Serial No. 106-93


Printed for the use of the Committee on Education

and the Workforce

Table of Contents












Table of Indexes *





Wednesday, March 1, 2000

Subcommittee on Oversight and Investigations

Committee on Education and the Workforce

U.S. House of Representatives

Washington, D.C.

The Subcommittee met, pursuant to call, at 10:30 a.m., in Room 2261, Rayburn House Office Building, Hon. Peter Hoekstra, Chairman of the Subcommittee, presiding.


Present: Representatives Hoekstra, Roemer, Schaffer, Kind, and Tancredo.


Staff Present: Peter Warren, Professional Staff Member; Jonathan DeWitte, Staff Assistant; Michael Reynard, Media Assistant; Deborah Samantar, Office Manager; Cheryl Johnson, Minority Legislative Associate/Education.


Chairman Hoekstra. Good morning.

With a quorum being present, the Subcommittee on Oversight and Investigations will come to order. We are holding this hearing today to hear testimony on financial management practices within the Department of Education. Under Committee Rule (12)(b), opening statements are limited to the Chairman and the Ranking Minority Member of the Subcommittee. This will allow us to hear from our witnesses sooner and to help Members keep to their schedules. Therefore, if other Members have statements they may and will be included in the hearing record.

With that, I ask unanimous consent for the hearing record to remain open for 14 days to allow for member statements and other documents referenced during the hearing to be submitted in the official hearing record.

Without objection, so ordered, thank you.




Thanks for coming back this morning, it hasn't been that long, to discuss the results of the Department of Education's Fiscal Year 1999 Audit Report. Many of you were here in December when this Subcommittee met to go over the results of the Fiscal Year 1998 report. Disappointingly, the situation today is much the same for 1999. What we are looking at today, in my words, is another failed audit.

First, none of the material weaknesses cited in the Fiscal Year 1998 audit were corrected during Fiscal Year 1999. In fact, several of the weaknesses have been cited every single year since the Department's first audit, performed five years ago. These include the agency's inability to balance its checkbook with the U.S. Treasury, and its lack of computer system security.

Second, a new material weakness appears on this report because the Department is now holding $2.7 billion in loan collections that belong to the U.S. Treasury. This is a violation of the Federal Credit Reform Act of 1990.

Third, the Department's financial stewardship remains in the bottom quartile of all major federal agencies. If the office of Management and Budget's recent estimate is correct, only six of 24 federal agencies will not get a clean opinion on the Fiscal Year 1999 agency-wide audit reports that are due today. The Education Department is one of the six departments that will not get a clean audit. The situation was much the same for Fiscal Year 1998, when the Department was one of only six agencies on which auditors issued no opinion at all.

Fourth, the Department is still making duplicate payments to grantees. In December 1999 alone, the agency issued duplicate payments to over 52 schools, totaling over $6.5 million.

Fifth, the Department still has not provided the General Accounting Office with documents validating hundreds of millions of dollars of adjustments made through its "grantback" account.

Why do the same problems reoccur every year at this agency? The answer is simple, from my perspective it's inaction by the Department. According to the Inspector General, of the 139 recommendations made by auditors in the past five years, 111 remain open, and only 28 are closed.

Even the most basic and critical tasks are routinely postponed. At our December hearing, several witnesses attributed the poor Fiscal Year 1998 audit performance chiefly to the Department's inadequate accounting system. This refrain was sounded again and again during the hearing.

At the time, an Education official said the agency would have a new system selected by December 31; a system that the Department estimated would take about two years to fully implement once it was selected. The reality, I believe, as of yesterday, is that the Department still has not selected a new system.

Actions have consequences. So does inaction. What I hope to make clear today is that the Department's failure to address its financial management problems can lead directly to waste, fraud and abuse.

I'm going to give you some examples. I am going to quote from an Office of the Inspector General memo dated February 10, 2000. "The recently discovered loss of U.S. Department of Education property has brought renewed visibility to the lax management controls over information technology assets." We should not be surprised to find things missing or stolen from an agency that does not properly inventory its assets, or from an agency that does not properly monitor purchasing and the payment of contractors’ bills.

I also want to draw attention to the material weakness Ernst and Young refer to as a lack of controls over information systems. This weakness has repeated each year since the Department's first agency-wide audit in 1995.

Again, just last week, the inspector General released a report stating that the numerous control weaknesses constitute a "significant threat to the security of Education's information technology systems and the data they process." Since the Department's systems contain the sensitive student loan data of millions of students, I am appalled that this problem is not being given a higher priority.

I hope computer data security and the rest of the financial management problems of the Department are given higher priority as a result of this hearing. In fact, I think this hearing really is all about setting the right priorities.

The question regarding the Department's financial stewardship is not, "what needs to be done?" We all know what needs to be done. The auditors make pretty much the same recommendations each year.

The question is, "when does this agency make financial stewardship priority one?" I don't believe that it's getting priority one attention today. This behavior of year after year failed audits would never be tolerated in the private sector. Until the Department does make this a priority, the taxpayers' investment in the education of America's youth is not going to reap anything close to a maximum return.







Chairman Hoekstra. Mr. Roemer.

Mr. Roemer. Thank you, Mr. Chairman. I would ask unanimous consent to revise and extend my opening statement.

Chairman Hoekstra. Without objection.




Mr. Roemer. Thank you.

First of all, I just want to say that I hope with such an important topic and subject that we have today, which is under the purview and jurisdiction of our Committee, the careful auditing by us and also by you of the books and the accounts of the Education Department, that both sides of the aisle take it very seriously. Democrats and Republicans are every bit as conscientious and concerned about how our tax dollars are spent.

So, I am interested in, and look forward to, the testimony from our panel today, to give us a thorough accounting of some of the progress and some of the lack of progress made in this area.

Now, as with most departments, and I read the other day that the Defense Department according to the GAO is woefully inept in some of these areas as well. That's no excuse for the Department of Education to not be doing a better job, but that we have this problem in a host of different departments and agencies means we need to do a better job, quite frankly.

With most things, there is some good news and some bad news. I guess the good news, and as an optimist I'll start with that, is that in 1998 the Department did not receive a clean audit of its 1998 financial statements, they had received five disclaimers.

Now, in my understanding of the auditing and accounting process, there are four grades that you can get, disclaimer, an adverse opinion, a qualified opinion and an unqualified opinion, and an unqualified is the best. So, for the Department to get five disclaimers, which is the worst, is not good news in 1998. Now, what is the good news in this? The good news is that the Department has moved from getting five disclaimers, the worst possible grade, to this year getting four qualified opinions, which is the second best score, and one disclaimer, which is again intolerable.

So, we've moved from getting, I think, five Fs to four Cs and an F. And, in a department where we try to encourage our students to get As, we need to encourage our Department of Education to get unqualified opinions in all areas and continue to make progress.

We need to see them, quite frankly, make the same progress in these areas as they've made in areas such as collections on defaulted loans, when they've moved in 1993 from $1 billion in collected defaults to $2.2 billion in FY 1998. That's significant progress by the Department of Education in that area, but this is not good enough, quite frankly.

I have my opinion on this, and they are strong opinions. I take seriously the oversight and jurisdiction of this Committee, and look forward to hearing more from our witnesses today.

Let me conclude on this note. I think that this Committee should take seriously the role that we play in having jurisdiction over auditing and over the books and the balancing of those books of the Department of Education, and I think we should spend whatever time it takes to make sure they are doing a good job. Personally, I hope that we would be in a position next year to just do one oversight hearing. I think in this country we have a lot of serious business to do in education reform, in trying to provide better education to more and more of our students and the children in this country.

We had a first grader shoot a first grader in Michigan yesterday in a school. I don't know how much sadder we can get in terms of the news of a first grader bringing a gun to school and killing another first grader. We have a report on the front page of our newspapers today saying that even with the 1954 decision, Brown v. Board of Education, we still have severe inequalities in our education system in the year 2000, and that many African American, Native American, and Hispanics don't have access to advanced courses in our schools.

These are topics of concern that I want to spend time on, and I don't want to have three or four hearings that we have for either political reasons or we have for justifiable reasons on audits. We need to do a better job and get to those unqualified measurements in the accounting, and I would hope that the Department of Education would continue to make significant and speedy progress toward those unqualified opinions and get five of them next year. This will allow us to spend more time on education reform and bringing new education ideas into the American public school system. Hopefully we'll start on these things.

Mr. Chairman, in regard to upcoming hearings, I want to again publicly thank you for the cooperation we've had on the Charter School Hearing that we'll be having this Friday. You and I are both very supportive of and interested in charter schools. We are having an upcoming Hearing on Teacher Quality. Hopefully, Frank McCourt the prize- winning author is going to be here to talk about his teaching experiences. We are going to have a Technology Hearing. These are very interesting things that I look forward to working with you on in a bipartisan way, and that's all the statement I'm going to make. I look forward to the question and answer period, and I look forward to the testimony.

Thank you.




Chairman Hoekstra. Thank you, Mr. Roemer.

Let me introduce the witnesses today. We have Ms. Gloria Jarmon. Welcome back. Ms. Jarmon is the Director, Health, Education, and Human Services, Accounting and Financial Management Issues, with the U.S. General Accounting Office. Good morning, thank you for being here.

We also have Mr. Frank Holleman. Welcome. This is your first time here, congratulations as the confirmed, I believe, Deputy Secretary, is that correct?

Mr. Holleman. Recess appointment.

Chairman Hoekstra. Oh, recess appointment.

Mr. Holleman. You didn't need to bring that up.

Chairman Hoekstra. Which I believe was cleared with the appropriate people in the Senate and it was not controversial.

Mr. Holleman. That's what I understand.

Chairman Hoekstra. So, it's nice to have somebody in that chair that is not acting, and had been acting for a long period of time, so congratulations to you.

We have Ms. Lorraine Lewis. Welcome back. Good morning. Ms. Lewis is the Inspector General for the U.S. Department of Education, along with Mr. Steven McNamara. Good morning to the two of you, and to Mr. Michael Lampley, who is a Partner with Ernst & Young, LLP, the auditing firm. And, I've forgotten your name.

Ms. Singshinsuk. Erin Singshinsuk.

Chairman Hoekstra. Okay. Hi, Erin, thank you for being here.

Ms. Jarmon, we'll begin with you.





Ms. Jarmon. Mr. Chairman and Members of the Subcommittee, I am here today to talk about the financial management challenges facing the Department of Education. As you requested, I will focus on three issues: the financial statement audit results for Fiscal Year 1999, the potential that reported weaknesses have to create fraud, waste and abuse, and the status of our efforts to review the grantback account.

The bottom line of the Department of Education's financial audit results is that Education still faces severe internal control and financial management systems weaknesses. These weaknesses have been very similar from year to year, starting with Education's first agency-wide audit for Fiscal Year 1995. They make it extremely difficult for Education to give timely, reliable financial information to decision-makers, both inside and outside the agency.

Education's financial staff and its contractors have worked very hard over the past few months to put together Education's Fiscal Year 1999 financial statements. The auditors' opinions on these statements have improved over Fiscal Year 1998. In addition, it's the first time that these statements have been issued on time.

However, serious internal control and financial management systems weaknesses continue to plague the agency. In Fiscal Year 1999, Education made significant efforts to work around these weaknesses and produce the financial statements. Their auditors were able, as mentioned, to issue qualified opinions on four of the Department's statements and issued a disclaimer on the fifth. To do this, though, Education used labor-intensive and time-consuming manual and automated procedures and relied heavily on consultants. They couldn't produce the statements automatically from its system.

As part of the audit, the Department's auditors looked at Education's internal controls and reported four material internal control weaknesses. They are weaknesses related to financial reporting, weaknesses related to inadequate reconciliations of financial accounting records, weaknesses in controls over information systems, and four, weaknesses in accounting for certain loan transactions.

An example of the results of one of these weaknesses points out the severity of the problems. For financial reporting, Education incorrectly reported $7.5 billion in the result of operations that should have been reported as payable to Treasury. Its auditors adjusted this amount on the statement, but this type of error means that Education could inappropriately keep funds that should go back to Treasury.

In addition to its continuing internal control problems, Education also failed to fully comply with three laws. First, the Federal Financial Management Improvement Act, because it lacked adequate integrated financial management systems, reports and oversight to prepare timely and accurate financial statements.

Second, the Clinger-Cohen Act, because it had not fully implemented a capital planning and investment process, nor assessed the information resource management knowledge and skills of agency personnel, including developing a plan to correct identified deficiencies as required by this Act.

Third, the Federal Credit Reform Act, because Education did not transfer its excess funds related to the Federal Family Education Loan Programs, specifically, $2.7 billion of net collections, to the Treasury.

The internal control weaknesses in the auditor's report need to be addressed to reduce the potential for waste, fraud and abuse at Education. For example, the information systems control weaknesses could increase the risk of unauthorized access or disruption of services, and make Education sensitive grant and loan data vulnerable to inadvertent or deliberate misuse, fraudulent use, improper disclosure, or destruction. These types of vulnerabilities were discussed in more detail in a report issued by the Department's IG on Friday.

Finally, regarding the grantback account, which is part of Education's fund balance with Treasury, its auditors reported that Education couldn't readily say where, in what appropriations, the excess funds belonged. This same problem was reported in Fiscal Year 1998. Its auditors reported that Education is working with Treasury to figure out how funds in this account should be handled.

As you know, we have work ongoing on this issue. While we received some answers on Friday, we are still awaiting answers from Education to a number of key questions, as well as documentation to support the transactions. The documentation provided to us thus far often did not adequately support the transactions in the account.

In closing, I would like to stress that the weaknesses identified by Education's auditors are serious financial management weaknesses, and it's critical that Education work hard to resolve these weaknesses. Achieving all aspects of its strategic objectives partly depends on reliable financial management information and effective internal controls.

Mr. Chairman, this concludes my statement. I'd be happy to answer any questions from you or other Members of the Subcommittee.




Chairman Hoekstra. Thank you. Mr. Holleman.

Mr. Roemer. Does she get a bonus or anything for doing it under time?

Chairman Hoekstra. I was thinking, when we had the last hearing I don't think anybody was less than ten or 12 minutes. Yes, we got off to a good start. The pressure is on, Mr. Holleman.

Mr. Holleman. I'll try to live up to it.

Chairman Hoekstra. This will establish your reputation and determine whether you are ever invited back again.





Mr. Holleman. Mr. Hoekstra, I'm at a disadvantage because I talk a little bit slower than most people in this room probably do, so I'll try.


Mr. Chairman and Mr. Roemer, and other Members of the Committee, thank you for asking me to be here as the Deputy Secretary to share my views on the financial management and the audit this year of the U.S. Department of Education.

Today, the Department transmitted to the Office of Management and Budget the independent auditor's opinion on our Fiscal Year 1999 financial statements. This year, as Mr. Roemer said, we received four qualified opinions and one disclaimer of opinion on our five financial statements. This year, we also prepared five financial statements for the Office of Student Financial Assistance, and that office also received four qualified opinions and one disclaimer. In addition, as Ms. Jarmon pointed out, our audit was released on time. It was released today, March 1. Obviously, our goal is to receive an unqualified opinion every year, and as the Members of the Committee know, we received an unqualified opinion two years ago in 1997.

We have made progress this year as compared with 1998. Our audit was prepared on time, and as has been pointed out we received a qualified opinion on four of the five statements. The improvement this year was a result of hard work on behalf of the Department staff and its contractors, the staff of the Inspector General, and by the auditors.

We will need to continue that hard work to further improve our financial management systems. Among other things, we have been and are improving our reconciliation process with the balances of the U.S. Treasury, improving the automation of processes to assist in the closing of our general ledger and to track manual adjustments to prevent errors. We've been working to improve the quality of our financial data by improving our standard accounting entry routines, and reviewing our vendor codes to distinguish between governmental and non-governmental vendors. We've been pursuing a new general ledger system, as you referred to, Mr. Chairman, to have in place an automated system that does what we need it to do. We are reviewing and testing that system now, and it is our plan to have a new general system in place in 2001. We're working to apply the same automated processes this year that allowed us to work toward and get a qualified opinion for four of our statements, to apply them to the fifth statement, and that is the statement of financing.

Now, we recognize the critical importance of financial management in the Department, and we also recognize that there is no shortcut for establishing a sound and comprehensive financial management system. We're going to continue the same hard work that has been done this year to make further progress in the coming year.

I would like to point out, Mr. Chairman, that financial management is part of the management of the Department, but there are other aspects as well, and I wanted to highlight a few things for the Committee in terms of successful management efforts by the Department.

I would like to point out that we adapted our systems this year to deal with Y2K without a significant glitch, and my information is we didn't have any Leap Day glitches yesterday. I want to reiterate, as was alluded to earlier, that when Secretary Riley came in we had a soaring student loan default rate that threatened the entire student aid system of some 22.4 percent, which is now under nine percent. I would like to point out that we have a historic role in distributing information about education, and our publication center gets ratings equivalent to those of Federal Express and Nordstrom's.

I want to make a final point, and that is we do take very seriously recommendations made by the GAO. Our Inspector General, auditors, and I have asked the departmental team, with the advice of the Inspector General, to review all our outstanding audits and all the outstanding recommendations, and to reconcile which ones are open and which ones aren't, and to put together a departmental plan to address all open recommendations and audits. In this way, we not only can work toward improving the outcome of our yearly audit, but we can also work to improve the operations of Education initiatives as soon as we possibly can.

Finally, I'd just like to close and say we are committed to improve the management of our Department, so that we can provide better service to children, families, schools and colleges across the country, and I'll be glad to answer questions later.

My accent tripped me up, Mr. Chairman.





Chairman Hoekstra. Not bad. It's okay. You may speak a little slowly, but sometimes people accuse us of listening kind of slowly, too. We're not catching all of it, so it was fine. You'll be welcomed back any time.

Ms. Lewis.




Ms. Lewis. Mr. Chairman, Mr. Roemer, and Members of the Subcommittee, I will discuss the results of the audit of the Department of Education's (ED) Fiscal 1999 consolidated financial statements, as well as those of Student Financial Assistance (SFA). I am accompanied by Steven McNamara, Assistant Inspector General for Audit.

The audits of the Department's consolidated financial statements for 1999, and those of SFA, were conducted by Ernst & Young, under contract with the Office of Inspector General. We monitored the progress and completion of the work to ensure compliance with Government Auditing Standards. Ernst & Young performed in an independent and exemplary manner and completed its work so the Department, for the first time, could meet the March 1st date of transmitting the audit to OMB.

Ernst & Young issued a qualified opinion for both the Department and SFA on the Balance Sheet, the Statement of Net Cost, the Statement of Changes in Net Position, and the Statement of Budgetary Resources. Ernst & Young disclaimed an opinion for both on the Statement of Financing.

There were four material weaknesses and four reportable conditions included in the report on internal control. The material weaknesses were: financial reporting needs to be strengthened, reconciliations need to be improved, controls surrounding information systems need enhancement, and improvement of credit reform reporting is needed.

Of the four reportable conditions, the first three relate both to the Department and SFA, and the last pertains to the Department only. They are: documentation supporting obligations, undelivered orders, and unobligated balances all needing to be improved. Communication and coordination efforts need to be improved for financial management. Documentation supporting accounts payable accrued liabilities and expenditures need to be improved, and finally reporting and monitoring of property and equipment needs to be improved.

The Report on Compliance with Laws and Regulations for both the Department and SFA cited three areas of non-compliance with The Clinger-Cohen Act, The Federal Credit Reform Act of 1990, and The Federal Financial Management Improvement Act. Qualified opinions on four of the Department-wide statements are an important improvement over 1998.

This improvement was due to extremely hard work on the part of the Department's managers and staff, its contractors, and the auditors. The Department utilized contractors and various automated tools to work around the system's inability to close the books and generate financial statements. Until the Department implements a new general ledger system, it will have to continue to perform these "work arounds." Many of the underlying systemic weaknesses included in the reports are repeat conditions. The Department must remedy these underlying weaknesses in order to improve its overall financial management.

When we testified on December 6, we reported that a total of 115 recommendations had been made for the 1995 through 1998 report. At that time, 87 remained open, and 59 were non-repetitive. In the 1999 Department-wide audit, another 24 recommendations have just been made. Therefore, as of today there are 139 recommendations relating to the Department's financial statements, and of those 139, 111 are open, 28 are closed, and 74 are non-repetitive.

The Department has just recently provided us with corrective action reports and progress reports for the prior financial statement audits. We have not yet, in the Office of Inspector General, analyzed these reports to determine whether additional recommendations can be considered closed, but we will be looking at them.

The OIG does maintain an audit tracking system that monitors audit reports. To date, our audit tracking has been at the report level. We have begun work with the Department as part of the initiative to track at the recommendation level, in order to provide more visibility and accountability of necessary corrective actions. It is our understanding that corrective action plans will be submitted by the Department to the OIG on a quarterly basis. The first plans are due as of March 31.

The primary source of our recommendations is, of course, the financial statement audits. Other areas where we have performed work and made recommendations are in the grant administration payment system (GAPS) area, computer security and property management.

That concludes my statement, and Mr. McNamara and I would be happy to answer any questions.






Chairman Hoekstra. Thank you. Mr. Lampley.

Mr. Lampley. The pressure is on.

Chairman Hoekstra. The pressure is on.




Mr. Lampley. Mr. Chairman, Mr. Roemer, and Members of the Subcommittee, my name is Michael Lampley. I'm a Partner with Ernst & Young, a public accounting firm. I've been in public accounting for over 30 years, with a specialty in the public sector/Federal government. With me today is Erin Singshinsuk, also known as Erin, who is a Senior Executive. The testimony I'm providing today updates the report I gave on the Department's financial management in my last appearance before the Subcommittee on December 6, 1999.

Regarding the report of the independent auditors for the Department of Education, Ernst & Young issued a qualified opinion on four of the five required financial statements, and disclaimed an opinion on the fifth statement.

Our Report on Internal Control detailed four material weaknesses and four reportable conditions. We included a total of 24 recommendations in our Report on Internal Control to assist the Department in addressing its internal control deficiencies.

Our Report on Compliance with laws and regulations cited non-compliance with the Federal Financial Management Improvement Act, the Information and Technology Management Reform Act, and the Federal Credit Reform Act.

In my testimony, I have set forth in detail the chronology of the audit and a detailed summary of our audit reports, including overview charts. Since we understand that the Inspector General and the General Accounting Office are in substantial agreements with Ernst &Young's findings, I would like to spend my time on questions the Committee asked us regarding obstacles that the Department needs to overcome to receive a "clean" opinion and to discuss areas that might warrant further analysis.

First, the key obstacles in our opinion that led to the qualifications on four of the statements and the disclaimer on the fifth statement is that the Department was unable to support amounts recorded in net position of approximately $800 million. In addition, there was an unreconciled difference between the proprietary accounts and the budgetary accounts of approximately $700 million. The Department was also unable to provide sufficient detail with regard to adjustments made to accounts payable and other related liabilities to ensure that the adjustments were reflected in the proper accounting period.

In contrast to our disclaimer of opinion on all five of the required statements in 1998, and a disclaimer on the Statement of Financing in 1999, we were able to perform sufficient procedures to provide reasonable assurance that except for the potential effects of those matters mentioned above that the Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and Statement of Budgetary Resources were fairly stable.

Our Report on Internal Control presents in more detail the relevant facts pertaining to the issues identified above.

Now, with respect to additional work, which would augment the scope of the financial statement audit, let me make the following suggestions.

First, we recommend the Department consider having a review conducted of the interim financial statements they intend to prepare, to provide early identification of any problems that might impact the interim financial statements, as well as any other issues that could be addressed on an interim basis.

Second, the reconciliation should be performed on a monthly basis. The Department could benefit from having additional independent reviews of these reconciliations to improve the accuracy, completeness and timeliness of the reconciliations.

Third, we recommend that an independent review be performed of the process that was utilized by the Department to identify potential duplicate payments, and any additional controls implemented as a result of these projects.

Fourth, we suggest that upon completion of the Department's physical inventories of property and equipment, an independent review of the inventory results be performed to ensure that the process provided a complete and reliable inventory, and to assess the significance of any issues identified as a part of conducting the inventory.

Fifth, the Department may benefit from an independent confirmation of financial data with grant recipients at the award level. Confirmations could help ensure that the Department's records are in balance with internal records maintained by the grant recipients.

Sixth, we recommend that the Department review the current organizational structure within financial management, in order to update and more clearly define roles and responsibilities to ensure that financial reporting objectives established by management are achieved. Such a review might include evaluating the recruiting, training and retention of accountants and financial management personnel.

And finally, we strongly recommend the Department develop an implementation for the replacement of the general ledger software package to ensure that the transition will occur in a timely and documented manner. The Department will need to give consideration to both short and long-range needs.

This concludes my remarks. Erin and I will be pleased to address any questions the Subcommittee may have.

Thank you.







Chairman Hoekstra. Thank you very much. A couple of questions for you.

Mr. Lampley, I think you knew that I would begin with you, because I looked right at you when Mr. Roemer gave the Department a C. I don't know whether you met with Mr. Roemer or not, but I think in conversations that you and I have had you indicated that the actual performance might be somewhere closer to a C- to a D-. Maybe Mr. Roemer is an easier grader than what you and I might be.

Mr. Roemer. I taught, and I don't think my students would say that.

Chairman Hoekstra. Okay.

Mr. Lampley. I would view that as grade inflation.

Chairman Hoekstra. Okay, all right.

The bottom line is, bench marking against the private sector, an audit report with four qualified statements and one with no opinion, would be pretty devastating in the private sector. Is that correct?

Mr. Lampley. Mr. Chairman, with respect to a company that was publicly traded, that would make for a very difficult situation for that company.

Chairman Hoekstra. Yes, okay. This is not just fairly ugly, it's "ugly." It's ugly, right?

Mr. Lampley. It's not pretty.

Chairman Hoekstra. Okay.

Let me just ask a couple of things that concern me as I take a look at this. Is there a continuation of the same problem from year to year? One example would be back in 1994 the Inspector General reported that there was a lack of inventory controls in the Department; that was 1994. The lack of such controls again is cited by you in your latest report, is that correct?

Mr. Lampley. We identify issues related to the inventory process and the fact that they should be done.

Chairman Hoekstra. So, therefore, we should not be surprised by the recent reports of computer thefts, or inappropriate purchasing, or that there is an aggressive investigation going on in the Department for potential abuses in these areas. That would not surprise you. You said the conditions would be ripe for something like that to occur.

Mr. Lampley. I think based on the circumstances and the fact that there has been a period of time for which a comprehensive inventory has not been taken, that there are obviously potential issues there.

Chairman Hoekstra. We won't go into any more detail. We met with your staff yesterday, and that's about all that should be said in that area. There is an aggressive investigation going on about the purchasing of computer hardware and theft of it currently, correct? That's about all we can say.

Ms. Lewis. Yes, sir.

Chairman Hoekstra. So, that's one area highlighted in 1994, and now in 2000 we are, perhaps, seeing the results of the Department's failure to address that issue.

Mr. Holleman, can you explain that to me? In December we were talking about duplicate payments. We met with the IG back in September/October, and they said, we think we have taken care of the issue. These payments occurred right before our meeting, and again in December and January 1999 and again in 2000. How does the Department keep making duplicate payments over and over again, over a period of what appears to be at least 16 to 18 months?

Mr. Holleman. Mr. Chairman, my information is the same as yours. There were two instances of duplicate payments after the time you describe in late December and mid January. My understanding is that duplicate payments result when a human being attempts to override a system check because they think the payment has not been made.

So, what we've attempted to do is to put into place additional checks on the system to prevent that from happening and also to put in place additional training so that the human beings won't make that mistake.

Chairman Hoekstra. Yes, I know that. You would think you would have done that a year ago after the first set of duplicate payments, and then it happened again, and then there was a third time. I don't have any degree of confidence that I won't get a call from you or Ms. Lewis next week saying, hey, it happened again.

Mr. Holleman. Well, Mr. Chairman, what I can tell you is that we take it very seriously, and the training is ongoing. We have put additional checks in the system to prevent it from happening.

Chairman Hoekstra. Mr. Lampley, I mean, have you reviewed the steps that been put in place? I would guess it would be a concern to the auditors that the system controls are not in place over a period of maybe two or three fiscal years, and you have a system in place that is making duplicate payments.

Mr. Lampley. Yes, sir, Mr. Chairman, certainly we are as concerned as you are. We are aware, and we indicated that in one of our recommendations. We believe the whole process for duplicate payments and the process to identify these needs to be reviewed and what additional controls are coming out of that.

At least my major concern right now is the amount of manual intervention that's involved that apparently is resulting in these duplicate payments.

Chairman Hoekstra. Ms. Jarmon, you talked a little bit about what the process was regarding reconciling books, and again we have a manual process with payments. There are a lot of outside contractors. Is that something that GAO is concerned about?

Ms. Jarmon. I mentioned that over the last couple of months in preparing financial statements there were manual reconciliations and automated processes put in place, since financial statements couldn't come from their systems. GAO is concerned about financial systems problems overall. There were several other agencies that had problems also in preparing financial statements from their systems. So, it is an overall concern


Chairman Hoekstra. When you are running a $35 billion agency, and that's just the discretionary dollars, in many cases with an automated system that seems as if rubber bands and tooth picks are holding the system together, and then you overlay that with a system of independent contractors, you are almost setting yourself up, I believe, to fail.

And again, the systems, or the lack of systems, do have consequences. Have any of you looked into the situation about the independent contractor providing Jacob Javitz Scholarships to a number of students and then the contractor having to come back and notify these students that they didn't receive a scholarship? Have any of you looked into that situation?

Mr. Holleman. Your Honor, I'm a lawyer.

Chairman Hoekstra. Wait a minute. That means I might be an attorney excuse me.

Mr. Holleman. It's a little too cozy for me here.

Chairman Hoekstra. Yes. I think you can be a judge without being an attorney maybe. I'm not sure.

Mr. Holleman. Anyway, Mr. Chairman, I have looked into that. I learned of it yesterday, and what you say is correct, in that alternates for the Javitz Fellowships, as well as the awardees of the fellowships, were mailed notification by a contractor that they had been awarded the fellowship.

My understanding is that, although I haven't gotten all the specifics yet because I was preparing for this hearing, we were able to contact a number of the 39 alternates before they received the letter, but that is no justification for having made the mistake, or for having any one person receive an incorrect letter.

Chairman Hoekstra. Yes, see this is where I want to get. I mean, so often over here we talk about $35 billion, and we can't find $800 million there, or we can't find $700 million there. The big numbers are made up of all the small numbers and at the end when you have systems in place that can't track the big numbers, and you've got broken systems, you are going to start impacting individual lives.

And, in this case for the Department, because I think again of lack of management control systems being in place with the use of outside contractors who maybe aren't experts at this, the net result is not a loss of a billion dollars, the net result is an impact on 30 individuals who receive the best news that they'd gotten in a long time. They have qualified for Jacob Javitz Scholarships, which may be the equivalent of $120,000.00 to $150,000.00 for each one of these individuals in total over a period of four years. Then they are notified three or four days later that we made a mistake.

It's going to be very interesting to see how the Education Department works through this, because I believe that in the Higher Education Act if the Secretary notifies someone that they've won a scholarship and then he has to come back and say, no, you really didn't, he has to actually pay them for it. It would be interesting to see where the Department plans on coming up with the money for that, perhaps, the grantback account.

And, with that, I will yield to Mr. Roemer.

Mr. Roemer. Thank you, Mr. Chairman.

I want to first start off by asking Ms. Lewis something that the Chairman briefly touched on regarding the allegations of theft of computer equipment from the Department of Education. First of all, are you getting full and complete cooperation from the Department of Education on whatever investigation you might be undertaking?

Ms. Lewis. No, sir.

Mr. Roemer. Secondly, I've talked to the Justice Department about this, and their preference with any kind of case with these kinds of allegations, in order to protect innocent people and to fully prosecute guilty people, is for us not to discuss the details in an open hearing. Is that your understanding of these potential allegations?

Ms. Lewis. Yes, sir.

Mr. Roemer. So, your preference would be for us not to go into any details on this, even though there are concerns?

Ms. Lewis. Oh, absolutely.

Mr. Roemer. Thank you. I appreciate that.

Ms. Lewis. Please, that's a respectful request.

Mr. Roemer. Okay.

On another topic with respect to your testimony, you said that for the first time the Department has met the time schedule.

Ms. Lewis. Yes, sir.

Mr. Roemer. Is that good news? Is that something they should have done before? How would you evaluate meeting the time schedule, given past inabilities to meet it?

Ms. Lewis. Well, I've been at the Department of Education since June of 1999. In September of 1999, in a very large meeting with Ernst & Young representatives, Departmental officials, officials from SFA and the OIG, each looked each other in the eye and we said we are not going to be late for the 1999 audit. And, we did that in September, and we met that date. It's to the credit of all the individuals I've identified and others have identified that we met that date.

It's a very important date. It’s important to OMB, and it's important to GAO because they have to do the audit of the Consolidated Financial Statements. So it's a first time, and it's something that I think is a very important improvement.

Mr. Roemer. Mr. Lampley, you went over as somebody in the private sector who has performed these audits. How many years in a row now, have you done this for the Department of Education? Is this two times back to back?

Mr. Lampley. This is the second year.

Mr. Roemer. Okay.

Whether the Chairman and I would give them Cs or C-s, or D+s, the fact of the matter for me is it's not good enough. It needs to be better. I'd like to see the Department of Education get straight As or all unqualified.

Given the progress they made moving from 5 disclaimers to 4 qualified disclaimers, can we expect the Department of Education to get unqualified assessments in these areas next year?

Mr. Lampley. Mr. Roemer, I was asked similar type questions at the last meeting. It's difficult for me to project at this point in time as to what the outcome might be for the year 2000 audit. There are just too many factors to be considered with respect to it, including personnel, systems, work arounds, and just a number of issues.

Mr. Roemer. Will you be doing anything else with this audit with the Department of Education to follow up on your evaluation? Would you provide any help to them to see that they continue to improve in these areas? Is that part of the contract, or is that not part of the contract?

Mr. Lampley. Well certainly. I think, as a matter of fact, we have what's called "option years" with respect to our contract. That option year has not been renewed as yet, but assuming that it is, then we would work with the IG to come in probably as early as May to look at information and find out what the status of things were at that point in time, with respect to the recommendations that have been made.

Mr. Roemer. But, it's not part of your contract to follow through on any of the recommendations you've made. You make them and you leave those on the table.

Mr. Lampley. We view those recommendations as being suggestions to the Department.

Mr. Roemer. And, it's up to them to implement those suggestions.

Mr. Lampley. Our responsibility is to perform the audit, and their responsibility is to eliminate the deficiencies.

Mr. Roemer. Is that always the case? For instance, you know, the Chairman mentioned that this might be devastating news to a private sector company. Lucent just showed that they had tremendous problems with their books and their stock plunged over a several month period. When they sign a contract with an auditor is there some way that auditors follow up to see that those books are improved, or is that not the case in the private sector? Does it depend on the contract?

Mr. Lampley. Yes, it would depend on the contract, but normally the process would be that the company would typically hire someone independent. When I say that, the auditors have an independence issue if they get too involved in the systems implementation and things of that nature. So, typically, the company would hire other people to help them to resolve those issues, and then the auditors would come back to look to see what had been done.

Mr. Roemer. Is that something you would suggest to the Department of Education? Either do that in house or contract out to follow up on the recommendations you've made to improve the material weaknesses that you've discovered?

Mr. Lampley. Mr. Roemer, again, at least one of our recommendations is that the Department needs to assess their own resources, if you will, and after that assessment then I think they can make the determination as to whether they would need outside contractors to assist them or not.

Mr. Roemer. Okay.

Mr. Holleman, first of all, congratulations on your appointment. Secondly, you've got a lot of work to do. Do you think that the Department can achieve the needed progress in these five areas to further improve on where we need to be in the next audit?

Mr. Holleman. Mr. Roemer, I think I know enough from being around accountants that I can't predict an accountant's opinion a year from now. I can say that we are dedicated to committing the time, and the resources, and the attention to make sure we do everything we can to see that our financial management and our audit continues to improve in the current year.

Mr. Roemer. How high a priority is that for you and for the Department of Education?

Mr. Holleman. Well, for me as the Deputy Secretary, and for the Secretary, it's a top priority.

Mr. Roemer. So, you don't want to be up here three or four times next year. You want to make your one appearance on this subject and allow us to get back to some of the most important problems going on in education in the country. As I mentioned in my opening statement, you can't get any sadder news than a first grader shooting another first grader in a school in the United States. You know, we need to work on these problems, and hopefully we'll continue to work with you to see continued progress in these areas and to work on better auditing and accounting measures, and financial management.

I appreciate your time. I wish you the best of luck in the new job, and I will defer to the next round, Mr. Chairman.


Chairman Hoekstra. Mr. Schaffer.

Mr. Schaffer. Thank you, Mr. Chairman.

My first question is for Mr. Lampley. There was mention in the report about $2.7 billion that apparently, at least according to your report, should have been returned to the Treasury, or at least there is some question about that. Can you tell us a little bit more about that, and elaborate on that? What was the extent of your investigation, what kind of answers did you receive, and ultimately, what led you to the conclusion in your report on the $2.7?

Mr. Lampley. Mr. Schaffer, if I may, I'd like to let Erin answer that question.


Chairman Hoekstra. Erin who?

Ms. Singshinsuk. He can say it.

To address the $2.7, the Department was able to actually prepare its Statement of Budgetary Resources, from our review. Testing of that statement highlighted that there was $2.7 billion sitting in unobligated, not available funds. And, through review and questions to the Department, it was determined that those funds belonged in the liquidating account, in accordance with Credit Reform. At least once a year, the Department is to sweep that account and return those funds to the Treasury General Fund for other purposes. That's really how it was highlighted.

Mr. Schaffer. Mr. Holleman can I ask you why you think the Department held on to that money? It seems that it is in clear violation of the Credit Reporting Act.

Mr. Holleman. I can tell you my best understanding, Mr. Schaffer.

As I understand it, the recovery of loans under the Credit Reform Act from the Guaranteed Student Loan Program, which we refer to as FFELP, that were made prior to 1992 that have defaulted and that we make collections on, goes into something called a liquidated account. Once a fiscal year, the funds that are so collected are supposed to, under the Credit Reform Act, be returned from the Department of Ed account in the General Treasury Account in the Treasury. So, the funds were on deposit in the United States Treasury, but the question was which account should they have been in.

My understanding is that part of determining the correct amount is apportioning defaulted student loan collections between student loans that were made after 1992 and thereafter under the Credit Reform Act and student loans that were made prior to 1992. The process of determining the proper allocation caused a delay in returning the money.

It's also my information that we have, in fact, returned the money from the General Ed Account to the Treasury Account.

Mr. Schaffer. The Inspector General's testimony indicated that of the 139 audit recommendations made in the last five years, 111 of them remain open. Why do so many of these important items remain open?

Mr. Holleman. Mr. Schaffer, that's one reason I wanted to be sure that we had in place a departmental group, including representatives of the Inspector General's office, to review those in order to see which were open. We could focus as a whole department on the ones that are open.

Now, my understanding is that our staff from the Chief Financial Officer's office, and the Office of Student Financial Assistance, believes 40 of those have been resolved. But, as part of this process, we want to know if the Inspector General's staff agree with that, and if they do then we know we can eliminate those from the list. If they don't agree, then I want to know what it is we need to do to resolve those. So, we believe that that number reveals we've made progress, but we also know we are going to make more progress during the coming year.

Mr. Schaffer. Well, a good example is the Department's failure to take the corrective action on inventory controls. That was criticized in the 1994 report. The lack of those controls is cited in the newest Ernst & Young audit report. Don't you think the recent reports that have been discussed on the computer theft are somewhat of an illustration of the importance of that particular item remaining open? How long do you think we'll have to deal with that?

Mr. Holleman. Well, Mr. Schaffer, time slips past me. I've been here two months, and I can't remember the exact weeks, but a month or more ago, I believe I tasked a team at the Department, including our Chief Information Officer and the Director of the Office of Management, to come up with a plan to put inventory controls in place.

We've taken the inventory of technology equipment that was done in 1999, and distributed that throughout the Department. It's currently being validated, and that's supposed to be finished by March 10.

This spring, we are going to have in place a computer software product that will allow us to know if computers on the system are there or aren't there anymore. And, in addition, we put in additional safeguards with regards to purchasing equipment. We are working with the IG's office and taking recommendations from her investigative staff on what we should do, and what characteristics our system should have. So I think, Mr. Schaffer, we are currently in the process of addressing most of your concerns.

Mr. Schaffer. Let me jump to another issue.

Ms. Lewis, in your written testimony, you state that two material weaknesses of the Department have shown up on three consecutive annual audit reports, two other weaknesses have shown up on the last five audit reports. Won't these weaknesses keep recurring if the auditor’s recommendations remain open?

Ms. Lewis. Well, the recommendations have been made, and it's very important that all of the resources of the Department and the OIG be put to resolving the individual recommendations of those audits. It has frankly been a problem in the past, and we are very involved in the effort now to put all of the information into one database so we know which of those audit recommendations are open, if there's disagreement about the very well-established procedures for resolving those disagreements.

So, it's very important to follow on this initiative and for all parties to put their resources into it.

Mr. Schaffer. Last week, your office released a report that reviewed computer security in the Department and found that six critical items lacked security clearances. Other systems did not undergo required security reviews, and many employees responsible for overseeing computer security lacked required security training. Is it possible that important data, such as student loan information, is being stolen and tampered with?

Ms. Lewis. This was a review, basically, of the policies and essential security posture of the Department. There was not any such finding. Nothing about the work produced any such finding like that.

It is very important, however, that the requirements of the Computer Security Act and the OMB requirements be adhered to, so that there is no potential for any such thing to happen.

Mr. Schaffer. You are still kind of moving beyond the question.

Ms. Lewis. I certainly didn't intend to.

Mr. Schaffer. As to the possibility, based on your finding, that's what I want your opinion on.

Ms. Lewis. I have not formulated an opinion based on that work. The work identified very serious deficiencies. In fact, two violations of law stated in that report very clearly must be addressed, to ensure that the plans and the reviews are in place and the people have the training and the skills to do their jobs.

Mr. Schaffer. You have no opinion.

Ms. Lewis. No, I don't have an opinion based on that particular work. There may be some other work down the road or in progress that is the scope of the audit, but that wasn't the scope of this audit.

Mr. Schaffer. Thank you, Mr. Chairman.

Chairman Hoekstra. Mr. Kind?

Mr. Kind. Thank you, Mr. Chairman.

Regardless of how you might characterize the current situation, whether it's pretty or ugly, I think it's a given that there's still some serious weaknesses in the Department's financial accounting system.

Listening to your testimony today, reviewing the written statements that you have submitted, I'm under the impression that progress is, in fact, being made. I'm wondering how well founded that impression is today?

Let me start with you, Ms. Jarmon and Ms. Lewis. Compared to a year ago, is it safe to say today we are looking at some significant progress that has occurred in the Department of Education getting their accounting system up to speed, or has there been no progress made? Are there some instances where they are regressing in certain areas?

Ms. Jarmon, do you want to start?

Ms. Jarmon. In regard to the opinion on the financial statements, there was some progress in that area. However, as my statement and the statements of others have shown, there's actually more material weaknesses reported this year, in the Fiscal Year 1999 audit, than there were in 1998, so I can't say there was progress in that area. Some of those weaknesses have been reported since 1995, and there are actually more areas where these problems were cited as not being fully in compliance with certain laws and regulations that were cited in the 1998 audit.

So I think, as GAO says, sometimes there was some progress. There is really a whole lot more that needs to be done, relating to financial management.

Mr. Kind. Ms. Lewis, would you agree with that?

Ms. Lewis. I do agree, and I think it was well articulated. The other important progress we talked about earlier was actually meeting the March 1st OMB reporting deadline for the first time.

Mr. Kind. Mr. Lampley, I understand that given the variables that come into play here, it's impossible for you to be able to render an opinion on when we could see a "clean" opinion or an unqualified report coming out of the Department. Should we, as Members of this Subcommittee, be sitting here reasonably assured that necessary steps are being taken and that we should be comfortable in the progress being made, or should we still be very concerned about what's taking place in the Department?

Mr. Lampley. Mr. Kind, as we reported in our Report of Internal Control, there's still a number of recommendations that haven't been addressed.

The concern, I think, is that there has to be continued emphasis. There was a great deal of emphasis this year for the financial statement audit, where people at the Department worked long, hard hours and did a good job of working around the system's issues.

One of my personal concerns is that you have to be able to keep qualified people in place to do this, and that's one of the things, obviously, I just can't project. If we continue with the people and the effort, then there's hope, but it depends on a lot of different factors.

Mr. Kind. Well, let's stay on that line of talk for a second.

Mr. Holleman, I, too, want to congratulate you on your recent appointment and I look forward to working with you in the Department not only on this issue, but on a whole host of issues that affect the quality of education in the country.

I imagine that our federal agencies are in a similar position that we see in the private sector, with a tight labor market, and a lot of pillaging going on with qualified and talented people, perhaps, being recruited away by more attractive job offers. How big a problem are you wrestling with in the Department, having and retaining the right people with the right skills and talent level to do it?

Mr. Holleman. Well, that's a challenge, Mr. Kind. In fact, Ms. Jarmon here used to work at the Department the last time I was there, and we have very talented people who are recruited away and go to other positions. That is also one of the reasons it's necessary to look to contracting out, because you can acquire the expertise you need through that vehicle.

But, I would say, too, that currently in our Office of Chief Financial Officer and in our Office of Chief Information Officer, we have extremely talented people. They have done a fantastic job this year, and I have no indication that they are leaving. They are dedicated to making a difference.

Mr. Kind. How has the retention rate been over the last couple of years in the Department? Do you have a problem with new people having to come up to speed on what's been taking place, and not being able to retain them very long? Did it make a real impact?

Mr. Holleman. Mr. Kind, I'm not sure I can give you an across the board quantitative answer. I know in general our Department has had much more continuity in the last eight years than it ever had before, and we've had much less turnover in general. But, I do know that also there is difficulty in keeping people in government, particularly, in the information systems area now with the economy. Gratefully, we have, but that still provides a challenge to us.

Mr. Kind. Ms. Lewis, you've already testified, that last September you made a concerted effort with everyone at the table, to file the report on time this year. How assured are you today that the Department is still on track for meeting the accounting and auditing milestones and time lines in the future?

Ms. Lewis. Reporting on the Financial Statement Audit?

Mr. Kind. Right.

Ms. Lewis. Oh, we will never miss March 1st ever again. That is something very much in the control of the Department and the IG's office, and any independent contractors. So, that will never happen again.

As Ms. Jarmon mentioned, the equally critical milestones relate to fixing the internal control weaknesses, many of which do repeat year after year. It's setting milestones there and devoting resources, and then meeting those milestones that are equally important.

One of the things that happen when you meet the March 1st deadline is it does allow you some time and resources to devote to other than the reporting process. So it's very important that the Department use the time that is available, and should be available, to work on the underlying systemic issues.

Mr. Kind. As far as the other accounting milestones are concerned, you couldn't testify that they'll never be reached or never be dealt with in the time frame that you'd like to see them done?

Ms. Lewis. Correct, but we will be very vigilant in monitoring the efforts. We do other audits. We have other work that we do, and there's a lot of dialogue back and forth between the SFA, and departmental officials in the OIG.

Mr. Kind. Thank you, Mr. Chairman.

Chairman Hoekstra. Mr. Tancredo.

Mr. Tancredo. Thank you, Mr. Chairman.

Mr. Holleman, you testified that you take very seriously the recommendations of the auditors of the Committee, and one of the things that Ms. Jarmon testified to is the fact that you were, or that the Department was not in compliance with at least three laws.

One of the laws we addressed; the $2.7 billion. However, for Fiscal 1999 the independent auditors found that Education was again not in compliance with the FMFIA because it lacked adequate innovative financial management systems reports and oversights to prepare timely and accurate financial statements. The second one, the Department had neither fully implemented the capital planning and investment process, nor performed an assessment of the information resource management knowledge and skills of agency personnel, including a plan to correct identified deficiencies as required by the Clinger-Cohen Act of 1996. Can you tell me what you are doing specifically to address these things?

Mr. Holleman. Yes, sir, thank you, Mr. Tancredo.

The Clinger-Cohen Act, you may know, deals with information systems in particular, and a few months ago, I may not have my timing quite correct, but four to six months ago the Department hired a very talented new Chief Information Officer, Mr. Craig Luigart. Mr. Luigart was at Navy Air before he came to us, and he'd been working with the Clinger-Cohen Act as a particular responsibility as a Chief Information Officer. He's been working very hard to make sure that we come into compliance with the Clinger-Cohen Act.

For example, Ms. Lewis referred to the report that she's just done on security issues and computers. I believe Mr. Luigart and his staff have met with her staff, and entered into a corrective action plan in order to deal with those issues. I know that Mr. Luigart himself has put into place a plan to get us into compliance with the Clinger-Cohen Act. So, I think we are moving toward compliance with that Act, and it's very important that we be in compliance with it. Actually, you are right.

As to the FMFIA; I have all these different initials. That goes to our systems, and as you know computer systems are a lot more complicated in terms of their design and planning than some other things that we can do, so that we are doing several things. First, beginning in the next month or so, we are going to have in place an improved system to allow us to do monthly reconciliations in a better way with the Treasury. As has been referred to earlier, we are pursuing a new general ledger system, and we are, in fact, testing that system now to see that it will do what we need it to do in conjunction with the IG staff. And, this year, it was referred to as work arounds, our staff has worked very hard to come up with systems solutions that deal with the system we currently have, so that we can close our accounts and come up with financial statements in a more effective way.

So, I think on the FMFIA, the key for us is to get better and better systems in place to deal with the complex accounting rules of the federal government.

Mr. Tancredo. Well, I certainly agree, and the task apparently is being able to competently accomplish that goal, because as we historically look at this, one wonders. I certainly wish you all the best, there's no one here on this Committee certainly that wants to be back in this situation and be concerned about systems and systems management in the Department.

The last question I have for you is, once we know that for the first time since 1994 you have completed a fiscal tracking of all of the equipment, you will have some indication, of course, of what has been lost. I would assume, after this is done, and once you do have some way of determining exactly what has been lost, what exactly do you plan on doing besides giving us that information? That is to say, what's going to happen to make sure that these losses don't continue to occur? Are there any personnel actions that you anticipate, for instance, that would be of a preventative nature so that somebody sees that if you, in fact, get caught stealing something from the Department of Education or any place in the federal government you are going to have to pay a price?

Mr. Holleman. Mr. Tancredo, I think what I can say on that is this. We take the issue you point to extremely seriously, and if the allegations are true, we don't only take them seriously, it makes the Secretary and me angry.

I can only assure you that all appropriate steps are being taken. As was indicated earlier by Mr. Roemer, I think that is all I should appropriately say in this open hearing, but I can assure you that the point you raise has been taken extremely seriously and all appropriate steps are being taken.

Mr. Tancredo. Thank you, Mr. Holleman.

Thank you, Mr. Chairman.

Chairman Hoekstra. A lot of the discussion today has been whether we think the Department is serious about addressing the issues and the concerns that have been brought to their attention, some since 1994.

I just want to bring to your attention, Mr. Holleman, a memo that I believe you got from John P. Higgins, who is the Acting Assistant Inspector General for Analysis Inspection Services, which is the OIG analysis of information technology and inventory systems. This came out the first part of February, and here are some of the things that concern me when I read this.

I am concerned that the general tone is, "we are working on it, this is a C, this is a top priority by senior management, we're concerned about financials, and we're concerned about addressing the concerns that have been highlighted over and over." "This is where the IG's office comes in and where the people from the quality workplace group report to you." "Controls on office automation equipment are a material control weakness, and there has been inadequate support by head senior officers to correct the weakness." "QWG has been unable to implement an adequate inventory control system." "It is now evaluating a third major modification to the system in five years." But, the key operative phrase here is that there has been "inadequate support by head senior officers to correct the weakness."

Later on, it talks about an attempt to do a 1999 inventory data, but it was never fully validated. Executive officers from two head components responded that they felt the inventory was the responsibility of QWG and that they didn't have the time to do it. It doesn't sound to me that this is an agency that is focusing and recognizing that they have a problem, if you've got senior management saying that they didn't have time to do it.

It then talks about the inventory data and it says the third database has a field to identify whether a computer is owned by ED or leased. However, none of the over 13,000 line items is identified as leased. From July to September of 1998, ED received over 2,000 leased computers and a similar number of monitors. This to me sounds and looks like an agency that is out of control.

This one really concerns me, and this is a report to you, and what I think being new in your job, would cause you to take at least a pause when people in the Department are reporting to you. "Our discussions with QWG personnel responsible for maintaining the inventory system disclosed that the FMFIA report included some of the earlier failed attempts to develop an adequate inventory control system as completed actions/events." "This leads the reader to conclude that significant progress has been made over the past five years toward correcting the control deficiencies, when, in fact, there is little to show for many of those actions." And, this is a report to you.

Mr. Holleman. I asked for the report.

Chairman Hoekstra. Yeah, well, hallelujah. There's an inconsistency here for me. Hallelujah you gave the report, but the testimony that you are giving us today says that this is a Department that is focused on addressing the concerns. They are a top priority, and we are going to take care of them. Then you've got not a report because it says we are not going to do this as a formal report, but feedback from the OIG that says, you know, that at least in one area where there has been a material weakness identified, there hasn't been top senior management support for addressing this issue. Some of the managers appear to be blowing it off and saying it's not my job.

There have been reports that have been issued, where the intent of the report is to show that there was progress being made and that things were actually being implemented. It made it seem as if the issue was being addressed, but the OIG is saying nothing, in fact, changed.

Now, how am I supposed to take this memo to you and to reconcile this with the testimony that says everything is going fine? We are serious about addressing these issues. I don't believe it.

Mr. Holleman. Well, Mr. Chairman.

Chairman Hoekstra. You told me the Secretary got angry with this kind of stuff.

Mr. Holleman. If I can answer, I will try to answer you.

Chairman Hoekstra. Yes.

Mr. Holleman. I can't make you believe me, but I can tell you what the truth is to my knowledge, and the truth is this. One of the first things I did when I got there, and it was already underway under Dr. Smith, was to continue to work with the IG to look at our inventory system and our contracting system.

Second, as I said before, I tasked our Chief Information Officer and our Director of Office of Management to come up with a plan to do an inventory and put together a control system, working with the other offices in the Department.

Third, I personally met with the Assistant Secretaries to underscore the importance of this effort.

Fourth, I personally met with the executive officers listed there in that memo to emphasize to them the importance of this effort.

Fifth, I put it in memo form and they had the deadline of March 10th to get back to produce the validations of those inventories.

Sixth, we put into place purchasing controls and review controls, in order to assure that the correct equipment is purchased for the Department.

Seventh, we're also undergoing a review of our contracts, to make sure they are written in a way that maintains the most integrity and control.

And finally, we're working closely with Mr. Higgins, who sent me that memo, the Inspector General and the rest of her staff to ensure we do all the things necessary to have the sort of inventory control system that we need and that satisfies the portions of our audit.

So, I can tell you, Mr. Chairman, I don't think anybody in the Department would have any doubt that this is a priority of senior management.

Chairman Hoekstra. Which would be a change in status at the Department. This says that in the past there has not been senior management support for this.

Mr. Holleman. Well, you can read me the report. I read it myself, and all I can tell you is what we are doing now and how we are going forward.

Chairman Hoekstra. Yes, which to me says hallelujah, I hope there is a change in the attitude in the Department, and I hope that the seven or eight steps that you have outlined will, in fact, be implemented and will be implemented in such a way that there will be a change in behavior in the Department. Because it appears from what the OIG says in this, that over the last couple of years there has been a lack of management interest. I'm not sure who gets all these reports, but there was actually a process that I would call misinformation, saying that things were done that were improving the process that actually did not improve the process. Would that be an accurate characterization of what Mr. Higgins said here?

Ms. Lewis. The memo reflected that while the FMFIA reporting, Federal Managers Financial Integrity Act, which is an annual reporting requirement, did indicate action that had been taken from the 1994 time frame forward, which is when the issue first went on the list as a material weakness, it did not reflect that there were failures. Essentially, the first system that was put in place did not work.

FMFIA is one of those reporting requirements that in a way are the antithesis of the Results Act. It is an important exercise, but it is an exercise that basically has boxes and lines that indicate problems, when they occur and when they expect to be fixed.

Year after year, the fix dates moved. We haven't done a full audit or anything on this, but technically it seemed to be an accurate reflection of action items. Ultimately, the point of the memo is that at the end of the day, five or six years later, there was not very much to show for it. That was the point of that paragraph in the memo.

Chairman Hoekstra. All I know is that it leads the reader to conclude that significant progress has been made over the past five years toward correcting the control deficiency, when, in fact, there is little to show for many of those actions.

Ms. Lewis. Yes, there were many actions, ten or so actions listed, but at the end of the day in taking a snapshot of the situation in 2000, there was not a significant amount of progress that had been made, even though this had been an issue that was highlighted year after year.

Chairman Hoekstra. So, it's a measurement of activities, not progress.

Ms. Lewis. In effect, yes, and I think the Results Act ultimately looks to ask the departments to report on actual results versus simply an action item list, with dates moving from year to year.

Chairman Hoekstra. And then you get to the final audit, the review of security posture, polices and plans. Again, on page B-3 up there, "key officials associated with the system stated reviews have not been scheduled due to attention to higher priorities." I don't know what the higher priorities are, but I can't believe it would be much more important than security for the mission critical systems.

I don't have the degree of confidence, number one, that there is the capability to actually implement the recommendations that Ernst & Young has put in place. The performance and the track record would lead me, personally, to be very skeptical about whether the commitment is there to make these kinds of changes. I would believe that we are not going to be reading about Lucent anymore, or that next year their financial statements are going to go through the same disaster that they have gone through this past year. They will correct that problem.

And, we are now going through a process of at least two years, and you still have not selected a computer system, correct, for the general data, which I mentioned in my Opening Statement. As of yesterday, you had not.

Mr. Holleman. I think it depends on what you mean by the word "select." We've not signed a contract today. We are working to test a particular system that we believe offers the best opportunity to do what we need it to do. Before we sign the contract the IG's recommendation has been that we do further testing. It has already been tested, but the IG's recommendation has been that we test it further before we actually sign the contract.

But, if you mean by select, have we identified a system that we think addresses the concerns, the answer is yes. If you mean by select have we decided we are at a point we are ready to sign a contract and actually sign on the dotted line and say this is definitely our system, no, we've not done that yet.

Chairman Hoekstra. I think when the Department had their hearing in December, it was said that by the end of December we would have selected a system. I'm just wondering whether that milestone is met or whether we are two months behind that milestone. Was the intent to select and begin the process of signing a contract by the end of December?

Ms. Lewis. I don't recollect that December 31st date, but I may have a bad recollection. It is the case, and we did indicate it in our long testimony for the record, that my office has very strongly recommended that there be additional testing done, based on our observations of some of the earlier testing. The Department has acted positively on that recommendation and is in the process of testing. I thought that was a very good reaction to the recommendation.

Chairman Hoekstra. I'm just wondering whether that delays actually implementing and getting the system on stream? It will be my guess it won't be on stream by October 1 for fiscal year 2001.

Mr. Holleman. Mr. Chairman, I can't answer that question.

Chairman Hoekstra. What's that?

Mr. Holleman. Mr. Staley tells me that it will not be on line on October 1.

Chairman Hoekstra. So, we will limp through 2000 with the band-aids, and the rubber bands and the tooth picks. We will go into 2001 with that same system still in place, requiring a lot of manual processing, a lot of manual operations, outside contractors. It will be a manual and not an automated process, which is of huge concern to the auditors, correct?

Mr. Lampley. Well, it's certainly going to make it still the same type of issues we probably had in the past.

Chairman Hoekstra. Excuse me?

Mr. Lampley. We'll still probably have the same type of issues that we had in the past, with respect to the systems, unless there are additional work arounds that can be done.

Chairman Hoekstra. I think that is right. The question is, will we do better in 2000 and 2001? The answer is, only with a lot of hard manual work, which from a professional standpoint still is somewhat suspect.

Mr. Roemer?

Mr. Roemer. I just have a comment or a statement and then a question, Mr. Holleman, and then I don't have any other questions.

We've heard from Mr. Lampley, and certainly from Ms. Lewis, and Ms. Jarmon, and others, that the quality of the personnel in place is certainly going to be a key ingredient in whether or not we continue to see sustained progress toward, hopefully, achieving five unqualified marks in these future audits.

Certainly, in the eighth year of an Administration that has been reelected once, you are going to have some turnover, and you are going to have probably the highest turnover in your eight years in the Administration. I would just hope that through hard work, follow through, innovation, and recruitment, the Department would not have to contract out. The Department of Education is probably at one of the lowest points in terms of overall employees in the Department, is that correct?

Mr. Holleman. That's approximately right, Mr. Roemer. We are about two thirds of the size we were in 1980 when the Department was created.

Mr. Roemer. So, you have less people, and you have higher turnover at this point to do some of these things. Those are not excuses; I'm just outlining how difficult it is going to be in the final year of an administration to take on some of these things and to follow through. I hope that you are taking all those things into consideration and that you are able to deal with some of those personnel things, and I hope you'll look at all possibilities.

I hope that we're fair to you in the future too. If you are cutting down on the number of employees and making government smaller and smarter, as many of us advocate, I hope that you don't get unfairly criticized for occasionally contracting out to the private sector in some of these areas as you've done in the past.

Mr. Holleman. Mr. Roemer, I'd point out too that our Chief Financial Officer, who is primarily responsible for the audit, and our Chief Information Officer for that matter, are non-political appointees. These are career government professionals who are extremely talented. So, they will not be subject to the change of administration.

Mr. Roemer. Okay.

Lastly, I just want to be sure here, because we've had a couple of different comments on this. With respect to compliance with the Credit Reform Act, and the $2.7 billion, that $2.7 billion is now at Treasury, is that correct?

Mr. Holleman. That's correct, that's my understanding, Mr. Roemer.

Mr. Roemer. So, you are in compliance now.

Mr. Holleman. That's my understanding.

Two things, first, our financial statements were correctly labeled FE this year in terms of where you locate the funds on the financial statement, and secondly, that the funds had been transferred.

Mr. Roemer. Under the Credit Reform Act, you are required to sweep that account at least once a year, is that correct?

Mr. Holleman. At least once a year.

Mr. Roemer. Have you taken the necessary steps to ensure that the account is going to be swept, no matter how complicated the modeling equations are, and to try to anticipate default rates and so forth, so that you don't spend everything out of that account. It will be swept this year so that we don't have this problem.

Mr. Holleman. Yes, sir.

Mr. Roemer. Okay, thank you very much.

Chairman Hoekstra. Mr. Schaffer?

Mr. Schaffer. Well, thank you.

Ms. Lewis, your office continues to monitor the Department's issuance of duplicate payments, is that correct?

Ms. Lewis. Yes, sir.

Mr. Schaffer. We know that in December the Department issued duplicate payments to 51 schools totaling $660,000.00 and a separate duplicate payment of $5.9 million to another school. More duplicate payments were made in January. Is the agency simply not capable of preventing these duplicate payments from occurring?

Ms. Lewis. If you'd indulge me, Mr. Schaffer, I'd like to ask Mr. McNamara to respond.

Mr. McNamara. Mr. Schaffer, we're currently in the process of reviewing the Department's controls over duplicate payments to follow up on some of the ones that have been mentioned earlier.

As a part of this process, we've gone to the Federal Reserve Bank to independently get payment records that we can then compare with the records at the Department of Education, to see if we can identify any anomalies, not just for duplicate payments, but also for any other type of anomaly since the inception of the GAPS system.

Our work is in progress. It's complicated in trying to do these computer matches, get the data from the Federal Reserve, but we are in the middle of our field work and we are expecting, I think, in late May to be pulling everything together. So, in or about that time we should have an answer on whether there were, in fact, any others that we don't know about at this point, and be able to comment on the control environment and the control situation and opportunities the Department might have to prevent them from making duplicate payments in the future.

Mr. Schaffer. So, in the meantime, just looking at the recent track record, it's likely that we are going to see more duplicate payments? You say your assessment will be completed in May?

Mr. McNamara. Yes, sir. I think the point that was made earlier is that there seems to be one common thread through these duplicate payments. In general, it was human error by human intervention in an attempt to get somebody paid when it was thought that a mistake was made, and then inadvertently the original payment cleared. Things of that sort, where you can't completely prevent human error. You can try to train your employees as best you can. Hopefully, you can identify the controls that would, if not completely eliminate it, almost eliminate it, and certainly make it quickly detectable should it happen.

Mr. Schaffer. Ms. Jarmon, in your written testimony you said the agency has experienced persistent financial management weaknesses beginning with its first agency-wide audit effort in Fiscal Year 1995. Education's auditors have each year reported largely the same serious internal control weaknesses. Why do you think the Department is not addressing those weaknesses? I mentioned the 111 recommendations that were still open as well. Why, in your opinion, are they not being addressed?

Ms. Jarmon. Some of the weaknesses that go back from the earlier years do relate to systems problems, and I believe the Department did try to purchase a new system, and there were problems with that. And, as has been mentioned here, I think there has been a lot of turnover on the financial management staff, so a lot of it relates to human resource issues and systems problems that have occurred during that period of time.

Mr. Schaffer. You also said that on the financial statements, limited improvements in 1999 were due to what you said was time consuming manual procedure tools to work around the system's inability to close the books and significant reliance on external consultants. Can you describe the problems or limitations using these ad hoc kinds of methods and what that entails for the whole audit process?

Ms. Jarmon. Well, when the financial statements can't come directly from the system, and in this case where the Department had to use additional software to close their books, it requires even more reconciliations because the statements aren't directly coming from the system so they kind of create another system that they have to reconcile. Then when there's manual intervention there's more opportunity for error, because it's very labor intensive from what we've heard. There were a lot of nights and weekends where the staff and the consultants were working just to kind of bring it all together.

The Department has about 200 appropriations, and so we had trial balances for all of those appropriations, and they had to have a system to combine all of that and produce one statement for the Department. So, it was just very, very time consuming. If it doesn't come from the system there's more opportunities for error.

Mr. Schaffer. Let me jump to the $2.7 billion in loan collections. You said that whole issue raises the possibility that the Department might inappropriately use the collections. The Treasury must have been short $2.7 billion, because of the Department's error. In other words, money the Department had inappropriately held could have been used elsewhere. Could you comment on how Education's mistakes can have a ripple effect?

Ms. Jarmon. In this case, I'm not sure when the money was supposed to be sent to Treasury, or at what point. Mr. Holleman has mentioned that the Treasury now has the money, but there is some period of time where Education had the money, and those collections from the Federal Family Education Loan Program, could have been used for something else when they rightly should have been returned to the Treasury. That's the overall effect as far as what could have happened within the Department, which would have had an effect on the money that should have been available to the Department of the Treasury.

Mr. Schaffer. I have one final question in relation to your testimony. You said that continued weaknesses in information systems controls increase the risk of unauthorized access or disruption in services and make Education's sensitive grant and loan data vulnerable to inadvertent and deliberate fraudulent use, improper disclosure, or destruction which could occur without being detected.

This statement is particularly alarming in light of the GAO's previous work showing that the data in Education's Financial Student Loan Data System lacks reliability. It seems to me this just adds an additional layer of potential unreliability. But I'm curious, does your testimony suggest that if data were, perhaps, being tampered with it would be impossible to detect?

Ms. Jarmon. We believe the computer security problems, especially those highlighted in the report issued by the IG Friday, which go into more detail than what was in the audit report, are a serious concern. There are potentials for error to occur because of the security problems that might not be detected. We do see that as a problem. Computer security however is a problem on a government-wide basis.

Mr. Schaffer. Thank you, Mr. Chairman.

Mr. Roemer. Mr. Chairman?

Chairman Hoekstra. Yes.

Mr. Roemer. Could I just get a point of clarification on this, and I'm not sure what the answer is.

I'm not sure I agree with Ms. Jarmon's answer, but my understanding of the $2.7 billion, when it had been in the Department of Education for the default program in compliance, hopefully, with the Credit Reform Act, is that it should go back to the Treasury Department. However, the Treasury Department can't appropriate those funds automatically without some kind of oversight from Congress. So the ripple effect that Mr. Schaffer refers to would be that they couldn’t spend it on some Treasury program or Education program.

I sure would appreciate some clarification. I don't know if Mr. Holleman knows if eventually it would automatically go to debt reduction, or if it's reprogrammed somehow in Treasury. But, I don't think the Treasury can spend it.

Ms. Jarmon, can you be clearer on this?

Ms. Jarmon. Let me clarify that. The Federal Family Education Loan Program is not a discretionary program. It's an entitlement program. This situation may only affect borrowing of funds, and so there would be a limitation of how that could be used because it was an entitlement program.

Mr. Roemer. Okay.

Chairman Hoekstra. Mr. Holleman, does the Education Department's budget request for 2000, or 2001 include any supplemental spending to address the issue of the financial management systems?

Mr. Holleman. Right. I don't think we have a supplemental appropriation.

Chairman Hoekstra. Do you have the resources?

Mr. Holleman. We have in our 2001 budget an "S and E" account, which I believe is the request for resources to deal with these issues.

Chairman Hoekstra. If we had given you a million dollars eight months earlier, could you have fixed this problem quicker?

Mr. Holleman. Mr. Chairman, before I could answer that question, I'd have to consult with our systems people and our budget people to see, because I wouldn't want to just say that off the top of my head without knowing for sure what the answer was. But, I can find that answer out.

Chairman Hoekstra. Mr. Lampley, traditionally, what are the impediments to addressing these issues quickly? Is it time, is it money, or is it personnel or what?

Let's say Mr. Roemer and I decided that we don't want this to continue beyond October 1, 2000, for Fiscal Year 2001, and a supplemental appropriation of "X" amount of dollars that would enable the hiring of technical experts to address this, and the accelerated purchasing of equipment to take us out of the rubber band/tooth pick era into a fully professional system was budgeted. I mean, what are the impediments?

Mr. Lampley. Well, Mr. Chairman, I think you've mentioned all three. I mean, it's time, money, and resources to get this all done. I think in this case I would have to defer again to the Department, because they are going to have to prioritize how they go about accomplishing this, particularly, with the system that they have at this point in time.

Chairman Hoekstra. Well, I've not talked to Mr. Roemer about it. I've talked to Mr. Schaffer, Mr. Tancredo, other Members of the Subcommittee, and other Members on our side of the aisle, about the unacceptable condition of continuing this process with the current system for what looks like another year and a half at least, taking us through 2001.

You know, the Department doesn't educate kids. The Department facilitates the moving of resources to kids around the country to address the various issues, and to improve education around the country. In many ways it's a financial institution. And, for a financial institution, managing its resources and managing money is one of its primary functions.

It would be one thing if you were educating kids and doing a great job educating kids, but the bottom line is, you've got the employees over there who are moving money around trying to get money to young people for student loans, to states to implement education improvement programs, and to local school districts to enable them to do what they want to do locally. The bottom line here is that you are a large bank moving around $35 billion in a huge loan portfolio and it's not being done very well.

I've talked to all of my school boards, and I’ve asked every one of my school boards what would happen to them if they came back to the Education Department after being asked how they spent their funds, and said, well, we think we spent it this way. What would happen if you went back to your voters at the end of the year, or your constituents at the end of the year, and said, we really can't close our books, or we've failed an audit. Well, that's totally unacceptable. If our school board failed an audit, it would be voted out of office. Heaven forbid that we not have clean books to show the Department of Ed, because if we couldn't show clean books to the Department of Ed we'd probably have to return the money with a penalty.

So, this performance is not good enough, and it can't be tolerated for another year and a half, especially based on past performance. We are impacting people's lives by creating an environment that allows for theft and abuse of the system, and that is stealing taxpayers' money. People work hard to get that money here, and that's just creating an environment where you are going to have fraud and abuse. I know fraud and abuse will occur, but to create an environment where it can be unchecked is inappropriate.

Then going all the way down to the basic level of financial management, it's having the right systems in place, and it's having the right processes in place, so that at the end of the day when you tell 30 kids they get Jacob Javitz Scholarships, you don’t have to call back later in the week and say, sorry, we were wrong. That is how that stuff impacts people at the local level, and it is time for us to take a more active role in finding a way to provide the Education Department with the systems and the resources for the management tools that will enable them to address the issues that they have. We have to make sure that you don't come back here and have to answer these same questions again, because I'm sure that it's no more fun for you than it is for us to go through this process. I agree with Mr. Roemer, that this is the kind of hearing we should have once a year, and it should take about ten minutes. It should be, thank you very much to the Department of Education for having a clean audit. Ernst & Young, great job, thanks, we've got your recommendations for a few improvements. Good, now let's go on and talk about other issues.

We can't do that when we fail an audit dealing with $35 billion, and creating an intervention is going to be the focus from the congressional side. The current system for improving is not working. It has not fixed the problem, it doesn't look like it will fix the problem, and nobody has given me any degree of confidence that in a year and a half we won't be here again talking about the same issue. We may have addressed the systems problems but then it's still going to be a question as to whether they actually work or not, but nobody has given me any degree of confidence that we're going to have fixed the system in a year and a half.

Now it is going to take some kind of intervention activity and a special focus from Congress, whether it's money, resources, or whatever to address this problem on an accelerated basis. That is the activity that we are going to pursue over the coming days.

Mr. Roemer. Mr. Chairman, could I just have a minute?

Chairman Hoekstra. Absolutely.

Mr. Roemer. I don't want to characterize your position on this, but I think that there is some agreement between you and I in trying to help the Department of Education see significant progress, and eventually get to a point where this is a perfunctory hearing, that is done in a short amount of time. Mr. Holleman, we have you up here and you say we've not only made significant progress on the audits, knowing where things are and sweeping accounts provided by law, but we see all five categories get the highest mark.

I think we all want to see that, and I know you want to see that. You are working toward that, and I appreciate the progress that you've made. It's not enough quite yet, but you are making progress. You are moving in the right direction.

But to be fair and objective to you and to Dick Riley, who I think is the best Secretary of Education we've ever had, and to a lot of the good employees over there that are working hard on a host of programs, there are a lot of programs over there that I think Mr. Hoekstra and I would agree are important toward bold reform efforts in this country. He and I would agree on charter schools. We can get in a bipartisan mood, and agree to early money and more money for charter schools. Mr. Hoekstra and I agree on more public school choice. We agree on an emphasis on quality in the new Head Start programs, and I would advocate more money there. We agree on the reforms that we've made in a bipartisan way in Congress in helping educate kids.

I would argue adamantly and vociferously for the Department's position in some of the higher education areas. I mentioned the huge progress we've made on cutting down on student loan default rates, to the degree of $2.8 billion for taxpayer’s money and better efficiencies.

So, I think in context, in fairness and objectivity, I personally would say there have been a lot of good things that have taken place over the last eight years in the Department of Education. I'm not here to beat up on you, just in this one area, I'm here to tell you that I think you've done a phenomenally good job in a host of different areas, but we need to see a lot more progress in this area. This is an area of important jurisdiction for us as a Congressional Oversight Committee, for taxpayers to get their money's worth, and for us to be able to go to taxpayers and say, you guys want to invest more in education? We are the bottom line for accountability in education, and there's nothing more serious than how the Department spends its money, and how they account for that money to the taxpayer.

So, I think Mr. Hoekstra and I really want to see some progress in this area. We want to see cooperation between the Oversight Committee and you. We thank you for your time today, and we hope that next year's report will be a lot better.

Chairman Hoekstra. With that, the Subcommittee will be adjourned.


Whereupon, at 12:30 p.m., the Subcommittee was adjourned.