oversight

U.S. Department of Education's Compliance with the Improper Payments Elimination and Recovery Act of 2010 for Fiscal Year 2013

Published by the Department of Education, Office of Inspector General on 2014-04-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

   U.S. Department of Education’s Compliance with the
 Improper Payments Elimination and Recovery Act of 2010
                  for Fiscal Year 2013



                                 FINAL AUDIT REPORT




                                    ED-OIG/A19O0002
                                       April 2014


Our mission is to promote the                         U.S Department of Education
efficiency, effectiveness, and                        Office of Inspector General
integrity of the Department's                         Washington, DC
programs and operations.
                                  NOTICE
    Statements that managerial practices need improvements, as well as other
  conclusions and recommendations in this report represent the opinions of the
 Office of Inspector General. Determinations of corrective action to be taken will
          be made by the appropriate Department of Education officials.

   In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports
issued by the Office of Inspector General are available to members of the press and
     general public to the extent information contained therein is not subject to
                               exemptions in the Act.
                                    UNITED STATES DEPARTMENT OF EDUCATION
                                                          OFFICE OF INSPECTOR GENERAL

                                                                                                                     AUDIT SERVICES


                                                           April 15, 2014
Memorandum
TO:                  Thomas P. Skelly
                     Delegated the Functions and Duties of the Chief Financial Officer
                     Office of the Chief Financial Officer
                     Lead Action Official

                     John W. Hurt, III
                     Chief Financial Officer, Federal Student Aid

FROM:                Patrick J. Howard /s/
                     Assistant Inspector General for Audit

SUBJECT:             Final Audit Report
                     U.S. Department of Education’s Compliance with the Improper Payments
                     Elimination and Recovery Act of 2010 for Fiscal Year 2013
                     Control Number ED-OIG/A19O0002

Attached is the final audit report that covers the results of our audit of the U.S. Department of
Education’s (Department) compliance with the Improper Payments Elimination and Recovery
Act of 2010 (IPERA) for fiscal year (FY) 2013. An electronic copy has been provided to your
Audit Liaison Officers. We received your comments concurring or generally concurring with the
findings and recommendations.

Corrective actions proposed (resolution phase) and implemented (closure phase) by your offices
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System. Department policy requires that you develop a final corrective action plan
(CAP) for our review in the automated system within 30 days of the issuance of this report. The
CAP should set forth the specific action items and targeted completion dates necessary to
implement final corrective actions on the findings and recommendations contained in this final
audit report.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General (OIG) is required to report to Congress twice a year on the audits that remain unresolved
after 6 months from the date of issuance.

In accordance with the Freedom of Information Act (5 U.S.C. §552), reports issued by the OIG
are available to members of the press and general public to the extent information contained
therein is not subject to exemptions in the Act.



 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
Thomas Skelly
John Hurt
Page 2 of 2

We appreciate the cooperation given to us during this review. If you have any questions, please
contact me at (202) 245-6949 or Michele Weaver-Dugan, Director, Operations Internal Audit
Team, at (202) 245-6941.

Enclosure

cc:    James Runcie, Chief Operating Officer, Federal Student Aid (FSA)
       William Blot, Supervisory Systems Accountant, FSA
       Dawn Dawson, Audit Liaison Officer, FSA
       Karen Sefton, Audit Liaison Officer, FSA
       Phillip Juengst, Director, Financial Improvement and Post-Audit Operations, Office of
        the Chief Financial Officer (OCFO)
       Abigail Cornish, Audit Liaison Officer, OCFO
       Mark Reger, Interim Controller, Office of Federal Financial Management,
        Office of Management and Budget
                                              TABLE OF CONTENTS


                                                                                                                                     Page

EXECUTIVE SUMMARY ...........................................................................................................1

BACKGROUND ............................................................................................................................3

AUDIT RESULTS .........................................................................................................................5

          FINDING NO. 1 –                The Department Complied with All IPERA
                                         Requirements..................................................................................5

          FINDING NO. 2 –                The Department Could Improve its Improper
                                         Payment Rate Estimation Methodologies for the Pell
                                         and Direct Loan Programs ............................................................8

          FINDING NO. 3 –                The Department Could Improve its Reporting of
                                         Improper Payments Information .............................................. 12

          FINDING NO. 4 –                The Department Has Shown Progress in Reducing
                                         and Recapturing Improper Payments, But Could
                                         Improve its Efforts in Establishing Reduction
                                         Targets ......................................................................................... 13

OBJECTIVES, SCOPE, AND METHODOLOGY ................................................................. 18

ENCLOSURE 1 – Acronyms/Abbreviations/Short Forms Used in this Report

ENCLOSURE 2 – Department Response to Draft Finding Point Sheets
Final Audit Report
ED-OIG/A19O0002                                                                    Page 1 of 19



                                EXECUTIVE SUMMARY


The Improper Payments Elimination and Recovery Act of 2010 (IPERA) (Pub. L. No. 111-204),
which amended the Improper Payments Information Act of 2002 (IPIA) (Pub. L. No. 107-300),
requires Federal agencies to reduce improper payments and to report annually on their efforts.
The Office of Management and Budget (OMB) issued government-wide guidance on the
implementation of IPERA on April 14, 2011, which is contained in OMB Circular A-123,
Appendix C, “Requirements for Effective Measurement and Remediation of Improper
Payments,” Parts I and II (OMB Circular A-123).

The objectives of our audit were to:

   •   Determine whether the U.S. Department of Education (Department) was in compliance
       with IPERA;
   •   Evaluate the accuracy and completeness of the Department’s reporting of improper
       payments data; and
   •   Evaluate the Department’s performance in reducing and recapturing improper payments.

We found that the Department complied with IPERA for fiscal year (FY) 2013. However, we
found that improvements are needed in the Department’s improper payment rate estimation
methodologies for the Federal Pell Grant (Pell) and William D. Ford Federal Direct Loan (Direct
Loan) programs, specifically with regard to ensuring the methodologies’ completeness.

The Department calculated and reported an improper payment rate estimate for the Pell program
using the Free Application for Federal Student Aid (FAFSA)/Internal Revenue Service (IRS)
Data Statistical Study. This is the same methodology that the Department used to calculate
improper payment rate estimates for the Pell program in its FY 2011 and FY 2012 Agency
Financial Reports (AFRs). In previous reports on the Department’s compliance with IPERA, we
noted that the Pell program’s estimation methodology does not consider populations of recipients
who may pose a higher risk of improper payments and does not consider all potential sources of
improper payments. We found that these issues were still present in the FY 2013 methodology.
As a result, the Department continues to report an improper payment rate estimate for the Pell
program that does not consider all potential improper payments.

The Department calculated and reported an improper payment rate estimate for the Direct Loan
program using an alternative methodology that relies heavily on the use of program reviews and
was approved by OMB only for AFR reporting for FY 2013. We found that the Direct Loan
program’s estimation methodology does not maximize the use of the results of program reviews
of schools. The Department, in conjunction with its contractor, analyzed all program reviews of
schools conducted between October 1, 2012, and mid-August 2013. However, many of these
reviews were subsequently not included in the improper payment rate estimation calculation
because the reports from these reviews had not yet been issued or the reviews did not test for
improper payment transactions. As a result, the Department is not currently reporting an
estimated improper payment rate for the Direct Loan program that is as complete as possible.
Final Audit Report
ED-OIG/A19O0002                                                                      Page 2 of 19

We also found that the Department could improve the reporting of improper payments
information in its AFR. While the Department did provide a detailed reporting of improper
payments and its efforts to reduce them, it did not report a summary of its progress in completing
the IPERA reporting requirements in the Management’s Discussion and Analysis (MD&A)
section of its AFR, as required by OMB. By not providing a summary of its progress in
completing IPERA reporting requirements in the MD&A section of its AFR, readers of the AFR
may not gain a complete understanding of whether the Department complied with IPERA
reporting requirements.

Lastly, we found that the Department has shown progress in reducing and recapturing improper
payments. However, the Department could improve its efforts to establish meaningful improper
payment reduction targets. In its FY 2013 AFR, the Department set reduction targets for each of
its programs through FY 2016 equal to the improper payment rate estimate it reported in the
current year. Consequently, the Department’s reduction targets do not actually set a target that,
if met but not exceeded, would result in a reduction in improper payments. By not setting
reduction targets that aim to reduce the levels of improper payments, the Department may not be
intensifying its efforts to identify, prevent, and recover improper payments.

To correct the weaknesses identified, we recommend that the Chief Financial Officer (CFO) for
the Office of the Chief Financial Officer, in conjunction with the CFO for Federal Student Aid:

   •   Continue working with OMB to obtain approval for an alternate methodology that
       addresses the limitations of the FAFSA/IRS Data Statistical Study for the Pell program as
       well as the limitations noted with the Direct Loan program methodology.
   •   Where improper payment estimates are based on the results of program reviews, include
       in the sample universe all program review reports that were issued, rather than program
       reviews conducted, within a sufficient period of time to obtain a larger sample size of
       program reviews with usable data.
   •   Provide a summary of the Department’s progress in completing IPERA reporting
       requirements in the MD&A section of the AFR.
   •   Set targets that aim to reduce the rate of improper payments for all programs identified as
       susceptible to significant improper payments.

In its response to the draft finding point sheets, the Department concurred with Finding Nos. 2
and 3 and generally concurred with Finding No. 4. The Department’s comments are summarized
at the end of each applicable finding. The full text of the Department’s response is included as
Enclosure 2 to this report. No changes were made to the report as a result of the response.
Final Audit Report
ED-OIG/A19O0002                                                                                 Page 3 of 19



                                           BACKGROUND


The Improper Payments Elimination and Recovery Act of 2010 (IPERA) (Pub. L. No. 111-204),
which amended the Improper Payments Information Act of 2002 (IPIA) (Pub. L. No. 107-300),
requires Federal agencies to reduce improper payments and to report annually on their efforts.
The Office of Management and Budget (OMB) issued government-wide guidance on the
implementation of IPERA on April 11, 2011, which is contained in OMB Circular A-123,
Appendix C, Parts I and II. 1

IPERA requires the head of each agency, in accordance with guidance prescribed by the Director
of OMB, to periodically review all programs and activities that the agency head administers and
identify all programs and activities that may be susceptible to significant improper payments.
Significant improper payments are defined as gross annual improper payments (the total amount
of overpayments plus underpayments) in the program exceeding (1) both 2.5 percent of program
outlays and $10 million of all program or activity payments made during the fiscal year
reported, or (2) $100 million (regardless of the improper payment percentage of total program
outlays). Under IPERA, this threshold was set to decrease from 2.5 percent to 1.5 percent for
fiscal year (FY) 2013. However, the Improper Payments Elimination and Recovery
Improvement Act of 2012 (Pub. L. No. 112-248), which further amended IPIA, extended the
2.5 percent threshold through FY 2013. For each program and activity identified as susceptible
to significant improper payments, the agency is required to produce a statistically valid estimate,
or an estimate that is otherwise appropriate using a methodology approved by OMB, of the
improper payments made by each program and activity and include those estimates in the
accompanying materials to the agency’s annual financial reports.

IPERA also requires each agency’s Inspector General to determine the agency’s compliance for
each fiscal year. As specified in the OMB guidance, compliance with IPERA means that the
agency has met the following seven requirements:

    •   Published a Performance and Accountability Report (PAR) or Agency Financial Report
        (AFR) for the most recent fiscal year and posted that report and any accompanying
        materials required by OMB on the agency website;
    •   Conducted a program-specific risk assessment for each program or activity that conforms
        with IPERA (if required);
    •   Published improper payment estimates for all programs and activities identified as
        susceptible to significant improper payments under its risk assessment(s) (if required);
    •   Published programmatic corrective action plans in the PAR or AFR (if required);
    •   Published, and has met, annual reduction targets for each program assessed to be at risk
        and measured for improper payments;


1
 Under Section 2(f)(2) of IPIA, as amended by IPERA, an “improper payment” is any payment that should not have
been made or that was made in an incorrect amount. OMB Circular A-123, Appendix C, Part I, expanded this
definition to include any payment lacking sufficient documentation.
Final Audit Report
ED-OIG/A19O0002                                                                  Page 4 of 19

   •   Reported a gross improper payment rate of less than 10 percent for each program and
       activity for which an improper payment estimate was obtained and published in the PAR
       or AFR; and
   •   Reported information on its efforts to recapture improper payments.

If an agency does not meet one or more of these requirements, then it is not compliant with
IPERA. In addition, the agency’s Inspector General should evaluate the accuracy and
completeness of the agency’s reporting and performance in reducing and recapturing improper
payments.
Final Audit Report
ED-OIG/A19O0002                                                                      Page 5 of 19



                                     AUDIT RESULTS


We found that the U.S. Department of Education (Department) complied with IPERA for
FY 2013. However, we found that improvements are needed in the Department’s improper
payment rate estimation methodologies for the Federal Pell Grant (Pell) and William D. Ford
Federal Direct Loan (Direct Loan) programs, specifically with regard to ensuring the
methodologies’ completeness. The Pell program’s estimation methodology does not consider
populations of recipients who may pose a higher risk of improper payments and does not
consider all potential sources of improper payments. The Direct Loan program’s estimation
methodology does not maximize the use of the results of program reviews of schools. As a
result, the Department is not currently reporting estimated improper payment rates for the Pell
and Direct Loan programs that are as complete as possible. We also found that the Department
could improve the reporting of improper payments information in its AFR. While the
Department did provide a detailed reporting of improper payments and its efforts to reduce and
recover them, it did not report a summary of its progress in completing the IPERA reporting
requirements in the Management’s Discussion and Analysis (MD&A) section of its AFR, as
required by OMB guidance. Lastly, we found that the Department has shown progress in
reducing and recapturing improper payments, but could improve its efforts to establish
meaningful improper payment reduction targets. In its FY 2013 AFR, the Department set
reduction targets for each of its programs through FY 2016 equal to the improper payment rate
estimate it reported in the current year. Consequently, the Department’s reduction targets do not
actually set a target that, if met but not exceeded, would result in a reduction in improper
payments if program outlays remain constant or increase.

FINDING NO. 1 – The Department Complied with All IPERA Requirements

We found that the Department complied with all seven IPERA requirements. The results of our
review are detailed below:

   1. Published an Agency Financial Report

       The Department complied with the requirement to publish an AFR. Under Section
       3(a)(3)(A) of IPERA, the Department is required to publish on its website its AFR and
       any accompanying materials required under OMB guidance. The Department published
       its AFR and accompanying materials titled, “Improper Payments Reporting Details,” on
       December 12, 2013.

   2. Conducted a Risk Assessment

       The Department complied with the requirement to conduct a risk assessment. Under
       Section 3(a)(3)(B) of IPERA, if required, an agency must conduct a program-specific risk
       assessment of all programs and activities to determine which ones are susceptible to
       significant improper payments. Under Section 2(a)(2) of IPERA, such risk assessments
       generally should be conducted in 2011 and at least once every 3 fiscal years thereafter.
Final Audit Report
ED-OIG/A19O0002                                                                                    Page 6 of 19

        In FY 2011, the Department conducted risk assessments for all Federal Student Aid
        (FSA)-managed programs. As a result of these risk assessments, the Pell, Direct Loan,
        and Federal Family Education Loan (FFEL) programs were identified as susceptible to
        significant improper payments. The Department is not required to conduct new risk
        assessments of these programs until FY 2014. In FY 2013, the Department conducted
        risk assessments of all other grant programs and contract payments. The Department
        found that these programs and payments were not susceptible to significant improper
        payments.

    3. Published Improper Payment Estimates

        The Department complied with the requirement to publish improper payment estimates.
        Under Section 3(a)(3)(C) of IPERA, if required, an agency must publish improper
        payment estimates for programs it identified as being susceptible to significant improper
        payments.

        As required, the Department published improper payment estimates for programs
        identified as susceptible to significant improper payments—the Pell, Direct Loan, and
        FFEL programs. The Department also reported an estimated improper payment rate for
        Title I, Part A of the Elementary and Secondary Education Act of 1965,
        as amended (Title I), as it is required to do so under separate reporting requirements
        contained in OMB Circular A-136, “Financial Reporting Requirements,” revised
        October 21, 2013. 2

        In its FY 2013 AFR, the Department published improper payment estimates for the
        Direct Loan and FFEL programs using methodologies that were tentatively approved for
        FY 2013 by OMB, pending overall agreement on a revised strategy for estimating
        improper payments for all FSA programs identified as susceptible to significant improper
        payments. [See Finding No. 2 for additional information.] The Department also
        published a supplemental improper payment estimate for the Pell program using an
        alternative methodology similar to that which was used in FY 2012, as OMB did not
        approve the Department’s proposed alternative methodology for the Pell program for
        FY 2013. 3

    4. Published a Report on Actions to Reduce Improper Payments

        The Department complied with the requirement to report on its actions to reduce
        improper payments in the Pell, Direct Loan, and FFEL programs. Under Section
        3(a)(3)(D) of IPERA, the Department is required to report its actions to reduce improper
        payments for programs it deemed susceptible to significant improper payments.



2
  The Department was not required to report on the Title I program under IPERA because it was not identified as a
program susceptible to significant improper payments. As a result, we did not perform additional work related to
the accuracy and completeness of the Department’s estimation methodology for this program.
3
  For comparison purposes, the Department also published an improper payment estimate for the Pell program using
its proposed alternative methodology. This number was provided in a footnote to the primary table in the AFR, per
agreement with OMB.
Final Audit Report
ED-OIG/A19O0002                                                                    Page 7 of 19

   5. Published and Has Met Annual Reduction Targets

      Under Section 3(a)(3)(E) of IPERA, the Department is required to report improper
      payment reduction targets for programs identified as susceptible to significant improper
      payments and to meet those targets. The Department published FY 2014 reduction
      targets for the Pell, Direct Loan, and FFEL programs in its FY 2013 AFR.

      The Department met its approved FY 2013 reduction target for the Pell program,
      reporting an estimated improper payment rate of 2.26 percent, which is lower than the
      reduction target of 2.49 percent.

      In its FY 2012 AFR, the Department did not publish FY 2013 reduction targets for the
      Direct Loan and FFEL programs that were based on OMB-approved methodologies.
      Instead, the Department published reduction targets for these programs based on
      proposed methodologies that were pending OMB approval when the AFR was published.
      [See Finding No. 4 for additional information.] Because the Department published
      FY 2014 reduction targets for all programs susceptible to significant improper payments,
      and met its sole OMB-approved reduction target for FY 2013, it complied with this
      requirement.

   6. Reported Improper Payment Rates of Less Than 10 Percent

      The Department complied with the requirement to report improper payment rates of less
      than 10 percent. Under Section 3(a)(3)(F) of IPERA, the Department is required to report
      estimated improper payment rates of less than 10 percent for each program identified as
      being susceptible to significant improper payments for which an improper payment
      estimate is published. OMB guidance further specifies that these rates should be gross
      improper payment rates comprising both overpayments and underpayments.

      Using the OMB-approved methodologies, the Department reported estimated improper
      payment rates of 2.26 percent in the Pell program, 1.03 percent in the Direct Loan
      program, and 0.00 percent in the FFEL program. These estimated improper payment
      rates were significantly below the 10 percent threshold.

   7. Reported Efforts to Recapture Improper Payments

      The Department complied with the requirement to report its efforts to recapture improper
      payments as required by Section 2(d) of IPIA, as amended by IPERA, and in accordance
      with OMB Circular A-123. The Department reported on its efforts to recapture improper
      payments in the AFR. In addition, on December 5, 2013, the Department submitted to
      OMB its FY 2013 Report on IPERA Payment Recapture Audits.
Final Audit Report
ED-OIG/A19O0002                                                                                       Page 8 of 19

FINDING NO. 2 – The Department Could Improve its Improper Payment Rate
Estimation Methodologies for the Pell and Direct Loan Programs

We found that improvements are needed in the Department’s improper payment rate estimation
methodologies for the Pell and Direct Loan programs, specifically with regard to ensuring the
methodologies’ completeness. The Pell program’s estimation methodology does not consider
populations of recipients who may pose a higher risk of improper payments and does not
consider all potential sources of improper payments. The Direct Loan program’s estimation
methodology does not maximize the use of the results of program reviews of schools. 4

With regard to the FFEL program, we found that the Department’s methodology for calculating
an estimated improper payment rate for FY 2013 was accurate and complete.

Pell Program

The Department calculated and reported an improper payment rate estimate for the Pell program
in FY 2013 using a methodology that relied on the results of the Free Application for Federal
Student Aid (FAFSA)/Internal Revenue Service (IRS) Data Statistical Study. 5 This is the same
methodology that the Department used to calculate improper payment rate estimates for the Pell
program in its FY 2011 and FY 2012 AFRs. 6 In previous reports on the Department’s
compliance with IPERA, we noted that there are a number of issues related to the Department’s
use of the FAFSA/IRS Data Statistical Study for estimating improper payment rates. 7 As part of
this year’s audit, we reviewed the most recent FAFSA/IRS Data Statistical Study and found that
the Department had not addressed these previously-identified issues.




4
  We noted that the Department’s FY 2013 methodology also does not consider improper payments identified in
Office of Inspector General (OIG) audits and investigations, an issue discussed in our audit of the Department’s
compliance with IPERA for FY 2012 (“U.S. Department of Education’s Compliance with the Improper Payments
Elimination and Recovery Act of 2010 for Fiscal Year 2012,” March 15, 2013, ED-OIG/A03N0001). However, we
reviewed the corrective action plan submitted by the Department in response to that audit and noted that it has
agreed to evaluate the possibility of incorporating findings from OIG work in the proposed statistical estimations for
all programs, in consultation with OIG regarding sampling procedures and testing results.
5
  The Higher Education Amendments of 1998 authorized the Secretary of Education to confirm directly with the IRS
adjusted gross income and other information affecting students’ eligibility for student aid. However, legislation to
amend the IRS Code to permit a database match has not been enacted. The FAFSA/IRS Data Statistical Study,
performed by the Department in conjunction with the IRS, is used to simulate a full match between the
Department’s and the IRS’ databases to determine, among other things, the average amount of over- and under-
reporting of FAFSA income data compared to IRS data and the potential misallocation of Pell program dollars that
could be prevented by an IRS match.
6
  The Department also reported an estimated improper payment rate for the Pell program in FY 2012 using an
unapproved, alternative methodology.
7
  “U.S. Department of Education’s Compliance with the Improper Payments Elimination and Recovery Act of 2010
for Fiscal Year 2011,” March 15, 2012, ED-OIG/A03M0001, and “U.S. Department of Education’s Compliance
with the Improper Payments Elimination and Recovery Act of 2010 for Fiscal Year 2012,” March 15, 2013,
ED-OIG/A03N0001.
Final Audit Report
ED-OIG/A19O0002                                                                                       Page 9 of 19

Specifically, we noted the following:

    •    U.S. Social Security Administration (SSA) non-matches were not analyzed;
    •    The impact of IRS non-matches on improper payment rates was not assessed; 8
    •    Recipients’ eligibility for Pell grants was not considered; 9 and
    •    Required recalculations of a Pell grant award when a recipient’s enrollment status has
         changed were not considered.

Section 2(b)(1) of IPIA, as amended by IPERA, requires agencies to produce statistically valid
improper payment estimates, or estimates that are otherwise appropriate using methodologies
approved by the Director of OMB.

The FAFSA/IRS Data Statistical Study was originally developed for operational use and later
adopted for the purpose of calculating an improper payment rate estimate for the Pell program.
Since it was not developed for the purpose of generating an improper payment rate estimate that
fully captures all risks of improper payments within the Pell program, limitations exist with
using it for such purposes.

The methodology for the FY 2013 improper payment rate estimate for the Pell program is not
complete because it does not consider all potential improper payments. The population of
recipients whose data does not match SSA and IRS databases may represent a higher risk of
improper payments than the population of recipients whose data matches the SSA and IRS
databases. Since this potentially higher risk population is not analyzed for improper payments,
the reported improper payment rate estimate may be understated. Additionally, since two
potential sources of improper payments are not considered in the methodology—improper
payments made to ineligible recipients and incorrect award amounts to students whose
enrollment status has changed—it is likely that improper payment rate estimates for the Pell
program are understated.

To address the issues identified in our previous reports, the Department developed an alternative
methodology to be used in the calculation of Pell program improper payment rates that leverages
program compliance reviews performed at institutions and considers additional risks and
transactions not included in the FAFSA/IRS Data Statistical Study. However, OMB did not
approve the use of this alternative methodology for FY 2013. The Department continues to work
with OMB to refine and obtain approval for this alternate methodology. However, although this
alternative methodology addresses some of the completeness issues noted with the FAFSA/IRS
Data Statistical Study, it presents other completeness issues similar to those noted with the Direct
Loan methodology, which we discuss below.


8
  The FAFSA/IRS Data Statistical Study computes an error rate by comparing adjusted gross income reported on the
FAFSA to adjusted gross income reported on tax returns for a sample of students (and their parents if they are
dependents). However, students and parents whose social security numbers, names, and dates of birth do not match
the SSA database are excluded from the review. Additionally, if a matching IRS record is not found for a student
aid applicant, no effort is made to assign an error.
9
  The FAFSA/IRS Data Statistical Study looks only at improper payments resulting from the incorrect reporting of
adjusted gross income. It does not consider situations where a student may be ineligible for a Pell grant award, such
as when a student has already earned a bachelor’s degree or has already received a Pell grant award for
12 semesters.
Final Audit Report
ED-OIG/A19O0002                                                                                   Page 10 of 19

Direct Loan Program

The Department calculated and reported an improper payment rate estimate for the Direct Loan
program in FY 2013 using an alternative methodology that was approved by OMB only for
FY 2013. 10 We reviewed documentation supporting the Department’s estimate and found issues
with regard to its completeness. This occurred because the Department was unable to include
data from a significant number of program reviews in its Direct Loan program improper payment
rate calculation. 11

For FY 2013, the Department received OMB approval to use a new methodology that relies
heavily on the results of program reviews of schools. The Department, in conjunction with its
contractor, planned to select for analysis program reviews conducted between
October 1, 2012 and June 30, 2013 (9 months), although it eventually extended its analysis to
include program reviews conducted through mid-August 2013 (10.5 months). This resulted in
program reviews of 180 schools being selected for the purpose of determining whether any
improper payments were identified during the reviews. However, 109 of these program reviews
(61 percent) were not included in the improper payment rate estimation calculation because the
reports from these reviews had not yet been issued. This left the Department with the results of
71 program reviews of schools to analyze for improper payments. However, another 16 program
reviews were excluded from the analysis because the program reviews did not test for improper
payment transactions. As a result, the Department was ultimately left with 55 program reviews
of schools—31 percent of the original 180—that were used to calculate an estimated improper
payment rate for the Direct Loan program.

Section 2(b)(1) of IPIA, as amended by IPERA, requires agencies to produce statistically valid
improper payment estimates, or estimates that are otherwise appropriate using methodologies
approved by the Director of OMB.

The Department first developed the methodology used for the Direct Loan program for the
FY 2012 AFR. The methodology was not approved by OMB for reporting in FY 2012, and the
Department noted that it has since worked with OMB to refine the methodology and obtain
approval. Although OMB approved the methodology for the FY 2013 AFR, the Department
continues to work with OMB to evaluate, refine, and obtain approval on long-term estimation
methodologies for all risk-susceptible programs.

The Department stated that its new estimation methodologies that leverage program reviews
avoid significant costs that it would otherwise incur for separate testing at schools and
institutions. The Department believes that leveraging its existing investments in the program
review process provides for a more efficient allocation of resources.




10
   As with the Pell program, the Department and OMB continue to work toward a long-term agreement on a suitable
methodology that meets OMB requirements and is cost effective.
11
   As noted above, issues with regard to the completeness of the alternative methodology used in calculating an
estimated improper payment rate for the Direct Loan program are also applicable to the alternative methodology for
the Pell program. We noted only minor differences in the numbers of schools with usable program review data
between these two programs.
Final Audit Report
ED-OIG/A19O0002                                                                   Page 11 of 19

The Department stated that it stopped analyzing program reviews in mid-August 2013 to give it
sufficient time to calculate the improper payment rate estimates and report them in the AFR.
The Department stated that it did not select program reviews conducted prior to October 2012
because it was looking only at program reviews conducted for the 2011-12 award year
(July 1, 2011, through June 30, 2012) and these reviews did not begin until the fall of 2012.

The Department is not currently reporting an estimated improper payment rate for the Direct
Loan program that is as complete as possible. By using program reviews conducted over a
period of time in which most of the reports from these reviews were not yet issued, the
Department drastically reduced (by 69 percent) the number of program reviews of schools that it
could include in its sample for analyzing improper payments.

Recommendations

We recommend that the Chief Financial Officer (CFO) for the Office of the Chief Financial
Officer (OCFO), in conjunction with the CFO for FSA, require FSA to—

2.1    Continue working with OMB to obtain approval for a methodology that addresses the
       limitations of the FAFSA/IRS Data Statistical Study for the Pell program as well as the
       limitations noted with the Direct Loan program methodology.

2.2    Where improper payment rate estimates are based on the results of program reviews,
       include in the sample universe all program review reports that were issued, rather than
       program reviews conducted, within a sufficient period of time to obtain a larger sample
       size of program reviews with usable data.

Department Comments

The Department concurred with the finding and recommendations. The Department agreed that
the Pell program findings identified in previous OIG reports were not directly addressed in the
calculation of the FY 2013 improper payment rate based on the FAFSA/IRS Data Statistical
Study. With regard to the use of program reviews in calculating improper payment rate
estimates, the Department agreed that it could improve the precision of the estimates by
increasing the size of the pool of reviews sampled and the sample size. The Department noted
that it has modified its FY 2014 estimation methodologies to expand the pool of available
program reviews to sample.
Final Audit Report
ED-OIG/A19O0002                                                                   Page 12 of 19

FINDING NO. 3 – The Department Could Improve its Reporting of Improper
Payments Information

The Department could improve the reporting of improper payments information in its AFR.
While the Department did provide a detailed reporting of improper payments and its efforts to
reduce and recover them, it did not report a summary of its progress in completing the IPERA
reporting requirements in the MD&A section of its AFR.

OMB Circular A-123, Appendix C, Part I(A)(18) requires agencies to include a summary of their
progress in completing IPERA reporting requirements in the MD&A section of their PARs or
AFRs.

Although the Department concedes that a summary of its progress in completing IPERA
reporting requirements was not included in the MD&A section of its AFR, it believes that this
requirement was met through its reporting in the “Other Information” section. OMB guidance,
however, requires both a summary of progress in meeting IPERA reporting requirements and a
detailed discussion of improper payments reporting. The information in the “Other Information”
section satisfies the detailed reporting requirement, but does not satisfy the requirement to
provide a summary of reporting requirements in the MD&A section of the AFR.

By not providing a summary of its progress in completing IPERA reporting requirements in the
MD&A section of its AFR, readers of the AFR may not gain a complete understanding of
whether the Department complied with IPERA reporting requirements.

Recommendation

We recommend that the CFO for OCFO—

3.1    Provide a summary of the Department’s progress in completing IPERA reporting
       requirements in the MD&A section of the AFR.

Department Comments

The Department concurred with the finding and recommendation. The Department stated that it
will assess the revised OMB Circular A-136 guidance for FY 2014 and look for better
opportunities to improve disclosures.
Final Audit Report
ED-OIG/A19O0002                                                                                    Page 13 of 19

FINDING NO. 4 – The Department Has Shown Progress in Reducing and
Recapturing Improper Payments, But Could Improve its Efforts in Establishing
Reduction Targets

We found that the Department has shown progress in reducing and recapturing improper
payments. Specifically, we found that, when comparing rates reported based on similar
methodologies, estimated improper payments in risk-susceptible programs generally decreased
between FY 2012 and FY 2013. We also noted that the Department made progress in its efforts
to recapture improper payments during the same time period. However, we found that the
Department could improve its efforts to establish meaningful improper payment reduction
targets.

Reducing Improper Payments

In its FY 2013 AFR, the Department reported reduced improper payment rate estimates for the
Pell and FFEL programs compared to those reported in FY 2012: from 2.49 percent to
2.26 percent, and 1.93 percent to 0.00 percent, respectively. However, for the same time period,
the Department reported a higher improper payment rate estimate for the Direct Loan program. 12
Specifically, the improper payment rate estimate for the Direct Loan program increased from
0.58 percent in FY 2012 to 1.03 percent in FY 2013.

See Table 1 for a summary of reported FY 2012 and FY 2013 improper payments and improper
payment rates:




12
  The Department also reported a higher improper payment rate estimate for the Title I program. However, the
Title I program’s improper payment rate estimate remains very low (0.39 percent) and, because it was not identified
as susceptible to significant improper payments based on the Department’s risk assessment, the Department is not
required to meet IPERA requirements for this program.
Final Audit Report
ED-OIG/A19O0002                                                                                    Page 14 of 19

       Table 1 – Summary of Reported FY 2012 and FY 2013 Improper Payment Data

                                      FY 2012                                   FY 2013
                                                    Improper                                   Improper
                                      Improper                                  Improper
                         Outlays                    Payment        Outlays                     Payment
          Program                     Payment                                   Payment
                      (in millions)                  Dollars    (in millions)                   Dollars
                                        Rate*                                     Rate
                                                  (in millions)                              (in millions)

         Pell           $33,299         2.49%         $829        $32,338       2.26% ↓        $731 ↓

         Direct
                        $105,810        0.58%         $614        $102,497      1.03% ↑       $1,056 ↑
         Loan

         FFEL           $28,620         1.93%         $552        $10,817       0.00% ↓         $0 ↓


         Title I        $15,208         0.19%          $28        $14,724       0.39% ↑         $57 ↑


         Total          $182,937        1.11%        $2,023       $160,376      1.15% ↑       $1,844 ↓

        *The Department calculated and reported FY 2012 improper payment rate estimates for the Pell
        and Title I programs based on OMB-approved methodologies; improper payment rate estimates for
        the Direct Loan and FFEL programs were calculated and reported based on proposed methodologies.

We found that, in its FY 2012 AFR, the Department reported on the Direct Loan program’s
improper payment rate estimate using the lower-bound of the estimate’s confidence interval. 13
However, in its FY 2013 AFR, the Department used the point estimate of the confidence interval
as we recommended in our FY 2012 report, which resulted in a higher improper payment rate
estimate. We found that the Department used similar methodologies to calculate the Direct Loan
improper payment rate estimates it reported for FY 2012 and FY 2013. We also found that, had
the Department used the point estimate of 1.21 percent in reporting on the Direct Loan program’s
improper payment rate estimate for FY 2012, it would have reported a higher improper payment
rate estimate for that year than it did for FY 2013. Consequently, the FY 2013 AFR would have
reflected a reduction in the improper payment rate estimate and would have reflected the
Department’s progress between FY 2012 and FY 2013 in reducing improper payments in the
Direct Loan program. In addition, the FY 2013 AFR would have reflected an overall decrease in
estimated improper payments from FY 2012 to FY 2013 had the Department reported the point
estimate for the Direct Loan program in its FY 2012 AFR.

See Table 2 for a summary of FY 2012 and FY 2013 improper payments and improper payment
rates reflecting use of the point estimate in FY 2012:
13
  As noted, the Department established the FY 2013 Direct Loan program target rate of 0.58 percent based on its
reporting of the lower bound of the FY 2012 estimate’s confidence interval. To determine an improper payment rate
estimate, the Department computes a statistical point estimate (1.21 percent for the Direct Loan program in
FY 2012) and then, using its desired confidence level, calculates an upper bound and a lower bound of the estimate’s
confidence interval. Each value in this range has an equal likelihood of representing the true error rate in the
population. However, in our report on the Department’s compliance with IPERA for FY 2012 (“U.S. Department of
Education’s Compliance with the Improper Payments Elimination and Recovery Act of 2010 for Fiscal Year 2012,”
March 15, 2013, ED-OIG/A03N0001), we noted that reporting only the lower bound of an estimate’s confidence
interval is problematic because it may be affected by changes in sample size from year to year. In its FY 2013 APR,
the Department reported the point estimate for all programs and established target rates based on these numbers.
Final Audit Report
ED-OIG/A19O0002                                                                               Page 15 of 19

        Table 2 – Summary of FY 2012 and FY 2013 Improper Payment Data Using
                               FY 2012 Point Estimate

                                   FY 2012                                  FY 2013
                                                Improper                                 Improper
                                   Improper                                 Improper
        Program       Outlays                   Payment        Outlays                   Payment
                                   Payment                                  Payment
                   (in millions)                 Dollars    (in millions)                 Dollars
                                     Rate*                                    Rate
                                              (in millions)                            (in millions)

        Pell         $33,299        2.49%        $829         $32,338       2.26% ↓      $731 ↓

        Direct
                    $105,810        1.21%       $1,280       $102,497       1.03% ↓     $1,056 ↓
        Loan

        FFEL         $28,620        1.93%        $552         $10,817       0.00% ↓       $0 ↓


        Title I      $15,208        0.19%         $28         $14,724       0.39% ↑       $57 ↑


        Total       $182,937        1.47%       $2,690       $160,376       1.15% ↓     $1,844 ↓

       *The Department calculated and reported FY 2012 improper payment rate estimates for the Pell
       and Title I programs based on OMB-approved methodologies; improper payment rate estimates for
       the Direct Loan and FFEL programs were calculated and reported based on proposed methodologies.

Improper Payment Rate Targets

Despite its progress in reducing improper payment estimates, the Department could improve its
efforts to establish meaningful improper payment reduction targets. In its FY 2013 AFR, the
Department set reduction targets for each of its programs through FY 2016 equal to the improper
payment rate estimate it reported in the current year. Consequently, the Department’s reduction
targets do not actually set a target that, if met but not exceeded, would result in a reduction in
improper payments if program outlays remain constant or increase. For example, in FY 2013,
the Department reported outlays of $32.34 billion and an improper payment rate estimate of
2.26 percent for the Pell program. This equated to an estimated $731 million in improper
payments. The Department also set an improper payment reduction target of 2.26 percent for the
Pell program in each succeeding fiscal year. If Pell program outlays remain constant or increase
and the Department meets, but does not exceed, its target rate of 2.26 percent, then there will be
no reduction in improper payments.

Recapturing Improper Payments

We found that the Department took corrective actions to address a recommendation on reporting
noted in the FY 2012 OIG report. Specifically, we found that the Department’s FY 2013 AFR
included (1) a summary of the programs and activities for which it determined that a payment
recapture audit program would not be cost effective, and (2) a description of the justification and
analysis that it used for such determinations. The Department’s overall conclusion, as noted in
both its FY 2012 and FY 2013 Reports on IPERA Payment Recapture Audits, and in its FY 2013
AFR, was that it would not be cost effective to conduct additional recovery activities outside of
those already in place. However, the Department also noted that it issued a contingency-based
Final Audit Report
ED-OIG/A19O0002                                                                              Page 16 of 19

contract in FY 2013 to audit all contract payments for FYs 2007 through 2012 for possible errors
and recovery. In its FY 2013 Report on IPERA Payment Recapture Audits, the Department
noted that any questioned costs identified by the contractor were reviewed and determined to be
proper payments; as a result, there have been no improper payments identified to date.
In its FY 2013 AFR, the Department stated that it worked with program participants to resolve
and recover amounts identified through compliance audits, OIG audits, and program reviews.
Based on the results, the Department appears to have had success in recapturing improper
payments. We found that the Department showed an increase in the percentage of funds
recovered for both compliance audits and OIG audits from FY 2012 to FY 2013. In addition,
while the percentage of funds recovered from program reviews decreased slightly, the amount of
funds recovered increased from FY 2012 to FY 2013. Overall, the Department reported that it
recovered nearly twice the amount of improper payments identified in FY 2013 compared to
FY 2012, while also increasing the percentage of improper payments recovered by over five
percentage points.

See Table 3 for a summary of the Department’s recapture audit performance for FY 2012 and
FY 2013:

               Table 3 – Summary of Payment Recapture Audit Performance

                                     FY 2012                                FY 2013
          Agency         Amount       Amount                   Amount       Amount
          Source                                   Percent                               Percent
                        Identified Recovered*                 Identified Recovered*
                                                  Recovered                             Recovered
                      (in millions) (in millions)           (in millions) (in millions)
       Compliance
                          $21.7         $4.3       19.82%        $19.8        $7.7 ↑      38.89% ↑
       Audits
       OIG Audits
                          $2.7          $0.2        7.41%        $22.1        $5.2 ↑      23.53% ↑

       Program
                          $30.7         $6.7       21.82%        $38.9        $8.0 ↑      20.57% ↓
       Reviews

       Total              $55.1         $11.2      20.33%        $80.8        $20.9 ↑     25.87% ↑

       *Per the Department’s FY 2013 AFR, these numbers include all amounts recovered during the year,
       not just recoveries of amounts identified during the year.

OMB Circular A-123, Appendix C, Part I(A)(7) Step 3(b) states that when agencies compile
their plans to reduce improper payments, they shall set reduction targets for future improper
payment levels. These reduction targets must be approved by the Director of OMB.

Officials within FSA’s Finance Group stated that OMB has allowed the Department to set targets
equal to the calculated improper payment rate estimate while the Department and OMB seek
agreement on long-term improper payment estimation methodologies. According to the same
officials, once the long-term improper payment estimation methodologies are approved, the
Department will begin setting reduction targets that aim to reduce improper payments.
Final Audit Report
ED-OIG/A19O0002                                                                     Page 17 of 19

Although OMB approved the Department setting targets at current year improper payment rate
estimates, the Department could improve its efforts to reduce improper payments by setting
targets that aim for a reduction of improper payment rates. By not setting targets that aim to
reduce the levels of improper payments, the Department may not be intensifying its efforts to
identify, prevent, and recover improper payments.

Recommendation

We recommend that the CFO for OCFO, in conjunction with the CFO for FSA, require FSA to—

4.1    Set targets that aim to reduce the rate of improper payments for all programs identified as
       susceptible to significant improper payments.

Department Comments

The Department generally concurred with the finding and recommendation. The Department
stated that it will set reduction targets for programs identified as susceptible to significant
improper payments to achieve its goal of reducing improper payments. The Department further
stated that it will continue to work with OMB to refine the proposed estimation methodologies
and to establish a long-term solution that will inform the identification of specific root causes
that, when addressed, will allow for the measurement and targeting of rate reductions.
Final Audit Report
ED-OIG/A19O0002                                                                   Page 18 of 19



                 OBJECTIVES, SCOPE, AND METHODOLOGY


The objectives of our audit were to (1) determine whether the Department was in compliance
with IPERA, (2) evaluate the accuracy and completeness of the Department’s reporting of
improper payments data, and (3) evaluate the Department’s performance in reducing and
recapturing improper payments.

To accomplish our objectives, we gained an understanding of internal control applicable to the
Department’s compliance with IPERA and development of improper payment rate estimates.
We reviewed applicable laws, OMB circulars, and guidance developed by the SSA OIG for the
Council of Inspectors General on Integrity and Efficiency. In addition, to identify potential
vulnerabilities, we reviewed prior OIG audit reports relevant to our audit objectives.

Our review covered the Department’s reporting and performance in reducing and recapturing
improper payments for the Pell, Direct Loan, and FFEL programs for the period October 1, 2012,
through September 30, 2013 (FY 2013).

To determine whether the Department was in compliance with IPERA for FY 2013 and to
evaluate its performance in reducing and recapturing improper payments, we relied primarily on
information contained in the Department’s AFRs for FYs 2012 and 2013. We also held
discussions with OCFO officials and reviewed related supporting documentation, including risk
assessments of all non-FSA grant programs and contract payments that were conducted in
FY 2013 and Reports on IPERA Payment Recapture Audits for FYs 2012 and 2013. To evaluate
the accuracy and completeness of the Department’s reporting of improper payments data, we
reviewed the Department’s estimation methodologies for the Pell, Direct Loan, and FFEL
programs and related supporting documentation. We also held discussions with officials in
FSA’s Finance Office and with the Department’s contractor, Deloitte.

Use of computer-processed data for the audit was limited to documentation provided by the
Department to support its improper payment rate estimates and progress in reducing and
recapturing improper payments. We used the data to evaluate the accuracy and completeness of
the Department’s estimation methodologies for the Pell, Direct Loan, and FFEL programs and to
verify recovery amounts. We assessed the reliability of this data by comparing reported data to
data contained in the supporting documentation and by interviewing Department officials
knowledgeable about the data. Based on our analysis, we concluded that the computer-processed
data were sufficiently reliable for the purposes of our audit.

We conducted fieldwork at Department offices in Washington, D.C., during the period
January 2014 through March 2014. We provided our audit results to Department officials during
an exit conference held on March 26, 2014.
Final Audit Report
ED-OIG/A19O0002                                                                   Page 19 of 19

We conducted this audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
                                                                                  Enclosure 1


                            Acronyms/Abbreviations/Short Forms
                                   Used in this Report


AFR           Agency Financial Report

CAP           Corrective Action Plan

CFO           Chief Financial Officer

Department    U.S. Department of Education

Direct Loan   William D. Ford Federal Direct Loan

FAFSA         Free Application for Federal Student Aid

FFEL          Federal Family Education Loan

FSA           Federal Student Aid

FY            Fiscal Year

IPERA         Improper Payments Elimination and Recovery Act of 2010

IPIA          Improper Payments Information Act of 2002

IRS           Internal Revenue Service

MD&A          Management’s Discussion and Analysis

OCFO          Office of the Chief Financial Officer

OIG           Office of Inspector General

OMB           Office of Management and Budget

PAR           Performance and Accountability Report

Pell          Federal Pell Grant

SSA           U.S. Social Security Administration

Title I       Title I, Part A of the Elementary and Secondary Education Act of 1965,
              as amended
                                                                                                                      Enclosure 2
                      Department Response to Draft Finding Point Sheets



                           UNITED STATES DEPARTMENT OF EDUCATION

                                        OFFICE OF THE CHIEF FINANCIAL OFFICER

                                                                              THE CHIEF Fl!':ANCIAL OFFICER




TO:             Michele Weaver-Dugan
                Director, Operations Internal Audit Team

FROM:           Thomas P.          Skelly~/
                Delegated to Perform Functions and Duties
                 of the Chief Financial Officer                                       J
                                                          ~ V ~1rf--2:iZ -
                                                                                  1
                John Hurt
                Chief Financial Officer for
                Federal Student Aid


SUBJECT:        "Department's Compliance with the Improper Payments Elimination and
                Recovery Act of 2010 and its Perform ance in Reducing and Recapturing
                Improper Payments" A 19-00002


Thank you for providing us with an opportunity to respond to the Office of Inspector
General's (OIG) draft findings.

We are pleased your audit found the Department in full compliance with the
requirements of IPERA in FY 201 3. The Department is committed to reducing and
preventing improper payments. Since the enactment of !PERA, the Department has
intensified efforts to identify and eliminate errors as well as potential for fraud, waste ,
and abuse. We have implemented a strong program to reduce the estimated rate of
improper payments, especially in our Federal Student Aid programs , and we look
forward to further strengthening our efforts through your review and recommendations.

Our responses to each of the draft findings are attached. Once again, thank you for
your recommendations and the opportunity to review and respond.



cc: Keith Cummins, Assistant Director, Operations Internal Audit Team
    Bryan Erickson , Auditor


Enclosure




                                    400 MARYLAND AVE., S.W., WASHINGTON, D.C. 20202·4300
                                                             www.cd.gov

            Our mission is to ensure equal access to education and to p romore educarwnal excellence rhroughout the Nation.
A 19-00002 "Department's Compliance with the Improper Payments Elimination and
Recovery Act of 2010 and its Performance in Reducing and Recapturing Improper
Payments"

                  Department's Response to Finding Point Sheets

Finding #2
We concur with this finding and the recommendations.

We concur that the Pell findings identified in prior year OIG IPERA Compliance reports
were not directly addressed in the calculation of the FAFSA/IRS Data Statistical Study
for reporting in the FY2013 AFR. As noted in the point sheets [report?], FSA
implemented new estimation methodologies for all risk-susceptible programs reported,
including the Pell program. The new estimation methodology for Pell addresses the
limitations of and, for the purposes of reporting improper payment estimates, replaces
the old FAFSA/IRS Data Statistical Study. We acknowledge that the new estimation
methodologies are still pending OMS review and approval. Thus, the determination to
continue to report the results of the IRS Data Statistical Study is dependent on OM B's
approval of this methodology.

We concur that where estimates are based on program reviews, such as the Direct
Loan improper payment estimate reported in the FY2013 AFR, we may improve the
precision of the estimate by increasing the size of the pool of reviews sampled and the
sample size. We have modified our proposed FY2014 estimation methodologies to
expand the pool of available program reviews to sample.

If OMS approves the new FY2014 methodology, we will close this finding as resolved.

Finding #3
We concur with this finding and recommendation.

In general, OMB provides an advisory statement that, within the Management's
Discussion and Analysis, agencies should provide a brief description of their progress
on eliminating and recovering improper payments; however, the detail is reserved for
other information. In this and other matters, we will assess the revised A-136 guidance
for FY14 and look for better opportunities to improve disclosures.

Finding #4
We generally concur with this finding and recommendation .

We share the goal of reducing improper payments generally and, specifically, for all
programs identified as susceptible to significant improper payments and will establish
reduction targets to achieve this aim. As noted in the AFR and in these point sheets,
we continue to work with OMS to refine our proposed estimation methodologies and
establish a long-term solution. We intend that our long term solution will inform the
identification of specific root causes that, when addressed, will allow for the
measurement of and targeting of rate reductions.