Financial Management:

Education's Student Loan Program Controls Over Lenders Need Improvement

AIMD-93-33: Published: Sep 9, 1993. Publicly Released: Sep 9, 1993.

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GAO reviewed lender and Department of Education controls over lender-submitted quarterly billings under the Federal Family Education Loan Program (FFELP).

GAO found that (1): significant weaknesses exist in several lenders' electronic data processing controls; (2) lender controls do not always reasonably ensure the validity, accuracy, or completeness of processed data; (3) lenders do not always maintain adequate supporting documentation, written policies, or procedures; (4) on-site lender reviews do not adequately assess the accuracy of quarterly billings; and (5) Education has made some erroneous multiple payments to lenders because it relies on unverified billing data to pay interest subsidies to lenders, report program financial activities, and manage program operations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Education established the Guarantor and Lender Oversight Service (GLOS) to oversee and direct Education's interest with respect to guarantors and lenders. GLOS developed a Universal Lender Review Guide that provides comprehensive procedures to conduct reviews of lenders including the review and testing of lenders' quarterly billings. GLOS uses IDEA software to preplan lender reviews and produces various reports, such as the Reasonability Test Summary Report, from the interest payment subsystem to select lenders for review. GLOS also maintains an internal tracking system for its reviews of lenders.

    Recommendation: The Secretary of Education should direct the Assistant Secretary of Postsecondary Education and the Chief Financial Officer to coordinate efforts to develop a comprehensive strategy for determining the accuracy of information reported on lenders' quarterly billings which would include developing objective criteria for selecting and reviewing lenders participating in FFELP.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: In December 1996, Education issued its revised Audit Guide for lenders and lender servicers that requires lender auditors to specifically audit and report on the integrity of billings sent to Education. Also, Education developed a tracking system to monitor receipt of lender audit reports and provide a database of findings cited in the reports. Any finding associated with a lender is tracked and it is required to submit a corrective action plan to Education. The lender has 1 year to correct/resolve findings. If it does not resolve the finding within this timeframe, Education writes the lender that it has 45 days to comply or Education will limit any future interest/special allowance monies. So far, any lender that has been notified has resolved the problem within the 45-day timeframe.

    Recommendation: The Secretary of Education should direct the Assistant Secretary of Postsecondary Education and the Chief Financial Officer to coordinate efforts to develop a comprehensive strategy for determining the accuracy of information reported on lenders' quarterly billings which would include annually performing mandatory review procedures at selected lenders which, at a minimum, would include reviewing results of annual compliance audits--required by the Higher Education Amendments of 1992--and other audits of lenders and following up on identified weaknesses to determine if appropriate corrective actions have been taken.

    Agency Affected: Department of Education

  3. Status: Closed - Implemented

    Comments: GLOS lender reviews require data submitted on the lender's quarterly billings (Form 799s) to be reconciled to the lender's books and records. Based on the reviews, GLOS issues reports to lenders that include specific findings. Lenders are required to provide a written response and supporting documentation to resolve the findings. Also, the Education IG issued an audit guide that requires lenders' independent auditors to test the Form 799s. Additionally, the information reported on the Form 799s is subject to the Department's automated internal edit checks and reasonability tests. Education rejects and returns 799s that fail its internal edit checks; for reasonability tests, it sends letters to lenders and summary reports to its regional offices for followup.

    Recommendation: The Secretary of Education should direct the Assistant Secretary of Postsecondary Education and the Chief Financial Officer to coordinate efforts to monitor and follow up with lenders whose quarterly billings fail to meet Education's internal automated edit checks and reasonability tests.

    Agency Affected: Department of Education

  4. Status: Closed - Implemented

    Comments: The Department has established procedures for converting major automated systems, including a requirement that parallel systems be run as standard operating procedures.

    Recommendation: The Secretary of Education should direct the Assistant Secretary of Postsecondary Education and the Chief Financial Officer to coordinate efforts to develop and implement procedures for converting major automated systems, including a requirement that parallel systems be run for an appropriate period of time, to ensure that new systems are properly processing program data.

    Agency Affected: Department of Education

 

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