oversight

Semiannual Report - April 01, 2013 - September 30, 2013

Published by the Department of Education, Office of Inspector General on 2013-09-30.

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

U.S. Department of Education
Office of Inspector General

Semiannual Report to
Congress, No. 67
April 1, 2013–September 30, 2013
Office of Inspector General
Kathleen S. Tighe
Inspector General

December 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. 67.




Please Note:
The Inspector General’s Semiannual Report to Congress, No. 67 is available on the
ED OIG Web site at http://www2.ed.gov/about/offices/list/oig/sarpages.html.
            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 April 1, 2013, through September 30, 2013. The audits, 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.

Over the last 6 months, we closed 74 investigations involving fraud or corruption related
to the Department’s programs and operations, securing more than $44.8 million in
settlements, fines, restitutions, recoveries, and savings. In addition, as a result of our
investigative work, criminal actions were taken against a number of individuals, including
school officials—people who cheated the students they were in positions to serve. We
also issued 15 audit-related reports, making recommendations to improve program
operations. For example and as highlighted in this report:

     A 2012 OIG audit identified a possible conflict involving the Alabama State
      Department of Education’s Director of Federal Programs’ participation in the
      selection process that awarded $24 million to three local educational agencies that
      listed her husband’s employer as a contractor. Our audit and subsequent criminal
      investigation led to the indictment of the now former director and her husband on
      felony ethics charges.

     The founder and former chief executive officer of the Pennsylvania Cyber Charter
      School—the largest cyber charter school in the State—and his accountant were
      indicted on charges related to an elaborate fraud scheme involving more than
      $8 million.

     Our audit found that 78 percent of the publicly traded for-profit schools and an
      estimated 58 percent of the privately held for-profit schools did not present the
      amounts spent on instruction and marketing in their required financial statements,
      leaving the Department unable to identify the amount of Federal student aid funds
      spent on instruction—the primary mission of all schools.

     As a result of problems with its debt management collection system (known as
      DMCS2), the Department paid $448 million in commissions and $8.3 million in
      bonuses to private collection agencies based on estimates, as the DMCS2 system
      was unable to provide the information necessary to calculate the actual amounts.

     The mayor of Progreso, Texas, along with his father, a Progreso Independent
      School District official, and his brother, the district’s school board president, were
      arrested and charged with allegedly using their positions to extract bribes and
      kickbacks from Progreso Independent School District and city service providers.

     ATI Enterprises, a Texas-based school chain, agreed to pay $3.7 million to settle
      claims that it knowingly misrepresented job placement statistics at three of its
      campuses. ATI also agreed to provide an additional $2 million to students to satisfy
      student refunds and closed school discharges.
     Our audit found that the Michigan Department of Education could improve its
      system of internal control over preventing, detecting, and taking corrective actions
      if it finds indicators of inaccurate, unreliable, or incomplete statewide test results.

     TestQuest, a supplemental education services provider, agreed to pay more than
      $1.725 million for falsifying student attendance records and submitting false claims
      for reimbursement for tutoring services it never provided. The company also
      agreed to a voluntary 3-year debarment from all Federal programs.

     Our audit of the Department’s and selected State educational agencies’ oversight
      of the 21st Century Community Learning Centers program found that although the
      Department tracked program performance measures at the State educational
      agencies reviewed, neither the Department nor three of the four State educational
      agencies validated the performance data that the subgrantees submitted. As a
      result, the Department was unable to ensure that grantees met program
      objectives.

     The former chief executive officer (CEO) and the former chief financial officer of
      Circle System Group, a sports equipment and reconditioning company, both pled
      guilty to defrauding schools throughout New Jersey and the United States for their
      own personal gain. Their fraud scheme, which in part involved phony invoices and
      fake quotes, totaled more than $822,000.

In this report, you will find more information on these efforts, as well as summaries of
other reports issued and investigative actions taken over the last 6 months. I am proud of
the work my office is conducting and the recommendations we are making to help the
Department improve the management of its programs and operations and ensure the
protection of Department funds. However, the reduction in our appropriated funding has
led to a reduction in staff and a reduction in needed resources for the staff, which are
having an impact on the breadth and scope of our work. For example, we have had to
complete those statutory assignments that we are required to conduct each year,
followed by only our highest priority audit work. This limits our ability to audit other
programs and operations and to identify waste, fraud, or abuse. Nationwide projects
have been scaled back to cover fewer sites as a result of reduced travel funds. Additional
reductions in staff and resources will further reduce the number of audits and
investigations we can conduct in a year and the timeliness of our work. We will,
however, continue to make the most of our limited resources and work to provide real
value to the Department, the Congress, taxpayers, and most importantly, America’s
students.

I greatly appreciate the interest and support of this Congress, Secretary Duncan, and
Acting Deputy Secretary Shelton in our efforts. I look forward to working with you in
meeting the challenges and opportunities that lay ahead.




Kathleen S. Tighe
Inspector General
                              Table of Contents




            1                               9                           19
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.




           31                              37                           55
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, the Office of Inspector
        General (OIG) evaluates program results compared to program objectives, assesses
        internal controls, identifies systemic weaknesses, identifies financial recoveries,
        and makes 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 and Reviews
                                      Work related to this goal over the last 6 months involves the American Recovery
                                      and Reinvestment Act of 2009 (Recovery Act). Recovery Act funding provided
                                      more than $98 billion for existing and new education-related grant programs,
                                      most of which ended at the close of fiscal year (FY) 2011. A second education
                                      stimulus, the Education Jobs Fund, which 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. Over the
                                      last 6 months, we issued several Recovery Act-related reports, including a
                                      national perspective on how selected LEAs obligated and spent final Recovery Act
                                      funds, and a review of how LEAs exercised “maintenance of effort” flexibility as a
                                      result of the significant increase in Federal special education funding they
                                      received through the Recovery Act. Summaries of these audits are below, along
                                      with a “lessons learned” review coordinated by several OIGs, including our office,
                                      through the Recovery Accountability and Transparency Board (Recovery Board).
                                      This review identified best practices and challenges faced by agencies and OIGs in
                                      implementing and administering Recovery Act programs. We also continued to
                                      compile and analyze data for our internal “lessons learned” report. The goal of
                                      that report is 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 we
                                      complete the report.

                                      Nationwide Review of Final Recovery Act Expenditures
                                      During this reporting period, we issued the results of our nationwide review of
                                      how LEAs obligated and spent Recovery Act money in the final year of funding.
                                      This review covered Recovery Act spending at the Puerto Rico Department of
                                      Education (as both a State educational agency (SEA) and an LEA), four other SEAs,
                                      and eight LEAs. Our review did not find that the LEAs used Recovery Act funds in
                                      an inappropriate or wasteful manner to avoid lapsing funds for the programs in



2   Office of Inspector General Semiannual Report
                                       our scope.1 We also determined that the SEAs and LEAs generally obligated and
                                       spent Recovery Act funds in accordance with applicable laws, regulations,
                                       guidance, and program requirements. However, we identified some issues
                                       involving Puerto Rico and LEAs in Arkansas, Delaware, and Florida, as summarized
                                       below. We issued separate reports to those LEAs’ respective SEAs that provided
                                       details on those issues. Those reports were summarized in our last Semiannual
                                       Report to Congress.

                                              Payments on Late Obligations. Two LEAs paid for obligations that were
                                               incurred after the obligation deadline: (1) Delaware’s Christina School
                                               District obligated about $41,000 in Recovery Act funds for personnel
                                               expenditures after the grant period had ended and (2) Arkansas’ El Dorado
                                               Public Schools paid less than $1,000 after the grant period, which we
                                               considered immaterial.

                                              Unallowable Expenditures. Two LEAs spent funds on unallowable costs:
                                               (1) Arkansas’ El Dorado Public Schools spent more than $237,300 to replace
                                               a gym roof at a high school that was no longer being used to educate
                                               children, contrary to the requirements of the Recovery Act and (2) Puerto
                                               Rico overpaid $7,000 for professional services that were billed incorrectly
                                               and paid a vendor $7,300 in excess of a quoted price for a copier.

                                              Fiscal and Management Control Issues. We identified fiscal and
                                               management control issues at one LEA: Florida’s Miami-Dade County
                                               Public Schools did not perform due diligence when reviewing and approving
                                               a transaction that resulted in misclassified transportation expenditures
                                               totaling more than $400,400. We also found that it could not reconcile
                                               Recovery Act Elementary and Secondary Education Act, Title I (Title I) and
                                               Recovery Act Individuals with Disabilities Education Act, Part B (IDEA)
                                               expenditures during our audit period of calendar year 2011. We summarize
                                               below our separate report on these findings.

                                              Internal Control Weaknesses. We identified internal control weaknesses
                                               over inventory and procurement at two LEAs: (1) Arkansas’ Little Rock
                                               Public Schools did not properly account for and safeguard equipment
                                               purchased with more than $196,000 in Recovery Act funds; and (2) Puerto
                                               Rico’s Central Procurement Office did not have adequate documentation
                                               for Recovery Act purchases totaling more than $3.4 million, and an
                                               additional $3.5 million of computer equipment was unused because it
                                               required software that had not been installed.

                                       Florida Recovery Act Expenditures
                                       We found that for the time period covered by our audit, Miami-Dade County
                                       Public Schools could not reconcile about $2.3 million in Recovery Act Title I funds
                                       and about $1.2 million in IDEA funds with the Florida Department of Education’s
                                       Cash Advance and Reporting of Disbursements System. As a result, we could not
                                       determine whether data that Miami-Dade reported to the Florida Department of
                                       Education, which was in turn reported on the Recovery Act Web site, was


1
 Programs in our scope were the Elementary and Secondary Education Act, Title I, Part A; Individuals with Disabilities Education Act, Part B;
and the State Fiscal Stabilization Fund, Education Stabilization Fund.


                                                                                            Office of Inspector General Semiannual Report       3
                                      accurate. We also found that Miami-Dade improperly classified more than
                                      $400,000 in transportation costs as supply costs. We recommended that the
                                      Florida Department of Education require Miami-Dade to develop and implement
                                      adequate fiscal and management controls to maintain reliable financial records.

                                      LEA Maintenance of Effort Flexibility
                                      In July, we issued a report on how LEAs that received increased IDEA funds
                                      through the Recovery Act exercised IDEA’s maintenance of effort (MOE) flexibility
                                      provision. MOE flexibility permits an eligible LEA to reduce the level of local
                                      expenditures for the education of children with disabilities by up to 50 percent of
                                      any increase in its annual IDEA, Part B, Section 611 subgrant allocation. We found
                                      that the 17 LEAs and 6 SEAs reviewed did not always comply with applicable laws
                                      and regulations associated with exercising MOE flexibility or properly use and
                                      account for freed-up funds resulting from exercising MOE flexibility. The
                                      following summarizes the findings of our audit.

                                             Eligibility to Exercise MOE Flexibility. Two of the six SEAs reviewed
                                              (Maine and Ohio) did not have an adequate system for determining LEA
                                              eligibility for MOE flexibility. Further, based on the information that Maine
                                              provided during the audit, we concluded that the State exercised MOE
                                              flexibility at the SEA level even though it did not meet the eligibility
                                              requirements. Another SEA (California) miscalculated the overall
                                              determinations for 25 LEAs and incorrectly determined they were eligible
                                              for MOE flexibility. Another SEA (Louisiana) provided LEAs with incomplete
                                              information regarding the amount of MOE reductions they could take.
                                              None of the 14 eligible LEAs in Louisiana exercised MOE flexibility, but they
                                              may have chosen to if the SEA had provided complete information.

                                             Use of and Accounting for Freed-Up Funds. Some LEAs in our review that
                                              exercised MOE flexibility did not account for the freed-up funds in
                                              accordance with applicable laws, regulations and guidance. The two LEAs
                                              we reviewed in both Illinois and Ohio did not track how they used freed-up
                                              funds. As a result, we could not determine whether the LEAs used the
                                              funds appropriately. Additionally, one LEA in California exercised MOE
                                              flexibility by more than the maximum allowed, and at least one LEA in
                                              California, Illinois, Ohio, and Texas used IDEA funds for coordinated early
                                              intervening services in amounts that exceeded the maximum available.
                                              Furthermore, SEAs in California, Illinois, and Ohio did not properly monitor
                                              LEAs’ use of freed-up funds.

                                             Impacts to Special Education Services Resulting from Spending
                                              Reductions Under the Flexibility Provision. SEA program and fiscal
                                              officials from four SEAs (California, Illinois, Ohio, and Texas) whose LEAs
                                              exercised MOE flexibility did not have information about LEAs in their
                                              States experiencing adverse impacts to special education. The
                                              supplemental Recovery Act IDEA funds increased the amount of funding
                                              available and may have masked impacts in the short term. As a result, we
                                              did not identify evidence of actual or potential adverse impacts.




4   Office of Inspector General Semiannual Report
We made 12 recommendations to address the issues identified, including that the
Department perform additional program monitoring, verify that SEAs have
implemented appropriate policies and procedures, and determine the amount
SEAs are required to remit to the Department. The Department did not agree
with all of our findings or recommendations.

California Department of Education’s Administration of LEAs Special
Education MOE Compliance Requirement
We issued a special report on a specific issue of concern in California that we
identified during the course of our nationwide review. We determined that the
California Department of Education instructed LEAs that had not previously met
the MOE compliance requirement with local-only special education expenditures
that they may use local-only special education expenditure information from an
improper base year to demonstrate compliance with the LEA MOE requirement.
We found two actual instances in which the California Department of Education
allowed LEAs to demonstrate MOE compliance by using improper expenditure
information. These two LEAs spent less than they should have on special
education programs and were not penalized for doing so. It is possible that
additional LEAs in California incorrectly represented that they complied with the
MOE compliance requirement by also using an improper base year. Based on our
findings, we made a number of recommendations, including that the Department
revise its regulations as needed to ensure that LEAs are not permitted to reduce
the amount of local funds spent on educating children with disabilities below
levels required by IDEA, and determine the amount the California Department of
Education is required to remit to the Department as a result of the LEAs using an
improper year to meet the actual MOE compliance requirement. The Department
partially agreed with our concerns, and said it would consider regulatory change
and subsequently published a Notice of Proposed Rulemaking on LEA MOE in
September 2013.

Lessons Learned From the Recovery Act: An Agency and
OIG Retrospective
This report, commissioned by the Recovery Board, identified strategies employed
by 16 Federal agencies and OIGs that were effective in the implementation and
administration of Recovery Act programs and those that were obstacles.
Agencies, OIGs, and the Recovery Board reported several practices that aided the
implementation of the Recovery Act. These included the OIGs’ use of special
governance structures, including designated steering committees and workgroups;
that OIGs worked closely with their agencies throughout implementation to
prevent inefficiencies, ensure compliance, and increase fraud awareness; and
that agencies conducted extensive outreach to recipients to inform them of
Recovery Act funding opportunities and help them during the reporting process.
In addition, OIGs and the Board engaged in numerous fraud awareness and
prevention activities, and agencies and OIGs employed a variety of new business
practices or altered existing ones to meet obligation deadlines and ensure timely
and effective oversight.

The review also highlighted challenges faced by agencies during implementation,
the most common being the Recovery Act’s mandate to execute such a large
program in so little time. Other challenges included myriad requirements


                                         Office of Inspector General Semiannual Report   5
                                       surrounding implementation and reporting that created a significant learning
                                       curve for recipients, agencies, and OIGs alike; that the Recovery Act created a
                                       dramatic spike in agency workloads, thus agencies and OIGs hired new employees
                                       and used a number of techniques to increase staffing flexibilities—a task that was
                                       easier for agencies that were able to use administrative funds to help with
                                       implementation efforts; and that even while recognizing that the accelerated
                                       timeframe was a primary purpose of the Recovery Act, agencies were still
                                       challenged by the time constraints to sufficiently plan for implementation,
                                       including increasing staff capacity and developing improved oversight, monitoring,
                                       program guidance, and performance measures specific to the goals of the
                                       Recovery Act. The authors of the report, including the OIG, hope that these
                                       lessons learned can be applied to the planning, implementation, and oversight of
                                       future Government programs.



                                                    Investigations
                                      During this reporting period, we continued to investigate allegations of fraud and
                                      corruption involving Recovery Act funds. Since the enactment of the Recovery
                                      Act, we have initiated 210 criminal investigations of various schemes involving
                                      improper uses of Recovery Act funds. To date, our Recovery Act-related
                                      investigations have resulted in more than 216 criminal convictions and more than
                                      $702,500 in recoveries. The following is a summary of an OIG Recovery Act
                                      investigation and an update on our Recovery Act whistleblower reprisal
                                      investigations.

                                      Former Director of Federal Programs and Husband
                                      Indicted (Alabama)
                                      A 2012 OIG audit of Alabama’s use of Recovery Act funds identified a possible
                                      conflict of interest where the Alabama Department of Education’s director of
                                      Federal programs participated in the process that awarded more than $24 million
                                      in School Improvement Grants funds to three LEAs that listed her husband’s
                                      employer, Information Transport Solutions, Inc., as a contractor. We conducted
                                      an investigation, which found that the former official allegedly abused her
                                      position of trust for personal gain by allegedly diverting School Improvement
                                      Grants funds to the LEAs doing business with her husband’s employer. In August,
                                      the now former director and her husband were indicted on ethics charges. The
                                      two were also charged with misusing a State computer and e-mail account,
                                      documents, and other materials, and soliciting things of value from another
                                      vendor for the purpose of influencing official action.

                                      Whistleblower Reprisal Investigations
                                      During this reporting period, our investigations did not sustain the allegations
                                      made in any of the whistleblower reprisal complaints that we received. We
                                      discontinued investigations of eight whistleblower complaints made in Delaware,
                                      Florida, Illinois, Kentucky, Massachusetts, Michigan, North Carolina, and Virginia.
                                      We discontinued the investigations after our work determined that the employers
                                      did not reprise against the complainants or that the complaints did not relate to
                                      Recovery Act funds. We did not receive any extensions for whistleblower
                                      investigations during this reporting period.

6   Office of Inspector General Semiannual Report
                             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 participated in a work group
        composed of all of the OIGs that provide Recovery Act oversight and a subgroup focused on
        Recovery Act grant funds.

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.
        The OIG also participated in the following working group.

                   Recovery Act, Procurement, and Grant Fraud Working Group. The Inspector
                    General cochairs 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.




                                                                      Office of Inspector General Semiannual Report   7
8   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 and Other Reports
                                      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, 32 guaranty agencies, and
                                      numerous third party servicers. As the office responsible for administering the
                                      Federal student aid (Title IV) programs, the Department’s Federal Student Aid
                                      office (FSA) must conduct effective oversight of programs, operations, and
                                      participants to help protect these Federal funds from waste, fraud, and abuse.
                                      OIG reports issued over the last 6 months identified weaknesses in FSA’s
                                      oversight. Summaries of these reports, as well as the results of our audit of
                                      Arkansas State University’s administration of selected aspects of the Title IV
                                      programs, follow.

                                      Transparency of Proprietary Schools’ Financial Statement
                                      Data
                                      Our audit concluded that the required financial statements submitted to the
                                      Department by proprietary schools generally do not include transparent
                                      information about the schools’ use of Title IV funds sufficient to allow FSA to
                                      make informed decisions about program effectiveness. Our review of the FY 2010
                                      audited financial statements for 521 proprietary schools found that the financial
                                      statements did not provide transparent information because the presentation of
                                      instruction and marketing expenses was not consistent across schools. As a result,
                                      the data were generally not useful to FSA in identifying how schools spent Title IV
                                      funds, nor were they useful in making meaningful comparisons of financial
                                      information across schools participating in the Title IV programs.

                                      The ability to identify the amount of Title IV funds spent on instruction is an
                                      important measure because instruction is the primary mission of all schools. The
                                      amount spent on marketing is important because proprietary schools may devote
                                      significant resources to recruiting and enrolling students and can be indicative of
                                      a school’s focus. We determined that the financial statements submitted by
                                      78 percent of the publicly traded for-profit schools and an estimated 58 percent
                                      of the privately held for-profit schools did not present the amounts spent on
                                      instruction and marketing. We also found that schools varied in terms of how
                                      they presented expense information. As a result, the audited financial
                                      statements are generally not useful to the Department, a major financer of
                                      postsecondary education for this sector, in evaluating schools and the Title IV


10   Office of Inspector General Semiannual Report
programs. Based on our findings, we recommended that FSA work with Congress
to obtain statutory authority to establish uniform account classification rules and
procedures for all postsecondary schools, including proprietary schools, create a
standard chart of accounts for use by schools that includes expense classifications
that clearly define the types of costs to be recorded under each expense account,
and determine what detailed financial statement information would provide the
necessary insight into the operations of schools participating in the Title IV
programs and develop common reporting requirements for that information. FSA
did not state whether it concurred with our finding and recommendations, but did
state that even though it has authority to require schools to provide audited
financial statements in a format that FSA specifies, regulatory changes would be
needed to establish uniform account classification rules, which would not be
possible for at least 2 years. FSA also described the actions it planned to take to
address some of our other recommendations.

Federal Student Aid Paid Private Collection Agencies
Based on Estimates
In our last Semiannual Report to Congress, we reported that FSA’s system for
managing defaulted student loans, Debt Management Collection System 2 or
DMCS2, was unable to accept the transfer of certain defaulted student loans from
FSA’s Title IV servicers, which resulted in those servicers accumulating more than
$1.1 billion in defaulted student loans that should have been transferred to the
Department for management and collection. During this reporting period, as a
result of the systems modifications needed in DMCS2, FSA paid $448 million in
commissions and $8.3 million in bonuses to Private Collection Agencies (PCAs)
based on estimates because DMCS2 could not provide the information necessary to
calculate actual commissions and bonuses.

During FY 2012, FSA had individual contracts with 23 PCAs to perform collection
services on defaulted student loans. PCAs are paid commissions based on
successfully collecting on defaulted loans, and a PCA qualifies for bonuses based
on its performance relative to other PCAs. Before it transitioned to DMCS2 in
September 2011, FSA used its previous system to calculate PCA commissions and
bonuses based on actual collections data contained in the system. However, as
DMCS2 has been unable to produce the data necessary to calculate commissions
and bonuses, FSA required PCAs to submit invoices, without supporting
documentation that calculated estimated commissions, and paid estimated
bonuses based on bonus payments made in previous years. We recommended that
FSA calculate any overpayments or underpayments of PCA commissions and
bonuses based on actual data, require PCAs to return any overpayments to the
Department, address any underpayments, and require PCAs to submit supporting
documentation for all commissions invoiced since October 2011. FSA stated that
it shared our concerns, was committed to resolving the problems with DMCS2, and
that bonus payments and appropriate adjustments would be calculated in
April 2013.

Verbal Complaints Against Private Collection Agencies
In May, we notified the Department that FSA was not enforcing a contract
requirement that PCAs report verbal complaints from borrowers to FSA. The
contracts between PCAs and the Department provide that each PCA will adhere to

                                         Office of Inspector General Semiannual Report   11
                                      Department complaint procedures. Those procedures mandate specific actions a
                                      PCA must take when it receives a complaint from a borrower, including verbal
                                      complaints, such as suspending collection activity on the account. During our site
                                      visits at three PCAs—Pioneer Credit Recovery, Performant Financial Corporation,
                                      and NCO Financial Systems, Inc.—we learned that none considered verbal
                                      complaints to be actual complaints because they believed that they had been able
                                      to appease the borrower and defuse the complaint. In addition, we found that no
                                      PCAs tracked or reported verbal complaints. As a result, FSA was unaware of the
                                      number or severity of verbal complaints filed by borrowers against PCAs and how
                                      those complaints were resolved. We recommended that FSA enforce the contract
                                      requirement that PCAs report verbal complaints to FSA, and develop a quality
                                      assurance program to verify that FSA is receiving all verbal complaints. FSA
                                      stated that it shared our concerns and provided a series of corrective actions it
                                      planned to take to address our recommendations.

                                      Arkansas State University’s Administration of Selected
                                      Title IV Programs
                                      We evaluated Arkansas State University’s (ASU) loan default prevention and
                                      management, the accuracy of selected information ASU reported to the
                                      Integrated Postsecondary Education Data System (IPEDS), its quantitative
                                      satisfactory academic progress measures, and the accuracy of selected consumer
                                      information on its Web site. We determined that for the time period reviewed,
                                      ASU’s default prevention and management to address its rising cohort default rate
                                      was reasonable, selected information it reported to IPEDS was accurate, and that
                                      it properly measured quantitative satisfactory academic progress for students.
                                      We did, however, find that ASU did not provide employment and continuing
                                      education data of students graduating from 6 of its 10 colleges in the 2008–2009
                                      academic year and did not provide employment and continuing education data of
                                      students graduating from 8 of its 10 colleges in the 2009–2010 academic year. In
                                      addition, ASU provided unsupported job placement rates for four colleges for the
                                      2008–2009 academic year and for two colleges for the 2009–2010 academic year
                                      on its Web site. Although ASU reported its graduation data accurately through
                                      IPEDS, we found that ASU reported inaccurate graduation data on its Web site for
                                      undergraduate students who received degrees in academic year 2008–2009 for 4
                                      of its 10 colleges. We also identified minor graduation data inaccuracies for
                                      academic year 2009–2010.

                                      We recommended that FSA require ASU to establish policy and procedures to
                                      make available employment and continuing education data to enrolled or
                                      prospective students for all colleges; collect, maintain, and verify the accuracy of
                                      documentation to support required disclosures of employment and continuing
                                      education data, job placement rates, and graduation data reported on its Web
                                      site or by other means of dissemination; and ensure that any required job
                                      placement rate disclosures include the required disclosures of the source, time
                                      frames, and methodology associated with job placement rate. ASU concurred
                                      with our finding and all of our recommendations.




12   Office of Inspector General Semiannual Report
Investigations of Schools and School Officials
          Identifying and investigating fraud 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 Title IV 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.

          ATI Enterprises Agrees to Pay $5.7 Million (Texas)
          ATI Enterprises, a Texas-based for-profit school chain, agreed to pay $3.7 million
          to settle claims that it knowingly misrepresented job placement statistics at three
          of its Dallas-area campuses in order to maintain State approval of its program and
          Title IV eligibility. The settlement is a result of our investigation that also
          revealed that ATI enrolled ineligible students in the school, falsified high school
          diplomas, kept students enrolled who should have been dropped, and made false
          representations to students regarding future employability and potential earnings.
          In addition to the $3.7 million, ATI also agreed to provide an additional $2 million
          for students to satisfy student refunds and closed school discharges.

          American Commercial College Agrees to $2.5 Million
          Settlement (Texas)
          American Commercial College, Inc. (ACC), a for-profit school based in Texas,
          agreed to pay $2.5 million to settle an allegation that it violated the False Claims
          Act by falsely certifying that it complied with the “90/10 Rule”—a requirement
          that requires for-profit schools to obtain no more than 90 percent of their annual
          revenue from the Title IV programs. The settlement is a result of our
          investigation that determined that the school artificially inflated the amount of
          private funding it received in order to meet the 90/10 requirement.

          Former President of Galiano Career Academy Pled Guilty
          (Florida)
          The former president of Galiano Career Academy, a for-profit trade school based
          in Florida, pled guilty to charges related to theft of government property,
          obstruction of a Federal audit, and aggravated identity theft. The former
          president admitted that he knowingly used a high school diploma mill—owned and
          operated by his wife—to fraudulently qualify students for Federal student aid. He
          also admitted that he secretly made audio and video recordings of Department
          program review staff as they conducted an on-site review at his school and
          tampered with student records during the review. From July 2007 through
          July 2010, the school received more than $1.9 million in Title IV funds for
          students who were ineligible to receive them.

          Former Vice President of Universal Careers Community
          College Sentenced (Puerto Rico)
          The former vice president of Universal Careers Community College was sentenced
          to serve 1 year of home confinement followed by 2 years of probation and was


                                                    Office of Inspector General Semiannual Report   13
                                      ordered to pay more than $201,800 in restitution for fraud. Our investigation
                                      revealed that from 2008 through 2010, the former vice president falsified student
                                      admission and withdrawal records in order to receive Pell Grant funds to which
                                      the school was not entitled.

                                      Two More Former South Texas Vocational Technical
                                      Institute Employees Indicted (Texas)
                                      We recently reported that the former admissions director and an admissions
                                      representative of the South Texas Vocational Technical Institute were indicted for
                                      allegedly telling students to lie on their Free Application for Federal Student Aid
                                      (FAFSA) to qualify for student aid and grants that they were not otherwise eligible
                                      to receive. During this reporting period, two additional former admission
                                      representatives also were indicted. As a result of their alleged actions, the school
                                      fraudulently received more than $486,000 in Federal student aid.

                                      Former United States University Financial Aid Director
                                      Sentenced (California)
                                      In our last Semiannual Report to Congress, we highlighted the $686,700 civil
                                      settlement reached between United States University, a for-profit school based in
                                      San Diego, and the U.S. Government to settle claims that the school submitted
                                      fraudulent student data to the Department in order to receive Pell Grant funds to
                                      which it was not entitled. During this reporting period, the school’s former
                                      financial aid director was sentenced to serve 4 months of home detention, 1 year
                                      of supervised release, and was ordered to pay a $4,000 fine for her role in the
                                      scheme. The former director changed information on student FAFSAs to make
                                      ineligible post-baccalaureate students eligible to receive Pell Grants.

                                      Sullivan and Cogliano Training Centers Former Financial
                                      Aid Advisor Pled Guilty (Massachusetts)
                                      A former financial aid advisor at Sullivan and Cogliano Training Centers pled guilty
                                      to stealing more than $62,000 in student financial aid. The former advisor stole
                                      more than 100 student aid refund checks from the school’s financial aid office and
                                      deposited them into her personal bank account and the accounts of members of
                                      her family. She was previously convicted of stealing about $240,000 in a similar
                                      scam at two others schools for which she served 6 months in prison and 3 years of
                                      probation.



                                 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. Fraud rings are large, loosely
                                      affiliated groups of criminals who seek to exploit distance education programs in
                                      order to fraudulently obtain Federal student aid. The cases below are just a
                                      sample of actions taken against fraud ring participants during this reporting
                                      period. As of September 30, 2013, OIG has opened 127 fraud ring investigations,
                                      secured more than 450 indictments of fraud ring participants, and recovered
                                      nearly $13 million.


14   Office of Inspector General Semiannual Report
Leaders of $1.8 Million Fraud Ring Indicted (California)
Four people were indicted on charges of conspiracy to commit financial aid fraud
and multiple counts of wire fraud related to an alleged $1.8 million Federal
student aid fraud scheme. According to the indictment, the four allegedly
conspired to recruit people to act as “straw students” and then helped the straw
students prepare, sign, and transmit fraudulent FAFSAs, knowing that many of the
straw students were not eligible to receive Federal student aid because they had
not obtained high school diplomas and had no intention of attending school or
using the funds for educational purposes. After receiving the student aid funds,
the four allegedly shared the funds among themselves and sometimes with the
straw students.

Actions Taken Against Eight Participants in Fraud Ring
That Targeted Phoenix College (Mississippi)
The ringleader and seven of her coconspirators were indicted for allegedly
participating in a fraud ring that scammed more than $156,000 in Federal student
aid. The ringleader allegedly recruited people to act as straw students at the
online Phoenix College, and submitted false admission and financial aid
applications to the school, knowing that they had no intention of attending
classes. The ringleader allegedly paid a portion of the award to the straw student
for use of his or her identity and kept the rest.

Actions Taken Against 13 Members of Fraud Ring
(Alabama)
Actions were taken against 13 participants in a student aid fraud ring that
targeted online programs at a number of schools. The participants recruited
people to participate in the scam, most of whom did not possess a high school
diploma or certificate of high school equivalency. These people knowingly
provided their personally identifying information to the ringleaders who enrolled
them in distance education programs at various educational institutions for the
purpose of fraudulently applying for financial aid and converting the funds to
their own use. Schools targeted included the American Public University System,
Ashford University, Capella University, the University of Maryland University
College, Saint Leo College, and the University of Phoenix.

Actions Taken Against Participants in Two Separate Fraud
Rings That Scammed More Than $1 Million (Michigan)
In our last Semiannual Report to Congress, we noted that a press release was
issued by the U.S. Attorney for the Eastern District of Michigan and Inspector
General Tighe highlighting the indictments of 11 people for their roles in
Michigan-based fraud rings that scammed more than $1 million in Federal student
aid. During this reporting period, five of those people pled guilty, including the
leaders of two separate rings. The leader of one fraud ring recruited about
40 people to participate in the ring, most of whom did not have a high school
diploma or certificate of high school equivalency. As a result of their fraudulent
actions, the straw students received more than $650,000 in Federal student aid.
The other ring operated in the same manner and fraudulently obtained more than
$400,000 in Federal student aid.



                                         Office of Inspector General Semiannual Report   15
                                      Four People Sentenced for Roles in $200,000 Fraud Ring
                                      (California)
                                      Four people were convicted and two of them were sentenced to prison for
                                      orchestrating and participating in a fraud ring that stole more than $200,000 in
                                      Federal student aid. The four submitted false admissions and financial aid
                                      applications to Axia College and Capella University on behalf of students who did
                                      not intend to attend either school. In some cases, they used stolen personally
                                      identifying information for people who did not know that their identities would be
                                      used to apply for financial aid. One participant was sentenced to serve 25 months
                                      in prison and another participant to 28 months in prison. The remaining two are
                                      scheduled to be sentenced later this year.


           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.

                                      A Former Financial Aid Officer Pled Guilty (Arizona)
                                      A woman once employed in the financial aid office of a community college in
                                      Michigan pled guilty to charges related to student aid fraud in Arizona. The
                                      woman submitted admission and financial aid applications containing false
                                      statements for a number of people, including her son and stepson, to obtain
                                      Federal student aid funds from various colleges, including Rio Salado College,
                                      Argosy University, Mesa Community College, and Chandler-Gilbert Community
                                      College. When the students failed to make satisfactory academic progress, the
                                      woman created fictitious appeal forms that falsely claimed that students were
                                      receiving counseling services or purported to be from medical professionals who
                                      stated that the students faced hardships and would improve their academic
                                      performance if given another opportunity to receive student aid. As a result of
                                      her fraudulent actions, the woman received more than $168,400 in student aid.

                                      Repeat Offender Charged With Financial Aid Fraud (Texas)
                                      In our 60th Semiannual Report to Congress issued in 2010, we noted that a man
                                      was sentenced to prison for stealing the identities of others to fraudulently apply
                                      for and receive Federal student aid. Now, just 3 years later, while on presentence
                                      release, this man has been charged for allegedly perpetrating the same scheme.
                                      Without their consent or knowledge, the man allegedly used the personally
                                      identifying information of family members, including his father, his brother, and
                                      stepbrother, and fraudulently applied for and received Federal student aid at
                                      schools in the Dallas County Community College District and Trinity Valley
                                      Community College.

                                      New Orleans Woman Charged With Theft (Louisiana)
                                      A woman was charged with stealing the identities of at least nine people to enroll
                                      them at colleges in and around Louisiana and online to fraudulently obtain Federal
                                      student aid. She allegedly also applied for admission and aid for herself,
                                      misrepresenting that she graduated from high school when in fact she had not. As
                                      a result of these alleged actions, the woman received more than $191,000 in
                                      Federal student aid.

16   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.




                                                                     Office of Inspector General Semiannual Report   17
18   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 the Department as well as grantees and program participants in
                                      improving operations, strategic planning, and risk management. During this
                                      reporting period, we continued with our nationwide audit of the Department’s
                                      and SEAs’ systems of internal control over Statewide test results to determine
                                      whether they prevent, detect, and require corrective action if indicators of
                                      inaccurate, unreliable, or incomplete test results are identified. Although we
                                      have not yet issued our final nationwide report, we issued two supplemental
                                      reports noting specific concerns identified during our review at the Michigan
                                      Department of Education and the Texas Education Agency. Other OIG audit work
                                      contributing to this goal focused on oversight of the 21st Century Community
                                      Learning Centers program—a program that supports academic enrichment
                                      opportunities for children during nonschool hours, particularly students who
                                      attend high-poverty and low-performing schools. Below you will find summaries
                                      of these efforts, as well as the findings of our review of the Department’s Office
                                      of Elementary and Secondary Education’s (OESE) process of awarding
                                      discretionary grants, and our audit of Texas’ El Paso Independent School District’s
                                      compliance with the accountability and academic assessment requirements of the
                                      Elementary and Secondary Education Act of 1965, as amended (ESEA).

                                      Internal Controls Over State Assessments
                                      As required by the ESEA, States must have high-quality, yearly student academic
                                      tests that measure the proficiency of students in math, reading or language arts,
                                      and science, and establish a single minimum percentage of students who are
                                      required to meet or exceed the proficient level on these tests. States use these
                                      tests to determine the yearly performance of the SEAs, each LEA, and each school
                                      in the State. The following are summaries of our findings in the two reports
                                      related to this issue for the Michigan Department of Education and the Texas
                                      Education Agency.




20   Office of Inspector General Semiannual Report
Michigan
We performed our audit work at the Michigan Department of Education, Detroit
Public Schools (Detroit), Cesar Chavez Academy, and the School District of the
City of Inkster. We found that although the Michigan Department of Education
performed some internal control activities and on-site monitoring related to
administering statewide tests, it could improve controls over preventing,
detecting, and taking corrective actions if it finds indicators of inaccurate,
unreliable, or incomplete test results. Specifically, we found that Michigan
Department of Education did not always monitor schools that it identified as high-
risk, did not effectively use contractor-provided reviews of test results and
forensic analysis to identify schools with possible administration irregularities,
and did not ensure that its contractor provided timely reports on missing test
materials. We recommended that Michigan (1) place schools that it identifies as
high-risk for possible violations of test administration procedures on the next
year’s targeted monitoring list, (2) use test results and erasure analyses to
identify schools with possible test administration irregularities, and (3) ensure
that its contracts are amended to include specific requirements for contractors to
report missing test materials. At Detroit, we found that its building security
allowed unauthorized access to test materials, that it did not retain records of its
onsite monitoring visits to schools, and did not test all students in a continuous
manner, which may render the tests invalid. We recommended that Detroit
correct these weaknesses by (1) adequately securing test materials, (2) retaining
monitoring visit reports, and (3) testing students in a continuous session and
reporting any deviations from required test administration procedures. Michigan
Department of Education and Detroit agreed with our findings and
recommendations.

Texas
We performed our audit work at the Texas Education Agency (TEA), La Joya
Independent School District (La Joya), Lufkin Independent School District, and
Marion Independent School District. We determined that both the TEA and La
Joya need to improve their systems of internal controls. We found that the TEA
did not use analyses of test results and erasures to identify LEAs or schools to
monitor, did not ensure that LEAs tested all qualified 10th grade students, had
not assessed how LEAs or schools could influence outcomes of new State tests,
and did not document its recommended corrective actions to address all
Statewide test administration irregularities that La Joya reported or verified that
La Joya implemented all corrective actions. We recommended that the TEA
(1) strengthen its risk assessment and monitoring processes by using reviews of
test results and analyses of erasure data, (2) identify ways that LEAs and schools
can improperly influence test results and design mitigating controls, and
(3) document the corrective actions that it recommends and verify that the LEAs
implement the corrective actions. We found that La Joya did not properly
administer Statewide tests, did not adequately document its reviews or provide
records of all reviews of potential test administration irregularities, and did not
report all test administration irregularities to TEA or did not report them in a
timely manner. We recommended that La Joya strengthen its system of internal
control by (1) properly administering Statewide tests, (2) adequately documenting
its reviews of potential test administration irregularities, (3) retaining records of
all reviews of potential test administration irregularities, and (4) reporting all test

                                           Office of Inspector General Semiannual Report   21
                                      administration irregularities to TEA. Both TEA and La Joya agreed with our
                                      findings and recommendations.

                                      Department’s and SEAs' Oversight of the 21st Century
                                      Community Learning Centers Program
                                      Our audit to determine whether the Department effectively monitored and
                                      tracked 21st Century Community Learning Centers program performance measures
                                      and controls at four SEAs identified areas needing improvement. The four SEAs
                                      reviewed were the Alabama State Department of Education, the Florida
                                      Department of Education, the Mississippi Department of Education, and the
                                      Puerto Rico Department of Education. We found that although the Department
                                      tracked program performance measures at the SEAs, neither the Department nor
                                      three of the SEAs (Alabama, Mississippi, and Puerto Rico) validated the
                                      performance data that the subgrantees submitted. As a result, the Department
                                      was unable to ensure that grantees met program objectives. We also found that
                                      although the Department monitored the SEAs’ processes to award and monitor
                                      subgrants and reported some deficiencies it identified, it did not identify the
                                      internal control weaknesses that we found at the selected SEAs. Based on our
                                      findings, we made a number of recommendations, including that the Department
                                      ensure that SEAs implement written policies, procedures, and monitoring
                                      instruments to sufficiently test 21st Century Community Learning Centers
                                      performance data and provide reasonable assurance of the accuracy, reliability,
                                      and completeness of data reported to the Department. We also recommended
                                      that the Department provide sufficient monitoring and oversight of SEAs’
                                      processes to award and monitor 21st Century Community Learning Centers grants
                                      to subgrantees. The Department agreed with the findings and either agreed or
                                      partially agreed with all but one of the recommendations.

                                      Office of Elementary and Secondary Education’s Process
                                      of Awarding Discretionary Grants
                                      Our audit sought to determine whether the Department’s OESE complied with
                                      applicable laws, regulations, and guidance for selecting recipients to be awarded
                                      discretionary grants and whether OESE had sufficient internal controls to ensure
                                      that its review process resulted in a fair and objective competition. We reviewed
                                      OESE’s three largest discretionary grant programs: Striving Readers
                                      Comprehensive Literacy, Impact Aid School Construction—Recovery Act, and
                                      Grants for Enhanced Assessment Instruments. We concluded that for these grant
                                      programs, OESE complied with applicable laws, regulations, and guidance when
                                      selecting recipients to be awarded discretionary grants, and internal controls
                                      were sufficient to ensure a fair and objective competition. However, we noted
                                      some improvements were needed in the retention of required documentation and
                                      suggested that OESE ensure that program offices maintain documentation to
                                      demonstrate that they followed proper procedures. The Department agreed with
                                      our suggestion.

                                      El Paso Independent School District (Texas)
                                      We determined that the El Paso Independent School District, Bowie High School,
                                      and Coronado High School Adequate Yearly Progress results for 2009, 2010, and
                                      2011, and the graduation rate data used for the 2009 and 2012 Adequate Yearly


22   Office of Inspector General Semiannual Report
          Progress calculations cannot be relied on because not all students took the
          necessary tests due to policies El Paso Independent School District put into place
          that prevented all applicable students from taking the test. We also determined
          that the TEA and El Paso Independent School District violated the academic and
          assessment requirements of the ESEA by allowing students to graduate from high
          school without taking the required test that counted towards Adequate Yearly
          Progress. In addition, we found that school district leadership designed an
          inadequate control environment and lacked adequate control activities to provide
          reasonable assurance of compliance with laws and regulations. As a result of the
          issues identified during the audit, El Paso Independent School District students’
          civil rights may have been violated.

          This audit attracted a significant amount of attention due to the criminal
          conviction of the former El Paso ISD superintendent. The now-imprisoned former
          superintendent admitted in 2011 that he 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 contract.
          Further, in 2012, El Paso’s interim superintendent announced that the district had
          found and documented violations of El Paso policies, potential falsifications of
          government documents, and improper promotion and retention of students to
          avoid Federal education accountability standards. Based on our audit findings, we
          recommended that the Department require TEA to determine the impact of these
          findings on El Paso, Bowie, and Coronado Adequate Yearly Progress results for
          2009, 2010, 2011, and 2012, reconsider the previous Adequate Yearly Progress
          results, and take appropriate action; require TEA to develop policies, guidance,
          and internal controls and require TEA to direct El Paso to implement specific
          oversight mechanisms and internal controls; and work with the Assistant Secretary
          for Civil Rights to determine whether students’ civil rights were violated. TEA
          and El Paso concurred with our findings. El Paso provided corrective actions in
          response to recommendations.



Investigations of Schools and School Officials
          OIG investigations include 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.

          Progreso Mayor, School Board President, and School
          Official Indicted (Texas)
          In August, the mayor of Progreso, his father, the director of maintenance and
          transportation of the Progreso Independent School District, and his brother, the
          district’s school board president, were indicted on charges that included
          conspiracy, theft, and bribery. The three allegedly used their positions to extract
          bribes and kickbacks from service providers to Progreso Independent School
          District and the city of Progreso. According to the indictment, from 2004 to 2006,
          a construction company paid the mayor about $85,000 in bribes in exchange for
          contracts on city projects, including building an elementary school; in 2008 and

                                                   Office of Inspector General Semiannual Report   23
                                      2009, an attorney paid nearly $10,000 to be hired as a local counsel for Progreso
                                      Independent School District; and from 2009 to 2012, the mayor instructed the
                                      owner of an electrical and plumbing supply company to provide fraudulent
                                      invoices to Progreso Independent School District and the city for products that
                                      were not supplied and provide a kickback to him once the invoices were paid.

                                      Former Detroit Public Schools Accountant and Her
                                      Daughter Found Guilty (Michigan)
                                      A Federal jury leveled guilty verdicts against a former Detroit Public Schools
                                      contract accountant, who was also once a school board candidate, and her
                                      daughter, a Detroit Public Schools teacher, for fraud, conspiracy, and money
                                      laundering. Between 2004 and 2008, the two obtained more than $530,000 from
                                      the school district when a sham company they controlled placed orders for books
                                      and educational materials that were never provided.

                                      Former Associate Superintendent of Pontiac Public
                                      Schools Sentenced (Michigan)
                                      The former associate superintendent for Organizational Development and Human
                                      Resources for Pontiac Public Schools was sentenced to serve 12 months in prison,
                                      3 years of supervised release, and was ordered to pay $184,000 in restitution for
                                      fraud. Our investigation found that the former associate superintendent 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.

                                      St. Landry Parish School Board Member Convicted,
                                      Another Pled Guilty (Louisiana)
                                      A Federal jury convicted a St. Landry Parish school board member of taking bribes
                                      in exchange for his vote in favor of a candidate for school board superintendent.
                                      Another school board member pled guilty to doing the same. The investigation
                                      revealed that the two board members approached the candidate and solicited and
                                      accepted $5,000 each in exchange for their favorable votes.

                                      Shorewood School District Employee Pled Guilty
                                      (Wisconsin)
                                      A former Shorewood School District administrative assistant pled guilty to stealing
                                      more than $310,000 in Federal special education funds. Over a 13-year period,
                                      the former assistant created bogus purchase orders to use school district funds for
                                      vacations and household items.

                                      Two Former Louisiana State University Officials Pled
                                      Guilty (Louisiana)
                                      The former director and assistant director of the Office of Academic Assistance at
                                      Louisiana State University at Eunice pled guilty to theft of government funds.
                                      Between 2008 and 2012, the two used their positions to steal more than $159,100
                                      in Federal funds meant for Upward Bound and Student Support Services projects.
                                      They used the funds for personal items, such as clothing, jewelry, and cosmetics.
                                      They also allowed and encouraged coworkers to make personal purchases with
                                      these funds as well.

24   Office of Inspector General Semiannual Report
   Actions Taken Against Seven Puerto Rico Department of
   Education Employees (Puerto Rico)
   In previous Semiannual Reports to Congress, we noted that criminal actions had
   been taken against Puerto Rico Department of Education Procurement Office
   employees and vendors for their roles in a fraud scheme involving more than
   $7 million in contract awards. During this reporting period, seven of those people
   were sentenced for their roles in the scheme. From 2008 through 2010, vendors
   conspired to reward the Puerto Rico Department of Education employees in
   exchange for their support on lucrative procurement contracts. The vendors then
   worked with a certified public accountant to conceal and disguise their unlawful
   activity. Three former employees received sentences ranging from probation to
   2½ years in prison. Two of the former employees were given an additional
   3 years of probation, and all three were ordered to pay a $100 fine each, and one
   was ordered to forfeit $26,355. Three former Puerto Rico Department of
   Education vendors were sentenced to probation during this reporting period and
   one was ordered to pay a $12,500 fine. The certified public accountant was
   sentenced to 4 months in prison, 4 months of home confinement, and 3 years of
   probation.



Investigations of Charter Schools
   OIG has conducted a significant amount of investigative work involving charter
   schools. From January 2005 through September 30, 2013, OIG has opened
   62 charter school investigations. To date, these investigations have resulted in
   40 indictments and 26 convictions of charter school officials. The cases that have
   been fully settled resulted in nearly $10.7 million in restitution, fines, forfeitures,
   and civil settlements.

   Founder and Former CEO of Pennsylvania Cyber Charter
   School and His Accountant Indicted (Pennsylvania)
   The founder and CEO of Pennsylvania Cyber Charter School and his accountant
   were indicted on charges that included conspiracy, theft, bribery, and mail fraud
   related to an elaborate fraud scheme involving more than $8 million. The former
   CEO allegedly created a series of connected for-profit and not-for-profit entities
   to siphon taxpayer funds out of the school to avoid Federal income tax liabilities.
   His accountant allegedly assisted in the tax fraud scheme. Over 6 years, the two
   falsified corporate books and records and shifted more than $8 million in income
   attributable to the CEO to the Federal income tax returns of other people to
   conceal his income from the Internal Revenue Service. The CEO’s sister, the
   owner of a Pennsylvania Cyber Charter School contractor, was also charged with
   filing a false tax return.

   Former CEO of Harambee Institute of Science and
   Technology Pled Guilty (Pennsylvania)
   The former CEO of Harambee Institute, Inc., and Harambee Institute of Science
   and Technology pled guilty to fraud. The former CEO admitted that he engaged
   in a scheme to improperly use Harambee Institute funds and money from a private


                                              Office of Inspector General Semiannual Report   25
                                      scholarship fund for his personal use. He improperly withdrew $9,000 from a
                                      private scholarship fund set up by the school in order to purchase a house for
                                      himself in Philadelphia, and improperly withdrew about $79,000 from the
                                      Institute’s bank accounts that he converted for his personal use. The former CEO
                                      attempted to cover up his illegal activities by disguising a significant portion of
                                      the cash withdrawals as labor costs when there were no such costs and directed
                                      employees to lie for him to Federal agents and a Federal grand jury.

                                      Former CEO of Pocono Mountain Charter School Pled
                                      Guilty (Pennsylvania)
                                      The former CEO of the Pocono Mountain Charter School, who was also the pastor
                                      of the Shawnee Tabernacle Church that owned the building in which the school
                                      operated, pled guilty to tax fraud. The plea is a result of our investigation that
                                      found that the former CEO substantially increased the school’s lease payments to
                                      the church and increased his salary and bonuses for his wife, who was also a
                                      school employee. The former CEO concealed the income with a number of
                                      financial transactions to avoid paying the appropriate Federal taxes.

                                      Former Senior Certified Public Accountant of Lusher
                                      Charter School Charged (Louisiana)
                                      The former senior certified public accountant in the business office of the Lusher
                                      Charter School was charged with theft for allegedly forging five school checks
                                      totaling $25,000. She allegedly wrote checks to herself and deposited them into
                                      her personal bank account.

                                      Temporary Employee at Cesar Chavez Charter School Pled
                                      Guilty (Washington, DC)
                                      A former temporary employee working in the finance department at Cesar Chavez
                                      Charter School for Public Policy pled guilty to stealing more than $75,000 from
                                      the school. From January through March 2010, the former employee was
                                      responsible for processing invoices from vendors. She accessed the school’s
                                      accounting system and changed the names listed on pending checks, replacing the
                                      names of legitimate vendors with those of fictitious vendors. The former
                                      temporary employee then forged the signatures on the check, which she cashed
                                      and used for her personal benefit.



                               Investigations of Supplemental
                                Education Service Providers
                                      OIG audit work conducted over the last decade noted a lack of oversight and
                                      monitoring of supplemental education services (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.




26   Office of Inspector General Semiannual Report
Two SES Providers and a Former Oklahoma City School
Counselor Indicted in $1.2 Million Fraud Scam
(Oklahoma)
The owner of A+ Tutoring, an SES provider, and her daughter, the owner of
Foundations Tutoring, another SES provider, along with a former counselor at
U.S. Grant High School, were charged with conspiracy to defraud Oklahoma City
Public Schools. The indictment alleges that during the 2009–2010 school year, the
three instructed tutors at the high school to complete and sign student
attendance rosters for tutoring sessions that did not take place. They also
allegedly entered the false information into the school district’s database and
used the false information to generate invoices, which were submitted to the
school district for payment. As a result of their alleged actions, A+ Tutoring
fraudulently received more than $884,000, and Foundations Tutoring more than
$321,500 for tutoring services.

Actions Taken Against TestQuest (New York)
In our last Semiannual Report, we noted that the U.S. Department of Justice had
filed civil fraud complaints against TestQuest, Inc., and a criminal and civil
complaint against a former TestQuest manager for defrauding SES at New York
City schools. During this reporting period, significant actions were taken against
both TestQuest and the former manager, as well as three New York City public
school teachers.

     TestQuest agreed to pay $1.725 million to settle allegations that it violated
      the False Claims Act. TestQuest admitted and accepted responsibility for
      engaging in fraudulent conduct involving SES funds, including falsifying
      student attendance records and submitting claims for reimbursement for
      tutoring services that it did not provide. TestQuest also agreed to a
      voluntary 3-year debarment from all Federal programs.

     The former TestQuest manager (also a New York City school teacher) who
      carried out the fraud pled guilty and agreed to $2.3 million civil judgment
      and awaits sentencing for his criminal actions.

     One additional New York City school teacher was also criminally charged
      with fraud, and, along with two other teachers, was charged in an
      amended civil complaint for their roles in the scheme.

Former River Rouge School District Official Sentenced
(Michigan)
The former director of State and Federal programs for the River Rouge School
District was sentenced to 5 years in prison and 3 years of supervised release for
bribery. 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
mandatory programs offered through SES. Those programs, however, were
neither authorized nor mandatory.




                                          Office of Inspector General Semiannual Report   27
          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.

                                      Former Executives of a Nationwide Sports Equipment
                                      Company Pled Guilty (New Jersey)
                                      The former CEO and chief financial officer of Circle System Group pled guilty for
                                      perpetrating a long-running fraud scheme against schools in New Jersey and other
                                      States. Circle System Group was a sports equipment and reconditioning company
                                      that provided services to school districts, colleges, universities, and professional
                                      sports teams nationwide. From at least 1997 through June 2007, the two engaged
                                      in a number of fraudulent business practices aimed at defrauding schools, such as
                                      submitting fraudulent invoices and fake quotes to schools in order to increase
                                      Circle System Group sales and profits. As a result of their fraudulent actions,
                                      Circle System Group retained more than $822,000 in overpayments from various
                                      schools.

                                      Former El Paso Independent School District Contractor
                                      Sentenced (Texas)
                                      The former owner of Strategic Governmental Solutions, Inc., was sentenced to
                                      serve 3 years in prison, 36 months of supervised release, and was ordered to pay
                                      nearly $3 million in restitution for scheming to defraud the El Paso Independent
                                      School District. The former owner conspired with his business partner, a former
                                      El Paso Independent School District associate superintendent, and former El Paso
                                      Independent School District trustee to fraudulently obtain a software contract
                                      with the school district worth several million dollars. The company failed to
                                      provide working software and submitted improper claims for reimbursement. The
                                      former associate superintendent was sentenced to prison in 2012 for his role in
                                      the scheme.

                                      Leaders of Nonprofit Organization Pled Guilty (Illinois)
                                      The former directors of the Beacon Street Gallery and Performance Company pled
                                      guilty to fraudulently obtaining and misapplying 21st Century Community Learning
                                      Center program funds. From May 2004 through June 2010, they submitted grant
                                      applications that contained inaccurate information to fraudulently receive at
                                      least $1 million in grant funds, about $400,000 of which were used for their
                                      personal benefit, including payment of personal credit card bills, household
                                      expenses, automobile payments, rental, and personal travel expenses.

                                      Former Nonprofit Executive Director Indicted (Oregon)
                                      The former executive director for the Oregon Respect, Inspire, Support, Educate/
                                      Parent Training & Information Center was indicted for theft and aggravated
                                      identity theft. From 2006 through 2012, the former executive director allegedly
                                      stole tens of thousands of dollars from the program.




28   Office of Inspector General Semiannual Report
Former Santiago Canyon College Director Pled Guilty
(California)
The former director of special programs at Santiago Canyon College pled guilty for
participating in a scheme to defraud the College Assistance Migrant Program.
From 2008 through 2011, the former director devised a scheme to defraud the
program of about $90,000 by awarding grant funds to students who were not
eligible to receive them and by converting stipend checks of College Assistance
Migrant Program students for her personal use.

Greater Lawrence Community Action Council Agrees to
Settlement (Massachusetts)
The Greater Lawrence Community Action Council, a nonprofit corporation focused
on assisting low income families, agreed to pay $80,282 to settle claims that
several of its employees were paid for work on Federal grants that was never
performed.




                                         Office of Inspector General Semiannual Report   29
                                            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 work 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
                Notice of Proposed Rulemaking, Part B of the Individuals with Disabilities Act (IDEA).      OIG
                     provided comments to the Department on its draft Notice of Proposed Rulemaking concerning
                     LEA maintenance of effort requirements. The comments reflected audit findings and
                     recommendations made in the OIG's reports that are summarized on page 3 of this Semiannual
                     Report.

                    Guidance Memorandum, Missing Audits-Post Awards. OIG provided comments to the
                     Department on its draft guidance to program offices regarding grantee compliance with timely
                     single audit submissions, including suggesting that OIG be notified if a grantee does not submit
                     a required single audit, which would help us determine which grantees to audit.




30   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; its oversight and monitoring of contractors and contract requirements;
       and the Department’s effective use of taxpayer dollars.



                                             Audits and Reviews
                                      OIG audits and reviews of the Department’s data security systems help ensure the
                                      Department is taking all necessary actions to protect the millions of records it
                                      maintains in its systems from malicious malware, hackers, and other
                                      unauthorized access, misuse, and fraud. We also regularly review the
                                      Department’s management of contracts to help ensure that contract objectives
                                      are accomplished, that vendors meet their responsibilities, and that the
                                      Department has an effective contract monitoring system that mitigates risk.
                                      During this reporting period, we issued two reports related to these areas, the
                                      first involving the FSA personal identification number registration system, and the
                                      second involving FSA’s award and administration of the Title IV Additional
                                      Servicers contracts. Below are summaries of our findings.

                                      Vulnerabilities Associated With the Personal
                                      Identification Number Registration System
                                      This report highlighted security vulnerabilities associated with the Federal student
                                      aid Personal Identification Number (PIN) Registration System (PIN system) that
                                      were identified through various OIG investigations. Vulnerabilities identified
                                      included inadequate PIN recovery mechanisms that have the potential to allow
                                      unauthorized users to access FSA’s student loan Web sites and databases and
                                      obtain sensitive personal information contained in the PIN system; students
                                      sharing their PINs with Internet-based loan servicers that provide an opportunity
                                      for bad actors at a company to change and misuse the students’ personal data;
                                      and third-party FAFSA preparers managing student PINs without identifying
                                      themselves on the FAFSA, controlling student PIN accounts, and receiving
                                      electronic correspondence from FSA that is intended for the student. We
                                      recommended that FSA make specific improvements to its PIN system to ensure
                                      personal information stored on its databases and Web sites is adequately
                                      protected. We also suggested that the Department consider developing a
                                      capability to enable students to permit companies providing loan-related services
                                      read-only access to relevant areas of their accounts that do not contain sensitive
                                      personal information, and that it create preparer-specific access accounts that
                                      would allow a student to authorize a preparer to access and modify only certain
                                      sections of the FAFSA. FSA agreed with our recommendation but not our
                                      suggestions.



32   Office of Inspector General Semiannual Report
 FSA’s Award and Administration of the Title IV Additional
 Servicers Contracts
 Our audit to determine whether FSA selected Title IV Additional Servicers
 servicing prices that were most efficient and cost-effective found that it did so;
 however, we could not determine whether it did the same for changes made to
 those contracts. We also found that FSA did not adequately monitor Title IV
 Additional Servicers’ compliance with contract requirements. We were unable to
 determine whether FSA selected the most efficient and cost-effective prices for
 the contract changes because a contract modification to include a requirement
 for cohort default rate challenges resulted in a separate cost of more than
 $600,800, which was possibly more costly than it would have been if that
 requirement was included initially. In addition, FSA did not properly document
 decisions for 18 of 21 contract changes that totaled more than $1.2 million. We
 also found that contracting officer representatives did not sufficiently validate
 Title IV Additional Servicers’ invoices and confirm the timeliness and adequacy of
 deliverables, and FSA used inadequate criteria in its contract monitoring. We
 made 10 recommendations to address the weaknesses identified, including that
 FSA develop and implement guidance and procedures on how to adequately
 validate borrower volumes and related costs in invoices, and apply those steps to
 the invoices from our audit period to ensure accurate billing and payment
 occurred. FSA agreed with most of our findings and recommendations.




            Investigations
 The following is a summary of a case involving theft of personally identifiable
 information and abuse of a financial aid database.

 Former Florida A&M Student Pled Guilty (Florida)
 A former Florida A&M University student pled guilty to charges involving
 aggravated identify theft and access device fraud arising from a scheme to steal
 Federal student aid from students attending Florida A&M University. The former
 student, along with two others, accessed the financial aid accounts of other
 students in the school’s computer system. They obtained user names, passwords,
 and other student personally identifiable information by obtaining discarded
 paperwork from trash bins located near the school’s computer help desk,
 gathering information off the internet, and tricking school employees and the
 students themselves into providing information, which they used to log onto the
 financial aid system, changing the bank accounts and routing numbers so student
 aid award checks would be routed to their accounts.



Non-Federal Audit Activities
 The Inspector General Act of 1978, as amended, 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


                                           Office of Inspector General Semiannual Report   33
                                      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 28 quality control reviews of audits
                                      conducted by 25 independent public accountants or offices of firms with multiple
                                      offices. We concluded that 12 (43 percent) were acceptable or acceptable with
                                      minor issues and 16 (57 percent) were technically deficient.




                                            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.




34   Office of Inspector General Semiannual Report
Participation on Committees, Work Groups, and Task Forces (continued)
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.

                   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.

                   CIGIE Grant Reform Working Group. OIG staff participate in this IG-community
                    group. During this reporting period, OIG provided extensive comments on OMB’s
                    proposed Uniform Guidance on Cost Principles, Audit, and Administrative
                    Requirements for Federal Awards.

                   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.

Federal and State Audit-Related Groups and Entities
       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




                                                                       Office of Inspector General Semiannual Report   35
                     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
                Administrative Data for Statistical Purposes. OIG provided a comment on OMB’s draft
                     guidance on providing administrative data for statistical purposes. OIG suggested that OMB
                     add a requirement that all employees and contractors who handle personally identifiable
                     information must receive a background check that includes a National Agency Check with
                     Written Inquiries and a credit check.

                    DATA Act. OIG suggested to CIGIE that it pursue incorporating the DATA Act reporting
                     requirement into an existing reporting vehicle, specifically the annual financial statement
                     audit. We also noted our opposition to a proposed amendment that would narrow Section 5(d)
                     of the IG Act’s 7-day letter provision to apply only when termination, resignation, or
                     suspension could result. In addition, we noted that the amendment could result in
                     potentially compromising open investigations of a target and violating a target’s due process
                     rights, and could result in disclosure of Grand Jury and other court-sealed information in
                     violation of Federal statutes.

                    Federal Information Security Management Act of 2002 and SECURE IT Acts. OIG suggested to
                     CIGIE that the legislation be amended to include Federal Information Security Management Act
                     of 2002 evaluation provisions.

                    OMB Memorandum, Protecting Privacy While Reducing Improper Payments With the Do Not
                     Pay Initiative. OIG provided technical comments to OMB on its proposed guidance.

                    Departmental Directive on Cooperation with and Reporting to the OIG. OIG provided
                     comments on this revised directive, which sets out employee obligations to report fraud to the
                     OIG and to cooperate with OIG investigations and audits.

                    Departmental Directive on Interagency Agreements. OIG provided comments that OIG counsel
                     is responsible for reviewing OIG-specific agreements with other agencies.

                    Departmental Directive on Acquisition Planning. OIG provided editorial comments.

                    Departmental Directive on E-Government Act of 2002, Policy and Compliance. OIG provided
                     editorial comments.

                    Departmental Directive on Handbook for Property Management. OIG provided technical and
                     editorial comments.

                    Departmental Directive on Federal Managers Financial Integrity Act Management/Reporting
                     on Internal Controls. OIG provided technical and editorial comments.

                    Departmental Directive on Scientific Integrity Policy. OIG provided editorial comments.

                    Departmental Directive on Information Collection Activities and Burden Control. OIG




36   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.




38   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   39
                                      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.




40   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 September 30, 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 (April 1, 2013, through September 30, 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
                       September 30, 2013

                       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   41
      Table 1. Significant Recommendations Described in Previous Semiannual
      Reports to Congress on Which Corrective Action Has Not Been Completed
                     (April 1, 2013, through September 30, 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

OCIO       Audit        The U.S. Department of       10/18/2011    1/3/2012        5             13        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        School Improvement           3/29/2012    8/21/2012        3             1         10/31/2013
           A05L0002     Grants: Selected States
                        Generally Awarded
                        Funds Only to Eligible
                        Schools (SAR 64,
                        page 37)




42   Office of Inspector General Semiannual Report
       Table 2. Audit, Inspection, Evaluation, and Other Reports and Products on
    Department Programs and Activities (April 1, 2013, through September 30, 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            Federal Student Aid’s Award       8/20/13          -                   -                10
                A02L0006         and Administration of the Title
                                 IV Additional Servicers
                                 Contracts

FSA             Audit            Arkansas State University’s       9/26/13          -                   -                 3
                A06M0013         Administration of Selected
                                 Aspects of the Title IV
                                 Programs

FSA             Audit            Transparency of Proprietary       7/23/13          -                   -                 3
                A09L0001         Schools’ Financial Statement
                                 Data for Federal Student Aid
                                 Programmatic Decisionmaking
                                 (OPE is also designated as an
                                 action official)

OESE            Audit            Florida: Final Recovery Act       6/27/13          -                   -                 1
                A02M0009         Expenditures Supplemental
                                 Report (OSERS is also
                                 designated as an action
                                 official)

OESE            Audit            The Office of Elementary and      8/12/13          -                   -              None2
                A03M0002         Secondary Education’s Process
                                 of Awarding Discretionary
                                 Grants

OESE            Audit            U.S. Department of                6/21/13          -                   -                 7
                A04L0004         Education’s and Selected
                                 States’ Oversight of the 21st
                                 Century Community Learning
                                 Centers Program

OESE            Audit            Review of Final Expenditures      7/8/13           -                   -               None
                A04M0001         Under the American Recovery
                                 and Reinvestment Act for
                                 Selected Educational Agencies
                                 (OSERS and ODS-ISU are also
                                 designated as action officials)

OESE            Audit            The Texas Education Agency’s      9/26/13          -                   -                 7
                A05N0006         System of Internal Control
                                 Over Statewide Test Results




2
    Audit Report A03M0002 contained two suggestions.


                                                                                Office of Inspector General Semiannual Report   43
                                                                               Questioned
                Report Type                                         Date     Costs (Includes   Unsupported   Number of
     Office                                Report Title
                and Number                                         Issued     Unsupported         Costs        Recs
                                                                                 Costs)

OESE            Audit            El Paso Independent School        6/13/13          -               -           13
                A06L0001         District’s Compliance With the
                                 Accountability and Academic
                                 Assessment Requirements of
                                 the Elementary and Secondary
                                 Education Act of 1965 (OCR is
                                 also designated as an action
                                 official)

OESE            Audit            Michigan Department of            5/20/13          -               -            8
                A07M0007         Education’s System of Internal
                                 Control Over Statewide Test
                                 Results

OSERS           Audit            Local Educational Agency          7/25/13          -               -           12
                A09L0011         Maintenance of Effort
                                 Flexibility Due to Recovery Act
                                 IDEA, Part B Funds

FSA             Alert Memo       Federal Student Aid Paid          5/15/13          -               -            2
                L02N0002         Private Collection Agencies
                                 Based on Estimates

FSA             Alert Memo       Verbal Complaints Against         5/8/13           -               -            2
                L06M0012         Private Collection Agencies

FSA             Management       PIN Security Vulnerabilities      9/30/13          -               -            5
                Information
                Report
                X21L0002
                (Sensitive
                Data—No
                Public
                Distribution
                without
                Prior
                Approval)

OSERS           Alert Memo       California Department of          5/20/13          -               -            4
                L09N0004         Education’s Administration of
                                 LEAs’ Special Education
                                 Maintenance of Effort
                                 Compliance Requirement

Total                                                                              $0              $0           77




44    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           23               $261,925,277                $148,722,750


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

       Subtotals (A + B)                                     23               $261,925,277                $148,722,750

C. For which a management decision was made during
   the reporting period                                       8                 $55,723,448                  $8,945,456

       (i) Dollar value of disallowed costs                                     $46,645,884                  $2,507,164
       (ii) Dollar value of costs not disallowed                                 $9,077,564                  $6,438,292

D. For which no management decision was made by
                                                             15               $206,201,829                $139,777,294
   the end of the reporting period




                                                                          Office of Inspector General Semiannual Report    45
                      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
                                                                                1                      $13,00,000
    commencement of the reporting period

 B.    Which were issued during the reporting period
                                                                                0                              $0
                                                                                1                      $13,00,000
         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
                                                                                0                             $0
       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




46    Office of Inspector General Semiannual Report
                Table 5-A. Unresolved Audit, Inspection, and Evaluation Reports
                              Issued Prior to September 30, 2013
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

    ODS        Audit             Delaware: Final Recovery Act Expenditures                   12/19/12                 -             2
               A03M0005          Supplemental Report (SAR 66, page 39)
               (New)
                                 Current Status: ODS/ISU is currently working to
                                 resolve this audit.

    ODS        Audit             Arkansas: Final Recovery Act Expenditures                   12/20/12         $237,302              2
               A09M0003          Supplemental Report (OESE and OSERS are also
               (New)             designated as action officials) (SAR 66, page 40)

                                 Current Status: ODS/ISU, OESE, OSERS, and
                                 OSEP informed us that PDLs had been issued;
                                 however, that information was not included in
                                 AARTS at the end of the SAR reporting period.

    OESE       Audit             Maryland: Use of Funds and Data Quality for                   1/3/13         $736,582              8
               A03K0009          Selected American Recovery and Reinvestment
               (New)             Act Programs (ODS, OSERS, and OCFO are also
                                 designated as action officials) (SAR 66, page 40)

                                 Current Status: OESE informed us that a draft
                                 PDL is currently under review. OSERS informed
                                 us that a joint resolution with OESE and ISU is in
                                 progress. OCFO/ICG issued a PDL on 7/31/2013.

    OESE       Audit             Puerto Rico: Final Recovery Act Expenditures                 2/20/13         $14,3033              8
               A04M0014          Supplemental Report (OSERS is also designated as
               (New)             an action official) (SAR 66, page 40)

                                 Current Status: OESE informed us that a draft
                                 PDL is currently under review. OSERS informed
                                 us that it is currently working to resolve this
                                 audit.

    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 a draft
                                 audit determination/PDL is currently under
                                 review.




3
    Audit report A04M00014 figure includes $7,303 of questioned costs and $7,000 of cost recovery during the audit.

                                                                                             Office of Inspector General Semiannual Report   47
                                                                                                  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 it is
                               currently working to resolve this audit.

 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             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.

 FSA         Audit             Metropolitan Community College’s Administration       5/15/12    $232,918        22
             A07K0003          of Title IV Programs (SAR 65, page 40)

                               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)

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

 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/PAG informed us that it is
                               developing a 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 PDL was
                               issued on 9/21/2012. OESE PDL was issued on
                               9/25/2012. ODS/ISU PDL was issued on
                               1/8/2013.




48   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

ODS      Inspection    Department’s Nonprocurement Suspension and            6/22/12              -                  5
         I13L0001      Debarment Process (SAR 65, page 41)

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

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.

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: OESE informed us that the audit
                       is under appeal. OESE and OSERS/OSEP issued a
                       joint PDL on 9/29/11.

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

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

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 previously informed us
                       that it is currently working to resolve this audit.

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. OCFO/PAG issued a
                       PDL on 5/14/2013. 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 informed us they are
                       currently working to resolve an additional
                       finding. OSERS/OSEP issued a PDL for one finding
                       on 2/20/2013.

Total                                                                                      $206,201,829             196

                                                                             Office of Inspector General Semiannual Report   49
Table 5-B. Summaries of Audit, Inspection, and Evaluation Reports Issued During
  the Previous Reporting Where Management Decision Has Not Yet Been Made

Section 5(a)10)of the IG Act, as amended, requires a summary of each audit, inspection, or evaluation report
issued before the commencement of the reporting period for which no management decision has been made by
the end of the reporting period. These are the narratives for new entries. Details on previously issued reports
can be found in Table 5-A of this Semiannual Report.


                   Report Title,
     Office      Number, and Date                                       Summary and Current Status
                      Issued

ODS            Delaware: Final            We reviewed Recovery Act expenditures at two LEAs—the Red Clay Consolidated School
               Recovery Act               District and the Christina School District—and found that both districts generally
               Expenditures               obligated and spent stimulus funds in accordance with applicable laws, regulations,
               Supplemental Report        guidance, and program requirements. However, we identified an internal control
                                          weakness in the Christina School District’s payroll adjustment process that resulted in it
               Audit A03M0005             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
               12/19/12                   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.

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

ODS            Arkansas: Final            We reviewed Recovery Act expenditures at two LEAs—the El Dorado School District and
               Recovery Act               the Little Rock School District—and found that the LEAs generally obligated and spent
               Expenditures               stimulus funds in accordance with applicable laws, regulations, guidance, and program
               Supplemental Report        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
               Audit A09M0003             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
               12/20/12                   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.

                                          Current Status: ODS/ISU, OESE, OSERS, and OSEP informed us that PDLs had been
                                          issued; however, that information was not included in AARTS at the end of the SAR




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

OESE     Maryland: Use of       We found that Recovery Act expenditures by the Maryland State Department of
         Funds and Data         Education, Maryland Department of Public Safety and Correction, and two LEAs,
         Quality for Selected   Baltimore City Public Schools and Prince George’s County Public Schools, were generally
         American Recovery      allowable, reasonable, and accounted for in accordance with the recipients’ plans,
         and Reinvestment       approved applications, and applicable laws and regulations. However, we identified more
         Act Programs           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
         Audit A03K0009         $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
         1/3/13                 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.

                                Current Status: OESE informed us that a draft PDL is currently under review. OSERS
                                informed us that a joint resolution with OESE and ISU is in progress. OCFO/ICG issued a
                                PDL on 7/31/2013.

OESE     Puerto Rico: Final     We found that the Puerto Rico Department of Education generally obligated and spent
         Recovery Act           Recovery Act funds in accordance with applicable laws, regulations, guidance, and
         Expenditures           program requirements. However, we found that Puerto Rico Department of Education did
         Supplemental Report    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
         Audit A04M0014         professional services not rendered. In addition, computer equipment Puerto Rico
                                Department of Education had purchased with $3.5 million of Recovery Act funds was
         2/20/13                unused because required software had not been installed. Our audit also noted that in
                                December 2011, Puerto Rico Department of Education 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, Puerto Rico Department of
                                Education 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 Puerto Rico Department of Education’s ability to liquidate its remaining
                                funds on allowable costs that were obligated before the end of the grant period. We
                                made nine recommendations, including that the Department follow up with Puerto Rico
                                Department of Education during a future monitoring visit to determine whether the funds
                                were obligated and liquidated appropriately.

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




                                                                             Office of Inspector General Semiannual Report   51
                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.



52    Office of Inspector General Semiannual Report
       Table 6. Statistical Profile for October 1, 2012, through September 30, 2013

                                                           October 1, 2012–        April 1, 2013–
              Audits, Inspections, Other Products                                                            FY 2013 Total
                                                            March 31, 2013      September 30, 2013

Audit Reports Issued                                                   12                          11                     23

Inspection Reports Issued                                               1                           0                         1

Questioned Costs (Including Unsupported Costs)                   $988,187                          $0              $988,187

Recommendations for Better Use of Funds                                $0                          $0                     $0

Other Products Issued                                                   4                           4                         8

Reports Resolved By Program Managers                                   25                          17                     42

Questioned Costs (Including Unsupported Costs) Sustained      $82,696,606               $46,645,884           $129,342,490

Unsupported Costs Sustained                                   $71,147,107                $2,507,884             $73,654,271

Additional Disallowances Identified by Program Managers           $11,551                  $376,599                $388,150

Management Commitment to the Better Use of Funds               $5,200,000                          $0            $5,200,000

Investigative Cases Opened                                             41                          41                     82

Investigative Cases Closed                                             59                          74                    133

Cases Active at the End of the Reporting Period                       386                        358                     358

Prosecutorial Decisions Accepted                                       61                          85                    146

Prosecutorial Decisions Declined                                       71                        104                     175

Indictments/Informations                                               54                          83                    137

Convictions/Pleas                                                      55                          96                    151

Fines Ordered                                                   $121,7504                    $18,500               $140,250

Restitution Payments Ordered                                   $8,484,7035               $7,483,835             $15,968,538

Civil Settlements/Judgments (number)                                   15                          18                     33

Civil Settlements/Judgments (amount)                          $25,573,795               $26,070,145             $51,643,950

Recoveries                                                     $4,328,8606               $9,471,463             $13,800,323

Forfeitures/Seizures                                           $3,782,303                $2,132,116              $5,914,419

Estimated Savings                                              $2,918,330                $8,610,177             $11,528,507

Suspensions Referred to Department                                     257                         20                     45

Debarments Referred to Department                                      24                          19                     43

4
    Additional $250 not included in SAR 66.
5
    Additional $205,213 not included in SAR 66.
6
    Additional $321,597 not included in SAR 66.
7
    A suspension included in SAR 66 was removed.

                                                                              Office of Inspector General Semiannual Report       53
54   Office of Inspector General Semiannual Report
Acronyms and Abbreviations
        Acronyms and Abbreviations Used in This Report
                                  ASU                    Arkansas State University
                                  CEO                    Chief Executive Officer
                                  CIGIE                  Council of Inspectors General on Integrity and Efficiency
                                  Department             U.S. Department of Education
                                  DMCS2                  Debt Management Collection System 2
                                  ESEA                   Elementary and Secondary Education Act of 1965, as Amended
                                  FAFSA                  Free Application for Federal Student Aid
                                  FSA                    Federal Student Aid
                                  FY                     Fiscal Year
                                  IDEA                   Individuals with Disabilities Education Act, Part B
                                  IG Act                 Inspector General Act of 1978, as Amended
                                  IPEDS                  Integrated Postsecondary Education Data System
                                  LEA                    Local Educational Agency
                                  MOE                    Maintenance of Effort
                                  OESE                   Office of Elementary and Secondary Education
                                  OIG                    Office of Inspector General
                                  OMB                    Office of Management and Budget
                                  PCA                    Private Collection Agency
                                  PIN                    Personal Identification Number
                                  Recovery Act           American Recovery and Reinvestment Act of 2009
                                  Recovery Board         Recovery Accountability and Transparency Board
                                  SEA                    State Educational Agency
                                  SES                    Supplemental Education Services
                                  TEA                    Texas Education Agency
                                  Title I                Elementary and Secondary Education Act, Title I
                                  Title IV               Higher Education Act of 1965, Title IV


                                   For acronyms and abbreviations used in the required tables, see page 39.




56   Office of Inspector General Semiannual Report
FY 2014 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 2014.

       1. Improper Payments, meeting 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,
          grantees, and contractors.

       4. Data Quality and Reporting, specifically program data reporting requirements to ensure that
          accurate, reliable, and complete data are reported.

       5. Information Technology System Development and Implementation, specifically processes related
          to oversight and monitoring of information technology system development and implementation.

For a copy of our FY 2014 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