GAO-03-885R Education’s High Risk Designation 

United States General Accounting Office

Washington, DC 20548 

June 9, 2003 

The Honorable Rod Paige 

The Secretary of Education 

Subject: Response to the Department of Education’s Request to Reconsider the 

High-Risk Designation of Federal Student Aid Programs 

Dear Mr. Secretary: 

 

This letter is in response to your May 2, 2003, letter requesting that we make a 

commitment to reconsider by early this summer our high-risk designation of the 

Department of Education’s Student Financial Aid (SFA) programs. In that letter you 

outlined how the department has addressed many of the concerns we have identified 

and the plans it has underway for continued improvements, as well as its plans to 

update Federal Student Aid’s (FSA) Five-Year Performance Plan. In order to help 

ensure that planned and completed actions address the issues raised in our recent 

High-Risk and Performance and Accountability reports, you offered to provide a 

series of briefings to our key managers on: 

• plans and progress for sustaining the clean opinion on the department’s 

financial statements; 

• FSA progress on its modernization efforts and FSA Data Strategies 

Framework; 

• FSA program integrity initiatives, including FSA default prevention and 

collection strategies; and 

• progress on One-ED (the department’s human capital planning initiative). 

We accept the offer to attend these briefings and look forward to the opportunity to 

keep informed of significant progress toward resolving management issues and 

sustaining improvement in SFA programs. 

In 1990, we began our program of reporting on government operations that we 

identified as high risk. Since then, generally coinciding with the start of each new 

Congress, we have periodically reported on the status of progress to address high-risk 
Page 2 GAO-03-885R Education’s High Risk Designation 

areas and updated our high-risk list. In our January 2003 update1

 for the new 108th 

Congress, we identified the following actions related to SFA programs as remaining 

to be completed by the department: 

• continue with systems integration and improve plans and reports to better 

demonstrate progress, 

• make comprehensive improvements to address financial management and 

internal control weaknesses, 

• improve plans and reports to clearly explain strategies for achieving default 

management goals, and 

• continue implementation of strategic human capital measures, including 

succession planning and staff development. 

Previously, at the department’s request, specific actions needed to address each of 

these areas were provided to the department in the attached copy of our letter of 

August 1, 2001, to Deputy Secretary William Hansen. In that letter we compiled a 

summary of major actions that are critical in addressing the underlying root causes 

that have resulted in the high-risk designation of SFA programs measured against 

criteria we use for designation of programs as high risk. For example, the attachment 

to that letter lays out the following three key measurements of sound financial 

management for the department and FSA: 

• an unqualified audit opinion on the department’s financial statements, 

• full compliance with the Federal Financial Management Improvement Act 

(FFMIA) of 1996, and 

• correction of material internal control weaknesses identified in the financial 

statement audit 

The department has taken actions over the last several years to improve its financial 

management and the weaknesses identified. Significant progress was made recently 

when the department received an unqualified – or “clean” – opinion on its financial 

statements for fiscal year 2002. While this is an important milestone, significant 

management weaknesses remain that must be addressed in the other two key 

measurements we identified, which are discussed in more detail below. In addition, 

it is important that the department demonstrate that it can sustain the clean opinion, 

as well as other improvements that are made. As you know, the department first 

received an unqualified audit opinion on its fiscal year 1997 financial statements, but 

was not able to sustain that result, nor repeat it until this year. 

The first key measure that remains a weakness is compliance with FFMIA. FFMIA 

requires agencies to institute financial management systems that substantially comply 

with federal financial management systems requirements, applicable accounting 

standards, and the federal government’s Standard General Ledger. Every year since 

FFMIA was enacted, the department’s auditors have reported that the department’s 

 

1

U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: 

January 2003). 
Page 3 GAO-03-885R Education’s High Risk Designation 

systems did not substantially comply with the act’s requirements. This continued for 

fiscal year 2002. According to the auditors, although the department implemented a 

new financial management system during fiscal year 2002, issues associated with the 

transition to the new system contributed to difficulties in providing reliable, timely 

information for managing current operations and timely reporting of financial 

information to central agencies. The auditors also reported that the department 

needs to address identified computer security weaknesses in its financial 

management and other information systems. 

The second key measure that remains uncorrected is material internal control 

weaknesses identified in the financial statement audits. The department’s auditors 

have consistently reported major internal control weaknesses related to financial 

management systems and financial reporting. In fiscal year 2002, the auditor again 

reported that significant financial management issues continued to impair the 

department’s ability to accumulate, analyze, and present reliable financial 

information. While the auditor reported improvements in the latter part of the fiscal 

year, they reported that they continue to believe that the department needs to place 

additional focus on reconciliation procedures, account analysis, and financial 

reporting. Until these issues are fully resolved, the department’s ability to produce 

timely, accurate, and useful financial information for its managers and stakeholders 

will be greatly impeded. 

Designations of programs as high risk because of their greater vulnerabilities to 

waste, fraud, abuse, and mismanagement, as well as removal of programs’ high-risk 

designations, are the independent and objective judgment of GAO professionals. One 

of the key factors that enters into the judgment regarding removal of the designation 

is whether the corrective measures are effective and can be sustained. We have 

developed and will continue to refine the criteria we use to form judgments on 

removing high-risk designations. At the time of our January 2003 update to the 

Congress, agencies were required to have accomplished the following steps before a 

program’s high-risk designation could be removed: 

• a demonstrated strong commitment and top leadership support to address the 

risk(s); 

• the capacity (that is, the people and other resources) to resolve the risk(s); 

• a corrective action plan(s) that defines the root causes, identifies effective 

solutions, and provides for substantially completing corrective measures near 

term, including but not limited to, steps necessary to implement solutions we 

recommended; 

• a program to monitor and independently validate the effectiveness and 

sustainability of corrective measures; and 

• the ability to demonstrate progress in implementing corrective measures. 

We are impressed with the level of commitment to addressing the factors that 

resulted in this high-risk designation, and progress has clearly been made. However, 

in our independent and professional judgment as of January 2003, the SFA programs 

did not fully satisfy the criteria for removal from the high-risk list, largely because of 
Page 4 GAO-03-885R Education’s High Risk Designation 

the remaining financial management issues. In addition, it is not our policy to 

address high-risk designations “out of cycle." One key reason for this is to allow 

enough time between assessments to demonstrate the sustainability of corrective 

measures. Furthermore, providing for an out of cycle assessment for the Department 

of Education would set a precedent that would result in other agencies asking for 

such interim determinations. This would result in a significant unplanned use of 

resources that would adversely affect our ability to meet congressional mandates and 

requests on time. 

Thus, although we decline to commit to reconsider our January 2003 decision to 

classify the SFA program as high risk at this time, we will continue to work with the 

department to ensure that we are informed about and have validated the progress 

made in resolving these issues and sustaining improvement in all three areas. This 

proactive approach, which includes consideration of our ongoing work as well as that 

of the department’s outside auditors and the Inspector General, will enable us to 

promptly assess progress made and challenges that remain in preparation for the 

next high-risk cycle. In this regard, our next high-risk list is scheduled for publication 

in January 2005. 

We are sending copies of this report to the Secretary of Education and the 

department’s congressional oversight committees. We are also sending copies to the 

Subcommittee on Government Efficiency and Financial Management, House 

Committee on Government Reform, the Senate Committee on Governmental Affairs, 

and other interested parties. 

We remain encouraged by the department’s commitment to addressing these 

important challenges. We look forward to continuing to work with you in the future 

on these very important issues. 

Sincerely yours, 

David M. Walker 

Comptroller General 

 of the United States 

Enclosure 

(190099)
Enclosure 

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Enclosure 

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Enclosure 

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Enclosure 

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Enclosure 

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