Office of Federal Student Aid: Better Strategic and Human Capital Planning Would Help Sustain Management Progress
Published: 2004-10-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2003, the Department of Education's Office of Federal Student Aid (FSA) managed about $60 billion in new financial aid. In 1998, the Congress designated FSA as a performance-based organization. In so doing, it specified purposes for the agency, such as to reduce program costs and increase accountability of its officials, and provided flexibilities such as allowing FSA to pay bonuses. Also FSA is required to annually prepare a performance plan and report and have performance agreements for its senior officials. Past reviews revealed serious problems and concerns about FSA's management. In January 2003, GAO reported that FSA had made progress but had not sufficiently addressed some key management issues. Also, GAO noted that FSA, like other agencies needed to address human capital issues. GAO assessed FSA's progress in (1) addressing key management issues and meeting requirements for planning and reporting, and (2) developing a human capital strategy and increasing the accountability of its officials.
section_title: What GAO Found
paragraphs: FSA has made progress addressing its key management issues; however, its plans and reports do not contain all the required information needed by the Congress and the public to assess FSA's progress in achieving its goals and purposes. FSA's significant improvements in its financial management and internal control are reflected in its receiving an unqualified or "clean" opinion on its financial statements for fiscal years 2002 and 2003. In addition, FSA's fiscal year 2003 financial audit did not identify any material internal control weaknesses. FSA has also made progress in other areas, but to a lesser extent. FSA completed several critical systems integration tasks, but full systems integration is several years away. In addition, FSA has addressed many program integrity issues--factors that could affect the vulnerability of student aid programs to fraud, waste, and abuse--but has not developed guidance to ensure that its comprehensive compliance reviews are being performed as expected. Furthermore, FSA has developed a cost model that has the potential to identify the full cost of its activities and changes in costs over time, but as of July 2004, the model was not fully operational. As a result, FSA has not been able to demonstrate that it has reduced the cost of administering its programs. Also, FSA issued a 5-year performance plan and annual performance reports, but neither included specific measures needed to determine whether FSA has made progress toward meeting its longer-term strategic objectives. FSA has developed a comprehensive human capital strategy and has taken steps to increase the accountability of most of its officials, but some of the human capital strategy's components and the accountability system have weaknesses. FSA's human capital plan describes the agency's human capital strategy and the strategy's components. For example, FSA has a draft succession plan to prepare for the retirement of key staff. However, this plan has weaknesses. The draft succession plan shows that the agency will redistribute the duties of most retiring staff but does not discuss how the agency will develop the skills of remaining staff to take over new responsibilities. To increase the accountability of its officials, FSA changed from a pass-fail to multilevel performance appraisal systems for its senior officials and included job-specific goals in their performance agreements based on their areas of responsibility. FSA also changed the way it awards performance bonuses, but the criteria were not clear.

section_title: Letter
paragraphs: The Department of Education’s (Education) Office of Federal Student Aid  (FSA) administered over $60 billion in new federal student aid to  approximately 9 million students in 2003. FSA describes its mission as  helping to put America through school by providing access to higher  education through effective and efficient delivery of student aid. However,  past audits and reviews revealed that the agency has encountered some  problems accomplishing this mission. Consequently, we designated  student financial aid programs as high-risk in 1990 because of concerns  about fraud, waste, abuse, and mismanagement of the billions of dollars in  student financial aid.
In 1998, when the Congress amended the Higher Education Act (HEA), it  designated FSA as a performance-based organization (PBO) and  authorized the agency to operate without the constraints of certain rules  and regulations for the purpose of achieving specific measurable goals and  objectives. This flexibility was intended to allow FSA to better address  long-standing management weaknesses and enhance its delivery of student  financial aid. The Congress designated several purposes for FSA, including  reducing costs of administering the program and increasing accountability  of officials. In addition, the Congress required that FSA annually issue   (1) a 5-year performance plan that establishes measurable goals and  objectives for the organization and (2) performance reports showing  progress toward achieving its measurable goals and objectives in  accordance with applicable requirements under the Chief Financial Officer  (CFO) Act and the Government Performance and Results Act (GPRA).  While FSA had developed new management strategies and had made some  progress improving its operations, Education’s Office of Inspector General  (OIG) and we found that FSA had not sufficiently addressed management  weaknesses, identified reductions in cost, prepared 5-year performance  plans, or submitted useful and timely reports. Specifically, we reported in  January 2003 that FSA needed to take further actions in several key  management areas, and we identified human capital management as one  of the key challenges facing FSA and agencies governmentwide.
Since we completed the work for our January 2003 report, FSA has further  attempted to address our concerns. We have undertaken this effort to  examine the extent to which FSA has made progress (1) addressing key  management issues related to financial management and internal control,  systems integration, program integrity, the costs of administering its  programs, and fulfilling its planning and reporting responsibilities, and   (2) establishing a comprehensive human capital strategy and increasing  the accountability of its officials.
To assess FSA’s progress in these areas, we reviewed and analyzed several  documents such as auditors’ reports on FSA’s financial statements and  internal control for fiscal years 2002 and 2003, annual performance plans  and reports, and its 5-year performance plan. We also analyzed FSA’s  systems plans and related documentation, as well as the performance  agreements and evaluations of its senior managers. We interviewed  officials from FSA, Education’s OIG, and Education’s Management  Improvement Team (MIT), as well as union officials. We conducted our  work between November 2003 and August 2004 in accordance with  generally accepted government auditing standards. For more details about  our scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: FSA manages and administers student financial aid programs authorized  under Title IV of the HEA, as amended. These programs include the  William D. Ford Federal Direct Loan Program (Direct Loans), the Federal  Family Education Loan Program (FFEL), the Federal Pell Grant Program  (Pell Grants), and campus-based programs. The student aid environment  is complex and involves a large number of parties. In 2003, about 6,600  schools, 3,700 lenders, and 36 guaranty agencies participated in the Title IV  student aid programs. Additionally, there are numerous information  systems, federal financial requirements, programmatic regulations, and  human capital issues that also affect the delivery of student financial aid.
For many years, the Department of Education designed technology  systems and processes to accommodate each financial aid program as it  was developed. As the demand for the programs grew, so did the number  of systems needed to support institutional participation, student eligibility  determination, aid disbursement, operational accounting, and financial  record keeping for the many disparate programs involved. After 30 years  of such practices, the department was left with stand-alone information  systems and separate delivery processes that were not integrated with one  another. Consequently, student aid delivery became replete with  redundant data, rising costs, complex rules, and inefficiency for everyone  involved. The process to gain access to student financial aid programs  required users, such as an educational institution’s financial aid or  accounting staff, to continually log in and out of different systems for  related aid information on students for each program. Accessing the  student information for each FSA program often required the use of  different school identifiers and passwords, and users often did not have  the ability to retrieve necessary information when they did gain access. We  previously reported that the problem of not having access to current,  accurate information sometimes led to loans and grants being improperly  awarded. In 1999 FSA began implementing a strategy to integrate its many  disparate systems.
In response to the growing complexity, increasing demand, and the  likelihood for fraud, waste, and abuse associated with the student aid  programs, the Congress established FSA as the government’s first PBO in  October 1998. As defined in the legislation, the specific purposes of the  PBO are to  improve service in the student financial assistance programs;  reduce costs of administering the programs;  increase accountability of officials;    provide greater flexibility in management;  integrate information systems;  implement an open, common, integrated delivery system; and    develop and maintain a financial aid system containing complete,  accurate, and timely data to ensure program integrity.
FSA’s enabling legislation also established several requirements and  provided certain flexibilities. These requirements included the  appointment of a chief operating officer (COO), the establishment of a fair  and equitable system for measuring staff performance, and the  development of annual performance agreements for the COO and other  senior managers. In exchange for increased accountability, the legislation  allows for the payment of performance bonuses to the COO and senior  managers hired under the excepted service hiring authority, and the law  allows FSA to hire an unlimited number of Senior Executive Service (SES)  personnel and a limited number of excepted service technical/professional  staff.
Additionally, the law established several annual reporting requirements to  inform the Congress and the public of the progress that FSA was making  toward achieving its intended purposes and goals. Specifically, among  other things, FSA must (1) develop and publicly release each year a 5-year  performance plan that includes measurable goals and objectives as well as  the action steps necessary to achieve a modernized student financial  assistance delivery system and (2) provide an annual report to the  Congress that describes the results achieved relative to its goals and  objectives. The annual performance report must include (1) a copy of the  current year’s independent financial audit report; (2) a discussion of  financial and performance requirements applicable to the PBO under the  CFO Act and GPRA, (3) results achieved in the previous year; (4)  evaluation ratings of the COO and senior managers, including the amounts  of bonus compensation awarded to these individuals; (5)  recommendations for legislative and regulatory changes; and (6) other  such information required by the Director of the Office of Management  and Budget (OMB). The planning and reporting requirements are  consistent with federal reform laws, such as the CFO Act, GPRA, Federal  Managers’ Financial Integrity Act (FMFIA), Federal Financial Management  Improvement Act (FFMIA), and others intended to reshape the way  government conducts its business.
FSA’s budget supports its staff, contractors, and day-to-day operations. In  fiscal year 2004, FSA’s operating budget was $621 million. FSA worked  with about 3,800 contractors and employed about 1,100 staff. As of June  2004, FSA had 10 organizational units at its headquarters in Washington,  D.C., and some of these units also have regional offices in 10 states  nationwide. Figure 1 illustrates the organizational structure of its  headquarters office.
Federal agencies, including FSA, face human capital challenges.  Recognizing this, in 2001 GAO designated strategic human capital  management as a governmentwide high-risk area. With respect to FSA, we  reported in 2002 that almost 40 percent of the agency’s workforce was  eligible for retirement. We also reported that the agency had experienced  difficulty in reaching agreement with its union on a past human capital  initiative. Additionally, we noted that particular attention was needed to  address human capital planning, leadership continuity, and succession  planning, as well as recruitment and development to meet organizational  needs.
section_title: FSA Has Made Progress Addressing Key Issues, but Has Not Completely Fulfilled Its Planning and Reporting Responsibilities
paragraphs: FSA has made progress in addressing key issues in the areas of financial  management and internal control, systems integration, program integrity,  and determining the cost of administering its programs, but FSA has not  completely fulfilled its responsibility with respect to developing  performance plans and reports. Many of the changes made by FSA have  been based on GAO recommendations. Of the 22 recommendations that  GAO has made related to student financial aid since 2001, we determined  that FSA has fully implemented 12, partially implemented 5, and is in the  process of implementing 5 others. A listing of past GAO recommendations  related to FSA and student financial aid and their status is contained in  appendix II.
subsections: section_title: FSA’s Progress Varied by Key Area
paragraphs: FSA’s progress varied by key area. FSA made significant progress in  financial management and addressed several internal control weaknesses  reported by us and outside auditors. FSA has completed several critical  systems integration tasks but is not yet operating in a fully integrated  environment. Also, FSA has taken some actions to improve program  integrity and developed a model to calculate the cost of administering its  programs.
subsections: section_title: Financial Management and Internal Control
paragraphs: For several years, independent auditors reported serious financial  management problems at FSA, but in fiscal years 2002 and 2003, the  agency received an unqualified—or “clean”—opinion on its financial  statements. In addition, although the auditors identified two reportable  conditions, they did not identify any material internal control  weaknesses in FSA’s fiscal year 2003 audit. The two reportable  conditions the auditors identified concern management controls  surrounding the calculation and reporting of the loan liability activity and  subsidy estimates and information systems controls. FSA has developed a  corrective action plan to address these findings and is working to  implement it. Also, FSA prepared its financial statements earlier than  required in 2003.
We determined that FSA has established processes to address several  internal control weaknesses. Since we previously reported that internal  control weaknesses made FSA vulnerable to improper payments in its  grant and loan programs, FSA has taken steps to better ensure that Pell  Grants are not issued to ineligible students. In fiscal year 2002, FSA  implemented a process for verifying an applicant’s age when the  information indicated that the applicant was 75 or older and another  process for identifying and investigating schools with high percentages of  students with certain characteristics, such as older, noncitizen Pell Grant  recipients. These reviews are used to identify problems such as eligibility- related violations or indications of possible fraudulent activities, which are  referred to the OIG. In addition, since our finding that FSA did not correct  Social Security numbers and dates of birth in all records, FSA has  implemented its new loan origination and disbursement system, which  automatically makes such changes to records in all systems.
Independent auditors also reported in 2003 that Education’s systems did  not substantially comply with the Federal Financial Management  Improvement Act’s requirements. Because FSA’s financial reporting relies  on the department’s systems, computer security weaknesses identified at  Education also affect FSA. The auditors found that while the department  had made progress in strengthening controls over information technology  processes, computer security weaknesses still existed. However, the  auditors also reported that these weaknesses were not material.
section_title: Systems Integration
paragraphs: FSA is continuing to take actions toward better integrating systems  supporting its student financial aid programs. FSA’s integration strategy  focuses on achieving a seamless information exchange environment in  which users—students, educational institutions, and lenders—would  benefit from simplified access to the agency’s financial aid processes and  more consistent and accurate data across its programs. The strategy  involves consolidating FSA’s existing legacy systems, in which the  functionality of certain systems would be incorporated into new or  modernized systems and, in the long term, integrating systems and using  electronic interfaces to facilitate data exchanges across systems.
Consistent with OMB guidelines, FSA has made progress toward  establishing an enterprise architecture needed to guide its systems  integration. An enterprise architecture provides a framework for  developing and maintaining integrated information systems and  establishes the rules and standards required for interrelated systems to  work together efficiently and effectively. FSA has completed many of the  required elements of its architecture, including the baseline and target  architectures that, respectively, describe the agency’s current and future  information systems environments. In addition, FSA has named a  permanent chief architect, with responsibility for overseeing its systems  integration efforts.
FSA has also begun consolidating certain information systems, thus  reducing the overall number of systems that it must rely on to administer  its student financial aid programs. Over the past several years, the agency  has retired 6 of 18 systems and incorporated their functionality into  certain other systems. (Definitions for these systems are in app. III.) From  2002 to 2004, FSA retired 3 systems and incorporated their functionality  into the Common Origination and Disbursement (COD) System. COD  supports a single process for delivering Direct Loan and Pell Grant aid to  students and relies on middleware as a solution for exchanging data  between incompatible systems while the agency works toward full  integration. According to FSA, the consolidation of the three systems’  functions into COD has improved the delivery of student aid by simplifying  the process by which schools request, report, and reconcile federal Pell  Grant and Direct Loan funds and by facilitating schools’ submissions of  student aid data through the use of a common student record. FSA also  retired 3 systems that supported its financial activities, such as collecting  on defaulted student loans, and incorporated these functions into its  Financial Management System—creating a repository for the agency’s  financial information. FSA reported that these actions have helped  improve financial decision-making and the ability to create financial  reports for FSA, lenders, and guaranty agencies.
Nonetheless, FSA remains several years from operating in a fully  integrated information systems environment. While it has reduced the  number of systems supporting its programs, FSA plans further actions to  reengineer the agency’s information processing environment. In this  regard, FSA has begun three major systems integration initiatives, which it  plans to complete by 2008:    Front-End Business Integration is planned to simplify and improve the  front-end processes (for example, grant and loan originations) associated  with FSA’s student aid delivery services by integrating the information,  processes, and supporting systems that applicants, their parents, and  others rely on in seeking financial aid.
Integrated Partner Management is planned to improve FSA’s ability to  reduce fraud and errors in its student aid programs by incorporating  improved controls, such as common identifiers, system access  information, and a single point of enrollment. The initiative is expected to  reengineer or replace FSA’s current database of entities, such as schools  and lenders that participate in the student aid programs.
Common Services for Borrowers is planned to improve and simplify back- end services related to the management of student aid obligations (for  example, loan repayments) by combining the borrower-related functions  of existing loan servicing systems into an integrated process.
FSA officials explained that, overall, the three integration initiatives are  expected to streamline systems and operations through further  consolidating common processing functions and interfacing systems that  receive and process loan applications, monitor program participation, and  track loan obligations. As an essential first step for sharing common  financial aid data in the integrated environment, FSA is in the process of  completing data standardization across its systems. In addition, the agency  has begun hiring contractors to support the three integration initiatives.  However, the agency has not yet fully defined the technological solutions  for the initiatives—a step that is necessary to know what specific  technology will be used to integrate the systems. FSA officials stated that  the agency would rely on the supporting contractors to perform this  crucial task.
The agency also plans to define integration strategies that would enable  existing financial management and other systems to share data with its  integrated components. However, the technological solutions for  accomplishing this have not been defined. FSA’s approach for integrating  its systems is depicted in figure 2.
Until FSA achieves a fully integrated environment, it lacks assurance that  it will realize greater efficiencies in sharing student financial aid  information across its programs. Further, the agency cannot be assured  that it will be able to provide sustained higher-quality information and  enhanced services to students, parents, schools, and others.
section_title: Program Integrity
paragraphs: In response to issues raised in past reports, FSA has taken several steps to  improve program integrity, but FSA has no assurance that comprehensive  compliance reviews are being performed properly or that the results are  reliable. To improve the oversight of and assistance to foreign schools,  FSA (1) added controls to verify the existence of foreign schools and their  students, (2) hired a consultant to help determine how best to ensure  accountability of foreign schools, and (3) started developing an online  training program to help foreign school officials properly administer the  program. Also, FSA has taken steps to help address concerns raised  about students who have underreported family income on their student  aid applications. FSA conducted studies with the Internal Revenue  Service (IRS) to compare student and parent income on student aid  applications with reported income on tax forms to determine the extent of  over- and under-reporting of income in student applications. FSA also  worked with OMB and the Department of the Treasury to draft legislation  that would permit the IRS to disclose taxpayer information to Education.  Such legislation, if passed, would enable FSA to compare the income data  on the financial aid applications with tax records to better ensure that only  eligible students receive financial aid. According to agency officials, FSA  has developed several approaches for implementing the comparison  process in anticipation of passage of the legislation.
Moreover, FSA has taken steps to enhance its student loan default  management efforts. In 2003, FSA created a work group that identified  over 60 default prevention and management initiatives and a new  organizational unit, Portfolio Risk Management, that focuses on mitigating  and reducing the risk of loss to the taxpayer from student aid obligations.  FSA also added information to its exit-counseling guide to help increase  borrowers’ awareness of the benefits of repaying their loans through  electronic debiting accounts and prepayment options.
In its 2003 annual performance report, FSA stated that it had completed  several reviews to enhance the integrity of its programs. Among other  things, FSA reported that the agency had monitored 40 percent of all  participating schools through comprehensive compliance reviews.  According to FSA headquarters officials, a comprehensive compliance  review is triggered by specific events, such as compliance deficiencies  identified during independent audits, financial statements that do not  conform to accepted accounting standards, schools applying for initial  eligibility or renewing their eligibility, or schools changing ownership or  merging. FSA officials stated that these reviews could result in a decision  to perform a more in-depth on-site review. FSA officials explained that  during comprehensive compliance reviews, regional teams are to review  all available data about that school in addition to addressing the triggering  event. However, FSA officials could not provide us written documents  defining a comprehensive compliance review or guidance on how teams  are to perform these reviews. Without such documentation and guidance,  FSA has no assurance that regional teams are properly performing these  reviews, the results are reliable, or the related decisions are appropriate.
section_title: Cost of Administering FSA’s Programs
paragraphs: As part of its effort to demonstrate that it has reduced the cost of  administering its programs—one of the purposes established in the HEA— FSA is implementing an activity-based cost (ABC) model. FSA’s proposed  ABC model is intended to produce information on the full cost of  administering federal student aid programs to help manage costs and  measure performance. The model as designed will enable FSA to comply  with federal managerial cost-accounting standards. When fully  implemented, the proposed ABC model should facilitate progress toward  meeting FSA’s goal of identifying the full cost of its separate activities and  determining the change in such costs over time. For example, using this  model, FSA would be able to compare the changes in costs for using Free  Application for Federal Student Aid (FAFSA) on the Web to the use of  paper financial aid applications. Figure 3 summarizes FSA’s model.
Figure 3. FSA’s Activity-Based Cost Model  Resources are accounting data specific to FSA’s costs that are imported from Education’s general ledger.
Data that link the usage of a resource to a specific activity, compiled through interviews, a Web-based surveytool, and other FSA systems.
Activities are descriptions of the work done using the accounting data specific to FSA’s costs arranged to reflect the organizational structure of the agency.
Data that link specific activities to one or more cost objects, based on data from other FSA systems, direct relationships, or calculations.
However, FSA’s proposed ABC model was not fully operational as of July  2004. FSA has completed the initial design of the ABC model and has  partially tested it using financial and nonfinancial workload data for fiscal  years 2002 and 2003. During the test of the model using fiscal year 2002  data, FSA identified costs of more than $24.8 million that could not be  assigned to a specific activity because insufficient information was known  about these costs. Further, FSA had not fully reconciled the fiscal year  2002 costs used to test the model to total cost amounts reported in its  audited financial statements. In March 2004 FSA staff advised us that they  plan to address both of these issues. In July 2004 FSA officials updated us  on the status of their implementation efforts. FSA staff advised us that  they had further tested the model using fiscal year 2003 data, including  fully reconciling the fiscal year 2003 costs in the model to amounts  reported in its audited financial statements. Further, FSA officials advised  us that all fiscal year 2003 costs could be assigned to activities, and that  they plan to use the knowledge gained from this effort to revisit and  resolve the issues outstanding from the tests using fiscal year 2002 data.  FSA officials told us that FSA plans to complete testing its model and have  it fully operational by spring 2005. When its cost model is fully operational,  FSA plans to use the results to drive changes in how it does business, such  as identifying targets for business process improvements and comparing  resource allocations with results. FSA also expects to be able to measure  changes in the cost of its program activities over time. Once FSA’s cost  model is fully tested and operational, FSA should be able to identify the  full cost to administer its financial aid programs and reliably determine the  changes in such costs over time.
section_title: FSA Has Not Completely Fulfilled Its Planning and Reporting Responsibilities
paragraphs: The HEA requires FSA to develop a 5-year performance plan annually, and  FSA issued its first one in June 2004. This plan covers fiscal years 2004- 2008 and contains five strategic goals referred to by FSA as strategic  objectives: (1) integrating FSA systems and providing new technology  solutions, (2) improving program integrity, (3) reducing program  administration costs, (4) improving human capital management, and   (5) improving products and services to provide better customer service.  While FSA’s 5-year performance plan provides a general discussion of  each objective, it lacks measures for later determining the extent to which  the objectives have been met. Furthermore, FSA’s plan identifies a number  of action steps, referred to as tactical goals by FSA. These steps, however,  are not directly linked to a specific strategic objective, and some do not  contain specific performance measures that can be used to assess  progress over time. For example, FSA’s 5-year performance plan describes  the establishment of an office to serve as the central point of contact for  all FSA projects and provides a general discussion of the office’s purpose  and activities. However, this action step is not linked to a particular  strategic objective and does not include any measures or targets for  assessing future progress.
FSA’s 2004 annual plan does not fully complement its 5-year performance  plan. FSA’s annual plan lists annual goals, referred to as action items and  success measures, but the success measures do not provide a means for  assessing performance toward achieving longer-term strategic objectives.  As shown in figure 4, an X in one or more related columns in the annual  plan indicates which strategic objective or objectives the annual goal  supports, but it does not indicate how achievement of the annual goal will  result in progress toward the strategic objective or objectives. In addition,  in reviewing the 2004 plan, we found that the annual plan contained six  strategic objectives, while the 5-year performance plan for fiscal years  2004-2008 contained five. According to FSA officials, the sixth goal was  identified while the 5-year performance plan was going through the review  process. FSA did not add the sixth goal to this plan before it was finalized  because it did not want to delay the plan’s issuance. However, FSA  officials said that they would add it to the 2005-2009 performance plan.
FSA’s annual performance report for fiscal year 2003 does not conform to  the requirements of HEA or GPRA. FSA is to issue an annual  performance report that includes an evaluation of the extent to which the  agency met the strategic objectives established in its prior year’s 5-year  performance plan. Although FSA had not previously prepared a  performance plan, it had strategic objectives and annual goals, and its 2003  performance report clearly discusses FSA’s achievement of its annual  goals. The report also provides a general discussion of its  accomplishments under each strategic objective.
However, the performance report does not include measures or trend data  by which the Congress could clearly see the extent of FSA’s progress,  because, as previously noted, the annual plans did not provide a means for  assessing performance toward achieving strategic objectives. For  example, under its objective to improve program integrity, FSA describes  the Late Stage Delinquency Assistance Program as an initiative to mitigate  potential defaults in the Direct Loan Program by eliciting assistance from  schools in locating and contacting borrowers prior to default. The report  states that initial results are promising but does not provide a measure of  the extent to which this effort contributes to the overall program integrity  objective or the extent of the agency’s progress in meeting this strategic  objective. Further, the report does not include all required information  regarding the COO and senior officials. The report summarizes the bonus  amounts paid but does not include performance-rating information for the  COO and senior officials, as required.
section_title: FSA Has Developed a Human Capital Strategy and Taken Steps to Increase the Accountability of Officials, but Both Efforts Have Weaknesses
paragraphs: FSA has laid the foundation for a comprehensive human capital strategy  and has taken steps to further its efforts to address the accountability of  senior officials, but some of the human capital strategy’s components and  the accountability system have weaknesses. For example, FSA’s draft  succession plan identifies the staff that are eligible to retire in the next few  years, but the plan relies heavily on redistributing workloads to other  employees, and none of the strategy’s other components described how  these individuals would be trained to fulfill these duties. FSA has taken  added steps to increase accountability for senior officials, such as holding  them responsible for achieving individual goals specified in annual  agreements and changing the way bonuses are awarded. However, we  found that the new criteria for awarding bonuses for senior officials was  unclear and could undermine other efforts to increase accountability, such  as making greater distinctions in performance by using a new performance  management system.
subsections: section_title: FSA Has Developed a Human Capital Strategy, but Some of its Components Have Weaknesses
paragraphs: FSA has undertaken steps to develop a comprehensive human capital  strategy in part because of issues raised in our previous reports; however,  we found weaknesses with some of the strategy’s components. FSA  officials told us that they worked in collaboration with an organization  that specializes in government workforce issues to develop a document  that summarizes the various components of its human capital strategy.  Agency officials provided us with a copy of its final human capital plan at  the end of July 2004. Our work and guidance in this area indicates that in  developing a human capital strategy, leading agencies identify talent at all  levels of the organization, emphasize developmental projects for staff,  address human capital challenges specific to the organization, and  facilitate broader transformation efforts, such as training, to address  organizational needs that position the organization to meet its future  challenges. FSA’s human capital plan indicates that the agency has  strategies that include many of these practices. For example, the plan  outlines challenges the agency will likely face in coming years and  discusses recognized weaknesses and challenges, such as the need to  develop the skills of staff and maintain the focus of the agency’s leadership  on human capital issues.
However, we found weaknesses in some of the strategy’s components.  FSA’s succession plan identifies likely retirements but relies on a short- term solution—shifting duties to other staff. As for one of its components  used to develop staff skills, the learning coupon staff can use for external  training, FSA has not established a method to fully evaluate its usefulness.  Also, FSA’s realignment plan may be delayed because the agency has not  reached agreement on its implementation with union officials. Table 1 lists  and briefly describes the five key components of FSA’s human capital  strategy.
Furthermore, FSA does not maintain an information system to track staff  development—a critical piece in strategic workforce planning. According  to agency officials, FSA staff members have access to a number of stand- alone human capital information systems, including one housed at the  department that contains data on training courses taken by staff. However,  an official described this system as outdated and said that it did not allow  staff to create individual development plans or provide data that managers  needed for other agency planning efforts, such as its succession plan. Our  previous studies indicate that information systems play a critical role in  workforce planning. Valid and reliable data on knowledge and skills of  staff are critical to assessing an agency’s current and future workforce  gaps. With such data, agencies can minimize these gaps and better manage  risk by allowing managers to spotlight areas for attention and take  appropriate actions before crises develop. A senior official agreed that the  agency does not have systems that allow the agency to track staff  development but also said that an independent system was not a good  investment because of the ongoing efforts by Education to procure a  departmentwide human capital management system.
subsections: section_title: Succession Plan
paragraphs: FSA prepared a draft succession plan that addresses, in part, the concerns  we raised in 2002 about the pending retirement of senior employees in key  positions across the agency. This draft plan identified almost 250  employees from across the agency that are likely to retire between 2003  and 2006, about 22 percent of the agency’s workforce. Also, the plan  designated 167 of the positions as critical positions that help FSA achieve  its organizational goals and identified 31 positions as “hard to fill” because  specific skills and program knowledge are required to perform the duties  related to these positions. When these hard-to-fill positions become  vacant, FSA plans to fill one-third of the positions through internal hiring;  one vacancy will be filled through a mentoring opportunity.
However, the succession plan did not include information about all  positions and relied on short-term solutions. The plan did not include any  information for 12 positions, 10 of which are in regional offices and  include responsibility for oversight of lenders, banks, and guaranty  agencies. Moreover, according to the plan, FSA will redistribute the  workload to existing staff for 140 of the 247 positions but the strategy’s  components do not discuss how the agency will use developmental  projects or training to prepare these staff to assume these duties. We  previously reported that training and developing new and current staff to  fill new roles and work in different ways would be a crucial part of the  federal government’s endeavors to meet future challenges. Agency  officials acknowledge that this is a short-term approach but stated that it  will allow them time to consider the full range of options to best position  its resources while getting the job done. Our work and guidance in this  area indicates that leading organizations develop succession plans that  strategically focus on both the organization’s current and future capacity.  Leading organizations are shifting from a short-term replacement  approach that identifies individuals for a specific vacancy to a strategic  approach that identifies and develops high-potential individuals. Using  certain approaches, such as shifting duties from retired staff to those who  remain—even in the short term—may put the agency at risk because staff  may not be prepared to adequately fulfill new duties. As a result, essential  functions of the agency may suffer.
section_title: Staff Realignment and Early Out Proposals
paragraphs: FSA’s human capital strategy includes proposals to realign its workforce  and offer early out packages to staff, but as of August 2004, the union had  not agreed to either proposal. The realignment proposal would affect the  Application, School Eligibility, and Delivery Unit (ASEDS), which has  more than 530 employees—nearly half of the agency. This proposal states,  among other things, that FSA would eliminate the office responsible for  providing specific, program-related training for schools participating in the  Direct Loan program because it has decided to adopt an approach that  supports all schools and all student aid programs. As a result of the  realignment, some staff from this office will be reassigned to other units,  as needed. For other staff, the proposal states that because they have skills  that no longer align with the agency’s needs, it would be more cost- effective for the organization to offer “early out packages” than to engage  in an extensive retraining effort. FSA’s second proposal, which is related  to but not dependent on the implementation of the realignment proposal,  would allow some employees to retire early or receive voluntary  separation payments. The early out packages are intended to provide the  agency with greater flexibility in managing its workforce and recruiting  workers with needed skills. This proposal states that using this approach,  vacancies will be created that will allow FSA to hire individuals that  possess the requisite skills.
However, FSA and union officials had not reached agreement on the  realignment proposal and had yet to begin discussions on its early out  proposal. According to an agency official, the realignment proposal was  developed over a 6-month period. At the end of May 2004, after the  Secretary of Education gave his approval, FSA submitted the realignment  proposal to the union. The collective bargaining agreement between FSA  and its union states that the union should have the opportunity to review  actions affecting any aspect of employee working conditions, including  those related to training, development, and appraisals. This agreement  requires FSA to share proposals with the union after receiving approval by  the department—which it did. An agency official told us that FSA had not  received input from labor union officials on the agency’s proposed  realignment and that union officials had requested additional information  before agreeing to meet with FSA officials to discuss the proposal. As of  August 2004, FSA had informed the union that it had met its collective  bargaining obligations and would proceed with the implementation of the  realignment proposal during September 2004. As for the early out  proposal, FSA officials told us that it received approval from the Secretary  in early June, and by the month’s close he requested authority from Office  of Personnel Management (OPM) to offer early out packages (i.e., early  retirement options and voluntary separation buyouts). FSA has informed  the union of this proposal and indicated that it would wait until OPM  granted approval before entering into collective bargaining with the union.  As of August 2004, FSA had not received approval from OPM for the early  out packages.
section_title: Skills Catalog
paragraphs: In an effort to identify the skills and competencies required to perform at  all levels of the agency, FSA revised its Skills Catalog, which should enable  staff to independently plan their professional development. The catalog  was originally created in 2000 and was revised based on a series of  interviews with senior managers and subject matter experts throughout  the agency. Its purposes are to (1) provide a common tool for management  and staff to set expectations, (2) help employees identify opportunities for  development through courses offered externally or by FSA, and (3) assist  managers in future workforce planning efforts. FSA’s 5-year plan indicates  that one potential use of the Skills Catalog would be to identify gaps in  critical competencies and provide employees with information on when  and where additional training and development are needed. We previously  reported that effective training and development programs are an integral  part of a learning environment that can enhance the federal government’s  ability to attract and retain employees with the skills and competencies  needed to achieve results. FSA encouraged its employees to think of the  catalog as a restaurant menu through which they would place an order to  address their individual development needs and contribute to the agency’s  objectives. In addition to listing a set of core competencies that every FSA  employee is expected to demonstrate, the catalog defines three  competency areas for each organizational unit consisting of functions,  skills, and knowledge. FSA has developed draft competencies for all units.  For example, selected competencies listed in the Skills Catalog for staff in  the office of the Chief Financial Officer are summarized in Figure 5.
FSA introduced online learning tools as an added resource for some staff  who are responsible for providing oversight and determining eligibility of  schools. FSA developed unit-specific online tools, called learning tracks,  designed to improve the skills needed to perform everyday tasks. FSA  created five online tools in fiscal year 2003, and agency officials told us  that they plan to introduce more online tools by fiscal year 2005 that  further address organizational needs, such as tools to enhance  communication and supervisory skills. An FSA official said that the  development of these online tools would be a key part in the agency’s  efforts to strengthen program integrity. According to a draft document on  the tools, the development of learning tracks would shift the agency away  from developing an entire agencywide curriculum based on particular  position descriptions and toward developing resources for specific on-the- job skills. Officials told us that learning tracks have been introduced to  divisions in ASEDS that perform case management and oversight and  determine school eligibility. These learning tracks target the development  of skills, such as data analysis and comprehension, leadership, and critical  thinking.
Also, FSA continued to support internal and external training  opportunities. FSA offered a wide variety of courses internally through its  Career Zone. In 2003 FSA expanded this office, and contracted services  from two full-time career counselors who began providing individualized  career counseling sessions and career development courses. FSA also  continued to offer its staff a $500 learning coupon, to pay for technical and  work-related external training courses. Officials told us that the coupon  was part of an effort to enable employees to take a proactive approach to  planning their professional development. Around 40 percent of FSA’s staff  used the learning coupon during fiscal years 2003 and 2004, although the  agency had allocated sufficient funds to provide this benefit for up to 50  percent of the staff. While the agency has surveyed staff that used the  learning coupon, officials told us that they were not certain why more staff  did not use it. Our work in this area shows that evaluation is an integral  part of planning that allows agencies to build upon lessons learned and  improve performance. Because the agency has surveyed only coupon  users, officials cannot be assured that the learning coupon is an effective  tool for helping staff develop their skills or that these funds are being  budgeted for likely needs. Officials indicated that they had plans to  broaden their efforts to survey all staff to better understand perceptions  about the coupon.
section_title: Recruitment
paragraphs: To fill vacancies, FSA plans to use a variety of techniques and to recruit  nationwide, governmentwide, and internally. FSA also plans to recruit  interns and subsequently offer, to those who perform well, permanent  positions. In addition, FSA will continue to use the flexibilities allowed in  the HEA for hiring senior executives and technical staff. According to the  plan, FSA will use these flexibilities to address critical agency needs such  as in the information technology area.
section_title: FSA Has Taken Steps to Increase the Accountability of Officials, but Its Criteria for Awarding Bonuses Are Not Clear
paragraphs: FSA has taken steps to increase the accountability of its senior officials— one of its purposes as a PBO. FSA modified its performance  measurement system, emphasized individual achievement of goals, and  provided bonuses based on individual performance. However, we found  that the criteria for awarding bonuses to senior officials were not clear.
Beginning in 2001, as a result of a departmentwide initiative, FSA adopted  new performance appraisal systems for all of its employees, including its  SES members and senior managers, to provide the agency with the ability  to make greater distinctions in performance. Before the new systems  were adopted, all department employees were evaluated on a pass-fail  basis. The new system for SES uses three performance levels, while the  new system for senior managers and others uses five performance levels.  Our body of work in this area suggests that effective performance  management systems allow organizations to make meaningful distinctions  in performance. By utilizing multiple performance categories, FSA has  improved its ability to make distinctions in performance among its senior  officials and increase accountability.
The 2003 performance agreements we reviewed for both types of senior  officials—SES and senior managers—emphasized individual achievement  of goals. Prior to 2003, performance agreements specified (1) how a senior  official’s performance would be evaluated; (2) individual projects and  activities to be performed by the official; and (3) six organizational, or  “cross-cutting,” goals to which all senior officials were expected to  contribute. For the 2003 performance period, SES agreements for senior  officials included three performance element groups: (1) leadership,  management, and coaching; (2) work quality, productivity, and customer  service; and (3) organizational priorities/job specifics. For each senior  official at FSA, the organizational priorities/job specifics performance  element primarily consisted of unique individual goals for which the  official has responsibility and for which he or she is held accountable.  However, FSA’s emphasis on individual goals still included the use of  organizational, or cross-cutting, goals—only to a lesser extent. But we also  found that the use of such goals has become more strategic. FSA’s fiscal  year 2003 annual plan contained at least four such cross-cutting goals,  including goals to implement a data strategy and enhance program  monitoring and oversight. Having performance agreements that consist of  both job-specific individual and cross-cutting organizational goals  reinforces accountability for both individual and organizational success.  We view the use of collaborative efforts as a key practice in achieving  results. Figure 6 illustrates the change from organizational goals used in  the fiscal year 2002 performance agreements to individual goals in FSA’s  2003 performance agreements.
The HEA specifies that performance agreements should reflect the  organization’s measurable performance goals. However, not all individual  goals in the performance agreements we reviewed were aligned with FSA’s  annual plan. We were provided the 2003 performance agreements for 11  senior officials and found that 6 of them had goals that were not included  in FSA’s 2003 annual plan. According to FSA officials, some of these  individuals were serving in acting capacities and would not have  performance agreements that directly conformed to the organization’s  annual plan until they assumed the jobs permanently. Additionally, FSA  officials stated that many of the goals for these 6 senior officials were not  included in the fiscal year 2003 annual plan because the plan did not  include daily operational activities. For instance, the duties of the  Ombudsman were not included in the fiscal year 2003 annual plan. The  Ombudsman’s agreement required that official to identify regulatory  limitations that may serve as the basis for borrower complaints and to  meet statutory mandates for distributing public information, among other  things. Other senior officials had daily operational activities included in  their performance agreements, such as (1) ensure that all FSA contracts  support the core operation and support functions required to implement  the agency’s organizational strategy, and (2) acquire knowledge of all  collection group activities, including information systems and staff duties.  According to agency officials, FSA has changed its approach for  constructing its annual plan and included daily operational activities as  well as the top organizational priorities in its fiscal year 2004 plan.
FSA also changed the way bonuses are awarded to senior officials to  emphasize individual performance, but the criteria used to make these  decisions are not readily apparent. In previous years, bonuses were  awarded to senior officials based in equal parts on a manager’s overall  contributions to the organization and achievement of the organizational  goals. Beginning in fiscal year 2003, FSA’s COO took steps to modify this  practice by basing performance awards on the achievement of goals  related to each official’s area of responsibility. According to the COO, this  approach better ensures that only officials who have achieved goals  important to the organization receive bonuses. Under the previous system,  a manager that accomplished some, but not all, of his or her goals could  still receive a bonus if the organization as a whole was successful. The  COO told us that this arrangement had a crippling effect on accountability  in the organization. By making officials accountable for individual goals,  FSA can reward individuals that are successful even when the  organization as a whole is not. We were also told that under the new  system for awarding bonuses, the COO could make distinctions based on  the level of responsibility carried by managers—those who accomplish  tasks that diminish the risks and challenges faced by FSA could receive  bigger bonuses than those who perform equally well but are in jobs that  are considered less demanding. For example, it is possible for a manager  who is responsible for systems integration to receive a larger bonus than a  manager of an area deemed less critical, even if both received the same  rating.
However, FSA has not established or communicated its criteria for  awarding bonuses, which has the potential to undermine its other efforts  to increase accountability of officials. Under the previous system, the  criteria were articulated in managers’ performance agreements.  Specifically, the agreements stated that 50 percent of the bonuses would  be determined based on a manger’s overall contributions to the  organization and the other 50 percent would be determined based on  whether the agency as a whole was successful. The new agreements do  not include such information. When we asked some senior officials to  explain the criteria to us or provide related documentation, we were  referred to the COO. The COO discussed the criteria and noted that the  process for awarding bonuses was still under review. However, we were  told that every manager was familiar with the process. The COO also  stated that the final determination of whether or not a manager received a  bonus was at the COO’s discretion. Furthermore, responsible agency  officials provided us with inconsistent information as to which senior  officials received bonuses. Although the agency has taken additional steps  to increase the accountability of its officials, the lack of clear criteria and  transparency in the process for awarding performance bonuses could  undermine the other efforts to increase accountability, such as using a  system with three performance levels to evaluate and distinguish  performance. Part of fostering a results-oriented culture requires having a  process for making awards for contributions to the organization in a way  that is consistent, reliable, and transparent.
section_title: Conclusions
paragraphs: FSA has devoted substantial time and resources to addressing  management weaknesses and has made significant progress in some areas.  However, FSA has not fully addressed all requirements established by the  Congress when it created FSA as a PBO, or all concerns raised by others  and us, and therefore, FSA needs to continue its efforts to improve its  operations. Further, systems integration projects will continue for several  years, and new challenges that could require different efforts and  approaches to ensure program integrity may emerge.
FSA has taken steps to enhance the integrity of its programs and reported  that its comprehensive compliance reviews were a significant part of this  effort. However, FSA does not have guidance for its review teams to direct  them in performing these reviews. Therefore, FSA cannot be certain that  these reviews are being done consistently and appropriately. Thus,  problems at some schools may go undetected.
While FSA has issued a 5-year performance plan, it has not fully met its  planning and reporting responsibilities. FSA’s plans and reports could be  more clearly linked to facilitate review and determination of progress  made. FSA’s new 5-year performance plan is a good starting point for  serving as the framework for setting agency goals and objectives and for  preparing its annual plans and reports. But the action steps in the annual  plan were not clearly linked to its strategic objectives in its 5-year  performance plan and did not always include specific performance  measures. As for its performance report, FSA did not include measures or  trend data in the report as required. Without such information in the  performance report, FSA has not clearly informed the Congress or the  public about its progress toward achieving its purposes established by law.
FSA has also made progress in addressing its human capital management  challenges, but weaknesses remain. The succession plan did not identify  developmental projects or training for staff that would assume the duties  of those who retired. These staff may not be able to perform their new  duties, and the agency may not have staff with needed skills in all  positions. As a result, the agency’s ability to continue to make progress  and fulfill its mission in an effective and efficient way may be hindered.  Further, although FSA has devoted funds for the use of learning coupons  to support external training, it does not know why these coupons are  underutilized because the agency has not surveyed all of its employees to  ascertain their views about their usefulness. Systematic evaluation of  human capital initiatives is an integral part of planning that allows  agencies to improve and invest wisely. Without such evaluation, FSA may  not be investing its resources wisely. If FSA has excess funds budgeted for  its learning coupons, funds may not be available to support other  programs or agency projects.
Further, although FSA has taken several steps to increase the  accountability of its senior officials, the agency has not clearly  communicated its criteria for awarding bonuses to senior officials. This  lack of clear criteria for awarding bonuses could undermine its other  efforts, such as its performance evaluation system, that have helped to  foster a culture of accountability at FSA.
section_title: Recommendations to the Secretary of Education
paragraphs: We are making five recommendations to help FSA enhance its strategic  planning and improve its human capital management planning. These  recommendations will help FSA to fulfill its responsibilities under the  HEA; strengthen efforts to protect its programs from fraud, waste, and  abuse; or improve its human capital management initiatives.
We recommend that the Secretary of Education direct FSA’s Chief  Operating Officer to  issue clear guidance and detailed directions for teams to follow when  performing comprehensive compliance reviews;   develop 5-year performance plans with action steps that are linked to  FSA’s strategic objectives and with specific performance measures or  targets for its objectives; and include measures or trend data in FSA’s  performance reports that clearly demonstrate whether the agency has  made progress toward achieving its strategic objectives; revise the succession plan to include approaches that focus on the current  and future capacity and needs as well as provide developmental projects  or training for staff to prepare them to fulfill new duties;   enhance systematic evaluation activities for its human capital initiatives  such as the learning coupon; and   establish and communicate clear criteria for awarding bonuses to senior  staff.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, FSA generally agreed with  our findings and recommendations. Specifically, FSA stated that it plans to  or has taken steps to address four of the five recommendations made in  this report. FSA stated that it is developing comprehensive guidance for  conducting compliance reviews, creating appropriate measures or trend  data in its 5-year plan, and revising individual performance plans to  include an explanation of the awarding of any performance bonuses. FSA  also said that it has revised its succession plan. However, we were not  provided a copy of this plan. FSA did not specifically address the fifth  recommendation—to enhance its evaluation of human capital initiatives  such as the learning coupon—in its comments.
In addition, FSA stated that it has made significant progress in the area of  systems integration.  We agree that FSA has taken important steps toward  establishing the necessary technical infrastructure to support its system  integration. However, as previously stated in the report, FSA does not plan  to complete all three major initiatives that are essential to achieving full  integration of the systems supporting its student financial aid programs  until 2008. Thus, fully meeting the requirement to integrate its systems, as  established in the Higher Education Act in 1998, remains several years  away.
FSA also provided technical corrections and comments that we  incorporated where appropriate.
We are sending copies of this report to the Secretary of Education, the  Chief Operating Officer of Education’s Office of Federal Student Aid, the  Director of the Office of Management and Budget, and appropriate  congressional committees. Copies will also be made available to other  interested parties upon request. Additional copies can be obtained at no  cost from our Web site at www.gao.gov.
If you or your staff should have any questions, please call me at (202)   512-8403. The key contributors to this report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
subsections: section_title: Overall Approach
paragraphs: We performed several steps that contributed to both objectives of this  review. We reviewed relevant laws and documentation, and we reviewed  pertinent reports prepared by the Department of Education’s Office of the  Inspector General as well as our previously issued reports, testimonies,  and other correspondence. Specifically, we analyzed the Higher Education  Act (HEA) to understand the Title IV programs and to understand the  purposes and requirements established for the Office of Federal Student  Aid (FSA) when the Congress designated the agency as a performance- based organization (PBO). We analyzed key documentation that would  provide insight about the agency’s efforts to address the key management  issues and human capital challenges. We also obtained and reviewed  several reports prepared by the Department of Education’s Office of the  Inspector General that relate to these issues and challenges. We reviewed  all GAO reports, testimonies, and correspondence issued since 2000 that  discussed FSA or the student loan programs. We also reviewed GAO  recommendations related to FSA and identified those that have been  implemented as well as those that remained open as of July 10, 2004. For  open recommendations, we talked with agency officials and obtained and  reviewed the corresponding internal corrective action plans.
We also attended briefings presented by senior FSA officials and  interviewed FSA and Department of Education officials to understand  their plans and reasons for taking actions related to addressing the key  management issues and the human capital matters. During January and  February of 2004, we attended nine briefings presented by senior FSA  officials on topics that would serve as the foundation for our work. These  briefings were entitled (1) Financial Management and Internal Control,  (2) FSA’s High-Risk Designation/Management Improvement Team, (3)  Default Prevention and Management, (4) Systems Integration, (5) Program  Integrity, (6) PBO Accountability, (7) Human Capital Management,  (8) FSA’s Activity-Based Cost Model, and (9) FSA’s Progress on Reducing  Administrative Costs. Following these briefings, we interviewed senior  officials and responsible program managers and had several meetings,  phone conversations, and e-mail exchanges to follow up on and further  clarify the information presented at the briefings.
section_title: Objective I: Key Management Issues
paragraphs: In addition to taking our overall approach, we took specific steps to  address the first objective—the extent to which FSA has made progress  addressing key management issues related to financial management,  systems integration, program integrity, and administrative costs, and  fulfilling its planning and reporting responsibilities. We reviewed the  guidance related to the Federal Financial Management Improvement Act  because auditors found that the Department of Education and FSA did not  comply with the act’s requirements because of computer security  weaknesses. We also reviewed the Government Performance and Results  Act (GPRA) because the HEA stated that FSA’s reporting requirements  had to be consistent with GPRA and other laws.
subsections: section_title: Financial management
section_title: Systems integration
section_title: Program integrity
section_title: Planning and reporting
paragraphs: annual plans for fiscal years 2002, 2003, and 2004;    annual performance report for fiscal year 2003; and    draft and final 5-year performance plan covering fiscal years 2004-2008.
We met with several senior FSA officials as well as responsible program  managers. We met with officials from the agency’s Chief Financial Office  to discuss financial management, financial audits, and statements and its  activity-based cost model. We met with officials from the office of the  Chief Information Officer to discuss the agency’s system integration  efforts and sequencing plan, enterprise architecture, and current  procurement projects related to systems integration such as Common  Services for Borrowers. We met with officials in the Case Management and  Oversight Office to discuss their procedures for monitoring schools and  providing technical assistance and with officials that participate in FSA’s  Default Management Group.
section_title: Objective II: Human Capital
paragraphs: We also took specific steps to determine whether FSA had created a  comprehensive human capital plan and taken steps to increase the  accountability of its officials. Several GAO publications and guidance  documents on strategic workforce planning served as the criteria for our  analyses. These publications included    Human Capital: Senior Executive Performance Management Can Be  Significantly Strengthened to Achieve Results, May 2004, (GAO-04-614);    Human Capital: A Guide for Assessing Strategic Training and  Development Efforts in the Federal Government, March 2004,   (GAO-04-546G);    Human Capital: Key Principles for Effective Strategic Workforce  Planning, December 2003, (GAO-04-39);    A Model of Strategic Human Capital Management, March 2002,   (GAO-02-373SP); and    Human Capital: A Self-Assessment Checklist for Agency Leaders,  September 2000, (GAO/OCG-00-14G).
We obtained and reviewed the agency’s documents related to its human  capital planning and accountability measures. We analyzed FSA’s draft  human capital plan, its final version, and documentation related to its  succession planning, reorganization efforts, staff deployments and buyout  proposals, recruitment, Skills Catalog, and training resources. We were  provided and reviewed hard copy information related to its online learning  tools, but because these tools reside on the agency’s intranet we did not  analyze and review these materials firsthand. We also reviewed the  Department of Education’s Personnel Manual Instruction 430-2, dated  November 6, 2002, entitled Education Department Performance Appraisal  System (EDPAS) and the Department of Education’s Personnel Manual  Instruction 430-3, dated September 6, 2001, entitled Senior Executive  Performance Management System (SEPMS) since these are the systems  used to assess FSA’s senior officials. Additionally, we obtained and  evaluated individual performance agreements, evaluation ratings, and data  on bonuses awarded to senior officials and the Chief Operating Officer  (COO).
We conducted several interviews with agency officials, and had an  interview with a senior official from the union that represents FSA’s  employees. We talked with the agency’s COO regarding past and present  policies affecting performance agreements and bonuses. We also talked  with the agency’s human capital officer and other human resources staff  regarding the agency’s human capital strategy and plan, as well as the  various components of the plan (i.e., the succession plan, and the Skills  Catalog). During these meetings we also discussed past human capital  initiatives and proposals for future initiatives. We also talked with a senior  official from the agency’s union, the American Federation of Government  Employees, Council 252, to discuss its role in developing human capital  policies and views about current proposals. We conducted our work for  this engagement between November 2003 and August 2004 in accordance  with generally accepted government auditing standards.
section_title: Appendix II: GAO Recommendations to Education Related to Student Financial Aid and Status of Their Implementation
paragraphs: Financial Management: Poor Internal Controls  Expose Department of Education to Improper  Payments. September 2001 (GAO-01-1151)
Establish appropriate edit checks to identify  unusual grant and loan disbursement patterns.
Design and implement a formal, routine process to  investigate unusual disbursement patterns  identified by edit checks.
Education Financial Management: Weak  Internal Controls Led to Instances of Fraud  and Other Improper Payments. March 2002  (GAO-02-406)
Conduct on-site investigations, including  interviews of school personnel and students at the  28 schools with characteristics similar to those  GAO found that improperly disbursed Pell Grants  to determine whether the grants were properly  disbursed.
Follow up with the schools that had high  concentrations of the $12 million in potential  improper payments for which the department did  not provide adequate supporting documentation.
Implement a process to verify borrowers’ Social  Security numbers and dates of birth submitted by  schools to the Loan Origination System.
Direct Student Loans: Additional Steps Would  Increase Borrowers’ Awareness of Electronic  Debiting and Reduce Federal Administrative  Costs. March 2002 (GAO-02-350)
Update the Exit Counseling Guide for Borrowers  to reflect the repayment incentives for Direct Loan  borrowers who repay their loans through  electronic debiting accounts (EDA) as well as  borrowers' prepayment options.
Take steps to inform EDA borrowers about steps  they can take to prepay their loans.  Such steps  could include modifying EDA application to allow  borrowers interested in prepaying their loans to  designate withdrawal amounts in excess of their  scheduled payments when they initially complete  the EDA application.
Consider renegotiating the fee provision in its  contract with the Direct Loan servicer to eliminate  the servicing fee for accounts with payments less  than 7 days late.
Federal Student Aid: Additional Management  Improvements Would Clarify Strategic  Direction and Enhance Accountability. April  2002 (GAO-02-255)
Fully disclose in its performance plans and  subsequent performance reports the bases of its  unit cost calculation and clarify what costs are  included in and excluded from the calculation.
Develop and include clear goals, strategies, and  measures to better demonstrate in FSA’s  performance plans and subsequent performance  reports its progress in implementing plans for  integrating its financial aid systems.
Develop performance strategies and measures  that better demonstrate in its performance plans  and subsequent performance reports its progress  in enhancing the integrity of its student loan and  grant programs.  In particular, FSA should develop  measures that better demonstrate whether its  technical assistance activities result in improved  compliance among schools and additional  strategies for achieving default management  goals.
Take steps necessary to ensure that complete  and timely annual performance reports are  submitted to the Congress.
Coordinate closely with Education to develop and  implement a comprehensive human capital  strategy that incorporates succession planning  and addresses staff development  Implement a verification process to ensure that a  foreign school applying to participate in the  Federal Family Education Loan (FFEL) program  actually exists and is recognized by an  appropriate educational entity.  Specifically, the  Secretary should enter into a relationship with an  organization such as the Department of State,  which would verify the existence of a foreign  school that applies for certification to participate in  the FFEL program through site visits to the school  and verification of its accreditation by local  educational authorities.
Review the process for certifying student loans  and develop controls to prevent fictitious students  from obtaining student loans.
Federal Student Aid:  Progress in Integrating  Pell Grant and Direct Loan Systems and  Processes, but Critical Work Remains.  December 2002 (GAO-03-241)
Develop metrics and baseline data to measure  Common Origination and Disbursement (COD)  benefits and develop a tracking process to assess  the extent to which the expected results are being  achieved.
Establish a process for capturing lessons learned  in a written product or knowledge base and for  disseminating them to schools that have not yet  implemented the common record.
Federal Student Aid:  Timely Performance  Plans and Reports Would Help Guide and  Assess Achievement of Default Management  Goals. February 2003 (GAO-03-348)
Produce a 5-year plan as required by HEA.
Prepare and issue reports to the Congress on  FSA’s performance that are timely and clearly  identify whether performance goals were met.
Student Loans and Foreign Schools:   Assessing Risks Could Help Education  Reduce Program Vulnerability. July 2003  (GAO-03-647)
Develop online training resources specifically  designed for foreign school officials.
Undertake a risk assessment to determine how  best to ensure accountability while considering  costs, burden to schools and students, and the  desire to maintain student access to a variety of  postsecondary educational opportunities.  Further,  after completing the risk assessment, if Education  determines that legislative or regulatory changes  are justified, the Secretary should seek any  necessary legislative authority and implement any  necessary regulatory changes.
Direct Student Loan Program:  Management  Actions Could Enhance Customer Service.  November 2003 (GAO-04-107)
Develop a process for collecting information from  schools that decide to stop participating in the  Direct Loan Program about the factors that  influenced this decision and use this information to  make improvements to the program.
section_title: Appendix III: Definitions of Systems Supporting FSA’s Student Aid Programs
paragraphs: Central Data System receives recorded data from multiple loan  origination systems, edits, and then sends the data to the Direct Loan  Servicing System and the Financial Accounting and Reporting System.
Central Processing System uses information from both the paper- and  Web-based Free Application for Federal Student Aid (FAFSA) to calculate  and confirm a student’s eligibility for federal student financial assistance.  This system includes the FAFSA on the Web, which is used by students to  apply for federal student financial assistance via the Internet.
Common Origination and Disbursement System provides a common  student record reporting system for requests, reports, and reconciliations  related to both the Pell Grants and Direct Loans programs. This is a  consolidated system consisting of three legacy systems—Pell Grant  Recipient Financial Management System, Recipient Financial Management  System, and Direct Loan Origination System.
Conditional Disability Discharge Tracking System stores loans for  those borrowers being reviewed for permanent and total disability.
Debt Management and Collections System services all Title IV loans  (Direct, Federal Family Education Loans, and Perkins) that have fallen  into default. Also the system tracks rehabilitated loans, private collection  agencies’ referrals, or loans undergoing review by FSA.
Direct Loan Consolidation System consolidates student loan portfolios  consisting of at least one Direct Loan.
Direct Loan Origination System records all Direct Loans awarded each  year, tracks planned and actual disbursements, supports reconciliation,  calculates eligibility amounts, books loans, and aggregates planned and  actual disbursements by school.
Direct Loan Servicing System provides services to borrowers with  Direct Loans while in school, in deferment status, or in repayment.
Electronic Campus-Based System tracks, at the school level,  information related to campus-based funding; this includes receiving and  processing Web-based applications from schools, calculating annual  program awards, determining unused amounts, and processing appeals.  eZ-Audit provides a single point of submission via the Web for schools to  submit financial statements and compliance audits.
Federal Family Education Loan System is used to pay interest and  claims on defaulted loans to lenders and supports collection activity on  student loans in default. This system consists of three consolidated  program systems—Lender’s Application Process (LAP), Lender’s  Reporting System (LaRS), and Form 2000.
Financial Accounting and Reporting System serves as the subsidiary  ledger for the Direct Loan Servicing System, processing both cash and  noncash financial transactions and then sending them to the department’s  general ledger.
Financial Management System provides a repository for financial  information from all FSA programs. It is used to facilitate financial  decision making and create reports for both internal and external  customers.
National Student Loan Data System contains loan- and grant-level  information; it is used by schools to screen student aid applicants to  identify borrowers who are in default, have reached statutory loan limits,  or are otherwise ineligible to receive aid.
Ombudsman Call Tracking System supports and tracks the life cycle of  activities that will be required to process cases and supports and  integrates with modules that support customer service, data center, call  center, and service level agreement management functions.
Pell Grant Recipient Financial Management System records all Pell  Grants awarded each year, tracks planned and actual disbursements,  supports reconciliation, calculates eligibility amounts, aggregates planned  Pell Grant disbursements by school and submits this information to the  department’s automated payment system to authorize drawdown of funds.
Postsecondary Education Participants System serves as FSA’s  management information repository for all entities participating in the  Title IV student financial assistance programs. This system maintains  eligibility and oversight data for schools, lenders, guarantors, and  servicers and provides information to FSA’s student aid delivery systems  to ensure consistency.
Recipient Financial Management System records all Pell Grants  awarded each year, tracks planned and actual disbursements, supports  reconciliation, calculates eligibility amounts, aggregates planned Pell  Grant disbursements by school and submits this information to the  department’s accounting systems to authorize drawdown of funds.
section_title: Appendix IV: Comments from the U.S. Department of Education
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, the following individuals made  important contributions to this report: Margie Armen, Joyce Corry,  Carla D. Craddock, Elizabeth Curda, William Doherty, Mary Dorsey,   Susan Higgins, Barbara Hills, Miguel Lujan, Valerie Melvin, Diane Morris,  Corrina Nicolaou, Robert Owens, Lisa Shames, and William Wright.
section_title: Related GAO Products
paragraphs: Direct Student Loan Program: Management Actions Could Enhance  Customer Service, GAO-04-107. Washington, D.C.: November 2003.
Student Loan Programs: As Federal Costs of Loan Consolidation Rise,  Other Options Should Be Examined, GAO-04-101. Washington, D.C.:  October 2003.
Student Loans and Foreign Schools: Assessing Risks Could Help  Education Reduce Program Vulnerability, GAO-03-647. Washington, D.C.:  July 2003.
Taxpayer Information: Increased Sharing and Verifying of Information  Could Improve Education’s Award Decisions, GAO-03-821. Washington,  D.C. July 2003.
Federal Student Aid: Timely Performance Plans and Reports Would Help  Guide and Assess Achievement of Default Management Goals,   GAO-03-348. Washington, D.C.: February 2003.
High Risk Series: An Update, GAO-03-119. Washington, D.C.: January  2003.
Major Management Challenges and Program Risks: Department of  Education, GAO-03-99. Washington, D.C. January 2003.
Federal Student Aid: Progress in Integrating Pell Grant and Direct Loan  Systems and Processes, but Critical Work Remains, GAO-03-241.  Washington, D.C.: December 2002.
Department of Education: Guaranteed Student Loan Program  Vulnerabilities, GAO-03-268R. Washington, D.C.: November 2002.
Federal Student Aid: Additional Management Improvements Would  Clarify Strategic Direction and Enhance Accountability, GAO-02-255.  Washington, D.C.: April 2002.
Student Financial Aid: Use of Middleware for Systems Integration Holds  Promise, GAO-02-7. Washington, D.C.: November 2001  Benefit and Loan Programs: Improved Data Sharing Could Enhance  Program Integrity, GAO/HEHS-00-119. Washington, D.C.: September 2000.