Financial Management:

Review of Education's Grantback Account

AIMD-00-228: Published: Aug 18, 2000. Publicly Released: Aug 18, 2000.

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Pursuant to a congressional request, GAO reviewed the Department of Education's grantback account.

GAO noted that: (1) as a result of financial management system deficiencies, inadequate systems of funds control, and manual internal control weaknesses that GAO and other auditors have identified and the manner in which the grantback account was used, there is increased risk of fraud, waste, and mismanagement of grant funds; (2) in terms of funds control, these deficiencies increase the risk that Anti-Deficiency Act violations could occur and not be promptly identified and reported; (3) because of these deficiencies, GAO was unable to determine whether any Anti-Deficiency violations occurred; (4) the deficiencies identified at Education relate to five areas; (5) Education's pooling method of accounting for grant drawdowns used prior to May 1998 contributed to out of balance conditions and the need for significant grant reconciliation efforts involving hundreds of millions of dollars; (6) GAO testified in March 2000, that continued weaknesses in general computer controls, over key Education financial management systems, increase the risk of unauthorized access or disruption of services, and make Education's sensitive grant and loan data vulnerable to inadvertent or deliberate misuse, fraudulent use, improper disclosure, or destruction, which could occur without being detected; (7) the grantback account balances between the fiscal year ended September 30, 1993, and December 31, 1999, ranged from a high of about $698 million as of September 30, 1996, to a low of about $314 million as of December 31,1999; (8) GAO found that Education could not provide documentation to support the validity of certain activity in the grantback account; (9) Education did not consistently adhere to certain of its policies and procedures relating to obtaining: (a) independent certifications of recipients' records in connection with its Eduacation Payment Management System grant recipient reconciliations; and (b) supervisory approval of manually prepared journal entries; (10) Education has taken or plans to take various actions to address the grantback account issues; and (11) in addition, Education analyzed the portion of the grantback account balance at September 30, 1999, that represented actual grantback activity and, in March 2000, returned to Treasury about $10 million.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Education, working with the Treasury Department for Applied Financial Management, developed and implemented a detailed plan by November 2000 to eliminate the portion of the grantback account balance that was transferred to a deposit fund suspense. To accomplish the recommended actions, Education: (1) completed the GAPS reconciliation project by establishing GAPS as the grant subsidiary system of record and posting resulting adjustments to the general ledger, which were accounted for and reported in its FY 2000 financial statements as prior period adjustments; (2) developed and implemented grant recipient and FBWT reconciliation procedures, which if consistently and effectively followed, will help ensure the reliability of recorded grant activity and purchased reconciliation software that maintains detailed transaction data, such as the fiscal year and the appropriation charged, for any unmatched items transferred to suspense accounts; and (3) returned to Treasury approximately $20 million in adjustment funds, primarily related to canceled appropriations, after analyzing the adjustment data transferred to the suspense account and re-evaluating the prior October 1997 and January 2000 account reviews.

    Recommendation: In addition to the actions already taken or planned by Education, the Secretary of Education should direct the Acting Chief Financial Officer to develop and implement a formal, detailed plan to eliminate the portion of the grantback account balance that was transferred in March 2000 to a deposit fund suspense account, including steps describing how Education will: (1) complete the Grant Administration and Payment System (GAPS) reconciliation project and account for adjustments resulting from such reconciliations; (2) implement adequate controls over its recipient reconciliations and Fund Balance with Treasury reconciliations, requiring that Education maintain detailed records by the applicable fiscal year and appropriation for any unreconciled differences transferred to suspense accounts until such differences are resolved; and (3) return to Treasury the remaining funds related to the adjustment activity that were transferred in March 2000 to a deposit fund suspense account, including a re-evaluation of the October 1997 and January 2000 reviews.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: To help ensure that Education has information available needed to provide information to Congress and others for oversight of grant payment activities and to help ensure compliance with Anti-Deficiency Act requirements, Education (1) developed and implemented specific policies and procedures for records storage that include requirements for proper labeling of boxes and adherence to federal regulations regarding record keeping and (2) revised existing operating procedures to include steps for managing documentation and proper funds control, such as maintaining appropriation and fiscal year data at the transaction level. Education also contracted for records management services to review and properly label records previously sent to its off-site storage location.

    Recommendation: In addition to the actions already taken or planned by Education, the Secretary of Education should direct the Acting Chief Financial Officer to develop and implement detailed policies and procedures to properly manage and maintain documentation and records (both on-site and in off-site storage facilities) related to all transactions and other significant events related to grant activity, including sound fund s control practices to ensure compliance with the Anti-Deficiency Act.

    Agency Affected: Department of Education

  3. Status: Closed - Implemented

    Comments: Effective November 2000, to help ensure the validity and accuracy of its recorded grant activity, Education revised and implemented policies and procedures for performing GAPS recipient reconciliations that require supervisory review and approval of adjustments; and review of Single Audit results and obtaining supporting documentation from grant recipients requesting adjustments that increase their available cash balances.

    Recommendation: In addition to the actions already taken or planned by Education, the Secretary of Education should direct the Acting Chief Financial Officer to develop and implement detailed policies and procedures for performing GAPS recipient reconciliations, including requirements for: (1) supervisory review and approval of GAPS adjustments; (2) review of applicable Single Audit results prior to making adjustments; and (3) obtaining summary level documentation from the recipients supporting the validity of the requested adjustments.

    Agency Affected: Department of Education

  4. Status: Closed - Implemented

    Comments: Education agreed with the recommendation and developed and implemented detailed procedures for preparing the Statement of Transactions (SF224) that included a requirement for supervisory review and approval before being submitted to Treasury. The new procedures were implemented in April 2000.

    Recommendation: In addition to the actions already taken or planned by Education, the Secretary of Education should direct the Acting Chief Financial Officer to develop and implement detailed policies and procedures requiring supervisory review and approval of Education's monthly Statements of Transactions Standard Form 224.

    Agency Affected: Department of Education

 

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