GAO

United States General Accounting Office

Report to Congressional Requesters

August 2000 FINANCIAL 

MANAGEMENT

Review of Education’s 

Grantback Account

GAO/AIMD-00-228

Page 1 GAO/AIMD-00-228 Education’s Grantback Account

United States General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-285684 Letr

August 18, 2000

The Honorable Pete Hoekstra

Chairman

The Honorable Charlie Norwood

Vice Chairman

Subcommittee on Oversight and Investigations

Committee on Education and the Workforce

House of Representatives

You requested that we review the Department of Education’s grantback 

account. As you requested, this report includes general information on the 

intended purpose of the grantback account; the annual grantback account 

balance since inception; and the grantback account balance as of 

December 31, 1999. You also requested that we evaluate how the grantback 

account has been used since inception; whether there is support for the 

transactions in the grantback account; whether the transactions in the 

grantback account are valid; and whether any federal laws have been 

violated by the existence and management of the grantback account. 

Education provides grants for various education programs, such as 

postsecondary, special education, and vocational programs, and has over 

150 appropriation accounts to fund its grant programs, over 16,000 grant 

recipients, and for fiscal year 1999 reported about $30 billion in grant 

expenses.1

 Grant recipients meeting certain thresholds2 are required by law 

to have audits (referred to as Single Audits3

) which include tests of their 

compliance with requirements that have a direct and material effect on a 

1

Education, established on May 4, 1980, is responsible for administering and accounting for 

various education grant programs and other loan programs under its charge.

2

The requirements apply to grant recipients who annually expend federal awards of 

$300,000 or more (or received awards of $100,000 or more prior to June 1997).

3

OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations −

Revised June 24, 1997, issued pursuant to the Single Audit Act of 1984, P.L. 98-502, and the 

Single Audit Act Amendments of 1996, P.L. 104-156, sets forth standards for obtaining 

consistency and uniformity among federal agencies for the audit of states, local 

governments, and nonprofit organizations expending federal awards.
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Page 2 GAO/AIMD-00-228 Education’s Grantback Account

major program.4 If the Single Audits or other audits (such as those that 

Education might perform itself) identify certain noncompliance, recipients 

must repay Education the amount related to the noncompliance. If the 

grant recipient meets certain conditions, including correcting the 

noncompliance, Education may return up to 75 percent of the amounts 

recovered in the form of grantback payments. Ultimately, any remaining 

funds would be returned to the Department of the Treasury. In 1991, 

Education established a deposit fund with the Treasury to retain 

availability of funds needed to make grantback payments and account for 

the grantback activity. This deposit fund is referred to as the grantback 

account.

To provide the information you requested and address your specific 

questions, we evaluated Education’s financial management system and 

manual internal controls over grantback activity and related funds control, 

and reviewed the actions already taken and planned by Education to 

address grantback account issues that we and other auditors have 

identified. On May 3, 2000, we briefed your staff on the results of our work. 

This report summarizes the information provided at that briefing. The 

attached briefing slides provide the detail on the results of our work and 

the information provided at the briefing. (See appendix I.) Also, these 

matters were included in our May 24, 2000, testimony on Education’s 

financial management problems.5

Results in Brief As a result of financial management system deficiencies, inadequate 

systems of funds control, and manual internal control weaknesses that we 

and other auditors have identified and the manner in which the grantback 

account was used, there is increased risk of fraud, waste, and

4

A major program is a federal program identified in accordance with risk-based criteria 

prescribed by the Office of Management and Budget. 31 U.S.C. 7501(a)(12)(Supp.IV 1998).

5

Financial Management: Education’s Financial Management Problems Persist

(GAO/T-AIMD-00-180, May 24, 2000).
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mismanagement of grant funds. In terms of funds control,6 these 

deficiencies increase the risk that Anti-Deficiency Act violations could 

occur and not be promptly identified and reported. Because of these 

deficiencies, we were unable to determine whether any Anti-Deficiency 

violations occurred. The deficiencies identified at Education relate to the 

following five areas.

• Pooling method of accounting for grant drawdowns. Education’s 

pooling method of accounting for grant drawdowns used prior to May 

1998 contributed to out of balance conditions and the need for 

significant grant reconciliation efforts involving hundreds of millions of 

dollars. Using the pooling method, grant recipients with multiple awards 

were not required to match drawdowns to specific awards as the funds 

were withdrawn from a pool of grant funds. In accounting for these 

transactions, Education first relied on a complex formula (called “the 

algorithm”) to approximate the actual expenditures for the specific 

grant awards and allocate the drawdowns. However, according to 

Education officials, the algorithm did not properly calculate the 

drawdown allocations, and contributed to differences between 

Education’s records of grant activity and those of the recipients. In 

addition to the problems associated with the original allocation, 

Education officials told us that untimely reporting by some recipients of 

actual expenditures for individual grant awards also contributed to 

inaccurate data in Education’s records.

6

Agencies are responsible for implementing a system of funds control to manage the funds 

appropriated as required by the Anti-Deficiency Act (31 U.S.C. 1541) and as implemented by 

OMB Circular A-34 (as revised October 19, 1999). According to GAO’s Policy and Procedures 

Manual for Guidance of Federal Agencies, the term “funds control” refers to control over 

use and management of fund appropriations to help ensure that (1) funds are used only for 

authorized purposes, (2) they are economically and efficiently used, (3) obligations and 

expenditures do not exceed the amounts authorized and available, and (4) the obligation or 

disbursement of funds is not reserved or otherwise withheld without congressional 

knowledge and approval.
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• General computer controls. We testified in March 2000,7 that 

continued weaknesses in general computer controls, over keyEducation 

financial management systems,8

 increase the risk of unauthorized 

access or disruption of services, and make Education’s sensitive grant 

and loan data vulnerable to inadvertent or deliberate misuse, fraudulent 

use, improper disclosure, or destruction, which could occur without 

being detected.

• Extensive grant reconciliation efforts and funds control. The 

grantback account balances between the fiscal year ended September 

30, 1993, and December 31, 1999, ranged from a high of about 

$698 million as of September 30, 1996, to a low of about $314 million as 

of December 31, 1999. Although the grantback account was established 

to account for grantback activities, we found that about 95 percent of 

the activity in the account for fiscal years 1993 through 1999 was 

unrelated to such activities. Specifically, we found that Education 

(1) used the grantback account as a suspense account beginning in 19939

for hundreds of millions of dollars of activity related to grant 

reconciliation efforts and (2) did not maintain adequate detailed records 

for certain grantback account activity by the applicable fiscal year and 

appropriation.10

7

Education Faces Challenges in Achieving Financial Management Reform (GAO/T-AIMD-00-

106, March 1, 2000).

8

General computer controls are the structure, policies, and procedures that apply to an 

entity’s overall computer operations and establish the environment in which application 

systems and controls operate. General computer controls include access controls, which 

are designed to limit or detect access to computer programs, data, equipment, and facilities 

to protect these resources from unauthorized modification, disclosure, loss or impairment.

9

Suspense accounts are used by entities as temporary holding places for certain 

transactions until they can be cleared to the proper accounts. Sound financial management 

practices entail entities having appropriate controls over the suspense accounts including 

maintaining adequate detailed records of the transactions in the account, promptly 

investigating the transactions, and promptly transferring them to the proper accounts.

10Education’s independent auditors similarly reported in fiscal years 1998 and 1999 that 

Education was using the account for adjustments related to reconciling differences of 

various appropriations that have accumulated since 1993, but Education could not readily 

determine to which appropriations the amounts in the grantback account belong. Detailed 

records are needed to have an adequate system of funds control and help protect against 

Anti-Deficiency Act violations.
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In addition, Education used the grantback account to clear unreconciled 

differences in various grant appropriation fund balance accounts11and 

adjust certain appropriation fund balances to ensure that they did not 

become negative. For example, in 1999, Education made a $111 million 

adjustment reducing the grantback account balance and increasing the 

balance of six appropriations to ensure that projected negative funds 

balances did not occur. A negative balance is an indicator of a potential 

violation of the Anti-Deficiency Act. For this adjustment activity, Education 

did not provide any documentation to show a direct correlation between 

the reductions to the grantback account for the adjustments and the initial 

increases made to the grantback account.

In October 1997 and January 2000, Education reviewed and analyzed the 

canceled grant appropriations accounts which resulted in $293 million 

being returned to Treasury. However, Education’s review and analysis was 

incomplete because it did not always consider adjustment activity that may 

have occurred between the time of the adjustment and the date of the 

review. Consequently, there is an increased risk that funds control 

deficiencies, including returning incorrect amounts to Treasury, could 

occur and not be promptly detected.

• Inadequate supporting documentation for transactions. We found 

that Education could not provide documentation to support the validity 

of certain activity in the grantback account.12 For example, we found 

that for fiscal year 1996 and prior years, Education could not provide 

general ledger printouts supporting the adjustment activity totaling 

$685 million recorded as net increases to the grantback account and 

documentation supporting the reconciliations of the grantback 

account’s Fund Balance with Treasury. Also, we found that for 39 of the 

92 actual grantback transactions we tested (with gross totals of about 

$47 million and $128 million, respectively), Education could not locate 

or provide any documentation supporting the validity of the 

11Education’s auditors, in each year beginning with the fiscal year 1995 financial statement 

audit, have reported internal control weaknesses related to Fund Balance with Treasury 

reconciliations, including unexplained, unreconciled differences; improper and untimely 

reconciliations; and adjusting general ledger balances to agree to Treasury without 

adequately determining whether Education’s or Treasury’s records may have been correct.

12The Comptroller General’s Standards for Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1) issued in November 1999 requires that all transactions and other 

significant events be clearly documented, the documentation be readily available for 

examination, and all documentation and records be properly managed and maintained.
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transactions and could only partially support another 4 transactions 

(totaling about $22.5 million). Further, Education could not provide 

documentation to support that the grant balances in the Education 

Payment Management System (EDPMS) at the time of conversion in 

May 1998 agreed with the beginning grant balances in its new Grant 

Administration and Payment System (GAPS), and that the true 

grantback activity in PAS at the time of conversion in October 1997 was 

properly transferred to the new general ledger system.13

• Lack of adherence to and inadequacy of Education’s policies and 

procedures. Education did not consistently adhere to certain of its 

policies and procedures relating to obtaining (1) independent 

certifications of recipients’ records in connection with its EDPMS grant 

recipient reconciliations and (2) supervisory approval of manually 

prepared journal entries. Also, in our review of Education’s policies and 

procedures relating to GAPS recipient reconciliation adjustments, we 

found that such policies were not adequate to ensure the validity and 

accuracy of transactions.14 Specifically we found that, there are no 

requirements for (1) supervisory review and approval of requested 

recipient reconciliation adjustments, (2) staff who are responsible for 

processing adjustments requested by grant recipients to obtain and 

review applicable Single Audit Act reports, and (3) obtaining 

documentation from the recipients supporting the requested GAPS 

reconciliation adjustments, other than a letter signed by the recipient’s 

Chief Financial Officer.

Education has taken or plans to take various actions to address the 

grantback account issues. For example, in part to eliminate problems 

caused by Education’s pooling method, Education implemented GAPS to 

track grant disbursements by award instead of on a pooled basis. In 

addition, Education analyzed the portion of the grantback account balance 

at September 30, 1999, (approximately $16.5 million) that represented 

actual grantback activity and, in March 2000, returned to Treasury about 

$10 million.

13In accounting for its general ledger activity prior to fiscal year 1998, Education maintained 

the Primary Accounting System (PAS). On October 1, 1997, Education converted from PAS 

to the Financial Management Systems Software (FMSS).

14The Comptroller General’s Standards for Internal Control in the Federal Government 

(GAO/AIMD-00-21.3.1) issued in November 1999 requires that internal control activities, 

including policies and procedures, be effective in helping ensure the validity of recorded 

transactions.
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Further, Education has developed a plan and taken several key steps to 

eliminate the adjustment activity portion of the grantback account, such as 

returning additional funds to Treasury, contracting with Treasury for 

assistance in determining the appropriate accounting for the remaining 

funds in the grantback account, and transferring the adjustment activity 

balance to another account. The plan also stipulates that Education will 

reconcile GAPS and Education’s general ledger by June 2000, and return to 

Treasury the remaining balance in the grantback account. However, the 

plan does not contain sufficient details and does not address when or how 

Education will complete these two actions. To assist Education 

management in addressing the matters we identified, this report contains 

four detailed recommendations. In commenting on a draft of this letter, 

Education indicated that it agreed with our recommendations and is 

implementing a detailed plan that addresses and corrects the matters we 

identified.

Scope and 

Methodology

To accomplish the objectives of the request, we performed the following 

procedures.

• Held numerous interviews and discussions with staff in Education’s 

offices of the Chief Financial Officer, General Counsel, Inspector 

General (OIG), and the Budget Services Group to obtain an 

understanding of the (1) intended purpose and actual use of the 

grantback account, (2) information systems, and policies and 

procedures related to the activity recorded in the account, and 

(3) controls in place for the conversion from EDPMS to GAPS.

• Reviewed available information related to (1) Education’s grant activity 

and use of the grantback account, including independent auditor reports 

(fiscal years 1995 through 1999), policy and procedure manuals and 

internal memorandums, and (2) controls in place for the conversion 

from EDPMS to GAPS and the results of the conversion procedures. 

• Conducted walkthroughs of the various types of transactions that were 

recorded in the grantback account including actual grantback 

collections and disbursements, reconciliation adjustments, and return 

of funds to Treasury.

• Reviewed the Fund Balance with Treasury reconciliations for the 

grantback account for fiscal years 1997, 1998, and 1999.

• Tested a nonstatistical sample of 92 actual grantback transactions from 

a total of 477 transactions recorded in the account from fiscal years 1991 

through 1999, to determine the validity of such transactions. Because 

there was an increased risk of invalid transactions related to 
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disbursements and credit adjustments, and there was a relatively small 

number of transactions, we selected all disbursements and credit 

adjustments. Because there was less risk of invalid transactions related 

to collections, we selected all collections greater than $1 million. The 

results of this testing are not projectable to the transactions that were 

not tested. 

• Selected a statistical sample of 38 adjustment transactions from a total 

of 187 transactions recorded in the account from fiscal years 1997 

through 1999. We initially tested a sub-sample of 20 adjustments to 

determine whether Education could provide adequate documentation to 

support the validity of these transactions. Based on the test results on 

this sample, we did not expand our test to include the remaining 

18 sample items.

• Reviewed GAPS recipient reconciliation files for (1) all adjustments to 

decrease drawdowns by more than $1 million and (2) the largest 

adjustment to increase drawdowns.

• Reviewed EDPMS recipient reconciliation files for six recipients 

selected nonstatistically from the available files.

• Obtained and reviewed data files that contained the ending grant 

balances in EDPMS and the beginning grant balances in GAPS.

• Reviewed and discussed with Education’s OIG the workpapers related 

to the OIG’s Action Memorandum FIN-99-01 (GAPS Survey Review) 

issued in January 1999.

• Reviewed relevant laws and regulations, consisting of the AntiDeficiency Act (31 U.S.C. 1341, 1342, 1349−1351, 1511−1519 (1994)), the 

account closing law (31 U.S.C. 1551-1558 (1994)), OMB Circular A-34 

(revised October 19, 1999), the Treasury Financial Manual, and Section 

459 of the General Education Provisions Act (20 U.S.C. 1234h).

• Reviewed the Single Audit Act guidance for recipients of Education 

grant program awards and interviewed 10 nonstatistically selected 

states’ auditors to obtain an understanding of the scope of their audit 

work under the Single Audit Act related to Education’s grant programs.

We performed our review in Washington, D.C., at the Department of 

Education from December 1999 through April 2000 in accordance with 

generally accepted government auditing standards. Prior to our May 3, 

2000, briefing to the staff of the Subcommittee on the results of our work, 

we provided Education with copies of our detailed briefing slides, which 

contained recommendations to the Secretary of Education for review and 

comment. In a meeting with Education officials, we obtained their 

comments and incorporated them as appropriate. In addition, we requested 

comments on a draft of this report from the Secretary of Education. 
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Education’s comments are discussed in the “Agency Comments and Our 

Evaluation” section of this report and included in appendix II.

Background Agencies are required by OMB Circular No. A-127, Financial Management 

Systems (revised July 23, 1993) to maintain financial management systems 

encompassing automated and manual processes, procedures, and controls 

that process and record financial events effectively and efficiently, and 

provide complete, timely reliable and consistent information for 

decisionmakers and the public. As we testified in May 2000, Education’s 

stewardship over its annual appropriations and the student loans for which 

it has collection responsibility has been under question as it has 

experienced persistent financial management weaknesses. Beginning with 

Education’s first agencywide audit effort of its fiscal year 1995 financial 

statements, Education’s auditors have each year reported largely the same 

serious internal control weaknesses, which have affected the department’s 

ability to provide reliable financial information to decisionmakers both 

inside and outside the agency. One of these internal control weaknesses 

relates to Education not properly or promptly reconciling its financial 

accounting records and not being able to provide sufficient documentation 

to support some of its financial transactions. To prepare Education’s fiscal 

year 1999 financial statements before the March 1, 2000, deadline, 

Education’s financial staff and its contractors had to make significant 

efforts to work around the serious internal control and financial 

management systems weaknesses that continued to plague the agency.

In its report on Education’s fiscal year 1998 financial statements, the 

auditor reported Education’s use of the grantback account as an example 

of a reconciliation issue identified during the auditor’s testing. In January 

1999, Education’s Office of Inspector General (OIG) issued a report15 on the 

results of its review of Education’s process for reconciling the department’s 

grant disbursement system with recipient records. The OIG reported 

weaknesses in management controls surrounding the reconciliation 

process and made recommendations for improvement.

15Survey Review of the Grant Administration and Payment System (GAPS) Reconciliation 

Process (Action Memorandum FIN-99-01, January 28, 1999).
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Pooling Method of 

Accounting for Grant 

Drawdowns

Education’s pooling method of accounting for grant drawdowns used prior 

to May 1998 contributed to out of balance conditions and the need for 

significant grant reconciliation efforts. Education used a grant accounting 

and disbursement system called the Education Payment Management 

System that it modified from the Department of Health, Education and 

Welfare’s system when Education was established as a separate executive 

branch department in 1980. EDPMS allowed grant recipients with multiple 

awards to withdraw funds from a pool of grant funds without being 

required to match the drawdowns to specific awards as the drawdowns 

occurred. This method of withdrawing funds is referred to as the pooling 

method.

In accounting for these transactions, Education first relied on a complex 

formula called the algorithm to allocate the drawdowns between awards. 

This method was supposed to approximate the actual expenditures for the 

specific grant awards. However, according to Education officials, the 

algorithm did not work properly after implementation of the 1990 account 

closing law’s requirement to cancel appropriations generally 5 years after 

budget authority expires.16 Specifically, Education officials told us that the 

algorithm did not properly calculate the drawdown allocations between 

awards and this contributed to differences between Education’s records of 

grant activity and those of the recipients.

After the original allocation of drawdowns, Education relied on recipient 

reporting (monthly or quarterly, depending on the grant type and award 

amount) of actual expenditures for individual grant awards as its basis for 

adjusting the disbursement transactions to the correct grant awards. 

However, in addition to the problems associated with the original 

allocation, Education officials told us that untimely reporting by some 

recipients also contributed to inaccurate data in Education’s records, 

resulting in differences between Education’s records and those of the 

recipients.

General Computer 

Controls

Education places significant reliance on its financial management systems 

to perform basic functions, such as making grant payments and 

maintaining budget controls. We testified in March 2000, that continued 

weaknesses in general computer controls increase the risk of unauthorized 

1631 U.S.C. 1552.
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access or disruption of services and make Education’s sensitive grant and 

loan data vulnerable to inadvertent or deliberate misuse, fraudulent use, 

improper disclosure, or destruction, which could occur without being 

detected. In every year, beginning with the fiscal year 1995 financial 

statement audit, Education’s independent financial statement auditors have 

reported weaknesses in Education’s information systems controls, such as 

ineffective procedures for monitoring access to sensitive computer 

resources, and have made recommendations to Education to address such 

weaknesses.

Extensive Grant 

Reconciliation Efforts 

and Funds Control

Although the grantback account was established to account for grantback 

activities, we found that about 95 percent of the activity in the account for 

fiscal years 1993 through 1999 was unrelated to such activities. Figure 1 

shows the grantback account balances by fiscal year, beginning in 1991.
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Figure 1: Grantback Account Balances

Source: Data provided by Education’s Office of the Chief Financial Officer.

Note: Balance as of December 31, 1999, was the same as of September 30, 1999.

Specifically, we found that, beginning in 1993, Education used the 

grantback account as a suspense account for hundreds of millions of 

dollars of activity related to grant reconciliation efforts affecting its 

appropriations that fund grants. We also found that Education did not 

maintain adequate detailed records for certain grantback account activity 

by the applicable fiscal year and appropriation that would allow it to 

promptly investigate the activity and transfer it to the proper accounts.

Education’s grant reconciliation efforts impacting the grantback account 

included reconciliations between (1) Education’s and recipients’ records of 

grant disbursements, (2) certain proprietary and budgetary general ledger

$0

$100

$200

$300

$400

$500

$600

$700

$800

9/30/91

&

9/30/92 Fiscal year ended

In millions

9/30/93 9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99

Adjustments

Balance

Grantback

Balance
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accounts maintained by Education for each appropriation,17 and 

(3) Treasury’s and Education’s records of Fund Balance with Treasury 

accounts. 

Education also used the grantback account to (1) clear unreconciled 

differences in various grant appropriation fund balance accounts and 

(2) adjust certain appropriation fund balances to ensure that they did not 

become negative. For example, in 1999, Education made a $111 million 

adjustment, reducing the grantback account balance and increasing the 

balance of six appropriations to ensure that projected negative funds 

balances did not occur. A negative balance is an indicator of a potential 

Anti-Deficiency Act violation. For this adjustment activity, Education did 

not provide any documentation to show a direct correlation between the 

reductions to the grantback account for the adjustments and the initial 

increases made to the grantback account. Such documentation is needed 

as part of a funds control system to ensure compliance with the AntiDeficiency Act, which requires agencies to investigate possible 

overobligations or overexpenditures and to report to the President and the 

Congress if they determine an overobligation or overexpenditure occurred.

While Education reviewed the grantback account activity in October 1997 

and January 2000 for amounts related to canceled appropriation accounts, 

its analysis was not complete. For example, Education’s review focused on 

three adjustments totaling approximately $700 million (net) that increased 

the grantback account but did not consider whether the adjustments would 

have been increased or decreased for activity that occurred between the 

time of the adjustment and the date of the review. As a result of these 

reviews, Education returned approximately $293 million to Treasury. 

However, such deficiencies in Education’s analysis increase the risk that 

funds control deficiencies, including returning incorrect amounts to 

Treasury, could occur and not be detected promptly. 

17Education is required, as are all agencies, to maintain proprietary and budgetary accounts 

in its general ledger. Proprietary accounts track assets and liabilities, whereas budgetary 

accounts track the status of budget authority. Proprietary accounts are self-balancing, as are 

budgetary accounts. In addition, there is a relationship between certain proprietary and 

budgetary accounts. For example, the sum of the proprietary accounts Fund Balance with 

Treasury, Advances, and Accounts Payable should equal the sum of the budgetary accounts 

Undelivered Orders, Funded Liabilities, and Unobligated Balances.
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Inadequate Supporting 

Documentation for 

Transactions

We found that Education could not provide documentation to support the 

validity of certain activity in the grantback account, in part because 

(1) according to Education officials, about 200 boxes of accounting records 

were sent to off-site storage without being properly labeled so as to easily 

determine the contents when Education moved in October 1998, 

(2) records relating to certain transactions selected for our testing, which 

Education stated were stored at another agency’s off-site storage facility, 

were not provided by the end of our fieldwork despite repeated requests by 

Education to obtain the records, and (3) Education did not maintain 

complete, detailed records from the discontinued accounting system when 

it converted to its new accounting system in October 1997.

Specifically, we found that for fiscal year 1996 and prior years, Education 

could not provide (1) general ledger printouts supporting the adjustment 

activity totaling $685 million recorded as net increases to the grantback 

account and (2) documentation supporting the reconciliations of the 

grantback account’s Fund Balance with Treasury. Also, we found that for 

39 of the 92 actual grantback transactions we nonstatistically selected for 

testing (totaling in gross about $47 million and $128 million, respectively), 

Education could not locate or provide any documentation supporting the 

validity of the transactions and could only partially support another 

4 transactions (totaling about $22.5 million). In addition, for 14 of the

92 selected transactions, Education asserted that the transactions, which 

totaled $160,734, were recorded to reverse duplicate postings of grantback 

collections. However, Education could not locate evidence to support that 

a duplicate posting had in fact occurred.

Education also could not provide adequate documentation for 6 of the 

20 adjustment transactions we statistically selected for testing. One of the 

20 adjustment transactions was a valid grantback disbursement for 

$48,195, which was misclassified as an adjustment. As such, Education’s 

analysis of the actual grantback activity, which was performed to 

determine the amount to be returned to Treasury, was incorrect. Further, 

Education could not provide documentation to support that the grant 

balances in EDPMS at the time of conversion in May 1998 agreed to the 

beginning grant balances in GAPS, and that the true grantback activity in 

PAS at the time of conversion in October 1997 was properly transferred to 

the new general ledger system.
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Lack of Adherence to 

and Inadequacy of 

Education’s Policies 

and Procedures 

Education did not consistently adhere to certain of its policies and 

procedures relating to obtaining (1) independent certifications of 

recipients’ records in connection with its EDPMS grant recipient 

reconciliations and (2) supervisory approval of manually prepared journal 

entries. Also, in our review of Education’s policies and procedures relating 

to GAPS recipient reconciliation adjustments, we found that such policies 

were not adequate to ensure the validity and accuracy of transactions. For 

example, there is no requirement for supervisory review and approval of 

requested recipient reconciliation adjustments. Also, there is no 

requirement that staff responsible for processing adjustments requested by 

grant recipients obtain applicable Single Audit Act reports and review the 

audit results even though Education officials stated in a letter to us that 

Education believes the requested adjustments are valid because the 

recipients are subject to yearly audits (i.e., Single Audits). Further, there is 

no requirement to obtain documentation from the recipients supporting the 

requested GAPS reconciliation adjustments, other than a letter signed by 

the recipient’s Chief Financial Officer.

We also found that Education does not require supervisory review and 

approval of monthly reports of outlays (Statements of Transactions −

Standard Form 224) that agencies prepare and send to Treasury. These 

reports include information about which appropriations were charged for 

the outlays. Such information should be reviewed by a supervisor to 

identify inadvertent or intentional errors, such as charging disbursements 

to the grantback account instead of to the correct appropriation.

Actions Already Taken 

or Planned

Education has taken or plans to take various actions to address the 

grantback account issues. In part to eliminate problems caused by 

Education’s pooling method, Education implemented a new grant 

disbursement system in May 1998 called GAPS. Under GAPS, Education 

tracks grant disbursements by award instead of on a pooled basis. 

However, for fiscal years 1998 and 1999, as mentioned previously, 

Education’s independent auditors reported various weaknesses related to 

GAPS, including unreconciled differences between GAPS and Education’s 

general ledger, processing of duplicate payments, and lack of formal 

policies and procedures to reconcile expenditure data between GAPS and 

Education’s general ledger. Also, Education analyzed the portion of the 

grantback account balance as of September 30, 1999, (approximately 

$16.5 million) that represented actual grantback activity and, in March 

2000, returned to Treasury about $10 million.
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Further, after recently developing a plan to eliminate the adjustment 

activity portion of the grantback account, Education took the following key 

steps.

• In January 2000, Education decreased the grantback account (i.e., 

returned to Treasury) and increased Treasury’s general fund account for 

$146 million;

• Education contracted with Treasury in February 2000 for assistance in 

determining the appropriate accounting for the remaining funds in the 

grantback account; and

• Education transferred in March 2000 the adjustment activity balance 

from the grantback account to a deposit fund suspense account used for 

general purposes.

The plan also stipulates that Education will reconcile GAPS and 

Education’s general ledger by June 2000 and return to Treasury the 

remaining balance in the grantback account. However, for these steps, the 

plan is not detailed enough for the individuals carrying it out to know 

specifically what actions to take to meet management’s objectives. Also, 

the plan does not address when or how Education will complete the GAPS 

reconciliation project and account for adjustments resulting from such 

reconciliations. In this regard, we made recommendations to Education in 

our briefing slides. Education officials reviewed a draft of the briefing 

slides and told us that they agreed with our recommendations.

Conclusion The financial management systems deficiencies, inadequate systems of 

funds control, and manual internal control weaknesses we and other 

auditors identified increase the risk of fraud, waste, and mismanagement of 

grant funds, as well as increased risk of noncompliance with the 

requirements of the Anti-Deficiency Act. It will take a sustained, highpriority effort by Education’s top management to ensure that these 

persistent and long-standing problems are fully resolved and do not 

continue under its new systems.

Recommendations In addition to the actions already taken or planned by Education, we 

recommend that the Secretary of Education direct the Acting Chief 

Financial Officer to develop and implement:
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Page 17 GAO/AIMD-00-228 Education’s Grantback Account

• A formal, detailed plan to eliminate the portion of the grantback account 

balance that was transferred in March 2000 to a deposit fund suspense 

account, including steps describing how Education will

• complete the GAPS reconciliation project and account for 

adjustments resulting from such reconciliations;

• implement adequate controls over its recipient reconciliations and 

Fund Balance with Treasury reconciliations, requiring that Education 

maintain detailed records by the applicable fiscal year and 

appropriation for any unreconciled differences transferred to 

suspense accounts until such differences are resolved; and 

• return to Treasury the remaining funds related to the adjustment 

activity that were transferred in March 2000 to a deposit fund 

suspense account, including a re-evaluation of the October 1997 and 

January 2000 reviews.

• Detailed policies and procedures to properly manage and maintain 

documentation and records (both on-site and in off-site storage 

facilities) related to all transactions and other significant events related 

to grant activity, including sound funds control practices to ensure 

compliance with the Anti-Deficiency Act.

• Detailed policies and procedures for performing GAPS recipient 

reconciliations, including requirements for

• supervisory review and approval of GAPS adjustments,

• review of applicable Single Audit results prior to making 

adjustments, and

• obtaining summary level documentation from the recipients 

supporting the validity of the requested adjustments.

• Detailed policies and procedures requiring supervisory review and 

approval of Education’s monthly Statements of Transactions − Standard 

Form 224.

Agency Comments and 

Our Evaluation

In commenting on a draft of this report, Education agreed with our 

recommendations and stated that it is implementing a detailed plan it 

developed that addresses and corrects the deficiencies we noted in our 

report. Education also stated that our review was helpful in identifying 

areas where the department can improve its financial management 

practices. In addition, Education stated that it believes that it has sound 

funds control practices in place due to the implementation of GAPS, which 

maintains detailed transaction history data. We recognize that GAPS 

provides Education with improved information capabilities. In terms of 

funds control, however, the problems that we and other auditors have 

identified and the manner in which the grantback account was used, 
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Page 18 GAO/AIMD-00-228 Education’s Grantback Account

increase the risk that Anti-Deficiency Act violations could occur and not be 

promptly identified and reported.

We are sending copies of this report and briefing slides to other interested 

Congressional parties, the Honorable Richard W. Riley, Secretary of 

Education; the Honorable Lorraine Lewis, Inspector General, Department 

of Education; and the Honorable Jacob J. Lew, Director of the Office of 

Management and Budget. We will make copies available to others upon 

request.

If you have any questions about this report or the briefing slides, please 

contact me at (202) 512-3406. Key contributors to this assignment were 

Christine Robertson, Bill Boutboul, James Douglas, and Suzanne Murphy.

Gary T. Engel

Associate Director

Governmentwide Accounting and

Financial Management Issues
Page 19 GAO/AIMD-00-228 Education’s Grantback Account
Page 20 GAO/AIMD-00-228 Education’s Grantback Account

Appendix I

Briefing to the Subcommittee on Oversight Apendxies

and Investigations, House Committee on 

Education and the Workforce ApendxiI

1

Accounting and Information

Management Division

Review of the U.S. Department of Education’s

Grantback Account

Briefing to the Subcommittee on Oversight and

Investigations, House Committee on Education

and the Workforce

May 3, 2000
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 21 GAO/AIMD-00-228 Education’s Grantback Account

2

Contents

• Objectives

• Background

• Scope and Methodology

• Overview

• Financial Management Systems Deficiencies

• Inadequate Systems of Funds Control

• Manual Internal Control Weaknesses

• Actions Taken by Education to Address Grantback Account

Issues

• Recommendations

• Agency Comments
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 22 GAO/AIMD-00-228 Education’s Grantback Account

3

Objectives

• You requested that we provide information on the

• intended purpose of the U.S. Department of Education’s (ED)

grantback account;

• annual grantback account balance since inception; and

• grantback account balance as of 12/31/99.

• You also requested that we evaluate

• how the grantback account has been used since inception;

• whether there is support for the transactions in the grantback

account;

• whether the transactions in the grantback account are valid; and

• whether any federal laws have been violated by the existence and

management of the grantback account.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 23 GAO/AIMD-00-228 Education’s Grantback Account

4

Background

• Currently, ED has over 150 appropriation accounts to fund its

grant programs, over 16,000 grant recipients, and for fiscal

year 1999 reported about $30 billion in grant expenses.

• Grant recipients meeting certain thresholds are required by law

(31 U.S.C. Secs. 7501 - 7507 (Supp. IV 1998)) to have audits

(referred to as Single Audits) which include tests of their

compliance with program-specific requirements.

• If audits identify certain noncompliance, recipients must repay

ED the amount related to the noncompliance.

• If the grant recipient meets certain conditions, including

correcting the noncompliance, ED may return up to 75 percent

of the amounts recovered (referred to as grantback payments).
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 24 GAO/AIMD-00-228 Education’s Grantback Account

5

Background (cont’d)

• ED established a deposit fund with Treasury in 1991 (referred

to as the grantback account), with OMB approval, in order to

retain availability of funds needed to make grantback

payments.

• Prior to May 1998, ED maintained the Education Payment

Management System (EDPMS) under which grant recipients’

requests for disbursements were pooled. In May 1998 ED

converted from EDPMS to the Grant Administration and

Payment System (GAPS) which tracks grant disbursements by

specific grant awards.

• ED conducted separate efforts under EDPMS and GAPS to

reconcile its records of grant disbursements to those of the

recipients.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 25 GAO/AIMD-00-228 Education’s Grantback Account

6

Background (cont’d)

• Agencies are required to maintain proprietary and budgetary

accounts in their general ledgers. Proprietary accounts track

assets and liabilities, whereas budgetary accounts track the

status of budget authority. Proprietary accounts are selfbalancing, as are budgetary accounts. In addition, there is a

relationship between certain proprietary and budgetary

accounts. For example, the sum of the proprietary accounts:

Fund Balance with Treasury, Advances and Accounts Payable

should equal the sum of the budgetary accounts: Undelivered

Orders, Funded Liabilities and Unobligated Balances.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 26 GAO/AIMD-00-228 Education’s Grantback Account

7

Scope and Methodology

• Held numerous interviews and discussions with staff in various

ED offices and reviewed available information related to (1)

ED’s grant activity and use of the grantback account and (2)

controls in place for the conversion from EDPMS to GAPS and

the results of the conversion procedures.

• Conducted walkthroughs of the various types of transactions

that were recorded in the grantback account.

• Reviewed the Fund Balance with Treasury reconciliations for

the grantback account for FYs 1997, 1998 and 1999.

• Reviewed and discussed with ED’s OIG the workpapers

related to the OIG’s Action Memorandum FIN-99-01 (GAPS

Survey Review) issued in January 1999.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 27 GAO/AIMD-00-228 Education’s Grantback Account

8

Scope and Methodology (cont’d)

• Tested a nonstatistical sample of 92 actual grantback

transactions from FY 1991 through FY 1999 and a statistical

sample of 20 adjustment transactions from FY 1997 through

FY 1999 to determine whether ED could provide adequate

documentation to support the validity of these transactions.

• Reviewed various nonstatistically selected GAPS recipient

reconciliation files and EDPMS “5 year cash on hand” recipient

reconciliation files.

• Reviewed data files that contained the ending grant balances

in EDPMS and the beginning grant balances in GAPS.

• Reviewed various relevant laws and regulations.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 28 GAO/AIMD-00-228 Education’s Grantback Account

9

Scope and Methodology (cont’d)

• Reviewed the Single Audit Act guidance for recipients of ED

grant program awards, and interviewed 10 nonstatistically

selected states’ auditors to understand the scope of their audit

work under the Single Audit Act related to ED’s grant programs.

• Requested comments on a draft of these briefing slides from

ED. ED’s comments are discussed on the “Agency Comments”

slide.

• Performed our review in Washington, D.C., at ED between

December 1999 and April 2000 in accordance with generally

accepted government auditing standards.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 29 GAO/AIMD-00-228 Education’s Grantback Account

10

Overview

• We found that

• Although the grantback account was established for grantback

activities, ED also used it as a suspense account for activity

related to grant reconciliation efforts;

• ED could not provide adequate supporting documentation for

certain activity in the grantback account;

• Because of internal control weaknesses, including lack of

adequate documentation, we could not determine the validity of

certain activity in the grantback account; and
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 30 GAO/AIMD-00-228 Education’s Grantback Account

11

Overview (cont’d)

• ED did not maintain adequate detailed records for certain

grantback account activity by the applicable fiscal year and

appropriation, which is needed to have an adequate system of

funds control and help protect against Anti-Deficiency Act

violations.

• As a result of financial management systems deficiencies,

inadequate systems of funds control, and manual internal

control weaknesses that we and other auditors identified, there

is increased risk of fraud, waste and mismanagement of grant

funds, as well as increased risk of noncompliance with the

requirements of the Anti-Deficiency Act.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 31 GAO/AIMD-00-228 Education’s Grantback Account

12

Financial Management Systems

Deficiencies - Pooling Method

• ED’s pooling method for disbursing grants contributed

significantly to its problems with accounting for grant activity.

• ED inherited a grant accounting and disbursement system that

processed grant drawdowns on a pooled basis. Under this

system, recipients with multiple awards drew funds from their pool

of grant funds without being required to match the drawdowns to

specific awards as the drawdowns occurred.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 32 GAO/AIMD-00-228 Education’s Grantback Account

13

Financial Management Systems

Deficiencies - Pooling Method (cont’d)

• ED used a complex formula (called “the algorithm”) to allocate the

drawdowns to awards. However, according to ED officials, the

1990 account closing law’s requirement to cancel appropriations

(which for most accounts is five years after budget authority

expires) significantly challenged the effective functioning of ED’s

algorithm contributing to out of balance conditions in grant activity.

• ED relied on recipients’ reporting of actual expenditures for

individual grant awards as its basis for charging disbursement

transactions to the correct grant awards. However, untimely

reporting by some recipients contributed to inaccurate data in

ED’s records and differences between ED’s records and those of

the recipients.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 33 GAO/AIMD-00-228 Education’s Grantback Account

14

Financial Management Systems

Deficiencies - General Computer Controls

• General computer control weaknesses exist in ED’s

information systems, including those that process grant

activity.

• Since FY 1995, ED’s independent financial statement auditors

have reported weaknesses in ED’s information systems controls,

such as ineffective procedures for monitoring access to sensitive

computer resources, and have made recommendations to ED to

address such weaknesses.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 34 GAO/AIMD-00-228 Education’s Grantback Account

15

Financial Management Systems Deficiencies -

General Computer Controls (cont’d)

• Also, we testified in March 2000 (Education Faces Challenges in

Achieving Financial Management Reform, (GAO/T-AIMD-00-106,

March 1, 2000) that continued weaknesses in information systems

controls increase the risk of unauthorized access or disruption of

services, and make ED’s sensitive grant and loan data vulnerable

to inadvertent or deliberate misuse, fraudulent use, improper

disclosure, or destruction, which could occur without being

detected.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 35 GAO/AIMD-00-228 Education’s Grantback Account

16

Inadequate Systems of Funds Control -

Suspense Account

• Although the grantback account was established for grantback

activities, ED also used it as a suspense account for activity

related to grant reconciliation efforts.

• Various factors, such as untimely reporting by some recipients

and weaknesses in ED’s accounting systems and controls,

resulted in many differences between recipients’ and ED’s

records.

• These problems also contributed to ED’s internal proprietary

and budgetary accounting records being out of balance.

• ED has undertaken several reconciliation efforts in attempting

to correct its accounting records and resolve the differences

between recipients’ and ED’s records.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 36 GAO/AIMD-00-228 Education’s Grantback Account

17

Inadequate Systems of Funds Control -

Suspense Account (cont’d)

• Also, ED has periodically decreased the grantback account

(i.e., returned to Treasury) and increased Treasury’s general

fund account for the portion of the funds in the grantback

account that it attributed to cancelled appropriations.

• The portion of the grantback account related to actual

grantback activity averaged less than five percent of the total

account balance in every year starting in FY 1993, which,

based on ED records provided to us, was the first year that ED

used the grantback account for adjustment activity.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 37 GAO/AIMD-00-228 Education’s Grantback Account

18

Inadequate Systems of Funds Control -

Suspense Account Grantback Account Balances (cont’d)

Source: Data provided by ED's Office of

the Chief Financial Officer.

$0

$100

$200

$300

$400

$500

$600

$700

$800

9/30/91 & 92

9/30/939/30/949/30/959/30/969/30/979/30/989/30/99

Fiscal Year

Ended

In Millions

Adjustments Balance

Grantback Balance

Note: Balance at 12/31/99 was the same as at 9/30/99.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 38 GAO/AIMD-00-228 Education’s Grantback Account

19

• ED could not provide a listing of the grantees by name and

amount that comprise the balance in the adjustment activity

portion of the grantback account at September 30, 1999,

because some activity was accounted for at the appropriation

level, some was accounted for at the grant award level, and

other activity was accounted for at the recipient level.

• Table 1 below summarizes by fiscal year the reconciliation

adjustments and certain funds returned to Treasury recorded in

the grantback account.

Inadequate Systems of Funds Control -

Suspense Account (cont’d)
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 39 GAO/AIMD-00-228 Education’s Grantback Account

20

Inadequate Systems of Funds Control -

Suspense Account (cont’d)

Reconciliation Adjustments and Funds Returned to Treasury

Activity Recorded in the Grantback Account by Fiscal Year

($ in Millions)

Fiscal Year Proprietary1 GAPS2 Returned to

Treasury3

Fund Balance

with Treasury Other4 Fiscal YearEnding Balance

1993 360 70 430

1994 -68 362

1995 46 2 410

1996 294 -19 685

1997 -147 30 41 609

1998 -166 -56 387

1999 12 -111 9 297

Total 700 12 -147 -247 -21 297

1 ED made net adjustments to its proprietary accounts to correct the out of balance conditions in its internal proprietary and budgetary

accounting records mentioned previously. These adjustments are related primarily to the EDPMS “5-year cash-on-hand”

reconciliations.

2 This is a net amount comprised of $20 million in adjustments to increase the recipients’ available grant balances and $32 million in

adjustments to decrease the recipients’ available grant balances. The adjustments were posted during fiscal years 1998 and 1999, and

into fiscal year 2000; however, ED did not provide a detailed listing by date posted.

3 ED also returned $146 million in January 2000. The amounts shown here as “Returned to Treasury” do not include actual grantback

activity.

4 “Other” includes activity that we could not separately identify to the other categories because ED could not provide adequate

supporting documentation.

Table 1

Source: GAO analysis of ED’s data.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 40 GAO/AIMD-00-228 Education’s Grantback Account

21

Inadequate Systems of Funds Control -

Suspense Account (cont’d)

• ED’s independent auditors reported for FYs 1999 and 1998

that ED was using the grantback account for adjustments

related to reconciling differences of various appropriations that

have accumulated since 1993, but ED could not readily

determine to which appropriations certain amounts in the

grantback account belong.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 41 GAO/AIMD-00-228 Education’s Grantback Account

22

Inadequate Systems of Funds Control -

Detailed Records

• ED did not maintain adequate detailed records for certain

grantback account activity by the applicable fiscal year and

appropriation, which is needed to have an adequate system of

funds control and help protect against Anti-Deficiency Act

violations.

• In the early to mid 1990s, ED conducted an EDPMS “5 year

cash-on-hand” recipient reconciliation project that resulted in

adjustments to ED’s records of recipients’ advance balances.

• ED’s method of accounting for these reconciliation adjustments

caused its records of proprietary and budgetary general ledger

accounts to become out of balance.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 42 GAO/AIMD-00-228 Education’s Grantback Account

23

Inadequate Systems Funds Control -

Detailed Records (cont’d)

• ED used the grantback account to record adjustments (called

“sources and uses adjustments”) to bring its proprietary and

budgetary accounts into balance. These adjustments generally

resulted in increases to the grantback account’s fund balance.

• In the late 1990s, ED began its GAPS recipient reconciliation

project that identified differences between ED’s and recipients’

records of drawdown balances.

• For differences related to closed awards identified by the

recipients, ED used the grantback account to make the

adjustments requested by the recipients without knowing whether

the amounts used directly related to the closed awards that had

differences.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 43 GAO/AIMD-00-228 Education’s Grantback Account

24

Inadequate Systems of Funds Control -

Fund Balances

• ED used the grantback account to (1) clear unreconciled

differences in various grant appropriation fund balance

accounts, and (2) adjust certain appropriation fund balances to

ensure they did not become negative. A negative balance is

an indicator of a potential Anti-Deficiency Act violation.

Specifically, we found that

• In 1998, ED recorded a $166 million net adjustment as a reduction

to the grantback account. This adjustment included

• A $30 million net adjustment to adjust ED’s records of Fund

Balance with Treasury accounts for unreconciled differences

relating to over 20 appropriations.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 44 GAO/AIMD-00-228 Education’s Grantback Account

25

Inadequate Systems of Funds Control -

Fund Balances (cont’d)

• A $136 million net adjustment that ED asserted was to correct

an error made in a prior period. However, as of the end of our

fieldwork, ED did not provide adequate documentation to

support that an error had in fact occurred.

• In addition, ED did not provide any documentation to show a

direct correlation between this reduction and the initial increases

made to the grantback account (primarily the “sources and uses

adjustments” discussed previously).

• In 1999, ED made a $111 million adjustment reducing the

grantback account balance and increasing the balance of six

appropriations to ensure that projected negative fund balances did

not occur. However, ED did not provide any documentation to

show a direct correlation between this reduction and the initial

increases made to the grantback account.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 45 GAO/AIMD-00-228 Education’s Grantback Account

26

Inadequate Systems of Funds Control -

Fund Balances (cont’d)

• Also, we found that ED had recorded this $111 million adjustment

twice, and is currently showing the amounts needed to correct the

duplicate posting as a reconciling item on the Fund Balance with

Treasury reconciliation for the grantback account.

• Since FY 1995, ED’s auditors have reported internal control

weaknesses related to Fund Balance with Treasury

reconciliations, including unexplained, unreconciled

differences; improper and untimely reconciliations; and

adjusting general ledger balances to agree to Treasury without

adequately determining whether, in fact, ED’s records may

have been correct.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 46 GAO/AIMD-00-228 Education’s Grantback Account

27

Inadequate Systems of Funds Control -

Cancelled Accounts

• While ED reviewed the grantback account activity for amounts

related to cancelled appropriation accounts, its analysis was

not complete. Specifically, we found that

• ED reviewed three adjustments that increased the balance in the

grantback account to identify the portion of the adjustments that

were in cancelled status. ED decreased the grantback account

(i.e., returned to Treasury) and increased Treasury’s general fund

account for the cancelled portion of the adjustments.

• The adjustments in FYs 1993 and 1995 totalled $406 million (net),

$147 million of which ED returned in October 1997. The

adjustment in FY 1996 was $294 million (net), $146 million of

which ED returned in January 2000.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 47 GAO/AIMD-00-228 Education’s Grantback Account

28

Inadequate Systems of Funds Control -

Cancelled Accounts (cont’d)

• However, ED did not consider the effect of any account activity

that occurred between the time the adjustments were made and

when the reviews were performed.

• Also, when ED performed the second review, it did not consider

balances remaining from the previous review to determine if any

portion of these were in cancelled status and should be returned

to Treasury.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 48 GAO/AIMD-00-228 Education’s Grantback Account

29

Manual Internal Controls Weaknesses -

Supporting Documentation

• ED could not provide documentation to support the validity of

certain activity in the grantback account.

• The following factors contributed to ED’s inability to provide

supporting documentation:

• When ED converted to a new accounting system in October 1997,

it did not maintain complete, detailed records from the

discontinued accounting system;

• When ED moved in October 1998, about 200 boxes of accounting

records were sent to offsite storage without being properly labeled

to easily determine the contents; and
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 49 GAO/AIMD-00-228 Education’s Grantback Account

30

Manual Internal Control Weaknesses -

Supporting Documentation (cont’d)

• Certain records relating to transactions selected for our testing,

which ED stated were stored at another agency’s offsite storage

facility, were not provided by the end of our fieldwork despite ED’s

repeated requests to the agency to obtain the records.

• For FY 1996 and prior years, ED could not provide (1) general

ledger printouts supporting the adjustment activity totaling

$685 million recorded as net increases to the grantback

account, and (2) documentation supporting the reconciliations

of the grantback account’s Fund Balance with Treasury.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 50 GAO/AIMD-00-228 Education’s Grantback Account

31

Manual Internal Control Weaknesses -

Supporting Documentation (cont’d)

• For 39 of the 92 actual grantback transactions we

nonstatistically selected for testing (totalling in gross about $47

million and $128 million, respectively), ED could not locate or

provide any documentation supporting the validity of the

transactions, and could only partially support another 4

transactions (totalling about $22.5 million).

• In addition, for 14 of the 92 selected transactions, ED asserted

that the transactions, which totaled $160,734, were recorded to

reverse duplicate postings of grantback collections. However,

ED could not locate evidence to support that a duplicate

posting had in fact occurred.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 51 GAO/AIMD-00-228 Education’s Grantback Account

32

Manual Internal Control Weaknesses -

Supporting Documentation (cont’d)

• ED could not provide adequate supporting documentation for 6

of the 20 adjustment transactions we statistically selected for

testing.

• One of the 20 adjustment transactions was a valid grantback

disbursement for $48,195 which was misclassified as an

adjustment. As such, ED’s analysis of the true grantback

activity which was performed to determine the amount to be

returned to Treasury was incorrect.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 52 GAO/AIMD-00-228 Education’s Grantback Account

33

Manual Internal Control Weaknesses -

Supporting Documentation (cont’d)

• ED could not provide documentation to support that the grant

balances in EDPMS at the time of conversion in May 1998

agreed to the beginning grant balances in GAPS.

• ED could not provide documentation to support that the true

grantback activity in the Primary Accounting System (PAS) at

the time of conversion in October 1997 was properly

transferred to the new general ledger system.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 53 GAO/AIMD-00-228 Education’s Grantback Account

34

Manual Internal Control Weaknesses -

Adherence to Policies and Procedures

• ED did not consistently adhere to certain of its policies and

procedures relating to EDPMS “5 year cash-on-hand” grant

recipient reconciliations.

• ED’s polices and procedures required that recipients provide a

certification by their independent certified public accountants

(CPAs) that the recipient’s records of “cash-on-hand” balances

were accurate when the adjustments requested by recipients

exceeded $25,000.

• According to an ED official, ED did not always enforce this policy

for state recipients because ED relied on the Single Audits

performed of states’ financial records.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 54 GAO/AIMD-00-228 Education’s Grantback Account

35

Manual Internal Control Weaknesses -

Adherence to Policies and Procedures (cont’d)

• We found that of the 6 EDPMS recipient reconciliation files we

selected nonstatistically and reviewed, 3 state recipient

reconciliation files exceeding the $25,000 threshold described

previously did not contain the required certifications or anything to

indicate that the Single Audit results were reviewed.

• ED’s policies and procedures require that manually prepared

journal entries to adjust the general ledger be reviewed and

approved by a supervisor. However, we found that one

manually prepared journal entry for $289,108 in our sample of

20 adjustment transactions was prepared by a contractor and

did not include any evidence of supervisory review.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 55 GAO/AIMD-00-228 Education’s Grantback Account

36

Manual Internal Control Weaknesses -

Adequacy of Policies and Procedures

• ED’s recipient reconciliation policies and procedures are not

adequate.

• In our review of ED’s policies and procedures relating to GAPS

recipient reconciliation adjustments we found that

• There is no requirement for supervisory review and approval of

adjustments requested by grant recipients.

• There is no requirement that staff responsible for processing

adjustments requested by grant recipients obtain applicable

Single Audit Act reports and review the audit results, even though

ED officials stated in a letter to us that ED believes the requested

adjustments are valid because the recipients are subject to yearly

audits (i.e., the Single Audits).
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 56 GAO/AIMD-00-228 Education’s Grantback Account

37

Manual Internal Control Weaknesses -

Adequacy of Policies and Procedures (cont’d)

• For 1 of the 3 recipients noted above for which the certifications

were missing, the reconciliation file contained an internal

memorandum indicating that the recipient had been cited by its

Single Audit Act auditors for violations of cash management of

federal funds. Yet, there was no evidence that this had been

considered in ED’s decision to approve the recipient’s requested

adjustment for $2.4 million to effectively increase the recipient’s

balance available for drawdowns.

• ED sent letters to the recipients stating that the Single Audit Act

auditors would be required to test (1) whether grant expenditures

agreed with information in GAPS and (2) recipient reconciliation

adjustments. However, the 10 states’ auditors that we contacted

told us that the GAPS adjustments are not targeted for testing

because the Single Audit Act guidance related to ED’s grant

programs does not specifically require such testing.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 57 GAO/AIMD-00-228 Education’s Grantback Account

38

Manual Internal Control Weaknesses -

Adequacy of Policies and Procedures (cont’d)

• Also, these auditors stated that it is not possible for these

adjustments to be selected for testing from the recipients’ records

because the adjustments were made in ED’s records.

• ED’s policies and procedures for processing GAPS adjustments

were not sufficiently detailed to ensure the validity of the

adjustments requested by recipients.

• There was no requirement to obtain documentation from the

recipients supporting the requested GAPS reconciliation

adjustments, other than a letter signed by the recipient’s CFO.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 58 GAO/AIMD-00-228 Education’s Grantback Account

39

Manual Internal Control Weaknesses -

Adequacy of Policies and Procedures (cont’d)

• For FYs 1999 and 1998, ED’s independent auditors reported that

ED has not yet developed formal policies and procedures to

reconcile the expenditure data between its disbursement system

(GAPS) and its general ledger, and made recommendations to ED

to address this weakness.

• We also found that ED does not require supervisory review

and approval of monthly reports of outlays to Treasury

(Statements of Transactions - Standard Form 224).
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 59 GAO/AIMD-00-228 Education’s Grantback Account

40

Actions Taken by Education to Address

Grantback Account Issues

• In part to eliminate problems caused by the pooling method,

ED implemented a new grant disbursement system in May

1998 called GAPS. Under GAPS, ED tracks grant

disbursements by award instead of on a pooled basis.

However, for FYs 1999 and 1998, ED’s independent auditors

reported various weaknesses related to GAPS, including

unreconciled differences between GAPS and ED’s general

ledger, processing of duplicate payments, and lack of formal

policies and procedures to reconcile expenditure data between

GAPS and ED’s general ledger.

• ED analyzed the portion of the grantback account balance at

September 30, 1999, (approximately $16.5 million) that

represented actual grantback activity and, in March 2000,

returned to Treasury about $10 million.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 60 GAO/AIMD-00-228 Education’s Grantback Account

41

Actions Taken by Education to Address

Grantback Account Issues (cont’d)

• After recently developing a plan to eliminate the adjustment

activity portion of the grantback account, ED took the following

key steps

• In January 2000, decreased the grantback account (i.e., returned

to Treasury) and increased Treasury’s general fund account for

$146 million;

• Contracted with Treasury in February 2000 for assistance in

determining the appropriate accounting for the remaining funds in

the grantback account; and

• Transferred in March 2000 the adjustment activity balance from

the grantback account to a deposit fund suspense account used

for general purposes.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 61 GAO/AIMD-00-228 Education’s Grantback Account

42

Actions Taken by Education to Address

Grantback Account Issues (cont’d)

• The plan also includes the following steps to be taken

• Reconcile GAPS and ED’s general ledger by June 2000; and

• Return to Treasury the remaining balance in the grantback

account.

• However, for the steps still to be taken, the descriptions are not

detailed enough for the individuals carrying out the plan to

know specifically what actions to take to meet management’s

objectives.

• Also, the plan does not address when or how ED will complete

the GAPS reconciliation project and account for adjustments

resulting from such reconciliations.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 62 GAO/AIMD-00-228 Education’s Grantback Account

43

Recommendations

• In addition to the actions already taken or planned by ED, we

recommend that the Secretary of Education direct the Acting

Chief Financial Officer to develop and implement:

• A formal, detailed plan to eliminate the portion of the grantback

account balance that was transferred in March 2000 to a deposit

fund suspense account, including steps describing how ED will

• Complete the GAPS reconciliation project and account for adjustments

resulting from such reconciliations;

• Implement adequate controls over its recipient reconciliations and Fund

Balance with Treasury reconciliations, requiring that ED maintain detailed

records by the applicable fiscal year and appropriation for any unreconciled

differences transferred to suspense accounts until such differences are

resolved; and
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 63 GAO/AIMD-00-228 Education’s Grantback Account

44

Recommendations (cont’d)

• Return to Treasury the remaining funds related to the adjustment activity that

were transferred in March 2000 to a deposit fund suspense account, including

a re-evaluation of the October 1997 and January 2000 reviews.

• Detailed policies and procedures to properly manage and

maintain documentation and records related to all transactions

and other significant events related to grant activity, including a

requirement to properly label boxes sent to offsite storage facilities

so that they are readily available for examination.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 64 GAO/AIMD-00-228 Education’s Grantback Account

45

Recommendations (cont’d)

• Detailed policies and procedures for performing GAPS recipient

reconciliations, including requirements for

• Supervisory review and approval of GAPS adjustments;

• Review of applicable Single Audit results prior to making adjustments; and

• Obtaining summary level documentation from the recipients supporting the

validity of the requested adjustments.

• Detailed policies and procedures requiring supervisory review and

approval of ED’s monthly Statements of Transactions - Standard

Form 224.
Appendix I

Briefing to the Subcommittee on Oversight 

and Investigations, House Committee on 

Education and the Workforce

Page 65 GAO/AIMD-00-228 Education’s Grantback Account

46

Agency Comments

• In commenting on these briefing slides, ED generally agreed

with our recommendations. ED’s staff provided some technical

comments, which have been incorporated as appropriate.
Page 66 GAO/AIMD-00-228 Education’s Grantback Account

Appendix II

Comments From the Department of 

Education ApendxiI
Appendix II

Comments From the Department of 

Education

Page 67 GAO/AIMD-00-228 Education’s Grantback Account
Appendix II

Comments From the Department of 

Education

Page 68 GAO/AIMD-00-228 Education’s Grantback Account
Appendix II

Comments From the Department of 

Education

(901818) Letr Page 69 GAO/AIMD-00-228 Education’s Grantback Account
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