Thomas R. Bloom
U.S. Department of Education
Subcommittee on Postsecondary Education,
Training, and Life-Long Learning
Committee on Education and the Workforce
Department of Education
Student Financial Assistance
Information Systems Modernization
July 29, 1997
Mr. Chairman and Members of the Subcommittee:
Thank you for inviting me to testify about the challenges facing the Department of Education in modernizing its Student Financial Assistance Program (SFA Program) information systems. With the passage of the Clinger-Cohen Act and other legislation, Congress has signaled to federal agencies the importance of devoting substantial resources to modernizing and integrating information systems. The Clinger-Cohen Act directs that particular attention be paid to hiring, training, and retaining a technically proficient staff of personnel and managers to ensure the proper design, acquisition and maintenance of information systems.
Not unlike other federal agencies, the Department faces significant challenges in meeting the mandates of the Clinger-Cohen Act and in modernizing its SFA Program systems. Currently, the Department oversees the delivery of approximately $43 billion per year in student financial aid and a $117 billion loan portfolio through the use of "stovepipe" information and delivery systems, operated by numerous contractors, at a cost of approximately $300 million per year. As I have previously testified, these systems are not integrated, do not share a common systems architecture, and do not provide the timely, accurate and complete data needed to manage the SFA Programs effectively. In addition, with the advent of the Direct Loan Program, the Department has entered into a number of large and expensive contracts for additional information systems, with significant start-up and integration challenges.
There is no short-term fix. Modernization and integration of its information systems will require a considerable long-term investment of intellect, time and money. While the Department has acknowledged the presence of some systems problems and has several major improvement initiatives underway to address them, success will require technical skill and discipline on the part of managers and staff that have not always been evident in its past information technology efforts.
In this testimony, I am going to address four principal issues that are integral to the success of the Department's systems modernization effort and that will need to be addressed to correct the weaknesses that have resulted in the current ineffective systems --
* the need for a high degree of technical expertise on the part of Department managers and personnel in the area of information technology in order to design and manage the large and complex contracts that will be needed to modernize systems;
* the need for well designed contracts and rigorous monitoring of contractors by the Department;
* the need for consistent and steady progress in efforts toward integration of SFA Program information systems; and
* the need to overcome data integrity problems in the loan systems which will undermine the effectiveness of even the most modern, integrated information system if not corrected.
I. A High Degree of Technical Expertise is a Critical Need for Both Information Systems Managers and Staff at the Department.
The Department will be unable to modernize effectively its information systems without managers experienced in running computer-based operations, supported by a staff of technically expert personnel.
In 1996, we conducted a management review of the Department's office that oversees the loan programs, the Office of Student Financial Assistance (OSFA). In the resulting report, we recommended the appointment of a chief operating officer who possessed, at a minimum, experience in managing a large computer-based financial services operation. With the magnitude of the information system modernization efforts planned and underway for the SFA programs, such leadership is essential and is still lacking.
In that same review, we identified a shortage of qualified staff in the OSFA's Program Systems Service which is responsible for the development and monitoring of SFA systems contracts. We reported that given the amount of systems contracting involved in the administration of the Direct Loan Program and the magnitude of upcoming awards for other systems work, the shortage of sufficient qualified staff in this area would pose a significant risk to the Department. During the course of our review, several Department officials expressed their concern that OSFA did not have enough qualified staff to monitor these contracts. We acknowledge the difficulty of recruiting certain occupational specialists in a competitive job market; however, obtaining and retaining a highly skilled staff is imperative for the Department's success. The continued shortage of technically proficient staff poses a significant risk.
The Department's opportunity to address this risk can be found in the Clinger-Cohen Act, which calls for the appointment of a Chief Information Officer (CIO) to promote the effective and efficient design and operation of all major information resources. Included in the CIO's mandate is the requirement to develop specific plans for hiring and training technically proficient information resource staff. At the Department, the Secretary recently appointed the Chief Financial Officer to serve in addition as the CIO. Prior to this appointment, the CIO position was held temporarily by two different individuals. The CIO's office has been working on establishing its role in the information technology management process and the Department has been moving forward on such key projects as the Direct Loan Program's Loan Consolidation, Origination and Servicing Systems; and SFA systems integration effort known as Project EASI. Although the incumbent is an experienced executive, his lack of systems expertise makes the need for technically skilled managers and personnel in the CIO's office even more critical.
II. The Department's Success with its Information Systems Contractors Depends on Well-Designed Contracts and Rigorous Monitoring of Contractors.
Well-designed contracts that anticipate and provide for contingencies and rigorous monitoring of contractors by Department personnel is critical to the success of systems information contracts. As this Subcommittee is aware, the Department has already experienced serious problems with contracts relating to systems, e.g.:
* a $50 million cost overrun on the 1993 contract to develop and maintain the National Student Loan Data System (NSLDS);
* problems encountered with a contract to provide the Direct Loan Program's loan origination and consolidation systems; and
* contracts awarded for three different systems to perform the same Direct Loan servicing function, which OIG questioned as unnecessary and counterproductive for integration. Also, these contracts have experienced delays in starting up their operations scheduled to begin July 1.
When problems and crises with information systems contracts inevitably occur, there is a need for intervention by very senior level executives with technical expertise (or with technical support personnel) to address them.
III. Consistent and Steady Progress is Needed in the Department's Systems Integration Efforts.
The Department's lack of integrated information systems is well known to this Subcommittee and has been the subject of reports and testimony by my office and the General Accounting Office.
The Department's proposed solution for integrating the SFA programs is a project called "Easy Access for Students and Institutions" or "EASI", which is at best a long-term solution. EASI has already been over two years in the making, and the project is still in the conceptual stage. EASI was initially described by the Department as a systems integration project, but it is evolving to include a host of postsecondary education services and financial education information available from federal, state, school and private sources.
In order to assure consistent and steady progress on EASI, the Department needs to establish timetables, cost estimates, and a system for accountability. We have recently shared these and other concerns about EASI in a memorandum to the Project Director.
IV. Data Integrity Problems Currently Plaguing the Loan Programs Threaten the Effectiveness of any Modernized, Integrated Information System.
The value of modernized and integrated systems will be diminished if they contain inaccurate and incomplete data. Therefore, the Department needs to focus now on addressing current data integrity problems in the loan programs and ensuring that new systems include adequate controls to prevent inaccurate data from corrupting the integrity of the system.
The inability to provide evidence of Federal Family Education Loan Program (FFELP) data accuracy will prevent the Department from receiving an audit opinion on its FY 1996 financial statements, as it did for the FY 1995 financial statements. We have long known and reported that the FFELP loan status information received by the Department from guaranty agencies was in many instances inaccurate and unreliable because it was not reconciled with lenders. The Department did not address adequately the underlying causes of inaccurate and unreliable data provided by the guaranty agencies and these problems were carried forward into the NSLDS. Although they have a major initiative underway to reconcile guaranty agency data with that in NSLDS, the accuracy of the data is still in question because better reconciliation between lenders and guaranty agencies has not yet been addressed. In our HEA Reauthorization proposal, we recommend amending the HEA to require reconciliation of data in the NSLDS with data provided by lenders and guaranty agencies at least annually to provide the control necessary to ensure the integrity of the FFELP data.
Similarly, data integrity problems surfaced during our audits of 16 schools participating in the Federal Direct Loan Program. We noted discrepancies between data held by schools and that held by the Department's servicer and NSLDS. Like other data integrity problems, if not corrected, this problem will compromise even a fully modernized and integrated information system.
Ongoing and Planned OIG Work
I have designated oversight of the SFA Program systems development and operations to be one of the Office of Inspector General's highest priorities and an area where we will concentrate considerable resources. I have created a systems group to spearhead our efforts to review the Department's systems development and implementation. I have also engaged two consultants with the requisite expertise to assist us in this effort. Our draft 1998-99 work plan includes significant systems work.
We are currently performing a review of the Department's implementation of the Clinger-Cohen Act to determine whether they are making measurable progress. Key areas for our review include:
* The status of the capital planning and investment control process;
* The status of efforts to establish performance and results-based management for information technology investments; and
* The CIO's progress in performing responsibilities established by the Clinger-Cohen Act.
In addition, we have a series of planned audits to determine weaknesses in the Department's systems management processes to aid the CIO and program officials in improving the Department's procurement and oversight of systems contracts. We also plan to continue monitoring the Department's efforts in integration. Our emphasis will be on determining if systems integration efforts are progressing on schedule and in accordance with established industry practices.
The draft OIG work plan also includes several projects related to data integrity at the Department. These projects include reviewing the Student Status Confirmation Report process, the integrity of data transferred to the new Direct Loan Program Loan Origination System, selected data collection and reporting systems and the effectiveness of the system which processes the FAFSA.
This concludes my remarks. I will be happy to answer any questions you may have.Back to Congressional Testimony
STEVEN A. McNAMARA
ACTING INSPECTOR GENERAL
U.S. DEPARTMENT OF EDUCATION
SUBCOMMITTEE ON LABOR,
HEALTH AND HUMAN SERVICES
Committee on Appropriations
United States House of Representatives
PROPOSED FISCAL YEAR 1999
MARCH 31, 1998
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to discuss our Fiscal Year 1999 budget request to support salaries and expenses of the Department of Education's Office of Inspector General. I would like to submit my statement for the record and present a short summary of it for the Committee.
PURPOSE OF OPERATIONS
The Office of Inspector General (OIG) was created under the Inspector General Act of 1978, as amended, to prevent and detect fraud, waste and abuse and improve the economy, efficiency and effectiveness of Education Department (ED) programs and operations. These responsibilities are carried out by staff in headquarters and in regional offices and under contracts administered by OIG staff.
FY 1999 BUDGET REQUEST
The Department's FY 1999 budget request for OIG is $31.2 million, a net increase of $1 million above the 1998 budget authority, and 285 full-time equivalent positions. The staffing level is the same as our 1998 level.
Approximately $.5 million of the increase will support salary costs, including annualization of the 1998 pay raise, the proposed Government-wide 1999 pay raise of 3.1 percent, and employee benefits. The Government's share of employee benefits costs is increasing as employees covered under the Civil Service Retirement Act leave and are replaced by employees covered under the Federal Employees Retirement System.
The remaining $.5 million will help defray non-personnel costs including OIG=s share of the Department=s overhead services such as payroll processing, ADP processing, and other contractual services; and will provide small increases for advisory and assistance contracts, leasing and maintaining equipment due to replacement of older equipment, travel, printing, supplies, goods and services from other government agencies such as the Federal Law Enforcement Training Center and the General Services Administration, and other contractual services.
As our staff has decreased to its present level, OIG has continued to meet the challenge to remain effective by finding more innovative ways to deploy our resources and conduct our audit, investigation and management review efforts. For example, we have shifted our emphasis and approach to focus our efforts on program and operations issues and systemic problems that are larger in scope than the traditional single-entity focus. This front-end work will lead to more effective programs with built-in controls and self-enforcing mechanisms to prevent fraud, waste and abuse by all participants, rather than relying on
Aafter-the-fact@ detection at those few participants we have the opportunity to review.
STRATEGIC PLAN AND RECENT ACCOMPLISHMENTS
OIG=s strategic plan states that its mission is to Apromote the efficient and effective use of taxpayer dollars in support of American education by providing independent and objective assistance to the Congress and the Secretary in assuring continuous improvement in program delivery, effectiveness and integrity.@ OIG=s strategic goals to achieve its mission, and some examples of accomplishments for each are:
GOAL: The Department, Congress and other interested parties use OIG products and services to improve the efficiency, effectiveness, and integrity of education programs and operations.
! We devoted significant resources to provide input for the 1998 reauthorization of the Higher Education Act (HEA). To assist Congress in its task of reauthorizing HEA, the OIG submitted a package of HEA amendment proposals to Congress, based on OIG audits and investigations, that we designed to greatly improve the integrity of SFA programs and save hundreds of millions of dollars. We shared our proposals with Departmental officials and met with various staffers on the educational committees to discuss our proposals in detail, and we believe our proposals had an impact on both the Department=s proposals and the HEA bill recently reported out by the House Committee on Education and the Workforce.
! As part of our Direct Student Loan oversight efforts, we issued our nationally representative direct loan school audit report that summarized the results of 16 audits, including recommendations for improvement. We discovered weaknesses in the administration of the Direct Loan Program at the individual schools; collectively these findings affect program accountability, as a whole. If uncorrected, these problems could grow and thus materially affect the Department=s ability to report reliable numbers on its financial statements. Accordingly, we made recommendations to improve monitoring and review of participating schools; we are also in the final stages of a follow-on report on the Department=s monitoring of the program.
! We just completed two ADP systems audits. In the first, on the Department=s implementation of the Clinger-Cohen Act, we identified the need for the Chief Information Officer (CIO) to establish a greater leadership role in the Department=s information technology (IT) matters. In part, the CIO needs to establish an IT architecture, implement an adequate capital planning and investment control process, and complete IT knowledge and skills assessments department-wide. The second audit, on the Department=s readiness for the year 2000 (Y2K), concluded that the Department was behind schedule and needed to accelerate its effort. While good progress was made in the past few months, the pending departure of the Y2K Project Director presents a significant challenge to avoid loss of momentum at a critical point during the countdown to the new millennium.
! In our last appearance before this Committee, we noted that we recommended a change in the Special Education funding formula to make it more equitable between States by using objective data. Congress adopted our recommendation for the Individuals with Disabilities Education Act which the President signed into law.
! We participated, in an advisory capacity, in the development of the Department=s strategic plan and the related performance plan, and will continue to provide this service to Department managers as they implement the Government Performance and Results Act (GPRA). The OIG is completing the first in a series of audits which assesses the Department=s process for institutionalizing the results-oriented management envisioned by GPRA and assesses the development of the system for collecting and reporting performance data. The report is due this summer.
GOAL: OIG=s work discloses significant fraud, waste, and abuse; results in enforcement and corrective actions; and promotes deterrence.
! We have completed cases on complaints which allege that employees of a servicer, lender or collection agency falsified due diligence collection efforts in order to retain the Federal guarantee on a portion of its student loan portfolio. An example is the First Tennessee Bank, National Association (FTB) which agreed to pay $2.75 million to settle a pending lawsuit filed against the bank. The agreement settled a suit, resulting from a joint OIG audit/investigative effort, alleging that FTB falsified its collection efforts before submitting a total of more than $1.3 million in claims to the Department for payment. In addition to the settlement, FTB previously repurchased more than $200,000 in loans, and the Department and the IRS have collected nearly $1 million from the defaulted borrowers in aggressive post-default collections.
! We have an ongoing effort to identify and investigate individual consultants and/or owners of marketing companies who provide guidance to parents and students on illegal methods and devices to help them fraudulently obtain student financial aid funds. One example of this effort is the case of E. Dale Bleam, a self-employed financial aid consultant, who was indicted by a Federal Grand Jury on four counts of financial aid fraud and aiding and abetting. Bleam allegedly counseled parents and students to provide false information on their applications for Federal student financial aid and offered to assist them in qualifying by understating family income and assets and changing their dependency status. In addition to the action against Bleam, Department of Justice has received 190 affirmative civil enforcement agreements from Bleam=s clients and payments totaling over $1 million. An additional 400 clients have been contacted. We estimate that the final amount of repayments could total $4 million.
! OIG has an ongoing investigation effort into individuals who falsely claim attendance at foreign institutions, thereby obtaining Federal student financial aid for which they are not entitled. In one case, Mohammad Bilal Afif Ibrahim was found guilty in the Southern District of Texas on all counts charged in a 46-count indictment. Ibrahim obtained loans totaling $407,000 in various names by claiming to be a student enrolled in a Dominican Republic medical school. During the investigative initiative, we identified systemic weaknesses in the SFA programs and made written recommendations to the Department on ways to correct these deficiencies.
GOAL: Transform the OIG into a high-performance organization which promotes productivity and a positive work environment.
! OIG formed its Systems Auditing Group to guide ongoing ADP audit functions intended to help the Department operate in a highly complex ADP environment. The types of activities we will engage in include: information technology strategic planning and consulting (including Y2K issues), systems development life cycle audits, general and application controls testing, and computer assisted audit techniques assistance. The first three will directly assist the Department=s efforts to manage its ADP systems properly; the latter will assist auditors= and investigators= efforts to identify noncompliance and fraud by program participants.
! OIG continued its implementation of GPRA by issuing our strategic plan and adopting performance measures to evaluate our impact on the Department=s programs and operations.
Our quantitative accomplishments are shown on the attachment.
FY 1999 PRIORITIES
In FY 1999, our program improvement activity work will focus on:
Student Financial Aid programs and operations--Our efforts to improve the Student Financial Aid programs and operations will include:
! Contractors for SFA delivery and information systems: The Department expends over
$300 million a year on contracts to operate the SFA delivery and information systems. The Department has recognized existing shortcomings--systems that are not integrated and do not contain complete or accurate data, and some data duplication--and has initiated plans for systems integration. We will monitor the Department=s progress towards integrating its systems throughout the design and implementation stages, and help ensure that appropriate controls are included, sound development methodologies are employed, and adequate consideration is given to program efficiency and cost effectiveness .
! Management Review: We will complete our management review of the Institutional Participation and Oversight Service. The review will address resources, proper training and technical capabilities of staff to perform their functions, consistency of operations between case management teams, and effectiveness of monitoring and oversight of schools. The effectiveness portion of our work will include the recertification process (including determinations of financial viability), audit follow-up, and adequacy of on-site reviews.
Audits of information systems--Information investment management, systems development, and operations are among the most significant management areas confronting the Department, and thus are included among the OIG=s highest priorities. We have identified many key information systems issues the Department must address including: lack of integration of SFA Systems; system readiness for Year 2000 and beyond; and information system management effectiveness. The OIG will provide the Department with independent security assessments of its major ADP systems and identify exposures of its
Reauthorization effort--In FY 1999, OIG will complete its efforts, started in FY 1997, to develop information to support the reauthorization of the Elementary and Secondary Education Act. Our activity will include participating in Departmental workgroups that will discuss proposed changes to ESEA; developing and presenting OIG positions to the workgroups based on our audit work; providing objective analyses of Departmental positions; and testifying before appropriate congressional committees. OIG expects to provide input on the following areas:
! flexibility provisions in Title XIV: the number State Education Agencies using the Title XIV flexibility provisions and whether consolidated administrative funds resulted in more of the Department=s funds are reaching the classroom;
! safe and drug free schools and communities: the flow and use of funds for the Title IV Safe and Drug Free Schools program at the Federal, State and local levels and the process used for developing measurable goals and objectives at the Federal, State and local levels;
! charter schools: effectiveness of Federal, State and local agencies in informing charter schools about Federal requirements and ensuring their compliance with the requirements; and
! amount of funds reaching the classroom: the amount of ESEA Title I, Part A, and Basic Vocational Education funds that reach the classroom.
GPRA--As part of its implementation of GPRA, the Department will provide performance data to Congress. OIG plans to assess selected data and the control systems the Department uses to assure data reliability. We will report on the extent to which we believe the Department and Congress can rely on the data. Our first audit is underway; the report is due this Summer.
Financial Management--We will contract for and oversee an audit of the Department-wide financial statements for the fiscal year 1998. The audit will include an examination of account balances, a review of applicable financial systems, an evaluation of internal controls, and a determination of compliance with significant laws and regulations. Audit results will include an assessment of the fair presentation of the financial statements, recommendations for improving financial accountability and stewardship, and identification of areas requiring further review.
In FY 1999, our deterrence activities will include:
Audits and investigations--The OIG will conduct audits and criminal and/or civil investigations of continuing and new allegations that occupational, vocational, trade and technical schools are defrauding the SFA programs. Additionally, OIG will continue to focus on large complex financial investigations such as falsification of due diligence by servicers, banks and collection agencies and falsification of due diligence and loan consolidations by contractors.
National projects--OIG will continue to target several areas of SFA for national projects, including:
! misuse of Pell Grant funds for college athletes;
! fraudulent receipt of loans for students purportedly enrolled in foreign medical schools;
! use of HEA Title IV funds by foreign medical schools;
! manipulation of cohort default rates by school officials; and
! receipt of loans by individuals who had previous loans canceled due to death or disability.
Mr. Chairman and members of the Committee, this concludes my statement. My colleagues and I will be happy to respond to any questions that you and the Committee members may have.
OIG AUDIT REPORTS ISSUED: 48
QUESTIONED COSTS RECOMMENDED: $17,074,024
UNSUPPORTED COSTS RECOMMENDED: $8,403,106
BETTER USE OF FUNDS RECOMMENDED: $141,793,546
OIG AUDIT REPORTS RESOLVED BY PROGRAM MANAGERS 54
QUESTIONED COSTS SUSTAINED: $210,972,471
UNSUPPORTED COSTS SUSTAINED: $9,200
ADDITIONAL DISALLOWANCES IDENTIFIED BY PROG. MANAGERS $1,215,818
MANAGEMENT COMMITMENT TO BETTER USE OF FUNDS $116,709,884
NON-FEDERAL AUDIT REPORTS RESOLVED BY PROGRAM MANAGERS * 26
QUESTIONED COSTS SUSTAINED: $ 6,335,461
UNSUPPORTED COSTS SUSTAINED: $82,622
ADDITIONAL DISALLOWANCES IDENTIFIED BY PROG. MANAGERS $27,408,578
CASES OPENED: 246
CASES CLOSED: 147
CASES ACTIVE AT END OF PERIOD : 399
CASES REFERRED FOR PROSECUTION : 81
CASES ACCEPTED: 66
CASES DECLINED: 15
INDICTMENTS/INFORMATIONS : 71
CONVICTIONS/PLEAS : 70
RESTITUTION/FINES ORDERED : $8,277,409
RESTITUTION PAYMENTS COLLECTED : $2,251,000
CIVIL JUDGEMENTS/SETTLEMENTS : $5,336,192
FORFEITURES/SEIZURES : $224,700
OIG REQUESTS FOR DEPARTMENTAL ACTION : 41
INDIVIDUALS/ENTITIES DEBARRED/SUSPENDED : 22
* OIG no longer issues non-federal reports; these audits were issued by OIG in prior years.