U.S. Department of Education
Office of Inspector General
Semiannual Report to
Congress, No. 69
April 1, 2014–September 30, 2014
Office of Inspector General
Kathleen S. Tighe
Inspector General
November 2014
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. 69.
Please Note:
The Inspector General’s Semiannual Report to Congress, No. 69 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, 2014, through September 30, 2014. The audits, investigations, and
related work highlighted in the report are products of our continuing commitment to
promoting accountability, efficiency, and effectiveness through our oversight of the
Department’s programs and operations.
Over the last 6 months, we closed 68 investigations involving fraud or corruption related
to the Department’s programs and operations, securing nearly $23.2 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 people, including
school officials and service providers who cheated the students they were in positions to
serve. We also issued 12 audit-related reports that included recommendations to improve
program operations. For example:
Our audit found that the Department did not adequately address the risks that
schools offering direct assessment programs pose to the Federal student aid
programs and did not establish processes to ensure that only programs meeting
Federal regulatory requirements are approved as eligible. The Department did not
establish an effective system of internal control because, as it stated, few schools
had submitted applications to offer direct assessment programs, so it did not
believe the programs posed a significant risk.
Senior executives of the Brilliance Academy and its wholly owned subsidiary
Babbage Net Schools, companies that provide federally funded tutoring services,
were indicted on charges that they bilked 200 public school districts in 19 States
out of more than $33 million.
Our audit of the Federal Student Aid (FSA) office’s handling of borrower complaints
against private collection agencies (PCAs) found that FSA did not effectively
monitor borrower complaints against the PCAs or make sure that the complaints
were satisfactorily resolved, did not ensure that the PCAs were adhering to Federal
debt collection laws, and did not consider complaints when deciding how much to
compensate PCAs. As a result, FSA did not know whether the PCAs were
appropriately servicing borrower accounts.
Academic Advantage, a Supplemental Educational Services (SES) provider, agreed
to pay $2 million to settle allegations that it fraudulently billed the New York City
Department of Education for SES services that it never provided. Nine of its
employees are facing charges for their roles in the scam.
Criminal actions were taken against 30 high-ranking school district officials and
education service providers across the country. This included prison sentences for
two Beaumont, Texas, Independent School District officials for stealing more than
$4 million from the school district and prison sentences for the former mayor of
Progreso, Texas, his father and two brothers—all former Progreso Independent
School District officials—for using their positions to extract more than $300,000 in
bribes and kickbacks from district service providers and city contractors.
The owner of Bilingual SEIT, a company that provided special education and
preschool programs in New York City, was sentenced to prison for stealing more
than $2 million by deliberately inflating costs the school incurred and overpaying
certain employees to receive a portion of the overpayments, which he used for his
personal benefit.
In 2013, American Commercial Colleges, Inc., (ACC) agreed to pay $2.5 million to
settle allegations that it circumvented the 90/10 rule (which provides that no more
than 90 percent of a for-profit school’s revenue may come from Federal student
aid). Now ACC, its president, and five other ACC officials have pled guilty to
manipulating ACC’s 90/10 revenue calculation to maintain its eligibility to
participate in the Federal student aid programs.
Our evaluation of FSA’s process for ensuring the continued protection of Federal
funds at guaranty agencies (GAs) determined that FSA did not have an adequate
process to ensure the continued protection of Federal funds because the
methodology it used to calculate a GA’s current reserve ratio was not in
compliance with the requirement that the Federal fund balance used in the reserve
ratio be calculated by using an accrual basis of accounting. The current reserve
ratio calculation overstated the financial position of the GAs and understated the
level of financial stress a GA may be under.
Our review of FSA’s oversight and monitoring of PCA and GA information
technology security controls found weaknesses that left systems and the financial
and personally identifiable information of student loan recipients contained in
them vulnerable to attack, unauthorized release, or other misuse. Specifically, FSA
did not issue valid authorizations to operate to any of the PCAs for an average of
8 months, did not ensure that PCAs timely resolved security control deficiencies,
and had inadequate assurance that GA information system security complied with
the requirements of the Federal Information Security Management Act.
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 very
proud of the results of this work, that criminals are behind bars and the Department has
before it important recommendations from our reports. Our recommendations, when
implemented, will lead to actions by the Department to put in place protections to
prevent fraud and abuse, protect student interests, improve oversight and monitoring,
and recoup taxpayer dollars.
I greatly appreciate the interest and support of this Congress and Secretary Duncan 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
Goal 1: Improve the Department’s ability to
effectively and efficiently implement its programs
to promote educational excellence and opportunity
for all students. 1
Goal 2: Strengthen the Department’s efforts to improve
the delivery of student financial assistance. 9
Goal 3: Protect the integrity of the Department’s
programs and operations by detecting and preventing
vulnerabilities to fraud, waste, and abuse. 23
Goal 4: Contribute to improvements in Department
business operations. 33
Annexes and Required Tables 39
Acronyms and Abbreviations 53
Goal 1:
Improve the Department’s
ability to effectively and
efficiently implement its
programs to promote
educational excellence and
opportunity for all.
Our first strategic goal reflects our mission to promote the efficiency and effectiveness of the
U.S. Department of Education’s (Department) programs and operations. To achieve this goal,
we conduct audits, investigations, and other activities. In our audit 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
We issued three reports related to this goal over the last 6 months. The first
report focused on actions that Congress and the Department could take to help
State educational agencies (SEAs) and local educational agencies (LEAs) address
issues associated with the maintenance of effort flexibility provisions allowed
under the Individuals with Disabilities Education Act (IDEA). The second report
involves the Race to the Top Program (RTT)—a multibillion dollar discretionary
grant program authorized under the American Recovery and Reinvestment Act of
2009 (Recovery Act) created to spur innovation, reforms, and outcomes in
elementary and secondary education programs. During this reporting period, we
completed our audit of the Ohio Department of Education’s administration of its
$400 million RTT grant. This is the first in a series of State-specific RTT reports;
we will share the findings from our work in additional States once we complete
those audits. The third report highlighted in this section is our Recovery Act
“lessons learned” report, which provides our perspectives on challenges the
Department, its funding recipients and subrecipients, and the OIG faced in
planning, implementing, monitoring, and reporting on education-related grant
programs funded by the Recovery Act, how the challenges were addressed, and
what lessons should be considered in the future. Summaries of these reports are
below.
IDEA Maintenance of Effort Flexibility
In 2013, we issued a report on how selected SEAs and LEAs administered the
IDEA’s maintenance of effort flexibility1 provision when increased funding was
provided under the Recovery Act. The audit found the SEAs and LEAs reviewed did
not always comply with applicable laws and regulations associated with exercising
maintenance of effort flexibility or properly use and account for freed-up funds
resulting from exercising maintenance of effort flexibility. During this reporting
period, we issued a follow-up report that provided Congress and the Department
with additional information on maintenance of effort flexibility that they may
want to consider when Congress reauthorizes the IDEA and that also identified
actions that the Department could take now to address implementation issues
associated with maintenance of effort flexibility.
1
In this section, we use the term “maintenance of effort flexibility” to refer to the authority in Sections 613(a)(2)(C) (adjustment to fiscal
effort in certain fiscal years) and 613(j) (State agency flexibility) which permit an eligible LEA or SEA to reduce the level of 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.
2 Office of Inspector General Semiannual Report
Under current requirements, when an eligible LEA exercises maintenance of effort
flexibility to reduce special education spending, it must spend the resulting freed-
up funds to carry out activities authorized under the ESEA. We found that the full
scope of LEAs’ allowable uses of freed-up funds is not clear, particularly as
related to the Impact Aid program, which offers the most flexibility in how LEAs
can spend funds. Because of the wide array of activities that could be supported
with funds under the ESEA, LEAs could be spending freed-up funds on activities
that Congress had not intended. As such, we suggested that Congress clarify
which uses of freed-up funds are permissible. Also, we found that some LEAs and
SEAs may opt to exercise maintenance of effort flexibility in a year when there is
a large, one-time increase in IDEA funding (like the Recovery Act) and continue to
maintain that lower spending level even after the one-time infusion of Federal
funds is depleted, therefore resulting in a decline in the overall investment in
special education program funding. To prevent that from happening, we
suggested that Congress limit LEA spending reductions through amendments to the
provision in sections 613(j) and 613(a)(2)(C) of the IDEA or include it as a part of
any future legislation providing a large, yet temporary, supplemental IDEA
appropriation.
We also identified actions that the Department could take now to ensure that
SEAs monitor how LEAs use freed-up funds and that LEAs appropriately account
for these funds, and that SEAs and LEAs fully understand the relationship between
maintenance of effort flexibility and voluntary coordinated early intervening
services (CEIS) so that LEAs do not improperly spend IDEA funds on CEIS when also
exercising maintenance of effort flexibility. In addition, we suggested that the
Department correct or publicly disclose significant deficiencies in the quality of
data related to the use of the maintenance of effort flexibility provision and other
data to help ensure that Congress and the public are properly informed about
important issues such as how extensively maintenance of effort flexibility was
used as a result of the Recovery Act or the amounts of expenditure reductions
that occurred in a State or across the nation. Our report also identified actions
that the Department could take to address two areas where SEAs can vary the
measures used to assess LEA performance, which may undermine program
goals: (1) where SEAs are allowed to individually establish how they arrive at
LEAs’ annual performance results, which can lead to inequitable results for LEAs
in one State versus another in the same or similar circumstances in another State;
and (2) the adverse effects that may result when an SEA does not establish a
meaningful threshold for significant disproportionality, which is a measure used to
determine whether specific racial and ethnic groups are significantly
overrepresented with respect to the identification of children as having a
qualifying disability. Lastly, the report provided the Department with suggestions
for ensuring that LEAs are aware of their eligibility for maintenance of effort
flexibility and the full extent to which they could reduce local spending. In
response to our report, the Department outlined actions it had taken or planned
to take to address some of our findings.
Office of Inspector General Semiannual Report 3
Ohio Department of Education’s Administration of its
Race to the Top Grant
Our audit sought to determine whether the Ohio Department of Education (the
Ohio SEA) accurately and completely reported RTT grant performance data to the
Department, ensured that it and its participating LEAs and charter schools would
have the capacity to deliver and sustain results described in its RTT grant
application after all Federal funds had been expended, and whether they spent
RTT funds only on allowable activities and in accordance with program
requirements and the Ohio SEA’s approved grant application. We examined two of
the six educational topic areas on which the Ohio SEA spent RTT funds—data
systems to support instruction and its Great Teachers and Leaders programs—and
two of its LEAs—the Lorain City Schools (Lorain) and the Toledo Public Schools
(Toledo). We found that although the Ohio SEA reported all required performance
data for the two areas reviewed and ensured that it and the two LEAs had the
capacity to deliver and sustain results, it did not always report accurate data and
did not ensure that the LEAs spent RTT funds on allowable activities and in
accordance with program requirements and the Ohio SEA’s approved grant
application. Specifically, we found the following.
The Ohio SEA did not provide supporting documentation for the number of
teachers it used to calculate its progress against performance measures,
and it did not accurately report or provide documentation to support the
results that it reported to the Department in its 2011–2012 RTT annual
performance report for 5 of 11 (45.4 percent) performance measures.
The Ohio SEA did not regularly monitor the fiscal activity of participating
LEAs and charter schools. As a result, the Ohio SEA did not prevent Toledo
from maintaining excess cash on hand or prevent Lorain and Toledo from
spending RTT funds on unallowable items or activities. In addition, the
Ohio SEA did not detect that Toledo did not adequately document its travel
costs and allocated costs to the wrong grant.
RTT is a competitive grant program, and the Department awarded RTT funds to
Ohio, in part, because of assertions the Ohio SEA made in its approved grant
application. If the Ohio SEA cannot corroborate performance information reported
to the Department, the Department cannot be sure that the Ohio SEA is
accomplishing the goals identified in its approved application. In addition, the
State’s other stakeholders, such as parents and taxpayers, do not have an
accurate picture of the Ohio SEA’s performance against its RTT goals. Based on
our findings, we recommended that the Ohio SEA improve the accuracy of its
reported data and the administration of its RTT grant by taking a number of
actions, including that it obtain supporting documentation for applicable
performance data so it can verify progress towards those measures, disclose in its
annual performance report when it has not verified or does not have
documentation to support the reported performance data, retain documents used
to support reported performance data, and more closely monitor the fiscal
activity of participating LEAs and charter schools to ensure that they comply with
4 Office of Inspector General Semiannual Report
all Federal fiscal requirements. The Ohio SEA neither agreed nor disagreed with
our findings or recommendations.
Lessons Learned from Implementing the Recovery Act
In September, we issued a report which drew on our experience in performing
more than 50 Recovery Act-related audits, conducting more than 200 criminal
investigations, and reviewing nearly 145 allegations of reprisals of people seeking
whistleblower protection under the Recovery Act. This “lessons learned” report
provides our perspective on challenges the Department, its funding recipients and
subrecipients, and the OIG faced and what lessons should be considered in the
event that other legislation providing a large yet temporary funding increase (like
the Recovery Act) is enacted in the future. The table below presents the four key
challenges highlighted in our report, the associated lessons learned, and
suggestions to address each lesson.
Challenge Lesson Suggestion
Requiring OIGs to investigate Recovery Opportunity period to allege For future legislation like the Recovery
Act whistleblower cases may divert OIG whistleblower reprisals should be Act, we suggest that Congress
resources from other critical activities. aligned with availability of funding (1) include a provision that establishes a
provided through legislation. reasonable statute of limitations for
filing complaints, (2) consider providing
additional funding to support
whistleblower investigations of
complaints made after the funding for
such investigations has expired, and
(3) allow OIGs additional flexibility to
manage their investigative
responsibilities.
Department, recipients, and Grant recipients benefit from timely The Department should assess outreach
subrecipients faced challenges with guidance, training, technical assistance, and technical assistance activities
implementing processes to administer and outreach. performed in response to the Recovery
grants. Act and consider conducting similar
activities for new programs and for
existing programs that receive
substantial increases in funding to
ensure program integrity and
effectiveness.
The Department addressed a variety of Addressing persistent challenges on The Department should ensure that all
Recovery Act implementation issues, but monitoring and oversight should improve program offices use effective risk-based
persistent monitoring and oversight program integrity and compliance. monitoring approaches and encourage
challenges remain. Independent oversight is a key tool to recipients to use the same approach for
promote transparency and subrecipient monitoring and focus
accountability, and the Department efforts on the audit resolution process
needs alternative processes for oversight and better target guidance and
and monitoring for new or temporary technical assistance. Congress could
grant programs. ensure that for future temporary efforts
that funding is included for State and
local oversight.
New reporting and transparency The Department took steps to improve For future temporary legislation like the
requirements created implementation data quality, but accuracy and reliability Recovery Act, other efforts intended to
challenges. issues remained. increase transparency, or to improve
data for ongoing grant programs, the
Department should implement measures
that improve the quality of recipient
and subrecipient data and continue to
emphasize the need for appropriate
data quality reviews.
Office of Inspector General Semiannual Report 5
Recovery Act Investigations Statistics
Since the enactment of the Recovery Act, OIG has initiated 220 criminal
investigations of various schemes involving improper uses of Recovery Act funds.
To date, our Recovery Act-related investigations have resulted in more than
286 criminal convictions and nearly $1.2 million in recoveries.
Whistleblower Certification
In August, the OIG successfully completed the Office of Special Counsel’s
Whistleblower Certification Program. This action certified that the OIG had met
its requirements to inform its workforce of the rights and remedies available to
them under the Whistleblower Protection Act, the Whistleblower Protection and
Enhancement Act, and related civil service laws. The certification also
acknowledged that the OIG met the whistleblower protection requirements of the
second Open Government National Action Plan, which required agencies to
participate in a whistleblower certification program.
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. The Recovery Board was created in 2009 to provide
transparency of funds spent under the Recovery Act and to detect and prevent waste, fraud,
and mismanagement of those funds.
Government Accountability and Transparency Board (GAT Board). Inspector General Tighe is a
member of the GAT Board. The Board was created in 2011 provide strategic direction for
enhancing the transparency of Federal spending and advance efforts to detect and remediate
fraud, waste, and abuse in Federal programs and to build on the lessons learned from the
implementation of the Recovery Act. The 11 members of the GAT Board were appointed by the
President.
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 OIG staff participate 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 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 Reviews
The Department disburses about $140 billion in student aid annually and manages
an outstanding loan portfolio of $1 trillion. This makes it one of the largest
financial institutions in the country. As such, effective oversight and monitoring of
its programs, operations, and program participants are critical. Within the
Department, the Office of Postsecondary Education (OPE) and the Federal Student
Aid (FSA) office are responsible for administering and overseeing the student aid
programs. OPE develops Federal postsecondary education policies, oversees the
accrediting agency recognition process, and provides guidance to schools. FSA
disburses student aid, authorizes schools to participate in the student aid
programs, works with other participants to deliver services that help students and
families finance education beyond high school, and enforces compliance with
program requirements. During this reporting period, OIG work identified actions
FSA and OPE should take to better protect the interest of students. Summaries of
these reports follow.
Direct Assessment Programs: Processes for Identifying
Risks and Evaluating Applications for Federal Student Aid
Eligibility Need Strengthening
We found that the Department did not adequately address the risks that schools
offering direct assessment programs pose to the Federal student aid programs and
did not establish sufficient processes to ensure that only programs meeting
Federal regulatory requirements are approved as eligible. Not adequately
addressing risks increases the likelihood that schools might create direct
assessment programs that are not eligible, such as those that are really
correspondence programs. Further, not establishing sufficient processes to ensure
that only programs meeting Federal regulatory requirements are approved as
eligible increases the risk that the Department will not obtain enough information
to sufficiently evaluate the merits of all direct assessment program applications.
The Department did not establish an effective system of internal control because,
as it stated, few schools had submitted applications to offer direct assessment
programs, so it did not believe the programs posed a significant risk. Also, in
2014, FSA conducted a risk assessment that identified only two risk areas: (1) the
Department might approve a direct assessment program that should not be
approved, and (2) schools might not implement approved programs in accordance
with Federal requirements. Although we agreed with FSA that the two areas were
10 Office of Inspector General Semiannual Report
legitimate, they were too broad for the Department to implement specific
activities to mitigate all significant risks associated with them. Further, the two
risk areas identified by FSA did not address the following other risk areas that OIG
considers significant.
Students might receive Federal student aid for life experience, which is
unallowable because Federal student aid may be used only for learning
that results from instruction that the school provides or oversees.
A direct assessment program might really be a correspondence program,
which is unallowable because Department direct assessment program
regulations require a faculty member to work with a student to design a
program of study and to interact with the student on a regular and
substantive basis. Additionally, a school might be ineligible to receive
Federal student aid funds if it offers more than 50 percent of its courses by
correspondence or if it enrolls more than 50 percent or more of its
students in correspondence courses.
A school may develop credit- or clock-hour equivalencies for programs that
are not based on the regulatory definition of a credit or clock hour, and
direct assessment programs with improperly calculated credit- or clock-
hour equivalencies could result in students receiving more Federal student
aid funds than allowed.
In addition, we also identified weaknesses related to the Department’s direct
assessment application review processes: the Department was not documenting
the basis for approval or denial of an application, and FSA School Participation
Division managers were not fully informed of issues raised during the application
review process. Further, we found that the Department’s communication with
accrediting agencies involved in the application process was not adequate to
make well-informed decisions.
Although we agreed with the Department that few schools offering direct
assessment programs have applied to have their programs deemed eligible to
participate in the Federal student aid programs, and the amount of Federal aid
currently at risk is relatively low, the program eligibility decisions that the
Department is making for these early-implementing schools could set a precedent
for future direct assessment programs and have a lasting, negative impact on the
Federal student aid programs.
As a result of our findings, we made seven recommendations, including that the
Department reassess the risks that direct assessment programs pose to the
Federal student aid programs, communicate the results of that assessment to
Department employees, and develop additional control activities to mitigate any
newly identified risks. The Department did not explicitly agree or disagree with
our finding, and agreed with some of our recommendations.
FSA’s Handling of Borrower Complaints Against Private
Collection Agencies
The purpose of our audit was to review borrower complaints against private
collection agencies (PCAs) to evaluate how effectively FSA monitored the
Office of Inspector General Semiannual Report 11
complaints and ensured that corrective action was taken, ensured that PCAs were
abiding by Federal debt collection laws and the related terms of their contracts,
and considered borrower complaints in its evaluation and compensation of PCAs.
We found that FSA did not effectively do so.
Because FSA senior managers considered the number of complaints to be
immaterial, they placed insufficient emphasis on the importance of identifying,
tracking, and resolving borrower complaints. For example, (1) FSA did not ensure
that all complaint-receiving entities used a consistent definition of a complaint
against a PCA, (2) FSA’s Complaint Tracking System database and process for
entering and analyzing data were flawed, (3) FSA did not ensure timely submission
of complaints by PCAs and did not receive all borrower complaints against PCAs,
and (4) FSA did not ensure that PCAs took corrective action in response to
complaints filed against them and their collectors. We also found that FSA did not
effectively ensure that the PCAs were abiding by the Federal debt collection laws
and the related terms of their agreements with FSA. Specifically, the contracting
officer’s representative did not monitor, review, or evaluate PCAs’ monthly
quality control reports, which contain information about PCAs’ internal
monitoring of their compliance with Federal and State debt collection laws, or
PCAs’ management/fiscal reports, which contain borrower complaint information.
Nor did the contracting officer’s representative prepare or submit the required
annual evaluation of PCAs’ performance. In addition, during the time period of
our audit, FSA reduced the number of phone calls it monitored between PCAs and
borrowers to assess adherence to Federal debt collection laws. FSA monitored
fewer phone calls in part because of the time it takes to review calls. Further,
although FSA used the Competitive Performance and Continuous Surveillance
(CPCS) score to evaluate and compensate PCAs, we found that it did not use the
Service Quality performance indicator, which includes factors such as accuracy
and completeness, rejections, bounced checks, and customer satisfaction, in
calculating the CPCS scores. In addition, FSA’s contracts with the PCAs provided
that FSA will notify the PCA to immediately cease activity whenever the subject
of a complaint is a concern to FSA. Although the contracts provided for a
reduction in the PCA’s CPCS scores if the PCA did not cease activity, we found
that FSA did not have a process for identifying complaints that are a concern. As a
result, FSA had not ordered any PCAs to cease any activity because of a
borrower’s complaint nor deducted points from a PCA’s quarterly CPCS score.
Therefore, PCA compensation had not been reduced due to complaints.
Based on our findings, we made a number of recommendations, including that FSA
improve the monitoring of borrowers’ complaints against PCAs by enforcing the
contract requirement that PCAs submit all complaints to FSA, establish procedures
that include ensuring PCAs take corrective action, revise the Complaint Tracking
System database to ensure data is consistent and contains sufficient fields to
capture all necessary data, and ensure FSA’s complaint-receiving entities adhere
to the revised PCA Procedures Manual guidelines for identifying complaints against
PCAs. We also recommended that FSA require contracting officer’s
representatives to monitor, review, and evaluate PCA deliverables; reconcile the
management/fiscal reports with the complaints recorded in the Complaint
Tracking System database; and prepare and submit the evaluation of the PCA
deliverables and annual evaluation of the PCAs’ performance to the contracting
12 Office of Inspector General Semiannual Report
officer. We further recommended that FSA use the Service Quality indicator as a
measure in calculating PCA’s quarterly CPCS scores, identify the types of
complaints that are a concern to FSA, monitor complaints activities that FSA has
notified a PCA to cease, and enforce the contract provisions that provide that
recurring complaints will result in a two-point reduction from quarterly CPCS
scores. FSA concurred with our findings and most of the recommendations.
Oversight of Guaranty Agencies During the Phase-Out of
the Federal Family Education Loan Program
We evaluated FSA’s process for ensuring the continued protection of Federal
funds at Guaranty Agencies (GA), oversight of the GAs’ ability to perform their
duties, and actions necessary for the GAs’ successful participation during the
phase-out of the Federal Family Education Loan Program (FFELP) and found
significant weaknesses. We found the following.
FSA’s methodology for calculating a GA’s Federal Fund reserve ratio did not
comply with Federal requirements, which, as a result, inflated the GA’s
reserve ratio and understated the level of financial stress a GA may be
under. FSA’s erroneous calculation identified that all but one GA met the
minimum ratio in fiscal year (FY) 2011, and all GAs met the minimum ratio
in FY 2012; however, based on correct calculations, five GAs fell below the
minimum ratio in these two consecutive years and should have been placed
on management plans.
Although FSA monitored the GAs’ ability to perform their duties, it did not
establish criteria for GAs to use to develop required financial projections,
and FSA did not document the procedures for actions it should have taken
on information that identified GAs under possible financial stress.
FSA’s initial methodology and then the modified methodology it used to
select successor GAs for GAs ending participation in the FFELP contained
deficiencies related to projected fund balances, relied on subjective
factors, and did not provide a rationale for why the variables FSA selected
to predict GA financial solvency were the most relevant variables.
We also found that FSA took actions for the GAs’ successful participation during
the phase-out of the FFELP by attempting to implement Voluntary Flexible
Agreements, which would have permitted GAs to develop, use, and evaluate
alternative models for ensuring that they carried out their responsibilities in a
more cost effective and efficient manner. However, FSA did not enter into any
Voluntary Flexible Agreements and put the process on hold in 2013 pending an
evaluation of the Bipartisan Budget Act, which FSA said changed the payment
schedule for the GAs. As a result, there has been no change in the relationship
between FSA and the GAs participating in the FFELP since passage of the SAFRA—
which mandated that no new loans be made or insured under the FFELP after
June 30, 2010.
Based on our findings, we made a number of recommendations, including that FSA
use the correct methodology and recalculate the reserve ratio for all GAs for the
two most recently completed fiscal years and determine whether any of the GAs
Office of Inspector General Semiannual Report 13
should be required to submit a management plan for falling below the minimum
ratio, develop criteria for fund projections that GAs are required to report,
develop action plans when information indicates that a GA is under possible
financial stress, and correct the deficiencies in its processes to select successor
GAs. FSA concurred with our findings and agreed to take action to address our
recommendations.
Oversight and Monitoring of PCAs and Guaranty Agency
Information Security Controls
During this reporting period, we issued a report to inform FSA of our concerns
about its oversight and monitoring of PCA and GA information security controls
and to make recommendations to address those concerns. Our review identified
the following.
FSA did not issue a valid authorization to operate to any of the PCAs for an
average of 8 months per PCA. Without such authorization, FSA has no
assurance that the PCAs’ information systems have effective security
controls in place and is compliant with the Federal Information Security
Management Act of 2002 (FISMA). As a result, the systems and the financial
and personally identifiable information of student loan recipients
contained in them are vulnerable to attack, unauthorized release, or other
misuse.
FSA did not ensure that PCAs timely resolved security control deficiencies
that certification agents identified. Because PCA systems communicate not
only with internal FSA platforms, but also with borrowers, other loan
servicers, third-party data providers, consumer reporting agencies,
guarantors, and other government agencies, the PCAs have an increased
risk that their information systems may be compromised, resulting in a risk
to organizational operations, assets, individuals, and other organizations.
FSA neither collected nor validated PCA training certificates as required.
Without adequate oversight of training documentation, FSA has no
assurance that PCAs provided their employees and subcontractors with all
the required training necessary to carry out their responsibilities in
compliance with information security requirements.
FSA had inadequate assurance that GA information system security
complied with requirements of FISMA and thus was not meeting its
obligation to ensure the integrity of system data, including personally
identifiable information, and the protection of data from unauthorized
access, misuse, disclosure, and destruction.
We made a number of recommendations aimed at addressing the weaknesses
identified, and FSA concurred with them.
Duplication of Effort with Discretionary Grants
Our audit sought to determine whether OPE’s internal controls were adequate for
evaluating grantees for duplication of effort; whether the Talent Search, Upward
14 Office of Inspector General Semiannual Report
Bound, and Gaining Early Awareness and Readiness for Undergraduate Programs
(GEAR UP) programs resulted in duplication of services provided by selected
grantees; and whether selected grantees experienced administrative burdens or
inefficiencies as a result of administering multiple programs with similar
objectives. Based on our review of student records, we did not identify any
duplication of services provided under the three programs, nor did we identify any
duplication of services at the two schools reviewed, Berea College and Eastern
New Mexico University-Roswell, for FY 2011. In addition, officials at both schools
stated that they did not experience burdens or inefficiencies. We did, however,
determine that OPE had not implemented adequate internal controls to provide
assurance that grantees minimized the duplication of services, and we could not
determine whether duplication of services occurred at Eastern New Mexico during
FY 2009 and FY 2010 because the school did not maintain documentation that
would have enabled us to do so.
OPE did not have adequate internal controls to ensure duplication of services was
minimized between the three grant programs and other existing Federal, State,
and local early intervention programs because it did not collect and evaluate
information on duplication of services. As such, OPE did not fulfill requirements of
the Department and the Higher Education Act of 1965, as amended (HEA) to
ensure grantees minimized the duplication of services already provided to a
school or community. Specifically, OPE did not have procedures for evaluating
grant applications or other documentation for duplication of services. Its
evaluation process included reviewing items such as budget and personnel
qualifications but did not include evaluation procedures to ensure coordination
and collaboration to prevent duplication of services. Department officials stated
that OPE evaluated grant applications and other documentation based on each
program’s regulatory requirements and said that they had no requirement to
evaluate grantee information to ensure coordination and collaboration with
regard to duplication of services. However, Office of Management and Budget
Circular A-123, “Management’s Responsibility for Internal Control,” the HEA, and
the Department’s Handbook for the Discretionary Grant Progress all include
provisions and procedures to ensure coordination and collaboration among
programs and to evaluate for any duplication of services.
Also, regarding Eastern New Mexico University-Roswell, for FY 2009 and FY 2010,
the school’s GEAR UP records did not support the services provided, the number
of students served, or certification of its annual performance reports. As a result,
the Department may have awarded grant funds to the school in excess of what it
should have received. Based on our findings, we recommended that OPE ensure
that grantees provide information that would enable it to assess their efforts to
coordinate, collaborate, and minimize duplication with other similar programs,
and that it review Eastern New Mexico-Roswell’s GEAR UP data for FY 2009 and
FY 2010 to determine whether funds should be recovered. The Department did
not specifically state its concurrence or nonconcurrence with our findings and
generally agreed with our recommendations.
Office of Inspector General Semiannual Report 15
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.
Actions Taken Against American Commercial Colleges,
Inc., Senior Officials for Roles in 90/10 Fraud (Texas)
We previously reported that American Commercial Colleges, Inc., (ACC) agreed to
pay $2.5 million to settle claims that it violated the False Claims Act by falsely
reporting that it complied with the 90/10 rule—a statutory requirement that for-
profit schools obtain no more than 90 percent of their annual revenue from the
Federal student aid programs. During this reporting period, ACC, its president,
and five ACC senior officials pled guilty to charges related to the school’s
manipulation of its revenue calculation to make it appear that it had complied
with the 90/10 rule, thus maintaining the school’s eligibility to participate in the
Federal student aid programs. Four officials were sentenced to probation and
were ordered to pay restitution ranging from about $90 to more than $66,000. In
his plea agreement, the ACC president admitted that he knew about the data
manipulation and did not report it, and he agreed to be personally liable for the
total loss amount. ACC and the officials also agreed to voluntary debarments from
participating in any Federal student aid program. One official is awaiting
sentencing.
President, Senior Officials of Micropower Career Institute
and the Institute for Health Education Arrested
(New York/New Jersey)
The president of Micropower Career Institute, a for-profit school with five
campuses in the New York/New Jersey area who also owns the Institute for Health
Education, a for-profit school located in New Jersey, along with family members
who are all senior school officials, were charged for a widespread student visa and
student aid fraud scheme. The defendants allegedly fabricated student financial
aid records in order for the school to remain eligible to participate in the Federal
student aid programs. They also allegedly directed school employees to falsify
student records in anticipation of scheduled program reviews by FSA. The schools
collected nearly $20 million in Pell Grants and other Federal student aid since
2008.
President, Facilities Manager of Stone Child College
Indicted for Conspiracy, Theft, and Bribery (Montana)
The president of Stone Child College and her husband, the school’s facilities
manager, were indicted on charges of conspiracy to embezzle, theft, and bribery.
16 Office of Inspector General Semiannual Report
The two allegedly awarded more than $530,000 to a construction company for
projects and consulting services at the school and then allegedly received more
than $242,000 of that money in kickbacks, which they used for their personal use.
Former Merrimack College Financial Aid Director
Charged in Perkins Loan Fraud Scam (Massachusetts)
The former financial aid director at Merrimack College was charged with fraud
involving the Perkins Loan programs—a program that provides low-interest loans
to help needy students finance the costs of postsecondary education. The director
allegedly asked students whom the school had offered grants to take out Perkins
Loans instead, falsely telling the students that the school was in danger of losing
its unused Perkins Loan funds. The director also allegedly promised students that
they would receive grants for the next academic year that would enable them to
pay off their Perkins Loans. The director also allegedly disbursed Perkins Loan
funds to other students without the students’ knowledge or approval, and took
actions to conceal the fraud from the students, their parents, and the school.
Former Sherman College of Chiropractic Financial Aid
Director Pled Guilty (South Carolina)
The former financial aid director at Sherman College of Chiropractic pled guilty to
stealing nearly $80,000 in Federal student aid. From June 2012 through October
2013, the former official encouraged students to cash Federal loan refund checks
and return the money to her under the pretense that she credited the payments
to the students’ accounts; however, she kept the money for her own use. She said
that a series of deaths and an addiction to pain medicine caused her to steal the
money.
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 the large number of actions taken against fraud ring participants during
this reporting period. As of September 30, 2014, OIG has opened 138 fraud ring
investigations, secured more than 503 indictments of fraud ring participants, and
recovered more than $21 million.
In addition, we continued with a proactive investigative project to identify
student aid fraud rings. The project uses an E-Fraud Query System risk model that
we developed, as well as other investigative and analytical tools and data
sources, to identify the scope of each fraud ring, estimate the total potential
fraud, and establish grounds for initiating criminal investigations.
Office of Inspector General Semiannual Report 17
Six People Charged for Running Fraud Scams Targeting
More Than $2.7 Million (Illinois)
Six people were charged with participating in a fraud ring that sought to obtain
more than $2.7 million in student aid, mortgages, bank, and small business loans.
Between 2010 and 2012, four members of the ring allegedly submitted at least
40 fraudulent applications for admission to and Federal student aid from Harper
College, Elgin Community College, and Joliet Junior College. Some of the
applications were completed using stolen identities that the ring obtained through
a credit card fraud scheme. They allegedly caused the financial aid checks to be
sent to addresses that they controlled, then cashed the checks and used the
proceeds for themselves and others. A fifth member of the ring was charged
separately for allegedly stealing student aid, while a sixth member was charged
solely for his role in the mortgage fraud scam.
Eight-Year Fraud Scam Comes to an End (Wisconsin)
Two sisters and their cousin were sentenced to prison for their roles in an 8-year
fraud scam that stole more than $400,000 in student aid. The three used the
identities of more than 20 people—including family members, friends, and
others—to fraudulently apply for and receive the aid. They also used their own
identities, even though none of them had a high school diploma or its equivalent
and thus were ineligible to receive student aid. Sentences ranged from 6 to
14 months in prison, followed by supervised release, and they also were ordered
to pay more than $400,000 in restitution.
Nine Indicted in $300,000 Student Aid Fraud Scam
(Puerto Rico)
Nine people were indicted for allegedly participating in a fraud ring that targeted
online courses at InterAmerican University. The ringleader allegedly recruited
people to act as straw students and submitted false admission and financial aid
applications to the school on their behalf, as the straw students had no intention
of attending classes. The fraud ring allegedly paid a portion of the student aid
refund award to the straw student for the use of his or her identity and kept the
rest. As a result of their fraudulent actions, the fraud ring allegedly obtained
more than $300,000 in Federal student aid.
Couple That Stole More Than $272,000 in Student Aid
Sentenced to Prison (Pennsylvania)
A Pennsylvania couple was sentenced to prison for stealing more than $272,000 in
student aid. The two used stolen identities to apply for admission to and receive
student aid from Liberty University and American Public University, then made it
appear that they were attending classes. Once they received the student aid
award balances, they cashed the checks and used the proceeds for themselves.
The husband was sentenced to serve 28 months in prison and the wife was
sentenced to 12 months in prison. In addition, they were both sentenced to
3 years of supervised release and were ordered to pay more than $272,000 in
restitution and ordered to pay $35,000 in criminal fines.
18 Office of Inspector General Semiannual Report
Members of Fraud Ring That Used Identities of Prison
Inmates to Scam Student Aid Sentenced (Arizona)
During this reporting period, three members of a fraud ring that used the
identities of prison inmates to fraudulently apply for and receive Federal student
aid were sentenced, and two of them are headed to prison. From early 2010 to
2012, the three defendants—a married couple and their housemate—submitted
fraudulent admissions and student aid forms to Mesa Community College and Rio
Salado College on behalf of 37 straw students, most of whom were inmates in
Arizona prisons. Two of the three also fraudulently obtained the personally
identifiable information of several noninmates and used that information to apply
for admission to the schools and for student aid. None of the straw students
participated in or intended to participate in the college courses, and most were
unaware that they were enrolled in school or obtaining Federal student aid. As a
result of their fraudulent efforts, the three defendants received more than
$254,800 in Federal student aid. The husband was sentenced to 48 months in
prison, his wife to 5 years of probation, and their housemate to 24 months in
prison. They also were ordered to pay more than $254,800 in restitution.
Investigations of Other Student Aid Fraud Cases
The following are summaries of the results of additional OIG investigations into
abuse or misuse of Federal student aid.
Former Virgin Islands Senator and Staff Members
Sentenced to Prison (Virgin Islands)
A former U.S. Virgin Islands Senator and two of his staff members were sentenced
to prison for racketeering, including for receiving bribes from vendors in exchange
for the award of lucrative contracts. While in office, the Senator also improperly
directed his staff to complete his application for Federal student aid and
coursework for his online degree from the University of Phoenix. The Senator was
sentenced to serve 52 months in prison and 3 years of supervised release. The
staffers received sentences ranging from probation to 1 year in prison, and were
each sentenced to perform 300 hours of community service.
Family Members Pled Guilty to Student Aid Fraud,
Recovery Act Fraud (Montana)
A student seeking a criminal justice degree from the University of Great Falls and
his parents pled guilty to student aid fraud, as they intentionally failed to disclose
more than $700,000 in household income on FAFSAs submitted between 2009 and
2012. This allowed them to receive Stafford and PLUS loans and Pell Grants that
they otherwise would have been ineligible to receive. A good portion of the
$700,000 was Recovery Act funds that the parents and other family members stole
from the Chippewa Cree Tribe. The Tribe received a $300,000 Recovery Act award
to fund the construction of a freshwater pipeline for the Rocky Boy’s Indian
Office of Inspector General Semiannual Report 19
Reservation. The family members and others created a shell company to which
they diverted the Recovery Act funds, which they used for personal enrichment.
Repeat Offender Sentenced for Scamming Community
Colleges (Texas)
In our Semiannual Report issued in May 2010, we noted that a man was sentenced
to prison for stealing the identities of 31 people, which he used to apply for and
receive more than $182,000 in Federal student aid. The man targeted online
programs at various campuses of the Dallas County Community College District and
the Houston Community College District. He was caught after trying to register
more than 200 additional students under the guise of a large church group. During
this reporting period, he was sentenced for running the same scam while he was
waiting to report to prison. This time, he used the identities of family members,
including his father, brother, and stepbrother, without their consent, and targeted
online programs at the Dallas County Community College District and Trinity Valley
Community College. The man was sentenced to 24 months in prison and was
ordered to pay more than $22,000 in restitution.
Parents Indicted in Two Different States for Student Aid
Fraud (Massachusetts/New York)
A couple were indicted in Massachusetts and in New York for providing false
information on their student aid applications for their children—one attending
Harvard College and the other attending the University of Rochester—to receive
Federal student aid to which they were not entitled. The parents allegedly
underreported their wages and incomes, sources of income, and adjusted gross
income on FAFSAs submitted between 2010 and 2013, to obtain more than
$160,600 in student aid for their Harvard student and about $46,600 for their
Rochester student.
Police Officer Sentenced and Barred From Future Public
Employment (New Jersey)
A former Union County Police officer was fired from his job and was barred from
any future public sector employment in the State of New Jersey for lying on his
FAFSA. According to court records, while a student at Kean University, the former
police officer falsely indicated that he was single on FAFSAs and purposely omitted
his wife’s income, which enabled him to receive Federal student aid to which he
was not entitled.
U.S. Department of Agriculture Employee Sentenced
(Mississippi)
A former U.S. Department of Agriculture employee was sentenced to 1 year of
probation and was ordered to pay more than $21,100 in restitution for Federal
student aid fraud. The former Federal employee admitted to knowingly lying on a
FAFSA to obtain Pell Grants for her son when she included only her spouse’s
income, not her own. As a result, her son improperly received more than $21,100
20 Office of Inspector General Semiannual Report
in Pell Grants. This investigation was initiated as a result of a proactive OIG
investigation to identify Federal employees who provided false information on
their or their dependent’s FAFSA.
Husband Sentenced for Tampering With Estranged Wife’s
FAFSA (Indiana)
A man was sentenced to a year in prison for accessing his estranged wife’s FAFSA
and altering it without her consent or without the consent of the Department. He
input false income information into the FAFSA, which made his estranged wife
ineligible for student aid that she was entitled to receive. After the man pled
guilty to computer tampering, the judge suspended the prison term and sentenced
him to serve a year of probation and prohibited him from having contact with his
estranged wife during that time period.
Office of Inspector General Semiannual Report 21
Other Activities
Participation on Committees, Work Groups, and Task Forces
Department of Education Policy Committees. OIG staff participate in an advisory capacity on these
committees, which were established to discuss policy issues related to negotiated rulemaking for
student loan regulations and for teacher preparation regulations.
Review of Legislation, Regulations, Directives, and Memoranda
Improving Postsecondary Education Data for Students Act (H.R.1949). OIG provided comments that
the bill include a mechanism to ensure that the advisory committee is independent of both Congress
and the Department of Education so that the advisory committee's report is accepted by all.
Student Loan Borrowers’ Bill of Rights Act of 2013 (H.R.3892). OIG provided comments, noting our
concern that the bill could greatly increase the cost of the Federal Student Loan Programs.
Supporting Academic Freedom Through Regulatory Relief Act (H.R.2637). OIG provided comments
noting our concerns with the bill. A copy of those comments can be found here: http://
www2.ed.gov/about/offices/list/oig/misc/georgemillersept092013.pdf.
22 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 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 to protect public
education funds for eligible students by identifying those who abuse or misuse Department
funds and helping hold them accountable for their unlawful actions.
Audits and Reviews
OIG audits and other reviews assess the effectiveness of internal controls,
evaluate the appropriateness of Federal funds usage, and identify weaknesses and
deficiencies in Departmental programs and operations that could leave them
vulnerable to waste, fraud, and abuse. The results of our work can assist the
Department, as well as grantees and program participants, improve its operations,
strategic planning, and risk management. During this report period, we issued two
reports related to this goal. The first report focuses on the payback provisions of
the Rehabilitation Long-Term Training Program (RLTT), a multimillion dollar
program aimed at increasing the number of qualified personnel trained in
providing rehabilitation and other services for people with disabilities. Students
who receive RLTT scholarships must work for a period of time in public or private
nonprofit rehabilitation agencies or related agencies after they complete their
training or must pay back the assistance they received. Our audit sought to
determine whether these requirements were met, and consequently, whether the
RLTT program effectively met program objectives. The second report examined
internal controls over nonpayroll purchases at the Los Angeles Unified School
District. Below are summaries of these two reports.
Payback Provisions of the Rehabilitation Long-Term
Training Program
We found that the Rehabilitation Services Administration appears to have met the
RLTT program objectives by training recipients who subsequently performed work
related to the program and that the majority of those in our sample were working
in acceptable employment. However, we had concerns about the data quality of
grantee reporting, and although Rehabilitation Services Administration had
recently undertaken efforts designed to strengthen its monitoring process, further
improvements were needed in identifying and referring noncompliant scholars for
financial repayment. Specifically, we found the following.
The payback reports that all grantees in our sample submitted to the
Department did not always include all of the requested data and contained
discrepancies.
The performance measure under which the Rehabilitation Services
Administration reports scholar employment data in the RLTT program’s
annual Congressional budget justification did not reflect fully the
program’s effectiveness in training recipients who work in fields providing
rehabilitation and other services to people with disabilities.
24 Office of Inspector General Semiannual Report
The Rehabilitation Services Administration did not appropriately identify
and refer for financial repayment scholars who were not fulfilling their
service obligation. Its failure to appropriately identify scholars who were
not on track to fulfill their service obligation increases the risk that the
Department will not timely recover funds owed.
We also learned that Rehabilitation Services Administration may on occasion
extend the period within which scholars must complete their service obligation. It
did not indicate that the extensions were related to the deferrals or exceptions
authorized by regulation. Rather, the Rehabilitation Services Administration
indicated it would consider granting extensions to not penalize working scholars
who appeared to be able to fulfill their service obligation within a “reasonable
amount of time” from their otherwise required completion date. We noted that,
in implementing the current RLTT program regulations, the Department did not
appear to view the period of obligation as flexible, beyond allowing for the
granting of deferrals or exceptions under limited circumstances. As a result, it
does not appear that the Department has the authority to unilaterally extend
scholars’ completion dates, nor the ability to work within the current regulations
to allow for such extensions. Based on our findings, we made
15 recommendations, including that the Department emphasize to grantees the
need to provide accurate and complete data, that it identify grantees who
consistently fail to do so and take appropriate enforcement action, and that it
review all grants for which payback reports are still being submitted to determine
whether any scholars should be classified as being still in repayment status and
refer any noncompliant scholars to the Department’s Debt and Payment
Management Group. The Rehabilitation Services Administration did not state
whether it agreed with our findings but concurred with all of our
recommendations.
Los Angeles Unified School District’s Internal Controls
Over Nonpayroll Purchases Using U.S. Department of
Education Funds
We found that the Los Angeles Unified School District designed internal controls
that provided reasonable assurance that its personnel used Department funds for
nonpayroll purchases in accordance with applicable Federal requirements. In
addition to its own system of controls, the District was also subject to oversight,
monitoring, and audits from multiple entities, including the California Department
of Education and the school district’s own Inspector General. Our report did not
include any recommendations.
Office of Inspector General Semiannual Report 25
Investigations of Public Corruption, Schools,
and School Officials
OIG investigations include criminal investigations involving bribery,
embezzlement, and other criminal activity, often involving State and local
education officials who have abused their positions of trust for personal gain.
Examples of some of these investigations follow.
Prison Sentences for Mayor, Others in “Pay to Play”
Progreso Public Corruption Scheme (Texas)
In previous Semiannual Reports, we noted that the mayor of Progreso, his brother,
the president of the Progreso Independent School District Board, and their father,
the director of maintenance and transportation at the district, were indicted for
their roles in a “pay to play” public contracting scam. During this reporting
period, the three and another brother, the former district risk manager, were
sentenced to prison for using their positions to extract bribes and kickbacks from
several service providers. The now former mayor was sentenced to 121 months in
prison and was ordered to forfeit $314,000; the now former school board
president was sentenced to 71 months in prison and was ordered to forfeit
$300,000; and the now former district risk manager was sentenced to 10 months
in prison and $12,800 in restitution. Their father, the now former district director
of maintenance and transportation was sentenced to 151 months in prison, was
ordered to forfeit $300,000, and was ordered to pay a fine of $10,000. One of the
service providers was also sentenced to 60 months in prison.
Two Beaumont Independent School District Officials
Sentenced for Stealing More than $4 Million (Texas)
The former finance director and the former comptroller of the Beaumont
Independent School District were sentenced for stealing more than $4 million
from the district’s coffers. While employed at the district, the two had the
authority to conduct wire transfers of district money without notifying anyone.
They exploited this vulnerability and transferred some $4 million in 18 separate
wire transfers to bank accounts in their names or to other accounts under their
control.
Plano Independent School District Official Pled Guilty to
Embezzling More Than $2.5 Million (Texas)
The former manager and security and fire system security support specialist for
the Plano Independent School District pled guilty for his role in a conspiracy to
embezzle more than $2.5 million from the school district. Between 2004 and
December 2013, the former official and two coconspirators set up two fake
companies that were allegedly in the business of maintaining fire safety systems
and security systems. The three generated fraudulent invoices and submitted
them to the district for payment. The former official used his position to approve
the fraudulent invoices knowing that services and products were never provided
or delivered. When payments were made, the three would split the profits among
themselves.
26 Office of Inspector General Semiannual Report
Former Executive Director of Nonprofit Center for
Independent Living Sentenced for Stealing $900,000
(Florida)
The former executive director of the Center for Independent Living of Southwest
Florida was sentenced to 39 years in prison for stealing more than $900,000
intended for the nonprofit center, which provided services to people with
disabilities in a number of Florida counties. The former official used the money to
fund an extravagant lifestyle that included international travel. The center closed
in 2011 due to a lack of operational funds.
Former Detroit Public School Teacher Sentenced in
$530,000 Scam (Michigan)
In previous Semiannual Reports, we highlighted a case involving a former Detroit
Public Schools contract accountant and school board candidate and her daughter,
a public school teacher, both of whom had been convicted by a Federal jury on
charges of program fraud, money laundering, conspiracy, and tax charges. In our
last report, we shared that the mother was sentenced to 70 months in prison and
24 months of probation, and she was ordered to pay more than $530,000 in
restitution for her role in the scam. During this reporting period, the daughter was
sentenced to serve 36 months in prison and 36 months of supervised release, and
she was ordered to pay more than $530,000 in restitution. Between 2004 and
2008, the two improperly obtained more than $530,000 from the school district
through a fraudulent scheme in which orders were placed with a sham company
they controlled for books and educational materials that were never provided.
Shorewood School District Employee Sentenced for
Stealing More Than $310,000 (Wisconsin)
A former Shorewood School District administrative assistant was sentenced to
prison for 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. The woman was sentenced to
serve a year and a day in prison and 2 years of supervised release, and she was
ordered to pay more than $310,000 in restitution.
Former Executive of a 21st Community Learning Center
Pled Guilty to Fraud Involving $87,000 (Louisiana)
The former executive director and accountant for CDC 58:12, a participant in the
21st Century Community Learning Center program, pled guilty to theft of
government funds and wire fraud. From 2011 through 2013, the former executive
improperly withdrew about $87,000 from the CDC’s bank accounts to cover
gambling debts and other personal expenses—funds that should have been used
for services for residents of a public housing development, summer programs for
children, and educational services. Additionally, while still employed at the
center, the official submitted a fraudulent claim for unemployment insurance
benefits to the Louisiana Workforce Commission, falsely representing that she was
unemployed, resulting in the Louisiana Workforce Commission providing her with
nearly $4,200.
Office of Inspector General Semiannual Report 27
Former Executive Director of the Midwestern
Intermediate Unit IV Pled Guilty (Pennsylvania)
The former executive director of the Midwestern Intermediate Unit IV educational
service agency pled guilty to program fraud. During her tenure, the former
executive director charged more than $71,000 on the agency’s American Express
card on questionable purposes, including restaurant meals, DVD rentals, and
department store purchases that she misrepresented were business-related, when
in fact they were not.
Former Glendale School District Superintendent
Sentenced (Pennsylvania)
The former superintendent of the Glendale School District was sentenced to
10 months of home confinement, 5 years of supervised release, and 500 hours of
community service. He was also ordered to pay nearly $50,000 for fraud. During
his tenure, the superintendent intentionally misapplied nearly $50,000 from a
Fund for Improvement of Education grant and conspired to obtain more than
$414,000 from the Federal E-Rate program coordinated through the Federal
Communications Commission. As a result of the investigation, the Pennsylvania
Public School Employees’ Retirement System also revoked his $80,000 per year
pension.
Former Columbus City Schools Data Czar Pled Guilty
(Ohio)
The former executive director of the Office of Accountability Systems for
Columbus City Schools pled no contest to attempted tampering with government
records. The former “Data Czar” created a system for administrators to
manipulate student data, specifically student attendance records, to show that
the school was meeting adequate yearly progress goals.
Long Branch High School Athletic Director Sentenced for
Participation in Sports Equipment Fraud Scam (New
Jersey)
In a previous Semiannual Report, we noted that the former chief executive officer
and the chief financial officer of Circle Systems Group pled guilty for perpetrating
a long-running fraud scheme against schools in New Jersey and other States.
Circle Systems Group was a sports equipment and reconditioning company that
provided services to school districts, colleges, universities, and professional sports
teams nationwide. From 1997 through 2007, the officials engaged in a number of
fraudulent business practices aimed at defrauding schools, including submitting
fraudulent invoices and fake quotes to schools to increase their sales and profits.
During this reporting period, the now former Long Branch High School athletic
director was sentenced for his role in the scheme. The former official received
gifts and other personal items in exchange for accepting and ensuring payment to
Circle Systems Group on the phony invoices. He was sentenced to serve 12 months
of probation.
28 Office of Inspector General Semiannual Report
Investigations of Charter Schools
OIG has conducted a significant amount of investigative work involving charter
schools. From January 2005 through September 30, 2014, OIG has opened
65 charter school investigations. To date, these investigations have resulted in
41 indictments and 30 convictions of charter school officials. The cases that have
been fully settled resulted in nearly $11.3 million in restitution, fines, forfeitures,
and civil settlements.
Executive Director of the Mary L. Dinkins Higher Learning
Academy Charter School Indicted for Stealing More Than
$1 Million (South Carolina)
The executive director of the Mary L. Dinkins Higher Learning Academy Charter
School was indicted for embezzling more than $1.4 million from the school. This
included Federal school nutrition funds, IDEA funds, and ESEA Title I and Title III
funds. The indictment comes two years after the South Carolina Public Charter
School District board voted to cut off funding for the school.
Cofounder and Former Executive Director of Nia
Community Public Charter School Sentenced for
Embezzling $29,000 (Washington, D.C.)
The cofounder and former executive director of Nia Community Public Charter
School was sentenced to 9 months in prison and 3 years of supervised release, and
she was ordered to pay more than $40,000 in restitution and forfeit about $29,000
for embezzlement. From March 2008 through August 2008, the former official
signed five checks totaling more than $29,000 on the charter school’s account for
her own personal use. After leaving the charter school, she was hired as an
assistant director at the Cody Development Center in Virginia, where she was
provided with a government purchase card for buying work-related items. She
used the purchase card to buy nearly $12,000 in unauthorized gift cards.
Investigations of Supplemental
Educational Service Providers
OIG audit work conducted over the last decade noted a lack of oversight and
monitoring of Supplemental Educational Services (SES) providers by SEAs, 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.
Indictments in $33 Million SES Fraud Scam (Illinois)
A father and son who controlled the Brilliance Academy and its wholly owned
subsidiary Babbage Net School, Inc., were indicted on charges related to fraud
scheme that scammed more than $33 million from 200 public school districts in
Office of Inspector General Semiannual Report 29
19 States. According to the indictment, the two allegedly misrepresented the
tutoring services the companies provided, gave substandard educational materials
to students, falsely inflated invoices for tutoring services, and distributed false
student progress and improvement reports. Of the $33 million the companies
received, the father and son allegedly obtained between $8 million and
$13.6 million respectively for themselves and their families. In addition, the
father and son were also indicted for allegedly paying bribes to three school
officials in Texas and one State official in New Mexico. The school officials were
indicted for allegedly accepting bribes in exchange for recruiting students and
steering Federal and State funds from school districts to the defendants’
companies.
Academic Advantage Agrees to $2 Million Settlement
(New York)
Academic Advantage agreed to pay $2 million to settle allegations that it
fraudulently billed the New York City Department of Education for federally
funded after-school tutoring services that were never provided. In its agreement,
Academic Advantage admitted that its site managers routinely forged student
signatures on daily attendance sheets to make it appear that more students had
attended the tutoring classes than in fact, had attended. It also admitted that
some of its directors knew—while others deliberately ignored or recklessly
disregarded—that site managers and program aides were committing these
fraudulent practices. Of the nine Academic Advantage employees who were cited
in the settlement for their roles in the scheme, three agreed to pay more than
$101,700, $61,800, and $17,300 respectively; the former supervisor of the
company’s SES program was criminally charged for her role in the scheme; and a
former site manager was sentenced to serve 5 years of probation, 6 months of
home confinement, and was ordered to pay $34,200 in restitution.
More Actions Taken in TestQuest Fraud Scheme (New
York)
In our last Semiannual Report, we reported that TestQuest agreed to pay
$1.725 million to settle allegations that it engaged in fraudulent conduct involving
SES funds. We also reported that a former TestQuest manager/New York City
school teacher who carried out the fraud pled guilty, agreed to a $2.3 million civil
judgment, and was awaiting sentencing. Another TestQuest employee/New York
City school teacher pled guilty to her role in the scam and agreed to a civil
forfeiture of more than $32,200 and was awaiting sentencing. During this
reporting period, the former TestQuest manager/New York City school teacher
was sentenced to serve 24 months in prison, and the second teacher was
sentenced to 3 years of probation and a $12,000 fine. Additionally, a former tutor
admitted participating in the scam and agreed to pay more than $21,300.
30 Office of Inspector General Semiannual Report
Investigations of School Vendors and Contractors
Our investigations into suspected fraudulent activity by Federal education
grantees and others have led to the arrest and conviction of school vendors,
contractors, and other people for theft or misuse of Federal funds.
Owner of Special Education and Preschool Programs
Company Sentenced for Stealing Millions (New York)
In our last Semiannual Report, we noted that the owner of Bilingual SEIT, Inc., a
provider of special education services and preschool programs to New York City
children, pled guilty for his role in defrauding the Federal, State, and local
governments out of millions of dollars. During this reporting period, the owner
was sentenced to serve 2 years in prison and was ordered to pay more than
$4 million in restitution and forfeiture. Between 2005 and 2012, the owner
inflated costs incurred by Bilingual SEIT, deliberately overpaid certain employees
in order to receive kickbacks, and used company funds for his personal benefit.
Actions Taken Against Congressman’s Son for Fraud
(Pennsylvania)
The owner/founder of an educational consulting company in Pennsylvania, who is
also the son of a U.S. Congressman, was indicted on charges that he fraudulently
obtained hundreds of thousands of dollars from the Philadelphia School District.
According to the indictment, the man’s educational consulting company
submitted false expense information and inflated invoices to the district for
services the company provided for at-risk students.
University of San Francisco Third-Party Loan Servicer
Arrested (California)
A former contract employee was arrested on charges that he embezzled more
than $79,000 from the University of San Francisco. The man was hired by the
school as a third-party loan servicer and entrusted with debtor payments remitted
to him on behalf the school. While employed at the school, the man allegedly
withheld certain student loan payments from the school and converted them to
his personal use. The man allegedly used the funds to pay bills, business
expenses, and tuition for his children.
Office of Inspector General Semiannual Report 31
Other Activities
Participation on Committees, Work Groups, and Task Forces
Federal and State Law Enforcement-Related Groups
U.S. Department of Justice’s Financial Fraud Enforcement Task Force—Consumer Protection Working
Group. OIG participates in this working group, composed of Federal law enforcement and regulatory
agencies, that works to strengthen efforts to address consumer-related fraud.
U.S. Department of Justice’s Financial Fraud Enforcement Task Force—Grant Fraud Committee. OIG
participates in this group composed of Federal law enforcement agencies seeking to enforce and
prevent grant and procurement fraud.
Northern Virginia Cyber Crime Working Group. OIG participates in this working group of 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
ESEA Flexibility—Guidance for Renewal Process. OIG provided suggestions aimed at improving data
quality and reliability.
Strong Start for America’s Children Act of 2013 (HR 3461). OIG provided several suggestions aimed at
improving data quality and reliability.
32 Office of Inspector General Semiannual Report
Goal 4:
Contribute to improvements in
Department business operations.
Effective and efficient business operations are critical to ensure the Department effectively
manages its programs and protects its assets. Our fourth strategic goal speaks to that effort.
Our reviews in this area seek to help the Department accomplish its objectives by ensuring its
compliance with applicable policies and regulations and the effective, efficient, and fair use of
taxpayer dollars with which it has been entrusted.
Audits and Reviews
During this reporting period, we issued two reports reviews related to this goal.
The first report reviewed the Department’s compliance with the Improper
Payments Elimination and Recovery Act (IPERA), which requires Federal agencies
to conduct annual risk assessments to determine which programs are susceptible
to significant improper payments and to estimate, reduce, and recover improper
payments. The second report reviewed the Department’s compliance with
Executive Order 1350, “Reducing Improper Payments,” which requires the
designated accountable official of each agency to submit to the Inspector General
a report regarding its efforts to address improper payments in the agency’s high-
priority programs. In FY 2010, the Office of Management and Budget designated
the Federal Pell Grant program as the only high-priority program within the
Department; thus, our review focused on the Department’s FY 2012 and FY 2013
Accountable Official’s Reports to the OIG. Summaries of this work follow.
Compliance With the Improper Payments Elimination and
Recovery Act for FY 2013
We found that the Department complied with IPERA for FY 2013; however,
improvements were needed in its improper payment rate estimation
methodologies for the Federal Pell Grant and William D. Ford Federal Direct Loan
programs, specifically with regard to ensuring the methodologies’ completeness.
In previous reports on the Department’s compliance with IPERA, we noted that
the Pell Grant program’s estimation methodology did not consider populations of
recipients who may pose a higher risk of improper payments and did not consider
all potential sources of improper payments. We found that these issues were still
present in the Department’s FY 2013 methodology. As a result, the Department
continues to report an improper payment rate estimate for the Pell program that
does not consider all potential improper payments. We also found that the
Department calculated and reported an improper payment rate estimate for the
Direct Loan program using an alternative methodology that relied heavily on the
use of program reviews; however, many of those reviews were not included in the
improper payment rate estimation calculation because the reports from these
reviews had not yet been issued or the reviews did not test for improper payment
transactions. As a result, the Department is not currently reporting an estimated
improper payment rate for the Direct Loan program that is as complete as
possible. Further, we also found that although the Department had shown
progress in reducing and recapturing improper payments, it could still improve its
efforts by establishing meaningful improper payment reduction targets, as we
found that it did not actually set a target that, if met but not exceeded, would
34 Office of Inspector General Semiannual Report
result in a reduction in improper payments. By not setting reduction targets that
aim to reduce the levels of improper payments, the Department may not be
intensifying its efforts to identify, prevent, and recover improper payments.
We made several recommendations to address these issues, including that the
Department continue to work with the Office of Management and Budget to
obtain approval for an alternate methodology to address limitations regarding the
Pell Grant and Direct Loan programs, that it include all program review reports
that were issued when estimating improper payments, and that it set targets to
reduce the rate of improper payments for all programs identified as susceptible to
significant improper payments. The Department generally concurred with our
findings and recommendations.
Compliance With Executive Order 13520 on Improper
Payments
We found that for both FY 2012 and FY 2013, the Department complied with
Executive Order 13520, adequately addressed improper payment risks, and
described an adequate level of oversight to reduce and recapture improper Pell
Grant payments. However, we found that the Department still had not addressed
monitoring and oversight of the most significant root cause of potential improper
payments in the Pell Grant program—inaccurate self-reported income for Pell
Grant applicants who (1) do not use the Internal Revenue Service Data Retrieval
Tool when completing their FAFSA and (2) are not selected for verification of self-
reported income. We had a similar finding in our audit of the Department’s
FY 2011 report. By not studying the population of applicants who do not use the
Internal Revenue Service Data Retrieval Tool and are not selected for verification,
the Department may miss opportunities to further reduce and recapture improper
payments. We recommended that the Department include the self-reported
income component in a study of Pell Grant recipients who do not use the Internal
Revenue Service Data Retrieval Tool and who are not selected for verification to
determine whether it has adequate controls in place to mitigate the risk of
improper payment to that population of recipients. The Department partially
concurred with the finding and did not concur with the recommendation.
Investigations
During this reporting period, a former University of Nebraska-Lincoln student was
sentenced to 6 months in prison, 3 years of supervised release, and was ordered
to pay more than $107,700 in restitution for accessing and causing damage to a
protected computer without authorization. The former student unlawfully
accessed a system that administers Federal student aid for the entire Nebraska
State college and university network and exposed the personally identifiable
information and financial data of over 650,000 students.
Office of Inspector General Semiannual Report 35
Congressional Hearings
During this reporting period, Inspector General Tighe testified before two
subcommittees of the U.S. House of Representatives Committee on Education and
the Workforce about OIG work involving the Department’s audit resolution and
followup processes. Inspector General Tighe provided the subcommittees with
background information on the Department’s audit resolution and followup
processes, the findings of OIG work in this area, the current status of the
Department’s audit resolution efforts, and the challenges that remain. She also
shared with the committee that since 2002, OIG had issued six audit reports that
identified weaknesses in the Department’s audit resolution and followup
processes, and that recent efforts by the Department appear to have led to
improvements in its processes. However, work remains to be done, particularly
regarding audits of recipients of Federal education funds. The Inspector General
also told the subcommittee that OIG has a seventh audit underway, and she would
share results of that work once completed.
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 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
Through 2013, Office of Management and Budget Circular A-133 required 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.” The Office of Management and Budget’s new
“Uniform Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards” (known as the “Super Circular”) has since increased the
single audit threshold to $750,000. 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 25 quality control reviews of audits conducted by
24 different IPAs or offices of firms with multiple offices. We concluded that
12 (48 percent) were acceptable or acceptable with minor issues, 11 (44 percent)
were technically deficient and 2 (8 percent) were unacceptable.
36 Office of Inspector General Semiannual Report
Other Activities
Participation on Committees, Work Groups, and Task Forces
Department
Department of Education Senior Assessment Team. OIG participates in an advisory capacity on this
team. The team provides oversight of the Department’s assessment of internal controls and related
reports and provides input to the Department’s Senior Management Council concerning the overall
assessment of the Department’s internal control structure, as required by the Federal Managers’
Financial Integrity Act of 1982 and Office of Management and Budget Circular A-123, “Management’s
Responsibility for Internal Control.”
Department of Education Investment Review Board and Planning and Investment Review Working Group.
OIG participates in an advisory capacity in these groups that review technology investments and the
strategic direction of the information technology portfolio.
Department Human Capital Policy Working Group. OIG participates in this group that meets monthly to
discuss issues, proposals, and plans related to human capital management.
Inspector General Community
Council of the Inspectors General on Integrity and Efficiency (CIGIE). OIG staff play an active role in
CIGIE efforts. Inspector General Tighe is Chair of the Information Technology Committee and a member
of CIGIE’s Audit Committee.
During this reporting period, 19 OIGs, working under the auspices of the CIGIE Information
Technology Committee, issued a report that showed a need for improved oversight in the
cloud computing environment. As stated in the report, none of the 19 participating agencies
had adequate controls in place to manage its cloud service providers and the data that
reside within its cloud systems. This subjects Federal data to the risk of loss or exposure to
unauthorized parties and could compromise both Federal program and personal data.
Furthermore, because 42 of the contracts reviewed (totaling about $317 million) did not
specify how a cloud service provider’s performance would be measured, reported, or
monitored, the agencies are not able to ensure cloud service providers meet adequate
service levels, which increases the risk that agencies could misspend or ineffectively use
Government funds. Click here to read the report:
http://www.ignet.gov/randp/Cloud%20Computing%20Initiative%20Report.pdf
Inspector General Tighe is also a member of CIGIE’s Audit Committee, and the Suspension and
Debarment Working Group, which is a subcommittee of the Investigations Committee.
OIG staff also chair the CIGIE Investigations Subcommittee of the Informational Technology Committee,
and are members of CIGIE’s Assistant Inspector General for Investigations Subcommittee, the Cyber
Security Working Group, the Grant Reform Working Group, the OIG Human Resources Directors’
Roundtable, the Council of Counsels to the Inspectors General, and the New Media Working Group. OIG
staff also participate in the following.
Financial Statement Audit Network. OIG staff have a leading role in this Government-wide
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 Treasury on the annual audit of the Government’s financial statements.
CIGIE/Government Accountability Office Annual Financial Statement Audit Conference. OIG
staff work on the Planning Committee for the annual conference that covers current issues
related to financial statement audits and standards.
Office of Inspector General Semiannual Report 37
Participation on Committees, Work Groups, and Task Forces (continued)
Federal and State Audit-Related Groups and Entities
Intergovernmental Audit Forums. OIG staff chair and serve as officers of a number of
intergovernmental audit forums, which bring together Federal, State, and local government audit
executives who work to improve audit education and training and exchange information and ideas
regarding the full range of professional activities undertaken by government audit officials. During
this reporting period, OIG staff chaired the Midwestern Forum and served as officers of the
Southeastern Forum, the Southwestern Forum, and the New York/New Jersey Forum.
Interagency Working Group for Certification and Accreditation. OIG participates in this group that
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 participate in this
group, which meets semiannually and consists of Federal, State, and local government auditors and
accountants who perform single audits. The participants discuss recent or anticipated changes in
single audit policy, such as the Compliance Supplement to Office of Management and Budget Circular
A-133, new auditing standards, and issues of audit quality found in recent quality control reviews.
Review of Legislation, Regulations, Directives, and Memoranda
Department Directive on Scheduling, Use, and Waiver Approval Procedures for ED Sponsored
Conference and Event Facilities. OIG provided technical comments.
Proposed Presidential Memorandum on Enhanced Workplace Flexibilities and Work-Life Programs.
OIG provided suggestion regarding nursing mothers.
Department Dear Colleague Letter and Related Documents Regarding the Implementation of the
Violence Against Women Act. OIG provided technical comments.
Interim Final Regulations—Implementation of Office of Management and Budget Guidance on Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. OIG
provided technical comments.
Draft Cloud Computing Legislation. Through the CIGIE, OIG provided comments on proposed
legislation aimed at ensuring IG access to necessary information in the cloud operating environment.
FY2015 CIO FISMA Metrics. OIG made a technical suggestion regarding cloud service providers.
38 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.
During this reporting period, the Department of Education OIG conducted a peer
review of the Federal Housing and Finance Agency (FHFA) OIG’s investigative
function. Our peer review determined that the system of internal safeguards and
the management procedures for the investigative function of FHFA OIG were in
compliance with the quality standards established by CIGIE and the applicable
Attorney General guidelines. We made several recommendations for
improvement, all of which the FHFA OIG agreed to.
40 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
FSA Federal Student Aid
IES Institute of Education Sciences
IG Act Inspector General Act of 1978
ISU Implementation and Support Unit
NCES National Center for Education Statistics
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
OSEP Office of Special Education Programs
OSERS Office of Special Education and Rehabilitative Services
PAG Post Audit Group
PDL Program Determination Letter
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
assessment of the efficiency and effectiveness of their operations and
Office of Inspector General Semiannual Report 41
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 Inspector General Act of 1978 (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.
42 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
FY 2014–October 1, 2013, through September 30, 2014
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, 2014, through September 30, 2014)
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, 2014
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 43
Table 1. Significant Recommendations Described in Previous Semiannual
Reports to Congress on Which Corrective Action Has Not Been Completed
(April 1, 2014, through September 30, 2014)
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
OCFO Audit U.S. Department of 3/15/13 5/31/13 3 1 11/15/14
A03N0001 Education’s
Compliance with the
Improper Payments
Elimination and
Recovery Act of 2010
for Fiscal Year 2012
(FSA is also designated
as an action official)
(SAR 66, page 39)
OCIO Audit The U.S. Department 11/7/12 1/8/13 1 19 9/30/15
A11M0003 of Education’s
Compliance with the
Federal Information
Security Management
Act of 2002 for Fiscal
Year 2012 (FSA is also
designated as an action
official) (SAR 66,
page 39)
OCIO Audit The U.S. Department 10/18/11 1/3/12 1 17 3/31/15
A11L0003 of 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)
ODS Audit Department’s 9/24/10 6/17/13 1 3 8/28/13
A19J0001 Implementation of the
State Fiscal
Stabilization Fund
Program (SAR 61,
page 33)
OSERS Audit Local Educational 7/25/13 9/26/13 11 1 5/25/15
A09L0011 Agency Maintenance of
Effort Flexibility Due to
Recovery Act IDEA,
Part B Funds (SAR 67,
page 44)
44 Office of Inspector General Semiannual Report
Table 2. Audit, Inspection, Evaluation, and Other Reports and Products on
Department Programs and Activities (April 1, 2014, through September 30, 2014)
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 Direct Assessment Programs: 9/30/14 - - 7
A05N0004 Processes for Identifying Risks
and Evaluating Applications for
Title IV Eligibility Need
Strengthening to Better
Mitigate Risks Posed to the
Title IV Programs (The report
is addressed to and makes
recommendations to the Under
Secretary)
FSA Audit Oversight of Guaranty Agencies 9/29/14 - - 5
A06L0003 During the Phase-Out of the
Federal Family Education Loan
Program
FSA Audit Handling of Borrower 7/11/14 - - 11
A06M0012 Complaints Against Private
Collection Agencies
FSA Management Review of Federal Student 9/22/14 - - 8
Information Aid’s Oversight and Monitoring
X11N0003 of Private Collection Agency
and Guaranty Agency Security
Controls
OCFO Audit U.S. Department of 9/22/14 - - 1
A03N0004 Education’s Compliance With
Executive Order 13520,
“Reducing Improper
Payments” for Fiscal Years
2012 and 2013 (FSA is also
designated as an action
official)
OCFO Audit U.S. Department of 4/15/14 - - 4
A19O0002 Education’s Compliance with
the Improper Payments
Elimination and Recovery Act
of 2010 for Fiscal Year 2013
(FSA is also designated as an
action official)
ODS Audit The Ohio Department of 9/2/14 $30,7482 $13,017 12
A05N0009 Education’s Administration of
its Race to the Top Grant
(OCFO is also designated as an
action official)
2
Audit report A05N0009 identified questioned costs of $17,731 and unsupported costs of $13,017 that when combined equal $30,748.
Office of Inspector General Semiannual Report 45
Questioned
Report Type Date Costs (Includes Unsupported Number of
Office Report Title
and Number Issued Unsupported Costs Recs
Costs)
ODS Management Lessons from Implementing the 9/23/14 - - 103
Information American Recovery and
X09M0002 Reinvestment Act of 2009
OESE Audit Los Angeles Unified School 5/6/14 - - -
A09N0009 District’s Internal Controls
Over Nonpayroll Purchases
Using U.S. Department of
Education Funds
OPE Audit Office of Postsecondary 9/30/14 - - 3
A06N0002 Education Duplication of Effort
with Discretionary Grants
OSERS Audit Payback Provisions of the 4/25/14 - - 15
A19M0004 Rehabilitation Long-Term
Training Program
OSERS Management Management Information 7/18/14 - - 144
Information Report on IDEA Maintenance of
X09N0006 Effort Flexibility
Total $30,748 $13,017 905
3
Management information report X09M0002 contains 10 suggestions.
4
Management information report X09N0006 contains 14 suggestions.
5
Figure includes 24 suggestions and 66 recommendations.
46 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 13 $67,194,629 $18,685,475
B. Which were issued during the reporting period 1 $30,748 $13,017
Subtotals (A + B) 14 $67,225,377 $18,698,492
C. For which a management decision was made during
the reporting period 3 $952,012 $179,757
(i) Dollar value of disallowed costs $952,012 $179,757
(ii) Dollar value of costs not disallowed $0 $0
D. For which no management decision was made by
11 $66,273,365 $18,518,735
the end of the reporting period
Office of Inspector General Semiannual Report 47
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 $13,000,000
commencement of the reporting period
B. Which were issued during the reporting period 0 $0
Subtotals (A + B) 1 $13,000,000
C. For which a management decision was made during the reporting
period
(i) Dollar value of recommendations that were agreed to by
1 $13,000,000
management
(ii) Dollar value of recommendations that were not agreed to
0 $0
by management
D. For which no management decision was made by the end of the
0 $0
reporting period
48 Office of Inspector General Semiannual Report
Table 5-A. Unresolved Audit, Inspection, and Evaluation Reports
Issued Prior to September 30, 2014
Section 5(a)(10) of the IG Act, as amended, requires a listing of each report issued before the commencement of
the reporting period for which no management decision had been made by the end of the reporting period.
Summaries of the audit and inspection reports issued during the previous SAR period follow in Table 5-B.
Reports that are new since the last reporting period are labeled “New” after the report number. All other reports
were reported in a previous SAR.
Total
Report Type Date Number of
Office Report Title (Prior SAR Number and Page) Monetary
and Number Issued Recs
Findings
FSA Audit 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: FFSA 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
currently working to resolve this audit.
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 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.
Office of Inspector General Semiannual Report 49
Total
Report Type Date Number of
Office Report Title (Prior SAR Number and Page) Monetary
and Number Issued Recs
Findings
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.
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 revising 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.
OESE Audit Maryland: Use of Funds and Data Quality for 1/3/13 $736,582 8
A03K0009 Selected American Recovery and Reinvestment
Act Programs (ODS, OSERS, and OCFO are also
designated as action officials) (SAR 66, page 40)
Current Status: OCFO/ICG issued a PDL on
7/31/2013. OESE and OSERS/OSEP issued a joint
PDL on 3/31/2014; however, other requirements
must be met before audit is resolved in the
Department’s Audit Accountability and Resolution
Tracking System.
OPEPD Audit Georgia Department of Education’s Controls Over 4/7/10 - 9
A04J0003 Performance Data Entered in EDFacts (SAR 61,
page 34)
Current Status: Because NCES/IES now houses
EDFacts, OPEPD has requested to have this audit
reassigned to NCES/IES.
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 informed us that it is
revising its draft PDL.
Total $66,242,617 127
50 Office of Inspector General Semiannual Report
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.
Nothing to report. Audit and other reports issued during the previous reporting period have been resolved.
Office of Inspector General Semiannual Report 51
Table 6. Statistical Profile for FY 2014
Reported in SAR 68 April 1, 2014–
Audits, Inspections, Other Products (October 1, 2013– September 30, FY 2014 Total
March 31, 2014) 2014
Audit Reports Issued 8 9 17
Inspection Reports Issued 1 0 1
Questioned Costs (Including Unsupported Costs) $0 $30,748 $30,748
Recommendations for Better Use of Funds $0 $0 $0
Other Products Issued 4 3 7
Reports Resolved By Program Managers 176 12 29
Questioned Costs (Including Unsupported Costs) Sustained $117,805,176 $952,012 $118,757,188
Unsupported Costs Sustained $110,210,114 $179,757 $110,389,871
Additional Disallowances Identified by Program Managers $4,006 $0 $4,006
Management Commitment to the Better Use of Funds $0 $13,000,000 $13,000,000
Investigative Cases Opened 34 43 77
Investigative Cases Closed 73 68 141
Cases Active at the End of the Reporting Period 316 295 295
Prosecutorial Decisions Accepted 56 80 136
Prosecutorial Decisions Declined 78 65 143
Indictments/Informations 32 101 133
Convictions/Pleas 59 50 109
Fines Ordered $41,740 $141,493 $183,233
Restitution Payments Ordered $13,495,671 $10,170,478 $23,666,149
Civil Settlements/Judgments (number) 5 7 12
Civil Settlements/Judgments (amount) $874,999 $2,202,316 $3,077,315
Recoveries $449,127 $2,677,357 $3,126,484
Forfeitures/Seizures $2,965,371 $4,224,533 $7,189,904
Estimated Savings $1,000,000 $8,002,535 $9,002,535
Suspensions Referred to Department 19 17 36
Debarments Referred to Department 21 22 43
Debarments Imposed by OIG 1 0 1
6
Four reports included in this total were issued prior to SAR 68.
52 Office of Inspector General Semiannual Report
Acronyms and
Abbreviations
Acronyms and Abbreviations Used in This Report
ACC American Commercial Colleges, Inc.
CEIS Coordinated Early Intervening Services
CIGIE Council of Inspectors General on Integrity and Efficiency
CPCS Competitive Performance and Continuous Surveillance
Department U.S. Department of Education
FFELP Federal Family Education Loan Program
FISMA Federal Information Security Management Act of 2002
FSA Federal Student Aid
FY Fiscal Year
GA Guaranty Agency
GEAR UP Gaining Early Awareness and Readiness for Undergraduate Programs
HEA Higher Education Act of 1965, as Amended
IDEA Individuals with Disabilities Education Act, Part B
IPERA Improper Payments Elimination and Recovery Act
LEA Local Educational Agency
OIG Office of Inspector General
OPE Office of Postsecondary Education
PCA Private Collection Agency
Recovery Act American Recovery and Reinvestment Act of 2009
Recovery Board Recovery Accountability and Transparency Board
RLTT Rehabilitation Long-Term Training Program
RTT Race to the Top Program
SEA State Educational Agency
SES Supplemental Educational Services
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 41.
54 Office of Inspector General Semiannual Report
FY 2015 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 2015.
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 2015 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 mission of the Office of Inspector General is to promote the
efficiency, effectiveness, and integrity of the U.S. Department of
Education’s programs and operations.
http://www2.ed.gov/oig
Semiannual Report - April 01, 2014 - September 30, 2014
Published by the Department of Education, Office of Inspector General on 2014-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)