Before I go into detail regarding the Department of Education’s Year 2000 challenges, I would like to first discuss the Year 2000 issue in broader terms to put the department’s efforts into perspective. As the world’s most advanced and most dependent user of information technology, the United States possesses close to half of all computer capacity and 60 percent of Internet assets. Consequently, the upcoming change of century is a sweeping and urgent challenge for public-sector and private-sector organizations alike. For this reason we have designated the Year 2000 computing problem as a high-risk area for the federal government, and have published guidanceto help organizations successfully address the issue. To date, we have issued over 60 reports and testimony statements detailing specific findings and recommendations related to the Year 2000 readiness of a wide range of federal agencies. Our reviews of federal Year 2000 programs have found uneven progress, and our reports contain numerous recommendations, which the agencies have almost universally agreed to implement. Among them are the need to establish priorities, solidify data exchange agreements, and develop contingency plans. While progress has been made in addressing the federal government’s Year 2000 readiness, serious vulnerabilities remain and many agencies are behind schedule. The Department of Education’s mission is to ensure equal access to education and to promote educational excellence throughout the nation. To carry out this mission, it works with states, schools, communities, institutions of higher education, and financial institutions by providing grants to education agencies and institutions to strengthen teaching and student loans and grants to help pay the costs of postsecondary education; grants for literacy, employment, and self-sufficiency training for adults; enforcement of civil rights laws to ensure nondiscrimination by recipients of federal education funds; and support for research, development, evaluation, and dissemination of information to improve educational quality and effectiveness. The largest single federal elementary and secondary education grant program is title I of the Elementary and Secondary Education Act. This program serves educationally disadvantaged children through program-specific grants. The fiscal year 1997 appropriation for the disadvantaged was $7.3 billion. Student financial aid programs are administered by Education’s Office of Postsecondary Education (OPE) under title IV of the Higher Education Act of 1965, as amended. The department is responsible for the collection of more than $150 billion in outstanding loans, and its data systems track approximately 93 million student loans and 15 million grants. Four major types of student aid are currently in use: the Federal Family Education Loan Program (FFELP), the Federal Direct Loan Program (FDLP), the Federal Pell Grant Program, and campus-based programs. These programs together will make available about $51 billion to about 9 million students during the 1999-2000 academic year. FFELP and FDLP are the two largest postsecondary student loan programs, and Pell is the largest postsecondary grant program. FFELP provides student loans, through private lending institutions, that are guaranteed against default by some 36 guaranty agencies and insured by the federal government, while FDLP provides student loans directly from the federal government. Pell provides grants to disadvantaged students. In many ways, Education’s student financial aid delivery system is similar to functions performed in the banking industry, such as making loans, reporting account status, and collecting payments. As with the banks, the department faces a serious and complex challenge with the Year 2000 problem because of its heavy reliance on technology. The department currently maintains 11 major systems for administering student financial aid programs. These systems were developed independently over time by multiple contractors in response to new functions, programs, or mandates, resulting in a complex, highly heterogeneous systems environment. The systems range from legacy mainframes, several originally developed over 15 years ago, to recently developed client-server environments. The fiscal year 1998 budget to develop, operate, and maintain these systems is $311 million, and is expected to increase to $378 million in fiscal year 1999. According to Education’s own assessments of the severity of Year 2000 failures, the student financial aid delivery process could experience major problems unless all systems are compliant in time. These include delays in disbursements, such that lenders might not receive timely interest and allowance payments, if external data exchanges fail; reduction in the department’s ability to transfer payments, process applications for program benefits, or monitor program operations; risks that student financial aid programs may not function properly if they do not receive critical data for originating loans and for reporting payments and financial information; and risks that postsecondary education students may lack the ability to verify the current status of their loans or grants. To overcome these types of risks, Education must implement effective Year 2000 programs. An effective Year 2000 program requires the disciplined, coordinated application of scarce resources to an agencywide system conversion that must be completed by a fixed date, and an understanding of the wide range of dependencies among information systems. An organization can mitigate its risk of Year 2000 complications through a structured approach and rigorous program management. One generally accepted approach, presented in our Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14), has five phases: awareness — defining the problem and gaining executive-level support; assessment — inventorying and analyzing systems, and prioritizing their renovation — converting, replacing, or eliminating selected systems; validation — ensuring that all converted or replaced systems and interfaces will work in an operational environment; and implementation — deploying Year 2000-compliant systems and components, and implementing contingency plans, if necessary. Education was very slow to establish a comprehensive, timely Year 2000 program. One key factor contributing to this delay was the instability of the department’s Year 2000 project manager position, which suffered continual turnover. The department initially established the position in February 1995 to provide oversight and guidance to Education’s Year 2000 activities. During the 19-month tenure of the first project manager, a high-level Year 2000 briefing document (dated May 1996) was developed in response to a request from a congressional committee. At that time, Education estimated that it would complete a Year 2000 program strategy document and corresponding management plan by August 1996. However, no strategy document or management plan was developed, either by that deadline or during the 14-month tenure of the second project manager, which ended in September 1997. The third Year 2000 project manager, who spent only 3 months in the position, contracted with consultants to assist the department in developing a draft Year 2000 management plan. The fourth manager, during his 4-month tenure, initiated many awareness and assessment activities. Finally, the fifth project manager was assigned on March 30 of this year, and has continued the progress started by her predecessor. The frequency of turnover in project managers delayed Education in completing basic awareness activities. These activities included dedicating staff to the Year 2000 effort, communicating with data exchange partners, holding regular steering committee meetings, and developing a management plan. Project office staff to help the department coordinate Year 2000 activities were not assigned until December 1997, when the fourth project manager was appointed. In addition, while a draft management plan was distributed for comment in mid-November 1997, it was not made final until April of this year. Education experienced a corresponding delay with basic assessment activities, which it did not report as completed until this past March—about 9 months after the Office of Management and Budget (OMB) milestone. These assessment activities included conducting an enterprisewide inventory of information systems and data interfaces, assessing and prioritizing systems, establishing Year 2000 project teams for business areas and major systems, and initiating contingency planning. Concurrent with its slowness in completing its assessment, Education’s estimated costs have fluctuated widely. The initial cost estimate in May 1996 was $60 million, which decreased dramatically to $7 million in February 1997 but then rose again in February 1998 with an estimate of $23 million. Last month, the cost estimate increased further, to $38 million, as Education continued renovating and testing its systems. Prior to February 1998, little documentation existed supporting how these estimates were derived. Figure 1 highlights the wide variation in cost estimates over the past 2 years. With its slow start, Education has been playing catch up and working to accelerate its progress. Management staff have regular meetings to discuss progress on Year 2000 compliance, and principal office staff meet biweekly to discuss progress on individual mission-critical systems. The biweekly meetings include Education staff responsible for the particular system; the system contractor; Year 2000 program office staff; and contractor staff responsible for independently verifying and validating renovation, validation, and implementation activities. According to department officials, Year 2000 compliance has also now been given top priority in terms of in-house resources. Education’s Year 2000 management plan established the Year 2000 project manager as the focal point for monitoring progress, providing support, and directing the plan. The project manager works with the program offices, which are responsible for assessing and renovating their systems, as well as tracking and reporting progress on compliance activities. Senior leadership of each program office is responsible for providing adequate support to its Year 2000 tasks and ensuring that Year 2000 compliance is achieved. The Department of Education has reported to OMB that it has 14 mission-critical systems, of which 11 are student financial aid systems. Table 1 summarizes the Year 2000 status of each mission-critical system as of this month. In brief, according to the department’s September 10, 1998, report, four mission-critical systems have been implemented and are in operation, one is in the process of being implemented, five systems are being validated, and the remaining four are still being renovated. While there has been recent progress, the Department of Education must mitigate critical risks that affect its ability to award and track billions of dollars in student financial aid. Specifically, the department must address the need for adequate testing, the renovation and testing of data exchanges, and the development of business continuity and contingency plans. Unless these issues are effectively addressed, the ability of the department to deliver financial aid to students will be compromised.