oversight

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)

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
oig.hotline@ed.gov

                                                     1   U.S. Department of Education