Financial Management

Education's Financial Management Problems Persist Gao ID: T-AIMD-00-180 May 24, 2000

The Department of Education is the lead agency responsible for overseeing the $75 billion annual federal investment in support of education programs. The Department is also responsible for collecting about $175 billion owed by students. More than 8.1 million students received more than $53 billion in federal student financial aid through programs run by Education. Education's stewardship of these assets, however, has been under question because of the agency's persistent financial management problems. Beginning with its first agencywide financial audit effort in fiscal year 1995, Education's auditors have reported the same serious internal control weaknesses each year, which have undermined the agency's ability to provide reliable financial information to decisionmakers both inside and outside the agency. This testimony discusses (1) Education's fiscal year 1999 financial audit results; (2) the relationship between the audit findings and the potential for waste, fraud, and abuse; and (3) the results of GAO's review of Education's grantback account.

GAO noted that: (1) while Education's financial staff and its contractors worked very hard to prepare Education's FY 1999 financial statements before the March 1, 2000, deadline, and the auditors' opinion on the financial statements improved over that of FY 1998, serious internal control and financial management systems weaknesses continued to plague the agency; (2) for FY 1999, Education made significant efforts to work around these weaknesses and produce financial statements; (3) these efforts enabled its auditors to issue qualified opinions on four of its five required financial statements and a disclaimer on the fifth statement; (4) its auditors' qualified opinion states that except for the effect of the matters to which the qualification relates, the financial statements present fairly, in all material respects, financial position, net costs, changes in net position, and budgetary resources in conformity with generally accepted accounting principles; (5) in the auditors' internal controls report, they reported four material internal control weaknesses--three continuing from FY 1998 and one additional one for FY 1999--and that long-standing internal control weaknesses persist; (6) Education's auditors reported that it was not in compliance with three laws-the Federal Financial Management Improvement Act, the Clinger-Cohen Act, and the Federal Credit Reform Act of 1990; (7) the internal control weaknesses cited in the auditors' report need to be addressed to reduce the potential for waste, fraud, and abuse in the department; (8) for the grantback account, its auditors reported that approximately 97 percent of the balance at September 30, 1998, was composed of adjustments that had accumulated since FY 1993 for reconciling differences of various appropriations that could not be identified with any specific program; (9) the auditors also reported for FY 1999 that Education could not readily determine to which appropriations the adjustments balance belongs; and (10) Education had taken or plans to take actions to address the grantback account issues.

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