oversight

Semiannual Report - April 01, 2015 - September 30, 2015

Published by the Department of Education, Office of Inspector General on 2015-09-30.

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

U.S. Department
  of Education
    Office of
Inspector General




Semiannual
 Report to
 Congress,
  No. 71
  April 1, 2015–
September 30, 2015
Office of Inspector General
Kathleen S. Tighe
Inspector General

November 2015

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. 71.




Please Note:
The Inspector General’s Semiannual Report to Congress, No. 71 is available on the
ED OIG Web site at http://www2.ed.gov/about/offices/list/oig/sarpages.html.


All images used under license from Shutterstock.com.
       Message to Congress
O
        n behalf of the U.S. Department of Education             •	   Our investigations led to criminal actions against
        (Department) Office of Inspector General (OIG), I             51 school officials, vendors, and service providers,
        present this Semiannual Report on the activities              including the owner of a South Carolina charter
and accomplishments of this office from April 1, 2015,                school who was sentenced to prison for embezzling
through September 30, 2015. The audits, investigations,               more than a million dollars from the school, leaders
and related work highlighted in the report are products of            of a charter school in Texas who were indicted for
our continuing commitment to promoting accountability,                allegedly orchestrating a $2.6 million fraud scam,
efficiency, and effectiveness through our oversight of the            and a tutoring company and 31 of its employees
Department’s programs and operations.                                 who were indicted for allegedly billing the Puerto
                                                                      Rico Department of Education nearly $1 million for
Over the last 6 months, we completed 74 investigations                services that were never provided.
involving fraud or corruption related to the Department’s
programs and operations, securing about $50 million in           •	   Our audit of the office of Federal Student Aid’s
settlements, fines, restitutions, recoveries, forfeitures, and        (FSA) oversight of schools’ administration of Federal
savings. In addition, as a result of our investigative work,          student aid programs found weaknesses in its
criminal actions were taken against a number of people,               process for performing program reviews and how
including school officials and service providers who cheated          it selects schools for program reviews. As a result,
the students they were in positions to serve. We also issued          FSA has limited assurance that program reviews are
nine audit reports that contained recommendations to                  appropriately identifying and reporting all instances
improve program operations. The following are some                    of noncompliance.
examples of the results of our audits and investigations.
                                                                 •	   As a result of our investigative efforts, Education
  •	   Our audit of the Higher Learning Commission’s evalu-           Affiliates, Inc., a for-profit education company that
       ation of competency-based education programs,                  operates 50 schools across the country, agreed to
       including direct assessment programs, found that               pay $13 million to settle claims that it violated the
       the Commission did not establish a system of internal          False Claim Act by obtaining fraudulent high school
       control that provided reasonable assurance that                diplomas and submitting false student aid applica-
       the schools’ programs were properly classified                 tions to the Department on behalf of students who
       for Federal student aid purposes. As a result, the             were not qualified to attend the school or receive
       Department could award Federal student aid to                  student aid.
       students enrolled in programs that do not meet eli-
       gibility requirements and schools might forgo plans       •	   Three senior executives of Micropower Career
       to create innovative and effective competency-based            Institute, a for-profit school chain with five related
       education programs due to the uncertainty in how               entities located in New York and New Jersey pled
       the Commission classifies these programs.                      guilty to fraud and agreed to a $7.4 million forfei-
                                                                      ture as a result of our investigation. We found that
  •	   Our audit found that the Department did not                    the owners falsified student records and submitted
       comply with the Improper Payments Elimination and              fraudulent information to the Department to make
       Recovery Act for fiscal year 2014 because it reported          it appear that the school was eligible to participate
       an improper payment rate that did not meet its                 in the Federal student aid programs when it was not.
       reduction target for the William D. Ford Direct Loan
       program; its improper payment estimates and esti-         •	   Our audits of the followup processes for OIG’s ex-
       mation methodologies were inaccurate, incomplete,              ternal audits in FSA, the Office of the Chief Financial
       and unreliable; and its improper payment reporting             Officer, and the Office of Special Education and
       was incomplete.                                                Rehabilitative Services found that processes in these
     Department offices were not always effective, as           In this report, you will find more information on these
     audits were not always closed timely or the offices        efforts, as well as summaries of other audits issued and
     did not always obtain or maintain appropriate doc-         investigative actions taken over the last 6 months. I am
     mentation to show requested corrective actions             very proud of the results of this work, that criminals
     were completed. Not ensuring that corrective actions       are behind bars, and that the Department has before it
     are taken as quickly as possible allows deficiencies to    recommendations for improvements from our reports.
     continue to exist, and the risk remains that related       Our recommendations, when implemented, will help
     programs are not effectively managed and that funds        prevent fraud and abuse, protect student interests, improve
     are not being used as intended.                            over­sight and monitoring, and recoup taxpayer dollars.

•	   Our audit of SOLEX College, a for-profit school with       In closing, I want to thank you for your interest in ensuring
     three locations in Illinois, found that the school         that inspectors general have timely and unfettered access
     improperly disbursed more than $1.79 million in            to all necessary information to ensure that Government
     Federal student aid to students who were enrolled          programs are operating as intended and to protect
     in programs that were not qualified to participate         taxpayer dollars from waste, fraud, and abuse. I was proud
     in Federal student aid programs under the Higher           to stand with my fellow inspectors general in opposition
     Education Act.                                             to the July 2015 Department of Justice Office of Legal
                                                                Counsel opinion that had a narrow view of the authority
•	   Our investigations into student aid fraud rings—           of the inspector general to independently access all
     loosely affiliated groups of criminals who seek to         records necessary to carry out its oversight responsibilities.
     exploit distance education programs in order to            That opinion represents a serious threat not only to the
     fraudulently obtain Federal student aid—resulted in        Department of Justice Inspector General, but to the
     criminal actions taken against participants in rings       independent authority of all inspectors general. Actions
     that stole more than $6.7 million in Federal funds.        that limit, condition, or delay access to information make
•	   Our audit of FSA’s plan to correct significant deficien-   us less effective and insulates agencies from independent
     cies in its system for managing defaulted student          scrutiny—contrary to the very reason our offices were
     loans (Default Management Collection System—               established. I look forward to continuing to work with
     DMCS2) found that FSA could not ensure that the            you and my colleagues to address this threat to inspector
     original contractor delivered a fully functional system    general independence so that we can better provide
     because it did not develop an adequate plan, did not       our nation’s taxpayers with assurance that the Federal
     ensure the contractor met milestones, did not hold         Government is using their hard-earned money effectively
     the contractor accountable for missing milestones,         and efficiently.
     and did not use appropriate systems development
     tools. As we communicated deficiencies identified
     during the audit with FSA, FSA implemented correc-
     tive actions to address the deficiencies. As a result,
     FSA’s contract with its new DMCS2 contractor and           Kathleen S. Tighe
     other FSA actions provide a methodology that, if           Inspector General
     properly implemented, increases the likelihood
     that the contractor will timely identify and correct
     DMCS2 system deficiencies.
 Table of Contents


Goal
               Goal 1
        Improve the Department’s ability to
        effectively and efficiently implement its programs	    1



               Goal 2
        Strengthen the Department’s efforts to
        improve the delivery of student financial assistance   7



               Goal 3
        Protect the integrity of the
        Department’s programs and operations                   19



               Goal 4
        Contribute to improvements
        in Department business operations			                   29




        Annexes and Required Table				                         37
        Acronyms and Abbreviations				                         49
Goal 1
Improve the Department’s ability to
effectively and efficiently implement its
programs.
       2 of Inspector General Semiannual Report
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    O   ur 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
In support of this goal, we audited the Higher Learning Commission—the regional
accrediting agency responsible for higher education institutions in the central United
States—to determine whether it had a system of internal control that provided
reasonable assurance that competency-based education programs, including direct
assessment programs, are properly classified for Federal student aid purposes.
Competency-based education programs measure a student’s learning through
direct assessment (what a student knows and can do), not in credit or clock hours.
Accrediting agencies play a critical role in determining whether those programs are
eligible to participate in Federal student aid programs. With the growth of direct
assessment programs, it is vital that accrediting agencies evaluate and classify
these programs appropriately and consistently. Otherwise, the Department could
award grants and student loans to students enrolled in programs that are not eligible
to participate in Federal student aid programs. Schools might also forgo plans to
create innovative and effective competency-based education programs if they are
uncertain how an accrediting agency classifies these programs. Below you will find
the results of this audit, as well as an update on our investigations related to the
American Recovery and Reinvestment Act of 2009 (Recovery Act).

The Higher Learning Commission Could Improve Its
Evaluation of Competency-Based Education Programs to Help
the Department Ensure the Programs Are Properly Classified
for Title IV Purposes
We concluded that the Higher Learning Commission did not establish a system of
internal control that provided reasonable assurance that schools’ classifications of
delivery methods and measurements of student learning for competency-based
education programs, including direct assessment programs, were sufficient and
appropriate to help the Department ensure that the schools’ programs were
properly classified for the purposes of awarding Federal student aid authorized



                            Office of Inspector General Semiannual Report  3
under Title IV of the Higher Education Act (Title IV). Specifically, we found that the
Higher Learning Commission did not

    •	   consistently apply its standards when reviewing competency-based
         education programs, including direct assessment programs, and determ­
         ining the proposed programs’ delivery methods and measurements of
         student learning;

    •	   obtain sufficient information to determine the delivery methods and
         measurements of student learning of proposed competency-based edu­
         cation programs that it determined were not direct assessment programs;

    •	   sufficiently evaluate the credit-hour equivalencies of direct assessment
         programs; or

    •	   maintain complete records supporting its decisions regarding the credit-
         hour equivalencies of direct assessment programs.

Without an appropriate evaluation by the Higher Learning Commission of the
classification of proposed competency-based education programs, the Department
might not receive sufficient information about a school’s proposed competency-based
education programs, including direct assessment programs, to make fully informed
decisions about the Title IV eligibility of the programs. Further, because of the limits
that the Higher Education Act places on programs offered by correspondence,
weaknesses in the Higher Learning Commission’s review process that result in
schools’ misclassifying programs offered by correspondence as competency-
based education credit-hour education or direct assessment programs offered by
distance education could result in overpayments of Title IV funds to students or
disbursement of funds to students enrolled in ineligible programs. Additionally, if
the Higher Learning Commission does not properly determine the type of programs
schools are offering, it might not be able to meet all of the Department’s criteria
for recognition of accrediting agencies.

Based on our findings, we made eight recommendations, including that the
Department require the Higher Learning Commission (1) to revise its policies
and procedures for performing substantive change reviews to ensure that it
obtains sufficient information about interaction between faculty and students in
competency-based education programs, including direct assessment programs;
(2) to determine whether the interaction will be regular and substantive; if not,
classify the programs as correspondence programs; (3) develop procedures that will
ensure it consistently evaluates proposed programs, including competency-based
education programs, to determine whether they should be subject to substantive
change review or direct assessment review; and (4) revise its procedures to ensure
that it has an adequate mechanism to determine that all programs that meet the
definition of a substantive change go through the substantive change process. We
also recommended that the Department require the Higher Learning Commission
to reevaluate previously proposed programs to determine whether interaction
between faculty and students will be substantially different from the school’s prior
offerings of programs using the same delivery method. If so, determine whether
the interaction between faculty and students will be regular and substantive.
If not, classify the programs as correspondence programs. The Higher Learning
Commission generally agreed with the matters presented in the finding, and it
proposed corrective action to address all eight recommendations.




       4 of Inspector General Semiannual Report
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                                               Recovery Act Investigations
                                     Since the enactment of the Recovery Act, the OIG has initiated 226 criminal
                                     investigations of various schemes involving improper uses of Recovery Act funds.
                                     These investigations have resulted in more than 386 criminal convictions and more
                                     than $1.3 million in recoveries. Below is an example of one of our Recovery Act
                                     investigations.

                                     President and Chair of Programa Avance Sentenced
                                     (Puerto Rico)
                                     The president and chair of the Board of Programa Avance en Puerto Rico was
                                     sentenced to 5-years of probation and 600 hours of community service, and she was
                                     ordered to pay more than $754,200 in restitution and fees for theft of Government
                                     property and funds, including Recovery Act funds. From 2010 through 2012, the
                                     president stole Recovery Act and other Federal funds awarded to Programa Avance,
                                     a majority of which she spent at a resort and casino in Puerto Rico. She also failed
                                     to refund more than $13,000 to the Department for students who received Federal
                                     Pell grants but later dropped out of a school affiliated with Programa Avance.




OTHER ACTIVITIES
Participation on Committees, Work Groups, and Task Forces
Inspector General Community

   •	   Recovery Accountability and Transparency Board (Recovery Board). During this reporting
        period, Inspector General Tighe served her final months as the Chair of the Recovery Board, which
        ceased operating on September 30, 2015. 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.

   •	   Data Act Interagency Advisory Committee. Inspector General Tighe is a member of this committee that provides
        strategic direction in support of the implementation of the Digital Accountability and Transparency Act of 2014.




                                                                Office of Inspector General Semiannual Report  5
       6 of Inspector General Semiannual Report
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Goal 2
Strengthen the Department’s efforts to
improve the delivery of student financial
assistance.
       8 of Inspector General Semiannual Report
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    T  his 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
The Department disburses about $140 billion in student aid annually and manages
an outstanding loan portfolio of $1 trillion. This makes the Department 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 office
of Federal Student Aid (FSA) 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.

FSA Oversight of Schools Participating in the Title IV
Programs
Our audit of FSA’s oversight of schools participating in the Federal student aid
programs funded under Title IV of the Higher Education Act identified weaknesses in
its processes for performing program reviews in how it selects schools for program
reviews. Specifically, we found the following:

    •	   FSA did not conduct program reviews in accordance with its program
         review procedures. Specifically, FSA staff did not (1) maintain all required
         forms and documents in the program review files or always complete the
         forms, (2) always adequately document fiscal testing for timely disburs­
         ement of funds and excess cash, (3) always conduct distance education
         program reviews in accordance with FSA’s distance education program
         review procedures, and (4) determine schools’ compliance with the Direct
         Loan program quality assurance system requirement. We also found limited

                            Office of Inspector General Semiannual Report  9
         evidence that supervisors reviewed the program review files to ensure
         staff adequately completed program review procedures. Further, the time
         allotted to perform program reviews may not have been adequate.

    •	   FSA did not consider annual dropout rate data for program review selection.
         We found that FSA managers did not consider high annual dropout rates
         when prioritizing schools for program reviews as required by the Higher
         Education Act.

The Department uses the results of program reviews to calculate its annual estimates
of improper payments for the Pell grant and Direct Loan programs under the
Improper Payments Elimination and Recovery Act of 2010 (IPERA). However, because
of the extent of the deficiencies we found with the program reviews, the annual
estimates may not be valid. In May, the OIG issued the results of its statutory IPERA
review that included a finding involving the use of program reviews to calculate
improper payment rates for the Pell grant and Direct Loan programs. We summarize
our IPERA audit under Goal 4 of this report.

Lastly, although we found that FSA updated its program review quality control
process in 2013, according to the quality control reports we reviewed, managers
were not required to take corrective action on the recommendations. We concluded
that if FSA follows those procedures, it should identify deficiencies such as the lack
of documentation and supervisory review that our audit found.

We made six recommendations to help FSA improve its oversight efforts, including
that it revise its program review procedures to ensure that staff document all
work, require supervisory review of program review files, require managers to take
corrective action on recommendations made in quality control reviews, develop
steps to review a school’s compliance with the Direct Loan program quality assurance
system, and consult with the National Center for Education Statistics regarding the
feasibility of collecting and calculating annual dropout rates for schools and use
those rates as a factor in prioritizing schools for program reviews. FSA did not agree
with all of our findings or recommendations.

SOLEX College’s Administration of Selected Aspects of
Title IV Programs
Our audit sought to determine whether SOLEX College, a for-profit school with
three campuses in Illinois, disbursed Title IV funds only to eligible students enrolled
in Title IV-eligible programs. We found that the school did not do so for its two
English as a Second Language (ESL) programs. As a result, the school improperly
disbursed more than $1.79 million in Pell grant funds to 413 of the 469 students
who received Title IV funds for award years 2012–2013 and 2013–2014. According
to Federal requirements, an ESL program qualifies as an eligible Title IV program if,
in addition to satisfying all other relevant Title IV program eligibility provisions, the
school admits to the program only students whom the school determines need the
ESL instruction to use their already existing knowledge, training, or skills for gainful
employment. The school must also document its determination for each student.
SOLEX College did not meet these requirements for its two ESL programs as follows:

    •	   SOLEX College admitted students who did not need the ESL instruction
         to use their already existing knowledge, training, or skills for gainful
         employment. This included a number of students between 71 and 83 years
         of age who, according to the U.S. Department of Labor civilian workforce
         statistics, were unlikely to participate in the labor force.


      10 of Inspector General Semiannual Report
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    •	   SOLEX College did not maintain documentation sufficient to show that
         it determined that each student enrolled in its ESL programs was eligible
         for the programs. Instead, SOLEX College considered each student’s need
         for ESL instruction to be implied based on information collected from the
         student during the admissions process and the school’s acceptance of the
         student into an ESL program.

Based on the lack of sufficient documentation in SOLEX College student files, the
U.S. Department of Labor civilian workforce statistics, and our analysis, we concluded
that it was unlikely that SOLEX College admitted and disbursed Title IV funds only
to eligible students. We made six recommendations, including that FSA require
SOLEX College to return more than $1.79 million that it improperly disbursed to
413 students, cease disbursing Pell grant funds to any students enrolled in its two
ESL programs until it establishes Title IV program eligibility for those programs,
and strengthen its admission process to ensure that it establishes and maintains
Title IV program eligibility for its ESL programs. SOLEX College officials disagreed
with one finding and its recommendations and did not explicitly agree or disagree
with the other finding and recommendations.

Debt Management Collection System 2 Implementation
In 2012, we identified significant deficiencies with the Debt Management Collection
System 2 (DMCS2), FSA’s system for managing defaulted student loans. The system
was unable to accept the transfer of certain defaulted student loans from FSA’s
Title IV Servicers, leaving the entities that serviced Federal student aid loans with
more than $1.1 billion in defaulted loans that should have been transferred to the
Department for management and collection. During this reporting period, we
issued the results of our follow-up audit on whether FSA’s plan for correcting DMCS2
deficiencies provided accountability. We found that FSA could not ensure that Xerox,
the original DMCS2 contractor, delivered a fully functional system, because FSA did
not develop an adequate plan, did not ensure that Xerox met milestones, did not
hold Xerox accountable for missed milestones, and did not ensure that system fixes
were independently verified. In 2012, FSA initiated the process of terminating the
Xerox contract for default, demanding that Xerox take corrective action to address
system deficiencies. That process, however, provided limited leverage because FSA
decided not to pursue the default termination after Xerox submitted a corrective
action plan, including milestones, that FSA concluded addressed its concerns for
correcting DMCS2 deficiencies. As such, Xerox was allowed to continue to work on
DMCS, but, as our audit identified, continued to miss milestones after submitting
its corrective action plan. Our audit also found that FSA did not use required live-
cycle management processes, lacked the information technology experience to
evaluate Xerox’s work, did not use independent verification and validation, and
did not provide sufficient contract oversight to ensure that Xerox corrected DMCS2
system deficiencies.

We shared our findings with FSA during the course of the audit. FSA addressed
the findings by incorporating fixes in its contract with its new DMCS2 contractor,
Maximus, including provisions for penalties for missed milestones. FSA’s contract
with Maximus and its other corrective actions provide a methodology that, if
properly implemented, increases the likelihood that Maximus will identify and
timely correct DMCS2 system deficiencies. Although Maximus was still in the
early stages of contract implementation during our audit, we identified additional
opportunities FSA could take to help ensure the contractor addresses potential
DMCS2 weaknesses. FSA agreed with our recommendations and detailed actions
it would take to address them.

                           Office of Inspector General Semiannual Report  11
       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.

Education Affiliates, Inc. Agrees to $13 Million Settlement
(Maryland)
Education Affiliates, Inc., a for-profit education company that operates 50 institutions
of higher education throughout the United States, agreed to pay $13 million to
settle claims that it violated the False Claims Act. The settlement resolved five
lawsuits filed under the whistleblower provisions of the False Claims Act that
included allegations that employees at All State Careers, one of Education Affiliates’
schools, altered admissions test results in order to admit unqualified students to
the school, created false or fraudulent high school diplomas for them, and falsified
aid applications for Federal student aid that neither the students nor the school
were eligible to receive. These allegations also led to the criminal convictions of
two All State Careers admission representatives. The lawsuits also alleged that other
Education Affiliates-operated schools referred prospective students to “diploma
mills” to obtain invalid online high school diplomas, misrepresented graduation
rates and placement statistics, switched students into costlier programs without
their knowledge, altered student attendance records and audit records, falsely issued
grades, certified students for graduation although the students lacked necessary
clinical hours, and misrepresented students’ graduation eligibility and eligibility
for State licensure exams.

Senior Executives of Micropower Career Institute Pled Guilty,
Agree to $7.4 Million Forfeiture (New York)
Three senior executives of Micropower Career Institute, a for-profit school with
related locations in New York and New Jersey, pled guilty to fraud and agreed to
forfeit more than $7.4 million. The three fabricated student financial aid records for
the school to remain eligible to participate in the Federal student aid programs.
They also directed school employees to falsify student records in anticipation of
scheduled program reviews by FSA. The schools received nearly $20 million in Pell
grants and other Federal student aid since 2008.

Carnegie Career College Employee Sentenced for Role in
$2.3 Million Fraud Scam (Ohio)
In our last Semiannual Report, we noted that the two co-founders of Carnegie
Career College, a not-for-profit school, were sentenced to prison and ordered to pay
more than $2.3 million in restitution for orchestrating a multimillion dollar Federal
student aid scam. During this reporting period, an employee of the now-defunct
school was sentenced to 6 months in prison and 36 months of supervised release

      12 of Inspector General Semiannual Report
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and was ordered to pay $50,000 in restitution for assisting the founders in the
scam. The three defendants’ recruited students who had not earned valid high
school diplomas or their equivalents, obtained fake high school diplomas for
them, and fraudulently applied for and received financial aid on their behalf. As
a result of these actions, the school fraudulently received more than $2.3 million
in Federal student aid that the three used as their own personal slush fund for
purchasing jewelry, lingerie, cruises, and a vacation to Las Vegas.

Concordia University and HotChalk, Inc., Agree to
$1 Million Settlement (Oregon)
Concordia University and the for-profit service provider HotChalk, Inc., agreed
to pay $1 million to settle claims that HotChalk violated the incentive compen­
sation ban by paying recruiters based on the number of students they enrolled
and, with the consent of its university partners, misrepresented the availability
of scholarships available at schools.

Galen College Contract Bookkeeper Sentenced to Prison for
Theft (California)
A former contract bookkeeper at the now-defunct Galen College was sentenced
to 6 months in prison and 36 months of supervised release and was ordered to
pay more than $35,400 in restitution for theft. The former bookkeeper created
a sham business and then created and submitted phony invoices to the school
for supplies that the school never purchased or received. As a result of the fraud,
the school paid more than $85,000 to the sham company.

Former Arizona Automotive Institute Employee Sentenced
for Forgery (Arizona)
A former Arizona Automotive Institute employee was sentenced for forgery. The
former employee forged the names of more than 140 former Arizona Automotive
Institute students on Federal student aid deferment and forbearance forms.
The former employee then submitted the forms to the Department and its loan
servicing partners to obtain more than $9,600 in bonuses from the school. The
former employee was sentenced to 61/2 years in prison and was ordered to pay
more than $9,600 in restitution.

Former American Commercial College Lubbock Campus
Director Sentenced (Texas)
The former director of the American Commercial College Lubbock campus
was sentenced to 2 years of probation for making false statements. During the
course of the OIG criminal investigation of American Commercial College (which
resulted in a $2.5 million settlement by the school to settle claims that it violated
the False Claims Act, as well as prison sentences for some if its top executives
for fraud), the former Lubbock campus director created and provided an email
containing false statements to OIG criminal investigators in an attempt to mislead
the investigation.

More Actions Taken in Lone Star College Employee Fraud
Case (Texas)
In our last Semiannual Report, we shared that a former Lone Star College
employee and three of her conspirators were sentenced for their roles in a


                           Office of Inspector General Semiannual Report  13
student aid fraud scam at the school. During this reporting period, four additional
conspirators were sentenced for participating in the fraud. The former employee
accessed the school’s computer system, obtained student personally identifiable
information and student loan data, and used that information to divert student
financial aid refund checks to bank accounts under her and her conspirators’ control.
They stole more than $100,000 in Federal student aid from unwitting Lone Star
College students. The four conspirators received sentences ranging from community
supervision to 9 months in jail, and they were ordered to pay restitution ranging
from $1,700 to $4,700.




       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, 2015, the OIG has opened 152 fraud ring investigations,
secured more than 555 indictments of fraud ring participants, and recovered more
than $23.9 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. To date, this project has identified
more than $31 million in potential fraud.

Actions Taken Against Members of $2.7 Million Fraud Ring
(Illinois)
In our last Semiannual Report, we highlighted actions taken against members of a
fraud ring that sought to obtain more than $2.7 million in student aid, mortgages,
bank, and small business loans. During this reporting period, one member was
sentenced and two other ring members pled guilty for their roles in the schemes.
Between 2010 and 2012, the ring submitted at least 40 fraudulent applications
for admission to and Federal student aid from Harper College, Elgin Community
College, and Joliet Junior College. For some of the applications, the ring used stolen
identities that it obtained through credit card and mortgage fraud schemes. The
ring caused the financial aid checks to be sent to addresses they controlled and
then cashed the checks and used the proceeds for themselves and others. The
fraud ring member was sentenced to serve 6 months in prison, 6 months of home
confinement, and 18 months of supervised release and was ordered to pay more
than $133,700 in restitution.

Actions Taken Against 10 Members of $1.9 Million Fraud Ring
(Florida)
Throughout this reporting period, criminal actions were taken against 10 people
who participated in a student aid and tax refund scheme. A total of 21 people,

      14 of Inspector General Semiannual Report
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some of whom were Miami Dade Community College students, obtained Higher
One Financial Services account information for more than 1,000 students and then
used that information to file fraudulent tax refunds to the Internal Revenue Service,
directing the resulting refunds—totaling some $1.9 million—to be deposited into bank
accounts that they controlled. Six of the participants were sentenced to probation
or supervised release and were ordered to pay restitution and fines ranging from
  $20,800 to more than $72,300. Three ring participants received prison sentences
  ranging from 21 to 51 months and were ordered to pay restitution ranging from
  $7,700 to $63,000. A tenth fraud ring participant pled guilty to his role in the scam.

               Actions Taken Against Members of $1.1 Million
               Fraud Ring (Alabama)
               Four people were sentenced for their roles in a fraud ring that
              obtained more than $1.1 million in Federal student aid. The fraud
ring participants recruited people to participate in the scam, most of whom did not
possess a high school diploma or its equivalent and thus were ineligible to receive
Federal student aid. The recruits knowingly provided their personally identifiable
information to the ringleaders who enrolled them in distance education programs
at various educational institutions for the purpose of fraudulently applying for
financial aid and converting the funds to their own use. The four participants
received sentences ranging from 2 years of probation to 31 months in prison and
were ordered to pay restitution ranging from about $1,600 to more than $8,000.

Actions Taken Against Five Members of $680,000 Fraud Ring
(South Carolina)
Actions were taken against five members of a 14-person fraud ring that allegedly
targeted online courses and more than $400,000 in Federal student aid at the
University of Phoenix, Grand Canyon University, and Capella University for their
roles in the scam. From 2006 through 2010, the five ring members provided their
personally identifiable information to the fraud ringleaders and some recruited
other people to do the same. The ringleaders allegedly used the information
to apply for admissions and receive Federal student aid even though they were
ineligible to receive aid because they did not possess high school diplomas or their
equivalents and did not intend to attend classes or otherwise use the money for
educational purposes.

More Actions Taken Against Members of a $200,000 Fraud
Ring (Puerto Rico)
In our last Semiannual Report, we reported that the leader of a fraud ring that
targeted online courses and Federal student aid at InterAmerican University pled
guilty to fraud. During this reporting period, the ring leader and a coconspirator
were sentenced to prison and actions were taken against four other ring members
for their roles in the scam. The ring leader recruited people to act as straw students
and submitted false admissions and financial aid applications to the school on their
behalf; the straw students had no intention of attending classes. The ring leader
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 these actions, the ring fraudulently
obtained more than $200,000 in Federal student aid. The ringleader was sentenced
to serve 12 months in prison and 3 years of supervised release and was ordered to
pay $200,000 in restitution. A coconspirator was sentenced to 9 months in prison
and 3 years of supervised release and was ordered to pay $14,250 in restitution.
The four other ring members entered into pretrial diversions.

                            Office of Inspector General Semiannual Report  15
Leader of $130,000 Fraud Ring Pled Guilty (Michigan)
The leader of a fraud ring that targeted online classes and Federal student aid at
the University of Phoenix, Ashford University, and Capella University pled guilty to
student aid fraud. The leader recruited people to act as straw students, completed
admissions and student aid forms on their behalf, and received a portion of the
student aid once received. As a result of his fraudulent efforts, the leader received
more than $130,000.



              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.

Student Aid Fraud Charges Added in Terrorism Investigation
(Minnesota)
Seven men were indicted for conspiracy to provide material support to the Islamic
State in Iraq and Syria (ISIS). Two of them were also charged for allegedly using
                                                                                          Two men were
Federal student aid funds to do so. According to the indictment, the two allegedly
used their student aid to purchase airline tickets to travel to Turkey and Greece.        charged for allegedly
From those destinations, the two allegedly planned to travel to Syria and join ISIS.      using Federal student
                                                                                          aid funds to provide
Graduate Student Charged with Fraud in Million Dollar                                     material support to
Student Loan Scheme (New York)                                                            the Islamic State in
A graduate student was charged with student financial aid fraud and possession of         Iraq and Syria (ISIS).
false papers. From 2008 through 2013, the student allegedly submitted fraudulent
letters and bills from doctors and others falsely claiming that he required special
assistance to attend school and thereby obtain Federal student loan funds. As a
result of his fraudulent efforts, the student allegedly obtained more than $1.3 million
in Federal student aid and loans to which he was not entitled.

Woman Sentenced for Scamming Nearly $350,000 in Federal
Funds (California)
A woman was sentenced for fraud and identity theft. She submitted student financial
aid applications to Axia College and Capella University on behalf of people who
did not intend to attend the schools. She also used stolen personally identifiable
information of another person to apply for student aid. The woman was sentenced
to serve 4½ years in prison and was ordered to pay more than $347,700 in restitution

Singing Group Leader Indicted for $337,000 Fraud (Arkansas)
The leader of the singing group Pardoned Ministries was indicted on 22 counts of
fraud. The woman allegedly used the identity of a family friend to obtain 21 student
loans on behalf of herself, her daughter, son, son-in-law, and husband, most of
whom did not attend school during the period for which the loans were sought.
The funds were deposited into a bank account maintained for Pardoned Ministries
and allegedly used for purposes other than school.



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Repeat Student Aid Fraud Offender Indicted (Florida)
A man who was sentenced to prison for student aid fraud in 2004 was indicted
again in 2015 on charges of wire fraud and aggravated identity theft associated
with student aid fraud. The man allegedly used the identities of numerous people,
some without their knowledge or permission, to fraudulently apply for admission
to attend online classes and receive Federal student aid from American Public
University, Art Institute of Pittsburgh, Colorado Technical University, Full Sail
University, Grand Canyon University, Liberty University, and Westwood College. In
the previous 2004 case, the man was sentenced to 37 months in prison and was
ordered to pay more than $62,500 in restitution for stealing the identities of former
prison inmates that he used to fraudulently apply for and receive Federal student
aid at an online community college.

Man Pled Guilty in $236,000 Student Aid Fraud Scheme
(Michigan)
A man pled guilty to student aid fraud. The man used the identities of others to target
online classes and Federal student aid at Baker College, the University of Phoenix,
Colorado Technical College, and Centura College. As a result of his fraudulent efforts,
the man obtained more than $236,000 in Federal student aid.

Doctor Sentenced for Tax Fraud, Student Aid Fraud, and Social
Security Fraud (Pennsylvania)
A former medical director of the Lehigh County Prison was sentenced to 31/2 years in
prison and 3 years of probation and was ordered to pay $555,000 in restitution for
orchestrating schemes to defraud the Department, the Internal Revenue Service, and
the U.S. Department of Health and Human Services out of hundreds of thousands
of dollars and obtain financial aid grants for four of his children. Since 2001, the
doctor engaged in a series of illegal schemes designed to help him evade paying
back hundreds of thousands of dollars in outstanding medical school loans and
more than $200,000 in personal income taxes. He also lied on student financial aid
applications for his children, which enabled them to receive more than $36,000 in
Pell grants.

Woman Sentenced for Targeting at Least Six Schools in Student
Aid Fraud Scheme (Texas)
A woman was sentenced to 27 months in prison and 2 years of supervised release
and was ordered to pay $20,000 in restitution for student aid fraud. The woman
applied for admission to and received student financial aid from several schools,
including New Mexico State University, Western New Mexico University, Ashford
University, Northern New Mexico College, Coconino Community College, and Pima
County Community College, but she never intended to attend the schools or use
the funds for educational purposes.

Woman Sentenced for Stealing More Nearly $65,000 in Federal
Funds (Texas)
A woman who stole Federal funds, including Federal student aid, was sentenced to
78 months in prison and 3 years of supervised release and was ordered to pay more
than $64,800 in restitution. From 2011 through 2012, the woman stole insurance
benefits paid to her for the use of her three minor children that she converted to
her own use. She also used the identity of another person to obtain Pell grants and
other Federal funds that she converted to her own use.

                           Office of Inspector General Semiannual Report  17
Former Funeral Home Director Sentenced (Texas)
The former owner of a funeral home was sentenced to 21 months in prison
and 3 years of supervised release and was ordered to pay more than $76,400 in
restitution for fraud. From 2010 through 2013, the woman failed to disclose her
household composition and ownership of two businesses that generated income
on applications for Federal funds, including Federal student aid, to obtain funds
she was otherwise ineligible to receive.




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
    •	   Dear Colleague Letter on Citizenship and Immigration Status Documentation. The OIG provided technical
         and clarifying suggestions.

    •	   Department’s Draft Dear Colleague Letter on Repayment Agreements and Liability for Collection Costs
         on Federal Family Education Loan Program Loans. The OIG provided comments related to guaranty agencies
         to make whole borrowers who were improperly charged collection costs.

    •	   Department’s Draft Notice of Proposed Rulemaking for the Revised Pay As You Earn Repayment Plan.
         The OIG provided technical comments to improve the quality and integrity of the document.

    •	   Department’s Draft Clarifications on the Role of Accrediting Agencies in Experimental Sites Questions
         and Answers Document. The OIG provided comments based on its audit work in related areas.

    •	   Department’s Draft Final Rule for Program Integrity and Improvement Cash Management Regulations.
         The OIG provided comments to improve the quality and integrity of the document.

    •	   Department’s Draft Notice Inviting Institutions to Participate in New Institutionally Based Experiment
         Under the Experimental Sites Initiative. The OIG provided comments to improve the quality and integrity of
         the document.

    •	   Department’s Draft Competency-Based Education Experiment Reference Guide. The OIG provided comments
         based on its audit work in this area.

    •	   Department’s Draft Electronic Announcement on Eligible Career Pathway Programs—Questions and
         Answers. The OIG commented that the document should include language to remind institutions that when the
         Department determines that a career pathway program is not eligible, the school must return to the Department
         all Title IV funds the school provided to students enrolled in the ineligible career pathway program.




      18 of Inspector General Semiannual Report
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Goal 3
Protect the integrity of the Department’s
programs and operations.
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    O    ur 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
An example of our work related to this goal involves our audits of the Race to the Top
grant program. Race to the Top is a multibillion dollar discretionary grant program
authorized under the American Recovery and Reinvestment Act of 2009 (Recovery
Act). It was created to spur innovation, reforms, and outcomes in elementary and
secondary education programs. During this reporting period, we completed an audit
of the North Carolina Department of Public Instruction’s administration of its nearly
$400 million Race to the Top grant. This is the second in our series of State-specific
Race to the Top reports; we issued the first report involving the Ohio Department
of Education last year. We will share the findings from our work in additional States
once we complete those audits.

The North Carolina Department of Public Instruction’s
Administration of its Race to the Top Grant
We found that the North Carolina Department of Public Instruction could improve
its administration of its Race to the Top grant by strengthening its system of
internal control over contracting and by more closely monitoring the fiscal activity
of participating local educational agencies (LEAs) and charter schools to ensure
that they complied with all applicable Federal requirements. In its Race to the
Top grant application, North Carolina stated it would focus on seven educational
topic areas, including data systems to support instruction and great teachers and
leaders. We examined those areas to determine whether North Carolina accurately
and completely reported grant performance data, whether it spent funds only on
allowable activities and in accordance with program requirements and its approved
grant application, and whether it ensured that LEAs and charter schools receiving
Race to the Top subgrants spent the funds on allowable activities and in accordance
with program requirements. We found that North Carolina generally reported
performance data accurately and completely and that it generally spent Race to
the Top funds on allowable activities and in accordance with program requirements
and its approved grant application. We did, however, identify two weaknesses. The
first weakness involved North Carolina’s processes for approving procurements:


                           Office of Inspector General Semiannual Report  21
North Carolina paid an information technology contractor about $1.4 million of a
$2.4 million contract amendment without sufficiently documenting that employees
obtained all required approvals to make the payments. Additionally, North Carolina
did not design its review and approval processes so that they provided reasonable
assurance that employees could not bypass legal review of purchases greater than
$100,000. By not designing and implementing effective internal controls over its
contracting processes, North Carolina increased the risk that Federal funds would
be misused or not used to accomplish the goals set forth in its approved Race to
the Top grant application. The second weakness involved employee compensation:
North Carolina did not provide documentation sufficient to show that the hourly pay
rates for two employees were reasonable and as a result, may have inappropriately
charged more than $31,400 to the Race to the Top grant.

Finally, we found that North Carolina could more closely monitor LEAs and charter
schools compliance with Federal fiscal requirements as North Carolina did not
ensure that the LEA that we reviewed (Winston-Salem Forsyth County Schools) spent
Race to the Top funds only on allowable activities and in accordance with program
requirements, North Carolina’s approved grant application, and Forsyth County’s
detailed scope of work. Specifically, North Carolina did not ensure that the LEA
(1) minimized the amount of time elapsing between the receipt and disbursement
of Race to the Top funds, (2) spent more than $12,500 in Race to the Top funds only
on allowable activities, and (3) adequately documented more than $3,500 in Race
to the Top expenditures. We made six recommendations to address our findings.
North Carolina neither agreed nor disagreed with our findings but agreed with five
of our six recommendations.


          Investigations of Public
        Corruption, School Officials,
         Vendors, and Contractors
OIG investigations include criminal investigations involving bribery, embezzlement,
and other criminal activity, often involving State and local education officials,
vendors, and contractors who have abused their positions of trust for personal
gain. Examples of some of these investigations follow.

Former Plano Independent School District Texas Official and
Vendor Sentenced (Texas)
The former manager and security and fire system security support specialist for
the Plano Independent School District and the owner of Fire Systems Specialists
and Digital Security Solutions were sentenced for their roles in a conspiracy to
embezzle more than $2.5 million from the school district. Between 2004 and
December 2013, the former official, the vendor, and another conspirator 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 school 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. The former Plano Independent School District
official was sentenced to 51 months in prison and 3 years of supervised release and


      22 of Inspector General Semiannual Report
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was ordered to pay more than $2.6 million in restitution. The vendor was sentenced
to 30 months in prison and 3 years of supervised release and was ordered to pay
more than $1.2 million in restitution.

Former Hawaii Centers for Independent Living Director Pled
Guilty (Hawaii)
The former executive director of the now-defunct Hawaii Centers for Independent
Living pled guilty to theft of Federal funds. From 2012 through 2013, the former
executive director embezzled more than $153,600 which he used for personal
charges. He stole the money by using the Hawaii Centers for Independent Living
debit card for personal charges and unauthorized cash withdrawals. He also issued
reimbursement checks to himself based on false claims that he had incurred the
expenses on behalf of Hawaii Centers for Independent Living.

Former Executive Director of Open World Family Services
Sentenced (Louisiana)
The former executive director of Open World Family Services, a nonprofit organiz­
ation in New Orleans, was sentenced to 6 months of home detention and 5 years
of probation and was ordered to pay more than $149,000 in restitution for theft.
The former executive director used the Center’s 21st Century Community Learning
Center grant funds for her personal benefit rather than for educational, grant-related
purposes.

Former Westside Community Schools Comptroller Sentenced
(Nebraska)
The former comptroller and director of finance for Westside Community Schools, a
public school district located in Omaha, was sentenced to 4 years of probation and
was ordered to pay $20,000 in restitution for embezzlement. From 2004 through
2010, the former comptroller had unlimited access to the school district’s accounts
that he used to write checks to himself for cash, receive duplicate compensation
for work, and purchase more than 200 gift cards and other items for personal use.
The former comptroller created false account entries in the school’s accounting
system to cover up his crime.

Last Vendor Sentenced in Massive Corruption Scheme
Involving the Puerto Rico Department of Education
(Puerto Rico)
During this reporting period, the president of School Solutions, a vendor doing
business with the Puerto Rico Department of Education, was sentenced to 3 years
of probation and 320 hours of community service and was ordered to pay a $100
assessment fee for his role in a $7 million public corruption scheme involving the
Puerto Rico Department of Education. The vendor is the last of 13 people—including
school officials and vendors—to be sentenced for participating in the scam. From
2008 through 2010, the vendors conspired to reward Puerto Rico Department of
Education officials in exchange for their support on lucrative contracts.




                          Office of Inspector General Semiannual Report  23
Former Executives of Sports Equipment Company Sentenced
for Defrauding Schools Nationwide (New Jersey)
The former chief executive office and the former chief financial officer of Circle Systems
Group were sentenced for perpetrating a decade-long fraud scheme involving
schools in New Jersey and other States. Circle Systems Group, now known as Schutt
Reconditioning, was a sports equipment and reconditioning company that provided
services to school districts, schools, colleges, universities, and professional sports
teams nationwide. From at least 1997 through 2007, Circle Systems Group engaged
in a number of fraudulent business practices aimed at defrauding schools, such
as submitting fraudulent invoices and fake quotes to schools to increase its sales
and profits. As a result of the executive’s fraudulent actions, Circle Systems Group
retained more than $822,000 in overpayments from various schools. The former
chief executive officer was sentenced to serve 9 months of home confinement and
36 months of probation and was ordered to pay more than $1.75 million in restitution,
forfeiture, and fines. The chief financial officer was sentenced to 41 months in prison
and was ordered to pay more than $67,000 in restitution and fines.

Five School Bus Owners Indicted for Bid-Rigging and Fraud
Conspiracies (Puerto Rico)
The owners of five school bus companies were indicted for participating in bid rigging
and fraud conspiracies at an auction for public school bus transportation contracts in
Puerto Rico’s Caguas municipality. The charges relate to a 2013 Cauguas municipality
auction at which contracts totaling $3.5 million for school bus transportation were
awarded.



  Investigations of Charter Schools
We have conducted a significant amount of investigative work involving charter
schools. From January 2005 through September 30, 2015, the OIG opened 69 charter
school investigations. To date, these investigations have resulted in 44 indictments
and 34 convictions of charter school officials. The cases that have been fully settled
have resulted in more than $12.6 million in restitution, fines, forfeitures, and civil
settlements.

Former Charter School Executive Sentenced for $1.5 Million
Fraud Scheme (South Carolina)
The former executive director of the Mary L. Dinkins Higher Learning Academy
charter school was sentenced to 42 months in prison and 3 years of supervised
release and was ordered to pay more than $1.5 million in restitution and fines for
embezzlement. From 2007 through 2013, the former executive embezzled money
from the school, including Title I and Individuals with Disabilities Education Act
funds that should have been used to support the school and its students.

Former Charter School Leaders Indicted in $2.6 Million Fraud
Scheme (Texas)
The founding superintendent of the Varnett Public School and her husband, the
school’s facilities and operations manager, were indicted for allegedly bilking the
school out of millions of dollars. According to the indictment, the couple allegedly


      24 of Inspector General Semiannual Report
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                       used their positions of trust and authority to embezzle more than $2.6 million from
                       the school’s three campuses by maintaining “off the books” accounts, stealing
                       money orders submitted by parents of the school’s students for school field trips
                       and fundraisers, and deploying false invoicing schemes.




                           Investigations of Supplemental
                           Educational Services Providers
                       OIG audit work conducted over the last decade noted a lack of oversight and
                       monitoring of Supplemental Educational Services (SES) providers by State educational
                       agencies, 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.

                       Dallas-Area Tutoring Company Owners Sentenced to Prison
                       (Texas)
                       The owners of a tutoring company who previously pled guilty to bilking Texas school
                       districts out of more than $3 million were sentenced to prison for their crimes. From
The owners were        2011 through 2013, the two owners, one of whom was a former Dallas Independent
each sentenced to      School District teacher, contracted with the Dallas Independent School District, the
serve 60 months        Fort Worth Independent School District, and other school districts in Texas to provide
                       SES services through four purported tutoring companies. All of the companies
in prison and were
                       were actually one business set up to mislead the Texas Education Agency in order
ordered to pay more    to obtain more SES business than a single company could obtain from the school
than $1.6 million in   districts. The owners schemed to obtain as many student names and identifying
restitution.           information as possible, including by improperly accessing the Dallas Independent
                       School District network. They and their employees would go door-to-door with gifts
                       and prizes to induce the students to sign up for their tutoring services, regardless of
                       the student’s intent to attend. They used the student information to enroll students
                       into their program, induced students to sign attendance logs for tutoring sessions
                       they did not receive, and submitted the fraudulent documentation and bills to the
                       school districts. About $3.1 million, or 75 percent of the total amount they billed,
                       was for services that they never provided. The owners were each sentenced to serve
                       60 months in prison and were ordered to pay more than $1.6 million in restitution.

                       Owner of Sham Tutoring Company Sentenced for Fraud
                       (Georgia)
                       The owner of a sham company called A Love of Learning tutoring was sentenced
                       for fraud. The owner scammed multiple school districts in Georgia out of SES
                       funding. She falsified the financial assets and liabilities of the company, making it
                       appear as if it were thriving when, in fact, it existed only on paper. She provided a
                       false balance sheet, a false statement of net income, a program summary showing
                       a false start date for the company, and a forged letter from a fictitious financial
                       institution representing a nonexisting line of credit. The woman was sentenced
                       to serve 12 months in prison and 14 years of probation and was ordered to pay
                       more than $230,900 in restitution.




                                                  Office of Inspector General Semiannual Report  25
Former Academic Advantage Employee Sentenced (New York)
A former employee at Academic Advantage was sentenced to 5 years of probation
and community service and was ordered to pay more than $101,700 in restitution
for conspiracy and making false statements. The former employee conspired with
others to submit false attendance records to the New York City Department of
Education on behalf of Academic Advantage for tutoring services that were never
provided, enabling the company to obtain SES funds to which it was not entitled.
As reported in previous Semiannual Reports, Academic Advantage and three of its
former employees agreed to pay the Government more than $2.1 million for their
roles in the scam.

Tutoring Company, 31 Employees Indicted for Fraud (Puerto
Rico)
A Federal grand jury returned a 74-count indictment charging Rocket Learning,
a tutoring company, and 31 of its employees with conspiracy, mail fraud, theft of
Government money and property, and aggravated identity theft. The company
and the employees allegedly billed the Puerto Rico Department of Education more
than $954,000 for tutoring services that they never provided.

Woman Sentenced for Filing False SES Applications (Florida)
A woman was sentenced to 1 year of probation and was ordered to pay a $100
special assessment for fraud. The woman created and filed fraudulent documentation
on behalf of three sham tutoring companies in an effort to obtain SES funds from
Florida schools. To receive SES funding, prospective SES service providers must
provide a copy of their tax identification number, bank statements, and other
supporting documents along with their applications. The woman created and
submitted fraudulent letters and statements from the Internal Revenue Service,
banking institutions, certified public accountants, and other documentation to make
it appear that the three companies were legitimate entities eligible to participate
in after-school tutoring programs funded by Federal SES dollars.




      26 of Inspector General Semiannual Report
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OTHER ACTIVITIES
Participation on Committees, Work Groups, and Task Forces
Federal and State Law Enforcement-Related Groups

    •	   Northern Virginia Cyber Crime Working Group. The 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. The 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.

    •	   GAO Domestic Working Group. The Inspector General was asked to serve on this working group focused on
         advancing accountability in Federal, State, and local government.

Review of Legislation, Regulations, Directives, and Memoranda
    •	   SY 2012–2013 Report to Congress on the Elementary and Secondary Education Act of 1965, as Amended. The
         OIG commented that the Department should consider including a brief description of any internal data verification
         and validation techniques, in accordance with the Government Performance and Results Modernization Act of
         2010, to provide Congress with additional insight regarding the Department’s efforts to ensure the reliability of
         performance data submitted by the States.

    •	   Health and Human Services/Education Policy Statement on Inclusion of Children with Disabilities in
         Early Childhood Ed Programs. The OIG provided technical comments to improve the quality and integrity of
         the document.

    •	   Dear Colleague Letter on Transgender Students’ Rights under Title IX (To be Issued by the Department’s
         Office for Civil Rights and the Department of Justice Civil Rights Division). The OIG commented that, given
         the considerable discussion regarding the Family Educational Rights and Privacy Act, the Department should
         reference its Family Policy Compliance Office and/or Privacy Technical Assistance Center as resources for parents
         and eligible students who need assistance or who wish to file a complaint under the Family Educational Rights
         and Privacy Act.

    •	   Dear Colleague Letter to State Education Agencies to Remind Them (Current and Prospective Charter
         Schools Program Grantees) of Responsibilities Related to Fiscal Monitoring of Federal Funds. The OIG
         commented that it is important to highlight Section 303 of the Uniform Grant Guidance regarding internal
         controls because it is the foundation for avoiding many of the issues that we have found with charter schools and
         other programs and sends the message that, without effective controls, entities run the risk of serious program
         performance and compliance issues.

    •	   2015 National Education Technology Plan. The OIG commented that the Department should consider adding
         links to Institute of Education Sciences resources and the Privacy Technical Assistance Center. The Department
         should also consider adding information regarding secure data system requirements.




                                                                Office of Inspector General Semiannual Report  27
      28 of Inspector General Semiannual Report
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Goal 4
Contribute to improvements in
Department business operations.
      30 of Inspector General Semiannual Report
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    E  ffective 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 four reports 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. We
also issued the first reports in a series of audits we are conducting to evaluate the
effectiveness of the Department in ensuring that external auditees implement
corrective actions made in OIG audit reports. We intend to issue an overall report
as well as Department office-specific reports, three of which we issued during this
reporting period. Summaries of the completed work in this series follow.

Compliance With the Improper Payments Elimination and
Recovery Act for FY 2014
We found that the Department did not comply with IPERA for FY 2014 because it
reported an improper payment rate that did not meet its reduction target for the
Direct Loan program; its improper payment estimates and estimation methodologies
were inaccurate, incomplete, and unreliable; and its improper payment reporting
was incomplete. Specifically, we found the following.

    •	   The Department established a FY 2014 reduction target of 1.03 percent
         for the Direct Loan program and reported that the estimated improper
         payment rate was 1.50 percent for FY2014. Because the reported estimated
         improper payment rate for FY 2014 was higher than the reduction target
         for FY 2014, the Department failed to meet one of IPERA’s six compliance
         requirements. The Department complied with the other five requirements.

    •	   The Department’s improper payment estimates and estimation methodologies
         for both the Pell grant and Direct Loan programs were inaccurate, incomplete,
         and unreliable, and the estimates deviated from the Office of Management
         and Budget (OMB)-approved methodologies in effect at the time the


                           Office of Inspector General Semiannual Report  31
         Department’s Agency Financial Report was issued. Further, and as we
         noted in previous IPERA reviews, the estimation methodologies based on
         program reviews for the Pell grant and Direct Loan programs were flawed
         because they excluded other sources of improper payments. Although
         OMB approved the Department’s current estimation methodology, our
         concern that improper payment estimates may be understated by using
         program reviews as the sole source of information to estimate improper
         payments continues to exist.

    •	   The Department’s supporting documentation for its reported improper
         payment estimates for the Pell grant and Direct Loan programs contained
         data transcription errors, data integrity errors, and significant formula errors
         and omissions.

    •	   The Department’s Agency Financial Report and its “FY 2014 Improper
         Payment Estimation Methodologies” were incomplete. The Department
         did not provide statistical sampling details for the Pell grant program
         and did not report amounts of improper payments associated with each
         category of root cause.

To address the weaknesses identified, we made 10 recommendations, including
that the Department analyze the program review reports that identified improper
payments for root causes and evaluate FSA’s existing corrective actions to determine
whether additional corrective actions can be implemented, intensified, or expanded
to reduce or prevent improper payments in any program that fails to meet its
reduction target; that it recalculate the FY 2014 improper payment estimates for the
Direct Loan and Pell grant programs in accordance with the Office of Management
and Budget (OMB)-approved methodologies and correct all the data, calculation,
and estimation methodology errors; that it revise the estimation methodologies
to include improper payments that are not identified in program reviews; and in
its annual reporting on improper payments, provide sufficient details as to the
samples used in calculating the estimated improper payment rates and include
the error amounts when reporting on the root causes of improper payments. The
Department agreed or partially agreed with our findings and our recommendations.

Followup Process for External Audits in Department Offices
We issued the first three reports in a series of audits we are conducting to evaluate
the effectiveness of the Department to ensure that external auditees implement
corrective actions made in OIG audit reports. This is an important issue as not
ensuring that auditees quickly take corrective actions allows identified deficiencies
to continue to exist, and the risk remains that auditees will not effectively manage
related programs and use funds as intended. Below are summaries of the three
reports.

Federal Student Aid
We found that FSA’s audit follow-up process was not always effective and it had
not sufficiently implemented the corrective actions it reported taking in response
to the recommendations made in our 2004 audit of FSA’s external audit follow-up
process. Specifically, we found that FSA did not close audits timely and did not
adequately maintain documentation of audit follow-up activities. From October
1, 2008, through September 30, 2013, FSA had resolved (meaning the Department
and OIG agreed on actions to be taken on reported findings or recommendations)
36 external OIG audit reports, but only 1 audit had been closed (meaning the

      32 of Inspector General Semiannual Report
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agreed-on corrective action has been completed, which the Department determines).
As of March 2014, 25 (69 percent) of these 36 audits had been in resolved status
for more than 2 years; 9 (36 percent) of the 25 audits had been in resolved status
for over 4 years. The total of the monetary recommendations associated with the
36 resolved audits was more than $1.3 billion. We also found that FSA did not
adequately maintain and was not always able to provide documentation that
showed auditees completed requested corrective actions or were that FSA was
monitoring them for completion. We reviewed audit follow-up activities for a
judgmental sample of 10 out of the 36 external OIG audits of FSA programs in our
review. Of the 10 audits in our sample, 1 had been closed prior to our audit, and
6 were closed after we started our fieldwork. For these 7 audits, FSA determined
that 26 recommendations required corrective actions, to include $20.1 million in
monetary corrective actions. FSA was ultimately unable to provide support that
the auditees took corrective action 9 (43 percent) of these recommendations, to
include more than $503,900 in monetary corrective actions. Additionally, for two
of the three audits that were not yet closed, FSA did not provide documentation to
support that it performed any follow-up activities since the audits were resolved.
These audits were resolved between August 2010 and March 2011. By not obtaining
or maintaining appropriate documentation to show auditees completed requested
corrective actions, FSA did not have assurance that auditees corrected identified
deficiencies. As such, the risk remains that auditees were not effectively managing
related programs and using funds as intended. We made five recommendations
to address the weaknesses identified, including that the Department ensure that
its staff are following up with auditees until all appropriate corrective actions have
been taken and that audits are being closed timely. FSA stated that it disagreed in
part with the finding but agreed with the recommendations and noted significant
actions that it has taken or plans to undertake to address them.

Office of the Chief Financial Officer
We found that the Office of the Chief Financial Officer (OCFO) audit follow-up process
was not always effective. Specifically, we found that OCFO did not close audits
timely and did not adequately maintain documentation of audit follow-up activities.
From October 1, 2008, through September 30, 2013, OCFO closed 29 external OIG
audits. Of those 29 closed audits, 18 (62 percent) were closed more than 2 years
after resolution; 10 (34 percent) were closed more than 5 years after resolution; and
5 audits (17 percent) were not closed for more than 7 years after resolution. The total
of the monetary recommendations associated with the 29 audits was $57,320,188.
Further, we found that OCFO did not always adequately maintain document­ation
of audit follow-up activities, including not maintaining supporting documentation
of corrective actions in the official audit file and documentation that supported that
auditees completed requested corrective actions prior to audit closure. We reviewed
audit followup activities for a nonstatistical sample of four external OIG audits of
OCFO programs. For these 4 audits, OCFO determined that 15 recommendations
required corrective actions, to include $1.1 million in monetary corrective actions.
OCFO was unable to provide support that the auditees took corrective action for
7 (47 percent) of the 15 recommendations, to include support documenting the
amount of and rationale for a reduction of an established liability. To address the
weaknesses identified, we recommended that staff obtain and maintain adequate
documentation to support completion of corrective actions and audit follow-up
activities. We also recommended that OCFO ensure that staff are following up with
auditees until auditees have taken all appropriate corrective actions and that audits
are being closed timely. OCFO officials agreed with our finding and recommendations.


                           Office of Inspector General Semiannual Report  33
Office of Special Education and Rehabilitative Services
We found that the Office of Special Education and Rehabilitative Services (OSERS)
audit follow-up process was not always effective. Specifically, we found that although
OSERS adequately maintained documentation of audit follow-up activities for the
audits included in our review, it did not close audits timely. From October 1, 2008,
through September 30, 2013, OSERS closed 14 external OIG audits; 11 (79 percent)
were closed more than 2 years after resolution, and 2 (14 percent) were closed more
than 5 years after resolution. The total of the monetary recommendations associated
with the 14 audits was $356,490,506. Not ensuring that corrective actions are taken
as quickly as possible allows identified deficiencies to continue to exist. As such,
the risk remains that related programs are not effectively managed and funds are
not being used as intended. We recommended that OSERS ensure that audits are
being closed timely once the auditees have taken all appropriate actions. OSERS
agreed with the recommendation and described actions it had taken to improve
the timeliness of its audit resolution process, as well as actions the Department
planned to facilitate the timely closure of OIG audits.




        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, OMB 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.” OMB’s “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 that the OIG issues. 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 20 quality control reviews of
engagements conducted by 20 different IPAs or offices of firms with multiple offices.
We concluded that 5 (25 percent) were acceptable or acceptable with minor issues,
12 (60 percent) were technically deficient and 3 (15 percent) were unacceptable.




      34 of Inspector General Semiannual Report
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OTHER ACTIVITIES
Participation on Committees, Work Groups, and Task Forces
Department

    •	   Department of Education Senior Assessment Team. The 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.
         The 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. The 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. 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 serve as chair of the Council of Counsels to the Inspectors General and vice chair of the CIGIE
         Data Analytics Working Group of the Information Technology Committee. OIG staff are also 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, 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.

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 served as the Federal
         representative for the National Forum, served as vice chair of the Southwestern Forum, and served as officers of
         the Southeastern Forum, the Southwestern Forum, and the New York/New Jersey Forum.




                                                                  Office of Inspector General Semiannual Report  35
   •	   Interagency Working Group for Certification and Accreditation. The 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. The OIG participates in this group that shares best practices
        in data mining and evaluates data mining and risk modeling tools and techniques that detect patterns indicating
        possible fraud and emerging risks.

Reviews of Legislation, Regulations, Directives, and Memorandum
   •	   Appendix III, Security of Federal Information Resources, to OMB Circular No. A-130, Management of
        Federal Information Resources. The OIG provided technical feedback regarding its concern about requiring
        OIGs reviewing agency privacy programs as part of our FISMA work.

   •	   S. 579, Inspector General Empowerment Act of 2015. The OIG provided comments to CIGIE related to inspector
        general independence. suggesting that “general supervision” by head of agency over the IG be replaced with
        “minimal supervision,” supporting the exemption of IGs from the requirements of the Computer Matching Act
        and Paperwork Reduction Act to help facilitate and expedite IG audits and investigations; supporting testimonial
        subpoena authority for IGs without limiting subpoena recipients; and providing comments regarding new IG
        reporting requirements to Congress.

   •	   H.R. 2395, Inspector General Empowerment Act of 2015. The OIG provided comments that Attorney General
        review of IG testimonial subpoena requests would be cumbersome and would delay the issuance of subpoenas,
        that a CIGIE panel would be sufficient to ensure that testimonial subpoenas are appropriate in a given case, and
        that recipients of subpoenas should not be limited as long as the subpoena is necessary in the performance of
        the functions assigned to IGs by the IG Act.

   •	   Department Directive, External Breach Notification Policy and Plan. The OIG made technical comments.

   •	   Fraud Reduction and Data Analytics Act of 2015. The OIG, on behalf of the CIGIE Information Technonlogy
        Committee, provided comments that the bill duplicates existing obligations to conduct risk assessments and
        establish internal controls; is unclear as to who conducts antifraud activities (agency management or OIGs);
        raises an IG independence issue of agencies collecting and analyzing data possibly from OIG hotlines; and raises
        privacy, IG independence, security, and funding concerns regarding the creation of a Federal interagency library
        of data analytics and data sets.

   •	   FedRAMP Third Party Assessment Organizations (3PAO) Accreditation Requirements. The OIG, on behalf
        of the CIGIE Information Technology Committee, suggested a requirement be added to permit Government
        officials, including OIGs, access to any information of a 3PAO or its subcontractor and a requirement that any 3PAO
        assessments comply with Government Auditing Standards. These requirements would enable OIGs to rely on
        3PAO assessments and incorporate them into OIG audits, including FISMA audits, thereby reducing duplication
        of effort by the 3PAO and the OIG.




      36 of Inspector General Semiannual Report
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Annexes and
Required Tables
     Annex A. Contract-Related Audit Products with
                 Significant Findings
We are providing the following in accordance with Section 845 of the National Defense Authorization Act for Fiscal Year 2008
(Public Law No. 110-181), which requires each Inspector General to include information in its Semiannual Reports to Congress
on final contract-related audit reports that contain significant findings.

We did not issue any contract-related audit products with significant findings during this reporting period.




                            Annex B. Peer Review Results
We are providing the following in accordance with Section 989C of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Public Law No. 111-203), which requires Inspectors General to disclose the results of its peer reviews in its Semiannual Reports
to Congress.

During this reporting period, the Environmental Protection Agency Office of Inspector General, Office of Investigations
concluded an external assessment review of our investigative operations. The assessment found that our internal safeguards
and management procedures for our investigative function were in compliance with the quality standards established by
CIGIE and the applicable Attorney General guidelines. These safeguards and procedures provide reasonable assurance
that the OIG conforms to professional standards in the planning, execution, and reporting of our investigations.




      38 of Inspector General Semiannual Report
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   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
IG Act		         Inspector General Act of 1978
OCFO		           Office of the Chief Financial Officer
OCIO		           Office of the Chief Information Officer
OESE		           Office of Elementary and Secondary Education
OII		            Office of Innovation and Improvement
OPE		            Office of Postsecondary Education
OSERS		          Office of Special Education and Rehabilitative Services
PDL		            Program Determination Letter
Recs		           Recommendations

Definitions
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 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.
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.

                           Office of Inspector General Semiannual Report  39
      40 of Inspector General Semiannual Report
40  Office
           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

                      Uncompleted Corrective Actions                                                                   1

5(a)(3)               Significant Recommendations Described in Previous Semiannual Reports
                      to Congress on Which Corrective Action Has Not Been Completed
                      (April1, 2015, Through September 30, 2015)

                      Matters Referred to Prosecutive Authorities                                                      6
5(a)(4)
                      Statistical Profile for FY 2015 (October 1, 2014, Through September 30, 2015)

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

                      Listing of Reports                                                                               2
5(a)(6)               Audit and Other Reports on Department Programs and Activities
                      (April 1, 2015, Through September 30, 2015)

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

                      Questioned Costs                                                                                 3
5(a)(8)
                      Audit and Other Reports With Questioned or Unsupported Costs

                      Better Use of Funds                                                                              4
5(a)(9)
                      Audit and Other Reports With Recommendations for Better Use of Funds

                      Unresolved Reports
                      Unresolved Audit and Other Reports Issued Before April 1, 2015                                  5-A
5(a)(10)
                      Summary of Audit and Other Reports Issued During the Previous Reporting Period Where
                      Management Decision Has Not Yet Been Made                                                       5-B

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

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

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




                                                                         Office of Inspector General Semiannual Report  41
           Table 1. Significant Recommendations Described in Previous
        Semiannual Reports to Congress on Which Corrective Action Has Not
           Been Completed (April 1, 2015, Through September 30, 2015)
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.

                                                                                    Number
                                                                                                 Number of
                                                                        Date of        of                      Projected
          Report Type and     Report Title (PriorSAR        Date                                 Significant
 Office                                                               Management   Significant                  Action
             Number            Number and Page)            Issued                                   Recs
                                                                       Decision       Recs                       Date
                                                                                                 Completed
                                                                                     Open

 FSA      Audit A06M0012    Handling of Borrow             7/11/14      9/9/14         4             7          3/31/16
          New               Complaints Against Private
                            Collection Agencies
                            (SAR 69, page 45)

 OCIO     Audit A11N0001    The U.S. Department of         11/13/13     1/16/14        1             19        10/30/15
                            Education’s Compliance
                            with the Federal Information
                            Security Management Act
                            of 2002 for Fiscal Year 2013
                            (SAR 68, page 43)

 OCIO     Audit A11L0003    The U.S. Department of         10/18/11     1/3/12         1             17         1/29/16
                            Education’s Compliance
                            with the Federal Information
                            Security Management Act
                            for Fiscal Year 2011 (FSA is
                            also designated as an action
                            official) (SAR 64, page 36)

 OESE     Audit A07M0001    The U. S. Department of        3/31/14      9/25/14        5             4          9/30/16
          New               Education’s and Five State
                            Educational Agencies’
                            Systems of Internal Control
                            Over Statewide Test Results
                            (Report is addressed to
                            the Deputy Secretary)
                            (SAR 68, page 44)

 OII      Audit A02L0002    The Office of Innovation       9/25/12      6/26/14        3             4          9/30/14
          New               and Improvement’s
                            Oversight and Monitoring
                            of the Charter Schools
                            Program’s Planning and
                            Implementation Grants
                            (SAR 65, page 40)

 OSERS    Audit A19M0004    Payback Provisions of          4/25/14      6/3/14         2             13         9/30/16
          New               the Rehabilitation Long-
                            Term Training Program
                            (SAR 69, page 46)




      42 of Inspector General Semiannual Report
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               Table 2. Audit and Other Reports on Department Programs and
                   Activities (April 1, 2015, Through September 30, 2015)

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

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

    FSA         Audit          Federal Student Aid’s Oversight of     9/29/15             -                  -           6
                A03L0001       Schools Participating in the Title
                               IV Programs

    FSA         Audit          Review of Debt Management              8/24/15             -                  -           4
                A04N0004       Collection System 2 (DMCS2)
                               Implementation

    FSA         Audit          SOLEX College’s Administration         9/30/15         $1,795,500             -           6
                A05O0007       of Selected Aspects of the Title IV
                               Programs

    FSA         Audit          Audit of the Followup Process for      6/17/15             -                  -           5
                A19P0001       External Audits in Federal Student
                               Aid

    OCFO        Audit          The U.S. Department of                 5/15/15             -                  -          10
                A03P0003       Education’s Compliance with
                               Improper Payment Reporting
                               Requirements for Fiscal Year 2014
                               (FSA is also designated as an
                               action official)

    OCFO        Audit          The North Carolina Department of       7/13/15          $47,5081           $34,976        6
                A05O0005       Public Instruction’s Administration
                               of its Race to the Top Grant (OESE
                               is also designated as an action
                               official)

    OCFO        Audit          Audit of the Followup Process for      9/28/15             -                  -           2
                A19P0004       External Audits in the Office of the
                               Chief Financial Officer

    OPE         Audit          The Higher Learning Commission         9/30/15             -                  -           8
                A05O0010       Could Improve Its Evaluation of
                               Competency-Based Education
                               Programs to Help the Department
                               Ensure the Programs Are Properly
                               Classified for Title IV Purposes

    OSERS       Audit          Audit of the Followup Process          9/22/15             -                  -           1
                A19P0003       for External Audits in the
                               Office of Special Education and
                               Rehabilitative Services

    Total                                                                            $1,843,008           $34,976       48




1
   Audit Report A05O0005 total questioned costs includes $12,532 in questioned costs and $34,976 in unsupported
costs.



                                                                        Office of Inspector General Semiannual Report  43
                                    Table 3. Audit and Other 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 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                                            Unsupported Costs
                                                                       (Includes Unsupported Costs)

 A. For which no management decision has been made           10                 $65,536,783                     $18,145,092
    before the commencement of the reporting period

 B. Which were issued during the reporting period            2                  $1,843,008                        $34,976
       Subtotals (A + B)                                     12                 $67,379,791                     $18,180,068

 C. For which a management decision was made during
    the reporting period                                     3                  $18,232,551                     $18,145,092
       (i) Dollar value of disallowed costs                                     $16,386,651                     $16,299,192
       (ii) Dollar value of costs not disallowed                                 $1,845,900                     $1,845,900

 D. For which no management decision was made by             9                  $49,147,240                       $34,976
    the end of the reporting period




      44 of Inspector General Semiannual Report
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                                Table 4. Audit and Other 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 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 insection or evaluation reports identifying better use of funds during this reporting period.

                               Requirement                                        Number                     Dollar Value

 A. For which no management decision was made before the                              0                           $0
    commencement of the reporting period

 B. Which were issued during the reporting period                                     0                           $0
       Subtotals (A + B)                                                              0                           $0

 C. For which a management decision was made during the reporting period:
       Dollar value of recommendations that management agreed to                      0                           $0
       Dollar value of recommendations that management did not agreed to              0                           $0

 D. For which no management decision has been made by the end of the                  0                           $0
    reporting period




                                                                       Office of Inspector General Semiannual Report  45
             Table 5A. Unresolved Audit Reports Issued Before April 1, 2015


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. No reports are
new since the last reporting period.

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

 FSA           Audit           Review of Student Enrollment and Professional             9/23/04       $2,458,347        7
               A04E0001        Judgment Actions at Tennessee Technology Center
                               at Morristown (SAR 49, page 14)
                               Current Status: FSA informed us that this audit is
                               currently under review.

 FSA           Audit           Audit of Saint Louis University’s Use of Professional     2/10/05       $1,458,584        6
               A06D0018        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 the draft audit
                               determination/PDL is currently under review.

 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 of       3/29/12      $42,362,291       19
               A05K0012        the Title IV Programs (SAR 64, page 36)
                               Current Status: FSA informed us that the draft audit
                               determination/PDL is currently under review.

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

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

 Total	                                                                                               $47,304,232       84




      46 of Inspector General Semiannual Report
46  Office
                         Table 5B. Summaries of Audit and Other 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 report issued before the commencement of the reporting
period for which no management decision has been made by the end of the reporting period. These are the narratives for new
entries. Details on previously issued reports can be found in Table 5-A of this Semiannual Report.

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


 Nothing to report. Audit and other reports issued during the previous reporting period have been resolved.




                                                                           Office of Inspector General Semiannual Report  47
                                  Table 6. Statistical Profile for FY 2015
                             (October 1, 2014, Through September 30, 2015)


                                                            October 1, 2014–       April 1, 2015–
                         Accomplishment                                                                    FY 2015 Total
                                                             March 31, 2015     September 30, 2015

 Audit Reports Issued                                                      9                          9                18

 Inspection Reports Issued                                                 0                          0                    0

 Questioned Costs (Including Unsupported Costs)                           $0                $1,843,008         $1,843,008

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

 Other Products Issued                                                     3                          0                    3

 Reports Resolved By Program Managers                                     10                          9                19

 Questioned Costs (Including Unsupported Costs) Sustained           $736,582               $16,386,651         $17,123,233

 Unsupported Costs Sustained                                        $373,643               $16,299,192        $16,672,835

 Additional Disallowances Identified by Program Managers             $80,230                   $5,504             $85,734

 Management Commitment to the Better Use of Funds                         $0                         $0                $0

 Investigative Cases Opened                                               47                         40                87

 Investigative Cases Closed                                               35                          74              109

 Cases Active at the End of the Reporting Period                         305                         276              276

 Prosecutorial Decisions Accepted                                         33                         84               117

 Prosecutorial Decisions Declined                                         62                         47               109

 Indictments/Informations                                                 72                         97               169

 Convictions/Pleas                                                        46                          74              120

 Fines Ordered                                                     $1,347,199                $169,598           $1,516,797

 Restitution Payments Ordered                                      $9,389,034              $11,823,219         $21,212,253

 Civil Settlements/Judgments (number)                                     17                          7                24

 Civil Settlements/Judgments (amount)                              $1,662,946              $14,698,226         $16,361,172

 Recoveries                                                               $0                $2,133,198          $2,133,198

 Forfeitures/Seizures                                              $3,308,132               $8,795,837         $12,103,969

 Estimated Savings                                                $38,336,812              $12,357,302         $50,694,114

 Suspensions Referred to Department                                       17                          11               28

 Debarments Referred to Department                                        36                          18               54

 Debarments Imposed by OIG                                                 0                          0                    0




      48 of Inspector General Semiannual Report
48  Office
Acronyms and Abbreviations

CIGIE			           Council of Inspectors General on Integrity and Efficiency

Department		       U.S. Department of Education

ESL			             English as a Second Language

FISMA			           Federal Information Security Management Act of 2002

FSA			             Federal Student Aid

FY			Fiscal Year

IPERA			           Improper Payments Elimination and Recovery Act

LEA			             Local Educational Agency

OIG			             Office of Inspector General

OPE			             Office of Postsecondary Education

Recovery Act		     American Recovery and Reinvestment Act of 2009

Recovery Board		   Recovery Accountability and Transparency Board

SEA			             State Educational Agency

SES			             Supplemental Educational Services

Title IV			        Higher Education Act of 1965, Title IV




                    Office of Inspector General Semiannual Report  49
      50 of Inspector General Semiannual Report
50  Office
FY 2016 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 2016.

   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 2016 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.

Call Toll-Free:

        Inspector General Hotline
        1-800-MISUSED
        (1-800-647-8733)

        Inspector General Hotline
        U.S. Department of Education
        Office of Inspector General
        400 Maryland Ave., S.W.
        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