Federal Student Aid – U.S. Department of Education Accelerating the Accelerated Deadlines

1. Federal Student Aid – U.S. Department of Education Accelerating the Accelerated Deadlines NOVAGA April 21, 2004

2. Federal Student Aid U.S. Department of Education Today’s Discussion • Who we are • Where we came from • Where we are today • How we got there • Challenges for FY 04

3. FSA – Who we are Federal Government’s first PBO • Business Operation • COO, CFO, CIO Our Community • 6,160 Schools • 3,600 Lenders • 36 Guaranty Agencies • 63 Secondary Market Lenders and Loan Servicers Annual Operations – Fiscal Year 2003 • 9 million aid recipients – 13 million aid applications • $60.3 billion delivered in total new federal aid • $32 billion delivered in consolidation loans • 25 million Direct Loan borrower payments processed

4. Current Student Loan Portfolio 22+ million borrowers with outstanding loans $287+ billion in outstanding loans Includes: Direct Loans held by ED Federal Family Education Loan Program (FFELP) loans held by lenders Defaulted FFELP loans held by guaranty agencies (GAs) Defaulted loans (all programs) held by ED Perkins Loans held by schools FSA – Who we are Scope of Operations

5. Programs and Statistics Largest Originators of FFELP and Direct Loans - Fiscal Year 2002 11.9 Dollars in Billions Note: Based on Gross Committed Amounts.

6. Where We Came From Education in 2000: • Qualified Opinion • Three material weaknesses in internal controls • Two reportable conditions in internal controls • SFA programs on GAO’s “High Risk List”

7. Where We Are Today • Clean Audit 2002 • Clean Audit 2003 • Met the November 15th Accelerated Deadline one year ahead of schedule • No Material Weaknesses • The first cabinet level Agency to achieve green score in financial management on the President’s Management Agenda (PMA) scorecard – from red to green • We are in hot pursuit of removal of the federal student aid programs from the GAO High Risk List

8. How We Got There • Management commitment at all levels • Investments in Systems • Improved Planning and Audit Management • Build Better Relationships with the Auditors and IG • Implemented Rigorous Reconciliations Process • Implemented Rigorous PBC Process • Eliminated Material Weaknesses, Reportable Conditions, and Management Letter Comments • Worked with our Community and Operating Partners

9. Management Commitment At All Levels • Secretary’s Executive Management Team is briefed weekly by CFO, IG, FSA • #1 Priority for FSA was a clean audit • #2 Priority was elimination of GAO High Risk status • Strong commitment to making the accelerated deadline for FY 2003 • Hired contractor support to assist implementation of new processes and procedures

10. System Changes • FY02 - ED implemented Oracle Financials • FY 02 – FSA implemented Oracle Financials subsidiary ledger • Reengineered business processes • Revised 85% of operating procedures • Reviewed every accounting event

11. Improved Planning and Audit Management • Detailed audit plan and financial management calendar • Partnered with Auditors and IG • Audit Coordination Committee represents all stakeholders • Improved accuracy and timeliness of estimates and accruals • Fluctuation analyses and account analysis expanded • Eliminated Material Weaknesses, Reportable Conditions, and Management Letter Comments

12. Build Better Relationships with the Auditors • Audit Coordination Committee met frequently with Auditors • SME accompanied Auditors on field visits. • Assembled downloads and documentation prior to the field visit • Met commitments on PBC dates • Hands on meetings for turnover of PBCs

13. Implemented Rigorous Reconciliations Process • Closed the books – and left them closed • Preliminary trial balances on 3rd working day • Isolate and resolve historic data issues • Identify systemic issues and met with each operating partner weekly to resolve them • Rigorous management review – at least three levels

14. Implemented Rigorous PBC Process • Brought in contract support for PBC process • Consistent PBC numbering across fiscal years • Standardize download criteria • Implemented rigorous QC criteria on PBCs • Combined/eliminated PBCs

15. ACCOUNTABILITY, INTEGRITY AND MANAGING RISK INTEGRATED MONITORING AND MANAGEMENT STUDENT ELIGIBILITY • 9 million students • $60.3 billion in aid PARTNER ELIGIBILITY • Monitor • Intervene • Take Corrective Action MONITORING AND MANAGEMENT PORTFOLIO MANAGEMENT • Lower Defaults • Monitor Lending • Monitor Schools

16. ACCOUNTABILITY, INTEGRITY AND MANAGING RISK FINANCIAL PARTNER ELIGIBILITY GAO Studies Compliance Reviews FINANCIAL PARTNERS = 3,699 • Lenders 3,600 • Guaranty Agencies 36 • Secondary Market Lenders 36 • Loan Servicers 27 OVERSIGHT FY 2002 • Program Reviews 387 • Lender Reviews by GA 225 • Review of GA Financial Statements 100% • Review of Lender Audits 329 • Review of Servicer Audits 34 Annual Default Rate Calculation Financial Partner Participation Agreement FINANCIAL PARTNER ELIGIBILITY Review of Data Anomalies Application Changes Annual Audits And Financial Statements IG Audits and Referrals Eligibility Actions Training and Conferences

17. ACCOUNTABILITY, INTEGRITY AND MANAGING RISK FSA Performance Monitoring Customer Service Review Board External Monitoring of FSA • GAO - Progress Against High Risk Designation • OIG - Variety of Audits Focused on Fraud, Waste, and Abuse • OMB – Adherence to the Strategic Investment Process; Privacy and Paperwork Reduction Rules; President’s Management Agenda Scorecard; e-Gov initiatives • Congress Financial Management Controls FSA Performance Monitoring Program Project Management Office Program and Business Operations Investment Planning Committee Annual Performance Plan Business Integration Group