Archived Information

Financial Management Status Report
& Five-Year Plan

Table of Contents

Executive Summary

The Office of the Chief Financial (OCFO) supports the mission of the U.S. Department of Education (Department or ED) "to ensure equal access to education and to promote educational excellence throughout the nation". The OCFO promotes this mission by providing accurate, timely, financial and program information, including grant, contract, and administrative and support services to all of the Department?s stakeholders.

In order to "make the Department a high-performance organization by focusing on results, service quality, and customer satisfaction" (Goal 4 of the Department?s Strategic Plan), OCFO devised its own Strategic Plan to help guide the financial management of the Department. Included in this plan are the following four goals:

Goal 1: The Department?s core financial management system provides reliable and timely financial data to program managers, ED recipients, OMB, the Treasury, and the Congress.

Goal 2: A culture of financial stewardship exists among senior officers and program management personnel throughout the Department.

Goal 3: Department staff, ED recipients, members of the education community and other external entities receive timely information and assistance in their pursuit of Departmental goals.

Goal 4: OCFO personnel are qualified to provide quality service and technical assistance to program managers, contractors, and ED recipients.

These OCFO goals are consistent with the government-wide strategies and initiatives disclosed in the most recent Federal Financial Management Status Report and Five-Year Plan, issued jointly by the Office of Management and Budget (OMB) and the Chief Financial Officers (CFO) Council. Those strategies and initiatives seek to improve financial management systems, reporting, human resources, receivables management, accountability, and the administration of federal assistance programs.

ED is submitting this report in compliance with the CFOs Act requirement that agencies prepare and annually revise a plan to implement the OMB Federal Financial Management Status Report and Five-Year Plan. The following are a few of the report's highlights:

Goal 1: The Department's core financial management system provides reliable and timely financial data to program managers, ED recipients, OMB, the Treasury, and the Congress.


ED's current core financial system, an integrated financial and administrative system, interfaces with program feeder systems and the U.S. Treasury. EDCAPS supports the Department's core management information functions utilizing a seamlessly interfaced client-server environment.

Education's Central Automated Processing System (EDCAPS) Project

In 1994, the U.S. Department of Education (ED) began the upgrade and streamlining of its core management work processes, including the systems and technologies supporting these processes. This effort, entitled Education's Central Automated Processing System (EDCAPS) was sponsored by the Office of the Chief Financial Officer (OCFO).

The EDCAPS project was initiated as the result of the Chief Financial Officers Act of 1990. The project, chartered by the Deputy Secretary of the Department, received unanimous support from Senior Staff. EDCAPS implementation replaced existing legacy financial systems including the Primary Accounting System (PAS), Education Payment Management System (EDPMS), Grants and Contracts Management System (GCMS), and the Central Registry System (CRS). In the near future, functions currently met by PC-TRVL (travel) will be integrated into EDCAPS, and these PC applications will no longer be used. EDCAPS consists of the following primary components:

Financial Management Systems Software (FMSS) provides the functionality identified by the JFMIP Core Financial Management Systems Requirements Document for general ledger and funds management, including budget formulation, budget execution, funds control, and all related internal and external reports. FMSS also provides for the generation of financial statements as set forth by the OMB Bulletins 94-01 and 97-01. FMSS functionally supports receipt management; administrative funds payment management; funds control; cost management, including performance measures; and fixed asset accounting. A commercial off-the-shelf (COTS) software product was chosen for FMSS. ED is using Affiliated Computer Services (formerly Computer Data Systems, Inc's) Information Engineered Financial Accounting and Reporting System (i.e. FARS).

Contracts and Purchasing Support Software (CPSS) supports the contract pre- and post-award process, as well as the purchasing processes. It interfaces with the FMSS at the detail level for fund control, general ledger, accounts payable, and accounts receivable processing. ED selected the CACI Standard Automated Contracting System (SACONS), another COTS product, to provide CPSS functionality.

Grants Administration and Payment System (GAPS) supports the grant planning, pre-award, and award management of ED programs including discretionary, formula, fellowship, and block grants. GAPS interfaces with program office systems (feeder systems) to process obligation and payment data. These feeder systems typically support the planning, scheduling, and award processes performed by the program office to manage programs (e.g., Impact Aid, Campus-Based, Pell Grant). GAPS provides funds control for programs, including payments for grants and direct loans and various other program-related obligations. GAPS has a subsidiary relationship to the FMSS general ledger for program-related obligations, payments, and expenditures. GAPS interfaces with FMSS at the summary level for purposes of funds control and general ledger postings. GAPS supports ED's regulatory development and clearance process and maintains the regulatory library.

Recipient System (RS) serves as the central repository of all recipients having a financial relationship with ED. It maintains core information about a recipient and tracks reference data to support information on recipients (e.g. counties, states, and congressional districts). RS interfaces with systems external to EDCAPS including the Postsecondary Education Participants System (PEPS) and Impact Aid.

The purpose of EDCAPS is to create a single, integrated business processing system for use by the Department and all its customers, to improve customer service and accountability in accordance with the Department's Strategic Plan.

The Program Financial Feeder Systems

Student Financial Assistance (SFA) operates four financial management systems: the Pell Grant, FFEL, Direct Loan, and Campus-Based programs systems. The Office of Elementary and Secondary Education also operates a feeder system, the Impact Aid System. These independent systems interface with EDCAPS to provide financial management data.

The Recipient and Financial Management System (RFMS) is the new name for the system used to report and request funds under the Federal Pell Grant Program for the 1999-2000 award year and beyond. The Pell Grant Recipient Financial Management System (PGRFMS) was the name of this system for award years prior to 1999-2000.

Under RFMS, all institutions submit an origination record and one or more disbursement records for each student who is eligible for a Federal Pell Grant. Origination and disbursement records contain basically the same payment data information reported to PGRFMS. Institutions send RFMS batches of origination or disbursement records as a result of paying or expecting to pay Pell Grant funds to students. Once RFMS accepts an origination record for a particular recipient, the institution submits disbursement records for each payment to the student, just prior to or after the disbursement date.

RFMS authorizes the distribution of over $7.3 billion to over 5,100 participating institutions that permits payment of grants to approximately 4 million eligible students.

The FFEL System is composed of four major components: the Lender and School Subsystem, the Debt Collection Subsystem, the Guaranty Agency Subsystem, and the Support Subsystem. SFA works with participating lending institutions, such as banks and credit unions, to make Federal Family Education Loan (FFEL) program loans, which are guaranteed by state or national guaranty agencies and underwritten by the federal government. FFEL program loans consist of subsidized and unsubsidized Federal Stafford Loans (for students), Federal PLUS Loans (for parents), and FFEL Consolidation Loans (for both students and parents).

Guaranty agencies and lenders provide regular reports on their activities to SFA and receive benefit payments and reimbursements from SFA. ED receives on average approximately 5,000 Form 799 reports from lenders on a quarterly basis. The 36 guaranty agencies submit a monthly Form 1189 and a quarterly Form 1130. In 1998, the last complete year for which we have data, SFA authorized payments to guaranty agencies of more than $2.4 billion and payments of more than $2 billion to lenders. As of September 13, 1999, SFA had authorized payments of over $2.4 billion to guaranty agencies and $1.4 billion to lenders for 1999. Lenders (and their designated servicers) service a cumulative outstanding loan portfolio of about $110 billion. In addition, guaranty agencies paid more than $3 billion to lenders for defaulted claims. The Debt Collections Subsystems process nearly 78 million transactions annually in support of the collection of defaulted student loans. The Support Subsystem processes the financial and accounting transactions resulting from the processing by the other subsystems.

The Direct Loan Program System, which began operations on June 15, 1994, is a new way for students and parents to borrow money from the federal government to pay for education and related expenses after high school. The Direct Loan System performs loan origination, funds drawdown through GAPS, loan servicing, financial accounting, and reporting for federal direct loans. The systems also support program administration, program evaluation, and customer service. For the FY 1998-99 academic year, approximately 1,200 institutions participated in the Direct Loan program processing loans to over 2.3 million borrowers. From the inception of the program through July 1999, 11.7 million loans have been processed.

The Campus-Based Programs System annually processes about 3,800 awards supporting the Federal Supplemental Educational Opportunity Grant Program, 3,400 Federal Work-Study awards, and 1,500 Perkins Loan awards.

The Impact Aid System processes payments through the Department?s payment system to local education agencies in areas where tax revenue is reduced because of Federally owned land.

Cross-Servicing Agreements

The Department presently uses two interagency cross-servicing agreements. First, the Department of Interior provides payroll/personnel support. Second, the U.S. Department of Agriculture's National Finance Center (NFC) travel subsystem is being used.

EDCAPS Improvements

Conversion activities related to the new payment and accounting system complicated the preparation of the FY 1998 financial statements. In fact, the conversion to the new system was the major reason the Department received a disclaimer of opinion on the FY 1998 financial statements after receiving an unqualified opinion on the FY 1997 statements. The audit process revealed three material weaknesses as reported by the auditors:

    1. Financial Reporting Needs to be Strengthened
    2. Reconciliations Need to be Improved
    3. Controls Surrounding Information Systems Need Enhancement

Financial Reporting Needs to be Strengthened

One of the significant weaknesses in the reporting process relates to the Department's new general ledger software package, FMSS. The weaknesses in the general ledger system were driving factors in the Department's inability to prepare accurate financial statements in a timely manner. Currently, FMSS does not allow the user to perform a year-end closing process. For example, the FMSS general ledger trial balances contained two fiscal years of revenue and expense data (FY 1997 and FY 1998), and the assets and equity accounts did not reflect the proper balances. In addition, FMSS does not allow the Department to produce a general ledger trial balance at the reporting group level or at a consolidated level. Instead, FMSS can only generate trial balance at the appropriation level.

Remediation Plan

ED has started a general ledger replacement initiative to replace the FMSS component of EDCAPS. As pointed out above, the software in production has proven to be inadequate for the Department's requirements, and the long term viability of the product and its vendors is suspect.

Actions Completed During FY 1999

Since the general ledger replacement system cannot be implemented immediately, the Department created a separate reporting system for the purpose of preparing group level and consolidated financial statements. ED also enhanced the current system to enable closing on a monthly and year-end basis. These efforts will assist the Department in the accurate and timely production of FY 1999 financial statements.

Planned Actions for FY 2000

Identify and procure a suitable FMSS replacement.

Conduct a parallel conversion and complete implementation.

Phase I

Implement accounts receivable and general ledger functions.

Review and streamline the ED's accounting classification structure

Phase II

Migrate administrative payment functions and program feeder system data feeds (FFELP and Direct Loans)

Implement budget execution and initial Treasury SF-224 reporting capability.

Planned Actions for FY 2001

Phase III

Migrate accounts payable functions for IMPAC Cards and the third party payment data

Integrate contracts and purchasing (CPSS) and travel systems

Phase IV

Transfer all Treasury reporting

Reconciliations Need to be Improved

A major objective on internal controls is to ensure the integrity of the underlying accounting data supporting the financial statements. An important control in this regard is the periodic reconciliation of the Department's accounting records. An adequate reconciliation provides the assurance that processed transactions are properly and timely recorded in the Department's accounting records and financial statements, which then facilitates management's ability to analyze its financial condition and results of operation on a routine basis.


ED has had difficulty identifying and resolving differences between its accounting records and cash transactions reported by Treasury for several years. ED attributes its reconciliation difficulties to inadequate integration between its general ledger system and its payments and funds control systems, which are the original points of entry for many cash transactions. These integration issues result in certain cash transactions not being properly and timely transferred from the originating systems to the Department's general ledger system, thus causing the Department's Fund Balance with Treasury as recorded per the general ledger to differ from Treasury.

Remediation Plan

Actions Completed During FY 1999

OCFO developed a database matching tool that vastly improved the fund balance reconciliation. Matching the data between the general ledger and the Statement of Transactions (SF224) was very labor intensive, taking upwards of 60 days to complete. The new tool has reduced the time required for this effort to 2-3 days. The results include more timely and accurate reconciliations and better access to data. OCFO now prepares monthly fund balance reconciliations at the appropriation and departmentwide levels.

Planned Actions for FY 2000

OCFO plans to reengineer the Statement of Transactions (SF224) process and implement Fund Expedite software. The software will enable the department to perform more rapid and timely reconciliations allowing more resources to be applied to researching differences.

Controls Surrounding Information Systems Need Enhancement

ED still needs to develop, document, and test a comprehensive disaster recovery plan for EDCAPS. In the event of a disaster, the timely restoration of EDCAPS may not be possible; thereby preventing ED from resuming business in an adequate manner. The audit noted the following information systems control deficiencies in addition to the lack of an adequate disaster recovery plan:

Remediation Plan

Planned Actions for FY 2000

Update and test disaster recovery plan.

Develop updated security plan.

Develop and incorporate updated user ID and password standards into the updated security plan.

Standardize user ID and password standards across EDCAPS.

Upgrade physical and environmental controls over computer rooms.

Student Financial Aid Delivery System Improvements

SFA is currently moving forward with a comprehensive strategy to modernize and integrate the systems that support the Student Financial Assistance Programs. Under the Higher Education Amendments of 1998, SFA was transformed into a Performance Based Organization (PBO) to enhance services through increased flexibility and performance incentives in exchange for greater accountability for results. The PBO legislation requires SFA to implement an open, common, and integrated system for delivering student aid that contains complete, accurate, and timely data to ensure program integrity. To reduce costs, SFA is also developing a financial management system that will permit unit cost tracking and control in every segment of SFA?s operations.

In 1999, SFA developed a "Modernization Blueprint" that documents how SFA will design its systems architecture to create a streamlined, integrated delivery system. The Modernization Blueprint continues and incorporates the work SFA, students, educators, and the business community began under Project EASI (Easy Access for Students and Institutions). SFA?s goal is to develop a student financial aid delivery system using state-of-the-art information technology that is:

The Modernization Blueprint?s basic strategy to cut cost and deliver modern service is as follows:

In addition, SFA?s comprehensive plan contains a flexible, long-term acquisition strategy to improve customer service while it leverages legacy IT systems, implements state-of-the-art technology, and reduces the cost of delivering services. These include:

Financial Management System

During 1999, SFA designed a subsidiary-type financial management system that supports SFA and will be integrated with the Department?s financial management system. In addition, SFA established a baseline estimate of the overall costs of delivering student aid and created core measures for judging cost reduction performance. SFA is continuing to validate and refine the measures and baseline costs. Our new financial management system will allow every channel and segment manager to focus attention on making SFA work better and cost less.

During the first year of development, SFA anticipates the development and implementation of the following:

Ultimately, SFA will have a financial management system that will include subsidiary structures supporting all of the PBO?s requirements as well as provide appropriate information to the Department?s financial management system.

Pell Improvements

The new Federal Pell Grant Program?s Recipient Financial Management System (RFMS) was implemented in the 1999-2000 award year for institutions to report student payment information and request funds. A COTS package (Oracle) was selected to provide the basic financial management infrastructure for RFMS processing.

The new system provides institutions* with the following benefits:

* Does not apply to institutions on reimbursement system of payment.

FFEL and Defaulted Loan Collection Improvements

In 1999, SFA completed work with guaranty agencies on the redesign of the FFEL guaranty agency forms?1189/1130. On August 25, 1999, ED submitted a request for an extension on the 1189 and 1130 forms, and began the internal clearance process on Form 2000 (the redesigned 1189/1130). After the internal clearance process is completed, Form 2000 will be submitted to the Office of Management and Budget for approval. The purpose of this work was to streamline reporting processes, improve payment processing and improve the quality and reliability of the information being submitted by guaranty agencies that the Department relies on for payment, monitoring and reporting to management and outside entities. This process included analyzing the three guaranty agency forms being provided to the Department, providing line-by-line justification for all information being provided and a comparison of that information with data elements in the National Student Loan Data System (NSLDS).

In 1999, SFA accomplished the following: In July 1999, SFA sent lenders and servicers invitations to submit their requests for interest and special allowance payments electronically, using EDI transaction sets. This process will provide better and more timely information to the Department on which to make interest and special allowance payments. The Department is also now paying guaranty agencies loan processing and issuance fees based on disbursements reported to the NSLDS.

In 1999, the Department awarded 17 performance-based collection contracts aimed at improving collections of defaulted loans, while reducing private agency costs. On a quarterly basis, the performance of the contractors is reviewed and the assignment of additional defaulted loans and bonuses are based on their performance. These contracts will run until 2001. Currently, SFA is working on the recompete of private collection contracts and expects to award those contracts by the fall of 2000.

Planned FY 2000 enhancements to the FFEL and defaulted loan debt collection systems include the following:

Direct Loan Program Improvements

During 1999 many improvements were implemented in the Direct Loan program. Notably, a pilot, Access America for Students (AAFS) was developed to allow students, parents, and schools access to financial aid information on the Direct Loan and other programs in the Student Account Manager (SAM). AAFS also allows schools to receive funds in a "Just-in-Time" process through a commercial delivery system.

A Program Year Closeout (PYCO) Team for the Direct Loan Program was also formed in 1999 to assist schools with their reconciliation of drawdowns and disbursements with the Loan Origination Center. An automated approach to Direct Loan intersystem balancing was also developed and is partially implemented at this time. The new automated approach provides for a daily and monthly reconciliation of financial transactions flowing between Direct Loan systems, and it readily identifies and resolves reconciliation challenges. We also developed and implemented a process for Certified Public Accountants to perform confirmations of key data elements in the Direct Loan Servicing System when they conduct annual compliance audits of institutions participating in the Direct Loan Program.

In addition, the loan consolidation process was improved to assure more timely and accurate processing of Direct Loan consolidations. Borrowers can now apply for a consolidated loan via the Web; this process is projected to shorten consolidation time. For Academic Year 1999-2000, SFA began using the Master Promissory Note for subsidized and unsubsidized Direct Loans. As a result, borrowers can now sign one note for both an unsubsidized and a subsidized loan.

Enhancements planned in 2000 in the Direct Loan program include the following:

The National Student Loan Data System (NSLDS) Improvements

NSLDS was implemented in November 1994. It serves as the central database for Title IV loan and grant level information. NSLDS includes loan-level data on the FFELP, Direct Loan Program, and the Federal Perkins Loan Program. NSLDS also includes data on Pell Grant recipients as well as overpayment statuses for both Pell and Federal Supplemental Educational Opportunity Grants (FSEOG).

NSLDS is currently used to prescreen applications for Title IV aid to reduce the potential default exposure of the Department of Education. The prescreening process prevents applicants who are in default on previously awarded aid, from receiving further loan or grant assistance. The applicant?s loan history is provided to the Central Processing System (CPS) for inclusion with the Student Aid Report/Institutional Student Information Report (SAR/ISIR). Financial Aid Administrators also use this information to prevent borrowers from exceeding maximum loan limits. For school year 1998-1999, NSLDS also implemented a postscreening process whereby institutions are advised when a student?s eligibility for aid may have changed.

NSLDS also supports a variety of operation functions aimed at improving program administration and delivery of student aid, incorporating the application of automation and standardization. Various system functions and the statuses of each are as follows:

The Postsecondary Education Participants System (PEPS) Project

This contract supports the Department?s program integrity efforts by providing detailed information on all institutions participating in federal student aid programs, as well as other programs authorized under the Higher Education Act. PEPS acquires data from a web application completed by postsecondary institutions when they apply for initial or continued participation in the programs, uploads from the Audit Clearinghouse, interfaces with the FFEL system and NSLDS, and from on-line data entry performed by SFA staff and the guarantors. Some PEPS data include: data on school eligibility and certification, educational programs, accreditation, default rate history, program review results, and audit findings. Since the first modules of this system came on line in FY 1995, this system has been an integral part of the Department?s gatekeeping efforts. In addition, the PEPS system is used by guarantors, accreditors, state licensors, state education agencies, the Office of Inspector General, the Government Accounting Office, and the Office of General Counsel.

In FY 1999, SFA completed research into the feasibility of converting PEPS into a web-based application, and is currently completing development activities on the system?s final modules: Direct Loan school selection and information modules and guarantor and lender default rate screens. In addition, SFA began major revisions to existing modules, including eligibility and certification; the PEPS security module; the PEPS school file provided to NSLDS, Pell, and Direct Loan, and guarantor systems, and is in the process of revising the OPE ID to allow IPOS to number school locations over 99.

In FY 2000, subject to availability of funds, SFA plans to add key financial statement and surety information to PEPS, as well as information on administrative actions and appeals.

Reporting Year 2000 (Y2K) Issues

The Department of Education (ED) completed its systems conversion effort with the last system being implemented on March 8, 1999. One hundred percent of the Department?s 175 systems (including all Departmental financial systems) are either retired (28) or are Y2K compliant and fully implemented (147).


Goal 2: A culture of financial stewardship exists among senior officers and program management personnel throughout the Department.

Financial Management Organization

The Office of the Chief Financial Officer (OCFO) is comprised of five primary organizations: Contracts and Purchasing Operations (CPO), Financial Improvement and Post Audit Operations (FIPAO), Grants Policy and Oversight (GPOS), Financial Management Operations (FMO), and Financial Systems Operations (FSO). During fiscal year 1998, OCFO reorganized to better align functional responsibilities, streamline operations, and reduce the number of management layers. OCFO has reduced its number of supervisors by approximately one-half and its employee to supervisor ratio is now 11:1.

Other Principal Offices (POs) within the Department have financial management responsibilities within their respective program areas. For example, Student Financial Assistance has financial management responsibilities related to student financial assistance programs and has its own Chief Financial Officer.

Development of Performance Measures

ED has developed measures to monitor financial management performance, based on indicators defined in the OCFO Strategic Plan, the departmentwide Financial Management Strategic Plan, and by OMB. Performance measurement data is reported in the Department?s fiscal year 1998 Accountability Report and in the Annual Performance Plan and Report. Ongoing reinvention efforts are designed to improve overall performance.

Federal Managers Financial Integrity Act

In fiscal year 1995, OCFO led a successful departmentwide effort to reinvent the process used to meet the requirements of the Federal Managers Financial Integrity Act (FMFIA). The FMFIA requires agencies to assess the controls in place to assure that the government?s assets are protected and to report serious weaknesses to the President and the Congress. Traditionally, this assurance was provided through a series of paper and labor intensive self-reviews performed by all Principal Offices at ED. The estimated cost of training reviewers, performing the reviews, managing the process, and producing the report in previous years could exceed $1 million.

The reinvented process used to assess management controls places the responsibility of identifying weaknesses and non-conformances on office managers. Senior Officers review the status of the weaknesses identified, add new weaknesses they feel need to be reported, and certify that all known material weaknesses for their office are reported. The Senior Officer certifications form the basis for the report to the President and the Congress. This reinvented approach brings a high level focus to the FMFIA process and allows personnel to concentrate on fixing previously identified problems.

As highlighted in the fiscal year 1998 FMFIA Report, ED has identified four areas within the Department as material weaknesses (most involving the area of student financial assistance) and reported two material financial system non-conformances. Corrective actions are being implemented to resolve the weaknesses and non-conformances.


Credit Management/Debt Collection

ED has designed and implemented a comprehensive credit management and debt collection program that enables the agency to effectively administer its multi-billion dollar student loan and other programs. The credit management and debt collection program covers each phase of the credit cycle--including prescreening of loan applicants, account servicing, collection and close-out--and it conforms to the governmentwide policies in the Federal Claims Collection Standards, OMB Circular A-129, and the Debt Collection Improvement Act.

The national student loan cohort default rate has been steadily declining and has been cut more than half, from 22.4 percent in 1991 to 8.8 percent in 1997. The declining default rate is a function of ED?s aggressive debt collection program and steps it has taken in the gatekeeping area to remove schools with high default rates from participating in federal student loan programs.

Borrowers who default on student loans face serious repercussions, such as the withholding of federal income tax refunds, wage garnishment, adverse reports to credit bureaus, denial of further federal student aid, and litigation. To avoid these sanctions, defaulters now have the option to consolidate their loans and establish an income-based repayment plan that more realistically matches their ability to pay.

ED continues to conduct computer matches with eight other Federal agencies as part of its effort to strengthen the management and oversight of student financial assistance programs. ED has computer matching agreements with the Department of Defense, Department of Justice, Immigration and Naturalization Service, Department of Housing and Urban Development, Internal Revenue Service, Selective Service, Social Security Administration and the U.S. Postal Service. These computer matches are designed to ensure that students meet various eligibility criteria and to increase the collections from students who have defaulted on their loans.

The Department has an agreement with the Department of the Treasury to furnish collection services for institutional and miscellaneous receivables that become more than 180 days delinquent as provided for in the Debt Collection Improvement Act. ED has been quick to take advantage of the agreement and has forwarded 1,787 institutional debts totaling $827 million for additional collection actions. ED is benefiting from the greater resources of Treasury for general collection activities as well as its ability to offset against other Federal disbursements.


Goal 3: Departmental staff, ED recipients, members of the education community and other external entities receive timely information and assistance in their pursuit of Departmental goals.

Cooperative Audit Resolution and Oversight Initiative

The Department has been working with states and school districts to provide support and flexibility to implement legislative requirements without impairing accountability for results. Since its inception in July 1995, the Cooperative Audit Resolution and Oversight Initiative (CAROI) has used four strategies to advance this objective: (1) creating and maintaining dialogue with states, (2) working with states to address audit findings that are open or under appeal, (3) improving the process used in single audits of federal aid recipients (annual or biennial evaluations of financial operations and compliance requirements of all major programs in accordance with the Single Audit Act), and (4) coordinating within ED the resolution of audit findings with monitoring site visits and technical assistance. The CAROI program is a previous winner of Vice President Gore's Hammer Award and The Association of Government Accountants recently recognized this innovative program as a government-wide "Best Practice."

Increased number of CAROI states

At the end of fiscal year 1999, ED had undertaken 29 CAROI projects in 22 states. The target level of participation is 40 projects by the end of 2000. CAROI serves as a collaborative method that links program, finance, auditing, and legal staffs at the federal and state levels to provide alternative and effective approaches to resolve findings and recurring problems identified through audits. The goal of CAROI is to improve education programs and the management of those programs at state and local levels through better use of audits, monitoring, and technical assistance. A primary objective of addressing issues in a straightforward and collaborative manner is to minimize costly litigation.

Recurring findings

Recurring findings identified during audits, such as those under the Single Audit Act, provide one measure of the success of corrective action taken by grantees to better manage federal education funds and adhere to grant terms. CAROI efforts to resolve audits to date, in specific States, have yielded reductions in instances of time distribution violations and other significant recurring findings. The Department plans to continue to employ the CAROI approach to effectively address audit issues and prevent findings from recurring in subsequent years. Data collections to create baseline data for future performance measurement began in late 1998.

Improved Access to Grant and Payment Information for Recipients

The EDCAPS Grants Administration and Payments System (GAPS) was developed and implemented by ED to streamline payment processing and reporting for our recipients. GAPS provides recipients on-line capabilities to request payments from ED and continuous access to current grant and payment information. In addition, recipients are no longer required to submit monthly expenditure reports. These changes provide more accurate and timely financial information to our community partners nationwide and reduces reporting burdens.


Goal 4: OCF&IO personnel are qualified to provide quality service and technical assistance to program managers, contractors, and ED recipients.

Utilizing a Core Competencies Based IDP Process to Support Career Development

As a key step to ensure the development of a high quality financial management workforce, OCFO maintains a standard that all OCFO personnel will receive a minimum of 40 hours of job-related training annually. This standard was established as an average baseline in FY 1992 and was strengthened for FY 1999 to address the rapid technological changes in financial management. The responsibility for identifying and participating in appropriate training is the joint responsibility of each staff member, his or her immediate supervisor, and the division level director. An Individual Development Plan (IDP) process is being implemented for FY 2000 linked to the Core Competencies for Financial Management Personnel in the Federal Government. The IDP process will serve as an assessment and planning tool for OCFO staff in scheduling career development and related training activities. The process will also enable division level directors to assess individual and organizational training needs and develop needs based training budgets.

In FY 1996, ED developed a basic accounting course with a focus on proprietary and Federal budgetary accounting applications. The course consists of ten 3-hour modules and includes case study assignments modeled on the ED accounting environment. The course, taught by OCFO staff, broadens the accounting capabilities of employees in all offices, as well as helps to develop an understanding of the ED financial management process. The Department?s Training and Development Center selected this course for a pilot project in developing computer-based learning applications. The enhanced applications were completed during FY 1999 and will support course participants in FY 2000. More than 250 ED staff completed the course through FY 1999.

Supporting the objective to attract and retain high quality staff, OCFO cooperates with the Training and Development Center to ensure that qualified training opportunities are available at ED to fulfill the continuing professional educational (CPE) requirements of ED staff holding CPA, CMA, and CGFM certifications. In FY 2000 ED will continue to be recognized by the National Association of State Boards of Accountancy (NASBA) as a qualified CPE provider.


Discussion of Audited Financial Statements

The Department of Education operated under a new accounting system in FY 1998. The accounting system has several limitations in the financial reporting process. The weaknesses with the system, such as the system's inability to perform a year-end closing process or to produce automated consolidated financial statements, were significant factors in the Department's inability to prepare consolidated financial statements in a timely manner. In addition to the weaknesses surrounding the accounting system, the Department was unable to perform timely reconciliations and was not able to provide sufficient timely documentation supporting transactions including adjustments from the trial balance to the financial statements. As a result of these limitations, the independent auditors were unable to issue an opinion on the FY 1998 financial statements.

As outlined previously in this report, the Department is diligently pursuing corrective actions that will allow the production of accurate and timely financial statements for FY 1999. The Department is making every effort to achieve an unqualified opinion on the FY 1999 financial statements.

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