oversight

Semiannual Report - October 1, 2000 - March 31, 2001

Published by the Department of Education, Office of Inspector General on 2001-03-31.

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. 42


 October 1, 2000– March 31, 2001
 U.S. Department of Education
Office of Inspector General




 Semiannual Report
    to Congress
           No. 42

 October 1, 2000− March 31, 2001
                                                           April 30, 2001


Honorable Roderick R. Paige
Secretary of Education
Washington, DC 20202

Dear Mr. Secretary:

I am pleased to welcome you to the Department of Education and to submit to you, in accordance
with the Inspector General Act of 1978 (Public Law 95-452, as amended, section 5(b)), this
semiannual report on the activities of the Department's Office of Inspector General (OIG) for the
six-month period ending March 31, 2001. The enclosed report highlights the most significant
management challenges facing the Department and our recommendations to address them as well
as the Department’s success in meeting them or the need to take further action. The report both
includes and updates information we provided to Congress earlier this period concerning the
management challenges facing the Department. We particularly note the Department’s
significant challenges in testing and implementing a new general ledger system and in other areas
of information management.

The Inspector General Act requires you to transmit this report by May 30, 2001 to the appropriate
congressional committees and subcommittees, together with a report containing any comments
you wish to make; the statistical tables 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).

We are committed to carrying out our 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 Department of Education programs and operations
serve the nation’s students and taxpayers with efficiency, effectiveness, and integrity.

                                            Sincerely,




                                            Lorraine Lewis

Enclosure
                                    Inspector General’s
                               MESSAGE TO CONGRESS

We are pleased to share with you the activities and accomplishments of the Office of Inspector
General (OIG), U.S. Department of Education, during the period October 1, 2000 – March 31,
2001.

The Honorable Roderick Paige was confirmed as the Secretary of Education. We are working
with Secretary Paige on our mutual goals and concerns, and are pleased that he selected Mr. John
P. Higgins, Jr., Deputy Inspector General, for a special assignment to lead a working group that
will evaluate many important management, information technology security, and financial
management integrity issues over the next few months.

We reviewed and revised our Strategic Plan to reflect our current focus and direction. Our new
strategic goals are: 1) to improve the Department’s programs and operations, 2) to protect the
integrity of the Department’s programs and operations, and 3) to ensure quality and excellence in
our organization. You may view our entire Strategic Plan on our web site at
http://www.ed.gov/offices/OIG/products.htm.

We continued our focus on financial and information management. For the second consecutive
year, with our assistance, the Department submitted its annual financial statement audit reports to
the Office of Management and Budget on time. It received a qualified opinion on all of its fiscal
year 2000 financial statements, an improvement from 1999. The auditors qualified their opinion
primarily because of the Department’s inability to provide adequate documentation to support
certain amounts and prior period adjustments reported in the financial statements and
inconsistent processing of certain transactions related to prior years. The Department faces an
important challenge in successfully testing and implementing a new general ledger system.
Also, this period we issued a report identifying areas where information-system security can be
strengthened at the Virtual Data Center (VDC). VDC is a consolidation facility for Student
Financial Assistance, comprised of a telecommunications system and many connected resources.

We continued our efforts to identify and test controls over improper payments. Last period, our
office performed a series of inspections related to internal control over purchase cards and third
party drafts (checks). We concluded this work by issuing a capping report to the Department in
October 2000, providing several recommendations to address our findings. We also issued a
report on controls over contract payments and a report on our Grant Administration and Payment
System duplicate payment analysis. In October 2000, we sent a letter to the Department
recommending that it proactively develop its own approach or methodology for annually
estimating improper payments. This estimate is important since the Department is accountable
for federal education funds.

At an April 3, 2001 hearing before the House Subcommittee on Select Education, Committee on
Education and the Workforce, in response to a question, we referred to data reported in our last
three years of Semiannual Reports to Congress and to our recent work in the area of duplicate
payments to identify an amount of improper payments the Department has made. We identified
a total of approximately $450 million during the period 1998-2000, in the areas of restitution and
civil settlements and judgments, sustained disallowed costs from our audit work, and duplicate
payments. There is a significant notation to this figure. It represents money owed to the
Department, not necessarily lost. The Department and the Justice Department pursue recovery.

Since this hearing, the Secretary has written to Congress to explain the nature and type of
payments or costs reflected in the $450 million, how they were discovered and whether they
resulted in actual losses to the Department, methods of recovery initiated to recapture any lost
funds, and actions he has undertaken to ensure that this situation does not occur again. The
Secretary reported that the government has recovered $293 million of that amount and expects to
recover an additional $53 million. The Secretary’s letter may be found on the Department’s web
site at http://www.ed.gov/PressReleases/05-2001/05232001a.html.

Our office has also been successful in promoting program improvements. In March 2001, we
issued “An OIG Perspective on the Gun-Free Schools Act of 1994,” based upon our audit work
in multiple state and local education agencies. We identified issues for Department officials and
the Congress to consider in determining if revisions to the Act are necessary. Many of them
were included in a bill introduced by Senator Dianne Feinstein and Senator Byron Dorgan (S.
649).

We are pleased to have three new senior managers join our staff this period. Mr. Thomas Carter
has been promoted to the position of Assistant Inspector General for Audit, Ms. Helen Lew joins
our staff as Deputy Assistant Inspector General for Audit, and Mr. Michael Deshields serves as
Deputy Assistant Inspector General for Investigations. Their backgrounds and expertise will
further assist our office in meeting our important goals and priorities.

As always, we remain committed to ensuring the proper, efficient, and effective use of federal
education funds, and we welcome our continued partnership with the Secretary and the Congress
in this endeavor.


                                                     Lorraine Lewis
                                                           CONTENTS


LETTER TO THE SECRETARY
INSPECTOR GENERAL'S MESSAGE TO CONGRESS
SIGNIFICANT ACTIVITIES AND MANAGEMENT CHALLENGES .......................................................1
!" Challenge #1: Financial Management .............................................................................................1
    Financial Statement Audits...............................................................................................................1
    Implementation of New Financial Management System Software ..................................................2

!" Challenge #2: Clinger-Cohen Act ....................................................................................................3

!" Challenge #3: Systems Security........................................................................................................3
    Department Action on OIG Recommendations................................................................................3
    Security Audits .................................................................................................................................4

!" Challenge #4: Internal Controls.......................................................................................................4
    Improper Payments...........................................................................................................................5
    Procedures for Resolving “Deficient” Compliance Audit Reports ..................................................6
    Internal Controls over Purchase Cards and Third-Party Drafts........................................................6

!" Challenge #5: Role of the Performance-Based Organization........................................................7

!" Challenge #6: Government Performance and Results Act ............................................................7
    GPRA Review at the Department of Education ...............................................................................7
    Management Controls over the Collection and Reporting of
     Performance Data to ED.................................................................................................................8

!" Challenge #7: Modernization Blueprint and Performance Plan...................................................8

!" Challenge #8: Moving to a Paperless Environment .......................................................................8

!" Challenge #9: Balancing Compliance Monitoring and Technical Assistance..............................9
    Elementary, Secondary and Higher Education Programs ................................................................9
    Student Financial Assistance Programs..........................................................................................11
    Nonfederal Audit Activities ...........................................................................................................12

!" Challenge #10: Obtaining Income Verification from the
    Internal Revenue Service.............................................................................................................13

!" Results of Investigations ..................................................................................................................13
     Student Financial Assistance Programs..........................................................................................13
     Other Investigative Efforts .............................................................................................................17
     Other Efforts...................................................................................................................................17

P.L. 95-452 REPORTING REQUIREMENTS ....................................................................................18

                                                                          i
APPENDICES
!" APPENDIX 1: Management Challenges Facing the Department of Education
               Reported to Congress by OIG...................................................................................................19

!" APPENDIX 2: Recommendations Described in Previous Semiannual Reports
               on Which Corrective Action Has Not Been Completed............................................................20

!" APPENDIX 3: ED/OIG Audit Services Reports on Education Department
               Programs and Activities ............................................................................................................21

!" APPENDIX 4: Other ED/OIG Reports on Education Department Programs
               and Activities.............................................................................................................................23

!" APPENDIX 5: Inspector General Issued Audit Reports with Questioned Costs ...............................................24

!" APPENDIX 6: Inspector General Issued Audit Reports with Recommendations
                for Better Use of Funds.............................................................................................................25

!" APPENDIX 7: Unresolved Reports Issued Prior to October 1, 2000.................................................................26

!" APPENDIX 8: Investigation Services Cumulative Actions ...............................................................................29

!" APPENDIX 9: Collections from Audits and Investigations...............................................................................33

!" APPENDIX 10: Statistical Profile.......................................................................................................................34




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                          SIGNIFICANT ACTIVITIES
                       AND MANAGEMENT CHALLENGES


The Office of Inspector General (OIG) this period continued to focus its audit, investigation, and
inspection efforts on the most significant challenges facing the Department of Education (the
Department or ED). In December 2000, we responded to a joint House and Senate request for an
update on the status of the management challenges facing the Department. Below, we discuss
these challenges and present our most significant audit and inspection activities this period as
they relate to the challenges. We also discuss our investigation activities.

                                          Challenge #1
                                FINANCIAL MANAGEMENT
One of the most important challenges facing the Department is the ability to provide accurate
financial information to make informed decisions, manage for results, and ensure operational
integrity. Both the Department and Student Financial Assistance (SFA), a performance-based
organization (PBO) directly responsible for administering the Title IV student financial
assistance programs, prepared financial statements for fiscal year (FY) 2000. In terms of dollars
reported, SFA is the most significant component of the Department-wide financial statements.
FY 2000 was the second year SFA’s financial statements were audited.

In our last semiannual report (Semiannual Report No. 41, page 5), we stated our commitment to
issue the FY 2000 financial statement audit reports for both the Department and SFA by March
1, 2001. We met that commitment.

The Department improved its financial reporting process and financial management activities
during FY 2000. For example, it prepared interim statements, performed analyses of account
balances in an effort to resolve errors, and enhanced communications among Department offices
by establishing a Financial Statement Steering Committee.

Financial Statement Audits
! RESULTS OF FY 2000 FINANCIAL STATEMENT AUDITS
OIG's contract auditor, Ernst & Young LLP, issued the following three required reports for each
audit of the Department’s and SFA’s financial statements: Report of Independent Auditors,
Report on Internal Control, and Report on Compliance with Laws and Regulations.

The Report of Independent Auditors provided a qualified opinion on the Department’s financial
statements primarily because of the Department’s inability to provide adequate documentation to
support certain amounts and prior period adjustments reported in the financial statements, and
inconsistent processing of certain transactions related to prior years.




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The Report on Internal Control detailed material weaknesses in the areas of the Department’s
financial management systems and financial reporting, reconciliations, and controls surrounding
information systems. It detailed reportable conditions in the areas of financial reporting related
to credit reform, and reporting and monitoring of property and equipment. (See also Challenge
#4, Internal Controls for our work this period relative to Departmental internal control issues.)

The Report on Compliance with Laws and Regulations noted that the Department was not in full
compliance with the Clinger-Cohen Act because it had not fully implemented a capital planning
and investment process. The report also found that the Department's financial management
systems did not substantially comply with federal financial management systems requirements
specified in the Federal Financial Management Improvement Act of 1996. The Department is in
the process of replacing the general ledger and implementing a disaster recovery plan for the
financial management systems.

The findings in the SFA financial statement audit reports were similar to those in the
Department’s reports, except for the finding regarding reporting and monitoring of property and
equipment, which was not reported for SFA. SFA is in the process of developing and
implementing a financial management system to support its financial reporting needs that is
intended to be integrated with the Department’s general ledger.

! CORRECTIVE ACTION PLANS FOR FYS 1995-1999 FINANCIAL STATEMENT AUDITS

This period the Department transmitted revised corrective action plans for the Department-wide
financial statement audits for FYs 1995 through 1999. At the end of the period, the Department
had closed 128 of the 139 recommendations. The Department’s FY 2000 audit contained 21
recommendations, bringing the total open recommendations to 32. Of these, 23 are considered
non-repetitive.

Implementation of New Financial Management System Software
The Office of the Chief Financial Officer (OCFO) is in the process of implementing a new
general ledger to replace the Financial Management System Software (FMSS) component of the
Education Central Automated Processing System. OCFO is replacing the FMSS because the
Department has experienced significant problems with its operation and maintenance since
deploying it in October 1997. ED has selected Oracle Federal Financials as the replacement
FMSS.

We issued a memorandum to the OCFO (“Implementation of Oracle Federal Financial
Application,” March 30, 2001) discussing the implementation of the new FMSS, Oracle Federal
Financials. We identified two issues for the Department: 1) the Department does not plan to run
standard parallel testing between the existing FMSS and the new one; and 2) the potential
effects the implementation date of August 2001 will have on the Department’s ability to prepare
timely financial statements. The Department advised us that it had been analyzing the impact of
the Oracle implementation date since January 2001. In April, the Department informed us that it
has decided to postpone full implementation of the new FMSS until October 2001.




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                                           Challenge #2
                                    CLINGER-COHEN ACT
The Clinger-Cohen Act requires agencies to adopt specific practices to improve the management
of information technology (IT), including the acquisition, use, and disposal of IT resources. We
reported that while the Department had made progress since the arrival of the new Chief
Information Officer in September 1999, it had not yet fully implemented three key requirements
of the Act. These requirements relate to the capital planning and investment control process, a
sound and integrated IT architecture, and the knowledge and skills of agency personnel in the
area of information resource management.

For instance, the Department’s Investment Review Board’s capital planning and investment
control process is presently limited to the selection of IT projects, and does not yet incorporate
control and evaluation mechanisms. In December 2000, we provided comments to the
Department on the Investment Review Board’s charter, its investment review process, and
business cases submitted for the FY 2002 budget. We stated that the Investment Review Board
should clearly define its process for reviewing business cases, and that project owners need to
adhere to Department guidance. Additionally, we stated that the Department needs to better
address how top management will be sufficiently involved with, and knowledgeable about, SFA
information technology decision-making to ensure that the Department as a whole is in
compliance with the Clinger-Cohen Act. As discussed above, the Report on Compliance with
Laws and Regulations issued as part of the Department’s FY 2000 financial statement audit
noted that the Department was not in full compliance with the Clinger-Cohen Act. SFA has
established its own Investment Review Board, and is taking steps to implement Clinger-Cohen
Act requirements.

                                           Challenge #3!
                                     SYSTEMS SECURITY
The Department reported security management as a material weakness in its FY 1999 and
FY 2000 Federal Managers’ Financial Integrity Act report. As reported in Semiannual Report
No. 41 (page 5), our audit on the security posture, policies, and plans for the Department’s 14
mission-critical IT systems identified significant control weaknesses. These weaknesses
collectively constitute a significant threat to the security of the Department’s IT systems and the
data they possess.

Department Action on OIG Recommendations
Since this audit, the Office of the Chief Information Officer (OCIO) informed us that security
reviews have been completed for 13 of the 14 mission-critical systems. The remaining system is
the Multiple Data Entry System. OCIO still needs to determine whether additional systems meet
the Office of Management and Budget Circular A-130 definition of a major application or
general support system requiring security reviews. OCIO has completed security plans for all
mission-critical systems except EDNet, and anticipates completing the EDNet security plan by
the end of May 2001.

OCIO has developed and implemented a computer-based security awareness program, and
reported that 97 percent of ED employees had taken the training by December 2000. The

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ED/OIG SEMIANNUAL REPORT NO. 42


training will be offered annually to all employees. OCIO is still working toward ensuring that
ED personnel who have specific systems responsibilities are adequately trained.

Security Audits
! SFA VIRTUAL DATA CENTER REVIEW
This period we issued a report on our evaluation of the security posture of SFA’s Virtual Data
Center (VDC), located in Meriden, Connecticut (“Security Review of the Virtual Data Center,”
ED-OIG/A11-A0015, March 2001). As a consolidation facility for SFA, the VDC is comprised
of a telecommunications system and many connected resources, including mainframe and mid-
range computers and network devices. Based on our procedures, we identified numerous areas
where information-system security can be strengthened. SFA took certain steps to correct
security vulnerabilities identified by our procedures during our audit.

! COLLECTION OF PERSONALLY IDENTIFIABLE INFORMATION

This period we issued a report on our audit of the collection of personally identifiable
information through ED Internet sites to comply with requirements of the Treasury and General
Government Appropriations Act of 2001 (“Audit of the Collection of Personally Identifiable
Information Through ED Internet Sites,” ED-OIG/A11-B0002, February 2001). As part of this
review, we analyzed the Department’s use of “persistent cookies” on its Web sites. A persistent
cookie is information a Web site puts on the user’s computer for a set period of time so that it
can track information about that user.

We identified 54 ED activities that voluntarily collect personally identifiable information
through the Internet and three areas needing additional oversight. Specifically, we found that ED
needs to strengthen controls over the use of persistent cookies, ensure that privacy policy notices
are provided, and monitor methods for collecting personally identifiable information. In its
response to the draft report, OCIO concurred with our basic findings and provided information
on completed and planned corrective actions.

! INFORMATION SECURITY PROGRAM AND PRACTICES

In addition to the security work that resulted in reports this period, we have initiated an
evaluation of the Department's information security program and practices, as required by Title
X, Subtitle G, “Government Information Security Reform,” of the FY 2001 Defense
Authorization Act (Public Law 106-398).

                                           Challenge #4
                                   INTERNAL CONTROLS
The Department of Education faces continued challenges as it works to design and implement
effective internal controls. In addition to the FY 2000 financial statement audit findings
described above, OIG efforts have disclosed weaknesses in management controls that leave the
Department’s programs and operations vulnerable to fraud, waste, and abuse.




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                                                               ED/OIG SEMIANNUAL REPORT NO. 42


Improper Payments
There has been an increased emphasis in recent years on “improper payments” – ensuring that
“the right person gets the right benefit.” In an October 1999 report to the Chairman, Senate
Committee on Governmental Affairs, “Increased Attention Needed to Prevent Billions in
Improper Payments,” the General Accounting Office (GAO) defined improper payments as
“...payments made for unauthorized purposes or excessive amounts, such as overpayments to
program recipients or contractors and vendors.” The report identified ED as one of several
agencies that had “improper payments.” In October 2000, GAO issued a follow-up report,
“Billions in Improper Payments Continue to Require Attention.” This report also identified the
Department as having improper payments.

! RECOMMENDATIONS FOR DEPARTMENT ACTION
This period, in a memorandum to the Acting Chief Financial Officer, we recommended that the
Department develop its own approach or methodology for annually estimating improper
payments. Shortly thereafter, the Office of Management and Budget (OMB) issued draft
guidance on improving federal benefit payment integrity. OMB has not yet issued final guidance
on this subject.

! GRANT ADMINISTRATION AND PAYMENT SYSTEM DUPLICATE PAYMENTS
This period we also issued a report on our analysis of the Grant Administration and Payment
System (GAPS) duplicate payments (“Analysis of GAPS Duplicate Payments,” ED-OIG/A11-
B0001, March 2001). The objective of our analysis was to identify information in the GAPS
database and Federal Reserve Bank records that could indicate duplicate payments during the
period May 1998 to September 2000. Our analysis was limited to the documentation available at
the Department.

Before we began our work, the Department identified eight instances of GAPS duplicate
payments totaling $198 million that occurred during the period of our analysis. We found an
additional thirteen instances of duplicate payments totaling about $55 million, which the
Department acknowledged. The recipients returned all funds to the Department except for
$2,175 that was kept by one recipient and deducted from its grant balances. We also found nine
GAPS transactions for about $6 million that could be potential duplicate payments. We are
continuing to research these payments. We made several recommendations which the OCFO
accepted.

! CONTROLS OVER CONTRACT PAYMENTS
We issued a report this period on our review of the contract payment process (“Audit of Controls
Over Contract Payments,” ED-OIG/A07-A0015, March 2001). We found that improvements
were needed in the controls over the invoice review process, segregation of duties, and the
process for establishing vendor information in ED’s contract payment system. We
recommended that the OCFO develop policies and procedures to ensure that invoice review
processes are followed, and establish an internal control monitoring procedure to periodically
review payments for appropriateness. We made several recommendations; the OCFO generally
concurred.




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ED/OIG SEMIANNUAL REPORT NO. 42


Procedures for Resolving “Deficient” Compliance Audit Reports
We issued a report on our audit of Case Management & Oversight’s (CMO’s) procedures for
resolving a “deficient” compliance audit report (“Audit of Case Management and Oversight’s
Procedures for Resolving a ‘Deficient’ Audit Report,” ED-OIG/A03-A0002, March 2001). We
found that while CMO’s final audit determinations were generally appropriate, it generally did
not obtain the required irrevocable letter of credit (LOC) as part of the audit resolution process
involving findings for failure to pay refunds on time. CMO lacks the protection to ensure that
sufficient cash reserves exist at these institutions to pay required refunds.

We recommended that the Chief Operating Officer for SFA ensure that institutions cited for
failing to pay refunds on time submit an LOC, and initiate appropriate administrative action
against those that fail to do so. SFA disagreed with the first recommendation, advising that the
determination of whether to request an LOC was guided by the overall risk to Title IV funds the
violation posed. SFA concurred in part with our second recommendation, suggesting that in
some cases, other courses of action would be more appropriate. We did not change our
recommendations.

Internal Controls over Purchase Cards and Third-Party Drafts
In our last semiannual report (Semiannual Report No. 41, page 6), we reported on our review of
the Department’s internal control over its purchase card and third-party draft programs. Our
reviews of ED’s principal offices found that the Department’s established control activities for
these programs were not always followed, and that the OCFO, which is responsible for the
programs, needed to improve its administration of both programs.

This period we completed our review in a summary report, and provided the Department with
several recommendations to address our findings (“Results of the OIG Review of Internal
Controls Over the Use of Purchase Cards and Third-Party Drafts,” A&I 2000-015, October
2000). Some of the deficiencies we found included a frequent lack of documented supervisory
review of individual purchases and a lack of sufficient supporting documentation for some
purchase card transactions. In addition, the Department was not conducting an effective
reconciliation of the monthly Department-wide purchase card statement. We noted similar
deficiencies in the third-party draft program.

We recommended that the Department:
!" strengthen the control environment over the use of purchase cards and drafts;
!" provide for an assessment of the risks the agency faces from both external and internal
   sources;
!" strengthen control activities over the use of purchase cards and drafts;
!" strengthen information and communication regarding the use of purchase cards and drafts;
   and
!" strengthen monitoring over the use of purchase cards and drafts.

These recommendations will help safeguard against potential misuse or waste and ensure that
purchase card transactions and third-party drafts serve program needs.




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Department officials concurred with our findings and provided us with a corrective action plan to
address our recommendations. We also provided these reports and supporting work papers to the
General Accounting Office relating to their current work on improper payments at the
Department.

                                          Challenge #5
               ROLE OF THE PERFORMANCE-BASED ORGANIZATION
The development of a performance-based organization (PBO) – called SFA – as a discrete
management unit reporting to the Secretary to manage the operations of the student financial
assistance programs is a continuing challenge. While the legislation creating the PBO provides
for independence, the degree of independence remains unclear.

In January 2000, responsibility for the promulgation of regulatory program policy for the SFA
programs was officially assigned to the Office of Postsecondary Education (OPE), the principal
office in which SFA previously resided prior to the establishment of the PBO. The alignment of
policy responsibilities has not been accompanied by a clear delineation of roles and
responsibilities. Other key coordination challenges include SFA’s relationships with the
Department’s OCFO and OCIO, as discussed in the Report on Internal Control issued as part of
SFA’s FY 2000 financial statement audit. This is particularly important in the financial
management area as the Department and SFA test and implement new general ledger systems.

The Department and SFA are working to clarify the relationship between the two organizations.

                                          Challenge #6
                 GOVERNMENT PERFORMANCE AND RESULTS ACT
Reporting requirements under the Government Performance and Results Act (GPRA) present
two significant challenges to the Department: to ensure that correct measures were selected to
place appropriate focus on program performance, and to ensure that data sources for measures
are of sufficient quality.

GPRA Review at the Department of Education
The OIG has made reviewing the Department’s GPRA reports and plans an ongoing priority. At
the Department’s request, we reviewed the Planning and Evaluation Service’s (PES) process for
preparing the 1999 performance reports and 2001 plans (“Review of Planning and Evaluation
Service Implementation of the Government Performance and Results Act, 1999 Performance
Report and 2001 Plans,” A&I 2000-16, November 2000). We found that Department employees
involved in the creation of these reports and plans were generally satisfied with the process.
Employees acknowledged that there were some problems and challenges associated with the
GPRA process, but also recognized that problems are a normal part of any new process.
Employees stated they were hopeful PES would learn from the experience and improve the
process in the future. PES concurred with our findings and appreciated the feedback that we
were able to give them concerning the GPRA process.




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ED/OIG SEMIANNUAL REPORT NO. 42


Management Controls over the Collection and Reporting of Performance Data to ED
Our review of the California Department of Education’s (CDE) collection and reporting of
performance data provided to ED identified weaknesses in CDE’s management controls covering
performance data for placement, exiting, and discipline for school year 1998-99 (“California
Department of Education Management Controls Over IDEA, Part B – Special Education
Performance Data,” ED-OIG/A09-A0016, March 2001). Specifically, we found that CDE did
not fully meet two of the six Data Quality Standards developed by ED for use by its managers
when monitoring grantees and evaluating the quality of the reported data.

In its comments to the report, CDE expressed no objections to our findings and described the
corrective action planned or taken.

                                          Challenge #7
             MODERNIZATION BLUEPRINT AND PERFORMANCE PLAN
SFA is developing and implementing its systems Modernization Blueprint, which is intended to
streamline and integrate its student financial aid systems. The Blueprint describes the future
business requirements, business and technical architecture, and sequencing plan that SFA will
use to transform its financial aid systems using leading-edge technology. We have previously
reviewed and commented on the development of the Blueprint. As noted under Challenge #3,
Systems Security, our evaluation this period of the security posture of SFA’s Virtual Data
Center identified areas where information-system security can be strengthened.

Another challenge for SFA is to ensure that the implementation of the five-year performance
plan meets SFA's responsibilities as required by the Higher Education Act of 1965, as amended,
in four key areas: improve services, including making programs more understandable to students
and their parents; reduce costs; improve and integrate support systems; and deliver accurate and
timely information systems.

                                          Challenge #8
                      MOVING TO A PAPERLESS ENVIRONMENT
The Department must implement the Government Paperwork Elimination Act (GPEA) which
requires it to move to electronic government by October 21, 2003. The purpose of GPEA is not
simply to replace paper transactions with electronic ones, but to help agencies improve program
operations, achieve cost savings, and develop adequate controls to prevent fraud, waste, and
abuse.

Agencies were required to develop and submit to OMB by October 2000 a plan that provides for
implementation of GPEA by October 2003, when practicable. On October 31, 2000 the
Department submitted to OMB an initial plan for GPEA implementation. This period we
reviewed the plan and noted numerous transactions where the completion date was identified as
“prior to 10/2003.” We advised the Department to identify specific milestones.

SFA is moving ahead with plans to implement electronic signatures in the Direct Loan and
Federal Family Education Loan programs.



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                                          Challenge #9
                       BALANCING COMPLIANCE MONITORING
                           AND TECHNICAL ASSISTANCE
Balancing compliance monitoring and technical assistance in the oversight of federal education
programs is a challenge for the Department as it strives to meet both accountability and
flexibility needs.

Elementary, Secondary and Higher Education Programs
Our work in elementary and secondary education during the period encompassed both
management challenges facing the Department and significant programmatic issues.

! GUN-FREE SCHOOLS ACT OF 1994

As a follow-up to our work last period, in which we audited seven states’ compliance with
provisions of the Gun-Free Schools Act (Semiannual Report No. 41, page 7), we issued a final
audit report summarizing our findings (“State and Local Education Agencies’ Compliance with
the Gun-Free Schools Act of 1994,” ED-OIG/A03-A0018, February 2001). We also issued a
perspective paper to assist Department officials and Congress in determining if revisions to the
Act are necessary (“An OIG Perspective on the Gun-Free Schools Act of 1994,” ED-OIG/S03-
A0018, March 2001). We identified several issues for consideration, specifically:
!" The Act does not cover a student who is determined to have brought to school an airgun
   (i.e., BB gun and pellet gun), antique firearm, or replica of an antique firearm.
!" The Act requires state and local education agencies (SEAs and LEAs) to collect and report
   information on expulsions of students who have brought firearms to school. However, the
   Act does not expressly require SEAs and LEAs to collect information on incidents
   involving such students.
!" Items within the Act require clarification. First, the Act contains an incorrect statutory
   reference in describing the information SEAs must report to ED. Second, the Act includes
   conflicting references to the terms “firearm” and “weapon.” Third, the Act does not
   expressly specify expulsion as the consequence for students found in possession of a
   firearm, because the Act uses the term “bring” or “brought,” rather than “possess.”

This period a bill was introduced in the Senate (S. 649, “To modify provisions relating to the
Gun-Free Schools Act of 1994,” March 29, 2001), which includes several issues from our
Perspective Paper.

! SAFE AND DRUG-FREE SCHOOLS AND COMMUNITIES ACT GOVERNOR’S PROGRAM
We conducted a review of the Safe and Drug-Free Schools and Communities Act Governor’s
Program at six states (“Safe and Drug-Free Schools and Communities Act Governor’s Program,”
ED-OIG/A04-A0005, March 2001). Our review did not disclose any instances of misuse of
program funds.

We recommended that the Department assist state administrators in finding ways to identify and
address those youths not served by state and local education agencies and those youths with
special needs as defined in the law, or consider whether the law needs to be changed. We also

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ED/OIG SEMIANNUAL REPORT NO. 42


recommended that the Department study the feasibility of combining the Governor’s Program
and the State Education Agency Program into one program. Finally, we recommended that ED
provide technical assistance to help Governor’s Program officials. The Department did not
entirely concur with our findings or recommendations.

! PUERTO RICO NATIONAL SCHOOLS SERVICE CONTRACT

We audited the Puerto Rico Department of Education’s (PRDE) administration of a $9.7 million
Title I fixed-price contract for Elementary and Secondary Learning Centers for the 1998-99
school year (“Puerto Rico Department of Education Did Not Administer Properly a $9,700,000
Contract with National School Services of Puerto Rico,” ED-OIG/A01-A0004, March 2001).
We found that PRDE awarded the contract to National School Services of Puerto Rico without
full and open competition.

We recommended that the Department require PRDE to establish controls to ensure that all
procurement transactions involving federal funds provide for open and free competition. We
also recommended recovery of about $8 million.

In its response, PRDE said it had taken significant corrective actions to improve the deficiencies
we identified, and believed it was impossible to respond properly to the findings without
receiving information and documents from the contractor. Our position and recommendations
remained unchanged.

! VIRGIN ISLANDS
We issued an action memorandum alerting the Assistant Secretary, Office of Special Education
and Rehabilitative Services (OSERS), to concerns that we identified during our ongoing audit of
the Virgin Islands Department of Education’s (VIDE) compliance with the Individuals with
Disabilities Education Act (IDEA), Part B (“Review of Virgin Islands Department of Education
Compliance with Part B of the Individuals with Disabilities Education Act,” State and Local No.
01-03, December 2000). VIDE received about $7.8 million in FY 1998 and about $8.9 million
in FY 1999 in IDEA funds.

Despite the significant amount of funds it had received, we found that VIDE was not
demonstrating significant progress toward meeting the requirements of its voluntary compliance
agreement with the Department, which became effective in December 1999. VIDE agreed to
prepare the agreement with ED as a means of ensuring that it would continue to receive IDEA,
Part B funds after ED designated VIDE a “high risk” grantee in June 1998. While the Virgin
Islands had, at the time of our review, three years to fully implement the agreement and come
into full compliance with Part B of the IDEA, we advised the Assistant Secretary that OSERS
needs to assure that VIDE is making sufficient interim progress toward that goal. If it is not, we
recommended that OSERS explore other options, such as a third-party vendor to procure
supplies and related services to assist children with disabilities to benefit from their education.

! TITLE III MONITORING
We performed an audit of the office of Higher Education Programs’ (HEP) monitoring of Parts
A and B of the Title III program (“Office of Higher Education Programs Needs to Improve Its
Oversight of Parts A and B of the Title III Program,” ED-OIG/A04-90013, December 2000).
Our report disclosed that HEP needs a systematic approach to monitor effectively and efficiently

                                                10
                                                                 ED/OIG SEMIANNUAL REPORT NO. 42


institutions receiving grants under Title III of the Higher Education Act of 1965, as amended.
We also found that HEP needs to develop a systematic approach for resolving and enforcing
compliance and program performance issues that arise with grantees.

We recommended that HEP develop and implement a technical assistance, compliance, and
program performance monitoring system, and establish and implement a tracking and resolution
system for Title III grantees. HEP concurred with our findings and recommendations.

Student Financial Assistance Programs
The 1998 amendments to the Higher Education Act of 1965 required each guaranty agency to
establish a Federal Fund, which is the property of the federal government, and an Operating
Fund, which is the property of the guaranty agency. If the Operating Fund contains funds
transferred from the Federal Fund, it may be used only as the regulations permit.

This reporting period we reported on two guaranty agencies’ administration of these Funds in the
Federal Family Education Loan (FFEL) program.

! ILLINOIS STUDENT ASSISTANCE COMMISSION’S (ISAC) ADMINISTRATION OF THE
  FFEL PROGRAM FEDERAL AND OPERATING FUNDS
We issued an audit report, “The Illinois Student Assistance Commission’s Administration of the
Federal Family Education Loan Program Federal and Operating Funds” (ED-OIG/A05-A0028,
March 2001), containing several findings that may affect the balances of the funds.

We found that ISAC transferred about $1.5 million from the Federal Fund to the Operating Fund
for unused employee vacation and sick pay. The Higher Education Act of 1965, as amended,
and implementing regulations do not include funding this liability as an authorized use of the
Federal Fund. We also found that ISAC did not follow OMB Circular A-87 cost principles in
developing its cost allocation plans, and did not follow its allocation plans in distributing shared
salary cost to its three major functions. We estimated that ISAC overcharged the FFEL program
funds about $1.9 million during the period covered. ISAC also had not recognized the federal
government’s ownership interest in the building and land that ISAC occupies. We also identified
additional monetary findings.
We recommended that the Chief Operating Officer for SFA require ISAC to return about $4.3
million including imputed interest to the FFEL program, and recognize or reimburse the federal
government’s ownership interest in its building and land. ISAC officials disagreed with some
findings and agreed with others.

! GREAT LAKES HIGHER EDUCATION CORPORATION’S FFEL PROGRAM ADMINISTRATION
Our audit of Great Lakes Guaranty Corporation’s (Great Lakes Guaranty) administration of the
FFEL program during the fiscal year ending September 30, 1999 identified two findings
involving Great Lakes Guaranty’s treatment of the administrative cost allowance and interest on
assets transferred from the Federal Fund (“Great Lakes Higher Education Corporation’s
Administration of the Federal Family Education Loan Programs, Madison, Wisconsin,” ED-
OIG/A05-A0002, March 2001).




                                                  11
ED/OIG SEMIANNUAL REPORT NO. 42


Great Lakes Guaranty transferred about $500,000 from the Federal Fund to the Operating Fund
for an estimated liability related to the return of administrative cost allowance for canceled loans.
It also transferred about $260,000 for retroactive interest on cash and investments from the
Federal Fund to the Operating Fund. Those transfers were not authorized by the Higher
Education Act of 1965, as amended.

We recommended that the Chief Operating Officer for SFA require Great Lakes Guaranty to
return about $840,000 to the Federal Fund related to these transfers. Great Lakes Guaranty
disagreed with the findings.

Nonfederal Audit Activities
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 OMB 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 49 quality control reviews (QCRs) of audits performed by 41 different
independent public accountants (including 8 audits performed by different offices of two national
certified public accounting firms).

    Results of QCRs
Based on our 49 reviews, we determined:
!"27 (fifty-five percent) were acceptable, containing no deficiencies or only minor
  deficiencies not requiring changes or corrective action;
!"15 (thirty-one percent) were technically deficient and required corrective action by the
  auditor; and
!"7 (fourteen percent) were substandard, containing significant audit deficiencies which
  prevented the Department from relying upon the audit.1

    Referrals of Independent Public Accountants
During this period, we referred four IPAs to the American Institute of Certified Public
Accountants and/or the appropriate State Board of Accountancy for possible disciplinary action.
The referrals were for audits containing significant inadequacies or for other serious violations of
professional standards.

1
 Beginning with this reporting period, we are reporting the results of quality control reviews in categories consistent
with those defined by the President's Council on Integrity and Efficiency. Results now reported as technically
deficient were previously reported as "substandard"; results now reported as substandard were previously reported
as "containing significant inadequacies." Nonfederal audits are selected for QCR on a judgmental basis, thus QCR
results are not necessarily reflective of all nonfederal audits submitted.

                                                          12
                                                                ED/OIG SEMIANNUAL REPORT NO. 42



                                          Challenge #10
                         OBTAINING INCOME VERIFICATION
                       FROM THE INTERNAL REVENUE SERVICE
A significant concern for the Department has been student aid applicants (and their parents) who
under-report their income in order to receive student financial assistance funds to which they are
not entitled. An OIG match with the Internal Revenue Service (IRS) found a significant number
of differences between income amounts reported on individual Free Applications for Federal
Student Aid (FAFSAs) and incomes reported to the IRS for the corresponding audit period.
Based on the audit results as well as investigative activities, we recommended that the
Department be authorized to verify with the IRS the income information reported by students
and their parents on the FAFSAs.

Congress provided the Department this authority in the Higher Education Act Amendments of
1998 (P.L. 105-244). However, negotiations with the IRS, which interprets and enforces the
Internal Revenue Code, have not led to actual implementation of the verification process.
Congress should enact whatever legislation is necessary to make this critical verification of
income a reality. (See Investigations, False Claims on FAFSAs, Fraud By Financial Aid
“Preparers” below.)

                             RESULTS OF INVESTIGATIONS

Student Financial Assistance Programs
OIG investigations this period continued to identify individuals who used, or may have used,
their positions to defraud the SFA programs, as well as individuals who are alleged to have
otherwise obtained SFA funds to which they were not entitled. Unless otherwise indicated, the
individuals described in the cases that follow had not entered pleas or been sentenced by the end
of the reporting period.

! FALSE CLAIMS ACT SETTLEMENTS FOR DUE DILIGENCE VIOLATIONS

Department of Education regulations require owners and servicers of FFEL program portfolios to
meet specific “due diligence” requirements to maintain the government’s guarantee. These
requirements include mailing letters to delinquent borrowers and making telephone contacts or
otherwise attempting to contact them within specific time frames. OIG investigations have
disclosed instances in which participant institutions or their employees have falsely reported
compliance with due diligence regulations to receive payment for claims on defaulted loans.

These investigations have resulted in civil settlements reaching millions of dollars under the
False Claims Act. In Semiannual Report No. 37 (page 3), we reported a $28 million settlement
and $2 million criminal fine paid by Cybernetics and Systems, Inc., a subsidiary of CSX
Corporation, which acted as a servicer for loan portfolios reinsured by the federal government.
Last year we reported a $7,775,000 False Claims Act settlement by CORUS Bankshares, Inc.
and CORUS Bank, Inc. to compensate the government for allegedly submitting fraudulent
insurance and reinsurance claims on guaranteed student loans (Semiannual Report No. 41, page
9).



                                                  13
ED/OIG SEMIANNUAL REPORT NO. 42


This period saw another multi-million-dollar settlement under the False Claims Act by a large
corporation. Sallie Mae Servicing Corporation of Reston, Virginia agreed to pay the United
States $3.4 million to settle False Claims Act allegations involving an employee at its servicing
center in Waltham, Massachusetts. The employee allegedly created false collection histories on
thousands of FFEL accounts, falsely reporting he had made telephone calls to borrowers or
attempted to make calls as required by “due diligence” regulations. Hundreds of loan accounts
bearing falsified collection histories were submitted to guaranty agencies. The guaranty agencies
paid Sallie Mae on the basis of these submissions and received reinsurance from the Department.
On discovering the employee’s alleged misconduct, Sallie Mae reported the matter to the OIG.
The agreement prohibits Sallie Mae from making any claims in the future on federal guarantees
on $9.5 million in additional affected loans.

! INSTITUTIONAL FRAUD

Our investigative work continues to identify certain trends in fraud or alleged fraud by
institutions participating in the Department’s student financial aid programs, or officials and
employees of those institutions. Some examples of this criminal activity include alleged refund
fraud, falsification of documents for eligibility purposes, and ineligible locations and programs.

   Refund Fraud

   !" The former president and chief executive officer of International Education Center
      (IEC) pled guilty for failing to make refunds to the Pell Grant program. From 1994 to
      1996, IEC failed to make refunds totaling more than $600,000 when students either did
      not attend IEC after enrolling, or withdrew after completing only a small percentage of
      the educational program.

   !" The former owner of Westlake Institute of Technology was indicted on 10 counts of
      failure to make refunds. Our investigation developed evidence that the owner failed to
      refund about $91,000 on behalf of 34 former students.

   Falsifying Documents for Eligibility Purposes

   !" A former instructor at Eastern Jackson County College of Allied Health was sentenced
      to 15 months incarceration followed by three years supervised probation, and was
      ordered to pay ED about $1.4 million in restitution. The subject took part in a
      conspiracy to disburse over $1.4 million in Pell Grant funds for ineligible or non-
      existent students.

   !" The former admissions director and a former admissions representative at American
      Career Training pled guilty to conspiracy to defraud a government agency. The
      subjects, who were indicted in April 2000 for receiving more than $250,000 in Pell
      Grant funds for ineligible students at the now defunct institution, falsified eligibility
      documents for ineligible students.

   !" Four individuals pled guilty to participating in a scheme to defraud ED out of about
      $3.5 million in Pell Grant funds at Garces Commercial College. Two of the individuals
      directed employees to falsify records and draw down funds on behalf of non-existent
      students and elderly residents at a local senior center. The third forged student


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                                                                   ED/OIG SEMIANNUAL REPORT NO. 42


         signatures on financial aid applications and created new student files using information
         contained in old student files to support claims for Pell money. The fourth actively
         recruited elderly clients at the senior center. All four individuals received large sums of
         money wired to offshore accounts from fictitious corporations.

   Ineligible Locations and Programs

   !" The co-owner of American Weld Testing School (AWT) was found guilty of student
      financial aid fraud. From July 1995 through April 1997, students at AWT’s Beaumont,
      Texas campus received about $1,025,522 in unauthorized Title IV funds. The
      Department did not approve AWT to participate in the SFA programs until April 1997.

! RECIPIENT FRAUD

   Responding to identified trends in student financial assistance fraud or alleged fraud, in the
   last several years our investigative effort has focused increasingly on allegations involving
   institutions, their officials and employees. This case work in turn has identified a potential
   vulnerability in specific categories of beneficiary fraud or alleged fraud. Examples of
   significant investigative results in these areas follow.

   !" An individual was sentenced to 30 months in prison followed by 36 months of
      supervised release, and was ordered to pay about $200,000 in restitution. The subject
      received numerous student loan checks based on fraudulent applications supported by
      false, fraudulent and altered documents and forged signatures. The individual deposited
      the checks in several bank accounts and wire-transferred funds to accounts held by
      family members in Israel. The subject fraudulently obtained or attempted to obtain
      about $1.1 million in student loan disbursements through this scheme.

   !" An individual was indicted on 22 counts of mail fraud, wire fraud, false statements, and
      student financial assistance fraud. Between 1984 and 1998, the subject allegedly
      applied for and received 14 guaranteed student loans and four Pell grants totaling about
      $40,000 using his own and five false Social Security numbers. He subsequently
      defaulted on all but one of the loans.

   !" An Egyptian citizen was sentenced to 18 months imprisonment and ordered to make
      restitution of $31,981 after pleading guilty to student financial aid fraud and false
      claims of U.S. citizenship. The subject fraudulently claimed U.S. citizenship,
      producing his own certificate of naturalization with a home scanner and submitting the
      document to California Polytechnic University at Pomona to qualify for and obtain
      about $36,000 in Title IV funds.

! FALSE CLAIMS ON FAFSAS
   Fraud by Financial Aid “Preparers”

OIG investigations over the last several years have identified and led to the prosecution and
conviction of individuals who, for a fee, assist parents in filling out false financial aid forms to
fraudulently obtain student aid for their children. (See Semiannual Report No. 37, pages 28-29
and Semiannual Report No. 38, pages 28-29.) This period, investigations resulted in 47 civil


                                                    15
ED/OIG SEMIANNUAL REPORT NO. 42


cases and judgments totaling over $400,000 against such individuals, known as “preparers,” and
many of their clients.

In one of our largest investigative efforts thus far in this area, 26 individuals were charged with
mail fraud and student aid fraud. The subjects are alleged to have fraudulently obtained more
than $2.6 million from ED in the form of grants, work-study funds, and loans. The defendants
include two former financial aid advisors, five “preparers,” and 18 parents, who allegedly
falsified income information to fraudulently obtain education grants and other forms of
assistance for their children. This period one parent pleaded guilty to mail fraud and agreed to
cooperate with the government against the preparers.

The persistence of such cases demonstrates how important it is for the Department to be able to
verify the accuracy of income information on financial aid applications before disbursing student
aid funds (see Challenge #10, Obtaining Income Verification from the Internal Revenue
Service above). Without such assurance, the Department is severely limited in its ability to
prevent ineligible applicants from fraudulently obtaining student loans and grants.

   False Statements to Obtain Student Aid
Investigative efforts this period continued to result in prosecutive actions against students and
school officials who provided, or are alleged to have provided, false information to obtain
student aid to which they are not entitled. Examples this period include an individual who
allegedly enabled Hammond Academy of Beauty Culture fraudulently to receive more than
$370,000 in Pell Grant funds by conspiring with the school owner to enroll ineligible students in
an ineligible program. The school also allegedly received Pell funds for students who did not
have a high school diploma or GED, and did not take an ability-to-benefit test. In another case,
the government seized about $350,000 and a luxury automobile from a woman and her two sons
after an investigation developed evidence that the woman had concealed about $390,000 in cash
advances from credit-card companies and financial institutions. Her sons did not disclose the
assets when they applied for and received more than $30,000 in student financial aid. All three
entered guilty pleas this period.

! FALSE CLAIMS OF ENROLLMENT AT FOREIGN SCHOOLS

We are continuing to investigate FFEL borrowers who allegedly have received funds by falsely
claiming enrollment at foreign schools.
!"An individual was charged with defrauding ED of more than $250,000 in student loan funds.
  The indictment charged four counts of mail fraud, three counts of student financial assistance
  fraud, and two counts of Social Security fraud stemming from her alleged scheme to
  fraudulently obtain student loan funds under the pretense that she was attending several
  schools in Tokyo, Japan. According to the criminal complaint, the subject submitted 15
  student loan applications requesting more than $250,000. The investigation may have
  prevented the disbursement of about $18,500 in federal student loan funds. The subject pled
  not guilty to the charges.

!"An individual was charged with student financial assistance fraud, mail fraud, and submitting
  false statements to ED. The subject allegedly submitted four fraudulent FFEL applications
  requesting a total of about $65,000 for claimed attendance at two Dominican Republic
  medical schools. The subject pleaded not guilty.

                                                 16
                                                                    ED/OIG SEMIANNUAL REPORT NO. 42




Other Investigative Efforts

! FORFEITURE IN REM JUDGMENT
As a result of our investigation into $1.9 million of Impact Aid funds fraudulently wired from the
Federal Reserve to improper bank accounts, the Department had recovered $1,718,696 by the
end of this reporting period. (See Semiannual Report No. 41, page 4, “Forfeiture in rem
Judgment in Excess of $1.6 Million and Return of Funds to ED.”)

! EMPLOYEES PLEAD GUILTY TO RECEIVING STOLEN GOVERNMENT PROPERTY
In another investigation reported in our last semiannual report, this period three people – two
Department employees and a contract employee – pled guilty to receiving stolen government
property. (See Semiannual Report No. 41, page 4, “Improper Purchases of Equipment, Charges
for Unworked Hours.”) This brings to seven the number of individuals who have entered pleas
in this case. The seven were investigated for the theft of over $300,000 of Department-owned
electronic equipment, and the submission of false billings for contractor overtime.

! FORMER CHIEF FINANCIAL/CHIEF INFORMATION OFFICER AGREES TO CIVIL SETTLEMENT
A former ED Chief Financial Officer/Chief Information Officer entered into a civil settlement
this period, agreeing to pay $20,000 to resolve conflict-of-interest allegations. The settlement
agreement, which does not constitute an admission by any person or entity, concluded an
investigation of the official’s failure to disclose in public financial disclosure reports available to
the Department his wife’s ownership of computer stock. The official failed to recuse himself
from participation on a Department committee that made decisions relating to the purchase of
computers. The official denied the claims of the United States.

Other Efforts

! STRATEGIC PLAN
We recently published our revised Strategic Plan for 2001-2005, containing the OIG mission
statement and strategic goals. The OIG mission is: To promote the efficiency, effectiveness, and
integrity of the Department’s programs and operations, we conduct independent and objective
audits, investigations, inspections, and other activities. To accomplish our mission, we have
established the following strategic goals:

!" To improve the Department’s programs and operations.
!" To protect the integrity of the Department’s programs and operations.
!" To ensure quality and excellence in our organization.




                                                    17
                         P.L. 95-452 REPORTING REQUIREMENTS


Sections 5(a)(1) and 5(a)(2) Significant Problems, Abuses, and Deficiencies........................................1

Section 5(a)(3) Recommendations Described in Previous Semiannual Reports
                on Which Corrective Action Has Not Been Completed .............................................20

Section 5(a)(4) Matters Referred to Prosecutive Authorities
      Investigation Services Cumulative Actions........................................................................................29
      Statistical Profile ................................................................................................................................34

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 Audit Services Reports on Education Department Programs and Activities.......................21

Section 5(a)(7) Summary of Significant Audits
      Significant Activities and Management Challenges.............................................................................1

Section 5(a)(8) Audit Reports Containing Questioned Costs
      Inspector General Issued Audit Reports with Questioned Costs........................................................24

Section 5(a)(9) Audit Reports Containing Recommendations That
                Funds Be Put to Better Use
      Inspector General Issued Audit Reports with Recommendations
       for Better Use of Funds .....................................................................................................................25

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, 2000 .........................................................................26

Section 5(a)(11) Significant Revised Management Decisions*

Section 5(a)(12) Significant Management Decisions with Which OIG Disagreed*




*No instances to report.




                                                                          18
                                                                                        Appendix 1


            Management Challenges Facing the Department of
                Education Reported to Congress by OIG




❖ Correct long-standing financial management problems.


❖ Fully implement the Clinger-Cohen Act.


❖ Continue to improve systems security.


❖ Improve the Department’s internal controls.


❖ Define the role of the Performance-Based Organization.


❖ Obtain appropriate performance measurement and quality data for Government Performance and
    Results Act reporting.


❖ Implement Student Financial Assistance’s Modernization Blueprint and Performance Plan.


❖ Move to a paperless environment.


❖ Balance compliance monitoring and technical assistance in the oversight of education programs.


❖ Obtain income verification from the Internal Revenue Service.




                                                19
    Appendix 2


           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          Number of
 Report Number/                                    Auditee/Title                          Date       Monetary     Recommendations          Latest Target/
   Date Issued                             (Prior SAR Number and Page)                   Resolved    Findings      Open   Closed            Closure Date

New Since Last Reporting Period
STUDENT FINANCIAL ASSISTANCE
A03-70010/            Audit of the U.S. Department of Education's Closed School          1/31/2000 $24,058,432         1           6    December 31, 2001
June 30, 1999         Process (SAR 37, pg. 17)

A04-70016/            Review of the Department's Oversight of Schools Participating in   2/29/2000        *            1           16        June 30, 2001
Sept. 25, 1998        the William D. Ford Federal Direct Loan Program (SAR 37, pg. 15)

OFFICE OF THE UNDER SECRETARY
A17-70007/     Moving Towards a Result-Oriented Organization: A Report on the 1/31/2000                   *            1           7       March 31, 2002
Sept. 24, 1998 Status of ED's Implementation of the Results Act (SAR 37, pg. 14)

Reported in Previous Semiannual Report
OFFICE OF POSTSECONDARY EDUCATION
A04-60001/     Process Enhancements in the HEA, Title III, Institutional Aid             8/31/1996        *            1           3        August 1, 2001
March 27, 1996 Program Would Increase Efficiency, Despite Limited Resources
                      (SAR 32, pg. 9)

MIR 92-05**           ED Needs to Strengthen Student Loan Cure Procedures                9/30/1993 $154,000,000        1           0    September 30, 2002
A09-18053/            (SAR 24, pg. 12)
March 13, 1992


OFFICE OF THE CHIEF FINANCIAL OFFICER
A17-40303/            The Report of Independent Accountants on the U.S. Department       3/31/1997        *            2           24       April 30, 2001
August 16, 1996       of Education Fiscal Year 1995 Department-wide Financial
                      Statements (SAR 33, pg. 14)
A17-60002/            The Report of Independent Accountants on the U.S. Department       5/31/1999        *            2           22       April 30, 2001
July 31, 1997         of Education Fiscal Year 1996 Department-wide Financial
                      Statements (SAR 35, pg. 19)
A17-70002/            U.S. Department of Education's Fiscal Year 1997 Financial          5/31/1999        *            2           35       April 30, 2001
June 15, 1998         Statements and Accompanying Notes (SAR 37, pg. 13)


OFFICE OF THE CHIEF INFORMATION OFFICER
A11-70007/     The Status of Education's Implementation of the Clinger-Cohen             8/31/1999        *            4           7    November 30, 2001
March 31, 1998 Act (SAR 36, pg. 19)




* - Non-monetary findings only
** - Management Improvement Report (MIR)
SAR - Semiannual Report




                                                                            20
                                                                                                                                                               Appendix 3


                         ED/OIG Audits Services Reports on Education Department
                         Programs and Activities (October 1, 2000 to March 31, 2001)
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 22 audit reports were issued
by ED/OIG auditors. In addition, we issued 12 alternative products, which includes management information reports, action memoranda, and special projects.
The 34 reports are listed below by program office.

 Report Number /                                                                                             Questioned Unsupported Better Use   Number of
   Date Issued                                            Report Title                                        Costs**      Costs     of Funds Recommendations

Audit Reports
OFFICE OF BILINGUAL EDUCATION AND MINORITY LANGUAGES AFFAIRS
A05-A0004        Title VII Systemwide Improvement Grant Administered by        $342,217                                        $342,082             *                  2
December 6, 2000 Community Unit School District 300, Carpentersville, Illinois

OFFICE OF THE CHIEF FINANCIAL OFFICER
A07-A0015      Audit of Controls Over Contract Payments                                                            *                *               *                  8
March 13, 2001
A17-A0002                Fiscal Year 2000 Annual Financial Statements U. S. Department                             *                *               *                  21
February 28, 2001        of Education
A17-B0005                U. S. Department of Education's Federal Agencies' Centralized                             *                *               *                  *
(originally A17-A0002) Trial-Balance System (FACTS) Verification Agreed-upon
March 7, 2001            Procedures Engagement Year Ended September 30, 2000

OFFICE OF THE CHIEF INFORMATION OFFICER
A11-B0002         Audit of the Collection of Personally Identifiable Information                                   *                *               *                  9
February 20, 2001 Through ED Internet Sites

OFFICE OF ELEMENTARY AND SECONDARY EDUCATION
A01-A0004      Puerto Rico Department of Education Did Not Administer                                        $1,193,993       $6,647,500            *                  14
March 28, 2001 Properly a $9,700,000 Contract with National School Services
               of Puerto Rico
A02-A0001                Audit of the New York City Board of Education's Oversight of                          $5,162               *               *                  2
March 28, 2001           Title I, Part A, Improving Basic Programs Operated by Local
                         Educational Agencies (Title I) Services to Private School Children,
                         as Authorized by the Elementary and Secondary Education Act
A03-A0018                State and Local Education Agencies' Compliance with the                                   *                *               *                  6
February 1, 2001         Gun-Free Schools Act of 1994
A04-A0005                Audit of the Governor's Program Portion of the Safe and                                   *                *               *                  6
March 30, 2001           Drug-Free Schools and Communities Act

OFFICE OF POSTSECONDARY EDUCATION
A04-90013         Office of Higher Education Programs Needs to Improve Its                                         *                *               *                  17
December 27, 2000 Oversight of Parts A and B of the Title III Program
A05-A0022                Audit of Selected Aspects of the Talent Search Grant (Project)                         $5,358              *               *                  4
January 22, 2001         Administered by South Suburban College, South Holland, Illinois
A05-A0026                Audit of Richard J. Daley College's Administration of Selected                            *          $1,621,861            *                  2
March 30, 2001           Aspects of Its Strengthening Institutions-Hispanic Serving
                         Institution Program, Chicago, Illinois

OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES
A09-A0016      California Department of Education Management Controls over                                         *                *               *                  8
March 30, 2001 IDEA, Part B-Special Education Performance Data


* - Non-monetary findings only
** - Includes other recommended recoveries
A - Audit




                                                                                        21
                                                                                                                                                Appendix 3


                   ED/OIG Audits Services Reports on Education Department
                Programs and Activities (October 1, 2000 to March 31, 2001) (cont.)
 Report Number /                                                                             Questioned Unsupported Better Use  Number of
   Date Issued                             Report Title                                       Costs**      Costs    of Funds Recommendations
STUDENT FINANCIAL ASSISTANCE
A03-A0002        Audit of Case Management and Oversight's (CMO) Procedures for                      *                *                *                    2
March 30, 2001   Resolving a "Deficient" Compliance Audit Report
A05-A0002              Great Lakes Higher Education Guaranty Corporation's                     $840,169              *                *                    4
March 30, 2001         Administration of the Federal Family Education Loan Programs,
                       Madison, Wisconsin
A05-A0025              Audit of Great Lakes Higher Education Guaranty Corporation's                 *                *               *                     7
March 30, 2001         (Great Lakes Guaranty) Administration of the Federal Family
                       Education Loan (FFEL) Program Federal and Operating Funds
A05-A0028              Audit of the Illinois Student Assistance Commission's                 $4,469,131              *                *                    14
March 30, 2001         Administration of the Federal Family Education Loan Program
                       Federal and Operating Funds
A06-90010              International Aviation and Travel Academy's Administration of          $6,637,634             *                *                    7
March 29, 2001         Title IV Student Financial Assistance Programs
A06-A0003              International Business College's Administration of Title IV Student     $461,035              *               *                     4
March 28, 2001         Financial Assistance Programs
A11-A0015              Security Review of the Virtual Data Center                                   *                *                *                    (a)
March 30, 2001
A17-A0003              Fiscal Year 2000 Annual Financial Statements - Student Financial             *                *                *                    18
February 28, 2001      Assistance
A19-B0003              Audit of Controls over Government Property Furnished to                      *                *                *                    5
March 19, 2001         Computer Sciences Corporation (CSC)

Alternate Audit Services Products
OFFICE OF THE CHIEF FINANCIAL OFFICER
A11-B0001      Analysis of GAPS Duplicate Payments (Mgmt. Information Report)                       *                *                *                    3
March 30, 2001

OFFICE OF ELEMENTARY AND SECONDARY EDUCATION
E02-A0018        Puerto Rico Comptroller's Report on Puerto Rico Department of                 $142,566              *                *                    1
October 30, 2000 Education's Misuse of Safe & Drug-Free Schools and Communities
                 Funds (State and Local Action Memo No. 01-01)
S03-A0018              An OIG Perspective on the Gun-Free Schools Act of 1994                       *                *               *                     5
March 9, 2001
E05-B0010              Concerns Regarding Chicago Public Schools' Rank Ordering and                 *                *               *                     2
February 23, 2001      Non-Public School Allocation for the 2001-2002 School Year
                       (State and Local Action Memo No. 01-04)

OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES
E04-A0017         Review of Virgin Islands Department of Education Compliance                       *                *                *                    1
December 15, 2000 with Part B of the Individuals with Disabilities Education Act
                  (State and Local Action Memo No. 01-03)
E09-A0024              Opportunity to Improve State Reporting Forms for the Individuals             *                *                *                    3
December 4, 2000       with Disabilities Education Act (IDEA), Part B-Special Education
                       Programs (State and Local Action Memo No. 01-02)


* - Non-monetary findings only                                                               E - Action Memorandum
** - Includes other recommended recoveries                                                   S - Special Project
A - Audit                                                                                    (a) - Number not cited due to the sensitivity of the report




                                                                           22
                                                                                                                                Appendix 3


                   ED/OIG Audits Services Reports on Education Department
                Programs and Activities (October 1, 2000 to March 31, 2001) (cont.)
 Report Number /                                                                           Questioned Unsupported Better Use  Number of
   Date Issued                                    Report Title                              Costs**      Costs    of Funds Recommendations
STUDENT FINANCIAL ASSISTANCE
S01-A0002      Ineligible Foreign Schools' Participation in the Federal Family                   *               *          *          2
March 23, 2001 Education Loan Program (SFA Action Memo No. 01-01)
N02-B0007              Limited Review of Education Credit Services LLC's Administration          *               *          *          2
March 30, 2001         of Defaulted Consolidated Student Loan Proceeds (SFA Action
                       Memo No. 01-03)
E03-B0001              Lack of Monitoring Ability-to-Benefit Test Publishers (SFA Action         *               *          *          1
March 29, 2001         Memo No. 01-02)

OFFICE OF THE UNDER SECRETARY
S03-B0002        Authentication of U.S. Department of Education's Detailed                       *               *          *          0
January 31, 2001 Accounting of Fiscal Year 2000 Drug Control Funds, dated January
                 26, 2001

NOT RELATED TO ANY PROGRAM OFFICE
A05-B0006         Review of Travel Activities - Third Update                                     *               *          *          0
December 15, 2000
A05-B0009              Review of Travel Activities - Fourth and Final Update                     *               *          *          0
January 31, 2001


* - Non-monetary findings only                                                             E - Action Memorandum
** - Includes other recommended recoveries                                                 S - Special Project
A - Audit                                                                                  N - Inspection Assignment
                                                                                                                                   Appendix 4



         Other ED/OIG Reports on Education Department Programs and Activities
      ACN/
  Report Number                                   Report Title                                                                       Date Issued

ANALYSIS AND INSPECTION REPORTS
S13A0003               Results of the OIG Review of Student Financial Assistance's Internal Controls Over the Procurement of      October 5, 2000
2000-014               Goods and Services Using Third Party Drafts and Purchase Cards

S13A0003               Results of the OIG Review of Internal Controls Over the Use of Purchase Cards and Third Party Drafts     October 13, 2000
2000-015

S13A0006               Review of Planning and Evaluation Services' Implementation of the Government Performance and                Nov. 22, 2000
2000-016               Results Act 1999 Performance Reports and 2001 Plans

S13B0005               Quarterly Report on the Promptness of Department of Education Payments to the District of Columbia       February 14, 2001
N/A                    Water Services - Sent to the Chair of the Senate Subcommittee on the District of Columbia

S13B0005               Quarterly Report on the Promptness of Department of Education Payments to the District of Columbia       February 14, 2001
N/A                    Water Services - Sent to the Chair of the House Subcommittee on the District of Columbia

S13B0003               Review of First Class Travel in Student Financial Aid                                                      March 21, 2001
2001-01




                                                                          23
       Appendix 5


                                    Inspector General Issued Audit Reports
                                            with Questioned Costs 1

                                                                            NUMBER              QUESTIONED         UNSUPPORTED2



A.          For which no management decision
            has been made before the commencement
            of the reporting period (as adjusted)*                              40                 $118,743,861        $16,300,638

B.          Which were issued during the
            reporting period                                                     9                    22,566,142         8,611,443

                 Subtotals (A + B)                                              49                 $141,310,003        $24,912,081

C.          For which a management decision
            was made during the reporting
            period                                                              10                  $15,607,746         $7,768,256

            (i) Dollar value of
                disallowed costs                                                                      14,718,146         7,768,256

            (ii) Dollar value of
                 costs not disallowed                                                                   $889,600               $0

D.          For which no management decision
            has been made by the end of the
            reporting period                                                    39                $125,702,257        $17,143,825

E.          For which no management decision
            was made within six months
            of issuance                                                         28                  $67,462,973         $2,501,842




*
    Beginning balance was increased by $7,652. Adjustments made to our database for one audit, ACN A04-A0009
    and for one inspection, N04-70001.
1
    None of the audits reported in this table were performed by the Defense Contract Audit Agency.
2
    Included in questioned costs.




                                                                      24
                                                                                                     Appendix 6


                             Inspector General Issued Audit Reports with
                               Recommendations for Better Use of Funds1


                                                                                 Number              Dollar Value


A.           For which no manager decision
             has been made before the commencement
             of the reporting period (as adjusted)                                   2               $10,410,180

B.           Which were issued during the
             reporting period                                                        0                            0

                         Subtotals (A + B)                                           2               $10,410,180

C.           For which a management decision
             was made during the reporting
             period                                                                  1                 $110,180

             (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                                                         1                  $110,180

D.           For which no management decision
             has been made by the end of
             the reporting period                                                    1               $10,300,000

E.           For which no management
             decision was made within six
             months of issuance                                                      1               $10,300,000




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

                                                                      25
     Appendix 7


                                                            Unresolved Reports Issued
                                                             Prior to October 1, 2000
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 decisions had been made by the end of the reporting period.

Report Number/                                                      Report Title                                                   Total Monetary    Number of
Date Issued                                                (Prior SAR Number and Page)                                                Findings    Recommendations
New Since Last Reporting Period
OFFICE OF THE CHIEF FINANCIAL OFFICER

A02-80002          Recipient Financial Management System Contract Computer Data Systems, Incorporated,                                    $39,565               2
September 22, 2000 Rockville, MD (SAR 41, pg.22)
Status: According to the Office of the Chief Financial Officer (OCFO), funds were recovered and OCFO is working with the Office of Inspector General (OIG) to
resolve this audit.

A07-A0014          Follow-Up Review on Corrective Actions the Department Had Taken in Response to                                            *                  9
September 27, 2000 Issues Reported During the Office of Inspector General's Contract Monitoring Audits of
                   Student Financial Assistance Information Technology Contracts (SAR 41, pg. 22)
Status: OCFO has agreed with some of the recommendations in the report and is exploring options to address the other unresolved issues.

OFFICE OF ELEMENTARY AND SECONDARY EDUCATION
A01-90006          Puerto Rico Department of Education Needs Major Improvements in its Administration of                                  $181,305              18
September 27, 2000 the Even Start Program (SAR 41, pg. 22)
Status: Resolution will be through the Department's Cooperative Audit Resolution and Oversight Initiative.

A01-90007          Puerto Rico Department of Education Needs Major Improvement in its Administration of                                   $82,452               17
September 27, 2000 the Governor's Safe and Drug-Free School Program (SAR 41, pg. 22)
Status: Resolution will be through the Department's Cooperative Audit Resolution and Oversight Initiative.

OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES
A09-A0001          Arizona Department of Education Management Controls Over IDEA, Part B-Special                                             *                  7
September 22, 2000 Education Performance Data (SAR 41, pg. 23)
Status: The Office of Special Education and Rehabilitative Services (OSERS) is working with the Arizona Department of Education to address the issues cited
in the report.

STUDENT FINANCIAL ASSISTANCE
A02-70010     Drake Business Schools Corporation - Refunds of Unearned Tuition, Fees and Other                                            $72,493               11
June 6, 2000  Institutional Charges (SAR 41, pg. 23)
Status: Case team is working with OIG and the Office of the General Council (OGC) on this audit.

A03-90005          Computer Dynamics Institute Incorporated's Eligibility to Participate in the Title IV                              $6,410,913                6
September 15, 2000 Programs (SAR 41, pg. 23)
Status: Case team is working with OIG and OGC on this audit.

A05-90052          Mount Senario College's Administration of the Title IV, HEA Program for the Period                                     $40,942               12
September 14, 2000 July 1, 1998 through June 30, 1999 (SAR 41, pg. 23)
Status: Case team is working with OIG and OGC on this audit.

A05-90054          Audit of the Title IV, Higher Education Act Programs Administered by Cleveland State                                   $86,189               9
September 28, 2000 University, Cleveland, Ohio (SAR 41, pg. 23)
Status: Placed in Administrative stay on March 29, 2001. Case team is working with OIG and OGC on this audit.




* - Non-monetary findings only.
SAR - Semiannual Report
Note: Status comments provided by Department.




                                                                                       26
     Appendix 7


                                                         Unresolved Reports Issued
                                                       Prior to October 1, 2000 (cont.)
Report Number/                                                      Report Title                                                  Total Monetary        Number of
Date Issued                                                   (Prior SAR No. and Pg.)                                                Findings         Recommendations

STUDENT FINANCIAL ASSISTANCE (cont.)
A06-90004      Review of Student Financial Aid Compliance at Success Institute of Business                                           $2,245,416              3
August 7, 2000 (SAR 41, pg. 23)
Status: Case team is working on this audit.

A06-90012                Review of Student Financial Aid Compliance at the International Institute of Chinese                         $66,034                4
August 8, 2000           Medicine (SAR 41, pg. 23)
Status: Case team is working on this audit.


Reported in Previous Semiannual Report
OFFICE OF THE CHIEF FINANCIAL OFFICER
A04-80009      Assessment of Direct Loan Consolidation Program and Administration and Operations by                                        *                 6
May 28, 1999   EDS, Inc. since December 1, 1997 (SAR 39, pg.24)
Status: Student Financial Assistance (SFA) and OCFO have agreed to resolve some of the recommendations in this report. SFA and OCFO will explore the other
recommendations and provide a response.

A07-80018                Audit of Title IV Wide Area Network Contract - National Computer Systems,                                    $249,900               6
May 6, 1999              Iowa City, IA (SAR 39, pg. 4)
Status: All recommendations were addressed in a corrective action plan developed for ACN A07-A0014. OCFO is working with OIG to resolve this audit.

A07-90003                Audit of the Central Processing System Contract                                                               $90,600               5
March 15, 2000           (SAR 40, pg.19)
Status: All recommendations were addressed in a corrective action plan developed for ACN A07-A0014. OCFO is working with OIG to resolve this audit.

A07-90017                Audit of Compliance with Cost Accounting Standards for Travel - National Computer                                 *                 4
March 16, 2000           Systems, Iowa City, IA (SAR 40, pg. 19)
Status: OCFO is in communication with the National Computer Systems (NCS) and has requested copies of revised travel policies.


OFFICE OF ELEMENTARY AND SECONDARY EDUCATION
A02-50200         The Puerto Rico Department of Education Must Institute a Time Distribution System                                        *                 1
November 14, 1997 (SAR 36, pg.13)
Status: Resolution will be through the Department's Cooperative Audit Resolution and Oversight Initiative.


STUDENT FINANCIAL ASSISTANCE
A06-70005      Professional Judgment at Yale University                                                                                 $5,469               3
March 13, 1998 (SAR 36, pg.18)
Status: Case team is awaiting the outcome of another OIG audit that dealt with professional judgment which has been appealed to the Department.

A06-70009                Professional Judgment at University of Colorado                                                               $15,082               4
July 17, 1998            (SAR 37, pg. 17)
Status: Case team is awaiting the outcome of another OIG audit that dealt with professional judgment which has been appealed to the Department.

A06-80013                Hallmark Institute of Aeronautics' Compliance with the 85 Percent Rule                                      $5,204,586              3
March 6, 2000            (SAR 40, pg. 18)
Status: Case team is working with OIG in resolving 85/15 issues.

A06-90011                Review of Collection Activities at Unger and Associates                                                      $833,897               4
February 8, 2000         (SAR 40, pg. 18)
Status: Case team is working on this.




* - Non-monetary findings only.
SAR - Semiannual Report
Note: Status comments provided by Department.




                                                                                      27
     Appendix 7


                                                            Unresolved Reports Issued
                                                          Prior to October 1, 2000 (cont.)
Report Number/                                                         Report Title                                                     Total Monetary              Number of
Date Issued                                                      (Prior SAR No. and Pg.)                                                   Findings            Recommendations

STUDENT FINANCIAL ASSISTANCE (cont.)
A07-23545                 State of Missouri, Single Audit Two Years Ended June 30, 1991                                                     $1,048,768                   18
April 1, 1993
Status: This is a single audit report prepared by the State Auditor of Missouri that covered two years ended June 30, 1991. SFA is in the process of resolving the
Missouri audits. Some of the findings involve political issues and require further discussions.

A07-33123                 State of Missouri, Single Audit Year Ended June 30, 1992                                                           $187,530                    18
March 7, 1994
Status: This is a single audit report prepared by the State Auditor of Missouri that covered the year ended June 30, 1992. SFA is in the process of resolving the
Missouri audits. Some of the findings involve political issues and require further discussions.

A09-10005          California Student Aid Commission: The Commission's Loans in Repayment Were                                             $41,100,000                    5
September 10, 1993 Overstated by $1.5 Billion (SAR 27, pg. 17)
Status: SFA will be issuing a letter to the OIG stating they disagree with the recommendation to remit $16.4 million.

A09-33114         State of California, Single Audit Report Fiscal Year 1990-1991 in Accordance with                                         $4,191,032                    6
December 24, 1993 Federal OMB Circular A-128
Status: This is a single audit report prepared by Office of Auditor General, State of California that covered the period 7/1/90 to 6/30/91. SFA will be issuing a letter to
the OIG stating they disagree with the recommendations.

A09-70015                 Associated Technical College (ATC) Eligibility of Institutions to Participate in Title IV                        $8,600,000                     7
September 9, 1998         Programs & Other Issues (SAR 37, pg. 16)
Status: Case team is working with OIG in resolving 85/15 issues.

A09-80023         Academy Pacific Business & Travel College Eligibility to Participate in Title IV Programs                                $6,649,689                     3
December 21, 1998 (SAR 38, pg. 20)
Status: Case team is working with OIG in resolving 85/15 issues.

A09-90011                 Platt College-San Francisco Administration of Title IV Programs                                                    $191,721                    10
February 28, 2000         (SAR 40, pg. 18)
Status: Case team is working with OIG and OGC since school has to reconstruct its records.

N06-90010                 Inspection of Parks College's Compliance with Student Financial Assistance Requirements                            $169,390                     1
February 9, 2000          (SAR 40, pg. 18)
Status: Case team is working on this.




* - Non-monetary findings only.
SAR - Semiannual Report
Note: Status comments provided by Department.




                                                                                          28
                                                                                      Appendix 8


                                          Investigation Services
                                           Cumulative Actions
              Defendant/                    Indicted/                                Adjudicated
                Subject                   Information        Convicted   Sentenced      Value
SCHOOL CASES
Armijo, Luis                                  X
Bennett, Patti                                X                 X
Bilieandeau, Constantina                      X                 X
Burruss, William                              $                 $           X           $196,798
Carrandy, Mirium                              X
Case, Angela                                  X                 X
Castlevetere, Bruno                           X
Cobb, Orestes                                 $                 X           X            $14,370
Farah, Albert                                 $                 $           X            $19,119
Fields-Ellingboe, Eva                         X                 X
Frost, Alan                                   $                 $           X          $1,919,082
Frost, Ann                                    $                 X
Hall, Linda Higgs                             X                 X
Hampton, Susan                                X
Harmon, Kathyn                                X                 X
Hightower, Cecelia                            X                 X
House, James                                  $                 X
Jackson, Pam                                  $                 $           X            $23,405
Kraus, James                                  X
Long, Cynda                                   X                 X           X             $2,141
Mathis, Sharon                                X
Miller, Kalyne                                $                 $           X          $1,411,729
Nespereira, Elena                             $                 X
Olowu, King                                   X                 X
Sam, Osmara                                   $                 X
Santa, Donna                                  X                 X
Snumpert-Harris, Rochelle                     X
Singh, Rajiv                                  X
Sosa-Funes, Jose                              $                 X
Strain, Daniel                                $                 X
Sumner, Toni                                  $                 $           X             $6,400
Taylor, Daniel                                X
Thorp, Richard                                X
Torres, Alina                                 $                 X
Torres, Gabriel                               $                 X
Torres, Marcial                               $                 $           X          $2,465,631
Valle, Hiran                                  X                 X
Weaver, Judy                                  $                 $           X               $100
Whetstone, Edward                             $                 X
TOTAL VALUE SCHOOL CASES:                                                              $6,058,775




$ - Action reported in previous period.
X- Action reported in current period.                   29
Appendix 8


                                            Investigation Services
                                          Cumulative Actions (cont.)
                Defendant/       Indicted/                              Civil    Adjudicated
                   Subject     Information                 Convicted   Matters      Value
   CONSULTANT AND CLIENT CASES
   Atwater, Regina                                                       X            $9,873
   Bagwell, Antoinette                                                   X            $1,854
   Barnes, Terenya                                                       X            $8,014
   Barry, Shawtora                                                       X           $18,890
   Bell-Johnson, Geraldine          X
   Bluford, Nanielle                                                     X            $5,400
   Boyd, Patricia & Carl                                                 X           $11,550
   Boynes, Lemonica                                                      X           $11,570
   Brady, Anthony                                                        X           $10,340
   Brownlow, Atesha                                                      X           $13,784
   Burnett, Dechazlon                                                    X            $9,104
   Burton, John                                                          X            $4,180
   Carlvin, Antoine                                                      X            $3,658
   Casey, Donald                    X
   Celestin, Horace                 X
   Chappelle, Gloria                                                     X           $16,400
   Chappelle, Grant                                                      X            $9,450
   Chappelle, Katherine                                                  X           $10,875
   Clark, Elizabeth                 X
   Cole, Solithia & Jacqueline                                           X           $13,400
   Cordoza, Mario                                                        X            $1,852
   Cross, Sena & Tyrena                                                  X           $10,600
   Crowder, Chastity                                                     X            $2,056
   Durrell, Erica                                                        X           $13,400
   Duren, Wendy                                                          X            $3,679
   English, Jonel                                                        X           $10,340
   Garner, Patricia                 X
   Goins, Kelli                                                          X           $11,070
   Gooden, Audrea                                                        X            $8,440
   Graham, Dan                                                           X            $1,590
   Gray, Aisha                                                           X           $17,320
   Green, Kenyatta                                                       X            $5,206
   Green, Robert                    X
   Guy, Tanisha                                                          X           $16,720
   Hall, Karen                                                           X            $9,364
   Harper, Kibbi & Dorothy                                               X           $13,000
   Harris, Gloria                   X
   Holloway, Fred                   X                         X
   Hunter, Patrick                                                       X            $6,820
   Jernigan, Rachel                                                      X            $5,359
   Jones, Darnell                   X
   Jones, Jessica                                                        X           $11,340
   Jones, Sharon                    X
   Lacy, Michelle                                                        X            $7,800
   Lockhart, Derrick                                                     X            $2,300
   Lots, Courtney                                                        X            $6,710
   Martin, Emma                     X




$ - Action reported in previous period.
X - Action reported in current period.                30
Appendix 8

                                            Investigation Services
                                          Cumulative Actions (cont.)
                  Defendant/             Indicted/                      Civil    Adjudicated
                     Subject           Information         Convicted   Matters      Value
   CONSULTANT AND CLIENT CASES CONT.
   Martin, Peter                            X
   McCauley, Stephanie                                                   X            $8,790
   Meyers, Timothy                                                       X            $7,080
   Modock, Quentin                                                       X            $4,400
   Norman, Lloyd                            X
   Olsen, Barbara                           X
   O'Connor, Daisy                          X
   Patterson, Latonyna, LaMas & Anita                                    X           $18,480
   Patterson, Llewellyn, Nedra, Nicole                                   X            $9,740
   Perry, Derrell                                                        X            $8,556
   Pugh, David                                                           X           $11,078
   Randle, James & LaToyna                                               X           $14,020
   Ray, Henry                               X
   Rockwell, Kelli                                                       X           $11,920
   Ross, Julia                                                           X            $9,080
   Snipes, Marlon                           X
   Smith, Frances                           X
   Smith, Myles                             X
   St. Clair, Nathaniel                     X
   St. Clair, Lillie                        X
   Stewart, Queen                           X
   Stone, Tamara                                                         X           $18,980
   Taylor, Oscar                                                         X            $6,940
   Tice, Janice                                                          X           $12,120
   Thomas, Burma                            X
   Thompson, Kaylea                                                      X            $8,320
   Waller, Kimberly                                                      X            $4,640
   Ward, Patricia                           X
   Washington, Marcus                       X
   White, Samantha                                                       X            $9,188
   Williams, Marcia                                                      X            $1,990
   Williams, Sean & Loren                                                X           $13,620
   Williams, Viola                                                       X            $2,780
   Yarn, Carol                                                           X            $9,740
   Young, Arthur                            X
   Young, Tyrone                                                         X            $7,620
   TOTAL VALUE CONSULTANT CASES:                                                    $522,390
   CIVIL CASES
   Knauss, James                                                         X           $22,500
   Rappaport, Donald                                                     X           $20,000
   Schroeder, Frederick                                                  X           $31,740
   SLMA Corp.                                                            X        $3,400,000
   TOTAL VALUE CIVIL CASES:                                                       $3,474,240
   ASSET FORFEITURE CASES
   IMPAC AID                                                                         $61,000
   TOTAL VALUE ASSET CASES:                                                          $61,000




$ - Action reported in previous period.
X - Action reported in current period.                31
  Appendix 8



                                              Investigation Services
                                            Cumulative Actions (cont.)
               Defendant/                       Indicted/                                Adjudicated
                 Subject                      Information        Convicted   Sentenced      Value
SFA RECIPIENT CASES
Bauldwin, Linda                                   $                 $           X            $13,287
Doan, Susan                                       X                 X
Doan, Albert                                      X                 X
Doan, Andrew                                      X                 X
Dorcy, Erline                                     X                 X           X             $1,500
Elsayed, Tamer                                    X                 X           X            $31,981
Hansen, Gregory                                   X
Holloway, Bobbie                                  X                 X           X            $27,728
Johnson, Basham                                   X                 X           X            $44,900
Junior, Jermaine                                  X                 X           X                $60
McHenry, JoLynn                                   X
Mova, Houman                                      X                 X
Parra, Alberto                                    X
Perkins, Lisa                                     X
Salama, Badi                                      $                 $           X           $204,118
Tran, Anh                                         X                 X           X            $32,211
Warner-Washington, Jennifer                       $                 X
TOTAL VALUE SFA CASES:                                                                      $355,785
FOREIGN STUDY FFEL PROJECT
Akhtar, Jabir                    $                                  X           X
Heidari, Alieza                  X                                              X
Hines, Sharon                    $                                  X           X            $28,613
Odom, Denise                     X                                              X
Wilson, Patrick                  $                                  X           X           $183,938
TOTAL VALUE FOREIGN STUDY FFEL CASES:                                                       $212,551
NON-SFA CASES
Archeleta, Debra                                  $                 $           X             $2,500
Buckler, Marianne                                 X                 X
Carver, Bruce                                     $                 X
Cousin, William                                   X                 X
Huguet, Edmond                                    $                 X
Mansour, Suray                                    $                 X
McKay, Jimmy                                      $                 X           X            $70,742
Mitchell, Margaret                                X                 X           X            $31,709
Morgan, Lewis                                     X                 X
Morgan, Susan                                     X                 X
Smith, Roy                                        $                 $           X           $152,981
Sinnette, Lynn                                    X                 X           X           $106,847
Vasquez, Christopher                              X                 X           X            $76,497
Yerby, Gerald                                     X                 X
TOTAL VALUE NON-SFA CASES:                                                                  $441,276



  $ - Action reported in previous period.
  X - Action reported in current period.                    32
                                                                                                                                    Appendix 9


                                      Collections from Audits and Investigations


The House Report (H.R. 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 its work. The following tables reflect that information.




AUDIT

                Reports                  Reports    Recommended
              Issued With Quest/Unsupp Quest/Unsupp Quest/Unsupp Management Write-Offs                                Collected/
     FY      Quest/Unsupp Recommended Resolved        Resolved    Decision Adjustments                                Recovered      Balance

    1998            11           $17,011,401               7           $6,125,638         $1,630,691    $0            $1,630,691       $0

    1999            11           $69,804,793               9           $62,905,204        $33,901,896   $0             $73,768     $33,828,128

    2000            21           $72,886,717               8           $57,347,948        $57,130,772   $0            $1,804,374   $55,326,398

    2001             9           $22,566,142               0                   $0              $0       $0                 $0          $0

TOTAL               52           $182,269,053             24          $126,378,790        $92,663,359   $0            $3,508,833   $89,154,526




INVESTIGATION

                                     Fines, Restitutions,                      Amount Collected         Amount Collected            Amount
     FY           Cases1         Settlements and Judgments                      Current Period           Prior Period(s)            Collected

    1998           293                    $48,208,055                                $37,127                 $31,174,373           $31,211,500

    1999           138                    $19,154,906                                $23,441                 $7,080,673            $7,104,114

    2000           148                    $37,311,157                                $9,469                   $27,647               $37,116

    2001            70                    $10,974,577                                $8,077                      $0                  $8,077

TOTAL              649                   $115,648,695                                $78,114                 $38,282,693           $38,360,807




1
    Number of cases for which collection was ordered during the fiscal year.




                                                                                    33
    Appendix 10



                                                    Statistical Profile
                                             October 1, 2000 - March 31, 2001



OIG AUDIT REPORTS ISSUED                                                                    22
Questioned Costs                                                                   $13,954,699
Unsupported Costs                                                                   $8,611,443
Recommendations for Better Use of Funds                                                     $0

OTHER OIG PRODUCTS                                                                          12
 (Inspections, Action Memoranda, Information Reports, Advisory Reports,
 Special Studies, and Field Pricing Reviews)


OIG AUDIT REPORTS RESOLVED BY PROGRAM MANAGERS                                              29
Questioned Costs Sustained                                                          $6,949,890
Unsupported Costs Sustained                                                         $7,768,256
Additional Disallowances Identified by Program Managers                             $3,326,600
Management Commitment to the Better Use of Funds                                            $0


INVESTIGATIVE CASE ACTIVITY
Cases Open                                                                                 133
Cases Closed                                                                                90
Cases Active at End of Period                                                              399
Prosecutorial Decisions                                                                    108
  -Accepted                                                                                 83
  -Declined                                                                                 25


INVESTIGATION RESULTS
Indictments/Information                                                                    64 1
Convictions/Pleas                                                                          54 2
Fines Ordered                                                                         $84,307 3
Restitution Payments Ordered                                                       $7,017,189 4
Civil Settlement/Judgments (#)                                                              54
Civil Settlement/Judgments ($)                                                     $3,996,627
Savings                                                                            $9,927,711




1
    Includes 10 cases that were not reported in the last Semiannual Report.
2
    Includes 13 cases that were not reported in the last Semiannual Report.
3
    Includes $5,000 that was not reported in the last Semiannual Report.
4
    Includes $25,288 that was not reported in the last Semiannual Report.




                                                                              34