Office of Federal Student Aid
Better Strategic and Human Capital Planning Would Help Sustain Management Progress Gao ID: GAO-05-31 October 6, 2004In 2003, the Department of Education's Office of Federal Student Aid (FSA) managed about $60 billion in new financial aid. In 1998, the Congress designated FSA as a performance-based organization. In so doing, it specified purposes for the agency, such as to reduce program costs and increase accountability of its officials, and provided flexibilities such as allowing FSA to pay bonuses. Also FSA is required to annually prepare a performance plan and report and have performance agreements for its senior officials. Past reviews revealed serious problems and concerns about FSA's management. In January 2003, GAO reported that FSA had made progress but had not sufficiently addressed some key management issues. Also, GAO noted that FSA, like other agencies needed to address human capital issues. GAO assessed FSA's progress in (1) addressing key management issues and meeting requirements for planning and reporting, and (2) developing a human capital strategy and increasing the accountability of its officials.
FSA has made progress addressing its key management issues; however, its plans and reports do not contain all the required information needed by the Congress and the public to assess FSA's progress in achieving its goals and purposes. FSA's significant improvements in its financial management and internal control are reflected in its receiving an unqualified or "clean" opinion on its financial statements for fiscal years 2002 and 2003. In addition, FSA's fiscal year 2003 financial audit did not identify any material internal control weaknesses. FSA has also made progress in other areas, but to a lesser extent. FSA completed several critical systems integration tasks, but full systems integration is several years away. In addition, FSA has addressed many program integrity issues--factors that could affect the vulnerability of student aid programs to fraud, waste, and abuse--but has not developed guidance to ensure that its comprehensive compliance reviews are being performed as expected. Furthermore, FSA has developed a cost model that has the potential to identify the full cost of its activities and changes in costs over time, but as of July 2004, the model was not fully operational. As a result, FSA has not been able to demonstrate that it has reduced the cost of administering its programs. Also, FSA issued a 5-year performance plan and annual performance reports, but neither included specific measures needed to determine whether FSA has made progress toward meeting its longer-term strategic objectives. FSA has developed a comprehensive human capital strategy and has taken steps to increase the accountability of most of its officials, but some of the human capital strategy's components and the accountability system have weaknesses. FSA's human capital plan describes the agency's human capital strategy and the strategy's components. For example, FSA has a draft succession plan to prepare for the retirement of key staff. However, this plan has weaknesses. The draft succession plan shows that the agency will redistribute the duties of most retiring staff but does not discuss how the agency will develop the skills of remaining staff to take over new responsibilities. To increase the accountability of its officials, FSA changed from a pass-fail to multilevel performance appraisal systems for its senior officials and included job-specific goals in their performance agreements based on their areas of responsibility. FSA also changed the way it awards performance bonuses, but the criteria were not clear.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-31, Office of Federal Student Aid: Better Strategic and Human Capital Would Help Sustain Management Progress
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
October 2004:
Office of Federal Student Aid:
Better Strategic and Human Capital Planning Would Help Sustain
Management Progress:
GAO-05-31:
GAO Highlights:
Highlights of GAO-05-31, a report to congressional committees:
Why GAO Did This Study:
In 2003, the Department of Education‘s Office of Federal Student Aid
(FSA) managed about $60 billion in new financial aid. In 1998, the
Congress designated FSA as a performance-based organization. In so
doing, it specified purposes for the agency, such as to reduce program
costs and increase accountability of its officials, and provided
flexibilities such as allowing FSA to pay bonuses. Also FSA is
required to annually prepare a performance plan and report and have
performance agreements for its senior officials. Past reviews revealed
serious problems and concerns about FSA‘s management. In January 2003,
GAO reported that FSA had made progress but had not sufficiently
addressed some key management issues. Also, GAO noted that FSA, like
other agencies needed to address human capital issues. GAO assessed
FSA‘s progress in (1) addressing key management issues and meeting
requirements for planning and reporting, and (2) developing a human
capital strategy and increasing the accountability of its officials.
What GAO Found:
FSA has made progress addressing its key management issues; however,
its plans and reports do not contain all the required information
needed by the Congress and the public to assess FSA‘s progress in
achieving its goals and purposes. FSA‘s significant improvements in
its financial management and internal control are reflected in its
receiving an unqualified or ’clean“ opinion on its financial statements
for fiscal years 2002 and 2003. In addition, FSA‘s fiscal year 2003
financial audit did not identify any material internal control
weaknesses. FSA has also made progress in other areas, but to a lesser
extent. FSA completed several critical systems integration tasks, but
full systems integration is several years away. In addition, FSA has
addressed many program integrity issues”factors that could affect the
vulnerability of student aid programs to fraud, waste, and abuse”but
has not developed guidance to ensure that its comprehensive compliance
reviews are being performed as expected. Furthermore, FSA has developed
a cost model that has the potential to identify the full cost of its
activities and changes in costs over time, but as of July 2004, the
model was not fully operational. As a result, FSA has not been able to
demonstrate that it has reduced the cost of administering its programs.
Also, FSA issued a 5-year performance plan and annual performance
reports, but neither included specific measures needed to determine
whether FSA has made progress toward meeting its longer-term strategic
objectives.
FSA has developed a comprehensive human capital strategy and has taken
steps to increase the accountability of most of its officials, but some
of the human capital strategy‘s components and the accountability
system have weaknesses. FSA‘s human capital plan describes the agency‘s
human capital strategy and the strategy‘s components. For example, FSA
has a draft succession plan to prepare for the retirement of key staff.
However, this plan has weaknesses. The draft succession plan shows that
the agency will redistribute the duties of most retiring staff but does
not discuss how the agency will develop the skills of remaining staff
to take over new responsibilities. To increase the accountability of
its officials, FSA changed from a pass-fail to multilevel performance
appraisal systems for its senior officials and included job-specific
goals in their performance agreements based on their areas of
responsibility. FSA also changed the way it awards performance bonuses,
but the criteria were not clear.
What GAO Recommends:
GAO recommends that FSA (1) issue guidance for performing comprehensive
compliance reviews, (2) include measures and goals in its performance
plans and reports, (3) revise its succession plan, (4) evaluate human
capital initiatives, and (5) clarify the criteria for awarding bonuses.
FSA generally agreed with our recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-31.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Conelia Ashby at (202)
512-8403 or ashbyc@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
FSA Has Made Progress Addressing Key Issues, but Has Not Completely
Fulfilled Its Planning and Reporting Responsibilities:
FSA Has Developed a Human Capital Strategy and Taken Steps to Increase
the Accountability of Officials, but Both Efforts Have Weaknesses:
FSA Has Taken Steps to Increase the Accountability of Officials, but
Its Criteria for Awarding Bonuses Are Not Clear:
Conclusions:
Recommendations to the Secretary of Education:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Overall Approach:
Objective I: Key Management Issues:
Objective II: Human Capital:
Appendix II: GAO Recommendations to Education Related to Student
Financial Aid and Status of Their Implementation:
Appendix III: Definitions of Systems Supporting FSA's Student Aid
Programs:
Appendix IV: Comments from the U.S. Department of Education:
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Related GAO Products:
Table:
Table 1: Components of FSA's Human Capital Strategy:
Figures:
Figure 1: Organizational Structure of Federal Student Aid:
Figure 2: FSA's Approach for Integrating Its Information Systems:
Figure 3. FSA's Activity-Based Cost Model:
Figure 4: Illustration of a Segment of FSA's Annual Plan:
Figure 5: Selections from FSA's Skills Catalog: FSA's Office of the
Chief Financial Officer:
Figure 6: Change in FSA's Performance Agreements from Organizational
Goals in Fiscal Year 2002 to Individual Goals in Fiscal Year 2003:
Abbreviations:
ABC: activity-based cost:
ASEDS: Application, School Eligibility, and Delivery Unit:
CFO: Chief Financial Officer:
COD: Common Origination and Disbursement:
COO: Chief Operating Officer:
FAFSA: Free Application for Federal Student Aid:
FFEL: Federal Family Education Loan:
FFMIA: Federal Financial Management Improvement Act:
FMFIA: Federal Managers' Financial Integrity Act:
FSA: Office of Federal Student Aid:
GPRA: Government Performance and Results Act:
HEA: Higher Education Act:
IRS: Internal Revenue Service:
MIT: Management Improvement Team:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
OPM: Office of Personnel Management:
PBO: performance-based organization:
SES: Senior Executive Service:
SFFAS: Statements of Federal Financial Accounting Standards:
United States Government Accountability Office:
Washington, DC 20548:
October 6, 2004:
The Honorable Judd Gregg:
Chairman:
The Honorable Edward M. Kennedy:
Ranking Minority Member:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable John A. Boehner:
Chairman:
The Honorable George Miller:
Ranking Minority Member:
Committee on Education and the Workforce:
House of Representatives:
The Department of Education's (Education) Office of Federal Student Aid
(FSA) administered over $60 billion in new federal student aid to
approximately 9 million students in 2003. FSA describes its mission as
helping to put America through school by providing access to higher
education through effective and efficient delivery of student aid.
However, past audits and reviews revealed that the agency has
encountered some problems accomplishing this mission. Consequently, we
designated student financial aid programs as high-risk in 1990 because
of concerns about fraud, waste, abuse, and mismanagement of the
billions of dollars in student financial aid.[Footnote 1]
In 1998, when the Congress amended the Higher Education Act (HEA), it
designated FSA as a performance-based organization (PBO) and authorized
the agency to operate without the constraints of certain rules and
regulations for the purpose of achieving specific measurable goals and
objectives. This flexibility was intended to allow FSA to better
address long-standing management weaknesses and enhance its delivery of
student financial aid. The Congress designated several purposes for
FSA, including reducing costs of administering the program and
increasing accountability of officials. In addition, the Congress
required that FSA annually issue (1) a 5-year performance plan that
establishes measurable goals and objectives for the organization and
(2) performance reports showing progress toward achieving its
measurable goals and objectives in accordance with applicable
requirements under the Chief Financial Officer (CFO) Act and the
Government Performance and Results Act (GPRA)[Footnote 2]. While FSA
had developed new management strategies and had made some progress
improving its operations, Education's Office of Inspector General (OIG)
and we found that FSA had not sufficiently addressed management
weaknesses, identified reductions in cost, prepared 5-year performance
plans, or submitted useful and timely reports. Specifically, we
reported in January 2003 that FSA needed to take further actions in
several key management areas, and we identified human capital
management as one of the key challenges facing FSA and agencies
governmentwide.[Footnote 3]
Since we completed the work for our January 2003 report, FSA has
further attempted to address our concerns. We have undertaken this
effort to examine the extent to which FSA has made progress (1)
addressing key management issues related to financial management and
internal control, systems integration, program integrity,[Footnote 4]
the costs of administering its programs, and fulfilling its planning
and reporting responsibilities, and (2) establishing a comprehensive
human capital strategy and increasing the accountability of its
officials.
To assess FSA's progress in these areas, we reviewed and analyzed
several documents such as auditors' reports on FSA's financial
statements and internal control for fiscal years 2002 and 2003, annual
performance plans and reports, and its 5-year performance plan. We also
analyzed FSA's systems plans and related documentation, as well as the
performance agreements and evaluations of its senior managers. We
interviewed officials from FSA, Education's OIG, and Education's
Management Improvement Team (MIT),[Footnote 5] as well as union
officials. We conducted our work between November 2003 and August 2004
in accordance with generally accepted government auditing standards.
For more details about our scope and methodology, see appendix I.
Results in Brief:
FSA has made progress addressing key issues in the areas of financial
management and internal control, systems integration, program
integrity, and determining the cost of administering its programs, but
FSA's 5-year performance plan and its annual performance reports do not
meet all HEA and GPRA requirements. The extent of FSA's progress in
addressing key management issues varied among the issues. FSA made
significant progress in addressing its financial management and
internal control weaknesses as reflected in its receipt of an
unqualified, or "clean," opinion on its financial statements for fiscal
years 2002 and 2003. In addition, FSA's auditors did not identify any
material internal control weaknesses in FSA's fiscal year 2003 audit.
FSA also made progress in improving program integrity and in
implementing an activity-based cost model to assist it in identifying
the full cost of its activities. Although FSA completed several
critical systems integration tasks, it remains several years from
operating in a fully integrated information systems environment. FSA
also made progress toward fulfilling its planning and reporting
responsibilities by issuing its first 5-year performance plan in June
2004. However, this plan did not include performance measures needed to
assess progress over time, and its 2003 performance report did not
clearly indicate progress toward meeting its long-term strategic
objectives.
FSA has developed a comprehensive human capital strategy and taken
steps to increase the accountability of most officials, but some of the
human capital strategy's components and the accountability system have
weaknesses. According to FSA officials, the agency has collaborated
with an organization that specializes in government workforce issues to
complete its human capital plan that summarizes the agency's human
capital strategy and its components. Based on our review of its plan,
FSA's human capital strategy includes many of the practices of leading
organizations. For example, the document identifies challenges that FSA
will likely face in coming years such as addressing the skills of its
staff. However, there are also weaknesses in some of the strategy's
components. For example, FSA's succession plan shows that staff in
nearly 250 key positions are likely to retire and the agency will
redistribute the duties to existing staff for 140 of these positions,
but it does not address how the agency will develop the skills of
remaining staff to take over these new duties. Further, FSA has not
fully evaluated the usefulness of its learning coupon--a $500 benefit
staff can use to pay for external training courses. To increase the
accountability of its senior officials, FSA changed from a pass-fail to
multilevel performance appraisal systems and emphasized achievement of
individual goals in their performance agreements. FSA also changed the
criteria for awarding bonuses to its senior officials. However, none of
those we asked could explain the new criteria.
We are making several recommendations to the Secretary of Education and
FSA's Chief Operating Officer that would allow the agency to better
determine and communicate its progress in achieving its strategic
objectives, strengthen efforts to improve program integrity, and
improve the components of its human capital strategy.
FSA's Chief Operating Officer provided written comments on a draft of
this report. In commenting on the draft, FSA generally agreed with our
findings and recommendations. Copies of the written comments are in
appendix IV.
Background:
FSA manages and administers student financial aid programs authorized
under Title IV of the HEA, as amended. These programs include the
William D. Ford Federal Direct Loan Program (Direct Loans), the Federal
Family Education Loan Program (FFEL), the Federal Pell Grant Program
(Pell Grants), and campus-based programs.[Footnote 6] The student aid
environment is complex and involves a large number of parties. In 2003,
about 6,600 schools, 3,700 lenders, and 36 guaranty agencies
participated in the Title IV student aid programs.[Footnote 7]
Additionally, there are numerous information systems, federal financial
requirements, programmatic regulations, and human capital issues that
also affect the delivery of student financial aid.
For many years, the Department of Education designed technology systems
and processes to accommodate each financial aid program as it was
developed. As the demand for the programs grew, so did the number of
systems needed to support institutional participation, student
eligibility determination, aid disbursement, operational accounting,
and financial record keeping for the many disparate programs involved.
After 30 years of such practices, the department was left with stand-
alone information systems and separate delivery processes that were not
integrated with one another. Consequently, student aid delivery became
replete with redundant data, rising costs, complex rules, and
inefficiency for everyone involved. The process to gain access to
student financial aid programs required users, such as an educational
institution's financial aid or accounting staff, to continually log in
and out of different systems for related aid information on students
for each program. Accessing the student information for each FSA
program often required the use of different school identifiers and
passwords, and users often did not have the ability to retrieve
necessary information when they did gain access. We previously reported
that the problem of not having access to current, accurate information
sometimes led to loans and grants being improperly awarded.[Footnote 8]
In 1999 FSA began implementing a strategy to integrate its many
disparate systems.
In response to the growing complexity, increasing demand, and the
likelihood for fraud, waste, and abuse associated with the student aid
programs, the Congress established FSA as the government's first PBO in
October 1998.[Footnote 9] 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 greater flexibility in management;
* integrate information systems;
* implement an open, common, integrated delivery system; and:
* develop and maintain a financial aid system containing complete,
accurate, and timely data to ensure program integrity.
FSA's enabling legislation also established several requirements and
provided certain flexibilities. These requirements included the
appointment of a chief operating officer (COO), the establishment of a
fair and equitable system for measuring staff performance, and the
development of annual performance agreements for the COO and other
senior managers. In exchange for increased accountability, the
legislation allows for the payment of performance bonuses to the COO
and senior managers hired under the excepted service hiring authority,
and the law allows FSA to hire an unlimited number of Senior Executive
Service (SES) personnel and a limited number of excepted service
technical/professional staff.
Additionally, the law established several annual reporting requirements
to inform the Congress and the public of the progress that FSA was
making toward achieving its intended purposes and goals. Specifically,
among other things, FSA must (1) develop and publicly release each year
a 5-year performance plan that includes measurable goals and objectives
as well as the action steps necessary to achieve a modernized student
financial assistance delivery system and (2) provide an annual report
to the Congress that describes the results achieved relative to its
goals and objectives. The annual performance report must include (1) a
copy of the current year's independent financial audit report; (2) a
discussion of financial and performance requirements applicable to the
PBO under the CFO Act and GPRA, (3) results achieved in the previous
year; (4) evaluation ratings of the COO and senior managers, including
the amounts of bonus compensation awarded to these individuals; (5)
recommendations for legislative and regulatory changes; and (6) other
such information required by the Director of the Office of Management
and Budget (OMB). The planning and reporting requirements are
consistent with federal reform laws, such as the CFO Act, GPRA, Federal
Managers' Financial Integrity Act (FMFIA), Federal Financial Management
Improvement Act (FFMIA), and others intended to reshape the way
government conducts its business.
FSA's budget supports its staff, contractors, and day-to-day
operations. In fiscal year 2004, FSA's operating budget was $621
million.[Footnote 10] FSA worked with about 3,800 contractors and
employed about 1,100 staff. As of June 2004, FSA had 10 organizational
units at its headquarters in Washington, D.C., and some of these units
also have regional offices in 10 states nationwide. Figure 1
illustrates the organizational structure of its headquarters office.
Figure 1: Organizational Structure of Federal Student Aid:
[See PDF for image]
[A] The FSA Ombudsman informally resolves complaints from student loan
borrowers and makes recommendations for improving service within FSA.
[B] Responsibilities of Financial Partners Services include providing
business services, support, and oversight to lenders and guaranty
agencies.
[C] Workforce Support Services is referred to hereafter as human
capital.
[End of figure]
Federal agencies, including FSA, face human capital challenges.
Recognizing this, in 2001 GAO designated strategic human capital
management as a governmentwide high-risk area. With respect to FSA, we
reported in 2002 that almost 40 percent of the agency's workforce was
eligible for retirement.[Footnote 11] We also reported that the agency
had experienced difficulty in reaching agreement with its union on a
past human capital initiative.[Footnote 12] Additionally, we noted that
particular attention was needed to address human capital planning,
leadership continuity, and succession planning, as well as recruitment
and development to meet organizational needs.
FSA Has Made Progress Addressing Key Issues, but Has Not Completely
Fulfilled Its Planning and Reporting Responsibilities:
FSA has made progress in addressing key issues in the areas of
financial management and internal control, systems integration, program
integrity, and determining the cost of administering its programs, but
FSA has not completely fulfilled its responsibility with respect to
developing performance plans and reports. Many of the changes made by
FSA have been based on GAO recommendations. Of the 22 recommendations
that GAO has made related to student financial aid since 2001, we
determined that FSA has fully implemented 12, partially implemented 5,
and is in the process of implementing 5 others. A listing of past GAO
recommendations related to FSA and student financial aid and their
status is contained in appendix II.
FSA's Progress Varied by Key Area:
FSA's progress varied by key area. FSA made significant progress in
financial management and addressed several internal control weaknesses
reported by us and outside auditors. FSA has completed several critical
systems integration tasks but is not yet operating in a fully
integrated environment. Also, FSA has taken some actions to improve
program integrity and developed a model to calculate the cost of
administering its programs.
Financial Management and Internal Control:
For several years, independent auditors reported serious financial
management problems at FSA, but in fiscal years 2002 and 2003, the
agency received an unqualified--or "clean"--opinion on its financial
statements. In addition, although the auditors identified two
reportable conditions,[Footnote 13] they did not identify any material
internal control weaknesses[Footnote 14] in FSA's fiscal year 2003
audit. The two reportable conditions the auditors identified concern
management controls surrounding the calculation and reporting of the
loan liability activity and subsidy estimates and information systems
controls. FSA has developed a corrective action plan to address these
findings and is working to implement it. Also, FSA prepared its
financial statements earlier than required in 2003.[Footnote 15]
We determined that FSA has established processes to address several
internal control weaknesses. Since we previously reported that internal
control weaknesses made FSA vulnerable to improper payments in its
grant and loan programs,[Footnote 16] FSA has taken steps to better
ensure that Pell Grants are not issued to ineligible students. In
fiscal year 2002, FSA implemented a process for verifying an
applicant's age when the information indicated that the applicant was
75 or older and another process for identifying and investigating
schools with high percentages of students with certain characteristics,
such as older, noncitizen Pell Grant recipients. These reviews are used
to identify problems such as eligibility-related violations or
indications of possible fraudulent activities, which are referred to
the OIG. In addition, since our finding that FSA did not correct Social
Security numbers and dates of birth in all records, FSA has implemented
its new loan origination and disbursement system, which automatically
makes such changes to records in all systems.
Independent auditors also reported in 2003 that Education's systems did
not substantially comply with the Federal Financial Management
Improvement Act's requirements.[Footnote 17] Because FSA's financial
reporting relies on the department's systems, computer security
weaknesses identified at Education also affect FSA. The auditors found
that while the department had made progress in strengthening controls
over information technology processes, computer security weaknesses
still existed. However, the auditors also reported that these
weaknesses were not material.
Systems Integration:
FSA is continuing to take actions toward better integrating systems
supporting its student financial aid programs. FSA's integration
strategy focuses on achieving a seamless information exchange
environment in which users--students, educational institutions, and
lenders--would benefit from simplified access to the agency's financial
aid processes and more consistent and accurate data across its
programs. The strategy involves consolidating FSA's existing legacy
systems, in which the functionality of certain systems would be
incorporated into new or modernized systems and, in the long term,
integrating systems and using electronic interfaces to facilitate data
exchanges across systems.[Footnote 18]
Consistent with OMB guidelines,[Footnote 19] FSA has made progress
toward establishing an enterprise architecture needed to guide its
systems integration. An enterprise architecture provides a framework
for developing and maintaining integrated information systems and
establishes the rules and standards required for interrelated systems
to work together efficiently and effectively. FSA has completed many of
the required elements of its architecture, including the baseline and
target architectures that, respectively, describe the agency's current
and future information systems environments. In addition, FSA has named
a permanent chief architect, with responsibility for overseeing its
systems integration efforts.
FSA has also begun consolidating certain information systems, thus
reducing the overall number of systems that it must rely on to
administer its student financial aid programs. Over the past several
years, the agency has retired 6 of 18 systems and incorporated their
functionality into certain other systems. (Definitions for these
systems are in app. III.) From 2002 to 2004, FSA retired 3 systems and
incorporated their functionality into the Common Origination and
Disbursement (COD) System.[Footnote 20] COD supports a single process
for delivering Direct Loan and Pell Grant aid to students and relies on
middleware as a solution for exchanging data between incompatible
systems while the agency works toward full integration.[Footnote 21]
According to FSA, the consolidation of the three systems' functions
into COD has improved the delivery of student aid by simplifying the
process by which schools request, report, and reconcile federal Pell
Grant and Direct Loan funds and by facilitating schools' submissions of
student aid data through the use of a common student record. FSA also
retired 3 systems that supported its financial activities, such as
collecting on defaulted student loans, and incorporated these functions
into its Financial Management System--creating a repository for the
agency's financial information.[Footnote 22] FSA reported that these
actions have helped improve financial decision-making and the ability
to create financial reports for FSA, lenders, and guaranty agencies.
Nonetheless, FSA remains several years from operating in a fully
integrated information systems environment. While it has reduced the
number of systems supporting its programs, FSA plans further actions to
reengineer the agency's information processing environment. In this
regard, FSA has begun three major systems integration initiatives,
which it plans to complete by 2008:
* Front-End Business Integration is planned to simplify and improve the
front-end processes (for example, grant and loan originations)
associated with FSA's student aid delivery services by integrating the
information, processes, and supporting systems that applicants, their
parents, and others rely on in seeking financial aid.
* Integrated Partner Management is planned to improve FSA's ability to
reduce fraud and errors in its student aid programs by incorporating
improved controls, such as common identifiers, system access
information, and a single point of enrollment. The initiative is
expected to reengineer or replace FSA's current database of entities,
such as schools and lenders that participate in the student aid
programs.
* Common Services for Borrowers is planned to improve and simplify
back-end services related to the management of student aid obligations
(for example, loan repayments) by combining the borrower-related
functions of existing loan servicing systems into an integrated
process.[Footnote 23]
FSA officials explained that, overall, the three integration
initiatives are expected to streamline systems and operations through
further consolidating common processing functions and interfacing
systems that receive and process loan applications, monitor program
participation, and track loan obligations. As an essential first step
for sharing common financial aid data in the integrated environment,
FSA is in the process of completing data standardization across its
systems. In addition, the agency has begun hiring contractors to
support the three integration initiatives. However, the agency has not
yet fully defined the technological solutions for the initiatives--a
step that is necessary to know what specific technology will be used to
integrate the systems. FSA officials stated that the agency would rely
on the supporting contractors to perform this crucial task.
The agency also plans to define integration strategies that would
enable existing financial management and other systems to share data
with its integrated components.[Footnote 24] However, the technological
solutions for accomplishing this have not been defined. FSA's approach
for integrating its systems is depicted in figure 2.
Figure 2: FSA's Approach for Integrating Its Information Systems:
[See PDF for image]
[A] FSA anticipates completing the Common Services for Borrowers
initiative in 2006.
[End of figure]
Until FSA achieves a fully integrated environment, it lacks assurance
that it will realize greater efficiencies in sharing student financial
aid information across its programs. Further, the agency cannot be
assured that it will be able to provide sustained higher-quality
information and enhanced services to students, parents, schools, and
others.
Program Integrity:
In response to issues raised in past reports, FSA has taken several
steps to improve program integrity, but FSA has no assurance that
comprehensive compliance reviews are being performed properly or that
the results are reliable.[Footnote 25] To improve the oversight of and
assistance to foreign schools, FSA (1) added controls to verify the
existence of foreign schools and their students, (2) hired a consultant
to help determine how best to ensure accountability of foreign schools,
and (3) started developing an online training program to help foreign
school officials properly administer the program.[Footnote 26] Also,
FSA has taken steps to help address concerns raised about students who
have underreported family income on their student aid
applications.[Footnote 27] FSA conducted studies with the Internal
Revenue Service (IRS) to compare student and parent income on student
aid applications with reported income on tax forms to determine the
extent of over-and under-reporting of income in student applications.
FSA also worked with OMB and the Department of the Treasury to draft
legislation that would permit the IRS to disclose taxpayer information
to Education.[Footnote 28] Such legislation, if passed, would enable
FSA to compare the income data on the financial aid applications with
tax records to better ensure that only eligible students receive
financial aid. According to agency officials, FSA has developed several
approaches for implementing the comparison process in anticipation of
passage of the legislation.
Moreover, FSA has taken steps to enhance its student loan default
management efforts. In 2003, FSA created a work group that identified
over 60 default prevention and management initiatives and a new
organizational unit, Portfolio Risk Management, that focuses on
mitigating and reducing the risk of loss to the taxpayer from student
aid obligations. FSA also added information to its exit-counseling
guide to help increase borrowers' awareness of the benefits of repaying
their loans through electronic debiting accounts and prepayment
options.[Footnote 29]
In its 2003 annual performance report, FSA stated that it had completed
several reviews to enhance the integrity of its programs. Among other
things, FSA reported that the agency had monitored 40 percent of all
participating schools through comprehensive compliance reviews.
According to FSA headquarters officials, a comprehensive compliance
review is triggered by specific events, such as compliance deficiencies
identified during independent audits, financial statements that do not
conform to accepted accounting standards, schools applying for initial
eligibility or renewing their eligibility, or schools changing
ownership or merging. FSA officials stated that these reviews could
result in a decision to perform a more in-depth on-site review. FSA
officials explained that during comprehensive compliance reviews,
regional teams are to review all available data about that school in
addition to addressing the triggering event. However, FSA officials
could not provide us written documents defining a comprehensive
compliance review or guidance on how teams are to perform these
reviews. Without such documentation and guidance, FSA has no assurance
that regional teams are properly performing these reviews, the results
are reliable, or the related decisions are appropriate.
Cost of Administering FSA's Programs:
As part of its effort to demonstrate that it has reduced the cost of
administering its programs--one of the purposes established in the HEA-
-FSA is implementing an activity-based cost (ABC) model. FSA's proposed
ABC model is intended to produce information on the full cost of
administering federal student aid programs to help manage costs and
measure performance. The model as designed will enable FSA to comply
with federal managerial cost-accounting standards.[Footnote 30] When
fully implemented, the proposed ABC model should facilitate progress
toward meeting FSA's goal of identifying the full cost of its separate
activities and determining the change in such costs over time. For
example, using this model, FSA would be able to compare the changes in
costs for using Free Application for Federal Student Aid (FAFSA) on the
Web to the use of paper financial aid applications. Figure 3 summarizes
FSA's model.
Figure 3: FSA's Activity-Based Cost Model:
[See PDF for image]
[A] FSA interviewed and surveyed staff to obtain information on
activities and their costs.
[B] Other systems include those related to student financial aid
programs such as the Debt Management and Collections System.
[End of figure]
However, FSA's proposed ABC model was not fully operational as of July
2004. FSA has completed the initial design of the ABC model and has
partially tested it using financial and nonfinancial workload data for
fiscal years 2002 and 2003. During the test of the model using fiscal
year 2002 data, FSA identified costs of more than $24.8 million that
could not be assigned to a specific activity because insufficient
information was known about these costs. Further, FSA had not fully
reconciled the fiscal year 2002 costs used to test the model to total
cost amounts reported in its audited financial statements. In March
2004 FSA staff advised us that they plan to address both of these
issues. In July 2004 FSA officials updated us on the status of their
implementation efforts. FSA staff advised us that they had further
tested the model using fiscal year 2003 data, including fully
reconciling the fiscal year 2003 costs in the model to amounts reported
in its audited financial statements. Further, FSA officials advised us
that all fiscal year 2003 costs could be assigned to activities, and
that they plan to use the knowledge gained from this effort to revisit
and resolve the issues outstanding from the tests using fiscal year
2002 data. FSA officials told us that FSA plans to complete testing its
model and have it fully operational by spring 2005. When its cost model
is fully operational, FSA plans to use the results to drive changes in
how it does business, such as identifying targets for business process
improvements and comparing resource allocations with results. FSA also
expects to be able to measure changes in the cost of its program
activities over time. Once FSA's cost model is fully tested and
operational, FSA should be able to identify the full cost to administer
its financial aid programs and reliably determine the changes in such
costs over time.
FSA Has Not Completely Fulfilled Its Planning and Reporting
Responsibilities:
The HEA requires FSA to develop a 5-year performance plan annually, and
FSA issued its first one in June 2004. This plan covers fiscal years
2004-2008 and contains five strategic goals referred to by FSA as
strategic objectives: (1) integrating FSA systems and providing new
technology solutions, (2) improving program integrity, (3) reducing
program administration costs, (4) improving human capital management,
and (5) improving products and services to provide better customer
service. While FSA's 5-year performance plan provides a general
discussion of each objective, it lacks measures for later determining
the extent to which the objectives have been met. Furthermore, FSA's
plan identifies a number of action steps, referred to as tactical goals
by FSA. These steps, however, are not directly linked to a specific
strategic objective, and some do not contain specific performance
measures that can be used to assess progress over time. For example,
FSA's 5-year performance plan describes the establishment of an office
to serve as the central point of contact for all FSA projects and
provides a general discussion of the office's purpose and activities.
However, this action step is not linked to a particular strategic
objective and does not include any measures or targets for assessing
future progress.
FSA's 2004 annual plan does not fully complement its 5-year performance
plan. FSA's annual plan lists annual goals, referred to as action items
and success measures, but the success measures do not provide a means
for assessing performance toward achieving longer-term strategic
objectives. As shown in figure 4, an X in one or more related columns
in the annual plan indicates which strategic objective or objectives
the annual goal supports, but it does not indicate how achievement of
the annual goal will result in progress toward the strategic objective
or objectives. In addition, in reviewing the 2004 plan, we found that
the annual plan contained six strategic objectives, while the 5-year
performance plan for fiscal years 2004-2008 contained five.[Footnote
31] According to FSA officials, the sixth goal was identified while the
5-year performance plan was going through the review process. FSA did
not add the sixth goal to this plan before it was finalized because it
did not want to delay the plan's issuance. However, FSA officials said
that they would add it to the 2005-2009 performance plan.
Figure 4: Illustration of a Segment of FSA's Annual Plan:
[See PDF for image]
[End of figure]
FSA's annual performance report for fiscal year 2003 does not conform
to the requirements of HEA or GPRA.[Footnote 32] FSA is to issue an
annual performance report that includes an evaluation of the extent to
which the agency met the strategic objectives established in its prior
year's 5-year performance plan. Although FSA had not previously
prepared a performance plan, it had strategic objectives and annual
goals, and its 2003 performance report clearly discusses FSA's
achievement of its annual goals. The report also provides a general
discussion of its accomplishments under each strategic objective.
However, the performance report does not include measures or trend data
by which the Congress could clearly see the extent of FSA's progress,
because, as previously noted, the annual plans did not provide a means
for assessing performance toward achieving strategic objectives. For
example, under its objective to improve program integrity, FSA
describes the Late Stage Delinquency Assistance Program as an
initiative to mitigate potential defaults in the Direct Loan Program by
eliciting assistance from schools in locating and contacting borrowers
prior to default. The report states that initial results are promising
but does not provide a measure of the extent to which this effort
contributes to the overall program integrity objective or the extent of
the agency's progress in meeting this strategic objective. Further, the
report does not include all required information regarding the COO and
senior officials. The report summarizes the bonus amounts paid but does
not include performance-rating information for the COO and senior
officials, as required.
FSA Has Developed a Human Capital Strategy and Taken Steps to Increase
the Accountability of Officials, but Both Efforts Have Weaknesses:
FSA has laid the foundation for a comprehensive human capital strategy
and has taken steps to further its efforts to address the
accountability of senior officials, but some of the human capital
strategy's components and the accountability system have weaknesses.
For example, FSA's draft succession plan identifies the staff that are
eligible to retire in the next few years, but the plan relies heavily
on redistributing workloads to other employees, and none of the
strategy's other components described how these individuals would be
trained to fulfill these duties. FSA has taken added steps to increase
accountability for senior officials, such as holding them responsible
for achieving individual goals specified in annual agreements and
changing the way bonuses are awarded. However, we found that the new
criteria for awarding bonuses for senior officials was unclear and
could undermine other efforts to increase accountability, such as
making greater distinctions in performance by using a new performance
management system.
FSA Has Developed a Human Capital Strategy, but Some of its Components
Have Weaknesses:
FSA has undertaken steps to develop a comprehensive human capital
strategy in part because of issues raised in our previous reports;
however, we found weaknesses with some of the strategy's
components.[Footnote 33] FSA officials told us that they worked in
collaboration with an organization that specializes in government
workforce issues to develop a document that summarizes the various
components of its human capital strategy.[Footnote 34] Agency officials
provided us with a copy of its final human capital plan at the end of
July 2004. Our work and guidance in this area indicates that in
developing a human capital strategy, leading agencies identify talent
at all levels of the organization, emphasize developmental projects for
staff, address human capital challenges specific to the organization,
and facilitate broader transformation efforts, such as training, to
address organizational needs that position the organization to meet its
future challenges.[Footnote 35] FSA's human capital plan indicates that
the agency has strategies that include many of these practices. For
example, the plan outlines challenges the agency will likely face in
coming years and discusses recognized weaknesses and challenges, such
as the need to develop the skills of staff and maintain the focus of
the agency's leadership on human capital issues.
However, we found weaknesses in some of the strategy's components.
FSA's succession plan identifies likely retirements but relies on a
short-term solution--shifting duties to other staff. As for one of its
components used to develop staff skills, the learning coupon staff can
use for external training, FSA has not established a method to fully
evaluate its usefulness. Also, FSA's realignment plan may be delayed
because the agency has not reached agreement on its implementation with
union officials. Table 1 lists and briefly describes the five key
components of FSA's human capital strategy.
Table 1: Components of FSA's Human Capital Strategy:
Component name: Succession plan;
Description of component: An approach for identifying, training, and
transitioning future leaders into roles without impairing business
objectives.
Component name: Staff realignment project;
Description of component: A proposal to reorganize the workforce that
includes targeted voluntary early retirements and separation incentive
payments.
Component name: Skills Catalog;
Description of component: An inventory of required skills for FSA
positions.
Component name: Online learning tools and training resources;
Description of component: Learning tracks;
* Web-based curriculum that supports a set of competencies needed to
perform a specific job;
Description of component: Career Zone;
* An office that manages internal training courses and provides
counseling to staff to help them match individual skills and career
planning with organizational priorities;
Description of component: Learning coupon;
* $500 benefit for external training courses.
Component name: Recruitment plan;
Description of component: Methods for recruiting, hiring, and
retaining staff.
Source: GAO analysis of 2004 FSA draft human capital plan and other FSA
materials.
[End of table]
Furthermore, FSA does not maintain an information system to track staff
development--a critical piece in strategic workforce planning.
According to agency officials, FSA staff members have access to a
number of stand-alone human capital information systems, including one
housed at the department that contains data on training courses taken
by staff. However, an official described this system as outdated and
said that it did not allow staff to create individual development plans
or provide data that managers needed for other agency planning efforts,
such as its succession plan. Our previous studies indicate that
information systems play a critical role in workforce planning. Valid
and reliable data on knowledge and skills of staff are critical to
assessing an agency's current and future workforce gaps. With such
data, agencies can minimize these gaps and better manage risk by
allowing managers to spotlight areas for attention and take appropriate
actions before crises develop. A senior official agreed that the agency
does not have systems that allow the agency to track staff development
but also said that an independent system was not a good investment
because of the ongoing efforts by Education to procure a departmentwide
human capital management system.
Succession Plan:
FSA prepared a draft succession plan that addresses, in part, the
concerns we raised in 2002 about the pending retirement of senior
employees in key positions across the agency.[Footnote 36] This draft
plan identified almost 250 employees from across the agency that are
likely to retire between 2003 and 2006, about 22 percent of the
agency's workforce. Also, the plan designated 167 of the positions as
critical positions that help FSA achieve its organizational goals and
identified 31 positions as "hard to fill" because specific skills and
program knowledge are required to perform the duties related to these
positions. When these hard-to-fill positions become vacant, FSA plans
to fill one-third of the positions through internal hiring; one vacancy
will be filled through a mentoring opportunity.
However, the succession plan did not include information about all
positions and relied on short-term solutions. The plan did not include
any information for 12 positions, 10 of which are in regional offices
and include responsibility for oversight of lenders, banks, and
guaranty agencies. Moreover, according to the plan, FSA will
redistribute the workload to existing staff for 140 of the 247
positions but the strategy's components do not discuss how the agency
will use developmental projects or training to prepare these staff to
assume these duties. We previously reported that training and
developing new and current staff to fill new roles and work in
different ways would be a crucial part of the federal government's
endeavors to meet future challenges.[Footnote 37] Agency officials
acknowledge that this is a short-term approach but stated that it will
allow them time to consider the full range of options to best position
its resources while getting the job done. Our work and guidance in this
area indicates that leading organizations develop succession plans that
strategically focus on both the organization's current and future
capacity. Leading organizations are shifting from a short-term
replacement approach that identifies individuals for a specific vacancy
to a strategic approach that identifies and develops high-potential
individuals. Using certain approaches, such as shifting duties from
retired staff to those who remain--even in the short term--may put the
agency at risk because staff may not be prepared to adequately fulfill
new duties. As a result, essential functions of the agency may suffer.
Staff Realignment and Early Out Proposals:
FSA's human capital strategy includes proposals to realign its
workforce and offer early out packages to staff, but as of August 2004,
the union had not agreed to either proposal. The realignment proposal
would affect the Application, School Eligibility, and Delivery Unit
(ASEDS), which has more than 530 employees--nearly half of the agency.
This proposal states, among other things, that FSA would eliminate the
office responsible for providing specific, program-related training for
schools participating in the Direct Loan program because it has decided
to adopt an approach that supports all schools and all student aid
programs. As a result of the realignment, some staff from this office
will be reassigned to other units, as needed. For other staff, the
proposal states that because they have skills that no longer align with
the agency's needs, it would be more cost-effective for the
organization to offer "early out packages" than to engage in an
extensive retraining effort. FSA's second proposal, which is related to
but not dependent on the implementation of the realignment proposal,
would allow some employees to retire early or receive voluntary
separation payments.[Footnote 38] The early out packages are intended
to provide the agency with greater flexibility in managing its
workforce and recruiting workers with needed skills. This proposal
states that using this approach, vacancies will be created that will
allow FSA to hire individuals that possess the requisite skills.
However, FSA and union officials had not reached agreement on the
realignment proposal and had yet to begin discussions on its early out
proposal. According to an agency official, the realignment proposal was
developed over a 6-month period. At the end of May 2004, after the
Secretary of Education gave his approval, FSA submitted the realignment
proposal to the union. The collective bargaining agreement between FSA
and its union states that the union should have the opportunity to
review actions affecting any aspect of employee working conditions,
including those related to training, development, and appraisals. This
agreement requires FSA to share proposals with the union after
receiving approval by the department--which it did. An agency official
told us that FSA had not received input from labor union officials on
the agency's proposed realignment and that union officials had
requested additional information before agreeing to meet with FSA
officials to discuss the proposal. As of August 2004, FSA had informed
the union that it had met its collective bargaining obligations and
would proceed with the implementation of the realignment proposal
during September 2004. As for the early out proposal, FSA officials
told us that it received approval from the Secretary in early June, and
by the month's close he requested authority from Office of Personnel
Management (OPM) to offer early out packages (i.e., early retirement
options and voluntary separation buyouts). FSA has informed the union
of this proposal and indicated that it would wait until OPM granted
approval before entering into collective bargaining with the union. As
of August 2004, FSA had not received approval from OPM for the early
out packages.
Skills Catalog:
In an effort to identify the skills and competencies required to
perform at all levels of the agency, FSA revised its Skills Catalog,
which should enable staff to independently plan their professional
development. The catalog was originally created in 2000 and was revised
based on a series of interviews with senior managers and subject matter
experts throughout the agency. Its purposes are to (1) provide a common
tool for management and staff to set expectations, (2) help employees
identify opportunities for development through courses offered
externally or by FSA, and (3) assist managers in future workforce
planning efforts. FSA's 5-year plan indicates that one potential use of
the Skills Catalog would be to identify gaps in critical competencies
and provide employees with information on when and where additional
training and development are needed. We previously reported that
effective training and development programs are an integral part of a
learning environment that can enhance the federal government's ability
to attract and retain employees with the skills and competencies needed
to achieve results.[Footnote 39] FSA encouraged its employees to think
of the catalog as a restaurant menu through which they would place an
order to address their individual development needs and contribute to
the agency's objectives. In addition to listing a set of core
competencies that every FSA employee is expected to
demonstrate,[Footnote 40] the catalog defines three competency areas
for each organizational unit consisting of functions, skills, and
knowledge. FSA has developed draft competencies for all units. For
example, selected competencies listed in the Skills Catalog for staff
in the office of the Chief Financial Officer are summarized in Figure
5.
Figure 5: Selections from FSA's Skills Catalog: FSA's Office of the
Chief Financial Officer:
[See PDF for image]
FSA-wide core competencies:
Business ethics;
Continuous learning and improvement;
Customer service;
FSA business knowledge;
Time and task management;
Results orientation;
Interpersonal skills;
Oral and written communication;
Technology literacy.
Chief Financial Officer: Functions:
Contract management;
Reconciliation of FSA data;
Federal financial management;
Budget presentation and justification;
Chief Financial Officer: Skills:
Budget formulation;
Research and analysis;
Presentation;
Customer service and support;
Chief Financial Officer: Knowledge:
Budget concepts and practices;
Chief Financial Officer Act;
Credit Reform Act;
Generally Accepted Accounting Principles.
[End of table]
Source: FSA Skills Catalog, Summer 2004 (draft).
[End of figure]
Online Learning Tools and Training Resources:
FSA introduced online learning tools as an added resource for some
staff who are responsible for providing oversight and determining
eligibility of schools. FSA developed unit-specific online tools,
called learning tracks, designed to improve the skills needed to
perform everyday tasks. FSA created five online tools in fiscal year
2003, and agency officials told us that they plan to introduce more
online tools by fiscal year 2005 that further address organizational
needs, such as tools to enhance communication and supervisory skills.
An FSA official said that the development of these online tools would
be a key part in the agency's efforts to strengthen program integrity.
According to a draft document on the tools, the development of learning
tracks would shift the agency away from developing an entire agencywide
curriculum based on particular position descriptions and toward
developing resources for specific on-the-job skills. Officials told us
that learning tracks have been introduced to divisions in ASEDS that
perform case management and oversight and determine school eligibility.
These learning tracks target the development of skills, such as data
analysis and comprehension, leadership, and critical thinking.
Also, FSA continued to support internal and external training
opportunities. FSA offered a wide variety of courses internally through
its Career Zone. In 2003 FSA expanded this office, and contracted
services from two full-time career counselors who began providing
individualized career counseling sessions and career development
courses. FSA also continued to offer its staff a $500 learning coupon,
to pay for technical and work-related external training courses.
Officials told us that the coupon was part of an effort to enable
employees to take a proactive approach to planning their professional
development. Around 40 percent of FSA's staff used the learning coupon
during fiscal years 2003 and 2004, although the agency had allocated
sufficient funds to provide this benefit for up to 50 percent of the
staff. While the agency has surveyed staff that used the learning
coupon, officials told us that they were not certain why more staff did
not use it.[Footnote 41] Our work in this area shows that evaluation is
an integral part of planning that allows agencies to build upon lessons
learned and improve performance. Because the agency has surveyed only
coupon users, officials cannot be assured that the learning coupon is
an effective tool for helping staff develop their skills or that these
funds are being budgeted for likely needs. Officials indicated that
they had plans to broaden their efforts to survey all staff to better
understand perceptions about the coupon.
Recruitment:
To fill vacancies, FSA plans to use a variety of techniques and to
recruit nationwide, governmentwide, and internally. FSA also plans to
recruit interns and subsequently offer, to those who perform well,
permanent positions. In addition, FSA will continue to use the
flexibilities allowed in the HEA for hiring senior executives and
technical staff. According to the plan, FSA will use these
flexibilities to address critical agency needs such as in the
information technology area.
FSA Has Taken Steps to Increase the Accountability of Officials, but
Its Criteria for Awarding Bonuses Are Not Clear:
FSA has taken steps to increase the accountability of its senior
officials--one of its purposes as a PBO.[Footnote 42] FSA modified its
performance measurement system, emphasized individual achievement of
goals, and provided bonuses based on individual performance. However,
we found that the criteria for awarding bonuses to senior officials
were not clear.
Beginning in 2001, as a result of a departmentwide initiative, FSA
adopted new performance appraisal systems for all of its employees,
including its SES members and senior managers, to provide the agency
with the ability to make greater distinctions in performance.[Footnote
43] Before the new systems were adopted, all department employees were
evaluated on a pass-fail basis. The new system for SES uses three
performance levels, while the new system for senior managers and others
uses five performance levels.[Footnote 44] Our body of work in this
area suggests that effective performance management systems allow
organizations to make meaningful distinctions in performance.[Footnote
45] By utilizing multiple performance categories, FSA has improved its
ability to make distinctions in performance among its senior officials
and increase accountability.
The 2003 performance agreements we reviewed for both types of senior
officials--SES and senior managers--emphasized individual achievement
of goals. Prior to 2003, performance agreements specified (1) how a
senior official's performance would be evaluated; (2) individual
projects and activities to be performed by the official; and (3) six
organizational, or "cross-cutting," goals to which all senior officials
were expected to contribute.[Footnote 46] For the 2003 performance
period, SES agreements for senior officials included three performance
element groups: (1) leadership, management, and coaching; (2) work
quality, productivity, and customer service; and (3) organizational
priorities/job specifics. For each senior official at FSA, the
organizational priorities/job specifics performance element primarily
consisted of unique individual goals for which the official has
responsibility and for which he or she is held accountable. However,
FSA's emphasis on individual goals still included the use of
organizational, or cross-cutting, goals--only to a lesser extent. But
we also found that the use of such goals has become more strategic.
FSA's fiscal year 2003 annual plan contained at least four such cross-
cutting goals, including goals to implement a data strategy and enhance
program monitoring and oversight. Having performance agreements that
consist of both job-specific individual and cross-cutting
organizational goals reinforces accountability for both individual and
organizational success. We view the use of collaborative efforts as a
key practice in achieving results. Figure 6 illustrates the change from
organizational goals used in the fiscal year 2002 performance
agreements to individual goals in FSA's 2003 performance agreements.
Figure 6: Change in FSA's Performance Agreements from Organizational
Goals in Fiscal Year 2002 to Individual Goals in Fiscal Year 2003:
[See PDF for image]
[End of figure]
The HEA specifies that performance agreements should reflect the
organization's measurable performance goals. However, not all
individual goals in the performance agreements we reviewed were aligned
with FSA's annual plan.[Footnote 47] We were provided the 2003
performance agreements for 11 senior officials and found that 6 of them
had goals that were not included in FSA's 2003 annual plan.[Footnote
48] According to FSA officials, some of these individuals were serving
in acting capacities and would not have performance agreements that
directly conformed to the organization's annual plan until they assumed
the jobs permanently. Additionally, FSA officials stated that many of
the goals for these 6 senior officials were not included in the fiscal
year 2003 annual plan because the plan did not include daily
operational activities. For instance, the duties of the Ombudsman were
not included in the fiscal year 2003 annual plan. The Ombudsman's
agreement required that official to identify regulatory limitations
that may serve as the basis for borrower complaints and to meet
statutory mandates for distributing public information, among other
things. Other senior officials had daily operational activities
included in their performance agreements, such as (1) ensure that all
FSA contracts support the core operation and support functions required
to implement the agency's organizational strategy, and (2) acquire
knowledge of all collection group activities, including information
systems and staff duties. According to agency officials, FSA has
changed its approach for constructing its annual plan and included
daily operational activities as well as the top organizational
priorities in its fiscal year 2004 plan.
FSA also changed the way bonuses are awarded to senior officials to
emphasize individual performance, but the criteria used to make these
decisions are not readily apparent. In previous years, bonuses were
awarded to senior officials based in equal parts on a manager's overall
contributions to the organization and achievement of the organizational
goals. Beginning in fiscal year 2003, FSA's COO took steps to modify
this practice by basing performance awards on the achievement of goals
related to each official's area of responsibility. According to the
COO, this approach better ensures that only officials who have achieved
goals important to the organization receive bonuses. Under the previous
system, a manager that accomplished some, but not all, of his or her
goals could still receive a bonus if the organization as a whole was
successful. The COO told us that this arrangement had a crippling
effect on accountability in the organization. By making officials
accountable for individual goals, FSA can reward individuals that are
successful even when the organization as a whole is not. We were also
told that under the new system for awarding bonuses, the COO could make
distinctions based on the level of responsibility carried by managers-
-those who accomplish tasks that diminish the risks and challenges
faced by FSA could receive bigger bonuses than those who perform
equally well but are in jobs that are considered less demanding. For
example, it is possible for a manager who is responsible for systems
integration to receive a larger bonus than a manager of an area deemed
less critical, even if both received the same rating.
However, FSA has not established or communicated its criteria for
awarding bonuses, which has the potential to undermine its other
efforts to increase accountability of officials. Under the previous
system, the criteria were articulated in managers' performance
agreements. Specifically, the agreements stated that 50 percent of the
bonuses would be determined based on a manger's overall contributions
to the organization and the other 50 percent would be determined based
on whether the agency as a whole was successful. The new agreements do
not include such information. When we asked some senior officials to
explain the criteria to us or provide related documentation, we were
referred to the COO. The COO discussed the criteria and noted that the
process for awarding bonuses was still under review. However, we were
told that every manager was familiar with the process. The COO also
stated that the final determination of whether or not a manager
received a bonus was at the COO's discretion. Furthermore, responsible
agency officials provided us with inconsistent information as to which
senior officials received bonuses. Although the agency has taken
additional steps to increase the accountability of its officials, the
lack of clear criteria and transparency in the process for awarding
performance bonuses could undermine the other efforts to increase
accountability, such as using a system with three performance levels to
evaluate and distinguish performance. Part of fostering a results-
oriented culture requires having a process for making awards for
contributions to the organization in a way that is consistent,
reliable, and transparent.
Conclusions:
FSA has devoted substantial time and resources to addressing management
weaknesses and has made significant progress in some areas. However,
FSA has not fully addressed all requirements established by the
Congress when it created FSA as a PBO, or all concerns raised by others
and us, and therefore, FSA needs to continue its efforts to improve its
operations. Further, systems integration projects will continue for
several years, and new challenges that could require different efforts
and approaches to ensure program integrity may emerge.
FSA has taken steps to enhance the integrity of its programs and
reported that its comprehensive compliance reviews were a significant
part of this effort. However, FSA does not have guidance for its review
teams to direct them in performing these reviews. Therefore, FSA cannot
be certain that these reviews are being done consistently and
appropriately. Thus, problems at some schools may go undetected.
While FSA has issued a 5-year performance plan, it has not fully met
its planning and reporting responsibilities. FSA's plans and reports
could be more clearly linked to facilitate review and determination of
progress made. FSA's new 5-year performance plan is a good starting
point for serving as the framework for setting agency goals and
objectives and for preparing its annual plans and reports. But the
action steps in the annual plan were not clearly linked to its
strategic objectives in its 5-year performance plan and did not always
include specific performance measures. As for its performance report,
FSA did not include measures or trend data in the report as required.
Without such information in the performance report, FSA has not clearly
informed the Congress or the public about its progress toward achieving
its purposes established by law.
FSA has also made progress in addressing its human capital management
challenges, but weaknesses remain. The succession plan did not identify
developmental projects or training for staff that would assume the
duties of those who retired. These staff may not be able to perform
their new duties, and the agency may not have staff with needed skills
in all positions. As a result, the agency's ability to continue to make
progress and fulfill its mission in an effective and efficient way may
be hindered. Further, although FSA has devoted funds for the use of
learning coupons to support external training, it does not know why
these coupons are underutilized because the agency has not surveyed all
of its employees to ascertain their views about their usefulness.
Systematic evaluation of human capital initiatives is an integral part
of planning that allows agencies to improve and invest wisely. Without
such evaluation, FSA may not be investing its resources wisely. If FSA
has excess funds budgeted for its learning coupons, funds may not be
available to support other programs or agency projects.
Further, although FSA has taken several steps to increase the
accountability of its senior officials, the agency has not clearly
communicated its criteria for awarding bonuses to senior officials.
This lack of clear criteria for awarding bonuses could undermine its
other efforts, such as its performance evaluation system, that have
helped to foster a culture of accountability at FSA.
Recommendations to the Secretary of Education:
We are making five recommendations to help FSA enhance its strategic
planning and improve its human capital management planning. These
recommendations will help FSA to fulfill its responsibilities under the
HEA; strengthen efforts to protect its programs from fraud, waste, and
abuse; or improve its human capital management initiatives.
We recommend that the Secretary of Education direct FSA's Chief
Operating Officer to:
* issue clear guidance and detailed directions for teams to follow when
performing comprehensive compliance reviews;
* develop 5-year performance plans with action steps that are linked to
FSA's strategic objectives and with specific performance measures or
targets for its objectives; and include measures or trend data in FSA's
performance reports that clearly demonstrate whether the agency has
made progress toward achieving its strategic objectives;
* revise the succession plan to include approaches that focus on the
current and future capacity and needs as well as provide developmental
projects or training for staff to prepare them to fulfill new duties;
* enhance systematic evaluation activities for its human capital
initiatives such as the learning coupon; and:
* establish and communicate clear criteria for awarding bonuses to
senior staff.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, FSA generally agreed
with our findings and recommendations. Specifically, FSA stated that it
plans to or has taken steps to address four of the five recommendations
made in this report. FSA stated that it is developing comprehensive
guidance for conducting compliance reviews, creating appropriate
measures or trend data in its 5-year plan, and revising individual
performance plans to include an explanation of the awarding of any
performance bonuses. FSA also said that it has revised its succession
plan. However, we were not provided a copy of this plan. FSA did not
specifically address the fifth recommendation--to enhance its
evaluation of human capital initiatives such as the learning coupon--in
its comments.
In addition, FSA stated that it has made significant progress in the
area of systems integration. We agree that FSA has taken important
steps toward establishing the necessary technical infrastructure to
support its system integration. However, as previously stated in the
report, FSA does not plan to complete all three major initiatives that
are essential to achieving full integration of the systems supporting
its student financial aid programs until 2008. Thus, fully meeting the
requirement to integrate its systems, as established in the Higher
Education Act in 1998, remains several years away.
FSA also provided technical corrections and comments that we
incorporated where appropriate.
We are sending copies of this report to the Secretary of Education, the
Chief Operating Officer of Education's Office of Federal Student Aid,
the Director of the Office of Management and Budget, and appropriate
congressional committees. Copies will also be made available to other
interested parties upon request. Additional copies can be obtained at
no cost from our Web site at www.gao.gov.
If you or your staff should have any questions, please call me at (202)
512-8403. The key contributors to this report are listed in appendix V.
Signed by:
Cornelia M. Ashby:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Scope and Methodology:
Overall Approach:
We performed several steps that contributed to both objectives of this
review. We reviewed relevant laws and documentation, and we reviewed
pertinent reports prepared by the Department of Education's Office of
the Inspector General as well as our previously issued reports,
testimonies, and other correspondence. Specifically, we analyzed the
Higher Education Act (HEA) to understand the Title IV programs and to
understand the purposes and requirements established for the Office of
Federal Student Aid (FSA) when the Congress designated the agency as a
performance-based organization (PBO). We analyzed key documentation
that would provide insight about the agency's efforts to address the
key management issues and human capital challenges. We also obtained
and reviewed several reports prepared by the Department of Education's
Office of the Inspector General that relate to these issues and
challenges. We reviewed all GAO reports, testimonies, and
correspondence issued since 2000 that discussed FSA or the student loan
programs. We also reviewed GAO recommendations related to FSA and
identified those that have been implemented as well as those that
remained open as of July 10, 2004. For open recommendations, we talked
with agency officials and obtained and reviewed the corresponding
internal corrective action plans.
We also attended briefings presented by senior FSA officials and
interviewed FSA and Department of Education officials to understand
their plans and reasons for taking actions related to addressing the
key management issues and the human capital matters. During January and
February of 2004, we attended nine briefings presented by senior FSA
officials on topics that would serve as the foundation for our work.
These briefings were entitled (1) Financial Management and Internal
Control, (2) FSA's High-Risk Designation/Management Improvement Team,
(3) Default Prevention and Management, (4) Systems Integration, (5)
Program Integrity, (6) PBO Accountability, (7) Human Capital
Management, (8) FSA's Activity-Based Cost Model, and (9) FSA's Progress
on Reducing Administrative Costs. Following these briefings, we
interviewed senior officials and responsible program managers and had
several meetings, phone conversations, and e-mail exchanges to follow
up on and further clarify the information presented at the briefings.
Objective I: Key Management Issues:
In addition to taking our overall approach, we took specific steps to
address the first objective--the extent to which FSA has made progress
addressing key management issues related to financial management,
systems integration, program integrity, and administrative costs, and
fulfilling its planning and reporting responsibilities. We reviewed the
guidance related to the Federal Financial Management Improvement Act
because auditors found that the Department of Education and FSA did not
comply with the act's requirements because of computer security
weaknesses. We also reviewed the Government Performance and Results Act
(GPRA) because the HEA stated that FSA's reporting requirements had to
be consistent with GPRA and other laws.
We reviewed and analyzed numerous documents related to the topics
covered in this objective. These documents included:
Financial management:
* audit reports submitted by auditors from Ernst and Young for fiscal
years 2002 and 2003;
* corrective action plan for addressing reportable conditions
identified in FSA's 2003 financial statement audit report;
* data summarizing erroneous payments for 2000-2002; and:
* administrative cost model and components:
Systems integration:
* information on FSA's enterprise architecture plans and documentation,
such as its sequencing plan for transitioning from baseline to target
architecture;
* business cases and timeline documents for the three major systems
integration projects--Front-End Business Integration (FEBI),
Integrated Partner Management (IPM), and Common Services for Borrowers
(CSB);
* information documenting FSA's inventory of major legacy systems,
including consolidation, retirement, and reengineering of some existing
systems; and:
* information on the solicitation and request for proposal for the FEBI
project:
Program integrity:
* proposed legislation for conducting IRS data matches;
* memoranda of understanding regarding data sharing with agencies such
as the Social Security Administration and the Department of Justice;
* quality control procedures for determining student and school
eligibility, and program monitoring;
* 2001 Program Review Guide for Case Management and Oversight and
School Performance Improvement and Procedures Guidance;[Footnote 49]
* School Eligibility Channel: Case Management Process Model;
* inventory of 60 default management and prevention initiatives;
* Authentication Plan for New Foreign Schools;
* foreign school training module and lesson list;
* Student Financial Aid Handbook, Volume 2--School Eligibility and
Operations, 2004-2005;
* Guidelines for Case Managing Services for New Title IV Participants,
October 17, 2003;
* Default Prevention Workgroup charter and FSA-wide approach to default
prevention strategies briefing slides, May -September 2003:
* minutes from Debt Management/Default Prevention Management group
meeting September 10, 2003; and:
* Exit Counseling Guide for Direct Loan Borrowers:
Planning and reporting:
* annual plans for fiscal years 2002, 2003, and 2004;
* annual performance report for fiscal year 2003; and:
* draft and final 5-year performance plan covering fiscal years 2004-
2008.
We met with several senior FSA officials as well as responsible program
managers. We met with officials from the agency's Chief Financial
Office to discuss financial management, financial audits, and
statements and its activity-based cost model. We met with officials
from the office of the Chief Information Officer to discuss the
agency's system integration efforts and sequencing plan, enterprise
architecture, and current procurement projects related to systems
integration such as Common Services for Borrowers. We met with
officials in the Case Management and Oversight Office to discuss their
procedures for monitoring schools and providing technical assistance
and with officials that participate in FSA's Default Management Group.
Objective II: Human Capital:
We also took specific steps to determine whether FSA had created a
comprehensive human capital plan and taken steps to increase the
accountability of its officials. Several GAO publications and guidance
documents on strategic workforce planning served as the criteria for
our analyses. These publications included:
* Human Capital: Senior Executive Performance Management Can Be
Significantly Strengthened to Achieve Results, May 2004, (GAO-04-614);
* Human Capital: A Guide for Assessing Strategic Training and
Development Efforts in the Federal Government, March 2004, (GAO-04-
546G);
* Human Capital: Key Principles for Effective Strategic Workforce
Planning, December 2003, (GAO-04-39);
* A Model of Strategic Human Capital Management, March 2002, (GAO-02-
373SP); and:
* Human Capital: A Self-Assessment Checklist for Agency Leaders,
September 2000, (GAO/OCG-00-14G).
We obtained and reviewed the agency's documents related to its human
capital planning and accountability measures. We analyzed FSA's draft
human capital plan, its final version, and documentation related to its
succession planning, reorganization efforts, staff deployments and
buyout proposals, recruitment, Skills Catalog, and training resources.
We were provided and reviewed hard copy information related to its
online learning tools, but because these tools reside on the agency's
intranet we did not analyze and review these materials firsthand. We
also reviewed the Department of Education's Personnel Manual
Instruction 430-2, dated November 6, 2002, entitled Education
Department Performance Appraisal System (EDPAS) and the Department of
Education's Personnel Manual Instruction 430-3, dated September 6,
2001, entitled Senior Executive Performance Management System (SEPMS)
since these are the systems used to assess FSA's senior officials.
Additionally, we obtained and evaluated individual performance
agreements, evaluation ratings, and data on bonuses awarded to senior
officials and the Chief Operating Officer (COO).
We conducted several interviews with agency officials, and had an
interview with a senior official from the union that represents FSA's
employees. We talked with the agency's COO regarding past and present
policies affecting performance agreements and bonuses. We also talked
with the agency's human capital officer and other human resources staff
regarding the agency's human capital strategy and plan, as well as the
various components of the plan (i.e., the succession plan, and the
Skills Catalog). During these meetings we also discussed past human
capital initiatives and proposals for future initiatives. We also
talked with a senior official from the agency's union, the American
Federation of Government Employees, Council 252, to discuss its role in
developing human capital policies and views about current proposals. We
conducted our work for this engagement between November 2003 and August
2004 in accordance with generally accepted government auditing
standards.
[End of section]
Appendix II: GAO Recommendations to Education Related to Student
Financial Aid and Status of Their Implementation:
Report: Financial Management: Poor Internal Controls Expose Department
of Education to Improper Payments. September 2001 (GAO-01-1151);
Recommendations: Establish appropriate edit checks to identify unusual
grant and loan disbursement patterns;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Financial Management: Poor Internal Controls Expose Department
of Education to Improper Payments. September 2001 (GAO-01-1151);
Recommendations: Design and implement a formal, routine process to
investigate unusual disbursement patterns identified by edit checks;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Education Financial Management: Weak Internal Controls Led to
Instances of Fraud and Other Improper Payments. March 2002 (GAO-02-
406);
Recommendations: Conduct on-site investigations, including interviews
of school personnel and students at the 28 schools with characteristics
similar to those GAO found that improperly disbursed Pell Grants to
determine whether the grants were properly disbursed;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Education Financial Management: Weak Internal Controls Led to
Instances of Fraud and Other Improper Payments. March 2002 (GAO-02-406);
Recommendations: Follow up with the schools that had high
concentrations of the $12 million in potential improper payments for
which the department did not provide adequate supporting documentation;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Education Financial Management: Weak Internal Controls Led to
Instances of Fraud and Other Improper Payments. March 2002 (GAO-02-
406);
Recommendations: Implement a process to verify borrowers' Social
Security numbers and dates of birth submitted by schools to the Loan
Origination System;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Direct Student Loans: Additional Steps Would Increase
Borrowers' Awareness of Electronic Debiting and Reduce Federal
Administrative Costs. March 2002 (GAO-02-350);
Recommendations: Update the Exit Counseling Guide for Borrowers to
reflect the repayment incentives for Direct Loan borrowers who repay
their loans through electronic debiting accounts (EDA) as well as
borrowers' prepayment options;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Direct Student Loans: Additional Steps Would Increase
Borrowers' Awareness of Electronic Debiting and Reduce Federal
Administrative Costs. March 2002 (GAO-02-350);
Recommendations: Take steps to inform EDA borrowers about steps they
can take to prepay their loans. Such steps could include modifying EDA
application to allow borrowers interested in prepaying their loans to
designate withdrawal amounts in excess of their scheduled payments when
they initially complete the EDA application;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Direct Student Loans: Additional Steps Would Increase
Borrowers' Awareness of Electronic Debiting and Reduce Federal
Administrative Costs. March 2002 (GAO-02-350);
Recommendations: Consider renegotiating the fee provision in its
contract with the Direct Loan servicer to eliminate the servicing fee
for accounts with payments less than 7 days late;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability. April 2002
(GAO-02-255);
Recommendations: Fully disclose in its performance plans and subsequent
performance reports the bases of its unit cost calculation and clarify
what costs are included in and excluded from the calculation;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open--in process.
Report: Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability. April 2002
(GAO-02-255);
Recommendations: 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;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open[B].
Report: Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability. April 2002
(GAO-02-255);
Recommendations: 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 default management goals;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open--in process.
Report: Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability. April 2002
(GAO-02-255);
Recommendations: Take steps necessary to ensure that complete and
timely annual performance reports are submitted to the Congress;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open[C].
Report: Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability. April 2002
(GAO-02-255);
Recommendations: Coordinate closely with Education to develop and
implement a comprehensive human capital strategy that incorporates
succession planning and addresses staff development;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open[D].
Report: Department of Education: Guaranteed Student Loan Program
Vulnerabilities. November 2002 (GAO-03-268R);
Recommendations: Implement a verification process to ensure that a
foreign school applying to participate in the Federal Family Education
Loan (FFEL) program actually exists and is recognized by an appropriate
educational entity. Specifically, the Secretary should enter into a
relationship with an organization such as the Department of State,
which would verify the existence of a foreign school that applies for
certification to participate in the FFEL program through site visits
to the school and verification of its accreditation by local
educational authorities;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Department of Education: Guaranteed Student Loan Program
Vulnerabilities. November 2002 (GAO-03-268R);
Recommendations: Review the process for certifying student loans and
develop controls to prevent fictitious students from obtaining student
loans;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Federal Student Aid: Progress in Integrating Pell Grant and
Direct Loan Systems and Processes, but Critical Work Remains. December
2002 (GAO-03-241);
Recommendations: Develop metrics and baseline data to measure Common
Origination and Disbursement (COD) benefits and develop a tracking
process to assess the extent to which the expected results are being
achieved;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open--in process.
Report: Federal Student Aid: Progress in Integrating Pell Grant and
Direct Loan Systems and Processes, but Critical Work Remains. December
2002 (GAO-03-241);
Recommendations: Establish a process for capturing lessons learned in a
written product or knowledge base and for disseminating them to schools
that have not yet implemented the common record;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed--implemented.
Report: Federal Student Aid: Timely Performance Plans and Reports Would
Help Guide and Assess Achievement of Default Management Goals. February
2003 (GAO-03-348);
Recommendations: Produce a 5-year plan as required by HEA;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open[E].
Report: Federal Student Aid: Timely Performance Plans and Reports Would
Help Guide and Assess Achievement of Default Management Goals.
February 2003 (GAO-03-348);
Recommendations: Prepare and issue reports to the Congress on FSA's
performance that are timely and clearly identify whether performance
goals were met;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open[F].
Report: Student Loans and Foreign Schools: Assessing Risks Could Help
Education Reduce Program Vulnerability. July 2003 (GAO-03-647);
Recommendations: Develop online training resources specifically
designed for foreign school officials;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open--in process.
Report: Student Loans and Foreign Schools: Assessing Risks Could Help
Education Reduce Program Vulnerability. July 2003 (GAO-03-647);
Recommendations: Undertake a risk assessment to determine how best to
ensure accountability while considering costs, burden to schools and
students, and the desire to maintain student access to a variety of
postsecondary educational opportunities. Further, after completing the
risk assessment, if Education determines that legislative or regulatory
changes are justified, the Secretary should seek any necessary
legislative authority and implement any necessary regulatory changes;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Open--in process.
Report: Direct Student Loan Program: Management Actions Could Enhance
Customer Service. November 2003 (GAO-04-107);
Recommendations: Develop a process for collecting information from
schools that decide to stop participating in the Direct Loan Program
about the factors that influenced this decision and use this
information to make improvements to the program;
Status in GAO‘s tracking system as of July 10, 2004[A]:
Closed-Implemented.
Source: GAO.
[A] GAO monitors agencies' progress in implementing recommendations. To
accomplish this monitoring, GAO maintains information related to open
recommendations in a Web-based automated program.
[B] FSA included a systems integration goal in its 5-year performance
plan and annual performance report, but it did not meet all the
requirements of the HEA.
[C] FSA submitted its 2003 annual report when due, but the report did
not meet all the requirements of the HEA or GPRA.
[D] FSA developed a human capital strategy and succession plan in
response to our 2002 report, but they have not been fully implemented.
[E] FSA issued its first 5-year performance plan in fiscal year 2004.
However, the plan does not meet all the requirements of the HEA.
[F] FSA's annual performance report did not clearly identify whether
strategic objectives had been met.
[End of table]
[End of section]
Appendix III: Definitions of Systems Supporting FSA's Student Aid
Programs:
Central Data System receives recorded data from multiple loan
origination systems, edits, and then sends the data to the Direct Loan
Servicing System and the Financial Accounting and Reporting System.
Central Processing System uses information from both the paper-and Web-
based Free Application for Federal Student Aid (FAFSA) to calculate and
confirm a student's eligibility for federal student financial
assistance. This system includes the FAFSA on the Web, which is used by
students to apply for federal student financial assistance via the
Internet.
Common Origination and Disbursement System provides a common student
record reporting system for requests, reports, and reconciliations
related to both the Pell Grants and Direct Loans programs. This is a
consolidated system consisting of three legacy systems--Pell Grant
Recipient Financial Management System, Recipient Financial Management
System, and Direct Loan Origination System.
Conditional Disability Discharge Tracking System stores loans for those
borrowers being reviewed for permanent and total disability.
Debt Management and Collections System services all Title IV loans
(Direct, Federal Family Education Loans, and Perkins) that have fallen
into default. Also the system tracks rehabilitated loans, private
collection agencies' referrals, or loans undergoing review by FSA.
Direct Loan Consolidation System consolidates student loan portfolios
consisting of at least one Direct Loan.
Direct Loan Origination System records all Direct Loans awarded each
year, tracks planned and actual disbursements, supports reconciliation,
calculates eligibility amounts, books loans, and aggregates planned and
actual disbursements by school.
Direct Loan Servicing System provides services to borrowers with Direct
Loans while in school, in deferment status, or in repayment.
Electronic Campus-Based System tracks, at the school level, information
related to campus-based funding; this includes receiving and processing
Web-based applications from schools, calculating annual program awards,
determining unused amounts, and processing appeals.
eZ-Audit provides a single point of submission via the Web for schools
to submit financial statements and compliance audits.
Federal Family Education Loan System is used to pay interest and claims
on defaulted loans to lenders and supports collection activity on
student loans in default. This system consists of three consolidated
program systems--Lender's Application Process (LAP), Lender's
Reporting System (LaRS), and Form 2000.
Financial Accounting and Reporting System serves as the subsidiary
ledger for the Direct Loan Servicing System, processing both cash and
noncash financial transactions and then sending them to the
department's general ledger.
Financial Management System provides a repository for financial
information from all FSA programs. It is used to facilitate financial
decision making and create reports for both internal and external
customers.
National Student Loan Data System contains loan-and grant-level
information; it is used by schools to screen student aid applicants to
identify borrowers who are in default, have reached statutory loan
limits, or are otherwise ineligible to receive aid.
Ombudsman Call Tracking System supports and tracks the life cycle of
activities that will be required to process cases and supports and
integrates with modules that support customer service, data center,
call center, and service level agreement management functions.
Pell Grant Recipient Financial Management System records all Pell
Grants awarded each year, tracks planned and actual disbursements,
supports reconciliation, calculates eligibility amounts, aggregates
planned Pell Grant disbursements by school and submits this information
to the department's automated payment system to authorize drawdown of
funds.
Postsecondary Education Participants System serves as FSA's management
information repository for all entities participating in the Title IV
student financial assistance programs. This system maintains
eligibility and oversight data for schools, lenders, guarantors, and
servicers and provides information to FSA's student aid delivery
systems to ensure consistency.
[End of section]
Recipient Financial Management System records all Pell Grants awarded
each year, tracks planned and actual disbursements, supports
reconciliation, calculates eligibility amounts, aggregates planned
Pell Grant disbursements by school and submits this information to the
department's accounting systems to authorize drawdown of funds.
[End of section]
Appendix IV: Comments from the U.S. Department of Education:
FEDERAL STUDENT AID:
We Help Put America Through School:
CHIEF OPERATING OFFICER:
Ms. Cornelia Ashby:
Director, Education, Workforce, and Income Security Issues:
United States Government Accountability Office:
Washington, DC 20548:
SEP 02 2004:
Dear Ms. Ashby:
Thank you for the opportunity to respond to the U. S. Government
Accountability Office's (GAO's) draft report entitled "Office of
Federal Student Aid: Better Strategic and Human Capital Planning Would
Help Sustain Management Progress" (GAO-04-922). Please note, to address
specific updates and recommendations related to your draft report, I am
attaching a document that includes technical corrections and comments
for your consideration. We are happy to answer any questions on our
technical corrections and comments and questions should be coordinated
with Marge White at 202-377-3022.
We appreciate GAO's ongoing recognition of Federal Student Aid's
(FSA's) significant progress in resolving financial integrity and
management issues and sustaining improvements in the student financial
aid programs. FSA has demonstrated strong commitment and senior-level
leadership support for addressing issues and risks, ensured proper
capacity in terms of staff and resources, and developed comprehensive
action plans along with appropriate monitoring and validation
procedures--resulting in sustained and meaningful progress.
Specifically, FSA:
* Institutionalized sound financial management and internal controls at
every level, achieving unqualified audit opinions on both FSA's and the
Department of Education's financial statements for fiscal year 2002 and
2003 and eliminating all material internal control weaknesses in fiscal
year 2003;
* Developed a multiyear sequencing plan for system and business process
integration, completing several of the scheduled initiatives. FSA
continues to make significant progress on future deliverables;
* Enhanced its program integrity efforts to ensure access to
postsecondary education while reducing the vulnerability of student aid
programs to fraud, waste, error and mismanagement;
* Reduced the default portion of the student loan portfolio from over
16% in 1990 to 7% in 2003, as the overall outstanding student loan
portfolio increased five-fold during that same period;
* Decreased the unit administrative cost of delivering student aid
programs through efficiency and productivity gains in its business
processes. These gains allow FSA to successfully manage dramatically
increasing workloads;
* Implemented a comprehensive and strategic human capital management
plan. The plan provides a detailed roadmap for addressing FSA's
critical workforce issues, including leadership development and
succession planning;
* Assembled an impressive senior leadership team possessing over 330
years of experience in the private sector, the higher education
community and in government. This team's world-class leadership and
expertise ensures FSA achieves its strategic objectives, including
managing the inherent risks in the programs; and:
* Aligned individual performance plans and goals for FSA's Management
Council (those reporting directly to the Chief Operating Officer),
other senior officials, and, in fact, for all FSA employees, to the
accomplishment of FSA's strategic objectives and tied 100% of any
potential annual bonus compensation to individual achievements and
delivery of results.
In addition, FSA's accomplishments contributed to the Department of
Education's achievement of "green" status on the President's Management
Agenda (PMA) financial management initiative and enabled FSA to move to
"green" on progress on the PMA initiative related to eliminating fraud
and error in student aid programs and deficiencies in financial
management.
FSA realized significant progress in the area of systems integration.
This progress includes substantially completing the infrastructure
required to support integration. We have installed middleware and
deployed it throughout our business applications achieving efficiencies
in and standardization of system interfaces. We established a
centralized data center that hosts the majority of our applications. We
successfully implemented a single FSA gateway for communication with
our delivery partners and deployed portals and data marts to allow
access to integrated data. We developed and implemented our integrated
technical architecture, defined and published comprehensive technology
standards, and completed our enterprise architecture.
With this foundation in place, the focus is on the continued
consolidation and integration of business applications and processes
running within our infrastructure. Because business requirements and
technology change over time, we view this as a continuous endeavor, not
a project with a beginning and an end. Since becoming a performance
based organization (PBO), FSA has consolidated and integrated numerous
applications and processes and will continue to do so as currently
defined in its sequencing plan and as business requirements dictate. We
implemented an integrated financial management system, consolidated our
Pell Grant and Direct Loan origination and disbursement systems,
retired our Central Data System, consolidated our guarantor and lender
payment processing systems, and developed common records for our
customers to use in communications with us. As we shared with you, our
current integration efforts include Common Services for Borrowers
(CSB), Integrated Partner Management (IPM), and the initiative to
further integrate our front-end business systems and processes (FEBI).
To continue to improve monitoring and oversight, FSA is further
enhancing its internal procedures and management controls to provide
additional guidance for staff who perform comprehensive compliance
reviews of its school partners, as you have recommended.
Currently, we are developing comprehensive guidance for our school
oversight staff including common standards for record retention and for
conducting compliance reviews, supervisory reviews, and off-site
program reviews. An implementation action plan detailing staff training
initiatives and additional monitoring activities is also under
development. Additionally, FSA developed and distributed procedures to
assist its school oversight staff in identifying and assisting
institutions for additional program guidance. These procedures include
documentation standards and criteria for consistency in actions, follow
up, and measurement. Initial staff training on these procedures is
complete. In fiscal year 2005, and in accordance with its integration-
sequencing plan, FSA will begin the requirements phase for a major
system to further enhance the management and oversight of school
compliance activities.
As presented to you in a briefing in February 2004, FSA is reducing the
administrative cost of delivering student aid programs, through
productivity and efficiency gains while supporting an increasing
workload. Our new activity-based cost model, which your report notes
will be fully operational in fiscal year 2005, is an additional
management tool we will use to fine-tune and better measure the success
of our cost reduction strategies. Additionally, CSB, which consolidates
five separate legacy systems into one integrated system, will deliver
an estimated $1 billion savings over the next ten years.
As recommended in your report, FSA is currently developing appropriate
measures or trend data for each objective in our five-year strategic
plan and will revise the five-year plan issued in fiscal year 2005 to
include appropriate measurements. In that plan, the tactical goals will
clearly link to the strategic objectives. The fiscal year 2005 annual
plan will more clearly indicate how achievement of an annual goal
results in progress toward a strategic objective. FSA's annual
performance report to the Congress will include data plainly
demonstrating our progress toward achieving each strategic objective.
We agree FSA faces human capital challenges, as all federal agencies
do, and we are committed to addressing these challenges. FSA released
its final Human Capital Management Plan in July 2004 and launched an
aggressive drive to accomplish the goals defined in that Plan. The
succession plan already is revised to include actions focusing on both
short-and long-term staff readiness and on training and developmental:
assignments. Additionally, we are revising individual performance plans
for members of FSA's Management Council to include an explanation of
the awarding of any performance bonus. Specifically, the plans will
detail how 100% of any potential annual bonus compensation is tied to
an individual's achievements and delivery of results against the annual
performance plan that is established for that individual.
We recognize improvements can always be made and we are committed to a
culture of continuous improvement and, as such, will address the issues
and recommendations raised in your report. With that said, we believe
the Department's and FSA's sustained and meaningful progress in
improving financial integrity and management exceeds the GAO criteria
for removal of the high-risk designation from the federal student aid
programs.
On a personal note, I am very proud of our accomplishments and those of
our 1,100 plus workforce to ensure we fulfill our critical role in
providing access to higher education for all Americans.
I am confident of our progress in addressing GAO's concerns and look
forward to favorable consideration and removal of the federal student
aid programs' high-risk designation when GAO issues an updated High-
Risk Series later this year.
Sincerely,
Signed by:
Theresa S. Shaw:
Chief Operating Officer:
Enclosure:
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Carolyn M. Taylor (202) 512-2974 or taylorcm@gao.gov
Mary Abdella (202) 512-5878 or abdellam@gao.gov:
Staff Acknowledgments:
In addition to those named above, the following individuals made
important contributions to this report: Margie Armen, Joyce Corry,
Carla D. Craddock, Elizabeth Curda, William Doherty, Mary Dorsey, Susan
Higgins, Barbara Hills, Miguel Lujan, Valerie Melvin, Diane Morris,
Corrina Nicolaou, Robert Owens, Lisa Shames, and William Wright.
[End of section]
Related GAO Products:
Direct Student Loan Program: Management Actions Could Enhance Customer
Service, GAO-04-107. Washington, D.C.: November 2003.
Student Loan Programs: As Federal Costs of Loan Consolidation Rise,
Other Options Should Be Examined, GAO-04-101. Washington, D.C.: October
2003.
Student Loans and Foreign Schools: Assessing Risks Could Help Education
Reduce Program Vulnerability, GAO-03-647. Washington, D.C.: July 2003.
Taxpayer Information: Increased Sharing and Verifying of Information
Could Improve Education's Award Decisions, GAO-03-821. Washington, D.C.
July 2003.
Federal Student Aid: Timely Performance Plans and Reports Would Help
Guide and Assess Achievement of Default Management Goals, GAO-03-348.
Washington, D.C.: February 2003.
High Risk Series: An Update, GAO-03-119. Washington, D.C.: January
2003.
Major Management Challenges and Program Risks: Department of Education,
GAO-03-99. Washington, D.C. January 2003.
Federal Student Aid: Progress in Integrating Pell Grant and Direct Loan
Systems and Processes, but Critical Work Remains, GAO-03-241.
Washington, D.C.: December 2002.
Department of Education: Guaranteed Student Loan Program
Vulnerabilities, GAO-03-268R. Washington, D.C.: November 2002.
Federal Student Aid: Additional Management Improvements Would Clarify
Strategic Direction and Enhance Accountability, GAO-02-255.
Washington, D.C.: April 2002.
Student Financial Aid: Use of Middleware for Systems Integration Holds
Promise, GAO-02-7. Washington, D.C.: November 2001:
Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
Integrity, GAO/HEHS-00-119. Washington, D.C.: September 2000.
FOOTNOTES
[1] The former Guaranteed Student Loan Program, now called the Federal
Family Education Loan Program, was included in our 1990 high-risk list;
in 1995 we revised this designation to include all student financial
aid programs included under Title IV of the Higher Education Act of
1965.
[2] The Chief Financial Officers Act of 1990 is P.L. 101-576, and the
Government Performance and Results Act of 1993 is P.L. 103-62.
[3] GAO, High Risk Series--An Update, GAO-03-119 (Washington, D.C.:
January 2003).
[4] Program integrity refers to processes to reduce vulnerability to
fraud, waste, and abuse.
[5] On April 2001, the Secretary of Education assembled a team of
senior managers and employees--the Management Improvement Team--to
focus on many long-standing management challenges facing the
department. The MIT was tasked with making short-term management
recommendations and developing a plan to address longer-term and
structural issues.
[6] FSA and postsecondary institutions jointly administer campus-based
programs, which include the Federal Work-Study Program, the Federal
Perkins Loan Program, and the Federal Supplemental Educational
Opportunity Grant Program.
[7] State and private nonprofit guaranty agencies provide a variety of
services, including payment of defaulted loans, collection of some
defaulted loans, default avoidance activities, and counseling to
schools and students.
[8] GAO, Student Financial Aid: Data Not Fully Utilized to Identify
Inappropriately Awarded Loans and Grants, GAO/HEHS-95-89 (Washington,
D.C.: July 1995).
[9] The U.S. Patent and Trademark Office was established as a PBO in
March 2000, and the Federal Aviation Administration's Air Traffic
Organization was established as PBO in December 2000.
[10] While FSA's operating budget was $621 million in 2004, its total
program and operating budget, which includes $195 million in account
maintenance fees for guaranty agencies and $226 million for loan
consolidations and default collections, was approximately $1 billion.
[11] GAO, Federal Student Aid: Additional Management Improvements Would
Clarify Strategic Direction and Enhance Accountability, GAO-02-255
(Washington, D.C.: April 2002).
[12] The American Federation of Government Employees, Council 252,
represents all eligible employees of Education, including those in FSA.
[13] Reportable conditions are matters coming to the auditor's
attention relating to significant deficiencies in the design or
operation of internal control that could adversely affect the entity's
ability to record, process, summarize, and report financial data
consistent with the assertions by management in the financial
statements.
[14] A material weakness is a reportable condition in which the design
or operation of one or more of the internal control components does not
reduce to a relatively low level the risk that errors or fraud in
amounts that would be material in relation to the financial statements
being audited may occur and not be detected within a timely period by
employees in the normal course of their assigned duties.
[15] Beginning with fiscal year 2004, FSA and other government agencies
are required to produce audited financial statements within 45 days
after the end of the fiscal year, compared with 120 days in the
previous two fiscal years.
[16] GAO, Financial Management: Poor Internal Controls Expose
Department of Education to Improper Payments, GAO-01-1151 (Washington,
D.C.: September 2001) and GAO, Education Financial Management: Weak
Internal Controls Led to Instances of Fraud and Other Improper
Payments, GAO-02-406 (Washington, D.C.: March 2002).
[17] FFMIA is intended to ensure that federal financial management
systems can and do provide reliable, consistent financial data and that
they do so on a basis that is uniform across the federal government
using generally accepted accounting principles.
[18] Functionality refers to the capabilities or behaviors of a
program, part of a program, or system, seen as the sum of its features.
[19] Office of Management and Budget, Management of Federal Information
Resources, OMB Circular A-130 (November 30, 2000).
[20] The three systems that FSA incorporated into COD were the Pell
Grant Recipient Financial Management System, the Recipient Financial
Management System, and the Direct Loan Origination System.
[21] Middleware is a type of software that enables databases located on
different systems to work together as if they all resided in a single
database.
[22] The three systems incorporated into FSA's Financial Management
System were the Federal Family Education Loan System, the Financial
Accounting and Reporting System, and the Central Data System.
[23] The Common Services for Borrowers initiative is planned to be
completed by 2006 and would combine the functionality of four systems-
-Debt Management and Collection System, Direct Loan Consolidation
System, Direct Loan Servicing System, and Conditional Disability
Discharge Tracking System.
[24] The other systems include the Electronic Campus-Based System, the
National Student Loan Data System, and the Ombudsman Call Tracking
System.
[25] According to FSA headquarters officials, a comprehensive
compliance review involves looking at data about the school that are
contained in FSA's databases, in the public domain, and in
communications to FSA. It may include a visit to the school if
warranted.
[26] GAO, Student Loans and Foreign Schools: Assessing Risk Could Help
Education Reduce Program Vulnerability, GAO-03-647 (Washington, D.C.:
July 2003); GAO, Department of Education: Guaranteed Student Loan
Program Vulnerabilities, GAO-03-268R (Washington, D.C.: November
2002).
[27] GAO, Taxpayer Information: Increased Sharing and Verifying of
Information Could Improve Education's Award Decisions, GAO-03-821
(Washington, D.C.: July 2003); GAO, Benefit and Loan Programs: Improved
Data Sharing Could Enhance Program Integrity, GAO/HEHS-00-119
(Washington, D.C.: September 2000); and OIG, Department of Education,
Accuracy of Student Aid Awards Can Be Improved by Obtaining Income Data
from the Internal Revenue Service, ACN: 11-5001 (Washington, D.C.:
January 29, 1997).
[28] This bill, entitled Student Aid Streamlined Disclosure Act of
2003, H.R. 3613, was referred to the House Committee on Ways and Means
on November 21, 2003.
[29] FSA's Exit Counseling Guide for Direct Loan Borrowers provides
information for borrowers no longer in school on repaying their federal
student loans.
[30] Federal Accounting Standards Advisory Board, Statements of Federal
Financial Accounting Standards (SFFAS) No. 4, Managerial Cost
Accounting Concepts and Standards for the Federal Government. (July 31,
1995).
[31] The sixth goal is to "deliver student aid effectively and
accurately." FSA officials could not describe this goal beyond what is
contained in the title heading of the table.
[32] The HEA requires that the annual report include, among other
things, financial and performance requirements applicable to the PBO
under the Chief Financial Officer Act of 1990 and the Government
Performance and Results Act of 1993, results achieved in the previous
year, and evaluations ratings and the amounts awarded as bonuses to the
COO and senior managers.
[33] In 2002 we recommended that FSA develop and implement a
comprehensive human capital strategy that incorporates succession
planning and addresses staff development; and since 2001, we have
reported that human capital management was a challenge facing FSA and
agencies governmentwide.
[34] The Partnership for Public Service is a nonprofit organization
that works to revitalize interest in public service through educational
outreach, research, legislative advocacy, and hands-on partnerships
with agencies on workforce management issues.
[35] GAO, Human Capital: Insights for U.S. Agencies from Other
Countries' Succession Planning and Management Initiatives, GAO-03-914,
(Washington, D.C.: September 2003).
[36] GAO-02-255.
[37] GAO, Guide for Assessing Strategic Training and Development
Efforts in the Federal Government, GAO-04-546G (Washington, D.C.: March
2004).
[38] Early retirement for federal employees was first authorized under
P.L. 93-39 in 1973 and clarified through subsequent legislation
detailing eligibility criteria in P.L. 105-174. The purpose of the
legislation was to provide agencies with a tool to minimize the
involuntary separation of employees in major periods of downsizing by
qualifying for early retirement. Voluntary incentive separation
payments were authorized through P.L. 104-208 and provide agencies with
the authority to make lump-sum payments of no more than $25,000 to
eligible employees who voluntarily agree to resign, retire, or retire
under voluntary early retirements.
[39] GAO-04-546G.
[40] For example, personnel in managerial, leadership, and other
positions, such as team leaders or project managers, are expected to
demonstrate core managerial skills and knowledge including business
acumen, employee development and empowerment, financial management,
knowledge sharing, problem solving and decisionmaking, program and
project management, and team building.
[41] In 2004, agency officials surveyed learning coupon users to
determine both user satisfaction and the effectiveness of the coupon.
[42] Our analysis included those senior officials that served on the
FSA Management Council and reported directly to the agency's Chief
Operating Officer.
[43] These systems are known as the Education Department Performance
Appraisal System (EDPAS) and Senior Executive Performance Management
System (SEPMS). EDPAS is for managers and staff. SEPMS is for all SES
employees hired under the flexible hiring authority under the HEA.
[44] The three performance levels are unsatisfactory, minimally
satisfactory, and successful, and the five performance levels are
unacceptable, minimally successful, successful, highly successful, and
outstanding.
[45] GAO, Human Capital: Senior Executive Performance Management Can Be
Significantly Strengthened to Achieve Results, GAO-04-614 (Washington,
D.C.: May 2004).
[46] These goals were (a) leaving the GAO high risk list, (b) achieving
a default recovery rate of 7.2%, (c) limiting Pell Grant overpayments
to $138 million, (d) making timely reconciliations to the general
ledger, (e) improving customer service, and (f) completing all FSA
system integration targets.
[47] Attached to each senior official's performance agreement is FSA's
2003 Annual Planning Matrix. Agency officials told us that this
internal document is equivalent to the agency's annual plan for the
same fiscal year and includes additional goals scheduled for action but
not funded. The published fiscal year 2003 annual plan, on the other
hand, includes only those goals that were funded. For the purposes of
this review, we looked at those goals under the performance elements
"organizational priorities/job specifics" that most closely relate to
the agency's annual plan.
[48] These 11 officials included 4 who were members of the FSA
Management Council in 2002 and continued in 2003, and 7 more who began
their service on the council in 2003.
[49] Case management includes processes for monitoring schools such as
reviews and analysis of reports to help ensure compliance with program
regulations.
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