Highlights of Reporting Requirements

As shown in the chart below, six problem areas within the Department are considered serious or "material" as defined by the Act. The material weakness added in 1995 is the result of the first Department-wide financial statement audit for the fiscal year ended September 30, 1995. The auditors disclaimed an opinion on our financial statements because they were not satisfied with the reliability of data supporting estimated guaranteed loan liabilities. The Department has taken a more direct approach to developing these estimated liabilities for fiscal year 1996.

Management Control Issues
Material Weakness/Non Conformance	Year Identified	Year To Be Corrected
Student Financial Aid - Institutional gatekeeping and monitoring activities are inadequate	1989	1998
The Department's general ledger cash balances do not always reconcile with the Treasury Department	1989	1998
Accounting for loan losses, interest subsidies and loan origination fees is inadequate	1990	1997
Student Financial Aid - There is no assurance that all schools are submitting audit reports and/or recovering misspent funds	1991	1997
ADP equipment inventory controls are inadequate	1994	1997
The quality of Federal Family Education Loan Program data is unreliable for management decisions	1995	1997

Management Response to Report on Audits of External Entities
The Inspector General Act Amendments of 1988 require departments to submit semiannual reports to Congress regarding management actions taken in response to Inspector General external entity audit recommendations. Audit follow-up activities at the Department are the responsibility of the Chief Financial Officer, who ensures that timely responses are made to all audit recommendations and that appropriate corrective action is taken.

In fiscal year 1996, the Department completed action on 807 audit reports and collected or received promissory notes totaling $9.9 million. Also during the reporting period, the Department took final action on one additional audit report which improved use of almost $119 million in federal funds by educational institutions and state entities.

Prompt Pay
The Prompt Payment Act requires that agencies report annually on the promptness with which they pay their bills. During fiscal year 1996 the Department's payments subject to the Act were made three ways: through the Department of Agriculture's National Finance Center, using the International Merchant Purchase Authorization Card (VISA^® credit card) and issuing third party payment instruments. The Department's prompt payment performance for fiscal year 1996 was the best ever (97.7 percent prompt payments). Late payment penalties were paid on 734 invoices as compared to 1,045 invoices for fiscal year 1995. Furthermore, both the number of invoice payments and the dollar value of the invoices were greater in fiscal year 1996 than in fiscal year 1995 (31,832 payments totaling $521,537, 000 vs. 23,915 payments for $443,400,000). Increased use of government charge cards, coupled with solid cash management practices, has improved ED's performance under the Prompt Payment Act.
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[Financial Improvement Initiatives]

[1996 Financial Statements and Accompanying Notes]