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
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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 [email protected] Mary Abdella (202)
512-5878 or [email protected]

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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