Response to the Department of Education's Request to Reconsider the High-Risk Designation of Federal Student Aid Programs
Gao ID: GAO-03-885R June 9, 2003
This letter is in response to the Secretary of Education's May 2, 2003, letter requesting that we make a commitment to reconsider by early this summer our high-risk designation of the Department of Education's Student Financial Aid (SFA) programs. In that letter, the Secretary of Education outlined how the department has addressed many of the concerns we have identified and the plans it has underway for continued improvements, as well as its plans to update Federal Student Aid's (FSA) Five-Year Performance Plan. In order to help ensure that planned and completed actions address the issues raised in our recent High-Risk and Performance and Accountability reports, Education offered to provide a series of briefings to our key managers on: plans and progress for sustaining the clean opinion on the department's financial statements; FSA progress on its modernization efforts and FSA Data Strategies Framework; FSA program integrity initiatives, including FSA default prevention and collection strategies; and progress on One-ED (the department's human capital planning initiative).
The department has taken actions over the last several years to improve its financial management and the weaknesses identified. Significant progress was made recently when the department received an unqualified--or "clean"--opinion on its financial statements for fiscal year 2002. While this is an important milestone, significant management weaknesses remain that must be addressed in the other two key measurements we identified, which are discussed in more detail below. In addition, it is important that the department demonstrate that it can sustain the clean opinion, as well as other improvements that are made. The department first received an unqualified audit opinion on its fiscal year 1997 financial statements, but was not able to sustain that result, nor repeat it until this year. The first key measure that remains a weakness is compliance with the Federal Financial Management Improvement Act of 1996 (FFMIA). FFMIA requires agencies to institute financial management systems that substantially comply with federal financial management systems requirements, applicable accounting standards, and the federal government's Standard General Ledger. Every year since FFMIA was enacted, the department's auditors have reported that the department's systems did not substantially comply with the act's requirements. This continued for fiscal year 2002. According to the auditors, although the department implemented a new financial management system during fiscal year 2002, issues associated with the transition to the new system contributed to difficulties in providing reliable, timely information for managing current operations and timely reporting of financial information to central agencies. The auditors also reported that the department needs to address identified computer security weaknesses in its financial management and other information systems. The second key measure that remains uncorrected is material internal control weaknesses identified in the financial statement audits. The department's auditors have consistently reported major internal control weaknesses related to financial management systems and financial reporting. In fiscal year 2002, the auditor again reported that significant financial management issues continued to impair the department's ability to accumulate, analyze, and present reliable financial information. While the auditor reported improvements in the latter part of the fiscal year, they reported that they continue to believe that the department needs to place additional focus on reconciliation procedures, account analysis, and financial reporting. Until these issues are fully resolved, the department's ability to produce timely, accurate, and useful financial information for its managers and stakeholders will be greatly impeded. Although we decline to commit to reconsider our January 2003 decision to classify the SFA program as high risk at this time, we will continue to work with the department to ensure that we are informed about and have validated the progress made in resolving these issues and sustaining improvement in all three areas. This proactive approach, which includes consideration of our ongoing work as well as that of the department's outside auditors and the Inspector General, will enable us to promptly assess progress made and challenges that remain in preparation for the next high-risk cycle. In this regard, our next high-risk list is scheduled for publication in January 2005.
GAO-03-885R, Response to the Department of Education's Request to Reconsider the High-Risk Designation of Federal Student Aid Programs
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Reconsider the High-Risk Designation of Federal Student Aid Programs'
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June 9, 2003:
The Honorable Rod Paige:
The Secretary of Education:
Subject: Response to the Department of Education's Request to
Reconsider the High-Risk Designation of Federal Student Aid Programs:
Dear Mr. Secretary:
This letter is in response to your May 2, 2003, letter requesting that
we make a commitment to reconsider by early this summer our high-risk
designation of the Department of Education's Student Financial Aid
(SFA) programs. In that letter you outlined how the department has
addressed many of the concerns we have identified and the plans it has
underway for continued improvements, as well as its plans to update
Federal Student Aid's (FSA) Five-Year Performance Plan. In order to
help ensure that planned and completed actions address the issues
raised in our recent High-Risk and Performance and Accountability
reports, you offered to provide a series of briefings to our key
managers on:
* plans and progress for sustaining the clean opinion on the
department's financial statements;
* FSA progress on its modernization efforts and FSA Data Strategies
Framework;
* FSA program integrity initiatives, including FSA default prevention
and collection strategies; and:
* progress on One-ED (the department's human capital planning
initiative).
We accept the offer to attend these briefings and look forward to the
opportunity to keep informed of significant progress toward resolving
management issues and sustaining improvement in SFA programs.
In 1990, we began our program of reporting on government operations
that we identified as high risk. Since then, generally coinciding with
the start of each new Congress, we have periodically reported on the
status of progress to address high-risk areas and updated our high-risk
list. In our January 2003 update[Footnote 1] for the new 108th
Congress, we identified the following actions related to SFA programs
as remaining to be completed by the department:
continue with systems integration and improve plans and reports to
better demonstrate progress,
make comprehensive improvements to address financial management and
internal control weaknesses,
improve plans and reports to clearly explain strategies for achieving
default management goals, and:
continue implementation of strategic human capital measures, including
succession planning and staff development.
Previously, at the department's request, specific actions needed to
address each of these areas were provided to the department in the
attached copy of our letter of August 1, 2001, to Deputy Secretary
William Hansen. In that letter we compiled a summary of major actions
that are critical in addressing the underlying root causes that have
resulted in the high-risk designation of SFA programs measured against
criteria we use for designation of programs as high risk. For example,
the attachment to that letter lays out the following three key
measurements of sound financial management for the department and FSA:
an unqualified audit opinion on the department's financial statements,
full compliance with the Federal Financial Management Improvement Act
(FFMIA) of 1996, and:
correction of material internal control weaknesses identified in the
financial statement audit:
The department has taken actions over the last several years to improve
its financial management and the weaknesses identified. Significant
progress was made recently when the department received an unqualified
- or "clean" - opinion on its financial statements for fiscal year
2002. While this is an important milestone, significant management
weaknesses remain that must be addressed in the other two key
measurements we identified, which are discussed in more detail below.
In addition, it is important that the department demonstrate that it
can sustain the clean opinion, as well as other improvements that are
made. As you know, the department first received an unqualified audit
opinion on its fiscal year 1997 financial statements, but was not able
to sustain that result, nor repeat it until this year.
The first key measure that remains a weakness is compliance with FFMIA.
FFMIA requires agencies to institute financial management systems that
substantially comply with federal financial management systems
requirements, applicable accounting standards, and the federal
government's Standard General Ledger. Every year since FFMIA was
enacted, the department's auditors have reported that the department's
systems did not substantially comply with the act's requirements. This
continued for fiscal year 2002. According to the auditors, although the
department implemented a new financial management system during fiscal
year 2002, issues associated with the transition to the new system
contributed to difficulties in providing reliable, timely information
for managing current operations and timely reporting of financial
information to central agencies. The auditors also reported that the
department needs to address identified computer security weaknesses in
its financial management and other information systems.
The second key measure that remains uncorrected is material internal
control weaknesses identified in the financial statement audits. The
department's auditors have consistently reported major internal control
weaknesses related to financial management systems and financial
reporting. In fiscal year 2002, the auditor again reported that
significant financial management issues continued to impair the
department's ability to accumulate, analyze, and present reliable
financial information. While the auditor reported improvements in the
latter part of the fiscal year, they reported that they continue to
believe that the department needs to place additional focus on
reconciliation procedures, account analysis, and financial reporting.
Until these issues are fully resolved, the department's ability to
produce timely, accurate, and useful financial information for its
managers and stakeholders will be greatly impeded.
Designations of programs as high risk because of their greater
vulnerabilities to waste, fraud, abuse, and mismanagement, as well as
removal of programs' high-risk designations, are the independent and
objective judgment of GAO professionals. One of the key factors that
enters into the judgment regarding removal of the designation is
whether the corrective measures are effective and can be sustained. We
have developed and will continue to refine the criteria we use to form
judgments on removing high-risk designations. At the time of our
January 2003 update to the Congress, agencies were required to have
accomplished the following steps before a program's high-risk
designation could be removed:
a demonstrated strong commitment and top leadership support to address
the risk(s);
the capacity (that is, the people and other resources) to resolve the
risk(s);
a corrective action plan(s) that defines the root causes, identifies
effective solutions, and provides for substantially completing
corrective measures near term, including but not limited to, steps
necessary to implement solutions we recommended;
a program to monitor and independently validate the effectiveness and
sustainability of corrective measures; and:
the ability to demonstrate progress in implementing corrective
measures.
We are impressed with the level of commitment to addressing the factors
that resulted in this high-risk designation, and progress has clearly
been made. However, in our independent and professional judgment as of
January 2003, the SFA programs did not fully satisfy the criteria for
removal from the high-risk list, largely because of the remaining
financial management issues. In addition, it is not our policy to
address high-risk designations "out of cycle." One key reason for this
is to allow enough time between assessments to demonstrate the
sustainability of corrective measures. Furthermore, providing for an
out of cycle assessment for the Department of Education would set a
precedent that would result in other agencies asking for such interim
determinations. This would result in a significant unplanned use of
resources that would adversely affect our ability to meet congressional
mandates and requests on time.
Thus, although we decline to commit to reconsider our January 2003
decision to classify the SFA program as high risk at this time, we will
continue to work with the department to ensure that we are informed
about and have validated the progress made in resolving these issues
and sustaining improvement in all three areas. This proactive approach,
which includes consideration of our ongoing work as well as that of the
department's outside auditors and the Inspector General, will enable us
to promptly assess progress made and challenges that remain in
preparation for the next high-risk cycle. In this regard, our next
high-risk list is scheduled for publication in January 2005.
We are sending copies of this report to the Secretary of Education and
the department's congressional oversight committees. We are also
sending copies to the Subcommittee on Government Efficiency and
Financial Management, House Committee on Government Reform, the Senate
Committee on Governmental Affairs, and other interested parties.
We remain encouraged by the department's commitment to addressing these
important challenges. We look forward to continuing to work with you in
the future on these very important issues.
Sincerely yours,
David M. Walker:
Comptroller General of the United States:
Signed by David M. Walker:
Enclosure:
Enclosure:
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FOOTNOTES
[1] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).
