oversight

Semiannual Report - October 1, 2004 - March 31, 2005

Published by the Department of Education, Office of Inspector General on 2005-03-31.

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

                                  Semiannual
                                    Report to
                                    Congress
                                       No. 50
                                                   2005
October 1, 2004-March 31, 2005




                                 U.S. Department of Education
                                 Office of Inspector Gener
                                                      General
                                                           alal
                                                              al
  U.S. Department of Education

Office of Inspector General




Semiannual Report to Congress: No. 50
    October 1, 2004 - March 31, 2005
                            UNITED STATES DEPARTMENT OF EDUCATION
                                                OFFICE OF INSPECTOR GENERAL

                                                                                                               THE INSPECTOR GENERAL




                                                                                           April 29, 2005
Dear Madam Secretary:


I am pleased 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 for the six-month period ending March 31, 2005.


This report highlights our most significant work from the last six months, reflecting our strong
commitment and valuable role in assisting the Department in improving its programs and ensuring
their integrity. We look forward to continuing to work with you towards these goals.


The Inspector General Act requires you to transmit this report within 30 days to the appropriate
Congressional committees and subcommittees, together with a report containing any comments you
wish to make. Your report should also include the statistical tables specific in section 5(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(b)(4).


                                                                      Sincerely,




                                                                     John P. Higgins, Jr.

Enclosure



                          400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510
            Our mission is to ensure equal access to education and to promote educational excellence throughout the nation.
                                                           Contents
MESSAGE TO CONGRESS
ACTIVITIES AND ACCOMPLISHMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. EMERGING RISK: ELEMENTARY, SECONDARY AND SPECIAL EDUCATION,
       VOCATIONAL EDUCATION AND TRIO PROGRAMS . . . . . . . . . . . . . . . . . . . . . . 1
  CERTAIN GRANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
     Puerto Rico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
     Virgin Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
     Pacific Rim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
     New Orleans, Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
  OTHER FRAUD CASES IN THESE PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
     Adult Education Program Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
     Vocational/Job Training Program Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
     Funds Diverted to Gubernatorial Campaign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
II. MANAGEMENT CHALLENGES FOR THE DEPARTMENT . . . . . . . . . . . . . . . . . . . . 5
  CHALLENGE: PROCUREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
     Need for Improved Record Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
     Need For Improved Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
     Need For Improved Management in IT Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
     Contract Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
  CHALLENGE: FEDERAL STUDENT AID PROGRAMS                                                                                                       6
     Federal Student Aid Fraud Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
     Direct Consolidation Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
     Professional Judgment Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
     Eligibility Issue Audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
     Identity Theft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
     Fraud by School Officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
     Fraud by Program Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
     Fraud by Individuals Employed by Companies Involved in Federal Student Aid Programs 10
     Congressional Hearings on Fraud and Abuse in FSA Programs . . . . . . . . . . . . . . . . . . . . . . 11
  CHALLENGE: PROGRAM PERFORMANCE AND ACCOUNTABILITY                                                                                            11
     No Child Left Behind. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
     TRIO Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
     Individuals With Disabilities Education Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
     Department's Audit Follow-Up Process With External Auditees . . . . . . . . . . . . . . . . . . . . . 14
  CHALLENGE: INFORMATION TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
     FISMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
     COD System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
  CHALLENGE: FINANCIAL MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
     Financial Statement Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
     Congressional Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
  CHALLENGE: HUMAN CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
 III. OTHER ACTIVITIES AND ACCOMPLISHMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
     Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
     National Single Audit Sampling Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
     President's Council on Integrity and Efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
                              INSPECTOR GENERAL’S
                              MESSAGE TO CONGRESS

We are pleased to provide this semiannual report on the activities and accomplishments of the Office of
Inspector General (OIG), U.S. Department of Education (Department) from October 1, 2004 to March 31,
2005. This is the 50th semiannual report OIG has submitted to the U.S. Congress, and the feedback we
have received from both chambers over the last 25 years has helped enable OIG to function as the
Congress intended.

During this reporting period, OIG issued 123 audits, inspection reports and memoranda, and closed 95
investigations. As detailed in this report, we continue to leverage our very limited resources on the
programs and operations that we judge to present the greatest risk to the efficient and effective
accomplishments of the Department's mission. We also began initial audits into the diverse programs
associated with the No Child Left Behind Act (NCLB), identifying whether the programs are
accomplishing their purpose, and providing recommendations to the Department to help ensure that they
do.

While we continue to devote a significant portion of our resources to the very large and complex federal
student aid programs, we are identifying emerging areas of risk in other programs. This report covers
those areas where we have identified increased risks, and highlights the need for closer monitoring and
greater accountability by the Department and its program participants. Other areas of emerging risk
discussed in this report largely correspond to the management challenges that we have identified for the
Department, including procurement, federal student aid programs, program performance and
accountability, information technology, financial management, and human capital.

Thanks to the hard work and effort by employees past and present, OIG has capably fulfilled its mission for
the last 25 years. We have made a positive difference in assisting the Department in ensuring the integrity
of its operations and improving its programs in order to provide the best service to the American public.
And, while we take a moment to celebrate our 25th anniversary, we remain ever vigilant. We look forward
to working with the 109th Congress and the Secretary in furthering our goals and achieving our mission.


                                                       John P. Higgins, Jr.
                                                       Inspector General
Activities and Accomplishments
              The Office of Inspector General (OIG) for the period October 1, 2004 through March 31,
              2005 continued its work to improve and protect the integrity of the programs and
              operations of the Department. To leverage our limited resources, OIG focuses on the
              programs and operations that we judge to present the greatest risk to the efficient and
              effective accomplishment of the Department's mission. Traditionally, this risk-based
              approach has resulted in the commitment of most of our resources to the very large and
              complex federal student aid programs.

              In recent years, however, we have noticed that problems in other Department programs are
              demanding more of our attention. Specifically, based upon the work reported below, we
              have identified certain grantees, and elementary, secondary, special education and
              vocational education programs as exhibiting emerging risk. Our work in this area is
              covered in the first section of this report.

              Not surprisingly, these areas of risk largely correspond to the management challenges that
              we have identified for the Department pursuant to the Reports Consolidation Act of 2000,
              P. L. 106-531. These management challenges are procurement, federal student aid
              programs, program performance and accountability, information technology, financial
              management and human capital. In the second section of this report, we highlight our
              most significant work this reporting period relating to the remaining management
              challenges. We also include in Appendix 1, our entire Management Challenges document
              that appeared in the Department's FY 2004 Performance and Accountability Report, dated
              November 12, 2004. We close the report with other activities and accomplishments,
              particularly our increased involvement and leadership on the President's Council on
              Integrity and Efficiency (PCIE.)

              Detailed information on the issues and actions discussed in this report is available on our
              website at http://www.ed.gov/about/offices/list/oig.

              I. EMERGING RISK: ELEMENTARY, SECONDARY AND
                 SPECIAL EDUCATION, VOCATIONAL EDUCATION
                 AND TRIO PROGRAMS
              CERTAIN GRANTEES
              We have directed and increased OIG resources in reviewing alleged waste, fraud and abuse
              in a number of the Department's elementary, secondary, special education, vocational
              education and TRIO programs. These programs are aimed at improving education and
              promoting educational excellence for America's children across the country and
              throughout our nation's territories. Below you will find a number of examples of our work
              in this arena, grouped by geographic location.

PUERTO RICO   We continue to identify and provide recommendations for improving fiscal and integrity
              issues at the Puerto Rico Department of Education (PRDE), which the Department placed
              under a Compliance Agreement in October 2004. During this reporting period, we



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                 concluded three audits involving accountability and expenditures of program funding
                 dollars.

                 Special Conditions For Grant Awards

                 As a result of the fiscal and integrity issues at PRDE, grants to PRDE are awarded with
                 special conditions that help ensure that the grants are expended in accordance with
                 applicable legal requirements and with appropriate fiscal accountability measures,
                 management practices and controls. An OIG audit on repeated single audit findings for
                 PRDE disclosed that a number of conditions were not incorporated, and we recommended
                 that they be so for future grants. These include controls on property and equipment and
                 cash management, and improved accounting records. The Department agreed with our
                 recommendations and added special conditions on future PRDE grants to address the
                 issues identified in our audit. (ED-OIG/A02-E0016; December 15, 2004)

                 Migrant Education Program

                 A review of PRDE's Migrant Education Program (MEP) grant determined that a
                 significant number of students enrolled did not meet the eligibility criteria for the program,
                 resulting in grant funds not being used for the intended purpose. Of the 171 students
                 whose files we reviewed in our sample, not one met MEP eligibility criteria. We
                 recommended that the Department require PRDE to return a portion of its MEP funding,
                 and establish controls to ensure officials follow federal requirements when enrolling
                 students in the program. We also recommended PRDE verify the eligibility of all students
                 currently enrolled in the MEP that were not included in our sample, and return to the
                 Department any funds received on the basis of ineligible students. In general, PRDE
                 agreed with our findings and recommendations, and is working with the Department to
                 prepare a corrective action plan so that MEP funds are spent in accordance with federal
                 requirements. (ED-OIG/A02-E0019; March 30, 2005)

                 Special Education Services

                 We conducted an audit to determine if special education students in Puerto Rico received
                 evaluation, therapy and transportation services that PRDE contracted and paid for with
                 federal funds, and if PRDE followed federal and state laws and regulations in procuring
                 special education program services. We found PRDE to be in compliance in most areas,
                 with the exception of the Bayamón region, where PRDE approved payments for
                 transportation services without verifying whether these services were provided to special
                 education students. The transportation contracts awarded to that region totaled over $5
                 million for July 1, 2002-June 30, 2003. Based on our findings, we made a number of
                 recommendations regarding improving controls. While PRDE officials disagreed with the
                 conclusion of the report, they have agreed to monitor the Bayamón region over the next
                 several cycles and will provide additional training to the Island-wide and regional
                 monitors. (ED-OIG/A02-E0009; December 14, 2004)

VIRGIN ISLANDS   In 2002, the government of the Virgin Islands (VI) and the Department entered into a
                 comprehensive, three-year Compliance Agreement (Agreement) to develop integrated and
                 systematic solutions to problems in managing federal education funds and programs. As
                 the Virgin Islands Department of Education (VIDE) is designated a high-risk grantee, the


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               Agreement was a means of ensuring continued funding for programs to improve education
               for the students of VI, while establishing clear goals in four critical areas: (1) program
               planning, design and evaluation; (2) financial management; (3) human capital; and (4)
               property management and procurement. During this reporting period, we conducted an
               audit to evaluate VI's progress in meeting the Agreement's Year One goals, and to assess
               the likelihood of the VI being on target to meet the goals for Years Two and Three. We
               found that although the VIDE and the VI government have made progress, less than one-
               third of the major actions steps identified for Year One have been completed. As a result,
               they are not on target to meet the goals for Years Two and Three for three of the four areas
               listed above. VI and VIDE agreed with a number of our findings and recommendations,
               several of which they are currently implementing. (ED-OIG/A02-D0028; February 15,
               2005)

PACIFIC RIM    Based on information from an OIG investigation, in January 2005, the former director of
               the American Samoa Department of Education pled guilty to a criminal information,
               charging him with one count of conspiracy to commit bribery and fraud concerning federal
               programs. The former director was responsible for the management and distribution of
               food and goods used for feeding children in the American Samoa Public School System.
               Evidence from our investigation showed that he and his co-conspirators devised a scheme
               to defraud the U.S. Territory of American Samoa, the Department, and other federal
               agencies of at least $61,000 by agreeing to fraudulently award education contracts to
               companies in exchange for over $9,000 in cash and goods.

NEW ORLEANS,   Orleans Parish Cannot Account for Title I Funds
LOUISIANA
               An audit to determine whether the Orleans Parish School Board (Orleans Parish), through
               the New Orleans Public Schools, properly accounted for and used Elementary and
               Secondary Education Act of 1965, as amended (ESEA), Title I, Part A (Title 1) funds,
               revealed that Orleans Parish did not do so for nearly $69.3 million of Title I funds. We
               recommended that the Department instruct the Louisiana Department of Education (LDE)
               to provide sufficient documentation to support expenditures or refund the unsupported
               amount to the Department. We also recommended that LDE require Orleans Parish to
               establish a formal management control system to ensure costs charged to Title I and other
               federal education grants are properly accounted for and used in accordance with applicable
               laws and regulations. In a memorandum, we advised the Department of the need to
               designate Orleans Parish a high-risk grantee and impose special conditions on current and
               future federal awards. LDE notified the Department that beginning July 1, 2004, it would
               designate Orleans Parish as high-risk. In response, the Orleans Parish Superintendent
               stated that he understood the seriousness of the high-risk status and intended to adhere
               totally and completely to all conditions, procedures and performances. (ED-OIG/A06-
               E0008; February 16, 2005)

               Orleans Parish Kickback Scheme

               OIG, the Federal Bureau of Investigation (FBI) and the New Orleans Police Department
               developed evidence that an Orleans Parish payroll clerk conspired with Orleans Parish
               teachers, secretaries and para-educators to submit fraudulent travel reimbursements,
               stipend payments and payroll checks in exchange for a kickback of 50 percent of the



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                 illegal payments. Seven former employees of Orleans Parish have pled guilty for their
                 involvement in the $70,000 kickback scheme.

                 New Orleans Talent Search Program, Inc.

                 Our review of the New Orleans Talent Search Program, Inc. (NOETSP) revealed that
                 NOETSP materially failed to comply with the Higher Education Act of 1965, as amended,
                 specifically regulations governing the Talent Search Program, and that during the period of
                 September 1, 1998 through December 31, 2002, did not properly account for over $1.9
                 million in program funds. We made several recommendations to the Department,
                 including a requirement that NOETSP return questioned costs of over $1.9 million, and
                 that the Department take appropriate action to protect future Talent Search funds.
                 NOETSP disagreed with our findings, and submitted an explanation and various exhibits
                 to support its position. After carefully assessing NOETSP's response, we did not change
                 our findings or recommendations. (ED-OIG/A06-D0015; October 21, 2004)

                 OTHER FRAUD CASES IN THESE PROGRAMS

ADULT            An OIG, FBI and Internal Revenue Service (IRS) investigation developed evidence that
EDUCATION        the former director at the Sister Clara Muhammad School in Philadelphia, Pennsylvania
PROGRAM FRAUD    and her co-conspirators, including the former director of adult basic education at the
                 Community College of Philadelphia and her son, organized a scheme to receive public
                 funds for adult basic education courses that were not held, and for which teachers were
                 paid without teaching. Most of the individuals involved in the conspiracy have been
                 convicted. The former Community College director is still under indictment. Her trial
                 was severed and has not been held. Another indictment of one of the co-conspirators was
                 dismissed by the judge, and the U.S. Attorneys Office has not decided whether to re-indict.
                 To date, a total of four individuals have been convicted.

VOCATIONAL/      Four former officials of the Massachusetts Career Development Institute (MCDI) were
JOB TRAINING     found guilty of various felony charges, including conspiracy, wire fraud, program fraud,
PROGRAM FRAUD    and making false statements. Two of the officials were also found guilty of obstruction of
                 justice charges. MCDI is a quasi private/public department of the City of Springfield,
                 Massachusetts that receives federal grants for educational and job training programs. Our
                 investigation revealed that the former officials engaged in a conspiracy involving "no-
                 show" and "partial show" employees, altered timesheets and made false statements to
                 federal agents during interviews.

FUNDS DIVERTED   A former Deputy State School Superintendent of the Georgia Department of Education
TO               (GDOE), a former Federal Programs Manager for GDOE, a former CFO of an Atlanta
GUBERNATORIAL    company that received federal education grant awards, and the former manager of a
CAMPAIGN         gubernatorial candidate's campaign have pled guilty and are awaiting sentencing in
                 connection with a scheme to funnel federal grant monies through a computer consulting
                 company into the gubernatorial candidate's 2002 campaign. One of the indicted
                 individuals acknowledged that he and the others conspired to award contracts to a private
                 company for the purpose of diverting those monies to the political campaign of a
                 gubernatorial candidate, who was a former Superintendent of Georgia State Schools. At
                 the time of the financial transactions, the contracting company and several subsidiaries


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             were awarded over $500,000 in state contracts derived from federal grants for the purchase
             of computer licenses and services. The software and services were to be delivered to
             several GDOE programs, including the Atlanta Area School for the Deaf, and the
             Governor's Honors Program. The four individuals have pled guilty to one or more of the
             following charges: conspiracy, theft of funds, wire fraud, making false statements to
             federal officials, attempting to harass or influence a witness, or structuring of financial
             transactions to funnel cash contributions to political campaigns. Three others have been
             indicted and are awaiting trial.

             II. MANAGEMENT CHALLENGES FOR THE DEPARTMENT
             Pursuant to the Reports Consolidation Act of 2000, OIG identifies management challenges
             the Department faces. These challenges are long-term management issues that require the
             continued focus and commitment of the Department. By aggressively addressing these
             challenges, the Department can enhance program efficiency and effectiveness, eliminate
             serious operational problems, decrease fraud, waste and abuse, and achieve substantial
             savings. For this reporting period, OIG identified the Department's top management
             challenges as: (1) procurement; (2) federal student aid programs; (3) program performance
             and accountability; (4) information technology (IT); (5) financial management; and (6)
             human capital.

             CHALLENGE: PROCUREMENT
             A large portion of the Department's contract dollars are directed towards IT systems to
             support its diverse programs. With growing improvements in technology, the Department
             requires more sophisticated goods and services from outside sources in order to
             successfully carry out its programs. This amplifies its exposure to risk if those contracts
             are not properly managed. Identifying and implementing measures to contain and reduce
             costs through more careful spending and assessing, and making changes to contract
             processes are vital to the Department's ability to effectively and efficiently operate and
             deliver its programs and services. OIG completed a number of audits in the area of
             procurement to help the Department identify and eliminate risk in this area.

NEED FOR     In an audit involving payments by the Department's Federal Student Aid (FSA) office to
IMPROVED     private collection agency contractors, we were unable to achieve our original objective of
RECORD       assessing the accuracy of payment calculations or the appropriateness of payments made
KEEPING      due to inadequately maintained computer files. We did learn, however, that the
             Department made incentive payments to contractors totaling over $900,000 that were not
             consistent with the terms of the task orders. Based on our findings, we recommended that
             the Department significantly improve internal controls over its invoice preparation
             process, and assure that the payments made to the contractors are in accordance with the
             terms of the task orders. The Department concurred with our findings. (ED-OIG/A19-
             D0005; February 18, 2005)

NEED FOR     An audit reviewing an approximately $5.9 million, cost-reimbursement contract for
IMPROVED     services provided to the Department's Institute of Education Sciences pertaining to its
MONITORING   Educational Resources Information Center (ERIC), determined that Department staff did
             not effectively monitor the funds collected by the contractor for public sales of ERIC


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                products. As a result, the Department did not have assurance that funds received were
                safeguarded to the level intended. Additionally, the Department could have reduced
                amounts it will have to reimburse the contractor caused by losses associated with the sales
                of ERIC products. ERIC is a national information system providing public access to
                education literature and resources. (ED-OIG/A19-E0016; January 14, 2005)

NEED FOR        IT is a critical component of the Department's operations, as it must be capable of ensuring
IMPROVED        the availability, confidentiality and integrity of the data each system contains. Two audits
MANAGEMENT IN   concluded this reporting period identified a need for improvement in the Department's
IT CONTRACTS    management of critical aspects of IT contracts.

                Certification and Accreditation Processes

                An audit determined that Department staff did not effectively manage the certification and
                accreditation (C&A) contract, leading to inadequate tracking and inspection of
                deliverables, unauthorized instructions to the contractor, and undocumented evaluations of
                contractor-submitted reports. As a result, the Department paid for deliverables that were
                not provided, or did not meet acceptance criteria. We also found that the Performance
                Work Statement for the contract did not require sufficient documentation to support C&A
                recommendations and decisions. Based on our findings, we made several
                recommendations to the Department to improve its contract management process and
                correct the weaknesses we identified. The Department did not agree in whole with our
                findings, but did concur with six of our seven recommendations. (ED-OIG/S19-E0015;
                December 17, 2004)

                System Development Processes

                The FSA Common Origination and Disbursement (COD) system provides a platform and
                record for postsecondary schools to originate and distribute federal student aid funds for
                the William D. Ford Federal Direct Loan and Federal Pell Grant programs, and simplifies
                the process for schools to obtain federal student aid for students. An OIG audit revealed
                significant system interface issues, processing problems that impacted end users, and
                lengthy resolution timeframes, indicating ineffective system development processes. We
                also determined that the COD C&A process did not adequately identify residual system
                risks. Based on our findings, we made a series of recommendations to address the
                weaknesses identified during our evaluation, a number of which the Department concurred
                in, and have already taken specific actions to improve the system. (ED-OIG/A07-E0003;
                January 28, 2005)

CONTRACT        In addition to the work we do to assess the Department's identification and monitoring of
PROPOSALS       its high-risk contracts, OIG conducts "pre-award reviews" of proposals for a number of the
                Department's contracts. Over the last six months, OIG reviewed nine proposals from
                contractors covering five pending awards, resulting in excess of $1.7 million in
                recommended reductions to proposed contract costs.




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                CHALLENGE: FEDERAL STUDENT AID PROGRAMS
                As FSA awards approximately $69 billion annually and oversees a loan portfolio
                approaching $400 billion, we continue to direct a significant portion of our investigative
                and audit work to FSA programs. In 2004, the Government Accountability Office (GAO)
                removed the program from its high-risk category, however, due to the inherent risks of
                these programs, we continue to investigate and identify fraud and abuse by program
                participants, as well as weaknesses in program administration.

FEDERAL         In December, OIG and FSA leaders and staff launched an in-house Fraud Initiative. Team
STUDENT AID     members identified areas that appeared to have an elevated risk of exposure to fraud and
FRAUD           abuse. They selected three key issues to focus on during the first phase of the project: (1)
INITIATIVE      Free Application for Federal Student Aid (FAFSA) Falsification; (2) Identity Theft, and
                (3) School-Risk Factors. Three teams comprised of OIG and FSA experts were created to
                work on each individual issue. The teams will meet throughout the year to discuss each
                issue, assess the risks, review legal and regulatory matters, and produce work plans with
                timelines and milestones for addressing these issues. Additional areas of risk specific to
                the loan program will be evaluated later this year.

DIRECT          The Department's Direct Consolidation Loan (DCL) program allows students to refinance
CONSOLIDATION   any or all of their eligible outstanding federal student loans and create a single new loan.
LOANS           Through an audit, we learned that the Department's DCL procedures did not ensure that all
                of an applicant's loans would be consolidated if a loan holder failed to return a Loan
                Verification Certificate (LVC) timely or failed to provide all the information requested on
                the LVC. A loan holder has 10 business days after receiving a written request for an LVC
                to provide the requesting lender with a completed LVC or, if it is unable to certify, a
                written explanation as to the reason why the holder is unable to provide the information.
                We found that the Department was not enforcing this requirement and provided
                inappropriate guidance when loan holders failed to return timely or complete LVCs. Our
                findings and recommendations included a call for clearer guidance on requirements for a
                Federal Family Education Loan (FFEL) Program loan holder's return of a Direct Loan
                LVC, coordination of administrative actions to address a loan holder's non-compliance
                with LVC requirements, and establishment of an alternative method for consolidating
                loans for which an LVC has not been received. The Department concurred with our
                findings and recommendations. (ED-OIG/A07-D0027; February 10, 2005)

PROFESSIONAL    The Higher Education Act of 1965 governing disbursement of federal student aid funds
JUDGMENT        includes a "professional judgment" provision that allows federal student aid administrators
AUDITS          to make individual adjustments to override a student's dependency status (from dependent
                to independent), to adjust the components of a student's cost of attendance (COA), and to
                adjust the data elements used to calculate the student's Expected Family Contribution
                (EFC) in order to provide the student with additional student aid. Professional judgment
                can be used only on a case-by-case basis and must be documented in the student's file.
                During this reporting period, OIG conducted two professional judgment audits, both
                revealing a lack of substantive documentation that potentially resulted in the over-
                awarding of Pell Grant funds. An audit at Saint Louis University in Missouri determined
                that school under-reported the number of professional judgment actions taken in 2000-
                2002. And in our review of 50 student files for those years, not one contained the adequate


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                 evidence or documentation required to substantiate the professional judgment award.
                 (ED-OIG/A06-D0018; February 10, 2005) Our audit at Salem College in North Carolina
                 revealed the school did not maintain adequate documentation to support professional
                 judgment decisions for 12 of the 64 student files we reviewed. (ED-OIG/A04-E0003;
                 November 8, 2004)

                 As a result of our findings in both audits, we recommended that the Department require the
                 schools to maintain more accurate and complete records, and refund the Pell Grant funds
                 that were over-awarded: over $1.4 million for Saint Louis University, and $26,000 for
                 Salem College. We also recommended that Salem College perform a 100 percent review
                 of professional judgment actions not included in our audit. Officials from both schools
                 disagreed with our findings and recommendations; however we did not change them.

ELIGIBILITY      Our audits at American River College (ARC) in Sacramento, California, and Ivy Tech
ISSUE AUDITS     State College (Ivy Tech) campus in Gary, Indiana disclosed student and program eligibility
                 issues with each school's disbursement of federal student aid funds for career and technical
                 education courses, referred to as vocational education. Both of our audits revealed that the
                 schools awarded grants to students that did not meet eligibility requirements or were
                 enrolled in ineligible programs. Based on our findings, we recommended that the
                 Department require ARC (ED-OIG/A09-D0024; December 1, 2004) to return more than
                 $3 million, and Ivy Tech (ED-OIG/A05-E0013; February 25, 2005) to return over $1.4
                 million in federal student aid disbursements made to ineligible students. We also
                 recommended that the Department direct ARC to implement internal controls to ensure the
                 funds are allotted only to students that meet the appropriate criteria.

IDENTITY THEFT   Together with FSA, we continue our efforts to alert students to the threat of identify theft
                 via our special campaign website, www.ed.gov/misused, that provides information on
                 scams, suggestions for preventing identity theft, and resources on how to report identity
                 theft involving federal education dollars. At the same time, OIG special agents continue to
                 aggressively pursue individuals who steal FSA funds by misusing the identity of others:
                 name, date of birth, and social security numbers.

                 Sentences

                 During this reporting period, an individual was convicted and received a 37-month prison
                 sentence for submitting and attempting to submit thousands of fraudulent federal student
                 loan applications to Citibank Student Loan Corporation. In pleading guilty to his offenses,
                 the defendant admitted to submitting FFEL program applications falsely claiming that he,
                 his brother and his mother were enrolled at a United Kingdom (U.K.) university. Our
                 investigation further revealed that the defendant submitted and/or prepared some 2,370
                 FFEL loan applications requesting disbursement of approximately $43.8 million. Each of
                 these applications was completed using a fictitious identity.

                 A former financial aid director of the University of Puerto Rico (UPR), Cayey Campus
                 was sentenced to home confinement and a year of probation for his role in a federal student
                 aid identify theft scam. Our investigation disclosed that between 1999 and 2003, the
                 former director prepared, certified and forged nine fraudulent FFEL loan applications
                 using the identities of family members and UPR students. He intercepted the FFEL



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            disbursement checks as they were received at the UPR financial aid office, and deposited
            the proceeds of the checks into his personal bank account.

            Guilty Pleas

            A national of India pled guilty to three felony counts of student financial aid fraud, mail
            fraud, and making a false statement to a U.S. government agency. An investigation by
            OIG, FBI, and the Department of Health and Human Services OIG found that the
            individual, who was in the U.S. on a student visa, assumed the identity of a U.S. citizen
            and used it to attend undergraduate schools in Ohio and Tufts University School of
            Medicine in Boston. He received a medical degree from Tufts in May 2000. His scheme,
            which spanned eight years, resulted in federal and institutional student financial aid
            disbursements of approximately $330,000.

            As a result of an OIG investigation, a ring consisting of seven family members entered
            guilty pleas related to their use of identity theft to obtain approximately $400,000 in
            federal student aid funds. Our investigation revealed their effort to use 41 identifies to
            fraudulently obtain the funds. The conspirators completed a number of FAFSAs using
            their own addresses with the identities they obtained, and enrolled these individuals in on-
            line courses at Kirkwood Community College in Cedar Rapids, Iowa.

FRAUD BY    LeMoyne Owen College, Tennessee
SCHOOL
OFFICIALS   Two former employees of LeMoyne Owen College (LOC) in Tennessee and their
            associates have been sentenced, or have pled guilty to embezzlement or conspiracy
            charges, resulting from their participation in student loan kickback schemes. The former
            LOC employees, one an accountant and the other a part-time employee, issued $230,000
            and $80,000 in student loan refund checks to their associates, who then paid kickbacks to
            the employees.

            Instituto de Estetica y Belleza Marugie Inc., Puerto Rico

            The owner and four corporate principals of the Instituto de Estetica y Belleza Marugie,
            Inc. and Marugie Beauty and Technical College, both in Puerto Rico, agreed to pay
            $400,000 to settle claims that they filed false statements and claims for federal student aid
            Pell Grant funds. As a further stipulation, all defendants voluntarily agreed to a lifetime
            exclusion from holding positions with any company or entity participating in Department
            programs.

            William Tyndale College, Michigan

            An officer of William Tyndale College (WTC), pled guilty for his role in conspiring to
            defraud the government out of more than a half-million dollars of federal student aid
            funds. The officer, along with two of his colleagues, purchased a closed Computer
            Learning Center school in 2001 and named the school Tyndale Technical Institute (TTI).
            Our investigation developed evidence that the individuals conspired to use WTC's federal
            student aid eligibility to obtain federal student aid for TTI students, making them appear as
            though they were enrolled at WTC for the purpose of applying for and receiving federal



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               student aid through WTC. The individuals received approximately $535,000 in federal
               student aid funds for TTI students through this scheme.

FRAUD BY       An individual pled guilty to one count of federal student aid fraud. Our investigation,
PROGRAM        based on an FBI referral, disclosed that the individual failed to disclose significant assets
PARTICIPANTS   on his FAFSA and received over $32,000 in state and federal student aid at a university in
               California. The FBI's investigation of the student's father had disclosed a business valued
               at $3,000,000, a home valued at over $400,000 and several bank and investment accounts
               with a total balance of more than $3,000,000, all in the student's name. In January, the
               individual was sentenced to five years probation, including six months home confinement,
               ordered to pay over $31,000 in restitution and fined $100.

               Leaders of a student loan scheme pled guilty to two counts of federal student aid fraud for
               their role in an effort to defraud the Department of $265,000. The leaders created a
               fictitious organization that purported to enroll students from the U.S. at a university in the
               U.K., hired an individual to recruit participants in the scheme, then directed or assisted the
               participants in filing federal student aid applications and promissory notes for purported
               enrollment in the U.K. school. The individuals were to receive over $18,000 each, and
               kick back $10,000 to the leaders. None of the recruited individuals were ever enrolled in
               the school. All the participants in this scheme have pled guilty.

FRAUD BY       A former employee of a collection agency pled guilty to a one-count criminal information
INDIVIDUALS    charging her with mail fraud. A joint OIG and FBI investigation disclosed that the former
EMPLOYED BY    collector devised a scheme to fraudulently consolidate over $564,000 in defaulted FFEL
COMPANIES      loans and in doing so, earned bonus compensation from her employer. She created
INVOLVED IN    numerous loan consolidation applications in the names of various defaulted FFEL
FEDERAL        borrowers and forged their signatures on the applications, and made fictitious entries into
STUDENT AID
               the company's collection history system falsely claiming contact had been made with the
PROGRAMS
               borrowers. The loan consolidation applications made it appear that the defaulted
               borrowers had entered into formal repayment agreements. The defaulted borrowers had
               not agreed to nor authorized the company to make any such loan consolidation
               arrangements.

               A former debt collector was sentenced to 14 months incarceration and three years
               supervised probation, and was ordered to pay over $182,000 in restitution after pleading
               guilty to one count of conspiracy to commit bank fraud. Our investigation developed
               evidence that from April 1999 to June 2000, employees of a debt collection agency
               specializing in collection of defaulted loans allegedly conspired to submit to a bank in
               another state, fraudulent applications for consolidated student loans, to fraudulently
               generate for themselves more than $1 million in commissions. The alleged scheme was to
               misrepresent that the applicants were in repayment status on their prior loans so that they
               would be qualified for new bank loans backed by the Department.

               A former bank employee, after pleading guilty to one count of stealing a postal money
               order, was sentenced to three months incarceration, three months community confinement,
               two months of home detention, 120 hours of community service, three years supervised
               release and was ordered to pay over $67,000 in restitution and $100 special assessment.
               The individual was previously indicted on intent to defraud the U.S. with altered money



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                orders issued by the U.S. Postal Service. The money orders were student borrower loan
                payments mailed to the Department's collections lockbox at a bank in Atlanta.

CONGRESSIONAL                     On March 1st, Deputy Inspector General Thomas Carter testified before the
HEARINGS ON                       U.S. House Committee on Education and the Workforce on the issue of
FRAUD AND                         fraud and abuse in all sectors of schools participating in the federal student
ABUSE IN FSA                      aid programs. Mr. Carter informed the Committee that based on our audits,
PROGRAMS                          inspections and investigations, there remains a need for diligent and
                Testifying before
                the committee     effective oversight by all three of the entities responsible for the integrity of
                                  these programs: (1) state licensing agencies, (2) the accrediting agencies,
                                  and (3) the Department. We found that these entities are not operating as
                effectively as they could be. For example, we have found that the state policies for
                licensing and evaluating schools vary significantly. We have found that accrediting
                agencies do not apply consistent and clear standards for measuring program length or
                student achievement. And we have found inconsistent monitoring and oversight by the
                Department. A copy of Mr. Carter's full testimony is available on our website at: http://
                www.ed.gov/about/offices/list/oig/auditrpts/stmt032005.pdf

                CHALLENGE: PROGRAM PERFORMANCE AND
                ACCOUNTABILITY
                Program measures and reliable data are necessary to determine whether programs are
                accomplishing their purpose. Without this accountability, the Department cannot reliably
                assess how, and how well, the funds it dispenses are used. The results of our initial audits
                into the diverse programs associated with the NCLB confirm the need for the Department
                to ensure accurate and reliable accounting by program participants.

NO CHILD LEFT   Public School Choice & Supplemental Education Services
BEHIND
                Our first audit to assess a state's compliance with the Public School Choice and
                Supplemental Education Services (SES) provision of the NCLB (ESEA, Title I, Part A)
                was launched with the Indiana Department of Education (IDE). Our audit revealed that
                while IDE did not have an adequate process in place to monitor local educational agency
                (LEA) compliance with the Public School Choice and SES provisions of ESEA, it has
                developed policies and procedures that could improve its process for reviewing LEAs
                beyond the 2003-2004 school year. In part, as a result of IDE's inadequate monitoring
                process, five of six LEAs reviewed did not comply fully with the Public School Choice
                and SES provisions of the ESEA and the implementing regulations. We recommended
                that the Department require IDE to provide better instructions to LEAs, and monitor IDE's
                implementation of the planned corrective action during the 2005 school year. IDE
                concurred with our finding and recommendations. (ED-OIG/A05-E0014; February 18,
                2005)

                Unsafe School Choice Option

                In what we anticipate to be the first of a number of similar audits across the country, we
                issued a report on California's compliance with the Unsafe School Choice Option (USCO)
                provision of the NCLB (ESEA, Title IX.) Our audit found that while the California


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Department of Education (CDE) adequately implemented the provision at the state level, it
was not adequately implemented at the four LEAs reviewed in our audit. The four LEAs
reviewed did not report all USCO incidents to the CDE and the LEAs interpreted certain
aspects of the policy differently than CDE. Our recommendations to the Department
included that it require CDE to ensure that the four LEAs reviewed have taken appropriate
corrective actions. We also recommended that CDE take steps to ensure USCO incidents
are accurately reported to CDE, and that CDE confirm definitions and make that
information available to LEAs. CDE concurred with our findings and recommendations.
(ED-OIG/A09-E0025; March 24, 2005)

Accurate Allocation of Funds

An audit of the Georgia Department of Education (GDOE) allocation of ESEA Title I, Part
A funds revealed that that the agency did not maintain adequate supporting documentation
of how it determined the amount of set-aside funds and funds allocated to LEAs. We also
learned that GDOE's Title I allocation guidelines need to be updated to comply with
regulations, and that its procedures are not adequate for reviewing Title I-related findings
identified during monitoring visits and audits of LEAs. We also found the source
documentation for one LEA reviewed did not support the poverty count data that is used to
allocated Title I funds to schools. We recommended that the Department require the
GDOE to implement controls to maintain and safeguard documentation for setting aside
Title I funds and making final Title I grant allocations to LEAs. We also recommended
that GDOE develop up-to-date written procedures and guidelines. In addition, we
recommended that GDOE require the Atlanta Public Schools to recalculate its Title I
allocations for the 2002-2003 school year, and make reparations to the appropriate schools
that did not receive the correct amount of Title I funds. GDOE concurred with the findings
and stated that corrective action would be implemented. (ED-OIG/A04-E0002; November
8, 2004)

Supplementing Program Funds

An audit at the Ohio Department of Education (ODE) revealed that the agency and LEAs
reviewed complied with the maintenance of effort and supplement not supplant
requirements of the ESEA, thus ensuring the schools are using these funds to enhance
operational programs already funded by the state, rather than being used as the sole basis
of funding so that the state funds can be used elsewhere. Our audit, covering the period
July 1, 2003 through June 30, 2004, disclosed that ODE and the six selected LEAs we
audited generally complied with the law and applicable regulations governing
maintenance of effort and supplement not supplant. (ED-OIG/A05-E0027; January 11,
2005)

Accounting Practices

Audits conducted at the Caddo Parish School District (Caddo Parish) and the Beauregard
Parish School District (Beauregard Parish) in Louisiana found that both districts did not
properly account for a combined $1 million-plus in ESEA, Title I, Part A funds. Caddo
Parish, in general, had accounted for and used funds properly; however, it did not properly
account for over $450,000 of Title I salary and fringe benefits costs for the fall term of the
2001-2002 school year expended by all of its six targeted assistance schools. Beauregard


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           Parish did not have the required semi-annual certifications to support over $500,000 in
           expenditures for targeted assistance Title I employees for the 2001-2002 school year. We
           recommended that the Department instruct LDE to require Caddo Parish and Beauregard
           Parish to provide documentation to support the expenditures, or refund those amounts to
           the Department. For Caddo Parish, LDE disagreed with our findings. (ED-OIG/A06-
           E0012; December 7, 2004) For Beauregard Parish, LDE concurred with two of our
           findings and disagreed with two. After reviewing their comments, we did not change our
           findings or recommendations. (ED-OIG/A06-E0017; November 22, 2004)

           Consolidating Funds for School-Wide Programs

           Our initial audit into state compliance with the ESEA provision requiring states to
           encourage schools to consolidate federal, state, and local funding for school-wide
           programs so that schools have more flexibility in how they use those funds, revealed that
           the Missouri Department of Elementary and Secondary Education (DESE) has not
           encouraged schools to consolidate funds. ESEA also stipulates that the state must
           eliminate any fiscal or accounting barriers for schools to consolidate funds for school-wide
           programs. Our review determined that there were no barriers present in the DESE system
           preventing them from complying with this provision. Based on our findings, we
           recommended that the Department require DESE to encourage local educational agencies
           and schools to consolidate funds by providing information on the potential benefits of
           doing so, and provide guidance on how to consolidate funds, and other measures DESE
           deems appropriate. DESE agreed that it had not encouraged consolidating funds in school-
           wide programs. (ED-OIG/A07-E0018; December 20, 2004)

TRIO       The TRIO programs award grants for services are geared to help needy students prepare
PROGRAMS   for advanced education, particularly low income and first-generation college students.
           Established in 1964 as the "Upward Bound" program, TRIO now provides awards for
           multiple programs, including four that were the subject of OIG audits this reporting period:
           Talent Search, Upward Bound, Upward Bound Math and Science, and Student Support
           Services.

           Talent Search Participant Numbers

           An audit determined that many grantees over-stated their funded target populations of
           Talent Search participants. Our review of the Department's TRIO office and issues
           identified by six Talent Search audits revealed that the TRIO office did not maintain
           sufficient internal controls over Talent Search participant numbers because it did not
           properly maintain the records and procedures needed to readily determine the correct
           number of participants planned or provide the monitoring and policy guidance needed to
           ensure accurate reporting of participants served. We recommended to the Department that
           changes be made to the grant award process, including improvements in record-keeping as
           well as enhanced monitoring and policy guidance to improve the accuracy of Talent Search
           participant numbers. The Department indicated that action has been taken to address each
           of the recommendations. (ED-OIG/A07-E0009; February 16, 2005)




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                TRIO Programs at University of Illinois-Chicago

                Following a 2003 audit of a TRIO program at the University of Illinois at Chicago (UIC),
                we conducted audits of three additional TRIO programs at UIC during this reporting
                period: the Upward Bound (UB) project (ED-OIG/A05-D0041; December 20, 2004), the
                Upward Bound Math and Science (UBMS) project (ED-OIG/A05-E0018; December 17,
                2004), and the Student Support Services (SSS) project (ED-OIG/A05-E0002; December
                15, 2004.) In each case, we determined that UIC did not have documentation supporting
                the achievements in each program, did not appropriately account for grant funds, could not
                support all of its expenditures, and charged unallowable costs to each grant. Based on the
                significance of the findings, we recommended that the Department require UIC to return
                over $750,000 of these TRIO funds, and take appropriate action to protect disbursement of
                future TRIO funds. UIC did not agree with all of our findings and recommendations, but
                did agree to return over $34,000 in UB/UBMS funding.

INDIVIDUALS     OIG reviewed a number of Individuals with Disabilities Education Act (IDEA) programs
WITH            and services in schools operated by the Bureau of Indian Affairs (BIA) to determine if
DISABILITIES    IDEA funds were being administered in accordance with applicable laws and regulations.
EDUCATION ACT   The schools involved were: Circle of Nations in North Dakota; two schools in the Eastern
                Navajo Nation, New Mexico; the Turtle Mountain Elementary and Middle School, and
                Turtle Mountain High School in North Dakota. We identified a recurring theme with each
                of these audits: the schools could not demonstrate they provided services and programs in
                accordance with students' individualized education programs to a majority of the students
                in our samples (ranging from 53 percent to 97 percent.) Based on our findings, we
                recommended that the Department instruct BIA to obtain assurance from the schools that
                the IDEA, Part B funds each received (ranging from $1 million to $1.8 million) were used
                in accordance with applicable laws and regulations, that all of the schools involved
                document all special education and related services provided to each current student with
                disabilities, and develop a progress report to inform parents of their child's progress. We
                also recommended that the schools submit corrective action plans to ensure that the
                noncompliance areas we identified are corrected. BIA officials agreed with our findings
                and recommendations for Eastern Navajo (ED-OIG/A06-E0005; December 9, 2004),
                Turtle Mountain High School (ED-OIG/A06-E0010; December 13, 2004), and Turtle
                Mountain Elementary and Middle School (ED-OIG/A06-E0011; December 13, 2004.)
                They did not agree with our Circle of Nations assessment that the school did not have
                procedures in place to demonstrate that services were being provided to children with
                disabilities. (ED-OIG/A06-E0002; December 9, 2004)

DEPARTMENT'S    We examined the effectiveness of the Department's audit follow-up process to ensure that
AUDIT FOLLOW-   external auditees implemented corrective actions as a result of OIG audits. We found that
UP PROCESS      the Department's audit follow-up system was not always effective. We determined that the
WITH EXTERNAL   Office of the Chief Financial Officer (OCFO) Post Audit Group (PAG), did not fulfill its
AUDITEES        responsibility to ensure that Principal Office (PO) Action Officials had systems in place to
                follow-up on corrective actions, or monitor the Department's compliance with Office of
                Management and Budget (OMB) Circular A-50, and could not ensure the overall
                effectiveness of the Department's audit resolution and follow-up system. In total, we
                found that audit follow-up activities were not effective for 17 of the 46 audits reviewed.
                As a result, the Department did not have assurance that requested corrective actions were
                completed for 40 of the 239 recommendations reviewed. We also found that PO staff


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             closed some audits prior to completion of corrective actions. As a result, PAG was no
             longer tracking audits for which all corrective actions had not been completed, and these
             audits were underreported to Congress. The Department generally concurred with our
             findings and most of the recommendations. (ED-OIG/A19-D0007; March 31, 2005)

             CHALLENGE: INFORMATION TECHNOLOGY
             Work concluded this reporting period identified improvements that are necessary for the
             Department to ensure its systems' security and to meet federal government as well as
             Department goals.

FISMA        The Federal Information Security Management Act of 2002 (FISMA) requires the
             Department to conduct an annual program review to assess the effectiveness of its overall
             information IT security. Our independent evaluations of agency-wide as well as PO-
             specific information security plans, programs and practices determined that the
             Department has not fully implemented an agency-wide information security plan and
             program in accordance with FISMA. We made a number of recommendations to the
             Department on improving its IT security plans, programs, and practices, and for addressing
             the security weaknesses identified during our review. Our recommendations were aimed
             at ensuring that the Department's information resources are consistently and adequately
             protected from unauthorized disclosure, disruption, modification, or destruction. The
             Department generally concurred with the findings, but did not concur with our conclusion
             regarding whether certain weaknesses identified constitute a significant deficiency in the
             Department's information security program.

COD SYSTEM   In 2002, FSA launched the COD system -- integrating Pell and Direct Loan processes,
             offering schools easy access to accurate and integrated student and program records. Our
             2004 audit determined that the contractor has not implemented an effective software
             development process to ensure that the COD solution is fully meeting its system
             integration and customer service improvement goals. We also determined that the COD
             C&A process did not adequately identify residual system risks, and that Department
             officials lacked access to information essential for developing and supporting their risk
             assertions at the time of formal system certification and accreditation. We made a number
             of recommendations to the Department on improving COD life cycle methodology,
             periodically performing network vulnerability scans on the COD as well as other
             Department systems, and identifying system security risks that may impact the safe
             operation of the system. The Department concurred with all findings and
             recommendations. (ED-OIG/A11-D0004; November 5, 2004)

             CHALLENGE: FINANCIAL MANAGEMENT
             Financial accountability is inextricably linked to program integrity and effectiveness.
             Without accurate and timely financial information, the Department cannot reliably assess
             how, and how well, the billions of dollars in education program and operational funds it
             disburses and spends are used.




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FINANCIAL       We transmitted final audit reports covering the Department's and FSA's FY 2004
STATEMENT       comparative financial statements ahead of the November 15 due date. Ernst & Young,
AUDITS          LLP, Certified Public Accountants (E&Y), conducted the audits that we monitored to
                ensure compliance with Government Auditing Standards and their timely completion.
                Both the Department and FSA earned an unqualified opinion on their comparative
                financial statements. The Report on Internal Control for both noted reportable conditions
                covering credit reform estimation and financial reporting processes, and controls
                surrounding information systems. The Report on Compliance with Laws and Regulations
                for both entities noted that E&Y's testing disclosed no instances of noncompliance,
                exclusive of the Federal Financial Management Improvement Act of 1996 (FFMIA), that
                are required to be reported, but did note that both the Department's and FSA's financial
                management systems did not substantially comply with certain systems requirements of
                the FFMIA due to the control weaknesses surrounding information systems.

CONGRESSIONAL   During this reporting period, OIG provided requested information to the Education and the
REQUEST         Workforce Committee of the U.S. House of Representatives. Chairman John Boehner
                asked OIG for an official accounting of Department funding that is returned to Treasury
                after having lapsed. OIG staff provided Chairman Boehner with information regarding
                Department budget authority that was canceled in FY 2002 and FY 2003 and is no longer
                available for obligation or expenditure for any purpose. Similar information about FY
                2004 cancellations was also provided to Chairman Boehner after final executed budget
                information became available for FY 2004.

                CHALLENGE: HUMAN CAPITAL
                Mirroring a government-wide trend, approximately 33 percent of the Department's
                employees will be eligible for retirement in 2006, signaling the potential for significant
                loss of information and knowledge about Department programs and operations. The
                President's Management Agenda (PMA) recognized the importance of capturing the
                knowledge and skills of retiring employees, and it also acknowledged the importance of
                knowledge management (KM) generally as a part of an effective strategy geared towards
                generating, capturing and disseminating knowledge and information within an
                organization. GAO has identified specific ways in which KM can assist human capital
                management, including supporting matrix management and coordination across an
                organization, supporting knowledge sharing and enhanced professional development, and
                improving recruitment and retention.

                In September 2004, the Department released its Human Capital Plan. While the plan
                references the Office of Personnel Management's (OPM) Human Capital Standards for
                Success, our review determined that the Department has yet to articulate how KM will be
                used as a tool by the Department to support the plan, particularly in the areas of workforce
                and succession planning. Based on our review of the Department's KM initiatives and best
                practices from other federal agencies, we recommended that the Department articulate a
                KM strategy, and implement action steps identified by the Department, specifically
                sharing and promoting successful KM initiatives already underway. (ED-OIG/I13-E0022;
                January 12, 2005)




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                                                                    Semiannual Report To Congress: #50

                III. OTHER ACTIVITIES AND ACCOMPLISHMENTS

NONFEDERAL      Participants in Department programs are required to submit annual audits performed by
AUDITS          independent public accountants (IPAs). We perform quality control reviews (QCRs) of
                these audits to assess their quality. We completed 30 QCRs of audits conducted by 30
                different IPAs, or offices of firms with multiple offices. We concluded that 11 (37 %)
                were acceptable, 14 (47%) were technically deficient, and 5 (16%) were substandard. We
                also made referrals of four IPAs to appropriate State Boards of Accountancy and the
                American Institute of Certified Public Accountants for possible disciplinary action. The
                four referrals were made for substandard work based on QCRs reported in a prior
                semiannual report.

NATIONAL        OIG is leading an intergovernmental project to accurately assess the quality of audits
SINGLE AUDIT    conducted under the Single Audit Act (Public Law 104-106), using statistical sampling.
SAMPLING        During this period, the core work of the project began with a three-day training session
PROJECT         conducted in October 2004 for staff who are conducting QCRs of 208 audits selected for
                review in the project. The staff then began conducting the Project QCRs, which will
                continue through October 2005.

PRESIDENT'S     Audit Committee
COUNCIL ON
INTEGRITY AND   The IG was appointed Chairman of the President's Council on Integrity and Efficiency
EFFICIENCY      (PCIE) Audit Committee in the summer of 2004. There were a number of activities
                successfully coordinated during this reporting period, and we report on those items below.

                Management's Responsibility for Internal Control

                The Audit Committee assisted OMB in its effort to revise OMB Circular A-123 to
                strengthen the requirements for management's responsibility to maintain effective internal
                control over financial reporting and to annually assess its effectiveness. The circular was
                issued in December 2004 and will be in effect for FY 2006. In his capacity as Chair, IG
                John P. Higgins, Jr., testified before the House Subcommittee on Government
                Management, Finance, and Accountability on the revised circular and the importance of
                effective internal control over financial reporting. Mr. Higgins' full testimony is available
                on our website at: http://www.ed.gov/about/offices/list/oig/auditrpts/stmt022005.pdf

                Inspector General Auditor Training Institute

                The Audit Committee oversees the Inspector General Auditor Training Institute (IGATI.)
                During this period, the Committee approved IGATI's move to new space, where it will be
                co-located with other PCIE training academies. The move will save an estimated
                $140,000 over the prior lease. Under the direction of the Committee, the Federal Audit
                Executive Council established a board to review the curriculum of IGATI to assure that it
                is meeting the needs of the Inspector General (IG) community.

                PCIE/GAO Financial Audit Roundtable

                The Audit Committee organized and hosted the second PCIE/GAO Roundtable in March,
                to discuss issues and share experiences associated with the FY 2004 financial statement
                audit process. FY 2004 was the first year that both the due date for agency audited


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                                                                      Semiannual Report To Congress: #50

                 financial statements was accelerated to 45 days after year-end, and for auditing the new
                 closing package financial statements that are prepared to facilitate the preparation of the
                 financial statements of the U.S. Government. Participants included representatives from
                 the IG community, the certified public accounting community, GAO, OMB, and
                 Department of Treasury.

PCIE IT          OIG became the sponsor of the PCIE IT Roundtable in June 2004. The PCIE IT
ROUNDTABLE       Roundtable is an inter-agency forum to share knowledge, procedures, and techniques to
                 aid in facilitating effective IT audits, evaluations, and investigations by IGs, and providing
                 a vehicle for the expression of the IG community's perspective on government-wide IT
                 operations. The Roundtable met in November 2004 to discuss the fast moving OMB-
                 sponsored Lines-of-Business (LoB) electronic government initiatives and FY 2004
                 FISMA results. The Roundtable met a second time in February 2005 to discuss recent
                 trends in the cyber world. These topics included federal prosecution of phishing cases,
                 peer-to-peer (P2P) Networks, and issues relating to authentication of electronic evidence.

                 During this report period, PCIE IT Roundtable members also developed, circulated, and
                 completed a ten question FISMA Survey. While the specific results from an agency or
                 department were not published, a list of all participating agencies or departments is a part
                 of the results. The survey identified areas of concern and should serve as feedback to
                 OMB with regards to this year's upcoming FISMA reporting directions.

INVESTIGATIONS   In November 2002, the U.S. Congress granted special agents assigned to the various OIGs
PEER REVIEWS     across the government statutory law enforcement authority. OIG special agents previously
                 exercised law enforcement through a deputization program with the U.S. Marshal's
                 Service. As part of the grant of statutory law enforcement authority, Congress required the
                 IG community to develop and implement an external review process to monitor and
                 evaluate the exercise of this authority. Peer reviews would ensure the OIGs have adequate
                 internal controls for individuals who exercise statutory law enforcement.

                 Agents from the Small Business Administration OIG evaluated our Investigations
                 Services. We did very well in our first-ever peer review. The written report, which goes to
                 the U.S. Attorney General, stated that the Department’s OIG Investigative Services is in
                 full compliance with no findings. OIG, in-turn, conducted its first-ever peer review of the
                 Department of Energy OIG.




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                                                                                 Semiannual Report To Congress: #50

Reporting Requirements of the Inspector General Act, as amended
                                                                                                Table      Page
  Section                                       Requirement                                    Number     Number
5(a)(1) and
              Significant Problems, Abuses, and Deficiencies
5(a)(2)
              Activities and Accomplishments                                                                 1

5(a)(3)       Uncompleted Corrective Actions
              Recommendations Described in Previous Semiannual Reports on Which Corrective
                                                                                                  1          20
              Action Has Not Been Completed
5(a)(4)       Matters Referred to Prosecutive Authorities
              Investigation Services Cumulative Actions (October 1, 2004 to March 31, 2005)       7          33
              Statistical Profile                                                                 8          38
5(a)(5) and
              Summary of Instances Where Information Was Refused or Not Provided
6(b)(2)
5(a)(6)       Listing of Reports
              OIG Audit Services Reports on Department Programs and Activities                    2          21
              Other OIG Reports on Department Programs and Activities                             3          25
5(a)(7)       Summary of Significant Audits
              Activities and Accomplishments
5(a)(8)       Audit Reports Containing Questioned Costs
              Inspector General Issued Audit Reports with Questioned Costs                        4          26
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
                                                                                                  5          27
              Funds
5(a)(10)      Summary of Unresolved Audit Reports Issued Prior to the Beginning of
              the Reporting Period
              Unresolved Reports Issued Prior to October 1, 2004                                  6          27
5(a)(11)      Significant Revised Management Decisions
5(a)(12)      Significant Management Decisions with Which OIG Disagreed
              Unmet Intermediate Target Dates Established by the Department Under
5(a)(13)
              the Federal Financial Management Improvement Act of 1996




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                                                                                      Semiannual Report To Congress: #50



Table 1: Recommendations Described in Previous Semiannual
Reports on Which Corrective Action Has Not Been Completed
                                                                                    Total             Number of            Latest
  Report           Report Title (Prior Semiannual           Date        Date     Monetary         Recommendations         Target
  Number          Report [SAR] Number and Page)            Issued Resolved Findings               Open          Closed     Date
Section 5(a)(3) of the Inspector General Act as amended 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.
NEW AUDITS SINCE LAST REPORTING PERIOD
Federal Student Aid (FSA)
A05-D0001 Audit of Educational Credit Management      3/20/03        2/27/04 $103,000,000       5             2          8/30/05
          Corporation's Administration of the Federal                          (See note 1)
          Family Education Loan Program Federal and
          Operating Fund (SAR 46, pgs. 7 & 8)
A05-D0010 Oversight Issues Related to Guaranty        7/31/03        2/25/04                    3             2          9/30/06
          Agencies' Administration of the Federal
          Family Education Loan Program Federal and
          Operating Funds (SAR 47, pg. 2)
A11-C0010 Review of Contingency Planning for Select 9/30/03          2/19/04                    0             4             *
          U.S. Department of Education Information
          Systems - Federal Student Aid (SAR 47, pg.
          9)
Office of the Chief Financial Officer (OCFO)
A17-D0007 Annual Audits of the U.S. Department of      11/14/03 2/2/04                          0             8             *
          Education's Financial Statements for Fiscal
          Years 2003 and 2002 (SAR 48, pg. 17)
A19-C0004 Audit of Funds Not Recovered Due to the       1/6/04 2/26/04                          1             13         5/31/05
          Statute of Limitations (See note 2) (SAR 48,
          pg. 17)
Office of the Chief Information Officer (OCIO)
A11-D0003 Department of Education's Implementation       9/22/03     1/20/04                    0             10            *
          of FISMA (SAR 47, pg. 9)
A11-C0008 Department of Education's Implementation       9/16/02     5/28/03                    0             26            *
          of GISRA Year 2 (SAR 45, pg. 3)
Office of Management (OM)
A19-C0005 Audit of the Accuracy and Completeness of 11/12/03         3/1/04                     0             9             *
          Personnel Data (SAR 48, pg. 18)
Office of Postsecondary Education (OPE)
A09-C0014 Office of Postsecondary Education,             7/23/03 10/31/03                       6             7          7/31/05
          Accrediting Agency Evaluation Unit's
          Review of Selected Accrediting Agency
          Standards and Procedures (SAR 47, pg. 2)
AUDITS REPORTED IN PREVIOUS SEMIANNUAL REPORTS
Federal Student Aid (FSA)
A05-A0025 Great Lakes Higher Education Guaranty       3/30/01        1/31/02                    3             4         12/30/05
          Corporation's Administration of the Federal
          Family Education Loan Program Federal and
          Operating Funds (SAR 42, pg. 22)



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Table 1: Recommendations Described in Previous Semiannual
Reports on Which Corrective Action Has Not Been Completed (Cont.)
                                                                           Total               Number of                Latest
 Report          Report Title (Prior Semiannual           Date   Date    Monetary           Recommendations             Target
 Number         Report [SAR] Number and Page)            Issued Resolved Findings           Open      Closed             Date
Office of the Chief Financial Officer (OCFO)
A03-B0018 Audit of the U.S. Department of Education's 10/24/01 3/26/02                        1             1          9/30/05
          Discretionary Grant Monitoring Process
          (SAR 44, pg. 3)
  * Closure of audit was not completed by the Department by the end of reporting period (3/31/2005).
  Note 1 - Department has recovered the excess reserve funds on 2/10/2004 in the amount of $103,000,000.
  Note 2 - We identified $7,383,859 in one-time Better Use of Funds for audit control number A19-C0004.



Table 2: OIG Audit Services Reports on Department Programs and
Activities (October 1, 2004 to March 31, 2005)
  Report                                                              Date       Questioned Unsupported              No. of
  Number                          Report Title                       Issued        Costs*          Costs       Recommendations
Section 5(a)(6) of the Inspector General Act of 1978 as amended requires a listing of each report completed by OIG during the
reporting period.
AUDIT REPORTS
Federal Student Aid (FSA)
A04-E0003 Review of Student Enrollment, Professional Judgment       11/8/04     $26,400                            3
          Actions, and Dependency Overrides at Salem College
A04-E0008 Review of Master Promissory Note Process for Federal      3/28/05                                      None
          Family Education Loan and Direct Loan
A05-E0013 Audit of the Administration of the Student Financial      2/25/05    $1,645,160                          3
          Assistance Programs at the Ivy Tech State College
          Campus in Gary, Indiana, during the period July 1,
          2002, through June 30, 2003
A06-D0018 Audit of Saint Louis University's Use of Professional     2/10/05    $1,458,584                          6
          Judgment for the Two-Year Period from July 2000
          through June 2002
A07-D0027 Audit of Direct Consolidation Loans (OPE also             2/10/05                                        4
          designated as action official)
A07-E0003 Audit of the Department's Contract for the COD            1/28/05                                        8
          System
A09-D0024 American River College's Compliance with Student          12/1/04    $3,024,665                          3
          Eligibility Requirements for Title IV Student Aid
          Programs
A11-D0004 Audit of Federal Student Aid's Common Origination         11/5/04                                        6
          and Disbursement System (OCFO and OCIO also
          designated action officials)
A17-E0007 AUDITED FINANCIAL STATEMENTS                              11/12/04                                       6
          U.S. Department of Education Federal Student Aid
          Years Ended September 30, 2004 and 2003
A19-D0005 Audit of the Department of Education's payments to        2/18/05                                        8
          private collection agency contractors (OCFO also
          designated as action official)




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Table 2: OIG Audit Services Reports on Department Programs and
Activities (October 1, 2004 to March 31, 2005) (Cont.)
 Report                                                               Date      Questioned Unsupported        No. of
 Number                         Report Title                         Issued      Costs*       Costs      Recommendations
Office of the Chief Financial Officer (OCFO)
A02-D0028 The Virgin Islands Is at Risk of Not Meeting the Goals     2/15/05                                  20**
          of the September 2002 Compliance Agreement
A02-E0016 Puerto Rico Department of Education's Repeated             12/15/04                                   2
          Single Audit Findings
A05-D0041 University of Illinois at Chicago's Upward Bound           12/20/04    $182,866    $40,191            8
          project (OPE also designated as action official)
A05-E0002 Audit of the University of Illinois at Chicago's Student   12/15/04     $5,108     $254,942           6
          Support Services program (OPE also designated as
          action official)
A05-E0018 University of Illinois at Chicago's Upward Bound Math      12/17/04     $4,102     $270,391           7
          and Science project (OPE also designated as action
          official)
A06-D0015 New Orleans Educational Talent Search Program, Inc.        10/21/04   $1,937,980                     10
          (OPE also designated as action official)
A17-E0006 AUDITED FINANCIAL STATEMENTS                               11/12/04                                   6
          U.S. Department of Education Years Ended September
          30, 2004 and 2003
A17-E0010 Financial Statement Audit of the Fiscal Year 2004          11/18/04                                 None
          U.S. Department of Education Special Purpose
          Financial Statements
A19-D0007 Audit of the Department of Education's Followup            3/31/05                                   10
          Process for External Audits
A19-E0016 Audit of the Department of Education's Monitoring of        2/9/05                                    4
          the Educational Resources Information Center Contract
          (IES also designated as action official)
Office of the Chief Information Officer (OCIO)
A11-E0002 Department of Education's Implementation of FISMA - 10/6/04                                          12
          Fiscal Year 2004 (OCFO also designated as action
          official)
Office of the Deputy Secretary (ODS)
A09-E0014 Departmental Actions to Ensure Charter Schools'            10/26/04                                   6
          Access to Title I and IDEA Part B Funds (OESE and
          OSERS also designated as action official)
Office of Elementary and Secondary Education (OESE)
A02-E0019 Puerto Rico Department of Education's Migrant          3/30/05         $43,824                        5
          Education Program
A04-E0002 Georgia Department of Education's Administration of 11/8/04                                           8
          Title I, Part A of the Elementary and Secondary
          Education Act of 1965
A05-E0014 Audit of the Indiana Department of Education's         2/18/05                                        2
          Compliance with Title I, Part A, of the Elementary and
          Secondary Education Act of 1965, as Amended by the
          No Child Left Behind Act of 2001, Public School
          Choice and Supplemental Educational Services
          Provisions for the 2003-2004 school year that began
          July 1, 2003 (OII also designated as action official)



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Table 2: OIG Audit Services Reports on Department Programs and
Activities (October 1, 2004 to March 31, 2005) (Cont.)
 Report                                                             Date      Questioned Unsupported        No. of
 Number                         Report Title                       Issued      Costs*       Costs      Recommendations
A05-E0027 Audit of the Ohio Department of Education and            1/11/05                                  None
          Selected Local Educational Agencies
A06-E0008 Audit of the Title I Funds Administered by the Orleans   2/16/05               $73,936,273          7
          Parish School Board for the Period July 1, 2001,
          through December 31, 2003
A06-E0012 Audit of the Title I Funds Administered by the Caddo     12/7/04                $488,314            1
          Parish School District, for the Period July 1, 2001,
          through December 31, 2003
A06-E0017 Title I Funds Administered by the Beauregard Parish      12/16/04               $540,443            5
          School District, for the Period July 1, 2001, through
          December 31, 2003
A07-E0018 Audit of the Missouri Department of Elementary and       12/20/04                                   2
          Secondary Education's Administration of Provisions
          Under Title I of the Elementary and Secondary
          Education Act of 1965 Relating to Consolidating Funds
          in Schoolwide Programs
Office of Innovation and Improvement (OII)
A03-E0009 Audit of the U.S. Department of Education's Pre-Award 12/20/04                                      3
          Activities for the Unsolicited Grant to the Broad
          Foundation for the School Information Partnership
Office of Management (OM)
A19-D0008 Audit of the Department's Management of the Federal      3/30/05     $14,366                       14
          Employees' Compensation Act Program
Office of Postsecondary Education (OPE)
A07-E0009 Audit of the Talent Search Program at the U.S.           2/16/05                                    4
          Department of Education
Office of Safe and Drug-Free Schools (OSDFS)
A09-E0025 California Department of Education's Compliance with 3/24/05                                        7
          the Unsafe School Choice Option Provision
Office of Special Education and Rehabilitative Services (OSERS)
A02-E0009 Puerto Rico Department of Education's Special            12/14/04               $5,935,988          3
          Education Program Services
A06-E0002 Audit of the Individuals with Disabilities Education     12/9/04                $1,554,466          5
          Act, Part B Requirements at Circle of Nations School
          for the Period July 1, 2001, through September 30,
          2003
A06-E0005 Audit of the Individuals with Disabilities Education     12/9/04                $1,826,655          5
          Act, Part B Requirements at Eastern Navajo Agency for
          the Period July 1, 2001, through September 30, 2003
A06-E0010 Audit of the Individuals with Disabilities Education     12/13/04               $1,064,770          5
          Act, Part B Requirements at Turtle Mountain
          Community High School for the Period July 1, 2001,
          through September 30, 2003
A06-E0011 Audit of the Individuals with Disabilities Education     12/13/04               $1,286,403          5
          Act, Part B Requirements at Turtle Mountain
          Elementary and Middle Schools for the Period July 1,
          2001, through September 30, 2003



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Table 2: OIG Audit Services Reports on Department Programs and
Activities (October 1, 2004 to March 31, 2005) (Cont.)
 Report                                                              Date     Questioned Unsupported        No. of
 Number                        Report Title                         Issued     Costs*       Costs      Recommendations
Office of the Under Secretary (OUS)
S19-E0015 Management of the Department's Certification and      12/17/04                                      7
          Accreditation Contract (OCFO, OCIO, and OM also
          designated as action officials)
Other Federal Entity
A17-E0009 Audit of the Selective Service System's Compliance        11/5/04                                   5
          with Certain Federal Acquisition Regulations
          Provisions
ALTERNATIVE PRODUCTS
Office of the Chief Financial Officer (OCFO)
F02-E0028 Memorandum of Results of Preaward Audit Services 12/13/04                                          **
          Performed Relating to the "Evaluation of Reading
          Comprehension Interventions," Contract Proposal,
          Contract Number ED04C00112 (Pre-Award Audit
          Service)
F03-E0024 Memorandum of Results of Pre-Award Audit Services 10/8/04                                          **
          Performed Relating to the Evaluation of the Impact of
          Explicit Literacy Instruction on Adult ESL contract
          proposal (Pre-Award Audit Service)
F03-E0025 Memorandum of Results of Pre-Award Review Audit 11/12/04                                           **
          Services Performed Relating to Evaluation of the
          Impact of Teacher Induction Programs contract
          proposal (Pre-Award Audit Service)
F03-E0027 Memorandum of Results of Pre-Award Audit Services 10/26/04                                         **
          Performed Relating to the Pre-Elementary Education
          Longitudinal Study, Phase Two Proposal dated
          September 10, 2004 (Pre-Award Audit Service)
F03-F0005 Memorandum of Results of Pre-Award Audit Services 3/31/05                                          **
          Performed Relating to the EDNet Support Services
          Contract, RFQ No. ED-04-Q-0013 (Pre-Award Audit
          Service)
F03-F0006 Memorandum of Results of Pre-Award Audit Services 3/31/05                                          **
          Performed Relating to the EDNet Support Services
          Contract, RFQ No. ED-04-Q-0013 (Pre-Award Audit
          Service)
F04-F0001 Memorandum of Results of the Pre-Award Pricing        3/22/05                                      **
          Analysis and Application of Agreed-Upon-Procedures
          Relating to Contract Proposal Submitted under
          Solicitation #ED-04-Q-0013 (RFQ for EDNet
          Management Support Services (Pre-Award Audit
          Service)
F04-F0002 Memorandum of Results of the Pre-Award Pricing        3/22/05                                      **
          Analysis and Application of Agreed-Upon-Procedures
          Relating to Contract Proposal Submitted under
          Solicitation #ED-04-Q-0013 (RFQ for EDNet
          Management Support Services (Pre-Award Audit
          Service)




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Table 2: OIG Audit Services Reports on Department Programs and
Activities (October 1, 2004 to March 31, 2005) (Cont.)
  Report                                                                Date   Questioned Unsupported                No. of
 Number                        Report Title                            Issued   Costs*       Costs              Recommendations
F07-E0028 Preaward Review of Contract Proposal Submitted              10/13/04                                        **
          under Solicitation No. ED-04-R-0014, "Front End
          Business Integration (Pre-Award Audit Service)
F09-F0006 Memorandum of Results of Pre-Award Audit Services           3/28/05                                           **
          Performed Relating to the EDNet Management Support
          Services under Request for Quotation #ED-04-Q-0013
          (Pre-Award Audit Service)
A17-E0012 Federal Intragovernmental Activity and Balances             12/2/04
          Agreed-Upon Procedures Report (Attestation Report)
Office of Elementary and Secondary Education (OESE)
X05-E0019 Risk Areas Associated with Grantees' Administration 10/22/04                                                  ***
          of 21st Century Community Learning Centers
          (Management Information Report State and Local No.
          05-01)
Office of the Under Secretary (OUS)
S17-F0002 Office of Inspector General's Independent Report on         1/28/05
          the U.S. Department of Education's Detailed
          Accounting of Fiscal Year 2004 Drug Control Funds,
          dated January 26, 2005 (Attestation Report)
  *   For purposes of this schedule, questioned costs include other recommended recoveries.

  ** Audit A02-D0028 identified $95,883 in one-time better use of funds (BUF). In addition, Table 2 excludes the monetary
  adjustments recommended in pre-award audit reports issued during this six-month reporting period. Since the results of pre-
  award audits are used in the contract negotiation process, the contents of these audit reports are considered to be confidential.

  *** Management Information Report X05-E0019 contained seven "suggestions" that are not tracked in ED/OIG's Audit Tracking
  System (ATS).

  DESCRIPTION OF ALTERNATIVE PRODUCTS

  Attestation reports convey the results of attestation engagements performed within the context of their stated scope and
  objective(s). Attestation engagements can cover a broad range of financial or non-financial subjects and can be part of a financial
  audit or performance audit. They include the examination, review, or performance of agreed-upon procedures on a subject matter
  or an assertion about a subject matter and reporting on the results.
  Audit closeout memoranda/letters are issued to provide written notification to auditees of audit closure when the decision is
  made to close an assignment without issuing an audit report.
  Interim audit memoranda/letters are used to notify the Department management or the audited entity of a serious and urgent
  condition or issue identified during an on-going audit assignment when there is a strong likelihood that waiting until the audit
  report’s issuance would result in the loss of an opportunity to prevent or curtail significant harm to the the Department interest.
  Management information reports provide the Department management with information derived from audits (when the
  issuance of an audit report is not appropriate) or special projects that may be useful in its program administration or conduct of
  program activities.
  Pre-award audit services are provided by OIG in response to requests by the Department contracting or program office staffs.
  These normally include making as assessment of an offeror’s accounting system and performing field pricing support.

  Five interim audit memoranda were issued but are not on the OIG website and are not publicly distributed.

Table 3: Other OIG Reports on Department Programs and Activities
(October 1, 2004 to March 31, 2005)
    Report Number                                          Title of Report                                         Date Issued
Section 5(a)(6) of the Inspector General Act of 1978 as amended requires a listing of each report completed by OIG during the
reporting period.



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                                                                                         Semiannual Report To Congress: #50

Table 3: Other OIG Reports on Department Programs and Activities
(October 1, 2004 to March 31, 2005) (Cont.)
      Report Number                                            Title of Report                                          Date Issued
Federal Student Aid (FSA)
         L05-E0020          Guaranty Agencies' Review of Lender Due Diligence (SFA Alert Memorandum 05-                         12/22/04
                            01 - OPE also designated as action official)
Office of the Chief Financial Officer (OCFO)
         L06-D0023          Classifying Dallas Independent School District and National Children's Educational                  11/17/04
                            Reform Foundation as "High-Risk"(Alert Memorandum State and Local No.05-01)
Office of the Chief Information Officer (OCIO)
         I13-E0023          Review of the Department's Information Technology Shadow Investments                                10/27/04
                            (Inspection Alert Memo)
Office of the Deputy Secretary (ODS)
         L02-F0001          The Department Should Designate New York City Department of Education "High                         12/13/04
                            Risk" and Consider Placing Special Conditions on Grants (Alert Memorandum State
                            and Local No. 05-02)
Office of Management (OM)
         I13-E0022          Review of the Department's Knowledge Management Initiatives and Best Practices                       1/12/05
                            from Other Federal Agencies (Inspection Memorandum)
Office of Postsecondary Education (OPE)
         L07-E0013          North Central Association Commission on Accreditation and School Improvement                        12/16/04
                            (SFA Alert Memorandum 05-02)
Office of the Under Secretary (OUS)
         L03-E0026          Improvements to Department Policy on Unsolicited Applications (Alert                                  3/8/05
                            Memorandum State and Local No. 05-03)
         S17-F0001          Response to request of the Honorable John A. Boehner, Committee Chair, regarding                    11/22/04
                            ED's canceled budget authority for fiscal year 2004 (Letter relaying results of
                            Special Project)
     DESCRIPTION OF INSPECTIONS AND OTHER PRODUCTS OIG products not conducted in accordance with generally accepted
     government auditing standards)
     Alert memoranda are prepared when auditors identify a serious condition requiring immediate Department management action
     that is either outside the agreed-upon objectives of an on-going audit assignment or is identified while engaged in work not related
     to an on-going assignment when an audit report will not be issued.
     Inspections are processes aimed at evaluating, reviewing, studying, and analyzing the programs and activities of the Department
     for the purposes of providing information to managers for decision making, for making recommendations for improvements to
     programs, policies or procedures, and for administrative action.
     Special projects are works that result in the issuance of a product or report that is not conducted in full compliance with the
     audit, inspection, or investigation standards.

     Alert memoranda and special projects are not on the OIG website and are not publicly distributed.

Table 4: Inspector General Issued Audit Reports with Questioned
Costs
                                                                                                         Questioned1     Unsupported2
                                                                                           Number          Costs            Costs
A.         For which no management decision has been made before the                          764       $180,301,0113      $42,955,336
           commencement of the reporting period (as adjusted)
B.         Which were issued during the reporting period                                      18          $95,541,891      $87,198,836
               Subtotals (A + B)                                                              94         $275,842,902     $130,154,172
C.         For which a management decision was made during the reporting period               33         $106,818,334        $6,092,860




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Table 4: Inspector General Issued Audit Reports with Questioned
Costs (Cont.)
                                                                                                          Questioned1       Unsupported2
                                                                                           Number           Costs              Costs
             (i) Dollar value of disallowed costs                                                         $106,790,251         $6,092,860
             (ii) Dollar value of costs not disallowed                                                           $28,083                $0
D.           For which no management decision has been made by the end of the                 61          $169,024,568       $124,061,312
             reporting period
E.           For which no management decision was made within six months of issuance          43              $73,482,677     $36,862,476
     1
       Questioned costs are costs that are questioned because of either an alleged violation of a provision of a law, regulation,
     contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds or a finding that the
     expenditure of funds for the intended purpose is unnecessary or unreasonable. Other recommended recoveries are funds
     recommended for reasons other than questioned costs. The category is usually used for findings involving recovery of
     outstanding funds and/or revenue earned on federal funds. The amount also includes any interest due the Department resulting
     from auditee's use of funds. Other recommended recoveries are included in questioned costs category. In addition, amounts
     reported for this category are combined with unsupported costs for reporting in the IG's Semiannual Report to Congress.
     2
       Unsupported costs are costs that are questioned because, at the time of the audit, such costs were not supported by adequate
     documentation.
     3
       Beginning balance for Questioned Costs was increased by $1,389,445 (A07C0032 - $14,573, A09E0010 - $874,360 and
     A06C0034 - $500,512) to coincide with database.
     4
         Added A06C0034 to number totals bringing totals to 76. Dollars corresponding to A06C0034 appear in footnote 3.

Table 5: Inspector General Issued Audit Reports with
Recommendations For Better Use of Funds1
                                                                                                    Number                  Dollar Value
A.           For which no management decision has been made before the commencement of the            5                       $238,640,266
             reporting period (as adjusted)
B.           Which were issued during the reporting period                                                1                        $95,883
                 Subtotals (A + B)                                                                        6                   $238,736,149
C.           For which a management decision was made during the reporting period                         0                                $0
             (i) Dollar value of recommendations that were agreed to by management
             (ii) Dollar value of recommendations that were not agreed to by management
D.           For which no management decision has been made by the end of the reporting                   6                   $238,736,149
             period
E.           For which no management decision was made within six months of issuance                      5                   $238,640,266
     1
         None of the audits reported in this table were performed by the Defense Contract Audit Agency.

Table 6: Unresolved Reports Issued Prior to October 1, 2004
                                                                                                                   Total         No. of
 Report                                          Report Title                                        Date        Monetary      Recommen-
 Number                       (Prior Semiannual Report [SAR] Number and Page)                       Issued       Findings        dations
Section 5(a)(10) of the Inspector General Act as amended requires a listing of each report issued before the commencement of the
reporting period for which no management decision had been made by the end of the reporting period.
New Since Last Reporting Period
Federal Student Aid (FSA)
A04-E0001 Review of Student Enrollment and Professional Judgment Actions at Tennessee              9/23/04       $2,458,347         7
          Technology Center at Morristown, TN (SAR 49, pg. 14)
          Status: FSA informed us that the audit was placed on administrative stay on
          February 28, 2005. However, OCFO informed us that they have no record of the
          audit being on administrative stay.


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Table 6: Unresolved Reports Issued Prior to October 1, 2004 (Cont.)
                                                                                                          Total        No. of
 Report                                     Report Title                                       Date     Monetary     Recommen-
 Number                (Prior Semiannual Report [SAR] Number and Page)                        Issued    Findings       dations
A07-D0026 Audit of Kaw Area Technical School (SAR 49, pg. 14)                                 5/20/04   $882,445          3
          Status: FSA informed us that the audit was placed on administrative stay on
          November 12, 2004 and extended on February 17, 2005. However, OCFO
          informed us that they have no record of the audit being on administrative stay.
Office of the Chief Financial Officer (OCFO)
A02-D0023 Puerto Rico Department of Education's Salaries for the Period July 1, 1999 to June 6/2/04                      6
          30, 2003 (OESE also designated as action official) (SAR 49, pg. 14)
          Status: OCFO/Post Audit Group informed us that the audit was reassigned to
          OESE on April 13, 2005.
A06-D0023 Audit of the Dallas Independent School District's Administration of the Bilingual  8/4/04     1,788,853        2
          Education-Systemwide Improvement Grant for the period September 1, 1999
          through August 31, 2003 (OELA also designated as action official) (SAR 49, pg.
          14)
          Status: OCFO/PAG informed us that the audit work papers are currently being
          reviewed. OCFO expects to resolve the audit by September 30, 2005.
A06-E0015 Audit of the Dallas Independent School District's Administration of the Teaching   9/16/04    $205,000         4
          American History Grant for the period October 1, 2002, through September 30,
          2005 (SAR 49, pg. 14)
          Status: OCFO/PAG informed us that a program determination letter was issued on
          March 25, 2005. The OIG, Dallas Region, moved to a new location and concurred
          in Department's Audit Accountability and Resolution Tracking System (AARTS) on
          April 11, 2005.
Office of Elementary and Secondary Education (OESE)
A02-E0007 Puerto Rico Department of Education's Administration of Contracts Awarded to        9/8/04    $3,354,545       2
          Rock Solid Technologies (SAR 49, pg. 15)
          Status: OESE informed us that the audit is in CAROI.
A05-D0038 Audit of Michigan's local educational agencies' allocations of Elementary and       6/25/04                    4
          Secondary Act of 1965, as amended, Title I, Part A, funds to schools for the period
          July 1, 2001, through June 30, 2002 (2001-2002 school year) (See note 1 at end of
          table) (SAR 49, pg. 15)
          Status: OESE informed us that on March 31, 2005 they requested a renewal or
          reinstatement of the administrative stay. OCFO approved this request on March
          31, 2005. However, the six month resolution period had expired before the
          administrative stay was requested and approved.
Office of Special Education and Rehabilitive Services (OSERS)
A09-D0033 Charter Schools' Access to Title I and IDEA, Part B Funds in the State of Arizona 8/24/04                      4
          (OII and OESE also designated as action officials) (SAR 49, pg. 16)
          Status: OSERS informed us that a program determination letter is currently under
          review by the Office of the General Counsel (OGC).
Reported in Previous Semiannual Report
Federal Student Aid (FSA)
A02-B0026 Audit of Taylor Business Institute's Administration of Title IV Student Financial   7/8/03     $2,089          5
          Assistance Programs (SAR 47, pg. 13)
          Status: FSA informed us that the audit was resolved March 17, 2005, and waiting
          on OIG's concurrence through AARTS. However as of March 31, 2005, an audit
          clearance document was not created in the AARTS for OIG's concurrence.




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Table 6: Unresolved Reports Issued Prior to October 1, 2004 (Cont.)
                                                                                                             Total        No. of
 Report                                        Report Title                                      Date      Monetary     Recommen-
 Number                  (Prior Semiannual Report [SAR] Number and Page)                        Issued     Findings       dations
A04-B0015 Review of Cash Management and Student Financial Assistance Refund Procedures          9/26/02    $997,313          7
          at Bennett College (OPE designated as collateral action office for this report)
          (SAR 45, pg. 16)
          Status: FSA informed us that the audit was resolved on October 9, 2001 through the
          Common Audit Resolution System. FSA informed us that they now have to put in
          closure documents into AARTS in order to close out this audit.
A04-B0019 Advanced Career Training Institute's Administration of the Title IV Higher            9/25/03    $7,469,328      14
          Education Act Programs (SAR 47, pg. 13)
          Status: FSA informed us that the audit is still being reviewed by FSA Atlanta Case
          Team.
A05-C0015 Audit of American School of Technology's Administration of the Title IV, HEA          3/21/03    $1,311,249      13
          Programs, Columbus, Ohio (SAR 46, pg. 12)
          Status: FSA informed us that the audit is still being reviewed by FSA Chicago Case
          Team.
A05-D0020 Audit of the Administration of the Federal Pell Grant program by The Alexander        12/11/03   $1,718,869       1
          Institute during the period September 28, 2000, through June 30, 2003 (SAR 48, pg.
          17)
          Status: FSA informed us that the audit is still being reviewed by the FSA Chicago
          Case Team.
A06-70005 Professional Judgment at Yale University (SAR 36, pg.18)                              3/13/98     $5,469          3
          Status: FSA informed us that they are awaiting a policy decision to address and
          resolve this finding in the final audit determination letter.
A06-70009 Professional Judgment at University of Colorado (SAR 37, pg. 17)                      7/17/98     $15,082         4
          Status: FSA informed us that they are awaiting a policy decision to address and
          resolve this finding in the final audit determination letter.
A06-A0003 International Business College's Administration of Title IV Student Financial         3/28/01    $461,035         4
          Assistance Programs (SAR 42, pg. 22)
          Status: FSA informed us that the audit is still being reviewed by the FSA Dallas
          Case Team.
A06-B0014 Audit of United Education Institute's Compliance with the Title IV, Student            9/6/01     $7,285          1
          Financial Assistance, Verification Requirements (SAR 43, pg. 12)
          Status: FSA informed us that the audit was resolved on February 20, 2003 through
          the CARS. FSA informed us that they now have to put in closure documents into
          AARTS in order to close out this audit.
A07-23545 State of Missouri, Single Audit Two Years Ended June 30, 1991                          4/1/93    $1,048,768      18
          Status: FSA/ Financial Partners Service is working with OGC and OIG on the
          resolution of the Missouri audits. FSA stated that draft responses were forwarded
          to OGC for review and comment, and are awaiting OGC comments.
A07-33123 State of Missouri, Single Audit Year Ended June 30, 1992                               3/7/94    $187,530        18
          Status: FSA/FPS is working with OGC and OIG on the resolution of the Missouri
          audits. FSA stated that draft responses were forwarded to OGC for review and
          comment, and are awaiting OGC comments.
A09-70015 Associated Technical College Eligibility of Institutions to Participate in Title IV    9/9/98    $8,600,000       7
          Programs & Other Issues (SAR 37, pg. 16)
          Status: FSA/SEC/CMO senior managers are thoroughly reviewing the 90/10
          calculations before approving the final audit determination letter.




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Table 6: Unresolved Reports Issued Prior to October 1, 2004 (Cont.)
                                                                                                            Total        No. of
 Report                                      Report Title                                       Date      Monetary     Recommen-
 Number                 (Prior Semiannual Report [SAR] Number and Page)                        Issued     Findings       dations
N06-90010 Inspection of Parks College's Compliance with Student Financial Assistance           2/9/00     $169,390          1
          Requirements (SAR 40, pg. 18)
          Status: No response received as to the status of the inspection. Prior status was
          that the FSA Dallas Case Team denied school's recertification on December 31,
          1999. School closed February 5, 2000.
Office of the Chief Financial Officer (OCFO)
A04-D0001 North Alabama Center for Educational Excellence's Administration of the TRIO         11/24/03   $877,384        14
          Programs Needs Improvement (Office of Postsecondary Education (OPE) also
          designated as action official) (SAR 48, pg. 15)
          Status: OCFO/PAG informed us that they have requested additional information
          from the auditee. OCFO expects to resolve the audit by September 30, 2005.
A05-D0017 Audit of the University of Illinois at Chicago's Gaining Early Awareness and         1/14/04    $1,018,212       4
          Readiness for Undergraduate Programs Project (OPE also designated as action
          official) (SAR 48, pg. 15)
          Status: OCFO/PAG informed us that they are currently coordinating resolution
          with the program office, the OGC, and the OIG. OCFO expects to resolve the audit
          by September 30, 2005.
A05-D0018 Audit of the Cesar Chavez Middle School's use of U.S. Department of Education        10/30/03   $196,805         3
          Funds for the Period July 1, 2001, through June 30, 2002 (2001-2002 fiscal year)
          (Office of Innovation and Improvement (OII) also designated as action official)
          (SAR 48, pg. 15)
          Status: OCFO/PAG informed us that a draft program determination letter is with
          OGC.
A05-D0023 Audit of the Aztlan Academy's use of U.S. Department of Education Funds for the      10/14/03   $148,440         2
          Period July 1, 2001, through June 30, 2002 (2002 fiscal year) (OII also designated
          as action official) (SAR 48, pg. 15)
          Status: OCFO/PAG informed us that a draft program determination letter is with
          OGC.
A05-D0029 Audit of the Sonoran Desert School's use of U.S. Department of Education Funds       10/31/03    $37,452         4
          for the Period September 1, 2001, through August 31, 2002 (project period)(OII
          also designated as action official) (SAR 48, pg. 16)
          Status: OCFO/PAG informed us that the audit report is on administrative stay due
          to the matter being in litigation.
A06-C0034 Audit of the Texas Education Agency's Treatment of the Costs of Unused Accrued        7/8/03    $500,512         2
          Vacation Leave of Retiring or Separating Employees for the Period September 1,
          1999, through August 31, 2002 (SAR 47, pg. 14)
          Status: OCFO informed us that the Indirect Cost Group and TEA signed a
          settlement agreement dated June 23, 2004. However as of March 31, 2005, an
          ACD and settlement agreement are not in AARTS.
A07-C0031 Audit of the Talent Search Program at Luther College (SAR 46, pg. 14)                3/28/03    $219,567         4
          Status: OCFO/PAG informed us that they are working to resolve disagreements
          between OPE and OIG regarding the resolution of the audit report.
A07-D0002 Audit of the Talent Search Program at Case Western Reserve University (SAR 47,       7/11/03    $212,428         5
          pg. 14)
          Status: OCFO/PAG informed us that they are currently reviewing additional
          documentation from the auditee. OCFO expects to resolve the audit be June 30,
          2005.




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Table 6: Unresolved Reports Issued Prior to October 1, 2004 (Cont.)
                                                                                                          Total        No. of
 Report                                     Report Title                                    Date        Monetary     Recommen-
 Number                 (Prior Semiannual Report [SAR] Number and Page)                    Issued       Findings       dations
A09-D0015 Gonzales Unified School District's Administration of the 21st Century Community 12/19/03      $474,005          4
          Learning Centers Grant No. S287A000704 (OESE also designated as action
          official) (SAR 48, pg. 16)
          Status: OCFO informed us that the Indirect Cost Group signed a settlement
          agreement with the auditee on February 7, 2005. However as of March 31, 2005,
          an ACD and settlement agreement are not in AARTS.
Office of Elementary and Secondary Education (OESE)
A01-90006 Puerto Rico Department of Education Needs Major Improvements in Its                 9/27/00   $181,305        18
          Administration of the Even Start Program (SAR 41, pg. 22)
          Status: OESE informed us that a CAROI team is resolving the audit.
A01-A0004 Puerto Rico Department of Education Did Not Administer Properly a $9,700,000 3/28/01          $7,841,493      14
          Contract with National School Services of Puerto Rico (SAR 42, pg. 21)
          Status: OESE informed us that a CAROI team is resolving the audit.
A02-50200 The Puerto Rico Department of Education Must Institute a Time Distribution         11/14/97                    1
          System (SAR 36, pg. 13)
          Status: OESE informed us that a CAROI team is resolving the audit.
A02-B0012 Puerto Rico Department of Education Did Not Administer Properly Title I             9/28/01   $8,412,280      10
          Contracts with National School Services of Puerto Rico for the 1999/2000 and
          2000/2001 School Years (SAR 43, pg. 11)
          Status: OESE informed us that a CAROI team is resolving the audit.
A02-B0025 Puerto Rico Department of Education Did Not Administer Properly Three               9/12/02   $2,146,023      10
          Contracts with R.V. Research and Management Group, Inc. (SAR 45, pg. 18)
          Status: OESE informed us that a CAROI team is resolving the audit.
A02-C0017 Puerto Rico Department of Education's Administration of Contracts with the          6/10/03   $115,390         5
          League of United Latin American Citizens National Educational Service Center
          (OVAE also designated as action official for this report) (SAR 47, pg. 15)
          Status: OESE informed us that a CAROI team is resolving the audit.
A02-D0014 Puerto Rico Department of Education's Title I Expenditures for the Period, July 1, 3/30/04     $49,536         9
          2002 to December 31, 2002 (See note 1 at end of table) (SAR 48, pg. 17)
          Status: OESE informed us that a CAROI team is resolving the audit.
A05-C0012 Audit of East Cleveland City Schools' Administration of the 21st Century            9/18/02   $349,637         9
          Community Learning Centers Grant at Kirk Middle School for the Period June 1,
          1998, through December 31, 2001 (SAR 45, pg. 18)
          Status: OESE informed us that on March 31, 2005 they requested a renewal or
          reinstatement of the administrative stay. OCFO approved this request on March
          31, 2005. OESE stated that OESE and Office of the General Counsel (OGC) are
          requesting technical assistance form OIG regarding the use of incompatible
          software. However, the six month resolution period had expired before the
          administrative stay was requested and approved.
A05-C0022 Audit of Community Consolidated School District 62's Administration of the 21st 2/24/03       $126,709         3
          Century Community Learning Centers Grant for the Period June 1, 2000, through
          May 31, 2002 (Office of the Under Secretary (OUS) also designated as action
          official for this report) (SAR 46, pg. 13)
          Status: OESE informed us that on March 31, 2005 they requested a renewal or
          reinstatement of the administrative stay. OCFO approved this request on March
          31, 2005. OESE stated that OESE and OGC are requesting technical assistance
          from OIG. However, the six month resolution period had expired before the
          administrative stay was requested and approved.




                                                              31
                                                                                     Semiannual Report To Congress: #50

Table 6: Unresolved Reports Issued Prior to October 1, 2004 (Cont.)
                                                                                                              Total        No. of
 Report                                        Report Title                                       Date      Monetary     Recommen-
 Number                 (Prior Semiannual Report [SAR] Number and Page)                          Issued     Findings       dations
A05-C0029 Audit of Minnesota's Local Educational Agencies' Allocations of Elementary and         9/30/03                      2
          Secondary Education Act, as amended, Title I, Part A, Funds to Schools for the
          Period July 1, 2001, through June 30, 2002 (SAR 47, pg. 15)
          Status: OESE informed us that on March 31, 2005 they requested a renewal or
          reinstatement of the administrative stay. OCFO approved this request on March
          31, 2005. OESE informed us that they requested the administrative stay based on
          further review and study of the findings. However, the six month resolution period
          had expired before the administrative stay was requested and approved.
A05-D0008 Audit of 20 Arizona Charter Schools' Uses of U.S. Department of Education Funds        11/6/03    $1,264,943      10
          for the Period October 1, 2000, through September 30, 2001 (Office of Special
          Education and Rehabilitative Services (OSERS) also designated as action official)
          (SAR 48, pg. 17)
          Status: OESE informed us that resolution of Finding 1 was issued to auditee on
          March 18, 2005, and OESE requested an administrative stay for findings 2 and 3
          due to resolution of complex supplanting issues.
A05-D0009 Audit of Cleveland Municipal School District's Set-Aside Funds for District-Wide        8/6/03     $43,067         7
          Activities (SAR 47, pg. 15)
          Status: OESE informed us that on March 31, 2005 they requested a renewal or
          reinstatement of the administrative stay. OCFO approved this request on March
          31, 2005. OESE requested the administrative stay due to complex issues. However,
          the six month resolution period had expired before the administrative stay was
          requested and approved.
A05-D0021 Audit of the Detroit City School District's Administration of Title I, Part A of the   11/21/03   $278,414        10
          Elementary and Secondary Education Act of 1965, as amended, Set-Aside
          programs for the period July 1, 2002, through May 31, 2003 (SAR 48, pg. 17)
          Status: OESE informed us that a program determination letter was issued on
          September 30, 2004 for Findings 1, 2, and 4. OESE informed us that on March 31,
          2005 they requested an administrative stay for Finding 3, and OCFO approved the
          request on March 31, 2005. However, the six month resolution period had expired
          before the administrative stay was requested and approved.
A09-D0014 Charter Schools Access to Title I Funds in the State of New York (OII is also          7/28/03                     6
          designated as action official for this report) (SAR 47, pg. 15)
          Status: OESE informed us that on March 31, 2005 they requested a renewal or
          reinstatement of the administrative stay. OCFO approved this request on March
          31, 2005. OESE stated that they requested a renewal or reinstatement of the
          administrative stay due to resolution of complex issues that will require further
          review and study. However, the six month resolution period had expired before the
          administrative stay was requested and approved.
A09-D0018 Charter Schools' Access to Title I and IDEA, Part B Funds in the State of California   3/29/04                    12
          (OESE also designated as action official) (See note 1 at end of table) (SAR 48, pg.
          18)
          Status: OESE informed us that the audit is on administrative stay.
Office of Postsecondary Education (OPE)
A03-C0017 Audit to Determine if Cohort Default Rates Provide Sufficient Information on      12/22/03                         4
          Defaults in the Title IV Loan Programs (FSA also designated as action official)
          (SAR 48, pg. 18)
          Status: OCFO has informed us that they have resolved the audit and approved the
          corrective action plan. OPE also stated that all action items have been completed
          or are on schedule to meet their completion date.




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Table 6: Unresolved Reports Issued Prior to October 1, 2004 (Cont.)
                                                                                                           Total        No. of
 Report                                       Report Title                                      Date     Monetary     Recommen-
 Number                  (Prior Semiannual Report [SAR] Number and Page)                       Issued    Findings       dations
A05-C0026 Audit of Northeastern Illinois University's Administration of the Developing         2/25/03   $478,261          2
          Institutions - Hispanic-Serving Institutions Grant for the Period October 1, 2000,
          through October 31, 2002 (SAR 46, pg. 14)
          Status: OPE informed us that that they provided a draft program determination
          letter in October 2004. OPE stated that in March 2005, OIG provided written
          nonconcurrence. OPE continues to work with the OIG to resolve the audit.
A07-B0011 Audit of Valencia Community College's Gaining Early Awareness and Readiness          5/8/03    $1,822,864       5
          for Undergraduate Programs Matching Requirement (SAR 47, pg. 15)
          Status: OPE informed us that that they provided a response to OGC's proposed
          resolution of the audit in September 2004. OPE stated that OGC responded with
          provisions to the draft program determination letter in March 2005. OPE
          continues to work with OGC to resolve the audit.
Office of Safe and Drug-Free Schools (OSDFS)
A01-90007 Puerto Rico Department of Education Needs Major Improvements in its                9/27/00      $82,452         17
          Administration of the Governor's Safe and Drug-Free Schools Program (SAR 41,
          pg. 22)
          Status: No response received as to the status of this audit. The prior status was
          OSDFS informed us that the audit is being resolved as part of the CAROI settlement
          being negotiated with PRDE.
Office of Special Education and Rehabilitative Services (OSERS)
A02-B0014 Audit of the Puerto Rico Vocational Rehabilitation Administration (SAR 45, pg.      6/26/02 $15,800,000         5
          18)
          Status: OSERS informed us that they are working with the OIG regarding the
          resolution of the audit.
A02-D0020 Puerto Rico Department of Education's Special Education Expenditures for the        3/30/04  $122,901           9
          Period, July 1, 2002 to December 31, 2002 (See note 1 at end of table) (SAR 48, pg.
          18)
          Status: OSERS informed us that the audit is being resolved through CAROI team
          effort.
  Note 1 - We identified $48,835 in one-time better use of funds and $1,580,000 in annual better use of funds in audit A05-D0038,
  $151,205,677 in better use of funds in audit A02-D0014, $5,600,000 in better use of funds in audit A09-D0018, and $79,515,522
  in better use of funds in audit A02-D0020.
  Note 2 - Status Comments reflect comments provided by the Department, comments agreed to, or documents obtained from
  AARTS.

Table 7: Investigation Services Cumulative Actions
(October 1, 2004 to March 31, 2005)
                                                                                                           Fines/       Civil
                 Summary of Investigation                        Subject Name     Action This Period*    Restitutions Recoveries
INSTITUTIONAL FRAUD
Use of Ineligible Branch Locations
Owner pleads guilty to conspiracy to defraud Title IV student   Howard Burkeen Convicted: 11/30/04
aid funds.
Enrollment of Ineligible Students
Individual sentenced for making false statements on documents Mariam Chbib       Sentenced: 3/3/05         $5,806
in order to receive federal student aid funds in conjunction with Chbib
TTC.




                                                                 33
                                                                                       Semiannual Report To Congress: #50

Table 7: Investigation Services Cumulative Actions
(October 1, 2004 to March 31, 2005) (Cont.)
                                                                                                            Fines/       Civil
                  Summary of Investigation                         Subject Name     Action This Period*   Restitutions Recoveries
Individual sentenced for falsifying documents enabling            Sahar Younes      Sentenced: 2/17/05     $63,193
ineligible students and the school to receive federal student aid
funds.
School Employee Theft
Individuals involved in illegal student refunds and kickback      April Hemphill    Sentenced: 1/19/05      $8,985
scheme at LeMoyne-Owen College.                                   Michael Tate      Convicted: 10/21/04
                                                                  Verdell Pollard   Sentenced: 11/16/04      $7,600
                                                                  Lawrence Haynes   Sentenced: 2/7/05       $13,624
                                                                  Orlando Thomas    Sentenced: 12/21/04      $8,156
                                                                  Marlon Thomas     Sentenced: 2/2/05       $10,850
                                                                  Ron Johnson       Sentenced: 3/9/05       $16,446
                                                                  Kelli Pollard     Convicted: 3/17/05
                                                                  Aaron Boone       Convicted: 2/17/05
                                                                  Marlon Briggs     Convicted: 12/1/04
                                                                  Shelley Barnes    Sentenced: 3/30/05      $13,672
Sentences for teachers, secretaries and para-educators receiving Latasha Williams   Sentenced: 12/14/04      $2,400
monies from kickback scheme at Orleans Parish School District Louis Serrano         Sentenced: 12/14/04     $72,444
                                                                  Tamika            Sentenced: 12/14/04      $3,000
                                                                  Winesberry
                                                                  Monique Landry    Sentenced: 12/14/04     $4,800
Former Orleans Parish School District employees pled guilty to Monica Hunter        Convicted: 10/14/04
kickback scheme.                                                  Terri Morant      Convicted: 12/8/04
                                                                  Tremica Knight    Convicted: 1/6/05
Former director of financial aid at Ancilla College sentenced for Richard Miller    Sentenced: 3/15/05      $7,228
misapplying Supplemental Educational Opportunity Grant
funds.
Former accounts receivable clerk at Texas College sentenced Tiffany Jenkins         Sentenced: 11/1/04      $77,005
for federal student aid fraud.
Former employee at Lodge Grass School District pled guilty to Marion Calvin         Convicted: 1/31/05
theft of government money and larceny.
Former financial aid director at University of Puerto Rico -      Hector            Sentenced: 12/1/04      $38,375
Cayey sentenced for preparing, certifying and forging             Maldonado
fraudulent student loan applications.
Submission of False Documents
Investigation in Puerto Rico leads to $400,000 civil recovery.   Lourdes Martinez                                      $400,000
                                                                 Maria De Lourdes
                                                                 Santana
                                                                 Juan Carlos
                                                                 Santana
                                                                 Juan Antonio
                                                                 Santana
                                                                 Maria De Los
                                                                 Angeles Santana
Loan Consolidation Schemes
Collection agent pled guilty in $564,974 student loan            Martina Brown      Convicted: 3/23/05
consolidation scheme.


                                                                  34
                                                                                        Semiannual Report To Congress: #50

Table 7: Investigation Services Cumulative Actions
(October 1, 2004 to March 31, 2005) (Cont.)
                                                                                                             Fines/       Civil
                 Summary of Investigation                       Subject Name         Action This Period*   Restitutions Recoveries
Former collection agency employee sentenced for conspiracy to James Stevens          Sentenced: 11/29/04    $182,344
commit bank fraud.
RECIPIENT FRAUD
Falsification of Income
Individual sentenced for committing federal student aid fraud     Tony Khan          Sentenced: 1/24/05      $31,976
by failing to disclose significant assets on his FAFSA.
Identity Fraud/Missuse of an SSN
Trial jury finds woman guilty of federal student aid fraud and    Vernita Nuey       Convicted: 2/24/05
bank fraud.
Woman sentenced for misuse of a social security number.        Kimala Kimble         Sentenced: 2/11/05      $6,725
Man pled guilty to misdemeanor student loan fraud.             Amir Ashkan           Sentenced: 2/28/05      $3,040
                                                               Banishahi
Woman pled guilty to using another person's identity to obtain Raymonda              Convicted: 3/18/05
approximately $9,750 in federal student aid.                   Shallowhorn
Individual sentenced for providing a false statement to a      Louis R. Jones        Sentenced: 3/18/05      $51,884
federally insured financial institution and for falsely
representing a social security number in an identity fraud
investigation.
A mother who used the social security number of her seven-     Dana Byrd             Sentenced: 12/16/04     $30,941
year-old daughter, and the name and social security number of
her 14-year old daughter to obtain PLUS loans for her son,
entered into a Pre-Trial Diversion Program.
Falsification of Identity/Identity Theft
Identity thief sentenced for using the identity of another        Kenneth Wayne      Sentenced: 10/14/04     $3,208
individual to receive FSA funds.                                  Jordan
An illegal alien sentenced for using the social security number   Luis Aguirre       Sentenced: 12/3/04      $12,821
of a deceased individual for approximately $11,821 in federal
student aid.
New York Federal Judge orders prison term in student loan         Shane Bybee        Sentenced: 11/1/04     $161,505
fraud case.
Ringleader and six associates pled guilty to charges in federal   Sharon Walker      Convicted: 1/3/05
student aid fraud scheme.                                         Bessie Johnson     Convicted: 12/23/04
                                                                  Bobby Poke, Sr.    Convicted: 12/29/04
                                                                  Evelyn Walker      Convicted: 1/3/05
                                                                  Betty Walker       Convicted: 1/3/05
                                                                  Pamela Walker      Convicted: 12/30/04
                                                                  Dianna Colon       Convicted: 12/30/04
Identity thief sentenced for using the name and social security Einna Foules         Sentenced: 3/16/05       $100
number of a former roommate in order to obtain federal student
aid funds.
Alien who was in the U.S. on a student visa assumed the           Arijit Chowdhury   Convicted: 12/7/04
identity of a U.S. citizen to obtain federal student aid funds.
Woman entered into Pre-Trial Diversion Program for receiving Georgette Hoth          Sentenced: 11/2/04
federal student aid by misrepresenting her citizenship status and
using another person's social security number.




                                                                   35
                                                                                            Semiannual Report To Congress: #50

Table 7: Investigation Services Cumulative Actions
(October 1, 2004 to March 31, 2005) (Cont.)
                                                                                                                 Fines/       Civil
                   Summary of Investigation                        Subject Name Action This Period*            Restitutions Recoveries
Identity thief pled guilty to obtaining federal student aid by    Linda M. Griffin Convicted: 1/6/05
using another person's identity.
Individual sentenced for perjury in identity theft investigation. Donnial          Sentenced: 2/17/05            $18,700
                                                                  Beachump
Falsification of Citizenship
Illegal alien sentenced for fraudulently claiming she was an          Karen Fuller       Sentenced: 10/14/04     $4,100
eligible non-citizen to obtain federal student aid funds.
Man pled guilty to theft of government property.                      Jesus Jose         Convicted: 2/16/05
                                                                      Serrano-Gil
Falsification of Eligibility
A father entered into a Pre-Trial Diversion Program after             Jerald C. Phelps   Sentenced: 2/2/05       $3,469
admitting his guilt to submitting a falsified federal financial aid
application on which he falsely claimed that he supported his
son, who was deceased, in order to become eligible to receive
federal student aid funds.
Two individuals sentenced for filing fraudulent federal               Susan Brown        Sentenced: 1/4/05       $3,565
FAFSAs. Both claimed to be single mothers when both were              Bobbie Jo Jones    Sentenced: 1/11/05      $5,897
married, and used improperly filed tax documents in support of
their applications for aid.
Former student pled guilty to federal student aid fraud.              Scott Phebus       Convicted: 3/31/05
Fraudulent Loan Discharges/Deferments
Individual pled guilty to submitting fraudulent disability forms Jeffory Brown           Convicted: 3/17/05
containing a forged doctor's signature and false death certificate
in order to have his loan debt forgiven.
Fraudulent Work Study
Students agree to civil settlements after falsifying timesheets to Deirdre Davis                                             $1,988
procure federal work study funds.                                  Tenesha Griffin                                            $388
                                                                   Wilbur White                                               $640
Foreign School Recipient Fund
Man sentenced for falsely claiming enrollment at schools in           Robert Lawrence, Sentenced: 3/9/05         $37,000
Great Britain to receive federal student aid funds.                   Jr.
Leaders pled guilty to student loan fraud in scheme to defraud        Anthony Hervey Convicted: 1/14/05
the Department out of $265,000. Leaders created a fictitious          Gloria Hervey    Convicted: 1/14/05
organization which purported to enroll students from the U. S.
for attendance at a U.K. school. The couple then recruited
individuals, and directed and assisted in the falsification of
financial aid applications and promissory notes for the
individuals' purported enrollment in the U.K. school.
Individuals recruited to participate in student loan fraud scheme     Ronald Jackson     Convicted: 1/18/05
(listed above) pled guilty or sentenced.                              Stacey Adams       Convicted: 1/6/05
                                                                      Sean Loggin        Convicted: 12/23/04
                                                                      Jackie Lawless     Sentenced: 3/11/05       $765
                                                                      Isiah Miller       Sentenced: 2/24/05       $740
                                                                      Donald Braboy      Sentenced: 3/11/05       $740




                                                                       36
                                                                                            Semiannual Report To Congress: #50

Table 7: Investigation Services Cumulative Actions
(October 1, 2004 to March 31, 2005) (Cont.)
                                                                                                                 Fines/       Civil
                  Summary of Investigation                            Subject Name       Action This Period*   Restitutions Recoveries
Fraudulent certifications/statements
Man pled guilty to cashing federal student aid checks, then          Terrence Kenner     Convicted: 3/7/05
reporting them as stolen in order to receive additional checks.
Sentence for individual who made false statements on FAFSAs          Troy Marvin         Sentenced: 12/14/04     $12,027
for three consecutive years relating to his prior drug               Purnell
convictions.
Individual entered into Pre-Trial Diversion Program for making       Ivory Puckett       Sentenced: 1/12/05      $10,054
false statements in an attempt to discharge the loans to help
clear his credit rating.
INTERNAL INTEGRITY
Individuals involved in scheme to fraudulently receive public        Faridah Ali       Convicted: 10/27/04
funds for adult basic education courses at the Community             Lakiha Spicer     Convicted: 10/27/04
College of Philadelphia, PA.                                         Azheem Spicer     Convicted: 10/27/04
                                                                     Eugene Weaver III Convicted: 10/27/04
Former Deputy Superintendent of the Georgia Department of            Merle Temple      Convicted: 1/10/05
Education (GDOE) pled guilty to conspiracy, theft of funds and
wire fraud in connection with a scheme to funnel federal grant
funds to the campaign for Governor of a former state school
superintendent.
Former CFO of an Atlanta company pled guilty to the                  Johnathan C.        Convicted: 12/15/04
structuring of financial transactions to funnel cash contributions   Turner
to the gubernatorial campaign of a former state school
superintendent.
Manager of a former state school superintendent’s campaign for       Richard M.          Convicted: 12/21/04
Governor pled guilty to attempted witness tampering.                 Leonard
Former GDOE Federal Programs Manager pled guilty to                  Miller Finley       Convicted: 1/20/05
making false statements to federal law enforcement agents
during an interview concerning the issuance of over $500,000
in GDOE checks.
New York City man sentenced for impersonating a U.S.                 Anthony Straker     Sentenced: 1/27/05
Department of Education agent.
Individual sentenced for using stolen bank account information       Gregory E. Smith Sentenced: 12/15/04        $15,132
of innocent parties to post on-line and telephonic student loan
payments to his federal student aid accounts.
Former State of Florida vocational rehabilitation consultant         Dolores             Sentenced: 2/3/05
signed Pre-Trial Diversion.                                          Rodriguez
Man pled guilty to stealing, forging and misapplying 15 FFEL         Greg Sims           Convicted: 2/18/05
checks.
Federal Jury convicts four former officials of the Massachusetts     Gerald Phillips     Convicted: 2/28/05
Career Development Institute. The convictions related to a           Giuseppe            Convicted: 2/28/05
scheme wherein the officials engaged in a conspiracy involving       Polimeni
"no-show" and "partial show" employees.                              Jamie C. Dwyer      Convicted: 2/28/05
                                                                     Luisa Cardaropoli   Convicted: 2/28/05
Former Bank of America mailroom employee sentenced for               Michael J. Warner   Sentenced: 3/9/05       $67,607
theft of incoming federal student loan payments.




                                                                      37
                                                                                      Semiannual Report To Congress: #50

Table 7: Investigation Services Cumulative Actions
(October 1, 2004 to March 31, 2005) (Cont.)
                                                                                                           Fines/       Civil
                  Summary of Investigation                          Subject Name   Action This Period*   Restitutions Recoveries
Individuals sentenced for role in scheme to divert Impact Aid      Dominique       Sentenced: 11/16/04    $63,415
funds.                                                             Germain
                                                                   Diallo Cobham   Sentenced: 2/3/05       $9,000
Former Director for the American Samoa Department of               Sili Sataua     Convicted: 1/26/05
Education pled guilty to conspiracy.

Table 8: Statistical Profile : October 1, 2004 to March 31, 2005
                                                                                                              Six-month Period
                                                                                                               Ending 3/31/05
OIG AUDIT REPORTS ISSUED                                                                                                     41
Questioned Costs                                                                                                      $8,343,055
Unsupported Costs                                                                                                    $87,198,836
Recommendations for Better Use of Funds                                                                                 $95,883
OTHER OIG PRODUCTS                                                                                                           26
(Inspections, Attestations, Interim Audit Memoranda, Alert Memoranda, Closeout Memoranda/Letters,
Management Information Reports, and Preaward Audit Services)
OIG AUDIT REPORTS RESOLVED BY PROGRAM MANAGERS                                                                               58
Questioned Costs Sustained                                                                                          $100,725,474
Unsupported Costs Sustained                                                                                           $6,092,860
Additional Disallowances Identified by Program Managers                                                               $1,648,911
Management Commitment to the Better Use of Funds                                                                       $869,851
INVESTIGATIVE CASE ACTIVITY
Cases Opened                                                                                                                138
Cases Closed                                                                                                                 95
Cases Active at End of Period                                                                                               458
Prosecutorial Decisions                                                                                                      81
 -Accepted                                                                                                                   56
 -Declined                                                                                                                   25
INVESTIGATION RESULTS
Indictments/Informations                                                                                                     71
Convictions/Pleas                                                                                                            76
Fines Ordered                                                                                                           $14,750
Restitution Payments Ordered                                                                                          $1,105,316
Civil Settlements/Judgments (#)                                                                                               9
Civil Settlements/Judgments ($)                                                                                       $2,007,716
Recoveries                                                                                                              $25,9951
Forfeitures/Seizures                                                                                                          0
  1   The recoveries listed are from three pre-trial diversions.




                                                                    38
APPENDIX 1:
Pursuant to the Reports Consolidation Act of 2000, the Office of Inspector General (OIG)
of the Department of Education identifies the following management challenges of the
Department. These challenges are long-term management issues that require the
continued focus and commitment of the Department. They are not a compilation of our
recent audit findings, but rather issues that arise from our audit, inspection, and
investigation work, our knowledge of the Department’s and the Administration’s
initiatives, and our understanding of the statutory requirements imposed by Congress. As
required by the statute, we also discuss the Department’s progress in meeting these
challenges.

CHALLENGE 1: HUMAN CAPITAL MANAGEMENT
Comprehensive human capital planning that includes effective planning for future needs,
recruitment, hiring, and development of its current workforce is a management challenge
for the Department. When the Government Accountability Office (GAO) placed this
issue on its high-risk list in 2001, it identified the fundamental problem facing federal
agencies as the long-standing lack of a consistent strategic approach to managing and
maintaining the workforce necessary for a more effective and efficient government.

Department’s Progress

In May 2004, the Under Secretary articulated five human capital expectations for the
Department: effective and efficient hiring processes; performance standards that clearly
articulate expected results; performance evaluations that differentiate among
performance; pay for performance; and customized development and succession plans.
Subsequently, the Department initiated steps to develop a comprehensive human capital
plan, intending to complete the task by September 2004. Federal Student Aid (FSA)
released its final human capital plan in July 2004. Also in July 2004, the Chief Human
Capital Officer initiated an effort to see that each employee’s performance plan includes
standards that reflect clarity of results, focus on the Department’s strategic goals, and
communicate the five priorities expected from the employee during the performance
period.

CHALLENGE 2: FINANCIAL MANAGEMENT
The Department faces financial management challenges in implementing erroneous
payments requirements and a new financial management system. The Improper
Payments Information Act of 2002 greatly expanded the requirements for agencies to
identify and reduce erroneous payments in the government's programs and activities. In
addition, the Office of the Chief Financial Officer (OCFO) and FSA plan to re-implement
the Oracle Federal Financials system as version 11i to take advantage of available
enhancements and to stay current with Oracle-supported products. This implementation
will consolidate the Department’s and FSA’s general and subsidiary ledgers and
eliminate the need for complex system interfaces. A systems implementation of this
magnitude is a significant and complex undertaking that must be carefully planned and
diligently executed.

Department’s Progress

The Department’s and FSA’s fiscal year (FY) 2003 financial statements received an
unqualified audit opinion, and the FY 2003 Performance and Accountability Report
(PAR) was submitted to the Office of Management and Budget (OMB) by the accelerated
due date of November 15, one year ahead of the statutory implementation deadline for
accelerated reporting. The Department also became the first cabinet level agency to
receive a green score for financial management on its President’s Management Agenda
scorecard. The Department has issued the FY 2004 quarterly financial statements
required by OMB. In addition, the Department plans to submit its FY 2004 PAR on or
before November 15, 2004. These are major accomplishments toward strengthening
financial management.

The Department has stated that it has completed its risks assessments of FSA and the
Title I programs, has moved forward with assessing the risk of its remaining grant
programs, and is expanding on its initial assessment of its grant programs. The
Department also entered into a memorandum of understanding with the Oak Ridge
National Laboratory to perform data mining on information from various sources.

The Department’s target date to go live with the Oracle 11i system is October 2006. The
Department has developed a four-tier approach for implementing the system: conduct
impact assessments, develop an upgrade strategy and approach, develop a detailed
implementation plan, and implement version 11i.

CHALLENGE 3: FEDERAL STUDENT AID PROGRAMS
The Department’s challenges related to its annual $65 billion student financial assistance
programs, and its outstanding loan portfolio of over $300 billion, are oversight and
program review, reducing improper payments in the Pell grant program, and encouraging
innovative educational program delivery without jeopardizing program integrity.

FSA is responsible for oversight of about 6,000 schools, three dozen guaranty agencies,
more than 3000 lenders, and many third-party servicers retained by these entities. A
challenge is for FSA to provide adequate oversight and program review of these
institutions to reduce abuse in these programs.

The Department estimated that $365 million in Pell grants was improperly disbursed in
FY 2003 because applicants understated their income. The 1998 amendments to the
Higher Education Act (HEA) appeared to provide FSA the authority to verify applicant
income with the IRS, but did not make corresponding changes to the Internal Revenue
Code to authorize disclosure of confidential tax information to FSA. Until the Internal
Revenue Code is amended to allow for an income match with income reported on the
FAFSA, the challenge remains for the Department to use alternative methods to reduce
improper payments in the Pell Grant program.

Advances in technology and the growth of the Internet have led to an increasing number
of students pursuing distance education. The Department’s challenge is to encourage
innovative educational program delivery while ensuring accountability of taxpayer
dollars and preserving the integrity of the student aid programs.

Department’s Progress

FSA is in the initial stages of developing an improved electronic management system to
provide case teams electronic access to all information on a school, which should
improve its process for reviews of statutorily required audits and school recertifications.
FSA also is in the process of implementing a corrective action plan to address the
weaknesses identified by OIG related to guaranty agency oversight.

The Department has made a commitment to address factors that resulted in the student
aid programs’ placement on GAO’s high-risk list and has made progress in reducing risk
in these areas. On August 9, 2002, in a joint letter to Congress, Secretary Paige, Treasury
Secretary O’Neill, and OMB Director Daniels submitted a legislative proposal to amend
the Internal Revenue Code to allow for a very limited disclosure of certain taxpayer
information, but only after a series of safeguards designed to protect taxpayer
confidentiality were implemented. Legislation that would permit this income match is
pending before Congress.

The 1998 reauthorization of the HEA created the Distance Education Demonstration
Program. The Department is charged with administering the program and monitoring the
participants.

CHALLENGE 4: INFORMATION TECHNOLOGY

The Department faces information technology (IT) challenges, including the need to
adequately manage and safeguard IT assets and meeting electronic-government
requirements. The Department’s more than 70 IT systems comprise a number of
complex and costly investments that are essential to conducting ongoing business and
meeting the agency’s core mission. The Department needs to develop a mature IT
investment management capability, a well-defined enterprise architecture, and a robust
system acquisition/development life cycle methodology. It also needs to ensure that
these systems are secure, in accordance with the Federal Information Security
Management Act of 2002, to protect the data they contain and the operations they
support.

The Department faces a challenge in managing a transition to government-wide system
solutions because of their potential to dramatically change the “back-office” operating
environment. For example, OMB’s Lines of Business initiatives are directed at financial
management, grant management and human resources, and encompass other Executive
Branch electronic-government initiatives. In addition, to reduce the risk of program
fraud, waste, and abuse that could arise from possible misuse, the Department needs to
employ appropriate Personal Identification Number (PIN)-based electronic
authentication.

Department’s Progress

The Department has continued its efforts to strengthen and detail enterprise architecture
artifacts, so that they can consistently be used as an effective IT governance tool. The
Department also has devoted considerable time and resources to enhance security for its
systems, including formally certifying most of its general support systems and major
applications. We noted that the process did not adequately identify the residual risks that
Department officials were accepting at the time of system certification, and the
Department developed a corrective action plan, which it anticipates completing by
December 2004. During FY2004, the Department also completed its Critical
Infrastructure Protection Mission Essential Infrastructure Interdependency Study, and
plans to use the results of this study to test critical interdependencies during its annual
Disaster Recovery testing.

The Department has embarked on several modernization efforts that have the potential to
increase business efficiency and significantly improve customer service. These are in
various stages of conceptualization and development. The Department is also
implementing PINs in FSA.

CHALLENGE 5: PROGRAM PERFORMANCE AND
             ACCOUNTABILITY
The Department’s management challenges in program performance and accountability
are to ensure data reliability and to conduct adequate monitoring. A major focus of the
No Child Left Behind Act of 2001 is the need for states to report on performance in areas
such as teacher quality and student achievement. The utility of this reporting will depend
on the collection of reliable data. The same is true for other Department programs, such
as Migrant Education, that also rely upon data from the states to make important program
decisions.

We continue to identify significant accountability and compliance issues in the Virgin
Islands, Puerto Rico, and the Pacific Outlying Areas. In addition, we continue to identify
other entities, including school districts, to the Department for consideration of high-risk
status and appropriate special conditions. An increased awareness by program managers
about their responsibility to oversee programs carefully, rather than focus exclusively on
technical assistance, would help protect program integrity.

Department’s Progress

The Department is responding to data reliability problems. The Office of Elementary and
Secondary Education (OESE) stated that it is using its Title I monitors and state contacts
to monitor progress on report submissions and working with states on data quality issues
as part of its monitoring process. OESE is also updating its monitoring guide to include
questions about controls over scoring of state assessments, and it plans to publish a
summary from its monitoring visits for the past year. The Office of Special Education
and Rehabilitative Services stated that it is developing corrective actions in conjunction
with an outside consultant hired by the Rehabilitation Services Administration. The
Office of Vocational and Adult Education stated that it is implementing enhancement
efforts for technical assistance and revising its reporting instrument to require states to
provide additional information to support their attestation that data are accurate,
complete, and reliable.

The Department’s inter-office Insular Affairs Committee is undertaking projects to
address accountability and compliance issues identified by our work. The Department
has placed several grantees on high-risk status with special conditions placed on future
funding. In the past year, the Department also has increased its site visits to these
entities. The Department’s recent initiative to reengineer its grants monitoring process
reflects the importance it is placing on improving its monitoring process.

CHALLENGE 6: PROCUREMENT
Improving contractor oversight to ensure that contract terms and conditions are met and
that high-quality goods and services are received is a management challenge for the
Department. GAO lists acquisition as a major management function that is key to high-
performing organizations. The Department contracts for many services that are critical to
its operations, at a value of over $800 million in FY 2003. Implementation of the Federal
Activities Inventory Reform Act of 1998 and the Administration’s emphasis on
competitive sourcing are likely to lead to additional contracts for services now performed
by Department staff. The Department needs to improve its monitoring of these contracts.

Department’s Progress

The Department recently reissued its directive, Contract Monitoring for Program
Officials (the previous version was from 1987), without substantial change from the prior
policy. FSA recently issued an Audit Review Guide to assist with monitoring of its
private collection agency contractors.
U.S. Department of Education
Margaret Spellings
Secretary


Office of Inspector General
John P. Higgins, Jr.
Inspector General


Counsel to the Inspector General
Mary Mitchelson


May 2005


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                                      Inspector General’s Hotline

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                                       THE MAILING ADDRESS IS:
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                                   U.S. DEPARTMENT OF EDUCATION
                                   OFFICE OF INSPECTOR GENERAL
                                 SEMIANNUAL REPORT TO CONGRESS