to the Congress and the administration. Efforts to continue to build the foundation for generating accurate financial information through lasting financial management reform are essential. The Department of Education did not receive such an opinion because of its financial management weaknesses. 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. 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 (1) time-consuming manual procedures, (2) various automated tools to “work around” the system’s inability to close the books and generate financial statements, and (3) 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. 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. financial reporting process, (2) inadequate reconciliations of financial accounting records, and (3) inadequate controls over information systems. Potential for Fraud, Waste, and Abuse

Error! A report issued by the Department’s Inspector General in Februaryemphasizes the need for the Department to focus on addressing its computer security vulnerabilities. In response to the IG’s February report, Education’s Chief Information Officer has developed a corrective action plan to address these weaknesses. In addition, vulnerabilities in the Department’s student financial assistance programs have led us since 1990 to designate this a high-risk areafor waste, fraud, abuse, and mismanagement. 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.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed financial management at the Department of Education, focusing on: (1) Eduction's current financial management status as evidenced by its fiscal year (FY) 1999 financial audit results and the corrective actions it has taken to resolve weaknesses identified in that audit; and (2) the relationship between the audit findings and the potential for waste, fraud, and abuse.

What GAO Found

GAO noted that: (1) Eduction'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; (2) Education is also responsible for collecting about $175 billion owed by students; (3) in FY 1999, more than 8.1 million students received over $53 billion in federal student financial aid through programs administered by Education; (4) Education's stewardship over these assets has been under question as the agency has experienced persistent financial management weaknesses; (5) beginning with its first agencywide financial audit effort in FY 1995, Education's auditors have each year reported largely the same serious internal control weaknesses, which have affected Education's ability to provide reliable financial information to decision makers both inside and outside the agency; (6) to the extent that Education was able to improve on its financial statements for FY 1999, it was generally the result of: (a) time-consuming manual procedures; (b) various automated tools to "work around" the system's inability to close the books and generate financial statements; and (c) reliance on external consultants to assist in the preparation of additional reconciliations and the financial statements; (7) 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 Chief Financial Officers Act of 1990; (8) Education continues to have serious internal control and system deficiencies that hinder its ability to achieve lasting financial management improvements; (9) the internal control weaknesses need to be addressed to reduce the potential for waste, fraud, and abuse; (10) 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; (11) in response to the Inspector General's report, Education has developed a corrective action plan to address these weaknesses; and (12) vulnerabilities in Education's student financial assistance programs have led GAO since 1990 to designate this a high-risk area for waste, fraud, abuse, and mismanagement.