Financial Management

The Department of Education is the lead agency overseeing the more than $73 billion that the federal government spends each year on education programs. The Department also tracks about 93 million student loans and 15 million grants. It also collects more than $150 billion owed by students. Consequently, the Department's financial statements are an important source of information for policymakers and the public. This testimony discusses GAO's review of the independent auditors' reports of the Department's financial statement for fiscal year 1998.

GAO noted that: (1) the independent auditors found that the Department does not have adequate internal controls over its financial reporting process to provide reasonable assurance that its principal financial statements are reliable; (2) as a result, Education: (a) was unable to prepare reliable statements; and (b) could not support material amounts reported on its financial statements, including obligations, grant expenditures, and net position; (3) these limitations in the financial reporting process of the Department's new accounting system contributed to the disclaimer of opinion on its FY 1998 financial statements; (5) the system's reported weaknesses included its inability to perform an automated year-end closing process and directly produce consolidated financial statements as would normally be expected from such systems; (6) Department officials stated that they have recognized the seriousness of these problems and are working with a contractor to resolve them; (7) independent auditors reported that Education did not properly or promptly reconcile its financial accounting records during FY 1998; (8) the independent auditors also determined that the transactions Education reported to the Treasury routinely differed from those reported in Education's general ledger throughout FY 1998; (9) the auditors found that Education made large adjustments, which it did not research or support, merely to force the records into agreement; (10) in addition, Education did not reconcile its general ledger balance with its subsidiary debt collection system; (11) instead, Education made unsupported adjustments to the general ledger to align these records with amounts reported in its debt collection system; (12) many of these differences result from a lack of supporting documentation for proprietary accounts and budgetary balances, the failure to regularly perform formal reconciliations, and the serious problems with Education's accounting system; (13) errors in these accounts may also affect the accuracy of various Education financial reports, including budget execution reports and information reported to the Congress; (14) in connection with their review of Education's FY 1998 financial statements, the independent auditors also conducted a review of information systems controls over Education's accounting and financial reporting systems; and (15) continued weaknesses in these information system control areas place critical Education operations at risk of unauthorized access and disruption.