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Mr. Chairman and Members of the Subcommittee:
Thank you for inviting me to appear before you today. I welcome this opportunity to talk about the approach Secretary Riley and I have taken to improve the U.S. Department of Education's programs for students, families, educators, and taxpayers over the past seven years.
The Department of Education has worked hard with educators to raise student achievement and help all children meet challenging standards. New high academic standards are in place in all 50 states. The nation's reading scores are up in all three grade levels tested (4th, 8th, and 12th grades) for the first time ever. Math scores have also improved. And more high school seniors than ever—65 percent—are going straight to college.
Secretary Riley and I believe in the importance of the work of this Department, so improving the efficiency and effectiveness of our programs is always high on our agenda. We believe in our employees; they are highly motivated and dedicated people who strongly believe in the importance of their work and the Department's mission.
In a study of the effectiveness and efficiency of the Department's management, a 1999 report by the General Accounting Office confirmed that over 99 percent of the fiscal year 1996 appropriations for 10 of the largest K-12 education programs reached the states. Another indicator of efficiency is that we administer over $6 million in grants and loans per employee, the highest ratio of any federal agency. Nearly one-fourth of our employees are engaged in investigating fraud and abuse and enforcing civil rights laws. We have one-third fewer employees than were necessary to administer our programs in 1980, even though the budget for our investments in students, schools, and colleges has doubled.
To allow our customers to focus on education results, rather than paperwork, we have reduced regulatory burdens by eliminating about one-third of our regulations. Under the 1994 amendments to the Elementary and Secondary Education Act, states may submit a single, consolidated application for most ESEA programs, reducing paperwork by 85 percent. To implement our authority to waive statutory and regulatory requirements that block innovative reform, we established a hotline for our customers. Of the 648 waiver requests, roughly 85 percent were either approved or withdrawn because applicants learned they already had sufficient flexibility.
In improving our programs, we have benefited from constructive recommendations and assistance from Congress, the General Accounting Office (GAO), and the Department's Office of the Inspector General (OIG). We have fully addressed the issues presented by 203 of the 233 audits issued by the GAO and OIG that were either still unresolved in 1993 or issued since 1993. Thanks to our progress addressing these issues, there are less than half as many open audits as there were six years ago. We are working hard to resolve the remaining issues.
We have also taken advantage of the management tools provided by Congress. For instance, we have defined our vision for the Department in our Strategic Plan and our Annual Performance Plan, created in response to the Government Performance and Results Act (GPRA). Last year's annual plan received high marks from Congress. This year's plan built on that success by strengthening performance indicators, expanding baseline data, and developing stronger links between strategic plan objectives and individual programs. We have added a new section to our strategic plan that lists all major outstanding GAO, OIG, and internal evaluation findings and our plans to address them.
As Acting Deputy Secretary, I have insisted for the last two years that all senior officers develop performance agreements with clear objectives that are aligned to the strategic plan. Senior officers are encouraged to manage to those objectives and, whenever possible, "push them down" by evaluating their managers on their progress toward the objectives.
We are the first agency I know of to develop standards to assess the quality of program performance data in our GPRA plan, an effort we have undertaken in cooperation with the OIG and the National Center for Education Statistics. The OIG is evaluating our data quality process, and I understand it plans to issue a report when we release our next annual plan.
Our strategic plan specifically addresses financial management issues through objective 4.6: "The management of our programs and services ensures financial integrity." The plan's strategies include reliable, centralized data; performance-based contracting; and enabling staff to maintain and develop core financial management competencies.
We have also moved quickly to implement the Performance-Based Organization created by the Higher Education Amendments of 1998. The new law gave Student Financial Assistance (SFA) greater flexibility, technical expertise, incentives for high performance, and accountability for results. Over the past year, SFA has hired additional senior managers with specialized expertise, surveyed its customers through the customer service task force, and developed a modernization blueprint to integrate and improve the student aid systems. SFA has completed the first year of its major SFA systems modernization effort to improve service and reduce costs. The effort is designed to integrate and simplify the systems used to deliver, oversee, and record student financial aid.
To address the Clinger-Cohen Act, we have established an Information Technology Investment Review Board (ITIRB) that meets monthly to review and approve information technology policies, procedures and projects. The investment management and capital planning process is under way for all of our offices. Due to improving technology and changing organizational needs, we will continuously review new technologies, revise requirements, and improve work processes.
At the same time, as you know, we have provided many thousands of pages of information requested by this Subcommittee. We hope this information on the Department's management, contracts, and programs has been helpful to the Subcommittee.
I am also proud of our efforts to improve customer service. The Internet offers great potential to disseminate information much more broadly and less expensively than ever before. As I indicated in a letter to the Chairman last week, our web site now offers about 1,600 publications and more than 30,000 files. In October, it was visited by more than 1.1 million people, twice as many as in October of last year. Teachers named the Department's web site and the Educational Resources Information Center (ERIC) site we sponsor as their first and second most frequently visited sites, respectively, in a 1998 survey by Quality Education Data.
Our web site provides information on funding opportunities in a format that is highly navigable and easy to access. We provide descriptions of all our discretionary and formula grant programs with eligibility criteria and plain-language guidance on the grants process and grant application packages. Since January 1999, the grants web page has been viewed more than 200,000 times.
We hope to move toward secure, paperless grant processing that will include application processing and peer review over the Internet. In fiscal year 1999, we posted applications for 85 percent of the 162 grant competitions on the web and tested a fully electronic process through the Reading Excellence grant competition. This year, we plan several pilots to distribute, receive, and peer review grant applications electronically.
The Free Application for Federal Student Aid (FAFSA) on the Web allows students and families to apply for financial assistance online. FAFSA on the Web is faster and easier for students to file and the Department to process. As of November 1, with nearly seven months remaining in the 1999-2000 school year, the Department has received nearly one million FAFSA on the Web applications, twice the number received all last year.
We are using electronic mail to let teachers, principals, parents, and others know about the availability of Department publications and grant opportunities. We are also working with other federal agencies to make it easy for teachers, parents, and students to find thousands of lesson plan ideas and learning resources on one web site.
To further improve customer service and reduce costs, we established the Education Publications Center, or ED Pubs, in May 1998 as a one-stop service center for our customers to request free of charge our publications, videos, CD-ROMs, and other information products. ED Pubs receives over 1,400 requests a day by telephone and electronic mail.
ED Pubs scored an index of 80 on the recent University of Michigan American Customer Satisfaction Index Customer Service Survey, eight points above the national index of 72 for 170 premier private sector corporations. This score compares favorably to the best in business such as Federal Express, Nordstrom and Chrysler. Customer complaints were very low at four percent, compared to the private sector average of 18 to 24 percent. And ED Pubs has already saved taxpayers over $1 million on postage since its inception.
Even as we have made these structural improvements, we have met other pressing, high-visibility challenges. We are processing student financial aid applications faster than ever, experiencing our third straight year without a disruption, and expect more than one application in four to be filed electronically, the most ever. For the last two years, the Direct Consolidation Loan program has been smoothly processing consolidations well within our 60-day performance standard, including a period when its workload increased by as much as tenfold. In fiscal 1999, the Direct Loan program consolidated $8.1 billion in loans for over 400,000 students. This volume amounts to approximately three-fifths of all student loan consolidations completed in FY 1999 by any source.
Achieving Year 2000 compliance has been a high priority for the Department because so many of our systems are critical to the delivery of more than $50 billion annually in federal financial assistance to more than eight million postsecondary students. The Department brought all 175 of our data systems—including our 14 mission-critical systems—into Year 2000 compliance well within the Office of Management and Budget's government-deadline of March 31, 1999. OMB places us in its highest Y2K readiness tier.
With the renovation of our systems now complete, we are focusing on contingency planning and continued data-exchange testing with our external partners. We are offering data exchange tests with institutions of higher education until mid-December, and I strongly encourage any institutions that have not yet tested with us to do so.
In a May 1993 report titled "Long-Standing Management Problems Hamper Reforms," the General Accounting Office described the difficult situation we inherited seven years ago. "The first Secretary of Education had only a few months in which to try to organize the Department before a new Administration took office. The next Secretary made dismantling the Department a formal goal and did not request a budget for it in fiscal years 1983 and 1984. Subsequent Secretaries focused on external policy agendas, devoting little attention to departmental management."
The report continued, "The financial management of ED's programs suffers from a lack of a unifying vision and clear priorities. In the past, some managers have discounted fiscal integrity as a goal, believing that the Department existed largely to get money out to the states and local grantees on time....Because its financial management system does not provide adequate financial controls and cannot produce accurate and reliable information, ED cannot ensure that its programs are financially sound."
In response to this GAO report, Secretary Riley led a comprehensive effort to hire highly skilled new staff, improve accounting systems and procedures, and focus more management attention and resources on Department programs. In the area of financial management, the Department developed a Financial Management Strategic Plan, redesigned our core financial management systems, and improved our cash management performance.
The Department's management improvements over the past seven years have achieved savings that could fund our administrative budget many times over:
In 1994, the Department established a three-part strategy to strengthen our financial management: (1) improving the quality of our data; (2) modernizing and integrating our systems; and (3) coordinating our financial management and improving our financial reporting across the Department. Our efforts culminated in 1998 with a new financial management system, the Education Central Automated Processing System (EDCAPS), which became fully operational in 1998. Prior to EDCAPS, the Department relied on several stand-alone systems to perform the functions of financial management, contracts and purchasing, grants administration, and payment management.
The Department, in its financial management improvement strategy, concluded that integrating these systems would allow us to process financial transactions with other program participants more quickly and conduct annual program account reconciliation. The Department integrated these functions into EDCAPS, a centralized financial management system with four modules: the Grants Administration and Payments System (GAPS), the Financial Management Systems Software, the Recipient System, and the Contracts and Purchasing Support System. After extensive inter-system testing with both internal and external customers, the Department's transition to EDCAPS concluded in May 1998.
The Department devoted a substantial amount of staff and financial resources into supporting the audit of the FY 1997 financial statements over a period of 20 months. Our work included time-consuming, manual processes to verify our data. This intensive effort led to a clean opinion on our FY 1997 financial statements. We were pleased with this achievement but continued to move forward with our plans to strengthen the financial management system, including the development of a new general ledger system.
The Department's preparation of the FY 1998 financial statements was delayed for a number of reasons. First, our intensive effort to support the FY 1997 financial statements had delayed the start of the preparation of the FY 1998 audit by four to five months. Second, the Department and other government agencies were required for the first time to prepare two new major financial statements for FY 1998, a statement of financing and a statement of budgetary resources. Third, the Department was using its new standard ledger software, i.e.FARS, to prepare its financial statements for the first time. And fourth, we faced continuing data quality issues that needed to be addressed. Our efforts to review our financial records and establish reliable reconciliation procedures took far longer than anticipated. These developments made the preparation of the FY 1998 financial statements a more extensive and complex process than ever before.
Delays in preparing FY 1998 financial statements and the potential of a prolonged FY 1998 process that would jeopardize our FY 1999 audit ultimately led us to accept our auditors' recommendation to suspend work on the FY 1998 statements. This mutually agreed-upon decision was reached after full consultation with the OIG, the independent auditors, and OMB. As a result, the Department's auditor, Ernst and Young, did not express an opinion on our FY 1998 consolidated financial statements.
I appreciate the hard work of the Department's auditors, and I believe their report is accurate, even-handed, and of high quality. While our auditors identified issues that the Department must address, they did not report that any funds were lost, misallocated, or stolen. The disclaimer they issued in no way means that our financial statements are "unauditable," as some have said. The Department ultimately produced a complete set of FY 1998 financial statements and balances, and I believe that the audit could have been completed if there had been necessary time and resources.
Although the Department is committed to working toward an unqualified opinion on its financial statements in future years, the difficulties we are experiencing are hardly unique. Only 12 of the 24 agencies covered by the Chief Financial Officers Act received an unqualified opinion on their FY 1998 financial statements.
While we had worked to achieve a different result on our FY 1998 audit, our efforts over the last year were not wasted. Rather, they form the foundation for future success. We have already completed responses to more than half of the auditors' FY 1998 recommendations and are making headway on the others.
We have worked hard to address the material weaknesses identified by our auditors. In FY 1997, our auditors identified four material weaknesses.[1] In FY 1998, we resolved the material weakness involving the quality of data underlying liability estimates for the $120 billion Federal Family Education Loan and Direct Student Loan programs. We improved these estimates through the validation and use of loan-level data from the Department's National Student Loan Data System. The auditors also recognized other improvements to our financial management, including stronger oversight of guaranty agencies and better controls over postsecondary institution audits.
We have also made substantial progress in resolving the issues which were identified as the three 1998 material weaknesses. We are taking the following actions to address these weaknesses:
We have improved our reconciliation process by hiring outside experts, receiving training and technical assistance from the U.S. Department of the Treasury, and focusing attention on the suspense, grantback, and budget clearing accounts. We have also increased the frequency of all three types of reconciliation.
The Department's staff and auditors have begun work on the Department's financial statements for FY 1999, which concluded on September 30, 1999. We are currently on schedule to deliver audited financial statements by the deadline of March 2000.
We have delivered a consolidated general ledger trial balance (on November 1) and financial statements (on December 1) to our independent auditor, eight months ahead of last year's timeline and as called for by our auditor?s schedule for the FY 1999 audit. These deliveries, in themselves, fulfilled a major goal of the corrective action plan and mark the first time the Department has completed its financial statements within the timeline required to meet statutory reporting deadlines.
Ultimately, our efforts to improve the Department's financial management will be evident in the results of our FY 1999 audit. But, in fact, our efforts to improve reporting procedures were key to our ability to deliver FY 1999 financial statements to our independent auditor on December 1. We are hopeful that our efforts will ultimately result in an unqualified opinion on our financial statements.
We have pledged ourselves to the task of continuing to promote the Department's full financial health, which includes—but is not limited to—clean opinions on the Department's future financial statements. Strong financial management includes not just the results of the audit at the end of the year, but also the sound management of federal funds, payments, and receipts; the timely reporting of financial information; and the reduction of management costs.
We will continue to improve in these areas. I believe that the FY 1999 audit will validate our progress. But more important, our work will contribute to strong and healthy financial management into the future.
I have already discussed many of these initiatives: our improved reconciliation processes; enhanced computer security; and strengthened financial reporting. We will continue to aggressively attempt to prevent student loan defaults and to collect on defaulted loans. We will also continue to reduce our unit operating costs. Student Financial Assistance, for instance, intends to reduce its unit costs by one-fifth over the next five years. To facilitate this reduction, SFA will implement an interim cost accounting system this year to measure unit costs of major SFA business processes and provide managers with costing information for important processes within their organizations.
We have also begun our effort to purchase a new general ledger system to work within EDCAPS. Our current system utilizes a commercial financial management software package, i.e.FARS, which failed to meet our full performance expectations. Moreover, our contractor, Computer Data Systems, Inc. (CDSI), was sold and no longer markets or routinely maintains i.e.FARS as a product to the federal government. The successor company, Affiliated Computer Services, Inc. (ACS) will continue to maintain the product for the Department until the replacement system is in production.
As a result, we will acquire and implement a new system, certified as meeting the Joint Financial Management Improvement Program standards, utilizing performance based contract provisions. We expect the new accounting system to improve upon i.e.FARS's capabilities in budget execution and financial reporting. It will also improve functionality for receipts, payments, and cost and performance management.
The new accounting system will be capable of producing an automated closing of the Department's books, efficiently ending the fiscal year. This new capability will significantly increase the speed of both standard and ad hoc reporting and decrease data storage requirements.
In addition, the new system will better integrate the other three EDCAPS modules into a more robust system. As a result, our systems will require fewer points of reconciliation and will have higher data integrity.
We have brought in an independent verification and validation contractor to ensure that the new system will meet or exceed our standards. Our new general ledger system will be in place sometime in 2001.
We are also continuing to improve the quality of the data in our systems, particularly our general ledger and the National Student Loan Data System (NSLDS). I described earlier our enhanced reconciliation procedures that have improved the data in our general ledger. We have also improved the quality of the data in the NSLDS by working with guaranty agencies, which are financial institutions in the guaranteed loan program, and establishing automatic data edits. A June 1999 report prepared by a Department contractor found that NSLDS's data anomalies are well within expected statistical tolerances for databases of its size and complexity. This year, we have begun using NSLDS to pay guaranty agency administrative fees based upon NSLDS, which will provide additional incentives for guaranty agencies to help us ensure the accuracy of NSLDS data.
The Department's financial management staff, including the Office of the Chief Financial Officer, is a talented and dedicated group of employees. With the support of senior management, they have dramatically improved the financial integrity of the Department's programs. Thanks to their hard work, I believe that we have made and will continue to make significant progress along the road to strong, healthy financial management.
I'd be happy to answer any questions you may have.
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