FSA Has Made Progress Addressing Key Issues, but Has Not Completely Fulfilled Its Planning and Reporting Responsibilities

FSA has made progress in addressing key issues in the areas of financial  management and internal control, systems integration, program integrity,  and determining the cost of administering its programs, but FSA has not  completely fulfilled its responsibility with respect to developing  performance plans and reports. FSA has completed several critical  systems integration tasks but is not yet operating in a fully integrated  environment. Financial Management and Internal Control

For several years, independent auditors reported serious financial  management problems at FSA, but in fiscal years 2002 and 2003, the  agency received an unqualified—or “clean”—opinion on its financial  statements. In addition, although the auditors identified two reportable  conditions, they did not identify any material internal control  weaknesses in FSA’s fiscal year 2003 audit. Cost of Administering FSA’s Programs

As part of its effort to demonstrate that it has reduced the cost of  administering its programs—one of the purposes established in the HEA— FSA is implementing an activity-based cost (ABC) model. However, FSA’s proposed ABC model was not fully operational as of July  2004. Once FSA’s cost  model is fully tested and operational, FSA should be able to identify the  full cost to administer its financial aid programs and reliably determine the  changes in such costs over time. Although FSA had not previously prepared a  performance plan, it had strategic objectives and annual goals, and its 2003  performance report clearly discusses FSA’s achievement of its annual  goals. FSA Has Developed a Human Capital Strategy and Taken Steps to Increase the Accountability of Officials, but Both Efforts Have Weaknesses

FSA has laid the foundation for a comprehensive human capital strategy  and has taken steps to further its efforts to address the accountability of  senior officials, but some of the human capital strategy’s components and  the accountability system have weaknesses. For example, the plan  outlines challenges the agency will likely face in coming years and  discusses recognized weaknesses and challenges, such as the need to  develop the skills of staff and maintain the focus of the agency’s leadership  on human capital issues. However, we found weaknesses in some of the strategy’s components. FSA Has Taken Steps to Increase the Accountability of Officials, but Its Criteria for Awarding Bonuses Are Not Clear

FSA has taken steps to increase the accountability of its senior officials— one of its purposes as a PBO. The new agreements do  not include such information. FSA has also made progress in addressing its human capital management  challenges, but weaknesses remain. We recommend that the Secretary of Education direct FSA’s Chief  Operating Officer to  issue clear guidance and detailed directions for teams to follow when  performing comprehensive compliance reviews;   develop 5-year performance plans with action steps that are linked to  FSA’s strategic objectives and with specific performance measures or  targets for its objectives; and include measures or trend data in FSA’s  performance reports that clearly demonstrate whether the agency has  made progress toward achieving its strategic objectives; revise the succession plan to include approaches that focus on the current  and future capacity and needs as well as provide developmental projects  or training for staff to prepare them to fulfill new duties;   enhance systematic evaluation activities for its human capital initiatives  such as the learning coupon; and   establish and communicate clear criteria for awarding bonuses to senior  staff. FSA  also said that it has revised its succession plan. However, we were not  provided a copy of this plan. In addition, FSA stated that it has made significant progress in the area of  systems integration. Specifically, we analyzed the Higher Education  Act (HEA) to understand the Title IV programs and to understand the  purposes and requirements established for the Office of Federal Student  Aid (FSA) when the Congress designated the agency as a performance- based organization (PBO).
Why GAO Did This Study

In 2003, the Department of Education's Office of Federal Student Aid (FSA) managed about $60 billion in new financial aid. In 1998, the Congress designated FSA as a performance-based organization. In so doing, it specified purposes for the agency, such as to reduce program costs and increase accountability of its officials, and provided flexibilities such as allowing FSA to pay bonuses. Also FSA is required to annually prepare a performance plan and report and have performance agreements for its senior officials. Past reviews revealed serious problems and concerns about FSA's management. In January 2003, GAO reported that FSA had made progress but had not sufficiently addressed some key management issues. Also, GAO noted that FSA, like other agencies needed to address human capital issues. GAO assessed FSA's progress in (1) addressing key management issues and meeting requirements for planning and reporting, and (2) developing a human capital strategy and increasing the accountability of its officials.

What GAO Found

FSA has made progress addressing its key management issues; however, its plans and reports do not contain all the required information needed by the Congress and the public to assess FSA's progress in achieving its goals and purposes. FSA's significant improvements in its financial management and internal control are reflected in its receiving an unqualified or "clean" opinion on its financial statements for fiscal years 2002 and 2003. In addition, FSA's fiscal year 2003 financial audit did not identify any material internal control weaknesses. FSA has also made progress in other areas, but to a lesser extent. FSA completed several critical systems integration tasks, but full systems integration is several years away. In addition, FSA has addressed many program integrity issues--factors that could affect the vulnerability of student aid programs to fraud, waste, and abuse--but has not developed guidance to ensure that its comprehensive compliance reviews are being performed as expected. Furthermore, FSA has developed a cost model that has the potential to identify the full cost of its activities and changes in costs over time, but as of July 2004, the model was not fully operational. As a result, FSA has not been able to demonstrate that it has reduced the cost of administering its programs. Also, FSA issued a 5-year performance plan and annual performance reports, but neither included specific measures needed to determine whether FSA has made progress toward meeting its longer-term strategic objectives. FSA has developed a comprehensive human capital strategy and has taken steps to increase the accountability of most of its officials, but some of the human capital strategy's components and the accountability system have weaknesses. FSA's human capital plan describes the agency's human capital strategy and the strategy's components. For example, FSA has a draft succession plan to prepare for the retirement of key staff. However, this plan has weaknesses. The draft succession plan shows that the agency will redistribute the duties of most retiring staff but does not discuss how the agency will develop the skills of remaining staff to take over new responsibilities. To increase the accountability of its officials, FSA changed from a pass-fail to multilevel performance appraisal systems for its senior officials and included job-specific goals in their performance agreements based on their areas of responsibility. FSA also changed the way it awards performance bonuses, but the criteria were not clear.