oversight

Semiannual Report - October 1, 1999 - March 31, 2000

Published by the Department of Education, Office of Inspector General on 2000-03-31.

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. 40


 October 1, 1999 – March 31, 2000
 U.S. Department of Education
Office of Inspector General




 Semiannual Report
    to Congress
           No. 40

October 1, 1999 − March 31, 2000
                                                             May 15, 2000


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, 2000. The report was transmitted to you and Department senior
officers for review on April 28, 2000 in accordance with section 5 of the
Inspector General Act of 1978 (Public Law 95-452, as amended). The Act
requires you to transmit this report by May 30, 2000 to the appropriate
congressional committees and subcommittees, together with a report containing
any comments you wish to make; statistical tables as specified in section
5(a)(13)(b)(2) and (3); and a statement with respect to audit reports on which
management decisions have been made but final action has not been taken, as
specified in section 5(a)(13)(b)(4).


The enclosed report presents this office’s activities, accomplishments, and
concerns during the period covered. I testified several times before
congressional committees and subcommittees this period. These testimonies
described the most critical challenges facing the Department and our
recommendations to address them, as well as the Department’s success in
meeting them or need to take further action.


We responded this period to a request from House Majority Leader Armey,
Senators Thompson and Domenici, and Representatives Burton and Kasich for
an assessment of the management challenges facing the Department. In my
response, I noted that many of the challenges facing the Department involve
long-term issues that we continue to monitor.
One of the most critical challenges to the Department is its preparation of and
access to accurate financial data. This information is key to the Department’s
ability to make informed decisions, manage for results, and ensure the integrity
of its operations. The Department is making important improvements in its
process for preparing financial statements, and we are encouraged by
management’s efforts to actively monitor and address open audit
recommendations to ensure their effective resolution.


Management has responded in a positive manner to our recommendations for
preventing the improper discharge of student loans. We note that important
interim steps are being taken to address our findings and recommendations. If
successful, these efforts will help significantly to ensure that only eligible
borrowers receive loan discharges. We are specifically recommending that the
Congress pass any necessary additional legislation to address this matter.


The OIG is committed to carrying out its legislative mandate to identify fraud,
waste, and abuse, and to recommend appropriate corrective actions. I look
forward to continuing to work together with you and Department managers to
ensure that Education Department programs and operations serve the nation’s
students and taxpayers with efficiency, effectiveness, and integrity.


                                     Sincerely,




                                     Lorraine Lewis


Enclosure
                                                    CONTENTS

Letter to the Secretary

Inspector General's Message

Management Challenges.............................................................................................................. 1

P.L. 95-452 Reporting Requirements....................................................................................... 14

Ø      Appendix 1: Management Challenges..................................................................................15

Ø      Appendix 2: Recommendations Described in Previous Semiannual Reports on Which
                   Corrective Action Has Not Been Completed...................................................16

Ø      Appendix 3: ED/OIG Reports on Education Department Programs and Activities.............18

Ø      Appendix 4: Inspector General Issued Reports with Questioned Costs ...............................20

Ø      Appendix 5: Inspector General Issued Reports with Recommendations for
                   Better Use of Funds.........................................................................................21

Ø      Appendix 6: Unresolved Reports Issued Prior to October 1, 1999 ......................................22

Ø      Appendix 7: Investigation Services Cumulative Prosecutive Actions .................................24

Ø      Appendix 8: Collections from Audits and Investigations.....................................................28

Ø      Appendix 9: Statistical Profile..............................................................................................29
                             INSPECTOR GENERAL’S
                           MESSAGE TO CONGRESS

This period, in the financial management area, the Department of Education for the first time
was able to issue its audited financial statements on deadline. There were four material
weaknesses included in the Report on Internal Control for both the Department and Student
Financial Assistance (SFA) and reportable conditions for both. The Department has undertaken
efforts and initiatives to improve its process for preparing financial statements.
A recent amendment to GOVERNMENT A UDITING STANDARDS requires the OIG to communicate with
legislative members who have oversight of the auditee when the financial statement audits are
performed pursuant to law or regulation. We have contracted with an independent accounting
firm to perform the fiscal year 2000 financial statement audits of the Department and SFA. The
OIG will perform an oversight role on each audit. The objectives of the audits include reporting
on the annual financial statements, the internal controls, and compliance with laws and
regulations. The audits will be performed in accordance with GOVERNMENT AUDITING STANDARDS
and guidance issued by the Office of Management and Budget, and will be completed by the
March 1 deadline.
We are pleased to report the success of the Department’s efforts to ensure its programs’
readiness for the Year 2000. This success was due to a concerted effort by the Department, with
technical assistance by our office in evaluating progress, identifying high-risk areas, and
providing information on the status of its trading partners. Computer security is another high
risk in the information technology area. In a report this period, we advised the Department of
significant control weaknesses that threaten the security of its financial management and other
mission-critical systems, and provided recommendations that, if implemented, will greatly
enhance that security.
In the last few years, the OIG has become increasingly aware of the need to focus additional
attention on Department operations. This period the OIG reorganized to provide us with more
flexibility in using our resources. One of the major changes is the creation of two new groups to
focus on Department operations. The first group, the Analysis and Inspection Services, is
responsible for conducting quick management reviews that do not require a traditional audit. A
second group, which we are in the process of establishing, will be an internal audit staff that we
will use to audit the Department’s management operations and analyze problems that require
the special expertise auditors possess.
I would like to take note of the appointment of our former Assistant Inspector General for Audit,
Steven A. McNamara, as Inspector General for the House of Representatives. I know that Mr.
McNamara will serve the House well.
This Office is unequivocally committed to the OIG mission to identify fraud, waste, and abuse
relating to Department operations and programs, and to recommend appropriate corrective
actions to address the problems we find. I look forward to continuing to work with the
Department and the Congress, as we seek to ensure the economy, efficiency, effectiveness, and
integrity of Education programs and operations.



                                                     Lorraine Lewis
This period, the Office of Inspector General (OIG) responded to a joint House and Senate request
for an assessment of the management challenges facing the Department of Education (ED, or the
Department). Our response provided a description of these challenges and the work the
Department is doing, or needs to do, to meet them. (Appendix 1 lists these challenges.)

The Inspector General testified before Congress on four separate occasions during the reporting
period. On two of these occasions, the Inspector General spoke of the challenges facing the
Department. Highlights of the testimonies and related OIG initiatives during the period follow.




FINANCIAL MANAGEMENT AND INTERNAL CONTROLS
A top priority for the Department of Education, and one of its most significant challenges, is its
preparation of and access to accurate financial data. This information is critical for the
Department to make informed decisions, manage for results, and ensure the integrity of its
operations.

Financial Statement Audits
We issued three financial statement audits during this reporting period. The financial statement
audits issued were the Department’s consolidated financial statement audit for fiscal year 1998,
the Department’s consolidated financial statement audit for fiscal year 1999, and the Student
Financial Assistance financial statement audit for fiscal year 1999 .

TESTIMONY ON FINANCIAL AUDITS
                                                     In testimony before the House Budget
In November 1999, the results of the
                                                     Committee in February 2000, and before the
Department’s fiscal year 1998 financial
                                                     Subcommittee on Oversight and
statement audit were transmitted to the
                                                     Investigations of the Committee on Education
Department. In December 1999, the
                                                     and the Workforce in March 2000, the
Inspector General testified before the
                                                     Inspector General reported on the status of the
Subcommittee on Oversight and
                                                     Department’s financial statement audit for
Investigations of the Committee on Education
                                                     fiscal year 1999.
and the Workforce and reported that the
Department received a disclaimer of opinion
                                                     FINANCIAL STATEMENTS ISSUED ON
on those financial statements, in part due to
                                                     DEADLINE
weaknesses with the financial system. The
weaknesses included the system’s inability to        This year, for the first time, the Department
perform a year-end closing process or                was able to issue its audited financial
produce automated consolidated financial             statements to the Office of Management and
statements. In addition, the Department did          Budget by the March 1 deadline. The audit,
not adequately perform reconciliations and           conducted by Ernst & Young, LLP (E&Y)
could not provide sufficient documentation           under contract with ED/OIG, resulted in a
supporting transactions.                             qualified opinion for both ED and Student



                                                 1
Financial Assistance (SFA) on the                   The Report on Compliance with Laws and
Consolidated Balance Sheets, Statements of          Regulations for both ED and SFA cited three
Changes in Net Cost, Statements of Changes          areas of non-compliance. The areas cited for
in Net Position, and the Combined Statements        non-compliance were with:
of Budgetary Resources. E&Y disclaimed an
                                                    Ø    the Information Technology
opinion for both ED and SFA on the
                                                         Management Reform Act (Clinger-
Statements of Financing. This was the first              Cohen Act);
year SFA, as a performance-based
organization of the Department, prepared and        Ø    the Federal Credit Reform Act of 1990;
had its statements audited.                              and
                                                    Ø    the Federal Financial Management
AUDITORS NOTE MATERIAL WEAKNESSES
                                                         Improvement Act.
There were four material weaknesses included
in the Report on Internal Control for the           The Department is making important
Department and for SFA. In addition, four           improvements in its process for preparing
reportable conditions were included in the          statements by, among other things, preparing
report for the Department and three in the          quarterly statements and monthly data
report for SFA. The material weaknesses, the        reconciliations. ED has begun an initiative to
first three of which were repeat conditions,        more actively monitor and address all open
were:                                               audit recommendations to ensure that
                                                    effective corrective actions are taken. In
Ø    Financial Reporting Needs to Be
                                                    addition, the OIG is recommending that ED
     Strengthened;
                                                    track and resolve non-audit recommendations.
Ø    Reconciliations Need to Be Improved;           Much work remains to be done. We will work
                                                    closely with ED and the Congress to monitor
Ø    Controls Surrounding Information
                                                    the progress of the Department and SFA.
     Systems Need Enhancement; and
Ø    Improvement of Credit Reform
     Reporting is Needed.


INFORMATION SYSTEMS AND SECURITY CONTROLS
In fiscal year 1997, we created a systems internal audit group within OIG to provide oversight of
efforts related to the Department’s systems development and implementation. OIG has
developed a three-tiered audit strategy for addressing these systems. Audit engagements are
selected based upon their support of three management concerns: IT Investment Management,
IT Systems Development Management, and IT Operations Management. In addition to
performing selected audits, the systems internal audit group monitors the major systems within
the Department and provides on-going advice and assistance to Department officials.

This period we continued to monitor progress, provide technical assistance, and identify high-
risk areas related to the Department’s preparations for the Year 2000. We also continued to
monitor SFA’s development of its Modernization Blueprint for information systems, and
completed an audit of the Department’s security posture, policies, and plans for its 14 mission-
critical systems.




                                                2
DEPARTMENT’S Y2K EFFORTS ARE                          SECURITY CONTROL WEAKNESSES NOTED
SUCCESSFUL
                                                      A recent OIG audit on the Department’s
This period, in testimony before the House            security posture, policies, and plans for its 14
Budget Committee, the Inspector General               mission-critical systems (ACN: ED-OIG/A11-
reported that the Department’s efforts to             90013, issued February 25, 2000) revealed
ensure its programs’ Y2K readiness were               that the Department has significant control
successful. This success was accomplished             weaknesses. They include a lack of security
through a concentrated effort on the part of          plans and reviews for six mission-critical
the Department, including technical assistance        systems, no process to ensure resolution of
from our office. The OIG contributed to the           identified security deficiencies, and a lack of
Department's success by evaluating its                technical security training for many
progress, identifying high-risk areas, and            employees responsible for overseeing the
providing information on the status of its            Department’s computer security. The
major trading partners. The Department's              absence of these controls heightens the risk
commitment resulted in there being no                 that those Department systems and data are
interruption in its information systems, and no       vulnerable to security threats. Implementing
loss of data from its computer systems.               our recommendations will enable ED to
                                                      greatly enhance the security of its financial
                                                      management and other mission-critical
                                                      systems.




ELEMENTARY AND SECONDARY EDUCATION
Combining Funds in Schoolwide Programs
Title I of the Elementary and Secondary Education Act allows a local education agency to
combine most federal education funds in schoolwide programs in order to upgrade the entire
educational program in an eligible school.

FISCAL FLEXIBILITY                                    their accounting policies and procedures and
                                                      some state laws do not allow funds to be
This period we issued “Combining Funds in
                                                      combined. In addition, some federal
Schoolwide Programs” (ACN: ED-OIG/A04-
                                                      requirements that are designed to maintain
90008, issued March 29, 2000), which found
                                                      accountability may be barriers to combining
that schoolwide programs are not taking
                                                      funds. Further, some local education agency
advantage of that fiscal flexibility. Despite
                                                      officials felt that state and independent
the Department’s efforts to provide guidance
                                                      auditors may not always be aware of how to
to state and local education agencies, some
                                                      audit federal funds that are combined in
local education agencies did not always know
                                                      schoolwide programs. The Department
about the flexibility or did not feel they had
                                                      generally agreed with our findings and
sufficient guidance to implement the
                                                      recommendations.
flexibility. Also, some states reported that




                                                  3
Single Audit Pilot Project
The OIG, in conjunction with the Office of Elementary and Secondary Education (OESE), is
participating in a Single Audit and Oversight Pilot Project.

PROJECT AIMED AT MAKING BETTER USE OF                    to make better use of Single Audits as a tool
SINGLE AUDITS                                            to provide improved oversight and guidance
                                                         to maintain proper internal controls, follow
The OIG performed a survey in May 1998
                                                         program objectives and procedures, and
that found that states are not systematically
                                                         correct recurring audit findings. The pilot
analyzing the results of local educational
                                                         project will also address training for auditors
agency audits to identify trends in findings,
                                                         in Department program requirements and
and develop monitoring and technical
                                                         flexibility that will be designed to obtain more
assistance strategies to reduce the occurrence
                                                         effective and useful audits. The initial
of similar problems. As a result, the OIG and
                                                         meeting with the pilot states was held in
OESE initiated a pilot project with four states
                                                         November 1999.

2000 National Title I Conference
The OIG and the Department’s Office of Elementary and Secondary Education (OESE), Office
of the Chief Financial Officer (OCFO), and the Office of the General Counsel (OGC) conducted
a series of sessions at the National Title I Conference in San Antonio, Texas in January 2000.
OCFO staff presented sessions on the Cooperative Audit Resolution and Oversight Initiative and
cost allocation and time distribution. OGC staff presented sessions on combining funds in
schoolwide programs and state and local flexibility in current statutes. OIG staff presented a
joint session with OESE on the Single Audit and Oversight Pilot Project (see above). OIG staff
also presented sessions on the Single Audit process and an overview of the audit process with an
emphasis on OIG audits.

HIGHER EDUCATION PROGRAMS
Creighton University’s Administration of its Federal TRIO Projects
This period, we issued an audit report “Audit of Creighton University’s Administration of its
Federal TRIO Projects” (ACN: ED-OIG/A07-80027, issued March 31, 2000).

RETURN OF TALENT S EARCH GRANTS                          to management controls in the areas of
RECOMMENDED                                              accounting for travel expenses, reconciling
                                                         budgets to actual expenditures, documenting
We found that Creighton University could not
                                                         student citizenship, and inventory. We found
support that services were rendered to the
                                                         that the administration of the Talent Search
number of participants reported to the
                                                         project was so deficient, we recommended
Department as served by its Upward Bound,
                                                         that Creighton University return $303,018, the
Upward Bound Math and Science, and Talent
                                                         entire amount of the Talent Search grants for
Search projects. Creighton University also
                                                         the 1996-97 and 1997-98 award years.
did not fill, or fill timely, key positions in the
                                                         Creighton University did not agree with all of
administration of its TRIO projects in
                                                         our findings and recommendations.
accordance with federal regulations. In
addition, Creighton University did not adhere



                                                     4
VIRGIN ISLANDS GRANT CONDITIONS
The OIG worked with the Department on a number of conditions placed on fiscal year 2000
grants awarded to the Virgin Islands. The conditions were placed on the grants as a result of a
number of concerns raised by the Department’s program offices and the lack of Single Audits.

VIRGIN ISLANDS FAILS TO MEET CONDITIONS             The team also discussed options the
                                                    Department was considering if the conditions
The OIG and representatives from the
                                                    were not met. In addition, the team met with
Department’s Office of Intergovernmental
                                                    representatives of the Department of the
and Interagency Affairs, Office of the Chief
                                                    Interior (DOI) OIG, received background
Financial Officer, Office of the General
                                                    information and observations from DOI
Counsel, and various program offices have
                                                    OIG’s audit work, and discussed the results of
participated in a series of meetings with
                                                    the Department of Education visit.
representatives from the Virgin Islands to
discuss the Virgin Islands’ progress toward
                                                    The Virgin Islands did not meet the specified
meeting the grant conditions. The team
                                                    conditions by the March 30 deadline. As a
visited the Virgin Islands to meet with the
                                                    result, the Department imposed appropriate
Governor and the Commissioners of Finance,
                                                    conditions on releasing Department funds to
Education, and Health to discuss the Virgin
                                                    the Virgin Islands.
Islands’ progress toward meeting the grant
conditions by the March 30, 2000 due date.

GOVERNMENT PERFORMANCE AND RESULTS ACT
Collecting Data and Reporting it to ED
This period we issued an information report (ACN: ED-OIG/S17-90009, issued March 29, 2000)
on the process state educational agencies (SEAs) use to collect and report specific kinds of data.
The Department uses the data to monitor and evaluate SEA programs, as well as in the annual
performance report to Congress required by the Government Performance and Results Act
(GPRA). The OIG sees the Department’s need to obtain quality data to measure the performance
of its programs and to meet GPRA requirements as a significant challenge for the Department,
and has included it among the management challenges facing the Department.

OBSERVATIONS ON SEA DATA COLLECTION                 Ø    Each SEA has its own unique process
                                                         for collecting data, as well as a unique
Our review focused on two of the
                                                         control structure. The method of
Department’s major formula grant programs:
                                                         collecting data from local education
Grants for Schools Serving At-Risk Children              agencies varied.
(Title I) and Vocational and Technical
Education Assistance to the states (Perkins).       Ø    Most of the states did not submit their
Based on work performed at the Department                data on time.
and at five SEAs, we made the following
                                                    Ø    The data may not be consistent over
observations.
                                                         time.
Ø    The process of collecting data is              Ø    When used for national aggregation or
     complex. The data comes from several                comparison, the data are not likely to be
     sources.                                            comparable across states.




                                                5
The flexibility ED provides to states and local       may require new systems. Designing,
education agencies can affect data collection.        building, and maintaining systems requires
Improvement in data quality and timeliness            significant human and financial resources.

STUDENT FINANCIAL ASSISTANCE
Modernization Blueprint
The Inspector General responded this period to a joint request by the House Majority Leader,
with Senators Thompson and Domenici and Representatives Burton and Kasich, for an
assessment of the management challenges facing the Department.

BLUEPRINT PRESENTS UNIQUE CHALLENGES                  Ø    the need to continually assess viable
                                                           alternatives to ensure cost effectiveness;
In her response, the Inspector General stated
                                                           and
that implementation of the third draft of the
“Modernization Blueprint” presents several            Ø    the possibility that the impact of external
unique challenges. These include:                          factors may be understated, technical
                                                           challenges may not be sufficiently
Ø    the potential that Student Financial                  appreciated, the project timetable may be
     Assistance’s (SFA) current and future                 unrealistic, and sufficient resources to
     business problems may not be                          complete the effort may be unavailable.
     adequately defined, leading to the
     potential for increased cost and
     complexity;

We expressed our concern that the Blueprint’s vision of “buy a little, test a little, fix a little” may
be unworkable. We discussed our concerns in meetings with SFA officials and SFA Blueprint
contractor staff. We will continue to monitor and advise SFA on the development and
implementation of the Blueprint.

Preventing Ineligible Recipients from Receiving Student Aid
A significant concern for the Department is student aid applicants (and their parents) who under-
report their income in order to receive student Pell grants to which they are not entitled. Our
audit and investigative work has shown this to be a problem that is costing federal taxpayers
millions of dollars annually in overawards of Pell grants and awards to ineligible recipients.

APPLICANT INCOME DATA NEEDS TO BE                     IRS to release individual income information
VERIFIED                                              to ED without written taxpayer consent. As
                                                      of the end of the reporting period, the
The Higher Education Act Amendments of
                                                      Department, Treasury, and the Office of
1998 (HEA) included, as recommended by
                                                      Management and Budget were working to
our office and fully supported by the
                                                      resolve this central issue.
Department, a provision that would authorize
the Department to confirm applicant income
                                                      We recommend that the Congress enact any
data with Internal Revenue Service (IRS)
                                                      necessary additional legislation to address
records for the purpose of verifying the
                                                      this matter.
information. According to the Treasury
Department, current law does not permit the


                                                  6
INTERIM MEASURES ARE UNDERWAY                         period. The data match should provide the
                                                      Department with statistical data on the types
In the interim, the Department and the IRS
                                                      of misreporting.
began the first of two planned test-match
statistical studies at the end of the reporting

Fraudulent Disability and Death Loan Discharges
Another concern in the SFA area is the inappropriate discharge of student loans based on
disability or death. As reported in our last semiannual report (Semiannual Report No. 39, page
6), our audit, issued in June 1999 and performed at the request of Student Financial Assistance,
found that borrowers who received disability discharges totaling more than $73 million were
earning wages. Borrowers who received death discharges had more than $3.8 million in loans
discharged, according to the Social Security Administration’s master earnings file.

In response to our recommendations, the Department this period revised the disability form to
include, at a minimum, the doctor’s professional license number and office telephone number.
In addition, the Department now requires that a death discharge be based only on an original or
certified copy of the death certificate.

Investigative efforts this period led to one indictment charging fraudulent disability discharges
of $59,540, one sentencing for a fraudulent disability discharge of $37,743, and more than $1
million in fraudulently discharged loans being reinstated to 41 borrowers.

Cohort Default Rate Understated
This period we released a final audit report titled “Changes in the Computation of Cohort Default
Rates Would Make Rates More Accurate” (ACN: ED-OIG/A06-70006, issued March 31, 2000).
The report noted that, based on the Department’s longstanding interpretation and implementation
of the default provisions of the Higher Education Act, official cohort default rates are
understated. As a result, schools with high default rates are not being identified because not all
borrowers who meet the statutory definition of a defaulter during the cohort period are included
in the default-rate computation.

16 SCHOOLS WOULD HAVE LOST ELIGIBILITY                ADDITIONAL AUDIT WORK PERFORMED IN
                                                      RESPONSE TO D EPARTMENT’S COMMENTS
Our analysis of loans included for the 1994
cohort period disclosed that an additional 115        In commenting on the draft of this report, the
schools would have reached the 25 percent             Chief Operating Officer (COO) for SFA
default-rate threshold if claims paid during          agreed that it was necessary to support strong
the three months following the end of the             student default-prevention measures to protect
cohort period were considered. The 115                the government from the costs associated with
schools included 16 that would have reached           high rates of default. However, the COO did
or exceeded a 25 percent rate for three               not agree with our recommendations for
consecutive years and lost eligibility to             changes in computing default rates.
participate in the Federal Family Education
Loan and Direct Loan Programs. The 16                 Before finalizing the report, we performed
schools received about $18.2 million annually         additional audit work, including an analysis of
in federal loan funds.                                the 1996 cohort data. The analysis supported
                                                      our conclusion that the majority of claims


                                                  7
paid during the first quarter of a cohort period       performance indicator in the Department and
are for loans that defaulted in the previous           SFA performance plans. It is therefore
period. Cohort default rates also are a key            important that default rates be accurate.

12-Hour Rule
Our review of the University of Phoenix’s management of student financial assistance programs
found that the university’s definition of an academic year for its undergraduate programs did not
satisfy the “12-Hour Rule.” The 12-Hour Rule, found in 34 CFR Section 668.2(b), requires an
institution’s undergraduate programs to contain the equivalent of at least 360 instructional hours
per academic year. Because the university did not meet the conditions specified by SFA for
including study group meetings as instructional hours, the university’s academic year only
provided 180 instructional hours. As a result, the university disbursed at least $50.6 million in
Federal Family Education Loan Program (FFELP) funds and $4 million in Pell Grant funds to
students in excess of the amounts they were eligible to receive.

UNIVERSITY SHOULD REFUND $54.6 MILLION                 a settlement agreement to resolve them. The
                                                       Department used its estimated loss formula to
We recommended that the Chief Operating
                                                       determine the government’s loss as a result of
Officer for SFA require the University of
                                                       the ineligible loans, and negotiated the
Phoenix to immediately establish an academic
                                                       remaining liability to approximately $6.4
year for its undergraduate programs that
                                                       million, including interest. Under the terms
satisfies the requirements of the 12-Hour
                                                       of the agreement, the university must repay
Rule. We also recommended that SFA
                                                       $6 million plus interest to the Department
require the university to return $50.6 million
                                                       over three years ($1.5 million was received on
in FFELP funds and $4 million in Pell Grant
                                                       the date of settlement). The university also
funds.
                                                       must provide that study group meetings take
                                                       place at sites conducive to learning and track
The university disagreed with the findings.
                                                       attendance.
The Department and the university negotiated

85/15 Rule
In 1998, the OIG began a project to assess the implementation of the “85/15 [now 90/10] Rule”
since it became effective (see Semiannual Report No. 37, page 8; see also Semiannual Report
No. 38, page 9). The rule requires a proprietary institution to notify the Department if it fails to
obtain at least 15 (now 10) percent of its revenue from non-Title IV program funds.

ED NEEDS TO PROVIDE GUIDANCE TO                        Department still needs to provide guidance on
SCHOOLS                                                amounts to include from the Perkins Loan
                                                       program. We also identified other areas
This period we completed the 85/15 project.
                                                       where SFA could take additional steps to
Our memorandum advised the Chief
                                                       ensure that institutions properly calculate non-
Operating Officer of SFA that while ED has
                                                       Title IV revenue percentages and better utilize
taken steps to clarify amounts that institutions
                                                       the revenue information for monitoring the
may include in their revenue percentage
                                                       eligibility of proprietary institutions.
calculation for Title IV programs, the




                                                   8
“DEAR CERTIFIED PUBLIC ACCOUNTANT”                     more than 85 percent of its revenue from Title
LETTER                                                 IV sources.
This period we issued a Dear Certified Public
                                                       Both Capital City and Hallmark disagreed
Accountant (CPA) letter (CPA-99-02, dated
                                                       with our conclusion that they did not comply
November 1, 1999) on the 85/15 (now 90/10)
                                                       with the 85 Percent Rule. SCI had not met
percent revenue test, to practitioners
                                                       the 85 (90) Percent Rule primarily because it
performing financial statement audits of
                                                       included a portion of its institutional
proprietary institutions. The letter provided
                                                       scholarships in non-Title IV cash revenue.
guidance for practitioners on how to evaluate
                                                       After we completed our work at SCI, the
institutional loans and institutional
                                                       Department notified schools that, with respect
scholarships on other than the cash basis of
                                                       to valid institutional scholarships, “...absent
accounting.
                                                       unusual circumstances, [it did] not intend to
                                                       exercise its enforcement authority against
Our letter followed the Department’s issuance
                                                       institutions that count…scholarships as
of Dear Partner Letter GEN 99-33 informing
                                                       revenue solely on the grounds that
the education community of the enforcement
                                                       the…scholarships fail to comply with cash
policy it would follow with respect to
                                                       basis accounting requirements.”
institutional loans and scholarships until the
Department’s new regulations go into effect
                                                       INVESTIGATION BRINGS CRIMINAL ASSET
on July 1, 2000. In the letter, the Department
                                                       FORFEITURE CHARGE
said that with respect to valid institutional
loans and scholarships, absent unusual                 In addition, OIG investigative efforts resulted
circumstances, it did not intend to exercise its       in a superseding indictment with a charge of
enforcement authority against institutions that        criminal asset forfeiture this period against
rely on these loans and scholarships as non-           school officials who allegedly misrepresented
federal revenue solely on the grounds that the         the school’s compliance with the 85/15 rule.
loans and scholarships fail to comply with             The indictment alleged that the owner and
cash-basis accounting requirements.                    president and the vice president of Emory
                                                       College of Puerto Rico made material
AUDITS OF INSTITUTIONAL COMPLIANCE                     misrepresentations to a certified public
WITH 85/15 RULE                                        accountant and the Department of Education,
                                                       claiming that Emory College was in
We also issued audit reports this period on
                                                       compliance with the 85/15 rule. The
three institutions’ compliance with the 85/15
                                                       indictment charged that as a result of these
rule. In each case, we found that the
                                                       statements and misrepresentations, the
institution — Capital City Trade and
                                                       defendants illegally requested $3,150,309,
Technical School, Inc., Austin, Texas;
                                                       and received $2,485,728, in federal student
Hallmark Institute of Aeronautics, San
                                                       financial assistance funds. The defendants
Antonio, Texas; and Southern Careers
                                                       were also charged with failing to refund
Institute (SCI), Austin, Texas — did not
                                                       $130,260 in SFA funds.
qualify as an eligible Title IV institution
during the audit period, because it received

Foreign School Project
Our last semiannual report discussed our concern with the Federal Family Education Loan
Program’s vulnerability to fraud by individuals who falsely claim enrollment in foreign schools
(Semiannual Report No. 39, page 8). This project, an investigative initiative begun in 1998 (see



                                                   9
Semiannual Report No. 37, page 5) has had substantial results. However, the underlying
systemic weaknesses regarding foreign school participation in the FFELP still exist.

PROSECUTIVE ACTIONS THIS PERIOD                              Le Cordon Bleu Cooking School in
                                                             London, England.
We had 14 individuals in foreign-school cases
with prosecutive actions this period. Some of           Ø    A physician in San Juan, Puerto Rico,
the actions are highlighted below.                           was sentenced to four months of home
                                                             confinement and ordered to pay
Ø    An individual pled guilty to submitting                 restitution of $55,500. Between July
     19 fraudulent student loan applications                 1994 and May 1997, the physician
     claiming enrollment in foreign schools                  falsely claimed attendance at a school in
     (see Semiannual Report No. 39, page 8).                 Mexico to fraudulently receive $55,500
     The investigation found that while                      in federal loans.
     incarcerated and on federal supervised
     release for a similar scheme, the                  CLEARINGHOUSE PILOT PROJECT TO VERIFY
     defendant submitted about 50 additional            ENROLLMENT IN FOREIGN SCHOOLS
     fraudulent loan applications totaling
     more than $900,000 by falsely claiming             In response to our recommendations on
     enrollment at Mexican medical schools.             foreign school concerns, the Chief Operating
     About twenty-six of the loans totaling             Officer, SFA, proposed to OIG that the
     about $400,000 were disbursed to the               National Student Loan Clearinghouse could
     defendant. The plea included a criminal            be used as a mechanism for enrollment
     asset forfeiture count requiring forfeiture        verification for students seeking and receiving
     of $159,840.                                       loans to attend foreign schools.

Ø    Four persons were indicted for                     The Department and OIG staff visited the
     conspiracy in obtaining or attempting to           Clearinghouse offices and had two
     obtain almost $200,000 in federal                  Clearinghouse officials come to the OIG to
     student loans by falsely claiming                  demonstrate their system. We believe the
     attendance at a Costa Rica medical                 Clearinghouse could provide the services we
     school. The indictment included a count            recommend: up-front verification of student
     for submission of fraudulent disability            enrollment in a foreign school and
     certifications to three guaranty agencies          verification of a student’s status thereafter.
     to have $82,000 of the fraudulently                Student Financial Assistance must ensure that
     obtained loans discharged.                         foreign schools use the Clearinghouse, or
                                                        another equivalent mechanism, and obtain the
Ø    Four persons were indicted and pled                cooperation of the guaranty agencies, as well.
     guilty to submitting fraudulent loan
     applications that falsely certified that           The Department has indicated that it is
     they would be attending the American               developing a pilot project between the foreign
     University of Paris. The defendants                institutions, the guaranty agencies, and the
     obtained $63,360 as a result of their              Clearinghouse. The project will seek to
     fraud.                                             determine if up-front verification before funds
                                                        are disbursed to individuals claiming
Ø    Two family members were indicted for               enrollment at foreign schools can be made,
     obtaining $17,760 in federal loans for             and if continuing verification of the student’s
     fraudulently claimed enrollment at the             status can be provided.



                                                   10
Patterns of Fraud
Our last semiannual report (Semiannual Report No. 39, page 8) discussed OIG investigations that
disclosed patterns of fraud against the Department’s loan and grant programs. The most
common fraud schemes this period involved ineligible or non-existent borrowers, many of whom
falsified applications and other documents to obtain student aid funds to which they or their
institutions were not entitled. Some of these individuals falsely claimed disability; some
concealed prior defaults; some falsely certified applications for friends and family members who
were not students; and some made false representations to obtain funds for students who did not
attend an eligible campus.

FRAUDULENT DEATH AND DISABILITY                        for misrepresenting his condition to his doctor
DISCHARGES                                             to falsely obtain a disability discharge of his
                                                       five student loans.
A federal grand jury in the Middle District of
Florida indicted a physician on five counts of
                                                       INVESTIGATIVE EFFORTS CONTINUE AND
mail fraud and one count of SFA fraud. A
                                                       SHOW RESULTS
joint ED/OIG and U.S. Postal Inspection
Service investigation developed evidence that          We continue in our efforts to identify
the physician submitted false disability claims        fraudulent claims. In addition to other
stating that he and his brother were house-            methods, we are pursuing a computer match
confined or wheelchair-bound. OIG agents               with the Social Security Administration to
surveilled the brothers riding bicycles and            determine current earnings for individuals
swimming at the beach. Investigation also              who had loans discharged due to death or
revealed that the disability claims were               disability.
certified by a non-existent physician, and
were often accompanied by letters from a               During this period, OIG investigative work on
non-existent attorney.                                 fraudulent disability discharges resulted in
                                                       loans with a value of more than $1 million
Another individual was sentenced to six                being reinstated by the holders of the loans,
months home detention, five years probation,           either the Department or a number of
and was ordered to pay restitution of $37,743          guaranty agencies.

Concealment of Prior Defaults
OIG cases have revealed that individuals use false identities to conceal prior defaults that would
make them ineligible for additional student financial assistance.

FORMER LAW STUDENT INDICTED                            SEMINARY STUDENT PLEADS GUILTY
A former law student was indicted in Indiana           A student at Wesley Theological Seminary in
in connection with her fraudulent receipt of           Washington, DC was sentenced for
more than $30,000 in federal funds. Our                fraudulently using multiple Social Security
investigation developed evidence that from             numbers to secure $29,500 in student loans
approximately December 1981 through                    for which he was not eligible because he
December 1986, the individual was enrolled             concealed that he had previously defaulted on
at Ball State University (BSU), Muncie,                a $2,400 student loan in the past. He was
Indiana under two different names. The                 sentenced to eight months home detention and
subject received two student loans at BSU,             five years probation, and was ordered to pay
both of which were in default by December              restitution of $29,500.
1987.


                                                  11
Fraud by Individuals in Trust Positions at Recipient Institutions and by Owners of
Recipient Institutions
Investigative efforts continue to identify fraud by individuals in trust positions at recipient
institutions. These school owners or school officials either obtained federal funds by false means
or attempted to retain unearned federal funds by failure to refund. Some of the cases this period
involving school officials follow.

SIGNIFICANT CASES THIS PERIOD                         Ø   The owner of Cabot College in National
                                                          City, California was sentenced to 10
Ø    A former financial aid director at Middle            months of incarceration and ordered to
     Tennessee State University (MTSU),                   pay $127,000 in restitution for failure to
     Murfreesboro, Tennessee, pled guilty to              refund unearned funds obtained from the
     official misconduct and theft of more                federal student financial assistance
     than $10,000. Our investigation                      programs.
     revealed that he had obtained more than
     $250,000 in Federal Family Education             Ø   The former owner of the Midwest Career
     Loans on behalf of himself and several               College in Indianapolis, Indiana was
     family members to which they were not                sentenced to 41 months incarceration
     entitled. He concealed the loans from                and ordered to make restitution of
     the university, as well as state and                 $205,000 for obtaining Pell Grants for
     federal officials, by not entering the               students who did not attend the school
     loans into MTSU’s loan tracking system.              and for failure to refund the unearned
     He further concealed the loans by                    grants.
     picking up the loan checks directly from
     the banks that issued them. The subject          Ø   The former director of admissions at
     was ordered to pay restitution of $10,400            Lincoln Technical Institute in Oak
     for scholarship funds that he illegally              Lawn, Illinois was sentenced to 21
     received from MTSU and repay more                    months incarceration and ordered to pay
     than $250,000 in illegally received                  $123,519 in restitution. The director had
     student loans.                                       falsified high school diplomas and GED
                                                          certificates for students who did not have
Ø    Two school owners were indicted for                  them, and ordered other admission
     operating an ineligible campus of the                representatives under his supervision to
     American Weld Testing Schools in                     do the same.
     Pasadena and Beaumont, Texas. The
     Beaumont campus was not Title IV                 Ø   A school director for the Travel and
     eligible; however, allegedly more than               Trade Career Institute in Orange,
     $1 million in federal aid was disbursed              California was sentenced to 10 months
     there by processing the aid through the              of incarceration and ordered to pay
     Pasadena campus.                                     restitution of $83,000. The director
                                                          drew down Pell Grants for students who
Ø    A school owner in Lexington, Kentucky                did not exist.
     was indicted for allegedly misapplying
     more than $258,000 by funneling                  Ø   Following an 11-week trial and guilty
     financial aid for her four ineligible                verdict by a New York federal jury, four
     campuses through her one eligible                    defendants were sentenced for their roles
     campus.                                              in a massive Pell fraud scheme. The
                                                          defendants submitted falsified


                                                 12
     information to obtain Pell grants for               Department and must serve varying
     ineligible students and for nonexistent             periods of incarceration ranging from 30
     programs. They were ordered to pay                  months to 78 months.
     restitution of $11 million to the




NONFEDERAL AUDITS
Participants in Department programs are required to submit annual financial statements and
compliance audits performed by independent public accountants (IPAs). The various types of
audits the Department receives include proprietary school/school servicer audits; lender/lender
servicer audits; guaranty agency audits; and Office of Management and Budget Circular A-133
Single Audits. The Inspector General Act directs the Inspector General to take appropriate steps
to assure that work performed by nonfederal auditors complies with federal government auditing
standards. The OIG publishes audit guidance specific to Department programs to assist IPAs in
performing independent audits.

Quality Reviews of Nonfederal Audits
This period we performed 54 quality control reviews (QCRs) of audits performed by IPAs.

RESULTS OF QCRS                                     REFERRALS OF IPAS
Based on our reviews, we determined:                For audits containing significant inadequacies
                                                    and for other serious violations of
Ø    66 percent were acceptable or contained
                                                    professional standards, we made five referrals
     only minor audit deficiencies;
                                                    to the American Institute of Certified Public
Ø    28 percent were substandard, requiring         Accountants and/or the appropriate State
     corrective action by the auditor; and          Board of Accountancy for possible
                                                    disciplinary action.
Ø    6 percent contained significant
     inadequacies preventing the Department
     from relying upon these audits.

Publication of Audit Guides
This period we issued two audit guides to be used by IPAs. The two guides issued this period
are for: 1) Audits of Federal Student Financial Aid Programs at Participating Institutions and
Institution Servicers (January 2000); and 2) Audits of Guaranty Agency Servicers Participating
in the Federal Family Education Loan Program (March 2000).




                                               13
                      P.L. 95-452 REPORTING REQUIREMENTS


Sections 5(a)(1) and 5(a)(2) Significant Problems, Abuses, and Deficiencies
     Management Challenges ........................................................................................................1, 15
     Investigation Services Cumulative Prosecutive Actions .............................................................. 24

Section 5(a)(3) Recommendations Described in Previous Semiannual Reports
                on Which Corrective Action Has Not Been Completed......................................... 16

Section 5(a)(4) Matters Referred to Prosecutive Authorities
     Investigation Services Cumulative Prosecutive Actions .............................................................. 24
     Statistical Profile ...................................................................................................................... 29

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 ........................................... 18

Section 5(a)(7) Summary of Significant Audits
     Management Challenges ........................................................................................................1, 15

Section 5(a)(8) Audit Reports Containing Questioned Costs
     Inspector General Issued Reports With Questioned Costs ........................................................... 20

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................................................................................................................. 21

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, 1999 ................................................................... 22

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.




                                                                     14
                                                                                           Appendix 1




                               MANAGEMENT CHALLENGES


1. The Department must address long-standing problems with financial
   management.

2. Year 2000 remains a management challenge for the Department.*

3. The Department must improve its security posture, policy, and plans for its
   systems.

4. The implementation of Student Financial Assistance's Modernization Blueprint
   and Performance Plan presents unique challenges.

5. The Department's goal of "paperless" systems for SFA fund delivery creates
   new opportunities for efficiency and requires effective controls to ensure
   accountability, security, and legal enforcement.

6. The Department needs to fully implement the Clinger-Cohen Act.

7. Obtaining quality data to measure the performance of Department programs and
   to meet the reporting requirements of the Results Act presents significant
   challenges.

8. Balancing compliance monitoring and technical assistance presents a
   management challenge for elementary and secondary education programs.

9. The Department must continue to work with the Internal Revenue Service to
   implement a data match to ensure that SFA recipients accurately report income
   to qualify for financial aid.




* The OIG no longer considers Year 2000 to be a management challenge for the Department.


                                                     15
                               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 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
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
04-60001  PROCESS ENHANCEMENTS IN THE HEA, TITLE III, INSTITUTIONAL AID PROGRAM                             08/31/96         *             32    09
           WOULD INCREASE PROGRAM EFFICIENCY, DESPITE LIMITED RESOURCES


STUDENT FINANCIAL ASSISTANCE
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
17-30302  FINANCIAL AUDIT: FEDERAL FAMILY EDUCATION LOAN PROGRAM'S FINANCIAL STATEMENTS                     10/31/94         *             29    16
           FOR FISCAL YEARS 1993 AND 1992
05-50008  EFFECTIVENESS AND EFFICIENCY OF DEBT COLLECTION SERVICE - AREAS RELATED                           04/30/96         *             32    12
           TO INTERNAL OPERATIONS
05-80011  INSTITUTIONAL PARTICIPATION AND OVERSIGHT SERVICE HAS OPPORTUNITIES                               05/31/99         *             37    16
          TO IMPROVE THE RECERTIFICATION PROCESS


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 U.S. DEPARTMENT OF EDUCATION                                            09/30/95         *            30     20
           FEDERAL DIRECT STUDENT LOAN PROGRAM FOR THE YEAR ENDED SEPTEMBER 30, 1994
17-40303  THE REPORT OF INDEPENDENT ACCOUNTANTS ON THE U.S. DEPARTMENT OF EDUCATION                         03/31/97         *            33     14
            FISCAL YEAR 1995 DEPARTMENT-WIDE FINANCIAL STATEMENTS


                                                                                                                          TOTAL           SEMIANNUAL
REPORT                                                                                  DATE      MONETARY     REPORT
NUMBER      AUDITEE/TITLE                                                             RESOLVED     FINDINGS   NO. PAGE

OFFICE OF THE CHIEF FINANCIAL OFFICER (cont.)
17-60002  THE REPORT OF INDEPENDENT ACCOUNTANTS ON THE U.S. DEPARTMENT OF EDUCATION    05/31/99       *        35   19
           FISCAL YEAR 1996 DEPARTMENT-WIDE FINANCIAL STATEMENTS
17-70002  U.S. DEPARTMENT OF EDUCATION’S FISCAL YEAR 1997 FINANCIAL STATEMENTS         05/31/99       *        37   13
           AND ACCOMPANYING NOTES

OFFICE OF THE CHIEF INFORMATION OFFICER
11-70007  THE STATUS OF EDUCATION’S IMPLEMENTATION OF THE CLINGER-COHEN ACT            08/31/99       *        36   19




 * Non-monetary findings only
** Management improvement report
                         ED/OIG REPORTS ON EDUCATION DEPARTMENT P ROGRAMS AND ACTIVITIES
                                                                        (October 1, 1999 – March 31, 2000)


        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 21 audits were completed by ED/OIG auditors.
        These reports are listed below. In addition, we issued 10 alternative products, which include management information reports, inspection reports, and special projects.

                                                                                                                                 QUESTIONED
                                                                                                                                     COSTS
                                                                                                                                   (excluding         UNSUPPORTED            BETTER USE
ACN                  AUDITEE/REPORT TITLE                                                              STATE        ISSUED        unsupported)           COSTS                OF FUNDS

OFFICE OF ELEMENTARY AND SECONDARY EDUCATION
A04-90008         COMBINING FUNDS IN SCHOOLWIDE PROGRAMS                                                 DC          MAR-00               *

OFFICE OF THE CHIEF FINANCIAL OFFICER
A02-90001***       THE ARIZONA DEPARTMENT OF EDUCATION’S IMPLEMENTATION OF                               AZ          FEB-00               *
                    THE SINGLE AUDIT ACT AMENDMENTS OF 1996

STUDENT FINANICAL ASSISTANCE
A05-90002          AUDIT OF THE ILLINOIS STUDENT ASSISTANCE COMMISSION’S                                 IL          DEC-99               17,084
                     ADMINISTRATION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAMS
A05-90053          ST. AUGUSTINE COLLEGE’S ADMINISTRATION OF THE FEDERAL STUDENT                         IL          MAR-00               33,994
                    FINANCIAL ASSISTANCE PROGRAMS
A06-70006          CHANGE IN THE COMPUTATION OF COHORT DEFAULT RATES WOULD MAKE                          DC          MAR-00                                                     4,600,000
                    RATES MORE ACCURATE
A06-80008          AUDIT OF CAPITAL CITY TRADE AND TECHNICAL SCHOOL, INC. COMPLIANCE                     TX          FEB-00              2,032,581
                    WITH THE 85 PERCENT RULE
A06-80013          HALLMARK INSTITUTE OF AERONAUTICS’ COMPLIANCE WITH THE                                TX          MAR-00             5,204,586
                    85 PERCENT RULE
A06-90008          SOUTHERN CAREERS INSTITUTE’S COMPLIANCE WITH THE                                      TX          MAR-00               *
                    85 PERCENT RULE
A06-90011          REVIEW OF COLLECTION ACTIVITIES AT UNGER AND ASSOCIATES                               TX          FEB-00              833,897
A09-70022          UNIVERSITY OF PHOENIX’S MANAGEMENT OF STUDENT FINANCIAL                               AZ          MAR-00            54,687,000
                    ASSISTANCE PROGRAMS
A09-90001          CORINTHIAN COLLEGES, INC., NON-TITLE IV REVENUE PERCENTAGE                            CA          FEB-00               *
                    CALCULATIONS
A09-90011          PLATT COLLEGE – SAN FRANSCISCO ADMINISTRATION OF                                      CA          FEB-00              191,721
                    TITLE IV PROGRAMS
N06-90010          INSPECTION OF PARKS COLLEGE’S COMPLIANCE WITH STUDENT                                 NM          FEB-00             169,390
                    FINANCIAL ASSISTANCE REQUIREMENTS
A04-90016***       REVIEW OF SOUTH CAROLINA STATE EDUCATION ASSISTANCE AUTHORITY’S                       SC          NOV-99               *
                    YEAR 2000 READINESS
S04-90018***       REVIEW OF KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY’S                            KY          NOV-99               *
                    YEAR 2000 READINESS
                                                                                                           QUESTIONED
                                                                                                               COSTS
                                                                                                             (excluding    UNSUPPORTED   BETTER USE
ACN                         AUDITEE/REPORT TITLE                                          STATE   ISSUED    unsupported)      COSTS       OF FUNDS

STUDENT FINANCIAL ASSISTANCE (cont.)
A05-90044***       REVIEW OF NEW YORK STATE HIGHER EDUCATION SERVICES CORPORATION’S        NY     OCT-99          *
                    YEAR 2000 READINESS
A05-90047***       REVIEW OF MICHIGAN GUARANTY AGENCY’S YEAR 2000 READINESS                MI     OCT-99          *
A05-90048***       REVIEW OF EFG TECHNOLOGIES, INC.’S YEAR 2000 READINESS                  NC     NOV-99          *
S09-90010          COMPLETION OF OIG’S 85 PERCENT RULE PROJECT                             DC     MAR-00          *


OFFICE OF EDUCATIONAL RESEARCH AND IMPROVEMENT
A11-90014          REVIEW OF NCES’S YEAR 2000 READINESS PLAN                               DC     NOV-99          *

OFFICE OF THE CHIEF FINANCIAL OFFICER
A05-90045              AUDIT OF THE STUDENT SUPPORT SERVICES PROJECT                       WI     MAR-00        77,959
                       ADMINISTERED BY MARIAN COLLEGE, FOND DU LAC, WISCONSIN
A07-90003              AUDIT OF THE CENTRAL PROCESSING SYSTEM CONTRACT                     IA     MAR-00        90,600
A07-90017              AUDIT OF COMPLIANCE WITH COST ACCOUNTING STANDARDS                  IA     MAR-00           *
                       FOR TRAVEL – NATIONAL COMPUTER SYSTEMS, IOWA CITY, IA
A11-90013              REVIEW OF SECURITY POSTURE, POLICIES AND PLANS                      DC     FEB-00              *
S03-A0006              AUTHENTICATION OF U.S. DEPARTMENT OF EDUCATION’S DETAILED           DC     FEB-00              *
                       ACCOUNTING OF FISCAL YEAR 1999 DRUG CONTROL FUNDS, DATED
                       JANUARY 27, 2000
A17-80006              FISCAL YEAR 1998 ANNUAL FINANCIAL STATEMENTS                        DC     NOV-99              *
(originally S17-80006)
A17-90018                  STUDENT FINANCIAL ASSISTANCE FINANCIAL STATEMENTS               DC     FEB-00              *
(originally S17-90018)      FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
A17-90019                  DEPARTMENT’S ANNUAL FINANCIAL STATEMENTS FOR THE FISCAL YEAR    DC     FEB-00              *
(originally S17-90019)     ENDED SEPTEMBER 30, 1999
S17-90009                INFORMATION REPORT ON DATA ACCUMULATED BY SEAS AND REPORTED TO    DC     MAR-00              *
                          ED: ESEA/TITLE I AND PERKINS VOCATIONAL EDUCATIONAL PROGRAMS
A17-90019**         AGREED-UPON PROCEDURES REPORT FOR FACTS VERIFICATION                   DC     MAR-00              *

OFFICE OF POSTSECONDARY EDUCATION
A07-80027          AUDIT OF CREIGHTON UNIVERSITY’S ADMINISTRATION OF ITS                   NE     MAR-00       372,399
                   FEDERAL TRIO PROJECTS



*       Non-monetary
**      Additional report from ACN A17-90019 (Department financial statements)
***     Management information report
A       Audit
N       Inspection report
S       Special projects
Appendix 4




                            INSPECTOR GENERAL ISSUED R EPORTS
                                 WITH Q UESTIONED COSTS 1



                                                N UMBER             Q UESTIONED               U NSUPPORTED 2

A.       For which no management
         decision has been made by
         the commencement of the
         reporting period (as adjusted)             31              $ 162,502,894             $ 42,999,771

B.       Which were issued during
         the reporting period                       10                   63,535,821                        0

         Subtotals (A + B)                          41              $ 226,038,715             $    42,999,771

C.       For which a management
         decision was made during
         the reporting period                        6              $ 49,864,020              $ 26,797,552

         (i) Dollar value of
             disallowed costs                                           24,224,614                23,572,341

         (ii) Dollar value of
              costs not disallowed                                      25,639,406                  3,225,211

D.       For which no management
         decision has been made by
         the end of the reporting
         period                                     35              $ 176,174,695             $ 16,202,219

E.       For which no management
         decision was made within
         six months of issuance                     27              $ 76,813,426              $ 10,171,709




     1
         None of the audits reported in this table were performed by the Defense Contract Audit Agency.
     2
         Included in questioned costs.

                                                           20
                                                                                                        Appendix 5



                          INSPECTOR GENERAL ISSUED R EPORTS
                             WITH RECOMMENDATIONS FOR
                                B ETTER USE OF F UNDS1


                                                                  N UMBER                  DOLLAR VALUE


A. For which no management
   decision has been made by
   the commencement of the
   reporting period (as adjusted)                                        4                        $ 49,410,180

B. Which were issued during
   the reporting period                                                  1                              4,600,000


            Subtotals (A + B)                                            5                        $ 54,010,180

C. For which a management
   decision was made during
   the reporting period                                                  0                                     0

   (i)      Dollar value of recommendations
            that were agreed to by
            management                                                   0                                     0

   (ii)     Dollar value of recommendations
            that were not agreed to
            by management                                                0                                     0

D. For which no management
   decision has been made by
   the end of the reporting
   period                                                                5                        $ 54,010,180

E. For which no management
   decision was made within
   six months of issuance                                                4                        $ 49,410,180




   1
       None of the audits reported in this table were performed by the Defense Contract Audit Agency.


                                                         21
                         UNRESOLVED REPORTS ISSUED PRIOR TO OCTOBER 1, 1999

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.

OFFICE OF ELEMENTARY AND SECONDARY EDUCATION
02-56113 VIRGIN ISLANDS DEPARTMENT OF EDUCATION                                 VI     02/17/95        10,375,000        05           ***          30       17
02-50200 THE PUERTO RICO DEPARTMENT OF EDUCATION MUST INSTITUTE                 PR     11/14/97                 *        05           ***          36       13
          A TIME DISTRIBUTION SYSTEM

STUDENT   FINANCIAL ASSISTANCE
09-10005   CALIFORNIA STUDENT AID COMMISSION                                    CA     09/10/93        41,100,000        01           ***          27       17
09-10007   WESTERN TRUCK SCHOOL                                                 CA     09/10/92         8,834,503        01           ***          25       78
07-23545   MISSOURI STATEWIDE                                                   MO     04/01/93         1,048,768        01           ***          **
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           ***          29       31
06-50014   EL PASO COMMUNITY COLLEGE                                            TX     11/06/95                 *
04-60147   REVIEW OF SELECTED ASPECTS OF THE KENTUCKY HIGHER EDUCATION          KY     02/18/97         1,263,251        01           ***          34        9
            ASSISTANCE AUTHORITY’S ADMINISTRATION OF THE FEDERAL
            FAMILY EDUCATION LOAN PROGRAM
06-70005   PROFESSIONAL JUDGEMENT AT YALE UNIVERSITY                            CT     03/13/98             5,469        01           ***          36       18
07-70002   INCOME CONTINGENT REPAYMENT: COST ATTRIBUTION AND BORROWER           DC     06/01/98                 *        01         04/30/00       37       19
            STUDIES COULD ASSIST TO MEET OBJECTIVES OF FEDERAL FINANCIAL
            REPORTING AND PROGRAM MANAGEMENT
06-70009   PROFESSIONAL JUDGEMENT AT THE UNIVERSITY OF COLORADO                 CO     07/17/98            15,082        01           ***          37       17
09-70015   ASSOCIATED TECHNICAL COLLEGE (ATC) ELIGIBILITY OF                    CA     09/09/98         8,600,000        01           ***          37       16
            INSTITUTIONS TO PARTICIPATE IN TITLE IV PROGRAMS AND OTHER
            ISSUES
09-80023   ACADEMY PACIFIC BUSINESS & TRAVEL COLLEGE ELIGIBILITY TO             CA     12/21/98         6,649,689        01           ***          38       20
             PARTICIPATE IN TITLE IV PROGRAMS
N04-70011 INSPECTION OF TITLE IV, HEA PROGRAMS ADMINISTERED BY                  FL     12/30/98           67,977                                   38       22
            CAREER TRAINING INSTITUTE, ORLANDO, FLORIDA
02-80005   UNIVERSIDAD INTERAMERICANA DE PUERTO RICO NEEDS TO IMPROVE           PR     07/23/99         1,268,256        01           ***
            ITS ADMINISTRATION OF TITLE IV PROGRAMS
04-80009   DIRECT LOAN CONSOLIDATION PROCESS FOLLOW-UP                          DC     05/28/99                 *       ***           ***
06-80001   IMPROVING THE PROCESS FOR FORGIVING STUDENT LOANS                    DC     06/07/99        35,000,000        01         06/30/00       39       06
                                                                                                     TOTAL                 PROJECTED   SEMIANNUAL
REPORT                                                                                  DATE      MONETARY      REASONS   MANAGEMENT   REPORT PAGE
NUMBER AUDITEE/TITLE                                                              ST   ISSUED      FINDINGS     OVERDUE     DECISION    NO.    NO.

STUDENT     FINANCIAL ASSISTANCE (cont.)
06-80011     TEXAS CAREERS’ COMPLIANCE WITH THE 85 PERCENT RULE                   TX   07/22/99     2,021,119     01          ***
06-80012     COLLEGE SYSTEMS, INC. – OKLAHOMA                                     OK   08/09/99     1,246,835     01          ***
09-80029     REVIEW OF PACIFIC TRAVEL AND TRADE SCHOOL                            CA   06/11/99    11,969,719     01          ***
11-90004     REVIEW OF THE GRANT ADMINISTRATION AND PAYMENT SYSTEM                DC   05/07/99             *     01                   39     04
             (GAPS) CONFIGURATION MANAGEMENT PROCESS


OFFICE OF VOCATIONAL AND ADULT EDUCATION
07-80004 STATE OF MISSOURI SUSTAINABILITY OF THE SCHOOL-TO-WORK                   MO   11/30/98            *      04          ***      38     19
          OPPORTUNITIES PROGRAM


OFFICE OF BILINGUAL EDUCATION AND MINORITY LANGUAGES AFFAIRS
04-60152 REVIEW OF MONITORING CONTROLS USED TO ENSURE FULFILLMENT OF              DC   06/30/97            *      01          ***      35     17
          TITLE VII BILINGUAL EDUCATION GRANT PROGRAM OBJECTIVES

OFFICE OF THE CHIEF FINANCIAL OFFICER
07-80018 TITLE IV WIDE AREA NETWORK CONTRACT                                      IA   05/06/99      360,080      ***         ***      39     04
         NATIONAL COMPUTER SYSTEMS
11-80013 REVIEW OF GAPS SECURITY                                                  DC   09/30/98            *      01          ***      37     12




NOTES
* Non-monetary findings only
** Not individually written up
*** Information not provided by Department principal operating component


REASON CODES FOR REPORTS O VER S IX MONTHS O LD
01 - Administrative delays
02 - Delay in receiving auditee comments or additional information from auditee
03 - Delay in receiving additional information from non-federal auditor
04 - Lack of staff
05 - Cooperative Audit Resolution and Oversight Initiative (CAROI) pilot state.
                                       INVESTIGATION SERVICES
                                   CUMULATIVE PROSECUTIVE ACTIONS

    DEFENDANT/                          INDICTED/                             CIVIL       ADJUDICATED
      SUBJECT                         INFORMATION     CONVICTED    SENTENCED MATTERS         VALUE


            SCHOOL CASES

Barnes, Richard                                   g         g            X                     $123,520

Campbell, Mary Lou                                X
Cockrum, Helen                                    X          X
Cox, Wayne                                        g          X                                 $127,000
Cerfaratti-Diaz, Carole                           g         g            X                     $860,000

Elbaum, Jacob et. al.                             g         g            X                   $11,060,449

Huggins, Jackie                                   X

Lally, Thomas                                     g          X

Miller, Kaylne                                    X          X

Nelson, Steven                                    g         g            X                     $205,000

Rose, Regina                                      X          X

Strain, Daniel                                    X

Trimble, Donald                                   X          X

Wrenn, Robert                                     X          X           X                     $200,400

Yun, Anna                                         X          X



                                                        Total Value
                                                       School Cases:                         $12,576,369




 CONSULTANT CASES and CLIENT
           CASES

Baska, Michael                                                                        X          $3,386

Baska, Kathleen                                                                       X          $5,020

Brownlee, Benny                                                                       X          $6,900
Bryd, Nadine                                                                          X         $36,000

Boone, Curtis                                                                         X          $3,230

Collins, Archer                                                                       X         $12,615



            g = Action reported in previous period.   24
            X = Action reported in current period.
                                      INVESTIGATION SERVICES
                                  CUMULATIVE PROSECUTIVE ACTIONS

    DEFENDANT/                         INDICTED/                              CIVIL       ADJUDICATED
       SUBJECT                       INFORMATION     CONVICTED     SENTENCED MATTERS         VALUE
Collins, Tamka                                                                        X          $6,875

Crouther, Bobby                                                                       X          $8,590

Culp, Karen                                                                           X         $22,470

Dixon, Kelly                                                                          X         $13,030

Garner, Tamara                                                                        X          $6,000

Gilmer, Karriem                                                                       X          $7,950

Hall, Latonga                                                                         X          $2,156

Heard, Deborah                                                                        X          $2,898

Hill, Verlene                                                                         X          $4,180

Hopkins, Ebonie                                                                       X          $8,946

Johnson, Erica                                                                        X          $4,960

Magee, Melissa                                                                        X          $1,750

Owens, Courtney                                                                       X          $1,750

Parham, Medina                                                                        X          $6,750

Peake, Leroy                                                                          X          $1,725

Rizza, Michael                                                                        X          $4,960

San, Keo                                                                              X          $3,620

Sawyers, Darryl                                                                       X         $12,165

Schwarten, Rebecca                                                                    X          $5,660

Smiley, Diona                                                                         X         $21,498

Smith, Brice                                                                          X          $3,450

Van Sickle, Kelli                                                                     X          $2,400

Washington, Cory                                                                      X          $7,546

Watson, Courtney                                                                      X          $2,581



                                                          Total Value
                                                          Consultant
                                                              Cases:                           $231,061




           g = Action reported in previous period.   25
           X = Action reported in current period.
                                     INVESTIGATION SERVICES
                                 CUMULATIVE PROSECUTIVE ACTIONS

    DEFENDANT/                        INDICTED/                                CIVIL    ADJUDICATED
      SUBJECT                       INFORMATION     CONVICTED       SENTENCED MATTERS      VALUE
  FOREIGN STUDY FFEL PROJECT

Baugh, Milton                                   g            X

Brown, Albert                                   X            X

Cortez, Conrad                                  X            X

Glenn, Lamart                                   g            g            X                   $48,000

Hines, Leonard                                  X

Hines, Sharon                                   X

Hines, Shawn                                    X

Kenney, Juwan                                   X            X

Rivera, Jose                                    g            g            X                   $55,000

Villegas, Stephan                               g            X

Wilson, Patrick                                 X



                                                           Total Value
                                                         Foreign Study
                                                          FFEL Cases:                        $103,000




             NON-SFA CASES

Huguet, Edmund                                  X

McKay, Jimmy                                    X

Smith, Roy                                      X

Carver, Bruce                                   X




       SFA RECIPIENT CASES

Alams, Humphrey                                 g            X            X                  $159,000

Akhtar, Jabir                                   X

Braxton, Larry                                  X            X            X                   $83,000

Bright, Edwina                                  g            X            X                     $866

Hines, Shawn                                    X


          g = Action reported in previous period.   26
          X = Action reported in current period.
                                     INVESTIGATION SERVICES
                                 CUMULATIVE PROSECUTIVE ACTIONS

    DEFENDANT/                        INDICTED/                                CIVIL       ADJUDICATED
      SUBJECT                       INFORMATION     CONVICTED       SENTENCED MATTERS         VALUE
Imatorbhebhe, Uzezi                             X           X             X                      $21,246

Mova, Houman                                    X           X

Payne, Kenneth                                  g           X             X                      $37,743

Pelsang, Daniel                                 X

Perkins, Lisa                                   X

Randolph-Vaughan, Cynthia                       X

Sanders, Barbara                                X

Wells, William                                  g          g              X                      $64,010

Williams, Pierre                                g          g              g                      $29,500

Wilson, Paula                                   X

                                                    Total Value SFA
                                                         Cases:                                 $395,365




                CIVIL CASES

Mejia, Juan                                                                            X         $29,000



                                                    Total Value Civil
                                                    Cases:                                       $29,000




              LENDER CASES

Kroeplin, William                               X           X

Johnson, Gwendolyn                              g          g              X                      $30,747



                                                    Total Value
                                                    Lender Cases:                                $30,747




          g = Action reported in previous period.   27
          X = Action reported in current period.
                                            COLLECTIONS FROM AUDITS AND INVESTIGATIONS

       The House Report (H. Rept. 105-635) to accompany H.R. 4274 directs the Inspector General of the Department of Education to submit reports detailing recoveries and
       savings generated by OIG’s work. The following tables reflect that information.


       AUDIT
                       RPTS                                  RPTS WITH        RECOMMENDED
                    ISSUED WITH        QUEST/UNSUPP        QUEST/UNSUPP       QUEST/UNSUPP      MANAGEMENT        WRITE OFFS        COLLECTED/
          FY       QUEST/UNSUPP        RECOMMENDED           RESOLVED          RESOLVED           DECISION       ADJUSTMENTS        RECOVERED          BALANCE

         FY 98          11              $17,011,401               8            $6,162,004         $1,671,959            0             $1,671,959            0

         FY 99          11              $69,804,793               5            $68,507,812       $24,156,106            0                 $22,215      $24,133,891

         FY 00          10              $63,705,211               0                0              $6,000,000            0             $1,600,000       $4,400,000

        TOTAL           32              $150,521,405             13            $74,669,816       $31,828,065            0             $3,294,174       $28,533,891




       INVESTIGATION
                                                       FINES, RESTITUTIONS,              AMOUNT COLLECTED             AMOUNT COLLECTED
            FY               CASES *           SETTLEMENTS AND JUDGMENTS                     CURRENT PERIOD              PRIOR PERIOD(S)            AMOUNT COLLECTED


           FY 98              293                          $48,208,055                           $78,520                    $30,727,089                $30,805,609

           FY 99              133                          $19,154,906                           $24,045                    $7,001,533                  $7,025,578

           FY 00               55                          $13,197,931                           $6,565                         0                          6,565

          TOTALS              481                          $80,560,892                          $109,130                    $37,728,622                $37,837,752




*Number of cases for which collections were ordered during the fiscal year.
                                                                                                                                 Appendix 9



                                            STATISTICAL PROFILE
                                       October 1, 1999 — March 31, 2000


OIG AUDIT R EPORTS ISSUED .......................................................................................................21
Questioned Costs.......................................................................................................... $ 62,701,924
Unsupported Costs ....................................................................................................... $           0
Recommendations for Better Use of Funds ................................................................. $ 4,600,000

OTHER OIG PRODUCTS (management information reports,
 special projects, and inspection reports) .................................................................................... 10

OIG AUDIT R EPORTS RESOLVED BY PROGRAM M ANAGERS ......................................................20
Questioned Costs Sustained. ........................................................................................ $  117,273
Unsupported Costs Sustained....................................................................................... $ 23,572,341
Additional Disallowances Identified by Program Managers ....................................... $                        97,831
Management Commitment to Better Use of Funds...................................................... $                          0

INVESTIGATIVE CASE ACTIVITY
Cases Opened ............................................................................................................................. 110
Cases Closed ................................................................................................................................. 87
Cases Active at End of Period..................................................................................................... 336
Cases Referred for Prosecution..................................................................................................... 51
—Accepted ................................................................................................................................... 43
—Declined ...................................................................................................................................... 8

INVESTIGATION R ESULTS
Indictments/Informations .............................................................................................................351
Convictions/Pleas.........................................................................................................................242
Fines Ordered ................................................................................................................ $        1,300
Restitution Payments Ordered....................................................................................... $12,888,720
Civil Settlements (number) ..........................................................................................................243
Civil Settlements/Judgments..........................................................................................$ 307,9114
Savings ...........................................................................................................................$ 671,0865




1
  Includes two cases that were not reported in our last semiannual report.
2
  Includes two cases that were not reported in our last semiannual report.
3
  Includes five cases that were not reported in our last semiannual report.
4
  Includes $56,870 that was not reported in our last semiannual report.
5
  Includes $562,775 that was not reported in our last semiannual report.



                                                                       29