Audit Shows Lingering Financial Flaws at Department

By Erik W. Robelen — March 06, 2002 3 min read
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The Department of Education has shown notable improvement in its financial reporting and management activities, but not enough to win a “clean” audit, a report from independent auditors revealed last week.

The report by the accounting giant Ernst & Young, released Feb. 28, points to several recent steps as encouraging, such as the establishment of a management- improvement team last spring by Secretary of Education Rod Paige and the department’s decision to begin preparing monthly financial statements.

That said, problems remain, according to the Ernst & Young report for fiscal 2001, which ended Sept. 30.

“While progress has been made, significant financial- management issues continue to impair the department’s ability to accumulate, analyze, and present reliable financial information,” the report says. “These weaknesses are primarily due to the absence of certain components of a fully integrated financial-management system.”

The department has had a long history of financial-management difficulties, and has been unable to get a clean audit the past four years. An audit opinion is considered “clean” when an institution can adequately document all aspects of its financial statements and demonstrate their reliability.

In addition, the agency has suffered a handful of high-profile cases involving fraud and theft. Government investigators have repeatedly concluded that the department is particularly vulnerable to waste, fraud, and abuse.

Secretary Paige has said that tightening up the department’s finances and improving its internal processes are top priorities. (“Report: Ed. Dept. Financial Steps Will Halt Abuses,” Nov. 7, 2001.)

The Education Department’s financial system is in poorer shape than those of most other federal agencies. Of the 24 agencies reporting results for fiscal 2001, 18 received “clean” audits, according to a Feb. 28 press release from the White House Office of Management and Budget. Other agencies that failed to get clean audits include the Department of Agriculture and the Agency for International Development.

Hurdles Remain

William D. Hansen, the deputy secretary of education, said in an interview last week that while the Education Department still had considerable work to do, he was pleased with the new findings.

“We feel very positive about the results that we showed for five months’ worth of work,” he said. Mr. Hansen emphasized that the audit does not reflect all the work under way at the department, since it covers the period ending Sept. 30. The department first announced its plans for improving financial management last May.

Mr. Hansen noted a reduction, from three to one, of “material weaknesses” in the department’s financial management identified by auditors, and pointed out that this year’s audit has fewer recommendations for corrective actions.

“We are not there yet,” Mr. Hansen added. “There still are some major hurdles that we’ve got to clear to accomplish our goal of getting a clean audit next year.”

At the same time, Mr. Hansen stressed that simply getting a good audit is not necessarily an end in itself.

“The [clean] audit is obviously an important goal, but having all our processes cleaned up and working well is really our goal, to have a culture of accountability,” he said.

As of last Thursday, spokesmen for the House and Senate education committees had not yet seen the Ernst & Young report, and declined to comment.

The report points to a number of problems that occurred in fiscal 2001 as a result of the troubled financial system. For example, 50 account balances in the department’s primary financial statements changed between the first and second versions provided for audit.

The auditors say the department continues to compile financial statements through a multistep process that uses a combination of manual and automated procedures.

“These processes increase the risk that errors may occur in the department’s financial statements,” the report says.

Mr. Hansen suggested that the department’s efforts would be further helped now that the department has a new chief financial officer and an assistant secretary for management, positions long vacant.

Just last week, Jack Martin was sworn in as the chief financial officer, and William J. Leidinger was sworn in as the assistant secretary.

A version of this article appeared in the March 06, 2002 edition of Education Week as Audit Shows Lingering Financial Flaws at Department


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