oversight

Semiannual Report - October 1, 2010 - March 31, 2011

Published by the Department of Education, Office of Inspector General on 2011-03-31.

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. 62
         2   U.S. Department of Education
Office of inspector General
Kathleen S. Tighe
Inspector General

May 2011

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. 62.




              Please Note:
              The Inspector General’s Semiannual Report to Congress, No. 62
              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 present this Semiannual Report on the activities and accomplishments
of this office from October 1, 2010, through March 31, 2011. 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 past 6 months, OIG issued 19 audit products that identified nearly
$40 million in financial recommendations. We also closed 88 investigations of fraud
and corruption involving Department programs and operations and secured more
than $69 million in settlements, fines, restitutions, forfeitures/seizures, and savings.

I have just completed my first year as the Inspector General of this agency and I am
pleased with the results we have accomplished thus far and the direction in which we
are heading. Last September, we developed and issued a new Strategic Plan that sets
the stage for accomplishing our mission and maximizing the effectiveness of our
efforts and resources over the next 5 years. We also issued our Annual Plan for
FY 2011, which follows the direction of our Strategic Plan and presents the major
initiatives and priorities my office has planned to undertake to assist the Department
in fulfilling its responsibilities to America’s taxpayers, families, and students. In this
Semiannual Report, we present our most significant activities completed over the
past 6 months by strategic goal to best show how each of these individual efforts
contributes. Each goal and examples of related work are summarized as follows:

    n   Improve the Department’s ability to effectively and efficiently implement its
        programs to promote educational excellence and opportunity for all students.
        Under this goal, we highlight our work involving some of the larger Federal
        education programs and funding related to promoting educational
        excellence and opportunity, including the American Recovery and
        Reinvestment Act of 2009 (Recovery Act) and the Elementary and Secondary
        Education Act of 1965, as amended. Our audit of Oklahoma’s use of Recovery
        Act funds resulted in a finding that the State could not account for how
        Recovery Act funds of more than $16 million were expended. Our
        investigative efforts resulted in action against a former school official for his
        role in a fraudulent high school diploma scam.

    n   Strengthen the Department’s efforts to improve the delivery of student financial
        assistance. Our work in this area continued to garner attention, particularly
        with the release of our audit of Ashford University’s compliance with selected
        provisions of the Higher Education Act of 1965, as amended (HEA), in its distance
        education programs. We identified a number of deficiencies in the school’s
        administration of the HEA programs, including that it designed a
        compensation plan for enrollment advisors that provided incentive payments
        based on success in securing enrollments. One of our inspection reports
        issued during this period found that the Federal Student Aid office (FSA) did
        not always take appropriate action when it had identified that an institution
        was potentially not in compliance with financial responsibility requirements.
        Our investigative work in the area of Federal student aid also led to prison
        sentences for the former owners of Centurion Professional Training, a
        proprietary school in New York, who were also ordered to pay more than
        $1.3 million in restitution for Federal student aid fraud, and to a guilty plea by
        the former Vice President of Finance at Iona College for embezzling more than
        $850,000.

    n   Protect the integrity of the Department’s programs and operations by detecting and
        preventing vulnerabilities to fraud, waste, and abuse. Our efforts over the past 6
        months included an audit that found that the Puerto Rico Department of
        Education could not reconcile a $15 million discrepancy between data in its
        financial accounting and payment systems due to insufficient internal controls
        and oversight. Our investigations identified a number of school officials who
        used their positions of trust for personal financial gain, including the former
        Superintendent of California’s El Centro Elementary School District and two
        San Diego State University professors for allegedly diverting $395,000 in
        Department funds for their personal use.

    n   Contribute to improvements in Department business operations. Under this goal,
        we highlight our statutory reviews of the Department’s and FSA’s financial
        statement audits and the results of our FY 2010 Federal Information Security
        Management Act (FISMA) review. Both the Department and FSA earned clean
        opinions on their FY 2010 financial statements; however, the audit reports,
        prepared by an independent public accountant (IPA), noted several repeat
        deficiencies involving credit reform estimation, reporting processes, and
        controls surrounding information systems. Our required FISMA review found
        that although the Department had taken steps in strengthening its agency-
        wide information security program, we also identified areas still needing
        improvement, including configuration management, incident response and
        reporting, remote access, account and identity management, and continuous
        monitoring. In addition, as a result of our investigative work, an FSA employee
        and six contractor employees were sentenced for exceeding their access to the
        National Student Loan Data System.

As you will read in the pages of this report, the OIG is committed to helping the
Department and its program participants, grantees, and subrecipients to address
weaknesses and improve stewardship of the taxpayer dollars with which they are
entrusted. We greatly appreciate the interest and support of this Congress, Secretary
Duncan, and Deputy Secretary Miller in our efforts. We look forward to working with
you in meeting the challenges and opportunities that lie ahead.


Kathleen S. Tighe
Inspector General
                                                                                                   Table of Contents

Goal 1: Improve the Department’s Ability to Effectively
and Efficiently Implement Its Programs to Promote
Educational Excellence and Opportunity for All Students.                                         nn n n n n n n n n n n n n n n n n n n   1


Goal 2: Strengthen the Department’s Efforts to Improve
the Delivery of Student Financial Assistance.                             n n n n n n n 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


Goal 3: Protect the Integrity of the Department’s Programs
and Operations by Detecting and Preventing Vulnerabilities
to Fraud, Waste, and Abuse.               n   n n n n n n n n n n n n n n n n n n n n 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


Goal 4: Contribute to Improvements in Department Business
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 n n n n n n     16


Annexes 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 n n n n n n n n n    21


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 n n n    22
Goal 1: Improve the Department’s Ability
to Effectively and Efficiently Implement Its
Programs to promote Educational Excellence and
Opportunity for all Students.

Our first strategic goal addresses the core of our statutory mission -- to promote the efficiency, effectiveness,
and integrity of the U.S. Department of Education’s (Department) programs and operations. Work conducted
by the Office of Inspector General (OIG) over the past 6 months in the area of promoting educational
excellence and opportunity includes specific efforts related to the American Recovery and Reinvestment Act
of 2009 (Recovery Act) as well as the Elementary and Secondary Education Act of 1965, as amended (ESEA).
Although our work involving the Federal student aid programs also contributes to this goal, we discuss those
efforts under Goal 2.


    Recovery Act
With the passage of the Recovery Act in February           in progress are our review of the Department’s
2009, we initiated our first phase of work to              data quality processes for Recovery Act recipient
determine whether the State educational agencies           reporting, our review of the adequacy of the
(SEA) and local educational agencies (LEA) charged         Department’s monitoring of recipients’ use of
with overseeing Recovery Act funds had designed            funds awarded under the State Fiscal Stabilization
systems of internal control that are sufficient to         Fund, and the Department’s plans for monitoring
provide reasonable assurance of compliance with            performance under the Investing in Innovation
applicable laws, regulations, and guidance. In             Funds and the Race to the Top programs. We will
FY 2010, we initiated the second phase of Recovery         report the findings of these efforts once completed.
Act audits to determine whether the States and their
subrecipients used and reported Recovery Act funds         During this reporting period, OIG staff continued
in accordance with applicable laws, regulations,           to work with Department leaders and our
and guidance. In FY 2011, we initiated our third           counterparts in the Government Accountability
phase of work, which, as a natural progression from        Office (GAO) and other Federal agencies to evaluate
our first two phases, will have more of a program          whether Recovery Act dollars are expended in
results focus and provide a national perspective           accordance with applicable laws, regulations, and
on the use of Recovery Act funds. We are initiating        Department guidance. We continued to participate
work at a number of LEAs in a nationwide review to         as a member of the Recovery Accountability and
determine how selected LEAs are using Recovery Act         Transparency Board and in an advisory capacity
and Education Jobs funds (stimulus funds); assess          on the Department’s internal Recovery Act teams.
whether stimulus funds can or will be spent by             We issued three reports involving Recovery Act
the end of the respective grant periods; determine         recipients, which we summarize below. Finally, OIG
whether actual or planned uses of stimulus                 investigators continue to examine allegations of
funds could result in unsustainable continuing             waste, fraud, and abuse involving Recovery Act funds
commitments after the Recovery Act funding expires;        and to take appropriate action to ensure that anyone
and identify the factors impacting an LEA’s ability to     who steals or intentionally misuses Recovery Act
strategically invest stimulus funding versus simply        funds is held accountable for those unlawful actions.
using the funds to maintain the status quo. We have
also initiated a review of States’ oversight of Recovery   Recovery Act Audits
Act funding under the School Improvement Grants
program and a review of Centers for Independent            Phase II Audit - Oklahoma
Living fiscal controls over Recovery Act funds. Also       The results of our audit of Oklahoma’s use of

1    Office of Inspector General Semiannual Report
Recovery Act funds found that the Governor’s Office,     are adequate and to ensure that LEA policies and
the Oklahoma Office of State Finance (OSF), and the      procedures in this area are adequate, as we found
Oklahoma State Department of Education (OSDE)            that two of the three LEAs reviewed did not have
did not demonstrate that all Recovery Act funds          written policies and procedures for several fiscal
were expended in accordance with applicable laws,        areas. Based on these findings, we made a number
regulations, and guidance. We identified $16 million     of recommendations to enhance controls over
in State Fiscal Stabilization Fund (SFSF) Government     Recovery Act funds. State officials did not agree
Services Funds (GSF) for which OSF was unable to         with all of our findings or recommendations.
account. We also identified more than $68,000 in
unallowable expenses and more than $81,000 in            Phase I Audit - Puerto Rico
unsupported costs at two of the three Oklahoma           The results of our audit of internal controls over
LEAs we examined. OSDE and OSF had also not              education-related Recovery Act funds in Puerto Rico
followed applicable cash management regulations          found that although the Governor’s Office and its
to ensure that subrecipients did not receive funds       subgrantees, including the Puerto Rico Department
in advance of need. OSDE advanced $124 million           of Education (PRDE), worked to ensure proper
available under the Recovery Act to two LEAs             administration of Recovery Act funds, there were
without regard to their immediate funding needs;         areas that needed to be strengthened. Specifically,
and OSF drew down approximately $19.2 million            the Governor’s Office had insufficient controls over
in SFSF Education Stabilization Funds in excess of       cash management; PRDE and the Governor’s Office
the LEAs’ needs. OSDE and OSF did not ensure that        did not sufficiently monitor their use of Recovery
data reported were accurate, reliable, and complete.     Act funds and subgrantees to ensure adequate
We made several recommendations to address               oversight and had insufficient internal controls for
these issues, including that OSF provide sufficient      safeguarding information. Further, PRDE was not
documentation and/or accounting transactions             effectively monitoring the procurement process,
to support that SFSF GSF funds were expended             and it lacked documentation to support payments
appropriately or return $16 million in SFSF GSF funds.   made with Recovery Act funds for programs
Oklahoma officials did not concur with all of our        under the Individuals with Disabilities Education
findings.                                                Act of 1975 and compliance with the contract
                                                         awarding requirements included in the Recovery
Phase I Audit - Pennsylvania                             Act. We made a number of recommendations to
We examined internal controls of education-related       address the weaknesses identified. Puerto Rico
Recovery Act funds in the Commonwealth of                officials did not agree with all of our findings or
Pennsylvania and found that the agencies reviewed        recommendations.
had systems of internal control in place to provide
for the proper administration and use of those           Recovery Act Investigations
funds. We did, however, identify areas in which
controls needed to be strengthened or established        Federal Student Aid Fraud
in order to provide reasonable assurance of              The following case involves Federal student aid funding,
subrecipient compliance with applicable laws,            a portion of which was either applied for or obtained
regulations, and guidance. Specifically, we found        after passage of the Recovery Act. The Recovery Act
that the Pennsylvania Department of Education            increased funding for the Pell Grant program.
(PDE) and the Comptroller’s Office needed to
provide clearer guidance to LEAs regarding excess        Florida - Former Admissions Counselor at American
cash and excess interest earned on Federal funds,        Institute Sentenced. The former school official was
as well as with Recovery Act job creation and            sentenced to 3 years of probation, 250 hours of
retention data to ensure that such data are accurate     community service, and was ordered to pay $156,000
and complete. PDE also needed to conduct                 in restitution for his role in a fraudulent high school
additional monitoring and provide LEAs with              diploma scam at the school. The former official
additional guidance to help ensure fiscal controls       created false high school diplomas that were placed
                                                                                   Office of Inspector General Semiannual Report   2
into prospective student files in order to make the           membership organizations, or any person acting
students appear eligible for admission to the school          in the interest of Recovery Act fund recipients.
and to support false applications for Federal student         During this reporting period, OIG received 22
aid. As a result of his fraudulent efforts, ineligible        Recovery Act-related whistleblower reprisal
students at the school received approximately                 complaints. One complaint met the Recovery
$156,000 in Federal student aid to which they were            Act’s criteria and we completed an investigation
not entitled, of which approximately $5,100 involved          of that complaint. Our investigation substantiated
Recovery Act funds.                                           the allegations and we submitted our investigative
                                                              report to the Secretary. The Secretary agreed
Recovery Act Whistleblower                                    that reprisal had occurred and issued an order
Retaliation                                                   to the employer to reinstate the whistleblower
                                                              and provide other relief. The complainant was
The Recovery Act extends whistleblower                        reinstated on March 30.
protections to employees who reasonably believe
that they are being retaliated against for reporting          Complaints about Recovery Act whistleblower
allegations of misuse of Recovery Act funds                   reprisal related to Recovery Act funds should be
received by their non-Federal employers. This                 reported to the OIG by following the instructions
includes State and local government employees,                on our Web site at http://www2.ed.gov/about/
contractors, subcontractors, grantees, professional           offices/list/oig/recoveryact.html#whistleblower1.



ESEA
With the significant increase in education funding that       the remaining life of the lease could be better used to
the States, SEAs, and LEAs are receiving through the          serve the students of Kiryas Joel. We noted conflicts
Recovery Act and the Education Jobs Fund in addition          of interest related to this lease as well as another lease
to their annual allotments, effective accountability is       agreement for which Kiryas Joel made payments using
vital in how these entities expend all Federal education      Title I funds. A 2009 report by the Office of the New
funds they receive. Based on our Recovery Act work            York State Comptroller indicated that Kiryas Joel’s Board
at one LEA last year, we took a closer look at its use        President and Vice President did not properly disclose
of other Federal education funds and describe our             their affiliations with the groups leasing the building.
findings below.                                               As a result, there was no assurance that the decisions
                                                              made relating to the leases were in the best interests
New York - Kiryas Joel Union Free School District             of the students of Kiryas Joel. Based on our findings,
A 2010 audit found that the Kiryas Joel Union Free            we recommended that the Department instruct the
School District (Kiryas Joel) lacked adequate internal        New York State Department of Education (NYSED)
controls to ensure compliance with Recovery Act               to require Kiryas Joel to return more than $276,000
reporting requirements, safeguard payroll checks, and         in unallowable Title I funds that it used for leasing
minimize the risk of funds being improperly disbursed.        the building and implement and adhere to policies
Based on this finding, we took a closer look at Kiryas        and procedures to ensure compliance with Federal
Joel to determine whether its expenditures of selected        requirements related to conflicts of interest. We also
Federal funds were in accordance with applicable laws         recommended that Kiryas Joel provide adequate
and regulations. We found that Kiryas Joel used more          documentation to support more than $191,000 in
than $276,000 in ESEA Title I funds to supplant non-          unsupported Title I salary expenditures or return the
Federal funds in lease payments related to its public         funds. NYSED generally concurred with our findings
school building and estimated that an additional              and recommendations.
$5.2 million in potential charges to the Title I grant over


3   Office of Inspector General Semiannual Report
OTHER ACTIVITIES
Participation on Committees, Work Groups,                       participates in this working group
and Task Forces                                                 focused on improving efforts across the
                                                                government to investigate and prosecute
Departmental Groups                                             significant financial crimes involving
      ♦ Department Recovery Act Metrics and                     Recovery Act funds.
        Monitoring Team - OIG participates in
        an advisory capacity on this team that        Federal and State Audit-Related Groups
        meets regularly to coordinate Recovery               ♦ Association of Government Accountants
        Act funds oversight efforts and develop                Intergovernmental Partnerships for
        reports for posting on the Recovery.gov                Management and Accountability - OIG
        Web site.                                              participates in this partnership that
                                                               works to open lines of communication
Inspector General Community                                    among Federal, State, and local
       ♦ Recovery Accountability and                           governmental organizations with the
         Transparency Board (Recovery Board) -                 goal of improving performance and
         Inspector General Tighe is a member                   accountability.
         of the Recovery Board and is Chair
         of the Accountability Committee of                 ♦   Interagency Coordination Group
         the Board, which provides advice                       of Inspectors General for Guam
         and recommendations to the                             Realignment - OIG participates in this
         Board regarding preventing and                         group to provide input on education-
         detecting fraud, waste, abuse, and                     related issues impacting the
         mismanagement and with regard                          realignment of approximately 8,000
         to the Recovery Operations Center.                     Marines and their approximate 9,000
         OIG staff also participate in a work                   dependents from Okinawa to Guam.
         group composed of all of the Offices
         of Inspectors General that provide           Review of Legislation, Regulations, Directives,
         Recovery Act oversight, and a                and Memoranda
         subgroup focused on Recovery Act
         grant funds.                                       ♦   Annual Report on Guam Realignment -
                                                                We provided input to the Annual Report
Federal and State Law Enforcement-Related                       on challenges facing the educational
Groups                                                          systems in Guam associated with the
       ♦ The Recovery Act Fraud Working Group of                realignment of military personnel from
         the U.S. Department of Justice’s Financial             Okinawa to Guam.
         Fraud Enforcement Task Force - OIG




                                                                               Office of Inspector General Semiannual Report   4
Goal 2: Strengthen the Department’s
Efforts to Improve the Delivery of Student
Financial Assistance.

Our second strategic goal addresses an area that has long been a major focus of our audit, inspection, and
investigative work—the Federal student financial assistance (SFA) programs. These programs are inherently
risky because of their complexity, the amount of funds involved, the number of program participants,
and the characteristics of student populations. The programs underwent a significant change in 2010
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 be originated under
the William D. Ford Federal Direct Loan (Direct Loan) Program. The Department must have the capacity
to originate and service the increased Direct Loan volume and ensure that participants in the Federal
student aid programs comply with all applicable laws, regulations, and guidance. In our last Semiannual
Report to Congress, we highlighted our work involving the Department’s Direct Loan capacity. During this
reporting period, our work included examining SFA program participants’ compliance with Federal statutes,
regulations, and agreements with the Department and with other Ensuring Continued Access to Student Loans
Act of 2008 (ECASLA) program participants. Summaries of these efforts follow, as well as those of our more
significant investigative cases involving Federal student aid funds.


Internal Operations
Review of FSA’s Monitoring of Financial                        before implementing its current procedures, FSA did
Responsibility                                                 not enforce the financial responsibility requirement
Our inspection determined that the Federal Student             that institutions must submit letters of credit in order
Aid office (FSA) did not always take appropriate               to continue participation after being cited for untimely
action when it had identified that an institution              audit submissions. We recommended that FSA
was potentially not in compliance with financial               establish a reasonable timeframe in its policies and
responsibility requirements. The Higher Education              procedures to address untimely financial statement
Act of 1965, as amended (HEA), and implementing                and compliance audits according to 34 Code of Federal
regulations require that an institution demonstrate            Regulations (C.F.R.) § 668.174(a)(3). This regulation
financial responsibility in order to participate in the        specifies that an institution is not financially responsible
Federal student aid programs. We found that FSA’s              if it has been cited during the preceding 5 years
procedures did not define when an institution’s                for failure to submit in a timely fashion acceptable
failure to submit its annual financial statement and           compliance and financial statement audits. FSA did
compliance audit would result in a determination that          not disagree with our findings and concurred with our
the institution is not financially responsible. In addition,   recommendations.


Federal Student Aid Program Participants
Audits                                                         programs, Ashford University (Ashford), a proprietary
                                                               school located in Clinton, Iowa:
Ashford University’s Compliance with Selected
Provisions of the HEA                                              n   Designed a compensation plan for enrollment
The audit determined that, for its distance education                  advisors that provided incentive payments

5   Office of Inspector General Semiannual Report
        based on success in securing enrollment and      Under the agreement, ECMC serviced and
        did not establish that its plan and practices    monitored bankruptcy cases filed on student
        qualified for the regulatory safe harbors from   loans, provided specialty student loan services
        the incentive compensation prohibition;          (such as inactive portfolio maintenance and
    n   Did not properly perform return of Federal       administrative wage garnishment), maintained a
        student aid calculations, resulting in the       “standby capacity,” and performed other services
        improper retention of more than $29,000 of       for the Department. All of the assignments under
        Federal student aid program funds for 38 of      the agreement were carried out by ECMC’s Federal
        the 85 students in our samples (we estimated     Services Bureau (FSB) and financed by the FSB
        that Ashford improperly retained at least        Federal Reserve Fund. Although we found that
        $1.1 million of 2006-2007 Federal student aid    ECMC generally complied with certain sections of
        program funds);                                  the agreement, we also found that, contrary to the
    n   Did not return Federal student aid program       agreement, ECMC: (1) used the FSB account as a
        funds timely;                                    “checking account” to pay the monthly expenses
    n   Retained student credit balances without         of ECMC Group and all of its subsidiaries except
        proper authorizations;                           one; (2) had a cost allocation plan (CAP) that did
    n   Did not always disburse Federal student aid      not fully explain the allocation of costs; and (3)
        program funds in accordance with Federal         did not provide an annual cost allocation report
        regulations or its own policy (we estimated      to the Department. In general, we recommended
        that Ashford made between $3.7 and $8.9          that FSA require ECMC to correct the violations
        million in ineligible disbursements); and        we identified and review all expenses charged
    n   Did not maintain supporting documentation        to the FSB, making appropriate adjustments if
        for students’ leaves of absence.                 the expenditures did not benefit the FSB line
                                                         of business, and include in the CAP a detailed
We recommended a number of actions, including            explanation of the basis for its cost allocations
that FSA require Ashford to provide records of           and submit the annual cost allocation report to
all adjustments to the salaries of its enrollment        the Department. We also recommended that
advisors made during our audit period and that           FSA revise the agreement in order to remove a
FSA take appropriate administrative action for all       requirement that an independent auditor approve
salary adjustments that did not qualify for the safe     the CAP, because only FSA has the authority to
harbor. We also recommended that Ashford be              approve ECMC management’s CAP. ECMC agreed
required to return student aid funds that it was         to implement all of our recommendations.
not entitled to retain and that it cease drawing,
disbursing, and holding credit balances for which        Wells Fargo Bank and Zions First National Bank
there are no currently assessed institutional charges.   Using authority provided by ECASLA, the
Because of the seriousness of our findings, we also      Department established a Loan Participation
recommended that FSA consider taking appropriate         Purchase (LPP) Program to ensure that lenders had
administrative action under 34 C.F.R. Part 668,          reliable sources of funds to originate new FFELP
Subpart G, to fine Ashford or to limit, suspend, or      loans. During the 2-year life of the LPP Program, the
terminate its participation in the SFA programs.         Department purchased interests totaling more than
Ashford officials disagreed with our findings and        $70 billion in FFELP loans. Over the last 6 months,
recommendations.                                         we completed audits of two of the Department-
                                                         approved custodians under the 2008-2009 LPP
Educational Credit Management Corporation                Program that provided trust and custody services
We reviewed the compliance of Educational Credit         for FFELP loans in which the Department purchased
Management Corporation (ECMC)—an FFELP                   a participation interest. Below are summaries of
guaranty agency—with selected terms of its               our findings.
June 29, 2006, agreement with the Department.

                                                                                 Office of Inspector General Semiannual Report   6
          Wells Fargo Bank                                      last SAR period, the former owner agreed to a
          Wells Fargo had controls to reasonably ensure         civil settlement of more than $4.9 million and a
          that its management of collection account             lifetime debarment from all Federal procurement
          funds complied with the terms and conditions          and non-procurement programs. During this
          of the Master Participation Agreement (MPA)           reporting period, he was criminally sentenced to
          and applicable Departmental guidance.                 home confinement and probation and was fined
          However, we also found that it did not                $30,000 for fraud. These actions are a result of our
          sufficiently monitor and provide oversight of         investigation which found that the former owner
          its sponsors and servicers and, therefore, could      enrolled students who did not have the required
          not ensure that it adequately performed its           high school diploma or GED by paying Ability-to-
          duties as a custodian. We recommended that            Benefit (ATB) administrators to falsify ATB results in
          FSA hold Wells Fargo responsible, to the extent       order to increase enrollment and the amount of
          permitted under the MPA, for any liabilities          Federal student aid the school would receive. The
          arising from its noncompliance. Wells Fargo           former owner also instructed at least one witness to
          officials did not concur with our findings or         provide false information to the OIG special agents
          recommendations.                                      who conducted the investigation.

          Zions First National Bank                             Missouri - Former University President Indicted.
          Zions generally had adequate controls to              The former president and CEO of the Kansas City
          ensure that its management of collection              University of Medicine and Biosciences was indicted
          account funds complied with the terms                 by a Federal grand jury for embezzling more than
          and conditions of the MPA and applicable              $1.5 million from the school. The former official
          Department guidance. However, we also                 allegedly obtained more than $1.4 million in
          found that: (1) its policies and procedures did       unauthorized additional pay for herself from October
          not include a requirement to obtain a security        2002 to December 2009; allegedly submitted
          release executed by the sponsor and secured           numerous fraudulent vouchers to receive more than
          party before submitting the Participation             $50,000 purportedly for business purposes, when in
          Purchase Request (PPR) to the Department; (2)         reality the expenditures were for her personal travel
          it transferred PPR proceeds to secured parties        and entertainment; and allegedly falsified Federal tax
          prior to obtaining the required, executed             returns for 2003 through 2006 by claiming itemized
          security releases; (3) it did not routinely           deductions for charitable contributions totaling more
          submit the executed security releases to the          than $65,000 that she did not make.
          Department within the required submission
          period; (4) it did not invest collection account      New Jersey - A New Jersey City University
          funds in permitted investments; and (5)               Employee and Three Others Pled Guilty. A former
          its oversight of servicers’ activities needed         office manager for the New Jersey City University
          improvement. Based on our finding, we made            Student Government Organization (SGO), her
          several recommendations, including that FSA           husband, and two associates each pled guilty for
          hold Zions responsible, to the extent permitted       their roles in an embezzlement scheme involving
          under the MPA, for any liabilities arising from its   hundreds of thousands of dollars. Between 2007 and
          noncompliance. Zions officials did not explicitly     2010, the former employee issued more than 200
          concur with our findings or recommendations.          checks from an SGO bank account made payable to
                                                                her husband and to the other scheme participants.
Investigations                                                  Over 3 years, the scheme participants embezzled
                                                                more than $500,000, which they used to purchase
Schools and School Officials                                    goods and services for their own benefit, including
Illinois - Former Owner of the Cannella                         entertainment and gambling in Atlantic City.
School of Hair Design Sentenced. During the

7   Office of Inspector General Semiannual Report
New York - Former School Owners and Admission             Fraud Rings
Officer of Centurion Professional Training                Alabama - Actions Taken Against Conspirators
Sentenced. The former owners and officials of             in Fraud Scheme at Several Schools. Two
this proprietary school were sentenced to home            individuals were sentenced for their roles in a student
confinement and/or probation, community service,          aid fraud scheme involving several colleges and
and were ordered to pay restitution ranging from          universities in Alabama and elsewhere, including
$952,000 to more than $1.3 million for Federal            Troy State University, Amridge University (formerly
student aid fraud. In addition, in a prior reporting      known as Regions University), Jacksonville State
period, the former owners paid more than $1.14            University, Auburn University at Montgomery, and
million in a forfeiture money judgment as part of         Ashford University. The individuals completed
their plea agreement. Our investigation revealed          fraudulent Federal student aid application forms for
that the school officials fraudulently created            individuals they knew never intended to attend the
documentation in order to obtain Federal and              institutions, falsely claiming that these individuals
State grants for students who did not attend the          had undergraduate degrees and /or high school
school or who were enrolled in ineligible programs.       diplomas or GEDs. Based on this fraudulent
Additionally, one of the owners directed his staff to     information, Federal student aid checks were
falsify records in connection with an FSA program         issued, which the conspirators deposited into their
review.                                                   personal bank accounts. One of the individuals was
                                                          sentenced to 2 years in prison, 3 years of supervised
New York - Former Vice President of Iona College          release, and was ordered to pay more than $264,000
Pled Guilty to Embezzlement. The former Vice              in restitution, while the other was sentenced to 11
President of Finance pled guilty to embezzling more       months in prison, 3 years of probation, and was
than $850,000 from the school. From 1999 to 2009,         ordered to pay $34,566 in restitution. During the
the former official submitted false vendor invoices       last reporting period, another scheme participant,
and credit card bills for personal expenses to be paid    who was a former Tuskegee University employee,
by the school.                                            was sentenced to 6 months of home confinement,
                                                          3 years of probation, and was ordered to pay more
Washington State - Actions Taken Against Two              than $122,000 in restitution.
Former Officials of Defunct Crown College. The
former vice president was sentenced and former            California - Actions Taken Against Participants
financial aid director pled guilty for their roles in a   in Fraud Scheme at Los Rios Community College
scheme where they and other officials of the now-         District. In our last Semiannual Report, we reported
defunct proprietary school falsely represented            that six individuals were indicted, two of whom pled
themselves and others as students in order to apply       guilty for their roles in a $200,000 fraud scheme
for and receive Federal financial aid. They did so        at the Los Rios Community College District, an
believing that the school would be closed shortly         accredited higher education district with campuses
after they received the aid and planned to apply for      that include American River College, Cosumnes River
loan discharges once the school officially closed.        College, and Sacramento City College. The scam
When the school remained open, they attempted to          involved individuals with no intention of attending
conceal their activity by making it appear as though      any of the Los Rios schools applying for admission to
they were attending classes. As a result of their         the schools in order to fraudulently obtain Federal
fraudulent efforts, the officials and others received     student aid. During this reporting period, three of
more than $65,000 in Federal student aid to which         the individuals were sentenced and the ringleader
they were not entitled. The former vice president         pled guilty for the roles they played. The individuals
was sentenced to 4 months of home confinement, 3          received sentences ranging from 3 months of home
years of probation, and was ordered to pay $21,000        confinement to 2 years in prison, and were ordered
in restitution.                                           to pay restitution ranging from approximately
                                                          $23,000 to more than $118,800.

                                                                                   Office of Inspector General Semiannual Report   8
Iowa - Actions Taken Against Participants in              Pennsylvania - Identity Theft Ring Members
Fraud Scam at Kirkwood Community College.                 Charged. Six individuals were charged in a 41-count
One man was sentenced to 3 years in prison and            indictment for their roles in an identity theft
was ordered to pay nearly $139,000 in restitution and     scam involving several student loan lenders. The
another pled guilty for their roles in a fraud scheme     indictment alleges that the individuals engaged in
at Kirkwood Community College. The scheme                 a scheme to defraud lenders of more than $600,000
involved the fraudulent enrollment of students in the     by submitting false certifications of employment,
school for the purposes of obtaining Federal student      educational enrollments, and stolen identities.
aid and arranging for the Federal loan proceeds to be
directed to post office boxes under their control.        Other Individuals
                                                          Minnesota - Actions Taken Against Individuals
Missouri - Actions Taken Against 10 Individuals           for Stealing Student Data from ECMC. Two
for Roles in GED Fraud Scam. One individual               individuals were charged and another pled guilty
pled guilty to fraud and nine others entered into         for their roles in stealing two safes from ECMC,
pretrial diversion agreements for their roles in          a guaranty agency of Federal student loans.
a GED fraud scam. The individuals purchased               The safes contained computer discs that held
fake GED certificates that they used to apply for         personally identifiable information of more than
admission into institutions of higher education in        3 million student loan borrowers. The individuals
order to obtain Federal student aid. The individuals      discarded the safes and computer discs in a
purchased the fake certificates from a former             dumpster in Minneapolis shortly after the theft
admissions representative at Vatterott College-St. Ann,   after realizing money was not in the safes.
Missouri campus, who in 2008, was sentenced to
11 years in prison and was ordered to pay over            Wisconsin - Individual Sentenced for Fraud. A
$653,000 in restitution for manufacturing and             man was sentenced to 2 years in prison and was
selling fake GED certificates. The nine individuals       ordered to pay more than $340,000 in restitution for
agreed to pay restitution ranging from $1,150             student aid fraud. The individual, who had previously
to more than $7,000. The individual who pled              graduated from the University of Durham in England,
guilty received more than $4,300 as a result of the       forged documents in order to continue to receive
fraud and assisted at least two other individuals in      student loans by claiming he was still attending the
obtaining counterfeit certificates, which enabled         school. Over the course of several years, the man
them to receive more than $10,000 in Federal              defaulted on the loans and used several different
student aid.                                              social security numbers to obtain additional loans.


Other Activities
OIG Testifies Before Two                                  student aid it disbursed to its students, its rapid
Committees on Higher Education                            expansion into distance education, and the
Issues                                                    significant increase in the number of enrollment
                                                          advisors it employed over a short period of time.
Senate Health, Education, Labor, and Pensions             These were all risk factors that could impact an
Committee                                                 institution’s ability to adequately administer the
Inspector General Tighe testified before the U.S.         Federal student aid programs. She presented the
Senate Committee on Health, Education, Labor,             findings of our audit, which identified deficiencies
and Pensions on our audit of Ashford University’s         in Ashford’s administration of selected Federal
administration of selected Federal student aid            student aid programs, as described previously in this
programs. Inspector General Tighe explained               Semiannual Report. Inspector General Tighe also
that Ashford was chosen for audit because of the          updated the Committee on OIG investigative work in
tremendous growth in the amount of Federal                the distance education arena and shared with them
9   Office of Inspector General Semiannual Report
information on other work the OIG is conducting        hours for which the student is enrolled. Inspector
involving distance education. This includes an         General Tighe told the Subcommittee that this
audit to determine what the Department has done        issue has become more significant in recent years
and can do to help reduce the risks associated         because of the explosion of on-line education, the
with distance education at all institutions, and a     difficulty of making credit hour assignment, the
report on the vulnerabilities OIG investigative work   challenge of comparing it to traditional classroom
has identified that will also recommend program        delivery, and ensuring that its value is increasingly
enhancements to help mitigate these vulnerabilities.   important so that students and taxpayers get what
                                                       they are paying for. The Inspector General provided
House Education and the Workforce                      the Subcommittee with information on our work
Subcommittee on Higher Education and                   involving accrediting agencies, which found that
Workforce Training                                     none of the regional accrediting agencies reviewed
Inspector General Tighe testified before the House     defined a credit hour or provided guidance on the
Education and the Workforce Subcommittee on            minimum requirements for the assignment of credit
Higher Education and Workforce Training on our         hours. She explained that this could result in the
work involving the definition of a credit hour—a       over-awarding of Federal student aid and excessive
critically important issue in Federal student aid      borrowing by students especially with distance,
programs, because the amount of Federal aid a          accelerated, and other programs not delivered
student can receive is based on the number of credit   through the traditional classroom format.




                                                                                Office of Inspector General Semiannual Report 10
      OTHER ACTIVITIES
      Participation on Committees, Work Groups,                Department’s Dear Colleague
      and Task Forces                                          Letter, GEN-11-05, Implementation
                                                               of Program Integrity Regulations. The
      OIG-FSA Risk Project - OIG staff work with FSA staff     Department accepted many of our
      to identify risks and reduce fraud and abuse in          suggestions for improvement but
      Federal student aid programs.                            did not agree to change part of its
                                                               guidance on changes to the incentive
      Review of Legislation, Regulations, Directives,          compensation regulations that go
      and Memoranda                                            into effect on July 1, 2011. As a result,
                                                               we non-concurred on that portion
                  ♦   Purchase of Outstanding FFELP Loans      of the guidance that permits third
                      - We provided technical comments         parties that provide a bundle of
                      to the Department on proposed            services to an institution, including
                      legislation to authorize the Secretary   recruiting, to be compensated by a
                      to purchase certain FFELP loans.         percentage of revenue earned by the
                                                               institution. We do not believe that the
                  ♦   Program Integrity Regulations            existing statutory ban on incentive
                      - We provided comments to the            compensation allows any incentive
                      Department on its final program          payments to entities involved in
                      integrity regulations published on       recruiting based on their success
                      October 29, 2010, that established       in enrolling students. As noted in
                      the process under which an               Semiannual Report No. 45, we similarly
                      institution will apply for approval      non-concurred with the Department’s
                      to offer an educational program          2002 incentive compensation
                      that leads to gainful employment         regulations that created a safe harbor
                      in a recognized occupation. We           permitting such payments.
                      also provided suggestions to the




11 Office of Inspector General Semiannual Report
          Goal 3: Protect the Integrity of the Department’s
          Programs and Operations by Detecting and
          Preventing Vulnerabilities to Fraud, Waste,
          and Abuse.

Our third strategic goal focuses on our commitment to aggressively root out waste, fraud, and abuse involving
Department programs and operations. Through our audit and investigative work, proactive data analyses,
and other reviews, we assess fraud risk, evaluate fraud indicators, and perform testing to detect waste, fraud,
and abuse. This work can result in criminal and civil investigations of fraud in the Department’s programs
and operations. Summaries follow of our more significant investigative efforts. In addition, below we
provide information on our work involving the Puerto Rico Department of Education’s noncompliance with
appropriate statutes and regulations in its awarding of personal services contracts and the $57.75 million
settlement agreement between the Federal Government and four student lenders.


Audit-Related Actions
Puerto Rico - Puerto Rico Department of                   Two months later, we issued a report to the
Education Award and Administration of Personal            Department to apprise it of the continuing risks
Services Contracts                                        associated with PRDE’s use of Department funds for
We issued two reports related to PRDE’s awarding          PSCs. Our report highlighted an investigation that
and administration of personal services contracts         identified more than $450,000 in fraudulent PSCs.
(PSCs). In January, we issued an audit report that        We recommended that the Department prohibit
found that PRDE lacked sufficient controls to ensure      PRDE from using Department funds for any PSCs
compliance with State and Federal laws in awarding        until PRDE demonstrates that it has implemented
PSCs and in ensuring that those services were             sufficient controls to assure those funds are used for
allowable and adequately supported. PRDE did not          the intended purpose. The Department agreed that
maintain adequate information to reconcile data           the issues with PRDE’s award and administration of
in its financial accounting and payment systems.          PSCs are significant and warrant corrective actions,
The total expenditures recorded in PRDE’s financial       and it stated it had requested that PRDE provide
accounting system for PSCs paid with Department           evidence of the controls implemented over PSCs
funds were about $15 million less than the total          to ensure that Department funds are safeguarded.
payments recorded in PRDE’s paper-based and               It also requested that PRDE direct its Internal
other payment systems. Also, PRDE did not provide         Audit Office to review the PSC controls and their
adequate support for more than $147,600 of the            effectiveness to determine any necessary further
more than $459,000 it expended for services under         action.
the PSCs reviewed. Without adequate and reliable
documentation in support of payments, PRDE                Lenders Agree to $57.75 Million Settlement
cannot ensure that the services were allowable.           During this reporting period, there was subsequent
Based on the results of our review, we consider           development related to a prior OIG audit. The
PSCs a high-risk contracting vehicle, and made a          student lender Nelnet and three other lenders
number of recommendations, including that the             agreed to a $57.75 million settlement to resolve
Department require PRDE to reconcile the $15 million      allegations that they improperly inflated their
discrepancy. PRDE did not agree with all of our           entitlement to special allowance payments in
findings or recommendations.                              violation of the False Claims Act. As part of the
                                                          settlement, Nelnet agreed to pay $47 million to the


                                                                                   Office of Inspector General Semiannual Report 12
Federal government, Southwest Student Services           $16.65 million from the settlements. According to
Corp. $5 million, Brazos Higher Education Authority      the complaint, our 2006 audit of Nelnet established
and Brazos Higher Education Services Corp.               that it had made illegal claims for special allowance
$4 million, and Panhandle Plains Higher Education        payments. Our audit had found that Nelnet was
Authority and Panhandle Plains Management                improperly paid more than $278 million in special
and Servicing Corp. $1.75 million. The settlement        allowance payments for loans from the quarter
resolved a whistleblower action filed by a former        ended March 31, 2003, through the quarter ended
Department of Education employee who alleged             June 30, 2005. We also had estimated that Nelnet
that several lenders participating in the Federal        could be improperly paid about $882 million for the
student aid programs created billing systems that        ineligible loans after June 2005, if its billings were not
allowed them to receive improperly inflated interest     corrected.
rate subsidies from the Department. He will receive


 Investigations
Schools and School Officials                             District of Columbia - Financial Executive
American Samoa – Territorial Education Official          Agrees to Settlement. Accused in 2006 of
Pled Guilty. In January, the director of the school      defrauding the District of Columbia of funds
bus division of the American Samoa Department            designated for charter schools, the chairman/
of Education pled guilty to conspiracy to commit         CEO/president of SBM Investment Certificates,
bribery. The official admitted to participating in       Inc. (SBMIC) agreed to pay $130,000 to settle
a scheme that involved other American Samoa              the matter. The settlement resulted from our
Department of Education employees as well as the         investigation with the U.S. Securities and Exchange
owner and operator of a company that sold school         Commission (SEC) Office of Enforcement, which
bus parts to the American Samoa government. The          found that the District invested more than $21
official and others arranged to order “phantom” bus      million with SBMIC using District and Federal
parts that were never received and parts that were       funds earmarked for the District of Columbia
purchased at inflated prices. In exchange for these      Charter School Credit Enhancement Fund. The
fraudulent orders, the official and the co-conspirator   executive failed to disclose that he invested most
received approximately $300,000.                         of the money in companies related to SBMIC
                                                         in an effort to keep them afloat. The SEC also
California - Former El Centro Elementary School          alleged that his businesses maintained insufficient
District Superintendent and Two Former San               reserves and misled investors about the safety
Diego State University Professors Indicted. The          of the investments and that the executive failed
former superintendent and two former professors          to disclose that he had business relationships
at San Diego State University’s Imperial Valley          with people who were involved in the D.C.
Campus were indicted for allegedly diverting             government’s decision to invest with him. The
Federal grant money for their own use and benefit.       executive agreed to pay a penalty of $130,000
As a part of the scheme, the superintendent              for violating SEC rules that required investment
allegedly authorized the payment of $395,000 for         companies to disclose all material facts related to
an independent external evaluation of a teacher          financial conditions and operations of a company’s
training project at the university, all of which         investments. 
was directed to an entity controlled by one of
the professors. The entity paid $90,000 to the           Florida - Former Polk County School Board
superintendent for work that he did not perform          Official Pled Guilty. The former Polk County
and $152,750 to the other professor.                     School Board Assistant Superintendent for Facilities
                                                         and Operations pled guilty to conspiracy to

13 Office of Inspector General Semiannual Report
commit bribery. The former official played a key         on district construction contracts. The individuals’
role in awarding school construction contracts           sentences ranged from 2 years probation to 3 years
and used his position to influence the process.          in prison and fines from $3,000 to $25,000.
Between 2004 and 2008, the former official
received nearly $50,000 in bribes from a vendor in       Contractors
exchange for his support on contract awards.             Connecticut - Woman Posing as an Autism
                                                         Therapist Sentenced. A woman claiming to
Kentucky - Former Not-For-Profit Executive               be an autism therapist was sentenced to 8 years
Director Sentenced. The former president of              in prison for forging fraudulent credentials and
the National Center on Public Education and              college degrees with which she fleeced more
Prevention (NCPEP) was sentenced to 46 months            than $400,000 from the Norwalk and Weston
of imprisonment and 2 years of supervised release        Public School systems and families with autistic
for his role in a criminal scheme involving a former     children. As a result of this case, the Connecticut
University of Louisville Dean of Education. The          State Legislature recently introduced legislation
two conspired to embezzle and to launder Federal         aimed at increasing penalties for individuals
funds belonging to the University of Rhode Island,       who fraudulently represent themselves as board
the University of Louisville, and additional funds       certified behavior analysts.
designated for the Illinois Rock Island County Council
on Addiction. The two accomplished their scheme          New Jersey - Two Former School Officials
by claiming payment for work performed by NCPEP          Pled Guilty. The former athletic director of Long
when no actual services were provided. As a result       Branch High School and the former equipment
of their fraudulent efforts, more than $2 million in     manager for Elizabeth Public Schools pled guilty
funds was deposited into bank accounts that were         to charges related to a conspiracy scam involving
controlled by the two conspirators. The former dean      a company once known as Circle Systems Group
was sentenced for his role in the scheme last year.      (CSG), a nationally recognized sports equipment
                                                         and reconditioning company. The two officials
Louisiana - Former Southern University                   accepted bribes from the company in exchange
Associate Professor and IT Director Indicted.            for awarding contracts to CSG. We reported
Two officials of the Southern University and             previously that the former president and part
Agricultural and Mechanical College (Southern            owner of CSG pled guilty for submitting hundreds
University) were charged in a 17-count indictment        of fraudulent invoices and other paperwork to
for allegedly using their positions at the school        schools, sometimes with the knowledge of school
to commit fraud. The two allegedly formed two            purchasing officials, and routinely double-billed
shell companies purportedly offering computer            schools in an effort to increase CSG’s sales and
equipment and then initiated the purchase of             revenue.
equipment from those companies for the school,
but the equipment was never received as ordered.         Texas - Former El Paso School District Official
As a result of these fraudulent efforts, the two         and Contractor Indicted. The former Associate
allegedly received more than $157,300.                   Superintendent of the El Paso Independent
                                                         School District and the owner of the now-defunct
Texas - Six School District Officials and Five           Strategic Governmental Solutions, Inc. (SGS), a
Contractors Sentenced. A former school                   school district contractor, were indicted for their
superintendent from the Pharr-San Juan-Alamo             roles in a bribery and fraud scheme. The contractor
Independent School District (PSJA-ISD), a trustee of     allegedly bribed the former administrator in
the Edcouch Elsa Independent School District, four       order to obtain a contract with the school district
PSJA-ISD school board trustees and five contractors      worth several million dollars. In exchange for his
were sentenced for their roles in a bribery and          support in the contracting process, the former
extortion scheme. The former school officials            administrator allegedly received cash, campaign
accepted bribes in exchange for favorable votes          contributions, other bribes, and kickbacks.
                                                                                 Office of Inspector General Semiannual Report 14
      OTHER ACTIVITIES
      Participation on Committees, Work Groups,          ♦   Draft Legislation - Inspector General
      and Task Forces                                        Authority Improvement Act - We
                                                             commented that testimonial
      Northern Virginia Cyber Crime Working Group            subpoena authority for IGs could be
      - OIG participates in a work group of various          a useful tool, particularly in audits or
      Federal, State, and local law enforcement              investigations of third parties, such as
      agencies conducting cyber crime investigations         contractors or grantees.
      in Northern Virginia. The purpose is to share
      intelligence and collaborate on matters that may   ♦   U.S. Department of Justice/OMB
      impact multiple agencies.                              Proposal Regarding Grant Fraud - We
                                                             commented that grantees should
      Review of Legislation, Regulations, Directives,        report grant overpayments that are
      and Memoranda                                          not fraudulent to the grant program
                                                             officer with a copy to the OIG but
      Council of Inspectors General on Integrity and         should report knowing retention of
      Efficiency (CIGIE)                                     overpayments directly to the OIG.




15 Office of Inspector General Semiannual Report
          Goal 4: Contribute to Improvements in
          Department Business Operations.


Effective and efficient business operations are critical to ensure the Department effectively manages
its programs and protects its assets. Our fourth strategic goal speaks to that effort. Our reviews of the
Department’s financial management, IT security, and other Departmental operations 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 our efforts in this area over
the last 6 months.

Financial Management
Financial Statement Audits                                 the Department’s financial management systems
In November 2010, OIG transmitted the final audit          did not substantially comply with certain systems
reports covering the Department’s and FSA’s                requirements of the Federal Financial Management
FY 2010 financial statements. Both the Department          Improvement Act because of control weaknesses
and FSA earned unqualified (clean) opinions on             surrounding information systems. The Department
their financial statements; however, the Report on         and FSA concurred with the findings and
Internal Control for both audits noted modified            recommendations in the reports.
repeat significant deficiencies relating to credit
reform estimation and financial reporting processes        FY 2010 Special Purpose Financial Statements
and to controls surrounding information systems.           In November 2010, OIG also transmitted the final audit
Although the audits, both of which were prepared           report covering the Department’s FY 2009 and FY 2010
by an IPA, disclosed no instances of noncompliance         special purpose financial statements. The Department
or other matters that are required to be reported          earned a clean opinion on the statements. There were
under Government Auditing Standards or OMB                 no material weaknesses in internal controls and no
Bulletin No. 07-04, as amended, they did note that         instances of noncompliance reported.


IT Security Management
FISMA Reviews                                              its agency-wide information security program.
FISMA requires each Federal agency to develop,             For instance, the Department established and
document, and implement an agency-wide program             is maintaining programs for certification and
to provide information security for the information        accreditation, tracking and monitoring known
and information systems that support the operations        information security weaknesses, and contingency
and assets of the agency. It also requires Inspectors      planning that are generally consistent with National
General to perform independent evaluations of              Institute of Standards and Technology and OMB
the effectiveness of information security control          requirements. In addition, we found that policy and
techniques and to provide assessments of the               procedures were developed for security awareness
agency’s compliance with FISMA. In support of              and specialized security training. However, we
our FY 2010 FISMA requirement, we found that               also identified areas where the Department
the Department had taken steps in strengthening            could improve its agency-wide information


                                                                                    Office of Inspector General Semiannual Report 16
security program. These program areas included              and reporting, remote access, account and identity
configuration management, incident response                 management, and continuous monitoring.

 Other Departmental Operations
Review of the Department’s Compliance with                  Inspector General Testifies before House
Restrictions on the Use of Appropriated Funds               Appropriations Subcommittee on Improper
for Lobbying                                                Payments
At the request of Representative John Kline,                Inspector General Tighe testified before the House
then Ranking Member of the U.S. House of                    of Representatives Committee on Appropriations
Representatives Committee on Education and the              Subcommittee on Labor, Health and Human
Workforce, we conducted an inspection to determine          Services, Education, and Related Agencies on our
whether the Department violated the lobbying                work regarding improper payments. She shared
restrictions of 18 U.S.C. § 1913 (Section 1913) by          with the Subcommittee that our improper payments
improperly using appropriated funds for lobbying            work has evolved and increased over the years with
activities related to pending amendments to the             passage of measures requiring OIG to intensify its
HEA in the Student Aid and Fiscal Responsibility Act of     monitoring of the Department’s activities related
2009. We also reviewed whether the Department               to improper payments and recovery audits. OIG
violated the lobbying restrictions of the Omnibus           efforts have included evaluating specific Department
Appropriations Act, 2009. Based on existing guidance        controls to prevent and detect improper payments,
from the U.S. Department of Justice and the GAO,            reviewing and providing recommendations on the
we found that the correspondence and statements             Department’s improper payment risk assessments,
by Department officials that we reviewed did not            auditing FSA’s methodology for estimating improper
violate the prohibitions on the use of funds for            payments in the FFELP, and conducting audits and
lobbying contained in Section 1913 or the Omnibus           other reviews of major recipients of Federal funds.
Appropriations Act, 2009. In response to our findings,      The Inspector General noted that where we have
the Department stated that it would continue to             identified improper payments, we have provided
uphold the “highest standards” with respect to              recommendations for improvement to which the
prohibiting lobbying activities and the proper use of       Department generally has been receptive and
appropriated funds, and that it would incorporate           has taken corrective actions to address identified
an analysis of our report into future training of key       weaknesses, which in some cases, has led to the
Department employees.                                       recapture of improperly disbursed funds.


 Non-Federal Audit Activities
Quality Control Reviews                                     IPAs in accordance with audit guides issued by the
OMB Circular A-133 requires entities, such as State         OIG. These audits assure the Federal government
and local governments, universities, and non-               that recipients of Federal funds comply with laws,
profit organizations that expend $500,000 or more           regulations, and other requirements that are material
in Federal funds in one year to obtain an audit,            to Federal awards. To help assess the quality of the
referred to as a “single audit.” Additionally, for-profit   thousands of single audits performed each year,
institutions and their servicers that participate in the    OIG conducts quality control reviews (QCRs) of
Federal student aid programs and for-profit lenders         a sample of audits. During this reporting period,
and their servicers that participate in the FFELP are       we completed 26 QCRs of audits conducted by 26
required to undergo annual audits performed by              different IPAs, or offices of firms with multiple offices.



17 Office of Inspector General Semiannual Report
We concluded that 12 (46 percent) were acceptable      Audit Team issued two audit guides related to the
or acceptable with minor issues, and 14 (54 percent)   Federal student aid programs.
were technically deficient.                             
                                                       Lender Compliance Attestation Engagement Guide for
Audit Guides                                           Lenders Holding Federal Family Education Program
In accordance with HEA regulations, OIG produces       Loans - provides IPAs with updated guidance for
guides to assist IPAs in performing audits of          testing lenders’ compliance with laws and regulations
participants in the Federal student aid programs.      pertaining to FFELP.
These audits must be performed in accordance
with Government Auditing Standards and help            Lender Servicer Financial Statement Audit and
the Federal Government ensure that entities            Compliance Attestation Engagement Guide for
participating in the Federal student aid programs      Lender Servicers Servicing Federal Family Education
and their third-party servicers provide reliable       Loan Program Loans - provides guidance to IPAs for
financial data and have internal controls in place     performing financial statement audits and provides
to provide reasonable assurance that participants      updated guidance for testing compliance with laws
are managing the Federal student aid programs in       and regulations pertaining to FFELP by third-party
compliance with applicable laws and regulations.       servicers who provide services on behalf of lenders
During this reporting period, the OIG Non-Federal      participating in FFELP.


Investigations
Unlawful Access to National Student                    Department Contractors
Loan Data System (NSLDS)                               Iowa - Actions Taken Against Former
                                                       Contractor Employees. Six former FSA Call
Department Employee                                    Center contractor employees were sentenced for
Employee Sentenced. An FSA employee was                unlawfully accessing NSLDS.  All were employees
sentenced to one year probation and was ordered        of Vangent, Inc., a contractor responsible for
to pay a $500 fine for exceeding her access to         maintaining a call center for student borrowers
NSLDS without authorization. The employee              and for the debt collection of student loans.  The
admitted that between April 2006 and May 2009,         individuals, who were located in Vangent’s Iowa
she logged into NSLDS and repeatedly searched          City office, exceeded their authorized access
for and viewed the confidential student loan           into NSLDS when they used their accounts to
records of several hundred people, including           look up the personal information of President
musicians, actors, family members, friends, and        Obama and/or the First Lady without a legitimate
other individuals.  The employee admitted she had      business need or appropriate authority.  Five
no official government reason to access and to         of the former contractor employees were
view these student loan records applications, and      sentenced to one year of probation; one received
her sole purpose in accessing and viewing these        a sentence of 6 months of home confinement
records was idle curiosity.                            and 2 years of probation.




                                                                               Office of Inspector General Semiannual Report 18
      OTHER ACTIVITIES
      Participation on Committees, Work Groups,                    Network Work Group, the CIGIE Cyber
      and Task Forces                                              Security Working Group, and CIGIE’s Federal
                                                                   Audit Executive Council’s (FAEC) Professional
      Department                                                   Development Committee. OIG also
         ♦ Department of Education Senior Assessment               participates in the FAEC Financial Statement
           Team - OIG participates in an advisory                  Audit Committee, the Financial Audit
           capacity on this team, which provides                   Manual Revisions Workgroup, the FAEC IT
           oversight of the Department’s assessment                Committee, the Council of Counsels to the
           and reports on internal controls and                    Inspectors General, the Cloud Computing
           provides input to the Senior Management                 Working Group, and the newly-formed
           Council concerning the overall assessment               CIGIE New Media Working Group.
           of the Department’s internal control
           structure, as required by the Federal                      CIGIE/GAO Financial Statement Audit
           Managers’ Financial Integrity Act of 1982,                 Conference - During this reporting
           and OMB Circular A-123, Management’s                       period, an OIG audit director chaired
           Responsibility for Internal Control.                       the planning committee for the
                                                                      CIGIE/GAO Financial Statement Audit
             ♦   Department of Education Investment Review            Conference. The conference provided
                 Board and Planning and Investment Review             free continuing professional education
                 Working Group - OIG participates in an               for more than 500 IG, GAO, and
                 advisory capacity on these groups that               contracted IPA staff. The conference
                 review IT investments and the strategic              training covered current issues related
                 direction of the IT portfolio.                       to the annual financial statement audits
                                                                      and related standards, including topics
             ♦   Department Human Capital Policy Working              on accountability issues, accounting
                 Group - OIG participates in this working             standards updates, and Federal financial
                 group, which meets monthly to discuss                management.
                 issues, proposals, and plans related to
                 human capital management.                            New Auditor Training - During this
                                                                      reporting period, OIG led coordination
      Inspector General Community                                     of the first three sessions of CIGIE-
          ♦ CIGIE - OIG staff play an active role in                  sponsored Introductory Auditor
            CIGIE efforts. Inspector General Tighe is                 Training. The training provides entry-
            a member of CIGIE’s Audit Committee,                      level IG auditors with the concepts,
            Investigations Committee, Information                     practices, skills, and standards that
            Technology (IT) Committee, and also the                   Federal government auditors apply in
            Interagency Coordination Group for Guam                   their work. The staff from several OIGs
            Realignment. In addition, Inspector General               have worked together to train 89 new
            Tighe is a member of the Suspension                       auditors as of April 8, and they plan to
            and Debarment Working Group, which                        hold three more sessions this fiscal year.
            is a Subcommittee of the Investigations
            Committee. OIG staff also chair the AIGI         Office of Management and Budget
            Investigations Subcommittee, the IT                  ♦ Interagency Task Force on Reporting Fraud,
            Subcommittee for Investigations, the Audit              False Claims, and Significant Overpayments
            Committee’s Financial Statement Audit

19 Office of Inspector General Semiannual Report
        - OIG participates in this task force that is           support the mission of the National Science
        analyzing and will make recommendations                 and Technology Council’s Subcommittee on
        related to a proposal to mandate the                    Forensic Science.
        reporting of fraud, false claims, and
        significant overpayments by grantees in         Reviews of Legislation, Regulations, Directives,
        Federal regulations.                            and Memorandum

Federal and State Audit-Related Groups and              Legislative Measures
Entities                                                    ♦ OMB Draft Guidance on Improper Payments
    ♦ Chief Financial Officers Council Federal                 - We provided comments regarding
       Reporting Model Work Group - OIG                        OMB’s draft requirements for effective
       participates in this work group, which                  measurement and remediation of
       focuses on developing and implementing                  improper payments, including clarifying
       revisions to the Federal financial reporting            terms and definitions, reporting fraud to
       model in order to better deliver financial              OIGs, and requiring contracted auditing
       information needed by taxpayers and                     firms to be familiar with agency policies
       decision makers.                                        for safeguarding confidential financial
                                                               information.
    ♦   Comptroller General’s Advisory Council on
        Government Auditing Standards - OIG staff           ♦   S. 372, Whistleblower Protection Enhancement
        serve on this council, which provides advice            Act of 2009 - We provided comments
        and guidance to the Comptroller General                 regarding the Act’s requirement that
        on government auditing standards.                       each Inspector General designate a
                                                                Whistleblower Protection Ombudsman
    ♦   Intergovernmental Audit Forums - OIG staff              to advocate for the interests of agency
         chair and serve as officers for a number of            employees or applicants who make
         intergovernmental audit forums, which                  protected disclosures. We commented
         bring together Federal, State, and local               that IGs are required to be neutral under
         government audit executives who work to                the IG Act, and thus should not advocate
         improve audit education and training and               for any individual’s interest, and also that an
         exchange information and ideas regarding               Ombudsman is not needed because IGs
         the full range of professional activities              already provide outreach and information
         undertaken by government audit officials.              on whistleblower protection.
         OIG staff chair the Midwestern Forum, the
         Southeastern Forum, and serve as officers          ♦   Ethics in Government Modernization Act
         on the Southwestern Forum and the New                  - We provided comments related to the
         Jersey-New York Forum.                                 measure’s proposed requirement that OIGs
                                                                report violations of conflicts of interest laws
    ♦   Interagency Working Group for Certification             to the Office of Government Ethics.
         and Accreditation - OIG participates in
         this working group, which exchanges                ♦   Executive Order - We provided technical
         information relating to Federal                        comments to a proposed Executive Order
         forensic science programs that share                   on the Executive Branch Pay Freeze.
         intergovernmental responsibilities to




                                                                                    Office of Inspector General Semiannual Report 20
Annexes


 Annex A - Contract-Related Audit Products with Significant Findings
 The following is provided in accordance with Section 845 of the National Defense Authorization Act for
 Fiscal Year 2008, 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 did not issue any contract-related reports that contained significant findings during this reporting
 period.



  Annex B - Peer Review Results
  Title IX, Subtitle I, Sec. 989C of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law
  No. 111-203) requires the Inspectors General to disclose the results of their peer reviews in their Semiannual
  Reports to Congress.
  During this reporting period, a peer review was conducted of our investigative processes, but no report
  has yet been issued.  As indicated in our previous Semiannual Report, the last peer review completed of
  our investigative processes was in February 2008, and we implemented all recommendations from that
  peer review. The last peer review of our audit processes was conducted in July 2008 and there were no
  recommendations.  During this reporting period, the OIG conducted a peer review with the assistance of
  several other Offices of Inspector General of the Tennessee Valley Authority Office of Inspector General Audit
  Organization.  Our peer review report did not make any recommendations and there were no outstanding
  recommendations from any previous peer review.




21 Office of Inspector General Semiannual Report
           Required Tables


Reporting Requirements of the Inspector General Act, as amended
     Section                                   Requirement                                      Table Number
                                                (Table Title)
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
                                     (October 1, 2010, through March 31, 2011)
5(a)(5) and 6(b)                    Summary of Instances where Information                               N/A
(2)                                        was Refused or Not Provided
5(a)(6)                                           Listing of Reports                                       2
                            Audit, Inspection, and Evaluation Reports on Department
                                                Programs and Activities
                                     (October 1, 2010, through March 31, 2011)
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 October 1, 2010

                        Summary of Unresolved Reports Issued During the Previous
                      Reporting Period Where Management Decision Has Not Yet Been                        5-B
                                                   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                                     N/A
                                 Established by the Department Under the
                          Federal Financial Management Improvement Act of 1996




                                                                                Office of Inspector General Semiannual Report 22
 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 Significant    Projected
  Number            (Prior Semiannual Report (SAR)         Issued      Management     Recommendations        Action Date
                           Number and Page)                             Decision     Open    Completed

 AUDIT REPORTS
 Federal Student Aid (FSA)
 A11J0001            Security over Certification and    10/13/2009      11/18/2009      2         20         10/31/2011
                     Accreditation for Information
                     Systems (Report is also
                     addressed to the Office of the
                     Deputy Secretary (ODS), and
                     some recommendations are
                     made jointly to FSA and the Office
                     of the Chief Information Officer
                     (OCIO)) (SAR 60, page 38)


 Office of the Chief Financial Officer (OCFO)

 A17H0003            Financial Statement Audits           11/15/2007    9/26/2008       1          3          8/2/2011
                     for FY 2007 and FY 2006 -U.S.
                     Department of Education 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          10/3/2011
                     for FY 2008 and FY 2007 - U.S.
                     Department of Education (FSA
                     also designated as an action
                     official) (SAR 58, page 31)
 OCIO
 A11I0006            Incident Handling and Privacy        6/10/2009      9/9/2009       1         17          9/30/2011
                     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       2           4         12/31/2011
                     Prior Experience Points in the
                     2006 Educational Opportunity
                     Centers and Talent Search Grant
                     Competitions (SAR 57, page 27)




23 Office of Inspector General Semiannual Report
Table 2: Audit, Inspection, Evaluation, and Other Reports and Products on
Department Programs and Activities (October 1, 2010, through March 31, 2011)
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                  Recommen-
                                                                                                       dations
AUDIT REPORTS
FSA
A04J0019    Wells Fargo Bank, National             2/3/11                                                     1
            Association’s Management of
            Collection Account Funds and
            Oversight Activities under the
            ECASLA Loan Participation
            Purchase Program

A05I0014    Ashford University’s                  1/21/11     $29,036                                        13
            Administration of the Title IV HEA
            Programs
A05K0001    Educational Credit Management          3/3/11     $225,5422                                      10
            Corporation’s 2006 Agreement
            with the U.S. Department of
            Education
A09J0009    Zions First National Bank’s           10/18/10                                                    2
            Management of Collection
            Account Funds and Oversight
            Activities under the ECASLA Loan
            Participation Purchase Program
A17K0002    Financial Statement Audits            11/15/10                                                    7
            FY 2010 and FY 2009 - FSA

OCFO
A17K0001    Financial Statement Audits            11/15/10                                                    7
            for FY 2010 and FY 2009 - U.S.
            Department of Education
A17K0003    Financial Statement Audits            11/15/10                                                 None
            for FY 2010 and FY 2009 - U.S.
            Department of Education Special
            Purpose Financial Statements
ODS
A03K0003    Commonwealth of Pennsylvania’s        12/21/10       $4,5683      $438,835                        11
            Local Educational Agencies’
            Systems of Internal Controls over
            Recovery Act Funds (OCFO, Office
            of Elementary and Secondary
            Education (OESE), Office of Special
            Education and Rehabilitative
            Services (OSERS), and Risk
            Management Service (RMS) are also
            designated as action officials)




                                                                               Office of Inspector General Semiannual Report 24
    Report                             Report Title             Date        Questioned   Unsupported    Number
    Number                                                     Issued         Costs1        Costs      of Recom-
                                                                                                       mendations
 A04K0001              Systems of Internal Controls over       12/16/10                   $2,051,000       16
                       Selected Recovery Act Funds
                       in Puerto Rico (OCFO, OESE and
                       OSERS are also designated as action
                       officials)
 A06K0002              Oklahoma: Use of Funds and Data         2/18/11         $69,728   $16,081,075       10
                       Quality for Selected Recovery Act
                       Programs (OESE and OSERS are also
                       designated as action officials)
 OESE
 A02K0003             Kiryas Joel Union Free School            2/2/11       $276,443     $191,124         54
                      District Title I, Part A of the ESEA
                      and Individuals with Disabilities
                      Education Act Part B Expenditures

 A04J0005             Puerto Rico Department                   1/24/11     $15,046,816   $147,652         10
                      of Education’s Award and
                      Administration of Personal
                      Services Contracts (Office of
                      Vocational and Adult Education
                      (OVAE), Office of Safe and Drug-Free
                      Schools (OSDFS), and RMS are also
                      designated as action officials)

 INSPECTION REPORTS

 FSA
 I13K0001              Review of FSA’s Monitoring of            3/28/11                                    2
                       Financial Responsibility

 ODS
 I13K0003              Review of the Department of             12/29/10                                  None
                       Education’s Outreach Activities
                       Related to the Student Aid and
                       Fiscal Responsibility Act of 2009 for
                       Compliance with Restrictions on
                       Use of Appropriated Funds for
                       Lobbying
 OTHER REPORTS AND PRODUCTS
 OCIO
 S11K0002             2010 Annual FISMA Report (Special         11/12/10                                  None
                      Project)

 Office of Management (OM)
 A19I0005             Closure of OIG Audit of the               3/24/11                                   None
                      Appropriateness, Accuracy,
                      and Timeliness of Processing
                      Personnel Actions (Audit Closure
                      Memorandum)




25 Office of Inspector General Semiannual Report
    Report                      Report Title                       Date           Questioned          Unsupported                  Number
    Number                                                        Issued            Costs1               Costs                    of Recom-
                                                                                                                                  mendations
Office of Planning, Evaluation, and Policy Development (OPEPD)
B19L0001           OIG Independent Report on the                 1/31/11                                                                None
                   U.S. Department of Education’s
                   Detailed Accounting of FY 2010
                   Drug Control Funds (Attestation
                   Report)
Office of the Secretary (OS)
L04K0018           Insufficient Controls for the Puerto          3/18/11                                                                   2
                   Rico Department of Education’s
                   Use of Education Funds for
                   Personal Services Contracts (Alert
                   Memorandum)
OSDFS
B19L0001A          OIG Independent Report on the                 1/31/11                                                                None
                   U.S. Department of Education’s
                   Performance Summary Report for
                   FY 2010 (Attestation Report)
TOTALS:                                                                         $15,652,133            $18,909,686                        96
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, 1 OIG report identified an annual better
     use of funds (BUF) of $5.2 million. (See footnote 4 below.)
2
    The entire $225,542 is “monetary recoveries” made during audit A05K0001.
3
    The entire $4,568 is “monetary recoveries” made during audit A03K0003.
4
    Audit report A02K0003 identified an annual BUF of $5.2 million.




                                                                                                           Office of Inspector General Semiannual Report 26
      Description of Products
      Alert Memoranda are used to communicate to the               Typically, an inspection results in a written report
      Department significant matters identified that require       containing findings and related recommendations.
      the attention of the Department when the identified          Inspections are performed in accordance with quality
      matters are not related to the objectives of an on-going     standards for inspections approved by CIGIE.
      assignment or are otherwise outside the scope of the
      ongoing assignment. The matter may have been                 Investigative Program Advisory Reports are used to
      identified during an audit, attestation, inspection, data    report any systemic program or regulatory weaknesses,
      analysis, or other activity.                                 abuses, or deficiencies in the administration of
                                                                   Department programs or operations that are identified
      Attestation Reports convey the results of attestation        at any time during an investigation.
      engagements performed within the context of a stated
      scope and objective(s). Attestation engagements can          Special Projects are those by which OIG staff may
      cover a broad range of financial and non-financial           perform work that is not classified as an audit,
      subjects and can be part of a financial audit or a           attestation, inspection, or any other type of alternative
      performance audit. Attestation engagements are               product. Depending on the nature and work involved,
      conducted in accordance with American Institute              the special project may result in a report issued outside
      of Certified Public Accountants (AICPA) attestation          OIG. Information presented in the special project report
      standards, as well as the related AICPA Statements on        varies based on the reason for the special project (e.g.,
      Standards for Attestation Engagements.                       response to congressional inquiry, other evaluation and
                                                                   analysis, etc.). The report may contain suggestions.
      Audit Closure Memoranda are used to notify the
      audited entity of OIG’s decision to terminate the audit      OIG Product Web Site Availability Policy
      without issuing an audit report.                             OIG final issued products are generally considered to be
                                                                   public documents accessible on OIG’s Web site unless
      Inspections are analyses, evaluations, reviews, or studies   sensitive in nature or otherwise subject to Freedom of
      of the Department’s programs. The purpose of an              Information Act (FOIA) exemption. Consistent with the
      inspection is to provide Department decision makers with     FOIA, and to the extent practical, OIG redacts exempt
      factual and analytical information, which may include        information from the product so that non-exempt
      an assessment of the efficiency and effectiveness of their   information contained in the product may be made
      operations and vulnerabilities created by their existing     available on the OIG Web site.
      policies or procedures. Inspections may be conducted on
      any Department program, policy, activity, or operation.




27 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.
                                                                                                   Questioned2               Unsupported3
                                                                                Number
                                                                                                     Costs                      Costs
        A.    For which no management decision has been made                        46             $712,676,814                      $442,988,622
              before the commencement of the reporting period

        B.    Which were issued during the reporting period                          7             $34,561,819                         $18,909,686


              Subtotals (A + B)                                                     53            $747,238,633                     $461,898,308

        C.    For which a management decision was made during                       11             $164,867,985                      $104,525,756
              the reporting period

              (i) Dollar value of disallowed costs                                                 $145,354,842                      $104,521,933
              (ii) Dollar value of costs not disallowed                                            $19,513,143                                 $3,823
         D.   For which no management decision was made by                          42             $582,370,648                      $357,372,552
              the end of the reporting period
None of the products reported in this table were performed by the Defense Contract Audit Agency.
1


Questioned costs are identified during an audit, inspection, or evaluation because of: (1) an alleged violation of a law, regulation, contract,
2

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.
Unsupported costs are costs that, at the time of the audit, inspection, or evaluation, were not supported by adequate documentation.
3




    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                                                 1                         $5,200,000

                Subtotals (A + B)                                                                             3                     $18,527,577

         C.     For which a management decision was made during the reporting
                period

                (i) Dollar value of recommendations that were agreed to by                                    1                            $327,577
                management
                (ii) Dollar value of recommendations that were not agreed to by                               0                                      $0
                management
         D.     For which no management decision has been made by the end of the                              2                       $18,200,000
                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 28
 Table 5-A: Unresolved Audit, Inspection, and Evaluation Reports Issued Prior to
 October 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.
                                                                                             Total
     Report                                   Report Title                       Date                    Number of
                                                                                           Monetary
     Number                          (Prior SAR Number and Page)                Issued                Recommendations
                                                                                           Findings
 NEW SINCE LAST REPORTING PERIOD
 AUDIT REPORTS
 FSA
 A05I0012                Baker College’s Compliance with Selected Provi-         8/24/10    $9,790           5
                         sions of the HEA and Corresponding Regulations

                         Current Status: FSA informed us that it received
                         OIG’s comments to draft audit determination/
                         program determination letter (PDL) and the audit
                         clearance document on 3/30/2011. FSA is currently
                         working on getting final audit determination/PDL
                         approved and signed by FSA management.
 ODS
 A02K0005                Use of Recovery Act Funds and Reporting in              9/29/10                     7
                         Wisconsin (OSERS also designated as an action
                         official)
                         Current Status: We did not receive a response
                         from ODS/Implementation and Support Unit
                         (ODS/ISU) on this audit during this reporting
                         period.

 A06K0001                Systems of Internal Control Over Selected              9/29/10                      8
                         Recovery Act Funds in Louisiana (OSERS also
                         designated as an action official)
                         Current Status: We did not receive a response
                         from ODS/ISU on this audit during this reporting
                         period.

 A19J0001                Department’s Implementation of the State Fiscal 9/24/10                             4
                         Stabilization Fund Program
                         Current Status: We did not receive a response
                         from ODS/ISU on this audit during this reporting
                         period. OESE informed us that this audit is assigned
                         to ISU.




29 Office of Inspector General Semiannual Report
Report                          Report Title                           Date      Total Monetary           Number of
Number                 (Prior SAR Number and Page)                    Issued        Findings           Recommendations
A19K0006    Department’s Process for Screening and Selecting          8/16/10                                        1
            Peer Reviewers for the Race to the Top Grant
            Program
            Current Status: We did not receive a response from
            ODS/ISU on this audit during this reporting period.
            OESE informed us that this audit is assigned to ISU.

OPEPD
A04J0003    Georgia Department of Education’s Controls Over            4/7/10                                        9
            Performance Data Entered in EDFacts (OSDFS, OESE,
            and OSERS also designated as action officials.)
            Current Status: We did not receive a response from
            OPEPD on this audit during this report period.

Office of Vocational and Adult Education (OVAE)
A06J0001    Arkansas’ Adult Education and Family Literacy Act         5/28/10       $583,403                         7
            Program
            Current Status: AARTS shows that OVAE’s
            administrative stay was approved by OCFO on
            2/23/2011. OVAE informed us that this audit is
            currently with the Office of General Counsel (OGC) for
            review.
REPORTED IN PREVIOUS SARs
AUDIT REPORTS
FSA
A02H0007 Technical Career Institutes, Inc.’s Administration of        5/19/08        $6,458                         13
         the Federal Pell Grant and FFELP (SAR 57, page 25)

            Current Status: AARTS shows that FSA’s
            administrative stay was approved by OCFO on
            3/17/2011. FSA informed us that 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 was approved by OCFO on
            3/28/2011.




                                                                                         Office of Inspector General Semiannual Report 30
  Report                                      Report Title                     Date     Total Monetary      Number of
  Number                             (Prior SAR Number and Page)              Issued       Findings      Recommendations

 A04B0019           Advanced Career Training Institute’s Administration      9/25/03      $7,472,583           14
                    of the Title IV HEA Programs (SAR 47, page 13)

                    Current Status: FSA is working on getting this audit
                    closed in AARTS. The required documents needed
                    for resolution of this audit must be certified through
                    AARTS.
 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 waiting for
                    OGC to review and provide comments to draft audit
                    determination/PDL.

 A05G0017 Capella University’s Compliance with Selected                       3/7/08       $589,892             9
          Provisions of the HEA and Corresponding
          Regulations (SAR 56, page 25)
                    Current Status: FSA is working with OGC on revising
                    the audit determination/PDL.

 A05H0018 Walden University’s Compliance with Selected                       1/21/09      $1,185,4731          10
          Regulations and Department Guidance (SAR 58,
          page 31)
                    Current Status: Final audit determination letter was
                    issued on 2/25/2011 and FSA informed us that it was
                    uploaded into AARTS on 3/31/2011. However, the
                    required documents needed for resolution of this audit
                    must be certified through AARTS.


 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 was approved by OCFO on 3/28/2011.

 A0670005           Professional Judgment at Yale University (SAR 36,        3/13/98        $5,469              3
                    page 18)

                    Current Status: FSA informed us it is waiting for
                    outcome of Secretary’s decision regarding Saint Louis
                    University’s appeal of Professional Judgment finding
                    before it can resolve this audit.




31 Office of Inspector General Semiannual Report
Report                          Report Title                             Date     Total Monetary            Number of
Number                 (Prior SAR Number and Page)                      Issued       Findings            Recommendations
A0670009    Professional Judgment at University of Colorado            7/17/98       $15,082                           4
            (SAR 37, page 17)

            Current Status: FSA informed us it is waiting for
            outcome of Secretary’s decision regarding Saint Louis
            University’s appeal of Professional Judgment finding
            before it can resolve this audit.

A06D0018 Audit of Saint Louis University’s Use of Professional         2/10/05      $1,458,584                         6
         Judgment from July 2000 through June 2002 (SAR
         50, page 21)
            Current Status: AARTS shows that FSA’s
            administrative stay was approved by OCFO on
            2/23/2011. FSA informed us it is waiting for Secretary’s
            decision on school’s appeal of this audit’s Professional
            Judgment finding.
N0690010    Inspection of Parks College’s Compliance with               2/9/00       $169,390                          1
            Student Financial Assistance Requirements (SAR 40,
            page 18)
            Current Status: We did not receive a response from
            FSA on this audit report during this reporting period.

OCFO
A09H0019 Los Angeles Unified School District’s Procedures              12/2/08      $6,302,4062                        15
         for Calculating and Remitting Interest Earned on
         Federal Cash Advances (SAR 58, page 31)
            Current Status: OCFO informed us that resolution
            activities continue to be in process.
A09H0020 California Department of Education Advances of                 3/9/09       $728,6513                         10
         Federal Funding to LEAs (SAR 58, page 31)
            Current Status: OCFO informed us that resolution
            activities continue to be in process.
A09I0010    Center for Civic Education’s Administration of the         11/20/09     $5,938,537                         30
            We 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: OCFO informed us that resolution
            activities continue to be in process.




                                                                                           Office of Inspector General Semiannual Report 32
   Report                                     Report Title                    Date     Total Monetary      Number of
   Number                            (Prior SAR Number and Page)             Issued       Findings      Recommendations
 ODS
 A02J0009            New York State LEAs Systems of Internal Control        2/17/10                           16
                     Over Recovery Act Funds (SAR 60, page 39)

                     Current Status: We did not receive a response from
                     ODS/ISU on this audit report during this reporting
                     period. OESE informed us that resolution activities
                     continue to be in process.
 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: We did not receive a response from
                     ODS/ISU on this audit report during this reporting
                     period. OESE informed us that resolution activities
                     continue to be in process.
 A04J0010            Tennessee Recovery Act Audit Internal Controls         12/15/09                           2
                     over Selected Funds (Recommendations were made
                     to OESE in conjunction with OSERS) (SAR 60, page 39)
                     Current Status: We did not receive a response from
                     ODS/ISU on this audit report during this reporting
                     period. 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: We did not receive a response from
                     ODS/ISU on this audit report during this reporting
                     period. OESE informed us that resolution activities
                     continue to be in process.




33 Office of Inspector General Semiannual Report
Report                         Report Title                          Date     Total Monetary           Number of
Number                (Prior SAR Number and Page)                   Issued       Findings           Recommendations
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: We did not receive a response from
           ODS/ISU on this audit report during this reporting
           period. 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: We did not receive a response from
           ODS/ISU on this audit report during this reporting
           period. OESE informed us that resolution activities
           continue to be in process.
A09J0006   State and Local Controls Over Recovery Act Funds        1/15/10                                         7
           in California (OCFO and OSERS also designated as
           action officials) (SAR 60, page 40)
           Current Status: We did not receive a response from
           ODS/ISU on this audit report during this reporting
           period. OESE informed us that resolution 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 that the PDL is with
           OGC, and 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: Draft PDL is currently with OIG for
           review.




                                                                                      Office of Inspector General Semiannual Report 34
   Report                                     Report Title                        Date     Total Monetary      Number of
   Number                            (Prior SAR Number and Page)                 Issued       Findings      Recommendations
 A03G0006 The Department’s Administration of Selected                           2/22/07                            3
          Aspects of the Reading First Program (OCFO also
          designated as an action official) (SAR 54, page 31)

                     Current Status: OESE informed us that the program
                     team is working with OGC on resolution.

 A03H0010 Philadelphia School District’s Controls Over                          1/15/10     $138,769,898          27
          Federal Expenditures (OSERS, OSDFS, and OPE also
          designated as action officials) (SAR 60, page 39)

                     Current Status: OESE issued the PDL on 3/29/2011
                     for findings 2, 4, and 5. It will issue a PDL for the
                     remaining findings (1 and 3) in the future. The required
                     documents needed for resolution of this audit also
                     must be certified through AARTS.   
 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 Emer-                      10/30/07     $9,977,242            9
          gency Impact Aid Program Controls and Compli-
          ance (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 Administra-                     10/9/08       $821,714            15
          tion 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.




35 Office of Inspector General Semiannual Report
Report                          Report Title                          Date     Total Monetary           Number of
Number                 (Prior SAR Number and Page)                   Issued       Findings           Recommendations
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           09/30/09                                        8
            State Assessment Scoring (SAR 59, page 42)

            Current Status: OESE issued the PDL on 3/31/2011.
            However, the required documents needed for
            resolution of this audit must be certified through
            AARTS.
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.
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.
A05H0010 The School District of the City of Detroit’s Use of        7/18/08     $53,618,859                        21
         Title 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.
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.




                                                                                       Office of Inspector General Semiannual Report 36
   Report                                     Report Title                     Date     Total Monetary      Number of
   Number                            (Prior SAR Number and Page)              Issued       Findings      Recommendations

 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
                     currently with OGC for review.
 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 issued the PDL on March 31,
                     2011. However, the required documents needed for
                     resolution of this audit must be certified through
                     AARTS.
 A09I0012            Wyoming Department of Education Controls Over           07/10/09                           2
                     State Assessment Scoring (SAR 59, page 42)

                     Current Status: OESE informed us that the PDL is
                     clearing the internal review 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, OSDFS, and National
                     Center for Educational Statistics also designated as
                     action officials) (SAR 60, page 40)
                     Current Status: AARTS shows that OESE’s
                     administrative stay was approved by OCFO on
                     1/6/2011. OVAE informed us this audit is currently in
                     discussion/under review with OGC.




37 Office of Inspector General Semiannual Report
    Report                            Report Title                                Date       Total Monetary                Number of
    Number                   (Prior SAR Number and Page)                         Issued         Findings                Recommendations
A19I0002         Office of Indian Education’s Management of the                  2/2/10                                               14
                 Professional Development Grant Program (SAR 60,
                 page 40)
                 Current Status: OESE program team is working to
                 complete the corrective action plan.

OSERS
A02B0014         Audit of the Puerto Rico Vocational Rehabilitation             6/26/02         $15,800,000                            5
                 Administration (SAR 45, page 18)

                 Current Status: OSERS/Rehabilitation Services
                 Administration informed us that it will continue
                 working with OGC to resolve this audit.
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                                                                                         $547,808,830                          428
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.
3
    Audit 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.




                                                                                                          Office of Inspector General Semiannual Report 38
 Table 5-B: Summaries of Audit, Inspection, and Evaluation Reports
 Issued During the Previous Reporting Period (October 1, 2010, through
 March 31, 2011) 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, and
                                                                                      Summary
 Date Issued
 Federal Student Aid-Related
 Baker College’s Compliance We found that for distance education students who officially withdrew or
 with Selected Provisions of dropped out, Baker College, a non-profit institution based in Michigan, did
 the HEA and Corresponding not correctly identify when students began and ceased attendance when
 Regulations.                (1) determining students’ eligibility for Federal student aid disbursements;
                             and (2) performing return of Federal student aid calculations. We found that
 ED/OIG: A05I0012            Baker College had not maintained records that adequately supported its
                             determination of attendance for its distance education students during award
 Issued: 8/24/2010           year 2006-2007 and that it had incorrectly identified when distance education
                             students who unofficially withdrew or dropped out began and ceased
                             attendance during award year 2007-2008. We recommended that FSA require
                             Baker College to develop and implement written policies and procedures
                             for its automated attendance system and to return $9,790 of Federal student
                             aid funds it disbursed to ineligible students and to students for whom the
                             school’s attendance records did not support retention of all Federal student
                             aid funds after student withdrawal. We also recommended that the school be
                             required to review its records for distance education students who received
                             Federal student aid for other years and (1) identify students with unsupported
                             periods of attendance; (2) determine the amount of Federal student aid
                             disbursed to students who were not entitled to receive the funds because
                             of insufficient attendance documentation; (3) identify the amount of Federal
                             student aid program funds disbursed to students who were not entitled to
                             receive the funds because of reduced student eligibility; and (4) return those
                             amounts to the Department and lenders, as appropriate. Baker College
                             officials disagreed with all of our findings and recommendations.

                                                   Current Status: FSA informed us that a final audit determination/PDL is in
                                                   process.




39 Office of Inspector General Semiannual Report
Report Title, Number, and
                                                                Summary
Date Issued
Elementary, Secondary, and Adult Education Program-Related
OPEPD
Georgia Department of         We found that that neither the Georgia Department of Education (GADOE)
Education’s Controls Over     nor the Clayton County Public School District (Clayton) had sufficient internal
Performance Data Entered in   controls in place to ensure that they had provided accurate information
EDFacts.                      into EDFacts. As a result, GADOE and Clayton reported inaccurate or
                              unsupported data on dropout rates, graduation rates, and discipline incidents.
ED/OIG: A04J0003
                              Without sufficient controls to ensure the accuracy of data, GADOE and the
Issued: 4/7/2010              Department could be making planning, policy, and management decisions
                              based on inaccurate or unreliable data. To address the weaknesses identified
                              in our report, we made a number of recommendations, including that the
                              Department require GADOE to establish and implement systems of internal
                              control to ensure that LEAs identify and report accurate data. GADOE did not
                              concur with all of our findings or recommendations.

                              Current Status: We did not receive a response from OPEPD on this audit during
                              this reporting period.
OVAE
Arkansas’ Adult Education     We found that the Arkansas Department of Career Education (ADCE) did not
and Family Literacy Act       adequately monitor the performance of providers receiving Federal adult
Program.                      education funds and did not ensure that Federal adult education funds
                              were awarded in compliance with the Adult Education and Family Literacy
ED/OIG: A06J0001              Act (AEFLA) for the time period reviewed. According to the AEFLA, to be
                              considered an eligible provider, a literacy council’s program must show
Issued: 5/28/2010             demonstrated effectiveness. Despite this, ADCE awarded seven literacy
                              councils new grants even though they did not meet the definition of
                              effectiveness during the previous grant period. In addition, ADCE did not
                              ensure that more than $521,000 in adult education funds was expended
                              in accordance with the AEFLA, regulations, and guidance. As a result,
                              neither the State nor the Department was assured that the providers met
                              the requirements of the grant. Our recommendations included that the
                              Department require ADCE to enhance its monitoring process to assure
                              that providers meet the required benchmarks before being awarded new
                              grants and that ADCE take appropriate actions if providers do not meet
                              the required benchmarks. We also recommended that ADCE return to the
                              Department more than $13,000 in unallowable costs identified through our
                              audit and provide adequate documentation to support more than $508,000
                              in inadequately documented costs or return the inadequately documented
                              amount to the Department. ADCE did not agree with all of our findings or
                              recommendations.

                              Current Status: AARTS shows that OVAE’s administrative stay was approved by
                              OCFO on 2/23/2011. OVAE informed us that the audit is currently with OGC for
                              review.




                                                                                 Office of Inspector General Semiannual Report 40
 Report Title, Number, and
                                                                                      Summary
 Date Issued
 Recovery Act-Related
 Department’s Process for                          We found that the Department’s process for screening and selecting peer
 Screening and Selecting                           reviewers for Phase 1 of the Race to the Top (RTT) discretionary grant program
 Peer Reviewers for the Race                       competition was generally appropriate and effective in identifying conflicts
 to the Top Grant Program.                         of interest. However, we found that the Department did not perform a check
                                                   of selected RTT peer reviewers against the General Services Administration’s
 ED/OIG: A19K0006                                  Excluded Parties List System (EPLS) or adequately document formal approval
                                                   of its peer reviewer roster before it began the application review process.
 Issued: 8/16/2010                                 The verification and documentation processes the Department did perform
                                                   occurred only after the initial application review and rating were completed
                                                   and after the Department had publically announced the RTT finalists. The
                                                   Department agreed that an issue existed with the timeliness of the EPLS
                                                   verification; however, it did not believe that the issue impacted the integrity
                                                   or quality of either the competition or the review process. Although we
                                                   acknowledge that no RTT peer reviewers were found in the EPLS, the integrity
                                                   of the review process could have been compromised if one of the peer
                                                   reviewers had been debarred or suspended from doing business with the
                                                   Federal Government.

                                                   Current Status: We did not receive a response from ODS/ISU on this audit during
                                                   this reporting period. OESE informed us that this audit is assigned to ISU.

 Department’s                                      We found that the Department’s initial implementation was generally
 Implementation of the State                       appropriate in the three areas we examined. Those three areas were:
 Fiscal Stabilization Fund                         (1) calculation of State allocations; (2) review of applications for initial
 Program.                                          funding; and (3) program staffing and monitoring plans. We did, however,
                                                   identify where the Department’s processes could be improved. While the
 ED-OIG: A19J0001                                  Department’s process indicated that reviewers verified that all required data
                                                   and related information were provided, it did not provide assurance that steps
 Issued: 9/24/2010                                 were taken to assess whether the data were reasonably supported. This lack
                                                   of assurance could impact the Department’s ability to determine whether
                                                   States are complying with maintenance-of-effort requirements. We noted that
                                                   our audit found that 3 of the 16 States/Commonwealth reviewed appeared
                                                   to have insufficient or questionable supporting data. Further, although it
                                                   appeared that Department staffing efforts had been adequate during the
                                                   initial implementation of the program, we noted that the time required to
                                                   implement and monitor the SFSF program could impact the ability of the
                                                   staff to effectively manage existing programs. Finally, we found that complete
                                                   documentation was not maintained in the official grant file; doing so ensures
                                                   that all relevant matters are considered. The Department did not concur with
                                                   our overall findings or recommendations.

                                                   Current Status: We did not receive a response from ODS/ISU on this audit during
                                                   this reporting period. OESE informed us that this audit is assigned to ISU.




41 Office of Inspector General Semiannual Report
Report Title, Number,
and Date Issued                                                  Summary

Systems of Internal Control   We found that the agencies reviewed had systems of internal control in place
Over Selected Recovery Act    or were designing control systems to provide for the proper administration
Funds in Louisiana.           and use of education-related Recovery Act funds. However, we also found
                              that the Louisiana Department of Education could improve oversight of LEAs
ED-OIG: A06K0001              and improve controls over data quality; the Office of Governor’s Division of
                              Administration needed to perform reviews of its subrecipients; the Office
Issued: 9/29/2010             of Louisiana Rehabilitation Services lacked sufficient controls over tracking
                              Recovery Act funds; and the Algiers Charter School Association, one of
                              four LEAs we reviewed, used sole-source contracting without sufficient
                              justification and did not verify whether vendors were debarred or suspended
                              from receiving Federal funds. We made a number of recommendations to
                              enhance controls over Recovery Act requirements. State officials did not
                              agree with all of our findings or recommendations.

                              Current Status: We did not receive a response from ODS/ISU on this audit report
                              during this reporting period.

Use of Recovery Act Funds     We found that although the Wisconsin Department of Public Instruction
and Reporting in Wisconsin.   (DPI) made a proactive effort to ensure compliance with Recovery Act
                              requirements, DPI’s distribution of SFSF funds did not allow for proper
ED-OIG: A02K0005              tracking of expenditures at the State and LEA levels as required by the
                              Recovery Act. This occurred because DPI was instructed by the State
Issued: 9/29/2010             legislature to distribute SFSF funds to LEAs expeditiously and in doing so,
                              DPI did not properly account for two components of the SFSF program and
                              it reimbursed LEAs for expenditures based only on pools of cost categories.
                              In addition, we found that DPI needed to improve its monitoring of
                              Recovery Act funds and implement comprehensive subrecipient monitoring
                              procedures for the SFSF program. We also determined that DPI and the
                              Wisconsin Governor’s Office needed to improve their procedures to ensure
                              all required data are accurate, reliable, and complete. We made several
                              recommendations to address these issues, including that the Department
                              require the Governor’s Office and DPI to implement procedures to ensure
                              its Recovery Act funds are properly accounted for and tracked. We also
                              recommended that they be required to conduct reviews on the SFSF funds
                              distributed to LEAs in FY 2008-2009 to determine whether the funds were
                              used for allowable activities and accrued within the period of availability
                              and return any unallowable cost. Wisconsin officials did not fully agree or
                              disagree with our findings or recommendations.

                              Current Status: We did not receive a response from ODS/ISU on this audit during
                              this reporting period.




                                                                                  Office of Inspector General Semiannual Report 42
 Table 6: Statistical Profile: October 1, 2010, through March 31, 2011

 Audit Reports Issued                                                                                                                        12
 Inspection Reports Issued                                                                                                                       2
 Questioned Costs                                                                                                                $15,652,133
 Unsupported Costs                                                                                                               $18,909,686
 Recommendations for Better Use of Funds                                                                                            5,200,000
 Other Products Issued (1 Alert Memorandum, 2 Attestation Reports, 1 Audit Closure                                                               5
 Memorandum, and 1 Special Project Report)
 Audit Reports Resolved By Program Managers1                                                                                              18
 Questioned Costs Sustained                                                                                                      $40,832,909
 Unsupported Costs Sustained                                                                                                   $104,521,933
 Additional Disallowances Identified by Program Managers                                                                               $1,204
 Management Commitment to the Better Use of Funds                                                                                   $327,577
 Investigative Cases Opened                                                                                                                 77
 Investigative Cases Closed                                                                                                                 88
 Investigative Cases Active at the End of the Reporting Period                                                                             427
 Prosecutorial Decisions

       Accepted                                                                                                                              73
    Declined                                                                                                                                 90
 Indictments/Informations                                                                                                                    55
 Convictions/Pleas                                                                                                                        46
 Fines Ordered                                                                                                                     $124,525
 Restitution Payments Ordered                                                                                                     $4,900,534
 Civil Settlements/Judgments (number)                                                                                                            3
 Civil Settlements/Judgments (amount)                                                                                            $57,896,500
 Recoveries                                                                                                                       $3,589,082
 Forfeitures/Seizures                                                                                                               $54, 910
 Estimated Savings                                                                                                                $2,572,727
 Suspensions Referred to Department                                                                                                          21
 Debarments Referred to Department                                                                                                           38
 1
     No inspection reports were resolved during the SAR 62 reporting period. Five other OIG products were resolved during the SAR 62 reporting
     period.




43 Office of Inspector General Semiannual Report
Office of Inspector General Semiannual Report 44
45 Office of Inspector General Semiannual Report
FY 2011 Management Challenges
The Reports Consolidation Act of 2000 requires the OIG to identify and
summarize the most significant management challenges facing the
Department each year. Below are the management challenges OIG identified
for FY 2011:

1.	Implementation of New Programs and Statutory Changes, including the
   Recovery Act and changes to the student financial assistance (SFA) loan
   programs;

2.	Oversight and Monitoring, including SFA program participants, distance
   education, grantees, and contractors;

3.	Data Quality and Reporting, including program data and Recovery Act
   reporting requirements; and

4.	Information Technology Security.


For a copy of our FY 2011 Management Challenges report, visit our Web site at
www.ed.gov/offices/oig.
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