Financial Management

Financial management system deficiencies, inadequate systems of funds control, and manual internal control weaknesses increase the risk of waste, fraud, and abuse in the grantback program. Using the pooling method, grant recipients with multiple awards were not required to match drawdowns to specific awards; consequently, drawdown allocations between Education and the recipients did not match. Education used the grantback account to clear unreconciled differences in various grant appropriation fund balances and to adjust appropriation fund balances to ensure that they did not become negative. Since 1995, independent financial statement auditors have reported weaknesses in Education's information systems controls; this increases the risk of unauthorized access and makes Education's sensitive grant and loan data vulnerable to inadvertent or deliberate misuse. Although the grantback account was established for grantback activity, Education also used it as a suspense account for activity related to grant reconciliation efforts. The portion of the grantback account related to actual grantback activity averaged less than five percent of the total account balance in every year starting in fiscal year 1993. Education did not maintain adequate detailed records for certain grantback account activity by applicable fiscal year and appropriation.

GAO noted that: (1) as a result of financial management system deficiencies, inadequate systems of funds control, and manual internal control weaknesses that GAO and other auditors have identified and the manner in which the grantback account was used, there is increased risk of fraud, waste, and mismanagement of grant funds; (2) in terms of funds control, these deficiencies increase the risk that Anti-Deficiency Act violations could occur and not be promptly identified and reported; (3) because of these deficiencies, GAO was unable to determine whether any Anti-Deficiency violations occurred; (4) the deficiencies identified at Education relate to five areas; (5) Education's pooling method of accounting for grant drawdowns used prior to May 1998 contributed to out of balance conditions and the need for significant grant reconciliation efforts involving hundreds of millions of dollars; (6) GAO testified in March 2000, that continued weaknesses in general computer controls, over key Education financial management systems, increase the risk of unauthorized access or disruption of services, and make Education's sensitive grant and loan data vulnerable to inadvertent or deliberate misuse, fraudulent use, improper disclosure, or destruction, which could occur without being detected; (7) the grantback account balances between the fiscal year ended September 30, 1993, and December 31, 1999, ranged from a high of about $698 million as of September 30, 1996, to a low of about $314 million as of December 31,1999; (8) GAO found that Education could not provide documentation to support the validity of certain activity in the grantback account; (9) Education did not consistently adhere to certain of its policies and procedures relating to obtaining: (a) independent certifications of recipients' records in connection with its Eduacation Payment Management System grant recipient reconciliations; and (b) supervisory approval of manually prepared journal entries; (10) Education has taken or plans to take various actions to address the grantback account issues; and (11) in addition, Education analyzed the portion of the grantback account balance at September 30, 1999, that represented actual grantback activity and, in March 2000, returned to Treasury about $10 million.

Recommendations

Our 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.

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