oversight

Semiannual Report - April 1, 2006 - September 30, 2006

Published by the Department of Education, Office of Inspector General on 2006-09-30.

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

  U.S. Department of Education

Office of Inspector General




Semiannual Report to Congress: No. 53
   April 1, 2006 - September 30, 2006
                            UNITED STATES DEPARTMENT OF EDUCATION
                                                OFFICE OF INSPECTOR GENERAL

                                                                                                               THE INSPECTOR GENERAL




                                                                                       October 31, 2006



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 September 30, 2006.

Our independent audits, investigations, and inspections support the goals of the President’s
Management Agenda, provide recommendations for improvements in the Department’s
programs, and work to protect their integrity. We look forward to our continued partnership
toward our common objective of a Department of Education that delivers the best services
possible to our nation’s students.

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 specified 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).




                                                                     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

INSPECTOR GENERAL’S MESSAGE TO CONGRESS
OVERVIEW                                                    1
MANAGEMENT AND ACCOUNTABILITY IN STATE AND LOCAL PROGRAMS   2
  NO CHILD LEFT BEHIND                                      2
     Reading First                                          2
     Migrant Education                                      3
     Supplemental Education Services                        4
     Parental Involvement Funds                             5
    Data Quality                                            5
  GRANTEE ACCOUNTABILITY                                    5
     Connecticut - New Haven After School Programs          5
     Puerto Rico - Salinas School District                  6
     Education Leaders Council (ELC)                        6
  INVESTIGATIONS                                            6
     Georgia                                                7
     Minnesota                                              7
     New York                                               7
     Texas                                                  7
     West Virginia                                          8
MANAGEMENT AND ACCOUNTABILITY IN STUDENT FINANCIAL
  ASSISTANCE PROGRAMS                                        8
  FINANCIAL PARTNERS                                         8
  SPECIAL ALLOWANCE PAYMENTS TO NELNET                       9
  MCED CAREER COLLEGE                                       10
  INVESTIGATIONS                                            11
     Fraud by School Officials                              11
     Fraud by Government Contractors                        11
     Identity Theft/Falsification of Identity               11
     Foreign School Fraud                                   12
MANAGEMENT AND ACCOUNTABILITY IN DEPARTMENT'S
  INTERNAL OPERATIONS                                       13
  INFORMATION SECURITY                                      13
     Federal Information Security Management Act            13
     Additional IT Reviews                                  15
  OTHER INTERNAL OPERATIONS                                 16
     Recovery Audit Efforts                                 16
     Contractor Employee Personnel Security Screenings      16
     Reimbursable Work Authorization Process                17
     Purchase Cards                                         17
     Contract Proposals                                     18
  INVESTIGATIONS                                            18
HURRICANE RELATED EFFORTS                                   18
  MISSISSIPPI INSTITUTIONS OF HIGHER LEARNING               19
OTHER NOTEWORTHY ACTIVITIES                                 19
  NONFEDERAL AUDITS                                         19
  PRESIDENT'S COUNCIL ON INTEGRITY AND EFFICIENCY                                20
     PCIE Audit Committee                                                        20
     PCIE IT Roundtable                                                          20
  PCIE HOMELAND SECURITY ROUNDTABLE ON HURRICANE RECOVERY                        21
  PRESIDENT'S TASK FORCE ON IDENTITY THEFT                                       21
Reporting Requirements of the Inspector General Act, as amended                  22
Table 1: Recommendations Described in Previous SARs on
         Which Corrective Action Has Not Been Completed                          23
Table 2: ED/OIG Audit Reports on Department Programs and Activities
         (April 1, 2006, to September 30, 2006)                                  24
Table 3: Other ED/OIG Reports on Department Programs and Activities
         (April 1, 2006, to September 30, 2006)                                  27
Table 4: OIG Issued Audit Reports with Questioned Costs                          27
Table 5: OIG Issued Audit Reports with Recommendations for Better Use of Funds   28
Table 6: Unresolved Reports Issued Prior to April 1, 2006                        28
Table 7: Administrative Appeals of Final Audit Determinations Pending
         Before the Secretary as of September 30, 2006                           35
Table 8: Statistical Profile: April 1, 2006, to September 30, 2006               35
   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 April 1,
2006, through September 30, 2006, as required by the Inspector General Act of 1978. The audits,
inspections, investigations, and other activities highlighted in this report illustrate our on-going
commitment to promoting accountability, efficiency, and effectiveness in federal education
programs and operations. America's students and taxpayers deserve nothing less.

Over the last six months, OIG issued 41 audit, inspection, and related reports, memoranda, and
letters. We identified over $283,590,000 in questioned costs, over $19,800 in unsupported costs,
and $882 million in funds that could be better put to use. Summaries of our work are highlighted
in this report, including our inspection of the Department's Reading First grant application
process; our audit of special allowance payments the Department made to Nelnet, a participant in
the Department's student financial assistance programs; and our audit of Financial Partners, a
division within the Office of Federal Student Aid that is responsible for the oversight of the
Federal Family Education Loan program.

While our work is a valuable tool for the Department, our work is not a substitute for good
management and organizational accountability. The lack of effective management and
organizational accountability can place taxpayer dollars at risk of waste, fraud, abuse, or non-
compliance, and can impact the public's trust in the Department's ability to effectively and fairly
carry out its programs and mission.

During this reporting period, we closed a number of cases involving individuals who abused their
positions of trust for personal gain. Work conducted by our Special Agents led to the sentencing
of a former Georgia Superintendent of Education and her co-conspirators, who concocted a
scheme to funnel over $500,000 in federal education dollars into her failed 2002 gubernatorial
campaign. Our work also led to the sentencing of the former Financial Manager for the West
Virginia Regional Education Service Agency-1 for embezzling over $1.3 million in education
funds. Overall, we closed 92 investigations, with over $7.5 million in recoveries, restitution,
fines, and settlements over the last six months. You will find more information on a number of
these cases in the pages of this Semiannual Report.

While my office has been very productive over the last six months, we do face a significant
challenge in conducting all of the work necessary to help ensure the integrity of the Department's
programs and operations. Throughout this year, a number of the audits we planned to conduct
were put on hold, as staff was reassigned to our Congressionally-directed efforts related to
hurricane recovery, or as required by our on-going work, such as Reading First. We remain,
however, ever vigilant and committed to working with the Department to ensure that its
operations and programs provide the best service to the American public.

Thank you for your continued support of our efforts. I look forward to working with you and the
Department in furthering our goals and achieving our mission.

                                                    John P. Higgins, Jr.
                                                    Inspector General
OVERVIEW
           The Office of Inspector General (OIG), for the period April 1, 2006, through September
           30, 2006, continued its work to promote efficiency, effectiveness, and integrity in the
           programs and operations of the U.S. Department of Education (Department). As discussed
           in this Semiannual Report (SAR), we concluded a number of high-visibility audits and
           inspections and closed a number of significant investigations.

           While our work continues to identify areas of concern and recommends actions the
           Department must take to address weaknesses in its operations and programs, our work is
           not a substitute for good management and organizational accountability. The lack of
           effective management and organizational accountability can place taxpayer dollars at risk
           of waste, fraud, abuse, or non-compliance, and can impact the public's trust in the
           Department's ability to effectively and fairly carry out its programs and mission.

           In the first section of our report, we provide a summary of the work conducted in the area
           of elementary and secondary education programs over the last six months. This includes
           our inspection of the Department's Reading First grant application process, where we
           found that program officials failed to maintain a control environment that exemplifies
           management integrity and accountability. In addition, recently concluded audits in the
           area of elementary and secondary education continue to show that the Department lacks
           effective oversight of and accountability in its state and local programs. This is
           particularly true in the areas of migrant education and the monitoring of elementary and
           secondary programs and grantees, which are discussed in more detail in this section of the
           report. You will also find summaries of cases of theft and fraud by individuals placed in
           positions of trust in the preschool, elementary, and secondary education arena that OIG
           closed during this reporting period.

           For 26 years, helping the Department identify and reduce waste, fraud, abuse, or non-
           compliance in the student financial assistance programs has been a top OIG priority. With
           over $70 billion awarded annually through the student financial assistance programs and
           an outstanding loan portfolio of nearly $400 billion, the Office of Federal Student Aid
           (FSA) must provide adequate oversight and demand accountability from its staff, partners,
           and participants to help protect these taxpayer dollars from waste, fraud, abuse, and non-
           compliance. The second section of our report details the student financial assistance-
           related audits we concluded during this reporting period. Our findings show that effective
           management and accountability still challenge FSA. One example of this challenge is
           detailed in our audit of Financial Partners, the division within FSA responsible for the
           oversight of the multi-billion dollar Federal Family Education Loan (FFEL) program.
           Further, our audit of special allowance payments made to Nelnet, a participant in the
           Department's student financial assistance program, estimated that FSA has improperly
           paid Nelnet more than $278 million in special allowance payments for the quarter ended
           March 31, 2003 through the quarter ended June 30, 2005, and could improperly pay Nelnet
           about $882 million after June 2005, unless its billings are corrected. Also provided in this
           section are summaries of some of the investigative cases we closed involving theft of
           student financial aid funds by those in a position of trust in schools, as well as by students
           themselves.




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                In the third section of this report, we highlight the audits and reviews we completed on the
                Department's internal operations, including the results of our annual Federal Information
                Security Management Act (FISMA) audits. We provide summaries of the internal
                investigations we conducted or closed during this reporting period, which show several
                individuals abused their positions of trust within the Department.

                In the fourth section of our report, we provide an update on our hurricane-related efforts.
                Like most federal agencies, we consider stewardship of these funds to be one of our
                highest priorities. As the initial outlay of education-related funding is still under way, the
                bulk of our work has not yet been completed. It is our long-standing policy to keep
                confidential the details of our ongoing work; therefore, we report only on our completed
                work in this section of the report.

                OIG constantly strives to improve its operations through our work with the IG community.
                In the fifth section of this report, we highlight a number of our contributions and the work
                we accomplished over the last six months within the IG community.

                In the sixth and final section of this report, there is a compilation of tables of the audits,
                inspections and investigations we concluded during this reporting period, as required by
                the Inspector General Act of 1978, as amended.

                For more information on the work or activities discussed in this report, please contact the
                OIG Congressional Liaison at (202) 245-7023, e-mail us directly at
                oigpublicaffairs@ed.gov or visit our website at www.ed.gov/offices/oig.


MANAGEMENT AND ACCOUNTABILITY IN STATE AND LOCAL
PROGRAMS
                The Department's elementary and secondary programs serve more than 14,600 school
                districts and approximately 54 million students attending more than 94,000 public schools
                and 27,000 private schools each year. During this reporting period, we concluded an audit
                of the Department's Reading First grant application process, and continued our audits into
                state educational agency (SEA) and local educational agency (LEA) compliance with the
                diverse programs associated with the Elementary and Secondary Education Act (ESEA) of
                1965, as amended by the No Child Left Behind Act of 2001 (NCLB). Our work identified
                an on-going need for improvements in accountability by Department management and
                staff, as well as the need for additional guidance and monitoring of NCLB programs and
                program participants. In addition, we closed a number of significant investigative cases of
                theft of federal education dollars by those in positions of trust to educate our children.
                Below you will find a brief summary of some of the more high-profile reports and
                investigative cases we closed over the last six months.

                NO CHILD LEFT BEHIND

READING FIRST   Title I, Part B, subpart A of ESEA, as amended by the NCLB, established the Reading First
                program aimed at helping every child in every state become a successful reader by the end
                of third grade. The Congress appropriated nearly $5 billion for this program over its first


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            five years -- monies to be allotted to SEAs based on the proportion of children aged 5 to 17
            who reside within the state from families with incomes below the poverty line. SEAs
            submit applications to the Department to receive the funds. In accordance with the law,
            the applications are to be reviewed by an expert review panel composed of, at a minimum,
            three individuals nominated by three different groups plus the Department, and each
            application had to meet all statutory requirements before the state would receive any funds.
            The Department's Office of Elementary and Secondary Education (OESE) is responsible
            for administering the Reading First program.

            During this reporting period, we concluded an inspection of the Department's Reading
            First program grant application process. Our effort had three objectives, to determine: (1)
            if the Department selected the expert panel in accordance with NCLB, and if it screened the
            panel members for possible conflict of interest issues; (2) if the panel reviewed the
            applications in accordance with established criteria; and (3) if the panel adequately
            documented its reasons for denying funding.

            We found that the Department did not select the expert review panel in compliance with
            the requirements of NCLB in that it did not ensure that each state application was reviewed
            by a properly constituted panel. Although not required by statute to screen panel members
            for possible conflicts of interest, we found the Department used a process that was not
            effective. It also did not follow its own guidance for the peer review process for state
            applications. The Department also awarded grants to states without documentation that
            the expert review panels had approved the final applications, and included requirements in
            the criteria used by the expert review panels that went beyond the statutory requirements
            of NCLB. In addition, Department officials obscured the statutory requirements of the law,
            acted in contravention of Government Accountability Office (GAO) Standards for
            Internal Control in the Federal Government, and took actions that call into question
            whether they violated the language of the Department of Education Organization Act that
            prohibits Department officials from exercising any direction, supervision or control over
            the curriculum or program of instruction of any educational institution, school, or school
            system.

            Our findings underscore the Department's lack of an appropriate control environment
            around the implementation of this program. We made a number of recommendations,
            including that the Department review the management and staff structure of the Reading
            First program office and make changes, as appropriate, to ensure that the program is
            managed and implemented consistent with the statutory requirements of NCLB. The
            Department did not agree with all key points made in our findings, but did concur with all
            of our recommendations. Click here for a copy of our report.

MIGRANT     Arkansas: SARs 50 and 52 provided information on the first three reports in a series of
EDUCATION   audits we are conducting on SEA compliance with the child count provisions of the
            Migrant Education Program (MEP) statute. During this reporting period, we concluded a
            fourth audit: to determine if the Arkansas Department of Education (ADE) implemented
            systems to accurately count the children eligible to participate in the MEP. Our audit
            found that 96 percent (114 out of 119) of the migrant children in our sample were
            ineligible to participate in the program. Based on the sample results, we project that ADE
            had 3,127 ineligible migrant children in the districts we reviewed, and we estimate that
            ADE inappropriately spent about $877,000 in MEP grant funds for those children.


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               Federal regulations define a MEP eligible migratory child as a child who is, or whose
               parent, spouse, or guardian is, a migratory agriculture worker, including a migratory dairy
               worker, or a migratory fisher, and who, in the preceding 36 months, has moved from one
               school district to another, to obtain temporary or seasonal employment in agricultural or
               fishing work. MEP funds are allocated by formula to SEAs based on each state's per pupil
               expenditure for education and counts of eligible migratory children, aged 3 through 21,
               residing within the state. In our sample, we identified 68 children that did not meet the
               migrant eligibility requirement. We also identified 46 ineligible migrant children whose
               families did not work in temporary or seasonal positions, as required. Although the
               Department's guidance allows a state to complete an industrial survey to establish that
               work that is available year-round can be considered temporary positions for the MEP,
               ADE did not complete an industrial survey, nor did it have any adequate alternative
               documentation to show how permanent jobs were considered to be temporary for MEP
               purposes. Based on our findings, we recommended that the Department require ADE to
               conduct a statewide migrant child count for the $5.1 million of MEP funds allocated to
               Arkansas in FY2003-2004, as well as for all subsequent years; to return to the Department
               any funds expended for ineligible children; and to establish adequate internal controls to
               ensure federal requirements are followed by migrant officials when identifying and
               recruiting children into the program. ADE strongly disagreed with our audit approach and
               our finding. Click here to review our report.

SUPPLEMENTAL   California: Title I, Part A of the ESEA, as amended by NCLB, requires LEAs to offer
EDUCATION      supplemental education services (SES) to students from low-income families attending
SERVICES       Title I schools in their second year of school improvement status, or that have been
               identified for corrective action or restructuring under the statute. State-approved SES
               providers, selected by the individual student's parents, provide SES to eligible students
               under agreements that the LEAs are required to develop. These agreements, which should
               be developed in consultation with the parents and the provider, are required to include a
               statement of specific achievement goals, identify how the student's progress will be
               measured, and set a timetable for improving the student's achievement. The SEA is
               responsible for evaluating potential providers, maintaining a current list of approved
               providers, and monitoring all providers delivering services in the states.

               We conducted five SES audits of providers in California, including for-profit providers,
               non-profit providers, and an LEA provider. We also looked at a variety of delivery modes-
               individual, small group, and online-to identify and understand specific issues associated
               with each type of provider. In September, we released a Management Information Report
               to provide the Department with information identified in our audits. Our intent was to
               provide insight to the Department on selected issues identified in our audits, and offer
               suggestions for enhancing the Department's SES Non-Regulatory Guidance published in
               June 2005. Our report noted four areas of concern in California: (1) improper LEA
               prioritization of students who received SES; (2) LEA preparation of student learning
               plans; (3) provider payments for SES; and (4) SES provider effectiveness. We made a
               number of suggestions for each area, including that the Department take actions to enhance
               its guidance related to SES provider effectiveness. It should also continue to monitor
               implementation of the prioritization provisions of the ESEA and be prepared to further
               enhance its guidance if LEAs continue to misinterpret the application requirements. This
               may include a step-by-step process that LEAs can follow to ensure consistent


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                determinations on whether an LEA should prioritize. While the suggestions in our report
                were directed to the Department, we recognized that the SEAs also play an important role
                in ensuring that LEAs comply with the SES provisions, through SEA monitoring
                activities. The Department concurred with the information presented in our report, and has
                subsequently placed conditions related to SES on California's Title I, Part A grant. Click
                here for a copy of our report.

PARENTAL        School District of the City of Detroit: We conducted an audit to determine whether the
INVOLVEMENT     School District of the City of Detroit (Detroit) consulted with parents in determining how
FUNDS           to use parental involvement funds under Title I of the ESEA during the 2004-2005 school
                year, and if it properly accounted for these funds during the 2003-2004 and 2004-2005
                school years. While we found that Detroit consulted with parents, its policy did not include
                all required elements. In addition, it did not properly account for or use the funds. Based
                on our findings, we made a number of recommendations, including that the Department
                require the Michigan Department of Education (MDE) to ensure that Detroit returns over
                $930,000 in unallowable costs to the Department, as well as develop and implement
                policies and procedures that provide reasonable assurance that Title I parental involvement
                non-personnel expenditures are necessary, reasonable, allocable, and adequately
                documented. MDE and Detroit did not dispute most of our findings and
                recommendations. Click here to review our report.

DATA QUALITY    South Dakota Department of Education: We concluded an audit to determine
                whether the South Dakota Department of Education's (SDDE) required reporting of
                dropout and graduation rates in the 2003-2004 Consolidated State Performance Report
                (CSPR) were supported by reliable data and met the requirements of Title I, Part A of the
                ESEA, as amended by NCLB. The ESEA provides states the option of applying for and
                reporting on multiple ESEA programs through a single consolidated application and report,
                known as the CSPR. While we found that SDDE met the requirements of Title I by
                reporting dropout and graduation rates, the state reported its 2003-2004 graduation rates by
                using a one-year cohort definition, instead of the four-year cohort definition, as suggested
                by the Department. We also determined that for the schools reviewed, SDDE collected
                unreliable data to support the graduation and dropout rates reported in the 2003-2004
                CSPR. We recommended that the Department require SDDE to develop and implement a
                graduation definition that meets Title I requirements, as well as develop and implement
                improved procedures on classifying and documenting graduate and leaver data, training
                data-reporting staff, and data collection oversight and monitoring. SDDE did not agree
                with one of our findings and recommendation. Click here to review the report.

                GRANTEE ACCOUNTABILITY

CONNECTICUT -   We conducted an audit of the New Haven School District's (New Haven) administration of
NEW HAVEN       the program under Title I, Part A of the ESEA, Summer and After School Program funds to
AFTER SCHOOL    determine whether it properly administered the funds in accordance with federal laws and
PROGRAMS        regulations. We found that New Haven did not properly administer the $3.78 million it
                expended on summer and after school programs. New Haven supplanted funds from other
                nonfederal sources; and 15 of its 21 summer programs lacked documentation and were
                held in ineligible schools. In addition, the City of New Haven's accounting system, the


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                 official accounting system for New Haven, identified expenditures in the aggregate and
                 could not identify individual expenditures for its 21 summer programs. Based on our
                 findings, we made a number of recommendations, including that the Department instruct
                 the Connecticut Department of Education (CDE) to require New Haven to identify Title I
                 expenditures associated with ineligible programs and return those funds to the Department,
                 or return the entire $3.78 million of Title I funds used to pay for the summer programs.
                 CDE did not concur with our finding or recommendations. Click here to review our
                 report.

PUERTO RICO -    We conducted an audit to determine if the Puerto Rico Department of Education Salinas
SALINAS SCHOOL   School District's (PRDE-Salinas) properly administered non-salary funds under Title I,
DISTRICT         Part A of the ESEA, in accordance with grant requirements, federal laws, and regulations.
                 We found that PRDE-Salinas failed to provide proper documentation to support several
                 small disbursements totaling approximately $28,000, and lacked appropriate supervisory
                 oversight of its cash management activities. Based on our findings, we made several
                 recommendations, including that the Department require PRDE to submit the missing
                 documentation to account for the expended funds, or return the money to the Department.
                 PRDE generally concurred with our findings and recommendations. Click here to review
                 our report.

EDUCATION        We conducted an audit to determine if the Education Leaders Council's (ELC)
LEADERS          subcontracting activities complied with the procurement standards set forth in the
COUNCIL (ELC)    Education Department General Administrative Regulations (EDGAR), if its subcontract
                 costs for Achievement Technologies, Incorporated (ATI) and The Princeton Review
                 (TPR) charges to the federal grants were reasonable and allocable, and if there was any
                 conflict of interest between ELC and its subcontractors. We found that ELC's
                 subcontracting activities did not comply with the procurement standards set forth in
                 EDGAR, nor did it perform and document an adequate cost or price analysis. As a result,
                 we were unable to determine if the costs charged by ATI and TPR were reasonable relative
                 to other vendors' prices. Additionally, while ATI and TPR made significant contributions
                 to ELC and its affiliates in 2003, we found no conflicts of interest issues between ELC and
                 the subcontractors. We made several recommendations, including that ELC ensure that it
                 complies with procurement and documentation standards set forth in Department
                 regulations when renewing or awarding any federally funded contract. ELC, which has
                 changed its name to "Following the Leaders," concurred with our findings and did not
                 disagree with our recommendations. Click here to review our report.

                 INVESTIGATIONS
                 Our investigations into suspected fraudulent activity by SEAs, LEAs, and other federal
                 education grantees have led to the arrest and conviction of a number of high-ranking state
                 and local education employees-individuals who were in positions of public trust-for
                 misuse of federal education funds. We will continue to aggressively pursue those who
                 seek to defraud federal education programs at the expense of our nation's students. Here
                 are a few examples of our work in this area over the last six months.




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GEORGIA     The former State Superintendent of Education and 2002 gubernatorial candidate and five
            co-conspirators were sentenced for their roles in a scheme to funnel over $500,000 in
            federal education dollars from the Georgia Department of Education (GDOE) into several
            companies owned by one of the co-conspirators. Portions of those funds were funneled
            into the former official's gubernatorial campaign, and used for personal expenses of the
            candidate, including cosmetic surgery. Our investigation revealed that the former official
            ordered GDOE officials to issue checks totaling $500,000 to various companies,
            purportedly to provide computer licenses and services to the Atlanta Area School for the
            Deaf, the Georgia School for the Deaf, and the Governor's Honors Program. The co-
            conspirator who owned those companies, transferred substantial portions of those funds to
            the gubernatorial campaign. Other co-conspirators included the owner's former Chief
            Financial Officer, a former Deputy State School Superintendent for GDOE, a former
            Federal Programs Manager for GDOE, and the former manager of the former official's
            gubernatorial campaign. The former State Superintendent/candidate was sentenced to
            eight years in prison, and ordered to pay restitution of more than $414,000. Her co-
            conspirators received sentences ranging from eight-years in prison to one-year probation,
            and were ordered to make financial payments, ranging from a fine of over $3,000 to
            restitution of over $382,000.

MINNESOTA   The former owners of the Right Step Academy, one of the first charter schools in
            Minnesota, were sentenced for defrauding the school in order to finance their extravagant
            lifestyle. They were given prison sentences ranging from 30-37 months, followed by
            probation, and were ordered to pay nearly $490,000 in restitution. Our investigation,
            conducted jointly with the IRS-Criminal Investigation Division (IRS-CID), uncovered
            evidence that the couple set up a dummy corporation and diverted school funds to the
            corporation-funds that were used to purchase luxury cars, vacations, personal real estate,
            clothing, and house furnishings.

NEW YORK    The former Assistant Superintendent for Personnel at the William Floyd Union Free
            School District pled guilty, was sentenced to community service, lost his employment
            license, and was fined for falsifying records. The former official obtained a letter from
            William Floyd's former Certified Public Accountant firm falsely indicating that his
            daughter-in-law was qualified for an accounting position at William Floyd. This resulted
            in her being hired for a position in which she was responsible for the preparation of final
            expenditure reports for federal grants received by William Floyd. Our investigation
            uncovered evidence that the daughter-in-law prepared 15 false expenditure reports that
            were filed with the New York State Department of Education, that enabled William Floyd
            to fraudulently obtain over $530,000 in federal education grant funds.

TEXAS       During this reporting period, three former officials of the Prepared Table Charter School in
            Texas were ordered to pay $2 million in restitution for defrauding a number of federal and
            state agencies. A task force consisting of OIG staff, the FBI, IRS-CID, the U.S.
            Department of Agriculture OIG, and the Texas Education Agency, found that officials
            misreported student attendance data in order to receive federal and state funds. From 1999
            through 2002, the school received over $2.5 million in federal funds. The task force found
            that the school also commingled its finances with a church in Houston, which is against the




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                law. The school's charter was revoked in August 2002. The three officials each pled
                guilty and were sentenced to prison in 2005.

WEST VIRGINIA   The former Financial Manager and Executive Secretary for the West Virginia Regional
                Education Service Agency 1 (RESA-1) was sentenced to 64 months in prison and ordered
                to pay over $1.5 million in restitution for embezzling education funds and filing a false tax
                return. RESA is a state educational agency that receives funds under Title I, Part A of the
                ESEA to provide a broad spectrum of services and support for local educational agencies to
                improve student achievement and maximize economies of scale in staff development,
                purchasing, and administrative services. Our investigation, conducted in partnership with
                the FBI, IRS CID, and the Beckley Police Department, revealed that the former official
                embezzled over $1.3 million dollars in education funds from RESA-1 and filed a false tax
                return with the IRS.


MANAGEMENT AND ACCOUNTABILITY IN STUDENT FINANCIAL
ASSISTANCE PROGRAMS
                The Department's student financial assistance programs are large and complex. The loan
                and grant programs rely on over 6,000 postsecondary institutions, more than 3,000 lenders,
                35 guaranty agencies and many contractors. With over $70 billion awarded annually
                through the student financial assistance programs and an outstanding loan portfolio of over
                $400 billion, the Department must ensure that all entities involved in the programs are
                adhering to statutory and regulatory requirements. As the office responsible for
                administering the student aid program, FSA must provide adequate oversight and demand
                accountability from its staff, partners, and participants to help protect these dollars from
                waste, fraud, abuse, and non-compliance. Audits concluded during this reporting period
                show that effective management and accountability challenge FSA. In addition, we closed
                a number of investigative cases of theft of student financial aid funds by both those in
                positions of trust in schools, as well as by students themselves. Our reports and more
                significant cases are highlighted below.

                FINANCIAL PARTNERS
                Financial Partners is the division within FSA that is responsible for the oversight of the
                FFEL program-a program that in 2005 guaranteed $43 billion in loans to 5.8 million FFEL
                recipients, paid $5.1 billion to lenders for interest and special allowance subsidies, and
                paid $4 billion to guaranty agencies. It has staff located in Washington, DC, and regional
                offices across the country. The regional offices are responsible for providing oversight of,
                and technical assistance to, the guaranty agencies, lenders, and servicers, and other
                organizations participating in the FFEL program. During this reporting period, we
                concluded an audit to evaluate the adequacy of Financial Partners' processes for
                monitoring guaranty agencies, lenders, and servicers. We found that it has not
                implemented an acceptable level of internal control for monitoring and providing
                oversight of FFEL program participants, as required by the Federal Managers Financial
                Integrity Act of 1982 (FMFIA). According to FMFIA, internal accounting and
                administrative controls of each executive agency shall be established in accordance with
                GAO's Standards for Internal Control in the Federal Government. During our audit


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period, we identified internal control weaknesses relating to five of the internal control
standards-control environment, control activities, monitoring, information and
communications, and risk assessment. Based on our review, Financial Partners did not
provide adequate oversight and consistently enforce FFEL program requirements.

Specifically, we found that: program monitoring and oversight were not in the tactical
goals of FSA's Strategic Plan for Financial Partners; its reporting structure created an
inherent organizational conflict of interest, with the advocate for guaranty agencies
supervising the staff responsible for compliance and oversight of those entities; it
overstated the number of program reviews performed in the Postsecondary Education
Participation System and did not consistently quantify liabilities in program reviews; and it
did not ensure that the Department's policies regarding delegation of authority for waiving
liabilities were followed.

In addition, Financial Partners did not adequately review, test, identify, and report
significant instances of non-compliance in its program reviews and technical assistance. It
does not have an effective information and communications process for requesting
assistance on policy issues and communicating resolution to staff. As a result, Financial
Partners staff does not receive timely policy guidance to determine whether guaranty
agencies, lenders, and servicers are in compliance. And lastly, Financial Partners has not
fully implemented its scorecards as a risk assessment tool and does not have sufficient
information to evaluate whether the scorecard elements are useful in assessing risk.

Based on our findings, we made a number of recommendations, including that FSA
include compliance monitoring of guaranty agencies, lenders, and services in the tactical
goals of FSA's strategic plan. FSA did not concur with all of our findings, but did concur
with several of our recommendations. Click here for a copy of our report.

SPECIAL ALLOWANCE PAYMENTS TO NELNET
Special allowance payments are made to lenders in the FFEL program to ensure that
lenders receive an equitable return on their loans. In general, the amount of a special
allowance payment is the difference between the amounts of interest the lender receives
from the borrower or the government and the amount that is provided under requirements
in the Higher Education Act of 1965, as amended (HEA). The HEA includes a special
allowance calculation for loans that are funded by tax-exempt obligations issued before
October 1, 1993. The quarterly special allowance payment for these loans may not be less
than 9.5 percent, minus the interest the lender receives from the borrower or the
government, divided by four. In April 2003, Nelnet implemented a process to increase the
amount of its loans receiving special allowance under the 9.5 percent floor. Known as
Project 950, Nelnet transferred loans into and out of an eligible tax-exempt obligation from
taxable obligations, continuing to bill under the 9.5 percent floor for those loans after they
were transferred to the taxable obligations. Nelnet repeated this process many times,
increasing the amount of loans it billed under the 9.5 percent floor from about $551 million
in March 2003 to about $3.66 billion in June 2004. Nelnet terminated Project 950 in May
2004, after the introduction of the Taxpayer Teacher Protect Act, which when passed,
amended the HEA to make loans that were transferred, sold, or refinanced by taxable
obligations after September 30, 2004, ineligible for the 9.5 percent floor.



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In 2005, we initiated an audit to determine whether Nelnet's use of Project 950 to increase
the amount of its student loans billed under the 9.5 percent floor complied with HEA
requirements, regulations, and other guidance issued by the Department. We found that
Nelnet's Project 950 did not comply with applicable laws, regulations, or Department
guidance; therefore, the increased amount of loans created by Project 950 was ineligible to
be billed under this 9.5 percent floor. We estimated that Nelnet was improperly paid more
than $278 million in special allowance payments for these loans from the quarter ended
March 31, 2003 through the quarter ended June 30, 2005. Nelnet could be improperly paid
about $882 million for the ineligible loans after June 2005, if its billings are not corrected.

Based on our finding, we made several recommendations, including that FSA instruct
Nelnet to exclude all Project 950 loans from its claims for payment under the 9.5 percent
floor, as well as require the return of the overpayments described in our report. Nelnet
strongly disagreed with our findings and recommendations, asserting that its actions were
in accordance with the HEA, regulations, and guidance issued by the Department. While
we received no official comments from the Department prior to issuing our final audit
report, the Secretary is currently considering the Department’s response to the findings and
recommendations in the report. Click here for a copy of our report.

MCED CAREER COLLEGE
Our audit of MCed Career College's (MCed) administration of student financial assistance
programs sought to determine whether its administration of HEA Title IV programs was in
compliance with applicable laws and regulations governing institutional eligibility,
program eligibility, student eligibility, awards calculations, disbursements, and return of
HEA Title IV funds. While we concluded that MCed met requirements governing
institutional and program eligibility, it did not consistently comply with Title IV
requirements governing student eligibility, award calculations, disbursements, and the
return of Title IV funds. Specifically, MCed did not have adequate controls in place to
ensure that verification of student eligibility data was properly documented, Title IV award
calculations were accurate, and the timing of Title IV disbursements was appropriate. In
addition, MCed did not have adequate controls in place to ensure that return of Title IV
calculations were performed correctly, or that the unearned Title IV funds were returned in
a timely manner and to the proper Title IV program.

We made a number of recommendations, including that FSA require MCed to have its
independent public accountant, as a part of the institution's next annual audit, and provide
an attestation that the described internal control procedures and changes in its accounting
system were fully implemented. We also recommended that MCed identify all amounts of
unearned Title IV funds that have not been returned to the appropriate Title IV program for
students and return the funds to the applicable Title IV program. MCed concurred with
our findings and described corrective actions to address our recommendations. Click here
to review our report.




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                INVESTIGATIONS
                Identifying and investigating fraud and abuse in the student financial assistance arena has
                always been a top OIG priority. The following are summaries of the most egregious cases
                of student financial aid fraud that were closed over the last six months.

FRAUD BY        The former Dean of Education at the Western School of Health and Business Careers,
SCHOOL          located in Pittsburgh, Pennsylvania, was sentenced to two years of probation and 50 hours
OFFICIALS       of community service for forging accrediting agency documents. Our investigation
                revealed that the former Dean forged four Accrediting Commission of Career Schools and
                Colleges of Technology (ACCSCT) program approval letters. The letters were never
                issued by ACCSCT, and the programs were not approved. Our investigation further
                determined that there were four other programs that were never approved by ACCSCT.
                As a result of his criminal conduct, the school received and disbursed over $5 million of
                federal financial aid to which it was not entitled.

                The former financial aid director of the Troy School of Beauty Culture (TSB), located in
                New York, was sentenced to 18 months in jail and two years of supervised release for
                embezzlement. Our investigation, conducted jointly with the FBI, disclosed that the
                former director embezzled over $410,000 in Pell Grant funds over a four-year period. He
                used the identities of at least 25 individuals, including a co-worker, to substantiate
                drawdowns of funds into the TSB Pell Grant account. He then wrote checks to "cash" and
                converted them for his personal use.

                The three former owners of the Moler Beauty College (MBC), located in Louisiana, were
                sentenced and fined for conspiracy to commit student financial aid fraud. Our joint
                investigation with the FBI disclosed that the three owners, along with a financial aid
                administrator and a contracted Ability-To-Benefit (ATB) tester, engaged in a scheme to
                fraudulently obtain Title IV funds by falsifying student and school records. MBC officials
                also engaged in a scheme to prevent the return of Title IV funds to the Department. The
                owners received prison sentences ranging from 12 to 27 months, and were ordered to
                jointly pay over $164,000 in restitution to the Department.

FRAUD BY        A former ATB tester in Illinois was sentenced to six months in prison, three years
GOVERNMENT      supervised released, and was ordered to pay over $156,000 in restitution for falsifying
CONTRACTORS     ATB tests. Our investigation found that from 1997 through 1999, the former tester
                falsified ATB tests to make it appear that students were eligible for financial aid, causing
                over $150,000 in Pell Grant and Supplemental Education Opportunity Grant funds to be
                disbursed on behalf of ineligible students.

IDENTITY        As a follow-up to a case we reported in our last SAR, another family member received a
THEFT/          prison sentence for his role in a nearly $1 million financial aid fraud scheme. The man was
FALSIFICATION   sentenced to serve 24 months in prison. He was one of seven family members who
OF IDENTITY
                participated in the scheme, orchestrated by his grandmother, in which the participants used
                the identities of more than 65 people to obtain almost $1 million in student financial aid at
                various colleges in Arizona, Colorado, Maryland, Nevada, and Texas through distance
                education programs.



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               The ringleader and his intermediaries were sentenced for their roles in a $200,000 financial
               aid fraud kickback scheme at Texas Tech University (TTU). The ringleader, a former
               student worker in the TTU financial aid office, devised a scheme whereby he submitted
               fraudulent Free Applications for Federal Student Aid (FAFSAs) on behalf of students to
               qualify them for student aid, and received a kick-back of up to half the amount each
               student received. Two intermediaries helped recruit students to participate in the scheme
               and provided student names and Social Security numbers (SSN) to the ringleader. The
               ringleader also used the identities of 13 other students to obtain federal Pell Grant funds
               for himself. He was sentenced to over two years imprisonment, three years supervised
               release, and was ordered to pay over $122,000 in restitution. Both intermediaries were
               sentenced to a period of home confinement, followed by probation. One of the
               intermediaries was ordered to pay over $29,000 in restitution, and the other over $14,000
               in restitution. Three other students were sentenced for participating in the scheme, while
               two others were acquitted.

               A former Ohio public school employee was sentenced to two years probation and ordered
               to pay $142,000 in restitution for financial aid fraud. Our investigation revealed that for
               nearly 22 years, the woman assumed the identity of a high school friend who died in 1969.
               From 1990 until 2001, she used the false identity to attend various universities and apply
               for and receive federal financial aid. After completing her schooling and using the false
               identity, the woman applied for and obtained a teaching certification to teach in Ohio
               public schools. She had previously defaulted on student loans using her identity and SSN,
               which left her ineligible to receive further financial aid.

               A former New York University student was sentenced to 20-months imprisonment, three
               years supervised release, and ordered to pay over $103,000 for his role in an identity theft/
               student aid fraud scheme. Our investigation found that the individual used a false identity
               and an SSN assigned to another person to apply for and receive federal and private student
               financial aid to which he was not entitled. He also applied for and received-under false
               pretenses-private scholarship and grant funds reserved for victims of the September 11th
               attacks.

               A former Temple University student was sentenced to two years probation and ordered to
               pay over $83,000 in restitution for theft of education funds and credit card fraud. Our
               investigation disclosed that the former student forged her mother's signature to apply for
               and receive nine Parent Loan for Undergraduate Students (PLUS) loans totaling nearly
               $55,000, as well as used her mother's identity to fraudulently obtain various credit cards.

FOREIGN        An Indiana man was sentenced to six months incarceration, three years supervised
SCHOOL FRAUD   released, and was ordered to pay over $83,000 in restitution for financial aid fraud. From
               May 2001 to May 2002, the man received student loan funds in order to attend Bond
               University, located in Australia. Our investigation revealed that the man did not attend
               Bond during the time period he received financial aid.




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MANAGEMENT AND ACCOUNTABILITY IN DEPARTMENT'S
INTERNAL OPERATIONS
              OIG's reviews of the Department's internal operations are designed to help improve the
              overall operation of this mission-focused agency. Our reviews seek to help the
              Department accomplish its objectives by ensuring the reliability and integrity of its data,
              its compliance with applicable policies and regulations, its ability to safeguard its assets,
              and that it is effectively and efficiently utilizing the taxpayer dollars with which it has been
              entrusted. Work concluded during this reporting period shows that there are significant
              inadequacies with the Department's management of and accountability for its internal
              operations. In addition, enforcement of its policies and procedures continues to challenge
              the Department.

              INFORMATION SECURITY
              In 1998, GAO released a report noting that deficiencies in federal information security are
              a growing concern. Eight years and countless technological advancements later, it remains
              a concern throughout the federal government.

FEDERAL       The E-Government Act of 2002, signed into law by President George W. Bush, recognized
INFORMATION   the importance of information security to the economic and national security interests of
SECURITY      the United States. Title III of the E-Government Act, entitled the Federal Information
MANAGEMENT    Security Management Act (FISMA) of 2002, requires each federal agency to develop,
              document, and implement an agency-wide program to provide information security for the
ACT           information and information systems that support the operations and assets of the agency,
              including those provided or managed by another agency, contractor, or other source. It
              also requires the Inspectors General to perform independent evaluations of the
              effectiveness of information security control techniques and to provide assessments of the
              agency's compliance with FISMA.

              We issued a series of reports to address the 2006 FISMA requirement: a system security
              review of the Department's Education Data Center; a system security review of FSA-
              managed data centers; a review of the Department's incident handling program and
              intrusion detection system; and a report on the Department's online privacy policy and
              protection of sensitive information. Our findings in these reviews, some of which had
              been previously reported, were brought to management's attention for its determination as
              to whether the findings represent a "significant deficiency," as defined in the Office of
              Management and Budget (OMB) Circular A-123, Management's Responsibility for
              Internal Control. In response to each of these audits, the Department generally concurred
              with our findings and recommendations and provided a proposed corrective action plan to
              address our recommendations; however, FSA did not concur that the deficiencies rose to
              the level of significant deficiency, as defined in OMB's FY 2005 Instructions for Preparing
              the FISMA report and Privacy Management Report.

              Our FISMA and other IT security audits fall under exemption (b)(2) of the Freedom of
              Information Act. For security purposes and to maintain the integrity of the Department's



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critical data, these audits are not posted on our Web site or shared outside of official
channels. Below we discuss only the general/public aspects of our work and findings.

System Security Review of the Department's Education Data Center. We
performed a security review of the information technology infrastructure at the
Department's Education Data Center (EDC). EDC supports major applications that are
vital to the Department's success. Our review identified significant security weaknesses
that must be addressed in order for the Department to maintain the security certification
and accreditation (C&A) of its systems. We also identified a deficiency in the
Department's configuration management program that restricts its ability to reasonably
maintain its systems in a secure manner. Based on our findings, we determined that the
Department lacks certain management, operational, and technical security controls to
adequately protect the confidentiality, integrity, and availability of systems and data
residing at the EDC. We recommended that the Department develop a plan to address the
security vulnerabilities at the EDC, and that it implement procedures to verify that
resulting corrective actions fully addresses these security weaknesses.

System Security Review of FSA-Managed Data Centers. Our audit sought to
evaluate the operational, management, and technical controls of FSA's system security
program at its data centers to determine if those controls adequately reduce the likelihood
that system security weaknesses can be exploited, and if those controls effectively prevent
unauthorized access, alteration, or destruction to mission critical systems and data. Our
audit scope, however, was limited to FSA's Rockville Data Center (RDC), because an FSA
subcontractor responsible for managing the Common Origination and Disbursement
system (COD)-a $100 million financial processing operation-refused to provide
information necessary for our audit. From the information we were able to review at RDC,
we determined that FSA must improve its controls to adequately protect its systems. We
made a number of recommendations, including that FSA develop a plan to address the
security vulnerabilities at the RDC, and that it implement procedures to verify that
resulting corrective actions fully addresses these security weaknesses.

Review of the Department's Incident Handling Program and Intrusion Detection
System. We conducted a review to evaluate the effectiveness of the Department's Incident
Handling (IH) and Intrusion Detection System (IDS) in identifying and responding to
aggressive Internet-based attacks in accordance with applicable laws and regulations. We
identified a significant deficiency in the Department's management control structure in IH
and IDS that restricts its ability to reasonably identify and report suspicious activity. In
addition, other identified deficiencies must be addressed in order to maintain the security
C&A of its systems. Based on our findings, we determined that the Department's IH
program and IDS are not effective in ensuring identification and responsiveness to
malicious attacks against its systems, a determination we have identified in previous
FISMA audits and reported to the Department. We recommended that the Department
develop a plan to address the security vulnerabilities identified in our audit, and implement
procedures to verify that resulting corrective actions fully address the security weaknesses.

Online Privacy and Protection of Sensitive Information. Our audit sought to assess
the Department's compliance with federal regulations requiring federal agencies to take all
necessary/reasonable measures to swiftly eliminate significant vulnerabilities to the
sensitive information entrusted to them. Through interviews, documentation reviews, and


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                testing of the Department's external websites for privacy policy conformance, we found
                that it has not ensured compliance with privacy laws and guidance as specified by OMB
                and Departmental directives as they relate to establishing protection controls for privacy.
                In addition, our reviews identified potential areas of non-compliance with OMB directives.
                We recommended that the Chief Information Officer of both the Department and FSA
                ensure its publicly accessible websites comply with OMB regulations, and that controls are
                in place to ensure its online privacy policies are consistent.

ADDITIONAL IT   Personally Identifiable Information. Personally identifiable information (PII) is
REVIEWS         generally defined as any piece of information that can potentially be used to uniquely
                identify, contact, or locate a single person. Because IT and the Internet have made it easier
                to collect PII, it has become much more important to protect PII. During this reporting
                period, we issued a memorandum to the Department to alert it to weakneses we identified
                in a Financial Management System Software (FMSS) application that impacts its
                protection of PII. The goal of the memorandum was to expedite corrective action. We
                found that poor internal controls exist over the FMSS application, resulting in reduced
                accountability, violation of the principles of "Least Privilege" (granting users only
                mimimal access to systems in order to perform their duties), and unnecessary access to
                sensitive PII. We also found that improper levels of security clearances exist for
                application users, creating unnecessary risk that could potentially lead to the compromise
                of sensitive PII.

                Intrusion Detection System. On February 27, 2006, the Department contacted OIG to
                report that the Intrusion Detection System (IDS) sensors for the Department's network,
                EDNet, had been non-operational since February 17, 2006. As the IDS is a critical
                component of the Department's IT security program, and its non-operation could
                significantly impact the Department's ability to identify a computer intrusion, OIG agreed
                to look further into the matter. Although we did not conduct a full audit, we reviewed the
                IDS sensors, status reporting, and the configuration of the network and identified three
                concerns that we shared with the Department via an alert memorandum in order for
                Department staff to research the issues further and take appropriate action.

                First, we found that the IDS sensors were operating properly (providing intrusion alerts) an
                average of only 44 percent of the time, which put the Department at a substantial risk of an
                undetected intrusion. Second, we determined that this situation happened and remained
                unresolved for a substantial period of time either due to the Department's inadequate
                oversight of the EDNet contractor responsible for managing the IDS, or because
                Department personnel were aware of the problem and chose not to press the EDNet
                contractor to correct the problem or inform higher level management of the issue. Lastly,
                we found that the EDNet contractor may not have met its Service Level Agreement for
                IDS. Based on our findings, we recommended that the Department look for indications of
                previously undetected intrusions on its computer systems; review procedures/processes for
                oversight and management of its contractors as it pertains to IDS; and determine if there
                are contractual remedies against the EDNet contractor that may not have met the IDS
                service level agreement.




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                OTHER INTERNAL OPERATIONS

RECOVERY        Since 2002, federal government agencies that enter into contracts of more than $500
AUDIT EFFORTS   million in a fiscal year are required to identify possible errors made in paying contractors,
                and for recovering any over-payments or other erroneous payments. A required element of
                such a program is the use of recovery audits and recovery activities. To complete this
                work, the Department contracted with a consulting company (contractor) to conduct an
                audit of possible duplicate payments. As the contractor's initial review identified only two
                duplicate payments, it refocused its efforts on any interest penalties the Department
                overpaid. In this effort, the contractor identified 184 vendors that were overpaid interest
                penalties by the Department, totaling approximately $269,000.

                We conducted an audit to determine the methodology used by the contractor to identify
                erroneous interest payments, whether the identified exceptions were accurately assessed as
                overpayments, and if the contractor delivered services as set forth in its contract with the
                Department. Our audit revealed that the methodology used by the contractor was not
                reliable in calculating interest penalties; the contractor did not correctly assess interest
                payments as overpayments or correctly calculate interest overpayments; nor were all of the
                services delivered as required by the contract. We also found that the Department did not
                follow its own policy regarding contract monitoring; thus the Department was unaware
                that the contractor inaccurately calculated interest overpayments, and that the contractor
                had not delivered all of its contracted services. Based on our findings, we made a number
                of recommendations, including that the Department consider recouping fees paid to the
                contractor for claims that were erroneously collected, and that it take steps to ensure that
                its contract monitoring policies are followed in order to provide assurance that its
                contractors are performing the work they are being paid to do. The Department concurred
                with our recommendations, and provided a proposed corrective action plan to address our
                recommendations. Click here to review our report.

CONTRACTOR      The Education Sciences Reform Act of 2002 established the Institute of Educational
EMPLOYEE        Sciences (IES), a division within the Department, to provide rigorous evidence on which
PERSONNEL       to ground education practice and policy. During this reporting period, we reviewed 10 IES
SECURITY        contracts, totaling nearly $194 million in payments for FY2005, and issued a
                memorandum to alert the Department that the IES has not fully implemented Departmental
SCREENINGS      policy regarding contractor employee screenings. As a result, the Department lacks
                assurance that contractor employees with access to Department-controlled facilities, and/
                or with access to sensitive or Privacy Act-protected information, are suitable for the access
                granted. Department Directive OM 5-101states that all contractor employees must
                undergo personnel security screening if they will be employed for 30 days or more, and
                that the screenings will be commensurate with the risk and magnitude of harm the
                individual could cause. It provides a definition of "contract employee," and directs offices
                to establish and maintain procedural documentation for complying with this directive,
                including determining the risk levels for each contractor position, and ensuring contractor
                employees receive appropriate screening. While IES developed procedures implementing
                the Directive, it did not maintain a list of contract positions and current risk level
                designations; thus it cannot ensure that its contractor employees received the appropriate
                screening. Further, without this key component, IES cannot assess potential harm or
                exposure should an incident with a contractor employee occur. We made a number of


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                suggestions, including that IES take immediate action to ensure that contractor employees
                receive appropriate security screening. IES agreed with our suggestions and proposed
                corrective action to implement all of our suggestions.

REIMBURSABLE    The Federal Property and Administrative Services Act of 1949 gave the General Services
WORK            Administration (GSA) the responsibility to manage the government's real property. The
AUTHORIZATION   Public Buildings Service (PBS) was established by the Public Buildings Act of 1959,
PROCESS         which sets forth the functions of PBS, including "providing for repairs and alterations of
                Government owned or leased space on a reimbursable basis." This function is the basis for
                the Reimbursable Work Authorization (RWA) program, which was established to capture
                and bill the costs of altering, renovating, repairing, or providing services in space managed
                by GSA over and above the basic operations financed through rent. The Office of
                Management/Facilities Services (OM/FS) manages the Department's RWA function,
                working directly with GSA.

                We conducted an audit to determine the adequacy of the Department's oversight of the
                RWA process, if RWA funds are tracked and accounted for properly, if a systemic issue
                exists with the tracking and accounting of the RWA funds, and the reasonableness of
                employee overtime pertaining to the process. We found that there is a lack of clarity of
                roles and responsibilities for the various personnel governing the RWA process,
                inadequate financial accountability and ineffective reporting of RWA activities, and a lack
                of compliance with the Department's guidance on premium pay. In addition, our audit
                work revealed that no individual appeared to have earned excessive overtime pay when
                compared to all other individuals in OM/FS. We made a number of recommendations to
                correct the identified weaknesses. The Department agreed with our findings and
                recommendations. Click here to review our report.

PURCHASE        As discussed in our previous SARs (No. 51 and No. 52), we conducted a Department-wide
CARDS           audit of its purchase card program. We issued reports to Department program offices,
                addressing specific issues noted in each specific program office review. In April we issued
                a final audit, summarizing the results of all work performed and presented
                recommendations to improve the overall management of the Department's purchase card
                program. The scope of our review included purchases made by Washington, DC,
                cardholders during the period July 1, 2003, through June 30, 2004. We identified a total of
                6,474 purchases valued at over $2.8 million. While we found that the Department had
                improved controls over the purchase card program and implemented corrective actions in
                response to prior OIG reviews, there were still several areas where improvements were
                needed. Based on the findings in our 2002 review, we recommended that the Department
                develop guidelines and conduct on-site reviews of purchase card activities. While
                Department staff performs quarterly reviews of selected purchase card activity, it stated
                that it does not have the resources to perform on-site reviews. Additionally, while we did
                not identify any inappropriate purchases, we did find that internal controls over
                documentation required to support purchases needed improvement - a repeat finding from
                our 2002 audit. The Department concurred with our findings, and provided a proposed
                corrective action plan to address each of our recommendations. Click here to review our
                report.




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CONTRACT    OIG conducted "pre-award reviews" of proposals for a number of the Department's
PROPOSALS   contracts over the last six months. We reviewed 12 proposals from contractors covering
            three pending awards and identified overstated costs of approximately $649,000 and
            understated costs of approximately $1.3 million.

            INVESTIGATIONS
            During this reporting period, OIG Special Agents were involved in two cases involving
            employees who abused their positions of trust for personal gain, be it financial gain or
            other, as well as the case of an individual who illegally gained access to the Department's
            information system. Here is a brief summary of each of these cases.

            A former OIG employee was sentenced to five months in prison followed by five months
            of home confinement, and was ordered to pay $40,000 in restitution for computer hacking
            and unauthorized access. Our investigation disclosed that the former staffer installed
            software on his supervisor's computer enabling him to view the supervisor's e-mail and
            Internet activity, as well as other communications, at-will. He continued his illegal
            activity for nearly two years.

            A former Department program specialist pled guilty in federal court to accepting $10,000
            from the president of a company that had been awarded a contract from a Department
            grantee to install computer systems at schools in California and Oregon. He was sentenced
            to six months home detention, three years probation, and was ordered to pay $10,000 in
            restitution on October 20.

            An individual was sentenced to two years probation and fined $1,000 for obtaining
            information from a Department computer without authorization. Our investigation
            revealed that the individual intentionally gained unauthorized access to EDNET and
            illegally obtained information from it. He was able to gain access by using keystroke-
            monitoring software to capture an employee's user name and password.


HURRICANE RELATED EFFORTS
            The Hurricane Education Recovery Act (HERA), passed as part of Public Law 109-148 in
            2005, authorized three new grant programs to assist school districts and schools in meeting
            the educational needs of students displaced by Hurricanes Katrina and Rita, and to help
            schools closed as a result of the hurricanes to re-open as quickly and effectively as
            possible. These programs are: (1) the Immediate Aid to Restart School Operations
            program, funded at $750 million; (2) the Assistance for Homeless Youth program, funded
            at $5 million; and (3) the Temporary Emergency Impact Aid for Displaced Students
            (Emergency Impact Aid) program, funded at $645 million. In addition, Public Law 109-
            148 included $200 million for students and institutions of postsecondary education
            affected by the hurricanes.

            In June 2006, Congress appropriated an additional $235 million for the Emergency Impact
            Aid programs, and an additional $50 million for postsecondary institutions and students in
            the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror,
            and Hurricane Recovery 2006.


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                                                             Semiannual Report To Congress: #53

         OIG has worked closely with the Department, providing assistance and advice in matters
         to help ensure that hurricane-related funds are expended in accordance with the terms of
         the grants and applicable laws, regulations, policies, and procedures. During this reporting
         period, OIG completed one audit, seven ongoing audits are near completion, and four
         additional audits are planned to begin in FY2007. The OIG also was an active participant
         in creating a new section for the March 2006 Compliance Supplement to OMB Circular A-
         133 to cover the new HERA programs. This addition to the Compliance Supplement,
         issued in April 2006, applies to all audit periods that begin after June 30, 2005.

         As it is our long-standing policy to keep confidential the details of our ongoing work,
         below you will find a summary of only our completed audit. When the other audits are
         finalized, we will report our findings to the U.S. Congress, the Department, and the general
         public.

         MISSISSIPPI INSTITUTIONS OF HIGHER LEARNING
         We initiated an audit to evaluate the Mississippi Institutions of Higher Learning's (IHL)
         administration of the $95 million appropriation authorized by Public Law 109-148. Our
         audit sought to assess IHL's methodology for allocating hurricane relief funds to schools,
         evaluate the adequacy of the information provided by schools to IHL, and to identify and
         assess IHL's controls over the accounting for the hurricane relief funds and compliance
         with laws and regulations. We found that IHL has implemented methodologies to allocate
         hurricane relief funds to its institutions and to make hurricane relief assistance awards to
         eligible students through the Special Leveraging Educational Assistance Partnership
         Program. For the $50.5 million in hurricane relief funds spent through this program as of
         July 20, 2006, IHL appears to have implemented an adequate internal control system. We
         were, however, unable to fully meet our audit objectives, as the funding period had not yet
         ended, and material events may occur in IHL's administration of the hurricane relief
         funding that could impact our final assessment. We will begin a separate audit to assess
         IHL's full distribution of its hurricane relief funds and perform additional audit work after
         the completion of the funding period, which ended September 30, 2006.


OTHER NOTEWORTHY ACTIVITIES
         NONFEDERAL AUDITS
         Participants in Department programs are required to submit annual audits performed by
         independent public accountants (IPAs). We perform quality control reviews (QCRs) of
         these audits to assess their quality. We completed 44 QCRs of audits conducted by 42
         different IPAs or offices of firms with multiple offices. We concluded that 16 (36 percent)
         were acceptable, 22 (50 percent) were technically deficient, and 6 (14 percent) were
         substandard. We have made 3 referrals of IPAs to State Boards of Accountancy for
         substandard work, based on QCRs reported in a prior SAR, and to the American Institute
         of Certified Public Accountants (AICPA), if they were AICPA members.




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                                                                Semiannual Report To Congress: #53


             PRESIDENT'S COUNCIL ON INTEGRITY AND EFFICIENCY

PCIE AUDIT   Inspector General Higgins continues to chair the Audit Committee of the President's
COMMITTEE    Council on Integrity and Efficiency (PCIE). Highlights this reporting period include:

             National Single Audit Sampling Project. OIG continues to lead an intergovernmental
             project to accurately assess the quality of all audits conducted under the Single Audit Act.
             During this reporting period, the core work of the project continued, as we conducted
             QCRs of selected audits. We will compile the results over the next six months, and issue a
             report in the next SAR.

             Revisions to Audit Bulletin. During this reporting period, several members of the
             Federal Audit Executive Council's (FAEC) Financial Statement Audit Network
             participated in a workgroup led by OMB to revise OMB's audit Bulletin No. 01-02. The
             revised Bulletin, No. 06-03, Audit Requirements for Federal Financial Statements, is a
             vital guide for OIG offices. The workgroup's changes included revising the definition of
             material weakness, reportable condition, and significant deficiency to be consistent with
             SAS 112, Communicating Internal Control Related to Matters Identified in an Audit, and
             proposed conforming changes to the Government Auditing Standards, issued by the
             Comptroller General.

             FISMA Framework. The FAEC Information Technology Committee issued a proposed
             framework for implementing the requirements of FISMA. The framework will enhance
             the consistency, comparability, and completeness of annual independent evaluations of
             agencies' information security program and practices. OIG Assistant Inspector General for
             Audits, Helen Lew, chairs the FAEC.

             FAEC Annual Conference. In July, the FAEC hosted its annual conference in
             Charlottesville, Virginia. Speakers included Danny Werfel, Deputy Controller, OMB, on
             the Financial Management Line of Business; Dr. Ron Ross, National Institute of Standards
             and Technology, described FISMA implementation; Dave Richards, President, Institute of
             Internal Audit, discussed recent internal audit activities; and Marcia Buchanan, Assistant
             Director, GAO, talked about the proposed changes to the Government Auditing Standards.

PCIE IT      Inspector General Higgins is also the Chair of the PCIE IT Roundtable, and Charles Coe,
ROUNDTABLE   the OIG Assistant Inspector General for Information Technology Audit and Computer
             Crime Investigations, continues as the Roundtable's Coordinator. Highlights this reporting
             period include:

             IT Roundtable Expansion. In September 2006, the IT Roundtable announced that it
             would broaden its scope and overall mission. To facilitate a change in scope and mission,
             the PCIE IT Roundtable Advisory Council was established. The Council includes
             representatives from all IG disciplines: audits; inspections; investigations; and a liaison
             from the CIO Council, as well as the IT Security Advisory Board. The Advisory Council
             will help enhance and expand the IT Roundtable's overall effort in devising strategies to
             ensure adequate and coordinated IG oversight for initiatives with high fraud potential, and
             recommending strategies to enhance IT training and IG internal infrastructure capabilities,
             including knowledge transfer, shared infrastructures, and secure/intelligent documents.


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                                                   Semiannual Report To Congress: #53

Protecting Sensitive Agency Information. The PCIE IT Roundtable worked diligently
to coordinate the IG Community's efforts to comply with OMB Memorandum M-06-16,
Protection of Sensitive Agency Information. During this reporting period, the IT
Roundtable assisted in developing the final data collection instrument and guide for
assessing agency's efforts to protect sensitive information. The IT Roundtable will
consolidate the information into one report and submit it to OMB in October.

PCIE HOMELAND SECURITY ROUNDTABLE ON HURRICANE RECOVERY
After the devastating hurricanes of 2005, the PCIE formed the PCIE Homeland Security
Roundtable on Hurricane Recovery in order to share information and provide updates to
Congress in the form of monthly data compilations and semiannual reports. Our office is a
participant in this roundtable and contributed to the Roundtable's reports. Click here to
review a copy of the Roundtable's most recent reports.

PRESIDENT'S TASK FORCE ON IDENTITY THEFT
In May, President Bush signed an Executive Order establishing an Identity Theft Task
Force: a government-wide effort to help combat identity theft. The Task Force will make
recommendations as to how the federal government can: (1) increase aggressive law
enforcement actions to prevent, investigate, and prosecute identity theft crimes, recover
the proceeds of such crimes, and ensure just and effective punishment of those who
perpetrate identity theft; (2) improve public outreach to better educate the public about
identity theft and measures they can take to protect themselves, as well as address what
steps the public sector can take to protect personal data; and (3) increase safeguards that
federal departments, agencies, and instrumentalities can implement to better secure
government-held personal data. OIG Deputy Assistant Inspector General for
Investigations (DAIG-I), Mike Deshields, was selected as a member of the Task Force-one
of only two U.S. Department of Education representatives. DAIG-I Deshields is currently
serving on a special subgroup focused on Education and Outreach. The Task Force will
present a strategic plan to the President in November.




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                                                                               Semiannual Report To Congress: #53

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

5(a)(3)       Uncompleted Corrective Actions
              Recommendations Described in Previous Semiannual Reports on Which Corrective
                                                                                                1          23
              Action Has Not Been Completed
5(a)(4)       Matters Referred to Prosecutive Authorities
              Statistical Profile                                                               8          35
5(a)(5) and
              Summary of Instances Where Information Was Refused or Not Provided
6(b)(2)
5(a)(6)       Listing of Reports
              ED/OIG Audit Services Reports on Department Programs and Activities               2          24
              Other OIG Reports on Department Programs and Activities                           3          27
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          27
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          28
              Funds
5(a)(10)      Summary of Unresolved Audit Reports Issued Prior to the Beginning of
              the Reporting Period
              Unresolved Reports Issued Prior to April 1, 2006                                  6          28
5(a)(11)      Significant Revised Management Decisions
5(a)(12)      Significant Management Decisions with Which OIG Disagreed
5(a)(13)      Unmet Intermediate Target Dates Established by the Department Under
              the Federal Financial Management Improvement Act of 1996




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                                                                                       Semiannual Report To Congress: #53



Table 1: Recommendations Described in Previous SARs on Which
Corrective Action Has Not Been Completed
                                                                                                     Number of               Latest
                                                                                                  Recommendations            Target
                                                                                     Total                                    Date
 Report        Report Title (Prior SAR Number and            Date       Date       Monetary                                (Per Coreective
 Number                        Page)                        Issued     Resolved    Findings       Open         Closed       Action Plan)


Section 5(a)(3) of the IG 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
Office of the Chief Financial Officer (OCFO)
A19D0007 Audit of the Department of Education's    3/31/2005           8/8/2005                      8            2        11/30/2006
         Followup Process for External Audits (SAR
         50, pg. 22)
Office of Management (OM)
A19D0008 Audit of the Department's Management of           3/30/2005   5/13/2005                     6            10       12/30/2006
         the Federal Employees' Compensation Act
         Program (SAR 50, pg. 23)
Office of Postsecondary Education (OPE)
A03C0017 Audit to Determine if Cohort Default Rates 12/22/2003 7/11/2005                             1            3        11/30/2006
         Provide Sufficient Information on Defaults
         in the Title IV Loan Programs (SAR 48, pg.
         18)
AUDITS REPORTED IN PREVIOUS SARs
FSA
A04D0014 Case Management and Oversight's              9/30/2004 12/23/2004                           0            8              *
         Monitoring of Postsecondary Institutions
         (SAR 49, pg. 3)
A05D0001 Audit of Educational Credit Management      3/20/2003 2/27/2004 $103,000,000                1            6        10/30/2006
         Corporation's Administration of the FFEL                          (See Note 1)
         Program Federal and Operating Funds for the
         Period April 1, 2000, through March 31,
         2001 (SAR 46, pgs. 7 & 8)
OCFO
A07D0005 Audit of the U.S. Department of Education's 4/1/2004          6/30/2004                     2            3        12/29/2006
         Oversight of Grantees Subject to the
         Restricted Indirect Cost Rate Provisions in
         34 C.F.R. Parts 75 & 76 (See Note 2) (SAR
         49, pg. 14)
OCIO
A07E0002 Audit of the U. S. Department of Education's 8/20/2004 9/29/2004                           0             3              *
         Efforts in Identifying IRM KSAs (SAR 49,
         pg. 10)




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                                                                                      Semiannual Report To Congress: #53

Table 1: Recommendations Described in Previous SARs on Which
Corrective Action Has Not Been Completed (Cont.)
                                                                                                     Number of                   Latest
                                                                                                  Recommendations                Target
                                                                                    Total                                         Date
 Report        Report Title (Prior SAR Number and            Date      Date       Monetary                                     (Per Coreective
 Number                        Page)                        Issued    Resolved    Findings        Open        Closed            Action Plan)

Office of the Deputy Secretary (ODS)
A09E0014 Departmental Actions to Ensure Charter      10/26/2004 1/10/2005                           3            3              12/29/2006
         Schools' Access to Title I and IDEA Part B
         Funds (Office of Elementary and Secondary
         Education (OESE) and the Office of Special
         Education and Rehabilitative Services
         (OSERS) also designated as action official)
         (SAR 50, pg. 22)

* Closure of audit was not completed in AARTS by the end of the reporting period (9/30/2006).
Note 1: - U. S. Department of Education recovered the excess reserve funds on 2/10/2004 in the amount of $103,000,000.
Note 2 : - We identified $4,600,000 in Better Use of Funds (1-Time) for audit control number A07D0005.

Table 2: ED/OIG Audit Reports on Department Programs and
Activities (April 1, 2006, to September 30, 2006)
 Report                                                                Date      Questioned Unsupported             No. of
 Number                          Report Title                         Issued      Costs*      Costs*           Recommendations

Section 5(a)(6) of the IG Act as amended requires a listing of each report completed by OIG during the reporting period.
AUDIT REPORTS
FSA
A04E0009 Review of Financial Partners' Monitoring and        9/29/06                                                       17
         Oversight of Guaranty Agencies, Lenders, and
         Servicers (OPE also designated as action official)
A07F0017 Special Allowance Payments to Nelnet for Loans      9/29/06 $278,000,000                                       2
         Funded by Tax-Exempt Obligations                                                                          (See Note 1)
A09G0001 MCed Career College's Administration of Student     5/2/06     $9,479                                          6
         Financial Assistance Programs Under Title IV of the
         Higher Education Act
A11G0003 System Security Review of the Office of FSA Managed 9/28/06                                                       11
         Data Centers, FY2006
OCFO
A03F0003 Education Leaders Council's Subcontracting Activities 7/28/06                                                     2
         (OII also designated as action official)
A17F0011 Department of Education's Recovery Audit Efforts -    8/24/06                                                     7
         Overpaid Interest Penalty
A19E0018 Department of Education Controls over Purchase Card 4/7/06                                                        6
         Use
OCIO
A11G0001 Review of the Department's Incident Handling Program 9/28/06                                                      10
         and Intrusion Detection System (FSA, and the Office of
         the Under Secretary (OUS) also designated as action
         official)




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                                                                                 Semiannual Report To Congress: #53

Table 2: ED/OIG Audit Reports on Department Programs and
Activities (April 1, 2006, to September 30, 2006) (Cont.)
 Report                                                        Date         Questioned Unsupported        No. of
 Number                        Report Title                   Issued         Costs*      Costs*      Recommendations
A11G0002 System Security Review of the Education Data Center 9/28/06                                       14
         FY2006
A11G0004 Department of Education's Online Privacy Policy and 9/29/06                                        2
         Protection of Sensitive Information Review (OUS also
         designated as action official)
OESE
A02F0005 New Haven School District's Administration of Title I,   4/11/06   $3,780,000                      4
         Part A Summer and After School Programs
A02F0017 Puerto Rico Department of Education, Salinas School      7/25/06     $242       $19,829            5
         District's Administration of Title I Funds
A05F0018 The School District of the City of Detroit's             6/22/06    $930,448                       8
         Administration of Parental Involvement Funds Under
         the NCLB
A06F0016 Arkansas Department of Education's Migrant               8/22/06    $877,000                       2
         Education Program
A06F0021 Data Quality Review of the South Dakota Consolidated     6/7/06                                    2
         State Performance Report
OM
A17G0001 Oversight of the Department of Education's               9/25/06                                   6
         Reimbursable Work Authorization Process
OPE
A05G0013 The University of Illinois at Urbana-Champaign's         7/18/06                                 None
         Compliance with the TRIO Programs' Fiscal
         Requirements
ALTERNATIVE AUDIT PRODUCTS
FSA
A04G0001 School As Lender - Process and Inducements (Audit        8/28/06                                 None
         Closeout Memorandum)
A04G0014 Hurricane Relief Funds Provided to Mississippi           8/25/06                                 None
         Institutions of Higher Learning (Management
         Information Report - Student Financial Aid No. 06-01)
F17G0007 Proposal Submitted Under Request for Proposal ED-        8/9/06                               (See Note 2)
         06-S-0006 - FSA, Integrated Partner Management (Pre-
         award Attest Service)
F17G0008 Proposal Submitted Under Request for Proposal ED-        8/9/06                               (See Note 2)
         06-S-0006 - FSA, Integrated Partner Management (Pre-
         award Attest Service)
F17G0009 Proposal Submitted Under Request for Proposal ED-        8/9/06                               (See Note 2)
         06-S-0006 - FSA, Integrated Partner Management (Pre-
         award Attest Service)
F17G0010 Proposal Submitted Under Request for Proposal ED-        8/9/06                               (See Note 2)
         06-S-0006 - FSA, Integrated Partner Management (Pre-
         award Attest Service)
F17G0011 Proposal Submitted Under Request for Proposal ED-        8/9/06                               (See Note 2)
         06-S-0006 - FSA, Integrated Partner Management (Pre-
         award Attest Service)




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                                                                                      Semiannual Report To Congress: #53

Table 2: ED/OIG Audit Reports on Department Programs and
Activities (April 1, 2006, to September 30, 2006) (Cont.)
 Report                                                                Date     Questioned Unsupported              No. of
 Number                         Report Title                          Issued     Costs*      Costs*            Recommendations
OCFO
F02G0016 Management Services for Education Data Proposed              7/24/06                                     (See Note 2)
         Cost in Proposal for Migrant Student Information
         Exchange, Submitted Under Request for Solicitation
         No. ED-05-R-0045 (Pre-award Attest Service)
F02G0017 Migrant Student Information Exchange Proposal,               8/18/06                                     (See Note 2)
         Submitted Under Request for Solicitation # ED-05-R-
         0045 (Pre-award Attest Service)
F02G0018 Migrant Student Information Exchange Proposal,               8/30/06                                     (See Note 2)
         Submitted Under Request for Solicitation # ED-05-R-
         0045 (Pre-award Attest Service)
F03G0012 Migrant Education Resource Center Proposal,                  6/19/06                                     (See Note 2)
         Submitted under Request for Proposal # ED-05-R-0050
         (Pre-award Attest Service)
F03G0013 Migrant Student Information Exchange Program                 7/31/06                                     (See Note 2)
         Proposal, Submitted Under Solicitation Number ED-
         05-R-0045 (Pre-award Attest Service)
F05G0022 Migrant Student Information Exchange Acquisition             8/9/06                                      (See Note 2)
         Proposal, Submitted Under Request for Proposal # ED-
         05-R-0050 (Pre-award Attest Service)
F09G0013 Migrant Education Resource Center Proposal,                  6/7/06                                      (See Note 2)
         Submitted Under Request for Proposal # ED-05-R-
         0050 (Pre-award Attest Service)
OESE
X09G0007 Implementation of SES in California (Management              9/21/06                                     (See Note 3)
         Information Report State and Local No. 06-02 - OII
         also designated as action official)
  * For purposes of this schedule, questioned costs may include other recommended recoveries. Please see footnote 3 under Table
  4 for additional information regarding questioned and unsupported costs.
  Note 1: Audit report A07F0017 contained a one-time better use of funds (BUF) of $882,000,000.
  Note 2: Table 2 excludes monetary adjustments recommended in Pre-award Attest Services reporting. Since the results of Pre-
  award Attest Services reports are used in the contract negotiation process, the contents of these reports are considered to be
  confidential.
  Note 3: Management Information Report X09G0007 made several non-monetary suggestions.
  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 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 Department's interest.
  Management Information Reports provide 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 Attest Services Reports are provided by OIG in response to requests by Department contracting or program office
  staff. These include performing field pricing support or making an assessment of an offeror's accounting system.




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                                                                                         Semiannual Report To Congress: #53

Table 3: Other ED/OIG Reports on Department Programs and
Activities (April 1, 2006, to September 30, 2006)
      Report Number                                           Title of Report                                            Date Issued

Section 5(a)(6) of the IG Act as amended requires a listing of each report completed by OIG during the reporting period.
IES
         L19G0002          Contractor Employee Personnel Security Screenings (Operations Internal Audit                    7/20/06
                           Alert Memorandum No. 06-02)
OCIO
         L18G0002          Financial Management Systems Software - Shared Account Creates a Significant                    9/22/06
                           Potential Risk and Liability to Personally Identifiable Information (Computer
                           Assisted Assessment Technologies (CAAT) Alert Memorandum No. 06-01 - OCFO
                           also designated as action official)
         S11G0004          U.S. Department of Education, Office of Inspector General 2006 FISMA                            9/29/06
                           Submission (Special Project - OCFO also designated as action official)
OESE
         I13F0017          The Reading First Program's Grant Application Process (Inspection Report)                       9/22/06
         L02G0001          New Bedford Public Schools Use of Sole-Source Contracts (Alert Memorandum                       9/29/06
                           State and Local No. 06-04 - Office of Safe and Drug Free Schools (OSDFS) also
                           designated as action official)
     DESCRIPTION OF TABLE 3 PRODUCTS

     Alert memoranda are prepared when a serious condition requiring immediate Department management action that is either
     outside the agreed-upon objectives of an on-going audit or inspection assignment, or is identified while engaged in work not
     related to an on-going assignment when an audit or inspection report will not be issued. Alert Memoranda are not on the OIG
     website and are not publicly distributed.
     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 work that results in the issuance of a product or report.



Table 4: OIG Issued Audit Reports with Questioned Costs1
                                                                                                          Questioned      Unsupported
                                                                                           Number           Costs2          Costs3

Section 5(a)(8) of the IG Act as amended requires for each reporting period a statistical table showing the total number of audit reports,
the total dollar value of questioned and unsuppported costs, and responding management decision.
A.        For which no management decision has been made before the                             61        $202,660,168 $136,191,925
          commencement of the reporting period (as adjusted)
B.        Which were issued during the reporting period                                          6        $283,616,998          $19,829
               Subtotals (A + B)                                                               67         $486,277,166     $136,211,754
C.        For which a management decision was made during the reporting period                 11          $31,407,141       $2,051,015
          (i) Dollar value of disallowed costs                                                             $12,991,279       $2,051,015
          (ii) Dollar value of costs not disallowed                                                        $18,415,862                 $0
D.        For which no management decision was made by the end of the reporting                56         $454,870,025     $134,160,739
          period
E.        For which no management decision was made within six months of issuance              50         $171,253,027     $134,140,910




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                                                                                          Semiannual Report To Congress: #53

Table 4: OIG Issued Audit Reports with Questioned Costs1
                                                                                                           Questioned       Unsupported
                                                                                            Number           Costs2           Costs3
    1 None of the audits reported in this table were performed by the Defense Contract Audit Agency.
    2 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 those
    recommended for reasons other than questioned costs. Since the IG Act does not provide for this type of monetary finding, other
    recommended recoveries are combined with the "questioned costs" category for reporting in the SAR. 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 to the Department resulting from an auditee's use of funds. In addition, amounts reported for this category are
    combined with unsupported costs for reporting in the SAR.
     3
       Unsupported costs are costs that are questioned because, at the time of the audit, such costs were not supported by adequate
    documentation.

Table 5: OIG Issued Audit Reports with Recommendations for Better
Use of Funds1
                                                                                                      Number              Dollar Value

Section 5(a)(9) of the IG Act as amended requires for each reporting period a statistical table showing the total number of audit reports
and the total dollar value of recommendations that funds be put to better use by management.
A.       For which no management decision has been made before the commencement of the                   4             $241,048,776
         reporting period (as adjusted)
B.       Which were issued during the reporting period                                                   1             $882,000,000
              Subtotals (A + B)                                                                          5            $1,123,048,776
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 costs that were not agreed to by management
D.       For which no management decision was made by the end of the reporting period                    5            $1,123,048,776
E.       For which no management decision was made within six months of issuance                         4             $241,048,776
1
    None of the audits reported in this table were performed by the Defense Contract Audit Agency.


Table 6: Unresolved Reports Issued Prior to April 1, 2006
                                                                                                                  Total         No. of
 Report                                         Report Title                                          Date      Monetary       Recom-
 Number                                (Prior SAR Number and Page)                                   Issued     Findings      mendations
Section 5(a)(10) of the IG Act as amended requires a listing of each report issued before the commencement of the reporting period for
which no management decisions had been made by the end of the reporting period. (Status below represents comments provided by the
Department, comments agreed to, or documents obtained from the Department's tracking system, AARTS.)
New Since Last Reporting Period
FSA
A09F0008 University of Phoenix's Processing of Return of Federal Student Aid for HEA, Title 12/22/05 (See Note 2)                   3
         IV Programs
         Status: FSA informed us that the audit is on administrative stay; administrative
         stay extended till 10/31/2006. AARTS data: required administrative stay request
         has not been generated through AARTS.
OCFO
A03F0010 The Education Leaders Council's Drawdown and Expenditure of Federal Funds                   1/31/06     $760,570          12
         (Office of Innovation and Improvement (OII) also designated as action official)
         Status: AARTS data: audit was placed on administrative stay on 5/4/2006.



                                                                    28
                                                                                   Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                            Total        No. of
 Report                                    Report Title                                   Date            Monetary      Recom-
 Number                           (Prior SAR Number and Page)                            Issued           Findings     mendations
A05F0020 Indiana State University Compliance with the Ronald E. McNair Postbaccalaureate 1/6/06            $38,884         5
         Achievement Program Provisions
         Status: Program Determination Letter (PDL) expected to be issued by October 31,
         2006.
A09F0010 Pittsburg Pre-School and Community Council, Inc.'s Use of Early Reading First   3/17/06          $910,217        21
         and Migrant Education Even Start Grant Funds (OESE also designated as action
         official)
         Status: AARTS data: audit was placed on administrative stay on 7/6/2006.
A09F0020 Sheldon Jackson College's Administration of Fund for the Improvement of         2/24/06                           2
         Postsecondary Education Grants (OPE also designated as action official)
         Status: AARTS data: audit was placed on administrative stay on 4/26/2006.
OESE
A02E0030 William Floyd Union Free School District Allowability of Title I Salary and Salary-   12/19/05   $4,678,688       11
         Related Expenditures
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A02F0030 William Floyd Union Free School District Allowability of Title I Non-Salary           3/30/06    $146,939         8
         Expenditures
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A03F0002 The State of Delaware's Compliance with NCLB Public School Choice and                 11/22/05                   10
         Supplemental Educational Services Provisions
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A04F0011 Audit of the Georgia Department of Education's Migrant Education Program              1/12/06                     7
         Status: AARTS data: audit was placed on administrative stay on 5/31/2006.
A06F0013 Oklahoma State Department of Education's Migrant Education Program                    3/21/06    $509,000         3
         Status: AARTS data: audit was placed on administrative stay on 6/29/2006.
A06F0020 Data Quality Review of the Texas Consolidated State Performance Report                3/21/06                     1
         Status: PDL issued on 9/28/2006; audit will be removed from the overdue listing
         after all actions are completed in AARTS.
A07F0014 The U.S. Department of Education's Activities Relating to Consolidating Funds in      12/29/05                    4
         Schoolwide Programs Provisions
         Status: Internal Audit - no additional comments were provided to OIG..
A09F0009 ARC Associates' and Oakland Unified School District's Compliance With                 10/13/05    $1,860          5
         Supplemental Educational Services Provisions (OII also designated as action
         official)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A09F0013 Professional Tutors of America and Los Angeles Unified School District's              10/27/05                    2
         Compliance with Supplemental Educational Services Provisions (OII is also
         designated action official)
         Status: PDL was issued on 9/29/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A09F0019 San Diego City Schools' Compliance with Supplemental Educational Services             3/27/06                     1
         Provisions (OII is also designated action official)
         Status: PDL was issued on 9/29/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.




                                                               29
                                                                                    Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                            Total        No. of
 Report                                      Report Title                                        Date     Monetary      Recom-
 Number                             (Prior SAR Number and Page)                                 Issued    Findings     mendations
OSERS
A07F0016 Kansas State Department of Education's Maintenance's of Effort Under the IDEA,         2/6/06                     5
         Part B
         Status: OSERS informed us that it was waiting for check.
Reported in Previous SARs
FSA
A02E0003 The University of the Virgin Islands' Administration of Title IV Student Financial     4/8/05    $102,077        25
         Assistance Programs Needs Improvement (SAR 51, pg. 25)
         Status: PDL was issued on 9/25/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A03F0001 School Eligibility Channel's Initial Review and Quality Control Review Process for     9/20/05
         Electronic Submissions of Institutions' Financial Statements Through the
         Department's eZ-Audit System (SAR 51, pg. 25)
         Status: No status change. FSA previously informed us that OIG and FSA are
         negotiating over one corrective action on which OIG has non-concurred.
A04B0015 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: No comments were provided to OIG. FSA previously informed us that a
         duplicate audit is listed in AARTS. This audit had two parts: OCFO/Post Audit
         Group (PAG) was responsible for 04B0015G; while FSA is responsible for
         04B0015H.
A04B0019 Advanced Career Training Institute's Administration of the Title IV HEA Programs       9/25/03   $7,472,583      14
         (SAR 47, pg. 13)
         Status: FSA informed us it is waiting on PAG to fix user assignment in AARTS so
         audit can be closed by FSA/ALO. AARTS data: required documentation for
         resolution of this audit has not been entered into AARTS.
A04E0001 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 is on administrative stay; administrative
         stay extended till 12/23/2006. AARTS data: required administrative stay requests
         and extensions have not been generated through AARTS.
A05E0013 Audit of the Administration of the Student Financial Assistance Programs at the Ivy    2/25/05   $1,645,160       3
         Tech State College Campus in Gary, Indiana, During the Period July 1, 2002,
         through June 30, 2003 (SAR 50, pg. 21)
         Status: No change in status. FSA previously informed us that the audit is being
         reviewed by FSA Chicago Case Team.
A0670005 Professional Judgment at Yale University (SAR 36, pg. 18)                              3/13/98    $5,469          3
         Status: FSA informed us that it is waiting on policy decision to address and resolve
         this finding in the final audit determination letter.
A0670009 Professional Judgment at University of Colorado (SAR 37, pg. 17)                       7/17/98    $15,082         4
         Status: FSA informed us that it is waiting on policy decision to address and resolve
         this finding in the final audit determination letter.
A06A0003 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 it is waiting on PAG to fix user assignment in AARTS so
         audit can be closed by FSA/Audic Liaison Officer (ALO). AARTS data: required
         documentation for resolution of this audit has not been entered.




                                                                30
                                                                                  Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                            Total    No. of
 Report                                       Report Title                                     Date      Monetary   Recom-
 Number                             (Prior SAR Number and Page)                               Issued      Findings mendations
A06D0018 Audit of Saint Louis University's Use of Professional Judgment for the Two-Year      2/10/05    $1,458,584    6
         Period from July 2000, through June 2002 (SAR 50, pg. 21)
         Status: FSA informed us that the audit is still on administrative stay;
         administrative stay extended till 12/10/2006. AARTS data: does not show the
         administrative stay was extended.
A0723545 State of Missouri, Single Audit Two Years Ended June 30, 1991                         4/1/93    $1,048,768    18
         Status: No Change in status. FSA/Financial Partners Service (FPS) previously
         informed us that it is working with (Office of General Counsel (OGC) and OIG on
         the resolution of the Missouri audits. FSA stated that draft responses were
         forwarded to OGC for review and commen, and are awaiting OGC comments.
A0733123 State of Missouri, Single Audit Year Ended June 30, 1992                              3/7/94    $187,530      18
         Status: No Change in status. FSA/FPS previously informed us that it 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.
A09D0024 American River College's Compliance with Student Eligibility Requirements for        12/1/04    $3,024,665    3
         Title IV Student Aid Programs (SAR 50, pg. 21)
         Status: FSA informed us that the audit is currently being reviewed by its San
         Francisco Case Team.
A09E0015 University of Phoenix's Processing of Student Financial Aid Disbursements for the    8/24/05    $341,994      7
         HEA, Title IV Programs (SAR 51, pg. 26)
         Status: PDL was issued on 9/27/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
N0690010 Inspection of Parks College's Compliance with Student Financial Assistance            2/9/00    $169,390      1
         Requirements (SAR 40, pg. 18)
         Status: FSA previously informed us that FSA Dallas Case Team denied school's
         recertification on December 31, 1999. School closed February 5, 2000.
OCFO
A02E0008 U.S. Department of Education Funds Disbursed for New York City Department of         6/14/05    $6,756,824    8
         Education Telecommunication Services (SAR 51, pg. 26)
         Status: OCFO informed us that the final decision was reviewed and returned to
         Indirect Cost Group in OCFO for further resolution.
A05D0017 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: PDL was issued on 9/29/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A05D0029 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 (OII also designated as
         action official) (SAR 48, pg. 16)
         Status: OCFO informed us that it is working with OIG.
A05D0041 University of Illinois at Chicago's Upward Bound Project (OPE also designated as     12/20/04   $223,057      8
         action official) (SAR 50, pg. 22)
         Status: OCFO informed us that it is reviewing information provided by the auditee.
A05E0002 Audit of the University of Illinois at Chicago's Student Support Services Program    12/15/04   $260,050      6
         (OPE also designated as action official) (SAR 50, pg. 22)
         Status: OCFO informed us that it is reviewing information provided by the auditee.
A05E0018 University of Illinois at Chicago's Upward Bound Math and Science Project (OPE       12/17/04   $274,493      7
         also designated as action official) (SAR 50, pg. 22)
         Status: OCFO informed us that it is reviewing information provided by the auditee.


                                                              31
                                                                                  Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                          Total    No. of
 Report                                       Report Title                                   Date      Monetary   Recom-
 Number                             (Prior SAR Number and Page)                             Issued      Findings mendations
A06D0023 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 (Office of English Language Acquisition (OELA) also
         designated as action official) (SAR 49, pg. 14)
         Status: OCFO informed us that it is reviewing information provided by the auditee;
         revising draft PDL for OGC review.
A07D0002 Audit of the Talent Search Program at Case Western Reserve University (SAR 47, 7/11/03        $212,428      5
         pg. 14)
         Status: OCFO informed us that it is working with OPE to determine the amount the
         auditee should refund to the Department.
A09E0027 Guam Department of Education's Reported Costs for Consolidated Grants to           4/18/05    $140,176      14
         Insular Areas and the Special Education Grants to States-Part B (OESE and OSERS
         also designated as action officials) (SAR 51, pg. 26)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
OESE
A0190006 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: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A01A0004 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: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A0250200 The Puerto Rico Department of Education Must Institute a Time Distribution         11/14/97                 1
         System (SAR 36, pg. 13)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02B0012 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: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02B0025 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: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02C0017 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
         (Office of Vocational Adult (OVAE) also designated as action official for this
         report) (SAR 47, pg. 15)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02D0014 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 2) (SAR 48, pg. 17)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.




                                                              32
                                                                                    Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                             Total          No. of
 Report                                       Report Title                                       Date      Monetary        Recom-
 Number                             (Prior SAR Number and Page)                                 Issued     Findings       mendations
A02D0023 Puerto Rico Department of Education's Salaries for the Period July 1, 1999, to June    6/2/04                        6
         30, 2003 (SAR 49, pg. 14)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02E0007 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: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02E0019 Puerto Rico Department of Education's Migrant Education Program (SAR 50, pg.           3/30/05      $43,824          5
         22)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue list
         after all actions are completed in AARTS.
A02E0031 Wyandanch Union Free School District's ESEA, Title I, Part A and Title II Non-         9/14/05    $6,802,887         8
         Salary Expenditures for the Period July 1, 1999, through June 30, 2004 (SAR 51,                   (See Note 3)
         pg. 27)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A02F0006 New Jersey Department of Education's Compliance with Title I, Part A, of the           9/14/05                       4
         ESEA, as amended by the NCLB, Public School Choice and Supplemental
         Educational Services Provisions for the 2004-2005 School Year (OII also
         designated as action official) (SAR 51, pg. 27)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A04E0002 Georgia Department of Education's Administration of Title I, Part A of the ESEA        11/8/04                       8
         (SAR 50, pg. 22)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A05C0012 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: No comments were provided to OIG..
A05F0007 The Michigan Department of Education's Compliance with the Public School                8/2/05      $18,532          4
         Choice and Supplemental Educational Services Provisions of the NCLB (OII also
         designated as action official) (SAR 51, pg. 27)
         Status: PDL was issued on 9/29/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A06E0008 Audit of the Title I Funds Administered by the Orleans Parish School Board for the     2/16/05    $73,936,273        7
         Period July 1, 2001, through December 31, 2003 (SAR 50, pg. 23)
         Status: No comments were provided to OIG..
A06E0012 Audit of the Title I Funds Administered by the Caddo Parish School District, for the   12/7/04     $488,314          1
         Period July 1, 2001, through December 31, 2003 (SAR 50, pg. 23)
         Status: OESE previously informed us that the audit was placed on administrative
         stay while Louisiana is coping with the hurricane. The administrative stay request
         was submitted after the anticipated resolution date of 6/7/2005.
A06E0017 Title I funds Administered by the Beauregard Parish School District, for the Period    12/16/04    $540,443          5
         July 1, 2001, through December 31, 2003 (SAR 50, pg. 23)
         Status: OESE previously informed us that the audit was placed on administrative
         stay while Louisiana is coping with the hurricane. The administrative stay request
         was submitted after the anticipated resolution date of 6/16/2005.




                                                                33
                                                                                 Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                          Total          No. of
 Report                                       Report Title                                  Date        Monetary        Recom-
 Number                             (Prior SAR Number and Page)                            Issued       Findings       mendations
A06E0018 Title I funds administered by the East Baton Rouge Parish School District for the 6/8/05       $148,246           4
         Period July 1, 2001, through December 31, 2003 (SAR 51, pg. 27)                                (See Note 4)
         Status: No comments were provided to OIG..
A06F0002 Louisiana Department of Education, and Four Selected Local Educational Agencies 8/4/05                            2
         for the Period July 1, 2001, through December 31, 2003 (SAR 51, pg. 27)
         Status: No comments were provided to OIG..
A07F0003 Illinois State Board of Education's Compliance with the Public School Choice and 8/23/05                          4
         Supplemental Educational Services Provisions of the NCLB (OII also designated as
         action official) (SAR 51, pg. 27)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
A09F0002 Nevada Department of Education's Compliance with the Public School Choice and 7/14/05                             8
         Supplemental Educational Services Provisions (OII also designated as action
         official) (SAR 51, pg. 27)
         Status: PDL was issued on 9/30/2006. Audit will be removed from the overdue
         listing after all actions are completed in AARTS.
OPE
A07B0011 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 it continues to work on this audit.
OSDFS
A0190007 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 School Program (SAR 41, pg.
         22)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
OSERS
A02B0014 Audit of the Puerto Rico Vocational Rehabilitation Administration (SAR 45, pg.      6/26/02    $15,800,000        5
         18)
         Status: OSERS agrees that the audit is open.
A02D0020 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 5) (SAR 48, pg. 18)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02E0009 Puerto Rico Department of Education's Special Education Program Services (SAR       12/14/04   $5,935,988         3
         50, pg. 23)
         Status: The audit was prematurely closed in AARTS on 8/4/2006. Audit will be
         removed from the overdue list after all required actions are completed in AARTS.
A02E0020 The Virgin Islands Department of Health's Administration of the Infants and         9/28/05                      17
         Toddlers Program (See Note 6) (SAR 51, pg. 28)
         Status: OSERS informed us that the audit was resolved on 6/25/2006 but has not
         been closed. The audit will be removed from our overdue listing after all actions
         are completed in AARTS.




                                                              34
                                                                                    Semiannual Report To Congress: #53

Table 6: Unresolved Reports Issued Prior to April 1, 2006 (Cont.)
                                                                                                           Total         No. of
 Report                                     Report Title                                       Date      Monetary       Recom-
 Number                            (Prior SAR Number and Page)                                Issued     Findings      mendations
  Note   1   -
           Audit Report A09F0008 identified a one-time better use of funds of $10,000,00.
  Note   2   -
           We identified $151,205,677 in better use of funds in audit A02D0014.
  Note   3   -
           Audit Report A02E0031 also identified recommended adjustments of $5,913,394.
  Note   4   -
           Audit Report A06E0018 also reported $1,000 related to a check writing error that was recovered during the audit.
          This money was not included in questioned or unsupported costs.
  Note 5 - We identified $79,515,522 in better use of funds in audit A02D0020.
  Note 6 - We identified $327,577 in one-time better use of funds in audit A02E0020.

Table 7: Administrative Appeals of Final Audit Determinations
Pending Before the Secretary as of September 30, 2006
                                                         Hearing                                                        Months
                                   Management’s          Official’s                                                     Appeal
                                    Final Audit           Initial   Hearing                Date                         Pending
                  Docket Control Determination Recovery Decision Official’s Recoveries Appealed to                       Before
  Case Name         No.   Number       Date     Ordered    Date     Finding   Upheld    Secretary                      Secretary
Interactive      04-08-SA 06-10001   12/5/2003  $985,798 3/8/2005 For ED     $985,798   4/13/2005                          17
Learning
System
Saint Louis      99-29-SA 06-70003      12/23/1998     $2,816,029 5/25/2000      For          $0        6/29/2000          75
University                                                                      School


Table 8: Statistical Profile: April 1, 2006, to September 30, 2006
*Note: This table has been updated as of 11/16/2007.
                                                                Six-month Period       Fiscal Year Ending
                                                                 Ending 9/30/06              9/30/06           FY 2006 Total
OIG AUDIT REPORTS ISSUED                                                         17                     56                       73
Questioned Costs                                                      $283,597,169           $285,110,211            $568,707,380
Unsupported Costs                                                           $19,829             $5,650,642             $5,670,471
Recommendations for Better Use of Funds                               $882,000,000           $892,000,000           $1,774,000,000
OTHER OIG PRODUCTS                                                               24                     45                       69
(Alert Memoranda, Attestations, Audit Closeout Memoranda/
Letters, Inspections, Interim Audit Memoranda, Management
Information Reports, Pre-award Attest Services Memoranda,
Special Projects, and other Agency Reporting)
OIG AUDIT REPORTS RESOLVED BY                                                    25                     67                       92
PROGRAM MANAGERS
Questioned Costs Sustained                                              $10,940,264           $13,730,573             $24,670,837
Unsupported Costs Sustained                                              $2,051,015             $3,608,868             $5,659,883
Additional Disallowances Identified by Program Managers                    $565,726                $565,726            $1,131,452
Management Commitment to the Better Use of Funds                                   0            $7,919,067             $7,919,067
INVESTIGATIVE CASE ACTIVITY
Cases Opened                                                                    111                     67                      178
Cases Closed                                                                     39                     64                      103
Cases Active at End of Period                                                   375                    372                      NA



                                                               35
                                                         Semiannual Report To Congress: #53

Table 8: Statistical Profile: April 1, 2006, to September 30, 2006
(Cont.) *Note: This table has been updated as of 11/16/2007.
                                      Six-month Period    Fiscal Year Ending
                                       Ending 9/30/06           9/30/06        FY 2006 Total
Prosecutorial Decisions                            137                    90               227
 -Accepted                                          88                    42               130
 -Declined                                          49                    48                   97
INVESTIGATION RESULTS
Indictments/Informations                            44                    70               114
Convictions/Pleas                                   62                    63               125
Fines Ordered                                   $37,053              $16,275           $53,328
Restitution Payments Ordered                 $3,346,702        $7,390,599.46       $1,0737,301
Civil Settlements/Judgments (#)                      0                     4                    4
Civil Settlements/Judgments ($)                      0               $54,758           $54,758
Recoveries                                     $568,154              $49,661          $617,815
Forfeitures/Seizures                           $427,050                    0          $427,050
Savings                                        $516,391             $118,959          $635,350




                                     36
U.S. Department of Education
Margaret Spellings
Secretary


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


Counsel’s Office
Mary Mitchelson
Counsel to the Inspector General


November 2006

This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While
permission to reprint this publication is not necessary, the citation should be: U.S. Department of
Education, Inspector General’s Semiannual Report to Congress, No. 53.

To order copies of this report:

   •   Write to: ED Pubs, Education Publications Center, U.S. Department of Education, P.O. Box
       1398, Jessup, MD 20794-1398;

   •   Fax your request to: (301) 470-1244;

   •   E-mail your request to: edpubs@inet.ed.gov;

   •   Call in your request toll-free: 1-877-433-7827 (1-877-4-ED-PUBS). If 877 service is not yet
       available in your area, call 1-800-872-5327 (1-800-USA-LEARN). Those who use a telecom-
       munications device for the deaf (TDD) or a teletypewriter (TTY) call 1-800-437-0833; or

   •   Order online at: www.ed.gov/pubs.org

This report is also available on the Department’s Web site, at: www.ed.gov/about/offices/list/oig.

On request, this publication is available in alternate formats, such as Braille, large print, audiotape, or
computer diskette. For more information, please contact the Department’s Alternate Format Center at
(202) 260-9895 or (202) 205-8113.
Anyone knowing of fraud, waste, or abuse involving Department of Education funds
    or programs should call, write, or e-mail the Office of Inspector General.



                                Call toll-free:
                        The Inspector General’s Hotline
                      1-800-MIS-USED (1-800-647-8733)


                                    Or Write:
                          Inspector General’s Hotline
                          Office of Inspector General
                         U.S. Department of Education
                              550 12th Street, SW
                          Washington, DC 20202-1500


                                    Or e-mail:
                               oig.hotline@ed.gov

             Your report may be made anonymously or in confidence.

                 For information on identity theft prevention
                       for students and schools, visit the


              Office of Inspector General Identity Theft Web site at:
                              www.ed.gov/misused




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