    Office of Federal Student Aid: Better Strategic and Human Capital
    Would Help Sustain Management Progress (06-OCT-04, GAO-05-31).

    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.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-31
        ACCNO:   A12895
      TITLE:     Office of Federal Student Aid: Better Strategic and Human
    Capital Would Help Sustain Management Progress
         DATE:   10/06/2004
      SUBJECT:   Accountability
    	     Aid for education
    	     Financial management
    	     Internal controls
    	     Reporting requirements
    	     Strategic planning
    	     Student financial aid
    	     Performance measures
    	     Agency missions
    	     Personnel management
    	     Human capital

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    GAO-05-31

    United States Government Accountability Office

    GAO

                           Report to Congressional Committees

    October 2004

    OFFICE OF FEDERAL STUDENT AID

    Better Strategic and Human Capital Planning Would Help Sustain Management
                                        Progress

    GAO-05-31

    [IMG]

    October 2004

    OFFICE OF FEDERAL STUDENT AID

    Better Strategic and Human Capital Planning Would Help Sustain Management
    Progress

      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.

                     United States Government Accountability Office

    Contents

      Letter 1

    Results in Brief 3
    Background 4
    FSA Has Made Progress Addressing Key Issues, but Has Not

    Completely Fulfilled Its Planning and Reporting Responsibilities 8

    FSA Has Developed a Human Capital Strategy and Taken Steps to
    Increase the Accountability of Officials, but Both Efforts Have
    Weaknesses 22

    FSA Has Taken Steps to Increase the Accountability of Officials,

    but Its Criteria for Awarding Bonuses Are Not Clear 30
    Conclusions 35
    Recommendations to the Secretary of Education 36
    Agency Comments and Our Evaluation 36

      Appendix I Scope and Methodology 38

    Overall Approach 38
    Objective I: Key Management Issues 38
    Objective II: Human Capital 40

    Appendix II	GAO Recommendations to Education Related to Student Financial
    Aid and Status of Their Implementation

    Appendix III	Definitions of Systems Supporting FSA's Student Aid Programs

    Appendix IV Comments from the U.S. Department of Education

    Appendix V GAO Contacts and Staff Acknowledgments 52

    GAO Contacts 52
    Staff Acknowledgments 52

                                Related GAO Products 53

      Table

    Table 1: Components of FSA's Human Capital Strategy 23

      Figures

    Figure 1: Organizational Structure of Federal Student Aid 7
    Figure 2: FSA's Approach for Integrating Its Information Systems 13
    Figure 3. FSA's Activity-Based Cost Model 17
    Figure 4: Illustration of a Segment of FSA's Annual Plan 20
    Figure 5: Selections from FSA's Skills Catalog: FSA's Office of the

    Chief Financial Officer 28
    Figure 6: Change in FSA's Performance Agreements from

    Organizational Goals in Fiscal Year 2002 to Individual

    Goals in Fiscal Year 2003 32

    Abbreviations

    ABC activity-based cost
    ASEDS Application, School Eligibility, and Delivery Unit
    CFO Chief Financial Officer
    COD Common Origination and Disbursement
    COO Chief Operating Officer
    FAFSA Free Application for Federal Student Aid
    FFEL Federal Family Education Loan
    FFMIA Federal Financial Management Improvement Act
    FMFIA Federal Managers' Financial Integrity Act
    FSA Office of Federal Student Aid
    GPRA Government Performance and Results Act
    HEA Higher Education Act
    IRS Internal Revenue Service
    MIT Management Improvement Team
    OIG Office of Inspector General
    OMB Office of Management and Budget
    OPM Office of Personnel Management
    PBO performance-based organization
    SES Senior Executive Service
    SFFAS Statements of Federal Financial Accounting Standards

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office Washington, DC 20548

    October 6, 2004

    The Honorable Judd Gregg

    Chairman

    The Honorable Edward M. Kennedy

    Ranking Minority Member

    Committee on Health, Education, Labor, and Pensions United States Senate

    The Honorable John A. Boehner
    Chairman
    The Honorable George Miller
    Ranking Minority Member
    Committee on Education and the Workforce
    House of Representatives

    The Department of Education's (Education) Office of Federal Student Aid
    (FSA) administered over $60 billion in new federal student aid to
    approximately 9 million students in 2003. FSA describes its mission as
    helping to put America through school by providing access to higher
    education through effective and efficient delivery of student aid.
    However,
    past audits and reviews revealed that the agency has encountered some
    problems accomplishing this mission. Consequently, we designated
    student financial aid programs as high-risk in 1990 because of concerns
    about fraud, waste, abuse, and mismanagement of the billions of dollars in
    student financial aid.1

    In 1998, when the Congress amended the Higher Education Act (HEA), it
    designated FSA as a performance-based organization (PBO) and
    authorized the agency to operate without the constraints of certain rules
    and regulations for the purpose of achieving specific measurable goals and
    objectives. This flexibility was intended to allow FSA to better address
    long-standing management weaknesses and enhance its delivery of student

    1The former Guaranteed Student Loan Program, now called the Federal Family
    Education Loan Program, was included in our 1990 high-risk list; in 1995
    we revised this designation to include all student financial aid programs
    included under Title IV of the Higher Education Act of 1965.

    financial aid. The Congress designated several purposes for FSA, including
    reducing costs of administering the program and increasing accountability
    of officials. In addition, the Congress required that FSA annually issue
    (1) a 5-year performance plan that establishes measurable goals and
    objectives for the organization and (2) performance reports showing
    progress toward achieving its measurable goals and objectives in
    accordance with applicable requirements under the Chief Financial Officer
    (CFO) Act and the Government Performance and Results Act (GPRA) 2. While
    FSA had developed new management strategies and had made some progress
    improving its operations, Education's Office of Inspector General (OIG)
    and we found that FSA had not sufficiently addressed management
    weaknesses, identified reductions in cost, prepared 5-year performance
    plans, or submitted useful and timely reports. Specifically, we reported
    in January 2003 that FSA needed to take further actions in several key
    management areas, and we identified human capital management as one of the
    key challenges facing FSA and agencies governmentwide.3

    Since we completed the work for our January 2003 report, FSA has further
    attempted to address our concerns. We have undertaken this effort to
    examine the extent to which FSA has made progress (1) addressing key
    management issues related to financial management and internal control,
    systems integration, program integrity,4 the costs of administering its
    programs, and fulfilling its planning and reporting responsibilities, and
    (2) establishing a comprehensive human capital strategy and increasing the
    accountability of its officials.

    To assess FSA's progress in these areas, we reviewed and analyzed several
    documents such as auditors' reports on FSA's financial statements and
    internal control for fiscal years 2002 and 2003, annual performance plans
    and reports, and its 5-year performance plan. We also analyzed FSA's
    systems plans and related documentation, as well as the performance
    agreements and evaluations of its senior managers. We interviewed
    officials from FSA, Education's OIG, and Education's Management

    2The Chief Financial Officers Act of 1990 is P.L. 101-576, and the
    Government Performance and Results Act of 1993 is P.L. 103-62.

    3GAO, High Risk Series-An Update, GAO-03-119 (Washington, D.C.: January
    2003).

    4Program integrity refers to processes to reduce vulnerability to fraud,
    waste, and abuse.

      Results in Brief

    Improvement Team (MIT),5 as well as union officials. We conducted our work
    between November 2003 and August 2004 in accordance with generally
    accepted government auditing standards. For more details about our scope
    and methodology, see appendix I.

    FSA has made progress 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's 5-year
    performance plan and its annual performance reports do not meet all HEA
    and GPRA requirements. The extent of FSA's progress in addressing key
    management issues varied among the issues. FSA made significant progress
    in addressing its financial management and internal control weaknesses as
    reflected in its receipt of an unqualified, or "clean," opinion on its
    financial statements for fiscal years 2002 and 2003. In addition, FSA's
    auditors did not identify any material internal control weaknesses in
    FSA's fiscal year 2003 audit. FSA also made progress in improving program
    integrity and in implementing an activity-based cost model to assist it in
    identifying the full cost of its activities. Although FSA completed
    several critical systems integration tasks, it remains several years from
    operating in a fully integrated information systems environment. FSA also
    made progress toward fulfilling its planning and reporting
    responsibilities by issuing its first 5-year performance plan in June
    2004. However, this plan did not include performance measures needed to
    assess progress over time, and its 2003 performance report did not clearly
    indicate progress toward meeting its long-term strategic objectives.

    FSA has developed a comprehensive human capital strategy and taken steps
    to increase the accountability of most officials, but some of the human
    capital strategy's components and the accountability system have
    weaknesses. According to FSA officials, the agency has collaborated with
    an organization that specializes in government workforce issues to
    complete its human capital plan that summarizes the agency's human capital
    strategy and its components. Based on our review of its plan, FSA's human
    capital strategy includes many of the practices of leading organizations.
    For example, the document identifies challenges that FSA will likely face
    in coming years such as addressing the skills of its staff.

    5On April 2001, the Secretary of Education assembled a team of senior
    managers and employees-the Management Improvement Team-to focus on many
    long-standing management challenges facing the department. The MIT was
    tasked with making shortterm management recommendations and developing a
    plan to address longer-term and structural issues.

    However, there are also weaknesses in some of the strategy's components.
    For example, FSA's succession plan shows that staff in nearly 250 key
    positions are likely to retire and the agency will redistribute the duties
    to existing staff for 140 of these positions, but it does not address how
    the agency will develop the skills of remaining staff to take over these
    new duties. Further, FSA has not fully evaluated the usefulness of its
    learning coupon-a $500 benefit staff can use to pay for external training
    courses. To increase the accountability of its senior officials, FSA
    changed from a pass-fail to multilevel performance appraisal systems and
    emphasized achievement of individual goals in their performance
    agreements. FSA also changed the criteria for awarding bonuses to its
    senior officials. However, none of those we asked could explain the new
    criteria.

    We are making several recommendations to the Secretary of Education and
    FSA's Chief Operating Officer that would allow the agency to better
    determine and communicate its progress in achieving its strategic
    objectives, strengthen efforts to improve program integrity, and improve
    the components of its human capital strategy.

    FSA's Chief Operating Officer provided written comments on a draft of this
    report. In commenting on the draft, FSA generally agreed with our findings
    and recommendations. Copies of the written comments are in appendix IV.

    FSA manages and administers student financial aid programs authorized
    under Title IV of the HEA, as amended. These programs include the William
    D. Ford Federal Direct Loan Program (Direct Loans), the Federal Family
    Education Loan Program (FFEL), the Federal Pell Grant Program (Pell
    Grants), and campus-based programs.6 The student aid environment is
    complex and involves a large number of parties. In 2003, about 6,600
    schools, 3,700 lenders, and 36 guaranty agencies participated in the Title
    IV student aid programs.7 Additionally, there are numerous information

    6FSA and postsecondary institutions jointly administer campus-based
    programs, which include the Federal Work-Study Program, the Federal
    Perkins Loan Program, and the Federal Supplemental Educational Opportunity
    Grant Program.

    7State and private nonprofit guaranty agencies provide a variety of
    services, including payment of defaulted loans, collection of some
    defaulted loans, default avoidance activities, and counseling to schools
    and students.

      Background

    systems, federal financial requirements, programmatic regulations, and
    human capital issues that also affect the delivery of student financial
    aid.

    For many years, the Department of Education designed technology systems
    and processes to accommodate each financial aid program as it was
    developed. As the demand for the programs grew, so did the number of
    systems needed to support institutional participation, student eligibility
    determination, aid disbursement, operational accounting, and financial
    record keeping for the many disparate programs involved. After 30 years of
    such practices, the department was left with stand-alone information
    systems and separate delivery processes that were not integrated with one
    another. Consequently, student aid delivery became replete with redundant
    data, rising costs, complex rules, and inefficiency for everyone involved.
    The process to gain access to student financial aid programs required
    users, such as an educational institution's financial aid or accounting
    staff, to continually log in and out of different systems for related aid
    information on students for each program. Accessing the student
    information for each FSA program often required the use of different
    school identifiers and passwords, and users often did not have the ability
    to retrieve necessary information when they did gain access. We previously
    reported that the problem of not having access to current, accurate
    information sometimes led to loans and grants being improperly awarded.8
    In 1999 FSA began implementing a strategy to integrate its many disparate
    systems.

    In response to the growing complexity, increasing demand, and the
    likelihood for fraud, waste, and abuse associated with the student aid
    programs, the Congress established FSA as the government's first PBO in
    October 1998.9 As defined in the legislation, the specific purposes of the
    PBO are to

    o  improve service in the student financial assistance programs;

    o  reduce costs of administering the programs;

    o  increase accountability of officials;

    o  provide greater flexibility in management;

    8GAO, Student Financial Aid: Data Not Fully Utilized to Identify
    Inappropriately Awarded Loans and Grants, GAO/HEHS-95-89 (Washington,
    D.C.: July 1995).

    9The U.S. Patent and Trademark Office was established as a PBO in March
    2000, and the Federal Aviation Administration's Air Traffic Organization
    was established as PBO in December 2000.

    o  integrate information systems;

    o  implement an open, common, integrated delivery system; and

    o  	develop and maintain a financial aid system containing complete,
    accurate, and timely data to ensure program integrity.

    FSA's enabling legislation also established several requirements and
    provided certain flexibilities. These requirements included the
    appointment of a chief operating officer (COO), the establishment of a
    fair and equitable system for measuring staff performance, and the
    development of annual performance agreements for the COO and other senior
    managers. In exchange for increased accountability, the legislation allows
    for the payment of performance bonuses to the COO and senior managers
    hired under the excepted service hiring authority, and the law allows FSA
    to hire an unlimited number of Senior Executive Service (SES) personnel
    and a limited number of excepted service technical/professional staff.

    Additionally, the law established several annual reporting requirements to
    inform the Congress and the public of the progress that FSA was making
    toward achieving its intended purposes and goals. Specifically, among
    other things, FSA must (1) develop and publicly release each year a 5-year
    performance plan that includes measurable goals and objectives as well as
    the action steps necessary to achieve a modernized student financial
    assistance delivery system and (2) provide an annual report to the
    Congress that describes the results achieved relative to its goals and
    objectives. The annual performance report must include (1) a copy of the
    current year's independent financial audit report; (2) a discussion of
    financial and performance requirements applicable to the PBO under the CFO
    Act and GPRA, (3) results achieved in the previous year; (4) evaluation
    ratings of the COO and senior managers, including the amounts of bonus
    compensation awarded to these individuals; (5) recommendations for
    legislative and regulatory changes; and (6) other such information
    required by the Director of the Office of Management and Budget (OMB). The
    planning and reporting requirements are consistent with federal reform
    laws, such as the CFO Act, GPRA, Federal Managers' Financial Integrity Act
    (FMFIA), Federal Financial Management Improvement Act (FFMIA), and others
    intended to reshape the way government conducts its business.

    FSA's budget supports its staff, contractors, and day-to-day operations.
    In fiscal year 2004, FSA's operating budget was $621 million.10 FSA worked
    with about 3,800 contractors and employed about 1,100 staff. As of June
    2004, FSA had 10 organizational units at its headquarters in Washington,
    D.C., and some of these units also have regional offices in 10 states
    nationwide. Figure 1 illustrates the organizational structure of its
    headquarters office.

               Figure 1: Organizational Structure of Federal Student Aid

    Source: FSA human capital documents.

    aThe FSA Ombudsman informally resolves complaints from student loan
    borrowers and makes recommendations for improving service within FSA.

    bResponsibilities of Financial Partners Services include providing
    business services, support, and oversight to lenders and guaranty
    agencies.

    cWorkforce Support Services is referred to hereafter as human capital.

    Federal agencies, including FSA, face human capital challenges.
    Recognizing this, in 2001 GAO designated strategic human capital
    management as a governmentwide high-risk area. With respect to FSA, we
    reported in 2002 that almost 40 percent of the agency's workforce was

    10 While FSA's operating budget was $621 million in 2004, its total
    program and operating budget, which includes $195 million in account
    maintenance fees for guaranty agencies and $226 million for loan
    consolidations and default collections, was approximately $1 billion.

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

    eligible for retirement.11 We also reported that the agency had
    experienced difficulty in reaching agreement with its union on a past
    human capital initiative.12 Additionally, we noted that particular
    attention was needed to address human capital planning, leadership
    continuity, and succession planning, as well as recruitment and
    development to meet organizational needs.

    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. Many of the changes made by FSA have been
    based on GAO recommendations. Of the 22 recommendations that GAO has made
    related to student financial aid since 2001, we determined that FSA has
    fully implemented 12, partially implemented 5, and is in the process of
    implementing 5 others. A listing of past GAO recommendations related to
    FSA and student financial aid and their status is contained in appendix
    II.

        FSA's Progress Varied by Key Area

    Financial Management and Internal Control

    FSA's progress varied by key area. FSA made significant progress in
    financial management and addressed several internal control weaknesses
    reported by us and outside auditors. FSA has completed several critical
    systems integration tasks but is not yet operating in a fully integrated
    environment. Also, FSA has taken some actions to improve program integrity
    and developed a model to calculate the cost of administering its programs.

    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

    11GAO, Federal Student Aid: Additional Management Improvements Would
    Clarify Strategic Direction and Enhance Accountability, GAO-02-255
    (Washington, D.C.: April 2002).

    12The American Federation of Government Employees, Council 252, represents
    all eligible employees of Education, including those in FSA.

    conditions,13 they did not identify any material internal control
    weaknesses14 in FSA's fiscal year 2003 audit. The two reportable
    conditions the auditors identified concern management controls surrounding
    the calculation and reporting of the loan liability activity and subsidy
    estimates and information systems controls. FSA has developed a corrective
    action plan to address these findings and is working to implement it.
    Also, FSA prepared its financial statements earlier than required in
    2003.15

    We determined that FSA has established processes to address several
    internal control weaknesses. Since we previously reported that internal
    control weaknesses made FSA vulnerable to improper payments in its grant
    and loan programs,16 FSA has taken steps to better ensure that Pell Grants
    are not issued to ineligible students. In fiscal year 2002, FSA
    implemented a process for verifying an applicant's age when the
    information indicated that the applicant was 75 or older and another
    process for identifying and investigating schools with high percentages of
    students with certain characteristics, such as older, noncitizen Pell
    Grant recipients. These reviews are used to identify problems such as
    eligibilityrelated violations or indications of possible fraudulent
    activities, which are referred to the OIG. In addition, since our finding
    that FSA did not correct Social Security numbers and dates of birth in all
    records, FSA has implemented its new loan origination and disbursement
    system, which automatically makes such changes to records in all systems.

    13Reportable conditions are matters coming to the auditor's attention
    relating to significant deficiencies in the design or operation of
    internal control that could adversely affect the entity's ability to
    record, process, summarize, and report financial data consistent with the
    assertions by management in the financial statements.

    14A material weakness is a reportable condition in which the design or
    operation of one or more of the internal control components does not
    reduce to a relatively low level the risk that errors or fraud in amounts
    that would be material in relation to the financial statements being
    audited may occur and not be detected within a timely period by employees
    in the normal course of their assigned duties.

    15Beginning with fiscal year 2004, FSA and other government agencies are
    required to produce audited financial statements within 45 days after the
    end of the fiscal year, compared with 120 days in the previous two fiscal
    years.

    16GAO, Financial Management: Poor Internal Controls Expose Department of
    Education to Improper Payments, GAO-01-1151 (Washington, D.C.: September
    2001) and GAO, Education Financial Management: Weak Internal Controls Led
    to Instances of Fraud and Other Improper Payments, GAO-02-406 (Washington,
    D.C.: March 2002).

                                  Systems Integration

    Independent auditors also reported in 2003 that Education's systems did
    not substantially comply with the Federal Financial Management Improvement
    Act's requirements.17 Because FSA's financial reporting relies on the
    department's systems, computer security weaknesses identified at Education
    also affect FSA. The auditors found that while the department had made
    progress in strengthening controls over information technology processes,
    computer security weaknesses still existed. However, the auditors also
    reported that these weaknesses were not material.

    FSA is continuing to take actions toward better integrating systems
    supporting its student financial aid programs. FSA's integration strategy
    focuses on achieving a seamless information exchange environment in which
    users-students, educational institutions, and lenders-would benefit from
    simplified access to the agency's financial aid processes and more
    consistent and accurate data across its programs. The strategy involves
    consolidating FSA's existing legacy systems, in which the functionality of
    certain systems would be incorporated into new or modernized systems and,
    in the long term, integrating systems and using electronic interfaces to
    facilitate data exchanges across systems.18

    Consistent with OMB guidelines,19 FSA has made progress toward
    establishing an enterprise architecture needed to guide its systems
    integration. An enterprise architecture provides a framework for
    developing and maintaining integrated information systems and establishes
    the rules and standards required for interrelated systems to work together
    efficiently and effectively. FSA has completed many of the required
    elements of its architecture, including the baseline and target
    architectures that, respectively, describe the agency's current and future
    information systems environments. In addition, FSA has named a permanent
    chief architect, with responsibility for overseeing its systems
    integration efforts.

    17FFMIA is intended to ensure that federal financial management systems
    can and do provide reliable, consistent financial data and that they do so
    on a basis that is uniform across the federal government using generally
    accepted accounting principles.

    18Functionality refers to the capabilities or behaviors of a program, part
    of a program, or system, seen as the sum of its features.

    19Office of Management and Budget, Management of Federal Information
    Resources, OMB Circular A-130 (November 30, 2000).

    FSA has also begun consolidating certain information systems, thus
    reducing the overall number of systems that it must rely on to administer
    its student financial aid programs. Over the past several years, the
    agency has retired 6 of 18 systems and incorporated their functionality
    into certain other systems. (Definitions for these systems are in app.
    III.) From 2002 to 2004, FSA retired 3 systems and incorporated their
    functionality into the Common Origination and Disbursement (COD) System.20
    COD supports a single process for delivering Direct Loan and Pell Grant
    aid to students and relies on middleware as a solution for exchanging data
    between incompatible systems while the agency works toward full
    integration.21 According to FSA, the consolidation of the three systems'
    functions into COD has improved the delivery of student aid by simplifying
    the process by which schools request, report, and reconcile federal Pell
    Grant and Direct Loan funds and by facilitating schools' submissions of
    student aid data through the use of a common student record. FSA also
    retired 3 systems that supported its financial activities, such as
    collecting on defaulted student loans, and incorporated these functions
    into its Financial Management System-creating a repository for the
    agency's financial information.22 FSA reported that these actions have
    helped improve financial decision-making and the ability to create
    financial reports for FSA, lenders, and guaranty agencies.

    Nonetheless, FSA remains several years from operating in a fully
    integrated information systems environment. While it has reduced the
    number of systems supporting its programs, FSA plans further actions to
    reengineer the agency's information processing environment. In this
    regard, FSA has begun three major systems integration initiatives, which
    it plans to complete by 2008:

    o  	Front-End Business Integration is planned to simplify and improve the
    front-end processes (for example, grant and loan originations) associated
    with FSA's student aid delivery services by integrating the information,

    20The three systems that FSA incorporated into COD were the Pell Grant
    Recipient Financial Management System, the Recipient Financial Management
    System, and the Direct Loan Origination System.

    21Middleware is a type of software that enables databases located on
    different systems to work together as if they all resided in a single
    database.

    22The three systems incorporated into FSA's Financial Management System
    were the Federal Family Education Loan System, the Financial Accounting
    and Reporting System, and the Central Data System.

    processes, and supporting systems that applicants, their parents, and
    others rely on in seeking financial aid.

    o  	Integrated Partner Management is planned to improve FSA's ability to
    reduce fraud and errors in its student aid programs by incorporating
    improved controls, such as common identifiers, system access information,
    and a single point of enrollment. The initiative is expected to reengineer
    or replace FSA's current database of entities, such as schools and lenders
    that participate in the student aid programs.

    o  	Common Services for Borrowers is planned to improve and simplify
    backend services related to the management of student aid obligations (for
    example, loan repayments) by combining the borrower-related functions of
    existing loan servicing systems into an integrated process.23

    FSA officials explained that, overall, the three integration initiatives
    are expected to streamline systems and operations through further
    consolidating common processing functions and interfacing systems that
    receive and process loan applications, monitor program participation, and
    track loan obligations. As an essential first step for sharing common
    financial aid data in the integrated environment, FSA is in the process of
    completing data standardization across its systems. In addition, the
    agency has begun hiring contractors to support the three integration
    initiatives. However, the agency has not yet fully defined the
    technological solutions for the initiatives-a step that is necessary to
    know what specific technology will be used to integrate the systems. FSA
    officials stated that the agency would rely on the supporting contractors
    to perform this crucial task.

    The agency also plans to define integration strategies that would enable
    existing financial management and other systems to share data with its
    integrated components.24 However, the technological solutions for
    accomplishing this have not been defined. FSA's approach for integrating
    its systems is depicted in figure 2.

    23The Common Services for Borrowers initiative is planned to be completed
    by 2006 and would combine the functionality of four systems-Debt
    Management and Collection System, Direct Loan Consolidation System, Direct
    Loan Servicing System, and Conditional Disability Discharge Tracking
    System.

    24The other systems include the Electronic Campus-Based System, the
    National Student Loan Data System, and the Ombudsman Call Tracking System.

    Figure 2: FSA's Approach for Integrating Its Information Systems

    Source: GAO analysis of FSA systems integration plan. aFSA anticipates
    completing the Common Services for Borrowers initiative in 2006.

    Until FSA achieves a fully integrated environment, it lacks assurance that
    it will realize greater efficiencies in sharing student financial aid
    information across its programs. Further, the agency cannot be assured
    that it will be able to provide sustained higher-quality information and
    enhanced services to students, parents, schools, and others.

    Program Integrity	In response to issues raised in past reports, FSA has
    taken several steps to improve program integrity, but FSA has no assurance
    that comprehensive compliance reviews are being performed properly or that
    the results are

    reliable.25 To improve the oversight of and assistance to foreign schools,
    FSA (1) added controls to verify the existence of foreign schools and
    their students, (2) hired a consultant to help determine how best to
    ensure accountability of foreign schools, and (3) started developing an
    online training program to help foreign school officials properly
    administer the program.26 Also, FSA has taken steps to help address
    concerns raised about students who have underreported family income on
    their student aid applications.27 FSA conducted studies with the Internal
    Revenue Service (IRS) to compare student and parent income on student aid
    applications with reported income on tax forms to determine the extent of
    over- and under-reporting of income in student applications. FSA also
    worked with OMB and the Department of the Treasury to draft legislation
    that would permit the IRS to disclose taxpayer information to Education.28
    Such legislation, if passed, would enable FSA to compare the income data
    on the financial aid applications with tax records to better ensure that
    only eligible students receive financial aid. According to agency
    officials, FSA has developed several approaches for implementing the
    comparison process in anticipation of passage of the legislation.

    Moreover, FSA has taken steps to enhance its student loan default
    management efforts. In 2003, FSA created a work group that identified over
    60 default prevention and management initiatives and a new organizational
    unit, Portfolio Risk Management, that focuses on mitigating and reducing
    the risk of loss to the taxpayer from student aid obligations. FSA also
    added information to its exit-counseling guide to help increase

    25According to FSA headquarters officials, a comprehensive compliance
    review involves looking at data about the school that are contained in
    FSA's databases, in the public domain, and in communications to FSA. It
    may include a visit to the school if warranted.

    26GAO, Student Loans and Foreign Schools: Assessing Risk Could Help
    Education Reduce Program Vulnerability, GAO-03-647 (Washington, D.C.: July
    2003); GAO, Department of Education: Guaranteed Student Loan Program
    Vulnerabilities, GAO-03-268R (Washington, D.C.: November 2002).

    27GAO, Taxpayer Information: Increased Sharing and Verifying of
    Information Could Improve Education's Award Decisions, GAO-03-821
    (Washington, D.C.: July 2003); GAO, Benefit and Loan Programs: Improved
    Data Sharing Could Enhance Program Integrity, GAO/HEHS-00-119 (Washington,
    D.C.: September 2000); and OIG, Department of Education, Accuracy of
    Student Aid Awards Can Be Improved by Obtaining Income Data from the
    Internal Revenue Service, ACN: 11-5001 (Washington, D.C.: January 29,
    1997).

    28This bill, entitled Student Aid Streamlined Disclosure Act of 2003, H.R.
    3613, was referred to the House Committee on Ways and Means on November
    21, 2003.

    borrowers' awareness of the benefits of repaying their loans through
    electronic debiting accounts and prepayment options.29

    In its 2003 annual performance report, FSA stated that it had completed
    several reviews to enhance the integrity of its programs. Among other
    things, FSA reported that the agency had monitored 40 percent of all
    participating schools through comprehensive compliance reviews. According
    to FSA headquarters officials, a comprehensive compliance review is
    triggered by specific events, such as compliance deficiencies identified
    during independent audits, financial statements that do not conform to
    accepted accounting standards, schools applying for initial eligibility or
    renewing their eligibility, or schools changing ownership or merging. FSA
    officials stated that these reviews could result in a decision to perform
    a more in-depth on-site review. FSA officials explained that during
    comprehensive compliance reviews, regional teams are to review all
    available data about that school in addition to addressing the triggering
    event. However, FSA officials could not provide us written documents
    defining a comprehensive compliance review or guidance on how teams are to
    perform these reviews. Without such documentation and guidance, FSA has no
    assurance that regional teams are properly performing these reviews, the
    results are reliable, or the related decisions are appropriate.

    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. FSA's proposed ABC
    model is intended to produce information on the full cost of administering
    federal student aid programs to help manage costs and measure performance.
    The model as designed will enable FSA to comply with federal managerial
    cost-accounting standards.30 When fully implemented, the proposed ABC
    model should facilitate progress toward meeting FSA's goal of identifying
    the full cost of its separate activities and determining the change in
    such costs over time. For example, using this model, FSA would be able to
    compare the changes in costs for using Free

    Cost of Administering FSA's Programs

    29FSA's Exit Counseling Guide for Direct Loan Borrowers provides
    information for borrowers no longer in school on repaying their federal
    student loans.

    30Federal Accounting Standards Advisory Board, Statements of Federal
    Financial Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting
    Concepts and Standards for the Federal Government. (July 31, 1995).

    Application for Federal Student Aid (FAFSA) on the Web to the use of paper
    financial aid applications. Figure 3 summarizes FSA's model.

    Figure 3. FSA's Activity-Based Cost Model

    Source: Office of Federal Student Aid.

    aFSA interviewed and surveyed staff to obtain information on activities
    and their costs.

    bOther systems include those related to student financial aid programs
    such as the Debt Management and Collections System.

    However, FSA's proposed ABC model was not fully operational as of July
    2004. FSA has completed the initial design of the ABC model and has

    partially tested it using financial and nonfinancial workload data for
    fiscal years 2002 and 2003. During the test of the model using fiscal year
    2002 data, FSA identified costs of more than $24.8 million that could not
    be assigned to a specific activity because insufficient information was
    known about these costs. Further, FSA had not fully reconciled the fiscal
    year 2002 costs used to test the model to total cost amounts reported in
    its audited financial statements. In March 2004 FSA staff advised us that
    they plan to address both of these issues. In July 2004 FSA officials
    updated us on the status of their implementation efforts. FSA staff
    advised us that they had further tested the model using fiscal year 2003
    data, including fully reconciling the fiscal year 2003 costs in the model
    to amounts reported in its audited financial statements. Further, FSA
    officials advised us that all fiscal year 2003 costs could be assigned to
    activities, and that they plan to use the knowledge gained from this
    effort to revisit and resolve the issues outstanding from the tests using
    fiscal year 2002 data. FSA officials told us that FSA plans to complete
    testing its model and have it fully operational by spring 2005. When its
    cost model is fully operational, FSA plans to use the results to drive
    changes in how it does business, such as identifying targets for business
    process improvements and comparing resource allocations with results. FSA
    also expects to be able to measure changes in the cost of its program
    activities over time. 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.

        FSA Has Not Completely Fulfilled Its Planning and Reporting
        Responsibilities

    The HEA requires FSA to develop a 5-year performance plan annually, and
    FSA issued its first one in June 2004. This plan covers fiscal years
    20042008 and contains five strategic goals referred to by FSA as strategic
    objectives: (1) integrating FSA systems and providing new technology
    solutions, (2) improving program integrity, (3) reducing program
    administration costs, (4) improving human capital management, and (5)
    improving products and services to provide better customer service. While
    FSA's 5-year performance plan provides a general discussion of each
    objective, it lacks measures for later determining the extent to which the
    objectives have been met. Furthermore, FSA's plan identifies a number of
    action steps, referred to as tactical goals by FSA. These steps, however,
    are not directly linked to a specific strategic objective, and some do not
    contain specific performance measures that can be used to assess progress
    over time. For example, FSA's 5-year performance plan describes the
    establishment of an office to serve as the central point of contact for
    all FSA projects and provides a general discussion of the office's purpose
    and activities. However, this action step is not linked to a particular

    strategic objective and does not include any measures or targets for
    assessing future progress.

    FSA's 2004 annual plan does not fully complement its 5-year performance
    plan. FSA's annual plan lists annual goals, referred to as action items
    and success measures, but the success measures do not provide a means for
    assessing performance toward achieving longer-term strategic objectives.
    As shown in figure 4, an X in one or more related columns in the annual
    plan indicates which strategic objective or objectives the annual goal
    supports, but it does not indicate how achievement of the annual goal will
    result in progress toward the strategic objective or objectives. In
    addition, in reviewing the 2004 plan, we found that the annual plan
    contained six strategic objectives, while the 5-year performance plan for
    fiscal years 2004-2008 contained five.31 According to FSA officials, the
    sixth goal was identified while the 5-year performance plan was going
    through the review process. FSA did not add the sixth goal to this plan
    before it was finalized because it did not want to delay the plan's
    issuance. However, FSA officials said that they would add it to the
    2005-2009 performance plan.

    31The sixth goal is to "deliver student aid effectively and accurately."
    FSA officials could not describe this goal beyond what is contained in the
    title heading of the table.

    Figure 4: Illustration of a Segment of FSA's Annual Plan

              Source: GAO analysis of FSA's fiscal year 2004 annual plan.

    FSA's annual performance report for fiscal year 2003 does not conform to
    the requirements of HEA or GPRA.32 FSA is to issue an annual performance
    report that includes an evaluation of the extent to which the agency met
    the strategic objectives established in its prior year's 5-year
    performance plan. 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. The report also provides a general discussion of its
    accomplishments under each strategic objective.

    However, the performance report does not include measures or trend data by
    which the Congress could clearly see the extent of FSA's progress,
    because, as previously noted, the annual plans did not provide a means for
    assessing performance toward achieving strategic objectives. For example,
    under its objective to improve program integrity, FSA describes the Late
    Stage Delinquency Assistance Program as an initiative to mitigate
    potential defaults in the Direct Loan Program by eliciting assistance from
    schools in locating and contacting borrowers prior to default. The report
    states that initial results are promising but does not provide a measure
    of the extent to which this effort contributes to the overall program
    integrity objective or the extent of the agency's progress in meeting this
    strategic objective. Further, the report does not include all required
    information regarding the COO and senior officials. The report summarizes
    the bonus amounts paid but does not include performance-rating information
    for the COO and senior officials, as required.

    32The HEA requires that the annual report include, among other things,
    financial and performance requirements applicable to the PBO under the
    Chief Financial Officer Act of 1990 and the Government Performance and
    Results Act of 1993, results achieved in the previous year, and
    evaluations ratings and the amounts awarded as bonuses to the COO and
    senior managers.

      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, FSA's draft
    succession plan identifies the staff that are eligible to retire in the
    next few years, but the plan relies heavily on redistributing workloads to
    other employees, and none of the strategy's other components described how
    these individuals would be trained to fulfill these duties. FSA has taken
    added steps to increase accountability for senior officials, such as
    holding them responsible for achieving individual goals specified in
    annual agreements and changing the way bonuses are awarded. However, we
    found that the new criteria for awarding bonuses for senior officials was
    unclear and could undermine other efforts to increase accountability, such
    as making greater distinctions in performance by using a new performance
    management system.

        FSA Has Developed a Human Capital Strategy, but Some of its Components Have
        Weaknesses

    FSA has undertaken steps to develop a comprehensive human capital strategy
    in part because of issues raised in our previous reports; however, we
    found weaknesses with some of the strategy's components.33 FSA officials
    told us that they worked in collaboration with an organization that
    specializes in government workforce issues to develop a document that
    summarizes the various components of its human capital strategy. 34 Agency
    officials provided us with a copy of its final human capital plan at the
    end of July 2004. Our work and guidance in this area indicates that in
    developing a human capital strategy, leading agencies identify talent at
    all levels of the organization, emphasize developmental projects for
    staff, address human capital challenges specific to the organization, and
    facilitate broader transformation efforts, such as training, to address
    organizational needs that position the organization to meet its future
    challenges.35 FSA's human capital plan indicates that the agency has
    strategies that include many of these practices. For example, the plan

    33In 2002 we recommended that FSA develop and implement a comprehensive
    human capital strategy that incorporates succession planning and addresses
    staff development; and since 2001, we have reported that human capital
    management was a challenge facing FSA and agencies governmentwide.

    34The Partnership for Public Service is a nonprofit organization that
    works to revitalize interest in public service through educational
    outreach, research, legislative advocacy, and hands-on partnerships with
    agencies on workforce management issues.

    35GAO, Human Capital: Insights for U.S. Agencies from Other Countries'
    Succession Planning and Management Initiatives, GAO-03-914, (Washington,
    D.C.: September 2003).

    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's
    succession plan identifies likely retirements but relies on a shortterm
    solution-shifting duties to other staff. As for one of its components used
    to develop staff skills, the learning coupon staff can use for external
    training, FSA has not established a method to fully evaluate its
    usefulness. Also, FSA's realignment plan may be delayed because the agency
    has not reached agreement on its implementation with union officials.
    Table 1 lists and briefly describes the five key components of FSA's human
    capital strategy.

    Table 1: Components of FSA's Human Capital Strategy

    Component name Description of component

    Succession plan 	An approach for identifying, training, and transitioning
    future leaders into roles without impairing business objectives

    Staff realignment project 	A proposal to reorganize the workforce that
    includes targeted voluntary early retirements and separation incentive
    payments

    Skills Catalog An inventory of required skills for FSA positions

    Online learning tools and training resources

    Learning tracks

    o  	Web-based curriculum that supports a set of competencies needed to
    perform a specific job

    Career Zone

    o  	An office that manages internal training courses and provides
    counseling to staff to help them match individual skills and career
    planning with organizational priorities

    Learning coupon

    o  $500 benefit for external training courses

    Recruitment plan Methods for recruiting, hiring, and retaining staff

    Source: GAO analysis of 2004 FSA draft human capital plan and other FSA
    materials.

    Furthermore, FSA does not maintain an information system to track staff
    development-a critical piece in strategic workforce planning. According to
    agency officials, FSA staff members have access to a number of standalone
    human capital information systems, including one housed at the department
    that contains data on training courses taken by staff. However, an
    official described this system as outdated and said that it did not allow

                                    Succession Plan

    staff to create individual development plans or provide data that managers
    needed for other agency planning efforts, such as its succession plan. Our
    previous studies indicate that information systems play a critical role in
    workforce planning. Valid and reliable data on knowledge and skills of
    staff are critical to assessing an agency's current and future workforce
    gaps. With such data, agencies can minimize these gaps and better manage
    risk by allowing managers to spotlight areas for attention and take
    appropriate actions before crises develop. A senior official agreed that
    the agency does not have systems that allow the agency to track staff
    development but also said that an independent system was not a good
    investment because of the ongoing efforts by Education to procure a
    departmentwide human capital management system.

    FSA prepared a draft succession plan that addresses, in part, the concerns
    we raised in 2002 about the pending retirement of senior employees in key
    positions across the agency.36 This draft plan identified almost 250
    employees from across the agency that are likely to retire between 2003
    and 2006, about 22 percent of the agency's workforce. Also, the plan
    designated 167 of the positions as critical positions that help FSA
    achieve its organizational goals and identified 31 positions as "hard to
    fill" because specific skills and program knowledge are required to
    perform the duties related to these positions. When these hard-to-fill
    positions become vacant, FSA plans to fill one-third of the positions
    through internal hiring; one vacancy will be filled through a mentoring
    opportunity.

    However, the succession plan did not include information about all
    positions and relied on short-term solutions. The plan did not include any
    information for 12 positions, 10 of which are in regional offices and
    include responsibility for oversight of lenders, banks, and guaranty
    agencies. Moreover, according to the plan, FSA will redistribute the
    workload to existing staff for 140 of the 247 positions but the strategy's
    components do not discuss how the agency will use developmental projects
    or training to prepare these staff to assume these duties. We previously
    reported that training and developing new and current staff to fill new
    roles and work in different ways would be a crucial part of the federal
    government's endeavors to meet future challenges.37 Agency officials
    acknowledge that this is a short-term approach but stated that it

    36GAO-02-255.

    37GAO, Guide for Assessing Strategic Training and Development Efforts in
    the Federal Government, GAO-04-546G (Washington, D.C.: March 2004).

    Staff Realignment and Early Out Proposals

    will allow them time to consider the full range of options to best
    position its resources while getting the job done. Our work and guidance
    in this area indicates that leading organizations develop succession plans
    that strategically focus on both the organization's current and future
    capacity. Leading organizations are shifting from a short-term replacement
    approach that identifies individuals for a specific vacancy to a strategic
    approach that identifies and develops high-potential individuals. Using
    certain approaches, such as shifting duties from retired staff to those
    who remain-even in the short term-may put the agency at risk because staff
    may not be prepared to adequately fulfill new duties. As a result,
    essential functions of the agency may suffer.

    FSA's human capital strategy includes proposals to realign its workforce
    and offer early out packages to staff, but as of August 2004, the union
    had not agreed to either proposal. The realignment proposal would affect
    the Application, School Eligibility, and Delivery Unit (ASEDS), which has
    more than 530 employees-nearly half of the agency. This proposal states,
    among other things, that FSA would eliminate the office responsible for
    providing specific, program-related training for schools participating in
    the Direct Loan program because it has decided to adopt an approach that
    supports all schools and all student aid programs. As a result of the
    realignment, some staff from this office will be reassigned to other
    units, as needed. For other staff, the proposal states that because they
    have skills that no longer align with the agency's needs, it would be more
    costeffective for the organization to offer "early out packages" than to
    engage in an extensive retraining effort. FSA's second proposal, which is
    related to but not dependent on the implementation of the realignment
    proposal, would allow some employees to retire early or receive voluntary
    separation payments.38 The early out packages are intended to provide the
    agency with greater flexibility in managing its workforce and recruiting
    workers with needed skills. This proposal states that using this approach,
    vacancies will be created that will allow FSA to hire individuals that
    possess the requisite skills.

    38Early retirement for federal employees was first authorized under P.L.
    93-39 in 1973 and clarified through subsequent legislation detailing
    eligibility criteria in P.L. 105-174. The purpose of the legislation was
    to provide agencies with a tool to minimize the involuntary separation of
    employees in major periods of downsizing by qualifying for early
    retirement. Voluntary incentive separation payments were authorized
    through P.L. 104-208 and provide agencies with the authority to make
    lump-sum payments of no more than $25,000 to eligible employees who
    voluntarily agree to resign, retire, or retire under voluntary early
    retirements.

                                     Skills Catalog

    However, FSA and union officials had not reached agreement on the
    realignment proposal and had yet to begin discussions on its early out
    proposal. According to an agency official, the realignment proposal was
    developed over a 6-month period. At the end of May 2004, after the
    Secretary of Education gave his approval, FSA submitted the realignment
    proposal to the union. The collective bargaining agreement between FSA and
    its union states that the union should have the opportunity to review
    actions affecting any aspect of employee working conditions, including
    those related to training, development, and appraisals. This agreement
    requires FSA to share proposals with the union after receiving approval by
    the department-which it did. An agency official told us that FSA had not
    received input from labor union officials on the agency's proposed
    realignment and that union officials had requested additional information
    before agreeing to meet with FSA officials to discuss the proposal. As of
    August 2004, FSA had informed the union that it had met its collective
    bargaining obligations and would proceed with the implementation of the
    realignment proposal during September 2004. As for the early out proposal,
    FSA officials told us that it received approval from the Secretary in
    early June, and by the month's close he requested authority from Office of
    Personnel Management (OPM) to offer early out packages (i.e., early
    retirement options and voluntary separation buyouts). FSA has informed the
    union of this proposal and indicated that it would wait until OPM granted
    approval before entering into collective bargaining with the union. As of
    August 2004, FSA had not received approval from OPM for the early out
    packages.

    In an effort to identify the skills and competencies required to perform
    at all levels of the agency, FSA revised its Skills Catalog, which should
    enable staff to independently plan their professional development. The
    catalog was originally created in 2000 and was revised based on a series
    of interviews with senior managers and subject matter experts throughout
    the agency. Its purposes are to (1) provide a common tool for management
    and staff to set expectations, (2) help employees identify opportunities
    for development through courses offered externally or by FSA, and (3)
    assist managers in future workforce planning efforts. FSA's 5-year plan
    indicates that one potential use of the Skills Catalog would be to
    identify gaps in critical competencies and provide employees with
    information on when and where additional training and development are
    needed. We previously reported that effective training and development
    programs are an integral part of a learning environment that can enhance
    the federal government's

    ability to attract and retain employees with the skills and competencies
    needed to achieve results.39 FSA encouraged its employees to think of the
    catalog as a restaurant menu through which they would place an order to
    address their individual development needs and contribute to the agency's
    objectives. In addition to listing a set of core competencies that every
    FSA employee is expected to demonstrate,40 the catalog defines three
    competency areas for each organizational unit consisting of functions,
    skills, and knowledge. FSA has developed draft competencies for all units.
    For example, selected competencies listed in the Skills Catalog for staff
    in the office of the Chief Financial Officer are summarized in Figure 5.

    39GAO-04-546G.

    40For example, personnel in managerial, leadership, and other positions,
    such as team leaders or project managers, are expected to demonstrate core
    managerial skills and knowledge including business acumen, employee
    development and empowerment, financial management, knowledge sharing,
    problem solving and decisionmaking, program and project management, and
    team building.

    Figure 5: Selections from FSA's Skills Catalog: FSA's Office of the Chief
    Financial Officer

                               FSA-wide core competencies

                                    Business ethics
                          Continuous learning and improvement
                                    Customer service
                                 FSA business knowledge
                                Time and task management
                                  Results orientation
                                  Interpersonal skills
                             Oral and written communication
                                  Technology literacy

                                Chief Financial Officer

    Online Learning Tools and Training Resources

    Source: FSA Skills Catalog, Summer 2004 (draft).

    FSA introduced online learning tools as an added resource for some staff
    who are responsible for providing oversight and determining eligibility of
    schools. FSA developed unit-specific online tools, called learning tracks,
    designed to improve the skills needed to perform everyday tasks. FSA
    created five online tools in fiscal year 2003, and agency officials told
    us that they plan to introduce more online tools by fiscal year 2005 that
    further address organizational needs, such as tools to enhance
    communication and supervisory skills. An FSA official said that the
    development of these online tools would be a key part in the agency's
    efforts to strengthen program integrity. According to a draft document on
    the tools, the development of learning tracks would shift the agency away
    from developing an entire agencywide curriculum based on particular
    position descriptions and toward developing resources for specific
    on-thejob skills. Officials told us that learning tracks have been
    introduced to divisions in ASEDS that perform case management and
    oversight and determine school eligibility. These learning tracks target
    the development of skills, such as data analysis and comprehension,
    leadership, and critical thinking.

    Also, FSA continued to support internal and external training
    opportunities. FSA offered a wide variety of courses internally through
    its

    Career Zone. In 2003 FSA expanded this office, and contracted services
    from two full-time career counselors who began providing individualized
    career counseling sessions and career development courses. FSA also
    continued to offer its staff a $500 learning coupon, to pay for technical
    and work-related external training courses. Officials told us that the
    coupon was part of an effort to enable employees to take a proactive
    approach to planning their professional development. Around 40 percent of
    FSA's staff used the learning coupon during fiscal years 2003 and 2004,
    although the agency had allocated sufficient funds to provide this benefit
    for up to 50 percent of the staff. While the agency has surveyed staff
    that used the learning coupon, officials told us that they were not
    certain why more staff did not use it.41 Our work in this area shows that
    evaluation is an integral part of planning that allows agencies to build
    upon lessons learned and improve performance. Because the agency has
    surveyed only coupon users, officials cannot be assured that the learning
    coupon is an effective tool for helping staff develop their skills or that
    these funds are being budgeted for likely needs. Officials indicated that
    they had plans to broaden their efforts to survey all staff to better
    understand perceptions about the coupon.

    Recruitment	To fill vacancies, FSA plans to use a variety of techniques
    and to recruit nationwide, governmentwide, and internally. FSA also plans
    to recruit interns and subsequently offer, to those who perform well,
    permanent positions. In addition, FSA will continue to use the
    flexibilities allowed in the HEA for hiring senior executives and
    technical staff. According to the plan, FSA will use these flexibilities
    to address critical agency needs such as in the information technology
    area.

    41In 2004, agency officials surveyed learning coupon users to determine
    both user satisfaction and the effectiveness of the coupon.

      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.42 FSA modified its performance
    measurement system, emphasized individual achievement of goals, and
    provided bonuses based on individual performance. However, we found that
    the criteria for awarding bonuses to senior officials were not clear.

    Beginning in 2001, as a result of a departmentwide initiative, FSA adopted
    new performance appraisal systems for all of its employees, including its
    SES members and senior managers, to provide the agency with the ability to
    make greater distinctions in performance.43 Before the new systems were
    adopted, all department employees were evaluated on a pass-fail basis. The
    new system for SES uses three performance levels, while the new system for
    senior managers and others uses five performance levels.44 Our body of
    work in this area suggests that effective performance management systems
    allow organizations to make meaningful distinctions in performance.45 By
    utilizing multiple performance categories, FSA has improved its ability to
    make distinctions in performance among its senior officials and increase
    accountability.

    The 2003 performance agreements we reviewed for both types of senior
    officials-SES and senior managers-emphasized individual achievement of
    goals. Prior to 2003, performance agreements specified (1) how a senior
    official's performance would be evaluated; (2) individual projects and
    activities to be performed by the official; and (3) six organizational, or
    "cross-cutting," goals to which all senior officials were expected to
    contribute.46 For the 2003 performance period, SES agreements for senior

    42Our analysis included those senior officials that served on the FSA
    Management Council and reported directly to the agency's Chief Operating
    Officer.

    43These systems are known as the Education Department Performance
    Appraisal System (EDPAS) and Senior Executive Performance Management
    System (SEPMS). EDPAS is for managers and staff. SEPMS is for all SES
    employees hired under the flexible hiring authority under the HEA.

    44The three performance levels are unsatisfactory, minimally satisfactory,
    and successful, and the five performance levels are unacceptable,
    minimally successful, successful, highly successful, and outstanding.

    45GAO, Human Capital: Senior Executive Performance Management Can Be
    Significantly Strengthened to Achieve Results, GAO-04-614 (Washington,
    D.C.: May 2004).

    46These goals were (a) leaving the GAO high risk list, (b) achieving a
    default recovery rate of 7.2%, (c) limiting Pell Grant overpayments to
    $138 million, (d) making timely reconciliations to the general ledger, (e)
    improving customer service, and (f) completing all FSA system integration
    targets.

    officials included three performance element groups: (1) leadership,
    management, and coaching; (2) work quality, productivity, and customer
    service; and (3) organizational priorities/job specifics. For each senior
    official at FSA, the organizational priorities/job specifics performance
    element primarily consisted of unique individual goals for which the
    official has responsibility and for which he or she is held accountable.
    However, FSA's emphasis on individual goals still included the use of
    organizational, or cross-cutting, goals-only to a lesser extent. But we
    also found that the use of such goals has become more strategic. FSA's
    fiscal year 2003 annual plan contained at least four such cross-cutting
    goals, including goals to implement a data strategy and enhance program
    monitoring and oversight. Having performance agreements that consist of
    both job-specific individual and cross-cutting organizational goals
    reinforces accountability for both individual and organizational success.
    We view the use of collaborative efforts as a key practice in achieving
    results. Figure 6 illustrates the change from organizational goals used in
    the fiscal year 2002 performance agreements to individual goals in FSA's
    2003 performance agreements.

    The HEA specifies that performance agreements should reflect the
    organization's measurable performance goals. However, not all individual
    goals in the performance agreements we reviewed were aligned with FSA's
    annual plan.47 We were provided the 2003 performance agreements for 11
    senior officials and found that 6 of them had goals that were not included
    in FSA's 2003 annual plan.48 According to FSA officials, some of these
    individuals were serving in acting capacities and would not have
    performance agreements that directly conformed to the organization's
    annual plan until they assumed the jobs permanently. Additionally, FSA
    officials stated that many of the goals for these 6 senior officials were
    not included in the fiscal year 2003 annual plan because the plan did not
    include daily operational activities. For instance, the duties of the
    Ombudsman were not included in the fiscal year 2003 annual plan. The
    Ombudsman's agreement required that official to identify regulatory
    limitations that may serve as the basis for borrower complaints and to
    meet statutory mandates for distributing public information, among other
    things. Other senior officials had daily operational activities included
    in their performance agreements, such as (1) ensure that all FSA contracts
    support the core operation and support functions required to implement the
    agency's organizational strategy, and (2) acquire knowledge of all
    collection group activities, including information systems and staff
    duties. According to agency officials, FSA has changed its approach for
    constructing its annual plan and included daily operational activities as
    well as the top organizational priorities in its fiscal year 2004 plan.

    FSA also changed the way bonuses are awarded to senior officials to
    emphasize individual performance, but the criteria used to make these
    decisions are not readily apparent. In previous years, bonuses were
    awarded to senior officials based in equal parts on a manager's overall
    contributions to the organization and achievement of the organizational
    goals. Beginning in fiscal year 2003, FSA's COO took steps to modify this
    practice by basing performance awards on the achievement of goals

    47Attached to each senior official's performance agreement is FSA's 2003
    Annual Planning Matrix. Agency officials told us that this internal
    document is equivalent to the agency's annual plan for the same fiscal
    year and includes additional goals scheduled for action but not funded.
    The published fiscal year 2003 annual plan, on the other hand, includes
    only those goals that were funded. For the purposes of this review, we
    looked at those goals under the performance elements "organizational
    priorities/job specifics" that most closely relate to the agency's annual
    plan.

    48These 11 officials included 4 who were members of the FSA Management
    Council in 2002 and continued in 2003, and 7 more who began their service
    on the council in 2003.

    related to each official's area of responsibility. According to the COO,
    this approach better ensures that only officials who have achieved goals
    important to the organization receive bonuses. Under the previous system,
    a manager that accomplished some, but not all, of his or her goals could
    still receive a bonus if the organization as a whole was successful. The
    COO told us that this arrangement had a crippling effect on accountability
    in the organization. By making officials accountable for individual goals,
    FSA can reward individuals that are successful even when the organization
    as a whole is not. We were also told that under the new system for
    awarding bonuses, the COO could make distinctions based on the level of
    responsibility carried by managers-those who accomplish tasks that
    diminish the risks and challenges faced by FSA could receive bigger
    bonuses than those who perform equally well but are in jobs that are
    considered less demanding. For example, it is possible for a manager who
    is responsible for systems integration to receive a larger bonus than a
    manager of an area deemed less critical, even if both received the same
    rating.

    However, FSA has not established or communicated its criteria for awarding
    bonuses, which has the potential to undermine its other efforts to
    increase accountability of officials. Under the previous system, the
    criteria were articulated in managers' performance agreements.
    Specifically, the agreements stated that 50 percent of the bonuses would
    be determined based on a manger's overall contributions to the
    organization and the other 50 percent would be determined based on whether
    the agency as a whole was successful. The new agreements do not include
    such information. When we asked some senior officials to explain the
    criteria to us or provide related documentation, we were referred to the
    COO. The COO discussed the criteria and noted that the process for
    awarding bonuses was still under review. However, we were told that every
    manager was familiar with the process. The COO also stated that the final
    determination of whether or not a manager received a bonus was at the
    COO's discretion. Furthermore, responsible agency officials provided us
    with inconsistent information as to which senior officials received
    bonuses. Although the agency has taken additional steps to increase the
    accountability of its officials, the lack of clear criteria and
    transparency in the process for awarding performance bonuses could
    undermine the other efforts to increase accountability, such as using a
    system with three performance levels to evaluate and distinguish
    performance. Part of fostering a results-oriented culture requires having
    a process for making awards for contributions to the organization in a way
    that is consistent, reliable, and transparent.

    Conclusions

    FSA has devoted substantial time and resources to addressing management
    weaknesses and has made significant progress in some areas. However, FSA
    has not fully addressed all requirements established by the Congress when
    it created FSA as a PBO, or all concerns raised by others and us, and
    therefore, FSA needs to continue its efforts to improve its operations.
    Further, systems integration projects will continue for several years, and
    new challenges that could require different efforts and approaches to
    ensure program integrity may emerge.

    FSA has taken steps to enhance the integrity of its programs and reported
    that its comprehensive compliance reviews were a significant part of this
    effort. However, FSA does not have guidance for its review teams to direct
    them in performing these reviews. Therefore, FSA cannot be certain that
    these reviews are being done consistently and appropriately. Thus,
    problems at some schools may go undetected.

    While FSA has issued a 5-year performance plan, it has not fully met its
    planning and reporting responsibilities. FSA's plans and reports could be
    more clearly linked to facilitate review and determination of progress
    made. FSA's new 5-year performance plan is a good starting point for
    serving as the framework for setting agency goals and objectives and for
    preparing its annual plans and reports. But the action steps in the annual
    plan were not clearly linked to its strategic objectives in its 5-year
    performance plan and did not always include specific performance measures.
    As for its performance report, FSA did not include measures or trend data
    in the report as required. Without such information in the performance
    report, FSA has not clearly informed the Congress or the public about its
    progress toward achieving its purposes established by law.

    FSA has also made progress in addressing its human capital management
    challenges, but weaknesses remain. The succession plan did not identify
    developmental projects or training for staff that would assume the duties
    of those who retired. These staff may not be able to perform their new
    duties, and the agency may not have staff with needed skills in all
    positions. As a result, the agency's ability to continue to make progress
    and fulfill its mission in an effective and efficient way may be hindered.
    Further, although FSA has devoted funds for the use of learning coupons to
    support external training, it does not know why these coupons are
    underutilized because the agency has not surveyed all of its employees to
    ascertain their views about their usefulness. Systematic evaluation of
    human capital initiatives is an integral part of planning that allows
    agencies to improve and invest wisely. Without such evaluation, FSA may
    not be investing its resources wisely. If FSA has excess funds budgeted
    for

    Recommendations to the Secretary of Education

    o

    o

    o

    o

    o

      Agency Comments and Our Evaluation

    its learning coupons, funds may not be available to support other programs
    or agency projects.

    Further, although FSA has taken several steps to increase the
    accountability of its senior officials, the agency has not clearly
    communicated its criteria for awarding bonuses to senior officials. This
    lack of clear criteria for awarding bonuses could undermine its other
    efforts, such as its performance evaluation system, that have helped to
    foster a culture of accountability at FSA.

    We are making five recommendations to help FSA enhance its strategic
    planning and improve its human capital management planning. These
    recommendations will help FSA to fulfill its responsibilities under the
    HEA; strengthen efforts to protect its programs from fraud, waste, and
    abuse; or improve its human capital management initiatives.

    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.

    In written comments on a draft of this report, FSA generally agreed with
    our findings and recommendations. Specifically, FSA stated that it plans
    to or has taken steps to address four of the five recommendations made in

    this report. FSA stated that it is developing comprehensive guidance for
    conducting compliance reviews, creating appropriate measures or trend data
    in its 5-year plan, and revising individual performance plans to include
    an explanation of the awarding of any performance bonuses. FSA also said
    that it has revised its succession plan. However, we were not provided a
    copy of this plan. FSA did not specifically address the fifth
    recommendation-to enhance its evaluation of human capital initiatives such
    as the learning coupon-in its comments.

    In addition, FSA stated that it has made significant progress in the area
    of systems integration. We agree that FSA has taken important steps toward
    establishing the necessary technical infrastructure to support its system
    integration. However, as previously stated in the report, FSA does not
    plan to complete all three major initiatives that are essential to
    achieving full integration of the systems supporting its student financial
    aid programs until 2008. Thus, fully meeting the requirement to integrate
    its systems, as established in the Higher Education Act in 1998, remains
    several years away.

    FSA also provided technical corrections and comments that we incorporated
    where appropriate.

    We are sending copies of this report to the Secretary of Education, the
    Chief Operating Officer of Education's Office of Federal Student Aid, the
    Director of the Office of Management and Budget, and appropriate
    congressional committees. Copies will also be made available to other
    interested parties upon request. Additional copies can be obtained at no
    cost from our Web site at www.gao.gov.

    If you or your staff should have any questions, please call me at (202)
    512-8403. The key contributors to this report are listed in appendix V.

    Cornelia M. Ashby Director, Education, Workforce, and Income Security
    Issues

                           Appendix I: Scope and Methodology

      Overall Approach

    Objective I: Key Management Issues

    We performed several steps that contributed to both objectives of this
    review. We reviewed relevant laws and documentation, and we reviewed
    pertinent reports prepared by the Department of Education's Office of the
    Inspector General as well as our previously issued reports, testimonies,
    and other correspondence. 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 performancebased
    organization (PBO). We analyzed key documentation that would provide
    insight about the agency's efforts to address the key management issues
    and human capital challenges. We also obtained and reviewed several
    reports prepared by the Department of Education's Office of the Inspector
    General that relate to these issues and challenges. We reviewed all GAO
    reports, testimonies, and correspondence issued since 2000 that discussed
    FSA or the student loan programs. We also reviewed GAO recommendations
    related to FSA and identified those that have been implemented as well as
    those that remained open as of July 10, 2004. For open recommendations, we
    talked with agency officials and obtained and reviewed the corresponding
    internal corrective action plans.

    We also attended briefings presented by senior FSA officials and
    interviewed FSA and Department of Education officials to understand their
    plans and reasons for taking actions related to addressing the key
    management issues and the human capital matters. During January and
    February of 2004, we attended nine briefings presented by senior FSA
    officials on topics that would serve as the foundation for our work. These
    briefings were entitled (1) Financial Management and Internal Control, (2)
    FSA's High-Risk Designation/Management Improvement Team, (3) Default
    Prevention and Management, (4) Systems Integration, (5) Program Integrity,
    (6) PBO Accountability, (7) Human Capital Management, (8) FSA's
    Activity-Based Cost Model, and (9) FSA's Progress on Reducing
    Administrative Costs. Following these briefings, we interviewed senior
    officials and responsible program managers and had several meetings, phone
    conversations, and e-mail exchanges to follow up on and further clarify
    the information presented at the briefings.

    In addition to taking our overall approach, we took specific steps to
    address the first objective-the extent to which FSA has made progress
    addressing key management issues related to financial management, systems
    integration, program integrity, and administrative costs, and fulfilling
    its planning and reporting responsibilities. We reviewed the guidance
    related to the Federal Financial Management Improvement Act

                           Appendix I: Scope and Methodology

                                  Financial management

                                  Systems integration

    Program integrity

    because auditors found that the Department of Education and FSA did not
    comply with the act's requirements because of computer security
    weaknesses. We also reviewed the Government Performance and Results Act
    (GPRA) because the HEA stated that FSA's reporting requirements had to be
    consistent with GPRA and other laws.

    We reviewed and analyzed numerous documents related to the topics covered
    in this objective. These documents included

    o  	audit reports submitted by auditors from Ernst and Young for fiscal
    years 2002 and 2003;

    o  	corrective action plan for addressing reportable conditions identified
    in FSA's 2003 financial statement audit report;

    o  data summarizing erroneous payments for 2000-2002; and

    o  administrative cost model and components

    o  	information on FSA's enterprise architecture plans and documentation,
    such as its sequencing plan for transitioning from baseline to target
    architecture;

    o  	business cases and timeline documents for the three major systems
    integration projects-Front-End Business Integration (FEBI), Integrated
    Partner Management (IPM), and Common Services for Borrowers (CSB);

    o  	information documenting FSA's inventory of major legacy systems,
    including consolidation, retirement, and reengineering of some existing
    systems; and

    o  	information on the solicitation and request for proposal for the FEBI
    project

    o  proposed legislation for conducting IRS data matches;

    o  	memoranda of understanding regarding data sharing with agencies such
    as the Social Security Administration and the Department of Justice;

    o  	quality control procedures for determining student and school
    eligibility, and program monitoring;

    o  	2001 Program Review Guide for Case Management and Oversight and School
    Performance Improvement and Procedures Guidance;49

    o  School Eligibility Channel: Case Management Process Model;

    o  inventory of 60 default management and prevention initiatives;

    o  Authentication Plan for New Foreign Schools;

    o  foreign school training module and lesson list;

    49Case management includes processes for monitoring schools such as
    reviews and analysis of reports to help ensure compliance with program
    regulations.

                           Appendix I: Scope and Methodology

    o  	Student Financial Aid Handbook, Volume 2-School Eligibility and
    Operations, 2004-2005;

    o  	Guidelines for Case Managing Services for New Title IV Participants,
    October 17, 2003;

    o  	Default Prevention Workgroup charter and FSA-wide approach to default
    prevention strategies briefing slides, May - September 2003

    o  	minutes from Debt Management/Default Prevention Management group
    meeting September 10, 2003; and

    o  Exit Counseling Guide for Direct Loan Borrowers

    o  annual plans for fiscal years 2002, 2003, and 2004;

    o  annual performance report for fiscal year 2003; and

    o  draft and final 5-year performance plan covering fiscal years
    2004-2008.

    We met with several senior FSA officials as well as responsible program
    managers. We met with officials from the agency's Chief Financial Office
    to discuss financial management, financial audits, and statements and its
    activity-based cost model. We met with officials from the office of the
    Chief Information Officer to discuss the agency's system integration
    efforts and sequencing plan, enterprise architecture, and current
    procurement projects related to systems integration such as Common
    Services for Borrowers. We met with officials in the Case Management and
    Oversight Office to discuss their procedures for monitoring schools and
    providing technical assistance and with officials that participate in
    FSA's Default Management Group.

    Planning and reporting

      Objective II: Human Capital

    We also took specific steps to determine whether FSA had created a
    comprehensive human capital plan and taken steps to increase the
    accountability of its officials. Several GAO publications and guidance
    documents on strategic workforce planning served as the criteria for our
    analyses. These publications included

    o  	Human Capital: Senior Executive Performance Management Can Be
    Significantly Strengthened to Achieve Results, May 2004, (GAO-04-614);

    o  	Human Capital: A Guide for Assessing Strategic Training and
    Development Efforts in the Federal Government, March 2004, (GAO-04-546G);

    o  	Human Capital: Key Principles for Effective Strategic Workforce
    Planning, December 2003, (GAO-04-39);

    o  	A Model of Strategic Human Capital Management, March 2002,
    (GAO-02-373SP); and

    o  	Human Capital: A Self-Assessment Checklist for Agency Leaders,
    September 2000, (GAO/OCG-00-14G).

    Appendix I: Scope and Methodology

    We obtained and reviewed the agency's documents related to its human
    capital planning and accountability measures. We analyzed FSA's draft
    human capital plan, its final version, and documentation related to its
    succession planning, reorganization efforts, staff deployments and buyout
    proposals, recruitment, Skills Catalog, and training resources. We were
    provided and reviewed hard copy information related to its online learning
    tools, but because these tools reside on the agency's intranet we did not
    analyze and review these materials firsthand. We also reviewed the
    Department of Education's Personnel Manual Instruction 430-2, dated
    November 6, 2002, entitled Education Department Performance Appraisal
    System (EDPAS) and the Department of Education's Personnel Manual
    Instruction 430-3, dated September 6, 2001, entitled Senior Executive
    Performance Management System (SEPMS) since these are the systems used to
    assess FSA's senior officials. Additionally, we obtained and evaluated
    individual performance agreements, evaluation ratings, and data on bonuses
    awarded to senior officials and the Chief Operating Officer (COO).

    We conducted several interviews with agency officials, and had an
    interview with a senior official from the union that represents FSA's
    employees. We talked with the agency's COO regarding past and present
    policies affecting performance agreements and bonuses. We also talked with
    the agency's human capital officer and other human resources staff
    regarding the agency's human capital strategy and plan, as well as the
    various components of the plan (i.e., the succession plan, and the Skills
    Catalog). During these meetings we also discussed past human capital
    initiatives and proposals for future initiatives. We also talked with a
    senior official from the agency's union, the American Federation of
    Government Employees, Council 252, to discuss its role in developing human
    capital policies and views about current proposals. We conducted our work
    for this engagement between November 2003 and August 2004 in accordance
    with generally accepted government auditing standards.

    Appendix II: GAO Recommendations to Education Related to Student Financial Aid
    and Status of Their Implementation

                                                         Status in GAO's tracking
               Report              Recommendations          system as of July 10,
                                                                            2004a
    Financial Management:  Establish appropriate edit
    Poor Internal Controls     checks to identify        Closed-implemented
        Expose Department of    unusual grant and loan
    Education to Improper    disbursement patterns.
        Payments. September
         2001 (GAO-01-1151)
                              Design and implement a
                              formal, routine process to    Closed-implemented
                                 investigate unusual
                                disbursement patterns
                              identified by edit checks.

         Education Financial           Conduct on-site         Closed-implemented
           Management: Weak       investigations, including
    Internal Controls Led to interviews of school personnel
          Instances of Fraud    and students at the
          and Other Improper    28 schools with
         Payments. March 2002   characteristics similar to
                                those
             (GAO-02-406)       GAO found that improperly
                                disbursed Pell Grants
                                to determine whether the
                                grants were properly
                                          disbursed.

    Follow up with the schools that had high Closed-implemented
    concentrations of the $12 million in potential
    improper payments for which the department did
    not provide adequate supporting documentation.

    Implement a process to verify borrowers' Social Closed-implemented
    Security numbers and dates of birth submitted by
    schools to the Loan Origination System.

          Direct Student Loans:    Update the Exit Counseling  Closed-implemented
         Additional Steps Would    Guide for Borrowers
           Increase Borrowers'     to reflect the repayment
         Awareness of Electronic   incentives for Direct Loan
    Debiting and Reduce Federal  borrowers who repay their
             Administrative               loans through
            Costs. March 2002          electronic debiting
              (GAO-02-350)          accounts (EDA) as well as
                                      borrowers' prepayment
                                            options.

    Take steps to inform EDA borrowers about steps Closed-implemented
    they can take to prepay their loans. Such steps
    could include modifying EDA application to allow
    borrowers interested in prepaying their loans to
    designate withdrawal amounts in excess of their
    scheduled payments when they initially complete
    the EDA application.

    Consider renegotiating the fee provision in its Closed-implemented
    contract with the Direct Loan servicer to eliminate
    the servicing fee for accounts with payments less
    than 7 days late.

          Federal Student Aid:         Fully disclose in its      Open-in process
         Additional Management         performance plans and
    Improvements Would Clarify subsequent performance reports
               Strategic          the bases of its
         Direction and Enhance       unit cost calculation and
         Accountability. April        clarify what costs are
                                   included in and excluded from
           2002 (GAO-02-255)             the calculation.

    b

    Develop and include clear goals, strategies, and Open
    measures to better demonstrate in FSA's
    performance plans and subsequent performance
    reports its progress in implementing plans for
    integrating its financial aid systems.

    Appendix II: GAO Recommendations to Education Related to Student Financial
    Aid and Status of Their Implementation

    Status in GAO's tracking Report Recommendations system as of July 10,
    2004a

    Develop performance strategies and measures Open-in process
    that better demonstrate in its performance plans
    and subsequent performance reports its progress
    in enhancing the integrity of its student loan and
    grant programs. In particular, FSA should develop
    measures that better demonstrate whether its
    technical assistance activities result in improved
    compliance among schools and additional
    strategies for achieving default management
    goals.

    c

    Take steps necessary to ensure that complete Open
    and timely annual performance reports are
    submitted to the Congress.

    d

    Coordinate closely with Education to develop and Open
    implement a comprehensive human capital
    strategy that incorporates succession planning
    and addresses staff development

    Department of Education: Guaranteed Student Loan Program Vulnerabilities.

    November 2002 (GAO-03-268R) Implement a verification process to ensure
    that a foreign school applying to participate in the Federal Family
    Education Loan (FFEL) program actually exists and is recognized by an
    appropriate educational entity. Specifically, the Secretary should enter
    into a relationship with an organization such as the Department of State,
    which would verify the existence of a foreign school that applies for
    certification to participate in the FFEL program through site visits to
    the school and verification of its accreditation by local educational
    authorities.

                                   Closed-implemented

    Review the process for certifying student loans Closed-implemented and
    develop controls to prevent fictitious students from obtaining student
    loans.

          Federal Student Aid:     Develop metrics and baseline   Open-in process
         Progress in Integrating   data to measure
    Pell Grant and Direct Loan  Common Origination and
               Systems and         Disbursement (COD)
         Processes, but Critical   benefits and develop a
              Work Remains.        tracking process to assess
    December 2002 (GAO-03-241)  the extent to which the
                                   expected results are being
                                             achieved.

    Establish a process for capturing lessons learned Closed-implemented
    in a written product or knowledge base and for
    disseminating them to schools that have not yet
    implemented the common record.

    Federal Student Aid: Timely        Produce a 5-year plan as required eOpen
    Performance                        by HEA.
    Plans and Reports Would Help Guide
    and
    Assess Achievement of Default
    Management
    Goals. February 2003 (GAO-03-348)

    f

    Prepare and issue reports to the Congress on Open FSA's performance that
    are timely and clearly identify whether performance goals were met.

    Appendix II: GAO Recommendations to Education Related to Student Financial
    Aid and Status of Their Implementation

                                                                  Status in GAO's
                                                                         tracking
                 Report                  Recommendations        system as of July
                                                                        10, 2004a
    Student Loans and Foreign  Develop online training
                Schools:          resources specifically         Open-in process
    Assessing Risks Could Help  designed for foreign school
               Education                   officials.
             Reduce Program
        Vulnerability. July 2003
              (GAO-03-647)

    Undertake a risk assessment to determine how Open-in process
    best to ensure accountability while considering
    costs, burden to schools and students, and the
    desire to maintain student access to a variety of
    postsecondary educational opportunities. Further,
    after completing the risk assessment, if Education
    determines that legislative or regulatory changes
    are justified, the Secretary should seek any
    necessary legislative authority and implement any
    necessary regulatory changes.

        Direct Student Loan  Develop a process for collecting  Closed-Implemented
        Program: Management  information from
    Actions Could Enhance    schools that decide to stop
         Customer Service.         participating in the
           November 2003       Direct Loan Program about the
           (GAO-04-107)                factors that
                             influenced this decision and use
                             this information to
                             make improvements to the program.

    Source: GAO.

    aGAO monitors agencies' progress in implementing recommendations. To
    accomplish this monitoring, GAO maintains information related to open
    recommendations in a Web-based automated program.

    bFSA included a systems integration goal in its 5-year performance plan
    and annual performance report, but it did not meet all the requirements of
    the HEA.

    cFSA submitted its 2003 annual report when due, but the report did not
    meet all the requirements of the HEA or GPRA.

    dFSA developed a human capital strategy and succession plan in response to
    our 2002 report, but they have not been fully implemented.

    eFSA issued its first 5-year performance plan in fiscal year 2004.
    However, the plan does not meet all the requirements of the HEA.

    fFSA's annual performance report did not clearly identify whether
    strategic objectives had been met.

    Appendix III: Definitions of Systems Supporting FSA's Student Aid Programs

    Central Data System receives recorded data from multiple loan origination
    systems, edits, and then sends the data to the Direct Loan Servicing
    System and the Financial Accounting and Reporting System.

    Central Processing System uses information from both the paper-and
    Web-based Free Application for Federal Student Aid (FAFSA) to calculate
    and confirm a student's eligibility for federal student financial
    assistance. This system includes the FAFSA on the Web, which is used by
    students to apply for federal student financial assistance via the
    Internet.

    Common Origination and Disbursement System provides a common student
    record reporting system for requests, reports, and reconciliations related
    to both the Pell Grants and Direct Loans programs. This is a consolidated
    system consisting of three legacy systems-Pell Grant Recipient Financial
    Management System, Recipient Financial Management System, and Direct Loan
    Origination System.

    Conditional Disability Discharge Tracking System stores loans for those
    borrowers being reviewed for permanent and total disability.

    Debt Management and Collections System services all Title IV loans
    (Direct, Federal Family Education Loans, and Perkins) that have fallen
    into default. Also the system tracks rehabilitated loans, private
    collection agencies' referrals, or loans undergoing review by FSA.

    Direct Loan Consolidation System consolidates student loan portfolios
    consisting of at least one Direct Loan.

    Direct Loan Origination System records all Direct Loans awarded each year,
    tracks planned and actual disbursements, supports reconciliation,
    calculates eligibility amounts, books loans, and aggregates planned and
    actual disbursements by school.

    Direct Loan Servicing System provides services to borrowers with Direct
    Loans while in school, in deferment status, or in repayment.

    Electronic Campus-Based System tracks, at the school level, information
    related to campus-based funding; this includes receiving and processing
    Web-based applications from schools, calculating annual program awards,
    determining unused amounts, and processing appeals.

    eZ-Audit provides a single point of submission via the Web for schools to
    submit financial statements and compliance audits.

    Appendix III: Definitions of Systems Supporting FSA's Student Aid Programs

    Federal Family Education Loan System is used to pay interest and claims on
    defaulted loans to lenders and supports collection activity on student
    loans in default. This system consists of three consolidated program
    systems-Lender's Application Process (LAP), Lender's Reporting System
    (LaRS), and Form 2000.

    Financial Accounting and Reporting System serves as the subsidiary ledger
    for the Direct Loan Servicing System, processing both cash and noncash
    financial transactions and then sending them to the department's general
    ledger.

    Financial Management System provides a repository for financial
    information from all FSA programs. It is used to facilitate financial
    decision making and create reports for both internal and external
    customers.

    National Student Loan Data System contains loan- and grant-level
    information; it is used by schools to screen student aid applicants to
    identify borrowers who are in default, have reached statutory loan limits,
    or are otherwise ineligible to receive aid.

    Ombudsman Call Tracking System supports and tracks the life cycle of
    activities that will be required to process cases and supports and
    integrates with modules that support customer service, data center, call
    center, and service level agreement management functions.

    Pell Grant Recipient Financial Management System records all Pell Grants
    awarded each year, tracks planned and actual disbursements, supports
    reconciliation, calculates eligibility amounts, aggregates planned Pell
    Grant disbursements by school and submits this information to the
    department's automated payment system to authorize drawdown of funds.

    Postsecondary Education Participants System serves as FSA's management
    information repository for all entities participating in the Title IV
    student financial assistance programs. This system maintains eligibility
    and oversight data for schools, lenders, guarantors, and servicers and
    provides information to FSA's student aid delivery systems to ensure
    consistency.

    Recipient Financial Management System records all Pell Grants awarded each
    year, tracks planned and actual disbursements, supports reconciliation,
    calculates eligibility amounts, aggregates planned Pell

    Appendix III: Definitions of Systems Supporting FSA's Student Aid Programs

    Grant disbursements by school and submits this information to the
    department's accounting systems to authorize drawdown of funds.

    Appendix IV: Comments from the U.S. Department of Education

    Appendix IV: Comments from the U.S. Department of Education

    Appendix IV: Comments from the U.S. Department of Education

    Appendix IV: Comments from the U.S. Department of Education

    Appendix V: GAO Contacts and Staff Acknowledgments

    GAO Contacts
    Carolyn M. Taylor (202) 512-2974 or taylorcm@gao.gov Mary Abdella (202)
    512-5878 or abdellam@gao.gov

    Staff
    In addition to those named above, the following individuals made important
    contributions to this report: Margie Armen, Joyce Corry,

    Acknowledgments
    Carla D. Craddock, Elizabeth Curda, William Doherty, Mary Dorsey, Susan
    Higgins, Barbara Hills, Miguel Lujan, Valerie Melvin, Diane Morris,
    Corrina Nicolaou, Robert Owens, Lisa Shames, and William Wright.

    Related GAO Products

    Direct Student Loan Program: Management Actions Could Enhance Customer
    Service, GAO-04-107. Washington, D.C.: November 2003.

    Student Loan Programs: As Federal Costs of Loan Consolidation Rise, Other
    Options Should Be Examined, GAO-04-101. Washington, D.C.: October 2003.

    Student Loans and Foreign Schools: Assessing Risks Could Help Education
    Reduce Program Vulnerability, GAO-03-647. Washington, D.C.: July 2003.

    Taxpayer Information: Increased Sharing and Verifying of Information Could
    Improve Education's Award Decisions, GAO-03-821. Washington, D.C. July
    2003.

    Federal Student Aid: Timely Performance Plans and Reports Would Help Guide
    and Assess Achievement of Default Management Goals, GAO-03-348.
    Washington, D.C.: February 2003.

    High Risk Series: An Update, GAO-03-119. Washington, D.C.: January 2003.

    Major Management Challenges and Program Risks: Department of Education,
    GAO-03-99. Washington, D.C. January 2003.

    Federal Student Aid: Progress in Integrating Pell Grant and Direct Loan
    Systems and Processes, but Critical Work Remains, GAO-03-241. Washington,
    D.C.: December 2002.

    Department of Education: Guaranteed Student Loan Program Vulnerabilities,
    GAO-03-268R. Washington, D.C.: November 2002.

    Federal Student Aid: Additional Management Improvements Would Clarify
    Strategic Direction and Enhance Accountability, GAO-02-255. Washington,
    D.C.: April 2002.

    Student Financial Aid: Use of Middleware for Systems Integration Holds
    Promise, GAO-02-7. Washington, D.C.: November 2001

    Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
    Integrity, GAO/HEHS-00-119. Washington, D.C.: September 2000.

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