

the program has met or exceeded its 

performance targets. The target exceeds the 

national average of students who enrolled in 

graduate school within two years of achieving a 

baccalaureate degree. Immediate enrollment of 

McNair participants has generally increased 

annually from more than one third of students 

in 1999–00 to half in 2004–05. The increase in 

performance is partially attributable to 

experienced grantees that improve their 

delivery of services and direct resources toward 

services that support enrollment and persistence 

in graduate school. Also, the large increase in 

enrollment from 2004 to 2005 reflects more 

complete and timely reporting. 

Data Quality. Enrollment refers to immediate 

enrollment in graduate school of bachelor’s 

degree recipients. These data are self-reported 

by grantees. Program staff employ data quality checks to assess the completeness and reasonableness of 

the data submitted. 

5.1.E TRIO McNair Postbaccalaureate Achievement.

The percentage of McNair participants enrolling in 

graduate school. [1614] 

Fiscal Year Actual

1999 35 

2000 35 

2001 40 

2002 39 

2003 36 

2004 45.3 

2005 56.8 

2006 Target is 37 

2004 target of 36 exceeded 

2005 target of 36 exceeded 

2006 data expected Dec. 2007 

U.S. Department of Education, Office of Postsecondary 

Education, TRIO Annual Performance Report, grantee 

submissions. 

Target Context. The targets for FY 2004 through FY 2006 were established based upon FY 1999 actual 

performance before actual values for FY 2001 through FY 2003 were available. 

Analysis of Progress. Since 2000, McNair 

postbaccalaureate persistence has exceeded the 

target, with over three quarters of McNair 

participants persisting in graduate school. 

However, current trend data are not available 

because the calculation of the measure of 

persistence was changed in FY 2003. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Targets for FY 2004 and 

FY 2005 were set before data for FY 2003 were 

available. Targets for FY 2006 and beyond are 

more ambitious. 

5.1.F TRIO McNair Postbaccalaureate Achievement. 

The percentage of McNair participants persisting in 

graduate school. [1615] 

Fiscal Year Actual 

2003 78 

2004 77.7 

2005 80 

2006 Target is 79 

2004 target of 75 exceeded 

2005 target of 70 exceeded 

2006 data expected Dec. 2007 

U.S. Department of Education, Office of Postsecondary 

Education, TRIO Annual Performance Report, grantee 

submissions. 

Strengthening Institutions That Serve Underrepresented Populations 

The Department’s institutional aid programs strengthen and improve the quality of programs in hundreds 

of postsecondary education institutions that serve low-income and minority students including 

Historically Black Colleges and Universities, Alaska Native and Native Hawaiian-Serving Institutions, 

Hispanic-Serving Institutions and Tribally Controlled Colleges and Universities. By expanding and 

FY 2006 Performance and Accountability Report—U.S. Department of Education 65
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

enhancing academic quality, institutional management and financial stability at these institutions, the 

Department reduces gaps in college access and completion among differing student populations, improves 

academic attainment, and strengthens accountability. The following key measures are new for fiscal year 

2006. The new measures are grouped by postsecondary education institutions that serve low-income and 

minority students based on their continuing enrollment and graduation from two-year, four-year or 

graduate schools. 

Analysis of Progress. This is a new key 

measure for FY 2006. The slight decline from 

65 percent in FY 2005 to 64 percent in 2006 is 

in line with student persistence nationally, 

which dropped from 71 percent to 70 percent 

over the same period. 

5.4.A AID Strengthening Historically Black Colleges 

and Universities. The percentage of full-time 

undergraduate students who were in their first year of 

postsecondary enrollment in the previous year and are 

enrolled in the current year at the same Historically Black 

College and University institutions. [1587]

Fiscal Year Actual 

2004 64 

2005 65 

2006 64 

New measure in 2006 

2006 target of 65 not met 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Institutions only report a persistence rate, not 

the numerator and denominator generating the 

rate. As a result, the persistence rate for the 

program must be calculated as a median rate. 

Target Context. The target is derived by 

applying the difference between regression-based predicted values from Title IV institutions and actual 

grantee values for school year 2002–03, which was 3.6 percent. 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Analysis of Progress. This is a new key 

measure for FY 2006. Program performance 

remains above the target level set for 2006, 

even though the graduation rate declined 

slightly from 39 percent in FY 2004 to 

38 percent in FY 2005. 

5.4.B AID Strengthening Historically Black Colleges 

and Universities. The percentage of students enrolled 

at four-year Historically Black Colleges and Universities 

graduating within six years of enrollment. [1589]

Fiscal Year Actual 

2003 39 

2004 39 

2005 38 

2006 Target is 37 

New measure in 2006 

2006 data expected Dec. 2007 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. The target for the graduation 

rate is derived by applying the difference 

between regression-based predicted values from 

Title IV institutions and actual grantee values 

for school year 2002–03, which was 1.4 

percent. 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

66 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. This is a new key 

measure for FY 2006. Continued increase in 

number of degrees awarded places current 

program performance well above target set for 

FY 2006. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Program experience indicates 

that an annual increase of 1 percent is an 

ambitious goal. Targets are derived by 

applying an estimated annual increase rate of 

1 percent through FY 2009 and an increase rate 

of 0.5 percent beginning in FY 2010. 

5.4.C AID Strengthening Historically Black Graduate 

Institutions. The number of Ph.D., first professional, 

and master's degrees awarded at Historically Black 

Graduate Institutions. [1595]

Fiscal Year Actual 

2003 4,055 

2004 4,219 

2005 4,410 

2006 Target is 4,178 

New measure in 2006 

2006 data expected Dec. 2007 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Analysis of Progress. This is a new key 

measure for FY 2006. Program performance 

exceeded the target, even though persistence 

declined from 48 percent in FY 2005 to 

44 percent in FY 2006. Persistence also 

declined nationally during this period. 

5.4.D AID Strengthening Tribally Controlled 

Colleges and Universities. The percentage of full-time 

undergraduate students who were in their first year of 

postsecondary enrollment in the previous year and are 

enrolled in the current year at the same Tribally 

Controlled Colleges and Universities institution. [1569]

Fiscal Year Actual 

2004 41 

2005 48 

2006 44 

New measure in 2006 

2006 target of 41 exceeded 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Institutions report a 

persistence rate, not the numerator and 

denominator. As a result, the persistence rate is 

calculated as a median. 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 67
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. This is a new key 

measure for FY 2006. 

5.4.E AID Strengthening Tribally Controlled Colleges 

and Universities. The percentage of students enrolled 

at four-year Tribally Controlled Colleges and Universities 

graduating within six years of enrollment. [1571]

Fiscal Year Actual 

2003 23 

2004 32 

2005 Data expected Dec. 2006 

2006 Target is 32 

New measure in 2006 

2005 data expected Dec. 2006 

2006 data expected Dec. 2007 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Graduation rate data first 

became available from the Integrated 

Postsecondary Education Data System for FY 

2003. Prior to 2003, the Department did not 

require graduation rate data to be provided by 

the institution. 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Analysis of Progress. This is a new key 

measure for FY 2006. 

5.4.F AID Strengthening Tribally Controlled Colleges 

and Universities. The percentage of students enrolled 

at two-year Tribally Controlled Colleges and Universities 

who graduate within three years of enrollment. [1572]

Fiscal Year Actual 

2003 40 

2004 34 

2005 Data expected Dec. 2006 

2006 Target is 29 

New measure in 2006 

2005 data expected Dec. 2006 

2006 data expected Dec. 2007 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Graduation rate data first 

became available from the Integrated 

Postsecondary Education Data System for FY 

2003. 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Analysis of Progress. This is a new key 

measure for FY 2006. Institutions report a 

persistence rate, not the numerator and 

denominator. 

5.4.G AID Developing Hispanic-Serving 

Institutions. The percentage of full-time undergraduate 

students who were in their first year of postsecondary 

enrollment in the previous year and are enrolled in the 

current year at the same Hispanic-Serving Institution. 

[1601]

Fiscal Year Actual 

2004 66.5 

2005 66 

2006 Target is 67 

New measure in 2006 

2006 data expected Dec. 2006 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Institutions only report a persistence rate, not 

the numerator and denominator generating the 

rate. As a result, the persistence rate for the 

program must be calculated as a median rate. 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Target Context. The target is derived by 

applying the difference between regression68 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

based predicted values from Title IV institutions and actual grantee values for school year 2003–04, 

which was 1.12 percent. 

Analysis of Progress. This is a new key 

measure for FY 2006. The most recent 

(FY 2004) performance is above the graduation 

rate target set for FY 2006. Data for FY 2003 

were recalculated and now reflect a more 

accurate representation than previously 

reported. 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. The target for the four-year 

graduation rate is derived by applying the 

difference between regression-based predicted 

values from Title IV institutions and actual 

grantee values for school year 2002–03, which was 3.54 percent. 

5.4.H AID Developing Hispanic-Serving Institutions. 

The percentage of students enrolled at four-year 

Hispanic-Serving Institutions graduating within six years 

of enrollment. [1603]

Fiscal Year Actual 

2003 35 

2004 36 

2005 Data expected Dec. 2006 

2006 Target is 34 

New measure in 2006 

2005 data expected Dec. 2006 

2006 data expected Dec. 2007 

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Analysis of Progress. This is a new measure 

for FY 2006. 

5.4.I AID Developing Hispanic-Serving 

Institutions. The percentage of students enrolled at 

two-year Hispanic-Serving Institutions who graduate 

within three years of enrollment. [1604]

Fiscal Year Actual 

2003 21 

2004 22 

2005 Data expected Dec. 2006 

2006 Target is 36 

New measure in 2006 

2005 data expected Dec. 2006 

2006 data expected Dec. 2007 

Data Quality. These data are self-reported by 

grantees. Program staff employ data quality 

checks to assess the completeness and 

reasonableness of the data submitted. 

Target Context. Program experience was used 

to estimate targets. An increase of 0.5 percent 

was used to generate annual targets each year 

through FY 2009, and an increase of 

0.3 percent will be used beginning in FY 2010.

U.S. Department of Education, National Center for Education 

Statistics, Integrated Postsecondary Education Data System. 

Web site is http://nces.ed.gov/ipedspas. 

Vocational Rehabilitation 

The Department’s vocational rehabilitation programs help individuals with physical or mental disabilities 

obtain employment and live more independently by providing grants that support job training and 

placement, medical and psychological services, and other individualized services. Annually, the 

Vocational Rehabilitation State Grants program helps over 200,000 individuals with disabilities obtain 

employment. The Department measures state vocational rehabilitation agencies’ progress by monitoring 

the percentage of individuals receiving services that achieve employment. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 69
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. The established target of 

75 percent was not met. After several years of 

declines, the percentage of individuals who 

received services under the program and 

achieved an employment income increased in 

FY 2005. As a result, the FY 2005 

performance of general and state vocational 

agencies on this measure improved as 

compared to the past two previous years. 

However, performance is still below the 

FY 2002 level. Future performance targets 

assume that the decline in employment 

outcomes will stabilize with improving 

economic conditions, and states will improve 

their performance on this measure. 

Data Quality. The accuracy and consistency 

of state rehabilitation staff report data cannot be 

guaranteed as counselors’ interpretations of the 

data reported may vary. Timeliness is dependent upon submittal of clean data from 80 grantees, and 

Rehabilitation Services Administration staff have worked with grantees to improve the accuracy and 

timeliness of performance report data. 

5.5.A Vocational Rehabilitation State Grants. The 

percentage of general and combined state vocational 

rehabilitation agencies that assist at least 55.8 percent of 

individuals receiving services to achieve employment. 

[1681] 

Fiscal Year Actual

2001 75 

2002 75 

2003 66 

2004 66 

2005 71 

2006 Target is 70 

2005 target of 75 not met 

2006 data expected Apr. 2007 

U.S. Department of Education, Office of Special Education and 

Rehabilitative Services, Rehabilitation Services Administration, 

state agency data from performance report RSA-911. 

Target Context. This indicator is derived from state vocational rehabilitation agency performance 

expectations defined in the program regulations. For each vocational rehabilitation agency, the 

Rehabilitation Services Administration examines the percentage of individuals who achieve employment 

compared to all individuals whose cases were closed after receiving services. To pass this indicator, a 

general or combined agency must achieve a rate of 55.8 percent, while an agency for the blind must 

achieve a rate of 68.9 percent. 

Adult Learning 

In an age of rapid economic and technological change, lifelong learning can provide benefits for 

individuals and for society as a whole. This year, data are continuing to show steady increases in the 

following measures: 

• The percentage of adults with a high school completion goal who earn a high school diploma or 

recognized equivalent. 

• The percentage of adults enrolled in English literacy programs who acquire the level of English 

language skills needed to complete the levels of instruction in which they are enrolled. 

70 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Analysis of Progress. The FY 2005 target was 

exceeded. The increase can be attributed to 

targeted technical assistance and use of 

standardized assessments to properly place 

students. 

As of FY 2000, the performance data reflect the 

percentage of adult learners with a goal of 

completing high school in secondary-level 

programs of instruction who, upon exit, had 

earned their high school diploma or GED 

credential within the reporting period. 

Data Quality. Program monitoring and data 

review and analyses are conducted by 

Department staff through the Data Quality 

Certification Process. Data are verified by 

electronic checks and expert staff analysis, and 

by requiring confirmation and attestation of 

data by state directors. State data are checked 

independently by Department staff from the 

Office of Vocational and Adult Education 

during onsite monitoring and state audit reviews. 

5.5.B Adult Education State Grants. The percentage 

of adults with a high school completion goal who earn a 

high school diploma or recognized equivalent. [1386] 

Fiscal Year Actual 

1996 36 

1997 37 

1998 33 

1999 34 

2000 34 

2001 33 

2002 42 

2003 44 

2004 45 

2005 51 

2006 Target is 46 

2005 target of 46 exceeded 

2006 data expected Dec. 2006 

U.S. Department of Education, Office of Vocational and Adult 

Education, National Reporting System for Adult Education. 

Target Context. Increasing targets reflect the aim of the Adult Education State Grants program to 

increase the percentage of adults with a high school completion goal who earn a high school diploma or 

recognized equivalent. FY 2007 and future-year targets have been adjusted because trend data suggest 

that they were inappropriately projected and not ambitious enough. 

Analysis of Progress. Although the 

Department did not meet its target of 45 for 

FY 2005, we showed improvement. 

As of 2000, data reflect the percentage of 

English literacy learners (adults with minimal 

English language skills) who demonstrated a 

level of English language proficiency needed to 

advance to the next educational functioning 

level. Educational functioning levels range 

from beginning-level English literacy through 

advanced-level English literacy. The target is 

difficult to meet because of the large number of 

participants who are not literate in their native 

language and the large number of participants 

who stay in the program only long enough to 

acquire the language skills needed to enter the 

workforce. 

Data Quality. Program monitoring and data 

review and analyses are conducted by 

Department staff through the Data Quality 

Certification Process. Data are verified by 

electronic checks and expert staff analysis, and by requiring confirmation and attestation of data by state 

5.5.C Adult Education State Grants. The percentage 

of adults enrolled in English literacy programs who 

acquire the level of English language skills needed to 

complete the levels of instruction in which they enrolled. 

[1384] 

Fiscal Year Actual 

1996 30 

1997 28 

1998 28 

1999 49 

2000 20 

2001 31 

2002 34 

2003 36 

2004 36 

2005 37 

2006 Target is 38 

2005 target of 45 not met 

2006 data expected Dec. 2006 

U.S. Department of Education, Office of Vocational and Adult 

Education, National Reporting System for Adult Education. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 71
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

directors. State data are checked independently by Department staff from the Office of Vocational and 

Adult Education during onsite monitoring and state audit reviews. 

Target Context. FY 2007 and future-year targets have been adjusted because trend data suggest that 

they were inappropriately projected. 

Expanding Global Perspectives 

The Department’s international education and graduate fellowship programs have helped thousands of 

students, particularly at the graduate level, prepare for careers in areas of national need, including foreign 

languages and area studies. A long-lasting, productive partnership between the federal government and 

the nation’s universities has created an unparalleled capacity to teach both foreign languages and area 

studies about societies around the world—covering all continents and more than 100 of the lesscommonly taught languages. These programs also conduct outreach activities focused on improving 

elementary and secondary teachers’ skills. The centers provide professional development workshops, 

enhance curricula, develop and publish lesson plans, and conduct resource awareness and language 

training. In 2004, the number of activities conducted increased by 51 percent over the previous year, with 

federal funding supporting 3,057 separate outreach activities. 

The Department measures progress in International Education and Foreign Language Studies domestic 

programs, in part, by the expansion of critical languages taught at National Resource Centers and the 

employment of centers’ Ph.D. graduates in targeted areas and by improved language competency in the 

Foreign Language and Area Studies Fellowship program. 

5.6.B International Education 

and Foreign Language Studies 

Domestic Programs. The 

percentage of National Resource 

Centers Ph.D. graduates who 

find employment in higher 

education, government service, 

and national security. [1664] 

Fiscal Year Actual 

5.6.A International Education 

and Foreign Language Studies 

Domestic Programs. The 

percentage of critical languages 

taught, as reflected by the list of 

critical languages referenced in 

the Higher Education Act, Title VI 

program statute. [1665] 

2001 48.5 

5.6.C International Education 

and Foreign Language Studies 

Domestic Programs. The 

average competency score of 

Foreign Language and Area 

Studies Fellowship recipients at 

the end of one full year of 

instruction (post-test) minus the 

average competency score at 

the beginning of the year (pretest). [1671] 

Fiscal Year Actual 2002 53.7 Fiscal Year Actual 

2003 56 2003 55 2003 1.3 

2004 56 2004 71.8 2004 1.2 

2005 Target is 74 2005 Target is 47.5 2005 1.2 

2006 Target is 60 2006 Target is 48 2006 Target is 1.2 

2005 data expected Dec. 2006 

2006 data expected Dec. 2007 

2005 data expected Dec. 2006 

2006 data expected Dec. 2007 

2005 target of 1.2 met 

2006 data expected Dec. 2006 

Note: These measures report on the National Resource Centers and Foreign Language and Area Studies Fellowship 

program under the International Education and Foreign Language Studies Domestic Programs, authorized by Title VI of 

the Higher Education Act. 

U.S. Department of Education, Office of Postsecondary Education, International Education and Foreign Language Studies 

Domestic Programs Annual Performance Report. 

Analysis of Progress. As of the publication of this report, there are no new data for measures 5.6.A and 

5.6.B. Measure 5.6.C remained steady and the target was met. 

72 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Data Quality. Data are self-reported by institutions. Program staff employ data quality checks to assess 

the completeness and reasonableness of the data submitted. 

Target Context. The Department set targets for FY 2006 on the basis of historical trends and program 

experience before data for FY 2004 were available. 

Discontinued Strategic Measures 

The following measures were discontinued after FY 2005 but were reported as pending in the FY 2005 

Performance and Accountability Report. The latest data are reported below. 

Measure Fiscal 

Year Target Actual Status 

2002 66.9 68.9 Target met 

2003 67.0 66.2 Target not met 

White 

2004 69.4 68.8 Target not met 

2002 59.6 59.4 Target not met 

2003 60.3 57.5 Target not met 

Black 

2004 60.8 62.5 Target met 

2002 7.3 9.5 Target not met 

2003 6.7 8.7 Target not met 

White-Black Gap 

2004 8.6 6.3 Target 

exceeded 

2002 50.0 53.3 Target 

exceeded 

2003 51.5 58.6 Target 

exceeded 

Hispanic 

2004 57.5 61.8 Target 

exceeded 

2002 16.9 15.6 Target met 

2003 15.5 7.6 Target 

exceeded 

White-Hispanic Gap 

2004 11.9 7.0 Target 

exceeded 

5.1.2–

5.1.7 

The percentage of 16- to 24-

year-old high school 

graduates enrolled in college 

the October following 

graduation 

 

2002 51.5 56.4 Target met 

2003 53.5 52.8 Target not met 

Low Income 

2004 51.0 49.6 Target not met 

2002 76.9 78.2 Target met 

2003 77.0 80.1 Target met 

High Income 

2004 80.0 79.3 Did not meet 

2002 25.4 21.8 Target met 

2003 23.5 27.3 Target not met 

5.1.8 – 

5.1.9 

The percentage of 16- to 24-

year-old high school 

graduates enrolled in college 

the October following 

graduation 

Income Gap 

2004 29.0 29.7 Target not met 

White 2004 56.8 58.2 Target met 

Black 2004 37.4 39.7 Target met 

White-Black Gap 2004 19.4 18.5 Target 

exceeded 

Hispanic 2004 43.2 45.8 Target met 

5.1.11–

5.1.15 

The national percentage of 

full-time, bachelor’s degreeseeking students who 

graduate from four-year 

institutions within six years 

White-Hispanic Gap 2004 13.6 12.4 Target met 

FY 2006 Performance and Accountability Report—U.S. Department of Education 73
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Measure Fiscal 

Year Target Actual Status 

Overall 2004 34.0 30.0 Target not met 

White 2004 34.5 31.1 Target not met 

Black 2004 27.3 24.3 Target not met 

White-Black Gap 2004 7.2 6.8 Target met 

Hispanic 2004 31.1 30.3 Target not met 

5.1.16–

5.1.21 

The percentage of full-time, 

degree- or certificate-seeking 

students at two-year 

institutions who graduate, 

earn a certificate, or transfer 

from two-year institutions 

within three years 

White-Hispanic Gap 2004 3.4 0.8 Target 

exceeded 

2004 67 66.7 Target not met 5.1 Student Financial Assistance Programs. The 

percentage of high school graduates aged 16 through 

24 enrolling immediately in college 2005 67 Pending 

2004 73.5 77.6 Target 

exceeded 

5.2 TRIO Talent Search. The percentage of Talent Search 

participants enrolling in college 

2005 74 Dec. 2007 Pending 

2004 65 Nov. 2007 Pending 5.4 TRIO Upward Bound. The percentage of Upward 

Bound participants enrolling in college 

2005 65 Nov. 2008 Pending 

2004 35.5 Nov. 2008 Pending 5.5 TRIO Upward Bound. The percentage of higher-risk 

Upward Bound participants enrolling in college 

2005 36 Nov. 2009 Pending 

2004 55 55.3 Target met 5.6 Student Financial Assistance Programs. The 

percentage of full-time, degree-seeking students 

completing a four-year degree within 150 percent of the 

normal time required 

2005 55 July 2007 Pending 

2004 30 28.1 Target not met 5.8 TRIO Support Services. The percentage of TRIO 

Student Support Services participants completing a 

degree at the same institution 2005 30.5 Dec. 2006 Pending 

5.11 Student Aid Administration. The percentage of Pell 

Grant overpayments 2005 3.2 2.4 Target 

exceeded 

5.12 Aid for Institutional Development, Titles III and V. 

The percentage of Title III and Title V project goals 

relating to the improvement of institutional management 

and fiscal stability that have been met or exceeded 

2005 81 70.2 Target not met 

5.13 Aid for Institutional Development, Titles III and V. 

The percentage of Title III and Title V project goals 

relating to the improvement of student services and 

student outcomes that have been met or exceeded 

2005 91 78.9 Target not met 

5.14 Aid for Institutional Development, Titles III and V. 

The percentage of Title III and Title V project goals 

relating to the improvement of academic quality that 

have been met or exceeded 

2005 91 72.7 Target not met 

Sources and Notes 

5.1.2–5.1.9 U.S. Department of Education, National Center for Education Statistics (2003). The Condition of Education 

2003 (NCES 2003–067), table 18-1 and previously unpublished tabulations for 2002–03 (January 2005). U.S. 

74 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 5: ENHANCE THE QUALITY OF AND ACCESS TO POSTSECONDARY EDUCATION

Department of Commerce, Bureau of the Census, Current Population Survey, October Supplement, 1972–

2003. 

5.1.11–5.1.21 U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education 

Data System, spring 2004. 

5.2.1 U.S. Department of Education, Office of Postsecondary Education, Title II Data System. 

5.3.1 U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education 

Data System, Fall Enrollment Survey and Institutional Characteristics Survey. 

5.4.1 U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education 

Data System. 

5.4.2 U.S. Department of Education, Institutional Development and Undergraduate Education Service, Annual 

Performance Report. 

5.5.1 U.S. Department of Education, Office of Special Education and Rehabilitative Services, Rehabilitation 

Services Administration 911 Case Service Report. 

5.6.1 U.S. Department of Education, Office of Postsecondary Education, Fund for the Improvement of 

Postsecondary Education, internal data. 

5.6.3–5.6.5 U.S. Department of Education, International Education Programs Service, Evaluation of Exchange, 

Language, and International Area Studies, performance report program data. 

5.1 U.S. Department of Education, National Center for Education Statistics, Condition of Education 2005, 

Student Effort and Educational Progress, Table 20-1. 

5.2 U.S. Department of Education, Office of Postsecondary Education, TRIO Annual Performance Reports. 

Future targets were recalculated in FY 2006. 

5.4–5.5 National Evaluation of the Upward Bound Program. 

5.6 U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education 

Data System, Graduation Rate Survey. 

5.8 National Evaluation of Student Support Services Program. 

5.11 Analysis of sampled Internal Revenue Service income data compared to data reported on the Department of 

Education’s Free Application for Federal Student Aid reported by the Office of Federal Student Aid and the 

Common Origination and Disbursement System. 

5.12-14 U.S. Department of Education, Higher Education Act, Titles III and V Annual Performance Report, grantee 

submissions. 

Note: Titles III and V of the Higher Education Act include the following programs: Strengthening Institutions, 

American Indian Tribally Controlled Colleges and Universities, Alaska Native and Native Hawaiian-Serving 

Institutions, Strengthening Historically Black Colleges and Universities, Strengthening Historically Black Graduate 

Institutions, Minority Science and Engineering Improvement, and Developing Hispanic-Serving Institutions.

FY 2006 Performance and Accountability Report—U.S. Department of Education 75
FY 2006 Performance and Accountability Report—U.S. Department of Education

76 

Goal 5: Enhance the Quality of and Access to 

Postsecondary and Adult Education 

Program Performance Summary 

Fifty-eight of our grant programs most directly support Goal 5. These programs are listed below. In the table, an overview results of each program on its program performance measures. (See p. 31 for the methodology of calculating the percentag

met, and without data.) Individual program performance reports are available at http://www.ed.gov/about/reports/annual/2006r

Appropriation and expenditure data for FY 2006 are included for each of these programs. 

Program Name 

PART

Rating 

Appropriations† Expen- ditures‡ Program Performance Results Percent of Targets Met, Not Met, Withou

FY 2006 FY 2005 FY 2004 

FY 2006

$ in 

millions

FY 2006

$ in 

millions

% 

Met 

% 

Not 

Met 

% 

No 

Data

% 

Met 

% 

Not 

Met 

%

No 

Data

% 

Met 

% 

Not 

Met 

D

AEFLA: Adult Education National 

Leadership Activities NA 9 8 0 0 100 0 100 0 0 100 

AEFLA: Adult Education State Grants RND 564 582 0 0 100 40 60 0 0 100 AEFLA: National Institute for Literacy NA 7 4 0 0 100 ATA: Assistive Technology 

Alternative Financing RND 4 2 0 0 100 /// (not funded

ATA: Assistive Technology Programs NA 27 35 0 0 100 EDA: Gallaudet University I 107 75 46 46 8 43 57 0 43 57 EDA: National Technical Institute for 

the Deaf A 56 31 67 33 0 43 57 0 29 71 

HEA: AID Developing HispanicServing Institutions RND 95 98 0 0 100 HEA: AID Minority Science and 

Engineering Improvement NA 9 8 0 25 75 

HEA: AID Strengthening Alaska 

Native and Native HawaiianServing Institutions NA 12 10 0 0 100

HEA: AID Strengthening Historically 

Black Colleges and Universities RND 238 222 0 0 100

HEA: AID Strengthening Historically 

Black Graduate Institutions RND 58 56 0 0 100

HEA: AID Strengthening Institutions NA 80 83 0 0 100

0 0 100 67 33 
FY 2006 Performance and Accountability Report—U.S. Department of Education 77 Program Name Appro- PART Rating pria- Expen- Program Performance Results tions† ditures‡ Percent of Targets Met, Not Met, Withou

FY 2006 FY 2005 FY 2004 

FY 2006 $ in millions FY 2006 $ in millions % Met % Not Met % No Data % Met % Not Met 

%

No 

Data

% 

Met 

% 

Not 

Met 

D

HEA: AID Strengthening Tribally 

Controlled Colleges and Universities 

NA 24 19 0 0 100 

HEA: Academic Competitiveness and 

SMART Grants NA 790 47 New Program 

HEA: B.J. Stupak Olympic 

Scholarships RND 1 1 0 0 100 

HEA: Byrd Honors Scholarships RND 41 42 0 0 100 0 0 100 100 0 HEA: Child Care Access Means 

Parents In School RND 16 15 0 100 0 50 50 

HEA: College Assistance Migrant 

Program RND 15 16 0 0 100 0 0 100 0 0 1

HEA: Demonstration Projects to 

Ensure Quality Higher Education for Students with Disabilities 

NA 7 7 0 0 100 

HEA: Fund for the Improvement of 

Postsecondary Education NA 22 136 0 0 100 50 50 0 0 100 

HEA: Gaining Early Awareness and 

Readiness for Undergraduate Programs (GEAR UP) 

A 303 308 60 40 0 80 20 0 100 0 

HEA: Graduate Assistance in Areas of 

National Need (GAANN) RND 30 28 0 0 100 85 15 0 100 0 

HEA: International Education and 

Foreign Language Studies Domestic Programs 

RND 92 93 0 0 100 33 0 67 0 0 

HEA: International Education and 

Foreign Language Studies Institute for International Public Policy 

NA 2 2 0 0 100 

MECEA: International Education and 

Foreign Language Studies Overseas Programs 

NA 13 12 0 9 91 

HEA: Javits Fellowships A 10 9 0 0 100 0 0 100 100 0 
FY 2006 Performance and Accountability Report—U.S. Department of Education

78 

Program Name 

ApproPART

Rating 

pria- Expen- Program Performance Results 

tions† ditures‡ Percent of Targets Met, Not Met, Withou

FY 2006 FY 2005 FY 2004 

FY 2006

$ in 

millions

FY 2006

$ in 

millions

% 

Met 

% 

Not 

Met 

% 

No 

Data

% 

Met 

% 

Not 

Met 

%

No 

Data

% 

Met 

% 

Not 

Met 

D

HEA: SFA Federal Direct Student 

Loans A 6,191 6,664 

HEA: SFA Federal Family Education 

Loan Program & Liquidating 

A 27,206 27,901

HEA: SFA Federal Pell Grants 

A 17,345 12,261

HEA: SFA Federal Perkins Loans RND 65 71HEA: SFA Federal Supplemental 

Educational Opportunity Grants RND 771 784

HEA: SFA Federal Work-Study RND 980 968HEA: SFA Leveraging Educational 

Assistance Partnerships RND 65 68

 0 0 100 0 0 100 20 13 

HEA: Student Aid Administration A 719 736 0 0 100 HEA: Thurgood Marshall Legal 

Education Opportunity NA 3 2 /// (not funded

HEA: TRIO Educational Opportunity 

Centers NA 47 61 0 0 100 0 0 100 100 0 

HEA: TRIO McNair 

Postbaccalaureate Achievement NA 42 52 0 0 100 100 0 0 0 0 

HEA: TRIO Student Support Services ME 273 338 0 0 100 0 0 100 50 0 HEA: TRIO Talent Search ME 149 182 0 0 100 0 0 100 100 0 HEA: TRIO Upward Bound I 311 216 0 0 100 0 0 100 50 0 HEA: Underground Railroad Program NA 2 3 0 0 100 0 100 0 100 0 HERA: Aid for Institutions of Higher 

Education NA 250 168 

HKNCA: Helen Keller National Center for 

Deaf-Blind Youths and Adults NA 9 11 37 13 50 50 50 0 50 50 

RA: Client Assistance State Grants NA 12 12 0 0 100 50 50 0 50 50 RA: Independent Living State Grants RND 97 97 0 0 100 0 0 100 RA: Independent Living Services for 

Older Blind Individuals NA 33 35 0 0 100 67 0 33 

RA: Migrant and Seasonal 

Farmworkers NA 2 2 0 0 100 100 0 0 50 50 

RA: Projects with Industry A 20 20 0 0 100 50 50 0 50 50 
FY 2006 Performance and Accountability Report—U.S. Department of Education 79 Program Name Appro- PART Rating pria- Expen- Program Performance Results tions† ditures‡ Percent of Targets Met, Not Met, Withou

FY 2006 FY 2005 FY 2004 

FY 2006 $ in millions FY 2006 $ in millions % Met % Not Met % No Data % Met % Not Met 

%

No 

Data

% 

Met 

% 

Not 

Met 

D

RA: Protection and Advocacy of 

Individual Rights NA 16 17 0 0 100 100 0 0 100 0 

RA: Supported Employment State 

Grants NA 30 30 0 0 100 0 100 0 100 0 

RA: Vocational Rehabilitation 

Demonstration and Training Programs 

RND 7 21 0 0 100 67 33 0 0 100 

RA: Vocational Rehabilitation Grants 

for Indians A 33 31 0 0 100 100 0 0 33 67 

RA: Vocational Rehabilitation 

Recreational Programs NA 2 2 0 100 0 100 0 0 100 0 

RA: Vocational Rehabilitation State 

Grants A 2,687 2,582 0 0 100 50 50 0 50 50 

RA: Vocational Rehabilitation 

Training NA 38 42 0 0 100 100 0 0 75 25 

USC: Howard University A 237 234 0 0 100 0 0 100 100 0 VTEA: Tribally Controlled 

Postsecondary Vocational and Technical Institutions 

RND 7 7 0 100 0 0 100 0 0 100 

Administrative and Support Funding for 

Goal 5# 181 2 # # # 

TOTAL 60,462 *55,579 

† Budget for each program represents program budget authority. ‡ Expenditures occur when recipients draw down funds to cover actual outlays. FY 2006 expenditures may include funds from prior years’ appropriations. 

A shaded cell denotes that the program did not have targets for the specified year. 

/// Denotes programs not yet implemented. (Programs are often implemented near the end of the year they are first funded.) # The Department does not plan to develop performance measures for programs, activities, or budgetary line items that are administrative in nature or that 

 serve to support other programs and their performance measures. 

* Expenditures by program do not include outlays in the amount of $15 million for prior years obligations for Goal 5 programs that were not funded in FY 2006 or FY 2006 estimated accruaAEFLA: Adult Education and Family Literacy Act AID: Aid for Institutional Development ATA: Assistive Technology Act EDA: Education of the Deaf Act ESEA: Elementary and Secondary Education Act HEA: Higher Education Act HERA: Hurricane Education Recovery Act 

HKNCA: Helen Keller National Center Act MECEA: Mutual Educational and Cultural Exchange Act of 1961 NLA: National Literacy Act RA: Rehabilitation Act SFA: Student Financial Assistance programs USC: United States Code VTEA: Perkins Vocational and Technical Education Act 

PART Rating

E = Effective ME = Moderately EA = Adequate I = Ineffective RND = Results Not NA = Program has 
PERFORMANCE DETAILS

GOAL 6: ESTABLISH MANAGEMENT EXCELLENCE

Goal 6: Establish Management Excellence 

Key Measures 

The Office of Management and Budget has required all 15 Cabinet-level departments and 10 other major 

federal agencies to report quarterly on their progress toward demonstrating administrative excellence. 

The President’s Management Agenda comprises five major initiatives designed to assure Americans of 

the efficient use of federal funds and the effective responsiveness of the federal government to their 

needs. 

At the Department, we have identified within our sixth goal, Establishing Management Excellence, nine 

key measures aligned with the initiatives of the President’s Management Agenda. Success in meeting 

challenging targets for these measures ensures management results that maximize value to taxpayers, 

channel available resources toward high-performing programs, and help students achieve in the 

classroom.

Financial Integrity and Management 

One major initiative of the President’s Management Agenda is Improved Financial Performance. The 

Office of Management and Budget monitors 24 departments and agencies progress in relation to Financial 

Management through the President’s Management Agenda Scorecard. Each year agencies are required to 

step up their financial management program. The Department demonstrated its ability to improve 

financial management through several foundational requirements. First, the Department has maintained 

an unqualified opinion for 5 years, improved reporting capabilities and is working to further enhance 

reporting through risk adjusted performance reporting. This initiative further enhances our management 

and external reporting. 

Analysis of Progress. For the fifth year, the 

Department has earned an unqualified or “clean” 

audit opinion from independent auditors. 

Data Quality. Independent auditors follow 

professional standards and conduct the audit under 

the oversight of the Department’s Office of 

Inspector General. There are no data limitations.

6.1.A The achievement of an unqualified audit 

opinion. [2204]

Fiscal Year Actual

1999 Qualified

2000 Qualified

2001 Qualified

2002 Unqualified

2003 Unqualified

2004 Unqualified

2005 Unqualified

2006 Unqualified

2006 target met 

Independent Auditors’ Financial Statement and Audit 

Reports, FY 1999 through FY 2006. 

80 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 6: ESTABLISH MANAGEMENT EXCELLENCE

Strategic Human Capital Management 

Human capital management is a concern throughout the federal government and is a major reason for the 

President’s Management Agenda initiative, Strategic Management of Human Capital. Not only must the 

federal government compete with the private sector for top talent, but also it faces a potential shortage of 

experienced staff. At this time, it is estimated that approximately one half of the current federal employee 

workforce will be eligible either to retire or to seek early retirement by the year 2010. At the Department, 

we are approaching historic lows in total personnel, while our budget is at an all-time high. Our 

employees must manage increasing responsibilities while maintaining exemplary performance to 

guarantee the effective use of federal dollars for the benefit of America’s students. 

Analysis of Progress. This measure is a 

composite of three measurements: 

percentage of employees that have 

established effective performance standards 

prior to the beginning of the rating cycle, the 

percentage of employees who have 

documented ratings of record in the system

with 30 days of the close of the rating cycle, 

and lastly, the percentage of awards paid out 

to employees with outstanding performance 

ratings. 

6.2.A Index of quality human capital performance 

management activities.[2205] 

Fiscal Year Actual

2005 72

2006 58 

2006 target of 73 not met 

U.S. Department of Education, Office of Management, via data 

from the Education Department Performance Appraisal System 

and the U.S. Department of the Interior’s Federal Personnel/ 

Payroll System. The latter system provides personnel and payroll 

support to numerous federal agencies, including the Department of 

Education.

The large variance from last year and the target is attributed to the fact that senior leadership extended the 

timelines for the completion of performance plans and ratings, and the first two components of the 

measure experienced material decreases. The two measures declined 14 and 31 percent respectively, 

while the third measure increased 14 percent. 

Information Technology Management 

Expanded electronic government comprises a fourth major initiative of the President’s Management 

Agenda. The Department’s primary task in this initiative is the migration of discretionary grant 

competitions from paper to electronic format. 

The Department has played a leading role in the initiative to simplify federal government grant 

application and award processes. In FY 2006, the Department was selected as a “center of excellence” in 

the Grants Management Line of Business government-wide project. The Department will be a grant 

administration service center available to federal agencies. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 81
PERFORMANCE DETAILS

GOAL 6: ESTABLISH MANAGEMENT EXCELLENCE

Analysis of Progress. This Department met 

its target for utilizing online facilities in the 

grant application process. Although the 

measure declined slightly, there was no 

material difference. 

Data Quality. This statistic is a comparison 

between active schedules in the Grant 

Administration and Payment System and eGrants participation. Grant competitions 

providing either e-Application or Grants.gov 

applications will be counted as participating 

in the electronic submission. 

6.3.A The percentage of discretionary grant programs 

providing online application capability. [2206]

Fiscal Year Actual

2000 5

2001 20

2002 29

2003 57

2004 77

2005 86

2006 84 

2006 target of 84 met 

U.S. Department of Education, Office of the Chief Financial Officer, 

Grant Administration and Payment System. 

Customer Service for Student Financial Assistance

A major foundation of the President’s Management Agenda is that government must be focused on the 

citizens it serves, and student financial assistance programs unquestionably comprise the busiest area of 

Department customer service activity. In overseeing a student loan portfolio comprising more than 

$400 billion and exceeding 26 million borrowers, and in managing the Federal Pell Grant program, which 

provided more than $12 billion in FY 2006 for low-income postsecondary students, we demonstrate the 

quality level of our customer service activities before a very large audience. Thus, our customer service 

performance measures focus on various aspects of service delivery within student financial assistance

operations. 

6.4.A Customer service level for Free Application 

for Federal Student Aid on the Web. [2207] 

Fiscal Year Actual

2003 86

2004 81

2005 81

2006 80 

2006 Target of 83 not met 

FY 2006 American Customer Satisfaction Index Survey. 

6.4.B Customer service level for Direct Loan 

Servicing. [2208] 

Fiscal Year Actual

2003 77

2004 78

2005 76

2006 79 

2006 Target of 77 exceeded 

FY 2006 American Customer Satisfaction Index Survey. 

6.4.C Customer service level for Common 

Origination and Disbursement. [2209] 

Fiscal Year Actual

2003 66

2004 72

2005 76

2006 77 

2006 Target of 76 exceeded 

FY 2006 American Customer Satisfaction Index Survey. 

6.4.D Customer service level for Lender Reporting 

System. [2210] 

Fiscal Year Actual

2003 71

2004 73

2005 72

2006 71 

2006 Target of 74 not met 

FY 2006 American Customer Satisfaction Index Survey. 

82 FY 2006 Performance and Accountability Report—U.S. Department of Education 
PERFORMANCE DETAILS

GOAL 6: ESTABLISH MANAGEMENT EXCELLENCE

Analysis of Progress. The FY 2006 American Customer Satisfaction Index (ACSI) ratings for Federal 

Student Aid’s highest volume products and services – including Direct Loan Servicing, Free Application 

for Federal Student Aid (FAFSA) on the Web, the Common Origination and Disbursement system and the 

Lender Application and Reporting System – score in the “Excellent” and “Good” range. The Common 

Origination and Disbursement system received an improved ACSI score. 

Continuation of the multi-year enterprise communications strategy that was launched in FY 2005 to better 

articulate the benefits of postsecondary education, raise awareness of federal student aid programs and 

improve consistency across all communications to the many stakeholders, including currently

underserved communities. In FY 2006, Federal Student Aid began full-scale implementation of this 

strategy launching a new Federal Student Aid brand and incorporating it across multiple points of 

presence. 

Direct Loan Servicing and the Common Origination and Disbursement measures exceeded their 

performance targets. However, customer service for the FAFSA on the Web missed its target by three 

points and the Lender Reporting System by one point. Customer service for FAFSA is still the highest 

scoring Federal Student Aid product or service. However, its score declined by one point from last year. 

Direct Loan Servicing made significant progress this year increasing its score to a 79, an increase of three 

points. Common Origination and Disbursement servicing and the Lender Reporting system remain 

relatively unchanged. 

Data Quality. Federal Student Aid established performance targets last year that were included in the 

FY 2006 – 2010 Five Year Plan to measure customer service were delineated in percentile rank. This was 

done to provide a common measure of customer satisfaction regardless of the method or company used to 

conduct the customer satisfaction surveys. Unfortunately, so few companies are included in the ACSI 

sector benchmark averages, the percentile rank does not accurately reflect true performance. For 

example, a single point change in the ACSI score of FAFSA on the Web resulted in a 21 percent change 

in percentile ranking. 

Budget and Performance Integration 

A fifth major initiative of the President’s Management Agenda is Budget and Performance Integration. 

Simply put, the size of a federal education program’s budget should significantly correlate with its 

efficacy in improving student achievement. If a program works, more funding is justified; if it doesn’t, 

the program either should undergo corrective action or be eliminated. 

The Office of Management and Budget and the Department have worked together to measure program

effectiveness by means of the Program Assessment Rating Tool (PART). By analyzing a program’s

purpose, strategic planning functions, management capability, and demonstrated results, this tool has 

identified the strengths and weaknesses of both major and minor Department programs. The Department 

used the PART process to make significant changes to ineffective programs or, in some cases, to 

recommend their termination. The overriding goal is that Department-funded programs demonstrate 

proven effectiveness. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 83
PERFORMANCE DETAILS

GOAL 6: ESTABLISH MANAGEMENT EXCELLENCE

Analysis of Progress. In FY 2005, the Office of 

Management and Budget assessed 18 Department 

programs using the PART, bringing the total 

number of programs assessed to 74. These 

programs represent 78.3 percent of the 

Department's 2005 appropriation for PARTeligible programs. Because of its successful efforts 

to address program deficiencies identified through 

the PART process, the Department was able to 

move 5 programs that were previously rated 

"Results Not Demonstrated" out of this category

and into the "Adequate" and "Moderately 

Effective" categories in FY 2005. 

6.5 The percentage of Department program dollars 

associated with programs, reviewed under the Program 

Assessment Rating Tool process, which were rated 

effective. [2211] 

Fiscal Year Actual

2002 55

2003 52

2004 47

2005 78 

2006 Target is 79 

2005 target of 78 met 

2006 data expected Aug. 2007

U.S. Department of Education, analysis of Program Assessment 

Rating Tool findings. 

These reassessed programs, including the Special 

Education Grants to States and Improving Teacher Quality State Grants programs, represent 25 percent of the 

budget authority for programs subject to the PART through FY 2005. The Department also made significant 

strides in its efforts to measure and improve the efficiency of its programs. In July 2005, the Department 

submitted its first annual efficiency measures report to the Office of Management and Budget with information 

on the 42 programs for which the Department had established efficiency measures. 

Faith-Based and Community Organization Grantees 

In addition to the five major President’s Management Agenda initiatives, the Office of Management and 

Budget also grades the Department on eliminating improper barriers that hinder faith-based and 

community organizations from participating in the provision of certain federal social services. The 

Department has actively encouraged faith-based and community organizations to apply for discretionary

grant competitions deemed amenable to their participation. Of particular significance, we developed clear 

guidance for our program offices on the equal treatment of grant applicants regardless of their 

organizational background. This effort has had a side benefit of increasing our awareness of the efforts of 

novice (first-time) applicants other than faith-based and community organizations. 

Analysis of Progress. This is a new 

key measure for FY 2006. The data 

was collected, and a baseline was 

established.

Data Quality. The Department tracks 

the application process and analyzes 

the data at the end of the fiscal year. 

Target Context. The measure is 

calculated as the number of discretionary grant competition applications from faith-based and community

organizations divided by the total discretionary grant competition applications. 

6.6 The percentage of applications in competitions of amenable 

discretionary programs that are faith-based or community

organizations. [2212] 

Fiscal Year Actual

2006 Baseline established 

2006 target to establish baseline met 

U.S. Department of Education, Office of the Secretary, Center for FaithBased and Community Initiatives. 

84 FY 2006 Performance and Accountability Report—U.S. Department of Education 
FY 2006 Performance and Accountability Report—U.S. Department of Education 85 Goal 6: Establish Management Excellence Performance Summary The Department attributes the accounts below to Goal 6. These programs are listed below. In the table, an overview is pro

of each program on its program performance measures. (See p. 31 for the methodology of calculating the percentage of tar

without data.) Individual program performance reports are available at http://www.ed.gov/about/reports/annual/2006report

Appropriation and expenditure data for FY 2006 are included for each of these programs. Program Name Appro- pria- tions† Expen- ditures‡ Program Performance Results Percent of Targets Met, Not Met, Without Data FY 2006 FY 2005 FY 2004 

FY 2006 $ in millions FY 2006 $ in millions % Met % Not Met % No Data % Met % Not Met % No Data % Met % Not Met % No Data 

Office for Civil Rights 91 85 100 0 0 100 0 0 100 0 0 Office of Inspector General 49 46 100 0 0 33 67 0 Program Administration # 411 420 # # # TOTAL 551 555 † Budget for each account represents function budget authority. ‡ Expenditures occur when recipients draw down funds to cover actual outlays. FY 2006 expenditures may include funds from prior years’ appropriations. A shaded cell denotes that the program did not have targets for the specified year. # The Department does not plan to develop performance measures for programs, activities, or budgetary line items that are administrative in nature or that serve to support other programs 

measures.
PERFORMANCE DETAILS

SUMMARY OF INSPECTOR GENERAL AND GOVERNMENT ACCOUNTABILITY OFFICE REPORTS

Summary of Inspector General and 

Government Accountability Office Reports 

The previous pages of this document have explained in detail how the Department is doing in meeting its 

Strategic Plan performance goals. The Office of Inspector General (OIG) promotes the efficiency, 

effectiveness and integrity of the Department's programs through independent and objective audits, among 

other activities. These activities, along with reports from the Government Accountability Office (GAO), 

allow the Department to focus its attention and resources on areas of particular importance in meeting the 

Strategic Plan performance goals. 

Below is an abbreviated list of the FY 2006 Inspector General and Government Accountability Office 

reports presented by Strategic Plan Goal. We provide a brief synopsis of the issue and Department's

response. 

Goal 

Report Name 

Organization Issue Department's Response

1 Gulf Coast Hurricanes: 

Lessons Learned for

Protecting and Educating 

Children 

(GAO-06-680R)

May 2006 

Department 

This report reviewed the numbers of 

missing children, foster children 

receiving welfare services, and

schoolchildren displaced by the storms or 

damage to their schools, and the 

challenges for educating displaced 

school-aged children. Four federal 

agencies were referenced. 

The Department granted flexibility in 

reporting and other requirements that 

allowed states and districts to focus on 

rebuilding. Using the McKinney-Vento

Homeless Assistance Act to enroll

displaced students in new schools 

ensured that the students' education 

continued. 

1 No Child Left Behind: 

States Face Challenges

Measuring Academic 

Growth That Education's

Initiatives May Help 

Address 

(GAO-06-661)

July 2006 

Department / 

Office of Elementary and 

Secondary Education

The Department should provide 

assistance in helping states with the 

challenges they face in measuring

academic growth and in measuring 

progress in achieving key No Child Left 

Behind goals. 

The Department initiated a pilot project 

for selected states to use growth models 

that met its specific criteria to determine 

“adequate yearly progress.” 

Additionally, the Department initiated a

grant competition to support the design 

of longitudinal data systems to track 

individual student test scores over time. 

2 No Child Left Behind: 

Improved Accessibility to

Education's Information 

Could Help States Further 

Implement Teacher 

Qualification Requirements 

(GAO-06-25) 

November 2005 

Department / 

Office of Elementary and 

Secondary Education 

The Department should explore ways to 

make the Web-based information on 

teacher qualification requirements more

accessible to users of its Web site. 

The Department agreed with this

finding and has already taken steps to 

address it. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 86 
PERFORMANCE DETAILS

SUMMARY OF INSPECTOR GENERAL AND GOVERNMENT ACCOUNTABILITY OFFICE REPORTS

Goal 

Report Name 

Organization Issue Department's Response

2 Individuals with Disabilities 

Education Act: Education 

Should Provide Additional

Guidance to Help States

Smoothly Transition 

Children to Preschool 

(GAO-06-26) 

December 2005

Office of Special Education 

and Rehabilitative Services 

The Department needs to provide states

with additional guidance on transition 

planning and services for children with 

third birthdays during the summer, and

especially in cases where children are

likely to need extended school year 

services. 

The Department disagreed that service

gaps in the transition from Part C (birth 

to age three) to Part B (ages three 

through five) are specific to summer 

months as the report states. Preliminary

data from a Department-funded study

indicated that the service gap is specific 

to transition whenever the transition 

occurs, not just the summer months. 

2 The U.S. Department of 

Education's Activities

Relating to Consolidating 

Funds in Schoolwide 

Programs Provisions 

(ED-OIG/A07F0014) 

December 2005

Office of Elementary and 

Secondary Education

The Department could do more to assist 

state educational agencies in eliminating

state fiscal and accounting barriers to 

consolidating funds in their schoolwide 

Title I programs. 

The Department concurred with both 

findings. However, the Department did 

not concur with the recommendation to

require reports for state educational 

agencies, program reviews and

corrective actions to identify failures on 

the part of state educational agencies to 

fulfill their responsibilities. The 

disagreement is due to a contradiction in 

statutory requirements. 

2 Final Audit Report of the 

Cooperative Agreement 

Between the State Scholars

Initiative Program and the 

Department of Education 

(ED-OIG/A06F0006) 

January 2006 

Office of Vocational and 

Adult Education 

The Department did not award the State 

Initiative grant in accordance with

applicable regulations and Department 

policy, and the Office of Vocational and 

Adult Education did not provide adequate 

program management and did not address 

financial problems expeditiously. 

The Department is taking steps to

improve guidance on maintaining

official grant files, but staff, when 

alerted to irregularities, took immediate 

action. 

2 Troops-to-Teachers Program 

Brings More Men and 

Minorities to the Teaching

Workforce, but Education 

Could Improve Management 

to Enhance Results 

(GAO-06-265)

March 2006 

Office of Innovation and 

Improvement

The Department should improve program 

management for the Troops-to-Teachers 

program and better coordinate with other 

teacher recruitment and retention

initiatives. 

The Department generally concurred 

with GAO's findings and 

recommendations and is proceeding 

with implementation. 

2 No Child Left Behind Act: 

Assistance From Education

Could Help States Better

Measure Progress of 

Students with Limited 

English Proficiency

(GAO-06-815)

July 2006 

Department / 

Office of Elementary and 

Secondary Education

The Department should support 

additional research on accommodations,

support states to ensure the validity of 

academic assessments, publish more 

detailed guidance on assessing English 

proficiency, and provide flexibility in 

measuring annual progress for students 

with limited English proficiency.

The Department generally agreed with 

GAO's recommendations. The 

Department has conducted research on 

the effectiveness of accommodations

and has begun identifying additional 

technical assistance needs of states for 

academic assessments and to help states

assess English language proficiency.

The Department has already provided 

flexibility regarding the inclusion of 

limited English proficient students in 

accountability systems. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 87
PERFORMANCE DETAILS

SUMMARY OF INSPECTOR GENERAL AND GOVERNMENT ACCOUNTABILITY OFFICE REPORTS

Goal 

Report Name 

Organization Issue Department's Response

2 No Child Left Behind: 

Education Actions Needed to 

Improve Local 

Implementation and State

Evaluation of Supplemental 

Educational Services 

(GAO-06-758)

August 2006 

Department

The Department should disseminate 

information on promising practices to 

improve Supplemental Educational 

Services implementation, provide states

with technical assistance to improve 

evaluation of Supplemental Educational 

Services' effect on student achievement, 

and expand program flexibility. 

The Department generally concurred 

with GAO's recommendations. The 

Department has provided state and local 

agencies with sample parent notification 

material in non-regulatory guidance. 

The Department's Comprehensive 

Center on Innovation and Improvement 

has provided additional technical 

assistance. The Department will be 

providing additional technical assistance 

at the Project Directors' meeting and 

will be disseminating promising 

practices. 

4 Federal Autism Activities: 

Funding for Research Has 

Increased, but Agencies

Need to Resolve

Surveillance Challenges 

(GAO-06-700)

July 2006 

Department

The Department should work with the 

Department of Health and Human 

Services to identify options for 

overcoming challenges to the Centers for

Disease Control’s ability to acquire 

individual student records for autism 

surveillance. 

The Department did not agree as the 

recommendation does not reflect the 

important privacy protections

established by the Family Educational 

Rights and Privacy Act nor Congress'

concern with preserving the rights of 

parents to be notified and refuse or 

consent to disclosure of their children's

records.

5 Transfer Students: 

Postsecondary Institutions 

Could Promote More 

Consistent Consideration of

Coursework by Not Basing 

Determinations on 

Accreditation 

(GAO-06-22) 

October 2005 

Office of Postsecondary

Education

The Department and Congress require 

postsecondary institutions eligible for

Title IV funding not to deny the transfer 

of credit on the basis of a sending

institutions' type of accreditation.

The Department found the 

recommendation to be useful and 

informative.

5 Death and Total and 

Permanent Disability 

Discharges of FFEL and

Direct Loan Program Loans

(ED-OIG/A04E0006) 

November 2005 

Federal Student Aid

The Inspector General identified

problems with policies, procedures, and

internal controls over loans established 

for disability discharges. 

The Department concurred with one 

finding but did not concur that, when 

reinstated from a conditional discharge 

status, borrowers should be required to

pay interest. 

5 Overlapping Services in the 

Department of Education's

Office of Postsecondary

Education Programs 

(ED-OIG/X07F0002) 

February 2006 

Office of Postsecondary

Education

The Office of Postsecondary Education 

administers at least 41 discretionary and

formula grants with duplicative program 

objectives serving like areas and 

populations as 14 Vocational and Adult 

Education programs and 13 Elementary

and Secondary Education programs. 

The Department concurred with the 

report and has proposed elimination of 

many duplicative or unneeded 

programs. The Department continues to

realign programs with similar goals and 

objectives. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 88 
PERFORMANCE DETAILS

SUMMARY OF INSPECTOR GENERAL AND GOVERNMENT ACCOUNTABILITY OFFICE REPORTS

Goal 

Report Name 

Organization Issue Department's Response

5 Review of Financial 

Partners' Monitoring and

Oversight of Guaranty

Agencies, Lenders and 

Servicers.

(ED-OIG/AO4E0009) 

September 2006

Federal Student Aid 

The report identified internal control 

weaknesses relating to five of the internal 

control standards – control environment, 

control activities, monitoring,

information and communication, and risk 

assessment. Based on the review,

Financial Partners did not provide

adequate oversight and consistently

enforce FFEL program requirements. 

The Department disagreed with the 

overall conclusion reached regarding the 

control environment, but acknowledged 

that there may be areas where 

improvements can be made. 

5 Special Allowance Payments

to Nelnet for Loans Funded 

by Tax-Exempt Obligations. 

(ED-OIG/A07F0017) 

September 2006

Federal Student Aid 

The report questioned payments made to

an entity that participates in the Federal 

Family Education Loan Program. 

The Secretary is currently considering 

the Department’s response to the 

findings and recommendations 

contained in this report. 

6 Education's Data 

Management Initiative: 

Significant Progress Made, 

but Better Planning Needed

to Accomplish Goals 

(GAO-06-6) 

October 2005 

Office of Planning,

Evaluation and Policy 

Development

The Department should develop a 

strategy to help states provide quality

data and a clear plan for completing final 

aspects of the initiative. 

The Department concurred with the 

recommendations and is in the process 

of developing a detailed project plan to 

complete the initiative and is devoting 

additional resources for its 

enhancement. 

6 Discretionary Grants: 

Further Tightening of 

Education's Procedures for

Making Awards Could 

Improve Transparency and

Accountability 

(GAO-06-268)

February 2006 

Department / 

Office of Innovation and 

Improvement

The Department should develop a 

systematic format to select unsolicited 

proposals, ensure that all competition 

plans are finalized before competitions 

begin, and implement a policy to screen 

applicants for compliance with audit 

requirements before the award. 

The Department agreed with three of the

four recommendations, but disagreed 

with the recommendation that it develop

a more systematic approach to select

unsolicited proposals for consideration

as it would not necessarily produce 

high-quality applications. 

6 Audit of the Department of

Education's Follow-up 

Process for Internal Audits 

(ED-OIG/A19E0017) 

February 2006 

Office of the Chief 

Financial Officer

The Department's audit follow-up system 

was not always effective as systems were

not always in place to follow up on

corrective actions, monitor the 

Department's compliance with the Office

of Management and Budget Circular 

A-50, and ensure the effectiveness of the

audit resolution process. 

The Department concurred with the 

report and provided a proposed 

corrective action plan to address 

recommendations. 

6 The U.S. Department of 

Education's Monitoring of 

Adherence to Matching 

Requirements 

(ED-OIG/A05F0015) 

March 2006 

Office of the Chief 

Financial Officer

The Department did not have adequate 

procedures in place to monitor grantees' 

adherence to matching requirements for 

the majority of its programs, and 

adequate guidance, training, and 

oversight of procedures to monitor costsharing were not provided to program 

staff. 

The Department concurred and will 

revise its Handbook to better inform 

program staff about matching 

requirements, and will review selected 

programs for compliance with matching 

requirements. The Department will 

update all relevant training courses and 

ensure the training reflects current 

policy. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 89
PERFORMANCE DETAILS

SUMMARY OF INSPECTOR GENERAL AND GOVERNMENT ACCOUNTABILITY OFFICE REPORTS

Goal 

Report Name 

Organization Issue Department's Response

6 Faith-Based and Community 

Initiative: Improvements in 

Monitoring Grantees and 

Measuring Performance 

Could Enhance 

Accountability 

(GAO-06-616)

June 2006 

Department

Federal agencies should include 

information on safeguards in grants and 

grant monitoring, improve data on grants 

awarded to faith-based organizations, and

develop a plan for reporting on faithbased organizations’ long-term goals. 

The Department disagreed with the 

recommendation on the basis that the

safeguards are already in place for grant

programs apply equally to faith-based 

organizations. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 90 
Financial 

Details 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
FINANCIAL DETAILS

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

The Department of Education continued its high standard of financial 

management and reporting during fiscal year 2006. In this part of the 

Performance and Accountability Report, I have the pleasure of 

presenting to the President and the American people the financial 

details on the Department’s stewardship and management of the public 

funds to which we have been entrusted. 

The Department’s impressive record of excellence in financial 

management has been a joint effort of our managers, employees, and 

business partners who make it a priority to ensure that the highest 

quality financial data is reported. Highlights of these successful efforts 

over the last year are as follows: 

• Received an unqualified opinion on the principal financial statements for the fifth 

consecutive year, demonstrating a clear pattern of financial accountability; 

• Continued to have no material weaknesses identified as part of our Report on Internal 

Control for the fourth consecutive year; 

• Received a “green” status in Financial Management on the President’s Management 

Scorecard for the third consecutive year; 

• Awarded the prestigious “Certificate of Excellence in Accountability Reporting” from the 

Association of Government Accountants for the third consecutive year; 

• Continue to provide reasonable assurance of its internal controls over financial reporting. 

In 2006, the Department furthered its efforts to correct the two reportable conditions identified 

by the auditors in the “Report on Internal Controls.” To address the reportable condition 

regarding the credit reform estimation the Credit Steering committee has worked diligently to 

continue to improve the process. The work group is comprised of managers from the Office of 

the Chief Financial Officer, Budget Service and Federal Student Aid. Throughout the fiscal year 

the committee has reviewed and documented the analytical tools used for the loan estimation 

process. Currently new analytical tools are also in development to enhance the monitoring of

loans at the cohort level. The Department also continued to address the other reportable 

condition regarding controls surrounding information systems. 

During FY 2006, the Department conducted an assessment of the effectiveness of its internal 

control over financial reporting. This review was based upon the expanded requirements of 

OMB Circular A-123 (Appendix A), Management’s Responsibility for Internal Control. We are 

pleased to report that the Department can give an unqualified statement of assurance on its 

internal control over financial reporting. This examination has presented us the opportunity to 

further review and improve upon our internal controls and thereby will continue to ensure the 

greatest integrity in our financial management and reporting.

/s/ 

Lawrence Warder 

Chief Financial Officer 

November 15, 2006 

92 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

FINANCIAL DETAILS

FINANCIAL SUMMARY

(Dollars in Millions)

At End of Year

% Change

2006 / 2005 FY2006 FY2005 FY2004 FY2003

Condensed Balance Sheet Data

FBWT Fund Balance with Treasury + 38% $ 107,053 $ 77,569 $ 66,371 $ 57,908

CPR Credit Program Receivables - 1% 106,728 107,937 104,966 97,965

AR Accounts Receivable - 69% 44 141 155 183

Oth Other - 35% 920 596 1, 1, 117 202

Total Assets + 15% $ 186, 214,421 $ 17 567 $ 157, 2,609 $ 258

Debt + 1% $ 105,677 $ 104,597 $ 96,649 $ 92,018

Other Intragovernmental Liabilities + 1% 6,182 6,146 6,051 8,250

Liabilities for Loan Guarantees + 71% 52,453 30,611 23,329 15,432

Other Liabilities + 39% 2, 3,299 2, 371 2, 246 124

Total Liabilities + 17% 143, 167,611 12 725 117, 8,275 824

Unexpended Appropriations + 10% 51,812 47,288 47,285 43,931

Cumulative Results of Operations + 13% ( (5,002) (2, 4,446) (4, 951) 497)

Total Net Position + 9% 42, 46,810 4 842 39, 4,334 434

Total Liabilities and Net Position + 15% $ 186, 214,421 $ 17 567 $ 157, 2,609 $ 258

For the Year 2006 / 2005 FY2006 FY2005 FY2004 FY2003

Statement of Net Cost Net Cost by Strategic Goal

Total Cost + 27% $ 104,699 $ 82,204 $ 70,187 $ 65,327

Earned Revenue + 13% ( (7,870) (6, 6,965) (6, 564) 523)

Total Net Cost of Operations + 29% $ 75, 96,829 $ 6 239 $ 58, 3,623 $ 804

Net Cost by Strategic Goal

Goal 2 Goal 2 Improve Student Achievement + 4% $ 37,700 $ 36,415 $ 32,687 $ 29,679

Goal 3 Goal 3 Develop Safe Schools and Strong Character - 3% 849 877 756 776

Goal 4 Goal 4 Transform Education into Evidenced-Based Field - 5% 422 442 467 490

Goal 5

Goal 5 Enhance Quality of and Access to Postsecondary

and Adult Education + 55% 57,303 36,940 29,713 27,859

Goal 6 Goal 6 Management Excellence

1

- 2% 565 555 - - 

+ 29% $ 75, 96,829 $ 6 239 $ 58, 3,623 $ 804

Net Cost Percentages by Strategic Goal

Goal 2 Improve Student Achievement - 20% 38.90% 48.40% 51.38% 50.47%

Goal 3 Develop Safe Schools and Strong Character - 25% 0.88% 1.17% 1.19% 1.32%

Goal 4 Transform Education into Evidenced-Based Field - 25% 0.44% 0.59% 0.73% 0.83%

Goal 5 Enhance Quality of and Access to Postsecondary

and Adult Education + 21% 59.18% 49.09% 46.70% 47.38%

Goal 6 Management Excellence

1 - 20% 0.60% 0.75% N/A N/A

1 In FY03 and FY04 Goal 6 was not included in this summary

Financial Summary

$214.4

 $186.6 $172.6 $157.3

in Billions

FY2006 FY2005 FY2004 FY2003

$167.6

 $143.7 $128.3 $117.8 in Billions

FY2006 FY2005 FY2004 FY2003

$46.8

 $42.8 $44.3

in

 $39.4

 Billions

FY2006 FY2005 FY2004 FY2003

Net Position

Goal 6

0.75%

Goal 3

1.17%

Goal 2

48.40%

Goal 5

49.09%

Goal 4

0.59%

FY2005

Total Assets

Total Liabilities

Goal 3

0.88%

Goal 2

38.90%

Goal 5

59.18%

Goal 4 

.44%

Goal 6

0.60%

FY 2006

Limitations of 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 fiscal years 2006 and 2005 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. One implication of this is that the liabilities presented herein cannot be liquidated without the enactment of

appropriations, and ongoing operations are subject to the enactment of future appropriations. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 93
FINANCIAL DETAILS

94 FY 2006 Performance and Accountability Report—U.S. Department of Education 
FINANCIAL DETAILS

BALANCE SHEET

Fiscal Year Fiscal Year

2006 2005

Assets:

 Intragovernmental:

1001 Fund Balance with Treasury (Note 2) $ 107,053 $ 77,569

1003 Accounts Receivable (Note 3) 1 0

# Other Intragovernmental Assets 0 12

Total Intragovernmental 107,054 77,581

2001Cash and Other Monetary Assets (Note 4) 566 888

2003Accounts Receivable, Net (Note 3) 43 141

2004Credit Program Receivables, Net (Note 5) 106,728 107,937

2006General Property, Plant and Equipment, Net (Note 6) 29 19

2007Other Assets 1 1

ToTotal Assets $ 214,421 $ 186,567

Liabilities:

 Intragovernmental:

3001 Accounts Payable ($0) $ 1

3002 Debt (Note 7) $ 105,677 104,597

3003

Guaranty Agency Federal and Restricted Funds Due to

Treasury (Note 4) 566 888

3004 Payable to Treasury (Note 5) 5,519 5,166

3005 Other Intragovernmental Liabilities (Note 8) 97 80

Total Intragovernmental 111,859 110,743

4001Accounts Payable 859 684

400

2

2Accrued Grant Liability (Note 9) 2,059 1,328

4003Liabilities for Loan Guarantees (Note 5) 52,453 30,611

4005Other Liabilities (Note 8) 381 359

ToTotal Liabilities $ 167,611 $ 143,725

Commitments and Contingencies (Note 16)

Net Position:

6001Unexpended Appropriations - Earmarked Funds ($0) ($0)

6001Unexpended Appropriations - Other Funds $ 51,812 $ 47,288

6002Cumulative Results of Operations - Earmarked Funds (Note 15) 61 (0)

6002Cumulative Results of Operations - Other Funds (5,063) (4,446)

Total Net Position (Note 10) $ 46,810 $ 42,842

Total Liabilities and Net Position $ 214,421 $ 186,567

0

The accompanying notes are an integral part of these statements.

United States Department of Education

Consolidated Balance Sheet

As of September 30, 2006 and 2005

0

(Dollars in Millions)

0.00

FY 2006 Performance and Accountability Report—U.S. Department of Education 95
FINANCIAL DETAILS

STATEMENT OF NET COST

Fiscal Year Fiscal Year

2006 2005

Program Costs

Enhancement of Postsecondary and Adult Education

## Gross costs $ 63,356 $ 42,351

## Less: Earned Revenue 7,790 6,870

Net Program Costs 55,566 35,481

$ 55,566 $ 35,481

Creation of Student Achievement, Culture of Achievement and Safe Schools

## Gross costs $ 24,605 $ 24,464

## Less: Earned Revenue 60 76

Net Program Costs 24,545 24,388

$ 24,545 $ 24,388

 Transformation of Education

## Gross costs $ 1,363 $ 1,220

## Less: Earned Revenue 18 17

Net Program Costs 1,345 1,203

$ 1,345 $ 1,203

Special Education and Program Execution

## Gross costs $ 15,375 $ 14,169

## Less: Earned Revenue 2 2

Net Program Costs 15,373 14,167

$ 15,373 $ 14,167

Grand Total Program Costs $ 96,829 $ 75,239

Net Cost of Operations (Note 11) $ 96,829 $ 75,239

The accompanying notes are an integral part of these statements.

United States Department of Education

Consolidated Statement of Net Cost

For the Years Ended September 30, 2006 and 2005

Total Program Costs

Total Program Costs

Total Program Costs

(Dollars in Millions)

0

Total Program Costs

96 FY 2006 Performance and Accountability Report—U.S. Department of Education 
FINANCIAL DETAILS

STATEMENT OF CHANGES IN NET POSITION

Cumulative

Results of

Operations

Unexpended 

Appropriations

Cumulative 

Results of 

Operations

Unexpended 

Appropriations

Beginning Balances

1 (a). Beginning Balances - Earmarked Funds $(0) $(0) $(0) $(0)

1 (b). Beginning Balances - All Other Funds $ (4,446) $ 47,288 $ (2,951) $ 47,285

3 (a). Beginning Balances, as adjusted - Earmarked Funds $(0) $(0) $(0) $(0)

3 (b). Beginning Balances, as adjusted - All Other Funds $ (4,446) $ 47,288 $ (2,951) $ 47,285

Budgetary Financing Sources:

4. Appropriations Received

4 (a). Appropriations Received - Earmarked Funds $0 $(0) $0 $(0)

4 (b). Appropriations Received - All Other Funds $0 $ 102,139 $(0) $ 77,033

6. Other Adjustments (rescissions, etc) $(0) $(0)

6 (a). Other Adjustments (rescissions, etc) - Earmarked Funds (0) (0) $(0) $(0)

6 (b). Other Adjustments (rescissions, etc) - All Other Funds (0) (1,509) $ (3) (1,312)

7. Appropriations Used $(0) $(0)

7 (a). Appropriations Used - Earmarked Funds $(0) (0) $(0) $(0)

7 (b). Appropriations Used - All Other Funds $ 96,106 (96,106) 75,718 (75,718)

9. Donations and Forfeitures of Cash and Cash Equivalents $(0) $(0)

9 (a). Donations and Forfeitures of Cash and Cash Equivalents - Earmarked Funds 61 0 (0) $(0)

9 (b). Donations and Forfeitures of Cash and Cash Equivalents - All Other Funds (0) 0 $(0) $(0)

10. Nonexpenditure Financing Sources - Transfers-Out (0) $(0)

10 (a). Nonexpenditure Financing Sources - Transfers-Out - Earmarked Funds (0) 0 (0) $(0)

10 (b). Nonexpenditure Financing Sources - Transfers-Out - All Other Funds (36) (0) (33)

Other Financing Sources: $(0)

14. Imputed Financing from Costs Absorbed by Others $(0)

14 (a). Imputed Financing from Costs Absorbed by Others - Earmarked Funds (0) 0 $(0) 0

14 (b). Imputed Financing from Costs Absorbed by Others - All Other Funds $ 31 0 $ 31 0

15. Others $(0) 0

15 (a). Others - Earmarked Funds (0) 0 $(0) 0

15 (b). Others - All Other Funds 111 0 (1,969) 0

 Total Financing Sources $ 96,273 $ 4,524 $ 73,744 $ 3

16 (a). Total Financing Sources - Earmarked Funds $ 61 (0) (0) (0)

16 (b). Total Financing Sources - All Other Funds $ 96,212 $ 4,524 $ 73,744 $ 3

17.Net Cost of Operations 0

17 (a). Net Cost of Operations - Earmarked Funds $(0) $(0) $(0) $(0)

17 (b). Net Cost of Operations - All Other Funds $ (96,829) $(0) $ (75,239) $(0)

18.Net Change

18 (a). Net Change - Earmarked Funds $ 61 $(0) $(0) $(0)

18 (b). Net Change - All Other Funds $ (617) $ 4,524 $ (1,495) $ 3

19 (a). Ending Balances - Earmarked Funds (Note 10) $ 61 $ (0) $ (0) $ (0)

19 (b). Ending Balances - All Other Funds (Note 10) $ (5,063) $ 51,812 $ (4,446) $ 47,288

The accompanying notes are an integral part of these statements.

United States Department of Education

Consolidated Statement of Changes in Net Position

For the Years Ended September 30, 2006 and 2005

2006 2005

(Dollars in Millions)

0

Fiscal Year Fiscal Year

FY 2006 Performance and Accountability Report—U.S. Department of Education 97
FINANCIAL DETAILS

STATEMENT OF BUDGETARY RESOURCES

Budgetary

Budgetary 

Credit Reform 

Financing 

Accounts Budgetary

Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary Resources:

1. Unobligated balance, brought forward, October 1: $ 2,137 $ 22,817 $ 2,245 $ 15,128

2. Recoveries of prior year Unpaid Obligations 1,434 3,450 1,536 1,973

3. Budgetary Authority:

3A. Appropriations 102,197 108 76,981 3

3B. Borrowing Authority 0 35,089 0 32,209

3D. Spending authority from offsetting collections (gross):

3D1. Earned

3D1a. Collected 2,074 77,399 3,198 49,536

3D1b. Change in Receivables from Federal Sources 1 0 (3) (2)

3D2. Change in unfilled customer orders

3D2a. Advance Received 9 0 64 0

3D2b. Without advance from Federal Sources (1) (4) (68) 34

3E. Subtotal $ 104,280 $ 112,592 $ 80,172 $ 81,780

6. Permanently not available (3,537) (32,252) (4,047) (24,692)

7. Total Budgetary Resources (Note 13) $ 104,314 $ 106,607 $ 79,906 $ 74,189

Status of Budgetary Resources:

8. Obligations incurred: (Note 13)

8A. Direct $ 99,001 $ 60,117 $ 77,677 $ 51,372

8B. Reimbursable 92 (0) 92 (0)

8C. Subtotal $ 99,093 $ 60,117 $ 77,769 $ 51,372

9. Unobligated Balances:

9A. Apportioned 4,081 (0) 526

9C. Subtotal $ 4,081 ($0) $ 526 ($0)

10. Unobligated Balance not available 1,140 46,490 1,611 22,817

11. Total Status of Budgetary Resources $ 104,314 $ 106,607 $ 79,906 $ 74,189

Change in Obligated Balance:

12. Obligated balance, net

12A. Unpaid obligations, brought forward, October 1 $ 48,213 $ 10,802 $ 48,221 $ 7,790

12B. Less: Uncollected customer payments from Federal Sources, 

 brought forward, October 1 3 34 74

12c. Total, unpaid obligated balance, brought forward, net $ 48,210 $ 10,768 $ 48,147 $ 7,788

13. Obligation Incurred net (+/-) 99,093 60,117 77,769 51,372

14. Less: Gross Outlays 95,662 54,516 76,251 46,389

16. Less Recoveries of prior year unpaid obligations, actual 1,434 3,450 1,536 1,973

17. Change in uncollected customer payments from Federal Sources (+/-) (0) 4 72

18. Obligated Balance, net, end of period

18A. Unpaid Obligations $ 50,210 $ 12,953 $ 48,213 $ 10,802

18B. Less: Uncollected customer payments from Federal Sources 3 30 3

18C. Total, unpaid obligated balance, net, end of period $ 50,207 $ 12,923 $ 48,210 $ 10,768

Net Outlays

19. Net Outlays:

19A. Gross Outlays $ 95,662 $ 54,516 $ 76,251 $ 46,389

19B. Less: Offsetting collections 2,083 77,399 3,264 49,536

19C. Less: Distributed Offsetting receipts 51 (0) 32 (0)

20. Net Outlays (Note 13) $ 93,528 $ (22,883) $ 72,955 $ (3,147)

The accom

2

(32)

34

panying notes are an integral part of these statements.

2006 2005

(Dollars in Millions)

Fiscal Year Fiscal Year

United States Department of Education

Combined Statement of Budgetary Resources

For the Years Ended September 30, 2006 and 2005

98 FY 2006 Performance and Accountability Report—U.S. Department of Education 
FINANCIAL DETAILS

STATEMENT OF FINANCING

Fiscal Year Fiscal Year

2006 2005

Resources Used to Finance Activities

 Budgetary Resources Obligated

1 Obligations Incurred (Note 13) $ (159,210) $ (129,141)

2 Less: Spending Authority from Offsetting Collections & Recoveries 84,362 56,268

3 Obligations Net of Offsetting Collections and Recoveries (74,848) (72,873)

4 Less: Offsetting Receipts (51) (32)

5 Net Obligations $ (74,899) $ (72,905)

 Other Resources

8 Imputed Financing From Costs Absorbed by Others (31) (31)

# Net Other Resources Used to Finance Activities (31) (31)

Total Resources Used to Finance Activities $ (74,930) $ (72,936)

Resources Used to Finance Items Not Part of Net Cost of Operations

#

Change in Budgetary Resources Obligated for Goods, Services and Benefits Ordered but 

not Yet Provided (+/-) $ (2,946) $ (3,197)

# Resources that Fund Expenses Recognized in Prior Period (Note 14) (2,840) (1,610)

# Budgetary offsetting collections and receipts that do not affect net cost of operations 0 2

#

Credit Program Collections Which Increase/Decrease Liabilities for Loan Guarantees, or

Credit Program Receivables, Net including Allowances for Subsidy 73,723 46,891

#

Resources Used to Finance the Acquisition of Fixed Assets, or Increase/Decrease 

Liabilities for Loan Guarantees or Credit Program Receivables, Net in the Current or Prior 

Period (48,328) (39,977)

#

Total Resources Used to Finance Items Not Part of the Net Cost of Operations $ 19,609 $ 2,109

Total Resources Used to Finance the Net Cost of Operations $ (94,539) $ (75,045)

 Components Requiring or Generating Resources in Future Periods (Note 14)

# Increase in Annual Leave Liability $ (31) $ (28)

# Upward/Downward Reestimates of Credit Subsidy Expense (4,200) (2,789)

# Increase in Exchange Revenue Receivable from the Public 1,603 1,163

# Other (+/-) 32 15

#

Total Components of the Net Cost of Operations that Will Require or Generate Resources

in Future Periods $ (2,596) $ (1,639)

 Components Not Requiring or Generating Resources

# Depreciation and Amortization $ 400 $ 1,442

# Other (+/-) (Note 14) (94) 3

Total Components of the Net Cost of Operations that Will Not Require or Generate

Resources $ 306 $ 1,445

$ (2,290) $ (194)

$ (96,829) $ (75,239)

The accompanying notes are an integral part of these statements.

Net Cost of Operations (Note 11)

Components of the Net Cost of Operations that Will Not Require or Generate Resources in

the Current Period

(Dollars in Millions)

United States Department of Education

Consolidated Statement of Financing

For the Years Ended September 30, 2006 and 2005

Total Components of the Net Cost of Operations that Will Not Require or Generate

Resources in the Current Period

0

FY 2006 Performance and Accountability Report—U.S. Department of Education 99
FINANCIAL DETAILS

100 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

FY 2006 Performance and Accountability Report—U.S. Department of Education 

 Notes to the Principal Financial Statements 

Note 1. Summary of Significant Accounting Policies 

Reporting Entity 

The U.S. Department of Education (the Department), a Cabinet-level agency of the Executive Branch of 

the U.S. Government, was established by the Congress on May 4, 1980, under the Department of 

Education Organization Act of 1979 (Public Law 96-88). It is responsible, through the execution of its 

congressionally approved budget, for administering direct loans, guaranteed loans, and grant programs. 

The Department administers the William D. Ford Federal Direct Student Loan (Direct Loan) Program, the 

Federal Family Education Loan (FFEL) Program, the Federal Pell Grant (Pell Grant) Program and the 

campus-based student aid programs to help students finance the costs of higher education. The Direct 

Loan Program, authorized by the Student Loan Reform Act of 1993, enables the Department to make loans 

directly to eligible undergraduate and graduate students and their parents through participating schools. 

The FFEL Program, initially authorized by the Higher Education Act of 1965, as amended (HEA), 

cooperates with state and private nonprofit Guaranty Agencies to provide loan guarantees and interest 

subsidies on loans made by private lenders to eligible students. Under these programs, the loans are made 

to individuals who meet statutorily set eligibility criteria and attend eligible institutions of higher 

education—public or private two- and four-year institutions, graduate schools, and vocational training 

schools. Students and their parents, based on eligibility criteria, receive loans regardless of income or 

credit rating. Student borrowers who demonstrate financial need also receive federal interest subsidies. 

Additionally, the Department administers numerous grant programs and the facilities loan programs. 

Grant programs include grants to state and local entities for elementary and secondary education; special 

education and rehabilitative services; educational research and improvement; and grants for needs of the 

disadvantaged. Through the facilities loan programs, the Department administers low-interest loans to 

institutions of higher learning for the construction and renovation of facilities. 

The Department is organized into 10 reporting organizations that administer the loan and grant programs. 

The financial reporting structure of the Department presents operations based on four major reporting 

groups. The reporting organizations and the major reporting groups are shown below. 

Reporting Organizations 

• Federal Student Aid (FSA) 

• Office of Elementary and Secondary 

Education (OESE) 

• Office of Special Education and 

Rehabilitative Services (OSERS) 

• Office of Vocational and Adult Education 

(OVAE) 

• Office of Postsecondary Education (OPE) 

• Institute of Education Sciences (IES) 

• Office of English Language Acquisition 

(OELA) 

• Office of Safe and Drug-Free Schools 

(OSDFS) 

• Office of Innovation and Improvement 

(OII) 

• Department Management (DM)

101
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

102 FY 2006 Performance and Accountability Report—U.S. Department of Education 

Major Reporting Groups 

• Federal Student Aid 

• Office of Elementary and Secondary 

Education 

• Office of Special Education and 

Rehabilitative Services 

• Other 

The Other major reporting group includes the OVAE, OPE, IES, OELA, OSDFS, OII and DM reporting 

organizations and Hurricane Education Recovery activities. (See Notes 9 and 11) 

Basis of Accounting and Presentation 

These consolidated financial statements have been prepared to report the financial position, net cost of 

operations, changes in net position, budgetary resources, and financing of the U.S. Department of 

Education, as required by the Chief Financial Officers Act of 1990 and the Government Management 

Reform Act of 1994. The financial statements were prepared from the books and records of the 

Department, in accordance with accounting principles generally accepted in the United States of America 

for federal entities issued by the Federal Accounting Standards Advisory Board (FASAB) and the Office 

of Management and Budget (OMB) Circular No. A-136, revised as of July 24, 2006, Financial Reporting 

Requirements. These financial statements are different from the financial reports prepared by the 

Department pursuant to the OMB directives that are used to monitor and control the Department’s use of 

budgetary resources. 

The Department’s financial statements should be read with the realization that they are for a component 

of the U.S. Government, a sovereign entity. One implication of this is that the liabilities cannot be 

liquidated without legislation providing resources and legal authority to do so. 

The accounting structure of federal agencies is designed to reflect both accrual and budgetary accounting 

transactions. Under the accrual method of accounting, revenues are recognized when earned, and 

expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. 

Budgetary accounting facilitates compliance with legal constraints and controls over the use of federal 

funds. 

Use of Estimates 

The preparation of the financial statements in accordance with accounting principles generally accepted in 

the United States of America requires management to make assumptions and estimates that directly affect 

the amounts reported in the financial statements. Actual results may differ from those estimates. 

The Federal Credit Reform Act of 1990 (Credit Reform Act) underlies the proprietary and budgetary 

accounting treatment of direct and guaranteed loans. The long-term cost to the government for direct 

loans or loan guarantees, other than for general administration of the programs, is referred to as “subsidy 

cost.” Under the Credit Reform Act, subsidy costs for loans obligated beginning in fiscal year (FY) 1992 

are estimated at the net present value of projected lifetime costs in the year the loan is obligated. Subsidy 

costs are then revalued annually through the re-estimate process. 

Estimates for credit program receivables and liabilities contain assumptions that have a significant impact 

on the financial statements. The primary components of this assumption set include, but are not limited 

to, collections (including loan consolidations), repayments, default rates, prevailing interest rates and loan 

volume. Actual loan volume, interest rates, cash flows and other critical components used in the 

estimation process may differ significantly from the assumptions made at the time the financial statements 

were prepared. Minor adjustments to any of these components may create significant changes to the 

estimate. 

The Department estimates all future cash flows associated with the Direct Loan and FFEL programs. 

Projected cash flows are used to develop subsidy estimates. Subsidy cost can be positive or negative; 

negative subsidies occur when expected program inflows of cash (e.g., repayments and fees) exceed 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

expected outflows. Subsidy cost is recorded as the initial amount of the loan guarantee liability when 

guarantees are made (the loan liability) and as a valuation allowance to government-owned loans and 

interest receivable (i.e., direct and defaulted guaranteed loans). 

The Department uses a computerized cash flow projection Student Loan Model to calculate subsidy 

estimates for the Direct Loan and FFEL programs. In fiscal year 2006, the Department refined its 

approach to calculating the subsidy estimates with the input of interest rates derived from a probabilistic 

technique. This probabilistic technique to forecast interest rates relies on different methods to establish 

the relationship between an event’s occurrence and the magnitude of its probability. The Department’s 

approach estimates interest rates under numerous scenarios and then bases interest rates on the average 

interest rates weighted by the assumed probability of each scenario occurring. This refinement was 

undertaken to model certain unique characteristics of the Department’s loan programs. 

The estimating methods are updated periodically to reflect changing conditions. For each program, cash 

flows are projected over the life of the loan, aggregated by loan type, cohort year, and risk category. The 

loan’s cohort year represents the year a direct loan was obligated or a loan was guaranteed, regardless of 

the timing of disbursements. Risk categories include two-year colleges, freshmen and sophomores at 

four-year colleges, juniors and seniors at four-year colleges, graduate schools, and proprietary (for profit) 

schools. 

Estimates reflected in these statements were prepared using assumptions developed for the FY 2007 

Mid-Session Review, a government-wide exercise required annually by the OMB. Assumptions and their 

impact are updated after the Mid-Session Review to account for significant subsequent changes in 

activity. These estimates are based on the most current information available to the Department at the 

time the financial statements are prepared. Department management has a process to review these 

estimates in the context of subsequent changes in activity and assumptions, and to reflect the impact of 

these changes as appropriate. 

The Department recognizes that the cash flow projections and the sensitivity of the changes in 

assumptions can have a significant impact on the estimates. Management has attempted to mitigate 

fluctuations in the estimate by using trend analysis to project future cash flows. Changes in assumptions 

could significantly affect the amounts reflected in these statements. For example, a minimal change in the 

projected long-term interest rate charged to borrowers could change the current subsidy re-estimate by a 

significant amount. (See Note 5) 

Budget Authority 

Budget authority is the authorization provided by law for the Department to incur financial obligations 

that will result in outlays. The Department’s budgetary resources include (1) unobligated balances of 

resources from prior years, (2) recoveries of obligations in prior years, and (3) new resources—

appropriations, authority to borrow from the U.S. Department of Treasury (Treasury), and spending 

authority from collections. 

Unobligated balances associated with resources expiring at the end of the fiscal year remain available for 

five years after expiration only for upward adjustments of prior year obligations, after which they are 

canceled and may not be used. Unobligated balances of resources that have not expired at year-end may 

have new obligations placed against them, as well as net upward adjustments of prior year obligations. 

Authority to borrow from Treasury provides most of the funding for the loan principal disbursements 

made under the Direct Loan Program. Subsidy and administrative costs of the program are funded by 

appropriations. Budgetary resources from collections are used primarily to repay the Department’s debt 

to Treasury. Major sources of collections include (1) principal and interest collections from borrowers or 

through the consolidation of loans to borrowers, (2) related fees, and (3) interest from Treasury on 

balances in certain credit program accounts that make and administer loans and guarantees. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 103
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Fund Balance with Treasury 

The Fund Balance with Treasury includes appropriated, revolving, and trust funds available to pay current 

liabilities and finance authorized purchases, as well as funds restricted until future appropriations are 

received. Treasury processes the cash receipts and cash disbursements for the Department. The 

Department’s records are reconciled with those of Treasury. 

A portion of the appropriated funds are funded in advance by multi-year appropriations for expenditures 

anticipated during the current and future fiscal years. Revolving funds conduct continuing cycles of 

business-like activity and do not require annual appropriations. Their fund balance is derived from 

borrowings, public collections and other federal agencies. Other funds, which are non-budgetary, 

primarily consist of deposit funds, and suspense and clearing accounts. 

Available unobligated balances represent amounts that are apportioned for obligation in the current fiscal 

year. Unavailable unobligated balances represent amounts that are not apportioned for obligation during 

the current fiscal year and expired appropriations no longer available to incur new obligations. Obligated 

balances not yet disbursed include receivables for reimbursements earned, unfilled customer orders, 

undelivered orders and unpaid expended authority. (See Note 2) 

Accounts Receivable 

Accounts receivable are amounts due to the Department from the public and other federal agencies. 

Receivables from the public result from recipients of grants and other financial assistance programs, and 

disputed costs resulting from audits of educational assistance programs. Amounts due from other federal 

agencies result from reimbursable agreements entered into by the Department with these agencies for 

various goods and services. Accounts receivable are recorded at cost less an allowance for uncollectible 

amounts. The estimate of the allowance for loss on uncollectible accounts is based on Department 

experience in the collection of receivables and an analysis of the outstanding balances. (See Note 3) 

Cash and Other Monetary Assets 

Cash and Other Monetary Assets consist of Guaranty Agency reserves that represent the federal 

government’s interest in the net assets of state and nonprofit FFEL Program Guaranty Agencies. 

Guaranty Agency reserves are classified as non-entity assets with the public (see Note 4) and are offset by 

a corresponding liability due to Treasury. Guaranty Agency reserves include initial federal start-up funds, 

receipts of federal reinsurance payments, insurance premiums, Guaranty Agency share of collections on 

defaulted loans, investment income, administrative cost allowances, and other assets. 

Section 422A of the HEA required FFEL Guaranty Agencies to establish a Federal Student Loan Reserve 

Fund (the “Federal Fund”) and an Operating Fund by December 6, 1998. The Federal Fund and the 

non-liquid assets developed or purchased by a Guaranty Agency as a result, in whole or in part with 

federal funds, are the property of the United States and reflected in the Budget of the United States 

Government. However, such ownership by the federal government is independent of the actual control of 

the assets. The net value of the Federal Fund will change from year to year. Recalls are payments to the 

Department from Guaranty Agency Federal Funds, which increase Fund Balance with Treasury, and will 

be remitted to Treasury by the end of the fiscal year. 

The Department disburses funds to the Guaranty Agency through the Federal Fund to pay lender claims 

and default aversion fees of a Guaranty Agency. The Operating Fund is the property of the Guaranty 

Agency except for funds an agency borrows from the Federal Fund (as authorized under Section 422A of 

the HEA). The Operating Fund is used by the Guaranty Agency to fulfill its responsibilities. These 

responsibilities include repaying money borrowed from the Federal Fund, default aversion and collection 

activities. 

104 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Credit Program Receivables and Liabilities for Loan Guarantees 

The financial statements reflect the Department’s estimate of the long-term cost of direct and guaranteed 

loans in accordance with the Credit Reform Act. Loans and interest receivable are valued at their gross 

amounts less an allowance for the present value of the amounts not expected to be recovered and thus 

having to be subsidized—called “allowance for subsidy.” The difference is the present value of the cash 

flows to and from the Department that are expected from the receivables over their projected lives. 

Similarly, liabilities for loan guarantees are valued at the present value of the cash outflows from the 

Department less the present value of related inflows. The estimated present value of net long-term cash 

outflows of the Department for subsidized costs (primarily defaults) is net of recoveries, interest 

supplements, and offsetting fees. The Department records all credit program loans and loan guarantees at 

their present values. 

Components of subsidy costs for loans and guarantees include defaults (net of recoveries), contractual 

payments to third-party private loan collectors who receive a set percentage of amounts they collect, and, 

as an offset, application and other fees to be collected. For direct loans, the difference between interest 

rates incurred by the Department on its borrowings from Treasury and interest rates charged to target 

groups is also subsidized (or may provide an offset to subsidy if the Department’s rate is less). The 

corresponding interest subsidy in loan guarantee programs is the payment of interest supplements to 

third-party lenders in order to buy down the interest rates on loans made by those lenders. Subsidy costs 

are recognized when direct loans or guaranteed loans are disbursed to borrowers and are re-estimated 

each year. (See Note 5) 

Other Intragovernmental Assets 

Other intragovernmental assets represent advance payment for interagency agreements between the 

Department and the National Science Foundation. These advance payments are recognized as an asset, 

which is reduced when actual expenditures are recorded by the Department. 

General Property, Plant and Equipment 

The Department capitalizes single items of property and equipment with a cost of $50,000 or more that 

have an estimated useful life greater than two years. Additionally, the Department capitalizes bulk 

purchases of property and equipment with an aggregate cost of $500,000 or more. A bulk purchase is 

defined as the purchase of like items related to a specific project or the purchase of like items occurring 

within the same fiscal year that have an estimated useful life greater than two years. Property and 

equipment are depreciated over their estimated useful lives using the straight-line method of depreciation. 

(See Note 6) Internal Use Software (IUS) meeting the above cost and useful life criteria is also 

capitalized. IUS is either purchased off the shelf, internally developed, or contractor developed solely to 

meet the agency’s internal needs. 

The Department adopted the following useful lives for the major classes of depreciable property and 

equipment: 

Major Classes of Depreciable Property and Equipment Years 

Information Technology (IT), Internal Use Software (IUS) and Telecommunications Equipment 3 

Furniture and Fixtures 5 

Liabilities 

Liabilities represent actual and estimated amounts likely to be paid as a result of transactions or events 

that have already occurred. However, no liabilities can be paid by the Department without an 

appropriation or other collection of revenue for services provided. Liabilities for which an appropriation 

has not been enacted are classified as liabilities not covered by budgetary resources, and there is no 

FY 2006 Performance and Accountability Report—U.S. Department of Education 105
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

certainty the appropriation will be enacted. The government acting in its sovereign capacity can abrogate 

liabilities that arise from activities other than contracts. FFEL Program and Direct Loan Program 

liabilities are entitlements covered by permanent indefinite budget authority enacted as of year-end. 

Debt 

The Department borrows to provide funding for direct loans to students and facilities loans. The liability 

to Treasury from borrowings represents unpaid principal owing on the loans at year-end associated with 

the Department’s student loan activities. The Department repays the loan principal based on available 

fund balances. Interest on the debt is calculated at fiscal year-end using rates set by Treasury, with such 

rates generally fixed based on the rate for 10-year securities. As discussed in Note 5, the interest received 

by the Department from borrowers will vary from the rate paid to the Treasury. Principal and interest 

payments to the Treasury are made annually. 

In addition, the Federal Financing Bank (FFB) holds bonds issued by the Department on behalf of the 

Historically Black Colleges and Universities Capital Financing Program. The Department reports the 

corresponding liability for full payment of principal and accrued interest as a payable to the FFB. 

(See Note 7) 

Accrued Grant Liability 

Disbursements of grant funds are recognized as expenses at the time of disbursement. However, some 

grant recipients incur expenditures prior to initiating a request for disbursement based on the nature of the 

expenditures. A liability is accrued by the Department for expenditures incurred by grantees prior to their 

receiving grant funds for the expenditures. The amount is estimated using statistical sampling techniques. 

(See Note 9) 

Net Position 

Net position consists of unexpended appropriations and cumulative results of operations. Unexpended 

appropriations include undelivered orders and unobligated balances of appropriations, except for federal 

credit financing and liquidating funds, and trust funds. Cumulative results of operations represent the net 

difference since inception between (1) expenses and (2) revenues and financing sources. (See Note 10) 

Earmarked Funds 

Earmarked funds are recorded as specially identified revenues, often supplemented by other financing 

sources, which remain available over time. These funds are required by statute to be used for designated 

activities, benefits or purposes. The Department’s earmarked funds are primarily related to the 2005 

Hurricane Relief efforts. (See Note 15) 

Personnel Compensation and Other Employee Benefits 

Annual, Sick and Other Leave. The liability for annual leave, compensatory time off, and other leave is 

accrued when earned and reduced when taken. Each year, the accrued annual leave account balance is 

adjusted to reflect current pay rates. Annual leave earned but not taken, within established limits, is 

funded from future financing sources. Sick leave and other types of non-vested leave are expensed as 

taken. 

Retirement Plans and Other Retirement Benefits. Employees participate either in the Civil Service 

Retirement System (CSRS), a defined benefit plan, or in the Federal Employees Retirement System 

(FERS), a defined benefit and contribution plan. For CSRS employees, the Department contributes a 

fixed percentage of pay. 

FERS consists of Social Security, a basic annuity plan, and the Thrift Savings Plan. The Department and 

the employee contribute to Social Security and the basic annuity plan at rates prescribed by law. In 

addition, the Department is required to contribute to the Thrift Savings Plan a minimum of 1 percent per 

106 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

year of the basic pay of employees covered by this system and to match voluntary employee contributions 

up to 3 percent of the employee’s basic pay, and one-half of contributions between 3 percent and 

5 percent of basic pay. For FERS employees, the Department also contributes the employer’s share of 

Medicare. 

Contributions for CSRS, FERS and other retirement benefits are insufficient to fully fund the programs, 

which are subsidized by the Office of Personnel Management (OPM). The Department imputes its share 

of the OPM subsidy, using cost factors OPM provides, and reports the full cost of the programs related to 

its employees. 

Federal Employees’ Compensation Act. The Federal Employees’ Compensation Act (FECA) provides 

income and medical cost protection to covered federal civilian employees injured on the job, to 

employees who have incurred work-related occupational diseases, and to beneficiaries of employees 

whose deaths are attributable to job-related injuries or occupational diseases. The FECA Program is 

administered by the U.S. Department of Labor (Labor), which pays valid claims and subsequently seeks 

reimbursement from the Department for these paid claims. 

The FECA liability consists of two components. The first component is based on actual claims paid by 

Labor but not yet reimbursed by the Department. The Department reimburses Labor for the amount of 

actual claims as funds are appropriated for this purpose. There is generally a two- to three-year time 

period between payment by Labor and reimbursement by the Department. As a result, a liability is 

recognized for the actual claims paid by Labor and to be reimbursed by the Department. 

The second component is the estimated liability for future benefit payments as a result of past events. 

This liability includes death, disability, medical and miscellaneous costs. Labor determines this 

component annually, as of September 30, using a method that considers historical benefit payment 

patterns, wage inflation factors, medical inflation factors, and other variables. The projected annual 

benefit payments are discounted to present value using the OMB economic assumptions for 10-year 

Treasury notes and bonds. To provide for the effects of inflation on the liability, wage inflation factors 

(i.e., cost-of-living adjustments), and medical inflation factors (i.e., consumer price index medical 

adjustments) are applied to the calculation of projected future benefit payments. These factors are also 

used to adjust historical benefit payments and to adjust future benefit payments to current year constant 

dollars. A discounting formula is also used to recognize the timing of benefit payments as 13 payments 

per year instead of one lump sum payment per year. 

The estimated projections are evaluated by Labor to ensure the resulting projections are reliable. The 

analysis is based on four tests: (1) a sensitivity analysis of the model to economic assumptions, (2) a 

comparison of the percentage change in the liability amount by agency to the percentage change in the 

actual incremental payments, (3) a comparison of the incremental paid losses per case (a measure of 

case-severity) in charge back year 2006 to the average pattern observed during the most current three 

charge back years, and (4) a comparison of the estimated liability per case in the 2006 projection to the 

average pattern for the projections of the most recent three years. 

Intragovernmental Transactions 

The Department’s financial activities interact with and are dependent upon the financial activity of the 

centralized management functions of the federal government. Due to financial regulation and 

management control by the OMB and Treasury, operations may not be conducted and financial positions 

may not be reported as they would if the Department were a separate, unrelated entity. Transactions and 

balances among the Department’s entities have been eliminated from the Consolidated Balance Sheet. 

Reclassifications 

Certain reclassifications have been made to the prior year financial statements to conform to the current 

year presentation. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 107
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Note 2. Fund Balance with Treasury

(Dollars in Millions) 2006 2005 

Appropriated Funds $ 54,790 $ 49,455 

Revolving Funds 52,176 28,104 

Trust Funds 61 - 

Other Funds 26 10 

Fund Balance with Treasury $ 107,053 $ 77,569 

Status of Fund Balance with Treasury 

(Dollars in Millions) 2006 2005 

Unobligated Balance 

 Available $ 4,081 $ 526 

 Unavailable 47,063 23,540 

Obligated Balance, Not Yet Disbursed 55,883 53,493 

Non-Budgetary FBWT 26 10 

Status of Fund Balance with Treasury $ 107,053 $ 77,569 

Note 3. Accounts Receivable

2006 

(Dollars in Millions)

Gross 

Receivables 

 

Allowance 

Net 

Receivables 

Intragovernmental $ 1 $ - $ 1 

With the Public 232 (189) 43 

Accounts Receivable $ 233 $ (189) $ 44 

2005 

(Dollars in Millions)

Gross 

Receivables 

 

Allowance 

Net 

Receivables 

Intragovernmental $ - $ - $ - 

With the Public 318 (177) 141 

Accounts Receivable $ 318 $ (177) $ 141 

108 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Note 4. Cash and Other Monetary Assets

(Dollars in Millions) 2006 2005 

Beginning Balance, Cash and Other Monetary Assets $ 888 $ 1,040 

 Downward Valuation of Guaranty Agency Federal Funds (29) (152) 

 Recalls from Guaranty Agency Federal Funds 

 Remitted to Treasury as of September 30 (280) - 

 Payable to Treasury as of September 30 (13) - 

 Total Recalls (293) - 

Ending Balance, Cash and Other Monetary Assets $ 566 $ 888 

Cash and Other Monetary Assets consist of Guaranty Agency reserves and represent non-entity assets. 

Note 5. Credit Programs for Higher Education 

The federal government makes loans directly to students and parents through participating schools under 

the Direct Loan Program. In addition, loans are originated and serviced through contracts with private 

vendors. 

Private lender loans to students and parents are insured by the federal government under the FFEL 

Program. FFEL loans are guaranteed by the federal government against default with state or private 

nonprofit Guaranty Agencies acting as intermediaries in administering the guarantees. 

Beginning with FFEL loans first disbursed on or after October 1, 1993, financial institutions became 

responsible for 2 percent of the cost of each default. Guaranty Agencies also began paying a portion of 

the cost (in most cases, 5 percent) of each defaulted loan from federal reserves they hold in trust. (See 

Note 4) FFEL lender participants receive statutorily set federal interest and special allowance subsidies. 

Guaranty Agencies receive fee payments as set by statute. In most cases, loan terms and conditions under 

the two programs are identical. 

The FFEL estimated liability for loan guarantees is reported as the present value of estimated net cash 

outflows. Defaulted FFEL loans are reported net of an allowance for subsidy computed using net present 

value methodology, including defaults, collections, and loan cancellations. The same methodology is 

used to estimate the allowance on Direct Loan receivables. 

The Department disbursed approximately $32.3 billion in direct loans to eligible borrowers in fiscal year 

2006 and approximately $27.5 billion in fiscal year 2005. Loans typically are disbursed in multiple 

installments over an academic period; as a result, loan disbursements for an origination cohort year often 

cross fiscal years. Half of all loan volume is obligated in the fourth quarter of the fiscal year. Regardless 

of the fiscal year in which they occur, disbursements are tracked by cohort as determined by the date of 

obligation rather than disbursement. 

As of September 30, 2006 and 2005, total principal balances outstanding of guaranteed loans held by 

lenders were approximately $325 billion and $289 billion, respectively. As of September 30, 2006 and 

2005, the estimated maximum government exposure on outstanding guaranteed loans held by lenders was 

approximately $321 billion and $288 billion, respectively. Of the insured amount, the Department would 

pay a smaller amount to the Guaranty Agencies, based on the appropriate reinsurance rates, which range 

from 100 to 95 percent. Any remaining insurance not paid as reinsurance would be paid to lenders by the 

Guaranty Agencies from their Federal Fund. Payments by Guaranty Agencies do not reduce government 

exposure because they are made from the Federal Fund administered by the agencies but owned by the 

federal government. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 109
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

The Department accrues interest receivable and records interest revenue on its performing direct loans. 

Given the Department’s substantial collection rates, interest receivable is also accrued and interest 

revenue recognized on defaulted direct loans. Guaranteed loans that default are initially turned over to 

Guaranty Agencies for collection, and interest receivable is accrued and recorded on the loans as the 

collection rate is substantial. After approximately four years, defaulted guaranteed loans not in repayment 

are turned over to the Department for collection. Accrued interest on the subrogated loan is calculated but 

only realized upon collection. 

Due to the nature of the loan commitment process in which schools establish a loan commitment with the 

filing of an aid application, which may occur before a student has been accepted by the school or begins 

classes, approximately 7 percent of loan commitments are never disbursed. For direct loans committed in 

fiscal year 2006, an estimated $1.2 billion will not be disbursed; for guaranteed loans committed in fiscal 

year 2006, an estimated $7.6 billion will not be disbursed. Direct loan schools may originate loans 

through a cash advance from the Department, establishing a loan receivable, or by advancing their own 

funds in anticipation of reimbursement from the Department. 

Loan Consolidations 

In recent years, the consolidation of existing loans into new direct or guaranteed loans has increased 

significantly. The Department permits borrowers to prepay and close out existing loans without penalty 

from capital raised through the disbursement of a new consolidation loan. 

Under the Credit Reform Act and requirements provided by OMB Circular No. A-11, Preparation, 

Submission, and Execution of the Budget, the retirement of loans being consolidated is considered a 

receipt of principal and interest; this receipt is offset by the disbursement related to the newly created 

consolidation loan. The underlying direct or guaranteed loans, whether performing or nonperforming, in 

any given cohort are paid off in their original cohort, and new loans are opened in the cohort in which 

consolidation activity occurs. This consolidation activity is taken into consideration in establishing the 

subsidy rate for defaults. The effect of new consolidations is reflected in subsidy expense for the current 

year cohort, while the effect on prior cohorts is reflected in the re-estimate. The loan liability and net 

receivables include estimates of future prepayments of existing loans through consolidations; they do not 

reflect costs associated with anticipated future consolidation loans. 

Variable student loan interest rates were reset on July 1, 2006, increasing nearly two percentage points 

from 5.30 percent for academic year 2005–06 to 7.14 percent for academic year 2006–07. In fiscal year 

2005, rates were reset on July 1, 2005, from 3.37 percent for academic year 2004–05 to 5.30 percent for 

academic year 2005–06. In anticipation of these increases in both years, private lenders, schools, and 

others encouraged borrowers to consolidate their existing variable rate loans into fixed rate loans. This 

dramatic change in interest rates resulted in surges in loan consolidations. Direct loan consolidation 

disbursements for fiscal year 2006 were $19.9 billion and $15.3 billion for fiscal year 2005. 

Based on current estimates, the prepayment of the underlying FFEL loans produces significant savings 

through the elimination of future special allowance payments. New consolidations are reflected in the 

2006 cohort resulting in increased prepayments of underlying loans from prior cohorts.

110 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Credit Program Receivables, Net 

(Dollars in Millions) 2006 2005 

Direct Loan Program Loan Receivables, Net $ 92,603 $ 95,696 

FFEL Program Loan Receivables, Net 13,588 11,712 

Perkins Program Loan Receivables, Net 192 194 

Facilities and Other Loan Receivables, Net 345 335 

Credit Program Receivables, Net $ 106,728 $ 107,937 

The following schedules summarize the Direct Loan and defaulted FFEL principal and related interest 

receivable, net or inclusive of the allowance for subsidy. 

Direct Loan Program Receivables 

(Dollars in Millions) 2006 2005 

Principal Receivable $ 97,306 $ 94,707 

Interest Receivable 3,702 3,121 

Receivables 101,008 97,828 

Less: Allowance for Subsidy 8,405 2,132 

Credit Program Receivables, Net $ 92,603 $ 95,696 

Of the $101.0 billion in Direct Loan receivables as of September 30, 2006, $8.1 billion in loan principal 

was in default and held at the Department’s Borrowers Services Collections Group. As of September 30, 

2005, $7.2 billion in loan principal was in default and held at the Department’s Borrowers Services 

Collections Group out of a total receivable of $97.8 billion. 

FFEL Program Receivables 

2006 2005 

(Dollars in Millions) Pre-1992 Post-1991 Total Pre-1992 Post-1991 Total 

Principal Receivable $ 8,730 $ 10,263 $ 18,993 $ 9,306 $ 8,567 $ 17,873 

Interest Receivable 336 1,823 2,159 595 1,691 2,286 

Receivables 9,066 12,086 21,152 9,901 10,258 20,159 

Less: Allowance for Subsidy 4,717 2,847 7,564 6,736 1,711 8,447 

Credit Program Receivables, 

Net $ 4,349 $ 9,239 $ 13,588 $ 3,165 $ 8,547 $ 11,712 

FY 2006 Performance and Accountability Report—U.S. Department of Education 111
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Loan Modifications 

According to OMB Circular No. A-11, any government action that differs from actions assumed in the 

baseline estimate of cash flows and changes the estimated cost of an outstanding direct loan or loan 

guarantee is defined as a modification. Over the past two fiscal years, the Department has executed 

separate loan modifications. These modifications were the result of legislation that altered the estimated 

cost of outstanding direct loans or loan guarantees. 

Each modification is separate and distinct. However, each is recognized under the same accounting 

principle for upward or downward adjustments to subsidy cost and for the recordation of modification 

adjustment transfer gains or losses. 

Separate amounts are calculated for modification costs and modification adjustment transfers. 

Modification adjustment transfers are required to adjust for the difference between current discount rates 

used to calculate modification costs and the discount rates used to calculate cohort interest expense and 

revenue.

2006 Modification 

The Deficit Reduction Act of 2005 (P.L. 109-171) (Deficit Reduction Act) included provisions revising 

the payment of account maintenance fees, Guaranty Agency retention on default collections, and an 

expansion of deferment eligibility for military borrowers performing eligible service. The Deficit 

Reduction Act shifts the payment of account maintenance fees, authorized under Section 458 of the HEA, 

to subsidy cost from administration funds or from the Federal Fund. 

Beginning October 1, 2006, the Deficit Reduction Act requires Guaranty Agencies to return to the 

Department a portion of collection charges on defaulted loans paid off through consolidation equal to 

8.5 percent of the outstanding principal and interest. Beginning October 1, 2009, Guaranty Agencies will 

be required to return the entire 18.5 percent on collections through consolidation that exceed 45 percent of 

their overall collections. In addition, the new military deferment provisions provide a maximum 

three-year deferment for soldiers serving in a war zone who have outstanding loans originated after July 

1, 2001. 

The FFEL Program recognized $1.7 billion and the Direct Loan Program recognized $7 million in 

modification costs in fiscal year 2006. The FFEL Program also recognized a net modification adjustment 

transfer gain of $94 million, while the Direct Loan Program recognized a net gain of $134 thousand. 

2005 Modification 

The Taxpayer-Teacher Protection Act of 2004 (P.L. 108-409) increased the maximum amount of loan 

cancellation from $5,000 to $17,500 at the end of the fifth year of teaching for certain teachers who were 

new student loan borrowers between October 1, 1998 and October 1, 2005. 

The FFEL Program recognized $148 million and the Direct Loan Program recognized $49 million in 

modification costs in fiscal year 2005. The FFEL Program also recognized a net modification adjustment 

transfer gain of $3 million, while the Direct Loan Program recognized a net gain of $1 million. 

112 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions) 2006 2005 

Beginning Balance, Allowance for Subsidy $ 2,132 $ (1,644) 

Components of Subsidy Transfers 

Interest Rate Differential (601) (238) 

Defaults, Net of Recoveries 1,226 355 

Fees (403) (401) 

Other 1,566 1,286 

Current Year Subsidy Transfers 1,788 1,002 

Components of Subsidy Re-estimates 

Interest Rate Re-estimates1 (339) 1,703 

Technical and Default Re-estimates 5,199 2,457 

Subsidy Re-estimates 4,860 4,160 

Components of Loan Modifications 

Loan Modification Costs 7 49 

Modification Adjustment Transfers - (1) 

Loan Modifications 7 48 

Activity 

Fee Collections 473 461 

Loan Cancellations2 (100) (110) 

Subsidy Allowance Amortization (406) (1,454) 

Other (349) (331) 

Total Activity (382) (1,434) 

Ending Balance, Allowance for Subsidy $ 8,405 $ 2,132 

1

 The interest rate re-estimate relates to subsidy associated with establishing a fixed rate for the 

Department’s borrowing from Treasury. 2

 Loan cancellations include write-offs of loans because the primary borrower died, became disabled, 

or declared bankruptcy. 

Direct Loan Financing Account Interest Expense and Interest Revenue 

(Dollars in Millions) 2006 2005 

Interest Expense on Treasury Borrowing $ 6,505 $ 6,171 

Interest Expense $ 6,505 $ 6,171 

Interest Revenue from the Public $ 4,173 $ 3,242 

Amortization of Subsidy 406 1,454 

Interest Revenue on Uninvested Funds 1,926 1,475 

Interest Revenue $ 6,505 $ 6,171 

The Direct Loan Financing Account borrows from Treasury to fund the unsubsidized portion of its 

lending activities. As required, the Department calculates and pays Treasury interest at the end of each 

year. Interest is earned on the outstanding Direct Loan portfolio during the year and on its weighted 

average Fund Balance with Treasury at year-end. 

Subsidy amortization is calculated, as required in Statement of Federal Financial Accounting Standards 

No. 2, Accounting for Direct Loans and Loan Guarantees, as the difference between interest revenue and 

interest expense. The allowance for subsidy is adjusted with the offset to interest revenue. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 113
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Payable to Treasury 

(Dollars in Millions) 2006 2005

Future Liquidating Account Collections, Beginning Balance $ 3,411 $ 3,491 

Valuation of Pre-1992 Loan Liability and Allowance 2,036 851 

 Capital Transfers to Treasury (892) (931) 

Future Liquidating Account Collections, Ending Balance 4,555 3,411 

Collections on Guaranty Agency Federal Funds 13 - 

FFEL Downward Subsidy Re-estimate 951 1,755 

Payable to Treasury $ 5,519 $ 5,166 

The liquidating account, based on available fund balance each year, liquidates the Fund Balance with 

Treasury. The FFEL financing account pays the liability related to downward subsidy re-estimates upon 

budget execution. 

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions) 2006 2005 

Beginning Balance, Liability for Loan Guarantees $ 30,500 $ 23,214 

Components of Subsidy Transfers 

Interest Supplement Costs 18,268 12,562 

Defaults, Net of Recoveries 1,665 865 

Fees (7,859) (5,554) 

Other1 4,264 2,500 

Current Year Subsidy Transfers 16,338 10,373 

Components of Subsidy Re-estimates 

Interest Rate Re-estimates 90 (72) 

Technical and Default Re-estimates 9,924 (586) 

Subsidy Re-estimates 10,014 (658) 

Components of Loan Modifications 

Loan Modification Costs 1,710 148 

Modification Adjustment Transfers 94 (3) 

Loan Modifications 1,804 145 

Activity 

Interest Supplement Payments (8,925) (5,077) 

Claim Payments (4,345) (3,716) 

Fee Collections 3,799 3,060 

Interest on Liability Balance 1,110 565 

Other2 2,055 2,594 

Total Activity (6,306) (2,574) 

Ending Balance, Liability for Loan Guarantees 52,350 30,500 

FFEL Liquidating Account Liability for Loan Guarantees 103 111 

Liabilities for Loan Guarantees $ 52,453 $ 30,611 

1 Subsidy primarily associated with debt collections and loan cancellations due to death, disability, 

and bankruptcy. 2

 Activity primarily associated with the transfer of subsidy for defaults; loan consolidation activity; and 

loan cancellations due to death, disability, and bankruptcy. 

The FFEL liquidating account liability for loan guarantees is included in the total Liabilities for Loan 

Guarantees as shown in the FFEL Program Reconciliation of Liabilities. 

114 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Subsidy Expense 

Direct Loan Program Subsidy Expense 

(Dollars in Millions) 2006 2005 

Components of Current Year Subsidy Transfers 

Interest Rate Differential $ (601) $ (238) 

Defaults, Net of Recoveries 1,226 355 

Fees (403) (401) 

Other 1,566 1,286 

Current Year Subsidy Transfers 1,788 1,002 

Subsidy Re-estimates 4,860 4,160 

Loan Modification Costs 7 49 

Direct Loan Subsidy Expense $ 6,655 $ 5,211 

In the 2006 re-estimates, Direct Loan subsidy expense was increased by $4.9 billion. Several factors 

accounted for this increase. Changes in the assumptions for the collections of defaulted loans contributed 

approximately $3.3 billion to the increase in subsidy expense. Other changes in assumptions for variables 

(such as assumed term and maturity, loan volume, and prepayment rates) increased subsidy expense by 

$1.4 billion. A refinement of the Department’s forecast using interest rate scenarios provided by OMB in 

a probabilistic approach accounted for an increase of $230 million. The subsidy rate is sensitive to 

interest rate fluctuations, for example a 1 percent increase in projected borrower base rates would reduce 

projected Direct Loan costs by $700 million. In the 2005 re-estimates, Direct Loan subsidy expense was 

increased by $4.2 billion. Changes in assumptions for variables (such as assumed term and maturity, loan 

volume, and prepayment rates) increased subsidy expense by $4.0 billion. The remaining $195 million 

increase was related to changes in actual and forecasted interest rates. 

FFEL Program Loan Guarantee Subsidy Expense 

(Dollars in Millions) 2006 2005 

Components of Current Year Subsidy Transfers 

Interest Supplement Costs $ 18,268 $ 12,562 

Defaults, Net of Recoveries 1,665 865 

Fees (7,859) (5,554) 

Other 4,264 2,500 

Current Year Subsidy Transfers 16,338 10,373 

Subsidy Re-estimates 10,014 (658) 

Loan Modification Costs 1,710 148 

FFEL Loan Guarantee Subsidy Expense $ 28,062 $ 9,863 

In the 2006 re-estimates, FFEL subsidy expense was increased by $10.0 billion. Changes in interest rates 

account for an $8.9 billion increase in subsidy expense. Of this $8.9 billion increase, $6.2 billion is 

attributed to the change in interest supplement costs associated with higher than originally forecasted loan 

consolidations which occurred in late fiscal year 2006. In addition, the refinement of the Department’s 

forecasting methodology, as noted above, accounted for an additional $1.8 billion to the increase in 

subsidy expense. Other changes in assumptions for variables (such as assumed term and maturity, loan 

volume, and prepayment rates) decreased subsidy expense by $700 million on a net basis. The subsidy 

rate is sensitive to interest rate fluctuations, for example a 1 percent increase in borrower interest rates and 

the guaranteed yield for lenders would increase projected FFEL costs by $9.5 billion. In the 2005 

re-estimates, FFEL subsidy expense was decreased by $658 million. An increase of $932 million was 

caused by changes in actual and forecasted interest rates. Changes in assumptions for variables (such as 

assumed term and maturity, loan volume, and prepayment rates) decreased subsidy expense by 

$1.6 billion. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 115
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Subsidy Rates 

The subsidy rates applicable to the 2006 loan cohort year were as follows: 

Subsidy Rates—Cohort 2006 

Interest 

Differential Defaults Fees Other Total 

Direct Loan Program (1.73%) 3.53% (1.17%) 4.49% 5.12% 

Interest 

Supplements Defaults Fees Other Total 

FFEL Program 14.44% 1.28% (6.21%) 3.47% 12.98% 

The subsidy rate represents the subsidy expense of the program in relation to the obligations or 

commitments made during the fiscal year. The subsidy expense for new direct or guaranteed loans 

reported in the current year relate to disbursements of loans from both current and prior years’ cohorts. 

Subsidy expense is recognized when direct loans are disbursed by the Department or third-party lenders 

disburse guaranteed loans. These subsidy rates cannot be applied to direct or guaranteed loans disbursed 

during the current reporting year to yield the subsidy expense, nor are these rates applicable to the 

portfolio as a whole. 

The costs of the Department’s student loan programs, especially the Direct Loan Program, are highly 

sensitive to changes in actual and forecasted interest rates. The formulas for determining program interest 

rates are established by statute; the existing loan portfolio has a mixture of borrower and lender rate 

formulas. Interest rate projections are based on probabilistic interest rate scenario inputs developed and 

provided by the President’s Office of Management and Budget. 

Administrative Expenses 

2006 2005 

(Dollars in Millions) Direct Loan FFEL Direct Loan FFEL 

Operating Expense $ 342 $ 224 $ 401 $ 268 

Other Expense 15 8 17 8 

Administrative Expenses $ 357 $ 232 $ 418 $ 276 

Perkins Loan Program 

The Perkins Loan Program is a campus-based program providing financial assistance to eligible 

postsecondary school students. In some statutorily defined cases, funds are provided to schools so that 

student loans may be cancelled. For certain defaulted loans, the Department reimburses the originating 

school and collects from the borrowers. These collections are transferred to the Treasury. At September 

30, 2006 and 2005, loans receivable, net of an allowance for loss, were $192 and $194 million, 

respectively. These loans are valued at historical cost. 

116 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Facilities Loan Programs 

The Department administers the College Housing and Academic Facilities Loan Program, the College 

Housing Loan Program, and the Higher Education Facilities Loan Program. From 1952 to 1993, these 

programs provided low-interest financing to institutions of higher education for the construction, 

reconstruction, and renovation of housing, academic, and other educational facilities. Since 1998, no new 

loans have been authorized. 

The Department also administers the Historically Black Colleges and Universities (HBCU) Capital 

Financing Program. Since 1992, this program has given HBCUs access to financing for the repair, 

renovation, and, in exceptional circumstances, the construction or acquisition of facilities, equipment, and 

infrastructure through federally insured bonds. The Department has authorized a designated bonding 

authority to make the loans to eligible institutions, charge interest, and collect principal and interest 

payments. In compliance with statute, the bonding authority maintains an escrow account to pay the 

principal and interest on bonds for loans in default. 

(Dollars in Millions) 2006 2005 

Principal Receivable $ 428 $ 427 

Interest Receivable 6 6 

Receivables 434 433 

Less: Allowance for Subsidy 89 98 

Credit Program Receivables, Net $ 345 $ 335 

FY 2006 Performance and Accountability Report—U.S. Department of Education 117
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Note 6. General Property, Plant and Equipment

2006 

(Dollars in Millions)

Asset 

Cost 

Accumulated 

Depreciation 

Net Asset 

Value 

 

IT Equipment and Software $ 102 $ (74) $ 28 

Furniture and Fixtures 3 (2) 1 

General Property, 

Plant and Equipment $ 105 $ (76) $ 29 

2005 

(Dollars in Millions)

Asset 

Cost 

Accumulated 

Depreciation 

Net Asset 

Value 

 

IT Equipment and Software $ 86 $ (68) $ 18 

Furniture and Fixtures 3 (2) 1 

General Property, 

Plant and Equipment $ 89 $ (70) $ 19 

The majority of the fiscal year 2006 and 2005 costs represent the acquisition and implementation of the 

financial management system and additional information technology and communications improvements. 

Leases 

The Department leases office space from the General Services Administration (GSA). The lease 

contracts with GSA for privately and publicly owned buildings are operating leases. Future lease 

payments are not accrued as liabilities, but expensed as incurred. Estimated future minimum lease 

payments for the privately owned buildings are presented below. 

2006 2005 

(Dollars in Millions) (Dollars in Millions)

Fiscal 

Year

Lease 

Payment 

Fiscal 

Year

Lease 

Payment

2007 $ 46 2006 $ 43 

2008 47 2007 49 

2009 49 2008 51 

2010 53 2009 52 

2011 56 2010 53 

After 2011 58 After 2010 54 

Total $ 309 Total $ 302 

118 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Note 7. Debt 

2006

 Treasury 

(Dollars in Millions)

Direct 

Loans 

Facilities 

Loans Total FFB Total 

Beginning Balance, Debt $ 104,372 $ 100 $104,472 $ 125 $ 104,597 

Accrued Interest - - - - - 

New Borrowing 33,278 - 33,278 44 33,322 

Repayments (32,220) (7) (32,227) (15) (32,242) 

Ending Balance, Debt $ 105,430 $ 93 $ 105,523 $ 154 $ 105,677 

2005 

 Treasury 

(Dollars in Millions)

Direct 

Loans 

Facilities 

Loans Total FFB Total 

Beginning Balance, Debt $ 96,421 $ 110 $ 96,531 $118 $ 96,649 

Accrued Interest (2) - (2) - (2) 

New Borrowing 31,299 - 31,299 10 31,309 

Repayments (23,346) (10) (23,356) (3) (23,359) 

Ending Balance, Debt $ 104,372 $ 100 $ 104,472 $ 125 $ 104,597 

The level of repayments on borrowings to Treasury is derived from many factors: 

• Beginning-of-the-year cash balance, collections and borrowings have an impact on the available 

cash to repay Treasury. 

• Cash is held to cover future liabilities, such as contract collection costs and disbursements in 

transit. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 119
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Note 8. Other Liabilities

(Dollars in Millions) 2006 2005 

Other Liabilities 

Intragovernmental With the 

Public 

Intragovernmental With the 

Public 

 Liabilities Covered by Budgetary Resources 

 Current

 Advances From Others $ 95 $ - $ 85 $ 1 

 Employer Contributions and Payroll Taxes 3 - 3 - 

 Liability for Deposit Funds (4) 30 (11) 21 

 Accrued Payroll and Benefits - 15 - 15 

 Deferred Credits - 1 - 1 

 Contractual Services - 83 - 70 

 Total Other Liabilities Covered by Budgetary Resources 94 129 77 108 

 Liabilities Not Covered by Budgetary Resources 

 Current

 Accrued Unfunded Annual Leave - 31 - 30 

 Non-current 

 Accrued Unfunded FECA Liability 3 - 3 - 

 Custodial Liability - 204 - 204 

 Accrued FECA Actuarial Liability - 17 - 17 

 Total Other Liabilities Not Covered by Budgetary Resources 3 252 3 251 

Other Liabilities $ 97 $ 381 $ 80 $ 359 

Other liabilities include current and non-current liabilities. The non-current custodial liability primarily 

consists of the student loan receivables of the Perkins Loan Program. Annually, at September 30, the 

collections are returned to the general fund of the U.S. Treasury. 

Liabilities not covered by budgetary resources include liabilities for which congressional action is needed 

before budgetary resources can be provided. Although future appropriations to fund these liabilities are 

likely, it is not certain that appropriations will be enacted to fund these liabilities. Liabilities not covered 

by budgetary resources totaled $255 million and $254 million as of September 30, 2006 and 2005, 

respectively. 

Liabilities covered by budgetary resources as of September 30, 2006 and 2005, totaled $167.4 billion and 

$143.5 billion, respectively. 

Note 9. Accrued Grant Liability 

The accrued grant liability by major reporting groups is shown in the table below. (See Note 1) 

(Dollars in Millions) 2006 2005 

FSA $ 1,250 $ 635 

OESE 258 248 

OSERS 171 90 

Other 380 355 

Accrued Grant Liability $ 2,059 $ 1,328 

120 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Note 10. Net Position 

Unexpended Appropriations 

(Dollars in Millions) 2006 2005 

Unobligated Balances 

 Available $ 4,056 $ 526 

 Not Available 316 380 

Undelivered Orders, end of period 47,440 46,382 

Unexpended Appropriations $ 51,812 $ 47,288 

The Cumulative Results of Operations-Earmarked Funds as of September 30, 2006, totaled $61 million 

and represents donations from foreign governments, international entities and individuals to support 

Katrina relief and recovery efforts. (See Note 15) The Cumulative Results of Operations-Other Funds of 

$(5,063) million as of September 30, 2006, and $(4,446) million as of September 30, 2005, consist mostly 

of net investments of capitalized assets and unfunded expenses, including upward subsidy re-estimates for 

loan programs. 

Note 11. Intragovernmental Cost and Exchange Revenue by Program Segment 

As required by the Government Performance and Results Act, each of the Department’s Reporting 

Organizations (see Note 1) has been aligned with the major goals presented in the Department’s Strategic 

Plan 2002—2007. 

Net Cost Program 

Reporting 

Organizations No. Strategic Goal 

Enhancement of Postsecondary and Adult 

Education 

FSA 

OPE 

OVAE 

5 Enhance the Quality of and Access to 

Postsecondary and Adult Education 

Creation of Student Achievement, Culture of 

Achievement and Safe Schools 

OESE 

OELA 

OSDFS 

2 

3 

Improve Student Achievement 

Develop Safe and Drug-Free Schools 

Transformation of Education IES 

OII 

4 Transform Education into an 

Evidence-Based Field 

Special Education and Program Execution OSERS Cuts across Strategic Goals 2, 3, 4, 

and 5 

The Department considers strategic Goal 1, Create a Culture of Achievement, a synopsis of the four 

pillars on which educational excellence is established, and Strategic Goal 6, Establishing Management 

Excellence, which emphasizes administrative and oversight responsibilities, to be high-level premises on 

which the Department bases its foundation for each of the other four strategic goals. These two strategic 

goals support our programmatic mission, and as a result, we do not assign specific programs to either of 

these strategic goals for presentation in the Statement of Net Cost. Goals 2 through 5 are sharply defined 

directives that guide divisions of the Department to carry out the vision and programmatic mission, and 

the Net Cost programs can be specifically associated with these four strategic goals. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 121
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Intragovernmental Cost and Exchange Revenue by Program Segment 

2006 

(Dollars in Millions) FSA OESE OSERS Other Total

Enhancement of Postsecondary and Adult Education 

Intragovernmental Gross Cost $ 7,857 $ - $ - $ 81 $ 7,938 

Gross Costs with the Public 50,946 - - 4,472 55,418

Total Program Costs 58,803 - - 4,553 63,356 

Less: Intragovernmental Earned Revenue (3,131) - - (1) (3,132) 

 Earned Revenue from the Public (4,641) - - (17) (4,658)

Total Program Revenue (7,772) - - (18) (7,790) 

Creation of Student Achievement, Culture of Achievement and Safe Schools

Intragovernmental Gross Cost - 172 - 20 192 

Gross Costs with the Public - 21,754 - 2,659 24,413

Total Program Costs - 21,926 - 2,679 24,605 

Less: Intragovernmental Earned Revenue - - - (60) (60) 

 Earned Revenue from the Public - - - - -

Total Program Revenue - - - (60) (60) 

Transformation of Education 

Intragovernmental Gross Cost - - - 81 81 

Gross Costs with the Public - - - 1,282 1,282

Total Program Costs - - - 1,363 1,363 

Less: Intragovernmental Earned Revenue - - - (4) (4) 

 Earned Revenue from the Public - - - (14) (14)

Total Program Revenue - - - (18) (18) 

Special Education and Program Execution 

Intragovernmental Gross Cost - - 151 - 151 

Gross Costs with the Public - - 15,224 - 15,224

Total Program Costs - - 15,375 - 15,375 

Less: Intragovernmental Earned Revenue - - (2) - (2) 

 Earned Revenue from the Public - - - - -

Total Program Revenue - - (2) - (2) 

Net Cost of Operations $51,031 $21,926 $15,373 $8,499 $96,829

 

2005 

(Dollars in Millions) FSA OESE OSERS Other Total

Enhancement of Postsecondary and Adult Education 

Intragovernmental Gross Cost $ 7,055 $ - $ - $ 86 $ 7,141 

Gross Costs with the Public 30,952 - - 4,258 35,210

Total Program Costs 38,007 - - 4,344 42,351 

Less: Intragovernmental Earned Revenue (2,140) - - - (2,140) 

 Earned Revenue from the Public (4,705) - - (25) (4,730)

Total Program Revenue (6,845) - - (25) (6,870) 

Creation of Student Achievement, Culture of Achievement and Safe Schools

Intragovernmental Gross Cost - 166 - 20 186 

Gross Costs with the Public - 23,023 - 1,255 24,278

Total Program Costs - 23,189 - 1,275 24,464 

Less: Intragovernmental Earned Revenue - (17) - (59) (76) 

 Earned Revenue from the Public - - - - -

Total Program Revenue - (17) - (59) (76) 

Transformation of Education 

Intragovernmental Gross Cost - - - 82 82 

Gross Costs with the Public - - - 1,138 1,138

Total Program Costs - - - 1,220 1,220 

Less: Intragovernmental Earned Revenue - - - (3) (3) 

 Earned Revenue from the Public - - - (14) (14)

Total Program Revenue - - - (17) (17) 

Special Education and Program Execution 

Intragovernmental Gross Cost - - 94 - 94 

Gross Costs with the Public - - 14,075 - 14,075

Total Program Costs - - 14,169 - 14,169 

Less: Intragovernmental Earned Revenue - - (2) - (2) 

 Earned Revenue from the Public - - - - -

Total Program Revenue - - (2) - (2) 

Net Cost of Operations $31,162 $23,172 $14,167 $6,738 $75,239

122 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Note 12. Interest Expense and Interest Revenue 

Direct Loan Program FFEL Program Other Programs Total 

(Dollars in millions) 2006 2005 2006 2005 2006 2005 2006 2005 

 Federal $ 6,505 $ 6,171 $ 1,110 $ 565 $ 15 $ 15 $ 7,630 $ 6,751 

 Non-federal - - - - - - - - 

Interest Expense $ 6,505 $ 6,171 $ 1,110 $ 565 $ 15 $ 15 $ 7,630 $ 6,751 

 Federal $ 1,926 $ 1,475 $ 1,110 $ 565 $ - $ - $ 3,036 $ 2,040 

 Non-federal 

 

4,579 4,696 - - 19 

 

26 4,598 4,722 

Interest Revenue $ 6,505 $ 6,171 $ 1,110 $ 565 $ 19 $ 26 $ 7,634 $ 6,762 

For the Direct Loan Program, interest expense is recognized on the Department’s borrowings from 

Treasury. The interest revenue is earned on the individual loans in the loan portfolio, while federal 

interest is earned on the uninvested fund balances with Treasury. For the FFEL Program, federal interest 

revenue is earned on the uninvested fund balance with Treasury in the financing fund. The Direct Loan 

Program and the FFEL Program are included on the Statement of Net Cost in Enhancement of 

Postsecondary and Adult Education. 

Note 13. Statement of Budgetary Resources 

The Statement of Budgetary Resources (SBR) compares budgetary resources with the status of those 

resources. As of September 30, 2006, budgetary resources were $210,921 million and net outlays were 

$70,645 million. As of September 30, 2005, budgetary resources were $154,095 million and net outlays 

were $69,808 million. 

Permanent Indefinite Budget Authority 

The Direct Loan Program and the Federal Family Education Loan Program were granted permanent 

indefinite budget authority through legislation. Part D of the William D. Ford Federal Direct Loan 

Program and Part B of the Federal Family Education Loan Program, pursuant to the HEA, pertains to the 

existence, purpose, and availability of this permanent indefinite budget authority. 

Reauthorization of Legislation 

Funds for most Department programs are authorized, by statute, to be appropriated for a specified number 

of years, with an automatic one-year extension available under Section 422 of the General Education 

Provisions Act. Congress may continue to appropriate funds after the expiration of the statutory 

authorization period, effectively reauthorizing the program through the appropriations process. The 

current Budget of the United States Government presumes all programs continue per congressional 

budgeting rules. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 123
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Apportionment Categories of Obligations Incurred

(Dollars in Millions) 2006 2005 

Direct: 

 Category A $ 1,298 $ 1,308 

 Category B 157,644 127,489 

 Exempt from Apportionment 176 252 

159,118 129,049 

Reimbursable: 

 Category A - 4 

 Category B - 3 

 Exempt from Apportionment 92 85 

 92 92 

Apportionment Categories of 

Obligations Incurred $ 159,210 $ 129,141 

Category A apportionments are those resources that can be obligated without restriction on the purpose of 

the obligation, other than to be in compliance with legislation underlying programs for which the 

resources were made available. Category B apportionments are restricted by purpose for which 

obligations can be incurred. In addition, some resources are available without apportionment by the 

OMB. 

Unused Borrowing Authority

(Dollars in Millions) 2006 2005 

Beginning Balance, Unused Borrowing Authority $ 5,481 $ 5,952 

Current Year Borrowing Authority 35,089 32,209 

Funds Drawn From Treasury (33,322) (31,309) 

Prior Year Unused Borrowing Authority Cancelled - (1,326) 

Other - (45) 

Ending Balance, Unused Borrowing Authority $ 7,248 $ 5,481 

The Department is given authority to draw funds from the Treasury to help finance the majority of its 

direct lending activity. Unused Borrowing Authority is a budgetary resource and is available to support 

obligations. The Department periodically reviews its borrowing authority balances in relation to its 

obligations and may cancel unused amounts. 

Undelivered Orders at the End of the Period

2006 2005 

(Dollars in Millions) Budgetary

NonBudgetary Budgetary NonBudgetary

Undelivered Orders at the end of the period $ 47,630 $ 12,472 $ 46,493 $ 10,472 

Undelivered orders at the end of the year, as presented above, will differ from the undelivered orders 

included in the Net Position, Unexpended Appropriations. Undelivered orders for trust funds and federal 

credit financing and liquidating funds are not funded through appropriations and are not included in Net 

Position. (See Note 10) 

124 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Explanation of Differences Between the Statement of Budgetary Resources and the Budget of the 

United States Government

The FY 2008 Budget of the United States Government (President’s Budget) presenting the actual amounts 

for the year ended September 30, 2006 has not been published as of the issue date of these financial 

statements. The FY 2008 President’s Budget is scheduled for publication in February 2007. A 

reconciliation of the FY 2005 column on the SBR to the actual amounts for FY 2005 in the FY 2007 

President’s Budget for budgetary resources, obligations incurred, distributed offsetting receipts and net 

outlays is presented below. 

(Dollars in Millions)

Budgetary 

Resources 

Obligations 

Incurred 

Distributed 

Offsetting 

Receipts 

Net 

Outlays 

Combined Statement of Budgetary Resources $ 154,095 $ 129,141 $ 32 $ 69,808 

 Less: Expired Funds (882) (527) - - 

 Add: Amounts included in the President’s Budget 5,325 5,325 - - 

 Less: Funds excluded from President’s Budget 

 and Rounding 4 6 - (4) 

 Plus: Distributed Offsetting Receipts 32 

Budget of the United States Government $ 158,542 $ 133,945 $ 32 $ 69,836 

Budgetary accounting as shown in the President’s Budget includes a public enterprise fund that reflects 

the net obligations by the FFEL Program for the estimated activity of the consolidated Federal Funds of 

the Guaranty Agencies. The consolidated balance of the Federal Fund accounts reflected in the financial 

statements represents actual cash activity, resulting in timing difference as shown on the Statement of 

Budgetary Resources. In 2005, obligations of $4,977 million were recorded and $4,725 million in 

offsetting collections transferred to Guaranty Agency Federal Fund accounts from the Department. 

Collections from non-federal sources of $100 million were deposited in 2005. 

Note 14. Statement of Financing 

The Statement of Financing (SOF) provides information on the total resources used by an agency, both 

those received through budgetary resources and those received through other means during the reporting 

period. The statement reconciles these resources with the net cost of operations by (1) removing 

resources that do not fund net cost of operations, and (2) including components of net cost of operations 

that did not generate or use resources during the year. 

The SOF is presented as a consolidated statement for the Department and its major programs. Net 

interagency eliminations are presented for proprietary amounts. The budgetary amounts are reported on a 

combined basis as presented in the Statement of Budgetary Resources. Accordingly, net interagency 

eliminations for budget amounts are not presented. 

The difference between the amounts reported as liabilities not covered by budgetary resources on the 

Balance Sheet and amounts reported as Other Components Requiring or Generating Resources in Future 

Periods on the Statement of Financing represents an increase in custodial liability activities. 

Components Not Requiring or Generating Resources primarily result from the subsidy expense 

recognized for financial statement re-estimate purposes as required by the Statement of Federal Financial 

Accounting Standards No. 2, Accounting for Direct Loans and Loan Guarantees. Re-estimates published 

in the President’s Budget generate or require resources. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 125
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Note 15. 2005 Hurricane Relief 

On August 29, 2005, hurricane Katrina struck the Gulf Coast, resulting in widespread catastrophic 

damage to the coastal regions of Louisiana, Mississippi and Alabama. Immediately following Katrina, 

hurricane Rita struck the same region, adding Texas to the states already catastrophically damaged and 

hindering the recovery efforts. The death toll, property damage, dislocation of families, and destruction of 

the infrastructure of the communities and economies of the Gulf Coast represent a humanitarian crisis that 

will affect these areas for many years to come. 

The Department of Education quickly responded by accelerating the application process for the region’s 

loan applicants, students, borrowers, Guaranty Agencies, educational institutions and other program 

participants to expedite education-related relief. In addition, the Secretary was authorized to waive or 

modify statutory or regulatory provisions as applicable for student financial assistance programs. While 

this provided some relief for the coastal regions, it was apparent that the damage to the affected 

communities required significant financial support to rebuild the educational systems and return students 

and teachers to their classrooms. 

Funds Appropriated for Hurricane Relief 

The Hurricane Education Recovery Act (PL 109-148) was enacted on December 30, 2005. The act 

appropriated $1.6 billion to the Department. This funding provides needed assistance to reopen schools 

and helps educate the 370,000 students affected by hurricanes Katrina and Rita. In June 2006, an 

additional $285 million was transferred to the Department to assist with the relief efforts. As of 

September 30, 2006, $1.9 billion in aid has been obligated to assist local educational agencies and 

non-public schools and approximately $1.1 billion has been expended. The remaining funds will be 

released following review of applications from the educational agencies and non-public schools. 

(Dollars in Millions) Appropriated Obligated Expended 

Emergency Impact Aid for Displaced Students 

 (Impact Aid) Program $ 880 $ 878 $ 739 

Immediate Aid to Restart School Operations 

 (Restart Aid) Program 750 750 233 

Higher Education Relief 250 250 168 

Assistance for Homeless Youth 

 (Homeless Aid) Program 5 5 - 

2005 Hurricane Disaster Relief $ 1,885 $ 1,883 $ 1,140 

Earmarked Funds Donated for Hurricane Relief 

In the aftermath of hurricane Katrina, a number of foreign governments, international entities and 

individuals made donations of financial assistance to the U.S. Government to support Katrina relief and 

recovery efforts. These donations were received by the U.S. Department of State as an intermediary. 

Subsequently, $60.5 million was transferred to the Department to finance educational initiatives in 

Louisiana and Mississippi under a Memorandum of Understanding issued in March 2006. Applications 

are being received from the affected areas and are being reviewed. As of September 30, 2006, 

$35.2 million has been obligated from the earmarked funds to assist in the relief and recovery efforts. 

126 FY 2006 Performance and Accountability Report—U.S. Department of Education 
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 

Note 16. Contingencies 

Guaranty Agencies 

The Department can assist Guaranty Agencies experiencing financial difficulties by advancing funds or 

by other means. No provision has been made in the principal statements for potential liabilities related to 

financial difficulties of Guaranty Agencies because the likelihood of such occurrences is uncertain and 

cannot be estimated with sufficient reliability. 

Perkins Loan Reserve Funds 

The Perkins Loan Program is a campus-based program providing financial assistance to eligible 

postsecondary school students. In fiscal year 2006, the Department provided funding of 84.6 percent of 

the capital used to make loans to eligible students through participating schools at 5 percent interest. The 

schools provided the remaining 15.4 percent of program funding. For the latest academic year ended June 

30, 2006, approximately 727,546 loans were made, totaling approximately $1.6 billion at 1,666 

institutions, averaging $2,178 per loan. The Department’s share of the Perkins Loan Program was 

approximately $6.5 billion as of June 30, 2006. 

In fiscal year 2005, the Department provided funding of 84.6 percent of the capital used to make loans to 

eligible students through participating schools at 5 percent interest. The schools provided the remaining 

15.4 percent of program funding. For the academic year ended June 30, 2005, approximately 779,129 

loans were made, totaling $1.6 billion at 1,653 institutions, averaging $2,069 per loan. The Department’s 

share of the Perkins Loan Program was approximately $6.4 billion as of June 30, 2005. 

Perkins Loan borrowers who meet statutory eligibility requirements—such as service as a teacher in 

low-income areas, as a Peace Corps or VISTA volunteer, in the military or in law enforcement, in 

nursing, or in family services—may receive partial loan forgiveness for each year of qualifying service. 

In these circumstances, a contingency is deemed to exist. The Department may be required to 

compensate Perkins Loan institutions for the cost of the partial loan forgiveness. 

Litigation and Other Claims 

The Department is involved in various lawsuits incidental to its operations. Judgments resulting from 

litigation against the Department are paid by the Department of Justice. In the opinion of management, 

the ultimate resolution of pending litigation will not have a material effect on the Department’s financial 

position.

Other Matters 

Some portion of the current year financial assistance expenses (grants) may include funded recipient 

expenditures that were subsequently disallowed through program review or audit processes. In the 

opinion of management, the ultimate disposition of these matters will not have a material effect on the 

Department’s financial position. 

During the fiscal year, the Inspector General issued an audit report that questioned payments made to an 

entity that participates in the Federal Family Education Loan Program. The findings cited in this report 

are under consideration by the Department. Until the matter is resolved, the potential impact, if any, on 

the Department’s financial position is not possible to estimate. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 127
NOTES TO PRINCIPAL FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

128 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

Required 

Supplementary 

Information 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
REQUIRED SUPPLEMENTARY INFORMATION

130 FY 2006 Performance and Accountability Report—U.S. Department of Education 
Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts 

Budgetary Resources:1. Unobligated balance, brought forward, October 1: $ 2,137 $ 22,817 $ 1,429 $ 22,817 $ 314 $0 $ 80 $

2. Recoveries of prior year Unpaid Obligations 1,434 3,450 1,005 3,450 340 0 34 3. Budgetary Authority: 0

3A. Appropriations 102,197 108 56,221 105 21,297 0 15,072 3B. Borrowing Authority 0 35,089 0 35,073 0 0 0 3D. Spending authority from offsetting collections (gross): 0 0 0 

3D1. Earned 0 0 00 0

3D1a. Collected 2,074 77,399 1,967 77,367 0 0 1 3D1b. Change in Receivables from Federal Sources 1 0 0 0 0 0 1 

3D2. Change in unfilled customer orders 00 0

3D2a. Advance Received 9 0 0 0 0 0 (1) 3D2b. Without advance from Federal Sources (1) (4) 0 (4) 0 0 1 

3E. Subtotal $ 104,280 $ 112,592 $ 58,188 $ 112,541 $ 21,297 $0 $ 15,074 

6. Permanently not available (3,537) (32,252) (2,861) (32,230) (334) 0 (153) 7. Total Budgetary Resources $ 104,314 $ 106,607 $ 57,761 $ 106,578 $ 21,617 $ (0) $ 15,035 $ Status of Budgetary Resources:8. Obligations incurred:

8A. Direct $ 99,001 $ 60,117 $ 53,374 $ 60,088 $ 21,334 ($0) $ 14,848 ($

8B. Reimbursable 92 (0) (0) (0) (0) (0) 4 8C. Subtotal $ 99,093 $ 60,117 $ 53,374 $ 60,088 $ 21,334 ($0) $ 14,852 ($

9. Unobligated Balances:

9A. Apportioned 4,081 (0) 3,437 (0) 181 (0) 171 

9C. Subtotal $ 4,081 ($0) $ 3,437 ($0) $ 181 ($0) $ 171 ($

10. Unobligated Balance not available 1,140 46,490 950 46,490 102 (0) 12 11. Total Status of Budgetary Resources $ 104,314 $ 106,607 $ 57,761 $ 106,578 $ 21,617 $ (0) $ 15,035 $ Change in Obligated Balance:12. Obligated balance, net

12A. Unpaid obligations, brought forward, October 1 $ 48,213 $ 10,802 $ 9,225 $ 10,763 $ 18,823 ($0) $ 10,936 ($

12B. Less: Uncollected customer payments from Federal Sources, brought 

 forward, October 1 3 34 0 34 0 0 2 

12c. Total, unpaid obligated balance, brought forward, net $ 48,210 $ 10,768 $ 9,225 $ 10,729 $ 18,823 ($0) $ 10,934 ($

13. Obligation Incurred net (+/-) 99,093 60,117 53,374 60,088 21,334 (0) 14,852 14. Less: Gross Outlays 95,662 54,516 50,010 54,460 21,773 (0) 15,137 16. Less Recoveries of prior year unpaid obligations, actual 1,434 3,450 1,005 3,450 340 0 34 17. Change in uncollected customer payments from Federal Sources (+/-) (0) 4 (0) 4 (0) (0) (2) 18. Obligated Balance, net, end of period

18A. Unpaid Obligations $ 50,210 $ 12,953 $ 11,584 $ 12,941 $ 18,044 ($0) $ 10,617 ($

18B. Less: Uncollected customer payments from Federal Sources 3 30 0 30 0 0 4 18C. Total, unpaid obligated balance, net, end of period $ 50,207 $ 12,923 $ 11,584 $ 12,911 $ 18,044 ($0) $ 10,613 ($

Net Outlays 19. Net Outlays: 

19A. Gross Outlays $ 95,662 $ 54,516 $ 50,010 $ 54,460 $ 21,773 (0) $ 15,137 19B. Less: Offsetting collections 2,083 77,399 1,967 77,367 0 0 0 19C. Less: Distributed Offsetting receipts 51 (0) 51 (0) (0) (0) (0) 

20. Net Outlays $ 93,528 $ (22,883) $ 47,992 $ (22,907) $ 21,773 $ (0) $ 15,137 $ 

United States Department of Education

Combining Statement of Budgetary Resources

For the Year Ended September 30, 2006

Office of Elementary & Secondary 

Education

Office of Special Education & 

Rehabilitative Services 

(Dollars in Millions)

Combined Federal Student Aid

FY 2006 Performance and Accountability Report—U.S. Department of Education 131
REQUIRED SUPPLEMENTARY INFORMATION

132 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

Required 

Supplementary 

Stewardship 

Information 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

134 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

Stewardship Expenses

In the Department of Education, discretionary

spending constitutes approximately 58 percent 

of the budget and includes nearly all programs, 

the major exceptions being student loans and 

rehabilitative services. While spending for 

entitlement programs is usually a function of the 

authorizing statutes creating the programs and is 

not generally affected by appropriations laws, 

spending for discretionary programs is decided 

in the annual appropriations process. Most 

Department programs are discretionary. 

Education in the United States is primarily a 

state and local responsibility. States, 

communities, and public and private 

organizations establish schools and colleges, 

develop curricula, and determine requirements 

for enrollment and graduation. The structure of 

education finance in America reflects this 

predominantly state and local role. Of the 

estimated $909 billion being spent nationwide 

on education at all levels for school year 2005–

2006, about 90 percent comes from state, local, 

and private sources. The federal contribution to 

national education expenditures is about 

$90.9 billion. The federal contribution includes 

education expenditures not only from the 

Department of Education, but also from other 

federal agencies such as the Department of 

Health and Human Services’ Head Start 

Program and the Department of Agriculture’s 

School Lunch Program. 

The Department’s $99.8 billion appropriation is 

11.0 percent of total education expenditures in 

the United States and 3.7 percent of the federal 

government’s $2.7 trillion budget in fiscal year 

2006. 

Investment in Human Capital 

Office of Federal Student Aid. The Office of 

Federal Student Aid administers need-based 

financial assistance programs for students 

pursuing postsecondary education and makes 

available federal grants, direct loans, guaranteed 

loans, and work-study funding to eligible

undergraduate and graduate students. 

Office of Elementary and Secondary 

Education. The Office of Elementary and 

Secondary Education provides leadership, 

technical assistance, and financial support to 

state and local educational agencies for the 

maintenance and improvement of preschool, 

elementary, and secondary education. Financial 

assistance programs support services for 

children in high-poverty schools, institutions for 

neglected and delinquent children, homeless 

children, certain Indian children, children of 

migrant families, and children who live on or 

whose parents work on federal property. 

Funding is also provided to increase the 

academic achievement of students by ensuring 

that all teachers are highly qualified to teach. 

Office of Special Education and 

Rehabilitative Services. The Office of Special 

Education and Rehabilitative Services supports 

state and local programs that assist in educating 

children, youth, and adults with special needs to 

increase their level of employment, productivity,

independence, and integration into the 

community. Funding is also provided for 

research to improve the quality of their lives. 

Office of Safe and Drug-Free Schools. The 

Office of Safe and Drug-Free Schools supports 

efforts to create safe and violence-free schools, 

respond to crises, prevent drug and alcohol 

abuse, ensure the health and well-being of 

students, and teach students good citizenship and 

character. Special character and civic education 

initiatives are funded to reach those in state and 

local correctional institutions. Grants emphasize 

coordinated, collaborative responses to develop 

and maintain safe, disciplined, and drug-free 

learning environments. 

Office of Innovation and Improvement. The 

Office of Innovation and Improvement makes 

FY 2006 Performance and Accountability Report—U.S. Department of Education 135
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

strategic investments in educational practices 

through grants to states, schools, and community

and nonprofit organizations. The office leads 

the movement for greater parental options such 

as charter schools. Further, the office supports 

special grants designed to raise student 

achievement by improving teachers' knowledge 

and understanding of and appreciation for 

traditional U.S. history. 

Institute of Education Sciences. The Institute 

of Education Sciences compiles statistics; funds 

research, evaluations, and information 

dissemination; and provides research-based 

guidance to further evidence-based policy and

practice focused on significant education

problems. Research programs examine 

empirically the full range of issues facing

children and individuals with disabilities, 

parents of children with disabilities, school 

personnel, and others. The National Library of 

Education is the largest federally funded library 

devoted entirely to education and provides 

reference and information services, collection 

and technical services, and resource sharing and 

cooperation. 

Office of English Language Acquisition. The 

Office of English Language Acquisition directs 

programs designed to enable students with 

limited English proficiency to become proficient 

in English and meet state academic content and 

student achievement standards. Enhanced 

instructional opportunities are provided to

children and youths of Native American, Alaska 

Native, Native Hawaiian Pacific Islander, and 

immigrant backgrounds. Grants pay the federal 

share of the cost of model programs for the 

establishment, improvement, or expansion of 

foreign language study in elementary and 

secondary schools. 

Office of Vocational and Adult Education. 

The Office of Vocational and Adult Education 

funds academic, vocational, and technical 

education for youth and adults in high schools, 

community colleges, and regional technical 

centers. Educational opportunities are provided 

for adults over the age of 16, not currently 

enrolled in school, who lack high school

diplomas or the basic skills to function 

effectively as parents, workers, and citizens. 

Office of Postsecondary Education. The 

Office of Postsecondary Education provides 

grants to colleges and universities to promote 

reform, innovation, and improvement in 

postsecondary education; increased access to 

and completion of postsecondary education by

disadvantaged students; strengthening of the 

capacity of colleges and universities that serve a 

high percentage of minority and disadvantaged 

students; and teacher and student development 

resources. The international programs promote 

international education and foreign language 

studies and research. The office administers the 

accrediting agency recognition process and 

coordinates activities with states that affect 

institutional participation in federal financial 

assistance programs. 

136 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

Program Inputs 

The Department currently administers programs 

affecting every area and level of education. The 

Department’s elementary and secondary

programs annually serve 15,500 school districts 

and more than 52 million students attending over 

88,000 public schools and more than 28,000 

private schools. Department programs also 

provide grant, loan, and work-study assistance to 

more than 10 million postsecondary students. 

While the Department’s programs and 

responsibilities have grown substantially over 

the years, the Department itself has not. Since 

No Child Left Behind was enacted in 2001, the 

Department’s staff of approximately 4,111 is 

10 percent below the 4,566 employees who 

administered federal education programs in 

2001. At the same time, the Department 

manages 40 percent more in funds in 2006 than 

it did in 2001 when its human capital investment 

was only $38.7 billion. These staff reductions, 

along with a wide range of management 

improvements, have helped limit administrative 

costs to less than 2 percent of the Department’s

budget, ensuring that the Department delivers 

about 98 cents on the dollar in education

assistance to states, school districts, 

postsecondary institutions, and students.

Summary of Human Capital Expenses

(Dollars in Millions) 2006 2005 2004 2003 2002

Federal Student Aid Expense 

 Direct Loan Subsidy $ 6,655 $ 5,211 $ (543) $ 4,716 $ 877 

 Guaranteed Loan Subsidy 28,062 9,863 8,516 2,509 3,988 

 Grant Programs 15,447 15,070 14,943 13,836 12,256 

 Salaries & Administrative 172 164 186 179 207 

 Subtotal 50,336 30,308 23,102 21,240 17,328 

Other Departmental 

 Elementary and Secondary Education 21,710 22,940 21,188 19,493 16,127 

 Special Education & Rehabilitative Services 15,215 13,995 12,687 11,529 9,906 

 Other Departmental Programs 5,353 6,067 5,160 4,828 4,531 

 Salaries & Administrative 467 486 448 395 472 

 Subtotal 42,745 43,488 39,483 36,245 31,036 

Grand Total $93,081 $73,796 $62,585 $57,485 $48,364

During the early fall of 2005, just as schools 

were opening, hurricanes Katrina and Rita 

devastated the Gulf Coast. The Department’s

investment in the rebuilding of the educational 

systems of this region and the support provided 

to the districts affected across the country are 

reflected in the numbers above, representing 

almost 2 percent of the Department’s 2006 

budget. As a result, the Department has directly

affected the lives of schoolchildren, their 

teachers, their schools, and the local economies 

of hundreds of communities throughout the 

United States. This investment, along with the 

investments made by other federal programs, 

represents one of the greatest educational efforts 

in the history of our country. 

FY 2006 Performance and Accountability Report—U.S. Department of Education 137
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

Program Outcomes 

Education is the stepping-stone to higher living 

standards for American citizens. Education is 

vital to national economic growth. But 

education’s contribution is more than increased 

productivity and incomes. Education improves 

health, promotes social change, and opens doors 

to a better future for children and adults. 

Economic outcomes, such as wage and salary

levels, historically have been determined by the 

educational attainment of individuals and the 

skills employers 

expect of those 

entering the 

labor force. 

Both individuals 

and society as a 

whole have 

placed increased 

emphasis on 

educational 

attainment as 

the workplace 

has become

increasingly

technological, 

and employers now seek employees with the 

highest level of skills. For prospective 

employees, the focus on higher-level skills 

means investing in learning or developing skills 

through education. Like all investments, 

developing higher-level skills involves costs and 

benefits. 

Returns, or benefits, of investing in education 

come in many forms. While some returns 

accrue for the individual, others benefit society

and the nation in general. Returns related to the 

individual include higher earnings, better job 

opportunities, and jobs that are less sensitive to 

general economic conditions. Returns related to 

the economy and society include reduced 

reliance on welfare subsidies, increased 

participation in civic activities, and greater 

productivity. 

Over time, the returns of developing skills 

through education have become evident. 

Statistics illustrate the rewards of completing 

high school and investing in postsecondary

education. 

Unemployment rate. Persons with lower levels 

of educational attainment were more likely to be 

unemployed than those who had higher levels of 

educational attainment. The September 2006

unemployment rate for adults (25 years old and

over) who had not completed high school was 

6.4 percent compared with 4.2 percent of those 

with four years of 

high school and 

2.0 percent for those 

with a bachelor’s

degree or higher. 

Younger people with 

only high school 

diplomas tended to 

have higher 

unemployment rates 

than persons 25 and 

over with similar 

levels of education. 

Unemployment Rate by Educational Level

0

2

4

6

8

10

12

19931994199519961997199819992000200120022003

200420052006

Percentage

No high

school

degree

High

school

degree

College

degree

Annual Income. As 

of September 2006, 

the annualized median income for adults 

(25 years and over) varied considerably by

education level. Men with a high school

diploma earned $36,088, compared with 

$61,932 for men with a college degree. Women 

with a high school diploma earned $26,052, 

compared with $47,840 for women with a 

college degree. Men and women with college 

degrees earned 73.8 percent more than men and 

women with high school diplomas. Earnings for 

workers with college degrees have increased in 

the past year by 10.5 percent for women and 

6.6 percent for men. These returns of investing 

in education directly translate into the 

advancement of the American economy as a 

whole. 

138 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

AUDIT OPINION

Report 

of the 

Independent 

Auditors 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

REPORT OF THE INDEPENDENT AUDITORS

AUDIT TRANSMITTAL

140 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

AUDIT OPINION

FY 2006 Performance and Accountability Report—U.S. Department of Education 141
REPORT OF THE INDEPENDENT AUDITORS

AUDIT OPINION

142 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

FY 2006 Performance and Accountability Report—U.S. Department of Education 143
 

REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

144 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

FY 2006 Performance and Accountability Report—U.S. Department of Education 145
 

REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

146 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

FY 2006 Performance and Accountability Report—U.S. Department of Education 147
 

REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

148 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

FY 2006 Performance and Accountability Report—U.S. Department of Education 149
 

REPORT OF THE INDEPENDENT AUDITORS

REPORT ON INTERNAL CONTROL

150 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS

FY 2006 Performance and Accountability Report—U.S. Department of Education 151
 

REPORT OF THE INDEPENDENT AUDITORS

REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS

152 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS

FY 2006 Performance and Accountability Report—U.S. Department of Education 153
 

REPORT OF THE INDEPENDENT AUDITORS

REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS

154 FY 2006 Performance and Accountability Report—U.S. Department of Education 
REPORT OF THE INDEPENDENT AUDITORS

DEPARTMENT RESPONSE TO AUDIT REPORT

FY 2006 Performance and Accountability Report—U.S. Department of Education 155
REPORT OF THE INDEPENDENT AUDITORS

DEPARTMENT RESPONSE TO AUDIT REPORT

156 FY 2006 Performance and Accountability Report—U.S. Department of Education 
Other 

Accompanying 

Information 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
OTHER ACCOMPANYING INFORMATION

IMPROPER PAYMENTS INFORMATION ACT REPORTING DETAILS

Improper Payments Information Act 

Reporting Details 

The Improper Payments Information Act of 2002

(IPIA) and the Office of Management and 

Budget’s (OMB) Circular No. A-123, Appendix 

C, Requirements for Effective Measurement and 

Remediation of Improper Payments, require 

agencies to annually review and assess all 

programs and activities to identify those 

susceptible to significant improper payments. 

The guidance in OMB Circular No. A-123, 

Appendix C, defines significant improper 

payments as those in any particular program that 

exceed both 2.5 percent of program payments 

and $10 million annually. For each program

identified as susceptible, agencies are required to 

report to the President and the Congress the 

annual amount of estimated improper payments, 

along with steps taken and actions planned to 

reduce them. 

To facilitate agency efforts to meet the reporting 

requirements of the IPIA, the OMB announced a 

new President’s Management Agenda program

initiative beginning in the first quarter of 

FY 2005 entitled Eliminating Improper 

Payments. Previously, the OMB tracked the 

Department’s IPIA activities with other financial 

management activities through the Improving

Financial Performance initiative. The 

establishment of a dedicated President’s 

Management Agenda initiative focused the 

Department’s improper payments efforts. Under 

the new initiative, the Department’s status and 

progress are tracked and reported to the OMB in 

quarterly scorecards. 

The Department has divided its improper 

payment activities into the following segments: 

Student Financial Assistance Programs, Title I 

Program, Other Grant Programs, and Recovery

Auditing. 

Student Financial Assistance Programs 

Federal Student Aid operates and administers 

the majority of the Higher Education Act of 

1965, as amended (HEA), Title IV1

 Student 

Assistance (Title IV) programs for the 

Department. In FY 2006, nearly $77 billion was 

provided to students and families to help them

overcome the financial barriers that make it 

difficult to attend and complete postsecondary

education. Federal Student Aid administers a 

variety of grants, loans, and loan guarantees 

through its financial assistance programs. The 

processes developed to administer the programs 

are responsive to changes in statutes, the 

reauthorization of existing statutes, and the 

changing needs of educational institutions and 

their students. 

Title IV student assistance programs are large 

and complex. Federal Student Aid relies on over 

6,100 eligible postsecondary institutions, 3,200 

 1 Title IV is the portion of the Higher Education Act that

authorizes and regulates various student financial aid

programs.

lenders, 35 loan Guaranty Agencies, and a 

number of private loan servicers to administer its 

programs. Except for funds received as an 

administrative cost allowance, Federal Student 

Aid program funds received by a school are held 

in trust by the school for the students, the 

Department, and, in some cases, for private 

lenders and Guaranty Agencies. 

The HEA and subsequent Department 

regulations to implement the law comprise a 

succession of eligibility definitions, standards, 

requirements, tests, and other internal controls 

designed to minimize the risk that improper 

payments will be made either to students or to 

postsecondary or financial institutions. The law 

provides criteria for an institution to be eligible 

to participate in student financial assistance 

programs and mandates the joint responsibility

of a program integrity triad made up of state 

educational agencies, accrediting agencies, and 

the Department. This structure, while 

empowering educational institutions to operate 

programs based on area needs, can increase the 

158 FY 2006 Performance and Accountability Report—U.S. Department of Education 
OTHER ACCOMPANYING INFORMATION

IMPROPER PAYMENTS INFORMATION ACT REPORTING DETAILS

risk of improper payments and pose oversight 

and monitoring challenges for the federal 

government. 

Federal Student Aid engages in a continual 

process of actively identifying new risks in the 

programs it administers. Noncompliance with 

statutes, regulations and policies, whether by

students, schools, lenders, Guaranty Agencies, 

or loan servicers, not only places Title IV funds 

at risk, but also erodes public trust in the

programs. To address these concerns, Federal 

Student Aid has several initiatives underway to 

identify real or potential risks for fraud, waste, 

abuse, mismanagement, and inadvertent errors in 

the delivery of student financial assistance 

programs and funds. 

Controls Over Financial Aid Applications 

Over 13 million postsecondary school students 

apply for federal student aid each year by 

completing the required Free Application for 

Federal Student Aid (FAFSA). Information 

provided on the FAFSA is used to (1) calculate 

the expected family contribution (EFC), an 

amount applicants and their families are 

expected to contribute to the cost of their 

postsecondary education expenses for a given 

award year, and (2) confirm eligibility through 

computer matches with other agencies. Unless 

the application is rejected due to inconsistencies 

or inadequate information, the Department’s 

central processing system will automatically

calculate the EFC. The HEA establishes the 

formula for the EFC calculation. The result is a 

measure of the applicant’s financial strength, 

and is significant in the determination of the 

amount and type of aid a student can receive. 

The Department processes the FAFSA data it 

receives each year, using a sophisticated set of 

database matches and computerized editing 

techniques to confirm student eligibility for the 

Title IV programs and to target error-prone 

applications for a verification process. All 

applicants are subjected to one or more of the 

student eligibility database matches and 

approximately 30 percent (approximately 

3.9 million) are selected for verification. 

Those applicants selected for verification are 

required to submit documentation to their school 

in order to verify their reported household size, 

number of family members attending college, 

adjusted gross income (AGI), U.S. income taxes 

paid, and certain untaxed income and benefits 

reported on the FAFSA. Schools are required to 

collect copies of income tax returns from

applicants who file returns (and their parents, if 

the applicant is a dependent student) to 

determine that AGI, income taxes paid, and 

certain untaxed income and benefits amounts 

were correctly reported on the FAFSA. Any

discrepancies detected during the verification 

process must be corrected.

Risk Assessment 

As required by the IPIA, Federal Student Aid 

inventoried its programs during FY 2006, and 

reviewed program payments made during 

FY 2005 (the most recent complete fiscal year 

available), to assess the risk that a significant 

amount of improper payments were made. The 

review identified and then focused on five key

programs (Federal Family Education Loan 

Program, Federal Pell Grant Program, Federal 

Supplemental Educational Opportunity Grant 

and Federal Work-Study Programs, and Direct 

Loan Program), representing 98.7 percent of 

Federal Student Aid’s FY 2005 outlays. 

(Outlays in this context represent the amount of 

money actually spent during a fiscal year.) 

The criteria for determining susceptible risk 

within the programs were defined as follows: 

• For those programs with annual outlays that 

did not exceed the OMB susceptibility

threshold of $10 million, a comprehensive 

program risk assessment was not prepared 

and the programs were determined to be 

unsusceptible to the risk of significant 

improper payments. 

• For programs with outlays greater than 

$10 million, but less than $200 million, 

estimates of improper payments were 

prepared using the susceptible threshold 

error rate of 2.5 percent. Programs with 

improper payment estimates of less than 

$5 million were deemed unlikely to be 

susceptible to the risk of significant 

improper payments. 

• Programs were selected for further 

determination of susceptibility to significant 

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improper payments if annual outlays

exceeded $200 million. 

• Finally, programs were automatically

deemed susceptible if previously required to 

report improper payment information under 

OMB Circular A-11, Budget Submission, 

former Section 57.2

 

Risk Susceptible Programs 

The following five Title IV programs were 

deemed to be potentially susceptible to the risk 

of significant improper payments based on the 

OMB threshold of potential annual improper 

payment amounts exceeding both 2.5 percent of 

program payments and $10 million. 

Federal Family Education Loan Program. 

The Federal Family Education Loan (FFEL) 

Program is a guaranteed loan program

established by the HEA. Under the FFEL 

Program, eligible students apply to lenders such 

as banks, credit unions, and savings and loan 

associations for loans to vocational, 

undergraduate, and graduate schools to help pay

for educational expenses. If the lender agrees to 

make the loan, a state or private nonprofit loan 

Guaranty Agency insures the loan against 

default. The federal government subsequently

reinsures this loan. FFEL Programs offer 

various repayment options and provide four 

types of loans to qualified applicants. 

• Subsidized Stafford Loans—Need-based

loans in which the government pays interest 

when the student is in school and during 

qualified periods of grace and deferment. 

• Unsubsidized Stafford Loans—Loans in 

which the government does NOT pay

interest. 

• PLUS Loans—Loans to parents of 

dependent undergraduate students in which 

 2

 The four original programs identified in OMB Circular A11, Section 57 were Student Financial Assistance (now 

Federal Student Aid), Title I, Special Education Grants to

States, and Vocational Rehabilitation Grants to States. 

Subsequently, after further review of the program risk, the 

OMB removed Special Education Grants to States and 

Vocational Rehabilitation Grants to States from the list.

The OMB considers Section 57 programs susceptible to

significant improper payments regardless of the established 

thresholds. 

the government does not pay interest. As a 

result of the Higher Education 

Reconciliation Act of 2005, graduate or 

professional students are now eligible to 

borrow under this loan program, subject to 

eligibility. 

• Consolidated Loans—Loans that allow 

borrowers to combine multiple outstanding 

federal student assistance loans. 

During FY 2006, net loans of $46.2 billion were 

provided to 6.2 million FFEL recipients. In 

addition, Federal Student Aid paid an estimated 

$7.5 billion to lenders for interest and special 

allowance subsidies, and an estimated 

$4.6 billion to Guaranty Agencies to reimburse 

them for defaulted FFEL loans, loan processing 

fees, issuance fees, and account maintenance 

fees required by the HEA. The interest 

payments and special allowance subsidies, 

combined with the default, loan processing, 

issuance, and account maintenance fees 

comprise the program outlays at risk. 

Federal Pell Grant Program. The Federal Pell 

Grant (Pell Grant) Program provides need-based 

grants to low-income undergraduate and certain 

postbaccalaureate students to promote access to 

postsecondary education. Students may use 

their grants at any one of approximately 6,100 

eligible postsecondary institutions. Grant 

amounts are dependent on the student’s EFC, the 

cost of attending the institution, whether the 

student attends full-time or part-time, and 

whether the student attends the institution 

throughout the entire academic year. The 

statutory maximum award remained at $4,050 

for the 2005-2006 award year.

Under the terms of the HEA, eligibility for Pell 

Grant awards is determined exclusively through 

applicant self-reported income, family size, 

number of dependents in college, and assets. 

These data are key drivers in the determination 

of program eligibility and eligible amounts. 

However, historical analysis indicates that the 

accuracy of self-reported data is prone to error, 

and that these errors subsequently increase the 

risk of improper payments within the Pell Grant 

program. 

While limited matching of some self-reported 

income data is currently conducted with data 

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from the Department of the Treasury, Internal 

Revenue Service (IRS) annual income tax 

filings, Federal Student Aid is pursing additional 

authority to allow greater access to IRS data. 

Specifically, Federal Student Aid has requested 

authorization to verify 100 percent of the annual 

student financial aid applications with the 

financial data reported to the IRS in annual 

income tax returns. The ability to verify selfreported financial data could result in a 

significant reduction of the risk of improper 

payments in the Pell Grant program. Legislation 

to amend the Internal Revenue Code to permit a 

100 percent data match has not yet been enacted, 

and at this time appears unlikely to be enacted. 

In the interim, Federal Student Aid is working 

with the OMB to develop alternative methods. 

Federal Supplemental Educational 

Opportunity Grant and Federal Work-Study 

Programs. The Federal Supplemental 

Educational Opportunity Grant program is one 

of three campus-based3

 formula grant programs 

allocated to eligible institutions for the purpose 

of providing grants to needy undergraduate 

students attending the institution. During

FY 2005, the Department allocated $1 billion 

through the Federal Supplemental Educational 

Opportunity Grant program to institutions who 

awarded grants to about 1.3 million low-income 

students. 

The Federal Work-Study program is another of 

the three campus-based formula grant programs, 

providing part-time employment to needy

undergraduate and graduate students. In

FY 2006, the Department allocated $1.2 billion 

to schools. 

The Federal Supplemental Educational 

Opportunity Grant and Federal Work-Study

programs were surveyed and determined not to 

be of significant risk of improper payments. 

Combined, the two programs constituted 

$2.3 billion, or just 2.6 percent of the 

Department’s total payments in FY 2005. Each 

year, participating institutions complete the 

Fiscal Operations Report and Application to 

Participate. The Fiscal Operations Report and 

Application to Participate serves as a 

 3

 Campus-based financial aid programs are administered to 

students by participating postsecondary institutions and not 

by the Department of Education.

mechanism to report prior year funds usage and 

current year need. Each year, the aggregated 

amount of need (for all participating institutions) 

far exceeds the appropriated amounts for both 

Federal Supplemental Educational Opportunity

Grant and Federal Work-Study programs. 

Therefore, by design, the risk of over-awarding 

funds is inherently minimized since award 

distribution is prioritized by order of need, and 

not all students with demonstrated need actually

receive awards. Moreover, continuing oversight 

activities, including audits and program reviews, 

have not revealed significant risk in either of 

these programs. 

William D. Ford Federal Direct Loan 

Program. Similar to the FFEL Program, the 

William D. Ford Federal Direct Loan (Direct 

Loan) Program provides the following four 

types of loans to qualified individuals to assist 

with the cost of postsecondary education: 

(1) Stafford Subsidized; (2) Stafford 

Unsubsidized; (3) PLUS; and (4) Consolidation.

Under the Direct Loan Program, the Department 

uses Department of Treasury funds to provide 

loan capital directly to schools, which then 

disburse loan funds to students. During 

FY 2005, the Department disbursed 

$13.9 billion in Direct Loans (net of loan

consolidations) through participating institutions 

to 1.8 million applicants with financial need who 

met the program criteria. 

Similar to the Pell Grant Program, improper 

payments in the Direct Loan Program are 

generally the result of errors in the self-reported 

eligibility data provided on the FAFSA. 

However, since the aid is provided as a loan 

rather than a gift, and is subject to full 

repayment (some loans including interest), 

eligibility errors alone do not necessarily result 

in a significant loss to the government. 

Moreover, the authority of the Department to 

successfully pursue the collection of defaulted 

loans (properly or improperly made) through tax 

refund offsets, wage garnishment offsets, and 

other legal actions further reduces the 

government’s risk. The principal risk to the 

government lies in the cost of administering the 

loans and the subsidy—the net present value of 

cash flows to and from the government that 

result from providing these loans to borrowers. 

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The Department contracts with multiple 

educational and financial institutions to

originate, disburse, service, and collect Direct 

Loans, while the HEA and subsequent 

reauthorization actions determine the allowable 

interest rates and fees. Eligibility requirements 

are determined through the analysis of factors 

such as income and assets, and the schools make 

the final award decisions. Because of this 

multifaceted structure that encompasses multiple 

entity involvement and variable annual 

eligibility requirements, a full and rigorous 

assessment of the rate of improper payments in 

the Direct Loan Program is extremely complex. 

Despite this challenge, the Department is 

analyzing the eligibility data used to determine 

the Pell Grant improper payment rate as part of 

its comprehensive effort to lower the risk of 

improper payments in all financial aid programs 

that are reliant on applicants’ self-reported 

eligibility information. 

Academic Competitiveness/SMART Grants. 

In FY 2006, Federal Student Aid program

managers discussed the potential risks and 

controls for avoiding improper payments in the 

recently authorized Academic Competitiveness 

/SMART Grant program. Payment processes 

and risk categories have been identified. In 

addition, a risk control matrix has been 

developed for these new programs.

Federal Student Aid Administrative 

Payments. As part of our annual assessment of 

risk for the susceptibility of significant improper 

payments, we reviewed other types of payments 

made by Federal Student Aid. An initial review 

of the administrative payments such as payroll 

disbursements, vendor payments, and travel 

expenses determined that those payments were 

not susceptible to the risk of significant 

improper payments, as defined by IPIA and the 

related OMB implementation guidance. 

Statistical Sampling 

The size and complexity of the student aid 

programs make it difficult to consistently define 

“improper” payments. The legislation and the 

OMB guidance use the broad definition, “Any

payment that should not have been made or that 

was made in an incorrect amount under 

statutory, contractual, administrative, or other 

legally applicable requirement.” Federal 

Student Aid has a wide array of programs, each 

with unique objectives, eligibility requirements, 

and payment methods. Consequently, each 

program has its own universe (or multiple 

universes) of payments that must be identified, 

assessed for risk, and, if appropriate, statistically

sampled to determine the extent of improper 

payments. 

Federal Family Education Loan Program. 

The Department and Federal Student Aid have 

been working with the OMB on the 

implementation of the President’s Management 

Agenda initiative, Eliminating Improper 

Payments. The initiative involves a range of 

quarterly activities designed to ensure that the 

Department is prepared to meet the annual 

reporting requirements of the IPIA. Through

meetings and discussions with the OMB and 

other Department offices, Federal Student Aid 

finalized its sampling methodology for 

estimating improper FFEL program payments in 

compliance with the requirements of the IPIA 

and implementation guidance. 

In FY 2006, Federal Student Aid identified and 

performed an internal review of all invoices 

included in the statistically valid sample. All of 

the Guaranty Agencies and lenders associated 

with each of the invoices in the selected samples 

were identified. Twenty-one Guaranty Agencies 

and 47 lenders have been identified for on-site 

reviews, which will be conducted in FY 2007. 

Program review staff from Federal Student 

Aid’s Program Compliance business unit have 

been identified to perform the on-site reviews. 

For FY 2005, Federal Student Aid established a 

baseline of estimated improper payments in the 

FFEL Program by evaluating the following 

information: 

• Overpayments identified during Financial 

Partners Service program reviews of 

Guaranty Agencies, lenders and loan 

servicers during FY 2005. 

• Overpayments identified by independent 

public accountants and third-party audit 

162 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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firms in Single Audit4 reports for Guaranty 

Agencies and lenders. 

• Overpayments reported by the Department’s 

Inspector General in audits and reviews of 

Guaranty Agencies, lenders, and loan 

servicers during FY 2005. 

• Outstanding loan balance amounts at 

Guaranty Agencies, lenders, and servicers 

selected for review. 

The preliminary estimated rate for the FFEL 

Program is 2.2 percent. This estimate was 

derived based on an evaluation of the criteria 

aforementioned. 

The information was compiled by entity and 

compared to the total payments made to those 

entities in fiscal year 2005 to determine if there 

exists a susceptibility to significant improper 

payments. The focus of this analysis was to 

(1) determine a baseline error rate for FFEL 

payments, (2) establish an action plan for 

improving the accuracy of future measurements, 

and (3) ensure that the planned methodology and 

approach for measuring improper payments 

meets the requirements of the IPIA. 

During the fiscal year, the Inspector General 

issued an audit report that questioned payments 

made to an entity that participates in the Federal 

Family Education Loan Program. The findings 

cited in this report are under consideration by

the Department. Until the matter is resolved, the 

potential impact, if any, on the Department’s 

financial position is not possible to estimate. 

Federal Pell Grant Program. Section 484(q) 

of the HEA authorizes the Department to 

confirm directly with the IRS the AGI, taxes 

paid, filing status, and number of exemptions 

reported by students and parents on the FAFSA. 

Under the IRS Code, Federal Student Aid is not 

authorized to view the complete data, but is 

provided with summary data by the IRS.

The Department began routinely conducting 

studies with the IRS using FAFSA data for the 

 4 “Single audit” means an audit, which includes both the 

entity's financial statements and the federal awards

pursuant to the Single Audit Act of 1984, P.L. 98-502, and

the Single Audit Act Amendments of 1996, P.L. 104-156. 

The provisions of the statute are set forth in OMB Circular 

No. A-133, Audits of States, Local Governments, and NonProfit Organizations. 

2000-2001 award year. Data provided by the 

IRS study were used to estimate improper 

payments for the Pell Grant Program for the 

2004-2005 award year. Federal Student Aid is 

currently working with the IRS on the fifth 

annual study, using FAFSA data collected for the 

2005-2006 award year, which will be matched 

with IRS data for the 2004 income tax year. 

(Applicants for the 2005-2006 award year 

reported income information based on their 

actual or estimated 2004 income tax year.) 

In the latest completed study, which compared 

2004-2005 FAFSA data with 2003 IRS data, a 

sample file of 155,000 FAFSA applicant records 

was provided to the IRS along with a sampling 

program designed to allow the IRS to select the 

desired analysis sample from the larger file. 

This was done to preserve IRS confidentiality

requirements. The final sample, generated by

the IRS, contained 50,000 independent 

undergraduates and 50,000 dependent 

undergraduates (for whom parental data was 

matched). 

The IRS matched the final sample to its main 

database, and when a match occurred, it 

extracted the fields for AGI, taxes paid, type of 

return filed and earned income tax credit 

information for the tax filer and compared this 

information to similar information reported to 

the Department on the FAFSA. Using a 

computer program supplied by Federal Student 

Aid, the IRS calculated revised EFC and Pell 

Grant awards for matching records by

substituting the IRS income information for the 

FAFSA income information. The IRS provided

aggregated statistical tables to the Department 

that presented the results of these comparisons. 

The results allowed the Department to estimate 

the following Pell Grant improper payment 

information: 

• Improper payment rate and amount—The 

average amount of over- and underreporting of FAFSA income data—as 

compared to the IRS income data—and the 

potential dollar amount of improper Pell 

Grant awards; 

• Assessment of measurement accuracy—The 

volume of applicants for whom a mismatch 

between FAFSA and IRS data may be 

legitimate; 

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• Identification of further potential risks—

Types of applicants who are more likely to 

misreport income on the FAFSA; 

• Analysis of existing edits—Validity of the 

current verification selection edits, and 

information to further refine them. 

The table below presents a historical analysis of 

the results of the IRS Statistical Study of Pell 

Grants. 

William D. Ford Federal Direct Loan 

Program. The analysis and corrective actions 

developed for the Pell Grant Program, relative to 

application accuracy, will also improve the 

accuracy of Direct Loan program applications, 

because (1) the same application is used for both 

programs, and (2) eligibility for subsidized 

direct loans are founded on the same need-based 

analysis formula and institutional cost of 

attendance. Federal Student Aid, in 

coordination with the OMB, performed an 

assessment of the risk of improper payments 

based upon the comparison of school cash draws 

with loan disbursements for FY 2005. This 

assessment showed that the risk of improper 

payments in this function has decreased from

2003-2004 to 2004-2005 and is minimal at this 

time. However, we recognize the importance of 

being vigilant in analyzing data reported to the 

Department. The strengthening of verification 

to improve the accuracy of applicant reported 

data will have an effect on reducing improper 

payments in all Title IV programs, including the 

Federal Direct Loan Program. 

Corrective Actions 

Pell Grant Improper Payment Estimates 

($ in millions)

Fiscal Year DisbursementsUnderpaymentsOverpaymentsTotal Improper Payments*Percent Underpayments*Percent Overpayments*Percent Total Improper Pay

ments*

2001 $ 9,851 $ 64 $272 $336 .8% 3.4% 4.2%

2002 $11,619 $ 49 $328 $378 .5% 3.3% 3.8%

2003 $12,680 $205 $365 $569 1.8% 3.1% 4.9%

2004 $13,042 $221 $349 $571 1.8% 2.8% 4.5%

2005 $12,749 $140 $303 $444 1.1% 2.38% 3.48%

*Amounts are rounded

Federal Family Education Loan Program. 

Federal Student Aid is working closely with the 

OMB and other Department offices in the 

development of an action plan designed to

(1) improve the accuracy of the FFEL improper 

payment estimate, and (2) reduce the level of 

risk and the amount of known improper 

payments in the FFEL Program. Understanding 

and developing systems of internal controls over 

program payments is crucial to these goals. 

Federal Student Aid has a number of existing 

internal controls integrated into its systems and 

activities. Program reviews, independent audits 

and Inspector General audits of Guaranty 

Agencies, lenders, and servicers are some of its 

key management oversight controls. Other 

control mechanisms in place are described 

below. 

• System Edits—the systems used by the 

Guaranty Agencies, lenders, and servicers to 

submit fee bills for payment include “hard” 

and “soft” edits to prevent erroneous 

information from being entered into the 

system and translated into erroneous 

payments. The hard edits prevent fee bills 

with certain errors from being approved, and 

these errors must be corrected before 

proceeding with payment processing. The 

soft edits alert the user and Federal Student 

Aid to potential errors. Federal Student Aid 

reviews these warnings prior to approval of 

payment. 

• Reasonability Analysis—data stored in the 

National Student Loan Data System are used 

as a tool to assess the reasonability of fee 

billing, and to determine payment amounts 

164 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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for account maintenance and loan issuance 

processing fees paid to Guaranty Agencies. 

Federal Student Aid also performs trending 

analysis of previous payments to Guaranty 

Agencies, lenders and servicers, as a means 

of evaluating reasonableness of changes in 

payment activity and payment levels. 

• Focused Monitoring and Analysis—Federal 

Student Aid targets specific areas of FFEL 

payment processing that are at an increased 

risk for improper payments as areas of focus 

for increased monitoring and oversight. 

These existing controls are re-evaluated on a 

regular basis to determine their effectiveness and 

to allow Federal Student Aid to make necessary

corrections. Further, Federal Student Aid’s 

action plan incorporates the development of 

additional internal controls designed to improve 

the accuracy of future FFEL payments to 

lenders, servicers, and Guaranty Agencies. 

• Special Allowance Payments – increased 

focus and review of payments of fees to 

lenders and servicers associated with loans 

eligible for tax-exempt special allowance 

payments. 

• Guaranty Agencies – enhanced review of the 

Guaranty Agency Financial Report (Form

2000) to report collection activities, claims 

reimbursement, and loan portfolio status; 

and under- and over-billings for account 

maintenance, loan issuance, and processing 

fees associated with incorrect National 

Student Loan Data System reporting. 

Additional controls are being considered for 

both cost efficiency and effectiveness in

reducing FFEL payment errors. Updates to the 

corrective action plan will be reported to the 

OMB in the quarterly scorecard for Eliminating 

Improper Payments. 

Federal Pell Grant Program. Federal Student 

Aid has several initiatives underway designed to 

improve its ability to detect and reduce improper 

payments made in the Pell Grant Program. 

Working with the OMB on quarterly action plan 

objectives designed to facilitate full 

implementation of the IPIA, it has identified 

additional methods to determine the error rate 

and to estimate the annual amount of improper 

payments. 

Preliminary Analysis. Eligibility for Title IV 

student aid is determined through applicant selfreported income, family size, number of 

dependents in college, and assets. These data 

are reported through the FAFSA, which 

applicants typically complete prior to the April 

15 IRS tax filing deadline. The FAFSA data are 

key drivers in the determination of student aid 

program eligibility and eligible amounts. 

Federal Student Aid performs regular analysis 

on the accuracy of income and other financial 

data submitted via the FAFSA. These routine 

analyses include a variety of methods and 

techniques designed to ensure payment 

accuracy. 

• Annual Analysis of System Data - Analysis 

of central processing system data for 

anomalies. 

• Focus Groups - Meetings with educational 

institutions to discuss improving the 

integrity of FSA programs. 

• Quality Assurance - Enhanced program

integrity processes. 

• Verification - A process by which 

institutions compare applicant data to IRS 

data for the same period. 

Federal Student Aid is also using the IRS

statistical study in which financial data from a 

random sample of FAFSA submissions is 

compared to financial data reported to the IRS in 

annual income tax filings to identify new 

solutions for preventing improper payments. 

The analysis of the IRS statistical study indicates 

that failure to accurately report income, family

size, number of dependents in college, and assets 

may be the primary cause of improper payments 

within the Pell Grant Program. It is expected 

that a decrease in financial reporting errors 

would have the greatest impact on the reduction 

of estimated improper payments. In an effort to 

achieve this reduction, Federal Student Aid has 

requested authorization to perform a 100 percent 

match of the financial data reported on the 

FAFSA to the financial data reported to the IRS 

on applicant income tax returns. However, 

current law does not permit Federal Student Aid 

to verify income data with the IRS. Although

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Federal Student Aid plans to pursue this option,

it must continue to meet the reporting 

requirements of the IPIA. Federal Student Aid 

is pursuing alternatives that will accomplish the 

same result: reduced improper payments in the 

Pell Grant Program. 

William D. Ford Federal Direct Loan 

Program. While the risk of significant 

improper payments in the Direct Loan Program

has been considered minimal, Federal Student 

Aid developed a separate action plan to achieve 

IPIA reporting elements for this program during 

FY 2006. Assessment of the risk of improper 

payments in the Direct Loan Program was based 

upon an evaluation of the annual audits required 

of the schools participating in the programs. 

Information on all audits was queried from

Postsecondary Education Participants Systems, 

our management information system of all 

schools participating in the student aid 

programs. Audit deficiencies resulting in 

liabilities due to a specific Direct Loan Program

violation or due to a violation of regulations 

applicable to all programs were isolated. The 

liability amount for each deficiency applicable 

to the Direct Loan Program was calculated and 

compared with total funding. 

Alternatives to Verifying Self Reported AGI. 

Federal Student Aid, working with officials from

the OMB and the Department, has been 

exploring alternatives to the 100 percent IRS 

match for verifying self-reported financial 

information reported on the FAFSA, and 

assessing the strengths and weaknesses of those 

alternatives. Listed below are some of the 

alternatives that are being considered: 

• Private database matches (data aggregators). 

• Require actual tax returns for FAFSA filing. 

• Require update to income data at tax filing 

deadline. 

• Expand verification beyond 30 percent. 

The ongoing action plan details the steps 

necessary to (1) perform statistical analysis, 

(2) complete the review of the alternative, 

(3) incorporate current IRS statistical analysis, 

and (4) submit the recommended alternative or 

combination of alternatives. Progress in 

completing actions will continue to be reported 

to the OMB in the quarterly scorecard for 

Eliminating Improper Payments. 

The contractor’s correction plan verified that 

incorrect payments were identified by

completing two separate reviews of all National 

Student Loan Data System sourced 

certifications. This review verified that 

incorrectly disbursed funds were recovered, or 

are in the process of being recovered. In 

addition, the contractor reviewed the loan 

servicing accounts of both the underlying loans 

that were Direct Loans and the resulting 

consolidation loans to ensure that correcting 

transactions being passed from loan 

consolidation resulted in complete correction of 

the borrowers’ accounts, and no adverse impact 

was imposed on the borrower. This review 

included ensuring that borrowers’ progress 

toward and eligibility for on-time payment 

incentives was not affected, and that payments 

were correctly reapplied following receipt of the 

correcting transaction. 

Federal Student Aid’s ability to project improper 

payment reductions is wholly dependent upon

the completion of the corrective action plan and 

the selection of an alternative approach to a 

100 percent IRS income match for every 

application. This will not be a quick or easy

process. It is important to note that the system

development life cycle for the pertinent Federal 

Student Aid systems requires significant lead 

time for requirements, testing, coding and 

implementation of changes required to deploy

the changes necessary to reduce improper 

payments. 

166 FY 2006 Performance and Accountability Report—U.S. Department of Education 
Federal Student Aid Summary 

The following table presents the improper payments outlook for the primary Federal Student Aid 

Programs. 

Federal Student Aid Improper Payment Reduction Outlook Fiscal Years 2005 – 2009

($ in millions)

Actual Estimated 

2005 2006 2007 2008 2009 

Program Outlays1 IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ Outlays IP % IP $ 

Direct Loan 

Program $12,231 NA2 NA NA NA NA NA NA NA NA NA NA NA NA NA

FFEL 

Program4 $8,626 2.2% $190 $18,245 2.2% $401 $5,340 2.2% $117 $5,340 2.2% $117 $5,340 2.2% $117

Pell Grant 

Program $12,749 3.48%3 $444 $12,117 3.48% $422 $12,825 3.48% $446 $12,825 3.48% $446 $12,825 3.48% $446

1 Outlays reported in the table have been adjusted to reflect actual disbursements of funds, net of internal and intra-governmental 

adjustments or transfers. 

2 Federal Student Aid is working with the OMB and other Department offices to determine whether a statistically valid estimate of

improper payments is necessary for the Direct Loan Program. 3 Combined over- and under-payment error rate is 3.48 percent. A separate analysis of the overpayments and underpayments was 

previously presented in the Pell Grant table. 4 Federal Student Aid is working to update future year improper payment estimates as the methodology is further developed. 

Manager Accountability 

Federal Student Aid program managers are 

responsible for making recommended 

improvements and achieving quantifiable 

savings. The Federal Student Aid Executive 

Management Team monitors these efforts. The 

Executive Management Team is composed of 

key managers and is the executive decisionmaking body within Federal Student Aid. 

Further, the Office of Inspector General 

conducts periodic audits of student aid programs 

and makes appropriate recommendations to 

management and the Congress. 

Reducing improper payments in the Pell Grant 

Program has been a performance measure in the 

Department’s Strategic Plan since 2002. The 

IRS statistical study has also been included in 

Federal Student Aid’s Annual Plans. In 

addition, projects have been included in the 

Federal Student Aid Annual Plan to improve the 

verification process results. 

Beginning in 2005, a control group of FAFSA

applicants who had estimated their 2004 income 

when completing the application were advised 

after April 15 to revise the application with the 

correct and known information filed on their 

2004 income tax return. 

Statutory or Regulatory Barriers 

As stated previously, a database match with the 

IRS would likely improve the accuracy of Pell 

Grant awards. In addition, it would eliminate 

the need for schools to rely on paper copies of 

tax returns submitted by the applicant (and the 

applicant’s parent, if the applicant is dependent) 

to verify AGI and taxes paid amounts. 

However, legislation to amend the Internal 

Revenue Code to permit the database match has 

not yet been enacted and at this time appears 

unlikely to be enacted. 

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Title I 

The Department performed a risk assessment of 

the Elementary and Secondary Education Act

Title I Program, parts A, B, and D, during 

FY 2006. The Erroneous Payments Risk 

Assessment Project Report documented that the 

risk of improper payments under the current 

statutory requirements is very low. In order to 

validate the assessment data, the Department 

conducted an on-site monitoring review in 

FY 2006 that encompassed all states and 

territories receiving Title I funds with a threeyear review cycle. The Office of the Chief 

Financial Officer participated with the Office of 

Elementary and Secondary Education in the 

monitoring process, beginning March 2005, to 

provide technical support regarding fiduciary

compliance. There were no findings in the 

monitoring reviews with questioned costs that 

contradicted the data in the risk assessment. 

The Department is continuing to review and 

monitor for data quality. A key element of the 

monitoring process involves the wide use of the 

number of children who qualify for free and 

reduced price meals to determine an individual 

school’s Title I eligibility and allocation by local 

educational agencies. The Title I statute 

authorizes local educational agencies to use 

these data, provided under U.S. Department of 

Agriculture’s National School Lunch Program, 

for this purpose. In many districts these data are 

the only indicator of poverty available at the 

individual school level. 

Currently, the U.S. Department of Agriculture is 

working with states and localities to improve 

program integrity, within the existing statutory

and regulatory framework, through enhanced 

monitoring and auditing to improve program

integrity. The U.S. Department of Agriculture is 

also working with the Department and other 

federal agencies that have programs that make 

use of these data to explore long term policy

options. 

Manager Accountability 

In fiscal year 2006, the Department used a 

database of the OMB Circular A-133 single 

audit findings to provide feedback to program

managers regarding the frequency and 

distribution of findings within their programs. 

This will assist the managers in tailoring their 

program monitoring efforts to the type of

findings that most frequently occur. 

Additionally, a new grants monitoring training 

course is now offered and a post-audit follow-up 

overview course is currently being developed to 

improve the usefulness of OMB Circular A-133 

single audits to the Department. 

The Department also plans to develop manager’s 

internal control training that will focus on 

controls to eliminate improper payments. The 

mandatory one-day seminar for all Department 

managers will provide a framework for 

administering the improper payment controls 

program utilizing applicable regulations, 

guidelines, and best practices. Part of this oneday training will focus on the utilization of the 

risk assessment criteria to properly assess the 

risk of improper payments in the Department’s 

programs. 

Planned Corrective Actions 

In addition to the actions previously outlined 

under the Federal Student Aid Programs and 

Title I sections, the Department will configure 

our corrective action plans based on the results 

of the initiatives outlined above. The 

Department will record and maintain corrective 

action plans as required. These records will 

include due dates, process owners, and task 

completion dates. 

168 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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Information Systems and Infrastructure 

The Department has requested $450,000 for 

FY 2007 and $450,000 for FY 2008 in our 

budget submission for information system

infrastructure improvements. A portion of the 

funds will be used to continue the refinement of 

the Oak Ridge National Laboratory data mining 

effort. It is also anticipated that the Department 

will incur costs related to mitigation activities. 

Remaining Grant Programs 

During FY 2006, the Department expanded and 

strengthened its approach to evaluating the risk 

of improper payments associated with its 

remaining grant programs. The Department 

continued to work with the Department of 

Energy’s Oak Ridge National Laboratory to 

perform data-mining on information available in 

the Federal Audit Clearinghouse’s Single Audit 

Database, the Department’s Grant 

Administration and Payment System, and the 

Department’s Audit Accountability and 

Resolution Tracking System. 

The Department’s approach to the risk 

assessment process for non-Federal Student Aid 

grant programs was to develop a methodology to

produce statistically valid measures that could 

be applied uniformly across the Department’s 

programs. The intent is to use the same

methodology across all non-Federal Student Aid 

grant programs to establish a level of quality

control for all programs and at the same time 

produce a cost effective measure. The 

Department deemed it cost effective to utilize 

the results of the thousands of single audits 

already being performed by independent 

auditors on grant recipients. 

FY 2006 Improvement to Risk 

Assessment 

One of the concerns that resulted from the 

FY 2005 Oak Ridge National Laboratory study

is the definition of what constitutes a “program.” 

The Department’s original definition was at a 

high level in order to effectively match 

anticipated outlays as defined in our budget 

submissions and consequently grouped many

Catalogue of Federal Domestic Assistance 

(CFDA) numbers into a single “functional 

program.” The concern with this definition was 

that calculating estimated improper error rates at 

that high of a level can effectively mask the 

potentially higher rates that might exist if a 

“program” is defined to mean the CFDA level. 

To further refine the Department’s methodology, 

Oak Ridge National Laboratory was tasked to 

perform the FY 2006 risk assessment at the 

CFDA level in addition to the functional

program level. The details of this analysis are 

available from the Office of the Chief Financial 

Officer upon request. 

Another change implemented for the FY 2006 

review was to count all costs identified as 

questioned costs in single audits as improper 

payments. The FY 2005 assessment reduced the 

questioned costs by one half to account for the 

questioned costs that are not sustained during the 

audit resolution process. Although it was 

reasonable to adjust the questioned costs 

downward to account for the low percentage of 

sustained questioned costs, the Department 

determined a more conservative approach better 

serves the intent of the IPIA. In addition, the 

risk assessment is designed to establish the 

upper bound of improper payments for the 

programs. 

Risk Assessment 

To conduct the risk screening, Oak Ridge 

National Laboratory augmented the Audit 

Accountability and Resolution Tracking System

database with imputed values for the “likely

questioned costs” for grants that were not 

audited. The imputed and real questioned costs 

could then be tabulated to provide a reasonable 

upper bound estimate of the rate of erroneous 

payments for each of the functional programs of 

interest. If the computed upper bound 

percentage is below 2.5 percent, then the actual 

FY 2006 Performance and Accountability Report—U.S. Department of Education 169
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value will be lower than 2.5 percent. If the 

computed upper bound percentage is greater 

than 2.5 percent, then the actual value may be 

greater or less than 2.5 percent but the 

Department will need additional information to 

determine the appropriate estimate. 

The key results of the analysis are presented in 

the chart. It contains the estimates of the

average functional program rates of questioned 

costs for recent years. The most striking point 

about the table is the generally low rate of 

questioned costs. With only one exception, the 

rates are below 2.5 percent. The key finding of 

this analysis is that for the most recent year for 

which data are available (FY 2004), none of the 

functional programs exceeds the threshold value 

of 2.5 percent. The assessment at the CFDA 

level revealed similar results. Consequently, 

none of the programs should be labeled as a 

high-risk program.

Managing Risk in Discretionary Grants 

In FY 2006, the Department managed more than 

10,000 discretionary grant awards. Due to the 

vast legislative differentiation and the 

complexity of the Department's grant award 

programs, ensuring that our program staff are 

fully aware of potentially detrimental issues 

relating to individual grantees is a significant 

challenge. Program offices must occasionally 

designate specific grants as high-risk, following 

collaboration with the respective program legal 

counsel and the Department's Grants Policy and 

Oversight Staff. 

In an effort to ensure efficiency and reduce risk, 

the Department has established the Grants HighRisk Module. This module is housed within the 

Department's Grant Administration and Payment 

System, such that program office staff are 

required to review and certify their awareness of 

the high-risk status of applicable grantees before 

making awards. 

Policies and procedures were developed to 

support implementation of the high-risk module. 

System input to the module's database is limited 

to specific grants policy staff who are fully

trained in policy and system use. In addition to

the module's certification requirement, various 

reports are provided such that continual 

monitoring of grantee risk is made available to 

Department program administrators. 

Grant Program

Improper Payment Estimates 

% 

Functional Program 

2001 2002 2003 2004

Education Research,

Statistics & Assessment

0.00 0.02 0.36 0.0

Elementary & Secondary 

Education 

0.13 0.12 0.13 0.6

English Language Acquisition 0.00 0.02 0.10 0.1

Higher Education 2.72 0.29 0.21 0.4

Impact Aid 0.00 0.55 0.04 0.4

Innovation and Improvement 0.28 0.21 0.23 0.1

Rehabilitation Services & 

Disability Research

0.07 0.12 0.32 2.1

Safe & Drug-Free Schools 0.37 0.33 0.13 1.2

Special Education 0.09 0.06 0.83 0.1

Title I 0.04 0.16 1.19 0.2

Vocational & Adult Education 0.20 0.25 0.12 0.2

Total 0.06 0.04 0.16 0.4

Implementation of the module provides greater 

accountability and significantly reduces risk 

within the Department's grant award process by

ensuring program office awareness of potentially

detrimental grantee issues prior to award 

determination. We anticipate that increased 

accessibility of information and communication 

across our program offices will promote further 

monitoring of high-risk grantees, such that the 

number of grantees so designated will decline. 

170 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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Recovery Auditing Progress 

To effectively address the risk of improper 

administrative payments, the Department 

continued a recovery auditing initiative to 

review contract payments. All vendor payment 

transactions made from FY 1998 through 

FY 2005 were reviewed. Potential recoveries 

are minimal. Fiscal year 2006 payments will be 

reviewed during FY 2007. Our purchase and 

travel card programs remain subject to monthly

reviews and reconciliations to identify potential 

misuse or abuse. 

Summary 

The Department of Education is continuing its 

efforts to comply with the Improper Payments 

Information Act. While there are still challenges 

to overcome, the Department has demonstrated 

in FY 2006 that it is committed to ensuring the 

integrity of its programs. The Office of

Management and Budget recognized our 

progress in managing improper payments when 

the Department’s implementation progress 

scorecard was raised to green on the President’s 

Management Agenda initiative for Eliminating 

Improper Payments. 

The Department is focused on identifying and 

managing the risk of improper payment 

problems and mitigating the risk with adequate 

control activities. In FY 2007, we will continue 

to work with the OMB and the Inspector 

General to explore additional methods for 

identifying and reducing potential improper 

payment activity in our programs, and to ensure 

compliance with the IPIA. 

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REPORT TO CONGRESS ON AUDIT FOLLOW-UP

Report to Congress on Audit Follow-up 

The Inspector General Act, as amended, requires 

that the Secretary report to the Congress on the 

final action taken for the Inspector General 

audits. With this Performance and 

Accountability Report, the Department of 

Education is reporting on audit follow-up 

activities for the period October 1, 2005, through 

September 30, 2006. 

The Audit Accountability and Resolution 

Tracking System is the Department’s single 

database system used for tracking, monitoring, 

and reporting on the audit follow-up status of the 

Government Accountability Office audits; the 

Office of Inspector General issued internal 

audits, external audits, and alternative products; 

and Single Audits of funds held by non-federal 

entities. The Department’s audit follow-up 

system functionalities allow the following: 

• Tracking of internal, external, sensitive, and 

alternative product types from inception to 

final disposition. 

• Evaluation and escalation points for audit 

reports and recommendations at appropriate 

levels in the user hierarchy. 

• Notifying users of audit decisions and 

approaching or expiring events and 

transactions. 

• Downloading report and query results into

electronic file formats. 

• Attaching files to the audit record. 

• Providing a personal portal (Digital 

Dashboard) for user-assigned transactions. 

• Providing a search function to query

application (Audit Report) data. 

• Providing for both a defined and an ad hoc 

report generation environment. 

Number of Audit Reports and Dollar 

Value of Disallowed Cost 

At the start of this reporting period, the balance 

for audit reports with disallowed costs totaled 

59, representing $34.3 million. At the end of the 

reporting period, the outstanding balance was 

72 audits, representing $42.9 million. The 

information in the table below represents audit 

reports for which receivables were established. 

Final Actions on Audits with Disallowed Costs

Fiscal Year Ended September 30, 2006 

Number of

Reports 

Disallowed 

Costs 

Beginning Balance as of 10/1/2005 59 $ 34,285,141 

+ Management Decision 192 28,670,284 

Pending Final Action 251 $ 62,955,425 

- Final Action 179 20,078,463 

Ending Balance as of 9/30/2006 72 $ 42,876,962 

Number of Audit Reports and Dollar 

Value of Recommendations That Funds 

Be Put to Better Use 

The Department has a total of 9 audit reports of 

which one is under review. The remaining 

8 audit reports totaling $254 million with 

recommendations that funds be put to better use. 

Only 4 of these, totaling $12.5 million, have 

been resolved. Resolution occurs when there is 

agreement between the program office and the 

Department’s Office of Inspector General on the 

corrective actions that will be taken to address 

all of the recommendations in the audit.

Reports Pending Final Action One Year 

or More After Issuance of a Management 

Decision 

As of September 30, 2006, the Department has a 

total of eight Office of Inspector General 

internal and nationwide audit reports on which 

final action was not taken within a year after the 

issuance of a management decision; 62 percent 

were less than two years old. Many corrective 

actions are dependent upon major system

changes that are currently being implemented. 

For detailed information on these audits, refer to 

the Department’s Semiannual Report to

Congress on Audit Follow-up Number 35.

172 FY 2006 Performance and Accountability Report—U.S. Department of Education 
OTHER ACCOMPANYING INFORMATION

CREDIT MANAGEMENT AND DEBT COLLECTION IMPROVEMENT ACT

Credit Management and Debt Collection Improvement Act 

The Department of Education has designed and 

implemented a comprehensive credit 

management and debt collection program that 

enables us to effectively administer our multibillion-dollar student loan and other programs. 

The credit management and debt collection 

program covers each phase of the credit cycle—

including prescreening of loan applicants, 

account servicing, collection, and close-out—

and it conforms to the government-wide policies 

in the Federal Claims Collection Standards, the 

Office of Management and Budget Circular No. 

A-129, “Managing Federal Credit Programs,” 

and the Debt Collection Improvement Act. As a 

result, the Department has made significant 

strides in student loan default management and 

prevention. 

The Department has been working diligently 

with schools and partners in the student loan 

industry to reduce the cohort default rate. The 

fiscal year 2004 cohort default rate is 

5.1 percent. The low default rate is a function of 

the Department’s improved borrower counseling 

and the steps we have taken in gate keeping to 

remove schools with high rates from

participating in the federal student loan 

programs. 

Borrowers who default on student loans face 

serious repercussions, such as the withholding of 

federal income tax refunds and other federal 

payments, wage garnishment, adverse credit 

bureau reports, denial of further student aid, and 

prosecution. To avoid these sanctions, 

defaulters have the option to consolidate their 

loans and establish an income-based repayment 

plan that more realistically matches their ability

to pay. 

The Department also continues to conduct 

computer matches with other federal agencies as 

part of our effort to strengthen the management 

and oversight of student financial assistance 

programs. The computer matches are designed 

to ensure that students meet various eligibility

criteria and to increase the collections from

students who have defaulted on their loans. 

The Department categorizes debt into two basic 

categories: student loan debt, which accounts 

for approximately 99 percent of all of the 

Department’s outstanding debts, and 

institutional and other administrative debt. The 

Department of Treasury granted the Department 

a permanent exemption from the cross-servicing 

requirements of the Debt Collection 

Improvement Act for defaulted student loans and 

approval to continue to service our own internal 

student loan debts because of our successful 

track record. However, we have been referring 

eligible student loan debts—those we previously

tried to collect using all other available tools—to 

the Department of Treasury for tax refund offset 

since 1986. 

The Department handles our institutional and 

administrative debts outside of the systems 

established for student loans. The Department 

was one of the first to participate in the Treasury

Cross Servicing Program and has been referring 

delinquent debts since October 1996. As of 

September 30, 2006, we have forwarded 

approximately 95 percent of all institutional and 

administrative debts eligible for cross servicing 

to Treasury. 

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176 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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MANAGEMENT CHALLENGES FOR FISCAL YEAR 2007

The Office of Inspector General (OIG) works to promote efficiency, effectiveness, and integrity in the 

programs and operations of the U.S. Department of Education (Department). Through our audits, 

inspections, investigations, and other reviews, we have identified areas of concern within the 

Department’s programs and operations and have recommended actions the Department should take to 

address these weaknesses. The Department generally implements our recommendations and takes action 

to recover funds from grantees, contractors, and other recipients we identify as wrongly paid. While our 

work is a valuable tool for the Department, it is not a substitute for good management and organizational 

accountability. 

The Reports Consolidation Act of 2000 requires OIG annually to identify and summarize the top 

management and performance challenges facing the Department, as well as to provide information on the 

Department’s progress in addressing those challenges. Based on our recent work and knowledge of the 

Department’s programs and operations, we have identified three specific challenge areas for the 

Department for FY 2007: (1) accountability; (2) information technology; and (3) human resources (HR). 

While this report discusses the progress the Department is making in addressing these challenges, it is 

evident that additional focus, attention, and emphasis are needed. 

1. ACCOUNTABILITY

Challenge: Internal Control and Oversight

The success of an organization’s mission and the achievement of its goals depend on how well it manages 

its programs. It cannot effectively manage its programs without establishing and maintaining appropriate 

internal accountability. In 1999, the Government Accountability Office released “Standards for Internal 

Control for the Federal Government,” a document that provides federal agencies with an overall 

framework for establishing and maintaining internal controls, i.e., the plans, methods, and procedures that 

will help the organization meet its goals and achieve its objectives. 

Our recent audits, inspections, and investigations continue to uncover problems with program control and 

oversight of program participants, placing billions of taxpayer dollars at risk of waste, fraud, abuse and 

non-compliance. The Department must ensure that all entities involved in its programs are adhering to 

statutory and regulatory requirements, and that the offices responsible for administering these programs 

are providing adequate oversight of program participants. Only by improving effective oversight of its 

operations and demanding accountability by its managers, staff, contractors, and grantees can the 

Department be an effective steward of the billions of taxpayer dollars supporting its programs and 

operations. 

The Department’s Progress: The Department has made some progress toward improving oversight and 

monitoring of non-student financial assistance programs. For the Elementary and Secondary Education 

Act (ESEA) Title I program, the Department’s monitoring plan now includes participation by staff from

the Office of the Chief Financial Officer to provide technical support in the fiduciary area of the reviews. 

In a review of audited questioned costs and analysis of improper payments, the Department is no longer 

reducing questioned costs by 50 percent to establish an estimated amount of sustained costs, but is 

correctly using the full amount to better establish an upper bound of improper payments. The Department 

also has implemented a Grants High-Risk Module within the Grant Administration and Payment System

to better alert program offices of potentially detrimental grantee issues prior to award determination. 

To address internal control issues identified by our work, Federal Student Aid (FSA), the office that 

administers the student financial assistance programs, made changes to the organizational structure of one 

of its internal offices, Financial Partners, and transferred the regional offices out of Financial Partners to a 

FY 2006 Performance and Accountability Report—U.S. Department of Education 177
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new Program Compliance organization. The functional statements for the new organizations, however, 

indicate overlapping jurisdiction and do not clearly delineate responsibility for resolving compliance 

violations. 

Challenge: Improper Payments

Improper payments include those made in the wrong amount, payments made to an ineligible recipient, or 

payments improperly used by the recipient. The need for agencies to take action to eliminate

overpayments is recognized by the President’s Management Agenda, as well as the Improper Payments 

Information Act of 2002. Identifying and correcting improper payments remains a challenge for the 

Department, which is a result of ineffective oversight and monitoring of its policies, programs and 

program participants. 

The Department’s Progress: To address the requirements of the Improper Payments Information Act, 

the Department continued to participate in presentations or perform monthly monitoring site visits for its 

ESEA Title I program at various state and local educational agencies. It also continued to enlist the help 

of the Oak Ridge National Laboratory to perform its risk analysis of its non-student financial assistance 

programs. The 2006 Oak Ridge National Laboratory Report indicated that the Title I program was not at 

risk of exceeding the 2.5 percent Improper Payments Information Act threshold that would require further 

statistical review. The Department is also performing on-site monitoring reviews for its ESEA Title III 

program. 

With regard to the student financial assistance programs, FSA has undertaken several initiatives to help 

address and reduce improper payments. Some of these efforts have included a continued focus on 

controls over financial aid applications; performing risk assessments; working with the Office of 

Management and Budget (OMB) and the Department on a quarterly basis to address various Improper 

Payment Information Act implementation issues, such as the sampling methodology for estimating 

improper payments; conducting studies with the Internal Revenue Service; focused monitoring activities; 

and performing various analyses of certain data in the FSA programs. For the most recent year, 2004-05, 

FSA reported an improper payment rate for the Pell Grant program of 3.48 percent, down from 4.5 

percent for the prior year. FSA also is taking steps to identify risks and establish controls to avoid 

improper payments in a new program – the Academic Competitiveness/SMART Grant program. 

Challenge: Procurement

The Department contracts for many services that are critical to its operations, at a value of close to $1 

billion a year. The Department must improve its procurement and contract management processes to 

ensure that it is receiving quality goods and services in accordance with the contract terms. Our audit 

work continues to find weaknesses in the Department's processes for monitoring contractor performance, 

such as not effectively tracking and inspecting deliverables, paying for deliverables that were not 

provided, not adequately reviewing invoices, improperly providing incentive payments, giving 

unauthorized instructions to the contractor, not informing the contracting officer of changes in key

personnel, and not documenting evaluations of contractor reports. 

The Department’s Progress. In response to OIG's continuing audits of the contracting monitoring

processes, the Department issued a new procedure requiring that contract monitoring plans be developed 

for all new contracts. This procedure was issued in December 2005, and also required that contract 

monitoring plans be developed for all existing contracts by January 31, 2006. In March 2006, the 

Department updated its policy, Contract Monitoring for Program Officials, to correct issues noted in 

prior OIG reviews. 

178 FY 2006 Performance and Accountability Report—U.S. Department of Education 
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2. INFORMATION TECHNOLOGY 

Challenge: Information Security

The Federal Information Security Management Act (FISMA) requires each federal agency to develop, 

document, and implement an agency-wide program to provide information security for the information 

and information systems that support the operations and assets of the agency, including those provided or 

managed by another agency, contractor, or other source. It also requires the Inspectors General to 

perform an annual, independent evaluation of its agency’s information security program and practices. 

We have conducted FISMA compliance audits for the last four years. In each case, we identified security

weaknesses that the Department must address to maintain the security certification and accreditation of its 

systems. We determined that certain management, operational, and technical security controls need 

improvement to adequately protect the confidentiality, integrity, and availability of its systems. We have 

identified weaknesses in the Department’s incident handling process and procedures, intrusion detection 

system deployments, and enterprise-wide technical configuration standards for all systems. In addition, 

we found that its outsourced data centers do not have adequate security controls and safeguards in place 

to protect personally identifiable information (PII) and other sensitive information that is stored on its 

system tape backups. During a related audit, we also found that the office in the Department that had the 

highest number of contractors in FY 2005 had not ensured that all contractor staff met screening 

requirements before giving them access to the Department data and facilities. These deficiencies must be 

addressed in order to maintain the security certification and accreditation of its systems, as well as to 

protect PII and other sensitive information. 

The Department’s Progress: The Department continues to struggle to establish a mature computer 

security program in the areas of developing technical configuration standards for all its systems, 

managing its outsourced contractors who operate its critical information systems, and ensuring the 

identification and response to its incident handling program and intrusion detection systems. 

The Department recently established plans to improve its controls relating to the protection of PII in order 

to meet the standards and good practice requirements established by OMB. Budget and contracting 

constraints have negatively impacted the Department in moving forward with improving these controls. 

Challenge: Information Technology Capital Investment and Project Management

The Department’s anticipated FY 2007 Information Technology (IT) capital investment portfolio is over 

$90 million, and many critical IT projects are pending, including investments in the Office of the Chief 

Financial Officer, the Office of the Chief Information Officer, and FSA. It is critical that the Department 

have a sound IT investment management control process that can ensure that technology investments are 

appropriately evaluated, selected, justified, and supported. This oversight and monitoring process must 

address IT investments as an agency-wide portfolio. It must also ensure that individual projects are 

appropriately managed so as to meet their technical and functional goals on time and on budget. As part 

of this process, the Department must identify a means of conducting independent evaluations of 

significant IT projects. Independent Verification and Validation (IV&V) could be a viable approach, if 

the IV&V results are shared with the Investment Review Board for its consideration. Poor management 

of individual IT investments leads to wasted resources and/or unreliable or inadequate systems. 

The Department’s Progress: While the critical issue of independent assessment remains unaddressed, 

the Department has recently strengthened the IT capital investment program by expanding the Investment 

Review Board and Planning and Investment Review Group memberships. The Department has also made 

FY 2006 Performance and Accountability Report—U.S. Department of Education 179
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MANAGEMENT CHALLENGES

continued efforts to strengthen individual business cases, and to map proposed investments to an agencywide enterprise architecture strategy. These efforts are important and should continue. 

3. HUMAN RESOURCES 

Challenge: Human Capital Management and Human Resources Services

Our last several Management Challenges reports have included human capital planning as one of the 

significant challenges facing the Department. Like most federal agencies, the Department will see a 

significant percentage of its workforce eligible for retirement in 2007. The Department is also continuing 

to see a significant change in critical skill requirements for many of its staff. Identification of needed 

action steps and prompt implementation of action items to adequately address these workforce and 

succession planning issues, including recruitment, hiring and retention, is critically important. 

The Department has already committed considerable time and resources to prior HR initiatives -- One-ED 

and the HR most efficient organization -- that were minimally beneficial, if at all. In order to address the 

HR issues facing it, the Department must be willing to commit adequate resources. 

The Department’s Progress: In January 2006, the Secretary approved a request from FSA to set up an 

independent HR function on a pilot basis. Also this year, the Department focused on performance 

management and worked with all Department managers to improve their understanding of performance 

agreements and ratings. It hired a Deputy Human Capital Officer who is focused on improving HR issues 

throughout the Department. We understand that it will soon release a new strategy for improving HR. 

180 FY 2006 Performance and Accountability Report—U.S. Department of Education 
Glossary of 

Acronyms and 

Abbreviations 

FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

GLOSSARY OF ACRONYMS AND ABBREVIATIONS

Glossary of Acronyms and Abbreviations 

ACSI American Customer Satisfaction Index 

AEFLA Adult Education and Family Literacy Act 

AGI Adjusted Gross Income

APEB Act to Promote the Education of the Blind 

ATA Assistive Technology Act of 2004 

CFAA Compact of Free Association Amendments Act of 2003 

CFDA Catalogue of Federal Domestic Assistance 

CRA Civil Rights Act of 1964 

CSRS Civil Service Retirement System

DM Department Management 

EDA Education of the Deaf Act of 1986 

EFC Expected Family Contribution 

ESEA Elementary and Secondary Education Act of 1965 

ESRA Education Sciences Reform Act of 2002 

FAFSA Free Application for Federal Student Aid 

FASAB Federal Accounting Standards Advisory Board 

FECA Federal Employees’ Compensation Act 

FERS Federal Employees Retirement System

FFB Federal Financing Bank 

FFEL Federal Family Education Loan 

FFMIA Federal Financial Management Improvement Act of 1996 

FISMA Federal Information Security Management Act of 1982 

FMFIA Federal Managers’ Financial Integrity Act 

FSA Federal Student Aid

FY Fiscal Year 

GEAR UP Gaining Early Awareness and Readiness for Undergraduate Programs 

GSA General Services Administration 

HBCUs Historically Black Colleges and Universities 

HEA Higher Education Act of 1965 

HKNCA Helen Keller National Center Act 

HR Human Resources 

IDEA Individuals with Disabilities Education Act 

IES Institute for Education Sciences 

IP Improper Payments 

IPIA Improper Payments Information Act of 2002 

182 FY 2006 Performance and Accountability Report—U.S. Department of Education 
 

GLOSSARY OF ACRONYMS AND ABBREVIATIONS

IRS Internal Revenue Service 

IT Information Technology 

IUS Internal Use Software 

IV&V Independent Verification and Validation 

MECEA Mutual Educational and Cultural Exchange Act of 1961 

MVHAA McKinney-Vento Homeless Assistance Act 

NLA National Literacy Act of 1991 

OCR Office for Civil Rights

OELA Office of English Language Acquisition 

OESE Office of Elementary and Secondary Education 

OIG Office of Inspector General 

OII Office of Innovation and Improvement 

OMB Office of Management and Budget 

OPE Office of Postsecondary Education 

OPM Office of Personnel Management 

OSDFS Office of Safe and Drug-Free Schools 

OSERS Office of Special Education and Rehabilitative Services 

OVAE Office of Vocational and Adult Education 

PAR Performance and Accountability Report 

PART Program Assessment Rating Tool 

PII Personally Identifiable Information 

PMA President’s Management Agenda 

RA Rehabilitation Act of 1973 

SOF Statement of Financing 

SY School Year 

TASSIE Title I Accountability Systems and School Improvement Efforts 

TRIO A group of grant programs under the HEA, originally three programs; not an 

acronym

USC United States Code 

VTEA Carl Perkins Vocational and Technical Education Act of 1998 

WWC What Works Clearinghouse

YRBSS Youth Risk Behavior Surveillance System

FY 2006 Performance and Accountability Report—U.S. Department of Education 183

Highlights and a CD of the 

Department of Education 

Fiscal Year 2006 Performance and Accountability Report 

are available by contacting ED Pubs, the Department’s Publication Center. 

ED Pubs

U.S. Department of Education 

P.O. Box 1398 

Jessup, MD 20794-1398 

Telephone: (877) 4EDPUBS [(877)-433-7827] 

or: (800) USALEARN [(800)-872-5327] 

Fax: (301) 570-1244 

E-mail: edpubs@inet.ed.gov

TDD/TYY: (877) 576-7734 

Web: http://www.ed.gov/about/reports/annual/2006report/index.html

The Department’s Strategic Plan is available on the Web at: 

http://www.ed.gov/about/reports/strat/plan2002-07/index.html

Department annual plans and annual reports are available on the Web at: 

http://www.ed.gov/about/reports/annual/index.html

The Department welcomes all comments and suggestions on both the content and 

presentation of this report. Please forward them to: 

Office of the Chief Financial Officer 

U.S. Department of Education

Washington, D.C. 20202-0600

E-mail: PARcomments@ed.gov

The following companies were contracted to assist in the preparation of the 

U.S. Department of Education Fiscal Year 2006 Performance and Accountability Report: 

For general layout and Web design: Westat 

For database design: Plexus Corporation 

For accounting services: IBM Business Consulting Services 

 KPMG, LLP 

Cotton & Company, LLP
OUR MISSION IS TO ENSURE EQUAL ACCESS TO EDUCATION

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