Financial Management:

Education Faces Challenges in Achieving Financial Management Reform

T-AIMD-00-106: Published: Mar 1, 2000. Publicly Released: Mar 1, 2000.

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Pursuant to a congressional request, GAO discussed the challenges the Department of Education faces in achieving financial management reform, focusing on: (1) Education's fiscal year (FY) 1999 financial audit results in the context of related work GAO has performed; (2) the relationship between the audit findings and the potential for waste, fraud, and abuse; and (3) the status of GAO's ongoing study of the department's grantback account.

GAO noted that: (1) Education was not expected to receive a clean or unqualified opinion on its FY 1999 financial statement audits due to the Office of Management and Budget on March 1, because of its financial management weaknesses; (2) as reported in December, the department issued its FY 1998 financial statements over 8 months late and was one of six Chief Financial Officer's Act agencies that received disclaimers--meaning that the auditors were unable to express an opinion--on their financial statements for that year; (3) while Education's financial staff and its contractor have worked very hard over the past few months to prepare Education's FY 1999 financial statements, and the auditors' opinion on that financial statements has improved over that of FY 1998, serious internal controls and financial management weaknesses continue to plague the agency; (4) for FY 1999, Education made significant efforts to work around these weaknesses and produce financial statements; (5) these efforts enabled its auditors to issue qualified opinions on four of its five required financial statements and a disclaimer on the fifth statement; (6) the department also receives annually from its auditors a report on internal controls; (7) this report is significant for highlighting the agency's internal control weaknesses that increase its risk of mismanagement that can sometimes result in waste, fraud, and abuse; (8) the third report that the auditors issue annually is a report on agency compliance with laws and regulations; (9) specifically, the department's auditors reported that it was not in full compliance with three laws; (10) Education continues to be plagued by serious internal control system deficiencies that hinder its ability to achieve lasting financial management improvements; (11) the internal control weaknesses discussed above and in more detail in the auditors' report need to be addressed to reduce the potential for waste, fraud, and abuse in the department; (12) the grantback account holds funds recovered from grant recipients following an audit determination that the recipients made an expenditure of funds that was not allowable or failed to account properly for the funds; (13) for the grantback account, which is part of Education's Fund Balance with Treasury, its auditors reported that Education cannot readily determine to which appropriations the excess funds belong; and (14) the auditors reported that Education is working with Treasury to determine the appropriate accounting for the remaining funds.

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