Federal Student Aid
Additional Management Improvements Would Clarify Strategic Direction and Enhance Accountability
Gao ID: GAO-02-255 April 30, 2002
The Department of Education's Office of Federal Student Aid (FSA) administers more than $53 billion in financial aid for more than 8.1 million students. Since 1990, GAO has included student financial aid on its high-risk list. To address these and other long-standing management weaknesses, Congress established FSA as a performance-based organization (PBO) within Education in 1998. To develop and implement a strategic direction, FSA set three strategic goals, created indicators to measure progress toward these goals, and developed a tool to link employees' day-to-day activities to these goals. The goals are to (1) increase customer satisfaction, (2) increase employee satisfaction, and (3) reduce unit cost. FSA's efforts have generally improved customer and employee satisfaction scores. FSA has begun to implement some human capital practices to better organize its services and manage its employees. But gaps exist, and FSA has not yet implemented performance management initiatives to develop and assess its employees. To better serve customers, FSA reorganized to reflect its different customers--students, schools, and financial partners. To encourage accountability, FSA is linking staff bonuses to FSA's strategic goals. Education continues to clarify FSA's level of independence and is now reviewing FSA's role and responsibilities as part of the departmentwide management planning effort.
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GAO-02-255, Federal Student Aid: Additional Management Improvements Would Clarify Strategic Direction and Enhance Accountability
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United States General Accounting Office:
GAO:
Report to Congressional Requesters:
April 2002:
Federal Student Aid:
Additional Management Improvements Would Clarify Strategic Direction and
Enhance Accountability:
GAO-02-255:
Contents:
Letter:
Results in Brief:
Background:
FSA Has Taken Steps to Develop and Implement a Strategic Direction but
Additional Actions Needed:
FSA Has Begun to Better Organize and Manage Its Workforce, but Gaps
Exist in Its Human Capital Strategy:
Education Continues to Take Steps to Clarify FSA‘s Level of
Independence:
Conclusions:
Recommendations to the Secretary of Education:
Appendix I: Comments from the Department of Education:
Appendix II: GAO Acknowledgments and Contacts:
GAO Contacts:
Staff Acknowledgments:
Tables:
Table 1: Strategic Goal Measurements and Reported Results:
Table 2: FSA Training Resources and Availability:
Figure:
Figure 1: Distribution of FSA Employees by Organizational Unit:
Abbreviations:
ACSI: American Customer Satisfaction Index:
ATO: Air Traffic Organization:
CFO: Chief Financial Officer:
CIO: Chief Information Officer:
CMO: Case Management and Oversight:
COO: Chief Operating Officer:
FASAB: Federal Accounting Standards Advisory Board:
FSA: Office of Federal Student Aid:
GAO: General Accounting Office:
HEA: Higher Education Act:
IDP: individual development plans:
IG: Inspector General:
MOU: memorandums of understanding:
NAPA: National Academy of Public Administration:
PBO: performance-based organization:
PDP: Performance Development Process:
PSC: Private Sector Council:
USPTO: United States Patent and Trademark Office:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
April 30, 2002:
The Honorable Edward M. Kennedy:
Chairman:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable James M. Jeffords:
United States Senate:
The Department of Education‘s Office of Federal Student Aid[Footnote 1]
(FSA) administers more than $53 billion in federal financial aid for
more than 8.1 million students. Since 1990, because of concerns about
Education‘s vulnerabilities to losses due to fraud, waste, abuse, and
mismanagement, GAO has included student financial aid on our high-risk
list.[Footnote 2] To address these and other longstanding management
weaknesses, Congress amended the Higher Education Act in 1998,
establishing FSA as a performance-based organization (PBO) within the
Department of Education. A PBO is intended to transform the delivery of
public services by having the organization commit to achieving specific
measurable goals with targets for improvement in exchange for being
allowed to operate without the constraints of certain rules and
regulations to achieve these targets. As a PBO, FSA specifies how it
will achieve these targets through its performance plan, which includes
its longer-term strategic goals and annual performance goals as well as
strategies that it will use. In creating the PBO, Congress provided
FSA, subject to the direction of the secretary of education, with more
flexibility to manage its operations while requiring Education to
retain policy-making functions. It has been more than three years since
Congress created the PBO at FSA.
To respond to your interests concerning FSA‘s progress since becoming a
PBO, we focused our review on addressing three questions:
1. What FSA has done to develop and implement a strategic direction”its
plan for achieving the goals Congress specified for it in the PBO
legislation”to accomplish its mission;
2. What human capital strategies FSA has adopted to ensure that it can
carry out its mission, and;
3. What steps Education has taken to clarify FSA‘s level of independence
and its relationship with other Education offices.
To identify this information, we reviewed FSA‘s strategic and annual
performance plans and annual reports. We interviewed Education and FSA
officials in headquarters and FSA officials in 5 of its 10 regional
offices”Atlanta, Chicago, New York, Philadelphia, and San Francisco. We
selected these regional offices primarily because they oversee the
largest number of postsecondary institutions and because they oversee a
variety of public and private institutions. We also met with
representatives of the secretary of education‘s Management Improvement
Team.[Footnote 3] We interviewed experts in federal agency/union
relationships, higher education associations, an official with the U.S.
Patent and Trademark Office (also established as a PBO), and officials
with Education‘s Office of Inspector General (IG). We used our Human
Capital Self-Assessment Checklist[Footnote 4] and Internal Control
Management and Evaluation Tool[Footnote 5] to assist us in reviewing
FSA‘s actions.
We conducted our work between March 2001 and March 2002 in accordance
with generally accepted government auditing standards.
Results in Brief:
To develop and implement a strategic direction”its plan for achieving
the purposes Congress specified for it in the PBO legislation”FSA has
developed three strategic goals, created indicators to measure progress
toward those goals, and developed a tool to link employees‘ day-to-day
activities to these strategic goals. These strategic goals are to (1)
increase customer satisfaction, (2) increase employee satisfaction, and
(3) reduce unit cost. FSA‘s efforts to date are having promising
results in terms of the general improvement of customer and employee
satisfaction scores. Because the indicator FSA uses to measure unit
cost has certain limitations, such as not measuring actual costs, it is
difficult to gauge FSA‘s progress in reducing unit cost. In addition,
FSA‘s performance plan, which specifies how it will achieve its
strategic goals, could be more useful to congressional decision makers
by specifying how the annual goals and strategies it includes in the
performance plan will lead to the integration of FSA‘s financial aid
systems and help ensure program integrity”explicit objectives of
Congress in establishing FSA as a PBO. For example, in its performance
plan FSA includes technical assistance projects”such as holding
conferences to explain rules and regulations to schools participating
in financial aid programs. However, FSA does not make clear how it will
know whether compliance with rules and regulations has improved as a
result of such projects, thus enhancing program integrity. Further,
while the PBO legislation requires the PBO to submit, through the
secretary, to Congress an annual report on the performance of FSA, the
fiscal year 2000 report was prepared by FSA and submitted to the
secretary, but was not submitted to Congress. Like the fiscal year 1999
report, the fiscal year 2000 report did not include all the information
specified by the legislation. FSA has not yet submitted the fiscal year
2001 annual report to the secretary.
FSA has begun to implement some human capital practices to better
organize its services and manage its employees, but gaps exist in its
human capital strategy and it has not yet implemented performance
management initiatives to develop and assess its employees. To better
serve customers, FSA reorganized on the basis of the customer groups it
serves”students, schools, and financial partners (lenders and guaranty
agencies).[Footnote 6] In addition, FSA has implemented some practices
to ensure the accountability of its senior leadership and to encourage
accountability throughout the organization by linking staff bonuses to
FSA‘s success in meeting its strategic goals. Despite the gains FSA has
made in these areas, certain challenges remain. For example, FSA‘s
human capital senior manager has not been an active participant in
setting FSA‘s strategic direction”as have the heads of units managing
its other key resources. Human capital challenges include the need to
engage in workforce planning and to assess the training needs of staff.
Moreover, FSA has not yet been able to implement a performance
management system that creates goals for the performance of employees,
groups, and the organization consistent with its performance plan as
required by its enabling legislation.
Education continues to take steps to clarify FSA‘s level of independence
and its relationship with other Education offices while long term
management plans are being developed. With the arrival of the current
administration, in January 2001, Education established special interim
operating procedures for all department units, including FSA, that were
intended to ensure that personnel and financial resources are managed
effectively and efficiently throughout the department. As a result of
these interim procedures, Education now provides greater direction and
oversight of FSA than was provided previously. Education is currently
reviewing FSA‘s role and responsibilities as part of the departmentwide
management planning effort. The results of this planning effort will be
used to guide future decisions concerning FSA‘s level of independence
and its relationship to other department offices. Education expects to
complete its review by Summer 2002.
In this report, we recommend that the secretary of education direct FSA,
in collaboration with the secretary, to make its performance plan more
useful to congressional decision makers in the areas of unit cost,
systems integration and program integrity, that the secretary of
education and FSA‘s chief operating officer (COO) work cooperatively to
ensure that annual reports on the performance of the PBO are submitted
to Congress in a timely and complete fashion, and that the secretary of
education and FSA‘s COO coordinate closely to develop and implement a
comprehensive human capital strategy.
We provided Education with a copy of our draft report for review and
comment. In written comments on our draft report, Education agreed with
our reported findings and recommendations. Education‘s written
comments appear in appendix I.
Background:
FSA manages and administers student financial assistance programs
authorized under title IV of the Higher Education Act of 1965 (HEA), as
amended. These postsecondary programs include the William D. Ford
Federal Direct Loan Program (often referred to as the ’Direct Loan“),
the Federal Family Education Loan Program (often referred to as the
’Guaranteed Loan“), the Federal Pell Grant Program, and campus-based
programs.[Footnote 7] Annually, these programs provide more than $50
billion in student aid to approximately 8 million students and their
families. As a consequence, the student financial aid environment is
large and complex. It involves about 5,300 schools authorized to
participate in the title IV program, 4,100 lenders, and 36 guaranty
agencies. Currently, FSA oversees or directly manages approximately
$200 billion in outstanding loans representing about 100 million
borrowers.
Congress has recognized the need to make federal agencies more results-
oriented by shifting from a focus on adherence to required processes to
a focus on achieving program results and customer satisfaction. Toward
this end, Congress established PBOs, which are discrete management units
remaining in their current department under the policy guidance of the
department secretary. PBOs are to commit to clear management objectives
and specific targets for improved performance. These clearly defined
performance goals, coupled with flexibility in managing operations and
direct ties between the achievement of performance goals and the pay
and tenure of the head of the PBO and other senior managers are
intended to lead to improved performance.
In October 1998, Congress established FSA as the government‘s first PBO.
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 a greater flexibility in management;
* integrate information systems;
* implement an open, common, integrated delivery system; and;
* develop and maintain a system containing complete, accurate and timely
data to ensure program integrity.
FSA‘s enabling legislation also, among other things:
* requires the appointment of a chief operating officer;
* requires the development of 5-year and annual performance plans;
* requires the PBO, through the secretary, to report annually on the
performance of the PBO;
* requires the PBO to have performance agreements for the COO and other
senior managers;
* requires the COO in consultation with the secretary to appoint a
student loan ombudsman;
* allows for the payment of performance bonuses to the COO and other
senior managers;
* allows FSA to make use of certain personnel and procurement
flexibilities.
We have reported on selected agencies‘ use of performance agreements,
including FSA, the Department of Transportation, and the Veterans Health
Administration. Although these three agencies developed and
implemented agreements that reflected their specific organizational
priorities, structures and cultures, we identified five common emerging
benefits from each agency‘s use of the agreements. These emerging
benefits include: strengthened alignments of results-oriented goals with
daily operations, collaboration across organizational boundaries,
enhanced opportunities to discuss and routinely use performance
information to make program improvements, results-oriented basis for
individual accountability, and continuity of program goals during
leadership transitions.[Footnote 8]
In addition to FSA, other PBOs include the U.S. Patent and Trademark
Office (USPTO), established as a PBO in March 2000, and the Federal
Aviation Administration‘s Air Traffic Organization (ATO), in December
2000. Similar to FSA, USPTO, and ATO are subject to the policy direction
of their parent departments and are to have the flexibility and
independence to operate more like a business, with greater autonomy over
their budget, hiring, and procurements in carrying out their functions.
Further, USPTO and ATO are also required to designate an individual
responsible for operational improvements, develop multiyear and annual
performance plans, implement performance agreements, and provide for
performance bonuses.
The British Next Steps initiative was used as a model in crafting the
PBO concept in the United States. The Next Steps agencies”now known as
executive agencies”are still the predominant form of service delivery in
the United Kingdom. As of December 2001, there were over 130 executive
agencies covering more than three-quarters of the British civil
service.
FSA Has Taken Steps to Develop and Implement a Strategic Direction but
Additional Actions Needed:
FSA has taken several steps toward developing and implementing a
strategic direction”its plan for achieving the purposes Congress
specified for it in the PBO legislation”but, even though these efforts
have shown promising results, additional actions are needed. FSA‘s
performance plan discusses its three strategic goals”increase customer
and employee satisfaction while decreasing unit cost”and the annual
goals and strategies it will use to accomplish these three goals. The
performance plan, however, could be more useful to congressional
decision makers with respect to systems integration and program
integrity. FSA has also begun to implement a balanced scorecard”a
report that links employees‘ day-to-day activities with the
organization‘s progress toward its strategic goals, but even with the
scorecard, some employees have found it difficult to make this link.
Finally, FSA and the department have not met its requirement to report
annually to Congress on its progress in meeting the goals laid out in
its performance plan, along with other requirements specified in the
PBO legislation.
FSA Has Three Strategic Goals Addressing Important Outcomes:
FSA‘s performance plan discusses strategic goals for increasing customer
and employee satisfaction and reducing unit costs. In addition, it
includes measures for gauging FSA progress in meeting each of these
strategic goals. (See table 1.) FSA‘s management uses these goals and
associated performance measures to determine areas for quality
improvement, monitor changes in customer perceptions, and evaluate the
success of ongoing quality improvement efforts in its student aid
delivery.
Table 1: Strategic Goal Measurements and Reported Results:
Strategic Goals: Increasing customer satisfaction;
Measurement instrument: American Customer Satisfaction Index (ACSI)[A];
What the instrument measures: Customers‘ perception of overall service
quality; their prior expectations; staff accessibility, professionalism,
helpfulness, and timeliness; and the degree of customer complaints;
Reported Results, FY 1999: 63[B];
Reported Results, FY 2000: 72.9;
Reported Results, FY 2001: 74.2.
Strategic Goals: Increasing employee satisfaction;
Measurement instrument: Gallup Q12[C];
What the instrument measures: Employees‘ overall job satisfaction,
their degree of loyalty and productivity, whether they know what is
expected of them, whether they have opportunities to develop job
skills, and whether they received encouragement and feel valued at FSA;
Reported Results, FY 1999: N/A;
Reported Results, FY 2000: 3.51;
Reported Results, FY 2001: 3.74.
Strategic Goals: Reducing unit cost;
Measurement instrument: FSA Calculation[D];
What the instrument measures: The cost per loan and/or grant recipient
to administer the student financial aid program;
Reported Results, FY 1999: $18.72;
Reported Results, FY 2000: $19.08;
Reported Results, FY 2001: $19.57.
[A] ACSI measures customer satisfaction for public and private sector
organizations and is produced by a partnership of the University of
Michigan Business School, the American Society for Quality, and
the CFI Group. The highest possible score on the index is 100.
[B] The score for fiscal year 1999 measured only one element of
customer satisfaction.
[C] The Gallup Q12 is a 12-question survey instrument, designed by the
Gallup Organization, to measure employee engagement for private and
public sector organizations. Scores range from 1-5, with 5 being the
highest.
[D] FSA‘s method of calculating unit cost changed in fiscal year 2001.
See the accompanying text for a more detailed discussion of the change.
Source: FSA.
[End of table]
To measure customer and employee satisfaction, FSA uses the American
Customer Satisfaction Index (ACSI) and the Gallup Q12, respectively.
Both measures are used by the private sector and other government
entities, and, as a result, FSA can compare its own scores with those
of others. FSA‘s scores on both the ACSI and Gallup Q12 increased from
fiscal year 1999 through fiscal year 2001, suggesting improvement in
both areas. Indeed, comments from representatives from several higher
education associations we interviewed and who work closely with FSA
also suggest that customer satisfaction has improved. For example, an
association official noted the willingness of FSA managers to listen
and learn from students, schools, and lending institutions.
To track reductions in costs, FSA has developed a unit cost measure. FSA
uses the measure to demonstrate how it is reducing the cost of
administering the student aid programs. However, FSA‘s current
calculation has some limitations in this regard. First, in calculating
unit cost, FSA divides budget obligations (an obligation reserves funds
for an eventual cash payment for goods and services) by the total
number of people who received aid. This means that FSA‘s unit cost does
not measure costs, per se.[Footnote 9] Further, the unit cost
calculation does not include obligations FSA sees as beyond its
control”obligations for services shared with the department (e.g.,
telecommunications) and obligations associated with loan consolidation,
which is influenced by demand, for example. Obligations FSA considers
as fully under its control include those for salaries and benefits,
operations and modernization contracts, and general operations, such as
travel, training, printing, and equipment. This means that unit cost
does not measure total obligations per person receiving aid. Second,
the way FSA currently calculates unit cost is a change from the way it
calculated it in the past. This change makes comparing unit cost across
years difficult. In 1998 through 2000, FSA calculated unit cost by
dividing the actual cost (those it considered under its control) of
administering student aid (instead of budget obligations) by the total
number of people who had received aid. According to FSA officials, FSA
changed the calculation of unit cost to make it more useful as a
management tool, in part because actual costs for a particular year are
sometimes not known until well into the next fiscal year and because
managers are more accustomed to using budget obligations, in part
because of their experience in using obligations in budget formulation
and execution. Using actual cost in the calculation, the unit cost in
fiscal year 2000 was $19.08. When FSA recalculated unit cost for fiscal
year 2000 using budget obligations instead, the amount changed to
$20.14.
FSA officials told us that they believe the unit cost measure is a
useful tool for internal management information purposes, allowing
managers to gauge the efficiency of their operations and to highlight,
for its employees, the importance of reducing costs. Although these are
important objectives, FSA‘s unit cost measure is less useful to
congressional decision makers because, among other things, FSA does not
include all program obligations in the measure nor explain the basis of
its measure in reporting on its performance. According to the Federal
Accounting Standards Advisory Board (FASAB), decision makers in
Congress as well as the public should be provided with information on
the full costs of programs and their outputs.[Footnote 10] The FASAB
has also stated that agencies should develop and report cost
information on consistent bases and that using different accounting
bases and measurement methods can confuse users of cost information.
[Footnote 11] Because FSA does not relate its unit cost measures to
total program costs and because it has changed its method for
calculating it, it is difficult to discern whether changes in the
measure are indicative of changes in total program costs.
FSA‘s Performance Plan Can Be More Useful to Congressional Decision
Makers, Especially with Respect to Systems Integration and Enhancing
Program Integrity:
In addressing systems integration and program integrity, FSA‘s
performance plan has several limitations. It is not always obvious how
the goals and strategies included in the plan relate to systems
integration, or how FSA can effectively assess systems integration by
relying on measures for its strategic goals. Moreover, the performance
plan provides only limited information regarding FSA‘s strategies for
achieving program integrity.
Systems Integration:
Congress designated FSA as a PBO, in part, to encourage the integration
of the many, disparate information systems used to deliver student
financial aid. In 1997, we reported that Education would likely be
unable to correct longstanding problems resulting from a lack of
integration across its student financial aid systems until a sound
systems architecture was established and effectively implemented.
[Footnote 12] FSA subsequently devised an enterprise-wide systems
architecture in response to our conclusion that such an architecture
was needed, and in response to our related recommendations.[Footnote
13] As part of its continuing systems integration efforts, FSA recently
initiated a new approach, commonly referred to as middleware, to
provide users with a more complete and integrated view of information
contained in multiple databases. We recently reported[Footnote 14] that
in selecting middleware, FSA adopted a viable, industry-accepted means
for integrating and using its existing data on student loans and
grants. FSA‘s implementation of the middleware technology remains in
its early stages. FSA now needs to properly implement and manage its
strategy. If implemented and managed properly, this new technology
should help
ameliorate FSA‘s longstanding database integration problems.
While FSA‘s strategy for integrating its many computer systems shows
promise, both we and Education‘s IG[Footnote 15] have found that
neither its performance plans nor its subsequent annual reports readily
provide information about its progress in integrating systems. As a
step toward providing this information, the IG recommended that FSA
include an overall systems integration goal that was objective,
quantifiable, and measurable. The IG stated that an overall systems
integration goal would help to inform Congress and others of FSA‘s
progress in integrating systems. However, FSA‘s COO disagreed with this
recommendation, arguing that FSA could not achieve its strategic goals
without integrating its systems and therefore a distinct systems
integration goal was unnecessary.
While FSA‘s performance plans included numerous goals and strategies, it
is not always obvious how they relate to systems integration. For
example, the performance plan identifies one of FSA‘s strategies as
’create the data mart.“ However, what the data mart is or how
completing it would bring FSA closer toward integrating its systems is
never explained. Similarly, in an earlier performance plan, FSA
referred readers to its Modernization Blueprint” its plan for
integrating and modernizing its student aid information systems”for
additional information on its goals and strategies. However,
Education‘s IG characterized the Modernization Blueprint as lengthy,
complex and lacking clear performance goals and measures.
FSA relies on the measures for its strategic goals to reflect the
results of its system integration effort, even though they were not
specifically designed to do so. Many factors unrelated to FSA‘s systems
integration efforts influence these measures. FSA‘s technical
assistance activities, for example, may result in increased customer
satisfaction even though these activities do not involve systems
integration. On the other hand, FSA could make technological progress
in integrating its systems that would not be evident to the customer.
For example, before implementing systems to integrate databases, FSA
spends considerable time developing the databases. Measures of customer
satisfaction would not capture these initial efforts. As a result,
FSA‘s customer satisfaction measure may not fully reflect progress made
or lack of progress with regard to systems integration.
Program Integrity:
Another goal Congress prescribed for FSA was to enhance program
integrity. FSA had no strategic goal for program integrity in its
fiscal year 2001 and earlier performance plans, but draft documents FSA
provided to us suggest that its fiscal year 2002 plan may include such
a goal. It is unclear from these draft documents, however, how FSA will
define measurable outcomes to demonstrate its progress in enhancing
program integrity. FSA works to ensure program integrity in many ways,
including providing technical assistance to schools to increase
compliance with regulations, working to prevent defaults, and
collecting on defaulted loans.
FSA‘s draft fiscal year 2002 performance plan reflects its increasing
reliance on providing technical assistance to schools as a way to ensure
their compliance with financial aid rules and regulations. In the past,
FSA relied much more extensively on conducting on-site program reviews
to assess schools‘ compliance with rules and regulations. The following
list, taken from FSA‘s fiscal year 2002 performance plan, shows the
technical assistance strategies FSA plans to implement during fiscal
year 2002:
* Develop and deliver a series of services to new schools, which
includes assistance during the first 12 months of their participation
in Title IV programs.
* Identify trends in risk areas and provide targeted technical
assistance to schools.
* Conduct at least three national conferences for schools.
* Develop a ’How To“ guide with our oversight partners on processing
school closures that focuses on reducing the impact to students.
* Promote the Title IV schools‘ quality performance by providing them
with tools for understanding and improving management practices, program
requirements, and verification outcomes.
* Identify areas for improving compliance effectiveness and take the
appropriate steps to fix them.
While FSA has developed strategies intended to improve schools‘
regulatory compliance, it is not clear how FSA will know whether its
strategies are effective. First, FSA has not developed an indicator of
schools‘ compliance. Second, while FSA‘s fiscal year 2002 performance
plan defines success for the strategies shown above, the definitions may
not be appropriate. For example, FSA plans to conduct at least three
national conferences for schools to disseminate information about
student financial aid programs and processes including program
integrity. FSA states that high scores on participant evaluations of
these national conferences will indicate its success in disseminating
this information. While participant evaluations may reflect the quality
of presentations, they will not indicate whether the information helped
institutions comply with applicable laws, regulations, and procedures.
Another way that FSA ensures program integrity is through its efforts to
collect and prevent defaulted student loans. FSA‘s draft fiscal year
2002 performance plan specifies the goals it has for default management;
however, it includes only limited information about the strategies it
will use to achieve those goals. For example, in its fiscal year 2002
plan, FSA includes the following goals for default management: increase
the fiscal year 2002 default recovery rate to 15 percent, ensure that
the defaults recovered exceed the total default claims for the fiscal
year, demonstrate the pursuit of improved default management and
prevention strategies, and keep the default rate under 8 percent. FSA‘s
plan, however, only includes one strategy to address these goals”expand
the use of the National Directory of New Hires”a database matching
program”to recover $200 million in defaulted student loans.[Footnote
16] As the result of not giving details on its strategies for default
recovery and prevention, it is not clear how FSA will achieve its goals
relating to default management and how its efforts help ensure program
integrity.
FSA Experimenting with Balanced Scorecard to Link Employee‘s Day-to-
Day Activities to Strategic Goals:
In order to help employees connect the work of individual teams to the
FSA-wide strategic goals, FSA‘s management has adopted the ’balanced
scorecard.“[Footnote 17] The scorecard is intended to provide a simple,
one-page presentation of FSA‘s performance on its three strategic
goals. The scorecard also reports on team-specific contributions
towards achieving the three strategic goals.
Because the balanced scorecard approach is a new initiative (about one
quarter of FSA‘s teams are using it), FSA has not yet resolved some of
the difficulties that staff have in linking scorecard results to their
work. Some staff reported that it was difficult to understand how they
could influence scores for customer satisfaction and unit cost
measures. For example, one FSA manager told us that she thought the
ACSI data was too complicated and at too high a level for it to be
useful to front-line staff while others said their staff did not
understand the unit cost calculation and how they could affect it.
FSA and Department Have Not Met the Requirement to Report Annually to
Congress on the PBO‘s Performance:
The PBO‘s enabling legislation requires the COO, through the secretary,
to report annually on the performance of the PBO to Congress based on
its previous year‘s performance plan. For fiscal year 2000, although FSA
prepared an annual report, it was not submitted to Congress as required
by the legislation. FSA submitted a draft fiscal year 2000 report to the
department in March 2001; however, the draft was incomplete and not in
compliance with the PBO legislation, according to a senior Education
official. Despite attempts to finalize the report, Education, in a
subsequent review of the draft late in the year, still found that the
report did not comply with statutory requirements. Given the late date
and in light of the fact that the subsequent year‘s performance report
would soon be due, Education decided not to submit the fiscal year 2000
report at that time. Instead, according to the official, Education and
FSA plan to issue a combined report for fiscal years 2000 and 2001. The
department has not yet received the combined report from FSA.
In transmitting the report through the secretary, FSA is required to
submit specific information related to the performance of the PBO, but
FSA‘s reports have been incomplete. The annual report must include,
among other things, the evaluation rating of the performance of the COO
and other senior managers including the amounts of bonus compensation
awarded to these individuals, and recommendations for legislative and
regulatory changes to improve service to students and their families,
and to improve program efficiency and integrity. In the documents FSA
submitted for fiscal year 1999 and in its draft report for fiscal year
2000, did not include required information such as recommendations for
legislative and regulatory changes. In addition, while FSA included
information about the amounts of bonus awarded to the COO and senior
managers, it did not include the evaluation rating for them as
required.
FSA Has Begun to Better Organize and Manage Its Workforce, but Gaps
Exist in Its Human Capital Strategy:
FSA has begun to better organize its services and manage its employees,
but gaps exist in its human capital strategy[Footnote 18] and it has
not yet implemented performance management initiatives to fully develop
and assess its employees. To better serve its customers and improve
employee performance, FSA reorganized its operations, hired senior
managers accountable for specific strategic goals, and encouraged
accountability among all employees. However, FSA‘s human capital senior
manager has not been an active participant in setting FSA‘s strategic
direction. Also, FSA still faces challenges in planning for the
succession, deployment, and training of staff. Moreover, FSA has not
yet implemented a performance management system though its enabling
legislation requires it to do so.
FSA Has Taken Several Steps to Restructure Its Organization and Ensure
Accountability:
Sound human capital principles state that organizations should be
structured on the basis of their strategic goals, have a strategic
vision, and ensure accountability for commitment to those goals and
vision. FSA has taken steps to adopt these practices.
Since being established as a PBO, FSA has restructured itself into three
customer-oriented ’channels“”one for students, schools, and financial
partners (guaranty agencies and lenders)”-each led by a channel general
manager. According to FSA officials, the realignment was intended to
improve the organization‘s performance and increase coordination of
mission-critical activities. FSA also created a number of ’enterprise“
units to support the channels by focusing on internal customer or
stakeholder needs. These units, each with its own enterprise director,
focus on activities such as analysis, communications, and human
resources. The operations of the chief financial officer (CFO) and
chief information officer (CIO) are considered support organizations
responsible for technical and financial management practices and
infrastructure. Figure 1 shows how FSA‘s total workforce of about 1,200
employees is organized and how the COO positioned his office in the
middle of FSA‘s official organization chart to stress the importance of
the three customer-oriented channels.
Figure 1: Distribution of FSA Employees by Organizational Unit:
[See PDF for image]
This figure is an organizational chart indication the distribution of
FSA employees by organizational unit, as follows:
* School Channel: 517;
* Student Channel: 289;
* Financial Partner Channel: 73;
* Office of the Chief Operating Officer: 10;
* Office of the Chief Information Officer: 97;
* Office of the Chief Financial Officer: 79;
* Ombudsman: 8;
* SFA Intern Program: 24;
* Acquisition and Contracts: 6;
* Human Resources: 8;
* Analysis: 39;
* Communications: 7;
* SFA University: 46.
Note: Numbers include all employees on board in both headquarters and
regions regardless of temporary or part time as of November 2001.
Source: FSA Human Resources.
[End of figure]
In addition to changing the way its staff is organized, FSA also
created a management council to steer the organization strategically
and ensure communication among the channels. The council is comprised
of the COO, CIO, CFO, each of the channel general managers, and
representatives from FSA‘s primary contractors responsible for
modernizing information systems.
To hold FSA accountable for achieving results, FSA‘s enabling
legislation requires the COO and each senior manager to enter into an
annual performance agreement that sets forth measurable organizational
and individual goals. According to FSA officials, the organization‘s
annual performance plan serves as the basis of these agreements.
[Footnote 19] The annual goals and strategies for which each manager
has responsibility serve as his or her agreement. Since the annual
goals and strategies contribute to one or more of FSA‘s three strategic
goals, the performance agreements ensure that managers are responsible
for contributing to the organization‘s overall performance. For
example, a channel manager may be responsible for increasing the number
of aid applications filed electronically and, in so doing, help FSA
achieve its strategic goals of increasing employee and customer
satisfaction and reducing unit cost. Each fall, senior managers submit
to the COO a document indicating how their work over the prior year has
led to the accomplishment of the annual goals and strategies in their
performance agreements. If they achieve their goals, they are awarded
bonuses”50 percent of the bonus is based on the COO‘s evaluation of the
managers‘ overall contribution; the remaining 50 percent is based on
the extent to which FSA reached its three strategic goals. The COO is
also eligible for a bonus based on the secretary‘s evaluation of the
COO‘s performance. The COO and FSA senior managers who have performance
agreements with the COO are also subject to removal for failing to
achieve sufficient progress toward performance goals. In fiscal year
2001, the COO received a bonus of $60,165 and 17 other senior managers
received bonuses ranging from $10,277 to $30,082.[Footnote 20] FSA has
also tried to encourage and reward high performance throughout the
organization by awarding bonuses to all staff based on the COO‘s
assessment of FSA‘s success in meeting its strategic goals. For fiscal
year 2001, staff received a bonus equivalent to 90 percent of their pay
for one biweekly period. An FSA employee making $1,000 per biweekly
period would receive a bonus of $900, for example.[Footnote 21]
Gaps Exist in FSA‘s Human Capital Strategy to Enhance Workforce
Planning and Development:
FSA has taken important steps towards developing its human capital, but
gaps remain in its overall human capital approach. In its fiscal year
2002 performance plan and human capital plan FSA laid out its human
capital priorities, such as seeking to implement employee incentive and
recognition programs, but it did not discuss its strategy for using its
human capital resources to drive the organization toward achievement of
its three strategic goals. Our work on human capital management has
shown that sound human capital practices require agencies to transform
their traditional human resources function from a support office to a
partner in setting the organization‘s strategic direction, preparing for
future needs by identifying pending retirements and anticipating hiring
needs, and linking training and development activities to employee skill
sets and expectations for job performance.[Footnote 22] FSA‘s efforts
in these areas, however, have fallen short because it has not fully
addressed these critical elements of human capital management.
Human Capital Focus:
The position of human resources unit director”the designated human
capital senior manager”was not permanently staffed until May 2000”in
part, because it was thought of as ’second tier,“ according to one
official. Further, the existing human resources director does not have
an active role on FSA‘s Management Council. While some of the members
of the Management Council may have human capital responsibilities for
their particular offices, no one person on the council has overall
responsibility for FSA‘s human capital planning and management. The
strategic role of human capital staff is vital if FSA is to increase
the effectiveness of its current human capital management practices.
However, nothing in the performance plan or FSA‘s recently proposed
human capital plan suggests that the human capital function will be
elevated in stature within FSA and hold ’a place at the table“ among
senior management in decision making. In the high-performing
organizations that we studied,[Footnote 23] human capital staff
participated as full members of management teams and ensured that those
teams proactively addressed human capital issues. For example, several
organizations we studied told us that they involved their human capital
staff as decisionmakers and internal consultants by having leaders of
their human capital staff serve on senior executive planning committees
similar to FSA‘s Management Council. In addition, while FSA, in its
draft human capital plan, has proposed expanding the role of its human
capital unit to include serving as a liaison to the department in
carrying out agency-wide programs and policies, and overseeing specific
human capital initiatives within FSA, it proposed a similarly expanded
role in a September 2000 plan that was never approved by the
department.
Workforce Planning:
As of September 2001, about 38 percent of FSA‘s workforce was eligible
for retirement, yet FSA does not have a formal plan to address pending
retirements. Should those eligible to retire do so, FSA will be faced
with a substantial loss of institutional knowledge. FSA‘s draft human
capital plan begins to address attrition by discussing how it will work
to retain and reward top performers, get rid of poor performers, use
contractors to complete appropriate business functions, but FSA has no
hiring plans that address such factors as how many staff are needed and
the skills they should possess. Having a plan that addresses such
factors is important even though FSA cannot immediately hire
individuals for key positions due to departmental hiring restrictions.
According to several FSA officials, hiring has been problematic in
light of special departmental procedures that have affected FSA‘s
ability to fill about 300 vacancies. These procedures”effective since
January 24, 2001”restrict certain personnel selections, reassignments,
and promotions at FSA and a number of other offices within the
department. Currently, FSA can only reassign or detail its staff within
the PBO, and it must request exemptions to these procedures for all
other decisions related to hiring, promoting, or detailing staff.
Decisions related to posting employment opportunities and extending
employment offers, for example, must first be approved by the
department. Between February 7 and December 7, 2001, FSA requested 73
exemptions to these procedures. Of these, 33 were approved, while the
remaining have been denied or have not yet been acted upon.
We found that concerns over hiring and the deployment of existing staff
were particularly prominent in the Case Management and Oversight
(CMO) unit in the schools channel, which performs functions critical to
ensuring the integrity of FSA‘s financial aid programs. Among other
things, CMO staff certify schools‘ eligibility to participate in
student aid programs and enforce programmatic requirements. To more
effectively use its staff and fulfill its responsibilities, CMO has
instituted a variety of strategies. For example, CMO has recently
implemented an assessment tool to identify schools with the greatest
likelihood of noncompliance with financial aid regulations. Using this
tool, CMO believes it can better target its staff‘s enforcement
activities. However, in three of the five regional offices we visited,
CMO officials told us that these efforts were not enough. These
officials expressed concern that, without sufficient staff,
institutional oversight and technical assistance activities could
decrease, potentially compromising the integrity of the financial aid
programs.
Training:
FSA has expanded the training opportunities available to its staff
since its PBO designation. Table 2 provides a description of current
training programs.
Table 2: FSA Training Resources and Availability:
Training resources available to FSA employees: FSA University;
Description of training: Offers three courses that are designed in part
to teach employees about the history and facets of student aid delivery
and the organization‘s mission, goals, and service standards;
Availability: Each course was offered multiple times during a three
month period; no plans to offer again until new staff are hired.
Training resources available to FSA employees: Career Zone;
Description of training: Offers courses in giving presentations,
preparing a business plan, navigating the internet, and understanding
the budget process;
Availability: Courses are offered multiple times a year.
Training resources available to FSA employees: FSA Learning Benefits
Program;
Description of training: Provides $500 learning coupons to staff that
can be applied to any external training;
Availability: Employees can apply for a coupon when they want to take
training.
Training resources available to FSA employees: Education‘s Training and
Development Center (TDC);
Description of training: FSA staff can enroll in courses related to
customer service delivery, contract administration, use of specific
computer software packages, and enhancing auditing and financial
management skills. Additionally, FSA managers also rely on staff from
the TDC for instruction regarding communicating performance
expectations, understanding project management, developing effective
leadership skills, and resolving conflicts;
Availability: Courses are offered multiple times a year.
Source: FSA and Education.
[End of table]
Even though FSA has expanded the courses it offers, it has yet to
implement tools that would allow it to assess its employees‘ training
needs. FSA has proposed what it calls the ’performance development
process“ (PDP). The PDP has two core components”improving employee
performance by introducing Individual Development Plans (IDP) to the
workforce[Footnote 24] and documenting employee skills through a
comprehensive skills catalogue”intended to identify employees‘ training
needs. IDPs would allow all staff to link their professional goals to
the goals of FSA by developing work plans in collaboration with their
supervisors. FSA managers would appraise employees‘ job performance by
determining whether they‘ve met, exceeded, or failed to reach the goals
they have self-assigned in their IDP.[Footnote 25] The second part of
the PDP, the skills catalogue, will attempt to allow FSA managers to
identify employees‘ training needs by ascertaining the skills they
already have.
FSA proposed the PDP not only as a sound human capital management tool,
but also in order to meet legislative requirements. The PBO legislation
requires FSA to establish a performance management system that creates
goals for the performance of employees, groups, and the organization
consistent with the PBO‘s performance plan. Despite the steps discussed
above, FSA‘s relationship with its union[Footnote 26] has made
implementation of many of these initiatives difficult. Both FSA and
union officials have had difficulty negotiating on related proposals.
According to its collective bargaining agreement, the union has the
opportunity to review actions affecting any aspect of employee working
conditions, including those related to training, development, and
appraisals. According to an FSA official, because FSA and the union
could not reach agreement on the proposed PDP, due to unresolved
differences regarding the appraisal component of the PDP, FSA has
recently withdrawn the proposal from negotiations, leaving the status
of an integral component of its human capital plans undecided.
Education Continues to Take Steps to Clarify FSA‘s Level of
Independence:
Education continues to take steps to clarify FSA‘s level of independence
and its relationship with other Education offices. The legislation
establishing FSA as a PBO provided that, subject to the secretary‘s
direction, FSA would exercise independent control with respect to
certain functions. To address this issue, Education and FSA, under the
previous administration, developed and signed memorandums of
understanding (MOU) to specify the authorities provided to FSA and
procedures concerning how FSA would interact with other Education
offices. With the arrival of the current administration in January
2001, Education established special interim procedures for all its
department units, including FSA, that were intended to ensure that
personnel and financial resources are managed effectively and
efficiently throughout the department while long term management plans
are being developed. As a result of the interim procedures, Education
now provides greater direction and oversight of FSA than did the
previous administration. Education is currently reviewing FSA‘s role
and responsibilities as part of that overall departmentwide management
planning effort. The results of this planning effort will be used to
make future decisions concerning FSA‘s level of independence and its
relationship to other Education offices, according to Education
officials.
Efforts to Determine FSA‘s Role within the Department Had Been Ongoing
under the Previous Administration:
The legislation establishing FSA as a PBO provided that, subject to the
secretary‘s direction, FSA would exercise independent control with
respect to certain functions. In addition, the secretary in agreement
with the COO, is authorized to allocate to the PBO such other functions
that they determine necessary to achieve the purposes of the PBO.
Interviews with FSA and former Education officials indicated that
together they struggled with balancing the PBO‘s independence and
identifying how the organization fit into the structure of the
department. For example, issues of service duplication with other
Education offices in areas like human resources and information
technology had to be balanced with FSA‘s desire to mold these functions
to meet its mission. To address such issues, the department and FSA,
under the previous administration, developed and signed memorandums of
understanding (MOUs) for human resource management, acquisition and
contracting, and information technology. These documents delegated
certain authorities to the COO and set out policies and guidelines to
be followed because FSA‘s operations in these areas interacted with the
rest of the department. For example, in the area of human resources,
the MOU delegated authority for, among other things, establishing the
performance management system and hiring to FSA. Because some of these
human capital functions required union involvement to complete, the MOU
required FSA to work in consultation with the department to finalize
any changes that impact the terms of the department‘s collective
bargaining agreement.
Education Now Provides Greater Direction and Oversight of FSA; Current
Planning Efforts Will Guide Future Decisions about FSA:
Since the change in administration in January 2001, the department has
been reassessing the MOUs and FSA‘s relationship with the department. In
contrast to the past, FSA is currently subject to special interim
procedures established by the department for all of its units in
January 2001 and updated in September 2001. According to a departmental
memo, the special procedures were put into place to allow the
department to manage its personnel and financial resources in the most
effective and efficient ways possible and in accordance with the
President‘s Management Agenda. An overall strategy for improving the
management and performance of the federal government, the Agenda
specifically includes taking actions that result in FSA‘s student
financial aid programs no longer being designated as high risk by GAO.
The special procedures, for principal offices with senior political
appointees in place, require prior departmental approval to (1)
advertise and fill positions at the senior level, (2) reassign
employees, (3) hire or continue the services of any consultant, or (4)
award any new contracts above $100,000. The special procedures
pertaining to FSA are stricter and the same as those applicable to
principal offices with vacancies at the senior political level. These
procedures require department-level officials to review and act on all
administrative, management, and policy issues. As a result of these
changes, FSA‘s independence has lessened. As previously discussed, for
example, hiring has been problematic in light of the special
departmental procedures and has affected FSA‘s ability to fill about
300 vacancies, according to several FSA officials.
Education responded to the President‘s Management Agenda by developing
its Blueprint for Management Excellence. The Blueprint specifies the
steps it will take to have GAO‘s high-risk designation removed from its
student financial aid programs and addresses other longstanding
management challenges facing the department. As noted in its Blueprint,
the department is reviewing the prior MOUs to ’determine what is and is
not working as intended.“ The Blueprint also provides that after
consultation with the community and members of Congress, the department
will resolve relationship issues between FSA and other department
offices. To help develop comprehensive strategies to implement its
Blueprint, the department is currently working with the National
Academy of Public Administration (NAPA) and the Private Sector Council
(PSC). According to Education officials, decisions concerning FSA as
well as plans to address departmental management challenges will be
based on the results of these efforts. Education expects its work with
NAPA and PSC to result in a final report, scheduled to be issued in June
2002.
Conclusions:
Congress established FSA as a PBO in hopes that doing so would result in
long sought operational changes in its programs. As we have discussed,
elements of PBO reform include an expectation for results in exchange
for flexibility. Although established as a PBO for a relatively short
time, FSA has made important progress in undertaking reforms and its
performance to date, as reflected in gains in customer and employee
satisfaction, shows promise. Despite these gains, FSA needs to make
additional improvements. As a PBO, FSA must ensure that it meets its
obligation to report the progress it is making towards the goals
Congress established for it. Key to reporting results is submitting
complete, useful, and timely information to Congress. Because of the
longstanding concerns over FSA‘s lack of the financial and management
information needed to ensure the integrity of the student financial aid
programs, FSA needs to clearly inform Congress and the public of its
progress in addressing this issue. In particular, FSA needs to improve
its reporting of the progress it is making with regard to implementing
its plans for integrating its student financial aid data systems and
enhancing the integrity of its student loan and grant programs. In
addition, in light of the complexity of FSA‘s unit cost calculation as
well as recent changes in how it calculates costs, it will be important
for FSA to disclose these issues in future performance plans and
reports. FSA also needs to ensure it makes human capital management an
integral part of its strategic approach for accomplishing its mission.
Without doing so, FSA cannot ensure that its workforce is adequately
prepared to meet future challenges and accomplish its mission. In
particular, FSA needs to address critical issues including workforce
planning and development.
Recommendations to the Secretary of Education:
* To ensure that congressional decision makers and the public understand
the measure FSA uses to gauge its performance with respect to the costs
of administering student financial aid programs, we recommend that the
secretary of education direct FSA‘s COO to fully disclose in its
performance plans and subsequent performance reports the bases of its
unit cost calculation and to clarify what costs are included and
excluded from the calculation.
* To ensure accountability for making continued progress toward its
legislative mandate to integrate systems, we recommend that the
secretary of education direct FSA‘s COO, in collaboration with the
secretary, to 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.
* To ensure accountability for enhancing the integrity of its programs,
we recommend that the secretary of education direct FSA‘s COO, in
collaboration with the secretary, to 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 its default management goals.
* To inform Congress about FSA‘s performance and to comply with
statutory requirements, we recommend that the secretary of education and
FSA‘s COO work collaboratively to take the steps necessary to ensure
that complete and timely annual performance reports are submitted to
Congress.
* To ensure that FSA‘s workforce is adequately prepared to meet future
challenges and accomplish its mission, we recommend that the secretary
of education and FSA‘s COO coordinate closely to develop and implement
a comprehensive human capital strategy that incorporates succession
planning and addresses staff development.
Agency Comments:
In written comments on our draft report, Education agreed with our
reported findings and recommendations and discussed its efforts to
address longer term and structural issues that hinder the efficient and
effective performance of FSA and the department. In response to our
recommendation regarding FSA‘s unit cost calculation, Education told us
that it is in the process of working with FSA senior management to
refine the measure and will stop using the current measure in the mid-
year amendment to the FSA 2002 performance plan. In addition, Education
said that it would include a detailed explanation of how unit costs are
calculated in the upcoming annual performance report. Moreover, FSA‘s
performance plan will be revised to establish measurable goals and
milestones for systems integration efforts to provide both direction to
FSA and enhance its accountability. In response to our recommendation
regarding program integrity issues, Education said that it is examining
new performance measures that focus on compliance and risk. Also,
Education said that it is working with FSA to finalize the 2000-2001
annual performance report and told us that it will submit a report that
meets all statutory requirements to Congress soon. Finally, Education
said that it is developing comprehensive strategies integrating human
capital management, competitive sourcing, and restructuring for the
entire Department. As part of this effort, Education said that it would
direct FSA‘s COO to implement and execute the steps in these strategies
that are applicable to FSA‘s goals and objectives. Education also
provided technical clarification, which we incorporated when
appropriate. Education‘s written comments appear in appendix I.
We are sending copies of this report to the secretary of education and
other interested parties. We will also make copies available to others
upon request. This report is available at GAO‘s homepage, [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me on (202) 512-8403 or Jeff Appel at (202) 512-9915. Other
contacts and acknowledgments are listed in appendix II.
Sincerely yours,
Signed by:
Cornelia M. Ashby:
Director, Education, Workforce, and Income Security:
[End of section]
Appendix I: Comments from the Department of Education:
United States Department Of Education:
The Deputy Secretary:
400 Maryland Ave., S.W.
Washington, D.C. 20202-0500:
[hyperlink, http://www.ed.gov]:
"Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation."
April 24, 2002:
Ms. Cornelia M. Ashby:
Director, Education, Workforce and Income Security Issues:
United States General Accounting Office:
Washington, DC 20548:
Dear Ms. Ashby:
Thank you for the opportunity to review and comment on your draft
report, Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability. We appreciate
your providing members of Congress with a report on the Department's
Federal Student Aid (FSA) office's progress since becoming a
performance-based organization (PBO) in 1998 and the challenges it
continues to face.
Overall, we agree with the findings and recommendations in the report.
The Secretary and I view the strategic direction of FSA to be an
integral part of our management improvement efforts within the
Department. FSA's Chief Operating Officer (COO) participates in my
weekly meetings with the Executive Management Team, which consists of
top political appointees and career senior managers who are overseeing
our management improvement process, and he has lead responsibility on
several key management improvement efforts.
The report correctly notes that we have taken steps over the last
several months to provide FSA with greater direction and oversight as
part of this effort. Each week, I meet individually with the COO to
discuss and review FSA management issues. As you note, one of the
benefits of a PBO is to increase accountability by setting specific
measurable goals for the organization, its managers, and its staff. The
Higher Education Act (HEA) provides FSA with a number of procurement
and personnel flexibilities to achieve these targets. However, we
believe that in order to achieve the level of accountability that
Congress expected in establishing a PBO, it is essential that we
provide FSA with strong direction, measurable goals and monitoring of
progress against the goals that we set out.
A year ago, Secretary Paige established a Management Improvement Team
(MIT) of senior career managers to identify, resolve and close our
outstanding management improvement recommendations, and develop a
blueprint to address longer term and structural issues that hinder the
efficient and effective performance of the Department. in October of
last year, the MIT delivered its Blueprint. for Management Excellence,
which contained 140 action improvement recommendations targeted toward
addressing longer term and structural issues that hinder the efficient
and effective performance of the Department, many of which impacted
FSA. Since that date the Management Improvement Team has added another
38 action recommendations. These additional items align with both the
President's Management Agenda released in February and the Department's
Strategic Plan released in March. The Management Improvement Team
actively tracks the Blueprint to ensure successful implementation of
these management items.
One major goal of this Department-wide effort is for FSA to be removed
from the U.S. General Accounting Office's (GAO) list of high-risk
programs by 2003. To reach this goal, we have been following the
specific criteria provided by GAO for reducing student aid risk and
removing the programs from GAO's high-risk list. These criteria were
the result of Secretary Paige's meeting last summer with Comptroller
General Walker, and our continued dialogue with GAO staff to ensure
that we continue to take the necessary steps to reduce risk in the FSA
programs. Our efforts include strengthening FSA's financial management
and internal controls so that relevant, timely information is available
to manage day-to-day operations and provide accountability, and
refocusing FSA's Modernization Blueprint more on information systems
integration. Finally, we have been implementing strategies that build
on FSA's recent success in improving service, but which put greater
emphasis on cutting costs, integrating and improving systems, and
increasing program integrity by increasing program monitoring and
preventing the over award of student aid funds.
We will be addressing many of the findings and recommendations raised
in your report in a mid-year revision to the 2002 performance plans. In
addition, we have attached comments and observations regarding the
recommendations made in the report.
Again, we appreciate the opportunity to comment on the draft report.
Sincerely,
Signed by:
William D. Hansen:
Enclosure:
Comments on GAO Recommendations:
Recommendation: Full public disclosure of the bases for FSA's unit cost
metrics used in performance plans.
We agree with this recommendation and are working with FSA senior
management to refine the unit cost metrics for the 2003 performance
plans to be a more relevant and useful management tool. We believe that
unit cost measures based on business processes are more useful than the
current measures. For example, we are proposing that the unit costs for
the federal student application processing system be measured on a cost
per application. Additionally, in the mid-year amendment to the FSA
performance plan we will be discontinuing the use of the current unit
cost measure that divides costs by the number of unduplicated Federal
student aid recipients because we think its usefulness is severely
limited. Finally, the upcoming performance reports will include a
detailed explanation of how the 2000-2001 unit costs were measured,
including what is included and what is not included.
Recommendation: Develop clear goals, strategies and measures for
integrating FSA's information systems and include these in performance
plans.
We agree with this recommendation. While a comprehensive architecture
plan has been initiated through the FSA Modernization Blueprint and
some integration functionality has been achieved through the
implementation of middleware, we are refocusing FSA's modernization
efforts on reengineering, retiring and implementing new systems that
provide the functionality of multiple current systems. A good example
is the new Common Origination and Disbursement System, which combines
the functions of the old (Pell Grant) Recipient Financial Management
System and the Direct Loan Origination System into one integrated
system that is able to use the new middleware architecture to exchange
information with other systems. While the report notes that FSA's COO
disagreed with the Inspector General's recommendation to include an
overall systems integration in the office's performance plan, the
Secretary and I agree with this recommendation. We have already
included system integration as a goal in our Blueprint for Management
Excellence as well as in the Action Steps for the Department's new
Strategic Plan, and are working with the COO to find additional
integration opportunities and to establish measurable goals and
milestones for the performance plan to provide direction and hold FSA
accountable for these integration activities.
Recommendation: Develop program strategies and measures for improving
program integrity, including measures that better demonstrate whether
FSA technical assistance strategies result in improved compliance among
schools and develop additional strategies for achieving default
management goals.
We generally agree with this recommendation. Training and technical
assistance are only one of a three-part strategy to improve program
integrity. These activities are part of an integrated case management
approach that was initiated before FSA was established as a PBO, which
seeks to integrate the various functions and level of program
oversight.
Under the first part of this strategy, FSA has the basic obligation to
provide training on the numerous FSA program requirements as well as
technical assistance to address questions from the field concerning
these requirements. The second part of this strategy focuses on desk
reviews of independent compliance audits, audited financial statements,
and applications for recertification. This desk review strategy also
includes using the new benefits of better data integration and data
mining technology to examine compliance risk, however, significantly
more work and validation need to be done in this area. The third part
of this strategy is on-site program monitoring.
We share GAO's concern that FSA has put too much emphasis on technical
assistance to the detriment of program monitoring. Since becoming a
PBO, FSA's on-site program reviews have dropped to historic lows,
conducting 136 reviews in FY 2000 and 172 in FY 2001. Several action
items in the Blueprint for Management Excellence require FSA to improve
program monitoring, and our Management Improvement Team is examining
FSA's risk assessment analysis as well as new measures that focus on
compliance and risk. In addition, the Administration has requested that
Congress amend the Internal Revenue Code to allow the Internal Revenue
Service to verify income tax return information with income information
reported by federal student aid applicants in order to prevent over
awards of federal student aid.
Additional strategies for achieving default reduction/management goals
are included in the action steps that are in place to reduce FSA's high-
risk status. We would also note that targeted technical assistance
efforts have helped all historically black colleges and universities to
get their cohort default rates below the statutory sanction levels, and
FSA leadership in sponsoring national meetings has improved the sharing
of best practices in default aversion within the student loan industry.
Recommendation: Submit complete and timely reports to Congress.
We agree with the recommendation. As the report notes, the previous
annual reports that were submitted to Congress in the previous
administration were not complete. During this transition year, my staff
has been working with FSA staff to prepare a 2000-2001 report that
meets all the requirements of the statute. That report is being
finalized and will be submitted to Congress shortly.
Recommendation: Develop and implement a comprehensive human capital
strategy that incorporates succession planning and addresses staff
development.
As you note in the report, we are working with the National Academy of
Public Administration and the Private Sector Council to develop
comprehensive strategies integrating human capital management,
competitive sourcing and restructuring for the entire Department of
Education.
FSA, which represents over one-fourth of the Department's staff, is a
major part of the Department planning process for these strategies.
FSA's Director of Human Resources and his most senior manager
participated in the planning process along with two other FSA managers.
The comprehensive Department human capital management strategy
mentioned in the report is scheduled to be released in a Department
report during June 2002. Although all decisions relating to this
strategy have not yet been made, we can say with certainty that the
strategy includes components related to employee training, succession
planning and other major elements of human capital management
recommended by GAO and the Office of Personnel Management (OPM). Both
GAO and OPM participated in the planning process prior to developing
these strategies.
We share GAO's concerns about FSA's Case Management and Oversight
office, particularly in meeting the current and future on-site
monitoring needs of its regional offices. Moreover, we have had
reservations about FSA management's proposed deployment of staff
resources, and have found its internal human capital to be vague and
lacking.
We would also clarify that a "moratorium" on hiring is not in place.
Decisions on mid- to high-level staff positions are subject to my
review and approval, in order to ensure that the numbers of middle
management positions are kept under control, and new positions reflect
areas of the Department's needs and priorities. With regard to the
review of FSA hiring requests, we placed priority on filling vacancies
or increased workload in key areas such as system integration,
accounting and financial management, and program integrity which were
approved expeditiously. However, most of the requests FSA submitted
during the period mentioned in the report were for internal promotions
near the top levels of the General Schedule or sought to create new
highly-compensated positions in non-critical areas, and as a result
were denied or not acted on.
We are also close to implementing a new employee appraisal process that
emphasizes accountability. Every senior officer, including myself, will
sign a performance contract with Secretary Paige that will hold us
accountable for results. Every manager and employee will have a
performance agreement that reflects the Department's goals and
objectives, and establishes clear individual job performance
expectations. Moreover, this process will incorporate specific
President's Management Agenda, Blueprint for Management Excellence and
Strategic Plan items, establishing accountability for all our
employees, especially those in FSA to work together. GAO can be assured
that the Secretary, following the recommendations in this report and
those made earlier, will direct FSA's COO to implement and execute the
steps in the Department's human capital management, competitive
sourcing, and restructuring strategies that are applicable to FSA's
goals and objectives.
[End of section]
Appendix II: GAO Acknowledgments and Contacts:
GAO Contacts:
Jeff Appel, (202) 512-9915:
Gilly Martin, (202) 512-8330:
Staff Acknowledgments:
In addition to those named above, the following people made significant
contributions to this report: Jonathan Barker, Patricia Bundy, Patrick
DiBattista, Joy Gambino, Simin Ho, and Judith Kordahl.
[End of section]
Footnotes:
[1] Financial aid programs are administered by an office previously
known as the Office of Student Financial Assistance (SFA). The name of
SFA was changed to Federal Student Aid on March 6, 2002.
[2] U.S. General Accounting Office, High-Risk Series: Student Financial
Aid, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HR-95-10]
(Washington, D.C.: Feb. 1, 1995); High-Risk Program: Information on
Selected High-Risk Areas, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/HR-97-30] (Washington, D.C.: May 16, 1997); High-Risk
Series: An Update, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HR-
99-1] (Washington D.C.: Jan. 1, 1999); and High-Risk Series: An Update,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-263] (Washington,
D.C.: Jan. 1, 2001). The former Guaranteed Student Loan Program, now
called the Federal Family Education Loan Program, was included in our
original 1990 list; in 1995 we revised this designation to include all
student financial aid programs included in Title IV of the Higher
Education Act of 1965 (commonly referred to as title IV financial aid
or title IV programs).
[3] To address many long-standing management challenges facing the
department, the secretary of Education established a team of senior
managers and employees”the management improvement team (MIT)”-to
address short-term management recommendations and develop a plan to
address longer-term and structural issues. The MIT is charged with
several responsibilities, most notably to obtain a clean audit opinion
from the department‘s auditors, have GAO‘s high-risk designation
removed for FSA programs, put in place an effective system of internal
controls, and provide a structure for measuring progress toward solving
identified problems. The Blueprint for Management Excellence published
by the department in October 2001, specifies the department‘s plans to
address these responsibilities.
[4] U.S. General Accounting Office, Human Capital: A Self-Assessment
Checklist for Agency Leaders, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/OCG-00-14G] (Washington, D.C.: Sept. 1, 2000). See also
U.S. General Accounting Office, A Model of Strategic Human Capital
Management, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-373SP]
(Washington, D.C.: March 15, 2002) for our more recent tool intended to
help federal agency leaders better manage their human capital.
[5] U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: Aug. 2001).
[6] State and private nonprofit guaranty agencies act as agents of the
federal government, providing a variety of services, including payment
of defaulted loans, collection of some defaulted loans, default-
avoidance activities, and counseling to schools and students.
[7] Campus-based programs, which include the Federal Work-Study
Program, the Federal Perkins Loan Program, and the Federal Supplemental
Educational Opportunity Grant Program, are administered jointly by FSA
and postsecondary institutions.
[8] U.S. General Accounting Office, Managing for Results: Emerging
Benefits from Selected Agencies‘ Use of Performance Agreements,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-115] (Washington,
D.C.: Oct. 30, 2000).
[9] According to the Statements of Federal Financial Accounting
Concepts and Standards (SFFACS), Appendix E: Consolidated Glossary,
full cost refers to the total amount of resources used to produce the
output. More specifically, the full cost of an output produced by a
responsibility segment is the sum of (1) the costs of resources
consumed by the responsibility segment that directly or indirectly
contribute to the output, and (2) the costs of identifiable supporting
services provided by other responsibility segments within the reporting
entity and by other reporting entities (SFFAS No. 4. Managerial Cost
Accounting Concepts and Standards for the Federal Government, para. 89)
According to OMB Circular No. A-25 Revised, full cost includes all
direct and indirect costs to any part of the federal government of
providing a good, resource, or service.
[10] Statements of Federal Financial Accounting Standards, No. 4
Managerial Cost Accounting Standards in Basis for Conclusions,
paragraph 201.
[11] Statements of Federal Financial Accounting Standards, No. 4
Managerial Cost Accounting Standards, paragraph 64.
[12] U.S. General Accounting Office, Student Financial Aid Information:
Systems Architecture Needed to Improve Programs‘ Efficiency,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-122]
(Washington, D.C.: July 29, 1997).
[13] We have not assessed the adequacy of this FSA architecture.
[14] U.S. General Accounting Office, Student Financial Aid: Use of
Middleware for Systems Integrations Holds Promise, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-7] (Washington, D.C.: Nov.
2001).
[15] Department of Education, Office of the Inspector General,
Inspection Memorandum: Review of Student Financial Assistance‘s
Performance Plan, ED-OIG/A&I 2001-02 (Washington, D.C.: 2001).
[16] The National Directory of New Hires (NDNH) includes information
from state and/or federal agencies on employers‘ new hires, quarterly
wages, and unemployment insurance. The purpose of the NDNH is to
provide a national repository of employment and unemployment insurance
information to help state child support enforcement agencies locate
noncustodial parents and establish and enforce child support orders,
especially across state lines. In 1999, authorized access to the NDNH,
which is maintained by the Department of Health and Human Services‘
Office of Child Support Enforcement, was expanded to include
collections of defaulted student loans.
[17] The concept of the balanced scorecard was originally introduced by
Robert Kaplan and David Norton in ’The Balanced Scorecard: Measures
That Drive Performance,“ Harvard Business Review, Jan/Feb (1992).
[18] FSA prepared a draft Human Capital and Competitive Sourcing Plan
for FY 2002-FY 2003 dated December 10, 2001.
[19] According to a FSA official, the fiscal year 2002 performance
agreements are based not only on the FSA performance plan but also the
department‘s draft 2002-2007 Strategic Plan, the President‘s Management
Agenda, and the Blueprint for Management Excellence. The President‘s
Management Agenda is discussed in more detail later in this report.
[20] One of the requirements of the PBO legislation is that FSA report
the evaluation rating for the COO and senior managers in its annual
report. However, as previously discussed, FSA and Education have not
yet submitted the report to Congress. FSA officials told us that the
COO‘s fiscal year 2001 bonus was based on the department‘s assessment
of the degree to which FSA met its organizational goals; senior
managers‘ bonuses were based on the criteria discussed above.
[21] Because the fiscal year 2000 annual report was not submitted to
Congress, information pertaining to bonuses, among other things, was
not made public. In fiscal year 2000, the COO received a bonus of
$47,213 and 14 other senior managers received bonuses ranging from
$6,000 to $32,000. Staff received a bonus equivalent to 97.5 percent of
their pay for one biweekly period.
[22] See U.S. General Accounting Office, Human Capital: A Self-
Assessment Checklist for Agency Leaders, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/OCG-00-14G] (Washington, D.C.:
Sept. 1, 2000) and A Model of Strategic Human Capital Management,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-373SP]
(Washington, D.C.: Mar. 15, 2002).
[23] See U.S. General Accounting Office, Human Capital: Key Principles
From Nine Private Sector Organizations, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-00-28] (Washington, D.C.:
Jan. 31, 2000).
[24] The department already has an Individual Development Plan tool in
place. However, employee use of this tool is voluntary and not
systemically encouraged. According to one department official, use of
the IDP is extremely limited.
[25] FSA currently operates under the department‘s pass/fail appraisal
system.
[26] The American Federation of Government Employees, Council 252,
represents all eligible employees of Education, including those in FSA.
[End of section]
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