Financial Management

Financial Management Challenges Remain at the Department of Education Gao ID: T-AIMD-00-323 September 19, 2000

Since 1995, auditors at the Department of Education have reported the same serious internal control weaknesses each year. These problems have undermined the agency's ability to provide reliable financial information to decision makers inside and outside the agency. Because of its financial management weaknesses, Education's accounting system was unable to perform a year-end closing process or produce automated consolidated financial statements. Staff turnover also contributed to this weakness. Furthermore, the agency was unable to provide adequate support for about $800 million in its net position balance, and it processed many transactions from prior fiscal years as fiscal year 1999 transactions. In addition, auditors were unable to determine whether beginning balances for accounts payable and related accruals were accurate. Independent auditors for 1999 cited weaknesses in the financial reporting process, inadequate reconciliations of financial accounting records, and inadequate controls over information systems. The auditors also reported that Education did not fully comply with three laws. The internal control weaknesses must also be addressed to reduce the potential for fraud, waste, and abuse. Areas of concern include student financial assistance programs and computer security.

GAO noted that: (1) Eduction's financial activity is important to the federal government because Education is the primary agency responsible for overseeing the more than $75 billion annual federal investment in support of educational programs for U.S. citizens and eligible noncitizens; (2) Education is also responsible for collecting about $175 billion owed by students; (3) in FY 1999, more than 8.1 million students received over $53 billion in federal student financial aid through programs administered by Education; (4) Education's stewardship over these assets has been under question as the agency has experienced persistent financial management weaknesses; (5) beginning with its first agencywide financial audit effort in FY 1995, Education's auditors have each year reported largely the same serious internal control weaknesses, which have affected Education's ability to provide reliable financial information to decision makers both inside and outside the agency; (6) to the extent that Education was able to improve on its financial statements for FY 1999, it was generally the result of: (a) time-consuming manual procedures; (b) various automated tools to "work around" the system's inability to close the books and generate financial statements; and (c) reliance on external consultants to assist in the preparation of additional reconciliations and the financial statements; (7) this approach does not produce the timely and reliable financial and performance information Education needs for decision making on an ongoing basis, which is the desired result of the Chief Financial Officers Act of 1990; (8) Education continues to have serious internal control and system deficiencies that hinder its ability to achieve lasting financial management improvements; (9) the internal control weaknesses need to be addressed to reduce the potential for waste, fraud, and abuse; (10) some of the vulnerabilities identified in the audit report include weaknesses in the financial reporting process, inadequate reconciliations of financial accounting records, information systems weaknesses, and property management weaknesses; (11) in response to the Inspector General's report, Education has developed a corrective action plan to address these weaknesses; and (12) vulnerabilities in Education's student financial assistance programs have led GAO since 1990 to designate this a high-risk area for waste, fraud, abuse, and mismanagement.

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