oversight

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)

  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.



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                   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




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