ARCHIVED INFORMATION -- Annual Accountability Report Fiscal Year 1995
Fiscal year 1995 was a year of profound improvement in Department financial management. Student loan default rates dropped dramatically while collections steadily rose. However, some serious problems remain. Structural deficiencies in the Federal Family Education Loan Program continue to allow inaccurate financial information into systems. A limited number of ineligible recipients also still manage to receive financial assistance and the audit follow-up function has been taxed by additional audit requirements. Financial management systems infrastructure is also seriously inadequate. The Department acknowledges these problems with a firm commitment to continue devoting available resources to their speedy resolution.
The financial highlights presented below are only the first steps in a long-term effort to be more accountable for public monies, to be more responsive to customers and to effectively promote education improvements.
Student Loan Defaults and Collections
The Department's Office of Postsecondary Education has improved control over defaulted student loans resulting in both decreased defaults and increased collections, while loan volume grows. The national cohort default rate in the Federal Family Education Loan Program (FFELP) have dropped from 22.4% in 1990 to 11.6% in 1993 (the Direct Loan Program has not yet experienced significant defaults). This Office has continued its aggressive accountability and collection activities resulting in a near doubling of collections in 2 years to over $2 billion in fiscal year 1995. Defaulters face serious sanctions, including general income tax refund offset, wage garnishment, denial of further student aid, and loss of other forms of credit. The IRS tax refund offset program continues to be a major source of collecting defaulted loans. In fiscal year 1995, the Department collected $588 million from 778,000 individuals via the IRS program.
Controlling the participation of schools in the Student Financial Assistance programs is a key to controlling fraud and abuse, reducing loan default rates, and promoting quality postsecondary education. The Department has taken a number of steps in recent years to improve its monitoring and compliance activities of institutions. During fiscal year 1995, two new administrative systems--the National Student Loan Data System (NSLDS) and the Postsecondary Education Participation System (PEPS) became operational. NSLDS should prevent ineligible students -- and students who provide false information -- from receiving funds. In the 1994-1995 school year, the NSLDS blocked the issuance of $230 million in loans to ineligible applicants. PEPS also aims at improving the gatekeeping functions over student financial aid. Its purpose is to maintain a database of institutional-level loan information that will confirm eligibility and monitor participation of postsecondary education institutions, lending institutions and loan guarantors.
Legislation has also played a vital role in improved performance by giving the Department broader authority to reduce risk and recover on defaults. The Higher Education Amendments of 1992 provided the Department a number of new authorities to deny schools eligibility to participate in Federal student aid programs if the schools have high default rates or other high risk characteristics. The Debt Collection Act, as amended, provided several new authorities to recover past due debts. These added authorities have enabled the Department to substantially increase collections.
Administrative Cost Reductions
As part of Priority 4: "Transform the Department into a high-performance organization", the Department has initiated several efforts to not only increase performance, but also to reduce costs associated with administrative activities. The benefits associated with these activities are quantifiable, as well as being sound management practices.
- The Department is participating in several programs that reduce the need for cash advances to travelers and the administrative costs associated with travel. In addition, by using the American Express Card and the Travel Management Centers the Department received over $130,000 in rebates during fiscal year 1995.
- One of the Department's goals is to reduce the number of purchase orders processed and increase usage of the International Merchant Purchase Authorization Card (IMPAC). The IMPAC card is a credit card carrying the VISA logo. During fiscal year 1995, the IMPAC Card was used for 51 percent of all small purchase transactions ($25,000 or less), thereby eliminating paperwork associated with traditional procurement practices. This percentage will increase in fiscal year 1996 as the range of products and services procured by the card expands. The Department has also developed and implemented an automated system for reconciling the IMPAC bill, creating the payment and posting the expenditure to the accounting system.
- The Department has replaced burdensome process-oriented structures previously used to evaluate management controls with a streamlined results-oriented process. In meeting the Federal Managers Financial Integrity Act (FMFIA) reporting requirement for fiscal year 1995, the Department put in place a structure that encourages ongoing oversight and emphasizes shared responsibility at the highest levels of management. Equally important, the streamlined process will save approximately $1 million per year due to decreased paperwork.
- An accounting and financial management curriculum was developed by the Department to meet the various needs of financial managers, accountants, and program managers within the Department. The curriculum emphasizes financial management and stewardship responsibilities inherent in every job.
- Future financial management initiatives include implementing the Third Party Payment System, an automated system that will enable employees to make selected payments using draft instruments in lieu of cash and government checks. This system allows the Department to issue draft/checks directly to employees. This system is expected to save the Department in excess of $250,000 during a fiscal year.
[Program Highlights and Performance]
[Financial Performance & Process Improvement Initiatives]