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 email@example.com 1 U.S. Department of Education
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)