oversight

Semiannual Report - April 1, 2009 - September 30, 2009

Published by the Department of Education, Office of Inspector General on 2009-09-30.

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

U.S. D E P A R T M E N T O F E D U C A T I O N




Inspector General’s Semiannual
Report to Congress, No. 59
April 1, 2009 - September 30, 2009
 U.S. D EPARTMENT OF EDUCATION
 OFFICE OF I NSPECTOR G ENERAL




SEMIANNUAL REPORT
TO CONGRESS, NO. 59
(APRIL 1, 2009 – SEPTEMBER 30, 2009)




    U.S. DEPARTMENT OF EDUCATION
    OFFICE OF INSPECTOR G ENERAL
         550 12 TH S TREET , S.W.
        WASHINGTON , DC 20024
                        MESSAGE FROM THE
                        INSPECTOR GENERAL
                  As the Acting Inspector General of the U.S. Department of Education
                  (Department) Office of Inspector General (OIG), I am pleased to
                  provide this semiannual report on the activities and accomplishments of
                  this office from April 1, 2009, through September 30, 2009. The
                  audits, inspections, investigations, and related reports highlighted in
                  this report are products of our continuing commitment to promoting
                  accountability, efficiency, and effectiveness in Federal education
operations and programs.

Over the last 6 months, OIG issued 32 audits, inspections, and other reports. We
identified more than $35 million in questioned costs and more than $3 million in
unsupported costs. We also completed a number of investigations involving theft or
other fraudulent use of Federal education funds, several of which involved individuals
who abused their positions of trust for personal gain. Over the last 6 months, we closed
67 investigations and secured more than $24 million in settlements, fines, restitutions,
recoveries, forfeitures/seizures, and savings.

As we have stated in previous Semiannual Reports to Congress, accountability is
essential to success, particularly when it comes to education. As Members of Congress,
you have made it a key component in our nation’s largest Federal education laws, and
most recently, in the American Recovery and Reinvestment Act of 2009 (Recovery Act).
The Recovery Act includes unprecedented accountability and transparency requirements
for Federal agencies, States, other entities, and Inspectors General whose offices are
affected by the law. Because of the particularly significant increase in funding through
the Recovery Act, the Department must hold its staff, program participants, grantees,
contractors, and other entities involved in Federal education programs accountable for
adhering to statutory and other requirements. The Department must be able to provide
reasonable assurance that the billions of dollars entrusted to it are reaching the intended
recipients and achieving the desired results. Work concluded over the last 6 months
shows that this is an area in which the Department and the grantees and program
participants reviewed must make some significant improvements to include:

      Improved accountability in elementary, secondary, and postsecondary programs
       by the Department and by program participants, as our work demonstrated that
       some grantees, their contractors, and others were not always held accountable nor
       were there always consequences for failing to meet the terms of their grant
       agreements; and

      Improved oversight by Federal Student Aid (FSA) and accountability of
       participants in the Federal student loan programs we reviewed, as our work
       continued to reveal weaknesses that demonstrate the need for corrective actions


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       by FSA to ensure that its programs and program participants are performing in
       accordance with relevant laws, regulations, and guidance.

As you will read in the pages of this report, OIG is committed to helping the Department
address identified weaknesses and improve in the area of accountability and transparency
by continuing to reduce the time it takes to produce our reports without compromising
their quality; producing more reports and posting them on our Web site; and compiling
data for regular dissemination through the Recovery Accountability and Transparency
Board.

The Department has voiced its commitment to tackling the issue of accountability and the
underlying problem of weak internal controls, which you will see is a recurring issue in
the work we completed over the last 6 months. By establishing effective internal
controls, the Department can be an effective steward of the billions of taxpayer dollars
supporting its programs and operations. America’s students and taxpayers deserve
nothing less.

Thank you for your continued support of our efforts. We look forward to working with
the 111th Congress in furthering our goals and achieving our mission.

                                                                       Mary Mitchelson
                                                               Acting Inspector General




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                               TABLE OF CONTENTS
Overview ........................................................................................................ 1

Recovery Act Efforts .................................................................................... 4
 Recovery Act-Related Reports .................................................................... 5

Elementary, Secondary, and Postsecondary Education Programs ......... 8
 Elementary and Secondary Education ......................................................... 8
 Postsecondary Education ........................................................................... 14
 Contracts .................................................................................................... 16
 Investigations ............................................................................................. 17

Federal Student Financial Assistance Operations and Programs ......... 20
 FSA Operations.......................................................................................... 20
 Title IV Program Participants .................................................................... 25
 Investigations ............................................................................................. 27

IT Security and Management and Other Internal Operations .............. 31
  IT Security and Management..................................................................... 32
  Other Internal Operations .......................................................................... 34

Other Noteworthy Efforts .......................................................................... 35
 Non-Federal Audits ................................................................................... 35
 Council of the Inspectors General on Integrity and Efficiency ................. 36

Required Tables…………………………………………………………. 37




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                                 OVERVIEW
We are pleased to provide this Semiannual Report on the activities and accomplishments
of the U.S. Department of Education (Department) Office of Inspector General (OIG)
from April 1, 2009, through September 30, 2009. The audits, inspections, investigations,
                                   and other activities highlighted in this report are
                                   products of our continuing commitment to promoting
                                   accountability, transparency, efficiency, and
                                   effectiveness in Federal education programs and
                                   operations.

                                   We present the work OIG concluded during this
                                   reporting period in six sections: (1) Recovery Act
                                   efforts; (2) elementary, secondary, and postsecondary
                                   education programs; (3) student financial assistance
                                   programs; (4) information technology (IT) security
                                   and management and other internal operations
                                   efforts; (5) other noteworthy efforts; and (6) a
                                   compilation of tables of the audits, other reports, and
                                   investigations we concluded during this reporting
                                   period, as required by the Inspector General Act of
                                   1978, as amended.

       Recovery Act Efforts
       The Recovery Act was signed into law on February 17, 2009, and provides
       approximately $98.2 billion in new funding for Federal education programs and
       operations. With 55 State and territorial educational agencies, more than 16,000
       school districts, and thousands of schools, colleges, and universities eligible to
       receive Recovery Act funds, the Department faces a formidable challenge in
       ensuring that Recovery Act funds reach the correct recipients and achieve the
       desired results. The OIG also faces a formidable challenge in conducting all of
       the work necessary to assure the Department, Congress, and the general public
       that Recovery Act funds are used as intended. With the dramatic increase in
       funding that State educational agencies (SEAs), local educational agencies
       (LEAs), and other entities are receiving through the Recovery Act, it is very
       important that these entities provide adequate oversight of Recovery Act funds
       and accurately account for how those funds are being used. During this reporting
       period, OIG initiated its on-the-ground Recovery Act efforts, including holding
       more than 160 meetings with individual SEAs and LEAs across the country. We
       issued two reports of significance: one highlighting an issue of concern related to
       States’ administration of the State Fiscal Stabilization Fund portion of the
       Recovery Act and the flexibility inherent in the maintenance of effort
       requirements that may result in States reducing funding for public education; and
       the second summarizing a number of pervasive fiscal issues identified in prior


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OIG audit work. This report also included a summary of significant OIG
investigations involving LEA officials that resulted in criminal convictions. We
present an overview of our Recovery Act activities in this section of our report.

Elementary, Secondary, and Postsecondary Education Programs
With the significant increase in education funding the States, SEAs, and LEAs are
receiving through the Recovery Act in addition to their annual allotments,
effective accountability and transparency in how these entities expend all Federal
                              education funds they receive is vital. Work
                              concluded during this reporting period showed a need
                              for improved accountability by the Department,
                              SEAs, LEAs, and other grantees we reviewed. This
                              includes our inspection of the Department’s oversight
                              of Federal TRIO grants, which found that the Office
                              of Postsecondary Education did not take appropriate
                              action to hold accountable grantees that did not serve
                              the number of participants they were funded to serve
                              in FY 2003 through FY 2007, and that there were no
                              consequences for grantees’ failure to meet the terms
                              of their grant agreements. In addition, our audit of an
                              SEA’s oversight of its grantees (referred to as
                              ―subrecipients‖ in this report) determined that
improvements in its processes were necessary to ensure subrecipient compliance
with specific statutes and regulations. Finally, our audit of an LEA identified
internal control weaknesses that led to more than $3 million in unnecessary,
undocumented, or insufficiently documented costs. You will find more details on
these reports, as well as other reports involving elementary, secondary, and
postsecondary education program participants, in this section of our report. We
also include summaries of our more significant investigations involving theft or
misuse of Federal education funds, including cases involving school officials and
contractors.

Federal Student Financial Assistance Operations and Programs
The Federal student financial assistance programs have long been a major focus
of our audit, inspection, and investigative work. With more than 6,000
postsecondary institutions, more than 2,900 lenders, 35 guaranty agencies, $113
billion in student loans and other awards, and an outstanding loan portfolio of
more than $600 billion, accountability in these programs is critical. The
Department and Federal Student Aid (FSA), the office within the Department that
is responsible for administering the Federal student aid programs, must ensure
that they and all of the entities involved in the programs comply with statutory
and regulatory requirements.




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Work concluded over the last 6 months showed a need for improvement in this
area. Our evaluation of FSA’s Enterprise Risk Management Group found that
FSA had not fully implemented enterprise risk management and had not done risk
                                  identification in any of the Federal student aid
                                  programs. Our review of FSA’s oversight and
                                  monitoring of guaranty agencies, lenders, and
                                  servicers participating in the programs found
                                  internal control weaknesses that demonstrate the
                                  need for corrective actions by FSA to ensure that
                                  program participants were performing in
                                  accordance with relevant laws, regulations, and
                                  guidance. And our final two audits in a series of
                                  Family Federal Education Loan (FFEL) program
                                  lenders’ special allowance billings for loans
                                  funded by tax-exempt obligations identified
                                  noncompliance by the two lenders reviewed
                                  involving millions of dollars. You will find
more on our findings, as well as summaries of other audit reports and our more
significant cases of fraud involving student financial assistance program funds, in
the Federal Student Financial Assistance Operations and Programs section of this
report.

IT Security and Management and Other Internal Operations
In this section of the report we highlight our reviews of the Department’s IT
security and management efforts and other internal operations. This includes our
Federal Information Security Management Act reviews—an area in which
accountability is vital to protecting the Department’s valuable data and
confidential information. Results of this work concluded that there are
weaknesses in the Department’s security controls associated with its external Web
sites. We also examined the Department’s process for resolving lapsed funds by
its grant recipients—Federal education funds that are not obligated or used within
a specific timeframe that must be returned to the Federal Government. This was a
follow-up to a 2004 OIG audit that found that the Department did not have
procedures to notify recipients when award balances were about to become
unavailable. Our 2009 audit found that improvements in the process were still
needed. You will find more information on these findings, as well as summaries
of our investigative cases involving a Department employee and an employee of a
Department contractor, in this section of the report. With regard to Section 845 of
the National Defense Authorization Act for Fiscal Year 2008, which requires each
OIG to include information in its Semiannual Reports to Congress on final
contract-related audit reports that contain significant findings, OIG did not issue
such reports over the last 6 months.




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        Other Noteworthy Efforts
       OIG constantly strives to improve its operations through our work with the
       Inspector General community and with the independent auditors tasked with
       conducting single audits of entities that receive significant Federal education
       funds each year. You will find an update on our activities in this section of our
       report.

       Compilation Tables
       The final section of our report provides a compilation of tables of the audits,
       inspections, other reports, and investigations we concluded over the last 6 months,
       as required by the Inspector General Act.

Copies of the reports discussed in this Semiannual Report to Congress are available on
the OIG Web site. For more information on our work and activities, please contact the
OIG Congressional Liaison at (202) 245-7023, or visit our Web site at
http://www.ed.gov/about/offices/list/oig/index.html?src=oc.


                    RECOVERY ACT EFFORTS
                       The Recovery Act was signed into law on February 17, 2009, and
                       provides approximately $98.2 billion in new funding for Federal
                       education programs and operations, including programs within the
                       Elementary and Secondary Education Act of 1965, as amended
                       (ESEA), the Higher Education Act of 1965, as amended (HEA), the
                       Individuals with Disabilities Education Act of 2004, as amended
(IDEA), and the Rehabilitation Act of 1973. With 55 State and territorial educational
agencies, more than 16,000 school districts, and thousands of schools, colleges, and
universities potentially eligible to receive these funds, the Department faces a formidable
challenge in ensuring that Recovery Act funds reach the necessary recipients and achieve
the desired results. The OIG also faces a formidable challenge in conducting all of the
work necessary to provide the Department, the Congress, and the general public with
assurance that Recovery Act funds are used as intended. OIG will continue to use every
tool at its disposal to accomplish this goal. This has included hiring a number of
experienced term employees to supplement current staff.

As discussed in our last Semiannual Report to Congress, OIG staff has been meeting with
Department leaders and our counterparts in the Government Accountability Office and
other Federal agencies since the enactment of the law to set in motion measures to help
ensure that Recovery Act dollars reach the intended recipients and achieve the intended
results. During this reporting period, we continued to participate in an advisory capacity
on a number of Department and Office of Management and Budget (OMB) Recovery Act
work groups, maintained our seat on the Recovery Accountability and Transparency
Board, and continued to provide the Department and its grantees with tools to help
identify and fight waste, fraud, and abuse of Recovery Act funds. OIG staff also met

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with State and local officials across the country, including more than 160 meetings with
                    individual SEAs and LEAs. These sessions have covered Recovery
                    Act-related topics such as:

                           Impact of Recovery Act on State and local programs,
                            including special education programs;
                           Impact of Recovery Act on student financial assistance
                            programs;
                           Oversight programs for Recovery Act funds;
                           Data quality’s impact on Recovery Act reporting;
                           Fraud awareness and prevention:
                                o Identifying programs susceptible to fraud and fraud
                                   indicators;
                                o Reporting fraud; and
                                o Whistleblower protection.

During the last 6 months, OIG staff initiated its on-the-ground Recovery Act efforts,
launching a series of audits at the State and local level (Governors’ offices, SEAs, LEAs,
and other grantees) to determine whether entities responsible for overseeing Recovery
Act funds have designed systems of internal control that are sufficient to provide
reasonable assurance of compliance with applicable laws, regulations, and guidance.
Internal controls are plans, methods, and procedures an entity employs to provide
reasonable assurance that it meets its goals and achieves its objectives while minimizing
operational problems and risks. These initial audits are still ongoing and we expect to
complete our work in the coming months. During this reporting period, we issued two
Recovery Act-related reports of significance. Summaries of these reports are below, and
full reports and related information are posted on our Web site via this link:
http://www.ed.gov/about/offices/list/oig/recoveryact.html, as well as on the government’s
overall Recovery Act Web site, www.recovery.gov.

Recovery Act-Related Reports
Fiscal Issues Related to SEAs and LEAs
In July, we provided the Department with a report summarizing the pervasive fiscal
issues involving LEAs and SEAs, when the SEA work included a review of LEAs,
identified in OIG audit reports issued during FYs 2003 through 2009. The report also
included summaries of OIG investigations involving LEA officials that resulted in
criminal convictions during the period FY 2003 through December 31, 2008. With the
dramatic increase in funding to LEAs and SEAs under the Recovery Act, this report
provided the Department with information that we believed would be particularly
beneficial in overseeing grants to LEAs and SEAs.

We considered an issue to be pervasive if it appeared in 5 or more final audit reports, and
identified 41 reports containing such issues. Of these 41 reports:



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              27 included pervasive fiscal issues related to one or more of the following
               issues: unallowable or inadequately documented personnel and non-
               personnel expenditures; violations of the supplement not supplant rule;
               and inventory control systems; and

              14 included unallowable costs related to LEAs: not meeting program
               requirements; inability to demonstrate that program requirements were
               fulfilled; ineligibility for the programs; or inadequately documenting
               program eligibility.

The 41 reports included approximately $182 million in questioned costs and an additional
$1.4 billion in funds determined to be at risk because of internal control weaknesses at
the SEAs and LEAs reviewed.

Our report also provided the Department with summaries of 13 OIG investigations that
resulted in criminal convictions of LEA officials. We sorted those cases into categories
                                            of fraud schemes: (1) embezzlement
                                            involving kickbacks from consultants,
                                            contractors, and employees; (2)
                                            embezzlement involving fictitious vendors;
                                            (3) embezzlement involving false
                                            expenditure reports and checks; (4)
                                            embezzlement involving use of dormant or
                                            unknown bank accounts; and (5)
                                            embezzlement involving misuse of
                                            procurement cards.

                                              We concluded that more effective internal
control systems at the SEAs and LEAs reviewed could have mitigated the risk of the
pervasive issues and fraud schemes occurring. To address this, we suggested that the
Department enhance its guidance to SEAs and LEAs on how to implement the
administrative requirements for Federal grants and ensure that SEA and LEA officials
understand the importance of complying with the requirements. It should also make
SEAs and LEAs aware of the necessity to have and implement policies and procedures
that require proper segregation of duties for procuring goods and services and reconciling
bank statements, bidding procedures, and review of invoices and supporting
documentation. We also suggested that the Department offer additional training to SEAs
and LEAs, stressing existing requirements and providing technical support for ensuring
allowable and adequately documented personnel and non-personnel costs; proper
inventory control systems; and the supplementing, not supplanting, of Federal grant
funds. In response to our report, the Department stated that it is developing a technical
assistance plan and training curricula to provide enhanced guidance and training to SEAs
and LEAs. Click here for a copy of the report.




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Potential Consequences of Recovery Act Requirement
The State Fiscal Stabilization Fund (SFSF) established by Title XIV of the Recovery Act
provides $53.6 billion to the States for education and other government services for FY
2009 through FY 2011. To receive these funds, States must submit an application that
                                  includes a number of assurances, including that the State
                                  will maintain its support (known as ―Maintenance of
                                  Effort‖ or MOE) for elementary and secondary
                                  education, and for public institutions of higher education
                                  (IHEs), at least at its FY 2006 level of support.

                                 Based on our preliminary Recovery Act work and
                                 complaints we received, we found some States’ budget
                                 proposals, in response to this flexibility, would reduce
                                 State support for public education to the FY 2006 levels,
                                 and replace the State funds with their SFSF allocation to
                                 free up State resources for non-education budget items.
                                 Depending on the level of State resources, this could
                                 reduce the percentage of State revenue spent on public
                                 education. Although this reduction is allowable under
                                 the law, it may adversely affect the achievement of the
                                 goals of the SFSF program.

                                  In July, the Department posted proposed requirements,
definitions, and approval criteria applicable for the FY 2010 distribution of SFSF
program funds in the Federal Register in an effort to secure further assurance that States
use SFSF program funds for education purposes. Under the proposed requirements, to
receive FY 2010 SFSF program funds, a State must pledge to use the funds to: (1)
increase teacher effectiveness and address inequities in the equitable distribution of
highly qualified teachers; (2) implement statewide data systems that track pre-K-through-
career progress and foster continuous improvement; (3) make progress towards rigorous
standards and high-quality assessments; and (4) provide intensive support and effective
interventions to struggling schools. None of these proposed indicators or descriptors,
however, will ensure that States are complying with their MOE assurances in their first
application or address how levels of State funding are affecting States’ progress toward
the education reform objectives.

As our result of our work and research, we recommended that the Department implement
a process to track State support for elementary and secondary education and IHEs to
determine the extent to which State funding for public education is being reduced. We
also recommended that the Department establish and implement a process to ensure that
States have met the MOE requirements and assurances prior to awarding additional SFSF
funding. In its response to our report, the Department stated that our recommendations
were reasonable and that it would further assist in addressing the concerns expressed in
the memorandum. Click here for a copy of the report.




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       ELEMENTARY, SECONDARY, AND
    POSTSECONDARY EDUCATION PROGRAMS
The significant work we have conducted over the years has shown accountability to be a
concern with grantees and subrecipients in elementary, secondary, and postsecondary
education programs. Previous OIG work has identified issues of noncompliance with
                                                data collection and reporting by SEAs,
                                                LEAs, and other grantees, making it a
                                                significant challenge for the Department
                                                and the entities involved in its elementary,
                                                secondary, and postsecondary programs to
                                                ensure that data received from those
                                                entities are accurate, reliable, and
                                                complete. Our reviews conducted over
                                                the last 6 months indicated that
                                                accountability is still an issue for a
                                                number of Department offices, SEAs, and
                                                LEAs. Summaries of our findings are
                                                provided below, along with information
on our most significant investigations involving elementary and secondary education
program funds.

Elementary and Secondary Education
SEA Subrecipient Monitoring
An SEA is responsible for the distribution of Federal education funds to subrecipients,
including LEAs. The SEA is required to monitor activities to provide reasonable
assurance of each subrecipient’s compliance with Federal requirements and the
achievement of performance goals. To do so adequately, SEAs must have procedures in
place for: (1) reviewing and approving subrecipient applications and amendments;
(2) providing technical assistance to subrecipients; (3) evaluating the performance of
projects; (4) ensuring resolution of Single Audits; and (5) performing other
administrative responsibilities that the State has determined are necessary to ensure a
subrecipient’s compliance with statutes and regulations. Because of the increased
demands of this requirement on SEAs as a result of the Recovery Act, subrecipient
monitoring is a critical component of OIG’s Recovery Act audit plan and an issue we will
examine closely over the next several years.

       Illinois Department of Education
       Our audit of the Illinois State Board of Education (ISBE) determined that, as of
       June 30, 2008, ISBE had an adequate system of internal control over the first four
       subrecipient monitoring procedures defined above, but determined that ISBE
       could strengthen its system of internal control over ensuring subrecipient
       compliance with selected aspects of the ESEA Title I, Part A, and the IDEA Part

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         B. Specifically, we found that ISBE did not cite Chicago Public Schools (CPS)
         for not complying with ESEA Title I, Part A comparability requirements1 in FY
         2008 and did not determine the amount of ESEA funding that should have been
         withheld or repaid as a result of CPS not meeting those requirements, which we
         estimated to be more than $660,000. We also found that ISBE did not have an
                                                         effective process in place to
                                                         provide reasonable assurance that
                                                         an individual school's
                                                         comprehensive plan for its
                                                         schoolwide program2 contained
                                                         the required components, and did
                                                         not have an effective monitoring
                                                         process in place to review IDEA
                                                         Part B, local-level MOE
                                                         calculations.3

                                                        We made a number of
                                                        recommendations, including that
                                                        the Department require the ISBE
                                                        to return more than $660,000.
         ISBE concurred with some but not all of our findings and recommendations.
         Click here for a copy of the report.

Scoring of State Assessments
The ESEA requires each State to use a set of annual student academic assessments to
determine whether the performance of the SEA, LEAs, and schools meets the State's
academic achievement standards. States must also use these assessments to determine
whether individual students are meeting minimum State proficiency standards in
mathematics, reading or language arts, and science. The ESEA requires the assessments
to be used for valid and reliable purposes consistent with relevant, nationally recognized
professional and technical standards. Congress reemphasized the importance of using
academic assessments to measure student achievement in the Recovery Act by
specifically targeting funds toward enhancing the quality of assessments that States
administer under the ESEA.

During this reporting period, we concluded a series of audits that sought to determine
whether controls over scoring of assessments at SEAs were adequate to provide
1
  To be eligible to receive Title I funds, an LEA must use State and local funds to provide services in Title I
schools that, taken as a whole, are at least comparable to services provided in non-Title I schools.
2
  ESEA allows schools in an area with a poverty level of 40 percent or more, or in which at least 40 percent
of enrolled students are from low-income families, to operate schoolwide programs. Schools operating
schoolwide programs may use Title I funds to upgrade the entire educational program in a school in order
to improve the academic achievement of all students, particularly the lowest-achieving students.
3
  IDEA requires States to expend local and State funds for special education in a year at the same or higher
level as in the previous year. This provision ensures that the funds are used to supplement, not supplant,
local, State, and other Federal funds. This is commonly referred to as ―maintenance of effort.‖


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reasonable assurance that assessment results are reliable. Our review covered
assessments administered by three SEAs—Florida, Tennessee, and Wyoming—in school
year 2007-2008. Those assessments were used for evaluating individual student
achievement and making adequate yearly progress (AYP) determinations, as required by
the ESEA. Below you will find summaries of these audits that found that while controls
over scoring were adequate, there were concerns identified at each SEA that must be
addressed in order to ensure that test scores are reliable.

       Florida Department of Education
       Although we found that the Florida Department of Education (FLDOE) had
       internal controls over scoring of its comprehensive assessment test to provide
       reasonable assurance that assessment results were reliable, we identified several
       discrepancies involving its assessment contractor that should be addressed.
                                            First, we identified examples of incorrect or
                                            insufficient scanning by the contractor’s
                                            system relating to gridded responses, which
                                            could affect a student’s overall score. Second,
                                            we found that FLDOE did not sufficiently
                                            monitor the contractor, as it was not aware that
                                            the contractor had inadequate safeguards for
                                            discarding students’ personally identifiable
                                            information (PII), it did not comply with
                                            contract terms, and it did not have adequate
                                            document control procedures.

                                           We found an instance where the contractor did
                                           not responsibly discard documents containing
                                           student PII. Also, and although required, the
       contractor did not notify FLDOE of changes to subcontractors and did not
       sufficiently monitor its subcontractors to ensure that they hired qualified
       employees. We identified 14 subcontractor employees who were not qualified to
       perform the assessments and thus should not have been allowed to score the tests.
       Finally, our audit was delayed because the contractor limited our access to
       documentation required for our audit, which could have been avoided had
       FLDOE had effective document control procedures included in its agreement with
       the contractor.

       We recommended that the Department require FLDOE to implement procedures
       to ensure that students’ gridded responses are accurately scanned, ensure that all
       contractors are aware of the proper handling of PII, monitor contractors to ensure
       compliance with contract provisions, and include penalties for noncompliance
       with a Federal audit. FLDOE did not agree with all of our findings and
       recommendations. Click here for a copy of the report.




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        Tennessee Department of Education
        Although the audit found that the Tennessee Department of Education’s (TDOE)
        controls over scoring of State assessments were adequate to provide reasonable
        assurance that assessment results were reliable, we did identify three areas of
        concern.

        First, TDOE did not provide sufficient oversight for one of its three assessments
        to ensure that monitors were qualified and that their qualifications were properly
        documented. Second, TDOE did not have adequate written internal control
        procedures for its assessment scoring process, and its contracts with assessment
        vendors lacked clauses providing for Federal audits and requiring adherence to
                                               specified industry standards. Finally, we
                                               found that PII on student answer sheets
                                               was sent to a TDOE assessment contractor
                                               for processing, but there was no indication
                                               this complied with requirements of the
                                               Family Educational Rights and Privacy
                                               Act of 19744 (FERPA). Further, the
                                               contractor used an inmate program at a
                                               maximum security prison to review those
                                               assessments.

                                                 We recommended that the Department
                                                 require TDOE to create and distribute
        written internal control procedures for assessment scoring and reporting, and that
        it take appropriate steps to properly protect student PII in the assessment process
        and ensure that the disclosure of student PII to assessment contractors is in
        compliance with the FERPA. TDOE generally concurred with our findings and
        did not specifically concur or disagree with our recommendations. Click here for
        a copy of the report.

        Wyoming Department of Education
        The audit found that the Wyoming Department of Education’s (WDE) controls
        over scoring of State assessments were adequate to provide reasonable assurance
        that its assessment results were reliable; however, we identified controls over
        assessment scoring that could be enhanced. We determined that in each of the 3
        years that its assessment had been administered, WDE identified errors in the
        contractor-provided assessment results. In all cases, WDE required the contractor
        to determine and correct the cause of the errors and produce corrected results. To
        improve this process, we recommended that WDE document its existing
        procedures for monitoring contractor performance and reviewing contractor-
        provided assessment results to enhance its control over operations. We also
        suggested that WDE allow additional time for its accountability staff to review
        contractor-provided assessment results and involve school personnel in the review
4
 FERPA is a Federal law designed to protect the privacy of a student’s education records and applies to all
schools that receive Federal education funds.

                                                                                                         11
     process, which would decrease the risk that WDE will publish incorrect results
     and then have to restate student assessment results and AYP determinations, or
     both. WDE concurred with our findings and described actions that it has taken or
     will take to implement our recommendations. Click here for a copy of the report.

Other Grantees and Subrecipients
State Educational Agencies
     Puerto Rico Department of Education
     The Supplemental Educational Services (SES) provision of the ESEA requires
     LEAs to offer SES to students from low-income families when the students attend
     an ESEA Title I school that is in the second year of school improvement or is
                          identified for corrective action or restructuring. During
                          2006-2007, the Puerto Rico Department of Education
                          (PRDE) identified a total of 578 schools that fell within those
                          criteria. This audit found that contracts PRDE awarded SES
                          providers generally contained the elements required by law
                          and regulations, but did not include requirements related to
                          individual student agreements, and lacked control
                          mechanisms to ensure that the contractors provided the
                          contracted services. As a result, PRDE paid for a number of
                          unsupported costs, more than $6,000 for services provided to
                          non-eligible students, and for services that were not
                          rendered. Also, PRDE did not withhold more than $44,100
                          in fees due from the SES providers for the use of its facilities
     to provide the contracted services. In addition, although PRDE properly approved
     SES providers, it did not ensure that parents of eligible school children selected
     the SES provider of their choice, as required by the ESEA.

     We recommended that the Department require PRDE to provide supporting
     documentation for the unsupported charges or return that funding to the
     Department, and recover the amount of funding providers owed for using PRDE
     facilities, and establish adequate controls to ensure that checks are issued for the
     correct amount. PRDE did not concur with all of our findings. Click here for a
     copy of the report.

     Virgin Islands Department of Education
     As a result of the Virgin Islands Department of Education’s (VIDE) designation
     as a high-risk grantee due to its history of unsatisfactory performance, it entered
     into a compliance agreement with the Department that contained, among other
     provisions, a requirement that VIDE implement an inventory system that
     complied with Federal regulations. VIDE did not comply with the terms of the
     compliance agreement, and as a result, the Department required the VIDE to hire
     a third-party fiduciary to manage all grant funds. In 2006, VIDE signed a 32-



                                                                                            12
month, $7.8 million contract with Alvarez & Marsal Public Sector Services
(A&M) to provide the required third-party fiduciary services.

Despite this large contract, our audit found that VIDE did not have adequate
policies and procedures or an effective property management system in place to
properly account for property purchased with Department funds. As a result, it
did not properly account for property with a total value of more than $298,600. In
addition, A&M did not manage the property in accordance with contract
requirements, and VIDE did not provide proper oversight of A&M’s contract to
ensure that it complied with all the contract deliverables.

We recommended that the Department require VIDE to account for all of the
missing property or return the value of the property to the Department. VIDE
concurred with some of our findings. Click here for a copy of the report.

Local Educational Agencies
Dallas Independent School District
Our audit found that as of June 30, 2006, the District’s system of internal control
over the expenditure of ESEA Title I, Part A funds was inadequate to provide
reasonable assurance that those funds were used only for allowable purposes. As
a result, the District charged more than $1.6 million in costs to a Title I grant
without required approval, for unreasonable and unnecessary costs, and for
purchases of other unallowable items, and expended more than $1.8 million in
undocumented or insufficiently documented costs. Further, we found that District
management was either slow in taking or took no corrective action in response to
internal control weaknesses cited in prior audits, reviews, and investigative
                                       reports made between August 2003 and
                                       November 2006.

                                    We recommended that the Department
                                    require the Texas Educational Agency
                                    (TEA) to require the District to return more
                                    than $1.6 million to the Department, and to
                                    provide adequate documentation supporting
                                    the allowability of more than $1.8 million
                                    or return those funds to the Department.
                                    TEA acknowledged the serious weaknesses
                                    in the District’s grant management and
                                    concurred in part with our finding and
recommendations. Click here for a copy of the report.

Houston Independent School District
Our audit of the Houston Independent School District found that while the District
generally had an adequate system of fiscal controls, it did not always use Federal
funds in accordance with all applicable Federal and State requirements. We

                                                                                 13
    reviewed more than $21.7 million of the District’s Federal expenditures and
    determined that more than $145,400 was expended either in violation of Federal,
    State, or District guidelines or lacked documentation adequate to substantiate the
    expenditures. We also found that the District charged purchase card costs to
    Federal programs for items that were either unallowable or not adequately
    documented. We judgmentally selected a number of purchase card charges and
    found that 32 percent of the charges were in violation of Federal or State
    guidelines or had inadequate or no documentation to substantiate the charge.

    We recommended that the Department require TEA to require the District to
    refund more than $64,800 of Federal funds expended for unallowable costs and
    refund more than $87,400 in inadequately documented costs or provide adequate
    documentation to support that amount. TEA partially concurred with our
    findings. Click here for a copy of the report.


Postsecondary Education
Office of Postsecondary Education
    Oversight of Talent Search and Educational Opportunity Centers
    Grantees
    Our inspection determined that the Office of Postsecondary Education (OPE) did
    not take appropriate action to address Talent Search and Educational Opportunity
                                           Centers (EOC) grantees that did not serve
                                           the number of participants they were
                                           funded to serve in FYs 2003-2007. The
                                           Talent Search and EOC programs are two
                                           of eight programs administered by OPE’s
                                           Higher Education Preparation and Support
                                           Service (know as TRIO). The Talent
                                           Search program provides academic, career,
                                           and financial counseling to participants
                                           from disadvantaged backgrounds and
                                           encourages them to graduate from high
                                           school and continue on to a postsecondary
                                           institution. The EOC program provides
                                           counseling and information on college
                                           admissions to qualified adults who want to
    enter or continue a program of postsecondary education. Regulations currently
    specify that Talent Search grantees serve a minimum of 600 participants in each
    year and EOC grantees serve 1,000 participants in each year.

    Our inspection found that a large number of Talent Search and EOC grantees
    failed to meet their funded-to-serve number in at least one year during the grant
    cycles we reviewed. TRIO management was unable to take appropriate action to
    address these grantees because it did not have a well-defined, transparent process

                                                                                     14
    for reviewing grantee performance; did not appropriately oversee program
    specialists’ work; and did not implement a process that appropriately held
    grantees accountable for not serving the number of participants they were funded
    to serve.

    We recommended that the Department hold all grantees accountable for not
    serving the number of participants they were funded to serve. In its response to
    our draft report, OPE did not concur with our recommendation because it
    interpreted it as a requirement to assess a financial penalty whenever a grantee did
    not serve the number of participants it was funded to serve. OPE further stated its
    general practice has been to not impose financial penalties on grantees that do not
    meet their funded-to-serve numbers, and it did not provide any indication that it
    would change this practice. We do not view reducing, discontinuing, or
    recovering funds from grantees that did not meet fundamental performance
    requirements as a penalty. Click here for a copy of the report.

Postsecondary Grantees
    Illinois: Southern Illinois University-Edwardsville
    Our audit determined Southern Illinois University-Edwardsville (SIUE) did not
    comply with provisions of the HEA and regulations governing the use of TRIO
                                            program funds and participant eligibility in
                                            three of its TRIO programs—Upward
                                            Bound (UB), Upward Bound Math-
                                            Science (UBMS), and Talent Search.
                                            SIUE was awarded more than $2.9 million
                                            for these three programs for the time
                                            period we examined. The goal of UB and
                                            Talent Search is to increase the rate at
                                            which participants complete secondary
                                            education and enroll in institutions of
                                            postsecondary education. The goal of
                                            UBMS is to help students recognize and
                                            develop their potential to excel in math and
    science and to encourage them to pursue postsecondary degrees in math and
    science. We found SIUE did not serve the required minimum number of Talent
    Search participants; failed to provide adequate documentation for TRIO personnel
    costs; used UB, UBMS, and Talent Search funds for unallowable and
    inadequately documented non-personnel costs; and failed to maintain adequate
    TRIO participant records. As a result, SIUE received more than $720,500 in
    Talent Search funds that it was not entitled to receive and could not show how
    more than $287,100 in UB, UBMS, and Talent Search personnel costs were
    allowable. It also did not have more than $11,900 in UB and UBMS funds
    available to spend on allowable activities, could not show how $11,000 in UB and
    UBMS non-personnel costs were allowable, and used more than $22,800 in
    Talent Search and UB funds to serve participants whose eligibility had not been
    determined and documented.

                                                                                      15
       We recommended that the Department require SIUE to return more than $720,500
       in Talent Search funds that it received but was not entitled to and provide
       adequate documentation or return more than $287,100 in inadequately
       documented costs. SIUE did not concur with all of our findings. Click here for a
       copy of the report.

       Washington, D.C.: Gallaudet University
       This audit found that while Gallaudet University (GU) generally had adequate
       internal controls in place and expenditures charged to Federal education funds
       were reasonable, allocable, and allowable for the time period examined, it had
       inadequately supported payroll costs for salaries paid by Federal grant funds. GU
       is a federally chartered, private, nonprofit educational institution that provides
       elementary, secondary, undergraduate, graduate and continuing education
       programs for persons who are deaf. GU receives approximately 67 percent of its
                                        operating revenues by direct appropriation from the
                                        Federal Government under the authority of the
                                        Education of the Deaf Act.

                                        We found that GU did not have adequate activity
                                        reports or a process in place to verify the
                                        distribution of activity charges for services
                                        performed by its employees on grant-related
                                        activities. As a result, GU charged more than $1
                                        million in inadequately supported salary and fringe
                                        benefits costs to grant funds. In addition, we found
                                        that GU’s procurement policy and its Purchasing
                                        Card Program Guide were outdated and not in line
                                        with Federal regulations for record retention. We
                                        also found that GU did not maintain separate
                                        records for the receipt and expenditure of federally
                                        appropriated funds, and pooled appropriated funds
       with other revenue. Thus, GU could not provide the universe of transactions
       expended from its appropriated Federal funds. We recommended that GU
       provide supporting documentation or return more than $1 million in unsupported
       salary and fringe benefit costs to the Department. GU did not concur with all of
       our findings, but did take or stated it planned to take corrective action to address
       the weaknesses identified. Click here for a copy of the report.

Contracts
Educational Testing Service National Assessment of Education
Progress Contract
During this reporting period, we concluded an audit to determine whether the direct labor
costs (excluding employee benefits) and other direct costs incurred under a specific
Educational Testing Service (ETS) National Assessment of Educational Progress


                                                                                          16
(NAEP)5 contract were reasonable, allowable, and allocable in accordance with the terms
and conditions of the contract and applicable acquisition regulations. The National
Center for Education Statistics (NCES) within the Department contracted with ETS and
                                           other organizations to perform six core
                                           components of NAEP’s operations. In 2002,
                                           ETS was awarded a $90 million contract to
                                           carry out two of those components.

                                           Our audit sampled more than $1 million from
                                           a total of more than $7 million in direct costs
                                           and labor costs and found that ETS charged
                                           more than $57,700 of unallowable costs and
                                           more than $46,700 of unsupported costs to the
                                           contract, and that ETS did not always properly
                                           report incurred costs in appropriate cost
                                           categories on its invoices. We also
determined that ETS improperly billed the Department more than $2.7 million in
unallowable post-retirement medical benefits expenses and imputed interest, which ETS
returned to the Department shortly after we issued our draft audit report. We
recommended that the Department require ETS to provide documentation to support the
unallowable and unsupported costs, or return that amount to the Department. ETS
partially agreed with our findings and recommendations. Click here for a copy of the
report.


Investigations
Our investigations into suspected fraudulent activity by or within SEAs, LEAs, and their
contractors have led to the arrest and conviction of a number of individuals for theft or
misuse of Federal education funds. Below are a number of examples of our more
significant investigations in this area over the last 6 months.

Settlement
        Maine – $1.5 million settlement reached with Maine Department of
        Education: The U.S. Department of Justice reached a $1.5 million civil fraud
        agreement with the Maine Department of Education (MDE) to settle allegations
        that it submitted false information to the Department regarding its eligibility to
        receive Federal funds under the Migrant Education Program. The settlement is a
        result of our investigation which revealed that the MDE, the Portland Public
        Schools, Maine Administrative School District #14, and the Maine Family
        Resource Center, Inc., a non-profit corporation responsible for identifying and
        servicing migrant children residing in the State, falsely represented to the
        Department the number of children who were eligible to participate in the Migrant

5
 The NAEP, often referred to as ―The Nation’s Report Card,‖ was authorized under The National
Assessment of Educational Progress Improvement Act to provide a fair and accurate measurement of
educational achievement in reading, mathematics, and other areas.

                                                                                                   17
      Education Program for FYs 2002 through FY 2004 by approximately 75 percent.
      As a result of the false counts, the State received Migrant Education Program
      funds to which it was not entitled.

School Officials
      Pennsylvania – Philadelphia Academy Charter School Officials Pled Guilty
      to Fraud and Theft: The former chief executive officer (CEO) and the former
      board president of the Philadelphia Academy Charter School—both former
                                    Philadelphia police officers— pled guilty in U.S.
                                    District Court, Eastern District of Pennsylvania, to
                                    multiple counts of fraud and theft. Our investigation
                                    with the Federal Bureau of Investigation (FBI) and
                                    the Internal Revenue Service Criminal Investigation
                                    Division (IRS-CID) uncovered extensive fraudulent
                                    activity perpetrated by the two former officials and
                                    another co-conspirator who died prior to being
                                    charged. The conspirators misappropriated upwards
                                    of $1 million in school funds by soliciting bribes and
                                    kickbacks from school vendors and submitting false
      invoices for reimbursement for personal items such as meals, entertainment, home
      improvement, and personal bills. The former CEO also used school funds to
      purchase a building in the name of his purported non-profit business with the aim
      of flipping the building to another charter school for a $1 million profit and
      collecting rent from entities using the schools’ facilities. The CEO also used
      school funds to hire a computer firm to destroy evidence related to the crimes and
      to obstruct the investigation. In his plea agreement, the CEO agreed to forfeit
      $500,000 in personal assets.

      Pennsylvania – Raising Horizons Quest Charter School Officials Sentenced:
      The former CEO and the former chief financial officer (CFO) of the Raising
      Horizons Quest Charter School were sentenced in U.S. District Court, Eastern
      District of Pennsylvania, for conspiracy and alteration of records in a Federal
      investigation. The former officials were each sentenced to 5 years of probation
      and were order to pay approximately $24,000 in restitution. Our investigation
      revealed that the two officials used school credit cards for personal expenses and,
      in an attempt to conceal their crime, altered credit card statements by removing or
      changing those personal expenses and inserting charges purported to be for
      school-related costs prior to and in preparation for a Philadelphia School District
      audit.

Contractors and Grantees
      California – Grant Writer Indicted in $35 Million Fraud Case: The owner of
      Cross Resources, Inc., a grant writing company that assisted businesses in
      securing Federal and State grants, was indicted by a Federal Grand Jury in U.S.
      District Court, Central District of California, on charges of fraud. Our
      investigation with the FBI, the Riverside District Attorney’s Office, and the Paso

                                                                                        18
     Robles Police Department alleges that the owner was contracted by the Indio
     Youth Task Force (IYTF), a non-profit community based organization, for grant
     writing services. Per the contract she entered into with the executive director of
     IYTF, the grant writer would prepare and submit grant applications on behalf of
                       YTF, and, upon the grant award, would receive 15 percent of
                       the total amount received. The grant writer allegedly forged
                       numerous signatures on the applications and altered documents
                       to support the grant requests. As a result of these fraudulent
                       actions, the IYTF would have received more than $35 million in
                       21st Century Community Learning Center funds, of which the
                       owner would have received more than $7 million.

                      Louisiana – Federal Jury Convicts Former Congressman’s
                      Brother on Charges of Bribery and Obstruction of Justice:
                      The brother of a former Louisiana Congressman was convicted
                      by a Federal jury in U.S. District Court, Eastern District of
                      Louisiana, on charges of bribery and obstruction of justice. Our
                      investigation with the FBI and the IRS found that while
                      employed by JRL Enterprises, Inc. (JRL), the man paid bribes
                      to a former board member of the Orleans Parish School Board
     to promote and approve $14 million in contracts for JRL. The man received more
     than $900,000 as a sales commission from JRL, and paid the former board
     member $100,000 for her role in the contract approval process.

     Texas – Grantee Sentenced for Stealing Rehabilitation Funds: The owner and
     executive director of Rehab Specialists, Inc., a community rehabilitation program
     provider, was sentenced in U.S. District Court, Southern District of Texas, to 33
     months in prison, 3 years of supervised release, and was ordered to pay more than
     $335,900 in restitution for fraud. The investigation revealed that the owner
     fraudulently obtained Federal vocational rehabilitation funds through the Texas
     Rehabilitation Commission by claiming he was providing training and cleaning
     services that in fact were never provided.

Fraud Ring
     Puerto Rico – Six Individuals Pled Guilty in ID Theft and Fraud Involving
     School Children: Our last Semiannual Report to Congress summarized the
     indictment of a number of individuals who were allegedly involved in an ID theft
     ring in Puerto Rico. During this reporting period, six of the individuals pled
     guilty for their roles in the scheme. The multi-agency State and Federal task force
     found that the individuals burglarized approximately 50 schools in Puerto Rico,
     stealing identity-related documents of school children. The individuals had been
     involved in the unlawful transfer and possession of social security cards, birth
     certificates, passports, as well as fake Puerto Rico drivers’ licenses. The
     conspirators looked to sell the information stolen from the Puerto Rico schools to
     buyers, including individuals in Alaska, California, and Texas.



                                                                                      19
  FEDERAL STUDENT FINANCIAL ASSISTANCE
       OPERATIONS AND PROGRAMS
                               The Federal student financial assistance programs have long
                               been a major focus of our audit, inspection, and
                               investigative work, as they have been considered the most
                               susceptible to fraud. The programs are large, complex, and
                               inherently risky due to their design, reliance on numerous
                               entities, and the nature of the borrower population. With
                               more than 6,000 postsecondary institutions, more than 2,900
                               lenders, 35 guaranty agencies, $113.6 billion in awards, and
                               an outstanding loan portfolio of more than $600 billion in
                               FY 2009, accountability in these programs is critical. The
                               Department and FSA must ensure that their staff and all
                               program participants are held accountable for their
                               compliance with statutory and regulatory requirements, and
                               they must provide program oversight and monitoring to
                               reduce waste, fraud, and abuse in these programs. As you
                               will read in this section of this Semiannual Report to
Congress, work concluded over the last 6 months showed areas in which FSA needs to
make improvements in its management, oversight, and accountability in order to be more
effective stewards of the billions of dollars that support these programs. Below you will
find summaries of our work in this area, as well as summaries of our higher-profile
investigative cases involving student financial assistance fraud by school officials,
contractors, and individuals.

FSA Operations
ECASLA Efforts
With the significant disruptions in the credit markets, in early 2008, lenders in the Federal
Family Education Loan (FFEL) Program expressed concerns that there would be
insufficient private capital to fund FFEL loans to meet the demands of Stafford and
PLUS loan borrowers. To address these concerns, Congress passed the Ensuring
Continued Access to Student Loans Act of 2008 (ECASLA), which provided the
Department with the authority to purchase, or enter into forward commitments to
purchase, student loans from lenders to ensure that loans are available for all students.
During this reporting period, OIG continued to work with the Department and FSA on
ECASLA-related issues, providing audit guidance, assistance, and advice to help ensure
compliance with rules and provisions for the loan purchase programs authorized under
ECASLA. To provide accountability for the Asset-Backed Commercial Paper Conduit
Put Program established under ECASLA, we issued an attestation engagement guide for
the review of loans that lenders intend to pledge to the Conduit. Attestation engagements
are conducted by independent public accountants and lead to conclusions about the
reliability of assertions made by FFEL Program lenders that loans they intend to pledge

                                                                                          20
to the Conduit meet selected requirements of the Asset-Backed Commercial Paper
Conduit Put Program. Click here for additional information and copies on the attestation
engagement guides.

FSA’s Enterprise Risk Management
In 2006, FSA established the Enterprise Risk Management Group (ERMG), a work unit
focused on providing FSA senior management with information and guidance so it could
better anticipate, analyze, and manage risks inherent in the Federal student financial
assistance programs. FSA’s program was based on the Enterprise Risk Management
Integrated Framework, which consists of eight interrelated components: (1) internal
environment; (2) objective setting; (3) event identification; (4) risk assessment; (5) risk
response; (6) control activities; (7) information and communication; and (8) monitoring.
In May, we evaluated FSA’s implementation of enterprise risk management and found
that the ERMG had not fully addressed any of the eight components. While it had
                              developed plans and begun business unit activities related to
                              three components (objective setting, event identification, and
                              risk assessment), the plans for fully addressing the remaining
                              five components (internal environment, risk response, control
                              activities, information and communication, and monitoring)
                              have received limited attention. As a result, FSA has not
                              implemented enterprise risk management.

                              Specifically, the evaluation found that the ERMG had
                              completed only risk identification, aggregate risk assessment,
                              and inventory activities for 3 of FSA’s 26 business units.
                              None of FSA’s business units directly responsible for
                              administering the Federal student aid programs had been
                              examined or were included in ERMG’s business unit
                              activities. Further, the ERMG’s work had not adequately
addressed the first component—internal environment, which serves as the basis for
enterprise risk management: it had not ensured that FSA had a defined risk management
philosophy or risk appetite; and had not given attention to existing internal operations,
including results of FSA-wide surveys that indicated there were perceptions on the part of
FSA staff concerning a lack of integrity, ethical values, and commitment to competence
from FSA leadership. Recent OIG audits found similar issues with FSA’s internal
environment, which, if not addressed, can have a far-reaching negative impact on FSA’s
overall operations, not just its efforts to address risk. FSA did not take issue with most of
the information presented in the report. Click here for a copy of the report.

Oversight and Monitoring of Guaranty Agencies, Lenders, and
Servicers
Our audit determined that controls implemented by FSA to ensure that guaranty agencies,
lenders, and servicers were performing in accordance with relevant laws, regulations, and
guidance needed improvement. First, we found that FSA had not dedicated sufficient
resources to effectively monitor FFEL program participants, and program reviews were


                                                                                          21
not properly supervised or performed consistently. As a result, FSA’s program reviews
cannot be relied upon to assess FFEL program participants’ compliance with the HEA,
related regulations, and Department guidance. Second, we found that FSA did not
properly assess, quantify, or document financial and compliance impacts of identified
risks; there was limited to no documentation to support selection of FFEL participants for
program reviews; and there was no evidence that consideration was given to available
                                          staffing resources. The failure to properly assess
                                          risk raises issues regarding transparency and
                                          whether FSA was using its program review
                                          resources effectively. Third, we found that
                                          FSA’s process for monitoring lenders’
                                          compliance with the requirement that certain
                                          lenders submit independent annual compliance
                                          audit reports was not effective. FSA’s
                                          calculation of minimum reserve ratios was not
                                          calculated in accordance with the HEA, which
                                          requires certain guaranty agencies to maintain
                                          minimum Federal fund reserve ratio of 0.25
                                          percent, and the FSA-approved Common Review
initiative may not satisfy all guaranty agency obligations to conduct lender reviews. As a
result, FSA may not have assurance that FFEL program participants were financially
sound and were appropriately managing the FFEL program. Fourth, FSA had not
established a formalized process for obtaining and tracking policy decisions related to the
proper application of the HEA and FFEL regulations, or to resolve issues consistent with
Department policy or prior determinations. Nor were there appropriate processes in place
to share and disseminate policy decisions. As a result, FSA runs the risk that program
review findings and/or proposed corrective actions may not be consistent with the HEA
and the Department’s policies. Finally, we found that FSA did not take timely corrective
action to address findings and recommendations noted in prior OIG audit reports, and the
status of some corrective actions were not accurately reported in the Department’s audit
tracking system. Failure to take prompt and effective corrective action can exacerbate the
problem or weakness identified.

For each of the weaknesses we identified, we provided recommendations that, if
implemented, will improve the effectiveness of FSA’s oversight and monitoring of
guaranty agencies, lenders, and servicers. In response to our audit, FSA provided a draft
corrective action plan that included proposed actions to address each of the
recommendations in the report. Click here for a copy of the report.

Special Allowance Payments
During this reporting period, we concluded the final two audits in our series of work
involving the 9.5 percent special allowance payments (SAP) made to lenders on certain
loans in the FFEL program. In general, the amount of a SAP is the difference between
the amount of interest the lender receives from the borrower or the government and the
amount that is provided under requirements in the HEA. The HEA includes a SAP
calculation for loans that are funded by tax-exempt obligations issued before October 1,

                                                                                           22
1993. The quarterly SAP payment for these loans may not be less than 9.5 percent,
minus the interest the lender receives, divided by four. We refer to this calculation as the
―9.5 percent floor.‖ When interest rates are low, the 9.5 percent floor provides a
significantly greater return than lenders receive for other loans. During this reporting
period, we concluded two audits involving SAP payments made to the Kentucky Higher
Education Student Loan Corporation, and Sallie Mae's subsidiary, Nellie Mae.

            Kentucky Higher Education Student Loan Corporation
                                           The Kentucky Higher Education Student Loan
                                           Corporation (KHESLC) is an independent
                                           municipal corporation that makes, finances,
                                           services, and collects educational loans. As of
                                           June 30, 2007, KHESLC owned $1.78 billion
                                           in FFEL loans.

                                          Our audit found that KHESLC’s billings did
                                          not comply with requirements for SAP at the
                                          9.5 percent floor: the billings contained loans
                                          that were not funded by eligible tax-exempt
                                          obligations, which we estimated resulted in
                                          improper SAP of $9 million; loans were
                                          assigned to a retired bond or a bond with
                                          incorrect histories because of errors in the loan
                                          servicing system, which we estimated resulted
            in improper SAP of $18,400; and during the 1997 and 1998 calendar years,
            loans were made or acquired with the proceeds of a tax-exempt bond that
            was ineligible because it was not originally issued before October 1, 1993.

            We also found that KHESLC billed at the 9.5 percent rate for loans that were
            ineligible because they were not first-generation or second-generation loans,
            which resulted in KHESLC receiving improper SAP of $79.5 million for
            third-generation or later loans. Under guidance issued to lenders by the
            Department, however, KHESLC is not required to reimburse the Department
            for this amount as long as it continues to comply with the terms of that
            guidance. Based on our findings, we recommended that FSA require
            KHESLC to calculate and return the actual amount of improper special
            allowance payments it received, which we estimate to be $9 million, and if
            KHESLC violates the terms of the guidance, that it calculate and return the
            actual amount of improper SAP it received, which we estimate to be $79.5
            million. KHESLC did not concur with all of our findings. Click here for a
            copy of the report.

            Sallie Mae Subsidiary, Nellie Mae
            Sallie Mae, Inc. (SLMA) originates and holds student loans by providing
            funding, delivery, and servicing support for education loans. SLMA
            managed the largest portfolio of FFEL Program and private education loans

                                                                                          23
in the student loan industry, serving nearly 10 million borrowers through
ownership and management of $142.1 billion in student loans as of
December 31, 2006, of which $119.5 billion or 84 percent were federally
insured.

                        From 1999 through 2004, SLMA acquired several
                        companies in the student loan industry that billed
                        loans under the 9.5 percent floor. This included the
                        Nellie Mae Corporation (NLMA), which it acquired
                        in July 1999. Our audit sought to determine whether
                        NLMA billed loans under the 9.5 percent floor in
                        compliance with the Taxpayer-Teacher Protection
                        Act of 2004 and the Higher Education Reconciliation
                        Act of 2005, and whether it billed loans under the 9.5
                        percent floor after the eligible tax-exempt bonds
                        from which the loans derived their eligibility
                        matured or were retired. Our audit period covered
                        October 1, 2003, through September 30, 2006.

We found that while its billings for SAP under the 9.5 percent floor complied
with the two laws, SLMA’s billing for NLMA did not comply with other
requirements for the 9.5 percent floor calculation. Specifically, SLMA
continued to bill loans under the 9.5 percent floor after the eligible tax-
exempt bonds had matured and been retired and after the loans were
refinanced with funds derived from ineligible sources. We estimated that this
noncompliance resulted in special allowance overpayments of about $22.3
million. SLMA officials asserted that the date the last bond associated with
an indenture matured determined the eligibility for the 9.5 percent floor
calculation of loans financed by, or made eligible through, the bonds
associated with that indenture. SLMA justified its practice based in part
upon its position that because all of the bonds associated with an indenture
shared common characteristics, all of the bonds should be treated as a single
obligation for purposes of applying the 9.5 percent floor calculation. We did
not agree that SLMA’s position was a reasonable interpretation of the HEA
or regulations.

We made a number of recommendations, including that FSA require SLMA
to adjust its special allowance billings for the quarters ended September 30,
2004, through June 30, 2005, and return all overpayments to the Department,
which we estimated to be about $12.3 million. We also recommended that
SLMA identify the loans associated with certain bonds that became ineligible
for the 9.5 percent floor calculation and adjust its special allowance billings
for the affected loans in the quarters June 30, 2002, through June 30, 2005,
and return all overpayments to the Department, which we estimated to be
about $10 million. SLMA disagreed with our findings and
recommendations. Click here for a copy of the report.


                                                                             24
Title IV Program Participants
Community Care College
Our audit determined that Community Care College, a proprietary school located in Oklahoma, did
not comply with provisions of the HEA and regulations governing the return of HEA Title IV aid,
disbursements, and the percentage of revenue that may be derived from Title IV programs, known
                                        as the 90/10 Rule.1 Our audit covered the period of July 1,
                                        2006, through June 30, 2007, during which the school
                                        awarded approximately $6 million in Federal student aid to
                                        826 students.

                                         Since 2002, oversight entities, including FSA, have
                                         identified instances of noncompliance by the school. Our
                                         audit found those weaknesses remained, as well as
                                         additional concerns regarding the school’s application of
                                         the 90/10 Rule. The school incorrectly calculated the
                                         amounts it was required to return to Title IV program
                                         accounts, returning $37,200 less than it should have;
                                         improperly made late disbursements, resulting in its
                                         retaining more than $7,300 in prohibited loans
disbursements; incorrectly prorated disbursements, resulting in excessive awards of more than
$2,400; and inaccurately calculated the percentage of revenue it derived from the Title IV
programs.

We recommended that FSA require the school to recalculate all return of Title IV aid calculations
for students who withdrew from the school and return any program funds owed to the Department
or lenders, as appropriate, including the more than $37,200 identified in our report. The school did
not concur with all of our findings or recommendations. Click here for a copy of the report.

Dallas Nursing Institute
Our audit determined the Dallas Nursing Institute, a private, for-profit institution, complied with
requirements regarding student eligibility but did not comply with requirements governing the
90/10 Rule, award calculations and disbursements, and the return of Title IV aid. Our audit covered
the period of July 1, 2006, through June 30, 2007, during which time the school received more than
$3.1 million in FFEL and Pell Grants on behalf of 426 students. We found that in calculating the
90/10 percentage, the school did not presume that Title IV program funds were used to pay
students’ tuition, fees, and other institutional charges, regardless of whether those funds were
credited or paid directly to the students. For example, if a student paid his or her tuition in cash
before loan funds were disbursed and the loan funds were subsequently disbursed directly




1
 In order to participate in Title IV programs, a proprietary institution must have no more than 90 percent of its revenues
derived from Title IV program funds.
                                                                                                                        25
to the student, the school would not consider the tuition payment to have been made with
Title IV funds. Under the HEA and regulations, the school would be required to presume
that the tuition payment was made with Title IV funds. By not including this
presumption, the school reported a lower percentage of revenue then it actually derived
from the Title IV programs. We also found that the school used inaccurate cost of
attendance amounts; did not notify students when FFEL funds were credited to their
accounts; improperly disbursed FFEL and Pell Grant funds; and incorrectly calculated the
amount to return to Title IV programs.

We recommended that FSA require the school to recalculate the 90/10 Rule percentage
for the years reviewed in our audit, report the percentages to FSA, and provide FSA with
the revised calculations and all the details supporting the revised calculations. We also
recommended that FSA require the school to develop and implement written policies and
procedures for calculating the 90/10 Rule percentage to ensure that Title IV program
funds are presumed to first pay for tuition, fees, and other institutional charges. The
school did not disagree with our findings and proposed corrective actions to prevent
future occurrences. Click here for a copy of the report.

TUI University
Our audit determined that TUI University, a distance education proprietary school based
in California, did not have adequate policies and procedures to ensure that Title IV
programs were properly administered in accordance with applicable requirements of the
HEA, Federal regulations, and Department guidance. Our review covered the period of
October 16, 2007, through June 20, 2008, during which time the school disbursed about
$8.6 million in Title IV funds to a total of 963 students.

                                         The audit found that the school did not have
                                         adequate policies and procedures for ensuring
                                         student eligibility for Title IV funds at the time of
                                         disbursement and for identifying students who
                                         had withdrawn from the institution. We estimated
                                         that more than $923,000 of the $8.6 million in
                                         Title IV disbursements made to students for the
                                         Fall 2007, Winter 2008, and Spring 2008 sessions
                                         was either disbursed to ineligible students or
                                         students who had withdrawn from the institution.
                                         Although we found that the school had policies
and procedures for performing return of Title IV calculations, because of the low number
of such calculations, we did not have sufficient evidence to conclude that the procedures
were adequate to ensure that the calculations would be consistently performed in
compliance with the requirements. We also identified deficiencies in school policies and
procedures concerning academically related activity, length of an academic year, tuition
discounts, loan periods, and training that led us to conclude that the school had not
demonstrated the capability to adequately administer the Title IV programs. We
recommended that FSA consider taking action, as appropriate, to fine, limit, suspend, or


                                                                                           26
terminate the participation of TUI University in the Title IV programs. School officials
disagreed with our findings and recommendations. Click here for a copy of the report.


Investigations
Identifying and investigating fraud and abuse in the student financial assistance programs
have always been a top OIG priority. The following are summaries of some of our more
significant investigations of student financial assistance fraud conducted over the last 6
months involving school officials, contractors, and other individuals.

Educational Loan Project
       Project Yielding Results – During this reporting period, a West Virginia man
       was sentenced to 18 months in prison, 2 years of supervised released, and was
       ordered to pay more than $340,000 for using the identities of innocent third
       parties to fraudulently apply for and receive more Federal student aid. This is the
                                                     latest in a successful and on-going
                                                     law enforcement initiative known as
                                                     the Educational Loan Project, an
                                                     effort by our office and the
                                                     Pennsylvania Higher Education
                                                     Assistance Agency, that seeks to
                                                     identify and investigate individuals
                                                     who obtain Federal and private
                                                     financial aid far in excess of their
                                                     financial need. The Project has thus
       far yielded extraordinary results—more than a dozen individuals have been
       charged in Federal or State courts over the past year for their roles in educational
       frauds, which resulted in more than $1 million in losses.

School Officials
       Arizona – Former Arizona State University Business Manager Arrested: The
       former senior business manager with the Arizona State University (ASU) Mary
       Lou Fulton College of Education was arrested by ASU police on charges of fraud
       and theft. Our investigation with the ASU Police Department alleges that the
       former manager improperly used ASU purchase cards tied to multiple grants on
       personal items totaling more than $29,000. The former manager, who was in
       charge of purchase cards for selected Federal and State grants, would receive a
       purchase card statement of all purchases made on those cards and was then
       required to review those listings to ensure purchases made were within the grant
       guidelines. The former official did not turn in most of her purchase card
       statements and receipts to a second tier reviewer, which enabled her to purchase
       the personal items.

       Massachusetts – Former Tufts University Employees Sentenced in Separate
       Schemes: Two former Tufts University employees were sentenced in Middlesex
       County Court to 2 years and 2 days in State prison, 5 years of probation, and were

                                                                                           27
ordered to pay nearly $1 million in restitution in two separate theft schemes. Our
investigation with the Middlesex District Attorney’s Office and the Tufts
University Audit and Management Services office found that the two former
employees stole funds from the school’s student activities account and used the
money on items such as luxury goods, vacations, and concerts.

New York – Second Touro College Official Sentenced in Transcript Scheme:
The former admissions director of Touro College was sentenced in New York
Supreme Court to serve up to 8 years in prison for his role in a college transcript
tampering scheme at the school. Together with another Touro official, who was
sentenced earlier this year, the former admissions director fraudulently changed
student grades, provided transcripts to students who never attended the school,
and forged a letter of recommendation for another individual in exchange for
upwards of $10,000 in cash. To date, 20 individuals have been sentenced for their
                     roles in this scheme. These actions are a result of our
                     investigation with the New York City Police Department and
                     the New York County District Attorney’s Office.

                     Pennsylvania – Former Harrison Career Institute Officials
                     Sentenced: The former president, the former director of
                     internal audit, and the former director of financial aid at the
                     Harrison Career Institute were sentenced in U.S. District
                     Court, Eastern District of Pennsylvania, for financial aid
                     fraud. The former officials received sentences ranging from
                     18 months in prison to 5 years of probation and were each
                     ordered to pay more than $115,000 in restitution. The
investigation found that from 2000 through 2003, the school’s independent
auditor found instances of noncompliance by the school, specifically findings of
late refunds for award years 2000, 2001, and 2002. The Department advised
school officials that repeat findings of noncompliance could lead to adverse
administrative actions, including fines, or a limit, suspension, or termination of
the school’s eligibility to receive Federal student aid funds. Our investigation
determined that from 2001 to 2005, the officials fabricated false Department
records and tax documents and falsified student records without the students’
knowledge and consent in order to make them appear eligible for Federal student
aid and to make the student files appear to be in compliance with Federal
regulations when they were not. This was done to prevent the school’s
independent auditor and the Department’s Program Review staff from detecting
widespread deficiencies in the school’s student Federal financial aid processes.

Tennessee – Operator of EZP’s College of Barbering Sentenced: The former
operator of EZP’s College of Barbering was sentenced in U.S. District Court,
Eastern District of Tennessee, to 48 months in prison, 3 years of supervised
release, and was ordered to pay more than $300,000 in restitution for fraud. Our
investigation found that from 2006 through 2007, the man falsely obtained loans
in the names of EZP students without their permission. He submitted false


                                                                                 28
                applications for student loans using the names of EZP students and used the social
                security numbers of students to obtain loans in their names. As a result of his
                fraudulent efforts, he received more than $300,000, which he used for his own
                benefit.

        On-Line Fraud Rings
                      Arizona – 65 Individuals Indicted in Fraud Scheme at Rio Salado
                      Community College: A Federal grand jury in U.S. District Court, District of
                      Arizona, handed down a 130-count indictment against 65 individuals in
                                                                connection with a $538,000 student financial
                                                                aid fraud scheme. Our investigation with the
                                                                U.S. Postal Inspection Service and the U.S.
                                                                Marshals Service found that from 2006
                                                                through 2007, the alleged ringleader
                                                                recruited individuals to act as ―straw
                                                                students‖ at Rio Salado Community College
                                                                in order to apply for and receive Federal
                                                                financial aid. The applicants were neither
                                                                active students nor did they intend to become
                                                                active students at the school. The ringleader
                                                                engaged four individuals to help recruit
                                                                people to participate in the scheme, working
Press conference announcing the indictment of 65 individuals in with them to fraudulently apply for
connection with a fraud scheme at Rio Salado Community College.
                                                                admission to the school, then apply for
                      student financial aid. When the participants received their student aid checks,
                      they would then kick back a portion of those funds received to the ringleader and
                      her conspirators in amounts ranging from $500 to $1,500. The ringleader
                      assumed the identity of those individuals to access Rio Salado’s on-line classes.
                      This was done to generate records of the individuals’ participation in on-line
                      classes, which caused Rio Salado school officials to authorize financial aid
                      payments to those individuals. As a result of these efforts, the individuals
                      received more than $538,000 in Federal financial aid to which they were not
                      entitled. As of September 30, 2009, 13 individuals have pled guilty for their roles
                      in the scheme.

                Arizona – Individuals Sentenced in Fraud Scheme at Axia College:
                Seven individuals were charged, six of whom have been sentenced, and
                another pled guilty in Arizona Superior Court for their roles in a fraud scheme at
                Axia College, the on-line college of the University of Phoenix. The scheme’s two
                ringleaders were former employees of ACS, a third party servicer to the school,
                who recruited individuals to enroll at Axia in order to fraudulently obtain student
                financial aid. The former employees assisted the individual in completing the
                enrollment forms and student aid applications, then enrolled the individuals in the
                classes and posted homework assignments for them in order for it to appear as
                though the individuals were attending the on-line courses. When the individuals
                received their student aid checks, they would kick back a portion to the two

                                                                                                           29
     ringleaders. One of the ringleaders was sentenced to serve 8 months in prison, 3
     years of probation, and was ordered to pay more than $51,000 in restitution.
     Another participant was sentenced to serve more than 2 years in prison, 2 years of
     probation, and pay more than $41,400 in restitution, while four others received
     probation, and were ordered to pay restitution ranging from approximately $4,900
     to more than $9,600.

     Michigan – Individuals Indicted for Fraud at Lansing Community College:
     Three individuals were indicted, two of whom have pled guilty in U.S. District
                                       Court, Western District of Michigan, for
                                       devising and participating in a scheme to
                                       fraudulently obtain student aid at Lansing
                                       Community College. Our investigation with the
                                       U.S. Postal Inspection Service uncovered the
                                       scheme in which the individuals fraudulently
                                       enrolled in on-line classes at the College in order
                                       to receive Federal student aid. The scheme’s
                                       ringleader, who has been indicted, allegedly
                                       recruited the two others by telling them that they
                                       could receive financial aid checks from the
                                       school without attending classes. She allegedly
     led them through the enrollment and application processes, requesting $150 for
     each time she enrolled them in a class and completed the financial aid forms. The
     two used their own identities and also obtained the identifying information of
     others, at least one without authorization, to enroll in on-line classes to
     fraudulently receive student aid.

     Texas – Man Pled Guilty for Orchestrating Fraud Schemes at Texas
     Community Colleges: A man pled guilty in U.S. District Court, Northern
     District of Texas, to charges of theft. Our investigation revealed that the man
     obtained personally identifying information of 31 individuals, many of whom
     were registered sex offenders, and used the information to enroll in on-line
     programs at various campuses of the Dallas County Community College and the
     Houston Community College. He also attended on-line classes on behalf of some
     of the individuals so he could receive additional student aid in their names for
     future semesters. The man also attempted to register additional students at the
     Dallas school under the guise of a large church group. In his plea agreement, he
     agreed to pay more than $185,000 in restitution.

Unauthorized Access to NSLDS
     Florida – Employee of Now-Defunct Consolidation Company Pled Guilty: A
     former marketing director for now-defunct University Financial Lending Services
     pled guilty in U.S. District Court, Middle District of Florida, to charges of fraud
     in connection with computers and with violating provisions of the Privacy Act of
     1974. We found that from 2006 to 2007, while serving as the company’s
     Destination Point Administrator with access to FSA’s National Student Loan

                                                                                        30
        Database (NSLDS), the former employee caused the unauthorized access to
        NSLDS by assigning the user accounts of former employees to company
        managers whose accounts were previously revoked because of abuse of the
        NSLDS system.

        Florida – Employee of Another Defunct Consolidation Company Pled Guilty:
        A former senior financial specialist with Student Funding Services, another now-
        defunct loan consolidation company, pled guilty in U.S. District Court, Middle
                                    District of Florida, to fraud in connection with
                                    computers and violations of the Privacy Act. We
                                    found that the former employee, who was allowed
                                    access to NSLDS only with the permission of and on
                                    behalf of a borrower to assist in determining the
                                    eligibility of an applicant for Federal student aid,
                                    abused this authority in order to conduct data mining
                                    for marketing purposes. Additionally, the former
                                    employee admitted to improperly using other
        employees’ passwords to gain access to the system.

Other
        New York – Longtime Fugitive Imprisoned: A fugitive, who had been on the
        run for 11 years, was ordered by a Federal judge in New York to be held without
        bail after being arrested in London by officials from the U.S. Marshals Service
        and the London Metropolitan Police Service for his role in an $11 million fraud
        scheme. The fugitive and six others were charged in 1997 for participating in a
        massive conspiracy to defraud the Department and other government agencies for
        the benefit of themselves and other residents of the Village of New Square, New
        York. The conspirators created entities to fraudulently receive Federal and state
        funds, including a fictitious postsecondary institution called the Toldos Yakof
        Yosef, for the purpose of collecting Federal Pell Grants. As a result of this
        scheme, the conspirators fraudulently received more than $11 million.


IT SECURITY AND MANAGEMENT AND OTHER
         INTERNAL OPERATIONS
The OIG’s reviews of the Department’s internal operations are designed to help improve
the overall operation of our mission-focused agency. Our reviews seek to help the
Department accomplish its objectives by ensuring the reliability, integrity, and security of
its data; its compliance with applicable policies and regulations; that its investments are
sound; and that it is effectively, efficiently, and fairly using the taxpayer dollars with
which it has been entrusted. Given the billions of dollars that the Department distributes
and expends each year, effective management and accountability are critical in order to
minimize the Department’s vulnerability to waste, fraud, and abuse. Work concluded
during this reporting period showed that there are weaknesses in these areas, specifically


                                                                                          31
in the Department’s privacy controls over its external Web sites, and enforcement of its
policies and procedures for handling lapsed funds by its grantees. Below you will find
more information on our work in these areas, as well as summaries of two recent
investigative cases involving a Department employee and an employee of a Department
contractor.

IT Security and Management
Federal Information Security Management Act Reviews
The E-Government Act of 2002 recognized the importance of information security to the
economic and national security interests of the United States. Title III of the E-
Government Act, entitled the Federal Information Security Management Act of 2002
                       (FISMA), requires each Federal agency to develop, document,
                       and implement an agency-wide program to provide information
                       security for the 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 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.

                         In support of our FY 2009 FISMA requirement, OIG performed a
                         series of reviews of the Department’s information security and
management practices, one of which was issued during this reporting period: an
examination of the Department’s incident handling and privacy controls over its external
Web sites. Based on our findings, we presented the Department with a series of
recommendations for improvements and corrective actions. The Department concurred
with the majority of our recommendations. For security purposes and to maintain the
integrity of the Department’s critical data, we discuss below only the general aspects of
our work.

       Incident Handling and Privacy Controls over External Web Sites
       Our review evaluated the Department’s external Web sites, and assessed
       whether IT security controls were in place to protect Department resources
       in the areas of incident handling, security awareness and training, and
       compliance with provisions of the Privacy Act. Our review identified
       weaknesses in several areas, including the incident response and handling
       program, two-factor authentication implementation, and establishment and
       maintenance of public domain Web sites.

       With regard to incident handling, we found that the Department did not
       provide sufficient security awareness to Department users, provided
       conflicting guidance regarding incident response reporting procedures, and
       did not properly oversee customer service staff. The Department has a
       responsibility to implement all precautions to protect PII data residing on

                                                                                           32
    the Department’s network. Compromise of these data would cause
    substantial harm and embarrassment to the Department and could lead to
    identity theft or other fraudulent use of the information. In the area of
                          two-factor authentication, we found that the
                          Department did not implement any effective
                          compensating controls commensurate with the risk
                          and magnitude of harm resulting from a Department
                          data compromise. As for its security over its public
                          domain Web sites, we found that the Department did
                          not properly track, update, and verify a directory of
                          public Web sites; did not properly control internet
                          protocol address assignment; did not properly issue
                          and administer Web site certificates; did not properly
    monitor public domain Web sites; and did not use approved domain
    names. It is essential that the Department validate its public Web sites and
    adequately protect the confidentiality, integrity, and availability of PII
    residing on public Web sites. Click here for a copy of the report.

Other Reviews
    Exhibit 300s
    The Department, along with other Federal agencies, is required to submit an
    exhibit 300 Capital Asset Plan and Business Case (exhibit 300) to OMB each year
    for each major IT investment in order to justify the funding requests for the
    investments. Among other things, exhibit 300s contain cost, schedule,
    performance goals, and the controls that agencies have established to ensure good
    project management. During this reporting period, we conducted two audits to
    determine whether the information presented in the Department’s exhibit 300s
    was based on reasonably accurate, reliable, and complete cost and benefit data,
    and whether the Department independently validated the information prior to its
    submission to OMB. We reviewed exhibit 300s that the Department submitted to
    OMB through September 2007, covering 10 IT investments from 6 different
    offices within the Department.

    Although we found that all offices reviewed generally complied with validation
    requirements for exhibit 300 costs, we also found that the Department did not
    always report reliable and complete cost data. Specifically, four of the six offices
    reviewed did not report cumulative project costs in exhibit 300s; four of the
    offices did not maintain sufficient documentation to support the accuracy,
    reliability, and completeness of the summary of spending tables included in the
    exhibit 300s; and of those four offices, two did not maintain sufficient support for
    the benefits. Without complete cost information and supporting documentation,
    we could not verify that the estimated costs and benefits information included in
    the exhibit 300s were reasonable and beneficial. Accordingly, the Department
    and OMB could be making investment decisions based on unreliable data and
    without full consideration of the entire cost of projects. We made a number of

                                                                                      33
       recommendations to address these weaknesses, all of with which the Department
       concurred. Click here for a copy of the report.

Other Internal Operations
Department’s Process to Resolve Lapsed Funds
Federal grant funds have a limited life in which to be used by grant recipients. Funding
recipients under the Department’s State-administered programs must obligate funds
                          during the fiscal year for which the funds were appropriated or
                          during the succeeding fiscal year. Funds that are not obligated
                          or used within that time period are referred to as ―lapsed
                          funds‖ and must be returned to the Federal Government. In
                          August, we concluded an audit that sought to evaluate the
                          effectiveness of the process used by the Department to resolve
                          lapsed funds. Our audit included an evaluation of the
                          Department’s process for reviewing grantee requests for late
                          liquidation of funds and its process to notify grant recipients of
                          award balances that were about to become unavailable. This
                          was a follow-up to a 2004 OIG audit which found that the
Department did not have procedures to notify recipients when award balances were about
to become unavailable.

Our 2009 audit found that improvements were needed in the overall management of late
liquidation requests submitted by grant recipients and in the process to notify grant
recipients of award balances about to become unavailable. We noted that Principal
Offices (POs) were following inconsistent processes for reviewing and approving late
liquidation requests, approving requests that did not meet policy guidance, and were not
retaining sufficient documentation to support decisions made. We also found that POs
were not contacting grantees with grant balances as required or properly documenting
contacts. As a result, accountability was weakened, the risk that requests were being
approved for inappropriate costs was increased, and the grantees’ trust in the Department
could be diminished. Without receiving notification from Department staff of grant
balances that may lapse, States and their subrecipients may not use all of their resources
in a timely manner to address the needs of students. Further, as several State-
administered programs have received a significant amount of funding under the Recovery
Act, it is imperative that the Department address weaknesses identified in this report to
help ensure the effectiveness of grantee financial management practices. To help address
the weaknesses identified in our report, we made a number of recommendations, and the
Department provided OIG with an action plan to address each finding. Click here for a
copy of the report.


Investigations
Accountability applies to everyone, especially those individuals in positions of trust
within the Department and on behalf of the Department—Federal employees and

                                                                                          34
contractors entrusted with stewardship of taxpayer dollars and helping with the
administration of Federal education programs and services. During this reporting period,
we closed two cases involving individuals who held such positions of trust.

Department Employee
       Former Reading First Director Agrees to Civil Settlement: The U.S.
       Department of Justice reached a $25,000 civil settlement with the former director
                           of the Department’s Reading First program. The settlement
                           is a result of our investigation that revealed that the former
                           employee failed to list his spouse’s income on his Public
                           Financial Disclosure Reports for 2003-2006, which violated
                           provisions of the Ethics in Government Act of 1978, as
                           amended. During this 4-year time span, the former
                           employee’s spouse earned income as an employee of a
                           business entity that was closely associated with the Reading
                           First program.

                           Department Contractor
                             Former Employee of Department Contractor Sentenced:
                             A former employee of Texas-based Electronic Data Systems
                             (EDS), a Department contractor, was sentenced in U.S.
                             District Court, Middle District of Alabama, to 24 months in
       prison, 3 years of supervised release, and was ordered to pay approximately
       $434,000 for theft involving Department data. Our investigation with the IRS-
       CID, the FBI, the Alabama Board of Pardons and Paroles, and the Alabama
       Attorney General’s Medicaid Fraud Control Unit found that the former employee
       stole PII from systems maintained by EDS, including Department information on
       student loan borrowers who had consolidated loans, and provided that data to
       other individuals in exchange for money. Those individuals then used the
       information to file tax returns that fraudulently claimed refunds. The former
       employee then received a portion of the proceeds from those returns.


             OTHER NOTEWORTHY EFFORTS
Non-Federal Audits
Quality Control Reviews
The Single Audit Act of 1984, as amended, requires entities, such as State and local
governments, universities, and non-profit organizations that receive and expend $500,000
or more in Federal funds in one year to obtain an annual audit, referred to as a ―single
audit.‖ Under applicable laws and Department regulations, entities not covered by single
audits, including for-profit postsecondary institutions and lenders, are also required to
obtain annual financial and/or compliance audits. These audits provide the Federal
Government with assurance that recipients of Federal funds comply with laws and



                                                                                        35
           regulations, as well as compliance requirements that are material to Federal awards.
           The audits are performed by independent auditors (e.g., Certified Public Accountants).

           With thousands of grantees participating in Federal education programs, single audits and
           other required audits are vital tools for ensuring grantees are fulfilling their obligations
           relating to the Federal education funds they receive. The OIG Non-Federal Audit Team
           provides timely and valuable guidance to the auditors who conduct these audits. We also
           produce and update audit guides based on new laws and regulations. We provide input to
           OMB relating to the education programs covered in the annual Single Audit Compliance
           Supplement, used by auditors in performing single audits. To help assess the quality of
           the thousands of single audits that the Department receives each year, OIG’s Non-Federal
           Audit Team conducts quality control reviews (QCRs) by reviewing a sampling of audits
           each year. During this reporting period, we completed 45 QCRs of audits conducted by
           44 different Independent Public Accountants, or offices of firms with multiple offices.
           We concluded that 25 (55.5 percent) were acceptable or acceptable with minor issues, 16
           (35.6 percent) were technically deficient, and 4 (8.9 percent) were substandard.

           OIG Director Receives Prestigious Award
           In May, Hugh Monaghan, Director of OIG’s Non-Federal Audit Team, was presented
           with the 2009 David M. Walker Excellence in Government Performance and
                                             Accountability Award. The Award, sponsored by
                                             the National Intergovernmental Audit Forum
                                             (NIAF), recognizes Federal, State, and local auditors
                                             for their outstanding efforts to improve government
                                             efficiency and effectiveness, and for holding
                                             government entities accountable for results. The
                                             award was presented to Director Monaghan by Gene
                                             Dodaro, chairman of the NIAF and Acting
                                             Comptroller General of the United States, and the
                                             award’s namesake, former Comptroller General
                                             David Walker, at a special NIAF ceremony.
Pictured left to right: Acting Comptroller Gene Dodaro; OIG
Director Hugh Monaghan; former Comptroller General David
Walker

           Council of the Inspectors General on Integrity and
           Efficiency
           Assistant Inspector General Selected for CIGIE Committee Post
           During this reporting period, William Hamel, OIG’s Assistant Inspector General for
           Investigations, was selected to chair the Council of the Inspectors General on Integrity
           and Efficiency (CIGIE) Assistant Inspector General Investigations (AIG-I) Advisory
           Subcommittee. The Subcommittee serves as the voice of the AIG-I community to assist
           the CIGIE Investigations Committee on issues that directly impact IG investigations.
           AIG-I Hamel is the first OIG staffer to chair this important Subcommittee.



                                                                                                     36
Reporting Requirements of the Inspector General Act, as amended
     Section                          Requirement                           Table Number
                                      (Table Title)
5(a)(1) and          Significant Problems, Abuses, and Deficiencies             N/A
 5(a)(2)
5(a)(3)                      Uncompleted Corrective Actions
                Recommendations Described in Previous Semiannual Reports         1
                   to Congress on which Corrective Action Has Not Been
                                            Completed
5(a)(4)                Matters Referred to Prosecutive Authorities
                                   Statistical Profile FY 2009                   7
5(a)(5) and              Summary of Instances where Information
6(b)(2)                         was Refused or Not Provided                     N/A
5(a)(6)                                Listing of Reports
                  Audit, Inspection, and Evaluation Reports on Department        2
                                    Programs and Activities
                         (April 1, 2009, through September 30, 2009)

                   Other Reports on Department Programs and Activities           3
                       (April 1, 2009, through September 30, 2009)
5(a)(7)                      Summary of Significant Audits                      N/A
5(a)(8)                              Questioned Costs
                         Audit, Inspection, and Evaluation Reports               4
                                   with Questioned Costs
5(a)(9)                             Better Use of Funds
                      Audit, Inspection, and Evaluation Reports with             5
                         Recommendations for Better Use of Funds
5(a)(10)                            Unresolved Reports
                     Unresolved Reports Issued Prior to April 1, 2009            6
5(a)(11)               Significant Revised Management Decisions                 N/A
5(a)(12)                 Significant Management Decisions with
                                   which OIG Disagreed                          N/A
5(a)(13)             Unmet Intermediate Target Dates Established
                    by the Department Under the Federal Financial               N/A
                          Management Improvement Act of 1996




                                                                                      37
 Table 1: Recommendations Described in Previous Semiannual Reports to Congress on
 which Corrective Action Has Not Been Completed

 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.

  Report             Report Title          Date        Date         Total       Number of            Latest
  Number      (Prior Semiannual Report    Issued     Resolved     Monetary   Recommendations         Target
              (SAR) Number and Page)                              Findings   Open Completed           Date
                                                                                                    (Per Corrective
                                                                                                     Action Plan)

AUDIT REPORTS
FSA
 A09G0012    Department’s Oversight of   8/23/2007   10/10/2007                 0         4               *
             the FAFSA Verification
             Process (SAR 55, page 27)
 A11H0001 FY 2007 System Security      9/27/2007     11/20/2007                 1        67     12/31/2009
          Review of the COD System
          (Office of the Chief
          Information Officer (OCIO)
          also designated as an action
          office) (SAR 55, page 28)
 A19-H0011 Audit of the Department’s     8/1/2008    8/12/2008                  2         0      6/30/2010
           Process for Disbursing
           ACG and SMART Grants
           (SAR 57, page 25)
Office of the Chief Financial Officer (OCFO)
 A17G0003    Financial Statement Audits 11/15/2006   5/13/2008                  1         4         9/25/2009
             of the Department FY 2006
             and FY 2005 (FSA also
             designated as an action
             office) (SAR 54, page 30)
 A17H0003    Financial Statement Audits 11/15/2007   9/26/2008                  2         3     11/30/2009
             FY 2007 and FY 2006 of
             the Department and FSA
             (FSA also designated as an
             action office) (SAR 56,
             page 25)
OCIO
 A11F0002    Review of the Department’s 10/6/2005    11/16/2005                 0         9               *
             Incident Handling Program
             and EDNet Security Controls
             (OCIO designated as lead
             action office and OCFO and
             FSA as the other action
             offices) (SAR 52, page 28)




                                                                                                                      38
  Report            Report Title           Date        Date        Total       Number of        Latest
  Number     (Prior Semiannual Report     Issued     Resolved    Monetary   Recommendations     Target
             (SAR) Number and Page)                              Findings   Open Completed       Date
                                                                                               (Per Corrective
                                                                                                Action Plan)

  A11F0005 Effectiveness of the         6/26/2007    5/12/2008               4        5       12/31/2010
           Department’s Financial
           Management Support
           System Oracle 11i Re-
           Implementation (Report
           recommends Office of the
           Secretary (OS) direct the
           Investment Review Board
           Chair, CFO, and CIO to
           take recommended actions)
           (SAR 55, page 28)
  A11F0006 Audit of the Department’s    1/31/2006    5/25/2006               4        0       1/31/2010
           IT Contingency Planning
           Program – Asset
           Classification (SAR 52,
            page 28)
 A11G0002 System Security Review of     9/28/2006    4/9/2007                0       14             *
           the Education Data Center
           FY 2006 (SAR 53,
           page 25)
 A19F0025 Controls Over Excessive       12/18/2006   9/28/2007               2        7       12/31/2009
           Cash Drawdowns by
           Grantee (SAR 54, page 30)
 A19H0009   Department Controls Over     7/1/2008    9/4/2008     $5,649     1       20       3/31/2010
            Travel Expenditures (SAR
            57, page 26)
Office of the Deputy Secretary (ODS)
 A09E0014   Departmental Actions to    10/26/2004    1/10/2005               0        6             *
            Ensure Charter Schools’
            Access to Title I and IDEA
            Part B Funds (Office of
            Elementary and Secondary
            Education (OESE) and
            Office of Special and
            Rehabilitative Services
            (OSERS) also designated as
            action officials) (SAR 50,
            page 22)
OESE
 A07F0014   Department’s Activities   12/29/2005     7/10/2007               0        4             *
            Relating to Consolidating
            Funds in Schoolwide
            Programs Provisions (SAR
            52, page 29)




                                                                                                                 39
   Report               Report Title                Date          Date           Total            Number of         Latest
   Number        (Prior Semiannual Report          Issued       Resolved       Monetary        Recommendations      Target
                 (SAR) Number and Page)                                        Findings        Open Completed        Date
                                                                                                                   (Per Corrective
                                                                                                                    Action Plan)

INSPECTION REPORTS
FSA
 I13H0006       Review of the                    7/24/2008      9/17/2008                        4           7    9/30/2010
                Department’s Process for
                Granting Access to the
                NSLDS (SAR 57, page 27)
OESE
 I13F0017       The Reading First                9/22/2006      5/29/2008                        0          16          *
                Program’s Grant
                Application Process (SAR
                53, page 27)
* Closure of audit or inspection reports were not completed in AARTS by the end of reporting period (9/30/2009)




                                                                                                                                     40
Table 2: Audit, Inspection, and Evaluation Reports on Department Programs and
Activities (April 1, 2009, through September 30, 2009)

Section 5(a)(6) of the IG Act, as amended, requires a listing of each report completed by OIG during the reporting
period.
   Report                       Report Title                       Date      Questioned Unsupported Number of
  Number                                                          Issued       Costs1        Costs       Recomm-
                                                                                                         endations
AUDIT REPORTS
FSA
A03I0006      Special Allowance Payments to Sallie Mae’s      08/03/09   $22,378,905                        3
              Subsidiary, Nellie Mae, for Loans Funded by
              Tax-Exempt Obligations
A05I0011      Special Allowance Payments to the Kentucky      05/28/09    $9,018,400                        4
              Higher Education Student Loan Corporation
              for Loans Made or Acquired with the
              Proceeds of Tax-Exempt Obligations
A06H0016      Community Care College’s Administration of      08/26/09       $47,084                        14
              the HEA Title IV Federal Student Aid
              Programs
A06I0012      Dallas Nursing Institute's Compliance with      04/08/09          $142                        6
              Selected Provisions of the HEA and
              Corresponding Regulations (Audit resolved
              9/30/09)
A09I0009      TUI University's Administration of the HEA,     08/05/09      $923,379                        14
              Title IV Student Financial Assistance
              Programs
A20I0001      FSA's Oversight and Monitoring of Guaranty 04/29/09                                           32
              Agencies, Lenders, and Servicers Needs
              Improvement (Report addressed to the Deputy
              Chief of Staff)
OCFO
A02I0024      Audit of NAEP Contract, ETS Incurred Costs      05/28/09       $57,747         $46,772        10
              under Contract No. ED-02-CO-0023 (Institute
              for Education Sciences also designated action
              office)
A03I0009      Gallaudet University's Internal Controls Over   05/20/09                    $1,050,479        3
              Federal Funds (OSERS and Office of
              Postsecondary Education (OPE) also
              designated action offices)
A05I0013      Southern Illinois University-Edwardsville’s     04/30/09      $746,206        $185,538        15
              Compliance with Selected Provisions of the
              Law and Regulations for the Upward Bound,
              Upward Bound Math-Science, and Talent
              Search Programs (OCFO and OPE also
              designated action offices)



                                                                                                                 41
Report     Report Title                                     Date       Questioned   Unsupported   Number of
Number                                                      Issued        Costs1          Costs   Recomm-
                                                                                                  endations
A19H0010   Audit of the Department’s Process to Resolve     08/24/09                                 3
           Lapsed Funds
OCIO
A04H0018   Reliability of Cost and Benefit Information in   07/30/09                                 5
           the Department’s IT Investment Exhibit 300s
           (Audit resolved 9/18/09)
A11I0006   Incident Handling and Privacy Act Controls       06/10/09                                 18
           over External Web sites (Audit resolved
           9/9/09)
OESE
A02I0034   Tennessee Department of Education Controls       05/28/09                                 9
           Over State Assessment Scoring (Office of
           Planning, Evaluation, and Policy
           Development also designated action office)
A04I0041   Puerto Rico Department of Education's            04/21/09                    $16,092      8
           Compliance with Title I - Supplemental
           Educational Services
A04I0042   Virgin Islands Department of Education’s         08/17/09      $4,304                     10
           Administration of Property Purchased with
           Federal Funds
A04I0043   Florida Department of Education Controls         09/30/09                                 8
           Over State Assessment Scoring
A05I0016   Illinois State Board of Education’s Oversight    09/23/09    $667,876                     9
           of Subrecipients (2 of the 9 recommendations
           made to OSERS)
A05J0004   The College of Menominee Nation's Indian         05/07/09                                 0
           Education-Professional Development Grant
           (Although not required, auditee may provide
           comments to Office of Indian Education)
A06H0011   Adequacy of Fiscal Controls Over the Use of      04/14/09   $1,689,685    $1,834,951      6
           Title I, Part A Funds at Dallas Independent
           School District
A06H0017   Adequacy of Houston Independent School           06/30/09     $64,837        $87,443      9
           District’s Fiscal Controls over Accounting for
           and Using Federal Funds (Office of
           Vocational and Adult Education, Office of
           English Language Acquisition, Office of
           Special Education Programs, and Office of
           Safe and Drug Free Schools also designated
           action offices)
A09I0012   Wyoming Department of Education Controls         07/10/09                                 2
           Over State Assessment Scoring



                                                                                                          42
Report      Report Title                                  Date       Questioned    Unsupported    Number of
Number                                                    Issued     Costs1        Costs          Recomm-
                                                                                                  endations
INSPECTION REPORTS
OPE
I13I0007    Review of OPE’s Actions to Address Talent     09/30/09                                   9
            Search and Educational Opportunity Centers
            Grantees That Did Not Serve the Number of
            Participants They Were Funded to Serve in
            FY 2003-FY 2007
ALTERNATIVE PRODUCTS
FSA
A04H0019    Review of FSA’s Reporting of Costs and        04/27/09                                   0
            Benefits for Information Technology
            Investments on Exhibit 300s (Audit Closeout
            Memorandum. Results from this review to be
            included under A04H0018, addressed to the
            OCIO)
I13I00052   Review of FSA’s Enterprise Risk               05/05/09                                   0
            Management Program (Management
            Information Report)
OESE
A09J0002    Migrant Education High School Equivalency     06/17/09                                   0
            Program at California State University,
            Sacramento (Audit Closeout Letter)
OSERS
A07I0016    Kansas Department of Social and               04/21/09                                   0
            Rehabilitative Services (Audit Closeout
            Letter)
OS
X05J0005    Fiscal Issues Reported in ED-OIG Work         07/21/09                                   33
            Related to LEAs and SEAs (Management
            Information Report)
OVAE
A06J0009    Texas Adult Education and Family Literacy     04/21/09                                   0
            Program administered by the Texas Education
            Agency (Audit Closeout Letter)
TOTALS:                                                              $35,598,565     $3,221,275     200




                                                                                                          43
1
  For purposes of this schedule, questioned costs may include other recommended recoveries. See footnotes 2 and 3
   under Table 4 for additional information regarding questioned and unsupported costs.
2
  Management Information Report I13I0005 should have been coded “X” instead of “I.”
3
  Management Information Report X05J005 contained 3 suggestions.
DESCRIPTION OF PRODUCTS
Audit Closeout Letters or Memoranda are provided to auditees as a written notification of the audit closure when a decision is
made to close an assignment without issuing an audit report. This notification is called an “audit closeout memorandum” if the
auditee is the Department and an “audit closeout letter” if the auditee is an external entity. Audit closeout letters and memoranda
are posted on the OIG Web site.

Inspection Reports are analyses, evaluations, reviews, or studies of the Department’s programs that are conducted in accordance
with appropriate quality standards established by the Council of the Inspectors General for Integrity and Efficiency (CIGIE). The
purpose of an inspection is to provide the Department with factual and analytical information, which may include an assessment of
the efficiency and effectiveness of its operations and vulnerabilities created by existing policies or procedures. Inspections may be
conducted on any Department program, policy, activity, or operation. Inspection findings and related recommendations are often
presented in a written report and posted on the OIG Web site.

Management Information Reports provide Department management with information derived from audits or special projects that
may be useful in its administration of program activities. Reports are conducted following generally accepting auditing standards
or quality standards for inspections established by the CIGIE. A management information report may address several issues and
may include suggestions for corrective action. These reports are posted on the OIG Web site.




                                                                                                                                      44
Table 3: Other Reports on Department Programs and Activities
(April 1, 2009, through September 30, 2009)
Section 5(a)(6) of the IG Act, as amended, requires a listing of each report completed by OIG during the
reporting period.
    Report Number                                               Report Title                                                Date
                                                                                                                           Issued
FSA
L09I0008             Fifth Third Bank’s Other Eligible Lender Trustee Agreements Not Included in the Audit                6/4/2009
                     Report ED/OIG A09H0017 Appear to Violate the Prohibition on Inducements and the
                     Department Needs to Provide Guidance1 (OPE also designated as action official. Alert
                     Memorandum resolved 7/22/09)
OCFO
L09I0013             Local Educational Agency Requirement to Remit Interest Earned on Federal Cash                       7/14/2009
                     Advanced by SEAs2 (Alert Memorandum)
OESE
L03J0011             Potential Consequences of the Maintenance of Effort Requirements under the Recovery                 9/30/2009
                     Act State Fiscal Stabilization Fund3 (Alert Memorandum)
OSERS
L02J0004             Need to Update Department’s Agreements with Gallaudet University and the National                   5/12/2009
                     Technical Institute for the Deaf4 (Alert Memorandum)
1
  L09I0008 made 3 non-monetary suggestions
2
  L09I0013 made 10 non-monetary suggestions
3
  L03J0011 made 2 non-monetary recommendations
4
  L02J0004 made 2 non-monetary suggestions.

DESCRIPTION OF PRODUCTS

Alert Memoranda are prepared when OIG either identifies a concern during an audit or inspection that requires immediate
Department attention that is either outside the agreed-upon objectives of an audit or inspection assignment, or when an audit or
inspection report will not be issued. Alert memoranda that are not subject to Freedom of Information Act (FOIA) exemptions will be
posted on the OIG Web site. Consistent with FOIA, and to the extent practicable, OIG will redact exempt information from alert
memoranda so that non-exempt information contained in the memoranda may be made available on the OIG Web site.




                                                                                                                                45
    Table 4: Audit, Inspection, and Evaluation Reports with Questioned or
    Unsupported Costs1

Section 5(a)(8) of the IG Act, as amended, requires for each reporting period a statistical table showing the total number of
audit and inspection reports, the total dollar value of questioned and unsupported costs, and responding management
decision.
                                                                                          Questioned2         Unsupported3
                                                                           Number             Costs               Costs
A. For which no management decision has been made before the                  50              $852,196,360      $296,321,252
      commencement of the reporting period (as adjusted)

B.     Which were issued during the reporting period                                 13                $38,819,840           $3,221,275

           Subtotals (A + B)                                                         63               $891,016,200        $299,542,527

C.     For which a management decision was made during the reporting                 10                  $4,985,425          $2,064,986
       period
       (i) Dollar value of disallowed costs                                                              $3,420,835          $1,792,196

       (ii) Dollar value of costs not disallowed                                                         $1,564,590            $272,790

D.     For which no management decision was made by the end of the                   53               $886,030,775        $297,477,541
       reporting period
1
None of the products reported in this table were performed by the Defense Contract Audit Agency.
2
 Questioned costs are identified during an audit, inspection, or evaluation because of: (1) an alleged violation of a law, regulation,
contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds; (2) such cost not being
supported by adequate documentation; or (3) the expenditure of funds for the intended purpose being unnecessary or unreasonable.
Special note: As the IG Act does not provide for other recommended recoveries, in addition to questioned costs as defined above,
OIG includes other recommended recoveries of funds in this section, i.e., recovery of outstanding funds and/or revenue earned on
Federal funds, or interest due the Department.
3
Unsupported costs are costs that, at the time of the audit, were not supported by adequate documentation.




                                                                                                                                         46
Table 5: Audit, Inspection, and Evaluation Reports with Recommendations for Better Use
of Funds1

Section 5(a)(9) of the IG Act, as amended, requires for each reporting period a statistical table showing the total number of
audit and inspection reports and the total dollar value of recommendations that funds be put to better use by management.
                                                                                                    Number   Dollar Value
A.             For which no management decision was made before the                                   2           $13,327,577
               commencement of the reporting period (as adjusted)
B.             Which were issued during the reporting period                                          0                         $0
               Subtotals (A + B)                                                                      2           $13,327,577
C.             For which a management decision was made during the reporting
               period
                 (i)    Dollar value of recommendations that were agreed to by                        0                         $0
                         management
                 (ii)   Dollar value of recommendations that were not agreed to by                    0                         $0
                         management
D.             For which no management decision has been made by the end of the                       2           $13,327,577
               reporting period
1
 None of the products reported in this table were performed by the Defense Contract Audit Agency.




                                                                                                                                47
Table 6: Unresolved Reports Issued Prior to April 1, 2009
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.)
   Report                           Report Title                            Date      Total Monetary Number of
   Number                  (Prior SAR Number and Page)                     Issued        Findings    Recommen-
                                                                                                       dations
NEW SINCE LAST REPORTING PERIOD
AUDIT REPORTS
FSA
A02H0008        Touro College’s Title IV HEA Programs, Institutional      10/30/08      $36,026,364        5
                and Program Eligibility (SAR 58, page 31)
                Current Status: FSA informed us that it is currently
                working on this audit. AARTS shows FSA
                administrative stay extension was approved on
                7/27/2009.
A05H0018        Walden University’s Compliance with Selected              1/21/09       $1,185,4731            10
                Regulations and Depart. Guidance (SAR 58, page 31)
                Current Status: FSA informed us that it is currently
                working on this audit. AARTS shows FSA
                administrative stay extension was approved on
                9/22/2009.
A09H0017        Fifth Third Bank’s Eligible Lender Trustee                 1/5/09       $5,000,0002            5
                Agreements’ Compliance with Lender Provisions of the
                HEA and Monitoring of Entities with Which It Has
                Agreements (SAR 58, page 31)
                Current Status: FSA informed us that it entered into a
                Determination and Voluntary Disposition with Third
                Fifth Bank that resolved all issues related to the
                findings in the OIG audit report on March 23, 2009.
                This audit, however, is not considered resolved or
                closed until it is certified through AARTS.
OCFO
A09H0019        Los Angeles Unified School District’s Procedures for      12/2/08       $6,302,4063            15
                Calculating and Remitting Interest Earned on Federal
                Cash Advances (SAR 58, page 31)
                Current Status: OCFO informed us that resolution
                activities are in process.
A09H0020        California Department of Education Advances of             3/9/09         $728,6514            10
                Federal Funding to Local Educational Agencies (SAR
                58, page 31)
                Current Status: OCFO informed us that resolution
                activities are in process.
OESE
A04H0017        Puerto Rico Department of Education's Administration      10/9/08        $821,714              15
                of Title I Services Provided to Private School Students
                (SAR 58, page 31)
                Current Status: OESE informed us that the PDL is
                clearing the internal review process.

                                                                                                                    48
  Report                       Report Title                              Date     Total Monetary Number of
  Number              (Prior SAR Number and Page)                       Issued       Findings    Recommen-
                                                                                                   dations
A05H0025   Harvey Public Schools District’s Use of Selected            11/25/08     $317,0935       9
           Department Grant Funds (OSERS and OCFO also
           designated action offices) (SAR 58, page 31)

           Current Status: OESE informed us that the PDL is
           clearing the internal review process.
REPORTED IN PREVIOUS SARs
AUDIT REPORTS
FSA
A02H0005   EDUTEC’s Administration of the Federal Pell Grant           9/27/07       $83,000        5
           Program (SAR 55, page 27)
           Current Status: FSA informed us that it is currently
           working on this audit. AARTS shows FSA
           administrative stay extension was approved on
           9/22/2009.
A02H0007   Technical Career Institutes, Inc.'s Administration of the   5/19/08       $6,458         13
           Federal Pell Grant and FFEL Programs (SAR 57, page
           25)
           Current Status: FSA informed us that it is currently
           working on this audit. AARTS shows FSA
           administrative stay extension was approved on
           9/22/2009.
A04B0019   Advanced Career Training Institute’s Administration of      9/25/03      $7,472,583      14
           the Title IV HEA Programs (SAR 47, page 13)
           Current Status: FSA informed us that the audit was
           previously closed in the Department’s previous
           tracking system. FSA will work on getting this audit
           closed in AARTS by 12/31/2009. The required
           documents for resolution are needed in AARTS before
           this audit can be officially resolved.
A04E0001   Review of Student Enrollment and Professional               9/23/04      $2,458,347      7
           Judgment Actions at Tennessee Technology Center at
           Morristown (SAR 49, page 14)
           Current Status: FSA informed us that it is still waiting
           on a policy decision to address and resolve this audit.
A05E0013   Audit of the Administration of the Student Financial        2/25/05      $1,645,160      3
           Assistance Programs at the Ivy Tech State College
           Campus in Gary, Indiana, during the Period July 1,
           2002, through June 30, 2003 (SAR 50, page 21)
           Current Status: FSA informed us that the required
           documents were uploaded into AARTS on 9/23/2009.
A05G0017   Capella University’s Compliance with Selected                3/7/08      $589,892        9
           Provisions of the HEA and Corresponding Regulations
           (SAR 56, page 25)
           Current Status: FSA informed us that it is currently
           working on this audit.


                                                                                                         49
   Report                        Report Title                           Date     Total Monetary   Number of
   Number               (Prior SAR Number and Page)                    Issued       Findings      Recommen-
                                                                                                    dations
A05G0029    Wilberforce University’s Administration of HEA, Title      3/21/08    $2,472,781          25
            IV Programs (SAR 56, page 25)
            Current Status: FSA informed us that it is currently
            working on this audit. AARTS shows FSA
            administrative stay extension was approved on
            7/27/2009.
A0670005    Professional Judgment at Yale University (SAR 36,          3/13/98      $5,469            3
            page 18)
            Current Status: FSA informed us that it is waiting on
            a decision of school’s appeal of Professional Judgment
            finding for Saint Louis University before it can resolve
            this audit.
A0670009    Professional Judgment at University of Colorado (SAR       7/17/98      $15,082           4
            37, page 17)
            Current Status: FSA informed us that it is waiting on
            a decision of school’s appeal of Professional Judgment
            finding for Saint Louis University before it can resolve
            this audit.
A06D0018    Audit of Saint Louis University’s Use of Professional      2/10/05    $1,458,584          6
            Judgment from July 2000 through June 2002 (SAR 50,
            page 21)
            Current Status: FSA informed us that it is waiting on
            a s decision on school’s appeal of this audit.

A06H0010    Eagle Gate College’s Administration of Title IV HEA        9/28/07      $2,630            6
            Programs (SAR 55, page 27)
            Current Status: FSA informed us that it is working on
            getting this audit resolved in AARTS.
A0723545    State of Missouri, Single Audit Two Years Ended June       4/1/93     $1,048,768         18
            30, 1991
            Current Status: We did not receive a response from
            FSA on this audit during this reporting period. FSA
            previously informed us that it was researching options
            to resolve this audit.
A0733123    State of Missouri, Single Audit Year Ended June 30,        3/7/94      $187,530          18
            1992
            Current Status: We did not receive a response from
            FSA on this audit during this reporting period. FSA
            previously informed us that it was researching options
            to resolve this audit.
A09D0024    American River College’s Compliance with Student           12/1/04    $3,024,665          3
            Eligibility Requirements for Title IV HEA Programs
            (SAR 50, page 21)
            Current Status: FSA informed us that it is working to
            get this audit resolved in AARTS and expects to have it
            closed by 12/31/2009.


                                                                                                          50
   Report                        Report Title                         Date     Total Monetary   Number of
   Number               (Prior SAR Number and Page)                  Issued       Findings      Recommen-
                                                                                                  dations
N0690010    Inspection of Parks College's Compliance with Student    2/9/00      $169,390            1
            Financial Assistance Requirements (SAR 40, page 18)
            Current Status: FSA informed us that it is working to
            get this resolved in AARTS and expects to have it
            closed by 12/31/2009.
OCFO
A03F0010    The Education Leaders Council’s Drawdown and             1/31/06     $760,570          12
            Expenditure of Federal Funds (Office of Innovation and
            Improvement (OII) also designated as an action office)
            (SAR 52, page 8)
            Current Status: OCFO informed us that the resolution
            activities continue to be suspended.
A05H0016    Saint Paul Public School’s Teacher Quality               5/23/08     $124,6466          7
            Enhancement Grant (OPE also designated as an action
            office) (SAR 57, page 25)
            Current Status: AARTS shows OCFO administrative
            stay extension was approved on 6/19/2009.
A06H0002    Review of Project GRAD USA’s Administration of           7/21/08    $31,384,603        11
            Fund for the Improvement of Education Grants (OII
            also designated action office) (SAR 57, page 26)
            Current Status: AARTS shows OCFO administrative
            stay extension was approved on 9/25/2009.
OESE
A02G0002    Audit of New York State Education Department’s           11/3/06   $215,832,254         8
            Reading First Program (SAR 54, page 31)
            Current Status: OESE informed us that it is working
            to resolve the audit.
A02G0020    Elizabeth Public School District Allowability of ESEA    10/9/07    $1,946,925         14
            Title I, Part A Expenditures (SAR 56, page 25)
            Current Status: OESE informed us that it is working
            to resolve the audit.
A03G0006    The Department’s Administration of Selected Aspects      2/22/07                        3
            of the Reading First Program (OCFO also designated
            as an action office) (SAR 54, page 31)
            Current Status: OESE informed us that its program
            team is addressing the on-going corrective actions.

A04G0012    Audit of Mississippi Department of Education’s           8/8/07     $3,192,395          4
            Emergency Impact Aid Program Controls and
            Compliance (SAR 55, page 28)
            Current Status: OESE informed us that its program
            team is working with the States to reconcile the pupil
            data submitted for reimbursement for displaced
            children due to Hurricanes Katrina and Rita.




                                                                                                        51
  Report                        Report Title                             Date     Total Monetary   Number of
  Number               (Prior SAR Number and Page)                      Issued       Findings      Recommen-
                                                                                                     dations
A04G0015   Audit of Georgia Department of Education’s                  10/30/07    $9,977,242           9
           Emergency Impact Aid Program Controls and
           Compliance (SAR 56, page 26)
           Current Status: OESE informed us that its program
           team is working with the States to reconcile pupil data
           submitted for reimbursement for displaced children due
           to Hurricanes Katrina and Rita.
A04H0011   Puerto Rico Department of Education’s Administration        5/20/08      $189,011          10
           of Contracts Awarded to Excellence in Education, Inc.
           and the University of Puerto Rico’s Cayey Campus
           (SAR 57, page 26)
           Current Status: OESE informed us that the PDL is
           currently with Office of General Counsel (OGC) for
           review.
A05G0020   Audit of the Alabama State Department of Education’s        9/27/07     $4,579,375          5
           and Two Selected LEAs’ Compliance with Temporary
           Emergency Impact Aid Program Requirements (SAR
           55, page 28)
           Current Status: OESE informed us that its program
           team is working with the States to reconcile pupil data
           submitted for reimbursement for displaced children due
           to Hurricanes Katrina and Rita.
A05G0033   Illinois State Board of Education’s Compliance with          6/7/07     $16,809,020         8
           the Title I, Part A, Comparability of Services
           Requirements (SAR 55, page 29)
           Current Status: OESE informed us that the PDL is
           clearing the internal review process.
A05H0010   The School District of the City of Detroit’s Use of Title   7/18/08     $53,618,859        21
           I, Part A Funds Under the ESEA (SAR 57, page 26)
           Current Status: OESE informed us that the PDL is
           clearing the internal review process.
A06E0008   Audit of the Title I Funds Administered by the Orleans      2/16/05     $73,936,273         7
           Parish School Board for the period July1, 2001,
           through December 31, 2003 (SAR 50, page 23)
           Current Status: OESE informed us its program team
           is revising the PDL to include the analysis of work
           papers.
A06F0016   Arkansas Department of Education’s Migrant                  8/22/06      $877,000           2
           Education Program (SAR 53, page 25)
           Current Status: OESE informed us that its program
           revising the PDL based on our non-concurrence.




                                                                                                           52
  Report                        Report Title                          Date     Total Monetary   Number of
  Number               (Prior SAR Number and Page)                   Issued       Findings      Recommen-
                                                                                                  dations
A06G0009   Audit of the Temporary Emergency Impact Aid for           9/18/07    $10,270,000          4
           Displaced Students Requirements at the Texas
           Education Agency and Applicable LEAs (SAR 55, page
           29)
           Current Status: OESE informed us that its program
           team is working with the States to reconcile the pupil
           data submitted for reimbursement for displaced
           children due to Hurricanes Katrina and Rita
A06G0010   Louisiana Department of Education’s Compliance with       9/21/07    $6,303,000          4
           Temporary Emergency Impact Aid for Displaced
           Students Requirements (SAR 55, page 29)
           Current Status: OESE informed us that its program
           team is working with the States to reconcile the pupil
           data submitted for reimbursement for displaced
           children due to Hurricanes Katrina and Rita.
A07H0017   St. Louis Public School District’s Use of Selected        9/29/08     $765,001           7
           Department Grant Funds (OSERS also designated as
           an action official) (SAR 57, page 26)
           Current Status: OESE informed us that the PDL is
           with OGC for review.
OPE
A07B0011   Audit of Valencia Community College’s Gaining Early       5/8/03     $1,822,864          5
           Awareness and Readiness for Undergraduate Programs
           Matching Requirement (SAR 47, page 15)
           Current Status: OPE informed us that OPE and OGC
           are revising the PDL based on additional
           documentation received.
OSERS
A02B0014   Audit of the Puerto Rico Vocational Rehabilitation        6/26/02    $15,800,000         5
           Administration (SAR 45, page 18)
           Current Status: OSERS informed us that it is presently
           working to resolve the audit.
A02E0020   The Virgin Islands Department of Health’s                 9/28/05         *7            17
           Administration of the Infants and Toddlers Program
           (SAR 51, page 28)
           Current Status: OSERS informed us that the draft
           PDL is with OGC for review.
A06F0019   Results of five audits of the IDEA, Part B requirements   3/28/07   $328,000,000         6
           at schools under the supervision of the Department of
           Interior’s Bureau of Indian Affairs (Report was
           addressed to the Bureau of Indian Education,
           Department of the Interior) (SAR 54, page 32)
           Current Status: OSERS informed us that the draft
           PDL is with OGC for review.



                                                                                                        53
    Report                              Report Title                               Date       Total Monetary      Number of
    Number                     (Prior SAR Number and Page)                        Issued         Findings         Recommen-
                                                                                                                    dations
INSPECTION REPORTS
OS
I13F0012          Review of Department Identified Contracts and Grants            9/1/05             $0                 6
                  for Public Relations Services (SAR 51, page 29)
                  Current Status: Risk Management Services (RMS)
                  informed us that on 10/1/09, the audit was reassigned
                  to RMS/Grants Policy & Procedures Team. RMS is
                  working with OCFO/Contracts & Acquisitions
                  Management to develop corrective actions to address
                  both the policy and contract issues in the audit
                  recommendations.
OGC
I13H0005          Review of the Department’s Public Financial                    3/12/08             $0                 2
                  Disclosure Reports for Employees Responsible for
                  Oversight of the FFEL Program (SAR 56, page 27)
                  Current Status: OGC informed us that it has resolved
                  this audit; however, it is not considered resolved or
                  closed until it is certified through AARTS.
I13I0004          Inspection to Evaluate the Adequacy of the                     4/21/08             $0                 2
                  Department’s Procedures in Response to Section 306 of
                  the FY 2008 Appropriations Act – Maintenance of
                  Integrity and Ethical Values Within the Department
                  (Congressional Request, OGC designated as the action
                  office by OS) (SAR 57, page 27)
                  Current Status OGC informed us that it has resolved
                  this audit; however, it is not considered resolved or
                  closed until it is certified through AARTS.

                                           Total                                                $847,211,078           383
1
 Audit Report A05H0018 identified a total of $1,185,473 ($1,129,970 questioned costs and $55,503 unsupported cost) being due to
the Department. As $912,430 of the $1,185,473 was recovered from the auditee during the audit, $273,043 remains to be recovered.
2
 Audit Report A09H0017 identified $5,000,000 of other recommended recoveries and no questioned costs.
3
 Audit Report A09H0019 identified $6,302,406 of other recommended recoveries and no questioned costs.
4
 Audit Report A09H0020 identified $728,651 of other recommended recoveries, $13,000,000 of annual better use of funds, and no
questioned costs.
5
 Audit Report A05H0025 identified $33,726 of other recommended recoveries and no questioned costs.
6
 Audit Report A05H0016, in this $124,646 figure, included $100,675 of questioned cost and $23,971 of monetary recoveries made
during audit.
7
 Audit report A02E0020 identified $327,577 in one-time better use of funds.




                                                                                                                             54
Table 7: Statistical Profile: FY 2009                                      Six-Month            Six-Month         FY 2009
                                                                          Period Ending        Period Ending       Total
                                                                            3/31/2009            9/30/2009
Audit Reports Issued                                                                  12                   21            33
Inspection Reports Issued                                                                  0                1               1
Questioned Costs                                                               $49,677,742         $35,598,565   $85,276,307
Unsupported Costs                                                                $703,959           $3,221,275    $3,925,234
Recommendations for Better Use of Funds                                      $13,000,000                   $0    $13,000,000
Other Products Issued                                                                      9               10            19
SAR 58 = 9 products composed of: 3 attestation reports, 3 special
projects, 2alert memoranda, and 1 interim audit memorandum; SAR
59 = 10 products composed of: 4 alert memoranda, 4 audit closeout
letters/memoranda, and 2 management information reports
Audit and Special Reports Resolved By Program                                            14                16            30
Managers
Inspection Reports Resolved By Program Managers                                            1                1               2
Questioned Costs Sustained *                                                 $10,815,603            $1,628,639   $12,444,242
Unsupported Costs Sustained *                                                  $5,240,654           $1,792,196    $7,032,850
Additional Disallowances Identified by Program Managers *                      $2,985,443            $239,863     $3,225,306
Management Commitment to the Better Use of Funds*                                         $0               $0            $0
Investigative Case Activity
Cases Opened                                                                              70               87           157
Cases Closed                                                                              64               67          1301
Cases Active at the End of the Reporting Period                                         403               427           427
Prosecutorial Decisions
   Accepted                                                                               59               77          2232
   Declined                                                                               77               85          1663




1
  Includes previously closed case involving a fugitive. Fugitive was located and case re-opened.
2
  Includes 87 cases that were not reflected in SAR 58
3
  Includes 4 cases that were not reflected in SAR 58
                                                                                                                         55
                                                           Six-Month       Six-Month        FY 2009
                                                          Period Ending   Period Ending      Total
                                                            3/31/2009       9/30/2009
Investigative Results
Indictments/Informations                                             61           108              169
Convictions/Pleas                                                    69            80             1494
Fines Ordered                                                   $13,764      $188,450        $203,2145
Restitution Payments Ordered                                 $8,035,356     $4,264,177    $12,375,0086
Civil Settlements/Judgments (number)                                  5             3                97
Civil Settlements/Judgments (amount)                         $7,162,227     $1,533,050     $8,713,7778
Recoveries                                                     $175,360     $6,356,215     $6,523,0899
Forfeitures/Seizures                                         $1,928,024       $19,344       $1,947,369
Estimated Savings                                            $2,762,219   $12,013,405     $14,778,07110
Suspensions Referred to Department                                 N/A             10              1711
Debarments Referred to Department                                  N/A             11              2812




4
  Includes 2 cases that were not reflected in SAR 58
5
  Includes $1,000 fine that was not reflected in SAR 58
6
  Includes $75,474 that was not reflected in SAR 58
7
  Includes 1 case that was not reflected in SAR 58
8
  Includes $18,500 that was not included in SAR 58
9
  Includes $8,486 removed after SAR 58 was published
10
   Includes $2,447 that was not reflected in SAR 58
11
   Includes suspension referrals not reported in SAR 58
12
   Includes debarment referrals not reported in SAR 58
                                                                                                    56