U.S. Department of Education Office of Inspector General Semiannual Report to Congress No. 36 October 1, 1997 — March 31, 1998 April 29, 1998 Honorable Richard W. Riley Secretary of Education Washington, DC 20202 Dear Mr. Secretary: I am pleased to submit this Semiannual Report on the activities of the Department's Office of Inspector General (OIG) for the six-month period ending March 31, 1998. Submission of this report is in accordance with section 5 of the Inspector General Act of 1978 (Public Law 95-452, as amended). The act requires that you transmit this report within thirty days to the appropriate congressional committees and subcommit- tees, along with any comments you may wish to make. Our efforts this period continued to advance both OIG’s and the Department’s mis-sion and goals, through a carefully designed program of audits, investigations and reviews intended to help managers administer their programs and carry out their over-sight responsibilities more efficiently, effectively and economically. The work of OIG staff has resulted in reports and prosecutive actions that have brought important issues to the attention of Department managers, along with recommendations to help mana-gers resolve identified problems or to prevent their recurrence. I look forward to continuing to work with you and Department managers as we seek to ensure the efficiency, effectiveness and integrity of Education Department programs and operations. Sincerely, John P. Higgins, Jr. Acting Inspector General CONTENTS 0 Letter to the Secretary 0 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 P.L. 95-452 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 0 ABSTRACT 1: Significant Audits and Audit-related Activities . . . . . . . . . . . . . 12 0 ABSTRACT 2: Significant Prosecutive Actions Resulting from OIG Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 0 ABSTRACT 3: Alternative Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 0 Statistical Tables 0 Recommendations Described in Previous Semiannual Reports on Which Corrective Action Has Not Been Completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 0 ED/OIG Reports on Education Department Programs and Activities . . . . . . . . . . . . . . . . . . . . . . 40 0 Inspector General Issued Reports with Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 0 Inspector General Issued Reports with Recommendations for Better Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 0 Unresolved Reports Issued Prior to October 1, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 0 Statistical Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 0 Glossary of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Ï EXECUTIVE SUMMARY Ï Significant Activities and Accomplishments During the period of this report, the Office of Inspector General (OIG) continued its ongoing efforts to assist Department of Education (ED) managers and officials in assuring that taxpay-er-funded federal education programs and operations are implemented with efficiency, effec-tiveness, integrity, and accountability. To more clearly delineate the strategic focus of our efforts during the period, the accomplishments set forth in this Executive Summary, unlike those of previous Semiannual Reports, are organized according to the goals of our Strategic Plan. Highlights of our efforts follow. GOAL 1: PROGRAMS AND OPERATIONS IMPROVEMENT OIG products and services are used by the Department of Education, Congress and other interested parties to improve the efficiency, effectiveness and integrity of education programs and operations. q q q Significant Management Challenge: The Student Financial Assistance Programs The area of greatest risk confronting the Department of Education involves the student finan-cial assistance (SFA) programs, specifically the loan and grant programs under Title IV of the Higher Education Act. The subject of previous Congressional hearings, as well as OIG and General Accounting Office (GAO) reports, these programs consistently have been identified as high-risk and the most vulnerable to fraud, waste and abuse. LETTER TO MAJORITY LEADER OUTLINES OIG CONCERNS This period, in response to a request from the Majority Leader, United States House of Rep-resentatives, for our assessment of the greatest challenges facing ED management, the Inspec-tor General provided a detailed summary of our concerns relative to the SFA programs. Our summary outlined the technical, technological, information-based, gatekeeping and monitor-ing problems that continue to trouble these programs and seriously impede the Department’s effective administration of them. The concerns identified in our summary included lack of technical expertise, need for inte-grated delivery and information systems, Year 2000 concerns, delays in implementing a cen-tral payment system (a Department-wide concern), unreliable SFA data, need for improved reconciliation and monitoring, gatekeeping and monitoring of schools, and inability to verify the accuracy of income reported by students on SFA applications. ED’s management does recognize the challenges facing the SFA programs and is working to address them. DIRECT LOAN SCHOOL AUDIT — CONSOLIDATED REPORT OIG audits have repeatedly found that reconciliation and monitoring schools participating in the Direct Loan Program requires attention and better data. Our audit of 16 participating schools (see Abstract 1, “Significant Audits and Audit-related Activities”) disclosed weaknesses in their administration of the program in the following areas: student status reporting, electronic data processing controls, loan record accuracy, cash management, reconciliation, policies and procedures, and quality assurances. In addition, we conducted three Direct Loan Program school reviews that were not included in the consolidated report. The weaknesses cited in these reviews were the same as those not-ed in the consolidated report. (See Abstract 1, “Significant Audits and Audit-related Activities.”) Reauthorization The following initiatives were conducted by OIG during the period as part of our ongoing ef-fort to ensure that ED program legislation contains provisions that will increase the accounta-bility of ED fund recipients and address key issues that have been identified in the course of OIG audit and review efforts. REHABILITATION ACT This period the OIG issued a “perspectives paper” that addresses Title I of the Rehabilitation Act of 1973 issues. Our paper, which provided a synopsis of several OIG audits performed in anticipation of the authorization of the Rehabilitation Act, recommended that Congress change the Title I program allocation formula to better ensure that ED disburses program funds based on the actual location of individuals with disabilities. If a formula change is not feasible, Congress should authorize research on the disbursement of Title I program funds to enable further study on the equity of the current formula. We also recommended that Congress enact legislation that would allow the Rehabilitation Services Administration to monitor states based on performance and risk data; require states to submit accurate and timely data under the Government Performance and Results Act (GPRA); and allow imposition of appropriate sanctions for false or untimely data submission. ELEMENTARY AND SECONDARY EDUCATION ACT (ESEA) The OIG is conducting a series of audits to assist ED program officials, the Office of Manage-ment and Budget and Congress in reauthorizing the ESEA in 1999. We are coordinating these audits with program officials within the Department, and with officials at state and local education agencies. Before beginning these audits, we met with Congressional staff to obtain their ideas on what audits would prove useful. Audits of ESEA programs underway The OIG is performing audits on the Safe and 2 Drug-Free Schools and Communities Program ESEA Compliance Supplement and Charter Schools. We are also performing an The OIG is reviewing selected Fiscal Year (FY) audit of educational disburse-ments to local 1996 single audits of state and local education educational agencies that is designed to determine agencies to determine whether the ESEA the amount of Title I, Part A and Vocational Compliance Supplement is working as intended. Education funds reaching the schools. During the More specifically, we want to determine if the previous reporting period, OIG issued audit Supplement has been effec-tive in informing the reports on the Bilingual Education Program and a u d i t and education the Title XIV flexibility provisions (see Semian- communities about new requirements of the nual Report No. 35, page 2). Improving America’s Schools Act, as well as the options it provides for additional admin-istrative flexibility. As part of our review, we plan to solicit comments and suggestions for improving the Supplement from state au-ditors, independent auditors who conduct single audits, and program managers. REGULATIONS The OIG served as part of the Department Policy Group that compiled the Notice of Proposed Rulemaking for the Assistance to States for the Education of Children with Disabilities, Pre-school Grants for Children with Disabilities, and Early Intervention Program for Infants and Toddlers with Disabilities. This proposed rule will implement the legislative change that Congress made to the funding formula for Special Education in 1997, and will make the regulatory change to eliminate the Secretary’s Review Process. The Department took these actions in response to OIG audits of the Special Education program. In addition, the OIG served on a team that received public testimony in response to the publishing of the proposed rule. The team received the testimony at various sites within the United States, and the Department will consider it before publishing the final rule. Departmental Operations OIG continued to advise and assist the Department in its efforts to manage its operations and programs more efficiently and effectively. Highlights of our efforts follow. ADP SYSTEMS AUDITS This period we completed two ADP systems audits and began two more, which are in process. The results of the completed reviews are described in greater detail in Abstract 1, “Significant Audits and Audit- related Activities.” Leadership role for CIO needed in CIO needs to establish an IT architecture, information technology matters implement an adequate capital planning and investment control process, and complete IT Our review of the Department’s implemen-tation knowledge and skills assessments Department- of the Clinger-Cohen Act identified the need for wide. the Chief Information Officer (CIO) to establish a greater leadership role in the Department’s Year 2000 efforts behind schedule information technology (IT) matters. In part, the 3 ADP system development efforts. The ob- The second audit, on ED’s readiness for the year jectives of the review are: 2000 (Y2K), concluded that the De-partment was behind schedule and needed to accelerate its q to determine whether the Department effort. While ED has made good progress in the adequately defined system require-ments in past few months, the recent departure of the Y2K its ADP development con-tracts; and project director presents a significant challenge to avoid loss of momentum at a critical point during q to determine whether the Department the countdown to the new millennium. adequately system-tested the require-ments prior to deployment of the ADP system. Audit in process: ADP system development Audit in process: procurement of IT systems The first of our reviews is an assessment of the Department’s process for defining sys-tem The second review is an assessment of the Office requirements and specifications in its of Postsecondary Education’s (OPE) process for procuring information technolo-gy (IT) systems for use in administering its SFA programs. The objectives of the review are: q to evaluate the adequacy of OPE’s pro-cess for defining technical requirements and evaluating contractor proposals; q to assess the technical qualifications of OPE staff involved with the procure-ment of IT processes; and q to determine whether OPE managers considered the cost-effective use of new technology in its ADP applications. We plan to issue both reports during the next semiannual reporting period. FINANCIAL STATEMENT AUDITS The Government Management Reform Act (GMRA) requires annual audits of agency-wide financial statements beginning in FY 1996, and requires agencies to issue reports of the audits by March 1 following the end of the previous fiscal year. The Department elected to implement this requirement one year early and prepared agency-wide financial statements for FY 1995. Thus, FY 1997 is the third year that ED has prepared agency-wide financial statements and subjected them to audit. 4 Audit in process that a reasonable methodology and system did not exist for estimating the loss incurred on loans Our audit of Education’s FY 1997 agency- wide made and guaranteed by the De-partment. The financial statements is still in process; we expect time required to develop this methodology and to complete the audit report by the end of May. system, and to collect sup-porting data, is the The Department’s Chief Financial Officer (CFO) reason for the delay in issuing financial statements. plans to issue the accountability report (which As a result, the OIG extended the audit period includes among other things the financial b e y o n d statements and auditor’s reports) no later than March 1 in order to provide the Department time June 30. to resolve the issue. Congressional inquiry In an effort to support the Department in the timely issuance of audited financial statements, the In response to a Congressional inquiry as to why OIG will ensure that future auditor’s reports will Education did not meet the March 1 statutory be issued no later than March 1. report date, the CFO indicated PERFORMANCE MEASURES The OIG has participated in an advisory capacity in the development of ED’s Strategic Plan and performance plan by providing review and comments. In this advisory capacity, the OIG recommended that ED program managers assert that data used for their programs’perfor-mance measures are reliable, or, if not reliable, that they provide detailed plans for improving the data or finding alternative sources. The Department agreed with our recommendation and included it as a performance indicator in the Strategic Plan. Government Performance q to assess ED’s process for institutional-izing and Results Act the results-oriented management envisioned The Department of Education has met the by the Act; and statutory requirements for submitting a strategic q to assess ED’s development of the sys-tem plan and an annual performance plan to Congress for the accurate and timely collec-tion and and OMB. A GAO assess-ment commented reporting of performance data. favorably on ED’s strate-gic plan. GAO concluded that the agencies’ plans, including We plan to issue our report during the next ED’s, appeared to provide a workable foundation reporting period, and will conduct subse-quent for Congress to use in helping to fulfill its audits on selected performance meas-urement data appropriation, budget, authorization and oversight to assess both the reliability of the data and how responsibilities and for agencies to use in setting a ED is using it to improve programs. general direction for their efforts. Congressional in-terim evaluations of agencies’ draft plans and their final strategic plans for compliance ranked ED second among all agencies. Audit in process The OIG is currently performing the first in a series of audits covering ED’s implementa-tion of the GPRA. The objectives of the first audit are: 5 Quick Reaction Reports to Management OIG staff completed a number of additional work products during the reporting period. The most significant of these are highlighted below. ACTION MEMORANDA The OIG issued eight action memoranda this period on a wide range of issues— from the ad-ministrative capability and financial responsibility of a large midwestern university, to the or-ganizational conflict of interest, subcontracting methodology, and inconsistent treatment of professional membership dues relating to the Department’s Regional Education Laboratory contracts. A list of these work products may be found in Abstract 3, “Alternative Products.” MANAGEMENT REVIEWS During the reporting period, we completed management reviews on ED's Computer Donation Program (CDP) and its Leased Real Estate. The results of these reviews are summarized below. Computer Donation Program (CDP) Leased Real Estate In our review of the CDP, we observed that the Under Leased Real Estate, with the con-currence Department had implemented improve-ments of the Department's Qualit y previously agreed to. These improve-ments Workplace Group (QWG), we recommend-ed that included the following: QWG: q The development of appropriate opera-tional q meet with principal offices and demon-strate procedures for disposing of ob-solete to them the importance and po-tential computer equipment, and pro-viding benefits of properly managing the assistance to qualified recipi-ents. Department’s space; q The development of formal written guidance q immediately dedicate the necessary re- to principal offices detailing how to transfer sources and time to complete an accur-ate surplus computer equipment to other inventory of ED's space; principal offices and qualified recipients. q with the help of principal offices, de-velop q The development of a CDP Tracking System new space standards and require-ments to ensure that all CDP dona-tion records are through the issuance of a re- inputted and current. vised ED directive on space manage-ment; and q affix responsibility for managing ED's space usage to one qualified individual who will work with principal offices and assist them in actively managing space usage. Audit Quality Initiatives COOPERATIVE AUDIT RESOLUTION AND OVERSIGHT INITIATIVE 6 As reported in previous Semiannual Reports, we have been working with an intra-departmental team on a wide-ranging project known as the Cooperative Audit Resolution and Oversight Initiative, or CAROI. Other offices participating in the CAROI initiative include the Office of Elementary and Secondary Education, the Office of Vocational and Adult Education, the Office of Special Education and Rehabilitative Services, the Office of the General Counsel and the Office of the Chief Financial and Chief Information Officer. Commonwealth of Pennsylvania The Pennsylvania representatives expressed satisfaction with the results of the CAROI project This period, the CAROI team and ED pro-gram and strongly endorsed a continua-tion of the officers completed the most ambitious CAROI improved federal and state coop-eration and project to date with the resolution of over one communication that occurred with CAROI. (For hundred Single Audit findings affecting numerous additional information on the CAROI team’s agencies in the Com-monwealth of Pennsylvania. activities and accom-plishments, see Abstract 1, The resulting agreement not only resolved the “Significant Au-dits and Audit-Related numerous existing findings, but should also Activities.”) improve future audit resolution and program per- formance. AUDIT QUALITY PROJECT This period OIG performed seventy-five quality control reviews (QCRs) of audit working pa-pers prepared by thirty-six independent public accountants (IPAs). These IPAs were respon-sible for a substantial portion of the SFA audits for the fiscal year ended June 30, 1995. Significant proportion of audits by the 36 high vol-ume IPAs was approximately display problems $1.3 billion. The primary purpose of our QCRs was to evaluate For each of the SFA audits where we noted audit the quality of audits by reviewing the auditors’ deficiencies, we issued a letter to the IPA with working papers for adherence to requirements set specific recommendations for cor-rective action. forth in our June 1995 SFA Audit Guide, the For those audits where we identified significant American Institute of Certified Public Accountants inadequacies, we have, or are in the process of (AICPA) Attes-tation Standards, and the referring the IPAs to the appropriate State Board Government Auditing Standards. We found that of Accountan-cy, and to the AICPA for possible forty-four of the seventy-five audits reviewed (59 disciplin-ary action. We will continue to monitor percent) were substandard or contained significant inadequacies. Letters issued to IPAs The thirty-six IPAs audit 1,145 of the 4,698 proprietary schools (approximately 24 per-cent). A total of $189,952,756 in SFA funding (excluding campus-based programs) was provided to the seventy-five institutions in FY 1995. The FY 1995 SFA funding for all institutions audited 7 these and other audits submitted to the Department. GOAL 2: PROGRAMS AND OPERATIONS INTEGRITY OIG’s work discloses significant fraud, waste and abuse; results in enforcement and corrective actions; and promotes deterrence. q q q Focus on Complex Investigations Over the last several years, the OIG has increasingly focused its investigative resources on the pursuit of complex, resource-intensive, financial fraud investigations involving postsecondary institutions and lenders. This is the area where we believe our enforcement efforts are having the most impact in combating fraud in the Department’s student aid programs. In pursuing this strategy, we are not overlooking the problem of individual beneficiary fraud; rather, we are addressing it even more effectively by identifying delivery systems and program weaknesses that make the fraud easier to commit, and documenting those weaknesses through national investigative projects. Three such projects are currently underway. During these investigations, where we have identified systemic weaknesses and vulnerabilities to fraud in the Department’s programs and delivery methods, we have notified ED management officials. The following pages provide a synopsis of these projects. (Highlights of specific investigative cases resulting in prosecutive actions this reporting period may be found in Abstract 2, “Significant Prosecutive Actions Resulting from OIG Investigations.”) SFA MARKETING COMPANY/CONSULTANT FRAUD We are conducting a number of criminal investigations targeting individual consultants and/or companies marketing SFA guidance and application preparation to mostly middle and upper-income students and parents. In many instances these borrowers, because of their income level, are not eligible for many of the federal loan and grant programs. Major fraud cases involving student aid be-tween $275 and $350 for assistance in sup- consultants plying universities and the Department of Education with false income information on behalf We are currently involved in five major fraud of the clients. This financial aid con-sultant cases involving schemes by student aid advised more than 300 clients. consultants that have resulted in several fed-eral indictments to date. In one case, an in-dividual Systemic weaknesses explored self-employed as a financial aid con-sultant may have assisted some 700 clients in defrauding the Based on the case examples cited in the pre- Pell Grant Program by using various falsified ceding paragraphs and other ongoing case-work, financial documents. In another case, a person we believe the problems surrounding SFA who owned a fi-nancial aid consultant business in entrepreneurs are more extensive than is readily Michigan and Alabama charged clients a fee of apparent. We are exploring the systemic program 8 weaknesses that facilitate this fraudulent activity, Prosecutorial methods vary and are attempting to develop recommendations to We have been using a variety of prosecuto-rial strengthen internal controls and oversight methods in an effort to address this procedures. fraudulent activity. While the individual consultants are criminally prosecuted, we have successfully pursued many of the con-sultants’ clients under the federal Affirma-tive Civil Enforcement program and through the use of pretrial diversions. The use of these prosecutorial options has resulted in substantial monetary recoveries. These recoveries include both the federal ed-ucation dollars illegally obtained by the cli-ents, and the heavy monetary penalties as-sessed as a deterrent. FOREIGN SCHOOL PROJECT The OIG has assembled a team of special agents for the purpose of carrying out a proactive investigative initiative designed to identify Federal Family Education Loan Program (FFELP) borrowers who defrauded the program by falsely claiming attendance at foreign schools. The purposes of this initiative are to identify and prosecute individual recipient fraud cases, to identify problem foreign schools and refer them to Department management officials for ap-propriate administrative action, and to recover funds disbursed to ineligible borrowers. Addi-tionally, we have made written recommendations to Department officials on ways to elimi-nate fraud and abuse in the foreign-school arena. Increase in foreign-school attendance by Current investigative efforts FFELP borrowers We are continuing our efforts to identify and Through analysis of available data, we de-tected investigate FFELP borrowers who have received an increasing number of individuals obtaining funds by falsely claiming foreign- school FFELP loans by claiming atten-dance at foreign enrollment. We are opening an in- schools. This number has increased each creasing number of criminal investigations academic year between 1993 — when the number targeting suspected individuals, and we are of students was 4,595 — and academic year 1997, looking closely at foreign schools in the Car- when the num-ber of students climbed to 10,715. ibbean and Mexico. Along with the increased number of indivi-dual Statutory, regulatory and borrowers claiming attendance at for-eign schools, programmatic deficiencies the loan volume rose to more than $200,000,000 in academic year 1997. The largest loan dollar In conjunction with our investigative efforts, we volume is currently concentrated in the Caribbean have identified serious statutory, regula-tory and island na-tions of Dominic and Grenada, with programmatic deficiencies relative to FFELP Mexico ranking number three in dollar volume. In borrowing at foreign institutions. These the Dominican Republic, the volume of student deficiencies expose the FFELP to ab-use and aid has increased steadily since aca-demic year fraud. The OIG has identified defi- 1993, when it was $2,800,000. By academic year ciencies/weaknesses in the following areas. 1997, the total had climb-ed to $18,200,000. q verification of enrollment 9 q disbursement process q determination of borrowers' eligibility q standards of administrative and finan-cial capability on the part of foreign schools q oversight of the foreign schools We have on two occasions submitted writ-ten reports to Departmental program offi-cials detailing our findings and making pro-gram improvement recommendations. COLLEGIATE ATHLETIC STUDENT FUNDING PROJECT The purposes of this national investigative project are: q to determine if schools are complying with federal laws and regulations, and q to determine if any abusive situations are present that may be indicative of fraud, illegal acts or other irregularities on the part of student athletes and/or school officials. This initiative is designed to identify student athletes who were not eligible for federal finan-cial aid, but received aid by providing the Department of Education with false information on federal aid applications. The project is also designed to determine what, if any, role school athletic coaches and financial aid administrators played in the fraudulent activity exhibited by their student athletes. We have refocused our present efforts in this area to address schools that have self-reported as a result of our initial effort. College Work-Study Program, behalf of student athletes to obtain federal student correspondence courses targeted aid. We are in the process of analyzing financial aid data. To identify potential cases, a team of As part of this initiative, we also are looking OIG ana-lysts and special agents is conducting closely at student athletes participating in the detail-ed analyses of Student Aid Reports, aid ap- College Work-Study Program, attempt-ing to plications, and other financial documenta-tion. identify those who were not actually working Documentation has been obtained from a variety during the hours indicated on their time cards. We of sources, including several Departmental are looking at those instan-ces where athletic Multiple Data Entry contrac-tors. coaches may have certi-fied athletic contests and practices as paid “work study.” Some investigative findings indicate that student athletes have used mail-in corres-pondence courses to increase their grade-point averages to secure athletic eligibility. The OIG’s investigation will determine if this situation affected students’ eligibility for federal student financial aid and whether it was appropriate. Analysis of financial data underway We have developed a systematic plan to identify fraudulent SFA applications submit-ted by or on 10 P.L. 95-452 REPORTING REQUIREMENTS SECTIONS 5(a)(1) and 5(a)(2) Significant Problems, Abuses and Deficiencies • Significant Audits and Audit-related Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8, 12-22 • Significant Prosecutive Actions Resulting from OIG Investigations . . . . . . . . . . . . . . . . . . . 9-11, 23-35 SECTION 5(a)(3) Recommendations Described in Previous Semiannual Reports on Which Corrective Action Has Not Been Completed . . . . . . . . . . . . . . . . . . 39 SECTION 5(a)(4) Matters Referred to Prosecutive Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTIONS 5(a)(5) and 6(b)(2) Summary of Instances Where Information Was Refused or Not Provided* SECTION 5(a)(6) Listing of Audit Reports • ED/OIG Reports on Education Department Programs and Activities . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 5(a)(7) Summary of Significant Audits • Significant Audits and Audit-related Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-23 SECTION 5(a)(8) Audit Reports Containing Questioned Costs • Inspector General Issued Reports with Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 5(a)(9) Audit Reports Containing Recommendations That Funds Be Put to Better Use • Inspector General Issued Reports with Recommendations for Better Use of Funds . . . . . . . . . . . . . . . 43 SECTION 5(a)(10) Summary of Unresolved Audit Reports Issued Prior to the Beginning of the Reporting Period • Unresolved Reports Issued Prior to October 1, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 5(a)(11) Significant Revised Management Decisions* SECTION 5(a)(12) Significant Management Decisions with Which OIG Disagreed* *We have no instances to report. 11 Abstract 1 S IGNIFICANT A UDITS AND A UDIT - RELATED A CTIVITIES October 1, 1997 – March 31, 1998 NOTE: The amounts reported by auditors for the reports described below are subject to further review and final determination by Department officials. ADMINISTRATION OF THE WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM BY SCHOOLS ACN 03-60009 October 15, 1997 Our audits of 16 schools participating in the Direct Loan Program disclosed weaknesses in the administra-tion of the program at the individual schools. Since the 16 schools were a representative sample of schools participating in the program, it is our opinion that the conditions we found at these schools are very likely to exist at other schools. The objectives of our audits were to determine whether schools were adhering to program requirements with respect to program administration and funds accountability. Our audits disclosed weaknesses in the follow-ing areas: 1) Student Status Reporting. Fourteen of the 16 schools visited had status data that differed from that in the Direct Loan Servicing System (DLSS), and all 16 schools had discrepancies between informa-tion contained in their records and what was recorded on the National Student Loan Data System (NSLDS). These problems appear to have been caused by: a) schools not reporting data; b) schools reporting inaccurate data; c) the DLSS not updating its records with the reported changes; and/or d) the NSLDS not being fully functional. Without correct student status data, the servicer cannot convert borrowers to repayment at the correct time. In addition, loan billings may not include the correct principal and interest amounts. 2) EDP Processing Controls. Ten of the 16 schools lacked adequate electronic data processing controls over the administration of the program. While we did not discern any serious effects yet from the lack of these controls at the schools we audited, the risk of such effects over time is a concern. Without proper controls, the Direct Loan records are vulnerable to unauthorized actions, representing a serious risk to the records’ integrity and reliability. 3) Loan Record Accuracy. Schools were not keeping accurate loan records. Four of the 16 schools had discrepancies between loan balances recorded on their internal student accounts system and their Di-rect Loan system; 12 of the 16 had discrepancies between transaction dates recorded on their internal student accounts system and those recorded on the students’loan origination records on the schools’Direct Loan system. As a consequence, students could have a loan liability that is actually larger or smaller than what it should actually be. Interest subsidy calculations could also be incorrect as they are based upon reported disbursement dates . We noted other weaknesses in the areas of cash management, reconciliation, written policies and proce-dures, and quality assurance. To address the weaknesses we found, we made a number of recommendations to help the Department improve its monitoring of participating schools and enforcement of program re-quirements. 12 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES " " " AUDIT OF THE DIRECT LOAN PROGRAM ADMINISTERED BY DOWLING COLLEGE ACN 02-70001 October 6, 1997 Our audit disclosed that Dowling College maintained an excess balance of program cash, which for a period exceeded $7,000,000. Our audit identified several additional weaknesses at the school, as follows: 1) Dowling did not perform reconciliations of school and servicer loan data. 2) Dowling did not submit original copies of promissory notes and loan disbursement records within 30 days as required by program regulations. 3) Dowling has not submitted an acceptable report confirming student enrollment status. To correct the weaknesses identified, we recommended that the Assistant Secretary for Postsecondary Education require Dowling to: 1) reimburse the federal government approximately $154,000 for interest expenses the Department incurred by making excess funds available to the school; 2) ensure that loan records on the school’s database system reconcile with information on the Direct Loan servicer’s data system; 3) ensure that it transmits promissory notes and loan disbursement records timely; and 4) ensure that it submits Student Status Confirmation Reports timely and accurately. We also noted that: 1) Dowling needs to improve its ability to identify credit balances in student accounts and ensure that balances arising from the payment of federal aid are remitted to students within the time frames established by program regulations. 2) Dowling needs to ensure that access to program data is appropriate and in compliance with internal system security policies. " " " THE PUERTO RICO DEPARTMENT OF EDUCATION MUST INSTITUTE A TIME DISTRIBUTION SYSTEM ACN 02-50200 November 14, 1997 The objectives of the audit were to determine whether the Puerto Rico Department of Education (PRDE) had a system in place to distribute Chapter 1 personnel charges properly. We found that PRDE does not have accounting policies and procedures in place for time distribution of its employees who work on one or more programs. As a result, the Chapter 1 program is being overcharged for salaries while other state and federal programs are being undercharged. PRDE agreed with the finding and expects to implement a time distribution system during the 1997/98 award year. " " " THE UNIVERSITY OF PUERTO RICO–RIO PIEDRAS’ADMINISTRATION OF THE FEDERAL DIRECT LOAN PROGRAM NEEDS MAJOR IMPROVEMENTS ACN 02-70003 March 11, 1998 The objectives of the audit were to determine whether the University of Puerto Rico–Rio Piedras (UPR) properly administered, accounted for, and expended Federal Direct Loan Program funds in accordance with requirements 13 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES specific to this program. We found that, although UPR did not properly administer and account for Federal Direct Loan Program funds, there were no indications that UPR misused these funds. Serious deficiencies which, however, require immediate attention include the following. 1) UPR did not identify and report to the Direct Loan servicer all loan disbursements and loan cancella-tions recorded on students’ ledgers. The audit identified approximately $1.3 million in loan disburse-ments and $19,949 in loan cancellations which must be reported to the servicer for the 1995/96 award year. 2) UPR did not complete 1995/96 and 1996/97 reconciliations. At the time of the audit, UPR was still attempting to complete the November 15, 1995 reconciliation. Further, UPR has not reconciled 95 percent of the 1996/97 transactions. 3) UPR did not identify and report all student status changes to the Direct Loan servicer. The audit identified 1995/96 Direct Loan recipients who should be in a repayment status but are recorded at the servicer as “in- school.” UPR agreed with the findings reported and has already taken action on the recommendations we provided. UPR has been working with the Department of Education Client Account Management staff and the Direct Loan Servicing Center to identify and report loan disbursements and loan cancellations; reconcile loan data; and identify and report student status changes. We have recommended that UPR obtain an independent assessment to determine if the new control procedures for each finding are sufficient. " " " AUDIT OF THE WILLIAM D. FORD DIRECT LOAN PROGRAM ADMINISTERED BY TENNESSEE STATE UNIVERSITY ACN 04-70004 January 16, 1998 The objectives of the audit were to determine whether Tennessee State University administered the Federal Direct Loan Program in accordance with applicable program requirements. Our audit identified needed improvements in posting and reporting loan transactions, processing and reporting loan adjustments and cancellations, reporting changes in student status, and reconciliations. We found that the university en-countered problems administering the program in its first year, 1995-96. In 1996-97, the university im-proved substantially and managed its Direct Loans in accordance with most program requirements. " " " AUDIT OF THE DISTRICT OF COLUMBIA PUBLIC SCHOOLS’ ADMINISTRATION OF THE SAFE SCHOOLS GRANT ACN 03-70001 January 23, 1998 The District of Columbia was designated by the Safe Schools Act of 1994 (the Act) as a National Model City to carry out a comprehensive program to address school and youth violence. To conduct the program, the District of Columbia Public Schools (DCPS) was awarded a $1,000,000 grant, as directed by the Act. The grant period was from November 1994 to October 1996. Our audit disclosed significant management control weaknesses and mismanagement of the grant funds. As a result of the audit, we have determined that DCPS expended $210,651 of the grant funds for services that were not reasonable, allowable, or allocable grant expenditures. We also noted that DCPS did not have adequate policies and procedures in place and was making expenditures without adequate supporting docu-mentation. We recommended that the Office of Elementary and Secondary Education (OESE) require DCPS to repay $195,561 of questioned costs [which includes $117,024 in supplanted costs and $74,337 in unallowable costs], $5,480 of 14 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES unsupported costs, and $9,610 of other recommended recoveries. We also recommended that OESE require DCPS to develop written policies and procedures. " " " REVIEW OF COSTS INCURRED BY THE UNIVERSITY OF NORTH CAROLINA , GREENSBORO, AND THE SOUTHEASTERN REGIONAL VISION FOR EDUCATION UNDER THE U.S. DEPARTMENT OF EDUCATION ’S REGIONAL EDUCATIONAL LABORATORIES CONTRACT ACN 04-70015 February 25, 1998 The objectives of our audit were to determine whether costs incurred by the Regional Educational Labora-tory and its subcontractors complied with applicable federal laws and the terms of the contract. Our review identified the following weaknesses: 1) The University of North Carolina, Greensboro could not provide assurances that approximately $2.3 million in salaries, fringe benefits and related indirect costs between December 1, 1995 and November 30, 1996 were allocated in direct relationship to the time and effort made toward the Regional Educational Laboratories contract. 2) The Department was unable to make an informed decision regarding $415,000 of proposed sub-contract actions because the University of North Carolina, Greensboro did not obtain cost infor-mation from prospective subcontractors as required by the Federal Acquisition Regulation. The University of North Carolina, Greensboro has taken action or has planned actions that generally should correct the cited conditions. However, our report recommended that the Department require the University of North Carolina, Greensboro to submit additional information for evaluation and assurance of compliance with appropriate federal regulations. " " " 15 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES STRATEGIC PLANNING AND PERFORMANCE MEASUREMENT FOR GUARANTOR AND LENDER OVERSIGHT SERVICE ACTIVITIES CAN HELP FOSTER ACHIEVEMENT OF AN EFFICIENT AND EFFECTIVE FEDERAL FAMILY EDUCATION LOAN PROGRAM ACN 05-70004 November 12, 1997 Our review found that the Guarantor and Lender Oversight Service (GLOS) has an opportunity to use a strategic plan and performance-measurement system to help ensure a high level of performance. A number of events and issues created this opportunity. First, the Government Performance and Results Act of 1993 (GPRA) requires strategic planning and performance measurement at the department and program levels. Second, during fiscal year 1997, the Office of Postsecondary Education moved the Guarantor and Lender Review Branches under the direction of the GLOS Director. Finally, GLOS has limited resources, wide-spread oversight responsibilities, and changing priorities, meaning that it must maximize its planning and measurement resources and activities. While GLOS has an established mission, follows a work plan to guide its activities, and uses some per-formance indicators to target entities for review, it does not have a formal strategic plan and performance measures that address all aspects of its operations. (When GLOS developed its mission and work plan, the Department and OPE had not finalized their strategic plans and performance indicators.) We believe that GLOS should: 1) consider developing a strategic plan and performance measurement system to help ensure that its goals and objectives support, and are properly linked to, the goals established in OPE’s and the Department’s strategic plans; 2) establish a performance measurement system; and 3) obtain management support and commitment. On behalf of the Deputy Assistant Secretary for Student Financial Assistance Programs, the Director of GLOS generally concurred with the finding and recommendations. The Director’s response indicated that GLOS has started to implement corrective action for the first recommendation, plans to implement correc-tive action for the second recommendation, and completed corrective action for the third recommendation. " " " REVIEW OF INDIRECT COSTS CLAIMED OHIO — REHABILITATION SERVICES COMMISSION FISCAL YEARS 1993 AND 1994 ACN 05-70017 November 21, 1997 Our review of indirect costs claimed by the Ohio Rehabilitation Services Commission (ORSC) for federal fiscal years ended September 30, 1993 and 1994 found that ORSC billed federal programs using provi-sional indirect cost rates that turned out to be higher than the final rates negotiated for those periods. The allowable recovery for the two-year period, based on the final indirect cost rates, was $13,773,251. By using provisional rates, ORSC actually billed programs $15,463,402. As a result, ORSC overclaimed indirect costs of $1,690,151 in fiscal years 1993 and 1994. The overclaimed amount represents excessive reimbursement of $1,151,941 from the Department of Health and Human Services (HHS) and $538,210 from the De-partment of Education. ORSC obtained funds for three programs— the Bureau of Disability Determination (BDD), which is an HHS program, and the Bureau of Vocational Rehabilitation (BVR) and Bureau of Service for the Visually Impaired (BSVI), which are Department of Education programs. In 1993, ORSC billed indirect costs for only the BDD program because it billed all costs for the BVR and BSVI programs directly. In 1994, ORSC billed indirect costs for all three programs. ORSC officials said they did not make the required adjustment because they wanted to establish a reserve fund to solve a cash-flow problem. The officials indicated they need reserve funds to cover incurred costs until funds are collected from the direct cost centers. An ORSC official stated that the overclaims are not in an interest-earning account. 16 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES " " " CENTRAL STATE UNIVERSITY NEEDS TO IMPROVE ITS CONTROLS OVER THE FEDERAL WORK-STUDY PROGRAM ACN 05-80002 March 16, 1998 Our limited-scope audit at Central State University (CSU), Wilberforce, Ohio, identified weaknesses in controls related to: 1) time conflicts between hours worked and class hours scheduled, and 2) students not being paid for all hours worked. These weaknesses could adversely affect CSU’s administration of the Federal Work-Study (FWS) program. Our review found that FWS time sheets sometimes showed conflicts between reported hours worked and scheduled class hours. We randomly selected for review 34 of 342 students who received FWS in the Spring 1997 quarter and found that 23 (67 percent) submitted time sheets reporting that they had worked during scheduled class hours. We also randomly selected for review 38 of 374 students who received FWS in the Spring 1996 quarter and found that 27 (71 percent) submitted time sheets reporting that they had worked during scheduled class hours. We believe that CSU needs to establish a policy prohibiting students from working during scheduled class hours and implement controls to ensure that the policy is followed. We also found that CSU did not pay students for all the FWS hours they worked. Of the 38 randomly selected students who received FWS in the Spring 1996 quarter, 12 (32 percent) did not get paid for all the hours they worked. We found that CSU lacked controls to ensure that students were paid for work per-formed. In addition, CSU apparently did not understand the regulations pertaining to hours worked and related earnings in excess of awards. We recommended that OPE instruct CSU to establish controls that will ensure that students are paid for work performed. " " " CENTRAL STATE UNIVERSITY SUPPORT SERVICES PROGRAM ACN 05-80005 March 16, 1998 Our limited-scope audit of Central State University’s administration of its $282,573 Student Support Services Program grant identified one instance of noncompliance. We found that CSU used $36,366 of grant funds to pay for instructors’ salaries and an undetermined amount of grant funds for related fringe benefits for a special class called Speculations. According to 34 CFR 646.30(a)(3), costs associated with remedial and special classes are allowable under the grant, but only if project participants are not charged tuition for those classes. Because CSU charged tuition for Speculations, the costs are not allowable charges against the grant. We recommended that OPE instruct CSU to refund $36,366 of grant funds used to pay instructors’salaries relating to the Speculations class. " " " REVIEW OF CHARGES FOR UNEMPLOYMENT COMPENSATION INSURANCE ACN 06-60010 January 28, 1998 Our review disclosed that the New Orleans Public Schools (NOPS) charged $2,265,212 in unreasonable unemployment compensation insurance costs to Department of Education programs for state fiscal years 1992 through 1996. NOPS did not use a reasonable methodology for charging Department programs. Al-though personnel associated with Department programs accounted for only 8.4 percent of NOPS payroll costs, Department programs were charged 48 percent of the total unemployment compensation insurance costs. We recommended that the Secretary require the Louisiana Department of Education to: 1) refund $2,265,212 to the U.S. Department of Education; and 2) ensure that only a reasonable proportion of unemployment insurance costs is charged for periods after FY 1996. 17 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES " " " PROFESSIONAL JUDGMENT AT YALE UNIVERSITY ACN 06-70005 March 13, 1998 Our review found that Yale University used professional judgment to modify the statutory needs-analysis formula because it considered allowances in the formula to be inadequate. The modification included using data from another needs-analysis system the university used to award nonfederal aid. The Higher Education Act does not grant financial aid administrators authority to make modifications to the statutory formula simply because they disagree with it. We questioned the professional judgment actions for over 40 percent of the 50 sample students reviewed. The questioned actions resulted in $5,469 of additional Pell Grants being disbursed in award years 1994-95 and 1995-96. Based on the sample results, we estimate that 225 students could have received $35,976 or as much as $101,432 in Pell Grant overpayments. We recommended that Yale University: 1) establish procedures that will provide for the use of professional judgment only after determining that special circumstances exist on an individual student basis and the actions do not modify or replace allowances already considered in the statutory formula; 2) refund the $5,469 in additional Pell Grants disbursed as a result of the unreasonable profes-sional judgment actions for the sample students; and 3) perform a 100 percent review of the professional judgment actions not included in our audit for award year 1994-95 through the current period, and refund any additional Pell Grants disbursed as a result of the unreasonable use of professional judgment (a statistically valid sample review may be substituted for a review of all actions). " " " 18 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES WESTED’S ADMINISTRATION OF THE REGIONAL EDUCATIONAL LABORATORY CONTRACTS ACN 09-60009 March 31, 1998 The purpose of our audit was to determine whether costs incurred by WestEd and its subcontractors under the Regional Educational Laboratory contracts with the Office of Educational Research and Improvement complied with applicable federal laws and regulations and the terms of the contracts. Our audit disclosed that WestEd did not comply with certain federal laws and regulations in managing its Regional Educational Laboratory contracts. We also found that WestEd’s indirect cost rates negotiated by the U S. Department of Education do not reflect all of its indirect costs. Our review identified that WestEd: 1) leased space to a radio station and a computer facility in buildings purchased with federal funds for educational research purposes and retained profits from the leases. WestEd’s fund balance included about $627,000 of lease profits earned over the two-year period from December 1994 to November 1996; 2) used lease-purchase agreements that resulted in excessive charges for furniture, equipment, and building improvements. The interest portion of the lease-purchase payments was excessive since WestEd had funds available in its reserve to make cash purchases. WestEd also accelerated char-ges to the contract for the purchases and charged interest to the contract during periods when interest was an unallowable cost; 3) improperly billed the contract for indirect costs on work performed by subcontractors; 4) charged the contract for indirect costs that were not necessary for the performance of federal contracts; and 5) gave the impression that indirect costs remained fairly constant when in fact the indirect cost rate increased 29 percent over the past three years. For fiscal year 1996, WestEd’s actual indirect cost rate was 45 percent rather than its stated rate of 12.8 percent. We recommended that the Department require WestEd to use federally purchased property and federal funds for their intended purposes, and to use federal funds efficiently. We also recommended that WestEd be required to return about $131,000 in federal funds that were used for unallowable interest, improperly computed indirect costs, and other unallowable direct costs. We further concluded that WestEd could use as much as $2.6 million of accumulated rental profits to reduce program expenditures or further program objectives, leaving about $300,000 of rental profits available for these purposes annually in future years. " " " THE STATUS OF EDUCATION ’S IMPLEMENTATION OF THE CLINGER-COHEN ACT ACN 11-70007 March 1998 Our audit determined that the Department has not achieved full compliance with important Clinger-Cohen Act (CCA) requirements. The CCA requires executive agencies to adopt specific practices to improve the management of information technology. Specifically, the Department has not: 1) implemented a capital planning and investment control process that meets CCA requirements; 2) developed and implemented a sound and integrated information technology architecture; 3) reported significant deviations from goals related to information technology costs, performance, or schedules in an updated information resources plan; and 4) assessed the knowledge and skills of agency personnel related to information resource manage-ment and developed a plan to correct identified deficiencies. 19 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES The Department’s future compliance with the CCA will be determined by the ability of the Office of the Chief Financial and Chief Information Officer (OCF/CIO) to establish a greater leadership role for informa-tion technology. The OCF/CFO can advance this leadership role through proactive efforts to implement the capital planning and investment control process and the Department-wide knowledge and skills assess-ments. Our report provides recommendations to the Deputy Secretary and the Chief Financial and Chief Informa-tion Officer for achieving compliance with the CCA requirements and improving information management within the Department. These recommendations include the issuance of clear policies communicating the OCF/CIO’s responsibility and authority; the development and submission of specific plans for meeting CCA requirements; and the identification and allocation of sufficient resources to implement these plans. " " " THE STATUS OF THE U.S. DEPARTMENT OF EDUCATION ’S READINESS FOR YEAR 2000 ACN 11-70011 March 1998 We conducted our audit to assess the completeness and appropriateness of the Department’s Year 2000 project plans, and to determine whether the Department had included renovation and test plans for its mission-critical systems. Computer-system failures are likely to occur with computer systems that currently use a two-digit date field (i.e. “99" for the year 1999), since they will not recognize “00" as the year 2000. Without renovation, these systems may simply fail altogether or produce erroneous results when performing computations involving dates beyond 1999. Based on our audit work, we concluded that the Department has not completed a comprehensive plan suf-ficient to prepare its systems adequately for the Year 2000. The Department’s efforts have not kept pace with government-wide milestone dates. In September 1997, the Department received a failing grade on its Year 2000 project from the House Subcommittee on Government Management, Information and Technolo-gy. While the Department has made significant progress in the past several months, much work remains. Our specific recommendations to Department officials to help ensure that the Department achieves compli-ance addressed the need for continuity of leadership and adequate resource commitment. We also recom-mended: 1) timely completion of the Department-wide Year 2000 comprehensive project management plan; 2) implementation of an outreach program to identify specific needs of the Department’s data ex-change trading partners and the establishment of individual testing dates for resolution of out-standing issues; 3) independent verification and validation of mission-critical systems planned for renovation or re-placement during 1999; and 4) the development of contingency plans and obligation of funds to ensure that alternate processing methods are available which will enable the Department to continue its mission should a critical system fail. " " " OFFICE OF INSPECTOR GENERAL PERSPECTIVE ON TITLE I OF THE VOCATIONAL REHABILITATION ACT OF 1973 ACN S14-70003 February 1998 This paper summarized the results of a series of audits we conducted covering the Vocational Rehabilitation Act of 1973, and made recommendations for legislative and internal improvements. The issues and findings follow. Legislative Recommendations 20 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES 1) Change the Title I program allocation formula to better ensure that program funds are disbursed based on the actual location of individuals with disabilities. 2) If changing the formula is not feasible, then authorize research on the disbursement of Title I program funds to further study the equity of the allocation formula. 3) Allow the Department of Education’s Rehabilitation Services Administration (RSA) to monitor states based on performance and risk data. 4) Require states to submit accurate and timely data under the Government Performance and Re-sults Act (GPRA) by requiring certification that information reported to RSA is from information systems with adequate internal controls. Other Recommendations and Findings We reviewed the draft performance plans prepared to comply with GPRA and the evaluation standards for Designated State Units (DSU) required by section 106 of the Rehabilitation Act. Based on this review, we expressed concern that neither the plans nor the standards include sufficient measures of performance out-comes for individuals with severe (significant) disabilities, or measures the employment outcome rate for persons receiving services. We found that when a DSU in Texas used performance measurement, the agency’s ability to achieve a high level of employment outcomes for its clients improved significantly. Another review of a DSU revealed that one of the factors that contributed to successfully administering its Title I program was client monitoring during the period that the client received services. Additionally, we examined the management practices within the Office of Special Education and Rehabili-tation Services (OSERS). Our report suggested that OSERS review the need to maintain its three compo-nents as separate and distinct entities, consider delayering the current organization and become more cus-tomer-oriented, produce a strategy for eliminating duplicative planning and research functions, and develop a plan to address the future loss of resources within OSERS. We further recommended that OSERS develop a strategic information plan to identify the need for data, what data should be collected and how, and how it should be used. Finally, we noted that differences in client characteristics may have had an impact on certain DSUs’ em-ployment outcome rates . " " " 21 SIGNIFICANT AUDITS AND AUDIT-RELATED ACTIVITIES COOPERATIVE AUDIT RESOLUTION AND OVERSIGHT INITIATIVE As reported in previous Semiannual Reports, we have been working with an intra-departmental team on a wide-ranging project known as the Cooperative Audit Resolution and Oversight Initiative, or CAROI. The goal is to improve education programs and student performance at state and local levels through better use of audits, monitoring and technical assistance. Due to the number of inquiries and requests from states to participate in the CAROI process, we are working with the Department to streamline and institutionalize the process further. Following are the CAROI team’s accomplishments during the reporting period. #1: Create and Maintain a Dialogue with States The CAROI team and ED program officers produced a question-and-answer document for national distribu-tion which addresses the new IASA flexibility provisions. This guidance will assist SEAs and LEAs in im-plementing the new provisions, and provide criteria for auditors who review SEAs and LEAs. The team also made presentations at each of the three regional Improving America’s Schools Conferences scheduled during this reporting period and addressed the National Title I Conference. In addition, the team established a CAROI Internet address to facilitate communication with our CAROI partners and disseminate information concerning the CAROI process. #2: Work with States to Resolve Open Audits or Audits Under Appeal The CAROI team reached an agreement with the Commonwealth of Pennsylvania resulting in the resolu-tion of 119 single audit findings, covering audit years 1990 through 1996. CAROI project teams, composed of both Department and Pennsylvania officials, met during a five-month period to review the open findings in these audits and negotiate joint determinations. Several of the findings resolved in the Pennsylvania pro-ject had been in litigation for a number of years, which consumed resources from both the Department and Pennsylvania. Pennsylvania officials strongly endorsed the CAROI process and stressed the importance of other government entities’ joining in similar projects. The OIG has initiated this effort by sending letters describing the CAROI process to the Department of Agriculture and the Commissioner of the Internal Re-venue Service, and will be sending similar letters to other agencies. #3: Improve the Single Audit Process The team continues to work with state auditors from Washington and Georgia on a pilot project under the provision of the Single Audit Act Amendments. The goal of the pilot project is a comprehensive single audit report on how federal programs are managed at the local level. At present, the Department receives little information from the single audits conducted at most LEAs. These pilot projects would give federal program managers information on how federal programs operate at the local level. #4: Coordinate Audits, Monitoring and Technical Assistance The CAROI team is working with the Department in integrated reviews and other state program monitoring efforts. CAROI team members are working with program officials to ensure the linkage between audits, monitoring and technical assistance. CAROI members also briefed team members of the Department’s Pro-gram Coordination Reviews on the CAROI process and its important connection with their efforts. The CAROI team also is participating as a member of the Department’s Data Coordination group, which is considering more efficient and effective approaches to data-collection coordination and usage. CAROI members are working to ensure that information on oversight activities is available to individuals who need it to further promote the efficient and effective use of federal funds. Abstract 2 22 SIGNIFICANT INVESTIGATIONS SIGNIFICANT PROSECUTIVE ACTIONS RESULTING FROM OIG INVESTIGATIONS October 1, 1997 – March 31, 1998 i School Owners, Officials and Employees i Computer School Owners Allegedly Commit Conspiracy to Obtain $3.5 Million ALAN FROST and ANNE FROST, officers and owners Midland Career Institute (MCI) Hammond, Indiana and Port Richey, Florida THERESA LIA, president American Micro Computer Systems Port Richey, Florida A federal grand jury in the Northern District of Indiana returned a 32-count indictment against Alan Frost and Anne Frost, officers and owners of Midland Career Institute, Inc. (MCI). The Frosts were charged with one count of conspiracy to commit student financial aid (SFA) fraud, fraud and swindles, wire fraud and bank fraud; nineteen counts of bank fraud; and twelve counts of SFA fraud. In addition, Theresa Lia, a co-conspirator and president of American Micro Computer Systems, was charged with one count of conspiracy. The indictment alleges that the defendants conspired to aggressively recruit individuals at drug rehabilita-tion centers, welfare offices and in low-income housing projects. School employees admitted prospective students who had falsified ability-to-benefit test scores and then later falsified attendance records of indivi-duals who never attended any classes. False documentation was placed in the students’files to make it ap-pear that they were eligible to receive Pell grants. This joint investigation with the FBI developed evidence by conducting a detailed analysis of more than two million records. Investigators determined that the fraud scheme caused MCI to wrongfully obtain in excess of $3.5 million in Pell Grant and FFELP funds which were not used for their intended purpose. A portion of the federal funds were converted to the personal use of the defendants. All three defendants have pled not guilty. " " " 23 SIGNIFICANT INVESTIGATIONS Consultant Allegedly Assists Families in Submitting Fraudulent SFA Applications ERNEST DALE BLEAM Mulvane, Kansas A federal grand jury in the District of Kansas indicted Ernest Dale Bleam on charges of student financial assistance fraud and aiding and abetting. Bleam, whose business card read, “I start when you are told: Sorry, you won’t qualify for financial aid,” has pled not guilty to the indictment. The indictment alleged that Bleam altered the financial information of his customers on Pell Grant applications. Bleam charged his customers a fee (based upon Pell Grant awards) of 10% for first-time applications and 5% for subsequent applications. Bleam supported the false statements by also altering copies of his clients’income tax returns. On occasion, Bleam would also falsify Pell applications to indicate that the student applicants were orphans or wards of the court in order to qualify the students as independent. Based upon records obtained during the execution of a search warrant, this joint ED/OIG–FBI investigation identified Bleam’s customers. Through a detailed analysis by the investigating agents, which included the gathering of records from numerous postsecondary schools, the review of ED databases and the verification of income, the Department of Justice (DOJ) has been aggressively pursuing Bleam’s clients. To date, more than 180 clients have entered into Affirmative Civil Enforcement agreements with DOJ. In these agree-ments, Bleam’s clients have acknowledged that fraudulent documents were submitted to ED and others in order to obtain Pell Grants. These agreements have resulted in settlements totaling over $1 million. An additional 400 clients have been contacted, meaning that the final amount of repayment could exceed $3 million. " " " School Owner Fails to Refund FFELP Funds SHARON D. ARNEY , owner Cranford College Hutchinson, Kansas Sharon D. Arney pled guilty to five counts of SFA fraud in the District of Kansas, Topeka, Kansas, after a federal grand jury charged her with failing to make refunds for and on behalf of students who had attend-ed Cranford College. This joint ED/OIG–FBI investigation disclosed that some of the students who received Title IV financial aid at Cranford College withdrew from or stopped attending classes before completing their programs of study. Investigation revealed that during 1990, 1991, and 1992, Arney failed to pay approximately $146,704 in refunds on behalf of students who had withdrawn. The investigation also revealed that Arney made false statements to the Small Business Administration. Arney has pled guilty to five counts of SFA fraud and is awaiting sentencing in the District of Kansas. " " " 24 SIGNIFICANT INVESTIGATIONS Researcher Bills ED and NIH for Same Study GREGG M. STUM, director GMS Systems Newark, Delaware Gregg M. Stum pled guilty to an information that was filed in U.S. District Court in the District of Dela-ware. The information charged Stum with one count of mail fraud for submitting research reports relating to a study titled “A Sign Language Telephone for the Hearing Impaired” to ED. Investigation, jointly conducted by the Postal Inspection Service and HHS/OIG, determined that Stum submitted invoices to ED totaling $30,000. Stum had previously submitted the same reports to the National Institutes of Health (NIH), for which he obtained $50,000 in grant funds. Stum had entered into contracts with ED and NIH, funded with Small Business Innovation Research funds, to conduct research on telephones for the hearing impaired. " " " School Official Draws Pell Funds Fraudulently An officer of a proprietary school in Chicago, Illinois, agreed to a pretrial diversion (PTD) in the Northern District of Illinois regarding his commission of wire fraud and misapplication of Pell Grant funds. The conditions require that he not violate any laws for a period of 12 months and that he report to a PTD super-visor as directed. An ED/OIG investigation determined that, in August 1992, the officer instructed the school’s vice-president to request $40,000 in Pell Grant funds, and transfer the funds into the school’s operating account to pay outstanding and delinquent bills. At the time the money was requested, the school did not have eligible stu-dents enrolled in the program and was not eligible for the funds. After being notified of an ED/OIG investi-gation, the officer reimbursed ED $40,000. " " " PLUS Loan Fraud Ring Nets $272,000 in Southern Florida RAFAEL RAFCA, former financial aid officer ENRIQUE GONGORA, GLADYS YERA, MIRTHA DUQUE, JORGE DIAZ, TANIA DIAZ, LETICIA VALDES and KARY SILVA A Southern District of Florida grand jury returned a 23-count indictment charging bank fraud and conspiracy against eight individuals for their role in a student loan fraud ring. ED/OIG agents arrested seven of the defendants. The group had obtained the school codes of at least eleven colleges and universities in the Southern Florida area through Rafael Rafca, the former financial aid officer at Politechnical Institute of Florida. Using these codes, the group submitted approximately 125 applications with false parent, stu-dent, and school information to obtain Parent Loans for Undergraduate Students (PLUS loans). The multi-agency investigation, which involved the use of handwriting and bank-account analyses and sur-veillance, revealed that approximately $272,000 in disbursements were made as a result of the scheme. Another $220,000 in scheduled disbursements were prevented as a result of the investigation. In an attempt to avoid detection, group members opened bank accounts using fictitious identities, and rent-ed mail boxes where many of the checks were delivered and retrieved. These checks were either deposited into the various bank accounts or cashed at area check-cashing establishments. Two members of the group have pled guilty. Gladys Yera pled guilty to eleven counts of bank fraud and one count of conspiracy. Mirtha Duque pled to two counts of bank fraud and one of conspiracy. 25 SIGNIFICANT INVESTIGATIONS " " " School Employee Allegedly Fraudulently Certifies FFELP Applications CYNTHIA JACKSON, secretary St. Louis College of Pharmacy St. Louis, Missouri Cynthia Jackson was sentenced to 21 months of incarceration to be followed by two years of supervised probation. Jackson had earlier pled guilty to one count of SFA fraud after being indicted by a federal grand jury in the Eastern District of Missouri on one count of misapplication of ED funds. According to the indictment, Jackson, who was employed as a secretary in the financial aid office at St. Louis College of Pharmacy (SLCP), fraudulently applied for and received $7,800 in federal student loans. Additionally, this joint ED/OIG–FBI investigation developed evidence that from October 1995 to February 1996, Jackson fraudulently certified 15 student loan applications. As a result, Jackson and nine other indi-viduals received federal student loan funds totaling approximately $86,553. Investigation revealed that none of the individuals ever attended SLCP, and that none was therefore eligible to receive student loans. The majority of the nine individuals have admitted to receiving the loan proceeds without attending SLCP. " " " School Employee Gets Kickbacks for Fraudulently Certifying FFELP Applications CONNIE ANNE FREEMAN , associate director of financial aid MARILYN GILMORE, former registrar employee SHARON ALDRICH and WILLETTE W. LIPSCOMB, students Houston-Tillotson College Austin, Texas Connie Anne Freeman, associate director of financial aid at Houston-Tillotson College (HTC), Austin, Texas, was sentenced in U.S. District Court, Western District of Texas, to five years probation and ordered to pay restitution of $193,717 to HTC after she pled to one count of conspiracy. The court also ordered Freeman to perform 150 hours of community service during her probation period. Investigation disclosed that Freeman fraudulently obtained student loan proceeds by using a fictitious name and another individual’s Social Security number. Freeman also admitted soliciting kickbacks from students at HTC to obtain Title IV funds totaling $72,395 by certifying students for loans they were ineligible to receive in return for a monetary fee. The court also sentenced Marilyn Gilmore, a former registrar employee at HTC, to five years probation and ordered her to pay restitution in the amount of $18,000 to HTC. Gilmore had previously entered a guilty plea to a one-count information charging false statements. Gilmore admitted paying Freeman $2,500 for fraudulently obtaining $18,000 in loan proceeds. In related matters, a federal grand jury in the Western District of Texas returned a two-count indictment against Sharon Aldrich and a one-count indictment against Willette W. Lipscomb. Both individuals, stu-dents at HTC, are alleged to have fraudulently received Stafford Loans. " " " School Employee Allegedly Falsely Certifies SFA Applications PATRICE LEWIS 26 SIGNIFICANT INVESTIGATIONS Lassen Community College Outreach Center — College Work-Study Program Alturas, California An information was filed in U.S. District Court, Eastern District of California, charging Patrice Lewis with one count of mail fraud. The information alleged that while employed at the College Work-Study Program at Lassen Community College's Outreach Center, Alturas, California, Lewis falsified enrollment applica-tions and SFA applications for eight individuals. At the time of the falsifications, Lewis allegedly knew full well that the eight individuals were not students at Lassen Community College. According to the information, as a result of her fraudulent Pell Grant and student loan applications, Lewis obtained approximately $38,848 for herself and others. " " " Virgin Island Advocacy Executive Director Embezzles ED Funds CAMILLE AYALA PITTERSON, former executive director Virgin Islands Advocacy Agency St. Croix, U.S. Virgin Islands Camille Ayala Pitterson, former executive director of the Virgin Islands Advocacy Agency, pled guilty to one count of embezzlement after a federal grand jury in St. Croix, U.S. Virgin Islands, indicted her on one count of embezzlement and thirteen counts of wire fraud in connection with the alleged misuse of ED and HHS funds. Pitterson devised a scheme to use $6,888 of federal funds illegally for personal purposes by means of false and fraudulent representations, thus defrauding the disabled residents of the Virgin Islands. The Virgin Islands Advocacy Agency received ED funds for the purpose of providing assistance to disabled per-sons in their relationships with projects, programs and facilities provided by the Government of the Virgin Islands. 27 SIGNIFICANT INVESTIGATIONS i Civil Actions i College Diverts Pell Funds to Student Athletes BREWTON-PARKER COLLEGE Y. Lynn Holmes, president Thomas R. Hartley, vice president of fiscal affairs Cecelia Hightower, financial aid director Mount Vernon, Georgia A four-count civil complaint was filed in the Southern District of Georgia against Brewton-Parker College, Thomas R. Hartley, Cecelia Hightower and Y. Lynn Holmes. The complaint includes charges of making false claims against the United States, making false statements, breach of contract, and unjust enrichment. The complaint states that the defendants presented 1,871 false claims to the United States and caused the United States to suffer damages of over $2.1 million in Pell Grant and Supplemental Educational Oppor-tunity Grant funds. According to the complaint, Brewton-Parker schemed to defraud the government by drawing down Pell funds in the names of incarcerated students who either had withdrawn or did not re-enroll in eligible courses, then disbursed the funds to student athletes who were not eligible for Pell funds. Brewton-Parker also allegedly used federal monies to fund athletic scholarships for student athletes— mem-bers of the college’s champion baseball team— who were ineligible to receive federal financial aid. " " " Title IV Funds Returned to ED BANK ONE a.k.a. First Huntington National Bank Huntington, West Virginia Pursuant to a settlement agreement, Bank One, formerly known as First Huntington National Bank, re-turned $92,946 of Title IV funds to ED that the bank seized in December 1986 after Century College, Huntington, West Virginia, filed for bankruptcy. The bank seized the funds since Century College had outstanding balances on three loans from Bank One. In 1988, the owner of Century College, Philip Neibergall, entered a plea of guilty to two of twenty-eight fraud counts. An ED/OIG investigation disclosed that Neibergall failed to refund approximately $887,635 in SFA funds that he used for personal gain. Neibergall was sentenced to two years of imprisonment and ordered to pay $100,000 in restitution. After the guilty plea, negotiations continued with the bankruptcy court and Bank One to obtain the return of the federal SFA funds to ED. " " " JAMES HARDY Joliet, Illinois A civil complaint charging James Hardy with violating the False Claims Act was filed in the U.S. District Court, Northern District of Indiana. Investigation determined that Hardy had defaulted on a student loan in the late 1980s. Hardy failed to disclose his student loan default in subsequent applications for federal financial aid related to his attendance at Michiana College and Bethel College. Hardy subsequently ob-tained Pell Grant funds and additional student loans. 28 SIGNIFICANT INVESTIGATIONS Hardy agreed to the allegations stipulated in the complain. The court entered a civil judgment and ordered Hardy to pay $15,942 plus interest. The OIG identified Hardy’s fraudulent activity as part of the ongoing Indiana Default Project. i Other Investigative Cases i MOHAMMAD BILAL AFIF IBRAHIM OIG Foreign Schools Project Houston, Texas A U.S. district court jury in the Southern District of Texas, Houston, Texas, found Mohammad Bilal Afif Ibrahim guilty of all charges included in a 46-count indictment. Ibrahim— who was indicted by a federal grand jury in October 1997 on 20 counts of student loan fraud, 20 counts of mail fraud, 5 counts of bank fraud and one count of criminal asset forfeiture— failed to appear in court during the second week of trial and is currently a fugitive. A joint ED/OIG–Postal Inspection Service investigation disclosed that Ibrahim received 22 loans of $18,500 each, totaling $407,000 in a two-year period. The loans, which were guaranteed by five different guaranty agencies, were obtained by Ibrahim from five different banks in the names of five different family members. The loan applications contained numerous false statements, including the forgeries of school officials from a foreign medical school in the Dominican Republic. Through the use of consensual monitored telephone conversations, handwriting analysis and other investigative techniques, Ibrahim was identified as the reci-pient of the loan funds. Ibrahim used the funds to gamble and support a lavish lifestyle. " " " VICKI GOODSON, bookkeeper/secretary Montgomery County Board of Education Montgomery, Alabama Vicki Goodson, former bookkeeper/secretary with the Montgomery County, Alabama, Board of Education, pled guilty in the Middle District of Alabama to four counts of theft of program funds. Goodson had been previously indicted by a federal grand jury in October 1997. The grand jury alleged that Goodson had em-bezzled more than $298,000 in federal funds from the Title 1, Chapter 1, Drug-Free Schools, Goals 2000 and Adult Education programs. This joint ED/OIG–FBI investigation revealed that, since 1993, Goodson had embezzled 87 vendor checks and used the funds for her own personal gain. " " " 29 SIGNIFICANT INVESTIGATIONS TALMADGE GRAHAM Webster University St. Louis, Missouri A federal grand jury in the Eastern District of Missouri indicted Talmadge Graham on four counts of SFA fraud and four counts of false statements. The indictment occurred approximately one month after Graham was arrested while attempting to receive a fraudulent student-loan disbursement check. Graham is alleged to have enrolled in a Webster University graduate program by submitting fraudulent undergraduate tran-scripts. Purportedly, Graham also used four assumed identities when he applied for approximately $92,500 in SFA funds and fraudulently received more than $22,000. Four search warrants have been executed during this joint ED/OIG–FBI investigation. " " " ROBERT L. PATTERSON , U.S. Postal Service employee Northern Indiana Student Loan Default Project Gary, Indiana Robert Patterson, a U.S. Postal Service Employee, pled guilty in the Northern District of Indiana to one count of student financial assistance fraud. Patterson fraudulently obtained $55,000 in SFA loans and grants for his attendance at multiple postsecondary institutions by concealing prior defaulted student loans and by using his nephew’s Social Security number. The OIG worked this spin-off case from the Northern Indiana Student Loan Default Project with the U.S. Postal Inspection Service. " " " JAVIER IRRIBARRE Big Rapids, Michigan Javier Irribarre was sentenced to four months incarceration and ordered to pay restitution totaling $29,000 to the Department of Education and a fine of $100. Upon completion of his sentence, Irribarre, an illegal alien, faces deportation proceedings. Irribarre had earlier pled guilty to one count each of SFA fraud and Social Security fraud. Through contacts made with Interpol, the Peruvian Government, and the U.S. Embassy in Chile and Uruguay, OIG investiga-tion determined that Irribarre had falsely claimed to be a U.S. citizen born in the Commonwealth of Puerto Rico and fraudulently obtained a Social Security number. Irribarre made false statements on SFA applica-tions from May 1992 through March 1997. " " " FOLLY KUEGAH New York, New York A federal grand jury in New York, New York, returned a two-count indictment charging Folly Kuegah with using a false identity (name, Social Security number and date of birth) in applying for federal SFA while attending Technical Careers Institute. Kuegah was also charged with claiming a false identity on an appli-cation for a United States passport. Kuegah pled guilty and agreed to make restitution of $2,737. " " " RENAYE L. MUHLENBECK 30 SIGNIFICANT INVESTIGATIONS West Fargo, North Dakota Renaye L. Muhlenbeck was sentenced in Federal District Court, District of South Dakota, to two years of incarceration on one count of making false declarations before a grand jury or court. Muhlenbeck was ori-ginally charged and pled guilty to one count of SFA fraud in November 1994. During sentencing and while under oath, Muhlenbeck perjured herself by falsely denying that she had committed additional acts of stu-dent aid fraud. OIG investigation disclosed that Muhlenbeck had indeed committed such acts both before and after being indicted on the original charge. i Update on Previously Reported Cases i OGLALA LAKOTA COLLEGE Kyle, South Dakota ARLYNN E. KNUDSEN , former vice president for business affairs JERRY D. GODFREY MARGARET MINKO-BADWOUND Arlynn E. Knudsen, Jerry D. Godfrey and Margaret Minko-Badwound were sentenced in the District of South Dakota for their part in a conspiracy that involved over two million dollars embezzled from the Ogla-la Lakota College (OLC), located on the Pine Ridge Indian Reservation in Kyle, South Dakota. Knudsen was sentenced to ten years of incarceration, followed by a three-year supervised probation period. In addition, the court ordered Knudsen to pay $2,657,032 in restitution to OLC. Knudsen’s sentence was enhanced in part due to the fact that the embezzlement took place while he was on probation. Knudsen had previously been convicted of student loan fraud in the District of South Dakota in 1990. Godfrey was sentenced to eight years and one month of incarceration, followed by a three-year supervised probation period. Godfrey was also ordered to pay $1,396,656 in restitution to OLC. Co-conspirator Margaret Minko-Badwound was sentenced to two years of incarceration to be followed by three years of supervised probation. She was also ordered to pay restitution in the amount of $166,799. Minko-Badwound pled guilty to conspiracy, embezzlement and theft from an Indian tribal organization, theft concerning a program receiving federal funds, money laundering, structuring, and asset forfeiture. She also agreed to forfeit any property that may have been derived from the embezzled funds, including a 1994 Chrysler automobile. Minko-Badwound was married to John Badwound who was the OLC accounting manager from 1992 to 1995 and the acting vice president for business affairs at OLC in 1995. A joint investigation by the FBI, the IRS, Interior/OIG and ED/OIG developed evidence that from 1991 to 1994, a total of $2.6 million in federal funds was embezzled from OLC. Knudsen was employed at OLC as vice president of business affairs and was identified as the primary organizer of the fraudulent scheme. Godfrey, a cousin to Knudsen, was never employed at OLC. Knudsen, Godfrey and Minko-Badwound were among five people named in a 122-count indictment in February 1997. The investigation revealed that OLC checks were being written and deposited into bank accounts of fictitious businesses and/or companies with whom OLC did little if any business. The embez-zled funds were used to purchase real estate, stocks, automobiles, drugs, art work, liaisons with prostitutes and trips to Las Vegas. Charges from the February 1997 indictment are still pending against John Badwound. Trial in U.S. District Court is scheduled to occur during the next reporting period. (Semiannual Report No 34, page 22, and Semiannual Report No. 35, pages 31 & 32) 31 SIGNIFICANT INVESTIGATIONS " " " RON and VON THOMAS, owners Ron Thomas Schools of Cosmetology Baltimore, Maryland Ron and Von Thomas, owners of the Ron Thomas Schools of Cosmetology, Baltimore, Maryland, were sen-tenced in U.S. District Court for their development of and participation in a scheme to defraud the Depart-ment of Education of over $2 million in Pell Grants. Von Thomas, who masterminded and directed the scheme, was sentenced to three years and one month of incarceration. Her husband, Ron Thomas, was sentenced to one year and one day of incarceration. Each was also given two years of supervised probation and ordered to pay a special assessment fine. Shortly after the sentencing, the ongoing parallel civil proceeding was completed and a consent judgment was entered in U.S. District Court against Ron and Von Thomas and the Ron Thomas School of Cosmetolo-gy. The consent judgment, which holds the Thomases and the Ron Thomas School of Cosmetology jointly responsible for payment of $2 million to ED, requires them to liquidate all personal and real property except for property in Florida, two life insurance policies and a diamond ring. The Thomases are also prohibited from participating in any government contract and federal entitlement and non-procurement programs, including the Medicare and Medicaid programs. The civil portion of the case was initiated by a qui tam whistleblower lawsuit filed under the civil False Claims Act. Accordingly, the consent judgment ordered that the qui tam relator be entitled to 13 percent of the funds collected from the Thomases. (Semiannual Report No. 35, page 31, and Semiannual Report No. 33, page 18) " " " PAUl and SALVATORE SCARDINO , owners JOSEPH ROBERTS, school chain manager BERTHA CRAIG, school manager United Academies of Cosmetology Chicago, Illinois Paul and Salvatore Scardino, owners of the United Academies of Cosmetology (Mid-America and Riviera Beauty Schools), Chicago, Illinois, pled guilty to one count of wire fraud and agreed to pay restitution in the amount of $1.3 million. To ensure payment of the restitution, the defendants were ordered to issue quitclaim deeds to the United States for properties located in Chicago, Illinois and Phoenix, Arizona. School chain manager Joseph Roberts also pled guilty to one count of wire fraud. A school manager, Bertha Craig, was convicted by a federal jury in November 1997 of two counts of wire fraud and one count of SFA fraud. As previously reported, these pleas and convictions were the result of an extensive investigation by the OIG and the Postal Inspection Service, which led to a 54-count indictment in October 1996 of fifteen individu-als. Ten of these individuals, including former recruiters, school managers and financial aid personnel, pled guilty prior to the Scardinos’pleas. These individuals all worked together to defraud the Pell Grant program by processing applications for sham students; falsifying GEDs, high school diplomas, and the results of ability-to-benefit examinations; and creating fictitious attendance records for students who had left the schools after a minimum period of time. The Scardinos admitted that they retained the illegally obtained Pell Grant funds for their own use. The Pell Grant program was targeted by the United Academies of Cosmetology after the schools lost student loan revenue because of a high default rate in 1990. The Scardinos, Roberts and Craig are scheduled to be sentenced during the next reporting period. (Semian-nual Report No.33, page 18 and Semiannual Report No. 34, page 32) 32 SIGNIFICANT INVESTIGATIONS " " " STEPHEN WESLEY KISER Birmingham, Alabama Stephen Wesley Kiser was sentenced in U.S. District Court, Northern District of Alabama, to five months imprisonment followed by 38 months of supervised release time, including three months of home detention, and was ordered to pay $62,804 in restitution. Previously, Kiser pled guilty to a one-count information charging him with making false statements in order to receive federal SFA funds. The OIG investigation revealed that Kiser had used numerous false identities to fraudulently obtain $62,804 in SFA between 1991 and 1997. Kiser used the identities of deceased individuals to enroll at Jacksonville State University, Jacksonville, Alabama. After completing the enrollment process, Kiser fraudulently received federal financial aid funds under the deceased persons’ names. (Semiannual Report No. 35, page 27) " " " JAMIE VAELLO CARMONA , president and owner Reingold & Associates, Inc. Rio Piedras, Puerto Rico Jamie Vaello Carmona, president and owner of Reingold and Associates, was sentenced in U.S. District Court, San Juan, Puerto Rico, to four months home confinement and four years supervised probation and was ordered to pay restitution of $50,000 to the University of Puerto Rico (UPR). Vaello, who had previ-ously pled guilty to one count of SFA fraud, used his company, Reingold & Associates, to collect Perkins Loan payments from former students after his contract with UPR had terminated. This joint ED/OIG–FBI investigation disclosed that Vaello, who continued to represent to the students that he was the UPR collec-tion agent, failed to remit the monies he collected to UPR. (Semiannual Report No.35, page 25) " " " 33 SIGNIFICANT INVESTIGATIONS TERRY DIEHL, registrar JACQUELINE SMITH, registrar SHIRLEY LYBRAND , registrar Romar International, Inc. Terry Diehl, former registrar, Romar Beauty School, Kissimmee, Florida, one of nine branch campuses, was sentenced in the Middle District of Florida to 120 days home confinement and one year of supervised pro-bation, fined $50 and ordered to pay restitution in the amount of $6,625 to the U.S. Department of Edu-cation. Jacqueline Smith, former registrar, Romar Melbourne Beauty Academy, Melbourne, Florida, was sentenced to 120 days home confinement and two years supervised probation, fined $50 and ordered to pay restitu-tion in the amount of $6,625 to the Department of Education. Both Diehl and Smith had earlier pled guilty in connection with their role in a scheme to enroll ineligible students at Romar schools. Specifically, Diehl and Smith knowingly certified student loan applications for students who were not eligible for SFA funds because the students had neither a high school diploma nor a General Equivalency Degree (G.E.D.) certificate and had not passed ability-to-benefit examinations. (Semiannual Report No. 35, page 22) Also during the period, a federal grand jury in the Middle District of Florida indicted the former registrar of the Cocoa Beauty College, a subsidiary of Romar International, Inc. Shirley Lybrand was charged with five counts of bank fraud after the grand jury alleged that she had knowingly enrolled students who did not have either high school diplomas or G.E.D. certificates and had not passed ability-to-benefit examinations. According to the indictment, Lybrand may be subject to criminal asset forfeiture if she is found guilty of the charges. This joint ED/OIG–FBI investigation is continuing. " " " MINERVA DEL RIO, adjunct professor AMANDO PONS and DAGOBERTO GUZMAN Mercy College Bronx, New York Minvera Del Rio, a former adjunct professor at Mercy College, Bronx, New York, was sentenced to two years of incarceration to be followed by three years of supervised probation. Del Rio, who earlier pled guilty to conspiracy charges, set up sham marriages for illegal aliens and provided fraudulent Social Security num-bers to financial aid applicants at Mercy College. Two former students at Mercy College were indicted by a federal grand jury in the Southern District of New York for their role in the scheme. Amando Pons and Dagoberto Guzman were charged with making false statements in connection with their applications for and receipt of federal SFA at Mercy College. Pons and Guzman had been previously arrested by ED/OIG agents. (Semiannual Report No. 34, page 23) " " " 34 SIGNIFICANT INVESTIGATIONS NEENA KHANNA, owner Camden Beauty College San Jose, California Neena Khanna, owner of Camden Beauty College, pled guilty to one count of SFA fraud. At sentencing, she was placed on electronic monitoring for a period of five months, placed on probation for a term of three years and ordered to pay restitution of $23,076 to ED. Investigation disclosed that Khanna falsified various documents on "no show" students and received Pell Grant funds for these students. She also falsified a Free Application for Student Aid for a student whose mother had paid the full cost of attendance and obtained a Pell Grant in this student’s name. Khanna also received Pell Grant funds for students who were receiving Regional Occupation Funding. The accounts for these students were over-funded when she failed to make refunds either to the students or to the school's federal funds account on their behalf. (Semiannual Report No. 35, page 22) 35 Abstract 3 ALTERNATIVE PRODUCTS October 1, 1997 — March 31, 1998 Postsecondary Education NO. TITLE ISSUED 98-01 Office of the Inspector General Alert Concerning the Administrative 11/12/97 Capability and Financial Responsibility of Central State University, Wilberforce, Ohio 98-02 Associated Technical College, Los Angeles, California – Title IV Funds 11/17/97 Exceeded 85 Percent of Total Revenues for Two Campuses 98-03 Debt Collection Service Needs to Modify the Debt Management and 12/16/97 Collection System to Ensure that Variable Rate Loan Balances are Properly Recalculated and Adjusted 98-04 National Student Loan Data System Processing Enhancement to Ensure 01/16/98 Data Integrity and Detect and Prevent Duplicate Records 98-05 The Office of Postsecondary Education Needs to Closely Monitor the 01/21/98 Illinois Student Assistance Commission to Ensure It Has the Ability to Properly Administer the Federal Family Education Loan Programs 98-06 Institutional Participation and Oversight Service Needs to Ensure that it 03/02/98 Has Current Program Participation Agreements for All Institutions Participating in the Title IV, Higher Education Act Programs 36 ALTERNATIVE PRODUCTS State and Local NO. TITLE ISSUED 98-01 Conflict of Interest and Subcontracting Issues Relating to Regional 01/30/98 Education Laboratories and the Council for Educational Development and Research 98-02 Office of the Inspector General Alert Concerning Discretionary Grants 02/13/98 Awarded to Central State University, Wilberforce, Ohio Systems NO. TITLE ISSUED S11-80008-01 Grant Administration and Payment System (GAPS) Readiness Review 3/31/98 Administrative Operations NO. TITLE ISSUED S53-70003 Computer Donation Program 2/2/98 S53-70005 Leased Real Estate 3/31/98 37 RECOMMENDATIONS DESCRIBED IN PREVIOUS SEMIANNUAL REPORTS ON WHICH CORRECTIVE ACTION HAS NOT BEEN COMPLETED Section 5(a)(3) of the Inspector General Act requires a listing of each report resolved before the commencement of the reporting period for which management has not completed corrective action. The reports listed below are OIG internal and nationwide audit reports and management improvement reports. TOTAL SEMIANNUAL REPORT DATE MONETARY REPORT NUMBER AUDITEE/TITLE RESOLVED FINDINGS NO. PAGE OFFICE OF ELEMENTARY AND SECONDARY EDUCATION 11-20202 CHANGES TO IMPACT AID PROGRAMS' SITE REVIEW PROCESS SHOULD 09/30/94 4,382,000 26 85 IMPROVE EFFICIENCY AND ASSURE BETTER USE OF PROGRAM FUNDS 09-38259 THE DEPARTMENT SHOULD EVALUATE THE NEED FOR ANNUAL CHILD COUNTS 09/30/97 * 31 09 IN THE IMPACT AID PROGRAM OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES 03-50201 COORDINATION AND COLLABORATION WITHIN THE OFFICE OF SPECIAL 09/30/97 * 34 18 EDUCATION AND REHABILITATIVE SERVICES TO BETTER SERVE CUSTOMERS AND MANAGE PROGRAMS OFFICE OF POSTSECONDARY EDUCATION 11-00010 OFFICE OF STUDENT FINANCIAL ASSISTANCE DID NOT ASSURE THAT ALL INSTITUTIONS 09/30/93 33,800,000 24 63 SUBMITTED AUDIT REPORTS OR THAT IT RECOVERED ALL MISSPENT FUNDS 11-90040 THE INSTITUTIONAL ELIGIBILITY PROCESS DOES NOT PROVIDE ADEQUATE ASSURANCE 09/30/93 482,000 22 6 THAT ONLY ELIGIBLE SCHOOLS PARTICIPATE IN THE TITLE IV PROGRAMS 92-05** ED NEEDS TO STRENGTHEN STUDENT LOAN CURE PROCEDURES 09/30/93 154,000,000 24 12 92-10** STRICTER STANDARDS NEEDED FOR GRANTING OF FORBEARANCES 09/30/93 * 25 3 92-13** ED NEEDS TO CHANGE THE LEGISLATIVE DEFINITION OF LOANS IN REPAYMENT 01/31/94 * 25 5 05-20075 EFFECTIVENESS OF THE REGIONAL INSTITUTIONAL REVIEW BRANCHES' MONITORING OF 08/31/94 * 28 19 INSTITUTIONS PARTICIPATING IN THE STUDENT FINANCIAL ASSISTANCE PROGRAMS 17-30302 FINANCIAL AUDIT: FEDERAL FAMILY EDUCATION LOAN PROGRAM'S FINANCIAL STATEMENTS 10/31/94 * 29 16 FOR FISCAL YEARS 1993 AND 1992 11-30001 INCONSISTENT INSTITUTIONAL PELL GRANT REPORTING RESULTS IN SIGNIFICANT 07/31/95 * 29 15 EXPENDITURE DISCREPANCIES 04-40100 HELPING TO ASSURE EQUALIZED EDUCATIONAL OPPORTUNITIES WITH HEA, TITLE III 08/31/95 * 31 11 INSTITUTIONAL AID FUNDS - GLOBAL PERFORMANCE MEASURES NEEDED 17-30305 ANNUAL INTEREST GRANTS: IMPROVING THE PROCESS FOR PAYING THE REMAINING 02/29/96 5,025,272 31 14 GRANTS 11-40001 FOLLOW-UP REVIEW ON SELECTED GATEKEEPING OPERATIONS 02/29/96 * 31 13 05-40005 ED NEEDS TO CONSIDER IMPLEMENTING CHANGES FOR MONITORING 03/31/96 * 32 10 LENDERS AND SERVICERS 05-50008 EFFECTIVENESS AND EFFICIENCY OF DEBT COLLECTION SERVICE - AREAS RELATED 04/30/96 * 32 12 TO INTERNAL OPERATIONS 04-38000 LESSONS LEARNED FROM RTC’S HANDLING OF FEDERAL FAMILY EDUCATION LOANS ... 08/31/96 * 32 9 04-60001 PROCESS ENHANCEMENTS IN THE HEA, TITLE III, INSTITUTIONAL AID PROGRAM 08/31/96 * 32 9 WOULD INCREASE PROGRAM EFFICIENCY, DESPITE LIMITED RESOURCES TOTAL SEMIANNUAL REPORT DATE MONETARY REPORT NUMBER AUDITEE/TITLE RESOLVED FINDINGS NO. PAGE 06-30004 MANAGING FOR RESULTS: REVIEW OF PERFORMANCE-BASED SYSTEMS AT 08/31/96 * 31 7 SELECTED ACCREDITING AGENCIES 07-48051 CLOSED SCHOOLS: $2.4 BILLION UNAUDITED 06/30/96 * 31 13 06-50010 THE ELECTRONIC DATA EXCHANGE: A SECURITY REVIEW IS NEEDED 12/31/96 * 33 12 03-60001 REVIEW OF THE MANAGEMENT SYSTEMS AND STRUCTURE OF THE U.S. DEPARTMENT OF EDUCATION, 03/31/97 * 33 29 OFFICE OF POSTSECONDARY EDUCATION, OFFICE OS STUDENT FINANCIAL ASSISTANCE PROGRAMS 09-38058 THE DEPARTMENT SHOULD CONTINUE ITS EFFORTS TO IMPROVE THE ACCURACY OF ITS STUDENT LOAN DATABASE 03/31/97 * 33 13 11-50001 ACCURACY OF STUDENT AID AWARDS CAN BE IMPROVED BY OBTAINING INCOME DATA FROM THE INTERNAL REVENUE SERVICE 06/30/97 109,000,000 34 08 OFFICE OF THE CHIEF FINANCIAL OFFICER 11-00333 GREATER EMPHASIS NEEDED TO DEOBLIGATE UNEXPENDED CONTRACT 03/31/94 7,500,000 26 17 FUNDS AND CLOSE OUT CONTRACTS ON TIME 17-40302 FINANCIAL STATEMENT AUDIT: U.S. DEPARTMENT OF EDUCATION 08/31/95 * 31 12 FEDERAL FAMILY EDUCATION LOAN PROGRAM FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993 17-48320 FINANCIAL STATEMENT AUDIT OF THE U.S. DEPARTMENT OF EDUCATION 09/30/95 * 30 20 WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM 17-40303 THE REPORT OF INDEPENDENT ACCOUNTANTS ON THE U.S. DEPARTMENT OF EDUCATION FISCAL 03/31/97 * 33 14 YEAR 1995 DEPARTMENT-WIDE FINANCIAL STATEMENTS * Non-monetary findings only ** Management improvement report ED/OIG REPORTS ON EDUCATION DEPARTMENT PROGRAMS AND ACTIVITIES (October 1, 1997 — March 31, 1998) Section 5(a)(6) of the Inspector General Act requires a listing of each report completed by OIG during the reporting period. A total of 16 reports were completed by ED/OIG auditors. These reports are listed below. QUESTIONED COSTS (excluding UNSUPPORTED BETTER USE ACN AUDITEE/REPORT TITLE STATE ISSUED unsupported) COSTS OF FUNDS OFFICE OF POSTSECONDARY EDUCATION 02-70001 AUDIT OF THE DIRECT LOAN PROGRAM ADMINISTERED BY DOWLING COLLEGE NY OCT-97 153,990 02-70003 THE UNIVERSITY OF PUERTO RICO - RIO PIEDRAS’ PR MAR-98 * ADMINISTRATION OF THE FEDERAL DIRECT LOAN PROGRAM NEEDS MAJOR IMPROVEMENTS 03-60009 ADMINISTRATION OF THE WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM BY SCHOOLS PA OCT-97 * 04-70004 AUDIT OF THE WILLIAM D. FORD DIRECT LOAN PROGRAM ADMINISTERED BY THE TENNESSEE STATE UNIVERSITY TN JAN-9 * 05-70004 STRATEGIC PLANNING AND PERFORMANCE MEASUREMENTS FOR GUARANTOR AND LENDER OVERSIGHT SERVICE ACTIVITIES CAN HELP FOSTER ACHIEVEMENT OF AN EFFICIENT AND EFFECTIVE FEDERAL FAMILY EDUCATION LOAN PROGRAM DC NOV-97 * 05-80002 CENTRAL STATE UNIVERSITY NEEDS TO IMPROVE ITS CONTROL OH MAR-98 * OVER THE FEDERAL WORK STUDY PROGRAM 05-80005 CENTRAL STATE UNIVERSITY STUDENT SUPPORT SERVICES PROGRAM OH MAR-98 * 06-60010 REVIEW OF CHANGES FOR UNEMPLOYMENT COMPENSATION INSURANCE LA JAN-98 2,265,212 06-70005 PROFESSIONAL JUDGMENT AT YALE UNIVERSITY CT MAR-98 5,469 OFFICE OF ELEMENTARY AND SECONDARY EDUCATION 02-50200 PUERTO RICO DEPARMENT OF EDUCATION MUST INSTITUTE PR NOV-97 * A TIME DISTRIBUTION SYSTEM 03-70001 AUDIT OF THE DISTRICT OF COLUMBIA PUBLIC SCHOOLS’ DC JAN-98 205,171 5,480 ADMINISTRATION OF THE SAFE SCHOOLS GRANT QUESTIONED COSTS (excluding UNSUPPORTED BETTER USE ACN AUDITEE/REPORT TITLE STATE ISSUED unsupported) COSTS OF FUNDS OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES 05-70009 INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION NEEDS TO IMPROVE ITS CONTROL OVER THE RANDOLPH-SHEPPARD PROGRAM IN DEC-97 * OFFICE OF EDUCATION RESEARCH & IMPROVEMENT 04-70015 REVIEW OF COSTS INCURRED BY THE UNIVERSITY OF NORTH CAROLINA, GREENSBORO, AND THE SOUTHEASTERN REGIONAL VISION FOR EDUCATION UNDER THE U.S. DEPARTMENT OF EDUCATION’S REGIONAL EDUCATIONAL LABORATORIES CONTRACT NC FEB-98 2,300,000 OFFICE OF CHIEF FINANCIAL OFFICER/CHIEF INFORMATION OFFICER 05-70017 REVIEW OF INDIRECT COSTS CLAIMED OHIO — REHABILITATION SERVICES OH NOV-97 538,210 COMMISSION FISCAL YEARS 1993 AND 1994 09-60009 WESTED’S ADMINISTRATION OF THE REGIONAL EDUCATIONAL CA MAR-98 131,000 2,900,000 LABORATORY CONTRACTS 11-70007 THE STATUS OF EDUCATION’S IMPLEMENTATION OF THE- CLINGER-COHEN ACT DC MAR-98 * 17-70011 THE STATUS OF THE U.S. DEPARMENT OF EDUCATION’S READINESS FOR YEAR 2000 DC MAR-98 * * Non-monetary findings only INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED COSTS1 NUMBER QUESTIONED UNSUPPORTED2 A. For which no management decision has been made by the commencement of the reporting period (as adjusted) 35 $ 199,338,889 $ 31,701,477 B. Which were issued during the reporting period 7 5,604,532 5,480 Subtotals (A + B) 42 $ 204,943,421 $ 31,706,957 C. For which a management decision was made during the reporting period 12 $ 92,060,358 $ 8,595,065 (i) Dollar value of disallowed costs 5,924,150 2,177,877 (ii) Dollar value of costs not disallowed 86,136,208 6,417,188 D. For which no management decision has been made by the end of the reporting period 30 $ 112,883,063 $ 23,111,892 E. For which no management decision was made within six months of issuance 17 $ 76,135,813 $ 19,341,114 1 None of the audits reported in this table was performed by the Defense Contract Audit Agency. 2 Included in questioned costs. 42 I NSPECTOR G ENERAL I SSUED R EPORTS WITH R ECOMMENDATIONS FOR B ETTER U SE OF F UNDS 1 N UMBER D OLLAR V ALUE A. For which no management decision has been made by the commencement of the reporting period (as adjusted) 5 $ 23,106,552 B. Which were issued during the reporting period 1 2,900,000 Subtotals (A + B) 6 $ 26,006,552 C. For which a management decision was made during the reporting period 1 7,000,000 (i) Dollar value of recommendations that were agreed to by management $ 7,000,000 (ii) Dollar value of recommendations that were not agreed to by management 0 D. For which no management decision has been made by the end of the reporting period 5 $ 19,006,552 E. For which no management decision was made within six months of issuance 4 $ 16,106,552 1 None of the audits reported in this table was performed by the Defense Contract Audit Agency. 43 UNRESOLVED REPORTS ISSUED PRIOR TO OCTOBER 1, 1997 Section 5(a)(10) of the Inspector General Act requires a listing of each report issued before the commencement of the reporting period for which no management decision has been made by the end of the reporting period. TOTAL PROJECTED SEMIANNUAL REPORT DATE MONETARY REASONS MANAGEMENT REPORT PAGE NUMBER AUDITEE/TITLE ST ISSUED FINDINGS OVERDUE DECISION NO. NO. 09-10007 WESTERN TRUCK SCHOOL CA 09/10/92 8,834,503 01 09/30/98 25 78 07-23545 MISSOURI STATEWIDE MO 04/01/93 1,048,768 01 *** ** 05-20007 AMERICAN CAREER ACADEMY MI 05/27/93 2,003,658 01 09/30/98 27 17 09-10005 CALIFORNIA STUDENT AID COMMISSION CA 09/10/93 41,100,000 01 *** 27 17 09-33114 STATE OF CALIFORNIA CA 12/24/93 4,191,032 01 *** 28 18 07-33123 MISSOURI STATEWIDE MO 03/07/94 187,530 01 *** ** 05-30010 NORTHSTAR GUARANTEE INCORPORATED MN 08/16/94 619,287 01 09/30/98 29 31 04-43134 FLORIDA STATEWIDE FL 12/05/94 615,996 05 *** 01-46037 COMMONWEALTH OF MASSACHUSETTS MA 02/01/95 2,173,536 02,04 06/26/98 30 16 02-56113 VIRGIN ISLANDS DEPARTMENT OF EDUCATION VI 02/17/95 10,375,000 05 *** 30 17 05-40007 REPORT ON THE TRANSITIONAL GUARANTY AGENCY'S MN 06/02/95 * 01 *** ** ROLE IN GUARANTY AGENCY TRANSITION 04-53670 FLORIDA STATEWIDE FL 10/04/95 2,855,402 05 *** 05-40001 CLOSE-OUT AUDIT OF THE CHICAGO INSTITUTE OF TECHNOLOGY IL 10/08/96 10,079,439 01 09/30/98 34 11 01-50091 ROXBURY COMMUNITY COLLEGE DISBURSED $2.2 MILLION TO STUDENTS MA 10/29/96 2,253,564 01 09/30/98 34 10 ENROLLED IN AN INELIGIBLE ENGLISH AS A SECOND LANGUAGE PROGRAMS 03-60006 REVIEW OF THE COOPERATIVE AGREEMENT FOR THE NATIONAL PA 01/28/97 * *** 34 19 CENTER FOR ADULT LITERACY AWARDED TO THE UNIVERSITY OF PENNSYLVANIA FOR THE PERIOD NOVEMBER 1, 1992 THROUGH MARCH 31, 1996 04-60147 REVIEW OF SELECTED ASPECTS OF THE KENTUCKY HIGHER EDUCATION KY 02/18/97 1,263,251 01 09/30/98 34 9 ASSISTANCE AUTHORITY’S ADMINISTRATION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM 04-60152 REVIEW OF MONITORING CONTROLS USED TO ENSURE FULFILLMENT OF DC 06/30/97 * *** 35 17 TITLE VII BILINGUAL EDUCATION GRANT PROGRAM OBJECTIVES 09-53006 A NEW FORMULA IS NEEDED TO EQUITABLY ALLOCATE VOCATIONAL WA 07/18/97 * 01 *** 35 18 REHABILITATION PROGRAM FUNDS TO STATES 06-70003 PROFESSIONAL JUDGEMENT AT ST. LOUIS UNIVERSITY MO 07/30/97 2,599,709 01 09/30/98 35 14 06-60004 FINANCIAL AID ADMINISTRATORS USE OF PROFESSIONAL JUDGEMENT DC 07/31/97 * *** 35 13 17-60002 U.S. DEPARTMENT OF EDUCATION RECOMMENDATIONS TO IMPROVE DC 08/05/97 * *** 35 19 MANAGEMENT CONTROLS AND OPERATIONS RESULTING FROM MATTERS NOTED DURING OUR FISCAL YEAR 1996 FINANCIAL STATEMENT AUDIT 04-70001 STATE AND LOCAL EDUCATION AGENCIES NEED MORE TECHNICAL DC 08/20/97 * *** 35 17 ASSISTANCE TO TAKE FULL ADVANTAGE OF FLEXIBILITY PROVISIONS OF TITLE XIV OF THE IMPROVING AMERICAN’S SCHOOLS ACT 11-50201 OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES DC 08/22/97 * *** 35 19 SECRETARIAL REVIEW PROCESS IN NEED OF CHANGE TOTAL PROJECTED SEMIANNUAL REPORT DATE MONETARY REASONS MANAGEMENT REPORT PAGE NUMBER AUDITEE/TITLE ST ISSUED FINDINGS OVERDUE DECISION NO. NO. 06-60006 ELIMINATING ADVANCE FUNDING WOULD ENHANCE THE INTEGRITY DC 08/28/97 * *** 35 13 OF THE FEDERAL PELL GRANT PROGRAMS 01-58052 EDUCATION LOAN SERVICES, INC. FAILED TO CALCULATE INTEREST MA 09/30/97 1,014,000 *** 35 10 REBATES OWED TO THE SECRETARY ESTIMATED AT $1,014,000 01-60008 THE MASSACHUSETTS CORPORATION FOR EDUCATIONAL MA 09/30/97 1,027,690 *** 35 16 TELECOMMUNICATIONS MUST BE A RESTRICTED INDIRECT COST RATE FOR CHARGING INDIRECT COSTS TO FEDERAL GRANTS 01-70002 UNIVERSITY OF MASSACHUSETTS - AMHERST MA 09/30/97 * *** 35 11 NOTES * Non-monetary findings only ** Not individually written up *** Information not provided by P.C. REASON CODES FOR REPORTS OVER SIX MONTHS OLD 01 - Administrative delays 02 - Delay in receiving auditee comments or additional information from auditee 03 - Delay in receiving additional information from nonfederal auditor 04 - Lack of staff 05 - Cooperative Audit Resolution and Oversight Initiative (CAROI) pilot state STATISTICAL SUMMARY October 1, 1997 — March 31, 1998 OIG AUDIT REPORTS ISSUED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 – Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,599,052 – Unsupported Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,480 – Recommendations for Better Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,900,000 OIG AUDIT REPORTS RESOLVED BY PROGRAM MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 – Questioned Costs Sustained. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 3,746,273 – Unsupported Costs Sustained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,177,877 – Additional Disallowances Identified by Program Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,640 – Management Commitment to Better Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,000,000 NONFEDERAL AUDIT REPORTS RESOLVED BY PROGRAM MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . 4 – Questioned Costs Sustained. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,699 – Unsupported Costs Sustained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – 0 – INVESTIGATIVE CASE ACTIVITY – Cases Opened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 – Cases Closed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 – Cases Active at End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 – Cases Referred for Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 – Accepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 – Declined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 INVESTIGATION RESULTS – Indictments/Informations 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 – Convictions/Pleas 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 – Fines Ordered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,325 – Restitutions Ordered 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,677,063 – Restitution Payments Collected4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,699 – Civil Settlements (number)5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 – Civil Settlements6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 886,919 – Civil Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,015,942 – Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,946 1 Includes 4 actions not reported in our last Semiannual Report. 2 Includes 8 actions not reported in our last Semiannual Report. 3 Includes $16,072 not reported in our last Semiannual Report. 4 Collected by the Department of Justice (represents restitution payments collected from January— March 1998). 5 Includes 10 actions not reported in our last Semiannual Report. 6 Includes $109,353 not reported in our last Semiannual Report. 46 GLOSSARY OF ABBREVIATIONS ACN audit control number ATB ability-to-benefit CAROI Cooperative Audit Resolution and Oversight Initiative CFO Chief Financial Officer CIO Chief Information Officer DOJ Department of Justice ED U.S. Department of Education EDCAPS Education Department Central Automated Processing System ESEA Elementary and Secondary Education Act FBI Federal Bureau of Investigation FFELP Federal Family Education Loan Program FWS Federal Work-Study (Program) FY fiscal year GAO General Accounting Office GLOS Guarantor and Lender Oversight Service GMRA Government Management Reform Act GPRA Government Performance and Results Act 47 GLOSSARY OF ABBREVIATIONS OIG Office of Inspector General OMB Office of Management and Budget OPE Office of Postsecondary Education SFA student financial assistance/student aid ST state VA Department of Veterans Affairs 48
Semiannual Report - October 1, 1997 - March 31, 1998
Published by the Department of Education, Office of Inspector General on 1998-03-31.
Below is a raw (and likely hideous) rendition of the original report. (PDF)