Contact: Lindsey Kozberg (202) 401-3026

Mr. Chairman, I would like to thank you for the opportunity to discuss the status of our progress in bringing better financial management and more accountability to the Department of Education. Since taking the oath of office as Deputy Secretary just over 8 weeks ago, I have been grateful for the support that I have received from you and members of the committee. The work done by you and your colleagues over the last few years has helped us hit the ground running by identifying the Department's problems and guiding the new administration where we need to be headed.

We are making steady progress in addressing the Department's longstanding financial management problems. When this effort began back in April, we faced 661 outstanding recommendations for management improvements. Last week, Secretary Paige reported that we have already taken action on more than 300 recommendations. More than 100 recommendations for management improvement have been put into effect and corrective action plans for another 205 have been drawn up and put in place. Tackling these longstanding problems is a top priority for this administration. As you know, President Bush is holding all agency heads accountable for obtaining and maintaining unqualified or "clean" opinions on their annual financial statement audits. But this is not simply an end in and of itself. To get to this goal, we must get beyond the symptoms and deal with the deeper problem, which is a lack of an organizational culture that incorporates accountability. For this reason, Secretary Paige and I are committed to transforming the Department's approach to delivering program services, including the financial operations that support those services, to one where every Department employee, grantee and contractor is accountable for results.

The disclaimers and qualified financial audit opinions that the Department received in prior years were indications of the extensive problems facing the Department. These problems include a serious lack of internal controls that allowed employee and contractor misconduct to occur. This misconduct has tarnished the Department's reputation and damaged the perception of the Department in the eyes of the Congress and the American people.

Management Improvement Initiative

On April 20, 2001, Secretary Paige established a Management Improvement Team (MIT) of senior career managers to identify, resolve and close our outstanding management improvement recommendations, and develop a blueprint to address longer term and structural issues that hinder the efficient and effective performance of the Department. Last week, the Department issued an interim report on our progress during the first 90 days. Our final report, which will be completed by September 30, 2001, will update our continued progress and outline where we are headed in the future. The MIT started out by assessing each of the 661 outstanding recommendations and determining which could be addressed immediately and which would take longer to correct. The team prioritized the recommendations and segmented them into three primary areas: Financial Management, SFA High Risk, and Information Technology Security.

Next, we immediately went after the problem areas. For example, we reduced the spending limits on government purchase cards, some by more than 90 percent. We also reduced the number of employees with access to purchase credit cards. To begin the move to this culture of accountability that I mentioned earlier, we are requiring all purchase cardholders to go through mandatory training on the proper use of the cards, and are now requiring all supervisors to review the card statements each month for the cardholders in their offices. Similarly, we increased controls to ensure against the improper use of travel cards.

We are eliminating the use of third party drafts that were easy targets for abuse. This method of disbursement was intended to replace an antiquated and inefficient expense reimbursement fund, but the benefits of this system clearly did not outweigh the risks. So we decided to transfer the function entirely to the Department of the Treasury. This will simplify our operations and allow us to focus on other remaining problems while virtually eliminating any possibility of fraud in this area. Our auditors identified many weaknesses in the current accounting system, and these weaknesses are being addressed in the implementation a completely new accounting system that will produce fully integrated financial management information. In addition, staff members are reviewing the Department's financial processes and systems to facilitate reconciliation of major accounts and ensure all transactions are recorded properly - providing an important tool used in detecting and correcting errors. Monthly reconciliations of critical accounts are already being done. We are improving internal controls over the procurement of goods and services through strong accountability measures. This is another area that has been subject to abuse and we want to make sure that it does not reoccur in the future. To do this we are updating internal policy directives, informing employees of these changes, and holding managers accountable for their implementation. We are completely reengineering asset management to ensure that proper internal controls and accountability are maintained. We recently completed a reconciliation of the Department's asset inventory, and we will conduct spot checks of this inventory throughout the year as well as annual physical inventories.

Removing the SFA Programs from the GAO High Risk List

The Secretary has made getting the Student Financial Assistance (SFA) programs off the U.S. General Accounting Office's list of "high risk " programs a high priority. These programs have been considered high risk ever since the GAO first began issuing the list in 1990. We have already taken important steps toward removing the SFA programs from this watch list including developing a corrective action plan that incorporates all the outstanding audit recommendations related to SFA and setting 28 SFA performance goals for improving fiscal and program integrity.

I have also directed the Department to address all the financial management and security issues that must be resolved before the SFA programs can be removed from GAO's high risk list.

Information Technology (IT) Security

Despite the Department's increasing dependence upon computer systems for performing its basic business functions, it has not until recently placed a high priority on the protection of its computer systems or provided adequate resources for IT security. Over the past year and a half, the IG has issued several audit reports critical of the Department's computer security environment.

The Secretary and I are committed to improving the Department's information security, and I will personally co-chair with CIO the monthly meetings of the Department's Information Security and Critical Infrastructure Steering Committee to make sure that this gets done.

We have made the following enhancements to our computer security in the last 90 days. These include --

• Purchase and deployment of a new intrusion detection system for the Department's computer network;
• Arranging for disaster recovery facilities for our EDCAPs financial management system and EDnet enterprise computer network.
• Updating our IT Security Policies; and
• Developing a security training program for our IT professional staff and managers and using it to train our employees.

We will also be completing security reviews of each of the Department's 135 information systems under to the Government Information Security Reform Act of 2000 (GISRA).

Fostering a Culture of Accountability

As I mentioned before, the biggest challenge we face is developing a Department culture that emphasizes individual responsibility and accountability. We must be diligent in establishing and enforcing internal controls throughout the Department. In May, Secretary Paige asked all staff to share their ideas and to join in this effort.

Many of the professional career staff at the Department already have rolled up their sleeves and worked hard to help to achieve everything that we've accomplished to date. A couple of them are with me today. Jack Higgins, the Deputy Inspector General who is on loan to us from the IG's office and is heading up the MIT. Phil Maestri, from the Chief Financial Officer's staff and Ann Clough from the Office of Legislation and Congressional Affairs, both of whom have many years of valuable experience dealing with these issues, are also key team members. Secretary Paige and I know that the Jack, Phil, Ann and the rest of the Department's employees are ready and willing to embrace this culture of accountability.

Here are some of the action steps that will help us get there:

• Every senior officer, including myself, will have a performance contract with Secretary Paige which will hold them accountable for results;
• Every manager and employee will have a performance agreement that reflects the Department's goals and objectives, and establishes clear individual job performance expectations, and
• We will provide training for managers and staff on internal financial and administrative controls and ethical conduct.

Fostering a culture of accountability and excellence also requires that we make better use of the performance management tools available under the Government Performance and Results Act. We will --

• Review all current performance indicators for validity, timeliness, and value;
• Align principal office and individual employee performance plans with the revised Department plan; and
• Closely monitor results against these plans.

Finally, Secretary Paige and I recognize that the enactment of the President's No Child Left Behind education reform plan is landmark legislation in bringing accountability to education. We know we cannot expect our schools to be accountable if we aren't accountable here in Washington. We're here to get that done. And as Secretary Paige has said, "There will be no excuses."

I would be happy to answer any questions.

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