Statement of

Thomas R. Bloom
Inspector General
U.S. Department of Education

Before the

Subcommittee on Postsecondary Education,

Committee on Education and the Workforce

Regarding

Department of Education
Student Financial Assistance
Information Systems Modernization

July 29, 1997

Thank you for inviting me to testify about the challenges facing the Department of

Education in modernizing its Student Financial Assistance Program (SFA Program) information

systems. With the passage of the Clinger-Cohen Act and other legislation, Congress has signaled

to federal agencies the importance of devoting substantial resources to modernizing and

integrating information systems. The Clinger-Cohen Act directs that particular attention be paid

to hiring, training, and retaining a technically proficient staff of personnel and managers to ensure

the proper design, acquisition and maintenance of information systems.

Not unlike other federal agencies, the Department faces significant challenges in meeting

the mandates of the Clinger-Cohen Act and in modernizing its SFA Program systems. Currently,

the Department oversees the delivery of approximately $43 billion per year in student financial aid

and a $117 billion loan portfolio through the use of “stovepipe” information and delivery systems,

operated by numerous contractors, at a cost of approximately $300 million per year. As I have

previously testified, these systems are not integrated, do not share a common systems

architecture, and do not provide the timely, accurate and complete data needed to manage the

SFA Programs effectively. In addition, with the advent of the Direct Loan Program, the Department has

entered into a number of large and expensive contracts for additional information systems, with significant

start-up and integration challenges.

There is no short-term fix. Modernization and integration of its information systems will require a

considerable long-term investment of intellect, time and money. While the Department has acknowledged the
presence of some systems problems and has several major improvement initiatives underway to address them,

success will require technical skill and discipline on the part of managers and staff that have not always been

evident in its past information technology efforts.

In this testimony, I am going to address four principal issues that are integral to the success of the

Department’s systems modernization effort and that will need to be addressed to correct the weaknesses that

have resulted in the current ineffective systems --

* the need for a high degree of technical expertise on the part of Department managers and

personnel in the area of information technology in order to design and manage the large and

complex contracts that will be needed to modernize systems;

* the need for well designed contracts and rigorous monitoring of contractors by the

Department;

* the need for consistent and steady progress in efforts toward integration of SFA Program

information systems; and

* the need to overcome data integrity problems in the loan systems which will undermine the

effectiveness of even the most modern, integrated information system if not corrected.

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I. A High Degree of Technical Expertise is a Critical Need for Both Information Systems Managers
and Staff at the Department.

The Department will be unable to modernize effectively its information systems without managers

experienced in running computer-based operations, supported by a staff of technically expert personnel.

In 1996, we conducted a management review of the Department’s office that oversees the loan

programs, the Office of Student Financial Assistance (OSFA). In the resulting report, we recommended the

appointment of a chief operating officer who possessed, at a minimum, experience in managing a large

computer-based financial services operation. With the magnitude of the information system modernization

efforts planned and underway for the SFA programs, such leadership is essential and is still lacking.

In that same review, we identified a shortage of qualified staff in the OSFA’s Program Systems

Service which is responsible for the development and monitoring of SFA systems contracts. We reported that

given the amount of systems contracting involved in the administration of the Direct Loan Program and the

magnitude of upcoming awards for other systems work, the shortage of sufficient qualified staff in this area

would pose a significant risk to the Department. During the course of our review, several Department officials

expressed their concern that OSFA did not have enough qualified staff to monitor these contracts. We

acknowledge the difficulty of recruiting certain occupational specialists in a competitive job market; however,

obtaining and retaining a highly skilled staff is imperative for the Department’s success. The continued

shortage of technically proficient staff poses a significant risk.

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 The Department’s opportunity to address this risk can be found in the Clinger-Cohen Act, which calls

for the appointment of a Chief Information Officer (CIO) to promote the effective and efficient design and

operation of all major information resources. Included in the CIO’s mandate is the requirement to develop

specific plans for hiring and training technically proficient information resource staff. At the Department, the

Secretary recently appointed the Chief Financial Officer to serve in addition as the CIO. Prior to this

appointment, the CIO position was held temporarily by two different individuals. The CIO’s office has been

working on establishing its role in the information technology management process and the Department has

been moving forward on such key projects as the Direct Loan Program’s Loan Consolidation, Origination and

Servicing Systems; and SFA systems integration effort known as Project EASI. Although the incumbent is an

experienced executive, his lack of systems expertise makes the need for technically skilled managers and

personnel in the CIO’s office even more critical.

II. The Department’s Success with its Information Systems Contractors Depends on Well-Designed
Contracts and Rigorous Monitoring of Contractors.

Well-designed contracts that anticipate and provide for contingencies and rigorous monitoring of

contractors by Department personnel is critical to the success of systems information contracts. As this

Subcommittee is aware, the Department has already experienced serious problems with contracts relating to

systems, e.g.:

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 * a $50 million cost overrun on the 1993 contract to develop and maintain the National

Student Loan Data System (NSLDS);

* problems encountered with a contract to provide the Direct Loan Program’s loan origination

and consolidation systems; and

* contracts awarded for three different systems to perform the same Direct Loan servicing

function, which OIG questioned as unnecessary and counterproductive for integration. Also,

these contracts have experienced delays in starting up their operations scheduled to begin July

1.

When problems and crises with information systems contracts inevitably occur, there is a need for intervention

by very senior level executives with technical expertise (or with technical support personnel) to address them.

III. Consistent and Steady Progress is Needed in the Department’s Systems Integration Efforts.

The Department’s lack of integrated information systems is well known to this Subcommittee and has

been the subject of reports and testimony by my office and the General Accounting Office.

The Department’s proposed solution for integrating the SFA programs is a project called “Easy Access

for Students and Institutions” or “EASI”, which is at best a long-term solution. EASI has already been over

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two years in the making, and the project is still in the conceptual stage. EASI was initially described by the

Department as a systems integration project, but it is evolving to include a host of postsecondary education

services and financial education information available from federal, state, school and private sources.

In order to assure consistent and steady progress on EASI, the Department needs to establish

timetables, cost estimates, and a system for accountability. We have recently shared these and other concerns

about EASI in a memorandum to the Project Director.

IV. Data Integrity Problems Currently Plaguing the Loan Programs Threaten the Effectiveness of
any Modernized, Integrated Information System.

The value of modernized and integrated systems will be diminished if they contain inaccurate and

incomplete data. Therefore, the Department needs to focus now on addressing current data integrity problems

in the loan programs and ensuring that new systems include adequate controls to prevent inaccurate data from

corrupting the integrity of the system.

The inability to provide evidence of Federal Family Education Loan Program (FFELP) data accuracy

will prevent the Department from receiving an audit opinion on its FY 1996 financial statements, as it did for

the FY 1995 financial statements. We have long known and reported that the FFELP loan status

information received by the Department from guaranty agencies was in many instances inaccurate and

unreliable because it was not reconciled with lenders. The Department did not address adequately the

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underlying causes of inaccurate and unreliable data provided by the guaranty agencies and these problems were

carried forward into the NSLDS. Although they have a major initiative underway to reconcile guaranty

agency data with that in NSLDS, the accuracy of the data is still in question because better reconciliation

between lenders and guaranty agencies has not yet been addressed. In our HEA Reauthorization proposal, we

recommend amending the HEA to require reconciliation of data in the NSLDS with data provided by lenders

and guaranty agencies at least annually to provide the control necessary to ensure the integrity of the FFELP

data.

Similarly, data integrity problems surfaced during our audits of 16 schools participating in the Federal

Direct Loan Program. We noted discrepancies between data held by schools and that held by the Department’s

servicer and NSLDS. Like other data integrity problems, if not corrected, this problem will compromise even a

fully modernized and integrated information system.

Ongoing and Planned OIG Work

I have designated oversight of the SFA Program systems development and

operations to be one of the Office of Inspector General’s highest priorities and an area

where we will concentrate considerable resources. I have created a systems group to

spearhead our efforts to review the Department’s systems development and

implementation. I have also engaged two consultants with the requisite expertise to assist

us in this effort. Our draft 1998-99 work plan includes significant systems work.

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 We are currently performing a review of the Department’s implementation of the

Clinger-Cohen Act to determine whether they are making measurable progress. Key areas

for our review include:

* The status of the capital planning and investment control

process;

* The status of efforts to establish performance and

results-based management for information technology

investments; and

* The CIO’s progress in performing responsibilities established

by the Clinger-Cohen Act.

In addition, we have a series of planned audits to determine weaknesses in

the Department’s systems management processes to aid the CIO and program

officials in improving the Department’s procurement and oversight of systems

contracts. We also plan to continue monitoring the Department’s efforts in

integration. Our emphasis will be on determining if systems integration efforts are

progressing on schedule and in accordance with established industry practices.

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 The draft OIG work plan also includes several projects related to data

integrity at the Department. These projects include reviewing the Student Status

Confirmation Report process, the integrity of data transferred to the new Direct

Loan Program Loan Origination System, selected data collection and reporting

systems and the effectiveness of the system which processes the FAFSA.

This concludes my remarks. I will be happy to answer any questions you may have.