oversight

Semiannual Report - April 01, 2011 - September 30, 2011

Published by the Department of Education, Office of Inspector General on 2011-09-30.

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

U.S. Department of Education
Office of Inspector General


Semiannual Report
to Congress, No. 63
Office of Inspector General
Kathleen S. Tighe
Inspector General

November 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. 63.




Please Note:
The Inspector General’s Semiannual Report to Congress, No. 63 is available on the
ED/OIG Web site at www.ed.gov/offices/oig.
Message to Congress

    On behalf of the U.S. Department of Education (Department) Office of
    Inspector General (OIG), I am pleased to provide this Semiannual Report
    on the activities and accomplishments of this office from April 1, 2011,
    through September 30, 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.

    The clarion call for accountability in education programs and operations
    at all levels of government has perhaps never been louder. No individual
    or entity is above scrutiny. Accountability by Department employees,
    consultants, contractors, grantees, and program participants has long
    been a focus of OIG work and a tenet of the OIG mission. Over the last
    6 months, this focus has led to significant actions, including:

        A $63.6 million settlement with Accenture LLP, a contractor for
           the Department and other Federal agencies, stemming from
           allegations that the contractor violated the Anti-Kickback Act and
           the False Claims Act by receiving payments from subcontractors in
           exchange for influencing Government agencies to award
           contracts.

        An audit that identified weaknesses in the Department’s processes
           for validating the EDUCATE contractor’s performance.

        A $1.6 million settlement with Kaplan Higher Education
           Corporation, the parent company of the CHI Institute, resulting
           from allegations that CHI knowingly enrolled students in a
           program that did not offer externships required for graduation.

        Nine American Recovery and Reinvestment Act (Recovery Act)
           audits involving States and their subrecipients’ use of funds and
           data quality that collectively made a number of recommendations
           for improvement to better ensure compliance with all necessary
           requirements.

        The conviction of a former City University of New York employee
           for trying to scam more than $1.5 million in Recovery Act grant
           funds.

        A $1.4 million settlement with Educational Testing Service to
           resolve allegations that it improperly billed the Department for
           contracted services. This amount was in addition to the more
        than $3 million it had previously returned to the Department for the
        improper charges.

In the pages of this report, you will find more information on these actions, as
well as summaries of the 19 reports issued over the last 6 months, which
identified more than $8.2 million financial recommendations. Also during this
period, we issued our FY 2012 Management Challenges report detailing the
most serious management challenges the Department faces. In these tough
economic times, every Federal dollar matters; therefore, the Department must
have the mechanisms in place to effectively ensure that its programs and
operations are running efficiently and in accordance with Federal laws and
regulations. We also issued our Annual Plan for FY 2012 that presents the
major initiatives and priorities my office intends to undertake to assist the
Department in fulfilling its responsibilities to America’s taxpayers, families,
and students. In FY 2012, we intend to closely examine Department programs
at all levels—Federal, State, and local—with a focus on results in order to
better ensure that Federal funds are reaching the intended recipients and
achieving the desired outcomes. We will also assess the Department’s progress
in addressing weaknesses and vulnerabilities already identified in its programs
and operations, as well as uncover any potential new risks to fraud, waste, and
abuse.

In this Semiannual Report, we once again present our most significant activities
completed over the past 6 months by goals set forth in our FY 2011–FY 2015
Strategic Plan to best show the contribution of these individual efforts. These
goals are:

     Improve the Department’s ability to effectively and efficiently
        implement its programs to promote educational excellence and
        opportunity for all students;

     Strengthen the Department’s efforts to improve the delivery of student
        financial assistance;

     Protect the integrity of the Department’s programs and operations by
        detecting and preventing vulnerabilities to fraud, waste, and abuse;
        and

     Contribute to improvements in Department business operations.
My staff and I are committed to identifying misspent tax dollars, addressing
weaknesses, and improving the Department’s stewardship of taxpayer dollars.
We greatly appreciate the interest and support of Secretary Duncan, Deputy
Secretary Miller, and this Congress, and 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                                             1


Goal 2: Strengthen the Department’s efforts to improve the delivery of student
        financial assistance                                                     11


Goal 3: Protect the integrity of the Department’s programs and operations by
        detecting and preventing vulnerabilities to fraud, waste, and abuse      17


Goal 4: Contribute to improvements in Department business operations             21


Office of Inspector General Performance Measures                                 27


Annexes                                                                          31


Required Tables                                                                  33


Abbreviations and Acronyms Used in this Report                                   54
Goal 1: Improve the Department’s ability to
        effectively and efficiently implement
        its programs to promote educational
        excellence and opportunity for all
        students.
        Work conducted by the U.S. Department of Education (Department) Office of
        Inspector General (OIG) over the past 6 months in the area of promoting educational
        excellence and opportunity includes specific efforts pursuant 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
                                      During this reporting period, we completed a number of audits in the second
                                      phase of our Recovery Act audit work. In this phase, we sought to determine
                                      whether the States and their subrecipients used and reported Recovery Act funds
                                      in accordance with applicable laws, regulations, and guidance. The results of
                                      these audits are below. We also continued with the third phase of our Recovery
                                      Act work in which we are reviewing a number of local educational agencies (LEAs)
                                      in 22 States in order to provide a national perspective on how LEAs are using
                                      Recovery Act and Education Jobs funds. Specifically, our nationwide review is
                                      identifying and categorizing whether LEAs are using Recovery Act and Education
                                      Jobs funds to stabilize budgets and minimize job losses; provide new or expanded
                                      services to eligible students; or pursue new and innovative methods to improve
                                      schools, raise achievement, and implement reforms. As part of this effort, we are
                                      also assessing whether the funds can or will be spent by the end of the respective
                                      grant periods, determining whether actual or planned uses of the funds could
                                      result in unsustainable continuing commitments after the funding expires, and
                                      identifying the factors impacting an LEA’s ability to strategically invest the
                                      funding versus simply using the funds to maintain the status quo. We will report
                                      the findings of this effort once it is completed.

                                      The OIG continued to participate in an advisory capacity on the Department’s
                                      internal Recovery Act teams and as a member of the Recovery Accountability and
                                      Transparency Board. During this reporting period, OIG staff participated in the
                                      board’s Work Group projects focused on data quality issues and in assessing the
                                      extent to which random and statistical sampling methods were used in audits of
                                      Recovery Act programs. Finally, OIG investigators continued to examine
                                      allegations of waste, fraud, and abuse involving Recovery Act funds. You will find
                                      summaries of several of these investigative cases below.

                                      States’ Treasury-State Agreements Might Need to Include
Recovery Act
                                      Recovery Act, Education Jobs Fund, and Other Similarly
Internal Reports                      Funded Programs
                                      We recommended that the Department work with the U.S. Department of the
                                      Treasury (Treasury) to encourage Treasury and the States to include Recovery Act
                                      and other programs funded under large, one-time appropriations in the Treasury-
                                      State Agreements in order to better protect State and Federal interests. As


2   Office of Inspector General Semiannual Report
                   stated in our report, Treasury regulations currently provide that “unless specified
                   otherwise, major Federal assistance programs must be determined from the most
                   recent Single Audit data available.” Although single audits reflect a State’s
                   expenditure of funds, they are not finalized until 9 months after the end of the
                   fiscal year that they cover. As a result, major Federal assistance programs funded
                   with large, one-time appropriations might not appear in a State’s Treasury-State
                   Agreements until after all or most of the funds have been expended. Our work
                   found this to be the case with Recovery Act funds. Of the 12 State Treasury-State
                   Agreements we reviewed, Single Audit data for 10 of those States did not include
                   any Recovery Act monies even though those States received significant Recovery
                   Act funding during the time period. Including Recovery Act and other programs
                   funded under large, one-time appropriations in the Treasury-State Agreements
                   would protect State and Federal interests by either specifying interest-neutral
                   funding techniques or by requiring one party to compensate the other for the
                   early or late transfer of Federal funds. The Department agreed with our
                   recommendation and stated that it would work with Treasury to determine
                   whether Treasury-State Agreements should be amended.

                   Effectiveness of the Department’s Data Quality Review Processes
                   Although we found that the Department’s processes to ensure the accuracy and
                   completeness of recipient-reported data were generally effective, we also
                   identified instances of recipient-reported data that were inconsistent with data in
                   the Grants Administration and Payment System, contract file documentation, or
                   other data elements within the recipient reports. These anomalies still existed
                   after the Department had completed its formal data quality review processes and
                   after the related recipient correction period. Overall, we identified
                   2,043 anomalies (4 percent) out of the 49,150 data quality tests we performed for
                   grant awards and 1 anomaly (1 percent) out of the 110 tests we performed for
                   contract awards. We also noted that the Department had not established a
                   formal process to identify and remediate instances in which Recovery Act
                   recipients demonstrated systemic or chronic reporting problems and/or otherwise
                   failed to correct such problems. Recipient reports are subject to public scrutiny
                   and are intended in part to help drive accountability for the spending of Recovery
                   Act dollars. As such, agencies must have an effective review process to ensure
                   that recipient reports contain accurate and complete data. Incorrect data may
                   lead to mistaken conclusions about Recovery Act funding and may obscure the
                   transparency that these reports were designed to provide. To address these
                   findings, we made several recommendations, all of which the Department
                   agreed with.

                   States Use of Recovery Act Funds and Data Quality
Recovery Act
                   We completed nine audits of State organizations and LEAs to determine whether
External Reports   States and their subrecipients used and reported Recovery Act funds in
                   accordance with applicable laws, regulations, and guidance. Although all but one
                   State and most of the LEAs reviewed generally used Recovery Act funds
                   accordingly, we did identify specific areas of noncompliance and areas that could
                   be improved.

                   California. Although the three LEAs we reviewed generally used Recovery Act
                   funds in accordance with applicable laws, regulations, and guidance, we did
                   identify instances of noncompliance with applicable Federal requirements by the

                                                             Office of Inspector General Semiannual Report   3
                                      Fresno Unified School District and the San Diego Unified School District that
                                      resulted in improper charges of approximately $23,000 to the Title I Recovery Act
                                      grant. We also found that the California Department of Education reported jobs
                                      data that were not reliable for the reporting period ending December 31, 2009.
                                      Control weaknesses in its processes for compiling, processing, and reviewing the
                                      jobs data could affect the reliability of future reports. To address the weaknesses
                                      identified, we made a number of recommendations, including that the California
                                      Department of Education implement appropriate data quality controls to ensure
                                      that future jobs data are accurate, complete, and consistent with applicable
                                      guidance. The California Department of Education did not state whether it
                                      agreed with our findings and recommendations.

                                      Illinois. We found that Illinois took proactive measures to provide reasonable
                                      assurance that it and its subrecipients complied with Recovery Act requirements,
                                      and the subrecipients we reviewed generally expended Recovery Act funds in
                                      accordance with applicable laws, regulations, and guidance. However, we also
                                      determined that the State could do more to ensure the appropriate use of
                                      Recovery Act funds and the quality of data reported to the Federal Government.
                                      Specifically, we found that the Illinois State Board of Education and its
                                      subrecipients did not always follow Federal cash management requirements; did
                                      not always ensure that data reported to the Federal Government were accurate,
                                      reliable, and complete; and three of the subrecipients reviewed (Waukegan Public
                                      Schools, East Saint Louis Public Schools, and Chicago Public Schools) charged a
                                      small amount of unallowable or inadequately documented costs to Recovery Act
                                      grants. We recommended that Illinois and its subrecipients strengthen their
                                      systems of internal control to provide reasonable assurance that the time elapsing
                                      is minimized between the transfer of funds by the Illinois State Board of
                                      Education and disbursement by the subrecipients; and that Illinois collects and
                                      reports complete, reliable, and accurate Recovery Act data. The Illinois State
                                      Board of Education did not fully agree with our recommendations.

                                      Louisiana. Although the four LEAs we reviewed—Jefferson School District, East
                                      Baton Rouge School District, Calcasieu School District, and Recovery School
                                      District—generally used Recovery Act funds in accordance with applicable laws,
                                      regulations, and guidance, we identified more $179,700 in unsupported payroll
                                      expenses. We also found that the Louisiana Department of Education and the
                                      LEAs reviewed did not ensure that data reported were accurate, reliable, and
                                      complete. The Louisiana Department of Education and the Jefferson, East Baton
                                      Rouge, and Calcasieu School Districts all had data quality errors in the
                                      expenditure data that were reported by the Louisiana Department of Education to
                                      FederalReporting.gov for the first four Recovery Act reporting periods, and they
                                      incorrectly reported jobs saved or created to Louisiana Department of Education.
                                      In addition, the Louisiana Department of Education did not have internal controls
                                      to ensure that policies or procedures were followed to verify and report required
                                      Recovery Act data elements or for reporting errors identified after submission of
                                      reports. We made a number of recommendations to address these issues,
                                      including that the Louisiana Department of Education provide documentation to
                                      adequately support more than $179,700 in Recovery Act payroll expenditures or
                                      return those funds to the Department. The Louisiana Department of Education
                                      generally agreed with our recommendations.


4   Office of Inspector General Semiannual Report
Missouri. We found that the subrecipients reviewed—the Kansas City School
District, the St. Louis Public Schools, and the University of Missouri—might not
have used Recovery Act funds for authorized activities and did not always report
accurate, reliable, and complete data. Specifically, they did not properly
account for $59.8 million in Recovery Act State Fiscal Stabilization Fund (SFSF)
monies; did not always follow Federal cash management requirements; and data
that Missouri reported to the Federal Government were not always accurate,
reliable, and complete. To reduce the likelihood of such problems occurring in
the future, we recommended that Missouri and its subrecipients improve their
systems of internal control to provide reasonable assurance that SFSF funds are
accounted for properly; cash management procedures are aligned with Federal
regulations; and data reported to the Federal Government are accurate, reliable,
and complete. Missouri officials generally concurred with our recommendation.

South Carolina. We issued two reports concerning this State. One focused on the
State educational agency and LEAs, and one focused on the Governor’s Office.

    State Educational Agency and LEAs. We found that Recovery Act funds
       were generally used in accordance with applicable laws, regulations, and
       guidance at the entities reviewed; however, we did identify internal
       control weaknesses related to cash management and contract
       procurement at the South Carolina Department of Education and at two of
       the LEAs reviewed—Charleston County School District and Spartanburg
       County School District. Specifically, the South Carolina Department of
       Education did not assess cash needs of subgrantees before it advanced
       Recovery Act funds, did not monitor spending to determine whether the
       advanced funds were spent in a timely manner, did not have policies and
       procedures to remit interest earned on Federal cash advances to the
       Department, and had insufficient policies and procedures over the
       Recovery Act claims reimbursement process. We also found that
       Charleston and Spartanburg did not have documentation available to
       support that Recovery Act funded contracts were awarded and
       administered in accordance with district, State, and/or Federal
       procurement requirements. Based on these findings, we made
       recommendations to improve these practices, all of which the South
       Carolina Department of Education concurred with.

    Governor’s Office. Our review of the use of Recovery Act funds by the
       South Carolina Governor’s Office, the University of South Carolina, and
       the South Carolina Department of Corrections identified a minor issue of
       noncompliance: the South Carolina Department of Corrections used
       approximately $8,300 of the Recovery Act funds to pay for unallowable
       expenditures. We recommended that the Governor’s Office reobligate
       those funds to allowable costs. We also found that the Governor’s Office
       reported inaccurate job data. Specifically, the four State agencies
       reviewed reported a total of 28.17 full-time equivalent jobs created or
       retained in the March 31, 2010, quarterly report to the Governor’s Office.
       However, the Governor’s Office reported four full-time equivalent jobs
       for the same reporting period to FederalReporting.gov. In addition, for
       the quarter ending June 30, 2010, the Governor’s Office reported 14 jobs


                                         Office of Inspector General Semiannual Report   5
                                                as created or retained; however, the State agencies reviewed did not
                                                report any jobs created or retained for the same period. We did not
                                                recommend correcting the reported number of jobs; per the Office of
                                                Management and Budget (OMB), changes to prior reports cannot be
                                                initiated for the “number of jobs” field.

                                      Utah. We found that the State and local recipients and subrecipients reviewed
                                      did not consistently use Recovery Act funds in accordance with applicable laws,
                                      regulations, and guidance. Specifically, we found that the University of Utah and
                                      the Utah Housing Corporation made improper charges to the SFSF Government
                                      Services grant totaling more than $65,000, and the Utah Housing Corporation also
                                      did not remit interest earned on Recovery Act funds that were received before
                                      the funds were needed to cover program costs. We identified more than
                                      $1.3 million in improper charges and internal control weaknesses at the Nebo
                                      School District and found that neither Nebo nor the Granite School District
                                      maintained sufficient documentation to support personnel costs. We also found
                                      significant data quality deficiencies at all entities reviewed, and as a result, the
                                      data for the number of jobs, vendor information, and amount of funds spent that
                                      were reported to Recovery.gov for the reporting period ending
                                      December 31, 2009, were not reliable. The Utah State Office of Education also
                                      improperly included Federal expenditures and certain inappropriate State and
                                      local expenditures in its Title I school-by-school per-pupil expenditures report
                                      submitted to the Department. As a result, the report does not accurately portray
                                      State and local expenditures at the school level and cannot be relied on. To
                                      address the weaknesses identified, we made 15 recommendations. A number of
                                      the entities reviewed stated they had corrected the deficiencies or were in the
                                      process of implementing corrective actions.

                                      Virginia. We found that Virginia’s Recovery Act expenditures were generally
                                      expended and accounted for in accordance with recipient plans and applications
                                      and with applicable laws, regulations, and guidance. We also concluded that
                                      Recovery Act data reported by the Virginia Department of Education were
                                      accurate and complete and in compliance with reporting requirements. However,
                                      we determined that the Virginia Department of Education needed to improve its
                                      fiscal monitoring of its LEAs. Specifically, of the three LEAs reviewed, we found
                                      that Fairfax Public Schools improperly spent Recovery Act IDEA Maintenance of
                                      Effort flexibility option funds and Norfolk Public Schools incorrectly included
                                      capital outlay expenditures in its indirect cost calculations. In addition, we found
                                      that the Virginia Department of Education approved reimbursement requests
                                      submitted by the LEAs that included unallowable and incorrectly coded
                                      expenditures. We made several recommendations aimed at addressing the
                                      weaknesses identified. The Virginia Department of Education did not concur with
                                      all of our findings or recommendations.

                                      Wisconsin. We determined that Milwaukee Public Schools generally used Recovery
                                      Act funds in accordance with applicable laws, regulations, and guidance, and that
                                      its reported jobs and subaward data were also accurate. However, we also found
                                      that Milwaukee Public Schools did not properly track SFSF program funds as
                                      required, as it did not adjust its records to account for some $75.8 million of SFSF
                                      program funds. Milwaukee Public Schools also needed to improve its internal



6   Office of Inspector General Semiannual Report
                 controls over Federal funds, including Recovery Act funds, because we found that
                 it did not follow its own procedures for obtaining semiannual employee
                 certifications, preapproving journal entries, and tracking its computer equipment.
                 Based on our findings, we made a number of recommendations to the Wisconsin
                 Department of Public Instruction and the Department of Administration, neither
                 of which concurred with all of our recommendations.

                 The following are summaries of OIG Recovery Act investigations. Two of these
Recovery Act
                 cases involve Federal student aid funding, a portion of which was either applied
Investigations   for or obtained after passage of the Recovery Act. The Recovery Act increased
                 funding for the Pell Grant program.

                 New York—City University of New York Employee
                 Convicted for Fraud
                 A former employee at the City University of New York Research Foundation who
                 was hired to work as an instructor in the In School Youth, Prep for Success
                 Program at Medgar Evers College in Brooklyn was convicted by a trial jury for
                 attempting to defraud the school and the Department of Recovery Act funds. The
                 man presented and attempted to have processed two fraudulent Grant Award
                 Notifications totaling more than $1.5 million. The employee provided the first
                 notification to the Foundation to claim the award, and during its award process,
                 the Foundation learned from the Department that the notification was fraudulent.
                 He provided the second directly to a school official, but it was not processed.
                 This case resulted from a referral received from an alert Department employee
                 who had recently attended a Recovery Act grant fraud awareness training
                 provided by the OIG.

                 New Jersey—Former Beauty School Official Pled Guilty to Fraud
                 A former admissions representative with the Empire Beauty School pled guilty to
                 using fraudulent high school diplomas and General Educational Development
                 (GED) tests to enroll ineligible students for classes at the school and receive
                 Federal student aid. As a result of his fraudulent actions, the students received
                 more than $247,000 in Federal student aid to which they were not entitled.

                 New York—Actions Taken Against Owner, Six Employees of
                 USA Beauty School
                 The owner, financial aid director, and another employee of USA Beauty School
                 International were indicted and four others were charged for their roles in a
                 Federal student aid fraud scheme. The officials allegedly falsified student aid
                 applications and supporting documentation, including attendance records and
                 high school diplomas, in order to enroll ineligible students into the school for the
                 purposes of obtaining Federal student aid. Since June 2006, the school had
                 received more than $4 million in Pell Grant funds.




                                                            Office of Inspector General Semiannual Report   7
                                         ESEA Program Participants
                                      During this reporting period, we issued two reports involving the Camden City
                                      Public Schools (Camden), which identified significant weaknesses in its
                                      supplemental educational services programs and in certain ESEA contract
                                      expenditures. A summary of these findings follows.

                                      New Jersey—Camden City Public Schools
Local Educational
                                      Supplemental Educational Services. We found that Camden’s expenditures for
Agency                                supplemental educational services were not always spent in accordance with
                                      applicable laws and regulations. Specifically, we determined that Camden
                                      overpaid seven supplemental educational services providers more than $392,300
                                      in excess of rates approved by the New Jersey Department of Education. Camden
                                      paid the erroneous rates because it did not have proper controls to ensure that
                                      supplemental educational services providers were paid using rates approved by
                                      the New Jersey Department of Education. We also found that the New Jersey
                                      Department of Education did not have adequate procedures for informing school
                                      districts that supplemental educational services providers had been removed from
                                      its approved provider list. As a result, Camden paid one provider more than
                                      $21,300 after it had been removed from the approved provider list. Further, the
                                      New Jersey Department of Education’s monitoring process was ineffective to
                                      ensure that payments to supplemental educational services providers were
                                      allowable. In view of these issues, LEAs throughout New Jersey may be
                                      overpaying supplemental educational services providers or receiving services from
                                      ineligible providers. Based on these findings, we made a number of
                                      recommendations, including that the Department require the New Jersey
                                      Department of Education to direct Camden to return to the Department more
                                      than $413,000 for unallowable expenditures. The New Jersey Department of
                                      Education did not concur with all of our recommendations.

                                      ESEA Contract Expenditures. We reviewed 50 of Camden’s ESEA contracts
                                      totaling more than $11.7 million and determined that some of the expenditures
                                      were not allowable and were not spent in accordance with applicable laws and
                                      regulations. We found that Camden did not have a system to maintain and track
                                      contracts and, therefore, could not provide a universe of contracts funded with
                                      ESEA funds, could not support more than $4.5 million for contracts that were
                                      missing or improperly executed, had inadequate documentation to support
                                      expenditures of more than $1 million for some of these contracts, and had
                                      inadequate documentation to support expenditures of more than $3 million. In
                                      addition, Camden did not perform cost or price analysis for competitive and
                                      noncompetitive contracts, did not comply with Federal requirements for
                                      competitive or sealed bids, and did not comply with State statutes. To address
                                      these weaknesses, we made 15 recommendations, including that the Department
                                      require the New Jersey Department of Education to direct Camden to develop and
                                      implement a contract administration system to properly track the administration
                                      of contracts, provide support to show that contracts were properly executed, and
                                      provide adequate supporting documentation for unsupported ESEA expenditures.
                                      The New Jersey Department of Education concurred with 12 of our
                                      15 recommendations.



8   Office of Inspector General Semiannual Report
OTHER ACTIVITIES
Participation in Committees, Work Groups, and Task Forces
Departmental Groups
       Department Recovery Act Metrics and Monitoring Team. OIG participates in an advisory capacity on this team
         that meets regularly to coordinate Recovery Act funds oversight efforts and develop reports for posting on the
         Recovery.gov Web site.

Inspector General Community
       Recovery Accountability and Transparency Board. Inspector General Tighe is a member of the Recovery
         Accountability and Transparency Board and is Chair of the Accountability Committee of the Board, which provides
         advice and recommendations to the Board regarding preventing and detecting fraud, waste, abuse, and
         mismanagement, and the Recovery Operations Center. OIG staff also participate in a work group composed of all
         of the Offices of Inspectors General that provide Recovery Act oversight and a subgroup focused on Recovery Act
         grant funds.

Federal and State Law Enforcement-Related Groups
       The Recovery Act Fraud Working Group of the U.S. Department of Justice’s Financial Fraud Enforcement Task
         Force. OIG participates in this work group focused on improving efforts across the Government to investigate and
         prosecute significant financial crimes involving Recovery Act funds.

Federal and State Audit-Related Groups
       Association of Government Accountants Intergovernmental Partnerships for Management and Accountability.
         OIG participates in this partnership that works to open lines of communication among Federal, State, and local
         governmental organizations with the goal of improving performance and accountability.

       Interagency Coordination Group of Inspectors General for Guam Realignment. OIG participates in this group to
         provide input on education-related issues impacting the realignment of approximately 8,000 Marines and their
         approximately 9,000 dependents from Okinawa to Guam.

       OMB Workgroup on Administrative Flexibility for Cost Allocation and Audits. OIG participated in this group that
         developed 16 recommendations to OMB on how to reduce the burden associated with administering Federal
         programs, specifically focused on cost allocation and audit issues.

Review of Legislation, Regulations, Directives, and Memoranda
    American Jobs Act of 2011. We provided two suggestions to OMB, specifically that the legislation include a
         requirement that funding recipients/subrecipients promptly refer instances of suspected fraud, waste, or abuse
         to the appropriate OIG, and that it require that reports submitted by States be certified by a senior State official
         that they are accurate, reliable, and complete and that any known deficiencies in the data are disclosed with the
         report.

       Dear Colleague Letter to Chief State School Officers on Integrity of the Data Used to Measure Student
         Achievement. We provided a suggestion to the Department to include information on reporting allegations of
         waste, fraud, and abuse to the OIG via its hotline.

       Administrative Memorandum on Administrative Flexibility, Lower Costs, and Better Results for State, Local, and
         Tribal Governments. We provided technical suggestions related to the OMB Circular A-87 pilot program.




                                                                                   Office of Inspector General Semiannual Report   9
 OTHER ACTIVITIES (continued)
         U.S. Department of Justice/OMB Grant Fraud Proposal. We provided a suggestion that grantees should report
           overpayments that are not fraudulent to the grant program officer and copy the OIG but should report knowing
           retention of overpayments directly to the OIG.

         ED Final Plan for Retrospective Analysis of Existing Regulations. We provided technical comments to the
           Department as well as suggesting that the Department include a review of OIG and Single Audit work related to
           any regulations that it is reviewing in order to determine whether the regulation has been a challenge for
           recipients to implement appropriately.




10   Office of Inspector General Semiannual Report
Goal 2: Strengthen the Department’s efforts to
        improve the delivery of student
        financial assistance.
        This goal addresses an area that has long been a major focus of our audit,
        inspection, and investigative work—the Federal student financial aid 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. During this reporting period, our work included examining the
        Department’s Federal Student Aid office (FSA)’s information technology (IT)
        contracts and agreements and a program participant’s compliance with certain
        provisions of the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA).
        We also issued a special report on our investigative work involving distance
        education fraud rings. Summaries of these reports are provided below, along with
        information on our more significant investigations involving student aid fraud.



                                                Federal Student Aid
Internal Operations                   Survey of FSA Contracts and Guaranty Agency Agreements that
                                      Provide IT Support or Services
                                      We found that improvements were needed in FSA’s IT-related contracting process
                                      and management. Specifically, of the 38 IT support or service contracts that we
                                      received, 7 did not contain any language to address IT security and 29 of the
                                      38 contracts reviewed that were subject to the certification and accreditation
                                      process did not contain all of the documents required to support system
                                      certification and accreditation. In addition, none of the agreements between FSA
                                      and the 32 guaranty agencies participating in the Federal student aid programs
                                      contained any language that addressed IT security. By not addressing IT security
                                      requirements in all IT support and service contracts and agreements, FSA may
                                      have insufficient assurances that systems and data, such as personally identifiable
                                      information, are protected from unauthorized access, use, disclosure,
                                      modifications, or destruction. Based on these findings, we made a number of
                                      suggestions, including that FSA ensure that existing and future guaranty agency
                                      agreements account for IT security. FSA agreed with our suggestions.

Program Participants Sallie Mae
                                      Using authority provided by ECASLA, the Department established a Loan
                                      Participation Purchase Program to ensure that lenders had reliable sources of
                                      funds to originate new Federal Family Education Loan Program (FFELP) loans.
                                      Sallie Mae serviced FFELP loans in which the Department purchased participation
                                      interests from eligible FFELP lenders or holders of FFELP loans. Our audit of Sallie
                                      Mae’s compliance with selected requirements of the Loan Participation Purchase
                                      Program found that it complied with its Eligible Servicing Agreements, except for
                                      its noncompliance with a specific section in one agreement. We found that Sallie
                                      Mae (as Servicer) was not in compliance with one section of its Eligible Servicing
                                      Agreements with Wells Fargo (as Custodian) and SLM Education Credit Finance
                                      Corporation (as Sponsor) for the 2009–2010 Loan Participation Purchase Program
                                      because it serviced ineligible loans as if they were eligible loans. Under the
                                      provisions of the 2009–2010 Program, loans are ineligible if the Department had

12   Office of Inspector General Semiannual Report
                     previously purchased a participation interest in the loans. We identified more
                     than 28,900 loans, with a total outstanding principal balance of more than
                     $96 million as of August 3, 2010, that participated in both the Fiscal Year
                     (FY) 2008–2009 and FY 2009–2010 Loan Participation Purchase Programs. Based
                     on our findings, we recommended that the Department hold SLM Education Credit
                     Finance Corporation (as Sponsor) responsible for any liabilities arising from the
                     participation of the ineligible loans and ensure that Sallie Mae complies with the
                     terms and conditions of its agreements with the Department. Sallie Mae officials
                     did not agree with our finding or recommendations.



                                  Investigations
Special Report       Investigative Program Report on Distance Education Fraud Rings
                     This report brought to the Department’s attention a serious fraud vulnerability in
                     distance education programs. The information presented was based on our work
                     involving “fraud rings”—large, loosely affiliated groups of criminals that seek to
                     exploit distance education programs in order to fraudulently obtain Federal
                     student aid. In the report, we point out that the number of complaints we
                     receive regarding potential fraud rings has grown: in 2005, the OIG had opened
                     16 distance education fraud ring investigations; as of August 1, 2011, the OIG had
                     opened 100. Fraud ring investigations currently constitute about 17 percent of all
                     open OIG investigations. As stated in the report, all aspects of distance
                     education—admission, student financial aid, and course instruction—take place
                     through the Internet, so students are not required to present themselves in person
                     at any point. Institutions offering distance education (like all institutions that
                     participate in the Federal student aid programs) are not required to verify
                     prospective and enrolled students’ identities, so fraud ringleaders use the
                     identities of others (with or without their consent) to target distance education
                     programs. This enables fraud ringleaders and participants to avoid setting foot on
                     campus and exploit institutions outside their geographic area. These fraud rings
                     mainly target lower-cost institutions because the Federal student aid awards are
                     sufficient to satisfy institutional charges (such as tuition) and result in
                     disbursement of the balance of an award to the student for other educational
                     expenses (such as books, room and board, and commuting). The report provided
                     information on how fraud rings operate and offered nine recommendations that, if
                     implemented, would help mitigate the risks inherent to distance education
                     programs.

Schools and School   New Jersey—Four Sentenced for Stealing Funds from a Student
                     Government Organization
Officials
                     A former office manager for the New Jersey City University Student Government
                     Organization, her husband, and two associates were sentenced for embezzling
                     more than $500,000 from the organization. Between 2007 and 2010, the former
                     employee issued more than 200 checks from a Student Government Organization
                     bank account made payable to her husband and to the other scheme participants,
                     which they used to purchase goods and services for their own benefit. The former
                     office manager and her husband were sentenced to prison and were ordered to
                     pay more than $516,000 in restitution. The associates were each sentenced to
                     probation and were ordered to pay restitution ranging from $34,300 to $59,000.

                                                              Office of Inspector General Semiannual Report   13
                                      New York—Former Anthem Institute Employee Pled Guilty
                                      A former Anthem Institute admissions representative pled guilty to the charge
                                      that she forged high school diplomas and GED certificates in order to enroll
                                      students who did not meet standard eligibility requirements. As a result of her
                                      fraudulent actions, 11 students received at least $73,000 in Federal student aid to
                                      which they were not entitled.

                                      Pennsylvania—$1.6 Million Settlement Reached with
                                      Kaplan/CHI Institute
                                      Kaplan Inc., the parent company of the CHI Institute, a proprietary school that is
                                      a part of the Kaplan Higher Education Corporation, agreed to pay $1.6 million to
                                      resolve allegations that CHI Institute enrolled students in its surgical technician
                                      program knowing that it did not have sufficient surgical externships for all the
                                      students, which was a requirement for graduation. The majority of students who
                                      enrolled in the program received some form of Federal student aid.

                                      Washington State—Actions Taken Against Crown College Officials
                                      In our last Semiannual Report to Congress, we noted that the former vice
                                      president of the now-defunct Crown College was sentenced to prison for her role
                                      in a Federal student aid fraud scheme. During this reporting period, the former
                                      financial aid director was sentenced for participating in the scheme, while the
                                      admissions director and former fiscal manager/book keeper were convicted.
                                      These former officials falsely represented themselves and others as students in
                                      order to receive Federal student aid. They did so believing that the school would
                                      be closed shortly after they received the aid and planned to apply for loan
                                      discharges once the school officially closed. When the school remained open,
                                      they attempted to conceal their activity by making it appear as though they were
                                      attending classes. As a result of their fraudulent efforts, the officials and others
                                      received more than $65,000 in Federal student aid to which they were not
                                      entitled. The former financial aid director was sentenced to serve 2 years of
                                      probation, 80 hours of community service, and was ordered to pay $10,500 in
                                      restitution.

                                      Civil Fraud Complaint Filed Against Education
                                      Management Corporation
                                      The U.S. Department of Justice, along with 12 States, filed a complaint in a
                                      whistleblower suit pending under the False Claims Act against the Education
                                      Management Corporation and several affiliated entities. The complaint alleges
                                      that the Education Management Corporation falsely certified compliance with
                                      provisions of Federal law that prohibit a university from paying incentive-based
                                      compensation to its admissions representatives that is tied to the number of
                                      students they recruit. The complaint seeks to recover a portion of the $11 billion
                                      in Federal student aid that the Education Management Corporation allegedly
                                      obtained through such illegal practices. The suit was originally filed by a former
                                      admissions recruiter who later filed an amended complaint jointly with a former
                                      director of training for Education Management Corporation’s Online Higher
                                      Education Division.




14   Office of Inspector General Semiannual Report
Fraud Rings         California—More Actions Taken Against Participants in Fraud
                    Scheme at Los Rios Community College District
                    In our last Semiannual Report, we reported on actions taken against individuals
                    for participating in a fraud scheme at the Los Rios Community College District, an
                    accredited higher education district with campuses that include American River
                    College, Cosumnes River College, and Sacramento City College. The scam
                    involved individuals who had no intention of attending any of the Los Rios schools
                    applying for admission to the schools in order to fraudulently obtain Federal
                    student aid. During this reporting period, the ringleader of the scam was
                    sentenced to serve 70 months in prison, 36 months of supervised release, and was
                    ordered to pay more than $234,000 in restitution. Two additional co-conspirators
                    pled guilty for the roles they played.

                    Iowa—Another Man Sentenced for Fraud Scam at Kirkwood
                    Community College
                    The man who helped orchestrate a fraud scheme at Kirkwood Community College
                    was sentenced to serve 51 months in prison, 3 years of supervised release, and
                    was ordered to pay nearly $271,000 in restitution. Along with his co-conspirators,
                    the man fraudulently enrolled students in the school for the purposes of obtaining
                    Federal student aid and arranging for the Federal loan proceeds to be directed to
                    post office boxes under their control.

                    Missouri—Woman Pled Guilty for Role in GED Fraud Scam
                    In our last Semiannual Report, we gave information on actions taken against
                    10 individuals for their roles in a GED fraud scam. During this reporting period, a
                    woman pled guilty to assisting the ringleader in recruiting individuals to
                    participate in the scam, selling the fake GEDs, and helping other scheme
                    participants in applying for Federal student aid. The ringleader, a former
                    admissions representative at the Vatterott College—St. Ann, Missouri, was
                    previously sentenced to prison and was ordered to pay more than $653,000 in
                    restitution for orchestrating this scam. In addition to these actions,
                    23 individuals, who purchased the phony certificates and received student aid
                    signed pre-trial diversions, agreed to pay more than $104,000 in restitution.

                    Pennsylvania—Leader of Identity Theft Ring, Four Others Pled Guilty
                    The ringleader of an identity theft scheme and four of her co-conspirators pled
                    guilty for their roles in a $600,000 fraud scheme. The individuals submitted false
                    certifications of employment, educational enrollments, and stolen identities to
                    financial institutions and student loan lenders in order to obtain Federal student
                    aid funds to which they were not entitled.

                    South Carolina—Former Inmate Sentenced
Other Individuals
                    A former inmate of the Leath Correctional Institution was sentenced to 51 months in
                    prison and was ordered to pay more than $128,000 in restitution for student aid fraud.
                    The woman, who worked in the education department while in prison and had access
                    to other inmates’ personal information, used the identities of 23 of the inmates
                    without their knowledge to apply for admission and receive student aid through
                    Webster University’s distance education program. She completed the necessary
                    paperwork to apply for the aid in the individuals’ names, used different residences
                    located in the State to which she had access to, and cashed the checks once received.

                                                               Office of Inspector General Semiannual Report   15
 OTHER ACTIVITIES
 Participation in Committees, Work Groups, and Task Forces
     OIG-FSA Risk Project. OIG staff work with FSA staff to identify risks and reduce fraud and abuse in Federal student
           aid programs.

Review of Legislation, Regulations, Directives, and Memoranda
    College Scholarship Fraud Prevention Act of 2000 Annual Report to Congress. We provided technical suggestions
           to the Department on this draft report.

         H.R. 2117 Protecting Academic Freedom in Higher Education Act. We noted to the Department and OMB that
           Federal student aid is dispensed by credit hour and that our work has shown that not having a credit hour
           definition can lead to fraud and abuse, including the over-awarding of Federal student aid funds and excessive
           borrowing by students.

         Dear Colleague Letter 2012–2013 Award Year Free Application for Federal Student Aid Information to be Verified
           and Acceptable Documentation. We made a specific recommendation to the Department related to eliminating
           opportunities for Free Application for Federal Student Aid fraud.




16   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
        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. Below are summaries of our more significant investigative
        efforts involving programs other than Federal student aid and the Recovery Act
        previously discussed in this Semiannual Report.



                                                     Investigations

Schools and                           Louisiana—Four Former School Board Employees Pled Guilty
                                      Four former employees of Jefferson Parish Public School System pled guilty to
School Officials                      charges related to a $132,000 fraud scheme. For more than 2 years, two of the
                                      individuals submitted fraudulent documents for themselves and the other
                                      co-conspirators in order to receive supplemental pay and stipends for various
                                      tutoring, testing, and remediation programs funded by Jefferson Parish Public
                                      School System, although none of them were certified teachers or qualified to
                                      perform those activities.

                                      Missouri—Former Charter School Chairman Indicted
                                      The former chairman of the board of trustees of the Paideia Academy, a charter
                                      school in St. Louis, was indicted on charges that he allegedly diverted more than
                                      $257,000 of Paideia Academy funds for the purpose of developing and operating a
                                      daycare center in which he had ownership and financial interest. His partner in
                                      the proposed daycare center was a bartender and friend who had no background,
                                      experience, or training in early childhood education or the operations of a
                                      daycare center. The former chairman failed to disclose his ownership and
                                      financial interest in the proposed center to the Paideia Academy board of trustees
                                      and did not advise any cognizant agency that he had directed, authorized, and
                                      approved the payments.

                                      Pennsylvania—Charter School Founders/Operators Indicted
                                      The president and the Chief Executive Officer of the New Media Technology
                                      Charter School in Philadelphia were indicted on a total of 27 charges of fraud.
                                      The two allegedly diverted more than $522,000 of New Media funds to other
                                      projects in order to enrich themselves and to advance their personal business
                                      interests, including a nonprofit private school they controlled and operated and
                                      other personal business ventures.

                                      Pennsylvania—Former School District Superintendent Pled
                                      Guilty to Theft
                                      The former superintendent of the Glendale School District pled guilty to theft
                                      involving Department and E-Rate funds. The former official misapplied
                                      approximately $49,600 from the Fund for the Improvement of Education grant and
                                      conspired with others to obtain and misapply more than $414,400 in E-Rate funding.

18   Office of Inspector General Semiannual Report
                    Puerto Rico—13 Individuals Indicted on Conspiracy Charges
                    Six Puerto Rico Department of Education officials, including the chief
                    procurement officer and seven contractor personnel, were indicted for conspiracy
                    to commit bribery and money laundering. The indictment alleges that the
                    contractors would give money and other goods to the Puerto Rico Department of
                    Education officials in exchange for contracts worth more than $7.4 million and the
                    expeditious payment of invoices. In addition, the former chief procurement
                    officer of the Puerto Rico Department of Education allegedly received a 2-percent
                    kickback of all contract monies awarded to one of the companies that
                    participated in the scheme.

                    Alabama—Company Owner Pled Guilty to Fraud
Other Individuals
                    The owner/president of E-Rate Consulting Services pled guilty to embezzling
                    nearly $892,000 in funds intended for IT services in school districts in Arkansas,
                    Florida, Idaho, Massachusetts, Minnesota, Nebraska, New Hampshire, North
                    Carolina, Ohio, Pennsylvania, Tennessee, and Texas. The company was in the
                    business of assisting schools and libraries in qualifying for E-Rate program funding.
                    As part of his arrangements with his clients, the owner would receive E-Rate
                    checks from the Government and then was supposed to forward them to the
                    clients. The owner instead had the checks deposited to his personal account and
                    used the funds largely for personal expenses.

                    California—Grant Writer Convicted in $35 Million Fraud Case
                    The owner of Cross Resources, Inc., a grant writing company that assisted
                    businesses in securing Federal and State grants, was convicted by a Federal grand
                    jury for fraud. Contracted by the Indio Youth Task Force, a nonprofit
                    organization, for grant writing services, the woman entered into an agreement
                    with the former Indio Youth Task Force executive director whereby she agreed to
                    prepare and submit grant applications, often with forged and altered information,
                    on behalf of Indio Youth Task Force in exchange for 15 percent of the total
                    amount received. As a result of her fraudulent actions, the Indio Youth Task
                    Force received more than $35 million in State and Federal grant funds, of which
                    she would have received more than $5.3 million.

                    Louisiana—Former Congressman’s Sister Sentenced
                    The sister of former U.S. Representative William Jefferson was sentenced to serve
                    15 months of home confinement, 5 years of supervised release, and was ordered
                    to pay more than $604,000 in restitution for her role in a criminal scheme
                    involving identity theft, money laundering, mail fraud, and tax evasion. Together
                    with another brother, her daughter, and a former New Orleans City
                    Councilmember and State Representative, the woman diverted Federal and State
                    grant monies received by nonprofit and for-profit companies they controlled to
                    their personal bank accounts and used the funds for personal expenses.

                    New Jersey—Two Former Executives of Athletic Equipment
                    Company Charged with Extensive Fraud
                    The former Chief Executive Officer and Chief Financial Officer of Circle System
                    Group were charged with perpetrating a long-running fraud scheme against
                    schools in New Jersey and other States. Circle System Group was a sports


                                                              Office of Inspector General Semiannual Report   19
                                      equipment and reconditioning company that provides services to school districts,
                                      colleges, universities, and professional sports teams nationwide. The two officials
                                      allegedly submitted hundreds of fraudulent invoices and other paperwork to
                                      schools, sometimes with the knowledge of school purchasing officials, and
                                      routinely double-billed schools in an effort to increase Circle System Group sales
                                      and revenue. As a result of the double-billing, Circle System Group allegedly
                                      received more than $970,000.

                                      North Dakota—Vocational Rehabilitation Program Officials and
                                      Volunteers Indicted
                                      Eight family members who were also employees and volunteers of the Spirit Lake
                                      Vocational Rehabilitation Program were indicted for conspiring to embezzle and
                                      defraud the program of Federal funds. The participants, including the director,
                                      allegedly used program funds for personal expenditures, including household
                                      appliances and goods, groceries, car repairs, and utilities.

                                      Utah—Former Administrative Assistant for Nonprofit
                                      Entity Indicted
                                      The former administrative assistant to the executive director of the English Skills
                                      Learning Center was indicted for allegedly stealing more than $100,000 from the
                                      program. The staffer allegedly used company credit card accounts for personal
                                      shopping, meals, airfare, hotel rooms, rental cars, and expenses related to her
                                      son’s wedding at a California resort. To conceal her unauthorized use of the
                                      credit card accounts, the staffer allegedly made payments to the credit card
                                      companies using funds from the Learning Center’s checking account and then
                                      provided falsified and/or altered bank and credit card statements to the
                                      executive director.


 OTHER ACTIVITIES
 Participation in Committees, Work Groups, and Task Forces
     Northern Virginia Cyber Crime Working Group. OIG participates in a work group of various Federal, State, and
         local law enforcement agencies conducting cyber crime investigations in Northern Virginia. The purpose is to
         share intelligence and collaborate on matters that may impact multiple agencies.




20   Office of Inspector General Semiannual Report
Goal 4: Contribute to improvements in
        Department business operations.
        Effective and efficient business operations are critical to ensuring that the
        Department effectively manages its programs and protects its assets. Our fourth
        strategic goal speaks to that effort. The OIG conducts annual reviews of the
        Department’s IT security and conducts other reviews of Departmental operations.
        These reviews seek to help the Department accomplish its objectives by ensuring
        the reliability, integrity, and security of its data; its compliance with applicable
        policies and regulations; and that it is effectively, efficiently, and fairly using the
        taxpayer dollars with which it has been entrusted. Below are summaries of our
        efforts in this area over the last 6 months, as well as information on two civil fraud
        settlements reached with two Department contractors.



                                      IT Security and Management
Special Report                        Incident Response and Reporting Procedures
                                      During OIG investigations of potential computer crimes over the past 2 years, the
                                      OIG identified problems with how the Department and its contractor handled
                                      computer security incidents. Specifically, the Department did not detect, report,
                                      or respond to incidents consistent with Federal guidelines and industry best
                                      practices. These failures have prevented the collection of information that could
                                      aid the Department in identifying all compromised computers, the actions or
                                      vulnerability that enabled the incident, the objective of the incident, and the
                                      source. It also leaves the Department’s systems and data vulnerable to
                                      unauthorized access and susceptible to malicious attack. In July, the OIG issued a
                                      special report that highlighted specific incidents and issues and made
                                      recommendations to help ensure that the Department’s systems and networks are
                                      protected.

                                      System Security Controls Over EDUCATE
Audits                                An audit to determine whether the Department had developed and implemented
                                      adequate information system security controls to properly secure and safeguard
                                      EDUCATE and the Department’s data in accordance with Federal regulations and
                                      standards found that improvements were needed. EDUCATE is the Education
                                      Department Utility for Communications, Applications, and Technology
                                      Environment—a 10-year, $500 million contract that was awarded to Perot Systems
                                      in 2007 for IT network services. Overall, the audit identified 14 operational,
                                      managerial, and technical security control weaknesses that resulted from
                                      Departmental monitoring and oversight controls that were not sufficiently
                                      designed or implemented to ensure contractor compliance with Federal
                                      requirements. Also, the Department did not develop its policies, procedures, and
                                      processes to obtain assurance of the contractor’s performance under the current
                                      contractual arrangement, and its internal control procedures were not sufficient
                                      to ensure that system owners and other responsible parties perform their assigned
                                      duties in a timely manner. To address the weaknesses identified, the report
                                      made 42 recommendations designed to ensure that the Department’s sensitive
                                      and financial data and systems processed and maintained by the contractor are

22   Office of Inspector General Semiannual Report
              properly secured and safeguarded from unauthorized system access and
              fraudulent activities. The Department concurred with most of these
              recommendations.

              Department's Processes for Validating the EDUCATE Contractor’s
              Performance
              We found that the Department does not have adequate controls in place for
              validating the EDUCATE contractor performance. The Department’s processes do
              not provide independent assurance of contractor performance or assurance of the
              quality of the data being relied on to assess performance. The Department has
              not always assigned personnel with the appropriate qualifications to validate
              contractor-submitted Service Level Agreement performance data and it does not
              always use independent, accurate, or complete data to validate contractor-
              prepared chargeback reports. Also, the Department provides limited time for
              review of these reports by affected parties and duplicates effort during the
              chargeback report validation process. We also found that the current Service
              Level Agreement framework is ineffective in encouraging the EDUCATE contractor
              to improve performance. As a result, the Department does not have assurance
              that the EDUCATE contractor is performing as required, will improve performance
              when necessary, and is being paid appropriately for the level of service provided.
              To correct the weaknesses identified, we made a number of recommendations,
              including that the Department review all Service Level Agreements and identify
              possible sources of independent supporting data to be used to validate Service
              Level Agreement performance and to implement procedures to periodically test
              underlying performance data in the contractor’s systems for accuracy, especially
              data that the Department is relying on for Service Level Agreement validation.
              The Department concurred with 12 of our 14 recommendations.

                           Investigations
Settlements   Arkansas—Accenture Pays $63.6 Million to Settle False Claims
              Act Allegations
              Accenture, LLP, agreed to pay more than $63.6 million to resolve a whistleblower
              lawsuit. The lawsuit alleged that the contractor submitted or caused to be
              submitted false claims for payment under numerous contracts with Federal
              Government agencies for IT services, received kickbacks for its recommendations
              of hardware and software to the Government, that it fraudulently inflated prices,
              and that it rigged bids in connection with Federal IT contractors. The settlement
              includes $3 million in payments made to Accenture by the Department as a result
              of the contractor’s alleged false claims.

              New Jersey—Educational Testing Services Agrees to
              $1.4 Million Settlement
              Educational Testing Service agreed to pay a $1.4 million settlement to resolve
              allegations that it improperly billed the Department for unfunded post-retirement
              medical benefits on contracts that Educational Testing Service had with the
              Department. The settlement is in addition to the nearly $3.2 million that
              Educational Testing Service already reimbursed the Department resulting from a
              2009 OIG audit that identified the improper billings.


                                                       Office of Inspector General Semiannual Report   23
                                       Non-Federal Audit Activities
                                      OMB Circular A-133 requires entities, such as State and local governments,
Quality Control
                                      universities, and nonprofit organizations that expend $500,000 or more in Federal
Reviews                               funds in 1 year to obtain an audit, referred to as a single audit. Additionally, for-
                                      profit institutions and their servicers that participate in the Federal student aid
                                      programs and for-profit lenders and their servicers that participate in the FFEL
                                      program are required to undergo annual audits performed by independent public
                                      accountants in accordance with audit guides issued by the OIG. These audits
                                      assure the Federal Government that recipients of Federal funds comply with laws,
                                      regulations, and other requirements that are material to Federal awards. To help
                                      assess the quality of the thousands of single audits performed each year, the OIG
                                      conducts quality control reviews of a sample of audits. During this reporting
                                      period, we completed 23 quality control reviews of audits conducted by
                                      22 different independent public accountants, or offices of firms with multiple
                                      offices. We concluded that 11 (48 percent) were acceptable or acceptable with
                                      minor issues, 9 (39 percent) were technically deficient, and 3 (13 percent) were
                                      unacceptable.




 OTHER ACTIVITIES
 Participation in Committees, Work Groups, and Task Forces
 Departmental Groups
         Department of Education Senior Assessment Team. OIG participates in an advisory capacity on this team, which
           provides oversight of the Department's assessment and reports on internal controls and provides input to the
           Senior Management Council concerning the overall assessment of the Department’s internal control structure, as
           required by the Federal Managers’ Financial Integrity Act of 1982, and OMB Circular A-123, Management’s
           Responsibility for Internal Control.

         Department of Education Investment Review Board and Planning and Investment Review Working Group. OIG
           participates in an advisory capacity in these groups that review IT investments and the strategic direction of the
           IT portfolio.

         Department Human Capital Policy Working Group. OIG participates in this work group, which meets monthly to
           discuss issues, proposals, and plans related to human capital management.

 Federal Government
         Government Accountability and Transparency Board. Inspector General Tighe was appointed to serve on the
           Government Accountability and Transparency Board. The Board will focus on rooting out misspent tax dollars and
           making Government spending more accessible and transparent. The Board will recommend strategies to make
           spending data more reliable and accessible to the American people.

 Inspector General Community
         Council of Inspectors General on Integrity and Efficiency (CIGIE). OIG staff play an active role in CIGIE efforts.
           Inspector General Tighe is a member of CIGIE’s Audit Committee, Investigations Committee, Information
           Technology IT Committee, and the Interagency Coordination Group for Guam Realignment. In addition, Inspector
           General Tighe is a member of the Suspension and Debarment Working Group, which is a Subcommittee of the
           Investigations Committee. OIG staff also chair the Assistant Inspector General for Investigations Subcommittee,




24   Office of Inspector General Semiannual Report
 OTHER ACTIVITIES (continued)
         the IT Subcommittee for Investigations, the CIGIE Cyber Security Work Group, CIGIE’s Federal Audit Executive
         Council’s Professional Development Committee, and co-chair the Federal Audit Executive Council’s Financial
         Statement Committee. OIG also participates in the Federal Audit Executive Council’s Financial Statement Audit
         Committee, the Council of Counsels to the Inspectors General, the Cloud Computing Working Group, and the
         newly formed CIGIE New Media Working Group.

       New Auditor Training. During this reporting period, the OIG led coordination of four sessions of CIGIE-sponsored
         Introductory Auditor Training. The training provides entry-level IG auditors with the concepts, practices, skills,
         and standards that Federal Government auditors apply in their work.

       Suspension and Debarment Working Group. OIG staff contributed to the Working Group’s report, “Don’t Let the
         Toolbox Rust: Observations on Suspension and Debarment, Debunking Myths, and Suggested Practices for Offices
         of Inspectors General.”

Federal and State Audit-Related Groups and Entities
       Chief Financial Officers Council Federal Reporting Model Work Group. OIG staff participate in this work group,
         which focuses on developing and implementing revisions to the Federal financial reporting model in order to
         better deliver financial information needed by taxpayers and decision makers.

       Comptroller General’s Advisory Council on Government Auditing Standards. OIG staff serve on this Council,
         which provides advice and guidance to the Comptroller General on government auditing standards.

       Department of Defense OIG Financial Statement Audit Advisory Committee. OIG staff participate in this
         Committee, which makes recommendations to help resolve accounting and auditing issues related to the
         U.S. Department of Defense OIG financial reporting and the financial statement audit, the system of internal
         controls, and compliance with laws and regulations that could have a material effect on the Department of
         Defense OIG financial statements.

       Intergovernmental Audit Forums. OIG staff chair and serve as officers of a number of intergovernmental audit
         forums, which bring together Federal, State, and local government audit executives who work to improve audit
         education and training and exchange information and ideas regarding the full range of professional activities
         undertaken by government audit officials. OIG staff chair the Midwestern Forum, the Southeastern Forum, and
         serve as officers on the Southwestern Forum and the New Jersey-New York Forum.

       Cloud Computing Working Group. OIG participated in this IG-community group that was tasked with developing
         contract clauses to provide OIGs adequate access for the purposes of audits and criminal investigations for
         inclusion in cloud computing contracts.

       Interagency Working Group for Certification and Accreditation. OIG participates in this working group, which
         exchanges information relating to Federal forensic science programs that share intergovernmental responsibilities
         to support the mission of the National Science and Technology Council’s Subcommittee on Forensic Science.

       Financial Statement Audit Network. OIG staff chair this government-wide working group which identifies and
         resolves key issues concerning the audit of agency financial statements, and provides a forum for coordination
         with the Government Accountability Office and the Treasury on the annual audit of the government’s financial
         statements.

       CIGIE/Government Accountability Office Annual Financial Statement Audit Conference. OIG staff chair the
         Planning Committee for the government’s annual conference that covers current issues related to the annual
         governmental financial statement audits and related standards.




                                                                                  Office of Inspector General Semiannual Report   25
26   Office of Inspector General Semiannual Report
Office of Inspector General
     Performance Measures
         Performance measurement is one of the cornerstones of a successful organization. It helps ensure
         that the organization is working effectively to meet its goals and achieve its mission. Performance
         measurements allow OIG leadership to track progress and identify opportunities for improvement.
         Below are the OIG FY 2011 performance measures and the results of our efforts, as well as the OIG’s
         performance measures for FY 2012.



               Performance Measure                     FY 2011 Target1         FY 2011 Actual           FY 2012 Target

1.        Audits, inspections, and investigations             70%                    87.2%           AS/ITACCI (Audit) - 85%
          initiated each year that focus on areas     ITACCI (Audit) - 85%   ITACCI (Audit) - 100%          EIMS - 70%
          of high risk or significant importance.                                                      IS/ITACCI (Inv) - 75%

2.        Recommendations accepted by the                     85%                   93.2%                   AS - 90%
          Department during the fiscal year.                                                           EIMS/ITACCI - 85%

3.        Audit and inspection initial results             AS -70%                 AS - 100%                AS - 75%
          determined by the agreed-upon date.             EIMS - 80%              EIMS - 100%              EIMS - 80%
                                                         ITACCI - 70%           ITACCI - 87.5%            ITACCI - 70%

4.        Audit and inspection field work                  AS - 70%               AS - 92.6%             AS/EIMS - 80%
          completed and draft report submitted            EIMS - 80%               EIMS - 0%              ITACCI - 70%
          for review by the agreed-upon date.            ITACCI - 70%            ITACCI - 75%

5.        Draft and final audit and inspection                70%                   74.6%                AS/EIMS - 70%
          reports issued by the agreed-upon date.                                                         ITACCI - 65%

6.        Case closing Reports of Investigations              75%                   54.4%                     70%
          submitted within 90 days of last
          reportable investigative action.2

7.        Complaints of fraud, waste, and abuse               70%                    78%                      70%
          evaluated and closed with a final
          disposition within 90 days.

8.        Closed investigations that resulted in a            65%                   71.4%                     68%
          criminal, civil or administrative action,
          or monetary result.

9.        Proactive analytical projects that                  65%                    100%                     N/A
          resulted in a criminal or other referral
          or identification of a vulnerability.

10.       Development milestones met by agreed-               N/A                    N/A                      70%
          upon dates for proactive analytical
          projects developed to identify adverse
          trends and/or possible fraud, waste,
          and abuse in Department programs or
          operations.3

11.       Comments that resulted in changes in                60%                   72.2%                     60%
          legislation, regulations, or other
          policies.

12.       Counsel work products meeting required              80%                   91.1%                     80%
          or agreed-upon deadlines.


13.       Freedom of Information Act responses                97%                   97.6%                     97%
          meeting required deadlines.




28    Office of Inspector General Semiannual Report
                  Performance Measure                             FY 2011 Target              FY 2011 Actual                 FY 2012 Target

14.         Requests for forensic or analytical                          65%                        86.9%                         65%
            assistance completed within 75 days.

15.         Computer-assisted assessment                                 90%                        98.2%                         90%
            technology products delivered to the
            requestor within agreed-upon dates.

16.         Budget products developed and delivered                      80%                        100%                          80%
            to OMB, Department, and OIG leadership,
            and other applicable stakeholders within
            agreed-upon timeframes.

17.         Report to appropriate stakeholders on                        90%                        100%                          90%
            Recovery Act activities and funding
            within established timeframes.

18.         Quality Assurance Review and Internal                        N/A                         N/A                          70%
            Control Review recommendations
            accepted by the OIG.4

19.         OIG Data Analytics Systems are                               95%                        91.4%                         90%
            operational during normal work hours.

20.         Operational staff take at least one work-                    70%                        100%                          70%
            related training.

21.         Increase professional certifications/                         5%                         5.9%                 60% of staff with
            advanced degrees held by staff.5                                                                                professional
                                                                                                                            designations

1
    Measures have been separately established for Audit Services (AS), Investigation Services (IS), Evaluation, Inspection and Management
    Services (EIMS), and Information Technology Audits and Computer Crime Investigations (ITACCI) as indicated.
2
    Modified for FY 2012 to measure case closing Reports of Investigation submitted within 150 days of last reportable investigative action.
3
    New performance measure for FY 2012.
4
    New performance measure for FY 2012.
5
    Modified for FY 2012 to measure percent of staff that have at least one professional certification or advanced degree.




                                                                                              Office of Inspector General Semiannual Report    29
Annexes
Annex A. Contract-Related Audit Products with Significant Findings
The following is provided in accordance with Section 845 of the 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.

Report Number: ED-OIG/A91K0007                                     Date Issued: 5/3/2011

Subject: Department's Processes for Validating the EDUCATE Contractor’s Performance

Finding: The Department did not have adequate controls in place for validating contractor performance. Specifically, the
Department’s validation processes did not provide independent assurance of contractor performance or assurance of the
quality of the data being relied upon to assess performance. In addition, the Department had not always assigned personnel
with the appropriate qualifications to validate contractor-submitted performance data. The Department did not always use
independent, accurate, or complete data to validate contractor-prepared chargeback reports; provided limited time for
review of these reports by affected parties; and duplicated effort during the chargeback report validation process. Finally,
the service-level agreement framework was not effective in encouraging the EDUCATE contractor to improve performance.


Report Number: ED-OIG/A11L0001                                     Date Issued: 9/30/2011

Subject: EDUCATE Information Security Audit

Finding: Improvements were needed in the Department’s information system security controls in order to properly secure
and safeguard EDUCATE and the Department’s data in accordance with Federal regulations and standards. The audit
identified 14 operational, managerial, and technical security control weaknesses that resulted from Departmental monitoring
and oversight controls that were not sufficiently designed or implemented to ensure contractor compliance with Federal
requirements. Also, the Department did not develop its policies, procedures, and processes to obtain assurance of the
contractor’s performance under the current contractual arrangement; and its internal control procedures were not sufficient
to ensure that system owners and other responsible parties perform their assigned duties in a timely manner.




Annex B. Peer Review Result
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.

No peer reviews were conducted during this reporting period.




32   Office of Inspector General Semiannual Report
Required Tables
Reporting Requirements of the Inspector General Act (IG Act), as amended
                                                                Requirement
           Section                                                                                           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
                               Statistical Profile Fiscal Year 2011
                               (October 1, 2010, through September 30, 2011)

5(a)(5) and 6(b)(2)            Summary of Instances where Information was Refused or Not Provided                N/A

5(a)(6)                        Listing of Reports                                                                 2
                               Audit, Inspection, Evaluation, and Other Reports and Products on Department
                               Programs and Activities (April 1, 2011, through September 30, 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 Audit, Inspection, and Evaluation Reports Issued Prior to
                               April 1, 2011                                                                     5-B
                               Summary of Audit, Inspection, and Evaluation Reports Issued During the
                               Previous Reporting Period Where Management Decision Has Not Yet Been Made

5(a)(11)                       Significant Revised Management Decisions                                          N/A

5(a)(12)                       Significant Management Decisions with which OIG Disagreed                         N/A

5(a)(13)                       Unmet Intermediate Target Dates Established by the Department Under the           N/A
                               Federal Financial Management Improvement Act of 1996




34   Office of Inspector General Semiannual Report
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.

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

AUDIT REPORTS

Federal Student Aid (FSA)

A11J0001            Security over Certification          10/13/2009         11/18/2009            1            21           10/31/2011
                    and 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)

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)

OIG Product Web Site Availability Policy. OIG final issued products are generally considered to be public documents accessible on OIG’s Web
site unless sensitive in nature or otherwise subject to Freedom of Information Act exemption. Consistent with the Freedom of Information
Act, and to the extent practical, OIG redacts exempt information from the product so that nonexempt information contained in the product
may be made available on the OIG Web site.




                                                                                         Office of Inspector General Semiannual Report   35
Table 2: Audit, Inspection, Evaluation, and Other Reports and Products on
         Department Programs and Activities
         (April 1, 2011, through September 30, 2011)
Section 5(a)(6) of the IG Act, as amended, requires a listing of each report completed by OIG during the
reporting period.

                                                                    Questioned
                                                                       Costs1
 Report                                                   Date                   Unsupported      Number of
                             Report Title                            (Includes
 Number                                                  Issued                     Costs2     Recommendations
                                                                   Unsupported
                                                                       Costs)

AUDIT REPORTS

FSA

A02K0002       Sallie Mae, Inc.’s Compliance with        5/13/11                                      2
               Selected Requirements of the Loan
               Participation Purchase Program
               Authorized by ECASLA

Office of the Chief Financial Officer (OCFO)

A05K0005       Illinois: Use of Funds and Data Quality   6/9/11     $16,7703       $5,728             8
               for Selected Recovery Act Programs
               (The Implementation and Support
               Unit of ODS, the Office of Elementary
               and Secondary Education (OESE) and
               the Office of Special Education and
               Rehabilitative Services (OSERS) are
               also designated as action officials)

OCIO

A11L0001       EDUCATE Information Security Audit        9/30/11                                      42

A19K0007       Department’s Processes for Validating     5/31/11                                      13
               the EDUCATE Contractor’s
               Performance (Report is also
               addressed to OCFO)

ODS

A02K0009       Milwaukee Public Schools: Use of          4/21/11                                      4
               Funds and Data Quality for Selected
               Recovery Act Programs (OESE and
               OSERS are also designated as action
               officials)

A04K0006       South Carolina Governor’s Office: Use     8/23/11    $8,2874                           2
               of Funds and Data Quality for
               Selected American Recovery and
               Reinvestment Act Programs (OESE is
               also designated as an action official)

A07K0002       Missouri: Use of and Reporting on         6/7/11                                       4
               Selected Recovery Act Program Funds
               (OCFO and OESE are also designated
               as action officials)




36   Office of Inspector General Semiannual Report
                                                                         Questioned
  Report                                                      Date     Costs1 (Includes    Unsupported           Number of
                             Report Title
  Number                                                     Issued     Unsupported           Costs2          Recommendations
                                                                           Costs)

A09K0001        Utah: Use of Funds and Data Quality          5/13/11       $62,111                                     16
                for Selected Recovery Act Programs
                (OESE and OSERS are also designated
                as action officials)

A09K0002        California: Use of Funds and Data            4/28/11       $23,407                                     9
                Quality for Selected Recovery Act
                Programs (OESE and OSERS are also
                designated as action officials)

A19K0010        The Effectiveness of the                     8/22/11                                                   4
                Department’s Data Quality Review
                Processes

OESE

A02J0002        Camden City Public School District’s         6/6/11      $7,534,509          $7,523,056                15
                Administration of Federal Education
                Funds (OSERS is also designated as an
                action official)

A02K0011        Camden City Public School District’s         5/4/11       $413,716                                     6
                Administration of its Supplemental
                Educational Services Program (The
                Office of Innovation and
                Improvement is also designated as an
                action official)

A03K0008        Virginia: Use of Funds and Data              6/9/11        $2,9055                                     4
                Quality for Selected Recovery Act
                Programs (ODS and OSERS are also
                designated as action officials)

A04K0005        South Carolina: Use of Funds and             4/20/11                                                   9
                Data Quality for Selected Recovery
                Act Programs (OSERS is also
                designated as an action official)

OSERS

A06K0003        Louisiana: Use of Funds and Data             4/11/11      $209,058            $179,757                 5
                Quality for Selected Recovery Act
                Programs (OESE and ODS are also
                designated as action officials)

INSPECTION REPORTS

No inspection reports issued during this reporting period.

OTHER REPORTS AND PRODUCTS

FSA

L42L0001        Distance Education Fraud Rings               9/26/11                                                   9
                (Investigative Program Advisory
                Report. Report is also addressed
                to OPE)




                                                                                  Office of Inspector General Semiannual Report   37
                                                                                      Questioned
                                                                                         Costs1
     Report                                                              Date                           Unsupported           Number of
                                    Report Title                                       (Includes
     Number                                                             Issued                             Costs2          Recommendations
                                                                                     Unsupported
                                                                                         Costs)

X11L0002           Survey of FSA Contracts and Guaranty                9/12/11                                                    None6
                   Agency Agreements that Provide
                   Information Technology Support or
                   Services (Management Information
                   Report)

OCFO

L05L0004           States’ Treasury-State Agreements Might             6/20/11                                                       1
                   Need to Include American Recovery and
                   Reinvestment Act, Education Jobs Fund,
                   and Other Similarly Funded Program
                   (Alert Memorandum)

OCIO

L21L0001           Incident Response and Reporting                     7/19/11                                                       1
                   Procedures (10-110283) (Investigative
                   Program Advisory Report)

TOTALS                                                                                $8,270,763         $7,708,541                154
1
    As defined by the IG Act, as amended, questioned costs are identified during an audit, inspection, or evaluation because of: (1) an alleged
    violation of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds;
    (2) such cost not being supported by adequate documentation; or (3) the expenditure of funds for the intended purpose being unnecessary
    or unreasonable. OIG considers that category (3) of this definition would include other recommended recoveries of funds, i.e., recovery of
    outstanding funds and/or revenue earned on Federal funds, or interest due the Department. During this reporting period, no OIG report was
    issued identifying a better use of funds.
2
    As defined by the IG Act, as amended, unsupported costs are costs that, at the time of the audit, inspection, or evaluation, were not
    supported by adequate documentation. These amounts are also included as questioned costs.
3
    Figure includes $10,000 monetary recovery made during the audit and $5,728 of unsupported costs (A05K0005).
4
    The entire $8,287 is other recommended recovery (A04K0006).
5
    The entire $2,905 is monetary recovery made during the audit (A03K0008).
6
    Management Information Report X11L0002 contained one suggestion that is not tracked in the Department’s Audit Accountability and
    Resolution Tracking System (AARTS).

Description of Non-Audit Report Products
Alert Memoranda are used to communicate to the Department significant matters identified that require the attention of the Department
when the identified matters are not related to the objectives of an ongoing assignment or are otherwise outside the scope of the ongoing
assignment. The matter may have been identified during an audit, attestation, inspection, data analysis, or other activity.
Investigative Program Advisory Reports are used to report any systemic program or regulatory weaknesses, abuses, or deficiencies in the
administration of Department programs or operations that are identified at any time during an investigation.
Management Information Reports are used to provide the Department with information and suggestions when a process other than an audit,
attestation, or inspection is used to develop the report. For example, OIG staff may compile information from previous OIG audits and other
activities to identify overarching issues related to a program or operational area and use a management information report to communicate
the issues and suggested actions to the Department.




38     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.

                                                                                           Questioned Costs2
                                                                        Number                 (Includes                 Unsupported3 Costs
                                                                                           Unsupported Costs)

A.           For which no management decision has been                     42                  $582,370,648                  $357,372,5514
             made before the commencement of the
             reporting period

B.           Which were issued during the reporting                         8                    $8,270,763                   $7,708,541
             period

             Subtotals (A + B)                                             50                  $590,641,411                  $365,081,092

C.           For which a management decision was made                       3                    $7,077,197                    $762,593
             during the reporting period.                                                        $6,428,080                    $762,593
               (i) Dollar value of disallowed costs                                               $649,117                        $0
               (ii) Dollar value of costs not disallowed

D.           For which no management decision was made                     47                  $583,564,214                  $364,318,499
             by the end of the reporting period
1
    None of the products reported in this table were performed by the Defense Contract Audit Agency.
2
    “Questioned costs” is defined in Table 2.
3
    “Unsupported costs” is defined in Table 1. These amounts are also included in questioned costs.
4
    Cost is revised to reflect correction of rounding error relating to A04J0005, issued during SAR 62.




                                                                                                Office of Inspector General Semiannual Report   39
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 has been made before                       2                        $18,200,000
             the commencement of the reporting period

B.           Which were issued during the reporting period                               0                             $0

             Subtotals (A + B)                                                           2                        $18,200,000

C.           For which a management decision was made during the                         0                             $0
             reporting period:
               (i) Dollar value of recommendations that were agreed to                   0                             $0
                    by management;
               (ii) Dollar value of recommendations that were not
                    agreed to by management

D.           For which no management decision was made by the end of                     2                        $18,200,000
             the 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.




40     Office of Inspector General Semiannual Report
Table 5-A: Unresolved Audit, Inspection, and Evaluation Reports Issued
           Prior to April 1, 2011
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 Title                             Date                            Number of
Report Number                                                                              Monetary
                            (Prior SAR Number and Page)                      Issued                        Recommendations
                                                                                           Findings

NEW SINCE LAST REPORTING PERIOD

AUDIT REPORTS

FSA

A05I0014        Ashford University’s Administration of the Title IV HEA     1/21/11         $29,036                 13
                Programs

                Current Status: AARTS shows that FSA’s
                administrative stay was approved by OCFO on
                9/29/2011. FSA informed us that it is currently
                working on this audit.

A05K0001        Educational Credit Management Corporation’s 2006            3/3/11         $225,5421                10
                Agreement with the U.S. Department of Education

                Current Status: FSA informed us that the final audit
                determination letter/program determination letter
                (PDL) is in progress.

ODS

A04K0001        Systems of Internal Controls over Selected Recovery         12/16/10      $2,051,000                16
                Act Funds in Puerto Rico (OCFO, OESE, and OSERS are
                also designated as action officials)

                Current Status: ODS/Implementation and Support
                Unit (ODS/ISU) informed us that it is currently
                working with the Office of Special Education Programs
                (OSEP) and OESE to resolve this audit.

A06K0002        Oklahoma: Use of Funds and Data Quality for Selected        2/18/11      $16,150,803                10
                Recovery Act Programs (OESE and OSERS are also
                designated as action officials)

                Current Status: ODS/ISU informed us that program
                staff are currently working on resolution activities.

OESE

A02K0003        Kiryas Joel Union Free School District Title I, Part A of   2/2/11         $467,5672                5
                the ESEA and IDEA Part B Expenditures

                Current Status: AARTS shows that OESE’s
                administrative stay was approved by OCFO on
                8/2/2011. OESE informed us the draft PDL is in the
                review process.




                                                                               Office of Inspector General Semiannual Report   41
                                                                                            Total
                                           Report Title                         Date                      Number of
Report Number                                                                             Monetary
                                  (Prior SAR Number and Page)                  Issued                  Recommendations
                                                                                          Findings

A03K0003             Commonwealth of Pennsylvania’s Local Educational         12/21/10    $443,4033          11
                     Agencies’ Systems of Internal Controls over Recovery
                     Act Funds (OCFO, OESE,OSERS, and Risk Management
                     Service (RMS) are also designated as action officials)

                     Current Status: ODS/ISU informed us that a PDL is
                     currently in the review process.

A04J0005             Puerto Rico Department of Education’s Award and          1/24/11    $15,194,468         10
                     Administration of Personal Services Contracts (OVAE,
                     OSDFS, and RMS are also designated as action
                     officials)

                     Current Status: AARTS shows that OESE’s
                     administrative stay was approved by OCFO on
                     8/2/2011. OESE informed us resolution activities are
                     in process.

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
                     9/29/2011. FSA informed us that it is currently
                     working on this audit.

A03I0006             Special Allowance Payments to Sallie Mae’s Subsidiary,   08/03/09   $22,378,905          3
                     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
                     9/22/2011.

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

                     Current Status: FSA informed us that it is working on
                     resolving this audit.

A04E0001             Review of Student Enrollment and Professional            9/23/04    $2,458,347           7
                     Judgment Actions at Tennessee Technology Center at
                     Morristown (SAR 49, page 14)

                     Current Status: FSA informed us that the draft PDL is
                     in the review process.

A05G0017             Capella University’s Compliance with Selected            3/7/08      $589,892            9
                     Provisions of the HEA and Corresponding Regulations
                     (SAR 56, page 25)

                     Current Status: FSA informed us that the draft PDL is
                     in the review process.




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

A05H0018        Walden University’s Compliance with Selected            1/21/09       $1,185,4734               10
                Regulations and Department Guidance
                (SAR 58, page 31)

                Current Status: FSA informed us it will work to
                resolve this audit by December 31, 2011.

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
                9/21/2011.

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

                Current Status: FSA informed us that resolution of
                this audit is pending the outcome of an appeal of a
                professional judgment finding for Saint Louis
                University.

A0670009        Professional Judgment at University of Colorado         7/17/98         $15,082                 4
                (SAR 37, page 17)

                Current Status: FSA informed us that resolution of
                this audit is pending the outcome of an appeal of a
                professional judgment finding for Saint Louis
                University.

A06D0018        Audit of Saint Louis University’s Use of Professional   2/10/05       $1,458,584                6
                Judgment from July 2000 through June 2002
                (SAR 50, page 21)

                Current Status: FSA informed us that resolution is
                pending the outcome of the school’s appeal of this
                audit’s professional judgment finding.

N0690010        Inspection of Parks College's Compliance with Student   2/9/00         $169,390                 1
                Financial Assistance Requirements (SAR 40, page 18)

                Current Status: FSA informed us that resolution
                activities are in progress.

OCFO

A09H0020        California Department of Education Advances of          3/9/09         $728,6515                10
                Federal Funding to LEAs (SAR 58, page 31)

                Current Status: OCFO informed us that resolution
                activities continue to be in process.




                                                                           Office of Inspector General Semiannual Report   43
                                                                                          Total
                                           Report Title                        Date                     Number of
Report Number                                                                           Monetary
                                  (Prior SAR Number and Page)                 Issued                 Recommendations
                                                                                        Findings

A09I0010             Center for Civic Education’s Administration of the We   11/20/09   $5,938,537         30
                     the People Program and Cooperative Civic Education
                     and Economic Education Exchange Program (OSDFS
                     also designated as an action official)
                     (SAR 60, page 38)

                     Current Status: OCFO informed us that resolution
                     activities continue to be in process.

ODS

A02K0005             Use of Recovery Act Funds and Reporting in Wisconsin    9/29/10                        7
                     (OSERS also designated as an action official)
                     (SAR 61, page 33)

                     Current Status: ODS/ISU informed us that a draft
                     PDL is in the review process.

A03J0010             Commonwealth of Pennsylvania Recovery Act Audit of      3/15/10                        8
                     Internal Controls over Selected Funds (OSERS, OS/
                     RMS, and OCFO also designated as action officials)
                     (SAR 60, page 39)

                     Current Status: ODS/ISU informed us it is working to
                     complete resolution activities.

A04J0010             Tennessee Recovery Act Audit Internal Controls over     12/15/09                       2
                     Selected Funds (Recommendations were made to OESE
                     in conjunction with OSERS) (SAR 60, page 39)

                     Current Status: ODS/ISU informed us that a draft
                     PDL is in the review 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: ODS/ISU informed us that it is
                     working with OSEP to complete resolution activities.

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: ODS/ISU informed us that that a
                     draft PDL is in the review 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: ODS/ISU informed us that a PDL was
                     drafted for one audit finding and it is working with
                     OSEP to revolve the remaining findings.

A06K0001             Systems of Internal Control Over Selected Recovery      9/29/10                        8
                     Act Funds in Louisiana (OSERS also designated as an
                     action official) (SAR 61, page 34) )

                     Current Status: ODS/ISU informed us that it is
                     working with OSEP to complete resolution activities.


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

A09J0006        State and Local Controls over Recovery Act Funds in     1/15/10                                7
                California (OCFO and OSERS also designated as action
                officials) (SAR 60, page 40)

                Current Status: ODS/ISU informed us that a draft
                PDL is in the review process.

A19J0001        Department’s Implementation of the State Fiscal         9/24/10                                4
                Stabilization Fund Program (SAR 61, page 34)

                Current Status: ODS/ISU informed us that resolution
                activities are in progress.

A19K0006        Department’s Process for Screening and Selecting Peer   8/16/10                                1
                Reviewers for the Race to the Top Grant Program
                (SAR 61, page 34)

                Current Status: ODS/ISU informed us that resolution
                activities are in progress.

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 resolution is
                in process.

A02J0009        New York State LEAs Systems of Internal Control Over    2/17/10                                16
                Recovery Act Funds (SAR 60, page 39)

                Current Status: ODS/ISU informed us that it is
                working with OSEP and OESE to complete resolution
                activities.

A03G0006        The Department’s Administration of Selected Aspects     2/22/07                                3
                of the Reading First Program (OCFO also designated
                as an action official) (SAR 54, page 31)

                Current Status: OESE informed us that resolution
                activities are in process.

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

                Current Status: OESE issued the second PDL on
                September 29, 2011, for findings 1 and 3. However,
                the required documents needed for resolution of this
                audit 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 progress.




                                                                          Office of Inspector General Semiannual Report   45
                                                                                             Total
                                           Report Title                          Date                      Number of
Report Number                                                                              Monetary
                                  (Prior SAR Number and Page)                   Issued                  Recommendations
                                                                                           Findings

A04G0015             Audit of Georgia Department of Education’s                10/30/07   $9,977,242           9
                     Emergency Impact Aid Program Controls and
                     Compliance (SAR 56, page 26)

                     Current Status: OESE informed us that resolution
                     activities are in progress.

A04H0011             Puerto Rico Department of Education’s Administration      5/20/08     $189,011           10
                     of Contracts Awarded to Excellence in Education, Inc.
                     and the University of Puerto Rico’s Cayey Campus
                     (SAR 57, page 26)

                     Current Status: OESE informed us that the PDL is
                     currently in the review process.

A04H0017             Puerto Rico Department of Education's Administration      10/9/08     $821,714           15
                     of Title I Services Provided to Private School Students
                     (SAR 58, page 31)

                     Current Status: OESE informed us that resolution
                     activities are in 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 issued the PDL on
                     September 30, 2011. However, the required
                     documents needed for resolution of this audit must be
                     certified through AARTS.

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 in the review process.

A04J0004             Virgin Islands Department of Education’s Current          11/13/09                        3
                     Efforts to Address Prior Audit Findings
                     (SAR 60, page 39)

                     Current Status: OESE informed us that the PDL is
                     currently in the review process.

A05G0020             Audit of the Alabama State Department of Education’s      9/27/07    $4,579,375           5
                     and Two Selected LEAs’ Compliance with Temporary
                     Emergency Impact Aid Program Requirements
                     (SAR 55, page 28)

                     Current Status: OESE informed us that resolution
                     activities are in progress.

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 the PDL is
                     currently in the review process.




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

A05H0025    Harvey Public Schools District’s Use of Selected        11/25/08      $317,0936                  9
            Department Grant Funds (OSERS and OCFO also
            designated as action officials) (SAR 58, page 31)

            Current Status: OESE issued the PDL on
            September 28, 2011. However, the required
            documents needed for resolution of this audit must be
            certified through AARTS.

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
            currently in the review process.

A06F0016    Arkansas Department of Education’s Migrant Education    8/22/06        $877,000                  2
            Program (SAR 53, page 25)

            Current Status: OESE informed us that resolution
            activities are in process.

A06G0009    Audit of the Temporary Emergency Impact Aid for         9/18/07      $10,270,000                 4
            Displaced Students Requirements at the Texas
            Education Agency and Applicable LEAs
            (SAR 55, page 29)

            Current Status: OESE informed us that resolution
            activities are in progress.

A06G0010    Louisiana Department of Education’s Compliance with     9/21/07       $6,303,000                 4
            Temporary Emergency Impact Aid for Displaced
            Students Requirements (SAR 55, page 29)

            Current Status: OESE informed us that resolution
            activities are in progress.

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 in the review process.

A09I0012    Wyoming Department of Education Controls Over State     07/10/09                                 2
            Assessment Scoring (SAR 59, page 42)

            Current Status: OESE informed us that the PDL is
            clearing the internal review process.




                                                                        Office of Inspector General Semiannual Report   47
                                                                                          Total
                                            Report Title                      Date                       Number of
Report Number                                                                           Monetary
                                   (Prior SAR Number and Page)               Issued                   Recommendations
                                                                                        Findings

A09J0004             Colorado Department of Education’s Use of Federal       2/26/10   $23,961,710           5
                     Funds for State Employee Personnel Costs (OSERS,
                     Office of Vocational and Adult Education (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: OESE issued the PDL on
                     September 30, 2011. However, the required
                     documents needed for resolution of this audit must be
                     certified through AARTS.

Office of Planning, Evaluation & Policy Development (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) (SAR 61, page 34)

                     Current Status: We did not receive a response from
                     OPEPD on this audit during this report period.

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 the PDL is in the
                     review process.

OVAE

A06J0001             Arkansas’ Adult Education and Family Literacy Act       5/28/10     $583,403            7
                     Program (SAR 61, page 33)

                     Current Status: AARTS shows that OVAE’s
                     administrative stay was approved by OCFO on
                     8/30/2011. OVAE informed us the draft PDL is
                     currently in the internal review process.

REPORTED IN PREVIOUS SARs

INSPECTION REPORTS

OGC

I13I0004             Inspection to Evaluate the Adequacy of the              4/21/08                         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.

Totals                                                                                 $575,293,452         445

Footnotes for Table 5-A begin on the next page.


48   Office of Inspector General Semiannual Report
1
    Audit report A05K0001 identified the amount of $225,542 was “monetary recoveries” made during the audit.
2
    Audit report A02K0003 identified an annual better use of funds in the amount of $5.2 million.
3
    Audit report A03K0003 identified the amount of $4,568 was “monetary recoveries” made during the audit.
4
    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.
5
    Audit Report A09H0020 identified $728,651 in other recommended recoveries, $13,000,000 in annual better use of funds, and no questioned
    costs.
6
    Audit Report A05H0025 identified $33,726 in other recommended recoveries and no questioned costs.




                                                                                             Office of Inspector General Semiannual Report     49
Table 5-B: Summaries of Audit, Inspection, and Evaluation Reports Issued
           During the Previous Reporting 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 issued reports
can be found in Table 5-A of this Semiannual Report.

 Report Title, Number, and
                                                                             Summary
        Date Issued


Federal Student Aid-Related

Ashford University’s              The audit determined that, for its distance education programs, Ashford University (Ashford),
Administration of the Title       designed a compensation plan for enrollment advisors that provided incentive payments based
IV HEA Programs.                  on success in securing enrollment and did not establish that its plan and practices qualified for
                                  the regulatory safe harbors from the incentive compensation prohibition; did not properly
ED-OIG: A05I0014                  perform return of Federal student aid calculations, resulting in the improper retention of
                                  more than $29,000 of Federal student aid program funds for 38 of the 85 students in our
Issued: 1/21/2011                 samples (we estimated that Ashford improperly retained at least $1.1 million of 2006-2007
                                  Federal student aid program funds); did not return Federal student aid program funds timely;
                                  retained student credit balances without proper authorizations; did not always disburse
                                  Federal student aid program funds in accordance with Federal regulations or its own policy
                                  (we estimated that Ashford made between $3.7 and $8.9 million in ineligible disbursements);
                                  and did not maintain supporting documentation for students’ leaves of absence. We
                                  recommended a number of actions, including that FSA require Ashford to return student aid
                                  funds that it was not entitled to retain and that it cease drawing, disbursing, and holding
                                  credit balances for which there are no currently assessed institutional charges. Because of
                                  the seriousness of our findings, we also recommended that FSA consider taking appropriate
                                  administrative action to fine Ashford or to limit, suspend, or terminate its participation in the
                                  SFA programs. Ashford officials disagreed with our findings and recommendations.

                                  Current Status: AARTS shows that FSA’s administrative stay was approved by OCFO on
                                  9/29/2011. FSA informed us that it is currently working on this audit.

Educational Credit                We determined that Educational Credit Management Corporation (ECMC), a guaranty agency
Management Corporation’s          participating in the Federal Family Education Loan Program, generally complied with
2006 Agreement with the           provisions of its agreement with the Department that pertained to ECMC’s Federal Services
U.S. Department of                Bureau’s return of funds to the Department and ECMC’s deposit of interest accrued on
Education.                        accounts repurchased by lenders (“repurchase interest allocation”) into its Federal fund.
                                  However, we identified two instances of noncompliance related to Federal Services Bureau’s
ED-OIG: A05K0001                  revenues and expenses: (1) ECMC used Federal Services Bureau revenue to support activities
                                  that the agreement did not allow and (2) ECMC’s cost allocation plan did not fully explain
Issued: 3/3/2011                  allocation of costs and ECMC did not provide an annual cost allocation report to the
                                  Department. ECMC agreed to implement all our recommendations but disagreed with some of
                                  the statements that we made in one of our findings.

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




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

Elementary, Secondary, and Special Education Program-Related

Kiryas Joel Union Free          We found that Kiryas Joel used more than $276,000 in ESEA Title I funds to supplant
School District Title I, Part   non-Federal funds in lease payments related to its public school building and estimated that
A of the ESEA and IDEA Part     an additional $5.2 million in potential charges to the Title I grant over the remaining life of
B Expenditures.                 the lease could be better used to serve the students of Kiryas Joel. We noted conflicts of
                                interest related to this lease as well as another lease agreement for which Kiryas Joel made
ED/OIG: A02K0003                payments using Title I funds. A 2009 report by the Office of the New York State Comptroller
                                indicated that Kiryas Joel’s Board President and Vice President did not properly disclose their
Issued: 2/2/2011                affiliations with the groups leasing the building. As a result, there was no assurance that the
                                decisions made relating to the leases were in the best interests of the students of Kiryas Joel.
                                Based on our findings, we recommended that the Department instruct the New York State
                                Department of Education to require Kiryas Joel to return more than $276,000 in unallowable
                                Title I funds that it used for leasing the building and implement and adhere to policies and
                                procedures to ensure compliance with Federal requirements related to conflicts of interest.
                                We also recommended that Kiryas Joel provide adequate documentation to support more than
                                $191,000 in unsupported Title I salary expenditures or return the funds. The New York State
                                Department of Education generally concurred with our findings and recommendations.

                                Current Status: AARTS shows that OESE’s administrative stay was approved by OCFO on
                                8/2/2011. OESE informed us the draft PDL is currently in the review process.

Puerto Rico Department of       The audit found that the Puerto Rico Department of Education lacked sufficient controls to
Education’s Award and           ensure compliance with State and Federal laws in awarding personal service contracts and in
Administration of Personal      ensuring that those services were allowable and adequately supported. The Puerto Rico
Services Contracts.             Department of Education did not maintain adequate information to reconcile data in its
                                financial accounting and payment systems. The total expenditures recorded in the Puerto
ED-OIG: A04J0005                Rico Department of Education’s financial accounting system for personal service contracts
                                paid with Department funds were about $15 million less than the total payments recorded in
Issued: 1/24/2011               its paper-based and other payment systems. Also, the Puerto Rico Department of Education
                                did not provide adequate support for more than $147,600 of the more than $459,000 it
                                expended for services under the personal service contracts reviewed. Without adequate and
                                reliable documentation in support of payments, the Puerto Rico Department of Education
                                cannot ensure that the services were allowable. Based on the results of our review, we
                                consider personal service contracts a high-risk contracting vehicle, and made a number of
                                recommendations, including that the Department require the Puerto Rico Department of
                                Education to reconcile the $15 million discrepancy. The Puerto Rico Department of Education
                                did not agree with all of our findings or recommendations.

                                Current Status: AARTS shows that OESE’s administrative stay was approved by OCFO on
                                8/2/2011. OESE informed us resolution activities are in process.

Recovery Act-Related

Commonwealth of                 We examined internal controls of education-related Recovery Act funds in the Commonwealth
Pennsylvania’s Local            of Pennsylvania and found that the agencies reviewed had systems of internal control in place
Educational Agencies’           to provide for the proper administration and use of those funds. We did, however, identify
Systems of Internal Controls    areas in which controls needed to be strengthened or established in order to provide
over Recovery Act Funds.        reasonable assurance of subrecipient compliance with applicable laws, regulations, and
                                guidance. Specifically, we found that the Pennsylvania Department of Education and the
ED/OIG: A03K0003                Comptroller’s Office needed to provide clearer guidance to LEAs regarding excess cash and
                                excess interest earned on Federal funds, as well as with Recovery Act job creation and
Issued: 12/21/2010              retention data to ensure that such data are accurate and complete. Pennsylvania Department
                                of Education also needed to conduct additional monitoring and provide LEAs with additional
                                guidance to help ensure fiscal controls are adequate and to ensure that LEA policies and
                                procedures in this area are adequate, as we found that two of the three LEAs reviewed did not
                                have written policies and procedures for several fiscal areas. Based on these findings, we
                                made a number of recommendations to enhance controls over Recovery Act funds. State
                                officials did not agree with all of our findings or recommendations.

                                Current Status: ODS/ISU informed us that a PDL is currently in the review process.


                                                                                  Office of Inspector General Semiannual Report   51
 Report Title, Number, and
                                                                           Summary
        Date Issued

System of Internal Controls       The results of our audit of internal controls over education-related Recovery Act funds in
over Selected Recovery Act        Puerto Rico found that although the Governor’s Office and its subgrantees, including the PRDE
Funds in Puerto Rico.             worked to ensure proper administration of Recovery Act funds, there were areas that needed
                                  to be strengthened. Specifically, the Governor’s Office had insufficient controls over cash
ED-OIG: A04K0001                  management; PRDE and the Governor’s Office did not sufficiently monitor their use of
                                  Recovery Act funds and subgrantees to ensure adequate oversight and had insufficient internal
Issued: 12/16/2010                controls for safeguarding information. Further, PRDE was not effectively monitoring the
                                  procurement process, and it lacked documentation to support payments made with Recovery
                                  Act funds for programs under IDEA and compliance with the contract awarding requirements
                                  included in the Recovery Act. We made a number of recommendations to address the
                                  weaknesses identified. Puerto Rico officials did not agree with all of our findings or
                                  recommendations.

                                  Current Status: ODS/ISU informed us that it is currently working with OSEP and OESE to
                                  resolve this audit.

Oklahoma: Use of Funds            The results of our audit of Oklahoma’s use of Recovery Act funds found that the Governor’s
and Data Quality for              Office, the Oklahoma Office of State Finance (OSF), and the Oklahoma State Department of
Selected Recovery Act             Education (OSDE) did not demonstrate that all Recovery Act funds were expended in
Programs.                         accordance with applicable laws, regulations, and guidance. We identified $16 million in
                                  State Fiscal Stabilization Fund (SFSF) Government Services Funds (GSF) for which OSF was
ED-OIG: A06K0002                  unable to account. We also identified more than $68,000 in unallowable expenses and more
                                  than $81,000 in unsupported costs at two of the three Oklahoma LEAs we examined. OSDE
Issued: 2/18/2011                 and OSF had also not followed applicable cash management regulations to ensure that
                                  subrecipients did not receive funds in advance of need. OSDE advanced $124 million available
                                  under the Recovery Act to two LEAs without regard to their immediate funding needs; and OSF
                                  drew down approximately $19.2 million in SFSF Education Stabilization Funds in excess of the
                                  LEAs’ needs. OSDE and OSF did not ensure that data reported were accurate, reliable, and
                                  complete. We made several recommendations to address these issues, including that OSF
                                  provide sufficient documentation and/or accounting transactions to support that SFSF GSF
                                  funds were expended appropriately or return $16 million in SFSF GSF funds. Oklahoma
                                  officials did not concur with all of our findings.

                                  Current Status: ODS/ISU informed us that program staff are working on resolution activities.




52   Office of Inspector General Semiannual Report
Table 6: Statistical Profile: Fiscal Year 2011
         (October 1, 2010, through September 30, 2011)
                                                                          October 1, 2010–            April 1, 2011–
               Audits, Inspections, Other Products                                                                           Fiscal Year 2011
                                                                           March 31, 2011          September 30, 2011

Audit Reports Issued                                                               12                         15                     27

Inspection Reports Issued                                                           2                         0                       2

Questioned Costs (Including Unsupported Costs)                               $34,561,8181                 $8,270,763            $42,832,581

Recommendations for Better Use of Funds                                       $5,200,000                      $0                $5,200,000

Other Products Issued                                                               5                         4                       9

Reports Resolved By Program Managers                                               18                         9                      27

Questioned Costs Sustained                                                   $145,354,842                 $6,428,080           $151,782,922

Unsupported Costs Sustained                                                  $104,521,933                  $762,593            $105,284,526

Additional Disallowances Identified by Program Managers                           $1,204                  $4,112,082            $4,113,286

Management Commitment to the Better Use of Funds                               $327,577                       $0                 $327,577

Investigative Cases Opened                                                         77                         65                    142

Investigative Cases Closed                                                         88                         59                    147

Cases Active at the End of the Reporting Period                                    427                       437                    437

Prosecutorial Decisions
Accepted                                                                           73                         48                    1592
Declined                                                                           90                        105                    2183

Indictments/Informations                                                           55                         68                    123

Convictions/Pleas                                                                  46                         58                    1064

Fines Ordered                                                                  $124,525                    $27,360               $147,6605

Restitution Payments Ordered                                                  $4,900,534                  $3,481,764            $8,382,298

Civil Settlements/Judgments (number)                                                3                         5                       8

Civil Settlements/Judgments (amount)                                          $57,896,082                 $66,745,092          $124,787,1746

Recoveries                                                                    $3,589,082                  $2,670,519            $6,259,601

Forfeitures/Seizures                                                            $54,910                       $0                  $54,910

Estimated Savings                                                             $2,572,727                  $3,412,683            $5,985,410

Suspensions Referred to Department                                                 21                         29                     50

Debarments Referred to Department                                                  38                         3                      41

1
    Cost is revised to reflect correction of rounding error relating to A04J0005, issued during SAR 62.
2
    Includes 36 cases that were not reflected in SAR 62 which covered the period from 10/1/10 through 3/31/11.
3
    Includes 23 cases that were not reflected in SAR 62.
4
    Includes 2 cases that were not reflected in SAR 62.
5
    Includes $4,225 reduction from amount listed in SAR 62.
6
    Includes 2 settlements totaling $146,000 that were not reflected in SAR 62.


                                                                                               Office of Inspector General Semiannual Report   53
                 Abbreviations and Acronyms Used in this Report
                           AARTS                     Audit Accountability and Resolution Tracking System
                           CIGIE                     Council of Inspectors General for Integrity and Efficiency
                           Department                U.S. Department of Education
                           ECASLA                    Ensuring Continued Access to Student Loans Act
                           EDUCATE                   Education Department Utility for Communications, Applications,
                                                       and Technology Environment

                           ESEA                      Elementary and Secondary Education Act of 1965
                           FFELP                     Federal Family Education Loan Program
                           FSA                       Federal Student Aid
                           GED                       General Educational Development
                           HEA                       Higher Education Act of 1965, as Amended
                           IDEA                      Individuals with Disabilities Education Act
                           IG Act                    Inspector General Act of 1978
                           IT                        Information Technology
                           LEA                       Local Educational Agency
                           OCFO                      Office of the Chief Financial Officer
                           OCIO                      Office of the Chief Information Officer
                           ODS                       Office of the Deputy Secretary
                           OESE                      Office of Elementary and Secondary Education
                           ODS/ISU                   Office of the Deputy Secretary Implementation and Support Unit
                           OESE                      Office of Elementary and Secondary Education
                           OGC                       Office of General Counsel
                           OIG                       Office of Inspector General
                           OMB                       Office of Management and Budget
                           OPE                       Office of Postsecondary Education
                           OPEPD                     Office of Planning, Evaluation and Policy Development
                           OS                        Office of the Secretary
                           OSDFS                     Office of Safe and Drug Free Schools
                           OSEP                      Office of Special Education Programs
                           OSERS                     Office of Special Education and Rehabilitative Services
                           PDL                       Program Determination Letter
                           Recovery Act              American Recovery and Reinvestment Act of 2009
                           RMS                       Risk Management Services
                           SFSF                      State Fiscal Stabilization Fund
                           Title IV                  Title IV Higher Education Act of 1965
                           Treasury                  U.S. Department of the Treasury


54   Office of Inspector General Semiannual Report
                  FY 2012 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 2012.

   1. Improper Payments, meeting all new requirements and intensifying efforts to
      prevent, identify, and recapture improper payments.

   2. Information Technology Security, including management, operational, and technical
      security controls to adequately protect the confidentiality, integrity, and availability
      of its systems and data.

   3. Oversight and Monitoring, including Federal student aid program participants,
      distance education, Recovery Act, grantees, and contractors.

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

For a copy of our FY 2012 Management Challenges report, visit our Web site at
www.ed.gov/oig.
Anyone knowing of fraud, waste, or abuse involving U.S. Department of
Education funds or programs should call, mail, or electronically submit
their concerns to the Office of Inspector General.

Call Toll-Free:                    Or Write:
Inspector General Hotline          Inspector General Hotline
1-800-MISUSED                      U.S. Department of Education
(1-800-647-8733)                   Office of Inspector General
                                   400 Maryland Ave., S.W.
                                   Washington, D.C. 20202

Electronic Submission (internet):
http://www2.ed.gov/about/offices/list/oig/index.html

Your report may be made anonymously or in confidence.

The Department of Education’s mission is to promote student
achievement and preparation for global competitiveness by
fostering educational excellence and ensuring equal access.

www.ed.gov