Archived Information -- Fiscal Year 1997 Annual Accountability Report

Highlights of Reporting Requirements

Federal Managers' Financial Integrity Act

To protect Federal programs from fraud, waste and mismanagement, the Federal Managers= Financial Integrity Act (FMFIA) requires agency managers to conduct regular evaluations of management controls with special attention to accounting systems. FMFIA compliance is embodied in larger efforts to reform management processes at the Department.

As shown in the summary tables on the following pages, seven problem areas within the Department are considered serious or "material or non-conformances" as defined by the Act.

Letter to President from Secretary Riley

Summary Tables of Management Control Issues

Material Weakness

Year Identified

Year To Be Corrected

Student Financial Aid Gatekeeping - Effective gatekeeping and monitoring of institutions is critical to reducing fraud and abuse in the Title IV programs and needs to be improved. The Department has been restructuring to use a case management team approach to improve processes for monitoring schools. Training in the risk-analysis system to assist in case management is almost complete. Actions have been expanded to include improvements in the oversight of lenders. Lenders will be held more accountable for compliance with program regulations through more focused use of IPA audits and other means.



Student Financial Aid Audit Reports - The Department did not assure that all schools submitted audit reports, or that it recovered all misspent funds. Design modifications are being made to the Postsecondary Education Participants System (PEPS) to provide for automatic generation of audit report deficiency letters that will be forwarded to institutions and create a reliable database for monitoring audit compliance.



Quality of Data Needed to Support Management Decisions - Student Financial Aid does not have quality data to provide for effective management decisions. Student Financial Aid is analyzing and evaluating systems which will provide common data elements, common transaction processing, consistent internal controls and efficient transaction entry.



Direct Loan Consolidation Accounting Systems - Direct Loan financial statements required adjustments because the Department did not timely identify and correct incorrect and duplicate fundings and bookings of consolidation loans, and did not correct transactions rejected by the Central Database System (which included accounting). The Department is developing an auditable accounting system with adequate, accurate and reliable loan data sufficient for preparing comprehensive financial statements.



ADP Inventory Control - The Department's inventory controls on office automation equipment are unable to track office automation equipment moves, excesses, replacements, and installs. The correction plan provides for an inventory process and implementation of a new Client/Server Commercial Off-The-Self software application system in accordance with the strategic goals of the department.



Non Conformance

Year Identified

Year To Be Corrected

Federal Family Education Loan System - The Department did not have a methodology for determining the loan loss for Federal Family Education Loans using validated data. The Department established this liability during 1998 using validated data.



Financial Management Systems - The legacy core financial management systems had numerous functional and technological problems. The modified core financial system was replaced during 1998 and is able to produce auditable financial statements. Cash transactions and general ledger balances will be able to be routinely reconciled with Treasury in all 200 grant program accounts quarterly, with any necessary adjustment fully documented.



Semi-Annual Reports to Congress on Audit Follow-up

As required by the Inspector General Act Amendments of 1988, the Department reports on management actions in response to audit recommendations. Management is required to report on three areas:

I. Number of Audit Reports and the Dollar Value of Disallowed Cost

Disallowed costs are questioned costs management, in a management decision, that have been sustained or agreed should be recovered by the federal government. The information contained in the table to the right represents audit reports for which receivables or promissory notes were established. During 1997, final action was taken on 51 percent (642 of 1263) of the total number of reports which were pending final action. This represents a 33 percent reduction in the number of audits pending final action at year end.
Management Report on Final Action Audits with
Disallowed Costs for the Fiscal Year Ending
September 30, 1997

Number of Reports

Disallowed Costs

Beginning Balance 10/1/96



Plus Management Decisions



Pending Final Action



Less Final Action



Ending Balance 9/30/97



II. Number of Audit Reports and Dollar Value of Recommendations that Funds be Put to Better Use

A recommendation that funds be put to better use implies that management's implementation of specific recommendations could result in more efficient use of funds. It is significant to note that of the 13 audit reports with Better Use of Funds (BUF), eight reports with a total value of more than $8.5 million were closed (final action taken). This represents a closure rate of 20 percent better than the previous year.
Management Report on Final Action with
Recommendations That Funds Be Put to Better Use
For Fiscal Period Ending September 30, 1997

Number of Reports

Dollar Value of BUF

Beginning Balance 10/1/96



Plus Management Decisions



Pending Final Action



Less Final Action



Ending Balance 9/30/97



III. Reports Pending Final Action One Year or More After Issuance of a Management Decision

Disallowed Costs: OIG Audits: On September 30, 1997, the Department had a total of 17 OIG internal and nationwide audit reports on which final action was not taken within one year of the issuance of a management decision. Forty-seven percent of the 17 reports were 1 to 2 years old. The remaining 53 percent were 2 to 4 years old. Implementation of corrective actions that would close the audit reports, extend from early in 1988 to late 1999. Many corrective actions are dependent upon major system changes that are currently being implemented. One of these 17 reports contained a BUF finding amounting to $1.9 million. For detailed information on these audits, refer to previously issued Semiannual Reports to Congress on Audit Follow-up Numbers 16 and 17.

Disallowed Cost: All Other Audits

As of September 30, 1997, the Department had 397 reports with disallowed costs amounting to $215 million (this number excludes appeals). A total of 150 reports were in appeal status during this period, amounting to $178 million. Reasons for final action not being completed after one year include: legal review in process; bankruptcy proceedings in process; under the review of the Financial Improvement and Receivables Group; referred to DOJ for write-off or litigation; and billing cycle in process. For detailed information on these audits, refer to previously issued Semiannual Reports to Congress on Audit Follow-up Numbers 16 and 17.

Prompt Pay

The Prompt Payment Act requires agencies to report annually on the promptness of disbursing funds to vendors. The Department's prompt payment performance for fiscal year 1997 was the best ever (98.5 percent prompt payments). Late payment penalties were paid on 520 invoices as compared to 734 invoices for fiscal year 1996, even though the number of invoice payments was greater in fiscal year 1997 than in fiscal year 1996 (36,654 payments versus 31,832 payments).

Debt Collection Improvement Act of 1996 (DCIA)

The Department is in compliance with the major provisions of the Debt Collection Improvement Act of 1996 (DCIA) and is recognized as the lead agency throughout the federal Government with respect to its participation in the Treasury Department's administrative offset and cross-servicing programs.

During fiscal year 1997, the Department referred over 2.6 million delinquent student loans, valued at $13.07 billion, to the Treasury offset program. In addition, over 1,100 delinquent institutional receivable accounts, valued at $379 million, were sent to Treasury for administrative offset and for cross-servicing. The Department has been collecting defaulted student loans through an offset program with the Internal Revenue Service (IRS) since 1987. The new Treasury offset program will expand upon the IRS offset to include most other federal disbursements.

With respect to the electronic funds transfer requirement in the Act, 91 percent of the Department's payments are made electronically. Recipients of these payments include institutions, businesses, corporations, and individuals.


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