[Senate Report 106-448]
[From the U.S. Government Publishing Office]
Calendar No. 894
106th Congress Report
SENATE
2d Session 106-448
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DEPARTMENT OF EDUCATION INVESTIGATION AND AUDIT LEGISLATION
_______
October 2 (legislative day, September 22), 2000.--Ordered to be printed
_______
Mr. Jeffords, from the Committee on Health, Education, Labor, and
Pensions, submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany S. 2829]
The Committee on Health, Education, Labor, and Pensions, to
which was referred the bill (S. 2829) to provide for an
investigation and audit at the Department of Education, having
considered the same, reports favorably thereon with an
amendment and recommends that the bill (as amended) do pass.
CONTENTS
Page
I. Purpose..........................................................1
II. Summary..........................................................2
III. Committee views..................................................3
IV. Senate action....................................................4
V. Section-by-section analysis......................................5
VI. Regulatory impact statement......................................6
VII. Application of law to the legislative branch.....................7
VIII.Unfunded mandate statement.......................................5
IX. Cost estimate....................................................5
X. Additional views.................................................7
i. purpose
The purpose of S. 2829, which requires the Comptroller
General to conduct an investigation for fraud at the Department
of Education, is to enhance the detection of waste, fraud, and
abuse at the agency.
ii. summary
S. 2829 requires the Comptroller General to conduct a fraud
audit at the Department of Education. The Comptroller General
shall determine which accounts are particularly susceptible to
waste, fraud, and abuse. A report setting forth the results of
the investigation and audit shall be submitted within six
months to the Committee on Health, Education, Labor, and
Pensions of the Senate and the Committee on Education and the
Workforce of the U.S. House of Representatives.
iii. committee views
The U.S. Department of Education has shown a pattern of
financial mismanagement, disregard for statutory program
management requirements, and susceptibility to waste, fraud,
and abuse. For the second year in a row, the Department of
Education has been unable to address its financial management
problems and did not receive a clean audit in either 1998 or
1999. The Department does not have an effective accounting
system that complies with Federal financial management statutes
and does not expect to have one in place until at least October
2001.
The Government Management Reform Act (GMRA), passed in
1994, mandates annual audits of agency-wide financial
statements. The Department of Education has repeatedly failed
to receive an unqualified opinion on its financial statements
and is routinely cited for material weaknesses in the
management and control of its programs.
The magnitude of the problems with the Department of
Education's financial management first became evident when the
fiscal year 1995 financial statements were audited. The next
year, the independent public accountants, Price Warehouse, LLP,
were unable to express an opinion on the fiscal year 1996
consolidated financial statements because the Department's
documentation of the basis for certain estimates did not
provide the auditors with sufficient evidence to conclude
whether amounts were materially over- or understated. These
estimates effected the liabilities for loan guarantees under
the Federal Family Education Loan Program, the allowance for
defaulted loans, the allowance for direct loan subsidy costs,
and related subsidy expenses. Importantly these same estimates
were identified as an issue during the fiscal year 1995 audit
and had not been corrected.
New and additional problems arose with the audit of the
fiscal year 1997 consolidated financial statements. When asked
by Congress why it failed to meet its March 1, 1998 reporting
deadline, the Department responded that a reasonable
methodology and system still did not exist for estimating the
losses incurred on loans made and guaranteed by the agency. The
audit was delayed for months while the Department and auditors
worked to obtain, validate, and analyze sufficient evidence to
support the financial statements. The Department for the first
and only time received an unqualified opinion on its financial
statements. Despite the intensive manpower put into gathering
and validating material for the audit, material weaknesses were
once again reported affecting the internal control structure of
the Department. These weaknesses affected the ability to
prepare reliable loan estimates and the ability to provide
timely and effective reconciliation of the Department's
Clearing Account cash balance with the Treasury. Further, it
was determined that the Department's financial management
systems did not comply with Federal financial systems
requirements.
The effort to produce and support the fiscal year 1997
financial statements diverted so much manpower that Department
reversed the progress made during the previous year and reneged
upon its commitment to meet its financial reporting deadlines.
The Department failed to properly implement the EDCAPS system
and announced in early January that it would not be ready for
audit until February 1999. The Department of Education missed
this deadline and did not provide trial balance and financial
statements until April 1999. When the auditors began reviewing
the Department's records they discovered critical limitations
in the financial reporting systems. These weaknesses, such as
the systems inability to perform a year-end closing process or
produce automated consolidated financial statements, were
significant factors in the Department's inability to prepare
accurate consolidated financial statements. After months of
attempting to work with the agency, the auditors reported that
the Department could not providesufficient documentation to
support transactions and did not adequately perform reconciliations.
The auditors concluded that they could express no opinion regarding the
fiscal year 1998 financial statements.
This past year, the Department succeeded in providing
audited financial statements to OMB in accordance with the
statutory March 1 deadline. While they are to be commended for
finally meeting this deadline, the Department of Education
received only a qualified opinion from the independent auditor.
The auditors disclaimed any opinion on the statements of
financing and once again cited the same three material
weaknesses in the Report on Internal Controls: financial
reporting, reconciliations, and credit reform reporting.
Over the years, the Department has not improved its
financial accountability, and has shown a pattern of continued
waste, fraud, and abuse. Beginning with its first agency-wide
audit in 1995, auditors have reported largely the same serious
internal control weaknesses year after year. Of the four
material weaknesses cited in the most recent audit, three are
repeat conditions from the previous year. The Department has
not shown signs that it is improving its financial stewardship.
Failure to address the financial accountability problems
identified by the independent auditors and the General
Accounting Office create an environment that is highly
susceptible to mismanagement, fraud, and abuse. Independent
auditors and officials have repeatedly testified before the
Congress regarding numerous instances in which this failure to
meet even the minimum standards for financial stewardship have
encouraged waste, fraud, and abuse at the agency. A recent
investigation uncovered a system by which a contract employee
charged the Department for over $600,000 in false overtime and
provided more than $300,000 in electronic equipment to a
Department employee charged with supervising his work. The
Department issued at least $50 million in duplicate payments to
grantees over the past 2 years, and in 1 recent year alone, the
agency awarded $177 million in Pell Grants to students who were
over the income eligibility limit. In addition, a ``grant
back'' account was discovered at the Department that contained
over $700 million. However, only about two percent of that
money was actually recovered grant money. The Department could
not account for the additional $700 million or explain why it
was in that account. The Department has since redistributed the
money without providing evidence that it was distributed to the
right accounts.
The committee believes that these instances show that the
Department is currently vulnerable to fraud, waste, and abuse.
The House of Representatives has already indicated its support
for a fraud audit at the Department of Education by passing its
own version of this bill on June 13, 2000, by an overwhelming
vote of 380-19. The committee believes that a fraud audit
should be performed at the Department of Education to ensure
that future instances of waste, fraud, and abuse do not occur
at taxpayer expense.
IV. Senate Action
On June 29, 2000, Senator Hutchinson introduced S. 2829,
which provides for an investigation and audit at the Department
of Education.
On September 20, 2000, the Senate Committee on Health,
Education, Labor, and Pensions met in Executive Session to
consider S. 2829. The committee voted on the following
amendment: Senator Hutchinson offered an amendment in the form
of a substitute making technical corrections to S. 2829. The
amendment was accepted by voice vote and was used as the
underlying vehicle.
The committee then voted to report the bill, as amended, by
voice vote.
V. Section-by-Section Analysis
Section 1. Provides that within 6 months after the date of
enactment, the Comptroller General shall conduct and complete a
fraud audit of selected accounts at the Department of
Education, that the Comptroller General deems to be
particularly susceptible to waste, fraud, or abuse. Requires
the Comptroller General to submit a report setting forth the
results of the investigation and audit to the Committee on
Health, Education, Labor, and Pensions of the U.S. Senate and
the Committee on Education and the Workforce of the U.S. House
of Representatives.
VI. Regulatory Impact Statement
The committee has determined that there will be minimal
increases in the regulatory burden imposed by this bill.
VII. Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1, the Congressional
Accountability Act (CAA), requires a description of the
application of this bill to the legislative branch. The purpose
of S. 2829, which requires the Comptroller General to conduct
an investigation for fraud at the Department of Education, is
to enhance the detection of waste, fraud, and abuse at the
agency. The bill does not prevent legislative branch employees
from receiving benefits of this legislation.
VIII. Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by Section 101(a)(2) of the Unfunded
mandates Reform Act, Public Law 104-4) requires a statement of
whether the provisions of the reported bill include unfunded
mandates. The purpose of S. 2829, which requires the
Comptroller General to conduct an investigation for fraud at
the Department of Education, is to enhance the detection of
waste, fraud, and abuse at the agency. As such, the bill does
not contain any unfunded mandates.
IX. Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 22, 2000.
Hon. James M. Jeffords,
Chairman, Committee on Health, Education, Labor, and Pensions,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2829, a bill to
provide for an investigation and audit at the Department of
Education.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Paul
Cullinan.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 2829--A bill to provide for an investigation and audit at the
Department of Education
S. 2829 would direct the Comptroller General of the United
States to conduct an audit of certain accounts at the
Department of Education. Assuming appropriation of the
necessary funds, CBO estimates that implementing the bill would
cost about $1 million in 2001. Because enactment of S. 2829
would not affect direct spending or receipts, pay-as-you-go
procedures would not apply.
Based on information from the General Accounting Office
(GAO), CBO estimates that the audit would cost between $800,000
and $1 million. Because the audit would have to be completed
within six months of the bill's enactment, it would have a
relatively restricted scope. It would be oriented toward the
department's student financial aid programs and focus on
specific areas that GAO identifies as highly susceptible to
errors. A preliminary review by GAO staff suggests that the
limited audit would require about three full-time equivalent
staff-years (for example, six employees working full time for
six months) as well as some work by outside contractors.
S. 2829 is similar to H.R. 4079, which was passed by the
House of Representatives on June 13, 2000. CBO's estimate for
that bill, dated June 8, 2000, is identifical to that for S.
2829.
S. 2829 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would have no effect on the budgets of state, local, or tribal
governments.
The CBO staff contact is Paul Cullinan. This estimate was
approved by Peter H. Fontaine, Deputy Assistant Director for
Budget Analysis.
X. ADDITIONAL VIEWS OF SENATORS KENNEDY, DODD, HARKIN, BINGAMAN,
MIKULSKI, WELLSTONE, MURRAY AND REED
We support S. 2829 because we believe in good government
and good fiscal management of federal funds. But, we also
believe that we need to give credit to the accomplishments in
improving the efficiency of the Department of Education over
the last seven years.
The Department has an important role in helping states and
communities improve American education, helping all children
reach high standards, and opening the doors to college. Under
the leadership of Secretary of Education Richard W. Riley, the
Department has emphasized quality management to ensure that the
federal investment in education is used as efficiently and
effectively as possible.
A key goal in the Department's management plan is to obtain
a uniformly positive audit opinion every year. The Department
has made substantial progress in addressing each of the
problems outlined by its independent auditor. It is important
to note that all of these issues have been technical accounting
matters. Not one dime of taxpayers' money has been lost or
misplaced.
The Department can now automatically produce all of its
financial statements. It provided its auditors within interim
sets of statements for March and June. The Department has
changed its procedures to ensure that accounting adjustments
are recorded in the proper accounting period. The independent
auditor can now be certain that transactions are reflected in
the appropriate financial statement line. The Department
continues to develop subsidiary reports that will enable it to
determine whether a transaction was money that flowed to
another federal agency or non-governmental entity.
Another sign of progress is the Department's effort to
implement its auditor's financial management recommendations.
Today the Department has completed action on 112 of 139
recommendations--over 80%. Of the remaining 27 recommendations,
Secretary Riley has made their resolution a top priority. He
anticipates that work on these items will be quickly completed.
The Department has also made significant progress in other
areas that have increased its effectiveness and saved taxpayers
billions of dollars. The student loan default rate has now been
reduced to a record-low of 6.9 percent, after declining each
year from 22.4 percent 8 years ago. As a result, taxpayers have
saved billions of dollars. Collections on defaulted loans have
tripled, from $1 billion in fiscal year 1993 to over $3 billion
in fiscal year 1999.
The Direct Student Loan program has saved taxpayers over $4
billion in the last 5 years, compared to the cost of guaranteed
loans. The creation of the National Student Loan Data System
has enabled the Department to identify prior defaulters, and
prevent the disbursement of as much as $1 billion in grants and
loans to ineligible students.
The Department has also down-sized to reduce waste. It now
has only two-thirds as many employees administering its
programs as in 1980, even though its budget has more than
doubled. It has trimmed regulations by one-third, reduced grant
application paperwork, and effectively implemented the waivers
authorized to remove roadblocks to reform. Customer service
ratings for the Department's document distribution center now
match those of premier corporations like Federal Express and
Nordstrom.
The reality is, most federal agencies are doing a good job.
Much of the progress made in recent years is the result of Vice
President Gore's reinventing government initiative. He's
streamlined the federal workforce, reduced the bureaucracy, and
eliminated significant amounts of waste and duplication. The
Department of Education and many other federal agencies have
benefitted significantly from their efforts, and so have
American taxpayers. We should continue to build on these
successes in the future.
Ed Kennedy.
Tom Harkin.
Jeff Bingaman.
Patty Murray.
Chris Dodd.
Barbara A. Mikulski.
Paul Wellstone.
Jack Reed.