January 2001 Major Managem

Challenges and 

Program Risks

Department of Educati

GAO-01-245

Page 1 GAO-01-245 Educ

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Products

Performance 

and 

Accountability 

Series
Page 2 GAO-01-245 Educati
of th

Page 3 GAO-01-245 Educ

United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the Depa

Education as it seeks to ensure equal acce

education and to promote educational ex

throughout the nation. It includes a summ

that Education has taken and that are und

address these challenges. It also outlines f

that GAO believes are needed. This analys

the new Congress and administration carr

responsibilities and improve government 

of the American people.

This report is part of a special series, first 

January 1999, entitled the Performance an

Accountability Series: Major Management 

and Program Risks. In that series, GAO ad

Congress that it planned to reassess the m

and criteria used to determine which fede

government operations and functions sho

highlighted and which should be designat

risk.” GAO completed the assessment, con

comments provided on a publicly availabl

draft, and published its guidance docume

Determining Performance and Accountab

Challenges and High Risks (GAO-01-159SP

November 2000.

This 2001 Performance and Accountabilit

contains separate reports on 21 agencies

each cabinet department, most major inde

agencies, and the U.S. Postal Service. The 

includes a governmentwide perspective on 
Page 4 GAO-01-245 Educati

and management challenges across the fede

government. As a companion volume to this 

is issuing an update on those government op

and programs that its work identified as “hig

because of either their greater vulnerabilitie

fraud, abuse, and mismanagement or major c

associated with their economy, efficiency, or 

effectiveness.

David M. Walker

Comptroller General 

 of the United States
Page 5 GAO-01-245 Educ
Page 6 GAO-01-245 Educ

Americans rank education as a top nation

Department of Education (Education) is t

agency responsible for overseeing the inv

federal government in support of U.S. edu

However, with a budget of $38 billion per 

Education provides a small portionabou

percentof the resources used for eleme

secondary education. State and local agen

responsible for elementary and secondary 

and Education supports and encourages t

promote educational excellence. In additi

combination of direct loans and guarantee

sector loans to students and their parents

through grants, Education provides billion

financial aid for postsecondary education

mission and improve the management of 

Education has established several strateg

ensure access to postsecondary education 

learning, (2) to help all children reach cha

academic standards, (3) to build a solid fo

learning for all children, and (4) to make E

high-performing agency. However, to achi

goals, the Department must find ways to m

performance and accountability challenge
Page 7 GAO-01-245 Educati

Federal Financial 

Aid

To ensure access to postsecondary educatio

lifelong learning, Education administers fede

and loan programs that help finance the high

education of millions of students. Annually, t

student financial aid programs provide more 

billion in federal loans and grants. While thes

have been successful in providing students w

to money for postsecondary education, they 

less successful in protecting the financial inte

federal government and U.S. taxpayers. Alth

student loan default rate had declined to 6.9 

fiscal year 1998, student loan defaults still co

federal government billions of dollars each y

$4.3 billion in fiscal year 1999 alone and mor

• Ensure access to postsecondary education 

while reducing the vulnerability of student a

programs to fraud, waste, error, and 

mismanagement

• Encourage states to improve performance 

information and upgrade federal evaluations 

used to assess how well all children reach 

challenging academic standards

• Promote coordination with other federal 

agencies and school districts to help build a 

solid foundation of learning for all children

• Improve financial management to help build 

high-performing agency
Page 8 GAO-01-245 Educ

$28 billion in the last 10 years.1 In addition

exception of fiscal year 1997, Education h

received an unqualifiedor “clean”opin

financial statements since its first agencyw

1995. Since 1990, we have considered Edu

student financial aid programs at high risk 

waste, abuse, or mismanagement.

These programs today continue to be at ri

because Education lacks the financial and 

information needed to manage these prog

effectively and the internal controls neede

the integrity of their operations. For exam

Education did not properly account for an

transactions for its guaranteed student lo

properly reconcile related accounting and 

accounts, Education could not be assured 

financial or budgetary reports were accur

addition, continued weaknesses in inform

controls increase the risk of disruption in 

make Education’s loan data vulnerable to 

access, inadvertent or deliberate misuse, f

improper disclosure, or destruction, all of 

occur without detection.

Because of these conditions, in June 2000

concluded that Education must continue 

ability to protect U.S. taxpayers from borr

to meet their obligations to repay their fed

loans and reduce the vulnerability of thes

fraud, waste, abuse, and mismanagement

2000, we reported that Education’s 1999 p

report and fiscal year 2001 performance p

goals or objectives that directly address th

fraud, waste, and error in student assistan

We concluded that Education should inclu

1

Some default costs may have been recovered throu

previously defaulted amounts.
Page 9 GAO-01-245 Educati

plans measures to improve the management 

oversight of these programs. After we issued 

Education revised its strategic plan to includ

performance objective of improving the inte

financial aid program. For that objective, the 

Department identified a number of strategie

the potential to address our concerns, such a

oversight efforts, continuing to work on the f

matching application and tax data, and demo

enhanced financial management. In addition

4 fiscal years (1997 through 2000), Education

Inspector General (OIG) opened 1,030 fraud 

investigative cases and achieved 737 closure

268 convictions.2

Improving 

Children’s 

Education

State and local program flexibility and limita

Education’s research and evaluation have m

difficult for the Department to gather inform

outcomes in elementary and secondary educ

programs. Education must address these cha

achieve the goal of assessing how well all chi

challenging academic standards by encourag

to improve performance information and by 

federal evaluations.

In pursuing this goal, Education must contin

balance state and local agencies’ need for pr

flexibility with its own need for information 

programs to ensure accountability. Collectin

comparable information on the outcomes of 

and secondary education programs is difficu

2

During the same period, OIG also reported that its inve

resulted in filing 261 indictments and informations. An in

formal criminal charge made by a prosecutor without a 

indictment.
Page 10 GAO-01-245 Educ

state and local agencies are primarily resp

these programs and states have much flex

federal funds are used and what informati

As a result, it is difficult to form a nationa

the information available. Department-spo

program evaluations could provide anoth

information about Education’s programs, 

reviews of several evaluations indicated t

of evaluation designs and the usefulness o

information vary. For example, Education

of the Upward Bound program used a rigo

that yielded reliable, valid, and useful info

the effect of the program. However, its on

evaluation of title I, Education’s largest el

secondary education programfunded at 

$7.9 billionhas a variety of technical pro

the use of a small, nonrepresentative sam

absence of a comparison group, which wi

usefulness in assessing title I, education r

instructional practices. We concluded that 

the purpose of the study is needed before 

can develop an adequate study design.

To help states improve the quality of state 

assessment data and meet a federal mand

these data by six categories of children, in 

GAO recommended that Education condu

activities to facilitate the exchange of info

among states and improve the quality, tim

specificity of state assessment data. Thes

could help the Congress and state decisio

determine the extent to which various gro

children, including those who are econom

disadvantaged, are reaching state standar

is considering options to accomplish this. 

recommended that Education implement 

measures to improve research on the effe

specific services provided under title I. Ed

agreed with this recommendation and sta

initiate these activities in developing its n
Page 11 GAO-01-245 Educati

evaluation plan. Further, in October 1999, we 

recommended that Education include in its r

evaluation plans studies that measure the ou

the migrant education program to determine 

to which funds are helping migrant children 

challenging academic standards. In response

has initiated a study to assess the feasibility 

a special sample of migrant children as part 

National Assessment of Educational Progres

Interagency 

Coordination

To build a sound foundation for learning, Ed

to coordinate with other agencies to help en

children receive needed services. Although E

has primary responsibility for administering 

investment in Education, other federal agenc

fund many of the services; for example, Hea

Human Services (HHS) funds $8 billion of th

federal investment in early education and ch

Importantly, education is primarily a state an

responsibility in the United States. As a resu

Education must coordinate with states and l

agencies and other federal agencies to impro

services children receive and reduce the cha

children face gaps in service. For example, in 

recent studies, we identified early education 

migrant education as two areas where Educa

improve coordination to better serve childre

Although Education administers many of the 

programs specifically authorized to provide 

childhood education and care as a primary p

HHS funds almost 90 percent of the federal i

in early childhood care and education. For e

HHS administers Head Start, the largest fede

childhood education program. In March 1999

pointed out that, although Education said it 

coordinate with other agencies, particularly 

not describe in detail how it would do so. In 

our work in this area, Education and HHS of
Page 12 GAO-01-245 Educ

collaborated to develop shared outcome i

measures for preschool-aged children ser

and Head Start; however, it is too soon to 

these activities will result in improved ser

children.

Coordination among agencies and schools 

to ensure that children of migrant agricult

workersmany of whom are at high risk 

failure and need services from multiple 

agenciescontinue to receive appropriat

when they move from one school to anoth

reported in October 1999 that differences 

and HHS’ eligibility requirements for prog

migrant children create service gaps and r

that HHS harmonize its definition of migr

with Education’s to help close these gaps. 

concluded that gaps in coordination betw

districts could disrupt services for migran

Such disruptions include creating delays i

needed services or causing children to rec

unnecessary repeated immunizations to m

registration requirements when the distric

the children do not have the children’s rec

information about whom to contact for re

correct this problem, we recommended th

work with states to develop nationwide sy

transmit essential information about migra

they move between school districts. Educ

with this recommendation and has reserv

support the technical and operational asp

interconnected system.

Financial 

Management

Weaknesses in Education’s financial mana

systems limit Education’s ability to build a 

performing agency. At this time, the Depa

continues to face serious financial manag

challenges that hinder its ability to (1) obt

complete financial information; (2) decrea
Page 13 GAO-01-245 Educati

vulnerability to fraud, waste, and mismanage

(3) ensure adequate accountability to taxpay

(4) manage for results; and (5) help decision

make timely and informed judgements. For e

beginning with Education’s first agencywide 

1995, auditors have repeatedly identified sign

financial management weaknesses. Educatio

year 1999 financial statement audit disclosed 

weaknesses that have prevented the agency 

receiving a “clean” audit opinion. In addition

weaknesses in the financial management sys

the Department’s student financial aid progr

example, hindering the timely detection and 

of errors in the student financial aid databas

production of reliable and useful information 

financial aid.

In August 2000, we reported that Education 

were increasingly vulnerable to fraud, waste

mismanagement because of weaknesses in it

management systemspecifically, inadequa

control mechanisms, weak internal controls

inappropriate use of a deposit fund. We conc

Education has planned and begun implemen

actions to resolve its financial management w

such as purchasing a new general ledger sys

acquiring new software tools, improving inte

controls, and establishing a process to return 

funds to the Treasury. However, it is too soon 

determine if these measures will be effective
Page 14 GAO-01-245 Educ

y g

Americans rank education as a top nation

Department of Education leads the federa

efforts to promote educational excellence 

equal access to education throughout the 

staff of about 4,700 and a budget of about 

year, Education has some 175 programs th

activities for individuals from infancy thro

adulthood. Although its programs have th

influence all students in the United States

figure 1, federal sources provide less than 

the total government resources used natio

public elementary and secondary educatio

local agencies are primarily responsible fo

and secondary education.

Figure 1: Public Elementary and Secondary Education Revenues by Source, Sch

1997

Source: United States Department of Education

Local and Intermediate Sour

State Sources

Federal Sources

6.6%

48.0% 45.4%
Page 15 GAO-01-245 Educati

In addition, through a combination of direct 

guarantees of private sector loans to student

parents, as well as through grants, Education 

billions of dollars of financial aid for postsec

education and thus has increased access to 

postsecondary education for millions of stud

Ensure Access to 

Postsecondary 

Education While 

Reducing the 

Vulnerability of 

Student Aid 

Programs to 

Fraud, Waste, 

Error, and 

Mismanagement

Through federal grant and loan programs ad

by Education, millions of students who migh

otherwise have had access to higher educati

been able to enroll in postsecondary educati

programs of their choice. These federal prog

the largest source of student aid in the Unite

currently providing a total of about $53 billio

student aid grants and loans to nearly 8.1 mi

students and parents. 

These student aid programs, however, contin

high risk for fraud, waste, error, and misman

because Education lacks the financial and m

information needed to manage these program

effectively and the internal controls needed 

the integrity of their operations (see the disc

financial management, below). For example

Education did not properly account for and 

transactions for its guaranteed student loan 

properly reconcile related accounting and bu

accounts, Education could not be assured th

financial or budgetary reports were accurate

addition, continued weaknesses in informati

controls increase the risk of disruption in se

make Education’s loan data vulnerable to un

access, inadvertent or deliberate misuse, frau

improper disclosure, or destruction, all of w

occur without detection. With the exception 

year 1997, Education has not received an 

unqualifiedor “clean”opinion on its finan

statements since its first agencywide audit in 
Page 16 GAO-01-245 Educ

Moreover, these programs operate indepe

different rules, processes, and data system

millions of students, thousands of schools

thousands of lenders, guaranty agencies, t

servicers, and contractors. Because of pro

to these long-standing conditions, in 1990 

Education’s financial aid programs at high 

waste, abuse, or mismanagement. This hig

designation remains.

Although serious weaknesses remain, Edu

addressed many of the issues we discusse

of reports on high-risk programs. For exa

national student loan default rate is the lo

6.9 percent for fiscal year 1998, the most r

which data are available. This lower defau

especially noteworthy considering that th

amount of loans has tripled and the numb

doubled since 1990. The lower default rat

attributed to a robust economy, better ma

Education, tougher enforcement tools aut

Congress, and stepped up efforts by colle

guaranty agencies, and other participants 

loan program. Education has also been pu

suspected of defrauding the federal gover

example, in the last 4 fiscal years (1997 th

Education’s OIG opened 1,030 fraud inves

and achieved 737 closures, including 268 c

and pleas.1

Despite the reduction in default rates, the 

continues to place taxpayers at risk, and t

turn in default rates may not continue if e

conditions decline. Further, the annual co

remain substantial. In fiscal year 1999, the 

for the Federal Family Education Loan Pr

1

During the same period, the OIG also reported achi

indictments and informations.
Page 17 GAO-01-245 Educati

(FFELP) and Federal Direct Loan Program (

about $4.3 billion; the default cost since 1990 

more than $28 billion.2

In July 1999, we reported that the method us

Education to calculate schools’ default rates

understates the default rate, and we propose

alternative, more appropriate method. We su

that the Congress may wish to consider ame

Higher Education Act of 1965 to exclude from 

annual calculation of school default rates bo

who have loans in deferment or forbearance 

of the 2-year cohort default period (a cohort 

a group of borrowers who began repaying th

during a given fiscal year). Further, we sugge

the Congress may wish to require that borro

excluded from a cohort’s default rate calcula

an authorized deferment or forbearance are 

a future cohort after they have resumed mak

payments on their loans.

Education has improved its databases conta

information about students receiving financi

its process for certifying schools to participa

student aid programs. However, Education’s 

recently noted that the Department’s proces

recertifying foreign schools is ineffective. Al

separate study of the case management and 

all participating institutions, the OIG has rec

that proper controls were not in place to ens

2

Some default costs may have been recovered through c

previously defaulted amounts.

3

The issue involves borrowers who have temporary app

their lenders or loan servicers for “deferment” or “forbe

is, they can delay payments on their loans. In Education

of a school’s default rate, these borrowers are not coun

defaulters, but they do count as a part of the total numb

borrowers. The number of borrowers in default is divide

larger than the total number of borrowers who are actu

their loans. As a result, the default rate is understated.
Page 18 GAO-01-245 Educ

effective use of program reviews. These p

reviews are intended to monitor and impr

institutional performance and compliance 

requirements. The outcome of such review

determine whether an educational institut

recertified to participate in federal studen

programs.

The Department is improving its procedur

and verifying the eligibility information us

student loan fraud. However, further impr

prevent fraud are needed. As we reported 

2000, the problem is that neither Educatio

individual institutions such as colleges an

that check the accuracy of student financ

applications have access to third-party da

independently verify most applicants’ fam

before disbursing loan and grant payment

OIG, which traced a sample of income dat

applications that institutions had verified, 

weaknesses in the verification process. W

Education’s verification procedures—suc

checks to identify error-prone application

reasonable for detecting and correcting m

applications, they cannot identify student

intentionally underreport family income.

In the 1998 amendment to Title IV of the H

Education Act, the Congress instructed E

the Internal Revenue Service (IRS) to coo

verifying students’ income to prevent loan 

Subsequently, in September 2000, we dete

Education could obtain eligibility informa

matching automated computer files and a

online databases from the IRS. The two ag

currently conducting two pilot projects to 

Education and IRS data. If the pilots are s

if IRS grants Education permission to rec

taxpayer information for use in verifying d

on loan applications, Education could use 
Page 19 GAO-01-245 Educati

data sharing to make more timely and accur

eligibility determinations. 

While Education’s performance plans for fisc

1999 through fiscal year 2001 address most o

Department’s key outcomes, none of its goal

objectives directly address fraud, waste, and 

mismanagement in its financial management 

the high-risk status of its student financial ai

Because these vulnerabilities potentially pos

to the federal government and America’s tax

concluded in a June 2000 report that Educat

develop performance goals, objectives, and m

that directly relate to the management and o

its financial system and student loan program

issued our report, Education revised its strat

include a performance goal of improving the 

the financial aid program. For that goal, the D

has not developed objectives and measures a

has identified a number of strategies that hav

potential to address our concerns, such as in

oversight efforts, continuing to work on the f

matching application and tax data, and educ

foreign school community about program re

Key Contact Cornelia M. Ashby, Director

Education, Workforce, and 

Income Security Issues

(202) 512-7215

ashbyc@gao.gov
Page 20 GAO-01-245 Educ

Encourage States 

to Improve 

Performance 

Information and 

Upgrade Federal 

Evaluations Used 

to Assess How 

Well All Children 

Reach Challenging 

Academic 

Standards

Education continues to face significant ch

demonstrating whether its programs are m

goals and, consequently, cannot always pr

Congress and other decisionmakers the in

they need to make decisions about how w

programs operate and the level at which t

funded. These challenges stem, in part, fr

flexibility that state and local agencies ha

determining how federal funds are used fo

and secondary education and what inform

reported. In addition, states have differen

and assessment systems and test students 

times of the year and at different grade lev

Consequently, it is difficult for Education 

comparable information about programs 

information from the states into a nationa

lack of comparable state data underscore

importance of federal program evaluation

program outcomes, but in our review of th

evaluations, we have found that the usefu

information provided by these evaluation

Useful information about large federal pro

as title I, is particularly important. Howev

states have experienced difficulty collecti

reporting information about their students

in the manner required by law. Funded at 

title I is the Department’s largest elementa

secondary program. Title I legislation requ

collect assessment results separately for s

categories of children (by gender group, r

ethnic group, migrant status, disability sta

proficiency status, and economic status) b

2001 school year. State and Education off

use these data to demonstrate the extent 

children, including children belonging to g

at risk of educational failure, are meeting 

standards. Although some information on 

achievement will soon be available from m
Page 21 GAO-01-245 Educati

some states have experienced difficulty in co

reporting data by the six categories.

To help states improve the timeliness and sp

their assessment data, the collection and rep

disaggregated data, and the clarity of their cr

adequate progress, in June 2000, we recomm

Education conduct additional activities to fa

exchange of information and best practices a

states. As a result, Education is reviewing op

improve its technical assistance to states and 

considering ways to facilitate the exchange o

assessment information. 

Because of the challenges in gathering comp

on program outcomes from states, Educatio

funds large-scale program evaluations. Given 

Education and Congress depend on these ev

for information about how programs are wo

national level, it is incumbent on the Departm

ensure that these studies are well designed a

useful information. Our reviews of several of 

evaluations indicated that the usefulness of t

depended on how well they were designed.

For example, in September 2000, we reporte

Education’s evaluation of its Upward Bound 

provided reliable and valid information that 

the Department’s understanding of how the p

was working. This evaluation incorporated so

strategies, such as the use of a control group 

comparisons between participating students 

nonparticipating students, as well as random 

so that the effects of the program could be d

We also reported that the results of this evalu

be used to make decisions about who is targe

program and the length of their participation
Page 22 GAO-01-245 Educ

In addition, at the request of the Congress

two studies that gathered information on t

The first, Prospects: The Congressionally 

Study of Educational Growth and Opportu

conducted to help Congress with the 1994 

reauthorization of title I, which was comp

The second, the ongoing Longitudinal Eva

School Change and Performance (LESCP

being conducted to help with the impendi

reauthorization.

As we reported in August 2000, Prospects 

and comprehensive design and collected i

that allowed decisionmakers to draw con

the effects of title I. In contrast, we emph

limitations of the design of the LESCP 

studyparticularly the study’s small, non

samplewill restrict decisionmakers’ abi

strong conclusions from its data. We furth

how the lack of agreement about LESCP’s 

created unclear expectations for the study 

make it difficult to predict the degree to w

report will be useful in assessing title I, ed

reform, or instructional practices. We con

agreement on the purpose of the study is 

researchers can develop an adequate stud

will allow efficient data collection, approp

and generalizable results. 

In June 2000, we recommended that Educ

implement additional actions to improve r

effectiveness of specific services in title I 

and targeted assistance programstwo d

approaches to serving children in schools 

title I. We said that such actions could incl

and improving current data collection effo

designing an evaluation for a study or set 

educational services. Education agreed w

recommendation and stated that it will in

activities in developing its next title I eval
Page 23 GAO-01-245 Educati

In another example, Education has no data o

outcomes of its migrant education program, 

serves children who are extremely vulnerabl

educational failure. In 1996, the migrant prog

provided direct services to more than 600,00

In our October 1999 review of migrant educa

programs, we recommended that Education 

studies to measure outcomes of its migrant e

program as part of ongoing national data col

acknowledged that the cost of studies that in

nationally representative samples of migrant 

might be prohibitive. However, we explained 

Education that the majority of migrant stude

located in a small number of states where the

considerable periods of time. We recommen

Education’s future data collection activities i

special sample of migrant children in these s

Education agreed with our recommendation 

exploring strategies to assess a special samp

migrant children as part of the 2002 National 

Assessment of Educational Progress.

Key Contact Marnie S. Shaul, Director

Education, Workforce, and 

Income Security Issues

(202) 512-7215

shaulm@gao.gov

Promote 

Coordination to 

Help Build a Solid 

Foundation of 

Learning for All 

Children

Education is the lead federal agency on educ

only one of many federal, state, and local age

supporting education. To improve the servic

receive and reduce the chance that children 

service, Education needs to promote coordin

among federal agencies and with states and 

agencies. This is especially important when 

federal agencies fund most of the services. F

HHS funds almost 90 percent of the federal i

in early education and care. Coordination wi
Page 24 GAO-01-245 Educ

and local entities is also critical because e

primarily a state and local responsibility. E

improved its interagency coordination; ho

several recent studies, we identified early 

migrant education as two areas where Ed

improve coordination to better serve child

Education’s ability to play a leadership ro

coordinating early childhood education is 

because most of the resources that suppo

programs come from other agencies. Alth

Education administers most of the 29 fede

that are authorized to provide early educa

as their primary purpose, HHS administer

funding. Of the $9 billion that the federal g

invests in early childhhood education and 

billion is allocated to HHS to support thre

programsHead Start, Child Care and De

Fund (CCDF), and Temporary Assistance 

Families (TANF) block grants. 

Education has highlighted early childhood 

a major area of departmental concern bec

learning opportunities for children have c

for long-term success; research on early b

development reveals that if some learning 

are not introduced to children at an early 

children will find learning more difficult l

who enter school ready to learn are more 

achieve high standards than children who 

inadequately prepared; and high-quality p

child care are integral in preparing childre

for school. 

In March 1999, we pointed out that althou

said it planned to coordinate with other a

particularly HHS, it did not describe in de

would do so. In response to our work in t

Education and HHS officials have collabo
Page 25 GAO-01-245 Educati

develop shared outcome indicators (e.g., chi

leave kindergarten ready to learn to read) an

(e.g., identifying every letter of the alphabet) 

preschool-aged children served by title I and 

but it is too soon to tell if these efforts are su

improve services for children. 

Migrant education is another area where Edu

promote coordination to improve services fo

In 1999, Education became involved in an in

group comprised of the federal directors of p

that work with migrant education, health, an

issues. This group was formed to increase co

and collaboration among programs serving m

children and their families. Although this int

effort holds promise and includes both HHS 

Department of Labor, coordination challenge

Our October 1999 report on education progr

migrant children illustrated how differences 

Education’s and HHS’ eligibility requirement

programs targeting migrant children create s

impede service coordination, and complicate 

between programs. We recommended that H

harmonize its Migrant Head Start eligibility 

requirements with those of the Migrant Educ

Program.

Because states and local governments bear m

responsibilities and provide most of the edu

funding for these students, in October 1999, 

recommended that Education work with sta

them develop a nationwide system to permit 

exchange of essential data about migrant ch

they move from school to school. Such a sys

reduce the risks of migrant children receivin

duplicative immunizations to meet school en

requirements and experiencing disruptions i

services. Education agreed with this recomm
Page 26 GAO-01-245 Educ

and has reserved funding to support techn

operational aspects of an interconnected 

Key Contact Marnie S. Shaul, Director

Education, Workforce, and 

Income Security Issues

(202) 512-7215

shaulm@gao.gov

Improve Financial 

Management to 

Help Build a HighPerforming 

Agency

Weaknesses in Education’s financial mana

information systems limit the Department

achieve one of its key goals—improving f

management to help build a high-perform

Beginning with the Department’s first age

in 1995, Education’s auditors have repeate

significant financial management weakne

Education’s fiscal year 1999 financial state

disclosed continuing weaknesses that hav

the agency from receiving a “clean” audit 

range of Education’s internal control wea

hampers its ability to generate reliable, us

timely information on an ongoing basis to 

accountability to taxpayers. Although Edu

planned and begun implementing many ac

resolve its financial management weakne

soon to determine if these will prove effec

Department will continue to face serious 

management challenges.

Specifically, auditors reported material in

weaknesses relating to (1) the inability to 

routine financial reports, (2) the lack of pr

reconciliation of accounting records, (3) f

return about $2.7 billion in net collections 

to the Treasury in accordance with the Fe

Reform Act (FCRA) of 1990, (4) vulnerabi

information systems that could result in u
Page 27 GAO-01-245 Educati

access to sensitive information and disruptio

services, and (5) the inappropriate manner in 

agency used a deposit fund established to re

to grant recipients. 

For fiscal year 1999, as in prior years, Educa

have adequate internal controls over its finan

reporting process. Education’s financial repo

weaknesses can be attributed primarily to se

limitations of a new accounting system that 

implemented during fiscal year 1998. A signi

limitation of this new accounting system was 

ledger system, which was unable to perform 

automated year-end closing process and dire

produce consolidated financial statements. B

these system weaknesses, Education had to 

labor-intensive and time-consuming process 

automated and manual procedures to prepar

year 1999 financial statements. 

Additionally, during fiscal year 1999, Educati

perform an adequate or timely reconciliation 

differences between its financial accounting 

cash transactions reported by Treasury. Trea

requires agencies to reconcile their accounti

with relevant Treasury records, similar to th

which individuals reconcile their checkbook

monthly bank statements. For fiscal year 199

was a $244 million difference between Treas

Education’s records; Education adjusted its 

Balance with Treasury” account without dete

causes of the differences. Weaknesses in Edu

internal controls over the reconciliation proc

prevented timely detection and correction o

its underlying accounting records. Without r

timely data in its accounting records, the risk 

waste, and mismanagement of funds is incre
Page 28 GAO-01-245 Educ

Because it did not properly account for an

FFELP transactions or properly reconcile 

accounting and budgetary accounts consi

FCRA, Education could not be assured th

or budgetary reports were accurate. Thes

diminish the potential that these reports w

Congress and others understand how Edu

program funds. For example, during fisca

Education did not transfer about $2.7 billi

unobligated balances in its liquidating acc

FFELP loans to the Treasury’s general fun

by FCRA. Further, Education did not suffic

the balances reflected on the financial sta

ensure that the FFELP balances agreed w

balances in the Department’s budgetary a

the liquidating account, the auditors ident

unexplained difference of about $700 mill

the FFELP and budgetary accounts as of 

1999.

Further, Education’s auditors reported tha

Department had deficiencies in its inform

controls. These controls included (1) impl

management controls, such as procedures 

requesting, authorizing, and revalidating a

computing resources; (2) monitoring and 

access to sensitive computer resources; (

documenting approach and methodology 

and maintenance of its information techn

architecture; and (4) developing and testin

comprehensive disaster recovery plan to e

continuity of critical system operations in 

disaster. Continued weaknesses in inform

controls increase the risk of disruption in 

make Education’s sensitive grant and loan 

vulnerable to unauthorized access, inadve

deliberate misuse, fraudulent use, improp

or destruction, all of which could occur w

detection.
Page 29 GAO-01-245 Educati

Education also did not perform routine reco

of its grant payments system with the genera

Although no improper payments were identi

auditors noted that reconciliations were not 

performed because Education had not devel

adequate policies and procedures for doing s

result, we reported in August 2000 that there 

increased risk that material errors or irregula

occur and would not be detected in a timely 

addition, Education has not maintained adeq

records in cases where grant funds are retur

Department. Grant recipients who meet cert

thresholds4

 are audited to test their complian

grant requirements. If audits identify certain 

noncompliance, recipients must repay Educ

amount related to the noncompliance; that is

to give the grant funds back to Education. Th

from all grantsare put in one account, call

grantback account.5

 We found that Educatio

managing the grantback account properly. F

we found that, beginning in 1993, Education 

inappropriately used the grantback account 

suspense account to hold hundreds of million

worth of transactions. Because Education di

maintain adequate detailed records for certa

grantback activity, Education could not read

the specific grants from which the various gr

transactions came. Such documentation is n

part of a funds control system to ensure com

with the Anti-Deficiency Act, which requires 

prevent possible overobligation or overexpe

4

The requirements apply to grant recipients who annual

federal awards of $300,000 or more (or receive awards 

more prior to June 1997).

5

The grantback account was established to retain funds 

grantback payments and to account for grantback activ

recipient meets certain conditions, including correcting 

noncompliance, Education may return up to 75 percent 

recovered in the form of grantback payments.
Page 30 GAO-01-245 Educ

and to report to the President and the Con

conditions occur.

Education has taken various corrective ac

response to the material financial manage

weaknesses identified in its fiscal year 19

statement audit. Key corrective actions in

purchasing a new general ledger system, a

software tool to help automate the reconc

process, improving controls over access t

resources, and establishing a process to r

excess FFELP funds to Treasury. While E

actively has taken steps to reduce its finan

management problems, it is too early to te

Department will be successful. It is critica

Education resolve these challenges to gen

useful, and timely information on an ongo

ensure adequate accountability to taxpaye

results, and help congressional and progr

decisionmakers make timely, well-inform

Furthermore, it is also essential that Educ

recognize the importance of a continuing 

commitment to attain a “clean” or unquali

opinion on its financial statements. Acqui

unqualified audit opinion is the first step i

sound financial management.

Key Contacts Linda M. Calbom, Director

Financial Management and Assurance Gro

(202) 512-8341

calboml@gao.gov

Cornelia M. Ashby, Director

Education, Workforce, and 

Income Security Issues

(202) 512-7215

ashbyc@gao.gov
Page 31 GAO-01-245 Educ

Federal Financial 

Aid

Higher Education: Trustee Arrangements 

Purpose in Student Loan Market (GAO/HE

Sept. 25, 2000).

Benefit and Loan Programs: Improved Da

Could Enhance Program Integrity (GAO/H

Sept. 13, 2000).

Student Loans: Default Rates Need to Be 

More Appropriately (GAO/HEHS-99-135, J

Department of Education: Resolving Disc

Complaints Has Improved With New Proc

(GAO/HEHS-99-47R, Mar. 23, 1999).

Direct Student Loans: Overpayments Duri

Department of Education's Conversion to 

Payment System (GAO/HEHS-99-44R, Feb

Student Loans: Improvements in the Direc

Consolidation Process (GAO/HEHS-99-19

Nov. 10, 1998).

Improving 

Children's 

Education

Program Evaluation: Studies Helped Agen

or Explain Program Performance (GAO/G

Sept. 29,1999).

Education for Disadvantaged Children: Re

Purpose and Design Features Affect Conc

From Key Studies (GAO/HEHS-00-168, Au

Title I Program: Stronger Accountability N

Performance of Disadvantaged Students

(GAO/HEHS-00-89, June 1, 2000).
Page 32 GAO-01-245 Educati

Migrant Children: Education and HHS Need 

the Exchange of Participant Information

(GAO/HEHS-00-4, Oct. 15, 1999).

Ed-Flex Program: Increase in Flexibility Use

Limited by Scope of Waiver Authority 

(GAO/T-HEHS-99-67, Feb. 25,1999).

Interagency 

Coordination

Early Education and Care: Overlap Indicates 

Access Crosscutting Programs (GAO/HEHS-

Apr. 28, 2000).

Education and Care: Early Childhood Progra

Services for Low-Income Families (GAO/HE

Nov. 15, 1999).

Migrant Children: Education and HHS Need 

the Exchange of Participant Information

(GAO/HEHS-00-4, Oct. 15, 1999).

Preschool Education: Federal Investment fo

Income Children Significant but Effectivenes

(GAO/T-HEHS-00-83, Apr. 11, 2000).

Results Act: Using Agency Performance Plan

Oversee Early Childhood Programs

(GAO/T-HEHS-99-93, Mar. 25, 1999).

Financial 

Management

Financial Management: Review of Education

Grantback Account (GAO/AIMD-00-228, Aug

Education's FY 1999 Performance Report an

Performance Plan (GAO/HEHS-00-128R, Jun

Financial Management: Education's Financia

Management Problems Persist (GAO/T-AIMD

May 24, 2000). 
Page 33 GAO-01-245 Educ

Education Discretionary Grants: Awards P

Benefit From Additional Improvements (G

55, Mar. 30, 2000).

Financial Management: Education Faces 

Achieving Financial Management Reform 

00-106, Mar. 1, 2000).
Page 34 GAO-01-245 Educ

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 35 GAO-01-245 Educati

Major Management Challenges and Program 

Department of Transportation (GAO-01-253)

Major Management Challenges and Program 

Department of the Treasury (GAO-01-254)

Major Management Challenges and Program 

Department of Veterans Affairs (GAO-01-255

Major Management Challenges and Program 

Agency for International Development (GAO

Major Management Challenges and Program 

Environmental Protection Agency (GAO-01-2

Major Management Challenges and Program 

National Aeronautics and Space Administrat

(GAO-01-258)

Major Management Challenges and Program 

Nuclear Regulatory Commission (GAO-01-25

Major Management Challenges and Program 

Small Business Administration (GAO-01-260

Major Management Challenges and Program 

Social Security Administration (GAO-01-261)

Major Management Challenges and Program 

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263)
Ordering 

Information

The first copy of each GAO report is free. Addi

reports are $2 each. A check or money order sh

out to the Superintendent of Documents. VISA 

credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a 

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

Orders by visiting:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders by phone:

(202) 512-6000

fax: (202) 512-6061

TDD (202) 512-2537

Each day, GAO issues a list of newly available r

testimony. To receive facsimile copies of the dai

from the past 30 days, please call (202) 512-60

touchtone phone. A recorded menu will provide 

how to obtain these lists.

Orders by Internet:

For information on how to access GAO reports 

send an e-mail message with “info” in the body 

info@www.gao.gov

or visit GAO’s World Wide Web home page at: 

http://www.gao.gov

To Report Fraud, 

Waste, or Abuse in 

Federal Programs

Contact one:

• Web site: http://www.gao.gov/fraudnet/fraud

• e-mail: fraudnet@gao.gov

• 1-800-424-5454 (automated answering syst

Official Business

Penalty for Private Use $300

Address Correction Requested