U.S. Department of eDUcation office of inSpector General Semiannual Report to Congress, No. 61 2 U.S. Department of Education Office Of inspectOr General Kathleen s. tighe Inspector General november 2010 This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While permission to reprint this publication is not necessary, the citation should be: U.S. Department of Education, Office of Inspector General, Semiannual Report to Congress, No. 61. Please Note: The Inspector General’s Semiannual Report to Congress, No. 61 is available on the ED/OIG Web site at www.ed.gov/offices/oig. Message to Congress On behalf 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, 2010, through September 30, 2010. The audits, inspections, investigations, and related work highlighted in the report are products of our continuing commitment to promoting accountability, efficiency, and effectiveness in Department programs and operations. Over the last 6 months, OIG issued 28 audit products that identified nearly $600,000 in financial recommendations. We also closed 64 investigations of fraud or corruption involving Department programs and operations, securing more than $36 million in settlements, fines, restitutions, recoveries, forfeitures/seizures, and savings. As you know, OIG work has garnered attention during the last 6 months, particularly in the area of higher education. I was honored to testify before two Congressional committees on our higher education efforts, and I appreciated the opportunity to describe the long history of work this office has conducted to help improve the performance of the Federal student aid programs. We will continue to focus significant audit, inspection, and investigative resources in this vital area throughout fiscal year (FY) 2011 to help ensure that Federal student aid programs operate as effectively as possible so that students entitled to receive these funds can make their dreams of a higher education a reality. Another significant area is our work related to the American Recovery and Reinvestment Act of 2009 (Recovery Act). We are well into the second phase of our Recovery Act efforts, which is examining use of funds and the quality of the data reported by States and subrecipients. The response to our efforts continues to be very positive, with a number of State and local educational agencies taking immediate action to address our findings and implement our recommendations. We were also pleased to have completed an assignment with a number of our IG colleagues for the Recovery Accountability and Transparency Board on the quality of data reported by Recovery Act recipients. This effort identified areas for improvement to help enhance the quality of data being reported by Recovery Act recipients. In addition, as expected, allegations of possible fraud related to Recovery Act funds are increasing as Recovery Act dollars are expended and have thus far resulted in our opening 39 cases for criminal and civil investigation. OIG also completed other important work over the last 6 months that we describe in this Semiannual Report. This includes reviews of the Federal Student Aid office’s (FSA) capacity to effectively process and manage the increased number of student loans made and serviced under the William D. Ford Federal Direct Loan Program. Our efforts found that FSA had sufficient capacity and processes in place to manage the increases in volume it anticipated, but we cautioned that it should regularly review volume capacity and enhance its systems accordingly if the actual loan volume is higher than estimated. We also issued a report calling on the Department and the Pennsylvania Department of Education to designate the Philadelphia School District as a high-risk grantee. We believe that this recommendation was warranted due to recent audit findings at the Philadelphia School District and the need for the District to ensure that the Federal funds it expends reach the intended recipients and achieve the desired results. We also had significant investigative results involving fraud in the Federal student aid program and fraudulent activity within SEAs, LEAs, and their contractors. We describe some of the more significant cases in this report. I have now completed my first 6 months as Inspector General of this organization, and I am very pleased with the work we have conducted and the direction in which we are heading. In addition to the audit and related work we present in this report, we also issued key reports that provide insight into our goals and strategies for the years ahead, including our Strategic Plan for FY 2011 through FY 2015. The Strategic Plan provides the roadmap by which we plan to accomplish our mission over the next 5 years; our Annual Plan for FY 2011 presents the major initiatives and priorities this office intends to undertake to assist the Department in fulfilling its responsibilities to America’s taxpayers and students; and our FY 2011 Management Challenges report discusses the most significant challenges facing the Department. Through the audits, inspections, investigations and other reviews, and the overall direction we present in these reports, we will continue to tackle areas of concern within the Department’s programs and operations and recommend actions the Department should take to address any weaknesses that our efforts identify. We greatly appreciate the interest and support of the Congress, Secretary Duncan, and Deputy Secretary Miller. We look forward to working with you in meeting the challenges and opportunities that lie ahead. Kathleen S. Tighe Inspector General Table of Contents OvErvIEW n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 1 rEcOvEry AcT EffOrTS n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 3 Internal reports n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 4 External reports nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 5 report coordinated with the recovery Accountability and Transparency Board n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 6 Investigations n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 7 fEDErAl STUDENT AID PrOGrAmS AND OPErATIONS n n n n n n n n n n n n n n n n n n n n 9 fSA Operations nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 9 fSA Program Participants nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 10 congressional Testimony n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 12 Investigations n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 13 ElEmENTAry, SEcONDAry, AND ADUlT EDUcATION PrOGrAmS nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 19 Elementary and Secondary Education n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 19 State Educational Agencies n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 19 Local Educational Agencies n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 19 Adult Education n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 20 Investigations n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 20 INTErNAl DEPArTmENTAl OPErATIONS n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 2 23 Information Technology Security and management n n n n n n n n n n n n n n n n n n n n 23 contract reviews n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 24 Other Internal reports n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 25 Non-federal Audits n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 25 Noteworthy OIG Efforts n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 26 CAROI Guide nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 26 Hugh Monaghan Honored nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 26 FY 2010 CIGIE Award Winners nn n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 26 ANNExES n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 30 rEqUIrED TABlES n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n 31 Overview We present the work that OIG concluded during this reporting period in five sections: (1) efforts associated with the American Recovery and Reinvestment Act of 2009 (Recovery Act); (2) Federal student aid programs and operations; (3) elementary, secondary, and adult education programs; (4) other internal operations, including information technology (IT) security and management; and (5) a compilation of tables of the audits, inspections, investigations, and other reports we completed during this reporting period, as required by the Inspector General Act of 1978, as amended (IG Act). RecoveRy Act effoRts As a result of the Recovery Act’s increase in education funding, the Department, State and territorial educational agencies (SEAs), more than 13,800 public school districts, and all other Recovery Act fund recipients must provide adequate management and oversight of and effective accounting for how those funds are expended. During this reporting period, we issued several reports focused on Departmental management of specific Recovery Act operations, including a review of the Department’s implementation of the Recovery Act’s State Fiscal Stabilization Fund and the Race to the Top peer review process, both of which found the Department to be in compliance with applicable laws and regulations but also identified areas for further improvement. In addition, we issued reports on Recovery Act-related efforts in two States: Louisiana’s internal controls over Recovery Act funding and Wisconsin’s use of Recovery Act funds. You will find more on these reviews in the Recovery Act section of this report, along with summaries of some of our investigative cases involving Recovery Act funds. fedeRAl student Aid PRogRAms And oPeRAtions The Federal student aid programs underwent a major change this year with the passage of legislation prohibiting the origination of new Federal Family Education Loan Program (FFELP) loans after June 30, 2010, and requiring that all new Federal student loans formerly originated under the FFELP now be originated under the William D. Ford Federal Direct Loan Program (Direct Loan Program.) We completed two reviews related to the Direct Loan Program: an assessment of the Department’s efforts to ensure the effective processing of student loans under the Direct Loan Program; and a technical assessment of the Department’s loan origination processing system capacity and contingency plans. In both efforts, we found the Department’s efforts to be appropriate, but we recommended it continue to monitor and enhance its capabilities as necessary. We also issued two reports related to the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) that identified actions that the Department must take to fully comply with specific provisions of the law’s requirements, and a review of lender agreements involving two proprietary institutions that found violations of the Office of Inspector General Semiannual Report 1 lender inducement provisions of the Higher Education Act of 1965, as amended (HEA). You will find more on the findings of our work involving Federal student aid programs and operations, as well as summaries of Inspector General Tighe’s testimony before two Congressional committees, and information on our more significant investigative cases of fraud involving Federal student aid program funds in this section of the report. elementARy, secondARy, And Adult educAtion PRogRAms We concluded several reviews involving specific SEAs and a local educational agency (LEA), including the Arkansas Department of Career Education’s use of Federal adult education funds in which we identified more than $500,000 in unsupported costs and the Georgia Department of Education’s EDFacts submissions in which we identified weaknesses in data quality and reporting processes. We also issued a special report calling for the Department to work with the Pennsylvania Department of Education to designate the Philadelphia School District as a high-risk grantee. You will find more details on these reports, as well as summaries of some of our more significant investigations involving fraud or corruption in Federal education programs in this section of our report. inteRnAl dePARtmentAl oPeRAtions We have highlighted the audits and reviews we completed regarding the Department’s IT security and management and other internal operations in this section of this report. These efforts identified weaknesses regarding specific aspects of the Department’s 10-year, $500 million IT infrastructure contract known as the Education Department Utility for Communications, Applications, and Technology Environment, or EDUCATE, including ineffective implementation of the Managed Security Services Provider contract and discrepancies in the vendor’s desktop services pricing. We also provide summaries of our review of Departmental controls over the transit benefits program; weaknesses involving the Department’s process for handling compromised privileged accounts; its ability to prevent the bypassing of Web filters in order to access blocked Web sites; and the results of our quality control reviews of single audits of Department grantees and Federal student aid program participants. Finally, we provide information on other noteworthy OIG efforts, including recent acknowledgements and awards for our staff, services, and products. RequiRed 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 IG 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 www.ed.gov/oig. 2 Office of Inspector General Semiannual Report Recovery Act Efforts The Recovery Act was signed into law on February 17, 2009, and provides approximately $98.2 billion in new funding for Department programs and operations, including programs authorized by the Elementary and Secondary Education Act of 1965, as amended (ESEA), the HEA, the Individuals with Disabilities Education Act of 2004, as amended, and the Rehabilitation Act of 1973. In August 2010, Congress passed legislation that included the Education Jobs Fund, which appropriated $10 billion in additional support for local school districts to prevent teacher layoffs and to help offset reductions in State and local education budgets. Together, these two initiatives provide an unprecedented level of Federal education funding for State and local education operations, and we will work to ensure that funding is properly monitored and accounted for, and achieves the desired results. As discussed in previous Semiannual Reports to Congress, OIG staff continues to work with Department leaders and our counterparts in the Government Accountability Office (GAO) and other Federal agencies to evaluate whether Recovery Act dollars are expended in accordance with applicable laws, regulations, and Department guidance. During this reporting period, we continued to participate as a member of the Recovery Accountability and Transparency Board (Recovery Board) and we led a multi-agency review of the processes used by Recovery Act recipients for compiling and reporting selected data. We discuss the findings of this effort below. We also continued to participate in an advisory capacity on a Department Recovery Act work group and worked closely with the Department to create materials aimed at helping Recovery Act fund recipients identify potential waste, fraud, and abuse, and report any suspicions to the OIG immediately. We created a special fraud awareness tutorial, Q&As, and fraud awareness posters and flyers, which we provided to SEAs, LEAs, and other grant recipients and made available on the Department’s and our Web sites. Over the last 6 months, OIG continued with the second phase of our Recovery Act work, conducting audits at the State and local levels (i.e., Governors’ offices, SEAs, LEAs, and other grantees) to determine whether Recovery Act funds were used in accordance with applicable laws and regulations, and whether data reported were accurate, reliable, and complete. We issued the first of these reports in September, in which we found that the State generally used and accounted for the funds appropriately, but we identified areas that could be improved. Audits are underway in additional States and we expect to issue these reports in the coming months. In addition, OIG investigators are currently examining allegations of waste, fraud, and abuse involving Recovery Act funds and taking appropriate action to ensure that anyone who steals or intentionally misuses Recovery Act funds is held accountable for their unlawful actions. To date, OIG has identified 39 cases for further investigation. You will find summaries of several of these cases below. Office of Inspector General Semiannual Report 3 rEcOvEry AcT-rElATED rEPOrTS � Internal reports the department’s Process for screening and supported. This lack of assurance could impact the selecting Peer Reviewers for the Race to the top Department’s ability to determine whether States are grant Program complying with maintenance-of-effort requirements. We found that the Department’s process for We noted that our audit found that 3 of the 16 screening and selecting peer reviewers for Phase States/Commonwealth reviewed appeared to have 1 of the Race to the Top (RTT) discretionary grant insufficient or questionable supporting data. Further, program competition was generally appropriate and although it appeared that Department staffing efforts effective in identifying conflicts of interest. However, had been adequate during the initial implementation we found that the Department did not perform a of the program, we noted that the time required to check of selected RTT peer reviewers against the implement and monitor the SFSF program could General Services Administration’s Excluded Parties impact the ability of the staff to effectively manage List System (EPLS) or adequately document formal existing programs. Finally, we found that complete approval of its peer reviewer roster before it began documentation was not maintained in the official the application review process. The verification grant file; doing so ensures that all relevant matters are and documentation processes the Department did considered. The Department did not concur with our perform occurred only after the initial application overall findings or recommendations. review and rating were completed and after the Department had publically announced the RTT department’s Progress in implementing finalists. The Department agreed that an issue corrective Actions for Prior Audits of Programs existed with the timeliness of the EPLS verification; that subsequently Received funding under the however, it did not believe that the issue impacted Recovery Act the integrity or quality of either the competition In March of 2009, OIG issued a memorandum to or the review process. Although we acknowledge the Department identifying 152 recommendations that no RTT peer reviewers were found in the EPLS, made in OIG audits for which corrective actions the integrity of the review process could have been had not yet been implemented. The purpose of compromised if one of the peer reviewers had been this memorandum was to assist the Department debarred or suspended from doing business with the in implementing Office of Management and Federal Government. Budget (OMB) requirements that call for agencies to expedite final actions on findings from prior the department’s implementation of the state OIG audits and investigations affecting programs fiscal stabilization fund Program funded by the Recovery Act or explain why they In our audit of the Department’s implementation of cannot or should not take such actions. During this the Recovery Act’s State Fiscal Stabilization Fund (SFSF) reporting period, we issued a report that found that program, we found that its initial implementation the Department had made progress in completing was generally appropriate in the three areas we corrective actions on its internal audits, but that examined. Those three areas were: (1) calculation the majority of corrective actions for external of State allocations; (2) review of applications audits, including SEAs and LEAs, had not been for initial funding; and (3) program staffing and implemented. In total, corrective actions for 99 of monitoring plans. We did, however, identify where the the 152 recommendations (65 percent) had not yet Department’s processes could be improved. While the been completed. Department’s process indicated that reviewers verified that all required data and related information were Department staff stated that no specific efforts were provided, it did not provide assurance that steps were made to expedite implementation of corrective taken to assess whether the data were reasonably actions from audits of programs that subsequently 4 Office of Inspector General Semiannual Report received funding under the Recovery Act. Although focusing on subrecipient monitoring the Department had included consideration of During this reporting period, we provided the prior audits in its risk mitigation plan, other than Department with information on weaknesses the list provided by OIG through the March 2009 involving SEA subrecipient monitoring that our memorandum, the Department had not identified Recovery Act work had identified. SEAs are required all relevant prior audits, such as single or compliance to monitor subrecipient activities in order to provide audits, or audits conducted by the GAO. Furthermore, reasonable assurance that each subrecipient is the Department had not assessed the status of its in compliance with Federal requirements and progress in this area, although such an assessment achieving performance goals. The most common was included in its risk mitigation plan. Without a problem our audits identified was that some States complete list of the audits, corrective actions to be had not sufficiently modified existing program implemented, and an assessment of progress made, monitoring methods to provide reasonable the Department cannot ensure that corrective actions assurance of subrecipient compliance with Recovery were being expedited as required by OMB. Act requirements. Other issues we identified included: (1) State monitoring plans addressing only We recommended that the Department take actions programmatic and not fiscal issues, (2) States not to meet OMB requirements and to enhance effective reviewing supporting documentation or verifying implementation of risk management activities, expenditures before making Recovery Act payments, including that it identify uncompleted corrective and (3) States not determining which State entity actions regarding weaknesses or deficiencies by would be responsible for monitoring subrecipients’ entities or programs that subsequently received use of SFSF funds. We encouraged the Department funding under the Recovery Act. The Department to use the information presented in this report and agreed with the importance of addressing significant our individual State Recovery Act reports when audit findings in a timely manner and stated it would assessing risk and planning monitoring visits to work with OIG to address the recommendations States. The Department stated that the information presented in the report. presented in this report and the individual State audit reports was very helpful. External reports louisiana whether vendors were debarred or suspended from Our audit of internal controls regarding education- receiving Federal funds. Based on these findings, we related Recovery Act funds in Louisiana made a number of recommendations to enhance found that the agencies reviewed had systems of controls over Recovery Act requirements. State internal control in place or were designing control officials did not agree with all of our findings or systems to provide for the proper administration recommendations. and use of education-related Recovery Act funds. However, we also found that the Louisiana Wisconsin Department of Education could improve oversight Our audit found that although the Wisconsin of LEAs and improve controls over data quality; Department of Public Instruction (DPI) made a the Office of Governor’s Division of Administration proactive effort to ensure compliance with Recovery needed to perform reviews of its subrecipients; the Act requirements, DPI’s distribution of SFSF funds Office of Louisiana Rehabilitation Services lacked did not allow for proper tracking of expenditures at sufficient controls over tracking Recovery Act funds; the State and LEA levels as required by the Recovery and the Algiers Charter School Association, one of Act. This occurred because DPI was instructed by four LEAs we reviewed, used sole-source contracting the State legislature to distribute SFSF funds to LEAs without sufficient justification and did not verify expeditiously and in doing so, DPI did not properly Office of Inspector General Semiannual Report 5 account for two components of the SFSF program that the Department require the Governor’s Office and it reimbursed LEAs for expenditures based and DPI to implement procedures to ensure its only on pools of cost categories. In addition, we Recovery Act funds are properly accounted for found that DPI needed to improve its monitoring of and tracked. We also recommended that they be Recovery Act funds and implement comprehensive required to conduct reviews on the SFSF funds subrecipient monitoring procedures for the SFSF distributed to LEAs in FY 2008-2009 to determine program. We also determined that DPI and the whether the funds were used for allowable activities Wisconsin Governor’s Office needed to improve and accrued within the period of availability and their procedures to ensure all required data are return any unallowable cost. Wisconsin officials accurate, reliable, and complete. We made several did not fully agree or disagree with our findings or recommendations to address these issues, including recommendations. report coordinated with recovery Accountability and Transparency Board data quality - Recipient efforts to Report Reliable 29 reporting data consistent with applicable Federal and transparent information guidance. To address this issue, we recommended This multi-agency review sought to determine providing guidance on how to estimate jobs by using whether the processes used by Recovery Act alternative processes that can produce reasonable recipients for compiling and reporting selected data jobs estimates and clarifying whether recipients are reasonably assured compliance with the reporting to report jobs estimates for lower-tier subrecipients requirements of Section 1512 of the Recovery Act. It and small vendors. The review also described two found that enhancements were needed to ensure specific areas where the current reporting process the accuracy of jobs reports. The review focused on may not result in optimal transparency for users of five specific reporting provisions: number of jobs Recovery.gov: (1) recipient reporting of funds spent created or retained; total amount of Recovery Act in cases where funds advanced to subrecipients had funds received or invoiced; total amount of Recovery resulted in more Recovery Act funds appearing to Act funds spent; project status; and final report. Our be invested in the economy than actually were; and staff led this review with participation from OIG staff (2) recipient reporting of subrecipient jobs that may from the U.S. Department of Health and Human not have accurately portrayed actual employment Services, the U.S. Department of Homeland Security, impacts by individual Congressional districts when the U.S. Department of Labor, and the National recipients and subrecipients are located in different Science Foundation. districts. We made several recommendations to the Recovery Board to further enhance the quality of data The team selected for its review 20 grant recipients being reported and to improve transparency. These and 9 Federal contractors for a total of 29 recipients included that the Board work with OMB, the Federal that received awards from the home agencies of Acquisition Regulatory Council, and Federal agencies, the participating OIGs. The entities were selected as warranted, to provide more comprehensive based on several factors, including the amount of technical assistance to recipients and subrecipients Recovery Act funds awarded, an analysis of Section on effective processes and controls for jobs data 1512 data each reported, and prior audit experience. reporting. Because the recipients in our sample were The Recovery Act funding for these recipients ranged not selected using statistical sampling methods, from hundreds of thousands of dollars to several the results cannot be generalized. We therefore billion dollars. We determined that all 29 recipients recommended that the Board consider conducting generally reported consistent and reliable information a comprehensive review of recipient reported in 4 of the 5 areas reviewed. Reporting the number of information on the number of jobs using such jobs that were created or retained, however, proved to statistical sampling methods in order to assess the be problematic for most recipients, with only 7 of the reliability of reported jobs data for all reporting entities. 6 Office of Inspector General Semiannual Report Investigations new york—city university of new york employee in order to apply for and receive Federal financial indicted for fraud aid for purported attendance in on-line classes. A former employee at the City University of New The participating individuals had no intention of York Research Foundation who was hired to work actually taking classes. The ringleader allegedly as an instructor in the In School Youth, Prep for completed and submitted admission forms, Success Program at Medgar Evers College in Brooklyn financial aid applications, and supporting was indicted for attempting to defraud the school documentation of those “straw” students, falsely and the Department of Recovery Act funds. The representing that the individuals were high man allegedly presented and attempted to have school graduates or held a General Educational processed a fraudulent Grant Award Notification Development certificate (GED). When the straw (GAN) in the amount of $745,700. The employee students received the financial aid checks, they provided the GAN to the Foundation to claim the allegedly kicked back a portion of the proceeds award, and during its award process, the Foundation to the ringleader. As a result of these fraudulent learned from the Department that the GAN was efforts, the scheme’s participants received more fraudulent. than $100,000 in Federal student aid to which they were not entitled. Federal Student Aid Fraud The following cases involve Federal student aid Wisconsin—owner of diploma mill/sham funding, a portion of which was either applied for Proprietary school indicted or obtained after passage of the Recovery Act. The The owner and operator of Wisconsin University Recovery Act increased funding for the Pell Grant High School (WUHS), an entity the owner held Program. out to be a legitimate institution for people to obtain a high school diploma, was indicted for Arkansas—man sentenced for allegedly using the school as a front by which to id theft � operate a Federal student aid fraud scheme. The A man pled guilty and was sentenced in Faulkner man allegedly charged individuals $150 to enroll County Court for using the identity of his cousin in the school and 2 weeks later, receive a diploma to fraudulently apply for and receive student certificate. He allegedly used the personal financial aid from the University of Central identifying information provided by approximately Arkansas (UCA.) Turned in to police by his 255 individuals who enrolled at WUHS to apply cousin, the man was sentenced to 12 months in for and receive Federal financial aid for their prison, followed by 72 months of probation, and purported attendance at two on-line colleges. On was ordered to pay $1,490 in fines and fees. each form, the man listed the address of WUHS, causing student aid refund checks to be mailed michigan—Woman indicted for operating a directly to him. The former owner allegedly $100,000 fraud Ring deposited the checks into his bank accounts for A woman was indicted in Michigan for personal use. The owner’s alleged actions enabled orchestrating a fraud scheme at the University him to fraudulently receive more than $300,000 in of Phoenix. She allegedly recruited at least 50 Federal student aid. individuals to act as “straw students” at the school Office of Inspector General Semiannual Report 7 OTHER ACTIVITIES Participation on Committees, Work Groups, and Task Forces n Departmental Groups n Federal and State Law Enforcement- Related Groups ♦ Department Metrics and Monitoring Team - OIG staff participate in an ♦ The Recovery Act Fraud Working Group of advisory capacity on this team that the U.S. Department of Justice’s Financial meets weekly to coordinate Recovery Fraud Enforcement Task Force - OIG Act funds oversight efforts and develop staff participate on this working group reports for posting on the Recovery.gov focused on improving efforts across Web site. the government to investigate and prosecute significant financial crimes n Inspector General Community involving Recovery Act funds, ensuring just and effective punishment for ♦ Recovery Accountability and Transparency those who perpetrate financial crimes, Board (Recovery Board) - Inspector recovering proceeds for victims, and General Tighe is a member of the addressing financial discrimination in Recovery Board and a member of the lending and financial markets. the Accountability Committee of the Board, which provides advice Review of Legislation, Regulations, Directives, and recommendations to the and Memoranda Board regarding preventing and detecting fraud, waste, abuse, and n Provided technical assistance to the mismanagement and with regard to Department on its cash management a referral management system. OIG FAQs for SEAs and LEAs. staff also participate on a work group composed of all of the Offices of Inspector General that provide Recovery Act oversight, and a subgroup focused on Recovery Act grant funds. 8 Office of Inspector General Semiannual Report Federal Student Aid Programs and Operations The Federal student aid programs underwent a significant change in 2010 with the passage of legislation prohibiting the origination of new FFELP loans after June 30, 2010, and requiring that all new Federal student loans formerly originated under the FFELP be originated under the Direct Loan Program. As a result, the Department must have the capacity to originate and serve the increased Direct Loan volume. Work completed during this reporting period showed that the Federal Student Aid office (FSA) had enhanced its capacity and processes but should continue to monitor and enhance its capabilities as necessary. In addition, it must also ensure that participants in the Federal student aid programs comply with all applicable laws, regulations, and guidance. Work conducted during this reporting period showed this to be a challenge with the participants we reviewed. Summaries of these and other efforts are provided below, along with information on our more significant investigations involving Federal student aid fraud. fSA Operations efforts to ensure the effective Processing of requirements based on FSA’s estimate that it would student loans under the direct loan Program originate 30.3 million loans in FY 2010 and found Our assessment of whether FSA’s efforts to ensure that it to be adequate to handle the estimated volume. the Common Origination and Disbursement (COD) We also reviewed the current COD contingency system could effectively process 100 percent of student plan and the results of the most recent COD disaster loan volume under the Direct Loan program found recovery test. We found that if FSA’s estimate of 30.3 that FSA had taken actions to do so. The COD system million originations is accurate and its contingency is the Department’s system for processing originations plans are implemented as written, the level of risk and disbursements of Federal student loans and grants. in exceeding Direct Loan origination capacity is low. In addition, we concluded that FSA was providing We did, however, express concern about the actual appropriate technical assistance to impacted schools origination volume compared to the projected and had reasonable plans in place to accommodate monthly activity. For example, we noted that the schools that experienced challenges in successfully monthly activity for October 2009 through January transitioning to the Direct Loan program. We also noted 2010 showed that 4.37 percent fewer applications that FSA had a COD contingency plan in place that were received than were projected, while February documented disaster recovery procedures intended through May 2010 showed that 21.6 percent more to assist in resuming critical data processing support applications were received than were projected. We with the least amount of delay if data processing suggested that FSA promptly review the data and if operations were disrupted. Although we did not have FSA identified a significant increase in applications any recommendations for the Department, we did received over applications projected, it should review note that FSA relies completely on the COD system to the volume capacity and revise accordingly. originate loans which could result in processing delays if the system experienced any difficulties. controls over loan Purchases under ecAslA This audit determined that FSA had established and technical Assessment of the direct loan implemented adequate controls and system edits Program’s origination Process to reasonably ensure that the Department did not We assessed the ability of the COD system to satisfy purchase ineligible loans under the ECASLA Loan storage, volume, and network bandwidth capacity Purchase Commitment Program. Conversely, our Office of Inspector General Semiannual Report 9 audit also identified significant weaknesses in the disbursement dates. To that end, we made two system edits that were in place to reasonably ensure additional recommendations for FSA to fully address that lenders participating in the Loan Participation the weaknesses identified and to ensure that it Purchase Program complied with the loan eligibility did not purchase ineligible loans. FSA agreed with requirements. We concluded that these weaknesses our findings and stated it would take appropriate had a minimal impact on the number and amount of corrective action. ineligible loans in which the Department purchased participation interests. Specifically, we found that FSA Reporting Requirements for the ecAslA loan did not ensure that the loans in which it purchased Purchase Programs a participation interest were made for eligible loan We issued an alert memorandum to inform the periods; were submitted as “new” loan records only Department that it had not met all reporting once; had a cumulative amount of disbursements, net requirements for the loan purchase programs of cumulative reductions (e.g., cancellations, borrower authorized by ECASLA. Specifically, we found that payments), equal to the outstanding borrower the Department did not prepare and issue the principal balance on the loan and equal to or less required quarterly reports and annual purchase than the original loan amount; had eligible first and program cost estimates. ECASLA requires the anticipated final disbursement dates; and had interest Department to prepare and transmit these reports rates that did not exceed allowable limits. to appropriate Congressional committees and make them available to the public. These reports During the audit, we informed FSA of our preliminary are needed not only to assess the loan purchase findings which led FSA to implement revised programs’ costs neutrality, but also to provide system edits concerning first disbursement dates, policymakers with information needed to assess anticipated final disbursement dates, and interest the effectiveness of the programs. Based on our rates. We determined that FSA’s revised system findings, we recommended that the Department edits addressed the weaknesses we identified prepare the reports and estimates, transmit them regarding the first disbursement dates and loan to the appropriate Congressional committees, and interest rates and partially addressed the weaknesses make them available to the public. The Department we identified regarding the anticipated final concurred with our recommendations. fSA Program Participants Accrediting Agencies In our last Semiannual Report to Congress, we provided the Higher learning commission of the information on the results of our examinations at two north central Association of colleges and of the seven regional accrediting agencies which schools found that neither agency established minimum HLC accredits 1,022 institutions in Arizona, requirements for the definition of program length or Arkansas, Colorado, Iowa, Illinois, Indiana, Kansas, credit hour hours. This could result in inflated credit Michigan, Minnesota, Missouri, North Dakota, hours, the improper designation of full-time student Nebraska, Ohio, Oklahoma, New Mexico, South status, the over-awarding of Federal student aid Dakota, Wisconsin, West Virginia, and Wyoming. funds, and excessive borrowing by students especially In 2008, institutions accredited by HLC received with distance, accelerated, and other programs not $27.5 billion in Federal student aid. Although delivered through the traditional classroom format. we found that HLC provided general guidance During this reporting period, we issued the third informing institutions that they should be able and final report in our series -- a review of the Higher to justify the lengths of their programs and Learning Commission of the North Central Association their credit hour assignments in comparison of Colleges and Schools’(HLC) definition of program to practices common to other accredited length and credit hours, which found the same result. higher education institutions, HLC’s standards 10 Office of Inspector General Semiannual Report for accreditation and related policies did not Sallie Mae, Inc. (SLM) and Student Loan Xpress, Inc. establish the definition of a credit hour or set (SLX), and Corinthian Colleges, Inc. (Corinthian), minimum requirements for program length and the parent company of Everest, contained three the assignment of credit hours. HLC also did inducement violations. During the time of our not provide specific guidance to peer reviewers review, Corinthian was also the parent company of on how to evaluate the appropriateness of an WyoTech-Bedford, which became NAA-NE when it institution’s processes for determining program was purchased by NAA. length and assigning credit hours or on the minimum level of acceptability for accreditation We did not identify any noncompliance by Everest when evaluating these processes. Further, while or NAA-NE relating to the inducement provisions of HLC maintained self-studies and team reports as the HEA, but found that the violations were on the documentation of its evaluation of institutions’ part of the lenders. Specifically we found that: (1) program lengths and credit hours, the amount SLM offered parents an inducement to borrow PLUS of information varied as it related to program loans in violation of the HEA when it entered into an length and credit hours that institutions and agreement with Corinthian that parents of Corinthian peer reviewers included in these respective students could obtain a $500 credit toward their documents. closing costs of a new home loan from SLM if the parents obtained a PLUS loan from SLM; and (2) Also as presented in our last Semiannual SLX induced Corinthian to secure FFELP loans. An Report to Congress, our review identified agreement between Corinthian and SLX offered a serious issue regarding HLC’s decision to Credit Risk Subsidy Program loans to WyoTech’s accredit American InterContinental University and Everest’s high-risk student borrowers. This despite its identification of problems with the agreement required Corinthian to pay a premium to school’s assignment of credit hours to certain share the risk of student default on private student undergraduate and graduate courses. Following loans with SLX. The agreement contained a provision our suggestion, the Department conducted that allowed SLX to temporarily terminate the an evaluation of HLC and determined that agreement if private student loans that SLX made to the issue identified in our report was not an Everest or to WyoTech students exceeded 15 percent isolated incident. The Department gave HLC of the total amount of all SLX’s educational loans at two options for coming into compliance: (1) to each respective school, including loans made under accept a set of corrective actions determined by the FFELP. Another provision in the agreement the Department; or (2) the Department would allowed SLX to immediately terminate the initiate a limitation, suspension, or termination agreement if the school’s Federal cohort default rate action. In May 2010, HLC accepted the exceeded 15 percent. As a result, SLX provided an Department’s corrective action plan. inducement for Corinthian to encourage students to apply for FFELP loans with SLX to secure private loan Review of lender Agreements identified funds and to maintain the ratio of private loans to all inducements education loans (including FFELP), as described in Our audits of lender agreements at the Everest the agreement. In a second and separate agreement Institute (Everest) and the National Aviation between SLX and Corinthian, it was established that Academy-New England (NAA-NE), both proprietary SLX would help Corinthian develop a Web site and schools located in Massachusetts, identified would provide Corinthian with administrative reports inducements prohibited by the HEA, which we for each campus it owned. Although the Web site promptly brought to the Department’s attention in was not designed to facilitate students’ applications an alert memorandum, and through final reports at for SLX’s FFELP loans, the service SLX provided each institution. In each report, we informed the was intended to induce Corinthian and secure its Department that agreements between two lenders, students’ loan applications. Office of Inspector General Semiannual Report 11 Based on our findings, we recommended that FSA determination of attendance for its distance education take appropriate administrative action regarding students during award year 2006-2007 and that it SLM’s inducement violation and determine whether had incorrectly identified when distance education the SLX Credit Risk Subsidy Program agreement and students who unofficially withdrew or dropped out Web site service agreement issues were resolved began and ceased attendance during award year with the Department by a prior Determination and 2007-2008. We recommended that FSA require Baker Voluntary Disposition, dated March 23, 2009, and College to develop and implement written policies take appropriate administrative action for any issue and procedures for its automated attendance system not resolved by the Determination and Voluntary and to return $9,790 of Federal student aid funds it Disposition. FSA concurred that the agreements disbursed to ineligible students and to students for examined by OIG need further review and appropriate whom the school’s attendance records did not support action. However, FSA did not agree with our retention of all Federal student aid funds after student recommendation for actions against SLM and SLX withdrawal. We also recommended that the school be under the HEA and suggested other substantive action. required to review its records for distance education students who received Federal student aid for other baker college’s compliance with selected years and (1) identify students with unsupported Provisions of the HeA and corresponding periods of attendance; (2) determine the amount of Regulations Federal student aid disbursed to students who were This audit determined that for distance education not entitled to receive the funds because of insufficient students who officially withdrew or dropped out, Baker attendance documentation; (3) identify the amount College, a non-profit institution based in Michigan, of Federal student aid program funds disbursed to did not correctly identify when students began and students who were not entitled to receive the funds ceased attendance when (1) determining students’ because of reduced student eligibility; and (4) return eligibility for Federal student aid disbursements; those amounts to the Department and lenders, as and (2) performing return of Federal student aid appropriate. Baker College officials disagreed with all calculations. We found that Baker College had not of our findings and recommendations. maintained records that adequately supported its congressional Testimony committee on education and labor, u.s. House Inspector General Tighe reported that OIG had of Representatives conducted extensive work involving accrediting On June 17, Inspector General Tighe testified before agencies for over two decades. She highlighted the House Committee on Education and Labor on the most recent work we conducted to provide OIG work involving standards for program length and the Department and Congress with facts on the the definition of a credit hour—critically important definition of a credit hour for the 2009-2010 higher issues in the Federal student aid programs, as the education negotiated rulemaking sessions. Inspector amount of Federal aid a student can receive is General Tighe explained that OIG examined three of based on the number of credit hours for which a the seven regional accrediting agencies to determine student is enrolled. Inspector General Tighe told what guidance regarding program length and the Committee that this issue has become more credit hours they provided to institutions and peer significant in recent years due to the explosion of reviewers and the documentation they maintained on-line education, making credit hour assignment to demonstrate how they evaluated institutions’ difficult, its comparison to traditional classroom program length and credit hours. She noted that delivery a challenge, and its value increasingly OIG found that none of the agencies established important in order to ensure that students and minimum requirements for credit hours but that the taxpayers get what they are paying for. Department proposed a definition of a credit hour in its recent higher education Notice of Proposed 12 Office of Inspector General Semiannual Report Rulemaking. Inspector General Tighe informed the pay refunds is a criminal offense under the HEA); 90/10 Committee that OIG would evaluate whether the Rule violations -- where an institution miscalculates or new definition is effective in protecting students and devises other creative accounting schemes to make taxpayers. it appear that at least 10 percent of the institution’s income is derived from sources other than Federal committee on Health, education, labor and funds (failure to comply with this rule could lead to a Pensions, u.s. senate loss of eligibility to participate in the Federal student aid On June 24, Inspector General Tighe testified before programs); incentive compensation - where recruiters the U.S. Senate Committee on Health, Education, receive financial incentives for increasing enrollment Labor, and Pensions on the issue of waste and fraud at the school; and issues related to distance education involving for-profit postsecondary institutions. The -- determining whether a student in distance education sole participant on the first of two panels, Inspector has enrolled for purposes of obtaining a credential or General Tighe discussed OIG’s long history of work is just completing sufficient on-line activity to receive involving for-profit postsecondary institutions, and a disbursement of Federal student aid to use for other the predominant cases of fraud that its work has purposes. Institutions are obligated to return any identified, which included falsification of eligibility -- Federal student aid received if a student does not where schools falsify student enrollment, attendance, begin attendance during the period for which aid was high-school diplomas, ability-to-benefit exam results, awarded as well as document attendance in at least and satisfactory academic progress in order to qualify one class during a payment period. students to obtain or continue to maintain Federal student aid; refund violations -- when a student ceases Inspector General Tighe also acknowledged the to attend an institution, the institution must determine Department’s issuance of a Notice of Proposed whether a refund is owed, calculate the amount of Rulemaking for the Federal student aid programs; a the unearned Federal student aid, and then return number of the new rules address program integrity those funds to the Department, the loan holder, or to issues related to proprietary schools. Inspector General another applicable participant in Federal student aid Tighe told the Committee that OIG would comment on programs within a specified number of days (failure to the final rules and monitor their implementation. Investigations School and School Officials illinois - former owner of the cannella school of Hair design Pled guilty and Agreed to $4.9 Arizona - grand canyon university Agrees to million settlement $5.2 million settlement The former owner and operator of the Cannella In August, Grand Canyon University officials School of Hair Design pled guilty to charges related agreed to pay $5.2 million to settle a False to student financial aid fraud. Further, together Claims Act case brought on behalf of the with his wife, the former owner signed a settlement Government by a former University employee agreeing to repay more than $4.9 million that they turned whistleblower charging that the school obtained as a result of the fraud and debarring the had violated the HEA’s ban on incentive two from receiving future Government contracts. compensation. According to the whistleblower, These actions are a result of our investigation the for-profit University provided salary increases which found that the former owner enrolled to its recruiters based solely on the number of students who did not have the required high students the recruiters enrolled. school diploma or GED by paying Ability-to-Benefit (ATB) administrators to falsify ATB results in order to increase enrollment and the amount of Federal student aid the school would receive. The former Office of Inspector General Semiannual Report 13 owner also instructed at least one witness to Island, was sentenced to 2 years in prison and 3 provide false information to the OIG special agents years of supervised release for theft of Federal who conducted the investigation. funds. She also agreed to forfeit her home and was ordered to pay $2 million in restitution. Our missouri - former vatterott college-Kansas investigation found that for over 7 years, the city director sentenced owner submitted and caused to be submitted The former Campus Co-Director of Vatterott fraudulently altered student aid documentation College’s Kansas City branch was sentenced to in order to obtain Pell Grants, which she used to 1 year in prison, 3 years of supervised release, make payments on personal debt, credit cards, and was ordered to pay more than $361,900 and the mortgage on her home. She directed in restitution for his role in a student financial her staff to submit financial aid documents fraud scheme. For more than a year, the former for individuals who did not attend the school, director and two other school employees and created fictitious student files, attendance assisted ineligible students to enroll in the records and grades in order to receive the aid school and apply for Federal student aid, thereby and grants to which the school was not entitled. increasing the amount of aid the school received. The conspirators fraudulently enrolled students Pennsylvania - bloomsburg university Agrees who did not have a high school diploma or to $38,000 settlement GED and instructed them to lie on their Federal In April, Bloomsburg University agreed to pay student aid applications forms to falsely indicate $38,000 to settle claims that it failed to report that they had dependants in order to obtain or return improperly disbursed Federal student additional Pell Grant funds. As a result of these aid funds. The settlement follows the 2007 fraudulent efforts, numerous ineligible students conviction of a former assistant baseball coach and students who claimed fictional dependents who engaged in the fraudulent acquisition of were enrolled which enabled the school to Federal student aid through the Federal Work receive approximately $345,000 in Federal Study program. Despite being aware of the student aid to which it was not entitled. assistant coach’s conduct, and despite the school’s Director of Financial Aid recommending new Jersey - new Jersey city university that over $30,000 be returned to the employee and Husband indicted in Department, Bloomsburg failed to either report embezzlement scheme involving nearly a the coach’s fraudulent acts or voluntarily return Half a million dollars the funds that the school improperly disbursed. A former office manager for the New Jersey City In signing the settlement, Bloomsburg agreed to University Student Government Organization effectuate an extensive series of internal policy and her husband were indicted by a grand jury changes aimed at increasing the transparency for allegedly running a scheme to steal hundreds of the Federal student aid funds it receives and of thousands of dollars from the school. ensuring that accountability for the proper use of Between 2007 and 2010, the former employee Federal student aid funding exists at all levels of allegedly issued 237 checks, many of which were the school’s administration. made payable to her husband, as well as to other individuals who participated in this scheme Pennsylvania - former financial Aid director totaling more than $424,800. of Widener university sentenced The former Financial Aid Director of Widener new york - owner of Willsey institute University was sentenced for filing false tax sentenced in multi-million dollar fraud returns by failing to claim income he earned as scheme an independent financial aid consultant. Our The owner, director, and president of the Willsey investigation found that for tax years 2004- Institute, a proprietary school located in Staten 2006, the former official provided materially 14 Office of Inspector General Semiannual Report false tax returns resulting in his failure to pay shortly after they received the aid and planned more than $109,000 in Federal income taxes. to apply for loan discharges once the school His unreported income originated from various officially closed. When the school remained student loan lenders, including Student Loan open, they attempted to conceal their activity Express, which was selected as Widener’s by making it appear as though they were Preferred Lender under the School as Lender attending classes. The other officials indicted Program while he was Widener’s Financial Aid for participating in the scheme were the Vice Director. These payments were made to his President, the Admissions Director/Registrar, private business through which he was hosting and the Fiscal Manager/Bookkeeper. As a result and providing loan seminars to lenders while of their fraudulent efforts, the officials received employed at Widener University. The former more than $65,000 in Federal student aid to Financial Aid Director was sentenced to 12 which they were not entitled. months of home detention, 3 years of supervised probation, and was ordered to pay more than Fraud Rings $109,100 in restitution. Alabama - Actions taken Against tennessee - Hd Adcock and Associates conspirators in fraud scheme at several officials indicted for fraud involving Alabama schools Hundreds of thousands of dollars One individual was sentenced, another pled The former Chief Executive Officer and Executive guilty, and two others were indicted for their Director of HD Adcock and Associates, a roles in a student aid fraud scheme involving corporation of cosmetology schools operating several colleges and universities in Alabama, at nine locations throughout the South, were including Troy State University, Regions indicted on charges related to a scheme to University, Jacksonville State University, defraud the Department of more than $464,900 and Tuskegee University, where one of the in Federal student aid. For more than 3 years, the conspirators was employed as an Admissions two allegedly created false GED or equivalent Counselor. The individuals completed proof of education to enroll ineligible students fraudulent Federal student aid application into the school and thereby increase the amount forms for individuals they knew never intended of Federal student aid the school received. They to attend the institutions, claiming that these also allegedly falsified student attendance records individuals had high school diplomas or GEDs. and failed to disclose when students had stopped Based on this fraudulent information, Federal attending the school in order to retain unearned student aid checks were issued, which the Federal student aid. Their alleged efforts allowed conspirators would deposit into their personal more than $464,900 in Federal student aid to be bank accounts. As a result of their fraudulent disbursed to the corporation for individuals that efforts, the Department awarded more than were not entitled to receive them. $200,000 in Federal student aid. The former Tuskegee University employee was the first of Washington state - three crown college the conspirators to be sentenced, receiving 3 officials indicted, Another convicted for years of probation and ordered to pay more than Roles in federal student Aid fraud scheme $122,000 in restitution. The Financial Aid Director at Crown College, a now-defunct for-profit school, pled guilty for her role in a scheme where she and three other school officials falsely represented themselves and others as students in order to apply for and receive Federal financial aid. They allegedly did so believing that the College would be closed Office of Inspector General Semiannual Report 15 Arizona - All Participants in massive fraud ringleader met with the straw students at a bank, scheme at Rio salado college sentenced cashed the checks, and gave a percentage of In previous Semiannual Reports to Congress, the proceeds to the scheme participants. As a we reported that 64 individuals had been result of these fraudulent efforts, the individuals indicted for their roles in a $538,000 student received more than $200,000 in Federal student aid fraud scheme at Rio Salado College. As aid to which they were not entitled. of September 1, all participants have been sentenced, including the ringleader. Our colorado - two individuals sentenced for investigation found that the ringleader recruited Roles in fraud scheme at metropolitan state individuals to act as “straw students” at the school college in order to apply for and receive Federal financial Two individuals were sentenced for their roles aid. The ringleader completed and submitted in a fraud scheme at Metropolitan State College, admission forms, financial aid applications, where the mother of one of the individuals was and supporting documentation of those straw employed in the school’s Office of Financial Aid. students containing forged documents and She was also a co-conspirator in the scheme. false statements. She then assumed the identity The two individuals and others acquired personal of those individuals to access Rio Salado’s on- identifying information from family members line classes in order to generate records of the and others in order to apply for and receive individuals’ participation in on-line classes, which Federal student aid. None of the individuals caused Rio Salado school officials to authorize were actually attending the school and none financial aid payments to those individuals. had even applied. Most of these individuals, but When the straw students received the financial not all, willingly participated in the scam. The aid checks, they kicked back a significant portion conspirators filled out fraudulent student aid of the proceeds to the ringleader. The ringleader forms using those identities as well as their own, was sentenced to 41 months in prison and was and had the checks sent either to themselves ordered to pay more than $581,000 in restitution. or directly to the Office of Financial Aid where they were retrieved. The proceeds of the checks california - Actions taken Against were divided between the conspirators, and Participants in fraud scheme at los Rios on occasion, the person in whose name the community college district application was made. As a result of these Six individuals were indicted, two of whom pled fraudulent efforts, the conspirators received guilty for their roles in a $200,000 fraud scheme more than $130,000 in Federal student aid. The at the Los Rios Community College District, two individuals were sentenced to a period an accredited higher education district with of home detention, 5 years of probation, and campuses that include American River College, were each ordered to pay more than $62,000 in Cosumnes River College, and Sacramento restitution. City College. The scheme’s alleged ringleader orchestrated a scam in which individuals with Contractors no intention of attending any of the Los Rios schools applied for admission in order to receive colorado - former debt collector sentenced Federal student aid. The ringleader also allegedly A former employee of NCO Financial Systems, obtained stolen identity information of other Inc., a debt collection agency, was sentenced for individuals for the purpose of applying for fraudulently consolidating student loans while additional Federal student aid. The ringleader employed by NCO. Our investigation found completed all paperwork and enrollment that the former debt collector forged a number necessary to obtain the Federal student aid and of student borrowers’ signatures on Direct had the funds sent to addresses she controlled. Loan consolidation promissory notes without When the student aid checks came in, the the borrowers’ knowledge or permission. The 16 Office of Inspector General Semiannual Report company received a collection fee from the Other Individuals Department for the consolidations, and the former debt collector earned a bonus from NCO Alaska - Woman sentenced for three for working the accounts. The former employee quarters of a million dollars fraud scheme was sentenced to 10 months of home detention, A former Miss Anchorage, Truman Scholar, and 3 years of supervised release, and was ordered to Rhodes Scholar was sentenced to 57 months in pay more than $64,700 in restitution. prison, 3 years of probation, and was ordered to pay more than $745,000 in restitution for charges Unlawful Access to NSLDS related to her multi-year student aid fraud scheme. The scheme involved using two social security iowa - Actions taken Against former numbers (SSNs) she was assigned to apply for contractors for unlawfully Accessing data and receive Federal and private student aid. In system to obtain information on President 2003, the woman applied for and received an SSN obama through a special program for victims of domestic Seven former FSA Call Center employees pled violence and harassment. Individuals who receive guilty, another was sentenced, and another new SSNs under this program are advised to was convicted and now awaits sentencing stop using their previous SSNs. Yet despite this for unlawfully accessing the National Student regulation, the woman did not inform her student Loan Data System (NSLDS). The contractors loan lenders of her name and SSN change and were employees of Vangent, Inc., a contractor continued to obtain loans under both names, responsible for maintaining a call center for misrepresenting to the lenders that the individuals student borrowers and for the debt collection of were two different people, and using one name student loans. The former employees, who were to cosign a loan applied for in the other name. located in Vangent’s Iowa City office, exceeded She then used those funds for non-educational their authorized access into NSLDS when they purposes, which included investing in a Citigroup/ used their accounts to look up the personal Smith Barney Investment Account based in Hong information of President Barrack Obama and/or Kong and investing in a for-profit business. First Lady Michelle Obama without a legitimate business need or appropriate authority. The first new york - former mayoral candidate of the former contractors to be sentenced was sentenced � ordered to perform 250 hours of community A former New York City Mayoral candidate service and was assessed $25. was sentenced to 4 years of probation, 300 hours of community service, and a $100 texas - former baylor university employee assessment for Federal student aid fraud. The sentenced investigation found that between 2008 and A former employee in Baylor University’s Office 2009, the former candidate submitted fraudulent of Student Financial Services was sentenced to student aid application forms in order to obtain 2 years of probation, 200 hours of community approximately $41,000 in student loans to which service, and was ordered to pay a $250 fine he was not entitled. for unlawfully accessing NSLDS. The woman exceeded the authorized use of her Baylor-issued new york - longtime fugitive sentenced for NSLDS identification by using it at her part- Role in multi-million fraud scheme time job at the Brazos Higher Education Service A former town official who had been a fugitive Corporation. for 11 years was sentenced to 27 months in prison for his participation in a long-running fraud scheme involving more than $11 million in Federal education funds. The former official was arrested in London, then extradited, arraigned, Office of Inspector General Semiannual Report 17 and ordered to prison last year after being a Washington, d.c. - Professor and Policy fugitive since 1997, when he and six others Advisor sentenced for multiple frauds were charged with participating in a massive An assistant professor at Williams College, who conspiracy to defraud the Department and was also a visiting researcher at Yale Law School other government agencies. The conspirators and senior policy fellow for a member of the U.S. created entities to fraudulently receive Federal House of Representatives, was sentenced for and State funds. One of their schemes involved student aid fraud, bank fraud, and social security the creation of a fictitious postsecondary fraud involving three quarters of a million dollars. institution called the Toldos Yakof Yosef for the Our investigation found that the professor used purpose of collecting Pell Grants. Five of the multiple false names and social security numbers conspirators were sentenced to prison and one to obtain both Federal and private student loans last conspirator remains a fugitive. totaling more than $294,000, and obtained more than 90 credit cards using the same fraudulent identities to make purchases of more than $500,000. The former policy fellow was sentenced to 50 months in prison, 60 months of supervised release, and was ordered to pay more than $759,600 in restitution. OTHER ACTIVITIES Participation on Committees, Work Groups, Review of Legislation, Regulations, Directives, and Task Forces and Memoranda n Departmental Groups n Provided technical assistance on Department’s proposals for the 2009-2010 ♦ OIG-FSA Risk Project - OIG staff work with HEA Negotiated Rulemaking session. FSA staff to identify risks and reduce fraud and abuse in Federal student aid programs. 18 Office of Inspector General Semiannual Report Elementary, Secondary, and Adult Education Programs With the significant increase in education funding that the States, SEAs, and LEAs are receiving through the Recovery Act and the Education Jobs Fund in addition to their annual allotments, effective accountability in how these entities expend all Federal education funds they receive is vital. Work we conducted over the last 6 months shows that accountability is still an issue for the entities we reviewed. Summaries of our findings are provided below, along with information on our more significant investigations involving Federal elementary, secondary and postsecondary education program funds. Elementary and Secondary Education grantees and subrecipients local educational Agencies Philadelphia school district should be state educational Agencies designated as a High-Risk grantee georgia department of education’s controls In January 2010, we issued an audit of the over Performance data entered in ed facts Philadelphia School District (PSD) which found that This audit determined that neither the Georgia it did not have adequate fiscal controls in place to Department of Education (GADOE) nor the account for Federal education grant funds, as we Clayton County Public School District (Clayton) identified more than $17 million in unallowable had sufficient internal controls in place to ensure costs and more than $121 million in inadequately that they had provided accurate information into documented costs. We also reported PSD’s EDFacts. As a result, GADOE and Clayton reported noncompliance with laws, regulations, and other inaccurate or unsupported data on dropout rates, guidance. Subsequently, during this reporting graduation rates, and discipline incidents. Without period, we issued an alert memorandum to the sufficient controls to ensure the accuracy of data, Department strongly suggesting that it work GADOE and the Department could be making with the Pennsylvania Department of Education planning, policy, and management decisions to designate PSD as a high-risk grantee. We based on inaccurate or unreliable data. To address made this recommendation based on: (1) the the weaknesses identified in our report, we made significance of the findings in our audit report; a number of recommendations, including that (2) the fact that other recent reviews conducted the Department require GADOE to establish and by the State and GAO found the same or similar implement systems of internal control to ensure problems; and (3) the fact that we saw no evidence that LEAs identify and report accurate data. that PSD had developed any new policies and GADOE did not concur with all of our findings or procedures to address weaknesses identified in recommendations. these reports. Furthermore, it is estimated that PSD will receive more than $331 million in education- related Recovery Act funds. Designating PSD as a high-risk grantee will help provide reasonable assurance that these Recovery Act funds, as well as other Federal funds, are safeguarded and used only for reasonable, allowable, and adequately documented purposes. The Department generally concurred with our recommendations. Office of Inspector General Semiannual Report 19 Adult Education Arkansas’ Adult education and family literacy regulations, and guidance. As a result, neither the Act Program State nor the Department was assured that the We determined that the Arkansas Department of providers met the requirements of the grant. Career Education (ADCE) did not adequately monitor the performance of providers receiving Federal adult Our recommendations included that the Department education funds and did not ensure that Federal adult require ADCE to enhance its monitoring process to education funds were awarded in compliance with assure that providers meet the required benchmarks the Adult Education and Family Literacy Act (AEFLA) for before being awarded new grants and that ADCE the time period reviewed. According to the AEFLA, to take appropriate actions if providers do not meet the be considered an eligible provider, a literacy council’s required benchmarks. We also recommended that program must show demonstrated effectiveness. ADCE return to the Department more than $13,000 Despite this, ADCE awarded seven literacy councils in unallowable costs identified through our audit and new grants even though these grant recipients did provide adequate documentation to support more not meet the definition of effectiveness during the than $508,000 in inadequately documented costs previous grant period. In addition, ADCE did not or return the inadequately documented amount to ensure that more than $521,000 in adult education the Department. ADCE did not agree with all of our funds was expended in accordance with the AEFLA, findings or recommendations. Investigations Schools and School Officials 2008, the former dean and a co-conspirator used a company known as the National Center on Public illinois - triumphant charter school Principal Education and Prevention (NCPEp) to embezzle sentenced and to launder more than $1.6 million in Federal The former principal of the Triumphant Charter funds belonging to the University of Rhode School in Chicago was sentenced for theft Island, Congressional earmark funds directed to involving Federal funds. Our investigation found the University of Louisville, and additional funds that the former principal used her school’s designated for the Illinois Rock Island County American Express card for personal use, including Council on Addiction. The two accomplished their almost $30,000 in charges for items at stores scheme by claiming payment for work performed such as Louis Vuitton and Coach, jewelry, diet by NCPEp when no actual services were provided. pills, and hair care and cosmetics. She then paid As a result of their fraudulent efforts, more than $2 the credit card bill with money received from million in funds were deposited into bank accounts the Department, the State, and Chicago Public in the name of NCPEp that were controlled by Schools. The former principal was sentenced the two conspirators. The former dean was also to 3 years of probation, and was ordered to pay charged with tax evasion for using NCPEp to more than $48,300 in restitution. conceal income from the Internal Revenue Service. In addition to the prison sentence, the former dean Kentucky - former university of louisville was also ordered to pay more than $2.2 million in dean sentenced to Prison and ordered to Pay restitution. more than $2 million in Restitution A former University of Louisville Dean was louisiana - former charter school business sentenced to 63 months in prison for embezzling manager sentenced more than $2 million in Federal education funds. The former business manager of the Langston Our investigation found that between 2001 and Hughes Academy Charter School in New Orleans was sentenced to 60 months in prison, 3 years of 20 Office of Inspector General Semiannual Report supervised release, and was ordered to pay more n former Wilkes-barre Area school district than $673,000 for theft from an organization board member sentenced The former receiving Federal funds. Our investigation board member was sentenced as a result determined that over the course of a 14-month of the investigation which found that period, the former business manager embezzled he accepted a $5,000 payment from an more than a half a million dollars from the school individual seeking to be hired as a teacher by making unauthorized cash withdrawals in the District. The former official was from the school’s bank account. In an effort to sentenced to 5 months home detention, 2 conceal the theft, the former business manager years of probation, 75 hours of community manipulated the school’s records by making the service, and was ordered to pay a $10,000 withdrawals appear to be payments to vendors fine. for items such as textbooks. n Wilkes-barre Area school district ohio - settlement Agreements totaling more contractor sentenced The president of than $308,000 Reached with minister local King Paint and Glass Company, a Wilkes- school district and its former treasurer Barre Area School District contractor, was The Minister Local School District and its former sentenced to 5 months in prison, 2 years of treasurer entered into settlement agreements supervised release, and was ordered to pay with the U.S. Department of Justice to settle a $10,000 fine for providing and installing claims that the District and the former treasurer free carpet in the home of a district board violated the False Claims Act. The settlements are member as a reward for the board member’s a result of our investigation which found that the support in awarding his company a District District’s former superintendent and the former contract. treasurer devised a scheme to create a charter school within the District in order for the District n former valley forge christian college to apply for and receive Federal and State charter director of information technology school funds that the District would otherwise sentenced The former director was not have been eligible to receive. The charter sentenced for leading school purchasing school existed in name only and there were no officials to believe that the price of the alternative facilities, instructors, or curriculum technology-related equipment provided by for the students. The funds that the District a vendor was fair and reasonable when the received were spent on capital projects items price of the equipment had been inflated so that benefitted the District, including lighting the vendor could pay kickbacks to the former upgrades, installation of ceiling fans, cameras, and director. The former director was sentenced computer equipment. Through the settlements, to 6 months of home confinement, 2 years the District agreed to pay more than $297,900, of probation, and was ordered to pay more and the former treasurer agreed to pay $11,000. than $27,200 in restitution. Pennsylvania - Public corruption investigative effort yielding Results OIG, the Federal Bureau of Investigation, the Internal Revenue Service, and a team of Federal prosecutors are working together to fight public corruption in northeastern Pennsylvania. During this reporting period, three individuals were sentenced for their roles in separate corruption schemes involving Federal education funds: Office of Inspector General Semiannual Report 21 Other Individuals revealed that the man used a New York City Department of Education bank account number new york - man sentenced for fraud involving that caused more than $600,000 in payments to new york department of education funds be made to several of his credit card accounts During this reporting period, a man was and other vendors. The man, who was not an sentenced to serve approximately 1 year in employee of the NYDOE, not only used the prison, 2 years of supervised release, and was account to make payments on his own bills but ordered to pay $275,000 in restitution for shared the account number with friends who bank fraud involving New York Department of used the account number to make payments Education (NYDOE) funds. Our investigation and withdraw funds from the account. OTHER ACTIVITIES Participation on Committees, Work Groups, Review of Legislation, Regulations, Directives, and Task Forces and Memoranda n Federal and State Audit-Related Groups n ESEA Reauthorization – We made and Entities suggestions regarding Investing in Innovation (Title VI, Part B), Academic ♦ Association of Government Accountants Excellence in Core Subjects (Title IV), and (AGA) Intergovernmental Partnership for Migrant Education (Title I, § 2203(b)). Management and Accountability - OIG staff participate in this partnership that works to open lines of communication among Federal, State, and local governmental organizations with the goal of improving performance and accountability. 22 Office of Inspector General Semiannual Report Internal Departmental Operations OIG conducts annual reviews of the Department’s IT security and management, as well as other reviews of Departmental operations. These 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; and that it is effectively, efficiently, and fairly using the taxpayer dollars with which it has been entrusted. Below you will find summaries of the reports we issued over the last 6 months involving IT security and management and the Department’s management of other programs. You will also find the results of the quality control reviews of single audits of Department grantees that we conducted during this reporting period. Information Technology Security and management During this reporting period, we completed two its current methodology to better identify audits and two special projects related to the suspicious activity that indicated unauthorized Department’s IT security and management. Because access into privileged accounts. of the sensitive nature of these efforts, for security purposes and to maintain the integrity of the bypassing of Web content filtering Department’s critical data structures, we discuss only The Department provides employees with the general/public aspects of our work and findings. appropriate Internet access to facilitate their work. Through web content filtering, the Weaknesses in the Process for Handling Department blocks employees’ access to certain compromised Privileged Accounts sites, such as personal email, social networking We conducted an investigative project to sites, and blogs. The Department’s Security determine whether compromised privileged Policy Handbook outlines its policies related accounts were used by unauthorized individuals to the use of the Internet by Department and to evaluate the Department’s process for employees. During this reporting period, we handling such accounts. Privileged account conducted a special assignment that found users can access, view, enter, or modify more that multiple users throughout the Department than just the account owner’s personal data. We had circumvented web filtering, predominantly found that FSA did not identify all individuals to access email and social networking sites. whose data were potentially compromised; We made several recommendations for the that the Department and FSA failed to conduct Department to address this situation, including adequate log reviews of compromised privileged that it educate users that bypassing web filtering accounts to identify unauthorized activity; that is a violation of Department policy that can FSA kept inadequate records of its remediation expose the user and the Department to risks. efforts for compromised privileged accounts; and that two-factor authentication had not yet security controls for data Protection over been required for remote access to Department the virtual data center and FSA systems. To ensure that compromised We performed a review of Security Controls for privileged accounts are properly identified Data Protection over the Virtual Data Center and analyzed to prevent unauthorized access (VDC) to determine whether the Department to Department systems, we made a number and FSA had effective IT security controls. The of recommendations, including that the VDC serves as the host facility for FSA systems Department identify all potentially compromised that process student financial aid applications personally identifiable information and revise (grants, loans, and work-study), provide schools Office of Inspector General Semiannual Report 23 and lenders with eligibility determinations, Application controls over the department’s and support payments from and repayment financial management system to lenders. We found that FSA had adequate Our review determined that the Department had operational controls in place for the VDC over effective internal controls over the confidentiality, maintenance and personnel security and had integrity, and availability of data and the overall adequate safeguards in place over physical and management of the IT function for its Financial environmental controls. However, we found that Management System (FMS), which provides FSA did not have adequate operational controls consolidated data to support key management in place over configuration management, analysis and is the only source within the system and information integrity, contingency Department to obtain a comprehensive financial planning, media protection, and awareness and picture of an institution across all FSA programs. training. In addition, we determined that FSA However, in reviewing selected IT security needed to improve technical safeguards over safeguards, we found that FSA did not have access controls, systems and communications adequate controls in place over the security protection, identification and authentication, awareness and training and personnel security and audit and accountability. Without adequate clearances for FMS users and lacked proper operational and technical security controls in procedures to verify clearances for external FMS place, the Department’s systems and information users. The lack of adequate controls over training are vulnerable to attacks that could lead to and clearances potentially left FMS data vulnerable a loss of confidentiality due to unauthorized to malicious or inexperienced users with unverified access to data and to a possible loss of integrity access and inadequate training. We also found through data modification or limited availability that FSA did not ensure adequate physical and from unauthorized access and excessive use environmental controls at a contractor facility. of system resources. Also, there is increased Although FSA took action to address this issue with risk that unauthorized activities may occur that the contractor, its prior inaction left Department reduce the reliability of Department systems assets vulnerable to loss and injury. Based on our and data being maintained by the VDC. FSA findings, we made a number of recommendations, concurred with the majority of our findings including that FSA ensure that procedures are in and the recommendations we made to address place to verify all users granted FMS responsibilities weaknesses identified. have an approved security level that is at or above the FMS responsibilities to which they are assigned. FSA agreed with a majority of our findings and recommendations. contract reviews desktop services Pricing under the educAte services costs; or resolved potential weaknesses contract identified in the contractor’s proposed pricing for While responding to allegations regarding the desktop services. As a result, the Department may be Department’s management of the EDUCATE paying the EDUCATE contractor unreasonable prices contract, we became aware that the Department for desktop services. We shared these findings with may not have effectively assessed the reasonableness the Department and recommended that it review of the EDUCATE contractor’s proposed prices the estimated costs for desktop services over the for desktop services over the life of the contract. remaining life of the EDUCATE contract and consider Specifically, the Department may not have effectively re-negotiating pricing for the services before the validated aspects of the Independent Government next option year of the contract is exercised. The Cost Estimate pertaining to desktop services prices; Department concurred with our recommendations. performed market research regarding desktop 24 Office of Inspector General Semiannual Report implementation of the managed security the Department had terminated the initial contract services Provider contract because of contractor performance problems and that While reviewing the Department’s corrective the subsequent contractor had been unable to provide actions in response to a 2007 OIG report related to the level of service required by the contract. As a result, a Department IT system, we became aware that the the Department paid for services it had not received Department had not effectively implemented the and had not ensured that its IT network is adequately Managed Security Services Provider (MSSP) contract. protected. Based on our findings, we made several The MSSP provides system security functions for the recommendations, including that the Department agency’s network and information systems, including formally review and evaluate alternatives for obtaining monitoring and management of intrusion detection MSSP services and proceed with a solution that systems and firewalls, overseeing patch management best serves the interests of the Department in a and upgrades, performing security assessments, cost-effective manner. The Department generally and responding to emergencies. We found that concurred with our findings and recommendations. Other Internal reports controls over the department’s transit benefits transit benefits applications were valid and accurate. Program In addition, the Department failed to maintain Our audit found that controls over the Department’s adequate records over excess funds collected from transit benefits program were inadequate. employees withdrawing from the program and Specifically, the Department’s controls did not did not ensure that the data maintained in the ensure that only current employees received transit transit benefits database were accurate. As the benefits, that employees were not participating Department relies on these data to manage its transit simultaneously in the transit benefits and subsidized benefits program and to identify employee program parking programs, and that employees on extended participants, inaccurate data can compromise the leave had adjusted their benefits. As a result, the integrity of the program. To correct the weaknesses Department paid more than $118,900 in benefits identified, we made a number of recommendations, to individuals who were not entitled to them. including that the Department review the transit We also identified a need for the Department to benefits database to ensure only current Department improve controls over the application, withdrawal, employees are included and immediately remove and recordkeeping processes, and that it did not former employees. The Department concurred with always perform verifications to ensure that data on most of our findings and recommendations. Non-federal Audits quality control Reviews government with assurance that recipients of Federal The Single Audit Act of 1984, as amended, requires funds comply with laws, regulations, and other entities, such as State and local governments, requirements that are material to Federal awards. To universities, and non-profit organizations that help assess the quality of the thousands of single expend $500,000 or more in Federal funds in one audits performed each year, OIG conducts quality year to obtain an audit, referred to as a “single control reviews (QCRs) of a sample of audits. During audit.” Additionally, for-profit institutions and their this reporting period, we completed 43 QCRs of audits servicers that participate in the Federal student aid conducted by 38 different IPAs, or offices of firms with programs and for-profit lenders and their servicers multiple offices. We concluded that 16 (37 percent) that participate in the FFELP are required to undergo were acceptable or acceptable with minor issues, annual audits performed by independent public 20 (47 percent) were technically deficient, and 7 (16 accountants (IPAs) in accordance with audit guides percent) were substandard. issued by the OIG. These audits provide the Federal Office of Inspector General Semiannual Report 25 Noteworthy OIG Efforts cARoi guide government programs and operations and to fight In May, the Association of Government Accountants’ waste, fraud, and abuse of taxpayer dollars. CIGIE (AGA) Partnership for Intergovernmental Management bestows a limited number of awards each year, and we and Accountability issued a guide geared to provide were honored to have five of our efforts highlighted: government officials with a concrete tool to improve programs and to deal with fiscal and programmatic n Award for excellence for Audit - oig cash challenges entitled “Guide to Improving Program management Audit team. The team identified Performance and Accountability Through Cooperative critical cash management issues in California, Audit Resolution and Oversight.” The guide is based including management of Recovery Act funds on OIG’s Cooperative Audit Resolution and Oversight and heightened awareness of these issues in the Initiative (CAROI)—the collaborative method that education and audit communities nationwide; provides alternative and creative approaches to resolve audit findings and their underlying causes. n Award for excellence for investigation - Created by OIG in the 1990s, CAROI is designed to Puerto Rico international identity theft avoid costly litigation, lengthy adversarial discussion trafficking team. The team’s investigative and nonproductive impasses, as well as to make efforts led to prosecution of multi-national permanent corrective action the norm. The CAROI fraud ring members whose crimes included process promotes continuous dialogue, innovative stealing identity-related documents of solutions, horizontal lines of communication, and a children, teachers, and administrators from 50 fundamental commitment to serving education’s schools in Puerto Rico; ultimate customer -- the learner. The AGA worked closely with OIG staff and other government officials n Award for excellence for multiple in developing the guide. disciplines - community integrated service Program Public corruption team. The national state Auditors Association Honors oig team’s investigative and audit work led to the director prosecution of 10 Puerto Rico Department of In June, the National State Auditors Association Education public officials and family members adopted a resolution honoring Hugh Monaghan, for committing fraud involving nearly $500,000 Director of OIG’s Non-Federal Audit Team, who passed in Federal and State funds; away earlier this year. The resolution honored Hugh for his noteworthy Federal career, lifetime of service n Award for excellence for multiple to improve non-Federal audit oversight, and his disciplines - u.s. department of education overall contributions to the profession of government office of inspector general Recovery Act auditing. Stating that Hugh was “a stalwart supporter team - This award recognized the many and friend of the members of the Association,” they members of the OIG staff involved in planning noted how generously he shared his knowledge with and implementing an OIG-wide strategy to all members of his profession, and said he would be improve the effectiveness and efficiency of the much missed by the State audit community. administration of the Recovery Act; and cigie Award Winners n barry J. snyder Award – This award recognized The Council of Inspectors General for Integrity and a group of OIG staffers from around the IG Efficiency (CIGIE) selected four OIG project teams and community, including our Training Coordinator, honored another OIG employee who was part of an for their outstanding cooperative efforts in IG community-wide training team with 2010 Awards developing and executing Introductory Auditor for Excellence. The CIGIE awards acknowledge the Training for the IG community. contributions of Inspectors General to improve Federal 26 Office of Inspector General Semiannual Report OTHER ACTIVITIES Participation on Committees, Working Groups, and Task Forces n Departmental Groups OIG staff also led the work group that updated the Inspector General Criminal ♦ Department of Education Senior Investigator Academy undercover Assessment Team - OIG staff participates operations training curriculum. in an advisory capacity on this team, which provides oversight of the n OMB Department’s assessment and reports on internal controls and provides input ♦ Interagency Task Force on Reporting to the Senior Management Council Fraud, False Claims, and Significant concerning the overall assessment of Overpayments - OIG staff participate Department’s internal control structure, on this task force that is analyzing and as required by the Federal Managers’ will make recommendations related to Financial Integrity Act of 1982, and a proposal to mandate the reporting OMB Circular A-123, Management’s of fraud, false claims, and significant Responsibility for Internal Control. overpayments by grantees be included in Federal regulations. n Inspector General Community n Federal and State Audit-related Groups ♦ CIGIE - OIG staff play an active role in and Entities CIGIE efforts. Inspector General Tighe is a member of CIGIE’s Audit Committee, ♦ Chief Financial Officers Council Federal Investigations Committee, Information Reporting Model Work Group - OIG Technology Committee, and also the staff participate on this work group, Interagency Coordination Group for which focuses on developing and Guam Realignment. In addition, IG implementing revisions to the Federal Tighe is a member of the Suspension financial reporting model in order to and Debarment Working Group, which better deliver financial information is a Subcommittee of the Investigations needed by taxpayers and decision Committee. OIG staff also chair the AIGI makers. Investigations Subcommittee, the IT Subcommittee for Investigations, the ♦ Comptroller General’s Advisory Council Audit Committee’s Financial Statement on Government Auditing Standards - Audit Network Work Group, and CIGIE’s OIG staff serve on this Council, which Federal Audit Executive Council’s (FAEC) provides advice and guidance to the Professional Development Committee. Comptroller General on government Staff also participate on the FAEC auditing standards. Financial Statement Audit Committee, the Financial Audit Manual Revisions Workgroup, and the CIGIE Council of Counsels to the Inspector General. Office of Inspector General Semiannual Report 27 OTHER ACTIVITIES (continued) ♦ DOD-OIG Financial Statement Audit Reviews of Legislation, Regulations, Directives, Advisory Committee - OIG staff participate and Memorandum on this Committee, which makes recommendations to help resolve n Legislative Measures accounting and auditing issues related to the U.S. Department of Defense OIG’s ♦ Draft Legislation Pertaining to Honest (DoD-OIG) financial reporting and the Services Fraud by Public Official - We financial statement audit, the system recommended that “public official” be of internal controls, and compliance defined to include anyone acting at the with laws and regulations that could direction of the public official or on the have a material effect on the DoD-OIG’s public official’s behalf as there could financial statements. be situations where public officials use others to hide their actions. ♦ Intergovernmental Audit Forums - OIG staff chair and serve as officers of a number of ♦ S. 372, Whistleblower Protection intergovernmental audit forums, which Enhancement Act of 2009 - We provided bring together Federal, State, and local comments regarding the Act’s government audit executives who work requirement that each Inspector General together to improve audit education designate a Whistleblower Protection and training and exchange information Ombudsman to advocate for the interests and ideas regarding the full range of agency employees or applicants of professional activities undertaken who make protected disclosures. We by government audit officials. OIG commented that IGs are required to staff chair the Midwestern Forum, the be neutral under the Inspector General Southeastern Forum, and serve as an Act, and thus should not advocate for officers on the Southwestern Forum and any individual’s interest, and also that an the New Jersey-New York Forum. Ombudsman is not needed because IGs already provide outreach and information ♦ Interagency Working Group for on whistleblower protection. Certification and Accreditation - OIG participates on this working group, ♦ H.R. 5815, Testimonial Subpoena Authority- which exchanges information relating to We commented that testimonial Federal forensic science programs that subpoena authority could be a useful share intergovernmental responsibilities tool, particularly in audits or investigations to support the mission of the National of third parties, such as contractors or Science and Technology Council’s grantees. We further commented that Subcommittee on Forensic Science. the U.S. Department of Justice’s (DOJ) concern about OIGs’use of testimonial subpoenas potentially compromising 28 Office of Inspector General Semiannual Report OTHER ACTIVITIES (continued) cases was addressed by the requirement ♦ Recommended Practices for OIG Hotlines that DOJ approve each use of the Report - We provided comments subpoena authority before it is exercised. regarding definitions of whistleblower and whistleblower reprisal and the ♦ S. 3480, Protecting Cyberspace as a National importance of maintaining the Asset Act of 2010 - We commented confidentiality of those who contact that the requirement that agency OIG Hotlines. heads and inspectors general provide all information relevant to national ♦ Guidelines on Undercover Operations - Our information security to the Director of AIG-I incorporated comments, responded US-Computer Emergency Readiness to questions, and assisted the CIGIE Team upon request did not address Investigations Committee in getting these grand jury secrecy requirements under Guidelines published in July 2010. the Federal Rules of Criminal Procedure. n Office of Management and Budget n CIGIE ♦ Directive on Enhancing Payment Accuracy ♦ Suspension and Debarment Working Group through a ‘Do Not Pay List’ - We made Draft Survey - We reviewed and approved suggestions that language be included a survey about use of suspensions and in the directive and related guidance debarments by agencies and OIGs’ role in that addresses the type of payee promoting suspension and debarment receiving the payment, provides agency as a remedy. flexibility regarding database checks, and takes into account conditions ♦ Procedures to Obtain Assistance from under which the results of the database another OIG in the Execution of Search check could have no impact on the and Arrest Warrants - We commented recipient’s eligibility for a payment. that the duration of the assistance provided by one IG to another must n Department be agreed upon by both IGs and that it generally should not exceed 5 days, ♦ Electronically Stored Information (ESI) and that a request for assistance must Policy Team Charter - We commented contain the draft operational plan. An on the Department’s Email Extender, earlier comment we made about the which indexes every employee’s e-mail applicability of the procedures was immediately when it is sent or received. addressed by CIGIE clarifying that they only apply to search and arrest warrants. Office of Inspector General Semiannual Report 29 Annexes Annex A - contract-Related Audit Products with significant findings The following is provided in accordance with Section 845 of the , which requires each Inspector General to include information in its Semiannual Reports to Congress on final contract-related audit reports that contain significant findings. OIG issued two such reports over the last 6 months. Report number: ED-OIG/L19K0004 date issued: 6/1/2010 subject: Desktop Services Pricing Under the EDUCATE Contract finding: The Department may not have effectively assessed the reasonableness of the EDUCATE contractor’s proposed prices for desktop services over the life of the contract. Specifically, the Department may not have effectively validated aspects of the Independent Government Cost Estimate pertaining to desktop services prices; performed market research regarding desktop services costs; and resolved potential weaknesses identified in the contractor’s proposed pricing for desktop services. As a result, the Department may be paying the EDUCATE contractor unreasonable prices for desktop services. We did not specifically identify any unsupported, questioned, or disallowed costs. Report number: ED-OIG/L19K0011 date issued: 9/24/2010 subject: Implementation of the Managed Security Services Provider Contract finding: The Department had not effectively implemented the Managed Security Services Provider contract. We found that the Department had terminated the initial contract because of contractor performance problems and that the subsequent contractor had been unable to provide the level of service required by the contract. As a result, the Department paid for services it had not received and had not ensured that its IT network is adequately protected. We did not specifically identify any unsupported, questioned, or disallowed costs. Annex b- Peer Review Results Title IX, Subtitle I, Sec. 989C of the (Public Law No. 111-203) requires the Inspectors General to disclose the results of their peer reviews in their Semiannual Reports to Congress. No peer reviews were conducted during this reporting period. Our last peer reviews were conducted in February 2008 on our investigative processes and July 2009 for our audit processes. The recommendations offered in our investigations peer review have all been implemented. No recommendations were offered in the peer review of our audit processes. 30 Office of Inspector General Semiannual Report Required Tables Reporting Requirements of the inspector general Act, as amended section Requirement (Table Title) table number 5(a)(1) and 5(a)(2) Significant Problems, Abuses, and Deficiencies N/A 5(a)(3) Uncompleted Corrective Actions 1 Recommendations Described in Previous Semiannual Reports to Congress on which Corrective Action Has Not Been Completed 5(a)(4) Matters Referred to Prosecutive Authorities 6 Statistical Profile FY 2010 5(a)(5) and 6(b)(2) Summary of Instances where Information N/A was Refused or Not Provided 5(a)(6) Listing of Reports 2 Audit, Inspection, and Evaluation Reports on Department Programs and Activities (April 1, 2010, through September 30, 2010) 5(a)(7) Summary of Significant Audits N/A 5(a)(8) Questioned Costs 3 Audit, Inspection, and Evaluation Reports with Questioned Costs 5(a)(9) Better Use of Funds 4 Audit, Inspection, and Evaluation Reports with Recommendations for Better Use of Funds 5(a)(10) Unresolved Reports 5-A Unresolved Reports Issued Prior to April 1, 2010 5-B Summary of Unresolved Reports Issued During the Previous Reporting Period Where Management Decision Has Not Yet Been Made 5(a)(11) Significant Revised Management Decisions N/A 5(a)(12) Significant Management Decisions with N/A which OIG Disagreed 5(a)(13) Unmet Intermediate Target Dates Established N/A by the Department Under the Federal Financial Management Improvement Act of 1996 Office of Inspector General Semiannual Report 31 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 identification of significant recommendations described in previous Semiannual Reports on which management has not completed corrective action. Report Report title date date of number of Projected number (Prior Semiannual Report issued management significant Action (SAR) Number and Page) decision Recommendations date open completed Audit RePoRts federal student Aid (fsA) A19H0008 FSA’s Performance as 12/11/2008 6/15/2009 1 3 11/30/2010 a Performance Based Organization (Report addressed to the Office of the Under Secretary (OUS)) (SAR 58, page 31) office of the chief financial officer (ocfo) A17H0003 Financial Statement Audits 11/15/2007 9/26/2008 2 3 11/30/2010 FY 2007 and FY 2006 of the Department and FSA (FSA also designated as an action official) (SAR 56, page 25) A17I0001 Financial Statement Audits 11/14/2008 5/15/2009 2 4 11/30/2010 FY 2008 and FY 2007 – of the Department (FSA also designated as an action official) (SAR 58, page 31) office of the chief information office (ocio) A04H0018 Reliability of Cost and 7/30/2009 9/18/2009 4 1 10/29/2010 Benefit Information in the Department’s IT Investment Exhibit 300s (SAR 59, page 42) A11I0006 Incident Handling and Privacy 6/10/2009 9/9/2009 4 14 11/30/2010 Act Controls over External Web Sites (SAR 59, page 42) insPection RePoRts office of Postsecondary education (oPe) I13I0001 Review of OPE’s Awarding of 9/8/2008 3/3/2009 5 1 12/31/2011 Prior Experience Points in the 2006 Educational Opportunity Centers and Talent Search Grant Competitions (SAR 57, page 27) oig Product Web site Availability Policy OIG final issued products are generally considered to be public documents accessible on OIG’s Web site unless sensitive in nature or otherwise subject to Freedom of Information Act (FOIA) exemption. Consistent with the FOIA, and to the extent practical, OIG redacts exempt information from the product so that non-exempt information contained in the product may be made available on the OIG Web site. 32 Office of Inspector General Semiannual Report table 2: Audit, inspection, evaluation, and other Reports and Products on department Programs and Activities (April 1, 2010, through september 30, 2010) 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 A02J0001 Everest Institute’s Lender 8/4/10 None2 Agreements A02J0005 National Aviation Academy – 8/19/10 12 New England’s Lender Agreements A03J0005 FSA’s Controls Over Loan Purchases 7/2/10 10 Under the ECASLA (OPE also designated as an action official) A05I0012 Baker College’s Compliance with 8/24/10 $9,790 5 Selected Provisions of the HEA and Corresponding Regulations A11J0005 System Application Controls over 9/28/10 6 the Financial Management System A11J0006 Security Controls for Data Protection 9/29/10 24 over the Virtual Data Center office of elementary and secondary education (oese) A02K0005 Use of Recovery Act Funds and 9/29/10 7 Reporting in Wisconsin (Office of Special Education and Rehabilitative Services (OSERS) also designated as an action official) A06K0001 Systems of Internal Control Over 9/29/10 8 Selected Recovery Act Funds in Louisiana (OSERS also designated as an action official) A19J0001 Department’s Implementation of 9/24/10 4 the State Fiscal Stabilization Fund Program A19K0006 Department’s Process for Screening 8/16/10 1 and Selecting Peer Reviewers for the Race to the Top Grant Program office of management (om) A19I0001 Controls Over the Department’s 6/1/10 21 Transit Benefits Program Office of Inspector General Semiannual Report 33 Report Report title date questioned unsupported number of number issued costs1 costs Recomm- endations office of Planning, evaluation, and Policy development (oPePd) A04J0003 Georgia Department of Education’s 4/7/10 9 Controls Over Performance Data Entered in EDFacts (Office of Safe and Drug Free Schools (OSDFS), OESE, and OSERS also designated as action official) office of vocational and Adult education (ovAe) A06J0001 Arkansas’ Adult Education and 5/28/10 $13,027 $570,376 7 Family Literacy Act Program otHeR RePoRts And PRoducts fsA A03K0001 Closure of Audit of the 4/30/10 None Characteristics of Loans Purchased under the Authority of the ECASLA (Audit Closure Memorandum) L02K0001 Lender Agreements between 7/9/10 22 Sallie Mae and Student Loan Xpress and Corinthian Colleges, Inc., Contained Inducements (Alert Memorandum) S18K0001 Technical Assessment Review 6/30/10 None of the Direct Loan Program’s Origination Process (Special Project – OPE also designated as an action official) X19K0008 FSA’s Efforts to Ensure the 9/16/10 None Effective Processing of Student Loans Under the Direct Loan Program (Management Information Report) ocfo F03K0014 Education Statistics Services 9/30/10 None Institute (ED-05-CO-0044) and National Assessment of Educational Progress Education Statistics Services Institute (ED-05-CO-0053) Cost Proposal (Independent Memorandum Report on Applying Agreed-Upon Procedures) L20K0003 Department Progress in 7/12/10 4 Implementing Corrective Actions for Prior Audits of Programs that Subsequently Received Funding Under the Recovery Act (Alert Memorandum – Office of the Secretary (OS)/Risk Management Service (RMS) also designated as an action official) 34 Office of Inspector General Semiannual Report Report Report title date questioned unsupported number of number issued costs1 costs Recomm- endations ocio L19K0004 Desktop Services Pricing Under 6/1/10 2 the EDUCATE Contract (Alert Memorandum - OCFO also designated as an action official) L19K0011 Implementation of the Managed 9/24/10 4 Security Services Provider Contract (Alert Memorandum – OCFO also designated as an action official) L21K0001 Bypassing of Web Content 7/20/10 2 Filtering (Investigative Program Advisory Report (IPAR) FSA also designated as an action official) L21K0002 Weaknesses in the Process 9/24/10 4 for Handling Compromised Privileged Accounts (IPAR – Addressed to the Office of the Deputy Secretary (ODS) and FSA) ods S20K0002 Recovery Act Data Quality: 9/13/10 123 Recipient Efforts to Report Reliable and Transparent Information (Special Project performed at the request of the Recovery Accountability and Transparency Board) oPe X13J0003 Review of The Higher Learning 5/24/10 None Commission of the North Central Association of Colleges and School’s Standards for Program Length (Management Information Report) oPePd L03K0004 Reporting Requirements for the 6/4/10 2 ECASLA Loan Purchase Programs Have Not Been Met (Alert Memorandum - FSA and OPE also designated as action officials) os L03K0002 Philadelphia School District 4/16/10 2 Designation as a High Risk Grantee (Alert Memorandum) X05J0019 Subrecipient Monitoring under 6/4/10 None the Recovery Act (Management Information Report) totAls: $22,817 $570,376 137 Office of Inspector General Semiannual Report 35 Description of Products Agreed - Upon Procedures Engagements are agreed-upon procedures engagements in which a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on the subject matter. Reports generated from field pricing support work are commonly referred to as “pre-awards.” Field pricing support work is performed and reported as agreed-upon procedures engagements in accordance with the American Institute of Certified Public Accountants standards. Alert Memoranda are used to communicate to the Department significant matters identified that require the attention when the identified matters are not related to the objectives of an on-going assignment or are otherwise outside the scope of the ongoing assignment. The matter may have been identified during an audit, attestation, inspection, data analysis, or other activity. Audit Closure Memoranda are used to notify the audited entity of OIG’s decision to terminate the audit without issuing an audit report. Investigative Program Advisory Reports (IPAR) – are used to report any systemic program or regulatory weaknesses, abuses, or deficiencies in the administration of Department programs or operations that are identified at any time during an investigation. Management Information Reports - are used to provide the Department with information and suggestions when a process other than an audit, attestation, or inspection is used to develop the report. For example, OIG staff may compile information from previous OIG audits and other activities to identify overarching issues related to a program or operational area and use a MIR to communicate the issues and suggested actions to the Department. Special Projects are those by which OIG staff may perform work that is not classified as an audit, attestation, inspection, or any other type of alternative product. Depending on the nature and work involved, the special project may result in a report issued outside OIG. Information presented in the special project report varies based on the reason for the special project (e.g., response to congressional inquiry, other evaluation and analysis, etc.). The report may contain suggestions. NOTE: No Inspection reports were issued during this reporting period. 1 For purposes of this table, questioned costs may include other recommended recoveries. Please see footnotes 2 and 3 under Table 3 for additional information regarding questioned and unsupported costs. During this reporting period, no OIG report was issued identifying a better use of funds (BUF). 2 A02J0001 identified no findings or recommendations, but did reference scope limitations due to the auditors not being provided all requested information. A02J0005 identified one non-monetary finding and recommendation and also referenced scope limitations due to the auditors not being provided all requested information. Concerns identified during the conduct of both auditsA02J0001 and A02J0005 were raised to FSA in alert memorandum L02K0001, issued July 9, 2010. 3 S20K0002 made 12 recommendations to be considered by the Recovery Board that are not subject to the Departmental resolution process. 36 Office of Inspector General Semiannual Report table 3: 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. number questioned2 unsupported3 costs costs A. For which no management decision has been made 53 $1,052,887,241 $446,149,929 before the commencement of the reporting period B. Which were issued during the reporting period 2 $593,193 $570,376 subtotals (A + b) 55 $1,053,480,434 $446,720,305 C. For which a management decision was made during 9 $340,803,620 $3,731,683 the reporting period (i) Dollar value of disallowed costs $338,869,633 $2,403,150 (ii) Dollar value of costs not disallowed $1,933,987 $1,328,533 D. For which no management decision was made by the 46 $712,676,814 $442,988,622 end of the 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. OIG considers that category (3) of this definition would include other recommended recoveries of funds, 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, inspection, or evaluation, were not supported by adequate documentation. table 4: 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, inspection, and evaluation 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 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 management; 0 $0 (II) Dollar value of recommendations that were not agreed to by management 0 $0 D. For which no management decision has been made by the end of the 2 $13,327,577 reporting period 1 None of the products reported in this table were performed by the Defense Contract Audit Agency and no inspection or evaluation reports identifying better use of funds were issued during this reporting period. Office of Inspector General Semiannual Report 37 table 5-A: unresolved Audit, inspection, and evaluation Reports issued Prior to April 1, 2010 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 decision had been made by the end of the reporting period. Summaries of the audit and inspection reports issued during the previous SAR period follow in Table 5-B. 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 ocfo A09I0010 Center for Civic Education’s Administration of the We 11/20/09 $5,938,537 30 the People Program and Cooperative Civic Education and Economic Education Exchange Program (OSDFS also designated as an action official) (SAR 60, page 38) Current Status: The Department tracking system (AARTS) shows that OCFO’s administrative stay was approved on 7/28/2010. oese A02J0006 New York State System of Internal Control Over 11/10/09 7 Recovery Act Funds (SAR 60, page 39) Current Status: OESE informed us that the program determination letter (PDL) is currently with OGC for review. A02J0009 New York State LEAs Systems of Internal Control Over 2/17/10 16 Recovery Act Funds (SAR 60, page 39) Current Status: OESE informed us that resolution activities continue to be in process. A03H0010 Philadelphia School District’s Controls Over Federal 1/15/10 $138,769,898 27 Expenditures (OSERS, OSDFS, and OPE also designated as action officials) (SAR 60, page 39) Current Status: OESE informed us the PDL is clearing the internal review process. AARTS shows that OESE’s administrative stay was approved by OCFO on 7/28/2010. A03J0010 Commonwealth of Pennsylvania Recovery Act Audit 3/15/10 8 of Internal Controls over Selected Funds (OSERS, OS/ RMS, and OCFO also designated as action officials) (SAR 60, page 39) Current Status: OESE informed us that resolution activities continue to be in process. A04J0004 Virgin Islands Department of Education’s Current 11/13/09 3 Efforts to Address Prior Audit Findings (SAR 60, page 39) Current Status: OESE informed us the PDL is clearing the internal review process. 38 Office of Inspector General Semiannual Report Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations A04J0010 Tennessee Recovery Act Audit Internal Controls over 12/15/09 2 Selected Funds (Recommendations were made to OESE in conjunction with OSERS) (SAR 60, page 39) Current Status: OESE informed us that resolution activities continue to be in process. A05J0011 Systems of Internal Control Over Selected Recovery 1/14/10 7 Act Funds in the State of Indiana (OSERS also designated as an action official) (SAR 60, page 40) Current Status: OESE informed us that resolution activities continue to be in process. A05J0012 Systems of Internal Control Over Selected Recovery 2/23/10 4 Act Funds in the State of Illinois (OSERS also designated as an action official) (SAR 60, page 40) Current Status: OESE informed us that resolution activities continue to be in process. A06J0013 Systems of Internal Control Over Selected Recovery 1/27/10 5 Act Funds in the State of Texas (SAR 60, page 40) Current Status: OESE informed us that resolution activities continue to be in process. A09J0004 Colorado Department of Education’s Use of Federal 2/26/10 $23,961,710 5 Funds for State Employee Personnel Costs (OSERS, OVAE, Office of English Language Acquisition, Office of Innovation and Improvement (OII), OSDFS, and National Center for Educational Statistics also designated as action officials) (SAR 60, page 40) Current Status: OESE informed us that resolution activities continue to be in process. AARTS shows that OESE’s administrative stay was approved by OCFO on 9/30/2010. A09J0006 State and Local Controls over Recovery Act Funds in 1/15/10 7 California (OCFO and OSERS also designated as action officials) (SAR 60, page 40) Current Status: OESE informed us that resolution activities continue to be in process. A19I0002 Office of Indian Education’s Management of the 2/2/10 14 Professional Development Grant Program (SAR 60, page 40) Current Status: OESE informed us that this is an internal audit being tracked by AARTS. OESE Program Team continues to update the corrective action plan. Office of Inspector General Semiannual Report 39 Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations oseRs A04J0009 Puerto Rico Recovery Act Audit, Vocational 12/14/09 11 Rehabilitation Administration (SAR 60, page 40) Current Status: OSERS informed us the PDL was issued on 6/30/2010. However, for OCFO, the other program office involved with this audit, required documentation needs to be certified through AARTS before the audit can be officially resolved. RePoRted in PRevious sARs Audit RePoRts fsA A02H0007 Technical Career Institutes, Inc.’s Administration of the 5/19/08 $6,458 13 Federal Pell Grant and FFELP (SAR 57, page 25) Current Status: FSA informed us it is currently working on this audit. A02H0008 Touro College’s Title IV HEA Programs, Institutional and 10/30/08 $36,026,364 5 Program Eligibility (SAR 58, page 31) Current Status: FSA informed us it is currently working on this audit. 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 (SAR 59, page 41) Current Status: AARTS shows that FSA’s administrative stay expired on 9/30/2010. 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 is working on resolving this audit. 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 it uploaded closure documents into AARTS on 9/23/2009 and still needs to locate additional document(s) to upload into AARTS in order for audit to be closed. 40 Office of Inspector General Semiannual Report Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations A05G0017 Capella University’s Compliance with Selected Provisions 3/7/08 $589,892 9 of the HEA and Corresponding Regulations (SAR 56, page 25) Current Status: FSA informed us that it is currently working on this audit. A05H0018 Walden University’s Compliance with Selected 1/21/09 $1,185,4731 10 Regulations and Dep’t Guidance (SAR 58, page 31) Current Status: FSA informed us that it is currently working on this audit. AARTS shows that FSA’s administrative stay was approved by OCFO on 9/30/2010. A05I0011 Special Allowance Payments to the Kentucky Higher 05/28/09 $9,018,400 4 Education Student Loan Corporation for Loans Made or Acquired with the Proceeds of Tax-Exempt Obligations (SAR 59, page 41) Current Status: AARTS shows that FSA’s administrative stay expired on 9/30/2010. A0670005 Professional Judgment at Yale University (SAR 36, page 18) 3/13/98 $5,469 3 Current Status: FSA informed us it is waiting on outcome of the Secretary’s 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 it is waiting on the Secretary’s decision on school’s appeal of this audit which pertains to a Professional Judgment finding. 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 it is waiting on the Secretary’s decision on school’s appeal of this audit which pertains to a Professional Judgment finding. A0723545 State of Missouri, Single Audit Two Years Ended June 4/1/93 $1,048,768 18 30, 1991 Current Status: FSA informed us that it continues to work on this audit. A0733123 State of Missouri, Single Audit Year Ended June 30, 1992 3/7/94 $187,530 18 Current Status: FSA informed us that it continues to work on this audit. A09I0009 TUI University’s Administration of the HEA, Title IV 08/05/09 $923,379 14 Programs (SAR 59, page 41) Current Status: FSA informed us it is currently working on this audit. AARTS shows that FSA’s administrative stay was approved by OCFO on 9/14/2010. Office of Inspector General Semiannual Report 41 Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations Inspection of Parks College’s Compliance with Student 2/9/00 $169,390 1 Financial Assistance Requirements (SAR 40, page 18) N0690010 Current Status: FSA informed us that it is working to get this resolved in AARTS and expects to have it closed by 12/31/2010. ocfo A05I0013 Southern Illinois University-Edwardsville’s Compliance 04/30/09 $931,744 15 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 as action officials) (SAR 59, page 41) Current Status: OCFO informed us that resolution activities continue to be in process. A06H0002 Review of Project GRAD USA’s Administration of Fund 7/21/08 $31,384,603 11 for the Improvement of Education Grants (OII also designated action office) (SAR 57, page 26) Current Status: AARTS shows that OCFO’s administrative stay was approved on 7/28/2010. A09H0019 Los Angeles Unified School District’s Procedures for 12/2/08 $6,302,4062 15 Calculating and Remitting Interest Earned on Federal Cash Advances (SAR 58, page 31) Current Status: AARTS shows that OCFO’s administrative stay was approved on 7/28/2010. A09H0020 California Department of Education Advances of 3/9/09 $728,6513 10 Federal Funding to Local Educational Agencies (SAR 58, page 31) Current Status: OCFO informed us that resolution activities continue to be in process. 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 the Program Team continues to work with OGC to resolve issues. A02I0034 Tennessee Department of Education Controls Over 05/28/09 9 State Assessment Scoring (OPEPD also designated as an action official) (SAR 59, page 42) Current Status: OESE informed us the PDL is currently in OGC for review. A03G0006 The Department’s Administration of Selected Aspects 2/22/07 3 of the Reading First Program (OCFO also designated as an action official) (SAR 54, page 31) Current Status: OESE informed us that this is an Internal Audit being tracked by AARTS. OESE Program Team is working with OGC on this audit. 42 Office of Inspector General Semiannual Report Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations 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 resolution activities are in process. 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 resolution activities are in process. A04H0011 Puerto Rico Department of Education’s 5/20/08 $189,011 10 Administration 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 OGC for review. A04H0017 Puerto Rico Department of Education’s 10/9/08 $821,714 15 Administration of Title I Services Provided to Private School Students (SAR 58, page 31) Current Status: OESE informed us that the PDL is clearing OESE internal review process. A04I0041 Puerto Rico Department of Education’s Compliance 04/21/09 $16,092 8 with Title I - Supplemental Educational Services (SAR 59, page 42) Current Status: OESE informed us that the PDL is clearing OESE internal review process. A04I0042 Virgin Islands Department of Education’s 08/17/09 $4,304 10 Administration of Property Purchased with Federal Funds (SAR 59, page 42) Current Status: OESE informed us that the PDL is currently with OGC for review. A04I0043 Florida Department of Education Controls Over State 09/30/09 8 Assessment Scoring (SAR 59, page 42) Current Status: OESE informed us that the PDL is currently with OGC for review. A05G0020 Audit of the Alabama State Department of 9/27/07 $4,579,375 5 Education’s and Two Selected LEAs’ Compliance with Temporary Emergency Impact Aid Program Requirements (SAR 55, page 28) Current Status: OESE informed us that resolution activities are in process. Office of Inspector General Semiannual Report 43 Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations A05G0033 Illinois State Board of Education’s Compliance 6/7/07 $16,809,020 8 with the Title I, Part A, Comparability of Services Requirements (SAR 55, page 29) Current Status: OESE informed us that the PDL issued July 9, 2010. The required documentation needed for resolution of this audit must be certified through AARTS. 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 resolution activities are in process. A05H0025 Harvey Public Schools District’s Use of Selected 11/25/08 $317,0934 9 Department Grant Funds (OSERS and OCFO also designated as action officials) (SAR 58, page 31) Current Status: OESE informed us that the PDL is currently with OGC for review. A05I0016 Illinois State Board of Education’s Oversight of 09/23/09 $667,876 9 Subrecipients (OSERS also designated as an action official) (SAR 59, page 42) 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 (SAR 50, page 23) Current Status: OESE informed us that the PDL was issued 9/22/2010. The required documentation needed for resolution of this audit must be certified through AARTS. 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 the PDL is currently with OGC for review. A06G0009 Audit of the Temporary Emergency Impact Aid 9/18/07 $10,270,000 4 for Displaced Students Requirements at the Texas Education Agency and Applicable LEAs (SAR 55, page 29) Current Status: OESE informed us that resolution activities are in process. A06G0010 Louisiana Department of Education’s Compliance 9/21/07 $6,303,000 4 with Temporary Emergency Impact Aid for Displaced Students Requirements (SAR 55, page 29) Current Status: OESE informed us that resolution activities are in process. A06H0011 Adequacy of Fiscal Controls Over the Use of Title I, 04/14/09 $3,524,636 6 Part A Funds at Dallas Independent School District (SAR 59, page 42) Current Status: OESE informed us that the PDL is clearing the internal review process. 44 Office of Inspector General Semiannual Report Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations A06H0017 Adequacy of Houston Independent School District’s 06/30/09 $152,280 9 Fiscal Controls over Accounting for and Using Federal Funds (OVAE, OELA, Office of Special Education Programs, and OSDFS also designated as action officials) (SAR 59, page 42) Current Status: OESE informed us it is obtaining signatures for the final PDL. 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 clearing the internal review process. A09I0012 Wyoming Department of Education Controls Over 07/10/09 2 State Assessment Scoring (SAR 59, page 42) Current Status: OESE informed us that resolution activities are in process. oPe A07B0011 Audit of Valencia Community College’s Gaining 5/8/03 $1,822,864 5 Early Awareness and Readiness for Undergraduate Programs Matching Requirement (SAR 47, page 15) Current Status: OPE informed us that it is working on resolving this report. 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 the PDL should be finalized by 12/31/2010 - Rehabilitation Services Administration. A02E0020 The Virgin Islands Department of Health’s 9/28/05 *5 17 Administration of the Infants and Toddlers Program (SAR 51, page 28) Current Status: We did not receive a response from OSERS on this audit during this reporting period. Office of Inspector General Semiannual Report 45 Report Report title date total number of number (Prior SAR Number and Page) issued monetary Recommen- findings dations insPection RePoRts RePoRted in PRevious sARs ogc 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 (OGC was designated as the action official by OS) (SAR 57, page 27) Current Status: We did not receive a response from OGC on this inspection during this reporting period. total $712,083,622 535 1 Audit Report A05H0018 identified a total of $1,185,473 ($1,129,970 in questioned costs and $55,503 in unsupported costs). 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 A09H0019 identified $6,302,406 in other recommended recoveries and no questioned costs. 3Audit Report A09H0020 identified $728,651 in other recommended recoveries, $13,000,000 in annual better use of funds, and no questioned costs. 4 Audit Report A05H0025 identified $33,726 in other recommended recoveries and no questioned costs. 5 Audit report A02E0020 identified $327,577 in one-time better use of funds. 46 Office of Inspector General Semiannual Report table 5-b: summaries of Audit, inspection, and evaluation Reports issued during the Previous Reporting Period (october 1, 2009 through march 31, 2010) Where management decision Has not yet been made Section 5(a)10)of the IG Act, as amended, requires a summary of each audit, inspection, or evaluation report issued before the commencement of the reporting period for which no management decision has been made by the end of the reporting period. These are the narratives for new entries. Details on previously reported reports can be found in Table 5-A of this Semiannual Report. Report title, number, summary and date issued departmental Program management Office of Indian We determined that the Department’s Office of Indian Education needed to undertake Education’s significant efforts to improve its management of the Indian Education Professional Management of Development (IEPD) grant program. We made a number of recommendations, including that the Professional the Department review the structure of the IEPD grant program office and make changes, as Development Program. appropriate, to ensure that the program was managed consistent with statutory requirements, ED/OIG: A19I0002 and that IEPD work with OMB and Department officials to approve its system of records used to track grant recipients of funds. The Department concurred with our findings and Issued: 2/2/2010 recommendations. Current Status: OESE informed us that this is an internal audit being tracked by AARTS. OESE Program Team continues to update the corrective action plan. Recovery Act-Related State and Local Controls We found that the State and local agencies reviewed had systems of internal controls in place or over Recovery Act were designing control systems to provide for the proper administration and use of education- Funds in California. related Recovery Act funds. However, we found that (1) the California Department of Education (CDE) needed to ensure that LEAs receive Title I and SFSF funds when needed to pay program ED-OIG: A09J0006 costs and timely remit interest earned on cash advances; (2) CDE and the Governor’s Office of Planning and Research (OPR) needed to ensure that timely and adequate subrecipient Issued: 1/15/2010 monitoring procedures were implemented for Recovery Act subgrants to LEAs, as well as ensure that subrecipients (and its employees) are informed of Recovery Act whistleblower protection and OMB requirements for referrals to Inspectors General; and (3) CDE needed to ensure that LEAs implement adequate controls regarding the appropriate use of Recovery Act funds involving retirement plans and undocumented personnel costs for multi-funded employees. Our recommendations included that the CDE implement planned enhancements to existing ESEA Title I and IDEA program monitoring practices to provide timely oversight of LEA compliance with fiscal requirements related to cash management and the appropriate use of and accounting for Recovery Act funds. CDE and OPR concurred with our findings and recommendations. Current Status: OESE informed us that resolution activities continue to be in process. Systems of Internal We found that the State of Illinios had been proactive in its efforts to ensure the proper Control Over Selected administration of ARRA funds. However, we found that the Illinois State Board of Education’s Recovery Act Funds in (ISBE) system of internal controls (1) was not adequate to ensure that LEAs were complying the State of Illinois. with Federal cash management requirements; and (2) ISBE could strengthen its subrecipient monitoring to ensure compliance with Recovery Act requirements, as our work at two LEAs ED-OIG: A05J0012 showed that the LEAs were not tracking their SFSF expenditures. We made a number of recommendations, including that the ISBE strengthen procedures for monitoring excess cash Issued: 2/23/2010 balances at LEAs before approving cash disbursements and that ISBE instruct LEAs to track SFSF expenditures so that all necessary information could be accurately reported, as required by the Recovery Act. ISBE did not agree or disagree with our findings and recommendations but did describe corrective actions it was taking to resolve the findings. Current Status: OESE informed us that resolution activities continue to be in process. Office of Inspector General Semiannual Report 47 Report title, number, summary and date issued Systems of Internal We found that the State has been proactive in its efforts to ensure the proper Control Over Selected administration of Recovery Act funds; however, we also found that (1) the Indiana Recovery Act Funds in Department of Education (IDOE) could improve its procedures to ensure compliance the State of Indiana. with Federal cash management requirements; (2) IDOE had not finalized the revisions ED-OIG: A05J0011 to its IDEA monitoring guide to cover Recovery Act IDEA funds, did not plan to monitor SFSF distributed to LEAs as extensively as it planned to monitor other funds, and did Issued: 1/14/2010 not adequately monitor LEAs’support for personnel expenditures; and (3) the Bureau of Rehabilitative Services did not revise its current system or develop new systems for reporting data for funds received under the Recovery Act Vocational Rehabilitation program. We made a number of recommendations, including that the Department require the IDOE to develop and implement monitoring procedures to ensure that LEAs are properly reporting complete and accurate SFSF information and spending SFSF in accordance with Recovery Act requirements, and follow up with LEAs if they fail to spend SFSF in accordance with Recovery Act requirements. IDOE and Indiana OMB did not indicate disagreement with the findings and recommendations and stated their commitment to complying with all Federal recommendations and guidelines for the disbursement and reporting of Recovery Act funds. Current Status: OESE informed us that resolution activities continue to be in process. New York State System We found that the New York State Education Department (NYSED) and the Governor’s Office were of Internal Control Over making a proactive effort to ensure the proper administration of Recovery Act funds; however, we Recovery Act Funds also found (1) NYSED needed to strengthen its controls over cash management at LEAs to ensure adequate oversight of Recovery Act and other Federal funds; (2) NYSED had not yet made sufficient ED-OIG: A02J0006 progress in establishing controls to ensure compliance with Recovery Act reporting requirements; and (3) the Governor’s office had not yet defined the roles of State agencies administering Issued: 11/10/2009 SFSF. Our recommendations included that the Department require the NYSED to develop and implement procedures to determine whether expenditures charged to the Recovery Act are allowable and properly supported prior to payment, and develop and implement monitoring procedures that address Recovery Act requirements, including those requirements specific to the SFSF program. Current Status: OESE informed us that the PDL is currently with OGC for review. New York State LEAs Our audits at three LEAs -- the New York City Department of Education (NYCDOE), the Kiryas Joel Systems of Internal Union Free School District (Kiryas Joel), and the Harborfields Central School District (Harborfields) Control Over Recovery -- concluded that NYCDOE and Harborfields had designed systems of internal controls that Act Funds. were generally sufficient but we found that the controls over data quality, cash management, and use of funds need to be strengthened. We recommended those LEAs establish additional ED-OIG: A02J0009 data quality processes and controls to ensure their readiness in complying with all Recovery Act reporting requirements. At Kiryas Joel, however, we found that the LEA had insufficient Issued: 2/17/2010 controls in many areas related to data quality, cash management, and use of funds. It also lacked adequate internal controls to ensure compliance with Recovery Act reporting requirements, lacked adequate controls to safeguard payroll checksand did not have sufficient controls to minimize the risk of funds being improperly disbursed. We also found that Kiryas Joel’s accounting software did not have adequate controls to prevent the use of duplicate check numbers for payroll and non-payroll expenses. We made a number of recommendations for each LEA, which the NYSED did not specifically concur or disagree with. However, NYSED stated that it was prepared to implement all of our recommendations. Current Status: OESE informed us that resolution activities continue to be in process. 48 Office of Inspector General Semiannual Report Report title, number, and summary date issued Commonwealth of We found that the Pennsylvania Department of Education (PDE) and the Governor’s Pennsylvania Internal Office were making a proactive effort to ensure the proper administration of Recovery Controls over Selected Act funds; however, we determined that (1) the Comptroller’s Office could strengthen Recovery Act Funds its controls over cash management; (2) PDE’s monitoring instruments needed to be strengthened in order to address Recovery Act requirements; (3) PDE did not have a ED-OIG: A03J0010 policy to ensure that data deficiencies were disclosed to the Department; and (4) the Governor’s Office should define the roles and responsibilities of Commonwealth agencies Issued: 3/15/2010 administering SFSF. Based on our findings, we made a number of recommendations, including that the Department require PDE to develop and implement procedures to monitor subrecipients’ fiscal internal controls and use of funds for Recovery Act grant programs. PDE did not agree with our findings and recommendations. Current Status: OESE informed us that resolution activities continue to be in process. Puerto Rico Recovery Act, We found that Puerto Rico’s Vocational Rehabilitation Administration’s (VRA) internal Vocational Rehabilitation controls needed improvement to provide reasonable assurance of compliance with Administration. Recovery Act requirements. Specifically, VRA did not withhold appropriate income taxes from payments; ensure that financial data were reliable for reporting purposes; develop ED-OIG: A04J0009 and communicate reporting and job creation or retention guidance; update information system policies and procedures; ensure that time between receipt and payout of Issued: 12/14/2009 Federal funds was minimized; and develop a monitoring plan to ensure compliance with Recovery Act requirements. We recommended that each of these weaknesses be addressed, many of which the VRA concurred with or had taken action to address. Current Status: OSERS informed us the PDL was issued on 6/30/2010. However, for OCFO, the other program office involved in this audit, required documentation needs to be certified through AARTS before the audit can be officially resolved. Tennessee Recovery Act We found that the Tennessee Department of Education’s (TDOE) needed to improve its Audit, Internal Controls over communication with LEAs to ensure awareness of reporting requirements for suspected Selected Funds. fraud and the reporting procedures for estimating the number of jobs created or retained, programmatic performance, and financial data. We recommended that the Department ED-OIG: A04J0010 require the TDOE to formally communicate to the LEAs that they must report suspected fraud of Recovery Act funds to the OIG and ensure that the LEAs understand the Recovery Issued: 12/15/2009 Act reporting requirements. TDOE concurred with our finding and recommendations. Current Status: OESE informed us that resolution activities continue to be in process. Texas Recovery Act Audit, We found that the State had been proactive in its efforts to ensure the proper Internal Controls over administration of Recovery Act funds; however we identified areas for improvement: (1) Selected Funds Texas Education Agency (TEA) could improve its oversight of LEAs to ensure compliance with Recovery Act requirements, as we identified issues at two of the three LEAs we visited; ED-OIG: A06J0013 (2) the Texas Higher Education Coordinating Board (THECB) could improve its monitoring of subrecipients and its collection and reporting systems to ensure compliance with Issued: 1/27/2010 Recovery Act reporting requirements; and (3) THECB needed to modify its policies and procedures to ensure adequate oversight of recipients of SFSF government services funds to ensure those funds were safeguarded. Based on these findings, we made a number of recommendations, with which the Governor’s office did not fully agree. Current Status: OESE informed us that resolution activities continue to be in process. Office of Inspector General Semiannual Report 49 Report title, number, and summary date issued Virgin Islands Department Our report highlighted issues that could affect Recovery Act funds provided to the Virgin of Education’s Current Islands Department of Education (VIDE) that were identified through six audits of the VIDE Efforts to Address Prior Audit issued between 2003 and 2008, and in a 2009 audit of the VIDE’s actions to address the Findings. recommendations made in those reports. Our 2009 report found that while VIDE had implemented some controls to address prior audit findings, it had not sufficiently addressed ED-OIG: A04J0004 or taken the necessary actions to resolve prior recommendations in the areas of financial management, human capital, and property management and procurement. As a result, Issued: 11/13/2009 VIDE lacked sufficient internal controls to manage Departmental funds, programs, and activities, which could adversely impact its management of Recovery Act funds. With its history of unsatisfactory performance in the administration of the Department’s programs and its status as a high-risk grantee, VIDE requires closer monitoring and oversight. To that end, we made a number of suggestionsto all of which the Department agreed. Current Status: OESE informed us the PDL is clearing the internal review process. elementary and secondary education Act-Related state educational Agencies Colorado Department of We determined that the Colorado Department of Education (CoDE) did not properly Education’s Use of Federal expend selected Federal education funds in accordance with applicable laws, regulations, Funds for State Employee and Department guidance for the time period reviewed. We found that the CoDE Personnel Costs. inappropriately charged employee personnel costs to Federal education programs based on predetermined time and effort allocations instead of charging the programs based on ED-OIG: A09J0004 the actual activity of each employee. Because CoDE could not provide documentation for employees’ actual activities on Federal programs, we were unable to determine the Issued: 2/26/2010 allowability of more than $23 million in personnel costs charged to Department grants for the time period reviewed. We made a number of recommendations to address these weaknesses, including that the CoDE provide documentation, based on actual work performed, supporting the personnel costs for CoDE employees that should have been charged to Federal education grants for the time period reviewed or return more than $23 million to the Department. The CoDE generally concurred with our finding and our recommendations. Current Status: OESE informed us that resolution activities continue to be in process. AARTS shows that OESE’s administrative stay was approved by OCFO on 9/30/2010. local educational Agencies Philadelphia School District’s For the time period reviewed, we found that the Philadelphia School District did Controls Over Federal not have adequate fiscal controls in place, and expenditures from selected Federal Expenditures ED-OIG: education grant funds totaling more than $138 million were either unallowable or A03H0010 inadequately supported. We determined that the District: (1) did not have written policies and procedures for certifying personnel costs charged to Federal grants; (2) Issued: 1/15/2010 supplanted State and local funds with Federal funds; (3) did not adequately enforce its policies and procedures for a number of its internal operations, such as travel reimbursement and contract management; and (4) did not have written policies and procedures for various fiscal processes, such as monitoring of budgets and charging of transportation costs. We recommended that the District return more than $17 million in unallowable costs to the Department, and that it provide adequate documentation to support more than $121 million in inadequately supported expenditures or return that amount to the Department. The District did not concur with all of our findings. Current Status: OESE informed us the PDL is clearing the internal review process. AARTS shows that OESE’s administrative stay was approved by OCFO on 7/28/2010. 50 Office of Inspector General Semiannual Report Report title, number, and summary date issued other federal education Program grantees Center for Civic Education’s Our audit found that the Center for Civic Education (CCE) did not administer its Administration of the We Federal grant awards for its We the People Program and the Cooperative Civic Education the People Program and and Economic Exchange Program in compliance with applicable requirements. We Cooperative Civic Education determined that CCE (1) did not have a financial management system that met and Economic Education required standards for administering Federal education grants; (2) held cash beyond its Exchange Program. immediate needs, charged unallowable costs to the grants, and did not have adequate support for other charges; (3) of the $7.4 million in charges to the grants that we ED-OIG: A09I0010 reviewed, 80 percent of the charges were unallowable ($1.2 million) or unsupported ($4.7 million); and (4) did not have adequate support for personnel costs that were Issued: 11/20/2009 charged to grants using predetermined percentages or for the allocation of other costs that benefited more than one CCE program or activity. We made 30 recommendations to address the weaknesses identified, including that the Department consider designating CCE as a high-risk grantee because CCE had not implemented a financial management system that meets required standards. CCE did not agree with all of our findings or recommendations. Current Status: AARTS shows that OCFO’s administrative stay was approved on 7/28/2010. Office of Inspector General Semiannual Report 51 table 6: statistical Profile: fiscal year 2010 (october 1, 2009, through september 30, 2010) Audits, inspections, other Products october 1, 2009 – April 1, 2010 – fiscal year march 31, 2010 september 30, 2010 2010 Audit Reports issued 22 13 35 inspection Reports issued 1 0 1 questioned costs $18,808,951 $22,817 $18,831,768 unsupported costs $149,861,194 $570,376 $150,431,570 Recommendations for better use of funds 0 0 0 other Products issued 15 15 30 Other products include Alert Memoranda, Management Information Reports, Special Project Reports, and Investigative Program Advisory Reports Reports Resolved by Program managers 6 20 26 Questioned Costs Sustained $624,873 $336,466,483 $337,091,356 Unsupported Costs Sustained $1,188,806 $2,403,150 $3,591,956 Additional Disallowances Identified by Program Managers 0 $1,201,730 $1,201,730 Management Commitment to the Better Use of Funds 0 0 0 investigative Activity Cases Opened 64 66 130 Cases Closed 58 64 1261 Cases Active at the End of the Reporting Period 445 443 443 Prosecutorial Decisions 103 136 3182 Accepted 35 72 170 Declined 68 64 148 investigative Results Indictments/Informations 36 64 1063 Convictions/Pleas 108 49 1594 Fines Ordered $315,250 $28,175 $344,0255 Restitution Payments Ordered $6,262,401 $19,967,632 $26,319,7156 Civil Settlements/Judgments (number) 2 5 7 Civil Settlements/Judgments (amount) $951,000 $10,511,638 $11,462,638 Recoveries $291,445 $1,289,238 $2,065,507 Forfeitures/Seizures $2,345,000 0 $2,345,000 Estimated Savings $37,000 $4,509,711 $4,552,0617 Suspensions Referred to Department 2 23 25 Debarments Referred to Department 21 20 41 1 Includes 4 cases that were not reflected in SAR 60 5 Includes $600 that was not reflected in SAR 60 2 Includes 79 instances that were not reflected in SAR 60 6 Includes $89,681 that was not reflected in SAR 60 3 Includes 4 instances that were not reflected in SAR 60 7 Includes $5,350 that was not reflected in SAR 60 4 Includes 2 instances that were not reflected in SAR 60 52 Office of Inspector General Semiannual Report Anyone knowing of fraud, waste, or abuse involving Your report may be made anonymously or in confidence. U.S. Department of Education funds or programs should call, write or e-mail the Office of Inspector General. For information on identity theft prevention for students and schools, visit the Office of Inspector General Identity Theft Call Toll-Free: Or Write: Web site at www.ed.gov/misused. The Inspector General Hotline Inspector General Hotline 1-800-MISUSED U.S. Department of Education The Department of Education’s mission is to promote student (1-800-647-8733) Office of Inspector General achievement and preparation for global competitiveness by 550 12th St. S.W. fostering educational excellence and ensuring equal access. Or E-Mail: Washington, DC 20024 www.ed.gov firstname.lastname@example.org 1 U.S. Department of Education
Semiannual Report - April 1, 2010 - September 30, 2010
Published by the Department of Education, Office of Inspector General on 2010-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)