Discussion and Analysis

Management’s

FY 2004 Performance and Accountability Report—U.S. Department of Education 1

Today, education is perhaps the most important function of state and local
governments. … It is the very foundation of good citizenship. … In these days,
it is doubtful that any child may reasonably be expected to succeed in life if he
is denied the opportunity of an education. Such an opportunity, where the
state has undertaken to provide it, is a right which must be made available to
all on equal terms. …

We conclude that, in the field of The message of Brown v. Board was:

public education, the doctrine of
"separate but equal" has no place. separate schools are inherently unequal.
The message of No Child Left Behind is:
—Brown v. Board of Education of Topeka,
separate instruction—instruction that is
347 U.S. 483 (1954)
based upon assumptions that certain
children cannot learn—is inherently
unequal. And this Administration, and I,
as Secretary of Education, will not tolerate
schools that practice the soft bigotry of low
expectations.
—Secretary Rod Paige

The Journey
from Access
Schools Respond to Crisis
As Hurricane Charley approached landfall on
Saturday August 14, 2004, the Charleston Students With Disabilities Meet the Challenge
County School District in South Carolina was
Expectations for students with disabilities have increased over the
prepared to respond to the catastrophe thanks last 15 years and so has progress. Today’s students
to an emergency and crisis-planning grant
 First receive services at the average age of 7.4, almost one
from the Department. The district’s campus year earlier than 15 years ago.
safety coordinator, stationed at a command  Receive services in greater numbers with about three-quarters
post established by the city of Charleston, of eligible students receiving at least one service compared to
watched NOAA satellites and monitored the a little more than half 15 years ago.
situation until she got clearance from  Are more likely to be educated at the typical grade level for
their ages; 53 percent of high school students are educated at
transportation/highway patrol. She then
the typical grade level compared to 32 percent 15 years ago.
radioed the district's logistics team to examine  Are more likely to be served in regular classroom; 28 percent
the schools as the storm left the geographic are served in regular classrooms 100 percent of the time.
area. Hours after Charley passed, all 79  Are more likely to earn a high school diploma; currently
schools had been individually inspected and almost half of students achieve this distinction.
repaired. Because of this assessment and
Sources. Wagner, M., Cameto, R., and Newman, L. (2003). Youth with
response effort, all schools were open on Disabilities: A Changing Population. Menlo Park, CA: SRI International.
Monday. Department of Education, Annual Office of Special Education Programs state
reported data.
 Beating the Odds IV
Students in schools in large cities often face the greatest
odds and need the most help to reach academic excellence. Taking What Works into the
Thus, the most recent Council of Great City Schools’ report, Classroom
Beating the Odds IV, was met with applause. Schools in Transforming education into an evidence-
large cities are meeting the challenge and made important based field means moving research findings
gains in reading and math scores on 2003 state assessments. into classroom practice. Progress was made
Fresh evidence also exists that gaps may be narrowing this year when the Department’s What Works
between cities and states, between African Americans and Clearinghouse (WWC) released a series of
whites, and between Hispanics and whites. Findings show study reports reviewing the evidence of
that effectiveness of Peer-Assisted Learning. In
 84.6 percent of all grades included in the Great City evaluating the quality of research on students
Schools report showed gains in math scores. working in pairs or small groups, the
 72.1 percent showed gains in reading scores. clearinghouse found that the first set of peer-
 73.1 percent of fourth grades tested narrowed the assisted learning studies shows positive
achievement gap between whites and African effects for some peer-assisted learning
American students. strategies, but no effects for others. With two-
 60.0 percent of fourth grades tested narrowed the gap thirds of teachers engaging students in some
between whites and Hispanics. type of group work on a weekly basis,
Districts in the Council of Great City Schools enroll synthesized information on Peer-Assisted
15 percent of the nation’s public school students and Learning studies could not be more timely,
30 percent of the nation’s African American, Hispanic, relevant and useful. The clearinghouse
limited English proficient, and poor students. focuses on studies that measure elementary
Source. http://www.cgcs.org/reports/beat_the_oddsIV.html.
academic outcomes in reading, math, and
science and that can be used to inform
instructional practice and teacher professional
development.

to Sources. http://www.w-w-c.org and

http://www.ed.gov/news/pressreleases/2004/07/07012
004.html.

Excellence Financial Aid Management Attains Best-Ever Performance in Key Indicators

"Low interest rates and strong program management are some of the factors that have resulted in an all-time low in student loan
default rates—5.2 percent," Secretary Rod Paige said on September 14 as the Department released the national cohort default rates
for FY 2002, the latest year for which data are available.

A number of factors have contributed to the lower rate. Schools and partners in the student loan industry have made debt
repayment a priority, and interest rates are at historic lows. In July, student loan interest rates dropped to 3.37 percent—the lowest
in 35 years—saving student loan borrowers millions of dollars and making repayment more affordable.

The Department's Office of Federal Student Aid (FSA), the federal government's first Performance-Based Organization, directs
efforts to improve service to students and parents and to strengthen overall management of student aid programs. The historic lows
in default rates occurred largely through FSA's activities in
 Working with student aid partners to identify borrowers who may need repayment assistance and to discuss consolidation and
other options before the borrower goes into default.
 Increasing the efficiency of Direct Loan consolidations, which has reduced federal costs from $111 per consolidation in
FY 2001 to $66 per consolidation in FY 2004.
 Increasing total annual collections on defaulted loans that the Department holds from $691 million in FY 1998 to $1.8 billion
in FY 2004.
I fervently believe that every child can learn.
—Secretary Rod Paige
 DEPARTMENT AT A GLANCE

billion in support of more than 92,000 public schools

Our Mission across the nation.
“Mighty oaks from tiny acorns grow,” and the seal of the
American student achievement at the elementary and
Department of Education reflects this belief. We at the
secondary level has, with few exceptions, shown little
Department are committed to the millions of children,
improvement since 1970 despite federal assistance that
youth, and adults who depend on education to fulfill their
has supplemented increasing state and local education
goals. Achieving these goals is hard work. Becoming a
revenues. A single year—or even three years—of No
police officer, a teacher, an economist, a nurse—indeed,
Child Left Behind’s commitment to standards and
any profession requiring years of disciplined study—
accountability will not reverse a generation’s lack of
means more than a student wanting to be someone
academic progress.
special when he or she grows up. It means a challenging
curriculum taught by dedicated instructors. It means But there are signs of
encouragement and assistance improvement throughout
when subjects become difficult. American schools as
It means having money T o ensure equal access educators seek to realize each
available to pay for advanced
studies.
to education student’s potential to meet
high academic standards. A
Education is the bedrock of
and to promote recent three-year trend
individual aspiration and educational excellence analysis of student
achievement in the 23 states
achievement; it is also the
bedrock of our economy and
throughout the nation with comparable reading
scores and the 24 states with
our nation’s strength. We rely
comparable math scores
on education to train our first
found reading achievement
responders, our health care
up in 65 percent of those
professionals, our scientists and
states (15) and math
engineers—all our citizens.
achievement up in 96 percent
Our democracy depends on an educated electorate and
(23). Reading scores declined in 5 states (22 percent);
skilled workers. We at the Department of Education play
math scores declined in 1 (4 percent). More results from
an important supporting role by helping America’s
this study1 are shown in the following table.
schools to strive for greater success.
Results for States That Had at Least Three Years’ Data
Disaggregated by Race, Ethnicity, and Family Income
Our Customers: Students, Parents, In Reading In Mathematics
Schools, and Postsecondary The African American-white
gap narrowed in 16 states and
The African American-white
gap narrowed in 17 states,
Institutions grew wider in 3.
grew wider in 2, and remained
the same in 1.
The Latino-white gap The Latino-white gap
When the No Child Left Behind Act took effect on narrowed in 14 states, grew narrowed in 16 states, grew
wider in 3, and remained the wider in 3, and remained the
January 8, 2002, the federal government intensified its same in 2. same in 1.
commitment to more than 50 million students of The Native American-white The Native American-white
gap narrowed in 13 states, gap narrowed in 14 states,
America’s elementary and secondary schools. The grew wider in 2, and remained grew wider in 2, and remained
Department of Education has invested significant the same in 2 the same in 2.
The gap between poor and The gap between poor and
resources to further the academic improvement of non-poor students narrowed in non-poor students narrowed in
America’s children between preschool and the 12th-
grade. In fiscal year (FY) 2004, we channeled $34 1
Education Trust, Measured Progress: Achievement Rises and Gaps
Narrow, But Too Slowly, October 2004.

FY 2004 Performance and Accountability Report—U.S. Department of Education 5

Department at a Glance Management’s Discussion and Analysis

9 states and grew wider in 1.* all 10 states examined.* Through these concentrated investments, and guided by
*Only 10 states provided data for both poor and non-poor students.
Scores on the most recent National Assessment of the principles of accountability and research-based
Educational Progress in school year (SY) 2002–03 instruction, the Department’s efforts help to ensure a
showed significant increases nationally in mathematics quality education for all American children.
achievement in the fourth and eighth grades that were We also are committed to continually enriching
replicated among African Americans and Hispanics (both America’s renowned postsecondary education systems
of whom reduced gaps with white students), and and to lowering barriers to access for those facing
economically disadvantaged students (who reduced gaps economic obstacles. As with the earlier instructional
with those from higher-income families). Also, years, the Department of Education supplements existing
preliminary student performance data and school higher education spending with concentrated funding
accountability indicators on statewide academic that improves institutional quality and opens the
assessments brought encouraging news during SY 2003– postsecondary door to students from disadvantaged
04. Compared to a year ago, the percentage of schools backgrounds. We also play a primary role in financing
making adequate yearly progress toward student the education of millions of students each year by
proficiency has increased significantly in many states. making available student loans at lower-than-market
Increases in the number of schools meeting state interest rates and by providing increased funds for need-
adequate yearly progress targets are partly the result of based Pell grants. Recent data on graduation rates from
increased flexibility allowed to states in defining postsecondary degree-granting institutions are showing
adequate yearly progress and partly the result of promising results for students from traditionally
increases in the number of students from all subgroups underrepresented subgroups, as African American and
meeting state proficiency standards on state assessments. Hispanic students have reduced the graduation gap with
Although federal funds constitute less than 10 percent of white students since 2000. Although many factors
all elementary and secondary school funding, these funds contribute to this excellent news, the provision of need-
are being directed toward classroom activities that help based aid by the Department may play a significant role.
all students learn important fundamentals: At a time of constrained federal discretionary spending,
 Funding increases for Title I grants to high- achieving the goals of academic excellence and
poverty schools and Reading First grants for expanded access to quality education requires that every
increasing the focus on beginning readers helped dollar be spent wisely. As an agency that supplements
disadvantaged children to concentrate on far larger sums of state and local money, the Department
classroom essentials and improve literacy skills, of Education faces a further challenge of targeting funds
from which all other knowledge springs. toward their best use in support of ongoing local
academic improvement efforts. To serve our customers
 Similar targeted funding increases for the
and America’s future, we strive to meet this challenge
Individuals with Disabilities Education Act
every day.
extended comparable opportunities to students
overcoming serious obstacles to living, working,
and learning. Organization and History
 Federal assistance for teacher professional With the smallest workforce of the 15 cabinet-level
development helped states push toward the goal of departments (4,400 employees) managing the third-
having highly qualified teachers in core subjects at highest annual appropriation of discretionary funds, we
every public elementary and secondary school by at the Department of Education make a dollar go a long
2006. way. In addition to our appropriations, which are largely
used to provide discretionary and formula grants to
educational entities throughout the nation, our student

6 FY 2004 Performance and Accountability Report—U.S. Department of Education

Management’s Discussion and Analysis Department at a Glance

loan portfolio is exceeded in total loan volume, percent below the level at the Department’s creation,
education-related or otherwise, by only two American although program funding has
banks.

The Department organization chart is aligned with our

2002–2007 Strategic Plan, and our functions are neatly
divided between program policy and internal
management concerns. The Office of the Deputy
Secretary oversees the Department’s principal offices
that administer the policies, regulations, and guidance
regarding the numerous federal education laws. The
staff of these offices assist states, school districts,
colleges, students, parents, and the general public in
increasing the awareness and availability of optimal
educational opportunities throughout the United States.
The Office of the Under Secretary directs the internal
management of the Department, ensuring that funds are
responsibly accounted for and that program performance
is measured and improved effectively.

Many of our major activities spring from laws first

enacted before the Department was created in 1980. The
Elementary and Secondary Education Act, the Higher
Education Act, the Individuals with Disabilities
Education Act, and the Pell Grant Program emerged
between 1965 and 1975, giving the federal government a
significant role in education policy, especially in increased in inflation-adjusted terms by 96 percent. We
comparison to its original function of keeping education also use our resources wisely, with approximately two
statistics in a smaller Office of Education 137 years ago. percent of Department appropriations funding
administrative overhead. In this manner, the task of
Today, the federal role in education is a subject of intense
making sure that no child is left behind benefits from a
debate, and some Americans seek a smaller federal role
targeted and coordinated federal presence.
in education matters. The Department is duly attentive to
this concern. We do not supersede the authority of states
and school districts, which spend over $450 billion Civil Rights Enforcement
annually on elementary and secondary education to In 2004, President Bush delivered remarks honoring the
operate schools, employ teachers and administrators, and anniversaries of two watershed events in America’s
establish challenging content and achievement standards. longstanding efforts to bring about equal educational
Our role is to support state and local efforts with opportunity. In a speech commemorating the 50th
resources that target students in need of economic and anniversary of Brown v. Board of Education, the
academic assistance, with sponsored research that landmark Supreme Court decision that declared separate
provides teachers with effective instructional strategies, but equal schools to be unconstitutional, the President
and with leadership that encourages state and local stated, “…while our schools are no longer segregated by
leaders to improve education opportunities for all. We law, they are still not equal in opportunity and
do more with less; our staffing level is more than 40

FY 2004 Performance and Accountability Report—U.S. Department of Education 7

 DEPARTMENT AT A GLANCE

excellence.”2 On the 40th anniversary of the passage of determined that no educational justification existed for
the Civil Rights Act of 1964, the landmark statute that the segregated classrooms. The district entered into a
prohibited racial restrictions in the public arena, the voluntary agreement with the Department to develop and
President observed, “the evil of bigotry is not finally implement a race-neutral method for assigning students
defeated. Yet the laws of this nation…are on the side of to classrooms.
equality.”3
FY 2004 Discrimination Com plaints
The Department is responsible for enforcing five federal Race/
national
civil rights laws prohibiting discrimination by recipients Other origin
of federal financial assistance on the basis of race, color, 18% 17%
national origin (Title VI of the Civil Rights Act of 1964), Sex
Multiple 5%
sex (Title IX of the Education Amendments of 1972),
11%
disability (Section 504 of the Rehabilitation Act of 1973
Age
and Title II of the Americans with Disabilities Act of
1%
1990), and age (Age Discrimination Act of 1975). In Disability
addition, we enforce the Boy Scouts of America Equal 48%
Access Act, prohibiting discrimination against any group
Besides investigating complaints, the Department
officially affiliated with the Boy Scouts of America or
initiated more than 40 compliance reviews on issues
any youth group listed in Title 36 of the United States
including the misidentification of minorities in special
Code as a patriotic society. These laws protect more than
education, the misidentification of English language
54 million students4 attending elementary and secondary
learners in special education, and access for physically
schools and more than 16 million students5 attending
disabled students to postsecondary institutions. We also
colleges and universities. The Department’s Office for
continued 26 compliance reviews of state departments of
Civil Rights (OCR) is a law enforcement agency
education to ensure that Title IX coordinators were
established to support these civil rights statutes.
designated and trained and that Title IX
In FY 2004, the Department received and resolved nearly nondiscrimination policy and other information were
5,000 complaints of discrimination, thereby positively published in accordance with regulations.
affecting the lives of the nation’s students. For example, In addition to conducting complaint investigations and
in FY 2004 the Department received a complaint compliance reviews, we continued our nationwide
alleging that the principal of a junior high school was technical assistance initiative to help students with
placing black and white students in segregated disabilities make the transition from high school to
classrooms. We initiated an investigation and college, giving presentations on the subject at
determined that classes were segregated by race. During conferences and hosting interactive group discussions for
the investigative process, we learned that the new district colleges, parents, students, and high school guidance
superintendent had also conducted an investigation and counselors. In response to Executive Order 13166,
which mandates improved access to federal programs
2
President George W. Bush, May 17, 2004, at the grand opening of the and activities for persons with limited English
Brown v. Board of Education National Historic Site. proficiency, the Department contracted for telephonic
3
President George W. Bush, July 1, 2004, at a White House ceremony language assistance services so that those customers can
commemorating the 40th anniversary of the Civil Rights Act of 1964. readily communicate with OCR staff. We also translated
4
U.S. Department of Education, National Center for Education several pamphlets, including our most requested
Statistics, Projections of Education Statistics to 2013 (NCES 2004– publication, How to File a Discrimination Complaint
013), table 1, p. 45. Available at
http://nces.ed.gov/pubs2004/2004013b.pdf. with the Office for Civil Rights, into Hindi, Korean,
5
Hmong, Arabic, Vietnamese, Farsi, Chinese, Punjabi, and
Ibid, table 10, p. 57.

FY 2004 Performance and Accountability Report—U.S. Department of Education 8

Management’s Discussion and Analysis Department at a Glance

Urdu. These publications will soon enrich our electronic

civil rights reading room, which already contains
Spanish-language civil rights publications, including a
complaint form written in Spanish.6

6
Available at http://www.ed.gov/about/offices/list/ocr/docs/list-
sp.html.

FY 2004 Performance and Accountability Report—U.S. Department of Education 9

 PERFORMANCE HIGHLIGHTS

The Department’s 2002–2007 Strategic Plan7 built upon standards-based assessments in reading/language
the foundation of the No Child Left Behind Act to chart a arts and mathematics in each of grades three
course for fundamental improvement in American through eight and once at the high school level.
education and accountability in managing our own
 The number of state-approved providers offering
affairs. The six goals of our strategic plan encapsulate
supplemental educational services increased from
the major tasks that we must accomplish to fulfill our
1,451 reported by 44 states and jurisdictions in
mission. Every day, we strive to accomplish the
October 2003 to 2,535 by the end of September
following:
2004, with 51 of 52 states and jurisdictions
 Create a culture of achievement. reporting.

 Improve student achievement. Goal 2. Improve Student Achievement. The No Child

 Develop safe schools and strong character. Left Behind Act of 2001 introduced the essential road
map for elementary and secondary education reform:
 Transform education into an evidence-based field. funds to states for establishing research-based
 Enhance the quality of and access to kindergarten through third-grade reading programs,
postsecondary and adult education. increased emphasis on mathematics and science
instruction, better performance by high school students,
 Establish management excellence.
and a highly qualified teacher in every classroom. To
reach the goal of improved student achievement, the
Goal Overviews Department worked with our partners: states, districts,
Goal 1. Create a Culture of Achievement. When the and local schools. We helped states interpret and meet
Department embarked on a five-year plan for the requirements of the law by issuing regulations and
strengthening schools and accelerating the pace of guidance. We prepared grant application packages for
student achievement, we identified creating a culture of use by applicants, funded program activities, and
achievement as the first strategic goal. The required accountability for program performance. The
characteristics we have defined for this culture are Department’s practical work is a catalyst for improving
accountability for results measured at the Department state and district policy-making and for increasing
level by program performance measures and at the state academic achievement for all students.
level by state accountability plans and student
Key results for Goal 2 include the following:
assessments; flexibility and local control supplied by the
No Child Left Behind provisions that allow states to  All states that assessed reading in third grade met
target federal funds where they are most needed; their targets for achievement of students in the
expanded parental options offered by charter schools, aggregate.
school transfers, and supplemental services; and doing  High school students, including students in the
what works by knowing the results of scientific research aggregate, African American students, and
in education interventions and using those interventions Hispanic students, participated in advanced
in classrooms. placement tests at a higher percentage rate than
Key results for Goal 1 include the following: they did in the previous year.

 Two years ahead of schedule, 23 percent8 of states Goal 3. Develop Safe Schools and Strong Character.
had accountability systems in place that included A safe and orderly learning environment is essential to
8
This is a preliminary estimate; the Department has not yet reviewed
7
Available at http://www.ed.gov/about/reports/strat/plan2002- these state systems to determine whether they meet No Child Left
07/index.html. Behind requirements.

FY 2004 Performance and Accountability Report—U.S. Department of Education 10

Management’s Discussion and Analysis Performance Highlights

students’ social and academic development. In This year, the Department strengthened the quality of the
underscoring the Department’s commitment to safe and research and projects that we fund and conduct. The
drug-free schools, Secretary Paige stated that “we must National Center for Education Statistics completed
ensure that all students learn about citizenship and reports of national significance, while constantly
character in schools that are safe and free of alcohol and improving its reporting and methodological techniques.
drugs if we are to meet the lofty goals of the No Child The National Institute on Disability and Rehabilitation
Left Behind Act.” As today’s students develop into Research made contributions to those with disabilities
tomorrow’s citizens, their academic accomplishments, through its support of new technology.
character development, and civic awareness will have an
Key results for Goal 4 include the following:
immense impact on the nation’s economic and social
prosperity.  Department education research projects met high
methodological standards in FY 2004.
To develop and maintain safe schools, the Department
Approximately 90 percent of projects that
works with grantees to implement comprehensive
addressed causal questions used rigorous research
programs for reducing and preventing substance abuse,
methods employing randomized experimental
improving crisis planning and response, and providing
design.
character education. In FY 2004, the Department
worked with state and local educational, law  The Department’s What Works Clearinghouse
enforcement, and public health agencies to reduce and released its first study reports; they addressed
prevent violence and substance abuse. To support peer-assisted learning and middle school
students’ social and personal development, our character mathematics curricula.
and citizenship education programs implemented
Goal 5. Enhance the Quality of and Access to
strategies to imbue students with democratic societal
Postsecondary and Adult Education. Just as
values while creating a solid foundation for a healthy
elementary and secondary education are enhanced via No
school climate.
Child Left Behind, postsecondary and adult education
A key result for Goal 3 is the following: benefit from the Department’s efforts to improve
educational excellence throughout America. Pell Grants
 Youth victimization and criminal involvement
and federal student loans help millions of Americans
rates for 2003, the most recent data available,
pursue postsecondary degrees and certificates each year.
show a reduction from 2002 rates.
Approximately $1 billion in federal TRIO and GEAR UP
Goal 4. Transform Education into an Evidence-Based grant program funds help underprivileged middle and
Field. Transforming education into an evidence-based high school students prepare for postsecondary
field requires high standards for evaluating education education. Funding is targeted to higher education
research, which lead to a better understanding of what institutions with historic ties to underserved minority
works in education. In FY 2004, the Department populations so that they can better provide opportunities
demonstrated how we can use rigorous studies to inform for higher education. Vocational rehabilitation agencies
the work of decision-makers at all levels of education. assist individuals with disabilities to improve
Education improvement goes hand in hand with valid employment skills and enhance economic independence.
and reliable evidence of effectiveness. The Department’s Adult literacy efforts bring hope to many Americans for
Institute of Education Sciences has furthered its research a more prosperous future. International programs offer
oversight role to provide educators and decision-makers individuals a chance to interact with and learn from
with the tools necessary to obtain and understand diverse cultures all over the world.
research in the field.
Department programs enable many Americans to access
postsecondary and adult education. Student loan interest

FY 2004 Performance and Accountability Report—U.S. Department of Education 11

Performance Highlights Management’s Discussion and Analysis

rates are the lowest in 35 years, providing incentives for Excellence directly align with the President’s
postsecondary enrollment and less burdensome Management Agenda.
repayment. Wise management of our student loan
Goal 6 of the Strategic Plan, the Blueprint for
portfolio provides needed funds quickly and helps
Management Excellence, and the President’s
achieve historically low cohort default rates. Enhancing
Management Agenda clearly articulate goals for ensuring
the excellence of postsecondary and adult education and
the Department has the right people, in the right place, at
enabling affordable access to as many people as possible
the right time, doing the right work. The plans set up a
will help America maintain its competitive advantage in
framework for how information technology investments
the global economy. In FY 2004, the Department made
can improve the work processes of the Department and
significant progress toward attaining these goals, as well
the services for our customers and partners. The plans
as identifying areas in need of further improvement.
also focus the Department’s efforts on ensuring that
Key results for Goal 5 include the following: appropriate internal controls and financial systems are in
place to provide managers with accurate and timely
 Graduation rates from four-year institutions have
financial and performance information for managing
increased since 2000 in the aggregate as well as
day-to-day operations. The accurate and timely financial
for white, African American, and Hispanic
and performance information allows the Department to
students. Gaps in graduation rates between whites
tie performance expectations and funding requirements
and African Americans and between whites and
effectively.
Hispanics have narrowed slightly during that time.
Graduation rates from two-year degree-granting Key results for Goal 6 include the following:
institutions have decreased since 2000, but gaps
between whites and African Americans and  The Department dramatically improved internal
controls and data integrity, as reflected in three
between whites and Hispanics have narrowed
sequential clean audit opinions and the ability to
noticeably.
use financial data on a day-to-day basis to help
 Ninety-four percent of persons that achieve an inform management and programmatic decisions
employment outcome after being served by state Department-wide.
vocational rehabilitation agencies obtain
competitive employment.  The Department improved the way we exchange
data and interact with customers by enhancing the
Goal 6. Establish Management Excellence. The most use, management, and security of information
important asset of a government agency is the public’s technology investments.
respect and confidence. To earn them, an organization
 The Department identified and refined
must establish a culture of management excellence. The
performance measures for our programs, using
first step to achieving management excellence is to
data and analysis to inform funding
articulate clearly the results to be achieved. The
recommendations, and focusing on the results to
Department has established the management results it
be expected from the programs.
seeks in Goal 6 of the Strategic Plan and in the Blueprint
for Management Excellence. The Blueprint for
Management Excellence is a living plan consisting of a
Strategic Planning and Reporting
series of actions to focus all of the Department’s These six goals of the Strategic Plan 2002–20079
employees on the most pressing issues affecting the establish appropriate priorities for the Department of
management of the Department. Both Goal 6 of the Education in enabling greater academic achievement in
Strategic Plan and the Blueprint for Management
9
Available at http://www.ed.gov/about/reports/strat/plan2002-
07/index.html.

12 FY 2004 Performance and Accountability Report—U.S. Department of Education

Management’s Discussion and Analysis Performance Highlights

America’s classrooms. The preceding overviews programs could discern such a linkage, but the absence
demonstrate a coordinated set of objectives and actions of performance metrics at the program level is now
flowing from the goals that shape our work into a clearly the exception rather than the rule. Furthermore, if
cohesive whole. the conventional wisdom that one gets what one
measures is proven true, the increasing use of rigorous
The Government Performance and Results Act requires performance measurement will help to bring about the
us to establish meaningful performance standards for positive results we seek.
activities for the agency as a whole and for the 158
statutorily authorized programs that we administer. The Department constantly seeks to strengthen the
Whether a program’s budget is $12 billion (such as linkage between financial investments and program
Title I) or $12 million (such as Client Assistance State quality. We do this not only through the development of
Grants), we have established performance measures and program measures, but also through various reporting
targets for most of our programs so that we can mechanisms and effective budget management. This
demonstrate accountability to the public. report is one example of how we provide comprehensive,
accurate information to the American public in a timely
Our FY 2004 Annual Plan10 was the fundamental manner. The following are some other major activities
planning document for the year just passed. It identified related to budget and performance integration.
specific strategies and action steps to carry out our goals
and objectives, made necessary adjustments to Program Assessment Rating Tool. The President’s
agencywide performance measures and targets originally Office of Management and Budget (OMB) has
established in our strategic plan, and established and systematically assessed the quality of government
refined program-level measures and targets in an online programs over the past three years. Through the
supplement. Program Assessment Rating Tool (PART), OMB works
with federal agencies to judge the effectiveness of
At the end of FY 2004, this Performance and programs with regard to their stated purpose, strategic
Accountability Report11 shows the extent to which these planning, internal management, and results and
actions translated into meaningful results and successful accountability. Although primarily a diagnostic tool for
investment of public funds. We also include in this programs, PART reviews provide critical information
document the lessons we learned that will refine our that can be used to establish funding priorities for the
policy and management activities during FY 2005 to subsequent budget cycle.
enable us to achieve greater success.
By September 2004, 60 Department programs had been
Integration of Performance with evaluated by OMB and the Department in this manner.
Programs receiving ratings lower than effective are
Budget and Finance required to implement a plan of action to upgrade their
Focusing on results and accountability with performance demonstrated level of quality. By 2006, most
monitoring and financial reporting is a sound practice for Department programs will have undergone a PART
increasing the productivity of cash. One critical gauge of evaluation.
how well taxpayer dollars are being used is for an agency
This Performance and Accountability Report includes
to link the performance of its programs to subsequent
detailed information on the first 18 programs evaluated
budget determinations. Not long ago, few federal
through PART in preparation for the Department’s
FY 2004 budget submission. The Performance Details
10
Available at http://www.ed.gov/about/reports/annual/ section will show how these programs have implemented
2004plan/index.html.
changes to improve their effectiveness during FY 2004.
11
Available at http://www.ed.gov/about/reports/annual
/2004report/index.html.

FY 2004 Performance and Accountability Report—U.S. Department of Education 13

Performance Highlights Management’s Discussion and Analysis

Crosswalk of Appropriations and Net Cost to For example, large formula programs, such as Title I and
Strategic Plan Goals. This Performance and IDEA State Grants, may receive both “forward-funded”
Accountability Report strengthens the alignment of and “advance” appropriations. Forward-funded amounts
financial data and performance priorities by again of FY 2004 funds for these programs were not available
identifying appropriations and net costs for the goals of for award until July 2004, nine months after the
the Strategic Plan. Each Department program is aligned beginning of FY 2004. Advance amounts were not
with the same strategic goal as a year ago, enabling both available until October 2004 (at the beginning of
our appropriations and our estimated net costs to clearly FY 2005). Both forward-funded and advance amounts in
reflect the discrete priorities of the Strategic Plan. FY 2004 are intended for use primarily during SY 2004–
05, and these funds can be carried over for obligation at
Integrating Performance Plan into Budget. During the state and local levels through the end of September
the past year, the Department incorporated our FY 2005 2006.
annual performance plan into our submission of the
Department’s budget to OMB. For the FY 2006 budget Funds for competitive grant programs are generally
cycle, the budget and annual plan are again being available when appropriations are passed by the
formulated concurrently and are increasingly integrated. Congress. However, the processes required for
Of particular note, many Department-wide performance conducting the grant competitions often result in
measures and targets are consolidated with existing awarding grants near the end of the fiscal year, with
program-level measures that accurately reflect funding available to grantees for additional years.
departmental objectives for the specified activity.
Thus, the results we see during FY 2004, which are to be
Funding Challenges. The Department’s challenges of measured for this report, are not solely the results of
linking performance results to the budget are actions taken with FY 2004 funds, but rather the
complicated by the fact that we accomplish our combination of funds from FY 2002, FY 2003, and
objectives indirectly, with nearly 98 percent of our FY 2004. Furthermore, the actual results of education
funding going out in grants and loans, and further programs are often not apparent until long after the funds
complicated by the schedule of funding for these are expended. For example, a program to nurture middle
programs. school students in ways that will increase the likelihood
they go to college has approximately a six-year lag time
In the Department, only a portion of a given fiscal year’s for measuring initial results.
appropriations are actually available to state, school,
organization, and student recipients during the fiscal year Although we cannot isolate program results and link
they are appropriated; the remainder become available at them directly to a fiscal year’s funding, performance
or near the end of the appropriation year or in the during a single program year serves as a proxy, because
subsequent year and remain available to recipients for most of our programs are ongoing. Therefore, in the
varying lengths of time, as long as 27 months or more. spirit of budget and performance integration, this report
Thus, linking appropriated funds and program results for shows the approximate proportion of both funds
a particular fiscal year is not only complex, but also appropriated for FY 2004 and funds expended in
different for different programs. FY 2004 that support each of the Department’s programs
and strategic goals.

14 FY 2004 Performance and Accountability Report—U.S. Department of Education

 FINANCIAL HIGHLIGHTS

Overview reporting deadlines, and developing and using new

management reports.
Fiscal operations in FY 2004 achieved marked progress
as required by the Secretary and the President. We
continue to execute our annual plans and our Blueprint Departmental Management
for Management Excellence, which provide the The Department continues to use the Blueprint for
foundation for our progress toward management Management Excellence to establish priorities for
excellence. management improvement; facilitate effective
monitoring of Department programs; eliminate financial
Goal 6 of the Department’s strategic plan commits us to
management deficiencies; and prevent fraud, waste, and
management excellence, and overall financial
abuse of taxpayer dollars. These priorities include the
performance is improving in concert with our increased
following:
focus on academic performance. As the No Child Left
Behind Act approaches its third anniversary, the  Improving financial integrity through reporting
Department earned our third consecutive unqualified transparency, monitoring, and effective internal
independent audit opinion. This indicates that the controls.
taxpayers and other readers of our financial statements
 Managing information technology to meet internal
can rely on the information presented and are accurately
requirements and customer needs.
informed of the status of the Department’s financial
position and the stewardship of our assets.  Improving management of human capital.

Solid management controls ensure that an unqualified Improved management reporting enables managers to be
audit opinion is sustained and that effective stewardship accountable and supports the concepts of the
of assets is maintained. The Department recognizes the Government Performance and Results Act (GPRA) and
need for accountability, and management supports the the principles of the President’s Management Agenda.
culture change necessary to derive results from all levels. Both GPRA and the President’s Management Agenda
require the Department to (1) establish a strategic plan
In addition to effectively maintaining management with programmatic goals and objectives, (2) develop
controls, many of the processes that previously required appropriate measurement indicators, and (3) measure
herculean efforts are now routine for fiscal managers, a performance in achieving those goals.
direct result of strategic system investments. The
Department derives the maximum benefit from this During FY 2004, we improved our management
investment by redeploying resources to create effective reporting to include monthly fiscal reporting for program
financial management tools that enhance and drive managers. Improved reporting capabilities enable the
improvements. Some of these fiscal management tools Department to integrate program results with fiscal costs
include improved reconciliation processes, executive that assist us to measure program results against
management reports, and other reports necessary to performance. Our financial reporting capabilities have
monitor the progress of our programs. become routine. This enables us to extend our financial
analysis for both program management and fiscal
The Department’s fiscal management continues to reporting in less time, thereby utilizing Department
improve. In the first quarter of FY 2004, the Department resources more efficiently and effectively.
achieved “green” on the President’s Management
Scorecard for financial management. This achievement
is a direct result of continued improvements in effective
systems utilization, meeting and exceeding quarterly

15 FY 2004 Performance and Accountability Report—U.S. Department of Education

Management’s Discussion and Analysis Financial Highlights

Lines of Business Direct Loans. Student Financial Assistance programs

assist nearly 9.6 million students and their parents by
The Department managed a budget of $67 billion in
making higher education more affordable each year. The
FY 2004, of which 59 percent went toward elementary
Federal Direct Student Loan Program provides an
and secondary programs and grants. Postsecondary
alternative method for delivering assistance to students
grants and loans accounted for 33 percent. The
of our nation. The Student Loan Reform Act of 1993
remaining eight percent went toward other programs and
created this program, which uses Treasury funds to
grants including research, development, and
provide loan capital directly to schools. The schools then
dissemination, as well as rehabilitation services.
disburse loan funds to students. The Direct Loan
As noted earlier, the Department receives through Program accounts for approximately 25 percent of the
appropriation approximately two percent of our total new student loan volume. In FY 2004, the Department
budget for administrative expenditures. Therefore, disbursed approximately $20 billion in direct loans to
management must be diligent in its allocation and eligible borrowers. As of September 30, 2004, the value
administration of resources. The remaining 98 percent of of the Department’s direct loan portfolio is $93.7 billion.
our appropriations is spent on three primary lines of
business—Grants, Guaranteed Loans, and Direct Loans. Financial Position
Grants. A significant part of the Department’s budget is The Department’s financial statements, which appear on
used to support ongoing programs that were reauthorized pp. 115–119, received an unqualified audit opinion
or created by the implementation of the No Child Left issued by the independent accounting firm of Ernst &
Behind Act. This support is provided to state and local Young LLP for the third consecutive year. Preparing
governments, schools, individuals, and others that have these statements is part of the Department’s continuing
an interest in educating the American public. efforts to achieve financial management excellence and
to provide accurate and reliable information that is useful
The Department’s two largest programs, Title I grants for for assessing performance and allocating resources.
elementary and secondary education, and Pell grants for Department management is responsible for the integrity
postsecondary financial aid, each exceeded $12 billion in and objectivity of the financial information presented in
awards made to the public for FY 2004. Special the financial statements.
Education Grants to States under the Individuals with
Disabilities Education Act (IDEA), our next largest The financial statements presented in this report have
program, awarded more than $11 billion. been prepared from the accounting records of the
Department of Education in conformity with generally
Guaranteed Loans. The Federal Family Education accepted accounting principles (GAAP) in the United
Loans Program makes loan capital available to students States. GAAP for federal entities are the standards
and their families through more than 3,400 private prescribed by the Federal Accounting Standards
lenders. Through 36 active state and private nonprofit Advisory Board (FASAB).
Guaranty Agencies, the Department administers the
federal loan guarantee protecting lenders against losses Balance Sheet. The Balance Sheet presents, as of a
related to borrower default. The program accounts for specific point in time, the economic value of assets and
about 75 percent of student loan volume. As of the end liabilities retained or managed by the Department. The
of September, the total principal balance of outstanding difference between assets and liabilities represents the
guaranteed loans held by lenders was approximately net position of the Department.
$245 billion, with the government’s estimated maximum
The Balance Sheet displayed on p. 115 reflects total
exposure being $240 billion.
assets of $172.6 billion, a 10 percent increase over
FY 2003. This increase is attributable to the increased

16 FY 2004 Performance and Accountability Report—U.S. Department of Education

 Total Assets vs Total Liabilities

$200 $173
$157
$145
$150 $124 $118 $128

Billions
$115 $110
Financial Highlights $89 $95
Management’s Discussion and Analysis
$100

$50
funding related to implementation of the No Child Left
Behind Act and the anticipated steady growth of the $0
FY00 FY01 FY02 FY03 FY04
Student Financial Assistance programs.
Total Assets Total Liabilities

The majority of our liabilities, 80 percent, consist of

intragovernmental liabilities. The Department’s
intragovernmental liabilities consist mainly of Treasury
debt, which is directly related to the Department’s focus
on ensuring that funds are available for any student
desiring a postsecondary education.

Several factors influenced the change in the

Department’s Net Position during FY 2004. This
includes the timing of the execution of prior year subsidy
Net Cost by Fiscal Year
re-estimates and the overall management of Department
capital structure. Net Position increased by 12 percent $70.0

over FY 2003. $60.0

$58.8
$63.6
$50.0
$49.8
Statement of Net Cost. The Statement of Net Cost is
Billions

$40.0 $39.8
$30.0
designed to present the components of the net cost of the $32.7
$20.0
Department. Net cost is the gross cost incurred less any
$10.0
revenues earned from Department activities. The $0
Statement of Net Cost is presented to be consistent with FY00 FY01 FY02 FY03 FY04

the Department’s strategic goals, as directed by the

President’s Management Agenda. The Department Statement of Budgetary Resources. This statement
experienced an eight percent increase in total net costs provides information about the provision of budgetary
during FY 2004. resources and their status as of the end of the reporting
period. Information in this statement is consistent with
The Enhancement of Postsecondary and Adult Education
budget execution information and the information
(Program A), which tracks with the Department’s
reported in the Budget of the United States Government.
funding for Strategic Goal 5, experienced a six percent
increase in costs over FY 2003. Programs B and C are The statement displayed on p. 118 shows that the
representative of creating a culture of achievement, safe Department had $131.8 billion in budgetary resources,
schools, and the transformation of education, and $17.4 billion of which remained unobligated with
combined they track with Goals 2 and 3. These $15.8 billion not available at year-end. The amounts not
programs experienced a 10 percent cost increase in available at year-end represent funding that is provided
FY 2004. in advance for activities in future periods. The
Department had $61.7 billion in Net Outlays for
FY 2004.

Statement of Financing. This statement demonstrates

the relationship between an entity’s proprietary and
budgetary accounting information. It links the net cost
of operations (proprietary) with net obligations
(budgetary) by identifying key differences between the

FY 2004 Performance and Accountability Report—U.S. Department of Education 17

Management’s Discussion and Analysis Financial Highlights

two statements. This statement is structured to identify highlights electronic information-sharing capabilities via
total resources used during the fiscal year, and then data networks.
makes adjustments based on whether the resource was
used to finance the net obligations or net cost. E-Government
Operations Model

This statement, displayed on p. 119, identifies Federal

State & Local Government
$66.9 billion of resources used to finance activities, Government
Private Sector

$402 million of resources not part of the net cost of

operations, and $2.9 billion of components of net cost of Integrated
operations that will not require or generate resources in E-Networks
Federal Federal
the current period. Agency A Agency D

Future Trends
Federal Federal
Agency B Department Agency C
Of
Education
From a financial management perspective, the
Department of Education is unique among federal
General Public
government agencies. The Department has a high
number of appropriations, over 200, which we must
This model will create public value by optimizing
manage, consolidate, and for which we must account.
government operations and providing effective oversight
We maintain the smallest number of employees while
in a most efficient manner through a unified data
managing the third largest discretionary budget of
network. To ensure success, the strategic technology
cabinet-level agencies.
investment plan will be coordinated with human resource
A continuation of the current trends in full-time management and planning governmentwide.
equivalents (FTEs) will result in a critical reliance on a
Human Capital Transformation. A results-oriented
sound departmental intellectual capital plan. It will
enterprise requires that an organization clearly identify
become increasingly important for the Department to
and achieve valuable results. The Department of
coordinate strategic technology investments with human
Education’s Results Agenda clearly articulates the
capital management.
expectations for this organization. As a result,
Technology Transformation. Technology Department personnel have the information available to
improvements will continue to empower organizations in understand what is expected of them and for what they
the future by increasing the availability of a critical will be held accountable.
resource: time. Through these improvements, executive
The Under Secretary has articulated the following five
management can spend additional time on policy
human capital expectations:
analysis and decision-making rather than on the
processing and compiling of key data. This trend at the  Effective and efficient hiring processes.
Department will continue to accelerate at an increasing
 Performance standards that clearly articulate
rate as many of our investments in systems and
expected results.
e-government continue to mature.
 Performance evaluations that differentiate among
Major Department investments currently include a performance levels.
re-implementation of the existing financial accounting
system and full participation in the ongoing
 Pay for performance.
e-government initiative. The chart on this page depicts  Customized development and succession plans.
our vision of the e-government operational model that

18 FY 2004 Performance and Accountability Report—U.S. Department of Education

Financial Highlights Management’s Discussion and Analysis

The Department is focusing significant resources on a of these activities and processes into a coherent strategic
consistent approach for the development and operating model.
implementation of a human capital management plan.
Focus on the regulatory environment requires the
The plan integrates human capital management with
Department to concentrate on the costs of identifying and
competitive sourcing and restructuring requirements. As
controlling compliance risk. Compliance risk includes
noted in the Technology Transformation section, this
systemic, non-systemic and residual risk. It is defined as
plan will be coordinated with other departmental
the risk of impairment to the organization’s operations
strategic infrastructure investments.
model, reputation, and financial condition from failure to
The Department’s continued commitment to strategic fully comply with laws and regulations, internal controls,
investments in both systems and human capital will and taxpayer expectations.
result in a robust, cost-effective environment. This, in
The Department must take a holistic approach to total
turn, provides taxpayers with an improved return on their
risk management. The value of adopting such an
investment in the Department.
approach far outweighs the costs of implementation.
Economic Transformation. Two external factors, Senior management must build long-term value by
tuition costs and interest rates, are expected to have making investments to comply with relevant regulations,
significant impact on the Department. embed compliance within the organization, manage the
costs associated with compliance, and identify and
First, increasing tuition costs for postsecondary address regulatory change. Our progressive focus on
education should compel a greater number of individuals compliance will ensure that fewer resources are
to seek tuition assistance. This assistance could be in the necessary for remediation activity.
form either of loans or grants. To the extent that
postsecondary institutions can control tuition increases, Management Challenges
demand for tuition assistance should slow accordingly.
The major challenges facing the Department include the
Second, significant portions of the Department’s budget following.
relate to external economic conditions. Prevailing low
interest rates will drive a surge in the refinancing and Financial Management. Two challenges in this area
consolidation of student loans. If interest rates remain include the implementation of the Improper Payments
stable, this trend can be expected to continue, albeit at a Information Act of 2002, and the re-implementation of
decreasing rate. the Department’s financial accounting system to Oracle
version 11i.
As transactional volumes vary, in the future, the
utilization of technology will stabilize the resulting With respect to improper payments, the Department has
fluctuations in Department activity. Technology will engaged a contractor to design an erroneous payment and
enable existing Department personnel to more effectively risk management system. A second contractor is
process changing volume levels. performing recovery audit services on contracts and
purchase orders. These two projects will develop and
Regulatory Transformation. Activities and processes refine a comprehensive risk assessment and mitigation
centering on governance, risk management, and strategy.
compliance are converging. Organizations that want to
create positive headlines must excel in all three areas. With respect to the Oracle 11i re-implementation, the
These long-term management issues require continued Department has developed a four-tiered systems
focus and sustained management commitment to ensure approach. Tiers 1 and 2 of the plan have been
future success. The Department’s future success is completed, and the entire plan will be completed by
highly dependent on our ability to merge and execute all October 2006.

FY 2004 Performance and Accountability Report—U.S. Department of Education 19

Management’s Discussion and Analysis Financial Highlights

Student Financial Assistance Programs. The Program Performance and Accountability. The
Department has several challenges related to reducing Department has several challenges involving data
the risk of fraud and error in the student aid programs reliability, program and contract monitoring, and
while maintaining appropriate end-user access. To program accountability and compliance. As indicated in
address these challenges, the Department has undertaken this report, the Department addressed this issue in the
a multiphased approach. Strategic Plan, and the Secretary has made
accountability a key priority. As an example, the
The Department has begun work to enhance and improve Department established an Insular Affairs Committee to
oversight and program reviews of schools, Guaranty address accountability and compliance issues in the
Agencies, lenders, and third-party contractors. The Virgin Islands, Puerto Rico, and the Pacific Outlying
Department has developed and trained staff, related Areas.
technical assistance guidelines, and formed a workgroup
to study data collection issues. In addition, the Human Capital. The Department encounters the same
Department will be enhancing, improving, and challenge that faces the rest of the federal government: a
implementing policies and procedures related to long-standing lack of a consistent strategic approach to
management controls, supervisory review, managing and maintaining an appropriately skilled
documentation, and record retention affecting program workforce. To address this challenge, the Department
review. Planned improvements include corrective action has undertaken a comprehensive human capital
plans related to Guaranty Agency oversight and an management initiative. This initiative includes effective
improved electronic management system. planning for future needs, recruitment, hiring, and the
development of the current workforce. The plan includes
The Department has developed strategies to reduce the five human capital expectations stated in the Human
improper payments in the Pell Grant Program. Working Capital Transformation section on pp. 17–18.
jointly with the Treasury Department and the Office of
Management and Budget, the Department has submitted We have implemented a new performance appraisal
a legislative proposal to amend the Internal Revenue system and identified and addressed training gaps and
Code that would permit income data verification. mission-critical leadership positions. We are aware that
we still have much to do and are diligently working to
Information Technology. The challenges that face the
improve our overall situation.
Department relating to information technology include
investment management, security, critical infrastructure
protection, and contingency planning. The Department Improper Payments Information
has made significant strides relating to our information Act of 2002: Narrative Summary
technology challenges. The Department will certify our of Implementation Efforts for
mission-critical general support systems and major
FY 2004 and Agency Plans for
applications by December 31, 2004, with the remaining
systems certified by the end of the second quarter of
FY 2005–FY 2007
FY 2005. In addition, we have completed a management The Department has undertaken the following initiatives
study on mission-essential infrastructure protection that relating to the implementation of the Improper Payments
will be used to test critical infrastructure Information Act of 2002.
interdependencies within the Department. The
Student Financial Assistance Programs. The
Department has also initiated several modernization
Department has completed the following required steps
efforts to increase business efficiency and improve
related to these programs:
customer service in e-government systems.
 Identified those programs and activities that are
susceptible to significant erroneous payments.

20 FY 2004 Performance and Accountability Report—U.S. Department of Education

Financial Highlights Management’s Discussion and Analysis

 Implemented a plan to reduce improper payments. Administration and Payments System (GAPS) and the
last two semiannual reports by the Office of Inspector
 Reported estimates of the annual amount of
General (periods ending September 30, 2003, and
improper payments in programs and activities that
March 31, 2004). This initial assessment indicates that
demonstrate continual progress by the Department.
the potential for improper payments in these programs is
The Department, Office of Management and Budget, and minimal.
the Treasury Department have developed and submitted
to the Congress proposed legislation to authorize the Verification Plan. The Department realizes that the
matching of Title IV Student Financial Assistance implementation of this initial risk assessment process
applicant data. Passage of this legislation will enable the draws on a limited data set, and we have put in place a
Department to further reduce the risk of improper vehicle to complete a more detailed risk assessment of
payments. In FY 2005, the Department will be assessing these grant programs. We have established a
ways to improve the measure of the risks associated with memorandum of understanding with the Department of
all Title IV programs. Energy’s Oak Ridge National Laboratory to utilize data-
mining techniques on information available from
Title I Programs. The Department performed a risk multiple sources including the Federal Audit
assessment of the Title I Program during FY 2004. This Clearinghouse’s Single Audit Database, the Department’s
assessment documented that the risk of improper GAPS database, and possibly other sources of grant data.
payments under the current statutory requirements is The relevant data from these sources will be run through
minimal. However, one area that the Department is an algorithm to assign a relative level of risk to the
closely monitoring, in conjunction with the U.S. Department’s grant programs and recipients. This effort
Department of Agriculture (USDA), is the wide use by is to be completed by January 2005. Any programs
local educational agencies of the number of children who shown to have an unacceptable level of risk will be
qualify for free and reduced-price meals to determine an targeted for additional sampling and verification efforts.
individual school’s Title I eligibility and allocation. The
Title I statute authorizes a local educational agency to Recovery Auditing Progress. To effectively address the
use these data, provided under USDA’s National School risk of improper administrative payments, the
Lunch Program, for this purpose. In many districts, Department executed a formal agreement for recovery
these data are the only indicator of poverty available at auditing work on contract payments. All vendor
the individual school level. payment transactions made from FY 1998 through
FY 2003 were reviewed. Potential recoveries are
USDA has raised concerns about the reliability of these minimal. FY 2004 payments will be reviewed during
data, and it is working with states and localities to FY 2005. Our purchase and travel card programs remain
improve program integrity, within the existing statutory subject to monthly data-mining to identify potential
and regulatory framework, through enhanced monitoring misuse or abuse.
and auditing. USDA is also working with the
Department and other federal agencies that have The Department plans to develop a manager’s internal
programs that make use of these data to explore longer- control training program that will focus on controls to
term policy options. eliminate improper payments. This training will focus
on the utilization of the risk assessment criteria to
Remaining Grant Programs. The Department properly assess the risk of improper payments in the
continues to refine our methods for assessing the Department’s programs.
potential risk of improper payments in our remaining
grant programs. The Department performed a The Department will record and maintain corrective
preliminary risk assessment of these programs during action plans as required. We will configure corrective
FY 2004 using data extracted from our Grant action plans based on the results of the initiatives

FY 2004 Performance and Accountability Report—U.S. Department of Education 21

Management’s Discussion and Analysis Financial Highlights

outlined above. These plans will include due dates, risks of improper payments and mitigating risk in this
process owners, and task completion dates. area with adequate control activities. The
implementation of our current and anticipated actions
In summary, the Department is accelerating efforts to ensures that we will maintain an effective program for
comply with the Improper Payments Information Act of reducing improper payments throughout the Department.
2002. We are focused on identifying and managing the

22 FY 2004 Performance and Accountability Report—U.S. Department of Education

 MANAGEMENT CONTROLS

The Department of Education is committed to  Our assets are safeguarded against waste, loss,
management excellence and recognizes the importance unauthorized use, or misappropriation.
of strong financial systems and internal controls to
 The revenues and expenditures applicable to
ensure accountability, integrity, and reliability. The
agency operations are properly recorded and
Department has made significant progress and continues
accounted for to permit the preparation of
to work toward achieving a culture of accountability.
accounts and reliable financial reports and to
Management, administrative, and financial system
maintain accountability over assets.
controls have been developed to ensure the following:
 All programs are efficiently and effectively carried
 All programs and operations achieve their
out in accordance with applicable laws and
intended results efficiently and effectively.
management policy.
 Resources are used in accordance with the
The efficiency of the Department’s operations is
Department’s mission.
continually evaluated using information obtained from
 All programs and resources are protected from reviews conducted by the Government Accountability
waste, fraud, and mismanagement. Office and the Office of Inspector General (OIG),
 Laws and regulations are followed. specifically requested studies, or observations of daily
operations. These reviews ensure that our systems and
 Reliable, complete, and timely data are maintained controls comply with the standards established by
and used for decision-making at all levels. FMFIA. Managers throughout the Department are
We believe that the rapid responsible for ensuring that
Statement on Management and
implementation of audit effective controls are
Financial Controls
recommendations is essential to implemented in their areas of
improving the efficiency and For the programs, organizations, and functions responsibility. Individual
effectiveness of our programs covered by the Federal Managers’ Financial assurance statements from
and operations and to achieving Integrity Act (FMFIA), I am pleased to report assistant secretaries serve as a
our integrity and accountability that the Department of Education accounting primary basis for the
goals. systems and management controls, taken as a Department’s assurance that
whole, provide reasonable assurance that the management controls are
objectives of FMFIA have been achieved. adequate. The assurance
Federal Managers’
statements are based upon
Financial Integrity —Rod Paige
each principal office’s
Secretary of Education
Act evaluation of progress made in
During FY 2004, in accordance with the requirements of correcting any previously
the Federal Managers’ Financial Integrity Act (FMFIA) reported problems; new problems identified by the OIG,
and using the guidelines of the Department and Office of the Government Accountability Office, and other
Management and Budget, we reviewed our management management reports; and the management environment
control system. The objectives of our management within each principal office. Department organizations
control system are to provide reasonable assurance that that have material weaknesses identified are required to
the following occur: submit plans for correcting those weaknesses. The plans,
combined with the individual assurance statements,
 Our obligations and costs are in compliance with provide the framework for continually monitoring and
applicable laws. improving the Department’s management controls.

23 FY 2004 Performance and Accountability Report—U.S. Department of Education

DRAFT 10/28/04

Management’s Discussion and Analysis Management Controls

FMFIA Section 2, Management Control. All of the 80 Web-based portal that provides greater access to
internal control material weaknesses identified since the performance data related to IT corrective actions. We
inception of FMFIA, have been corrected and closed. have also completed a Critical Infrastructure Protection
Last year, the Department removed information Plan interdependence study that assessed the viability of
technology (IT) security as an FMFIA material our continuity of operations plans. In addition, several of
weakness. our principal offices have implemented effective
procedures for periodic test and evaluation of the
FMFIA Section 4, Financial Management Systems. network level security controls that protect the
All of the 95 financial management systems Department’s major applications and general support
nonconformances that have been identified prior to systems.
FY 2003 have been corrected and closed. The
Department did not declare any new material The Department is currently in the process of
nonconformances under FMFIA during FY 2003 or revalidating the certification and accreditation (C&A) of
during FY 2004. our mission-critical systems. This action is being taken
because the 2004 FISMA report issued by the OIG states
Federal Financial Management Improvement Act. that there was a significant deficiency in the C&A
The Secretary has determined that the Department is in process. While the Department generally concurs with
compliance with the Federal Financial Management the OIG findings, it does not concur with the OIG
Improvement Act (FFMIA). conclusion that significant weaknesses in the processes
Under FFMIA, the Department has continued to take supporting the system certification and accreditations
significant actions on IT security. The 2004 Federal constitute a significant deficiency in the Department’s
Information Security Management Act (FISMA) Report C&A program.
issued by the OIG on October 6, 2004, indicates that There are marked differences in the evaluation methods
additional efforts are necessary to correct remaining used by the Department and the OIG to determine the
reportable conditions. adequacy of system certification and accreditations.
The Department has ensured that all major applications Those differences have resulted in the inability of both
and general support systems have developed security parties to reach consensus on C&A report conclusions.
system plans, configuration management plans, and Department management also believes that the guidance
contingency/disaster recovery plans in accordance with used by the OIG in conducting the FISMA evaluation
applicable guidance from the National Institute of may overly emphasize system scan “hits” while
Standards and Technology (NIST), and that those plans underemphasizing the more crucial assessment of
are consistent across the enterprise. The Department has context risk and countermeasures. The Department
also taken corrective actions and closed more than 600 expects to complete the revalidation of mission-critical
weaknesses previously identified and has created a systems by December 31, 2004, and the remaining
systems by March 31, 2005.

24 FY 2004 Performance and Accountability Report—U.S. Department of Education

 EDUCATION’S SCORECARD ON THE
PRESIDENT’S MANAGEMENT AGENDA

Under the President’s Management Agenda, the The assessments are based on the following criteria:
Executive Branch Management Scorecard tracks how green, implementation proceeding according to plans
well the departments and major agencies are executing agreed upon with the agencies; yellow, some slippage or
the five governmentwide initiatives and other program- other issues requiring adjustment by the agency in order
specific initiatives. The scorecard employs a simple to achieve the initiative objectives on a timely basis; and
grading system common today in well-run businesses: red, initiative is in serious jeopardy and unlikely to
green for success, yellow for mixed results, and red for realize objectives without significant management
unsatisfactory. intervention.

Status. Scores for “status” are based on standards for Department of Education Results. During FY 2004,
success published in the President’s FY 2003 budget. the Department made two significant gains in status
The standards for success were defined by the scores:
President’s Management Council and discussed with
 From red to green in Financial Performance during
experts throughout government and academe, including
the first quarter.
individual fellows from the National Academy of Public
Administration. Under each of these standards, an  From red to yellow in Budget and Performance
agency is green if it meets all of the standards for Integration during the third quarter.
success, yellow if it has achieved some but not all of the
Although our progress scores in Competitive Sourcing
criteria, and red if it has one or more serious flaws.
and E-government fell during the year, they returned to
Progress. The Office of Management and Budget green by the end of the fiscal year as a result of our
assesses agency “progress” on a case-by-case basis increased attention to these areas.
against the deliverables and time lines established for the
The scorecard is available at
five initiatives that are agreed upon with each agency.
http://www.results.gov/agenda/scorecard.html.

President’s Management Agenda

FY 2004 Scorecard
 Target Area Q1 Q2 Q3 Q4

Governmentwide Initiatives
Status Y Y Y Y
Human Capital
Progress G G G G
Status Y Y Y Y
Competitive Sourcing
Progress G Y R G
Status G G G G
Financial Performance
Progress G G G G
Status Y Y Y Y
E-government
Progress G G Y G
Status R R Y Y
Budget-Performance Integration
Progress G G G G
InitiativesProgram

Elimination of Fraud and Error in Student Status Y Y Y Y

Financial Aid Programs Progress G G G G
Y Y Y Y
Status G G G G
Faith-Based and Community Initiative
Progress

Status: G = green = meets all standards Progress: G = green = implementation proceeding according to plan
Y = yellow = meets some standards Y = yellow = some slippage in implementing plan or other issues
R = red = has one or more serious flaws R = red = unlikely to reach objectives without intervention