<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:64702.wais]
WASTE, FRAUD, ABUSE, AND MISMANAGEMENT
=======================================================================
HEARINGS
before the
TASK FORCE ON
EDUCATION AND TRAINING
of the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
HEARINGS HELD IN WASHINGTON, DC: MAY 24 & JUNE 14, 2000
__________
Serial No. 10-3
Printed for the use of the Committee on the Budget
----------
U.S. GOVERNMENT PRINTING OFFICE
64-702cc WASHINGTON : 2000
COMMITTEE ON THE BUDGET
JOHN R. KASICH, Ohio, Chairman
SAXBY CHAMBLISS, Georgia, JOHN M. SPRATT, Jr., South
Speaker's Designee Carolina,
CHRISTOPHER SHAYS, Connecticut Ranking Minority Member
WALLY HERGER, California JIM McDERMOTT, Washington,
BOB FRANKS, New Jersey Leadership Designee
NICK SMITH, Michigan LYNN N. RIVERS, Michigan
JIM NUSSLE, Iowa BENNIE G. THOMPSON, Mississippi
PETER HOEKSTRA, Michigan DAVID MINGE, Minnesota
GEORGE P. RADANOVICH, California KEN BENTSEN, Texas
CHARLES F. BASS, New Hampshire JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota ROBERT A. WEYGAND, Rhode Island
VAN HILLEARY, Tennessee EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire DAVID E. PRICE, North Carolina
JOSEPH PITTS, Pennsylvania EDWARD J. MARKEY, Massachusetts
JOE KNOLLENBERG, Michigan GERALD D. KLECZKA, Wisconsin
MAC THORNBERRY, Texas BOB CLEMENT, Tennessee
JIM RYUN, Kansas JAMES P. MORAN, Virginia
MAC COLLINS, Georgia DARLENE HOOLEY, Oregon
ZACH WAMP, Tennessee KEN LUCAS, Kentucky
MARK GREEN, Wisconsin RUSH D. HOLT, New Jersey
ERNIE FLETCHER, Kentucky JOSEPH M. HOEFFEL III,
GARY MILLER, California Pennsylvania
PAUL RYAN, Wisconsin TAMMY BALDWIN, Wisconsin
PAT TOOMEY, Pennsylvania
------
Task Force on Education and Training
PETER HOEKSTRA, Michigan, Chairman
MARK GREEN, Wisconson Vice Chairman LYNN N. RIVERS, Michigan,
VAN HILLEARY, Tennessee Ranking Minority Member
MAC COLLINS, Georgia BOB CLEMENT, Tennessee
DARLENE HOOLEY, Oregon
RUSH D. HOLT, New Jersey
------
Professional Staff
Wayne T. Struble, Staff Director
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held in Washington, DC, May 24, 2000: Education
Department Fails Accounting 101................................ 1
Statement of:
Edward P. Moore, CFP, President, Edelman Financial
Services, Inc.......................................... 3
Daniel J. Murrin, Partner, Ernst & Young LLP............. 7
Lorraine Pratte Lewis, Inspector General, U.S. Department
of Education........................................... 10
Gloria L. Jarmon, Director, Health, Education, and Human
Services, Accounting and Financial Management Issues;
Gary T. Engel, Associate Director, Governmentwide
Accounting and Financial Management Issues, U.S.
General Accounting Office.............................. 16
Prepared statement of:
Mr. Moore................................................ 5
Mr. Murrin............................................... 8
Ms. Lewis................................................ 12
Ms. Jarmon and Mr. Engel................................. 18
----------
Hearing held in Washington, DC, June 24, 2000: Smothering
Education Reform: How Washington Stifles Innovation............ 41
Statement of:
Hon. Tim Hutchinson, a United States Senator from the
State of Arkansas...................................... 44
Eugene W. Hickok, Secretary of Education, State of
Pennsylvania........................................... 53
Susan Sclafani, Chief of Staff, Educational Services,
Houston Independent School District.................... 60
Prepared statement of:
Hon. Peter Hoekstra, a Representative in Congress from
the State of Michigan.................................. 42
Senator Hutchinson....................................... 47
Mr. Hickok............................................... 56
Ms. Sclafani............................................. 63
EDUCATION DEPARTMENT FAILS ACCOUNTING 101
----------
WEDNESDAY, MAY 24, 2000
House of Representatives,
Committee on the Budget,
Task Force on Education and Training,
Washington, DC.
The Task Force met, pursuant to call, at 10:22 a.m. In room
210, Cannon House Office Building, Hon. Peter Hoekstra
(chairman of the Task Force) presiding.
Mr. Hoekstra. Good morning. The task force will come to
order.
Let me just give a little bit of an overview, and then Ms.
Rivers has a comment.
Thank you for coming this morning as we take a look at the
financial management practices at the Department of Education
and the results of the Department's two failed audits.
This is the third time that a number of today's witnesses
will be testifying before Congress on these issues. However, it
is the first time that the Budget Committee will have the
opportunity to hear about the potential, and even documented,
fraud, waste and abuse at the Department. While we already know
that the Department has been unable to produce a clean audit
for fiscal years 1998 and 1999, a few recent incidents
illustrate the effects of this financial mismanagement.
Recently, a Bell Atlantic employee pleaded guilty to
conspiring with Department of Education employees to steal more
than $1 million in equipment and in false overtime billing.
Items were ordered under a Bell Atlantic contract but delivered
to the homes of Department employees and their families. These
items included computers, telephones, televisions and compact
disk players.
That is not all. In return for allowing the Bell Atlantic
employees to bill the Department of Education for overtime
never performed, these contractors performed personal errands
for the Department employee, even driving to Baltimore to get
her crab cakes for lunch.
This scheme went on for at least 2 year, in part because
the Department of Education does not have the proper management
procedures in place to track inventory. In 1985, in an
Inspector General report, the Department was criticized for
having weak controls over the safeguarding of office equipment
and the recording of items received. In November 1994, the IG
issued an Investigation Advisory Program Report that described
deficiencies in the Department's property management and
provided 21 recommendations for improvement. The IG provided
follow-up reports in March 1997, October 1997, November 1998,
that concluded that the weaknesses still persisted. So it is
not surprising that we see these kinds of difficulties.
This theft ring may only be the tip of the iceberg.
According to the Inspector General, of the 139 recommendations
made by auditors in the past 5 years, 111 remain open, and only
28 are closed. Who knows what kind of waste or fraud may be
occurring in these areas due to the inaction of the Department
of Education?
Let's take a close look at some of the other management
problems at the Department. For at least 3 consecutive fiscal
years, the Department has made duplicative payments to
grantees. Last December alone, the Department issued duplicate
payments to more than 52 schools totaling more than $6.7
million.
In one recent academic year, $177 million in Pell grants
were improperly awarded because students failed to meet income
requirements. More recently, the Department awarded 39 Jacob
Javits scholarships to students who were supposed to be
alternates for the award. What was the cost of this mistake?
Nearly $4 million.
The Department of Education has a grantback account that in
1996 contained $750 million. Very little of this money was
legitimately in the account and had been returned to the
Department by grantees. The Department has still not been able
to document where the money in the grantback account came from
and where it is supposed to go.
Is a clean audit an unreasonable goal for a Federal agency?
No. In fact, many Federal agencies are able to produce a clean
audit year after year. A clean audit and proper financial
controls are the first steps toward preventing fraud, waste and
abuse. Any business owner will tell you the importance of a
clean audit is to maintain the confidence of investors and to
prevent stock from being delisted.
Actions have consequences. So does inaction. What I hope to
make clear today is that the Department's failure to address
its financial management problems can lead directly to fraud,
waste and abuse. For at least 15 years the Department failed to
address the lack of controls over inventory and now we have
documented theft in this area.
We know what needs to be done. The Department of Education
must make financial stewardship one of their top priorities.
Until it does, the taxpayers' investment in the education of
America's youth is not going to reap anything close to its
maximum return. Thank you.
Ms. Rivers.
Ms. Rivers. Thank you, Mr. Chairman. I join you in thanking
our speakers for attending today. I am very anxious to hear
their views on the long-standing problems at the Department of
Education.
I was interested when I saw Ms. Jarmon's testimony that
this has gone on for many years and there has been a 10-year
effort to reform but we have not made the progress that we
would hope. I would hope that we not just hear the problems
that exist but also solutions that can be pursued to bring the
Department of Education into compliance. Particularly I would
be interested in hearing any legislative solutions that have to
be put in place in order to help the Department of Education do
what it needs to do. I look forward to your testimony.
Mr. Hoekstra. Thank you.
Mr. Clement.
Mr. Clement. Thank you, Mr. Chairman and Ms. Rivers, Mr.
Holt, panel. It is a pleasure to have you here today.
These are serious charges and serious allegations. And
being a former college president--I was a college president for
4\1/2\ years before I was elected to the United States Congress
so I worked on education issues for a long, long time. I worked
with Secretary Riley on many education issues.
We sure want to correct these problems. I believe in the
Department of Education. In many ways, it has served us well,
but we surely want to bring about reform. We surely want to
operate efficiently. And taxpayers expect us to make sure that
every dollar is accounted for and that those that are going to
receive help receive the help under the guidelines and
restrictions we have. I want to know what the problem is so we
can correct it once and for all. Hopefully, now we have turned
the corner.
Thank you.
Mr. Hoekstra. Mr. Collins, do you have a statement?
Mr. Collins. No.
Mr. Hoekstra. Mr. Holt.
Mr. Holt. Thank you, Mr. Chairman.
Of course, we have some responsibility as stewards here;
and we want to make sure that taxpayers' money is well spent;
and to the extent that there has been waste or mismanagement we
want to get to it. But the problem is not so much because it is
taxpayers' money. The problem is because it is dealing with our
most important undertaking as a society, which is the education
of our children. We want to make sure that is done in the best
possible way. I do hope that, as this group moves forward and
as the witnesses provide us information, the emphasis will not
be on fingerpointing but will be on ways that we can provide an
efficient, excellent education for all our children.
Mr. Hoekstra. Thank you very much.
With us this morning we have Edward Moore, who is the
President of Edelman Financial Services, Inc. We have Daniel
Murrin, who is a partner with Ernst & Young; Gloria Jarmon and
Gary Engel, who are with GAO; and Lorraine Lewis, who is the
Inspector General of the Department of Education.
Welcome to each of you today.
STATEMENT OF EDWARD P. MOORE, CFP, PRESIDENT, EDELMAN FINANCIAL
SERVICES, INC.
Mr. Hoekstra. We will begin with Mr. Moore.
Mr. Moore. Good morning. I am honored to be appearing
before this task force today. It is very encouraging to see
that the task force has sought input from someone like me,
someone who works every day to help both individual consumers
and corporations regarding their personal finances and money
management.
As a father of two children enrolled in public elementary
schools, I see firsthand the challenges, successes and failures
of our public education system at the local level. But I am not
here today to review all that faces the Department of
Education, there are others here with greater expertise in that
area than me.
Instead, I speak to you today as a certified financial
planner, one whose primary role is to show American families
and businesses how to secure their financial futures. As the
President of Edelman Financial Services, Inc., in Fairfax,
Virginia, I oversee a planning practice that is perhaps the
largest in the Washington, D.C., metropolitan area, and along
with our firm's founder and chairman, Ric Edelman, I appear
frequently on local and national media to share our knowledge
with the consumers from coast to coast. Indeed, consumer
education in the field of personal finance is a primary focus
of our activities.
And that is what brings me here today. I was asked to give
the task force the answer to one fundamental question: Do the
finances of a government entity--in this case the Department of
Education--bear any similarity to the finances of an individual
or corporation? To learn the answer, I will discuss the
importance of following the basics of financial planning for
both an individual and a corporation.
For an individual or family, the financial planning process
involves the following basic, fundamental steps:
First, we help an individual identify their goals and
objectives. At what point would they like to retire? What
income do they need at that time? Do they want to send their
kids to college, buy a home, build a nest egg? We help them
identify, clarify and then define what they want for the
future.
Next, we help them identify the resources they have
available. How are they currently spending their money? What
are they saving? Where is that money being invested? Do they
have retirement plans with their employers? Are they
participating to the maximum? We help them identify what they
currently have access to and what they are currently taking
advantage of.
Next, we help them direct their actions. As financial
planners, we make specific recommendations in all areas of an
individual's financial life. For example, how can they maximize
the potential that is available to them? How can they protect
their family and build toward the future?
Planning and budgeting are keys to financial success,
whether for a 10-year-old child with a weekly allowance or
corporate America, responsible who not just to one, but to
many. The principles are the same, only the magnitude of the
process differs.
Managing the finances of a business is equally important.
When we are examining companies for our clients to consider as
investments, the manner in which it is run financially is one
of the key elements of our investigation. If a company has
questionable financial records, our clients are told to steer
clear of that company.
Although it is not always the case, in the private sector
today clean financial records are generally assumed. Companies
that are publicly traded on the stock market are required to
have their financial records audited annually to assure that
they are following generally accepted accounting principles. As
long as a company has clean records, we are able to do our
analysis, based on the company's strengths and weaknesses, to
determine if we feel it is an appropriate investment for our
clients.
A recent case in point of a company that did not manage its
finances effectively is a Virginia company just outside the
Washington Beltway. This company, which has been in the news
quite a bit recently, saw its stock price drop from over $300 a
share to under $25 a share in just the last 2 months. That
means if an investor had $100,000 invested in this company in
March, they now have less than $10,000. The primary reason for
the 92 percent drop in that company's stock price was the way
in which their books were kept. They did not track their income
and expenses in a way that was acceptable to regulators.
Tracking finances is one of the most fundamental aspects of
running a business, and this company failed miserably. In this
case, bad books equals a bad investment.
Does any of this pertain to the Department of Education?
Absolutely. As with an individual or corporation, the
Department does not have unlimited funding each year, so it
must pay close attention to its finances. As a taxpayer,
financial adviser and father of two children in elementary
school, I think it is reasonable to ask a Federal agency to
keep clean and complete records of where its money goes. By
keeping clean books and accurate records, the Department and
Congress can continue actually evaluating where it is spending
its money to help it make better decisions in the future--
decisions that will further improve the quality of education
that our Nation's children receive. Higher quality education
means a better, stronger America.
By carefully managing its money, the Department of
Education can deliver maximum benefits to our Nation's
children, while spending less money than it otherwise might.
Such savings could translate to smaller budgets, which result
in less government spending. This can bring about lower taxes
for working-class citizens and greater economic prosperity for
all Americans. But if the Department of Education is not in
control of its spending, if the Department is not concerned
with where its money is going, then its effectiveness shrinks,
it opens itself up for possible fraud or abuse, with fewer
benefits reaching our children. In that case, no one wins.
Thank you again for giving me the honor of speaking with
you here today.
Mr. Hoekstra. Thank you.
[The prepared statement of Edward Moore follows:]
Prepared Statement of Edward P. Moore, CFP, President, Edelman
Financial Services, Inc.
I am honored to be appearing before this Task Force today. It is
very encouraging to see that the Task Force has sought input from
someone like me, someone who works every day to help both individual
consumers and corporations regarding their personal finances and money
management.
As the father of two children enrolled in public elementary
schools, I see first-hand the challenges, successes and failures of our
public education system at the local level. But I am not here today to
review all that faces the Department of Education, there are others
here with greater expertise in that area than me.
Instead, I speak to you today as a Certified Financial Planner, one
whose primary role is to show American families and businesses how to
secure their financial futures. As the President of Edelman Financial
Services Inc. in Fairfax, Virginia, I oversee a planning practice that
is perhaps the largest in the Washington, DC metropolitan area and,
along with our firm's founder and Chairman, Ric Edelman, I appear
frequently on local and national media to share our knowledge with
consumers from coast to coast. Indeed, consumer education in the field
of personal finance is a primary focus of our activities.
And that is what brings me here today. I was asked to give the Task
Force the answer to one fundamental question: Do the finances of a
government entity-in this case the Department of Education-bear any
similarity to the finances of an individual or corporation? To learn
the answer, I will discuss the importance of following the basics of
financial planning for both an individual and a corporation.
For an individual or family, the financial planning process
involves the following basic, fundamental steps:
<bullet> Identify goals and objectives: At what point would they
like to retire? What income do they need at that time? Do they want to
send their kids to college? Buy a home? Build a nest egg? We help them
identify, clarify, and then define what they want for the future.
<bullet> Identify resources available: How are they currently
spending their money? What are they saving? Where is that money being
invested? Do they have retirement plans with employers? Are they
participating to the maximum? We help them identify what they are
currently have access to and what they are currently taking advantage
of.
<bullet> Direct actions: As financial planners, we make specific
recommendations in all areas of an individual's financial life; for
example, how they can maximize the potential that is available to them,
protect their family, and build toward the future.
Planning and budgeting are key to financial success, whether for a
10 year old child, with a weekly allowance, or corporate America,
responsible not just to one, but to many. The principles are the same,
only the magnitude of the process differs.
Managing the finances of a business is equally important. When we
are examining companies for our clients to consider as investments, the
manner in which it is run financially is one of the key elements of our
investigation. If a company has questionable financial records, our
clients are told to steer clear of that company.
Although it is not always the case, in the private sector today,
clean financial records are generally assumed. Companies that are
publicly traded on the Stock Market are required to have their
financial records audited annually to assure they are following
generally accepted accounting principles. As long as a company has
clean records, we are able to do our analysis, based on the company's
strengths and weaknesses, to determine if we feel it is an appropriate
investment for our clients.
A recent case in point of a company that did not manage it's
finances effectively is a Virginia company just outside the Washington
Beltway. This company, which has been in the news quite a bit recently,
saw its stock price drop from over $300 a share to under $25 a share in
the last 2 months. That means if an investor had $100,000 in that stock
in March, they now have less than $10,000. The primary reason for the
92% drop in the company's stock price was the way in which their books
were kept. They did not track their income and expenses in a way that
was acceptable to regulators. Tracking finances is one of the most
fundamental aspects of running a business, and this company failed
miserably. In this case, Bad Books = A Bad Investment.
Does any of this pertain to the Department of Education?
Absolutely. As with an individual or corporation, the Department does
not have unlimited funding each year, so it must pay close attention to
its finances. As a taxpayer, Financial Advisor, and father of two
children in elementary school, I think it is reasonable to ask a
Federal agency to keep clean and complete records of where its money
goes. By keeping clean books and accurate records, the Department and
Congress can continually evaluate where it is spending its money to
help it make better decisions in the future-decisions that will further
improve the quality of education that our nation's children receive.
Higher quality education means a better, stronger America.
By carefully managing its money, the Department of Education can
deliver maximum benefits to our nation's children, while spending less
money than it otherwise might. Such savings could translate to smaller
budgets, which result in less government spending. This can bring about
lower taxes for working-class citizens and greater economic prosperity
for all Americans. But if the Department of Education is not in control
of its spending, if the Department is not concerned with where its
money is going, then its effectiveness shrinks, it opens itself up for
possible fraud or abuse, with fewer benefits reaching our children. In
that case, no one wins.
Thank you again for giving me the honor of speaking to you here
today.
Mr. Hoekstra. Mr. Murrin.
STATEMENT OF DANIEL J. MURRIN, PARTNER, ERNST & YOUNG LLP
Mr. Murrin. My name is Dan Murrin. I am a partner with
Ernst & Young LLP and national director of public sector
services for that firm. I have been in public accounting for 20
years, with a specialty in the Public Sector--Federal
Government.
The Education Task Force of the Committee on the Budget has
requested that Ernst & Young testify with respect to our
recommendations for improving the financial management at the
Department of Education; and our recommendations which were
first given on March 1, 2000, before the Committee on Education
and the Workforce's Subcommittee on Oversight and
Investigations.
The Office of Inspector General, for the Department of
Education, engaged Ernst & Young to conduct the audits of the
Department's fiscal year 1998 and 1999 financial statements.
My testimony will focus on recommendations for improving
financial management at the Department of Education, provide
information on areas that may warrant further analysis as well
as suggestions for additional work at the Department that may
be required.
By way of an overview of our fiscal year 1999 audit
reports, and we testified on this on March 1, with respect to
the Report of Independent Auditors for the Department of
Education for fiscal year 1999, Ernst & Young issued a
qualified opinion on four of those statements and disclaimed an
opinion on the fifth statement.
Regarding the Report on Internal Control, we detailed four
material weaknesses and four reportable conditions. We included
a total of 24 recommendations in the Report on Internal Control
to assist the Department in addressing its internal control
deficiencies.
We had some additional recommendations for improving
financial management drawn from those reports and discussed to
some extent in our testimony on March 1. The Department has
said they are moving forward with preparing interim financial
statements. We have recommended that, they have an independent
review of those interim financial statements performed.
We have emphasized reconciliations as being a critical
aspect of internal control and suggested that they be performed
monthly and subject to follow-ups.
The Department has ongoing efforts to identify duplicate
payments. We have suggested that an independent review be
performed of this process once it has been concluded so that we
can identify whether there are any additional controls that
should be implemented as a result of these projects. It is our
understanding that the Office of Inspector General is also
looking at this issue.
We understand that the Department plans to complete a
comprehensive physical inventory of its furniture and fixtures
and is currently conducting an inventory of its
telecommunications and computer equipment. We have suggested
that an independent process be involved to review the results
of that.
The Department may also benefit from independent
confirmations of financial data with grant recipients at the
award level--for example, available funds, obligations and cash
drawdowns.
The Department may also want to consider ongoing efforts to
review the accuracy of data in the National Student Loan Data
System.
In addition, in our reports we did make two overarching
recommendations. We have recommended that the Department review
the current organizational structure to update and more clearly
define roles and responsibilities and to ensure that financial
reporting objectives established by management are being
achieved. Such a review may also include evaluating the
recruiting, training and retention of accountants and financial
management personnel, which is critically important.
We recommend that the Department develop an implementation
plan for replacement of the general ledger software package to
ensure that the transition will occur in a timely and
documented manner. And, finally, we also recommend that the
Department ensure that the new general ledger package will meet
its financial reporting needs.
I will be pleased to answer any questions that you may
have.
[The prepared statement of Mr. Murrin follows:]
Prepared Statement of Daniel J. Murrin, Partner, Ernst & Young LLP
introduction
My name is Daniel J. Murrin. I am the National Director of Public
Sector Services for Ernst & Young LLP, a public accounting firm. I have
been in public accounting for over 20 years, with a specialty in the
Public Sector--Federal Government. The Education Task Force of the
Committee on the Budget has requested that Ernst & Young testify with
respect to our recommendations for improving the financial management
at the Department of Education which were given on March 1, 2000
testimony before the Committee on Education and the Workforce's
Subcommittee on Oversight and Investigations.
The Office of Inspector General, for the Department of Education,
engaged Ernst & Young to conduct the audits of the Department's fiscal
year 1999 and 1998 financial statements.
overview of fiscal year 1999 audit reports
As you may be aware from our prior testimony, regarding the
``Report of Independent Auditors,'' for the Department of Education for
fiscal year 1999, Ernst & Young issued a qualified opinion on four of
the five required financial statements and disclaimed an opinion on the
fifth statement. The ``Report on Internal Control,'' detailed four
material weaknesses and four reportable conditions. We included a total
of 24 recommendations in our Report on Internal Control to assist the
Department in addressing its internal control deficiencies. Our
``Report on Compliance with Laws and Regulations'' cited noncompliance
with the Federal Financial Management Improvement Act (FFMIA), the
Information Technology Management Reform Act (the Clinger-Cohen Act),
and the Federal Credit Reform Act.
Our Report on Internal Control documents the following eight
reportable conditions, the first four of which were material
weaknesses:
<bullet> Financial Reporting Needs to Be Strengthened (Repeat
Condition\1\--Material Weakness)
---------------------------------------------------------------------------
\1\ Repeat condition means the issue was also included in the FY
1998 Report on Internal Control.
---------------------------------------------------------------------------
<bullet> Reconciliations Need to Be Improved (Repeat Condition--
Material Weakness)
<bullet> Improvement of Credit Reform Reporting is Needed (Material
Weakness)
<bullet> Controls Surrounding Information Systems Need Enhancement
(Repeat Condition--Material Weakness)
<bullet> Documentation Supporting Obligations, Undelivered Orders
and Unobligated Balances Needs to be Improved (Modified Repeat
Reportable Condition)
<bullet> Communication and Coordination Efforts Need to be Improved
for Financial Management
<bullet> Documentation Supporting Accounts Payable, Accrued
Liabilities and Expenditures Needs to be Improved (Modified Repeat
Reportable Condition)
<bullet> Reporting and Monitoring of Property and Equipment Needs
to be Improved
The four most serious of these weaknesses were: the accounting
system's inability to perform a year-end closing process or produce
automated consolidated financial statements; the lack of proper or
timely reconciliations of the accounting records; failure to manage its
financial operations in accordance with the requirements of the Federal
Credit Reform Act of 1990; and deficiencies in controls surrounding
information systems.
recommendations for improving financial management
Pursuant to the Task Force's request, my testimony will focus on
Ernst & Young's recommendations for improving financial management at
the Department of Education. I will provide information on areas that
may warrant further analysis, as well as suggestions for additional
work that could be performed concerning the Department's financial
management. The items identified below are in addition to or an
expansion of procedures that were performed as part of our audit.
Interim financial statements--The Department has informed us that
it intends to prepare interim financial statements for fiscal years
2000 and beyond. We recommend that the Department also consider
conducting a review of the interim financial statements to provide
early identification of departures from generally accepted accounting
principles (GAAP), if any, that might impact the year-end financial
statements, as well as any other issues that could be addressed on an
interim basis. This practice of having the interim financial statements
reviewed is followed by publicly held companies. The scope of the
annual financial statement audit that we have been engaged to perform
does not encompass a review of interim financial statements in
accordance with the AICPA Statement on Auditing Standards No. 71,
Interim Financial Information.
Reinforce reconciliation efforts--Reconciliations should be
performed on a monthly basis with regards to (a) Fund Balance with
Treasury, including the grantback account; (b) GAPS to FMSS; (c)
budgetary to proprietary accounts; (d) accounts payable and related
disbursements-in-transit; (e) suspense accounts; and (f) accounts
receivable/guaranty agency reserves. As part of the interim financial
statement reviews discussed above, the Department may benefit from
having additional independent reviews of these reconciliations to
improve the accuracy, completeness and timeliness of the
reconciliations.
Study duplicate payment issues--The Department has ongoing efforts
to identify potential duplicate payments in the grant programs and the
direct loan program in order to assess the need for additional controls
to prevent occurrences of this nature in the future. We suggest that an
independent review be performed of the process that was utilized by the
Department to identify potential duplicates and of any additional
controls implemented as a result of these projects. The Office of
Inspector General has informed us that they are also looking at this
issue.
Inventory of Fixed Assets--The Department plans to complete a
comprehensive physical inventory count of all fixed assets, including
furniture and fixtures. We understand that the Department is currently
conducting an inventory of all computer and telecommunications
equipment. We suggest that, upon completion of these physical
inventories, an independent review of the inventory results be
performed to ensure that the process provided a complete and reliable
inventory and to assess the significance of any issues identified as a
part of conducting the inventory. The Office of Inspector General has
informed us that they are also looking at this issue.
Confirm Grant Data--The Department may benefit from independent
confirmations of financial data with grant recipients at the award
level (such as available funds, obligations, and cash drawdowns).
Confirmations would help ensure that the Department's records are in
balance with internal records maintained by the grant recipients.
Perform Ongoing Reviews of the National Student Loan Data System
(NSLDS)--The Department may want to consider ongoing efforts to review
the accuracy of data in its Student Loan Database. NSLDS is a database
which includes loan-level data for all student loans. The data is
received from many entities which participate in the loan programs,
such as the guaranty agencies. Data is used as the basis for
determining the loan liability in the financial statements, and to
provide information for management analysis and decisions. Because the
accuracy and completeness of this data is important for making informed
decisions, we suggest that efforts be focused on ensuring that the
database continues to be a complete and reliable source of information.
In addition, in our reports to the Department of Education we
identified a number of specific actions that the Department could take
to further improve its financial management. Several of the more
overarching recommendations are as follows:
Assess Organizational Structure--We recommended that the Department
review the current organizational structure to update and more clearly
define roles and responsibilities, and to ensure that financial
reporting objectives established by management are achieved. Such a
review may include evaluating the recruiting, training and retention of
accountants and financial management personnel.
Assess Financial System Requirements--We recommended that the
Department develop an implementation plan for the replacement of the
general ledger software package to ensure the transition will occur in
a timely and documented manner. In addition, we recommended that the
Department ensure that the new general ledger software package will
meet its financial reporting needs. The Department will need to give
consideration to both short-term and long-term needs.
Grant Liability Estimation Process--We recommended that the
Department develop a formal policy to further refine the methodology
for estimating the year-end grant liability accrual. Implementation of
a policy should facilitate consistency with reporting of financial
information, as well as review by management for adherence to the
Department's policy.
STATEMENT OF LORRAINE PRATTE LEWIS, INSPECTOR GENERAL, U.S.
DEPARTMENT OF EDUCATION
Ms. Lewis. Mr. Chairman and members of the task force, I
appreciate the opportunity to present testimony to you today.
I will address our work in identifying fraud, waste and
abuse at the Department. I will discuss the guilty plea of a
Bell Atlantic employee working under a service agreement with
the Department of Education, Pell grant fraud, and improper
student loan forgiveness. I will also discuss the need for an
environment with strong internal controls which are necessary
to maintain the integrity of the Department's programs.
We are conducting an investigation of individuals who, for
approximately 3 years, made equipment purchases with Federal
funds for nonbusiness-related purposes, billed the Department
for hours not worked and received goods for personal use. Two
individuals have pled guilty to their involvement in the case.
The first, Joseph Morgan, pled guilty to one count of receiving
stolen property. The second, Robert Sweeney, pled guilty to one
count of conspiracy and one count of theft of government
property. Much of the following information was reported by the
U.S. Attorney's Office for the District of Columbia as part of
the plea agreement with Mr. Sweeney.
Mr. Sweeney was an employee of Bell Atlantic who had been
assigned full time to the Department to install telephone lines
and telephones. Mr. Sweeney and a second Bell Atlantic
technician reported to a Telecommunications Specialist in the
Office of the Chief Information Officer. The Specialist began
asking Mr. Sweeney to order materials under the Bell Atlantic
service agreement that were unrelated to official Department
business. These items began with additional telephones and
answering machines. Mr. Sweeney would deliver the items, which
were paid for by the Department, to the Specialist, who would
then distribute them to co-workers and family members for
personal use.
Over time, the Specialist's requests for items began to
include more expensive items. For example a 61-inch television
was ordered and delivered to the Specialist's son's house.
Eight Gateway computers were picked up by Mr. Sweeney and
delivered to the Specialist's house or to locations that she
designated.
From 1997 to 1999, the Specialist requested numerous items
that were unrelated to the service agreement, including
computers, printers, computer software, scanners, cordless
telephones, a 61-inch television, Palm Pilots, walkie-talkies,
compact disk players and many other items. The total cost of
these items to the Department was over $300,000.
Mr. Sweeney also performed numerous personal tasks for the
Telecommunications Specialist. In exchange for that assistance
with her personal requests, Mr. Sweeney was permitted to
falsely claim overtime hours. It is estimated that between
January, 1997, and November, 1999, approximately $634,000 in
unworked hours was fraudulently charged to the Department by
Mr. Sweeney and the other Bell Atlantic technician.
Our contractors, Ernst & Young, have identified numerous
Department internal control deficiencies in their Report on
Internal Control for the fiscal year 1999 financial statement
audit. A sound internal control environment provides management
with a reasonable but not absolute assurance that assets are
safeguarded against loss from unauthorized use or disposition.
The lack of a sound internal control environment heightens the
risk that the Department will not be able to safeguard its
assets and accurately record, process and summarize financial
data.
OIG investigations and audits have disclosed patterns of
fraud against the Pell grant program. The most common fraud
scheme involved ineligible or nonexistent applicants who
falsified FAFSAs and other documents to obtain Pell grants for
which they or their institutions were not entitled. I have
detailed a number of those investigations in my longer
statement for the record.
To help combat one of these patterns of Pell grant fraud,
the 1998 Higher Education Act Amendments included a provision
authorizing the Department, in cooperation with the Treasury
Department, to confirm with the IRS key pieces of information
on the Federal income tax returns of applicants and their
parents. Without specific authorization in the Internal Revenue
Code, however, the IRS indicates that it must obtain written
taxpayer consent before individual income information may be
released to the Department. We recommend that Congress enact
any necessary additional legislation to address this matter.
In the interim, the Department just completed the first of
two planned test-match studies with the IRS. The Department
will use the statistical information from the test match to
identify the types of students who are most likely to
underreport their income. The Department also intends to use
the IRS information to better evaluate the extent of income
underreporting and to support its desire to conduct a full-
scale data match with the IRS.
OIG audit and investigative work has also identified
concerns with the discharge of loans due to disability or
death. Since October, 1999, OIG investigative work on
fraudulent disability discharges resulted in more than $1
million in loans being reinstated by the holders of the loans,
which is either the Department or the guaranty agency. Again, I
have provided some examples in my statement for the record.
In our June, 1999, audit, ``Improving the Process for
Forgiving Student Loans,'' we recommended that several steps be
taken to enhance the current discharge determination
procedures. The Department modified its disability form to
incorporate our recommendations, and OMB approved that form.
Also, the Department now requires that a death discharge be
based only on an original or certified copy of the death
certificate.
In order to identify fraudulent death discharges, we
conducted a data match with the Social Security
Administration's Death Index to identify persons who received
loan discharges based upon death but who do not appear in the
Death Index. Working with a sample of these data and with
information filed by those who obtained substantial discharges
from Sallie Mae and a number of guaranty agencies, our
investigators are pursuing leads generated by the match. In the
area of disability discharge fraud, we are working with the
guaranty agencies to identify potential fraud cases and
following up on leads developed from the data.
A key factor in improving accountability and minimizing
operational problems within the Department is the
implementation of appropriate internal controls. Recently, GAO
updated its standards for internal control in government. The
GAO standards address the areas of control environment, risk
assessment, control activities, communication and monitoring.
Currently, we are reviewing existing internal controls over
the procurement of goods and services. We are conducting
interviews with procurement personnel and senior managers in
each principal office within the Department and performing
transaction testing to verify the Department's internal control
procedures. To date, we have found internal control
deficiencies in the Department's use of the government purchase
card and third-party checks. At the completion of our review,
we will have delivered an individual report to each principal
office and a report containing summary recommendations to the
Department.
Ultimately, the design and implementation of any internal
control must be based on an analysis of costs and benefits.
Even well-designed and implemented internal controls cannot
provide absolute assurance against fraud, waste, and abuse.
There always will be factors such as human mistakes and acts of
collusion that will be outside the control or influence of
management. That is why we need to remain vigilant and maintain
a credible deterrence through, among other things, a regular
program of management reviews, an active hotline function, and
vigorous audit and investigative operations.
I am happy to answer any questions that you may have.
Mr. Hoekstra. Thank you.
[The prepared statement of Ms. Lewis follows:]
Prepared Statement of Lorraine Lewis, Inspector General, U.S.
Department of Education
Good morning, Mr. Chairman and members of the Task Force. I
appreciate the opportunity to present testimony to you today. I will
address our work in identifying waste, fraud and abuse at the
Department of Education. Specifically, I will discuss the recent guilty
plea of a Bell Atlantic employee working under a service agreement with
the Department of Education, Pell grant fraud and improper student loan
forgiveness. I will also talk about the need for an environment with
strong internal controls, which are necessary to maintain the integrity
of our Education programs.
Inventory Control Case
We are conducting an investigation of individuals who, for
approximately 3 years, made equipment purchases with Federal funds for
non-business related purposes, billed the Department for hours not
worked, and received goods for personal use. At present, two
individuals have pled guilty to their involvement in the case. The
first, Joseph Dennis Morgan, pled guilty to one count of receiving
stolen property. Mr. Morgan illegally received approximately $14,000 in
electronic equipment since 1998. The second individual, Robert J.
Sweeney, pled guilty to one count of conspiracy and one count of theft
of government property. Much of the following information was reported
by the U.S. Attorney's Office for the District of Columbia, as part of
the plea agreement for Mr. Sweeney.
Mr. Sweeney was an employee of Bell Atlantic who had been assigned
full-time to the Department to install telephone lines and telephones.
Mr. Sweeney and a second Bell Atlantic technician reported to a
Telecommunications Specialist in the Department's Office of the Chief
Information Officer. Approximately 3 years ago, the Department's
Telecommunications Specialist began asking Mr. Sweeney to order
materials under the Bell Atlantic service agreement that were unrelated
to official Department business. These items began with additional
telephones and answering machines. Mr. Sweeney would deliver the items,
which were paid for by the Department, to the Telecommunications
Specialist, who would then distribute them to co-workers and family
members for personal use.
Over time, the Telecommunications Specialist's requests escalated
and began to include more expensive items. For example, a 61-inch
television was ordered under the Bell Atlantic service agreement and
delivered by Mr. Sweeney and another Department employee to the
Telecommunications Specialist's son's house. Additionally, eight
Gateway computers ordered from Bell Atlantic were picked up by Mr.
Sweeney and delivered to the Telecommunications Specialist's house or
to locations that she designated.
Overall, from 1997 through 1999, the Telecommunications Specialist
requested numerous items from Bell Atlantic that were unrelated to the
service agreement, including computers, printers, computer software,
scanners, cordless telephones, a 61-inch television, Palm Pilots,
walkie-talkies, compact disc players, and many other items. The total
cost of these items to the Department was over $300,000.
Mr. Sweeney also performed numerous personal tasks for the
Telecommunications Specialist.
In exchange for Mr. Sweeney's assistance with the
Telecommunications Specialist's personal requests, Mr. Sweeney was
permitted to falsely claim overtime hours. For example, Mr. Sweeney was
permitted to turn in time sheets while he was on vacation showing that
he had worked his regular schedule as well as overtime hours. It is
estimated that, between January 1, 1997 and November 30, 1999,
approximately $634,000 in unworked hours was fraudulently charged to
the Department by Mr. Sweeney and the other Bell Atlantic technician.
Our contractors, Ernst & Young, identified numerous Department
internal control deficiencies in their ``Report on Internal Control''
for the fiscal year 1999 financial statement audit. A sound internal
control environment provides management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from
unauthorized use or disposition. The lack of a sound internal control
environment heightens the risk that the Department will not be able to
safeguard its assets and accurately record, process and summarize
financial data.
Federal Pell Grant Program Fraud
OIG investigations and audits have disclosed patterns of fraud
against the Pell grant program. The most common fraud scheme involved
ineligible or non-existent applicants who falsified Free Applications
for Federal Student Aid (FAFSAs) and other documents to obtain Pell
grants for which they or their institutions were not entitled. For
example:
<bullet> In October 1999, four New York men were sentenced for
their roles in a Pell grant fraud scheme. The defendants were convicted
on an indictment charging conspiracy, program fraud, false statements,
wire fraud, mail fraud and tax fraud in connection with postsecondary
programs that they falsely claimed to be administering. Judge Barbara
Jones noted that the serious and sophisticated long-term fraud
committed against the Department warranted substantial periods of
incarceration and also ordered the men to make restitution of $11
million to the Department. Judge Jones stated that the $11 million loss
to the Department's Pell grant program was a very conservative estimate
since it related to losses associated with only one of the fraudulent
educational programs administered by the defendants. The defendants
were also charged with and convicted of defrauding the Small Business
Administration and the ``Section 8'' rental subsidy program of the
Department of Housing and Urban Development.
<bullet> On February 28, 2000, the Director of the Orange,
California, branch campus of Travel and Trade Career Institute was
sentenced to 5 months in jail, 5 months confinement in a community
halfway house, $83,000 restitution, $50 special assessment, and 3 years
supervised release. The Director conducted a scheme in which he drew
down approximately $83,000 in Federal Pell grants on behalf of students
that did not exist. He used the money for his own personal gain and
miscellaneous school expenses.
<bullet> On April 18, 2000, a Federal Grand Jury in the Northern
District of Illinois returned indictments against three former school
officials of the now defunct American Career Training school in
Chicago, Illinois. The three individuals were indicted on conspiracy
and financial aid fraud for falsifying student eligibility documents
that made ineligible students appear to be eligible to receive Pell
grant funds during 1993 through 1996. They received in excess of
$250,000 in Pell grant funds. The school officials created GED
certificates, falsified Ability-to-Benefit test results, created
Internal Revenue Service documents and created fraudulent letters from
lenders and the U.S. Department of Education's Debt Collection Service.
<bullet> On April 26, 2000, the Director of the PSC School for
Careers was arrested based upon allegations that she engaged in the
submission of false claims for Pell grants and New York State Tuition
Assistance Program grants. The criminal complaint alleges that the
Director instructed school employees to create fictitious attendance
records.
<bullet> On May 1, 2000, a former school owner, the school owner's
daughter and a former instructor pled guilty to conspiring to steal and
misapply more than $1.4 million in Federal Pell grant funds. The funds
were fraudulently obtained by forging and creating false documents and
submitting fraudulent grant applications to the Department of Education
for nonexistent or noneligible students. The three defendants used some
of the funds for student operations and converted the rest to their own
personal use, including the purchase of jewelry, real estate, furniture
and an automobile.
<bullet> On July 15, 1998, a self-employed financial aid consultant
was sentenced on one count of fraud against the Department, was ordered
to serve 21 months in Federal prison and then placed on 2 years of
supervised release. He was also ordered to pay restitution in the
amount of $5,000 plus an assessment of $50. The consultant offered a
fee to assist parents and students with their applications for Title IV
funds to attend postsecondary institutions. The investigation was
initiated based on information from a confidential informant who
alleged that the consultant falsified various Federal financial aid
documents, including tax returns, to assist parents and students in
obtaining Title IV funds. A preliminary review of 1,200 seized customer
files revealed that the consultant had approximately 700 parent/student
files covering a period of 5 years. His account ledgers for 1995
reflected an income of $51,188 based on 228 separate customer entries.
Included in the seized customer files were completed Free Applications
for Federal Student Aid, Student Aid Reports, tax forms and fraudulent
tax forms prepared in the name of the consultant's clients. A
preliminary review of several files revealed that clients' incomes were
lowered on numerous FAFSAs and tax forms. These alterations had the
effect of increasing the students' chances of receiving Federal
financial aid. Another finding of the file review revealed that
numerous student files reflected that some students were listed as
orphans or wards of the court. This caused the students to be
considered independent, which substantially increased their chance of
receiving financial aid. The consultant usually charged a fee of 10
percent of a Pell grant, or approximately $230, for his services.
<bullet> On November 30, 1999, a student at Mid-State College was
sentenced for her role in defrauding the Pell grant and Federal Family
Education Loan programs. She was sentenced to 6 months incarceration to
be followed by a 3-year period of supervised probation, ordered to make
$6,062 in restitution to the Department and pay a $900 fine. The
student made multiple false statements regarding her marital status and
her husband's income on her Free Application for Federal Student Aid.
<bullet> On March 15, 2000, a student at Pacific Lutheran
University was indicted for allegedly falsifying financial aid
applications to receive Pell grants. She also allegedly falsified
information on Social Security applications to receive Supplemental
Security Income (SSI) benefits. Her scheme involved falsifying her
marital status as ``separated'' to avoid having to report her spouse's
income on the applications. Our investigation found evidence that she
was living with her spouse during the entire period she received SSI
benefits and student financial aid benefits. The total amount of fraud
was $68,475.
To help combat one of these patterns of Pell grant fraud, the
Higher Education Act (HEA) Amendments of 1998 (P.L. 105-244) included a
provision authorizing the Department, in cooperation with the Treasury
Department, to confirm with the Internal Revenue Service (IRS) key
pieces of information on the Federal income tax returns of applicants
and their parents. Without specific authorization in the Internal
Revenue Code, however, the IRS indicates that it must obtain written
taxpayer consent before individual income information may be released
to the Department. We recommend that the Congress enact any necessary
additional legislation to address this matter.
In the interim, the Department just completed the first of two
planned test-match studies with the IRS. The Department will use the
statistical information from the test match to identify the types of
students who are most likely to under-report their income. The
Department also intends to use the IRS information to better evaluate
the extent of income under-reporting and to support its desire to
conduct a full-scale data match with the IRS.
Improper Student Loan Forgiveness
OIG audit and investigative work has also identified concerns with
the discharge of loans due to disability or death. Since October 1999,
OIG investigative work on fraudulent disability discharges resulted in
more than $1,000,000 in loans being reinstated by the holders of the
loans, which is either the Department or a guaranty agency. For
example:
<bullet> On January 13, 2000, an individual was sentenced to 6
months home detention, 5 years probation and was ordered to pay $37,743
in restitution. The individual had submitted a fraudulent disability
form to the Department of Education stating that he suffered from
chronic paranoid schizophrenia and that he had a poor prognosis to be
gainfully employed. As a result, he was relieved of his obligation to
repay five student loans.
<bullet> On May 8, 2000, a doctor pled guilty to charges of student
loan fraud and health care fraud. The next day, his brother, who is
also a doctor, pled guilty to charges of misprision of the felonies of
student loan fraud and health care fraud. Both doctors agreed to make
restitution for the total amount obtained through their fraud schemes.
The doctors mailed fraudulent total and permanent disability claims to
several Federal student loan guaranty agencies and lenders to have
their medical student loan obligations discharged. One doctor had two
student loans discharged, totaling $32,548, including $4,366 refunded
directly to him. The other doctor had two student loans discharged
totaling $11,992, including $4,098 refunded directly to him. A third
loan discharge for the second doctor in the amount of approximately
$15,000 was prevented as a result of this investigation. Our
investigation revealed that the first brother submitted false
disability claims stating that he and his brother were house confined
and/or wheelchair-bound. However, OIG agents observed the brothers
riding bicycles and swimming at a beach. Our investigation also
revealed that the disability claims were certified by a non-existent
physician and were often accompanied by letters from a non-existent
attorney.
In our June 1999 audit entitled Improving the Process for Forgiving
Student Loans, which was requested by the Department, we recommended
that several steps be taken to enhance the current discharge
determination procedures. These include revising the disability form to
include, at a minimum, the doctor's professional license number and
office telephone number, and requiring certified copies of death
certificates. The Department modified its disability form to
incorporate our recommendations and OMB approved the form. Also, the
Department now requires that a death discharge be based only on an
original or certified copy of the death certificate.
Our office continues to pursue this matter. In order to identify
fraudulent death discharges, we conducted a data match with the Social
Security Administration's Death Index to identify persons who received
loan discharges based upon death, but who do not appear in the Social
Security Death Index. Working with a sample of these data and with
information filed by those who obtained substantial discharges from
Sallie Mae and a number of guaranty agencies, our investigators are
pursuing leads generated by the match. In the area of disability
discharge fraud, we are working with the guaranty agencies to identify
potential fraud cases and following up on leads developed from the
data.
Internal Controls
A key factor in improving accountability and minimizing operational
problems within the Department is the implementation of appropriate
internal controls. Recently, the General Accounting Office (GAO)
updated its standards for internal control in government. The standards
provide a framework for establishing and maintaining internal control
and for identifying and addressing management challenges and areas
susceptible to fraud, waste and abuse. The GAO standards address the
areas of control environment, risk assessment, control activities,
communication and monitoring.
Currently, we are reviewing existing internal controls over the
procurement of goods and services. Our review is based on the GAO
standards. We are conducting interviews with procurement personnel and
senior managers in each principal office within the Department and
performing transaction testing to verify the Department's internal
control procedures. To date, we have found internal control
deficiencies in the Department's use of the government purchase card
and third party checks. At the completion of our review, we will have
delivered an individual report to each principal office and a report
containing summary recommendations to the Department.
Conclusion
Ultimately, the design and implementation of any internal control
must be based on an analysis of costs and benefits. Even well designed
and implemented internal controls cannot provide absolute assurance
against fraud, waste and abuse. There always will be factors such as
human mistakes and acts of collusion that will be outside the control
or influence of management. That is why we need to remain vigilant and
maintain a credible deterrence through, among other things, a regular
program of management reviews, an active hotline function, and vigorous
audit and investigative operations.
This concludes my prepared testimony. I am happy to answer any
questions you or other members of the Task Force may have on these
issues.
Mr. Hoekstra. Ms. Jarmon and Mr. Engel.
STATEMENT OF GLORIA L. JARMON, DIRECTOR, HEALTH, EDUCATION, AND
HUMAN SERVICES, ACCOUNTING AND FINANCIAL MANAGEMENT ISSUES;
GARY T. ENGEL, ASSOCIATE DIRECTOR, GOVERNMENTWIDE ACCOUNTING
AND FINANCIAL MANAGEMENT ISSUES, U.S. GENERAL ACCOUNTING OFFICE
Ms. Jarmon. We are pleased to be here today to talk about
the financial management at the Department of Education.
With me today is Gary Engel, the Associate Director
responsible for GAO's work on Education's grantback account.
We will focus on three issues: first, the financial
statement audit results for fiscal year 1999; secondly, the
potential that the reported weaknesses have to create fraud,
waste and abuse; and, third, the results of our review of the
Department's grantback account. Much of our testimony today
reflects our March 1 testimony on these issues.
The bottom line on Education's financial audit results is
that Education still faces severe internal control and
financial management systems weaknesses. These weaknesses have
been very similar from year to year, starting with Education's
first agency-wide audit for fiscal year 1995. They make it
extremely difficult for Education to give timely, reliable
financial information to decisionmakers both inside and outside
the agency.
Education's financial staff and its contractors worked very
hard to put together their fiscal year 1999 statements, and the
auditors' opinion on these statements improved over fiscal year
1998. In addition, the fiscal year 1999 audit was the first
time that the Department's statements were issued on time.
However, as part of the audit, the Department's auditors
looked at Education's internal controls and reported four
material weaknesses. They are weaknesses in the financial
reporting process, weaknesses in reconciling financial
accounting records, weaknesses in controls over information
systems, and weaknesses in accounting for certain loan
transactions.
In addition to its continued internal control problems,
Education also failed to fully comply with three laws in fiscal
year 1999. They are, first, the Federal Financial Management
Improvement Act; secondly, the Clinger-Cohen Act; and, third,
the Federal Credit Reform Act.
The internal control weaknesses in the auditor's report
need to be addressed to reduce the potential for fraud, waste
and abuse at Education. For example, the information systems
control weaknesses could increase the risk of unauthorized
access or disruption in services and make Education's sensitive
grant and loan data vulnerable to inadvertent or deliberate
misuse, fraudulent use, improper disclosure or destruction.
These types of vulnerabilities were discussed in more detail in
the report issued by the Department's IG in late February.
In addition, Ms. Lewis's statement today shows that the
lack of a sound internal control environment heightens the risk
that the Department will not be able to safeguard its assets
and accurately record, process and summarize financial data.
Finally, regarding the grantback account, which is part of
the Education's Fund Balance with Treasury, its auditors
reported that Education could not readily say where and to
which appropriations the assets funds belonged.
As you know, we recently completed our review of this
account and found that, although it was established for
grantback activities, Education also used it as an suspense
account for hundreds of million of dollars of activity related
to grant reconciliation efforts. We found that Education could
not provide adequate documentation to support the validity of
certain adjustments related to the reconciliation efforts and
other activity in the grantback account.
For those transactions for which Education provided
adequate documentation to enable us to conclude that such
transactions were valid, we did not identify identifications of
fraud. However, given the significant number of transactions
for which we were not provided adequate support and that we did
not perform a fraud audit, we cannot provide assurance that
fraud has not taken place.
As a result of financial management systems deficiencies,
inadequate systems of financial control and manual internal
control weaknesses, which we and other auditors identified,
there is increased risk of fraud, waste and mismanagement of
grant funds, as well as increased risk of noncompliance with
the requirements of the Anti-Deficiency Act.
In closing, we would like to stress that the weaknesses
identified by our grantback work and by Education's auditors as
part of the financial audit are serious financial management
weaknesses, and it is critical that Education continue to work
hard to resolve these weaknesses. Achieving all aspects of a
strategic objective partly depends on reliable financial
management information and effective internal controls.
Mr. Chairman, this concludes my statement. We would be
happy to answer any questions from you or any other members of
the task force.
Mr. Hoekstra. Thank you very much.
[The prepared statement of Ms. Jarmon and Mr. Engel
follows:]
Prepared Statements of Gloria L. Jarmon, Director, Health, Education,
and Human Services, Accounting and Financial Management Issues; Gary T.
Engel, Associate Director, Governmentwide Accounting and Financial
Management Issues, U.S. General Accounting Office
Mr. Chairman and members of the Task Force, we are pleased to be
here today to discuss first, the Department of Education's fiscal year
1999 financial audit results\1\ in the context of related work we have
performed, second, the relationship between the audit findings and the
potential for waste, fraud, and abuse, and third, the results of our
review of the Department's grantback account. Much of the testimony
today reflects our March 1, 2000, testimony on these issues.\2\
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\1\ Department of Education, Fiscal Year 1999 Consolidated
Financial Statements, Ernst & Young LLP, February 2000.
\2\ Financial Management: Education Faces Challenges in Achieving
Financial Management Reform (GAO/T-AIMD-00-106, March 1, 2000).
---------------------------------------------------------------------------
The Department's financial activity is important to the Federal
Government because Education is the primary agency responsible for
overseeing the more than $75 billion annual Federal investment in
support of educational programs for U.S. citizens and eligible
noncitizens. The Department is also responsible for collecting about
$175 billion owed by students. In fiscal year 1999, more than 8.1
million students received over $53 billion in Federal student financial
aid through programs administered by Education.
The Department's stewardship over these assets has been under
question as the agency has experienced persistent financial management
weaknesses. Beginning with its first agencywide financial audit effort
in fiscal year 1995,\3\ Education's auditors have each year reported
largely the same serious internal control weaknesses, which have
affected the Department's ability to provide reliable financial
information to decision makers both inside and outside the agency.
---------------------------------------------------------------------------
\3\ For fiscal year 1995, a year before the Government Management
Reform Act (GMRA) requirements became effective, the Department's
Inspector General (IG) hired a contractor to perform its first
agencywide financial audit.
---------------------------------------------------------------------------
Background
Federal decision makers need reliable and timely financial
management information to ensure adequate accountability, manage for
results, and make timely and well-informed decisions. However,
historically, such financial management information has not been
available across the government. Agency IG reports, independent public
accountants' reports, and our own work have identified persistent
limitations in the availability of quality financial data for decision
making. Audits have shown that Federal financial management is in
serious disrepair, which results in incorrect financial information
being provided to the Congress and the administration. Without reliable
financial information, government leaders do not have the full facts
necessary to make investments of scarce resources or direct programs.
Creating a government that runs more efficiently and effectively has
been a public concern for decades.
Over the past 10 years, dramatic changes have occurred in Federal
financial management in response to the most comprehensive management
reform legislation of the past 40 years. The combination of reforms
ushered in by (1) the Chief Financial Officers (CFO) Act of 1990, (2)
the Government Management Reform Act of 1994, (3) the Federal Financial
Management Improvement Act (FFMIA) of 1996, (4) the Government
Performance and Results Act (GPRA) of 1993, and (5) the Clinger-Cohen
Act of 1996 will, if successfully implemented, provide the necessary
foundation to run an effective, results-oriented government. Efforts to
continue to build the foundation for generating accurate financial
information through lasting financial management reform are essential.
Only by generating reliable and useful information can the government
ensure adequate accountability to taxpayers, manage for results, and
help decision makers make timely, well-informed judgments.
Education's fiscal year 1999 audit was conducted by Ernst & Young
LLP, independent auditors contracted for by the Education Inspector
General. We reviewed the independent auditors' reports and workpapers.
We shared a draft of this statement with Education officials, who
provided technical comments. We have incorporated their comments where
appropriate. Our work was conducted in accordance with generally
accepted government auditing standards.
Fiscal Year 1999 Audit Results
The Office of Management and Budget's (OMB) implementation guidance
for audited financial statements requires the 24 CFO Act agencies to
receive three reports from their auditors annually: first, an opinion
or report on the agencies' financial statements, second, a report on
the agencies' internal controls, and third, a report on the agencies'
compliance with laws and regulations. We recently reported\4\ that 13
of the 24 CFO Act agencies received ``clean'' or unqualified opinions
on their fiscal year 1999 financial statements.\5\ The Department of
Education did not receive such an opinion because of its financial
management weaknesses.
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\4\ Letter to the Congress highlighting our conclusions on the
Fiscal Year 1999 Financial Report of the United States Government (GAO/
AIMD-00-131, March 31, 2000).
\5\ As of May 15, 2000, the Department of State had not issued its
audit report. Since our last report, the Department of Interior's (DOI)
Office of Inspector General issued an unqualified opinion on DOI's
fiscal year 1999 financial statements.
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As reported in December,\6\ and again in March,\7\ the Department
issued its fiscal year 1998 financial statements over 8 months late and
was one of six CFO Act agencies that received disclaimers-meaning that
the auditors were unable to express an opinion-on their financial
statements for that fiscal year.\8\ Pervasive weaknesses in the design
and operation of Education's financial management systems, accounting
procedures, documentation, recordkeeping, and internal controls,
including computer security controls, prevented Education from reliably
reporting on the results of its operations for fiscal year 1998.
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\6\ Financial Management: Financial Management Weaknesses at the
Department of Education (GAO/T-AIMD-00-50, December 6, 1999).
\7\ Financial Management: Education Faces Challenges in Achieving
Financial Management Reform (GAO/T-AIMD-00-106, March 1, 2000).
\8\ In addition to the 6 agencies that received disclaimers in
fiscal year 1998, 4 agencies received qualified opinions, 2 agencies
received mixed opinions, and 12 agencies received unqualified or
``clean'' opinions.
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Report on the Financial Statements
While Education's financial staff and its contractors worked very
hard to prepare Education's fiscal year 1999 financial statements
before the March 1, 2000, deadline, and the auditors' opinion on the
financial statements improved over that of fiscal year 1998, serious
internal control and financial management systems weaknesses continued
to plague the agency. For fiscal year 1999, Education made significant
efforts to work around these weaknesses and produce financial
statements. These efforts enabled its auditors to issue qualified
opinions\9\ on four of its five required financial statements and a
disclaimer on the fifth statement. Its auditors' qualified opinion
states that except for the effect of the matters to which the
qualification relates, the financial statements present fairly, in all
material respects, financial position, net costs, changes in net
position, and budgetary resources in conformity with generally accepted
accounting principles. The auditors stated the following reasons or
matters for their qualification:
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\9\ Such an opinion is expressed when first, there is a lack of
sufficient competent evidential matter or there are restrictions on the
scope of the audit that have led the auditor to conclude that he or she
cannot express an unqualified opinion and he or she has concluded not
to disclaim an opinion or second, the auditor believes, on the basis of
his or her audit, that the financial statements contain a departure
from generally accepted accounting principles, the effect of which is
material, and he or she has concluded not to express an adverse
opinion.
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<bullet> The Department had significant systems weaknesses during
fiscal year 1999 affecting its financial management systems. The new
accounting system, implemented in fiscal year 1998, had several
limitations, including an inability to perform a year-end closing
process or produce automated consolidated financial statements. Through
its efforts and those of its contractors, Education was able to
partially compensate for, but did not correct, certain aspects of the
material weaknesses in its financial reporting process. In addition,
during fiscal year 1999, Education experienced significant turnover of
financial management staff, which also contributed to the overall
weakness in financial reporting.
<bullet> Education was unable to provide adequate support for about
$800 million reported in the September 30, 1999, net position balance
in its financial statements, and the auditors were unable to perform
other audit procedures to satisfy themselves that this amount was
correct.
<bullet> Education processed many transactions from prior fiscal
years as fiscal year 1999 transactions and manually adjusted its
records in an effort to reflect the transactions in the proper period;
however, the auditors could not determine if these adjustments for
certain costs and obligations were correct.
<bullet> The auditors were unable to determine whether beginning
balances for accounts payable and related accruals were accurate.
In addition, as in the prior year, the auditors did not issue an
opinion (referred to as a disclaimer of an opinion) on the Department's
Statement of Financing. The Statement of Financing provides a
reconciliation or ``translation'' from the budget to the financial
statements. The statement is intended to help those who work with the
budget to understand the financial statements and the cost information
they provide. The auditors stated that the reason for this disclaimer
was that the Department did not perform adequate reconciliations and
present support for amounts on the Statement of Financing in a timely
manner.
To the extent that Education was able to improve the opinion it
received on its financial statements for fiscal year 1999, it was
generally the result of first, time-consuming manual procedures,
second, various automated tools to ``work around'' the system's
inability to close the books and generate financial statements, and
third, significant reliance on external consultants to assist in the
preparation of additional reconciliations and the financial statements.
This approach does not produce the timely and reliable financial and
performance information Education needs for decision making on an
ongoing basis, which is the desired result of the CFO Act.
Report on Internal Controls
The Department also receives annually from its auditors a report on
internal controls. This report is significant for highlighting the
agency's internal control weaknesses that increase its risk of
mismanagement that can sometimes result in waste, fraud, and abuse. In
this report for fiscal year 1999, the Department's auditors reported
four material\10\ internal control weaknesses-three continuing from
fiscal year 1998 and one additional one for fiscal year 1999-and that
long-standing internal control weaknesses persist.
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\10\ A material internal control weakness is a reportable condition
that precludes the entity's internal controls from providing reasonable
assurance that material misstatements in the financial statements or
material noncompliance with applicable laws or regulations will be
prevented or detected on a timely basis. In addition to these material
internal control weaknesses, the independent auditors also reported
four reportable conditions. Reportable conditions are matters coming to
the auditors' attention that, in their judgment, should be communicated
because they represent significant deficiencies in the design or
operation of internal controls that could adversely affect the
organization's ability to meet the objectives of reliable financial
reporting and compliance with applicable laws and regulations.
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The specific material internal control weaknesses cited by the
independent auditors for fiscal year 1999 were first, weaknesses in the
financial reporting process, second, inadequate reconciliations of
financial accounting records, and third, inadequate controls over
information systems. The independent auditors also identified a new
material internal control weakness related to accounting for certain
loan transactions. Summaries of the material internal control
weaknesses follow:
<bullet> As in prior years, Education did not have adequate
internal controls over its financial reporting process. Its general
ledger system was not able to perform an automated year-end closing
process and directly produce consolidated financial statements as would
normally be expected from such systems. Because of these weaknesses,
Education had to resort to a costly, labor-intensive, and time-
consuming process involving manual and automated procedures to prepare
financial statements for fiscal year 1999. In addition, Education had
to rely heavily on contractor services to help perform reconciliations
among the various data sources used. In one instance, Education
reported a balance of approximately $7.5 billion for its cumulative
results of operations. However, the majority of this amount, which
pertains to the Federal Family Education Loan Program (FFELP), should
have been reported as a payable to Treasury rather than as cumulative
results of operations. As a result of the independent auditors' work,
an adjustment was made to reclassify the $7.5 billion to the proper
account. When such errors occur and are not detected by the
Department's controls, there are increased risks that the Department
could retain funds inappropriately that should be returned to Treasury.
<bullet> Education again did not properly or promptly reconcile its
financial accounting records during fiscal year 1999 and could not
provide sufficient documentation to support some of its financial
transactions. Weaknesses in the Department's internal controls over the
reconciliation process prevented timely detection and correction of
errors in its underlying accounting records. In some instances,
Education adjusted its general ledger to reflect the balance per the
subsidiary records, without sufficiently researching the cause for
differences. Also, as indicated in prior audits, Education has not been
able to identify and resolve differences between its accounting records
and cash transactions reported by the Treasury. For example, for fiscal
year 1999, Education adjusted its Fund Balance with Treasury, due to a
difference between its general ledger and the Treasury, by a net amount
of about $244 million. Reconciling agencies' accounting records with
relevant Treasury records is required by Treasury policy and is
analogous to individuals reconciling their checkbooks to monthly bank
statements.
<bullet> During fiscal year 1999, Education did not properly
account for its funds disbursed under FFELP. Specifically, it did not
return about $2.7 billion in net collections specific to its
liquidating account to Treasury as required by the Credit Reform Act of
1990. The liquidating account is used to record transactions for loans
originated prior to fiscal year 1992. Any unobligated balances in this
account at fiscal year end are unavailable for obligations in
subsequent fiscal years and must be transferred to the general fund.
Further, Education did not sufficiently analyze the balances reflected
on the financial statements to ensure that the FFELP balances agreed
with relevant balances in the Department's budgetary accounts. The
auditors stated that this situation resulted in an unexplained
difference of about $700 million between the FFELP Fund Balance with
Treasury account and related budgetary accounts as of September 30,
1999. By not properly accounting for and analyzing its FFELP
transactions as required by the Federal Credit Reform Act of 1990,
Education cannot be assured that its financial or budgetary reports are
accurate.
<bullet> Education had information systems control deficiencies in
first, implementing user management controls, such as procedures for
requesting, authorizing, and revalidating access to computing
resources, second, monitoring and reviewing access to sensitive
computer resources, third, documenting the approach and methodology for
the design and maintenance of its information technology architecture,
and fourth, developing and testing a comprehensive disaster recovery
plan to ensure the continuity of critical system operations in the
event of disaster. The Department places significant reliance on its
financial management systems to perform basic functions, such as making
payments to grantees and maintaining budget controls. Consequently,
continued weaknesses in information systems controls increase the risk
of unauthorized access or disruption in services and make Education's
sensitive grant and loan data vulnerable to inadvertent or deliberate
misuse, fraudulent use, improper disclosure, or destruction, which
could occur without being detected.
Our work in this area has shown that other agencies have improved
their financial audit report results but are also facing material
internal control weaknesses. A number of other agencies have focused
their efforts primarily on trying to develop short-term stop-gap
measures designed to produce year-end balances rather than on the
fundamental solutions that are needed to address the management
challenges they face. As a result, these agencies continue to
experience pervasive material weaknesses in the design and operation of
their financial management and related operational systems, accounting
procedures, documentation, recordkeeping, and internal controls,
including computer security controls. Consequently, these agencies rely
on costly, time-consuming ad hoc procedures to determine year-end
balances. This approach does not produce the timely and reliable
financial and performance information needed for decision making on an
ongoing basis. This approach is also inherently incapable of addressing
the underlying financial management and operational issues that
adversely affect these agencies' ability to fulfill their missions.
Report on Compliance with Laws and Regulations
The third report that the auditors issue annually is a report on
agency compliance with laws and regulations. Specifically, the
Department's auditors reported that it was not in full compliance with
three laws as noted below.
<bullet> For fiscal year 1999, the independent auditors found that
Education was again not in compliance with FFMIA because it lacked
adequate, integrated financial management systems, reports, and
oversight to prepare timely and accurate financial statements. The
Department was 1 of 21 CFO Act agencies whose financial systems did not
comply with the requirements of FFMIA in fiscal year 1998. Because many
agencies have significant financial management systems weaknesses,
these results did not change significantly in fiscal year 1999-2000 of
23\11\ agencies' systems did not comply with FFMIA. However, it is
imperative that these problems be resolved so that agencies can produce
needed financial information on a day-to-day basis in a timely and
accurate manner. FFMIA requires that agency financial management
systems substantially comply with first, Federal financial management
systems requirements,\12\ second, Federal accounting standards, and
third, the U.S. Government Standard General Ledger\13\ at the
transaction level. We are working with OMB and the agencies to evaluate
their progress in resolving these significant weaknesses.
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\11\ As of May 15, 2000, the Department of State had not issued its
audit report.
\12\ The financial management systems requirements have been
developed by the Joint Financial Management Improvement Program, which
is a joint and cooperative undertaking of the Department of the
Treasury, OMB, GAO, and the Office of Personnel Management.
\13\ The Standard General Ledger provides a standard chart of
accounts and standardized transactions that agencies are to use in all
their financial systems.
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<bullet> The Department had neither fully implemented a capital
planning and investment process nor performed an assessment of the
information resource management knowledge and skills of agency
personnel, including a plan to correct identified deficiencies, as
required by the Clinger-Cohen Act of 1996. A key goal of the Clinger-
Cohen Act is that agencies should have processes and information in
place to help ensure that information technology (IT) projects are
being implemented at acceptable costs and within reasonable and
expected time frames and that they are contributing to tangible,
observable improvements in mission performance. By not fully
implementing the plans called for under the act, Education was not
maximizing the value and assessing and managing the risks of its IT
investments.
<bullet> The Department did not transfer its excess funds related
to FFELP, specifically the $2.7 billion of net collections previously
mentioned, to Treasury as required by the Federal Credit Reform Act of
1990.
Potential for Fraud, Waste, and Abuse
Education continues to be plagued by serious internal control and
system deficiencies that hinder its ability to achieve lasting
financial management improvements. The internal control weaknesses
discussed above and in more detail in the auditors' report need to be
addressed to reduce the potential for waste, fraud, and abuse in the
Department. Some of the vulnerabilities identified in the audit report
include weaknesses in the financial reporting process, inadequate
reconciliations of financial accounting records, information systems
weaknesses, and property management weaknesses. Specific examples of
vulnerabilities related to these weaknesses follow:
<bullet> The material internal control weakness related to
financial reporting highlights the fact that managers do not receive
accurate and timely financial information, such as information on
disbursements made and amounts collected, that could be used to
identify unusual activity and other anomalies.
<bullet> Some of the known duplicate payments mentioned by the
auditors in their report on internal controls could have been
identified earlier if proper reconciliations had been performed. The
auditors stated that the Department has procedures in place that should
detect duplicate payments and correct them within a reasonable time
frame. We have not reviewed these procedures.
<bullet> The auditors stated that because the Department has not
developed formal policies and procedures to reconcile grant
expenditures between its payments system and its general ledger system,
there is increased risk that material errors or irregularities could
occur and not be detected on a timely basis. This is significant
because the volume of grant transactions is over $30 billion per year.
<bullet> The information systems weaknesses highlight some of the
computer security vulnerabilities, such as the lack of an effective
process to monitor security violations on all critical systems of the
Department. Information systems control weaknesses increase the risk of
unauthorized access or disruption in services and make Education's
sensitive grant and loan data vulnerable to inadvertent or deliberate
misuse, fraudulent use, improper disclosure, or destruction, which
could occur without being detected. A report issued by the Department's
Inspector General in February\14\ emphasizes the need for the
Department to focus on addressing its computer security
vulnerabilities. In addition, earlier this year, the White House
recognized the importance of strengthening the nation's defenses
against threats to public and private sector information systems that
are critical to the country's economic and social welfare when it
issued its National Plan for Information Systems Protection.\15\ In the
aftermath of the recent attack by the ``ILOVEYOU'' virus, which
disrupted operations at large corporations, governments, and media
organizations worldwide, we recently testified\16\ about the need for
Federal agencies to promptly implement a comprehensive set of security
controls.
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\14\ Review of Security Posture, Policies and Plans (ED-OIG/A11-
90013) February 2000.
\15\ Defending America's Cyberspace: National Plan for Information
Systems Protection: Version 1.0: An Invitation to a Dialogue, released
January 7, 2000, the White House.
\16\ Information Security: ``ILOVEYOU'' Computer Virus Emphasizes
Critical Need for Agency and Governmentwide Improvements (GAO/T-AIMD-
00-171, May 10, 2000).
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<bullet> The auditors reported that Education had not taken a
complete, comprehensive physical inventory of property and equipment
for at least the past 2 years. Comprehensive inventories improve
accountability for safeguarding the government's assets, such as
computer software and hardware, and establish accurate property
records. Without such an inventory, property or equipment could be
stolen or lost without detection or resources could be wasted by
purchasing duplicate equipment already on hand. An alleged equipment
theft is currently under investigation by the OIG.
In addition, vulnerabilities in the Department's student financial
assistance programs have led us since 1990 to designate this a high-
risk\17\ area for waste, fraud, abuse, and mismanagement. As we
reported in our high-risk series update in January 1999, our audits as
well as those by the Department's IG have found instances in which
students fraudulently obtained grants and loans.
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\17\ High Risk Series: An Update (GAO/HR-99-1, January 1999).
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Review of the Grantback Account
The grantback account holds certain funds recovered from grant
recipients following an audit determination that the recipients had
made an expenditure of funds that was not allowable or failed to
account properly for the funds. A portion of these funds could be
returned to the recipients if and when the problem that led to the
recovery of the funds has been corrected. Any amounts not returned to
the grant recipients should revert to Treasury. For the grantback
account, which is part of Education's Fund Balance with Treasury, its
auditors reported that approximately 97 percent of the balance at
September 30, 1998, was composed of adjustments that had accumulated
since fiscal year 1993 for reconciling differences of various
appropriations that could not be identified with any specific program.
The auditors also reported for fiscal year 1999 that Education could
not readily determine to which appropriations the adjustments balance
belongs. Education's general ledger as of September 30, 1999, showed
approximately $314 million in Fund Balance with Treasury related to the
grantback account, of which approximately $297 million related to the
adjustments. In January 2000, Education returned to Treasury
approximately $146 million of the adjustments balance. The auditors
reported that Education is working with Treasury to determine the
appropriate accounting for the remaining adjustments balance.
Mr. Chairman, at your request and that of the Vice Chairman of the
Subcommittee on Oversight and Investigations of the House Committee on
Education and the Workforce, we reviewed Education's grantback account.
We briefed you and Education officials on our findings earlier this
month and plan to issue our detailed report in the near future.
In our review of the grantback account, we found that although the
account was established for grantback activities, Education also used
it as a suspense account for hundreds of millions of dollars of
activity related to grant reconciliation efforts. We also found that
Education could not provide adequate documentation to support the
validity of certain adjustments related to the reconciliation efforts
and other activity in the grantback account. For example, out of a
sample of 92 grantback transactions totaling $128 million, Education
could not locate or provide any documentation to support the validity
of 39 of these transactions totaling $47 million. In addition, out of
20 adjustment transactions we selected for testing, Education could not
provide adequate documentation to support the validity of 6
transactions.
Further, Education did not maintain adequate detailed records for
certain grantback account activity by the applicable fiscal year and
appropriation. Such detailed records are needed to have an adequate
system of funds control and help protect against Anti-Deficiency Act
violations. For example, an adjustment we tested totaling $111 million
reduced the grantback account balance and increased the balance of six
appropriations to ensure that projected negative balances for such
appropriations did not occur. However, Education could not provide any
documentation to show that the increases to the appropriation accounts
to prevent the negative balances were valid. As a result of financial
management systems deficiencies, inadequate systems of funds control,
and manual internal control weaknesses, which we and other auditors
identified, there is increased risk of fraud, waste, and mismanagement
of grant funds, as well as increased risk of noncompliance with the
requirements of the Anti-Deficiency Act.
We noted in our briefing that Education had taken or plans to take
actions to address the grantback account issues. In addition, our
briefing included recommendations to Education to strengthen internal
controls related to documentation and policies and procedures for grant
reconciliations and to develop and implement a formal, detailed plan to
eliminate the remaining portion of the adjustments balance.
In summary, Education needs to be able to generate reliable,
useful, and timely information on an ongoing basis to ensure adequate
accountability to taxpayers, manage for results, and help
decisionmakers make timely, well-informed judgments. While Education
has planned and begun implementing many actions to resolve its
financial management problems, it is too early to tell whether they
will be successful. It is critical that Education rise to the
challenges posed by its financial management weaknesses because its
success in achieving all aspects of its strategic objectives depends in
part upon reliable financial management information and effective
internal controls. It is also important to recognize that several of
the financial management issues that have been raised in reports
emanating from reviews of Education's financial statements directly or
indirectly affect Education's ability to meet its obligations to its
loan and grant recipients and responsibilities under law.
Mr. Chairman, this concludes our statement. We would be happy to
answer any questions you or other members of the Task Force may have.
Mr. Hoekstra. In the high-tech world, we can't get our
little red, yellow and green light bulbs to work today.
I appreciate your timeliness to adhere to the 5 minutes. I
am not sure that we can always say that about members. We are
going to go with a low-tech Timex here and see how we control
member's time. We will go on the 5-minute rule.
Mr. Moore, the reason that we wanted somebody from the
financial sector and financial investing area to come today was
just to establish that what we are asking for from the
Department of Education is not a high hurdle. This is where the
private sector begins, isn't that correct, with a publicly held
company?
Mr. Moore. This is the same thing that every company in
America has to do, account for its income and how it is
spending its money.
Mr. Hoekstra. And if a company does not do that, the impact
is very, very significant.
The company that you highlighted has lost 90 percent of its
market value, not necessarily because of proven fraud, waste
and abuse, but because they could not produce accurate
financial statements; is that correct?
Mr. Moore. That is correct. Their methods by some were
considered OK, but by generally accepted practices they are not
considered OK.
Mr. Hoekstra. And the typical reason when you see such a
dramatic action in the private sector is that it basically
makes it very difficult for investors to make any kind of
reasonable decisionmaking because the risks are too high,
because they don't know how money that they are investing is
actually is going to be used or how it is going to be reported?
Mr. Moore. That is correct.
Going further, that may be the tip of the iceberg, is what
many investors may assume. If this is uncovered, what else
hasn't been uncovered yet?
Mr. Hoekstra. Mr. Murrin, I don't know if you want to add
to that. In the private sector, I think you are right. It is
viewed as a symptom. If they can't do the basics, what else is
going wrong? If you don't have the proper financial controls in
place, you create an environment where fraud, waste and abuse
can exist.
Mr. Murrin. I think it is fair to say that good financial
management is applauded in the financial community as it is in
the public sector.
Mr. Hoekstra. And it is highly penalized if it is not
there?
Mr. Murrin. That is correct.
Mr. Hoekstra. I applaud the IG and the Justice Department
for the work they have done in the inventory and overtime
scams, but it shouldn't be a surprise that these scams can
happen at the Department of Education. For a number of years,
it has been repeatedly brought to the Department's attention
that they lack adequate inventory controls, and year after year
we have seen little action to fix this problem. Such inaction
sends a message to potential thieves that no one is guarding
the store.
Mr. Lewis, you went through the end result of what happened
without proper inventory controls. You outlined a list of
everything from a 61-inch television, to Gateway computers,
phones and disc players, in all inventory totaling more than
$300,000, and discussed the more than $600,000 in false
overtime billing. Based on the testimoney we've heard today, it
is sad to say that none of this should be surprising.
Ms. Lewis, you also outlined a number of other areas where
you are currently investigating or identifying fraud, waste,
and abuse. Some of the numbers may seem small in the context of
the Department's overall budget, but a million here and a
million there adds up rather quickly.
Ms. Jarmon's testimony highlighted some issues that present
long-term concerns. The Department's grantback account is
plagued by a lack of documentation or inappropriate designation
of funds controlled by that account. In the case of a grantback
account we are talking about hundreds of millions of dollars,
is that correct?
Mr. Engel. Yes, that is correct.
Mr. Hoekstra. And we don't know if fraud has occurred or
has not occurred, we basically just don't have the information?
Mr. Engel. That is true. In our testing that we have
performed for about half of the transactions that we had
selected for testing, we were unable to be provided with
adequate documentation to determine whether those transactions
themselves were valid. So for an instance like that, I can't
speak to whether it is fraud or not because there is no
documentation to speak to.
For the ones where we were provided the adequate
documentation, we did not see indications of fraud. But in our
work we did identify numerous instances of weaknesses in
controls, lack of approval requirements, lack of effective
reconciliation procedures which increased the potential for
fraud, waste and abuse to take place.
Mr. Hoekstra. Just in wrapping up for my colleagues,
tomorrow the Education and Workforce Committee will mark up a
piece of legislation which I am anticipating will have
bipartisan support. It will move to the top of the priority
list for GAO the task of performing a more comprehensive fraud
audit. The goal of the audit is to identify if there is
additional fraud happening in the Department based on what we
found today.
The standard we are asking for is not unreasonable. There
have been a number of documented cases of fraud, waste and
abuse within the Department of Ed. There are still many
questions that need to be answered from our standpoint on the
Education and Workforce Committee. It is a high priority to get
a handle on this issue and bring it under control.
Ms. Rivers.
Ms. Rivers. Thank you, Mr. Chairman.
Mr. Moore, are you a CPA?
Mr. Moore. No, a CFP.
Ms. Rivers. Have you ever been a government auditor?
Mr. Moore. No.
Ms. Rivers. Do you have any firsthand accounts with the
Department of Education?
Mr. Moore. No.
Ms. Rivers. Mr. Murrin, when Ernst & Young did their review
of the Department of Education, you folks didn't catch the
$300,000 scheme that was going on. How come?
Mr. Murrin. That is correct, we did not. We were not
engaged to perform a forensic or fraud audit. We were engaged
to perform an audit of the financial statements of the
Department.
Ms. Rivers. Did it have anything to do with the size of the
scheme?
Mr. Murrin. That would play a role in how readily the item
is detected.
Ms. Rivers. How?
Mr. Murrin. The range that is discussed for the grantback
account is large enough that it becomes identified as an issue
that would get discussed and potentially discussed in a forum
like this. It is considerably less likely that a $300,000 item
would have appeared on the radar screen for that kind of
discussion.
Ms. Rivers. So even though that is a whole lot of money to
people like us, in the scheme of what the Department does,
$300,000 is a hard number to track?
Mr. Murrin. Within the context of a financial audit of the
Department, the $300,000 would not necessarily show up on the
radar screen.
Ms. Rivers. Ms. Jarmon or Mr. Engel, the grantback account,
some people have referred to that as a slush fund. Could the
Department of Education--could they or is there any indication
that they did use money from that account to purchase things,
to spend in other accounts, to do anything outside of the law
with that account?
Mr. Engel. We did not find any evidence, in the
transactions for which we had received support, that the
transactions were anything but related to grant activity. We
didn't see, for instance, a purchase of a car or anything. But,
again, I would point out that for half of the transactions that
we had selected for testing we were never provided any
documentation.
Ms. Rivers. I see that under the law the IRS is supposed to
share information with the Department of Education to track
compliance information, and they are unwilling to do that. Why
is it that the IRS is not giving the information that the law
requires?
Ms. Lewis. The Higher Education Act Amendments of 1998
authorize the Department to receive this information, and
coordinate with the Treasury.
In terms of implementing that, the IRS has indicated, as we
indicated at your February hearing here in the Budget
Committee, that they feel that there legally needs to be a very
explicit amendment to the Internal Revenue Code to allow them,
without taxpayer consent, to share the information on tax forms
so that the Education Department can compare it to the FAFSAs.
So the Office of Inspector General has specifically recommended
that Congress pass whatever additional legislation is
necessary.
Ms. Rivers. How long ago did you recommend that?
Ms. Lewis. We supported the amendment when it was first
considered in Congress and then----
Ms. Rivers. And how long ago was that?
Ms. Lewis. It became effective with the 1998 amendments to
the HEA. And in the implementation process there have been
discussions by OMB, the Department of Education, Treasury and
the IRS, and this issue of a legal impediment has arisen. In
our semiannual reports and in testimony we have indicated that
if this is the case, then hopefully there can be some
clarification in the Internal Revenue Code because the
Department and the OIG are very desirous of that.
Ms. Rivers. When did you first make that recommendation?
Ms. Lewis. Since 1998.
Ms. Rivers. And yet Congress has not taken any action?
Ms. Lewis. I know that it has been considered. It was a
subject of discussion of the committee back in February.
Ms. Rivers. Thank you, Mr. Chair.
Mr. Hoekstra. Mr. Moran and myself are currently waiting
for the legislative language to come back from legislative
counsel. I think it is kind of tricky to craft it, and they are
busy writing amendments for the appropriations bills. We wanted
to do that in a bipartisan way, and at the last hearing Mr.
Moran indicated a willingness to work with us, and so we are
trying to work out the exact language necessary to address this
issue.
Ms. Lewis. Yes.
Mr. Hoekstra. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. My questions are fairly
simple and fairly basic ones.
Mr. Murrin, obviously, your firm, your office, has to have
a great deal of experience in dealing not only with the
Department of Education but with some major employers and major
companies. One thing that we constantly hear is that the
Department of Education and other agencies, other departments,
are unable to do rudimentary audits because somehow their
operations are so complex and so complicated that they can't do
that. Can you give us some sort of context here comparing the
types of functions that they are involved with and, on the
other hand, a Fortune 500 company and its operations in terms
of complexity? Does it make sense that these U.S. Federal
departments can't--will always be unable to audit their books
because they are so complicated? How does that compare with
what goes on in the private sector?
Mr. Murrin. I think there are parallels between the largest
private sector entities, and it certainly would be with the
largest private sector entities, and with public sector
entities. I do not share a view that the agencies should never
be able to get clean opinions and should never be able to get
rid of material weaknesses and reportable conditions.
I guess our view would be that they have come from very far
back in the pack, from a 100-year history of never having had
financial audits. They are moving forward with the passage of
the CFO Act and the extension of financial auditing to other
agencies, and moving forward to get the audit discipline in
place, but in many cases, they have a long way to go. And to
the extent that the financial management systems that they are
dealing with were never put in place with the idea that someone
would rigorously come and check the way that a financial audit
process does every year. As to how the numbers are pulled
together, and ask questions as to whether I have the detect
controls, whether you have the prevent controls, they are
finding it difficult to achieve that early on. But the
parallels with the largest private sector entities would exist,
and eventually a very large multinational company with
locations across the country or across the world faces some
similar things to what those public sector do and have to
address those issues and have successfully addressed those
issues.
Mr. Green. Obviously many of those companies are going well
beyond the basic auditing requests that we have made.
Let me shift everyone's attention and thinking and posture.
I would like each of the witnesses, if you could, if you had to
offer one single thing, one single principle that you would
like to see implemented at the Department of Education to try
to rapidly move us toward compliance, what would it be? And I
toss that out to each of the panelists. What is it that should
be done? What one step would you recommend?
Mr. Murrin. Since I have a microphone, of the points that
we have raised in our testimony today and have raised in our
reports and sort of a mantra that I have, it would be some of
the key detect controls, and within the Department and within
many of the agencies, it is really a toss-up which of the key
detect controls you would focus on first. But reconciliation
processes would be very high on that list of things. If you can
get a good subsidiary record listing of all of the assets that
you can, reconciling to a total, to the general ledger, and
report it in a set of financial records and do some comparisons
between the detail and what you actually expect to see,
confirming loans or looking for fixed assets, that would be the
key item we would focus on.
Ms. Lewis. I would concur. Focus on the internal control
report. While it is a very important goal to achieve a clean
financial statement opinion, simultaneously focus and use the
internal control report as a blueprint for how you can fix
systemic issues. When there are documentation gaps and there
are untimely or long times between reconciliations, it leads to
problems at the end. You are looking to insert internal
controls up front so that you can attempt to prevent those
problems coming in at the end.
Ms. Jarmon. I would agree with Ms. Lewis and Mr. Murrin.
The internal control issues need to be focused on, but I would
like to add that a lot of weaknesses at the Department of
Education, and I believe the auditors have always stated,
relate to human resource issues and financial systems problems.
I know that the Department has had a lot of turnover in its
CFO's office. The right people in the office, and proper
training of the financial managers, and good understanding and
implementation of the system that they have recently purchased
are critical.
Mr. Engel. Just adding on to what the other witnesses have
said, I would probably also add that because of the magnitude
of transactions that go through the Department, through its
computers, and you are involving payments and everything being
accounted for through the computer systems, that it should be
emphasizing and making sure that it has appropriate access
controls over the computer so that someone cannot access the
system and divert funds.
Mr. Moore. I would tend to look at a control board as was
looked at with D.C. When you have a problem which has been as
pervasive and as long-term, I think the leadership in terms of
the control and accounting functions and that which filters
down through the employees would be key to turning it around.
Mr. Green. So you would favor some kind of outside board to
come in and take control and make the systemic changes?
Mr. Moore. I am not qualified to answer that question
necessarily, but I think that has to be considered. If it is
continued and repeated, then clearly it is not getting done
within the walls or within the Department itself.
Mr. Green. Thank you.
Mr. Chairman, before I turn it over, I would like to ask
unanimous consent that all written statements submitted by
Members be included for the record.
Mr. Hoekstra. Without objection, so ordered. Thank you.
You all talked about the reconciliations and their
importance. Has the Department been doing monthly
reconciliations with Treasury? Has that started yet?
Ms. Lewis. I am going to have to get back with you on that.
I know when we testified in March, that was certainly the
intention. But I must admit I need to get back to you on the
record, unless GAO knows for certain.
[The information referred to follows:]
Response by Ms. Lewis to Frequency of Cash Reconciliations Question
According to the Department's Office of the Chief Financial
Officer (OCFO), monthly reconciliations were performed starting
with the March 2000 data. The Department states that the
Treasury Department provides matching data by the 23rd of the
following month. The Department also indicates it is in the
process of reconciling April 2000 data, and ongoing work is
being conducted to reconcile prior year data.
Mr. Engel. I believe right now they are being done on a
quarterly basis, and I know that they have been working to
develop a process--I think they have acquired some software
that they are using to try to assist them in their
reconciliation process.
Mr. Hoekstra. For those not familiar with it, the
reconciliation is between Treasury and the Department of
Education. There has been an inability to reconcile what the
Department of Education says that they wrote checks for and the
Treasury Department says that they have cashed. I am also
assuming that if they are moving to a quarterly basis, they are
not yet to the point where they are preparing interim financial
statements on a quarterly basis. Are they doing that? Have they
done that this year?
Ms. Lewis. It is my understanding from the Department that
in June the goal, or plan, is to produce the first interim
statements.
Mr. Hoekstra. OK. So that would be a 6-month statement.
Ms. Lewis. It is my understanding that it would run from
the first of the fiscal year through the halfway point of the
fiscal year, and I believe--if I can make sure that is--by
getting back to you to confirm that.
Mr. Hoekstra. Thank you.
[The information referred to follows:]
Response by Ms. Lewis to Interim Financial Statement Question
Yes, thus far, the Department has prepared two interim
statements; one for the month of February and one for the month
of March. It is our understanding that full interim statements
and supporting schedules for the period ending in March 2000
will be delivered to Ernst and Young on June 15 and that
information through June 2000 will be delivered in August.
Mr. Hoekstra. Ms. Hooley.
Ms. Hooley. Yes, thank you, Mr. Chairman.
The question, Mr. Murrin, is for you. Their failure to have
a clean opinion on the audit, financial management; not having
a clean opinion, does that reflect fraud and mismanagement or
just problems with integration of the financial management
systems?
Mr. Murrin. It is an initial indicator of problems with the
system. It is not a direct indicator that fraud, waste and
abuse is actually occurring.
Ms. Hooley. I am just curious. You have done other audits,
I am assuming, with other government agencies or outside
agencies. How long does it generally take for an organization
to come up with all of the tools and put the systems in place
that they need to put in place before they can have a clean
opinion? Just give me an estimate of how long this should take,
this whole process.
Mr. Murrin. You know, it is really difficult to say. It
depends on the management of the organization, the resources
that the organization has and can devote to a particular
problem, and really the process that is used to address those
recommendations over time. I can't address that on average.
Ms. Jarmon. GAO does the governmentwide audit, and this
year when we testified on March 31 on the results of the fiscal
year 1999 24 CFO Act agencies, 13 of the 24 had received clean
audit reports for fiscal year 1999. Most of those agencies were
not required to do agencywide audits for the first time until
fiscal year 1996. So 13 of the 24, and I just heard yesterday
that the Department of Interior got a clean opinion, and so now
it is 14 of the 24 have clean opinions.
Ms. Hooley. Do we have enough personnel and resources to
make this happen as quickly as we would like them to do this;
do you know?
Ms. Jarmon. It is probably a different answer for different
departments. Some departments are probably doing fine. There
are some which are having more problems with personnel and
human resources. So it is different on a department-by-
department basis.
Ms. Hooley. How does this audit compare to the previous
audits?
Mr. Murrin. The 1999 audit, which had four statements that
had qualifications and one disclaimer, was issued on a more
timely basis than prior audits. The audit for the immediately
preceding year, for 1998, had a disclaimer on all of the
statements. And the audit for 1997, I believe, was one of
unqualified on all of the statements.
Ms. Hooley. What are some of the improvements that the
Department has made in management of the student loan program,
which I know has been troublesome, and are the default rates
going up, down? What is happening in that area with student
loans?
Ms. Lewis. I can indicate what I know. Obviously the
Department would be in a position to speak particularly to some
of the issues.
For example, as I mentioned in my testimony, in the area of
death and disability discharges, the regulations changed around
1995 to basically allow persons who had a discharge of their
loan obligation to reapply for loans.
It is my understanding that the Department noticed a spike
in those types of borrowers and asked the Office of Inspector
General to conduct an audit to review the situation, which
involved the match of NSLDS data and Social Security
Administration data. The OIG looked at discharges in a certain
time period and subsequently looked at the earnings date from
Social Security to see if persons who were presumably dead or
permanently and totally disabled were showing through the
Social Security records that they were earning income. And we
did find matches. In other words, a population that showed
income earnings after the discharge.
Again, the Department requested that work. We issued the
results in June 1999, just before I got to the Department, and
made some very specific recommendations to change the form,
making the recordkeeping so that they needed to show that there
was actually a doctor with a medical license number filling out
the form, and requiring an original or certified copy of the
death certificate. Those recommendations were implemented.
We have worked with the Department and with the guaranty
agencies to try to find particulars to do the match. Part of
the agreement for the match was that there would be no
particular indicators--no particular information that came out
of the match to identify a particular person. So we have had to
go back and do additional work. That would be one case I am
personally familiar with where significant improvement,
tightening of controls, did take place.
Ms. Hooley. And have the default rates now gone down?
Ms. Lewis. That was a borrower situation, death and
disability. So they are not related.
Ms. Hooley. But there has been a tightening?
Ms. Lewis. In that area, in death and disability, yes.
Ms. Hooley. Thank you.
Mr. Hoekstra. Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman. It has been mentioned
trying to get some language together for the IRS to share
information with the Department of Education. I think we better
be careful with such requirements or mandates, particularly for
an agency that can't conduct its own business. The information
that is reported to the IRS is very confidential. It is not
shared with anyone, not even a Member of Congress much less an
agency which is under the authorization of a Member of
Congress. Does the Department of Education write checks, or
does the Treasury Department?
Ms. Lewis. I'm sorry?
Mr. Collins. Does the Department of Education actually
write checks, or does the Treasury Department pay the bills for
the Department of Education?
Ms. Lewis. There definitely is a function at the Department
of Education where checks are written. For example,
reimbursement checks for travel is one example where checks are
written and certain vendors are paid with checks. And then
there are many, many other transactions that take place through
the Treasury Department mechanisms.
Mr. Collins. Do you have a breakdown in dollars, one versus
the other?
Ms. Lewis. No, sir, I'm sorry. I don't.
[The information referred to follows:]
Response by Ms. Lewis to Question on Whether Or Not the Department
Writes Checks
The majority of funds go out directly from the Federal
Reserve, at the Department's direction via wire transfers or
Treasury checks. The Department does issue checks for employee
reimbursements, payments to field readers, payment of the
centrally billed travel account and the purchase of supplies
when purchase cards are not feasible. According to the
Department, in fiscal year 1999, approximately 22,700 third
party draft checks were issued, totaling $25 million or less
than 1 percent of the Department's expenditures for the year.
Mr. Collins. Who would audit that, you or the GAO?
Ms. Lewis. As part of the financial statement audit, which
looks at large transactions and five particular statements that
the Department prepares, there is information in those
statements that the currently engaged auditor, Ernst & Young,
would look at.
Mr. Collins. Do we do a cash flow chart, operating
statement, balance sheet or all?
Ms. Lewis. I will ask Mr. Murrin to explain the financial
statement.
Mr. Murrin. There are five statements that the Department
of Education prepares which we audit. Of the statements you are
referring to, there are statements that do reflect, in effect,
the cash transactions, the cash that goes out the door to
grantees and others.
Mr. Collins. That is part of your operating statement?
Mr. Murrin. Correct.
Mr. Collins. Income and expenses?
Mr. Murrin. A parallel, yes.
Mr. Engel. Regarding the disbursement authority, the
Department of Education does have disbursing authority to write
their own checks. Unfortunately, I don't know the volume of
checks they write on their own, which then still would clear
through the Federal Reserve and Treasury would get involved,
versus the checks where they send basically a tape of what they
want to have disbursed, which is what a lot of agencies do, to
Treasury, and then Treasury actually prepares the checks and
sends them out.
Mr. Collins. I know that Social Security checks are
prepared by Treasury.
How many employees are in the Department of Education when
it comes to the accounting department?
Ms. Lewis. I don't know. I will have to get back with you
on that. The Department would have the answer. I don't have it
in my head.
[The information referred to follows:]
Response by Ms. Lewis to Question About the Department's Accounting
Staff
According to OCFO, its ceiling is 87 FTE and 74 FTE are
currently on-board.
Mr. Collins. OK. In the loan forgiveness, that seems to be
an area of problem. How do you verify disability?
Ms. Lewis. There is a form. It is a governmentwide approved
form that is sent to the individual who is seeking a discharge
for a permanent and total disability, and it is the obligation
of that individual to submit that, either to the guaranty
agency or to the Department depending on which type of loan
they completed. And, for example, when we did the audit, one of
the things that the auditors did was go to the guaranty agency
and look at some of those forms. Some of them were illegible.
There did not seem to be a lot of controls. There was no box
for ensuring that there was a medical license number. And
basically it appeared that the information was accepted at face
value, which is why we made the recommendations that that
process should be tightened up.
The form was rewritten. OMB approved it. I think the new
form took effect in January. And so now there is more
information required on the form. Also the guaranty agencies
were issued what is called a ``Dear Partner'' letter in
November. The Department issued the letter to give more
specific guidance to the guaranty agencies when they saw an
application for a discharge and they had questions about it,
specifically whom in the Department they could speak to, what
their ability would be to question and to go back, and what
requirements were in place. So there have been some tightening
of the procedures.
Mr. Collins. Well, I noticed that you cross-check with
Social Security on death certificates.
Ms. Lewis. Subsequently, we look to do a match with the
Social Security Death Index because in the match in the
original audit that we did, we were not in a position to use
any individual data to follow up. While we got information from
the match indicating that there were persons who appeared to be
earning income after a death, there was no name or Social
Security number. That was part of the agreement for the match.
So we have looked to go with the Social Security Administration
to have a match.
There is a law, I think it is called the Computer Matching
and Privacy Act, which was passed in the late 1980's by
Congress to set the requirements any time government agencies
do matches. There is also something called the Data Integrity
Board which exists within each agency, and there are specific
requirements for that which have to be met by each agency, as
they may seek to match some of the data that they have in their
systems with data from another agency.
Mr. Collins. Would it not be true, though, that most people
who would have a permanent disability would also file for
disability insurance, for Social Security, and you could cross-
check that with Social Security also?
Ms. Lewis. We did make a recommendation, as part of the
audit, for the Department to consider working with Social
Security's processes and information since it appeared that
they had a model that might provide some helpful guidance. That
was one of the recommendations that the Department did not--I
think it was the recommendation that the Department did not
agree with in terms of piggybacking onto the Social Security
system that is already in place. This is under negotiated
rulemaking.
All of the recommendations that are implemented, proposed
and then finalized as part of the Higher Education Act go
through a process of negotiated rulemaking. So procedures and
requirements related to death and disability discharges are
currently under negotiation with the public as part of
negotiated rulemaking. Any additional tightening or other
changes to the system, whether it be the definition or
requirements to reinstate loans should someone ultimately be
determined to have inappropriately been given a discharge,
those are all matters that are being discussed with the public
as part of the negotiated rulemaking process. This is my
understanding from information I have from the Department.
Mr. Collins. Well, I find it odd that they would cross-
check to see if a person is still alive, but don't cross-check
to see if they are drawing disability. Something doesn't come
together here. When you have a department that can't account
for all of its money, I am not surprised.
Let me ask you one other thing. In your investigation did
you find the slack in the operation in career employees or
appointees?
Ms. Lewis. The Telecommunications Specialist is a--I
believe--is a career employee. But obviously I am very much
mindful that the Justice Department has indicated which aspects
of the investigation we can speak about, which have basically
been made public through the plea agreement with Mr. Sweeney
and is from what I formed my testimony. The Telecommunications
Specialist to whom I referenced was a career employee.
Mr. Collins. He was one out of how many?
Ms. Lewis. I am not at liberty to say.
Mr. Hoekstra. I believe public reports indicate that there
are six or seven additional employees from the Department.
Ms. Lewis. There are five other employees who have been
suspended without pay, and one is on administrative leave that
is proposed to be suspended without pay. You are correct, Mr.
Chairman.
Mr. Collins. Let me just finish with one more comment. It
appears when it gets down to the fact that you can't account
for all of the checks that they are writing, that they are of
the opinion that as long as they have checks, they have money.
Thank you.
Mr. Hoekstra. Just a couple of questions. I am glad we are
doing this in the Budget Committee because I think there are
some things that we can share from the Education and the
Workforce Committee. One thing that kind of drives a little bit
of our frustration on this is the theft ring or the
embezzlement, whatever we want to call it, started when, at
least that we know about, the earliest that we know about?
Ms. Lewis. We have looked back at records to the beginning
of 1997.
Mr. Hoekstra. So it is something that went on for
potentially 2\1/2\ to 3 years. The duplicative payments issue
first came up when; again, that we are aware of? I believe
Lockheed was going to testify last week had a duplicative
payment back from when?
Ms. Lewis. From information from the Department, it is my
understanding that there are at least nine instances of
duplicative payments. That is, nine occasions when it happened.
Within that there could be a number of either vendors or
grantees.
Mr. Hoekstra. The first one occurring?
Ms. Lewis. I think in fiscal year 1998, according to
information that we have gotten from the Department--1998, 1999
and 2000.
Mr. Hoekstra. And the last one was as recent as January of
2000. There was a payment of $5.9 million in January of 2000,
and there were 51 duplicative payments or 51 schools that were
affected in December?
Ms. Lewis. The information that I have shows four instances
involving grantees or SFA schools totaling approximately $150
million in fiscal year 2000. I can look more specifically.
Mr. Hoekstra. How much money for duplicative payments?
Ms. Lewis. From the Department for fiscal year 2000, four
instances involving either grantees or SFA schools totaling
$150 million.
Mr. Hoekstra. Wow. That is new information; $150 million in
duplicative payments this year. OK. This has been an ongoing
problem. That number shows no indication of subsiding.
The third thing is the grantback account, there has been
some talk about that, and I think in the report that you are
going to be issuing, the money that actually went back in the
grantback account, that tied directly to the purpose of the
grantback account, is less than 10 percent, right?
Mr. Engel. The account was established in 1991. They
started to record adjustment activity, the suspense activity in
1993. Every year since 1993, the actual balance related to what
the account was set up for was less than 5 percent for every
year thereafter.
Mr. Hoekstra. Before you said a lot of money had to do with
grants, but specifically what that account was set up for, only
5 percent of the funds could be documented as being in that
fund specifically for the purpose that the fund was set up for.
Mr. Engel. That is true.
Mr. Hoekstra. And that started in 1991.
I think the frustrating thing for us on the Education and
the Workforce Committee, and I hope that those frustrations are
shared on the Budget Committee, these are not new problems. The
duplicative payments have been going since at least 1998, the
grantback problem since 1993. Depending on your definition, it
might have been gone back to 1991. These are systemic problems
over a long period of time and not just one-time occurrences. I
think that is the frustrating thing that we can't get a handle
on that.
And I think, with the check-dispensing authority of the
Department, the Department of Education has a different kind of
relationship than a number of the other agencies have with
Treasury, correct?
Mr. Engel. That is correct.
Mr. Hoekstra. And that allows a greater degree of autonomy
in spending and issuing checks?
Mr. Engel. There are other agencies, Defense, but you are
right, the majority of the agencies do not write their own
checks.
Mr. Hoekstra. Ms. Lewis.
Ms. Lewis. Just looking again, it is our understanding from
information provided that there were nine instances over the
three fiscal years. All of the money has been returned of the
amounts identified as duplicative payments, except there is
continuing disagreement about approximately $44,000 involving
two vendors. We have contacted the Office of General Counsel to
ask what happens now if there is continuing disagreement, what
steps--to bring to the General Counsel's attention.
You had previously mentioned, Mr. Chairman, some open audit
recommendations that we testified to at the March hearing. As
you know, we have been working on these open audit
recommendations. The Department provides a corrective action
plan. Just for the record, the total for fiscal years 1995 to
1999 was 139 recommendations. At present there are 67 open, 72
closed; 46 of the 67 are nonrepetitive. So we are also in a
dialogue about that, but just to update that for the record.
Mr. Hoekstra. I just want to say one more thing. I am not
worried about the duplicative payments that we found where we
got the money back. Once we find them and go back to those
vendors or schools and ask for our money back, I would expect
to get it. What concerns me are the ones that we may not have
found.
Ms. Lewis. Since we spoke on this subject in November, my
office has obtained GAPS data, for the initial 3-month period
that the data went into GAPS. We have also been working with
the Federal Reserve to acquire other data. For a period from
mid-1998 through mid-1999, my auditors are looking to see if
there are any other anomalies in the GAPS system that might be
duplicative payments or anything else. We are still in the
process of conducting that work.
Mr. Hoekstra. Ms. Rivers.
Ms. Rivers. Thank you, Mr. Chair. I have a couple of
questions.
Mr. Murrin, in the time that you have done the audits and
made recommendations to the Department of Education, have you
encountered any unwillingness on the part of the Department to
accept your recommendations, or have you come across any
specific instances where the Department has been obstinate or
deliberatively noncompliant toward recommendations?
Mr. Murrin. To my knowledge, no.
Ms. Rivers. Ms. Lewis, you mentioned an investigation you
did was because of a Department of Education referral. So as we
look through your testimony----
Ms. Lewis. That was our audit work, yes.
Ms. Rivers. When we use prosecutions pursued or evidences
of wrongdoing, those can be the result of your internal
investigation, or it can come from the Department of Education
finding problems on its own and referring them to you?
Ms. Lewis. We do have a hotline function, for any
individual, the public or within the Department. And, as in any
OIG office, that is a very important part of any internal
control system. We also get referrals from offices within the
Department and from the General Counsel's office for matters
for us to follow up on.
Ms. Rivers. Have you encountered any specific instances of
reluctance in pursuing an investigation when there is evidence
of criminal activity or any unwillingness to prosecute once
information has come to the attention of the agency?
Ms. Lewis. We work with the Justice Department, mainly the
local U.S. attorney's offices, and we, along with very well-
trained investigators and their agent-in-charge, will present
their findings to date and the attorney's office will determine
if they feel that the case should be opened.
In our experience we have had cooperation from the
Department, the leadership of the Department and managers in
the Department in terms of providing us information to help us
do our investigation, and then understanding that our requests
to follow up with more specific information or additional
material oftentimes comes at the direction of an assistant U.S.
attorney.
Ms. Rivers. Given what we know about the personnel problems
within the Department and their software difficulties over
time, do you think that the Department has given a less than
good faith effort to comply with your recommendations?
Ms. Lewis. I have been there since last June and had a very
difficult experience in terms of the 1998 audit. That was not a
timely audit. The Department--everyone started late. The
financial statements were provided late. This was Ernst &
Young's first year. The Department, OIG auditors and Ernst &
Young worked to try to bring that to closure with a result of a
disclaimer, and there are many lessons to be learned from that.
This was why we very much set the absolute unbreakable goal of
ensuring that for the very first time, the Department would
achieve its audit for 1999 in a timely fashion, and it did so.
Ms. Rivers. I am interested in whether or not their efforts
represented less than a good faith attempt to comply with what
you were recommending. Did you feel that they were unwilling or
being obstinate or being noncompliant deliberatively?
Ms. Lewis. I have no indication of any deliberate
noncompliance. We push very hard to see that recommendations
that we feel are appropriate, that come out of our audit work
or from Ernst & Young, such as the 1994 document that the
Chairman spoke of in his opening statement, was indeed a
document that arose from some information we had from an
investigation. It is called an IPAR. So it is important, but
the property management issues have been on the Department's
Federal Managers' Financial Integrity Act list since 1994. And
it is very important that efforts that would yield results take
place. We are living in the era of results.
Ms. Rivers. Do you think that results have not been
achieved because of bad faith on the part of the Department?
Ms. Lewis. No, I don't have any indication of bad faith or
willful noncompliance, but in large part it is the importance
of getting to the result.
Ms. Rivers. Ms. Jarmon or Mr. Engel, do you have any
experience which indicates that the Department was unwilling or
noncompliant with your recommendations as they have moved
through this process with software?
Ms. Jarmon. No, we have not had any indications where they
have been willfully noncompliant, but it has taken some time.
Many of the recommendations have been repeated from year to
year since the first audit.
Ms. Rivers. Thank you, Mr. Chairman.
Mr. Hoekstra. Mr. Collins.
Mr. Collins. I just want to re-ask one of my questions.
Did you find the slack in the Department in career or
appointees? You gave an example of a career who had actually
committed a felony there, but is the overall administration of
the Department, down to each department within the Agency, is
it run by career or appointees?
Ms. Lewis. It differs across the offices. There are some
offices that are headed by Assistant Secretaries who are, as
you know, Presidential, Senate-confirmed, political appointees
and then there are some offices that are headed by career
appointees.
The organization has changed over time. Years ago the CFO
and CIO offices were merged with one individual running the
office. Those offices are now currently broken out, and there
are two career executives running those offices. So over time
the structure changes.
As Mr. Chairman reminded me, the seven individuals who were
Department of Education employees who have been identified for
suspension without pay, and I just need to clarify, there are
allegations concerning the Telecommunications Specialist. The
Telecommunications Specialist has not been found guilty or pled
to any crime, so I just wanted, Mr. Collins, to make that
clear, if I didn't make that clear before. The person has been
identified and is being investigated, but has not pled or been
convicted of any Federal or other crime.
But the seven are employees in the ranks--were previously
employees in the ranks of the Department, in the staff ranks.
Mr. Collins. I think it is important to know who is doing
the best job, who is administering the best oversight. Is it
career or appointees? Then you can make a determination how you
want to set your different departments up.
Ms. Lewis. We are taking all of the information that we
have from the investigation, and we have asked some of our
auditors to go in and do some follow-on looks, such as at other
contracts and other issues that have arisen. We are going to
bundle that information up and put it together, analyze it, and
we are going to be presenting it to the current head the chief
information officer, the new head--he arrived last September--
in terms of identifying any lessons learned and our
recommendations for internal control improvements that need to
be made.
And I will, Mr. Collins, make sure that all of the
information that we have there is shared appropriately with the
rest of the Department, very senior officials, to try to
prevent other mistakes. It is the very process that we are
doing now on third-party checks and the purchase cards. We are
going office by office, and we are doing internal control
testing based on GAO's new standards, and we are meeting with
the Assistant Secretary or the head of the office, and we are
presenting them with our findings. We will also do a cap
report. There will be about 13 or 14 products. As we go into an
office, we are also identifying other areas to follow up on. So
the office-by-office approach is one that we are looking to
adopt, Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
Mr. Hoekstra. I thank the witnesses for being here today.
With that, the Task Force will be adjourned.
[Whereupon, at 11:52 a.m., the Task Force was adjourned.]
SMOTHERING EDUCATION REFORM: HOW WASHINGTON STIFLES INNOVATION
----------
WEDNESDAY, JUNE 14, 2000
House of Representatives,
Committee on the Budget,
Task Force on Education and Training,
Washington, DC.
The Task Force met, pursuant to call, at 2 p.m. in room
210, Cannon House Office Building, Hon. Peter Hoekstra
(chairman of the Task Force) presiding.
Chairman Hoekstra. Good afternoon. The Task Force on
Education and Training for the House Budget Committee will come
to order. A few weeks ago, this Task Force held its first
hearing. At that time we heard testimony about the Department
of Education's inability to balance its books and some inherent
weaknesses. Yesterday the House acted on that by passing a
comprehensive fraud audit bill through the House of
Representatives, which is now on its way to the Senate, asking
the General Accounting Office to do a fraud audit within the
Department of Education to identify those areas where there may
be fraud or those areas that may be susceptible to fraud.
Today we will be discussing a different kind of
inefficiency: resources that we believe should be going to our
kids, but may get siphoned away to feed the bureaucracy or
worse; federally created programs that are out of step with the
priorities and needs of local school districts. Too often the
net effect of creating hundreds of programs administered in
Washington is that it burdens and stifles education reform and
initiatives rather than facilitating them.
Many of the problems we will discuss today can be explored
in more detail in the Education at a Crossroads report. This
report was produced by the Subcommittee on Oversight and
Investigations, which held 22 hearings across the country and
here in Washington. We have heard from hundreds of students,
parents, educators, community leaders and business owners. We
sifted through thousands of documents to learn more about the
effectiveness of Federal education programs.
The recommendations that came out of the Education at a
Crossroads, was to get effective learning, we need to empower
parents, return control back to the local level, send dollars
to the classroom and not to bureaucracy, and at the local level
you improve education when you focus on basic academics. I
believe that is what we heard at one of the hearings in Central
High School in Little Rock, AR, hosted by Senator Hutchinson.
I think today we have got witnesses who can talk about the
effectiveness or the lack of effectiveness of Federal education
programs at the State and the local level, and that is what we
are here to find out about.
I will submit the balance of my statement for the record
and yield to Ms. Rivers.
[The prepared statement of Peter Hoekstra follows:]
Prepared Statement of Hon. Peter Hoekstra, a Representative in Congress
From the State of Michigan
A few weeks ago, this Task Force held its first hearing. At that
time, we heard testimony about the Department of Education's inability
to balance its books. When an agency can't account for its money,
waste, fraud, and abuse thrive. Not surprisingly, we heard example
after example of abuse of our Federal education dollars, including the
allegations of Department employees spending hundreds of thousands of
taxpayer dollars on large screen televisions and electronics for
themselves and their relatives.
Today we will be discussing a different kind of waste. Resources
that should be going to our kids, but get siphoned away to feed a
massive bureaucracy, or worse, federally created programs that are out
of step with the priorities and needs of local districts. Too often,
the net affect of creating hundreds of programs administered in
Washington is that it burdens and stifles education reform and
initiatives rather than facilitates them.
Many of the problems we will discuss today can be explored in more
detail in the Education at a Crossroads Report. The report was produced
by the Subcommittee on Oversight and Investigations, which held 22
hearings across the country and here in Washington. We heard from
hundreds of students, parents, educators, community leaders and
business owners. We sifted through thousands of documents to learn more
about the effectiveness of Federal education programs.
What we learned in the Education at a Crossroads project should
concern every American:
<bullet> Too few of our students are learning what they should be
learning--despite the fact that the Federal Government spends more than
$100 billion a year on education.
<bullet> Too few Federal education programs have produced any
evidence that they have helped children.
<bullet> Too many Federal dollars are tied up in bureaucracy,
administration and programs that do not spend dollars to the classroom.
The Federal response to the rising tide of mediocrity in American
schools has been to build bureaucracies, not a better education system.
We have to ask--isn't there a better way?
What we learned is that what works has little to do with federally
designed ``one-size-fits-all'' programs. What we do here in Washington
to improve education should reflect an understanding of what works. And
what we learned by listening to people on the front lines of education
around the country is that we need a Federal education policy that
will:
<bullet> Empower parents.
<bullet> Return control to the local level.
<bullet> Send dollars directly to the classroom--not bureaucracy.
<bullet> Focus on basic academics.
We are fortunate to have with us today, witnesses who can talk
about what works.
What we found as part of our review of Federal education programs
is a system that does not focus on supporting what works. It is a
system fraught with bureaucracy and ineffective programs. We found:
<bullet> There are more than 760 Federal education programs. The
Subcommittee assembled the most comprehensive list of Federal education
programs to date. At least 39 Federal agencies oversee more than 760
education programs, at a cost of $100 billion a year to taxpayers.
<bullet> Even after accounting for recent reductions, the U.S.
Department of Education still requires over 48.6 million hours worth of
paperwork per year--or the equivalent of 25,000 employees working full-
time.
<bullet> The State of Ohio completed a study that found that 50
percent of their paperwork was attributable to Federal programs, even
though they only received 6 percent of their funds from the Federal
Government.
<bullet> States like Georgia and Florida have found that it takes
four to six times as many employees to administer a Federal dollar as
it does a State dollar.
<bullet> As little as 65 to 70 cents of each Federal education
dollar actually reaches the classroom. According to several studies,
about 85 cents out of every Federal education dollar is returned to
local school districts. Although these studies provided information not
previously available on Federal education spending, they only examined
what was returned to school districts. This is still several layers of
bureaucracy away from the classroom. Given the 48.6 million paperwork
hours required to receive Federal education dollars, not to mention the
cost of State and local administration of programs, it is not
unreasonable to assume that another 15 to 20 cents is spent outside of
the classroom. This would mean a net return of 65 to 70 cents to the
classroom.
<bullet> It takes 487 steps to approve grant applications. In 1993,
Vice President Gore's National Performance Review discovered that the
Department of Education's discretionary grant process lasted 26 weeks
and took 487 steps. The Department over the last few years has been
attempting to ``streamline'' this to 216 steps, but the process is not
complete.
What these numbers tell us is that the Federal bureaucracy is out
of control. Past Democrat Congresses have attempted to solve every
problem with a program. Then, after a program was created and funded,
no one ever asked whether it worked, whether it should continue to
exist, or whether the money would be best spent elsewhere.
There is an incredible amount of overlap and duplication in Federal
education programs. For example, we found that there are 11 drug
education programs, 14 literacy programs and 63 math and science
programs. GAO looked at what programs target at-risk and delinquent
youth, and found that there are more than 127 Federal programs
targeting these children, with little or no coordination. Moreover, the
Department of Education only contains a little more than a third of all
education programs. Even the Department of Energy has an education
office, with its own task force.
Every time this Congress and future Congresses address the issue of
education and every time we consider legislative action, we must ask a
few simple questions, questions that I hope can be addressed by a few
of our witnesses today.
1. Are we empowering parents and families by giving them a larger
role in the education of their children or are we giving more power to
bureaucrats?
2. Are we empowering teachers and principals to make the right
decisions for their local school or are we giving more power to
faceless administrators far removed from the classroom?
3. Are we sending dollars to classrooms where learning actually
occurs or are we paying for paperwork?
4. Are we focusing on basic academics and achievement or
politically correct social programs of unproven effectiveness?
The answers to these questions will guide us to craft solutions
that help rather than hinder children. These are common-sense
questions, but they have been ignored in Washington, DC, for too long.
I hope the witnesses today will be able to give us in Washington
some additional insight into how the education bureaucracy is taking
precious resources away from our children.
Ms. Rivers. Thank you, Mr. Chair, and I want to thank the
witnesses for participating today. After serving for the better
part of a decade on a local school board, I am interested in
hearing the different experiences. I can remember as a board
member a lot of debate about the various programs that we
provided in that local school district, but my recollection is
only about 7 percent of the money that came to the schools I
represented came from the Federal Government, and most of the
programs and decisions that we made at the local school
district level had to do with local or State money. I also
remember that we had more regulations coming down from the
State than we ever contemplated coming from the Federal
Government. And I also recognize that some members of the
school board had difficulty determining the difference between
State and Federal regulation, and we often talked about a
regulatory burden without trying to differentiate where that
burden might be coming from.
So one of the things that I am interested in today is how
school districts are using the 93 percent of the money that
comes from other sources relative to the 7 percent that comes
from the Federal Government; what regulations are actually
stifling or smothering innovations; and how that 7 percent
funding is causing the kinds of problems that are being
suggested; and where regulation is coming from, from the
Federal Government, State or local decisionmaking, and I look
forward to your comments and an opportunity to ask questions.
Chairman Hoekstra. Today's first witness, is Senator Tim
Hutchinson, who made history when he was sworn in as the first
Republican Senator ever to be popularly elected from Arkansas.
Senator Hutchinson brings a unique perspective to Congress as
one of the few Members with a background in small business and
education. His career in public service began with his election
to the Arkansas House of Representatives where he serve for 8
years. In 1992 he was elected to represent Arkansas' Third
Congressional District in the U.S. House of Representatives
where he served two terms.
He is a dedicated advocate for American families. He was
the original author of the $500-per-child tax credit, was one
of the main proponents of welfare reform. He has also taken
really the lead on the Senate side on many of the educational
initiatives that we are also working here in the House, whether
it is Dollars to the Classroom, Straight As and those types of
things. A former history teacher, he also co-owned and managed
KBCV Radio in Bentonville, Arkansas.
I have got another page but I will submit that for the
record.
Mr. Hutchinson. Can I take the extra time if you stop?
Chairman Hoekstra. That is right.
The second witness is Eugene Hickok, who is the secretary
of eeucation for the State of Pennsylvania. He is chairman of
the Educational Leaders Council. He was selected to help bring
Pennsylvania's education system into the 21st century. He has
been working hard to send Pennsylvania's education system to
the head of the national class.
I have also got an extra page and a half on you which will
be submitted for the record. Our next witness is Dr. Susan
Sclafani, chief of staff for educational services in the
Houston Independent School District. In that position she
represents the superintendent on educational issues and
coordinates activities of the departments directly involved in
the education of children. In addition to her hands-on duties,
she supervises the Department of Research and Accountability,
and she is responsible for district development and board
services.
I also have another page on you. But we will put those all
in the record, and, Senator Hutchinson, we will begin with you.
STATEMENT OF TIM HUTCHINSON, A UNITED STATES SENATOR FROM THE
STATE OF ARKANSAS
Senator Hutchinson. I am honored to be on this panel with
some distinguished leaders in education, and I am honored to
appear before your committee. I have long admired and
appreciated the work that you have done in the budget and
education area, and you have combined them on this Task Force,
and you are to be commended. And we will remember with fondness
your visit to Arkansas as part of your Crossroads project and
your visit to Central High School, and we hope that contributed
to the results of that project.
I am here today to discuss the issue of education reform
and the appropriate Federal role in encouraging that reform and
innovation. As a Member of the Senate Health, Education, Labor
and Pensions Committee, I have been working on this issue for
the past year and a half as we have been attempting to
reauthorize the Elementary and Secondary Education Act, and we
spent 2 weeks debating that on the floor of the Senate after
having marked it up and sent it out of our education committee.
The Federal Government currently funds a very small
percentage of the local education budget, but with that small
percentage wields a great deal of influence. It is my opinion
after looking at this for the past year and a half that the
Federal Government funds systems, not students. Instead of
requiring real results in student learning from our schools,
the Federal Government gives them funding and then just asks
only that they spend it in the required way. In doing so we are
mandating enormous amounts of paperwork and applications to
abide by this so-called accountability.
In Florida it takes six times as many employees to
administer a Federal education dollar as a State dollar.
Florida has 297 State employees administering $1 billion in
Federal funds and 374 employees overseeing $7 billion in State
funds. Unfortunately that kind of ratio of what it costs to
administer State and Federal funds is not the exception, but is
the rule.
As I have traveled around my home State of Arkansas
visiting schools, I heard many stories about the numerous hoops
that schools must jump through in order to receive Federal
funding. This is of particular interest to me since Arkansas
has a large number of small rural school districts that do not
have the time or resources to fill out paperwork to comply with
Federal rules and regulations.
Today I would like to talk about several examples from my
State of ways that schools are affected by the laws that we
pass in Congress. I recently visited an elementary school in
North Little Rock and talked to a classroom of fourth-graders
about American government. For 45 minutes we did a give and
take. They asked me questions, and I asked them questions. It
was a very bright group of kids. I was inspired by their
understanding. They knew more about American government than
most high school civics classes that I have spoken to. The key
to this inspirational classroom was not any Federal program,
but it was their remarkable teacher. The more schools I visit,
the more I am convinced that the key to a good education is
having a good principal and good teachers who are excited about
their job and want to convey knowledge to their students.
After I talked to this fourth-grade class, the principal
half jokingly introduced me to one whom he described as his
boss. He said, ``Meet my boss, the Title I coordinator for our
schools.'' While his comment was meant to be funny, it revealed
a truth about the Federal influence in our schools. The Federal
Government provides only about 7 percent of education funding
in this country, yet in a school in North Little Rock,
Arkansas, the Title I coordinator wields as much influence as
the principal.
I also visited another school in Arkansas where the
principal had identified a specific need in her school that
they wanted to address. This was in Van Buren, Arkansas, up in
the northwest part of the State, my brother's district. She
wanted to implement a concept known as point-in-time
remediation to help underachieving students before they fall
irreversibly behind. To do this she wanted to hire a teacher
who would spend each day working to assist struggling students
before they were forced to attend summer school.
In her desire to do what was best for her children, she
applied for a Federal grant. The Title I coordinator rewrote
her grant as a request to hire a teacher to reduce class size
under the Federal Class Size Reduction Program, and the grant
was approved. To get her grant approved, she had to commit to
using this new teacher for a purpose that the Federal
Government had predetermined, reducing class size. However, the
school did not have a class size problem. Instead of being able
to flexibly use Federal dollars to address the needs of her
school, she had to apply for a prescriptive one-size-fits-all
grant. The principal had to make a choice, either she fudges
and cheats on the application, or she cheats her children from
getting the additional help they need at the time they need it.
This is just another example of the ``Washington knows
best'' style of governing that has been occurring in recent
years. Washington did not provide innovation in this school;
the innovation came from the principal. Instead of allowing her
to address the needs of her school, the Federal rules and
regulations constrained what she was legally able to do with
the Federal dollars. Instead of having accountability to help
every child learn, the Federal Government only requires funding
to be spent in the correct way.
One last dramatic example of the accountability that we
have under current law was my visit to the school in Holly
Grove, Arkansas, in the Mississippi Delta region. This school
houses Head Start through 12th grade all in one building. The
Delta region is the poorest area of Arkansas, and the poorest
area of the United States. There is a large minority
population, and the school building is about 50 years old. The
area has a very low property tax base, so additional money that
the school gets is sorely needed.
We took a few photos at Holly Grove school down in the
Mississippi Delta, and this is a picture of some of the
ceiling, and you can see the run-down conditions. You can see
the flood damage where the water has leaked. It is just about
as bad as any school as you could ever see in the inner city.
The ceilings are 12 feet high, so it is hard to heat. The
lighting is poor. The ceilings are collapsing. You saw the
water stains. The outside of the school looks just as bad as
the inside. The paint is peeling, and the windows are broken.
Then as the principal, a very fine man, dedicated to his
students, as he gave me a tour of his school, I stumbled onto
what was a very interesting sight. As I walked by one of the
rooms in the school, I noticed that it was full of state-of-
the-art exercise equipment: new treadmills, Stairmasters, and
Nautilus equipment, weight equipment filling this very run-down
school. After seeing the disparity between the condition of the
building and this room filled with new exercise equipment,
state-of-the-art, brand new exercise equipment, I asked the
principal where he got the money to buy all of this state-of-
the-art equipment. He answered that he received a Federal grant
for $239,000 and that he was using this money for the allowable
uses under the grant, health and nutrition programs. School
renovation, however, is not an allowable use under the grant he
received. So instead of addressing the most pressing need that
his school had, he was forced to address a need identified at
the Federal level.
And he told me, he said, Senator Hutchinson, I would much
rather have used that $239,000 for renovations, lowering the
ceilings, painting the building, making it a better environment
for education, but that wasn't one of the allowable uses under
the prescriptive Federal grant. That is not to say that the
exercise equipment was not needed. However, in the principal's
mind and certainly in mine, there were more pressing needs that
could not be addressed because of the current nature of funding
of the Federal education program.
Instead of solving this program by creating a new Federal
program with new paperwork required, the Federal Government, I
believe, should be promoting innovation at the local level with
few Federal strings other than the most important requirement
that we could have, and that is increases in student
achievement.
Principals and teachers should not be hindered from
addressing pressing needs in their schools because of rules and
regulations from the Federal Government. Instead Federal
funding should be used to foster the exciting innovations that
are already occurring in many schools all across this country.
Mr. Chairman, again I want to thank you for this
opportunity to share my thoughts with the committee and express
my appreciation to the committee for your willingness to take a
look at this important issue facing America today.
Chairman Hoekstra. Thank you.
[The prepared statement of Tim Hutchinson follows:]
Prepared Statement of Hon. Tim Hutchinson, a United States Senator From
the State of Arkansas
Mr. Chairman, members of the committee, I am pleased to be here
today to discuss the issue of education reform and the appropriate
Federal role in encouraging that reform and innovation. As a member of
the Senate Health, Education, Labor, and Pensions Committee, I have
been working on this issue for the past year and a half as we attempt
to reauthorize the Elementary and Secondary Education Act (ESEA).
The Federal Government currently funds systems, not students.
Instead of requiring real results in student learning from our schools,
the Federal Government gives them funding and then just asks that they
spend it in the required way. In doing so, we are mandating enormous
amounts of paperwork and applications to abide by this so-called
``accountability.'' In Florida it takes six times as many employees to
administer a Federal education dollar as a State dollar. Florida has
297 State employees administering $1 billion in Federal funds, and 374
employees overseeing $7 billion in State funds. Unfortunately, Florida
is not an exception, but the rule.
As I have traveled around my home State of Arkansas visiting
schools, I have heard many stories about the numerous hoops that
schools must jump through in order to receive Federal funding. This is
of particular interest to me, since Arkansas has a large number of
small, rural school districts that do not have the time or resources to
fill out paperwork to comply with Federal rules and regulations. Today
I would like to talk about several examples from my State of ways that
schools are affected by the laws that we pass in Congress.
I recently visited an elementary school in North Little Rock and
talked to a classroom of fourth graders about American government. For
45 minutes we did a give-and-take. They asked me questions, and I asked
them questions. This was a very smart group of kids, and I was inspired
by their understanding. The key to this inspirational classroom was not
any Federal program, but their remarkable teacher. The more schools I
visit, the more I am convinced that the key to a good education is good
principals and good teachers who are excited about their job and convey
that to their students.
After I talked to this fourth-grade class, the principal of the
school half-jokingly introduced me to one whom he described as ``his
boss.'' He said, ``Meet my boss, the Title I coordinator for our
schools.'' While this comment was meant to be funny, it reveals a truth
about the Federal influence in our schools. The Federal Government
provides only 7 percent of education funding in this country, yet in a
school in North Little Rock, Arkansas, the Title I coordinator wields
as much influence as the principal.
I also visited another school in Arkansas just recently where the
principal had identified a specific need in her school that she wanted
to address. She wanted to implement a concept known as point-in-time
remediation to help underachieving students before they fall
irreversibly behind. To do this, she wanted to hire a teacher who would
spend each day working in different classrooms to assist struggling
students before they are forced to attend summer school. In her desire
to do what was best for her children, she applied for a Federal grant.
The Title I coordinator rewrote her grant as a request to hire a
teacher to reduce class size under the Federal class-size reduction
program, and this grant was approved.
To get her grant approved, she had to commit to using this new
teacher for a purpose that the Federal Government had determined--
reducing class size. However, the school did not have a class size
problem. Instead of being able to flexibly use Federal dollars to
address the needs of her school, she had to apply for a prescriptive,
one-size-fits-all grant. The principal had to make a choice: either she
fudges and cheats on the application, or she cheats her children from
getting the additional help they need at the time they need it. This is
just another example of the Washington-knows-best style of governing
that has been occurring in recent years. Washington did not provide
innovation in this school; the innovation came from the principal.
Instead of allowing her to address the needs of her school, the Federal
rules and regulations constrained what she was legally able to do with
the Federal dollars.
Instead of having accountability to help every child learn, the
Federal Government only requires funding to be spent in the correct
way. One last dramatic example of the accountability that we have under
current law was my visit to the school in Holly Grove, Arkansas, in the
Mississippi Delta region. This school houses Head Start through the
12th grade all in one building. The Delta region is the poorest area of
Arkansas, and the poorest area of the United States. There is a large
minority population, and the school building is about fifty years old.
The area has a low property tax base, so any additional money that the
school gets is sorely needed.
As I toured this school, I could not help but notice the run-down
conditions. It is just as bad as any school in the inner-city that I
have ever seen or heard about. The ceilings are 12 feet high, so it is
hard to heat. The lighting is poor. The ceilings are collapsing, and
you can see water stains in these pictures. The outside of the school
looks just as bad. Paint is peeling, windows are broken.
Then, I stumbled upon an interesting site. As I walked by one of
the rooms of the school, I noticed that it was full of state-of-the-art
exercise equipment. New treadmills, stairmasters, and nautilus
equipment filled the room. After seeing the disparity between the
condition of the building and this room filled with new exercise
equipment, I asked the principal where he got the money to buy this
equipment. He answered that he received a Federal grant for $239,000,
and that he was only using this money for the allowable uses under the
grant--health and nutrition programs. School renovation, however, is
not an allowable use under the grant he received, so instead of
addressing the most pressing need that his school had, he was forced to
address a need identified at the Federal level.
This is not to say that the exercise equipment was not needed.
However, there were other more pressing needs that could not be
addressed. Instead of solving this problem by creating a new Federal
program, with new regulations and new paperwork required, the Federal
Government should be promoting innovation at the local level, with few
Federal strings other than the most important requirement that we could
have--increases in student achievement. Principals and teachers should
not be hindered from addressing pressing needs in their schools because
of rules and regulations from the Federal Government. Instead, Federal
funding should be used to foster the exciting innovations that are
already occurring in schools all across this country.
Mr. Chairman, again I want to thank you for this opportunity to
share my thoughts with the Committee regarding the education of our
kids. If our local officials are capable of thinking outside the box,
then there is no reason Congress and the President cannot do the same.
Chairman Hoekstra. The Senator is on a schedule and asked
that we just have a few questions, and then he needs to leave.
Under the version of the Straight As proposal, we are
combining a number of programs and giving schools the
flexibility to spend that money. On the Senate side would you
advocate putting some form of school construction as an
allowable use in there?
Senator Hutchinson. Yes. Under the Senate version it would
be an allowable use. While we would never--we would not
prescribe to a State that they had to consolidate programs,
stick with the current system, they would certainly be willing
to do that. It ended up being watered down to a 15-State
demonstration program. We would have allowed them to move funds
from one program to another or to use funds for needed
educational efforts at the local level with the condition being
a performance contract to be signed with the Federal Department
of Education that they are going to narrow the gap between
disadvantaged and advantaged students and see achievement
increase for all students. We would provide them maximum
flexibility in doing that.
Rather than having a Federal school construction program
which would be moving just the opposite way, it would be
another prescriptive program where we determine up here that
the great need in the country is this, and therefore we
establish a new program with Federal funds, are you spending it
the way that you said that you would, when true accountability
would be are the kids learning and are the achievement scores
going up.
So, yes, that money should be allowable to use that for
school renovation if that is what is determined at the local
level to be the greatest need.
Chairman Hoekstra. I will yield to Ms. Rivers.
Ms. Rivers. Thank you.
I have a couple of questions. I was interested in the
comment you made about the administrative workload associated
with the Federal programs, because a 1999 GAO study looked
specifically at this and found that in general that is very
overstated. In fact, they found that of the people who had
responsibilities for Title I, they had about 8 hours during an
entire year. Do you have any evidence to suggest that that
number is incorrect?
Senator Hutchinson. Well----
Ms. Rivers. The administrative load is about 8 hours for
the entire year.
Senator Hutchinson. I don't really disagree with what you
said in your opening statement, that the greater administrative
load comes from the State, but I think that problem has to be
addressed by the States, and it is far easier to make an
influence upon the State legislature or the Governor in
reforming the workload that they may experience there.
How do I answer as to GAO? I would love to have the budget
to do the kind of study that they did. My sense is from my own
experience. I have taught in the classroom. My sister teaches
fourth grade, and I visited schools in the State of Arkansas
last August, and I continually heard that complaint.
Ms. Rivers. From teachers?
Senator Hutchinson. Both teachers and administrators.
Teachers find time that they would like to be spending in class
preparation, having to spend it on grants. In Arkansas, and I
don't know where GAO did their study, we have perhaps the
highest number--I think it is the highest number of school
districts per capita in the Nation. We have over 300 school
districts. Most of those school districts are very small, and
so if there is going to be an application for Federal grants,
it is teachers doing it, teachers taking time out of the
classroom or taking time out of curriculum preparation in
filling out applications because they don't have the money to
hire full-time grant preparers.
Ms. Rivers. You mentioned the grant regarding the exercise
equipment. My understanding is that that principal specifically
asked for exercise equipment when he filled out the grant. He
did not try to get something else?
Senator Hutchinson. That is not my understanding at all.
Ms. Rivers. I can get that and put it in the record.
Chairman Hoekstra. Without objection, so ordered.
[The information referred to follows:]
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Excerpts of Holly Grove School District Application for 21st Century
Learning Centers Grant
* * * 3. Need 3. To provide access to a quality, supervised
recreational program. With the exception of a very limited summer
recreational program sponsored by the city, there are no recreational
activities within the district. Children and youth need to be
supervised after the school day is over, weekends, and in the summer.
These persons also need to be able to take part in appropriate and safe
leisure-time activities. In addition, the adults of the community need
to be able to take part in leisure-time activities appropriate to them.
The percent of youth involved in arrest in the county increased from 6
percent to 22 percent within the past 5 years. Problems are further
evidenced by observations of local law enforcement officers and by
complaints from local citizens. This need will be addressed by
providing a highly organized and structured recreational program after-
school, on Saturday, and in the summer. Activities will be geared for
young children, older youth, young adults, and older persons of the
community. The activities will range from organized team sports to
games for older persons and will include individual sports, games, and
other activities planned by participants. The program will be designed
as learning activities that will boost self-esteem, confidence, and
morale to reduce alcohol and drug use and violence.
* * * 5. SUPPLIES
a. Instructional Supplies for Education/Cultural......... $500.00
b. Recreational Supplies................................. 6,500.00
c. Computer Software (Games, adult material)............. 500.00
d. General Office Supplies Administer Program............ 1,000.00
---------------
Total Supplies..................... $8,500.00
Senator Hutchinson. I did talk to the principal. What often
happens at the local level, they put down on the grant
application what they have to put down to get approval. They
did--in that particular school somebody told me she was the one
who filled out the grant application. He didn't even know what
the grant was. He didn't know what it was called, and we came
back and did, as I assume you did, to research it. But he
certainly told me, and I don't know whether you talked to the
principal. He told me, this is not what we need, and I would
rather have spent this money on other things. This is what I
can get the money for.
Ms. Rivers. So it was just get the money?
Senator Hutchinson. I would suggest to you local schools
all over this country do just that. A school district as poor
as Holly Grove is going to look for Federal funds wherever they
can.
Ms. Rivers. The other grant that you mentioned, the school
district dishonestly filled out its request. They were not
asking for a teacher to reduce class size, they were asking for
reading support staff, correct?
Senator Hutchinson. I wouldn't say that they dishonestly
filled it out. They face that kind of dilemma. The principal
expressed to their Title I coordinator what she wanted, what
she felt that she needed. The Title I coordinator filled out an
application that resulted in a classroom reduction grant, not
what the principal said that she needed. She, in my visit to
the school, expressed her frustration that what they really
needed, they were unable to get; that the approval for the
grant did not allow them with the kind of flexibility to meet
the needs that she saw.
Ms. Rivers. But the grant application specifies what you
are asking for. They are not slotted. You ask for what you want
at the outset.
Senator Hutchinson. You ask for what you can get, and that
is what they can get. They knew that it was going to be a
classroom reduction, and the Title I coordinator said you have
to use it in compliance with that grant. But the principal's
frustration was, that is not what she needed.
Ms. Rivers. In either of these instances where there was
articulated needs of the school districts that could not be met
by the 7 percent of money that comes from the Federal
Government, did either of the school districts use any of their
93 percent State and local funds to address this concern?
Senator Hutchinson. Ms. Rivers, I just wish you could visit
the Holly Grove School. It is so desperately poor, their 93
percent is not sufficient to meet the basic educational needs
of those students. They have a very low tax base. I suspect
that they are using it as best they can, but they also are
looking and trying any way they can for that additional 7
percent. Unfortunately, they couldn't use it where it was
really needed because it is so prescriptive.
Chairman Hoekstra. We will also send a document over which
I think reinforces some information that we have from the
Education at a Crossroads project--two things, the number of
States that have given us the same information that you have,
the State of Ohio that says that we get 7 percent of our money
and 50 percent of our paperwork and 50 percent of our
bureaucracy from getting the information from local school
districts, not because we necessarily want it, but because it
is mandated by the Federal Government that we collect it.
The other thing that we will do, which I think builds
directly on what you were talking about, is that there is a
cottage industry in Washington that has put together an
overview of all of the different Federal programs that we have
here in Washington that specifically is targeted to help local
school districts find out what pots of money there are
available here so that they can write the grants to get the
money; not necessarily say, here is what we need, can we get
that. There is actually a cottage industry that has formed here
to, as we like to describe it, help local school districts mine
for Federal dollars, not necessarily improve their education.
My two colleagues do not have questions for you today,
Senator.
Senator Hutchinson. Thank you, Mr. Chairman.
I want to say it struck me as so horrendous to visit a
school where anybody with a half of grain of sense would say
the number one priority in that school is not putting
Stairmasters in, and the principal and everybody knew it. They
were looking--just as you said, they were looking for Federal
money that they could get it, and that is the kind of grant
program that we have. We need more flexibility for local school
districts to put money where they need it.
Chairman Hoekstra. Thank you very much for being here.
Mr. Hickok.
STATEMENT OF EUGENE W. HICKOK, SECRETARY OF EDUCATION, STATE OF
PENNSYLVANIA
Mr. Hickok. Thank you very much, Mr. Chairman. I will
submit my formal testimony for the record and really try to
refrain from reading too much of it. I look forward to sharing
Pennsylvania's view of how Pennsylvania and other States might
work with the Federal Government, more of a partnership in
improving the education bottom line.
I speak as secretary of education for Pennsylvania. We have
about 1.8 million students and 501 school districts, over 3,000
public schools. I speak as chairman of the Education Leaders
Council, which is a group of reform-minded State education
chiefs from a number of States which are listed in the
testimony. They have about 30 percent of the Nation's K through
12 public school students, and I think we share a common
concern that much of what needs to be done needs to be driven
at the State and local level where public education takes
place.
Rather than going on with more formal testimony, let me lay
the larger picture out from where I sit both as a former school
board member and now as a secretary of education.
I believe it is very important to place the Federal role in
formulating and implementing education policy in its proper
context, if we could. And that context is shaped primarily
through the constitutional principle of federalism. In a day
and an age in which it is both fashionable and somewhat
lamentable for policymakers everywhere in this country to turn
to Washington for both answers to public policy problems as
well as funds to solve those problems, it is very important to
try to anchor public policy in long-term principles. The
principle of federalism, simply stated, asserts that most
public policy issues are best understood as State or local
issues.
I am a student of the Constitution, and James Madison wrote
in Federalist 45, ``The powers delegated by the proposed
Constitution to the Federal Government are few and defined.
Those which are to remain in the State governments are numerous
and indefinite. The former will be exercised principally on
external objects as war, peace, negotiations, foreign commerce;
with which last the power of taxation will, for the most part,
be connected. The powers reserved to the several States will
extend to all the objects which, in the ordinary course of
affairs, concern the lives, liberty and properties of the
people, and the internal order, improvement, and prosperity of
the State.''
What Madison outlines in this essay is a constitutional
principle and a management principle, and both apply with
particular significance to the field of education. As a
constitutional principle, education is first and foremost a
State issue, and if you look at any State budget, you will see
it consumes most of the State budget. This is not to say that
education is not a national priority or that securing a good
education for all Americans is not in the national interest. It
is certainly not to say that there is no national role for
education policy and administration.
But what the framers recognized, and I think it is well
worth our remembering, is that some issues truly are national
in scope, maybe even international in significance, and thereby
require a national response. Other issues may be local or
regional, and thereby are more appropriately resolved at a
lower level. And some issues may indeed be national in scope,
yet still best addressed regionally or locally.
Education is one of those national issues, in the national
interest, many would argue a national security interest, that
is best addressed at State and local and regional levels where
a great variety of policy options might be formulated and
pursued giving rise to a great diversity in education that
might enrich the lives of all Americans while ensuring that the
national interest is indeed served. Over the years, however,
and it has been over a great number of years, the idea that
national issues might better be explored and resolved through
State, local and regional activities has been shoved aside as
more and more Americans are taught that Washington does indeed
have the answers.
With all due respect, and I mean this sincerely, the answer
to what ails education in this country is probably not going to
be found in this building or this town. Instead, it can be
found in the talent, energy and the wisdom of the American
people. And the best goal of national education policy should
be to free up that talent, that energy and creativity and to
tap into that wisdom. The best role for the U.S. Department of
Education is to facilitate education decisionmaking at the
State and local level; provide good, solid, objective research
on what works; and help find ways for States to replicate that
where they need to--and what does not work--so that we can find
out how to avoid those problems; most importantly for
empowering the States, find ways to empower the States to seek
new ways to respond to challenges in education; at the same
time hold them accountable for those successful strategies.
It seems to me as I look at the role of the Federal
Government and the impact it has in Pennsylvania and, I would
argue, with many of my colleagues across the country, it is
sometimes a very difficult thing to measure, but it is there.
It was argued earlier whether or not Federal regulations stifle
locals. Perhaps they don't stifle much as they tend to shut
them down or turn them off. I can give you countless
superintendents and principals that tell me, we didn't think it
was worth going through the process to try to get what we can
get, or it was such an overwhelming process to consider, that
we felt we shouldn't attempt to.
That leads to a second observation, and that is this
overwhelming, overwhelming emphasis on just that: process,
paper, signatures, making sure that all of the, quote,
stakeholders sign on, and very little emphasis on what matters
most or should matter most in education, and that is results,
impact, what difference it makes. Rather than spend time
filling out forms--and I can show you forms that every district
has to get to get Federal funding, filling out forms that tell
me how many students receive support, how much money was spent,
how many hours, how much faculty, staff. If we need forms,
let's make sure that they focus on what all of that money does
in terms of educational impact. That is what this is about,
educational results.
The third observation is that the Federal Government and
the States as well really force school districts into sort of a
Willie Sutton syndrome. They go where the money takes them. As
pointed out by the Senator and others, if the money is
available for this, and you need money, you go for this. Rather
than letting the locals and the States kind of define where
their needs are and to move resources to support those needs,
it is far more what the Federal Government says we will make
available to support, and you decide whether or not that is
something that you want to get money for. You go where the
money is.
I would argue that the class size initiative is another
good example of that to an extent. We can debate the efficacy
on class size. The research is mixed. But regardless of that,
when I polled our superintendents in Pennsylvania a couple of
years ago about if they had the money from the class size
initiative, if they could choose to spend that money for
something else, would they want to, and almost 50 percent said,
we have other needs than class size. We would like to be able
to spend it on those other needs, and obviously at that time
they could not. They need the money, but they could have used
it for their own priorities.
Next I guess I would--I would offer the observation that
Ed-Flex, for example, is an important first step. I think it
makes a difference, and Pennsylvania has its Ed-Flex
application before the Department as we speak, and I don't want
to minimize the potential impact of that. In Pennsylvania we
have tried to double or leverage that impact, because now in
Pennsylvania every school district in Pennsylvania can come to
the Department of Education to request waiver from State
mandates, so the very least we can do is send the message that
we want to get out of the way and free up your energy as much
as we can, and we hope that the Federal Government will do the
same thing.
Having said that, it strikes me, and I guess this is my
background in federalism, it is a bit turning things on their
head when you have States requesting from the Federal
Government permission to do things differently because they
have particular needs and a strategy to succeed; turning things
on their head because the proper response should be that the
Federal Government should follow the lead of the States, and it
should be the exception rather than the rule that the Federal
Government tells the States what to do.
Surely as long as the Federal Government can hold the
States accountable, and I think that is critical, we in
Pennsylvania at the State level have a responsibility to every
resident of the State to make sure we spend their money in a
way that makes an educational difference, and the State has a
responsibility when it receives Federal funds to do the same
thing for you, but how we do that and why we do that makes a
great deal of difference.
Finally, I would argue that the observation on Title I and
the impact of an administration probably differs by district. I
can take you to some rural districts in Pennsylvania that are
doing some great things that have relatively modest Title I or
any Federal programs. And I can take you to some school
districts where the Title I money is critically important and
has a great deal of influence, and the Title I coordinator is
probably one of the most powerful people in the school
district.
Let's make sure that we know what a difference Title I
makes. If there is a way to loosen up the way that we do Title
I or any of the Federal programs so there is an educational
bottom line, allow the States to do that. Hold the States
accountable. And I think a partnership between Washington and
Harrisburg and the other States is a partnership that will
redefine education, which is what is really needed in this
country in the 21st century.
Thank you, Mr. Chairman.
Chairman Hoekstra. Thank you very much.
[The prepared statement of Eugene W. Hickok follows:]
Prepared Statement of Hon. Eugene W. Hickok, Secretary of Education,
State of Pennsylvania
Congressman Hoekstra, members of the committee, thank you for the
opportunity to testify today. I will share with you Pennsylvania's
perspectives on the Federal role in education and how we can work
together to ensure that the Federal Government is a partner, rather
than an obstacle, in making sure America's children receive the
education they need to succeed.
I also speak to you today as chairman of the Education Leaders
Council (ELC), a national organization of reform-minded State education
chiefs from Pennsylvania, Arizona, Colorado, Florida, Georgia,
Michigan, Texas and Virginia. In our eight member States, we oversee
the education of more than 14 million children--more than 30 percent of
the nation's K-12 public school students. Our growing membership also
includes State education boards, individual State and local board
members, and other officials from 31 States.
ELC members believe that education initiatives, policies and
practices are most effective when generated closest to the children
they aim to serve. Education policies fail when imposed upon
communities by Federal mandates and regulations, which focus more on
compliance with inflexible formulas and categories rather than
improving student achievement.
ELC States have led the way in setting high expectations for all
children by creating challenging standards and rigorous assessments set
at the local level; increasing educational options available to parents
(nearly 60 percent of the nation's charter schools are in the eight ELC
States); and pursuing innovative ways to improve teacher quality.
I believe it is important to place the national role in formulating
and implementing education policy in its proper context. That context
is shaped primarily through the constitutional principle of Federalism.
In a day and age in which it is both fashionable and lamentable for
policymakers everywhere to turn to Washington for both answers to
public problems and funds to solve them, it is very important to try to
anchor public policy in long-term principles. The principle of
Federalism, simply stated, asserts that most public-policy issues are
best understood as State or local issues.
James Madison, writing in Federalist #45, stated it eloquently more
than 200 years ago. In my opinion, his wisdom remains both timeless and
timely: ``The powers delegated by the proposed Constitution to the
Federal Government are few and defined. Those which are to remain in
the State governments are numerous and indefinite. The former will be
exercised principally on external objects, as war, peace, negotiations,
and foreign commerce; with which last the power of taxation will, for
the most part, be connected. The powers reserved to the several States
will extend to all the objects which, in the ordinary course of
affairs, concern the lives, liberty and properties of the people, and
the internal order, improvement, and prosperity of the State.''
What Madison outlines here is both a Constitutional principle and a
management principle, and both apply with particular significance to
education. As a Constitutional principle, education is first and
foremost a State issue. This is not to say education is not a national
priority, or that securing a good education for all Americans is not in
the national interest. And, it is not to say that there is no national
role in education policy and administration.
It is worth exploring the special wisdom embraced in the idea of
Federalism. The Framers recognized--and we would do well to remember--
that some issues truly may be of national (or international)
significance and thereby require a national response. Some issues may
be local or regional, and thereby be more appropriately addressed at
that level. And some issues may indeed be national in scope, yet best
addressed regionally or locally. Education is one of those national
issues best addressed at the State and local level, where a great
variety of policy options might be formulated and pursued, giving rise
to great diversity in education that might enrich the lives of all
Americans, while ensuring the national interest is served.
Over the years, however, the idea that national issues might better
be explored and resolved through State, local and regional activities
has been shoved aside as more and more Americans are taught that
Washington has the answers. With all due respect, the answer to what
ails education in this country cannot be found in this room or in this
town. Instead, it can be found in the talent, energy, creativity and
wisdom of the American people. The best goal of national education
policy should be to free up that talent, energy and creativity and to
tap into that wisdom. The best role for the U.S. Department of
Education is to facilitate education decision-making at the State and
local level; provide objective research of what works and what does
not; and develop ways to empower the States to seek new ways to respond
to the education challenges of the 21st Century, while holding them
accountable for the success of the strategies they pursue.
I firmly believe that the Federal Government should tailor these
programs around what already is working in the States, instead of a
top-down approach that stifles creativity and innovation in education.
Education is a $14 billion enterprise in Pennsylvania, with just over
95 percent of the funds coming from State and local sources and just 3
percent coming from the Federal Government. Clearly, education must
remain the purview of State and local officials.
In Pennsylvania, Gov. Tom Ridge has implemented a reform agenda
that sets high standards for students, teachers and schools, and holds
them accountable for results; respects local control; rewards results
and holds districts accountable for failure; empowers parents and
communities to become more involved in their children's education;
harnesses the power of technology to improve student learning and
streamline bureaucracy; and eliminates bureaucratic hurdles wherever
possible.
Indeed, I believe these are the essential ingredients to
substantive and lasting education reforms that will make a positive
difference in our children's lives and prepare them for a lifetime of
success.
How can the Federal Government be our partner in implementing these
reforms?
First, you should be mindful of the limited role of the Federal
Government in education. Education is the responsibility of the States
and local school districts. Recognizing that the Federal Government
will play some role in education, however, I believe you should create
programs and craft guidelines with an eye toward what is being done by
State reformers like Gov. Ridge and others.
The Federal Government can work to empower States like we are
empowering our school districts, including our most academically
challenged ones, with unprecedented new authority to make dramatic
improvements.
Gov. Ridge's top legislative priority this year--the Education
Empowerment Act--identified 11 school districts, including
Philadelphia, where half or more of the students essentially are
failing reading and math despite per pupil spending in excess of both
State and national averages and as high as $10,000 per pupil. These 11
districts now have new tools, more flexibility, and more targeted
resources to implement programs to turn themselves around and ensure
that every child receives a quality education.
In each distressed district, local Empowerment Teams, which include
teachers, administrators, school board members, business and civic
leaders, and other concerned citizens, will develop new improvement
plans--plans that reflect a new way of doing business in a new century.
The districts could choose to hire talented new leaders who don't
have traditional backgrounds in education to run their schools, or
transform any or all schools into charter schools or independent
schools, where the power to change is in the hands of building leaders,
not a central bureaucracy. They could contract with for-profit
companies to provide educational services to students. The
possibilities are limited only by the creativity and innovation of
local leaders. If after 3 years the districts are unable to turn
themselves around, the State would take over.
While I'm not advocating that the Federal Government become as
dramatically involved in the day-to-day operations of local school
districts, you can work with the States to establish consequences for
districts that are failing to give their children even a mediocre
education.
This new Pennsylvania law also gives every school district the
chance to apply for waivers from mandates they believe hinder their
efforts. We'll protect the health, safety and civil rights of our
students, but nearly everything else is on the table.
We will ensure that our mandate-relief program and application
process are consistent with Ed-Flex, making it easier and more
efficient for school districts to apply for relief, receive it, and
invest their energies and resources doing what they do best: teaching
our children.
Under Ed-Flex, we will be able to free local districts from red
tape and burdensome requirements, allowing them to focus on their needs
and priorities rather than on strict Federal mandates. Ed-Flex
represents an important first step in giving States the flexibility to
improve their education systems, and is one more tool in the arsenal
that will make it easier and quicker to implement State and local
reform initiatives. It will enhance our ability to make Federal
programs an integral part of our reform efforts instead of an obstacle.
For example, because of rigid Federal guidelines for Title I, some
schools where students needed additional assistance in reading were not
able to use Federal funds, while others in the same district could. In
one of our urban school districts, three schools didn't quite meet the
criteria necessary to be eligible for Title I funds. The result: more
than 300 poor children in these schools were unable to get the
additional help they needed.
Under Ed-Flex, this school district and others, working with the
State department of education, will be able to better manage the
Federal funds so that all children will receive the extra help they
need.
Ed-Flex also will enable Pennsylvania to expand professional
development opportunities for teachers.
Historically, Federal rules limited Title II professional
development funds for math and science teachers. Because of Ed-Flex,
school districts will be able to target Title II funds for professional
development for all teachers.
While Ed-Flex is an important step forward, other Federal programs
make for great sound bites but will do very little to improve
educational opportunities for our children.
For example, I believe the Federal class-size reduction initiative
is a flawed, misguided program. It's a one-size-fits-all approach that
doesn't respect local control and forces districts to hire new staff
while their needs might be elsewhere. It has been touted by some as a
cure-all for what ails public education in America. It subscribes to
the notion that if we hire 100,000 new teachers, then student
performance will rise dramatically. This logic is flawed in two ways.
First, contrary to the rhetoric of many education-establishment
groups, research on class size is mixed. I have yet to see evidence
that conclusively demonstrates the success of class-size reduction
initiatives elsewhere. Just last week, the Heritage Foundation released
a study that found being in a small class does not increase the
likelihood that a student will attain a higher score on the NAEP
reading test, and that children in the smallest classes do not score
higher than students in the largest classes. Based on other solid
research studies, we do know that there is a direct correlation between
a teacher's knowledge and mastery of his or her subject and the
performance of students. That's why States like Pennsylvania have
implemented tougher standards for teachers.
Next, especially in a diverse State like Pennsylvania, class size
doesn't appear to be a major concern for many of our superintendents.
Almost half of the superintendents who responded to a department survey
said they would prefer to have more Federal funds for special education
than for class size reduction. More recently, other district leaders
have said that they plan to refuse any future Federal funds for class
size reduction, in part because the funds are only good for 1 year and
because they would be forced to continue to pay for a teacher
regardless of whether or not one is needed. One official even referred
to this program as ``false advertising.''
Our superintendents and other school officials continue to grapple
with special education. In Pennsylvania, we have made historic
increases to help offset the significant costs, and I applaud Congress
for its steps this year to move toward full funding of the Individuals
with Disabilities Education Act (IDEA). Every year, the Republican-led
Congress increased spending for special education beyond the Clinton
Administration's proposal. With this spring's action, the House again
has delivered for these special-needs children. If the Federal
Government meets its responsibilities, more funds will be available to
States and local districts to implement programs to meet their needs--
from hiring new teachers to developing programs for at-risk students to
purchasing more technology to reducing property taxes.
The States are doing what they can to ensure our special needs
children receive the education they need and deserve. But funding isn't
the only concern. Our schools often are hamstrung by the paperwork that
is required.
For example, the U.S. Department of Education's Office of Special
Education Programs (OSEP) calls for a personnel data collection system,
even though Congress removed that provision during the reauthorization
of IDEA in 1997.
Other offices within the Department of Education ask for virtually
identical data about special-needs students, although in different
formats.
The result: local school officials spend less time on instruction,
and more time completing mountains of paperwork--pushing paper rather
than educating children.
All Federal agencies, especially education, can learn from
Pennsylvania's successful eGrant program. We're using technology to
streamline the application process for the State and Federal grants
that we administer. This first-of-its-kind system enables schools to
apply for grants online; make changes or corrections; and follow their
applications through the approval process. The results: virtually
flawless applications reviewed more quickly, allowing funds to be
invested in the classroom sooner.
We also have harnessed the power of technology to hold our schools
accountable and, for the first time, identify an academic bottom line.
Pennsylvania was one of the first States in the nation to publish
online school report cards, or profiles, containing important
information about our public schools. In April, our school profiles Web
site received more than 500,000 hits--proof positive that
Pennsylvanians are taking full advantage of this powerful resource.
And, we implemented this initiative without any Federal intervention
whatsoever.
I know that there were efforts this year to strengthen the
accountability measures of Title I by adding additional reporting
requirements to our State and local report cards. While I do support
stronger accountability for Federal programs, I'm concerned that some
of these approaches make decisions about State accountability systems
in Washington instead of giving State agencies the opportunity to
develop their own accountability model that best serves the needs of
the individual State.
We must be careful to stay away from multiple report cards that
lead to confusion for parents who could receive a number of progress
reports about the performance of students in their State. Often, these
multiple cards provide duplicative or even conflicting information on
school performance. States, working with local officials, parents and
teachers are in the best position to develop report cards that meet
their needs.
In addition, a recent report by the National Governors Association
shows that many States are being forced to maintain two accountability
systems. The first system is an accountability system that States have
established for all students, and the second is the required Federal
accountability system for only Title I students. States should be
permitted to use their State accountability system for all kids and not
be required to use an additional system for Title I students if the
State's accountability requirements are substantially similar to the
Title I accountability requirements.
Pennsylvania also will be one of the first States in the nation to
implement Standard and Poor's School Evaluation Service (SES). This
powerful tool will take disparate ``inputs'' from variety of sources--
State, local and federal; analyze it; and identify strengths and
weaknesses in each district. Pennsylvania's 501 school districts will
be able to compare themselves to similar districts; to others within
their region; and to districts statewide. State-level officials will be
able to better identify strengths and develop and target programs to
shore-up our weaknesses. All this will be done using existing resources
and without imposing new mandates on local districts--a critical aspect
of the program.
States also are working to strengthen the nation's teaching force.
In Pennsylvania, Gov. Ridge's teacher-quality plan calls for all
teachers to engage in training and professional development to keep
their certificates. It also calls for future teachers to earn higher
grades to enter and graduate from colleges of education; take more
rigorous courses in the subjects they want to teach; and score higher
on certification exams. We also are implementing a new test for veteran
teachers, which will be used to target professional development where
the needs are greatest.
The Federal Government can partner with the States by providing
incentives to help States continue to strengthen their teacher-
preparation programs. Federal funds can be targeted to States that
develop programs that have as their goal proven strategies that
increase student learning, rather than simply funding existing
programs.
Empowerment, accountability, results--the tenets of successful
education reforms. The nation's children will be best served if you
empower Governors and State legislatures, working with parents,
teachers, school boards and concerned citizens at the grassroots, to
direct Federal resources where they are needed most. Let us tailor our
education policies to meet our unique and individual needs while
furthering national educational objectives. And, hold us accountable
for prudent and responsible use of funds, and work to ensure that the
dollars deliver results.
Chairman Hoekstra. Dr. Sclafani.
STATEMENT OF SUSAN SCLAFANI, CHIEF OF STAFF, EDUCATIONAL
SERVICES, HOUSTON INDEPENDENT SCHOOL DISTRICT
Ms. Sclafani. Yes. Thank you very much, Mr. Chairman and
members of the committee. I am delighted to have an opportunity
to speak to you today.
As I sit here, I am struck by the fact that one's
perspective is so determined by one's position. I would argue
for the local level in the same way perhaps that Dr. Hickok
would argue for the State level and others might argue for the
Federal level.
We have seen a lot of progress in the Federal funding in
the grant programs over the years, and we are delighted to see
that some of the disincentives that were the unintended
consequences of Federal grants have been removed. The fact that
Title I used to penalize school districts for improving
performance of children because then they would be dropped from
the program is gone.
In special ed, the fact that we were funded on the number
of children that we identified in special education rather than
using our funds to prevent children from having to be in a
special education program by doing early intervention; and now
that we are funded on a percent, that enables us to do that. We
like, too, the Ed-Flex waivers, and this is where the
perspective comes in. We don't see why it should have to go to
the State to approve our local waivers. If indeed we are
interested in local control and local accountability, then we
believe that ought to happen from the school district level.
And the other problem with Ed-Flex is that it does not apply to
special education so that our regulations there are continuing.
The challenges that we have, and we do have a staff for our
Title I program, we are a school district of approximately
210,000 children; 74 percent of them qualify for free and
reduced lunch. We are a district of minority children, 53
percent Hispanic, 35 percent African American, 3 percent Asian
and 9 percent white. We have about 11 percent of our students
in special education programs, and we are hoping to reduce that
through our opportunities to do early intervention. We are very
interested in the Elk Grove model and have done a similar thing
in our district, and where we have piloted that program, we
have seen a major reduction in the number of children who are,
in fact, qualified for special education.
We get about $73 million a year in Federal funds, and out
of a $1.2 billion budget, clearly that is not the major funding
of any of our programs, but it does give us additional funds
with which to target our most at-risk and needy children.
Our issue with Title I is really the issues of maintenance
and effort and comparability, and the kind of detailed
accounting that has to be done in order to maintain that from 1
year to the next. We find that in our own district, that we
have people who have to do that on a daily basis, a weekly
basis, a monthly basis, because to wait until the end of the
year to figure it means you are stuck if you are not there. And
as staff people move from school to school, we have 288
schools, we find that changes those calculations, and so we
have to do them on a regular basis.
The other piece of that is that one of the ironies of some
of the grants being tied to the Title I characteristics, the
school improvement funds, for example, are based on data that
is at least 2 to 3 years old because that is how frequently the
data can be updated at the national level. So we now are giving
funds to schools that are no longer low-performing that are
designated for schools that are low-performing because they
have moved out of that area. We talk about this is going to
help you maintain your efforts, but the time lag is an issue.
The reading excellence is another example where we were
able to fund the school with the largest number of students who
are economically disadvantaged, the school with the largest
percent of children who were economically disadvantaged, and
then any low-performing schools. With 182 elementary schools,
that meant that we were able to fund 11 schools through this
grant process. That is, the most, highest, number of students,
the highest percent was equivalent across our State, which
meant that we, too, had two schools that qualified under that
category, as did every school in our State, and it didn't
really target those funds to where we are.
We believe very strongly in the importance of reading, and
we fund about $4 million in extra staff and services to our
schools specifically for reading out of our local funds, but it
would have been better if we could have had the reading
excellence funds working along with those dollars at the
schools at which they were most needed.
We see that in special education the regulations have
become really the weapons of battle between parents and schools
in many cases. The letter of the law becomes what is held to,
and it is because parents and teachers and principals are not
working together in the best interests of children.
So while I understand the fight to maintain regulations
there to serve children well, I really wish that we could have
fewer regulations and only raise that as an issue where school
districts are clearly not serving the needs of children, as
evidenced by requests for due process to the State level and
the kind of litigation that is going on.
If there is a problem in a school district, certainly then
there needs to be a requirement, a higher level of monitoring
to ensure that the regulations are followed.
The bottom line for us is that schools do need the money
for educating their children, and they do go where the money
is. They do find the grants that are able to fund them, and I
don't think that is a matter of being dishonest, it is a matter
of saying, if I can fund this portion of my need with my
Federal funds, that frees up other funds on my campus to use
for other purposes. I think that is what they are trying to do.
But if we could reduce the amount of regulation and the
time spent on compliance, in special education, as many of you
know, we go through a process on an annual basis where the
State comes in to audit our records because they are going to
be audited by the Federal Government, and any single
discrepancy in any single file is the fatal flaw, and the
district fails on that principle.
Well, as I said, we have 188 elementary schools. We have
288 schools all together. It may be that on 1 day in one
meeting someone makes an error, and yet that puts the whole
school district into a compliance mode that is not really worth
the amount of time that is put into it.
In Texas we have had an accountability system in place. We
started in 1984 with a curriculum that was set statewide. We
moved from there into testing and then into an accountability
system that holds school districts accountable for the
performance of their schools. Our district has one as well that
adds to the concept of a snapshot of performance credit for the
progress that a school is making because we feel that it is so
critical to give schools credit for where they started and
where they are now, and not just the snapshot of where they are
at the moment.
We have been working on decentralizing authority and
funding to our schools. We are moving to a weighted per-pupil
funding basis for the 2000-2001 school year, which means all
dollars from the district are going to schools based on a
formula that says if you have the average child, you get credit
for one. We add a 10th of a student funding if the child is
bilingual. We add another 10th if the child is economically
disadvantaged, so we are able to give to the schools the
dollars generated by the children that they have. That, we
believe, will enable them to better serve the children than our
formerly saying, you have 22 children, you get one teacher. Our
schools are finding that those who have the neediest children
need the additional dollars with which to provide the services,
and we think then that Title I will, in fact, become on top of
the supplement a better funded program because of that.
But we are also giving them the accountability, and we are
saying that there are specific performance indicators that they
have to meet. We have 5-year goals and annual goals, and our
schools know that that needs to happen. If they are not able to
meet those, we have changed principals because we feel very
often it is an issue of leadership, we have changed groups of
teachers where there is kind of a negative synergy where this
group doesn't believe that change is possible or improved
achievement by the students they have is possible, and in some
cases--in one case we restaffed the entire school because they
were not working for children, they were working and fighting
among themselves as adults.
I would like to see the Federal Government fund, even if it
is just the 50 largest school districts in the Nation, directly
rather than through the States. Give it to us as a block fund,
hold us accountable for our results, and then have a process, a
contract, to say this is what the consequences will be if you
are not able to improve the performance of your students.
That is the bottom line. And as we know, what gets done is
what gets measured. If everyone is focused on improving the
achievement of children, we found in our district that it has
been a straight-line improvement in the quality of education
offered to our children and the quality of achievement that has
resulted.
Perhaps it is a more radical thing to suggest, but right
now what happens is the funding goes to the State; the State
monitors us. The Federal Government comes in to audit the
State, and, of course, audits because we are the largest
district, and it funds all of the very large districts to be
sure that the State has audited appropriately. So we end up
with double audits, and those dollars could be done by the
single audit directly by the Federal Government to the large
school districts and leave us the additional dollars as a block
grant. We would like the flexibility of being able to say this
year we need more money in this program than in that, and to be
able to do that to meet the priorities of the district. Thank
you.
Chairman Hoekstra. Thank you very much.
[The prepared statement of Susan Sclafani follows:]
Prepared Statement of Susan Sclafani, Chief of Staff, Educational
Services, Houston Independent School District
Mr. Chairman and members of the House Budget Committee's Education
Task Force, I am here today to speak with you on behalf of Larry
Marshall, President of the Board of Trustees and Dr. Rod Paige,
Superintendent of Schools of the Houston Independent School District
(HISD). We appreciate the opportunity to come before you today to
provide testimony about a subject that we have very strong convictions
about, the delivery of educational services to our children.
The Houston Independent School District is the largest district in
Texas and the seventh largest in the United States. It serves 211,000
students who are predominantly minority-53 percent Hispanic, 35 percent
African American and 12 percent White and Asian. Seventy-one percent
qualify for the Free and Reduced Price Meal Program, and 11 percent are
served in special education programs. The Houston Independent School
District received approximately $72,635,000 from categorical and
competitive Federal programs in 1998-99. Of this, $1.4 million came
from competitive grants under Title VII Bilingual. The largest
component of categorical funding was Title I funding at nearly $55
million, followed by Individuals with Disabilities Education Act funds
of over $8.5 million.
I would like to talk with you today about the financial burdens
placed on school districts by Federal programs. I have divided the
issues into two categories: the first category is the issue of unfunded
mandates created by Federal departments and the second is the issue of
the method of funding Federal grant programs.
Unfunded Mandates
individuals with disabilities education act and american with
disabilities act
In 1975, the United States Congress passed the Individuals with
Disabilities Education Act (IDEA) that requires school districts to
provide education related health and medical services to students with
disabilities and to develop individual education plans (IEP) for
service delivery. Congress passed IDEA without providing adequate or
additional special education funding; this consequently left school
districts ill-equipped to meet the funding demands of IDEA
requirements. When the program was first announced, districts were told
that the Federal Government would fund 40 percent of the costs. The
district currently spends between $70-$80 million per year to fund the
costs of special education programs. To date, the Federal funding has
never provided more than 12 percent of the costs. While we believe that
all students should attend school in the least restrictive environment,
the costs of the program for small classes, additional staff, and
specialized transportation services are a significant burden for the
district.
To meet the regulatory requirements of IDEA, school districts find
that they have to employ or contract for speech therapists, speech
pathologists, nurses, audiologists, diagnosticians, psychologists,
physical therapists, occupational therapists, and other clinicians as
required for students enrolled with special needs. In many cases,
parents have taken school districts to court and sued under the
provisions of IDEA and the Americans with Disabilities Act (ADA) to
provide additional or more comprehensive clinical services to their
disabled children. While the MEDICAID program reimburses school
districts for part of these costs, it does not come close to the full
costs of those additional medical services.
The American with Disabilities Act (ADA) requires that school
districts renovate buildings to enable all persons, regardless of
disabling conditions, to have access to all parts of the building.
Older facilities require significant renovations, such as ramps to
entrances, widened doorways, revised seating arrangements in
auditoriums, elevators, lifts for stages, added plumbing, and other
similar changes. As much as $100 million in local funds has been spent
over the last 15 years to accomplish these improvements, yet no
assistance came with the Federal mandates for action.
asbestos
The district has spent over $100 million for abatement of asbestos
in district facilities. The requirements for this program are extensive
and costly, yet the current wisdom is that in some cases the materials
would have been better left where it was. There was no assistance from
the Federal Government in meeting this unfunded mandate. It should also
be noted that the AHERA (Asbestos Hazard Emergency Response Act)
program was never applied to any public buildings other than school
districts.
environmental protection agency (epa) requirements
The EPA has established programs to reduce emissions from district
vehicles. While the district agrees that clean air is important, no
funds are available for retrofitting current vehicles or for higher
costs to meet the new requirements. In urban districts such as Houston
where 70 percent of the funding comes from local taxpayers, it is
difficult to maintain a fleet of new vehicles that meet current
standards. The average age of our vehicles is over 10 years. The new
standards are far more stringent than those in place when the oldest
vehicles were purchased. In Houston, there is a proposal for
construction work to begin after 6 o'clock and go through the night in
order to reduce emissions from heavy equipment. The voters of Houston
have approved over $675 million in renovations and new construction to
be completed over the next 3 years. Implementation of such a mandate
would greatly increase the cost of district construction programs.
agriculture department programs
The Agriculture Department implemented an after-school snack
program this last year. The district was pleased to see that a snack
program could be added to the district's program, but the district
quickly discovered that the Agriculture Department reduced our Free and
Reduced Price Meals (FRPM) funding by rounding down the reimbursement
rate to the next lower whole penny (resulting in a loss of about .8
cents ) per student to help fund the snacks program. The district is
now offering both programs, but receives no more dollars than it used
to receive from the FRPM program.
Grant Programs
class-size reduction teachers
The Class-Size Reduction Program provided an opportunity for school
districts to add teachers to reduce class sizes. The district was
delighted to participate in this program, and it is one we endorse.
However, the regulations attached required that school districts hire
first year teachers for those positions. Since the district believed
that this requirement did not serve students well, our school district
hired experienced teachers and assumed the costs of the additional
funding required between new teachers and the experienced teachers.
funding for bilingual education
This has become a major issue in our district's budget. Over the
last decade the increased immigrant population in Houston has more than
doubled the percentage of Hispanic students in our district. This
increase has added costs for the recruitment of bilingual and English
as a Second Language (ESL) program teachers, additional materials
required to offer instruction in both English and Spanish, and stipends
paid to ensure the retention of trained bilingual and ESL teachers. The
only Federal funds available to address the results of the Federal
immigration policy are provided on a competitive basis. Thus despite
the needs of the students in Houston, the funds may go to an innovative
proposal from a school district with fewer limited English proficient
(LEP) students or districts with higher local funding levels than ours.
title one and title six
Title I, Part A has provided funding to schools that assisted
schools to accomplish the following academic growth, as measured by the
State-mandated Texas Assessment of Academic Skills (TAAS):
<bullet> TAAS scores increased from 78.53 percent passing in
reading for 1996-97 to 81.00 percent in 1997-98;
<bullet> TAAS scores increased from 75.30 percent passing in
mathematics for 1996-97 to 80.96 percent in 1997-98; and
<bullet> TAAS scores increased from 82.96 percent passing in
writing for 1996-97 to 86.51 percent in 1997-98.
<bullet> Overall TAAS results for students in Title I schools
increased over and above the scores for students districtwide as
follows:
<bullet> In reading, Title I students averaged 84.51 percent
compared to districtwide students averaging 81.00 percent.
<bullet> In mathematics, Title I students averaged 80.94 percent
compared to districtwide students averaging 78.00 percent.
<bullet> In writing, Title I student average 86.51 percent compared
to districtwide students averaging 82.08 percent.
Changes made in the last reauthorization of Title I were
improvements in a number of ways. Current guidelines:
<bullet> Provide more programmatic and financial flexibility for
schools and districts;
<bullet> Require improved academic accountability;
<bullet> Allow more local control;
<bullet> Impact more students because of the schoolwide concept;
<bullet> Support the ex-flex waivers process; and
<bullet> Support school reform.
These changes have enabled the district to use the funds as it sees
fit and have resulted in the achievements cited above.
While the Federal Government has allowed local education agencies
greater latitude in developing individual district programs based on
local needs assessments over the last decade, congressional
reauthorization of programs involves a great deal of compromise and
attention to the goals of special interest groups. This results in
mandates and requirements included to ``protect'' students whose rights
might otherwise be at risk in local districts. This process of
political program design requires all districts to spend time in
documenting compliance with rules that were unnecessary in the first
place.
For example, the district currently spends a minimum of three
mandays per month creating the documentation of use of Federal funds as
a supplement to district funds, rather than supplanting. To demonstrate
comparability-that the district is not spending less in local funds in
Title I schools than it spends in non-Title I schools-the accounting
department staff must compute every expenditure for staff, materials,
equipment, and contracted services. With staffing, this is particularly
difficult to do on a monthly basis, since one must forecast stipends
that are paid annually or semi-annually as part of the equation.
However, it must be done monthly so that if a discrepancy is discovered
it can be remedied over the rest of the year. If that does not happen,
the total dollars spent for the year will not demonstrate the desired
maintenance of effort and the district will be out of compliance. Since
actual salaries of individual teachers are used, the whole equation is
thrown off whenever a teacher leaves one school and is replaced by a
teacher with more or less experience. In a large urban district, this
happens frequently, forcing the accounting department to recalculate
their year-to-date figures and intervene to recreate the desired
balance.
Clearly, this procedure has nothing to do with the district's
commitment to equity nor does it ensure increased levels of student
achievement. An alternative would be to allocate the dollars according
to the numbers of eligible students and hold the districts responsible
for results. If a particular district cannot demonstrate improved
student achievement, the State would be required to audit the programs
serving the specific students and place the district under a technical
assistance requirement until results improve. Otherwise the district
would be able to apply the funds to programs and not to staff
completing forms to demonstrate compliance. If this option were in
place, fewer dollars would need to be allocated to State departments of
education and central offices, and more would go directly to student
services.
The Title 6 program stands in contrast to the Title I program.
Title 6 makes a significant difference in the lives of over 212,000
students in Houston ISD and over 13,000 students in surrounding
nonprofit private schools and neglected and delinquent facilities. The
program provides on-going professional development to 15,000 teachers.
Title 6 provides services to ten local district reform programs and
projects, as well as fifty-four nonprofit private schools and
facilities within the Houston Independent School District's boundaries.
The major emphasis of the Title 6 program is to provide for services
that support reform efforts through innovative education program
strategies consistent with the eight National Education Goals and the
GOALS 2000: Educate America Act under Public Law 103-382. District
approved programs and projects were easily funded under these
parameters.
Title 6 funds have provided a mechanism to influence and provide
opportunities for advancement in nationally identified areas such as
technology, readiness skills, parental involvement, curriculum, school
improvement, higher order thinking skills, combating illiteracy, and
increased professional development for teachers and parents. All Title
6 funded programs have been designed specifically to improve overall
student achievement.
The majority of the programs funded through Title 6 are unique to
Houston and several include on-going assessment, for example, an
initial pre-test to determine needs, measurable activities for growth,
and on-going assessment of progress. These programs are designed to
improve teaching and learning as well as meet the educational needs of
students from all ethnic and learning backgrounds.
As one compares the Title I and Title 6 programs, it becomes clear
that Title 6 is effective in raising student achievement without all of
the compliance requirements of Title I. One can deduce from that that
the time spent complying with Title I requirements could be better
spent focusing on improving student achievement. The Federal Government
should identify those districts where student achievement is not
improving and use the manpower currently dedicated to managing
compliance to assist those districts in more effective planning and
implementation. Successful districts could dedicate the 3 days per
month spent on comparability and maintenance of effort documentation to
providing more effective services to schools.
Recommendations
Local school districts are responsible for the quality of education
provided to students. Districts use the funds available from local
taxpayers, State government, and the Federal Government to create the
best programming possible to meet the needs of their students. Federal
funds are certainly a welcome source of funding for meeting the needs
of educationally disadvantaged students, special education students,
immigrant students, limited English proficient students, and others.
However, local school districts can best design those programs when the
regulations are limited to expressions of the intent of Congress in
making the funds available. The Federal Government should make the
funds available and hold districts accountable for the performance of
all of its students.
The goal of Congress is to ensure an educated citizenry. It can do
that best by establishing the parameters, providing the funding and
leaving the program details to the practitioners. Each district has a
local school board elected to ensure the effectiveness and efficiency
of the system. Local school boards are ready and able to be held
accountable for the performance of their students. That should be the
measure of whether school districts have used the funds effectively.
If the Federal Government wanted to ensure the maximum application
of Federal dollars to meet the educational needs of students, it could
make block grants to the large urban school districts. Such block
grants would reduce the amount of money spent to regulate the Federal
dollars provided to the school districts. At the present time, Federal
grants go first to the States, who take 10-15 percent off the top for
review and regulation. The State establishes a monitoring system to
ensure effective use of the funds. However, when the Federal Government
comes into a State to audit the State's effectiveness in using Federal
funds, it always audits the largest school districts as well. That
means that large school districts are audited by both the State and
Federal Government, a duplication of effort and a major intrusion on
the time school districts could be spending refining their programs to
better serve students.
The Federal mandates for school districts are based on the need to
protect citizens from dangers identified in the environment or from
infringements on citizens' rights. School districts understand these
demands, but they are forced to address them with the dollars which
were provided for and which should be used to educate all students to
high levels. It is not possible to spend the same dollars in such
different ways and expect the results in student achievement this
nation requires for a productive future. School districts are willing
to assume responsibility for doing what they do best-educating
students. If they are to also undo societal problems, clean up the
environment, and renovate educational facilities, they must receive
assistance from the entities mandating the changes. We are ready to do
our best to meet the many demands upon us, but we need the assistance
of Congress in ensuring that our funds are used first and foremost to
educate our students.
Chairman Hoekstra. Mr. Hilleary.
Mr. Hilleary. Thank you both for testifying, and, of
course, you are both singing our song, the Chairman's and my
song, and a lot of us who really want to see the Federal
Government have fewer strings with a lot of things that we do
in education.
Three questions really for both of you, and if you could
both address all three. One is do you use statistical value-
added analysis with your children as they go through the
grades? And if so, if you do have that analysis available; how
do you utilize it?
Ms. Sclafani. We do not do the Sanders model of value-added
assessment, no. We are considering doing it in our school
district. The State is not doing that. We still look at the
snapshot of how students are doing by grade level each year.
May I mention that we do give our principals a longitudinal
look by teacher so they are able to help teachers plan their
professional development. So if all of the children in a
particular classroom consistently miss specific objectives over
the years, it is probably the teaching methodology as opposed
to the children. So we do provide that kind of longitudinal
data to work as an aid to the professional development of our
teachers.
Mr. Hilleary. But you are considering the Sanders model?
Ms. Sclafani. Yes.
Mr. Hilleary. Do you see merit in that?
Ms. Sclafani. Yes.
Mr. Hickok. There is great merit in the Sanders model. We
have started a variation on it with regard to a performance
incentive program for schools. That is, as a school is
evaluated over time through a series of Pennsylvania tests
based on the academic standards of Pennsylvania, as it improves
upon its performance over time, the value added, if it is over
and above a predicted improvement, then the school itself
receives a cash award from the State to be spent on an
educational product or service or event.
So the goal here is to find ways to create an incentive not
for schools to compete with one another, but for schools to
compete with themselves over time. As that is fully
implemented, that will give more of a value-added study because
you will be testing the same students as they go through the
process.
Mr. Hilleary. One of the things that I found when I met
with Dr. Sanders, if the same student got a teacher who is in
that bottom 10 percent 3 years in a row, they were basically
lost; 2 years it was hard to recover them. I am a big fan of
it.
Do either one of you, I assume you don't, have any site-
based management in your individual schools to the extent that
a local principal has the authority to hire and fire? I am
assuming you don't, but do you?
Ms. Sclafani. We have shared decisionmaking at our
campuses, and we have a State law that says only the principal
can hire. He can fire with documentation as well. We do have
that within our school system in our State.
Mr. Hickok. I think you can find examples of it in
Pennsylvania. We have a traditional approach to public
education. I think you will see more of that flexibility in our
charter schools, which provide more autonomy for management
decisions in the building principal or the chartering
organization.
Mr. Hilleary. Lastly, we have talked a lot about Federal
intervention that is not helpful. We all agree, I think, that
money is helpful. Is there anything besides money, in other
words, is there any Federal involvement, any strings, any
requirements, is there a function other than providing money,
including coming up with a program or whatever, that you all
would think would be extremely useful that the Federal
Government is uniquely qualified, or at least adequately
qualified, to perform? I am of the opinion that it is hard to
find something like that, but is there something that we could
be doing that would be actually helpful? And, of course, when
we start out being helpful, we often move to being unhelpful
fairly quickly. Is there something that you can think of that
we could be doing programmatically or otherwise? Forget the
money; I know that you want money.
Ms. Sclafani. We find the information provided by OERI is
helpful to us. Taking a look at the data nationally gives us a
better perspective as to where we stand as a local district and
as a State. The opportunity to see the research on the various
programs that are available and in use around the country saves
us the time of having to implement and do the research
ourselves and determine whether that is, in fact, an effective
program.
Mr. Hickok. I would share that observation. I think the
Federal Government in education should provide information on
what works, a clearinghouse for data and things like that
because of where they sit over all the system. The further away
you get from the day-to-day decisionmaking of a school
building, the more difficult it is to make the good decisions.
That is the geometry where the Federal Government sits right
now.
Mr. Hilleary. Thank you very much, both of you.
Chairman Hoekstra. Ms. Rivers.
Ms. Rivers. Thank you, Mr. Chair.
I have served at all levels, the local school board, the
State level and the Federal level. The local school board is
the most difficult job because that is where the hands-on work
has to be done, and that is where the community interacts.
One of the things that I have carried with me as a legacy
from my time on the school board is the tremendous unhappiness
with the bad rap that educators get in this country, and I
would be curious if you think for the most part that public
educators don't have any creativity, no ingenuity, are
satisfied with the status quo? These are some of the
allegations that are put forward. What do you think in your
day-to-day jobs about people who are dedicated to education?
Ms. Sclafani. First of all, they are dedicated to
education. We have people who are spending their lives, not
just 8 to 3:00, working for the education of children.
I think that the surveys are so difficult to understand.
When we do surveys of parents, the results are glowing. Eighty-
five, ninety percent of them are delighted with their schools,
even when the schools are not doing as much as we think that
they ought to be doing for their children.
I think that there is a difficulty in our society of
undervaluing educators which is causing us a great deal of
difficulty in recruitment and maintenance of people in the
education field.
I think if there is one thing I could ask the Federal
Government to do, it would be to help the public understand how
critical it is to have qualified educators in every classroom,
and to give them the respect that they deserve for the hard
work that they do.
Ms. Rivers. What do you think about no ingenuity, no
creativity, satisfied with the status quo?
Mr. Hickok. My Pennsylvania experience, 90 percent plus,
educators, teachers, teachers' assistants, administrators are
highly motivated, highly entrepreneurial, if you will, skilled,
innovative and excited. The problem is in far too many cases,
in far too many places we have a system that tends to blunt
those very talents that made those people good in the classroom
to begin with. In many way it makes them into bureaucrats as
opposed to the vital educators that they once were and wanted
to be.
Ms. Rivers. Who would be the best determinant, in your
mind, of what the local school districts need? Would it be the
local school districts or the State or Federal Government?
Mr. Hickok. I think it would be the citizens who are the
clients of the school districts. Everything in Pennsylvania
that we do is an attempt to find out what the people of
Pennsylvania look to and need in education. We feel that our
clients, in addition to those individuals, are all the citizens
of Pennsylvania, and they are the ones who both should have
more information so they can make wise decisions on what works
and what doesn't, and have more authority over deciding what
works and what doesn't.
Ms. Rivers. Ms. Sclafani, who do you think is the best
determinant in terms of what local school districts need?
Ms. Sclafani. Standards need to be set, and I am happy to
have them set at the State level; but I think the decisions
have to be made at the local schools. One of the reasons that
we have gone to the weighted per-pupil funding and saying to
schools, you figure out how to create the programs that will
enable your children to learn to their highest levels, is that
we believe that that is the only place that it can happen, and
if you engage people around the notion that they can design the
programs that best meet the needs of their children, they will
come up with programs that work.
Ms. Rivers. Mr. Chairman, I would like to insert into the
record an article from The Washington Post from March 27 of
this year, 2000, entitled ``As School Aid Is Relaxed, So Is the
Response of Many States.'' I am particularly interested in
quotes from Chairman Goodling of the Education and Labor
Committee first where he says he was disappointed, but not
entirely surprised at the limited interest in Ed-Flex requests,
because he says, ``If you don't have any ingenuity, if you
don't have any creativity, if you are just satisfied with the
status quo, it is much easier to do what the Federal Government
wants.''
Later when he was read accounts of State and local
officials who said that they didn't need any increased
flexibility, he says--sounded irritated, the article says--``To
say you are getting all of the flexibility you need is
nonsense. That must be all they want.'' thank you.
Chairman Hoekstra. Without objection, so ordered.
[The information referred to follows:]
[From the Washington Post, March 27, 2000]
As School Aid Is Relaxed, So Is Response of Many States
By Kenneth J. Cooper
A new law designed to ease restrictions on Federal school aid has
not attracted nearly as much interest from the States as was expected
when Congress approved the high-profile legislation a year ago. Passed
with huge bipartisan majorities, the Education Flexibility Partnership
Act was the first substantive legislation Congress enacted after the
midterm election and was meant to highlight Republican interest in
education as well as the party's emphasis on local control of schools.
Last April, President Clinton signed the bill, which was endorsed
by every Governor and was described by Sen. James M. Jeffords (R-VT),
chairman of the Health, Education, Labor and Pensions Committee, as
offering ``a deal no one can refuse.''
But most States immediately affected by the law either aren't
interested or haven't made plans to apply. So far only one State, North
Carolina, has applied to the Education Department--although a dozen
more indicate they intend to do so.
The ``Ed-Flex'' law, as it is commonly known, lets States relax
rules for Federal education programs--for the entire State or for
individual school districts--in exchange for adopting a statewide plan
to lift the achievement of disadvantaged students served by the Title I
remedial program. States are required to monitor test scores carefully
and take ``corrective action'' if disadvantaged students do not perform
better.
North Carolina, for instance, may seek to get around limits on how
much Federal money can be spent to train teachers in reading, writing
and other subjects besides science and mathematics. Pennsylvania
intends to apply partly because the State wants to spread remedial
education funds to rural schools with relatively few poor children,
instead of spending Title I money only in schools with the biggest
concentrations of disadvantaged students.
But among States not interested in Ed-Flex, most say they already
have the slack needed to make Federal programs flexible enough to suit
them. ``I can get the flexibility I want under the current
opportunities,'' said Peter McWalters, Rhode Island's education
commissioner.
The lukewarm response from States has raised questions about the
political appeal of the central Republican message on education and,
more fundamentally, the presumed demand among States and local school
districts for relief from burdensome Federal regulations. In the
presidential campaign, presumptive GOP nominee and Texas Gov. George W.
Bush on Friday called for giving States the kind of freedom from
Federal regulation that his State has had in an Ed-Flex pilot project
underway since 1995.
``States are not rushing to apply for Ed-Flex,'' said Michael
Cohen, assistant secretary for elementary and secondary education.
``It's not like local people are beating up on States, saying, `Why
haven't you applied for Ed-Flex?' ''
Rep. William F. Goodling (R-Pa.), chairman of the House Committee
on Education and the Workforce, said he was disappointed but not
entirely surprised at the limited interest. ``If you don't have any
ingenuity, if you don't have any creativity, if you're just satisfied
with the status quo, it's just much easier to do what the Federal
Government says,'' said Goodling, a former school superintendent.
The Governors may have unanimously supported the legislation, but
top State education officials have been less enthusiastic--and it is
they who must submit applications to the Education Department.
``I think people are playing this flexibility stuff higher than it
needs to be,'' said Stephen Barr, Federal liaison for Missouri's
Education Department. ``Everybody wants to blame bureaucracy, paperwork
and everything else for inertia.''
Under the new law, a State can receive the power to waive certain
rules for seven Federal programs, including Title I, the largest.
Besides producing an academic improvement plan, States have to agree to
waive similar State rules and laws.
The Federal law extends to 38 States and the District the authority
that a dozen States, including Maryland, have had in the pilot project.
Participating States have used their new power most often to make
academic programs funded by Title I--a new curriculum or reading lab,
for instance--available not just to disadvantaged students but to an
entire school where less than half the student body is impoverished.
Interviews with officials in eligible States indicate that 15 of
them do not intend to apply and that 10 have no current plans to do so.
That is about twice as many as the 12 that say they will definitely
sign up.
Neither the District nor Virginia plans to seek the broad waiver
authority. Maryland, along with Texas, is widely praised as a model
program from the pilot project.
``We actually find the current legislation pretty flexible as it
is,'' said Mary Elizabeth Beach, an assistant superintendent of D.C.
schools.
Cynthia Cave, policy director for the Virginia Department of
Education, said: ``Up to now, we've applied for specific waivers and
they've been approved, so there hasn't been a lot of pressure for us to
go to Ed-Flex.''
In contrast, North Carolina has been in a hurry to shake off
Federal regulation.
``Our feeling is, decisions about North Carolina schools ought to
be made down here in North Carolina,'' said Bill McGrady, the State's
director of compensatory education. ``Ed-Flex is something we wanted to
go after, and go after quickly
I just can't picture that other people aren't jumping on it.''
Nancy Keenan, Montana's school superintendent, indicated that there
is a simple reason her State hasn't applied. ``I don't think we need to
waive anything,'' she said.
Goodling sounded irritated about States reaching that conclusion.
``To say you're getting all the flexibility you need--it's nonsense,''
he said. ``It may be all that they want.''
California and New York, citing a different reason, say they won't
bother to apply because they're too busy implementing their own
education reforms.
``Basically, districts are saying we don't need one more new
program, not even if it streamlines what we're doing,'' said Delaine
Eastin, California's superintendent of public instruction. ``They're
not hankering to do this.''
And there are States that have decided it takes too much red tape
to obtain the power to cut red tape. Florida, for instance, has chafed
at having to produce detailed reports on the test scores of students
attending every school that receives Title I funds. Several States
indicated that their legislators would not diminish their own authority
by granting State education officials the power to waive State laws.
Cohen, the assistant education secretary, acknowledged that the new
law is stricter than the pilot project in requiring academic
improvement plans for Title I. Despite the tepid response so far, Cohen
said the Ed-Flex law sent a ``symbolically important'' message to
States that Federal rules need not stand in the way of innovative,
results-oriented reforms.
Kevin Noland, Kentucky's interim commissioner of education, said
the law would allow the State to waive a rule that prevents districts
from providing federally funded vocational education to sixth-graders.
Currently, those funds cannot be used for students below seventh grade.
Goodling predicted that more States would be interested in pending
legislation, originally dubbed ``Super Ed-Flex,'' which would cover
twice as many Federal education programs and permit States to combine
separate funding streams. The Clinton administration and congressional
Democrats have denounced that bill as creating block grants that would
allow States to neglect the educational needs of disadvantaged
students.
Chairman Hoekstra. A couple of questions or a question for
the two of you. Secretary Hickok, I think you expressed concern
about proposals to send Federal dollars to the local districts
or the classrooms rather than the States. In your view, this
would do more in the long run to nationalize education policy
than anything Washington has done heretofore.
I would like to--that is one of the issues that we wrestle
with in our other subcommittee. We have had people come in, and
we have had a hearing in Chicago where the people in Chicago
have said, you know, what we really need to do is we need to
have Washington treat the school district of Chicago just like
the State has treated Chicago, which is basically demandating
it, and just giving us two checks, one for general operations
and one for special education.
Your view on that, and then, Dr. Sclafani, if you would
expand on what you were talking about as saying perhaps for the
largest 50 school districts, the Federal Government ought to
send the money directly to those 50 school districts, bypassing
the State.
Mr. Hickok. Yes, I think this is a view on which there is a
lot of good commonsense disagreement.
There is a certain appeal, I think, and I certainly
understand the appeal, to the notion that money goes directly
to the school district for the delivery of services, cutting
out the middleman, the State, for lack of a better word. I have
a constitutional argument against that, and is that the States
are the appropriate actors through which that funding ought to
go. But on a more pragmatic management level, if districts look
to Washington for both funding and direction on how that
funding is being spent directly, then gradually that will lead
to the kind of Washington-directed public education system in
our public schools that, whether we like it or not, and maybe
we do want this, will nationalize curriculum and educational
programming.
So my argument is that it is very important for the reasons
that I presented in my testimony that the States remain the
critical actors. Now we have got to do a better job as States
to make sure that we are not part of the problem, and I would
agree with Representative Rivers a lot of States create a lot
of burdens. A lot of school boards do so in terms of the
contracts they negotiate. So you want to make sure that the
States are not part of the problem. But States are uniquely
situated to facilitate educational improvement within a State;
to look at what is going on in Pennsylvania, using Federal and
State money and just good old-fashioned bully pulpit to try to
improve education through State leverage.
I disagree with the idea that money in our larger urban
districts going from Washington directly to the urban district,
there is a certain appeal to it, and having a couple of major
urban districts in Pennsylvania that are having their problems,
I sometimes feel I wish they would secede. I am saying that
jokingly. But on a more serious note, you have to remember in
those districts the vast majority of the money being spent to
educate those kids is State taxpayer dollars and local taxpayer
dollars, and so it seems to me there is a local and State
fiduciary responsibility that needs to be met, and I want to
make sure that is allowed to take place rather than
nationalizing Philadelphia or Pittsburgh because it has a
certain management appeal to it.
Chairman Hoekstra. Doctor?
Ms. Sclafani. I think the State can set the standards for
the curriculum. It can set standards for fiduciary
responsibility. But having the dollars come directly to the
school district, it simply gives us the additional funding with
which to do that.
When I think about a block grant particularly, what I see
is that it is not a nationalized curriculum, it is not a
nationalized set of expectations. Each school, each school
district is still responsible to its State for its
accreditation, for its survival.
In a city like Houston, 70 percent of the dollars are paid
by our local taxpayers, 23 percent by the State and 3 percent
by the Federal Government. So the vast majority of our dollars
are coming from our local taxpayers who elect our school board
and are being well-served by their school board. So I think the
arguments against it can be met with simply having requirements
for fiduciary responsibility and accountability for student
performance, which are the two areas that the State rightly
must ensure for all of the school districts within its State.
Chairman Hoekstra. Thank you.
Mr. Holt.
Mr. Holt. Thank you, Mr. Chairman.
I am trying to understand whether the problem that you are
describing here is more a problem of restrictions on the funds
or accountability and reporting that goes along with it. I
guess maybe the best way I can get at this is to ask if each of
you could describe several specific things that you would do
but you can't do with the Federal funds?
Mr. Hickok. I will be glad to try to respond to your first
point. I think it is a little bit of both, frankly. At least
that is what I am trying to get at in the sense that there are
strings attached on limits, on discretion on how you use
Federal funding, so it uses the decisionmaking on the local
level to go to where the money is.
On the local aspects I don't think that we are opposed to
make sure that we can report how money is spent to the Federal
Government. I think we have an obligation to do that. What is
onerous is the number of times that we have to fill out similar
forms for different programs asking the same questions. So in
other words, if there is a way to consolidate the gathering of
this information so that a Gettysburg school district doesn't
have to have almost a full-time employee doing nothing but
filling out various reports, all of them important, but all of
them asking the same question, there is a way that you can get
around that problem that makes sense.
And secondly, if it is reporting a function that focuses on
results and not just data, spending and clients and things like
that, I guess one thing that I would like to see the Federal
Government do is pick up on something that we have started in
Pennsylvania, and it goes back, again, to a combination of
accessing money and forms. We have the e-grant. It is a totally
Web-based application for all of our State grants. And any
school district in Pennsylvania doesn't have to have a
sophisticated grants writer. You can look at examples of
successful grants, and we have boilerplate language, so almost
anyone can follow the grant through the approval process.
The grants are a very Byzantine process, and we have tried
to make it user-friendly. With Federal grants, it is a tough
road to hoe. It is tough enough to get the money; it is really
tough when it takes 26 weeks or 500 signatures to get it
approved.
If there is a way that Federal Government could use the e-
grant as a model, I think that is basically a winner for
everybody. I also think that it would be a winner for the
Federal Government because it would be a state-of-the-art way
to do things.
Mr. Holt. Dr. Sclafani.
Ms. Sclafani. Three examples that have come up in the last
month, we used to be able under Title II to provide training in
the summer for our math teachers, but also to provide kits that
had all of the manipulatives and the materials that they would
need to go back and teach this to their children. We are no
longer allowed to fund the kits. We can do the training and the
stipends, but not the kits anymore.
A second example, we met with some local community
leaders----
Mr. Holt. And that is because----
Ms. Sclafani. They prohibit the use of funds for that
purpose. They prohibit the use of funds for food, and we
understand that. We don't want taxpayer dollars to buy a cookie
for a teacher, although it makes a big difference to a teacher
going through a long day of in-service that somebody cared
enough to provide a cookie. But in any case, we will deal with
that with our local funds.
The second example is that a group came to us saying that
they had seen materials that had been developed by Anheuser-
Busch to combat alcoholism and to get students to recognize
that they should not be drinking at early ages at all, and that
they needed to leave that out until they were adults.
We said, sounds great, we would like to do it, good
materials. We sent them to our people in a safe and drug-free
schools program, and they said if we were to use anything
produced in collaboration with an alcohol purveyor or a tobacco
purveyor, we will jeopardize our grant because we agree in our
grant for safe and drug-free schools that we will not use any
materials produced by anyone who is a seller of alcohol or
drugs. So that went out the window.
It seemed like a perfectly reasonable opportunity for us.
Certainly we were not going to jeopardize 2.4 million, and we
had to go back to the community leaders and say, we are sorry,
we are not able to do that as part of the regulations for our
Federal funds.
As a third example--I have forgotten. They are similar
little things where you want to say, why is this important to
anybody, and yet we are prohibited from doing them.
Mr. Holt. I have one other question, if I may. Let me just
comment on those two answers.
Mr. Hickok, I can understand why an administrator, a
superintendent, those in management would be concerned about
the inefficiencies and the expense of having to have an entire
grant writer devoted or a recordkeeper devoted to that, but
that has little to do with education and creativity at the
teacher's level. We certainly should look for electronic filing
procedures and ways to streamline reporting and all of that,
but what we are talking about today is whether we are
fundamentally affecting the educational system.
And, Dr. Sclafani, the examples you give I can see would
also be annoying to a teacher, but hardly rise to the level, I
think, of a Federal issue. What we were talking about here in
the Federal Government was making sure that major needs are met
that haven't been met. That is why Title I was created, and
historically I think it is undeniable that there were needs
that were not being met in various cities and States around the
country, and the Federal Government had to step in. Now, we can
talk about how efficiently it worked or whether it worked at
all, but if we are going to have those programs, it seems to me
that we have to have some level of accountability.
Ms. Sclafani. Absolutely. There is no disagreement on the
issue of accountability at all. We believe that ought to be the
basis for continued grants. We believe very strongly that the
dollars that are provided by the Federal Government have
enabled us to improve the quality of instruction to our
children. That is the basic bottom-line issue, and that is why
I was suggesting earlier that if they could simply give us the
dollars, allow them to use them as the priorities within our
district dictate, and hold us accountable for the results for
every child--and as you probably know, in Texas we disaggregate
all of our data all of the time. So we are looking at how our
ESL students do as compared to our non-ESL students, how our
economically disadvantaged students compared to others, and how
each ethnic group does in comparison with each other.
So we are willing to lay all of the data out there and say
we will be accountable school by school and districtwide for
the quality of instruction that we provide for our children.
Don't ask us to spend the time on the smaller detailed
regulations. And I mentioned at the beginning of my talk about
the two that really take a lot of time and efforts, the
maintenance of effort and comparability. We will take care of
all of our children, and we will see that in the results, but
rather than having to prove those two.
Mr. Holt. My time has expired. Be careful what you are
asking for. If you are asking for block grants, what you might
get is a block grant that decreases by 10 percent next year and
10 percent the following year, and you will end up with less to
work with.
Mr. Hickok. If I can respond briefly, it seems to me you
make my point, and that is one of the reasons that we are so
frustrated at the State and local level, we spend an inordinate
amount of time on forms and regulations and surveys and studies
which have nothing to do with education. If we can spend more
time on education and less time on those things, through
electronic analysis or something else, we would be better off.
But the reason that you hear folks in the States saying, please
free us up, we would like to be freed up to use resources to
educate kids, not to fill out forms.
Chairman Hoekstra. I think that is what we have heard a lot
as we have gone around the country, get us from focusing on
process and paperwork, and allow us to have a dialogue with
Washington or with the State about results, which is really the
model. And we can talk, I am sure, over the next couple of
years about the relationship with the large city schools in
Washington, but that is really what has happened in Chicago,
where the dialogue between the Chicago Public Schools in
Illinois went from process to one about funding and
accountability. That discussion is about how much money you are
getting for special ed and the general operating funds for the
schools, and as soon as that discussion is over, the rest of
the 11 months and 29 days and 23 hours is focused on talking
about the results that we get for those dollars. I think that
is directly where we need and want to go.
Ms. Rivers.
Ms. Rivers. I understand from the perspective of both the
State and the local government the best way to get these
Federal funds is unencumbered, just cash. That is not likely to
happen, and I have to ask whether you would really want to--
what I would like to ask you, there are other ways of
approaching this problem. One is for the dollars to come
unencumbered, which I don't believe will happen, and the other
is for the Federal Government to get out of the education
business, period; to say, we are going to leave it to the
States and the localities to collect and spend their money any
way that they wish.
If we did that, do you feel comfortable that your States
and municipalities will indeed step up and pass the dollars to
retain the programs that you are currently giving your children
at the same rate if there is no Federal money?
Mr. Hickok. If there is no Federal money for education, and
that money used to go for education, it is going to go back to
education.
Ms. Rivers. It is not taken from the taxpayers.
Mr. Hickok. I tend to have a whole lot more confidence in
the people to govern their schools than a lot of people do, at
least a lot of people in this town. I think the States get a
bad rap, and that is not to say that there are not mistakes and
inefficiency out there, but I lay down the working record at
least of Pennsylvania, certainly of any State, and certainly
the Federal Government with regard to education. I think the
citizens of Pennsylvania place a high priority----
Ms. Rivers. You are not having the national problem of not
being able to pass millages?
Mr. Hickok. I am not saying that we don't have a political
problem on tax increases and things like that, but part of that
is driven by additional costs that are driven by Federal
regulations we have no control over. Special education is an
example.
One last comment, but I am not one of those who argues that
there is no Federal role for education.
Ms. Rivers. Dr. Sclafani, would your community step up and
replace the dollars?
Ms. Sclafani. Not all of them, and for a couple of reasons,
I think. One of the challenges that urban districts face is
that in many cases the people who live in the city for the most
part have no children in the public schools. We are down to
probably 15 percent of our citizens that----
Ms. Rivers. That is true everywhere.
Ms. Sclafani. Exactly. It is sometimes more difficult,
particularly when your children don't look much like your
citizens, to convince them this is in their long-term best
interests. So we believe that the Federal Government dollars
help us ensure that we are providing equity to all children.
I really was not asking that we stop the Federal dollars. I
was simply saying if Title I could come to us for Title I
purposes and the others could be grouped together so we could
move moneys from one place to another within them, that that
would save us a lot of time and effort.
Ms. Rivers. I understand that you were not saying that, and
most people are not. What they are saying is we would like the
cash, but without the qualifications that the Federal
Government is asking for. I am suggesting that there is another
way to do it, and that is to leave the burden at the local and
State levels to fund the programs.
My last question, do you believe that it is in the best
interests of the Nation for us to step away from some of the
educational mandates that exist? Do you think that we should
eliminate the Special Education Act and the obligation under
it, eliminate Title I and the obligations under it, eliminate
the Child Nutrition Program and the obligations under it,
eliminate the Education for Homeless Children Act and the
obligations under it, and any environmental mandates that apply
to local school districts? Is that in our best interests?
Ms. Sclafani. I don't think that it is in our best
interests to abandon them. I think it is simply a matter of
working more collaboratively to reduce the amount of accounting
that has to be done in order to ensure that people are
complying with the regulation, as opposed to doing the intent
of the program, which is to educate children, to provide
education and the additional services to the children of the
homeless, and to ensure that children do have the nutrition
necessary.
We worry about our children in the summer because even with
the opportunities for citywide programs, we know that our
children don't eat dinner. They each breakfast and lunch with
us, and they don't eat dinner. We certainly understand the need
for those funds and for those programs. It is just if we could
work together more collaboratively so we could better serve
children.
Ms. Rivers. Do you think it is in our best interests to
eliminate those programs, Mr. Hickok?
Mr. Hickok. I think those are national priorities that have
long been in place and need to still be in place. The goal is
to make sure that those priorities are met, not necessarily
those programs are funded. If there are others way to ensure
that those priorities are achieved, either through Federal,
State or local policy, what matters is the results, not the
programs.
Ms. Rivers. Thank you.
Chairman Hoekstra. Thank you very much to our witnesses for
the information that you have provided today. We appreciate it.
That will help us as we move forward in what I think will be a
continued and very vigorous and energetic debate. Thank you
very much. And with that, the Task Force will be adjourned.
[Whereupon, at 3:30 p.m., the Task Force was adjourned.]
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