oversight

Semiannual Report - October 01, 2012 - March 31, 2013

Published by the Department of Education, Office of Inspector General on 2013-03-31.

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

U.S. Department of Education
Office of Inspector General


Semiannual Report to
Congress, No. 66
October 1, 2012–March 31, 2013
Office of Inspector General
Kathleen S. Tighe
Inspector General

May 2013

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. 66.




Please Note:
The Inspector General’s Semiannual Report to Congress, No. 66 is available on the
ED OIG Web site at http://www2.ed.gov/about/offices/list/oig.
           Message to Congress
On behalf of the U.S. Department of Education (Department) Office of Inspector General
(OIG), I present this Semiannual Report on the activities and accomplishments of this
office from October 1, 2012, through March 30, 2013. The audits, inspections,
investigations, and related work highlighted in the report are products of our continuing
commitment to promoting accountability, efficiency, and effectiveness in our oversight of
the Department’s programs and operations.

In a recent Semiannual Report to Congress, I noted that accountability, efficiency,
effectiveness, and oversight are characteristics of good governance. When employed,
they help ensure that government programs and operations are performing as intended,
that government resources are responsibly managed, and that there is real value for the
taxpayers who are funding those programs and operations. Value. It is one of the
cornerstones by which the OIG operates. In March, I had the opportunity to testify at a
hearing before the U.S. House of Representatives’ Committee on Oversight and
Government Reform where I spoke about the value we place on the work we conduct and
the value we deliver in the work we produce.

I shared with the Committee that the value of our work is not just in the weaknesses and
problems we identify, but in the recommendations we make to address them. If the
Department timely and effectively implements our recommendations, we believe it will
see real improvements in the efficiency of its programs and operations and real
reductions in its vulnerabilities to waste, fraud, and abuse. That too is real value.

Our work can serve as a critical tool for Department management in improving its
operations, strategic planning, and risk management. The work we completed over the
last 6 months proves that point: our audit work recommended actions for the Department
to take to address identified weaknesses in the programs and operations we reviewed,
and our investigative work led to significant criminal and civil actions, settlements, and
other monetary returns totaling more than $33.3 million. As examples:

     We found that the Debt Management Collection System 2 (DMCS2), the Federal
      Student Aid office’s (FSA) system for managing defaulted student loans, was unable
      to accept the transfer of certain defaulted student loans from FSA’s Title IV
      Servicers. At the time of our audit, the entities that service Federal student aid
      loans had accumulated more than $1.1 billion in defaulted loans that should have
      been transferred to the Department for management and collection. As a result,
      the Department has been hampered in pursuing collection remedies and borrowers
      have been unable to take steps to remove their loans from default status.

     The Department’s and FSA’s fiscal years 2012 and 2011 financial statement audits
      noted a material weakness resulting from multiple deficiencies surrounding DMCS2
      and the ACS, Inc., Educational Servicing system—the legacy Direct Loan servicing
      system. The audits also found repeat deficiencies relating to credit reform
      estimation, financial reporting processes, and other controls surrounding
      information systems.

     Our ongoing investigations involving waste, fraud, or abuse by Supplemental
      Education Service program providers funded under Title I, Part A of the Elementary
      and Secondary Education Act of 1965 led to a $10 million settlement between
      Education Holdings, Inc. (formerly the Princeton Review) and the Federal
      Government, in which the company admitted to defrauding the program. Two
      former Princeton Review managers pled guilty and agreed to pay $1.2 million each
      for their roles in the fraud. A third manager agreed to a $3.2 million civil
      settlement.

     Our student aid fraud ring assessment determined that the population of Federal
      student aid recipients potentially participating in fraud rings had increased
      82 percent from 2009 to 2012, which we estimated caused a probable loss during
      that time period of $187 million in Federal student aid.

     The State of Connecticut agreed to a $4.5 million settlement as a result of our
      audit and investigative work that found that the Connecticut State Department of
      Education submitted false claims that misrepresented the number of children who
      participated in the Migrant Education Program.

     Our investigation with the Attorney General’s Office resulted in a civil complaint
      filed by the State of Oregon against EdChoices, a charter school management
      company, and its founders for racketeering, false claims, breach of contract,
      negligent misrepresentation, and other charges involving more than $17 million in
      charter school funds.

     Our audit of the Department’s compliance with the Improper Payments Elimination
      and Recovery Act noted issues with the completeness of its calculation of the
      estimated improper payment rate for the Pell Grant program and found that the
      Department’s methodologies for estimating improper payment rates for other
      student aid programs were flawed.

     Our audit of the Teacher Incentive Fund found weaknesses in the Department’s
      processes for reviewing and evaluating applications regarding the involvement and
      support of stakeholders, increasing the risk that a grantee will face significant
      challenges in meeting project objectives.

     Our evaluation of the Department’s monitoring of Investing in Innovation (i3)
      program grant recipients found that the Department program officers regularly
      engaged with and monitored i3 grantees. However, they did not hold i3 grantees
      accountable when they did not respond or did not respond timely to Department
      requests, and the Department did not impose any consequences on the grantees
      for failing to do so.

In this report, you will find more information on these actions, as well as summaries of
other OIG audits and reviews issued over the last 6 months. We also provide summaries of
criminal actions taken during this reporting period as a result of OIG investigations.

We will make the most of the resources available to OIG to meet our goals and achieve
our mission and provide real value to the Department, taxpayers, and most importantly,
America’s students. I look forward to working with the 113th Congress and Secretary
Duncan to meet the challenges and opportunities that lie ahead.




Kathleen S. Tighe
Inspector General
                              Table of Contents




            1                               7                           17
Goal 1:     Improve the         Goal 2:     Strengthen       Goal 3: Protect the
Department’s ability to         the Department’s efforts     integrity of the
effectively and efficiently     to improve the delivery of   Department’s programs
implement its programs to       student financial            and operations by
promote educational             assistance.                  detecting and preventing
excellence and                                               vulnerabilities to fraud,
opportunity for all                                          waste, and abuse.
students.




           25                              33                           53
Goal 4:     Contribute to       Annexes and                  Acronyms and
improvements in                 Required Tables              Abbreviations
Department business
operations.
Goal 1: Improve the Department’s ability to
        effectively and efficiently implement its
        programs to promote educational
        excellence and opportunity for all
        students.
        Our first strategic goal reflects our mission to promote the efficiency, effectiveness,
        and integrity of the U.S. Department of Education’s (Department) programs and
        operations. To achieve this goal, we conduct audits, inspections, investigations,
        and other activities. In our audit and inspection work, we evaluate program results,
        assess internal controls, identify systemic weaknesses, and make recommendations
        to improve the Department’s programs and operations. In our investigative work,
        we focus on serious allegations of fraud and corruption and work with prosecutors to
        hold accountable those who steal, abuse, or misuse education funds.



                                                        Audits
                                      Work related to this goal over the last 6 months involves the American Recovery
                                      and Reinvestment Act of 2009 (Recovery Act). Recovery Act funding, which
                                      provided more than $98 billion for existing and new education-related grant
                                      programs, ended at the close of fiscal year (FY) 2011. A second education
                                      stimulus, the Education Jobs Fund, was enacted in 2010 and provided another
                                      $10 billion to help local educational agencies (LEAs) hire, retain, or rehire
                                      employees who provided school-level educational and related services, ended at
                                      the close of FY 2012. OIG has conducted a significant amount of work involving
                                      these programs and continued to do so throughout this reporting period. Results
                                      of our efforts are below.

                                      Over the last 6 months, we issued five Recovery Act-related reports. This
                                      included our first review involving the Investing in Innovation (i3) program—a
                                      competitive grant program focused on expanding the implementation of, and
                                      investment in, innovative practices that have a demonstrated impact on student
                                      achievement, closing achievement gaps, high school graduation rates, college
                                      enrollment and completion, and decreasing drop-out rates. We also completed
                                      work involving the State of Maryland’s use of Recovery Act funds, and issued three
                                      reports related to the final phase of our Recovery Act audit work: a national
                                      perspective on how selected school districts obligated and spent final Recovery
                                      Act funds. Summaries of these audits are below. We also continued to compile
                                      and analyze data for two “lessons learned” reports—one multiagency OIG review
                                      to identify best practices and challenges in implementing and administering
                                      Recovery Act programs and a second Department-specific review to provide
                                      insights into the key challenges associated with implementing the Recovery Act
                                      and the Department’s and its grantees’ responses to those challenges. We will
                                      report the findings of these efforts once completed.

                                      Department’s Monitoring of i3 Grant Recipients
                                      Our evaluation of the Department’s monitoring of i3 program grant recipients
                                      found that Department program officers regularly engaged with and monitored
                                      i3 grantees. However, they did not hold accountable i3 grantees that did not
                                      respond or did not respond timely to Department requests. We recommended
                                      that the Department develop appropriate requirements or consequences for


2   Office of Inspector General Semiannual Report
unresponsive i3 grantees. We also found that if program officer workload
increases or if the technical assistance for the evaluation component is no longer
available, the Department’s ability to monitor the grantees could be negatively
impacted in the future. We recommended that the Department continue to
monitor any increase in program officers’ workload to ensure adequate
monitoring. The Department should also ensure that a technical assistance
contractor is available for future project periods or find an equivalent alternative
for technical assistance. The Department concurred in part with our finding that
it did not hold i3 grantees accountable for their lack of responsiveness to
Department requests, and it fully concurred with our finding and
recommendations related to potential risks to its ability to adequately monitor
i3 grantees in the future.

Maryland’s Use of Recovery Act Funds and Quality of
Reported Data
We found that Recovery Act expenditures by the Maryland State Department of
Education, Maryland Department of Public Safety and Correction, and two LEAs,
Baltimore City Public Schools and Prince George’s County Public Schools, were
generally allowable, reasonable, and accounted for in accordance with the
recipients’ plans, approved applications, and applicable laws and regulations.
However, we identified more than $736,400 in unallowable, unsupported, and
inadequately supported expenditures at the two LEAs. For example, we found
that Prince George’s County spent more than $108,800 for unapproved travel, and
Baltimore City could not adequately support personnel expenditures totaling more
than $249,700. In addition, although we found that the Recovery Act data
reported by the State were generally accurate, complete, and in compliance with
Recovery Act reporting requirements, the jobs data reported by the Maryland
Department of Public Safety and Correction and the two LEAs were not accurate
or complete. We made several recommendations, including that the Department
require the Maryland State Department of Education to revise its monitoring
instruments to ensure adequate oversight of LEA compliance with requirements
for Federal grant funds’ use and accounting, return to the Department funds that
were used for unallowable purposes, and provide documentation to support
unsupported and inadequately supported expenditures or return the amount of
those expenditures to the Department. Neither the Maryland State Department of
Education nor the LEAs fully concurred with all of our findings or
recommendations.

Nationwide Review of Final Recovery Act Expenditures
During this reporting period, we continued with our nationwide audit to provide a
perspective of how LEAs obligated and spent Recovery Act monies in the final year
of funding. Our review covers spending from January 1 through December 31,
2011, for selected Recovery Act expenditures for the State Fiscal Stabilization
Fund, Education Stabilization Fund; Title I, Part A of the Elementary and
Secondary Education Act of 1965; and Part B of the Individuals with Disabilities
Education Act grant programs. Although we have not yet issued our final
nationwide report, we issued three supplemental reports noting specific concerns
identified during our review at LEAs in Arkansas, Delaware, and Puerto Rico. The
following are summaries of these findings.


                                           Office of Inspector General Semiannual Report   3
                                      Arkansas. Our review of Recovery Act expenditures at two LEAs—the El Dorado
                                      School District and the Little Rock School District—found that the LEAs
                                      generally obligated and spent stimulus funds in accordance with applicable laws,
                                      regulations, guidance, and program requirements. However, we did identify
                                      areas of concern at each LEA. At El Dorado, we questioned its use of more than
                                      $237,300 in funds for a purpose prohibited by the Recovery Act: it improperly
                                      spent Recovery Act funds to replace a gymnasium roof at a high school that was
                                      no longer used as a school. In response to this finding, the district superintendent
                                      and business manager stated that the district reversed the costs and transferred
                                      other expenditures to offset those funds. At Little Rock, we identified control
                                      weaknesses in its asset inventory system that resulted in the district not properly
                                      accounting for and safeguarding equipment purchased with Recovery Act funds
                                      (and potentially other Federal funds) in a timely manner. Four of the seven
                                      purchases that we reviewed totaled almost $196,000. We recommended that the
                                      Department determine whether El Dorado’s transfer of expenditures to offset the
                                      questioned costs was an allowable activity more than 6 months after the grant
                                      had ended and that it require the Arkansas Department of Education to ensure
                                      that Little Rock strengthens internal controls over assets purchased with Federal
                                      funds. The Arkansas Department of Education did not state whether it agreed
                                      with our findings but did describe the corrective actions taken to address our
                                      recommendations.

                                      Delaware. We reviewed Recovery Act expenditures at two LEAs—the Red Clay
                                      Consolidated School District and the Christina School District—and found that both
                                      districts generally obligated and spent stimulus funds in accordance with
                                      applicable laws, regulations, guidance, and program requirements. However, we
                                      identified an internal control weakness in the Christina School District’s payroll
                                      adjustment process that resulted in it obligating about $41,100 in Recovery Act
                                      funds for personnel expenditures after the grant period ended on September 30,
                                      2011. We recommended that the Department require the Delaware Department
                                      of Education to direct the district to return the funds to the Department and
                                      implement sufficient internal controls to help ensure this does not happen in the
                                      future. The Delaware Department of Education concurred with our findings and
                                      recommendations.

                                      Puerto Rico. We found that the Puerto Rico Department of Education (PRDE)
                                      generally obligated and spent Recovery Act funds in accordance with applicable
                                      laws, regulations, guidance, and program requirements. However, we found that
                                      PRDE did not follow proper procurement procedures when using Recovery Act
                                      funds to purchase equipment totaling more than $3.4 million and overpaid $7,000
                                      in Recovery Act funds for professional services not rendered. In addition,
                                      computer equipment PRDE had purchased with $3.5 million of Recovery Act funds
                                      was unused because required software had not been installed. Our audit also
                                      noted that in December 2011, PRDE received a waiver to extend the grant
                                      obligation for its Title I funds until September 30, 2012, and the liquidation period
                                      to December 29, 2012. However, as of September 30, 2012, PRDE had a
                                      remaining balance of $35.3 million in funds, representing more than 9 percent of
                                      its $386.4 million Title I allocation. This significant remaining balance raised
                                      concerns about PRDE’s ability to liquidate its remaining funds on allowable costs
                                      that were obligated before the end of the grant period. We made nine


4   Office of Inspector General Semiannual Report
recommendations, including that the Department follow up with PRDE during a
future monitoring visit to determine whether the funds were obligated and
liquidated appropriately. PRDE stated that it carefully reviewed our findings and
outlined a corrective action plan to address our recommendations.



           Investigations
During this reporting period, OIG continued to investigate allegations of waste,
fraud, and abuse involving Recovery Act funds. Since the enactment of the
Recovery Act, OIG has initiated 210 criminal investigations of various schemes
involving the improper uses of Recovery Act funds. To date, our Recovery Act-
related investigations have resulted in more than 151 criminal convictions and
nearly $9 million in recoveries. The following are summaries of two OIG
investigations, both of which involved Federal student aid funds, a portion of
which was either applied for or obtained after passage of the Recovery Act.
During this period we also discontinued investigations of three whistleblower
complaints, as summarized below.

Actions Taken in USA Beauty School Fraud (New York)
The owner of USA Beauty School, her son, and two employees were sentenced for
student aid fraud. They falsified student aid applications and supporting
documentation, including attendance records and high school diplomas, to enroll
ineligible students into the school for the purposes of obtaining Federal student
aid. Since 2006, the school has received more than $4 million in Pell Grant funds.
The owner was sentenced to serve 18 months in prison and was ordered to pay
more than $3.2 million in restitution and an additional $3.2 million in forfeiture;
her son was sentenced to serve 1 year and 1 day in prison and was ordered to pay
more than $1.8 million in restitution. One of the employees agreed to pay
restitution of $600,000, while the other was sentenced to 2 years of probation. In
addition to these people, three other employees were charged and convicted, and
a former consultant/accountant for the school entered into a deferred
prosecution agreement, for their roles in the scheme.

Actions Taken Against Former Empire Beauty School
Employees (New Jersey)
One former admissions representative of Empire Beauty School was sentenced and
a second representative pled guilty to defrauding student financial aid programs.
The two each used fraudulent high school diplomas and General Educational
Development (GED) tests to enroll ineligible students for classes at the school. As
a result of their fraudulent actions, more than $247,000 in Federal student aid
was disbursed to ineligible students. The former representative was sentenced to
serve 6 months of home confinement and 60 months of probation, and he was
ordered to pay a $15,000 fine.

Whistleblower Investigations
During this reporting period, we discontinued investigations of three
whistleblower complaints made in Arizona, North Carolina, and Pennsylvania. We
discontinued the investigations after our work determined that the employers did


                                          Office of Inspector General Semiannual Report   5
                                       not reprise against the complainants. We also received an extension for two
                                       whistleblower investigations. One investigation was in Minnesota, where we
                                       completed our investigation and issued a report finding that the employer had not
                                       reprised against the complainant, and the other was in Pennsylvania, where we
                                       could not commence our whistleblower investigation until after a related criminal
                                       investigation was no longer covert. We discontinued our investigation in that
                                       case, as noted above.




                                             OTHER ACTIVITIES
           Participation on Committees, Work Groups, and Task Forces
           Inspector General Community
                    Recovery Accountability and Transparency Board (Recovery Board). Inspector General Tighe is
                     the Chair of the Recovery Board. OIG staff members also participate in a work group
                     composed of all of the OIGs that provide Recovery Act oversight.

                    Government Accountability and Transparency Board (GAT Board). The Inspector General is
                     also a member of the GAT Board.

           Federal and State Law Enforcement-Related Groups
                    U.S. Department of Justice’s Financial Fraud Enforcement Task Force. The Department and
                     OIG are charter members of this task force, established by executive order in November 2009.

                                 Recovery Act, Procurement, and Grant Fraud Working Group. The Inspector
                                  General co-chairs and the OIG participates in this working group focused on
                                  improving efforts across the Government to investigate and prosecute significant
                                  financial crimes involving Recovery Act funds.




6   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. Our efforts in this area seek not only to protect Federal
        student aid funds from waste, fraud, and abuse, but also to protect the interests of
        the next generation of our nation’s leaders—America’s students.


                                                         Audits
                                      OIG audits and other reviews help ensure that the Department effectively
                                      oversees and monitors compliance and accountability at more than
                                      6,200 postsecondary institutions, about 2,900 lenders, 33 guaranty agencies, and
                                      numerous third party servicers. Over the last 6 months, we issued a report noting
                                      significant issues with the Department’s debt management collection system.

                                      Debt Management Collection System
                                      In 2012, we issued an alert report that identified significant problems with FSA’s
                                      process for managing defaulted student loans. Specifically, we found that the
                                      Debt Management Collection System 2 (DMCS2), the Federal Student Aid office’s
                                      (FSA) system for managing defaulted student loans, was unable to accept the
                                      transfer of certain defaulted student loans from FSA’s Title IV Servicers. At the
                                      time of our audit, the entities that service Federal student aid loans had
                                      accumulated more than $1.1 billion in defaulted loans that should have been
                                      transferred to the Department for management and collection. DMCS2 has been
                                      unable to accept transfer of these loans and, as a result, the Department is
                                      hampered in pursuing collection remedies and borrowers are unable to take steps
                                      to remove their loans from default status. The inability of DMCS2 to accept these
                                      transfers also contributed to a material weakness in internal control over financial
                                      reporting that was identified in FSA’s FY 2012 financial statement audit. Based on
                                      our interaction with FSA officials to date, FSA has yet to implement effective
                                      corrective action to bring these affected loans into collection and to correct the
                                      problems with DMCS2. Our report included a number of recommendations,
                                      including that the Department identify each problem related to DMCS2 loan
                                      transfers, the source of each problem, and the entire population of loans
                                      adversely affected and establish dates for resolving the cause of each identified
                                      problem related to DMCS2 loan transfers.


                                                    Data Analytics
                                       Data analytics is a process that detects patterns and trends to help identify and
                                       develop information that is not discernible simply by examining raw data. OIG is
                                       one of the first Inspector General offices to develop and actively use data
                                       analytics in its audit and investigative operations. We use data analytics to sift
                                       through large volumes of data to identify emerging risks and uncover hidden
                                       fraudulent patterns, relationships, and anomalies. In our last Semiannual Report
                                       to Congress, we provided information on our E-Fraud Data Analytical System—a

8   Office of Inspector General Semiannual Report
                                         data analytical tool to help respond to the escalating number of “fraud rings,”
                                         which are large, loosely affiliated groups of criminals who seek to exploit distance
                                         education programs in order to fraudulently obtain Federal student aid. During
                                         this reporting period, we leveraged the system to issue a fraud ring assessment
                                         report.

                                         Student Aid Fraud Ring Assessment
                                         We completed a risk analysis that demonstrated that student aid fraud ring
                                         activity is a rapidly growing problem. Using our E-Fraud Data Analytical System,
                                         we determined that the population of recipients considered as potentially
                                         participating in this fraud activity had increased 82 percent from award year 2009
                                         (18,719 students) to award year 2012 (34,007 students). We identified more than
                                         85,000 recipients who may have participated in this type of student aid fraud ring
                                         activity and who received over $874 million in Federal student aid from award
                                         year 2009 through award year 2012.1 Further, applying a statistical model to
                                         these results, we estimated a probable fraud loss of $187 million of the
                                         $874 million as a result of these criminal enterprises. We provided the results of
                                         our analysis to the Department, suggesting that it follow up on a recommendation
                                         first made in our 2011 report on distance education fraud rings. This
                                         recommendation called for the Department to establish edits in its business
                                         systems to flag potential fraud ring participants as well as identify practices for
                                         institutions of higher education to detect and prevent distance education fraud.
                                         In response to our analysis, the Department noted that it shared our concerns
                                         about the potential growth of fraud in the student aid programs and that it is
                                         addressing the recommendations made in our 2011 report. In addition, the
                                         Department requested the opportunity to review the list of individuals who
                                         contributed to the $187 million in probable fraud so that it may take more
                                         immediate action to research and resolve the risks for these specific individuals.


                 Investigations of Schools and School Officials
                                         Identifying and investigating fraud and abuse in the Federal student financial
                                         assistance programs has always been a top OIG priority. The results of our efforts
                                         have led to prison sentences for unscrupulous school officials and others who stole
                                         or criminally misused these funds, significant civil fraud actions against entities
                                         participating in the Title IV programs, and hundreds of millions of dollars returned
                                         to the Federal Government in fines, restitutions, and civil settlements. The
                                         following are summaries of some of our significant investigations involving schools
                                         or school officials.

                                         United States University Agrees to $680,000 Settlement
                                         (California)
                                         United States University, a for-profit school based in San Diego, agreed to pay
                                         more than $686,700 to settle claims that it submitted fraudulent student data to
                                         the Department in order to receive Pell Grants. According to the settlement,
                                         from 2008 through 2010, the school misrepresented certain graduate school
                                         students as undergraduate students so as to make them eligible to receive Pell
                                         Grant funds.
1
    From award year 2009 through award year 2012, the Department awarded $509.9 billion in Federal student aid funds.

                                                                                           Office of Inspector General Semiannual Report   9
                                      Former Regional Vice President of Prism Career Institute
                                      Sentenced (New Jersey)
                                      A former regional vice president of Prism Career Institute was sentenced for
                                      theft. The former vice president, who had the authority to make purchases on
                                      behalf of the school, submitted fraudulent reimbursement requests and invoices
                                      for supplies, furniture, equipment, and other items that the school never
                                      received. She also wrote checks payable to herself, forged the school’s chief
                                      executive officer’s signature on them, and then deposited them into her personal
                                      bank account. The former vice president was sentenced to serve 24 months in
                                      prison and 3 years of supervised release, and she was ordered to pay more than
                                      $550,000 in restitution.

                                      Former Baruch College Administrator Sentenced for
                                      Fraud (New York)
                                      A former senior administrator of the Executive MBA programs at Baruch College’s
                                      Zicklin School of Business was sentenced to serve 6 months in prison and 5 years
                                      of probation for fraud. The former administrator changed the grades of students
                                      in order to raise their grade point averages and meet the school’s graduation
                                      requirements. He also forged the signatures of other school administrators on
                                      grade-change forms and documented missing work as being completed by the
                                      students.

                                      Universal Careers Community College Vice President Pled
                                      Guilty to Fraud (Puerto Rico)
                                      The vice president of Universal Careers Community College pled guilty to charges
                                      related to Pell Grant fraud. From 2008 through 2010, the vice president falsified
                                      student admission and withdrawal records in order to receive more than $201,800
                                      in Pell Grant funds the school was not entitled to receive.

                                      Two Former South Texas Vocational Technical Institute
                                      Employees Indicted for Fraud (Texas)
                                      Two former employees of the South Texas Vocational Technical Institute, an ATI
                                      Enterprises proprietary school, were indicted on fraud charges. The former
                                      admissions director and an admission representative allegedly told students to lie
                                      on their Free Applications for Federal Student Aid (FAFSA) to qualify for student
                                      aid and grants they were not otherwise eligible to receive. As a result of their
                                      alleged actions, the school fraudulently received more than $486,000 in Federal
                                      student aid.

                                      Former Piedmont Technical College Employee Sentenced
                                      for Fraud (South Carolina)
                                      A former placement test proctor for Piedmont Technical College was sentenced to
                                      serve more than 1 year in prison and was ordered to pay more than $21,000 in
                                      restitution for orchestrating a student aid fraud scheme. The former employee
                                      took placement tests for multiple people in exchange for a fee of about $300.
                                      Many of the people involved did not have a high school diploma or a GED, so they
                                      needed to earn a minimum score on the placement test to enroll in the school and
                                      obtain student aid. Further, a number of the people participated in this scam
                                      solely to obtain student aid and had no intention of attending classes.

10   Office of Inspector General Semiannual Report
  Former Owners of Ascension College Consent to Pay
  $250,000 for Fraud (Louisiana)
  The former owners of the now-defunct Ascension College entered into a consent
  agreement with the Federal Government and agreed to pay $250,000 for carrying
  out a scheme designed to fraudulently obtain Federal student aid. From 2007
  through 2010, the former owners obtained student aid for “ghost” students or
  people who were not attending the school, and prematurely obtained grants and
  loans for nonincurred student costs and tuition not yet or never earned. The
  former owners kept two separate sets of books and records relating to the
  school’s receipt and disbursement of Title IV funds to hide the fraud.

  New York Institute of Technology and Cardean Learning
  Group Agree to $4 Million Settlement (New York)
  New York Institute of Technology (NYIT) and Cardean Learning Group agreed to
  pay $4 million for fraudulently obtaining Federal student loans and grants. In
  exchange for a percentage of Cardean’s revenue, NYIT allowed Ellis College, one
  of Cardean’s online schools, to use its Title IV eligibility so that Ellis College
  students could receive Federal student aid. NYIT and Cardean also agreed to
  award NYIT degrees to Ellis College students even though those students did not
  take NYIT classes. Further, to attract students to Ellis College, Cardean used
  recruiters who received payment based on the number of students they enrolled
  in the school—a direct violation of the incentive compensation ban. The
  settlement agreement required NYIT to pay $2.5 million and Cardean to pay
  $1.5 million in damages.

  Norwich University Agrees to $1.2 Million Settlement
  (Vermont)
  Norwich University agreed to pay more $1.28 million to settle an allegation that it
  violated the False Claims Act. From about 2004 through 2007, a high-ranking
  university official (who has since been dismissed from the school) instructed
  students to claim that they were independent of their parents, even when they
  were not, in an effort to receive Federal student aid to which they were not
  entitled.



Investigations of Fraud Rings
  Below are summaries of actions taken over the last 6 months against people who
  participated in Federal student aid fraud rings. The cases below are just a sample
  of actions taken against fraud ring participants during this reporting period. To
  date, OIG has opened 126 fraud ring investigations, secured 407 indictments of
  fraud ring participants, and recovered more than $10.8 million.

  U.S. Attorney’s Office and OIG Highlight Student Aid Fraud
  Rings (Michigan)
  In a March press conference, U.S. Attorney for the Eastern District of Michigan
  Barbara McQuade and Inspector General Tighe announced that charges had been
  filed against 11 people for their roles in Michigan-based student aid fraud rings
  that scammed more than $1 million. The announcement highlighted four fraud

                                            Office of Inspector General Semiannual Report   11
                                      rings, each operating independently of one another. The people charged as
                                      ringleaders included three siblings. One of the ringleaders allegedly recruited
                                      more than 40 people, most of whom did not have a high school diploma or a GED,
                                      to participate in the ring and receive more than $665,600 to which they were not
                                      entitled. This was the second time the OIG partnered with a U.S. Attorney’s
                                      Office to highlight the issue of student aid fraud rings. As noted in our last
                                      Semiannual Report, the Inspector General and the U.S. Attorney for the Eastern
                                      District of California held a press conference last September that highlighted
                                      seven rings that fraudulently obtained more than $770,000 in Federal student aid.

                                      Ringleaders of $100,000 Fraud Ring Sentenced
                                      (South Carolina)
                                      In our last Semiannual Report to Congress, we reported that the ringleaders of a
                                      fraud ring based in South Carolina pled guilty to orchestrating a scam that
                                      targeted online programs at the University of Phoenix and the Western Governors
                                      University. During this reporting period, the two ringleaders were sentenced.
                                      One of the ringleaders was sentenced to serve 15 months in prison and 3 years of
                                      supervised release, and he was ordered to pay more than $26,500 in restitution.
                                                                          The other ringleader was sentenced to serve
                                                                          6 months in prison and 3 years of supervised
                                            Fraud Rings                   release, and he was ordered to pay more than
                                                                          $62,300 in restitution. Six of the ring’s
                                          To date, OIG has opened         participants signed pretrial diversion
                                          126 fraud ring investigations,  agreements to avoid being charged and
                                          secured 407 indictments of      sentenced. However, not long after they
                                          fraud ring participants, and    signed the agreements, the six participants
                                          recovered more than             were terminated from the pretrial diversion
                                          $10.8 million.                  agreement program and now await
                                                                          prosecution.

                                      Couple Sentenced for Orchestrating Fraud Ring
                                      (Wisconsin)
                                      A husband and wife were sentenced to 20 and 18 months in prison, respectively,
                                      and 3 years of supervised release for defrauding the Federal student aid program.
                                      They were also ordered to pay more than $333,500 in restitution. From 2003 to
                                      2010, the two used personally identifiable information from more than 50 people
                                      to apply for and receive Federal student aid at a number of Minnesota schools.
                                      They recruited people to participate in the scheme, submitted their own
                                      personally identifiable information and that of others, which they stole or
                                      otherwise improperly obtained—including personally identifiable information of
                                      people who were enrolled in a welfare-to-work program where the wife was
                                      employed. The two deposited the fraudulently obtained award balances into
                                      accounts they controlled.

                                      Prison Inmate, Three Others Sentenced (Arizona)
                                      An inmate at the Arizona Department of Corrections Perryville Complex and three
                                      co-conspirators were sentenced for their roles in a $153,000 student aid fraud
                                      scheme. These conspirators enrolled straw students into the distance education
                                      program at Rio Salado College for the sole purpose of obtaining Federal student
                                      aid. The prison inmate provided her co-conspirator with the personally

12   Office of Inspector General Semiannual Report
identifiable information of several other inmates at Perryville. The co-conspirator
used that information to complete and submit fraudulent school enrollment and
Federal student aid paperwork in the names of the straw students and then took a
portion of the refund once the straw student received it. The prison inmate was
sentenced to serve 18 additional months in prison and 3 years of probation, and
she was ordered to pay more than $6,100 in restitution. The co-conspirator was
sentenced to serve 30 months in prison, 3 years of probation, and was ordered to
pay more than $44,400 in restitution. The other two ring participants were
sentenced to probation ranging from 3 to 5 years and were ordered to pay
restitution ranging from a $25 assessment to more than $6,100.

Actions Taken Against Fraud Ringleader, Participants
(Mississippi)
In a previous Semiannual Report to Congress, we reported that 12 Mississippi
residents were indicted for their involvement in a scheme to obtain Federal
student aid funds for purported attendance at Pikes Peak Community College in
Colorado. During this reporting period, the ringleader and nine participants were
sentenced. The ringleader recruited people to act as straw students—submitting
false admissions and financial aid applications to the college even though they
had no intention of attending the classes. The ringleader received a cut of about
$800 from the aid awarded to many of the straw students. As a result of these
fraudulent actions, the participants received more than $52,000 in student loans
and grants they were not entitled to receive. The ringleader was sentenced to
serve 33 months in prison and 3 years of supervised release, and he was ordered
to pay nearly $244,000 in restitution. The other participants received sentences
ranging from 24 months of probation to 6 months in prison, and they were ordered
to pay restitution ranging from a $100 assessment to more than $11,500 in
restitution.

Ringleader Sentenced in Distance Education Fraud
Scheme (Georgia)
The ringleader of a student aid fraud ring was sentenced to serve 48 months in
prison and 3 years of supervised release. She was also ordered to pay restitution
of more than $139,000. Using her home computer and the Internet, the
ringleader fraudulently applied for and received student loans and grants on
behalf of at least 27 bogus students. The purported students were real people
who knowingly gave their personally identifiable information to the ringleader in
order to obtain Federal student aid by fraud. Neither the ringleader nor the
bogus students had any intention of furthering their education. Two other people
have been convicted thus far for participating in the scam.

Ringleader Sentenced and Ordered to Stay Away from
Community College Campus, FAFSA Web Site (California)
The leader of a California-based fraud ring and two ring participants were
sentenced for their roles in the ring that targeted Contra Costa Community
College. The ringleader was sentenced to serve 180 days in county jail and
5 years of probation, and she was ordered to pay more than $83,700 in
restitution. She was also ordered to stay 100 yards away from Contra Costa
Community College campus and not to access the FSA Federal student aid or


                                         Office of Inspector General Semiannual Report   13
                                      FAFSA Web site for any reason. The two ring participants were each sentenced to
                                      1 year of probation and were ordered to pay restitution in the amount of $1,388
                                      and $5,500, respectively. Nineteen additional people await criminal action for
                                      their alleged roles in the ring.



           Investigations of Other Student Aid Fraud Cases
                                      The following are summaries of the results of additional OIG investigations into
                                      allegations of abuse or misuse of Federal student aid by individuals.

                                      Virgin Islands Senator Pled Guilty to Racketeering
                                      (Virgin Islands)
                                      A former Virgin Islands Senator pled guilty to operating and participating in a
                                      criminal enterprise. Two of his legislative staff members were also charged. The
                                      former Senator directed his legislative staff to complete various documents for
                                      him, including his application for Federal student aid and coursework for his
                                      online degree from the University of Phoenix.

                                      Prison Sentence for Owner of Student Aid Services
                                      Business (Florida)
                                      In our last Semiannual Report to Congress, we reported that a woman pled guilty
                                      and her husband was indicted on charges related to student aid fraud. During this
                                      reporting period, the man was sentenced to serve 9 years in prison and was
                                      ordered to pay more than $464,000 in restitution for his role in the fraud. The
                                      couple formed a company called Graduate Assistance and Consolidations, Inc.,
                                      purportedly to assist people applying for Federal student aid. From 2005 through
                                      2007, the two assisted ineligible people—those who did not have a high school
                                      diploma or GED—in enrolling at St. Petersburg College. Similar to the fraud ring
                                      cases listed above, they also recruited people to act as straw students and used
                                      the information of those straw students to apply for and receive Federal student
                                      aid. Once the refund checks were received, the straw student would kick back a
                                      portion to the couple.

                                      High School Owner and Operator Pled Guilty to Fraud
                                      (Wisconsin)
                                      The owner and operator of Wisconsin University High School pled guilty to charges
                                      related to student aid fraud. The owner charged students $150 for a high school
                                      diploma that usually took as little as 2 weeks to complete. Through the
                                      application process, the owner obtained the students’ personally identifiable
                                      information that he used to fraudulently enroll them in online college programs,
                                      typically without their knowledge. He also used their information to apply for
                                      Federal student aid and had the refund checks mailed to his school’s address.
                                      Between 2009 and 2010, the owner enrolled about 255 students in online college
                                      programs and received more than $300,000 in Federal student aid in their names.
                                      About $100,000 of the aid was returned to the “students” via refund check, which
                                      the owner kept for himself.




14   Office of Inspector General Semiannual Report
                              OTHER ACTIVITIES
Participation on Committees, Work Groups, and Task Forces
      Department of Education Policy Committees. OIG staff participate in an advisory capacity on
       these committees, which were established to discuss policy issues related to negotiated
       rulemaking for student loan regulations and for teacher preparation regulations.

Review of Legislation, Regulations, Directives, and Memoranda
      Electronic Filing Procedures. OIG provided technical comments to the Department on draft
       regulations regarding student assistance general provisions electronic filing procedures.

      Program Integrity Regulations. OIG provided technical comments to the Department on the
       Notice of Supplemental Discussion to improve clarity, quality, and integrity.

      Report of 2011 College Scholarship Fraud Prevention. OIG provided technical comments to
       the Department on the 2012 Report related to its reporting of OIG investigative information.

      Direct Loan Interest Rate. OIG provided technical comments to the Department on its Direct
       Loan Interest Rate Notice.

      Federal Family Education Loan Interest Rate. OIG provided technical comments to the
       Department on its Federal Family Education Loan Interest Rate Notice.

      Dear Colleague Letter on Student’s Ability to Regain Title IV Eligibility. OIG provided
       technical comments to the Department on its proposed guidance to institutions of higher
       education regarding a student’s ability to regain Title IV eligibility after exceeding loan limits
       and treatment of loan funds when a student fails to begin attendance.

      Dear Colleague Letter on Exceeding Loan Limits. OIG provided technical comments to the
       Department on its proposed guidance on a student’s ability to regain Title IV eligibility after
       exceeding loan limits.

      Dear Colleague Letter on Reporting Requirements for Foreign Graduate Medical Schools. OIG
       provided technical comments to the Department on its proposed guidance on new consumer
       information reporting requirements for foreign graduate medical schools.

      Federal Direct Loan Program Interim Final Rule. OIG provided technical comments to the
       Department on its regulations to implement statutory limitation on eligibility for Direct
       Subsidized Loans for a period 150 percent of the published length of the educational program.

      Dear Colleague Letter on Competency-Based Programs. OIG provided technical comments to
       the Department on its guidance regarding competency-based programs.

      Notice of Proposed Rule Making. OIG provided technical comments to the Department on its
       draft Notice of Proposed Rule Making on Loans -2.




                                                                        Office of Inspector General Semiannual Report   15
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 protect the integrity of the
       Department’s programs and operations. Through our audit and inspection work, we
       identify problems and propose solutions to help ensure that programs and
       operations are meeting the requirements established by law and that Federally
       funded education services are reaching the intended recipients—America’s students.
       Through our criminal investigations, we help protect public education funds for
       eligible students by identifying those who abuse or misuse Department funds and
       holding them accountable for their unlawful actions.



                                                         Audits
                                      OIG audits provide information on the effectiveness of internal controls, evaluate
                                      the appropriateness of Federal funds usage, and identify weaknesses and
                                      deficiencies in Departmental programs and operations. The results of our work
                                      can assist Department management in improving operations, strategic planning,
                                      and risk management. During this reporting period, OIG audit work contributing
                                      to this goal focused on the Teacher Incentive Fund program—a grant program that
                                      supports efforts to develop and implement performance-based compensation
                                      systems for teachers and principals in high-need schools. This was a follow-up to
                                      our 2011 audit that found improvements were needed in the Department’s
                                      implementation of the program.

                                      Teacher Incentive Fund Stakeholder Support and
                                      Planning Period Oversight
                                      We found weaknesses in the Department’s processes for reviewing and evaluating
                                      Teacher Incentive Fund program (TIF) applications with regard to the involvement
                                      and support of stakeholders, a required element of the application. Non-Federal
                                      reviewers accepted varying levels of evidence of the support of teachers,
                                      principals, other personnel, and unions, and their overall evaluations of
                                      stakeholder support were unclear. We found that Department staff interpreted
                                      reviewer comments to indicate that applications demonstrated adequate
                                      stakeholder support when the comments did not clearly support that
                                      interpretation. As a result, the Department increased its risk of providing funding
                                      to grantees that did not adequately demonstrate stakeholder support, which
                                      increases the risk that a grantee will face significant challenges in meeting its
                                      project objectives. We also determined that the Department needed to improve
                                      its process for monitoring TIF grantees during the 1-year planning period that was
                                      in effect if the grantee did not have all of the required TIF core elements in place
                                      at the time of application. We found that monitoring activities related to
                                      developing missing core elements were inadequate for 13 of the 14 TIF planning
                                      period grantees (93 percent) that we reviewed. The Department did not begin to
                                      monitor grantees’ progress toward developing missing core elements until almost
                                      6 months after awards were made, and subsequent monitoring activities were
                                      insufficient and inconsistent. We found that 7 of these 14 grantees (50 percent)
                                      had not fully developed one or more core elements at the end of the planning

18   Office of Inspector General Semiannual Report
          period. We also noted that 28 of the 54 total planning period grantees
          (52 percent) from the FY 2010 TIF competition were not ready for implementation
          after the 1-year planning period. The Department placed these grantees into
          “implementation with conditions” status, which meant that the grantees could
          not make any incentive compensation payouts until they successfully developed
          all core elements, similar to the terms under which they operated during the
          1-year planning period. These 28 grantees received about $177 million of the
          $364 million (49 percent) initially awarded to planning period grantees. Based on
          our findings, we made a number of recommendations, including that the
          Department ensure that requirements for demonstrating stakeholder support are
          adequately defined and that it develop a formal monitoring plan for the TIF
          program that includes specific monitoring tools and processes related to the
          unique programmatic risks associated with grantees that have not yet successfully
          developed required core elements. The Department disagreed with our findings.




Investigations of Schools and School Officials
          OIG investigations includes criminal investigations involving bribery,
          embezzlement, and other criminal activity, often involving State and local
          education officials—people who have abused their positions of trust for personal
          gain.

          State of Connecticut Agrees to $4.5 Million Settlement
          The State of Connecticut agreed to pay $4.5 million to settle allegations that the
          Connecticut State Department of Education received Migratory Education Program
          funds by misrepresenting the number of children eligible to participate in the
          program to the U.S. Department of Education. The program provides Federal
          funds to States for educational support services for children of migratory workers
          challenged by frequent disruptions in schooling.

          Former Superintendent of the El Paso Independent School
          District Sentenced (Texas)
          In our last Semiannual Report to Congress, we reported that the former
          superintendent pled guilty to defrauding the school district and the Federal
          Government. During this reporting period, he was sentenced to serve more than
          42 months in prison and 3 years of supervised release. He was also ordered to pay
          about $180,000 and a fine of $56,500. The former superintendent directed
          district employees to change student records, reclassify student grade levels, and
          take other actions to make it appear that the district was meeting or exceeding
          its Adequate Yearly Progress standards. He did this to receive the financial
          bonuses stipulated in his employment contract. The former superintendent also
          circumvented the district’s contract processes by awarding a no-bid contract
          worth $450,000 to a company owned by his mistress and in which he held a
          financial interest. He tried to terminate the contract after the woman ended
          their relationship.




                                                   Office of Inspector General Semiannual Report   19
                                      Former Superintendent of Skiatook Public School System
                                      and Vendor Sentenced (Oklahoma)
                                      The former superintendent and a district vendor were sentenced for defrauding
                                      the school system. From 2004 through 2010, the superintendent agreed to pay
                                      inflated prices for supplies and services provided by the vendor in exchange for
                                      kickbacks. The former superintendent was sentenced to serve more than 1 year
                                      in prison and was ordered to pay more than $207,000. The vendor was sentenced
                                      to serve 15 months in prison and 3 years of supervised release. He was also
                                      ordered to pay nearly $339,000 in restitution.

                                      Former Associate Superintendent of Pontiac Public
                                      Schools Pled Guilty to Theft (Michigan)
                                      The former Associate Superintendent for Organizational Development and Human
                                      Resources for Pontiac Public Schools pled guilty to defrauding the school district.
                                      The former school leader directed an employee to write a $236,000 check to a
                                      business that he owned. The check was deposited into an account that he
                                      controlled, a portion of which he used for personal expenses.

                                      Former San Antonio Independent School District
                                      Compliance Monitor Indicted (Texas)
                                      The former compliance monitor in the Federal Programs Department of the San
                                      Antonio Independent School District was indicted on charges of bribery. From
                                      2005 through 2011, the former official allegedly used his position to award
                                      contracts to companies where he had a financial interest, and he solicited and
                                      awarded contracts in exchange for kickbacks.

                                      Former Executive of Pennsylvania Northeastern
                                      Intermediate Unit Sentenced for Fraud (Pennsylvania)
                                      The former executive was sentenced to serve 33 months in prison and was
                                      ordered to pay nearly $138,000 in restitution and a $30,000 fine for fraud. During
                                      his tenure, he converted Northeastern Intermediate Unit funds and property for
                                      his personal and his family’s use. He also created and ordered his employees to
                                      create false travel vouchers and ordered them to perform personal services for
                                      him and his family, such as home maintenance, secretarial services, assistance
                                      with family events, and shopping.

                                      Former Clairton City Manager Sentenced for Fraud
                                      (Pennsylvania)
                                      The former city manager was sentenced to serve 5 months in prison, 5 months of
                                      home detention, and 3 years of supervised release, and was ordered to pay more
                                      than $94,400 for fraud. Our investigation revealed that the former manager aided
                                      and abetted the Superintendent of the West Mifflin Area School District in
                                      defrauding the district and misapplying district funds. The fraud was committed
                                      in connection with the district’s awarding of 10 painting contracts to the former
                                      manager’s son’s painting company and producing false bid proposals from painting
                                      contractors for the contracts requiring a competitive bidding process.




20   Office of Inspector General Semiannual Report
Investigations of Charter Schools
   OIG has conducted a significant amount of investigative work involving charter
   schools. From January 2005 through March 31, 2013, OIG has opened 57 charter
   school investigations. To date, these investigations have resulted in
   32 indictments and 24 convictions of charter school officials. The cases that have
   been fully settled have resulted in nearly $9 million in restitution, fines,
   forfeitures, and civil settlements.

   Charter School Management Company and Two Former
   Executives Charged Civilly With Racketeering, Misuse of
   Funds (Oregon)
   The State of Oregon filed a civil complaint against EdChoices, a charter school
   management firm that operated about 18 charter schools, its former Director and
   its Chief Financial Officer for allegedly misusing more than $17 million in charter
   school funds. The complaint, which was a result of our investigation, alleges that
   the company and its two leaders engaged in a pattern of racketeering activity by
   falsifying business records, making false statements, committing wire fraud, and
   money laundering to fraudulently obtain charter school funds.

   Former St. Louis Charter School Board Chairman
   Convicted for Theft (Missouri)
   The former chairman of the board of trustees of the Paideia Academy, a charter
   school in St. Louis, was convicted for diverting more than $257,000 of the school’s
   funds to develop and operate a daycare center in which he had an ownership and
   financial interest. The former chairman failed to disclose his ownership and
   financial interest in the proposed daycare center to the Paideia Academy board of
   trustees and did not disclose that he had directed, authorized, and approved the
   payments.



Investigations of Supplemental
 Education Service Providers
   Under Title I, Part A of the Elementary and Secondary Education Act, LEAs must
   offer supplemental education services (SES) to students from low-income families
   when the students attend a Title I school that is in the second year of school
   improvement or that has been identified for corrective action or restructuring.
   OIG audit work conducted over the last decade noted a lack of oversight and
   monitoring of SES providers by State educational agencies, the result of which
   may leave programs vulnerable to waste, fraud, and abuse. Recent OIG
   investigative work has proven this point, uncovering cases involving fraud and
   corruption perpetrated by SES providers and school district officials.




                                             Office of Inspector General Semiannual Report   21
                                            $10 Million Civil                Education Holdings, Inc.,
                                            Fraud Settlement                 Formerly Known as Princeton
                                          Education Holdings, Inc.,
                                                                             Review, Inc. Agreed to
                                          admitted to falsifying student     $10 Million Civil Fraud
                                          attendance records and             Settlement (New York)
                                          submitting reimbursement            In December, a $10 million settlement was
                                          claims for SES tutoring services    reached between the U.S. Department of
                                          that it did not provide.            Justice (DOJ) and Education Holdings, Inc.,
                                                                              formerly known as Princeton Review, Inc.
                                      In the settlement, the company admitted to and accepted responsibility for
                                      falsifying student attendance records and submitting claims for reimbursement for
                                      SES tutoring services that it did not provide. This settlement stems from a civil
                                      fraud complaint filed by DOJ in response to an OIG investigation that found that
                                      between 2006 and 2010, company supervisors routinely falsified entries on daily
                                      student attendance forms to make it appear as though more students had
                                      attended tutoring sessions. From 2006 through 2010, Princeton Review received
                                      more than $38 million in Title I funds.

                                      Actions Taken Against Three Former Princeton Review
                                      Officials (New York)
                                      As a result of the fraud described above, two former directors of the Princeton
                                      Review SES tutoring program pled guilty and agreed to pay more than $1 million
                                      each for their roles in the fraud. The third official, a former vice president,
                                      agreed to a consent judgment of $3.2 million. The three officials also agreed not
                                      to participate in any procurement or nonprocurement transactions with the
                                      Federal Government for 5 years.

                                      Civil and Criminal Fraud Charges Filed Against TestQuest,
                                      Former TestQuest Manager (New York)
                                      DOJ filed civil and criminal fraud complaints against TestQuest, Inc., and a former
                                      TestQuest manager for defrauding the SES program at New York City schools. The
                                      criminal charges were against a former TestQuest manager who oversaw
                                      TestQuest activities at two New York City schools. The former manager allegedly
                                      submitted bills for services never rendered, instructed other TestQuest employees
                                      to forge student signatures on attendance forms, and had students sign
                                      attendance forms for tutoring classes that they had not attended. According to
                                      the civil complaint, TestQuest’s management knew of, deliberately ignored, or
                                      recklessly disregarded the fraud. TestQuest received tens of millions of dollars in
                                      SES funding, including more than $2.3 million for the two New York City schools.

                                      Former River Rouge School District Official Convicted
                                      (Michigan)
                                      In our last Semiannual Report to Congress, we reported that the former director
                                      of State and Federal programs for the River Rouge School District was indicted on
                                      bribery charges. During this reporting period, she was convicted on those
                                      charges. The former director received money and other items of value from a
                                      vendor in exchange for her support in awarding a contract to the vendor for


22   Office of Inspector General Semiannual Report
           mandatory programs offered through the SES program. The programs, however,
           were neither authorized nor mandatory.

           SES Tutoring Company Owner Indicted (Ohio)
           The owner of the WAISS Network Technologies, an SES provider in Ohio, was
           indicted on charges related to fraud. The owner allegedly billed Columbus City
           Schools for tutoring sessions that were not provided and submitted more than
           $50,000 in fraudulent claims.

           Owner of SES Tutoring Company Sentenced for Fraud
           (Florida)
           The owner of Divine Sports, Inc., was sentenced to 5 years of probation and was
           ordered to pay more than $158,000 in restitution plus $160,000 for investigative
           costs for defrauding the SES program. The owner, whose programs operated at
           three public schools in Miami, submitted bills to the schools for tutoring students
           who did not exist, overbilled for tutoring services for actual students, and
           submitted false documentation as proof of services rendered.

           SES Vendor Sentenced (Arkansas)
           The owner of The Quote, a company seeking to become an approved SES provider
           in Arkansas, pled guilty and was ordered to pay a $250 fine for filing a false
           financial document. The owner submitted fraudulent documents, including a
           forged letter of credit from a deceased bank employee, to the Arkansas
           Department of Education to be considered a “financially responsible entity” and
           therefore be eligible to participate in the SES program and obtain Federal funds.



Investigations of Other Federal Education Fraud
           Our investigations into suspected fraudulent activity by Federal education
           grantees and other individuals have led to the arrest and conviction of a number
           of people for theft or misuse of Federal funds.

           Spirit Lake Tribe Member Sentenced in Vocational
           Rehabilitation Program Scam (North Dakota)
           In our last Semiannual Report, we reported that five people were sentenced for
           participating in an $80,000 embezzlement scheme involving family members,
           employees, and volunteers of the Spirit Lake Vocational Rehabilitation Program.
           During this reporting period, an additional conspirator was sentenced. The former
           compliance officer, who allowed the misapplication of the program’s funds and
           personally benefited from the improper expenditures, was sentenced to serve
           3 months in a residential re-entry center, 7 months of electronic home
           confinement, and 3 years of supervised release. She was also ordered to pay
           more than $91,300 in restitution.




                                                     Office of Inspector General Semiannual Report   23
                                            OTHER ACTIVITIES
           Participation on Committees, Work Groups, and Task Forces
           Federal and State Law Enforcement-Related Groups
                    U.S. Department of Justice’s Financial Fraud Enforcement Task Force—Consumer Protection
                     Working Group. OIG participates in this working group composed of Federal law enforcement
                     and regulatory agencies that works to strengthen efforts to address consumer-related fraud.

                    U.S. Department of Justice’s Financial Fraud Enforcement Task Force—Grant Fraud
                     Committee. OIG participates in this group composed of Federal law enforcement agencies
                     seeking to enforce and prevent grant and procurement fraud.

                    Northern Virginia Cyber Crime Working Group. OIG participates in a workgroup of various
                     Federal, State, and local law enforcement agencies conducting cybercrime investigations in
                     Northern Virginia. The purpose is to share intelligence and collaborate on matters affecting
                     multiple agencies.

           Federal and State Audit-Related Groups
                    Association of Government Accountants Partnership 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.

           Review of Legislation, Regulations, Directives, and Memoranda
                    National Activities in Charter Schools. The OIG provided technical comments based on our
                     prior work to the Notice of Proposed Priorities for future grant competitions under the
                     National Leadership programs for Charter Schools.




24   Office of Inspector General Semiannual Report
Goal 4: Contribute to improvements in
        Department business operations.
       Effective and efficient business operations are critical to ensure that the
       Department successfully manages its programs and protects its assets. Our fourth
       strategic goal speaks to that effort. OIG work in this area helps the Department
       accomplish its objectives by ensuring the reliability, integrity, and security of
       Department data; the Department’s compliance with applicable policies and
       regulations; and the Department’s effective use of taxpayer dollars.




                                             Audits and Reviews
                                      OIG audits and reviews completed over the last 6 months that contributed to this
                                      goal have focused on the following areas.

                                             Financial Management. One of the purposes of the Chief Financial
                                              Officers Act of 1990 is to provide for improvements in agency systems of
                                              accounting, financial management, and internal controls to ensure the
                                              reporting of reliable financial information and to deter fraud, waste, and
                                              abuse of Government resources. The Act requires an annual audit of
                                              agency financial statements, which is intended to help improve an agency’s
                                              financial management and controls over financial reporting.

                                             Oversight and Compliance. OIG work completed over the last 6 months
                                              determined that the Department needed to improve its oversight of the
                                              operations we reviewed to better ensure that it is operating effectively
                                              and fully complying with all applicable statutes, regulations, and guidance.

                                             Improper Payments. During this reporting period, we completed reviews
                                              of the Department’s compliance with the Improper Payments Elimination
                                              and Recovery Act (IPERA), which requires Federal agencies to conduct
                                              annual risk assessments to determine whether a program is susceptible to
                                              significant improper payments and then measure improper payments in
                                              that program. We also completed a review of the Department’s
                                              compliance with Executive Order 13520, which requires the designated
                                              accountable official of each agency to submit to the Inspector General a
                                              report on its high-dollar improper payments.

                                             Information Technology Security. Information technology permeates all
                                              aspects of programs and services coordinated through the Department.
                                              Safeguarding information and systems is essential for the Department to
                                              perform its mission. For the last several years, OIG’s information
                                              technology security audits have identified management, operational, and
                                              technical controls that needed improvement to adequately protect the
                                              confidentiality and integrity of the Department’s systems and data.

                                      The following are summaries of our work over the past 6 months in these areas.




26   Office of Inspector General Semiannual Report
Financial Statement Audits
Both the Department and FSA received unqualified (clean) opinions on their
FY 2012 and FY 2011 financial statements. However, the audit reports noted a
material weakness in internal control surrounding the Department’s Debt
Management Collection System and ACS Education Servicing System—the legacy
Direct Loan servicing system; found modified repeat deficiencies relating to credit
reform estimation, financial reporting processes, and controls surrounding
information systems; and reported that the Department’s financial management
systems did not substantially comply with certain systems requirements of the
Federal Financial Management Improvement Act because of the control
weaknesses surrounding information systems. A number of recommendations
were made to address the weaknesses identified. The Department concurred with
the findings and recommendations in the reports.

Special-Purpose Financial Statements
The Department received a clean opinion on its FY 2012 and FY 2011 special-
purpose financial statements. However, like the other financial statement audits,
the audit reports included a material weakness related to controls surrounding the
Department’s Debt Management Collection System and ACS Education Servicing
System, and significant deficiencies related to controls surrounding the credit
reform estimation processes and information systems. In addition, the
Department’s review procedures failed to identify errors in the reclassified
financial statements and in the intergovernmental balances reported.

Drug Control Funds
As required by 21 U.S.C. § 1704(d) and in accordance with the Office of National
Drug Control Policy circular, “Drug Control Accounting,” we authenticated the
Department’s accounting of FY 2012 drug control funds and related performance
data by expressing a conclusion on the reliability of each assertion made in the
Department’s accounting and performance reports. Based on our review, nothing
came to our attention that caused us to believe that management’s assertions
were not fairly stated in all material respects.

Management of the Federal Real Property Assistance
Program
Our audit determined that the Department could improve its management of the
Federal Real Property Assistance Program (FRPA). FRPA allows the Department to
sell or lease, at a Public Benefit Allowance discount, surplus Federal real property
to eligible entities for educational purposes. We found that although the
Department’s FRPA awarding process was generally appropriate, it did not
compile surplus property screening lists in accordance with its own criteria, did
not always correctly calculate applicants’ Public Benefit Allowance discounts, and
approved incomplete applications. As a result, the Department may not be
considering all potentially eligible entities and may be awarding properties to
entities that will not provide the greatest and longest lasting public benefit, are
unable to maintain the property, or will not be using the property for an
education-related purpose. We also found that the Department needed to
improve its monitoring of program participants, as participants did not
consistently submit required utilization reports and the Department did not


                                          Office of Inspector General Semiannual Report   27
                                      request the reports when they were not submitted by the deadline. In addition,
                                      the Department did not always document or timely complete follow-up activities
                                      to address issues identified during its review of utilization reports and did not
                                      schedule required site visits within the first 12 months following conveyance for
                                      almost all of the properties that we reviewed. In some cases, property files were
                                      missing site inspection reports and documentation of required follow-up.
                                      Thorough, timely, and consistent monitoring is necessary to ensure that
                                      properties are being used for agreed-on educational purposes and to mitigate the
                                      potential for misuse. Noncompliance can result in the denial of services to those
                                      who could benefit from the use of such property and represents a loss to the
                                      interests of the Federal Government. We made eight recommendations to
                                      improve the Department’s FRPA awarding and monitoring processes through
                                      standardization, employee training, and enhanced supervisory review. The
                                      Department concurred with all of our findings and recommendations.

                                      Compliance With IPERA for FY 2012
                                      We found that the Department complied with IPERA, although issues remained
                                      with the completeness of the calculation of the estimated improper payment rate
                                      for the Pell Grant program. In addition, its proposed methodologies for
                                      estimating improper payment rates for the Pell Grant, William D. Ford Direct
                                      Loan, and Federal Family Education Loan programs were flawed. We found that
                                      the Department used new methodologies for estimating improper payment rates
                                      that were pending approval by Office of Management and Budget (OMB) and that
                                      the Department did not follow OMB guidance for reporting of Payment recapture
                                      audit programs. We recommended that the Department ensure that the issues
                                      identified for the estimated improper payment rate for the Pell Grant program
                                      computed under the OMB-approved methodology using the FAFSA/Internal
                                      Revenue Service (IRS) Data Statistical Study and the issues identified in our
                                      FY 2011 IPERA audit are adequately addressed. The Department should also
                                      ensure that the proposed methodologies for estimating improper payment rates
                                      for all programs use the appropriate point estimate and disclose the estimate’s
                                      confidence limits. The Department concurred with some of our findings and
                                      recommendations.

                                      Compliance With Executive Order 13520 on Improper
                                      Payments
                                      We found that the Department complied with Executive Order 13520, adequately
                                      addressed improper payment risks, and described an adequate level of oversight
                                      to reduce and recapture improper payments for FY 2011. However, it did not
                                      address monitoring or oversight of Pell Grant program recipients who did not use
                                      the IRS Data Retrieval Tool (IRS DRT) when completing their FAFSA or recipients
                                      who were not selected for verification in its improper payment monitoring and
                                      oversight efforts. Verification is a process schools are required to conduct to
                                      confirm specific information reported on the FAFSA by the applicant. The IRS DRT
                                      is an optional tool that enables Federal student aid applicants and, as needed,
                                      parents of applicants to transfer certain tax return information from an IRS Web
                                      site directly to their online FAFSA. Only 22 percent of all FAFSAs submitted for
                                      the 2011–2012 academic year used the IRS DRT. By not studying the population of
                                      applicants who do not use the IRS DRT and who are not selected for verification,
                                      the Department may miss opportunities to further reduce and recapture improper

28   Office of Inspector General Semiannual Report
payments. We recommended that the Department study Pell Grant program
recipients who do not use the IRS DRT and who are not selected for verification to
determine whether the Department has adequate controls in place or needs to
implement additional controls to mitigate the risk of improper payments to this
population of Pell Grant recipients. The Department concurred with the finding
and recommendation.


       Information                  FISMA Review
                                    The E-Government Act of 2002 recognized the
   Technology Security
                                    importance of information security to the
   Six of the 11 security control   economic and national security interests of the
   areas we reviewed contained      United States. Title III of the E-Government
   repeat or modified findings      Act, the Federal Information Security
   from OIG and contractor          Management Act of 2002 (FISMA), requires
   reports issued during the prior  each Federal agency to develop, document,
   3 years.                         and implement an agency-wide program to
                                    provide information security for the
information and information systems that support the operations and assets of the
agency, including those provided or managed by another agency, contractor, or
other source. It also requires inspectors general to perform independent
evaluations of the effectiveness of information security control techniques and to
provide assessments of agency compliance with FISMA.

Our FY 2012 FISMA review found that the Department had made progress in
addressing issues identified in previous FISMA reviews. Specifically, it was
compliant in 3 of the 11 reporting metrics: continuous monitoring, contractor
systems, and security capital planning. However, we found that 6 of the 11
security control areas we reviewed—risk management, configuration
management, remote access management, identity and access management,
security training, and contingency planning—contained repeat or modified findings
from OIG and contractor reports issued during the prior 3 years. The remaining
two metric areas—incident response and reporting, and plan of action and
milestones—contained new findings. Without adequate management, operational,
and technical security controls in place, the Department’s systems and
information are vulnerable to attacks that could lead to a loss of confidentiality
and to a loss of integrity resulting from data modification or limited availability of
systems. In addition to recommendations we made in the FY 2011 FISMA report,
we made 22 new recommendations to assist the Department in establishing and
sustaining an effective information security program. The Department concurred
with most of our recommendations.



 Congressional Hearings
During this reporting period, Inspector General Tighe testified before Congress on
two occasions about OIG work involving Departmental management issues.

Unimplemented Recommendations
Inspector General Tighe testified before the U.S. House of Representatives
Committee on Oversight and Government Reform on recommendations made in

                                           Office of Inspector General Semiannual Report   29
                                      OIG audit reports that the Department had not yet implemented. The Inspector
                                      General discussed audit resolution and follow-up processes at the Department and
                                      shared with the Committee the findings of OIG’s 2012 report on the Department’s
                                      audit resolution and follow-up processes that noted longstanding challenges in
                                      these areas. She also discussed recent actions the Department had taken to
                                      address those challenges. She provided the Committee with a summary of OIG’s
                                      high-priority recommendations that the Department had not yet implemented, as
                                      well as a short-term and a long-term action that the Department could take to
                                      address each priority.

                                      Management Challenges
                                      Inspector General Tighe testified before the U.S .House of Representatives
                                      Committee on Appropriations’ Subcommittee on Labor, Health and Human
                                      Services, Labor, Education, and Related Agencies on the most serious
                                      management challenges facing the Department. The Inspector General testified
                                      that for FY 2013, we identified four management challenges: improper payments,
                                      information technology security, oversight and monitoring, and data quality and
                                      reporting. She provided a summary of each challenge and stated that the OIG
                                      would continue to conduct work in each of the challenge areas throughout 2013.



                                  Non-Federal Audit Activities
                                      The IG Act requires that inspectors general take appropriate steps to ensure that
                                      any work performed by non-Federal auditors complies with Government Auditing
                                      Standards. To fulfill these requirements, we perform a number of activities,
                                      including conducting quality control reviews of non-Federal audits, providing
                                      technical assistance, and issuing audit guides to help independent public
                                      accountants performing audits of participants in the Department’s programs.

                                      Quality Control Reviews
                                      OMB Circular A-133 requires entities such as State and local governments,
                                      universities, and nonprofit organizations that spend $500,000 or more in Federal
                                      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 specific
                                      Federal student aid programs 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, we conduct 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, 11 (48 percent) were technically deficient and
                                      1 (4 percent) was unacceptable.




30   Office of Inspector General Semiannual Report
                              OTHER ACTIVITIES
Participation on Committees, Work Groups, and Task Forces
Department
       Department of Education Senior Assessment Team. OIG participates in an advisory capacity
        on this team. The team provides oversight of the Department’s assessment of internal
        controls and related reports and provides input to the Department’s 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, which review
        information technology investments and the strategic direction of the information technology
        portfolio.

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

Inspector General Community
       Council of the Inspectors General on Integrity and Efficiency (CIGIE). OIG staff play an active
        role in CIGIE efforts. Inspector General Tighe is the Vice Chair of the Information Technology
        Committee and a member of CIGIE’s Audit Committee, Investigations Committee, the
        Interagency Coordination Group for Guam Realignment, and the Suspension and Debarment
        Working Group, which is a subcommittee of the Investigations Committee. OIG staff are
        members of CIGIE’s Assistant Inspector General for Investigations Subcommittee, chair the
        Information Technology Subcommittee for Investigations, the Cyber Security Working Group,
        the Inspections and Evaluations Working Group, the Council of Counsels to the Inspectors
        General, and the New Media Working Group.

                   New Auditor Training. During this reporting period, the OIG led coordination of a
                    session of CIGIE-sponsored Introductory Auditor Training, which provided entry-
                    level IG auditors with Federal audit skills and standards.

                   Financial Statement Audit Network. OIG staff chair this Governmentwide working
                    group that identifies and resolves key issues concerning audits of agency financial
                    statements and provides a forum for coordination with the Government
                    Accountability Office and the Department of 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 annual conference
                    that covers current issues related to financial statement audits and standards.

                   Cloud Computing Working Group. OIG participated in this IG-community group
                    that developed cloud computing contract clauses to ensure that OIGs have
                    adequate data access for the purposes of audits and criminal investigations. In
                    January, the group met with members of the Federal Acquisition Regulatory




                                                                       Office of Inspector General Semiannual Report   31
                                  Council to provide issue awareness and discussed the possibility having the
                                  proposed language as part of future cloud computing contracts.

           Federal and State Audit-Related Groups and Entities
                    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.

                    Intergovernmental Audit Forums. OIG staff have chaired and served 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. During this reporting period, OIG staff chaired the New Jersey-New York Forum and
                     the Midwestern Forum and served as officers of the Southeastern Forum and the Southwestern
                     Forum.

                    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.

                    Interagency Fraud and Risk Data Mining Group. OIG participates in this group that shares best
                     practices in data mining and evaluates data mining and risk modeling tools and techniques to
                     detect patterns indicating possible fraud and emerging risks.

                    AICPA Government Audit Quality Center’s Single Audit Roundtable. OIG staff responsible for
                     single audit policy and quality participate in this discussion group, which meets semiannually
                     and consists of Federal, State, and local government auditors and accountants who perform
                     single audits. The participants discuss recent or anticipated changes in single audit policy,
                     such as the Compliance Supplement to Office of Management and Budget Circular A-133, new
                     auditing standards, and issues of audit quality found in recent quality control reviews.

           Review of Legislation, Regulations, Directives, and Memoranda
                    Improper Payments Elimination and Recovery Improvement Act of 2012. OIG offered
                     technical suggestions related to improving the determination of improper payments by Federal
                     agencies and the “Do Not Pay” initiative.

                    DATA Act. OIG suggested that the Act define a conference to require attendance of at least
                     51 attendees, reflecting the DATA Act sponsor’s recent request for agencies to report
                     overnight conferences attended by more than 50 employees.

                    Agency Financial Report for FY 2012. OIG provided technical comments to the Department on
                     its Department’s FY 2012 Financial Report.

                    Federal Student Aid FY 2012 Performance Annual Report to Congress. OIG provided technical
                     comments to FSA on its annual report to Congress.

                    FY 2013 Departmental Acquisition Plan. OIG provided technical comments to the Department
                     on its acquisition plan relating to OIG’s acquisition plan for FY 2013.

                    FY 2012 Annual Performance Report. OIG provided technical comments to the Department on
                     its report, clarifying language relating to OIG.



32   Office of Inspector General Semiannual Report
Annexes and Required Tables
           Annex A. Contract-Related Audit Products With
                       Significant Findings
                                      Section 845 of the National Defense Authorization Act for Fiscal Year 2008
                                      requires each Inspector General to include information in its Semiannual Reports
                                      to Congress on final contract-related audit reports that contain significant
                                      findings.

                                      No contract-related audit products with significant findings were issued during
                                      this reporting period.




                                Annex B. Peer Review Results
                                      Title IX, Subtitle I, Sec. 989C of the Dodd-Frank Wall Street Reform and
                                      Consumer Protection Act (Public Law No. 111-203) requires the Inspectors
                                      General to disclose the results of their peer reviews in their Semiannual Reports
                                      to Congress.

                                      No peer reviews were completed during this reporting period.




34   Office of Inspector General Semiannual Report
        Required Tables
The following provides acronyms, definitions, and other information relevant to
Tables 1–6.

Acronyms and Abbreviations Used in the Required Tables
AARTS          The Department’s Audit Accountability and Resolution
                  Tracking System
FSA            Federal Student Aid
ISU            Implementation and Support Unit
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
OGC            Office of the General Counsel
OII            Office of Innovation and Improvement
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
OVAE           Office of Vocational and Adult Education
PAG            Post Audit Group
PDL            Program Determination Letter
RMS            Risk Management Services
Recs           Recommendations

Definitions
Alert Memoranda. Alert memoranda are used to communicate to the Department
significant matters 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.

Attestation Reports. Attestation reports convey the results of attestation
engagements performed within the context of their stated scope and objectives.
Attestation engagements can cover a broad range of financial and nonfinancial
subjects and can be part of a financial audit or a performance audit. Attestation
engagements are conducted in accordance with American Institute of Certified
Public Accountants attestation standards, as well as the related Statements on
Standards for Attestation Engagements.

Inspections. Inspections are analyses, evaluations, reviews, or studies of the
Department’s programs. The purpose of an inspection is to provide Department
decision makers with factual and analytical information, which may include an


                                         Office of Inspector General Semiannual Report   35
                                      assessment of the efficiency and effectiveness of their operations and
                                      vulnerabilities created by their existing policies or procedures. Inspections may
                                      be conducted on any Department program, policy, activity, or operation.
                                      Typically, an inspection results in a written report containing findings and related
                                      recommendations. Inspections are performed in accordance with quality
                                      standards for inspections approved by the Council of Inspectors General for
                                      Integrity and Efficiency.

                                      Management Information Reports. 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.

                                      Questioned Costs. 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, such as recovery of outstanding funds or revenue earned on Federal funds
                                      or interest due the Department.

                                      Unsupported Costs. 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.

                                      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.




36   Office of Inspector General Semiannual Report
             Reporting Requirements of the Inspector General 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
                       Significant 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 for October 1, 2012, through March 31, 2013

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 (October 1, 2012, through March 31, 2013)

5(a)(7)                Summary of Significant Audits                                                              N/A

5(a)(8)                Questioned Costs                                                                             3
                       Audit, Inspection, and Evaluation Reports With Questioned or Unsupported
                       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
                       Unresolved Audit, Inspection, and Evaluation Reports Issued Prior to                        5-A
                       October 1, 2012

                       Summaries of Audit, Inspection, and Evaluation Reports Issued During the                    5-B
                       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




                                                                             Office of Inspector General Semiannual Report   37
       Table 1. Significant Recommendations Described in Previous Semiannual
       Reports to Congress on Which Corrective Action Has Not Been Completed
                       (October 1, 2012, through March 31, 2013)
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.

This table is limited to OIG internal audit reports of Departmental operations because that is the only type of
audit in which the Department tracks each related recommendation through completion of corrective action.


             Report            Report Title                          Date of    Number of     Number of
                                                         Date                                                Projected
Office      Type and        (Prior SAR Number                      Management   Significant   Significant
                                                        Issued                                              Action Date
             Number              and Page)                          Decision    Recs Open     Recs Closed

FSA         Audit        Financial Statement          11/15/2011   1/10/2012        1             11        10/18/2013
            A17L0002     Audits Fiscal Years 2011
                         and 2010 Federal
                         Student Aid (SAR 64,
                         page 36)

OCIO        Audit        EDUCATE Information          9/30/2011    11/29/2011       1             41        9/30/2013
            A11L0001     Security Audit (SAR 63,
                         page 36)

OCIO        Audit        The U.S. Department of       10/18/2011    1/3/2012        7             11        3/31/2015
            A11L0003     Education’s Compliance
                         with the Federal
                         Information Security
                         Management Act for
                         Fiscal Year 2011 (FSA is
                         also designated as an
                         action official) (SAR 64,
                         page 36)

OESE        Audit        Office of Indian             2/2/2010     8/17/2011        1             13        6/30/2013
            A19I0002     Education’s
                         Management of the
                         Professional
                         Development Grant
                         Program (SAR 60,
                         page 40)




38    Office of Inspector General Semiannual Report
  Table 2. Audit, Inspection, Evaluation, and Other Reports and Products on
Department Programs and Activities (October 1, 2012, through March 31, 2013)

Section 5(a)(6) of the IG Act, as amended, requires a listing of each report completed by OIG during the
reporting period.


                                                                        Questioned
            Report Type                                      Date     Costs (Includes     Unsupported         Number of
  Office                           Report Title
            and Number                                      Issued     Unsupported           Costs              Recs
                                                                          Costs)

FSA         Audit         Financial Statement Audits       11/16/12          -                   -                19
            A17M0002      Fiscal Years 2012 and 2011,
                          Federal Student Aid
                          (OCFO is also copied on the
                          report)

OCFO        Audit         U.S. Department of               10/22/12          -                   -                 1
            A03M0004      Education’s Compliance with
                          Executive Order 13520,
                          “Reducing Improper
                          Payments” for Fiscal Year 2011
                          (FSA is also designated as an
                          action official)

OCFO        Audit         U.S. Department of               3/15/13           -                   -                 6
            A03N0001      Education’s Compliance with
                          the Improper Payments
                          Elimination and Recovery Act
                          of 2010 for Fiscal Year 2012
                          (FSA is also designated as an
                          action official)

OCFO        Audit         Financial Statement Audits       11/16/12          -                   -                19
            A17M0001      Fiscal Years 2012 and 2011,
                          U.S. Department of Education
                          (FSA is also copied on the
                          report)

OCFO        Audit         Financial Statement Audits for   11/16/12          -                   -                 1
            A17M0003      Fiscal Years 2012 and 2011,
                          U.S. Department of Education
                          Special Purpose Financial
                          Statements

OCIO        Audit         The U.S. Department of           11/7/12           -                   -                22
            A11M0003      Education’s Compliance with
                          the Federal Information
                          Security Management Act of
                          2002 for Fiscal Year 2012
                          (FSA is also designated as an
                          action official)

ODS         Audit         Delaware: Final Recovery Act     12/19/12          -                   -                 2
            A03M0005      Expenditures Supplemental
                          Report




                                                                         Office of Inspector General Semiannual Report   39
                                                                                             Questioned
                    Report Type                                              Date          Costs (Includes   Unsupported   Number of
     Office                                    Report Title
                    and Number                                              Issued          Unsupported         Costs        Recs
                                                                                               Costs)

    ODS             Audit            Arkansas: Final Recovery Act          12/20/12           $237,302            -            2
                    A09M0003         Expenditures Supplemental
                                     Report (OESE and OSERS are
                                     also designated as action
                                     officials)

    OESE            Audit            Maryland: Use of Funds and             1/3/13            $736,582        $373,643         8
                    A03K0009         Data Quality for Selected
                                     American Recovery and
                                     Reinvestment Act Programs
                                     (ODS and OSERS are also
                                     designated as action officials)

    OESE            Audit            Puerto Rico: Final Recovery           2/20/13            $14,3032            -            8
                    A04M0014         Act Expenditures Supplemental
                                     Report (OSERS is also
                                     designated as an action
                                     official)

    OESE            Audit            Teacher Incentive Fund                 2/8/13                -               -            4
                    A19L0005         Stakeholder Support and
                                     Planning Period Oversight

    OM              Audit            The Department’s Management           10/23/12               -               -            8
                    A19L0006         of the Federal Real Property
                                     Assistance Program

    OII             Inspection       The Department’s Monitoring           2/21/13                -               -            3
                    I13M0001         of Investing in Innovation
                                     Program Grant Recipients

    FSA             Alert Memo       Debt Management Collection            12/13/12               -               -            5
                    L02M0008         System 2

    FSA             Management       Student Aid Fraud Ring                1/17/13                -               -          None3
                    Information      Assessment (OPE is also
                    Report           designated as an action
                    X18M0001         official)

    OESE            Attestation      Office of Inspector General’s         2/28/13                -               -          None
                    Report           Independent Report on the
                    B19N0001A        U.S. Department of
                                     Education’s Performance
                                     Summary Report for Fiscal
                                     Year 2012

    OPEPD           Attestation      Office of Inspector General’s         1/31/13                -               -          None
                    report           Independent Report on the
                    B19N0001         U.S. Department of
                                     Education’s Detailed
                                     Accounting of Fiscal Year 2012
                                     Drug Control Funds

    Total                                                                                    $988,187         $373,643       108


2
    Figure includes $7,303 of questioned costs and $7,000 of cost recovery during audit.
3
    Management Information Report X18M0001 contained one suggestion.


40        Office of Inspector General Semiannual Report
                      Table 3. Audit, Inspection, and Evaluation Reports With
                                 Questioned or Unsupported Costs

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.

None of the products reported in this table were performed by the Defense Contract Audit Agency.


                                                                                      Questioned Costs
                        Requirement                               Number                 (Includes                 Unsupported Costs
                                                                                     Unsupported Costs)

    A. For which no management decision has been made
       before the commencement of the reporting period                   32                 $343,733,4054                $219,595,923


    B. Which were issued during the reporting period                       3                      $988,187                    $373,643

           Subtotals (A + B)                                             35                  $344,721,592                $219,969,566

    C. For which a management decision was made during
       the reporting period                                              12                   $82,796,315                 $71,246,816

           (i) Dollar value of disallowed costs                                               $82,696,606                 $71,147,107
           (ii) Dollar value of costs not disallowed                                              $99,709                     $99,709

    D. For which no management decision was made by
                                                                         23                  $261,925,277                $148,722,750
       the end of the reporting period




4
 Figure adjusted for correction of costs questioned in A04J0005, one of the audits for which no management decision was made by the end of
the SAR 65 reporting period.


                                                                                        Office of Inspector General Semiannual Report    41
                      Table 4. Audit, Inspection, and Evaluation Reports With
                             Recommendations for Better Use of Funds

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.

None of the products reported in this table were performed by the Defense Contract Audit Agency. The OIG did
not issue any inspection or evaluation reports identifying better use of funds during this reporting period.


                                Requirement                            Number                 Dollar Value

 A. For which no management decision has been made before the
                                                                                2                     $18,200,000
    commencement of the reporting period

 B.    Which were issued during the reporting period
                                                                                0                              $0
                                                                                2                     $18,200,000
         Subtotals (A + B)

 C. For which a management decision was made during the reporting
    period
       (i) Dollar value of recommendations that were agreed to by
                                                                                1                      $5,200,000
       management
       (ii) Dollar value of recommendations that were not agreed to
                                                                                0                             $0
       by management

 D. For which no management decision was made by the end of the
                                                                                1                     $13,000,000
    reporting period




42    Office of Inspector General Semiannual Report
           Table 5-A. Unresolved Audit, Inspection, and Evaluation Reports
                           Issued Prior to October 1, 2012
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.

Reports that are new since the last reporting period are labeled “New” after the report number. All other reports
were reported in a previous SAR.


                                                                                              Total
          Report Type                                                          Date                           Number of
 Office                    Report Title (Prior SAR Number and Page)                         Monetary
          and Number                                                          Issued                            Recs
                                                                                            Findings

FSA       Audit         Metropolitan Community College’s Administration      5/15/12         $232,918              22
          A07K0003      of Title IV Programs (SAR 65, page 40)
          (New)
                        Current Status: FSA informed us that it is
                        currently working to resolve this audit.

FSA       Audit         Colorado Technical University’s Administration of    9/21/12         $173,164              8
          A09K0008      Title IV Programs (SAR 65, page 40)
          (New)
                        Current Status: FSA informed us that it is
                        currently working to resolve this audit.

OII       Audit         The Office of Innovation and Improvement’s           9/25/12             -                 7
          A02L0002      Oversight and Monitoring of the Charter Schools
          (New)         Program’s Planning and Implementation Grants
                        (SAR 65, page 40)

                        Current Status: OII informed us that it is
                        currently working to resolve this audit.

ODS       Inspection    Department’s Nonprocurement Suspension and           6/22/12             -                 5
          report        Debarment Process (SAR 65, page 41)
          I13L0001
          (New)         Current Status: ODS informed us that it is
                        currently working to resolve this audit.

FSA       Audit         Special Allowance Payments to Sallie Mae’s           8/03/09       $22,378,905             3
          A03I0006      Subsidiary, Nellie Mae, for Loans Funded by Tax-
                        Exempt Obligations (SAR 59, page 41)

                        Current Status: FSA informed us that it is
                        working to resolve this audit in AARTS by
                        June 30, 2013.

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

                        Current Status: FSA informed us that it is
                        developing the draft audit determination/PDL.




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

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

                               Current Status: FSA informed us that the draft
                               audit determination/PDL is currently under
                               review.

 FSA         Audit             Special Allowance Payments to the Kentucky            5/28/09   $9,018,400        4
             A05I0011          Higher Education Student Loan Corporation for
                               Loans Made or Acquired with the Proceeds of
                               Tax-Exempt Obligations (SAR 59, page 41)

                               Current Status: FSA informed us that it is
                               working to resolve this audit in AARTS by
                               June 30, 2013.

 FSA         Audit             Ashford University’s Administration of the Title IV   1/21/11    $29,036         13
             A05I0014          HEA Programs (SAR 62, page 24)

                               Current Status: FSA informed us that it is
                               currently working to resolve this audit.

 FSA         Audit             Saint Mary-of-the-Woods College’s Administration      3/29/12   $42,362,291      19
             A05K0012          of the Title IV Programs (SAR 64, page 36)

                               Current Status: FSA informed us that it is
                               currently working to resolve this audit.

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

                               Current Status: FSA informed us that it is
                               waiting on outcome of Secretary’s decision of
                               school’s appeal of professional judgment finding
                               for Saint Louis University before it can resolve
                               this audit.

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

                               Current Status: FSA informed us that the draft
                               audit determination/PDL is currently under
                               review.

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

                               Current Status: FSA informed us that it is
                               waiting on outcome of Secretary’s decision of
                               school’s appeal of professional judgment finding
                               for Saint Louis University before it can resolve
                               this audit.




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

OCFO     Audit         California Department of Education Advances of      3/9/09          $728,651              10
         A09H0020      Federal Funding to LEAs (SAR 58, page 31)

                       Current Status: OCFO informed us that it is
                       developing the draft PDL.

ODS      Audit         Oklahoma: Use of Funds and Data Quality for         2/18/11       $16,150,803             10
         A06K0002      Selected Recovery Act Programs (OESE and OSERS
                       are also designated as action officials)
                       (SAR 62, page 25)

                       Current Status: OSERS/OSEP informed us that it
                       is finalizing the draft PDL. OCFO/PAG issued PDL
                       on 9/21/2012. OESE issued a PDL on 9/25/2012.
                       ODS/ISU issued a PDL on 1/8/2013.

ODS      Audit         Missouri: Use of and Reporting on Selected          6/7/11              -                 4
         A07K0002      Recovery Act Program Funds (OCFO and OESE are
                       also designated as action officials)
                       (SAR 63, page 36)

                       Current Status: ODS/ISU and OESE joint PDL was
                       issued on 4/30/12. OCFO informed us that its
                       draft PDL is currently under review.

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

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

OESE     Audit         Camden City Public School District’s                6/6/11        $7,534,509              15
         A02J0002      Administration of Federal Education Funds
                       (OSERS is also designated as an action official)
                       (SAR 63, page 37)

                       Current Status: OESE informed us that the draft
                       PDL is currently under review. OSERS/OSEP
                       informed us that it is developing the draft PDL.

OESE     Audit         Camden City Public School District’s                3/6/12        $1,585,204              18
         A02K0014      Administration of Non-Salary Federal Education
                       Funds (SAR 64, page 37)

                       Current Status: OESE informed us that the draft
                       PDL is currently under review.

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

                       Current Status: OESE informed us that it is
                       currently working to resolve this audit.




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

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

                               Current Status: OCFO/PAG informed us that it is
                               reviewing documentation submitted by the
                               Philadelphia School District regarding unresolved
                               aspects of the audit findings. A PDL on these
                               findings is anticipated by 9/30/13. OESE and
                               OSERS/OSEP issued a joint PDL on 9/29/11.

 OESE        Audit             Puerto Rico Department of Education’s Award          1/24/11   $15,169,109       10
             A04J0005          and Administration of Personal Services Contracts
                               (OVAE, OSDFS, and RMS are also designated as
                               action officials) (SAR 62, page 25)

                               Current Status: OESE informed us that the final
                               PDL is currently under review. OVAE informed us
                               that the final PDL is currently under review.
                               OSERS/OSEP informed us that a joint draft PDL is
                               currently under review.

 OESE        Audit             Alabama: Use of Funds and Data Quality for           2/15/12        -             7
             A04K0007          Selected American Recovery and Reinvestment
                               Act Programs (OCFO, OSERS, and the ODS/ISU are
                               also designated as action officials)
                               (SAR 64, page 37)

                               Current Status: OCFO informed us that it is
                               developing the draft PDL. OSERS/OSEP issued a
                               PDL on 2/12/2013. OESE and ODS/ISU issued a
                               joint PDL on 4/26/2012.

 OESE        Audit             Illinois: Use of Funds and Data Quality for          6/9/11       $6,770          8
             A05K0005          Selected Recovery Act Programs (ODS/ISU,OESE,
                               and OSERS are also designated as action officials)
                               (SAR 63, page 36)

                               Current Status: OSERS/OSEP issued a PDL for
                               one finding on 2/12/2013. They informed us they
                               are currently working to resolve an additional
                               finding. OESE and ODS/ISU issued a joint PDL on
                               8/21/2012. OCFO/PAG issued a PDL on
                               12/5/2011.

 OPEPD       Audit             Georgia Department of Education’s Controls Over      4/7/10         -             9
             A04J0003          Performance Data Entered in EDFacts (OSDFS,
                               OESE, and OSERS also designated as action
                               officials) (SAR 61, page 34)

                               Current Status: OPEPD informed us that it is
                               currently working to resolve this audit.




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

OSERS    Audit         Systems of Internal Controls over Selected           12/16/10        $2,051,000             16
         A04K0001      Recovery Act Funds in Puerto Rico (OCFO, OESE,
                       and OSERS are also designated as action officials)
                       (SAR 62, page 25)

                       Current Status: OSERS/OSEP informed us that it
                       is finalizing the draft PDL. OESE and ODS/ISU
                       issued a joint PDL on 7/26/2012.

OSERS    Audit         Louisiana: Use of Funds and Data Quality for         4/11/11          $209,058               5
         A06K0003      Selected Recovery Act Programs (OESE and ODS
                       are also designated as action officials)
                       (SAR 63, page 37)

                       Current Status: OSERS/OSEP issued a PDL for
                       one finding on 2/20/2013. They informed us they
                       are currently working to resolve an additional
                       finding.

OGC      Inspection    Inspection to Evaluate the Adequacy of the           4/21/08              -                  2
         report        Department’s Procedures in Response to Section
         I13I0004      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: OGC informed us it is currently
                       working to resolve this audit.

Total                                                                                     $260,927,090            258




                                                                            Office of Inspector General Semiannual Report   47
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,
     Office     Number, and Date                                          Summary and Current Status
                     Issued

 FSA          Metropolitan               Among the more significant issues, we found that during the first three quarters of award
              Community College’s        year 2009–2010, Metropolitan Community College—
              Administration of
              Title IV Programs                      Did not establish that students had a high school diploma or its equivalent or
                                                      passed an approved Ability-to-Benefit test that was properly administered,
              Audit A07K0003                          resulting in the improper disbursement of more than $73,800 to students whose
                                                      records we reviewed. Based on our statistical sample, we estimated that the
              5/15/2012                               school disbursed as much as $406,000 to students for whom the school
                                                      maintained no evidence of a high school diploma or its equivalent or a passing
                                                      score on an Ability-to-Benefit test.

                                                     Did not ensure that students whose records we reviewed were meeting the
                                                      satisfactory academic progress requirement before disbursing more than
                                                      $12,200 in Title IV funds. We estimated that the school disbursed between
                                                      $350,000 and $4 million to students not maintaining satisfactory academic
                                                      progress.

                                                     Disbursed nearly $27,000 in Title IV funds to students who had exceeded the
                                                      maximum number of allowable credit hours of remedial coursework.

                                                     Disbursed more than $88,000 in Title IV funds to students who were not enrolled
                                                      in eligible programs.

                                                     Did not properly administer its Federal Work Study program, resulting in
                                                      improper payments of more than $21,200.

                                                     Did not properly identify students who never attended their courses, and for
                                                      student withdrawals, did not properly calculate the amounts to return to the
                                                      Title IV programs. We estimated that Metropolitan improperly retained
                                                      between $248,000 and $523,000 in Title IV funds.

                                         We recommended that FSA require the school to (1) return nearly $233,000 in Title IV
                                         funds, (2) review the records for students who were not included in our samples and
                                         return all Title IV funds that were improperly disbursed, and (3) ensure that its personnel
                                         are adequately trained in the administration of the Title IV programs. The school did not
                                         agree with all of our findings or recommendations.

                                         Current Status: FSA informed us that it is currently working to resolve this audit.




48    Office of Inspector General Semiannual Report
            Report Title,
Office    Number, and Date                                   Summary and Current Status
               Issued

FSA      Colorado Technical   Our audit determined that CTU Online did not comply with Federal requirements
         University’s         regarding student eligibility for Title IV funds, the identification of withdrawn students,
         Administration of    and authorizations to retain credit balances. Specifically, CTU Online did not
         Title IV Programs
                                     ensure that students were eligible for Title IV funds at the time of disbursement,
         Audit A09K0008               which resulted in CTU Online improperly disbursing more than $155,000 for 37 of
                                      the 50 students we reviewed (the results for our sample of 50 students cannot be
         9/21/2012                    projected to the entire CTU student population);

                                     identify students who had unofficially withdrawn, which resulted in CTU Online
                                      improperly retaining unearned Title IV funds totaling more than $18,000 for 20 of
                                      the 50 students we reviewed; or

                                     obtain proper authorizations to retain students’ credit balances.

                              Other than the exceptions noted above, we determined that CTU Online generally
                              complied with Federal requirements applicable to the return of Title IV funds and the
                              payment of incentive compensation to admissions representatives. We recommended
                              that FSA require CTU to (1) return more than $173,100, which represents the amount of
                              Title IV funds improperly disbursed or retained for the students included in our review;
                              (2) develop and implement written policies and procedures to ensure future compliance
                              with Title IV requirements regarding student eligibility for program funds, identification
                              of withdrawn students, and authorizations to retain students’ credit balances; and
                              (3) review records of all CTU Online students who were not included in our review for all
                              terms from July 5, 2009, until such time as written policies have been implemented, and
                              return all other Title IV funds that were improperly disbursed or retained. CTU did not
                              concur with our findings and recommendations.

                              Current Status: FSA informed us that it is currently working to resolve this audit.




                                                                             Office of Inspector General Semiannual Report   49
                Report Title,
 Office       Number, and Date                                        Summary and Current Status
                   Issued

OII          The Office of              The audit examined two grant programs: the Charter Schools Program’s State Educational
             Innovation and             Agency (SEA) Planning and Implementation Grant (SEA grant) and the Charter School
             Improvement’s              Program non-SEA Planning and Implementation Grant (non-SEA grant) to determine
             Oversight and              whether the grantees and subgrantees met grant goals and objectives. We found that the
             Monitoring of the          Department did not effectively oversee and monitor the SEA and non-SEA charter school
             Charter Schools            grants and did not have an adequate process to ensure that SEAs effectively oversaw and
             Program’s Planning         monitored their subgrantees. We selected three SEAs (Arizona, California, and Florida)
             and Implementation         based on a risk matrix we developed of SEAs that received charter school grants during
             Grants                     our audit period (2007–2011).

             Audit A02L0002             We found that the Department did not have an adequate corrective action plan process in
                                        place to ensure that grantees corrected deficiencies noted in annual monitoring reports,
             9/25/2012                  did not have a risk-based approach for selecting non-SEA grantees for monitoring, and did
                                        not adequately review SEA and non-SEA grantees’ fiscal activities. In addition, we found
                                        that the Department did not provide the SEAs with adequate guidance on the monitoring
                                        activities they were to conduct in order to comply with applicable Federal laws and
                                        regulations. We also found that none of the three SEAs adequately monitored charter
                                        schools receiving the SEA grants, had adequate methodologies to select charter schools
                                        for onsite monitoring, or monitored authorizing agencies. Additionally, we found that
                                        Florida did not track how much SEA grant funding charter schools drew down and spent
                                        and that California had unqualified reviewers performing onsite monitoring. We also
                                        determined that the Department did not ensure that SEAs had procedures to properly
                                        account for SEA grant funds spent by closed charter schools or for disposed-of assets
                                        purchased with SEA grants. We made a number of recommendations, including that the
                                        Department develop and implement policies and procedures for issuing and tracking
                                        corrective action plans to help ensure that all reported deficiencies are correctly timely.
                                        The Department agreed with all of our findings and almost all of our recommendations.

                                        Current Status: OII informed us that it is currently working to resolve audit.


ODS          Department’s               Our inspection found that the Department’s nonprocurement suspension and debarment
             Nonprocurement             process was inefficient and lacked characteristics the Government Accountability Office
             Suspension and             identified as common in effective suspension and debarment programs. Unlike the other
             Debarment Process          31 Federal agencies we reviewed, the Department’s policy requires both a notice official
                                        and a deciding official in the suspension and debarment process. We found that this two-
             Inspection report          tiered process required more human capital resources than necessary. Each tier reviews
             I13L0001                   the same information but, in order to provide more due process, does not communicate
                                        with one another at any point in the process. This duplication occurred even in matters
             6/22/2012                  that were not contested by the outside entity or individual, which was the case more than
                                        90 percent of the time for FY 2010–2011. We also found that the Department lacked
                                        detailed policies and procedures that provided guidance on referrals, which the
                                        Government Accountability Office has identified as common in effective suspension and
                                        debarment programs. We found the Department’s guidance to be outdated and in need of
                                        revision and that the Department took nearly 7 years to conform to OMB regulatory
                                        requirements for suspension and debarment. In addition, we found that the Department’s
                                        nonprocurement suspension and debarment program does not receive referrals from
                                        program offices but relies solely on OIG referrals, which are based on indictments and
                                        convictions. This limits the Department’s ability to fully use suspension and debarment as
                                        a means to protect the Federal interest. Further, we identified delays in referrals from
                                        OIG that affected the Department’s ability to take timely suspension and debarment
                                        actions. Our recommendations included that the Department eliminate the two-tiered
                                        process, update its outdated policies and procedures, ensure that its program offices are
                                        aware of suspension and debarment as a resource, and develop a system for processing
                                        referrals from program offices. The Department neither concurred nor nonconcurred with
                                        our findings and recommendations. In addition, OIG agreed to take steps to improve the
                                        timeliness of its referrals.

                                        Current Status: ODS informed us that it is currently working to resolve this audit.



50    Office of Inspector General Semiannual Report
Table 6. Statistical Profile for October 1, 2012, through March 31, 2013

                                                                                     October 1, 2012–
                               Audits, Inspections, Other Products
                                                                                      March 31, 2013

                  Audit Reports Issued                                                                 12

                  Inspection Reports Issued                                                                1

                  Questioned Costs (Including Unsupported Costs)                               $988,187

                  Recommendations for Better Use of Funds                                              $0

                  Other Products Issued                                                                    4

                  Reports Resolved By Program Managers                                                 25

                  Questioned Costs (Including Unsupported Costs) Sustained                 $82,696,606

                  Unsupported Costs Sustained                                              $71,147,107

                  Additional Disallowances Identified by Program Managers                       $11,551

                  Management Commitment to the Better Use of Funds                          $5,200,000

                  Investigative Cases Opened                                                           41

                  Investigative Cases Closed                                                           59

                  Cases Active at the End of the Reporting Period                                    386

                  Prosecutorial Decisions Accepted                                                     61

                  Prosecutorial Decisions Declined                                                     71

                  Indictments/Informations                                                             54

                  Convictions/Pleas                                                                    55

                  Fines Ordered                                                                $121,500

                  Restitution Payments Ordered                                              $8,144,483

                  Civil Settlements/Judgments (number)                                                 15

                  Civil Settlements/Judgments (amount)                                     $25,573,795

                  Recoveries                                                                $4,007,263

                  Forfeitures/Seizures                                                      $3,782,303

                  Estimated Savings                                                         $2,918,330

                  Suspensions Referred to Department                                                   26

                  Debarments Referred to Department                                                    24


                                                           Office of Inspector General Semiannual Report       51
52   Office of Inspector General Semiannual Report
Acronyms and Abbreviations
        Acronyms and Abbreviations Used in This Report
                                          CIGIE               Council of Inspectors General on Integrity and Efficiency
                                          CTU                 Colorado Technical University
                                          Department          U.S. Department of Education
                                          DMCS2               Debt Management Collection System 2
                                          DOJ                 U.S. Department of Justice
                                          DRT                 Data Retrieval Tool
                                          FAFSA               Free Application for Federal Student Aid
                                          FISMA               Federal Information Security Management Act of 2002
                                          FSA                 Federal Student Aid
                                          FY                  Fiscal Year
                                          HEA                 Higher Education Act of 1965, as Amended
                                          i3                  Investing in Innovation
                                          IG Act              Inspector General Act of 1978, as Amended
                                          IPERA               Improper Payments Elimination and Recovery Act
                                          IRS                 Internal Revenue Service
                                          LEA                 Local Educational Agency
                                          OIG                 Office of Inspector General
                                          OMB                 Office of Management and Budget
                                          PRDE                Puerto Rico Department of Education
                                          Recovery Act        American Recovery and Reinvestment Act of 2009
                                          Recovery Board      Recovery Accountability and Transparency Board
                                          SAR                 Semiannual Report
                                          SEA                 State Educational Agency
                                          TIF                 Teacher Incentive Fund


                                      For acronyms and abbreviations used in the required tables, see page 35.




54   Office of Inspector General Semiannual Report
FY 2013 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 2013.

       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 2013 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 contact the Office of
Inspector General Hotline:

http://www2.ed.gov/about/offices/list/oig/hotline.html

We encourage you to use the automated complaint form on our Web
site; however, you may call or write the Office of Inspector General.

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


Your report may be made anonymously.

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