Financial Management:

Financial Management Weaknesses at the Department of Education

T-AIMD-00-50: Published: Dec 6, 1999. Publicly Released: Dec 6, 1999.

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Gloria L. Jarmon
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GAO discussed its review of the independent auditors' reports on the Department of Education's financial statements covering fiscal year (FY) 1998, focusing on: (1) weaknesses in the financial reporting process; (2) inadequate reconciliations of financial accounting records; and (3) inadequate controls over information systems.

GAO noted that: (1) the independent auditors found that the Department does not have adequate internal controls over its financial reporting process to provide reasonable assurance that its principal financial statements are reliable; (2) as a result, Education: (a) was unable to prepare reliable statements; and (b) could not support material amounts reported on its financial statements, including obligations, grant expenditures, and net position; (3) these limitations in the financial reporting process of the Department's new accounting system contributed to the disclaimer of opinion on its FY 1998 financial statements; (5) the system's reported weaknesses included its inability to perform an automated year-end closing process and directly produce consolidated financial statements as would normally be expected from such systems; (6) Department officials stated that they have recognized the seriousness of these problems and are working with a contractor to resolve them; (7) independent auditors reported that Education did not properly or promptly reconcile its financial accounting records during FY 1998; (8) the independent auditors also determined that the transactions Education reported to the Treasury routinely differed from those reported in Education's general ledger throughout FY 1998; (9) the auditors found that Education made large adjustments, which it did not research or support, merely to force the records into agreement; (10) in addition, Education did not reconcile its general ledger balance with its subsidiary debt collection system; (11) instead, Education made unsupported adjustments to the general ledger to align these records with amounts reported in its debt collection system; (12) many of these differences result from a lack of supporting documentation for proprietary accounts and budgetary balances, the failure to regularly perform formal reconciliations, and the serious problems with Education's accounting system; (13) errors in these accounts may also affect the accuracy of various Education financial reports, including budget execution reports and information reported to the Congress; (14) in connection with their review of Education's FY 1998 financial statements, the independent auditors also conducted a review of information systems controls over Education's accounting and financial reporting systems; and (15) continued weaknesses in these information system control areas place critical Education operations at risk of unauthorized access and disruption.

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